W. Dow Hamm III Corporation and William Dow Hamm III v. Millennium Income Fund, L.L.C.

Opinion issued March 12, 2013
In The
Court of Appeals
For The
First District of Texas
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NO. 01-12-00313-CV
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W. DOW HAMM III CORPORATION AND WILLIAM DOW HAMM III,
Appellants
V.
MILLENNIUM INCOME FUND, L.L.C., Appellee
On Appeal from the 61st District Court
Harris County, Texas
Trial Court Case No. 2003-13955
MEMORANDUM OPINION
Appellants W. Dow Hamm III Corporation and William Dow Hamm III
(collectively “Hamm”) appeal the trial court’s order confirming an arbitration
award in favor of appellee Millennium Income Fund, L.L.C. In three issues,
Hamm argues that the trial court erred by confirming the arbitration award and by
not engaging in a de novo review of it. Hamm contends that the arbitration
agreements expanded the scope of judicial review. Hamm also argues that the
arbitrator exceeded his authority, was unfairly biased, and did not rule on all
claims. We affirm.
Background
Hamm and Millennium entered into six separate but nearly identical
partnership agreements for the construction and operation of hotels. W. Dow
Hamm III Corporation was the general partner, and Millennium and Mr. Hamm
were limited partners. The parties’ agreements specified how allocations and
distributions would be made and provided that Millennium had priority to receive
distributions of “Distributable Cash Flow” “in an amount equal to the accrued and
unpaid Priority Return.” “Priority return” and “Distributable Cash Flow” were
defined in the contracts. The agreements also specified how assets would be
distributed upon dissolution or termination of the partnership. Each agreement
included the following arbitration provision:
Section 10.15 Dispute Resolution and Arbitration
....
(b) Any claim, action, dispute or controversy of any kind arising
out of or relating to this Agreement or concerning any aspect of
performance by either Partner under the terms of this
Agreement that is not resolved by the mediation process set
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forth in Section 10.15(a) above (“Dispute”) shall be resolved by
mandatory and binding arbitration administered by the AAA
pursuant to the Federal Arbitration Act (Title 9 of the United
States Code) in accordance with this Agreement and the then-
applicable Commercial Arbitration Rules of the AAA. The
Partners acknowledge and agree that the transactions evidenced
and contemplated hereby involve “commerce” as contemplated
in Section 2 of the Federal Arbitration Act. If Title 9 of the
United States Code is inapplicable to any such Dispute for any
reason, such arbitration shall be conducted pursuant to the
Texas General Arbitration Act (V.T.C.A., Civil Practice &
Remedies Code Section 171.0001 et. seq. Vernon 1997), this
Agreement and the then-applicable Commercial Arbitration
Rules of the AAA. To the extent that any inconsistency exists
between this Agreement and the foregoing statutes or rules, this
Agreement shall control. Judgment upon the award rendered
by the arbitrator acting pursuant to this Agreement may be
entered in, and enforced by, any court having jurisdiction
absent manifest disregard by such arbitrator of applicable law;
provided, however, that the arbitrator shall not amend,
supplement or reform in any manner any of the rights or
obligations of any Partner hereunder or the enforceability of
any of the terms of this Agreement. Any arbitration
proceedings under this Agreement shall be conducted in
Houston, Texas, before a single arbitrator being a member of
the State Bar of Texas for no less than ten (10) years and having
recognized expertise in the field or fields of the matter(s) in
dispute.
....
(f) The arbitration shall be conducted and concluded as soon as
reasonably practicable, based on a schedule established by the
arbitrator. Any arbitration award shall be based on and
accompanied by findings of fact and conclusions of law, shall
be conclusive as to the facts so found and shall be confirmable
by any court having jurisdiction over the Dispute, provided that
such award, findings and conclusions are not in manifest
disregard of applicable law.
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....
(h) In order for an arbitration award to be conclusive, binding and
enforceable under this Agreement, the arbitration must follow
the procedures set forth in the portions of this Agreement
relating to such arbitration and any award or determination shall
not be in manifest disregard of applicable law. The obligation
to mediate or arbitrate any Dispute shall be binding upon the
successors and assigns of each of the Partners.
In 2003 a dispute arose about the payment of Priority Return and allegedly
unauthorized payments that the general partner made to itself. See Hamm v.
Millennium Income Fund, L.L.C., 178 S.W.3d 256, 258 (Tex. App.—Houston [1st
Dist.] 2005, pet. denied) (“Hamm I”). The parties engaged in arbitration regarding
these disputes in accordance with the same partnership agreements that are at issue
in this appeal. See id. Among other things, the arbitrator ordered an accounting of
the partnerships, enjoined the Hamm parties from taking certain actions, awarded
Millennium actual and exemplary damages, and “ordered the limited partners to
agree on a new general partner within 90 days or face dissolution of the
partnerships.” Id. at 258–59. The arbitration award was confirmed by the trial
court, and this court affirmed the judgment. Id.
Because the parties did not agree on a new general partner, the court-
appointed receiver “began the process of winding up the partnerships and
distributing the assets by arranging for the sale of the hotels.” W. Dow Hamm III
Corp. v. Millennium Income Fund, L.L.C., 237 S.W.3d 745, 748–49 (Tex. App.—
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Houston [1st Dist.] 2007, no pet.) (“Hamm II”). The receiver noted that some
ambiguity existed in the parties’ agreements as to the distribution of assets upon
dissolution of the partnerships. Id. at 749. However, the receiver provided to the
trial court four alternative schedules for distribution of the assets to the partners.
Id.
Unsatisfied with the proposed distribution schedules, Hamm sought to
compel arbitration under the Federal Arbitration Act or, if the court found that the
FAA did not apply, under the Texas Arbitration Act. Id. The trial court ordered
distribution of the partnership assets in accordance with one of the receiver’s
distribution schedules and granted Millennium’s motion to stay arbitration. Id. at
750. The court also ordered that $800,000 be held back and reserved for future
expenses that the receiver might incur. Id. Hamm filed a petition for writ of
mandamus challenging the court’s order staying arbitration. Id. This court noted
that neither party disputed that the FAA applied to the arbitration agreement. Id. at
751. The petition for writ of mandamus was conditionally granted, allowing a
second arbitration to proceed. Id. at 758.
The parties eventually engaged in a second arbitration on three issues
relating to the distribution of partnership assets but specifically centering on
calculation and satisfaction of Priority Return. In the arbitration, both parties
contended that the agreements were unambiguous. Nevertheless, Hamm
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introduced testimony from people involved in negotiating the partnership
agreements who testified as to “what they meant regarding the disputed terms.”
Hamm argued that this was evidence of surrounding circumstances, not parol
evidence. In his award, the arbitrator found the agreements to be unambiguous as
to each of the three questions he was tasked with answering and called Hamm’s
proffered testimony “on the whole, unhelpful.” For example, as to one of the
issues, the arbitrator explained that Hamm’s proffered evidence showed only the
witness’s “individual ‘intent’, ‘belief’ or ‘understanding’ of the provision, or that
‘the idea was that it should be all inclusive.’” The arbitrator concluded, “None of
this testimony qualifies, or is permissible to be considered, as ‘surrounding
circumstances’ to aid in the construction of the unambiguous language of this
provision.”
The arbitrator’s award upheld the receiver’s distribution of assets and
divided the reserved $800,000. Millennium moved to confirm the arbitration
award under the TAA, and Hamm moved to vacate it only under the FAA,
attaching the arbitration record to the motion. Hamm argued that the arbitrator
ignored the facts, ignored the law, exceeded his authority, demonstrated bias, and
failed to rule on all claims. But the essence of the arguments was that Hamm
disagreed with the arbitrator’s findings of fact and conclusions of law.
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At the hearing on the cross-motions to confirm or vacate the arbitration
award, Hamm expressly and exclusively relied upon statutory grounds for vacatur
under the FAA, specifically that the arbitrator “exceeded his powers or so
imperfectly executed them that a mutual, final and definite award upon the subject
matter submitted was not made.” Hamm did not mention or argue for the
application of the TAA. When the trial court specifically inquired about the scope
of review, Hamm expressly invoked the FAA and argued its statutory grounds.
Hamm argued that the arbitrator’s award was incomplete and that the arbitrator
was not impartial because he did not consider testimony from people involved in
negotiating the partnership agreements who testified as to “what they meant
regarding the disputed terms.” The trial court confirmed the arbitration award, and
Hamm appealed.
Analysis
In three issues, Hamm challenges the trial court’s confirmation of the
arbitration award. Hamm argues that the trial court erred in confirming the
arbitration award because the arbitrator made errors of law and fact. Hamm
contends that the parties contracted for expanded judicial review, which is
available under the Texas Arbitration Act and which the trial court failed to
conduct.
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I. Preservation of error
As a prerequisite to presenting a complaint for appellate review, a party must
make the complaint known to the trial court by a timely request, objection, or
motion that states the grounds for the ruling the complaining party sought from the
trial court with sufficient specificity to make the court aware of the complaint and
obtain a ruling from the trial court. TEX. R. APP. P. 33.1.
In the trial court, Hamm expressly relied on the FAA in its motion to vacate,
with no reference to the TAA. Hamm argued, generally, that the arbitrator did not
follow the law and that the arbitrator exceeded his authority and demonstrated
unfair bias. At the hearing, Hamm told the trial court that it could vacate the
arbitrator’s award only based on statutory grounds, which again were expressly
and exclusively identified as the FAA: specifically that the arbitrator exceeded his
powers and was not impartial. The motion to vacate did not address manifest
disregard of the law or assert that the parties contractually agreed to a scope of
review different from the statute. Rather, it argued directly that the arbitrator made
errors of fact and law. Hamm presented no arguments to the trial court based on
the TAA, either in writing or orally at the hearing.
On appeal, Hamm devotes nearly 30 pages of briefing to arguing about how
the arbitrator misapplied the law or misconstrued the facts. Hamm contends that
the parties’ agreement specifies the applicability of the TAA, not the FAA, and that
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it contractually expands the scope of judicial review. These arguments depend on
the applicability of the TAA and the extension of recent case law from the
Supreme Court of Texas, which held that parties can contractually expand the
scope of judicial review under the TAA. See Nafta Traders, Inc. v. Quinn, 339
S.W.3d 84, 97 (Tex. 2011), cert. denied, 132 S. Ct. 455 (2011). These arguments
were not presented to the trial court. To the contrary, in the trial court Hamm
specifically argued for the statutory vacatur grounds in the FAA. Hamm never
mentioned the TAA or any expanded scope of judicial review sounding thereunder.
To the extent that Hamm has raised arguments on appeal that were not presented to
the trial court, they are not preserved for appellate review. See TEX. R. APP. P.
33.1.
II. Confirmation of award and denial of motion to vacate
Hamm has, however, generally raised the issue that the trial court erred in
confirming the arbitration award. In the trial court, Hamm moved to vacate the
arbitrator’s award under the FAA based on the grounds that the arbitrator exceeded
his authority and was not impartial. We review de novo a trial court’s
confirmation of an arbitration award under the FAA. Fogal v. Stature Constr.,
Inc., 294 S.W.3d 708, 718 (Tex. App.—Houston [1st Dist.] 2009, pet. denied).
Under the FAA, a court must confirm an arbitration award unless the award is
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vacated, modified, or corrected as prescribed by the statute. See 9 U.S.C. §§ 9–11.
The FAA provides the following grounds for vacating an arbitration award:
(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.
Id. § 10(a).
The United States Supreme Court has held that the statutory grounds for
vacatur are exclusive and cannot be varied or expanded by agreement. Hall Street
Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 584, 128 S. Ct. 1396, 1403 (2008). In
so ruling, the Supreme Court foreclosed any common-law ground for vacatur of an
arbitration award under the FAA. See id. at 582, 128 S. Ct. at 1402; Royce Homes,
L.P. v. Bates, 315 S.W.3d 77, 90 (Tex. App.—Houston [1st Dist.] 2010, no pet.)
(observing that “manifest disregard of the law” is not a proper grounds for vacatur
after Hall Street); see also Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349,
350 (5th Cir. 2009) (holding “manifest disregard of the law is no longer an
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independent ground for vacating arbitration awards under the FAA”). Thus, under
the FAA, Hamm is not entitled to de novo review of the arbitrator’s award by the
trial court.
Under the FAA, “[a] challenge that the arbitrator exceeded the ‘power’ or
‘authority’ granted him under the arbitration agreement is normally a challenge to
the arbitrator’s jurisdiction.” New Med. Horizons II, Ltd. v. Jacobson, 317 S.W.3d
421, 429 (Tex. App.—Houston [1st Dist.] 2010, no pet.); e.g., Myer v. Americo
Life, Inc., 232 S.W.3d 401, 408 (Tex. App.—Dallas 2007, no pet.) (under FAA,
“An arbitrator’s jurisdiction is defined by the contract containing the arbitration
clause and by the issues actually submitted to arbitration.”). An arbitrator’s
authority is derived from the arbitration agreement. See Allstyle Coil Co., L.P., v.
Carreon, 295 S.W.3d 42, 44 (Tex. App.—Houston [1st Dist.] 2009, no pet.); J.J.
Gregory Gourmet Servs. Inc. v. Antone’s Import Co., 927 S.W.2d 31, 35 (Tex.
App.—Houston [1st Dist.] 1995, no writ). An arbitrator exceeds his authority by
deciding a matter not presented to him. Brockman v. Tyson, 01-03-01335-CV,
2005 WL 2850128, at *4 (Tex. App.—Houston [1st Dist.] Oct. 27, 2005, pet.
denied); accord Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc., 294
S.W.3d 818, 829 (Tex. App.—Dallas 2009, no pet.); Barsness v. Scott, 126 S.W.3d
232, 241 (Tex. App.—San Antonio 2003, pet. denied). However, under the FAA’s
limited statutory vacatur grounds, an arbitrator does not exceed his authority by
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making a mistake of law or fact. See J.J. Gregory, 927 S.W.2d at 33; Pheng
Investments, Inc. v. Rodriguez, 196 S.W.3d 322, 329 (Tex. App.—Fort Worth
2006, no pet.). “Courts are not authorized to review the arbitrator’s decision on the
merits despite allegations that the decision rests on factual errors or misinterprets
the parties’ agreement.” Major League Baseball Players Ass’n v. Garvey, 532
U.S. 504, 509, 121 S. Ct. 1724, 1728 (2001).
In the motion to vacate, Hamm did not argue that the arbitrator lacked
jurisdiction or decided a matter that was not presented to him or within the scope
of the parties’ arbitration agreement. Rather, Hamm argued that the arbitrator
made mistakes of law and fact. This does not demonstrate that the arbitrator
exceeded his authority.
Hamm also argued that the arbitrator was biased. While bias is not a
statutory ground for vacatur, “evident partiality” is. See 9 U.S.C. § 10(a)(2).
However, the evident partiality standard refers to the obligation of the arbitrator to
disclose dealings “‘that might create an impression of possible bias.’” Mariner
Fin. Grp., Inc. v. Bossley, 79 S.W.3d 30, 35 (Tex. 2002) (quoting Commonwealth
Coatings Corp. v. Continental Cas. Co., 393 U.S. 145, 149, 89 S. Ct. 337 (1968)).
In the motion to vacate, Hamm did not argue that the arbitrator failed to disclose
dealings that might create an impression of possible bias. Rather, Hamm
complained about the arbitrator’s decision to allow Millennium to designate an
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additional witness after the arbitrator issued an initial order resolving the parties’
disputes. This does not demonstrate bias or evident partiality.
Because Hamm did not present valid grounds for vacating the award under
the FAA, the trial court did not err by confirming it. See 9 U.S.C. §§ 9–11.
III. Additional issues
Hamm raises three additional issues, complaining that the arbitrator
exceeded his authority, was unfairly biased, and did not rule on all claims.
Construing these issues broadly, we have already addressed the contentions that
the arbitrator exceeded his authority and was biased. Moreover, Hamm provides
no legal authority supporting his arguments as to these additional issues. The rules
of appellate procedure require a party’s brief to contain a “clear and concise
argument” for the party’s contentions and “appropriate citations to authorities and
to the record.” TEX. R. APP. P. 38.1(i). A party who fails to support his or her
contentions with authority or citations to the record when appropriate waives the
issue due to inadequate briefing. E.g., Izen v. Comm’n for Lawyer Discipline, 322
S.W.3d 308, 326 (Tex. App.—Houston [1st Dist] 2010, pet. struck) (holding that
party waived issue by failing to cite relevant legal authority to support argument);
Morrill v. Cisek, 226 S.W.3d 545, 548–49 (Tex. App.—Houston [1st Dist.] 2006,
no pet.) (holding party waived issues by failing to cite to record and authority).
We hold that Hamm has waived the additional issues, and we overrule them.
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Conclusion
We affirm the order of the trial court.
Michael Massengale
Justice
Panel consists of Justices Keyes, Massengale, and Brown.
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