HOW TO BUST OR FOLLOW THROUGH WITH AN ARBITRATION

Presented by:

BARRY BARNETT Susman Godfrey L.L.P.

Dallas

MARK TRACHTENBERG Haynes and Boone

Houston

ANNE M. JOHNSON Haynes and Boone

Dallas

Written by:

BARRY BARNETT

State Bar of Texas 31ST ANNUAL

ADVANCED CIVIL TRIAL COURSE August 27-29, 2008 – Dallas

September 17-19, 2008 – San Antonio November 12-14, 2008 – Houston

CHAPTER 26

866013v1/107404

Barry Barnett Susman Godfrey L.L.P.

901 Main Street, Suite 5100 Dallas, Texas 75202

Phone: (214) 754-1903

bbarnett@susmangodfrey.com Barry Barnett received a B.A. degree magna cum laude in History and Economics from Yale University in 1981. He then attended Harvard Law School, graduating cum laude with a J.D. in 1984. In 1984-85, Mr. Barnett clerked for the Honorable Jerre S. Williams, United States Circuit Judge, Fifth Circuit Court of Appeals, in Austin, where he met his wife-to-be, Nancy Mitchell. Mr. Barnett’s practice has consisted primarily of complex commercial litigation, including cases involving claims of antitrust violations, breaches of fiduciary duty, and copyright and patent infringement. He has tried class actions, individual actions, and arbitrations, both for plaintiffs and for defendants, in Texas, New York, Nevada, and elsewhere. His clients have included Neiman Marcus, Cisco Systems, Texas Instruments, EMC, and Belo Corp. He writes a legal blog, www.blawgletter.com, and edits Barnett’s Notes on Commercial Litigation. He belongs to the American Law Institute and has received recognition from The Best Lawyers in America, Chambers USA, Who’s Who Legal, and Texas Super Lawyers.

ANNE M. JOHNSON Haynes and Boone, LLP

901 Main Street, Suite 3100 Dallas, Texas 75202-3789 Telephone: (214) 651-5376

E-mail: anne.johnson@haynesboone.com PROFESSIONAL ACTIVITIES AND HONORS:

Partner, Haynes and Boone, LLP, Appellate Section (1995 – present) Board Certified - Civil Appellate Law - Texas Board of Legal Specialization (2002) Council Member, State Bar of Texas Appellate Section (2006-09) Selected as a “Texas Super Lawyer” by Law and Politics and Texas Monthly magazine (2003-05) Dallas Bar Association – Appellate and Business Litigation Sections (1995- Present), Bar None Productions (1998-2000), Dallas Bar Foundation (2005- present)

EDUCATION:

B.A., with honors, University of Pennsylvania, 1992

J.D., The University of Texas School of Law, 1995 Associate Editor, TEXAS INTERNATIONAL LAW JOURNAL, 1994-95 Teaching Quizmaster, 1994-95

REPRESENTATIVE PUBLICATIONS AND SPEECHES:

“Jury Charges – The Minefield Approach” Austin Bar Association (2008) “Arbitration – Still Speedy and Final?” Tarrant County Bar Association (2006) “Gauging the Odds of Success on Appeal” State Bar Advanced Appellate Seminar (2006)

The 2003 Legislative Amendments to Prejudgment and Postjudgment Interest Law in Texas, 46 S. TEX. L. REV. 1191 (2005).

“Formation of the Judgment and Calculation of Interest” The University of Texas School of Law 14th Annual Conference on State and Federal Appeals (2004) “Removal and Remand” State Bar 23rd Annual Advanced Civil Trial Course (2000)

MARK RYAN TRACHTENBERG Haynes and Boone, LLP 1221 McKinney, Suite 2100 Houston, Texas 77010 Telephone: (713) 547-2528 E-mail: Mark.Trachtenberg@haynesboone.com EMPLOYMENT:

Partner, Appellate Section, Haynes and Boone, LLP (March 2001-present) Former Federal Judicial Clerk, United States District Judge Lee H. Rosenthal, Southern District of Texas

EDUCATION:

J.D., YALE LAW SCHOOL, 1998

Contributing Editor, Yale Law Journal, 1996-98 Colby Townshend Award for best paper by second-year student

B.A., UNIVERSITY OF PENNSYLVANIA, 1994; summa cum laude, Phi Beta Kappa AWARDS AND HONORS Member, American Law Institute. Selected as a “Rising Star” by Law and Politics and Texas Monthly magazine in 2004-2008. Selected as a “Top Professional on the Fast Track” by H Texas magazine in 2005. Selected as a “Lawyer on the Fast Track” by H Texas magazine in 2004. SELECTED PROFESSIONAL ACHIEVEMENTS • Persuaded the Texas Supreme Court to strike down the Texas public school finance system on constitutional

grounds. Neeley v. West Orange-Cove C.I.S.D., 176 S.W.3d 746 (Tex. 2005). This decision was the culmination of a four and one-half year effort, including a previous successful appeal to the Supreme Court and a successful five-week bench trial upon remand. West-Orange Cove C.I.S.D., v. Alanis, 107 S.W.3d 558 (Tex. 2003).

• Obtained reversal of class certification in a suit where appellees were authorized to represent a class of hundreds of

thousands of Texas-based music club members who sought recovery of the late fees they had paid on their compact disc purchases. BMG Direct Marketing, Inc. v. Peake, 178 S.W.3d 763 (Tex. 2005).

• Successfully persuaded trial court to reconsider and withdraw summary judgment dismissing client’s multi-million

dollars claims. Obtained summary judgment against adversary’s multi-million dollar counterclaims. Ultimately obtained very favorable settlement for client. Jerral W. Jones. v. Sanford Brass, No. 99-01743, in the 113th District Court of Harris County.

• Obtained a writ of mandamus from the Houston Court of Appeals directing the trial court to compel the arbitration

of claims against a brokerage firm in the face of plaintiffs’ mental incapacity defense. In re Citigroup Global Markets, Inc., -- S.W.3d --, 2008 WL 3016922 (Tex. App.—Houston [14th Dist.] Aug. 5, 2008, orig. proceeding).

SELECTED PUBLICATIONS AND PRESENTATIONS: • Arbitration-Related Litigation,” Advanced Civil Trial Course, State Bar of Texas (October 2007). • “Webcasts Open a Window to Texas Supreme Court,” Op-ed, Houston Chronicle, Mar. 30, 2007. • “Risky Business: Altering the Scope of Judicial Review of Arbitration Awards by Contract,” Texas Bar Journal, Vol.

69, No. 9 (October 2006). • “Arbitration-Related Litigation and Appeals,” Advanced Civil Appellate Practice Course, State Bar of Texas

(September 2006). • “A Toolbox for Complex Litigation” – Panelist, HBA’s Law & the Media 20th Annual Seminar (Feb. 25, 2006). • “Business Development and Marketing for the Appellate Lawyer,” Panelist, HBA Appellate Section Lunch

(September 28, 2005). • “Texas Supreme Court Update,” State Bar College Summer School (July 2005) (co-author). • “The Class Action Fairness Act of 2005: The Federalization of Class Actions,” The Appellate Advocate (Spring

2005).

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TABLE OF CONTENTS

I. INTRODUCTION ............................................................................................................................................. 1 II. PROCEDURE FOR ENFORCING AN ARBITRATION AGREEMENT....................................................... 1

A. Petition to Compel Arbitration.............................................................................................................. 1 1. Persons Subject ........................................................................................................................ 1 2. Jurisdiction............................................................................................................................... 2 3. Venue ....................................................................................................................................... 2 4. Time for Filing......................................................................................................................... 2 5. Appointment of Arbitrators...................................................................................................... 2

B. Summary Adjudication of Right to Arbitrate ....................................................................................... 3 C. Stay Pending Arbitration....................................................................................................................... 3 D. Injunctions............................................................................................................................................. 3 E. Appellate Review.................................................................................................................................. 3

1. Availability .............................................................................................................................. 3 2. Standard of Review.................................................................................................................. 4

F. Judicial Aid for Arbitration Proceedings .............................................................................................. 4 III. GROUNDS FOR DEFEATING AN ARBITRATION AGREEMENT............................................................ 4

A. Clause Doesn’t Cover the Dispute ........................................................................................................ 5 B. The Other Side Waived Its Right to Arbitrate ...................................................................................... 5 C. The Agreement to Arbitrate Imposes Prohibitive Costs, Frustrates Statutory Rights, or Runs Afoul of Unconscionability Principles......................................................................................... 5 D. The Contract Doesn’t Evidence a Maritime Transaction or One Otherwise Involving Commerce ..... 6 E. Illusory Contract ................................................................................................................................... 6 F. The Contract Relates to Employment of Transportation Workers........................................................ 7

IV. PROCEDURE FOR VACATING, CONFIRMING, CORRECTING, OR MODIFYING AN ARBITRATION AWARD ................................................................................................................................ 7 A. Jurisdiction and Venue.......................................................................................................................... 7 B. Application to Vacate or Enforce.......................................................................................................... 7 C. Time Limits for Motions....................................................................................................................... 7 D. Stay Pending Ruling on Motion to Vacate............................................................................................ 8 E. Appellate Review.................................................................................................................................. 8

1. Availability .............................................................................................................................. 8 2. Standard of Review.................................................................................................................. 8

V. GROUNDS FOR VACATING THE AWARD................................................................................................. 8 A. Procurement of Award by Corruption, Fraud or Undue Means............................................................ 9 B. Evident Partiality or Corruption in the Arbitrators ............................................................................... 9 C. Arbitrator Misconduct or Other Prejudicial Misbehavior ................................................................... 10 D. Arbitrators Exceeding Powers or Imperfectly Executing Them Such That They Failed to Make a

Mutual, Final, and Definite Award ..................................................................................................... 10 E. Manifest Disregard of Law, Violation of Public Policy, and Other Non-Statutory Grounds ............. 10 F. No Agreement to Arbitrate or Waiver of Right to Arbitrate............................................................... 11

VI. GROUNDS FOR MODIFYING OR CORRECTING THE AWARD............................................................ 11 B. Award Upon a Matter Not Submitted ................................................................................................. 11 C. Imperfection in Matter of Form .......................................................................................................... 12

VII. CONSEQUENCES OF CONFIRMATION OR VACATUR.......................................................................... 12 A. Rehearing by Arbitrators..................................................................................................................... 12 B. New Arbitration .................................................................................................................................. 12 C. Judgment Confirming Award.............................................................................................................. 12

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HOW TO BUST OR FOLLOW THROUGH WITH AN ARBITRATION I. INTRODUCTION So. Your client just called you about a dispute. She wants to fight. But when she sends you the documentation, you find a contract – and it contains an arbitration clause. Possibly the other side has already started legal action, whether in court or by demanding arbitration. How will you advise her? Will you recommend: let’s arbitrate? Or will you tell her: let’s not and say we did? Your answer will likely depend on a lot of variables, including your own lawyerly inclinations. Some lawyers like arbitration. Others hate it. Many see a lawsuit, with its greater procedural certainty and a right to appeal, as safer. A lot of lawyers conversely prefer the relative unpredictability of a jury trial. We aspire to help by giving you a nutsy-boltsy outline of how the arbitration process works under the General Provisions of the federal Arbitration Act (the “FAA”).1 We’ll start with the threshold questions: the procedure and grounds for busting or following through with an arbitration agreement. Then we’ll address the procedure and grounds for busting or following through with the end product – the award. Let’s get going. II. PROCEDURE FOR ENFORCING AN

ARBITRATION AGREEMENT The FAA establishes “a national policy favoring

arbitration with just the limited review needed to maintain arbitration’s essential virtue of resolving disputes straightaway.” Hall Street Assocs., LLC v. Mattell, Inc., 128 S. Ct. 1396, 1405 (2008). Section 2 expresses that policy by providing that arbitration agreements subject to the Act “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The “valid, irrevocable, and enforceable” language creates a potent presumption in favor of enforcing arbitration provisions.

A. Petition to Compel Arbitration Consistent with its aim to streamline proceedings, the FAA shortcuts the normal litigation process. In federal court, “[a]ny application to the court hereunder

1 Chapters 2 and 3 of the FAA deal, respectively, with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Inter-American Convention on International Commercial Arbitration. They lie outside the scope of this paper, as do state analogues to the FAA such as the Texas Arbitration Act, Tex. Civ. Prac. & Rem. Code §§ 171.001-171.098, except to the extent the TAA specifies procedural treatment of matters that the FAA governs.

shall be made and heard in the manner provided by law for the making and hearing of motions, except as otherwise herein expressly provided.” 9 U.S.C. § 6.

A similar rule applies in Texas state court. “Procedural matters relating to the confirmation of arbitration awards in Texas courts are governed by Texas law even if the FAA supplies the substantive rules of decision.” McGrath v. FSI Holdings, Inc., 246 S.W.3d 796, 804 (Tex. App. – Dallas 2008, pet. denied) (citing Hamm v. Millennium Income Fund, L.L.C., 178 S.W.3d 256, 260 n.3 (Tex. App. – Houston [1st Dist.] 2005, pet. denied), cert. denied, 127 S. Ct. 297 (2006)). The Texas Arbitration Act (“TAA”) provides that “[t]he court shall hear each initial and subsequent application under this subchapter in the manner and with the notice required by law or court rule for making and hearing a motion filed in a pending civil action in a district court.” Tex. Civ. Prac. & Rem. Code Ann. § 171.093.

1. Persons Subject An agreement to arbitrate of course generally binds the parties to the contract. But it may also grab others. Principles of equitable estoppel provide one way to bring non-signatories within an arbitration agreement. The estoppel doctrine holds that a non-signatory who seeks to take advantage of a contract that contains an arbitration clause or who alleges interdependent misconduct with a signatory must also abide the dispute resolution provisions. See, e.g., Brown v. Pacific Life Ins. Co., 462 F.3d 384, 398-99 (5th Cir. 2006); Grigson v. Creative Artists Agency, 210 F.3d 524, 528 (5th Cir. 2000). As the Court explained in Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 305-06 (Tex. 2006):

Existing case law demonstrates that equitable estoppel allows a nonsignatory to compel arbitration in two different circumstances. First, equitable estoppel applies when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting its claims against the nonsignatory. When each of a signatory's claims against a nonsignatory makes reference to or presumes the existence of the written agreement, the signatory's claims arise out of and relate directly to the written agreement, and arbitration is appropriate. Second, application of equitable estoppel is warranted when the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract. Otherwise the arbitration proceedings between the two

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signatories would be rendered meaningless and the federal policy in favor of arbitration effectively thwarted.

Agency principles may also rope in people who didn’t sign the contract. . In In re Jindal Saw Ltd., 2008 WL 2186086, at *9-10 (Tex. App. – Houston [1st Dist.] May 22, 2008, orig. proceeding), for example, the court held that the survivors of a decedent employee stand in his shoes and therefore must arbitrate under an agreement he signed before death.2 2. Jurisdiction

Section 4 of the FAA entitles a party seeking arbitration to petition any United States District Court, “which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties”. 9 U.S.C. § 4. The Act doesn’t create jurisdiction, “being ‘something of an anomaly in the field of federal-court jurisdiction’ in bestowing no federal jurisdiction but rather requiring an independent jurisdictional basis.” Hall Street, 128 S. Ct. at 1402 (2008) (quoting Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983)). Diversity of citizenship or a federal question thus must exist for a federal court to have jurisdiction. Smith v. Rush Retail Centers, Inc., 360 F.3d 504, 505 (5th Cir. 2004) (per curiam) (“In short, for a federal court to enter an order to compel arbitration under § 4, ‘there must be diversity of citizenship or some other independent basis for federal jurisdiction before the order can issue.’”) (quoting Moses H. Cone, 460 U.S. at 25 n.32).

A state court having jurisdiction may likewise compel arbitration under the FAA. As the Texas Supreme Court has noted, “federal and state courts have concurrent jurisdiction to enforce the FAA.” In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005, orig. proceeding) (citing Moses H. Cone, 460 U.S. at 25). A Texas state court thus has jurisdiction to compel arbitration under the FAA.3

2 The court declined to enforce the arbitration agreement to the extent the survivors asserted a wrongful death claim. Jindal Saw, 2008 WL 2186086, at *6-*8. 3 Section 171.081 of the TAA says that making an agreement that “provides for or authorizes an arbitration in this state and to which [section 171.001] applies confers jurisdiction on the court to enforce the agreement and to render judgment on an award under this chapter.” Tex. Civ. Prac. & Rem. Code § 171.081. The provision may – or may not – confer jurisdiction to entertain proceedings to which the FAA applies.

3. Venue In federal court, “[t]he hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed.” 9 U.S.C. § 4. But recall that the rest of section 4 allows a party to petition any district court having jurisdiction. Venue thus lies in the first instance in any district permissible under the general venue statute, 28 U.S.C. § 1391.

For state court, the TAA provides the following rules for making an application to compel or stay arbitration:

(a) If there is a proceeding pending in

a court involving an issue referable to arbitration under an alleged agreement to arbitrate, a party may make an application under this subchapter only in that court.

(b) If Subsection (a) does not apply, a party may make an application in any court, subject to Section 171.096.

Tex. Civ. Prac. & Rem. Code § 171.024. The general venue statute appears now as section 15.002(a) of the Texas Civil Practice and Remedies Code. 4. Time for Filing The FAA doesn’t contain a statute of limitations for bringing an arbitration. And courts generally defer to the arbitrators questions regarding compliance with contractual and statutory limitations periods as well as timely-filing requirements of organizations that provide arbitral services. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (holding that arbitrator rather than court must decide whether claimant initiated arbitration within NASD’s six-year limitations period). Arbitration services providers include the American Arbitration Association, the NASD, the New York Stock Exchange, and JAMS. 5. Appointment of Arbitrators

“If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed”. 9 U.S.C. § 5; see, e.g., Brook v. Peak Int’l, Ltd., 294 F.3d 668, 672-74 (5th Cir. 2002) (holding that section 5 requires vacatur but that losing party waived objection by acquiescing in deviations from contractual selection method). The court appoints the arbitrator or arbitrators in the event the contract fails to specify a selection method. 9 U.S.C. § 5. And “unless otherwise provided in the agreement the arbitration shall be by a single arbitrator.” Id.

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B. Summary Adjudication of Right to Arbitrate The FAA favors expedition in judicial dealings

with arbitral matters. As we saw in section I.A., both the FAA and applicable procedural provisions of the TAA call for presentation of issues by motion rather than through ignition of a lawsuit. And FAA section 4 provides that, “upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall” direct the parties to arbitrate. 9 U.S.C. § 4.

Speed likewise prevails if the parties do dispute “the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue”. Section 4 directs that “the court shall proceed summarily to the trial” of whether the parties did agree to arbitrate or a party forfeited its right to require arbitration. 9 U.S.C. § 4; see Tex. Civ. Prac. & Rem. Code § 171.023(b) (“If there is a substantial bona fide dispute as to whether an agreement to arbitrate exists, the court shall try the issue promptly and summarily.”). If the disagreement raises an issue triable by jury, either party may request that a jury decide it. 9 U.S.C. § 4.

C. Stay Pending Arbitration The FAA entitles a party seeking arbitration to a stay of any lawsuit involving an arbitrable dispute. Section 3 provides:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

9 U.S.C. § 3. “Once a party seeking to compel arbitration establishes that an agreement exists under the FAA and that the claims raised are within the agreement’s scope, the trial court has no discretion but to compel arbitration and stay its proceedings pending arbitration.” In re Washington Mutual Finance, L.P., 173 S.W.3d 189, 192 (Tex. App. – Corpus Christi 2005, orig. proceeding) (citing Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex.1996, orig. proceeding) (per curiam)). D. Injunctions A court may issue an injunction to prevent interference with arbitration proceedings. Where, for

example, “claims asserted against” a non-signatory “are based on the same operative facts and are inherently inseparable from the claims against” a signatory, the district court may stay litigation against the non-signatory. Harvey v. Joyce, 199 F.3d 790, 795-96 (5th Cir. 2000); see Waste Mgmt., Inc. v. Residuos Industriales Multiquim, D.A. de C.V., 372 F.3d 339, 342-45 (5th Cir. 2004). But the Anti-Injunction Act generally bars federal court injunctions against parallel state court proceedings even if they threaten a party’s right under the FAA to compel arbitration. Zurich Am. Ins. Co. v. Superior Court for State of California, 326 F.3d 816, 826 (7th Cir. 2003); TranSouth Financial Corp. v. Bell, 149 F.3d 1292, 1297 (11th Cir.1998).

A court sometimes may also grant injunctive relief to preserve the status quo pending the commencement or conclusion of arbitration. “[T]he FAA does not preclude a court from issuing injunctive relief, including a preliminary injunction, to preserve the status quo during the process of arbitration, where the contract at issue reflects a consensus of the parties that such relief was contemplated.” Structured Capital Resources Corp. v. Arctic Cold Storage, LLC, 237 S.W.3d 890, 895 (Tex. App. – Tyler 2007, no pet. hist.) (citing RGI, Inc. v. Tucker & Assocs., Inc., 858 F.2d 227, 230 (5th Cir.1988)); see, e.g., Corp. Relocation, Inc. v. Martin, 2006 WL 4101944, at *8-*9 (N.D. Tex. Sept. 12, 2006) (granting preliminary injunction pending arbitration).

Finally, a court may in rare circumstances enjoin arbitration of issues if it concludes that the parties’ agreement doesn’t cover the claims. See Kellogg Brown & Root Services, Inc. v. Altanmia Comm. Mktg., 2007 WL 4190795, at * 16 (S.D. Tex. Nov. 21, 2007) (enjoining arbitration of claims the parties didn’t agree to arbitrate); see Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 477 (1989) (holding that FAA does not preempt state rule authorizing stay of arbitration where parties agreed to arbitrate under state rules); Tex. Civ. Prac. & Rem. Code § 171.023(a) (“A court may stay an arbitration commenced or threatened on application and a showing that there is not an agreement to arbitrate.”).

E. Appellate Review 1. Availability

The FAA allows interlocutory appeals from orders that hinder arbitration. See Greentree Financial Corp.—Alabama v. Randolph, 531 U.S. 79, 86 (2000) (noting that FAA “generally permits immediate appeal of orders hostile to arbitration”). Under section 16(a), an interlocutory appeal lies from orders that “refus[e] a stay of any action” pending arbitration, “deny[] a petition . . . to order arbitration to proceed”, “deny[] an application under section 206 of this title to compel

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arbitration”, or “grant[], continu[e], or modify[] an injunction against an arbitration that is subject to this title”. 9 U.S.C. § 16(a).

But the Act generally prohibits interlocutory appeals that aim to prevent arbitration. Greentree Financial Corp.—Alabama v. Randolph, 531 U.S. at 86 (observing that section 16 “bars appeal of interlocutory orders favorable to arbitration”). Section 16(b) specifies that a party may not appeal from orders “granting a stay of any action” pending arbitration, “directing arbitration to proceed”, “compelling arbitration under section 206 of this title”, or “refusing to enjoin an arbitration that is subject to this title.” 9 U.S.C. § 16(b).

The procedure differs in state court. Section 16(a) of the FAA applies only to actions in the federal system. Texas law doesn’t provide a right to interlocutory appeal from orders on motions to compel arbitration. See Tex. Civ. Prac. & Rem. Code § 51.014 (listing orders subject to interlocutory appeal). But the Supreme Court of Texas allows review of refusals to enforce arbitration agreements by petition for writ of mandamus. See, e.g., In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69-70 (Tex. 2005, orig. proceeding) (“In this case, the arbitration agreement is governed by the FAA, which provides no option of interlocutory appeal; therefore, mandamus is available, and HHC’s interlocutory appeal is immaterial.”) (citing Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272 (Tex.1992)). In Freis v. Canales, 877 S.W.2d 283 (Tex. 1994) (per curiam), the Court granted mandamus relief to a party complaining of an order compelling arbitration, but the Court backtracked in In re Palacios, 221 S.W.3d 564, 565 (Tex. 2006, orig. proceeding), denying mandamus after questioning Freis v. Canales and noting that “[w]e need not decide today whether mandamus review of an order staying a case for arbitration is entirely precluded”.

2. Standard of Review

The Fifth Circuit reviews orders denying motions to compel arbitration and to stay litigation de novo. Galey v. World Mktg. Alliance, 510 F.3d 529, 531 (5th Cir. 2007).

Similarly, state appellate courts considering refusals to order arbitration “do not defer to the trial court on questions of law” but “do defer to a trial court’s factual findings if they are supported by evidence”. Perry Homes v. Cull, 2008 WL 1922978, at *9 (Tex. May 2, 2008).

F. Judicial Aid for Arbitration Proceedings Courts do not supervise arbitration proceedings even if they expressly retain jurisdiction pending arbitration. See Am. Heritage Life Ins. Co. v. Orr, 294 F.3d 702, 715 (5th Cir. 2004) (“In an independent proceeding, an order that is otherwise final – such as

those entered in the present case – does not lose its finality because the district court retains jurisdiction to supervise compliance with the order or to enforce an arbitration award.”). They may not intervene, for example, to remove an arbitrator for bias once arbitration has begun. Gulf Guar. Life Ins. Co. v. Connecticut Gen’l Life Ins. Co., 304 F.3d 476, 492 (5th Cir. 2002) (holding that “the district court had no authority to strike Fagg from service as an arbitrator”). Nor do lengthy delays in arbitral proceedings “permit us to intervene until the parties see this arbitration through to a final award.” Folse v. Richard Wolf Med. Instruments Corp., 56 F.3d 603, 606 (5th Cir. 1995) (but noting that court doesn’t reach question of whether intervention might ever occur). Indeed, “[t]he FAA does not provide . . . for any court intervention prior to issuance of an arbitral award beyond the determination as to whether an agreement to arbitrate exists and enforcement of that agreement by compelled arbitration of claims that fall within the scope of the agreement even after the court determines some default has occurred.” Gulf Guar. Life Ins. Co., 304 F.3d at 486 (emphasis added).

But courts may sometimes use their powers preliminarily to arbitration – by, for example, permitting some discovery until the arbitration gets underway. See Yeargain Const. Co., Inc. v. Parsons & Whittemore Ala. Mach. & Svcs. Corp., 609 F.2d 829, 831 (5th Cir. 1980) (noting that “[t]he problem of dual discovery in the district court and the arbitration proceeding . . . is . . . no longer at issue”). They may also, upon petition, direct witnesses to attend arbitration hearings. Arbitrators may compel attendance of witnesses by issuing their own summons. 9 U.S.C. § 7. And, “if any person or persons so summoned to testify shall refuse or neglect to obey said summons, upon petition the United States district court for the district in which such arbitrators, or a majority of them, are sitting may compel the attendance of such person or persons before said arbitrator or arbitrators, or punish said person or persons for contempt in the same manner provided by law for securing the attendance of witnesses or their punishment for neglect or refusal to attend in the courts of the United States.” Id. III. GROUNDS FOR DEFEATING AN

ARBITRATION AGREEMENT “The question whether the parties have submitted a particular dispute to arbitration, i.e., the ‘question of arbitrability,’ is ‘an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise.’” Howsam, 537 U.S. at 83 (quoting AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649 (1986)) (emphasis in original). Deciding what counts as a “question of arbitrability” – rather than an issue of procedure or interpretation – vexes

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lawyers, clients, arbitrators, and courts. We will deal here with arguments that usually qualify as raising threshold “arbitrability” issues. A. Clause Doesn’t Cover the Dispute

A favorite attack on a motion to compel arbitration asserts that the dispute falls outside the scope of the arbitration clause. “The FAA directs courts to place arbitration agreements on equal footing with other contracts, but it ‘does not require parties to arbitrate when they have not agreed to do so.’” E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 293 (2002) (quoting Volt Info. Sciences, 489 U.S. at 478). Still, “ambiguities in the language of the agreement should be resolved in favor of arbitration”. Id. at 294 (quoting Volt, 489 U.S. at 476); see In re D. Wilson Const. Co., 196 S.W.3d 774, 782 (Tex. 2006, orig. proceeding) (“The strong presumption favoring arbitration generally requires that we resolve doubts as to the scope of the agreements in favor of coverage.”).

Cases determining whether particular arbitration clauses cover specific disputes fall outside the scope of this modest paper. But we do note that an insurance appraisal doesn’t qualify as an arbitration and that therefore the FAA doesn’t apply to it. Hartford Lloyd’s Ins. Co. v. Teachworth, 898 F.2d 1058, 1063-64 (5th Cir. 1990). B. The Other Side Waived Its Right to Arbitrate

Waiver of the right to require arbitration happens when a party disavows the right expressly or by conduct. An express waiver usually presents little difficulty, but courts have struggled with the notion of waiver through behavior.

“There is a strong presumption against waiver under the FAA.” In re D. Wilson Const. Co., 196 S.W.3d 774, 783 (Tex. 2006, orig. proceeding) (citing In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 762 (Tex. 2006, orig. proceeding) (per curiam)). The Fifth Circuit applies a tough test for proving waiver, holding that, “in order to [waive arbitration by] invok[ing] the judicial process, a party must have litigated the claim that the party now proposes to arbitrate.” Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 328-29 (5th Cir. 1999). Before Perry Homes v. Cull, 2008 WL 1922978 (Tex. May 2, 2008), the Court had never found waiver by conduct. But in Cull the Court held that the claimants waived their right to arbitrate through “litigation conduct” – by substantially invoking the litigation process through, among other things, taking discovery, opposing a motion to compel arbitration, and seeking a judgment on the merits.

C. The Agreement to Arbitrate Imposes Prohibitive Costs, Frustrates Statutory Rights, or Runs Afoul of Unconscionability Principles Section 2 of the FAA provides that arbitration

agreements subject to the Act “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. As the Supreme Court has consistently reaffirmed, “unless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance.” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-46 (2006) (emphasis added). The court decides the validity of the clause, but the arbitrator rules on challenges to enforcement of the contract as a whole. Id. (reversing refusal to compel arbitration on ground that state law rendered entire contract illegal and void). The arbitrator also determines questions regarding the kind of arbitration the parties agreed to, such as whether their contract forbids arbitration on behalf of a class. Greentree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) (remanding to permit arbitrator to decide question without judicial interference).

Unless a federal statute expresses clear congressional intent to override the FAA policy favoring arbitration, the FAA requires arbitration of otherwise arbitral disputes. See, e.g., In re Am. Homestar of Lancaster, Inc., 50 S.W.3d 480, 492 (Tex. 2001, orig. proceeding) (“Because we find no clear congressional intent in the Magnuson-Moss Act to override the FAA policy favoring arbitration, we hold that the trial court did not abuse its discretion in compelling arbitration.”); accord Walton v. Rose Mobile Homes LLC, 298 F.3d 470 (5th Cir. 2002); see Garrett v. Circuit City Stores, Inc., 449 F.3d 672 (5th Cir. 2006) (holding that Uniformed Services Employment and Reemployment Rights Act provision for federal forum doesn’t overcome FAA).

In Greentree Financial Corp.—Alabama v. Randolph, 531 U.S. at 90 & 92, the Court suggested that it might “invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive” because the excessive costs would prevent a party “from effectively vindicating her federal statutory rights in the arbitral forum.”4 Applying

4 See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985) (“By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.”); Williams v. Cigna Fin. Advisors Inc., 197 F.3d 752, 763 (5th Cir. 1999) (“The Supreme Court in Gilmer made it clear that a party agreeing to arbitrate a federal statutory claim does not forgo the substantive rights afforded by the statute, and that claims under federal statutes are appropriate for

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Randolph, several courts have struck down arbitration provisions due to their frustration of statutory rights. See, e.g., Dale v. Comcast Corp., 498 F.3d 1216, 1224 (11th Cir. 2007) (Cable Act); Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006) (antitrust); Booker v. Robert Half Int'l, Inc., 413 F.3d 77, 83 (D.C. Cir. 2005) (civil rights statute); Hadnot v. Bay, Ltd., 344 F.3d 474, 478 & n. 14 (5th Cir. 2003) (Title VII claim); Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 673 n. 16 (6th Cir. 2003) (en banc) (Title VII).

Courts have also invalidated parts of arbitration clauses under state law principles of unconscionability. See, e.g., Skirchak v. Dynamics Research Corp., 508 F.3d 49 (1st Cir. 2007) (applying Massachusetts law); Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976 (9th Cir. 2007) (California law); Tillman v. Commercial Credit Loans, Inc., 655 S.E.2d 362 (N.C. 2008); Simpson v. MSA of Myrtle Beach, Inc., 644 S.E.2d 663 (S.C. 2007); Scott v. Cingular Wireless, 161 P.3d 1000 (Wash. 2007) (en banc); Kinkel v. Cingular Wireless LLC, 223 Ill.2d 1 (Ill. 2006). The court in In re Luna, 175 S.W.3d 315 (Tex. App. – Houston [1st Dist.] 2004, orig. proceeding), overturned an order compelling arbitration because it held the arbitration clause as a whole unconscionable under Texas law.5

Whether the defects in an arbitration clause warrant invalidation of the entire clause turns on the severability of the offending provisions. If applicable law allows severance, the clause survives; otherwise not. In Security Service Federal Credit Union v. Sanders, 2008 WL 2038826 (Tex. App. – San Antonio May 14, 2008, orig. proceeding), the court held a ban on recovery of attorneys’ fees and expenses in arbitration unconscionable and non-severable in light of a contract provision that prohibited severance. The court nonetheless ordered arbitration under a separate (and enforceable) agreement between the parties.

But the FAA prohibits state laws that would impose barriers unique to arbitration agreements. In Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681 (1996), for example, the Court held that the FAA preempted a Montana statute that conditioned enforceability of an arbitration clause on compliance with special notice requirements. See, e.g., Commerce Park v. Mardian Constr. Co., 729 F.2d 334, 338 (5th Cir.1984) (concluding that FAA overrode prohibition on waivers in Texas DTPA); In re R&R Personnel arbitration so long as the prospective litigant effectively may vindicate his or her statutory cause of action in the arbitral forum, and the statute will continue to serve both its remedial and deterrent function.” (citing Gilmer v. Interstate Johnson Lane Corp., 500 U.S. 20, 26, 28 (1991)). 5 The Supreme Court of Texas heard oral argument in the case on January 25, 2006, but as of this writing it has yet to render a decision.

Specialists of Tyler, Inc., 146 S.W.3d 699, 704 (Tex. App. – Tyler 2004, orig. proceeding) (holding that FAA preempted non-waiver provision of Texas Labor Code).

D. The Contract Doesn’t Evidence a Maritime

Transaction or One Otherwise Involving Commerce

The FAA applies only to “[a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce”. 9 U.S.C. § 2. Maritime transactions consist of “charter parties, bills of lading of water carriers, agreements relating to wharfage, supplies furnished vessels or repairs to vessels, collisions, or any other matters in foreign commerce which, if the subject of controversy, would be embraced within admiralty jurisdiction”. Id. § 1. Commerce “means commerce among the several States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or between any such Territory and another, or between any such Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation”. Id. The “transaction involving commerce” need not actually affect commerce. Section 2 “provides for ‘the enforcement of arbitration agreements within the full reach of the Commerce Clause’”. Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003) (quoting Perry v. Thomas, 482 U.S. 483, 490 (1987)); see, e.g., Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265 (1995) (holding that FAA section 2 reaches as far as Commerce Clause allows and thus constitutionally requires state courts to enforce arbitration agreements); In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex. 2005orig. proceeding) (“The FAA ‘extends to any contract affecting commerce, as far as the Commerce Clause of the United States Constitution will reach.’”) (quoting In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125, 127 (Tex.1999, orig. proceeding) (per curiam)). So long as transactions like the one the contract addresses in the aggregate affect commerce, the FAA applies. E. Illusory Contract In Morrison v. Amway Corp., 517 F.3d 248 (5th Cir. 2008), the court held that Amway’s unilateral right to modify its arrangements with distributors rendered the arbitration clause in Amway literature “illusory” and therefore unenforceable under Texas law. The Court thus followed J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 232 (Tex. 2003), where the Court held that an employer’s reservation of the “unilateral right to terminate ‘personnel policies’” with respect to an “agreement to arbitrate” would invalidate the arbitration clause as illusory.

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F. The Contract Relates to Employment of Transportation Workers The FAA provides that “nothing herein contained

shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. The Supreme Court gave the “class of workers engaged in foreign or interstate commerce” a narrow reading in Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 109 (2001), ruling that it applied only to “transportation workers”.

IV. PROCEDURE FOR VACATING,

CONFIRMING, CORRECTING, OR MODIFYING AN ARBITRATION AWARD

A. Jurisdiction and Venue We saw in section I.A.2. that federal courts must

have a basis of jurisdiction independent of the FAA before they may entertain proceedings under the Act. As courts of general jurisdiction, Texas may adjudicate disputes under the FAA so long as the amount in controversy fits within their respective jurisdictional limits. See, e.g., Tex. Gov’t Code § 24.007 (describing constitutional jurisdiction of district courts).

As for venue in federal court, section 9 of the FAA provides that the parties may specify in their contract the court that will entertain a motion to confirm or vacate the award. 9 U.S.C. § 9. “If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made.” Id. In the case of a motion to correct or modify an award, the application goes to the United States District Court “in and for the district wherein the award was made”. But the Supreme Court has held the FAA venue provisions “permissive”, allowing motions to confirm, vacate, modify, or correct under the federal general venue statute, 28 U.S.C. § 1391. Cortez Byrd Chips, Inc. v. Bill Harbert Const. Co., 529 U.S. 193 (2000); see Sutter Corp. v. P&P Industries, Inc., 125 F.3d 914, 920 (5th Cir. 1997) (holding that district court abused discretion in refusing to transfer case to another district in which party seeking to vacate award filed first).

The TAA governs venue for confirming, vacating, modifying, or correcting awards in Texas state courts. Section 171.096 provides:

(a) Except as otherwise provided by

this section, a party must file the initial application:

(1) in the county in which an

adverse party resides or has a place of business; or

(2) if an adverse party does not have a residence or

place of business in this state, in any county.

(b) If the agreement to arbitrate

provides that the hearing before the arbitrators is to be held in a county in this state, a party must file the initial application with the clerk of the court of that county.

(c) If a hearing before the arbitrators has been held, a party must file the initial application with the clerk of the county in which the hearing was held.

(d) Consistent with Section 171.024, if a proceeding is pending in a court relating to arbitration of an issue subject to arbitration under an agreement before the filing of the initial application, a party must file the initial application and any subsequent application relating to the arbitration in that court.

Tex. Civ. Prac. & Rem. Code § 171.096. B. Application to Vacate or Enforce

Section 6 of the FAA provides that “[a]ny application to the court hereunder shall be made and heard in the manner provided by law for the making and hearing of motions, except as otherwise herein expressly provided.” 9 U.S.C. § 6. Section 171.093 of the TAA provides that “[t]he court shall hear each initial and subsequent application under this subchapter in the manner and with the notice required by law or court rule for making and hearing a motion filed in a pending civil action in a district court.” Tex. Civ. Prac. & Rem. Code §171.093.

Incidentally, the FAA does not allow collateral attacks on awards. See Gulf Petro Trading Co., Inc. v. Nigerian Nat’l Petroleum Corp., 512 F.3d 742 (5th Cir. 2008) (holding that, under analogous provisions of Convention on the Recognition and Enforcement of Foreign Arbitral Awards, district court properly dismissed RICO, Texas DTPA, and state common law claims as collateral attack on arbitration award).

C. Time Limits for Motions

a. Motion to Vacate or to Correct or Modify – Three Months

“Notice of a motion to vacate, modify, or correct an award must be served upon the adverse party or his attorney within three months after the award is filed or delivered.” 9 U.S.C. § 12. Missing the deadline by even one day requires denial of a motion to vacate. Webster v. A.T. Kearney, Inc., 507 F.3d 568 (7th Cir. 2007). The courts in Holcim (Texas) Ltd. P’ship v.

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Humboldt Wedag, Inc., 211 S.W.3d 796, 801 (Tex. App. – Waco 2006, pet. dism’d by agr.) and Smith v. J–Hite, Inc., 127 S.W.3d 837, 841-42 (Tex. App. – Eastland 2003, no pet.), applied the FAA period to assess timeliness of a petition to vacate.6

Confirmation of an award before the three-month period expires precludes a later motion to vacate. See Hamm, 178 S.W.3d at 269 (holding, under TAA and after consideration of FAA precedents, that “[a] motion to vacate, to modify, or to correct an arbitration award must be raised or considered before or simultaneously with a motion to confirm the award”).

b. Motion to Confirm – One Year

Under section 9 of the FAA, “at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award”. 9 U.S.C. § 9.7 Note, though, that the filing of a motion to confirm more than three months after the award doesn’t revive the other side’s right to seek vacatur, modification, or correction. See Cullen v. Paine, Webber, Jackson & Curtis, Inc., 863 F.2d 851, 853 (11th Cir. 1989) (“We adopt the reasoning of our sister courts and hold that the failure of a party to move to vacate an arbitral award within the three-month limitations period prescribed by section 12 of the United States Arbitration Act bars him from raising the alleged invalidity of the award as a defense in opposition to a motion brought under section 9 of the USAA to confirm the award.”).

D. Stay Pending Ruling on Motion to Vacate

A federal court may “stay the proceedings of the adverse party to enforce the award.” 9 U.S.C. § 12. The TAA authorizes similar relief. Tex. Civ. Prac. & Rem. Code § 171.084.

E. Appellate Review 1. Availability

The FAA authorizes appeals from “a final decision with respect to an arbitration that is subject to this title.” 9 U.S.C. § 16(a). The TAA provides for review of judgments, decrees, and orders that confirm an award, deny confirmation, modify or correct an award, or vacate an award without directing a rehearing. Tex. Civ. Prac. & Rem. Code § 171.098(a). Texas courts of appeal disagree on whether the statute

6 The TAA allows a 90-day period. Tex. Civ. Prac. & Rem. Code § 171.088(b) & 171.091(b); see Sydow v. Verner, Liipfert, Bernhard, McPherson & Hand, Chtd., 218 S.W.3d 162, 170-72 (Tex. App. – Houston [14th Dist.] 2007, no pet.). 7 The TAA simply says that an applicant may file an application “for a court order under this chapter . . . at or after the conclusion of the arbitration.” Tex. Civ. Prac. & Rem. Code § 171.083(3).

allows an appeal from order vacating an award and directing a rehearing. Compare Thrivent Fin. for Lutherans v. Brock, 251 S.W.3d 621, 622-28 (Tex. App. – Houston [1st Dist.} 2007, no pet.) (holding that appeal does not lie from order vacating award and directing rehearing) with Werline v. East Texas Salt Water Disposal Co., 209 S.W.3d 888, 896 (Tex. App.-Texarkana 2006, pet. granted) (holding appeal does lie).8

2. Standard of Review In the Fifth Circuit, “[w]e review the district court’s decision to vacate an arbitration award under a de novo standard, deferring greatly to the arbitration panel’s decision.” Downer v. Siegel, 489 F.3d 623, 626 (5th Cir. 2007) (citing Kergosien v. Ocean Energy, Inc., 390 F.3d 346, 352 (5th Cir.2004)). The same standard applies to review of modifications and corrections to an award. Atlantic Aviation, Inc. v. EBM Group, Inc., 11 F.3d 1276, 1282 (5th Cir. 1994) (“Review of the district court's judgment is de novo, enabling this Court to determine whether the district court accorded sufficient deference to the arbitrators' decision.”) (citing Forsythe Int'l, 915 F.2d at 1020-1021). A Texas appellate court examines the trial court’s confirmation of the arbitration award de novo. Henry v. Halliburton Energy Services, Inc., 100 S.W.3d 505, 508 (Tex. App. – Dallas 2003, pet. denied). V. GROUNDS FOR VACATING THE AWARD

Section 10(a) of the FAA authorizes “an order vacating the award upon the application of any party to the arbitration” under extraordinarily rare circumstances:

(1) where the award was procured by corruption,

fraud, or undue means; (2) where there was evident partiality or

corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers,

or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

8 The parties argued Werline before the Supreme Court of Texas on January 16, 2008. The appeal remains pending.

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9 U.S.C. § 10(a). Sections 10 and 11, see infra at VI., together “provide exclusive regimes for the review provided by the statute”. Hall Street, 128 S. Ct. at 1406 (holding that parties may not expand judicial review of awards under FAA by contract). At least one court of appeals adopted Hall Street for purposes of the TAA. Quinn v. Nafta Traders, Inc., 2008 WL 2426665, at *2 (Tex. App. – Dallas June 17, 2008, no pet. hist.) (“We therefore conclude that parties seeking judicial review of an arbitration award covered under the TAA cannot contractually agree to expand the scope of that review and are instead limited to judicial review based on the statutory grounds enumerated in the statute.”).

A. Procurement of Award by Corruption, Fraud

or Undue Means The “procured by corruption, fraud, or undue

means” language in section 10(a)(1) “requir[es] a nexus between the alleged fraud [or other misconduct] and the basis for the panel’s decision.” Forsythe Int’l, S.A. v. Gibbs Oil Co. of Texas, 915 F.2d 1017, 1022 (5th Cir. 1990).

“To vacate an arbitration ruling because of fraud, the movant must establish: (1) fraud by clear and convincing evidence; (2) the fraud must not have been discoverable upon the exercise of due diligence prior to or during the arbitration; and (3) the person seeking to vacate the award must demonstrate that the fraud materially related to an issue in the arbitration.” Henry, 100 S.W.3d at 510 (applying TAA and citing In re Arbitration Between Trans Chem. Ltd. and China Nat’l Mach. Imp. and Exp. Corp., 978 F. Supp. 266, 304 (S.D. Tex. 1997), op. adopted sub nom. Trans Chemical Ltd. v. China Nat’l Machinery Imp. and Exp. Corp., 161 F.3d 314 (5th Cir. 1998) (per curiam)).

In In re Arbitration, the court refused to vacate an award on grounds of fraud and undue means where a party tardily produced a key report but the opposing (and losing) party failed to request relief from the arbitrators before they rendered their award. In re Arbitration, 978 F. Supp. at 306 (“By failing to seek any relief from the arbitrators[,] CNMC cannot now complain about the late production of the ChemCon report.”).

B. Evident Partiality or Corruption in the

Arbitrators The principal Fifth Circuit application of the

“evident partiality” ground for vacating an arbitration award came in Positive Software Solutions, Inc. v. New Century Mortg. Corp., 476 F.3d 278 (5th Cir.) (en banc), cert. denied, 127 S. Ct. 2943 (2007). The sole arbitrator did not disclose that he had served as co-counsel in a previous lawsuit with a lawyer who represented one of the arbitrating parties. The en banc

court considered the standard for vacatur under Commonwealth Coatings Corp. v. Continental Cas. Co., 393 U.S. 145 (1968). The court observed:

The resulting standard is that in nondisclosure cases, an award may not be vacated because of a trivial or insubstantial prior relationship between the arbitrator and the parties to the proceeding. The “reasonable impression of bias” standard is thus interpreted practically rather than with utmost rigor.

Positive Software, 476 F.3d at 283. The court held that the arbitrator’s “failure to disclose a trivial former business relationship does not require vacatur of the award.”

The Texas Supreme Court appears, pre-Positive Software, to have construed Commonwealth Coatings more stringently under the TAA. In Burlington N.R.R. Co. v. TUCO Inc., 960 S.W.2d 629, 630 (Tex. 1997), the Court held that, under section 171.014(a)(2) of the TAA, “evident partiality by an arbitrator appointed as a neutral” exists “if the arbitrator does not disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality.” During the arbitration, the arbitrator in question accepted representation of a party in a “substantial” matter and later ruled in the client-party’s favor. The Court concluded that “evident partiality is established from the nondisclosure itself, regardless of whether the non-disclosed information necessarily establishes partiality or bias.” Id. at 636 (emphasis in original).

The Court followed Burlington in Mariner Financial Group, Inc. v. Bossley, 79 S.W.3d 30 (Tex. 2002). It agreed with the court of appeals that the winning side in an arbitration failed to establish the absence of evident partiality by the neutral chair of the arbitration panel. The evidence showed that an expert witness for the losing side had years earlier testified against the chair in a legal malpractice case. Under Burlington, the Court held, the chair’s failure to disclose his previous relationship with the expert raised a fact issue as to evident partiality. If the chair hadn’t remembered the relationship, the Court noted, the non-disclosure would not, as a matter of law, have required vacatur of the award. Id. at 33. See J.D. Edwards World Solutions Co. v. Estes, Inc., 91 S.W.3d 836, 844 (Tex. App. – Fort Worth 2002, pet. denied) (holding that neutral arbitrator’s non-disclosure of his “prior and ongoing relationship” with party required vacatur); Thomas James Assocs., Inc v. Owens, 1 S.W.3d 315, 321 (Tex. App. – Dallas 1999, no pet.) (affirming refusal to vacate award where “we conclude Fournier’s involvement in the Abendana arbitration and the Kippen suit are not facts that might, to an objective observer, create a reasonable impression of Fournier’s

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partiality in the arbitration that is the subject of this case”).

C. Arbitrator Misconduct or Other Prejudicial

Misbehavior Misconduct by the arbitrator may consist of

refusing to consider evidence or to allow the parties to put on their cases. But “‘[t]he arbitrator is not bound to hear all of the evidence tendered by the parties; however, he must give each of the parties to the dispute an adequate opportunity to present its evidence and arguments.’” Forsythe Int’l, 915 F.2d at 1023 (quoting Hoteles Condado Beach v. Union de Tronquistas Local 901, 763 F.2d 34, 39 (1st Cir.1985)). “‘To constitute misconduct requiring vacation of an award, an error in the arbitrator’s determination must be one that is not simply an error of law, but which so affects the rights of a party that it may be said that he was deprived of a fair hearing.’” Laws v. Morgan Stanley Dean Witter, 452 F.3d 398, 399 (5th Cir. 2006) (quoting El Dorado Sch. Dist. No. 15 v. Continental Cas. Co., 247 F.3d 843, 848 (8th Cir. 2001)). “An evidentiary error must not be merely an error of law; rather, such error must so affect the rights of a party that it was deprived of a fair hearing.” Tanox, Inc. v. Akin, Gump, Strauss, Hauer & Feld, L.L.P., 105 S.W.3d 244, 265 (Tex. App. – Houston [14th Dist.] 2003, pet. denied) (citing Forsythe Int'l, 915 F.2d at 1023). In addition, “the arbitrators’ error must have been made in bad faith or the error must be so gross as to constitute affirmative misconduct.” Id.

D. Arbitrators Exceeding Powers or Imperfectly

Executing Them Such That They Failed to Make a Mutual, Final, and Definite Award “[I]f there is ambiguity as to whether an arbitrator

is acting within the scope of his authority, that ambiguity must be resolved in favor of the arbitrator.” Am. Eagle Airlines, Inc. v. Airline Pilots Ass'n, 343 F.3d 401, 405 (5th Cir.2003). “In deciding whether the arbitrator exceeded his jurisdiction, ‘any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.’” Myer v. Americo Life Ins. Co., 232 S.W.3d 401, 408 (Tex. App. – Dallas 2007, no pet.) (quoting Moses H. Cone, 460 U.S. at 24-25). The court in Myer held that the question of whether a party satisfied a notice requirement before bringing arbitration fell within the arbitrators’ powers to decide a contract dispute. See, e.g., Am. Realty Trust, Inc. v. JDN Real Estate—McKinney, L.P., 74 S.W.3d 527, 532 (Tex. App. – Dallas 2002, pet. denied) (holding that “the trial court properly allowed the arbitrator to decide whether any contractually-based prerequisites to arbitration were satisfied”); Thomas v. Prudential Securities, Inc., 921 S.W.2d 847, 850 (Tex. App. – Austin 1996, no pet.) (concluding that arbitrators did not exceed authority in awarding

attorneys’ and expert witness fees). Deciding an issue incorrectly doesn’t qualify as exceeding the arbitrators’ authority. E.g., Pheng Investments, Inc. v. Rodriguez, 196 S.W.3d 322, 330 (Tex. App. – Fort Worth 2006, no pet.) (applying TAA).

Courts will enforce clear limitations on arbitrators’ authority. In Smith v. Transport Workers Union of Am., 374 F.3d 372 (5th Cir. 2004), the court upheld vacatur of an award that the arbitrators corrected a month after issuing their original award. The parties’ contract restricted corrections to sua sponte changes that the arbitrators made within three days. The Fifth Circuit accordingly affirmed confirmation of the original award. Id. at 374-75.

“One way that a panel of arbitrators can exceed its powers under the FAA is by failing to follow the parties’ agreement regarding the composition of the panel.” McGrath v. FSI Holdings, Inc., 246 S.W.3d 796, 806 (Tex. App. – Dallas 2008, pet. denied). But trivial departures from the procedures for constituting a panel do not warrant vacatur. Bulko v. Morgan Stanley DW Inc., 450 F.3d 622, 626 (5th Cir. 2006) (reversing order vacating award on ground arbitrator didn’t hold current law license).

Arbitrators may also go beyond their powers if they award damages that the agreement prohibits. “It is well-settled in this circuit that, as a general proposition, arbitral action contrary to express contractual provisions is not entitled to deference upon review.” Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347, 365 (5th Cir. 2003), cert. denied, 541 U.S. 937 (2004) (citing Am. Eagle Airlines, 343 F.3d at 408, and Delta Queen Steamboat Co. v. Dist. 2 Marine Eng’rs Beneficial Ass’n, 889 F.2d 599, 602 (5th Cir. 1989)). The Bridas court held that the arbitrators didn’t award punitive damages and so hadn’t exceeded their powers. Id.; see Glover v. IBP, Inc., 334 F.3d 471, 476-77 (5th Cir. 2003) (holding that arbitrator could rationally infer authority to award pain and suffering damages from contract and therefore didn’t exceed authority in awarding them).

E. Manifest Disregard of Law, Violation of Public

Policy, and Other Non-Statutory Grounds After the Supreme Court’s decision in Hall Street

earlier this year, the FAA likely does not allow attacks on an arbitration award beyond those in the statute itself. The Fifth Circuit “has previously held that an arbitration award may be vacated on non-statutory grounds when an arbitrator manifestly disregards the law, which ‘is an extremely narrow, judicially-created rule with limited applicability,’ or if it is ‘contrary to public policy.’” Rogers v. KBR Technical Services Inc., 2008 WL 2337184, at *2 (quoting Prestige Ford v. Ford Dealer Computer Servs., Inc., 324 F.3d 391, 395-95 (5th Cir. 2003) (not for publication). But Hall Street “calls into doubt the non-statutory grounds

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which have been recognized by this Circuit.” Rogers, 2008 WL 2337184, at *2. The Dallas court of appeals has held that Hall Street eliminated all non-statutory grounds for vacating an arbitration award. Quinn v. Nafta Traders, Inc., 2008 WL 2426665, at *2.

We will therefore not further consider the extra-statutory grounds for vacatur or the many cases applying them.

F. No Agreement to Arbitrate or Waiver of Right

to Arbitrate The absence of an agreement to arbitrate dooms an

award. In Holcim (Texas) Ltd. P’ship v. Humboldt Wedag, Inc., 211 S.W.3d 796, 807 (Tex. App. – Waco 2006, dism’d by agr.), the court reversed confirmation of an award as to a non-signatory, concluding that the agreement between the signatories “does not confer . . . a right to compel arbitration of its claims against” the non-signatory. But the complaining party must raise defenses to arbitration before participating in arbitral proceedings. See In re Hospitality Employment Group, LLC, 234 S.W.3d 832, 835 (Tex. App. – Dallas 2007, orig. proceeding) (“Had Moreno intended to challenge the appellate arbitration provision on the grounds of unconscionability, she should have done so prior to participating in the arbitration proceedings. This she did not do.”); Holcim, 211 S.W.3d at 803 (holding that non-signatory’s objection to arbitrability of claim before second phase of arbitration preserved issue as ground for vacating award).

“[T]he presumption is that the arbitrator should decide ‘allegation[s] of waiver, delay, or a like defense to arbitrability.’” Howsam, 537 U.S. at 84 (quoting Moses H. Cone, 460 U.S. at 24-25). But the presumption doesn’t apply where the relevant conduct happens in court. In Perry Homes v. Cull, 2008 WL 1922978, at *1, years after the Culls won an arbitration award, the Court held that they waived their right to arbitrate by “substantially invok[ing] the litigation process and then switch[ing] to arbitration on the eve of trial.” It rejected the argument that courts may not vacate awards on grounds of waiver:

But reviewing the trial court’s initial referral to arbitration is not the same as reviewing the arbitrator’s final award; as the United States Supreme Court has held, courts conduct ordinary review of the former and deferential review only of the latter.

Id. at *3 (footnote omitted). The Court accordingly vacated the award and remanded the case for trial. See Tristar Financial Ins. Agency v. Equicredit Corp. of America, No. 03-40425, 2004 WL 838633, *2 (5th Cir. Apr. 20, 2004) (per curiam) (stating that “[c]ontracting parties would expect the court to decide whether one

party’s conduct before the court waived the right to arbitrate” but holding no waiver occurred). VI. GROUNDS FOR MODIFYING OR

CORRECTING THE AWARD Under section 11 of the FAA, a court may correct or modify an award in a few situations:

(a) Where there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award.

(b) Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted.

(c) Where the award is imperfect in matter of form not affecting the merits of the controversy.

The order may modify and correct the award, so as to effect the intent thereof and promote justice between the parties.

9 U.S.C. § 11. A. Evident Material Miscalculation or Evident

Material Mistake In Atlantic Aviation, the Fifth Circuit held that the

arbitration panel made a material miscalculation by failing to offset damages by an amount owing under a contract and remanded the case to the district court for correction of the award. Atlantic Aviation, 11 F.3d at 1284 (applying predecessor to TAA). The court concluded that the miscalculation did not affect the merits. Id.; see Sydow v. Verner, Liipfert, Bernhard, McPherson & Hand, Chtd., 218 S.W.3d at 170 (concluding that correcting award to include prejudgment interest “is permissible under the TAA because the error constituted an evident miscalculation of numbers and is a mere error of form not affecting the merits of the controversy”).

B. Award Upon a Matter Not Submitted In Executone Info. Systems, Inc. v. Davis, 26 F.3d 1314 (5th Cir. 1994), the court considered whether the arbitrator decided a matter that the parties had not submitted to him. Executone contended that its adversaries, shareholders in a company that distributed Executone products, never sought damages for loss in value to their stock; and yet the arbitrator awarded them damages for that very thing. Giving broad deference to the arbitrator’s view that the parties did submit the issue and noting that the events that produced the loss did fit within the subject matter of

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the arbitration, the court affirmed the district court’s refusal to correct or modify the award. Id. at 1321-23. C. Imperfection in Matter of Form The rare challenges to an award under section 11(c) usually founder on the ground that they in reality contest a matter of substance rather than form. See Diapulse Corp. of Am. v. Carba, Ltd., 626 F.2d 1108, 1110 (2d Cir. 1980) (holding that section 11(c) didn’t authorize placing limits on scope of arbitrator’s injunction). VII. CONSEQUENCES OF CONFIRMATION

OR VACATUR A. Rehearing by Arbitrators Under FAA section 10(b), “[i]f an award is vacated and the time within which the agreement required the award to be made has not expired, the court may, in its discretion, direct a rehearing by the arbitrators.” 9 U.S.C. § 10(b). The “time within which the agreement required the award to be made” apparently refers to the common practice in arbitration agreements to specify a deadline for making an award.9

The direction of a rehearing doesn’t affect appellate jurisdiction over the vacatur. Atlantic Aviation, 11 F.3d at 1180 (“The FAA does not distinguish between orders vacating arbitration awards without directing a rehearing and those orders which vacate awards and direct a rehearing of the arbitration dispute; both are appealable.” (citing 9 U.S.C. § 16(a)(1)(E)).

B. New Arbitration

If the time has elapsed for making an award, a decision to vacate an award requires new arbitration proceedings. But the court apparently may not disqualify the original arbitrator from this additional service except in highly unusual circumstances. See, e.g., Montes v. Shearson Lehman Bros., Inc., 128 F.3d 1456, 1464 (11th Cir. 1997) (vacating award and remanding with instructions to refer dispute to new arbitration panel where previous panel adopted winning party’s argument that they should disregard governing law).

C. Judgment Confirming Award

A judgment that confirms an arbitration award “shall have the same force and effect, in all respects, 9 Under R-41 of the American Arbitration Association’s Commercial Arbitration Rules, which parties often adopt by contract, “[t]he award shall be made promptly by the arbitrator and, unless otherwise agreed by the parties or specified by law, no later than 30 days from the date of closing the hearing, or, if oral hearings have been waived, from the date of the AAA's transmittal of the final statements and proofs to the arbitrator.”

as, and be subject to all the provisions of law relating to, a judgment in an action; and it may be enforced as if it had been rendered in an action in the court in which it is entered.” 9 U.S.C. § 13. A party may invoke an arbitration award as res judicata and collateral estoppel in later proceedings. E.g., Goldberg v. R.J. Longo Const. Co., Inc., 54 F.3d 243, 245-47 (5th Cir. 1995). In Tanox, the court held that an arbitration award exerts claim preclusive effects even before an order confirming the award becomes final. Tanox, 105 S.W.3d at 270.

In the case of successive arbitrations, the arbitrators in the later proceeding – and not a court – determine the preclusive effect of the previous award. W. Dow Hamm III Corp. v. Millennium Income Fund, L.L.C., 237 S.W.3d 745, 753-56 (Tex. App. – Houston [1st Dist.] 2007, orig. proceeding).