Opinion issued October 22, 2013.
In The
Court of Appeals
For The
First District of Texas
NO. 01-12-01165-CV
PORT ARTHUR STEAM ENERGY LP, Appellant
V.
OXBOW CALCINING LLC, Appellee
On Appeal from the 151st District Court
Harris County, Texas
Trial Court Cause No. 1174311
OPINION
This appeal involves the parameters for setting aside an arbitral decision
based on the evident partiality of an arbitrator. The underlying arbitration,
between two corporations, involved the allocation of responsibility for
environmental compliance costs at an industrial facility. Oxbow Calcining LLC
initiated the arbitration proceeding against Port Arthur Steam Energy, L.P.
(PASE), before the American Arbitration Association (AAA). Oxbow and PASE
selected David Peden as one of the arbitrators to serve on a three-member panel.
Before the AAA panel, the parties completed discovery and participated in a
multi-day evidentiary hearing. After the hearing, but before the arbitrators had
issued their decision, the Yetter Coleman law firm, representing Oxbow, learned of
its appellate victory on behalf of another of its clients, Anglo-Dutch Petroleum
Int’l Inc., in the Supreme Court of Texas. See Anglo-Dutch Petroleum Int’l, Inc. v.
Greenberg Peden, P.C. 352 S.W.3d 445 (Tex. 2011). The Yetter Coleman
attorneys in the arbitration proceeding were unaware that other Yetter Coleman
lawyers had represented Anglo-Dutch in that appeal, in which a former employee
of Greenberg Peden sought a recovery for attorney’s fees against Anglo-Dutch.
Upon learning of its counsel’s involvement in the Anglo-Dutch appeal,
Oxbow objected to Peden’s further participation in the arbitration. Oxbow also
moved to disqualify Peden as an arbitrator, citing Yetter Coleman’s representation
of Anglo-Dutch in the fee suit, and Peden’s lack of disclosure of the existence of
the suit at the time he was selected as an arbitrator. Following its process for
resolving motions to disqualify, the AAA denied Oxbow’s motion.
2
The arbitration panel thereafter issued a unanimous decision, largely
favoring PASE. When PASE moved to confirm the award in state district court,
Oxbow moved to vacate it, citing the evident partiality of an arbitrator as the
ground. See 9 U.S.C. § 10(a)(2); TEX. CIV. PRAC. & REM. CODE ANN.
§ 171.088(a)(2)(A) (West 2011). 1
The trial court denied confirmation and granted Oxbow’s motion to vacate
the arbitrator’s decision, concluding that the standard for evident partiality had
been met. On appeal, we determine whether Peden’s failure to discover Yetter
Coleman’s representation of both Oxbow and Anglo-Dutch—and thus Peden’s
failure to disclose to Oxbow that the Yetter Coleman firm also had represented
Anglo-Dutch—demonstrates evident partiality so as to require vacatur of the
arbitrator’s decision. We conclude that it does not and therefore reverse.
Background
The AAA proposed David Peden as a panel member to hear the dispute and
sent Peden’s resume to the parties. Peden listed his work history:
• Partner, Porter & Hedges, L.L.P. 2001- present.
• Shareholder, Director, and Vice-President, Greenberg Peden P.C.,
1974-2001.
1
The parties did not specify whether their arbitration agreement fell under the
federal or state arbitration act, so they proceeded under both.
3
Along with the notice of Peden’s appointment, the AAA forwarded Peden’s
supplemental disclosures to the parties. These disclosures included the results of a
conflicts check from Peden’s current firm, Porter & Hedges. Peden also wrote: “I
have no way of searching the records from my old firm prior to the time I joined
Porter & Hedges.” Peden also disclosed that, while he did not recall dealings with
any of the lawyers involved in the proceeding, “[i]t is likely that my firm has had
or will have dealings with the firms listed as counsel.” He invited the lawyers to
the proceeding to “remind me if I have failed to remember correctly” any past
dealings with counsel.
By 2010, Peden had been a partner at Porter & Hedges for more than nine
years. The Greenberg Peden law firm closed its practice in 2001. Peden was an
officer and director of Greenberg Peden, and having been last elected as a director
of the firm in 2001. The firm’s Secretary of State filings continued to list Peden as
a director. Although it was no longer a law practice, Greenberg Peden continued
to hold a bank account for the purpose of collecting receivables for legal fees that
had accrued before it closed. As an officer of the firm, Peden retained a right to
receive his proportional share of any funds the firm received.
4
The Anglo-Dutch litigation
While Greenberg Peden was an active law firm, it employed Gerald Swonke
as counsel. The firm’s agreement with Swonke provided that he would receive
ninety percent of the fees from any business he generated, and Greenberg Peden
would retain ten percent of those fees.
In October 2000, Anglo-Dutch hired Swonke, together with the firm of
McConn & Williams, to pursue a lawsuit over the development of oil and gas
prospects in Kazakhstan. Anglo-Dutch agreed to pay Swonke an hourly fee in a
letter agreement, prepared on Greenberg Peden letterhead. In a separate
agreement, Anglo-Dutch executed a contingency fee contract with McConn &
Williams.
While at Greenberg Peden, Swonke performed 277 hours of work for Anglo-
Dutch, generating about $300,000 in attorney’s fees at his hourly rate. After
Greenberg Peden closed in 2001, Swonke moved his law practice to McConn &
Williams, where he continued to work on the Anglo-Dutch matter. At the
conclusion of the Anglo-Dutch case, a fee dispute arose between Swonke and
Anglo-Dutch. Swonke sought to recover payment for all of his time at an hourly
rate, including his time at McConn & Williams, under the hourly contract he and
Anglo-Dutch had executed while Swonke worked at Greenberg Peden. Swonke
5
contended that this hourly fee agreement was a contract for personal services that
followed him when he moved his practice. Anglo-Dutch disagreed; it contended
that its hourly fee agreement was with Greenberg Peden, not Swonke individually,
and thus it was obligated only to pay hourly rates for Swonke’s time while at
Greenberg Peden.
Unable to resolve the dispute, in April 2004, Anglo-Dutch sued Swonke and
Greenberg Peden. Anglo-Dutch sought a declaration that it owed Greenberg Peden
approximately $300,000 for the work that Swonke performed while at Greenberg
Peden, and that it owed Swonke nothing for the work he performed while at
McConn & Williams. No party sought a recovery against Greenberg Peden in the
case.
Peden was called as a witness during the September 2007 jury trial. He
testified that Greenberg Peden had no economic interest in any fees owed after
Swonke left the firm. Anglo-Dutch agreed with this view of the case, and its chief
executive testified that Anglo-Dutch had been willing all along to pay the fees that
it incurred for services from Greenberg Peden.
Greenberg Peden executed an “Assignment and Release” during the course
of the Anglo-Dutch litigation. Peden testified that the release was to “make it real
clear to . . . Anglo-Dutch that [Greenberg Peden] had no claims and we’re not
6
asserting any claims.” The 2004 Assignment and Release released any claims
Greenberg Peden may have had against Anglo-Dutch, and it made Swonke—not
Anglo-Dutch—responsible for remitting the firm’s portion of any fees collected.
The Anglo-Dutch trial culminated in a jury verdict in favor of Swonke.
While the case was on appeal, Anglo-Dutch retained the Yetter Coleman firm to
represent it for the appeal against Swonke. The intermediate appellate court
affirmed the trial court’s judgment, and Yetter Coleman sought review in the Texas
Supreme Court.
In the fall of 2010, just before the parties received Peden’s arbitration
disclosures, Gregory Coleman, the appellate practice head at Yetter Coleman,
presented oral argument to the Texas Supreme Court in the Anglo-Dutch fee suit.
In late August 2011, the Texas Supreme Court reversed the court of appeals’
judgment in the fee suit, holding that Anglo-Dutch had not contracted with Swonke
individually, and thus the hours that Swonke expended after leaving the Greenberg
Peden firm were not included in the hourly agreement.
The Texas Supreme Court’s Anglo-Dutch decision came after Oxbow and
PASE had spent a year in the arbitration proceeding. The parties had completed
discovery and tried the dispute in an eight-day evidentiary hearing; a decision of
the arbitration panel was pending. On receiving news of Yetter Coleman’s victory
7
in Anglo-Dutch, the Yetter Coleman attorneys representing Oxbow reviewed the
appellate record in the fee suit.
After that review, Oxbow objected before the AAA to Peden’s continued
participation in the arbitration, based on evident partiality, and Oxbow moved to
disqualify him. Oxbow cited Peden’s failure to disclose his connection to the
Anglo-Dutch litigation and that his connection with Greenberg Peden was ongoing,
rather than concluded.
Peden responded that: (1) he had no involvement in the fee suit other than as
a trial witness; (2) he was not a party to the fee suit; (3) he had no personal
exposure for any potential liability in it; (4) he was not involved in the appeal; and
(5) he had not known that Yetter Coleman was involved in the appeal. Peden
further responded that he learned of Yetter Coleman’s appellate involvement in the
Anglo-Dutch litigation when Oxbow filed its motion with the AAA seeking to
disqualify him. Although Peden had reviewed the Texas Supreme Court’s slip
opinion, it did not identify the parties’ attorneys.
The AAA denied Oxbow’s motion to disqualify Peden, and it reaffirmed the
appointment of all three arbitrators. See AAA Com. Arbitration R. & Mediation
Proc. §17(b) (June 1, 2009) (“Upon objection of a party to the continued service of
an arbitrator, or on its own initiative, the AAA shall determine whether the
8
arbitrator should be disqualified [based on partiality or lack of independence], and
shall inform the parties of its decision, which decision shall be conclusive.”).
Following the AAA’s ruling on Oxbow’s motion to disqualify, the
arbitration panel issued its unanimous decision, rejecting Oxbow’s principal claim
regarding PASE’s liability for the cost of Oxbow’s environmental compliance,
finding in favor of Oxbow on another claim, and awarding damages to both parties.
Trial court proceedings
PASE moved to confirm the arbitrators’ decision in the trial court. Oxbow
counter-petitioned to vacate the award, re-urging the grounds it raised before the
AAA. The trial court found that:
• Peden continued to be a shareholder and officer of Greenberg Peden
through the date of the arbitration proceedings, and ongoing litigation
existed involving that firm and its efforts to collect fees owed to it;
• Peden could and should have called former Greenberg Peden
colleagues to ask about pending matters to perform a rudimentary
conflicts check;
• Peden stood to “gain or lose thousands of dollars” based upon the
outcome of the Anglo-Dutch litigation.
• The disclosures that Peden proffered to the parties were misleading
because they did not account for Greenberg Peden’s ongoing
collection efforts after the law firm closed its practice in 2001.
The trial court denied confirmation, and it vacated the arbitration decision.
9
Discussion
I. Standard of review
An appellate court reviews de novo a trial court’s decision as to vacatur or
confirmation of an arbitration award. In re Chestnut Energy Partners, Inc., 300
S.W.3d 386, 397 (Tex. App.—Dallas 2009, pet. denied); Statewide Remodeling,
Inc. v. Williams, 244 S.W.3d 564, 567–68 (Tex. App.—Dallas 2008, no pet.).
Because Texas law favors arbitration, judicial review of an arbitration decision is
“extraordinarily narrow.” Hisaw & Assocs. Gen. Contractors, Inc. v. Cornerstone
Concrete Sys., Inc., 115 S.W.3d 16, 18 (Tex. App.—Fort Worth 2003, pet. denied);
see IPCO-G. & C. Joint Venture v. A.B. Chance Co., 65 S.W.3d 252, 256 (Tex.
App.—Houston [1st Dist.] 2001, pet. denied). An arbitration decision has the same
effect as a judgment of a court of last resort; accordingly, all reasonable
presumptions are indulged in its favor. CVN Group, Inc. v. Delgado, 95 S.W.3d
234, 238 (Tex. 2002) (quoting City of San Antonio v. McKenzie Constr. Co., 150
S.W.2d 989, 996 (Tex. 1941)).
To the extent disputes about material facts exist in the context of a claim of
evident partiality, we review the trial court’s resolution of them for legal and
factual sufficiency. Amoco DT Co. v. Occidental Petroleum, 343 S.W.3d 837, 844
(Tex. App.—Houston [14th Dist.] 2011, pet. denied) (quoting Las Palmas Med.
10
Ctr. v. Moore, 349 S.W.3d 57, 66 (Tex. App.—El Paso 2010, pet. denied)). An
evident partiality inquiry is a fact-intensive one, but the judiciary’s involvement in
assessing these facts is limited. Mariner Fin. Group v. Bossley, 79 S.W.3d 30, 34
(Tex. 2002) (quoting Lifecare Int’l, Inc. v. CD Med., Inc., 68 F.3d 429, 435 (11th
Cir. 1995)). “The judiciary should minimize its role in arbitration as judge of the
arbitrator’s impartiality.” Commw. Coatings Corp. v. Cont’l Cas. Co., 393 U.S.
145, 151, 89 S. Ct. 337, 340 (1968), quoted in Burlington N. R.R. Co. v. TUCO
Inc., 960 S.W.3d 629, 635–36 (Tex. 1997).
Under both the Federal Arbitration Act and the Texas General Arbitration
Act, the party seeking to vacate an arbitration decision based on evident partiality
bears the burden of proof. Amoco, 343 S.W.3d at 841; see Prudential Sec. Inc. v.
Shoemaker, 981 S.W.2d 791, 793 (Tex. App.—Houston [1st Dist.] 1998, no pet.);
see also 9 U.S.C. § 10; TEX. CIV. PRAC. & REM. CODE ANN. § 171.087 (West
2011).
II. Analysis
An arbitrator’s failure to disclose known facts that “might, to an objective
observer, create a reasonable impression of the arbitrator’s partiality” can support
vacatur of an arbitration decision. Mariner Fin. Group, 79 S.W.3d at 32 (quoting
TUCO, 960 S.W.2d at 630). In Mariner, the summary judgment record on appeal
11
was “silent about whether [the arbitrator] remembered . . . or ever knew of” a
witness in the arbitration who had testified against the arbitrator in a legal
malpractice case against the arbitrator two and a half years earlier. Id. at 33. The
court held that “the state of [the arbitrator’s] knowledge about [the witness] is a
fact issue material to determining his partiality.” Id. In this case, after conducting
an evidentiary hearing, the trial court did not find that Peden knew of Yetter
Coleman’s connection to the Anglo-Dutch suit. It nonetheless vacated the
decision, because it concluded that Peden had failed to exercise reasonable
diligence to discover the connection.
Diligence
Thus, the question whether Peden’s failure to disclose the relationship
between Peden’s law firm and Yetter Coleman constitutes evident partiality begins
with an assessment of the level of diligence required to discover that relationship.
It is undisputed that Yetter Coleman’s appellate representation of Anglo-Dutch
began three years after Greenberg Peden had assigned its interest in the suit to
Swonke and had waived all claims against Anglo-Dutch, and two years after Peden
gave his trial testimony, which was the extent of his involvement in the suit.
Greenberg Peden, which did not provide legal services after 2001, no longer
maintained a conflicts check system. Even if it had, a check of its records would
12
not have yielded information about Yetter Coleman’s connection to Anglo-Dutch,
because that connection did not exist until six years after Greenberg Peden had
closed its law practice. The record evidence does not support a finding that Peden
knew or had been notified of Anglo-Dutch’s decision to retain the Yetter Coleman
firm for its appeal. The trial court made no such finding; instead, it found that
Peden “easily could have called former Greenberg Peden colleagues to ask about
pending matters to perform at least a rudimentary form of conflicts check.”
Peden’s disclosures placed Yetter Coleman on notice of their limitations,
including that Peden had not performed a conflicts check with respect to
Greenberg Peden. See Mariner Fin. Group, 79 S.W.3d at 37 (Owen, J.,
concurring) (“A “reasonable effort to inform” oneself would not require review of
every matter in which a lawyer or witness may have been adverse to or critical of
the potential arbitrator.”). Because the trial court did not find that Peden knew of
the relationship between Greenberg Peden and Oxbow’s counsel’s representation
of another client, and Peden’s disclosures warned of their inadequacy with respect
to Greenberg Peden, we hold that Peden’s failure to discover the relationship will
not support a finding of evident partiality. See Mariner Fin. Group, 79 S.W.3d at
33 (“[T]he state of [the arbitrator’s] knowledge about [the relationship] is a fact
issue material to determining his partiality.”); ABA Code of Ethics for Arbitrators
13
in Com. Disputes, Canon II(A) (requiring prospective arbitrator to disclose “any
known direct or indirect personal interest in the outcome of the arbitration” and
“any known existing or past financial, business, professional or personal
relationships which might reasonably affect impartiality or the lack of
independence in the eyes of any of the parties.”) (emphasis added).
Representation of other clients in other matters
Oxbow further contends that, whether or not Peden had knowledge of Yetter
Coleman’s involvement in the Anglo-Dutch litigation, Oxbow nonetheless has
demonstrated Peden’s evident partiality. Oxbow points to two findings the trial
court made: (1) the Anglo-Dutch case was ongoing at the time of the arbitration;
and (2) Peden individually stood to financially gain or lose based upon its final
outcome.
Oxbow ignores, however, that neither Peden nor Greenberg Peden was a
party to the Anglo-Dutch appeal. The amount owed to Greenberg Peden was
undisputed in the Anglo-Dutch litigation, neither Yetter Coleman nor its client
sought relief against Greenberg Peden in the appeal, and Greenberg Peden had
released Anglo-Dutch from any liability to it. Greenberg Peden was not served
with the appellate briefing that Yetter Coleman filed on behalf of Anglo-Dutch.
There was simply no case or controversy between Anglo-Dutch and Greenberg
14
Peden. Even before the time of Yetter Coleman’s involvement, Anglo-Dutch has
not sought relief against Greenberg Peden; Greenberg Peden has not sought relief
against Anglo-Dutch.
To the extent that the trial court found that Peden could “gain or lose” in the
Anglo-Dutch suit, this finding is irrelevant to a vacatur determination in this
arbitration—whatever the gain or loss, it would not come from Oxbow, or its
counsel, or even its counsel’s other client, Anglo-Dutch, which had been released
from liability. Yetter Coleman was not a party to the Anglo-Dutch suit and is not a
party to this dispute. Oxbow’s and Anglo-Dutch’s mutual, but unrelated, decision
to select the same counsel does not create a conflict with Peden, who has never
been represented by that counsel or adverse to that counsel in any suit. Without
evidence that Peden had actual knowledge of Yetter Coleman’s role in the Anglo-
Dutch litigation, the relationship between Peden and another client of the Yetter
Coleman firm—a client who has no connection to this arbitration proceeding—
does not independently support a finding of evident partiality. As the Fifth Circuit
observed in recognizing the high threshold for vacatur: “No case we have
discovered in research or briefs has come close to vacating an arbitration award for
nondisclosure of such a slender connection between the arbitrator and a party’s
counsel.” Positive Software Solutions, Inc. v. New Century Mortg. Corp., 476 F.3d
15
278, 284 (5th Cir. 2007) (reversing trial court vacatur; collecting cases).
Particularly when the arbitrating authority has heard and rejected the challenge, the
threshold should remain high. Absent a finding of actual knowledge of the
relationship, we defer to the AAA’s decision rejecting Oxbow’s motion to
disqualify Peden, which by the parties’ express agreement, governs the resolution
of their dispute, and under the AAA’s rules “shall be conclusive.” See AAA Com.
Arbitration R. & Mediation Proc. § 17(b).
Conclusion
We hold that the trial court erred in vacating the arbitration decision on the
basis of evident partiality. We therefore reverse the judgment and remand the case
to the trial court to enter judgment confirming it.
Jane Bland
Justice
Panel consists of Justices Keyes, Higley, and Bland.
16