by Andrew Flake
In a case of first impression, the Georgia Supreme Court has elaborated on the meaning and proof of “prejudice” in challenges to arbitration awards brought under the Georgia Arbitration Act (GAA). challenging arbitration awards.
The arbitration at issue in Docs of CT, LLC v. Biotek Servs., LLC was a most unusual one, involving what the Supreme Court called “numerous irregularities,” among them: an unrepresented corporate party not allowed to participate in the arbitration, an arbitrator-imposed sanction of default against the same party, a withdrawing and replacement arbitrator, and multiple substantive ex parte communications between the arbitrator and one of the parties.
The underlying dispute itself was straightforward, even if the arbitration’s procedural history was not: Biotek contracted with DCT to provide allergy testing services to DCT’s patients, the parties disputed whether DCT had properly compensated Biotek, and Biotek initiated arbitration.
After the arbitration was initiated and a first arbitrator appointed, DCT apparently failed to comply with two orders to supplement discovery responses. The arbitrator then granted a motion by Biotek for sanctions, striking DCT’s answer, finding DCT in default as to liability, and awarding damages on most of Biotek’s claims while reserving ruling on the damages from another claim for a final evidentiary hearing.
After the default order, the initial arbitrator ended up withdrawing. Biotek moved in federal court to confirm the award, and a federal district court, while declining to do so on the basis that the order was not final, appointed a replacement arbitrator.
The second arbitrator vacated the original damages award to receive evidence on damages at final hearing and set a deadline for the exchange of hearing exhibits, witness lists, and pre-trial briefs. DCT did not submit any of these, and, at some point prior to the final hearing, DCT’s counsel withdrew.
The arbitrator then declined to communicate with DCT’s non-lawyer representative, a Dr. Sidana, refusing to consider emails from him including email “trying to assert some defenses as to both liability and damages…” The arbitrator also precluded Dr. Sidana from participating in the final hearing in any way other than observing, because of both the company’s lack of counsel and the default.
But beyond just refusing to communicate directly with DCT’s representative, the arbitrator also did not copy him on communications that he sent to Biotek’s attorney, rather than routing them through the administering arbitration institution.
These ex parte communications took place both before and after the final hearing. They included “a request for clarification about the evidence presented, discussion about what damages to include in the award, a request for further legal support to justify awarding certain requested damages, and a request that counsel for Biotek check the new arbitrator’s math in calculating damages.”
As the Supreme Court rightly observed, this contravened the applicable arbitration rules, apparently the BAY Rules of Arbitration, which provided:
No party may have any ex parte communication with a neutral arbitrator regarding any issue related to the arbitration. Any necessary ex parte communication with a neutral arbitrator, whether before, during or after the hearing, shall be conducted through BAY.
The subsequent award included $447,633.49 in contract damages,” interest, $1,273,704.48 in “trade secret damages” and attorney fees.
DCT retained new counsel and moved to vacate the award. alleging, based on the ex parte emails, “misconduct” and “partiality” by the arbitrator. It also argued that the arbitrator infringed DCT’s right under the GAA “to be heard; to present pleadings, documents, testimony, and other matters; and to cross-examine witnesses.” Biotek filed a cross-motion to confirm the award.
The trial court denied the motion to vacate and confirmed the award. On direct appeal, the Georgia Court of Appeals affirmed the trial court.
It considered the sidelining of Dr. Sidana at hearing and found no prejudice, in that DCT had not established how “its rights were prejudiced by the inability of Dr. Sidana, a layperson, to cross-examine any witness presented by Biotek.” It considered partiality and, based on the arbitrator’s modification and reduction in part of Biotek’s requested damages, found no prejudice. And it considered the ex parte communications: While disapproving of the ex parte emails, the Court of Appeals found again that DCT had not articulated how it was prejudiced.
In dissenting opinion, Judge Land agreed with DCT. He would have held that the harm from such communications is inherent – that at least in the case of merits-based ex parte communications, they fundamentally affect the right to a fair proceeding. He wrote that “…the extensive, merits-based ex parte communications that occurred in this case constitute misconduct that is both improper and, by its very nature, prejudicial…”
The Supreme Court granted cert to consider that very question: What does prejudice mean in the context of ex parte communications, and what is required to prove it occurred?
In an opinion by Justice Pinson, the Supreme Court agreed with the trial court and the Court of Appeals majority. It rejected the suggestion that prejudice could be presumed. Instead, the Court held that “[a]s a general rule, when this prejudice standard applies, the affected party must establish “actual” prejudice by demonstrating how the conduct in question affected or influenced the outcome of the proceeding.”
To derive this meaning, the Court noted that the word “prejudice” in the legal context has historically connected “material influence on the outcome of the proceeding in question.” It also reviewed, as persuasive authority, federal courts opinions under the FAA considering ex parte communications and discussing whether or not prejudice occurred.
As one example, in Totem Marine Tug & Barge, Inc. v. N. Am. Towing, Inc., the Fifth Circuit considered an arbitration in which the arbitrators received post-hearing evidence on an ex parte basis. The Fifth Circuit pointed out that the evidence at issue was of damages (earnings from a charter boat), that both the post-hearing timing and ex parte nature of the communications violated the applicable arbitration rules, and that the award “hinged” in the improper information.
By comparison, in Docs of CT, although Biotek did not submitted new exhibits or evidence, it did supply merits-based input and argument. Among them: a spreadsheet calculating damages pre-hearing and post-hearing, “information and feedback” on the arbitrator’s damages calculation along with the post-hearing brief, and at the arbitrator’s request, additional post-hearing legal analysis concerning damages, all ex parte. And just as in Totem, the receipt of argument post-hearing, outside the presence of both parties, contravened the applicable arbitration rules.
Thus, reading both Totem and Docs of CT, one might reasonably ask whether, in terms of at least their potential “influence” on an award, the two groups of ex parte communications differed.
A question in the same vein is how DCT could have proven, if indeed that is what it was expected to do, how the ex parte emails (including a brief and additional legal analysis requested by the arbitrator) “influenced” the arbitrator’s award. Perhaps the perceived difficulty in doing was what led Judge Land, in his Court of Appeals dissent, to approach the question differently, viewing the harm from merits-based ex parte communication as at least presumed, if not a per se, harm.
As it stands, Docs of CT now requires parties challenging arbitration awards on statutory grounds, under O.C.G.A. Section 9-9-13(b), to make a prejudice showing that accounts for some material influence on the outcome, which in the case of ex parte communications means a demonstrable “influence or effect” on the award. -ABF
[The cases discussed are Docs of CT, LLC v. Biotek Servs., LLC, No. S24G0435 (Ga. May 28, 2025) and Totem Marine Tug & Barge, Inc. v. N. Am. Towing, Inc., 607 F.2d 649, 653 (5th Cir. 1979).]