El Paso Appeals Court Upholds Arbitral Award Despite Alleged Arbitrator Error

Texas’ El Paso Court of Appeals has confirmed an arbitral award despite an arbitrator’s alleged failure to comply with American Arbitration Association (“AAA”) rules.  In Corrections Products Co., Ltd. v. Gaiser Precast Construction, No. 08–10–00319–CV, (Tex.App.–El Paso, Jan. 30, 2013), the owner of real property, Corrections Products Company, Ltd. (“CPC”), entered into an agreement with a contractor, Gaiser Precast Construction (“Gaiser”), to build an 18,000 square-foot office building.  The parties’ agreement contained an arbitration provision that stated,

…any dispute or claim arising under or with respect to this agreement will be resolved by arbitration in San Antonio, Bexar County, Texas, in accordance with the rules of the American Arbitration Association [AAA] before a panel of three (3) arbitrators, one appointed by the contractor, one appointed by the owner, and the third appointed by said association. …

About two years after the agreement was signed, Gaiser filed a lawsuit against CPC seeking, among other things, a lien foreclosure and financial damages for alleged breach of contract or $200,000 in quantum meruit relief.  Approximately one year later, CPC filed a motion to compel arbitration with the trial court.  The court granted CPC’s motion and compelled the dispute to arbitration but required the parties to engage in arbitration with only one court-appointed arbitrator instead of before a panel of three arbitrators.  The trial court then appointed a Judge to serve as arbitrator in the dispute.  More than 30 days after the arbitral proceedings concluded, the arbitrator awarded Gaiser quantum meruit damages of about $90,000, attorneys’ fees of nearly $90,000, court costs, and arbitral fees.  He also asked for additional information from each party in order to supplement the award with interest charges.  The arbitrator’s supplemental award was issued more than one-year later.  The award stated Gaiser was entitled to a constitutional lien and provided him with more than $78,000 in pre-judgment interest.

According to the arbitration record, neither party objected to the fact that the arbitral proceeding was allegedly not conducted in accordance with AAA rules.  Before the supplemental award was issued, CPC filed a motion to vacate the arbitral award and remove the arbitrator.  Gaiser then filed a motion to confirm the award.  After the supplemental award was issued, the trial court conducted a hearing before confirming the arbitral award.  CPC then filed an appeal.

On appeal, CPC argued that the trial court did not have jurisdiction to confirm the arbitral award under the Texas Arbitration Act (“TAA”) because the arbitrator admitted that he failed to adhere to AAA rules.   According to the El Paso court, the Supreme Court of Texas has previously ruled that “the TAA is not jurisdictional.” The appeals court continued by stating,

Rather, the TAA provides that it is the making of an arbitration agreement which confers jurisdiction on the court to enforce an arbitration agreement and to render judgment on an arbitration award under the Act. TEX. CIV. PRAC. & REM. CODE ANN. § 171.081 (West 2011). The filing of an application for an order concerning arbitration, including a judgment or decree, invokes the jurisdiction of the court. TEX. CIV. PRAC. & REM. CODE ANN. § 171.082(a) (West 2011).

The Court of Appeals then dismissed CPC’s argument that the trial court lacked jurisdiction to confirm the arbitral award.

Next, the court dismissed CPC’s claim that the trial court’s confirmation of the award should be vacated or modified.  CPC argued the arbitrator’s quantum meruit award was incorrectly based on the final value of the building as completed rather than the value of the work performed by Gaiser.  After examining the grounds for vacating an arbitral award in the State of Texas, the court found that “CPC failed to raise any point of error for vacatur under the provisions of the TAA in relation to its damage-calculations complaint.”  After that, the appeals court held the award should not be vacated solely because the arbitrator took longer than 30 days to render his final award.  According to the court,

CPC does not direct us to any AAA rule identifying any consequence to Gaiser or remedy that may be available to CPC as a result of a Rule 42 violation, nor has it directed us to any director analogous authority for excluding the period of delay from the calculation of pre-judgment interest awarded for this reason. See TEX. R. APP. P. 38.1(i) (requiring the brief to include appropriate citation to authority).

The El Paso court continued by stating,

Because CPC did not object to Judge Diaz’ non-compliance with the time provisions of Rule 42 until after Judge Diaz had rendered his award, we find CPC has waived this issue. To rule otherwise would sanction a party’s challenge of an arbitration award on the basis of procedural non-conformity only after the party learned that the award is adverse to it and without raising the issue at a time when the arbitrator could act on the matter.

Because the trial court had jurisdiction, CPC failed to offer a valid reason for vacatur, and CPC waived its right to appeal the arbitrator’s alleged procedural error, the El Paso Court of Appeals affirmed the trial court’s order confirming the arbitral award.