Nancy Higginson, Debbie Cheadle, Edward Cheadle, Arthur Cheadle, Wayne Carson, Finney Cheadle, Cheryl Shoop, and Keith Sawaya v. Raeanne Martin

ACCEPTED
07-15-00343-CV
SEVENTH COURT OF APPEALS
AMARILLO, TEXAS
12/18/2015 3:30:14 PM
Vivian Long, Clerk
Oral Argument Requested
No. 07-15-00343-CV
____________________________________________
FILED IN
7th COURT OF APPEALS
COURT OF APPEALS AMARILLO, TEXAS
for the 12/18/2015 3:30:14 PM
SEVENTH DISTRICT OF TEXAS VIVIAN LONG
CLERK
________________________________________
Nancy Higginson, Debbie Cheadle, Edward Cheadle, Arthur Cheadle,
Wayne Carson, Finney Cheadle, Cheryl Shoop, and Keith Sawaya,
Appellants,
v.
Raeanne Martin,
Appellee.
________________________________________
Appeal from the 72nd Judicial District Court
of Lubbock County, Texas
Honorable Ruben G. Reyes, Presiding Judge
________________________________________
BRIEF FOR APPELLEE
________________________________________
Terry Scarborough G. Michael Gruber Jeffrey S. Levinger
State Bar No. 17716000 State Bar No. 08555400 State Bar No. 12258300
tscarborough@hslawmail.com mgruber@ghetrial.com Levinger PC
Hance Scarborough, L.L.P. Michael J. Lang 1445 Ross Avenue
400 West 15th Street State Bar No. 24036944 Suite 2500
Suite 950 mlang@ghetrial.com Dallas, Texas 75202
Austin, Texas 78701 Priya A. Bhaskar Tel: 214-855-6817
Tel: 512-479-8888 State Bar No. 24082690 Fax: 214-855-6808
Fax: 512-479-6891 pbhaskar@ghetrial.com jlevinger@levingerpc.com
Gruber Hurst Elrod Attorneys for Appellee
Johansen Hail Shank LLP
1445 Ross Avenue
Suite 2500
Dallas, Texas 75202
Tel: 214-855-6800
Fax: 214-855-6808
IDENTITY OF PARTIES AND COUNSEL
Pursuant to TEX. R. APP. P. 38.1(a), the following is a complete list of all
parties to the trial court’s judgment and the names and addresses of all trial counsel
and appellate counsel.
1. Defendants-Appellants:
Nancy Higginson Wayne Carson
Debbie Cheadle Cheryl Shoop
Edward Cheadle Finney Cheadle
Arthur Cheadle Keith Sawaya
2. Counsel for Defendants-Appellants:
J. Paul Manning (trial and appeal)
Anna McKim (appeal)
Field, Manning, Stone, Hawthorne
& Aycock, P.C.
2112 Indiana
Lubbock, Texas 79410
3. Plaintiff-Appellee:
Raeanne Martin
4. Counsel for Plaintiff-Appellee:
Terry Scarborough G. Michael Gruber Jeffrey S. Levinger
Hance Scarborough, Michael J. Lang Levinger PC
L.L.P. Priya A. Bhaskar 1445 Ross Avenue
400 West 15th Street Gruber Hurst Elrod Suite 2500
Suite 950 Johansen Hail Shank LLP Dallas, Texas 75202
Austin, Texas 78701 1445 Ross Avenue (Appeal)
(Trial and appeal) Suite 2500
Dallas, Texas 75202
(Trial and appeal)
i
TABLE OF CONTENTS
Identity of Parties and Counsel ...................................................................................i
Index of Authorities ..................................................................................................iv
Statement of the Case.............................................................................................. vii
Statement Regarding Oral Argument .................................................................... viii
Issues Presented ........................................................................................................ix
Statement of Facts and Procedural History................................................................ 1
Summary of the Argument.......................................................................................12
Argument..................................................................................................................15
I. Standards of Reviewing Arbitration Awards. ...............................................15
II. The Trial Court Correctly Vacated the Arbitration Award Because the
Arbitrators Exceeded Their Powers by Awarding Damages Resulting
from a Stock Transfer that the Parties Agreed Is Void and Inoperative. ...... 17
A. Once the Arbitrators Determined that the Purported Transfer
Breached the Shareholders’ Agreement, Their Only Power Was
to Hold that the Transfer Is Void. .......................................................18
B. The Higginson Parties’ Speculation About What the Arbitrators
Might Have Done Is Inconsistent With the Shareholders’
Agreement, the Arbitration Pleadings, and the Law. ..........................25
III. The Trial Court Correctly Vacated the Arbitration Award Because the
Arbitrators Exceeded Their Powers by Refusing to Accept the Parties’
Settlement Agreement that Would Have Ended Their Dispute. ................... 34
A. Once the Parties Agreed to Settle Their Dispute, the Arbitrators
Had No Power to Require Further Proceedings or to Award
Damages. .............................................................................................35
B. Contrary to the Higginson Parties’ Arguments, the Parties’
Settlement Agreement Was Enforceable and Binding on the
Arbitrators. ..........................................................................................38
ii
C. The Trial Court Properly Handled the Settlement Issue. ....................43
IV. The Trial Court Correctly Denied the Higginson Parties’ Petition to
Confirm the Arbitration Award. ....................................................................45
Prayer .......................................................................................................................47
Certificate of Compliance ........................................................................................48
Certificate of Service ...............................................................................................49
Appendix:
Order Granting Amended Motion to Vacate Arbitration Award
and Denying Petition to Confirm and Enforce Award of
Arbitrators, signed on September 1, 2015 (2 CR 1909-11)....................... tab 1
Shareholders’ Agreement between Certain Shareholders of
Russell E. Womack, Inc., dated January 1, 2008 (4 RR at PX 3) ............. tab 2
Plaintiffs’ First Amended Original Petition in Arbitration,
dated October 1, 2014 (4 RR at PX 5)....................................................... tab 3
February 5, 2015 email attaching Arbitration Award
(4 RR at PX 11) ......................................................................................... tab 4
Amended Motion to Vacate or Modify Arbitration Award,
filed August 19, 2015 (2 CR 1720-33) ...................................................... tab 5
iii
INDEX OF AUTHORITIES
Cases
Abraham Investment Co. v. Payne Ranch, Inc.,
968 S.W.2d 518 (Tex. App. -- Amarillo 1998, pet. denied) ................................32
Bakers Union Factory No. 326 v. ITT Continental Baking Co., Inc.,
749 F.2d 350 (6th Cir. 1984) ........................................................................ passim
Centex/Vestal v. Friendship West Baptist Church,
314 S.W.3d 677 (Tex. App. -- Dallas 2010, pet. denied) ............................. 29, 30
Commonwealth Land Title Ins. Co. v. Nelson, 889 S.W.2d 312
(Tex. App. -- Houston [14th Dist.] 1994, writ denied) ........................................19
Cooper Natural Resources, Inc. v. Int’l Union of Operating
Engineers, Local 351, No. 4:97-CV-669-A, 1998 WL 25547
(N.D. Tex. Jan. 12, 1998) .....................................................................................37
Delta Queen Steamboat Co. v. District 2 Marine Engineers
Beneficial Ass’n, 889 F.2d 599 (5th Cir. 1989) ...................................... 15, 22, 23
Disney v. Gollan, 233 S.W.3d 591 (Tex. App. --
Dallas 2007, no pet.) ............................................................................................41
Executone Information Sys., Inc. v. Davis, 26 F.3d 1314 (5th Cir. 1994) ...............16
Flanagan v. Martin, 880 S.W.2d 863 (Tex. App. --
Waco 1994, writ dism’d w.o.j.)............................................................................36
Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671 (Tex. 2000) ............................27
Gulf Oil Corp. v. Guidry, 327 S.W.2d 406 (Tex. 1959) .................................. passim
Harris v. Archer, 134 S.W.3d 411 (Tex. App. --
Amarillo 2004, pet. denied)..................................................................................20
In re Chestnut Energy Partners, Inc., 300 S.W.3d 386
(Tex. App. -- Dallas 2009, pet. denied)...............................................................15
Jamison & Harris v. Nat’l Loan Investors, 939 S.W.2d 735
(Tex. App. -- Houston [14th Dist.] 1997, writ denied) ........................................16
iv
Lone Star Cotton Mills v. Thomas, 227 S.W.2d 300
(Tex. Civ. App. -- El Paso 1949, writ ref’d n.r.e.) ...............................................22
Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84 (Tex. 2011) ............................... 15, 18
Padilla v. LaFrance, 907 S.W.2d 454 (Tex. 1995) .................................................42
Peacock v. Wave Tec Pools, Inc., 107 S.W.3d 631 (Tex. App. --
Waco 2003, no pet.) .............................................................................................16
Plains Exploration & Prod. Co. v. Torch Energy Advisors Inc.,
___ S.W.3d ___, 2015 WL 3653330 (Tex. June 12, 2015) .................................19
Russ Berrie and Co., Inc. v. Gantt, 998 S.W.2d 713 (Tex. App. --
El Paso 1999, no pet.)...........................................................................................46
Seals v. Herzing Inc.-New Orleans, 482 Fed. Appx. 893
(5th Cir. June 29, 2012)........................................................................................40
Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564 (Tex. App. --
Dallas 2008, no pet.) ............................................................................................16
Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.,
___ U.S. ___, 130 S. Ct. 1758 (2010) ..................................................................18
Totem Marine Tug & Barge, Inc. v. North American
Towing, Inc., 607 F.2d 649 (5th Cir. 1979) ................................................. 30, 31
Townes Telecommunications, Inc. v. Travis, Wolff & Co., L.L.P.,
291 S.W.3d 490 (Tex. App. -- Dallas 2009, pet. denied) ....................... 15, 16, 23
Rules
TEX. R. APP. P. 44.1 .................................................................................................45
TEX. R. CIV. P. 11 ............................................................................................. passim
TEX. R. EVID. 408 .....................................................................................................45
Statutes
9 U.S.C. § 10 ............................................................................................................22
9 U.S.C. § 10(a)(4) ............................................................................................ 15, 47
v
TEX. CIV. PRAC. & REM. CODE § 154.073................................................................44
TEX. CIV. PRAC. & REM. CODE § 154.073(c) ...........................................................44
TEX. CIV. PRAC. & REM. CODE § 171.088(a)(3)(A) ......................................... passim
Other Authorities
97 AM. JUR. TRIALS, Arbitrator Selection and Service § 121 (2005) ......................37
AAA COMM. R. 43 ...................................................................................................43
AAA COMM. R. 47 ...................................................................................................40
AAA COMM. R. 47(a) ..............................................................................................40
AAA COMM. R. 48 ...................................................................................................39
BLACK’S LAW DICTIONARY (6th ed. 1990) ..............................................................19
vi
STATEMENT OF THE CASE
Nature of This case involves a dispute among the shareholders of
the Case: Russell E. Womack, Inc. (“REW”) concerning the right of
Raeanne Martin (“Martin”) to transfer her shares in REW
to members of one group of shareholders (“the Byrne
Parties”) instead of another group of shareholders (“the
Higginson Parties”).
Course of The trial court ordered Martin and the Higginson Parties to
Proceedings: arbitrate their dispute in accordance with the Shareholders’
Agreement to which they were parties. (1 CR 1253-55)
The arbitrators awarded the Higginson Parties $2,000,000
in damages resulting from Martin’s purported transfer of
her shares to the Byrnes, along with $322,023.25 in legal
fees and $5,725 in costs. (1 CR 1351; 4 RR at PX 2) The
Higginson Parties petitioned the trial court to confirm the
arbitration award (1 CR 1346-52), and Martin moved to
vacate or modify it on the ground that the arbitrators had
exceeded their powers by (1) awarding damages for a
transfer that the Shareholders’ Agreement provided was
void and inoperative, and (2) refusing to accept a
settlement agreement that would have resolved all disputes
between Martin and the Higginson Parties (2 CR 1720-33
[App. 5]).
Trial Court: 72nd Judicial District Court of Lubbock County, Texas;
Honorable Ruben G. Reyes, presiding judge.
Trial Court’s After an evidentiary hearing, the trial court signed an order
Disposition of the on September 1, 2015 granting Martin’s motion to vacate
Case: the arbitration award and denying the Higginson Parties’
petition to confirm the award. (2 CR 1909-11 [App. 1])
vii
STATEMENT REGARDING ORAL ARGUMENT
Given the relative size and complexity of the record in this case, Appellee
believes that oral argument may significantly aid this Court’s decisional process.
viii
ISSUES PRESENTED
1. Did the trial court correctly grant Martin’s motion to vacate the
arbitrators’ award of $2,000,000 in damages and $322,023.25 in legal fees, when
(1) the parties’ Shareholders’ Agreement provided that the sole remedy for a stock
transfer in breach of the Agreement was to void the purported transfer and return the
shares to the breaching transferor, and (2) the arbitrators thus exceeded their powers
by awarding damages for a purported stock transfer that the parties agreed would be
treated as if it had never happened?
2. Did the trial court correctly grant Martin’s motion to vacate the
arbitrators’ award on the alternative ground that (1) the parties agreed to settle their
dispute and submitted an agreed “Arbitration Award” to the arbitrators, and (2) the
arbitrators exceeded their powers by refusing to approve the settlement agreement
and instead proceeding to a hearing where they issued an award inconsistent with
the parties’ settlement agreement?
3. Having correctly granted Martin’s motion to vacate the arbitration
award, did the trial court also correctly deny the Higginson Parties’ petition to
confirm the arbitration award?
ix
STATEMENT OF FACTS AND PROCEDURAL HISTORY
The Higginson Parties’ “statement of facts” has the virtue of being brief, but
the result is that it omits or glosses over many important facts -- both historical and
procedural -- that demonstrate why the trial court was correct in vacating the $2.3
million arbitration award against Martin. The following statement will attempt to
fill in the missing gaps.
1. The Parties’ Agreements
Russell E. Womack was the sole shareholder of Russell E. Womack, Inc.
(“REW”), a closely-held Texas corporation. (1 CR 10, 1357) Upon his death, his
entire estate, including his stock in REW, was left to his and his late wife’s nieces
and nephews. (1 CR 10, 1357) Through inheritance and transfers, three groups of
family members came to own the stock in REW:
● The Higginson Parties, which included Nancy Higginson,
Debbie Cheadle, Edward Cheadle, Arthur Cheadle, Wayne
Carson, Finney Cheadle, Cheryl Shoop, and Keith Sawaya.
● Raeanne Martin.
● The Byrne Parties, which included Michael Byrne, Richard
Byrne, James Byrne, Jr., Barbara Holladay, West Womack,
and Carolyn Cain.
(1 CR 10, 967) Importantly, none of these groups owned or controlled a majority of
the REW shares -- even if every person in each group had voted together. (1 CR
967)
1
In 2007, shortly after the final disposition of Womack’s estate, Nancy
Higginson proposed that Martin and the Higginson Parties consolidate the voting
power of their shares in order to obtain majority control over REW. (1 CR 11) To
that end, Martin and the Higginson Parties entered into a Voting Trust Agreement
dated December 31, 2007 and a Shareholders’ Agreement between Certain
Shareholders of Russell E. Womack, Inc. dated January 1, 2008. (1 CR 20, 38; 4
RR at PX 3 [App. 2], PX 4)
The stated purpose of the Voting Trust Agreement was to “concentrat[e] the
vote of the shares represented under this Agreement into a clear and definite policy
of management under the discretion of the Voting Trustees.” (1 CR 38; 4 RR at PX
4, § 1.2) Nancy Higginson and Debbie Cheadle were named as the Trustees, with
the power to take control of the stock certificates of the parties who signed the
Agreement and to vote the shares “in their unrestricted discretion.” (1 CR 38, 40; 4
RR at PX 4, §§ 2.1(b), 5.1) Because Martin was reluctant to permanently commit
her vote to the Trustees, the Voting Trust Agreement included a “revocation option,”
applicable to her and her brother Wayne Carson, that permitted them to opt out of
the Agreement at certain times. (1 CR 11-12, 45; 4 RR at PX 4, § 8.1)
The Shareholders’ Agreement had a similar purpose -- to “secure continuity
and stability of the policies of the management of [REW]” by requiring the parties
who signed it to “agree to restrict the transfer of Shares under certain circumstances.”
2
(1 CR 21; 4 RR at PX 3, Art. 1) To effectuate that purpose, the Shareholders’
Agreement prohibited stock transfers “except in accordance with and subject to the
terms and conditions of this Agreement.” (1 CR 23-24; 4 RR at PX 3, § 3.1)
Transfers “to any Person who is not a party to this Agreement” were prohibited, and
even permitted transfers were subject to a right-of-first-refusal by the other parties
to the Agreement. (1 CR 23-24; 4 RR at PX 3, §§ 3.2, 3.3)
Importantly, the Shareholders’ Agreement also specified precisely what the
remedy would be in the event of a stock transfer that breached the Agreement:
9.2 Breach and Equitable Relief. Any purported Transfer in
breach of any provision of this Agreement is void, will not operate to
Transfer any interest or title in the purported transferee, and will
constitute an offer by the breaching Shareholder to sell his Shares to
the Corporation at the purchase price per Share determined pursuant to
Section 7.2(b). In connection with any attempted Transfer in breach of
this Agreement, the Corporation may refuse to transfer any Shares or
any stock certificate tendered to it for Transfer, in addition to and
without prejudice to any other rights or remedies available to the
Corporation. Each party to this Agreement acknowledges that each
other party will suffer immediate and irreparable harm if a party hereto
breaches, attempts to breach, or threatens to breach this Agreement and
that monetary damages will be inadequate to compensate the
nonbreaching parties for any actual, attempted, or threatened breach.
Accordingly, each party hereto agrees that each of the other parties will,
in addition to any other remedies available to them at law or in equity,
be entitled to specific performance or temporary, preliminary, and
permanent injunctive relief to enforce the terms and conditions of this
Agreement without the necessity of proving inadequacy of legal
remedies or irreparable harm, or posting bond, any requirements to
equitable and injunctive relief being hereby specifically waived.
3
(1 CR 32; 4 RR at PX 3, § 9.2) (emphasis added) Finally, the Shareholders’
Agreement required the parties to mediate and arbitrate their disputes under the
Agreement. (1 CR 34-35; 4 RR at PX 3, § 12.5)
Over time, Martin became dissatisfied with Nancy Higginson’s management
of REW, particularly because of the company’s failure to make distributions. (1 CR
12, 1358) In the summer of 2012, Michael Byrne -- who served as co-president of
REW along with Nancy Higginson -- told Martin that she was not receiving
distributions because the Higginson Parties had saddled REW with excessive debt
to the point that its lender had prohibited distributions. (1 CR 1358) Byrne also told
her that REW’s financial condition would improve if he managed the business, and
he sought her vote. (1 CR 1358) In December 2012, Martin exercised her right to
opt out of the Voting Trust Agreement, and she withdrew her share certificates from
the voting trust. (1 CR 391-92)
On February 28, 2013, Michael and Richard Byrne offered to buy Martin’s 70
shares in REW for $3,130,000. (4 RR at PX 6) Martin “conditionally accepted” the
Byrnes’ offer, expressly reserving the “right to withdraw from the proposed
transaction without penalty at any time prior to closing and receipt by her of the
payment due to her under the terms of [the Byrnes’] offer.” (4 RR at PX 7) By letter
dated March 5, 2013, the Byrnes agreed to the terms of Martin’s conditional
acceptance of their offer. (4 RR at PX 45)
4
Although Martin and her attorney did not believe that the Shareholders’
Agreement was enforceable -- either to restrict any transfer of her shares or to give
the Higginson Parties any right to match an offer to buy her shares -- her counsel
nonetheless advised the Higginson Parties, as “a courtesy,” of the Byrnes’ offer and
Martin’s conditional acceptance and right to withdraw from it. (4 RR at PX 41, 42)
On March 18, 2013, the Higginson Parties purported to accept the $3,130,000 offer
for Martin’s shares, as reflected in the Byrnes’ February 28 letter and Martin’s
conditional acceptance. (4 RR at PX 43)
2. The Parties’ Lawsuits
Faced with competing demands for her shares, Martin filed suit against the
Higginson Parties and the Byrne Parties in the 72nd Judicial District Court. (1 CR
7-18; 4 RR at PX 8) In her suit, Martin sought a declaratory judgment that (1) the
Shareholders’ Agreement is unenforceable and does not give the Higginson Parties
a preemptive right to purchase her shares; (2) she has the right to withdraw from any
sale of her shares before closing; and (3) in the event the Shareholders’ Agreement
is enforceable, the Higginson Parties’ sole remedy is to void any transfer she
purported to make, as set forth in section 9.2. (1 CR 14-17; 4 RR at PX 8)
The Higginson Parties responded by filing their own counter-petition for
declaratory relief, asking the court to prohibit the transfer, find that they had a right
of first refusal to acquire Martin’s shares, and order her to sell them her shares. (1
5
CR 66, 72-80) They also sought a temporary restraining order to prevent the transfer
of Martin’s shares. (1 CR 77-80) Martin agreed to the TRO and one extension of
it. (1 CR 346-49, 396-98) But when the TRO subsequently expired on September
13, 2013 and was not extended by the trial court (1 Supp. RR 60), Martin purported
to transfer her shares to the Byrnes on September 23, 2013 (1 CR 1064, 1088).
Having failed to stop the transfer, the Higginson Parties amended their
counter-petition to specifically allege that Martin’s transfer to the Byrnes “is a direct
violation of the Shareholder Agreement [and] said transfer is void per the
Shareholder Agreement.” (1 CR 1058, 1064, 1072) (emphasis added) Although the
Higginsons continued to seek declaratory and injunctive relief from the court (1 CR
1065-73), they later changed course by asking the court to compel arbitration of the
dispute between themselves and Martin, to the exclusion of the Byrne Parties (1 CR
1155-59, 1211-14). Martin objected to such a piecemeal resolution of the dispute (1
CR 1140, 1143, 1215-19), but the court ultimately compelled only the Higginson
Parties and Martin to arbitrate (1 CR 1253-55). The Byrne Parties declined to
voluntarily participate in the arbitration. (1 CR 1205, 1209, 1254)
3. The Arbitration
In April 2014, arbitration commenced before a three-person panel of the
American Arbitration Association. (1 CR 1360; 4 RR at DX E) There, the
Higginson Parties changed course once again; instead of reasserting their previous
6
allegation that Martin’s purported transfer of her shares to the Byrnes “is a direct
violation of the Shareholder Agreement [and] is void per the Shareholder
Agreement” (1 CR 1064), the Higginson Parties alleged that the transfer was a
breach of the Shareholders’ Agreement that resulted in damages to the Higginson
Parties (1 CR 1381-97; 4 RR at PX 5 [App. 3]). Specifically, the Higginson Parties’
amended arbitration petition alleged in pertinent part:
43. Martin’s breach of contract in transferring the shares
subject of the Shareholder Agreement to a non-contracting party is a
natural, probable, and foreseeable consequence of the damages
suffered by the Carson Family collectively and individually. Pursuant
to the Shareholder Agreement, the Carson Family is entitled to all legal
remedies available to them for the breach of the Shareholder Agreement
by Martin. . . .
44. Accordingly, the Carson Family chooses to seek only
actual monetary damages against Martin which include but are not
limited to economic damages from the dimunition in value of their
respective shares, expectation and reliance damages, unjust
enrichment, nominal damages, pre-judgment and post-judgment
interest, attorney fees, and costs.
(1 CR 1393-94; 4 RR at PX 5) (emphasis added) The Higginson Parties also
designated a damages expert, who purported to calculate the “diminution in value”
of their shares resulting from Martin’s transfer of her shares to the Byrnes in
violation of the Shareholders’ Agreement. (4 RR at PX 5, 21)
In response, Martin contended -- in both her answering statement and in a
dispositive motion -- that she was not liable because the Shareholders’ Agreement
was unenforceable. (4 RR at DX B, DX F) She also asserted that damages were not
7
available to the Higginson Parties -- and the arbitrators had no authority to award
them -- because the parties had agreed in section 9.2 of the Shareholders’ Agreement
that the sole remedy for a transfer in breach of the Agreement was to “void” the
transfer and treat it as if it had never occurred. (Id.)
Moreover, to make sure that the Higginson Parties were locked into their
claim for damages (which Martin contended were unavailable under the
Shareholders’ Agreement), Martin filed a motion asking the arbitrators “to limit
remedies, or in the alternative, to dismiss for absence of indispensable parties.” (3
RR 58-59; 4 RR at DX C) The arbitrators granted the motion and ordered that the
Higginson Parties “shall be bound in this proceeding . . . to the representation made
in paragraph 44 of the First Amended Original Petition in Arbitration” -- stating that
they “choose[ ] to seek only actual monetary damages against Martin” -- and “shall
be permitted to assert only monetary damages remedies against [Martin] in this
arbitration.” (4 RR at DX E) 1
Several months later, after Martin filed her dispositive motion arguing that
damages were not recoverable, Martin and the Higginson Parties settled all of their
disputes. (3 RR 41; 2 CR 1730) On February 5, 2015, the Higginson Parties’
1
As noted above, paragraph 44 began with the word “[a]ccordingly,” indicating that it was
based upon the allegations in Paragraph 43. Paragraph 43, in turn, alleged that both liability and
damages were based solely on Martin’s transfer of her shares to the Byrnes. (4 RR at PX 5)
8
counsel sent an email to the AAA administrator and the arbitrators attaching an
“Arbitration Award approved as to form by the attorneys of record.” (3 RR 30-32;
4 RR at PX 11 [App. 4]) The Arbitration Award, which was attached to the email,
stated:
After consideration of the evidence, arguments, and authorities
presented by counsel for the parties, The Panel finds in favor of
Claimants that the “Shareholders Agreement Between Certain
Shareholders of Russell E. Womack, Inc.” dated January 1, 2008
(“Shareholder Agreement”) is valid and enforceable and that
Respondent breached the “Shareholder Agreement” by failing to sell
and transfer her shares in Russell E. Womack, Inc. to Claimants. The
Panel further finds that under the provisions of the Shareholder
Agreement the transfer of shares by Respondent to Michael Byrne and
Richard Byrne is void, that Claimants are entitled to specific
performance of the sale and transfer of Respondent’s shares in Russell
E. Womack, Inc. and as a result, the Claimants do not have a monetary
damage remedy against Respondent for breach of the Shareholder
Agreement. These findings do not preclude all or any of the other
remedies that may be available to Claimants either under the
Shareholder Agreement, or otherwise available at law or in equity.
The Panel further finds the administrative fees and expenses of
the American Arbitration Association total _______ and the
compensation and expenses of the Arbitrators total _______.
The Panel further finds that an award of costs of arbitration and
attorneys’ fees in favor of Claimants as the prevailing parties on the
issue of whether Respondent breached the Shareholder Agreement is
justified, and hereby awards Claimants the sum total of $400,000.00
determined for arbitration fees, costs and reasonable and necessary
attorneys’ fees attributable to Claimants’ claim against Respondent.
(4 RR at PX 11) (emphasis added, blanks in original) Accordingly, all the arbitrators
had to do was fill in the amounts of their fees and the AAA’s fees (neither of which
9
had been determined at the time), and Martin would pay the Higginson Parties
whatever amount was left, up to the agreed-upon cap of $400,000. (4 RR at PX 11)
As Martin’s counsel later testified, the dispute between Martin and the Higginson
Parties would then be “fully resolved” and the arbitration “was over.” (3 RR 33, 36-
37, 41, 62)
Despite the parties’ settlement agreement, the arbitrators refused to accept or
sign the Arbitration Award the parties had submitted to them on February 5. (3 RR
55; 4 RR at PX 13, 14) Because the arbitrators would not accept the parties’
Arbitration Award, and Martin was unwilling to amend the terms of the parties’
settlement agreement to meet the arbitrators’ requests, the arbitration went to final
hearing on May 26, 2015. (4 RR at PX 2, PX 13) Following three days of testimony,
the arbitrators issued a “standard award” on June 26, 2015, finding Martin liable for
“the total sum of $2,000,000.00 in damages plus legal fees in the amount of
$322,023.25” and costs of $5,725. (1 CR 1351; 4 RR at PX 2)
4. The trial court’s rulings
On July 7, 2015, the Higginson Parties returned to the trial court and filed a
petition to confirm the arbitration award. (1 CR 1346-52) They also filed (but later
non-suited) a cross-claim against the Byrne Parties seeking the same damages the
arbitrators had awarded against Martin. (1 CR 1332-45; 2 CR 1523-25) For her
part, Martin filed an amended petition asserting a variety of contract and tort theories
10
against Michael and Richard Byrne (2 CR 1402-18), as well as a motion to vacate
or modify the arbitration award (2 CR 1445-53, 1720-33 [App. 5]). Martin asserted
two primary grounds for vacating or modifying the award: (1) the arbitrators had
exceeded their powers by issuing an award of damages for a purported stock transfer
that the parties agreed would be treated as void; and (2) the arbitrators exceeded their
powers by refusing to accept the parties’ settlement agreement and to enter an agreed
award that would have ended their dispute. (2 CR 1727-31) 2
The trial court held a lengthy hearing on both parties’ motions on August 25,
2015. (3 RR 1-150) At the outset, the parties stipulated to the admissibility of
certain exhibits. (3 RR 9-10) The court then asked the parties to identify the
statutory grounds for confirming or vacating the arbitration award; Martin cited to
provisions of the Texas Arbitration Act, while the Higginson Parties stated that they
were seeking confirmation under both the TAA and the Federal Arbitration Act. (Id.
at 10-12) In support of their petition to confirm the award, the Higginson Parties
relied solely upon “the evidence that’s already been submitted to the Court and
admitted,” and then rested. (Id. at 14) Martin, in contrast, presented testimony from
2
Martin also asserted that the arbitrators exceeded their powers by issuing an award for
damages that arose under the Voting Trust Agreement, which did not have an arbitration clause.
(2 CR 1726-27) But Martin did not urge that argument at the hearing on her motion to vacate, and
she does not urge it here. Accordingly, this Court need not address the Higginson Parties’
argument on pages 17-20 of their brief concerning the relationship between their claim of damages
and the Voting Trust Agreement.
11
her trial and arbitration attorney about: (1) the parties’ settlement agreement that the
arbitrators refused to accept; and (2) his effort to pin down the Higginson Parties to
a claim for damages that were not available as a remedy under the Shareholders’
Agreement. (Id. at 29-65) After extensive oral argument -- in which the trial court
was actively engaged -- the court took the motions under advisement. (Id. at 66-
150)
On September 1, 2015, the trial court signed an order granting Martin’s
motion to vacate the arbitration award and denying the Higginson Parties’ petition
to confirm the award. (2 CR 1909-11 [App. 1]) The court also signed a scheduling
order setting the case for trial in September 2016. (2 CR 1907) The Higginson
Parties timely appealed from the order vacating the arbitration award. (2 CR 1912-
13)
SUMMARY OF THE ARGUMENT
Because arbitration is a creature of contract, arbitrators necessarily derive
their powers from the parties’ agreements. These agreements include pre-arbitration
contracts and post-arbitration settlements. If the arbitrators issue an award that is
inconsistent with or in disregard of the parties’ agreements, the arbitrators will
exceed their powers and trial courts have the statutory authority under both the Texas
Arbitration Act and the Federal Arbitration Act to vacate the arbitrators’ award. In
this case, the arbitrators’ award of $2,000,000 in damages and nearly $325,000 in
12
legal fees exceeded the powers conferred upon them in two independent respects,
and the court below was correct in vacating the arbitrators’ award on either ground.
First, the arbitrators’ award of damages and legal fees exceeded the powers
conferred upon them by the parties’ Shareholders’ Agreement, which contained both
the arbitration clause and the relevant provisions dealing with the stock transfer at
issue in this dispute. In the Shareholders’ Agreement, the parties specifically agreed
that there would be only one remedy for a stock transfer that breached the
Agreement -- namely, to “void” the purported transfer and render it inoperative, and
to return the shares to the breaching transferor so that they could be offered to the
corporation. Based on the meaning and legal effect of the term “void,” it is
impossible for the nonbreaching party to sustain any “damages” from a breaching
stock transfer that the Shareholders’ Agreement treats as a nullity. The effect of this
remedial limitation here is that once the arbitrators determined that Martin’s transfer
of her shares to the Byrnes breached the Shareholders’ Agreement, their only power
was to “void” the transfer. By instead awarding $2,000,000 in damages for a transfer
the parties agreed to treat as a nullity, the arbitrators exceeded their powers. And
the Higginson Parties’ present speculation about the “multiple scenarios” that might
support an award of damages (Br. at 10) does not help them in the least, because the
arbitrators still would have exceeded their powers if they had done what the
Higginson Parties suggest.
13
Second, the arbitrators’ award exceeded the powers conferred upon them as a
result of the parties’ post-arbitration settlement agreement, which was embodied in
an “Arbitration Award” that the parties asked the arbitrators to sign in order to end
their dispute. The arbitrators, however, refused to accept the settlement agreement
and instead forced the parties to proceed to a hearing, where the arbitrators issued a
vastly different award from what the parties had agreed to in their settlement. In so
doing, the arbitrators exceeded their powers under the statute and relevant case law.
Contrary to the Higginson Parties’ contentions, neither the rules of the American
Arbitration Association nor Rule 11 of the Texas Rules of Civil Procedure permitted
the arbitrators to simply ignore and override the parties’ binding settlement
agreement. And even if Rule 11 applied in the context of an arbitration proceeding,
it was satisfied here because the settlement agreement contained all the essential
terms, was signed by counsel on behalf of all parties, and was filed (and properly
admitted into evidence) at the trial court’s hearing on whether the arbitrators’ award
should be vacated or confirmed.
Because the trial court therefore was correct in vacating the arbitrators’ award
on the ground that it exceeded their powers, the court was also correct in declining
to confirm the award. The trial court’s order vacating the award is consistent with
the statute and the case law, and it should be affirmed in its entirety.
14
ARGUMENT
I. Standards of Reviewing Arbitration Awards.
Review of a trial court’s decision to vacate or confirm an arbitration award is
de novo and the appellate court reviews the entire record. See In re Chestnut Energy
Partners, Inc., 300 S.W.3d 386, 397 (Tex. App. -- Dallas 2009, pet. denied).
Although courts favor arbitration and ordinarily give deference to arbitration awards,
both the Texas Arbitration Act and the Federal Arbitration Act authorize courts to
vacate arbitration awards whenever “the arbitrators exceeded their powers.” TEX.
CIV. PRAC. & REM. CODE § 171.088(a)(3)(A); 9 U.S.C. § 10(a)(4). Arbitrators
derive their power from the parties’ agreement to submit to arbitration, Nafta
Traders, Inc. v. Quinn, 339 S.W.3d 84, 90 (Tex. 2011), and arbitrators will “exceed
their power when they decide matters not properly before them.” Townes
Telecommunications, Inc. v. Travis, Wolff & Co., L.L.P., 291 S.W.3d 490, 493 (Tex.
App. -- Dallas 2009, pet. denied). When that occurs, the Texas Supreme Court has
made clear that the arbitrators’ award is “in excess of their jurisdiction and void.”
Gulf Oil Corp. v. Guidry, 327 S.W.2d 406, 408 (Tex. 1959) (emphasis added). 3
3
The United States Court of Appeals for the Fifth Circuit has made the same point. See
Delta Queen Steamboat Co. v. Dist. 2 Marine Engineers Beneficial Ass’n, 889 F.2d 599, 602 (5th
Cir. 1989) (holding that “judicial deference is at an end” when “the arbitrator exceeds the express
limitations of his contractual mandate”).
15
In determining whether arbitrators have exceeded their powers, courts
ordinarily consider the parties’ agreement to arbitrate, their arbitration pleadings,
and the arbitrators’ award. See, e.g., Peacock v. Wave Tec Pools, Inc., 107 S.W.3d
631, 638-39 (Tex. App. -- Waco 2003, no pet.); Executone Information Sys., Inc. v.
Davis, 26 F.3d 1314, 1323 (5th Cir. 1994). Given “the nature of the error asserted”
in cases challenging the arbitrators’ exercise of their powers, appellate courts do not
require or need an entire record of the arbitration proceedings. Townes
Telecommunications, 291 S.W.3d at 493 n.2. These types of challenges are
inherently different from record-intensive challenges involving the arbitrators’
partiality, their evidentiary rulings, or claims of fraud, misconduct, or gross mistake.
See, e.g., Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 568 (Tex.
App. -- Dallas 2008, no pet.) (complete record of arbitration hearing is required
when award is challenged based on arbitrator’s mistake and failure to exercise honest
judgment); Jamison & Harris v. Nat’l Loan Investors, 939 S.W.2d 735, 737 (Tex.
App. -- Houston [14th Dist.] 1997, writ denied) (record of arbitration hearing is
required when challenge is based on arbitrator’s refusal to hear evidence and errors
of law).
In this case, Martin’s motion to vacate the arbitration award was based solely
on the arbitrators having “exceeded their powers.” TEX. CIV. PRAC. & REM. CODE
§ 171.088(a)(3)(A). And as the following discussion will show, the arbitrators
16
exceeded their powers in two independent ways -- first, by awarding damages for a
purported stock transfer that the parties previously agreed would be “void” and
treated as if it had never occurred; and second, by refusing to accept the parties’
settlement agreement reached during the arbitration proceeding that would have
ended their dispute.
II. The Trial Court Correctly Vacated the Arbitration Award Because the
Arbitrators Exceeded Their Powers by Awarding Damages Resulting
from a Stock Transfer that the Parties Agreed Is Void and Inoperative.
The Higginson Parties’ arbitration claims against Martin were based on three
propositions:
● the Shareholders’ Agreement is enforceable;
● Martin breached the Shareholders’ Agreement by
transferring her shares in REW to the Byrnes; and
● the breaching stock transfer to the Byrnes resulted in
damages to the Higginson Parties measured by the
“diminution in value” of their shares.
(4 RR at PX 5) But as the trial court correctly and succinctly stated, these claimed
damages “stem from a transfer that, by the [Shareholders’] [A]greement itself, could
not happen because it was void, not voidable.” (3 RR 79) (emphasis added) Because
the parties thus contracted for an exclusive remedy in the event of a stock transfer
that breached the Shareholders’ Agreement -- namely, to treat it as void and
inoperative -- the arbitrators had no power to ignore that exclusive contractual
remedy and award damages instead. The Higginson Parties’ current effort to divine
17
some alternative explanation for why the arbitrators could award damages is
inconsistent with the Shareholders’ Agreement, the arbitration pleadings, and the
law.
A. Once the Arbitrators Determined that the Purported Transfer
Breached the Shareholders’ Agreement, Their Only Power Was to
Hold that the Transfer Is Void.
Arbitration is a creature of contract, and arbitrators derive their powers from
the parties’ agreements about the issues subject to arbitration. See Nafta Traders,
339 S.W.3d at 90 (citing Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., ___ U.S.
___, 130 S. Ct. 1758, 1773-74 (2010)). As such, courts are responsible for
scrutinizing arbitration awards to ensure that the arbitrators acted in conformity with
the parties’ agreements. See Gulf Oil, 327 S.W.2d at 408. This analysis consists of
two steps -- interpreting the parties’ applicable agreements, and determining whether
the arbitrators’ award exceeded the scope of those agreements. Following these
steps in this case leads to only one proper conclusion -- that the arbitrators exceeded
their powers by awarding damages resulting from a purported stock transfer that the
parties had previously agreed would be remedied solely by treating it as null and
void, thus incapable of causing any damages.
When courts construe a contract, their “primary objective is to ascertain the
parties’ true intentions as expressed in the language they chose.” Plains Exploration
& Prod. Co. v. Torch Energy Advisors Inc., ___ S.W.3d ___, 2015 WL 3653330, at
18
*7 (Tex. June 12, 2015). Here, the parties agreed in section 12.5 of the Shareholders’
Agreement that “any unresolved controversy or claim relating to this Agreement or
breach thereof will be settled by binding arbitration.” (4 RR at PX 3, § 12.5) They
further agreed that any transfer of shares to a non-contracting party is prohibited (id.
at § 3.2), and specified precisely what the remedy would be in the event of a transfer
that breached the Agreement:
Any purported Transfer in breach of any provision of this Agreement
is void, and will not operate to transfer any interest or title in the
purported transferee, and will constitute an offer by the breaching
Shareholder to sell his Shares to the Corporation. . . .
(Id. at § 9.2) This provision is unambiguous, and it treats a breaching stock transfer
as if it had never occurred by simply nullifying it and returning the transferred shares
to the transferor to be offered to REW.
Moreover, based on the meaning and legal effect of the term “void” in section
9.2, it is impossible for a nonbreaching party to sustain any “damages” from a
purported transfer in breach of the Shareholder Agreement. The term “void” means:
Null; ineffectual; nugatory; having no legal force or binding effect;
unable, in law, to support the purpose for which it was intended. . . .
An instrument or transaction which is wholly ineffective, inoperative,
and incapable of ratification and which thus has no force or effect so
that nothing can cure it.
Commonwealth Land Title Ins. Co. v. Nelson, 889 S.W.2d 312, 318 (Tex.
App. -- Houston [14th Dist.] 1994, writ denied) (citing BLACK’S LAW DICTIONARY
1573 (6th ed. 1990)). As a matter of simple logic, no damages can result from a
19
transaction -- such as a stock transfer in breach of the Shareholders’
Agreement -- that the parties have agreed must be treated as if it had never occurred.
And the law is to the same effect: if a transaction is merely voidable, the
nonbreaching party has the right either to rescind it or to ratify it and sue for
damages; but if the transaction is void, the nonbreaching party’s only right is to treat
it as if it were a nullity from its inception. See, e.g., Harris v. Archer, 134 S.W.3d
411, 427, 445-46 (Tex. App. -- Amarillo 2004, pet. denied).
Because the Higginson Parties and Martin thus agreed to an exclusive remedy
in the event of a breaching stock transfer -- namely, voiding the purported transfer
and returning the shares to the breaching transferor to be offered to REW -- the
arbitrators’ powers were subject to, and limited by, the parties’ contractual remedy.
Accordingly, once the arbitrators in this case found that the Shareholders’
Agreement was enforceable and had been breached by Martin’s purported transfer
of her shares to the Byrnes, they had no power to do anything other than honor the
parties’ agreed remedy of voiding the transfer. Indeed, to award damages was to
recognize the effectiveness of a transfer that section 9.2 prohibited anyone from
treating as effective. By awarding damages instead of honoring the parties’ agreed-
upon remedy for a breaching transfer, the arbitrators exceeded the powers conferred
upon them by the parties, and the trial court correctly vacated their damages award
on that statutory ground.
20
Importantly, the trial court’s ruling is entirely consistent with that of other
courts faced with arbitration awards that similarly exceeded the arbitrator’s powers.
In Gulf Oil Corp. v. Guidry, for example, an agreement between an employer and its
employees’ union reserved to the employer the right to discharge or suspend
employees “for cause,” but provided that a three-person arbitration panel would
decide whether a discharge in fact was “for cause.” 327 S.W.2d at 407. After the
employer discharged one of its employees for fighting with another, the arbitrators
determined that: (1) the discharge was “unreasonably discriminatory”; (2) the
employee should not be discharged but instead should be demoted to his former job
without eligibility for promotion; and (3) he should be paid “back wages.” Id. In
determining whether this award exceeded the arbitrators’ powers, the Texas
Supreme Court did not question that the arbitrators’ first determination “implied a
finding that cause did not exist for [the employee’s] discharge” and thus was within
the scope of their authority. Id. at 408. But the Court held that the arbitrators’
remedial rulings represented an “attempt to determine matters not submitted to their
determination” and therefore were “in excess of their jurisdiction and void.” Id.
And the Court so held even though “a decision favorable to [the employee] on the
21
only question submitted to arbitration would not have solved the controversy
between the parties completely.” Id. 4
The U.S. Court of Appeals for the Fifth Circuit reached a similar result in
Delta Queen Steamboat Company v. District 2 Marine Engineers Beneficial
Association, 889 F.2d 599 (5th Cir. 1989), holding that the arbitrator’s award was in
excess of his power under 9 U.S.C. § 10. There, the employer and the employees’
union agreed that an arbitrator would determine whether “proper cause” existed for
the discharge of an employee, but that the employer would have responsibility for
disciplinary action if proper cause did exist. Id. at 601, 604. After the employer
discharged one if its riverboat captains following a near-accident on the Mississippi
River, the arbitrator found that the captain had been “grossly careless” in his exercise
of professional judgment but ordered the employer to reinstate him with back pay
because he had been “the victim of disparate company discipline.” Id. at 601.
Noting that “judicial deference is at an end” when “the arbitrator exceeds the express
limitations of his contractual mandate,” id. at 602, the Fifth Circuit “vacated that
portion of the arbitral award requiring reinstatement.” Id. at 604. The court reasoned
4
Based on similar facts, the court held in Lone Star Cotton Mills v. Thomas, 227 S.W.2d
300, 307 (Tex. Civ. App. -- El Paso 1949, writ ref’d n.r.e.), that an arbitration panel exceeded its
authority in ordering an employer to reinstate and pay damages to a discharged employee because
the parties had agreed that the arbitrators had the power only to determine whether the discharge
was “unjust.” The court stated: “Unless the arbitrator is given the power to award damages or
order reinstatement, an award attempting to do this is void and beyond the[ir] power.” Id.
22
that the arbitrator, having found the employee to be grossly careless, “impliedly
found proper cause for discipline, [and] [t]hat being so, the arbitrator was without
authority, under the collective bargaining agreement, to reinstate [the employee].”
Id.
Even outside the context of labor arbitrations, courts have not hesitated to
vacate arbitration awards that exceed the powers conferred on them by the parties’
pre-arbitration agreements. Thus, in Townes Telecommunications, the Dallas Court
of Appeals reviewed an arbitration award that allocated costs between the parties to
the arbitration. 291 S.W.3d at 491-92. Although the court recognized “compelling
reasons” for the arbitrators’ decision to allocate costs between the parties, it
nonetheless vacated the award because the parties’ arbitration agreement specifically
required costs to “be borne entirely by the non-prevailing party” and prohibited costs
from being “allocated between the parties.” Id. at 492-93. Given this remedial
limitation, the court held that “the panel acted in direct contravention of the
agreement and exceeded the powers granted to them by the parties” when it allocated
the arbitration costs and refused to designate a non-prevailing party. Id. at 494.
Gulf Oil, Delta Queen, and Townes Telecommunications fully
support -- indeed, compelled -- the ruling of the trial court here that the arbitrators’
award of damages and legal fees exceeded the powers conferred upon them by the
Shareholders’ Agreement. Although the parties agreed that the arbitrators had the
23
power to determine whether the Shareholders’ Agreement was enforceable and had
been breached by Martin’s purported transfer of shares to the Byrnes, the parties also
agreed to precisely what would happen as a remedy in the event of a breaching stock
transfer -- namely, the purported transfer would be voided, the shares would remain
with Martin, and they would be offered to REW. (4 RR at PX 3, § 9.2) Accordingly,
once the arbitrators determined that the Shareholders’ Agreement was enforceable
and that Martin had breached it by transferring her shares to the Byrnes -- a
determination that is implicit in the arbitrators’ finding of liability on the part of
Martin -- the arbitrators had to simply stop. They had no authority to exceed the
scope of the parties’ contractual remedy by awarding damages for a void transfer.
And as Gulf Oil makes plain, the possibility that voiding the transfer might “not have
solved the controversy between the parties completely” does not justify a self-
imposed arbitral remedy that exceeds what the parties had previously agreed upon.
Gulf Oil, 327 S.W.2d at 408.
For all these reasons, the trial court was correct in vacating the arbitrators’
award of over $2.3 million in damages and legal fees. The court’s September 1,
2015 order therefore should be affirmed in its entirety.
24
B. The Higginson Parties’ Speculation About What the Arbitrators
Might Have Done Is Inconsistent With the Shareholders’
Agreement, the Arbitration Pleadings, and the Law.
Unable to justify the arbitrators’ award of damages for a breaching stock
transfer that the parties agreed to treat as void and inoperative, the Higginson Parties
spend eight pages conjuring up “different scenarios” they contend would have
supported an award of damages. (Br. at 20-28) But none of these
scenarios -- especially the notion that the stock transfer prevented the Higginson
Parties from being “allowed to exercise their right of first refusal” (Br. at 20) -- can
support any award of damages. To the contrary, each one is irreconcilable with the
Shareholders’ Agreement, with the Higginson Parties’ own submissions to the
arbitrators, and with Texas law. Thus, the arbitrators would have exceeded their
powers if they had done what the Higginson Parties suggest.
“Loss of Shares to the Corporation”: Section 9.2 of the Shareholders’
Agreement provides that any purported transfer of shares in breach of the Agreement
is void, will not operate to transfer the shares to the purported transferee, and “will
constitute an offer by the breaching Shareholder to sell his Shares to the
Corporation” at a defined purchase price. (4 RR at PX 3, § 9.2) Seizing upon the
quoted language, the Higginson Parties postulate that the arbitrators potentially
could have found damages from the possibility that REW would transfer Martin’s
shares “somewhere,” causing the Higginson Parties to incur “a loss of opportunity
25
to obtain majority control.” (Br. at 21-22) For at least three reasons, this speculative
scenario cannot support any award of damages.
First and foremost, the scenario is entirely premature -- since the Higginson
Parties refused to pursue the agreed-upon remedy of voiding the purported transfer,
Martin has not yet offered to sell her shares to REW in accordance with section 9.2.
Thus, there is no way to know whether REW will exercise its option to acquire
Martin’s shares or what REW will do with the shares after acquiring them.
Moreover, even if REW were to exercise its option to acquire Martin’s shares, that
is precisely what the Higginson Parties agreed to in section 9.2; as a matter of law,
they cannot be “damaged” from an event they agreed to, especially when the result
is merely to place Martin’s shares in the neutral hands of REW. Finally, as discussed
in detail below, the Higginson Parties’ suggestion that the arbitrators compensated
them for “a loss of opportunity to obtain majority control” (Br. at 21) is insupportable
because the Higginson Parties never sought such a remedy from the arbitrators. And
it would be foreclosed, in any event, by the exclusive remedy in section 9.2.
“Loss of Shares to Appellee”: For similar reasons, the Higginson Parties
cannot justify the arbitrators’ damages award by complaining about the shares
“being returned to the hand of [Martin]” once her purported transfer is treated as
void. (Br. at 22) First of all, that remedy is precisely what the Higginson Parties
agreed to, and they cannot be “damaged” from the very outcome they contemplated
26
and accepted. Moreover, they cannot have sustained any “diminution in value”
damages as a result of the shares merely being returned to Martin’s hands; Martin
was free to vote her shares in whatever way she wanted before the transfer, and she
is free to do the same after the transfer is voided. And the Higginson Parties’
contention that the “reversion back” to Martin resulted in a “loss of opportunity to
obtain majority control” (Br. at 22) is doubly flawed -- first, they did not have
majority control before the “reversion” and nothing would change after the
reversion; and second (as discussed next in detail), they never requested any “loss
of opportunity” damages from the arbitrators, who therefore would have exceeded
their powers if they had made any such award.5
“Authority to Award Damages for Loss of Shares”: Next, relying on the
language of section 9.2 giving the parties “any other remedies available to them at
law or in equity,” the Higginson Parties contend that the arbitrators could have
awarded them damages caused by Martin’s “failure to timely delivery the shares to
5
For similar reasons, there is no merit to the Higginson Parties’ conclusory and
unsupported suggestion that the arbitrators’ award could have compensated them for the “unjust
enrichment” of Martin. (Br. at 10, 20, 39) The arbitrators did not base their damages award on a
claim for unjust enrichment, nor could they have done so without exceeding their powers. Unjust
enrichment is recoverable in circumstances where there is no contract between the parties, see,
e.g., Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 684 (Tex. 2000), but the Higginson
Parties’ arbitration claim was based solely on breach of contract. (4 RR at PX 5; DX E) Moreover,
the arbitrators’ damages award was well in excess of the maximum amount the Higginson Parties
sought for unjust enrichment (4 RR at PX 5, ¶ 48; PX 21, p. 3), and also included an award of legal
fees that is ordinarily not available for unjust enrichment claims. Thus, the Higginson Parties’
unjust enrichment theory does not, and could not, support the arbitrators’ award.
27
[them] upon their acceptance under the right of first refusal.” (Br. at 23) Although
such a remedy is not legally available for the reasons discussed below on page 32,
the more immediate problem with the Higginson Parties’ theory is that they never
sought or proved any damages resulting from the lost opportunity to obtain Martin’s
shares “under the right of first refusal.” (Br. at 23) Thus, the arbitrators would have
exceeded their powers if they had actually done what the Higginson Parties now
suggest.
As the arbitrators confirmed in an October 13, 2014 order, the Higginson
Parties were “bound in this proceeding . . . to the representation made in paragraph
44” of their arbitration petition, in which they sought damages from only one
claimed breach of the Shareholders’ Agreement -- Martin’s act of transferring her
shares to the Byrnes. (4 RR at DX E; PX 5, ¶¶ 43-44) Nowhere in their arbitration
pleadings did the Higginson Parties seek “benefit of the bargain” or “lost
opportunity” damages from not being able to exercise their “right of first refusal.”
(4 RR at PX 5) Nor did their expert offer any opinions relating to such purported
damages. (4 RR at PX 21) And the reason the Higginson Parties did not seek such
damages is obvious: they would have had to pay Martin (or offset against any
recovery from Martin) the same $3,130,000 that the Byrnes had paid for Martin’s
shares. Because the Higginson Parties did not seek such a remedy -- even assuming
28
it was otherwise available under the Shareholders’ Agreement and the law -- the
arbitrators would have exceeded their powers had they awarded it.
Contrary to the Higginson Parties’ suggestion, the Dallas Court of Appeals’
opinion in Centex/Vestal v. Friendship West Baptist Church, 314 S.W.3d 677 (Tex.
App. -- Dallas 2010, pet. denied), does not support their argument that the arbitrators
had the power to award damages arising from Martin’s purported stock transfer. (Br.
at 24-25) In Centex/Vestal, the court held that the arbitrator did not exceed his power
in requiring the owner of a construction project to pay damages to a contractor’s
subcontractor and sub-subcontractor because: (1) the arbitration clause broadly
covered disputes involving those entities, and (2) the parties asked the arbitrator to
determine whether the law allowed the contractor to pursue the “pass-through”
claims of those entities. Id. at 685-86. In this case, by contrast, the Shareholders’
Agreement limited the available remedy to the voiding of the breaching stock
transfer; the Higginson Parties only sought damages resulting from a transfer they
had previously agreed was void (and thus never occurred); and Martin never agreed
to the submission of any other damages theory to the arbitrators. Thus, the
arbitrators exceeded their powers by awarding damages for a purported transfer the
parties agreed would be remedied only by voiding it, and they would have exceeded
29
their powers if they had awarded damages based on some other theory that was never
arbitrated.6
If any legal authority applies to the Higginson Parties’ present “loss of
opportunity” argument, it is Totem Marine Tug & Barge, Inc. v. North American
Towing, Inc., 607 F.2d 649 (5th Cir. 1979). There, the owner of a vessel submitted
to the arbitrators an “itemized statement” of the damages it was seeking from a
charterer of its vessel, identifying the expenses of returning the vessel as its largest
item of damages. Id. at 650. The arbitrators, however, awarded the vessel owner a
larger sum for a different item, which consisted of “damages for charter hire.” Id.
Noting that “[a]rbitration is contractual and arbitrators derive their authority from
the scope of the contractual agreement,” the Fifth Circuit held that “[t]he arbitration
panel exceeded its powers by awarding damages for charter hire” when the vessel
owner had “fail[ed] to list charter hire in its itemized statement of damages.” Id. at
651. So too here: if the arbitrators had attempted to award damages for Martin’s
“failure to timely deliver the shares to Appellants upon their acceptance under the
6
This case is distinguishable from Centex/Vestal in another significant respect. There, the
court of appeals noted that the owner’s argument -- to the effect that “pass-through” claims were
prohibited by Texas law -- was “couched in terms of whether the arbitrator exceeded his authority”
but was “really a complaint that the arbitrator committed an error of law.” 314 S.W.3d at 686.
Here, by contrast, Martin’s challenge to the arbitrators’ award is based not on a claimed error of
law but on the parties’ agreement, which limited the remedy for a breaching stock transfer to
voiding the transfer and returning the shares to the transferor. Unlike the arbitrator in
Centex/Vestal, the arbitrators here exceeded the authority conferred on them by disregarding the
parties’ contractual remedy and awarding damages instead.
30
right of first refusal” -- as the Higginson Parties now suggest (Br. at 23) -- the
arbitrators would have exceeded their powers because the Higginson Parties never
asserted any such theory of damages or designated an expert on such a theory.
“Agreement Anticipates Damages for Attempted Transfer”: In yet another
example of revisionism, the Higginson Parties note that section 9.2 forbids an
“attempted or threatened breach,” and assert that the arbitrators could have awarded
them damages for the “benefit” of “not obtain[ing] what they bargained for -- timely
delivery of the shares” pursuant to their right of first refusal. (Br. at 25-26) Again,
this argument is inconsistent with the Shareholders’ Agreement, their own
arbitration submission, and the law.
To begin with, the Higginson Parties did not seek to arbitrate any “attempted
or threatened breach”; rather, they argued that Martin had actually breached the
Shareholders’ Agreement by transferring her shares to the Byrnes. (4 RR at PX 5)
But under section 9.2, voiding the transfer is the exclusive remedy for such a breach,
and damages therefore are not “available” under section 9.2 as a matter of law or
logic. And as previously discussed, the Higginson Parties did not seek or prove any
“benefit of the bargain” damages resulting from not obtaining Martin’s shares under
the right of first refusal. Accordingly, the arbitrators would have exceeded their
powers if they had awarded such unrequested and unproven damages. Totem
Marine, 607 F.2d at 651.
31
Moreover, although this Court need not address the Higginson Parties’
discussion of what “Texas law mandates” with respect to a right of first refusal (Br.
at 25-26), it is worth nothing that their legal argument is incorrect in any event.
Citing to Abraham Investment Co. v. Payne Ranch, Inc., 968 S.W.2d 518 (Tex.
App. -- Amarillo 1998, pet. denied), the Higginson Parties assert that once they
“stated their intention to match [the Byrnes’] offer, it was a requirement of the
Shareholders’ Agreement for [Martin] to deliver the shares” to the Higginson Parties
because “the offer becomes an irrevocable option.” (Br. at 25-26) What Abraham
actually holds, however, is that “[t]he terms of that option are formed by the
provisions granting the preferential right [of first refusal] and by the provisions
within the notice-of-intent-to-sell given to the rightholder.” 968 S.W.2d at 524-25
(emphasis added). Here, the notice-of-intent-to-sell that Martin sent to the
Higginson Parties specifically advised them of the Byrnes’ offer and her conditional
acceptance of it, including her right to withdraw from the transaction at any time
before closing and receipt of payment. (4 RR at PX 41, 42) Because the Higginson
Parties’ option necessarily included the same right on the part of Martin to withdraw
from any transaction with them, the Higginson Parties would not have been able to
prove any compensable “bargain” from such an option -- even if they had tried to do
so in the arbitration.
32
“Damage Question to Arbitration Panel”: Finally, in another variation of
their same theme, the Higginson Parties argue that section 9.2 contemplated an
award of damages because it provided for specific performance or injunctive relief
“in addition to any other remedies available to them at law or in equity.” (Br. at 26-
27, citing 1 CR 32) But as previously discussed, damages from a breaching stock
transfer cannot possibly be “available,” as a matter of law or logic, when the parties
have previously agreed that the sole remedy for any such transfer is to treat it as void
and inoperative.
Equally erroneous is the Higginson Parties’ related contention that Martin
somehow made a “concession” that the arbitrators were “authorized to award
damages” when she filed a motion to limit the Higginson Parties’ remedies. (Br. at
27-28, citing 4 RR at DX C, pp. 4-5) Nothing can be further from the truth. As
Martin’s counsel testified at the August 25 hearing, and as Martin’s motion to limit
makes clear, Martin was only attempting to lock the Higginson Parties into a
damages remedy that Martin contended was unavailable to them. (3 RR 58-59; 4
RR at DX C) Importantly, Martin never “conceded” that the Higginsons were
entitled to recover such damages or that the arbitrators were authorized to award
them. To the contrary, in both her answering statement (filed before her motion to
limit) and her dispositive motion (filed after her motion to limit), Martin made clear
that the Higginson Parties were not entitled to recover damages for a transfer they
33
agreed is void, and that the arbitrators had no authority to award any such damages.
(4 RR at DX B, pp. 5-6; DX F, pp. 6-13) There is simply no evidence that Martin
ever waived or agreed to modify the exclusive remedy provided in section 9.2 for a
breaching stock transfer.
For all these reasons, the Higginson Parties’ arguments on pages 20-28 should
be rejected, and the trial court’s order vacating the arbitrators’ award as an excess of
power should be affirmed.
III. The Trial Court Correctly Vacated the Arbitration Award Because the
Arbitrators Exceeded Their Powers by Refusing to Accept the Parties’
Settlement Agreement that Would Have Ended Their Dispute.
Arbitrators derive their powers not only from the parties’ pre-dispute
arbitration agreements, but also from any agreements the parties may make during
the course of the arbitration itself. See, e.g., Bakers Union Factory No. 326 v. ITT
Continental Baking Company, Inc., 749 F.2d 350, 354-56 (6th Cir. 1984). Thus,
even if the Shareholders’ Agreement had not limited the remedy the arbitrators could
impose for a breaching stock transfer, the settlement agreement that the parties
submitted to the arbitrators on February 5, 2015 had precisely the same effect. By
refusing to accept the settlement agreement and instead forcing the parties to proceed
to a hearing where the arbitrators awarded a different remedy from what the parties
had agreed to accept, the arbitrators exceeded their powers for this additional reason.
Although the Higginson Parties try to challenge the validity of the settlement
34
agreement (Br. at 28-33), their arguments cannot withstand scrutiny. And their
attacks on the trial court’s evidentiary rulings relating to the settlement (id. at 33-35)
are also without merit.
A. Once the Parties Agreed to Settle Their Dispute, the Arbitrators
Had No Power to Require Further Proceedings or to Award
Damages.
After the arbitration commenced, Martin and the Higginson Parties settled
their dispute and sent the AAA administrator and arbitrators an “Arbitration Award
approved as to form by the attorneys of record.” (3 RR 30-32, 41; 4 RR at PX 11; 2
CR 1730) The parties’ settlement agreement, as reflected in this Arbitration Award,
largely tracked the Shareholders’ Agreement and the remedy in section 9.2 by
providing that: (1) the Shareholders’ Agreement “is valid and enforceable”;
(2) Martin breached the Shareholders’ Agreement by not selling her shares to the
Higginson Parties; (3) her transfer of shares to the Byrnes “is void”; and (4) the
Higginson Parties would be entitled to specific performance because they “do not
have a monetary damage remedy against [Martin] for breach of the Shareholder
Agreement.” (4 RR at PX 11) The parties’ settlement agreement also provided that
Martin would pay the total amount of $400,000, which would be allocated to the
AAA’s fees and the arbitrators’ fees (once those amounts were determined), with
the remaining amount going to the Higginson Parties for their attorney’s fees. (Id.)
35
Under basic principles of contract law, this settlement agreement had the
effect of superseding the parties’ previous agreements and submissions relating to
the arbitration. See, e.g., Flanagan v. Martin, 880 S.W.2d 863, 867 (Tex.
App. -- Waco 1994, writ dism’d w.o.j.) (parties’ mutual agreement to accept new
contract had the effect of extinguishing their old contract). Upon receiving the
settlement agreement, the arbitrators had to do no more than fill in the amounts of
their fees and the AAA’s fees, sign the Arbitration Award, and end the dispute
between Martin and the Higginson Parties. (3 RR 33, 36-37, 41, 62) Although the
settlement agreement thus relieved the arbitrators of any further authority to
adjudicate the dispute, they refused to accept the agreement and instead forced a
hearing and issued an award vastly different from what the parties had agreed to
accept. (4 RR at PX 2, PX 13) By proceeding in this manner, the arbitrators usurped
the parties’ right to settle their own disputes and thereby “exceeded their powers”
under section 171.088(a)(3)(A).
The rationale for vacating an arbitration award in these circumstances was
clearly and succinctly explained in Bakers Union Factory No. 326 v. ITT Continental
Baking Company, Inc., 749 F.2d 350 (6th Cir. 1984). There, an employer and union
resolved a grievance by agreeing to reinstate the employee subject to dismissal if he
failed to comply with certain conditions. Id. at 351. When the employee later failed
to comply and was dismissed, the union filed another grievance and an arbitrator
36
ordered the employer to reinstate the employee. Id. at 351-52. Faced with the
question whether “the arbitrator ha[d] the authority to disregard the explicit terms of
the prior settlement agreement reached by the parties,” the Sixth Circuit held he did
not and instructed the district court “to vacate the award of the arbitrator.” Id. at
353, 356.
In language that fully applies to the present case, the Sixth Circuit reasoned
that courts must not “defer” to arbitrators’ decisions that improperly “override” the
parties’ settlement agreements:
Our tradition of deference to arbitral decisions is not based on a
solicitude for arbitrators. That tradition is based on our desire to give
effect to the parties’ chosen means of dispute resolution. When a party
claims that the chosen means of dispute resolution is private settlement,
we have no reason to defer to the arbitrator’s decision. Therefore, we
will not defer to the arbitrator’s determination of his or her authority to
override the terms of a settlement agreement in that narrow category of
cases in which a party claims that the chosen means of dispute
resolution is private settlement rather than arbitration.
Id. at 354. The court further held that “even if the settlement agreement is not final
and binding in the sense that it can be enforced in federal court without first having
been submitted to an arbitrator, the settlement agreement still is binding on the
arbitrator.” Id. at 355.7
7
See also Cooper Natural Resources, Inc. v. Int’l Union of Operating Engineers, Local
351, No. 4:97-CV-669-A, 1998 WL 25547, at *3 (N.D. Tex. Jan. 12, 1998) (arbitrator exceeded
his authority by ignoring the parties’ agreement to settle their disputes); 97 AM. JUR. TRIALS,
Arbitrator Selection and Service § 121 (2005) (“if there is a direct settlement by the parties of
37
Based on the reasoning of Bakers Union, the trial court in this case was correct
in refusing to defer to the arbitrators’ award of damages because it was issued in
disregard of the parties’ chosen means of settling their dispute and ending the
arbitration. When the parties asked the arbitrators to simply fill in the amounts of
the arbitration fees and sign the Arbitration Award, the arbitrators were deprived of
any power to insist on further proceedings, to incur more fees, and to ultimately issue
a vastly different award from what the parties had agreed to in their settlement.
Indeed, if the court below had done anything other than vacate the arbitrators’ award
in these circumstances, it would have “undermine[d] the validity of a system that
seeks to encourage settlements reached without the aid of an arbitrator.” Bakers
Union, 749 F.2d at 354. For this additional reason, the trial court’s order vacating
the arbitrators’ award was correct and should be affirmed in its entirety.
B. Contrary to the Higginson Parties’ Arguments, the Parties’
Settlement Agreement Was Enforceable and Binding on the
Arbitrators.
The Higginson Parties do not deny that the parties settled their dispute on the
terms reflected in the Arbitration Award sent to the AAA and the arbitrators, and
they do not try to justify the arbitrators’ refusal to accept the parties’ settlement
agreement. Instead, they attempt to avoid the effect of the settlement agreement
some or all issues in a case, regardless of what stage in the proceedings that may occur, the
arbitrator is relieved of further jurisdiction over such issues”).
38
based on certain “implications” they draw from the “AAA Rules” and from “Rule
11” of the Texas Rules of Civil Procedure. (Br. at 29-33) The Higginson Parties’
reliance on these two rules is misplaced because neither overrides the statutory
provision, as interpreted by the courts, forbidding arbitrators from exceeding their
powers by disregarding parties’ settlement agreements.
Contrary to the Higginson Parties’ first argument (Br. at 29-30), Rule 48 of
the AAA Commercial Rules cannot be read to excuse the arbitrators’ refusal to
accept the parties’ settlement agreement. Rule 48 provides that “[i]f the parties settle
their dispute during the course of the arbitration and if the parties so request, the
arbitrator may set forth the terms of the settlement in a ‘consent award.’” See AAA
COMM. R. 48. Although the rule’s use of the word “may” arguably gives the
arbitrators discretion in the precise manner by which they “set forth the terms of the
settlement,” the rule cannot be interpreted to allow arbitrators to outright ignore the
parties’ settlement agreement. See 97 AM. JUR. TRIALS, Arbitrator Selection and
Service § 121 (“While the arbitrator may adopt such a consent award, to be clear, an
arbitrator must adopt a consent award as a matter of contractual arbitrability if all
terms of the award are proper, fair, sound, and lawful.”) (emphasis in original).
Tellingly, the Higginson Parties cite no case holding that Rule 48 overrides the legal
39
principles requiring arbitrators to give effect to the parties’ chosen means of
resolving their disputes.8
The Higginson Parties are also wrong in suggesting that the Arbitration Award
presented to the arbitrators was “not binding or enforceable” because the arbitrators
did not sign it. (Br. at 30) This argument is entirely circular, and conflates the
distinction between a settlement agreement reached in arbitration that is binding on
a court and one that is binding on the arbitrators. Thus, as the court explained in
Bakers Union, “even if the settlement agreement is not final and binding in the sense
that it can be enforced in federal court without first having been submitted to an
arbitrator, the settlement agreement still is binding on the arbitrator.” 749 F.2d at
355 (emphasis added).
Equally without merit is the Higginson Parties’ argument that the parties’
settlement agreement “is not a Rule 11 Agreement as a matter of law.” (Br. at 30)
As a threshold matter, the Higginson Parties cite no case holding that a settlement
agreement in an arbitration proceeding must comply with TEX. R. CIV. P. 11 before
8
The one case the Higginson Parties do cite -- Seals v. Herzing Inc.-New Orleans, 482 Fed.
Appx. 893 (5th Cir. June 29, 2012) -- is inapposite. There, the court described the method by
which the settlement agreement was reached and recorded in the arbitration hearing, but it had no
occasion to decide, and did not hold, that this method was necessary or required for an enforceable
settlement in an arbitration proceeding. The Higginson Parties’ reference to AAA Commercial
Rule 47 is also unavailing. (Br. at 29) If anything, Rule 47 undermines their argument because it
provides that “any remedy or relief” granted by an arbitrator must be “within the scope of the
agreement of the parties.” AAA COMM. R. 47(a).
40
it can be binding on an arbitrator. The plain language of Rule 11 suggests otherwise,
because a settlement agreement made in an arbitration proceeding is not “touching
on any suit pending.” TEX. R. CIV. P. 11 (emphasis added). Nor is it something that
needs to “be enforced” by a court. Id.
In any event, even if Rule 11 applied in this context, the parties’ settlement
agreement satisfied all the requirements of Rule 11. Contrary to the Higginson
Parties’ first contention, the agreement had no “missing terms” -- whether material
or not -- merely because it contained two blanks. (Br. at 31) As the settlement
agreement makes clear, Martin agreed to pay a total of $400,000 allocated between
the AAA’s fees, the arbitrators’ fees, and the Higginson Parties’ attorney’s fees, and
even though the parties did not yet know the first two amounts, the Higginson Parties
agreed that they would accept whatever amount was left up to a cap of $400,000. (4
RR at PX 11) All essential terms were accounted for and agreed to. See, e.g., Disney
v. Gollan, 233 S.W.3d 591, 596 (Tex. App. -- Dallas 2007, no pet.) (Rule 11
settlement agreement contained all essential terms, despite need for “parol evidence”
to “clarify” certain terms about the permissible deductions from payments).
Moreover, there are no “missing signatures,” as the Higginson Parties state.
(Br. at 31-32) The Arbitration Award was signed by both the attorney for the
Higginson Parties and the attorney for Martin (4 RR at PX 11), and their signatures
are binding on the parties as a matter of law. See Padilla v. LaFrance, 907 S.W.2d
41
454, 460-61 (Tex. 1995) (enforcing Rule 11 settlement agreement based on series of
letters between plaintiff’s attorney and adjuster for defendant’s insurer). And even
though the settlement agreement was “approved only as to form” (4 RR at PX 11),
Rule 11 neither forbids agreements when they are approved only as to form nor
requires agreements to be approved as to both form and substance. Indeed, Martin’s
counsel testified that the agreement was approved as to form “so that we could get
it submitted to settle the dispute,” and that the only reason he did not approve it as
to substance was because he knew Martin would answer “no” if she were “asked in
subsequent proceedings whether she agreed that she breached” the Shareholders’
Agreement. (3 RR 44) Under Rule 11, that reservation had no effect on the binding
nature of the settlement agreement on the arbitrators.
Finally, the Higginson Parties’ contention that the settlement agreement was
“not filed” and therefore unenforceable (Br. at 32-33) is contrary to both the law and
the evidence. Like the defendants in Padilla, the Higginson Parties “confuse the
requirements for an agreed judgment with those for an enforceable settlement
agreement.” 907 S.W.2d at 461. While the former must be approved at the time it
is rendered, the latter is enforceable under Rule 11 as long as it is filed at any time
“before it is sought to be enforced.” Id. Martin indisputably met that requirement
when she filed the settlement agreement as an attachment to her amended motion to
vacate the arbitration award. (2 CR 1799-1802) And the Higginson Parties’
42
contention that the agreement “was not filed of record before the Panel” (Br. at 32)
is flat wrong. Rule 43 of the AAA Commercial Rules provides that “notice and
communications” are to be served by e-mail on the parties and the arbitrators, and
that is precisely what the Higginson Parties’ counsel did with the settlement
agreement. (4 RR at PX 11) The agreement is therefore enforceable under Rule 11,
even assuming compliance with Rule 11 were necessary to make it binding on the
arbitrators. 9
C. The Trial Court Properly Handled the Settlement Issue.
In one paragraph devoid of any legal authority, the Higginson Parties suggest
that the trial court must not have found “any valid settlement agreement” -- and
therefore “could not have found the Panel exceeded their authority” -- because the
court vacated the award rather than “modifying it or compelling the parties back to
arbitration.” (Br. at 33-34) This argument is a non sequitur. Like the court in Bakers
Union, the court below properly vacated the arbitration award, and it was entitled to
do so based on the evidence of a “settlement agreement [that] is binding on the
arbitrators.” 749 F.2d at 355-56. But because the settlement agreement had not been
9
The Higginson Parties also misstate the evidence in arguing that Martin’s counsel
“admitted that no settlement agreement existed and requested the matter proceed to final hearing
by the Panel.” (Br. at 33) In fact, Martin’s counsel believed that the parties had an agreement that
would settle their dispute and end the arbitration, and he requested that the case proceed to hearing
only after the arbitrators refused to accept the settlement agreement and demanded changes that
Martin was unwilling to make. (3 RR 33, 41, 55-56, 62; 4 RR at PX 13)
43
signed by the arbitrators, the trial court could not enforce it by either modifying the
award or sending the parties back to arbitration. Id. at 355. Nor did it need to do so
under the authority of Bakers Union and section 171.088(a)(3)(A).
The Higginson Parties also miss the mark with their additional argument that
the trial court abused its discretion in admitting “evidence and testimony regarding
settlement discussions.” (Br. at 34-35) As a preliminary matter, the Higginson
Parties inaccurately describe the trial court’s evidentiary rulings. The court did not,
for example, permit Martin’s counsel “to discuss settlement negotiations” (Br. at
34); in fact, the court specifically prohibited Martin’s counsel from testifying about
settlement discussions or negotiations (3 RR 28). And while the Higginson Parties
now object to the “admissibility of Exhibits 1, 10-14, 21-22” (Br. at 35), exhibits 1,
12, and 22 were not admitted (3 RR 4); exhibits 10 and 21 do not relate to the
settlement issue at all (id.); and exhibits 13 and 14 are post-settlement emails that
the Higginson Parties are now relying on for their arguments on appeal (Br. at 33).
That leaves exhibit 11 -- the Arbitration Award approved by the parties’
counsel and sent to the arbitrators -- and the trial court’s admission of that exhibit is
not precluded by TEX. CIV. PRAC. & REM. CODE § 154.073, as the Higginson Parties
now allege. (Br. at 34-35) To the contrary, section 154.073(c) specifically provides
that a court can admit written materials used in an ADR proceeding if they are
“admissible . . . independent of the [ADR] proceeding.” That is precisely the case
44
here, where the trial court admitted exhibit 11 in a hearing on the Higginson Parties’
petition to confirm and Martin’s motion to vacate the arbitration award -- a hearing
that was plainly “independent” of the arbitration proceeding itself. And no other
rule of evidence or procedure barred the trial court from admitting exhibit 11 for the
limited purpose of determining whether the arbitrators exceeded their powers by
rejecting the settlement agreement and issuing a different award. See TEX. R. EVID.
408 (settlement agreement not subject to exclusion when it is offered for a purpose
other than proving “liability for or invalidity of [a] claim or the amount”). The trial
court thus committed no error, let alone reversible error, in admitting exhibit 11 and
hearing the limited testimony of Martin’s counsel. TEX. R. APP. P. 44.1.
IV. The Trial Court Correctly Denied the Higginson Parties’ Petition to
Confirm the Arbitration Award.
Because the trial court was correct in granting Martin’s motion to vacate the
arbitrators’ award under the statutory “exceeding their powers” ground, it
necessarily follows that the court was also correct in denying the Higginson Parties’
petition to confirm the arbitration award. But in a final effort to avoid this result, the
Higginson Parties urge that their petition to confirm was based on both the TAA and
the FAA, that Martin did not seek to vacate the award under the FAA, and that the
trial court therefore “erred in vacating the Award under the Federal Act and failing
to confirm the Award as no pleadings exist to support same.” (Br. at 36-38) Putting
aside the fact that the trial court did not “vacat[e] the Award under the Federal
45
Act” -- the September 1 order did not specify which statute the court was
applying -- the Higginson Parties’ argument is wrong as a matter of procedure and
substance.
From a procedural standpoint, the Higginson Parties overlook the fact that the
Shareholders’ Agreement -- which formed the basis of the parties’ dispute and
contained the arbitration clause -- specifically provides that “[a]ll questions
concerning the construction, validity, and interpretation of this Agreement, including
the relative rights of the Corporation and the Shareholders, are governed by and
construed in accordance with the laws of the state of Texas.” (4 RR at PX 3, § 9.3)
(emphasis added) The “laws of the state of Texas” obviously include the TAA. And
even if this valid choice-of-law provision did not exist, the Higginson Parties had
the burden of proving that the Shareholders’ Agreement had a “substantial effect on
interstate commerce,” as is required for the FAA to apply. See Russ Berrie and Co.,
Inc. v. Gantt, 998 S.W.2d 713, 715 (Tex. App. -- El Paso 1999, no pet.). But when
Martin pointed this out at the August 25 hearing on the petition to confirm and
motion to vacate, the Higginson Parties did no more than offer into evidence seven
exhibits, none of which established that the dispute under the Shareholders’
Agreement involved anything more than the transfer of stock in a Texas corporation
from one Texas resident to another Texas resident. (3 RR 4-5, 10, 13-14) Thus,
46
based on either the choice-of-law provision or the evidentiary record, the Higginson
Parties failed to prove that the FAA governs this case.
In any event, it makes no difference as a substantive matter whether the TAA
or the FAA applies. Using identical language, both the TAA and the FAA authorize
a trial court to vacate an arbitration award where “the arbitrators exceeded their
powers.” TEX. CIV. PRAC. & REM. CODE § 171.088(a)(3)(A); 9 U.S.C. § 10(a)(4).
As the discussion above in parts II and III demonstrate, state and federal courts apply
the same principles under both the TAA and FAA in determining whether arbitrators
have “exceeded their powers.” Indeed, Martin’s amended motion to vacate the
arbitration award specifically noted that the FAA “has a like provision” to section
171.088(a)(3)(A), and throughout her motion, she cited and discussed cases applying
section 10(a)(4) of the FAA. (2 CR 1726 & n.16 - 1731) Accordingly, even if the
trial court had applied the FAA in vacating the arbitration award, it would have been
correct in doing so.
PRAYER
For the reasons stated above, Appellee Raeanne Martin respectfully prays that
the Court affirm the trial court’s September 1, 2015 order granting her motion to
vacate the arbitration award and denying the Higginson Parties’ motion to confirm
it. Martin requests such other relief to which she is entitled.
47
Respectfully submitted,
/s/ Jeffrey S. Levinger
G. Michael Gruber Jeffrey S. Levinger
State Bar No. 08555400 State Bar No. 12258300
Email: mgruber@ghetrial.com Email: jlevinger@levingerpc.com
Michael J. Lang Levinger PC
State Bar No. 24036944 1445 Ross Avenue, Suite 2500
Email: mlang@ghetrial.com Dallas, Texas 75202
Priya A. Bhaskar Telephone: 214-855-6817
State Bar No. 24082690 Facsimile: 214-855-6808
Email: pbhaskar@ghetrial.com
Gruber Hurst Elrod Johansen Hail Terry Scarborough
Shank LLP State Bar No. 17716000
1445 Ross Avenue, Suite 2500 Email: tscarborough@hslawmail.com
Dallas, Texas 75202 Hance Scarborough, L.L.P.
Telephone: 214-855-6800 400 West 15th Street, Suite 950
Facsimile: 214-855-6808 Austin, Texas 78701
Telephone: 512-479-8888
Facsimile: 512-479-6891
Attorneys for Appellee
CERTIFICATE OF COMPLIANCE
1. This brief complies with the type-volume limitation of TEX. R. APP. P.
9.4(i)(2)(B) because it contains 12,234 words, excluding the parts of the brief
exempted by TEX. R. APP. P. 9.4(i)(1).
2. This brief complies with the typeface requirements of TEX. R. APP. P.
9.4(e) because it has been prepared in a proportionally spaced typeface using
Microsoft Word 2013 in 14 point Times New Roman font (and 12 point for
footnotes).
/s/ Jeffrey S. Levinger
Jeffrey S. Levinger
48
CERTIFICATE OF SERVICE
The undersigned certifies that a copy of this Appellee’s Brief was served via
the Court’s electronic filing system on the following Appellants’ counsel on this
18th day of December, 2015.
Anna McKim
J. Paul Manning
Field, Manning, Stone,
Hawthorne, and Aycock, P.C.
2112 Indiana Ave.
Lubbock, Texas 79410
/s/ Jeffrey S. Levinger
Jeffrey S. Levinger
49
APPENDIX
Order Granting Amended Motion to Vacate Arbitration Award
and Denying Petition to Confirm and Enforce Award of
Arbitrators, signed on September 1, 2015 (2 CR 1909-11) ................................. tab 1
Shareholders’ Agreement between Certain Shareholders of
Russell E. Womack, Inc., dated January 1, 2008 (4 RR at PX 3) ....................... tab 2
Plaintiffs’ First Amended Original Petition in Arbitration,
dated October 1, 2014 (4 RR at PX 5) ................................................................. tab 3
February 5, 2015 email attaching Arbitration Award
(4 RR at PX 11) .................................................................................................... tab 4
Amended Motion to Vacate or Modify Arbitration Award,
filed August 19, 2015 (2 CR 1720-33) ................................................................ tab 5
TAB 1
1909
1910
1911
TAB 2
c
Shareholders' Agreement
between
Certain Shareholders
of
Russell E. Womack, Inc.
0.
January 1, 2008
0
c Shareholders' Agreement
Russell E. Womack, Inc.
This Shareholders' Agreement ("Agreement'') is entered into effective on the 1st day of
January, 2008, by and between the undersigned shareholders of Russell E. Womack, Inc., a
Texas corporation ("Corporation"), as listed on the attached Exhibit "A", the spouses of the
listed shareholders, and any person who subsequently becomes a party to this Agreement under
its terms.
Article 1
Nature and Purposes of Agreement
To secure continuity and stability of the policies and the management of the Corporation,
as among the shareholders who participate in this Agreement, all parties to this Agreement agree
to restrict the transfer of Shares under certain circumstances, to preserve the closely held natme
of the Shares owned by the parties to this Agreement, and to establish a plan for the pmchase of
Shares on a Shareholder's bankruptcy. divorce, or death, the death of a Shareholder's Spouse. or
on the imposition of a creditor lien on Shares that are subject to this Agreement.
Therefore, in consideration of the premises and mutual promises contained in this
Q Agreement, the parties agree as follows:
Article2
Dermed Terms
As used in this Agreement, the following tenns shall have the following meaning, and
other terms are defmed herein:
"Common Stock" means the common stock, $1.00 par value per share, of the Corporation.
"Immediate Family" means parents, siblings, a spouse during marriage and not incident to
divorce, lineal descendants (including those by adoption), spouses of lineal descendants, and a
"stepchild" or "stepchildren" of the Shareholder who is a child of the Spouse of the Shareholder
at the time of a transfer of shares by the Shareholder that is subject to this Agreement, but only if
the Shareholder spc:cifically names such stepchild(ren) as beneficiaries of a trust or under the
Shareholder's will or as part of a transfer document, as a person who would share in a
distribution of the Shares by reason of Shareholder's transfer of shares subject to this Agreement.
"Involuntary Transfer" means, with respect to any Shares, any Transfer of Shares other than a
Voluntary Transfer. Examples of an Involuntary Transfer include an attachment, seizure, or
sherifrs sale in connection with the perfection of a judgment lien, sequestration, appaintment of
a gutrdian for the estate of a mentally incapacitated individual, the filing of a petition or transfer
in bankruptcy, an award of property to a Spouse pursuant to a divorce decree, and a Transfer at
Death.
SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC.
PAGE 1OF17
0 "Offer'' is defined in Section 3.3Ca) of this Agreement
"Offer Notice" means, with respect to a proposed Voluntary Transfer to be made by a
Shareholder, a written notice provided by the Shareholder of the tenns, conditions, and other
infonnation relating to the proposed Voluntary Transfer, including ( 1) the name and address of
the Shareholder proposing to make the Voluntary Transfer, (2) the number of Shares the
Shareholder owns, (3) the nwnber of Shares the Shareholder proposes to Transfer, (4) a copy of
the proposed transferee's offer to purchase, (5) the proposed transferee's name and address, (6)
the price per Share the proposed transferee will pay, (7) how the proposed transferee detennined
the purchase price per Share, (8) the terms and conditions of payment to be made by the
proposed transferee, and (9) any other !!Weements, documents, or instruments relating to the
proposed Voluntary Transfer. Notwithstanding the date thereof, no Offer Notice will be effective
and time periods set forth in this Agreement will not begin to run until that Offer Notice is
deemed given in accordance with Section 8.2 of this Agreement to all parties entitled to receive
that Offer Notice.
"Other Shareholders" means, with respect to any event or transaction, all the Shareholders other
than the Shareholder or Shareholders who are the subject of the event or transaction.
"Permitted Transferee" means any of the Persons listed in Section 4.1 of this Agreement
"'Person" means an individual, a corporation, a limited liability company, a trust, a partnership, a
0 joint stock association, a business trust, or a government or agency or subdivision thereof.
"Personal Representative" means the executor, administrator, guardian, or conservator of the
estate of a Shareholder or a Spouse.
"Pro Rata" means, with respect to any Shareholder, the nwnber of Shares owned by the
Shareholder divided by the total nwnber of Shares owned by the Other Shareholders.
"Purchasers" is defined in Section 7.2 of this Agreement.
"Recipient" is defined in Section 3.2 of this Agreement.
ushareholder" means any Person who is or becomes, at any time, a party to this Agreement
pursuant to its tenns and owns Shares at that time registered in his or her own name.
Shareholder shall not include Shareholder's spouse, unless such spouse owns Shares registered
in his or her own name.
"'Shares" means issued and outstanding shares of the Common Stock, excluding treasury shares,
which are owned at any time by any party to this Agreement. All references to Shares owned by
a Shareholder include the community interest, if any. of the Spouse of that Shareholder.
"Spouse" means the spouse of an individual Shareholder.
"Spousal Interest" means any interest in the Shares owned or claimed by a Spouse.
0 SHAREHOLDERS' AGREEMENT- RllSSELL E. WOMACK, INC.
PAGE 20F 17
c "Successor" means, with respect to any deceased individual who owned any Shares at the time of
that individual's death, (1) that deceased individual's heirs or legatees then owning title to that
deceased individual's Shares or the deceased individual's Personal Representative, as the case
may be; and (2) the deceased individual's surviving Spouse, to the extent that Spouse owns a
community interest in the deceased individual's Shares.
"Transfer" when used as a noun means any direct or indirect sale, assignment, gift, devise,
pledge, hypothecation, or other encumbrance or any other disposition of Shares (or any interest
in or voting power of Shares) either voluntarily or by operation of law. "Transfer" when used as
a verb means the act of directly or indirectly selling, assigning, granting by gift, devising,
pledging, hypothecating, or otherwise encumbering or disposing of Shares (or any interest in or
voting power of Shares) either voluntarily or by operation of law. In connection with the use of
the term "Transfer,'' the following tenns will have the meanings indicated below:
..Transfer at Death'' means, with respect to any Shares owned by an individual, the
Transfer of those Shares to that individual's heirs, devisees, or legatees at the time of the
death of the individual, whether the Shares pass by the laws of intestate succession, the
terms of a last will and testament, or pursuant to the marital property laws of any state.
••Transfer by Gift" means, with respect to any Shares, a Voluntary Transfer of all or any
portion of the transferor's interest in those Shares to or for the benefit of a charitable
organization or a natmal object of the ~feror's bounty for less than adequate
0 consideration, but specifically excluding any Transfer at Death.
"Voluntary Transfer" means, with respect to any Shares, a Transfer of any interest in
those Shares by the free and voluntary act of the transferor (other than a Transfer of
Shares resulting from the filing of a petition in bankruptcy), Transfers by Gift, Transfers
by sales, and voluntary pledges.
Article 3
Transfer Restrictions Generally
3.1 Shareholder Agreement. Each Shareholder and Spouse agree not to Transfer or
permit to be Transferred all or any portion of the Shares now owned or subsequently acquired
except in accordance with and subject to the terms and conditions of this Agreement.
3.2 New Shareholders. Notwithstanding any other provision of this Agreement, no
Shares may be Transferred to any Person who is not a party to this Agreement. As a condition
precedent to the acquisition of Shares by any Person (a "Recipient") by Transfer from a
Shareholder, the Recipient and, if applicable, the Recipient's spouse, shall sign an adoption
agreement in substantially the same form attached hereto as Exhibit B pursuant to which the
Recipient and the Recipient's spouse agree to be bound by this Agreement. By signing the
adoption agreement, the Recipient and the Recipient's spouse agree for themselves and for their
respective successors, successors in interest, heirs, legatees, devisees, and legal representatives to
be bound by the tenns and conditions of this Agreement On execution of the adoption
0 SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC.
PAGEJ OF 17
c agreement, the Recipient and the Recipient's spouse will become a "Shareholder" and a
"Spouse" for all purposes of this Agreement. The adoption agreement shall be delivered by the
Recipient to the Corporation and all Shareholders who are parties to this Agreement.
3.3 Voluntazy Transfer Restrictions. Any proposed Voluntary Transfer of any
Shares by a Shareholder is subject to the following provisions:
(a) Before the Voluntary Transfer, the Shareholder must send an Offer Notice
to the Other Shareholders who are parties to this Agreement describing the Voluntary
Transfer (the "Offer''). If any term of the proposed Voluntary Transfer changes after the
delivery of an Offer Notice, the Shareholder must promptly notify the Other Shareholders
who are parties to this Agreement of the changes, and the subsequent notice will
constitute a new Offer Notice for purposes of this Section 3.3(a).
(b) For a period of sixty days after the date of the delivery of the Offer Notice
to the Other Shareholders who are parties to this Agreement, the Other Shareholders have
the right to accept or reject the Offer in writing. Each Other Shareholder's response to the
Offer must specify the maximwn number of Shares that Other Shareholder would be
willing to purchase. If any Other Shareholder accepts the Offer, the purchase price shall
be a per-Share price equal to the offering price per Share specified in the Offer Notice.
The purchase price for the Shares to purchase pursuant to acceptance of the Offer is
payable in accordance with Section 7.2 below ... If more than one Other Shareholder
accepts the Offer, each Other Shareholder who accepts the Offer will be entitled to
0 purchase a portion of Shares being sold equal to a percentage determined by dividing the
number of Shares owned by the Other Shareholder by the number of Shares owned by all
Other Shareholders who accept the Offer.
(c) If the Other Shareholders do not accept the Offer to purchase all the
Shares that are the subject of the Offer by the expiration of the time periods described in
Section 3.3Cbl or if before the time periods expire the Other Shareholders reject the Offer
in writing, the Shareholder is entitled to sell the remaining Shares strictly in accordance
with the terms contained in the Offer Notice.
3.4 Transfer by Pledge. No Shares may be pledged or otherwise voluntarily
encumbered by any Shareholder unless the Other Shareholders approve the pledge by a two-
thirds vote of the Other Shareholders. The Other Shareholders have sole discretion to allow
Shares to be pledged for any purpose. If, for any reason, any pledged Shares are foreclosed on,
the foreclosure will be considered an Involuntary Transfer and the provisions of Section 5.1
below will govern.
3.5 "S" Comoration Restrictions
(a) The Corporation has elected to be taxed as an "S" corporation under the
Internal Revenue Code of 1986, as amended (the "!RC"). Notwithstanding any other
provision of this Agreement, unless and until the Corporation effectively terminates its
status as an "S" corporation, any attempted Transfer of Shares that would cause the
0 SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC.
PAGE40F 17
c Corporation to lose its status as an "S" corporation under the IRC is prohibited. and any
such Transfer is void.
(b) If, notwithstanding the restrictions contained in Section 3.S(a), any Shares
are effectively made the subject of a Transfer to any Person that would cause the
Corporation to lose its status as an "S" corporation or if any change should occur with
respect to a Shareholder that would cause the Corporation to lose its status as an "S"
corporation, the Other Shareholders have an option exercisable at any time thereafter by
providing notice to that Person or that Shareholder to purchase all the Shares owned by
that Person or that Shareholder at the purchase price per Share determined pursuant to the
provisions of Section 7 .1 below, to be payable in accordance with Section 7.2®.
Article4
Permitted Transfers by Gift
4.1 Permitted Transfers by Gift. Subject to the provisions of Section 4.2, the
provisions of Section 3.3 above do not apply to any Transfer by Gift made by a Shareholder
during his life to--
(a) any member of the Shareholder's Immediate Family, including but not
limited to any stepchild of the Shareholder who is specifically named in the gift
instrument as a transferee and who is part of the definition of stepchild herein;
0 (b) a guardian of the estate of the Shareholder; or
(c) the trustee of an inter vivos trust for the sole benefit of one or more
members of the Shareholder's Immediate Family, provided that the Other Shareholders
are notified in writing at ]east thirty days before the proposed Transfer. The notice must
specify (I) the exact name of the trust and its federal tax identification number (or
indicate that the number has been applied for but not received) and (2) the name, address,
and relationship to the Shareholder of all trustees and beneficiaries of the trust or trusts
and their respective federal tax identification or Social Security numbers (or indicate that
the numbers have been applied for but not received).
Any transfer to a child who is less than twenty-one years old at the time of the transfer must be
conditioned on the Shareholder's retaining the right to do any act with respect to the transferred
Shares on behalf of the transferee that is permitted, authorized, or required by this Agreement
4.2 Permitted Transfer Restrictions. Before any Transfer of Shares is made under
Section 4.1. the Permitted Transferee must become a party to this Agreement in accordance with
the provisions of Section 3.2.
4.3 Transfers by Permitted Transferees. The provisions of Section 3.3 do not apply
to any Voluntary Transfer of Shares made by a Permitted Transferee back to the Shareholder
who originally made a Transfer by Gift to the Pennitted Transferee in accordance with Section
4.1.
0 SHAREHOLDERS'AGREEMENT- RVSSELL E. WOMACK, INC.
PAGESOF 17
0
4.4 Transfer Restrictions on Gifted Stock. Notwithstanding anything else to the
contrary in this Agreement, on any stock transferred by gift by a shareholder under this Article 4,
the Shareholder making such transfer shall have the exclusive right to purchase back the stock
from the transferee pursuant to the pmchase price and terms of Article 7, before any other
shareholder has any right to plll'Chase the stock pursuant to the other terms of this Agreement.
Article S
Notice
5.1 Involwitary Transfers
(a) If a Shareholder has any notice or knowledge of any attempted,
impending, or completed Involuntary Transfer (other than an Involuntary Transfer
subject to Article 6 of this Agreement) of any of his Shares, whether by operation of law
or otherwise, he must give immediate written notice to the Other Shareholders specifying
the number of Shares that are subject to the Involuntary Transfer and all pertinent
infonnation in his possession relating to the Involuntary Transfer. If any Shares are ever
subject to an Involuntary Transfer (other than pursusnt to Article 6 of this Agreement),
the Other Shareholders will, at all times thereafter, have the immediate and continuing
option by notice to the owner of the Shares within one year after the date the Other
Shareholders first learn or have notice of the Involuntary Transfer, to purchase all the
Shares for a purchase price per Share determined pursuant to Section 7.1 below to be
0 payable in accordance with Section 7.2Cb).
(b) If more than one Shareholder exercises the option, each Shareholder is
entitled to purchase that portion of the Shares equal to a percentage determined by
dividing the number of Shares owned by the Shareholder by the number of Shares owned
by all Shareholders who exercise the option.
5.2 Transfers in Bankruptcy
(a) If a Shareholder or Spouse is the named debtor in bankruptcy or
receivership proceedings, the Other Shareholders will, at all times thereafter, have the
immediate and continuing option by notice to the bankruptcy or receivership trustee or
other applicable party to purchase all the Shares that are the subject of the bankruptcy or
receivership proceedings for a purchase price per Share determined pursuant to Section
Ll to be payable in accordance with Section 7.2{b).
(b) If the Other Shareholders purchase option described in Section 5.2(a)
should not be exercised by the Other Shareholders for any reason or is not enforceable by
the Other Shareholders for any reason and all or any portion of the Shares subject to the
bankruptcy or receivership proceedings are proposed to be made the subject of any kind
of Transfer, the Transfer will be deemed to be a Voluntary Transfer by a Shareholder and
will be subject to the provisions of Section 3.3.
0 SHAREHOLDERS' ACREEMENT - RUSSELL E. WOMACK, INC.
PAGE60F 17
c Article 6
Buy.Sell Agreement
6.1 Death of Spouse
(a) Each Spouse agrees to bequeath his entire Spousal Interest to the
Shareholder. This promise is made with Spouse's full knowledge, is made for good and
valuable consideration, and constitutes a covenant binding on Spouse's estate, Personal
Representative, heirs, and beneficiaries.
(b) If a Spouse dies and does not leave a valid will admitted to probate
bequeathing the entire Spousal Interest to Shareholder or if any will contest is filed by
any Person challenging the validity of the bequest of the Spousal Interest to Shareholder,
Shareholder and Spouse's Personal Representative must each notify the Other
Shareholders. For a period of ninety days following the earliest to occur of (1) the
qualification of Spouse's Personal Representative, (2) the entry of an order of the probate
court concluding that Spouse's wilJ does not bequeath the entire Spousal Interest to
Shareholder, or (3) the filing of a will contest suit, the Shareholder has the exclusive right
and option to purchase the Shares at the purchase price per Share determined pursuant to
Section 7.1 below to be payable in accordance with Section 7.2Cbl.
(c) If the Shareholder does not purchase the entire Spousal Interest in the
Shares pursuant to Section 6.1 (.b) within ninety days, for a period beginning on the first
0 day after expiration of the ninety-day period and ending one year after the entry of a fmal
order by the probate court disposing of the Spousal Interest in the Shares, the Other
Shareholders have an exclusive option to purchase all or any portion of the Shares not
purchased or awarded to Shareholder at the purchase price per Share determined pursuant
to Section 7.1 to be payable in accordance with Section 7.2Cbl. The Other Shareholder's
right to purchase all or any portion of the remaining Shares shall be on a Pro Rata basis or
as the Other Shareholders may otherwise agree among themselves.
(d) If and to the extent that the Other Shareholders do not purchase all of
those Shares, each Successor of that Spouse is entitled to require the Corporation to
transfer the appropriate portion of the Spouse's Shares to that Successor on the provision
that (1) the Successor give to the Corporation and the Other Shareholders documentation
as requested by the Corporation or the Other Shareholders to evidence the rightful
ownership interest of the Successor in the Spouse's Shares and (2) the Successor
becomes a party to this Agreement in accordance with the provisions of Section 3.2
above.
6.2 Death of SbarehoJder
0 SHAREHOLDERS, AGREEMENT- RllSSELL E. WOMACK, INC..
PACE 70F 17
0 (a) Subject to the provisions of Section 6.2(dl, the provisions of Section 3.3
above and ~ below do not apply to any Transfer by Death made by a Shareholder at
his death to-
(i) any member of the Shareholder's Immediate Family;
(ii) the trustee of a testamentary trust for the sole benefit of one or
more members of the Shareholder's Immediate Family, provided that the trust qualifies to be a
shareholder of an S-Corp, and the trust terminates before the time at which the trust would cease
to be a qualified shareholder of an S-Corp..
Any transfer to a child (or adopted child or step child) who is less than twenty-one years old at
the time of the transfer must be conditioned on the guardian of such child's retaining the right to
do any act with respect to the transferred Shares on behalf of the transferee that is permitted,
authoriz.ed, or required by this Agreement.
(b) On the death of a Shareholder, and in the event that the Shareholder is not
survived by the Shareholder's Immediate Family, or for any Shares that the Shareholder
attempts by will, trust, intestacy or other testamentary devise to gift, transfer, bequeath or
devise to anyone other than one of the Other Shareholders to this Agreement, or to the
Immediate Family of the Shareholder or to the Immediate Family of one of the Other
Shareholders, the Other Shareholders have the exclusive right and option to purchase all
or any portion of the Shares owned by the Shareholder, that would otherwise pass to a
0 person who is not one of the Other Shareholders, or a member of the Immediate Family
of the Other Shareholders or the Shareholder, and the Shareholder (or his Personal
Representative) has the right and option to require the Other Shareholders to purchase all
or any portion of the Shares that would otherwise pass to a person who is not one of the
Other Shareholders, or a member of the Immediate Family of the Other Shareholders or
the Shareholder, at the purchase price per Share determined pursuant to Section 7.1
below to be payable in accordance with Section 7.2Ca). On exercise of this option, the
Shareholder's Personal Representative is obligated to sell the Shares to the Other
Shareholders on these terms, and the Other Shareholders are obligated, to the extent it
may lawfully do so, to purchase the Shares. Notice of the exercise of the option granted
puriuant to this Section 6.2 is to be given to or by the Shareholder (or his Personal
Representative) within thirty days after the Other Shareholders receive notice of the
qualification of Shareholder's Personal Representative.
(c) The Other Shareholders have the right to purchase all or any portion of the
remaining available Shares on a Pro Rata basis or as the Other Shareholders may
otherwise agree among themselves.
(d) If and to the extent that the Other Shareholders do not purchase all the
available Shares, each Successor of that Shareholder is entitled to require the Corporation
to transfer the appropriate portion of the Shareholder's Shares to the Successor on the
provision that (1) the Successor give to the Corporation and the Other Shareholders
documentation as may be requested by the Corporation and/or the Other Shareholders to
0 SHAREHOLDERS~ ACREEMENT- RUSSELL E. WOMAC~ INC.
PAGE80F 17
c evidence the rightful ownership interest of the Successor in the Shareholder's Shares and
(2) the Successor becomes a party to this Agreement in accordance with the provisions of
Section 3.2 above.
6.3 Divorce of Shareholder and Spouse. If any Shares are owned by a Shareholder
and Spouse jointly and that Shareholder or Spouse files a petition for divorce or institutes any
other legal proceedings to tenninate their marriage, the following procedures apply:
(a) Shareholder's interest in the Shares and Spouse'.s Spousal Interest in the
Shares will be reflected on their respective inventories of marital and separate assets at a
value not in excess of the purchase price determined pursuant to Section 7.1 below.
(b) Shareholder will seek, and the Spouse will agree to accept, an order for the
division of marital and separate property under which Shareholder receives the entire
Spousal Interest in the Shares in exchange for awarding to the Spouse other marital and
separate assets in which Shareholder has an interest that have a value approximately
equal to the Spousal Interest (as valued pursuant to Section 6.3CaU.
( c) If the marriage of Shareholder and Spouse is terminated by divorce or
8JU1Ulment and Shareholder does not obtain all of Spouse's interest in the Shares incident
to the divorce or annulment., Shareholder and Spouse will simultaneously give written
notice to the Other Shareholders within thirty days after the effective date of the final,
nonappealable divorce decree or of the annulment The written notice will specify the
0 effective date of termination of the marriage and the number of Shares in which the
Shareholder's former Spouse retains an interest. For a period of sixty days after the
effective date of tennination of the marriage, the Shareholder has an exclusive option to
purchase all or any portion of the former Spouse's retained interest in the Shares at the
purchase price per Share determined pursuant to Section 7.1 to be payable in accordance
with Section 7.2(b). The Shareholder's sixty-day option is exercised by delivering to the
fonner Spouse and the Other Shareholders written notice specifying the number of Shares
as to which the option is being exercised.
(d) If the Shareholder does not purchase all of the former Spouse's Shares, for
a period of sixty days after the lapse of the sixty-day option period, the Other
Shareholders have an exclusive option exercisable by written notice to the former Spouse
to purchase all or any portion of the former Spouse's remaining Shares at the purchase
price per Share determined pursuant to Section 7.1 to be payable in accordance with
Section 7.2Cbl on a Pro Rata basis or as the Other Shareholders may othetwise agree
among themselves.
(e) If any option is exercised pursuant to this Section 6.3. the former Spouse
is obligated to sell the Shares retained incident to divorce or annulment with respect to
which the option or options are exercised. If a Shareholder should exercise his option to
purchase any number of Shares owned by the former Spouse pursuant to the provisions of
this Section 6.3, the provisions of Sections 7.2. U. U. and t l below will apply with
respect to the purchase of the Shares by the Shareholder.
0 SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC
PAGE 90F 17
0
(f) Shareholder and Spouse each agree that the Other Shareholders may
intervene in their divorce or annulment proceeding without their objection for the purpose
of enforcing the Other Shareholders' rights under this Section 6.3.
Article 7
Purchase Price and Terms
7.1 Purchase Price. The parties to this Agreement acknowledge that the Common
Stock is closely hel~ no public market exists for the Common Stock, and, consequently, a fair
market value for the Shares is not readily determinable. Therefore, as used throughout this
Agreement, the phrase the purchase price per Share determined pursuant to Section 7.1 will be
the quotient of the Corporation's accrual basis book value as of the last day of the month
immediately preceding the closing of the purchase of the Shares being purchased (determined in
accordance with generally accepted accounting principles) divided by the total number of Shares
then issued and outstanding for all shareholders of the Corporation, including shareholders of the
Corporation who are not parties to this Agreement (determined in accordance with the
Corporation's stock records).
7.2 Payment of Purchase Price. Payment of the purchase price for Shares purchased
by the Other Shareholders (the "Purchasers") pursuant to this Agreement is to be made, at the
sole discretion of the Purchasers by either one of the two following methods:
0 (a) On the closing date of the purchase, the Purchasers deliver to the selling
Shareholder a cash payment equal to 100 percent of the total purchase price; or
(b) On the closing date of the purchase, the Purchasers deliver to the selling
Shareholder a cash down payment equal to l 0% percent of the total purchase price, and
the Purchasers pay the balance of the total purchase price in 10 equal annual installments.
7.3 Deliveries at Closing. At the closing of the purchase of any Shares to be made
by the Purchasers under any provision of this Agreement, the selling Shareholder and the
Purchasers are obligated to sign and deliver the following instruments, certificates, and
agreements:
(a) The Purchasers deliver to the selling Shareholder--
( l) the amount of cash required to be delivered; and
(2) a promissory note for the balance of the purchase price if the purchase
price is payable in accordance with Section 7.2(b).
(b) The selling Shareholder delivers to the Purchasers-
( 1) certificates representing the Shares being purchased by the Purchasers
c endorsed for transfer to the Purchasers, free of all liens, claims, and encumbrances; and
SHAREHOLDERS'AGREEMENT- RUSSELL E. WOMACK, lNC
PACE100F 17
0
(2) other instruments of assignment, certificates of authority, tax releases,
consents to transfer, and instruments in evidence of title in compliance with this
Agreement as may be reasonably required by the Purchasers.
Article 8
Closing Date and Notices
8.1 Closing Date. Whenever the Purchasers agree or become obligated to purchase
Shares under the terms of this Agreement, the closing date of the transaction will be a date and
time specified by the Pm-chasers at a designated location. Unless the parties agree to the contrary,
the closing date· may not be more than ninety days after the event or notice that fixed the
obligation of the Purchasers to purchase the Shares. Notice of the details of closing will be
furnished by the Purchasers no later than ten days before the closing date.
8.2 Notices. All notices, communication~ and deliveries made under this
Agreement will be made in writing signed by or on behalf of the party, will specify the section of
the Agreement ·under which it is given or made, and will be delivered personally, by facsimile
transmission, by registered or certified mail (return receipt requested), or by any courier service,
with postage or other fees prepaid, to the addresses listed on Exhibit A:
Any such notice, communication, or delivery may also be made to any other address or
person designated in writing by the party. Such addresses may be changed from time to time by
0 written notice to the other party. Any notice, communication, or delivery will be deemed given
or made (a) on the date of delivery if delivered in person or by courier service, (b) on
transmission by facsimile if receipt is confinned by telephone, or (c) on the fifth business day
after it is maiJed by registered or certified mail.
Article9
Enforcement
9.1 Endorsements on Stock Certificates. Each certificate representing Shares now
owned or hereafter owned by the Shareholders or any transferee must conspicuously state
substantially as follows, in addition to any other legends required by law:
THESE SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS AGAINST TRANSFER
PURSUANT TO THE TERMS OF A SHAREHOLDERS' AGREEMENT BETWEEN
CERTAIN SHAREHOLDERS OF THIS CORPORATION THAT PROVIDES FOR, AMONG
OTHER TIDNGS, AN OPTION IN FAVOR OF THE PARTIES TO SUCH AGREEMENT TO
PURCHASE THESE SHARES IN CERTAIN INSTANCES. THE PARTIES TO SUCH
AGREEMENT WILL FURNISH WITHOUT CHARGE A COPY OF THE AGREEMENT TO
THE RECORD HOLDER OF THIS CERTIFICATE ON WRITTEN REQUEST TO
THESE SHARES ARE SUBJECT TO THE PROVISIONS OF A SHAREHOLDERS'
c AGREEMENT THAT MAY PROVIDE FOR MANAGEMENT OF THE CORPORATION IN
SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC.
PAGE 11OF17
c A MANNER DIFFERENT THAN IN OTHER CORPORATIONS AND MAY SUBJECT A
SHAREHOLDER TO CERTAIN OBLIGATIONS OR LIABILITIES NOT OTHERWISE
IMPOSED ON SHAREHOLDERS IN OTHER CORPORATIONS.
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT''), OR UNDER ANY APPLICABLE STATE
SECURITIES LAWS, AND THEY CANNOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED, PLEDGED, OR OTHERWISE HYPOTHECATED EXCEPT IN
ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND STATE SECURITIES LAWS OR ON DELIVERY TO THE CORPORATION OF
AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE CORPORATION THAT
AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THIS CORPORATION HAS ELECTED TO BE TAXED AS AN "S" CORPORATION FOR
FEDERAL INCOME TAX PURPOSES UNDER THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE"). ANY SALE, TRANSFER, OR OTHER FORM OF
DISPOSITION OF THESE SHARES THAT WOULD CAUSE THIS CORPORATION TO
LOSE ITS STATUS AS AN "S" CORPORATION UNDER THE CODE IS VOID.
9.2 Breach and Eguitable Relief. Any purported Transfer in breach of any provision
of this Agreement is void, will not operate to Transfer any interest or title in the purported
transferee, and will constitute an offer by the breaching Shareholder to sell his Shares to the
Corporation at the purchase price per Share determined pursuant to Section 7.1 above to be
0 payable in accordance with Section 7.2Cb). In connection with any attempted Transfer in breach
of this Agreement, the Corporation may refuse to transfer any Shares or any stock certificate
tendered to it for Transfer, in addition to and without prejudice to any other rights or remedies
available to the Corporation. Each party to this Agreement acknowledges that each other party
will suffer immediate and irreparable hann if a party hereto breaches, attempts to breach, or
threatens to breach this Agreement and that monetary damages will be inadequate to compensate
the nonbreaching parties for any actual, attempted, or threatened breach. Accordingly, each party
hereto agrees that each of the other parties will, in addition to any other remedies available to
them at law or in ·equity, be entitled to specific performance or temporary, preliminary, and
pennanent injunctive relief to enforce the terms and conditions of this Agreement without the
necessity of proving inadequacy of legal remedies or irreparable harm, or posting bond, any
requirements to equitable and injunctive relief being hereby specifically waived.
9.3 Governing Law and Severability. All questions concerning the construction.,
validity, and interpretation of this Agreement, including the relative rights of the Corporation and
the Shareholders, are governed by and construed in accordance with the laws of the state of
Texas. If any term, provision, covenant, or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms,
provisions, covenants, and restrictions will remain in full force and effect and will in no way be
affected, impaired, or invalidated. It is hereby stipulated and declared to be the intention of the
parties that they would have signed this Agreement had any terms, provisions, covenants, and
restrictions that may be hereafter declared invalid, void, or unenforceable not initially been
included in this Agreement.
(
SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC.
PAGE 12OF17
c Article 10
Effect
I0.1 Binding Effect. Nothing in this Agreement, express or implied, is intended to
confer on any party. other than the parties hereto and their respective permitted assigns, any
rights, remedies, obligations, or liabilities under or by reason of this Agreement, and no person
who is not a party to this Agreement may rely on the terms except as otherwise set out This
Agreement {a) constitutes the entire agreement between the parties relating to the subject matter
hereof and (b) supersedes all previous understandings and agreements between the parties
relating to the subject matter hereo~ both oral and written. This Agreement is binding on, inures
to the benefit of, and is enforceable by the parties hereto, including the Corporation and its
successors and assigns as well as the Shareholders and Spouses and their respective heirs,
legatees, devisees, legal representatives, successors, and permitted assigns.
10.2 Spouses. The Spouses are fully aware of, understand, and agree to the
provisions of this Agreement and its binding effect on any interest that Spouse may have by
reason of marriage to a Shareholder in any Shares subject to the terms of this Agreement held in
the Shareholder's name on the stock records of the Corporation at or after execution of this
Agreement. Any obligation of a Shareholder or his legal representative to sell or offer to sell
Shares under the terms of this Agreement includes an obligation on the part of the Shareholder's
Spouse to sell or offer to sell any interest that Spouse may have in the Shares in the same
manner.
0 10.3 Rqiresentations and Warranties. No party to this Agreement is making any
representations or warranties concerning the business operations or financial condition of the
Corporation, because all the parties are equally familiar with the business operations and
financial condition of the Corporation. All parties to this Agreement represent, warrant, and
covenant that they have full power, legal capacity, and authority to enter into and perform this
Agreement in accordance with its terms and that they will perform all agreements made by them
under this Agreement in accordance with its terms.
Article 11
Assignment, Amendment., Waiver, and Termination
11. l Assignment. No party to this Agreement may assign its rights or delegate its
obligations hereunder without the prior written consent of each party. Any such attempted
assignment will be void ab initio. Subject to the preceding sentences, this Agreement will be
binding on and inure to the benefit of the parties and their respective successors and assigns.
11.2 Amendment. This Agreement may be amended at any time by a written
instrument signed by the Shareholders holding at least two-thirds of the Shares then subject to
this Agreement, provided that no amendment may adversely affect any rights of any party under
this Agreement that have vested before amendment.
11.3 Waiver. Any waiver of the terms or conditions in this Agreement may be made
only by a written instrument signed and delivered by the party waiving compliance. The failure
0 SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC.
PACE 130F 17
0 of any party at any time to require performance of any provisions of this Agreement in no
manner affects the right to enforce. No waiver by any party of any term or condition, nor the
breach of any term or condition contained in this Agreement, is deemed to be (a) a further or
continuing waiver of the term, condition, or breach or (b) a waiver of any other term, condition,
or breach of any other term or condition.
11.4 Termination. This Agreement terminates on the occurrence of.-
{a) the written agreement of Shareholders holding at least two-thirds of the
Shares then subject to this Agreement, provided that no termination may affect adversely
any rights that have vested before termination;
(b) the naming of the Corporation as debtor in bankruptcy proceedings for a
period of sixty days without dismissal, the execution by the Corporation of an assignment
for the benefit of its creditors, the appointment of a receiver for the Corporation, or the
voluntary or involuntary liquidation or dissolution of the Corporation; or
( c) the consummation of an initial public offering by the Corporation.
Article 12
Miscellaneous
12.1 Further Assurances. All parties to this Agreement agree to take further actions
0 and execute and deliver other documents, certificates., agreements, and other instruments as may
be reasonably necessary or desirable to implement transactions contemplated by this Agreement
12.2 Construction and Certain References. When the context requires; the gender of
all words used in this Agreement includes the masculine, feminine, end neuter, and the number
of all words includes the singular end plural. Unless expressly stated otherwise, references to
"include" or "including" mean ..including, without limitation." "Hereto," "herein," or
..hereunder" refer to this Agreement as a whole and not to any particular article or section hereof.
All titles and headings to articles and sections in this Agreement are included for convenience
and ease of reference only and do not affect the meaning or interpretation of articles or sections
of this Agreement. Unless otherwise specified, all references to specific articles, sections, or
exhibits are references to articles, sections, and exhibits to this Agreement
12.3 Time of Essence. Time is of the essence in the performance of obligations of
this Agreement.
12.4 Countemarts. This Agreement may be signed in multiple counterparts., each of
which will be considered an original but all of which together will constitute one and the same
instrument, and in making proof of this Agreement it is not necessary to produce or account for
more than one counterpart.
12.S Mediation and Arbitration. If a claim. demand, disagreement, controversy, or
dispute (collectively, "Dispute") arises in connection with this Agreement or the breach thereof
0 SHAREHOLDERStACREEMENT- RUSSELL E. WOMACK, INC.
PAGE140F 17
c and if the Dispute cannot be settled through direct discussions, the parties agree to endeavor first
to settle the Dispute in an amicable manner by mediation to be held in Lubbock, Lubbock
County, Texas, United States of America, administered by the American Arbitration Association
under its Commercial Mediation Rules before resorting to arbitration. The mediation will be
completed within thirty days of receipt of written demand for mediation. Thereafter, any
unresolved controversy or claim relating to this Agreement or breach thereof will be settled by
binding arbitration initiated by written notice by either party to the other of the intent to arbitrate.
The arbitration will be held in Lubbock, Lubbock County, Texas, United States of America, and
administered by the American Arbitration Association in accordance with its Commercial
Arbitration Rules, and judgment on the award rendered may be entered in any court having
jurisdiction. Notwithstanding any other provision of this Agreement or this Section 12.5 to the
contrary, no party will be precluded from seeking injunctive relief or a temporary restraining
order before implementing procedures for mediation or arbitration, provided that such party
determines in the goodMfaith exercise of its reasonable best judgment that it will suffer
irreparable harm or injury by any delay caused by mediation or arbitration proceedings.
By signing below, the aboveMnamed Shareholder and Spouse, if applicable, (l) agree to become
parties to and bound by the terms and provisions contained in the Shareholders' Agreement of
Russell E. Womack, Inc. dated effective [date] and (2) acknowledge that they have previously
received a copy of the Shareholders' Agreement.
SHAREHOLDERS:
0 SIGNATURES NUMBER OF SHARES DATE SIGNED
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Debbie Cheadle /i /• _/ _. I 1 /J ttf
AddressforNotice: /18'9a fl> ag9-- )lftP.v WOif
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0 SHAREHOLDERS' AGREEMENT- RIJSSELL E. WOMACK, INC.
PAGE lSOF 17
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0 SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC.
PAGE 160F 17
c Exhibit A
List of Sbareholden
Name Number of Shares %ownership
Nancy Higginson
Address for Notice: /I 30fc., C!t 7/ QC) I UJc 1.£-fu cfl. T'i' r 7 q .'ff J-
1
Edward Cheadle, as personal - - - - - -
representative of Camille Sawaya, Deceased
Address for Notice: /7~tf ``6r~tvc.L ]?_,. 1
Dro..r2" Ll..b ~LI O'?....o
0
Arthur Cheadle
Address for Notice: ' '3 IJ 7 C>le.s J.'i-"'IA!.. S •L , C c.J+ 'r-112/
Raeanne Martin
Address for Notice: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
Wayne Carson
Address for Notice: S3o2. h.o" ~ tJ
0 SHAREHOLDERS' ACREEMENT- RUSSELL E. WOMACK, INC.
PACE 17OF17
TAB 3
c WAYNE CARSON, DEBBIE CHEADLE, §
EDWARD CHEADLE, EDWARD CHEADLE, §
ARTHUR CHEADLE, NANCY HIGGINSON, §
FINNEY CHEADLE, CHERYL SHOOP, §
KEITI!SAWAYA § AAA ARBITRATION
§ NO. 71-20-1400-2743
v. §
§
RAEANNE MARTIN §
PLAINTIFFS' FIRST AMENDED ORIGINAL PETITION IN ARBITRATION
COMES NOW Plaintiffs, WAYNE CARSON, DEBBIE CHEADLE, EDWARD CHEADLE,
.ARTHUR CHEADLE, NANCY HIGGINSON, FINNEY CHEADLE, CHERYL SHOOP, KEITH SAWAYA
complaining of Defendant, RAEANNE MARTIN, and would show the Court as follows:
I.PARTIES
0 1. Plaintiffs, Wayne Carson, is a resident of Randall County, Texas; Arthur Cheadle,
is a resident of Salt Lake City, Utah, Debbie Cheadle, is a resident of Draper, Utah, Edward
Cheadle, is a resident of Sandy, Utah, Finney Cheadle, is a resident of Houston, Texas, Nancy
Higginson, is a resident of Lubbock, Texas, Keith Sawaya, is a resident of Sandy, Utah, and
Cheryl Shoop, is a resident of Tooele, Utah (Collectively referred to as "Plaintiffs" or "Carson
i
Family").
2. Defendant, Raeanne Martin, is an individual who resides in Van Alstyne, Texas,
and bas appeared in this arbitration by and through her attorney ofrecord Jeff Lane.
II. JURISDICTION AND VENUE
3. The parties voluntarily agreed to jurisdiction and venue of their claims arising out
of a Shareholder Agreement in Lubbock County, Texas because the Shareholder Agreement
specifically requires the arbitration to be held Lubbock County, Texas. (Exh. 1 pp. 14-15, ~
c 12.5). Further, the 72nd Judicial District Court of Lubbock County, Texas has ordered the
Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Pagel
c aforementioned parties to arbitration pursuant to their agreement. (Exb. 16). The parties have
attended AAA mediation pursuant to the agreement but were unable to reconcile.
ID. BACKGROUND
4. Russell E. Womack ("Russell'') was the original sole shareholder in Russell E.
Womack, Inc. ("The Company"). He was married to Beverly B. Womack ("Beverly") who
predeceased him. Russell and Beverly did not have any children during their marriage. Russell
died on January 18, 2006 leaving a handwritten will and codicil giving his entire estate to both
his and Beverly's nieces and nephews.
The Probate
5. On April 27, 2006 a suit was initiated regarding the Combined Application for
Identification ofDistributees for Probate of Will, For Appointment of Independent Executor, and
0 for Waiver of Bond (''the Application"), filed by James E. Byrne.
6. The Application alleged that James B. Byrne, Jr., Barbara Holladay, Michael V.
Byrne, Richard H. Byrne, West Womack, and Carolyn Victoria Cain ("the Byrnes Family") were
the only nieces and nephews of Russell. ~
( 7. Thereafter, Deah'dra Anne Cummings ("Cummings"), asserted a claim as an adopted
niece of Russell.
8. The nieces and nephews of Beverly included in the probate litigation were Raeanne
Martin, Wayne Carson, Arthur Cheadle, Debbie Cheadle, Edward Cheadle as personal
representative of the Estate of Camille Sawaya, Finney Cheadle, and Nancy Higginson
(collectively referred to as "The Family'). The Family each and collectively objected to
Cwnming's claim to the inheritance. The Family was jointly represented in Russell's probate by
c Andy Stewart of Mullin, Hoard, & Brown, LLP. After negotiating a future joint purchase of
Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Page2
c Cumming' s shares in the Company, the Family removed their joint objections to Cummings
claims. .
9. The Court foWld that as a matter of law, Russell intended to distribute his estate to
James E. Byrne, Jr., Barbara Holladay, Michael V. Byrne, Richard H. Byrne, West Womack,
Carolyn Victoria Cain, Nancy Higginson, Arthur Cheadle, Debbie Cheadle, Camille Sawaya,
Raeanne Martin, Wayne Carson, and Deah'dra Anne Cummings.
10. The Byrnes Family appealed the Court's determination but the Appellate Court
affirmed and the Russell's estate was distributed according to the trial court's dete1111ination
found in paragraph 9 hereinabove.
The Shareholder Agreement
11. After the appeal, The Family which includes only the parties to this arbitration
0 purchased Cumming' s shares in the company and distributed them among themselves pro rata.
The acquisition of the Cwnming's shares gave the Family a majority of the voting shares in the
Company. In the interim, shares of REWI owned by the Estate of Camille Sawaya were
distributed to her heirs and gifts to immediate family members by certain Carson Family
( Plaintiffs were made to their siblings pursuant Article 4 of the Shareholder Agreement. (Exh.l,
p. 5). As a result of their joint efforts to obtain a majority, the Family entered into a
Shareholders Agreement Between Certain Shareholders of Russell E. Womack, Inc., dated
January 1, 2008 ("Shareholder Agreement") (Exh. 1).
12. The Shareholder Agreement allowed any remaining Family members to keep the
hard earned majority shares in the event one or more of them desired to sell their shares for a
~3.3).
o
certain offered price by and through a right of first refusal (Exh. 1, Again, Andy Stewart
represented The Family in drafting the joint Shareholder Agreement. Raeanne Martin executed
Plaintiffst, the Carson Familyt First Amended Original Petition in Arbitration Page3
0 the Shareholders' Agreement along with her Family of their own Gee will and for their own
mutual benefit of maintaining a majority.
13. Originally, all family members except Wayne Carson and Raeanne Martin desired
to enter into a voting trust to keep their vote in a singular person. Cousins, Wayne Carson and
his sister Raeanne Mai.tin were asked to join the voting trust. Martin and Carsoirlfad numerous
conversations regarding whether to join the voting trust or not. Martin wanted an opt out
provision for the voting trust. As a result, a Voting Trust was entered into on December 31, 2007
by the entire Family. (Exh. 17). However, it is important to note that the formalities of the
l
'... voting instructions were never followed and all shareholders voted their own shares. Again, the
Family was jointly represented by Andy Stewart with Mullin, Hoard, and Brown in preparation
of the Voting Trust. The Voting Trust specifically authorized only Wayne Carson and Raeanne
0 Martin to opt out of the Voting Trust. (Exh. 17, 118.I).
14. On December l, 2012, Raeanne Martin opted out of the Voting Trust. (Exh. 18).
Wayne Carson did not opt out of the Voting Trust. As a result, all of the Plaintiffs herein are
subject to the Shareholder Agreement and the Voting Trust now. The formalities of the voting
( trust have currently been submitted to REW!. It follows that any shares of stock purchased by
any of the other contracting persons by and through the Shareholder Agreement would be subject
to the Shareholder Agreement and Voting Trust.
Martin Triggers Right of First Refusal and Same was Accepted
15. Over five years later, on February 28, 2013 Ryan J. Bigbee, attorney for Mike
Byrne, made an offer to purchase all of Martin's shares in the Company for $3,130,000.00 ("The
Offer")(Exh. 2). Martin conditionally accepted The Offer on March 4, 2013(Exh 3). On March
7, 2013, the Family requested formal compliance with the offer notice provisions required in the
Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Page4
0 Shareholder Agreement (Exh 4; Exh. 1). Martin complied with the offer notice provisions of the
Shareholder Agreement the next day (Exh. 5; Exh. 1). Importantly, Martin indicates that there
are no other contractual arrangements with Byrnes or any other person related to the Offer (Exh.
5. ~9).
16. On March 18, 2013, the Carson Family agreed to accept The Offer pursuant to the
terms of the Shareholder Agreement electing to make full payment of the purchase price as
opposed to paying it out over time as allowed by the Shareholder Agreement. (Exh. 6). Despite
not being required to close by the date established in The Offer, the Carson Family also agreed to
close on March 22, 2013 at Mr. Lane's office in Dallas, Texas (Exh. 6). The acceptance and
request to set a closing were performed by Carson Family well within the contractual deadlines
and before any revocation of The Offer by Byrnes or refusal to sell by Martin (Exhs. 1-6).
0 17. By the express terms of the Shareholders' Agreement, Martin received a proposed
Voluntary Transfer and accepted same. As such, Section 3.3 of the Shareholders' Agreement
was triggered and the Carson Family acknowledged receipt of the offer notice and tendered their
acceptance.
( Post-Trigger Conduct
18. Despite Martin complying with every contractual provision established by the
Shareholder Agreement except delivery of the shares, Martin indicated she was proceeding with
the March 22, 2013 Byrnes closing and indicated that "[d]elaying the closing, however wi11
require [her attorney] being convinced there is some legal authority and argument to do so" (Exh.
5). On March 19, 2013, counsel for Carson Family and Wayne Carson met with Jeff Lane and
Martin in Dallas, Texas. After said meeting, Martin postponed the Byrnes closing until the
Q Purchasers complied with her request for infonnation (Exh. 11).
Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Pages
0
a. In(ormation Provided by Purchasers
19. On March 28. 2013, the Carson Family provided a brief position statement to
Martin at her request outlining the simple fact that the Shareholder Agreement is valid,
enforceable and the buy/sell was triggered (Exh. 7). The Carson Family also demonstrated that
the Offer was irrevocable (Exh. 7).
b. Martin Files Suit Asserting Positions ofNon-Contracted Partv
20. On April 11, 2013, Martin filed a Declaratory Petition seeking the Court to
declare " ... that the Putative Shareholder Agreement is unenforceable, and therefore does not
give the Other Signatories the preemptive right to purchase Plaintiff's shares for the same
amount as the proposed sale to Michael and Richard Byrne." (Orig. Pet. p.8, if28; Exh. 14). In
response and consistent with the Shareholder Agreement, the Garson Family sought injunctive
0 relief and the parties entered into an Agreed Temporary Restraining Order which expired by its
own terms on September 13, 2013. A hearing continuing the permanent injunction hearing
postponed on September 13, 2013 were set for September 20, 2013. In the interim, Martin
transferred the shares in question which were subject to the Shareholder Agreement to Richard
( and Michael Byrnes for $3,130,000.00. (Exh 14). The Court never ruled on the Plaintiffs'
pennanent injunction due to the issue being moot.
21. In the underlying cause, Martin championed the position and asserted that she was
fraudulently induced by her own lawyer to sign the Family Shareholder Agreement, a nebulous
post-Agreement vote of only a few shareholders made the Shareholder Agreement void and
asserted defenses of waiver and/or estoppel. Martin simply disregarded the fact that she signed
the Shareholder Agreement in January of 2008 to secure a majority interest for her entire family.
c It wasn't until five (5) years later with no prior objections that Martin filed a declaratory
Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Page6
c judgment seeking to undo the Shareholder Agreement. A position one might infer enriched
Martin to the tune of $3,130,000.00 regardless of who purchased them, her family with whom
she contracted or the non-family, non-signatory buyers.
c. Purchasers' Tender and Martin 's Failure to Awear at Closing
22. On April 24, 2013, the Carson Family consistent with the terms of the
Shareholder Agreement set the date, time and location for the closing of the accepted offer
within the ninety (90) day time frame required (Exh. 8). On April 25, 2013, Martin advised that
she received the closing notice and indicated that no one would attend the closing on her behalf
(Exh. 9).
23. On April 30, 2013 at IO:OOam in the law offices of Field, Manning, Stone,
Hawthorne, & Aycock, P.C. located at 2112 Indiana Ave. Lubbock, Texas 79410, J. Paul
0 Manning on behalf of the Purchasers appeared in person and waited until 10:12am before he
made the attached record (Closing p.2). At said closing, Mr. Manning was authorized by the
Purchasers to take possession of Martin's endorsed shares of stock, make a copy of same and
forward to Amarillo National Bank (ANB). Upon receipt of Martin's endorsed shares of stock,
~ ANB agreed to wire the funds to Martin pursuant to her instructions or issue a cashier's check
made payable to her for the entire offer amount (Exh. 10).
24. Neither Martin nor her attorney appeared for the closing set on April 30, 2013
(Closing p.2-6).
Transfer of Martin's Stock
25. On March 6, 2014, the Court denied all respective summary judgment motions on
the respective declaratory claims of Martin and the Carson Family. (Exh. 12). The Court did not
( rule on the issue of a pennanent injunction. The Agreed Temporary lnjuction e>epired on
Plaintiffsr, the Carson Family, First Amended Original Petition in Arbitration Page7
c September 13, 2013 by its own terms. (Exh. 13). On or about September 23, 2013, Martin and
Mike and Richard Byrnes closed the sale of Martin's stock in the company for the swn matched
by the Carson Family. (Exh. 14). This transfer was a direct breach of the Shareholder
Agreement. As a result, the Plaintiffs have lost the majority of shares they contracted for to
control REW! by Martin's circumvention of the Shareholder Agreement signed in 2008.
Order to Arbitrate
26. On September 5, 2013, the Carson Family demanded mediation of their claims
against Martin through the AAA. (Exh. 15). On March 6, 2014, the Court ordered all claims
between Martin and the Carson Family to AAA arbitration. (Exh. 16). On April 7, 2014, the
Carson Family and Martin mediated through AAA mediator, Randy Duke, but were unable to
resolve the issues. All conditions precedent have been satisfied by Plaintiffs.
0 IV. CAUSES OF ACTION
A. BREACH OF CONTRACT
A VALID CONTRACT EXISTED
27. The following elements are required for the formation of a valid contract: (1) an
l · offer, (2) acceptance in strict compliance with the terms of the offer, (3) a meeting of the minds,
(4) each party's consent to the terms, and (5) execution and delivery of the contract with the
intent that it be mutual and binding. Cessna Ai1·craft Co. v. Aircraft Network, L.L.C., 213 S.W.3d
455, 465 (Tex. App.-Dallas 2006, pet. denied). Whether an. alleged agreement constitutes an
enforceable contract is a question of law. Effel v. McGarry, 339 S.W.3d 789, 793 (Tex. App.-
DaUas 2011, pet. denied); A/ickens v. Longhorn DFW Moving, Inc., 264 S.W.3d 875, 880 (Tex.
App.-Dallas 2008; pet. denied).
c
Plaintiffs', the Carson ·Family, First Amended Original Petition in Arbitration Page8
0 28. In the present case, the Shareholder Agreement was entered into and executed by
the nieces and nephews ofBeverJy Womack (Exh. 1). The Family entered into the Shareholder
Agreement after a negotiated and joint representation to protect each of their hard earned efforts
and investments in obtaining a majority in the Company. The Family, including Martin,
accepted and consented to all the terms in the Shareholder Agreement, executed same and
delivered it to each other with the intent to be bound by same. (Exh. I). Nothing asserted by
Martin in her declaratory judgment negates the valid formation of the contract as a matter of law.
As such, the contract is valid.
(
'· 29. Further, in order for a Court to order parties to arbitration, the existence of a valid
and binding contract must be present. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732. 737
CTex. 2005); In re Merrill Lynch, Pierce, Fenner & Smith. Inc., 195 S.W.3d 807. 813 (Tex.
0 Aw.-Dallas 2006. orig. proceeding). The fact that the 72nd District Court of Lubbock County,
Texas ordered the parties before this panel to arbitration mandates that the Shareholder
Agreement is a valid, enforceable contract. As such, Plaintiffs ask this panel to take judicial
notice that the Shareholder Agreement is valid and enforceable as previously adjudicated.
( 30. Next, the Shareholder Agreement contains a right of first refusal that is valid
because it is consistent with §21.210 of the Business Organizations Code which provides for
restrictions on the transfer of a corporation's securities between two or more holders of the
securities (Exh. I, if3.3). TEX. Bus. ORO. CODE §21.210. The Shareholder Agreement also
complies with §21.211 of the Business Organizations Code by reasonably obligating the holder
of the restricted security to offer to other holders of the securities of the corporation, an
opportunity to acquire the restricted security. TEX. Bus. ORG. CODE §21.211. Accordingly,
0
Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Page 9
c Martin,s shares of stock in Russell E. Womack, Inc. were subject to the buy/sell provision of the
Shareholder Agreement as a matter of law.
THE BUY/SELL OPTION WAS TRIGGERED AND IRREVOCABLE BETWEEN THE PARTIES
31. Moreover, the buy/sell provisions of Martin's shares of the stock in Russell E.
Womack, Inc. have been triggered. The Shareholders' Agreement defines a "Voluntary
Transfer" as a transfer of any interest in the shares by the free and voluntary act of the
Transferor. (Exh. 1, p. 3). A Transfer is defined to include a sale. (Exh. 1, p. 3). Section 3.3 of
the Shareholders' Agreement provides the mechanism by which the Purchasers are given the
·· right to purchase the shares of a Family member who desires to enter into a Voluntary Transfer.
(Exh. 1, p. 4). The first part of Section 3.3 states "any prowsed Voluntary Transfer of any
shares by a shareholder is subject to the following provisions." (Exh. I, p. 4). It is undisputed
0 that Martin triggered the Buy Sell Provisions as outlined hereinabove in Paragraphs 5~30.
32. Texas law mandates that once an offer is made under a buy sell agreement, it
becomes an irrevocable option. Abraham Investment Co v. Payne Ranch, Inc., 968 S.W.2d 518
(Tex. App.- Amarillo 1998, pet. denied). The Abraham case involves a right of first refusal
where the owner (Payne) entered into a sales contract for the purchase of the property with
another (AIC). Id. The right of first refusal was held by the owner's lesseet Campbell. As in
this case, the owner attempted to condition the sales contract on the exercise of Campbell's
preferential right, but nonetheless went through the notice requirements under the contract. Id.
The Abraham Court citing other longstanding legal precedent with regard to buy/sell agreements
correctly held tJ:lat "at the moment a property owner gives notice of his intent to sell, a
preferential right 'ripens' into an option." Id. at 524.
0
~
Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Page 10
c 33. The Houston 14111 Court of Appeals concurs with Amarillo in Riley v. Campeau
Homes Inc., when it ruled that a right of first refusal was triggered and became irrevocable when
the owners of the unit decided to sell despite their attempts to withdraw from the sale in order to
avoid the exercise of the right. Riley v. Campeau Homes (I'EXA.S} Inc., 808 S.W.2d 184 (Tex.
App.- Houston [14th Dist.] 1991, writ dism1d by agr.). In particular, the Riley court ruled that
when a seller is required to notify the holder of the right of first refusal, the right becomes an
enforceable option and that the seller could not simply withdraw from the sale in order to avoid
the exercise of the right. Id.
l.. 34 . In fact, a South Dakota case dealing with the sale of stock cites Abraham for the
same proposition that "after the property owner has given his notice-of-intent-to-sell, he crumot
change the tenns of that offer" and when "a property owner gives notice of his intent to sell, a
O· preferential right 'ripens' into an option." Estate ofLien v. Pete Lien & Sons, 740 N.W.2d 115
121 (South Dakota 2007).
35. Despite Martin's attempts to circumvent, precedent mandates that the Purchasers
rights immediately ripen into irrevocable options. First, Byrnes made an offer to Martin subject
{ of the Shareholder buy sell agreement (Exh. 2). Martin also accepted the Offer and gave notice
"·
of offer to Purchasers pursuant to the Shareholder Agreement (Exh. 5). Purchasers accepted the
irrevocable offer and tendered performance timely by setting a closing and having funds
available at the closing (Exh. 6, 8, I 0). Therefore, as a matter of law, Purchasers timely accepted
the irrevocable offer pursuant to the Shareholder Agreement to purchase all ofRaeanne Martin's
shares of stock in Russell E. Womack, Inc. for $3,130,000 and satisfied all conditions precedent
that must occur until transfer of the shares in exchange for the proceeds.
0
Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Page 11
0 36. Notwithstanding, the existence of a valid contract, a valid triggering offer,
Martin,s compliance with the notice provision and Plaintiffs' valid matching offer, Martin
voluntarily transferred her shares in REWI in breach of the Shareholder Agreement to Richard
and Mike Byrne for $3,130,000.00. The breach resulted in the immediate diminution in value of
Plaintiffs' shares of stock in REWI and unjustly enriched Martin with benefits owned by all
parties to the Shareholder Agreement. As a result, Plaintiffs have been damaged for which
Plaintiffs now seek monetary damages from Martin.
B. Promissory Estoppel
37. The Carson Family adopts and incorporates the allegations contained in
Paragraphs 1-36, above and would show that such allegations evidence promissory estoppel.
38. Defendant falsely misrepresented material facts concerning the Shareholder
0 Agreement and the creation of the Shareholder Agreement that she executed, as more
specifically set out in Paragraphs 1-34. The misrepresentations were made by Defendant with
actual or constructive knowledge of the truth. The Carson Family, however, had no knowledge·
of the truth or reasonable means of determining the truth. Additionally, The Carson Family took
f every reasonable action to ensure that such statements made by Defendant were in fact true.
Defendant made the misrepresentations with the intention that such be acted on by The Carson
Family and The Carson Family actually, reasonably and detrimentally relied on such.
Additionally, because The Carson Family was in a confidential relationship with Defendant, The
Carson Family had no duty to exercise due diligence to discover Defendant's bad acts in the first
place.
c. Unjust Enrichment
c 39. The Carson Family adopts and incorporates the allegations contained m
Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Page 12
c Paragraphs 1-38 above and would show that such allegations evidence unjust enrichment.
40. Based on Defendant's promises and representations to The Carson Family relative
to the Shareholder Agreement in question, The Carson Family were denied the majority control
of a very valuable company for which several of the Carson Family worked and were
subsequently fired from their positions. Such sums received by Defendant would not otherwise
have been received but for the agreements between the parties. As a result, great financial
benefit was conferred on the Defendant to the exclusion of The Carson Family. Defendant
accepted the benefit of the monies, but has refused to uphold her duties pursuant to its
representations and promises to The Carson Family. Defendant will be and has been unjustly
enriched in the amount if allowed to retain the benefit conferred on her without being required to
repay sums equivalent to.the amount that Defendant was unjustly enriched.
0 41. As a result, The Carson Family has been damaged and is entitled to recover the
reasonable value of the benefits conferred on the Defendant. Additionally, because The Carson
Family was in a confidential relationship with Defendant, The Carson Family had no duty to
exercise due diligence to discover Defendant's bad acts in the first place.
( D. Damages
THE CARSON FAMILY SEEKS MONETARY DAMAGES ONLY
42. The Carson Family adopts and incorporates the allegations contained in
Paragraphs I -41 above and would show that such allegations evidence unjust enrichment.
43. Martin's breach of contract in transferring the shares subject of the Shareholder
Agreement to a non-contracting pmty is a natural, probable, and foreseeable consequence of the
damages suffered by the Carson Family collectively and individually. Pursuant to the
Shareholder Agreement, the Carson Family is entitled to all legal remedies available to them for
Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Page 13
0 the breach of the Shareholder Agreement by Martin. (Exh. 1, p.12, ~9.2). Specifically, the
Shareholder Agreement dictates that "each party hereto agrees ... to any other remedies available
to them at law or equity, ..n (Exh. 1, p.12, ~9.2). This obviously includes monetary damages.
44. Accordingly, ~e Carson Family chooses to seek only actual monetary damages
against Martin which include but are not limited to economic damages from the dimunition in
value of their respective shares, expectation and reliance damages, unjust enrichment, nominal
damages, pre-judgment and post-judgment interest, attorney fees, and costs.
45. The monetary damages sought by the Carson Family are in excess of
(
$2,000,000.00 but less than $8,000,000. The maximum diminution in value damages for their
respective two hundred and eighty seven (287) shares of stock sought by each member of the
Carson Family is at least $27,292.00 per share based upon the most recent transaction and
Q written offer for shares in Russell E. Womack, Inc. (REWI). In particular, at the time of transfer,
seven hundred (700) shares of outstanding stock were issued by REW!. Martin's seventy (70)
shares ofREWI sold for a fair market value of $3,130,000.00 or $44,714.00 per share to Richard
and Mike Byrne. Thereafter, the same purchasers, Richard and Mike Byrne, offered the Carson
l.. Family $5,000,000 collectively for the all of their remaining shares in REWI, or the equivalent of
$17,422.00 ($5,000,000/287) per share. (Exh. 19). All shares being equal, the sale and offer
demonstrate conclusively that the Carson Family Defendant's shares in REWI diminished in
value from $44,714.00 per share to $17,422.00 per share after the breach by Martin.
46. Notwithstanding, assuming all shares are not equal, the most recent transaction
and offer dictate that the minimum damage to The Carson Family's shares is $2,091,482.00 for
Martin's failure to comply with the contractual obligations. The minimal diminution in value
damages for their respective stock sought by each member of the Carson Family is at least
0
Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Page 14
0 $7,287.00 per share whtch is demonstrated by first adding the in the combined fair market.·value
of Martin and the Carson Families controlling interest shares based upon the most recent
transaction and offer. The total value of Martin's and the Carson Family's share (70 + 287= 357
shares) is $8,130,000.00 ($3,130,000 + $5,000,000). The resulting total indicated enterprise
value of REWI would consequently be $15,941,176.00 or $22,773.11 ~fS.1•5,941,176.00/700
shares).
47. By her breach, Martin divested the Carson Family of all of their controlling eq\llcy
of the total indicated enterprise value resulting in the dimunition in value of the Carson Family
shares from $22,773.11 to $17,422.00 without any reduction for the customary minority
discount. This is a diminution in the Carson Family per share value of $5,351.11 or
$1,535,768.35(287 *$5,351.11) total and is not inclusive of the customary minority discount of
0 32% of the indicated enterprise value. The minority discount further increases the diminution in
value per share of the Carson Family shares from $5,351.11 per share or $1,535,768.35 (287
•$5,351.11) to $7,287.00 per share or $2,091,482.00(287 * $7,287.00). Thus, the minimum
diminution in value of the Carson Family shares by Martin's breach is $7,287.00 per share or
( $2,091,482.00 (287 + $7,287.00).
48. Moreover, assuming that all shares are not equal, Martin was unjustly enriched for
the entire control premium of all parties to the Shareholder Agreement by selling the shares to
non-contracting parties in the amount of $1,535,882.00.
E. Attorney Fees
THE CARSON FAMILY IS ENTITLED TO ATTORNEY FEES
49. The Carson Family incorporates by reference the allegations made in the
c foregoing paragraphs 1-48.
Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Page 15
0 50.
under the Shcrebolder Agreement. The Carson Family is entitled to recover their attorney fees
under Texas Civil Practices and Remedies Code §38.001 et. seq.
VII. CONCLUSION
For the reasons stated herein, the Carson Family asks this Arbitration Panel to enter a
judgment for monetary damages inclusive of pre-and post-judgment interest, costs) and attorney
fees against Martin.
IX. PRAYER FOR RELIEF
FOR THESE REASONS, the Purchasers request and pray that:
1. Martin be cited to appear;
2. That the Arbitration Panel enter a judgment against Martin for,
0 (a) Actual damages;
(b) Nominal damages;
(c) Pre-judgment and
(d) Post judgment interest
(
l
3. Attorneys' fees expended in such amount as may be found reasonable by the
Panel;
4. and Costs of arbitration including all fees and expenses.
Plaintiffst, the Carson Family, First Amended Original Petition it?- Arbitration Page 16
c Respectfully submitted,
•
CERTIFICATE OF SERVICE
A true and correct copy of the above and foregoing instrument was on this 1st day of
0 October, 2014, served on the attorneys ofrecord as follows:
Via Facsimile 972-346-6777
JEFF LANE
LANE LAW FIRM
3333 Lee Parkway, Ste. 600
Dallas, TX 75219
c
Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Page 17
TAB 4
c
From: J. Paul. Manning [ mailto:jpmanning@lubbocklawfirm.com)
Sent: Thursday, February 5, 2015 5:42 PM
To: AAA Kathleen Cantrell ; 'Jeff Lane' < j.b.la ne@outlook.com>; Melinda Jayson
(igmelinda@yahoo.com} < jgmelinda@yahoo.com>; Roland Johnson (rolandjohnson@hfblaw.com)
< rolandjohnson@hfblaw.com>; Hon. Carlos Lopez (clopez@vilolaw.com)
Cc: Sandra Meeks < smeeks@lubbocklawfirm.com>
Subject: Carson et al v. Martin
Pursuant to Ms. Jayson's request, please find the Arbitration Award approved as to form by the attorneys of record.
Thank you all for your time and consideration.
c J. Paul Manning
Field, Manning, Stone, Hawthorne & Aycock, P.C.
2112 Indiana AVE
Lubbock, TX 79410
806-792-0810
fax 806-792-9148
~ Field. Manning. Stone,
`` Hawthorne &Aycock P.C
THIS MESSAGE MAY CONTAIN PRIVILEGED AND/OR CONFIDENTIAL ATTORNEY-CLIENT
COMMUNICATIONS. IF YOU RECEIVE THIS E-MAIL IN ERROR, PLEASE NOTIFY THE SENDER
IMMEDIATELY AND DELETE THIS MESSAGE TOGETHER WITH ALL RECORDS OR ATTACHMENTS
RELATED THERETO.
FIELD, MANNING, STONE, HAWTHORNE & AYCOCK, P .C. AND SENDER HAVETAKEN REASONABLE
PRECAUTIONS TO ENSURE T HAT ANY ATTACHMENT TO THIS E-MAIL HAS BEEN CHECKED FOR
VIRUSES. WE ACCEPT NO LIABILITY FOR ANY DAMAGES SUSTAINED AS A RESULT OF SOFTWARE
VIRUSES AND ADVISE YOU TO CARRY OUT YOUR VIRUS CHECKS BEFORE OPENING ANY
ATTACHMENT.
c The infont1lltion in this transmillDI (including attachments, i r any} is privileged and/or confidential and is intended only for the: rccipicnt(s) listed abo\·c. Any review. use,
disclosure, distribution or copying of this transminal is prohibited except by or on behalfor1he in1cndcd recipient. If you have rcccivcd 1his transmittal in c:rror, plcasc notify me
immediately by n:ply email and destroy all copies of the: trunsmilllll. Thank you.
1
c AMERICAN ARBITRATION ASSOCIATION
Wayne Carson, Debbie Cheadle, §
Edward Cheadle, Arthur §
Cheadle, Nancy Higginson, §
Finney Cheadle, Cheryl Shoop, §
and Keith Sawaya, §
§
Claimants § Case No. 01-14-0000-2743
§
v. §
§
Raeanne Martin, §
§
Respondent §
ARBITRATION AWARD
After consideration of the evidence, arguments, and authorities presented by counsel for
the parties, The Panel finds in favor of Claimants that the "Shareholders Agreement Between
Certain Shareholders of Russell E. Womack, Inc." dated January 1, 2008 ("Shareholder
Agreement") is valid and enforceable and that Respondent breached the "Shareholder
Agreement" by failing to sell and transfer her shares in Russell E. Womack, Inc. to Claimants.
The Panel further finds that under the provisions of the Shareholder Agreement the transfer of
shares by Respondent to Michael Byrne and Richard Byrne is void, that Claimants are entitled to
specific performance of the sale and transfer of Respondent's shares in Russell E. Womack, Inc.
and as a result, the Claimants do not have a monetary damage remedy against Respondent for
breach of the Shareholder Agreement. These findings do not preclude all or any of the other
remedies that may be available to Claimants either under the Shareholder Agreement, or
otherwise available at law or in equity.
c Award of The Panel Page 1
c The Panel further finds the administrative fees and expenses of the American Arbitration
Association total and the compensation and expenses of the Arbitrators total -
---
The Panel further finds that an award of costs of arbitration and attorneys' fees in favor of
Claimants as the prevailing parties on the issue of whether Respondent breached the Shareholder
Agreement is justified, and hereby awards Claimants the sum total of $400,000.00 determined
for arbitration fees, costs and reasonable and necessary attorneys' fees attributable to Claimants'
claim against Respondent.
SO ORDERED THIS _ DAY OF FEBRUARY, 2015:
MELINDA G. JAYSON
ARBITRATOR
0
ROLAND K. JOHNSON
ARBITRATOR
CARLOS G. LOPEZ
ARBITRATOR
c Award of The Panel Page 2
APPROVED AS TO FORM ONLY:
Isl J. Paul Manning
J. PAUL MANNING
State Bar No. 24002521
FIELD, MANNING, STONE,
HAWTHORNE & AYCOCK, P.C.
A Professional Corporation
2112 Indiana Avenue
Lubbock, Texas 79410-1444
806/792-0810 (Telephone)
806/792-9148 (Facsimile)
Email: jpmanning@lubbocklawfirm.com
ATTORNEY FOR CLAIMANTS
-)!)6'& .0
0 Jeffrey B. Lane
Texas Bar. No. 11879270
Lane Law Firm
3333 Lee Parkway, Suite 600
Dallas, TX 75219
Telephone (972) 861-0050
Facsimile (972) 346-6777
JeffLane@Lane-Law-Firm.com
ATTORNEY FOR RESPONDENT RAEANNE MARTIN
c Award of The Panel Page 3
TAB 5
1720
1721
1722
1723
1724
1725
1726
1727
1728
1729
1730
1731
1732
1733