Arbitration Conducted Under the TAA May Not Be Vacated on Common-Law Grounds

On Friday, the Supreme Court of Texas ruled that an arbitral award may not be vacated under the Texas Arbitration Act (“TAA”) based on common-law grounds.  In Leonard K. Hoskins v. Colonel Clifford Hoskins and Hoskins, Inc., No. 15-0046 (May 20, 2016), two siblings were ordered to engage in arbitration over the allegedly improper transfer of certain mineral rights from their father’s estate.   Following arbitration, one of the siblings asked a trial court to vacate the arbitrator’s decision under the TAA.  According to the family member, the decision was subject to vacatur because of the arbitrator’s manifest disregard of the law.  The trial court instead confirmed the arbitral award and the sibling filed an appeal with Texas’ Fourth Court of Appeals in San Antonio.

On appeal, the San Antonio court held that the vacatur grounds enumerated in the TAA were exclusive.  As a result, the appellate court declined to consider the sibling’s manifest disregard claim.  The Fourth District also rejected the sibling’s argument that he was deprived of his statutory rights during arbitral proceedings.  Ultimately, the Court of Appeals affirmed the trial court’s order confirming the arbitral award.  The sibling then filed a petition for review with the Supreme Court of Texas.  Last November, the Texas high court agreed to consider the case.  (You may read more about it in a prior Disputing blog post.)

In its written opinion, the Texas Supreme Court first examined “whether the enumerated grounds for vacatur delineated in the TAA are exclusive.”  After reviewing the language included in the TAA, the court stated:

The statutory text could not be plainer: the trial court “shall confirm” an award unless vacatur is required under one of the enumerated grounds in section 171.088. Id. § 171.087. As the court of appeals correctly determined, the TAA leaves no room for courts to expand on those grounds, which do not include an arbitrator’s manifest disregard of the law.

The Texas high court continued:

In sum, the TAA mandates that, unless a statutory vacatur ground is offered, the court shall confirm the award. TEX. CIV. PRAC. & REM. CODE § 171.087. Thus, a party may avoid confirmation only by demonstrating a ground expressly listed in section 171.088. Leonard complains that “the TAA contains gaps that need [common-law] supplementation” in order to foreclose arbitration awards that are “unquestionably” improper. But we may not rewrite or supplement a statute to overcome its perceived deficiencies. The parties signed an agreement to arbitrate under the TAA, and that agreement contained no limitations on the arbitrator’s authority beyond those enumerated in the statute. Because manifest disregard is not an enumerated vacatur ground under section 171.088, the court of appeals correctly declined to consider it in affirming the trial court’s confirmation order.

Next, the court dismissed the sibling’s argument that the arbitration award should be vacated because the arbitrator conducted the proceedings “in a manner that substantially prejudiced” his rights in violation of § 171.047 of the TAA.  According to the sibling, the arbitrator committed error by issuing a final award without considering the appellant sibling’s supplemental complaint despite that it was filed after the arbitrator awarded summary judgment in favor of the man’s opposing relatives.  After examining the record, the Texas Supreme Court held “the arbitrator’s failure to conduct a second hearing did not amount to a violation of the TAA’s hearing requirements, nor did it ‘substantially prejudice’ Leonard’s rights.”

Finally, the Supreme Court of Texas concluded:

The TAA’s plain language confirms that, in proceedings governed by that statute, section 171.088 provides the exclusive grounds for vacatur of an arbitration award. Because manifest disregard is not included in section 171.088, and because the parties did not agree to limit the arbitrator’s authority so as to authorize vacatur on that basis, Leonard’s attempt to vacate the award on the basis of manifest disregard must fail. Furthermore, having carefully reviewed the record, we agree with the court of appeals that the claims raised in Leonard’s supplemental complaint were substantively disposed of by the arbitrator’s summary judgment. We express no opinion on the merits of that judgment; we hold only that Leonard’s supplemental complaint did not entitle him to an additional hearing under the TAA. We affirm the court of appeals’ judgment.

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