Dallas COA Upholds Confirmation of FINRA Arbitration Panel’s Award

Texas’ Fifth District Court of Appeals in Dallas has affirmed a lower court’s order confirming an arbitration award in a securities case.  In Craig v. Southwest Securities, Inc., No. 05-16-01378-CV (December 18, 2017), a woman, Craig, instituted arbitration proceedings against a financial company, Southwest Securities, over the company’s purported mismanagement of her retirement investments.  Following a hearing, a Financial Industry Regulatory Authority (“FINRA”) arbitration panel denied each of Craig’s claims.

About three months later, Craig filed a motion to vacate the arbitration panel’s decision with a Dallas County district court.  Despite this, Craig failed to properly serve notice of her motion on Southwest Securities.  Instead, she merely emailed notice to the company’s counsel.  Approximately six months after the FINRA panel issued its award, Craig filed a second motion to vacate the arbitration panel’s decision.  This time, Craig properly served the financial company.

In response to Craig’s motion, Southwest Securities sought to confirm the arbitration award.  According to the company, Craig “failed to properly serve her initial motion to dismiss” on Southwest Securities “within three months after the arbitration award was issued as required under the FAA.”  The trial court ultimately sided with the financial company and issued an order confirming the FINRA panel’s award.  Craig then filed an appeal with Texas’ Fifth District.

On appeal, the court first stated “Texas law strongly favors arbitration.”  The appellate court also said:

Both parties agree the FAA governs this arbitration dispute. In such a case, the FAA applies to the substantive rules of decision, but Texas law, and specifically the Texas General Arbitration Act (TAA), governs the procedural matters.

Next, the court applied the two statutes to the case at hand.  According to the court:

Craig asserts that she satisfied the FAA’s requirement for serving notice of her motion to vacate by emailing a copy of the motion to appellees’ counsel within Section 12’s three-month limitations period. Section 12 calls for service as “prescribed by law for the service of notice of motion” in a trial court action, and Craig contends her service by email complied with Texas Rule of Civil Procedure 21a. See TEX. R. CIV. P. 21a (methods for serving notice of pleadings, pleas, motions, or other forms of request, other than citations to be served upon filing a cause of action). The TAA, however, specifically governs procedural matters in proceedings arising out of an arbitration dispute, see In re Chestnut Energy Partners, 300 S.W.3d at 394, so its statutory provisions on service apply in this case.

The TAA requires a party to issue process for service on each adverse party when filing an initial application to vacate an arbitration award. TEX. CIV. PRAC. & REM. CODE ANN. § 171.094. Here, Craig filed her motion in order to initiate a court proceeding to vacate the underlying arbitration award. Thus, under section 171.094, she was required to arrange for service of process on appellees upon filing the motion. Id. Craig did not arrange for service of process until she filed her supplemental motion to vacate on September 1, 2016, more than five months after the arbitration panel entered its award. Because she did not serve notice of her motion to vacate within Section 12’s three-month limitations period, the service was untimely and the trial court was required to dismiss her motion as untimely. See In re Chevron U.S.A., Inc., 419 S.W.3d at 326. Accordingly, we overrule Craig’s first issue.

After that, the court stated neither Texas nor the Fifth Circuit Court of Appeals recognize “an equitable tolling exception to the FAA’s three month limitations period.”

Because Craig failed to serve Southwest Securities with proper notice regarding her motion to vacate the FINRA arbitration panel’s award within three months of its issue, the Fifth District Court of Appeals affirmed the trial court’s order confirming the award.

Photo credit: aag_photos on Foter.com / CC BY-SA