Victor H. Sanchez and SM3 Investments, Ltd. v. Doctor's Hospital at Renaissance, Ltd. and RGV Med, LLC ( 2021 )

NUMBER 13-19-00365-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
VICTOR H. SANCHEZ AND
SM3 INVESTMENTS, LTD., Appellants,
v.
DOCTOR’S HOSPITAL AT RENAISSANCE,
LTD. AND RGV MED, LLC, Appellees.
On appeal from the 332nd District Court
of Hidalgo County, Texas.
MEMORANDUM OPINION
Before Chief Justice Contreras and Justices Longoria and Perkes1
Memorandum Opinion by Chief Justice Contreras
The Honorable Gregory T. Perkes, former Justice of this Court, did not participate in this decision
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because his term of office expired on December 31, 2020.
Following a dispute arising out of a partnership agreement, appellants, Victor H.
Sanchez and SM3 Investments, Ltd. (SM3), initiated arbitration proceedings against
appellees, Doctor’s Hospital at Renaissance, Ltd. (DHR) and RGV Med, LLC (RGV)
(collectively, the partnership). The claims were tried before a panel of three arbitrators.
Ultimately, the panel found in favor of the partnership and found Sanchez and SM3 to be
jointly and severally liable for the partnership’s attorney’s fees and expenses. Appellees
subsequently sought to confirm the arbitration award in the district court. However,
appellants requested that the court vacate the panel’s award, arguing that the panel
committed reversible error and that the parties contracted for “expanded judicial review”
of the award. The trial court confirmed the arbitration award and entered final judgment
in favor of appellees. By five issues, appellants seek to overturn the trial court’s judgment
and the panel’s award. 2 We affirm.
I. B ACKGROUND
In 2001, Sanchez made investments and entered into various agreements with the
partnership regarding operations of and certain real estate related activities of DHR. The
controlling version of the agreements are the DHR, Fifth Amended and Restated
Agreement of Limited Partnership (partnership agreement) and the RGV Fifth Amended
and Restated Regulations (regulations), both dated December 30, 2013 (collectively, the
agreements). RGV operated as the general partner of DHR while Sanchez—and
2 Appellants’ issues are summarized as follows: (1) the arbitration agreement that requires the
panel to apply the internal laws of the State of Texas limited the panel’s authority to render an award that
is inconsistent with Texas law; (2) the trial court erred in confirming the arbitration award because the panel
did not provide the reasoning behind the award; (3) the trial court erred in confirming the award because
the panel committed reversible error by finding a breach of contract by appellees but failing to find in favor
of and award damages to appellants; (4) the trial court erred in confirming the award because the panel
exceeded its authority and committed reversible error by finding appellants jointly and severally liable for
attorney’s fees; and (5) the trial court erred in confirming the award because the panel violated appellants’
due process rights by denying their motion to modify without hearing or reasoning.
2
subsequently SM3—was a limited partner. In 2003, the partnership added a requirement
that the limited partners must reside in Hidalgo, Cameron, or Starr County, Texas. Failure
to maintain the residence permitted the partnership to purchase the partnership interest
from the limited partner.
In February 2012, Sanchez formed SM3. At the end of 2012, Sanchez, with the
permission and assistance of the partnership, transferred his partnership interest to SM3.
However, the partnership agreement required non-individual partners, such as SM3, to
designate a sponsor. The sponsor of the non-individual partner was required to abide by
the residency requirement. SM3 designated Sanchez as its sponsor. At the time, Sanchez
was primarily residing in Hidalgo County, Texas, while his wife and two younger children
moved to Bexar County, Texas, where Sanchez owned a second home.
In November 2014, the partnership sent a letter to Sanchez notifying him of the
partnership’s intent to purchase SM3’s interest in the partnership, alleging Sanchez was
in violation of the residency requirement. Sanchez and SM3 responded to the letter,
disagreeing with the allegation and opposing a forced sale of the partnership interest. On
December 11, 2014, Israel Rocha, then CEO of the partnership, sent Sanchez another
letter stating the partnership was giving Sanchez notice that the partnership was
exercising its right to purchase SM3’s shares as a result of breaching the residency
requirement. Attached to the letter was a check for $4,783,872.64, an amount calculated
using the purchase price formula from the partnership agreement. However, Sanchez did
not initially accept the check.
After some negotiation, Sanchez ultimately accepted the amount through a wire
transfer and executed a repurchase assignment conveying SM3’s interest back to the
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partnership for the amount as calculated. The repurchase assignment did not contain a
release of claims by either party. The assignment is dated December 17, 2014, but was
not delivered to appellees until January 2015. The consideration for the shares was
transferred by the partnership to SM3 on January 8, 2015.
Pursuant to arbitration clauses in the agreements, appellants filed a demand for
arbitration on May 17, 2017. Appellants alleged, among other things, that appellees
breached the partnership agreement by forcing appellants to sell the shares back to the
partnership. Appellants further sought to set aside the assignment agreement under
theories of fraud in the inducement, fraud, negligent misrepresentation, and unjust
enrichment. Appellees asserted the affirmative defenses of estoppel, waiver, and laches.
Appellees also challenged Sanchez’s standing and raised a statute of limitations
challenge to appellants’ negligent misrepresentation claim. Both parties sought attorney’s
fees, costs, and expenses pursuant to the agreements.
The parties’ dispute culminated in a four-day arbitration before a panel of three
arbitrators. On December 17, 2018, the panel issued a final award in favor of appellees
and ordered appellants jointly and severally liable for appellees’ attorney’s fees and costs
in the amount of $435,880.21. The panel further awarded appellees $46,322.77 for fees
and expenses in excess of the arbitration’s apportioned costs. The panel’s findings and
reasonings were set forth in an eleven-page final award. The final award included a
summary of the background facts, the parties’ claims and defenses, and the panel’s
findings and decisions.
The panel found, in pertinent part, that Sanchez did not violate the residency
requirement, and thus “the forced repurchase of the [s]ubject [u]nits was without sufficient
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justification under the DHR and RGV [a]greements.” However, the panel concluded that
said breach by appellees did not determine the outcome of the proceeding. The panel
determined that the repurchase agreement executed by Sanchez was the result of
negotiation, that Sanchez was aware of his options to challenge the repurchase, and that
“Sanchez repeatedly indicated his assent to the repurchase and cooperated with it . . . .”
The panel determined that the repurchase assignment “constituted a subsequent
enforceable agreement among the parties.” The panel rejected appellants’ arguments to
set aside the repurchase assignment and further ruled in favor of appellees’ challenge to
Sanchez’s standing.
On January 6, 2019, appellants timely filed a motion to modify or correct the award,
asking the panel to clarify the justification for ruling against appellants, set aside the award
and rule in favor of appellants, and modify the award of attorney’s fees by segregating
the fees owed by Sanchez and SM3 based on Sanchez’s lack of standing. Appellees filed
a response on January 16, 2019. The panel rejected appellants’ request on January 17,
2019.
Appellees filed a motion to confirm the arbitration award on January 7, 2019.
Conversely, appellants filed a motion to vacate the arbitration award. Appellants
requested that the trial court review the arbitration award and find reversible error
because the panel exceeded its power by ruling incorrectly. Appellants asserted that,
through the agreements, the parties agreed to expanded judicial review of the panel’s
award. After considering the parties’ respective motions, the court entered an order
confirming the award and rendered a judgment in accordance with that award. This
appeal followed.
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II. S TANDARD OF R EVIEW
“Review of a trial court's decision as to vacatur or confirmation of an arbitration
award is de novo and the appellate court reviews the entire record.” O'Grady v. Nat'l
Union Fire Ins. Co. of Pittsburgh, P.A., 506 S.W.3d 121, 124–25 (Tex. App.—Corpus
Christi–Edinburg 2016, pet. denied) (quoting In re Guardianship of Cantu de Villarreal,
330 S.W.3d 11, 17 (Tex. App.—Corpus Christi–Edinburg 2010, no pet.)). “However, all
reasonable presumptions are indulged in favor of the award, and none against it.” Id.(quoting In re Chestnut Energy Partners, Inc., 300 S.W.3d 386, 397 (Tex. App.—Dallas
2009, pet. denied)). “Because Texas law favors arbitration, judicial review of an arbitration
award is extraordinarily narrow.” Id. (quoting In re Cantu, 330 S.W.3d at 17). “We give
strong deference to the arbitrator with respect to issues properly left to the arbitrator’s
resolution.” Id. at 124–25 (quoting Age Indus., Ltd. v. Edwards, 318 S.W.3d 461, 462
(Tex. App.—El Paso 2010, pet. dism’d)).
III. A PPLICABLE L AW
The Texas Arbitration Act (TAA) governs arbitrations in Texas. 3 See TEX. CIV.
PRAC. & REM. CODE ANN. §§ 171.001–.098. “A written agreement to arbitrate is valid and
enforceable if the agreement is to arbitrate a controversy that . . . arises between the
parties after the date of the agreement.” Id.§ 171.001. “Unless grounds are offered for
vacating, modifying, or correcting an award under [§§] 171.088 or 171.091, the court, on
application of a party, shall confirm the award.” Id. § 171.087. “[T]he court shall vacate an
award if . . . the arbitrators exceeded their powers.” Id. § 171.088(a)(3)(A). “[A]n arbitrator
derives his power from the parties’ agreement to submit to arbitration.” Nafta Traders, Inc.
3The parties may agree to have the proceedings governed by the Federal Arbitration Act; however,
that was not done in the present case and will not be discussed in this memorandum opinion.
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v. Quinn, 339 S.W.3d 84, 90 (Tex. 2011) (quoting City of Pasadena v. Smith, 292 S.W.3d
14, 20 (Tex. 2009)). Generally, an arbitrator exceeds their power by deciding matters not
before them, not just by deciding them incorrectly. Forest Oil Corp. v. El Rucio Land &
Cattle Co., 518 S.W.3d 422, 431 (Tex. 2017); Denbury Onshore, LLC v. Texcal Energy
S. Tex., L.P., 513 S.W.3d 511, 520 (Tex. App.—Houston [14th Dist.] 2016, no pet.)
(“Committing mistakes of fact or law is not a proper ground for vacating an award; instead,
a party must show that the arbitrator decided a matter not properly before him at all.”).
The parties may agree to limit the arbitrator’s power. See Nafta Traders, Inc., 339
S.W.3d at 97 (“[W]e hold that the TAA presents no impediment to an agreement that limits
the authority of an arbitrator in deciding a matter and thus allows for judicial review of an
arbitration award for reversible error.”). To do so, the parties must make a clear
agreement to limit the arbitrator’s power. See Id. at 101. By agreeing to limit an arbitrator’s
power to that of a judge, the parties also agree to expanded judicial review. See id. When
parties agree to expanded judicial review, the parties are free to ask a court of competent
jurisdiction to review the arbitrator’s findings and rulings for reversible error. Id. However,
“absent clear agreement, the default under the TAA . . . is restricted judicial review.” Id.
In Nafta Traders, the arbitration clause stated: “The arbitrator does not have
authority (i) to render a decision which contains a reversible error of state or federal law,
or (ii) to apply a cause of action or remedy not expressly provided for under existing state
or federal law.” Id. at 88. The Supreme Court of Texas found that this language limited
the arbitrator’s authority to that of a judge. Id. at 101–02. However, “[a]n arbitration award
is not susceptible to full judicial review merely because the parties have agreed.” Id. at
101. “A court must have a sufficient record of the arbitral proceedings, and complaints
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must have been preserved, all as if the award were a court judgment on appeal.” Id. If the
record of the arbitral proceedings is inadequate, then the award is not subject to enhanced
judicial review, notwithstanding the parties’ agreement to limit the arbitrator’s authority.
See id.
Multiple Texas courts of appeal have considered whether language requiring
arbitrators to apply the laws of the State of Texas constitutes an agreement to limit the
arbitrator’s authority and thus agreed to expanded judicial review. See, e.g., Forest Oil
Corp., 518 S.W.3d at 432; see also Midani v. Smith, No. 09-18-00009-CV, 2018 WL
5660571 (Tex. App.—Beaumont Nov. 1, 2018, pet. denied) (mem. op.); Holmes Builders
at Castle Hills, Ltd. v. Gordon, No. 05-16-00887-CV, 2018 WL 1081635 (Tex. App.—
Dallas Feb. 28, 2018, no pet.) (mem. op.). These courts have held that a clause requiring
the application of Texas law does not equate to limiting the arbitrator’s authority. Forest
Oil Corp., 518 S.W.3d at 432; see also Midani, 2018 WL 5660571, at *4; Holmes Builders,
2018 WL 1081635, at *4. Additionally, an arbitrator does not exceed its authority by failing
to provide specific reasoning and evidentiary references despite an agreement that the
arbitrator do so. See Denbury Onshore, 513 S.W.3d at 520–21 (holding that “[t]he panel’s
arbitration award was not so irrational or devoid of authority that the panel was merely
dispensing its own idea of justice.”)
IV. D ISCUSSION
A. Expanded or Restricted Judicial Review
By their first issue, appellants argue that the parties agreed to limit the panel’s
authority and thus agreed to expanded judicial review. Appellants specifically point to the
following language of the arbitration clause:
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The arbitrator(s) shall apply the internal laws of the State of Texas (without
regard to conflict of law rules) in determining the substance of the dispute,
controversy or claim and shall decide the same in accordance with the
applicable usages and terms of the trade. . . . The arbitrator(s)’ award shall
be in writing and shall set forth the findings and conclusions upon which the
arbitrator(s) based the award. 4
According to appellants, the above language was in addition to a choice of law
provision found in the agreements. 5 Appellants also note the clause’s requirement that
the panel’s award “shall be in writing and shall set forth the findings and conclusions upon
which the arbitrator(s) based the award” as evidence that the parties intended to limit the
panel’s authority.
Because the default standard under the TAA is restricted judicial review, the
parties must have a clear agreement of their intent to permit expanded review. Nafta
Traders, Inc., 339 S.W.3d at 101 (emphasis added). Simply agreeing that the arbitrator
is to apply the laws of the State of Texas does not amount to an agreement to limit the
panel’s authority. See Forest Oil Corp., 518 S.W.3d at 432; see also Midani, 2018 WL
5660571, at *4; Holmes Builders, 2018 WL 1081635, at *4. Further, a requirement to set
forth the panel’s findings and conclusions in writing does not amount to an agreement for
expanded judicial review. See Denbury Onshore, 513 S.W.3d at 520–21. In contrast to
Nafta Traders, where the parties agreed to restrict the arbitrator from making reversible
error, no such language or agreement exists in the present case. Cf. Nafta Traders, 339
S.W.3d at 101–02. The arbitration language before us does not constitute a “clear
agreement” to limit the panel’s authority. See id. In the absence of a clear agreement to
4 The partnership agreement and the regulations both contain the same language.
5Paragraph 9.5 of the partnership agreement and paragraph 12.2 of the regulations state that the
respective documents “shall be construed and enforced in accordance with the applicable laws of the state
of Texas. . . .”
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limit the arbitrator’s authority and expand the scope of judicial review, this Court may not
exercise expanded judicial review. See Forest Oil Corp., 518 S.W.3d at 432. We therefore
conclude that restricted judicial review will be applied, and as previously discussed,
vacatur will be limited to the grounds expressly provided by the statute. See TEX. CIV.
PRAC. & REM. CODE ANN. § 171.088.
Appellants’ first issue is overruled.
B. The Panel Exceeded Its Authority
By their third and fourth issues, appellants assert that the trial court erred by
confirming the award because the panel exceeded its authority by: (1) finding appellees
breached the contract while simultaneously failing to award damages to appellants; and
(2) confirming the award when the panel exceeded its authority by finding Sanchez and
SM3 jointly and severally liable for attorney’s fees. We apply restricted judicial review to
each of appellants’ issues.
Under restricted review, we determine whether the panel decided matters not
before them, rather than whether it decided matters before them incorrectly. Forest Oil
Corp., 518 S.W.3d at 431; Denbury Onshore, 513 S.W.3d at 520. Neither party asserts
that the panel did not have the authority to decide the claims before them. The parties
agree that both agreements require the claims asserted to be tried to a panel of three
arbitrators. 6 In applying restricted review, we determine only whether the panel had the
authority to consider and decide the claims and defenses, not whether the panel did so
6 The arbitration clauses state that “[a]ll disputes, controversies, or claims that may arise among
the parties hereto . . . including, without limitation, any dispute, controversy, or claim arising out of this
Agreement, or any other relevant document, or the breach, termination or invalidity thereof, shall be
submitted to and determined by binding arbitration.” The agreements further state that “[t]he prevailing party
in any such arbitration shall be entitled to recover its reasonable attorneys’ fees, costs and expenses
incurred in connection with the arbitration.”
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correctly. Forest Oil Corp., 518 S.W.3d at 431; Denbury Onshore, 513 S.W.3d at 520. We
conclude that the panel did not exceed its authority in determining the claims and
defenses set forth by the parties. TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(3)(A)
See Forest Oil Corp., 518 S.W.3d at 431. Appellants’ third issue is overruled.
Appellants further assert that the panel exceeded its authority by finding Sanchez
and SM3 jointly and severally liable for appellees’ attorney’s fees. Specifically, appellants
argue that based on the panel’s finding that Sanchez did not have standing to assert any
claims under the agreement, he should only be responsible for a segregated amount of
fees. However, in applying restricted review, we determine only whether the panel had
the authority to award attorney’s fees, not whether the panel did so correctly. See Forest
Oil Corp., 518 S.W.3d at 431; Denbury Onshore, 513 S.W.3d at 520. Because the
agreements both state “[t]he prevailing party in any such arbitration shall be entitled to
recover its reasonable attorneys’ fees, costs and expenses incurred in connection with
the arbitration[,]” the panel had the clear authority to award attorney’s fees. As such, we
find that the panel did not exceed its authority in finding Sanchez and SM3 jointly and
severally liable for appellees’ attorney’s fees. TEX. CIV. PRAC. & REM. CODE ANN.
§ 171.088(a)(3)(A) See Forest Oil Corp., 518 S.W.3d at 431. Appellants’ fourth issue is
overruled.
C. Failure to Set Forth Findings and Conclusions
By their second issue, appellants assert that the trial court erred by confirming the
award when the panel’s written decision failed to articulate the reasoning behind finding
in favor of appellees. Appellants point to the panel’s finding that “the forced repurchase
of the [s]ubject [u]nits was without sufficient justification,” but “[the] conclusion of breach
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is not outcome determinative.” However, “[c]ontentions that the arbitrator’s reasoning was
legally erroneous or internally inconsistent, or that the arbitrator misinterpreted the
contract or misapplied the law do not provide a basis for vacating an award.” Denbury
Onshore, 513 S.W.3d at 520. In any event, we conclude that the panel sufficiently set
forth the findings and conclusions on which the panel based the award. It is clear from its
final award that the panel found that “[the] [r]epurchase [a]greement, and the related
tender of the [s]ubject [u]nits in exchange for the increased distributions, constituted a
subsequent enforceable agreement among the parties.” The panel considered each of
appellants’ arguments to set aside the assignment and rejected each argument.
Accordingly, appellants’ second issue is overruled.
D. Due Process
By their fifth and final issue, appellants assert that the trial court erred by confirming
the award because the panel violated appellants’ due process rights when it summarily
denied their motion to modify without a hearing or explanation.
Parties to an arbitration are generally entitled to due process. See Brozo v.
Shearson Lehman Hutton, Inc., 865 S.W.2d 509 (Tex. App.—Corpus Christi–Edinburg
1993, no writ); see also Ewing v. Act Catastrophe–Tex. L.C., 375 S.W.3d 545, 551 (Tex.
App.—Houston [14th Dist.] 2012, pet. denied) (citing Bernstein Seawell & Kove v.
Bosarge, 813 F.2d 726, 729 (5th Cir.1987)). However, appellants provide no caselaw in
support of their assertion that the panel’s decision without hearing or explanation
constitutes a violation of due process. The parties agreed that “arbitration shall be
conducted pursuant to the Commercial Arbitration Rules then in effect of the American
Arbitration Association[.]” Commercial Arbitration Rule R-50 neither requires a hearing on
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a motion to modify or correct an award, nor does it require the panel to issue an
explanation of its ruling. 7 Am. Arb. Ass’n, Com. Arb. Rules & Mediation Proc., R-50:
Modification of Award (eff. Oct. 1, 2013), available at
https://www.adr.org/sites/default/files/CommercialRules_Web.pdf. Further, the rule
states that “[t]he arbitrator is not empowered to redetermine the merits of any claim
already decided.” Id. Thus, even assuming constitutional due process required the
arbitrators to act according to the rules, the panel did not violate the due process rights
of appellants. Accordingly, appellants’ fifth issue is overruled.
V. C ONCLUSION
The trial court’s judgment is affirmed.
DORI CONTRERAS
Chief Justice
Delivered and filed on the
21st day of January, 2021.
7 In pertinent part, the rule states: “The arbitrator shall dispose of the request [to correct the award]
within 20 calendar days after transmittal by the AAA to the arbitrator of the request and any response
thereto.” Am. Arbitration Ass’n, Com. Arbitration Rules & Mediation Procedures, R-50: Modification of
Award (eff. Oct. 1, 2013), available at https://www.adr.org/sites/default/files/CommercialRules_Web.pdf.
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