Texas Appellate Lawyer & Attorney : D. Todd Smith Law Firm : Appeals, Sanctions, Summary Judgment : Austin, Texas

The Texas Supreme Court decided six cases and issued one substituted opinion with this week's orders.  Briefly, the new decisions are:

• First American Title Insurance Co. v. Combs (No. 05-0541), affirming the Comptroller's interpretation of a retaliatory tax statute affecting foreign insurers.
  
  
• In re McAllen Medical Center (No. 05-0892) (orig. proceeding), holding that appellate courts may review the adequacy of expert reports required by the Medical Liability Act when the statute's purposes would otherwise be defeated.  The Court conditionally granted the writ and ordered the trial court to dismiss the plaintiffs' claims against the hospital.
  
  
• Canyon Regional Water Authority v. Guadalupe-Blanco River Authority (No. 06-0873), deciding a state water authority's easement rights involving a lake.
  
  
• In re Citigroup Global Markets, Inc. (No. 06-0886) (orig. proceeding) (per curiam), concluding that removing a case to federal court before filing an answer did not waive the defendants' right to arbitration.  Compare Perry Homes v. Cull (No. 05-0882), previously discussed here.
  
  
• Higgins v. Randall County Sheriff's Office (No. 06- 0917), holding that an uncontested affidavit of indigence entitled the appellant to pursue his appeal without advance payment of costs.
  
  
• City of Dallas v. Reed (No. 07-0469) (per curiam), determining that a two-inch variance between traffic lanes was neither a special defect nor a premises defect for purposes of the Tort Claims Act.

I expect we'll see some lively discussion of McAllen Medical Center, Citigroup, and Reed in the coming days.

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The Texas Supreme Court issued one new decision and one substituted opinion with this week's regular Friday orders.

In Perry Homes, a Joint Venture v. Cull (No.  05-0882), the Court held that the plaintiffs waived their right to arbitration by substantially invoking the litigation process, including "request[ing] hundreds of items of merits-based information and conduct[ing] months of discovery under the rules of court" before changing their minds "only four days before the trial setting . . . and decid[ing] they would prefer to arbitrate after all."  The Court vacated an $800,000 arbitration award and "remanded the case to the trial court for a prompt trial."

This is a significant decision that warrants further study and analysis.  I will likely post about it further when time permits.

In Igal v. Brightstar Information Technology Group, Inc. (No. 04-0931), the Court withdrew its December 7, 2007 opinion, substituted a new one in its place, and denied the parties' motions for rehearing.  The votes and the result remain the same.

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The blogosphere has been a little slow catching on to yesterday's SCOTUS decision in Hall Street Associates, L.L.C. v. Mattel, Inc. (06-989).  Aside from my own post, here are the blog entries I have found discussing the case:

• Adjunct Law Prof Blog, which opines that parties to a collective bargaining agreement can still alter the standard of judicial review because they are governed by 29 U.S.C. § 1985 (Section 301) and common law, rather than the FAA.
  
• Blawgletter, which surmises that the decision might re-focus attention on the arbitration process itself and mentions that parties who remain concerned about an arbitrator "going off the reservation" might consider adopting an arbitration appeal procedure.
  
• Federal Civil Practice Bulletin, which summarizes the majority opinion.
  
• Northwest Business Litigation Blog, which does the same.
  
• SCOTUSwiki, which has a lot of background information on the case.
  
• Supreme Court of Texas Blog, which focuses on how the case may affect Bison Building Materials, Ltd. v. Aldridge (No. 06-1084), a case currently pending in the Texas Supreme Court—and rightly points out that Hall Street may be flying under the radar because it was issued the same day as "the much sexier Medellin v. Texas decision."
  
• WorkPlace Prof Blog, which found the outcome surprising and somewhat troubling because it might restrict contracting parties' ability to bargain for procedural protections not specifically addressed in the FAA.

I will supplement this list as new discussions come to my attention.

3/27/08 update with additional links:

• ADR Prof Blog
• ADR Prof Blog (follow-up)
• Disputing
• LawMemo Arbitration Blog
• National Arbitration Forum Blog

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In Hall Street Associates, L.L.C. v. Mattel, Inc. (06-989) (previously discussed here), the U.S. Supreme Court has held that a contract purporting to allow judicial review of an arbitration award for evidentiary and legal errors cannot be enforced under the Federal Arbitration Act.

Although this decision shutters the notion that parties can contract for expanded judicial review under the FAA, it does not preclude enforcement of such agreements under state law.  The key is whether the underlying agreement "involves commerce"—something the Hall Street parties did not litigate—and thereby triggers the federal statute.  Thus, in an effort to preserve existing agreements for enhanced review, parties will contend that state arbitration law applies.  Going forward, contracting parties will more likely turn to "arbitration appellate panels," building a level of review into the arbitration process before reaching any potential judicial remedies.

In vehemently defending the narrow statutory bases for vacating arbitration awards, Hall Street muddies the water with respect to whether judicially created vacatur grounds such as "manifest disregard of the law" and "violation of public policy" remain valid.  Those grounds were not squarely at issue—manifest disregard is mentioned in the majority opinion, but public policy is not—yet the Court describes the FAA bases for vacatur and modification as "exclusive."  Federal and state courts applying the FAA will face these issues in the near future.

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The U.S. Supreme Court heard argument in a particularly interesting and (I think) important case today.  In Hall Street Associates, L.L.C. v. Mattel, Inc. (06-989), the Court will decide whether contracting parties may agree to expand the grounds for vacating arbitration awards beyond those recognized under the Federal Arbitration Act.  The Fifth Circuit and others have said yes—see Gateway Techs., Inc. v. MCI Telecomms. Corp., 64 F.3d 993 (5th Cir. 1995)—but the Ninth Circuit disagreed.  The merits briefs, amicus briefs, and a transcript of the argument are available here.

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The Texas Supreme Court issued four opinions with this week's orders.

In In re U.S. Home Corp. (No. 03-1080) (per curiam), a dispute between a homebuilder and purchasers, the Court conditionally granted mandamus relief from a trial court order refusing to compel arbitration, holding that no evidence supported any of the asserted defenses to enforcement of the arbitration clause.  The Court declined the defendants' invitation to reverse the trial court's class certification order because the court of appeals had not yet ruled on that request.

Answering certified questions from the Fifth Circuit in Mid-Continent Insurance Co v. Liberty Mutual Insurance Co. (No. 05-0261), the Court held under the facts of the case that one insurer owed a second insurer no duty (directly or by subrogation) to compensate the second insurer for paying more than its proportionate share of a settlement to which both contributed.  Justice Willett delivered a concurring opinion providing his additional thoughts on why Texas law should not recognize such a claim.

In In re SCI Texas Funeral Services, Inc. (06-0385) (per curiam), the Court conditionally granted mandamus relief from discovery and sanctions orders in a putative class action because the court of appeals' reversal of class certification "render[ed] the class-wide discovery superfluous and the class-wide sanctions incongruous."

In BFI Waste Systems of North America, Inc. v. North Alamo Water Supply Corp. (No. 06-0602) (per curiam), the Court denied both petitions for review, but indicated that the court of appeals (in footnote 6 of its opinion) had improperly commented on the validity of a discharge permit, an issue not before that court.  The supreme court agreed with petitioners' argument that the court of appeals' comments should not prejudice future litigation over the discharge permit.

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The Texas Supreme Court ended its summer recess with a bang by issuing seven opinions today.

In In re H&R Block Financial Advisors, Inc., the per curiam Court conditionally granted mandamus relief from a trial court's order refusing to stay the plaintiffs' lawsuit in light of an arbitration clause.  The Court rejected the plaintiffs' attempts to avoid arbitration with their investment advisor and his firm over Enron-related losses because the firm had changed its name and because the advisor did not sign the investment agreements in his personal capacity.

In In re Merrill Lynch Trust Co., the Court conditionally granted mandamus relief and compelled arbitration against employees of the entity with whom plaintiffs agreed to arbitrate, but not affiliates of that entity.  With respect to the employee, the Court reasoned that the substance of plaintiffs' lawsuit was against the signatory, even though it was not named as a party, and that the signatory would be liable for the employee's torts.  Regarding the affiliates, the Court rejected "an estoppel theory based on substantially interdependent and concerted misconduct" as a basis for imposing an obligation to arbitrate upon a nonsignatory, even though the case was governed by the Federal Arbitration Act and the Fifth Circuit has recognized such a theory.  Justice Hecht (joined by Justice Medina and in part by Justice O'Neill) and Justice Johnson (joined by Justice Wainwright) each issued opinions concurring and dissenting.

In Energy Service Co. v. Superior Snubbing Services, Inc., the Court held that a Worker's Compensation-subscribing employer's agreement to indemnify a person and that person's contractors was an agreement with the contractors for purposes of the Worker's Compensation Act, as amended in 1989.  Justice Johnson (joined by Justices Wainwright, Green, and Willet) dissented.

In Fort Worth Independent School District v. Service Employment Redevelopment, the per curiam Court continued the trend of remanding breach-of-contract cases against governmental entities to allow plaintiffs to argue that the legislature waived sovereign immunity under new Sections 271.151-.160 of the Local Government Code.

In Gaines v. Kelly, a no-evidence summary judgment case, the Court held that the borrower/plaintiff presented no evidence that a mortgage broker had apparent authority to bind a lender and therefore rendered judgment that the plaintiff take nothing on the borrower's claim against the lender based on the mortgage broker's alleged misrepresentations.

In In re Kaplan Higher Education Corp., the per curiam Court conditionally granted mandamus relief from a trial court's order refusing to compel arbitration under an agreement between a vocational college and 45 of its students, even though the students had dropped their direct claims against the college and were asserting claims against only the president and admissions director, because the substance of the action was fraudulent inducement and because the college would have been liable for the judgment under the Education Code and common law.

The following statement from Elledge v. Friberg-Cooper Water Supply Corp. (per curiam) says it all:  "We reject the court of appeals' 'obiter dictum' label.  Our statements that the two-year statute [of limitations, rather than the four-year statute] applies to unjust enrichment claims, though not essential to the outcomes in HECI [Exploration Co. v. Neel, 982 S.W.2d 881 (Tex. 1998)] and Wagner & Brown, [Ltd. v. Horwood, 58 S.W.3d 732 (Tex. 2001)], should have been followed."

Ouch!

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In AXA Financial, Inc. v. Roberts, a consolidated interlocutory appeal and mandamus proceeding previously discussed here, the Third Court of Appeals has turned away efforts to compel arbitration under both the Texas and federal statutes.  The court first held that it lacked jurisdiction over the interlocutory appeal because the notice of appeal was not filed timely (within 20 days of the district court's order denying the motion to compel arbitration) and because a "motion to reconsider" neither extended the appellate timetable nor qualified as an independently appealable order.  Considering the mandamus petition, the court of appeals concluded that the relator failed to establish the existence of an arbitration agreement covering the dispute and that the district court acted within its discretion in refusing to consider "new" evidence submitted with the motion to reconsider.

This opinion contains a good summary of Texas arbitration law, particularly the procedure and burdens of proof relating to a motion to compel arbitration.  The lessons learned are (1) remember that an appeal from an order denying a motion to compel arbitration is accelerated, making the notice of appeal due in 20 days rather than the usual 30; and (2) if you are the movant, gather and present your evidence on the first go-round because you might not get a second chance.

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The Fifth Circuit recently issued a decision confirming an arbitration award in American Laser Vision v. Laser Vision Institute (No. 06-10260).  The losing party sought to vacate the award on grounds that the arbitrator exceeded his authority and manifestly disregarded the law.

As noted over at Disputing, the decision breaks no new ground, but "is still helpful as a recent and cogent explanation of the analysis on these two fairly common grounds parties assert when attempting to appeal arbitral awards."

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I must admit, SB 1167 has flown under my radar.  This bill addresses a problem I ranted about earlier and, if passed, could eliminate "dual track" review of orders denying arbitration.  View the bill analysis here.

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In In re AXA Financial, Inc., the Third Court of Appeals has consolidated a mandamus with an interlocutory appeal from an order denying the defendants' motion to compel arbitration.  To be honest, this event is not terribly noteworthy, but with the legislature in session, it seems timely to mention the procedural gaffe that triggers such parallel proceedings.

Basically, while the legislature has authorized an interlocutory appeal from an order denying arbitration under the Texas statute, our courts have uniformly held that no corresponding statutory remedy exists when the Federal Arbitration Act is in play.  Lawyers attempting to enforce an arbitration clause most often seek relief under both statutes for fear they will pick the wrong one.  When denying relief, trial courts usually don't explain their reasoning, leaving the movant's counsel no choice but to pursue both an appeal and a mandamus, with the Texas Supreme Court's blessing.  At the supreme court's behest, the intermediate appellate courts routinely consolidate the parallel actions.

As others have written before me, this is a silly rule that ought to be corrected.  (Some, most notably Heidi Bloch, say it already has been; the courts just don't recognize the change.)  The legislature could prevent the waste of having to bring two separate actions, only to have them consolidated, by tweaking the appellate provisions of the Texas General Arbitration Act.  Unfortunately, with the time for filing new bills passed, it will be at least 2009 before common sense can prevail.

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In Apache Bohai Corp. v. Texaco China BV, the Fifth Circuit has rejected claims that an arbitrator exceeded his powers and manifestly disregarded the law in rendering an award exceeding $71 million.

No surprise here, really.  Except in the most egregious of circumstances, arbitration awards can't be busted.  No matter how well advised, clients have a difficult time accepting that these things are won or lost at the arbitration hearing.

Now seems like an appropriate time to emphasize that contracting parties wanting to include an arbitration clause may hedge their bets by bargaining for expanded judicial review, at least under current Fifth Circuit and Texas law.  Employing this approach, the parties either alter the scope of review and thus allow courts greater leeway than what the arbitration statute provides, or they contract for a second layer of arbitration in which a panel of "appellate arbitrators" reviews the initial award.  A recent St. Mary's Law Journal article (38 St. Mary's L.J. 471) explains these concepts, as does a similar article in the forthcoming issue of The Appellate Advocate, which should arrive in State Bar Appellate Section members' mailboxes any day.

Full disclosure:  Some very fine lawyers at my former firm were involved in the Apache Bohai case, but I did not work on the appeal.

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The Supreme Court of Texas issued three per curiam opinions with today's orders:

In Hood v. Wal-Mart Stores Inc., the Court held that the court of appeals erred by dismissing the appeal without providing an opportunity to cure when the plaintiff filed an indigence affidavit within the time the appeals court gave him to pay the filing fee or face dismissal.

In In re Bank One, N.A., the Court held that an arbitration clause incorporated by reference on a bank signature card was enforceable and that the bank did not waive its right to arbitrate by moving to set aside a default judgment and seeking a new trial.

In City of Houston v. Williams, the Court rejected a declaratory judgment action complaining about deductions from payments retired firefighters received upon termination as a claim for money damages for which governmental immunity had not been waived.

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