Judge Jerry E. Smith, of the U.S. Court of Appeals for the Fifth Circuit. Credit: Diego M. Radzinschi / ALM

An appellate lawyer in Texas faced a federal circuit judge's wrath during oral argument Wednesday, in an appeal that unsuccessfully challenged an $18 million arbitration award.

Judge Jerry Smith of the U.S. Court of Appeals for the Fifth Circuit lambasted Thompson Coe partner Kevin Risley, who represents Santa Barbara Medical Innovation Co., for bringing what he saw as an effort to retry a case the company agreed to take into arbitration. Smith accused Risley of drawing out the fight that had already been before arbitrators and a federal district court.

“I mean, I'd be embarrassed to take the position you're taking in this case. I would be absolutely embarrassed for you and your law firm that you think it's appropriate to retry this case after you agreed to arbitration,” the judge said.

Risley's appeal sought to set aside an $18.3 million arbitration award for Primcogent Solutions LLC. An arbitration panel awarded that amount to the Dallas company's bankruptcy estate in 2017. The panel found, 2-1, that SBMI had lured Primcogent into a multiparty deal involving medical device lasers, based on false information and misrepresentations. Primcogent claimed it went into bankruptcy because of those misrepresentations.

A federal district court in Fort Worth confirmed the award in January, and rejected SBMI's bid for a new judgment or trial in February. Risley appealed that ruling in May.

The appeals court's three-judge panel—Judges Smith, Patrick Higginbotham and Stephen Higginson—unanimously upheld the award Wednesday. But their order, issued the same day of oral argument, came after Smith upbraided Risley in court.

Risley had contended at the outset of the argument that the arbitration panel exceeded its authority in granting the award. Smith interjected almost immediately.

“Your view seems to be in this case that the arbitration panel would have exceeded its authority by deciding any issue contrary to your client's position,” Smith said. “You're just retrying the case after the arbitration panel made its ruling.”

Risley contended the award should be vacated because the contract between Primcogent and SBMI was capped at a $250,000 recovery amount. Risley's position was that the arbitration panel exceeded its authority by granting more than the contract allowed, which he argued could be grounds for vacating an award under Section 10 of the Federal Arbitration Act.

“When there is a contractual provision in the document that controls the arbitration, that sets a damage cap, whether the arbitrators ignore it or misunderstand it or misapply it doesn't matter. It's not a question of they got it wrong. It's a question they had no authority to do it in the first place,” Risley said at one point.

Smith told Risley: “They had that authority because you handed it to them, and you got exactly what you asked for, and you got popped for $16 million in damages, and you're doing everything you can to pull your client out of the ditch. But it isn't gonna work, because you have, you have completely undermined the whole concept of arbitration.”

After Smith dressed down Risley's position and said he would be “embarrassed” to take it, Risley replied that he was “sorry the court feels that way,” but added there was “certainly a right to appeal an arbitration award in some circumstances.”

“We believe when the document before the arbitration panel says, if you find fraud the most you can award is X, and they award 70 times that. That's exceeding their authority,” he said.

Smith wasn't alone in his disapproval of the appeal. Higginson said Risley was just trying to return to the merits of the case. He pressed Risley for examples where the circuit court had ”accepted the invitation” to vacate an award after extensive findings of fact and law.

Risley acknowledged he didn't have an example.

In briefs, Risley laid out additional arguments seeking to vacate the award, including that the trustee's claim was barred by a statute of limitations. They also challenged the award was based on the “subjective opinions of an expert,” and the arbitrators had failed to “consider the allocation of responsibility” to the trustee.

Risley said in an email Friday he was traveling and not available for comment. But he said he and his client “were not asking the courts to retry the arbitration.” He added their arguments were that the arbitration panel exceeded its authority by awarding more than what was allowed in the contract, and by allowing Primcogent to be awarded damages for some of the misrepresentation claims they asserted after an “eighteen-month period allowed in the contract.”

Risley's partner, William Radford, did not respond to an email seeking comment.

Chris Hamilton, a name partner at Dallas-based Hamilton Wingo, was appointed by the bankruptcy court to represent John Spicer, a trustee for Primcogent.

In a brief, Hamilton described SBMI's position as meritless and contended arbitrators had already considered the company's arguments. Hamilton told the panel Wednesday that he couldn't find any circuit court example where a panel of arbitrators was found to have exceeded its authority.

Asked by Smith whether SBMI's appeal was “frivolous,” Hamilton didn't go so far as using that terminology. But he did agree with Smith when the judge noted he believed that “there would be some justice” in having SBMI reimburse them proceedings that might have turned out to be “completely wasteful.”

“Regardless of how you feel about the merits of arbitration in general, the Fifth Circuit's ruling sends a strong message that protects the sanctity of the arbitration process for sophisticated commercial parties who willingly consent to arbitration agreements.”