Casa Del Mar Association, Inc. v. Williams & Thomas, L.P. D/B/A Jamail Construction , 476 S.W.3d 96 ( 2015 )

Affirmed and Opinion filed August 31, 2015.
In The
Fourteenth Court of Appeals
NO. 14-14-00046-CV
CASA DEL MAR ASSOCIATION, INC., Appellant
V.
WILLIAMS & THOMAS, L.P. D/B/A JAMAIL CONSTRUCTION, Appellee
On Appeal from the 133rd District Court
Harris County, Texas
Trial Court Cause No. 2013-49929
OPINION
A landowner appeals the confirmation of an arbitration award issued after
the arbitration of its claims against a construction contractor. According to the
landowner, the trial court should have vacated the award based on the arbitration
panel’s gross mistake and manifest disregard of the law. We conclude that
manifest disregard of the law is not a potential basis for vacating the award and
that the landowner did not show that the award is tainted with such gross mistake
as would imply bad faith and failure to exercise honest judgment. We affirm the
trial court’s order.
I. FACTUAL AND PROCEDURAL BACKGROUND
Appellant Casa del Mar Association, Inc. (“Casa del Mar”) contracted with
appellee Williams & Thomas, L.P. d/b/a Jamail Construction (“Jamail”) for the
construction of certain improvements at a condominium complex owned by Casa
del Mar. Disputes arose between the parties regarding alleged defects in Jamail’s
work. Casa del Mar initiated an arbitration proceeding and asserted claims against
Jamail. When the arbitration panel conducted the arbitration hearing in Houston,
Casa del Mar was asserting claims against Jamail for (1) breach of contract, (2)
breach of express warranty, (3) breach of the “implied warranty of good and
workmanlike conduct,” (4) negligence, and (5) negligent misrepresentation.
The arbitration panel issued a “reasoned award,” in which it explained the
reasons for its rulings. According to the award, Casa del Mar complained of
“staining on the Hardi-Plank exterior of the building,” and all parties agreed that
this staining “is being caused by minerals contained in water that is leaking from
the balconies behind the Hardi-Plank wall exterior and then between the horizontal
planks onto the surface . . . thereby causing efflorescent stains.” In the award, the
panel also stated as follows:
Casa sought and obtained opinions from at least three ‘experts’
as to what was causing the staining, an appropriate repair
methodology, and the cost to implement a repair protocol. As a part
of this investigation destructive testing was performed on 3 balconies
out of the 234. Expert reports along with photographs and exhibits
were issued. Mainly based on Expert reports, Casa contends that the
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following conditions found by the experts are construction defects and
therefore breaches of the contract:
1. “Fishmouths” in the waterproofing membrane
2. “Reverse laps” in the waterproofing membrane
3. Lack of sealant at door thresholds
4. One ply of waterproofing as opposed to two
Even assuming that each of the four items were found on a[t]
least one occasion during the destructive testing, the Panel finds that
none of the conditions were shown as causing or contributing to the
staining of the walls. Further the Panel finds that these conditions may
well evidence a failure to perform the work in a good and
workmanlike manner; however, taken all together they do not arise to
a “material breach of contract” as that term is used under Texas
construction law (which would therefore not afford Casa a monetary
remedy).
After explaining why the panel concluded that Casa del Mar could not
recover the $1,395,216 in damages sought, the panel explained the reasons why it
was awarding $24,490.20 to Casa del Mar:
After consideration of all the credible evidence and the legal doctrines
of betterment and economic waste, the Panel is of the opinion that the
proper “fix” should be to clean the outside of the wall and to apply an
elastrometric paint. The best estimate of the cost to perform this work
is an estimate [that] includes a total amount of $81,634 for painting.
Unfortunately for this Panel the allocation of responsibility
between the designer/Owner and the contractor is a major issue. Both
testifying experts stated that the cause of the stains were both
construction and design problems. Complicating the matter further is
the fact that the balconies were constructed based on a mock up that
was approved by the Owner’s representative. The Panel believes that
the main sources of water leaving the balconies is thru areas in which
there are no end dams and thru the outside galvanized metal frame
that evidently was not caulked.
The Panel ascribes 30% of the damage amount to Jamail for
failure to caulk the seams in the outside metal frame and 70% to the
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Owner who agreed to construction per the mock up and presumably
received a price reduction.
The panel awarded Casa del Mar $24,490.20, thirty percent of $81,634, and
concluded that each party should bear its own attorney’s fees and costs. The panel
also stated that all claims sounding in tort were denied based on the economic loss
rule. Casa del Mar filed a “motion to correct” in the arbitration proceeding,
arguing that the panel erred because (1) the panel awarded Casa del Mar a recovery
on the breach-of-contract claim, but did not award Casa del Mar any attorney’s
fees or costs under Chapter 38 of the Texas Civil Practice and Remedies Code; and
(2) the panel applied percentages of responsibility under Chapter 33 of the Texas
Civil Practice and Remedies Code to Casa del Mar’s breach-of-contract claim
(hereinafter collectively “Alleged Legal Errors”). Casa del Mar asserted that it
should recover its attorney’s fees, costs, and all of the $81,634. The arbitration
panel denied Casa del Mar’s motion.
Casa del Mar filed a motion to vacate the arbitration award in Galveston
County District Court. The district court signed an agreed order transferring venue
to Harris County, and the case was transferred to the trial court below. Jamail filed
a response in opposition to the motion to vacate, and moved to confirm the award.
The trial court granted the motion to confirm and denied the motion to vacate.
Casa del Mar now challenges those rulings.
II. ISSUES AND ANALYSIS
A. Did the trial court err in denying Casa del Mar’s motion to vacate and
granting the motion to confirm?
In its first issue, Casa del Mar asserts that the trial court erred in denying
Casa del Mar’s motion to vacate and granting Jamail’s motion to confirm. Casa
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del Mar argues that the arbitration Panel’s Alleged Legal Errors constitute gross
mistake and manifest disregard of the law and that the trial court erred in not
vacating the award on these grounds.
Jamail asserts a number of reasons why it contends we should affirm the trial
court’s order. For the purposes of this appeal we presume, without deciding, as
follows: (1) the motion to vacate was timely and notice of the motion was served
on Jamail or its attorney within three months after the award was filed or delivered;
(2) Casa del Mar has challenged on appeal every independent basis on which the
trial court could have denied the motion to vacate; (3) the Federal Arbitration Act
(“Federal Act”) does not preempt the Texas Arbitration Act (“Texas Act”) and
Texas common law as to the possible grounds for vacating the award; and (4) the
Texas Arbitration Act does not preempt all common law grounds for vacating the
award.
If Casa del Mar sought to vacate the award under the Federal Act, then the
trial court did not err in denying the motion to vacate because neither gross mistake
nor manifest disregard of the law is listed in the Federal Act as a basis for vacating
an arbitration award, and the grounds stated in that statute are the exclusive
grounds for vacating arbitration awards under the Federal Act. See 9 U.S.C. § 10
(listing the grounds for vacating an arbitration award under the Federal Act without
mentioning gross mistake or manifest disregard of the law); Hall Street Assocs.,
L.L.C. v. Mattel, Inc., 552 U.S. 576, 578, 128 S. Ct. 1396, 1400, 170 L. Ed. 2d 254
(2008) (holding that grounds stated in the Federal Act for vacating an arbitration
award are exclusive); LeFoumba v. Legend Classic Homes, Ltd., No. 14-08-00243-
CV, 2009 WL 3109875, at *2 (Tex. App.—Houston [14th Dist.] Sept. 17, 2009, no
pet.) (rejecting appellant’s argument for vacating arbitration award under the
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Federal Act because the argument was not one of the grounds listed in the Federal
Act) (mem. op.); IQ Holdings, Inc. v. Villa D’Este Condominium Owner’s Assoc.,
Inc., No. 01-11-00914-CV, —S.W.3d —, —, 2014 WL 982844, at *7 (Tex.
App.—Houston [1st Dist.] Mar. 13, 2014, no pet. h.) (holding that manifest
disregard of the law is not a ground for vacating an arbitration award under the
Federal Act); Anchor Holdings, LLC v. Peterson, Goldman, & Villani, 294 S.W.3d
818, 829 (Tex. App.—Dallas 2009, no pet.) (holding that gross mistake and
manifest disregard of the law are not grounds for vacating an arbitration award
under the Federal Act).
In the Texas Act, the Texas Legislature has provided that “[u]nless grounds
are offered for vacating, modifying, or correcting an award under Section 171.088
or 171.091, the court, on application of a party, shall confirm the award.” Tex. Civ.
Prac. & Rem. Code Ann § 171.087 (West, Westlaw through 2013 3d C.S.).
Neither gross mistake nor manifest disregard of the law is a statutory ground under
the Texas Act for vacating, modifying, or correcting an award under Section
171.088 or 171.091. See Tex. Civ. Prac. & Rem. Code Ann §§ 171.088, 171.091
(West, Westlaw through 2013 3d C.S.). In these grounds, Casa del Mar does not
assert constitutional violations, nor does it claim that the award clearly violates
carefully articulated, fundamental public policy. See CVN Group, Inc. v. Delgado,
95 S.W.3d 234, 239 (Tex. 2002) (stating that arbitration award may be set aside on
public policy grounds in the extraordinary situation in which the award clearly
violates carefully articulated, fundamental policy); Action Box Co. v. Panel Prints,
Inc., 130 S.W.3d 249, 252–53 (Tex. App.—Houston [14th Dist.] 2004, no pet.)
(rejecting public policy argument for vacating arbitration award because the
argument did not meet the standard set by the high court in the CVN Group case);
Kline v. O’Quinn, 874 S.W.2d 776, 783–84, 790–91 (Tex. App.—Houston [14th
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Dist.] 1994, writ denied) (addressing argument that arbitration award violated
United States and Texas constitutions).
Presuming, without deciding, that common-law grounds for vacating an
arbitration award still may be used to vacate an award under the Texas Act, these
common-law grounds would be that the award is tainted with fraud, misconduct, or
such gross mistake as would imply bad faith and failure to exercise honest
judgment.1 See Ewing v. ACT Catastrophe-Texas, L.C., 375 S.W.3d 545, 552
(Tex. App.—Houston [14th Dist.] 2012, pet. denied); Carpenter v. North River Ins.
Co., 436 S.W.2d 549, 551 (Tex. Civ. App.—Houston [14th Dist.] 1968, writ ref’d
n.r.e.). These grounds would not include manifest disregard of the law. See
Ewing, 375 S.W.3d at 552; Action Box Co., 130 S.W.3d at 252 (holding that
manifest disregard of the law is not a ground for vacating an arbitration award for
arbitrations covered by the Texas Act). Thus, to the extent Casa del Mar sought to
vacate the award under the Texas Act, the trial court did not err in denying the
motion to vacate on this ground. See Ewing, 375 S.W.3d at 552; Action Box Co.,
130 S.W.3d at 252.
We next consider whether Casa del Mar showed that the award should be
vacated for gross mistake. An arbitration award is conclusive on the parties as to
all matters of fact and law submitted to the arbitration panel. CVN Group, Inc., 95
S.W.3d at 238. All reasonable presumptions are indulged in favor of the award,
and none against it. Id. A mere mistake of fact or law alone is insufficient to set
aside an arbitration award based on gross mistake. See Riha v. Smulcer, 843 S.W.2d
1
The parties’ arbitration agreement does not fall within any of the exclusions from the scope of
the Texas Act. See Tex. Civ. Prac. & Rem. Code Ann § 171.002 (West, Westlaw through 2013
3d C.S.). This case does not involve an arbitration under the common law. See id.
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289, 292 (Tex. App.—Houston [14th Dist.] 1992, writ denied). Instead, a party seeking
to vacate an arbitration award based on the common-law ground of gross mistake
bears the burden of showing that the award is tainted with such gross mistake as
would imply bad faith and failure to exercise honest judgment. See Carpenter, 436
S.W.2d at 551.
The only evidence that Casa del Mar submitted in support of its motion to
vacate is a copy of the award itself and a pre-hearing brief it filed in the arbitration
proceeding.2 Casa del Mar argues that the arbitration panel’s Alleged Legal Errors
constitute gross mistake and that the trial court erred in not vacating the award on
this basis. Specifically, Casa del Mar asserts that the arbitration panel failed to
follow well-established law by failing to award Casa del Mar attorney’s fees, even
though the panel awarded Casa del Mar actual damages on its breach-of-contract
claim, and by applying Chapter 33 of the Texas Civil Practice and Remedies Code
to the breach-of-contract claim. Casa del Mar asserts that under Texas law the
arbitration panel was required to award Casa del Mar attorney’s fees and costs and
to award Casa del Mar $81,634 in contract damages, without any deduction based
on Casa del Mar’s percentage of responsibility. Casa del Mar argues that the panel
failed to do so despite Casa del Mar’s pre-hearing and post-hearing briefing and its
motion to correct, in which it presented the applicable law to the panel. Jamail
responds that the award does not refer to Chapter 33 of the Texas Civil Practice
and Remedies Code and argues that the panel did not base its award on the breach-
of-contract claim or the breach-of-warranty claim but rather on equitable
principles.
2
We presume for the sake of argument that these exhibits were before the trial court when it
denied the motion to vacate, even though these documents were not in the trial court’s file, for
the reasons discussed in the next section of this opinion.
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“The fact that the relief granted by the arbitrators could not or would not be
granted by a court of law or equity is not a ground for vacating or refusing to
confirm the award.” Tex. Civ. Prac. & Rem. Code Ann § 171.090 (West, Westlaw
through 2013 3d C.S.); Leslie v. Hill, No. 14-13-00600-CV, 2014 WL 5309660, at
*3 (Tex. App.—Houston [14th Dist.] Oct. 16, 2014, no pet.) (mem. op.). The
eleven-page arbitration award shows that the arbitration panel gave serious
consideration to the parties’ contentions, evidence, and arguments. We do not
have a complete record of the arbitration proceedings, and nothing in the record we
do have—the award and the other exhibit attached to Casa del Mar’s motion to
vacate—suggests the panel made its decision in bad faith or that it failed to
exercise honest judgment. Even presuming that the arbitration panel committed
legal errors, Casa del Mar did not meet the burden of showing that the award is
tainted with such gross mistake as would imply bad faith and failure to exercise
honest judgment. See Callahan & Assocs. v. Orangefield Indep. Sch. Dist., 92
S.W.3d 841, 844 (Tex. 2002) (presuming for sake of argument that common-law
grounds could be used to vacate award under Texas Act and holding that failure to
award damages is not sufficient to constitute such a gross mistake as would imply
bad faith or failure to exercise honest judgment); Black v. Shor, 443 S.W.3d 154,
168–69 (Tex. App.—Corpus Christi 2013, pet. denied) (holding moving party
failed to meet its burden of showing gross mistake); Carpenter, 436 S.W.2d at 551
(same as Black). Therefore, even if gross mistake is a potential ground to vacate
the award, the trial court did not err in denying Casa del Mar’s motion to vacate on
this ground. See Callahan & Assocs., 92 S.W.3d at 844; Black, 443 S.W.3d at 168–
69; Carpenter, 436 S.W.2d at 551.
Concluding that the arguments under Casa del Mar’s first issue lack merit,
we overrule that issue.
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B. Should this case be remanded or abated so that the trial court may
review the exhibits to the motion to vacate?
In its second issue, Casa del Mar asserts this court should remand or abate
the case to allow the trial court to consider the two exhibits that were attached to
the motion to vacate when the motion was filed in Galveston but which were not in
the trial court’s file until after the trial court denied the motion. The record reflects
that Casa del Mar filed two exhibits attached to its motion to vacate in the
Galveston court. When the file was transferred to the trial court under the venue-
transfer order, the district clerk’s office scanned these two exhibits along with the
other documents in the file, but because the scanned copies were illegible, the
district clerk’s office deleted them. The two exhibits were not re-scanned before
the trial court denied the motion to vacate. Therefore, when the trial court ruled on
the motion, its file did not contain the two exhibits, though the file contained the
body of the motion.
Neither party has cited any authority as to the proper course of action in
these circumstances. We note that in the body of the motion Casa del Mar made
known to the trial court the arguments Casa del Mar was making in support of the
motion to vacate and indicated to the trial court that the exhibits were the
arbitration award and a pre-hearing brief Casa del Mar filed in the arbitration
proceeding.3 In the motion, Casa del Mar quoted the arbitration award at length
and described it in detail. As discussed in the previous section, even if the two
exhibits were in the trial court’s file and were considered by the trial court in ruling
on the motion, Casa del Mar still failed to show a valid ground for vacating the
3
These exhibits subsequently were made a part of the trial court’s record and our appellate
record.
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arbitration award. Therefore, on this record, we conclude there is no basis for
abating this appeal or remanding the case so that the trial court may consider the
exhibits. Accordingly, we overrule Casa del Mar’s second issue.
Having overruled both of the appellate issues, we affirm the trial court’s
order.
/s/ Kem Thompson Frost
Chief Justice
Panel consists of Chief Justice Frost and Justices Christopher and Busby.
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