Lawyers who have even a hint that there could be a relationship between an arbitrator and opposing counsel better object loudly and do so long before a decision is reached; otherwise, their client will be out of luck.
That’s the takeaway from an Aug. 20 decision from Dallas’ 5th Court of Appeals. In Ponderosa Pine Energy v. Tenaska Energy Inc., et al. the justices reversed and rendered a trial court’s decision to vacate a $125 million arbitration award.
According to the decision, Samuel A. Stern, a partner in Washington, D.C.'s Hills Stern & Morley, was selected as an arbitrator in a contract dispute case between Ponderosa Pine Energy on one side and Tenaska Energy Inc. and Illinova Generating Co. on the other. Stern disclosed to the parties in the case that he had a "general discussion" with New York's Nixon Peabody on behalf of Lexite, an Indian company that provides support to law firms, but Nixon Peabody and Lexite did not do business. Nixon Peabody partners Frank Penski and Constance Boland represented Ponderosa Pine Energy in the case. When opposing counsel for Tenaska Energy and Illinova Generating Co. had asked Stern to submit a “comprehensive and compliant disclosure statement” he responded that he had “no other professional or other relationship” with financial institutions and companies related to the dispute.
After Stern ruled for Ponderosa, awarding it $125 million as a part of a three-member arbitration panel, Tenaska Energy and Illinova Generating Co. challenged the award, alleging, “Stern failed to disclose that his contacts with Nixon Peabody, a 700-lawyer firm, were with Penski and Boland, personally, and that he permitted them to ‘direct what he did and did not disclose to the defendants. . . .’ ”
The trial court vacated the arbitration award, finding that Stern exhibited “evident partiality” in the contract dispute case by “failing to fully disclose the Lexite and Nixon Peabody relationships.”
But the 5th Court reversed the decision, finding that Tenaska and Illinova waived their evident-partiality challenge.
“In this case, appellees had information regarding Stern’s relationships with both Lexite and Nixon Peabody . . .,” wrote Justice Douglas Lang, in an opinion joined by Justices Molly Francis and David Bridges. Lang noted that the appellees failed to object to Stern at the time of disclosure. “That information failed to even pique appellees’ curiosity at the time the information was disclosed. After the award, however, Stern’s relationship gained significance that triggered an investigation and ultimately became the basis for an evident partiality challenge,” Lang wrote.
Stern is pleased with the 5th Court's ruling. “I thought I had disclosed more than what was required. The issue with respect to the Indian company was pretty peripheral, and I was surprised at the trial court's ruling,” Stern says. “And I was gratified by the appellate court's ruling.”
Reagan Simpson, a partner in Yetter Coleman in Austin who represents Ponderosa Pine, declines comment.
Will Dibrell, a shareholder in Austin’s Graves Dougherty Hearon & Moody who represents Tenaska Energy, and Mike Hatchell, of counsel at Locke Lord in Austin who represents Illinova Generating, did not immediately return a call for comment. Penski and Boland also did not immediately return a call for comment
-- John Council