Last week, a Texas district court ruled that Jimmy McAllen could keep his $20 million arbitration award against Forest Oil Corp. This fight goes back to 1992, when Forest Oil gave McAllen used drilling pipe to build animal enclosures on his exotic wildlife ranch, on which McAllen kept rhinoceroses. The pipe had scale that contained radioactive materials, and McAllen claimed that it made the animals ill. McAllen also contracted cancer, which he blamed on the pipe. McAllen also alleged that Forest secretly buried mercury, drilling waste and other radioactive material on his property. McAllen sued Forest in 2005. Forest claimed that McAllen was required to arbitrate the dispute under the terms of a prior settlement agreement between Forest and McAllen arising out of a suit for unpaid royalties. Forest’s argument eventually made it to the Texas Supreme Court, which held that the prior settlement agreement was binding on McAllen and required him to arbitrate the dispute. Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008).
The case then went to an arbitration panel consisting of Houston attorney Daryl Bristow and South Texas attorneys Clayton J. Hoover and Donato D. Ramos. On February 29, 2012, the panel issued a split decision, 2-1, awarding McAllen $21.9 million plus $5 million in attorneys’ fees and additional injunctive relief requiring Forest to post a $10 million bond for the life of the lease to assure cleanup of any pollution found on the ranch. In a 40-page dissent, Daryl Bristow said that the panel’s award “turn[ed] the law on its ear” and “fabricate[s] a damages number without any principled foundation in the record.”
Forest then filed suit to overturn the award. On September 19, Judge Jeff Shadwick, of the 55th District Court in Harris County, denied Forest’s motion to overturn the award. The court’s order said that “the panel reached its conclusions based on little to no admissible evidence,” but that this “is one of the unfortunate hazards of arbitration.” “The court is not at liberty to substitute its judgment for that of the arbitrators merely because it would have reached a different decision.” Judge Shadwick did overturn the arbitration panel’s requirement that Forest post a bond for future cleanup, saying that the panel had no jurisdiction to issue such relief.
Forest is sure to appeal the trial court’s decision. It will be in the uncomfortable position of challenging an arbitration award after it fought all the way to the Supreme Court to force the case into arbitration. And so Jimmy McAllen’s fight will likely continue for some time to come.