Texas Supreme Court Rules on Selection of Arbitrators

In Americo Life, Inc. v. Myer, No. 10-0734 (Tex. Dec. 16, 2011), Americo Life, Inc., Americo Financial Life and Annuity Insurance Company, Great Southern Life Insurance Company, the Ohio State Life Insurance Company, and National Farmers’ Union Life Insurance Company (hereinafter “Americo”) and Robert L. Myer and Strider Marketing Group, Inc. (hereinafter “Myer”) contracted for Americo’s purchase of several insurance companies from Myer.

Their agreement provided that any dispute would be referred to three arbitrators. Each party was to appoint one arbitrator and the two arbitrators would select the third. It further provided that each arbitrator “shall be a knowledgeable, independent businessperson or professional.” The contract also called for arbitration by the American Arbitration Association (“AAA”) according to the AAA commercial arbitration rules. At the time of the underlying dispute between the parties, the AAA rules provided that “[a]ny arbitrator shall be impartial and independent … and shall be subject to disqualification for (i) partiality or lack of independence ….”

In an arbitration dispute before the AAA for breach of contract and wrongfully withheld payment, Myer argued to the AAA that Americo’s selected arbitrator was not impartial (as required by the AAA rules) and therefore should be removed. Americo responded their selected arbitrator was, in fact, impartial. The AAA agreed with Myer and removed the arbitrator from the arbitration panel. The panel found in favor of Myer and Americo filed a motion to vacate the award.

The trial court granted Americo’s motion on the ground that its arbitrator was improperly stricken from the panel. The court of appeals, however, reversed, holding that Americo had waived its arguments by not presenting them to the AAA.

The issue before the Texas Supreme Court was whether Americo waived its objection to the removal of the arbitrator it selected. The court said that the record demonstrated that Americo did not waive its objections. Americo had argued that the AAA requirements did not apply, that the only applicable requirements were that the arbitrators be knowledgeable and independent businesspersons or professionals, (as stated in the contract) and that its arbitrator met those qualifications. Therefore, the court reversed and remanded for the court of appeals to consider whether the AAA requirements apply.

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