Beech Street Corporation v. Baylor Health Care System ( 2014 )

AFFIRM; and Opinion Filed July 29, 2014.
In The
(Court of AppeaLs
11ft11 District of exas at Dallas
No. 05- 12-01671-CV
BEECH STREET CORPORATION, Appellant
V.
BAYLOR HEALTH CARE SYSTEM. Appellee
On Appeal from the 44th judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-12-04919-B
MEMORANDUM OPINION
Before Justices O’Neill, Myers, and Brown
Opinion by Justice O’Neill
Appellant Beech Street Corporation appeals the trial court’s judgment confirming an
arbitration award in favor of Baylor Health Care System. In three issues, Beech Street generally
contends the trial court erred in confirming the award because the arbitrators acted in manifest
disregard of Texas law in awarding damages. attorney’s fees, and assessing the costs of
arbitration. For the following reasons, we affirm the trial court’s judgment.
Beech Street is a preferred provider organization (PPO). Beech Street negotiates
discounts with healthcare providers for the benefit of certain “Payors,” consisting of insurance
companies and other types of health plans that are obligated to pay for covered services for
eligible individuals.
In 1998, Beech Street’ and appellee entered into a “Preferred Hospital Agreement”
(PHA) in which Baylor agreed to provide discounted services to certain “Payors” that Beech
Street had contracted with. Under the PHA, the Payors, not Beech Street, were responsible for
payment and Beech Street did not assume any responsibility or liability for their payment. The
PHA also provided that if Payors did not pay any claim within forty-ñve days, they would forfeit
the discount and be responsible for payment of Baylor’s “usual charges.”
Although only Baylor and Beech Street executed the PHA, it stated that Payors were also
parties to the contract. In the agreement, Beech Street stated it was executing the agreement on
behalf of each of the Payors “[t]or convenience,” and represented and warranted that each Payor
had executed a valid Power of Attorney giving it authority to do so. The PHA also contemplated
Beech Street entering into separate Payor Agreements with each of the Payors by which Beech
Street would arrange for the provision of covered services. Beech Street had not, however,
obtained authorizations binding the Payors to the terms of the PHA or entered into Payor
Agreements with some of the Payors.
When Baylor sought to enforce its right to recover for discounts that Payors forfeited
because of untimely payment, Baylor discovered that Beech Street had not obtained agreements
from the Payors binding them to the terms of the PHA. Baylor demanded payment from Beech
Street asserting its failure to do so constituted a breach of the PHA. It sought. as consequential
damages, the forfeited discounts which totaled SI. [ million. Beech Street refused the claim, and
Baylor instituted arbitration proceedings as provided in the PHA.
After a two-day evidentiary hearing before a three-person arbitration panel, two of the
arbitrators ruled in favor of Beech Street. The majority concluded that, although Beech Street
The agrecincilt was actually c ccuted by Beech Street’s predecessor. CAIN’ CARE. I,,c. The parties agree hat Beech Street stands in
CAPP CARE’s place.
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had breached the PHA, Baylor had failed to prove recoverable damages. The majority based its
decision on the PHA provision that Beech Street was not responsible for payment and its
determination that the damages claimed were not foreseeable. Baylor filed a motion to
reconsider. One of the arbitrators changed his decision, resulting in a majority now finding in
favor of Baylor. hut only on a portion of its claims. The dissenting arbitrator would have denied
Baylor recovery on the grounds initially stated.
Baylor then flied a motion in the trial court for confirmation of the award. Beech Street
flied a counter motion requesting that the trial court vacate the award. As grounds for vacatur,
Beech Street asserted the panel entered the award in “manifest disregard” for the law and
committed a “gross mistake.” Beech Street did not, however, provide the trial court with a
record of the arbitration proceedings. The trial court denied Beech Street’s motion and entered a
judgment confirming the award. Beech Street appeals.
Arbitration of disputes is strongly favored under Texas law. Prudential Sees. Inc. v.
Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (per curiam); Hiun (tech Dcv. Corp. v. Penman, 424
S.W.3d 782, 790 (Tex. App—Dallas 2014, no pet.). We review a trial court’s decision to vacate
or confirm an award de novo based on a review of the entire record. Hmnitech Dcv., 424 S.W.3d
at 790. An arbitration award is presumed valid and we will not vacate it even if it is based on a
mistake of law or fact. Id. The party seeking to vacate the award has the burden of proving
grounds for vacatur exist. Roehrs v. PSI Holdings, Inc., 246 S.W.3d 796, 804 (Tex. App.—
Dallas 2008, pet. denied).
The Federal Arbitration Act (FAA) and the Texas Arbitration Act (TAA) both provide
for statutory grounds to vacate an arbitration award. Sec 9 U.S.C.A. § 10(a) (statutory grounds
under FAA); TEX. Civ. PRAC. & REM. CODE ANN. § 17 1.088(a) (West 2011) (statutory grounds
under TAA). Beech Street does not rely on any statutory grounds, but on the common-law
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grounds of “manifest disregard” of the law and “gross error.” This Court has held, relying on
authority from the United State Supreme Court, that these grounds are not available tinder the
FAA. See Anchor Holding.s LLC i’. Peterson, Golcbnan, & Villani, 294 S.VL3d 818, 829 (Tex.
App—Dallas 2009, no pet.). Baylor asserts Beech Street cannot rely on the common-law
grounds because they have been preempted by the FAA. We have recently rejected Baylor’s
argument. concluding the FAA does not preempt any common-law grounds that might exist to
vacate an award under the TAA. Humitech Dcv., 424 S.W.3d at 791.
Manifest disregard is a federal common-law doctrine. .4tio? Box Co., Inc. ;‘. Panel
Prints, Inc.. 130 S.W.3d 249, 252 (Tex. App.—Houston [14th Dist.] 2004, no pet.); Int’l Bank (4
Co,nnzerce-Bmwnsville t’. Int’l Energy Dcv. Corp.. 981 S.W.2d 38, 48 (Tex. App.—Corpus
Christi 1998. pet. denied). The doctrine, where applicable, requires a showing that the arbitrator,
“knowing the law and recognizing that the law required a particular result, simply disregarded
the law.” Hunjitech Dcv. 424 S.W.3d at 795 (citing Xtria L.L.C. v. Int’l. his. Alliance, Inc., 286
S.W.3d 583, 594 (Tex. App.—Texarkana 2009, pet. denied)).
Gross mistake is a Texas common-law doctrine conceptually analogous to manifest
disregard. See Humitech Dcv., 423 .W.3d at 795; Int’l Bank of Conunerce-Brovnsvifle, 981
S.W.2d at 48. To show “gross mistake” a party must show an error that implies “bad faith” or
failure to exercise “honest judgment” and results in a decision that is arbitrary and capricious.
Humitech Dcv., 424 S.W.3d at 795. A decision, no matter how erroneous, that is made after
honest consideration of conflicting claims is not arbitrary or capricious. Id.
Assuming the common-law doctrines of “manifest disregardS’ and “gross mistake” are
valid grounds for vacating an arbitration award under the TAA, we conclude Beech Street has
not shown the trial court should have vacated the award. See Humitec’h Dcv., 424 S.W.3d at 794
(questioning the validity of the common-law grounds tinder the TAM; see also Callahan &
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Assoc. v. Orangefleld Indep. Suit. Dist., 92 S.W.3d 841, 844 (Tex. 2002) (assuming, without
deciding, gross mistake valid ground under the TAA); see also Action Box Co., 130 S.W.3d at
252 (manifest disregard, as a federal common-law doctrine, does not apply to the TAA.).
A party seeking to vacate an arbitration award bears the burden of bringing forward a
sufficient record establishing a basis for vacating the award. In re Chestnut Energy Partners,
Inc., 300 S.W.3d 386, 400 (Tex. App.—Dallas 2009, pet, denied); Statewide Remodeling, Inc. v.
Williams, 244 S.W.3d 564, 567 (Tex.App.—Dallas 2008, no pet.). In the absence of a complete
record, we must presume the arbitration evidence adequately supported the award. Statewide
Reiiiodeling, 244 S.W.3d at 567. In the absence of a complete record, we can only consider
complaints that do not require a review of the omitted portions of the record or missing evidence.
See, e.g., CentexJVestal v. Friendship Ill. BaptLct Church, 314 S.W.3d 677, 685 (Tex. App.—
Dallas 2010, pet. denied).
Here,. Beech Street contends the arbitrators’ award of damages to Baylor was a gross
error, made in manifest disregard of the law. First, it contends the arbitrator’s award conflicted
with portions of the contract and with our opinion in GPA Holding v. Baylor Health Care Syst,
344 S.W.3d 467 (Tex. App.--Dallas 2011, pet. denied)2. But it is well-settled that a mistake of
law or fact is not sufficient to vacate an award. Hiunitech Dcv. Corp., 424 S.W.3d at 790.
Therefore, to show the arbitrators intentionally disregarded the law and committed a gross
mistake, Beech Street relies on the dissenting arbitrator’s decision. The dissent, however, does
not show the majority intentionally disregarded the law or acted in bad faith, but only that a
disagreement existed between the arbitrators. Regardless, without a record of the arbitration
proceedings showing the evidence or the law that was presented to the arbitrators, we cannot
2
In CPA Holdings, we concluded a Payor under a Health Care Plan was liable to Ilaylor even though ii had no direct contractual
it I a’ ionsl,i p with Bay I or hecau se it had agreed o he hound by I lie PPO’ s agrcci ncnt wi I Ii Baylor. See CPA lb ‘Iding. 314 S W 3d at 173
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conclude the arbitrators manifestly disregarded the law or committed a gross mistake. Home
Owners Mg,nL Enters., flu. v. Dewi, 230 S.W.3d 766, 796 (Tex. App.—Dallas 2007, no peL).
The arbitrators also awarded Beech Street reasonable attorney’s fees and ordered Beech
Street to pay the cost of arbitration. Beech Street asserts the arbitrators’ award of attorney’s lees
and ordering it to pay the costs of arbitration must be vacated because ii was “arbitrary and
capricious.” It asserts the attorney’s fee award was “excessive” and the allocation of costs was
“unsupported.” In making this argument, it is not clear the ground on which Beech Street is
relying on to vacate the award. To the extent Beech Street suggests the arbitrators exceeded their
powers in entering the award, it is undisputed that (he arbitration provisions of the PHA gave the
arbitrators the authority to award attorney’s fees and to assess the costs of arbitration. See
Hitniltech Dcv.. 424 S.W.3d at 791 (arbitrators exceed their authority when they decide a matter
not properly before them or decide an issue in manner inconsistent with the express terms of the
agreement to arbitrate.) To the extent Beech Street asserts the award constituted a gross mistake,’
without a record establishing what evidence or law was presented to the arbitrators, we cannot
review this argument. See Home Owners Mgmt. Enters., 230 S.W.3d at 769. We conclude
Beech Street has Failed to show grounds requiring the trial court to vacate the award. We affirm
the trial court’s judgment.
/Michael J. O’NeiIl/
MICHAEL J. ONEILL
JUSTICE
12 167 IF.P05
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CLiurt uf Appeals
Hilt!! Oistrirt of rxas at Dallas
JUDGMENT
BEECH STREET CORPORATION, On Appeal from the 44th Judicial District
Appellant Court, Dallas County, Texas
Trial Court Cause No. DC-12-049 19-B.
No. 05-12-01671-CV V. Opinion delivered by Justice O’Neill.
Justices Myers and Brown participating
BAYLOR HEALTH CARE SYSTEM,
Appellee
In accordance with this Court’s opinion of this date, the judgment of the trial court is
AFFIRMED.
It is ORDERED that appellee BAYLOR HEALTH CARE SYSTEM recoer its costs of
this appeal and the lull amount of the trial courts judgment from appellant BEECH STREET
CORPORATION and from Westchester Fire Insurance Company as surety on appellant’s
supersedeas bond.
Judgment entered this 29th day of July, 2014.
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