Hill International, Inc. v. Riverside General Hospital, Inc. ( 2014 )

Opinion issued May 29, 2014.
In The
Court of Appeals
For The
First District of Texas
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NO. 01-14-00038-CV
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HILL INTERNATIONAL, INC., Appellant
V.
RIVERSIDE GENERAL HOSPITAL, INC., Appellee
On Appeal from the 234th District Court
Harris County, Texas
Trial Court Case No. 2013-63359
MEMORANDUM OPINION
In this breach–of–contract case, Hill International, Inc. and Riverside
General Hospital, Inc. arbitrated their dispute, pursuant to their contractual
agreement to arbitrate. An arbitrator awarded damages to Hill for breach of
contract, but denied Hill’s claims for pre–judgment interest, attorney’s fees, and
costs, and also offset the award with Riverside’s contract damages. Hill moved in
the trial court to modify or vacate the arbitration award. The trial court denied
Hill’s request. On appeal, Hill contends that the trial court erred because (1) the
arbitrator exceeded his authority by offsetting the damages; and (2) the arbitrator
committed a gross mistake in applying contract interpretation law and in failing to
award fees and costs. Finding no error, we affirm.
Background
In January 2009, Hill agreed to provide construction management services
for repairs and renovations to Riverside’s buildings in exchange for payment from
Riverside. The agreement provided: “All claims, disputes, and other matters in
question between the Parties to this Agreement arising out of or relating to this
Agreement or the breach thereof . . . shall be submitted to binding arbitration.” It
also stated: “This agreement may be terminated by either party upon thirty (30)
days written notice.” Riverside did not remit several payments to Hill due under
the agreement. On January 25, 2010, Hill notified Riverside that it would
terminate the contract. On February 5, 2010, Hill ceased providing services,
terminating the contract.
Course of proceedings
Hill sued Riverside in federal district court. The federal district court
ordered the parties to arbitrate their dispute and dismissed the suit. Hill demanded
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arbitration through the American Arbitration Association. The Honorable Dwight
Jefferson conducted an arbitration hearing; at its conclusion, he awarded Hill
$108,316.21 in damages plus $37,574 in contractual carrying charges for
Riverside’s breach of contract. He offset this award with $18,693 in damages for
Hill’s failure to give adequate notice of termination, and $13,725 in damages for
Hill’s breach of the arbitration provision. He denied Hill’s requests for attorney’s
fees and costs of arbitration.
Hill then applied to state district court to modify or vacate the offsets, and it
requested pre–judgment interest, attorney’s fees, and costs. Hill included a
transcript of the arbitration hearing and attached the arbitrator’s award to its
motion. After conducting an oral hearing, the trial court denied Hill’s application.
Discussion
Hill contends that the trial court erred in refusing to modify the award to
delete the offsets and to include pre-judgment interest, attorney’s fees, and costs,
because it is evident from the record that the arbitrator both exceeded his authority
and committed a gross mistake in his decision.
Standard of review
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.). Our review of an arbitration decision is “extremely narrow”
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because Texas law favors arbitration. Universal Computer Sys., Inc. v. Dealer
Solutions, L.L.C., 183 S.W.3d 741, 752 (Tex. App.—Houston [1st Dist.] 2005, pet.
denied) (quoting IPCO–G.&C. Joint Venture v. A.B. Chance Co., 65 S.W.3d 252,
256 (Tex. App.—Houston [1st Dist.] 2001, pet. denied)). Judicial review focuses
on “the integrity of the process, not the propriety of the result.” Jones v. Brelsford,
390 S.W.3d 486, 492 (Tex. App.—Houston [1st Dist.] 2012, no pet.). An
arbitration award has the same effect as the judgment of a court of last resort, and a
reviewing court may not substitute its judgment for that of the arbitrators merely
because it would have reached a different result. J.J. Gregory Gourmet Servs., Inc.
v. Antone’s Imp. Co., 927 S.W.2d 31, 33 (Tex. App.—Houston [1st Dist.] 1995, no
writ). Review is so limited that a court may not vacate an arbitration award even if
it is based upon a mistake of fact or law. Universal Computer Sys., 183 S.W.3d at
752.
Scope of authority
Pursuant to the Texas General Arbitration Act, we vacate an arbitration
award if an arbitrator exceeds his powers. TEX. CIV. PRAC. & REM. CODE ANN.
§ 171.088(a)(3)(A) (West 2011). “[T]he authority of arbitrators is derived from
the arbitration agreement and is limited to a decision of the matters submitted
therein either expressly or by necessary implication.” Gulf Oil Corp. v. Guidry,
327 S.W.2d 406, 408 (Tex. 1959), quoted in City of Pasadena v. Smith, 292
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S.W.3d 14, 20 n.41 (Tex. 2009). In determining the scope of an arbitrator’s
authority, we look to the language of the arbitration agreement. Royce Homes, 315
S.W.3d at 86–87; see also City of Baytown v. C.L. Winter, Inc., 886 S.W.2d 515,
518 (Tex. App.—Houston [1st Dist.] 1994, writ denied) (“In light of the broad
arbitration clause in the contract, the arbiters did not exceed their authority.”);
Baker Hughes Oilfield Operations, Inc. v. Hennig Prod. Co., Inc., 164 S.W.3d 438,
444 (Tex. App.—Houston [14th Dist.] 2005, no pet.) (“A broad arbitration
provision . . . subsumes any controversy or claim arising out of or relating to [a
party’s] services [under the contract].”).
The construction contract states: “All claims, disputes, and other matters in
question between the Parties to this Agreement arising out of or relating to this
Agreement or the breach thereof . . . shall be submitted to binding arbitration.” At
arbitration, Riverside complained that Hill breached the contract’s notice
provision. Riverside’s claim arises out of and relates to the agreement and thus
falls within the arbitrator’s authority. See Royce Homes, 315 S.W.3d at 86–87;
City of Baytown, 886 S.W.2d at 518; Baker Hughes, 164 S.W.3d at 444.
Hill contends that the Riverside did not submit its counterclaims to the
arbitrator via an arbitration demand, and the parties presented no evidence that the
early cancellation damaged Riverside; thus, it argues, the arbitrator exceeded his
authority in offsetting Hill’s damages with Riverside’s. Our sister court of appeals,
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however, rejected a similar argument in Baker Hughes. See 164 S.W.3d at 444.
There, a party complained that an arbitration panel exceeded its authority by
deciding a claim that had not been pleaded. Id. After examining the broad
language of the arbitration provision, the court held that, despite the claim having
not been specifically pleaded, the arbitration panel had not exceeded its authority
by deciding it. Id. Similarly, Riverside’s claim arises out of the parties’
agreement, and, contrary to Hill’s assertions, the arbitrator found that the parties
had tried by consent the issue of whether Hill had breached the notice–of–
termination provision, necessarily adducing evidence on the matter. Accordingly,
the trial court did not err in concluding that the arbitrator’s award was authorized
by the parties. See id. (holding that arbitration panel had authority to decide
unpleaded claim); Universal Computer Sys., 183 S.W.3d at 752–53 (deferring to
arbitrators’ findings).
Gross mistake
Hill contends that the trial court should have found a gross mistake in the
arbitrator’s award because (1) he offset the damages with damages relating to
Hill’s failure to provide adequate notice of termination and filing lawsuit, contrary
to Texas contract interpretation principles; and (2) he failed to award Hill pre–
judgment interest, attorney’s fees, and costs, authorized under Chapter 38 of the
Civil Practice and Remedies Code.
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Texas common law allows a reviewing court to set aside an arbitration
award “only if the decision is tainted with fraud, misconduct, or gross mistake as
would imply bad faith and failure to exercise honest judgment.” Universal
Computer Sys., 183 S.W.3d at 752 (quoting IPCO, 65 S.W.3d at 256) (internal
quotation omitted).1 “Gross mistake results in a decision that is arbitrary or
capricious. An honest judgment made after due consideration given to conflicting
claims, however erroneous, is not arbitrary or capricious.” Bailey & Williams v.
Westfall, 727 S.W.2d 86, 90 (Tex. App.—Dallas 1987, writ ref’d n.r.e.), quoted in
Universal Computer Sys., 183 S.W.3d at 752. The party seeking to vacate an
arbitration award must demonstrate the gross mistake. Universal Computer Sys.,
183 S.W.3d at 752 (citing Anzilotti v. Gene D. Liggin, Inc., 899 S.W.2d 264, 267
(Tex. App.—Houston [14th Dist.] 1995, no writ)).
Hill contends that Riverside’s earlier material breach of the contract excused
Hill from its obligations under the contract to provide notice of termination and to
demand arbitration; thus, the arbitrator erred in offsetting Hill’s requested damages
with Riverside’s damages associated with early termination and defending Hill’s
federal suit. See Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195,
196 (Tex. 2004). But it is not our province to determine the proper construction of
1
In light of Callahan & Associates v. Orangefield Independent School District, we
assume without deciding that Hill may rely on the common law gross–mistake
standard in seeking to modify or vacate the arbitration award. 92 S.W.3d 841, 844
(Tex. 2002).
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the parties’ agreement, nor the damages arising therefrom. See Universal
Computer Sys., 183 S.W.3d at 753. Rather, we confine our review to whether the
arbitrator’s interpretation of the contract constitutes bad faith or a failure to
exercise honest judgment. See id. Nothing in the record suggests as much, and
Hill does not point to anything, other than its disagreement with the arbitrator’s
method of contract interpretation and application of the law to the facts at hand.
Without more, the arbitrator’s legal conclusion that Riverside’s breach did not
excuse Hill from complying with the notice–of–termination and arbitration
provisions is not arbitrary or capricious.
The same is true for the arbitrator’s denial of interest, fees, and costs.
Relying on Johnson & Higgins of Texas, Inc. v. Kenneco Energy Inc., 962 S.W.2d
507 (Tex. 1998), and Bituminous Casualty Corp. v. Vacuum Tanks Inc., 75 F.3d
1048 (5th Cir. 1996), Hill contends that the arbitrator committed a gross mistake
by failing to award it pre–judgment interest. But these cases discuss pre–judgment
interest on judgments rendered by courts, not on awards rendered by arbitrators.
Johnson & Higgins, 962 S.W.2d at 531; Bituminous, 75 F.3d at 1057. In the
context of the Federal Arbitration Act, we have held that a party denied pre–
judgment interest in arbitration is not otherwise entitled to it upon confirmation of
the arbitration award, neither under the FAA nor any applicable Texas statute.
Thomas Petroleum, Inc. v. Morris, 355 S.W.3d 94, 99 (Tex. App.—Houston [1st
8
Dist.] 2011, pet. denied); Fogal v. Stature Constr., Inc., 294 S.W.3d 708, 722 (Tex.
App.—Houston [1st Dist.] 2009, pet. denied). Likewise, the arbitrator’s decision
to deny any award of attorney’s fees under section 38.001 of the Civil Practice and
Remedies Code is a determination left to the purview of the arbitrator and not
reviewable on appeal absent a showing of bad faith or a failure to exercise honest
judgment. See Providian Bancorp Servs. v. Thomas, 255 S.W.3d 411, 417 (Tex.
App.—El Paso 2008, no pet.). Hill shows no evidence of bad faith by the
arbitrator. Accordingly, we hold that that the arbitrator did not commit a gross
mistake. See Universal Computer Sys., 183 S.W.3d at 752.
Conclusion
We hold that the arbitrator neither exceeded his authority nor committed a
gross mistake. We therefore affirm the trial court’s order.
Jane Bland
Justice
Panel consists of Justices Jennings, Bland, and Massengale.
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