The Texas Supreme Court ha reversed a trial court order confirming an appraisal award where a neutral appraiser failed to disclose prior to his appointment that one of the parties would tip him for the appointment.
Kevin Burke, et al. v. Houston PT BAC Office Limited Partnership (Bank of America) (No. 24-0135; December 19, 2025) arose from a dispute over the fair market value of property subject to a long-term lease. In 1972 the parties’ predecessors signed a lease for a downtown Houston property the Bank of America Building. The lease provided for periodic rent adjustments based on the fair market value of the building “as if free and clear of all improvements, encumbrances, and leases.” It established an appraisal process to resolve disputes, under which each party would choose an appraiser. If the parties’ appraisers couldn’t agree on a venue, the appraisers would select a third “competent and impartial person.” A dispute arose, so the landlords invoked the appraisal process and selected an appraiser. The tenant, Bank of America, interviewed a prospective candidate but chose another candidate. But the tenant told the rejected candidate that “[he would] be at the top of our list for that third appraiser designation” in the event the parties’ appraisers couldn’t reach an agreement. That’s what happened, and the “neutral” appraiser substantially concurred with the tenant’s value, which was a little less than half the landlords’. This significant deviation involved inclusion of value attributable to connectivity to tunnels on adjacent land.
The landlords sued for a declaratory judgment that the lease required a fee simple appraisal, not an appraisal requiring the appraisers to assume that adjacent property was free of improvements. The tenant counterclaimed to enforce the valuation. During discovery, the tenant revealed its communications with the neutral appraisal prior to the dispute. The landlords’ appraiser testified that he would not have accepted the neutral appraiser had he known about the communications. The tenant moved for summary judgment on the landlords’ breach of contract and fraud claims. The trial court granted the motion and confirmed the tenant’s lower valuation. The Houston [1st] Court of Appeals affirmed pursuant to Chapter 171, CPRC, on the ground that the appraiser did not show evident partiality. The landlords appealed.
In a per curiam opinion, SCOTX reversed and remanded. Uner § 171.088(a)(2)(A), “[a] court has the statutory obligation to vacate an arbitration award if ‘the rights of a party were prejudiced by … evident partiality by an arbitrator appointed as a neutral arbitrator.’” The court assumed without deciding that “the parties are correct that impartiality standards governing arbitrators may apply to appraisers,” so it applied the “evident partiality test.” That test, while it doesn’t disqualify an arbitrator because it had an earlier business relationship with a party, “parties must have access to all information which might reasonably affect the arbitrator’s partiality” (citation omitted). If the undisclosed facts “create a reasonable impression of the arbitrator’s partiality,” the “nondisclosure itself serves as the basis for vacating the award.” In other words, the test does not require evidence of the arbitrator’s “actual bias.”
The court’s decision in Burlington N.R.R. Co. v. TUCO, Inc., 960 S.W.2d 629 (Tex. 1997) controlled. In that case, the law firm partner of one of the party arbitrators participated in the referral of “significant unrelated business to the neutral arbitrator while the arbitration was pending.” Because the neutral arbitrator did not disclose the new business relationship (he had disclosed earlier ones), the court ruled that the referrals “might have conveyed an impression of [the neutral arbitrator]’s partiality to a reasonable person.” In this case, the tenant’s communication with the appraiser that he would be “at the top of [the] list” should a neutral appraiser be needed” constituted a material communication regarding the subject of the matter and should have been disclosed before the appraiser accepted appointment. Consequently, the court granted the petition for review, reversed the trial court’s order, and remanded the case.
