A Texas appellate court held that the trial court properly denied a vacatur motion premised on the American Arbitration Association's (AAA) application of its bias rule to disqualify a party-selected arbitrator.

In McGrath v. FSI Holdings, Inc., NO. 05-06-01432-CV, 2008 WL 499255 (Tex. App.-Dallas Feb. 26, 2008), an arbitration award was issued against Kieran McGrath and Daniel Roehrs (collectively "McGrath"). FSI filed suit to confirm the award.

The trial court confirmed the award. McGrath appealed, seeking vacatur on the grounds that the arbitration panel was not lawfully assembled in accordance with AAA's procedural rules.

This Court rejected McGrath's argument that AAA's disqualification of McGrath's selection for party-selected arbitrator "deprived the panel as later constituted of any authority to render a binding award against them." The Court further rejected McGrath's alternative argument that the award should be vacated because the AAA applied its bias rule improperly.

First, McGrath orally agreed in a conference call that the party-selected arbitrators would be neutral, in accordance with AAA rules of procedure. Although parties may agree not to abide by this rule, the parties did not do so in this case.

Second, the AAA did not act in "such manifest disregard" of its procedural rules to warrant vacate under the FAA. Giving substantial deference to an arbitral body's interpretation of its own rules, the Court held that the evidence did not indicate manifest disregard. See Stroh Container Co. v. Delphi Indus., Inc., 783, 748-49 (8th Cir. 1986).

Nor did the AAA act irrationally in finding that Shank's professional relationship made him partial to McGrath.

Finally, the Court distinguished the case on which McGrath relied, Health Servs. Mgmt. Corp. v. Hughes, 975 F.2d 1253 (7th Cir. 1992). That case involved a failure to disclose and implicated the "evident partiality" standard of the FAA. See 9 U.S.C.A. § 10(a)(2).