Kendall Builders, Inc. v. Chesson

In Kendall Builders, Inc. v. Chesson, 149 S.W.3d 796 (Tex. App.--Austin 2004, pet. denied), two homeowners became dissatisfied with the contractor remodeling their home and terminated the contract. 149 S.W.3d at 800-01. The contractor, Kendall, sought payment for work completed. The homeowners disputed the claim, and Kendall placed liens on the property. Id. at 801. The parties submitted their dispute to arbitration and selected a neutral arbitrator from a AAA-approved list. The arbitrator held a hearing spanning three days. During a break, the arbitrator mentioned to one homeowner that he had bought stock at seven or eight dollars a share from Vignette, the company who employed the homeowner, and then asked whether the stock was "ever going to go up." Id. Neither the other homeowner nor their lawyer was present during the exchange. The homeowner involved in the conversation with the arbitrator told the other homeowner about it a couple of days later. Id. The arbitrator ultimately ruled in favor of the contractor. After the unfavorable award, the homeowners mentioned the earlier exchange to their lawyer. The lawyer took the deposition of the arbitrator and learned the arbitrator had lost more than $5,000 due to a decrease in Vignette stock price, about a one-percent decrease in the arbitrator's net worth. Id. After learning this information, the homeowners filed an application to vacate the arbitration award based on evident partiality. Id. After conducting a hearing, the trial court vacated the award, finding the arbitrator's failure to disclose his stock losses in the homeowner's employer's company constituted "evident partiality" and the homeowners did not waive their right to complain. Id. at 802. Kendall appealed. The Austin court analyzed the law regarding waiver in evident partiality complaints in arbitrations. Id. at 804-05. Applying that law to the facts of the case, the court of appeals concluded the homeowners waived their complaint: "Having elected to proceed with arbitration in the face of their knowledge of the arbitrator's losses in Vignette stock, the homeowners cannot now complain of the outcome." Id. at 806.