## Facts

- Tenaska sold interests in a Cleburne, Texas power plant to Ponderosa under a contract containing arbitration and indemnity provisions.
- A dispute arose over whether Tenaska had to indemnify Ponderosa for alleged breaches of contractual representations and warranties.
- The dispute went to arbitration before a three-member panel that included a purportedly neutral arbitrator, Samuel Stern, recommended by Ponderosa’s counsel.
- Stern made limited disclosures about prior recommendations by the law firm and his connection to a litigation-services company.
- Additional facts later developed showing Stern had undisclosed financial and professional ties connected to Ponderosa’s counsel’s law firm, including an ownership interest in the company, an executive role, and marketing efforts directed at that firm and the lawyers involved in the arbitration.
- The panel adopted Ponderosa’s damages model and awarded roughly $125 million to Ponderosa.

## Issues

1. Whether a neutral arbitrator’s failure to disclose material financial and professional connections to counsel can constitute “evident partiality” requiring vacatur under the Federal Arbitration Act and Texas Arbitration Act.
2. Whether a party waives an evident-partiality challenge by proceeding with arbitration after incomplete disclosures and signing a conflict waiver, without knowledge of material undisclosed facts.

## Decision

- The Texas Supreme Court reversed the court of appeals and reinstated the trial court’s order vacating the award and requiring a new arbitration.
- The court held Stern’s nondisclosure of material facts created a reasonable impression of partiality to an objective observer, constituting evident partiality.
- The court held Tenaska did not waive its challenge because it lacked knowledge of the undisclosed facts and the limited disclosures did not impose a duty to investigate further.
- The court treated the conflict waiver as ineffective to bar the challenge where Tenaska did not have the material information necessary for an informed waiver.

## Legal Principles

- A neutral arbitrator is evidently partial if the arbitrator fails to disclose facts that might, to an objective observer, create a reasonable impression of partiality.
- Under both the FAA and the TAA, evident partiality is a statutory ground to vacate an arbitration award.
- Nondisclosure can itself establish evident partiality when the undisclosed facts, considered in context, would reasonably call the arbitrator’s neutrality into question.
- A party does not waive an evident-partiality challenge by continuing the arbitration without knowledge of the material, undisclosed facts; incomplete disclosures do not automatically shift to the party a duty to investigate.

## Conclusion

The court required vacatur where a neutral arbitrator’s incomplete disclosures concealed significant financial and professional connections tied to counsel appearing in the case, and it rejected waiver absent the challenging party’s knowledge of the material undisclosed conflicts.


Tenaska Energy, Inc. v. Ponderosa Pine Energy, LLC, 437 S.W.3d 518 (Tex. 2014)