Reuda v. Holland–motion to vacate on basis of arbitrator reopening the hearing


AAA Arbitration, Case Summaries, Confirmation of Award / Tuesday, February 2nd, 2016

In Rueda v. Holland, Cause No. 01-14-00919-CV, 2016 WL 398620 (Tex. App.—Houston [1st Dist.] Feb. 2, 2016, no pet.), Houston First Court of Appeals addressed the ability of arbitrators to reopen the hearing to consider additional evidence or legal argument.

Background

Appellant, Rueda owned a 49% interest in Enviro–Grow Nursery. Appellee, Holland owned a 51% interest in the business. Rueda sued Holland for minority shareholder oppression and Holland compelled arbitration pursuant to the AAA Commercial Rules under the shareholder’s agreement and the trial court appointed former District Court Judge Mark Davidson to arbitrate, and stayed the proceedings pending the outcome of the arbitration. The arbitration hearing concluded on June 16, 2016, with Judge Davidson indicating that he would rule by June 26th. In the meantime, on June 24, 2014, The Texas Supreme Court handed down Ritchie v. Rupe, a seminal shareholder oppression case that eliminated the common law cause of action for shareholder oppression. Holland filed an emergency memorandum with Judge Davidson informing him of the Ritchie opinion. Judge Davidson reopened the arbitration and asked for addition briefing in light of Richtie.

Judge Davidson then provided to the parties both the original unsigned ruling drafted prior to Ritchie v. Rupe, which found in favor of Rueda and then a signed final award in favor of Holland on the basis of the ruling in Ritchie. Rueda filed a “Motion Asking the Arbitrator to Disregard and Withdraw his Subsequent Ruling Because the Arbitrator Was Not ‘Empowered’ to Enter a Subsequent Ruling Pursuant to AAA Commercial Rule R–46.” Judge Davidson denied the motion, noting that the transmittal of a draft of a preliminary opinion that was never adopted, signed or sent to all counsel is not a binding ruling.

Holland then filed a motion to confirm signed award and Rueda filed a motion to vacate. Rueda argued that Rule 50 of the AAA states that the arbitrator is not empowered to re-determine the merits of any claim already decided and that because Judge Davison had initially ruled in his favor in the unsigned draft, Judge Davidson had no power to issue his subsequent decision. The trial court denied the motion, holding that without a signature, the unsigned draft was not a final award.

Decision

The First Court of Appeals affirmed the trial court’s judgment confirming the award for Holland. The court first rejected Rueda’s argument that the AAA Commercial Rules do not require that the arbitrator’s decision be signed in order to be the decision of the arbitrator, noting that both the Texas Arbitration Act and the AAA Commercial Rules explicitly require the arbitrator to sign a final award. Tex. Civ. Prac. & Rem. Code 171.053(a)(b) (“The arbitrators’ award must be in writing and signed by each arbitrator joining in the award.”); AAA Commercial Rules, R–46(a) (“[a]ny award shall be in writing and signed by a majority of the arbitrators. It shall be executed in the form and manner required by law”). The court then addressed Rueda’s argument based on AAA Commercial Rules, R-50 (“Modification of Award”) that provides, in part, that “[t]he arbitrator is not empowered to redetermine the merits of any claim already decided,” arguing that because the unsigned opinion of Judge Davidson was his first decision, he could not re-determine the merits in a subsequently signed decision. The court noted that rather than re-determining the merits of a claim already decided, Judge Davidson opted to reopen the arbitration after becoming aware of the Ritchie decision, to which neither party objected. Under these facts, the court could not conclude that the unsigned draft was a final award.

Take Aways

As the trial court noted, it was incredibly bad luck for Rueda to have the Texas Supreme Court hand down a decision removing the basis for his right to relief just days before the arbitrator was apparently set to issue an award in his favor. One issue which was not expressly relied upon the court, but may have made the analysis a closer call was that Rueda did not object to the reopening the hearing to address Ritchie. While it is not at all clear that doing so would have changed the result, the court cited AAA Commercial Rules, R- 41 in a footnote–“[a]ny party who proceeds with the arbitration after knowledge that any provision or requirement of these rules has not been complied with and who fails to state an objection in writing shall be deemed to have waived the right to object”–indicating that they might have found waiver as an alternate basis.

Another lesson would be not to overlook the technical requirements for an award when moving to confirm an award or oppose confirmation. In this digital age, it would be disappointing, but not altogether surprising for an arbitrator to inadvertently fail to sign an award which could result in a needless procedural detour.

One might also consider whether, as an arbitrator in a similar situation, one would transmit both the draft and the final award. It perhaps could provide some solace to the losing party to know that the facts were on his side, even if the law no longer was. If so, it’s not clear that Rueda appreciated the gesture. As a corollary, it is worth imagining what would have happened had the arbitrator simply ignored Ritchie or determined that on the basis of equity he would apply the law as it existed when the acts complained of occurred. The propriety of this is questionable, in light of a decision from the highest court in the land on this issue, but it seems plausible that such an award would also have been confirmed. Texas does not recognize even a manifest disregard of the law as a basis to vacate an award.

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Luke Gilman is an attorney at Jackson Walker in Houston, Texas, specializing in arbitration and ancillary litigation in federal and state court.