Baylor Health Care System v. Beech Street Corporation

Filing 9

MEMORANDUM OPINION AND ORDER denying 7 MOTION for Recusal of Honorable Judge Jeff Kaplan as Arbitrator and for Appointment of New Arbitrator. (Ordered by Chief Judge Sidney A Fitzwater on 1/8/2014) (Chief Judge Sidney A Fitzwater)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
BAYLOR HEALTH CARE SYSTEM,
Plaintiff,
VS.
BEECH STREET CORPORATION,
Defendant.

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§ Misc. No. 3:13-MC-054-D
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MEMORANDUM OPINION
AND ORDER
In Baylor Health Care System v. Beech Street Corp., 2013 WL 2095777, at *2 (N.D.
Tex. May 15, 2013) (Fitzwater, C.J.) (“Baylor I”), the court, acting under 9 U.S.C. § 5,
granted the application of Baylor Health Care System (“BHCS”) for appointment of a third
arbitrator to a panel to arbitrate a contract dispute between BHCS and Beech Street
Corporation (“Beech Street”), appointing Honorable Jeff Kaplan (Ret.) (“Judge Kaplan”).
Beech Street now moves to recuse Judge Kaplan and for appointment of a new arbitrator.
Concluding that the court lacks the authority under either the Federal Arbitration Act
(“FAA”) or the parties’ arbitration agreement to remove Judge Kaplan as an arbitrator prior
to the issuance of an arbitration award, the court denies the motion.
I
Because the background facts and procedural history of this case are adequately
presented in Baylor I, the court will recount only the background facts and procedural history
necessary to understand the present decision. BHCS and Beech Street are currently

arbitrating a contract dispute.

Their contract includes an arbitration agreement

(“Agreement”) that provides, in pertinent part, for a panel of three arbitrators to arbitrate
unresolved claims or controversies. Under the Agreement, each party appoints one arbitrator
and the two arbitrators appoint a third. If the two party-appointed arbitrators fail to appoint
a third arbitrator, as required under the Agreement, “any Party may apply to the Chief Judge
of the United States District Court for the Northern District of Texas—Dallas Division for
an appointment of a third Arbitrator.” Baylor I, 2013 WL 2095777, at *1.
BHCS filed a demand for arbitration in August 2012 and appointed the first arbitrator.
Beech Street provided notice to BHCS in October 2012 that it had appointed the second
arbitrator. When the two party-appointed arbitrators were unable to agree on a third
arbitrator, BHCS applied to this court for the appointment of a third arbitrator. In Baylor I
the court held that a lapse in the naming of an arbitrator had occurred and that it was
therefore authorized to appoint an arbitrator pursuant to 9 U.S.C. § 5. Id. at *2.1 The court
appointed Judge Kaplan, a former magistrate judge of this court, as the third arbitrator. Id.
at *3.
Judge Kaplan works as an arbitrator through JAMS. Following his appointment,
JAMS advised the parties that Judge Kaplan had declined to participate in a mediation in
another case that involved BHCS and Jeff Cody, Esquire (“Cody”), counsel for BHCS.

1

In appointing an arbitrator pursuant to 9 U.S.C. § 5, the undersigned expressly
declined to make the appointment in his individual capacity as Chief Judge according to the
Agreement. Baylor I, 2013 WL 2095777, at *1 n 3.
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Beech Street maintains that, through its own research, it has discovered that during his tenure
as a magistrate judge, Judge Kaplan presided over at least four lawsuits that involved Cody,
BHCS, a company related to Beech Street, and the exact subject matter and issues asserted
in the instant arbitration. Based on this information, Beech Street notified JAMS that it
objected to Judge Kaplan’s acting as arbitrator, and it demanded that he recuse himself.
JAMS responded by letter that Judge Kaplan did not perceive any basis for recusal, that he
remained willing and able to serve as the third arbitrator, and that “[g]iven that Judge Kaplan
was appointed by the Court pursuant to a process required by the parties’ arbitration
agreement, [Beech Street’s] objection and any response thereto should be directed to the
court.” D. App. Ex. 6.2 Beech Street then filed the instant motion to recuse Judge Kaplan
and for appointment of a new arbitrator. BHCS opposes the motion.3
II
Beech Street’s motion turns on whether the court is authorized under the FAA or the
Agreement to remove an appointed arbitrator before the panel issues its award.
It is “well established” in the Fifth Circuit that, “prior to issuance of an award, a court
may not make inquiry into an arbitrator’s capacity to serve based on a challenge that a given
arbitrator is biased.” Gulf Guar. Life Ins. Co. v. Conn. Gen. Life Ins. Co., 304 F.3d 476, 490

2

The court cites the appendix in this manner because Beech Street did not paginate it
as N.D. Tex. Civ. R. 7.1(i)(4) requires.
3

As permitted by N.D. Tex. Civ. R. 7.1(f), the court in its discretion is deciding this
motion prior to receipt of a reply brief. See Solomon v. Godwin & Carlton, P.C., 898 F.
Supp. 415, 416 n.2 (N.D. Tex. 1995) (Fitzwater, J.) (applying former Local Rule 5.1(f)).
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(5th Cir. 2002) (citing Aviall, Inc. v. Ryder Sys., Inc., 110 F.3d 892, 895 (2d Cir. 1997)).
Although the FAA permits the appointment of arbitrators under certain limited
circumstances,4 because there is “no authorization under the FAA’s express terms for a court
to remove an arbitrator from service,” if either party to the arbitration suspects arbitrator bias,
the only available remedy under the FAA is to proceed to an award and then seek an order
vacating that award under 9 U.S.C. § 10(a).5 Id. (“[E]ven where arbitrator bias is at issue,

4

9 U.S.C. § 5 provides:
[i]f in the agreement provision be made for a method of naming
or appointing an arbitrator or arbitrators or an umpire, such
method shall be followed; but if no method be provided therein,
or if a method be provided and any party thereto shall fail to
avail himself of such method, or if for any other reason there
shall be a lapse in the naming of an arbitrator or arbitrators or
umpire, or in filling a vacancy, then upon the application of
either party to the controversy the court shall designate and
appoint an arbitrator or arbitrators or umpire, as the case may
require, who shall act under the said agreement with the same
force and effect as if he or they had been specifically named
therein[.]

5

9 U.S.C. § 10(a) permits a court to
make an order vacating the award upon the application of any
party to the arbitration—
(1) where the award was procured by corruption, fraud, or undue
means;
(2) where there was evident partiality or corruption in the
arbitrators, or either of them;
(3) 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; or
-4-

the FAA does not provide for removal of an arbitrator from service prior to an award, but
only for potential vacatur of any award.”); see also Aviall, 110 F.3d at 895 (“Although the
FAA provides that a court can vacate an award ‘[w]here there was evident partiality or
corruption in the arbitrators,’ . . . it does not provide for pre-award removal of an arbitrator.”
(quoting 9 U.S.C. § 10)); Allstate Ins. Co. v. OneBeacon Am. Ins. Co., 2013 WL 5604299,
at *3 (D. Mass. Oct. 8, 2013) (“[I]t is well-settled in the law of arbitration that . . . [t]he time
to challenge an arbitration, on whatever grounds, including bias, is when the arbitration is
completed and an award rendered.” (quoting Smith v. Am. Arbitration Ass’n, 233 F.3d 502,
506 (7th Cir. 2000))). Accordingly, the court is not authorized under the FAA to remove
Judge Kaplan as an arbitrator prior to the arbitration panel’s issuance of an award in this
matter.
Nor does the Agreement grant this court the authority to remove an arbitrator prior to
the issuance of an award. The Agreement expressly authorizes the Chief Judge to appoint
a third arbitrator if the two party-appointed arbitrators fail to do so. Baylor I, 2013 WL
2095777, at *1. The Agreement contains no provision, however, authorizing this or any
other court to remove an appointed arbitrator before the arbitration award is issued.

(4) 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.
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*

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*

Accordingly, because the court is not authorized under either the FAA or the
Agreement to recuse Judge Kaplan, Beech Street’s motion is denied.
SO ORDERED.
January 8, 2014.

_________________________________
SIDNEY A. FITZWATER
CHIEF JUDGE

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