Carol Sousa as Personal Representative of the Estate of Betty Wilwerding v. Goldstein Faucett and Prebeg, LLP CP Windup, LLP F/K/A Clearman Prebeg, LLP Prebeg Faucett & Abbott, LLC Christopher Faucett, Individually Stephen Abbott, Individually Matthew Prebeg, Individually Newton Schwartz, Individually And NBS Acquisitions Corp. ( 2022 )

Affirmed and Memorandum Opinion filed July 28, 2022.
In The
Fourteenth Court of Appeals
NO. 14-20-00484-CV
CAROL SOUSA, AS PERSONAL REPRESENTATIVE OF THE ESTATE
OF ELIZABETH BETTY JEAN WILWERDING, DECEASED, Appellant
V.
GOLDSTEIN FAUCETT AND PREBEG, LLP; CP WINDUP, LLP F/K/A
CLEARMAN PREBEG, LLP; PREBEG FAUCETT & ABBOTT, LLC;
CHRISTOPHER FAUCETT, INDIVIDUALLY; STEPHEN ABBOTT,
INDIVIDUALLY; MATTHEW PREBEG, INDIVIDUALLY; NEWTON
SCHWARTZ, INDIVIDUALLY; AND NBS ACQUISITIONS CORP.,
Appellees
On Appeal from the 151st District Court
Harris County, Texas
Trial Court Cause No. 2016-77743
MEMORANDUM OPINION
Appellant Carol Sousa, as personal representative of the estate of Elizabeth
Betty Jean Wilwerding, deceased, asserts in five issues the trial court erred by
compelling the parties to arbitration, confirming the arbitration award, and in
awarding attorney’s fees to appellees Goldstein Faucett and Prebeg, LLP; CP
Windup, LLP f/k/a Clearman Prebeg, LLP; Prebeg Faucett & Abbott, LLC;
Christopher Faucett, individually; Stephen Abbott, individually; Matthew Prebeg,
individually; Newton Schwartz, individually; and NBS Acquisitions Corp. (the IP
attorneys). We affirm the judgment of the trial court.
I. BACKGROUND
Michael Wilwerding, formerly an inventor in Oregon, developed technology
for processing or recycling waste rubber tires into hydrocarbon gas and solvent. He
held several patents on his inventions. Wilwerding shared his intellectual property
with several individuals and companies in Texas (Texas Licensees) through
confidentiality and licensing agreements. However, after concluding that the Texas
Licensees violated the agreements, Wilwerding cancelled the agreements. The
Texas Licensees later filed several patent applications based on Wilwerding’s
intellectual property without Wilwerding’s knowledge, and then made public
Wilwerding’s intellectual property after they formed a company to monetize the
technology.
Wilwerding died in 2007. Shortly after his death, his widow, Betty, was
approached by Keith Klinkhammer who had become interested in the Texas
Licensees and their technology. After some research, Klinkhammer believed that
Wilwerding was the true inventor. Klinkhammer explained his research to Betty
and received power of attorney from Betty in December 2007, which granted
Klinkhammer authority to make decisions regarding any claims arising from the
use or misuse of Wilwerding’s technology. Klinkhammer began looking for law
firms to prosecute intellectual property claims under a contingency fee agreement.
Klinkhammer was introduced to Newton Schwartz, an attorney and investor, by
Clem Palmer, who was paid a finder’s fee by Klinkhammer. Schwarz introduced
2
Klinkhammer to Christopher Faucett. At the time, Faucett practiced with the law
firm Goldstein, Faucett & Prebeg and specialized in intellectual property
enforcement and protection on a contingency-fee basis. Faucett flew up to Oregon
to meet with Betty at her home to discuss a contingency-fee arrangement in
January 2008. The contingency-fee agreement, signed by Betty, allowed the
attorneys to split the contingency fee in any manner they felt appropriate so that
they had the ability to retain local counsel if necessary.
In March 2008, Faucett and Schwarz filed suit against the Texas Licensees
in federal district court in Oregon asserting claims of theft of trade secrets and
breach of contract. Klinkhammer also learned that Wilwerding developed a
prototype processor which the Texas Licensees had used to demonstrate their
technology and secure funding. Wilwerding had taken the processor back from the
Texas Licensees, but sold it to a company in Arkansas. Because the Arkansas
company that purchased the processor allegedly threatened to sue Wilwerding’s
estate for breach of contract, the attorneys settled these claims and purchased the
processor for $90,000 with the intent the settlement would be considered a cost
under the contingency-fee agreement. Sousa asserts that Newton Schwarz
committed insurance fraud with respect to the processor and inappropriately
claimed the settlement as a litigation expense.
In 2009, one of the Texas Licensees settled the trade-secret claims against
him. Due to a bankruptcy filing, the remainder of the trade-secret lawsuit was
stayed from November 2009 to April 2011.
In 2011, Betty’s health began deteriorating and her daughter, Carol Sousa,
became involved with her mother’s affairs. Sousa was concerned her mother had
been taken advantage of by Klinkhammer, Faucett, and Schwarz. She received a
power of attorney from her mother and retained attorneys Dan and Penelope
3
McCarthy in Oregon to represent her with respect to her mother’s affairs. The
McCarthys began evaluating the contingency-fee agreement and requesting
documents from the involved parties. Faucett, practicing then with the firm of
Clearman Prebeg, LLP n/k/a CP Windup,1 was aware that Sousa had concerns
about the treatment of her mother and the contingency-fee agreement. Faucett
advised Sousa’s attorneys that he would not continue representing Betty until he
received confirmation that Betty’s daughter and her counsel were in agreement
with the contingency-fee agreement and representation by Faucett and Schwarz.
Sousa, through Dan McCarthy, approved and ratified the contingency-fee
agreement in a December 2011 email, which stated that Sousa supported “all
efforts by all persons to date.”
In 2012, Faucett and Schwarz renegotiated the prior settlement to expand the
use of Wilwerding’s technology into Canada. The amended settlement agreement
resulted in an initial settlement payment of $100,000. Despite having
approximately $200,000 in expenses, the IP attorneys agreed to take $20,000 of
this settlement payment for expenses so Betty would receive the benefit of the
settlement proceeds. This settlement agreement was executed by Sousa, as Betty’s
conservator, in March 2012.
Betty died in June 2012. After her death, Sousa hired another attorney to
dispute the contingency-fee agreement. After Faucett requested to have the claims
arbitrated, Dan McCarthy got involved and apologized for any confusion and
reaffirmed Sousa’s support and agreement with the work of the IP attorneys.
Shortly thereafter, Faucett and Schwarz settled with the remaining Texas
Licensees. Under the terms of this final settlement agreement, the remaining Texas
1
In 2010, Goldstein, Faucett & Prebeg ceased operating and Faucett joined Clearman
Prebeg, LLP.
4
Licensees would pay a total of $700,000 over the course of seven years. The trade
secret litigation was resolved and dismissed in 2012.
Faucett and Schwarz proposed a distribution agreement to Betty’s estate to
address the distribution of all the settlement proceeds that was intended to resolve
any dispute by Sousa. Sousa agreed to the Distribution Agreement, though she
communicated to the McCarthys that she entered into the agreement with the intent
to later sue Faucett and Schwarz and file state bar grievances against them.
Sousa later retained David Sheller, her trial counsel in this proceeding. On
behalf of Sousa as personal representative of the estate, Sheller filed the underlying
suit in 2016 asserting causes of action for barratry pursuant to Government Code
section 82.065, Deceptive Trade Practices-Consumer Protection Act violations,
breach of fiduciary duty and conspiracy, as well as negligence and negligent
misrepresentation against: Faucett, individually; Goldstein Faucett and Prebeg,
LLP; Prebeg Faucett & Abbott, LLC; CP Windup2; Newton Schwarz, individually;
and NBS Acquisitions, Corp. arising out of the contingency fee agreement and
Faucett and Schwarz’s representation of Betty. The IP lawyers sought to have the
case referred to arbitration, which the trial court ordered in April 2017.
After further disputes including an interlocutory appeal to this court3, Sousa
2
Scott Clearman intervened in the suit arguing that Clearman Prebeg, LLP ceased to
exist in March 2016, prior to Sousa’s suit and therefore should not be a party. Clearman was not
named in Sousa’s petition, but was one of four former partners in Clearman Prebeg, LLP and
intervened to protect his interest. Clearman also argued that counsel for the IP attorneys had no
authority to represent Clearman Prebeg, LLP. The IP attorneys disputed Clearman’s contentions,
including his assertion that Clearman Prebeg, LLP no longer existed. Ultimately, Clearman
nonsuited his claims and Clearman Prebeg, LLP was thereafter referred to as CP Windup.
3
This court dismissed Sousa’s appeal concluding that it had no jurisdiction over an
appeal of an order granting a motion to compel arbitration. Estate of Wilwerding v. Faucett,
No. 14-17-00350-CV, 2017 WL 2701097, at *1 (Tex. App.—Houston [14th Dist.] June 22,
2017, no pet.) (mem; op.). Subsequently, Sousa filed a petition for writ of mandamus asking this
court to compel the trial court to vacate its order compelling arbitration of all Sousa’s claims. In
5
initiated arbitration through the American Arbitration Association (AAA),
specified in the contingency-fee agreement, and requested the Hon. Alice
Oliver-Parrott as the arbitrator. The IP attorneys ultimately agreed. In the
arbitration, Sousa expanded the scope of her claims against the IP attorneys to
include: (1) barratry and violations of the Government Code section 82.065;
(2) negligent hiring and supervision; (3) violations of the Deceptive Trade
Practices-Consumer Protection Act4; (4) breach of fiduciary duty and conspiracy;
(5) negligent misrepresentation and negligence; (6) professional misconduct under
Texas Disciplinary Rules of Professional Conduct 8.03 and 8.04;5 (7) violations of
the Texas Theft Liability Act6; (8) insurance fraud and breach of fiduciary duty;
and (9) declaratory judgment that the contingency-fee agreement is null and void.
After Oliver-Parrott ruled on several motions, appellant sought dismissal of
Oliver-Parrott for displaying evident partiality. Sousa filed a motion in the trial
court seeking Oliver-Parrott’s removal as arbitrator. Though the trial court denied
Sousa’s motion, Oliver-Parrott recused herself as an arbitrator citing the “extreme
mendacity” of Sheller.
The AAA then initiated the process of selecting another arbitrator, which
re Estate of Wilwerding, No. 14-17-00361-CV, 2017 WL 2218974, at *1 (Tex. App.—Houston
[14th Dist.] May 18, 2017, orig. proceeding). This court denied the petition for writ of
mandamus because Sousa did not establish that she lacked an adequate remedy by appeal. Id.4
The Deceptive Trade Practice-Consumer Protection Act (DTPA) is Business and
Commerce Code chapter 17, covering sections 17.01–17.955. Tex. Bus. & Com. Code Ann.
§ 17.41.
5
Though Sousa alleges the IP attorneys violated the Texas Disciplinary Rules of
Professional Conduct, the rules do not create a private cause of action. The preamble to the rules
of professional conduct states: “Violation of a rule does not give rise to a private cause of action
nor does it create any presumption that a legal duty to a client has been breached.” Tex. Rules
Prof’l Conduct P. Preamble ¶ 15, reprinted in Tex. Gov’t Code Ann., tit. 2, subtit. G, app. A
(Tex. State Bar R. art. X, § 9).
6
The Texas Theft Liability Act (TTLA) is Civil Practice and Remedies Code chapter
134, covering sections 134.001–134.005. Tex. Civ. Prac. & Rem. Code Ann. § 134.001.
6
resulted in the appointment of Edward “Trey” Bergman. During the confirmation
process, Bergman initially disclosed that he had previously mediated matters with
various attorneys at the firm of Wilson Elser Moskowitz Edleman & Dicker LLP
(Wilson Elser), including one mediation with John Shepperd, a partner at Wilson
Elser and the lawyer representing the IP attorneys with respect to Sousa’s claims.
After a request for further disclosure from Sousa, Bergman disclosed that he had
served as a mediator for eleven cases involving attorneys from the firm of Wilson
Elser between 2006 and 2019. Sousa objected to Bergman serving as the arbitrator,
but after briefing by the parties the AAA overruled Sousa’s objections and
reconfirmed Bergman in May 2019.7
A final hearing in the arbitration proceeding was held in October 2019.
Bergman issued an award in March 2020 finding that Sousa did not prove any of
her claims against the IP attorneys and concluding Sousa should take nothing by
way of her claims. Bergman also found that the CP Windup, Schwartz, and NBS
Acquisitions successfully proved their counterclaims against Sousa and assessed
attorney’s fees against her, as well as costs and expenses pursuant to AAA rules.
The IP attorneys sought to have the trial court confirm the arbitration award. Sousa
objected to confirmation of the arbitration award because of corruption and evident
partiality. The trial court confirmed the award on the submission of the parties’
motions and rendered a final take-nothing judgment against Sousa on May 4,
2020.8 Sousa appeals the final judgment of the trial court.
7
Sousa also filed a petition for writ of mandamus asking this court to compel the trial
court to strike Bergman for evident partiality and hold an evidentiary hearing concerning Betty’s
capacity to sign the contract at issue and whether the contract is void This court denied the
petition for writ of mandamus. In re Estate Wilwerding, No. 14-19-0042-CV, 2019 WL 2385749(Tex. App.—Houston [14th Dist.] June 6, 2019, orig. proceeding [mand. denied]).
8
The language used by the trial court in the final judgment reflects the intent to
“unequivocally” and “expressly dispose[] of all claims and all parties.” Lehmann v. Har-Con
7
II. ANALYSIS
A. Trial court did not err in compelling arbitration
We begin with issue 2, in which appellant argues that the trial court erred in
referring the case to arbitration because there was no evidentiary hearing or
discovery allowed on Betty’s capacity to contract in 2007. Sousa relies on Civil
Practice and Remedies Code section 171.022 urging referral to arbitration was
“procedurally unconscionable because Betty was not competent to sign the
contract.” See Tex. Civ. Prac. & Rem. Code Ann. § 171.022 (“A court may not
enforce an agreement to arbitrate if the court finds the agreement was
unconscionable at the time the agreement was made.”). Sousa also argues there
was no discovery on the issue of the forced ratification by Sousa of the
contingency-fee contract.
We need not address the substance of the dispute between the parties over
Betty’s competence. Because the record established that Sousa ratified the
contingency-fee contract, the trial court did not need to hold an evidentiary hearing
on Betty’s competence or decide Betty’s competence.
1. Standard of review
We review a trial court’s decision to grant or deny a motion to compel
arbitration for an abuse of discretion. See Jack B. Anglin Co., Inc. v. Tipps,
842 S.W.2d 266, 271 (Tex. 1992). Under an abuse-of-discretion standard, we defer
to the trial court’s factual determinations if they are supported by evidence, but we
review the trial court’s legal determinations de novo. In re Labatt Food Serv., L.P.,
279 S.W.3d 640, 643 (Tex. 2009). Whether an arbitration agreement is enforceable
is subject to de novo review. Id.Corp., 39 S.W.3d 191, 192–93, 200 (Tex. 2001).
8
Because the trial court here did not enter specific findings of fact or
conclusions of law to explain its granting of the motion to compel arbitration, we
must uphold the trial court’s decision on any appropriate legal theory urged below.
Shamrock Foods Co. v. Munn & Assocs., Ltd., 392 S.W.3d 839, 844 (Tex. App.—
Texarkana 2013, no pet.); In re Weeks Marine, Inc., 242 S.W.3d 849, 854 (Tex.
App.—Houston [14th Dist.] 2007, orig. proceeding).
2. Governing law
The contingency-fee agreement does not specifically invoke either the
Federal Arbitration Act9 (FAA) or the Texas General Arbitration Act10 (TAA) but
provides that it shall be governed by the laws of Texas. Accordingly, both the FAA
and TAA apply. Natgasoline LLC v. Refractory Constr. Servs., Co. LLC, 566
S.W.3d 871, 878 (Tex. App.—Houston [14th Dist.] 2018, pet. denied) (“If an
arbitration agreement does not specify whether the FAA or the TAA applies, but
states that it is governed by the laws of Texas, both the FAA and the TAA apply
unless the agreement specifically excludes federal law.”); see also Accord Bus.
Funding, LLC v. Ellis, 625 S.W.3d 612, 617 (Tex. App.—Houston [14th Dist.]
2021, no pet.) (same). The issue of arbitrability, however, is subject to the same
analysis under either statute. Rodriguez v. Texas Leaguer Brewing Co., 586 S.W.3d
423, 427 (Tex. App.—Houston [14th Dist.] 2019, pet. denied).
3. Compelling arbitration
Generally, a party seeking to compel arbitration must establish that a valid
arbitration agreement exists and that the claims at issue fall within the scope of that
agreement. G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 524
(Tex. 2015). Once an arbitration movant meets that burden, a trial court must grant
9
See 9 U.S.C. §§ 1–16.
10
See Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001–.098.
9
the motion to compel arbitration unless the opposing party proves a defense to
arbitration. Rodriguez, 586 S.W.3d at 428. We apply state contract principles to
determine whether a valid arbitration agreement exists. J.M. Davidson, Inc. v.
Webster, 128 S.W.3d 223, 227–28 (Tex. 2003).
The supreme court has concluded that the issue of mental incapacity is for
the court to decide rather than the arbitrator, because it is a formation defense
calling into question the very existence of a contract. In re Morgan Stanley & Co.,
293 S.W.3d 182, 189–90 (Tex. 2009) (orig. proceeding). Texas law presumes that
a person executing a contract or instrument had sufficient mental capacity at the
time of its execution to understand her legal rights. Bradshaw v. Naumann, 528
S.W.2d 869, 873 (Tex. Civ. App.—Austin 1975, writ dism’d); see Hall v. Hall,
352 S.W.2d 765, 767 (Tex. Civ. App.—Houston 1962, no writ) (mental capacity to
contract must be determined as of contract execution date). Accordingly, the
burden rests on the person seeking to set aside a contract or instrument to show
lack of mental capacity of the contracting party at the time the contract or
instrument was made. Bradshaw, 528 S.W.2d at 873.
To establish lack of mental capacity to contract in Texas, the evidence must
show that, at the time of contracting, the person could not have “appreciated the
effect of what [she] was doing and understood the nature and consequences of
[her] acts and the business [she] was transacting.” Mandell & Wright v. Thomas,
441 S.W.2d 841, 845 (Tex. 1969); see Bach v. Hudson, 596 S.W.2d 673, 675–76
(Tex. Civ. App.—Corpus Christi 1980, no writ). As a general rule, the question of
whether a person, at the time of contracting, knows or understands the nature and
consequences of her actions is a question of fact. See Fox v. Lewis, 344 S.W.2d
731, 739 (Tex. Civ. App.—Austin 1961, writ ref’d n.r.e.).
10
4. Necessity of an evidentiary hearing
Sousa argues that the trial court erred by not holding an evidentiary hearing
on Betty’s capacity to contract in 2007. When a party opposing an application or
motion to compel arbitration denies the existence of an agreement, the trial court
shall “summarily determine that issue.” Tex. Civ. Prac. & Rem. Code Ann.
§ 171.021(b). In the context of enforcing an arbitration clause, the supreme court
has defined the contours of a summary determination:
Ordinarily, contested issues are decided after a plenary hearing,
that is, a hearing at which witnesses present sworn testimony in
person or by deposition rather than by affidavit. For example, our
rules permit trial courts to render final judgments in civil cases on
motions for summary judgment. A trial court may render a
summary judgment based on a record consisting of deposition
transcripts, interrogatory answers, and other discovery responses,
along with the pleadings, admissions, affidavits, stipulations, and
authenticated or certified public records before the court at the time
the motion is heard. Tex. R. Civ. P. 166a(c). This procedure, as the
title suggests, is summary in nature.
Jack B. Anglin Co., 842 S.W.2d at 269. Given the mandate from the legislature that
a motion to compel arbitration be decided summarily, the supreme court held “that
the trial court may summarily decide whether to compel arbitration on the basis of
affidavits, pleadings, discovery, and stipulations.” Id. Only when material facts are
necessary to determine the controverted issue, by an opposing affidavit or
otherwise admissible evidence, must the trial court conduct an evidentiary hearing
to determine the disputed material facts. Id. We now consider whether there was a
disputed material fact necessitating an evidentiary hearing.
5. Ratification of the contingency-fee agreement
As the party resisting arbitration, it was Sousa’s burden to establish a
defense to enforcement of the arbitration agreement. J.M. Davidson, 128 S.W.3d at
11
227. Though appellant challenged the referral to mediation on multiple grounds in
the trial court; on appeal, Sousa argues the trial court’s order was procedurally
unconscionable because (1) Betty was not competent to sign the contract and
(2) there was no evidentiary hearing on the matter. Sousa, in her opposition to
arbitration, relied on various medical records from Betty’s treating physicians
arguing that Betty lacked capacity to contract in 2011. In response, the IP attorneys
argue that Sousa did not successfully meet her burden to establish Betty’s
incapacity at the time the contingent-fee agreement was signed.11 Regardless, the
IP attorneys argue Carol Sousa ratified the contract after she became Betty’s
conservator.
“Ratification is the adoption or confirmation by a person with knowledge of
all material facts of a prior act which did not then legally bind him and which he
had the right to repudiate.” BPX Operating Co. v. Strickhausen, 629 S.W.3d 189,
196 (Tex. 2021) (quotation omitted). “Ratification extends to the entire
transaction.” Land Title Co. of Dall., Inc. v. F. M. Stigler, Inc., 609 S.W.2d 754,
757 (Tex. 1980). Therefore, a party cannot “ratify those parts of the transaction
which are beneficial and disavow those which are detrimental.” Id. Ratification
may be express—in writing—or it may be implied from a party’s course of
conduct and the totality of the circumstances. BPX Operating, 629 S.W.3d at 196.
A party’s subjective state of mind is immaterial to a claim of implied ratification.
Id.
In December 2011, Sousa, acting as Betty’s conservator, ratified the
11
The IP attorneys attached pleadings filed in the Oregon conservatorship and probate
proceedings reflecting that Betty gave power of attorney to Sousa in 2011. Further, Betty
executed a will in January 2012 devising her property among her two daughters and naming
Sousa as Betty’s personal representative. Neither document was challenged on the basis that
Betty lacked capacity.
12
agreement through an email from Dan McCarthy, her counsel, which stated the
following:
[Sousa] is fully supportive of the litigation and all efforts by all
persons to date. She wants to move forward “pedal to the metal” with
the litigation. Her hope is that there will be some success that Betty
will live to see, and potentially enjoy. She is willing to acknowledge
the fee agreement entered into by Betty. She will waive any potential
conflict by/between/among all counsel, Betty, and Mr. Klinkhammer
in connection with the negotiation of the fee agreement and the
litigation.
The IP attorneys also provided evidence of various emails sent from Sousa’s
counsel to Faucett in 2012 reflecting a coordinated effort between Faucett and
attorneys for the estate to seek approval from the Oregon court that had supervised
Betty’s conservatorship for distribution of settlement funds pursuant to the
contingency-fee agreement. The evidence includes pleadings filed by Sousa, as
conservator, seeking court approval for payment of attorney’s fees to Clearman
Prebeg, LLC n/k/a CP Windup pursuant to the contingency-fee agreement. Sousa’s
communications with Faucett and to the probate court do not reference any claim
or dispute as to the validity of the contingency-fee agreement itself. This is notable
because Sousa specifically explained in her Oregon pleadings that she had rejected
claims by Klinkhammer because she believed that Klinkhammer made
misrepresentations to and took advantage of Betty. The evidence reflects that
Sousa and the estate benefitted financially from her ratification of the agreement.
We conclude that Sousa both explicitly and implicitly through her course of
conduct as conservator (and later as personal representative) ratified the
contingency-fee agreement. Because the question of Betty’s capacity to contract in
2007 was mooted by Sousa’s ratification, there was no necessity for an evidentiary
hearing on Betty’s capacity to summarily determine the enforcement of the
arbitration agreement.
13
Sousa disagrees that she ratified the contingency-fee agreement though she
does acknowledge that she continued working with Faucett and Schwarz under the
contingency-fee agreement. She argues that she had no choice and asserts duress as
another defense to the enforcement of the arbitration agreement arguing her
“so-called” ratification was the product of coercion and duress. Though Sousa
never substantially briefed this issue in the trial court, she did provide an affidavit
in response to the motion to compel arbitration stating that she was “coerced under
duress” to sign the settlement and distribution agreement because she wanted to
avoid an arbitration proceeding in Houston.12 She also submitted an affidavit from
her attorney Penelope McCarthy, which states that McCarthy and Sousa felt
coerced into continuing to work with Faucett and his firm to avoid the threat of
arbitration.
Economic duress, which is the gravamen of Sousa’s defense here, must be
proved with (1) a threat to do something a party has no legal right to do, (2) an
illegal exaction or some fraud or deception, and (3) an imminent restraint that
destroys the victim’s free agency and leaves him without a present means of
protection. Wright v. Sydow, 173 S.W.3d 534, 544 (Tex. App.—Houston [14th
12
In her reply brief, Sousa claims that “[t]he issue regarding the fact that there can be no
ratification without full disclosure was waived by the Appellees. The Appellees cite no case law
[sic] and no facts.” However, the rule she relies on for that proposition is a rule specifically
addressing an appellant’s brief. See Tex. R. App. P. 38.1. The rule addressing an appellee’s brief
states: “When practicable, the appellee’s brief should respond to the appellant’s issues or points
in the order the appellant present those issue or points.” Tex. R. App. P. 38.2. Our review reflects
the IP attorneys complied with the requirements and did not waive any of their ratification
arguments.
Sousa, in her reply brief, also claims the IP attorneys have waived “most of their
arguments to Issue 2 regarding the procedural and substantive unconscionability of the contract
and the arbitration and have not refuted or discussed the facts in any substantive detail.” It is
unclear on what basis Sousa believes the IP attorneys have waived most of their arguments.
However, the briefing rules do not support Sousa’s claim.
14
Dist.] 2004, pet. denied). There is no explanation by Sousa of why or how the
request to arbitrate a dispute constitutes a threat by Faucett to do something he had
no legal right to do. Nor does Sousa explain why the prospect of arbitration
constituted an illegal exaction or fraud or deception. Therefore, Sousa’s defense of
duress does not create a dispute of material fact necessitating an evidentiary
hearing. Sousa also did not refute the evidence establishing her ratification of the
contingency-fee agreement. We therefore conclude the evidence of ratification of
the contingency-fee agreement by Sousa supports the trial court’s order compelling
arbitration pursuant to the agreement between the parties.
We overrule issue 2.
B. Trial court did not err in confirming the arbitration award
In issue 1, Sousa argues the trial court erred in affirming the arbitration
award because Bergman displayed evident partiality by repeatedly failing to
disclose his prior business relationship with Wilson Elser, the law firm
representing the IP attorneys. In support of this argument, Sousa argues that
Bergman signed a false arbitrator oath.
We review a trial court’s order confirming an arbitration award under a de
novo standard. Southwinds Express Constr., LLC v. D.H. Griffin of Tex., Inc., 513
S.W.3d 66, 70 (Tex. App.—Houston [14th Dist.] 2016, no pet.). However, the
scope of our review is “extraordinarily narrow.” Id. We indulge every reasonable
presumption in favor of upholding the arbitration award. CVN Grp., Inc. v.
Delgado, 95 S.W.3d 234, 238 (Tex. 2002) (quoting City of San Antonio v.
McKenzie Constr. Co., 150 S.W.2d 989, 996 (Tex. 1941)).
1. Establishing evident partiality
The TAA sets out the circumstances which require a court to vacate an
15
arbitration award. Tex. Civ. Prac. & Rem. Code Ann. § 171.088. One of the
circumstances justifying vacatur under the TAA is if the rights of a party were
prejudiced by the “evident partiality of an arbitrator appointed as a neutral
arbitrator.”13 Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(2)(A); see also
Forest Oil Corp. v. El Rucio Land & Cattle Co., 518 S.W.3d 422, 431 (Tex. 2017).
The standard for evident partiality requires vacating an award if an arbitrator “fails
to disclose facts which might, to an objective observer, create a reasonable
impression of the arbitrator’s partiality.” Tenaska Energy, Inc. v. Ponderosa Pine
Energy, LLC, 437 S.W.3d 518, 525 (Tex. 2014) (citing Commonwealth Coatings
Corp. v. Cont’l Cas. Co., 393 U.S. 145, 149 (1968), and Burlington N. R.R. Co. v.
TUCO Inc., 960 S.W.2d 629, 630 (Tex. 1997)).
Arbitrators are not required to be disqualified merely because of a past
business relationship with a party because often the most capable arbitrators will
be those with extensive experience in the industry. TUCO, 960 S.W.2d at 636,
(citing Commonwealth Coatings, 393 U.S. at 150 (White, J., concurring)).
Nonetheless, because the parties are entitled to at least consider the nature of those
past relationships, “evident partiality is established from the nondisclosure itself,
regardless of whether the nondisclosed information necessarily establishes
partiality or bias.” TUCO, 960 S.W.2d at 636 (citing Commonwealth Coatings, 393
U.S. at 147) (finding evident partiality based on arbitrator’s failure to disclose
conflict, even though there was no evidence of actual bias). Disclosure, however, is
required only if facts are material; an arbitrator need not disclose “trivial” matters.
TUCO, 960 S.W.2d at 637.
The decisions applying these rules and the outcomes themselves are case
13
The same standard for determining evident partiality is applicable whether the
arbitration is governed by the FAA or TAA. Amoco D.T. Co. v. Occidental Petroleum Corp., 343
S.W.3d 837, 844 (Tex. App.—Houston [14th Dist.] 2011, pet. denied).
16
specific. In TUCO, for instance, the case was submitted to a panel of three
arbitrators—two were “non-neutral” and one was neutral. 960 S.W.2d at 629–30.
The neutral arbitrator, however, failed to disclose that three weeks before the
arbitration, the law firm of one of the non-neutral arbitrators referred a substantial
piece of litigation to him. Id. at 631.The TUCO court concluded this non-disclosure
established evident partiality as a matter of law. Id.
In Tenaska, the arbitrator disclosed that the law firm representing one party
to the arbitration had recommended him as an arbitrator in three other arbitrations,
and that he was a director of a litigation services company that attended a meeting
at the law firm, but there was no indication the firm and company would ever do
business. 437 S.W.3d at 519–20. The arbitrator did not disclose, however, that all
his contacts at the 700-lawyer firm were with the same two lawyers that
represented the party to the arbitration at issue. Id. at 525–27. He also did not
disclose that he owned stock in the litigation services company that was actively
pursuing business opportunities with the firm and conducted significant marketing
for that company. Id. He also had meetings or contacts with the two lawyers in
question to solicit business from the firm for the company and he allowed one of
the two lawyers to edit his disclosures in the arbitration to minimize his contacts.
Id. The supreme court concluded the undisclosed information “might yield a
reasonable impression of the arbitrator’s partiality to an objective observer.” Id. at
520.
In Builders First Source-S. Tex., LP v. Ortiz, this court found evident
partiality based on the fact that the arbitrator was “specifically asked on the [AAA]
disclosure form whether any of the law firms in the case had appeared before her in
past arbitrations,” in which she responded in a sworn answer, “‘no’ and that she
had conducted a conflicts check and had nothing to disclose.” 515 S.W.3d 451, 458
17
(Tex. App.—Houston [14th Dist.] 2017, pet. denied). While the arbitrator in Ortiz
subsequently amended her disclosure to identify two arbitrations in which counsel
for the respondent had appeared before her, this disclosure did not come until
almost one year into the arbitration, which did not allow the petitioner an
opportunity to timely object to the appointment. Id. at 459. We concluded the
failure to disclose two prior appearances before the arbitrator by a party
representative was not trivial and “might, to an objective observer, create a
reasonable impression of partiality.” Id.
Our sister court addressed a partial disclosure issue in Las Palmas Medical
Center v. Moore, 349 S.W.3d 57 (Tex. App.—El Paso 2010, pet. denied). In Las
Palmas Medical, the arbitrator disclosed in a letter that she had worked for clients
that were both adverse to, and aligned with, clients represented by the medical
center’s counsel, and that she was familiar with both attorneys representing the
medical center. Id. at 61. Just before the arbitration, the claimant’s counsel also
noticed that one of the medical center’s attorneys was listed as a reference on the
arbitrator’s resume. Id. at 68. Unhappy with the arbitrator’s decision, the claimants
succeeded in having a trial court vacate the award, and referred the parties to a new
arbitration before a different arbitrator. Id. at 63. The court of appeals, however,
reversed and reinstated the award. Concluding that the mediator had disclosed her
familiarity with the attorneys for the medical center and that the claimants did not
investigate the matter before accepting the arbitrator’s appointment, the court of
appeals held the trial court erred by impliedly finding that the arbitrator “exhibited
evident partiality by failing to fully disclose her relationship with counsel
opposite.” Id. at 71.
2. No evidence of failure to disclose
The facts of this case are not analogous to those of TUCO, Tenaska, or Ortiz,
18
which all involved situations of an arbitrator who did not timely disclose
information that to an objective observer might create the impression of partiality.
The record does not reflect a failure to timely disclose by Bergman.
On March 12, 2019, Bergman submitted his arbitrator’s oath which required
that he respond to a set of standard AAA questions about potential conflicts in the
case. In these initial disclosures, Bergman disclosed that he previously mediated a
case in which Matthew Prebeg, one of the IP attorneys, represented a party to the
mediation. He also disclosed that he had mediated matters with various attorneys
from the law firm of Wilson Elser including one previous matter with John
Shepperd, the attorney representing the IP attorneys.
Supplemental disclosures were requested by Sousa first regarding
Bergman’s relationship with Alice Oliver-Parrott, the first arbitrator, and the law
firm of William Kherkher Hart Boundas, LLP. A second round of supplemental
disclosures were requested by Sousa seeking specific information about the
number of cases in which Bergman had served as a neutral for parties represented
by Wilson Elser. Bergman disclosed that he had conducted eleven mediations
involving seven attorneys who were associated with Wilson Elser over a
thirteen-year period from 2006 to 2019. These disclosures were made after
Bergman’s appointment, but before his confirmation and before any proceedings in
the arbitration began. Sousa has repeatedly claimed that Bergman failed to disclose
his relationship with the Wilson Elser firm.
Sousa’s argument does not accurately characterize the record. Bergman, in
his initial disclosures, stated he had “mediated matters with various attorneys with
the law firm of [Wilson Elser] including one (1) with John Shepperd in 2016.”
Though Bergman did not identify specific attorneys or the number of mediations,
Bergman disclosed his past business relationship and familiarity with Wilson Elser.
19
Those disclosures allowed Sousa to follow up with further requests and get more
specific information about Bergman’s relationship with Wilson Elser. Therefore,
we conclude the trial court did not err in its implied finding that Bergman did not
fail to disclose information that “might yield a reasonable impression of the
arbitrator’s partiality to an objective observer.” Tenaska, 437 S.W.3d at 520.
3. No evidence of actual bias at the hearing
Sousa also argues that Bergman exhibited actual bias at the arbitration
hearing. She argues that Bergman’s hostility is corroborated by affidavits from
three people working for Sheller at the final hearing14: (1) Chris Daniel, an attorney
representing Sousa; (2) the videographer working for Sheller at the arbitration; and
(3) Dale Zuehl, Sousa’s fraud examiner and retained expert.15 Sousa does not offer
further briefing or argument on her complaint that Bergman allegedly exhibited
evident partiality through his conduct. The IP attorneys claim Sousa waived this
contention by failing to set forth clear and concise arguments in her appellate brief;
we agree.16 See Tex. R. App. P. 38.1(i).
Summarizing issue 1, Sousa asserts “Bergman’s overt hostility is set out in 3
affidavits . . . Bergman’s actions constitute evident partiality.” And after devoting
significant discussion to Bergman’s failure to disclose, Sousa, in a single sentence,
summarily addresses Bergman’s conduct during the arbitration hearing:
“Nevertheless, Bergman’s overall conduct and ruling demonstrates evident
14
The affidavit from Daniel and the videographer do not disclose or explain their
relationship to David Sheller.
15
Sousa also provided these affidavits to the trial court in her effort to oppose the
confirmation of the award. However, Sousa offered no substantive discussion of the law or facts
in the trial court.
16
In response, Sousa argues the IP attorneys did not respond to the affidavits regarding
Bergman’s hostility and have waived those “points.” Sousa does not explain which arguments
she alleges the IP attorneys waived or in which court she alleges the arguments were waived.
20
partiality in this case.” She offers no argument supporting her contention of evident
partiality through hostile conduct at the hearing and no citation to legal authority.
Texas Rule of Appellate Procedure 38.1 requires that an appellant’s brief
must contain a clear and concise argument that includes appropriate citations to
legal authority and the appellate record. Tex. R. App. P. 38.1(i). “This requirement
is not satisfied by merely uttering brief, conclusory statements unsupported by
legal citations.” Canton-Carter v. Baylor Coll. of Med., 271 S.W.3d 928, 931 (Tex.
App.—Houston [14th Dist.] 2008, no pet.). Failure to cite legal authority or to
provide substantive analysis of the legal issues presented results in waiver of the
complaint. Id.; see also Fredonia State Bank v. Gen. Am. Life Ins. Co., 881 S.W.2d
279, 284–85 (Tex. 1994) (discussing “long-standing rule” that inadequate briefing
waives issue on appeal). Sousa did not provide any citation to appropriate legal
authority, or analysis applying the appropriate legal authority to the facts in such a
manner as to demonstrate that Bergman’s conduct at the arbitration constituted
evident partiality justifying vacatur of the arbitration award. It is not this court’s
duty to review the record, research the law, and then fashion a legal argument for
appellant when she has failed to do so. See Canton-Carter, 271 S.W.3d at 932.
Therefore, we conclude that Sousa has waived the issue of Bergman’s conduct at
the arbitration hearing.
We overrule issue 1.
4. No evidence Bergman refused to hear material evidence and allow
cross-examination
In issue 3, Sousa argues the trial court erred by not vacating the arbitration
award because Bergman refused to hear evidence and allow significant
cross-examination in violation of the TAA. See Tex. Civ. Prac. & Rem. Code Ann.
§§ 171.047, .088(a)(3)(C). Though Sousa asserts myriad complaints regarding
21
Bergman’s evidentiary rulings, her complaints can be distilled into four categories:
(1) complaints Bergman prevented her from getting discovery she needed;
(2) complaints Bergman refused to admit all her proffered evidence; (3) complaints
Bergman inappropriately allowed the use of privileged documents; and
(4) complaints Bergman refused to allow significant cross-examination of the IP
attorneys’ expert.17
a. Standard of review
The TAA provides that unless otherwise provided by the parties’ agreement,
a party at the hearing is entitled to: (1) be heard; (2) present evidence material to
the controversy; and cross-examine witnesses. Tex. Civ. Prac. & Rem. Code Ann.
§ 171.047. And “[o]n application of a party, the court shall vacate an arbitrator’s
award if . . . the arbitrators . . . refused to hear evidence material to the
controversy.” Id. § 171.088(a)(3)(C). “An arbitrator is not bound to hear all the
evidence tendered by the parties as long as each party is given an adequate
opportunity to present evidence and arguments.” Kosty v. S. Shore Harbour Cmty.
Ass’n, Inc., 226 S.W.3d 459, 463 (Tex. App.—Houston [1st Dist.] 2006, pet.
denied); see also Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W.2d 225, 234
(Tex. App.—Houston [14th Dist.] 1993, writ denied) (applying FAA).18 But see
Gulf Coast Indus. Workers Union v. Exxon Co., USA, 70 F.3d 847, 850 (5th Cir.
17
In her reply brief, Sousa argues the IP attorneys waived “the majority of their
arguments under Issue No. 3” and cites an inapplicable rule. See Tex. R. App. P. 38.1
(Appellant’s Brief). We cannot discern a valid basis for waiver of arguments by the IP attorneys
based on any rules or caselaw cited by Sousa.
18
The FAA provides as a ground for vacating an award that the “arbitrators refus[ed] to
hear evidence pertinent and material to the controversy.” 9 U.S.C. § 10(a)(3). We conclude that
this provision in the FAA is substantially similar to Civil Practice and Remedies Code section
171.088(a)(3)(C). Because the two provisions are substantially similar, cases interpreting the
Federal Act constitute persuasive authority for interpreting the Texas Act. See also Kosty, 226
S.W.3d at 463 n.5 (reaching same conclusion).
22
1995) (unfair exclusion of evidence can justify vacatur of award). “An evidentiary
error must be one that is not simply an error of law but which so affects the rights
of a party that it may be said that he was deprived of a fair hearing.” Babcock &
Wilcox, 863 S.W.2d at 234 (quotation omitted). However, “[a]rbitrators have a
great deal of discretion to exclude evidence as redundant, or otherwise unnecessary
to the decision-making process.” Weinberg v. Silber, 140 F .Supp. 2d 712, 719
(N.D. Tex. 2001), aff’d, 57 F. App’x 211 (5th Cir. 2003). A party seeking to vacate
an arbitration award should describe the evidence that the arbitrator excluded to
enable the reviewing court to determine its materiality. See GE Commercial
Distrib. Fin. Corp. v. Momentum Transp. Services, L.L.C., No. 09-09-00162-CV,
2009 WL 6327471, at *7 (Tex. App.—Beaumont Apr. 8, 2010, no pet.) (mem.
op.).
b. Bergman’s rulings preventing discovery
As an example, Sousa argues that she was prevented from getting material
information in discovery because Bergman “cancelled Klinkhammer’s deposition.”
However, her arguments are not consistent with the record. The record reflects that
Oliver-Parrott, the first arbitrator, issued an order stating Klinkhammer must be
deposed if the parties wanted to use his affidavit. Bergman did not change her
ruling, though Bergman did issue a procedural order providing a timeline for
Klinkhammer’s deposition, “if he agreed to be deposed.” During the final hearing,
Sheller told Bergman with respect to Klinkhammer: “[Y]ou didn’t order them to
produce Mr. Klinkhammer. There’s no way to find Mr. Klinkhammer. He’s been
in Texas, Florida, Las Vegas, et cetera.” In addition to the fact that Sheller’s
statement at the final hearing contradicts Sousa’s appellate argument, Sousa offers
no citation to the record or evidence that Klinkhammer’s deposition was ever
23
specifically ordered or cancelled by either arbitrator.19
c. Bergman’s rulings excluding evidence
To justify vacating an arbitration award, excluded evidence must be material
to the controversy. Sousa offers a long list of complaints but offers little discussion
or explanation as to how the excluded evidence was material and therefore its
exclusion deprived her of a fair hearing.
For example, Sousa claims that Bergman improperly refused to admit
hospital records reflecting Betty’s dementia. However, Sousa was able to play the
deposition of Dr. Robin Hale, Betty’s treating physician and the deposition of
Wanda Powless, the daughter of one of Betty’s friends, as well as introduce an
affidavit of a specialist who treated Betty in 2011 for dementia. Sousa does not
explain why the omitted records were material and not cumulative of other
evidence in the record. In light of the ratification of the contingency-fee agreement
by Sousa, it is unclear how evidence of Betty’s mental capacity was relevant or
material.
Sousa also complains that Bergman excluded the deposition of Clem Palmer,
the man who introduced Klinkhammer to Schwarz as an investor. Bergman
excluded the deposition on the basis that it was taken without the presence of the
IP attorneys or their counsel. Sousa argues that Palmer was paid to find attorneys
and not real estate and describes his deposition as necessary because only
“Klinkhammer or Clem Palmer could identify certain documents such as the board
meeting [sic] agreeing to pay Clem Palmer $5,000 to find attorneys to finance the
litigation.” Bergman did allow Sousa to make an offer of proof and portions of
Palmer’s deposition were offered and recorded in the transcript; however, those
19
Sousa also does not argue that Klinkhammer was a party or subject to the control of
any party.
24
portions of Palmer’s deposition generally do not support Sousa’s contentions.
Sousa never explains how the testimony given by Palmer was material to her
claims, nor does she make clear which claims the testimony was needed to support.
In his deposition, Palmer never directly testifies about any conversations with any
of the IP attorneys. He confirms he was paid a finder’s fee pursuant to his
agreement with Klinkhammer; however, Sousa never connects the dots linking that
testimony causally to any of her claims.
Similarly, Sousa complains that Klinkhammer’s deposition was needed to
admit or authenticate a variety of exhibits proffered by her for the proposition that
Klinkhammer was using the Wilwerding processor as collateral for loans without
the knowledge of Betty or her estate. However, Sousa offers only citations to the
prehearing proceeding in which the arbitrator receives objections to these
documents from the IP attorneys but does not rule on the objections. The
documents in dispute are included in the exhibits from the arbitration hearing,
which were filed in the trial court. If the documents proffered by Sousa were
excluded, she offers no citations to the record evidencing the exclusion. Further,
even if the documents were excluded, Sousa does not explain to this court why the
documents were material to any of her claims against the IP attorneys.
In any event, the record establishes that the arbitrator conducted a weeklong
hearing during which hundreds of exhibits were introduced and a number of
witnesses testified, either live or via deposition. Both parties were able to present
evidence and make arguments. Though Sousa disagrees with some of the
exclusionary rulings and the ultimate decision of the arbitrator, the record reflects
that Sousa was given an adequate opportunity to present evidence and argument.
Sousa has not shown the arbitrator failed to give her an opportunity to present
evidence and arguments. See Fogal v. Stature Const., Inc., 294 S.W.3d 708, 721
25
(Tex. App.—Houston [1st Dist.] 2009, pet. denied). Sousa did not establish the
materiality of the information she complains was excluded to her claims against
the IP attorneys. Therefore, we cannot conclude that the arbitrator’s ruling
deprived Sousa of a fundamentally fair hearing. See Las Palmas Med. Ctr., 349
S.W.3d at 72–73.
d. Complaints Bergman inappropriately allowed the use of
privileged documents
Sousa also argues that Oliver-Parrott inappropriately required the production
of the entire file between attorneys Dan McCarthy and Penelope McCarthy and
their client, Sousa. Bergman did not reverse this ruling despite at least one request
from Sousa. On appeal, Sousa argues she was prejudiced by the production of this
attorney-client file and, as proof, cites to the arbitration award which quotes an
email from Sousa to Dan McCarthy memorializing her intent to sue Faucett after
the conclusion of the trade-secret litigation.20 The IP attorneys argue the disclosure
of the McCarthys’s attorney-communication file was necessary to their
counterclaims and appropriate because Sousa was offensively using the affidavit(s)
from Penelope McCarthy including McCarthy’s opinion “as to virtually everything
at issue in the arbitration.” The IP attorneys also argue that Sousa did not preserve
error on the issue because she did not make any objection at the hearing as to any
privileged documents. We disagree that Sousa did not preserve her objection as she
repeatedly raised the issue in pre-hearing proceedings as well as during the final
hearing and received an adverse ruling. See Tex. R. App. P. 33.1.
Sousa admits in her appellate reply that she engaged in a partial waiver of
20
The arbitration award quotes the following email from Sousa to the McCarthys
regarding her decision to sign the Distribution ad Settlement agreement in 2012:
“I have no problem signing it as I know that I can get him later through ethics as
Callahan even stated upon reviewing a few docs as we discussed or a legal
malpractice attorney.”
26
privilege by releasing communications between McCarthy and herself to establish
she did not want to sign the settlement and distribution agreement. Though Sousa
claims there was nothing confidential in the emails she released, McCarthy’s
affidavit discusses her dealings and communication with Faucett. None of the
parties cite to any briefing or argument in the record before Oliver-Parrott, though
the order compelling Sousa to produce the “McCarthy Law Office File” is in the
record.
“The attorney-client privilege holds a special place among privileges: it is
the oldest and most venerated of the common law privileges of confidential
communications.” Paxton v. City of Dallas, 509 S.W.3d 247, 259 (Tex. 2017)
(internal quotations omitted). However, the law does recognize some limitations.
First, the Texas Rules of Evidence recognize that if a party makes an intentional
and voluntary disclosure of confidential communications, the waiver may extend to
undisclosed communication or information if: (1) the waiver is intentional; (2) the
disclosed and undisclosed communications or information concern the same
subject matter; and (3) they ought in fairness be considered together. See Tex. R.
Evid. 511(b)(1). The supreme court has also recognized that if a claimant attempts
to use the privilege as a sword rather than a shield, the privilege may be waived.
Republic Ins. Co. v. Davis, 856 S.W.2d 158, 163 (Tex. 1993). Here, the IP
attorneys asserted claims of fraud and fraudulent inducement, breach of contract,
conspiracy to commit fraud, and aiding and abetting fraud for inducing the
attorneys to complete the trade-secret litigation based on Sousa’s representations
that she was in agreement with the work performed by the attorneys and willing to
waive any conflicts.
To vacate the arbitration award, Sousa must show the arbitrator prejudiced
her rights by “misconduct or wilful misbehavior” or that the arbitrator conducted
27
the hearing “in a manner that substantially prejudiced the rights of a party.” Tex.
Civ. Prac. & Rem. Code Ann. § 171.088(2)(C), (3)(D). Because of the nature of
the claims asserted against Sousa in combination with her voluntary, partial waiver
of the privilege, we cannot conclude the ruling compelling the production of the
McCarthy file precluded a fair hearing for Sousa. These rulings do not establish
evidence of misconduct, willful behavior or conduct on the part of Oliver-Parrott,
or Bergman that substantially prejudiced Sousa’s rights. See id.Absent those considerations, our appellate review of an arbitration award is
very narrow and deferential. Even a legal error on the part of the arbitrator is not
sufficient to vacate an award. See Forest Oil Corp., 446 S.W.3d at 81. Therefore,
we conclude the trial court did not err in confirming, and not vacating, the
arbitration award on the basis that the admission of documents from the
McCarthy’s case file justified vacatur of the award.
e. Bergman’s rulings with respect to expert witness
Sousa also claims that Bergman refused to allow cross-examination of the IP
attorneys’ expert, Gwen Richard, or strike her. The record does not support these
contentions. Bergman heard a motion to strike from Sousa, which was denied.
Sousa then had the opportunity to cross-examine the expert witness. Therefore, we
conclude Sousa’s argument that Bergman refused to allow significant
cross-examination of Richard in violation of Civil Practice and Remedies Code
section 171.047 is without merit.
Sousa also complains that Bergman limited all expert testimony to the
substance in the expert report because the expert reports were submitted before
some of the depositions in the case were concluded. However, this restriction
applied equally to both sides and Sousa fails to explain how the opinions of her
expert(s) changed after the later depositions and what argument or evidence she
28
was unable to present at the final hearing as a result.
We overrule issue 3.
5. Arbitration award of attorney’s fees to IP attorneys
In issue 4, Sousa argues the trial court erred in confirming the arbitration
award because the arbitrator improperly awarded attorney’s fees to the IP
attorneys. Specifically, Sousa argues the award violates the TAA because there is
no attorney’s fees provision in the contingency-fee agreement nor does the law
allow recovery of attorney’s fees for the causes of action asserted. In response, the
IP attorneys argue they were entitled to recovery of their attorney’s fees under
several different theories, including that they were entitled to recover attorney’s
fees as prevailing parties under the DTPA and TTLA.
Though Sousa does not specifically reference any provision of the TAA
requiring vacatur, the TAA requires vacatur of an arbitration award if the arbitrator
exceeded his powers, which is the gravamen of Sousa’s complaint regarding the
award of attorney’s fees. See Tex. Civ. Prac. & Rem. Code Ann.
§ 171.088(a)(3)(A). The TAA also provides that an arbitrator shall award
attorney’s fees as additional sums required to be paid under the award only if the
fees are provided for in the agreement to arbitrate; or by law for a recovery in a
civil action in the district court on a cause of action which any part of the award is
based. Tex. Civ. Prac. & Rem. Code Ann. § 171.048(c)(1), (2).
“In arbitration conducted by agreement of the parties, the rule is well
established that an arbitrator derives his power from the parties’ agreement to
submit to arbitration.” Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 89–91 (Tex.
2011) (quotation omitted). As with any contract, the parties’ intentions control, and
“courts and arbitrators must give effect to the contractual rights and expectations of
29
the parties.” Id. (citation omitted). However, an arbitrator does not exceed his
authority simply because he may have misinterpreted the contract or misapplied
the law. See D.R. Horton-Tex., Ltd. v. Bernhard, 423 S.W.3d 532, 534 (Tex.
App.—Houston [14th Dist.] 2014, pet. denied). “Thus, the appropriate inquiry is
not whether the arbitrator decided an issue correctly, but instead whether she had
the authority to decide the issue at all.” Id. (citation omitted).
Sousa does not dispute that the issue of attorney’s fees was properly before
the arbitrator. In the arbitration award, Bergman determined that Sousa should take
nothing by her claims, and that CP Windup and Schwarz proved their claims of
fraud and fraudulent inducement, breach of contract, conspiracy to commit fraud,
and aiding and abetting fraud. Bergman awarded attorney’s fees, costs, and
expenses to all the IP attorneys. Though Sousa argues the IP attorneys actually lost
on the TTLA claims, the arbitration award specifically states Sousa did not prove
her TTLA claims. As prevailing parties, the IP attorneys were entitled to receive
attorney’s fees for the defense of those claims. The award explains that “virtually
all claims are predicated upon the alleged ‘thefts’” of the IP attorneys and
“inextricably intertwined with [Sousa’s] other causes of action” such that the IP
attorneys had no obligation to segregate attorney’s fees among the various claims.
Therefore, the arbitrator concluded the entirety of the IP attorney’s fees should be
awarded as part of their mandatory fees and costs.
We need not decide whether Bergman made the proper decision, but rather
that the matter was properly before Bergman. The contract between the parties
provides that “[a]ny controversy arising out of, or relating to, this agreement . . .
will be settled by binding arbitration in Harris County, Texas, according to the
rules and regulations of the American Arbitration Association.” The parties’
agreement included the apportionment of fees and costs under AAA rules, which
30
state that an award may include “an award of attorneys’ fees if all parties have
requested such an award or it is authorized by law or their arbitration agreement.”
See Commercial Arbitration Rules of the American Arbitration Association, Rule
R–47(d)(ii). All parties requested attorney’s fees. Further, the arbitration award
identifies Sousa’s active claims in the arbitration matter, which include alleged
DTPA and TTLA violations. The issue of attorney’s fees was clearly submitted to
the arbitrator, and the arbitrator consulted the contractual provisions and statutes
regarding attorney’s fees when reaching his conclusion. Under these
circumstances, we cannot conclude that the arbitrator exceeded his authority by
awarding attorney’s fees. Bernhard, 423 S.W.3d at 535; see also IQ Holdings, Inc.
v. Villa D’Este Condo. Owner’s Ass’n, Inc., 509 S.W.3d 367, 373 (Tex. App.—
Houston [1st Dist.] 2014, no pet.) (court “may not vacate an award on the grounds
that the arbitrator exceeded her powers even if the award is based upon a mistake
in law or fact”) (citing Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569
(2013)).
We overrule issue 4.
6. Settlement proceeds “given in settlement by Scott Clearman”
In issue 5, Sousa argues that the trial court erred in denying her motion for
new trial, without hearing, on the grounds she was entitled to Scott Clearman’s
portion of the attorney’s fees stemming from one of the settlement amounts
received by the IP attorneys. Sousa argues that her Fourteenth Amendment
due-process rights were violated by the trial court’s alleged error, as well her right
to be heard under the Texas Constitution’s open courts provision. U.S. Const.
amend. XIV; Tex. Const. art. I, §13.
During the underlying litigation, Sousa settled with Scott Clearman,
formerly a partner of Clearman Prebeg, LLC n/k/a CP Windup, who agreed Sousa
31
would be entitled to receive his portion of the attorney’s fees received by Clearman
Prebeg, LLC, by virtue of his partnership interest, from a settlement with Efficien
Technology, LLC, a company affiliated with the Texas Licensees. Clearman
believed he was entitled to some portion of the attorney’s fees from the Efficien
settlement, though they had not been paid to Clearman. Therefore, Sousa claimed
she was entitled to 25% of “the award owed to Clearman Windup.”21 In her motion
for new trial, Sousa argued that the arbitration award is “totally deficient” because
it does not set out the award to CP Windup or address Sousa’s request for a
declaratory judgment. Sousa’s motion devotes two sentences to this issue, offers no
further context or explanation and does not discuss whether the issue or declaratory
judgment was ever submitted to or considered by the arbitrator. Sousa’s motion for
new trial offered no citations to the record or evidence supporting this argument.
We conclude that Sousa did not preserve error on this issue as she did not
make her request to the trial court with sufficient specificity to make the trial court
aware of her complaint where the specific grounds were not apparent from the
context.22 Tex. R. App. P. 33.1(a). Therefore, we do not address the merits of this
issue.
21
Clearman was a party in the trial court, though he was not compelled to arbitration.
22
Sousa argues that she has the right to bring this argument on appeal pursuant to Texas
Rule of Appellate Procedure 33.1(d), which allows complaints of legal or factual insufficiency of
the evidence to be raised for the first time on appeal. Tex. R. App. P. 33.1(d). However, as raised
in the briefing, issue 5 is not a factual- or legal-sufficiency issue.
32
III. CONCLUSION
Having overruled issues 1–4 and concluded issue 5 was not preserved for
appellate review, we affirm the judgment of the trial court as challenged on appeal.
/s/ Charles A. Spain
Justice
Panel consists of Justices Wise, Spain, and Hassan.
33