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ARBITRATION MAY NOT BE ALL IT’S CRACKED UP TO BE

ARBITRATION MAY NOT BE ALL IT’S CRACKED UP TO BE

May 24, 2016

In Hoskins v. Hoskins, the Texas Supreme Court strictly enforced the Texas Arbitration Act (“TAA”) by ruling that courts cannot vacate an award based on an arbitrator’s “manifest disregard” of the law. In this regard, the Texas high court held that the vacatur grounds listed in the TAA are the only way to get an arbitrator’s ruling tossed — and manifest disregard isn’t listed in the TAA.

The issue in Hoskins was whether a party seeking to vacate an arbitration award under the Texas Arbitration Act could invoke extra statutory, common law vacatur grounds to avoid an erroneous arbitration award. The TAA allows a trial court to vacate an award for three main reasons: (1) if an award was obtained by fraud or corruption; (2) if a party’s rights were prejudiced by an arbitrator’s evident partiality, corruption, or misconduct; or (3) if the arbitrator exceeded his powers. See §171.088 of the Texas Civil Practice & Remedies Code.

In Hoskins, court rejected manifest disregard of the law as a basis to challenge an arbitration award:

The TAA’s plain language confirms that, in proceedings governed by that statute, section 171.088 provides the exclusive grounds for vacatur of an arbitration award. Because manifest disregard is not included in section 171.088, and because the parties did not agree to limit the arbitrator’s authority so as to authorize vacatur on that basis, [an] attempt to vacate the award on the basis of manifest disregard must fail.

In a concurring opinion, Justice Don Willett noted that the issue of whether manifest disregard is a viable reason for vacatur has tied up federal courts for years and the U.S. Supreme Court has yet to address whether that common law doctrine comports with the Federal Arbitration Act. That is not the case under Texas law: “No such uncertainty exists with regard to the exclusivity of the TAA’s vacatur grounds … [e]xclusive means exclusive.”

Hoskins should be of concern to the many businesses that rely on arbitration clauses. In order to protect against an erroneous application of the law, those that rely on arbitration must include a clause in the arbitration agreement that allows for appeal and vacatur on the basis of manifest disregard of the law. Otherwise, you may be stuck with an unjust result based on legal error, because in Texas: “Exclusive mean exclusive.”

By Douglas R. Hafer
Business Trial Lawyer | Curnutt & Hafer, LLP

TEXAS SUPREME COURT ISSUES TWO RULINGS ON ATTORNEYS’ FEE AWARDS

Apr 20, 2016

The Texas Supreme Court issued two rulings on April 15, 2016 that favored parties seeking attorney fees. In Sullivan v. Abraham, a First Amendment case, the Court examined the criteria for the award of attorneys’ fees under Texas’ anti-SLAPP law (“strategic lawsuit against public participation”), which requires mandatory awards of reasonable attorney fees and does not allow a court to reduce the amount for equity and justice. The case is significant because the Texas Supreme Court takes great effort interpreting the statute authorizing attorneys’ fees. This opinion is a primer on the importance of language, grammar, and punctuation when considering a statute. Applying these rules, the Court ruled that the law’s language and punctuation mean reasonable attorney fees are awarded to the winner of a motion to dismiss without consideration of factors such as justice and equity.

In Wheelabrator Air Pollution Control v. City of San Antonio, the Texas Supreme Court found that a city does not have governmental immunity from an attorney fee claim dealing with the activities of a city-owned public utility company. Immunity would apply if the case arose from the city’s governmental function, but not if it arose from the city’s proprietary function. The Texas Supreme Court has distinguished between those functions and acts performed as a branch of the state, and those performed in a proprietary, non-governmental capacity. Under Texas law, a governmental act or function are those things done as a branch of the state—such as when a city exercises powers conferred on it for purposes essentially public pertaining to the administration of general laws made to enforce the general policy of the state. An example would be “garbage and solid waste removal, collection and disposal.” Proprietary functions are those functions performed by a city, in its discretion, primarily for the benefit of those within the corporate limits of the municipality. The operation of a public utility by the city was found to be proprietary under Texas law and did not give the city immunity.

By Douglas R. Hafer
Business Trial Lawyer | Curnutt & Hafer, LLP