Austin boutique Yetter Coleman sought to disqualify an arbitrator from a client matter, after one of its name partners scored a Texas Supreme Court victory against the arbitrator’s former firm. But the 1st Court of Appeals rejected the move.

“It’s an unfortunate development in Texas that, frequently, the arbitration award marks the start of litigation and not the conclusion of litigation. And, as a consequence of this, a cottage industry of challenging arbitration awards has developed,” says Charles Schwartz, a partner in Houston’s Skadden, Arps, Slate, Meagher & Flom, who represents Port Arthur Steam Energy LP at the 1st Court. “And post-award litigation is expensive and deprives the party’s benefit of its bargain when it contracts for arbitration. In my opinion the decision will go a long way towards deterring this sort of post-award litigation.”

Reagan Simpson, a partner in the Houston office of Yetter Coleman who represents Oxbow Calcining LLC on appeal, declines comment.

The background to the 1st Court’s Oct. 22 decision in Port Arthur Steam Energy LP v. Oxbow Calcining LLC is as follows, according to the opinion, which reversed the trial court’s decision vacating the arbitration award.

Yetter Coleman represented Oxbow Calcining LLC (Owbow) against Port Arthur Steam Energy LP (Port Arthur) in an arbitration involving the responsibility for environmental compliance costs at an industrial facility. The parties both chose David Peden to serve on a three-member American Arbitration Association (AAA) panel.

After the arbitration but before the panel issued its decision, Yetter Coleman learned of its Texas Supreme Court victory on behalf of client Anglo-Dutch Petroleum in a dispute with Peden’s former firm, Anglo-Dutch Petroleum v. Greenburg Peden (2011).

In Anglo-Dutch the late Greg Coleman, former Texas solicitor general and a partner in Yetter Coleman, won a significant attorney fee decision from the Texas Supreme Court in on behalf of Anglo-Dutch. The case also marked Coleman’s last argument before the high court. He died in plane crash months before the high court handed down its decision in Anglo-Dutch. [See "Rules of Engagement" Texas Lawyer, Sept. 9, 2011, page 1.]

The Yetter Coleman attorneys in the arbitration were unaware that other Yetter Coleman lawyers had represented Anglo-Dutch in that appeal, the 1st Court’s decision continues. Upon learning of Yetter Coleman’s involvement in Anglo-Dutch, Oxbow objected to Peden’s further participation in the case and moved to disqualify him. Oxbow cited Yetter Coleman’s involvement in Anglo-Dutch and Peden’s lack of disclosure. The AAA denied Oxbow’s motion.

The AAA later issued a unanimous decision, largely favoring Port Arthur. When Port Arthur moved to affirm the award in a state district court, Oxbow moved to vacate it, citing evident partiality as the ground. The trial court denied the confirmation, concluding that the standard for evident partiality had been met. Port Arthur later appealed the decision to the 1st Court.

Debating Disclosures

To arrive at its decision, the 1st Court first looked at Peden’s work history and disclosures to the parties in the arbitration. Peden noted that he has been a partner in Porter & Hedges since 2001 and was previously a shareholder and director in Greenburg Peden from 1974 until 2001.

While his disclosures included a conflicts check at Porter & Hedges, Peden noted that he had “no way of searching the records” at his old firm, because it closed in 2001. He also invited lawyers to “remind me if I have failed to remember correctly” any past dealings with counsel.

After Oxbow objected to Peden’s participation on the panel, Peden responded that: he had no involvement in Anglo-Dutch other than as a trial witness; he was not a party to the suit; he had no exposure for any potential liability in it; he was not involved in the appeal; and he had not known that Yetter Coleman was involved in the appeal.

The 1st Court concluded that the trial court erred in vacating the arbitration decision because Peden put Oxbow on notice of his limitation because he disclosed that he did not perform a conflicts check with respect to Greenberg Peden.

The 1st Court also ruled that the Anglo-Dutch case was also not enough to vacate the arbitration award.

“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,” wrote Justice Jane Bland in an opinion joined by Justices Evelyn Keyes and Laura Carter Higley.

“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,” Bland wrote.

Schwartz is pleased with the decision.

“The court doesn’t go off on this, but Oxbow’s counsel was in a much better position to know the alleged conflict than Peden was,” Schwartz says.