A Dallas district court judge on Nov. 2 dismissed a fraud and breach of contract suit against Fish & Richardson, a firm client, two lawyers associated with the firm, JAMS and a JAMS arbitrator.
Ruling that she did not have jurisdiction to hear the suit, 298th District Judge Emily Tobolowsky granted the defendants’ pleas to the jurisdiction motions during a hearing, dismissing Ashley Brigham Patten, et al. v. M. Brett Johnson, et al.
According to the May 23 first amended petition in Patten, the background to the caseis as follows. The plaintiffs — Dallas lawyers Ashley Brigham Patten, Robert C. Karlseng and Jacques Yves LeBlanc — were partners in title services businesses with H. Jonathon Cooke. Cooke sued the trio, and the business dispute went to arbitration via a Rule 11 agreement signed by the parties pursuant to their partnership agreements. The parties agreed to a “single neutral arbitrator” with JAMS under the JAMS Comprehensive Arbitration Rules and Procedures, which thePatten plaintiffs call the JAMS Rules. The parties selected Robert Faulkner as their JAMS arbitrator. Faulkner ruled for Cooke, awarding him $22 million.
Patten, Karlseng and LeBlanc later challenged the arbitration award. In Robert C. Karlseng, et al. v. H. Jonathan Cooke they alleged that Faulkner failed to disclose a social relationship he had with M. Brett Johnson, then a Fish & Richardson principal in Dallas who represented Cooke in the arbitration [See "Arbitrator and JAMS Added to Suit Against Fish & Richardson, Others" Texas Lawyer, May 23, 2012.]
Dallas’ 5th Court of Appeals ultimately vacated the $22 million arbitration award in Karlseng and remanded the case to the trial court. According to its June 28, 2011, opinion inKarlseng, the 5th Court found that Faulkner failed to disclose that Johnson had given him a ticket to an NBA basketball game and a wine basket and had paid for expensive meals, among other things. The Dallas appeals court focused on a number of social contacts between Johnson and Faulkner, a former U.S. magistrate judge — contacts Faulkner did not disclose after Johnson appeared in front of him. [See "$22 Million Award Vacated Due to Arbitrator's Failure to Disclose Contacts With Fish & Richardson Lawyer," Texas Lawyer, June 30, 2011.]
About eight months later, Patten, Karlseng and LeBlancfiled Patten,naming as defendants Fish & Richardson, Johnson, Cooke and Geoffrey Harper, another Fish & Richardson principal who represented Cooke during the arbitration. The plaintiffs later added JAMS and Faulkner as defendants in their first amended petition. Subsequently, all of the defendants denied the allegations and filed pleas to the jurisdiction motions, arguing that the trial court did not have the authority to hear the case, among other things.
Specifically, the defendants argued in their motions that the vacatur the plaintiffs won from the 5th Court in Karlseng was the “exclusive remedy for conduct tainting an arbitration” under both the Federal Arbitration Act and the Texas Arbitration Act, according to an Oct. 31 joint motion to dismiss filed by Fish & Richardson, Johnson, Harper, and Cooke. Faulkner and JAMS filed a similar plea to the jurisdiction motion on June 20.
The joint motion also asserted that Fish, Johnson and Harper did not commit “fraud by nondisclosure” because they were not the plaintiffs’ fiduciaries and they had no duty to disclose the “Faulkner-Johnson relationship.”
Arguments to the Judge
At the Nov. 2 hearing on the motions to dismiss, Randy Johnston, a partner in Dallas’ Johnston ♦ Tobey who represents Johnson and Harper, argued that the plaintiffs’ suit in Patten amounted to a “collateral attack” on the arbitration system, which is not permitted under the FAA or the TAA.
“It’s no secret that I sue lawyers for a living,” said Johnston, who is a legal malpractice plaintiff’s attorney. “But this is a case that should not be brought because of how it affects the system. We allow people to sue their lawyers but not the other side’s lawyers.”
Rod Phelan, a Dallas partner in Baker Botts who represents Fish & Richardson in the case, argued that the vacatur was the plaintiffs’ sole remedy in the case — a position supported by federal and state appellate court decisions, he said.
“Vacatur is the remedy,” Phelan argued to Tobolowsky. “What happens if you don’t have any remedy other than vacatur? Then you have no jurisdiction . . . .”
“There isn’t a single case in any jurisdiction, state or federal, that allows the plaintiffs to do what they want to do,” Phelan said.
Shawn Long, a partner in Dallas’ Sayles Werbner who represents Cooke, argued that the case was an attempt to prevent her client from getting a second arbitration hearing.
George Kryder, a Dallas partner in Vinson & Elkins who represents Faulkner and JAMS, argued that the court had no jurisdiction to hear the case because his clients are immune from suit, much in the way state court judges are immune from suit for the decisions they make.
“If a judge can be immune, so should an arbitrator,” Kryder argued. “You can dismiss this case against JAMS and Faulkner with absolute confidence.”
Susan Hays, a Dallas solo who represents the plaintiffs in Patten, argued that Faulkner had a duty to disclose his relationship with Johnson. Hays argued that her clients should be allowed to bring the suit in district court “as a public policy matter.”
“If the lawyer can lay behind the log, if the arbitrator can lay behind the log, why does anyone ever go to arbitration?” Hays asked Tobolowsky.
Johnson, now a partner in the Dallas office of Farney Daniels, attended the hearing. He says he was happy with the court’s ruling.
Johnson says the merits of the underlying arbitration award he won “remain unchallenged.”
“We look forward to proceeding to the arbitration on behalf of Mr. Cooke.”
Hays says her clients plan to appeal Tobolowsky’s ruling to Dallas’ 5th Court of Appeals.
“It’s a case with a lot of juicy legal issues,” Hays says, noting that if breach of contractsuits are not allowed against arbitrators over disclosure issues, “it’s professionally a bad idea for the health of the ADR [alternative dispute resolution] system.”
Victoria Walsh, a spokeswoman for JAMS, declines comment on the decision on behalf of JAMS and Faulkner.
Tom Melsheimer, managing principal for the Dallas office of Fish & Richardson, says he was “pleased and unsurprised” by the trial court’s ruling.
“This case never should have been brought,” Melsheimer says.