in Re Irving Drobny, as Representative of National Accident Insurance Group and National Accident Insurance Underwriters

ACCEPTED
01-15-00435-CV
FIRST COURT OF APPEALS
HOUSTON, TEXAS
10/16/2015 6:43:59 PM
CHRISTOPHER PRINE
CLERK
NO. 01-15-435-CV
FILED IN
1st COURT OF APPEALS
IN THE COURT OF APPEALS HOUSTON, TEXAS
10/16/2015 6:43:59 PM
FIRST DISTRICT OF TEXAS, HOUSTON
CHRISTOPHER A. PRINE
Clerk
IRVING DROBNY, as representative of NAIU and NAIC,
Appellant
v.
AMERICAN NATIONAL INSURANCE COMPANY,
Appellee
APPELLEE’S BRIEF
Janet L. Rushing
State Bar No. 17403100
Roni S. Mihaly
State Bar No. 24027899
David J. Booth
State Bar No. 24034333
Greer, Herz & Adams, L.L.P.
2525 South Shore Blvd., Suite 203
League City, Texas 77539
(409) 797-3204 (Phone)
(281) 538-3791 (Fax)
ORAL ARGUMENT REQUESTED
IDENTITY OF PARTIES AND COUNSEL
1) Irving Drobny, as representative of NAIU and NAIC, is Appellant.
2) Counsel for Appellant is:
Savannah Robinson
State Bar No. 17108150
1822 Main
Danbury, Texas 77534
3) American National Insurance Company is Appellee.
4) Counsel for Appellee is:
Janet L. Rushing
State Bar No. 17403100
Roni S. Mihaly
State Bar No. 24027899
David J. Booth
State Bar No. 24034333
Greer, Herz & Adams, L.L.P.
2525 South Shore Blvd., Suite 203
League City, Texas 77539
ii
TABLE OF CONTENTS
Identity of Parties and Counsel ...................................................................................i
Index of Authorities ..................................................................................................iv
Statement of the Case................................................................................................. 1
Oral Argument ........................................................................................................... 1
Issue Restated ............................................................................................................. 1
The Record ................................................................................................................. 2
Procedural History ..................................................................................................... 2
Statement of Facts ...................................................................................................... 5
Summary of the Argument......................................................................................... 9
Argument.................................................................................................................. 10
I. This Court lacks jurisdiction to consider this appeal .......................... 10
A. Tex. Civ. Prac. & Rem. Code §171.098(a)(1) does not confer
jurisdiction on this Court for interlocutory appeal ................... 10
B. Tex. Civ. Prac. & Rem. Code §51.014(d) does not confer
jurisdiction on this Court for interlocutory appeal ................... 11
C. NAIU has not established entitlement to mandamus relief ...... 12
D. No other basis for jurisdiction exists ........................................ 13
1. The May 1, 2015 order is not a final, appealable
judgment and no appellate jurisdiction exists under Tex.
Civ. Prac. & Rem Code §51.012 .................................... 13
2. No statutory basis for interlocutory jurisdiction exists . 14
II. The trial court properly denied NAIU’s Motion because it lacked the
authority to vacate the Prehearing Security Order .............................. 15
A. The Federal Arbitration Act applies to the underlying
arbitration .................................................................................. 15
iii
B. Despite the title of its Motion, NAIU sought to vacate the
Prehearing Security Award ....................................................... 16
C. Regardless of whether the Prehearing Security Order was an
“award” subject to review under the FAA, the trial court lacked
the authority to vacate the award .............................................. 16
1. If the Prehearing Security Order is not an “award” the
trial court cannot review that Order................................ 17
2. If the Prehearing Security Order is an “award”
reviewable under the FAA, the trial court still could not
review it because NAIU’s Motion was untimely .......... 18
a. Prehearing security orders are “awards” under the
FAA and are reviewable ....................................... 18
b. The trial court lacked authority to vacate the
Prehearing Security Order because NAIU’s motion
to vacate that award was untimely ....................... 19
III. Even if the trial court could consider NAIU’s Motion, the trial court
did not err in denying that Motion because the arbitrators did not
exceed their authority; they interpreted the parties’ contract and
applied relevant case law..................................................................... 23
A. Judicial review of an arbitration award is “exceedingly narrow”
and arbitrators do not exceed their authority if they, even
arguably, interpret the contract between the parties ................. 23
B. The arbitration panel construed the Underwriting Agreement
and, for that reason, the trial court did not err in denying
NAIU’s motion to vacate the Prehearing Motion ..................... 24
C. Whether the arbitration panel misconstrued the Underwriting
Agreement is not relevant to whether or not the trial court could
vacate the Prehearing Security Order on the ground that the
arbitrators exceeded their authority .......................................... 26
IV. NAIU’s arguments related to the Discovery Order are meritless
because the Discovery Order was never placed in front of the trial
court for review, but even if it had been, the trial court could not
iv
vacate the Discovery Order because it is not an “award,” and thus not
subject to review by the court ............................................................. 29
A. This Court should decline to consider NAIU’s argument that
the trial court should have vacated the Discovery Order because
the issue was never presented to the trial court and the trial
court never ruled on the Discovery order ................................. 29
B. The Discovery Order is not an “award” under the FAA and
cannot be reviewed by a court .................................................. 30
V. The court cannot impose procedural rules on the underlying
arbitration ............................................................................................ 31
Prayer ....................................................................................................................... 33
v
INDEX OF AUTHORITIES
Cases
ANR Coal Co., Inc. v. Cogentrix of N. C., Inc.,
173 F.3d 493 (4th Cir. 1999) ......................................................................... 15. 16
Bison Bldg. Materials, Ltd. v. Aldridge,
422 S.W.2d 582 (Tex. 2012) ......................................................................... 13, 14
BNSF Ry. Co. v. Alstom Transp., Inc.,
777 F.3d 785 (5th Cir. 2015) ................................................................................24
Broemer v. Houston Lawyer Referral Serv.,
407 S.W.3d 477(Tex. App.—Houston [14th Dist.] 2013, no pet.) ......... 20, 22, 23
Cigna Ins. Co. v. Huddleston,
986 F.2d 1418 (5th Cir. 1993) ..............................................................................20
Digital Equip. Corp, v. Desktop Direct, Inc.,
511 U.S. 863, 114 S. Ct. 1992, 128 L. Ed. 2d 842 (1994) ....................................14
Drobny v. Am. Nat’l Ins. Co.,
2013 WL 4680411(Tex. App.—Houston [1st Dist.]
August 29, 2013, no pet.) ................................................................ 3, 4, 5, 6, 7, 27
First State Ins. Co. v. Nat'l Cas. Co.,
781 F.3d 7 (1st Cir. 2015) ....................................................................................23
Florasynth, Inc. v. Pickholz,
750 F.2d 171 (2nd Cir. 1984) ...............................................................................20
Green Tree Fin. Corp. v. Randolph,
531 U.S. 79, 121 S. Ct. 513, 148 L. Ed. 2d 373 (2000) .........................................14
Hall Street Assoc., LLC v. Mattel, Inc.,
552 U.S. 576, 128 S. Ct. 1396, 170 L. Ed. 2d 254 (2008) ......................................32
Hill v. Norfold & W. Ry. Co.,
814 F.2d 1192 (7th Cir. 1987) ..............................................................................27
In re Aker Kvaerner Ihi,
324 S.W.3d 891 (Tex. App.—Houston [14th Dist.] 2010, no pet.) .............. 17, 31
In re Butler,
270 S.W.3d 757, 758 (Tex. App.—Dallas 2008, orig. proceeding) ...................12
vi
In re Gulf Exploration, LLC,
289 S.W.3d 836 (Tex. 2008) ..................................................................................5
In re Jordan,
No. 05-12-00185-CV, 2012 WL 506579 (Tex. App.—Dallas Apr. 3, 2012, orig.
proceeding) (mem. op.) ........................................................................................12
In re: Chevron U.S.A., Inc.,
419 S.W.3d 318 (Tex. App.—El Paso 2010, no pet.) ..........................................17
Int'l Bd. Of Elec. Workers, Local Union No. 969 v. Babcock & Wilcox,
826 F.2d 962 (10th Cir. 1987) ..............................................................................20
Island Creek Coal Sales Co. v. Gainesville,
729 F.2d 1046 (6th Cir.1984) ...............................................................................19
John Wiley & Sons, Inc. v. Livingston,
376 U.S. 543, 84 S. Ct. 909, 11 L. Ed. 2d 898 (1964) ...........................................31
La. Health Serv. Indem. Co. v. Gambro A B,
756 F. Supp. 2d 760 (W.D. La. 2010) ...................................................................20
Lehmann v. Har-Con Corp.,
39 S.W.3d 191 (Tex. 2001) ..................................................................................13
Michaels v. Mariforum Shipping, S.A.,
624 F.2d 411 (2d Cir. 1980) .......................................................................... 17, 31
Nafta Traders, Inc. v. Quinn,
339 S.W.3d 84 (Tex.2011) ...................................................................................32
Oxford Health Plans, LLC v. Sutter,
133 S. Ct. 2064, 186 L.Ed2d 113 (2013) ................................................. 23, 24, 27
Pac. Reinsurance Mgmt Corp, v. Ohio Reinsurance Corp.,
935 F.2d 1019 (9th Cir. 1991) ..............................................................................19
Parisi v. Netlearning, Inc.,
139 F. Supp. 2d 745 (E.D. Va. 2001) ....................................................................15
Pfannenstiel v. Merrill Lynch, Pierce, Fenner & Smith,
477 F.3d 1155 (10th Cir. 2007) ............................................................................20
Smith Barney Shearson, Inc. v. Sherman,
47 F.3d 750 (5th Cir. 1995) ..................................................................................32
Stolt-Nielsen, S.A. v. Animalfeeds Int'l,
559 U.S. 662, 130 S. Ct. 1758, 176 L. Ed. 2d 605 (2010) ......................................24
vii
Taylor v. Nelson,
788 F.2d 220 (4th Cir. 1986) ................................................................................20
Volt Info. Sci., Inc. v. Bd. Of Tr. of Leland Stanford Junior Univ.,
489 U.S. 468 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989) .......................................31
Walker v. Packer,
827 S.W.2d 833 (Tex. 1992) ...............................................................................12
Yasuda Fire & Marine Ins. Co. of Europe v. Cont'l Cas. Co.,
37 F.3d 345 (7th Cir. 1994) ............................................................................ 17, 31
Statutes
9 U.S.C. §12 ...................................................................................................... 16, 20
9 U.S.C. §9-10................................................................................................... 17, 31
9 U.S.C. §16 .............................................................................................................14
Tex. Civ. Prac. & Rem. Code §51.012 ....................................................................13
Tex. Civ. Prac. & Rem. Code §51.014(a)(1)-(14) ............................................ 11, 12
Tex. Civ. Prac. & Rem. Code §51.014(d)................................................................11
Tex. Civ. Prac. & Rem. Code §51.014(f) ................................................................12
Tex. Civ. Prac. & Rem. Code §51.016 ............................................................. 14, 15
Tex. Civ. Prac. & Rem. Code §171.098(a)(1) .........................................................10
Rules
Tex. R. App. P. 33.1.......................................................................................... 29, 30
Tex. R. App. P. 52.3(j) .............................................................................................12
Texas R. App. P. 52 .................................................................................................12
viii
STATEMENT OF THE CASE
Nature of the Case This is an appeal from a trial court order denying
the vacation of a prehearing security order issued
by the arbitration panel in an underlying
arbitration. The appeal also seeks review of a
discovery order issued by the arbitration panel.
Additionally, the appeal seeks the imposition of
Texas procedural requirements on the underlying
arbitration proceedings.
Trial Judge Hon. Michelle M. Slaughter, 405th District Court,
Galveston County, Texas
Trial Court’s Disposition The trial court issued an order denying Appellants’
Motion for Temporary Restraining Order,
Temporary Injunction and Motion to Compel
Arbitration, which denied Appellant’s request
to vacate the panel’s Prehearing Security Order, its
request that the court impose procedural rules on
the underlying arbitration, and its request that the
court disband the underlying arbitration panel. CR
174.
ORAL ARGUMENT
Appellee requests oral argument.
ISSUES RESTATED
Issue 1 Does this court have jurisdiction to hear an appeal from a denial of a
motion to vacate an arbitration award when the trial court’s order did
not dispose of all parties and claims to the case pending in the trial
court.
Issue 2 Did the trial court err in refusing to vacate the arbitration panel’s
October 24, 2014 Prehearing Security Order because the court lacked
the authority to hear the motion to vacate under the Federal
Arbitration Act?
1
Issue 3 If the trial court had the authority to review the arbitration panel’s
Prehearing Security Order, did the trial court err in refusing to vacate
the arbitration panel’s October 24, 2014 Prehearing Security Order
because the arbitrators did not exceed their authority under the Federal
Arbitration Act?
Issue 4 May the trial court vacate the arbitration panel’s January 12, 2015
Discovery Order on the grounds that the panel exceeded its authority
in issuing the order if it was not raised in the trial court?
Issue 5 Did the trial court err in refusing to impose procedural rules on the
arbitration proceeding?
THE RECORD
The Clerk’s Record contains one volume referenced here as CR [page]. The
Reporter’s Record also contains one volume referenced here as RR [page and line].
References to the Appellant’s brief are referenced here as BR[page].
PROCEDURAL HISTORY
National Accident Insurance Underwriters (“NAIU”) sought arbitration
against American National Insurance Company (“American National”) beginning
in March of 2009. CR 4, 25. In accordance with their arbitration agreement, the
parties each named a party-appointed arbitrator, but quickly ran into a dispute
regarding the appointment of a neutral umpire. CR 4-8, 24-25.That dispute led
NAIU to file a declaratory judgment in the trial court seeking various
determinations, including:
 that the parties’ contract was governed by Illinois procedural and
substantive law;
2
 that the parties’ contract was not enforceable due to lack of
consideration;
 that NAIU had not breached any contractual duties to American
National;
 that NAIU’s arbitration demand was timely;
 that American National failed to timely designate any umpire
candidates,
 that American National waived its right to designate any umpire
candidates,
 that NAIU had timely named its party appointed arbitrator;
 that a particular disputed individual was timely designated as umpire;
 that American National had frustrated, delayed and refused to
participate in the arbitration; and
 that the purported umpire and NAIU’s party-appointed arbitrator were
entitled to make determinations of law and fact necessary to resolve
the arbitration.
CR 25.
Additionally, by way of a motion that was not ruled upon, NAIU (1) sought
an order requiring American National to comply with a Cease Fire and Tolling
Agreement (an agreement between the parties to, among other things, toll the
statute of limitations on the parties’ respective claims against one another) and (2)
asked for a determination that American National’s counterclaims in the
arbitration were barred by limitations under that Cease Fire and Tolling
Agreement. CR 24, 185 (Motion for Prospective Injunction 5/7/12). See also,
Drobny v. Am. Nat’l Ins. Co., 2013 WL 4680411 at *3 (Tex. App.—Houston [1st
Dist.], August 29, 2013, no pet.). American National brought a counterclaim
against NAIU seeking the following declarations:
3
 that the arbitration agreement between the parties was valid and
enforceable and that the substantive dispute between the parties was
arbitrable;
 a determination of umpire candidates qualifications;
 that must NAIU withdraw unqualified candidates and name qualified
umpire candidates;
 that American National timely nominated its umpire candidates,
 that umpire candidates must provide complete disclosures to enable
the parties to exercise their strikes;
 a declaration regarding the method used to “draw lots” to determine
final umpire candidate;
 to set deadlines for such actions; and
 that American National’s arbitration demand was timely.
CR 2-9.
After the parties’ claims were filed with the trial court, NAIU sought to
institute an arbitration in contravention of the parties’ arbitration agreement. In
response, American National filed a motion for temporary injunction, enjoining
the sham arbitration as the issue of umpire selection was before the court for its
review, and a motion to compel NAIU to participate in the arbitration in
accordance with the terms of the parties’ arbitration agreement. The trial court
granted American National’s motions; NAIU appealed both orders and this Court
affirmed the temporary injunction order but determined that it lacked jurisdiction
to review the order compelling NAIU to arbitration. Drobny, at *5-6. Neither the
temporary injunction nor the motion to compel arbitration orders stayed the trial
court proceedings.
4
After this Court’s opinion was issued, the parties agreed on an umpire and
the arbitration process began.
On March 24, 2014, the trial court placed the case on a dismissal for want of
prosecution docket and set a dismissal hearing for May 15, 2014. CR189. NAIU
filed a motion to retain the case on the docket, but did not appear at the hearing.
CR189. Counsel for American National appeared at the hearing and did not
oppose retaining the case on the docket as the matter should have been stayed
after the matter was compelled to arbitration. CR189-90. In re Gulf Exploration,
LLC 289 S.W.3d 836 (Tex. 2008) (courts should stay, not dismiss, cases pending
arbitration). The case was formally stayed pending the completion of the
arbitration on May 15, 2014. CR 49.
STATEMENT OF FACTS
This matter concerns an underlying arbitration between NAIU1 and
American National involving a dispute related to a National Accident Insurance
Group Participation and Underwriting Agreement (“Underwriting Agreement”)
between the parties. CR2. Drobny, at *1.
Pursuant to that Underwriting Agreement NAIU acted as a managing
general underwriter for American National and was authorized to market, sell,
1
Irving Drobny was a principal of NAIU. For purposes of its response to this
Brief, American National includes Drobny it its definition of NAIU, and the term
“NAIU” collectively refers to Drobny, NAIC and NAIU.
5
underwrite, and issue various types of insurance issued by American National.
Drobny, at *1. Additionally, NAIU was to collect and hold premiums for the
written insurance in a fiduciary capacity for American National. Drobny, at *1.
In 2001, it was discovered that an officer of NAIU embezzled premiums
from actual American National policies, wrote fraudulent policies on American
National paper, retained premium on those policies, and caused millions of dollars
in damages to American National. American National had to pay claims on the
fraudulent policies and the actual policies where the premiums were embezzled.
CR 2, 17, 24. Drobny, at *1.
The parties dispute the amount of premium that was embezzled by NAIU’s
officer and the amount of damage caused by the fraudulent policies. However,
NAIU admits in its pleadings before the arbitration panel that approximately $2.6
million was embezzled on actual policies and that American National suffered
$23.2 million in damages from the fraudulent policies—for a minimum total of
$25.8 million in damages to American National due NAIU’s acts. CR 147-48.
NAIU contends it should be paid approximately $4.7 million for
management fees and commissions on the fraudulent and embezzled-premium
policies (despite the fact that American National received no, or reduced,
premiums in those instances). NAIU also contends that American National
improperly took approximately $800,000 from American National’s own premium
6
trust account. NAIU alleges American National owes NAIU, in total,
approximately $5.5 million (exclusive of attorney’s fees and interest). CR 147-48.
On March 9, 2012, NAIU demanded arbitration pursuant to the arbitration
provision (“Arbitration Agreement”) contained in the Underwriting Agreement.
CR 4, 25. American National cross-claimed against NAIU. After a dispute
involving the appointment of an umpire that was the subject of another appeal
before this Court, the parties began the arbitration on or about March 20, 2014. CR
163, Drobny v. Am. Nat’l Ins. Co., 2013 WL 4680411 (Tex. App.—Houston [1st
Dist.] August 29, 2013, no pet.).
On August 1, 2014, American National asked the arbitration panel to require
NAIU to post $20 million in prehearing security on the basis that if security were
not required, it would render any award against NAIU meaningless. CR 85-89.
Without the order, NAIU could deplete any funds it may have that could be used to
satisfy an award. Id. American National relayed to the panel that NAIU had settled
a related case with Citibank for $2 million involving some of the exact funds at
issue in this matter.2 Despite the fact that those funds belonged to American
National, NAIU kept the settlement for itself. CR 85.
2
Citibank permitted NAIU’s officer to negotiate altered premium checks so that
those funds could be diverted away from American National’s premium trust
account. That account was held by NAIU, in its name, in a fiduciary capacity for
American National.
7
NAIU responded, American National replied, and on October 24, 2014, after
full briefing, the arbitration panel issued an order requiring NAIU to post $20
million in prehearing security (“Prehearing Security Order”). CR 74, 78-79, 81-83.
The pretrial security could be in the form of “a letter of credit, bond, or other forms
of negotiable instruments.” CR 74. The panel delivered the Prehearing Security
Order to counsel for the parties on October 24, 2014. CR 153-54, 156-61.
On January 12, 2015, the arbitration panel issued a discovery order
(“Discovery Order”), which reaffirmed its earlier Prehearing Security Order and
which made certain other discovery rulings. CR 75-76.
On March 4, 2015, more than four months after the Prehearing Security
Order was issued, NAIU filed a “Motion for Temporary Restraining Order,
Temporary Injunction and to Compel Arbitration” (“Motion”) in the trial court
seeking to vacate the Prehearing Security Order, impose procedural rules on the
arbitration and/or to disband the arbitration panel. CR 50-95.
American National responded and on May 1, 2015, after a hearing, the trial
court issued an order denying NAIU’s Motion. CR 100-173, 174. Specifically, the
trial court denied NAIU’s request to vacate the panel’s Prehearing Security Order,
denied NAIU’s request that the court impose procedural rules on the underlying
arbitration, and denied NAIU’s request that the court disband the underlying
arbitration panel. CR 174.
8
On May 7, 2015, NAIU filed its Notice of Appeal regarding this matter. CR
175 – 176.
SUMMARY OF THE ARGUMENT
This Court lacks jurisdiction to hear this matter. NAIU’s allegations of
interlocutory jurisdiction in this matter are inappropriate. Neither of the statutes
cited by NAIU apply, nor has NAIU complied with the rules for filing mandamus
actions. Moreover, no other basis exists establishing jurisdiction for this appeal.
The trial court did not err in refusing to vacate the Prehearing Security Order
because NAIU’s request was not timely pursuant to the FAA. Under the FAA, the
trial court cannot grant NAIU the relief it requests because NAIU filed its motion
more than three months after the Prehearing Security Order was issued and
delivered.
Even if the trial court could review the order, it still did not err in refusing to
vacate the Prehearing Security Order because the trial court’s ability to review an
arbitration award is extremely narrow and there is evidence that the arbitrators did
(even arguably) construe the Underwriting Agreement when issuing the Prehearing
Security Order.
NAIU cannot appeal the issuance of the Discovery Order because that Order
was not at issue in NAIU’s Motion, was not argued at the hearing on NAIU’s
Motion and is not addressed in the trial court order appealed from. CR 50-57, 174.
9
Additionally, the Discovery Order is an interlocutory order from an arbitration
panel for which there is no judicial review.
Finally, the trial court did not err in refusing to apply procedural rules on the
underlying arbitration as matters of arbitral procedure are left to the arbitrators, not
to the courts.
ARGUMENT
I. This Court lacks jurisdiction to consider this appeal.
Although NAIU cites three avenues for jurisdiction in this Court, none are
appropriate. Additionally, no other basis for jurisdiction exists for this appeal.
A. Tex. Civ. Prac. & Rem. Code §171.098(a)(1) does not confer
jurisdiction on this Court for interlocutory appeal.
NAIU alleges that this Court has jurisdiction to hear this appeal pursuant to
the Texas Arbitration Act (“TAA”). However, NAIU makes no allegation that the
TAA applies to this dispute. This Court has previously declined to make that
determination. Drobny, at *6 (but see fn 1 stating that the TAA is not applicable to
this case).
However, if the TAA does apply, Tex. Civ. Prac. & Rem. Code
§171.098(a)(1) does not confer jurisdiction on this Court. Section §171.098(a)(1)
provides that a party may appeal a judgment or decree entered into under the TAA
denying an application to compel arbitration made under Section 171.021. Section
171.021 outlines the circumstances upon which a court can compel parties to
10
arbitration under the TAA. However, there is no indication that the order appealed
from in this matter was entered pursuant to the TAA, nor did NAIU move to
compel American National to arbitration pursuant to the TAA. CR 50-57. The
TAA is not mentioned in NAIU’s Motion. Id. In fact, NAIU did not ask the trial
court to compel American National to arbitration at all—the title of its Motion
contains the words, “and to compel arbitration” but the substance of the motion did
not ask for any such relief. Id.
Moreover, NAIU has not sought review of the trial court’s refusal to compel
American National to arbitration. Instead, NAIU’s appeal is related to the trial
court’s refusal to vacate arbitration orders. BR 4-20. NAIU cannot use
Section171.098(a)(1) as a basis for jurisdiction when it is not appealing the portion
of the order related to the purported motion to compel. Because neither the order
appealed from nor the Motion indicate that they were made subject to the TAA,
and because this appeal does not concern the trial court’s refusal to compel
American National to arbitration, Section 171.098(a)(1) does not confer
jurisdiction on this Court.
B. Tex. Civ. Prac. & Rem. Code §51.014(d) does not confer
jurisdiction on this Court for interlocutory appeal.
Texas Civ. Prac. & Rem. Code §51.014(d) permits a party to take an
interlocutory appeal from an otherwise un-appealable order if the trial court issues
a written order permitting such an appeal. The trial court in this matter has not
11
issued a written order permitting the appeal of this matter. Moreover, NAIU has
not filed an application for interlocutory appeal explaining why an appeal is
warranted under Section §51.014(d). Texas Civ. Prac. & Rem. Code §51.014(f).
Interlocutory jurisdiction under Section §51.014(d) is not present.
C. NAIU has not established entitlement to mandamus relief.
NAIU, “alternatively” asks this Court to consider its appeal a petition for
mandamus. However, NAIU has not complied with Tex. R. App. P. 52.
Specifically, NAIU failed to file a separate certification indicating that the person
filing the petition reviewed it and established all factual statements are supported
by competent evidence in the record. Tex. R. App. P. 52.3(j). Failure to provide
such a certification is basis for the denial of a mandamus petition. See, e.g. In re
Jordan, No. 05-12-00185-CV, 2012 WL 506579, at *1 (Tex. App.—Dallas Apr. 3,
2012, orig. proceeding) (mem. op.) (strict compliance with the rule is required or
mandamus relief will be denied); In re Butler, 270 S.W.3f 757, 758 (Tex. App.—
Dallas 2008, orig. proceeding) (relief denied, in part, because factual statements
did not meet the rule requirements). Additionally, NAIU has not attempted to
establish that the trial court clearly abused its discretion or that NAIU has no
adequate remedy by appeal. Walker v. Packer, 827 S.W.2d 833 (Tex. 1992) (orig.
proceeding) (establishing two-prong test for mandamus review). Although NAIU
12
references mandamus relief in one sentence in its brief, it is clear that it is not
seeking mandamus relief and any such petition should be denied.
D. No other basis for jurisdiction exists.
1. The May 1, 2015 order is not a final, appealable judgment
and no appellate jurisdiction exists under Tex. Civ. Prac. &
Rem. Code §51.012.
Unless authorized by statute, a court of appeals only has jurisdiction to
review final judgments. Tex. Civ. Prac. & Rem. Code §51.012; Bison Bldg.
Materials, Ltd. V. Aldridge, 422 S.W.2d 582, 585 (Tex. 2012). “A judgment is
final for purposes of appeal ‘if and only if it actually disposes of all claims and
parties then before the court, regardless of its language, or it states with
unmistakable clarity that is a final judgment as to all claims and all parties.’” Id. at
73 (quoting Lehmann v. Har-Con Corp., 39 S.W.3d 191, 192-93 (Tex. 2001).
Here, the May 1, 2015 order appealed from does not indicate that it is final
judgment. CR 174. Moreover, it does not dispose of all parties and all claims
because this case seeks relief from the court beyond a motion to compel arbitration
and is currently stayed pending the resolution of the arbitration. CR. 49. The order
staying the case contemplates potential future dealings in that court between the
parties. Because the matter has not finally concluded, a final judgment does not
exist and this Court does not have jurisdiction under Tex. Civ. Prac. & Rem. Code
§51.012.
13
2. No statutory basis for interlocutory jurisdiction exists.
An appellate court only has jurisdiction over an interlocutory order if it is
expressly permitted by statute. Bison Bldg. at 585. No statute permits this Court to
exercise jurisdiction over NAIU’s appeal.
The Texas general statue governing interlocutory appeals does not authorize
an interlocutory appeal for a denial of a motion to vacate an arbitration award. Tex.
Civ. Prac. & Rem. Code §51.014(a)(1)-(14).
That statute does, however, permit a party to appeal an interlocutory order
from a district court on a matter involving the FAA “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 §51.016. However, Section
16 of the FAA does not permit an appeal from an order denying a motion to vacate
an arbitration award.
Section 16 does permit the appeal of a “final decision with respect to an
arbitration that is subject to this title.” Under federal law, a “final decision” is a
decision that “‘ends the litigation on the merits and leaves nothing more for the
court to do but to execute the judgment.’” Green Tree Fin. Corp. v. Randolph, 531
U.S. 79, 86, 121 S. Ct. 513, 148 L. Ed. 2d 373 (2000) (quoting Digital Equip. Corp,
v. Desktop Direct, Inc., 511 U.S. 863, 867, 114 S. Ct. 1992, 128 L. Ed. 2d 842
(1994)). While the underlying arbitration between the parties should address most,
14
if not all, of the disputes raised (but stayed) in the trial court, it cannot be said that
the May 1, 2105 order appealed from plainly disposed of the entire case, leaving
no part pending. The trial court has not adjudicated all of the claims pending before
it. For that reason, the May 1 order is not a “final decision” and this Court does
not have jurisdiction over the appeal pursuant to Tex. Civ. Prac. & Rem. Code
§51.016.
Because no statutory authority exists permitting this Court to review NAIU’s
appeal, it should be dismissed for lack of jurisdiction.
II. The trial court properly denied NAIU’s Motion because it lacked the
authority to vacate the Prehearing Security Order.
A. The Federal Arbitration Act applies to the underlying arbitration.
The Arbitration Agreement between the parties is subject to the Federal
Arbitration Act (“FAA”). Drobny, at *6. The FAA describes the sole method
available to vacate an arbitration award—by filing a motion to vacate within three
months of the filing or delivery of that award. ANR Coal Co., Inc. v. Cogentrix of
N. C., Inc., 173 F.3d 493, 497 fn 1 (4th Cir. 1999); Parisi v. Netlearning, Inc., 139
F. Supp. 2d 745, 750 (E.D. Va. 2001). In order for NAIU to obtain the vacatur of
the Prehearing Security Order, NAIU had to comply with the FAA.
15
B. Despite the title of its Motion, NAIU sought to vacate the
Prehearing Security Award.
NAIU’s Motion was entitled “Motion for Temporary Restraining Order,
Temporary Injunction and to Compel Arbitration.” Despite that title, however,
NAIU did not seek a restraining order or any injunctive relief, but instead asked the
trial court to vacate the Prehearing Security Order. CR 50-57. Courts look to the
substance of a pleading to determine if the movant seeks to vacate an arbitration
award. Artful pleading will not remove a request to vacate from the requirements
of the FAA. ANR Coal Co., Inc., 173 F.3d at fn 1 (bringing a motion to vacate as a
new complaint was improper but allowed as no prejudice resulted); Parisi, 139 F.
Supp.2d at 750 (“Aggrieved parties may not circumvent the FAA by packaging a
motion to vacate as a fresh complaint.”). Despite the title of its Motion, because
NAIU attacked the Prehearing Security Order, its Motion is a motion to vacate
under the FAA.
C. Regardless of whether the Prehearing Security Order was an
“award” subject to review under the FAA, the trial court lacked
the authority to vacate the award.
In order for a court to consider a motion to vacate an arbitration award, that
motion must be brought within three months after the award is delivered. 9 U.S.C.
§12. NAIU’s argument that the FAA’s three month statute of limitations does not
apply to the Prehearing Security Order because that Order is not an “award” under
the FAA is flawed. If the Order is not an “award” under the FAA, then the trial
16
court lacked the authority to consider the Motion. If the Order is an “award,” then
NAIU was required to serve its motion to vacate within three months after the
Order was filed or delivered. Therefore, regardless of whether or not the Order is
an “award” under the FAA, the trial court lacked the authority to consider NAIU’s
Motion.
1. If the Prehearing Security Order is not an “award” the trial
court cannot review that Order.
NAIU argues that the Prehearing Security Order is not an “award,” but only
an interlocutory order. BR at 4-7. However, courts can only review arbitration
“awards.” 9 U.S.C. §9-10 (stating that courts may confirm or vacate “awards”).3
Courts cannot review interim or interlocutory rulings or orders. In re Aker
Kvaerner Ihi, 324 S.W.3d 891, 894 (Tex.App.—Houston [14th Dist.] 2010, no
pet.) (citing Michaels v. Mariforum Shipping, S.A., 624 F.2d 411, 414 (2d Cir.
1980)(“If the FAA applies, as here, a trial court does not have the power to review
any interlocutory ruling by an arbitration panel.”); Yasuda Fire & Marine Ins. Co.
of Europe v. Cont’l Cas. Co., 37 F.3d 345 (7th Cir. 1994) (“If interim security does
not constitute an award within [the FAA], the district court had no jurisdiction to
3
Although NAIU cites to Texas law regarding the finality of a judgment, that law
does not apply to the determination of finality of an arbitration award. The finality
of awards is substantive law and is governed by the FAA and case law interpreting
the FAA. See In re: Chevron U.S.A., Inc., 419 S.W.3d 318,326 (Tex. App.—El
Paso 2010, no pet.) (“[T]he finality of the arbitration orders is a matter of
substantive law. Accordingly, we will apply federal law in determining whether the
arbitration orders are final for purposes of confirmation and vacation.”
17
hear [the] case.”). If the Prehearing Security Order is not an award within the
meaning of the FAA, as NAIU argues, the trial court lacked the authority to review
it because “until an award has been made, a court is simply without authority to
review the validity of arbitrators’ interlocutory rulings.” In re Aker Kvaerner Ihi,
324 S.W.3d at 894. Therefore, if this Court accepts NAIU’s argument that the
Prehearing Security Order is not an “award,” it should affirm the trial court’s
denial of NAIU’s motion to vacate.
2. If the Prehearing Security Order is an “award” reviewable
under the FAA, the trial court still could not review it
because NAIU’s Motion was untimely.
a. Prehearing security orders are “awards” under the
FAA and are reviewable.
Courts have determined that interim security orders, such as the Prehearing
Security Order, are “awards” for purposes of judicial review under the FAA. In
Yasuda Fire, the defendant in an underlying arbitration obtained an interim
security award against the plaintiff in the case. The interim security was granted to
minimize the risk that any ultimate award obtained by the defendant would be
meaningless. The defendant moved to vacate the award in a United States district
court. Before reaching a conclusion on the propriety of the district court’s decision
not to vacate the security award, the Seventh Circuit reviewed the panel’s ruling to
determine if it was an “award” under the FAA. The Court of Appeals reasoned that
because of the importance of making arbitration proceedings meaningful, court
18
enforcement of interim arbitration security awards is appropriate and the ruling
was an “award” that could be reviewed.
The Ninth Circuit reached a similar conclusion regarding interim security
awards. In Pac. Reinsurance Mgmt Corp, v. Ohio Reinsurance Corp., 935 F.2d
1019 (9th Cir. 1991), the Court of Appeals found that an arbitration order requiring
members of a reinsurance pool to place funds into an escrow account during the
pendency of an arbitration between the members and the pool manager was a final,
reviewable award. Like the Yashuda Fire court, the Pacific Reinsurance court
noted that such awards are reviewable because of the importance in “making the
arbitration proceedings meaningful.” Id. at 1023. See also, Island Creek Coal Sales
Co. v. Gainesville, 729 F.2d 1046, 1049 (6th Cir.1984) (An interim award
requiring a party to perform on a contract while an arbitration was pending deals
with a separate, discrete, independent, severable issue and is reviewable.). The
Prehearing Security Order in this case was issued to ensure that any ultimate award
that might be issued to American National was meaningful and is a final,
reviewable award under the FAA.
b. The trial court lacked authority to vacate the
Prehearing Security Order because NAIU’s motion to
vacate that award was untimely.
Under the FAA, “[n]otice of a motion to vacate, modify or correct an award
must be served upon the adverse party or his attorney within three months after the
19
award is filed or delivered.” 9 U.S.C. §12 (“Section 12”). Courts are clear that
motions to vacate filed outside of the three-month time frame established by
Section 12 are barred and waive any complaint about the arbitration award.
Broemer v. Houston Lawyer Referral Serv., 407 S.W.3d 477, 480 (Tex.App.—
Houston [14th Dist.] 2013, no pet.) (application to vacate an arbitration award one
week outside of the three-month limitations period “is untimely and must be
denied.”) (citations omitted); Cigna Ins. Co. v. Huddleston, 986 F.2d 1418 (5th Cir.
1993) (late motion to vacate was time barred, even when raised as a defense to a
motion for confirmation); Pfannenstiel v. Merrill Lynch, Pierce, Fenner & Smith,
477 F.3d 1155, 1158 (10th Cir. 2007) (“A party to an arbitration award who fails to
comply with the statutory precondition of timely service of notice forfeits the right
to judicial review of the award.”)(citing Int’l Bd. Of Elec. Workers, Local Union
No. 969 v. Babcock & Wilcox, 826 F.2d 962, 966 (10th Cir. 1987)); Taylor v.
Nelson, 788 F.2d 220, 225 (4th Cir. 1986) (“once the three-month period has
expired, an attempt to vacate an arbitration award could not be made even in
opposition to a later motion to confirm”); Florasynth, Inc. v. Pickholz, 750 F.2d
171, 177 (2nd Cir. 1984) (“a party may not move to vacate after three months from
the time the arbitration panel issued its award.”). The three-month deadline to file a
motion to vacate an award applies to awards issued in ongoing, pending
arbitrations. La. Health Serv. Indem. Co. v. Gambro A B, 756 F. Supp. 2d 760, 766
20
(W.D. La. 2010) (rejecting movant’s argument that the FAA did not address how
Section 12 applied to an ongoing arbitration by concluding, “The language of
Section 12 of the FAA is clear. The parties have three months (90 days) to raise
any alleged invalidity of the Panel’s award.”)
Here, the Prehearing Security Order was issued and delivered to counsel for
NAIU by the arbitration panel on October 24, 2014. CR 74. CR 153-54-, 156-61.
American National also delivered the order to counsel for NAIU by facsimile on
October 28, 2104, and by certified mail, return receipt requested on October 31,
2014 (the date it was received by counsel for NAIU). CR 153-54-, 156-61.NAIU’s
motion to vacate was not served on American National until March 4, 2015—more
than four months after the Prehearing Order was delivered to NAIU. CR 57.
Because NAIU’s Motion to vacate the Prehearing Security Order was filed more
than three months after the order was issued and delivered, NAIU’s Motion was
untimely and the trial court properly denied NAIU’s request to vacate the
Prehearing Security Order.
NAIU’s argument that Section 12’s three-month deadline runs from the
panel’s January 2015 Discovery Order, which “reconfirms” the October 2014
Prehearing Security Order, is incorrect. CR 75-76. The three-month deadline to
move to vacate an arbitration order runs from the date the original order was filed
21
or delivered. Broemer v. Houston Lawyer Referral Serv., 407 S.W.3d 477, 480
(Tex.App.—Houston [14th Dist.] 2013, no pet.)
In Broemer, an attorney and a lawyer referral service arbitrated a dispute
about referral fees allegedly owed by the attorney to the service. The arbitrator
issued an award in favor of the service on May 6, 2010. Id. at 479. The lawyer
asked the arbitrator to reconsider the award and that request was denied on July 2,
2010. Id. at 481. On July 27, 2010, the service asked a Harris County district court
to confirm the award. Id. at 479. On August 13, 2010, the attorney filed his motion
to vacate. Id. The motion to vacate was denied. Id. On appeal, the service argued,
and the appellate court agreed, that the attorney’s motion to vacate the arbitration
order was untimely. Id. at 480-81. The award was issued on May 6 and the motion
to vacate was filed on August 6, three (3) months and one week later—one week
outside of the FAA’s three-month deadline. The attorney argued that the three-
month deadline should run from the date his motion to reconsider was denied (July
2), not the date of the original award (May 6). The appellate court rejected that
argument saying that the plain language of the FAA does not support the attorney’s
position—the deadline to move to vacate is three months after the date of the
original order. Id.
Here, NAIU filed its motion to vacate four months after the Prehearing
Security Order was issued in October of 2014. The fact that that Order was
22
reconfirmed in January of 2015 does not make NAIU’s March 9, 2015 motion to
vacate timely. In fact, Broemer instructs us that NAIU’s argument on this issue is
without merit. NAIU’s motion to vacate was untimely and the trial court properly
denied that motion.4
III. Even if the trial court could consider NAIU’s Motion, the trial court did
not err in denying that Motion because the arbitrators did not exceed
their authority; they interpreted the parties’ contract and applied
relevant case law.
A. Judicial review of an arbitration award is “exceedingly narrow”
and arbitrators do not exceed their authority if they, even
arguably, interpret the contract between the parties.
Review of an arbitration award is exceedingly narrow. In fact, “the scope of
judicial review of arbitration awards is ‘among the narrowest known in the law.’”
First State Ins. Co. v. Nat’l Cas. Co., 781 F.3d 7, 9 (1st Cir. 2015) (citations
omitted). Courts can only vacate arbitration awards in “very unusual
circumstances.” Oxford Health Plans, LLC v. Sutter, 133 S. Ct. 2064, 2068, 186
L.Ed2d 113 (2013). A party seeking relief from an arbitration award bears a
significant burden. Id. When reviewing an award where it is alleged that the
arbitrators exceeded their authority, “[i]t is not enough. . .to show that the
4
NAIU argues that Broemer is distinguishable because it involved a final
arbitration award, not an interim award. However, (1) as discussed above, the
Prehearing Security Order, even if interim, is a final award for purposes of review
under the FAA, and (2) the three-month deadline to move to vacate an award
applies to ongoing, pending arbitrations. NAIU’s attempt to distinguish Broemer
fails.
23
[arbitrator] committed an error—or even a serious error.” Stolt-Nielsen, S.A. v.
Animalfeeds Int’l, 559 U.S. 662, 671, 130 S. Ct. 1758, 176 L. Ed. 2d 605 (2010).
Instead, “[t]he sole question for [a court] is whether the arbitrator (even arguably)
interpreted the parties’ contract, not whether he got its meaning right or wrong.”
Oxford Health Plans, at 2068. In making this determination, courts “must resolve
all doubts in favor of arbitration” BNSF Ry. Co. v. Alstom Transp., Inc. 777 F.3d
785, 788 (5th Cir. 2015).
B. The arbitration panel construed the Underwriting Agreement
and, for that reason, the trial court did not err in denying NAIU’s
motion to vacate the Prehearing Security Motion.
The trial court could only vacate the Prehearing Security Order on grounds
that the arbitrators exceeded their authority if it found, after resolving all doubts in
favor of arbitration, that the panel did not “even arguably” construe the
Underwriting Agreement. The facts do not support such a finding. NAIU’s
argument that the panel “does not refer to the contract, does not analyze the
contract, and does not frame the Order in reference to the Contract” is incorrect.
There is no dispute that the arbitration panel arguably construed the Underwriting
Agreement.
In its Motion for Prehearing Security and its Reply to NAIU’s Response to
its Motion for Prehearing Security (collectively, “Security Motion”) American
National specifically commented on the contractual language between the parties.
24
American National pointed out that the Underwriting Agreement was silent on the
issue of pre-hearing security and that it did not specifically prohibit such an award.
It further pointed out that case law permitted arbitrators to issue prehearing
security awards if there was no prohibition against such an award in the parties’
contract. American National noted to the arbitration panel that, “[i]n order to
determine whether or not an arbitrator can order pre-hearing security, courts look
to the contract between the parties—not state or federal procedural law. If the
contract explicitly prohibits pre-hearing security, then the arbitration panel may not
make such an award....However, if the contract does not explicitly prohibit an
award of pre-hearing security, the panel is free to make such an award.” CR 78-79,
85-89. American National urged the panel to consider (1) the language in the
contract between the parties, and (2) the case law interpreting a lack of contractual
language regarding prehearing security when rendering its decision on the Security
Motion.
NAIU, on the other hand, did not ask the panel to review the contract when
making its decision, but instead pointed the panel to inapposite state and federal
procedural laws concerning the posting of costs in trial court litigation.5 CR 81-82.
NAIU did not point to any contractual provision, or any case law regarding
5
NAIU makes the same arguments to this Court. Instead of looking to the
Underwriting Agreement and to case law interpreting arbitrators’ powers under the
FAA, which is the appropriate inquiry, NAIU looks to inapplicable state
procedural law. BR 12-13, 16.
25
contract interpretation, that would prohibit the panel from granting American
National’s Security Motion. Id.
When issuing its Prehearing Security Order, the panel specifically noted that
it had been presented with briefing by both parties and that it found “in favor of
[American National’s] Motion for Pre-hearing security.” CR74. Because American
National made frequent reference to both the contract and to relevant law
interpreting the panel’s ability to issue prehearing security when the contract did
not prohibit such ruling, and because the panel, on the face of the Prehearing
Security Order, found in favor of that briefing, it cannot be said that the panel did
not “even arguably” interpret the Underwriting Agreement or that it was
dispensing its own brand of justice. American National placed the terms of the
Underwriting Agreement before the panel for review and the panel agreed,
explicitly, with American National’s Motion. CR 74, 78, 85. For these reasons,
the trial court did not err in denying NAIU’s motion to vacate the Prehearing
Security Award.
C. Whether the arbitration panel misconstrued the Underwriting
Agreement is not relevant to whether or not the trial court could
vacate the Prehearing Security Order on the ground that the
arbitrators exceeded their authority.
The vast majority of NAIU’s briefing related to is argument that the panel
exceeded its authority is dedicated to how the panel misconstrued the contract,
arguing that the contract does not permit prehearing security. However, whether
26
the panel got the “right” answer, is not the relevant question before a court
reviewing an arbitration award. Instead, all the court can consider is whether or
not the arbitrator “even arguably” construed the contract between the parties.
Oxford Health Plans, at 2068.6 Because it is clear that the panel construed the
contract, even if they got the issue regarding prehearing security wrong (which
American National denies), the panel’s error is not sufficient grounds for a court to
vacate the Prehearing Security Order. The trial court was correct in denying
NAIU’s Motion.
Nor do NAIU’s allegations that the panel failed to comply with the
Arbitration Agreement permit a court to review the Prehearing Security Order
because NAIU does not allege that the panel failed to construe the contract when
arriving at its ruling. Additionally, NAIU misstates the Arbitration Agreement
itself when it alleges that a hearing and cross-examination of witnesses is required
before the panel issues any ruling in this arbitration. BR 6. The Arbitration
Agreement provides that the panel “shall issue its decision in writing upon
evidence introduced at a hearing or by other means of submitting evidence…but in
which cross examination and rebuttal shall be allowed if requested.” Drobny, at
6
“As we have said too many times to want to repeat again, the question for
decision by a federal court asked to set aside an arbitration award. . . is not whether
the arbitrator or arbitrators erred in interpreting the contract; it is not whether they
clearly erred in interpreting the contract, it is not whether they grossly erred in
interpreting the contract, it is whether they interpreted the contract.” Hill v. Norfold
& W. Ry. Co., 814 F.2d 1192, 1194-95 (7th Cir. 1987).
27
*2. (emphasis added). American National contends that this section applies to a
final ruling on the merits from the panel, but even if it applies to the Prehearing
Security Order, there is nothing in the record to support NAIU’s allegations that
the provisions were not complied with. The provision does not require that the
panel hold a hearing or that evidence be submitted at a hearing; evidence can be
introduced “by other means.” Nor does the provision require cross-examination of
witnesses unless it is requested. There is nothing in the record to establish that
NAIU requested the cross-examination of any witness. Finally, the record
establishes, contrary to NAIU’s assertion, that evidence was submitted in
connection with the Security Motion (NAIU’s discovery responses, evidence of the
settlement between NAIU and Citibank, deposition excerpts, and references to
NAIU’s position statement).7 CR 85, 87-88. Additionally the record establishes
that NAIU itself provided the Underwriting Agreement at issue to the panel in
connection with its position statement. CR 125 (Exhibit 1), 136.
Similarly, NAIU’s argument that the Prehearing Security Order effectively
ends the arbitration is inapposite. BR at 13. The amount of the security awarded is
irrelevant to whether or not NAIU timely sought to vacate the award or whether
7
Although it was not required by case law interpreting an arbitrator’s ability to
award pretrial security under the FAA and pursuant to the contract between the
parties, American National did present evidence of its likelihood of success on the
merits of the underlying lawsuit—despite NAIU’s assertions to the contrary. CR
88.
28
the arbitration panel arguably construed the contract between the parties.
Additionally, the appellate record establishes that NAIU was required to post the
security by November 3, 2014, but that it failed to do so. CR 74-76. However,
there is no evidence in the record showing that NAIU’s failure to do so halted the
arbitration. In fact, the record establishes that the arbitration continued, that NAIU
was ordered to participate in discovery, and that the panel asked for a new
scheduling order in the matter. CR 75-76.
III. NAIU’s arguments related to the Discovery Order are meritless because
the Discovery Order was never placed in front of the trial court for
review, but even if it had been, the trial court could not vacate the
Discovery Order because it is not an “award,” and thus not subject to
review by the court.
A. This Court should decline to consider NAIU’s argument that the
trial court should have vacated the Discovery Order because the
issue was never presented to the trial court and the trial court
never ruled on the Discovery order.
This Court should decline to review NAIU’s challenges to the Discovery
Order because the Discovery Order was not at issue in NAIU’s Motion, nor was it
ruled upon by the trial court. CR 50-57, 174. “As a prerequisite to presenting a
complaint for appellate review, the record must show that: (1) the complaint was
made to the trial court by a timely request, objection or motion . . .and (2) the trial
court: . . . (A) ruled on the request, objection or motion. . .or (B) refused to rule . .
. and the complaining party objected to the refusal.” Tex. R. App. P. 33.1.
29
Although the Discovery Order is attached as an exhibit to NAIU’s Motion, it
is not mentioned in the Motion nor was there any complaint raised about it in the
Motion. Id. The Motion did not complain about any discovery directed toward Mr.
Drobny individually, nor did it complain about Mr. Drobny being required to
appear for deposition. Id. During the hearing on the Motion, counsel for NAIU
mentioned—one time—that the arbitration panel had ordered Mr. Drobny to
provide his personal financial information. RR at page 5, lines 2-5. However, no
other mention was made of any other discovery matters. Additionally, the trial
court order appealed from in this matter does not make any ruling on the Discovery
Order nor does it reference any complaints regarding improper discovery that
NAIU is now asserting in this Court. CR 174. The substance of the Discovery
Order was simply not before the trial court and therefore complaints about it
cannot now be raised on appeal.
B. The Discovery Order is not an “award” under the FAA and
cannot be reviewed by a court.
If this Court is inclined to hear NAIU’s complaints about the Discovery
Order, NAIU still cannot obtain the relief it seeks because the Discovery Order is
not an “award” subject to judicial review.
Just as it does with the Prehearing Security Order, NAIU argues that the
Discovery Order is not an “award,” but only an interlocutory order. BR 4-7. But as
stated above in section, II (C)(1), courts can only review arbitration “awards,” not
30
interim or interlocutory rulings or orders. 9 U.S.C. §9-10 In re Aker Kvaerner Ihi,
324 S.W.3d 891, 894 (Tex.App.—Houston [14th Dist.] 2010, no pet.) (citing
Michaels v. Mariforum Shipping, S.A., 624 F.2d 411, 414 (2d Cir. 1980); In
Yasuda Fire & Marine Ins. Co. of Europe v. Cont’l Cas. Co., 37 F.3d 345 (7th Cir.
1994). Because NAIU admits that the Discovery order is interlocutory and because
the FAA does not permit judicial review of interlocutory orders, the trial court may
not review the Discovery Order.
IV. The court cannot impose procedural rules on the underlying
arbitration.
NAIU seeks to engraft procedural rules on the arbitration proceeding,
specifically, the Texas Practice and Remedies Code and the Texas Rules of Civil
Procedure. NAIU goes to great lengths to describe the particular procedural rules it
contends should apply to the arbitration proceeding and uses those rules to attack
both the Prehearing Security Order and the Discovery Order. BR 12, 14, 18-20.
The Court should reject NAIU’s attempt because the procedures to be applied by
an arbitration panel are in the purview of the arbitration panel, not a court.
Federal policy does not favor conducting arbitrations under a certain set of
procedural rules. Volt Info. Sci., Inc. v. Bd. Of Tr. of Leland Stanford Junior Univ.,
489 U.S. 468, 476 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989). It is black letter law
that the procedural aspects of arbitration are for arbitrators to decide, not courts.
John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557, 84 S. Ct. 909, 11 L. Ed. 2d
31
898 (1964) (“‘procedural’ questions which grow out of the dispute and bear on its
final disposition should be left to the arbitrator.”); Smith Barney Shearson, Inc. v.
Sherman, 47 F.3d 750, 753 (5th Cir. 1995) (Supreme Court precedent requires that
procedural matters be decided by the arbitrators). Case law clearly establishes that
courts cannot impose procedural rules on an arbitration proceeding. For that
reason, NAIU’s arguments that the arbitrators exceeded their authority in issuing
the Discovery Order based purely on Texas Rules of Civil Procedure in
unavailable.
NAIU cites Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 99-100 (Tex.2011)
for the proposition that Texas law is applied to procedural issues in arbitration
proceedings. Nafta Traders, however, does not even address the procedural rules
that should be used in an arbitration proceeding. The issue in Nafta Traders was
whether the TAA precludes parties from agreeing to judicial review of an
arbitration agreement for reversible error, and, if it did not, whether the FAA
preempts the enforcement of such an agreement.8 The Texas Supreme Court held
that, “the FAA does not preempt all state-law impediments to arbitration; it
preemptions state-law impediments to arbitration agreements.” Id. at 101. There is
8
In Hall Street Assoc., LLC v. Mattel, Inc., 552 U.S. 576, 128 S. Ct. 1396, 170
L. Ed. 2d 254 (2008), the Supreme Court held that the grounds for modifying or
vacating an award under the FAA are exclusive and cannot be contractually
supplemented by the parties. One issue for the Nafta Traders court was, if the
TGAA allowed judicial review by contractual supplementation, did that conflict
with the FAA such that the FAA preempted the TGAA on that issue.
32
no discussion in Nafta Traders as to what rules of procedure should be applied to
an underlying arbitration.
PRAYER
WHEREFORE PREMISES CONSIDERED, Appellee American National
Insurance Company requests that the Court affirm the judgment of the trial court.
Appellee asks the Court to award attorney’s fees and costs of court to Appellee and
grant any such other relief to which Appellee may be entitled to in law or in equity.
Respectfully submitted,
GREER, HERZ & ADAMS, L.L.P.
By: /s/ Roni S. Mihaly
Janet L. Rushing
State Bar No. 17403100
Roni S. Mihaly
State Bar No. 24027899
David J. Booth
State Bar No. 24034333
2525 South Shore Blvd, Suite 203
League City, Texas 77539
(409) 797-3204
(281) 538-3791 (FAX)
ATTORNEYS FOR AMERICAN
NATIONAL INSURANCE COMPANY
33
CERTIFICATE OF COMPLIANCE
Pursuant to Texas Rule of Appellate Procedure 9.4, I certify that there are
6,930 words in this document, excepting those portions of the brief listed in Rule
9.4(i)(1), as calculated by the word count feature of Microsoft Word 2010, which
was used to prepare this document.
/s/ Roni S. Mihaly
Roni S. Mihaly
CERTIFICATE OF SERVICE
This is to certify that on the 16th day of October, 2015, a copy of the
foregoing document was served pursuant to the Texas Rule of Appellate Procedure
9.5 upon the following counsel:
Via E-File and Commerical Delivery Service
Ms. Savannah Robinson
Law Offices of Savannah Robinson
1822 Main
Danbury, Texas 77534
/s/ Roni S. Mihaly
Roni S. Mihaly
34