Paul Ouzenne v. Carnell Haynes

Opinion issued April 12, 2012

In The

Court of Appeals

For The

First District of Texas

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NO. 01-10-00112-CV

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Paul Ouzenne, Appellant

V.

Carnell Haynes, Appellee

On Appeal from the 129th District Court

Harris County, Texas

Trial Court Case No. 2007-56667

MEMORANDUM OPINION

          We deny appellant’s motion for rehearing; however, we withdraw this Court’s opinion of May 12, 2001, and issue this opinion in its stead.  Our judgment of May 12, 2011 remains unchanged.

This is an appeal from an order confirming an arbitration award in favor of appellee, Carnell Haynes, on his claims against appellant, Paul Ouzenne, arising out of a construction contract.  In seven issues on appeal, Ouzenne contends the trial court erred in confirming the award because the arbitrator (1) made a “gross mistake,” (2) exceeded his powers, and (3) violated public policy and the law.  We affirm.

BACKGROUND

          According to his petition, Haynes approached Ouzenne about the possibility of Ouzenne building a four-plex apartment structure on Haynes’s property. In December 2006, Haynes and Ouzenne signed a construction contract for the proposed four-plex.  Unable to obtain financing for the project himself, Haynes alleged that Ouzenne told him that he would obtain the financing for Haynes. Thereafter, Haynes alleged that Ouzenne had him sign a contract of sale for the property from Haynes to Ouzenne. Haynes did so because he believed that it was necessary to obtain financing for the building project, but he did not realize that he would be transferring title to the property to Ouzenne. Thereafter, Ouzenne gave Haynes notice that he intended to evict Haynes from the property.

          In response, Haynes sued Ouzenne in 2007, asserting common-law fraud, statutory fraud, breach of fiduciary duty, promissory estoppel, and violations of the Texas Deceptive Trade Practices Act.  Ouzenne filed a motion to compel arbitration, which the trial court granted.

          After an arbitration before C. Johnson at the Dispute Resolution Center of Harris County, the arbitrator issued an award in Haynes’s favor for $136,410.60, plus pre and post-judgment interest.  Haynes moved to enter judgment based on the arbitrator’s award, and Ouzenne moved to vacate the arbitrator’s award.  On December 15, 2009, the trial court granted Haynes’s motion, denied Ouzenne’s motion, and entered a judgment confirming the arbitrator’s award.  After the trial court denied Ouzenne’s motion for new trial, this appeal followed.

CONFIRMATION OF ARBITRATION

Standard of Review

Review of a trial court’s decision as to vacatur or confirmation of an arbitration award is de novo and an appellate court reviews the entire record. In re Chestnut Energy Partners, Inc., 300 S.W.3d 386, 397 (Tex. App.––Dallas 2009, pet. denied); see also Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 567–68 (Tex. App.––Dallas 2008, no pet.) (discussing standard of review for confirmation of award). Because Texas law favors arbitration, however, our review is “extremely narrow.” See Hisaw & Assocs. Gen. Contractors, Inc. v. Cornerstone Concrete Sys., Inc., 115 S.W.3d 16, 18 (Tex. App.––Fort Worth 2003, pet. denied); IPCO–G. & C. Joint Venture v. A.B. Chance Co., 65 S.W.3d 252, 256 (Tex. App.—Houston [1st Dist.] 2001, pet. denied). An arbitration award has the same effect as a judgment of a court of last resort; accordingly, all reasonable presumptions are indulged in favor of the award and the award is conclusive on the parties as to all matters of fact and law. CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). Review of an arbitration award is so limited that even a mistake of fact or law by the arbitrator in the application of substantive law is not a proper ground for vacating an award. Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.—Dallas 2004, pet. denied).  Here, the parties agree that the Texas Arbitration Act governs their case.  See Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001–.098 (Vernon 2001).

Gross Mistake

In issues one, two, four, and seven, appellant contends the trial court erred in failing to vacate the arbitration award because the arbitrator committed a “gross mistake”[1] by (1) entering an award that relied on tax appraisals for determining fair market value (issues one and two), (2) failing to consider evidence that Haynes was aware and fully intended to sell his property to Ouzenne (issue four), and (3) failing to properly apply the parol evidence rule (issue seven).

      Gross mistake is a Texas state common law standard that has been used to attack arbitration awards. Callahan & Assocs. v. Orangefield Indep. Sch. Dist., 92 S.W.3d 841, 844 (Tex. 2002). A “gross mistake” is a mistake by the arbitrator that implies bad faith or failure to exercise honest judgment. Anzilotti v. Gene D. Liggin, Inc., 899 S.W.2d 264, 266 (Tex. App.—Houston [14th Dist.] 1995, no writ) (quoting Carpenter v. N. River Ins. Co., 436 S.W.2d 549, 551 (Tex. App.—Houston [14th Dist.] 1968, writ ref’d n.r.e.)).     Ouzenne argues that relying on the tax rolls to determine value was a gross mistake because tax rolls are no evidence of actual value.  In support, Ouzenne relies on Housing Auth. of Dallas v. Brown, 256 S.W.2d 656, 659 (Tex. Civ. App.—Dallas 1953, no writ), which held that error, if any, in refusing to admit evidence of tax value was harmless because “tax rolls do not reflect actual value,” but an “approximate percentage of actual value.” Id. Brown, however, does not state that the value as reflected on the tax rolls is of no probative value.

Ouzenne also relies on In re Marriage of Scott, 117, S.W.3d 580, 585 (Tex. App.—Amarillo 2003, no pet.), which we also find distinguishable.  In Scott, the wife in a divorce case presented evidence that the marital home was valued at $35,610.  Id. at 583.  She reached this value by relying on the tax appraisal from Hutchison County Appraisal District.  Id. at 585.  The court of appeals held this evidence of value was factually insufficient because the tax appraisal was over three years old on the date of trial and two experts, including the wife’s own expert, valued the property at much more. Id.  Scott, however, does not stand for the proposition that tax appraisals are no evidence, i.e., legally insufficient evidence, of fair market value.[2]

      Thus, we conclude that the arbitrator’s reliance on tax rolls to determine value does not rise to a level that implies the bad faith or failure to exercise honest judgment required to show gross mistake.

      Ouzenne also argues that the arbitrator committed gross mistake by disregarding testimony indicating that Haynes knew that he was selling the property to Ouzenne.  However, contentions that an arbitrator disregarded even uncontroverted testimony may show a mistake of fact or law, but do not rise to the level of gross mistake. See Graham-Rutledge & Co. v. Nadia Corp., 281 S.W.3d 683, 689 (Tex. App.—Dallas 2009, no pet.).  Furthermore, as fact-finder, the arbitrator could judge the credibility of the witnesses and choose who to believe or disbelieve.  See Xtria L.L.C. v. Intern. Ins. Alliance, Inc., 286 S.W.3d 583, 597 (Tex. App.—Texarkana 2009, pet. denied).

      Thus, we conclude that the arbitrator’s decision to believe Haynes’s evidence over Ouzenne’s, even if erroneous, does not rise to a level that implies the bad faith or failure to exercise honest judgment required to show gross mistake.

          Finally, Ouzenne contends that the arbitrator committed a “gross mistake” by failing to properly apply the parol evidence rule.  The arbitrator’s evidentiary ruling, even if erroneous, does not rise to a level that implies the bad faith or failure to exercise honest judgment required to show gross mistake.  See Anzilotti., 899 S.W.2d at 266 (holding that mistake of law is insufficient to set aside arbitration award).

          To the extent that points of error one, two, four, and seven claim that the arbitrator failed to give an honest consideration resulting in a gross mistake, they are overruled.

Exceeds Powers

In issue three, Ouzenne contends the arbitrator exceeded his powers, which is a statutory ground for vacating an arbitration award under section 171.088(a)(3)(A) of the Civil Practices and Remedies Code.  Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(3)(A). The authority of arbitrators is derived from the arbitration agreement and is limited to a decision of the matters submitted therein either expressly or by necessary implication. Gulf Oil Corp. v. Guidry, 160 Tex. 139, 327 S.W.2d 406, 408 (1959); see also Allstyle Coil Co., L.P., v. Carreon, 295 S.W.3d 42, 44 (Tex. App.—Houston [1st Dist.] 2009, no pet.) (stating scope of authority depends on the agreement). Arbitrators exceed their powers when they decide matters not properly before them. 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).

          Ouzenne argues that the arbitrator exceeded his powers because the arbitration agreement requires that all disputes “be resolved by binding arbitration in accordance with the rules of the American Arbitration Association [“AAA”],” and the arbitrator was not selected in accordance with those rules. Instead, Ouzenne complains that the “parties were ordered to binding arbitration at the Harris County Dispute Resolution Center,” which “unilaterally selected the Arbitrator, without providing a selection process.”

          However, the record shows that Ouzenne did not object to the method of appointing the arbitrator until after the arbitration was completed.  In fact, Ouzenne did not complain about the method for appointing the arbitrator until he filed his motion for new trial after the trial court confirmed the award.

The AAA rules upon which Ouzenne rely provide that a party must object to the jurisdiction of the arbitrator in a timely manner.  See Thomas Petroleum, Inc. v. Morris, No. 01-09-01065-CV, 2011 WL 742651, at *3, (Tex. App.—Houston [1st Dist.] Mar. 3, 2011, no pet.) (citing Employment Arbitration Rules and Mediation Procedures, Rule 6(c) (formerly known as National Rules for Resolution of Employment Disputes)). The same is true under Texas common law. Id. (citing L.H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 352–53 (Tex. 1977) (holding that, when both parties participate in arbitration proceedings, neither unequivocally withdraws its consent to arbitrate, and arbitration proceedings result in award, award is valid and enforceable)).
          Thus, Ouzenne’s right to complain about the method by which the arbitrator was selected is waived.  See Slaughter v. Crisman & Nesbit, 152 S.W. 205, 207–08 (Tex. Civ. App—San Antonio 1912, no writ) (holding that when party to arbitration appeared and offered testimony before and after appointment of third arbitrator, he waived any irregularity in procedure occurring before the appointment of third arbitrator as required by agreement).

          Because Ouzenne participated in the arbitration without complaining about the method by which the arbitrator was selected until after the arbitration was concluded and a judgment thereon was confirmed, the trial court did not err by concluding that the arbitrator did not exceed his authority by deciding matters not properly before him.

          We overrule issue three.

Violates Public Policy and the Law

          In issues five and six, Ouzenne contends the trial court erred in failing to vacate the arbitration award because it “violates public policy and the law.”  Specifically, Ouzenne complains that (1) the arbitration award did not specify a “laundry list” DTPA violation, and (2) was not based on a good or service as defined by the DTPA.

          Ouzenne’s claim, however, is not that the award should be vacated because it is unlawful,[3] but that the trial court committed an error of law.  And, although Ouzenne claims that the award violates public policy, he cites no way in which the award violates “carefully articulated, fundamental policy.”  CVN Group, 95 S.W.3d at 239.

“[A]lleged errors in the application of substantive law by the arbitrators during the proceedings in arbitration are not reviewable by the court on a motion to vacate an award.” Jamison & Harris v. Nat’l Loan Investors, 939 S.W.2d 735, 737 (Tex. App.—Houston [14 Dist.] 1997, writ denied). A mistake of fact or law is insufficient to set aside an arbitration award. Anzilotti, 899 S.W.2d at 266.

 We overrule issues five and six.

CONCLUSION

          We affirm the judgment of the trial court.

                                                                   Sherry Radack

                                                                   Chief Justice

Panel consists of Chief Justice Radack and Justice Bland.[4]

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[1]           The Supreme Court has recently held that the statutory grounds provided in sections 10 and 11 of the Federal Arbitration Act for vacating, modifying, or correcting an arbitration award are the exclusive grounds for vacating an arbitration award.  Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 584, 128 S. Ct. 1396, 1403 (2008).  However, the Texas Supreme Court has expressed no opinion as to the continued viability of common law grounds for attacking an arbitration under the TAA.  See E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 270 n.7 (Tex. 2010) (“We express no opinion on this issue [of whether an arbitration under the TAA can be set aside on common law grounds.].”0.

[2]           We also note that commentators have suggested that “[t]he Scott case may be good law in rural counties where years may intervene between value appraisal dates or where expert opinions vary greatly from the tax rolls, but this case may not apply to urban counties where values are updated yearly.”   2 Stewart W. Gagnon, et al., Tex. Practice Guide: Family Law § 8.428 (2010).

[3]           For example, an arbitration may be set aside as unlawful if it is based on an unlawful contract.  See CVN Group, 95 S.W.3d at 238 (“[A]n illegal contract unenforceable by litigation should not gain legitimacy through arbitration.”).

⁴           Justice Elsa Alcala, who participated in this case on original submission, took the oath of office as a Judge of the Court of Criminal Appeals of Texas on May 20, 2011 and is no longer a member of this Court.  See Tex. Const. art. XVI, § 40. Thus, Justice Alcala did not participate in the decision to deny rehearing in this case.