In the Matter of: Jon Amberson

Case Type:
Case Status:
21-50960 (5th Circuit, Nov 18,2022) Published
While the judges divided over the preferred approach and proper reasoning, this panel of the U.S. Court of Appeals for the Fifth Circuit (Circuit) unanimously agreed that the underlying arbitration award had been properly confirmed and thus affirmed, deeming the one disputed claim to be arbitrable under Texas law (read in light of non-TX sources) based on a "sufficiently clear" record, though the lower courts had not even considered arbitrability due to the objector's failure to seek mandamus review of the state court order compelling arbitration of the parties' every claim before its opening.
Procedural context:
In January 2015, Jon Christian Amberson (J. Amberson or Jon), appellee's then son-in-law, and his law firm (Amberson law firm, and together with Jon, Amberson) sued James Argyle McAllen (McAllen) in Hidalgo County District Court (State District Court) to compel McAllen to arbitrate a dispute over a contingency fee related to the litigation against Forest Oil Corporation (Forest) for which Amberson had represented McAllen, a process expressly spelled out in and required by the relevant contingency fee agreements. After a nonsuit and a failed mediation, the Amberson law firm refiled its petition in August 2017. McAllen answered and counterclaimed for breach of fiduciary duty, fraud, and theft, joining Amberson individually and an entity known as Amberson Natural Resources LLC (ANR) as third-party defendants. In adding these defendants, McAllen had expanded the lawsuit from dealing only with the law firm’s claim for fees relating the Forest litigation toby counterclaiming for damages relating to an entirely separate transaction among him, Amberson, and ANR, the vehicle Amberson had used to effectuate this deal, regarding property thereafter held by yet another Amberson entity, one known as Cannon Grove Investments LLC (CGI). In contrast with the Forest ltigiation, no contract compelling arbitration of claims arising from this discrete relationship controlled. In April 2018, the State District Court ordered all claims to arbitration, including those related to the Cannon Grove Transaction, and denied Amberson's motion for reconsideration. On April 30, 2020, the arbitrator issued a lengthy decision awarding McAllen almost $7,300,000 and $2,000,000 more in attorneys' fees and requiring Amberson to convey all his interest in CGI to McAllen; the arbitrator later awarded McAllen an additional $1,750,000. Pointedly, the arbitrator acknowledged that Amberson had “'preserved their running objection to the arbitrability of the []Cannon Grove[] transaction,'" and having interpreted the court’s referral order as barring consideration of arbitrability, he made no decision on whether any claims related to that deal were "properly subject to arbitration." Nonetheless, McAllen petitioned the State District Court for confirmation on May 14, 2020. On the day before the scheduled hearing on McAllen's confirmation motion, the Code intruded. On July 20, 2020, ANR filed a Chapter 11 petition in the U.S. Bankruptcy Court for the Western District of Texas (BC). On that same day, ANR removed the suit for confirmation to the Bankruptcy Court for the Southern District of Texas, a suit soon transferred to the BC. And on July 23, 2020, Jon personally filed a chapter 11 petition in the BC. Once the dust (somewhat) settled, McAllen sought confirmation of the entire award; Amberson sought vacatur of that part of it dealing with the Cannon Grove Transaction. The BC concluded that the only procedure for challenging an order compelling arbitration under Texas law was by seeking immediate review through a writ of mandamus, making it too late to present that argument in a motion to vacate part of the award. Amberson appealed. Concurring with the BC's logic, the U.S. District Court for the Western District of Texas (DC) affirmed.
It traces to 2004. In that year, McAllen, a south Texas rancher, first discovered that Forest had secretly been burying toxic and radioactive waste on his land. He thereupon turned to Amberson to represent him in lawsuits against Forest. Over time, other persons and parties joined, but one thing remained constant: McAllen and the Amberson executed three attorney engagement agreements, all of which contained language similar to the following: “[a]ny fee dispute arising under this agreement and/or the services rendered for” McAllen by the law firm would be arbitrated." As the district court later found, during the years-long Forest litigation, Amberson billed McAllen for a significant number of services that were not performed and only some of whihc were ostensibly related to the Forest litigation, and Jon himself borrowed large sums of money from McAllen for litigation expenses that he never repaid. The "matter" at the "center of this appeal" did not actually relate to this Forest litigation; it was the Cannon Grove Transaction. At one point, McAllen sought to defer capital gains taxes through a “Reverse 1031 Exchange,” as allowed by federal statute, and used Jon as the required non-blood relative intermediary. Jon created ANR for this very purpose, and the property itself was held by yet another entity, this one known as Cannon Grove Investments LLC (CGI). As part of this transaction, McAllen gave $4,500,000 to ANR on March 18, 2009, money intended to enable ANT to purchase a 90% stake in CGI, the other 10% to be purchased by a McAllen entity. When McAllen later asked for his money back, Jon, describing the money as a gift, refused. McAllen remonstrated, insisting the money had been given as a loan with ANR's 90% CGI interest serving as collateral, to no avail.
Leslie H. Southwick; Edith H. Jones; and Andrew S. Oldham

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