DHM Hospitality, LLC D/B/A ABV Inn of Corpus Christi, Hasmukh Patel, and Dipak Amthabhai v. Vinod Shah, Pravin Surti, and Vipoo Hospitality, Inc. ( 2018 )

NUMBER 13-17-00078-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI - EDINBURG
DHM HOSPITALITY, LLC D/B/A ABV INN
OF CORPUS CHRISTI, HASMUKH PATEL,
AND DIPAK AMTHABHAI, Appellants,
v.
VINOD SHAH, PRAVIN SURTI, AND
VIPOO HOSPITALITY, INC., Appellees.
On appeal from the 117th District Court
of Nueces County, Texas.
MEMORANDUM OPINION
Before Justices Rodriguez, Contreras, and Benavides
Memorandum Opinion by Justice Rodriguez
Appellants DHM Hospitality, LLC d/b/a ABV Inn of Corpus Christi, Hasmukh Patel,
and Dipak Amthabhai appeal the confirmation of an arbitration award in favor of appellees
Vinod Shah, Pravin Surti, and Vipoo Hospitality, Inc. By four issues, DHM complains
that the arbitration award violated federal bankruptcy law, rendering it unenforceable, and
that the award was rife with calculation errors that the trial court should have corrected.
We affirm.
I. BACKGROUND
This dispute arises from a transaction involving a hotel. Several individuals and
entities participated in the transaction underlying this case, all of which were parties to
the underlying arbitration. For ease of reference, the participants can be grouped into
two camps—DHM and Vbros:
DHM Vbros
DHM Hospitality, LLC Vbros Chateau, LLC
Dipak Amthabhai Vipoo Hospitality, Inc.
Hasmukh Patel Vinod Shah
Manher Patel Pravin Surti
Kirit Patel
DHM and Vbros disputed ownership of the hotel and damages related to the transaction.
The arbitrator entered detailed findings from which we draw our recitation of the
background facts.
Vbros bought the hotel in 2008. Vbros’s owner, Vinod Shah, ran the hotel until a
bankruptcy forced him to sell it to DHM in 2014. Their transaction entailed three
agreements. The first was the “Purchase and Sale Agreement,” whereby Vbros sold the
hotel to DHM.
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The second agreement was the “Option Agreement,” which gave Vbros the right
to re-acquire the hotel, at a price of $3,000,000, for fifteen months.1 It also gave Vbros
the right to all income earned by the hotel during the option period “after key expenses
are paid.” “Key expenses” included “property taxes, operating expenses, loan
payments, and other standard expenses . . . .” In exchange, Vbros agreed to provide an
immediate deposit of $175,000 on the repurchase price and to pay DHM a set monthly
payment.
The third was the oral “Management Agreement.” This gave Vbros the right to
continue managing the hotel during the option period.
After a year, the parties’ relationship soured. DHM asked Vbros to leave the hotel
in July of 2015, and Vbros complied. On July 29, 2015, before the option period ended,
Vbros gave a conditional notice that it was exercising its option to repurchase the hotel.
On August 4, Vbros again gave notice, this time unconditionally. However, Vbros did not
tender the $3,000,000 to purchase the hotel. DHM refused to sell the hotel to Vbros.
This litigation ensued as both sides asserted claims related to the agreements.
DHM sued Vbros for conversion, arguing that Vbros had failed to deposit certain hotel
revenues into a designated account. Vbros sued DHM for, among other things, refusal
to resell the hotel and failure to pay the hotel’s net income to Vbros.
The case proceeded to arbitration. Neither side requested a reporter to record
the arbitration proceedings. The arbitrator found that Vbros did not effectively exercise
1 More precisely, the option could be exercised any time between twelve and fifteen months after
the closing date of DHM’s acquisition of the hotel. DHM agreed not to sell the hotel prior to the expiration
of the fifteen-month option period.
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the option to repurchase the hotel, which therefore belonged to DHM, and that no
damages were owed to Vbros for DHM’s refusal to sell the hotel. The parties do not
dispute this finding on appeal.
As to income, DHM argued that after deducting “key expenses” from the hotel’s
revenues, the hotel had suffered a net loss of $300,938. DHM asserted that it was
therefore not required to pay any income to Vbros. Vbros disputed this figure, arguing
that DHM had overreported its expenses. The arbitrator agreed and found that DHM had
inflated its figures with $804,050 of improper expenses. Vbros also asserted that DHM
had underreported its revenues in the amount of $252,035. The arbitrator again agreed.
Correcting for these discrepancies, the arbitrator found that the hotel actually had net
income of $755,146, which DHM should have paid to Vbros. After adjusting for other
offsetting awards and attorney’s fees, the arbitrator awarded Vbros $758,242.
Vbros filed a motion to confirm the award in the trial court. DHM objected and
moved to modify the award, arguing that Vbros had misled the arbitrator concerning the
hotel’s revenues and expenses. In particular, DHM challenged the veracity of two
exhibits concerning the hotel’s finances.
The trial court denied DHM’s motion to modify and confirmed the award. DHM
appeals.
II. STANDARD OF REVIEW AND GENERAL APPLICABLE LAW
Our review of a trial court’s decision to confirm or vacate an arbitration award is de
novo. Jefferson Cty. Constables Ass’n v. Jefferson Cty., 512 S.W.3d 434, 441 (Tex.
App.—Corpus Christi 2016), aff’d, 546 S.W.3d 661 (Tex. 2018). Texas law favors
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arbitration, and thus review of arbitration awards is very narrow. See Hoskins v. Hoskins,
497 S.W.3d 490, 494 (Tex. 2016). An arbitration award is entitled to great deference in
a court of law, and every reasonable presumption is indulged to uphold an arbitrator’s
decision. Black v. Shor, 443 S.W.3d 154, 161–62 (Tex. App.—Corpus Christi 2013, pet.
denied). The review focuses on the integrity of the process, not the propriety of the
result. Jefferson Cty., 512 S.W.3d at 441.
III. BANKRUPTCY FRAUD
By its first issue, DHM asserts that the arbitration award must be set aside because
it stems from an illegal transaction—one that is stained by bankruptcy fraud. DHM
argues that while Shah was in bankruptcy, he never disclosed the Option Agreement as
an asset to the bankruptcy court, in violation of the bankruptcy code.
DHM contends that because the transaction was tainted by illegality, the arbitration
award that stems from it must be set aside on grounds of public policy. As support, DHM
cites the common law rule that “a claim arising out of an illegal transaction is not a
legitimate subject of arbitration, and an award based thereon is void and unenforceable
in courts of the country.” CVN Grp., Inc. v. Delgado, 95 S.W.3d 234, 237–38 (Tex. 2002)
(assuming that these common law grounds for vacatur were still valid).
Several obstacles prevent us from granting DHM the relief it seeks. For one,
recent caselaw has cast doubt on the continuing viability of common law grounds for
vacatur, including the common law grounds concerning illegal transactions. See
Hoskins, 497 S.W.3d at 494–95. In Hoskins, the court held that a party may avoid
confirmation only by demonstrating a ground expressly listed in section 171.088 of the
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Texas Arbitration Act (“TAA”). Id. at 495. The TAA “leaves no room for courts to expand
on those grounds” for vacating an arbitration award. Id. at 494; see Kreit v. Brewer &
Pritchard, PC, 530 S.W.3d 231, 237 (Tex. App.—Houston [14th Dist.] 2017, pet. denied)
(citing Hoskins for the proposition that a party seeking to vacate an arbitration award may
not invoke common law grounds for vacatur). A claim arising out of an illegal transaction
is not listed among the grounds for vacatur stated in section 171.088. See TEX. CIV.
PRAC. & REM. CODE ANN. § 171.088(a) (West, Westlaw through 2017 1st C.S.).2
For another, even assuming this common law ground for vacatur remains viable,
DHM’s sole support for its bankruptcy fraud theory comes from outside the record. DHM
has filed a motion asking this Court to take judicial notice of documents from Shah’s
bankruptcy proceeding. We decline to do so and deny DHM’s motion. Except as
necessary to determine jurisdiction, courts are prohibited from considering evidence
outside the record. Sabine Offshore Serv., Inc. v. City of Port Arthur, 595 S.W.2d 840,
841 (Tex. 1979) (per curiam); Bacon v. Tex. Historical Com’n, 411 S.W.3d 161, 169 n.21
(Tex. App.—Austin 2013, no pet.); see Gonzalez v. Villarreal, 251 S.W.3d 763, 777 (Tex.
App.—Corpus Christi 2008, pet. dism’d). Without reference to these outside matters,
DHM’s bankruptcy allegations find no support.
Lastly, DHM did not raise its bankruptcy fraud argument before the trial court. A
party seeking to vacate an arbitration award must present any grounds for doing so to the
trial court, otherwise, those complaints are waived on appeal. See TEX. R. APP. P.
2 Even before Hoskins, this Court expressed doubt as to the continuing vitality of common law
grounds for vacatur. See In re Guardianship of Cantu de Villarreal, 330 S.W.3d 11, 22 (Tex. App.—Corpus
Christi 2010, no pet.).
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33.1(a); Black, 443 S.W.3d at 163; Ewing v. Act Catastrophe-Tex. LC, 375 S.W.3d 545,
549 (Tex. App.—Houston [14th Dist.] 2012, pet. denied); see also Dempsey v. U.S.
Money Reserve, Inc., No. 13-15-00469-CV, 2017 WL 711603, at *6 (Tex. App.—Corpus
Christi Feb. 23, 2017, no pet.) (mem. op.).
We overrule DHM’s first issue.
IV. MODIFICATION OF THE AWARD
By its second through fourth issues, DHM asserts that the arbitration award
contains (1) “evident miscalculations” and (2) “gross mistakes.” DHM protests that the
arbitrator made miscalculations and mistakes when he relied on false evidence to reach
his decision. DHM urges us to modify the award to correct these errors.
We first consider DHM’s argument concerning “evident miscalculations.” The
TAA provides that, on application, the court shall modify or correct an award if the award
contains an evident miscalculation of numbers. TEX. CIV. PRAC. & REM. CODE ANN.
§ 171.091(a) (West, Westlaw through 2017 1st C.S.); Nafta Traders, Inc. v. Quinn, 339
S.W.3d 84, 90 n.23 (Tex. 2011). A court may not overturn an award based upon “evident
miscalculation of numbers” unless the mistake is clear, concise, and conclusive from the
record. Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796, 813 (Tex. App.—Dallas 2008,
pet. denied); Vernon E. Faulconer, Inc. v. HFI, LP, 970 S.W.2d 36, 40 (Tex. App.—Tyler
1998, no pet.). “Miscalculation” implies inadvertence or an error caused by oversight.
Roehrs, 246 S.W.3d at 813; Vernon E. Faulconer, 970 S.W.2d at 40. If the amount of
the award is rationally inferable from the facts before the arbitrator, there is no evident
miscalculation. Vernon E. Faulconer, 970 S.W.2d at 40; Mega Builders, Inc. v.
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Paramount Stores, Inc., No. 14-14-00744-CV, 2015 WL 3429060, at *3 (Tex. App.—
Houston [14th Dist.] May 28, 2015, no pet.) (mem. op.).
Here, we have no means of knowing the full extent of the evidence that was before
the arbitrator because no record was taken of the arbitration proceedings. It is well
established that the non-prevailing party in an arbitration has the burden in the trial court
of bringing forth a complete record and of establishing any basis which would warrant
vacating or modifying the arbitrators’ award. Kline v. O’Quinn, 874 S.W.2d 776, 790
(Tex. App.—Houston [14th Dist.] 1994, writ denied), as supplemented on denial of reh’g
(May 12, 1994); see O’Grady v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 506 S.W.3d
121, 125 (Tex. App.—Corpus Christi 2016, pet. denied) (mem. op.), cert. denied, 138 S.
Ct. 722 (2018); see also City of Weslaco v. Castillo, No. 13-06-023-CV, 2007 WL
2811631, at *4 (Tex. App.—Corpus Christi Sept. 27, 2007, no pet.) (mem. op.). Absent
such a record, we must presume that the record supports the arbitrator’s determination
of the proper amount of the award. O’Grady, 506 S.W.3d at 125.
DHM protests that the arbitrator made evident miscalculations when he double-
counted certain expenses and miscomputed other figures. However, without a record,
and unless the error appears on the face of the award, we must presume that there was
no evident miscalculation. See City of Baytown v. C.L. Winter, Inc., 886 S.W.2d 515,
520 (Tex. App.—Houston [1st Dist.] 1994, writ denied) (“We do not know what evidence
the arbiters considered in making their award, and the award on its face does not reflect
a miscalculation . . . .”); Mega Builders, 2015 WL 3429060, at *3 (presuming there was
no miscalculation in double-counting expenses when there was no record of the
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arbitration proceeding); Rassouli v. Nat’l Signs Holding, LLC, No. 14-15-00353-CV, 2017
WL 6374720, at *5 (Tex. App.—Houston [14th Dist.] Dec. 14, 2017, no pet.) (mem. op.)
(similar).3 No error appears on the face of the award, and we have no means of knowing
which findings are rationally inferable from the evidence and which are the work of
“inadvertence or an error caused by oversight.” See Vernon E. Faulconer, 970 S.W.2d
at 40. We must therefore presume that the arbitrator’s conclusions were not evident
miscalculations. See Kline, 874 S.W.2d at 790.
Lastly, DHM argues that the arbitration award contains “gross mistakes” that
require a modification. The common law empowered a trial court to modify an arbitration
award if it found that the arbitrator “was guilty of . . . such gross mistake as would imply
bad faith or failure to exercise an honest judgment.” Nuno v. Pulido, 946 S.W.2d 448,
452 (Tex. App.—Corpus Christi 1997, no writ).4 But, as above, the lack of an arbitration
record prevents us from evaluating for gross mistake. See Statewide Remodeling, Inc.
v. Williams, 244 S.W.3d 564, 569–70 (Tex. App.—Dallas 2008, no pet.) (holding that
without an arbitration record, the court presumes there was no gross mistake); Anzilotti
v. Gene D. Liggin, Inc., 899 S.W.2d 264, 267 (Tex. App.—Houston [14th Dist.] 1995, no
writ) (same). In the absence of such a record, we cannot conclude that the trial court
erred in confirming the arbitration award without modification. See id.
3 Cf. McGrath v. FSI Holdings, Inc., 246 S.W.3d 796, 813 (Tex. App.—Dallas 2008, pet. denied)
(elaborating on rules concerning miscalculation apparent on the face of the award).
4 The TAA does not list gross mistake among the possible grounds for modifying an arbitration
award, see TEX. CIV. PRAC. & REM. CODE ANN. § 171.091(a) (West, Westlaw through 2017 1st C.S.), and,
like common law grounds for vacatur, the era of common law grounds for modification may be drawing to
a close. See Hoskins v. Hoskins, 497 S.W.3d 490, 495 (Tex. 2016). But because no party has argued
otherwise, we will assume that gross mistake remains a valid basis for modification.
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We overrule DHM’s second, third, and fourth issues.
V. CONCLUSION
We affirm the judgment of the trial court.
NELDA V. RODRIGUEZ
Justice
Delivered and filed the 29th
day of November, 2018.
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