In Robert C. Karlseng v H. Jonathan Cooke, (Tex. App. June 28, 2011), Karlseng contended that the court had erred in confirming an arbitral award issued by the sole arbitrator Robert Faulkner, claiming its rights had been prejudiced because Faulkner did not disclose his relationship with Brett Johnson, Cooke's attorney.

The court first examined the relationship between Faulkner and Johnson, which dated back to 1994. From 1994 to 1996, Johnson served as a law clerk to a United States District Judge, and Faulkner was a Magistrate Judge to the same District Judge. During this period, the two men would occasionally come in contact with each other and exchange pleasantries. The relationship further developed in 2003, after Johnson and his wife invited Faulkner and his spouse to celebrate Faulkner's retirement at a restaurant and also discuss the latter's plans to become an arbitrator. After this, the two men continued to see each other at seminars and fundraising events and also "purposefully sought out social interaction with each other," including, dinners, basketball games, exchanging ideas about places to visit for vacations, and the Johnsons sending Christmas gifts to the Faulkners.

The court noted that these interactions stopped after the underlying arbitration commenced in February 2007. In April 2007, Faulkner was appointed as the sole arbitrator, and Johnson was identified as the Cooke's counsel in the same month. Although JAMS Arbitrators' Ethics Guidelines recommend that the arbitrator "ensure that he or she has no known conflict of interest regarding the case" and "endeavour to avoid any appearance of a conflict of interest", Faulkner testified that he did not disclose his relationship with Johnson. The court highlighted that there was "undisputed evidence" that the two men acted as "strangers" when they introduced themselves to each other at the arbitration hearing on 10 December 2007. On 31 January 2008, Faulkner ruled in favour of Johnson's client. From March or April 2008 onwards, Faulkner and Johnson resumed their interactions in a manner similar to prior years.

The court found that Faulkner's failure to disclose this relationship violated both the JAMS guidelines and Texas state law, which mandates that an arbitral award shall be vacated, on a party's application, if its rights were prejudiced by the "evident partiality" of an arbitrator appointed as a neutral observer. The standard for determining if there was "evident partiality" is whether a "neutral arbitrator selected by the parties or their representatives... does not disclose facts that might, to an objective observer, create a reasonable impression of the arbitrator's partiality." The court explained that Faulkner had a duty to disclose his relationship with Johnson and, furthermore, that this duty was "not limited to direct financial or business relationships" but any information that could "reasonably affect the potential arbitrator's impartiality."

This case demonstrates that, although courts generally grant "great deference" to arbitration awards, they will set aside awards tainted by arbitrator partiality to ensure the preservation of neutrality.