Jimmy McAllen’s battle against Forest Oil has moved one step closer to conclusion. Last week the Corpus Christi Court of Appeals affirmed an arbitration award of more than $20 million against Forest Oil for environmental and other damages to the McAllen Ranch and personal injuries to Mr. McAllen.
The fight began in 2004, when McAllen sued Forest. He claimed that Forest had buried mercury-contaminated iron sponge wood chips on the 27,000-acre McAllen Ranch. The wood chips are waste from Forest’s gas plant on the Ranch. He also claimed that he had contracted cancer from pipe containing naturally occurring radioactive material (NORM) that Forest had given him to build pens on his Santillana Ranch. The pens were built to house endangered rhinoceroses. McAllen contracted cancer that required amputation of his leg.
Forest responded that McAllen was bound by a prior settlement agreement that required him to arbitrate any claims arising out of Forest’s operations on his ranch. McAllen opposed arbitration. The trial court denied Forest’s motion to require arbitration, and the Corpus Christi Court of Appeals affirmed. Forest appealed to the Texas Supreme Court, which held that McAllen was bound by the arbitration agreement. Forest Oil v. McAllen, 268 S.W.3d 51 (Tex. 2008).
So the parties arbitrated McAllen’s claims before three arbitrators, one chosen by McAllen, one by Forest, and the third chosen by the other two. Forest chose Daryl Bristow, McAllen chose Donato Ramos, and the third arbitrator was Clayton Hoover. The arbitration hearing lasted for 17 days. The arbitrators issued a split decision, with Bristow dissenting. The arbitration award gave $15 million to McAllen for the reduced value of the McAllen Ranch resulting from Forest’s contamination of the ranch, and $500,000 to Jimmy McAllen for his personal injuries. The panel also awarded $500,000 in exemplary damages and $5 million in attorneys’ fees. Bristow dissented, based on his conclusion that the award interfered with the Texas Railroad Commission’s jurisdiction to regulate remediation of hazardous waste associated with oil and gas production.
McAllen filed a motion in the trial court to confirm the arbitration award, which the trial court granted. Forest then appealed to the Court of Appeals in Corpus Christi.
Texas courts favor arbitration of disputes, so it is difficult to overturn an arbitration award. A court’s review of arbitration awards is very limited.
The Court of Appeals first held that the award did not interfere with the Railroad Commission’s jurisdiction over oil field contamination. The court made reference to sections 85.321 and 322 of Texas Natural Resources Code, the first of which expressly grants a private cause of action for damages for violation of Texas conservation laws, and the second of which provides that nothing in the law governing Railroad Commission jurisdiction “shall impair or abridge or delay a cause of action for damages or other relief that an owner of land …. may have or assert against any party violating any rule or order of the commission or any judgment under this chapter.”
Forest also argued that the award should be vacated because of the “evident partiality” of Donato Ramos, the arbitrator chosen by McAllen. An arbitration award may be overturned if an arbitrator fails to disclose to the parties known facts that “might, to an objective observer, create a reasonable impression of the arbitrator’s partiality.” In other words, it is not the partiality per se that is objectionable, but the arbitrator’s failure to disclose facts that might show his partiality. Forest said that Ramos failed to disclose that McAllen had proposed Ramos as a mediator in another suit brought by McAllen against Chevron. Evidence in the case indicated that Ramos was never told that he had been proposed as a mediator in that other litigation. Because there was evidence that Ramos never knew he was being proposed as a mediator, the Court of Appeals held that Forest had not shown grounds for overturning the arbitration — Ramos could not fail to disclose something that he never knew. The Court of Appeals distinguished a recent Texas Supreme Court case that did overturn an arbitration award on the same grounds, Tenaska Energy v. Ponderosa Pine Energy, 2014 WL 2139215. In that case, the arbitrator failed to disclose the full extent of his business relationship with a party’s attorneys in the case.
There is some irony in Forest’s complaints about the arbitration award in light of its insistence that McAllen’s claims had to be resolved by arbitration. One of Forest’s arguments for overturning the award was that McAllen’s expert-testimony evidence of damages to the ranch would not have been admissible testimony in a trial court. The Court of Appeals cited the Texas Supreme Court’s conclusion that an arbitration award need not be based on admissible evidence. “For efficiency’s sake, arbitration proceedings are often informal; procedural rules are relaxed, rules of evidence are not followed, and no record is made.” Nafta Traders v. Quinn, 339 S.W.3d 84, 101 (Texas 2011).
Forest is sure to seek review by the Texas Supreme Court. So Jimmy McAllen’s ten-year fight with Forest is not quite over yet.