Friday, October 2, 2009

Chambers v. O'Quinn Arbitration Dispute Sequel: Opinion on Remand from the Texas Supreme Court Issued

First Court of Appeals, in an opinion by retired Justice Tim Taft issued Oct 1, 2009, decides issues remanded to it by the Texas Supreme Court in former clients' suit against O'Quinn, and finds no waiver of the right to arbitrate had occurred. The court also addresses conflicting provisions in the underlying arbitration agreement as to the applicability of the FAA and the TAA (aka TGAA), and rejects the argument that the lawsuit was improperly dismissed for want of prosecution. Chambers v. O'Quinn (Tex.App.- Houston [1st Dist.] Oct. 1, 2009)(Taft) (arbitration of attorney-client disputes, right to arbitrate not waived, conflicting provisions re applicability of Texas General Arbitration Act (TGAA) and Federal Arbitration Act (FAA) in arbitration agreement) OPINION ON REMAND FROM THE TEXAS SUPREME COURT This suit was brought by former clients, Bob Chambers and 182 others (“appellants”), against John O’Quinn, John M. O’Quinn, P.C., and John M. O’Quinn D/B/A O’Quinn & Laminack (“appellees”), for legal malpractice. Appellants appeal from the trial court’s orders dismissing their suit for want of prosecution and overruling their motion for reinstatement and new trial. In two points of error, appellants argue that the trial court erred in: (1) compelling arbitration under the terms of a compulsory arbitration clause in the attorney-client contract executed between themselves and appellees, and (2) dismissing the case for want of prosecution. We affirm. Background On November 23, 1999, appellants sued appellees for legal malpractice in connection with appellants’ representation and settlement of their toxic tort claims. Appellees responded with a motion to compel arbitration under the terms of a compulsory arbitration clause contained in a contingency fee agreement executed between the parties. On April 14, 2000, the trial court granted appellees’ motion to compel arbitration. On December 20, 2001, appellants petitioned for writ of mandamus in this Court, complaining of the order compelling arbitration. We issued an opinion on January 7, 2002, denying appellants’ petition for writ of mandamus because it was unverified. See In re Chambers, No. 01-01-01216-CV, 2002 WL 24567 (Tex. App.—Houston [1st Dist.] Jan. 7, 2002, orig. proceeding) (not designated for publication). On January 10, 2002, appellants filed a petition for writ of mandamus in the Fourteenth Court of Appeals, asking that court to order the trial court to withdraw its order compelling arbitration. In re Chambers, cause number 14-02-00020-CV in the Fourteenth Court of Appeals. The Fourteenth Court of Appeals issued an opinion on February 7, 2002, denying appellants’ petition for writ of mandamus. On March 18, 2002, appellants filed another petition for writ of mandamus in the Texas Supreme Court, which was also denied. In re Chambers, cause number 02-0154 in the Texas Supreme Court. On January 15, 2004, the trial court signed an order decreeing that “unless a final arbitration hearing on [appellants’] claims has commenced before the American Arbitration Association on or before July 9, 2004, [appellants’] claims shall be DISMISSED FOR WANT OF PROSECUTION.” On July 21, 2004, the trial court signed an order dismissing appellants’ suit for want of prosecution because no final arbitration hearing had commenced by July 9, 2004. On August 5, 2004, appellants filed a motion for reinstatement or new trial. After a hearing on August 20, 2004, the trial court denied appellants’ motion for reinstatement or new trial. On September 22, 2004, appellants appealed. While the appeal was pending, the parties proceeded to arbitration, with the arbitrator ultimately ruling in the appellees’ favor. Appellees filed a motion for summary judgment in those proceedings. The arbitrator granted appellees’ summary-judgment motion and entered an award that appellants take nothing on their claims. Appellants filed a new lawsuit to vacate the arbitration award. Cause number 2005-17972 was originally filed in the 113th District Court, HarrisCounty, Texas, but was transferred to the 61st District Court, Harris County, Texas. The same trial court that had dismissed appellants’ suit for want of prosecution, the 61st District Court, held a hearing on appellants’ application for vacatur. The trial court signed a final judgment on June 10, 2005, denying appellants’ request to vacate the arbitration award and confirming the arbitration award. Appellants filed another appeal among the same parties in this Court from the trial court’s June 10 final judgment. Appellants’ second appeal is cause number 01-05-00635-CV. Appellants moved to consolidate their first appeal with their second appeal. In an order dated June 28,2005, we denied appellants’ request to consolidate the appeals. This Court issued two separate memorandum opinions (1) affirming the judgment of the trial court confirming the arbitration award, Chambers, 2006 Tex. App. LEXIS 9006, at *19, 2006 WL 2974318, at *6, and (2) dismissing the appeal of the order compelling arbitration on jurisdictional grounds, 2006 WL 2853893, at *2 (not designated for publication). In dismissing the appellants’ first appeal, we concluded that mandamus was the proper remedy to review the trial court’s order compelling arbitration. 2006 WL 2853893, at *2. We concluded further that because appellants had already sought and been refused mandamus relief by this Court and the Fourteenth Court of Appeals, we lacked appellate jurisdiction and were bound by these previous rulings denying mandamus. Id. at *2. The Texas Supreme Court granted appellants’ petition for review and reversed, remanding the case for us to conduct a “review on the merits.” Chambers v. O’Quinn, 242 S.W.3d 30, 32 (Tex. 2007). The mandate instructed that the case was being remanded “for further proceedings consistent with [the supreme court’s] opinion.” Id. We based our disposition on three holdings. See 2006 WL 2853893, at *2, 4. While not expressly addressing the last of our three holdings, the supreme court held that we had erred in concluding that we “lacked appellate jurisdiction,” and it reversed our judgment and remanded the case for us to review the appeal “on the merits.” Chambers, 242 S.W.3d 30 at 32. We thus construe the supreme court’s mandate as requiring this Court to consider, on remand, all of appellants’ challenges under their issues presented one and two. Standard of Review In determining whether to compel arbitration, the trial court must decide the following: (1) whether a valid, enforceable arbitration agreement exists, and (2) if so, whether the claims asserted fall within the scope of that agreement. Dallas Cardiology Assoc., P.A. v. Mallick, 978 S.W.2d 209, 212 (Tex. App.— Texarkana 1998, pet. denied). If the answers to both prongs are affirmative, the trial court has no discretion but to compel arbitration and stay its proceedings pending arbitration. Id. The party seeking arbitration has the initial burden to establish his right to the remedy under the first prong; that is, to establish that a valid arbitration agreement exists. Id. Once the existence of an arbitration agreement has been established, a presumption attaches favoring arbitration. Id. At this point, the burden shifts to the opposing party to establish some ground for the revocation of the arbitration agreement. Such grounds include fraud, waiver, unconscionability, or that the dispute falls outside the scope of the agreement. Id. The trial court must resolve any doubt about these issues in favor of arbitration. Id. Appellate courts use a “no evidence” standard for review of the trial court’s factual determinations. See Pony Express Courier Corp. v. Morris, 921 S.W.2d 817, 820 (Tex. App.—San Antonio 1996, no writ). Under that standard, we consider only the evidence that supports the fact finding, while disregarding the evidence to the contrary. Hearthshire Braeswood Plaza Ltd. P’ship v. Bill Kelly Co., 849 S.W.2d 380, 384 (Tex. App.—Houston [14th Dist.] 1993, writ denied). If there is any evidence of probative force to support the finding, the trial court’s finding must be upheld. See id. However, when the trial court decides a matter involving both factual determinations and legal conclusions, we employ the abuse of discretion standard to review. See Pony Express Courier Corp., 921 S.W.2d at 820. Under the abuse of discretion standard, we defer to the trial court’s factual determinations while reviewing legal conclusions de novo. Id. Pure legal conclusions or matters not involving extrinsic evidence, are subject to de novo review under the abuse of discretion standard. See id. at 820 n. 2; see also Fridl v. Cook, 908 S.W.2d 507, 511 (Tex. App.—El Paso 1995, writ dism’d w.o.j.). Order Compelling Arbitration Appellants argue in their first point of error that the trial court erred by granting appellees’ motion to compel arbitration because the compulsory arbitration clause in each agreement was void. Each contract, executed between O’Quinn and each individual appellant, contained the following language: X. ARBITRATION 10. Any and all disputes, controversies, claims or demands arising out of or relating to this Agreement or any provision hereof, the providing of services by Attorneys to Client, or in any way relating to the relationship between Attorneys and Client, whether in contract, tort or otherwise, at law or in equity, for damages or any other relief, shall be resolved by binding arbitration pursuant to the Federal Arbitration Act in accordance with the Commercial Arbitration Rules then in effect with the American Arbitration Association. Any such arbitration proceeding shall be conducted in Harris County, Texas. This arbitration provision shall be enforceable in either federal or state court in Harris County, Texas pursuant to the substantive federal laws established by the Federal Arbitration Act. Any party to any award rendered in such arbitration proceeding may seek a judgment upon the award and that judgment may be entered by any federal or state court in Harris County, Texas having jurisdiction. The contracts also contained the following heading in capital letters at the top of the first page, “This contract is subject to arbitration under the Texas general arbitration statute.” A. “Personal Injury” A written agreement to arbitrate is valid and enforceable if an arbitration agreement exists and the claim asserted is within the scope of the agreement. Tex. Civ. Prac. & Rem. Code § 171.001 (Vernon 2005). However, an exception exists for personal injury claims which requires that each party to a claim, on the advice of counsel, agree to arbitration in writing. Tex. Civ. Prac. & Rem. Code Ann. § 170.002(a)(3),(c)(1) (Vernon 2005). The agreement must be signed by each party and each party’s attorney. Id. § 170.002(c)(2). Appellants urge that the instant suit is akin to a personal injury claim and that the execution of a written agreement to arbitrate should have been subject to the safeguards in section 170.002(a)(3). Appellants assert that, unlike ordinary commercial contractual relationships, the fiduciary nature of the attorney-client relationship dictates against an attorney’s ability to impose an arbitration condition on a client. In the instant case, appellants sued O’Quinn for breach of fiduciary duties and legal malpractice. Our sister courts are split on the issue of whether a legal malpractice suit is a claim for personal injury. See Taylor v. Wilson, 180 S.W.3d 627, 630 (Tex. App.—Houston [14th Dist.] 2005, pet. denied). The majority of courts have held that legal malpractice claims are not claims for personal injury. Id. (holding legal malpractice claim is not claim for personal injury); Miller v. Brewer, 118 S.W.3d 896, 899 (Tex. App.— Amarillo 2003, no pet.) (same); In re Hartigan, 107 S.W.3d 684, 690 (Tex. App.—San Antonio 2003, pet. denied) (same). But see In re Godt, 28 S.W.3d 732, 739 (Tex. App.—Corpus Christi 2000, no pet.) (holding legal malpractice claim falls within personal injury exception and is included within scope of Texas Arbitration Act). Appellants request that we hold that in a legal malpractice case the test for deciding whether section 171.002 applies is whether the underlying case involves personal injury. We decline to do so. Instead, we adopt the reasoning of Fourteenth Court of Appeals in Taylor, upholding the majority view that legal malpractice claims are not claims for personal injury, and, therefore, arbitration agreements are enforceable in the context of a legal malpractice suit. See Taylor, 180 S.W.3d at 630 (holding legal malpractice claim is not claim for personal injury). The Taylor court examined the legislative history of the personal injury provision in the Texas Arbitration Act and found “no room for doubt in the legislature’s intent to restrict the meaning of the personal injury exception of the Texas Arbitration Act to physical personal injury.” Id. at 631. The court also noted that the plaintiff’s underlying claim was for economic losses rather than personal injury. Id. at 630. In the instant case, although appellants’ underlying claim was for personal injury, appellants’ malpractice claim is not, by virtue of this fact, transformed into a claim for personal injury. Rather, appellants’ legal malpractice claim remains a claim of economic injury. Thus, appellants’ malpractice claim is not excluded from arbitration. B. Failure to disclose material facts, seek advice of counsel Appellants also assert that the arbitration provisions are unenforceable because the O’Quinn firm failed to disclose the arbitration agreement and failed to adequately explain material facts and issues relating to arbitration. Additionally, appellants claim that none of them were advised to seek, or did seek, independent counsel with respect to arbitration and that public policy dictates that such safeguards be implemented with respect to compulsory arbitration agreements executed within an attorney-client relationship. Id. In support of their argument, appellants rely on the dissenting opinion of Chief Justice Phil Hardberger in Henry v. Gonzalez, 18 S.W.3d 684 (Tex.—San Antonio 2000, pet. dism’d). In Henry, former clients brought suit against their former attorneys alleging legal malpractice and breach of fiduciary duty, amongst other claims. Henry, 18 S.W.3d at 687. The clients also sought a declaratory judgment that an arbitration clause in the contract they executed with their former attorney was unenforceable and void. Id. The court determined that a valid arbitration agreement existed, and rejected the clients’ arguments that they were fraudulently induced to sign the contract. Id. at 692. In his dissent, Hardberger reasoned that the “fundamental fiduciary nature of the attorney-client relationship dictates against an attorney’s ability to impose an arbitration condition on a client.” Id. at 693. Hardberger opined, “Clients are often in vulnerable positions, requiring them to bestow a large amount of trust in their attorneys . . . Applying general contractual principles to an arbitration provision in the attorney-client context ignores the practical reality that in most instances the attorney and his or her client are not engaged in an arm’s length transaction during their initial negotiations.” Id. Hardberger concluded that attorneys generally have a greater advantage over their clients in an arbitration setting. Id. Appellants argue, as did Hardberger, that emerging national trends require attorneys to observe and satisfy safeguard requirements in order to enforce an arbitration agreement inserted into an attorney-client contingent fee contract. Id. We decline to extend Justice Hardberger’s reasoning to this case. Whether to impose conditions upon the enforceability of arbitration provisions between attorney and client is a matter for the legislature, not the courts. As previously noted, the legislature has imposed certain conditions with respect to personal injury claims, requiring that agreements to arbitrate such claims be in writing and entered into on the advice of counsel. Tex. Civ. Prac. & Rem. Code Ann. § 171.002(c) (Vernon 2005). The legislature’s failure to impose such conditions on attorney-client contracts, while expressly recognizing them in other contexts, indicates that the legislature did not intend to impose such conditions. See Fireman’s Fund County Mut. Ins. Co. v. Hidi, 13 S.W.3d 767, 769 (Tex. 2000) (holding “[w]hen the Legislature has employed a term in one section of a statute and excluded it in another, we presume that the Legislature had a reason for excluding it.”) C. Waiver of Right to Jury Trial Appellants also argue that the agreement impermissibly waives their right to a jury trial. The San Antonio Court of Appeals previously rejected this argument in Gonzalez. There, the court stated that “well established caselaw favors mandatory arbitration and holds that arbitration does not deny parties their right to a jury trial, as a matter of law.” Gonzalez, 18 S.W.3d 684, 691 (citing Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 268 (Tex. 1992)). Moreover, a difference exists between a jury trial waiver and an agreement to arbitrate disputes. Arbitration is an agreement to resolve disputes out of court in the first instance, not an agreement to waive a particular constitutional right available within the judicial process. D. Wilson Const. Co., Inc. v. McAllen Indep. Sch. Dist., 848 S.W.2d 226, 231 (Tex. App.—Corpus Christi 1992, writ dism’d w.o.j.). When a party contractually agrees to arbitrate a dispute, it waives its rights to recourse in the courts. Id. Because arbitration does not deny parties their right to a jury trial as a matter of law, we reject appellants’ argument. D. The Federal Arbitration Act Appellants next assert that appellees are not entitled to arbitration because federal, rather than Texas law, controls under the terms of the contract. Texas law holds that the Federal Arbitration Act is not applicable to an attorney-client contract that does not relate to interstate commerce. In re Godt, 28 S.W.3d at 737. Thus, appellants argue it is upon O’Quinn as the promoter of arbitration to prove that this agreement involves interstate commerce. Specifically, appellants state that the agreement “does not contain any language providing that Texas law may govern the arbitration agreement or that arbitration shall be enforceable under the Texas Arbitration Act.” Provision 10 of the contract states that “any and all disputes . . . arising out of or relating to this Agreement . . . shall be resolved by binding arbitration pursuant to the Federal Arbitration Act[.]” The contract also provides, “This arbitration provision shall be enforceable in either federal or state court in Harris County, Texas pursuant to the substantive federal laws established by the Federal Arbitration Act.” Appellees acknowledge that the contract references the Federal Arbitration Act, but they suggest that these references to federal law must be harmonized with the notice at the top of the first page of the contract, which states in capital letters, “This contract is subject to arbitration under the Texas general arbitration statute.” The San Antonio Court of Appeals was confronted with a similar set of facts in Henry. Henry, 18 S.W. 3d at 688. There, provision 10 of the attorney-client contract stated that the “Agreement shall be construed under and in accordance with the laws of the State of Texas . . . .” Id. However, provision 11 provided that all disputes “shall be resolved by binding arbitration pursuant to the Federal Arbitration Act . . . .” Id. The contract also contained a clause that appeared in all capital letters above the signature lines stating, “This contract is subject to arbitration under the Texas General Arbitration Statute.” Id. Thus, the contract in Henry was internally inconsistent as to whether the FAA or the TAA governed. Id. In concluding the dispute was governed by the TAA, the court referred to basic principles of contract interpretation. Id. In interpreting a contract, courts examine the entire agreement in an effort to harmonize and give effect to all provisions of the contract so that none will be meaningless. Id. (citing Bush v. Brunswick Corp., 783 S.W.2d 724, 728 (Tex. App.—Fort Worth 1989, writ denied)). If the provisions of the contract appear to conflict, they should be harmonized, if possible, to reflect the intentions of the parties. Id. (citing Ogden v. Dickinson State Bank, 662 S.W.2d 330, 332 (Tex. 1983); Bush, 783 S.W.2d at 728). Courts cannot strike down any portion of a contract unless there is an irreconcilable conflict. Id. (citing Ogden, 662 S.W.2d at 332). After applying the above-referenced principles and determining that the two provisions in the contract were in irreconcilable conflict, the Henry court held that the TAA controlled the dispute. Id. The court noted that, although the contract stated that the FAA controlled, performance of the contract did not relate to interstate commerce and that the FAA is implicated in transactions relating to interstate commerce. Id. (citing Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996)). Therefore, the court struck down the provision relating to the FAA and concluded that the dispute was governed by the TAA. Id. The court reached its conclusion, in part, because the contract’s prominent bold type stated that any arbitration would be governed by the TAA, all parties involved in the suit were Texas residents, the contract was signed in Texas, the contract was to be performed in Texas only, and the dispute did not relate in any way to interstate commerce. Id. Similarly, the contract in the instant case (1) does not relate to interstate commerce, and (2) was executed between Texas residents in Texas, to be performed in Texas. Therefore, we hold that the TAA controls this dispute. See also In re Godt, 28 S.W.3d at 737 (holding that, where there existed a similar conflict, the TAA controlled where there was no evidence demonstrating that attorney-client agreement related to interstate commerce.) E. Texas Disciplinary Rule of Conduct 1.08(g) Appellants next argue that O’Quinn attempted to limit his liability in violation of Rule 1.08(g) of the Texas Disciplinary Rules of Professional Conduct. See Tex. R. Disciplinary P. 1.08(g), reprinted in Tex. Gov’ t. Code Ann., tit. 2, subtit. G (Vernon 2005). Rule 1.08(g) expressly forbids an attorney from entering into an agreement with a client that prospectively limits the attorney’s liability to the client unless (1) the agreement is permitted by law and (2) the client is independently represented in making the agreement. Keck, Mahin & Cate v. Nat’l Union Fire Ins. Co., 20 S.W.3d 692, 699 (Tex. 2000). Appellants claim that O’Quinn has, through arbitration, sought to limit appellee’s liability to appellants for the precise claims asserted in this litigation. Furthermore, by asking for separate arbitration in its motions, the O’Quinn Firm clearly sought to burden, and did burden, appellants with “arbitration costs” that made arbitration financially prohibitive. Arbitration is a means of dispute resolution and does not constitute a limitation on a party’s liability. See McGuire, Cornwell & Blakey v. Grider, 765 F.Supp. 1048, 1051 (D. Col. 1991) (holding that attorney arbitration clauses “do not prospectively limit lawyer liability to the client. Rather, they merely shift determination of the malpractice claim to a different forum.”) As appellees correctly note, appellants asserted in arbitration the identical causes of action they assert in the instant litigation and sought the same categories and amounts of damages. Thus, appellee’s liability is not limited as a practical matter. Moreover, the San Antonio Court of Appeals has held that a similar arbitration clause did not violate Disciplinary Rule 1.08(g), noting “the arbitration clause merely prescribes the procedure for resolving any disputes between attorney and client.” In re Hartigan, 107 S.W.3d 684, 689 (Tex. App.—San Antonio 2003, no pet.). The same description aptly applies, and thus the same result obtains here. Consequently, we hold that the arbitration clause in the instant case does not limit the liability to which appellees would otherwise be exposed, and therefore it does not violate Disciplinary Rule 1.08(g). F. Waiver Appellants claim that appellees waived their right to arbitrate. In support of their argument, appellants cite Sedillo v. Campbell, 5 S.W.3d 824, 826 (Tex. App.—Houston [14th Dist.] 1999, no pet.), for the principle that a party may impliedly waive arbitration by “engaging in some combination of filing an answer, setting up a counterclaim, pursuing extensive discovery, moving for a continuance and failing to timely request arbitration.” Sedillo, 5 S.W.3d at 827. Stated differently, a court may find that a party has waived its right to arbitration if such party substantially invokes the judicial process to the opposing party’s detriment. Id. Appellants suggest that this case compares favorably with the defendant’s actions constituting waiver in Sedillo. Id. There, the defendant: (1) answered the subject lawsuit and immediately filed a bankruptcy petition that was dismissed “based on bad faith”; (2) “filed numerous pleadings and motions in the court below without first seeking arbitration”; (3) filed a Response to Motion for Summary Judgment; (4) filed a jury demand and paid the jury fee; and (5) did not file its motion to stay proceedings in favor of arbitration until eleven months after plaintiff filed suit. Id. at 826–27. In comparing O’Quinn’s actions with Sedillo’s, appellant notes that O’Quinn filed an answer in the trial court and sought, before attempting to invoke arbitration, both a Rule 11 Agreement extending the time for answering and a sixty-day abatement of appellant’s suit under the Deceptive Trade Practices Act. Moreover, O’Quinn did not file a motion to stay proceedings in favor of arbitration until six months after suit had been filed. Appellant notes further that O’Quinn filed a companion suit against appellants’ attorneys, took depositions, and sought abatement in the companion case. Because public policy favors arbitration, there is a strong presumption against waiver, and any doubt about whether a party waived contractual arbitration rights must be resolved in favor of arbitration. Id. at 826– 27; In re Oakwood Mobile Homes, 987 S.W.2d 571, 573–74 (Tex. 1999); Valero Energy Corp. v. Teco Pipeline Co., 2 S.W.3d 576, 590 (Tex. App.—Houston [14th Dist.] 1999, no pet.). After comparing Sedillo to O’Quinn’s actions in the instant case, we determine that no waiver occurred. A party invokes the judicial process only to the extent that it “litigates a specific claim it subsequently seeks to arbitrate.” Sedillo, 5 S.W. 3d at 827 (quoting Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 328 (5th Cir. 1999)). O’Quinn filed for arbitration within a reasonable time of answering appellants’ case and the fact that O’Quinn filed suit against appellants’ attorneys does not amount to litigation of this specific claim. Therefore, O’Quinn did not “substantially invoke” the judicial process, and the trial court did not abuse its discretion in holding that no waiver occurred. See In re Bruce Terminex Co., 988 S.W.2d 702, 705–06 (Tex. 1998) (holding no waiver even though party (1) did not file an application for arbitration within two years of suit being filed; (2) did not act to institute arbitration for more than 17 months after the trial court compelled arbitration; and (3) served discovery in the lawsuit that would not have been allowed in arbitration); see also Pennzoil Oil Co. v. Arnold Oil Co., 30 S.W.3d 494 (Tex. App.—San Antonio 2000, no pet.) (holding no waiver even though party, before requesting arbitration: (1) moved for change in venue; (2) served interrogatories and two sets of document requests; (3) participated in six depositions; (4) participated in docket control conference; (5) requested a jury; (6) requested an extension of trial date; (7) proposed protective order regarding discovery; (8) moved to compel discovery; and (9) moved for summary judgment). G. Texas Government Code section 82.065(a) Finally, appellants assert that the agreement, along with the arbitration clause, is void because it was not executed in conformance with section 82.065 of the Texas Government Code, which provides, “[a] contingent fee contract for legal services must be in writing and signed by the attorney and client.” Tex. Gov’ t Code Ann. § 82.065(a) (Vernon 2005). Appellants note that O’Quinn did not sign the agreements, although the clients did. Appellant’s argument that the contract is void due to the absence of O’Quinn’s signature is unavailing. In Enochs v. Brown, 872 S.W.2d 312, 318 (Tex. App.—Austin 1994, no writ), the Austin Court of Appeals examined the legal effect of a contingent fee agreement fully performed but not signed by the attorney. The court looked to the legislative purpose behind section 82.065 and determined that the statute was designed to prevent fraud. Id. The court determined that the statute accomplishes its purpose of guarding against fraud in contingent fee contracts and complies with the statute of frauds by requiring the party enforcing the contract to produce a written contract signed by the party to be charged. Id. We agree with the reasoning in Enochs. Consequently, because O’Quinn was the party enforcing the contingent fee agreement against appellants and because appellants, the clients, signed the agreements in the instant case, we hold that section 82.065(a)’s purpose has been fulfilled, and that the contract is not void. For all the aforementioned reasons, we hold that the trial court did not abuse its discretion in determining that a valid, enforceable arbitration agreement existed and that the claims asserted fell within the scope of that agreement. Mallick, 978 S.W.2d at 212. Thus, the trial court had no discretion but to compel arbitration. We overrule appellants’ first point of error. Dismissal for Want of Prosecution [This section omitted; see --> Hearing on Motion to Reinstate/Motion for New Trial may cure defect in notice or render it harmless error]

Conclusion We affirm the judgment of the trial court.

CASE DETAILS AND LINKS:

Chambers v. O'Quinn (Tex.App.- Houston [1st Dist.] Oct. 1, 2009)(Opinion on remand by Tim Taft) (arbitration of dispute arising from attorney-client relationship in mass tort litigation; right to enforce arbitration clause not waived; conflicting provisions concerning applicability of Texas General Arbitration Act (TGAA) and Federal Arbitration Act (FAA) in underlying arbitration agreement between attorney/law firm and clients)

Disposition by Court of Appeals: Affirm trial court order in favor of arbitration and dismissal of the lawsuit for want of prosecution

Opinion by Justice Tim Taft (retired)

Panel members: Justices Taft, Keyes and Hanks

Appellate cause number and link to docket: 01-04-01029-CV

Full case style: Bob Chambers, et al. v. John M. O'Quinn, individually dba O'Quinn & Laminack, and John M. O'Quinn, P. C.

Court below: 61st District Court of Harris County

Trial Court Judge: Hon. John Donovan

Wednesday, September 30, 2009

Arbitration of Family Law Disputes: Arbitrator's Decision in SAPCR Modification Proceeding Confirmed & Affirmed on Appeal

ARBITRATING CHILD CUSTODY & VISITATION MODIFICATION ISSUES AFTER DIVORCE A recent appeal from an order confirming (the opinion says "affirming") an arbitration award in a post-divorce SAPCR dispute in a Houston family court raises a number of interesting issues, including the appropriateness of ADR in a child custody matter when domestic violence is alleged, a potential conflict of an ADR professional serving in the dual role of mediator and arbitrator, the recusal of an arbitrator for perceived bias, etc. The underlying divorce decree incorporated a mediated settlement agreement (MSA) that covered some issues, but not others. Unfortunately, the various arguments were not fully developed, or not appropriately preserved for appellate review, in this case. The 14th Court of Appeals rejected all challenges against the arbitration award, the arbitration process, and the arbitrator, and affirmed the family court's order confirming the decision of the arbitrator - a former judge. M E M O R A N D U M O P I N I O N In this suit affecting the parent-child relationship, appellant, Lynn G., appeals from the trial court's order affirming a post-divorce arbitration award. In five issues, Lynn argues (1) the trial court erred in not hearing and ruling on fourteen “motions," (2) the trial court and the arbitrator erred in not considering Lynn's evidence of family violence and ordering her to arbitration despite such evidence, (3) the trial court erred in appointing Mary Sean O'Reilly as an arbitrator because she had acted as a “de facto" mediator in the case, (4) the arbitrator erred in refusing to grant a continuance based on pleadings and evidence missing from the court's files, and (5) the arbitrator acted beyond her power and the trial court therefore erred in refusing to vacate the award. Because all dispositive issues of law are settled, we issue this memorandum opinion and affirm. See Tex. R. App. P. 47.4. I. Background Lynn and Joseph G. began divorce proceedings in 1999. As part of those proceedings, they executed a Mediated Settlement Agreement (MSA) in which they agreed on certain terms of the divorce and left other matters for trial to the court. On September 19, 2002, the court signed the Final Decree of Divorce, which incorporated the agreed terms of the MSA and set forth the court's rulings on matters tried to the court. Starting before the divorce was final, Lynn filed a petition and amended petitions for enforcement by contempt in which she alleged Joseph had violated provisions of the temporary orders and the divorce decree. On April 2, 2003, Lynn filed a Petition to Modify Parent-Child Relationship and Request for Temporary Orders. On February 18, 2005, on Joseph's opposed Motion for Appointment of Arbitrator, the court appointed the Honorable Mary Sean O'Reilly as the arbitrator. On June 8, 2005, Lynn filed an Opposed Motion for Recusal of Arbitrator, in which she stated she was “no longer comfortable that the arbitrator is capable of reaching independent decisions and has lost confidence in the ability of the arbitrator to make determinations regarding the best interest of the children the subject of the lawsuit." On or around June 15, 2005, Joseph filed an Original Answer and Counter-Petition to Modify Parent-Child Relationship. He subsequently moved the court for an order of referral to arbitration. He represented that the parties' attorneys had met with Judge O'Reilly, but that Lynn had refused to arbitrate and refused to sign any documents that would facilitate arbitration. On August 26, 2005, the trial court granted Joseph's motion and issued an order that the following disputes be arbitrated: all issues raised in Lynn's Petition to Modify Parent-Child Relationship and Joseph's Counter-Petition that related to (1) parental rights and duties of the parties, (2) periods of parental possession of the parties' children, (3) rights to make educational and medical decisions about the parties' children, and (4) extra-curricular activities of the parties' children. At a hearing on December 14, 2005, Lynn's recusal motion was reset for December 22, 2005. In the interim, Lynn's attorney informed Joseph's attorney that Lynn had decided to withdraw her request for recusal, and no one appeared before the court on December 22. On April 18, 2006, the trial court signed an order confirming that arbitration was to occur on May 17 and 18, 2006, before Judge O'Reilly. The arbitration was to cover “all issues other than enforcement." On May 3, 2006, Lynn filed an “Opposed Supplemental Motion for Recusal of the Arbitrator." Lynn alleged the arbitrator was biased as evidenced by the arbitrator's moving the case forward despite the pending motion for recusal and a pending issue regarding Lynn's securing a new attorney. On May 15, 2006, Lynn filed a First Amended Motion for Recusal of the Arbitrator. She alleged the following additional evidence of arbitrator bias: refusing Lynn's request to record the May 4, 2006 motion hearing for continuance and denying Lynn's motion for continuance immediately after Lynn's request for a record. She also referred to having informed the arbitrator, at the end of the hearing, about missing “documents, pleadings and evidence" and difficulty securing counsel because of the missing materials. Arbitration was held on May 17 and 18, 2006.[1] Judge O'Reilly heard and denied Lynn's subsequent motion to reopen evidence on June 23, 2006, and signed the binding arbitration award on July 31, 2006.[2] The award was then filed on August 4, 2006. On September 7, 2006, the trial court heard argument on Joseph's application for confirmation of the arbitration award and Lynn's motion to vacate it. At the hearing, Lynn urged the following grounds for vacation: (1) the arbitrator exceeded her authority; (2) the arbitrator did not recuse herself and the court did not recuse her; (3) the arbitrator did not postpone the arbitration when there was a pending motion challenging the arbitration clause on the ground of fraud in the inducement; (4) the arbitrator did not reopen evidence when Lynn contended there was evidence of family violence; and (5) the arbitrator did not consider the best interests of the children.[3] The trial confirmed the order the same day and modified the Final Decree of Divorce to reflect the arbitration award. Lynn filed a motion for new trial, which the trial court heard and denied.[4] II. Discussion A. Issue One: No Hearings or Rulings on Motions In issue one, Lynn argues, “The trial court erred in not setting hearings on or ruling on [fourteen listed motions] and abused its discretion by not taking action on the motions within a reasonable time."[5] The “motions" were (1) petitions for enforcement by contempt, (2) motions for recusal of the arbitrator, (3) motions for continuances, and (4) motions for evidentiary hearings on selected motions. As an initial matter, we observe that Lynn is not complaining about an adverse ruling by the court. She also does not point to any place in the record where she objected to the trial court's refusal to rule.[6] To preserve a complaint for appellate review, “the record must show . . . the trial court (A) ruled on the request, objection, or motion, either expressly or implicitly; or (B) refused to rule on the request, objection or motion, and the complaining party objected to the refusal." Tex. R. App. P. 33.1(a)(2). Additionally, even were we to assume (and we do not do so) that the trial court somehow erred or abused its discretion by not acting on these motions, Lynn has not suggested any remedy for the error. Her appeal stems from an order of the court that was based on the arbitration award. The enforcement actions were specifically excluded from the arbitration, and the arbitration award did not include disposition of these actions. Any inaction by the court on the motions for enforcement is not relevant to the order Lynn challenges on appeal. Finally, with one exception, original proceedings are the only cases Lynn cites in support of her contention that the trial court was required to act.[7] If Lynn is asking this court to vacate the arbitration award as a result of the court's lack of action as asserted in issue one, she has provided no authority to support her request.[8] For the preceding reasons, we overrule Lynn's first issue. B. Issue Two: Purported Lack of Consideration Given to Family Violence In issue two, Lynn argues (1) the trial court should not have ordered her to arbitration because she was a victim of family violence and (2) the arbitrator erred in refusing to hear evidence of family violence in determining the arbitration award would be in the best interest of the children. Lynn's entire argument on this issue comprises three paragraphs. Her only authority is Texas Code of Criminal Procedure Article 5.08, a provision relating to criminal prosecutions arising from family violence.[9] Lynn provides no citation to the appellate record. See Tex. R. App. P. 38.1(i) (stating appellant's brief must contain clear and concise argument for contentions made, with appropriate citations to authorities and record). Lynn has not adequately briefed this issue. See San Saba Energy, L.P. v. Crawford, 171 S.W.3d 323, 338 (Tex. App.- Houston [14th Dist.] 2005, no pet.) (stating that, even though courts interpret briefing requirements reasonably and liberally, parties asserting error on appeal must put forth some specific argument and analysis citing the record and authorities in support of the parties' argument). Accordingly, we overrule Lynn's second issue. See id. C. Issue Three: Appointment of Judge Mary Sean O'Reilly as Arbitrator In issue three, Lynn argues the trial court “erred in appointing Judge O'Reilly as arbitrator for the reason that she had previously served in the de facto capacity of mediator contrary to the holding of In re Cartwright." See 104 S.W.3d 706 (Tex. App.- Houston [1st Dist.] 2003, orig. proceeding). In Cartwright, a couple proceeded through two lawsuits after a divorce. See id. at 708. The former wife filed a lawsuit stating various property claims, and the former husband later filed a suit affecting the parent child relationship (SAPCR). Id. at 708. The two suits were consolidated, and Judge O'Reilly, the same judge who arbitrated the present case, mediated the Cartwright SAPCR. See id. at 710. The trial court subsequently ordered the parties to arbitrate the property claims before Judge O'Reilly. Id. The former husband filed a petition for writ of mandamus, arguing Judge O'Reilly should not arbitrate the property issues because she had been privy to confidential information during mediation of the related SAPCR. Id. at 713. The court of appeals agreed, stating, The mediation process encourages candid disclosures, including disclosures of confidential information, to a mediator. It is the potential for the use of that confidential information that creates the problem when the mediator, over the objection of one of the parties, becomes the arbitrator of the same or a related dispute. Just as it would be improper for a mediator to disclose any confidential information to another arbitrator of the parties' dispute, it is also improper for the mediator to act as the arbitrator in the same or a related dispute without the express consent of the parties. Id. at 714. In the present case, however, the trial court did not appoint Judge O'Reilly as a mediator, but solely as an arbitrator. Although Lynn complains Judge O'Reilly interviewed the parties, the children, and other witnesses and conducted ex parte meetings, she points to nothing in the record that would suggest confidential information was exchanged in these meetings.[10] Cartwright is inapposite. Additionally, in her motions to recuse Judge O'Reilly, Lynn never alerted the trial court to the complaint she raises in issue three. The trial court appointed Judge O'Reilly on February 18, 2005. On June 8, 2005, Lynn filed a motion to recuse Judge O'Reilly, stating she “was no longer comfortable that the arbitrator is capable of reaching independent decisions and has lost confidence in the ability of the arbitrator to make determinations regarding the best interest of the children the subject of the lawsuit." Before the date set for a hearing on the motion, Lynn's attorney informed Joseph's attorney that Lynn was no longer pursuing the motion, and no one appeared at the hearing. On May 3, 2006, Lynn filed a pro se supplemental motion for recusal of the arbitrator, in which she characterized her June 8 motion as a “Motion to Recuse for Bias" and alleged additional incidents had “occurred to further the bias of the arbitrator." The gravamen of her complaint was the arbitrator's continuing “to move forward and proceed with attempting to set the arbitration before the Movant has had her opportunity to present her [June 8] Motion to this Court." Lynn also alleged her former attorney set the arbitration dates without her knowledge. Finally, on May 15, 2005, Lynn, again pro se, filed a first amended motion for recusal of the arbitrator. She alleged additional bias as evidenced by (1) refusing Lynn's request to record a May 4, 2006 motion for continuance and (2) denying the motion for continuance immediately after the request for a record. In the motion, Lynn also referred to having informed the arbitrator about missing “documents, pleadings and evidence" and difficulty securing counsel because of the missing materials. In short, nothing in Lynn's three motions to recuse Judge O'Reilly presented the trial court with the complaint Lynn now presents in issue three. For the preceding reasons, we overrule Lynn's third issue. D. Issue Four: Multiple Complaints about the Arbitration In issue four, Lynn complains the arbitrator erred (1) by refusing to grant a continuance for good cause (i.e., pleadings, including the 2003 Petition to Modify the Parent Child Relationship, and evidence being missing from the court's file) and counsel's consequential inability to know what was pending before the court and the arbitrator, (2) by conducting the arbitration on issues outside the MSA, and (3) in basing the arbitration award on information previously obtained while serving in the capacity as a mediator.[11] In our discussion of issue five, below, we address whether Judge O'Reilly exceeded the scope of her power; in our discussion of issue three, above, we addressed whether the appellate record supports Lynn's claim that Judge O'Reilly improperly gained information through a mediation process. Under issue four, we therefore consider only the arbitrator's purported error in not granting a “continuance." Under the Texas Arbitration Act, “[o]n application of a party, the court shall vacate an award if . . . the arbitrators . . . refused to postpone the hearing after a showing of sufficient cause for the postponement." Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(3)(B) (Vernon 2005).[12] To support her claim she was erroneously denied a continuance, Lynn provides a single example: AActing pro se, [Lynn] at the commencement of the May 17, 2006 arbitration objection to the arbitration going forward -based on what was on file with the court.'" Lynn does not provide this court with a citation to the record. Nevertheless, we observe that commencement of the proceedings was delayed on May 17 because Lynn's attorney had not yet arrived. Additionally, Lynn requested arbitration be delayed until the court of appeals ruled on the mandamus she filed. Finally, Lynn stated, “And I also want to say that I object to this hearing going forward pursuant to what I have on file with the Court." Judge O'Reilly responded by confirming she would wait a few minutes for counsel to arrive and asked Lynn to identify her attorney: “I have asked you to identify that person; and if you are willing to do that, now would be the time to do that. If not we'll await that arrival and delay the evidentiary hearing initiation until 9:30 this morning." Lynn did not identify the attorney, but stated she “would prefer to wait until 9:30." After Lynn's attorney, Rick Ramos, arrived, there was further discussion of the mandamus proceedings. Judge O'Reilly confirmed the mandamus was directed at the judge of the trial court, and proceeded to open the arbitration, indicating Lynn's and Joseph's petitions to modify the parent-child relationship were the matters to be arbitrated. Ramos then stated, “My client has had a difficult time tracking pleadings and documents that were filed on her behalf in the case. I do not have a working copy of the pleading [sic] that were filed on her behalf." Judge O'Reilly then provided Ramos with a copy, and Ramos proceeded to call his first witness without further objection. On the record and argument before this court, we cannot conclude Judge O'Reilly's not having further postponed the arbitration warrants vacation of the award pursuant to Texas Civil Practice and Remedies Code section 171.088(a)(3)(B). For the preceding reasons and those set forth in sections II. C. and D., we overrule Lynn's fourth issue. E. Issue Five: The Texas Arbitration Act In issue five, Lynn argues (1) Judge O'Reilly erred by violating the provisions of the Texas Arbitration Act and (2) the trial court erred by refusing to vacate the award pursuant to Texas Civil Practice and Remedies Code section 171.088. Lynn cites language in the MSA stating that periods of possession, including Jewish holidays, and child support shall “be tried to the Court." Lynn next contends that, contrary to this language, the arbitrator exceeded her powers by modifying periods of possession and changing child support.[13] She then reasons the trial court erred by not vacating the award. See Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(3)(A) (providing, on application of party, court shall vacate award if arbitrators exceeded their powers). Contrary to Lynn's representation, the arbitration award contains nothing to indicate the arbitrator changed the child support provided in the final divorce decree. Lynn's argument regarding periods of possession overlooks (1) the relationship of the MSA to the final divorce decree and (2) the arbitration provision in that decree. Lynn and Joseph signed the MSA on October 30, 2001. The trial court subsequently tried the divorce case, and the final divorce decree incorporates matters on which the parties agreed in the MSA and matters, including periods of possession and child support, that were tried to the court. The final divorce decree also contains the following provision: IT IS FURTHER ORDERED AND DECREED that, in the event of disputes regarding periods of possession, extracurricular activities, or rights and duties of the conservators, the parties shall submit the dispute for arbitration with a mutually acceptable arbitrator. If the parties are unable to agree to a mutually acceptable arbitrator, the Court will appoint an arbitrator upon application of a party.[14] Thus, the final decree of divorce specifically required that disputes regarding periods of possession be arbitrated. Judge O'Reilly acted within her power in arbitrating the periods of possession and the trial court did not err in denying Lynn's motion to vacate the award. For the preceding reasons, we overrule Lynn's fifth issue. III. Conclusion Having overruled Lynn's five issues, we affirm the order of the trial court. /s/ Charles W. Seymore Justice -------------------------------- [footnotes omitted] CASE DETAILS AND LINKS: In Interest of EBLG et al (Tex.App.- Houston [14th Dist.] Sep. 29, 2009)(Seymore) (family court mediation and arbitration, numerous challenges to arbitration and arbitrator's decision, attempted recusal of arbitrator, consideration of family violence, appropriateness of mediation) DISPOSITION ON APPEAL: Trial Court's Order/Judgment Affirmed Panel opinion by Justice Charles Seymore Panel members: Chief Justice Adele Hedges, Justices Charles Seymore and Kent Sullivan Appellate case number and link to appellate docket: 14-06-01095-CV Case style on appeal: In the Interest of E.B.L.G, H.L.L.G, and N.L.G. Appeal from 257th District Court of Harris County (Harris County Family Law Center, Houston TX) Trial Court Judge: Hon. Judy L. Warne RELATED SEARCH TERMS: domestic relations, family court case arbitration, arbitrating child custody and visitation issues, conservatorship and possession of child/children submitted to and decided by arbitrator, best interest consideration when SAPCR issues are subject to binding arbitration based on mediated settlement agreement providing for arbitration of subsequent disputes, arbitration vs. mediation in family court cases, mediator also serving as arbitrator, partiality and bias allegations, conflict of interest, challenging the arbitrator, grounds to challenge arbitration award, decision under the Texas Arbitration Act (TAA).

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.