Hari Prasad Kalakonda and Latha Kalakonda v. Aspri Investments, LLC ( 2015 )

Fourth Court of Appeals
San Antonio, Texas
MEMORANDUM OPINION
No. 04-15-00114-CV
Hari Prasad KALAKONDA and Latha Kalakonda,
Appellants
v.
ASPRI INVESTMENTS, LLC,
Appellee
From the 45th Judicial District Court, Bexar County, Texas
Trial Court No. 2014-CI-16394
Honorable Karen H. Pozza, Judge Presiding
Opinion by: Karen Angelini, Justice
Sitting: Karen Angelini, Justice
Luz Elena D. Chapa, Justice
Jason Pulliam, Justice
Delivered and Filed: December 9, 2015
AFFIRMED
Hari Prasad Kalakonda and Latha Kalakonda appeal the trial court’s order confirming an
arbitration award resolving a dispute between the Kalakondas and Aspri Investments, LLC
regarding a lease agreement. On appeal, the Kalakondas contend the trial court erred in confirming
the arbitration award because: (1) the arbitrator refused to hear evidence pertinent and material to
the controversy; (2) the arbitrator was not impartial; (3) the award was against the Kalakondas
individually but they were not parties to the lease agreement; (4) Aspri violated the arbitration
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award before the judgment confirming the award was entered; and (5) the judgment interpreted
the award. We overrule the Kalakondas’ issues and affirm the trial court’s judgment.
BACKGROUND
On March 18, 2008, Shubha, LLC, which was owned by the Kalakondas, executed a lease
assumption agreement pursuant to which Shubha assumed all of the tenant’s obligations under a
lease agreement between Aspri and AASHIQ, Inc. The lease was for the property on which a
convenience store/gas station is located.
The lease assumption agreement provided that all claims or disputes arising among the
parties would be submitted to binding arbitration under the Federal Arbitration Act to W. Jerry
Hoover in Houston, Texas as arbitrator. The lease assumption agreement further provided if
Hoover did not serve as arbitrator for any reason, the arbitration would be conducted pursuant to
the rules of the American Arbitration Association.
On December 4, 2013, Hoover sent the parties a letter acknowledging receipt of a letter
from Aspri’s attorney advising he was named as the arbitrator in the lease assumption agreement.
The letter disclosed Hoover’s active ADR practice and further disclosed that he mediated five
cases in which Aspri’s attorney represented a party. The letter concluded with a request for the
parties to advise him of any objections by December 11, 2013.
In February of 2014, Aspri filed its petition in arbitration, asserting Shubha, as tenant, and
the Kalakondas, as guarantors on the lease, breached the lease agreement. On July 11, 2014,
Shubha and the Kalakondas filed a first supplemental counter petition in arbitration. The appellate
record does not contain a copy of the original counter petition; however, the first supplemental
counter petition states the original counter petition was filed on or about February 12, 2014.
On July 15, 2014, Hoover conducted a hearing on Aspri’s motion to strike the Kalakondas’
first supplemental counter petition and any evidence offered in support of the new claims alleged
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in the supplemental petition. 1 On July 16, 2014, Hoover signed an order sustaining Aspri’s
objection. The order prohibited Shubha and the Kalakondas from offering evidence regarding the
claims asserted in the first supplemental counter petition, including claims regarding lost time,
claims relating to lost insurance coverage for robberies, DTPA claims, or claims for mental
anguish.
On July 22, 2014, Hoover sent the parties a letter entitled “Third Supplemental
Disclosures.” 2 In the letter, Hoover stated that he was informed Aspri had retained another
attorney. The letter disclosed that Hoover had mediated twenty-five cases in which the attorney’s
law firm had represented a party, and the attorney had attended fourteen of those mediations. The
letter further disclosed he had arbitrated a case in 2007 in which another attorney in the law firm
had served as co-counsel.
On October 10, 2014, Hoover issued an Award of Arbitrator. The award states the final
evidentiary hearings were convened on July 24, 2014, and evidence was presented from July 24
through July 26. The award notes the proceeding was not transcribed by a court reporter. The
award also states, “After closing arguments on July 26, 2014, each party confirmed that they had
a full and fair opportunity to present their respective case in chief and they each rested subject only
to post-hearing submissions. Post-hearing submittal deadlines were agreed upon and on
September 12, 2014, the arbitration hearings were declared closed by the undersigned Arbitrator.”
Aspri was awarded $66,235.51 based on the following: (1) $12,187.91 for breach of contract claim
for unpaid insurance; (2) $9,261.60 for breach of contract claim for unpaid tax protest fees, tank
monitoring services and Texas Department of Agriculture fees; and (3) $44,786.00 in attorney’s
1
The appellate record does not contain a copy of the motion to strike.
2
The letter references another disclosure letter dated May 20, 2014; however, this letter is not included in the appellate
record.
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fees. Aspri was not awarded any damages for: (1) breach of contract claim for late fees because
Hoover found the late fees were waived; and (2) breach of contract claim for liquidated damages
because Hoover found no credible evidence to justify the claim. Shubha and the Kalakondas were
not awarded any recovery because Hoover found no credible evidence to support their claims for
tortious interference, breach of fiduciary duty, fraud, and lost profits. In addition, Hoover found
Shubha and the Kalakondas waived their claim for breach of contract relating to a $3,000 lease
assignment fee and escrow overcharges.
On October 15, 2014, Aspri filed a petition to confirm the arbitration award. On November
7, 2014, the Kalakondas filed an answer to Aspri’s petition, a motion to vacate and remand
arbitration award, and a memorandum in support of their motion to vacate. 3 On November 26,
2014, Aspri filed a response to the motion to vacate, and the Kalakondas filed an addendum to the
memorandum in support of their motion to vacate. On December 1, 2014, the trial court held a
hearing on the motions and signed a final judgment granting Aspri’s petition to confirm and
awarding Aspri damages against Shubha and the Kalakondas for $66,235.15. 4 The Kalakondas
timely filed a notice of appeal.
STANDARD AND SCOPE OF REVIEW
Pursuant to the lease assumption agreement, the Federal Arbitration Act (FAA) governed
the arbitration and also governs our review of the award. “Under the FAA, courts may vacate an
arbitrator’s decision only in very unusual circumstances.” Oxford Health Plans LLC v. Sutter, 133
S. Ct. 2064, 2068 (2013) (internal citations omitted). When a party to an arbitration award applies
3
Although the Kalakondas were represented by counsel at the arbitration hearing, they filed their motions and
appeared pro se in the trial court.
4
On March 26, 2015, after the judgment was entered, the Kalakondas filed a “supplemental request for transfer of
records” with a series of documents attached to it. In addition, the Kalakondas caused a supplemental clerk’s record
to be filed from a different trial court cause number. “[I]t is well-settled in Texas that an appellate court’s review is
confined to the record in the trial court when the trial court acted.” Perry v. Del Rio, 66 S.W.3d 239, 259 (Tex. 2001).
Accordingly, in our review, we will consider only the documents before the trial court when it entered its judgment.
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for an order to confirm the award under the FAA, the court must confirm the award unless one of
the limited grounds listed in sections 10 or 11 of the FAA for modifying, vacating, or correcting
the award is shown. 9 U.S.C. § 9.
The party seeking to vacate an arbitration award bears the burden of proving a ground for
vacatur. SSP Holdings Ltd. P’ship v. Lopez, 432 S.W.3d 487, 492 (Tex. App.—San Antonio 2014,
pet. denied). “In light of the strong federal policy favoring arbitration, judicial review of an
arbitration award is extraordinarily narrow.” Rain CII Carbon, LLC v. ConocoPhillips Co., 674
F.3d 469, 471-72 (5th Cir. 2012) (internal citations omitted). “We review a [trial] court’s
confirmation of an award de novo, but the review of the underlying award is exceedingly
deferential.” Id; see also SSP Holdings Ltd. P’ship, 432 S.W.3d at 492. We review the entire
record and indulge all reasonable presumptions in favor of the arbitration award. SSP Holdings
Ltd. P’ship, 432 S.W.3d at 492. The trial court’s decision, however, is given no deference in our
de novo review. Id.REFUSAL TO HEAR EVIDENCE
In their first issue, the Kalakondas contend the trial court should have vacated the
arbitration award because Hoover refused to hear evidence regarding the claims the Kalakondas
asserted in their first supplemental counter petition. See 9 U.S.C. § 10(a)(3) (permitting arbitration
award to be vacated “where the arbitrators were guilty of misconduct . . . in refusing to hear
evidence pertinent and material to the controversy”). In essence, the Kalakondas challenge
Hoover’s order granting Aspri’s motion to strike their first supplemental counter petition.
The record in this case establishes that the Kalakondas filed their first supplemental counter
petition five months after they filed their original counter petition and only thirteen days before
the date the final evidentiary hearings were convened by the arbitrator. Hoover’s order establishes
that a hearing was held on Aspri’s motion to strike the pleading, but we have no record of that
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hearing. We also have no record of the grounds Aspri asserted for striking the pleading because
our record does not contain a copy of Aspri’s motion. 5 “We therefore must presume the record
supports the arbitrator’s decision.” Henry S. Miller Brokerage, LLC v. Sanders, No. 05-14-01618-
CV, 2015 WL 4600218, at *3 (Tex. App.—Dallas July 31, 2015, no pet.) (mem. op.). In addition,
“arbitrators enjoy inherent authority to police the arbitration process.” Why Nada Cruz, L.L.C. v.
Ace American Ins. Co., 569 Fed. Appx. 339, 343 (5th Cir. 2014) (internal citations omitted).
Because the Kalakondas filed their first supplemental counter petition only thirteen days before
the final evidentiary hearings convened, they have not shown Hoover abused his discretion in
striking the pleading. See Henry S. Miller Brokerage, LLC, 2015 WL 4600218, at *3 (noting “an
arbitrator’s ruling striking pleadings is not among the grounds permitted for vacating an arbitration
award”). Finally, “[a]n arbitrator is not bound to hear all the evidence tendered by the parties as
long as each party is given an adequate opportunity to present evidence and arguments.” Kosty v.
South Shore Harbour Cmty. Ass’n, Inc., 226 S.W.3d 459, 463 (Tex. App.—Houston [1st Dist.]
2006, pet. denied). In this case, the arbitration award states, “each party confirmed that they had
a full and fair opportunity to present their respective case in chief.”
The Kalakondas’ first issue is overruled.
EVIDENT PARTIALITY
In their second issue, the Kalakondas contend the trial court should have vacated the
arbitration award because Hoover was partial to Aspri. As evidence of partiality, the Kalakondas
rely on: (1) the inclusion of Hoover’s name as the arbitrator in the lease assumption agreement;
(2) Hoover’s disclosures of his past mediations involving Aspri’s attorneys and the timing thereof;
5
We note the first supplemental counter petition raised DPTA claims, but paragraph 15.11 of the lease agreement
provides, “TENANT HEREBY WAIVES ANY AND ALL CLAIMS, REMEDIES, AND/OR CAUSES OF
ACTION PURSUANT TO THE TEXAS DECEPTIVE TRADE PRACTICES ACT.”
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(3) the conducting of the arbitration hearing in Houston; (4) another lease agreement between
Aspri and an unrelated third party which also listed Hoover as the arbitrator; and (5) Hoover’s
interpretation of the lease which formed the basis of the arbitration award. In addressing this issue,
we note that we have no record of the arbitration hearing because the hearing was not transcribed
by a court reporter. In addition, our record contains no evidence that the Kalakondas objected to
Hoover serving as the arbitrator.
Under the FAA, evident partiality of an arbitrator is a ground for vacating an arbitration
award. 9 U.S.C. § 10(a)(2). Evident partiality exists “if an arbitrator fails to disclose facts, which
might, to an objective observer, create a reasonable impression of the arbitrator’s partiality.”
Tenaska Energy, Inc. v. Ponderosa Pine Energy, LLC, 437 S.W.3d 518, 525 (Tex. 2014). “A party
seeking to vacate an arbitration award based on an arbitrator’s evident partiality generally must
object during the arbitration proceedings.” Dealer Computer Servs., Inc. v. Michael Motor Co.,
485 Fed. Appx. 724, 727 (5th Cir. 2012). “Its failure to do so results in waiver of its right to
object.” Id. An exception to this general rule exists when the arbitrator fails to disclose a known
conflict that is unknown by the party at the time of the arbitration hearing. See id. at 727-28.
In this case, the first three bases the Kalakondas rely upon to establish evident partiality
were known to them at the time of the arbitration hearing; namely, they knew Hoover was listed
as the arbitrator in the lease, they knew of the disclosures he made, and they knew the arbitration
hearing was to occur in Houston. Because the record does not establish that the Kalakondas
objected on these grounds during the arbitration hearing, they waived their right to contend Hoover
demonstrated evident partiality on these bases. Id. With regard to their discovery that Hoover
also was listed as the arbitrator in another lease to which Aspri was a party, the record contains no
evidence Hoover knew he was listed in that lease as an arbitrator. A relationship or association
cannot influence an arbitrator’s partiality “if, in fact, he was unaware of it during the arbitration.”
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Mariner Fin. Group, Inc. v. Bossley, 79 S.W.3d 30, 33 (Tex. 2002). Because the record contains
no evidence Hoover knew about the lease provision, the Kalakondas have not met their burden to
establish evident partiality as a ground for vacating the arbitration award. Finally, the Kalakondas
contend Hoover’s interpretation of the lease demonstrated his “evident partiality.” An arbitration
award cannot be vacated, however, simply by showing an arbitrator committed an error in
interpreting an agreement. Oxford Health Plans LLC, 133 S. Ct. at 2068; BNSF R. Co. v. Alstom
Transp., Inc., 777 F.3d 785, 789 (5th Cir.2015). Therefore, even if Hoover erred in his
interpretation of the lease, such an error would not be a basis for vacating the award. See Oxford
Health Plans LLC, 133 S. Ct. at 2068; BNSF R. Co., 777 F.3d at 789.
The Kalakondas’ second issue is overruled.
EXCEEDING POWERS
In their third issue, the Kalakondas assert the trial court should have vacated the arbitration
award because Hoover exceeded his powers by finding the Kalakondas individually liable. The
Kalakondas contend that they were not parties to the lease; therefore, they cannot be individually
liable. 6
Under the FAA, a trial court may vacate an arbitration award “where the arbitrators
exceeded their powers.” 9 U.S.C. § 10(a)(4). “[A]rbitration is a matter of contract.” SSP Holdings
Ltd. P’ship, 432 S.W.3d at 493. An arbitrator exceeds his powers if he acts contrary to the
contractual provisions governing the arbitration proceeding. Id.In this case, the record contains a guaranty signed by the Kalakondas in which they
personally guarantee all of Shubha’s obligations under the lease. The title of the document is
6
In arguing this issue in their reply brief, the Kalakondas refer to “manifest disregard of the law” as additional support
for vacating the arbitration award. The United States Supreme Court’s holding in Hall Street Assocs., L.L.C. v. Mattel,
Inc., 552 U.S. 576 (2008), precludes the continued use of “manifest disregard of the law’ as a ground for vacating an
award under the FAA.
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“Personal Guaranty of Lease,” and immediately under the title, the following language appears:
“Subject to Binding Arbitration.” In addition, the guaranty contains the same arbitration clause
that appears in the lease assumption agreement. Accordingly, the arbitrator did not exceed his
powers in finding the Kalakondas individually liable.
The Kalakondas’ third issue is overruled.
VIOLATION OF ARBITRATION AWARD
In the first subpart of their fourth issue, the Kalakondas contend the trial court erred in
confirming the arbitration award because Aspri violated the award before the trial court entered its
judgment confirming the award. As previously noted, the trial court was required to confirm the
award unless the Kalakondas established one of the grounds listed in section 10 of the FAA for
vacating the award. 9 U.S.C. § 9. The Kalakondas do not cite any provision in section 10 of the
FAA listing a violation of the arbitration award before confirmation as a ground for vacating the
award. Accordingly, this issue is overruled.
INTERPRETATION OF ARBITRATION AWARD
In the second subpart of their fourth issue, the Kalakondas contend the trial court erred in
interpreting the arbitration award. From a legal standpoint, the Kalakondas are correct that a trial
court may not interpret an arbitration award to resolve any ambiguities in its scope or application
but must remand the award to the arbitrator with instructions to clarify any ambiguities. See Brown
v. Witco Corp., 340 F.3d 209, 216 (5th Cir. 2003). From a factual standpoint, however, the
Kalakondas’ contention fails because the trial court did not “interpret” the arbitration award.
Instead, the trial court’s judgment states:
On this 1 day of Dec., 2014[,] Plaintiff Aspri Investment[s], LLC presented
its request that this court confirm an Arbitration Award against Defendants,
Shubha, LLC, Hari Prasad Kalakonda and Latha Kalakonda. This Court finds the
Petition is well taken and should be granted. Accordingly, it is
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ORDERED, ADJUDGED AND DECREED that Plaintiff, Aspri
Investments, LLC shall have Judgment against Defendants, Shubha, LLC, Hari
Prasad Kalakonda and Latha Kalakonda for $66,235.15. It is further,
ORDERED, ADJUDGED AND DECREED that if the aforementioned
amounts are not paid in full by November 10, 2014 then all such unpaid sum [sic]
shall continue to bear interest at the rate of six percent (6%) per annum.
All relief not expressly granted herein is denied.
This is a Final Judgment signed this 1 day of Dec., 2014.
The arbitration award contained these same provisions ordering Shubha and the Kalakondas to pay
Aspri $66,235.51 on or before thirty days from the date of the award, which was October 10, 2014,
and requiring Shubha and the Kalakondas to pay interest at the rate of six percent if the sum was
not paid in full by the stated date. Therefore, the trial court’s judgment did not “interpret” the
arbitration award, and this issue is overruled.
CONCLUSION
The trial court’s judgment is affirmed.
Karen Angelini, Justice
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