Rueda v Holland: Arb award must be signed by arbitrator to be valid

Juan A. Rueda vs Randall W. Holland, No. 01-14-00919-CV (Tex.App.  - Houston, Feb 2, 2016)

Arbitrator (former presiding judge of the 11th District Court in Houston) issued two rulings, but the first one was not signed because arbitrator changed case outcome based on intervening change of the applicable law by a Texas Supreme Court decision. Which one stands? The signed award, says Houston Court of Appeals, and affirms trial court's confirmation of that award.  

Opinion issued February 2, 2016

In The

Court of Appeals

For The

First District of Texas

————————————

NO. 01-14-00919-CV

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JUAN A. RUEDA, Appellant

V.

RANDALL W. HOLLAND, Appellee

On Appeal from the 11th District Court

Harris County, Texas

Trial Court Case No. 2012-41959

Panel consists of Chief Justice Radack and Justices Massengale and Brown.

MEMORANDUM OPINION

SHERRY RADACK, Chief Justice.

Appellant, Juan A. Rueda appeals the trial court's confirmation of an arbitration award rendered in favor of appellee, Randall W. Holland. In one issue on appeal, Rueda argues that the trial court erred in confirming the arbitration award because it was the second decision of the arbitrator and therefore should have been vacated. We affirm.

Background

This dispute arises out of Enviro-Grow Nursery, a business in which Rueda owned a 49% interest and Holland owned a 51% interest. After Rueda sued Holland for minority shareholder oppression, Holland relied on the parties' 1995 shareholder's agreement that contained an arbitration agreement to compel arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). The trial court ordered the parties to arbitration, appointed Judge Mark Davidson to arbitrate, and stayed the proceedings pending the outcome of the arbitration.

Judge Davidson conducted an arbitration trial on May 7 and June 5, 2014. The arbitration concluded on June 16, and Judge Davidson said he would rule by June 26. After discovering that the Supreme Court of Texas issued an opinion in Ritchie v. Rupeon June 24, 2014 that eliminated the common law cause of action for shareholder oppression,^[1] Holland filed an emergency memorandum with Judge Davidson informing him of the Ritchie opinion. On June 25, Judge Davidson reopened the arbitration and asked for additional briefing in light of Ritchie.^[2]

On July 9, 2014, Elizabeth Kidd, the Director of ADR Services, e-mailed the parties informing them that the Award was attached to her e-mail, and that Judge Davidson "has also asked me to forward his original ruling which was drafted prior to the Ri[t]chie v. Rupe decision and which was supplanted by the final award." Attached to her e-mail was Judge Davidson's signed, final award in favor of Holland, and Judge Davidson's unsigned decision that ruled in favor of Rueda. 

On July 10, 2014, Rueda apparently filed a "Motion Asking the Arbitrator to Disregard and Withdraw his Subsequent Ruling Because the Arbitrator Was Not `Empowered' to Enter a Subsequent Ruling Pursuant to AAA Commercial Rule R-46."^[3] In an e-mail to the parties, Judge Davidson denied Rueda's motion, stating, "The motion to Disregard and withdraw the Arbitrator's Award is denied. The transmittal of a draft of a preliminary opinion that was never adopted, signed or sent to all counsel is not a binding ruling. Claimant's motion is without merit, and is respectfully denied."

Holland then moved to confirm the arbitration award in the trial court on October 7, 2014. On the same day, Rueda filed in the trial court a Motion to Vacate the Second Arbitration Decision and Award and to Enter Judgment on the First Arbitration Decision. In his motion, Rueda argued that Rule 50 of the AAA states that the arbitrator is not empowered to re-determine the merits of any claim already decided and that because Judge Davison had initially ruled in his favor, Judge Davidson had no power to issue his subsequent decision.

The trial court held a hearing on Rueda's motion to enter the award. At the hearing, Rueda again relied on Rule 50 of the AAA and section 171.088 of the Texas Civil Practice and Remedies Code^[4] to argue that the arbitrator could only issue one decision. The trial court, after reviewing Rule 46 of the AAA, stated that it "is pretty clear: Shall be in writing and signed by the majority of the arbitrators." After admitting various exhibits, the trial court stated,

Until I sign it and it gets entered, it is not effective unless there is some announcement on the record or something else that makes it a final judgment. It is not—the rule is pretty specific, it has to be signed, and that was not signed. I think, therefore— it is unbelievably bad luck. I think—it is a technical issue. I think without that signature it wasn't a final award.

On the same day, the trial court signed an order entering judgment in accordance with the Final Award of the Arbitrator signed by Judge Davidson on July 9, 2014. Rueda then timely filed his notice of appeal.

Review of Arbitration Award

In his sole issue on appeal, Rueda argues that the trial court should have vacated Judge Davidson's award because he exceeded his powers by changing his unsigned decision in Rueda's favor to a subsequently signed award that ruled against Rueda.

We review de novo a trial court's confirmation of an arbitration award. Royce Homes, L.P. v. Bates, 315 S.W.3d 77, 85 (Tex. App.-Houston [1st Dist.] 2010, no pet.). However, review of an arbitration award is extraordinarily narrow. Id. at 85-86. Arbitration is favored as a means of dispute resolution; therefore, courts indulge every reasonable presumption to uphold an award, and none against it. Id. at 85; Kosty v. S. Shore Harbour Cmty. Ass'n, Inc., 226 S.W.3d 459, 462 (Tex. App.-Houston [1st Dist.] 2006, pet. denied). An arbitration award is presumed valid and entitled to great deference.Royce Homes, 315 S.W.3d at 85. A reviewing court "may not substitute [its] judgment merely because [it] would have reached a different decision." Id. at 85; see Kosty, 226 S.W.3d at 463.

Rueda's argument is based on his belief that the Commercial Rules of the AAA do not mandate that the arbitrator's decision must be signed by the arbitrator to be the decision of the arbitrator. We disagree. Both the Texas Arbitration Act ("TAA") and the Commercial Rules of the AAA explicitly require the arbitrator to sign a final award.

The TAA provides the signature and delivery requirement in section 171.053:

(a) The arbitrators' award must be in writing and signed by each arbitrator joining in the award.

(b) The arbitrators shall deliver a copy of the award to each party personally, by registered or certified mail, or as provided in the agreement.

TEX. CIV. PRAC. & REM. CODE ANN. 171.053(a)(b) (West 2011).

Likewise, Rule 46 of the AAA, entitled "Form of Award," states,

(a) Any award shall be in writing and signed by a majority of the arbitrators. It shall be executed in the form and manner required by law.

American Commercial Arbitration Rules R-46 (2013).

Rule 49 of the AAA provides notice and delivery requirements:

Parties shall accept as notice and delivery of the award the placing of the award or a true copy thereof in the mail addressed to the parties or their representatives at their last known addresses, personal or electronic service of the award, or filing of the award in any other manner that is permitted by law.

American Commercial Arbitration Rules R-49 (2013).

Despite section 171.053 and Rules 46 and 49, which require the arbitrator's signature and delivery of the award, Rueda relies on the last sentence of Rule 50 of the AAA, entitled, "Modification of Award," which provides, in relevant part,

Within 20 calendar days after the transmittal of an award, any party, upon notice to the other parties, may request the arbitrator, through the AAA, to correct any clerical, typographical, or computational errors in the award. The arbitrator is not empowered to redetermine the merits of any claim already decided.

American Commercial Arbitration Rules R-50 (2013).

Rueda argues that because the unsigned opinion of Judge Davidson was his first decision, he could not re-determine the merits in a subsequently signed decision. We disagree. The record reflects that after Judge Davidson was made aware of the Ritchie decision, and before signing and delivering any award, he opted to reopen the arbitration and requested briefing on the ramifications of the Ritchie opinion. Neither party objected to the reopening of the arbitration.^[5] Under these facts, the unsigned award is not the arbitrator's final award. The only final award is the arbitrator's signed award, which was delivered to the parties, and which the trial court subsequently confirmed. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.053.

We overrule Rueda's sole issue on appeal.

Conclusion

We affirm the trial court's judgment.

[1] See Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014).

[2] Rule 40 of the AAA allows the trial court to reopen the hearing:

The hearing may be reopened on the arbitrator's initiative, or by the direction of the arbitrator upon application of a party, at any time before the award is made. If reopening the hearing would prevent the making of the award within the specific time agreed to by the parties in the arbitration agreement, the matter may not be reopened unless the parties agree to an extension of time. When no specific date is fixed by agreement of the parties, the arbitrator shall have 30 calendar days from the closing of the reopened hearing within which to make an award (14 calendar days if the case is governed by the Expedited Procedures).

American Commercial Arbitration Rules R-40 (2013).

[3] This motion is not in the appellate record.

[4] Section 171.088 of the Texas Arbitration Act provides that a court shall vacate an award if the arbitrators exceed their powers. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(3)(A) (West 2011).

[5] Rule 41 of the AAA provides that "Any party who proceeds with the arbitration after knowledge that any provision or requirement of these rules has not been complied with and who fails to state an objection in writing shall be deemed to have waived the right to object." American Commercial Arbitration Rules R-41 (2013).

THE SUPREME COURT OPINION THAT 
PRECIPITATED THE REVERSAL OF FORTUNES 
IN THE ARBITRATION 

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Ritchie v. Rupe, 443 SW 3d 856 (Tex. 2014)

Ritchie v. Rupe, 443 SW 3d 856 - Tex: Supreme Court 2014

443 S.W.3d 856 (2014)

Lee C. RITCHIE, et al., Petitioners,
v.
Ann Caldwell RUPE, As Trustee for the Dallas Gordon Rupe, III 1995 Family Trust, Respondent.

No. 11-0447.

Supreme Court of Texas.

Argued February 26, 2013. Decided June 20, 2014. Rehearing Denied October 24, 2014.

859*859 Eric Thomas Stahl, Law Offices of Frank L. Branson, P.C., Dallas, TX, for Amicus Curiae Cruz, M.D., Erwin.

860*860 John Richard Fahy, Whitaker Chalk Swindle & Schwartz PLLC, Fort Worth, Rex S. Whitaker, Baird, Crews, Schiller & Whitaker, P.C., Temple, Wayne Martin Whitaker, Whitaker Chalk Swindle & Schwartz PLLC, Fort Worth, TX, for Amicus Curiae Fahy, John R. Wayne Whitaker and Rex Whitaker.

Carol Bavousett Mattick, Attorney at Law, San Antonio, TX, for Amicus Curiae Mattick, Carol Bavousett.

Elizabeth Stone Miller, Attorney and Professor of Law, Waco, TX, for Amicus Curiae Miller, Elizabeth S.

Marc I. Steinberg, SMU Dedman School of Law, Dallas, TX, for Amicus Curiae Steinberg, Marc Robert A. Ragazzo, Alan R. Bromberg, Joseph K. Leahy, Bruce A. McGovern, Gary S. Rosin, and David Simon Sokolow.

Peter M. Kelly, Kelly, Durham & Pittard, L.L.P., Houston, TX, for Amicus Curiae Texas Trial Lawyers Association.

Amy Elaine Davis, Katherine Khristine Elrich, Hermes Sargent Bates LLP, Hilaree A. Casada, Cowles & Thompson, P.C., Robert B. Gilbreath, Hawkins Parnell, Thackston & Young LLP, Dallas, TX, for Petitioner.

Brett David Kutnick, Hankinson LLP, Charla G. Aldous, Aldous Law Firm, Jeffrey S. Levinger, Levinger PC, Steven E. Aldous, Forshey & Prostok LLP, Dallas, TX, for Respondent.

Justice BOYD delivered the opinion of the Court, in which Chief Justice HECHT, Justice GREEN, Justice JOHNSON, Justice LEHRMANN, and Justice DEVINE joined.

In this case, a minority shareholder in a closely held corporation alleged that the corporation's other shareholders, who were also on the board of directors, engaged in "oppressive" actions and breached fiduciary duties by, among other things, refusing to buy her shares for fair value or meet with prospective outside buyers. The directors essentially admit to this conduct but insist that they were simply doing what was best for the corporation. For the most part, the jury sided with the minority shareholder, and the trial court ordered the corporation to buy out her shares for $7.3 million. The court of appeals agreed that the directors' refusal to meet with prospective purchasers was "oppressive" and upheld the buy-out order. We hold that this conduct was not "oppressive" under the statute on which the minority shareholder relies, and in any event, the statute does not authorize courts to order a corporation to buy out a minority shareholder's interests. Moving beyond the statutory claims, we decline to recognize or create a Texas common-law cause of action for "minority shareholder oppression." We thus reverse the court of appeals' judgment. Because the court of appeals upheld the judgment based on the oppression claim and did not reach the breach-of-fiduciary-duty claim, we remand the case to the court of appeals.

I.

Background