Court Opinion

ID: 2831375
Source: CourtListenerOpinion
Date Created: 2015-08-27 03:49:13.372224+00
Date Added: 2024-06-11T11:31:42.906255
License: Public Domain

IN THE SUPREME COURT OF TEXAS
                                          444444444444
                                             NO. 12-0789
                                          444444444444

     TENASKA ENERGY, INC., TENASKA ENERGY HOLDINGS, LLC, TENASKA
     CLEBURNE, LLC, CONTINENTAL ENERGY SERVICES, INC., AND ILLINOVA
                  GENERATING COMPANY, PETITIONERS,
                                                   v.

                      PONDEROSA PINE ENERGY, LLC, RESPONDENT
            4444444444444444444444444444444444444444444444444444
                             ON PETITION FOR REVIEW FROM THE
                      COURT OF APPEALS FOR THE FIFTH DISTRICT OF TEXAS
            4444444444444444444444444444444444444444444444444444

                                      Argued January 7, 2014

       JUSTICE GUZMAN delivered the opinion of the Court.

       Evident partiality of an arbitrator is a ground for vacating an arbitration award under both

the Federal Arbitration Act and the Texas Arbitration Act. Adhering to United States Supreme

Court precedent, we held almost two decades ago that a neutral arbitrator is evidently partial if she

fails to disclose facts that might, to an objective observer, create a reasonable impression of her

partiality. And we have held that a party does not waive an evident partiality challenge if it proceeds

to arbitrate without knowledge of the undisclosed facts.

       Today, we are asked to evaluate these standards in light of a partial disclosure. Here, the

neutral arbitrator in question disclosed that the law firm representing one party to the arbitration had
recommended him as an arbitrator in three other arbitrations. He also disclosed that he was a

director of a litigation services company and attended a meeting at the law firm, but there was no

indication the firm and company would ever do business. The trial court found the arbitrator failed

to disclose that all of his contacts at the 700-lawyer firm were with the two lawyers that represented

the party to the arbitration at issue; he owned stock in the litigation services company that was

pursuing business opportunities with the firm; he served as the president of the company’s United

States subsidiary; he conducted significant marketing in the United States for the company; he had

additional meetings or contacts with the two lawyers in question to solicit business from the firm

for the company; and he allowed one of the two lawyers to edit his disclosures to minimize the

contact. The trial court vacated the arbitration award, but the court of appeals reversed, concluding

the party waived its evident partiality claim by failing to object or inquire further when the

disclosures occurred. We hold the failure to disclose this additional information might yield a

reasonable impression of the arbitrator’s partiality to an objective observer. We further hold that

because the party making the evident partiality challenge was unaware of the undisclosed

information, it did not waive the claim. Accordingly, we reverse the court of appeals’ judgment and

reinstate the trial court’s order vacating the award and requiring a new arbitration.

                                          I. Background

       Tenaska Energy, Inc., Tenaska Energy Holdings, LLC, Tenaska Cleburne, LLC, Continental

Energy Services, Inc., and Illinova Generating Co. (collectively Tenaska) sold their interests in a

power plant in Cleburne, Texas to Ponderosa Pine Energy, LLC (Ponderosa). The purchase

agreement contained a broad arbitration clause requiring the parties to arbitrate any dispute arising

                                                  2
from or related to the agreement. The clause provided for a three-arbitrator panel, with each party

selecting one arbitrator and those two arbitrators selecting the third. The parties conceded in the

court of appeals that all three arbitrators were required to be neutral, which follows the current

default protocol in arbitration. 376 S.W.3d 358, 361. The clause called for arbitration under the

American Arbitration Association (AAA) rules but without AAA administration. It also contained

a “baseball arbitration” provision, in which each party would submit a proposed settlement and the

panel was bound to select one of the two proposals.

         After the transaction closed, the parties disputed whether the agreement required Tenaska

to indemnify Ponderosa for breaching certain representations and warranties in the agreement.

Ponderosa demanded arbitration and sought more than $200 million in indemnity rights. Lawyers

from Nixon Peabody LLP’s New York office represented Ponderosa, which designated Samuel A.

Stern as its arbitrator. Stern’s curriculum vitae was attached to his designation, which indicated he

was a director of twelve closely held companies with third-world involvement—including a

company in India named LexSite.1

         At the time, the AAA Commercial Arbitration Rules provided:

         Any person appointed or to be appointed as an arbitrator shall disclose . . . any
         circumstance likely to give rise to justifiable doubt as to the arbitrator’s impartiality
         or independence, including any bias or any financial or personal interest in the result
         of the arbitration or any past or present relationship with the parties or their
         representatives. Such obligation shall remain in effect throughout the arbitration.

         1
             Stern later testified that he served on LexSite’s advisory board but was not a director, as his curriculum vitae
indicated.

                                                              3
       Stern disclosed that Nixon Peabody had designated him as an arbitrator in three other

proceedings, and that he—on behalf of LexSite—had a discussion at Nixon Peabody’s offices about

Nixon Peabody outsourcing litigation discovery tasks to LexSite. But the disclosures noted that

“Nixon-Peabody and Lexsite have done no business, and it is not clear that Nixon-Peabody would

ever have any business to give Lexsite.” In response, Tenaska asked if Stern had a relationship with

any of the sixteen bank entities that own Ponderosa, and Stern replied that he had no such

relationships.

       Tenaska designated Thomas S. Fraser as its arbitrator, and Fraser and Stern selected James

A. Baker2 as the third arbitrator. Tenaska asked Baker the same question it asked Stern, and Baker

replied that his firm had represented some of the banks that own Ponderosa. At Baker’s suggestion,

the panel issued a scheduling order that contained a provision stating the parties had made full

disclosures of actual and potential conflicts and knowingly waived actual and potential conflicts of

interest. After extensive discovery, Ponderosa proposed a $125 million settlement and Tenaska

proposed a $1.25 million settlement. A divided panel composed of Baker and Stern selected

Ponderosa’s $125 million settlement amount.

       Ponderosa moved to confirm the award in state district court, and Tenaska moved to vacate

it, asserting that Stern was neither impartial nor free from bias. After extensive discovery, the trial

court held a hearing on the motions, where the parties admitted almost 500 exhibits. Those exhibits

included the depositions of Stern, as well as Frank Penski and Constance Boland—the two lawyers

at Nixon Peabody who represented Ponderosa.

       2
           The late James A. Baker formerly served as a Justice on this Court.

                                                          4
       The evidence showed that Stern was on the advisory board for LexSite, a legal outsourcing

company in India that was seeking to obtain business from law firms in the United States. Stern

gave LexSite business and legal advice, and owned 3,000 shares of LexSite stock. He was given

options for an additional 10,000 shares, which he had not exercised. Stern contacted Penski in April

2006 to discuss the possibility of Nixon Peabody using LexSite’s services. Stern arranged for

Penski to meet LexSite’s CEO that month. At the subsequent May 3 meeting at Nixon Peabody that

Stern did disclose, he made several remarks, mostly asking the firm’s associates for their

impressions of performing discovery work. After the meeting concluded, Stern told Penski “if you

have any arbitrations that would be fun, keep me in mind.”

       On June 16, Penski asked Stern to serve as a neutral party arbitrator in a matter involving

Ada Co-Generation. Stern responded by accepting the appointment and asked if there was “[a]ny

movement there” with LexSite. Penski replied that he had talked to numerous partners at Nixon

Peabody in an effort to find something to send to LexSite but had “no luck so far.” On the

suggestion of Boland, another Nixon Peabody partner recommended Stern as an arbitrator in another

arbitration on June 19. And on June 26, Penski recommended Stern as an arbitrator in this matter.

       Boland later edited Stern’s disclosures in two ways. First, she added the Ada-Cogeneration

arbitration. Second, she added the disclaimer that “Nixon-Peabody and Lexsite have done no

business, and it is not clear that Nixon-Peabody would ever have any business to give Lexsite.”

       After the parties agreed on the arbitrators, the scheduling order of October 23 established a

waiver of conflicts. Three days later, Nixon Peabody changed its fee agreement with Ponderosa

                                                 5
from an hourly rate to a contingency fee of 15% of the first $50 million and 12.5% of any amount

over $50 million.

        LexSite later changed its name to Exactus. Stern incorporated Exactus U.S. and was the

chairman of its board.3 Stern charged LexSite $1,000 for use of his office and $5,000 per month

for services. He also met with LexSite’s CEO twice a month to discuss such topics as marketing.

        LexSite’s CEO continued to correspond with Boland during the arbitration. Boland informed

LexSite’s CEO in April 2007 that “we need to wait about one more month or so until we can

continue our discussions. Would you be so kind as to send an email to me again on or about May

15?” LexSite’s CEO agreed and noted he had recently met a lawyer from Nixon Peabody’s Boston

office, who Boland responded was “a good person to know and we can include him, or one of his

team, in our meetings later on.” On May 7, the panel issued its opinion and award. LexSite’s CEO

contacted Boland again at the end of May.

        After the hearing on the motions, the trial court granted Tenaska’s motion to vacate the

award on the ground that Stern exhibited evident partiality due to “a calculated, deliberate attempt

to minimize the relationship” between Stern and Penksi and Boland. Specifically, the trial court held

that Stern did not disclose additional information it summarized as follows:

        When viewed in the totality of circumstances, including the fact that Arbitrator Stern
        failed to disclose that his contact[s] with Nixon Peabody were all with Mr. Penski
        or Ms. Boland, failed to disclose additional meetings or contacts regarding Lexsite
        with Ponderosa[]’s counsel, failed to disclose the true extent of his ties to Lexsite and
        his activities for Lexsite, and allowed Ponderosa[]’s counsel to modify his

        3
          For ease of reference, this opinion will refer to LexSite throughout, even during the time LexSite had
reorganized as Exactus.

                                                       6
         disclosures in a way that minimized the contact, . . . Stern’s disclosures were
         intentionally incomplete and inaccurate.4

The trial court concluded that the Nixon Peabody/LexSite relationship was material rather than

trivial and the undisclosed information might yield a reasonable impression that Stern was not

impartial. Accordingly, the trial court granted the motion to vacate the arbitration award.5

         The court of appeals reversed. 376 S.W.3d at 360. It held that Stern’s disclosures regarding

LexSite and the Ada Co-Generation arbitration were sufficient to put Tenaska on notice of potential

partiality to require Tenaska to object or seek additional information. Id.

                                                   II. Discussion

         Our standard of review in this proceeding is a familiar one. Here, the trial court made

findings of fact regarding material information Stern failed to disclose and concluded the

nondisclosures rendered Stern evidently partial. We defer to unchallenged findings of fact that are

supported by some evidence. McGalliard v. Kuhlmann, 722 S.W.2d 694, 696–97 (Tex. 1986). But

in determining what the law is and applying the law to the facts, a trial court has no discretion. Huie

v. DeShazo, 922 S.W.2d 920, 927–28 (Tex. 1996) (orig. proceeding). Thus, we determine whether

the information the trial court found that Stern failed to disclose is supported by some evidence and

         4
            The trial court also found that Stern’s statements made in selecting the third arbitrator and during the
arbitration and his failure to disclose certain bank relationships did not indicate Stern’s evident partiality. Tenaska
contends in this Court that Stern’s statements also support a finding of evident partiality. As explained below, we agree
with the trial court that Stern’s failure to disclose the extent of his relationships with LexSite, Penksi, and Boland
demonstrate evident partiality. Accordingly, we need not assess whether additional statements also demonstrate evident
partiality.
         5
          The trial court denied the motion to vacate on the grounds that (1) Ponderosa’s counsel procured the award
by corruption, fraud, or undue means; (2) the arbitrators acted in manifest disregard of the law; and (3) the arbitrators
exceeded their power in amending the terms of the purchase agreement.

                                                           7
review de novo whether that undisclosed information demonstrates Stern’s evident partiality. Id.;

McGalliard, 722 S.W.2d at 696–97.

                                             A. Evident Partiality

       The parties agree the Federal Arbitration Act (FAA) governs this case and allows courts to

vacate arbitration awards “where there was evident partiality.” 9 U.S.C. § 10(a)(2). The United

States Supreme Court has observed that “these provisions show a desire of Congress to provide not

merely for any arbitration but for an impartial one.” Commonwealth Coatings Corp. v. Cont’l Cas.

Co., 393 U.S. 145, 147 (1968). In Commonwealth Coatings, a subcontractor sued a prime

contractor’s surety, and the neutral third arbitrator failed to disclose he obtained approximately

$12,000 in business from the prime contractor over a four to five year period (but had done no

business with the contractor in the year preceding the arbitration). Id. at 146. The Court likened

arbitrator impartiality to the impartiality the constitution requires of judges, and observed that even

the slightest pecuniary interest in an arbitration could be grounds to set aside the award. Id. at 148.

Although it recognized arbitrators are not expected to sever their ties with the business world, the

Court concluded it must be scrupulous in safeguarding the impartiality of arbitrators because they

“have completely free rein to decide the law as well as the facts and are not subject to appellate

review.” Id. at 148–49. To further that goal, the Court imposed “the simple requirement that

arbitrators disclose to the parties any dealings that might create an impression of possible bias.” Id.

at 149.6 Despite the fact that the Court found no evidence of actual bias, it found the arbitrator

       6
           As Justice White explained in his concurrence:

                  The arbitration process functions best when an amicable and trusting atmosphere is preserved

                                                            8
evidently partial due to his failure to disclose his relationship with the prime contractor, justifying

vacatur of the award. Id. at 146–47, 150.

         We addressed evident partiality in Burlington Northern Railroad Co. v. TUCO Inc., where

we held that under Commonwealth Coatings, a neutral arbitrator exhibits evident partiality “if the

arbitrator does not disclose facts which might, to an objective observer, create a reasonable

impression of the arbitrator’s partiality.” 960 S.W.2d 629, 630 (Tex. 1997).7 And “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. There, TUCO Inc. and two carriers arbitrated a

dispute over a rate adjustment in their contracts. Id. at 630. Unlike the present case (which follows

the current default protocol to require impartiality or neutrality of all three arbitrators), only the third

arbitrator in TUCO was required to be neutral. Id. The parties agreed to a neutral third arbitrator,

George Beall, after he disclosed he had twice served as an expert witness for the law firm of the

carriers’ arbitrator.8 Id. Those matters had concluded and involved a relatively small amount of

time and fees. Id.

         and there is voluntary compliance with the decree, without need for judicial enforcement. This end
         is best served by establishing an atmosphere of frankness at the outset, through disclosure by the
         arbitrator of any financial transactions which he has had or is negotiating with either of the parties. . . .
         [I]t is far better that the relationship be disclosed at the outset, when the parties are free to reject the
         arbitrator or accept him with knowledge of the relationship and continuing faith in his objectivity . . . .

Commonwealth Coatings, 393 U.S. at 151 (White, J., concurring).
         7
           Though TUCO involved an agreement under the Texas Arbitration Act (TAA), the TAA also requires courts
to vacate awards if there has been “evident partiality by an arbitrator appointed as a neutral arbitrator.” TEX. CIV. PRAC.
& REM. CODE § 171.088(a)(2)(A).
         8
          The evident partiality standard the Supreme Court announced in Commonwealth Coatings, which we followed
in TUCO, applies in the context of party appointed arbitrators. See TUCO, 960 S.W.2d at 637. We need not decide what
standard applies when an arbitration agreement does not allow parties the ability to select arbitrators.

                                                              9
         Approximately three weeks before the arbitration hearing, a lawyer at the firm employing

the carriers’ arbitrator assisted in obtaining a referral on a substantial litigation matter for Beall. Id.

at 631. There was no contention that the carriers’ arbitrator knew of the referral or that the lawyer

who assisted with the referral knew of the arbitration. Id. But the neutral arbitrator mentioned to

the carriers’ arbitrator at a subsequent meeting that “we’ve already begun work on the matter you

folks were so kind to send over.” Id. TUCO contended the undisclosed referral rendered Beall

evidently partial, and we agreed. Id. at 630, 632, 639–40.

         We observed that inherent in the arbitration process are two principles that are often in

tension: expertise and impartiality. Id. at 635. Parties may prefer to resolve disputes through

arbitration because they may choose arbitrators with extensive experience in the field related to the

dispute. Id. But this heightened experience level may well result in an arbitrator having had

previous business dealings with a party. Id. And while these dealings should not disqualify the

arbitrator per se, disclosing the information can help the parties attain the impartiality they seek by

evaluating potential bias at the outset of the arbitration. Id. This approach also preserves the

independence and integrity of arbitration by allowing a party to assess potential bias before

arbitrating rather than having a trial court weigh bias when a dissatisfied party challenges an award.

Id. at 635–36.9 Accordingly, TUCO makes clear that “evident partiality is established from the

nondisclosure itself, regardless of whether the nondisclosed information necessarily establishes

         9
            See Commonwealth Coatings, 393 U.S. at 151 (White, J., concurring) (“The judiciary should minimize its role
in arbitration as judge of the arbitrator’s impartiality. That role is best consigned to the parties, who are the architects
of their own arbitration process, and are far better informed of the prevailing ethical standards and reputations within
their business.”).

                                                            10
partiality or bias.” Id. at 636. Whether the undisclosed information actually establishes partiality

or bias is a matter “better left to the parties.” Id.

        We held in TUCO that the referral “might have conveyed an impression of Beall’s partiality

to a reasonable person.” Id. at 637. Notwithstanding the fact that the lawyer who suggested the

referral was unaware of the arbitration and the carrier’s arbitrator was unaware of the referral, we

concluded that an objective observer could reasonably believe that Beall, grateful for the referral,

would favor the firm and thus ultimately favor the carriers in the arbitration. Id.

        In short, the standard for evident partiality in Commonwealth Coatings and TUCO requires

vacating an award if an arbitrator fails to disclose facts which might, to an objective observer, create

a reasonable impression of the arbitrator’s partiality, but information that is trivial will not rise to

this level and need not be disclosed. Commonwealth Coatings, 393 U.S. at 149; TUCO, 960 S.W.2d

at 630, 637.

        We next apply the standard for evident partiality to these facts. Tenaska asserts the

information the trial court found Stern did not disclose (which Ponderosa does not challenge on

appeal) might create a reasonable impression of partiality to an objective observer because the extent

of Stern’s relationship with LexSite and Nixon Peabody were more significant and concerning than

what he disclosed. Ponderosa counters that, unlike in Commonwealth Coatings and TUCO, Stern

disclosed every relationship Tenaska now complains of. We agree with Tenaska.

        Stern disclosed that Nixon Peabody recommended him to three arbitrations in addition to the

one at issue, and he met with Nixon Peabody on behalf of LexSite about outsourcing litigation

discovery tasks, but stated that “Nixon-Peabody and Lexsite have done no business, and it is not

                                                   11
clear that Nixon-Peabody would ever have any business to give Lexsite.” The trial court found that

Stern did not disclose additional information, and our review of the record confirms this additional

information is supported by some evidence:

1.         Stern was a shareholder in LexSite and had the option to purchase additional shares;10

2.         When LexSite changed its name to Exactus, Stern incorporated Exactus U.S. and served as

           its President;11

3.         The address and telephone number for Exactus U.S. were Stern’s business address and

           telephone number;12

4.         Stern met with LexSite’s CEO twice a month to discuss such topics as marketing;13

5.         Stern’s contacts with the 700-lawyer firm of Nixon Peabody were with Penksi and Boland;

6.         In addition to the May 2006 meeting Stern disclosed, there was a second, earlier meeting in

           April 2006 for LexSite to solicit business from Nixon Peabody;14

7.         The two meetings resulted from phone calls by Stern to Penski;

8.         Ten days after Stern emailed Penski to inquire whether there was “any movement” on Nixon

           Peabody plans to use LexSite, Ponderosa appointed Stern as arbitrator;

           10
         Stern testified that he purchased 3,000 shares of LexSite stock and was given stock options for an additional
10,000 more shares but refused to exercise them.
           11
                Stern testified that he served as Chairman of the Board of Exactus U.S. and was thus the principal U.S.
officer.
           12
                Stern testified that he charged LexSite $1,000 for use of his office and $5,000 per month for services.
           13
           Stern testified that he met with LexSite’s CEO approximately twice a month from 2006 through the time of
his deposition in November 2007.
           14
                Stern testified that the meeting was to introduce Penski to LexSite’s CEO.

                                                              12
9.       Penski and Boland also recommended or assisted with getting Stern recommended as

         arbitrator in three proceedings just after the May 2006 meeting;

10.      LexSite’s CEO (not Stern) contacted Penski and Boland at least twice from November 2006

         to April 2007 to discuss possible LexSite business with Nixon Peabody;

11.      Boland edited Stern’s disclosures, including the addition of the sentence “Nixon-Peabody

         and Lexsite have done no business, and it is not clear that Nixon-Peabody would ever have

         any business to give Lexsite.”

Ponderosa does not challenge these findings of fact on appeal, and they are binding on us as they

are supported by some evidence. McGalliard, 722 S.W.2d at 696–97.15

         When we examine this undisclosed information together against what Stern actually

disclosed,16 we conclude the information is not trivial and might have conveyed an impression of

Stern’s partiality toward Penski and Boland’s client to a reasonable person. The parties do not

dispute that—beyond what he disclosed—Stern owned shares of LexSite, was being paid for office

space and services given to LexSite, marketed LexSite in the United States, was actively soliciting

business for LexSite from Nixon Peabody (specifically through Penski and Boland), and discussed

in communications with Penski regarding the arbitrations the possibility of LexSite and Nixon

         15
           The trial court also found that Stern failed to disclose that Ponderosa’s parent company was the parent
company of Ada Co-Generation, which Nixon Peabody recommended Stern to arbitrate a dispute for. Because Stern’s
nondisclosures regarding his relationship with Penski and Boland via LexSite constitute evident partiality, we need not
also address whether the nondisclosures regarding the Ada Co-Generation arbitration constitute evident partiality.
         16
           Ponderosa asserts that in cases such as this where part but not all of a relationship is disclosed, a reviewing
court should assess not only the information that was withheld but also the information that was disclosed. We agree,
and this concern is part of the basis for our holding in TUCO that “trivial” information need not be disclosed. 960
S.W.2d at 637. Whether undisclosed information in a partial disclosure situation is trivial should involve comparing the
undisclosed information to the disclosed information.

                                                           13
Peabody doing business. Taken together, this undisclosed information might cause a reasonable

person to view Stern as being partial toward Penski and Boland’s client, Ponderosa, to gain their

favor in securing business for LexSite from Nixon Peabody. And when compared to the information

Stern did disclose (that Nixon Peabody recommended him for four arbitrations and he attended one

meeting between LexSite and Nixon Peabody), we cannot say this undisclosed information is trivial.

Accordingly, Stern’s failure to disclose the extent of his relationship with LexSite and his attempts

to secure business for LexSite from Nixon Peabody through Penski and Boland demonstrate evident

partiality and support the trial court’s vacatur of the award. See Commonwealth Coatings, 393 U.S.

at 149; TUCO, 960 S.W.2d at 630, 636.

       Ponderosa contends that disclosure of each relationship suffices under Commonwealth

Coatings and TUCO. But if disclosing each relationship were sufficient, the Supreme Court in

Commonwealth Coatings and this Court in TUCO would have simply established that threshold as

the operative test. Instead, the test for evident partiality asks whether the undisclosed “information”

might convey an impression of the arbitrator’s partiality to an objective observer. TUCO, 960
S.W.2d at 635–36 (also referring to disclosing “any dealings” and “facts” that might convey an

impression of partiality). Adopting Ponderosa’s reformulation of the test would serve to encourage

partial disclosures. Such a standard for evident partiality negates the Supreme Court’s directive to

be “scrupulous to safeguard the impartiality of arbitrators” in a process not subject to appellate

review. Commonwealth Coatings, 393 U.S. at 149.

       Finally, both parties argue we should revisit our holding in TUCO. Tenaska asserts that if

a court finds disclosures intentionally misleading, evident partiality is established and the inquiry

                                                  14
ends. But the standard articulated in Commonwealth Coatings and TUCO is an objective one

(involving what an objective observer might think). See Mariner Fin. Grp., Inc. v. Bossley, 79
S.W.3d 30, 32 (Tex. 2002). And although intent may be relevant to establishing actual bias or

partiality, we made clear in TUCO that evident partiality is established from the nondisclosure itself.
960 S.W.2d at 636. A party need not prove actual bias to demonstrate evident partiality. Id.

        Ponderosa asks us to adopt the more deferential standard some other courts have employed

to only set aside an award for evident partiality if a “reasonable person would have to conclude that

[the] arbitrator was partial.” Morelite Constr. Corp. v. N.Y.C. Dist. Council Carpenters Benefit

Funds, 748 F.2d 79, 84 (2d Cir. 1984) (emphasis added). As support, Ponderosa contends that

adhering to the TUCO standard will encourage private investigation by parties that lose in arbitration

and require trial courts to more frequently vacate awards. We note that when we adopted the

Supreme Court’s “full disclosure” rule in TUCO, we addressed a similar assertion by one of the

parties. 960 S.W.2d at 637. We observed that requiring full disclosure minimizes the role of the

courts and, “[i]f faithfully adhered to, it will ultimately lead to fewer post-decision challenges to

awards based on bias or prejudice.” Id. As this is only the second time we have addressed evident

partiality in the intervening seventeen years since we decided TUCO, our prediction rings true. See

Bossley, 79 S.W.3d at 30. We cannot agree with Ponderosa’s contention that “a losing arbitral party

would seize on every undisclosed detail as a material omission” because trivial information will not

meet the standard we articulated in TUCO. 960 S.W.2d at 637.

       Accordingly, we decline Tenaska’s request to adopt an intent-based approach to evident

partiality and Ponderosa’s request to heighten the evident partiality standard we established in

                                                  15
TUCO. Stern’s failure to disclose information that might lead an objective observer to question his

partiality establishes his evident partiality.

                                                 B. Waiver

        Ponderosa contends that Tenaska nonetheless waived its complaint as to Stern’s partiality

by proceeding with Stern after he disclosed each relationship at issue and agreeing to a waiver of

conflicts in a scheduling order in the arbitration. Tenaska responds that it did not waive a conflict

it was unaware of. The court of appeals agreed with Ponderosa, but we agree with Tenaska.

        Our jurisprudence on waiver of an evident partiality challenge demonstrates that a party may

waive such a challenge by proceeding to arbitrate based on information it knows. In TUCO, the

neutral third arbitrator disclosed having previously served as an expert witness on two matters for

the law firm that employed the carriers’ arbitrator. 960 S.W.2d at 638. TUCO consented to the

arbitrator, who did not disclose the firm assisted with obtaining a referral for him during the course

of the arbitration. Id. at 637-38. The carriers argued that TUCO’s consent after full disclosure of

the expert witness matters amounted to waiver. Id. at 638. We rejected that assertion, concluding

that “it is for the parties to determine, after full disclosure, whether a particular relationship is likely

to undermine an arbitrator’s impartiality.” Id. We also observed that an objective observer might

differentiate between a past relationship (such as the expert witness matters) and one that arises

shortly before or during the arbitration (such as the referral). Id.

        Likewise, we addressed waiver of an evident partiality challenge in Bossley, 79 S.W.3d at

33. There, after the arbitration award was issued, one party’s witness discovered that she had

testified at a deposition two-and-a-half years before that the attorney who chaired the arbitration

                                                    16
panel had committed malpractice. Id. at 31–32. When the party moved to vacate the award, the

opposing party asserted they waived their evident partiality challenge by not raising it before

submission. Id. at 32–33. We disagreed, holding that they “could not waive an objection that is

based on a prior adverse relationship . . . they knew nothing about.” Id. at 33. Likewise, the

concurrence in Bossley observed that “[t]here could be waiver of evident partiality based on

nondisclosure if the complaining party knew all the facts before the arbitration concluded and did

not complain.” Id. at 36 (Owen, J., concurring).

       Here, Tenaska is challenging Stern’s partiality based on the information he failed to disclose.

Tenaska did not waive its evident partiality challenge by proceeding to arbitration based upon

information it was unaware of at that time. Bossley, 79 S.W.3d at 33; TUCO, 960 S.W.2d at 638.

To hold otherwise “would put a premium on concealment” in a context where the Supreme Court

has long required full disclosure. Middlesex Mut. Ins. Co. v. Levine, 675 F.2d 1197, 1204 (11th Cir.

1982). And we do not share Ponderosa’s fear that our adherence to Commonwealth Coatings,

TUCO, and Bossley will result in vacating a host of arbitration awards even when a party had reason

to know of a potential conflict. If waiver cannot be predicated on undisclosed information, that

information must nonetheless be more than trivial to satisfy the standard for evident partiality in

Commonwealth Coatings and TUCO.

       Similarly, Tenaska did not waive its partiality challenge in the scheduling order’s waiver of

conflicts provision because that provision was expressly predicated on a full disclosure that never

occurred. The clause provides that Tenaska, Ponderosa,

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        and each member of the Panel in this Arbitration hereby confirm that, as of the date
        below, they have each: (i) fully disclosed all conflicts of interest and potential
        conflicts of interest with respect to the designation of the members of the Panel in
        this Arbitration; and (ii) knowingly waived any and all conflicts of interest and/or
        potential conflicts of interest relating to the designation of the members of the Panel
        in this Arbitration (emphasis added).

Thus, the parties waived conflicts and potential conflicts for what was fully disclosed. We express

no opinion as to whether parties may contractually agree to forego the full disclosure requirement.

Because the waiver clause was conditioned on a full disclosure that did not occur, Tenaska has not

waived its partiality challenge.

        As a final matter, we reiterate that our holding should not be read as indicating that Stern17

was actually biased. Reasonable people could debate whether Stern’s relationship with Nixon

Peabody was likely to affect his partiality in the arbitration. But such a debate is for the parties after

a full disclosure—which did not occur here. See TUCO, 960 S.W.2d at 638.

                                             III. Conclusion

        We have long held that an arbitrator is evidently partial, and an award may be vacated, if the

arbitrator fails to disclose facts which might, to an objective observer, create a reasonable impression

of the arbitrator’s partiality. Id. at 630. As we have observed, the most capable arbitrators often

have ties to the business community. Id. at 639. Regardless of whether such ties demonstrate actual

bias here, Stern’s failure to disclose the extent of his relationship with LexSite and the two lawyers

        17
          Stern clerked for Chief Justice Earl Warren before embarking on a distinguished practice of law in
Washington, D.C.

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who represented Ponderosa in this arbitration might yield a reasonable impression of the arbitrator’s

partiality to an objective observer. Thus, Stern had a duty to disclose the additional information, and

his failure to do so constitutes evident partiality. Accordingly, we reverse the court of appeals’

judgment and reinstate the trial court’s order vacating the award and requiring a new arbitration.

                                                       ____________________________________
                                                       Eva M. Guzman
                                                       Justice

OPINION DELIVERED: May 23, 2014

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