Houston COA Holds Challenge to Applicability of FAA Was Waived

The Houston [1^st] Court of Appeals has held a party to a transportation worker employment contract waived any challenges to the application of the Federal Arbitration Act (FAA) “by invoking it in the trial court.”

In Morris v. Thomas Petroleum, No. 01-09-01065-CV, (Tex. App. – Houston [1^st], March 3, 2011), Thomas Petroleum, Inc. and Thomas Fuels, Lubricants and Chemicals (collectively, “Thomas”) appealed a trial court’s confirmation of an arbitral award rendered in favor of Gregory Morris. Morris, a former truck driver for Thomas, was discharged after being stabbed by a fellow employee following a dispute about a truck assignment. Morris filed a lawsuit against Thomas for wrongful termination, defamation and negligence. Thomas then filed a motion to compel arbitration based on the parties’ employment contract, which the trial court granted. After a three-party arbitral panel found in favor of Morris, he sought to confirm the award in the trial court. The court confirmed an award of “substantial damages, attorney‘s fees, and costs,” but denied Morris’ request for pre- and post-judgment interest. Thomas appealed and Morris cross-appealed solely on the issue of interest.

On appeal, Thomas argued the FAA did not apply to the parties’ employment agreement. The arbitration provision in the employment agreement,

recites that it is binding on every Thomas employee. Continued employment with Thomas is contingent on each employee‘s agreement that he is bound by its terms. The parties agreed to submit any employment disputes that they could not resolve through mediation to the American Arbitration Association (AAA) for resolution.

And continued,

The award rendered by the arbitrator(s) shall be final, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. All parties stipulate and agree that [Thomas] is engaged in interstate commerce and that the enforcement of this arbitration agreement shall be governed by the U.S. Arbitration Act, 9 U.S.C. § 1, et seq.

The employment agreement also provided “for a limited contractual “right of appeal” if the arbitration award exceeds $50,000 or provides for injunctive relief.”

Thomas also claimed the trail court erred by applying a more deferential standard of review as called for by the FAA rather than the more stringent standard included in the agreement. The court addressed the issue by stating,

The parties expressly stipulated in the agreement that the FAA governs their dispute. The United States Supreme Court has held that parties may not contractually agree to a more stringent standard of review in arbitration agreements governed by the FAA; the statutory grounds for judicial review of arbitration awards are exclusive. Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 585–86, 128 S. Ct. 1396, 1404–05 (2008); accord Petroleum Analyzer Co. LP v. Olstowski, No. 01-09-00076-CV, 2010 WL 2789016, *12 (Tex. App.—Houston [1st Dist.] Jul. 15, 2010, no pet.) (mem. op.).

Next, Thomas argued the FAA did not apply to Morris because he was a transportation worker “exempt from the FAA‘s purview, negating the parties‘ express stipulation that the FAA applies to their dispute.” The court responded,

When there is an express agreement to arbitrate under the FAA, we previously have upheld such choice-of-law provisions even when the transaction at issue does not involve interstate commerce.

The Houston Court of Appeals continued,

We need not reach the merits of the questions that Thomas poses in this case—specifically whether Morris‘s former position is one that falls within the category of transportation workers or whether a party whose status otherwise renders him exempt from the FAA‘s purview can expressly contract for its application. We agree with Morris that Thomas has waived any objection to the FAA‘s application to this dispute by invoking it in the trial court.

According to the court,

Thomas waived any complaint about the enforcement of the agreement under the FAA as the agreement expressly provides. Thomas sought to compel arbitration under the agreement at the same time it filed its original answer and filed a verified plea in abatement, expressly invoking the FAA. Once in arbitration, Thomas also prosecuted a counterclaim against Morris. Thomas‘s insistence on having the dispute arbitrated to its conclusion before a three-member panel resulted in a considerable investment of time, energy, and expense, to Morris‘s detriment. We therefore conclude that Thomas waived its objection to the agreement‘s application by substantially invoking the FAA and the arbitral process.

Finally, the Houston Court of Appeals rejected Morris’ cross-appeal seeking pre- and post-judgment interest on the arbitral award because the “trial court lacked the authority to modify the award by adding pre- or post-judgment interest,” since the agreement was “silent on the issue of interest on an award and the arbitration panel did not include any interest.” Additionally,

The FAA does not address pre- and post-judgment interest on an arbitrator‘s award, so Morris is not automatically entitled to pre-judgment interest under the FAA. See id. (citing 9 U.S.C. §§ 1–307). Nor is Morris entitled to pre- or post-judgment interest under the Texas Finance Code absent an award from the panel. The Texas Finance Code provides that monetary judgments for personal injury earn pre-judgment interest, but that provision applies to judgments rendered by courts, not to awards rendered by arbitrators. See TEX. FIN. CODE ANN. § 304.102 (Vernon 2006). Post-judgment interest is likewise unavailable. See TEX. FIN. CODE ANN. § 304.001 (Vernon 2006) (post-judgment interest provision applies to “money judgment of a court in this state”).

The Houston Court of Appeals affirmed the ruling of the trial court and held “Thomas waived its challenge to the FAA‘s application and failed to identify any ground for vacatur under the FAA.” The court also held “the trial court properly refused to award pre- or post-judgment interest in its judgment confirming the arbitration award.”

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