Arbitration Confirmed, Sanctions Reversed

The Court of Appeals has issued a lengthy opinion affirming the confirmation of a take-nothing arbitration award, but reversing the trial court’s grant of a $10,000 sanction award against the attorney who challenged the award. The case arose out of the sale and subsequent foreclosure on a mineral lease in California. The lender alleged that it had been defrauded because it had not known about a $500,000 finder’s fee paid to the principal of the company that bought the mine for $2 million. The arbitrator rejected that position, finding that the lender’s chief witness was not credible in his allegations that he had not known about the finder’s fee. The opinion disposes of multiple grounds for vacating the award, including arguments that the arbitrator exceeded his authority and manifestly disregarded the law or committed a gross mistake in his award. The Court also denied the lender’s argument that the trial judge should have been disqualified due to her and her husband’s authorship (before she became a judge) of a paper praising arbitration and her husband’s continuing service as an arbitrator. But while the Court of Appeals found no merit to the lender’s challenges, it concluded that the trial court had abused its discretion in sanctioning the lender’s attorney. The largely generic facts alleged in the attorney’s pleading were supported by the record, and his legal contentions, even if not ultimately meritorious, could not serve as a basis for sanctions under Chapter 10 of the Civil Practice & Remedies Code. The Court remanded the case to the trial court for further consideration of alternative grounds for sanctions that the trial court had not ruled upon.

Humitech Dev. Corp. v. Perlman, No. 05-12-00857-CV