By Leslie King O’Neal
Is Appraiser Partiality Grounds to Vacate an Appraisal?
In Burke v. Houston PT BAC Office Limited Partnership[i] the Texas Supreme Court considered a challenge to an appraisal award for alleged appraiser partiality. The parties relied on the Texas Arbitration Act[ii] as the standard for vacating the appraisal award. The courts did not decide if impartiality standards governing arbitrators applied to appraisers.
Appraisal clauses are often found in insurance contracts. Usually they cover limited issues such as property value, while arbitrations cover broader issues.
The Burke Appraisal
The Burke case was a lease dispute between a landlord and a tenant regarding rent adjustments based on the property’s fair market value. The lease provided that each side would select an appraiser and these appraisers would attempt to resolve the dispute. If they could not agree, the parties would select a third “neutral” appraiser. The three appraisers then issued an award.
Appraiser Selection
During this process, the tenant interviewed Scott Rando as a prospective appraiser, discussing his experience with the various issues in the dispute. The tenant did not retain Mr. Rando as its appraiser but told him he “would be at the top of the list” for the third appraiser position if it was needed. The party-selected appraisers did not agree on a value. They chose Rando as the third appraiser. Rando and the tenant’s appraiser issued an award giving the property a value considerably less than the landlord’s appraiser. The landlord filed a declaratory judgment regarding the lease requirements for valuation. The tenant counterclaimed to enforce the appraisal.
Discovery Uncovers Tenant Discussions
During discovery the landlord learned of tenant’s discussions with Rando about his potential engagement as a party arbitrator. The landlord’s appraiser testified he would not have accepted Rando as the neutral appraiser if he had known about these communications. Rejecting the landlord’s fraud and breach of contract claims, the trial court confirmed the appraisal valuation. The court of appeals affirmed, finding the communications between Rando and the tenant were non-substantive and did not rise to the standard requiring disclosure. The landlord appealed to the Texas Supreme Court.
Arbitrator & Appraiser Impartiality
Arbitrators are ethically bound to be impartial and neutral.[v] Arbitrators must disclose past and present relationships and business interests involving counsel, parties, experts or witnesses.[vi] The Code of Ethics for Arbitrators in Commercial Disputes provides that disclosure is a continuing duty.[vii] The Texas Supreme Court noted that under Texas law, appraisers are also obliged to be impartial, allowing parties to appeal if they believe the appraisal was conducted with prejudice or bias.
“Evident Partiality” as Grounds to Vacate
“Evident partiality” is a basis for overturning arbitration awards under the Texas Arbitration Act (and other state arbitration acts) and the Federal Arbitration Act.[viii] Failure to disclose relevant facts that might affect the arbitrator’s partiality can support a finding of “evident partiality.” It isn’t necessary to show that the arbitrator is biased; the nondisclosure itself is a basis to vacate the award.[ix]
Courts Decide if Facts Convey Impression of Partiality
In Burlington N.R.R. Co. v. TUCO, Inc.[x] the Texas Supreme Court found a party arbitrator’s failure to disclose that his law partner referred significant business to the neutral arbitrator while the arbitration was pending “might have conveyed an impression of [the neutral arbitrator]’s partiality to a reasonable person. This triggered a duty to disclose.
Commonwealth Coatings—Leading SCOTUS Case on Evident Partiality
This was also the holding in the leading U.S. Supreme Court case on this issue, Commonwealth Coatings Corp. v. Continental Casualty Co.[xi] In that case, a subcontractor sued a general contractor’s payment bond surety for money allegedly due. Pursuant to the subcontract, the general contractor and the subcontractor selected arbitrators and these arbitrators selected a third arbitrator.
Neutral Arbitrator’s Undisclosed Business Relationship
The third (neutral) arbitrator served as an engineering consultant on construction projects. One of his regular customers was the prime contractor. The arbitrator did not disclose this relationship prior to the arbitration award. After learning these facts, the subcontractor moved to vacate the award for evident partiality. Both the district court and the First Circuit denied the motion.
SCOTUS Requires Disclosure
Justice Black, writing for the majority, noted Congress intended arbitrations to be impartial. Also, because arbitrators have free rein to decide the law and the facts and are not subject to appellate review, it is important to safeguard arbitrators’ impartiality. The Court found the arbitration process would not be hampered by requiring arbitrators disclose any dealings that might create an impression of possible bias.
Undisclosed Communications Were Material
In Burke, the Texas Supreme Court found Rando’s undisclosed communications with the tenant were material because they directly related to the issues in the appraisal and were made before Rando was appointed the neutral arbitrator. “Such communications reasonably create an impression of partiality to an objective observer. . . . Rando should have disclosed this communication in connection with the appointment as the neutral appraiser.” The Court rejected the tenant’s arguments that the communications were merely ordinary scheduling discussions.
Arbitrators must also disclose ex parte communications during arbitration. See recent post regarding an arbitrator’s emails to counsel during the arbitration process.
Takeaways
- While appraisals and arbitrations are not identical, both require the decision-makers to be impartial.
- Arbitrators and appraisers have a duty to disclose business relationships or communications that might create the impression of possible bias.
- Disclosure is a continuing obligation.
- When in doubt, disclose!
[i] State courts disagree on whether appraisal is the same as arbitration. The Florida Supreme Court has held an appraisal clause is not an arbitration clause and the Florida Arbitration Code (Chapter 682, Fla. Stat.) does not apply. See generally George E. Reed, Jr. and Jessica E. Pak, Is an Appraisal an Arbitration? Yes and No. Maybe. Sort Of. Zelle LLP Claims Journal (March 14, 2022), which outlines the distinctions between appraisal and arbitration. https://www.jdsupra.com/legalnews/is-an-appraisal-an-arbitration-yes-and-9351895/#:~:text=In%20Merrimack%20Mutual%20Fire%20Insurance,to%20decide%20questions%20of%20liability.
[ii] Allstate Ins. Co. v. Suarez, 833 So.2d 762 (Fla. 2002).
[iii] (Case No: 24-0135, Texas Supreme Court, December 19, 2025). https://scholar.google.com/scholar_case?case=13140485304176484992&q=24-0135&hl=en&as_sdt=20000006&utm_source=JAMS&utm_campaign=b7607bddc1-EMAIL_CAMPAIGN_2026_01_20_09_01&utm_medium=email&utm_term=0_-b7607bddc1-16027905
[iv] Chapter 171, Texas Civil Practice & Remedies Code
[v] See Canon I.B(1), Code of Ethics for Arbitrators in Commercial Disputes, which states arbitrators should accept appointment only if they can serve impartially. https://drs.cpradr.org/rules/protocols-guidelines/ethics-codes/code-of-ethics-for-arbitrators-in-commercial-disputes
[vi] See Canon II, Code of Ethics, An Arbitrator Should Disclose Any Interest or Relationship Likely to Affect Impartiality or Which Might Create an Appearance of Partiality.
[vii] Canon II.C, Code of Ethics for Arbitrators in Commercial Disputes,
[viii] Federal Arbitration Act, 9 U.S.C. §10 lists the statutory grounds for vacating an arbitration award: corruption or fraud; evident partiality; misconduct; arbitrators exceeded powers.
[ix] Citing Burlington N.R.R. Co. v. TUCO, Inc., 960 SW2d 629 (Tex. 1997).
[x] 960 S.W.2d 629 (Tex. 1997).
[xi] 393 U.S. 145 (1968)(finding evident partiality based on arbitrator’s failure to disclose conflict, even though there was not evidence of actual bias).