Dallas COA Rules No Right to Interlocutory Judicial Review of Arbitration Panel’s Order

Texas’s Fifth District Court of Appeals in Dallas has issued an opinion stating neither the Texas Arbitration Act (“TAA”) nor Section 150.002 of the Texas Civil Practice and Remedies Code provides a party to an arbitration proceeding with the right to file an interlocutory appeal.  In SM Architects, PLLC v. AMX Veteran Specialty Services, LLC, No. 05-17-01064-CV (Tex. App. – Dallas, November 8, 2018), a company, AMX Veteran Specialty Services (“AMX”), entered into a contract for professional architectural services with SM Architects.  The contract contained an agreement to arbitrate any future disputes between the two companies.

Later, AMX filed a demand for arbitration against SM Architects (“SMA”) and one of its architects.  According to AMX, SMA disparaged AMX’s business and committed negligence, breach of contract, and tortious interference with a contract.  As part of AMX’s demand for arbitration, the company submitted an unsigned certificate of merit affidavit from a third-party licensed architect in an effort to comply with the requirements of Section 150.002 of the Texas Civil Practice and Remedies Code.  SMA responded to the arbitration demand with a general denial and a request for more information regarding AMX’s specific claims.  AMX then amended its demand for arbitration and provided a more detailed description of the company’s purported claims against SMA.

After much back and forth between the two companies as well as a failed mediation attempt, an arbitration panel was appointed to review the case.  About three months later, AMX once again amended its arbitration demand. This time, however, the company submitted a signed third-party affidavit to support its claims.  Five months after the second amended demand for arbitration was filed, SMA asked the arbitral panel to dismiss AMX’s arbitration case due to the company’s failure to comply with Section 150.002.  According to SMA, the original, unsigned third-party affidavit was insufficient to comply with statutory requirements, the amended demand for arbitration did not cure AMX’s initial failure, and the plain language of the law required the case to be dismissed.  The arbitration panel denied SMA’s motion to dismiss the arbitration proceeding and SMA filed a notice of appeal with the Fifth District Court of Appeals in Dallas.

According to SMA, the arbitration panel’s order denying the company’s motion to dismiss was “immediately appealable” under Section 150.002(f).  Despite this claim, SMA also filed suit in district court seeking vacatur of “the arbitration panel’s order under either chapter 150 or section 171.088 of the TAA.” AMX countered by arguing the district court lacked jurisdiction to “to review an interlocutory order issued by an arbitration panel.”  The district court ultimately denied SMA’s motion for vacatur, stated its decision was final and appealable, and stayed the arbitral proceedings.  SMA then amended its notice of appeal to include a challenge to the district court’s order.

After noting the case was one of first impression, the Fifth District addressed the legislative intent behind the two statutes at issue:

In deciding whether we have jurisdiction to review the merits in this matter, we examine the legislature’s decision to apply the certificate of merit requirement, with its right to immediate appeal, to arbitration proceedings. This must be done in the context of the TAA, which contains the legislative grant of court jurisdiction over arbitrations. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.081. By enacting section 150.002(f), it is clear the legislature intended to provide parties in a suit before a trial court the right to immediately challenge the court’s decision on whether a plaintiff has met the certificate of merit requirement. The issue before us is whether the legislature intended to significantly alter the jurisdictional limitations on courts with respect to arbitration proceedings to allow interlocutory judicial review of the same determination made by an arbitration panel. We conclude section 150.002 does not evidence such an intent.

Next, the appellate court turned to whether it had jurisdiction to consider SMA’s appeal:

Because Texas law favors arbitration, judicial review of arbitration proceedings is extraordinarily narrow. See E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 271 (Tex. 2010). The court’s jurisdiction over an arbitration proceeding is limited to enforcing the agreement to arbitrate and rendering judgment on the panel’s award. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.081. The filing of an application for an order concerning arbitration invokes the jurisdiction of the court. Id. § 171.082(a). But the “orders that may be rendered” include only those within the purview of section 171.086 of the TAA that assist with the arbitration process or involve limited review of a panel award. Id. § 171.086. Judicial review of an interlocutory order issued by an arbitration panel does not fall within the scope of section 171.086.

The Dallas court added that chapter 150 likewise “does not provide or create a process for judicial review of an interlocutory arbitration order,” before applying the law to the facts of the case before it.  The Court of Appeals found that SMA’s attempt “to use the process for judicial review of an arbitration award to appeal the interlocutory order at issue” directly conflicted with the underlying efficiency goals of both the TAA and Section 150.002.

The court then stated:

It is noteworthy that, although the certificate of merit requirement was made applicable to arbitration proceedings more than thirteen years ago, we can find no cases in which a defendant in an arbitration proceeding has sought judicial review under 150.002(f). Indeed, the legislative history of section 150.002 does not suggest the legislature intended to expand judicial review of arbitrations. Section 150.002 was amended in 2005 by House Bill 1573. The “Statement of Intent” by the bill’s author-sponsor states the bill’s purpose was to provide “a more accurate description of today’s architecture practice” and “eliminate ambiguities in Chapter 150, Civil Practice and Remedies Code, regarding certificates of merit for design professionals.” See House Comm. on Bus. & Commerce, Bill Analysis, Tex. H.B. 1573, 79th Leg., R.S. (2005). None of the “ambiguities” noted in the Statement of Intent pertain to arbitration proceedings or the ability of a party in such a proceeding to pursue interlocutory review. Id. The statement provides no support, therefore, for significant judicial intrusion into ongoing arbitration proceedings.

The scope of the court’s jurisdiction over arbitration proceedings is specifically and narrowly defined by sections 171.081 and 171.086 of the TAA. See TEX.CIV. PRAC. & REM.CODE ANN. §§ 171.081 & 171.086. If the legislature intended to expand judicial review of arbitration decisions beyond our limited review of arbitration awards, it could have done so by amending these sections. Absent a clear expression of intent to expand the court’s jurisdiction, we cannot conclude the legislature intended anything more by its inclusion of arbitration proceedings in section 150.002 than to require plaintiffs in those proceedings to file a certificate of merit. See id. § 150.002(a); see also CMH Homes v. Perez, 340 S.W.3d 444, 447 (Tex. 2011) (we strictly apply statutes granting interlocutory appeals because they are a narrow exception to general rule that interlocutory orders are not immediately appealable).

After holding neither the TAA nor Section 150.002 provided the court with jurisdiction to consider an interlocutory arbitration order, the Fifth District Court of Appeals in Dallas vacated the district court’s order and dismissed the case due to lack of jurisdiction.

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