George Davis, M.D., Anteneh Roba, M.D., Levon Vartanian, M.D., Woodrow Dolino, M.D., Northwest Houston Emergency Specialist Group, PLLC, ESG MD, PLLC, and ESG MLP, LLC v. Alan Bentz, M.D. ( 2015 )

ACCEPTED
01-15-00230-CV
FIRST COURT OF APPEALS
HOUSTON, TEXAS
7/8/2015 3:46:53 PM
CHRISTOPHER PRINE
CLERK
No. 01-15-00230-CV
In The Court Of Appeals 1st COURT FILED IN
OF APPEALS
HOUSTON, TEXAS
For The First District of Texas
7/8/2015 3:46:53 PM
Houston, Texas CHRISTOPHER A. PRINE
Clerk
GEORGE DAVIS, MD, ANTENEH ROBA, MD, LEVON VARTANIAN, MD,
WOODROW DOLINO, MD, NORTHWEST HOUSTON EMERGENCY SPECIALIST
GROUP, PLLC, ESG MD, PLLC AND ESG MLP, LLC,
Appellants
V.
ALAN BENTZ, MD,
Appellee
FROM THE 190TH JUDICIAL DISTRICT COURT, HARRIS COUNTY, TEXAS
CAUSE NO. 2012-44569
HONORABLE JUDGE KERRIGAN, PRESIDING
APPELLEE’S BRIEF
NORTON ROSE FULBRIGHT US LLP
Andrew Price
State Bar No. 24002791
andrew.price@nortonrosefulbright.com
Rachel Roosth
State Bar No. 24074322
rachel.roosth@nortonrosefulbright.com
James Hartle
State Bar No. 24082164
jim.hartle@nortonrosefulbright.com
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Telephone: (713) 651-5151
Telecopier: (713) 651-5246
Counsel for Appellee Alan Bentz, M.D.
CORRECTION REGARDING IDENTITY OF COUNSEL
Appellant’s Joint Brief provided the former name of the law firm representing
Appellee: Fulbright & Jaworski, LLP. Its current and correct name is Norton Rose
Fulbright US LLP.
The proper information of counsel for Appellee Alan Bentz, M.D. is as follows:
Andrew Price
andrew.price@nortonrosefulbright.com
Rachel Roosth
rachel.roosth@nortonrosefulbright.com
James Hartle
jim.hartle@nortonrosefulbright.com
NORTON ROSE FULBRIGHT US LLP
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Tel: (713) 651-5151
Fax: (713) 651-5246
54069386.3 - ii -
TABLE OF CONTENTS
CORRECTION REGARDING IDENTITY OF COUNSEL .................................. II
TABLE OF CONTENTS ......................................................................................... V
STATEMENT OF THE CASE ............................................................................ VIII
STATEMENT REGARDING ORAL ARGUMENT ............................................. X
STATEMENT OF ISSUES PRESENTED............................................................ XI
STATEMENT OF FACTS .......................................................................................1
SUMMARY OF THE ARGUMENT .......................................................................8
I. Standard of Review ............................................................................13
II. Applying Texas law: the Award must be upheld ...............................14
A. Without a complete record of the arbitration proceedings,
Appellants cannot overcome the presumption in favor of
upholding the Award................................................................15
1. The issues decided by the Arbitrator were
submitted in the arbitration, and without a
complete record, the trial court had to presume that
they were submitted .......................................................18
2. The evidence supported the damages awarded, and
without a complete record, the trial court had to
presume that it did .........................................................19
3. Appellants conceded the value of Dr. Bentz’s
membership interest, and without a complete
record, the trial court could not find otherwise ............. 22
B. The Arbitrator properly exercised his broad authority
under Section 9.02 to decide all disputes other than those
decided under Section 9.01 ......................................................24
1. Section 9.02 gave the Arbitrator authority to
decide all disputes related to the Company
Agreement other than disputes resolved pursuant
to Section 9.01, and none of the disputes the
Arbitrator decided were, or could have been,
decided under Section 9.01 ............................................26
54069386.3 - iii -
2. The Arbitrator had authority to decide the
appropriate remedies for the disputes submitted to
him under Section 9.02 ..................................................28
a. There was no requirement that the parties
agree to the remedies selected by the
Arbitrator .............................................................29
b. Dr. Bentz did seek to recover the Fair
Market Value of his interest, but regardless,
this was an issue for the Arbitrator to decide ...... 32
3. The Award was rationally inferable from the
Agreement, as shown by the Arbitrator’s well-
reasoned discussion in the Award .................................33
a. The essence test does not allow the non-
prevailing party to retry the dispute ....................34
b. The Arbitrator correctly determined that
Dr. Bentz was still a member after expulsion .....35
C. The Arbitrator did not award a double recovery, but even
if he had, it would not be grounds for vacatur .........................39
1. Double recoveries do not warrant vacatur .....................39
a. Prohibiting double recoveries is not so
fundamental a policy that it would outweigh
public policy in favor of upholding
arbitration awards ................................................40
b. Violating public policy is not a ground for
vacatur under the Federal Arbitration Act .......... 43
2. The Award compensates Dr. Bentz for separate
injuries and therefore does not grant a double
recovery .........................................................................45
D. Even if the Court were to vacate the Award, it could not
order the modification that Appellants request ........................47
CONCLUSION .......................................................................................................49
CERTIFICATE OF SERVICE ...............................................................................51
CERTIFICATE OF COMPLIANCE ......................................................................52
54069386.3 - iv -
APPENDIX
1. The Company Agreement (C.R. 112–36)
2. The Award (signed October 15, 2014) (C.R. 1488–92)
3. The Judgment (signed December 9, 2014) (C.R. 1794–95)
4. Order Confirming an Arbitration Award (signed December 9, 2014)
(C.R. 1796)
5. Order Denying Application for Partial Vacatur or Modification of
Arbitration Award (signed December 9, 2014) (C.R. 1797)
6. Order Denying Individually Named Respondents’ Motion to Partially
Vacate or Vacate Arbitration Award or in the Alternative, Motion to Modify
Award (signed December 9, 2014) (C.R. 1798).
7. TEX. BUS. ORGS. CODE § 101.106 (West 2015)
8. TEX. CIV. PRAC. & REM. CODE § 171.087 (West 2015)
9. TEX. CIV. PRAC. & REM. CODE § 171.090 (West 2015)
10. 9 U.S.C. § 9 (West 2015)
11. Excerpts from Dr. Bentz’s Prehearing Brief
54069386.3 -v-
INDEX OF AUTHORITIES
CASES:
Ancor Holdings, L.L.C. v. Peterson, Goldman & Villani, Inc.,
294 S.W.3d 818 (Tex. App.—Dallas 2009, no pet.)………..…….……34–35
Anzilotti v. Gene D. Liggin, Inc.,
899 S.W.2d 264 (Tex. App.—Houston [14th Dist.] 1995, no writ)……13–15
Barton v. Fashion Glass and Mirror, Ltd., 321 S.W.3d 641
(Tex. App.—Houston [14th Dist.] 2010, no pet.)……………………..…..24
Black v. Shor, 443 S.W.3d 154
(Tex. App.—Corpus Christi 2013, pet. denied)..................……………41, 43
Brockman v. Tyson, No. 01-03-01335-CV, 2005 WL 2850128
(Tex. App.—Houston [1st Dist.] Oct. 27, 2005, pet. denied)..…….18–19, 33
Burlington Resources Oil & Gas Co., LP v. San Juan Basin Royalty Trust,
249 S.W.3d 34 (Tex. App.—Houston [14th Dist.] 2007, pet. denied)....30–31
CC Williams Construction Co., Inc. v. Rico, No. 09-10-00472-CV,
2011 WL 2135074 (Tex. App.—Beaumont May 19, 2011, no pet.).….20–22
Centex/Vestal v. Friendship West Baptist Church, 314 S.W.3d 677
(Tex. App.—Dallas 2010, pet. denied)…….....................…..……..17–18, 24
City of Waco v. Kelly, 309 S.W.3d 536 (Tex. 2010)……………………………..48
CVN Group, Inc. v. Delgado, 95 S.W.3d 234 (Tex. 2002)………………40–42, 44
Executone Info Sys., Inc. v. Davis, 26 F.3d 1314 (5th Cir. 1994)…………….33–34
Forest Oil Corp. v. El Rucio Land and Cattle Co., Inc., 446 S.W.3d 58
(Tex. App.—Houston [1st Dist.] July 24, 2014, pet. filed)………………..24
Fortune v. Killebrew, 23 S.W. 172 (Tex. 1893)………………………………30–31
54069386.3 - vi -
GJR Mgmt. Holdings, L.P. v. Jack Raus, Ltd., 126 S.W.3d 257
(Tex. App.—San Antonio 2003, pet. denied)……………………….…13, 17
Goldman v. Buchanan, No. 05-12-00050-CV, 2013 WL 1281744
(Tex. App.—Dallas Mar. 21, 2013, no pet.)...............…………………….16
Goodyear Tire & Rubber Co. v. Sanford, 540 S.W.2d 478
(Tex. Civ. App.—Houston [14th Dist.] 1976, no writ)……..…………42, 44
Gulf Oil Corp. v. Guidry, 327 S.W.2d 406 (Tex. 1959)…………………30–31, 48
Hall St. Assocs., L.L.C. v. Mattel, Inc., 522 U.S. 576 (2008)…………………….43
IQ Holdings, Inc. v. Villa D’Este Condominium Owners’ Ass’n Inc.,
__ S.W.3d. __, No. 01-11-00914-CV, 2014 WL 982844
(Tex. App.—Houston [14th Dist.] Mar. 1, 2014, no pet.).…........…….14
Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266 (Tex. 1992)………………….26
Kline v. O’Quinn, 874 S.W.2d 776 (Tex. App.—Houston
[14th Dist.] 1994, writ denied)……………………..14–15, 18–19, 24, 32, 47
Lee v. Daniels & Daniels, 264 S.W.3d 273
(Tex. App.—San Antonio 2008, pet. denied)…..…………….………..42, 45
Lee v. El Paso County, 965 S.W.2d 668
(Tex. App.—El Paso 1998, pet. denied)……………..................….42, 44–45
Mega Builders, Inc. v. Paramount Stores, Inc. No. 14-14-00744-CV,
2015 WL 3429060 (Tex. App.—Houston [14th Dist.]
May 28, 2015, no pet. h.)………………………………………………21–22
Nafta Traders Inc. v. Quinn, 339 S.W.3d 84 (Tex. 2011)……………………15–17
Petroleum Analyzer Co. LP v. Olstowski, No. 01-09-00076-CV,
2010 WL 2789016 (Tex. App.—Houston [1st Dist.] 2010, no pet.)………44
Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896 (Tex. 1995)………………….24
54069386.3 - vii -
Rapid Settlements, Ltd. v. Symetra Life Ins. Co.,
234 S.W.3d 788 (Tex. App.—Tyler, no pet.)………………….…..42–43, 45
Roe v. Ladymon, 318 S.W.3d 502 (Tex. App.—Dallas 2010, no pet.)…...29, 41, 43
Royce Homes, L.P. v. Bates, 315 S.W.3d 77
(Tex. App.—Houston [1st Dist.] 2010, no pet.)……………….……….42–44
Schuster v. Wild, No. 13-13-00474-CV, 2014 WL 3804834
(Tex. App.—Corpus Christi March 5, 2015, pet. denied).………….….16–17
Smith v. Gladney, 98 S.W.2d 351, 352 (Tex. 1936)…………………………..42, 44
Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564
(Tex. App.—Dallas 2008, no pet.)………….…………………………15–17
Turner v. Package Exp., L.P., No. 14-12-00241-CV, 2013 WL 2149786
(Tex. App.—Houston [14th Dist.] May 16, 2013, no pet.)………..……….23
Vorwerk v. Williamson County Grain, No. 03-10-00549-CV,
2012 WL 593481 (Tex. App.—Austin Feb. 23, 2012, pet. denied)…..……17
Waite Hill Services, Inc. v. World Class Metal Works, Inc.,
959 S.W.2d 182 (Tex. 1996)…………………..…………………………..45
Werline v. E. Tex. Salt Water Disposal Co., 209 S.W.3d 888
(Tex. App.—Texarkana 2006) aff’d 307 S.W.3d 267 (Tex. 2010)...………41
Xtria L.L.C. v. Int’l Ins. Alliance, Inc., 286 S.W.3d 583
(Tex. App.—Texarkana 2009, pet. denied)…………….………………13, 41
STATUTES:
TEX. CIV. PRAC. & REM. CODE § 171.087 (West 2015)……………...…………..13
TEX. CIV. PRAC. & REM. CODE § 171.090 (West 2015)……………………..……30
9 U.S.C. § 9 (West 2015)…………………………………………………………13
54069386.3 - viii -
STATEMENT OF THE CASE
This case involves claims brought by Appellee, Dr. Alan Bentz, against the
Company (three limited liability companies Dr. Bentz co-founded) and the
Individual Appellants (the Company’s other founding members).1 In late 2011, the
Individual Appellants presented Dr. Bentz with a Hobson’s choice: he could accept
only $100,000 for the purchase of his membership interest in the Company, or he
would be expelled from it. Appellants’ Joint Brief at 1, n. 3. When Dr. Bentz
refused this low-ball offer, the Individual Appellants made good on their threat and
voted to expel him. Id. Under the Company Agreement, 2 however, Dr. Bentz
remained a member of the Company until he sold his membership interest.
C.R. 1489.3 After the expulsion vote, the Company elected to exercise its option
under the Company Agreement to purchase Dr. Bentz’s membership interest, but
the Company later refused to pay the purchase price, which was Fair Market
Value. Id. The Company also began paying Dr. Bentz’s share of the membership
distributions to the Individual Appellants instead of Dr. Bentz. Id. at 1490.
1
“The Company” refers to appellants Northwest Houston Emergency Specialists, P.L.L.C.
(“NHESG”), ESG MD, P.L.L.C., and ESG MLP, L.L.C, collectively. “The Individual
Appellants” refers to Dr. George Davis, Dr. Levon Vartanian, Dr. Anteneh Roba, and
Dr. Woodrow Dolino, collectively. “Appellants,” as used herein, refers to the Company and the
Individual Appellants, collectively.
2
“Company Agreement” refers to the Company Agreements of each of the Company entities,
which are identical except for the name of the entity. See C.R. 112–136 (the Company
Agreement).
3
The Clerk’s Record is cited herein as “C.R. _________.”
54069386.3 - ix -
The parties participated in a 5-day arbitration hearing in August 2014. A
complete transcript of the arbitration hearing was not made. At the hearing, and
through extensive pre- and post-hearing briefing, Dr. Bentz showed that the
Appellants’ actions constituted breaches of the Company Agreement, conversion,
and breaches of fiduciary duties. C.R. 1489–90. The Arbitrator then issued an
arbitration award in Dr. Bentz’s favor (the “Award”). See id. at 1488–92. The
Award granted Dr. Bentz the Fair Market Value purchase price of his membership
interest, his distributions that were wrongfully paid to the Individual Appellants,
pre-judgment interest, and attorneys’ fees. Id. at 1489–91. The Arbitrator also
declared that Dr. Bentz had remained a member of the Company until the date of
the Award. Id. at 1490.
Dr. Bentz then moved the trial court to confirm the Award. C.R. 1321–
1325. Unhappy with the Award, Appellants filed motions opposing confirmation
in which they sought to re-litigate the merits of the arbitration. C.R. 1413–1444,
1605–1623. But the Honorable Patricia Kerrigan, Judge of the 190th Judicial
District Court of Harris County, Texas, confirmed the Award, denied Appellants’
motions to vacate the Award, and signed the Judgment in Dr. Bentz’s favor.
C.R. 1794–98. Appellants’ motions for reconsideration of the confirmation were
denied, and Appellants filed a notice of appeal on March 9, 2015. C.R. 1962–63.
This appeal follows.
54069386.3 -x-
STATEMENT REGARDING ORAL ARGUMENT
In this appeal, Appellants ask the Court to ignore Texas’s strong
presumption in favor of arbitration awards and set aside a just arbitration award
rendered by an arbitrator who acted with full authority. Furthermore, Appellants
misconstrue the Award and ask this Court to rely on an incomplete record in order
to overturn it. Thus, and as shown more fully below, Appellants’ asserted points of
error run so contrary to Texas law that they do not merit oral argument before the
Court.
54069386.3 - xi -
STATEMENT OF ISSUES PRESENTED
Issue 1: Did the trial court err by Confirming the Award over Appellants’
opposition when:
(a) The Arbitrator followed the Company Agreement’s mandate that all
disputes be arbitrated other than disputes over the narrow issues
enumerated in Section 9.01?
(b) The Arbitrator awarded Dr. Bentz that portion of Dr. Bentz’s
membership distributions which the Individual Appellants took for
themselves despite Dr. Bentz’s continuing right to those distributions
during the time period in which Dr. Bentz continued to own his
membership interest?
Issue 2: Did the trial court err by confirming the Award over Appellants’
opposition by awarding damages to Dr. Bentz for the Company’s failure to
complete the contractual process to purchase Dr. Bentz’s membership interest and
for the Company’s payment of Dr. Bentz’s membership distributions to the
Individual Appellants during that time that Dr. Bentz was still a member of the
Company?
54069386.3 - xii -
STATEMENT OF FACTS
Dr. Bentz and the Individual Appellants founded the Company, and each had
a 20% membership interest. C.R. 112–13, 136. The Company was composed of
three limited liability companies, and (along with NHESG’s wholly-owned
subsidiary, Houston Northwest Emergency Specialists, PLLC), it staffed the
emergency department of Houston Northwest Medical Center. Appellants’ Joint
Brief at 1. Over the years, Dr. Bentz served in various administrative and business
capacities for the Company, which became quite successful. See C.R. 1564
(Company income statement showing yearly profits in the millions from 2009 to
2011).
By mid-2011, however, Dr. Bentz’s relationship with the Individual
Appellants had soured over clashes of personalities, and the Individual Appellants
decided to oust him. Appellants’ Joint Brief at 1, n. 3. The Appellants offered
Dr. Bentz a Hobson’s choice in late 2011: the Company would pay him a mere
$100,000 to buy his membership interest, or the Individual Appellants would vote
to expel Dr. Bentz from the Company. Id. When Dr. Bentz refused this low-ball
offer, the Individual Appellants voted to expel him. Id.
Under the Company Agreement, however, expulsion did not cause a
member to automatically lose his membership interest. C.R. 1489. Instead,
expulsion merely triggered the Company’s and the other members’ right—but not
54069386.3 -1-
obligation—to force the expelled member to sell his membership interest.
C.R. 1489; see also C.R. 114 at § 2.05 (“…during a period of 180 days following
the expulsion of a Member, the Company and the other Members shall have an
option (but not an obligation) to purchase all of the Membership Interest owned by
such…expelled Member….”). If the Company or other members elected to
exercise that option, the Company Agreement required instruments conveying the
membership interest to be exchanged for the purchase price at a closing. C.R. 115
at § 2.08. The purchase price would be “Fair Market Value” as defined in the
Company Agreement. See id. at § 2.09. There were no provisions for transferring
a membership interest in the event the Company or the other members exercised
their option to purchase the expelled member’s membership interest then failed to
close and pay the purchase price.
After the Individual Appellants voted to expel Dr. Bentz, the Company
elected to exercise its option to purchase Dr. Bentz’s membership interest.
Appellants’ Joint Brief at 1. While that process was pending, Dr. Bentz remained a
member. C.R. 1489–90. During that time, however, the Company did not pay
Dr. Bentz his share of membership distributions and instead paid them to the
Individual Appellants. C.R. 1489. For these reasons, amongst others, Dr. Bentz
filed for arbitration on November 1, 2012 under the arbitration provision of
Section 9.02 of the Company Agreement, which provided a mechanism for
54069386.3 -2-
resolving “any Dispute under [the Company Agreement] which [was] not
otherwise resolved pursuant to other procedures under Section 9.01.” See
C.R. 128–29 at § 9.02; see also C.R. 137–153.
Section 9.02’s broad scope contrasted with the narrow scope of Section 9.01,
which only provided procedures to decide limited issues. Compare C.R. 128–29 at
§ 9.02 with C.R. 127–28 at § 9.01. In relevant part, Section 9.01 provided a
procedure to determine the “controlling opinion” on the Fair Market Value of a
membership interest. C.R. 127 at § 9.01(a). Per that procedure, Dr. Bentz and the
Company each appointed appraisers (the “party-appointed appraisers”).
C.R. 1418, 1489. Both party-appointed appraisers then opined on the Fair Market
Value of Dr. Bentz’s membership interest. C.R. 1418. The party-appointed
appraisers also appointed a third appraiser (the “common appraiser”), whose sole
task under Section 9.01 was to determine “which opinion [was] the controlling
opinion . . .” on the Fair Market Value of a membership interest. Id.; C.R. 127–28
at § 9.01. Aside from the selection of the controlling opinion on Fair Market
Value, there were only two other issues that could be decided under Section 9.01:
(1) who would serve as the party-appointed appraiser for the purchasers of a
membership interest; and (2) who would serve as the common appraiser. See
C.R. 127–28 at § 9.01. Neither of those two issues are relevant in this appeal.
54069386.3 -3-
While the Section 9.01 proceeding to determine the controlling opinion was
pending, the Individual Appellants moved to stay the Section 9.02 arbitration,
arguing that any Section 9.01 proceeding had to be completed before the
arbitration could proceed under Section 9.02. C.R. 102–11. On April 4, 2013, the
trial court ordered the Section 9.02 arbitration stayed until the Section 9.01
procedure was completed. C.R. 522–24.
On January 3, 2014, the common appraiser chose the opinion of the
Company’s appraiser, Reed Tinsley, as the controlling opinion. C.R. 1418.
Mr. Tinsley’s opinion was that the Fair Market Value was either $257,969 under
an asset approach, or $526,796 under an income approach. C.R. 1555. With this
opinion chosen as the controlling opinion, the Section 9.01 proceeding was
complete.4 No other issues in the dispute were to be decided (or indeed, could be
decided) under Section 9.01. The path was clear for the Section 9.02 arbitration to
continue to resolve all other disputes between the parties.
4
Appellants repeatedly state throughout their brief that the Section 9.01 proceeding was
completed. Appellants’ Joint Brief at 11 (“The parties finished the Section 9.01 process and a
‘Fair Market Value’ was determined. . . .”), 18 (“The determination of the controlling opinion as
to Fair Market Value by Mr. Mr. Carr concluded the Section 9.01 Fair Market Value process.”),
20 (“Once the Section 9.01 process was finished, the parties moved to arbitration.”), and 26
(“The Section 9.01 proceeding was concluded on January 3, 2014.”). It is unclear, then, why
Appellants suggest at the end of their brief that the Section 9.01 proceeding has not ended. Id. at
46 (“If the Award against the Company is vacated, the Section 9.01 process remains open until
the parties close on the purchase option.”); n.38 (“This appeal must be resolved before the parties
can conclude the Section 9.01 process. . . .”). In any event, as described below in Section II.B.1,
the common appraiser had, as of the time of the Section 9.02 arbitration, already decided the
only issue before him under Section 9.01—that is, which party-appointed appraiser’s opinion
was the controlling opinion on Fair Market Value.
54069386.3 -4-
After the Section 9.02 arbitration process resumed, the parties engaged in
extensive discovery, deposed seven individuals, and submitted over 100 pages of
prehearing briefing. C.R. 1324; see also C.R. 1419 (discussing post-hearing
briefing submitted to the Arbitrator). The hearing was then held from August 19,
2014 through August 22, 2014, and reconvened for a final day on August 29, 2014.
C.R. 1488. At the hearing, the Arbitrator received the testimony of Dr. Bentz, each
of the four Individual Appellants, three non-party witnesses, and three expert
witnesses. C.R. 1324, 1488. The Individual Appellants elected to have a court
reporter transcribe part of the opening statements and part of Dr. Bentz’s
testimony, but they declined to have the court reporter transcribe the rest, and no
other party made any record of the hearing. See C.R. 1782–93 (part of the
incomplete record). Appellants conceded that the Fair Market Value of
Dr. Bentz’s membership interest was $526,796. See C.R. 1489 (“All Parties have
acknowledged… that the appropriate Fair Market Value of Dr. Bentz’s
Membership Interest is $526,796.”). Following the arbitration hearing, each party
submitted post-hearing briefs to supplement the Parties’ already-extensive
prehearing briefs. Id.
The Arbitrator then issued the Award on October 15, 2014. C.R. 1488. In
it, the Arbitrator found that “all Parties have acknowledged. . . that the appropriate
Fair Market Value of Dr. Bentz’s Membership Interests [was] $526,796,” a figure
54069386.3 -5-
consistent with the controlling opinion from the Section 9.01 proceedings.
C.R. 1489, 1555. The Arbitrator determined that Dr. Bentz was entitled to recover
that sum because the Company breached the Company Agreement by electing to
exercise the option to purchase Dr. Bentz’s interest and then failing to pay the
purchase price by the contractual deadline. C.R. 1489. The Arbitrator also
determined that Dr. Bentz was entitled to his pro rata share of membership
distributions made while Dr. Bentz remained a member because “[c]ommon sense,
logic and a careful reading of the Agreements compel that, until paid for his
Interest, a Member, even an expelled Member, is entitled to his share of any
distributions made by the [Company].” C.R. 1490. Finally, the Arbitrator also
awarded Dr. Bentz pre-judgment interest, costs, and attorneys’ fees.5 C.R. 1491.
The trial court later confirmed the Award over Appellants’ objections,
entered the Judgment, and denied Appellants’ motions for reconsideration.
C.R. 1794–98, 1962. Shortly afterward, Appellants sued the law firm and attorney
who had drafted the Company Agreement, alleging that they committed
malpractice. C.R. 1942–52. Appellants further alleged that they had already
satisfied the Judgment—though they had not and have not done so. See C.R. 1950
5
Per the Company Agreement, the Arbitrator awarded attorneys’ fees to Dr. Bentz because he
was a substantially prevailing party. See C.R. 131 at § 9.03 (“In the event a proceeding under
this Article 9 is commenced…the party who prevails or substantially prevails in such proceeding
shall be entitled to recover . . . all costs, expenses and reasonable attorneys’ fees incurred in
connection with the proceeding and on appeal.”); C.R. 1491 (“…Claimant substantially prevailed
in his claims and is entitled to recover his costs, expenses and reasonable attorney fees.”).
54069386.3 -6-
(characterizing the award of distributions and attorneys’ fees to Dr. Bentz as
“pecuniary losses” that “Plaintiffs sustained. . . .”); C.R. 1947 (stating that a sum
mentioned earlier in the petition “does not include any portion of the $532,064
paid to Bentz to buy-out his membership share . . . .”) (emphasis added). This
appeal follows.
54069386.3 -7-
SUMMARY OF THE ARGUMENT
At the crux of this appeal is Appellants’ refusal to recognize that, under
Section 9.02 of the Company Agreement, they agreed to arbitrate “any Dispute
under [the Company Agreement] which [was] not otherwise resolved pursuant to
other procedures under Section 9.01,” which is exactly what happened when the
parties submitted their dispute to the Arbitrator. In contrast, Section 9.01 provided
mechanisms for the narrow determinations of: (1) who would serve as the party-
appointed appraiser for a purchase of a membership interest, (2) who would serve
as the common appraiser, and (3) which party-appointed appraiser’s opinion would
be the controlling opinion on the Fair Market Value of a membership interest.
None of these issues were decided in the Section 9.02 arbitration. Rather, after a
five-day hearing and over a month of deliberation, the Arbitrator properly
determined, amongst other things, that: (1) Dr. Bentz was entitled to recover
damages from the Company for its failure to buy Dr. Bentz’s membership interest
after electing to exercise its option to do so; (2) Dr. Bentz was entitled to recover
damages from the Individual Appellants for their wrongful appropriation of his pro
rata share of membership distributions; and (3) Dr. Bentz was entitled to recover
attorneys’ fees per the Company Agreement because he substantially prevailed in
the arbitration.
54069386.3 -8-
Appellants would have the Court believe that this dispute was actually about
one thing: the propriety of Dr. Bentz’s expulsion from the Company. Although the
parties did dispute the propriety of Dr. Bentz’s expulsion, the parties also disputed
what happened to Dr. Bentz’s membership interest if he had been properly
expelled, and resolving this dispute required interpretation of the Company
Agreement—an issue for arbitration under Section 9.02. Under the Company
Agreement, a member’s expulsion triggered the Company’s and the other
members’ right—but not obligation—to buy the member’s membership interest at
the Fair Market Value.
Here, upon Dr. Bentz’s expulsion, the Company elected to exercise their
option to purchase Dr. Bentz’s membership interests but then refused to complete
the purchase by paying Dr. Bentz the Fair Market Value. And, even though no one
had paid Dr. Bentz for his membership interest, Appellants claimed that
Dr. Bentz’s membership interest had disappeared and that he was no longer
entitled to his share of membership distributions. On the other hand, Dr. Bentz
argued that because his membership interest was his personal property, he
continued to own the interest and its attendant membership distribution rights until
he transferred it. See TEX. BUS. ORGS. CODE § 101.106 (West 2015) (“A
membership interest in a limited liability company is personal property.”) This is
the same merits-based dispute that is at issue in this appeal.
54069386.3 -9-
The Arbitrator has already decided this dispute, and he agreed with
Dr. Bentz’s interpretation of the Company Agreement and Texas law. The
Arbitrator therefore awarded Dr. Bentz the damages he was entitled to: payment
for his membership interest, his unpaid share of the membership distributions,
attorneys’ fees, prejudgment interest, and costs.
Because Appellants do not like the Arbitrator’s decision, they now wish to
retry the merits of the dispute. Knowing that courts defer to arbitrators to
determine the merits, however, Appellants have recast their claims in the form of
jurisdictional arguments. Appellants claim first that the Arbitrator exceeded his
authority because the parties did not agree to grant the Arbitrator the authority to
award Dr. Bentz the recoveries contained in the Award. This argument, however,
ignores the fact that, by assenting to the Company Agreement, the Appellants
agreed to resolve these disputes under the broad ambit of Section 9.02, and the trial
court properly rejected it.
Appellants also claim that the Award includes a double recovery and that
Texas’s common law policy against double recoveries is so extraordinary and
fundamental that its violation requires vacatur here. Appellants’ argument fails
because, as two other courts of appeals have held, the award of a double recovery
does not warrant vacatur. Appellants’ argument also fails because common law
grounds for vacatur—such as vacating an arbitration award because it violates
54069386.3 - 10 -
public policy—are not grounds for vacatur under the Federal Arbitration Act,
which applies here. In any event, the Award does not include a double recovery
because its different components compensate Dr. Bentz for different injuries.
Finally, Appellants request to modify the Award so that the Award would:
(1) maintain the only aspect of the Award favorable to Appellants (the Arbitrator’s
determination that Dr. Bentz was expelled using the proper procedures); (2)
include a determination the Arbitrator never made (that Appellants did not breach
the Company Agreement); and (3) delete the other components of the Award
(which were unfavorable to Appellants). These requested modifications are
impermissible because Appellants did not preserve this argument for appeal, they
would give Appellants relief they did not request, and they would improperly
segregate intertwined issues.
The Arbitrator properly interpreted Texas law and the Company Agreement,
and he acted within his authority in doing so. The trial court accordingly showed
due deference to the Arbitrator’s well-reasoned decision. This Court should not
disturb the trial court’s decision, because doing so would not only upset Texas’s
strong presumption in favor of arbitration awards; it would undo a just Award
rendered with full authority. It has been nearly four years since the Individual
Appellants voted to expel Dr. Bentz, and Dr. Bentz has yet to receive any
54069386.3 - 11 -
compensation for the harm Appellants inflicted upon him. The Court should reject
Appellants’ latest stalling tactic6 and affirm the Judgment.
6
There is a real risk that Appellants’ stalling tactics may prevent Dr. Bentz from obtaining
satisfaction of the Award and Judgment. See C.R. 1608 (“The Hospital Contract was the
[Company’s] sole source of revenue, and the [Company] held little in the way of additional
assets. On October 31, 2013, during the pendency of the underlying arbitration proceedings, the
Hospital Contract terminated when the Hospital elected not to renew it. The [Company] has
earned no additional revenues since that time (though trailing collections continued to trickle in
over the next several months). Other than these proceedings, the [Company] has no ongoing
business and intends to wind down once they reach a final conclusion.”)
54069386.3 - 12 -
ARGUMENT AND AUTHORITIES
I. Standard of Review
Appellants urge the Court to undertake a sweeping review of the Arbitrator’s
reasoning and set aside portions of the Award despite the fact that review of an
arbitration award is “extraordinarily narrow.” GJR Mgmt. Holdings, L.P. v. Jack
Raus, Ltd., 126 S.W.3d 257, 262 (Tex. App.—San Antonio 2003, pet. denied).
Upon a party’s application, the court “shall confirm [an] award . . . [u]nless
grounds are offered for vacating, modifying, or correcting [it].” TEX. CIV. PRAC. &
REM. CODE § 171.087 (West 2015) (emphasis added); see also 9 U.S.C. § 9
(“…the court must grant [an order confirming the award] unless the award is
vacated, modified, or corrected….”). “A mere mistake of fact or law alone is
insufficient to set aside an arbitration award.” Anzilotti v. Gene D. Liggin, Inc.,
899 S.W.2d 264, 266 (Tex. App.—Houston [14th Dist.] 1995, no writ).
Furthermore, when reviewing an arbitration award, courts are “not limited to the
arbitrator’s explanation for his award.” Xtria L.L.C. v. Int’l Ins. Alliance, Inc., 286
S.W.3d 583, 591 (Tex. App.—Texarkana 2009, pet. denied) (citing JJ-CC, Ltd. v.
Transwestern Pipeline Co., No. 14-96-1103-CV, 1998 WL 788804, at *4 (Tex.
App.—Houston [14th Dist.] Nov. 12, 1998, no pet.)).
Courts “must indulge every reasonable presumption to uphold arbitration
awards.” Anzilotti, 899 S.W.2d at 266. When “a non-prevailing party seeks to
54069386.3 - 13 -
modify or vacate an arbitrator’s award, he bears the burden to bring forth a
complete record that establishes his basis for relief.” Id. at 267 (citing Kline v.
O’Quinn, 874 S.W.2d 776, 790 (Tex. App.—Houston [14th Dist.] 1994, writ
denied) (op. on reh’g)). And where, as here, the non-prevailing party alleges that
the Arbitrator exceeded his power, the non-prevailing party’s burden is a heavy
one. IQ Holdings, Inc. v. Villa D’Este Condominium Owners’ Ass’n Inc.,
__ S.W.3d. __, No. 01-11-00914-CV, 2014 WL 982844, at *3 (Tex. App.—
Houston [14th Dist.] Mar. 13, 2014, no pet.).
II. Applying Texas law: the Award must be upheld.
Appellants raise two main issues on appeal. Appellants’ Joint Brief at xiv.
First, Appellants claim that the trial court erred in confirming the Award because
the Arbitrator exceeded his authority under the Company Agreement. Id. at 23–31.
Appellants also sprinkle this first issue with various evidentiary challenges to the
Award. Id. at 15–31. Second, Appellants claim that the trial court erred in
confirming the Award because the Award violated an extraordinary, fundamental
public policy by awarding a double recovery. Id. at 31–42. As a remedy for these
supposed deficiencies, Appellants ask the Court to modify the Award so that the
Award declares that Dr. Bentz was properly expelled and that Appellants did not
breach the Company Agreement. Appellants’ Joint Brief at 42–47.
54069386.3 - 14 -
As described more fully below, Appellants’ claims fail because: (A) without
a complete record of the arbitration proceedings, Appellants cannot overcome the
strong presumption in favor of upholding the Award; (B) the Arbitrator properly
exercised his Section 9.02 authority to decide all disputes related to the Company
Agreement other than those disputes decided under Section 9.01; (C) the Arbitrator
did not award a double recovery, but regardless, awarding a double recovery does
not warrant vacatur; and (D) even if the Court questions the trial court’s
confirmation of the Award, it cannot order the modification that Appellants
request.
A. Without a complete record of the arbitration proceedings,
Appellants cannot overcome the presumption in favor of
upholding the Award.
When “a non-prevailing party seeks to modify or vacate an arbitrator’s
award, he bears the burden to bring forth a complete record that establishes his
basis for relief.” Anzilotti, 899 S.W.2d at 267 (emphasis added) (citing Kline, 874
S.W.2d at 790). “A court must have a sufficient record of the arbitral proceedings,
and complaints must have been preserved, all as if the award were a court
judgment on appeal.” Nafta Traders Inc. v. Quinn, 339 S.W.3d 84, 101 (Tex.
2011). In order to be a complete record, the record must include a full transcript of
the arbitration hearing. Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564,
569 (Tex. App.—Dallas 2008, no pet.) (where party claimed arbitrator committed a
54069386.3 - 15 -
gross mistake and awarded a measure of damages not requested, appellate court
held that it “[could not] conclude the trial court erred in holding [the party] to the
burden of bringing forth a complete record of the arbitration proceedings,
including a transcript of the arbitration hearing.”). Absent a transcript of the
arbitration, “[n]either the attorneys’ recollection of what testimony was or was not
before the arbitrator nor the attachments to the motion to vacate provide a complete
record of the arbitration proceedings.” Statewide Remodeling, 244 S.W.3d at 569.
Where, as here, the non-prevailing party fails to provide the court with a
complete record, the court must presume that the evidence supports the arbitration
award and uphold that award. See Nafta Traders, 339 S.W.3d at 102 (“If error
cannot be demonstrated, an award must be presumed correct.”); Goldman v.
Buchanan, No. 05-12-00050-CV, 2013 WL 1281744, at *3 (Tex. App.—Dallas
Mar. 21, 2013, no pet.) (where party sought vacatur award on basis that arbitrators
exceeded their powers but “failed to introduce a record of the arbitration
proceedings before the district court,” appellate court had to “presume the evidence
supported the award” and therefore affirmed award’s confirmation); Schuster v.
Wild, No. 13-13-00474-CV, 2015 WL 251564, at *5 (Tex. App.—Corpus Christi
Mar. 5, 2015, pet. denied) (op. on reh’g) (reversing the trial court’s vacatur of
arbitration award based on the arbitrator exceeding his authority because “without
a transcript of the arbitration proceedings, [the court is] required to presume that
54069386.3 - 16 -
the evidence adequately supported [the award]”). The informal nature of arbitration
does not release a party from its burden to bring forward a complete record,
because “[w]ithout a record,” a court “cannot conclusively determine the basis for
the arbitrator’s award. . . .” 7 Vorwerk v. Williamson County Grain, No. 03-10-
00549-CV, 2012 WL 593481, at *6 (Tex. App.—Austin Feb. 23, 2012, pet.
denied) (citing GJR Mgmt., 126 S.W.3d at 263 and Statewide Remodeling, 244
S.W.3d at 569–70). Appellants claim that a complete record of the arbitration
proceedings is not required for this Court to determine that the Arbitrator exceeded
his authority. Appellants’ Joint Brief at 15. That is incorrect, and Appellants have
cited no cases in which an appellate court ruled that an arbitrator exceeded his
authority while relying on an incomplete record. Instead, Appellants cite
Centex/Vestal v. Friendship West Baptist Church, which does not support their
argument. 314 S.W.3d 677 (Tex. App.—Dallas 2010, pet. denied).
In Centex/Vestal, the non-prevailing party brought forth no record at all as to
one claim the arbitrator decided. Id. at 687. Accordingly, the court concluded that
the “failure to bring forth a complete record of the arbitration proceeding [was]
7
The Supreme Court aptly described the public policy supporting the requirement that a party
bring forth a complete record on appeal: “For efficiency’s sake, arbitration proceedings are often
informal; procedural rules are relaxed, rules of evidence are not followed, and no record is made.
These aspects of arbitration, which are key to reducing costs and delay in resolving disputes,
must fall casualty to the requirements for full judicial review. The parties can decide for
themselves whether the benefits are worth the additional cost and delay, but the only review to
which they can agree is the kind of review courts conduct.” Nafta Traders, 339 S.W.3d at 101–
02.
54069386.3 - 17 -
fatal” to the claim for vacatur. Id. As to other claims the arbitrator decided, the
court considered the limited record provided to it and determined that the arbitrator
acted within his authority on those claims. Id. at 685–86. In deciding that the
arbitrator did not exceed his authority, the court considered the partial record, but
“presume[d] any remaining evidence support[ed] the Award.” Id. at 685. And in
the end, the court found that the arbitrator did not exceed his authority in deciding
those claims. Id. at 686. This Court is presented with a similar situation;
Appellants provided only a limited record, so the Court must “presume any
remaining evidence supports the Award.” Id. at 685. As explained more fully
below, this presumption defeats Appellants’ claim for vacatur.
1. The issues decided by the Arbitrator were submitted in the
arbitration, and without a complete record, the trial court
had to presume that they were submitted.
Appellants claim that the Arbitrator issued an Award on issues not submitted
to him. Appellants’ Joint Brief at 23–27. However, the Arbitrator did not rule on
any issues not submitted to him, and, moreover, the Court must reject Appellants’
claim to the contrary because the Court “do[es] not have a record of the arbitration
and [is] unable to determine what claims were submitted or what evidence was
offered before the arbitrator[].” Kline, 874 S.W.2d at 783. Without a record of the
hearing, the court “ha[s] no way of knowing whether a fact issue was raised, or for
that matter, whether certain issues were tried by consent.” Brockman v. Tyson, No.
54069386.3 - 18 -
01-03-01335-CV, 2005 WL 2850128, at *4 (Tex. App.—Houston [1st Dist.] Oct.
27, 2005, pet. denied). Accordingly, “[w]ithout a transcription of the arbitration
proceedings, [the court] must presume adequate evidence to support the award.”
Kline, 874 S.W.2d at 783 (citing House Grain Co. v. Obst, 659 S.W.2d 903, 906
(Tex. App.—Corpus Christi 1983, writ ref’d n.r.e.)).
2. The evidence supported the damages awarded, and without
a complete record, the trial court had to presume that it did.
Appellants next claim that the Award failed the “essence” test because it is
not “rationally inferable” from the agreement. Appellants’ Joint Brief at 28. They
also argue that the Award constitutes an impermissible double recovery. Id. at 31–
34. The validity of these arguments implicates factual and legal questions, both of
which were fully briefed and argued to the Arbitrator, but most of those briefings
and arguments are not part of the record before this Court.
As more thoroughly explained to the Arbitrator through briefing, oral
argument, and expert testimony, awarding Dr. Bentz the Fair Market Value of his
interest and his share of distributions compensates Dr. Bentz for two different
injuries. First, awarding Dr. Bentz the Fair Market Value of his interest
compensates Dr. Bentz for the Company’s failure to purchase Dr. Bentz’s 20%
membership interest after it elected to do so. C.R. 1489. Second, awarding
Dr. Bentz damages equal to the distributions the Individual Appellants wrongfully
appropriated compensates Dr. Bentz for the membership distributions he should
54069386.3 - 19 -
have received while he remained a member of the Company. C.R. 1490. Thus,
Dr. Bentz was awarded separate damages for the violation of two separate
contractual rights—his right to the purchase price of his membership interest and
his right to distributions while he remained a member.
At the arbitration hearing, Appellants’ own damages expert conceded that
awarding Dr. Bentz the Fair Market Value and his share of distributions would not
be a double recovery if Dr. Bentz were found to still be a member of the Company
after expulsion—which is, in fact, what the Arbitrator found. C.R. 1489. This
testimony is not included in the appellate record because Appellants failed to
provide the trial court with a complete record. But, without a complete record of
the hearing, Appellants cannot rebut the presumption that the evidence supported
the award of Fair Market Value and distributions—and, in fact, it did.
In an instructive case, CC Williams Construction Co., Inc. v. Rico, the non-
prevailing party sought vacatur on the basis that the arbitrator exceeded his
authority and granted a double recovery to the prevailing party, but the non-
prevailing party failed to provide a transcript of the hearing. No. 09-10-00472-CV,
2011 WL 2135074, at *2–3 (Tex. App.—Beaumont May 19, 2011, no pet.). This
failure was fatal to the claim for vacatur. Id. The court held:
The record does not indicate that the [non-prevailing party] provided
the trial court with a complete record, i.e., a transcript of the
arbitration proceedings. See Williams, 244 S.W.3d at 569 (Finding
that the trial court did not err by requiring non-prevailing party to
54069386.3 - 20 -
provide a transcript of arbitration proceedings, even when no such
transcript was made and the party provided affidavits, exhibits, and an
attorney’s testimony regarding what occurred at the arbitration
proceeding). The [non-prevailing party’s] grounds for vacatur all
depend on the evidence offered and considered by the arbitrator and
the manner in which the arbitrator conducted the proceedings, none of
which the record contains. . . . We, therefore, presume that the
arbitration evidence supported the award. . . .
Under these circumstances, we conclude that the trial court erred by
refusing to confirm the arbitration award and by setting aside and
vacating the award.
Id. at *3.
Recently, the Fourteenth Circuit Court of Appeals issued another instructive
opinion in Mega Builders, Inc. v. Paramount Stores, Inc. No. 14-14-00744-CV,
2015 WL 3429060 (Tex. App.—Houston [14th Dist.] May 28, 2015, no pet. h.). In
Mega Builders, the appellant argued that the arbitrator “double count[ed]” a sum
awarded to the appellee. Id. at *2. As in CC Williams Construction, however, the
appellant’s failure to provide a record of the arbitration proceedings proved fatal to
its claim for vacatur. Id. at *3. The court explained:
[B]ecause we have no record of the arbitration proceedings, we cannot
determine whether the two entries constitute a double counting, as
[the appellant] alleges, or whether the two entries were intentionally
included in the calculation of the award based on the evidence
submitted to the arbitrator, as [the appellee] argues. Absent a record,
we must presume that the record supports the arbitrator’s
determination of the proper amount of the award.
Id.
54069386.3 - 21 -
Here, as in CC Williams Construction and Mega Builders, Appellants have
not met their burden to provide a complete record. Accordingly, the Court must
presume that the record that it lacks supports the Award.
3. Appellants conceded the value of Dr. Bentz’s membership
interest, and without a complete record, the trial court
could not find otherwise.
The lack of a complete record requires the Court to reject Appellants’
argument that the Arbitrator exceeded his powers by deciding a dispute as to the
Fair Market Value of Dr. Bentz’s interest. In support of their argument, Appellants
cite seven pages of an unofficial transcript from the opening presentations during
the first day of the hearing. Appellants’ Brief at 21 (citing C.R. 1787–93). But
even this unofficial transcript demonstrates the Individual Appellants’ willingness
for the Arbitrator to award Dr. Bentz the Fair Market Value of his interest as long
as it was within the range decided in the Section 9.01 proceeding:
Mr. Mussalli: What I think would help us is, you know, if there’s an
agreement that, you know, if say let’s allow Mr. Wood to determine –
there’s the word determine again – let’s allow Mr. Wood to choose, so
to speak, as long as you don’t exceed the higher number.
C.R. 1790 at 74:11–16.
Appellants’ reliance on arguments presented at the hearing underscores the
very reason that Texas law imposes a burden upon the non-prevailing party to
bring forth a complete record of the arbitration: the Court cannot review the
propriety of the Arbitrator’s exercise of his powers without a record of what
54069386.3 - 22 -
happened. Here, the lack of a complete record prevents the Court from reviewing
the testimony and arguments from the rest of the hearing. And what happened at
the rest of the hearing is important.
Over the course of the hearing, Appellants did not argue that $526,796 was
not the Fair Market Value. Rather, as the Arbitrator stated in the Award, “[a]ll
Parties [] acknowledged. . . that the appropriate Fair Market Value of Dr. Bentz’s
Membership Interests [was] $526,796.” C.R. 1489. The Court must presume the
truthfulness of the Arbitrator’s statement. See Turner v. Package Exp., L.P., No.
14-12-00241-CV, 2013 WL 2149786, at *6 n.8 (Tex. App.—Houston [14th Dist.]
May 16, 2013, no pet.) (because the arbitrator’s award stated that the non-
prevailing party “stated in his Closing Brief that he did not want to pursue any
claims against [the prevailing party],” and the Closing Brief was not included in
the appellate record, the court presumed that the Closing Brief supported the
arbitrator’s decision). Therefore, although Appellants now claim that the
Arbitrator improperly decided a dispute as to the Fair Market Value of Dr. Bentz’s
interest, the Award reflects that, by the close of the hearing (at the latest), there
was no longer a dispute as to the Fair Market Value. Had a full record of the
hearing been made, it would show that the Arbitrator did not exceed his powers.
But without a complete record, the Court must abide by the presumption in favor
of upholding the Award.
54069386.3 - 23 -
B. The Arbitrator properly exercised his broad authority under
Section 9.02 to decide all disputes other than those decided under
Section 9.01.
Appellants claim that the Arbitrator exceeded his authority in issuing the
Award. Appellants’ Joint Brief at xiv. When deciding whether an arbitrator acted
within his jurisdiction, the “appropriate inquiry is not whether the arbitrator
decided an issue correctly, but instead whether he had the authority to decide the
issue at all.” Forest Oil Corp. v. El Rucio Land and Cattle Co., Inc., 446 S.W.3d
58, 81 (Tex. App.—Houston [1st Dist.] July 24, 2014, pet. filed) (citing D.R.
Horton—Texas, Ltd. v. Bernhard, 423 S.W.3d 532, 534 (Tex. App.—Houston
[14th Dist.] 2014, pet. denied)). Further, “there is a presumption that the
arbitrator’s actions were within his authority, and [the Court] [must] resolve all
doubts in favor of the award.” Barton v. Fashion Glass and Mirror, Ltd., 321
S.W.3d 641, 646 (Tex. App.—Houston [14th Dist.] 2010, no pet.); Prudential Sec.
Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995). The burden is therefore “on
the party challenging the award to prove the arbitrator acted outside his authority.”
Id. “[W]hen, as here, there is a broad arbitration clause, arbitration of a particular
claim should not be denied unless it can be said ‘with positive assurance that the
arbitration clause is not susceptible of an interpretation that covers the dispute.’”
Centex/Vestal, 314 S.W.3d at 685–86 (quoting Kline, 874 S.W.2d at 782).
54069386.3 - 24 -
In support of their claim that the Arbitrator exceeded his authority,
Appellants make several faulty arguments. They argue that the Arbitrator did not
have authority to award Dr. Bentz the Fair Market Value of his interest and
distributions because those remedies were barred by Section 9.01. Appellants’
Joint Brief at 21–23. They also argue that there was no agreement to award
Dr. Bentz a “buyout.” Id. at 22–27. Finally, they argue that the Award fails the
“essence” test because it was not “rationally inferable” from the agreement. Id. at
28.
These arguments fail for several reasons: (1) Section 9.02 of the Company
Agreement gave the Arbitrator the authority to decide all disputes related to the
Company Agreement other than disputes resolved pursuant to Section 9.01, and
none of the disputes the Arbitrator decided were, or even could have been, decided
under Section 9.01; (2) the Arbitrator had authority to decide the appropriate
remedies for the disputes submitted to him under Section 9.02; and (3) the Award
was rationally inferable from the Agreement, as shown by the Arbitrator’s well-
reasoned discussion in the Award.
54069386.3 - 25 -
1. Section 9.02 gave the Arbitrator authority to decide all
disputes related to the Company Agreement other than
disputes resolved pursuant to Section 9.01, and none of the
disputes the Arbitrator decided were, or could have been,
decided under Section 9.01.
Appellants have not met their burden to prove the arbitrator acted outside his
authority. Section 9.02 gave the Arbitrator authority to “any dispute under [the
Company Agreement] which is not otherwise resolved pursuant to other
procedures under Section 9.01….” C.R. 128–29 at § 9.02; see also Jack B. Anglin
Co., Inc. v. Tipps, 842 S.W.2d 266, 267–71 (Tex. 1992) (reading a provision
allowing for disputes “under the Contract [to] be submitted to arbitration…”
broadly and, accordingly, holding arbitration of DTPA claims proper because
DTPA claims were “intertwined” with contract claims) (emphasis added). And
Section 9.01 provided procedures for deciding only three types of disputes: (1)
who would serve as the party-appointed appraiser for purchasers of a membership
interest; (2) who would serve as the common appraiser; and (3) which party-
appointed appraiser’s opinion on the Fair Market Value of a membership interest
would be controlling. C.R. 127 at § 9.01. Thus, Section 9.02 granted the
Arbitrator authority to decide all other disputes related to the Company
Agreement.
The controlling opinion on Fair Market Value had been determined under
Section 9.01 prior to the Section 9.02 arbitration that resulted in the Award. See
54069386.3 - 26 -
C.R. 128–29 at § 9.02 (establishing the Arbitrator’s broad authority); Appellants’
Joint Brief at 26 (“The Section 9.01 proceeding was concluded on January 3,
2014.”) The Arbitrator then relied on the controlling opinion in issuing the Award.
The Arbitrator awarded Dr. Bentz the Fair Market Value of his interest, which
Appellants conceded was $526,796—a valuation taken directly from the
controlling Fair Market Value opinion. C.R. 1489. In other words, rather than
invading the Section 9.01 proceeding, as Appellants erroneously allege, the
Arbitrator properly relied on the result of the Section 9.01 proceeding. See id.
Appellants also argue that the Arbitrator awarded a “buyout,” which they allege
was a Section 9.01 matter. Appellants’ Joint Brief at 23. Appellants are incorrect
on this point in two respects. First, Appellants claim the award included a buyout
“similar to the old shareholder oppression cases. . . .” Appellants’ Joint Brief at
27. But the Arbitrator did not award a “buyout” as a remedy in tort; rather, the
Arbitrator enforced the Company Agreement. Because the Company breached the
option to purchase Dr. Bentz’s interest, the Arbitrator enforced the option by
ordering the Company to pay Dr. Bentz the purchase price for his interest, and by
requiring Dr. Bentz to relinquish that interest. C.R. 1489.
Second, regardless of whether enforcing the option constitutes a “buyout,”
the fashioning of remedies is not a Section 9.01 matter. There is no provision in
Section 9.01 for ruling on a party’s cause of action or awarding a party any type of
54069386.3 - 27 -
damages—those disputes are left to the broad arbitration authority of Section 9.02.
Compare C.R. 128—29 at §9.02 (establishing Section 9.02’s broad arbitration
authority) with C.R. 127–28 at § 9.01 (carving out from Section 9.02’s broad
arbitration authority narrow issues for determination under Section 9.01). Thus,
whether enforcing the option (or even awarding a supposed “buyout”) was a proper
remedy was a determination to be made in the Section 9.02 proceeding.
Here, the Arbitrator awarded Dr. Bentz the purchase price for his
membership interest because the Company breached the Company Agreement
when it elected to exercise its option to purchase Dr. Bentz’s membership interest
but then failed to hold a closing and make the payment by the contractually-
mandated deadline. C.R. 1489. Whether the Company breached the Company
Agreement and what the remedy for that breach would be were both issues that
could not be resolved by the limited procedures of Section 9.01 but instead fell
squarely within the broad arbitration authority of Section 9.02 that Appellants
agreed to by entering into the Company Agreement.
2. The Arbitrator had authority to decide the appropriate
remedies for the disputes submitted to him under
Section 9.02.
Appellants claim that the Arbitrator exceeded his authority because there
was “no agreement to award a buyout. . . .” Appellants’ Joint Brief at 23
(capitalization removed). In supposed support, Appellants claim that Dr. Bentz did
54069386.3 - 28 -
not plead or submit a request for a “buyout” if he was properly expelled. Id. at 26.
To begin with, this argument is off-base because the Arbitrator did not award a
“buyout”; he enforced the Company Agreement and awarded Dr. Bentz damages
for the Company’s breach thereof. C.R. 1489. Further, this argument misses the
mark because: (a) there was no requirement that the parties agree to the remedies
selected by the Arbitrator, and (b) Dr. Bentz did seek to recover the Fair Market
Value of his interest, but regardless, that was an issue for the Arbitrator to decide.
a. There was no requirement that the parties agree to
the remedies selected by the Arbitrator.
Appellants argue that awarding Dr. Bentz the Fair Market Value of his
interest was a “buyout,” and that the Arbitrator could not award this “buyout”
unless the parties agreed to it. Appellants’ Joint Brief at 23. As noted above, the
Arbitrator did not award a “buyout”; he simply enforced the Company Agreement
and awarded Dr. Bentz damages for the Company’s breach thereof. Appellants’
argument fails regardless because the parties agreed to arbitrate any dispute related
to the Company Agreement (other than a dispute resolved under Section 9.01), and
in doing so, they agreed to subject themselves to Texas arbitration law, which
gives arbitrators “broad discretion in fashioning a remedy appropriate to the case.”
Roe v. Ladymon, 318 S.W.3d 502, 523 (Tex. App.—Dallas 2010, no pet.). Indeed,
“[t]he fact that the relief granted by the arbitrator[] could not or would not be
granted by a court of law or equity is not a ground for vacating or refusing to
54069386.3 - 29 -
confirm the award.” TEX. CIV. PRAC. & REM. CODE § 171.090 (West 2015). Thus,
Texas law does not require parties to an arbitration agreement to agree on what
remedies may be granted.
In supposed support of their argument, Appellants cite Fortune v. Killebrew,
Gulf Oil Corp. v. Guidry, and Burlington Resources Oil & Gas Co., LP v. San Juan
Basin Royalty Trust. Appellants’ Joint Brief at 24–26. None of these cases are
analogous to this dispute.
In Fortune, the arbitration agreement only called for arbitration to
“determine the amount received by each legatee, and the amount that each was
entitled to out of the estate. . . .” 23 S.W. 172, 176 (Tex. 1893). The court held
that the arbitrators exceeded their authority by awarding transfer of land to the
executor, rather than just determining the amount that the executor should have
received. Id. at 176–77. In that case, the award of land clearly did not fall under
the narrow arbitration provision. Id. Here, on the other hand, Section 9.02 is a
broad arbitration provision under which the Appellants agreed that the Arbitrator
would decide all disputes related to the Company Agreement that were not
resolved under Section 9.01. See C.R. 128–29 at § 9.02 (providing that “any
Dispute under [the Company Agreement] which [was] not otherwise resolved
pursuant to other procedures under Section 9.01” would be decided by arbitration
under Section 9.02).
54069386.3 - 30 -
In Gulf Oil Corp. v. Guidry, the arbitrators were given very limited
authority; they were only tasked with determining whether or not an employee was
discharged for cause. 327 S.W.2d 406 (Tex. 1959). Instead of limiting their
decision to only that issue, the arbitrators determined that “the discharge was
discriminatory; it would be set aside, the employee would be demoted, and would
receive back pay.” Appellants’ Joint Brief at 25 (citing Guidry, 327 S.W.3d at
141–42). Like the Fortune arbitrators, the Guidry arbitrators received limited
authority under the arbitration agreement, and their award clearly exceeded that
authority. But like Fortune, Guidry is not analogous to the dispute before this
Court because the Company Agreement here gave the Arbitrator broad authority,
which he properly exercised.
Finally, Burlington Resources is also distinguishable. 249 S.W.3d 34 (Tex.
App.—Houston [14th Dist.] 2007, pet. denied). In Burlington Resources, the
arbitration agreement at issue applied only to certain existing disputes which were
listed in an exhibit to the agreement. Id. at 37–38. The court vacated a portion of
the award because that portion was based on a dispute that was “not mentioned” in
the agreement. Id. at 45. Here, unlike in Burlington Resources, the arbitration
agreement did not limit arbitration to any specific, then-exiting disputes.
C.R. 128–29 at § 9.02. Thus, none of the cases relied upon by Appellants support
their theory.
54069386.3 - 31 -
b. Dr. Bentz did seek to recover the Fair Market Value
of his interest, but regardless, this was an issue for the
Arbitrator to decide.
Appellants attempt to support their argument that there was no agreement to
award Dr. Bentz the Fair Market Value of his membership interest by claiming that
Dr. Bentz did not plead or submit a request for a “buyout” in the event the
Arbitrator found that Dr. Bentz was properly expelled. Appellants’ Joint Brief at
25–28. However, whether Dr. Bentz pled a claim for breach of contract and sought
damages in the amount of the already-determined Fair Market Value of his
membership interest is inapposite, because arbitrations do not follow the same
procedural rules as court cases. Instead, “the enforcement of pleading
requirements before the arbitrator is a procedural matter for the arbitrator.” Kline,
874 S.W.2d at 782 (citing USX Corp. v. West, 781 S.W.2d 453, 456 (Tex. App.—
Houston [1st Dist.] 1989, no writ)) (where respondent claimed arbitrators erred in
awarding punitive damages even though claimant had not plead punitive damages,
the court “defer[red] to the arbitrators with regard to procedural matters such as the
sufficiency of [respondent’s] pleadings”).
Furthermore, the Arbitrator did in fact rule only on the issues before him,
and the Court must reject Appellants’ claim to the contrary because the Court
“do[es] not have a record of the arbitration and is unable to determine what claims
54069386.3 - 32 -
were submitted or what evidence was offered before the arbitrator[].”8 Id. at 783.
Without a complete record of the hearing, the Court has “no way of knowing
whether a fact issue was raised, or for that matter, whether certain issues were tried
by consent.” Brockman, 2005 WL 2850128, at *4. The Court must therefore
reject Appellants’ argument on this point.
3. The Award was rationally inferable from the Agreement, as
shown by the Arbitrator’s well-reasoned discussion in the
Award.
Appellants claim that the Award failed the “essence” test because, they
claim, the Award does not “‘have a basis that is at least rationally inferable, if not
obviously drawn from the letter and purpose of the contract.’” Appellants’ Joint
Brief at 28; Executone Info Sys., Inc. v. Davis, 26 F.3d 1314, 1325 (5th Cir. 1994).
In support of this argument, Appellants assert that the Arbitrator incorrectly
determined that Dr. Bentz was a member of the Company after his expulsion. Id.
at 28. Appellants’ position is untenable because: (a) the essence test does not
allow the non-prevailing party to retry the dispute, and, in any event, (b) the
8
In fact, Appellants’ claim that Dr. Bentz did not submit this issue in the arbitration is directly
contradicted by a document they did not put into the record. One Section of Dr. Bentz’s
prehearing brief was entitled, “Even if the Respondents properly expelled Dr. Bentz, they
have still breached the Company Agreement[] by failing to pay him Fair Market Value of
his Membership Interest.” See Appendix 11, Excerpts from Dr. Bentz’s Prehearing Brief at 39
(emphasis in original). This brief is not in the appellate record because Appellants failed to
provide a complete record to the trial court, but Appellants should not be allowed to benefit from
that failure—this is the very reason appellants are required to bring forward complete records of
arbitration proceedings in the first place.
54069386.3 - 33 -
Arbitrator correctly determined that Dr. Bentz was still a member after expulsion
and prior to the sale of his membership interest.
a. The essence test does not allow the non-prevailing
party to retry the dispute.
Appellants’ essence test argument is yet another attempt to recast their
arguments on the merits as jurisdictional arguments. But, as the Executone case
cited by Appellants makes clear, the essence test does not permit courts to retry the
merits of an arbitration. Rather, in applying the essence test, “[t]he Court looks
only to the result reached.” Id. (quoting Anderman/Smith Operating Co. v.
Tennessee Gas Pipeline Co., 918 F.2d 1215, 1219 n.3 (5th Cir. 1990)). A “remedy
lies beyond the arbitrator’s jurisdiction only if ‘there is no rational way to explain
the remedy handed down by the arbitrator as a logical means of furthering the aims
of the contract.’” Id. (quoting Brotherhood of R.R. Trainmen v. Central of Ga. Ry.,
415 F.2d 403, 412 (5th Cir. 1969), cert. denied, 396 U.S. 1008 (1970)). In
applying the essence test, the Court is not “limited to the arbitrator’s explanations
for his award. . . .” Id. (quoting Anderman/Smith, 918 F.2d at 1219 n.3.).
In Ancor Holdings, L.L.C. v. Peterson, Goldman & Villani, Inc., another
case Appellants rely upon, the court further explains the essence test as follows:
Our inquiry here is not one of contract interpretation.
Rather, we look to whether the arbitrator’s award “was so
unfounded in reason and fact, so unconnected with the
wording and purpose of the [contract] as to ‘manifest an
54069386.3 - 34 -
infidelity to the obligation of the arbitrator’” such that the
arbitrator failed to interpret the [contract] at all. . . .
294 S.W.3d 818, 830–31 (Tex. App.—Dallas 2009, no pet.) (emphasis added).
Thus, under the essence test, “[e]ven if the arbitrator made a mistake in the
application of the law. . . such a mistake is not a ground for vacating an arbitrator’s
award.” Id. at 833.
Here, as in Ancor Holdings, the Award does not “manifest an infidelity” to
the Arbitrator’s obligations. Like the arbitrator in Ancor Holdings, “it is clear from
the [A]rbitrator’s. . . final award that [he] went through the process of interpreting
the [contract] and that [he] considered the wealth of evidence presented to [him].”
Id. at 831. Indeed, the Award shows that the Arbitrator issued the Award after
“having read the pleadings, heard the testimony, reviewed the relevant documents,
listened to argument of counsel, read and considered the briefs and the post-
hearing submissions, after full consideration of the record upon due deliberation,
construing the contracts and applying Texas law. . . .” C.R. 1492. For these
reasons, the Award passes the essence test.
b. The Arbitrator correctly determined that Dr. Bentz
was still a member after expulsion.
Even if the essence test allowed a court to review the merits of the
Arbitrator’s decision—which it does not—the Award would pass the test because
the Arbitrator correctly determined that Dr. Bentz was still a member after
54069386.3 - 35 -
expulsion and prior to the sale of his membership interest. Dr. Bentz’s
membership interest was his personal property, and Appellants have pointed to no
evidence that Dr. Bentz had transferred his interest to anyone. See TEX. BUS.
ORGS. CODE § 101.106 (West 2015) (“A membership interest in a limited liability
company is personal property.”) Further, nothing in the Company Agreement
suggests that a member stops being a member upon expulsion or that his
membership interest gets “absorbed.” To the contrary, the Company Agreement
suggests that a member continues to be a member until his interest is transferred—
which, here, did not happen before the arbitration hearing.
Under the Company Agreement, upon expulsion “the Company and the
other Members shall have an option (but not an obligation) to purchase all of the
Membership Interest owned by such. . . expelled Member. . . at the Fair Market
Value determined as of the last day of the calendar month preceding the date of
the. . . expulsion of such Member.” C.R. 114 at § 2.05. If the Company or other
Members exercise this option, they must do so within “180 days following the
expulsion of [the] Member. . . .” Id. The party exercising the option must pay for
the Membership Interest “at a closing, held on a business day not more than 30
days after the time for electing to purchase the interest lapses, all in cash or by
cashier’s check. . . .” C.R. 115 at § 2.08. If there is a dispute over the Fair Market
Value, the deadline for closing is stayed until “the determination has been made by
54069386.3 - 36 -
the common appraiser as to which opinion is the controlling opinion. . . .”
C.R. 115, 127–28. “At the closing, the selling party shall deliver instruments of
conveyance and assignment of the appropriate amount of the Membership Interest.
. .” and “the purchasers shall pay the purchase price. . .” C.R. at 115 at § 2.08.
“Upon transfer of any membership interest in the Company. . . the items of income
and loss attributable to the Company Rights shall be apportioned between the
assignor and the assignee as of the last day of the month preceding the transfer (the
deemed transfer date) based on the results of Company operations through that
deemed transfer date.” C.R. 119 at § 4.03.
Based on the foregoing provisions, Appellants had a choice regarding
whether to purchase Dr. Bentz’s membership interest upon expulsion. If they
chose to purchase it, they had to exchange the purchase price for documents
conveying the membership interest at a closing. The Company would continue to
allocate profits and losses to Dr. Bentz until the deemed transfer date. If
Appellants did not choose to purchase Dr. Bentz’s membership interest, then no
transfer would occur, and the Dr. Bentz would remain a Member. Under this
scheme, if an expelled member lost his interest immediately upon expulsion (as
Appellants allege), there would be no reason for the Company Agreement to
provide an option to purchase an expelled member’s interest at all.
The Arbitrator agreed with this analysis of the Company Agreement:
54069386.3 - 37 -
If a Texas limited liability company chooses to alter, in
its company agreement, the statutory rule that a Member
may not be expelled, it must make very clear all of the
consequences of expulsion. In construing such an
agreement no rights or consequences that are not
specifically provided for should be assumed. . . . The
Agreements do not say that a Member’s Interest is
terminated, forfeited or lost upon expulsion. Or that he
shall, from that point, cease to be a Member and his
Sharing Ratio be reduced to zero. Instead Section 2.05 of
the Agreements demonstrates that an expelled Member
retains his Membership Interest. The Company and the
other Members have an option to purchase all of the
Membership Interest owned by the expelled Member. . . .
The existence of the option itself recognizes that the
Membership Interest survives expulsion. . . .
Common sense, logic and a careful reading of the
Agreements compel that, until paid for his Interest, a
Member, even an expelled Member, is entitled to his
share of distributions made by the Company.
C.R. 1490.
Now, for the first time on appeal, Appellants complain that this
interpretation of the Company Agreement treated Dr. Bentz “as if he was a
Member rather than a Disputed Membership Interest.” Appellants’ Joint Brief at
28–31. To be clear, Dr. Bentz was not a disputed membership interest—he owned
one. Under the Company Agreement, a “disputed membership interest” is a
membership interest, the Fair Market Value of which is in dispute. See C.R. 1461
at § 9.01(a). Dr. Bentz was therefore not a disputed membership interest—he was
an expelled member who owned a membership interest the Fair Market Value of
54069386.3 - 38 -
which was in dispute. An expelled member is still a member and a disputed
membership interest is still a membership interest. There is nothing in the
Company Agreement that suggests a member stops being a member when the Fair
Market Value of his membership interest is in dispute. Dr. Bentz therefore
remained a member after expulsion and prior to the transfer of his membership
interest, and the Arbitrator properly decided this issue.
C. The Arbitrator did not award a double recovery, but even if he
had, it would not be grounds for vacatur.
In their second issue, Appellants claim that the Arbitrator violated public
policy by awarding Dr. Bentz the Fair Market Value of his membership interest
and his pro rata share of the distributions made while he was still a member.
Appellants’ Joint Brief at 42. Appellants assert that this award violates Texas’s
prohibition on double recoveries. Id. Appellants’ argument fails for two reasons:
(1) double recoveries do not warrant vacatur; and (2) the Arbitrator did not award a
double recovery.
1. Double recoveries do not warrant vacatur.
Regardless of whether the award granted a double recovery, double
recoveries do not warrant vacatur because: (a) prohibiting double recoveries is not
so fundamental a policy that it would outweigh public policy in favor of upholding
arbitration awards, and, in any event, (b) violating public policy is not a ground for
vacatur.
54069386.3 - 39 -
a. Prohibiting double recoveries is not so fundamental a
policy that it would outweigh public policy in favor of
upholding arbitration awards.
Appellants state that “[i]n order for an award to be vacated as a violation of
public policy, the policy at issue must be a carefully articulated fundamental public
policy.” Appellants’ Joint Brief at 34 (citing CVN Group, Inc. v. Delgado, 95
S.W.3d 234, 239 (Tex. 2002)). The policy against double recoveries, however, is
not the kind of carefully articulated, fundamental policy that could outweigh the
public policy in favor of upholding arbitration awards.
Although Texas’s prohibition against double recoveries reflects public
policy—as all law does—Appellants did not and cannot cite any Texas cases
supporting their claim that the policy against double recoveries is the kind of
fundamental policy for which a violation justifies vacatur. Instead, Appellants
skirt the issue by citing a number of cases reaffirming the notion that double
recoveries are against Texas public policy. See Appellants’ Joint Brief at 37–39
(citing cases for the proposition that “[t]he policy against double recovery is firmly
rooted in Texas jurisprudence”). But Appellants miss their mark. The question is
not whether Texas has a firmly-rooted policy against double recoveries, but is
instead whether the public policy is so fundamental as to require courts to upset the
strong presumption in favor of arbitration awards. The answer to the latter
question is “no.”
54069386.3 - 40 -
At least two courts of appeals have held that awarding a double recovery in
arbitration is not grounds for vacatur. In Black v. Shor, the Corpus Christi Court of
Appeals rejected a non-prevailing party’s bid to vacate an arbitration award on the
basis that is violated the one satisfaction rule. 443 S.W.3d 154 (Tex. App.—
Corpus Christi 2013, pet. denied) The Black court held that “[a] trial court should
not overturn an arbitration award rendered after honest consideration given to
claims and defenses presented to it, no matter how erroneous.” Id. at 168–69 (Tex.
App.—Corpus Christi 2013, pet. denied) (citing Xtria L.L.C., 286 S.W.3d at 598);
Werline v. E. Tex. Salt Water Disposal Co., 209 S.W.3d 888, 898 (Tex. App.—
Texarkana 2006); aff’d 307 S.W.3d 267, 268 (Tex. 2010)). Similarly, in Roe v.
Ladymon, the Dallas Court of Appeals rejected Appellants’ argument that an
“award should be modified to eliminate a double recovery of damages,” justifying
its holding on the arbitrator’s “broad discretion in fashioning a remedy appropriate
to the case.” 318 S.W.3d at 523.
Although Appellants cite several cases analyzing arbitration awards in light
of public policy, these cases do not support Appellants’ argument. In one of the
cases cited by Appellants, CVN Group, Inc., the Supreme Court of Texas rejected a
public policy attack on an arbitration award, reasoning that the “arbitrator’s mere
disagreement with a judge does not violate public policy [and] [n]othing in the
arbitration proceeding indicate[d] that the arbitrator completely disregarded the
54069386.3 - 41 -
[law].”). 95 S.W.3d at 239. Furthermore, in none of the cases cited by Appellants
did the court vacate an award on the basis that it granted a double recovery; rather,
those cases vacated awards that violated the Constitution, were unconscionable,
encouraged criminality, or violated a statute that prohibited unconscionable
conduct. See Lee v. El Paso County, 965 S.W.2d 668 (Tex. App.—El Paso 1998,
pet. denied) (affirming vacatur of award that violated Texas Constitution’s
prohibition on “freely giving away [of] public moneys for services previously
rendered…”); Lee v. Daniels & Daniels, 264 S.W.3d 273 (Tex. App.—San
Antonio 2008, pet. denied) (vacating award that granted lawyer recovery against
client for fees lawyer incurred in representing himself in securing withdrawal from
ongoing litigation because it was unconscionable for a client to pay a lawyer’s fee
for service performed for the lawyer’s benefit); Smith v. Gladney, 98 S.W.2d 351,
352 (Tex. 1936) (vacating award that enforced gambling agreement); Goodyear
Tire & Rubber Co. v. Sanford, 540 S.W.2d 478, 483–84 (Tex. Civ. App.—Houston
[14th Dist.] 1976, no writ) (vacating award that found employer’s action proper in
terminating employee for filing criminal charges against supervisor prior to
exhausting grievance process, because award discouraged disclosure of criminal
activity and delayed justice); Rapid Settlements, 234 S.W.3d at 793 (affirming
injunction against confirmation of award that violated statute requiring court
54069386.3 - 42 -
approval of structured settlement in order to prevent abuses of power against
unsophisticated tort claimants).
Unlike the public policies addressed in the cases cited by Appellants, the
policy against double recoveries is not the kind of fundamental policy for which a
violation warrants vacatur, as the Roe v. Ladymon and Black v. Shor courts
recognized. For the above reasons, the trial court properly honored the public
policy in favor of upholding arbitration awards, and this Court should do the same.
b. Violating public policy is not a ground for vacatur
under the Federal Arbitration Act.
Regardless of whether the Award includes a double recovery, the Award
should not be vacated because the common law ground for vacatur Appellants
assert is no longer a bar to confirmation.
Appellants note that the “[t]he United States Supreme Court has determined
that Sections 10 and 11 of the FAA are exclusive of the common law grounds to
vacate an award.” Id. at n. 17. Indeed, the United States Supreme Court has made
clear that common law grounds for vacatur no longer bar confirmation of
arbitration awards because the grounds for vacatur under the FAA displace and
preempt common law grounds for vacatur. Hall St. Assocs., L.L.C. v. Mattel, Inc.,
522 U.S. 576, 584–89 (2008). Since that decision, this Court held in Royce
Homes, L.P. v. Bates that, where the FAA applies, state common law grounds for
vacatur (like an award violating public policy) do not apply. 315 S.W.3d 77, 90
54069386.3 - 43 -
(Tex. App.—Houston [1st Dist.] 2010, no pet.) (“We have already held that the
FAA applies to this case. We conclude that Hall Street forecloses any common-
law grounds for vacatur of an arbitration award such as manifest disregard of the
law and gross mistake.”); see also Petroleum Analyzer Co. LP v. Olstowski, No.
01-09-00076-CV, 2010 WL 2789016 (Tex. App.—Houston [1st Dist.] 2010, no
pet.) (“. . . statements that the arbitration panel ‘exceeded its power’ in granting an
award against public policy. . . are statements couched in common law arguments
that do not provide valid grounds for vacatur of the arbitrators’ award.”) (citations
omitted).
As Appellants admit, both Federal Arbitration Act (“FAA”) and Texas
Arbitration Act (“TAA”) apply here. Appellants’ Joint Brief at 13 (“. . . the FAA
and TAA apply concurrently.”). They admit further that “the FAA supplies the
substantive rules of the [confirmation] decision.” Id. at 14. Because the FAA
forecloses common law grounds for vacatur like an award violating public policy,
Appellants’ public policy challenge to the Award must fail. Furthermore, the cases
Appellants cite do not change this analysis because they predated this Court’s
controlling decision in Royce Homes. Compare Royce Homes, 315 S.W.3d 77
(2010), with CVN Group, 95 S.W.3d 234 (2002), Smith v. Gladney, 98 S.W.2d
352 (1936), Goodyear Tire & Rubber, 540 S.W.2d 478 (1976), Lee v. El Paso
54069386.3 - 44 -
County, 965 S.W.2d 668 (1998), Rapid Settlements, 234 S.W.3d 788 (2007), and
Lee v. Daniels & Daniels, 264 S.W.3d 273 (2008).
2. The Award compensates Dr. Bentz for separate injuries and
therefore does not grant a double recovery.
Appellants claim that the Award granted Dr. Bentz a double recovery, but a
double recovery only occurs “when a plaintiff obtains more than one recovery for
the same injury.” Waite Hill Services, Inc. v. World Class Metal Works, Inc., 959
S.W.2d 182, 184 (Tex. 1996) (citing Stewart Title Guar. Co. v. Sterling, 822
S.W.2d 1, 7 (Tex. 1991)). The damages recovered by Dr. Bentz are not duplicative
because they compensate Dr. Bentz for separate injuries: the Company’s failure to
pay Dr. Bentz for his membership interest after electing to purchase it and the
Individual Appellants’ wrongful appropriation of Dr. Bentz’s pro rata share of
distributions while Dr. Bentz was still a member of the Company.
Appellants’ argument that Dr. Bentz was awarded distributions twice
ignores the fact that the “Fair Market Value” is the required purchase price for
Dr. Bentz’s membership interest— not a reflection of damages sustained by
Dr. Bentz before the purchase of his membership interest. The purchase price
would be the same whether the Company distributed $0 or $3.6 million between
the expulsion and purchase, because that is what the parties agreed to. See
C.R. 118 at § 4.01 (“At such time as determined by the Executive Committee, Net
Cash Flow…shall be distributed to the Members in proportion to their Sharing
54069386.3 - 45 -
Ratios.”) (emphasis added); see also C.R. 136 (establishing equal sharing ratios of
20.0% per member).
In creating the Company Agreement, the Company and the members had a
number of options to determine what price would be paid to an expelled member
on the date of transfer. They could have agreed that the purchase price would be a
sum certain. They could have agreed that the purchase price would be a multiple
of the profits the Company received in the calendar month preceding the transfer.
They even could have agreed that there would be no purchase price, and that an
expelled member’s interest would simply revert to the Company. But they did not.
Instead, they agreed that the purchase price would be the Fair Market Value as
determined on the last day of the calendar month preceding the month of the
expulsion. C.R. 114 at § 2.05.
By defining the Fair Market Value based on a date preceding expulsion, the
Appellants assumed the risk that the value could increase or decrease dramatically
between the date of expulsion and the date of purchase—or even between the date
of valuation and the date of expulsion. And by allowing a member to remain a
member until the transfer of his membership interest, they agreed that the member
would receive distributions regardless of the extent to which the purchase price
(that is, Fair Market Value) would have been based on an estimate of those
distributions.
54069386.3 - 46 -
Thus, it was not a double recovery for the Arbitrator to award Dr. Bentz the
contractually-mandated purchase price (Fair Market Value) as damages for the
Company’s breach of contract in addition to his contractually-mandated share of
the membership distributions.
D. Even if the Court were to vacate the Award, it could not order the
modification that Appellants request.
For the first time on appeal, Appellants request to “vacate” the entire Award,
except for the Arbitrator’s findings that “Dr. Bentz was properly expelled and there
was no breach of the [Company] Agreement by the Appellants.” Appellants’ Joint
Brief at 42. There are three problems with this argument. First, the Arbitrator did
not find that “there was no breach of the [Company] Agreement by the
Appellants.” Id. The Arbitrator instead explicitly found that the Company’s
failure to hold a closing and pay Dr. Bentz by the deadline was a breach of the
Company Agreement. C.R. 1489.
Second, Appellants request—for the first time on appeal—to modify the
Award in a manner that differs from the modification that they requested the trial
court make. See C.R. 1413–44, 1591–94, 1605–23, 1776–80, 1801–07, and 1953–
61. Because Appellants did not present this argument to the trial court, they
waived this argument on appeal. See, e.g., Kline, 874 S.W.2d at 790–91.
Third, Appellants request modification of the Award—not total vacatur—
and the requested modification is impermissible under Texas law.
54069386.3 - 47 -
Section 171.091(a)(2) of the Texas Civil Practice and Remedies Code provides that
“the court shall modify or correct an award if…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 the decision made with respect to the issues that
were submitted….” As previously explained, the Arbitrator only decided matters
submitted to him. This alone renders the requested modification impermissible
under Section 171.091(a)(2).
Additionally, Appellants’ requested modifications to the Award are
impermissible under Section 171.091(a)(2) because modifying the Award would
affect the merits of the Arbitrator’s decision. If a court determines that any portion
of an award is invalid, and the “invalid portion is not severable and distinct so that
the remaining valid part of the award truly expresses the arbitrator’s judgment,”
then “the entire award is void.” City of Waco v. Kelly, 309 S.W.3d 536, 551 (Tex.
2010) (citing Guidry, 327 S.W.2d at 409). If a portion of an award is rejected and
any part of the award is to be maintained, “it is indispensable that the part thus
allowed to stand should appear to be in no way affected by the departure from the
submission.” Guidry, 327 S.W.2d at 409 (quoting McCormick v. Gray, 54 U.S. 26
(1851)).
Here, no portion of the Award was invalid, but if the Court were to decide
otherwise, it would have to vacate the entire Award because the issues determined
54069386.3 - 48 -
by the Arbitrator were not severable or distinct. Dr. Bentz’s expulsion triggered
Appellants’ option to purchase Dr. Bentz’s membership interest and formed the
basis of Appellants’ claim that Dr. Bentz was no longer entitled to distributions, so
these issues are factually and legally intertwined. Thus, the Court’s decision here
is all or nothing; it may vacate the entire Award or let the Award stand. And the
Court should do the latter.
CONCLUSION
For these reasons, Dr. Bentz respectfully requests that the Court deny the
Appellants’ attempt to re-litigate this case, deny the Appellants’ request for
improper modifications to the Award, and affirm the Judgment confirming the
Award.
54069386.3 - 49 -
Dated: July 8, 2015
__/s/ Andrew Price____________
Andrew Price
State Bar No. 24002791
andrew.price@nortonrosefulbright.com
Rachel Roosth
State Bar No. 24074322
rachel.roosth@nortonrosefulbright.com
James Hartle
State Bar No. 24082164
jim.hartle@nortonrosefulbright.com
1301 McKinney, Suite 5100
Houston, TX 77010-3095
Telephone: (713) 651-5151
Facsimile: (713) 651-5246
Counsel for Appellee Alan Bentz, M.D.
54069386.3 - 50 -
CERTIFICATE OF SERVICE
I hereby certify that this instrument was served upon all counsel of record—
whose information follows—in compliance with Rule 9.5 of the Texas Rules of
Appellate Procedure on July 8, 2015.
Robert A. Plessala Adam M. Looney
Andrews Myers, P.C. The Strong Firm, P.C.
3900 Essex, Suite 800 Waterway Plaza One
Houston, Texas 77027 1720 Hughes Landing Blvd, Suite 200
The Woodlands, Texas 77380
AND Counsel for Northwest Houston
Emergency Specialist Group, PLLC;
ESG MD, PLLC; and ESG MLP, LLC
Matthew J. Mussalli
Law Office of Matthew J. Mussalli, P.C.
2441 High Timbers Drive, Suite 220
The Woodlands, Texas 77380
Counsel for George Davis, MD;
Anteneh Roba, MD; Levon Vartanian,
MD; and Woodrow Dolino, MD
____/s/ Andrew Price______
Andrew Price
54069386.3 - 51 -
CERTIFICATE OF COMPLIANCE
I hereby certify that this brief complies with the type-volume limitation of
Texas Rule of Appellate Procedure 9.4(i)(2)(D). Appellee’s Brief contains 12,413
words excluding the parts of the brief exempted by Texas Rule of Appellate
Procedure 9.4(i)(1)). This brief was prepared with, and the word count generated
by, Microsoft Word 2010. This brief complies with the typeface requirements of
Texas Rule of Appellate Procedure 9.4(e) and the type style requirements of Texas
Rule of Appellate Procedure 9.4(e) because it uses a proportionally-spaced
typeface using Microsoft word in 14-point Times New Roman font.
________/s/ Andrew Price____
Andrew Price
54069386.3 - 52 -
APPENDIX 1
CO-..PANY AGREEMENT
of
NORllfWeST HOUSTON EMERGENCY SPECIAUSTS GROUP, P.LLC
A Texas Profuslonal Umitod Unblllty Company
Tht6 COMPANY AGqEEMENT of NORTHVVEST HOVS fON EMERGENCY SPECIALISTS
GROUP P L L C (this •Agroem011r), dated as of JutJ 5. 200e (lho '["(fc>Qtvo O~o). 1$ (a) utlopl ·d
by tho ~nagors (as d fined In SectiOn 5 01) and (b) executed and agtGed to for QOOO 81\d va!uob!o
ooosideraoon, by the t,tembera (as del'ned 10 Section 2 01 )
Artkle 1
Org;,nizat.ion
I 01 ForrrwtiOfl NORTHWEST HOUSTON EMERGENCY SPECW.ISTS GROUP,
P L t. C. (the "Company") h&a boen organ~Zod as a Texas profess10nnl hmtl&d llablhty company by
tho hllng of a Cortlflcote of r ormotlon (the "Certificate") under and pursuant to the ToxHt' But~irlc~s
OfgMizntlons Code (as omondod from 1lm~ to tin1tt. too "TBOC1 and lhe lr.suance of a cort1ficntc of
flllnu 1(>1' U.u CompAny by lh& Sooreli!ry of State of Texas.
1 02 Name. lhe name of the Company i:o NORTHWST H OUSTON E.MERGENCY
SPECIALISTS GROUP P . L C ond all Company buw-ess mu:;t bo conducted ,.. that nJme or
$uCh olher n:Jmes that may be seloctod by the Exewtrve Comm neo (as dehnOd 1n St'ICI<>n ~ 0 1l
and that comply 'Mth ppl bfit law.
1 03. Rt.tgr$ttNGd O.'f;w: RogiSl6f'8d A{llt:nl. Off/CO$ The regtslorec Olftee and rogtslorctd
agent of tho Company in tho Stlal of Teli.aS sha l oe as 5pocafiod '" lho eert.r.cate or .tsde~hld
by thu E)r.OQihve Commltzeo in tho manner provided by apphcabte law. Tho off!Oe$ of the Ccmp;.,my
61\811 bo at 5uch plaoc:t es the E~UKutwe Coi'JUTI4tt9e may dostgnalu. nhlch need not be W'l tho Stato
Of TOdS
1 04. Purpose TI1~ purposes ol the Ccmpany are to provtdo und rMnnge ph~lclon and
modteal $OMces and all other purpo$0$ under the Cetltf.ea:e or the TBOC forwh1ch profo"sionotl
ltmttcd hatX ty ocmposl'• may be fonned.
t OS. FOfe'9Jl OualtfJcst1011 Pr.or to tnc Comp:~ny's conducttng buSII\eSs in anyJurisdiCiion
othor tnao Toxas. lht: Exc:culive Comm:.nee shall cauu tho Comp:my to comply With all
ntqu~r\ln~nts necessary to qua tfy lho Comp:lt'y ~ a foretgn kmtted habillty company '" th,Jl
JUN;dtction
1.06 Term Tho Company oommencod on tho dote tho Secretaty of Stale of Texas ts.suod
a oortiflcalo of flh~ for ll•u Company a.nd shall conooue in oxestonoo ror tho periO<.I nxoo hl tho
Corttficote for the duration of tho Comp;my, or l'luch eartlf:.r tmo as lhls Agroomonl rm1y specify.
1.07 No StOUJ•LIJw Portnarshlp. The Members lntond thot tho Co:npOf'3' Srnmng RliiJOS: Vot,ng Rlgfll$
r
(a) MombVr$ Thu ntCmbt:rs of ll"'c Company AfctmOcrs1 ate the incWIOuats ex.oeutmg liU
1\gr~~• 88 ot ltle dato hereof aa momoors and each perGOn thnt , horc3ner oom noo to tho
Comp· ny o "' mcmoer .n a(OO(danoe With thl! Agreemenl, proVIded that. In accordonco with
aecuon 30' 004 o' tho TBOC. each Member adrr?.tcd hc~r und herc~fler Is o ph)'5i=n
ltwo t:d oo dUly quahlieO to p(()Yide medK:SI seMc:es l'ltho Sta~ of Texas and an aulhonzod
penon, as such term" t.~d soc;t,;on 301 0~ o' :he TBOC (•AulhMZed PersM•) If a Member
$IW" have mode e Of!poslbiOn of ell or any portJon of 1ts MGmborsh•P lnl~t but shoal! IIU rotalnucJ
a.ryy ~hts th0fC111, then sol· wtlh respeet te ~ Membei'SI\9 lnt•raat (or poruon lt1efoof) ao
d sposed, ell remrenoos 10 W.ombor" that appear ir1 Mete 4 ones Soct()C\ 8 O?{b) h 11 be d...~ ad to
refer lo l'ho l:>!ll!'Jr'ICo of suCh Menlbctshjp Interest The Members collectJY-orl shaH bo roforrod to s
the 'Croup •
(b) Shoring RollO$ Tho Slwdng Hnllo Qf eacl\ tnlllsl Mombar (eoch a 'FOt1nd11,9 Mom/Jar'
and ~«lv~Uy U'a " rOI.III.fiJJ?O Members'} 6s set fonh Of\ Exhibit A.
(c) Votl..rtg Highr~ fho Founding Members shall oach (I) 1>0 unt1tl<:d 10 v<>!o And (IIJ 11:1\00 o
voting lntoro:;t oqvul to tho rQtrO ot such Member's Sh8rfl9 RatiO to olllho t\1 mbcrr.' onllllcd &o vote
Sllonng Rai.IOS ("Votmg ShOnn,g Ro110s1 All olhc; Member!$ eJn~ ("M9mlJurSI11D
lnt9ro.s!"'l. ex~1 1n acoord~neu \YIIh the proviSO'IS 01 ttvs Agroomonl
2.03 Ol$po$!tton by • Milmber. In tne event a "-to~r ,h,,n 0 po~ of rry ul such
MemDer's lntere$1. fOf On) roawn whaltoevd' toeny pert...on or ont.ty Who rs not alroed)l a l,lombcr
1the ltmo of 1~ 06poSlliOn, then (a) tNt tJansferoe or such "''~'e" h<:a be al' sstgnt!d ol such
terest '" o~nco With lt·o TBOC, provided !hat s...ch ass'ljln a an AUlh~nl:Cd Pci'!>On •n
ecorcsance tth sectJoo 301 009 of lho TBOC. but sh nnot be .. Murnbet un;ess a"'d until &J~Pro~~,.,
adlll!ltod to lh(: Coml)llny s Ot~ided $n Sec:~on 2.10 of lrl&S Ag'Mment: Md (b) he ComP~JnY uud
lhe t,tembofs sha hove tho f19111$ Ond opllol'l$ ~r~aded rOt In lhl' AttlcM 2
2 04 VolmHu&ton I t1xttS (lht' · I IO.'IJ)trfl{ ) o
Mom bar muy llan10fUt' hi~ rmmb()nshlp lnlhrest upon the U11Gnmoua W01l0fl consent o#lho l?lCoovthro
Comrmuoe and '" accordanco wtlh this Article 2 In ltiu e"Yent ooy t.tambor tine • rransfomn-:J
h~mbct ) dusrtes to O.sposo of a.ny of such Merrber'sl\t.arnbcrshlp h\ICte ,,., (C()tcJ.mco v.tth Ill&
prooodulg &OntGf\00, Jueh Mornbet shal. by wtttten notliCe llhe ·offonng Notn:o•) gr..,.n o lt1e
Company and to each othef Membor oncr cxdU$rveJy "'d lnt:vocably to ~II aD lha Member~
lnlcrt;:.l $,Jeh Membef des1rea to Dispose of to U\8 Company and tho ottlor Mcmoors Thti notict:
ahaM1tato (a) a de~plion of lhC r.tembeP..h•P ~e~ des..reU'~
olher lt'tm Che '·' rr.betsh'P L'l!~l v.'ill be sold n the ev.1t ne~ther tho Company
nor the IAembefs elect to buy 11 Tha Coml)3ny a~ the "''ctt'.Oetl h. Ill•" 1 •o, urrd• r
ttl Soct101l2 04 II at a \\ hln U lime and 10 trl2 manner pro~ •n Sot!1001 2.07 throun 2 09
herern fall tho ~'P lniOI0$1 ~Ito be O.:sl'()Sed of l.ttlder tills Sccben 2 04 (Of' unaer
Section 2 08 bt:IO\\) ts not so pord\ased b'J tne COf!Wfli' or the olho1 ~~be~. tho Tronsfarnng
r.tombot may 0i:..pQS4J or &he Mt:·nb tntenm o.med bt
such decca od Of c_l(pcll•d Mombur at the tim!! of such Msrnbola do..-alh Of expo· ~n ftllh r:a-7
1.1. rto:etValuo delorm•nod uof li'olcntd;;ayof trt.:ealendarmon:h pll!CI!!Cngthedalo ollhoC®Ihor
expu!s.Of' ol $Uch Mu·niJcr. l ho Company and :he o:h6r Mcmbtt's ~II elUlrOISe lhetr opl under
UIIS Section 2 05. I at al Wl' lhu IOtt:QOII'IQ 18tklay periOd n ltiC rno.nncr ~ided 10 SoetQns
.2 07 1111uugl\ 2 OlJ I'W!te•n
2 06 EnaJf71bnlnce,lmiolunl;.ty Olspa!.A/JOII AA'f lMJ)OSilJotl of a Mambefsh p lnlCJV$1 (u)
pu,UI'Iolt.o n plt:dga, mortg8ge, or other encunbf'a"'CC of 1 Mt:r'Obenlh p lrterl!sl granted by a
Member to liocure ad~bl at O:hor obhgauon 'b) purs-~ot to a bankruotcy Of Jn~l~ :KY oto~lftO
or u Mombe.r. (c) pursuant lo i'u'<;CUlton or ouechtne.l't or ~a) any ot.hCr
•nvotuntary OtliP<)!lllll:lll not OlhOM't!le provided for nere•n shall bo sub)oc11o lho r u:stncllon:. a.utlor1h
In ll'lls Agroomonl. and In orty such o~lll~ party demanding tho OaSI'IO&tllon sho'l bo rGQUIIOd to
olftJCt !luoh Otsposlllon In 1.1coordanoa With tho proviPOn; of Sot1iou 2.04 ~!l II !uch party wore a
1 ra nsfomng MomiJcr (wilh lhu otrorlng Prv.:e to oe the Fslr Ma~ol Valuo ollho Mcmbon~h•JIInlurust
datorrrunoCJ In aacordanco w.tl1 Soo6on 2 09 herem); nnd lo sucn caRo tho Oftedng Nollw t~llHII
'PUOiry nn ttd Article 2, II et•ll by nr.omg wniiM notice (s ~Response Noltce•) to tho Trans'errlng Mombor or
other tnu\storor v.ittun the 30 oaya after I'CC£fPI otii'JC Oflt:finO Nollot; os to wt\el! r too Comp9ny
OKIOCOQ to pun:tw· u -'~ Or any part ot tile Mem!M:!I1>tlop lntQreS1 &Ough~ 1o be dispcnee of, I lllu
114
ComP3ny does 001eled 10 purmase 811 of such Membership lnteroat. the Company 5hallgt'io to
ad\ of he other Member$ oopy of 11 .e Ofterir.g NotiCe and Its Rtss.POnse Notice, arld each of the
olhef Merr.bers &hall, WIIIM 30 day5 after tne ~;pt of l."'e RespotlSO No1100 rrom 1t1o C«t1rnany,
gn.c a R..:~pOil$e 1\'0hoe 10 the Compsny as !0 "ht:!her sl.l1:t\Membef utoc::a 10 purttl3SO any ot suCil
•,4ambership lnte'95! not to be purc:Msod by CI1U Compaoy The Comp~tny eMil g:v~: ,, cop~ otlh:ll
Respot~e NotiCe to l.ha 1ransferrlng Member or other transferor ond each otharMor'I\DOr ...,flo a~
gYve an C~ffiru ~CtiJ''V Rc~f,lu u:.o NUll~ I' n!Qfe th~n on~ t.l\lrrlllur tftldt> to purctj among lt'O ~Mbcrs v-ho dcslfo to ou•ch3:~rt 11
t the "Purclln$.!/lp McmbcrY') rn such proporoons a they msy agree u~ or in th9 absence of suet~
agrooroont, pro rata occ:oro~ to tho rctatJvc Sh~ Ra·~s then llUid btlho Pun:hurng M ~
2 08 P.ymcnt ol Pvre/l..'l$fl Price· D¢!.1very Df lns.!n.unents of Conveyancil. The
MambeBt\p ln:erest \lftliCh ~ected to be pun:tlased uodor this M idhtp lnl~r&st tor pw~X>'BS o l tMt An tela 2 ShaD DO ll'lo ~.air mnr..r.t
vtJiuc llhu •Ftu M.wStet Vs.'u~n of such Memt>erEJ-W.p nt~l. tfvcaoce to U~ Compuny or uny cot>I& or t::lt~Mt~ ..
conrltt!'C!Mi v.1:n tie a.o;algnmont or otner d~posttioo Of assuroncos from the P'Jrtha•or of such
nloro:.t lhol t•X)Su ·•·nounts will btJ p od .aI Utt~ 1.1na t'le sate ctos.ecS.: (d) ottutanee that tho person
to whom tho assign'non' Ot olhor dispos lian Is lobe wade It Wllling no ublo to ~rlofm fill ol 1111:
5Cll•nQ l'l}r'!y's ol1••uu or'' Uti«Je.r lh.:s AgreerrenliS an .A1Jt:"o'1zad Pee-son o•"' ,.. not ~noo tcnl
Notwithstanding the aatl5feetlon of the foregoJng requlremonta. :.ny Di•poaiUon of :1
Membel'lhlp lnteraat ehall be offoctive only to give the 4.SSfgnea U\O fight to teeei~Ht the share
of profita to whk:.h tn. assignor would otherwise be entitled end ahall not raflovo s uch
oulgfl1)( from any llabUny or obllgatJon under any provisioM or thl1 Agrnmont or gtvo •uc:h
assignee the rtght to becom. a svb81itutcd Morobor. vnlo . .s and until such assignee m
expreuly •dmitted to lhe Company by the Exeeutlve Committee as provided above . Tho
b'--cu\lv~ Comrr .r.ee may grant or ~Mhold such adm~•on ., th ;.e,lo o Clc' ot or 1 [ ' t:CU!IVO
Con•m•ttco EOeh Momt:et undcrs!Jinds and agrees ·nat 1M reqwomentsand ~:n:tJcns c:ont..Mlod
In this A.rt)Qo 2 an! I'Ba$0N)blo end oboolulott cS5Ctltirs upon
tho unanimous written oonscnl of lito Beocuto o Jo-ndo• ogrcamont (tn a form pcomulgtttod I.Jy tltu F..xoCtJII•m COmmllluuJ 10
lhl':l AgreE>tncnt agrllelng to bo bound by the terms and conditions of 11\11 Agrcc-nonl Tho E;4 utvo
Commtttoo may rufl<·~ the odn-u:.!>IQI'I of any ne\Y '-'embet1l etlhe c.:testiCJf\ ol any tl::.v ~~ ot group
of Merrbcrs m an omeodmant to Uti$ Agroorr.cot lh o Ctlnd :.on to ldN II neo AS A
116
CONDmON TO ADMIITANCE, EACH ADMrrTED MEMBER, EXCEPT FOR THE FOUNDING
MEMBERS, HEREBY AOR£ES THAT SUCH AOMfTTED MEMBER SHALL BE A NON·VOn NG
MEMBER WfTH NO VOTING RIGHTS HEREltf OR PURSUANT TO THE TBOC. AHD SUCH
ADMilTEO MEMBER HEREBY WAIVES THE PROVISIONS OF THE TBOC THAT WOULD
OTHERWISE GRANT SUCH MEMBER VOTlHG RIGHTS IN TliE COMPANY, INCLUDING,
WlT HOUT LIMITATION, THOSE PROVISIONS IN SECTlON 101 356 OF ntE TBOC
2. 12 WdhM""JW rt Su~ 10 ~ h.i~ ne eoocf ~.on: or Sect.on 2 04 • *-!ember do
11'\e natt.ra of the bf'8Kh and fn·l5 to o,;~ wch orc:act• ~<·'fl•n ttl\ny (30) da)-s o4 tec..efp1 ol suo:h
nuiJc (rl) n the event such Member's medical tiocnse w.lh 11\c $~11! or TclCfiS •voked
$U$poodod, turmmntlld lapsed restricted or relnqutS.Iled 0' sudl Momber •s ~ISO no to r
dUii C:O hfeel to prollid mMGI "''JMCOS 1111.M ~"ale of Texa. , (IV) •I'll~ 6v I U MernDO(S 11ghJ It:
pmclicu n~oe au !he llosp!Ullb ~~d or revoked, or tv) ifl me
cwonl Mornbcr COil'i'ic:l
of a felony or • cntntnill oil~; rtt. h:d 10 h~t·., t.3fc or OU~'i'fll~ All other .1embets may be
expelled from lhe Company Will\ ar _..,thou; Cause as dolcnnincd by 1.1 ·mtl'" en!.:Jt;d to ~~
o.,n•l'g ~~ perco•1 (60~) or more or the Voilng ShsMg Rat~:Js .
2.16. Conlid ntUIJ•tyoftnformstiOn Escll Mem:lens ontlllod to I fetm loon undo# lllo
tircumarancos and SubJO'o for thoGo now.'O!i11q Mombctt. or
OGIIISJnOOU or ropruuOr Rt;qiWOmeniS. EaCh Member Sl\:81 be teqwred to pt'O\ide medical SOMCOS
at the Hospital for a minunum of 4Mflhl (8) sh10s per eet::t ~,month 01 as otherwl$1) dOtertn~lled
by tho E.Jti'ICUlfllu Com '' (lhe "IA•n•mum Monthly Comm.tmonr) If • Mcmbor rs unnblc to moot
the t.' um Month yCom!1\Mler'IL then the E.xecutiv~ Cotr •mtlc-e shall have the nghtiO odJustaoo
pro-rule ~'UGh Member's ~the Otnef Memoer'sShaong Ra·o n 'hom oncr cf larm,nOd by the
~OCUIJYO Commtlloe
Article 3
Capital Contributions
3 0I lrrlti:JI Conlrlbull'ons. Contem porar.eou~with thu OMIWiiOn t>y such 1\'ember of U"44S
1\groomonL oooh Mombor ~tlol1 rn:lk(l lha contnbullone to tho capitol of tho Company ("C•tP#Iill
Contribv/10n~) do:son bod lor !hal Member 1n Exh[blt A.
3 0~. Sub..'feqUftlll Contllbutlons No member sht~ll b4: required to contnbu&a odd tJonal
capital to the Company
3 03. Rutum o1 COflflll)ufJOI)$. A Metnber IS not ont1tlcd to the rerum or ani' p n ol ts
C.p•Utl Contnboltons or to be poid intet~st 1'1 respect of e.ther 115 capita eccor.mt Of tt .. C&P•Lll
Conlribulion'\ An unrepaid CaPital Con\ributon IS no· a h.\bU ty or~ C()mpanforor any .1omtcf A
Murr.bef " not required lO c:ontnbute Of to lend any cash or propc:1y 10 the Con panyiO cn:J~ the
Corn;>l'ny to ret..-n any Membet'$ Cas;. tal Ccn~tJOM
3 04. Advanoos by Milmt>Q4 If the Ccmp3J'y does not ha~to &ufficiene e: ~ to p.1y IIll
obigatiOOS, uny Member{a) L'lal may agree to do so with tne consent of the Execu:ilto Com111t1t. .
may advance all or part or lho n~:e&:d funds to a on behalf or the Corr.p:)ny, :tt such tnlafc: 1nne
uno ~ sYCh other term& as such Member ~rd the Execu:JVe Corrm UQO may~.. An odva~
acscnbod 1n th' Sect~ 3 0~ cons :utes a loar from Ito l.lcmhl-r to the Company and not a
Capital Contnbuoon.
Article 4
OlstribuUons and AJI~tlons
4 01 Dlstnbullont AI suet. lime as determine Suction 4.Qt) fOf' each fiscal year (or such liJ'IOrlot l)(lriOd ror whiCh the
dlatrlbullon Is maclo) shell be dl&lrlbutcd to UlO M'-mbers In ptoporuon to tholr Shanng Rollo& Tho
torm 'Not Cosh Flow· t.llOII meBn off cash funds derived by tM Compony (InCluding lntaroat rocoi'X!. and CUytnt:tll$) debt payments. ca;Jital improi/Olncnt:.- tOplt-tct:me.nts and t:Stabllsh
rca&anoblo l'e$ON05 for futuro Ol(pCtl$e$ elld costs as deteml•ned by tho E.xocutivc Comm ltuu utiIll>
solo d~SCieliOn .
4 02 lftstnbOlions f01tnoome Taxt4 No!\\rth.Sta."'d;ng tho PfOV s10ns of Soction .s 01 , tho
I
118
E>ct...c:utrvu Comrn•ttee shall d•stttbute sufficient cash CK ol.hor hqutd sse.:Is annu:illy to UY.: r.wnbers
to enabto 5uch Mc~rs 10 p y nny and ail lllClOI'C'..e taXes ncurrad by ""ch Mombors tnat ••o
attnbul$ble to the Ohn«ship of Mernbef'5hip 11\iClesiS in the Con p ny, except fcw thos ta•a
IOd 10 o Mcmbet's so ry Ot' olhel oon'pensa~
4 03 Affocat10,. of Profits ond Lassos
(a) Genera.uy Except as otnerwis.e PfO~ in UliS MciO 4 , each item of Company lnoomo,
gatn, los... cktdue1ron encs Credt: (ltlcludng nontaxable losses dosetlbGd •n acct.on 705 of lhts Un•lod
Sutos lntemat Revenuo Code ol 1986 as amended. (!he ·coctc)*J) shsdl be &Doc:a~ among the
~ bet1ln soc:ctdance w•tn the r rospacu\19 Sharing RaiJ<){. 1\'otwrlh$ ndtngl • fort.'g()hg, to tne
eX1en: o!lowod 01 required by thO Code the Treasury Regulation&, or by generally acoeptod
ocouotJog prnctple5 the Exec:uuve ComM tee Ma)' a~ •o tletn~ of Co~ny Income, gatn, los11,
doduchon. and c:tcd 1 •n uny m:mner c:ons•s~ With the roquaremonts of tNl Code, lrc..~ury
RegulatJons, ano genorolly acocptod ~unrtng prinCiples 1 alocation of parucular uon1a of
Income, q.mo gain loss,
and doducbon with roapott to. ny pto~t1y contf'lbuted to tne CO:l' tot of tho Company shuty Regu 3trons ~ecr..on 1 704-21()
(b) Cht1fVObolcJc of MU\ln~Um Ga.n Atlribul3bt'8 to l.fomoor {l,\onroo(;IJ('$JC Dc.'bl. Tho Comp!lny
$h!lll 001,pty ~,:h L"'e mtmmvm g~.n chOJ~ requ.arement l rea~ Regulations soc:;tJon 1 704·
2(iX4)
(c) Qutiflfied Income Off~ Tho Comp3tl)' sl'l8'1OOtnOfY 'httn the qust•ned lnooiT'e of'SOC
~1510n$ tn Trco¥ury Rogui:~Uons &eC1Jons 1.704-1(bX2XIiXdX4), (5), Md (6)
(d) llt.'OCaMns Upon Tmnsfor. Upon transfer of \loy rnt~nlbef!lhlp 11\torest tn the Company,
unless egrocd olhor\\\:10 by the trorrsreror and iransferee with tho wrlllon consor1t Ollhu F ~lntoln nnd superv1se the depostta end withdrawals orfund' or
thu Company In bank occoonts for the ordlnarJ purpose~ of 1ho Company:
(iv)To ostn~h and set all salaries and componsouon formulas for Members
empiO)'COS and agents of the Company:
(") To at~end to a I star errolofOO matters, .ndud•ng Wllhoutlmltat•on, lhe hlring
and firing or 5talf employeot,
(vi) To employ attorneys to pnride legal c:oun5ol to tho Comp:)ny. tnclud,ng but
notlimtted 10 those logal oxpcn:;e$ '" QOnnee1JOo w lh lotmaiJOn. OC'gantlai!OO. and opcr-..~n
of the: Company and aIllegal expenses in oonnechon ' lh the Compsny's agreement and
arrongomonts dtrectly or tndtroctty related 10 the H06pttal, and to ~mpiO'/ accountant" to
ptcpore 1ncome tax returns. finane~aJ $Wletn!'.J\l! and reports which shall be fumtshod to tho
Members.
(w) To purchase any and all insur.lncc dccmod ooceuary by tho Exocubve
Commrtteo for any ond all Company purposes. tnclud•ng. wlthout l•m1l.ilti0n, guncrotl ab~ ty
tnsuranoe. profe6S10nal ma.practJc:e 11lSvrance, and to pro"ide protectiOn wtth rospoct &o tno
Company and claims of thlfd parbes and to pay the pte~n~um$ from the funds or the
Company;
(vii1) To conduct tho admlntsttatlve aftauo of tho Company. tnclud ng wrthou
llmilatton the laktng of oct1on nccess~ry to C3rry out ony vote, decisions made and oct1on
token by thO Mon.t>ors horeunder;
(lx) Upon tho approval of the Mombc.m! cntltlod l<> vote own1ng seventy five
percent (7S%) or tiiC>fe of the Voting Sharing Ratlos. to sell. osslgri, triln~fcr, convuy,
encumber. plodgo. loa&o, rent. or othetvv.se d•.spose of. and to negotiato with rospoe1
thoro to. the e!sets of tha Company: and
(x} To perform all ol.hcr du~es and obhgaiJOns, and to exerct5e au olhor powors
and (.ghts. pro•licSed ewhere to be perfonned and exere•$0d by tl\6 M.,nager.s
120
'" llddihon ro rne managemen1 of tfl8 Company. the ExecutiVe Comm1t;oo sn. havo ti'I.J
purpoae of oromollng tho cohesion oonvntm ~ sv.;tess, •rnl pto:c:ctron ol lhil fntcro..t£ of 110
G~
(b) In manag1ng the buslnos.s aM affai"S of LI'O Co11'pany :Jnd o:.;ure:sfng ~~ . It
Exueut •m eomm.ucu sh:.ll.tC1 (I) 00116Ciwety ·~h resol\;!1001 aoop!OO at moollllg5 and '"""" Oil
consents pt~rsuantro SoctJons 5 04 ancf 5 oa ilOO( ) m~ commntees one ~.a rv•duaJ lanogers
1o \\ !eh outt.onues ~duties have been d~egab:!d pursuantlo Soct.oo5 OS No r&-agor hilslhu
righL power, or authex ty to act for or on bt:Mf ollhe Cofl'Y.)Illly, to ao S!IY oct thai wou•d te bincmg
O.''l 1M Company, or to tna~r any ax.pernhureon beha f of lno CO'nP'SftY, except in ~rdar~~ lh
lho 1mmod toly prfJoodrng ae11tence ~...40f\S or ad!OnS IS'(on by he Ex.ecot'Yo Corrmrttoo '"
L:COrdance w th this AQroomC01 (lndod.ng thcs ScCIJOI'I 50' Ond Secllon 5.02) sN oonstrlu!ll
doO$tOn•. o.r l"libM iYy the Company and shall bsl:!li'ljollQ Qrl eacn Maoag r Mcmbor Off.cur (11$
defrnod In SociJon 5 001. llfld Cfl'C)Ioycf: of U-e COnt;)My
5.02 M•Jml#'~ RlgM 10 Bmd, DecJ.stoos Reqtl.ftng Memb« Conront No Mt1mbor rn \s
CIJpat~ty as o Mcmborhas the nght power, or autMnt,.ro 3CI ro1 or on IJoll>!lf or lhu Com00t1y 10ao
uny u<:t lhrlt woLIId be bind~ on ll\e Company. or to Incur any oxpcnddurc un b" la~c My tlcllon tor which
tho consent of tho t;ltJrl'lbbr$ t:nlillud 10 vo~ l9 reqU"fed t>y the Cor lncnto or this Agroomonl "'thnu•
first $UCh oblalnltlg such CQn&onl. Each Member oniiiiCd ~ vote may v.l~tl rospec1 to any 1010
conacrtt or uwrovJI tMllt Is enlltsed to grant pursuant to this ~mvnt !Jf'.tnt or wrlt\!lOid '!IUCh
vote, consent. or ap.Provs in II$ 5olu dr~IIOn
5 03 Sotoction of M.~n~'CJIS TN: n....'Ylbef" or Manager~ or tho Comp;aoy wt
cq~1 ha
numbot of I ound ng Merroet5 who remain Mcml::cr$ or 'h-: COmJ)CJ)y, Of as otherwrw a~d upon
by a VO!O of lhc Mcrnbcr• trUed !D vote holdlng at least se.,cnty.rrvtt percent (75V.) o mu Voltog
Sr ;,rrng Ra~~Cs TtMt taal t&nagc~ ol the Coospeny snal De lhe Managcm; named '" lttu
Cort.freulu, "ho lilhtlll b6 tho • Autltorlzed ft!.a~ k> att for I he Company un• li r Cuc:conotS
3re etccfod tr,· the Mombor; Mt1 gers rrust DS Membe~ or I.M Componv ~ Mannyt:r
( tthtt1hcr n •tl::lt Of a aucccuoc Manager) sha I ec<\se to be a Manager upon u-.e earhoat&o occur
Of t.ho o '-'l'ling ~I ' (U) such P, !\ager sha~ engage In gro6S noghgcnto Ot 'I• lui mt$COf'ldUCI H'!
the peOCfTT'IBnoe of h1s Of her du as ll tv~n®er and. as a re~tlneroof, &hall bo removed~ lho
unammou \10'6 01 the 'en'C>el!> en tied to .-o~e (excfudin~ tho Mornber aoaned ol engag og '"
rou neghgonco ol \\ fu m1 eot"ductl b) SUCh Manager shill ro•lgo us :a M n<~gut. bV g '\9
~~uce of such ros'gnattOn to tho Members. (c) :uch r.tan:~ger ShaU dlo Of become pet'ITlanonUy
dubled: or (dJ uch Mnnagt:r shS no longer be a \tambur olll'to Comp. nv Arr1 v.Jcoocy in ony
t.1~n&Oer pos-tion not othoM1SO r. lod ;,s prQ\Iided sbo\le may be fJIIed by o wle of a m.,rooty inlomst
(by numbiJr) o• tr.e remotntng Manager& at a meeting of ll'c ExecuhiiO Commrllee caiJad lor Ihat
purpo5o
6.04 , Moo(lt>fJ.'t of tho Exocut1ve ~lao. Rogutar rnoollno~ of IM E;x.c:eutJWJ Corf'IIT11noo
may bo hold on ,uoh d<•ln" und 01 t~ uCil 11me9 a& shaU oe aece~nod bylllo EJuce thereof (spoofrno ltle ploco and tuno or 'uch
m601•ng) tnat Is do tvorod to each oltler r.tal\il9Cf alkk'\.SI 24 hou~ pt!Of to wch mee:ttng Not:her
tho busrl'len lO bu trasm.. ctod or not ltle purpose of such spec>-. I m~ting neod bo ~ir1ud rn the
notJce (or ~~or of notice) ~ttcroor Unl~ othe~W~Se E:Jepressty provided 1n thra ~rucmont AI any
n'IOU!i:ng ol tho Executive Commttlae a ma:QI'i!y (by numb¢r) o1 U1e E.xecu·,~~ Comn hall
121
eon..titUI& a quorum lor the t.nlnsactton of busmess and an act of a tnltfonry (by numbet) of tho
Exocu•...,o Co~Tm~llw Yo~ho are pro:ocnt ~• $uc;h a mee-tulg u! ~hieh a quorum •it pte~nl ~n t: rhtl
act of tno E.xecutl'io Comm ttee. Tne Pf'OVtStons of !htS Secbon 5 0-4 Sha bo II'IBPPI CDblo alany uno
Cf);)l U•··•t> 0(\ty 01\•J a.tntn\gttt,
5 05. Commilee ol ExeculJve Commlt<:e, DelegeJioo of Aulhollly to lndl'lidual M nu-gc.rs
TI1uE.(uc;ut,~ Cumul !1~ flhiY d g,,_,:~ ~ Ul' mu1~ W40UIIIlw•, ~ uf wludl •"·•" llu
composed of ono Of mofe of tne Managers. and maydestgnale ono Of more of lhe MaflOtlcr. es
an ·m3to rrwm rs ol any commt•ce E.tc~ ro.- rnat:.c1s lfl£11 ro Imposed on Marulgurs uy w
~auanllo the TBOC and cannol to delagamd to such a oommiUao, ny $ueh corr.rnlllao, 1o 'hv
ext nt !!>'O..idtld Ill· r olu:Jon ~t:J!Ai5hlt\g •.. gha'l hs-.e and msy oxercse oil o'lhc outooo:y !Nil
may be exor<;~Hd by the EJ!ccutiVc Comrmttec Rcgua.r DOd ;c;JOCi;tl ~hngs o4 such comm•l$0u
sh91 oe he.ld n the manne-r ces.':Qnated by lhe 8ceaM'8 Commlltee or, not so dosignalod, b)' &UCh
coo•m.ltoc: rhct S:.Xuc:utrvv Comm.ll m4)' c~lvt: 3ny comrMIO& ul ony ~.ne In aUdtUOO me
E.llecuwe Corrvnlttoo moy do.'ognto to one or more r.1af1a9eni &uch DtJinon~y and C:llliO!'! n"'lt!Jn
lo lhrJm sucll 1•11~. ~ lhu EAucullve Commttlee may deem 3(tytSOblo Any such deloga!IOn m&y be
revo6ctcr. The exeeutl~ Commltteutharr appoint o Ohuctor
.ond en Asslstanl Dlroc1ot , oach of who must also be a Mono~. ond '-mosnull roporl lo tlt1:
Exoc:ul t~ Con\ITllUts~ 4nd , ..no sru!h be responsible lor tne cJay-t()o.ocuti\-o Comm 1 II
O>.troofd~nary Ol(pCrui41 Or OxpotldtiUte$ The E.xeet~tM~ Cotmltttoo Sha'l ha~a Uie nght &0 1'0\'!GW Bf'ld
djU'Sl such bud~t &I ant Wile, from l no 10 time for lhc bencr.t and in!ere t of 1t1e Col• ny
5 .00 Compon$Cifl()(l T"o MOlM{Jei'S, Oire<:tOf. U"'d A. •~IJrU Otrt:CICY." r • such
r~tl onabM compensai,,n, I' ony. fOf thetr setVIoes as ma-y be dosignntod by the Ullommous wuttcn
or
consent lhc Exoc:u11ve Commlttt:u In lldf lha moot.ng. \\hiCI\ shUIJO(I of lhe &ecu e Commtttae or
comm:ltoo, as nppliC3bt ) f.POCI'•C$ o d•flerent p<:Jce wl\dt nc~d not tM. In lhel Sl 10 or Toxn$
(b) WBwer ol NotiCe Through Attendance. Ar.enonrtee of a P~~::rsoo a1 such llltlCtll'l9
(lndud•nv pursuant to Socllon 5 08(o)) shall constitute a wtJivor ol nollco of wch mooting excopl
where such PerEOn attoodll.he meebng for lhe express puq>ose ol object ng co tno l rans.actlon ol
ww bu~~~ oo tho grouncl lh~11 lhu mce,itl{] 1$ r.otltfwfully Cl..t ~Of oonV(Ifloe)(i.
(c) PnWO$ 1\ Porsoo may vote at such mealfng by o written proxy oxocutod by th.:ll
Person ond de lvorod to anolhor Managor. Membe~. Of rnembor of tho oomnllltoo. a1 opphcoblo A
proxy sholl be ro·..ocable unless 11Is stated to be lrre•IOC8bCe
(d) AcJ/00 by WnJten Consent.lvry 81:tion required or porrniuod to be !.&ICon ol audl a
moeling rn..y b<: l~kc:m Vtr1tt1ou· :. Meet.ng w•l'le>Ut pnor nolloe. and wttt»ut o vote I a conson1 or
c:omona In ,•,nllng, 5otting forth the actiOn so ~k9n. JS ~ ~ the t.l;m.;1ge!l0 M mbCr1 or
rnembef's or the COfM'I•IIee. as apPlicable, haw-g not ~e.wr than lhe mlntmum number of Vot•ng
Shaung RatiOs Of vot that would bo ncec:uary to ta~c: ttl& ActJon ot a me+:ung a1 Which
Membera, Managet&. ot members of lhe c:omritae, as appticnblo entrlcd 10 vo on the nctioo
V.'Of'O prdenlllnd voted
(u) A~llngs by T~ne. Manager; Wambers. or mcmbo~ or the comm·t o, as
opphct•blo, m~JY ~r1iCipfllO In tJ.nd llOW such rneet;ng by me30S of cou!t:renoo tufeonofJO,
,. deotonfercnce. O! s mrlar communtcabO.'lS aq~n' by rr..oans of v.hrO, all Pcrs.on.s PG~t~Qpo
In the meollng can heet each othef.
5 09. Oft~ecrs I ho Executwe Commtee may designate one or more ~.tombort&) lo be
offiCOr$ of 11\o Comvnny rOffi'CcrS"), proVIded such OfltCer rerro r~ o f.k!n1bot ~ I he COnlparry and a
professionslind vidual auuch tonn t&derinEld ~~" 3n1 .003(5)of tho TBOC. ond .cevu~oe Cofl"rnrttaa
moy dologolo to I hom Any Officor may bo rcmvvcd ~s such ~ lhnr "''th or w.lhoul cuu~: by 111<1
executive Commmeo.
5 10. LltrlitullomHm Llub.Wly of MciHJYfJIS. n~ ~dbili ly ollho Mo•~\lllj lu ltiU Cor11putty uno
llw Mernbora shall be .mlted \0 the oldent.lf any. se1for1h tn lhe Cer11fk:ato and as provided by tha
TBOC
5 11 Conn•cts of lnto.rosr Subject to the other express pro.. rSroos of lhts A.g·eemenl, ¥&Ch
p, ~bcr p,(J~r. Oll•cor, or "" lo lhoroot may cng~go •n and po~$ lntor·.~ts In other
bu&lnau vonturos o' any and ovory type and o~ptlOn. tndopendontty Of 'Mth othor&, except fOf'
one! In compet.tiOn wtrn the Compenyorones W\COflf"any's taX rowms to bo Indy prtpt f:'ltJCIIOM The Company shaU mald of acoounllng o s of lhe Company,
SuppofV\g documenl;olion uf Ita lro0$$C'b0n.s -NIU\ respect tO thO COOCIUC.: of tNt Company's
business, and IT!rnuiM of tho prooeedtngs of rts f:)co<:ulrw Corntnl1tfi(J, Member:~ , end &SCh
oommrl\oe ol tho Exc.-cu o Commi'tee The books and records shalt be ma·n~od wrlh respect lo
a~tmg mat:of$'" accord a nco'' lh sound 3oeounllng proct.ces, ~'ld all book.lend racoroa ahal
be available at the Company's pnnapal o t 100 for exarrunatJon by any~ mbet Of l!lo Mc:rnbcr's ouly
authonzod ropro;cn\Ativu at nny Ofld at reason~ limes du--rg nonnal bu5mosro t1ou11
7 0:7.. Roporls Within seventy-five days after lhe end of oac:h taxable your ttlo Exocutrvo
Commttloo &hall CGuse to bo $01\l lo coch Member at the end of the IBxabta year a comptoto
accounting of the financial arfatr& of tho Company for tho ltlX..blu yeur lhCtl ondud
7 03. Acoounts Tho E>cocuUvo CommHtee !Jh~ e~t~bllsh ono or more sepnmte bank and
lnvut~!rnent
accounts and arrangements for (he Company, whoch uhatl bo rMintnlnc<.l in thu
Compony'$ Ol)lllO with r.nuncl"l rtl!lJIUUOn!l and firms th.al lhe Exewllv. Commrllao dotormlnos
14
125
Article 8
Windi ng Up :and TermlnaUon
8 01 Ei.'MIS ROQCia'/ng Wllldong Up atK1 TenJ111)9fiO(),
(a) Subject to Secllon 8 01(b}. ltle Co~nyshall wind up 1:& affairs on tho flrstlo «cur of
thu lollo111ng $\/OflU.
(•) the elep"J~ of lh& penod hxed fOf the duraoon ollho Company in the Cort·fato:
(11) the con:.ent of all or the Wefnbers and
(ffi) entry of a d0Cf80 of JUdlctallBmlinatJOn or tho Company uncsec- seccon 11,301 olthe
TBOC.
No othur o~~nl (including, W!thoutllmilatton. any event that tanmno~ tho oonlinued membership ot
the last roma1nlng mombor or tho limited liobihty company) will caui>G the Company to bo wound up
omltom)iMtcd
(b) If an evonl doacribod in subparagraph (il ol Section 8 01(a) shall occur and IMre
shall bo ol loastonu Member tem:llfMg, the Company shall not bo wound up 01 tO*mlnatud, MiJ 1h&
bu!lnass of the Company &hall bo conUnucd, if 3 MeJonty Interest so agroos w1th1n 90 days or tho
occurrence or such event If such eleclJOn 1s made •ottowing the oc~rrollCC! or <.~n e.vcnt de .Cflbcd
In subparagraph (i) of Section 8 01(t1), the Executive Comm1ttoe ~>hall promptly omond the
Ccrtrf&.cot in the m3nner descnbed 1n section 3 0.51 of the TBOC
8.02 Windtng Up ond T«mM uti .r
purct\asOf'S and shall a so ~hnVIIOMousty flle duollcate coptes of tho notlco of orbalrallon w th tt~
rugaonat ottlee of the Amoncon Alt>•lroltOn Associ;tliOr1 rAM") fOr H~ston r elf.B!, loge thor wllh U e
oppropnoHo fcc o:. provided In the AAA's admini&aBtiva fee schcdulo 1\ CQnamunlc:Jllora~:> .-w1U1 the
AAA ft!9Brd•ng thJ orbilt' t•oo proeetl~ny t 10 00 am Hot.r.ltoo Texas 11me on th& seventh vee day
(Saturday. Sunday nd ho6days acclucU3d) after he dale of mo:ling of tha AAA's 1of o~ors
no notce of nlM ns. AI such lime !he ~rchssera shall e.ach. 1n accordance Y~ th 1t1e ran~-:.og
<~••orminod by tho AM stnko ono ( 1)Mrnc from lhf'~
...,hlch Gt:JIU5 suc;tt \1ppt1l~S wew rcg3rcitt'9 the 0!3pute and the dell:lred rell'Udy or rusotulion As
soon as pract•ca a1tor tho e~Cptra~on o• tho 204ay period bog:nnlng 1pan lhO do·~ ol rtl11•lir'SI or lhe
not.ieU nf ut>ttrotiOn, the AAA !'.I II comp e a lslclt.h.ree a~blo tndrviduals or of\l.llius c.ompotont
and QU3 tod to be a common a~ a. di:$C(:be:~I IUbmllllltl ht lhu AM Th '
higt1e11 ronklng hldovlduat 01 en tty whose name remams oolhe Usl upon complotlon of such t~llikJilg
&hull bo lho comrnor' oppr ti!:Ur lff.h() conl(J'lofl appralser !!o eclect~:d tleclln13' or tor any r~uson
fal111o sorve, thts procoduro slmll be repcn~lvo unUian mdloouul ur em lily IY4tu Is wlllh 'll vrl<.l uok: l<>
:1~~0 n' A common nppral~~t:r hoi oeen saatted tr sny appra•sor a1 any point fa• Is to partlclpoto "'
the procoduru 11Qr<,lnnbovu usto l)ll~~ to s61ecl ltle common OPf)fn•'le thu AM t~hor :;ubmllll""'
tnd,vduata or eoltttoa who could aof\113 as tho common &PPftl ser for tho apprul&CJ who tr.
ptllt-<:lp:.ttuly lo choosu hom
128
""· thu lollo·.-.mg procedure $.,., I epply:
(a) Tho M&mber seeking to iOIUSte tte Prooeduru (lhe •twti31111Q MembW') Ntll g1v1!
written notioo to lho othor t,(cmbcrs. oescribing n gcncml tcfm:; the notuto o{ tr.e DISpUte. tho
lnrt:at~ng 1'1 mbef"a dalm Of relle! and ldent.:f)-ng O'le or more Individuals Wt!h eutllont1 1o 1Mtl'Je ltte
O•~o oo u~h M •mbc(:; boN The Merrbef(s) rc:coiv.ng uch nolicu (11\0 "'Ro$1)0(1diflg
Mombef:) whether one or mora) 1hd ~ave frve (5) business days w•lhin wtUch to t1e1lgnate. by
wnlten nooce to the tru ling Member, ~or more tnd•· 'dualswtthau~ ty ~ Ulf: O.spu!eon
wen Mombor't bohalf lh4t •no!VIdua:s so ~ted snan bo tr.nQ\\"!"1 a \ho "Autttonzfld
lndNIOuil • Tho Rospond~ Member may sut'lORZe hlmseU as an AuthoriZed tndMdual Tne
lmU lmg Mumbur ond tho RO:$porxN'9 Morrbel tMII ~iy ~ tcl&rr~d uw U\1~ •Of.VJufiii!J
Mef'fll)MS" or indMdualy ·o~pullr'lfl Mombw •
(b) Tho Authoriud tnchvidu9 s ShaHbecntitlod lo ma«o wch ~ lr!J:liJOo ortncOispUtc
as lheydeom appropnate bUI&Q1'98 to promptly. :md tn no event lef' than 30 days from tho dote ol
tho ln-tJnl!t'g Mumbor'•• wrillan nouce meet 10 discuss resolution or the; 0 · putu Tho iwthoule' convenient tlmt: and p~aee tor me modl~atlon ond
unless ctrcurnstanoes rtiQU•l'G otherwise. such bme to oe not =\tor thnn 45 doys aflor
scin, \\'llh thO hutp or the medtar.or tl req..ured.
(·1) At least ""oo (7) days poor to the first 5<:hod'-'ed 'oaston of tho
18
129
mediatiOn, each l>spuiing 'Aember snail deliver to the medl8tor and to tho other
O~pu'tng Mombun• • ~u wrilr.en W~'rmory olcb v•&.vt Of) thu manur m O•spvlo
ond such oUlor malton> roquwoo b)' the mefl'•tted by each Oisput.ng Mefl\bef 10 him
I~) In the medcatloO. each Ozspo..1Ulg Merr.cet may be tefX'Hf'.t'lted bV en
AUU!Oflt6d JndNid\J41 lid tnay be ~esented by CCXin In add I caseh
OisiJ'It•ng Mombor may, \\ lh penniSSJC"l or the med•ator. Dnng such &MliOnal
person IS netdud to respond toquesbors.c::orunbute 'Oml3110n,llnd p.;1r. fn
the negoliuhon$
(6) The tnedlntOf s.t\a'.l detemlf)t: the rormat tOt Cht: mectir. , cJ nctf to
osi4M1t thet both the med~alot and the A.utllorized lnoNrdualS ha'le on ~unity to
hour n onat pr«J:.t~nt.allon of uach D•sputtng 'Aerrbet's w.:. on lhu nt.~tlt tllllllput~
ond thot lho au!honzod partieS attemp: to nogotiato o 1'0$0luuon of tho mottor 10
dlsputa, with orwttooutthe assistance or counselor otners bot '"'h tho an.s~nce
ol the me<'~lOI . To this 4\lld, the mcdi'occdU:e 10 Its COfteW tOn. fhe med.atr.>n shsU be temunated (1) by the eli.OeutiOn
of a so:lloment agreen-oot by tho 0Gpu2ng Mombcfs (ii) by ; duci&IDt oo of
moo tOt that the medta:.on s &ennanst!!d or (~1) oy a 'hn!ten dedarouon of •
015PUiing Member to lho ofl'Od lh3t the ~::~~:on~ ~tud t tho
c:ooc:lusb'l of ooe full oay's medialion session. Evon if tne medta 10n aa !Qfmlna\Gd
wrtl\0\lllJ rusoiUI.Ol'\ of the O•sput.e , !he Dsou:.ng Members agree OOl to lemltn8':8
negotikwfs
Any pacy rr. y sutlfn.& the Q.eputa lo aroi:ra1Jon and shall dO &o by gi l'lng wntten notoco of
&rtltlt uon to tM other pa.: I•Ol> co me o.~pute sod sh311 alSo Slfllultan~:ously Me duph 1e c~ ol
th"J r'()tioo of Ott•lmliOn wrth tho reg10oal off<:c or AM fat t-lou:.;lon, TOlC.a$, togclhof W1th tt,o
apptopn31e ft:e as provided lrt tho AAA's admints1ra~ve fee s.cfled.,lfi A comNrucstlons Vlllttlh"
AAA ~rd•nA lho urbttralaOO ptllrttlucJ tmu lito rumecJy or re$0h,llion ~ouyhl by lhtt porty lni~Ung erburtJh<>n. tiJch
of lho 0\:sputlng Mombers ~holl. wllhln 20 days from the doll) nt mulfino nr t~ml11ollr~ elf m'b.lrnhnq
l•"t- wllh tho pai!IC!J and 1M f\AA a respons.e which 9tales !!IJCh patty's re'Viaw rogordlllQ Ulal 0.11puto
to bo nrblltolr:ld aod lho d~lrod rc:mudy or ruso1u11on IV. !I()On liC Pft't.'llctlbiO oiCw lhit' u.11plnt\tOtl or
1M 20 dsy ponod beginning upon the date of mailing cr tnill notico of orbllrotion tho AM~~~
c:omp41'0 o '"' ~ _.vu•l.•b'u .tft>llr3tors ecual to the 1\U'llbdt or Olsput.fl9 Mem~ olus one:
oompo1ont and quallf10d 10 be on afb,trntor a$ doscoood n thO rtoiiM or rbtlmhon ond thO
rcspon~!« thureiO The AM~~ also. at the ss.-ne tune. ram the arbltntlora 1n on)er fnt tnrovgn
tnal ~bor OQU-ll to th numbot of part~es subfee1to Qlt, Oispul& plul one end UlehHJ;x>o
fOrtti'N•th lransmll the l:st SlmultaO:WOU&Iy lO the partieS and •nform ~ITI Of lho Older tn \\tli(;hlhe)•
havo boen ron~od Unl4ss tho p r1ieS ~ha: befO"ehsnd d!J'~ toad I orcnt kne or place , or both
lhilf rrmct at lho pnnapal offa of the CoolJ;any at 10 00 a rn , HC«n1on. T4W)$ tim.:. 01'1 \ho
'..ovo.tllh wtckdfey (Sti!.A'da}l. Suod..ty and holds~ exctuded) af!Br tho dalo or mathng of tho AM c.
l•st or arb•tmtora ond no~ of mnkmg At $ueh lime, each p~uty 10 L e Otspwu 'ns I each •n
:tecotdance 'llftth tne renl\tng de~ennined by the AAA stnke ono ( 1) tlilmo lrom ln& I &t !iut>m.IIC4 by
lho AAA Tho highest mnkmg ndN•dual Q( enlltywr~se M'lle tems on lhe IISIIJPOO complo~n
oC &UCl1 str"Ung shall bo the ol'bdtalOt for tho parties. If tNt arb•~ lOt o ;clcclcd dechn 01 IOf ~my
rco:;on I<~ 10 SC:Nu, lh•S Pfooedure sna be re~.st!!'d un an arb•lrai.Of Y.ho •s illing and aolo :o
servo ha$ beoo sc!octOd If tsny PiJrty to lho ()irspt.;:; 1eny po;nl ~•ISIO pa"oparu In U'le proc:ecsuru
n~o nsbo~oe esusb tshed fD sded arbitrstors. :he MA shall fo11nwttn el•mtl\alo a narno from tho l•sl
of arb•lr.1tors f01 tho party noc !JO rwrti<:ip:J~Jng
9 03 AftlJJM!Ot1 GonerBNy Any arbltm:lon under thtr. Attlde 9 shall bo hold 10 HousiOt\
Toxa!l Ol a locution dulurm•nod by lhe AAA ex~pl ~$ Ol.heiWtSO :.p(:(lr~C:~ y PfO\'Ided ~f( In nil
arbilraton procaodlngs 0/ldet thra Article 9 shall be(;OO(J\Jctecl In acoordonco w1lh tho Commorciol
Atbftrnllon Rul<:$ ol th~ M A, os lh~n amended and In effect. and sucl'l n/Es shall be tnlerpretod ond
opp&~ mru quo::~IIQ.('H ruyur\Jirrg 0 ~ uriJiti Member competes With the Company" Ulln l"'e e.r~a
or roas spoofed in tnis Art·clo 10 Thc::rctorc ~con::,dur"'tiOn of 1 t: preft!1ses, lhe pli)YI•Cnt by
lho Company for any compenYIJon or d•stribubcn In aocon:fanco Wilh Lh's Agreement. end 85 an
loducamcnt for lho other Mombcts lo entc:t .-to ctus Agteement and oon!Wnmate the 1tansacuons
contefl'.C) :00 herein, each Member horoby aiJrees lhat ' &uch Mombor 1$ ;a ,.., mbor ol Ul\:
Con pany ~nd lor oa p••OCS of 1111uu (3) re3/s foll~tng the cute thai a Member ceases 10 boa
Member (for any reason 'Nhatsoevor o~ ttg, w1hout ~uso) (thO ·Ru!lrlc1111U Pc.wod') such
Mumbor" tlt~l. duccUy or tnd ,ecuy. •n any capacity, OWTl. manage, operato contro . parttt•poto In
tho monogemont or oonli'O' ot bo omplo~-cd f1'/. eon~ull w lh leod euc.h Memllet's name ro reCtli\IO
''"Y rertNnerallon trom, or matnlaln or continue ahy mlerost wllotsocalod Within a ( ) rn-1<1 ruOI\J$ o1 lh., I l~fJil~ (11m
·Roslnclocf Atvu·). prcwldod, how'evor ths t nollwlg contaood tn this Attlr:Jo tO shall prohibll sv<:h
Member from provtdlng contmurng caro and trecttment to a $pijc:atrc pat-Mt or paLents during tho
CO'.J1$ct or :u~ :~cute tllness eVt: after such ~Aember's Pl1e<11~h.p lntcro&t tn lho Compnny h. s
wnntnalod. if such pelionl osks such Member tn oonlnu6 ~uch care and treatment lhtoogh tho
course ot their acute lne&a. Th15 1s to conlillll that ltto forcoe>.nQ r~s~j()t'l wtU P{evt:nt sUdl
Member rrom hoving no ofi!W .n tho Res1tlcted Area ounng the RutnctJVo Punod Olhet lholn '"
OI!ICd prowidea by tne Company,
10 02 MOOIC- • St. lu Bo:!rd or Madi<:111 E.xsm•ners
10 03 &J.'rCJl,J!ioff of Cmp.toyees Eact: Mem!:lel further recognizos &ret (1) COJdl other
f.llemoets' en:emg n~ lJ\15 A(Jr< mMt ·~ tnOvC:ed ptlmMty !)&C8use of the covenants nd
ouvnsriOl:. n~! by ~3th o:her M&rrber nereuoder ( ) tho OOIIONinf b)· caeh .tombur otto <;IJI!o.t
emplo)'881 rota led to U•c Con~ptu~y ~ mc:d•ce1 Clf'9Cl;Ce 1s necessary tn tho o..'ef\llhat sud1 Mom~r G
no longer &mployed by tha Company pursuant to this Agru«Jrrnml 10 en~uft'l the cont•n..-slton of the
Company' buSint:$$ 111 •utpuct ot Its med1caJ pmell<:e, and (in) •rropornblo h.1rm and dumi•~ w 1 bv
dOt'Ht to the Company's bus1no~s with r~poct to il.s tnechcal pmcttce rn the aventthot such t.lembor
computEt$ wllh Ihe Company tn the sollcltabon of ampfoyeoo. Thoruloro. 111 oo":c."C!~talt()f\ of thfttc
promlsos, thoct pcyymom t>y thO corn pony tor any compensation or dtstrHJulion rn acooroan~Je wHh \l1r!l
Agroemel't, and as 011 lnducomonl for tho olhor MtJmt>om' 10 e01et mto this Agreemonl and
COII ..UtT'IllOtt: the tronsact1oos comempl9ted hsrein. aactl Mombcr l l!)roos thul ror duliug tho
qe51tf<:tivo Poriod such Morr,oc,r 'Mil oOI d reeUy or lndtreclly In any a~pacity aohcst for em~IO'/fncnt
CY .-nploy ny person wtro hos oocn an omplo~ of l.he Company. The r.:.xuc:uiJ\N Cotrnlllluo •nits
GOiu dltcrl!liOn. rna~ wn rte any or all of Ch9 prle egreement.lt\31 the
duru110n ~pu ncJ lJo)()gri~phre atu oppl:!eable to the (X)V1)f\Onl dcscribod rn th• Artclc 10oru '""•
ruasonable. ond noco&sary. that odoquato compensatiOn Is to be re<:o1ved t1y 'UCII Member n
:loc:otOS~ wrV\ thrs Agreement lOt such obligs110ns lhat these obhgat•on do rtel 1)1uve.nl such
r ombor from m•n9 a lrve rhood, ond tnat on'Ofoement of 'he COI,'Of\aflls doscnbod if\~ A,-tld9
10 is necllSsal)'lio grevent rrepamble hL':'ll SN:t jamsge &o cne CorTlPitlya ~ ne!S ln add ~n
eh M~nb r hef•by ~no\ ua 1"CS 8gibe$ ~tlhtS Alec 10 rio "'bJ cliO T ,. • Ou$mess
and Comm rce Codo §15 SO. and each ~/ef""'!>er agf88s ~~ ttns Artie:fQ 10 tisfi8S the
r~qu:rte.'liCIIb ot ueh st. tut& II, howe11er, lor "ltty r~son any coun ot compel 1 iSd!CUOC'I
de:«mtnes lhot tho roa~tiOn$•n th1i Article 10 are not roasoNtblo. th t tho COOSJCtcrolion IS
lono~uatc.lhal auch M&rnDbr ttas been preven~ from eaming a livelihood or tl'\:11 t1 Mid'e 10
does not m~l h~ •oqu men I• ofToAAs 8U$incu and CommetCU Codu § 15 50 •uc!l rl)ltne1ron
shall be Interpreted, mocur.oo. or tewnttE!fllio rdude as muc'l of ltle durab.otl, seooe, ond geograchrc
mea idonhf•~ 111 this Arlldc 10 as._..,, ltl'ltler such r~lr¢ll0ns '411d uf'd c:r forcel'lblu
10 0'5 Buy Out Commenc10g upoo tne date that a MemberCilases to ou e tlcmbor(tor .3")1
roo son wnal6oa..'Or) nnd unlrllho end or tho Rcstr<..1Jvc PcnI)I tilld
adoqoatuty bu com~n~ted by money damsgeg as such breaCh""" causo tho Com'*'Y to 5uffcr
rreparable harm. Aceord1ngfy, upon such Member'$ ftsilurc 10 ooml)ly .-,ur, till: k1tr1s n4 oo'W:SIIJons
or IN$ Artldo 10 et eny toma the Company or any o~ i:S succos5CHS Ot ou.gna ' :ttl be untlllud to
njuncwe or otnor e treon:ftnory t ·hot, $uc:h ~e 01 otl"..er extreon:Lmuy re t ~ bO a,mUiatrvo
lo, bul not n llm•taiiOn oi. any olhef romefftes lh' mat~ a'fi1 :aolct, If~ Nithoull m:!3Ucm,
e)(pul$100 il$ * Mcmt • ol lhct eotnpe~ ptJ~..am to Secoon 2.15 of this Agfecmont Eadl
Membefs ~·OM 50llor1h '" Vl.s Andc 10 Sl'l t ~ ..'U Chf: •-rrn.natloo ot St.~ terr.ber's
tfl0tnbet$h•P 11 I!JI' t itl l1'e Cotr>pany lf01 any reason v.hatsoever).
At1ide 11
General Provls&onr.
11.0 • Off. 01 Whene•teflllO Company IS to pa)canvsum loilny ~.~bitt, •nywnuur ~ Umt
t.lr.mbur <:IJ! ., tho ComJXtny may be deoucted froot that sum beforo po)""'lonl
11.02 1\'tt Var111ltinn, M.D., Houston Northwest Emc~ency Specialis~ P.L.L.C.. Northwest HOU$tntl
Ecm:tg-c:CIC)· Speciali:sts Group, P.L.L.C., ESO MD, P.L.L.C., llt'ld ESO MLP. l.L.C.
Caae ~ 70 193 Y 000688 12
Purswnl to the Commercinl Arbitration Rules of the Amcricsn Arbitration A9Socr.atloo (AAA)
and the ~rms of con.trocts between the parties. an evidentiary h~aring wu held at the o~ Q(
l"ulbtigtn and JawOI$li:i, L.L.P., 130! McKinney, S'uitb SJOO, tloushm Texas 011 At4gust 19·22 Wld
Augltst 29, 2014. before Arbitrator Robert E. Wood. Appoaring at the hearing wt:re Andll!W Pri~
and Rachel Roostb for Claimant; Adrun Looney fOt Respondents HNESO, NHES. ESG MD, IUid
F.SG MLP; and Mtlttbew Mu~l\lli .t11d Shtmnon Rrown for tbc: Individual ~spondcrus TI1c
part1es had a full opportunity to ~~~ evidon.oc by te.~t imony .s~td dQCument$. cer111in
.stip\lllltions were entered by tbc piU'tjes, aod counsel for each party ably ru:gucd thei r pos,1tions.
Po.tr~hCIU'Ing submissi(lns were rocciWld .Oft September 19. 2ill4lllnd Scptctnbor 29, 201<11md the
J1earin~ was. a11irat time declared ctt1b'i>'C81 Hous.tOf.l Emergency Sptcilldblll Qroup. P.L.L.C. ("NIIES<3''), ESC MD,
P.L.LC. (''ESG MD''). and ESG Ml.P, L.L.C. ("RSO MLP") (O()!Iootivdy ..the! Ent'ily
RC$p0nclenlll"). AD wen! owned in equal share~ by the indiv1du•l~ ddailcd b¢1ow exoept HNES
"'bich was wh!ol)y owned~>' NHESG. TI\e terms of the Company Agrccrnents or NH:ESO. SSO
MD UYJ ESG MLP ate identical ellc~:Jpt for thC~ names ·o f the entities. The a ) tit* wet(! opuatod
in c:oocen. "'tire t:ntTISI)IIrenlll$ r.o tMes • oll income flow i11g to ctlc individual owll.Cf); - 11nd \\'CJ'C
n:fem:d to .as the '"Groop.'"
1'be lndM dusl.s lvvolvcd include Alan Bmlit. M.D. t'Claimant''), George M. D:svis. M.D.,
\\\»!row V. Oolino, MD,. Anlcoelt T. Ro~ M.D., anJ Levon VMI.Ilnian. M.D. (eech a
Rer;pondmt lllXI c.ollocm«<:ly the ..lndividg&J Rcspondenrs.")
By Article !> of the relevant co1upauy .'\grcamoots. the Cunnn~r-cul Arbilrntion Ruler. of the
American Arbitration Association and tho law of the StAte cfTeX'D$, I n;m nuthori~ to decide the
arbitnibility of tmd to t8$0l\r'e any di,;tntte nll4tillg to tl'\c ~ree:ments.
1488
Limi(C(J liabilit)' companies. lncJuciing profess.io!W timited ll:tbil~ CC)q)pW~ ~ cumusl)'
hybrid buxi~ cntldcs.. Tbay m csscnli&lly inoorpo,_.cd p:utner$hjps. Jilt stlltutc:.y sdlmc
provides c:i)l'pOriltc slw'eboldur-like timit.ulons on tile: Uallil~ o( the: ()\•men (Mcmbc~) and
pc:nflits t~~ion an.d govem.1~"e with flaibility similar to a po.nnenllip, inchrding the rlg.ht to
lksign such i'OV~e :md 0~~1 b) ~mCflll ~'ell \\bCTC il COdlttadlt~ th.c: WlfiJ\Or)'
~ne (will! some oon-WDivlll*! srat'ltto.ry ~iQn$). Moreover rht tC:dcNtl lnllOcn~ cu allows
these enti1ies to reoeh~ portncrsbip tax treatmen\ i.e. no mx 11 the entity ltvcl.
The Tc:xas Du3i~sa ~intion Code provides trr.; o mcmbtr ()( 3 lirnim:l
llabili!Y oomprul)'
may not bo expelled. TBOC §101.101. T'be relt!lf1Ul.l COI'llp:s.n)' Agr~ntenls C>f the f.nrity
Respcndcof.1 ( ••AgtftmcotS"'). &$ they 1'WC reMitted tc> dD. ocm.Uy fK.'111llltcd cxpolsioo of a
Member. Claim:mt nod :tll lle'ipoodentS.. both crtlity aod iodividu:al we:rc bound by 11\e
Agm:sm:n4i wim re~ to tho m:Jnner m wni..-11 !hey dealt w i1h cxpultlc>tl. On Scopt.cmber 19.
2011, tbe IJ:ldividual kesponoclen~s. acting ~ 11-..e 1::¥-ccnt.i~e Committee cxe<:uted "Titlcn cont~;~JU
expel lin.& Ctt.ln:uutr Crom N'Jil;SO,. ESO MD ~d £S<3 MLP, effective September 30. 20 II. The
.Jt;tioo \'\'aS Ud!li:mous nnd cbed !Ill Couse ··g~t n~Lige~or '>'itffitlmisl:onduct'" all >pe¢itied in
Sectian l.l S of dle A~atts, Clairufln( ~ dtaLI!Ie only c:.i~ iflcidcnb dtd 11ot rise tu lbe
~'CI.I of '"pofll ~qhg.enco or '>'i llM cnistOoduc:t." Rcspondi!OU d~ 30d w:;, llrguod that
Ill!.! A~mcnl.$ gave the E:tcclltr.•e ComCJl itt~ absotfuto disami.on1o dccld11. D~itc tltc ~al
01\mi')' ur.d 111\SitCfllty I:O!Ic!uct of SOICC or tht duet~)('$, I do not rmd 1M die 'ndividlal
R~s filii~ to follow the Ag,tm~en4' provisioc for c=ox:pttlsion
FollowiJ'Ig the expulsion. R~pondcrn$ N'HESO. ESG MD 41ld BSG MLP ex_cn:®d tltei:r
~.SptJCth'e options co purchssc Dt. 6elm's Mctn'bi!NfUp ln1 c~ as provided in So;tion 2.0S of the
rc3peetive ~Mctltli... »o-.....va:r, w dlh d&t<: the pa.rmatr r..-qutn;.d umkr S«tlon 2.08 !las no:
lllicn made m~d M cortlle)~t:e or cl06iOA hlli taken ~· All Portics have at:koowlcdgc:d and I
hordly fiDel tlw dtc ajl1n0pristr Falr Market Vtttuc: of Or. ~~·~ Mcmt'~Cr<lp Ln~$t$ is
$526,196. '(be 1\~mcnu provide that tflc plltl\!bMe prioe be poid within 210 dii}"S of the
c:'« fi'OO\
mrnsG. £SG MLP end ESG MO lhe !SUITI of $j26,7% plru prc:jud~etK iu~rt at tho Sl.al\1101)'
me of {i\'~ JICR:Iellt (S%), in the omount <>fS5268.
1489
lhTexas limited linbilil)' QJrttpall)' c~ tC)4L!CU", in rucumpl!JY)' ~cot.ll'lc!t.all:ltlll)' rule
chst 01 Member may noc be ~pclled, it must m~~ "ery olenr nil of lbo cotlSeq'IIC n~~ me; iflllldon.
ln OOO'Sll\lin& 1Uah an agJC.., ncnt no rigbrs or eon~uco::es 1hat an: not spceHi~ly providl'Jl upon W~pdl$10fl. ()r LMII~e s'Jlllll, from tllbl
PQitt£. cease to ~ ~ M~bcr ~ bi~: Shorill~ RAtio be reduced to ~Jt~ro. I~ Sccuoo 2-0S oftlu:
A{!ntmen~ demon5m~tl:'~ dw ~ toxpdlod Menlbct m.airu hill Mcm~')l\ip lmert:St. ·n,t
Compl\0) aAd tbe other M¢1llhmi ho~-e on opdOCI t<> fl'..Jfdlll.fC 811
1 or tho Ml!mbcrsbJ;l lnl~~
own4.'d by tile expelled Mcmb«. What happen.~ if til~ dtdine Ill C?((KlSlt! that q~rion? 1bc
e: ~xp•ddon Tl~e
optlou JlrWi~ the Comp;uty .nd tbc ollu:r '-1C111~ a mec;h!Ulil:ln for a:qu.irins the ~'"JlCUcd
Mcmbef's Manbcrtbip fll(erest. Jtdle Mcm~ip 1~ :and its ti~t to ~i•~ clistribldion af
profits .rimpt)' wcm away ltJKltl expulsSon w~· "'<''u)(llh~ Comvnny or M~n,borl c:1v COJt~~
thcir <1ption? If the opcloo mech3nism dtd not exi,;~, lhe Metoberdlip (nt(tCSt. h)' SUitlir: B pro~)'
m!C'f'I:SC, 'i\'OukJ concinue untit fl wa.~ dis!'<'U:d of trl ztllCOrd:tnce with tt. tmns oflbe ;\ 8ref a Memher'$liip lnte1C$T ~1311 be effective
until AIJ provasions of tbc ~l.f bllvc bcm Sall~f.ed a.ncl that a f\kmbtrship httCR."' '"oko:tcd
to be purolussed.. . shaiJ bo paid for 8A a closing L:tee()cQpo.oiod] b) instlllm~nrs ofcWlve)'Z"nct: nnd
~"nrocnt. '' lioth of tbcsc {!ClWisions: -wty to !be ditpo~itioll boy n~ing the ri,sht 10 porch~
11n ~eUecJ :\icmber's ~mbcm:tlip l11tCifC:31
CM\mon ~~. lor,io and a ca~ful reediJls of t!K ~mts cOfllpcl that. un.tiJ paid fof' his
Interest, AMember. c~ on expc;:llcd Mamber, it c:flf\llclj to his 11hm: Of1111Y di:ltributions nt3dc by
thll Comp(U))'. lJea.u;ue or or
the d!iVCiute iJnd lh¢ tax Cl'tWmenr tbt C<.unpanics. tl~ lodf\lidual
Rospond&nt5 wm: tile reapDcrltll ond tbc ant)' lir~~JDCial t>Mefiei~ oi ltte faiii.R to providc-
disa'lbvuoll8 10 tlterr ~How (atthough c:xp¢lltd') Mcmbc:r, Or. B~1L 1ltt-reJcirc, wtw.thao b)· sdt;
imcrcsted autmgemenr. « co pteveot the urijuSI n•fit:bment of n.aney ~ ar.d
~:om'«::iDn,
~O!t\-ed, C laimM\ 1ball tun-e And n:CO\oer fmm ei!Ch lndivtdl&1.1 Respondem the :sum of
S22.8,44S.S0 plu:~ pre-jud~~t in~ in the Olt'IOWII of ~1),764.~ (\lf II 1D1nl of $2.49.210.
Ihes\la~lUd:s nrc ooljoim Md lle\'C1a.i. bur a~ indwidulll
The ~ndc~rwdn~ .tnd 11arivirics of R~d~ io «q~ellirrg Clailllnm did M l c011Sriru1e a b~a..:ll
of tbc A~eJtts. Ho~'C\'tlr, a.~ b.o was u""~ paid for his Mecnbcrttlip lotcrcn, Ciliroant
rmuincd a Member <>f NHESG, ESO MD acd £SG MLP \mcil Lhl· tntry of this AWARD, by
wbkh hit Membctship Interest is ccmun3led and extin«ui.1hed.
1490
Section ·9.03 provides that the perly wbo pre-vaiJs or !iubJb)ntially ptevllil~ in o proceeding under
Aruclo 9 ~shalt be ~:ntctlcd to recover... all cosn, cxpenS(IS aod reasonnhlc .anomey ftles incurred
in .. the proce!ldiog.," AoCQrdit~& ta the plet~dJng:~ this matter involves on~ claimant. eight
respondcmu And 16 counts, coostltuti.ng 6? $Cl)IU'ate clr~im~. In addidoo h involved and includes
anotlu~r in~xtricably intetTclated Article 9 proceeding under Section 9.01 of the Agrecmetlts ro
determine tbe fair marlcec v•hle ofClaim!llll's Membefship Tnterest. .Respondents ~vailed in the
St®oJ\ 9.01 pmeeedin g. Moreover, HNBS prevailed on Hll claims J~gnm~ it and is entitled to
rocover irs costs, expenses a11d reasonable attorney lees. While severol claims were not pursued
lllld seve~! denied, it is fair to say 1hat Clnimant s11bsto,.tially pre'Vailcd in his el&ims Md i$
entitled to reoover his costs, expcn!!Cs and reasonable attorney fees.
Since eooh party is a prevailing party, J ltereby rule a11d AWARD th:a1all fees and expc:n5cs paid
or payable to MA for this llfbitnrtion be borne by tlte party paytng or having paid thtm,
I bcrrcby AWARD that Claimam have IUld recover the su•n of $614,488.18 as ~ovcry for co~u.
cx.ponses and ~llSOtlable attomey fees. This portion of the award is ~ainst NHESG, 'SSG MD,
.6SG MLP. Goorge M. Davis, Woodrow v. Oolino, Antcneh T. Roba and Levon Vru1Mian, jointt}'
nnd scver.tlly.
Respondent HNBS is ~ t prevailing PllllY· I hereby AWARD that tiNES bav~ aod recover
from Cfa itnant. the amount of $50,SZ4.91 for its. co~s. e.l(pl.'1!3es. and reasoaable anomoy fees. If
llll parties~. in writf~ this sum can be credited against the attorney feefc061 award in favor
of Claimant.
J have oonsidered cnch and ~l:rY count. cau:;e of action, olaim, tJ1eory, measure of damages and
prayer hrougtlt by e4ch POJ'IY. I have entertained testimolly, exmnincd exhibits, stirmlatlom,
dep;o$ition exeerpu; and post-heruing submissions. I have read carefully lflld construed tbe
relevant 11gn:ements- I have utilized and lll'Plied Texas law as I understand It A$ o result. any
~lief not expressly granted in the following AWARD is denied,
(Remfti.oder or this: pa~e intCI'ItionoJiy left blnnk
FINAL AWARD lollows)
1491
Ji'JNJ.\LAWARD
I, tbe undersigned ARBITAATOR, haviog been designated in accordance with the Arbitration
Ayecment entered into by the above-named Parties,. and having !>eon duly sworn and havU'Ig read
tbe pleadinjp, heard the te~timony, tcVicwed the relevQnt docwt1enr.s. listened to argument of
oouosel. read and consjdered the hriefs and the post-hearing &ubnussio.ns. after full considenttion
of 'lllc record upon due deliberation, consttuing lhe contraCts a.nd applying Texas luw. do hereby
ORDERaodAWARD that
Claimant shall have and l"e()ovcr from Respond•mt5 aa follows:
1. From NHESO. ESG MI.P and ESG MD joirttly and sevcllllly in the amount of
$532.064.
2. f rom George M. Davis in the amount of $2.49,2 I0.
3 From Woodrow V. Dolino in the amount of $249, 210.
4. From Antcmch T. RobB .in the amouot of $249,210.
S. From Lcvon Var!llnian in the amount of $249,210.
Additionally a11d separate from tbe 11bove, Claimant shall have and recover
6. From NHESG. ESG MLP and fiSG MD. George M. D11.vis, Woodrow V. Dol !no, Antench T.
Roba and Levon Vartanian, jojntJy and ~verally the am.z.~ . .,
On N!}vunl:ler .J., 2014, the Court heard Applicont Alan Bentz, M.D.'s ("Dr. Bentz'')
Application to Confinn an Arbitration Award (the "Application"). The Respondents to said
Application are George M. Davis, M.D. ("Dr. Davis"), Woodrow V. Dolino, M.D.
("Dr. Dolino"), Anteneh T Roba, M.D. (UDr. Roba"), Levon Vartts Group, P L.L.C.. ESG MD, P.L.LC., and
ESG MLP. L..L.C., American ArbitTation Association Case No. 70-193-Y-000608-12
(the ''Award"), is hereby CONFfRMED.
IT IS FURTHER ORDERED thu.t a ftnnl judj,>ment sball be sig11ed and entered 10
conformity with the Award.
SigJled rh1s !1_ day of ~ ,20 14. () -
14:£/L
Tl EHONORA
RECORDER' S MEMORANDUM
This Instrument Is of poo~ quality
at the time of imaging
1796
APPENDIX 5
12J1/20i4 10 45 38 AM
Chns Daniel • D1str1ot Clerk Hams County
Envelope No 3324789
By CAROL WiLLIAMS
F•led 1211/2014 10 45 38 AM
CAUSE NO. 2:012-44569
ALAN BENTZ, M.D .. § IN THE DISTRICT COURT OF
Appticant, §
§
v. § HARRiS COUNTY, TEXAS
§
GEORGE DAVIS, M.D., et at,
§
Respondents. I 90th JUDlClAL DISTRICT
§
ORDER DENYlNG APl>LlCA TION FOR PARTIAL VACATUR OR MODIFICATION
OF ARBITRA Til ON AWARD
On this _l day of bet:_... , 2014, the Court heard the Entity Respondents'
1
Application for Partial Vacatur or Modification of Arbitration Award (the " Application"). After
considering the Entity Respondents' Appli.cation, all additional briefing filed by the parties, the
Court's file, and the parties' arguments, the Court has determined that the Entities' Application
should be and hereby is DENIED.
Signed this q day of kc__
'
'
1The "Entity Respondents" refers to Northwest Houston Emergency Spec111ilsts, P L L C., Houston Northwest
Emergency Spec1ahsts Group, PLLC, ESG MD. P.L.L.C .• and ESG MLP·, L.L.C, collectively.
ft£CORDER'S MEMORANDUM
lhl&Instrument is of poor quality
at the time of Imaging
1797
APPENDIX 6
1211/:?014104538AM
Chns Oan1el • 01stne1 Clerk Hams County
e nvelope No. 3324 789
By CAROL WILLIAMS
F1led 1211/2014 10 45 36 AM
ALAN BENTZ, M.D.,
CAUSE NO. 2:012-44569
§ IN THE DISTRICT COURT OF
p\
Applicant, §
§ ~pjuy
v. § HARRIS COUNTY, TEXAS
GEORGE DAVIS. M .D.; et al.,
§
§
rnodiy
Respondents. § 190tb JUDICIAL DISTRICT
ORDER DENYlNG INDIVIDUALLY NAMED RESPONDENTS' MOTION TO
PARTIALLY VACATE OR VACATE ARBITRATION AWARDORINTHE
ALTERNATIVE. MOTION TO MODIFY AWARD
On this J- day of l).e.k , 20 L4, the Court heard the [ndividually Named
Respondents, Motion to Partially Vacate or Va1;ate Arbitration Award or in the Alternative.
Motion to Modify Award.' After considering the motion, all additional briefing filed by the
parties, the Court's file, and the parties' arguments, the Court has determined tbat the
Individually Named Respondents' Marion to Partially Vacate or Vacate Arbitration Award or in
the Alternative, Motion to Modify Award should be and hereby is DENJED.
Signed thls q day of_'J><
..J-363 S.W.2d 247, 253 (Tex. 1962)
(signatories to valid contracts are bound by those contracts); Tex. Bus. Org. Code §
101.052(a)(1)(“. . . the company agreement of a limited liability company governs . . . the
relations among members, managers . . ., and the company itself.”); see also Seven Hills
Commercial, LLC v. Mirabal Custom Homes, Inc., No. 05-13-01306-CV, 2014 WL 3867837 at
*10 (Tex. App.—Dallas Aug. 7, 2014, no pet. h.) (LLCs are bound by their company
agreements). The respective Entities should be required to purchase Dr. Bentz’s interest, and
they are liable for the damages caused by their breaches, including for payment of the damages
which are set forth below in Sections III.C, III.D, III.E, and III.F. See In re White, 429 B.R. at
211, 216–19 (holding that the terminated employee was entitled to post-termination distributions
and either a buyout per the terms of the shareholders’ agreement or an injunction requiring,
among other things, that the company pay the terminated employee his pro rata share of any
future distributions).
C. Even if the Respondents properly expelled Dr. Bentz, they have still breached the
Company Agreements by failing to pay him Fair Market Value of his Membership
Interest.
Even if Respondents did properly expel Dr. Bentz (which they did not), they have
breached the Company Agreements by failing to fulfill their post-expulsion procedural
53656506.5 - 39 -