Stephen Dawson v. Wells Fargo Bank National Association

In The
Court of Appeals
Ninth District of Texas at Beaumont
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NO. 09-15-00035-CV
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STEPHEN DAWSON, Appellant
V.
WELLS FARGO BANK NATIONAL ASSOCIATION, Appellee
__________________________________________________________________
On Appeal from the 410th District Court
Montgomery County, Texas
Trial Cause No. 13-01-00965-CV
________________________________________________________________________
MEMORANDUM OPINION
Stephen Dawson (Dawson) appeals the trial court‟s judgment granting Wells
Fargo Bank National Association‟s Motion to Confirm Arbitration Award and
denying Dawson‟s Motion to Vacate Arbitration Award. In two appellate issues,
Dawson argues that (1) “the arbitrator panel‟s failure to take an Oath of Office,
Anti-Bribery Statement, and secure proper „Notice of Appointments‟ renders their
Arbitration Award void[,]” and (2) Dawson was unaware “of the fatal defects
regarding the arbitrator‟s lack of authority until after [the] arbitration proceedings
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finished,” and therefore he should be able to “bring a collateral attack” in this
appeal. We affirm the trial court‟s judgment.
BACKGROUND
In 2005, Wells Fargo Bank National Association (Wells Fargo) entered into
a credit agreement establishing a $5,000,000 loan from Wells Fargo to TCB
Holding Company. The note was amended and restated several times, resulting in
an amended note in the amount of $7,165,869.01 and an amended credit
agreement. As security for the amended note, Dawson and two other individuals
(collectively “plaintiffs”) personally guaranteed payment of certain amounts of
indebtedness under the amended note. According to Wells Fargo, TCB Holding
Company defaulted on the amended note, and the plaintiffs, as guarantors, did not
pay the amounts due under the guaranty agreements after Wells Fargo demanded
payment.
In January 2013, plaintiffs filed a suit against Wells Fargo and Nicholas
Schoolar (collectively “defendants”) for declaratory judgment and asserting claims
for fraud and fraudulent inducement regarding the plaintiffs‟ personal guaranties
on the amended note with Wells Fargo. The plaintiffs requested that the trial court
declare the parties‟ rights and obligations pursuant to the guaranty agreements and
declare that (1) the guaranty agreements are void for lack of consideration and are
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illusory and unconscionable, (2) the guaranty agreements are void because of
defendants‟ fraud and fraudulent inducement, and (3) plaintiffs owe no obligation
to Wells Fargo under the guaranty agreements. The petition further alleged that the
defendants made false representations to the plaintiffs to induce them into signing
the guaranty agreements, that the plaintiffs relied on the false representations when
they entered into the guaranty agreements, and that the plaintiffs‟ reliance on the
false misrepresentations caused plaintiffs‟ injuries for which they are seeking
damages from the defendants.
On March 20, 2013, Wells Fargo filed a Demand for Arbitration with the
American Arbitration Association (AAA) against plaintiffs. On March 22, 2013,
Wells Fargo filed its Motion to Compel Arbitration and Stay Proceedings Pending
Arbitration with the trial court. In the motion, Wells Fargo alleged that pursuant to
the language of the guaranty agreements, plaintiffs consented to binding arbitration
of all claims, disputes, and controversies arising out of or relating to the guaranty
agreements upon demand of Wells Fargo. According to Wells Fargo, plaintiffs
executed a valid and binding agreement to arbitrate, plaintiffs‟ claims must be
submitted to arbitration, and the Federal Arbitration Act (FAA) governs because
Wells Fargo and the plaintiffs agreed that the arbitration would be governed by the
FAA, and because the guaranty agreements affect interstate commerce. Wells
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Fargo also alleged in the motion that the plaintiffs‟ claims are within the scope of
the arbitration agreement. The trial court granted the motion and ordered the
parties to arbitrate “the claims alleged by Plaintiffs in their Original Petition, Suit
for Declaratory Judgment and Request for Disclosure.”
The appellate record includes a copy an email to the parties from the AAA
with a copy of the Notice of Appointments/Arbitrator‟s Oath signed by arbitrators
William Lemons (Lemons), Robert Kelly (Kelly), and D.M. Freedman
(Freedman). The email requested that “Comments/objections should be sent to [the
AAA representative] no later than July 8, 2013.” The record also includes a copy
of the guaranty agreement signed by the parties. In the guaranty agreement, the
parties expressly agreed to submit their disputes to arbitration, and therein they
agreed that the Federal Arbitration Act controlled and that the arbitration would be
conducted by the AAA or such administrator as the parties shall mutually agree, in
accordance with the AAA‟s commercial dispute resolution procedures. With
respect to the qualifications of the arbitrator, the guaranty agreements expressly
provided
(d) Arbitrator Qualifications and Powers. Any arbitration proceeding
in which the amount in controversy is $5,000,000.00 or less will be
decided by a single arbitrator selected according to the Rules, and who
shall not render an award of greater than $5,000,000.00. Any dispute
in which the amount in controversy exceeds $5,000,000.00 shall be
decided by majority vote of a panel of three arbitrators . . . . The
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arbitrator will be a neutral attorney licensed in the State of Texas with
a minimum of ten years‟ experience in the substantive law applicable
to the subject matter of the dispute to be arbitrated. The arbitrator will
determine whether or not an issue is arbitratable and will give effect to
the statutes of limitation in determining any claim. In any arbitration
proceeding the arbitrator will decide (by documents only or with a
hearing at the arbitrator‟s discretion) any pre-hearing motions which
are similar to motions to dismiss for failure to state a claim or motions
for summary adjudication. The arbitrator shall resolve all disputes in
accordance with the substantive law of Texas and may grant any
remedy or relief that a court of such state could order or grant within
the scope hereof and such ancillary relief as is necessary to make
effective any award. The arbitrator shall also have the power to award
recovery of all costs and fees, to impose sanctions and to take such
other action as the arbitrator deems necessary to the same extent a
judge could pursuant to the Federal Rules of Civil Procedure, the
Texas Rules of Civil Procedure or other applicable law. Judgment
upon the award rendered by the arbitrator may be entered in any court
having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party
contests such action for judicial relief.
The arbitration began on May 13, 2014, and concluded on May 15, 2014,
and Lemons, Kelly, and Freedman served as arbitrators. The arbitration award
dated September 19, 2014, stated that each plaintiff is liable to Wells Fargo for the
sum of $2,250,000, and that they were jointly and severally liable to Wells Fargo
in the amounts of “$456,176.50 in reasonable and necessary attorneys‟ fees[,]” and
“58,230.65 in reasonable and necessary litigation expenses and costs incurred[.]”
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The arbitration award also awarded Wells Fargo pre-judgment and post-judgment
interest.
On October 14, 2014, Dawson, who was initially represented by an attorney
during the arbitration, filed a pro se Petition to Vacate the Final Arbitration Award,
asserting for the first time that the arbitrators should have filed an “Oath of Office”
and an “Anti-Bribery Statement” with the Texas Secretary of State. Dawson also
objected for the first time to the notarizations of the AAA Notice of Appointments
for Lemons and Kelly alleging form defects in the notarization of the notices.
According to Dawson, arbitrators Lemons, Kelly, and Freedman should have been
disqualified from serving until they complied with “the Texas Constitution, the
Texas Government Code, and AAA bylaws requiring [them] to take a proper Oath
of Office and anti-bribery Statement.”
On October 27, 2014, Wells Fargo filed its Motion to Confirm Arbitration
Award and Response to Stephen Dawson‟s Petition to Vacate Final Arbitration
Award. Therein, Wells Fargo argued that the arbitrators were not required to file an
“Oath of Office” or an “Anti-Bribery Statement” under the Texas Constitution
because the arbitrators were not appointed by the State. On December 16, 2014,
the trial court granted Wells Fargo‟s Motion to Confirm Arbitration Award, denied
Dawson‟s Petition to Vacate Arbitration Award, and entered a final judgment.
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DAWSON‟S REQUEST TO SET ASIDE THE ARBITRATION AWARD
In Dawson‟s first issue, he argues the arbitrators, in failing to take a proper
Oath of Office, exceeded their powers, and therefore the arbitration award may be
vacated under the FAA pursuant to 9 U.S.C. § 10(a)(4). He asserts that “[u]nder
the Texas Constitution, case law, and the Texas Government Code, official acts of
appointed officers that do not take the Oath of Office and Anti-Bribery Statement
are void.” In arguing that the arbitrators are required to file an Oath of Office and
Anti-Bribery Statement, Dawson cites to article XVI, section 1 of the Texas
Constitution, section 601.008(c) of the Texas Government Code, the AAA bylaws,
and Aldine Independent School District v. Standley, 280 S.W.2d 578, 583 (Tex.
1955).
Article 16, section 1 of the Texas Constitution provides the following:
(a) All elected and appointed officers, before they enter upon the
duties of their offices, shall take the following Oath or Affirmation:
“I, ___________, do solemnly swear (or affirm), that I will faithfully
execute the duties of the office of ___________ of the State of Texas,
and will to the best of my ability preserve, protect, and defend the
Constitution and laws of the United States and of this State, so help
me God.”
(b) All elected or appointed officers, before taking the Oath or
Affirmation of office prescribed by this section and entering upon the
duties of office, shall subscribe to the following statement:
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“I, ___________, do solemnly swear (or affirm) that I have not
directly or indirectly paid, offered, promised to pay, contributed, or
promised to contribute any money or thing of value, or promised any
public office or employment for the giving or withholding of a vote at
the election at which I was elected or as a reward to secure my
appointment or confirmation, which the case may be, so help me
God.”
Tex. Const. art. XVI, § 1(a), (b). Section 601.008(b) of the Texas Government
Code states that “[a] person who has not been elected or appointed to an office or
has not qualified for office, as prescribed by Subsection (a), is not entitled to . . .
exercise the powers or jurisdiction of the office.” Tex. Gov‟t Code Ann. §
601.008(b) (West 2012). Subsection (c) provides that “[t]he official acts of a
person who claims a right to exercise the power or jurisdiction of an office
contrary to this section are void.” Id. § 601.008(c). According to Dawson, the
AAA bylaws state that each arbitrator “may take an oath of office and, if required
by law, shall do so.” Dawson contends that the arbitration panel consisted of
“appointed officers” under Texas law and that “[t]here is no doubt that under the
Texas Constitution each arbitrator must take an oath of office and anti-bribery
statement.” Dawson conflates the provisions of Article XVI, section 1 of the Texas
Constitution with the rules governing arbitration.
Dawson fails to cite to any binding authority, nor are we aware of any such
authority, that applies the oath requirement in article XVI, section 1 of the Texas
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Constitution to arbitrators. Dawson argues on appeal that “[r]elevant case law
overwhelms Wells Fargo‟s argument [that arbitrators are not required under the
Texas Constitution to file an oath of office or an anti-bribery statement] because,
[under Aldine Independent School District v. Standley,] „the determining factor
which distinguishes a public officer from an employee is whether any sovereign
function of the government is conferred upon the individual to be exercised by him
for the benefit of the public largely independent of [the control of others].‟” See
Aldine, 280 S.W.2d at 583. According to Dawson, “Aldine makes perfectly clear
that the act of adjudicating a dispute such as a Judge would do” is a sovereign
function of the government conferred upon the individual to be exercised by him
for the benefit of the public largely independent of others‟ control. We disagree.
In Aldine, L.B. Standley, the former tax assessor-collector for the Aldine
Independent School District, filed a claim against the school district seeking seven
months‟ salary, claiming that he was a public officer and that the school district
lacked the power to discharge him until the end of his two year term. Standley
alleged that prior to February 1, 1950, he was appointed by the Board of Trustees
as assessor-collector of taxes for a period of one year, beginning February 1, 1950,
to receive a monthly salary, that he gave the bond required by the School trustees,
and that he took the proper oath of office and entered upon the discharge of the
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duties of his office. Standley pursued an administrative claim with the State Board
of Education and he was denied any relief. In his suit before the district court,
Standley claimed that he was a public officer under the provisions of Article XVI,
Section 30 of the Texas Constitution, and that as such his term of office was fixed
at two years, and the school board had no power to discharge him until the end of
his term, except as is provided by Article V, Section 24, of the State Constitution.
He further argued that under Article V, Section 24, “County Judges, county
attorneys, clerks of the District and County Courts, justices of the peace,
constables, and other county officers, may be removed by the Judges of the District
Courts for incompetency, official misconduct, habitual drunkenness, or other
causes defined by law, upon the cause therefor being set forth in writing and the
finding of its truth by a jury.” The trial court denied any relief to Standley and on
appeal the Court of Civil Appeals reversed and rendered a judgment for Standley.
The Texas Supreme Court reversed the Court of Appeals and rendered
judgment for the school district. The school district had the authority to discharge
Standley. He was not a “public officer” but an agent or employee of the school
district. 280 S.W.2d at 582. In analyzing the nature of Standley‟s position the
Court noted that Standley‟s power was not equivalent with the school board
trustees, and only the school board could actually levy taxes. The Court cited with
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approval a quote from a Court of Civil Appeals opinion that examined various
definitions of a public officer: “„it is apparent, we think, that the determining factor
which distinguishes a public officer from an employee is whether any sovereign
function of the government is conferred upon the individual to be exercised by him
for the benefit of the public largely independent of the control of others.’
(Emphasis added.)” Id. Although the assessment and collection of taxes is
generally part of the sovereign power of the State, “this power is lodged by the
Legislature and Constitution in the school board, and not in the office of the
assessor-collector. He is but an agent or employee of the Board to discharge the
clerical duties necessary to carry out the school board‟s powers of taxation.” Id. at
583. The analysis and holding in Aldine does not support Dawson‟s argument in
this appeal. In the context of this arbitration proceeding, we conclude that the
arbitrators are not “public officers.”
“Arbitrators derive their power from the parties‟ agreement to submit to
arbitration.” Americo Life, Inc. v. Myer, 440 S.W.3d 18, 21 (Tex. 2014) (citing City
of Pasadena v. Smith, 292 S.W.3d 14, 20 (Tex. 2009)). They have no independent
source of jurisdiction apart from the parties‟ consent.” Id. (citing I.S. Joseph Co. v.
Mich. Sugar Co., 803 F.2d 396, 399 (8th Cir. 1986)). “[A]rbitrators must be
selected pursuant to the method specified in the parties‟ agreement.” Id. Dawson
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does not allege and the record does not indicate that the arbitrators were selected or
appointed in violation of the parties‟ agreement. The AAA appointed a panel of
three arbitrators to decide the controversy between the parties to the arbitration
agreement. Additionally, Dawson does not allege that the arbitrators were biased or
that their decision was the result of fraud. Rather, he claims there was a defect in
the oath that was taken by the arbitrators.
Unlike “public officers” who are appointed by the Governor or elected
officials, arbitrators benefit the parties to the arbitration agreement—not the public.
Arbitrators do not have a sovereign function that is otherwise independent of the
control of others. They serve as per the arbitration agreement of the parties and
once the arbitration panel issues an arbitration award the award is then confirmed
by a trial court. The arbitrators were appointed by the AAA to decide the
controversy pursuant to the parties‟ contract and their service as arbitrators does
not make them “public officers” even under the standard outlined in Aldine. Under
the AAA rules, the arbitrators “may take an oath” but the law does not require
them to take the oath of office and anti-bribery statement as outlined in Article
XVI, Section 1. We overrule issue one.
As to Dawson‟s objections to the notarization of the AAA Notice of
Appointment and oath as taken by the arbitrators, we conclude that Dawson
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waived such objections by not raising them in a timely manner prior to the
deadline set by the AAA. Dawson contends he lacked “actual or constructive
notice of the fatal defects until after the waiver period” and he “was never notified
by his attorneys at the time of any waiver period in which to challenge the
proceedings.” However, an attorney‟s knowledge or notice acquired during the
existence of the attorney-client relationship and while acting within the scope of
his authority is imputed to the client. See Am. Flood Research, Inc. v. Jones, 192
S.W.3d 581, 584 (Tex. 2006) (citing Gavenda v. Strata Energy, Inc., 705 S.W.2d
690, 693 (Tex. 1986)); McMahan v. Greenwood, 108 S.W.3d 467, 480-81 (Tex.
App.—Houston [14th Dist.] 2003, pet. denied); Lehrer v. Zwernemann, 14 S.W.3d
775, 778 (Tex. App.—Houston [1st Dist.] 2000, pet. denied). Furthermore, to the
extent that Dawson claims he should be allowed to raise a collateral attack on
appeal he has failed to demonstrate a basis for such claim. Additionally, because
we conclude that the “Oath of Officer” and the “Anti-Bribery Statement” required
of state-appointed officers pursuant to Article XVI, section 1 of the Texas
Constitution does not apply to arbitrators, he has no “constitutional challenge.”
Issue two is overruled.
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We affirm the trial court‟s judgment.
AFFIRMED.
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LEANNE JOHNSON
Justice
Submitted on August 6, 2015
Opinion Delivered December 23, 2015
Before Kreger, Horton, and Johnson, JJ.
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