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Click here for the full text of this decision FACTS:In January 2001, New Century Mortgage Corp. (New Century) licensed an automated software support program from Positive Software Solutions Inc. (Positive Software). In December 2002, during negotiations for a renewal of that license, Positive Software alleged that New Century copied the program in violation of the parties’ agreement and applicable copyright law. Positive Software then filed suit against New Century in the U.S. District Court for the Northern District of Texas alleging breach of contract, misappropriation of trade secrets, misappropriation of intellectual property, copyright infringement, fraud and other causes of action. Positive Software sought specific performance, money damages and injunctive relief. In April 2003, the district court granted Positive Software’s motion to preliminarily enjoin New Century from using the program and, pursuant to the parties’ contract, submitted the matter to arbitration. The American Arbitration Association (AAA) provided the parties with a list of potential arbitrators. After reviewing biographical information, the parties selected Peter Shurn to arbitrate the case. The AAA contacted Shurn about serving as an arbitrator. He agreed after stating that he had nothing to disclose regarding past relationships with either party or their counsel. After a seven-day hearing, Shurn issued an 86-page written ruling, concluding that New Century did not infringe Positive Software’s copyrights, did not misappropriate trade secrets, did not breach the contract, and did not defraud or conspire against Positive Software. He ordered that Positive Software take nothing on its claims and granted New Century $11,500 on its counterclaims and $1.5 million in attorneys’ fees. Upon losing the arbitration, Positive Software conducted a detailed investigation of Shurn’s background. It discovered that several years earlier, Shurn and his former firm, then-Arnold, White, & Durkee, had represented the same party as New Century’s counsel Susman Godfrey in patent litigation between Intel Corp. and Cyrix Corp. (the Intel litigation). The Intel litigation involved six different suits in the early 1990s. Intel was represented by seven law firms and at least 34 lawyers. The dispute involved none of the parties to the arbitration. Although their names appeared together on pleadings, Shurn and a Susman Godfrey attorney never attended or participated in any meetings, telephone calls, hearings, depositions or trials together. Positive Software filed a motion to vacate the arbitration award. In September 2004, the district court granted Positive Software’s motion and vacated the award, finding that Shurn failed to disclose “a significant prior relationship with New Century’s counsel,” thus creating an appearance of partiality requiring vacatur. New Century appealed, and a panel of the 5th U.S. Circuit Court of Appeals affirmed the district court’s vacatur on the ground that the prior relationship “might have conveyed an impression of possible partiality to a reasonable person.” Neither court found that Shurn was actually biased toward New Century. The 5th Circuit granted New Century’s petition for rehearing en banc. HOLDING:Reversed and remanded. Shurn’s failure to disclose a trivial former business relationship does not require vacatur of the award, the court held. The court stated that no case law holds that it must vacate an arbitration award for nondisclosure of such a slender connection between the arbitrator and a party’s counsel. The relationship in this case pales in comparison to those in which courts have granted vacatur, the court stated. Awarding vacatur in situations such as this would seriously jeopardize the finality of arbitration, the court stated. If the vacatur stood in this case, the court stated, losing parties would have an incentive to conduct intensive, after-the-fact investigations to discover the most trivial of relationships, which they likely would not have objected to if the arbitrator had disclosed the information. Moreover, the court stated, requiring vacatur based on a mere appearance of bias for nondisclosure would hold arbitrators to a higher ethical standard than Article III federal judges. Finally, the court stated, requiring vacatur on such attenuated facts would rob arbitration of one of its most attractive features apart from speed and finality: expertise. The best lawyers and professionals, who normally have the longest lists of potential connections to disclose, would leave the arbitration sector to avoid blemishes on their reputations from post-arbitration suits attacking them as biased, the court theorized. The draconian remedy of vacatur, the court concluded, is only warranted upon nondisclosure that involves a significant compromising relationship. OPINION:Jones, C.J., joined by Jolly, Higginbotham, Davis, Smith, Barksdale, DeMoss, Dennis, Clement, Prado and Owen, J.J. DISSENT:Reavley, J., dissenting, joined by Wiener, Garza, Benavides and Stewart, J.J. “In 1968 the Supreme Court held [in Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1969)] that an arbitral award could not stand where the arbitrator had failed to disclose a past relationship that might give the impression of possible partiality. . . . I dissent because this court may not overrule a decision of the Supreme Court.”

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