Texas Supreme Court Denies Petition in Alleged Arbitrator Partiality Case

Last week, the Supreme Court of Texas declined to consider whether an arbitral decision should be set aside based on a member of an arbitration panel’s alleged evident partiality. In Port Arthur Steam Energy LP v. Oxbow Calcining LLC, No. 01-12-01165-CV (Tex. – App. – 1st [Houston], October 22, 2013), Oxbow Calcining initiated arbitral proceedings with Port Arthur Steam Energy (“PASE”) before the American Arbitration Association (“AAA”) over a number of environmental compliance costs related to an industrial facility. The parties selected a three-member arbitration panel and participated in both discovery and an evidentiary hearing.

Before the arbitral panel came to a decision, Oxbow learned that a former law firm at which a jointly selected, neutral arbitrator was a shareholder was engaged in a pending attorneys’ fees dispute with a client represented by Oxbow’s own attorneys. After learning of the alleged conflict, Oxbow sought to disqualify the arbitrator. The AAA denied Oxbow’s request and the three-member panel issued a unanimous decision awarding $3.4 million to PASE.

Next, PASE filed a motion to confirm the arbitration award in district court. Instead, the trial court vacated the award on Oxbow’s motion due to the arbitrator’s partiality. In response, PASE appealed the decision to Texas’ First District Court of Appeals in Houston. The appellate court reversed the lower court’s order because the facts of the case did not demonstrate evident partiality.

According to the Houston court, it was reasonable for the arbitrator to warn Oxbow’s counsel prior to his selection that he could not check old case files for potential conflicts because his former law firm was closed in 2001. In addition, the appeals court stated the arbitrator had no way of knowing Oxbow’s firm was involved in the ongoing fee dispute because the arbitrator was replaced by another attorney three years before the company’s firm became involved in the dispute.

After the First District ordered the trial court to reinstate the arbitration award, Oxbow sought review by the Supreme Court of Texas. On Friday, the Texas high court let the multi-million dollar judgment stand when it declined to consider the case.

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