IOC v. City of Edinburg–reversing vacactur of award under “other undue means” and “exceeding powers” prongs of the Texas Arbitration Act.


AAA Arbitration, Case Summaries, Confirmation of Award, Vacatur of Award / Sunday, July 30th, 2017
In IOC Co., LLC v. City of Edinburg, 13-16-00117-CV, 2017 WL 3084293 (Tex. App.—Corpus Christi July 20, 2017, pet. denied), the Corpus Christ Court of Appeals addressed the grounds for vacatur under the “other undue means” and “exceeding powers” prongs of the Texas Arbitration Act.

Background

IOC, a highway and road construction company, entered an agreement with the City of Edinburg, Texas to perform engineering and architectural construction work for paving and drainage improvements on Canton Road and later a separate project for Sugar Road. A dispute arose as to both projects and both matters were consolidated in a AAA proceeding before experienced Houston arbitrator Bill Andrews, who conducted bifurcated evidentiary hearings for each contract and ultimately issued awards in favor of IOC, finding that the City materially breached the agreements and was liable for damages arising from City-caused delays, disruptions and interference, and denying the City’s claim of sovereign immunity as a defense, finding that it was waived by statute, pursuant to Tex. Local Gov’t Code 271.153. The City filed a petition to vacate the award on the basis that (1) the award was obtained by undue means in violation of Tex. Civ. Prac. & Rem. Code § 171.088(a)(1); (2) the arbitrator exceeded his powers in violation of Tex. Civ. Prac. & Rem. Code § 171.088(a)(3)(A); and the award violated Texas common law. IOC moved to confirm the award. The trial court granted the motion to vacate and denied the motion to confirm one page orders without stating its reasoning. The Corpus Christi Court of Appeals reversed and rendered judgment for IOC, confirming the award.

Decision–Other Undue Means

The Court of Appeals first addressed the proper interpretation of “other undue means” under Tex. Civ. Prac. & Rem. Code § 171.088(a)(1). That Section of the Texas Arbitration Act justifies vacatur of an arbitral award if “the award was obtained by corruption, fraud, or other undue means.” Courts have subsequently defined “undue means” in this context as conduct which is immoral, illegal, or done in bad faith. A mere mistake of law is insufficient to vacate an arbitration award on the basis of undue means. The City argued that the arbitrator had “flagrantly disregarded well-established statutes that limit the award of local governments” and  “disregarded unambiguous contractual provisions, including but not limited to, provisions regarding requests for additional compensation, change orders, and differing site conditions.” The Court of Appeals rejected this argument, characterizing the City’s “undue means” argument as alleging minor errors and misapplying the statute waiving sovereign immunity for amounts owed on a government contract. Though the Court did not address it, the City’s argument appears to be an attempt to recast a motion to vacate for “manifest disregard” of the law (a common law ground that no longer exists after the Texas Supreme Court’s decision in Hoskins v. Hoskins) into a still-recognized ground, the “other undue means” prong of Section 171.088(a)(1).

Decision–Exceeding Powers

 The Court of Appeals then addressed the proper interpretation of “exceeding powers” under Tex. Civ. Prac. & Rem. Code § 171.088(a)(3)(A). An arbitrator exceeds his powers when he decides matters not properly before him. When determining whether an arbitrator has exceeded his power, any doubts concerning the scope of what is arbitrable should be resolved in favor of arbitration. It is only when the arbitrator departs from the agreement and, in effect, dispenses his own idea of justice that the award may be unenforceable. The Court of Appeals noted that the arbitrator derived his authority from both agreements, which both broadly committed any and all disputes or controversies arising under the contracts to arbitration. The Court of Appeals noted that the record showed no objection to arbitration generally by the City. The Court of Appeals found that the disputes were properly before the arbitrator and any alleged mistake of law or fact did not mean that the arbitrator acted outside the scope of his authority.

Modification of the Arbitration Award

Finally, the Court of Appeals addressed the City’s argument that damages must be reduced under Tex. Loc. Gov’t Code § 271.153, which limits the damages that may be awarded against a local governmental entity for a breach of contract. Rather than reach the merits of that argument, however, the Court of Appeals found it to be waived by failing to seek modification pursuant to Section 171.091 of the Texas Arbitration Act on the grounds that no motion to modify had been filed at the trial court.

Documents

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