roberto-ramos-v-javier-perez-individually-hook-and-lateral ( 2011 )

NUMBER 13-10-00350-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI - EDINBURG
ROBERTO RAMOS, Appellant,
v.
JAVIER PEREZ, INDIVIDUALLY,
HOOK AND LATERAL INVESTMENTS,
L.L.C., LIVEX AND AGRO, L.L.C., MONTE
BONITO, L.L.C., NORTHGATE REAL
ESTATE GROUP, L.L.C., P&L PARTNERS,
L.L.C., PARADISE RIO CARWASH, G.P.,
L.L.C., SHARYLAND INVESTORS, LTD.,
AND THE SHARY GROUP, L.L.C., Appellees.
On appeal from the 398th District Court
of Hidalgo County, Texas.
MEMORANDUM OPINION
Before Chief Justice Valdez and Justices Rodriguez and Garza
Memorandum Opinion by Justice Rodriguez
This is an arbitration case. Appellant, Roberto Ramos, filed suit against
appellees, Javier Perez, individually, Hook and Lateral Investments, L.L.C., Livex and
Agro, L.L.C., Monte Bonito, L.L.C., Northgate Real Estate Group, L.L.C., P&L Partners,
L.L.C., Paradise Rio Carwash, G.P., L.L.C., Sharyland Investors, Ltd., and the Shary
Group, L.L.C. (collectively Perez). The parties agreed to arbitrate, and the arbitrator
entered a final award in favor of Ramos. On Perez's motion, the trial court vacated that
award. By his sole issue, Ramos generally contends that the trial court erred in vacating
the arbitrator's award because Perez failed to prove that the arbitrator executed his
powers so imperfectly that no mutual, final, or definite award was rendered.1 We reverse
with instructions to submit to the arbitrator for clarification and, once resolved, to confirm.
I. BACKGROUND
The parties filed various claims and counterclaims against each other disputing,
among other things, ownership interests, contributions made, and actions taken in
relation to Monte Bonito, L.L.C. (the Company), a limited liability corporation formed by
the parties to develop, subdivide, and sell property. Rather than proceed to trial, the
parties agreed to submit their claims to arbitration under the Federal Arbitration Act
(FAA).
1
Ramos also contends that the trial court erred in vacating the arbitrator's award because Perez
failed to prove that the arbitrator was (1) partial or biased and (2) refused to hear pertinent and material
evidence related to accounting principles that were allegedly misapplied which prejudiced Perez's rights.
See 9 U.S.C. § 10(a)(2)–(3) (West 2006). Perez, however, has informed the Court that he does not rely on
these arguments to support his position. Neither does Perez contend that he proved the arbitrator
exceeded his powers. See id. § 10(a)(4). Therefore, to the extent Ramos argues these issues on appeal,
we need not address them. See TEX. R. APP. P. 47.1. In other words, both parties agree that the only
matter before this Court is whether the arbitrator executed his powers so imperfectly that no mutual, final, or
definite award was rendered. See id.
2
The arbitrator conducted a four-day final evidentiary hearing. Upon its
conclusion, due to the complexity of the accounting issues, the arbitrator asked the
parties to submit briefs limited to liability issues. Following submission of the briefs, the
arbitrator issued Amended Interim Order #1 which included the following relevant and
unchallenged liability findings:
7. Respondent Perez breached his fiduciary duty to Claimant [Ramos]
and [the Company] in transferring 15 "repossessed" lots to Hook and
Lateral Investments, LLC in violation of Texas Business
Organizations Code ' 101.225 . . . ; [and]
8. Claimant [Ramos] breached his fiduciary duty to Respondent Perez
and [the Company] in failing to disclose the lien created in favor of
Eva Ramos on the 12 acre tract transferred to the project. [2]
After additional briefing, the arbitrator issued Interim Order #2. That order
determined what accounting priority models would be utilized to reflect the schedule of
assets and liabilities and the schedule of partner capital accounts.3
Finally, the parties submitted closing briefs on the issue of damages and remedies.
In his closing brief, 4 Perez recommended, in relevant part, the following method of
zeroing out the capital accounts and winding up the company—a method which
addresses the issue of the $50,000 lien created by Ramos in favor of his sister-in-law,
Eva Ramos, on the 12 acre tract transferred to the project (the Eva Ramos lien):
2
The "project" is described as the development of a tract of land in Mission, Texas, as a
residential subdivision.
3
Although Perez challenged the accounting process in the trial court, he does not assert on appeal
that this was a basis for vacating the arbitration award.
4
It is undisputed that the arbitration proceeding was not recorded. Other than the arbitrator's final
award, Perez's remedies and damages brief is the only portion of the arbitration proceeding that is part of
the appellate record. Although Perez offered the closing brief and its exhibits at the hearing on his motion
to vacate for the limited purpose of establishing that one of its exhibits—a certain affidavit—had been
submitted to the arbitrator, the trial court admitted the brief and all of its exhibits without limitation and
without objection. On appeal, this brief and its exhibits appear in the reporter's record.
3
Considering [the goal to get Perez and Ramos "split up" thus,
winding down the company by zeroing out the capital accounts of each
member and distributing the assets based upon the respective ownership
interest], utilizing Interim Order #2, Perez believes that the following
distribution is the fairest and most expedient and expeditious way to zero
out the remainder of the capital accounts and divide the company assets
between its members immediately. This distribution would eliminate any
need to continue on [sic] the company with both owners to have to collect
note payments to generate revenue as well as resolve the issues raised by
the respective breaches of fiduciary duties found by the arbitrator.
.....
In order to zero-out Ramos's capital account, Ramos should be paid
the total cash assets in the company, which total $91,201, thereby leaving a
balance owed in the amount of $105,629.
Balance of Ramos Capital: $196,830
Less Cash (Bank/Court): <$91,201>
Balance owing to Ramos: $105,629
However, before Ramos is paid any money, the issue of the $50,000 lien
created in favor of Eva Ramos, which the Arbitrator previously found was a
breach of Ramos's breach of his [sic] fiduciary duty to the company must be
addressed. Thus, the payment of these cash assets should be
conditioned upon a release of lien executed by Eva Ramos or the payment
should be made jointly payable to both Ramos and Eva Ramos, to assure
that no further damages are incurred due to the lien on the property and that
matter is resolved.
After discussing his proposed method of zeroing out the capital accounts and
winding up the company in detail, Perez summarily stated "[i]n short, the 'zeroing out' and
distribution of assets to the members of [the Company] will result in . . . [c]ash paid to
Ramos" in the amount of "$91,201 (subject to Eva Ramos release)." Perez concluded
this portion of his brief on damages and remedies as follows:
This proposal would allow for the fairest and most expedient and
expeditious manner for the zeroing out of capital accounts and the dividing
of the company. A spreadsheet of this distribution is attached as Exhibit
"I". Additionally, this distribution addresses the respective breaches of
fiduciary duties by Perez and Ramos by (1) conditioning the payment of the
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case [sic] to Ramos on obtaining a release from Eva Ramos [5] and (2)
returns the lots transferred to Hook & Lateral and uses those to pay off
capital and distributes the notes to the company members. As such, Perez
urges the Arbitrator to adopt this method for zeroing out the capital
accounts and distributing the assets and thus winding down the company.
On February 23, 2010, the arbitrator entered his final award in favor of Ramos,
basing it, in part, on a statement of zeroing out capital accounts and winding up of the
company, attached as Exhibit "I" to the award. Exhibit "I" and a companion Exhibit "IA,"
modified only for attorney's fees, were otherwise identical to the spreadsheet of the
distribution proposed by Perez and attached to his closing brief as Exhibit "I." The
arbitrator's award closed with the following language: "This Award is in full settlement of
all claims submitted to this Arbitration. All claims not expressly granted herein are
hereby denied."
Nonetheless, on March 29, 2010, Perez moved in the trial court to vacate the
arbitration award, in relevant part, on the basis that the arbitrator executed his powers so
imperfectly that there was no mutual, final, and definite award. See 9 U.S.C. ' 10(a)(4).
At the hearing on the motion to vacate, Perez argued that while the arbitrator found
Ramos breached his fiduciary duty to the Company by entering into an agreement with
his sister-in-law to pay her $50,000 thereby creating a lien on property that was eventually
sold to third parties, the arbitrator made no damage finding in his breach of fiduciary duty
claim. Perez also asserted that the arbitrator did not resolve that issue by either
satisfying the lien or making a requirement that it be satisfied and removed so that title to
the property was clear and the Company did not have a claim filed against it. According
5
Exhibit "I" addressed Perez's recommended disposition of Ramos's breach-of-fiduciary-duty
claim through the following entry under the category of Liabilities: "Pay Cash in Bank and escrow in Court
to Ramos: <$91,201> (Subject to release by Eva Ramos)."
5
to Perez, because this issue remained unresolved, the arbitrator executed his powers so
imperfectly that there was no mutual, final, and definite award.
On June 21, 2010, the trial court granted Perez's motion thereby vacating the
arbitrator's award. It is from the trial court's order that Ramos appeals.
II. STANDARD OF REVIEW AND APPLICABLE LAW
Because it is undisputed that the FAA controlled the arbitration proceedings, we
review de novo the questions regarding whether to vacate the arbitrator's award. See
Kergosien v. Ocean Energy, Inc., 390 F.3d 346, 352 (5th Cir. 2004); 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) (op. on reh'g). All reasonable presumptions are indulged in
favor of the award, and none against it. Statewide Remodeling, Inc. v. Williams, 244
S.W.3d 564, 568 (Tex. App.—Dallas 2008, no pet.).
It is well-settled that such an award can be vacated only for the reasons specified
in section 10(a) of the FAA. 9 U.S.C. § 10(a). That is, section 10(a) permits a court to
vacate an arbitration award only when: (1) the award was procured by corruption, fraud,
or undue means; (2) there was evident partiality or corruption in the arbitrator; (3) the
arbitrator was guilty of refusing to postpone the hearing, failing to hear material evidence,
or misbehaving in a way that prejudiced the rights of any party; or (4) the arbitrator
exceeded his powers or so imperfectly executed them that a mutual, final, and definite
award upon the subject matter submitted was not made. Id.; see Hall St. Assocs., L.L.C.
v. Mattel, Inc., 552 U.S. 576, 578 (2008) (providing that bases for vacatur in section 10 of
the FAA are exclusive).
6
"The party moving to vacate an arbitration award has the burden of proof."
Lummus Global Amazonas S.A. v. Aguaytia Energy del Peru S.R. Ltda., 256 F. Supp. 2d
594, 604 (S.D. Tex. 2002). When seeking to modify or vacate an arbitration award, the
non-prevailing party bears the burden to bring forth a complete record to the trial court to
establish its basis for vacating or modifying the award. See Statewide Remodeling, 244
S.W.3d at 568-69; see also GJR Mgmt. Holdings, L.P. v. Jack Raus, Ltd., 126 S.W.3d
257, 263 (Tex. App.—San Antonio 2003, pet. denied) (stating that without a record, the
court has "no way of judging" whether allegations of arbitrator's gross mistake were
supported). "When there is no transcript of the arbitration hearing, the appellate court
will presume the evidence was adequate to support the award." Statewide Remodeling,
244 S.W.3d at 568.
III. DISCUSSION
By his sole issue, Ramos contends that the trial court erred in vacating the
arbitrator's award pursuant to section 10(a)(4), because all issues, specifically Perez's
breach-of-fiduciary-duty claim, were resolved by the arbitrator. See 9 U.S.C. § 10(a)(4).
Ramos also urges that if we agree that this breach-of-fiduciary-duty claim was resolved
but determine that the award was not final because the arbitrator did not inform the parties
of how to handle the Eva Ramos lien, then the award is only ambiguous. And if it is
ambiguous, Ramos asserts the trial court erred in vacating the award because the proper
remedy would have been to remand the award to the arbitrator for clarification of its intent
regarding the lien.
A. DAMAGES
Ramos contends that the trial court erred in vacating the award on the basis that no
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damages were awarded on Perez's breach of fiduciary duty claim. We agree.
Addressing liability issues in its Amended Interim Order #1, the arbitrator found
that Ramos "breached his fiduciary duty to . . . Perez and [the Company] in failing to
disclose the lien created in favor of Eva Ramos on the 12 acre tract transferred to the
project." The arbitrator "decline[d] to award actual damages" because "there were none
at the time of the filing of the lawsuit." Rather, the arbitrator provided for equitable relief.
He ordered the settlement of the Company, requiring the winding up of a partnership, an
accounting, the distribution of notes, and a reduction of the parties' capital accounts to
zero. See, e.g., ERI Consulting Eng'rs, Inc. v. Swinnea, 318 S.W.3d 867, 872-75 (Tex.
2010) (setting out that "courts may fashion equitable remedies such as profit
disgorgement and fee forfeiture to remedy a breach of fiduciary duty") (citing Johnson v.
Brewer & Pritchard, P.C., 73 S.W.3d 193, 200 (Tex. 2002) (stating the rule that courts
may disgorge any profit where "an agent diverted an opportunity from the principal or
engaged in competition with the principal, [and] the agent or an entity controlled by the
agent profited or benefitted in some way"); Burrow v. Arce, 997 S.W.2d 229, 237 (Tex.
1999) ("[A] person who renders service to another in a relationship of trust may be denied
compensation for his service if he breaches that trust.")); Chien v. Chen, 759 S.W.2d 484,
494 n.6 (Tex. App.—Austin 1988, no writ) (recognizing equitable remedies, including a
constructive trust, as a remedy for breach of fiduciary duty); Hughes v. Houston Nw. Med.
Ctr., Inc., 680 S.W.2d 838, 843 (Tex. App.—Houston [1st Dist.] 1984, writ ref'd n.r.e.)
(acknowledging a constructive trust as a remedy for breach of fiduciary duty that results in
profit or unjust enrichment to the breaching party) (citing Omohundro v. Matthews, 161
Tex. 367, 341 S.W.2d 401, 410 (1960)); see also TEX. BUS. ORGS. CODE ANN. §§
8
11.051(5), 11.314(1)(B) (West Supp. 2010) (providing that a district court has jurisdiction
to order the winding up and termination of the partnership on a partner's application when
the court determines, among other things, that "another partner has engaged in conduct
relating to the partnership business that makes it not reasonably practicable to carry on
the business in partnership with that partner"). Thus, the requested equitable remedies
were available and were ordered by the arbitrator.6 Moreover, because equitable relief
was requested and available, the arbitrator did not need to award actual damages. See
Burrow, 997 S.W.2d at 238-39 (recognizing that a showing of actual damages is not
required to prevail on a claim of breach of fiduciary duty) (relying on Kinzbach Tool Co. v.
Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509, 514 (1942), to reject lack of
damage to plaintiff as negating recovery for breach of fiduciary duty); see also Dairy
Queen, Inc. v. Wood, 369 U.S. 469, 478 (1962) ("The necessary prerequisite to the right
to maintain a suit for an equitable accounting, like all other equitable remedies, is . . . the
absence of an adequate remedy at law.") (citing Beacon Theatres, Inc. v. Westover, 359
U.S. 500, 510 (1959)); Stockton v. Altman, 432 F.2d 946, 950 (5th Cir. 1970).
In addition, the arbitrator's final award stated that it was "in full settlement of all
claims submitted to" arbitration and denied all claims not expressly granted in the award.
This broad language suggests that the arbitrator considered and resolved all claims
submitted, including the damage element of the breach-of-fiduciary-duty claims.
6
Although Perez's counterclaims do not appear in the record, it is undisputed that he filed them.
Moreover, because the arbitrator granted equitable relief in this matter, we must presume that Perez
requested not only actual damages but also equitable relief, as did Ramos. See Statewide Remodeling,
Inc. v. Williams, 244 S.W.3d 564, 568 (Tex. App.—Dallas 2008, no pet.) (providing that all reasonable
presumptions are indulged in favor of the award and none against it).
9
Based on our de novo review, see Kergosien, 390 F.3d at 352; Tanox, 105 S.W.3d
at 250, and indulging all reasonable presumptions in favor of the award and none against
it, see Statewide Remodeling, 244 S.W.3d at 568, we conclude that the arbitrator's award
resolved all issues submitted to arbitration, including the damage element of Perez's
breach-of-fiduciary-duty claim. Thus, the trial court erred in vacating the arbitration
award on the basis that no breach-of-fiduciary-duty damage finding had been made. We
sustain Ramos's issue in that regard.
B. AMBIGUITY
Perez also urged, in his motion to vacate, that the award did not clearly set out
what the parties were to do with regard to the Eva Ramos lien. While Ramos argues on
appeal that there is no such ambiguity, he asserts, in the alternative, that if this Court so
concludes, then the proper remedy is not to vacate the award but to remand the award to
the arbitrator for clarification of that matter. We agree.
When a reviewing court finds part of an award ambiguous, the remedy is to
remand the award to the arbitrator for a full explanation. San Antonio Newspaper Guild
Local No. 25 v. San Antonio Light Div., 481 F.2d 821, 825 (5th Cir. 1973); see Weinberg v.
Silber, 140 F. Supp. 2d 712, 722-23 (N.D. Tex. 2001); see also In re Nestle
USA—Beverage Div., Inc., 82 S.W.3d 767, 778 (Tex. App.—Corpus Christi 2002, orig.
proceeding).
In this case, the award discussed an amount of cash, $91,201, to be paid to
Ramos. The arbitrator incorporated Exhibit "I" into his final award. This exhibit,
adopted from Perez's closing brief, set out that the cash in the bank and in escrow in the
court to be paid to Ramos—the $91,201—was subject to "release by Eva Ramos." The
10
arbitrator also stated in the opening paragraph of his final award that he considered all
arguments presented by the parties. Based on this language, the arbitrator considered
the following argument urged by Perez in his closing brief:
[T]he payment of these cash assets should be conditioned upon a
release of lien executed by Eva Ramos or the payment should be made
jointly payable to both Ramos and Eva Ramos, to assure that no further
damages are incurred due to the lien on the property and that matter is
resolved," . . . [and] this distribution[, summarized in Exhibit "I"] addresses
the respective breaches of fiduciary duties by . . . Ramos by . . . conditioning
the payment of the case [sic] to Ramos on obtaining a release from Eva
Ramos.
Perez's proposal would have allowed for the release of the lien so that the money could
have been paid to Ramos.
While stating that the payment of the money to Ramos was subject to a release
from Eva Ramos and considering this proposal, the arbitrator did not, however, expressly
inform the parties as to what should be done regarding the lien. Therefore, we cannot
conclude that the award's language is dispositive as to how the parties should handle that
part of the award, the referenced lien. The language provides no guidance. Instead, it
is ambiguous.
Because the award did not clearly set out what the parties were to do with regard to
the Eva Ramos lien, the trial court properly concluded the award was ambiguous and that
the arbitrator executed his powers so imperfectly that no mutual, final, or definite award
was rendered. See 9 U.S.C. ' 10(a)(4). Thus, we overrule Ramos's issue to the extent
he challenges the ambiguity of the award as the basis for the trial court's vacatur.
However, because the proper remedy for an ambiguous award is to remand it to
the arbitrator for a full explanation and clarification, see San Antonio Newspaper Guild,
11
481 F.2d at 825, we agree with Ramos that the trial court erred in vacating the award.
Rather, the trial court should have remanded the matter of the Eva Ramos lien to the
arbitrator for clarification. See id. Therefore, we sustain this issue on the basis of
Ramos's alternative remedy argument.
IV. CONCLUSION
Accordingly, we reverse the order of the trial court and remand this cause to the
trial court with instructions to submit the matter to the arbitrator for clarification of the
process by which the parties should address the Eva Ramos lien and, once resolved, to
enter an order confirming the arbitration award.
NELDA V. RODRIGUEZ
Justice
Delivered and filed the
11th day of August, 2011.
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