NOT DESIGNATED FOR PUBLICATION CITYWIDE TESTING AND INSPECTION INC. NO CA-0018 COURT OF APPEAL VERSUS SHAW ENVIRONMENTAL INC.

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1 NOT DESIGNATED FOR PUBLICATION CITYWIDE TESTING AND INSPECTION INC. VERSUS SHAW ENVIRONMENTAL INC. * * * * NO CA-0018 COURT OF APPEAL FOURTH CIRCUIT STATE OF LOUISIANA * * * * * * * APPEAL FROM CIVIL DISTRICT COURT, ORLEANS PARISH NO , DIVISION C Honorable Sidney H. Cates, Judge * * * * * * Judge Dennis R. Bagneris, Sr. * * * * * * (Court composed of Judge Dennis R. Bagneris, Sr., Judge Max N. Tobias, Jr., Judge Madeleine M. Landrieu) Robert G. Harvey, Sr. Justin Zitler LAW OFFICE OF ROBERT G. HARVEY, SR., APLC 600 North Carrollton Avenue New Orleans, LA COUNSEL FOR PLAINTIFF/APPELLEE, CITYWIDE TESTING AND INSPECTION, INC. M. David Kurtz Karen Kaler Whitfield Brian M. Ballay BAKER DONELSON BEARMAN CALDWELL & BERKOWITZ, PC 201 St. Charles Avenue Suite 3600 New Orleans, LA COUNSEL FOR DEFENDANT/APPELLANT, SHAW ENVIRONMENTAL, INC. MAY 23, 2012 AFFIRMED

2 The defendant/appellant, Shaw Environmental Inc., appeals the judgment of the trial court that granted the Motion To Vacate Arbitration of plaintiff/appellee, Citywide Testing and Inspection, Inc. Shaw contends that the plaintiff did not have grounds to vacate the arbitration award and that Citywide waived its right to challenge the appointment of the arbitrator. Because we find that the trial court did not err in granting the Motion To Vacate Arbitration, the judgment is affirmed. FACTS AND PROCEDURAL HISTORY This case arises out of a lawsuit filed by Citywide against Shaw claiming it was owed approximately a million dollars on an open account arising out of work to stabilize municipal structures owned by the City of New Orleans. Shaw invoked the arbitration clause in accordance with the subcontract between the two. The trial court referred the matter to arbitration and stayed the litigation pending resolution of the arbitration proceeding. The matter was brought for hearing before the arbitrator, Michael Tudor, on March 22-23, 2011 and June 14-15, The arbitration took place at the offices 1

3 of Shaw s defense counsel, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. On June 14, 2011, during a break in the proceedings, Mr. Tudor encountered Donna Fraiche, one of the partners in the firm. Ms. Fraiche asked if he knew Susan Tudor. He replied that she was his wife. Ms. Fraiche advised that she knew Susan Tudor from her work with the CHRISTUS Catholic Health System, a client of Baker Donelson. Mr. Tudor discussed this encounter with the parties. He represented that he had sent a letter to the American Arbitration Association (AAA) that disclosed that his wife worked for CHRISTUS during his appointment process. Both parties represented that they did not receive this disclosure letter from the AAA. Citywide s counsel questioned Mr. Tudor about the relationship between Baker Donelson and his wife. Thereafter, the arbitration continued. The next day, June 15, 2011, Citywide s counsel posed additional questions for the arbitrator because his client had not been present at the initial disclosure. Mr. Tudor stated that his wife was a vice-president of business development and marketing with CHRISTUS and that she had coordinated with Baker Donelson s partner, Donna Fraiche, as a resource person on health care issues. The parties then resumed the presentation of testimony and evidence and the hearing was subsequently concluded. On June 16, 2011, s commenced from Citywide s counsel to the AAA requesting more information on the disclosure letter and any communication from Shaw s counsel relative to the disclosure letter. On June 22, 2011, prior to any 2

4 decision by the arbitrator, Citywide notified the AAA of its formal objection to the arbitration proceedings through its Motion To Vacate Arbitration that was filed in the Civil District Court, Parish of Orleans. The motion argued that Citywide s right to object to the arbitrator s appointment was prejudiced by the AAA s and/or Shaw s failure to timely disclose the relationship between the arbitrator s wife and the law firm of the defendant. Citywide averred that it filed the motion before the award was rendered to avoid the appearance that it sought to substitute the judgment of the trial court for the judgment of the arbitrator. Shaw s opposition contended that the motion was premature because an award had not been made and that there was no evidence of misconduct on the part of the arbitrator. After hearing argument, the trial court granted Citywide s oral Motion to Lift Stay and determined that the arbitration proceedings were tainted with the appearance of impropriety. Accordingly, it granted Citywide s Motion to Vacate Arbitration. The parties were ordered back to a new arbitration proceeding before a new arbitrator and the proceedings were stayed pending that process. The day after the judgment was rendered, the AAA released the arbitrator s award. The award granted Citywide $90,000 plus $12, in fees, together with judicial interest. Shaw filed a Motion For New Trial/Reconsideration And To Confirm Arbitration Award to bring this new evidence to the attention of the trial court. The motion was denied and this appeal ensued. 3

5 STANDARD OF REVIEW The standard of review of arbitration procedures is whether a party to an arbitration proceeding has been denied a fundamentally fair hearing. In re Arbitration Between U.S. Turnkey Exploration, Inc. and PSI, Inc., 577 So.2d 1131, 1135 (La. App. 1 Cir. 1991), writ denied, 580 So.2d 676 (La. 1991). The appellate court s function is to determine if the arbitration proceedings have been fundamentally fair. Montelepre v. Waring Architects, , , p. 5 (La. App. 4 Cir. 5/16/01), 787 So.2d 1127, Although arbitration proceedings are not held to the same strict rules as are the courts, nonetheless, an arbitrator must be vigilant in affording due process requirements. Id. DISCUSSION The principal issue before this court is whether or not the requisite grounds existed under La. R.S. 9:4210 to vacate the arbitration proceedings. award: La. R.S. 9:4210 provides the following grounds to vacate an arbitration A. Where the award was procured by corruption, fraud, or undue means. B. Where there was evident partiality or corruption on the part of the arbitrators or any of them. C. Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy, or of any other misbehavior by which the rights of any party have been prejudiced. D. Where the arbitrators exceeded their powers or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 4

6 Shaw argues in its first two assignments of error that none of these grounds were met to support the judgment to vacate. It alleges that the mere fact that the arbitrator s spouse was an employee of a client of its defense firm did not demonstrate evident partiality on the part of the arbitrator. In support, it cites the $102, Mr. Tudor awarded Citywide as evidence that Mr. Tudor was not improperly partial to Shaw. Shaw also suggests that Citywide offered no proof that Mr. Tudor engaged in any misconduct during the hearing or that Shaw was guilty of any misconduct, misbehavior, or employed undue means to secure the arbitration award. As evidence that Shaw did not engage in any misconduct, Shaw emphasizes that its defense counsel also did not receive Mr. Tudor s disclosure letter that advised of his wife s employment with CHRISTUS. Shaw cites a line of cases, such as Firmin v. Garber, 353 So.2d 975 (La. 1977), that has narrowly construed the statutory grounds for vacating arbitration awards where an arbitrator is alleged to have been partial to one party. In Firmin, the Court held, [t]o constitute evident partiality, it must clearly appear that the arbitrator was biased, prejudiced, or personally interested in the dispute. Id. at 978. Shaw contends that Citywide failed to prove the requisite bias, prejudice, or evident partiality of Mr. Tudor, or any other grounds allowed by La. R.S. 9:4210 necessary to vacate arbitration. It therefore urges this Court to reverse the judgment because the trial court based its judgment on a ground -the appearance of impropriety- that is not an enumerated ground to vacate under the statute. Shaw s arguments and the cases cited by Shaw address the standard to review the partiality of an arbitrator in the context of an arbitration award. However, the matter for review before this Court is not the vacation of an arbitration award based on the arbitrator s alleged partiality. Instead, we review to 5

7 determine whether the AAA s failure to timely disclose that the arbitrator s wife was employed by a client of the defense firm prejudiced Citywide s right to a fair hearing to meet the grounds to vacate as set forth in La. R.S. 9:4210. After a careful review, we conclude that La. R.S. 9:4210(C), which provides in part that an arbitration can be vacated for any other misbehavior by which the rights of any party have been prejudiced, provided the trial court with just cause to vacate the arbitration proceedings. We reach this conclusion by reviewing the AAA s own guidelines and procedures. In its Notice of Appointment letter to Mr. Tudor, the AAA stressed the importance of the arbitrator s disclosure of all potential contacts or conflicts involving the arbitrator or his spouse. The purpose of this complete disclosure was for all parties to have complete confidence in the arbitrator. Mr. Tudor met his obligation by disclosing to the AAA his wife s employment with CHRISTUS. However, the AAA did not comport with its own guidelines when its case manager submitted a copy of Mr. Tudor s Notice of Appointment and Notice of Compensation forms to the parties without the disclosure letter. The parties were required to respond within ten days if either party or their counsel knew of any contact or conflict with the arbitrator. Based on incomplete information provided by the AAA, the parties lacked sufficient information to disclose any contact or conflict with the arbitrator or to knowingly accept or object to his appointment. Shaw reiterates that the relationship between Mrs. Tudor and its defense firm was not relevant. On the other hand, Citywide asserts that had it known of the relationship, it would have objected to Mr. Tudor s appointment as arbitrator. Whether or not the relationship was relevant or not is a call that rested with Citywide, not Shaw. Clearly, the AAA believed that a spouse s contacts were 6

8 relevant such that they might entail conflicts of interest that could undermine confidence in the arbitration proceedings. If the AAA did not share that belief, then it would not have demanded such disclosures. The AAA s lack of compliance with its own procedures and standards compromised any confidence in the fairness of the arbitration proceedings. Its failure to disclose took away Citywide s right to make a knowing and timely objection at the onset of Mr. Tudor s appointment. Any reasonable attorney would have wanted to know of any association between the arbitrator and the opposing party prior to the selection of the arbitrator. We agree with the trial court that Citywide s failure to timely receive notice of the disclosed information, the nature of the disclosed information, and the manner in which the disclosed information was made known to the parties is the type of misbehavior and/or undue means and/or misconduct that falls with the scope of La. R.S. 9:4210. The arbitration proceedings were tainted with an appearance of impropriety. Accordingly, the trial court did not err in granting Citywide s Motion to Vacate Arbitration. Shaw also argues that Citywide waived any right to challenge the arbitrator. Shaw maintains that Citywide waived its right to challenge the appointment when it twice elected to continue the hearing even after Mr. Tudor disclosed his wife s relationship with Shaw s defense firm. Shaw also references Citywide s characterization of the relationship as benign, when it proceeded with the evidence. Shaw equates Citywide s behavior with that of a party in Health Services Management Corp. v. Hughes, 975 F.2d 1253 (7 th Cir. 1992) who waited nearly two months to object to the appointment of the arbitrator after it first learned that the arbitrator had a prior relationship with one of the other parties. The Seventh Circuit affirmed the confirmation of the award. It denied the objector s 7

9 motion to vacate, holding that it had waived its right to object when it had continued with the proceedings and then waited nearly two months to file an objection. In finding that the party had waived its right to object, the decision relied on the AAA s Construction Industry Arbitration Rules that provide that a party who proceeds with the arbitration after learning of an alleged deviation from the rules waives the right to object. Id. at However, we find the instant matter distinguishable from the facts outlined in Health Services Management Corp. v. Hughes. The facts in this case demonstrate that Citywide preserved its right to timely object to the arbitration proceedings. In contrast to the litigants referenced by Shaw, Citywide urged its right to object to the fairness of the arbitration process when it requested judicial intervention before the arbitration process was completed, i.e. before an award had been rendered. Although Shaw alleges that Citywide waived its right to object under the AAA Construction Industry Arbitration Rule-39 when it continued with arbitration after the suspect relationship was disclosed, we find no breach of the AAA rules. 1 In its June 22, 2010 Notice of Appointment letter, the AAA gave the parties ten days to voice an objection to the arbitrator s appointment. The parties initially learned of the arbitrator s disclosure on June 14, 2011 and June 15, The following day, June 16, 2011, Citywide continued to seek information from the AAA regarding the scope of the relationship between the arbitrator s wife and the defense firm and information known to Shaw. These efforts resulted in a letter from the AAA on June 21, 2011 that Citywide had until June 23, 2011 to make an 1 R-39. Waiver of Rules. Any party who proceeds with the arbitration after knowledge that any provision or requirement of these Rules has not been complied with and who fails to state an objection in writing shall be deemed to have waived the right to object. 8

10 objection to the appointment of the arbitrator or the appointment would be affirmed. Citywide filed its formal, written objection with the AAA on June 22, 2011 and filed its Motion To Vacate Arbitration. Thus, Citywide not only met the new date imposed by the AAA to make a timely objection, but it also made its written objection within ten days of the disclosure as required in the Notice of Appointment letter. Citywide substantially complied with Rule 39. Accordingly, we determine that Citywide never formally waived its right to challenge the appointment of the arbitrator or the arbitration process. Shaw also asks this Court to confirm the arbitration award because there were no grounds to vacate the proceedings under La. R.S. 9:4210 and because Citywide waived its right to challenge the arbitrator. Having decided that the trial court properly vacated the arbitration proceedings and that Citywide preserved its right to object to the arbitrator, we need not consider this assignment of error. However, even if considered, the arbitrator s award has no legal effect as it was rendered after the trial court had declared the arbitration proceedings fundamentally unfair, vacated the proceedings, and lifted the stay order. This Court finds no merit to Shaw s assignments of error. For the foregoing reasons, the judgment of the district court is affirmed. AFFIRMED 9