Skidmore Energy Inc.v . Maxus (US)Exploration Company
(Tex.App. - Dallas, July 12, 2011)(Opinion by Justice Robert M. Fillmore)Fifth Court of Appeals rejects claim of evident partiality based on business relationship and stock ownership where complaining party waited until after receiving an adverse arbitration decision to raise the issue. By failing to object prior to entry of an arbitration award by the panel majority, the panel holds, appellants waived the issue. Even if the objection would have been preserved, it should not have been sustained, the court opines in dicta, given that the arbitrator made relevant disclosures regarding the entity which was only tangentially connected to the dispute, and the parties were aware of it. The court also rejects that contention that the arbitrators exceeded their authority. Trial court's confirmation of arbitration award and denial of motion to vacate it is accordingly affirmed.
OPINION
In a single issue, appellants Skidmore Energy, Inc. (Skidmore), and Johnny L. Patton, Jr., Patton Production Company, and Puls, Taylor & Woodson, L.L.P. (collectively referred to as Intervenors) contend the trial court erred by entering a judgment confirming an arbitration award that ordered appellants take nothing from appellee Maxus (U.S.) Exploration Company (Maxus). We affirm the trial court's judgment.
On August 15, 1998, Skidmore and Maxus entered into an agreement to alter their business relationship (the 1998 Agreement). Under the 1998 Agreement, Skidmore agreed to assign all of its rights, titles, and interests in leases on Green Canyon Blocks 140, 162, 206, and 492, and Mississippi Canyon Blocks 491 and 492 to Maxus, and Maxus agreed to pay Skidmore $6,500,000 and to assign all of its rights, title, and interest in the lease on Garden Banks Block 361 to Skidmore. According to the 1998 Agreement, at the time of closing Maxus and Skidmore were to execute assignments of the leases using a form of assignment attached to the 1998 Agreement as Exhibit B. The Exhibit B form of assignment provided that in the event the assignee desired to surrender a lease subject of assignment prior to the expiration of the primary lease term, the assignee would give the assignor ninety days' notice of its intent to surrender the lease and offer to reassign the lease to the assignor (the notice and reassignment provision).
On August 21, 1998, Skidmore executed six separate assignments in which it assigned all of its interests in the leases on Green Canyon Blocks 140, 162, 206, and 492, and Mississippi Canyon Blocks 491 and 492 to Maxus and Maxus executed an assignment of its interest in the lease on Garden Banks Block 361 to Skidmore. Skidmore retained a three percent overriding royalty interest in the oil and gas produced, saved, and marketed from the leases it assigned to Maxus, and Maxus retained the same overriding royalty interest in the oil and gas produced, saved and marketed from the lease it assigned to Skidmore. The assignments executed by Maxus and Skidmore did not contain the notice and reassignment provision. See Footnote 1 Each of the assignments stated, “[t]his Assignment is expressly made and accepted subject to the following: . . . (2) The terms and provisions of that certain Agreement dated August 15, 1998 between Assignor and Assignee.”
In October 1999, Skidmore surrendered the lease on Garden Bank Block 361 before the expiration of its primary term. Skidmore did not provide Maxus prior notice of its intent to relinquish the lease; nor did Skidmore offer to reassign the lease to Maxus. Maxus surrendered its interests in the leases on Green Canyon Blocks 162 and 206 in December 2002, its interests in the leases on Mississippi Canyon Blocks 491 and 492 in June 2002, and its interest in the lease on Green Canyon Block 140 in July 2002. Maxus did not give Skidmore prior notice of its intent to relinquish any of those leases; nor did Maxus offer to reassign any of those leases to Skidmore.
In November 2004, Skidmore learned Maxus relinquished its interests in the five leases. Skidmore notified Maxus of Skidmore's contention that Maxus had breached the 1998 Agreement. In May 2005, Skidmore filed suit against Maxus for breaching the terms of the 1998 Agreement by surrendering five of the leases subject of the agreement without giving Skidmore prior written notice of its intention to surrender the leases or providing Skidmore the opportunity to have the leases reassigned to it. Intervenors asserted the same breach of contract claim against Maxus. See Footnote 2 Maxus asserted affirmative defenses of waiver, estoppel, and limitations, as well as a counterclaim for declaratory judgment that Maxus was not obligated to provide Skidmore notice and an opportunity to request reassignment prior to the relinquishment of any of the assigned leases.
Pursuant to a written arbitration agreement entered into after the lawsuit was filed, Skidmore, Intervenors, and Maxus submitted the claims asserted in the lawsuit to binding arbitration. See Footnote 3 A majority of the three-member arbitration panel entered an award in favor of Maxus. Skidmore and Intervenors moved to vacate the award on the grounds that (1) two of the arbitrators, Martin McNamara and Shannon Ratliff, failed to make necessary pre-arbitration disclosures, and (2) the arbitration panel majority exceeded its authority. Maxus moved for judgment confirming the panel's award. The trial court denied the motion to vacate the arbitration award and signed a judgment confirming the award. Skidmore and Intervenors appeal the trial court's judgment confirming the arbitration award.
Appellants contend all of the arbitrators, including McNamara, were intended to be neutral arbitrators. Maxus contends that, as its party-appointed arbitrator, McNamara was not intended to be a neutral arbitrator. While there is nothing in the arbitration agreement that expressly indicates the party-appointed arbitrators were to be considered neutral arbitrators, the agreement specifies that “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.” McNamara testified at the hearing on Maxus' motion to confirm the arbitration award that he believed he was a neutral arbitrator.
The arbitration agreement required the arbitrators to disclose all actual or perceived conflicts of interest and business relationships involving the dispute or the parties, including any professional or social relationships, past or present, with any party or its affiliates, and provide an oath or undertaking of impartiality in accordance with the “Code of Ethics for Arbitrators in Commercial Disputes promulgated by [the] joint committee of the American Arbitration Association and of the American Bar Association” (the AAA Code). The arbitration agreement provided that the arbitrators could have no affiliation or interests with either party and no financial or personal interest in the outcome of the arbitration.
In accordance with the arbitration agreement, McNamara issued disclosures. He stated he had no direct or indirect financial or personal interest in the outcome of the arbitration. In addition to providing information obtained through the computerized conflicts system of the law firm at which he was employed, including information concerning past litigation in which his firm represented a client adverse to Skidmore, McNamara disclosed the following:
During the course of the arbitration, certain demonstrative exhibits and testimony indicated that drilling equipment owned by Transocean, Inc. (Transocean) had been utilized by Maxus in 1999 in connection with the drilling of a well referred to as “Haymaker” on Green Canyon Block 162, a lease subject of the arbitration. On the third day of the four-day arbitration, Maxus' witness Delmar Rumph testified regarding the length of time required to obtain necessary studies, authorizations, and equipment and to drill a deepwater offshore oil well. Rumph illustrated his point by discussing the twenty-one month period required for planning, permitting and drilling the Haymaker well. In connection with his explanation of this process, Rumph utilized four slides showing a semi- submersible mobile offshore drilling unit (MODU) with the caption “Transocean Amirante Rig” appearing next to the Maxus logo. Rumph explained that Maxus leased the Transocean Amirante MODU from Transocean at a cost of about $150,000 per day. Rumph testified that Maxus contracted with Advanced Drilling Technologies, Incorporated (ADTI) to drill the Haymaker well ulitizing the Transocean Amirante MODU. According to Rumph, a pre-drilling meeting included Maxus, ADTI, and Transocean.
No party or attorney objected or raised a question about McNamara's service as an arbitrator when the slides depicting the Transocean Amirante MODU were shown or when Rumph testified regarding use of the MODU in the context of drilling the Haymaker well. After the arbitration award, appellants asserted evident partiality of McNamara due to his service on the board of directors of Transocean, a company that had done intermittent business with Maxus and its parent company, Repsol YPF. Appellants also asserted after the arbitration award that while McNamara disclosed his membership on the Transocean board of directors, he should also have disclosed that he owned Transocean stock.
McNamara was deposed by appellants in post-award discovery. He indicated that at the time he made his pre-arbitration disclosures, he had no knowledge of any business relationship between Transocean and Maxus or Repsol YPF, but did not initiate an investigation into any relationship Transocean might have with Skidmore or Maxus. McNamara understood at the time of the arbitration that Maxus was a wholly-owned subsidiary of Repsol YPF. He indicated that he did not recall Skidmore or Maxus ever having been mentioned in connection with any Transocean board matter or included in any Transocean list of material clients. He testified that Transocean was and is the largest drilling company in the world with a market capitalization of about fifty billion dollars and a backlog of contracts worth between forty-two and forty-three billion dollars. McNamara would have assumed Transocean had done business with, or could have had some relationship with, almost any company involved in the offshore oil and gas business. However, he thought the potential for Transocean to have had a substantial relationship with a party to the arbitration as remote and not having an affect on him as an arbitrator. McNamara testified that if anyone had a concern about his service as an outside director of Transocean, he would have expected the concern to be raised in response to his disclosures. McNamara indicated that he assumed anyone knowing he was a director of Transocean, a publicly-held company, would have anticipated he owned stock in the company.
McNamara further testified that he was unaware of Transocean's involvement in drilling the Haymaker well until he saw the slides depicting the Transocean Amirante MODU in the arbitration hearing. McNamara did not think there was any point to mentioning again his relationship with Transocean; he assumed all of the parties knew of the Transocean involvement in the drilling of the Haymaker well because the well was drilled on a lease that was jointly held or that had “gone back and forth” between Maxus and Skidmore, and because the information would have been known to the parties by virtue of discovery exchanged in connection with the litigation. McNamara noted that there was no reaction or demonstration of surprise from the parties regarding the slides or Rumph's testimony referencing the Transocean Amirante MODU. Further, he testified that the fact the Transocean Amirante MODU was used in connection with drilling the Haymaker well was not relevant to the principal points being made by Rumph in his arbitration testimony. Rather, McNamara understood the purpose of Rumph's testimony about the Haymaker well was to describe the amount of time required to drill a deepwater offshore oil well in the Gulf of Mexico. McNamara testified that if he had not already made disclosure of his relationship with Transocean, he might have viewed the need for disclosure at the time of Rumph's testimony differently. See Footnote 7
Background
Skidmore and Maxus are oil and gas exploration companies. Maxus is a subsidiary of Repsol YPF. In 1996, Maxus and Skidmore executed a written agreement to jointly evaluate and acquire oil and gas exploration and production rights relating to offshore leases on federal blocks situated in the Gulf of Mexico (the 1996 Contract). Pursuant to the 1996 Contract, Maxus and Skidmore acquired a working interest in seven offshore leases on Green Canyon Blocks 140, 162, 206, and 492, Mississippi Canyon Blocks 491 and 492, and Garden Banks Block 361.On August 15, 1998, Skidmore and Maxus entered into an agreement to alter their business relationship (the 1998 Agreement). Under the 1998 Agreement, Skidmore agreed to assign all of its rights, titles, and interests in leases on Green Canyon Blocks 140, 162, 206, and 492, and Mississippi Canyon Blocks 491 and 492 to Maxus, and Maxus agreed to pay Skidmore $6,500,000 and to assign all of its rights, title, and interest in the lease on Garden Banks Block 361 to Skidmore. According to the 1998 Agreement, at the time of closing Maxus and Skidmore were to execute assignments of the leases using a form of assignment attached to the 1998 Agreement as Exhibit B. The Exhibit B form of assignment provided that in the event the assignee desired to surrender a lease subject of assignment prior to the expiration of the primary lease term, the assignee would give the assignor ninety days' notice of its intent to surrender the lease and offer to reassign the lease to the assignor (the notice and reassignment provision).
On August 21, 1998, Skidmore executed six separate assignments in which it assigned all of its interests in the leases on Green Canyon Blocks 140, 162, 206, and 492, and Mississippi Canyon Blocks 491 and 492 to Maxus and Maxus executed an assignment of its interest in the lease on Garden Banks Block 361 to Skidmore. Skidmore retained a three percent overriding royalty interest in the oil and gas produced, saved, and marketed from the leases it assigned to Maxus, and Maxus retained the same overriding royalty interest in the oil and gas produced, saved and marketed from the lease it assigned to Skidmore. The assignments executed by Maxus and Skidmore did not contain the notice and reassignment provision. See Footnote 1 Each of the assignments stated, “[t]his Assignment is expressly made and accepted subject to the following: . . . (2) The terms and provisions of that certain Agreement dated August 15, 1998 between Assignor and Assignee.”
In October 1999, Skidmore surrendered the lease on Garden Bank Block 361 before the expiration of its primary term. Skidmore did not provide Maxus prior notice of its intent to relinquish the lease; nor did Skidmore offer to reassign the lease to Maxus. Maxus surrendered its interests in the leases on Green Canyon Blocks 162 and 206 in December 2002, its interests in the leases on Mississippi Canyon Blocks 491 and 492 in June 2002, and its interest in the lease on Green Canyon Block 140 in July 2002. Maxus did not give Skidmore prior notice of its intent to relinquish any of those leases; nor did Maxus offer to reassign any of those leases to Skidmore.
In November 2004, Skidmore learned Maxus relinquished its interests in the five leases. Skidmore notified Maxus of Skidmore's contention that Maxus had breached the 1998 Agreement. In May 2005, Skidmore filed suit against Maxus for breaching the terms of the 1998 Agreement by surrendering five of the leases subject of the agreement without giving Skidmore prior written notice of its intention to surrender the leases or providing Skidmore the opportunity to have the leases reassigned to it. Intervenors asserted the same breach of contract claim against Maxus. See Footnote 2 Maxus asserted affirmative defenses of waiver, estoppel, and limitations, as well as a counterclaim for declaratory judgment that Maxus was not obligated to provide Skidmore notice and an opportunity to request reassignment prior to the relinquishment of any of the assigned leases.
Pursuant to a written arbitration agreement entered into after the lawsuit was filed, Skidmore, Intervenors, and Maxus submitted the claims asserted in the lawsuit to binding arbitration. See Footnote 3 A majority of the three-member arbitration panel entered an award in favor of Maxus. Skidmore and Intervenors moved to vacate the award on the grounds that (1) two of the arbitrators, Martin McNamara and Shannon Ratliff, failed to make necessary pre-arbitration disclosures, and (2) the arbitration panel majority exceeded its authority. Maxus moved for judgment confirming the panel's award. The trial court denied the motion to vacate the arbitration award and signed a judgment confirming the award. Skidmore and Intervenors appeal the trial court's judgment confirming the arbitration award.
Standard of Review
We review the trial court's confirmation of an arbitration award de novo, based on a review of the entire record. Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 567 (Tex. App.-Dallas 2008, no pet.). Arbitration of disputes is strongly favored under both federal and Texas law. Prudential Secs. Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (orig. proceeding). Arbitration awards are entitled to great deference by the courts. Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.-Dallas 2004, pet. denied). “In Texas, review of arbitration awards is extraordinarily narrow.” Hisaw & Assocs. Gen. Contractors, Inc. v. Cornerstone Concrete Sys., Inc., 115 S.W.3d 16, 18 (Tex. App.-Fort Worth 2003, pet. denied). An arbitration award has the same effect as a judgment of a court of last resort and all reasonable presumptions are indulged in favor of the award. CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). The award is conclusive on the parties as to all matters of fact and law. Centex/Vestal v. Friendship W. Baptist Church, 314 S.W.3d 677, 683 (Tex. App.-Dallas 2010, pet. denied).Claim of Arbitrator's Evident Partiality
Appellants contend the trial court erred when it denied the motion to vacate the arbitration award because of arbitrator McNamara's evident partiality. Appellants assert the arbitration award should have been vacated because McNamara failed to disclose material financial and business relationships with Maxus which manifested a reasonable impression of McNamara's partiality.
For an appellate court to have jurisdiction to review an arbitration award, an appellant must allege a statutory or common law ground to vacate the award. Hisaw, 115 S.W.3d at 19. The Texas Legislature has decreed that, on application of a party, a court shall vacate an award if the rights of the party were prejudiced by evident partiality of an arbitrator appointed as a neutral arbitrator. Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(2)(A) (West 2011). 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. Burlington N. R.R. Co. v. TUCO Inc., 960 S.W.2d 629, 636 (Tex. 1997). See Footnote 4 The court emphasized that “evident partiality is established from the nondisclosure itself, regardless of whether the nondisclosed information necessarily establishes partiality or bias.” Id. (citing Commonwealth Coatings Corp. v. Cont'l Cas. Co., 393 U.S. 145, 147 (1968)). This standard reflects the supreme court's determination that courts should not undertake evaluations of partiality that are better left to the parties. TUCO, 960 S.W.2d at 636. When choosing a neutral arbitrator, the parties must weigh the competing factors of the arbitrator's knowledge and experience against his potential conflicts; parties can only perform that analysis if they have access to all of the information that could reasonably affect the arbitrator's partiality. Id. at 635. When disclosure is complete, the parties can make their determination concerning potential bias before the arbitration begins, a process that is more desirable than a court making the determination after an award is in place. See id. “While a neutral arbitrator need not disclose relationships or connections that are trivial, the conscientious arbitrator should err in favor of disclosure.” Id. at 637.
FACTUAL BACKGROUND
For an appellate court to have jurisdiction to review an arbitration award, an appellant must allege a statutory or common law ground to vacate the award. Hisaw, 115 S.W.3d at 19. The Texas Legislature has decreed that, on application of a party, a court shall vacate an award if the rights of the party were prejudiced by evident partiality of an arbitrator appointed as a neutral arbitrator. Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(2)(A) (West 2011). 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. Burlington N. R.R. Co. v. TUCO Inc., 960 S.W.2d 629, 636 (Tex. 1997). See Footnote 4 The court emphasized that “evident partiality is established from the nondisclosure itself, regardless of whether the nondisclosed information necessarily establishes partiality or bias.” Id. (citing Commonwealth Coatings Corp. v. Cont'l Cas. Co., 393 U.S. 145, 147 (1968)). This standard reflects the supreme court's determination that courts should not undertake evaluations of partiality that are better left to the parties. TUCO, 960 S.W.2d at 636. When choosing a neutral arbitrator, the parties must weigh the competing factors of the arbitrator's knowledge and experience against his potential conflicts; parties can only perform that analysis if they have access to all of the information that could reasonably affect the arbitrator's partiality. Id. at 635. When disclosure is complete, the parties can make their determination concerning potential bias before the arbitration begins, a process that is more desirable than a court making the determination after an award is in place. See id. “While a neutral arbitrator need not disclose relationships or connections that are trivial, the conscientious arbitrator should err in favor of disclosure.” Id. at 637.
FACTUAL BACKGROUND
Factual Background
According to the terms of the arbitration agreement entered into by appellants and Maxus, appellants appointed arbitrator Kit Cooke, and Maxus appointed arbitrator McNamara. After the two party-appointed arbitrators were selected, appellants proposed Ratliff as the third arbitrator, and Maxus accepted Ratliff as the third arbitrator. See Footnote 5 Appellants and Maxus disagree as to whether party- appointed arbitrator McNamara was a neutral arbitrator and, consequently, whether evident partiality is an applicable statutory basis for review of the arbitration award. See Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(2)(A).Appellants contend all of the arbitrators, including McNamara, were intended to be neutral arbitrators. Maxus contends that, as its party-appointed arbitrator, McNamara was not intended to be a neutral arbitrator. While there is nothing in the arbitration agreement that expressly indicates the party-appointed arbitrators were to be considered neutral arbitrators, the agreement specifies that “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.” McNamara testified at the hearing on Maxus' motion to confirm the arbitration award that he believed he was a neutral arbitrator.
The arbitration agreement required the arbitrators to disclose all actual or perceived conflicts of interest and business relationships involving the dispute or the parties, including any professional or social relationships, past or present, with any party or its affiliates, and provide an oath or undertaking of impartiality in accordance with the “Code of Ethics for Arbitrators in Commercial Disputes promulgated by [the] joint committee of the American Arbitration Association and of the American Bar Association” (the AAA Code). The arbitration agreement provided that the arbitrators could have no affiliation or interests with either party and no financial or personal interest in the outcome of the arbitration.
In accordance with the arbitration agreement, McNamara issued disclosures. He stated he had no direct or indirect financial or personal interest in the outcome of the arbitration. In addition to providing information obtained through the computerized conflicts system of the law firm at which he was employed, including information concerning past litigation in which his firm represented a client adverse to Skidmore, McNamara disclosed the following:
With respect to personal or professional relationships, while I do not believe it would affect my impartiality or independence as an arbitrator, I serve with Roberto Monti as a member of the Board of Directors of Transocean, Inc. Mr. Monti will be leaving that Board when a pending combination closes with Global SantaFe, which is expected to occur before year end. Prior to 2002, Mr. Monti served as CEO of YPF and, after the acquisition of YPF by Repsol, as EVP of Repsol YPF. To my best recollection, I have never had any discussion with Mr. Monti about the business of Maxus (U.S.) or any matters related in any way to the dispute in the present arbitration. To my best recollection, I am not acquainted with anyone else who is or has been in a position of responsibility with respect to any of the parties here.McNamara stated his belief that none of the relationships he disclosed would affect his impartiality or independence as an arbitrator. See Footnote 6 McNamara also signed an oath that he would faithfully and fairly hear, entertain, determine and make an award based upon his review of the law and evidence. He represented that he had “fully and completely made those disclosures that are required under the Code of Ethics for Arbitrators,” and that apart from those disclosures he was aware of no past or present relationship with the parties or their counsel, whether financial or professional, that required disclosure.
During the course of the arbitration, certain demonstrative exhibits and testimony indicated that drilling equipment owned by Transocean, Inc. (Transocean) had been utilized by Maxus in 1999 in connection with the drilling of a well referred to as “Haymaker” on Green Canyon Block 162, a lease subject of the arbitration. On the third day of the four-day arbitration, Maxus' witness Delmar Rumph testified regarding the length of time required to obtain necessary studies, authorizations, and equipment and to drill a deepwater offshore oil well. Rumph illustrated his point by discussing the twenty-one month period required for planning, permitting and drilling the Haymaker well. In connection with his explanation of this process, Rumph utilized four slides showing a semi- submersible mobile offshore drilling unit (MODU) with the caption “Transocean Amirante Rig” appearing next to the Maxus logo. Rumph explained that Maxus leased the Transocean Amirante MODU from Transocean at a cost of about $150,000 per day. Rumph testified that Maxus contracted with Advanced Drilling Technologies, Incorporated (ADTI) to drill the Haymaker well ulitizing the Transocean Amirante MODU. According to Rumph, a pre-drilling meeting included Maxus, ADTI, and Transocean.
No party or attorney objected or raised a question about McNamara's service as an arbitrator when the slides depicting the Transocean Amirante MODU were shown or when Rumph testified regarding use of the MODU in the context of drilling the Haymaker well. After the arbitration award, appellants asserted evident partiality of McNamara due to his service on the board of directors of Transocean, a company that had done intermittent business with Maxus and its parent company, Repsol YPF. Appellants also asserted after the arbitration award that while McNamara disclosed his membership on the Transocean board of directors, he should also have disclosed that he owned Transocean stock.
McNamara was deposed by appellants in post-award discovery. He indicated that at the time he made his pre-arbitration disclosures, he had no knowledge of any business relationship between Transocean and Maxus or Repsol YPF, but did not initiate an investigation into any relationship Transocean might have with Skidmore or Maxus. McNamara understood at the time of the arbitration that Maxus was a wholly-owned subsidiary of Repsol YPF. He indicated that he did not recall Skidmore or Maxus ever having been mentioned in connection with any Transocean board matter or included in any Transocean list of material clients. He testified that Transocean was and is the largest drilling company in the world with a market capitalization of about fifty billion dollars and a backlog of contracts worth between forty-two and forty-three billion dollars. McNamara would have assumed Transocean had done business with, or could have had some relationship with, almost any company involved in the offshore oil and gas business. However, he thought the potential for Transocean to have had a substantial relationship with a party to the arbitration as remote and not having an affect on him as an arbitrator. McNamara testified that if anyone had a concern about his service as an outside director of Transocean, he would have expected the concern to be raised in response to his disclosures. McNamara indicated that he assumed anyone knowing he was a director of Transocean, a publicly-held company, would have anticipated he owned stock in the company.
McNamara further testified that he was unaware of Transocean's involvement in drilling the Haymaker well until he saw the slides depicting the Transocean Amirante MODU in the arbitration hearing. McNamara did not think there was any point to mentioning again his relationship with Transocean; he assumed all of the parties knew of the Transocean involvement in the drilling of the Haymaker well because the well was drilled on a lease that was jointly held or that had “gone back and forth” between Maxus and Skidmore, and because the information would have been known to the parties by virtue of discovery exchanged in connection with the litigation. McNamara noted that there was no reaction or demonstration of surprise from the parties regarding the slides or Rumph's testimony referencing the Transocean Amirante MODU. Further, he testified that the fact the Transocean Amirante MODU was used in connection with drilling the Haymaker well was not relevant to the principal points being made by Rumph in his arbitration testimony. Rather, McNamara understood the purpose of Rumph's testimony about the Haymaker well was to describe the amount of time required to drill a deepwater offshore oil well in the Gulf of Mexico. McNamara testified that if he had not already made disclosure of his relationship with Transocean, he might have viewed the need for disclosure at the time of Rumph's testimony differently. See Footnote 7
Eric Brown, a senior vice president and general counsel of Transocean was deposed in the post-award discovery. Brown testified that prior to the arbitration, the 1999 Transocean Amirante MODU contract between Transocean and Repsol YPF, the parent of Maxus, would never have been discussed with McNamara in his capacity as an outside director of Transocean. Brown testified that Maxus and Repsol YPF were not significant clients of Transocean in terms of revenue, either at the time of his deposition or at the time of the arbitration in 2007. Brown testified that the compensation Transocean received from Maxus and Repsol YPF from 2003 through 2007 was a relatively small percentage of its total revenues. In 2003, Transocean received compensation from Maxus and Repsol YPF in the amount of $ 2.96 million, which represented 12/100 of 1 percent of Transocean's total revenues. From 2004 through 2006, Transocean received no compensation from Maxus or Repsol YPF. In 2007, Transocean received compensation from Maxus and Repsol YPF in the amount of $8,387,000, of which $779,000 is in dispute, which represented either 12/100 or 14/100 of 1 percent of Transocean's total revenues.
At the hearing of the motion to vacate the arbitration award, Kelly Puls, attorney for Intervenors, testified that he was aware from McNamara's disclosures that McNamara was on the board of directors of Transocean. He testified that he would never have agreed to an arbitrator who had a financial and business relationship with Maxus or Repsol YPF. When questioned about a 1999 email regarding the status of the Haymaker well, Puls confirmed that the Maxus arbitration exhibit was also designated as appellants' exhibit. That exhibit referenced ADTI finalizing the MODU contract with Transocean, and a meeting to be conducted with “ADTI, Transocean, and YPF-Maxus” personnel. Puls confirmed he knew before arbitration that a contractor used by Skidmore and Maxus had rented the Transocean Amirante MODU. When McNamara disclosed that he was a director of Transocean and Puls realized that Transocean had done business previously with Maxus, it did not concern Puls because he thought the business relationship was remote in time. Puls, who was also the attorney who filed the 2001 Fort Worth litigation, acknowledged that discovery produced by Maxus in that litigation indicated Maxus and Transocean had a business relationship.
At the hearing of the motion to vacate the arbitration award, Kelly Puls, attorney for Intervenors, testified that he was aware from McNamara's disclosures that McNamara was on the board of directors of Transocean. He testified that he would never have agreed to an arbitrator who had a financial and business relationship with Maxus or Repsol YPF. When questioned about a 1999 email regarding the status of the Haymaker well, Puls confirmed that the Maxus arbitration exhibit was also designated as appellants' exhibit. That exhibit referenced ADTI finalizing the MODU contract with Transocean, and a meeting to be conducted with “ADTI, Transocean, and YPF-Maxus” personnel. Puls confirmed he knew before arbitration that a contractor used by Skidmore and Maxus had rented the Transocean Amirante MODU. When McNamara disclosed that he was a director of Transocean and Puls realized that Transocean had done business previously with Maxus, it did not concern Puls because he thought the business relationship was remote in time. Puls, who was also the attorney who filed the 2001 Fort Worth litigation, acknowledged that discovery produced by Maxus in that litigation indicated Maxus and Transocean had a business relationship.
In support of their motion to vacate the arbitration award, appellants also elicited testimony from Richard Faulkner as a tendered expert. Faulkner testified he has been active in the arbitration field for thirty years. In Faulkner's opinion, based on the AAA Code, McNamara did not make the disclosures that were required of a neutral arbitrator. Faulkner acknowledged that no statute in Texas codifies or incorporates the AAA Code, and that the code is aspirational for arbitrators conducting arbitrations in Texas. See Footnote 8
Faulkner was aware of McNamara's testimony that he did not know of any business relationship between Transocean and Maxus or Repsol YPF when he was appointed as an arbitrator. Faulkner acknowledged he had not seen anything that indicated knowledge on the part of McNamara concerning a relationship between Transocean and Maxus or Repsol YPF. Faulkner acknowledged that appellants did not ask for additional information from McNamara based on his disclosures and that, based on their knowledge of the prior business relationship between Transocean and Maxus or Repsol YPF, appellants could have objected to McNamara as an arbitrator at the time of his appointment. Faulkner acknowledged that McNamara could not disclose what he did not know, but Faulkner stated that he would expect McNamara, as a member of the board of directors of Transocean, to make a reasonable inquiry of the company before serving as an arbitrator and to ascertain whether or not the company was involved directly or indirectly with a party to the arbitration. Despite appellants' knowledge of Transocean's business relationship with Maxus/Repsol YPF based on the discovery in the 2001 Fort Worth litigation and appellants' designated exhibits in the arbitration, Faulkner stated that McNamara had a continuing duty to disclose a business relationship between Transocean and Maxus or Repsol YPF at the time the slides were presented by Rumph depicting the Transocean Amirante MODU used in connection with drilling the Haymaker well.
Faulkner was aware of McNamara's testimony that he did not know of any business relationship between Transocean and Maxus or Repsol YPF when he was appointed as an arbitrator. Faulkner acknowledged he had not seen anything that indicated knowledge on the part of McNamara concerning a relationship between Transocean and Maxus or Repsol YPF. Faulkner acknowledged that appellants did not ask for additional information from McNamara based on his disclosures and that, based on their knowledge of the prior business relationship between Transocean and Maxus or Repsol YPF, appellants could have objected to McNamara as an arbitrator at the time of his appointment. Faulkner acknowledged that McNamara could not disclose what he did not know, but Faulkner stated that he would expect McNamara, as a member of the board of directors of Transocean, to make a reasonable inquiry of the company before serving as an arbitrator and to ascertain whether or not the company was involved directly or indirectly with a party to the arbitration. Despite appellants' knowledge of Transocean's business relationship with Maxus/Repsol YPF based on the discovery in the 2001 Fort Worth litigation and appellants' designated exhibits in the arbitration, Faulkner stated that McNamara had a continuing duty to disclose a business relationship between Transocean and Maxus or Repsol YPF at the time the slides were presented by Rumph depicting the Transocean Amirante MODU used in connection with drilling the Haymaker well.
Findings of the Trial Court
The trial court found that even if appellants were deemed to have asserted statutory grounds for vacating an arbitration award, appellants failed to establish those grounds, including the ground of evident partiality. See Footnote 9 In addition to its finding of fact that arbitrator McNamara was not evidently partial and its conclusion of law that Skidmore failed to establish evident partiality as to McNamara, the trial court signed the following findings of fact:
Appellants suggest McNamara had an undisclosed interest in the arbitration because Transocean, on whose board of directors McNamara served, had a business relationship with Maxus/ Repsol YPF, and McNamara owned Transocean stock. McNamara served as an outside director on the board of Transocean, a company that had, unknown to McNamara at the time of his disclosures, done intermittent business with Maxus and its parent Repsol YPF. It is undisputed that appellants and their counsel had been aware for years prior to the arbitration that Maxus had done business with Transocean, including contracting with Transocean to utilize the Transocean Amirante MODU in connection with drilling the Haymaker well on one of the leases at issue in the arbitration. Despite the fact appellants had actual knowledge of the prior business dealings between Transocean and Maxus/Repsol YPF, appellants made no objection upon receipt of McNamara's disclosures or during the arbitration when the evidence referred to those business dealings. Further, as pointed out by Maxus, information concerning McNamara's ownership of Transocean stock, as a member of its board of directors, was publicly available in Transocean's periodic filings with the United States Securities and Exchange Commission and appellants were capable of obtaining that information at the time McNamara made the disclosure of his relationship with Transocean. Again, appellants made no objection upon receipt of McNamara's disclosures or during the arbitration concerning McNamara's Transocean stock ownership.
Appellants did not raise an objection of evident partiality of arbitrator McNamara until after the arbitration award by the panel majority. A party who knows or has reason to know of an arbitrator's alleged bias but remains silent pending the outcome of the arbitration waives the right to complain. Bossley v. Mariner Fin. Grp., Inc., 11 S.W.3d 349, 351-52 (Tex. App.-Houston [1st Dist.] 2000), aff'd, 79 S.W.3d 30 (Tex. 2002). “A party may not sit idly by during an arbitration procedure and then collaterally attack that procedure on grounds not raised before the arbitrator when the result turns out to be adverse.” Bossley, 11 S.W.3d at 351-52 (citing Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W. 225, 232 (Tex. App.-Houston [14th Dist.] 1993, writ denied)); see also Myer v. Americo Life, Inc., 315 S.W.3d 72, 76 (Tex. App.-Dallas 2009, pet. filed); Kendall Builders, Inc. v. Chesson, 149 S.W.3d 796, 806 (Tex. App.-Austin 2004, pet. denied) (having elected to proceed with arbitration in face of their knowledge regarding arbitrator, parties could not later complain after arbitration award). “[A] party who learns of a conflict before the arbitrator issues his or her decision must promptly object to avoid waiving the complaint.” TUCO, 960 S.W.2d at 637 n.9; Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796, 806 (Tex. App.-Dallas 2007, pet. denied). We agree with the trial court that appellants have waived their complaint concerning McNamara's alleged evident partiality by failing to raise the issue prior to issuance of the arbitration award.
But even if appellants had not waived their complaint, we conclude 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. See TUCO, 960 S.W.2d at 636. McNamara properly disclosed at the outset of the arbitration that he served on the Transocean board of directors. The undisputed evidence is that McNamara was unaware of an intermittent business relationship between Transocean and Maxus/Repsol YPF at the time he made his pre-arbitration disclosures. At the point during the arbitration that McNamara viewed demonstrative exhibits and heard testimony concerning a business relationship between Transocean and Maxus/Repsol YPF, it was apparent that the parties to the arbitration were aware of the business relationship. The intermittent business relationship between Transocean and Maxus/Repsol YPF produced compensation to Transocean that constituted no more than a very small portion of Transocean's annual revenue in 2003 and 2007. The trial court properly concluded that appellants' failed to establish evident partiality of McNamara. We conclude the trial court did not err in confirming the arbitration award in favor of Maxus and in denying appellants' motion to vacate the arbitration award based on appellants' claim of arbitrator McNamara's evident partiality. We overrule appellants' argument to the contrary in their sole issue.
15. Prior to the arbitration, Mr. McNamara disclosed that he serves on the Board of Directors of Transocean, Inc. (“Transocean”), a public company not involved in this lawsuit. He also disclosed that Robert Monti, a former officer of Maxus' parent company, Repsol YPF, also served on that Board. [Skidmore] and Intervenors did not object to Mr. McNamara despite these disclosures. Now, however, [Skidmore] and Intervenors complain that Mr. McNamara's failure to disclose his stock ownership in Transocean and his failure to disclose that Transocean has done business with Repsol YPF establish his evident partiality. Prior to the arbitration hearing, however, Mr. McNamara had no knowledge of any business relationship between Transocean and either Repsol YPF or Maxus, and had no knowledge of any connection between Transocean and the leases involved in this case.
16. [Skidmore] and Intervenors also complain that during the course of the arbitration hearing certain demonstrative exhibits were displayed that indicated Transocean had been the drilling contractor on a well drilled for Maxus in 1999 on one of the Federal Leases in this case, and that this should have caused Mr. McNamara to make a disclosure at that time of a possible business relationship between Transocean and Maxus. However, [Skidmore] and Intervenors were equally aware of the demonstrative exhibits and their implications, but did not object or raise any question relating to Mr. McNamara's continued service as an arbitrator. Moreover, at the hearing on the motion to vacate and the motion for judgment confirming arbitration award, the evidence established that [Skidmore] and Intervenors and their counsel had been aware of these facts for several years.
Appellants have not raised specific challenges to the trial court's findings of fact.See McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex. 1986) (When findings of fact are filed and unchallenged, they occupy same position and are entitled to the same weight as the verdict of a jury. They are binding on an appellate court unless the contrary is established as a matter of law or there is no evidence to support the finding.). Appellants assert, however, that evident partiality of McNamara warranted the trial court's vacating the arbitration award. We will construe that argument as attacking the trial court's findings of fact that arbitrator McNamara was not evidently partial.
Analysis
On application of a party, a court shall vacate an award if the rights of the party were prejudiced by evident partiality of an arbitrator appointed as a neutral arbitrator. Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(2)(A). The arbitration agreement of the parties does not explicitly indicate that the party-appointed arbitrators were to be considered neutral arbitrators. However, the arbitration agreement specifies that “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.” McNamara testified he believed he served in the capacity of a neutral arbitrator. While the trial court did not find that McNamara was a neutral arbitrator, the court's findings of fact nevertheless addressed appellants' contention of evident partiality on the part of McNamara. Assuming, without deciding, that McNamara was a neutral arbitrator, we likewise address appellants' contention of evident partiality on the part of McNamara under applicable law. See Tex. Civ. Prac. & Rem. Code Ann. § 171.088; TUCO, 960 S.W.2d at 636.Appellants suggest McNamara had an undisclosed interest in the arbitration because Transocean, on whose board of directors McNamara served, had a business relationship with Maxus/ Repsol YPF, and McNamara owned Transocean stock. McNamara served as an outside director on the board of Transocean, a company that had, unknown to McNamara at the time of his disclosures, done intermittent business with Maxus and its parent Repsol YPF. It is undisputed that appellants and their counsel had been aware for years prior to the arbitration that Maxus had done business with Transocean, including contracting with Transocean to utilize the Transocean Amirante MODU in connection with drilling the Haymaker well on one of the leases at issue in the arbitration. Despite the fact appellants had actual knowledge of the prior business dealings between Transocean and Maxus/Repsol YPF, appellants made no objection upon receipt of McNamara's disclosures or during the arbitration when the evidence referred to those business dealings. Further, as pointed out by Maxus, information concerning McNamara's ownership of Transocean stock, as a member of its board of directors, was publicly available in Transocean's periodic filings with the United States Securities and Exchange Commission and appellants were capable of obtaining that information at the time McNamara made the disclosure of his relationship with Transocean. Again, appellants made no objection upon receipt of McNamara's disclosures or during the arbitration concerning McNamara's Transocean stock ownership.
Appellants did not raise an objection of evident partiality of arbitrator McNamara until after the arbitration award by the panel majority. A party who knows or has reason to know of an arbitrator's alleged bias but remains silent pending the outcome of the arbitration waives the right to complain. Bossley v. Mariner Fin. Grp., Inc., 11 S.W.3d 349, 351-52 (Tex. App.-Houston [1st Dist.] 2000), aff'd, 79 S.W.3d 30 (Tex. 2002). “A party may not sit idly by during an arbitration procedure and then collaterally attack that procedure on grounds not raised before the arbitrator when the result turns out to be adverse.” Bossley, 11 S.W.3d at 351-52 (citing Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W. 225, 232 (Tex. App.-Houston [14th Dist.] 1993, writ denied)); see also Myer v. Americo Life, Inc., 315 S.W.3d 72, 76 (Tex. App.-Dallas 2009, pet. filed); Kendall Builders, Inc. v. Chesson, 149 S.W.3d 796, 806 (Tex. App.-Austin 2004, pet. denied) (having elected to proceed with arbitration in face of their knowledge regarding arbitrator, parties could not later complain after arbitration award). “[A] party who learns of a conflict before the arbitrator issues his or her decision must promptly object to avoid waiving the complaint.” TUCO, 960 S.W.2d at 637 n.9; Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796, 806 (Tex. App.-Dallas 2007, pet. denied). We agree with the trial court that appellants have waived their complaint concerning McNamara's alleged evident partiality by failing to raise the issue prior to issuance of the arbitration award.
But even if appellants had not waived their complaint, we conclude 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. See TUCO, 960 S.W.2d at 636. McNamara properly disclosed at the outset of the arbitration that he served on the Transocean board of directors. The undisputed evidence is that McNamara was unaware of an intermittent business relationship between Transocean and Maxus/Repsol YPF at the time he made his pre-arbitration disclosures. At the point during the arbitration that McNamara viewed demonstrative exhibits and heard testimony concerning a business relationship between Transocean and Maxus/Repsol YPF, it was apparent that the parties to the arbitration were aware of the business relationship. The intermittent business relationship between Transocean and Maxus/Repsol YPF produced compensation to Transocean that constituted no more than a very small portion of Transocean's annual revenue in 2003 and 2007. The trial court properly concluded that appellants' failed to establish evident partiality of McNamara. We conclude the trial court did not err in confirming the arbitration award in favor of Maxus and in denying appellants' motion to vacate the arbitration award based on appellants' claim of arbitrator McNamara's evident partiality. We overrule appellants' argument to the contrary in their sole issue.
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Conclusion
We overrule appellants' sole issue. We affirm the trial court's judgment.CASE DETAILS AND LINK TO DOCKET SHEET
05-09-00402-CV AFFIRM - Docket SheetSkidmore Energy, Inc. Patton Production Co., Johnny L. Patton, Jr. and Puls, Taylor; Woodson, LLP v. Maxus (U.S.) Exploration Company
Opinion by: Justice Robert M. Fillmore
Case Type: CONTRACT
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