JUDICIAL REVIEW OF ARB AWARDS UNDER THE TEXAS GENERAL ARBITRATION ACT
Jones v. Brelsford (Tex.App. -Houston [1st Dist] May 17, 2012) (probate court's order vacating arbitration award affirmed)
EXCERPT FROM OPINION BY JUSTICE HARVEY BROWN
Texas law favors the arbitration of disputes. See E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 271 (Tex. 2010); Brazoria Cnty. v. Knutson, 176 S.W.2d 740, 743 (Tex. 1943) ("Arbitration is a proceeding so favored by Texas law that both our Constitution and statutes provide for the submission of differences to arbitration."). Consequently, judicial review of an arbitration award is extraordinarily narrow and focuses on the integrity of the process, not the propriety of the result. See Women's Reg'l Healthcare, P.A. v. FemPartners of N. Tex., Inc., 175 S.W.3d 365, 367 68 (Tex. App.-Houston [1st Dist.] 2005, no pet.); 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). A reviewing court may not substitute its judgment for the arbitrator's simply because that court would have reached a different result. Royce Homes, L.P. v. Bates, 315 S.W.3d 77, 85 (Tex. App.-Houston [1st Dist.] 2010, no pet.).We indulge every reasonable presumption to uphold an arbitrator's decision.New Med. Horizons II, Ltd. v. Jacobson, 317 S.W.3d 421, 428 (Tex. App.-Houston [1st Dist.] 2010, no pet.).
The parties agree that the Texas General Arbitration Act (TAA) governs this case. See TEX. CIV. PRAC. & REM. CODE ANN. §§ 171.001 .098 (West 2011). Under the TAA, a court must affirm an arbitration award unless a party establishes one of four statutory bases for vacating the award: (1) the award was procured by fraud, corruption, or other undue means; (2) there was evident partiality, corruption, or willful misconduct by the arbitrator that prejudices the rights of a party; (3) the arbitrator exceeded her power, refused to postpone a hearing on a showing of sufficient cause, or refused to hear material evidence; or (4) "there was no agreement to arbitrate, the issue was not adversely determined in a proceeding under Subchapter B, and the party did not participate in the arbitration hearing without raising the objection."Id. §§ 171.087 .088(a); see Women's Reg'l Healthcare, 175 S.W.3d at 367. Our review of an order vacating an arbitrator's award for any of these reasons is de novo. See Grand Homes 96, L.P. v. Loudermilk, 208 S.W.3d 696, 705 (Tex. App.-Fort Worth 2006, pet. denied).
Order Vacating the Arbitration Award
Dianna's complaints about the probate court's order vacating the arbitration award are divided into six sub-issues, each addressing a statutory or common-law ground for vacatur asserted by her siblings—Harold, Susanna, John, and Madge— or the grandchildren. We begin with Dianna's sixth sub-issue, which challenges the vacatur grounds asserted by Madge in her motion attacking "the portions of the arbitration award that require Madge to sign over her interests in real estate to Dianna Brelsford and to appear and sign transfer documents."
Madge argues that the arbitrator's award divesting her of a property interest in the ranch subjected her to an arbitration to which she did not agree and in which she did not participate. She asserts that, under these circumstances, the probate court properly vacated the award under sections of the Civil Practice and Remedies Code providing for vacatur if the arbitrator exceeded her powers or if there was no agreement to arbitrate. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(3)(A), (a)(4). Dianna asserts that Madge's complaints about the arbitration award are merely "ministerial" and "not a basis to vacate" because Madge had already agreed to transfer her interests to Harold, Susanna, and John. We disagree with Dianna.
We look to the parties' various provisions for dispute resolution to determine the arbitrator's authority to order Madge, a non-participant in the second arbitration, to convey her property interest in the ranch to Dianna instead of Harold, Susanna, and John. See Baker Hughes Oilfield Operations v. Hennig Prod. Co., 164 S.W.3d 438, 443 (Tex. App.-Houston [14th Dist.] 2005, no pet.). Attached to the MSA, which is a global document signed by all of the siblings, the trusts, and the estate, are (1) Dianna'sagreement with Harold, Susanna, and John and (2) Madge's agreement with Harold, Susanna, and John. The MSA and the attached agreements contain different provisions for dispute resolution. The MSA provided "that any dispute as to interpretation of terms of this agreement shall be submitted to binding arbitration. . . ." In the attached agreements, which the parties treat as separate and distinct agreements, Dianna and Madge individually agreed to transfer their interests in family properties, including the ranch, to Harold, Susanna, and John in exchange for payment. They both also agreed to a two-step process in the event of future disputes: "attend a ½ day mediation with Judge Garcia; if no agreement, then Judge Garcia shall serve as arbitrator, and she shall rule in a manner that she believes is fair and just, and her decision is non-appealable and final."
Although Dianna's and Madge's individual agreements incorporated nearly identical terms for resolving their disputes with their siblings, Dianna did not sign Madge's agreement with Harold, Susanna, and John, and Madge did not sign Dianna's agreement with Harold, Susanna, and John. Madge is also not a signatory to the agreement entered on the eve of the second arbitration, granting the arbitrator broad authority to decide "any and all issues and/or disputes related to the above causes of action and any and all issues or disputes with regard to any mediation agreement and/or settlement agreement." Only Harold, Susanna, John, and Dianna signed that agreement. Thus, the only agreement to arbitrate signed by both Dianna and Madge is the agreement to submit to arbitration "any dispute as to interpretation of terms of" the MSA between the siblings, the trusts, and the estate.
Considering the written submissions to the arbitrator, we note that Madge did not have a dispute with either Dianna or her other siblings "as to interpretation of terms" of their settlement agreement with the trusts and the estate, and Dianna did not allege any such dispute with Madge. In fact, Dianna did not allege any dispute with Madge or any dispute as to the MSA between the siblings, the trusts, and the estate. Although she requested an award of the entire ranch, Dianna's written submission focused exclusively on Harold, Susanna, and John's non-performance and alleged fraudulent inducement of her individual settlement agreement with them. The arbitrator specifically noted in the award that Madge did not participate in the second arbitration because she had settled her disputes with Harold, Susanna, and John. The arbitrator found that "an award of 100% of [the ranch] to Dianna is a partition in kind for her debt under the MSA, for actual and punitive damages from the intentional and repeated breaches of the MSA by Harold, Susanna, and John in the breaches described here." The breaches described in the arbitration award related to breaches of Dianna's settlement with Harold, Susanna, and John and no other agreement. To give effect to her award, however, the arbitrator ordered Madge, along with Harold, Susanna, and John, to execute deeds transferring their interests in the ranch to Dianna. No findings were entered against Madge in the award. Nor can we find any evidence in this record that Harold, Susanna, and John paid Madge and therefore were entitled to demand transfer of Madge's interest in the ranch.
Even considering the presumptions in favor of arbitration, we agree with Madge that she did not agree to submit to arbitration of disputes arising from Dianna's agreement with Harold, Susanna, and John. The arbitrator could not order Madge, as part of the second arbitration, to transfer her interest in the ranch to Dianna as a consequence of Harold, Susanna, and John's breaches of an agreement to which Madge was not a party because any dispute as to Madge's interest in the ranch was not properly before the arbitrator. We are not persuaded that simply because Madge had already agreed to transfer her interests to Harold, Susanna, and John, an order that she transfer her interests to someone else is inconsequential. The arbitrator's award required Madge to perform an act that contravened her settlement with Harold, Susanna, and John and undermined their obligation to pay Madge under that agreement. We therefore conclude that the probate court correctly vacated that part of the award giving Dianna full ownership of the ranch and ordering Madge to "execute the deeds . . . to transfer full ownership of [the ranch], its cattle and improvements to [Dianna]" under section 171.008(a)(4). See TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(4) (providing for vacatur of arbitration award when "there was no agreement to arbitrate, the issue was not adversely determined in a proceeding under Subchapter B, and the party did not participate in the arbitration hearing without raising the objection").
Our conclusion that Madge did not agree to arbitrate the issues decided at the second arbitration is dispositive of this appeal. Although we have held invalid only those parts of the arbitrator's award affecting Madge, the entire award must be set aside because, here, the invalid parts of the award are not "distinct and independent" from the remaining parts of the award. City of Waco v. Kelley, 309 S.W.3d 536, 551 (Tex. 2010) ("In an appeal from an arbitration award, if a portion of the award is invalid, the other portion will be unaffected only if the two parts are so distinct and independent that the valid part will truly express the judgment of the arbitrator. But if an invalid portion is not severable and distinct so that the remaining valid part of the award truly expresses the arbitrator's judgment, the entire award is void."); see Gulf Oil Corp. v. Guidry, 327 S.W.2d 406, 409 (Tex. 1959). The arbitrator determined that it was equitable that Dianna be awarded 100 percent ownership of the ranch in satisfaction of the amounts owed by Harold, Susanna, and John for their breaches of contract and fraud. To affirm the remaining portions of the award ordering Harold, Susanna, and John to convey their interests in the ranch would be to affirm an award to Dianna of less than 100 percent ownership of the ranch. Such an award is less than what the arbitrator determined was equitable and would not "truly express the arbitrator's judgment." See Kelley, 309 S.W.3d at 551. Accordingly, we conclude that the entire arbitration award must be set aside and that a new arbitration hearing must be conducted, and we overrule Dianna's sixth sub-issue.
Order Appointing a New Arbitrator
Our holding in this case will require a rehearing of Dianna's dispute with Harold, Susanna, and John. In her second issue, Dianna contends that the trial court erred in appointing a new arbitrator for the rehearing. See Werline, 307 S.W.3d at 270 74 (allowing appeal when trial court denied confirmation of arbitration award, vacated award, and sent dispute to re-arbitration before new arbitrator). We agree. Section 171.089 permits a court to order rehearing before a new arbitrator upon the vacatur of an award "on grounds other than the grounds stated in Section 171.088(a)(4)." See TEX. CIV. PRAC. & REM. CODE ANN. § 171.089(a). The only grounds for vacatur we affirm are stated in section 171.088(a)(4). Id. § 171.088(a)(4). Consequently, the vacatur of the arbitration award in this case will not support the appointment of a new arbitrator for rehearing. See id. § 171.089(a). We sustain Dianna's second issue.
We affirm the probate court's order vacating the arbitration award, but we reverse the probate court's order appointing a new arbitrator for the rehearing. This case is remanded for further proceedings consistent with this opinion. All outstanding motions are denied as moot.
SOURCE: FIRST COURT OF APPEALS - HOUSTON - Nos. 01-11-00265-CV, 01-11-00266-CV - 5/17/12 Dianna Jones v. Harold Petsch Brelsford et al