Texas Supreme Court Agrees to Consider What Constitutes Arbitrator Evident Partiality

The Supreme Court of Texas has agreed to consider whether an arbitration award in a dispute between two energy companies should be upheld.  In Tenaska Energy Inc. et al. v. Ponderosa Pine Energy LLC, No. 12-0789, Ponderosa sought $200 million from Tenaska over a breached power plant purchase agreement.  The parties engaged in arbitration before a three-member panel and Ponderosa was awarded $125 million.

Following arbitration, Ponderosa sought to confirm the panel’s award.  Tenaska responded by stating the arbitral award should be vacated because the arbitrator selected by Ponderosa, Samuel A. Stern, failed to fully disclose relevant information regarding his relationship with Ponderosa’s law firm and his ownership interest in a company that did business with the firm.  According to Tenaska, this information demonstrated Stern’s likely bias towards Ponderosa.  The trial court agreed and vacated the arbitral award due to Stern’s evident partiality.  Ponderosa then appealed the decision to the Dallas Court of Appeals.

Texas’ Fifth Court of Appeals found that Stern provided the parties with sufficient information to place them on notice of his possible partiality prior to the arbitral proceedings and overturned the trial court’s decision.  The court added that Tenaska failed to inquire further into the disclosed relationships that the trial court held demonstrated Stern’s evident partiality.  Because Tenaska proceeded with arbitration without further inquiry into those relationships, the Court of Appeals held the company waived its right to challenge Stern’s neutrality post-arbitration.  The Dallas court then confirmed the panel’s arbitration award.  Tenaska filed an appeal with the Supreme Court of Texas.

On Friday, Texas’ high court agreed to consider the case.  Oral arguments are currently scheduled for January 7, 2014.  Stay tuned to Disputing for more on this interesting case!