Legal News

Paul Allen?s Vulcan Loses Attempt to Overturn Arbitration

By Dionne Searcey

He wasn’t exactly the underdog in this fight, but billionaire Paul Allen’s status as a big dog may have hurt him in his attempt to upend an arbitration ruling against his private investment vehicle, Vulcan Capital.

Seattle-based Vulcan had alleged that an arbitration ruling filed by two former employees and worth potentially $20 million was compromised by the actions of Arthur Harrigan Jr., a Seattle lawyer who served on the arbitration panel and met ex parte with the claimants for an extended screening process. Vulcan asked a court to vacate the arbitration ruling saying the meetings compromised the panel’s ruling against it. Click here for an earlier blog post on the situation; here for a WSJ story.

On Tuesday, King County Superior Court Judge Paris Kallas refused to vacate the arbitration against Vulcan, saying contact between former Vulcan employees and Harrigan was not inappropriate. The judge noted that such contact ahead of arbitration hearings is not prohibited in general and was allowable in this case because it involved Allen, "a prominent Seattle businessman."

Allen, who earned a fortune after co-founding Microsoft, has significant real estate holdings in Seattle and owns professional sports teams in the region. "These circumstances justify an in-depth pre-appointment process," the judge said.

The two fired employees, David Capobianco and Navin Thukkaram, had taken to arbitration their beefs with a complex formula that Vulcan uses to dole out various and potentially lucrative returns on investments they helped engineer while working at Vulcan. “We are extremely proud of the more than $1.5 billion in profits we made for Vulcan and Mr. Allen. With this chapter now behind us, we look forward to employing our successful strategies for new investors and enterprises," Capobianco said in a statement.

After losing the arbitration last year, Vulcan turned up legal bills from the two fired employees that it said show the arbitrator met with and consulted with them and their lawyers on their claim for five and a half hours, unbeknownst to Vulcan. The arbitrator, Harrigan, was one of three on a panel that ruled unanimously in support of the claim.

David Postman, a Vulcan spokesman, said the firm plans to appeal. "It can’t be OK for supposedly neutral arbitrators to have the sort of extensive contact with complainants that we saw here," Mr. Postman said. "…If that conduct is allowed, it would seem that any prudent party would aggressively test-drive their case with a multitude of candidates to see where they expect the warmest reception. The threat that would pose to our (private arbitration) system seems self-evident."

Full post as published by Law Blog - WSJ.com on April 08, 2010 (boomark / email).