Tenaska Energy, Inc. v. Ponderosa Pine Energy, LLC

Tenaska Energy, Inc. and its affiliated companies (collectively, Tenaska) (plaintiffs) sold a power plant to Ponderosa Pine Energy, LLC (Ponderosa) (defendant) pursuant to a contract that contained an arbitration clause requiring any disputes to be resolved by an arbitration panel. After a dispute arose following the sale, the parties went to arbitration. Ponderosa’s lawyers selected Samuel Stern as one of the arbitrators. Stern disclosed to Tenaska that Ponderosa’s lawyers had used Stern as an arbitrator before and that Stern had had discussions with those lawyers about using a company called LexSite for outsourcing litigation services but that no such business relationship had ever materialized. During the arbitration proceedings, the parties agreed that full disclosures of actual and potential conflicts had been made and waived any conflicts of interest. However, Stern did not disclose—and thus, Tenaska was not aware at the time of the conflict waiver—that Stern had a financial interest in LexSite, was actively soliciting business for LexSite from Ponderosa’s lawyers, and had had additional interactions with Ponderosa’s lawyers. The arbitration panel awarded Ponderosa $125 million. Ponderosa filed a motion with the trial court seeking to confirm the arbitration award. Tenaska moved to vacate the award on the grounds that Stern was evidently partial towards Ponderosa. The full extent of Stern’s interest in LexSite and interactions with Ponderosa’s lawyers were revealed to Tenaska during discovery. The trial court vacated the arbitration award, concluding that material information concerning Stern’s relationship with Ponderosa’s lawyers had not been fully disclosed to Tenaska and thus reasonably indicated that Stern was not impartial. Ponderosa appealed. The intermediate appellate court reversed the trial court, concluding that Stern’s partial disclosures had given sufficient notice of Stern’s partiality such that Tenaska should have objected to Stern as an arbitrator or investigated Stern’s partiality further before waiving the conflict of interest and that Tenaska’s failure to do so precluded Tenaska from challenging the arbitration award on the ground of evident partiality. Tenaska appealed.