latest developments in commercial arbitration –...

Robert S. Ballentine, LL.M.Partner

Jason C. NelsonSenior Counsel

Latest Developments inCommercial Arbitration – What’s New

for In-House Counsel

ACC - Houston Chapter, Monthly MeetingMaggiano’s Little Italy

Houston, TexasTuesday, March 10, 2015

With 30 years of commercial litigation and arbitration experience, Mr. Ballentine, leader ofBurleson’s Midstream Practice group, has an extensive background in representing energycompanies in a wide variety of complex commercial disputes over upstream and midstreamenergy contracts. These have included matters related to exploration, development, jointoperation, wellhead sales, natural gas processing, sales and marketing of natural gas andnatural gas liquids, purchase and sale of mineral properties, oilfield maintenance and service,and the gathering and transmission of natural gas and petroleum products.

Mr. Ballentine has represented energy clients in class actions in both state and federal courts, aswell as in litigation over state, federal, and private mineral royalty claims. Other litigation matterswith which he has significant experience include, but are not limited to, matters related toinsurance, tax, real estate and pipeline condemnation, toxic tort and products liability claims,Sherman Act antitrust claims, and shareholder derivative and securities litigation. He also hasrepresented clients in a multitude of adversary proceedings conducted in United StatesBankruptcy Courts.

Robert S. Ballentine, LL.M.Partner

Houston OfficeT: 713.358.1776F: [email protected]

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Jason Nelson’s practice centers on the financial needs of the energy industry. He hasrepresented public and private companies in a panoply of complex transactional areas, includingsecurities, capital markets, mergers and acquisitions (M&A), joint ventures, corporategovernance, and commercial and project finance.

Jason’s legal experience includes advising companies on compliance with the Securities Act of1933 and Securities Exchange Act of 1934, secured and unsecured debt financings, buy-sideand sell-side M&A transactions, initial public offerings (IPOs), follow-on and secondary offerings,Rule 144A and Regulation S offerings, A/B exchanges, Regulation D placements, warrantissuances, takeover defenses, and compliance with Sarb-Ox and stock exchange rules.

Previously, Jason served in senior in-house roles with two start-up companies, and practiced withan Am Law 100 firm. Prior to embarking on his legal career, Jason worked in finance with severalleading global financial institutions and a Fortune 500 energy company.

Jason C. NelsonSenior Counsel

Houston OfficeT: 713.358.1776F: [email protected]

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Introduction

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Agenda

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Introduction

Drafting the Arbitration Agreement

Statutory Bases

Arbitration Rules

Appeals

Recent Developments

Arbitration Clause Submission of a ClaimAdmission of a Claimand Appointment of

Arbitrator/ArbitratorsArbitration Proceedings

Arbitration Award andEnforcement of it or

Challenge

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Allow Parties the ability to design their own dispute resolution process, and providesthem with the flexibility to customize the process to the particular circumstances

The most frequently cited advantages of arbitration are:

Speed with which disputes are resolved as compared to court litigation Cost savings Input and control in selecting an arbitrator with a background and expertise relevant to the

dispute Informal procedures

When Arbitration May, or May Not,Be Appropriate/Desirable

Why Agree to Arbitration?

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When Arbitration May, or May Not, BeAppropriate/Desirable

Source: AAA – adr.org

• Courtroom rules of evidence arenot strictly applicable

• There is no requirement fortranscripts of the proceedings orfor written opinions of thearbitrators

Under the AAA’s Rules,the procedure is relativelysimple:

Even without formaldiscovery, theAAA's commercialrules allow thearbitrators torequire productionof relevantinformation anddocuments.

The AAA's rules arealso flexible andmay be varied bymutual agreementof the parties.

Arbitration awards arefinal and binding andare enforceable incourt. Courtintervention in thearbitration process isvery limited by stateand federal laws, andenforcement isfacilitated by thosesame laws.

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To Arbitrate or Not to Arbitrate –That is the Question

ProsProsAbility to select person(s) to hear your case and to have person

knowledgeable about your industry be the decider of yourdispute

Ability to have procedural disputes heard and resolved morequickly

Less formal proceeding; less discovery means less cost

Better ability to control calendaring of cases since dates notdictated by court

Less rigid application of legal remedies, evidentiary standards,and limitations

ConsConsExpense – Parties have to pay for:

- Cost of the arbitrator(s)- Cost of administration

- Cost associated with hearing rooms, etc.

No right to appeal (probably)

No obligation to the part of the arbitrator to follow thelaw or to justify his/her decision (cf., reasoned awards)

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Price $950

Arbitration Institutions

American Arbitration Association (AAA): www.adr.org

Judicial Arbitration and Mediation Service (JAMS): www.jamsadr.com/

International Institute for Conflict Prevention & Resolution (CPR): www.cpradr.org/Home.aspx

Section of Dispute Resolution/American Bar Association (ABA): www.abanet.org

International Chamber of Commerce (ICC): www.iccwbo.org

Office of the Chief Counsel for Int'l Commerce: www.doc.gov/ogc/occic

Technical Arbitration &Conflict Resolution (TACR): www.batnet.com/oikoumene/tacr.html

World Intellectual Property Organization (WIPO): www.wipo.org/eng/index.htm

Commercial Arbitration and Mediation Center for the Americas (CAMCA): www.adr.org/rules/camca_rules.html

United Nations Commission on International Trade Law (UNCITRAL): www.uncitral.org/uncitral/index.html

Financial Industry Regulatory Authority (FINRA): www.finra.org

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Some Factors to Consider

Drafting theAgreement toArbitrate

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Complex negotiations conclude and the parties are ready to close thetransaction

As the deadline approaches, the parties are less focused on the “usualterms” or “boilerplate” language – the parties agreed to arbitrate early on inthe transaction

Everyone is happy with the terms of the deal and any future problems canbe “worked out down the road”

Drafting the Agreement to Arbitrate

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A few years pass, and a dispute arises betweenthe parties

Surprise – the parties aren’t “friendly” any longer

Now, with a genuine dispute between theparties, each side has decided on its proceduraladvantages and disadvantages, and working outdeficiencies in the arbitration provision is nolonger feasible


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The reasonable, cost effective process that the contracting parties intended toresolve disputes can be achieved only via an expensive, time-consuming, adversarialprocess

Result:


Goal:

Spend time on crafting the arbitration provision upfront and avoid problems later on

Avoid Drafting “Traps”

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Example Problem:

Question:When can arbitration begin?What happens if a party delays any stage in the process for strategic purposes?

Avoid Drafting Traps

Contract provides that,“in the spirit of mutual

cooperation,” the partiesshall attempt to negotiate a

resolution in good faithbefore resorting to

arbitration

If no agreement can bereached through

negotiation, the partiesmust submit to good faith

mediation

Only if an agreement is stillnot reached may a partythen initiate arbitration

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Solution: provide for precise beginning and ending dates for each stage ofthe dispute resolution process Notice in writing of a claim X days after notice to negotiate If no agreement after X days from delivery of notice, mediate during

subsequent Y days If no agreement within Y days, then either party may initiate arbitration

Avoid Traps (cont’d)

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Commit to Arbitration – don’t equivocate Scope of Arbitrability - be clear as to which disputes will be arbitrated

General Rule – Court Determines Arbitrability (Sec. 3 of FederalArbitration Act) Exception – Clear and Unmistakable Delegation to Arbitrators (First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995)) Express delegation in the arbitration agreement:Any dispute or difference of any kind whatsoever arising out of, relating toor in connection with this contract, whether in contract, tort, statutory orotherwise, including any question about the scope of this agreement toarbitrate, or any questions regarding the validity, existence, breach ortermination of this contract, shall be resolved by final and bindingarbitration ….

Drafting the Agreement to Arbitrate –Drafting Tips

Source: Ben H. Sheppard, Jr., Who Decides Arbitrability (Scope): The Court or Arbitrators?,The Advocate, Winter 2013 17

Specify the location Specify number of arbitrators Provide for entry of judgment Consider special circumstances (e.g., do you

need to specify the language of the arbitration) Use a model clause whenever possible and

reproduce it (but acquaint yourself with the“built-in” rules)

Drafting the Agreement to Arbitrate –Drafting Tips (cont’d)

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Any dispute arising out of or relating to this contract, including the breach, termination or validitythereof, shall be finally resolved by arbitration in accordance with the International Institute forConflict Prevention and Resolution (“CPR”) Rules for Administered Arbitration (the“Administered Rules” or “Rules”) by (a sole arbitrator) (three arbitrators, of whom each partyshall designate one, with the third arbitrator to be appointed by CPR) (three arbitrators, of whomeach party shall designate one, with the third arbitrator to be designated by the two party-appointed arbitrators) (three arbitrators, of whom each party shall designate one in accordancewith the screened appointment procedure provided in Rule 5.4) (three arbitrators, none ofwhom shall be designated by either party). The arbitration shall be governed by the FederalArbitration Act, 9 U.S.C. §§ 1 et seq., and judgment upon the award rendered by thearbitrator(s) may be entered by any court having jurisdiction thereof. The place of the arbitrationshall be (city, state).

CPR Model Clause

Source: CPR – cpradr.org

Pre-Dispute Clause for Administered Arbitration

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Any dispute arising out of or relating to this contract, including the breach, termination or validitythereof, shall be finally resolved by arbitration in accordance with the International Institute forConflict Prevention and Resolution (“CPR”) Rules for Non-Administered Arbitration by (a solearbitrator) (three arbitrators, of whom each party shall appoint one) (three arbitrators, of whomeach party shall designate one in accordance with the “screened” appointment procedureprovided in Rule 5.4) (three arbitrators, none of whom shall be appointed by either party). Thearbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq., and judgmentupon the award rendered by the arbitrator(s) may be entered by any court having jurisdictionthereof. The place of the arbitration shall be (city, state).

CPR Model Clause


Pre-Dispute Clause for Non-Administered Arbitration

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Any dispute, claim or controversy arising out of or relating to this Agreement or the breach oftermination, enforcement, interpretation or validity thereof, including the determination of thescope or applicability of this agreement to arbitrate, shall be determined by arbitration in [insertdesired place of arbitration] before [one/three] arbitrator(s). The arbitration shall beadministered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures [and inaccordance with the Expedited Procedures in those Rules] [or pursuant to JAMS’ StreamlinedArbitration Rules and Procedures]. Judgment on the Award may be entered in any court havingjurisdiction. This clause shall not preclude parties from seeking provisional remedies in aid ofarbitration from a court of appropriate jurisdiction.

JAMS Model Clause

Source: JAMS – jamsadr.com


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Any controversy or claim arising out of or relating to this contract, or breach thereof, shall besettled by arbitration administered by the American Arbitration Association in accordance withits Commercial [or other] Arbitration Rules, and judgment on the award rendered by thearbitrator(s) may be entered in any court having jurisdiction thereof.

AAA Model Clause



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Administered Arbitration

Benefits

Provides established rules ofprocedure

Administrative support Can appoint arbitrators Can address issues such as

arbitrator challenges Provide hearing rooms Credibility of institution backs the

award

Tradeoffs

Additional cost to the parties More bureaucracy, which can lead

to longer times to resolution Less flexibility for the parties in

designing the process

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Non-Administered Arbitration (Ad hoc)Benefits

Tailor-made to the dispute No need to incur the costs of the

arbitration institution Avoids excess bureaucracy and

the possible timing delays ofadministered arbitration

Good option if the parties can’tagree to an arbitration institution

Maximum flexibility and partycontrol of the process

Tradeoffs

Additional drafting burden (choiceof appointing authority, detailingrules of procedure)

Lack of cooperation to address gapsin the rules once the dispute arises

Additional administrative burdenon the tribunal (and/or the parties)

Potential for costly court detours

Note: The parties can choose a set of non-administered rules, which helps to mitigate some of the risks of ad hocarbitration. Example: CPR Rules for Non-Administered Arbitration.

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Selection of Arbitrators;Qualifications; Law


The arbitrator selected by the claimant and the arbitrator selected byrespondent shall, within 10 days of their appointment, select a third neutralarbitrator. In the event that they are unable to do so, the parties or theirattorneys may request the American Arbitration Association to appoint thethird neutral arbitrator. Prior to the commencement of hearings, each of thearbitrators appointed shall provide an oath or undertaking of impartiality.

The arbitrator selected by the claimant and the arbitrator selected byrespondent shall, within 10 days of their appointment, select a third neutralarbitrator. In the event that they are unable to do so, the parties or theirattorneys may request the American Arbitration Association to appoint thethird neutral arbitrator. Prior to the commencement of hearings, each of thearbitrators appointed shall provide an oath or undertaking of impartiality.

The arbitration proceedings shall be conducted before a panel of threeneutral arbitrators, all of whom shall be members of the bar of the state of[specify], actively engaged in the practice of law for at least 10 years.

The arbitration proceedings shall be conducted before a panel of threeneutral arbitrators, all of whom shall be members of the bar of the state of[specify], actively engaged in the practice of law for at least 10 years.

Disputes under this clause shall be resolved by arbitration in accordance withTitle 9 of the US Code (United States Arbitration Act) and the CommercialArbitration Rules of the American Arbitration Association.

Disputes under this clause shall be resolved by arbitration in accordance withTitle 9 of the US Code (United States Arbitration Act) and the CommercialArbitration Rules of the American Arbitration Association.

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Provision for LimitedDiscovery of Documents


Consistent with the expedited nature of arbitration, each party will,upon the written request of the other party, promptly provide theother with copies of documents [relevant to the issues raised by anyclaim or counterclaim] [on which the producing party may rely insupport of or in opposition to any claim or defense].

Any dispute regarding discovery, or the relevance or scope thereof,shall be determined by the [arbitrator(s)] [chair of the arbitrationpanel], which determination shall be conclusive. All discovery shall becompleted within [45] [60] days following the appointment of thearbitrator(s).

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Limited Number ofDepositions


At the request of a party, the arbitrator(s) shall have the discretion toorder examination by deposition of witnesses to the extent the arbitratordeems such additional discovery relevant and appropriate.

Depositions shall be limited to a maximum of [three] [insert number] perparty and shall be held within 30 days of the making of a request.Additional depositions may be scheduled only with the permission of the[arbitrator(s)] [chair of the arbitration panel], and for good cause shown.

Each deposition shall be limited to a maximum of [three hours] [six hours][one day’s] duration.

All objections are reserved for the arbitration hearing except forobjections based on privilege and proprietary or confidential information.

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Sample Text Here

The Award and Relief Allowed


and

The award shall be made within nine (9) months ofthe filing of the notice of intention to arbitrate(demand), and the arbitrator(s) shall agree to complywith this schedule before accepting appointment.This time limit, however, may be extended byagreement of the parties or by the arbitrator(s) ifnecessary.

The arbitrators will have no authority to awardpunitive or other damages not measured by theprevailing party’s actual damages, except as may berequired by statute.

In no event shall an award in an arbitration initiatedunder this clause exceed $________ for anyclaimant.

The arbitrator(s) shall not award consequentialdamages in any arbitration initiated under thissection.

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CPR Variations of Arbitration


CPR “Final-Offer” or “Baseball” Arbitration

CPR “High-Low” or “Bounded” Arbitration

This variation of arbitration entails each party providing a proposed monetary amount for the claim tothe arbitrator(s) prior to the close of the hearings. At the conclusion of the hearing, the arbitrator(s) willadopt one of the proposed amounts in the award. This form of arbitration is used in baseball salarynegotiations.

A related variation, often referred to as “Night Baseball” arbitration, occurs when the arbitrator(s) isnot informed of the written proposals. Instead, the arbitrator(s) renders the award, which is thenadjusted to conform to the closest of the parties’ proposals. Both variations eliminate an arbitrator’sability to render “compromise awards.”

Under this variation, the parties set a range for the award. An award over the high amount is reducedto that amount; an award under the low amount is increased to that amount; and any award within therange is not adjusted. High-low arbitration has been used in third-party insurance claims where liabilityis admitted, but damages are in issue.

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Other Drafting Matters


Other Clauses to Consider

Interest: Any monetary award in an arbitration initiated under this cause shall include pre-award interest at therate of ___% from the time of the act or acts giving rise to the award.

Attorney Fees: The prevailing party shall be entitled to an award of reasonable attorney fees.

Expenses: Each party shall bear its own costs and expenses and an equal share of the arbitrators’ andadministrative fees of arbitration.

No Attorney Fees: The arbitrators may determine how the costs and expenses of the arbitration shall beallocated between the parties, but they shall not award attorneys’ fees.

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Other Drafting Matters


Other Clauses to Consider (cont’d)

Opinion: The award of the arbitrators shall be accompanied by a reasoned opinion.

Confidentiality: Except as may be required by law, neither a party nor an arbitrator may disclose theexistence, content, or results of any arbitration hereunder without the prior written consent of both parties.

Negotiation – Mediation – Arbitration Series (e.g., CPR Model Multi-Step Clause).

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Drafting the Agreement –Summary

Produce a comprehensive agreement to arbitrateProduce a comprehensive agreement to arbitrate

Minimize the risk of costly court detoursMinimize the risk of costly court detours

Obtain an enforceable arbitration awardObtain an enforceable arbitration award

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Statutory Bases forArbitration

Federal Arbitration Act,9 U.S.C. §§1-16

or

Texas General Arbitration Act,Tex. Civ. Prac. & Rem. Code

§§171.001-.098

Statutory Bases for Arbitration

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Humitech Development Corp. v. Perlman, 424 S.W.3d 782(Tex. App. – Dallas 2014, no pet.):

Governing Law. This agreement shall be enforced, governed by and construed inaccordance with the laws of the State of Texas applicable to agreements made and to beperformed entirely within such state, without regard to the principles of conflict of laws.

Overview – Texas General Arbitration Act orFederal Arbitration Act?

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FederalArbitration Act

A written provision in . . . a contract evidencing a transaction involving commerce to settleby arbitration a controversy thereafter arising out of such contract or transaction, or therefusal to perform the whole or any part thereof, or an agreement in writing to submit toarbitration an existing controversy arising out of such a contract, transaction, or refusal,shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or inequity for the revocation of any contract.

FAA – Agreements toArbitrate

Section 2. Validity, irrevocability, and enforcement of agreements to arbitrate

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“[C]ommerce”, as herein defined, means commerce among the several States or withforeign nations, or in any Territory of the United States or in the District of Columbia, orbetween any such Territory and another, or between any such Territory and any State orforeign nation, or between the District of Columbia and any State or Territory or foreignnation, but nothing herein contained shall apply to contracts of employment of seamen,railroad employees, or any other class of workers engaged in foreign or interstatecommerce.

FAA – Agreements toArbitrate (cont’d)

Section 1. “[C]ommerce” defined; exceptions to operation of title

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If in the agreement provision be made for a method of naming or appointing an arbitratoror arbitrators or an umpire, such method shall be followed; but if no method be providedtherein, or if a method be provided and any party thereto shall fail to avail himself of suchmethod, or if for any other reason there shall be a lapse in the naming of an arbitrator orarbitrators or umpire, or in filling a vacancy, then upon the application of either party tothe controversy the court shall designate and appoint an arbitrator or arbitrators orumpire, as the case may require, who shall act under the said agreement with the sameforce and effect as if he or they had been specifically named therein; and unlessotherwise provided in the agreement the arbitration shall be by a single arbitrator.

FAA – Appointmentof Arbitrators

Section 5. Appointment of arbitrators or umpire

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If the parties in their agreement have agreed that a judgment of the court shall be enteredupon the award made pursuant to the arbitration, and shall specify the court, then at anytime within one year after the award is made any party to the arbitration may apply tothe court so specified for an order confirming the award, and thereupon the court mustgrant such an order unless the award is vacated, modified, or corrected as prescribed insections 10 and 11 of this title. . . .

FAA – The ArbitratorAward

Section 9. Award of arbitrators; confirmation; jurisdiction; procedure

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(a) In any of the following cases the United States court in and for the district wherein the award wasmade may make an order vacating the award upon the application of any party to the arbitration–

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 thecontroversy; or of any other misbehavior by which the rights of any party have beenprejudiced; 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.

(b) If an award is vacated and the time within which the agreement required the award to be made hasnot expired, the court may, in its discretion, direct a rehearing by the arbitrators.

* * *

FAA – Post-HearingSection 10. Same; vacation; grounds; rehearing

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In either of the following cases the United States court in and for the district wherein theaward was made may make an order modifying or correcting the award upon theapplication of any party to the arbitration –

a) Where there was an evident material miscalculation of figures or an evident material mistakein 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 amatter 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.

* * *

FAA – Post-HearingSection 11. Same; modification or correction; grounds; order

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(a) An appeal may be taken from--(1) an order--

(A) refusing to stay [litigation],(B) denying a petition to [compel] arbitration,

* * *(D) granting or denying confirmation of an award or partial award, or(E) modifying, correcting, or vacating an award;

(2) an interlocutory order granting, continuing, or modifying an injunction against an arbitration that is subject tothis title;or(3) a final decision with respect to an arbitration that is subject to this title.

(b) [generally] an appeal may not be taken from an interlocutory order--(1) granting a stay of [litigation];(2) compelling arbitration;

* * *(4) refusing to enjoin an arbitration that is subject to this title.

FAA – Post-HearingSection 16. Appeals

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Texas ArbitrationAct

Sec. 171.001. ARBITRATION AGREEMENTS VALID.

(a) A written agreement to arbitrate is valid and enforceable if the agreement is to arbitrate acontroversy that:

(1) exists at the time of the agreement; or(2) arises between the parties after the date of the agreement.

(b) A party may revoke the agreement only on a ground that exists at law or in equityfor the revocation of a contract.

CIVIL PRACTICE AND REMEDIES CODETITLE 7. ALTERNATE METHODS OF DISPUTE RESOLUTIONCHAPTER 171. GENERAL ARBITRATION

Subchapter A. General Provisions

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Sec. 171.021. PROCEEDING TO COMPEL ARBITRATION.

(a) A court shall order the parties to arbitrate on application of a party showing:(1) an agreement to arbitrate; and(2) the opposing party's refusal to arbitrate.

(b) If a party opposing an application made under Subsection (a) denies the existence of the agreement, the court shallsummarily determine that issue. The court shall order the arbitration if it finds for the party that made theapplication. If the court does not find for that party, the court shall deny the application.

(c) An order compelling arbitration must include a stay of any proceeding subject to Section 171.025.

Sec. 171.022. UNCONSCIONABLE AGREEMENTS UNENFORCEABLE.A court may not enforce an agreement to arbitrate if the court finds the agreement was unconscionable at the time theagreement was made.


Subchapter B. Proceedings to Compel or Stay Arbitration

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Sec. 171.041. APPOINTMENT OF ARBITRATORS.

(a) The method of appointment of arbitrators is as specified in the agreement to arbitrate.(b) The court, on application of a party stating the nature of the issues to be arbitrated and the qualifications of the proposed

arbitrators, shall appoint one or more qualified arbitrators if:(1) the agreement to arbitrate does not specify a method of appointment;(2) the agreed method fails or cannot be followed; or(3) an appointed arbitrator fails or is unable to act and a successor has not been appointed.

(c) An arbitrator appointed under Subsection (b) has the powers of an arbitrator named in the agreement to arbitrate.

Sec. 171.042. MAJORITY ACTION BY ARBITRATORS.

The powers of the arbitrators are exercised by a majority unless otherwise provided by the agreement to arbitrate or this chapter.


Subchapter C. Arbitration

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Sec. 171.043. HEARING CONDUCTED BY ARBITRATORS.

(a) Unless otherwise provided by the agreement to arbitrate, all the arbitrators shall conduct the hearing. A majority of thearbitrators may determine a question and render a final award.

(b) If, during the course of the hearing, an arbitrator ceases to act, one or more remaining arbitrators appointed to act as neutralarbitrators may hear and determine the controversy.

Sec. 171.044. TIME AND PLACE OF HEARING; NOTICE.

(a) Unless otherwise provided by the agreement to arbitrate, the arbitrators shall set a time and place for the hearing and notifyeach party.

(b) The notice must be served not later than the fifth day before the hearing either personally or by registered or certified mailwith return receipt requested. Appearance at the hearing waives the notice.

(c) The court on application may direct the arbitrators to proceed promptly with the hearing and determination of thecontroversy.


Subchapter C. Arbitration (cont’d)

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Sec. 171.050. DEPOSITIONS.(a) The arbitrators may authorize a deposition:

(1) for use as evidence to be taken of a witness who cannot be required by subpoena to appear before the arbitrators or who is unable to attendthe hearing; or

(2) for discovery or evidentiary purposes to be taken of an adverse witness.

(b) A deposition under this section shall be taken in the manner provided by law for a deposition in a civil action pending in a district court.

Sec. 171.051. SUBPOENAS.(a) The arbitrators, or an arbitrator at the direction of the arbitrators, may issue a subpoena for:

(1) attendance of a witness; or(2) production of books, records, documents, or other evidence.

(b) A witness required to appear by subpoena under this section may appear at the hearing before the arbitrators or at a deposition.(c) A subpoena issued under this section shall be served in the manner provided by law for the service of a subpoena issued in a civil action pending in a

district court.(d) Each provision of law requiring a witness to appear, produce evidence, and testify under a subpoena issued in a civil action pending in a district court

applies to a subpoena issued under this section.


Subchapter C. Arbitration (Cont’d)

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Sec. 171.086. ORDERS THAT MAY BE RENDERED.

(a) Before arbitration proceedings begin, in support of arbitration a party may file an application for a court order, including an order to:(1) invoke the jurisdiction of the court over the adverse party and to effect that jurisdiction by service of process on the party before arbitration proceedings

begin;(2) invoke the jurisdiction of the court over an ancillary proceeding in rem, including by attachment, garnishment, or sequestration, in the manner and subject to

the conditions under which the proceeding may be instituted and conducted ancillary to a civil action in a district court;(3) restrain or enjoin:

(A) the destruction of all or an essential part of the subject matter of the controversy; or

(B) the destruction or alteration of books, records, documents, or other evidence needed for the arbitration;

(4) obtain from the court in its discretion an order for a deposition for discovery, perpetuation of testimony, or evidence needed before the arbitrationproceedings begin;

(5) appoint one or more arbitrators so that an arbitration under the agreement to arbitrate may proceed; or

(6) obtain other relief, which the court can grant in its discretion, needed to permit the arbitration to be conducted in an orderly manner and to preventimproper interference or delay of the arbitration.


Subchapter D. Court Proceedings

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Sec. 171.087. CONFIRMATION OF AWARD.Unless grounds are offered for vacating, modifying, or correcting an award under Section 171.088 or 171.091, the court, on application of a party, shall confirm the award.

Sec. 171.088. VACATING AWARD.(a) On application of a party, the court shall vacate an award if:

(1) the award was obtained by corruption, fraud, or other undue means;(2) the rights of a party were prejudiced by:

(A) evident partiality by an arbitrator appointed as a neutral arbitrator;(B) corruption in an arbitrator; or(C) misconduct or wilful misbehavior of an arbitrator;

(3) the arbitrators:

(A) exceeded their powers;(B) refused to postpone the hearing after a showing of sufficient cause for the postponement;(C) refused to hear evidence material to the controversy; or(D) conducted the hearing, contrary to Section 171.043, 171.044, 171.045, 171.046, or 171.047, in a manner that substantially prejudiced the rights of a party; or

(4) there was no agreement to arbitrate, the issue was not adversely determined in a proceeding under Subchapter B, and the party did not participate in the arbitration hearingwithout raising the objection.

(b) A party must make an application under this section not later than the 90th day after the date of delivery of a copy of the award to the applicant. A party must make an application underSubsection (a)(1) not later than the 90th day after the date the grounds for the application are known or should have been known.

(c) If the application to vacate is denied and a motion to modify or correct the award is not pending, the court shall confirm the award.

CIVIL PRACTICE AND REMEDIES CODETITLE 7. ALTERNATE METHODS OF DISPUTE RESOLUTIONCHAPTER 171. GENERAL ARBITRATIONSubchapter D. Court Proceedings (Cont’d)

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Sec. 171.091. MODIFYING OR CORRECTING AWARD.

(a) On application, the court shall modify or correct an award if:

(1) the award contains:

(A) an evident miscalculation of numbers; or

(B) an evident mistake in the description of a person, thing, or property referred to in the award;

(2) the arbitrators have made an award with respect to a matter not submitted to them and the award may be corrected without affecting the merits of thedecision made with respect to the issues that were submitted; or

(3) the form of the award is imperfect in a manner not affecting the merits of the controversy.

(b) A party must make an application under this section not later than the 90th day after the date of delivery of a copy of the award to the applicant.

(c) If the application is granted, the court shall modify or correct the award to effect its intent and shall confirm the award as modified or corrected.If the application is not granted, the court shall confirm the award.

(d) An application to modify or correct an award may be joined in the alternative with an application to vacate the award.

CIVIL PRACTICE AND REMEDIES CODETITLE 7. ALTERNATE METHODS OF DISPUTE RESOLUTIONCHAPTER 171. GENERAL ARBITRATIONSubchapter D. Court Proceedings (Cont’d)

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Arbitration Rules

Administered Arbitration Rules

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CPR Rules

5.1 a. Unless the parties have agreed otherwise in writing, the Tribunal shall consist of three arbitrators, one designated forappointment by each of the parties as provided in Rules 3.2 and 3.7 respectively, and a third who shall chair the Tribunal,selected as provided in Rule 5.2.

b. Unless otherwise agreed, any arbitrator not designated for appointment by a party shall be a member of the CPR Panels ofDistinguished Neutrals (“CPR Panels”). Upon request, CPR will provide a list of candidates from the CPR Panels in accordancewith the Rules.

c. Where a party has designated an arbitrator for appointment, CPR will query such candidate for their availability and requestthat the candidate disclose in writing any circumstances that might give rise to justifiable doubt regarding the candidate’sindependence or impartiality as provided in Rule 7. Upon receipt, CPR shall circulate any disclosures made to the parties, and,within 10 days after receipt of that candidate’s disclosures, a party may object to the appointment of any candidate on grounds oflack of independence or impartiality by written and reasoned notice to CPR, with a copy to the other party. CPR shall decide theobjection after providing the non-objecting party with an opportunity to comment on the objection. If there is no objection to thecandidate, or if the objection is overruled by CPR, CPR shall appoint the candidate as a party-appointed arbitrator, and anysubsequent challenges of that arbitrator, based on circumstances subsequently learned, shall be made and decided inaccordance with the procedures set forth in Rules 7.6 - 7.8. At its discretion, CPR may decide an objection made under this Rule5.1(c) by referring it to a Challenge Review Committee pursuant to the CPR Challenge Protocol (excluding its fee requirement).

Section 5: Selection ofArbitrator(s) by the Parties

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CPR Rules

8.1 The Tribunal shall have the power to hear and determine challenges to its jurisdiction, including any objections with respect tothe existence, scope or validity of the arbitration agreement.

8.2 The Tribunal shall have the power to determine the existence, scope or validity of the contract of which an arbitration clauseforms a part. For the purpose of challenges to the jurisdiction of the Tribunal, the arbitration clause shall be considered asseparable from any contract of which it forms a part.

8.3 Any challenges to the jurisdiction of the Tribunal, except challenges based on the award itself, shall be made no later than thenotice of defense or, with respect to a counterclaim, the reply to the counterclaim; provided, however, that if a claim orcounterclaim is later added or amended, a challenge to jurisdiction over such claim or counterclaim must be made not later thanthe response to such claim or counterclaim as provided under these Rules.

Section 8: Challenges to theJurisdiction of the Tribunal

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CPR Rules

10.1 The Tribunal shall apply the substantive law(s) or rules of law designated by the parties as applicable to the dispute. Failingsuch a designation by the parties, the Tribunal shall apply such law(s) or rules of law as it determines to be appropriate.

10.2 Subject to Rule 10.1, in arbitrations involving the application of contracts, the Tribunal shall decide in accordance with theterms of the contract and shall take into account usages of the trade applicable to the contract.

10.3 The Tribunal may grant any remedy or relief, including but not limited to specific performance of a contract, which is withinthe scope of the agreement of the parties and permissible under the law(s) or rules of law applicable to the dispute.

10.4 The Tribunal may award such pre-award and post-award interest, simple or compound, as it considers appropriate, takinginto consideration the contract and applicable law.

Rule 10: Applicable Law(s) andRemedies

57

CPR Rules

The Tribunal may require and facilitate such discovery as it shall determine is appropriate in the circumstances, taking intoaccount the needs of the parties and the desirability of making discovery expeditious and cost-effective. The Tribunal may issueorders to protect the confidentiality of proprietary information, trade secrets and other sensitive information disclosed in discovery.

Rule 11: Discovery

58

CPR Rules

12.1 The Tribunal shall determine the manner in which the parties shall present their cases. Unless otherwise determined by the Tribunal oragreed by the parties, the presentation of a party’s case shall include the submission of a pre-hearing memorandum including the followingelements:

a. A statement of facts;b. A statement of each claim being asserted;c. A statement of the applicable law and authorities upon which the party relies;d. A statement of the relief requested, including the basis for any damages claimed; ande. A statement of the nature and manner of presentation of the evidence, including the name, capacity and subject of testimony of anywitnesses to be called and an estimate of the amount of time required for each witness’s direct testimony.

12.2 If either party so requests or the Tribunal so directs, a hearing shall be held for the presentation of evidence and oral argument. Testimonymay be presented in written and/or oral form as the Tribunal may determine is appropriate. The Tribunal is not required to apply any rules ofevidence used in judicial proceedings, provided, however, that the Tribunal shall apply any lawyer-client privilege and work product immunity itdeems applicable. The Tribunal shall determine the applicability of any privilege or immunity and the admissibility, relevance, materiality andweight of theevidence offered.

12.3 The Tribunal, in its discretion, may require the parties to produce evidence in addition to that initially offered. It may also appoint neutralexperts whose testimony shall be subject to cross-examination and rebuttal.

12.4 The Tribunal shall determine the manner in which witnesses are to be examined. The Tribunal shall have the right to exclude witnessesfrom hearings during the testimony of other witnesses

Rule 12: Evidence and Hearings

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CPR Rules

13.1 At the request of a party, the Tribunal may take such interim measures as it deems necessary, including measures for thepreservation of assets, the conservation of goods or the sale of perishable goods. The Tribunal may require appropriate securityas a condition of ordering such measures.

13.2 A request for interim measures by a party to a court shall not be deemed incompatible with the agreement to arbitrate or as awaiver of that agreement.

Rule 13: Interim Measures ofProtection

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CPR Rules

15.1 The Tribunal may make final, interim, interlocutory and partial awards. With respect to any interim, interlocutory or partialaward, the Tribunal may state in its award whether or not it views the award as final for purposes of any judicial proceedings inconnection therewith.

15.2 All awards shall be in writing and shall state the reasoning on which the award rests unless the parties agree otherwise. Theaward shall be deemed to be made at the seat of arbitration and shall contain the date on which the award was made. Whenthere are three arbitrators, the award shall be made and signed by at least a majority of the arbitrators.

15.3 A member of the Tribunal who does not join in an award may issue a dissenting opinion. Such opinion shall not constitutepart of the award.

15.4 Prior to execution of any award, the Tribunal shall send a copy of the award in draft form to CPR for a limited review forformat, clerical, typographical or computational errors, or any errors of a similar nature in the award. CPR shall promptly reviewsuch award, and suggest any corrections to the Tribunal.

15.5 Thereafter as soon as possible, but in no event more than 3 days, the Tribunal shall deliver executed copies of the awardand of any dissenting opinion to CPR, which shall promptly deliver the award and any dissenting opinion to the parties providedno fees, expenses and other charges incurred in accordance with the Schedule of Administered Arbitration Costs are outstanding.

Rule 15: The Award

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CPR Rules

15.6 Within 15 days after receipt of the award, either party, with notice to the other party and CPR, may request the Tribunal to clarify the award; to correct anyclerical, typographical or computational errors, or any errors of a similar nature in the award; or to make an additional award as to claims or counterclaimspresented in the arbitration but not determined in the award. The Tribunal shall make any clarification, correction or additional award requested by either partythat it deems justified within 30 days after receipt of such request. Within 15 days after delivery of the award to the parties or, if a party requests a clarification,correction or additional award, within 30 days after receipt of such request, the Tribunal may make such corrections and additional awards on its own initiativeas it deems appropriate. All clarifications, corrections, and additional awards shall be in writing, shall be submitted directly to CPR by the Tribunal for deliveryby CPR to the parties, and the provisions of this Administered Rule 15 shall apply to them.

15.7 The award shall be final and binding on the parties, and the parties will undertake to carry out the award without delay. If an interpretation, correction oradditional award is requested by a party, or a correction or additional award is made by the Tribunal on its own initiative as provided in Administered Rule15.6, the award shall be final and binding on the parties when such clarification, correction or additional award is issued by CPR or upon the expiration of thetime periods provided in Administered Rule 15.6 for such clarification, correction or additional award to be made, whichever is earlier.

15.8 (a) The dispute should in most circumstances be submitted to the Tribunal for decision within six months after the initial pre-hearing conference requiredby Administered Rule 9.3. The final award should in most circumstances be submitted by the Tribunal to CPR within 30 days after the close of the hearing andthereafter CPR should render the award to the parties promptly. The Tribunal and CPR shall use their best efforts to comply with this schedule.

(b) CPR must approve any scheduling orders or extensions that would result in a final award being rendered more than 12 months after the initial pre-hearing conference required by Administered Rule 9.3. When such approval is required, CPR in its discretion may convene a call with the parties andarbitrators to discuss factors relevant to such request.

Rule 15: The Award (Cont’d)

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CPR Rules

Unless the parties agree otherwise, the parties, the arbitrators and CPR shall treat the proceedings, any related discovery and thedecisions of the Tribunal, as confidential, except in connection with judicial proceedings ancillary to the arbitration, such as ajudicial challenge to, or enforcement of, an award, and unless otherwise required by law or to protect a legal right of a party. Tothe extent possible, any specific issues of confidentiality should be raised with and resolved by the Tribunal.

Rule 20: Confidentiality

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Post-HearingProcess

In a matter subject to the Federal Arbitration Act (9 U.S.C.§ § 1, et seq.), a person may take an appeal or writ oferror to the court of appeals from the judgment orinterlocutory order of a district court, county court at law,or county court under the same circumstances that anappeal from a federal district court's order or decisionwould be permitted by 9 U.S.C. § 16.

Added by Acts 2009, 81st Leg., R.S., Ch. 820 (S.B. 1650),Sec. 1, eff. September 1, 2009.

Appeal Arising Under Federal Arbitration ActTex. Civ. Prac. & Rem. Code § 51.016:

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Notwithstanding any language in the contract to the contrary, the parties agree thatthe Award may be appealed pursuant to the AAA’s Optional Appellate ArbitrationRules (the “Appellate Rules”); that the Award rendered by the arbitrator(s) shall, at aminimum, be a reasoned award; and that the Award shall not be considered final untilafter the time for filing the notice of appeal pursuant to the Appellate Rules hasexpired.Appeals must be initiated within thirty (30) days of receipt of an Award, as defined byRule A-3 of the Appellate Rules, by filing a Notice of Appeal with any AAA office.Following the appeal process the decision rendered by the appeal tribunal may beentered in any court having jurisdiction thereof... .


The Post-Hearing Process –Possible Arbitration Clause:

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CPR Appellate Arbitration Rules

Rule 1. Scope of Application

1.1. The parties to any binding arbitration conducted in the United States, pursuant to CPR Rules for Non-Administered Arbitration (“CPR Arbitration Rules”) or otherwise, may agree in writing that a party may file anappeal (the "Appeal") under the CPR Arbitration Appeal Procedure (the "Appeal Procedure") from an arbitrationaward (the "Original Award").

1.2 The appeal shall be to a CPR Arbitration Appeal Tribunal (the "Tribunal") chosen from the panel constituted byCPR to hear Appeals (the "Panel"), consisting of former federal judges.

1.3 No appeal may be filed hereunder, unless:

(a) the arbitrator(s) (was) (were) required to reach a decision in compliance with the applicable law and rendered awritten decision setting forth the factual and legal bases of the award; and

(b) there is a record (the "Record") that includes all hearings and all evidence (including exhibits, deposition transcripts,affidavits admitted into evidence) in the arbitration proceeding from which the appeal is taken.

II. Rules of Appeal Procedure

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CPR Appellate Arbitration Rules(Cont’d)

8.2 If the Tribunal hears the Appeal, it may issue an Appellate Award modifying or setting aside the Original Award, butonly on the following grounds:

a. That the Original Award (i) contains material and prejudicial errors of law of such a nature that it doesnot rest upon any appropriate legal basis, or (ii) is based upon factual findings clearly unsupported bythe record; or

b. That the Original Award is subject to one or more of the grounds set forth in Section 10 of the FederalArbitration Act for vacating an award. The Tribunal does not have the power to remand the award.

Rule 8. The Decision

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Ethics Rules(e.g., CPR)

CPR’s Code of Ethics for Arbitrators inCommercial Disputes

CANON I. AN ARBITRATOR SHOULD UPHOLD THE INTEGRITYAND FAIRNESS OF THE ARBITRATION PROCESS.

CANON II. AN ARBITRATOR SHOULD DISCLOSE ANY INTERESTOR RELATIONSHIP LIKELY TO AFFECT IMPARTIALITYOR WHICH MIGHT CREATE AN APPEARANCE OFPARTIALITY.

CANON III. AN ARBITRATOR SHOULD AVOID IMPROPRIETY ORTHE APPEARANCE OF IMPROPRIETY INCOMMUNICATING WITH PARTIES.

CANON IV. AN ARBITRATOR SHOULD CONDUCT THEPROCEEDINGS FAIRLY AND DILIGENTLY.

CANON V. AN ARBITRATOR SHOULD MAKE DECISIONS IN AJUST, INDEPENDENT AND DELIBERATE MANNER.

CANON VI. AN ARBITRATOR SHOULD BE FAITHFUL TO THERELATIONSHIP OF TRUST AND CONFIDENTIALITYINHERENT IN THAT OFFICE.

CANON VII. AN ARBITRATOR SHOULD ADHERE TO STANDARDSOF INTEGRITY AND FAIRNESS WHEN MAKINGARRANGEMENTS FOR COMPENSATION ANDREIMBURSEMENT OF EXPENSES.

CANON VIII. AN ARBITRATOR MAY ENGAGE IN ADVERTISING ORPROMOTION OF ARBITRAL SERVICES WHICH ISTRUTHFUL AND ACCURATE.

CANON IX. ARBITRATORS APPOINTED BY ONE PARTY HAVE ADUTY TO DETERMINE AND DISCLOSE THEIR STATUS ANDTO COMPLY WITH THIS CODE, EXCEPT AS EXEMPTED BYCANON X.

CANON X. EXEMPTIONS FOR ARBITRATORS APPOINTED BY ONEPARTY WHO ARE NOT SUBJECT TO RULES OF NEUTRALITY.

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CANON I. AN ARBITRATOR SHOULD UPHOLD THEINTEGRITY AND FAIRNESS OF THE ARBITRATIONPROCESS.

A. An arbitrator has a responsibility not only to the parties but also to the process of arbitration itself, andmust observe high standards of conduct so that the integrity and fairness of the process will bepreserved. Accordingly, an arbitrator should recognize a responsibility to the public, to the partieswhose rights will be decided, and to all other participants in the proceeding. This responsibility mayinclude pro bono service as an arbitrator where appropriate.

B. One should accept appointment as an arbitrator only if fully satisfied:(1) that he or she can serve impartially;(2) that he or she can serve independently from the parties, potential witnesses, and the

other arbitrators;(3) that he or she is competent to serve; and(4) that he or she can be available to commence the arbitration in accordance with the

requirements of the proceeding and thereafter to devote the time and attention to itscompletion that the parties are reasonably entitled to expect.

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CANON II. AN ARBITRATOR SHOULD DISCLOSE ANYINTEREST OR RELATIONSHIP LIKELY TO AFFECTIMPARTIALITY OR WHICH MIGHT CREATE ANAPPEARANCE OF PARTIALITYA. Persons who are requested to serve as arbitrators should, before accepting, disclose:

1) Any known direct or indirect financial or personal interest in the outcome of the arbitration;2) Any known existing or past financial, business, professional or personal relationships which might reasonably affect

impartiality or lack of independence in the eyes of any of the parties. For example, prospective arbitrators shoulddisclose any such relationships which they personally have with any party or its lawyer, with any co-arbitrator, orwith any individual whom they have been told will be a witness. They should also disclose any such relationshipsinvolving their families or household members or their current employers, partners, or professional or businessassociates that can be ascertained by reasonable efforts;

3) The nature and extent of any prior knowledge they may have of the dispute; and4) Any other matters, relationships, or interests which they are obligated to disclose by the agreement of the parties,

the rules or practices of an institution, or applicable law regulating arbitrator disclosure.

B. Persons who are requested to accept appointment as arbitrators should make a reasonable effort toinform themselves of any interests or relationships described in paragraph A.

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CANON II. AN ARBITRATOR SHOULD DISCLOSE ANYINTEREST OR RELATIONSHIP LIKELY TO AFFECTIMPARTIALITY OR WHICH MIGHT CREATE ANAPPEARANCE OF PARTIALITY (Cont’d)C. The obligation to disclose interests or relationships described in paragraph A is a continuing duty

which requires a person who accepts appointment as an arbitrator to disclose, as soon as practicable,at any stage of the arbitration, any such interests or relationships which may arise, or which arerecalled or discovered.

D. Any doubt as to whether or not disclosure is to be made should be resolved in favor of disclosure.

E. Disclosure should be made to all parties unless other procedures for disclosure are provided in theagreement of the parties, applicable rules or practices of an institution, or by law. Where more thanone arbitrator has been appointed, each should inform the others of all matters disclosed.

F. When parties, with knowledge of a person's interests and relationships, nevertheless desire thatperson to serve as an arbitrator, that person may properly serve.

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CANON II. AN ARBITRATOR SHOULD DISCLOSE ANYINTEREST OR RELATIONSHIP LIKELY TO AFFECTIMPARTIALITY OR WHICH MIGHT CREATE ANAPPEARANCE OF PARTIALITY (Cont’d)G. If an arbitrator is requested by all parties to withdraw, the arbitrator must do so. If an arbitrator is requested to

withdraw by less than all of the parties because of alleged partiality, the arbitrator should withdraw unlesseither of the following circumstances exists:1) An agreement of the parties, or arbitration rules agreed to by the parties, or applicable law establishes procedures

for determining challenges to arbitrators, in which case those procedures should be followed; or2) In the absence of applicable procedures, if the arbitrator, after carefully considering the matter, determines that the

reason for the challenge is not substantial, and that he or she can nevertheless act and decide the case impartiallyand fairly.

H. If compliance by a prospective arbitrator with any provision of this Code would require disclosure ofconfidential or privileged information, the prospective arbitrator should either:1) Secure the consent to the disclosure from the person who furnished the information or the holder of the privilege; or2) Withdraw.

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CANON IV. AN ARBITRATOR SHOULD CONDUCT THEPROCEEDINGS FAIRLY AND DILIGENTLY

A. An arbitrator should conduct the proceedings in an even-handed manner. The arbitrator should be patient andcourteous to the parties, their representatives, and the witnesses and should encourage similar conduct by allparticipants.

B. The arbitrator should afford to all parties the right to be heard and due notice of the time and place of any hearing. Thearbitrator should allow each party a fair opportunity to present its evidence and arguments.

C. The arbitrator should not deny any party the opportunity to be represented by counsel or by any other person chosenby the party.

D. If a party fails to appear after due notice, the arbitrator should proceed with the arbitration when authorized to do so, butonly after receiving assurance that appropriate notice has been given to the absent party.

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CANON VII. AN ARBITRATOR SHOULD ADHERE TOSTANDARDS OF INTEGRITY AND FAIRNESS WHEN MAKINGARRANGEMENTS FOR COMPENSATION ANDREIMBURSEMENT OF EXPENSES

A. Arbitrators who are to be compensated for their services or reimbursed for their expenses shalladhere to standards of integrity and fairness in making arrangements for such payments.

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CANON VIII. AN ARBITRATOR MAY ENGAGE IN ADVERTISINGOR PROMOTION OF ARBITRAL SERVICES WHICH ISTRUTHFUL AND ACCURATE

A. Advertising or promotion of an individual's willingness or availability to serve as an arbitrator mustbe accurate and unlikely to mislead. Any statements about the quality of the arbitrator's work or thesuccess of the arbitrator's practice must be truthful.

B. Advertising and promotion must not imply any willingness to accept an appointment otherwisethan in accordance with this Code.

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CANON IX. ARBITRATORS APPOINTED BY ONE PARTY HAVEA DUTY TO DETERMINE AND DISCLOSE THEIR STATUS ANDTO COMPLY WITH THIS CODE, EXCEPT AS EXEMPTED BYCANON X.

A. In some types of arbitration in which there are three arbitrators, it is customary for each party,acting alone, to appoint one arbitrator. The third arbitrator is then appointed by agreement either ofthe parties or of the two arbitrators, or failing such agreement, by an independent institution orindividual. In tripartite arbitrations to which this Code applies, all three arbitrators are presumed tobe neutral and are expected to observe the same standards as the third arbitrator.

B. Notwithstanding this presumption, there are certain types of tripartite arbitration in which it isexpected by all parties that the two arbitrators appointed by the parties may be predisposedtoward the party appointing them. Those arbitrators, referred to in this Code as Canon Xarbitrators, are not to be held to the standards of neutrality and independence applicable to otherarbitrators. Canon X describes the special ethical obligations of party-appointed arbitrators whoare not expected to meet the standard of neutrality.

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CANON IX. ARBITRATORS APPOINTED BY ONE PARTY HAVEA DUTY TO DETERMINE AND DISCLOSE THEIR STATUS ANDTO COMPLY WITH THIS CODE, EXCEPT AS EXEMPTED BYCANON X. (Cont’d)

C. A party-appointed arbitrator has an obligation to ascertain, as early as possible but not later than the first meetingof the arbitrators and parties, whether the parties have agreed that the party-appointed arbitrators will serve asneutrals or whether they shall be subject to Canon X, and to provide a timely report of their conclusions to theparties and other arbitrators.

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CANON X. EXEMPTIONS FOR ARBITRATORS APPOINTED BYONE PARTY WHO ARE NOT SUBJECT TO RULES OFNEUTRALITY.

Canon X arbitrators are expected to observe all of the ethical obligations prescribed by this Codeexcept those from which they are specifically excused by Canon X.

A. Obligations under Canon ICanon X arbitrators should observe all of the obligations of Canon I subject only to the followingprovisions:

(1) Canon X arbitrators may be predisposed toward the party who appointed them but in all other respects are obligated to act in goodfaith and with integrity and fairness. For example, Canon X arbitrators should not engage in delaying tactics or harassment of anyparty or witness and should not knowingly make untrue or misleading statements to the other arbitrators; and

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Appeals

1. Federal Arbitration Act, 9 USC §10(a):

(a) In any of the following cases the United States court in and for the district wherein the award wasmade may make an order vacating the award upon the application of any party to the arbitration—

(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, uponsufficient 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.

This FAA list is exclusive, Hall Street Assoc. v. Mattel, 552 U.S. 576 (2008). (See n.5, below)

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2. Texas General Arbitration Act:Sec. 171.088. VACATING AWARD.

(a) On application of a party, the court shall vacate an award if:(1) the award was obtained by corruption, fraud, or other undue means;(2) the rights of a party were prejudiced by:

(A) evident partiality by an arbitrator appointed as a neutral arbitrator;(B) corruption in an arbitrator; or(C) misconduct or wilful misbehavior of an arbitrator;

(3) the arbitrators:

(A) exceeded their powers;(B) refused to postpone the hearing after a showing of sufficient cause for the postponement;(C) refused to hear evidence material to the controversy; or(D) conducted the hearing, contrary to Section 171.043, 171.044, 171.045, 171.046, or 171.047, in a manner that substantially prejudiced

the rights of a party; or

(4) there was no agreement to arbitrate, the issue was not adversely determined in a proceeding under Subchapter B, and the party did notparticipate in the arbitration hearing without raising the objection.

(b) A party must make an application under this section not later than the 90th day after the date of delivery of a copy of the award to the applicant. Aparty must make an application under Subsection (a)(1) not later than the 90th day after the date the grounds for the application are known or shouldhave been known.

(c) If the application to vacate is denied and a motion to modify or correct the award is not pending, the court shall confirm the award.

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3. Judge-created:

Manifest disregard of the law (2nd, 4th, 6th and 9th Circuits) Contrary to public policy Irrational Arbitrary and capricious Error on the face of the award

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4. Best Challenges:

Arbitrator exceeded powers/authority (e.g., allowing class arbitration,Stolt-Nielsen v. Animal Feed Int’l, 559 U.S. 662 (2010))

Deciding issues not submitted or granting relief beyond the claims alleged Award relief for or against non-signatories to the arbitration agreement Award relief (e.g., consequential or punitive dames, interest, attorneys’ fees)

prohibited by, or not provided for in, the arbitration agreement or not allowed by law Ordering the parties to do something illegal Vague Award

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5. Beech Street Corp. v. Baylor Health Care System,No. 05-12-01671-CV, 2014 Tex. App. LEXIS 8244(Tex. App. – Dallas Jul. 29, 2014, pet. filed):

[I]t is well-settled that a mistake of law or fact is not sufficient to vacate an award. “FAA does not preempt any common-law grounds that might exist to vacate an award under the TAA.” Humitech Dev.

Corp. v. Perlman, 424 S.W.3d 782, 791 (Tex. App. – Dallas 2014, no pet.). “Manifest disregard is a federal common-law doctrine. Action Box Co., Inc. v. Panel Prints, Inc., 130 S.W.3d 249, 252

(Tex. App. – Houston [14th Dist.] 2004, no pet.); Int'l Bank of Commerce-Brownsville v. Int'l Energy Dev. Corp., 981S.W.2d 38, 48 (Tex. App. – Corpus Christi 1998, pet. denied).

The doctrine, where applicable, requires a showing that the arbitrator, "knowing the law and recognizing that the lawrequired a particular result, simply disregarded the law." Humitech Dev, 424 S.W.3d at 795 (citing Xtria L.L.C. v. Int'l. Ins.Alliance, Inc., 286 S.W.3d 583, 594 (Tex. App.—Texarkana 2009, pet. denied)).

Gross mistake is a Texas common-law doctrine conceptually analogous to manifest disregard. To show "gross mistake" a party must show an error that implies "bad faith" or failure to exercise "honest judgment" and

results in a decision that is arbitrary and capricious. A decision, no matter how erroneous, that is made after honestconsideration of conflicting claims is not arbitrary or capricious. Id.

Assuming the common-law doctrines of "manifest disregard" and "gross mistake" are valid grounds for vacating anarbitration award under the TAA, we conclude Beech Street has not shown the trial court should have vacated the award.

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6. Practice Point: Parties submit form of award beingsought; submit prior to closing; clearly articulate issues forresolution

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Some Case Law to Consider

RecentDevelopments

Non-signatory orderedto arbitration; broadform clauseAntonio Leonard TNT Productions, LLC v.Goossen-Tutor Promotions, LLC, No. H-13-3486,2015 U.S. Dist. LEXIS 6554 (S.D. Tex. Jan. 21,2015)

Recent DevelopmentsFederal Cases –

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Binding third party toarbitration clausedeniedZinante v. Drive Electric, LLC, No. 14-20072, 582Fed. Appx. 368; 2014 U.S. App. LEXIS 17800 (5thCir. Sept. 16, 2014)


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Motion to compelarbitration deniedUSHealth Group, Inc. v. South, No. 4:14-CV-757-A, consol. with No. 4:14-CV-758-A and No. 4:14-CV-759-A, 2015 U.S. Dist. LEXIS 13510 (N.D. Tex.Feb. 4, 2015)


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Motion to compelarbitrationSazy v. DePuy Spine, LLC, C.A. No. 3:13-CV-4379-L, 2014 U.S. Dist. LEXIS 130793(N.D. Tex. Sept. 18, 2014)


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Award – Cross-Motionsto confirm and vacateGroup 32 Development & Engineering, Inc. v. GCBarnes Group, LLC, No. 3:14-CV-2436-B, 2015U.S. Dist. LEXIS 3200 (N.D. Tex. Jan. 9, 2015)


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Award – Vacatur

BNSF Railway Co. v. Alstom Transportation, Inc.,No. 13-11274, 2015 U.S. App. LEXIS 1869 (5thCir. Feb. 5, 2015)


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Award – Cross-Motionsto confirm/vacateAP Seating USA, LLC v. Circuit of the AmericasLLC, No. A-14-CA-058-SS, 2014 U.S. Dist. LEXIS93640 (W.D. Tex. July 10, 2014)


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Arbitration Agreement– Broad/narrowclausesZaporozhets v. Court Appointed Receiver, No. 14-14-00143-CV, 2014 Tex. App. LEXIS 11332 (Tex.App. – Houston [14th Dist.] Oct. 14, 2014, no pet.)

Recent DevelopmentsState Cases –

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Motion to compelArbitration deniedBoston Financial Institutional Tax Credits XII v.Paseo Plaza Apartments, L.P., No. 13-14-00295-CV, 2015 Tex. App. LEXIS 775 (Tex. App. – CorpusChristi Jan. 29, 2015, no pet. h.)


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Direct benefitsestoppel to compelarbitration deniedENGlobal U.S., Inc. v. Gatlin, 449 S.W.3d 269(Tex. App. – Beaumont Nov. 6, 2014)


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Motion to CompelarbitrationValli Construction, Inc., v. Alvites ConcreteServices, No. 13-13-00295-CV, 2014 Tex. App.LEXIS 13820 (Tex. App. – Corpus Christi Dec. 30,2014)


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Waiver of arbitration

Ruth v. Crow, No. 11-14-00102-CV, 2015 Tex. App.LEXIS 1121 (Tex. App. – Eastland Feb, 5, 2015)


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Waiver of Arbitration

Richmont Holdings, Inc. v. Superior RechargeSystems, LLC, No. 13-0907, 2014 Tex. LEXIS1211 (Tex. Dec. 19, 2014)


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Scope of arbitrableclaims – Motion toCompelBBVA Compass Investment Solutions, Inc. v.Brooks, No. 02-13-00047-CV, 2015 Tex. App.LEXIS 1431 (Tex. App. – Fort Worth Feb. 12, 2015,no pet. h.)


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Compel arbitration;unconscionabilityLDF Construction, Inc. v. Texas Friends of ChabadLubavitch, Inc., No. 14-14-00113-CV, 2015 Tex.App. LEXIS 2111 (Tex. App. – Houston [14th Dist.]March 5, 2015, no pet.h.)


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Scope of arbitrator’sauthoritySchuster v. Wild, No. 13-13-00474-CV, 2015 Tex.App. LEXIS 311 (Tex. App. – Corpus Christi Jan.15, 2015)


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Questions

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