Thomas Kinkade Arbitration 'Model of How Not to Conduct One' - Contract Law - U.S. Sixth Circuit
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Thomas Kinkade Arbitration 'Model of How Not to Conduct One'

You know you botched an arbitration when, after five years of proceedings, the Sixth Circuit refers to your work as “a model of how not to conduct one.” Or you could read the court’s opinion, which is a 10-page retelling of every imaginable way in which one could fail at presiding over a neutral, fair arbitration process.

The questionable conduct in Kinkade v. White began with the attorneys. The Whites’ first attorney was caught transmitting a live feed of the transcripts to a hotel room, where a disgruntled former Kinkade employee was responding with cross-examination questions. The replacement attorney was also replaced after he was convicted of federal tax fraud.

It wasn't just the attorneys, however. The Whites, who were alleging that they were defrauded by Kinkade, turned over no financial records to support their damages claims during the discovery phase. Their expert relied upon documents prepared in anticipation of the deal to estimate damages resulting from the deal and offered no insight as to how Kinkade, rather than the economy, caused their losses.

After closing briefs and arguments, Kowalsky, the "neutral" arbitrator gave the Whites another chance to prove their damages, despite Kinkade's objection.

That might be excusable as a judgment call. However, a few months later, one of the Whites' representatives hired one of Kowalsky's partners as a defense expert in a legal malpractice case. Two months after that, David White hired another of Kowalsky's partners to represent him in a separate arbitration case.

Kinkade objected to the American Arbitration Association. The Whites' attorney leaked the objections to Kowalsky. Kinkade, fearing reprisal, filed a motion to disqualify Kowalski, which was denied.

Kowalski then gave the Whites another chance to prove their damages. (They bore the burden of proof.) At this point, in 2007, they arrived with 8,800 pages of financial records -- exactly the kind of material requested by Kinkade years earlier.

In mid-2008, Kowalsky made an interim ruling, $567,300 to the Whites and nothing to Kinkade, even though it was uncontested that the Whites never paid Kinkade for his paintings. The final award was even more ludicrous -- $1.4 million, including attorneys' fees that were denied in the interim ruling.

You'll notice a distinct lack of law in this post. That's because the court opinion cites nearly no statutes and cases. That's because this case was as obvious as it seems.

Arbitrators' decisions can be overturned by courts because of partiality. The challenging party must show "greater than an appearance of bias, but less than actual bias" and "establish specific facts that indicate improper motives on the part of the arbitrator."

Let's see: two of Kowalsky's partners were hired by the prevailing party to handle lucrative legal matters. The Whites were also given three chances to prove their damages, despite their abuse of the discovery process. Kowalsky denied an uncontested breach-of-contract claim, and then tacked on $500,000 in attorneys' fees, just for giggles.

Improper motives? More than an appearance of bias? It certainly looks that way.

Editor's Note, April 22, 2013: This post has been updated to reflect the proper term for the proceedings that lead to this appeal is "arbitration" not "mediation."

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