Supreme Court of Texas Blog: Legal Issues Before the Texas Supreme Court
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What’s on the SCOTX argument calendar for September?

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Previews of the September oral argument calendar

This week brings the Texas Supreme Court’s first full argument sitting since late February. The Court will hear seven cases, spread across September 16, 17, and 18.

Amending a petition after a 101.106 motion is filed

This petition asks one question: "Where a plaintiff’s initial petition asserts only tort claims against a governmental unit and its employees, and the unit moves to dismiss the employees under section 101.106(e), must a trial court grant the motion to dismiss even if the plaintiff amended her pleading to drop the tort claims and add other claims before the court rules on the motion?"

Here, after a state entity moved to dismiss tort claims brought against it and an employee, the plaintiff amended to add federal Section 1983 claims. The state argues that this amendment was improper (and the whole case must be dismissed) because it had filed a Section 101.106 dismissal motion prior ot the amendment.

The Court originally denied the petition for review in April 2013, but it granted rehearing in October 2013, reinstating the case to the docket and requesting full merits briefing. It granted the case for oral argument in June 2014.

A contractor who promises to work in a “good and workmanlike manner” does not forfeit CGL coverage

IN RE DEEPWATER HORIZON, No. 13-0670

Heard at oral argument on September 16, 2014

This case reaches the Texas Supreme Court by certified question from the U.S. Fifth Circuit in New Orleans.

In this branch of the litigation arising from the 2010 Deepwater Horizon drilling rig explosion, the question is not how much is paid out but which entity will ultimately bear the cost.

BP contracted with Transocean to provide "additional insured" protection covering Transocean's operations above the water line, while BP engaged in drilling below the water line. That narrow limitation was contained in the business contracts between the entities, while the insurance contracts themselves (arguably, at least) did not mirror the same limitation.

The first major issue is about construing the various contracts. BP contends that only the insurance policy language matters in deciding whether it is an "additional insured," citing cases such as EVANSTON INSURANCE COMPANY v. ATOFINA PETROCHEMICALS, INC., No. 03-0647. The insurers contend that the extent of coverage they agreed to provide to BP was limited to the scope of Transocean's agreement to provide that coverage, and thus excludes the claims here.

The second major issue might have broader implications. BP contends that if there is any ambiguity about whether it is covered, the policy should be construed against the insurer and in favor of the insured. The insurers contend that the doctrine does not apply in this sophisticated commercial context.

When the State condemns land containing a billboard, what compensation is due?

STATE OF TEXAS v. CLEAR CHANNEL OUTDOOR, INC., No. 13-0053

Heard at oral argument on September 17, 2014

In this case, the State (supported by some local governments) challenges how billboards were valued in condemnation. The landowners contend that the installed billboards are part of the realty warranting compensation for their lost income. The State argues that they should, instead, be seen as a type of personal property that can be relocated away from the property being condemned.

Fraud in mineral leases

A mineral owner sued the operator for fraud that occurred more than four years before suit, the effects of which continued in the stream of payments to the current day. The operator responded with, among other arguments, a limitations defense. The mineral owner contended that the discovery rule should have tolled that limitations period because it reasonably relied on the operator's representations. The operator contends that any such reliance was unreasonable because Railroad Commission records contained the needed information.

The petitioners present four issues:

  • Should limitations have been tolled here? In part, this asks whether the special legal duties that an operator owes to the mineral owner make the owner's reliance on these statements more reasonable.

  • Did the court of appeals err in reversing and rendering judgment on the breach of contract claim? In part, this issue asks whether a defendant can obtain rendition on such a claim without having moved for summary judgment.

  • Even if the statute of limitations applies, does it only bar recovery for the oldest payments made under these contracts or does limitations also bar recovery for new payments so long as the alleged misconduct was more than four years in the past?

  • Was there any basis to refuse attorneys fees here given the parties' stipulations on that point?

The respondents challenge some other aspects of the judgment, including whether there was sufficient evidence that the parties agreed to a higher rate of post-judgment interest (here, 18% rather than the 5% that would have otherwise applied).

Construing an insurance policy that covers multiple properties hit by a single hurricane

RSUI INDEMNITY COMPANY v. THE LYND COMPANY, No. 13-0080

Heard at oral argument on September 18, 2014

The insured suffered losses across a number of properties during Hurricane Rita. This petition concerns how to determine the insurers' maximum liability. Is it limited to the "scheduled" value of each property under the policy, taken separately? Or do other provisions in the policy allow the insured to recover the full value of those properties, staying within other limits of the policy?

The insurer contends that the policy, as a whole, should be read as a "scheduled" policy and thus construed in line with a national body of law that would limit its liability here. The petition accuses the court of appeals of coming up with what it labels a "hybrid" policy that would lead to absurd results.

The property owner contends that the court of appeals properly construed the actual policy language agreed here, and that this policy language — not a label like "scheduled" or "hybrid" policy — is what should control the outcome.

The court of appeals heard the case en banc and divided 4-3, with one of the four justices in the majority writing separately to encourage the Court to grant review.

Unresolved questions about Section 51.003

PLAINSCAPITAL BANK v. WILLIAM MARTIN, No. 13-0337

Heard at oral argument on September 18, 2014

Having recently issued an opinion about lender's rights of offset under Section 51.003 in MEHRDAD MOAYEDI v. INTERSTATE 35/CHISAM ROAD, L.P. AND MALACHI DEVELOPMENT CORPORATION, No. 12-0937, the Court has decided to go back for more.

This petition asks more questions about Section 51.003, including: (1) whether it creates a right to an offset when a lender resells the property on the open market rather than a foreclosure sale and (2) how to compute fair market value to compute the offset.

When does city code enforcement raise a takings issue?

CITY OF HOUSTON v. JAMES & ELIZABETH CARLSON, ET AL., No. 13-0435

Heard at oral argument on September 18, 2014

The City of Houston ordered the owners of a condominium to vacate until they repaired the units to meet city code. In a separate suit, the City was found to have violated the owners' due process rights. In this suit, the owners sued the City for a regulatory taking. The court of appeals agreed that the property owners had a valid claim that could proceed.

The City presents two issues:

  1. Can an invalid order to vacate a condominium be a taking, even without some actual damage or use of the property in question?

  2. Does the order in this case represent the kind of "public use" that constitute a taking or is it instead what the City calls "a nonpublic, noncompensatory use of a governmental entity’s police powers"?

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Catching up on recent (quiet) summer orders lists

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The Texas Supreme Court is returning from a summer break, and as it happens, so am I.

This most recent August 15th orders list was a [...]

The Texas Supreme Court is returning from a summer break, and as it happens, so am I.

This most recent August 15th orders list was a quiet one, with no opinions issued and no grants.

The same was true the week before, the week before that, the week before that, and the week before that.

Looking forward, the Court’s public calendar shows two, two-day private conferences over the next two weeks, so it’s fair to expect some end-of-term orders to reduce the number of argued and pending cases that will be carried forward into the Court’s new accounting year on September 1.

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The economic loss rule in Texas is more restrictive than the Restatement

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LAN/STV, A JOINT VENTURE OF LOCKWOOD, ANDREWS & NEWMAN, INC. AND STV INCORPORATED v. MARTIN K. EBY CONSTRUCTION COMPANY, INC., No. 11-0810

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An architect on a commercial project was sued by a contractor on the project for their negligent work, which allegedly caused significant increased costs that the contractor could not recoup.

The key fact here turns out to be that the architect worked for the project owner, not the contractor. For that reason, the architect argued, Texas law does not permit the contractor to sue it for pure economic losses (those unconnected to some bodily harm or property damage) caused by its allegedly negligent work. The principle involved is the “economic loss rule.”

As the opinion explains, the economic loss rule aims to draw a clearer line to the edges of tort liability than offered by older principles such as “foreseeability.” While foreseeability can turn on idiosyncratic facts, the economic loss rule instead invites a court to announce broad policy determinations about whether tort liability should apply in a particular situation.

The Texas Supreme Court ultimately agreed with the architect and held that the architect had no liability for these economic losses suffered by a contractor relying on its plans. What makes this opinion notable — and ensures it will be frequently cited, despite its narrow holding — is the depth of its examination of the policies and principles behind the economic loss rule, both in terms of Texas law and the larger national academic discussion.

That extensive background sets the stage for the Court to announce a rule at odds with the Restatement. Some commentary in the Restatement addresses just this situation — an architect, whose plans inflict economic loss on others in the project. The Restatement suggests that an architect on a commercial project should expect exactly this degree of reliance from contractors bidding on the project and, thus, that it is appropriate to impose tort liability as the default rule and let the parties choose, if they wish, to modify that by contract.

A unanimous Texas Supreme Court disagreed. It viewed the policies behind the economic loss rule as better served by leaving this kind of liability among people engaged in the same economic transaction exclusively to the realm of contract law: “We think it more probable that a contractor will assume it must look to its agreement with the owner for damages if the project is not as represented or for any other breach. Though there remains the possibility that a contractor may not do so, we think the availability of contractual remedies must preclude tort recovery in the situation generally because … ‘clarity allows parties to do business on a surer footing’.”

To explain its thinking, the Court offered an excerpt from a 1992 law review article by Professor William Powers, an extensive block quote that may soon be a favorite example for those defending the practical value of the legal academy.1

The Court’s precise holding turns out to be narrow: That a general contractor cannot recover pure economic losses from an architect hired by the project’s owner. The implications for future contractors are clear enough: negotiate for contractual or insurance-based protection.

  1. This opinion extensively discusses academic publications by Professor Powers, Professor Fleming James, and Judge Posner, among others. []

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Eight sets of opinions, one grant [Jun. 20, 2014]

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With today’s orders list, the Texas Supreme Court issued opinions in eight cases and chose one new case to be argued this October.

The orders included [...]

With today’s orders list, the Texas Supreme Court issued opinions in eight cases and chose one new case to be argued this October.

The orders included two dissenting opinions — which are the first since September’s IN RE STEPHANIE LEE, No. 11-0732 . It’s been a very agreeable year so far at the Court, which poses a challenge to those of us who track court statistics.

The rule of thumb at the U.S. Supreme Court is that the more divided cases tend to linger until the end of the Term. We’ll see if the same pattern holds this year in Austin.

Read much more

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Three opinions, one grant – and argument dates are assigned for the Fall calendar [Jun. 13, 2014]

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With its June 13, 2014 orders list, the Texas Supreme Court issued opinions in three cases. It also granted review in one new case and [...]

With its June 13, 2014 orders list, the Texas Supreme Court issued opinions in three cases. It also granted review in one new case and assigned its first argument dates for the fall.

I’ve also posted summaries from the June 6 orders and a long-overdue summary of a case about vacating an arbitration award for evident partiality.

Opinions

“Check[ing] the causation box” is harder than it may seem

The Court held that a slander-of-title claim against a tenant (who is alleged to have undermined a property sale) failed for lack of evidence of causation.

The Court emphasized that causation in this context has two aspects. It is not enough that the defendant’s conduct was a factor in causing the result. What the Court requires is evidence that, but-for the action, the harm would not have occurred.

Here, the “witnesses … never testified there was a possibility of a different outcome had [the tenant] not sent its letter.” The Court was also dismissive of the idea that some magic words in testimony could substitute for richer evidence suggesting causation. It said:

even if counsel were able to get a witness to agree to language reflecting the causation standard at issue in this case, the bare assertions … in response to carefully worded questions from counsel do not constitute evidence of causation.

In other words, a transcript that tracks the language of court opinions is not good enough to let you sleep well at night. “There is no ‘magic language’ that checks the causation box in a sufficiency-of-the-evidence review.”

Unconscionability of arbitration clauses applied to DTPA and attorney’s fee claims

A contract for the sale of cotton included an arbitration clause, selecting arbitration rules that did not at the time permit attorney’s fees.

When the cotton grower brought suit, the purchaser (Venture) invoked the arbitration clause. The district court refused to enforce the clause, and the court of appeals affirmed on the ground of unconscionability. The court of appeals focused, in particular, on the plaintiff’s allegations of a DTPA claim and request for contract attorney’s fees — remedies that were effectively barred by the arbitration procedures chosen here. The court of appeals rejected the argument that the offending portions of the arbitration should have been severed to save the rest.

The Texas Supreme Court reversed. As to the DTPA claim, it agreed with the court of appeals that requiring arbitration would be improper under the precedent of IN RE POLY-AMERICA, L.P., IND. AND D/B/A POL-TEX INTERNATIONAL, AND POLY-AMERICA GP, L.L.C., No. 04-1049 , in which the Court held that requiring arbitration of a workers compensation remedies was unconscionable. The DTPA claims at issue here are different in one way: it is at least possible for them to be waived. But this contract did not include the specific language and form elements that the law requires for an effective waiver. Thus, the Court held, the DTPA claim here cannot be arbitrated under this clause.

But the Court, unlike the court of appeals, held that this aspect of the arbitration clause could be severed, leaving the rest in place.

The opinion also has an interesting discussion of how waiver might work differently in interlocutory appeals. Here, the argument was that Venture should have expressly asked the trial court for this kind of severance before perfecting its interlocutory appeal. The Texas Supreme Court rejected the idea that this “waiver” would prevent it from reaching the question:

But this is an interlocutory appeal, and the case remains pending in the trial court. We are therefore unsure what Venture has waived. If the court merely means to suggest that Venture waived the right to complain about severance in this interlocutory appeal, the waiver argument serves only to delay a decision in the case. Conservation of time and resources recommend that we consider the issue now because nothing prevents Venture from urging severance in the trial court and, if denied, from renewing its complaint in yet another interlocutory appeal.

A guaranty agreement waives a party’s right to offset for a foreclosure sale

In a foreclosure auction, the lender has an advantaged position because they can bid using a fraction of the debt they are owed, rather than putting up cash. The Property Code recognizes that this can result in a distorted auction, one in which the seller has no incentive to bid high and other buyers do not wish to compete — leading to a sale price well below market value.

Section 51.003(c) gives the person whose property has been foreclosed some protection in this situation. If the lender buys the property in foreclosure, the borrower can prove up the true market value and receive an offset of their debt for the difference.

The wrinkle here is that the commercial loan was personally guaranteed by a principal of the business, Moayedi.

That guaranty agreement, in turn, waived “any defense … each and every such defense being hereby waived by the undersigned Guarantor.”

The Court first construed Section 51.003. It rejected Moayedi’s argument that this statue was not a defense at all, but rather an alternate way of calculating a deficiency judgment (with the same practical effect). The Court quoted the full statute and said that “the language of the statute presupposes the traditional definition of deficiency [and] provides an offset … In other words, it provides a defense.”

It then held that Moayedi’s general waiver extended to that defense and was effective.

Petition Grant

More questions about Section 51.003

Having just issued an opinion in MEHRDAD MOAYEDI v. INTERSTATE 35/CHISAM ROAD, L.P. AND MALACHI DEVELOPMENT CORPORATION, No. 12-0937 , the Court has decided to go back for more.

The petition in PLAINSCAPITAL BANK v. WILLIAM MARTIN, No. 13-0337 asks more questions about Section 51.003, including: (1) whether it creates a right to an offset when a lender resells the property on the open market rather than a foreclosure sale and (2) how to compute fair market value to compute the offset.

Argument Schedule

The Court assigned argument dates for its pending cases. This probably fills the September calendar and (almost) fills October. The October calendar includes, along with the usual sitting in Austin, a trip to Lubbock to hear arguments at Texas Tech University’s law school on October 9.

Tuesday September 16

Wednesday September 17

Thursday September 18

Thursday October 9 [at Texas Tech Law School]

Tuesday October 14

Wednesday October 15

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Seven opinions and two grants [June 6, 2014]

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With its June 6, 2014 orders list, the Texas Supreme Court issued opinions in seven cases. It also granted review in two more cases to [...]

With its June 6, 2014 orders list, the Texas Supreme Court issued opinions in seven cases. It also granted review in two more cases to be argued this fall.

The implied warranty of merchantability can survive into the market for used goods

The question was whether the engines in a fifty-foot yacht still carried the manufacturer’s implied warranty of merchantability after the boat was re-sold to a new buyer.1

Ultimately, the Court held that it does, at least here. (“Our answer: It depends.”)

As a general matter, the Court held that the implied warranty could still be asserted against the manufacturer even for goods marketed as “used.”

The Court recognized, however, that a waiver at the first step in the chain — by the initial purchaser — could cut off that warranty. But it held that this waiver argument had not been properly raised here because it was not timely raised as an affirmative defense under Rule 94.

A parental-termination case about more general questions of appellate procedure

The involuntary-termination statute sets out twenty different courses of parental conduct, any one of which may serve as a ground that satisfies the statute’s first prerequisite for termination. The twenty grounds are subparts (A) through (T) of Family Code §161.001(1).

The trial court found sufficient evidence to terminate a father’s parental rights for subparts (D) and (E), entering judgment to that effect. The court of appeals reversed, concluding that there was factually insufficient evidence of those grounds.

In the Texas Supreme Court, the State (through DFPS) argued that subpart (O) — a provision about failure to comply with prior court orders, which DFPS had urged below but which the trial court did not list in the judgment — also supported termination. DFPS argued that the trial court had implicitly found in its favor on that ground under Rule 299 or, alternatively, that the evidence of a subpart (O) violation was so conclusive that no finding should have been necessary because no factual dispute was even presented.

On the procedural question, the Texas Supreme Court held that the concept of an implied finding under Rule 299 about “omitted unrequested elements” of a claim did not apply where the party had requested the element. Because DFPS advanced the ground below, Rule 299 provided no basis to read it into the judgment.

On the substantive question, the Court held that the evidence was not conclusive of a violation of subchapter (O). Framing the issue, it noted the potential breadth of accepting the DFPS position:

Parents frequently fall short of strict compliance with a family-service plan’s requirements. The Department’s argument, however, accepts nothing less and thus would require termination for a parent’s imperfect compliance with the plan.

The Court held, instead, that this was a matter of degree in which “whether a parent has done enough under the family-service plan to defeat termination under subpart (O) is ordinarily a fact question.”

For that reason, mere evidence of non-compliance — even conclusive evidence that a parent was technically not in compliance — was not enough to conclusively satisfy subpart (O) “where questions of compliance and degree are raised.” Instead, the Court saw that as an embedded fact question, requiring (at least in these circumstances) some type of fact finding that the non-compliance was substantial enough to warrant termination.

Finding that subpart (O) presented an unresolved fact dispute, the Court declined to find this basis for termination to be conclusively established. It therefore left in place the court of appeals’s order remanding this to the trial court for further proceedings.

“Does a firefighter who refuses to fight fires have a ‘disability’ under state or federal law?”

It’s an old truism that how you frame the question can shape the answer. Here’s how the opinion of the Court framed this one:

Does a firefighter who refuses to fight fires have a “disability” under either state or federal law?

The answer, unsurprisingly, was no.

The analysis rejected the argument that this was a manifestation of some deeper issue, such as depression or another species of mental illness. The Court focused on the specific manifestation of the condition at work — what it called “[b]eing unable to set aside the normal fear of entering a burning building,” which is not something that “limits a major life activity” outside of work. And because there was “no evidence that the City was aware” of any treatment for depression, the Court found no evidence that the decision was motivated by any such disability.

Immunity is not waived against intentional torts

This case is about one of the quirks of Texas’s tort claims act, which waives immunity for certain kinds of negligent acts by governmental employees — but does not waive immunity for intentional torts.

Here, the tort claim involved injuries suffered during an arrest in which excessive force was used. The court of appeals concluded that, because the injury itself was not intended, the nature of this claim sounded in negligence and thus could fit within a waiver of immunity.

The Texas Supreme Court disagreed. It cited its own precedent holding that a battery tort could sound even where the actual physical contact was indirect ‐ a dinner plate snatched from the hand of someone waiting in line — so long as the nature of the contact was offensive.2 The Court concluded that “when an arrest, lawful at its inception, escalates into excessive-force allegations, the claim is for battery alone.”

Two per curiams about police officers sued over conduct during an arrest

With THE CITY OF WATAUGA v. RUSSELL GORDON, No. 13-0012 decided, the Court also issued per curiam decisions in two cases involving claims brought against police officers for alleged misconduct during an arrest:

Both cases were, procedurally, about §101.106(f) of the Tort Claims Act and held that the claims against the officer should be dismissed.

A Rule 11 agreement not embodied in a judgment cannot be enforced after plenary power expires

The parties here reached a settlement, memorialized that agreement in a Rule 11 agreement filed with the trial court, and had the trial court dismiss the underlying claims.

The question is whether the trial court has continuing jurisdiction to enforce that settlement or whether, instead, the settlement agreement is just a contract that would require a new lawsuit to enforce.

While the trial court has ongoing power to enforce its judgment, the order of dismissal here did not incorporate the terms of the Rule 11 agreement. For that reason, the Court holds that the trial court’s power to enforce those settlement terms ended soon after the dismissal order was signed.

Grants of Review

  1. Insert your own jokes about “the two happiest day of a boat owner’s life” here. []
  2. The case is Fisher v. Carrousel Motor Hotel, Inc., 424 S.W.2d 627 (Tex. 1967), which is wedged into my memory from first-year torts. []

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No grants or opinions [May 30, 2014]

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With its May 30, 2014 orders list, the Texas Supreme Court did not issue any opinions or choose any new cases for review.

With its May 30, 2014 orders list, the Texas Supreme Court did not issue any opinions or choose any new cases for review.

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An arbitration award is vacated for evident partiality [May 23, 2014]

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With its May 23, 2014 orders list, the Texas Supreme Court issued one opinion. It did not grant any new cases for review.

“Evident partiality” [...]

With its May 23, 2014 orders list, the Texas Supreme Court issued one opinion. It did not grant any new cases for review.

“Evident partiality” when an arbitrator fails to fully disclose the nature of his conflict

After the purchase of a power plant, Ponderosa (the buyer) sued Tenaska (the seller) to indemnify it for some liabilities that came with the property. The purchase agreement had an arbitration clause, and the parties went forward with a three-member, neutral arbitration panel in which each side would designate one of the arbitrators and the two would then choose a third.1

Tenaska was represented by Nixon Peabody, which designated Samuel Stern as its arbitrator. It made at least a partial disclosure that Stern and the law firm had previous involvement, noting that one of Stern’s ventures (Lexsite) had tried to sell it litigation-discovery services. The disclosure also stated “Nixon-Peabody and Lexsite have done no business.”

The arbitration was structured as a “baseball arbitration,” and the two sides’ proposals were two orders of magnitude apart: Tenaka proposed $1.25 million and Ponderosa proposed $125,000,000. The panel chose Ponderosa’s figure.

Subsequently, Tenaska uncovered more details of the relationship between Nixon Peabody and the arbitrator, which suggested a much deeper relationship than had been revealed. The trial court vacated the award, but the court of appeals reversed on the ground that the initial disclosure was enough to put Tenaska on notice to investigate.

The Texas Supreme Court reversed again, holding that the award should be vacated for what the statute calls evident partiality. The test asks if “the arbitrator does not disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality.” Burlington Northern R.R. Co. v. TUCO, Inc., 960 S.W.2d 629, 630 (Tex. 1997)

As the opinion summarizes the situation here:

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 Court found that this met the standard. It rejected the argument that merely disclosing the existence of some relationship was enough, instead looking at the significance of the undisclosed portion of the information.

However, proving that the Court is not engaged in baseball arbitration, the Court rejected both sides’ framing of the standard of proof. Tenaska contended that all it needed to do was establish that the disclosure was intentionally misleading and then, as a matter of law, the inquiry ends. Ponderosa contended (based on some other States’ standards) that the Court should require heightened proof such that a “reasonable person would have to conclude” that there was partiality. The Court rejected both extremes, instead adhering to the framing of TUCO that the disclosures “might, to an objective observer, create a reasonable impression” of partiality.

  1. Here, the third arbitrator was actually James A. Baker, former Justice of the Texas Supreme Court. []

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