Texas Court of Appeals Rejects Evident Partiality and Excess of Powers Challenges and Confirms Arbitration Award

By Brett Goodman

The Court of Appeals of Texas in Dallas has affirmed the decision of a trial court that confirmed an arbitration award ordering appellants take nothing from appellees.

In Skidmore Energy, Inc. v. Maxus (U.S.) Exploration Co., (Tex. App. — Dallas July 12, 2011, no. pet. ) Skidmore Energy Inc. contended that the trial court erred confirming the arbitration award that they take nothing from Maxus (U.S.) Exploration Company. The two oil and gas exploration companies in 1998 agreed to assign different property leases to the other, but Maxus abandoned five of the leases, eventually leading to arbitration. A majority of the three arbitrators awarded Maxus victory, but Skidmore appealed because it felt that two of the arbitrators failed to make certain pre-arbitration disclosures that led to partiality and that the arbitrators exceeded their authority.

Skidmore claimed arbitrator McNamara to not be impartial because of certain financial and business ties to Maxus. The court explained, “A neutral arbitrator selected by the parties or their representatives exhibits evident partiality if he does not disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality.” Citing to the arbitration agreement, however, the court noted how it read, “there shall be no ex parte communications at any time by any party or its representative with any of the arbitrators, except that each party may confer with its own party-appointed arbitrator with respect to selection of the third arbitrator.” Thus, there was no mention of intent to have a neutral arbitrator beyond what is written. The court determined that a party waives the right to raise an objection to the partiality of an arbitrator if the party knows of a bias but does not express it until after the arbitration award, and these were the exact circumstances of the case. Even if Skidmore had acted within a more proper time frame, the court still saw “based upon the entirety of this record that McNamara did not fail to disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality.”

On the point of the arbitrators exceeding their authority, the court likewise ruled in favor of Maxus. The arbitrators determined that Skidmore had breached the 1998 agreement, something not advanced by Maxus at the arbitration’s initial stages. As a rule, “an arbitrator’s authority is limited to disposition of matters expressly covered by an arbitration agreement or implied by necessity.” When in doubt about the authority of the arbitrators, the court made clear that the tendency in Texas should be to err on the side of allowing arbitration. Succinctly describing the resolution of the issue, the court asserted, “The affirmative defenses asserted by Maxus—waiver, estoppel, and limitations—were before the arbitration panel. The questions of whether and when there was a breach of the 1998 Agreement were before the arbitration panel.” Thus, the arbitrators were deciding matters properly allowed to be decided by them and were not exceeding their powers.

Because the court struck down both of Skidmore’s contentions, it affirmed the trial court’s decision to allow the arbitration award in favor of Maxus. Once again, through the issue of the power of arbitrators, a Texas court has made a ruling showing deference in Texas to the work of arbitrators.

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Brett Goodman is a summer intern at Karl Bayer, Dispute Resolution Expert. Brett is a J.D. candidate at The University of Texas School of Law. He holds degrees in Finance, Mathematics, and Spanish from Southern Methodist University.