Good Times Stores, Inc. v. Martha MacIas , 2011 Tex. App. LEXIS 4326 ( 2011 )

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
§
GOOD TIMES STORES, INC., No. 08-10-00047-CV
§
Appellant, Appeal from
§
v. 346th District Court
§
MARTHA MACIAS, of El Paso County, Texas
§
Appellee. (TC # 2009-2920)
§
OPINION
Good Times Stores, Inc. brings this accelerated interlocutory appeal from an order vacating
the arbitrator’s decision. TEX .CIV .PRAC.&REM .CODE ANN . § 51.016 (West Supp. 2010). We
reverse the trial court’s order vacating the arbitration award and render judgment confirming the
arbitrator’s decision.
FACTUAL SUMMARY
On March 24, 2008, Macias filed suit against Good Times alleging she had suffered an on-
the-job injury on July 13, 2006, although she had previously agreed to arbitrate all injury-related
issues. It is undisputed that the arbitration agreement required Macias to seek arbitration and to give
notice of her intent to arbitrate her claims within the applicable limitations period or her claim would
be waived.
On September 2, 2008, the trial court signed an agreed order dismissing the suit against Good
Times without prejudice and referring the dispute to final and binding arbitration in accordance with
the arbitration agreement. Macias filed written notice of intent to arbitrate with the FAA on
January 8, 2009. Good Times filed a motion requesting that the arbitrator dismiss the arbitration
proceeding because Macias had not initiated arbitration within the applicable two-year limitations
period. It additionally argued, citing Section 16.064 of the Civil Practice and Remedies Code,1 that
Macias had not initiated her arbitration claim within sixty days after the trial court signed the
dismissal order. The arbitrator granted the motion to dismiss noting that Macias had failed to
explain her delay in initiating arbitration following dismissal of her suit.
Before the arbitrator ruled on Good Times’ motion to dismiss, Macias filed a petition for bill
of review seeking to set aside the agreed dismissal order. After the arbitrator dismissed the
arbitration proceeding, Macias amended the bill of review to include an application to vacate the
arbitrator’s decision under Section 171.088 of the Civil Practice and Remedies Code. Good Times
answered and filed an application to confirm the arbitrator’s decision. It also filed a motion for
summary judgment with respect to both the bill of review and Macias’ application to vacate the
arbitrator’s decision. In a supplemental memorandum filed at the request of the trial court after the
summary judgment hearing, Macias argued that Section 16.064 was inapplicable to her arbitration
claim because the agreed dismissal order was not final. The trial court denied Good Times’ motion
for summary judgment and granted Macias’ application to vacate the arbitrator’s decision. Good
Times appeals.
NO BASIS FOR VACATUR
In its sole issue on appeal, Good Times contends that there is no basis for vacating the
arbitrator’s decision.
1
Section 16.064(a) provides that: (a) The period between the date of filing an action in a trial court and the
date of a second filing of the same action in a different court suspends the running of the applicable statute of limitations
for the period if: (1) because of lack of jurisdiction in the trial court where the action was first filed, the action is
dismissed or the judgment is set aside or annulled in a direct proceeding; and (2) not later than the 60th day after the date
the dismissal or other disposition becomes final, the action is commenced in a court of proper jurisdiction.
T EX .C IV .P RAC .&R EM .C O D E A N N . § 16.064(a)(W est 2008).
Appellate Jurisdiction
It is undisputed that the Federal Arbitration Act (“FAA”) applies to this proceeding. See 9
U.S.C.A. §§ 1-16 (West 2009). Section 51.016 of the Civil Practice and Remedies Code permits an
appeal from the judgment or interlocutory order from a district court under the same circumstances
that an appeal from a federal district court’s order or decision would be permitted by 9 U.S.C.
Section 16. TEX .CIV .PRAC.&REM .CODE ANN . § 51.016 (West Supp. 2010). Under the FAA, an
appeal may be taken from an order modifying, correcting, or vacating an award. 9 U.S.C.A. §
16(a)(1)(E). Accordingly, we have jurisdiction to hear Good Times’ appeal from the trial court’s
order vacating the arbitrator’s decision.
Standard of Review
A trial court’s order confirming or vacating an arbitration award under the FAA is subject
to de novo review. Garza v. Phelps Dodge Refining Corporation, 262 S.W.3d 514, 517 (Tex.App.--
El Paso 2008, no pet.)(order confirming arbitration award); In re Chestnut Energy Partners, Inc.,
300 S.W.3d 386, 397 (Tex.App.--Dallas 2009, orig. proceeding)(order vacating arbitration award).
We apply the FAA to substantive matters and follow Texas law for procedural matters. See In re
Chestnut Energy Partners, Inc., 300 S.W.3d at 399.
Bases for Vacating the Arbitrator’s Decision
Under the FAA, an arbitration award must be confirmed unless it is vacated, modified, or
corrected pursuant to one of the limited grounds set forth in Sections 10 and 11 of the FAA. See 9
U.S.C. §§ 9-11. Section 10(a) provides that a trial court may vacate an arbitration award upon the
application of any party to the arbitration:
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of
them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the
hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and
material to the controversy; or of any other misbehavior by which the rights of any
party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that
a mutual, final, and definite award upon the subject matter submitted was not made.
9 U.S.C. § 10(a)(1)-(4). The bases for vacatur in Section 10 of the FAA are exclusive. Hall Street
Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S. Ct. 1396, 1404, 170 L. Ed. 2d 254 (2008).
Macias raised the following grounds in the trial court for vacating the arbitrator’s decision:
(1) the award was obtained by corruption, fraud, or other undue means;
(2) the arbitrator exceeded his powers and scope of his authority by willfully
ignoring Texas law regarding the statute of limitations and by enforcing the provision
in the arbitration agreement regarding the statute of limitations;
(3) the award was arbitrary and capricious and resulted in a manifest injustice of law;
and
(4) the arbitrator’s decision is contrary to public policy because it diminished
Macias’s rights under Texas law.
Corruption, Fraud, or Other Undue Means
Under the FAA, a party who alleges that an arbitration award was procured through
corruption, fraud, or undue means must demonstrate that the improper behavior was (1) not
discoverable by due diligence before or during the arbitration hearing, (2) materially related to an
issue in the arbitration, and (3) established by clear and convincing evidence. See Roehrs v. FSI
Holdings, Inc., 246 S.W.3d 796, 810-11 (Tex.App.--Dallas 2008, pet. denied); Trans Chemical Ltd.
v. China National Machinery Import and Export Corporation, 161 F.3d 314, 319 (5th Cir.
1998)(adopting the analysis of In re Arbitration Between Trans Chemical Ltd. & China National
Machinery Import & Export Corporation, 978 F. Supp. 266, 304 (S.D.Tex. 1997); Gingiss
International, Inc. v. Bormet, 58 F.3d 328, 333 (7th Cir. 1995). Although “fraud” and “undue
means” are not defined in Section 10(a) of the FAA, courts interpret the terms together. In re
Arbitration Between Trans Chemical Ltd. & China National Machinery Import & Export
Corporation, 978 F. Supp. at 304. Fraud requires a showing of bad faith during the arbitration
proceedings, such as bribery, undisclosed bias of an arbitrator, or willfully destroying or withholding
evidence. Roehrs, 246 S.W.3d at 812; In re Arbitration Between Trans Chemical Ltd. & China
National Machinery Import & Export Corporation, 978 F. Supp. at 304 . “Undue means” connotes
behavior that is “immoral if not illegal” or otherwise in bad faith. In re Arbitration Between Trans
Chemical Ltd. & China National Machinery Import & Export Corporation, 978 F. Supp. at 304;
A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1403-04 (9th Cir. 1992). Section
10(a)(1) also requires a nexus between the alleged fraud or undue means and the basis for the
arbitrator’s decision. In re Arbitration Between Trans Chemical Ltd. & China National Machinery
Import & Export Corporation, 978 F. Supp. at 304; Forsythe International S.A. v. Gibbs Oil Co. of
Texas, 915 F.2d 1017, 1022 (5th Cir. 1990).
In her pleadings, Macias alleged that as a result of Good Times filing its motion to dismiss
based on her failure to initiate arbitration within the applicable limitations period, she was
“fraudulently precluded from sustaining legal or equitable relief by the fraudulent and wrongful acts
of [Good Times].” This is the sole basis of her assertion that the arbitration award was procured by
fraud or undue means. Macias has not alleged or proven any immoral or illegal behavior nor has she
shown that Good Times acted in bad faith by seeking dismissal of the arbitration based upon Macias’
failure to comply with the agreement’s requirements. Further, Macias has not shown that Good
Times’ conduct was not discoverable by due diligence during the arbitration hearing as it was an
issue addressed by the parties during the arbitration proceedings. We conclude that this ground
would not support the trial court’s decision to vacate the arbitrator’s decision.
Exceeding Scope of Authority
Macias also sought to have the arbitrator’s decision vacated because it was beyond the scope
and authority of the arbitrator. This argument falls within Section 10(a)(4) of the FAA which
provides that an arbitration award may be vacated “where the arbitrators exceeded their powers.”
9 U.S.C.A. § 10(a)(4). An arbitrator’s authority is limited to disposition of matters expressly covered
by the agreement or implied by necessity. Ancor Holdings, LLC v. Peterson, Goldman & Villani,
Inc., 294 S.W.3d 818, 829 (Tex.App.--Dallas 2009, no pet.). Arbitrators, therefore, exceed their
powers when they decide matters not properly before them. Ancor Holdings, 294 S.W.3d at 829.
The issue to be decided is whether the arbitrator had the authority, based on the arbitration clause
and the parties’ submissions, to reach a certain issue, not whether the arbitrator correctly decided the
issue. Id.; Executone Information Systems, Inc. v. Davis, 26 F.3d 1314, 1323 (5th Cir. 1994).
Section 10(a)(4) does not authorize an arbitration award to be vacated for errors in interpretation or
application of the law or facts. Ancor Holdings, 294 S.W.3d at 830.
The arbitration agreement contained the following provision in the section entitled “Required
Notice of All Claims”:
When you seek arbitration, you must give written notice of any claim to the other
party within the applicable statute of limitations. The day the act complained of
occurred will be counted for purposes of determining the applicable period. If such
notice is not given, the claim shall be void and deemed waived.
Macias’ personal injury claim is subject to a two-year statute of limitations. See TEX .CIV .PRAC.&
REM .CODE ANN . § 16.003(a)(West Supp. 2010). Because Macias did not request arbitration or
provide notice until after the statute of limitations had expired, Good Times moved for dismissal of
the arbitration based on this provision in the arbitration agreement. Relying on Section 16.064 of
the Civil Practice and Remedies Code, Good Times additionally argued that Macias should have
filed her request for arbitration within sixty days after the court dismissed the first suit. See
TEX .CIV .PRAC.&REM .CODE ANN . § 16.064 (West 2008). Thus, the arbitrator decided a matter
which was properly before him based on the arbitration agreement and the parties’ submissions.
Macias argued in the trial court that the “required notice” provision is unenforceable for a
variety of reasons, including that it is unconscionable and contravenes the Open Courts provision
of the Texas Constitution. Although Macias alleged that the arbitrator exceeded his authority by
dismissing the arbitration proceeding pursuant to the “required notice” provision, her argument is
actually a complaint that the arbitrator committed an error of law by applying the provision. See
Ancor Holdings, 294 S.W.3d at 829 (“Although Ancor’s first argument is couched in terms of
whether the arbitrator exceeded her powers, Ancor’s argument is actually a complaint that the
arbitrator committed an error of law.”). A complaint that the arbitrator decided the issue incorrectly
or made mistakes of law, however, is not a complaint that the arbitrator exceeded his powers under
Section 10(a)(3). Id. This ground would not support the trial court’s decision to vacate the
arbitrator’s decision.
Imperfect Execution of Powers
Macias additionally suggests that the trial court’s decision may be upheld on the basis of
Section 10(a)(4) because the arbitrator so imperfectly executed his powers that a mutual, final, and
definite award upon the subject matter was not made. We keep in mind the general rule that as long
as the arbitrator is even arguably construing or applying the contract and acting within the scope of
his authority, the decision will not be overturned even if the reviewing court is convinced that the
arbitrator made a serious error. United Paperworkers International Union, AFL-CIO v. Misco, Inc.,
484 U.S. 29, 38, 108 S. Ct. 364, 370-71, 98 L. Ed. 2d 286 (1987).
Citing In the Matter of the Arbitration Between Union Appointed Trustees of the Tapers
Industry Insurance and Annuity Funds v. Employer-Appointed Trustees of the Tapers Industry
Insurance and Annuity Funds, 714 F. Supp. 104 (S.D.N.Y. 1989), Macias complains that the
arbitrator did not even arguably construe or apply the arbitration agreement or applicable law
because the arbitrator refused to consider Macias’s complaint that Good Times wrongfully filed its
motion to compel arbitration in the original civil action after the two-year statute of limitations had
expired. In that case, the federal district court vacated the arbitrator’s award because the arbitrator
did not even arguably construe the collective bargaining agreement but instead based his decision
on what previous judges had said about the agreement. Id., 714 F.Supp. at 106. The instant case is
distinguishable.
The arbitrator’s order granting Good Times’ motion to dismiss is nearly three pages in length
and it sets forth the primary procedural events and the dates on which they occurred, including the
date of injury, the date Macias filed suit, the date of the trial court’s dismissal order, and the date on
which Macias initiated the arbitration proceedings. The arbitrator did not make a finding as to the
date on which Good Times filed its motion to dismiss. The order stated in paragraph 7 as follows:
Complainant complains that Respondent filed its motion to compel arbitration in the
original civil action after the expiration of the two year statute of limitation. Nothing
has been presented to the Arbitrator whether the filing of Respondents motion to
compel arbitrator [sic] was presented to District Judge Barill. Judge Barill’s final
order dismisses the underlining action without prejudice and directs the dispute
proceed according the Arbitration Agreement. In light of Tex. Civ. Prac. & Rem.
Code Section 16.064, Arbitrator finds such contention by Claimant is one which
could have been raised before District Judge Barill. Whether or not Claimant is
correct in her assertion, she does not address why the arbitration was not timely filed
in light of Section 16.064. [Emphasis added].
The arbitrator concluded that the two-year statute of limitations applied to Macias’s personal injury
claim, but the statute of limitations was suspended under Section 16.064 for sixty days from the date
on which the dismissal order was signed. Because Macias had not initiated the arbitration
proceeding within that sixty-day time period and had not explained the reason for her failure to do
so, the arbitrator granted Good Times’ motion to dismiss.
We disagree with Macias’s assertion that the arbitrator did not independently construe Texas
law as required by the arbitration agreement. Unlike Tapers Industry, the record in this case reflects
that the arbitrator construed the arbitration agreement and Texas law on limitations and concluded
that Macias had not timely initiated the arbitration proceeding. The highlighted portion of the order
indicates that the arbitrator found this issue to be dispositive. We have found no authority that an
arbitrator imperfectly executes his powers by refusing to address all issues after deciding an issue
that is dispositive of the entire dispute and we decline to so hold.
Common Law Grounds
Macias also sought to vacate the arbitrator’s decision on the common law grounds that it was
arbitrary and capricious and the decision was contrary to public policy because it diminished
Macias’s rights under Texas law. The Supreme Court held in Hall Street that the grounds found in
Section 10 are the exclusive grounds for vacating an arbitration award under the FAA. Hall Street,
552 U.S. at 586, 128 S.Ct. at 1404. The cases relied on by Macias in support of her common law
grounds pre-date Hall Street. See Brown v. ITT Consumer Financial Corporation, 211 F.3d 1217,
1222 (11th Cir. 2000)(common law ground for vacating an arbitration award under the FAA includes
when an award is arbitrary or capricious); Ainsworth v. Skurnick, 960 F.2d 939, 940-41 (11th Cir.
1992)(arbitration award may be vacated as arbitrary and capricious when court cannot infer any
ground for the awards from the facts); U.S. Postal Service v. National Association of Letter Carriers,
847 F.2d 775, 778-79 (11th Cir. 1988)(award may be vacated as arbitrary and capricious if it exhibits
a wholesale departure from the law). Hall Street precludes the use of any common-law grounds as
an independent basis for vacatur of an arbitration award. See Royce Homes, L.P. v. Bates, 315
S.W.3d 77, 90 (Tex.App.--Houston [1st Dist.] 2010, no pet.)(holding that common law grounds,
such as manifest disregard of law and gross mistake, were not valid grounds for vacatur of arbitration
award as Hall Street forecloses any common law grounds for vacatur); LeFoumba v. Legend Classic
Homes, Ltd., No. 14–08–00243–CV, 2009 WL 3109875, at *2, (Tex.App.--Houston [14th Dist.]
September 17, 2009, no pet.)(mem.op.)(complaint that arbitration award violates public policy is not
viable ground for vacating an award under the FAA); see also Citigroup Global Markets., Inc. v.
Bacon, 562 F.3d 349, 350 (5th Cir. 2009)(holding that Hall Street restricts the grounds for vacatur
to those set forth in Section 10 of the FAA). Accordingly, we conclude that the common law
grounds relied on by Macias do not support the trial court’s order vacating the arbitrator’s decision.
For the foregoing reasons, we sustain the sole issue presented on appeal. We reverse the trial court’s
order vacating the arbitrator’s award and render judgment confirming the award.
June 8, 2011
ANN CRAWFORD McCLURE, Justice
Before Chew, C.J., McClure, and Rivera, JJ.