Texas Supreme Court Declines to Follow Hall Street in Arbitration Case: Nafta Traders, Inc. v. Quinn

The Supreme Court of Texas has held that the Texas General Arbitration Act (TAA) allows judicial review of arbitral awards by agreement beyond what the Federal Arbitration Act (FAA) allows. Justice Hecht delivered the opinion of the Court, in which Chief Justice Jefferson, Justice Wainwright, Justice Medina, Justice Green, Justice Johnson, Justice Willett, Justice Guzman, and Justice Lehrmann joined. Chief Justice Jefferson, joined by Justice Wainwright and Justice Lehrmann, issued a concurring opinion. Find links to the case briefs at the Supreme Court of Texas Blog’s Docked DB (here). Our previous post about this case is here.

I. Background

In Nafta Traders, Inc. v. Quinn, No. 05?07?00340 (Tex., May 13, 2011) Nafta, an international re-distributor of athletic apparel and footwear, challenged a $200,000 arbitration award to Quinn on her sex-discrimination and retaliation claims. An arbitration provision in the company’s employee handbook barred arbitration awards that contained reversible legal error or that applied a cause of action or remedy not expressly provided by law. However, the arbitration section did not indicate whether state or federal law would apply, providing only that “[a]ll proceedings shall be conducted in the City of Dallas, State of Texas.” Quinn argued that federal arbitration law controls, which, under the U.S. Supreme Court’s decision in Hall Street v. Mattel Inc., 552 U.S. 576, 128 S. Ct. 1396, 170 L. Ed. 2d 254 (2008) does not allow judicial review to be expanded by agreement beyond what the federal arbitration statute provides. Nafta asserted that the arbitrator had applied federal law to Quinn’s sex discrimination claim even though she had alleged only a violation of Texas law, and that the evidence did not support a finding of sex discrimination. The trial court confirmed the arbitration award and Nafta appealed.

II. Dallas Court of Appeals Opinion

The Dallas Court of Appeals, relying in Hall Street, held that “parties seeking judicial review of an arbitration award covered under the TAA cannot contractually agree to expand the scope of review and are instead limited to judicial review based on the statutory grounds enumerated in the statute.” (the opinion is here) Thus, the court of appeals affirmed the confirmation of the award.

III. Texas Supreme Court: Majority Opinion

The issues before the Texas Supreme Court were:

1. Whether the TAA (like the FAA as interpreted in Hall Street) precludes an agreement for judicial review of an arbitration award for reversible error; and
2. If not, whether the FAA preempts enforcement of such an agreement.

The court explained that the TAA, like the FAA, lists specific grounds for vacating, modifying, or correcting an arbitration award, among them that the arbitrators exceeded their powers (FAA Section 10(a)(4) and TAA Section 171.088(a)(3)(A)). (read more here ) An arbitrator’s powers are determined by agreement of the parties. However, in the controversial Hall Street v. Mattel, the U.S. Supreme Court held that the grounds for vacatur are only those enumerated in Sections 10 and 11 of the FAA.

The Texas Supreme Court stated, “we are unable to conclude that Hall Street‘s analysis of the FAA provides a persuasive basis for construing the TAA the same way.” The court held that TAA permits parties to agree to expanded judicial review of arbitration awards. The court also held that the FAA, as interpreted in Hall Street, does not preempt Texas law.

IV. Texas Supreme Court: Concurring Opinion

The concurring opinion focused on the trend of civil disputes increasingly being submitted to arbitration, instead of litigation:

I write only to observe that our system is failing if parties are compelled to arbitrate because they believe our courts do not adequately serve their needs. If litigation is leaving because lawsuits are too expensive, the bench and the bar must rethink the crippling burdens oppressive discovery imposes. If courts have yet to embrace modern case-management practices, the Legislature should ensure that the justice system has resources to improve technology and to hire qualified personnel—two sure ways to improve efficiency. …

As the Court does, I would affirm that right. Nevertheless, we must, in the future, address those aspects of our justice system that compel litigants to circumvent the courts and opt for private adjudication.

Related Posts:

• GUEST-POST PART I | AT&T Mobility, LLC v. Concepcion and the Bright Side of the Force (May 2, 2011)
• GUEST-POST PART II| AT&T Mobility, LLC v. Concepcion and the Bright Side of the Force (May 2, 2011)
• Article | Are Arbitrators Above the Law? The ‘Manifest Disregard of the Law’ Standard (Feb. 8, 2011)
• Manifest Disregard Round-Up (Oct. 20, 2010)
• 2009 Developments in Arbitration Law: Manifest Disregard of the Law (Dec. 24, 2009)
• Tenth Circuit Decides Manifest Disregard of the Law Case and Imposes Sanctions Under 28 U.S.C. § 1927 for ‘Frivolous’ Attempt to Vacate Arbitration Award (Dec. 1, 2009)
• Fifth Circuit Confirms International Commercial Arbitration Award (Jun. 22, 2009)
• Disputing Guest Post: Hall Street Meets S. Maestri Place: What Standards of Review Will the Fifth Circuit Apply to Arbitration Awards Under FAA Section 10(a)(4) after Citigroup? (May 5, 2009)
• Dead? Alive? Matter of Opinion? (Dec. 4, 2008)
• Professor Alan Scott Rau Responds to Hall Street v. Mattel (Jun. 9, 2008)
• Professor Alan Scott Rau Gives Souter a C-minus (Jun. 5, 2008)
• Glen Wilkerson on Hall Street v. Mattel (Apr. 19, 2008)
• No Longer Can You Craft Your Own Arbitral Standard of Review (Mar. 26, 2008)

[Hat tip to our friend Jeff Jury.]

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