The Franchise Memorandum

A previously vacated award of $1.4 million to a former Thomas Kinkade artwork dealer was not revived on appeal this month due to the same irregularities in the arbitration process that had caused a federal district court to reject the award in 2010. Thomas Kinkade Co. v. White, 2013 U.S. App. LEXIS 6537 (6th Cir. Apr. 2, 2013). As reported in Issue 129 of The GPMemorandum, the district court had found that a dealer and his appointed arbitrator’s business dealings with the supposedly “neutral” third arbitrator caused bias that ruined the arbitration. “Evident partiality or corruption in the arbitrators” is a seldom-used ground to vacate an award under the Federal Arbitration Act.

In this case, the third arbitrator’s connections to the dealer’s side arose and became evident during the nearly 50 hearing days spread over almost five years. This bias manifested itself in unwarranted leniency and favoritism toward the dealer, the court of appeals held. Central to the appellate ruling was that the “neutral” arbitrator had the motive to be biased after his law firm was retained by both the claimant and the claimant’s own appointed arbitrator. The third arbitrator’s actions and rulings added to the court’s concern, undermining the entire process.