Friday, September 25, 2009

Vacatur of Arbitration Awards under the FAA after SCOTUS Decision in Hall St. Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396 (2008)

WHAT ARE THE REMAINING VIABLE GROUNDS TO CHALLENGE ENTRY OF JUDGMENT ON ARBITRATION AWARD? In a recent a appeal from an order confirming an arbitration award entered under the FAA, the Dallas Court of Appeals sums up the state of the law on the issue, following recent Supreme Court and Fifth Circuit decisions contrary to common-law grounds for vacating an award based on the arbitrator's manifest disregard of the law: Judicial Confirmation and Vacatur of Arb Awards under the FAA Under the terms of the FAA, an arbitration award must be confirmed unless it is vacated, modified, or corrected under one of the limited grounds set forth in sections 10 and 11 of the Act. See 9 U.S.C. §§ 9-11. Section 10(a) permits a court to vacate an arbitration award -(1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.Id. § 10(a). Although the courts have recognized certain common law exceptions for vacating an arbitration award, See Footnote 3 the United States Supreme Court recently held that the grounds listed in the statute are the exclusive grounds for vacating an arbitration award under the FAA. Hall St. Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396, 1403 (2008) (holding that statutory grounds for vacating or for modifying or correcting arbitration award are exclusive grounds for expedited vacatur and modification of award pursuant to FAA); see also Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 350 (5th Cir. 2009) (concluding Hall Street restricts grounds for vacatur to those set forth in section 10). Of the issues Ancor presents for review, only two - that the arbitrator exceeded her powers by ignoring the law and by rendering an award that violates the essence of the Guaranty - arguably fall within the statutory grounds for vacatur under the FAA. See 9 U.S.C. § 10(a)(4). Ancor's remaining grounds - that the arbitrator manifestly disregarded the law and committed gross mistake implying a failure to exercise honest judgment - are common law grounds for vacating an arbitration award. See Crossmark, 124 S.W.3d at 430 n.6; Tanox, 105 S.W.3d at 252. The parties dispute whether the Supreme Court's decision in Hall Street forecloses our review based on Ancor's non- statutory grounds. We conclude it does. In Hall Street, the parties to the underlying lease dispute agreed to submit an indemnification claim to arbitration. Hall St., 128 S. Ct. at 1400. The arbitration agreement, which was negotiated by the parties and approved by the district court, required the court to “vacate, modify or correct any award: (i) where the arbitrator's findings of facts are not supported by substantial evidence, or (ii) where the arbitrator's conclusions of law are erroneous.” Id. at 1400-01. These contractually agreed grounds deviated from those prescribed in the FAA, and the Supreme Court granted review to determine “whether the grounds for vacatur and modification provided by §§ 10 and 11 of the FAA are exclusive.” Id. at 1401. Reviewing the purpose and text of the FAA, the Supreme Court held that sections 10 and 11 “provide the FAA's exclusive grounds for expedited vacatur and modification.” Id. at 1403. In so holding, the Supreme Court expressly rejected the argument that its use of the phrase “manifest disregard of the law” in Wilko v. Swan, 346 U.S. 427 (1953), expanded the grounds for vacatur beyond those listed in section 10. Hall St., 128 S. Ct. at 1403. The Supreme Court instructed that the text of the FAA “compels a reading of the §§ 10 and 11 categories as exclusive” because even assuming these sections could be supplemented, “it would stretch basic interpretive principles to expand the stated grounds to the point of evidentiary and legal review generally.” Id. at 1404. The Supreme Court further explained:[I]t makes more sense to see the three provisions, §§ 9-11, as substantiating a national policy favoring arbitration with just the limited review needed to maintain arbitration's essential virtue of resolving disputes straightaway. Any other reading opens the door to the full-bore legal and evidentiary appeals that can “rende[r] informal arbitration merely a prelude to a more cumbersome and time-consuming judicial review process,” and bring arbitration theory to grief in post-arbitration process. Id. at 1405 (quoting Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 998 (9th Cir. 2003)) (internal citations omitted). The Supreme Court also noted that expanding sections 10 and 11 is inconsistent with the language of section 9, which directs a court to grant an order confirming an arbitration award “unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title.” Id. (quoting 9 U.S.C. § 9). The Supreme Court emphasized that this language “carries no hint of flexibility.” Id. Following Hall Street, the Fifth Circuit, in Citigroup Global Markets, Inc. v. Bacon, overruled its precedent holding that non-statutory grounds may support vacatur of an arbitration award under the FAA. 562 F.3d at 358. Ancor urges us to disregard Citigroup and argues the Supreme Court “has not expressly ruled that 'manifest disregard' is no longer a valid ground for vacating an arbitrator's award.” We disagree. We find the analysis and holding in Citigroup persuasive and conclude the Supreme Court made clear that sections 10 and 11 are the exclusive grounds for vacating and modifying an arbitration award under the FAA. See Hall St., 128 S. Ct. at 1403. Thus, our review of an arbitration award under the FAA is limited to the statutory grounds. See Footnote 4 FOOTNOTE 4: Indeed, this Court has previously stated that under the FAA, attacks on arbitration awards are limited to the grounds set forth in sections 10 and 11. See, e.g., Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796, 805-06 (Tex. App.-Dallas 2008, pet. denied) (“'Under the FAA, the validity of an arbitration award is subject to attack only on grounds listed in sections 10 and 11 of the Act.'”) (quoting Thomas James Assocs., Inc. v. Owens, 1 S.W.3d 315, 319-20 (Tex. App.-Dallas 1999, no pet.)); Antenna Prods. Corp. v. Cosenza, No. 05-05-00701-CV, 2006 WL 1452102, at *2 (Tex. App.-Dallas May 26, 2006, no pet.) (mem. op.) (rejecting appellant's non-statutory grounds for vacating arbitration award because these grounds not listed in section 10 of FAA). In the wake of Hall Street, several Texas courts agree. See, e.g., Allstyle Coil Co., L.P. v. Carreon, No. 01-07-00790- CV, 2009 WL 1270411, at *2 (Tex. App.-Houston [1st Dist.] May 7, 2009, no pet.) (holding that non-statutory grounds for vacatur are “no longer legally recognized grounds for vacating an arbitration award”); Cameron Int'l Corp. v. Vetco Gray Inc., No. 14-07-00656-CV, 2009 WL 838177, at *8 (Tex. App.-Houston [14th Dist.] Mar. 31, 2009, no pet. h.) (mem. op.) (following suggestion of Hall Street and declining to accept appellant's request for legal and factual sufficiency review of arbitration award); Chandler v. Ford Motor Credit Co., LLC, No. 04-08-00100-CV, 2009 WL 538401, at *3 (Tex. App.-San Antonio Mar. 4, 2009, no pet. h.) (mem. op.) (adopting Hall Street and holding that appellants failed to demonstrate statutory basis for vacating arbitration award); see also Saipem Am. v. Wellington Underwriting Agencies Ltd., No. 08-20247, 2009 WL 1616122, at *2 (5th Cir. June 9, 2009) (per curiam) (holding that court may vacate arbitration award only if statutory ground supports vacatur); Nat'l Resort Mgmt. Corp. v. Cortez, No. 08-10805, 2009 WL 890622, at *1 (5th Cir. Mar. 31, 2009) (per curiam) (“The number of grounds for challenging an arbitration award has been substantially reduced in light of [Hall Street] and [Citigroup].”); Ascension Orthopedics, Inc. v. Curasan, A.G., Civil Action No. H-07-4033, 2008 WL 2074058, at *2 (S.D. Tex. May 14, 2008) (mem.) (stating Supreme Court's Hall Street decision “is unequivocal that the grounds upon which vacatur may be based as listed in § 10 are exclusive”); In re Poly-America,L.P., 262 S.W.3d 337, 362 (Tex. 2008) (Brister, J., dissenting) (“Both federal and state law require courts to enforce an arbitrator's decision, no matter what it is, with very few exceptions. The allowable exceptions concern extrinsic or procedural matters like corruption, fraud, or refusing to hear evidence; they do not include (as the Supreme Court just held) disregarding the law, even if a legal error is 'manifest.'”); Xtria L.L.C. v. Int'l Ins. Alliance Inc., 286 S.W.3d 583, 594 (Tex. App.-Texarkana 2009, pet. filed) (stating this Court has based past application of manifest disregard standard on Fifth Circuit precedent and opining, though not deciding, that this Court would follow Citigroup). We note that, in Hall Street, the Supreme Court suggested the possibility that a “more searching review based on authority outside the statute” could serve as bases for vacating or modifying arbitration awards. Hall St., 128 S. Ct. at 1406. See Footnote 5 FOOTNOTE 5: Specifically, the Supreme Court stated: “The FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable.” Id. This case, however, does not open the door to that possibility. Here, the parties pursued arbitration according to the terms of the Guaranty, which expressly invoked the FAA. The only arguments made in the trial court and on appeal address the FAA. Accordingly, we do not consider the viability of non-statutory grounds here and express no opinion that non-statutory grounds for vacating or modifying an arbitration award could be considered in other contexts. Because manifest disregard of the law and gross mistake are not grounds for vacating an arbitration award under the FAA, Ancor has not demonstrated trial court error as to those grounds. We overrule Ancor's first, fourth, and fifth issues. Section 10(a)(4) Ancor's second and third issues fall within section 10(a)(4) of the FAA, which states that an arbitration award may be vacated “where the arbitrators exceeded their powers.” 9 U.S.C. § 10(a)(4). Ancor's argument for vacatur under section 10(a)(4) has two parts. First, Ancor complains the arbitrator exceeded her powers by allowing PGV to arbitrate issues that were precluded by res judicata or collateral estoppel. Second, Ancor contends the arbitrator exceeded her powers by reaching a decision that does not draw its essence from the intended purpose of the Guaranty. Arbitrator Authority “An arbitrator's authority is limited to disposition of matters expressly covered by the agreement or implied by necessity.” Quinn, 257 S.W.3d at 799. Arbitrators, therefore, exceed their powers when they decide matters not properly before them. Id.; see also Gulf Oil Corp. v. Guidry, 160 Tex. 139, 327 S.W.2d 406, 408 (1959). For example, an arbitrator exceeds her powers by allocating an award of costs between the parties when the arbitration agreement specifically requires the arbitrator to designate a non-prevailing party to bear the costs of both sides. See Townes Telecomms., Inc. v. Travis, Wolff & Co., L.L.P., No. 05-08-00079-CV, 2009 WL 1844330, at *3 (Tex. App.-Dallas June 29, 2009, pet. filed). Our inquiry under section 10(a)(4) is whether the arbitrator had the authority, based on the arbitration clause and the parties' submissions, to reach a certain issue, not whether the arbitrator correctly decided the issue. Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1323 (5th Cir. 1994); see also DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 824 (2d Cir. 1997). The award must be derived in some way from the wording and purpose of the agreement, and we look to the result reached to determine whether the award is rationally inferable from the contract. Anderman/Smith Operating Co. v. Tenn. Gas Pipeline Co., 918 F.2d 1215, 1219 n.3 (5th Cir. 1990). We may not vacate an arbitration award for errors in interpretation or application of the law or facts. Crossmark, 124 S.W.3d at 429. Although Ancor's first argument is couched in terms of whether the arbitrator exceeded her powers, Ancor's argument is actually a complaint that the arbitrator committed an error of law by rejecting Ancor's assertion that PGV's claims were barred by res judicata or collateral estoppel. A complaint that the arbitrator decided the issue incorrectly or made mistakes of law, however, is not a complaint that the arbitrator exceeded her powers. See Pheng Invs., Inc. v. Rodriguez, 196 S.W.3d 322, 329 (Tex. App.-Fort Worth 2006, no pet.) (op. on reh'g). Moreover, after examining the Guaranty, the parties' submissions, the arbitrator's interim orders, and the final award, there is no doubt the arbitrator responded to the issues submitted by the parties and that the arbitration award falls within the scope of the Guaranty. Paragraph 17 of the Guaranty requires “ANY CONTROVERSY OR CLAIM” arising out of the Guaranty to be determined by binding arbitration. Because Ancor has not established that the arbitrator decided a matter not properly before her, we cannot conclude the arbitrator exceeded her powers under section 10(a)(4) of the FAA. See 9 U.S.C. § 10(a)(4); see also Quinn, 257 S.W.3d at 799. We overrule Ancor's second issue. SOURCE: Opinion by Justice Mary Murphy in Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc., No. 05-08-00739-CV (Tex.App.- Dallas, Aug. 25, 2009)

Confirmation of Arb Award under the FAA: Standard of Review on Appeal

POINTS OF LAW FROM THE DALLAS COURT OF APPEALS: Applicable Standard of Review in Appeals from Confirmation Orders The parties agree the FAA applies to this case. See 9 U.S.C. §§ 1-16 (2009). We review de novo a trial court's confirmation of an arbitration award under the FAA based on the entire record. Myer v. Americo Life, Inc., 232 S.W.3d 401, 407 (Tex. App.-Dallas 2007, no pet.); Tanox, Inc. v. Akin, Gump, Strauss, Hauer & Feld, L.L.P., 105 S.W.3d 244, 250 (Tex. App.-Houston [14th Dist.] 2003, pet. denied). An arbitration award is treated the same as the judgment of a court of last resort. Bailey & Williams v. Westfall, 727 S.W.2d 86, 90 (Tex. App.-Dallas 1987, writ ref'd n.r.e.); see also Quinn v. Nafta Traders, Inc., 257 S.W.3d 795, 798 (Tex. App.-Dallas 2008, pet. granted). All reasonable presumptions are indulged to uphold the arbitrator's decision, and none is indulged against it. Bailey, 727 S.W.2d at 90; see also CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). An arbitration award is presumed valid and entitled to great deference. Myer, 232 S.W.3d at 407-08; Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.-Dallas 2004, pet. denied). When reviewing an arbitration award, we may not substitute our judgment merely because we would have reached a different decision. Bailey, 727 S.W.2d at 90; see also CVN Group, Inc., 95 S.W.3d at 238. Judicial review of an arbitration award adds expense and delay and thereby diminishes the benefits of arbitration as an efficient, economical system for resolving disputes. CVN Group, Inc., 95 S.W.3d at 238; Crossmark, 124 S.W.3d at 429. Accordingly, our review of the arbitration award is “extraordinarily narrow.” Myer, 232 S.W.3d at 408; see also Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 568 (Tex. App.-Dallas 2008, no pet.); Tanox,105 S.W.3d at 250. Importantly, our review is so limited that we may not vacate an award even if it is based upon a mistake in law or fact. Crossmark, 124 S.W.3d at 429 (citing Anzilotti v. Gene D. Liggin, Inc., 899 S.W.2d 264, 266 (Tex. App.-Houston [14th Dist.] 1995, no writ)). Because of the deference given to arbitration awards, judicial scrutiny focuses on the integrity of the process, not the propriety of the result. TUCO Inc. v. Burlington N. R.R. Co., 912 S.W.2d 311, 315 (Tex. App.-Amarillo 1995), modified on other grounds, 960 S.W.2d 629 (Tex. 1997). SOURCE: Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc., No. 05-08-00739-CV (Tex.App.- Dallas, Aug. 25, 2009) ("We conclude the statutory grounds are the exclusive grounds for vacating or modifying an arbitration award under the FAA. Because Ancor has failed to establish any statutory grounds for vacating the arbitration award, it must be confirmed. In addition, because the trial court erred in omitting PGV's award for its share of the arbitration costs from the judgment, we modify the trial court's judgment to conform with the arbitrator's award in that regard. We affirm the trial court's judgment as modified.") Also see: Grounds for vacature of arbitration award under the FAA after U.S. Supreme Court's decisions in Hall St. Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396 (2008).

Sunday, September 20, 2009

Is the Validity of an Arbitration Agreement Affected by Corporate Reorganization and Name Change?

DOES CORPORATE REORGANIZATION (change of corporate name and charter) RENDER EXISTING ARBITRATION AGREEMENTS WITH EMPLOYEES UNENFORCEABLE UNLESS RENEWED? The Eight Court of Appeals of Texas in El Paso recently examined the proposition as a matter of first impression and concluded that an existing arbitration agreement governing claims of injury in the workplace was not affected by the employer's name & charter change as the changes merely involved "rebranding" rather than termination of a corporation and creation of a new one. Therefore, it was not necessary for a new arbitration agreement to be entered between the employee and the successor corporation, which also retained the same filing number with the Texas Secretary of State. From the Opinion: In the present case the Real Party makes the novel argument that because NCED is now ReadyOne and because ReadyOne (formerly NCED) has amended and restated its certificate of formation, the Agreement in not enforceable. The crux of this argument is that when a business entity substantially changes its character, and the changes fall short of ending or making a new corporate existence, prior obligations with contracting parties are void or nullified, because the new party was not a signatory to prior obligations. For this to be true, it must be shown that ReadyOne is not merely rebranded but is a new entity under Texas law. Texas has already tackled the impact of a name change on an arbitration agreement. The H&R Block court found "[u]nder ordinary legal principles, a contracting party that has merely changed its name is still a contracting party." In re H & R Block Financial Advisors, Inc., 235 S.W.3d 177, 178 (Tex. 2007) (citing, e.g., Coulson v. Lake LBJ Mun. Util. Dist., 781 S.W.2d 594, 595 (Tex. 1989); Texas Co. v. Lee, 138 Tex. 167, 157 S.W.2d 628, 630 (1941)). "Accordingly, the company's change of name does not prevent it from invoking its own arbitration agreements." Id.; see also Contec Corp. v. Remote Solution, Co., 398 F.3d 205, 207 (2d Cir. 2005); Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 757 (11th Cir. 1993). It is clear that in Texas a corporate name change does not affect the contractual obligations of parties existing prior to the name change, so a business entity with a new name may invoke an arbitration agreement that was signed by the same company prior to the name change. No clear authority exists on what impact a restated corporate purpose or other amendments to the certificate of formation has on contractual obligations in existence at the time of the changes. In Contec the Second Circuit Court of Appeals found that even when there had been corporate name and form changes, the surviving entity should be permitted to enforce the agreement. Contec Corp., 398 F.3d at 210. The rationale of H&R Block and Contec thus suggests that name changes do not eliminate contractual obligation in place before these changes. NCED restated and made amendments to its certificate of formation. Amendments and restatements do not create a new entity. When the term amendment and restate are given their plain meanings, the terms do not mean to "create a new." This is evidenced by two items in the Secretary of State's communications with ReadyOne and NCED. First, the Secretary of State now refers to ReadyOne as formerly: NATIONAL CENTER FOR EMPLOYMENT OF THE DISABLED. Second, in ReadyOne's certificate of filing, the filing number is 112382901; identical to NCED's certificate of filing. By referring to ReadyOne as formerly NCED and by keeping the file numbers the same, the Secretary of State is putting the public on notice that the two entities are the same under Texas law. The Texas Business Organizations Code (BOC) also supports the finding that ReadyOne is merely a rebranded NCED. First, under the BOC a corporation has a perpetual existence unless otherwise stated in the certificate of formation. Tex.Bus.Org.Code Ann. § 3.005(a)(4) (Vernon Supp. 2008). Changing a corporate name or form does not end this perpetual existence. Specifically, to terminate a corporate existence, the business entity must conduct a windup. Tex.Bus.Org.Code Ann. § 11.052. During this windup the entity must discharge its property to satisfy its obligations. Id. Most importantly, after the windup is complete, the entity must file a certificate of termination. Tex.Bus.Org.Code Ann. § 11.101. So, the corporate entity does not cease to exist until the termination is filed. Tex.Bus.Org.Code Ann. § 11.102. Based on the evidence before this Court, NCED still exists, but now it has a new operating name and restated purpose. Neither the Real Party nor Relators were able to find law indicating that a series of amendments or restaments of corporate purpose makes an entity a new company and thus relieving underlying contractual obligations. A corporation in Texas is permitted to freely restate or amend its certificate of formation. Tex.Bus.Org.Code Ann. §§ 3.056, 3.057. Absent in the Texas BOC is a provision which supports the Real Party's argument. Because no law supports the Real Party's argument that ReadyOne is nothing more than a rebranded NCED, and because NCED is still in existence in the eyes of Texas, this Court finds that the arbitration can be invoked by ReadyOne (formerly NCED). In Re ReadyOne, No. 08-08-00221-CV (Tex.App.- El Paso, Aug. 19, 2009) (mandamus compelling arbitration granted, arbitration of workplace injury claim, no waiver of right to arbitrate) Disposition of Petition for Writ of Mandamus: GRANTED Opinion by Chief Justice David Wellington Chew Other judges participating in deciding case: Justice McClure, The Honorable Gomez Appellate cause no and link to docket: 08-08-00221-CV Case style in the Court of Appeals: In Re: ReadyOne Industries, Inc. and Amalia Lopez From the Recitation of Facts in the Opinion: On February 23, 2005, Torres signed an arbitration agreement (Agreement) with her employer, the National Center for Employment of the Disabled (NCED). This Agreement requires that both Torres and her employer arbitrate "[a]ny injury suffered by Claimant while in the Course and Scope of Claimant's employment with Company, including but not limited to, claims for negligence, gross negligence, and all claims for personal injuries . . . ." In NCED's Restated Certificate of Formation with New Amendments, it simultaneously adopted the Texas Business Organizations Code and changed its name to ReadyOne Industries, Inc. (formerly National Center for Employment of the Disabled). Along with this name change, ReadyOne Industries, Inc. (ReadyOne) also amended Articles 1-7 and added Articles 8-9 to its certificate of formation. Specifically, the following changes were made: (i) change the filing entity's name; (ii) update the registered agent and office; (iii) update the provisions regarding the board of directors; (iv) provide that the filing entity has no members; (v) restate the filing entity's purposes; (vi) restate the method of asset distribution upon the dissolution of the filing entity; (vii) restate the prohibitions on certain activities; (viii) provide for limitation of the liability of the directors and officers of the filing entity under certain circumstances; (ix) eliminate the express period of duration of the filing entity; and (x) eliminate the name and address of the organizer.

Saturday, September 19, 2009

How Much Discovery is Too Much, Resulting in Waiver?

WHAT AMOUNT OF PRE-ARBITRATION DISCOVERY ENTAILS WAIVER OF THE RIGHT TO ENFORCE ARBITRATION AGREEMENT? In a recent mandamus proceeding the El Paso Court of Appeals did not answer that question directly, but pointed to the fact that a motion to compel arbitration had been filed and denied prior to the discovery being served. Invoking the Supreme Court's "totality of the circumstances" mantra, the Court finds that the right to arbitrate was not waived, and compels arbitration. Nobody knows what the totality of the circumstances means, other than providing for the consideration of "everything" as opposed to a defined list of factors, but it seems safe to conclude that objecting to litigation -- and moving for arbitration -- as soon as possible, and getting an adverse ruling prior to sending out discovery requests and noticing depositions, is the prudent thing to do in order to minimize the possibility of a waiver finding. In Re ReadyOne Industries, Inc. and Amalia Lopez (Tex.App.- El Paso, Aug. 8, 2009) In granting the mandamus petition in this case, opinion author Chief Justice David Wellington Chew goes the extra mile to be polite to trial judge, merely "requesting" the trial court to vacate the order denying arbitration. Others are typically are more blunt and "direct" the trial judge to comply upon a finding of abuse of discretion. As a matter of professional courtesy, courts of appeals typically do not actually issue mandamus writs in Texas, but afford the judge below an opportunity to comply before one is prepared. They typically do, thus mooting the writ. The waiver section of the opinion, which also contains other holdings of jurisprudential interest, including an analysis of the novel issue of how a corporate reorganization & name change affects an existing arb agreement, follows below: WAIVER A party waives the right to arbitrate by substantially invoking the judicial process to the other party's detriment or prejudice. In re Fleetwood Homes of Tex., L.P., 257 S.W.3d 692, 694 (Tex. 2008) (orig. proceeding). Waiver is a legal question for the court based on the totality of the circumstances, and asks whether a party has substantially invoked the judicial process to an opponent's detriment, the latter term meaning inherent unfairness caused by "a party's attempt to have it both ways by switching between litigation and arbitration to its own advantage." See id. (quoting Perry Homes v. Cull, 258 S.W.3d 580, 597 (Tex. 2008)). Waiver must be decided on a case-by-case basis, and courts should look to the totality of the circumstances involved. We consider factors such as when the movant knew of the arbitration clause, how much discovery has been conducted, who initiated it, whether it related to the merits rather than arbitrability or standing, how much of it would be useful in arbitration, and whether the movant sought judgment on the merits. Perry Homes, 258 S.W.3d at 591-92.

The Real Party in Interest argues that the litigation process has been substantially invoked, because both sides have completed extensive discovery, which goes to the merits of the case. The Relators made a request for disclosure, eight interrogatories, fifteen requests for production, and conducted two depositions. The request for disclosure, eight interrogatories, and fifteen requests for production were made on March 14, and 18, 2008. Relators filed their motion to compel arbitration on October 1, 2007, but the trial court did not rule on the motion until March 10, 2008. On April 30, 2008, Relators filed a motion to reconsider compelling arbitration, which was denied.

The discovery was conducted after the motion to compel arbitration was denied. We do not find that this conduct acts as a waiver. From the beginning of this litigation the Relators have attempted to invoke the arbitration agreement. In their first pleading, the Relators expressed that the arbitration agreement precludes state court litigation. Relators have not filed any affirmative claims for relief nor sought any judgments on the merits. They proffered two witnesses for deposition explicitly stating that the deposition was subject to an upcoming motion to reconsider the denial of the motion to compel arbitration. However, there is no record of the content of those depositions. The Real Party argues that all medical records have been exchanged, but this is not represented in the Relators' Record. The only medical document in the record is an Accident Investigation Report, which indicates that the Real Party is experiencing pain in her left shoulder. Critical to this type of litigation would be the diagnoses of her condition by a medical doctor and some testimony that her condition could be caused by her workplace duties.

Based on the totality of the circumstances, the discovery conducted in this case does not amount to substantially invoking the litigation process. The Texas Supreme Court has found that eighteen interrogatories and one set of nineteen requests for production did not waive the right to compel arbitration. In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998). The Texas Supreme Court has also found that taking four depositions does not waive the right to arbitrate. In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006). In Vesta Ins. Group, the Court found "the record does not show whether these requests were limited or extensive, whether they sought information for affirmative claims or defensive ones, or even whether they addressed the merits or merely the arbitration issue." Id. The same is true in this case. The content of the depositions is not available for this Court to review, nor was it available for the trial court to review in the Real Party in Interest's response in opposition to Defendant's motion to reconsider compelling arbitration. Most importantly, the Relators did not try to hide their desire to arbitrate this claim. In fact they tried twice to compel arbitration, once before any discovery had been completed.

Crucial to the Perry outcome was the fact that the party seeking to arbitrate waited until fourteen months after the case was filed to assert the right to do so.

14 months after filing suit and shortly before the December 2001 trial setting, the Culls changed their minds and requested arbitration. They justified their change of heart on the basis that they wanted to avoid the delays of an appeal. But their change unquestionably delayed adjudication of the merits; instead of a trial beginning in a few days or weeks, the plenary arbitration hearing did not begin until late September of 2002-almost ten months after the Culls abandoned their trial setting. Moreover, to the extent arbitration reduces delay, it does so by severely limiting both pretrial discovery and post-trial review. Having enjoyed the benefits of extensive discovery for 14 months, the Culls could not decide only then that they were in a hurry.

Perry Homes, 258 S.W.3d at 596-97. The court was clear to point out that while they found that the Culls had substantially invoked the judicial process that was only one part of a totality of the circumstances review. Id. at 596.

Thus, we should also look at the conduct of the parties. Id. In this case it is clear that the Relators desired to arbitrate the claim pursuant to an enforceable arbitration agreement from the early stages of the litigation. If the Supreme Court in Perry could have hung its hat solely on the amount of discovery that had been completed, it would not have continued to review how the Culls originally objected to arbitration, and then fourteen months later argued they were entitled to arbitrate.

We resolve any doubts that we have regarding waiver in favor of arbitration. Nw. Constr. Co. v. Oak Partners, L.P., 248 S.W.3d 837, 847 (Tex.App.-Fort Worth 2008, pet. denied). Considering the above in addition to the totality of the circumstances, we disagree that Relators waived their right to compel arbitration, because they have not substantially invoked the judicial process.

We also find that the Real Party has not shown that she will be prejudiced by arbitration. Fleetwood Homes of Tex., L.P., 257 S.W.3d at 694. Contrary to the assertions of the Real Party, the litigation process will not have to start over if the parties arbitrate this case. There is no evidence that the discovery already obtained could not be used at arbitration. Absent a showing that some evidence discovered would not be attainable in arbitration, no prejudice has occurred. In re Bruce Terminix Co., 988 S.W.2d at 704.

LINKS TO FULL TEXT OF OPINION AND CASE DETAILS:

In Re ReadyOne Industries, Inc, [opinion in pdf on court's website] No. 08-08-00221-CV (Tex.App.- El Paso, Aug. 19, 2009) (arbitration mandamus granted, arbitration of workplace injury claim, no waiver of right to arbitrate) MOTION OR WRIT GRANTED: Opinion by Chief Justice Chew Before Chief Justice Chew, Justice McClure, The Honorable Gomez 08-08-00221-CV In Re: ReadyOne Industries, Inc. and Amalia Lopez [opinion in html] RELATED SEARCH TERMS: Discovery in civil litigation and arbitration | pre-arbitration discovery | timeliness of motion to compel arbitration | substantial invocation of the litigation process | waiver of contractual right to arbitrate, enforce arbitration clause| Perry Homes v. Cull progeny| arbitration in the employment context | arbitration of workplace personal injury claims|

Thursday, September 17, 2009

Trial Judge-Arbitrator Ping-Pong, followed by $200 Appeal

A recent case from Houston provides an interesting illustration of Court-Arbitrator Dynamics: Consumer dispute gets arbitrated and consumer wins. Trial judge sends case back to arbitrator for segregation of attorney's fees. Arbitrator apparently is none too pleased and shaves off no more than $190 of a fee award of $24,837.00, which was almost twice of the actual damages awarded on the underlying claim. Trial judge then confirms the modified award. Then comes another round in the appellate court over the $190 modification. Appeal from confirmation order, seeking reinstatement of the original award, fails because the grounds are not viable under the FAA. So says a panel of the 14th CoA in its opinion. Clearly, there must have been more at stake (at least from the plaintiff's/plaintiff's attorney's perspective) than just the $190. But the authoring justice on the appellate panel fails to acknowledge that possibility and writes in a footnote: "It is noteworthy that, for reasons not apparent from the record, LeFoumba, in an ill-advised attempt to recover an extra $190.00 beyond that awarded under the trial court's judgment, has spent multiples of that amount in additional fees and appellate costs. We note that the cost merely to prepare the clerk's record was $699.00, an amount more than three and one-half times the figure representing the difference between the original and modified arbitration awards." But an appellant would be entitled to recover the costs for the appeal if he prevailed. One-dollar nominal awards in Section 1983 actions, power struggle, vindication of one's position, and opportunity to set precedent come to mind as possible alternative motivational elements. Even if it is true that it all boils down to money, similar cases down the line may be affected in which more is at stake than a mere two hundred bucks. That alone may make an appeal worthwhile. Whatever the motives - and the wisdom of this appeal in dollar terms - the opinion is worth reading, along with others that address the grounds for vacature under the FAA in the wake of important recent decisions by the U.S. Supreme Court and the Fifth Circuit on that subject. Lefoumba v. Legend Classic Homes, Ltd (Tex.App.- Houston [14th Dist.] Sep. 17, 2009) (challenge to confirmation of amended arbitration award under FAA that slightly reduced attorney's fees rejected) AFFIRMED: Opinion by Justice Sullivan Before Justices Seymore, Brown and Sullivan 14-08-00243-CV Claude Lefoumba v. Legend Classic Homes, Ltd and Legend Home Corp. Appeal from County Civil Court at Law No 2 of Harris County (Houston) Trial Court Judge: Jacqueline Lucci-Smith M E M O R A N D U M O P I N I O N Appellant, Claude LeFoumba, prevailed in arbitration against the appellees, Legend Classic Homes, Ltd. and Legend Home Corp. (collectively, “Legend"). Legend successfully challenged LeFoumba's failure to segregate his attorney's fees, resulting in a modified arbitration award that reduced his recovery by only $190.00. Nevertheless, LeFoumba brought this appeal to challenge the trial court's confirmation of the slightly reduced award. Because LeFoumba's appellate complaints do not fit within any of the exclusive grounds available to challenge a federal arbitration award, we affirm the judgment.[1] Background LeFoumba agreed to purchase a home from Legend pursuant to an earnest-money contract containing an arbitration clause expressly governed by the Federal Arbitration Act.[2] After the deal fell through, LeFoumba sued Legend for breach of contract, fraud, and violations of the Texas Deceptive Trade Practices Act. The case was referred to arbitration, where the arbitrator found in LeFoumba's favor on the breach-of-contract claim but denied recovery for fraud or DTPA violations. Accordingly, on September 12, 2007, the arbitrator awarded LeFoumba $12,981.00 in actual damages and $24,837.00 for attorney's fees. However, the trial court vacated the award over LeFoumba's objection, and referred the matter back to the arbitrator because of LeFoumba's failure to segregate his attorney's fees between the contract claims, on which he prevailed, and the other, non-successful causes of action. On February 22, 2008, the arbitrator issued a modified award reducing LeFoumba's attorney's fees by $190.00, to $24,647.00. In response, LeFoumba filed two motions, one asking the trial court to confirm the modified award, and the other requesting that the court vacate the modified award and reinstate the original September 2007 award. The trial court confirmed the modified award. LeFoumba has now appealed the trial court's refusal to vacate the modified award, arguing (1) the modified award was procured by “undue means," (2) the arbitrator exceeded her authority, and (3) the modified award “violates law and public policy."[3] All of these arguments are premised upon his claim that Legend's objection to the failure to segregate attorney's fees was untimely and therefore should have been disregarded by the trial court and arbitrator. Analysis The arbitration agreement expressly recites that “arbitration shall be governed by the U.S. Arbitration Act, 9 U.S.C. § § 1-16, to the exclusion of any provisions of state law that are inconsistent with the federal act."[4] We review a trial court's confirmation of an arbitration award under the Federal Arbitration Act (the “FAA") de novo. Tanox, Inc. v. Akin, Gump, Strauss, Hauer & Feld, L.L.P., 105 S.W.3d 244, 250 (Tex. App.-Houston [14th Dist.] 2003, pet. denied). All reasonable presumptions must be indulged in favor of the award, and none against it. CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). We treat an arbitration award the same as a judgment by the court of last resort and may not substitute our judgment for the arbitrator's merely because we might have reached a different decision. See id. at 238-39; Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.-Dallas 2004, pet. denied). Instead, because judicial review of an arbitration award adds expense and delay, thereby diminishing the benefits of arbitration as an efficient, economical system to resolve disputes, our review of the arbitration award must be “extraordinarily narrow." See CVN Group, Inc., 95 S.W.3d at 238; Tanox, 105 S.W.3d at 250. In fact, under this standard that governs our review, we may not vacate an award even if the arbitrator committed a mistake of fact or law. See Crossmark, Inc., 124 S.W.3d at 429 (citing Anzilotti v. Gene D. Liggin, Inc., 899 S.W.2d 264, 266 (Tex. App.-Houston [14th Dist.] 1995, no writ)). The FAA itself clearly defines the only circumstances under which an arbitration award may be vacated or modified. See 9 U.S.C.A. § § 10(a), 11; Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 353 (5th Cir. 2009) (citing Hall St. Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396, 1403 (2008)). The grounds for vacatur are limited to the following claims: (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 9 U.S.C.A. § 10(a). Thus, we must overrule LeFoumba's complaint that the modified arbitration award violates public policy, because that argument is not viable under section 10(a) of the FAA. See id.; Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc., ___ S.W.3d ___, No. 05-08-00739-CV, 2009 WL 2596120, at *5 n.3 (Tex. App.-Dallas Aug. 25, 2009, no pet. h.) (recognizing that, under Citigroup and Hall Street, public-policy ground for vacating FAA award does not exist). Accordingly, we turn our attention to LeFoumba's two remaining arguments that (1) the modified award was procured through “undue means," and (2) the arbitrator exceeded her authority. See 9 U.S.C.A. § 10(a) (1), (4). Both arguments arise from LeFoumba's claim that the arbitrator erred by requiring segregation of attorney's fees on the basis of Legend's untimely, and therefore waived, objection to the lack of segregation.[5] However, a mere mistake of law is insufficient to vacate an arbitration award on the basis of “undue means." See Jamison & Harris v. Nat'l Loan Investors, 939 S.W.2d 735, 737 (Tex. App.-Houston [14th Dist.] 1997, writ denied); Crossmark, 124 S.W.3d at 429. Instead, a party who seeks to vacate an award allegedly procured by “undue means" must show immoral, illegal, or bad-faith conduct. In re Arbitration Between Trans Chem. Ltd. and China Nat'l Mach. Imp. & Exp. Corp., 978 F. Supp. 266, 304 (S.D. Tex. 1997) (citing A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1403-04 (9th Cir. 1992)). LeFoumba has produced no proof of any such conduct by the arbitrator. Similarly, an arbitrator does not exceed her authority by committing a mistake of law, but instead by deciding a matter not properly before her. See Pheng Invs., Inc. v. Rodriguez, 196 S.W.3d 322, 329 (Tex. App.-Fort Worth 2006, no pet.); Barsness v. Scott, 126 S.W.3d 232, 241 (Tex. App.-San Antonio 2003, pet. denied). Thus, the appropriate inquiry is not whether the arbitrator decided an issue correctly, but instead whether she had the authority to decide the issue at all. See Saqer v. Ghanem, No. 09-07-519-CV, 2008 WL 5263359, at *5-6 (Tex. App.-Beaumont Dec. 18, 2008, no pet.) (mem. op.). Here, LeFoumba does not contend the arbitrator lacked the authority to decide upon the appropriate amount of attorney's fees to compensate him for Legend's alleged breach of contract. Therefore, LeFoumba has not established his entitlement to a vacatur under section 10(a) of the FAA, the exclusive means by which a party may overturn a federal arbitration award. See Citigroup, 562 F.3d at 353. Accordingly, we overrule appellant's remaining two issues. CONCLUSION Finding no merit in the issues presented, we affirm the trial court's judgment.[6] /s/ Kent C. Sullivan Justice Panel consists of Justices Seymore, Brown, and Sullivan. [footnotes omitted]

Wednesday, September 9, 2009

Chief Justice Eyes Role in ADR after Stepping Down from the Bench

Linda B. Thomas, Chief Justice of the Dallas Court of Appeals, whose resignation from that post was announced yesterday, will continue teaching law at Southern Methodist University and plans to be involved in arbitration and mediation, according to the news advisory posted on the Fifth Court of Appeals' website. "I plan to offer my assistance to help people move toward resolution in a way that allows them to control their own destinies," Justice Thomas is quoted as saying upon announcing her forthcoming retirement, which will be effective Oct. 31, 2009. "I particularly want to help families with children so that they can avoid the litigation process." See copy of press release on Chief Justice Thomas' retirement. It is not uncommon for judges in Texas to become arbitrators and mediators after retirement from the bench or defeat in election, which is a partisan affair in Texas. Some continue to serve as visiting judges in trial courts. Former appellate justices also serve on appellate panels by assignment and write opinions. Vacancies on district and appellate courts are filled by gubernatorial appointment until a replacement can be chosen through the electoral process. Justice Thomas' retirement thus creates another opportunity for Governor Rick Perry to pick a Republican successor, following Justice Brister's recent resignation from the Texas Supreme Court. Appointees usually benefit from incumbency status when they embark upon the campaign trail and prepare to face the voters in primary and general elections.

Tuesday, September 8, 2009

Was the right to arbitate waived? - Hardly

Dallas Court of Appeals has no trouble applying the "totality of the circumstances" test in concluding that arbitration was not waived where the motion to compel was filed almost instantly, along with other steps taken to avoid litigation, such as a plea in abatement, and an answer conditioned on resolution of the arbitration issue. Per Group, LP v. Dava Oncology, LP, No. 05-08-01582-CV (Tex.App.- Dallas Aug 19, 2009) FROM THE OPINION: C. Did appellants waive their right to arbitration? Appellees contend that appellants waived their right tocompel arbitration by substantially invoking the judicial process and byrequesting a stay of litigation pending arbitration of PER Group'sclaims against Dr. Jain. We disagree. 1. Substantial invocation of judicial process Whether a party has waived its right to arbitrate is a questionof law that we review de novo based on the “totality of thecircumstances.” Perry Homes v. Cull, 258 S.W.3d 580, 591 (Tex. 2008), cert. denied, 129 S. Ct. 952 (2009); Trammell, 246 S.W.3d at 820. Public policy favors arbitration and there is a strong presumption againstfinding that a party has waived its right to arbitration. Perry Homes,258 S.W.3d at 589-90. As a result, the burden to prove waiver is a heavyone. Id.; EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89 (Tex. 1996) (percuriam). Any doubts regarding waiver are resolved in favor ofarbitration. In re Bruce Terminex Co., 988 S.W.2d 702, 705 (Tex. 1998)(orig. proceeding) (per curiam). Factors we consider under the totality-of-the-circumstancestest include whether the movant was the plaintiff or the defendant, how long the movant waited before seeking arbitration, how much pretrial activity related to the merits rather than arbitrability or jurisdiction, how much time and expense has been incurred in litigation,whether the movant sought or opposed arbitration earlier in the case,whether the movant filed affirmative claims or dispositive motions,whether discovery would be useful in arbitration, and whether the movantsought judgment on the merits. Perry Homes, 258 S.W.3d at 591-92; In reVesta Ins. Group, Inc., 192 S.W.3d at 763. Appellants/movants are the defendants below. They filed a demand for arbitration four days after appellees filed their lawsuit. And they filed a motion to compel arbitration and stay proceedings pending arbitration before their answer was due. When they filed their answer,they filed a plea in abatement and conditional answer subject to their motion to compel arbitration. And they did not assert affirmative defenses or counterclaims, but, instead, reserved their right to do so. The hearings in the trial court related to the arbitrability of the claims, not the claims' merits. And the record does not contain any indication that the parties engaged in pretrial discovery, other than asingle reference to a motion to quash a deposition filed by movants. Based on the totality of the circumstances, we conclude thatappellants did not substantially invoke the trial process and, therefore, did not waive their right to arbitrate appellees' claims. [...] Conclusion We sustain appellants' issues. We reverse the trial court'sorder denying appellants' motion to compel arbitration, vacate the trial court's order enjoining appellants from arbitrating appellees' claims,and remand to the trial court for further proceedings. We dismiss the petition for writ of mandamus. ELIZABETHLANG-MIERS JUSTICE

Motion to Compel Arbitration: Standard of Review

When will a motion to compel arbitartion succeed? What is the standard of review on appeal if the trial court denied a motion to compel arbitration? POINT OF LAW: Standard of Review for Motion to Compel Arbitration [A] party attempting to compel arbitration must establish that the parties agreed to arbitrate and that the dispute falls within the scope of the arbitration agreement. See Tex. Civ. Prac.& Rem. Code Ann. § 171.021(a); J.M. Davidson, Inc., 128 S.W.3d at 227. If the party opposing arbitration denies the existence of an agreementto arbitrate, the question is determined by the court as a matter oflaw. Tex. Civ. Prac. & Rem. Code Ann. § 171.021(b); J.M. Davidson, Inc.,128 S.W.3d at 227. We review the trial court's legal determinations denovo and its factual determinations under a “no evidence” standard.Trammel v. Galaxy Ranch School, L.P. (In re Trammel), 246 S.W.3d 815,820 (Tex. App.-Dallas 2008, no pet.). In reviewing the trial court'sfactual determinations, we must credit favorable evidence if areasonable fact-finder could and disregard contrary evidence unless areasonable fact-finder could not. Id. (citing Kroger Tex. Ltd. v.Suberu, 216 S.W.3d 788, 793 (Tex. 2006) and City of Keller v. Wilson,168 S.W.3d 802, 807 (Tex. 2005)). However, when the facts relevant tothe arbitration issue are not disputed, we are presented only withissues of law and we review the trial court's order de novo. Trammell,246 S.W.3d at 820. When parties agree to arbitrate and the agreementencompasses the claims asserted, the trial court must compel arbitrationand stay litigation pending arbitration. See Tex. Civ. Prac. & Rem. CodeAnn. § 171.021(b); Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 305 (Tex.2006). SOURCE: Per Group, LP v. Dava Oncology, LP, No. 05-08-01582-CV (Tex.App.- Dallas Aug 19, 2009)

Are the FAA and TAA mutually exclusive?

FAA and TAA are not necessarily incompatible and mutually exclusive, as stated by the Dallas Court of Appeals in a recent opinion (see excerpt below); even when the parties' contractual relationship involves interstate commerce. Nor does the FAA necessarily preempt the Texas Arbitration Act when both apply. Preemption only comes into play when there is a conflict between state and federal act:

The Consulting Agreement does not state whether the Federal Act or the Texas Act applies to this suit. The Federal Act generally governs arbitration provisions in contracts involving interstate commerce. See 9 U.S.C. § 2 (2009); see also In re Morgan Stanley & Co., Inc., No. 07-0665, 2009 WL 1901635, at *1 (Tex. Jul. 3, 2009). “Interstate commerce” includes all contracts “relating to” interstate commerce. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 754 (Tex. 2001) (orig. proceeding).

Appellees argue that the Consulting Agreement does not evidence a transaction involving interstate commerce. We disagree. The Consulting Agreement was executed by a Texas resident (Dr. Jain), a Delaware corporation (Medical Media Holdings), and a Delaware limited partnership (PER Group); notice under the contract was to be given to Dr. Jain in Texas and to PER Group and Medical Media Holdings in Rhode Island; and arbitration was required to take place in Chicago, Illinois. Additionally, the record establishes that PER Group and Dr. Jain provided services pursuant to the Consulting Agreement to “clients throughout the United States” and contemplated “holding meetings on both a nationwide and worldwide scope.” We conclude that the Consulting Agreement involves interstate commerce. See In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125, 127 (Tex. 1999) (orig. proceeding) (per curiam).

The Federal Act, however, does not preempt the Texas Act simply because the contract involves interstate commerce. In re D. Wilson Constr. Co., 196 S.W.3d 774, 778-79 (Tex. 2006) (orig. proceeding). The Consulting Agreement states that it “is governed by, and will be enforced under and construed in accordance with, the internal laws of the State of Texas . . . .” The Texas Supreme Court has interpreted similar language as invoking both federal and state law. Id. And when both acts apply, the Federal Act will preempt the Texas Act only if the Texas Act is inconsistent with the Federal Act or affects the enforceability of the contract. Id. Because the parties do not assert that the Texas Act or state law would subvert the enforcement of the Consulting Agreement, we conclude that we have jurisdiction under both laws. And, because the Federal Act does not preempt the Texas Act, we will apply the Texas Act to our analysis.

SOURCE: Opinion of the Dallas Court of Appeals in Case No. 05-08-01582-CV (8/19/09)

Time to File Notice of Interlocutory Appeal Extended Under TRCP 306a(4)

When is a notice of interlocutory appeal filed more than 20 days after the day the order was signed nevertheless timely? Notice of an accelerated appeal must be filed within twenty days after the judgment or order is signed unless the time for filing the notice is extended. Tex. Rs. App. P. 26.1(b), 26.3. Appellees contend that we do not have jurisdiction over the interlocutory appeal because the notice of appeal from the trial court's order was untimely. We disagree. Appellants filed a motion with the trial court pursuant to civil procedure rule 306a arguing that they did not receive notice and did not acquire actual knowledge of the October 21, 2008 order enjoining Medical Media Holdings from arbitrating claims against Dr. Jain until December 2, 2008. See Tex. R. Civ. P. 306a(5). The trial court held a hearing and found that appellants first received notice or acquired actual knowledge of the October 21, 2008 order on December 2, 2008. See Tex. R. Civ. P. 306a(4). On December 16, 2008, appellants filed a notice of accelerated appeal from the trial court's October 21, 2008 order. As a result, although the notice was filed more than twenty days after the date the order was signed, the notice of accelerated appeal was filed within twenty days of the date that appellants first received notice or acquired actual knowledge of the October order. See id. Additionally, interlocutory appeal is the appropriate vehicle for appealing the denial of a motion to compel arbitration under the Texas Act. Tex. Civ. Prac. & Rem. Code Ann. § 171.098(a); TMI, Inc. v. Brooks, 225 S.W.3d 783, 790 (Tex. App.-Houston [14th Dist.] 2007, pet. denied). Consequently, we conclude that the notice of appeal was timely and that we have jurisdiction over the interlocutory appeal. SOURCE: Dallas Court of Appeals Case No. 05-08-01582-CV (8/19/09) THE RULE AT ISSUE: TRCP 306a provides in relevant part: 4. No Notice of Judgment. If within twenty days after the judgment or other appealable order is signed, a party adversely affected by it or his attorney has neither received the notice required by paragraph (3) of this rule nor acquired actual knowledge of the order, then with respect to that party all the periods mentioned in paragraph (1) shall begin on the date that such party or his attorney received such notice or acquired actual knowledge of the signing, whichever occurred first, but in no event shall such periods begin more than ninety days after the original judgment or other appealable order was signed. 5. Motion, Notice and Hearing. In order to establish the application of paragraph (4) of this rule, the party adversely affected is required to prove in the trial court, on sworn motion and notice, the date on which the party or his attorney first either received a notice of the judgment or acquired actual knowledge of the signing and that this date was more than twenty days after the judgment was signed. Tex. R. Civ. P. 306a (5) -(6) (which might be dubbed the late-notice-of judgment/order appellate time-table tolling rule)

Saturday, September 5, 2009

Judicial Review of Independent Hearing Examiner's Decision Approved

In winding up the 2008-09 Fiscal Year last week with eleven opinions on Aug. 28, the Texas Supreme Court did not decide any arbitration disputes per se. In one public employment case, however, the High Court delved into the issue of judicial review of arbitration decisions, albeit under a different label. Authorizing Appeal of Arbitrator's Adverse Decision By Another Name At issue was the decision of an independent hearing examiner favorable to a police officer in a disciplinary proceeding. The Court, in a lengthy opinion by Justice Hecht - given additional gravitas with copious footnotes - came down on the side of permitting the city to challenge the hearing examiner's decision. Although the Court is otherwise big on enforcing arbitration and thus limiting the role of the courts, the Court's disposition hardly comes as a surprise, given that the dispute was between a city and a city employee/officer, and the arbitrator-examiner's ruling favored the latter. Says the Court: "[W]e hold that the hearing examiner exceeded his jurisdiction in summarily reversing an officer’s indefinite suspension and reinstating him with back pay and full benefits because the Act requires a hearing examiner to reach a decision based on evidence. Accordingly, we reverse the judgment of the court of appeals and remand the case to the district court for further proceedings." Over the course of several years, the Texas Supreme Court has established a pattern of siding with governmental entities in legal disputes with individuals, and has proven quite adept at devising jurisprudential theories to vindicate the interests of governmental defendants even where - as here - there is no statutory authorization for the city to even appeal from the hearing examiner's decision in the first place. Jurisdictionalization Trend Continues In conceptualizing the question of whether the examiner (arbitrator) did wrong as a matter of jurisdiction, the Court adds another precedent to the collection of new precedents that transform merits-issues into jurisdictional ones, thus providing a convenient basis for dismissal of claims for affirmative relief by plaintiffs (such as Whistleblowers or tort plaintiffs against TxDOT) for want of jurisdiction, or facilitating judicial review and reversal of a ruling unfavorable to governmental entities, such as in this case. The end - giving priority to the power and fiscal interests of government at the expense of the rights of individuals - appears to be sufficient to justify the jurisprudential innovations (at least as long as the opinion is heavily footnoted and thus better protected against charges of result-oriented judicial decisionmaking by fiat). City of Pasadena, TX v. Smith, No. 06-0948 (Tex. Aug. 28, 2009)(Hecht) (disciplinary appeal, authority of hearing examiner, police officer, UDJA and jurisdictional issues) CITY OF PASADENA, TEXAS v. RICHARD SMITH; from Harris County; 1st district (01-05-01157-CV, 263 SW3d 80, 09-14-06) The Court reverses the court of appeals' judgment and remands the case to the trial court. Justice Hecht delivered the opinion of the Court. EXCERPTS FROM THE OPINION BY HECHT: The hearing examiner in this case violated that requirement. His ruling was based entirely on the absence of the department head, a witness the City did not expect to offer. The hearing examiner did not allow evidence to be presented. Nothing in the Act permitted him to rule as he did. Smith argues that the hearing examiner could reasonably have concluded that since section 143.1015(k) requires the presence of the department head at civil service appeal proceedings in Houston, the same rule should apply in other cities. But the Act does not empower a hearing examiner to make rules. He had no authority to impose on the City a requirement that the Act makes quite clear does not apply. Moreover, even when section 143.1015(k) does apply, it does not authorize rendition of a default judgment as an automatic penalty for noncompliance.47 Smith argues that the hearing examiner can be faulted only for a simple mistake of law, but it clearly exceeds a hearing examiner’s jurisdiction to refuse to hear evidence before deciding that a police officer was improperly disciplined, contrary to the express requirement of the Act. * * * The most accurate test we can state is that a hearing examiner exceeds his jurisdiction when his acts are not authorized by the Act or are contrary to it, or when they invade the policy-setting realm protected by the nondelegation doctrine. By that test, the hearing examiner in this case exceeded his jurisdiction, and therefore the City’s appeal to the district court was authorized under section 143.057 (j). The issue remains whether it was timely perfected. Since the Act does not expressly provide for an appeal by a city — we have construed it to do so to avoid constitutional problems — it understandably does not expressly set a deadline for a city’s appeal. We have held that “[w]hen a statute lacks an express limitations period, courts look to analogous causes of action for which an express limitations period is available either by statute or by case law.”51 Here, the parties disagree as to whether a deadline for appeal is jurisdictional or in the nature of limitations, and we need not resolve that issue. In either event, the same rule applies: we look to a provision related to the right of appeal for a deadline.

Monday, August 31, 2009

Bill of Review Order Vacating Arb Confirmation Judgment Not Appealable

In a case decided last week, the Fourteenth Court of Appeals in Houston ruled that an order vacating an underlying judgment confirming an arbitration award in a bill-of-review proceeding was not appealable under the Texas General Arbitration Act provision that authorizes interlocutory appeal under some circumstances. While the challenged order vacated the confirmation of the arb award, it did not determine the issue of validity and whether the arbitration award should ultimately be confirmed. The challenge was brought by a nonparty who took the position that it was a necessary party, and should have been given an opportunity to be heard, as grounds for relief via bill of review. Nor was the challenged order final for purposes of a regular appeal. The attempted interlocutory appeal was thus dismissed for want of jurisdiction in the absence of any statutory authorization. Rapid Settlements Ltd. v. Allstate Settlement Corp. (Tex.App.- Houston [14th Dist.] Aug. 27, 2009) (per curiam) (order confirming arbitration award set aside on petition for bill of review, interlocutory order vacating the prior confirmation judgment did not adjudicate the validity of the arbitration award, was not final, and was not appealable under any statute authorizing interlocutory review) MEMORANDUM OPINION OF THE 14TH COURT OF APPEALS This is an attempted appeal from an order vacating a judgment that confirmed an arbitration award. In the underlying case, appellant Rapid and appellee Ward participated in an arbitration proceeding resulting in an award in favor of Rapid. Rapid filed a petition to confirm the arbitration award, which the trial court granted. On June 9, 2005, the trial court entered a judgment confirming the arbitration award in trial court cause number 839254. Appellees Allstate Settlement Corporation and Allstate Life Insurance Company (jointly referred to as Allstate) were not parties to the arbitration agreement. After learning of the judgment confirming the arbitration award, Allstate filed a bill of review contending that it was a necessary party, had not been served with citation, and received no notice of the arbitration proceedings. Allstate asked the court to vacate the judgment. On March 28, 2008, the trial court granted the bill of review and ordered the final judgment in cause number 839254 vacated. Rapid then brought this appeal. A bill of review that sets aside a prior judgment but does not dispose of all the issues in the case on the merits is interlocutory. Kiefer v. Touris, 197 S.W.3d 300, 302 (Tex. 2006). Generally, appeals may be taken only from final judgments. Lehmann v. Har-Con Corp., 39 S.W.3d 191, 195 (Tex. 2001). Interlocutory orders may be appealed only if permitted by statute. Bally Total Fitness Corp. v. Jackson, 53 S.W.3d 352, 352 (Tex. 2001); Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992) (orig. proceeding). The Texas General Arbitration Act makes certain orders appealable, including an order “vacating an [arbitration] award without directing a rehearing.” Tex. Civ. Prac. & Rem. Code Ann. 171.098(a)(5) (Vernon 2005). In the underlying case, the trial court confirmed the arbitration award. In the bill of review proceeding, the arbitration award was vacated, but the court's ruling was not based on the provisions in the Texas General Arbitration Act for vacating such an award. See Tex. Civ. Prac. & Rem. Code Ann. 171.088 (Vernon 2005). Therefore, section171.098 does not apply to provide for an interlocutory appeal under these facts. See Rapid Settlements, Ltd. v. Allstate Life Ins. Co., No. 01-08-00381-CV, 2009 WL 1331580 (Tex. App.-Houston [1st Dist.] May 8, 2009, no. pet.) (mem. op.) (dismissing appeal from bill of review vacating arbitration award as interlocutory). As in the similar case before our sister court of appeals, when the trial court granted Allstate's bill of review, it vacated the underlying judgment in Rapid's confirmation proceeding but did not rule on the petition for confirmation itself. The arbitration award is undisturbed. The order does not reflect that it is intended to be a final judgment. See Lehmann, 39 S.W.3d at 205 (holding that an order entered in a proceeding other than a trial on the merits may be considered final if it clearly and unequivocally states that the trial court intended the order to completely dispose of the entire case). The order appealed in this case is interlocutory and no statute makes it appealable. See Rapid Settlements, No. 01-08-00381-CV, 2009 WL 1331580 at *3. On August 4, 2009, notification was transmitted to the parties of this court's intention to dismiss the appeal for want of jurisdiction unless appellant filed a response demonstrating grounds for continuing the appeal on or before August 17, 2009. See Tex. R. App. P. 42.3(a). No response was filed. Accordingly, the appeal is ordered dismissed. PER CURIAM DISPOSITION: APPEAL DISMISSED: Per Curiam Opinion of the Fourteenth Court of Appeals Panel members: Chief Justice Adele Hedges, Justices Leslie Brock Yates and Kem Frost No. 14-08-00394-CV Full case style: Rapid Settlements LTD v. Allstate Settlement Corporation, Allstate Life Insurance Company, and Andino Ward Court below: Appeal from County Civil Court at Law No 4 of Harris County, Texas (Houston) Trial Court Judge: Hon. Roberta Anne Lloyd RELATED TERMS: challenging arbitration by bill of review, finality, final orders, appealable and unappealable orders relating to arbitration, interlocutory appeals, interlocutory appeal of arbitration-related orders, arbitration and interlocutory appeals.