Corpus Christi COA Upholds $31 Million Arbitral Award

The 13th District of Texas has upheld an arbitral award in an investment dispute.  In Black v. Shor, No. 13-11-00413-CV, (Tex. App.—Corpus Christi Apr. 18, 2013, no. pet. h.), Seashore Investments Management Trusts invested in a number of oil and gas companies owned by Paul Black (“Black”).  Between 2001 and 2007, Toby Shor, made substantial investments in Black’s companies using the trust.  As part of the investments, Seashore entered into several contracts with Black.

In 2007, Shor became the trustee of Seashore.  After Shor inquired into the financial relationship between the Black companies, she filed a lawsuit seeking injunctive relief against Black for purported financial malfeasance.  Shor also stated the agreements between Seashore and Black required the parties to resolve any disputes through arbitration and requested pre-arbitration discovery.  The trial court appointed a special master to assist with the pre-arbitration process.  Black then sought sanctions against Shor and sought to terminate his relationship with Seashore.  Black also filed a lawsuit for breach of contract against Seashore in a separate court.

The parties ultimately participated in an arbitration proceeding before a three-member panel.  In a ten-page decision, the panel found in favor of Seashore and awarded the trust about $31 million for fraud, breach of contract, and breach of fiduciary duty.  The panel also awarded punitive damages, determined that Paul Black was personally liable to Seashore, and awarded Shor attorneys’ fees.  Seashore then sought to confirm the award in one trial court and Black sought to vacate the award in a different court.  After the cases were consolidated, the arbitral award was confirmed.  Black then appealed the decision to the Corpus Christi Court of Appeals.

First, the appeals court addressed that fact that the parties’ agreement failed to state whether it was subject to the provisions of the Federal Arbitration Act or the Texas Arbitration Act (“TAA”).  Because the parties repeatedly referred to sections of the TAA on appeal, the court determined that the TAA applied to the case.  Next, the court reviewed the grounds on which an arbitral award may be vacated under the TAA.

After that, the Corpus Christi court dismissed Seashore’s argument that Black failed to file a timely motion to vacate the arbitral award despite that many of Black’s grounds for vacatur were filed more than 90 days after receiving the award by stating,

…appellees cite no authority for the proposition that the trial court may not consider grounds for vacatur that are raised following a timely filed motion to vacate and before judgment. We conclude that appellants did not fail to preserve the issues in this appeal by failing to raise them within the ninety-day period for filing a motion to vacate. See Sydow, 218 S.W.3d at 171. Accordingly, we proceed to address the merits of the appeal.

Next, the 13th District analyzed whether the arbitral panel exceeded its power when it determined the proper parties were before it.  According to the court, “At arbitration, both sides to this dispute stipulated that all parties were properly before the arbitration panel and all claims would be definitively resolved by the arbitrators.”  The appeals court added, “…based on the stipulation between the parties and the foregoing law, we conclude that the arbitration panel correctly ascertained and determined the parties before it. Moreover, we note that the issue regarding whether Seashore had transferred interests to the Toby Shor 2004 GRAT was a matter expressly submitted to the arbitrators.”

After that, the Corpus Christi Court dismissed Black’s argument that confirmation of the arbitral award should be overturned because the trial court failed to make findings of fact and conclusions of law.  The court stated,

…the trial court did not err in failing to make findings and conclusions. In the instant case, the trial court proceedings regarding the arbitration award were heard in the same manner and on the same notice as a motion in a civil case. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.093 (West 2011). Specifically, no evidence was adduced by the parties at the hearing on the motion to confirm the arbitration award. The trial court did not make determinations of fact based on conflicting evidence; rather, that function was subsumed in the arbitration process by the arbitrators.

The appeals court next addressed Black’s argument that the arbitration panel violated public policy when it failed to consider termination of the parties’ partnership.  The court first noted, “Public policy is not listed as a ground for vacatur under the TAA.”  After that, the 13th District found, “Appellants’ arguments that they were entitled to termination of the partnership were disputed by appellees and the issue was submitted to the arbitrators. Appellants contend that the arbitrators were wrong; but a mere error, if any, does not necessarily implicate a violation of public policy.”

Next, the appellate court addressed Black’s contention that the arbitral award included duplicative damages by stating,

It is clear from the record from the arbitration hearing and the panel’s lengthy written decision that the arbitration panel gave serious consideration to the parties’ contentions, evidence, and arguments. Nothing in the record suggests the panel made its decision in bad faith or that it failed to exercise honest judgment. The trial court should not overturn an arbitration award rendered after honest consideration given to claims and defenses presented to it, no matter how erroneous. See Xtria L.L.C, 286 S.W.3d at 598; Werline, 209 S.W.3d at 898. Accordingly, we hold the trial court did not err in denying the motion to vacate on this ground.

Finally, the Corpus Christi Court dismissed Black’s argument that Shor should not have been awarded attorneys’ fees by stating, “the arbitrator’s award of fees is authorized by law.”

Because the court found there were no grounds to vacate the arbitral award, the 13th district affirmed the trial court’s decision.