Marlow, Curtis L. and Marlow, Sylvia v. Palm Harbor Homes, Inc., Family Home Source, and Green Tree Financial Servicing Corporation

Affirmed and Opinion filed August 29, 2002

Affirmed and Opinion filed August 29, 2002.

In The

Fourteenth Court of Appeals

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NO. 14-00-00683-CV

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CURTIS L. MARLOW and SYLVIA MARLOW, Appellants

V.

PALM HARBOR HOMES, INC., FAMILY HOME SOURCE, INC., and GREEN TREE FINANCIAL SERVICING CORPORATION, Appellees

On Appeal from the 80th District Court

Harris  County, Texas

Trial Court Cause No. 99-03520

O P I N I O N

In this appeal from a judgment confirming an arbitration award, appellants claim the trial court erred in (1) ordering binding arbitration, (2) remanding the case for a limited purpose arbitration, (3) overruling appellants= motion to vacate the award, and (3) entering a take-nothing judgment against appellants and an award for one appellee. We affirm the trial court=s judgment.

Background and Procedural History

In August 1997, Curtis Marlow purchased a home manufactured by Palm Harbor Homes, Inc., (APalm Harbor@) from Family Home Source, Inc. (AFamily Home@).  Marlow and Family Home signed a Manufactured Home Retail Installment Contract, which contained the following provision:

14. ARBITRATION: All disputes, claims, or controversies arising from or relating to this Contract or the parties thereto shall be resolved by binding arbitration by one arbitrator selected by [Seller] with [Buyer=s] consent. 

The contract was later assigned to Green Tree Financial Servicing Corporation (AGreen Tree@).  After Marlow and his wife, Sylvia, began experiencing problems with the home, Marlow filed suit against Green Tree, Family Home, and Palm Harbor, alleging (1) violations of the Texas Deceptive Trade Practices Act, (2) statutory and common law fraud, (3) misrepresentation, (4) breach of contract, and (5) breach of warranty. 

Family Home moved to stay litigation and compel arbitration pursuant to the Federal Arbitration Act (AFAA@) and the Texas General Arbitration Act (ATGAA@).  On March 29, 1999, the trial court conducted a hearing to determine the validity of the arbitration agreement.  Following the hearing, the trial court granted the motion and referred Marlow=s claims to binding arbitration.  The case was arbitrated June 9th and 10th, 1999, with Curtis Marlow representing himself pro se, assisted by his wife, Sylvia.  The arbitrator found that Marlow was not entitled to relief and determined Green Tree was entitled to a deficiency judgment as well as foreclosure of its lien on the manufactured home.  The trial court entered a Final Judgment confirming the arbitrator=s award on July 13, 1999.

However, on August 12, 1999, Curtis Marlow retained counsel and filed a motion to vacate the arbitration award and a motion for new trial.  On August 20, 1999, Sylvia Marlow retained the same legal counsel and intervened in the litigation, asserting claims identical to Curtis=s.  The trial court granted the motion for new trial October 5, 1999, and entered an order, at the joint request of appellees, on October 18, 1999, remanding the case to arbitration for the limited purpose of presenting additional witnesses.^[1]

The arbitrator heard testimony from the additional witnesses with Curtis Marlow and his attorney present; while Sylvia Marlow was not present, she was represented by the same attorney.  Following the second arbitration, the arbitrator rendered a second Full and Final Arbitration Award with the same result.  At appellees= urging, however, the arbitrator later entered a Corrected Full and Final Arbitration Award to include Sylvia Marlow=s name in the award.  The trial court entered a Corrected Final Judgment confirming the arbitrator=s award that the Marlows take nothing and Green Tree recover the mobile home in question and the sum of $67,600.38 plus interest and costs.  The Marlows again filed a motion for  new trial and a motion to vacate the award of the arbitrator.  The trial court denied these motions, and this appeal followed.

Binding Arbitration

In their first two issues, the Marlows claim the trial court erred in submitting Curtis=s claims to binding arbitration and later remanding them for a limited-purpose arbitration.  Specifically, the Marlows contend (1) Curtis=s claims against Palm Harbor should not have been submitted to arbitration, (2) no evidentiary hearing on the validity of the arbitration agreement was conducted, and (3) the arbitration agreement is unconscionable and was obtained by fraud.         

In determining whether to compel arbitration, two issues must be decided: (1) whether a valid, enforceable arbitration agreement exists, and if so, (2) whether the claims asserted fall within the scope of the agreement.  See In re First Merit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001).  Because state and federal policies continue to favor arbitration, a presumption exists in favor of agreements to arbitrate, and courts must resolve any doubts about an arbitration agreement=s scope in favor of arbitration.  Id. Once the trial court finds a valid agreement covers the claims, and the party opposing arbitration has failed to prove a defense, the trial court has no discretion but to compel arbitration and stay its own proceedings.  See id. at 753-54.         

Palm Harbor Homes

The Marlows contend the trial court erred in referring Curtis=s claims against Palm Harbor to binding arbitration because Palm Harbor was not a party to the Retail Installment Contract. However, as the manufacturer of the home, which is the subject of the Retail Installment Contract, Palm Harbor is entitled to the benefits of the arbitration agreement.  See Palm Harbor Homes, Inc. v. McCoy, 944 S.W.2d 716, 721 n.5 (Tex. App.CFort Worth 1997, orig. proceeding) (recognizing that even though the home manufacturer was not a signatory to the contract, Athe agreement >inures to the benefit of, and is intended to be for the benefit of, the manufacturer of the home=@).  In addition, when Palm Harbor voluntarily elected to participate in the arbitration, the Marlows did not object until after the arbitrator=s first award in Palm Harbor=s favor.  The Marlows= objection was not timely.  See Massey v. Galvan, 822 S.W.2d 309, 316 (Tex. App.CHouston [14th Dist.] 1992, writ denied) (noting that an attempt to revoke an arbitration agreement after arbitrator makes a preliminary award is ineffective).      

Evidentiary Hearing

The Marlows next claim the trial court erred in failing to conduct a formal evidentiary hearing because there are disputed fact issues regarding the validity of the arbitration agreement.  A trial court may summarily decide whether to compel arbitration on the basis of affidavits, pleadings, discovery and stipulations.  Valero Energy Corp. v. Teco Pipeline Co., 2 S.W.3d 576, 581 (Tex. App.CHouston [14th Dist.] 1999, no pet.).  If the material facts necessary to determine the issue are controverted, by an opposing affidavit or otherwise admissible evidence, the trial court must conduct an evidentiary hearing to determine the disputed facts.  Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 269 (Tex. 1992).  The record shows the trial court conducted a hearing, at which the Marlows were both present and fully participated.  The trial court received a copy of the contract and heard argument from all parties.  Nothing in the record suggests the Marlows ever objected to the trial court=s proceedings, nor have they demonstrated what, if any, evidence they were prevented from presenting during this hearing. 

Enforceability

Finally, the Marlows claim the arbitration agreement is unenforceable because it is unconscionable and was obtained by fraud. The Marlows claim the manner in which Curtis Marlow was induced to sign the contract, which includes the arbitration clause, was fraudulent and unconscionable.  However, to defeat binding arbitration, the defenses of fraudulent inducement and unconscionability must specifically relate to the arbitration clause itself and not to the entire agreement.  See First Merit Bank, N.A., 52 S.W.3d at 749. Defenses that pertain to the entire contract can be arbitrated.  Id. The claims the Marlows assert concern fraud and unconscionability as to the entire agreement.  Because the Marlows fail to assert that their defenses relate to the arbitration clause itself, the trial court did not err in ordering Curtis=s claims to binding arbitration.  

Finally, the Marlows claim the trial court erred by requiring Sylvia Marlow to submit her claims to the limited-purpose binding arbitration.  However, the trial court=s October 18 order required only Curtis=s claims to be arbitrated. To the extent the Marlows complain about the inclusion of Sylvia=s claims in the final arbitration award and judgment confirming that award, we address that complaint below.  The Marlows= first and second issues are overruled.

The Final Award

In their third and fourth issues, the Marlows claim the trial court should have vacated the award because the arbitrator exhibited evident partiality in favor of the appellees and exceeded his power by correcting the award to include Sylvia Marlow. 

We review de novo a trial court=s order denying a motion to vacate.  See McIlroy v. PaineWebber, Inc., 989 F.2d 817, 819 (5th Cir. 1993).  Under section 171.088 of the TGAA,^[2] a trial court shall vacate an award only if (1) the award was procured by fraud, corruption, or other undue means; (2) there was evident partiality, corruption, or willful misconduct by the arbitrator that prejudiced the rights of a party; (3) the arbitrator exceeded his power; (4) the arbitrator refused to postpone the hearing on good cause shown, or refused to hear evidence material to the controversy; or (5) there was no valid arbitration agreement, and the issue was not adversely determined in proceedings to stay the arbitration and the complaining party did not participate in the arbitration without raising the objection.  See Tex. Civ. Prac. & Rem. Code Ann. ' 171.088; see also Holk v. Biard, 920 S.W.2d 803, 806-07 (Tex. App.CTexarkana 1996, mand. motion overruled).  A party seeking to vacate an award on the basis of evident partiality must prove the existence of facts that would establish a reasonable impression of the arbitrator=s partiality to one party.  Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W.2d 225, 233 (Tex. App.CHouston [14th Dist.] 1993, writ denied).  A neutral arbitrator selected by the parties exhibits evident partiality if the arbitrator does not disclose facts, which might, to an objective observer, create a reasonable impression of the arbitrator=s partiality.  See Burlington Northern Railroad Corp. v. TUCO, Inc., 960 S.W.2d 629, 636B37 (Tex. 1997) (recognizing failure to disclose a financial, familial or a close relationship with a party may show evident partiality). 

In this case, the arbitrator was selected by the trial court and approved by the parties without objection, and no evidence exists that the arbitrator failed to disclose an inappropriate connection to appellees.  Rather, the Marlows claim the arbitrator=s refusal to hear additional witnesses following two days of testimony indicates a bias toward appellees.  However, the mere exclusion of evidence, without more, does not demonstrate partiality.  An arbitrator is not bound to hear all the evidence tendered by the parties as long as he gives each of the parties an adequate opportunity to present evidence and arguments.  Babcock, 863 S.W.2d at 234.  Further, because we have no record of the first arbitration in which the Marlows claim the arbitrator exhibited evident partiality against them, they have failed to prove the existence of facts that would establish a reasonable impression of the arbitrator=s partiality.  See id. at 233.

The Marlows further allege that the arbitrator exhibited evident partiality and exceeded his authority when he modified the final award to include Sylvia Marlow=s claims.  The arbitrator=s award initially disposed of only Curtis Marlow=s claims.  At the request of appellees, the arbitrator corrected his final award to include language that Sylvia Marlow take nothing.  See Tex. Civ. Prac. & Rem. Code Ann. ' 171.054 (Vernon Supp. 2002) (granting an arbitrator authority to modify or correct an award in order to clarify the award). Sylvia Marlow claims she was never allowed to present any evidence of her claims to a judge, jury, or arbitrator.  To the contrary, the record shows that Sylvia Marlow participated in the trial court=s hearing to determine the validity of the arbitration agreement, testified and participated in the first arbitration, and was represented by counsel in the second arbitration hearing.  Moreover, Sylvia Marlow=s claims relate to and arise out of the Retail Installment Contract.  When a non-signatory=s claims arise out of an agreement containing an arbitration clause and the non-signatory would have no claim in the absence of the underlying agreement, the arbitration clause is enforceable against the non-signatory.  See Valero, 2 S.W.3d at 593; In re Educ. Mgmt. Corp., 14 S.W.3d at 424-25. Because we find Sylvia Marlow=s claims are based on the same operative facts and are inherently inseparable from the claims of Curtis Marlow, Sylvia Marlow was a proper party to the arbitration.  Valero, 2 S.W.3d at 593.  Accordingly, the arbitrator did not exceed the scope of his authority in correcting the award.

Finally, the Marlows argue the trial court erred in entering judgment against Curtis and Sylvia Marlow for the same reasons they claim the court erred in submitting Curtis=s claims to binding arbitration.  We have already addressed these issues and find no error in the trial court=s entry of judgment on the arbitration award.

Accordingly, we overrule the Marlows= third and fourth issues.

The judgment of the trial court is affirmed.

/s/        Leslie Brock Yates

Justice

Judgment rendered and Opinion filed August 29, 2002.

Panel consists of Justices Yates, Seymore, and Guzman.

Do Not Publish C Tex. R. App. P. 47.3(b).

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^[1]  Appellees filed a joint motion for reconsideration of the trial court=s order vacating the arbitrator=s award and granting a new trial and alternatively a joint motion to remand the case to the arbitrator for the limited purpose of hearing additional witnesses pursuant to ' 171.089(b) of the Texas Civil Practice and Remedies Code.

^[2]  In their discussion of the standards for vacating an award, the parties cite only the TGAA and not the FAA.  We therefore assume without deciding that the Texas act governs.