Paul Ouzenne v. Carnell Haynes

Opinion issued April 12, 2012

In The

Court of

Appeals

For The

First District

of Texas

————————————

NO. 01-10-00112-CV

———————————

Paul Ouzenne , Appellant

V.

Carnell

Haynes , Appellee

On Appeal from the 129th District Court

Harris County, Texas

Trial Court Case No. 2007-56667

MEMORANDUM OPINION

We deny appellant’s motion for

rehearing; however, we withdraw this Court’s opinion of May 12, 2001, and issue

this opinion in its stead. Our judgment

of May 12, 2011 remains unchanged.

This is an appeal from an order confirming an arbitration

award in favor of appellee, Carnell Haynes, on his claims against appellant,

Paul Ouzenne, arising out of a construction contract. In seven issues on appeal, Ouzenne contends

the trial court erred in confirming the award because the arbitrator (1) made a

“gross mistake,” (2) exceeded his powers, and (3) violated public policy and the

law. We affirm.

BACKGROUND

According to his petition, Haynes

approached Ouzenne about the possibility of Ouzenne building a four-plex

apartment structure on Haynes’s property.

In December 2006, Haynes and Ouzenne signed a construction contract for

the proposed four-plex. Unable to obtain

financing for the project himself, Haynes alleged that Ouzenne told him that he

would obtain the financing for Haynes.

Thereafter, Haynes alleged that Ouzenne had him sign a contract of sale

for the property from Haynes to Ouzenne.

Haynes did so because he believed that it was necessary to obtain

financing for the building project, but he did not realize that he would be

transferring title to the property to Ouzenne.

Thereafter, Ouzenne gave Haynes notice that he intended to evict Haynes

from the property.

In response, Haynes sued Ouzenne in

2007, asserting common-law fraud, statutory fraud, breach of fiduciary duty,

promissory estoppel, and violations of the Texas Deceptive Trade Practices

Act. Ouzenne filed a motion to compel

arbitration, which the trial court granted.

After an arbitration before C. Johnson

at the Dispute Resolution Center of Harris County, the arbitrator issued an

award in Haynes’s favor for $136,410.60, plus pre and post-judgment

interest. Haynes moved to enter judgment

based on the arbitrator’s award, and Ouzenne moved to vacate the arbitrator’s

award. On December 15, 2009, the trial

court granted Haynes’s motion, denied Ouzenne’s motion, and entered a judgment

confirming the arbitrator’s award. After

the trial court denied Ouzenne’s motion for new trial, this appeal followed.

CONFIRMATION OF ARBITRATION

Standard of Review

Review of a trial court’s decision as to vacatur or

confirmation of an arbitration award is de novo and an appellate court reviews

the entire record. In re Chestnut Energy Partners, Inc., 300 S.W.3d 386,

397 (Tex. App.––Dallas 2009, pet. denied); see also Statewide Remodeling,

Inc. v. Williams, 244 S.W.3d 564 , 567–68 (Tex. App.––Dallas 2008, no pet.)

(discussing standard of review for confirmation of award).

Because Texas law favors arbitration, however, our review is “extremely

narrow.” See Hisaw & Assocs. Gen. Contractors, Inc. v. Cornerstone

Concrete Sys., Inc., 115 S.W.3d 16, 18 (Tex. App.––Fort Worth 2003, pet.

denied); IPCO–G. & C. Joint Venture v. A.B. Chance Co., 65 S.W.3d

252, 256 (Tex. App.—Houston [1st Dist.] 2001, pet. denied). An arbitration award

has the same effect as a judgment of a court of last resort; accordingly, all

reasonable presumptions are indulged in favor of the award and the award is

conclusive on the parties as to all matters of fact and law. CVN Group, Inc.

v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). Review of an arbitration award

is so limited that even a mistake of fact or law by the arbitrator in the

application of substantive law is not a proper ground for vacating an award. Crossmark,

Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.—Dallas 2004, pet. denied). Here, the parties agree that the Texas

Arbitration Act governs their case. See

Tex. Civ. Prac. & Rem. Code

Ann. §§ 171 .001–.098 ( Vernon 2001).

Gross Mistake

In issues one, two, four, and seven, appellant contends the

trial court erred in failing to vacate the arbitration award because the

arbitrator committed a “gross mistake” [1]

by (1) entering an award that relied on tax appraisals for determining fair

market value (issues one and two), (2) failing to consider evidence that Haynes

was aware and fully intended to sell his property to Ouzenne (issue four), and

(3) failing to properly apply the parol evidence rule (issue seven).

Gross mistake is

a Texas state common law standard that has been used to attack arbitration

awards. Callahan & Assocs. v. Orangefield Indep. Sch. Dist., 92

S.W.3d 841, 844 (Tex. 2002). A “gross mistake” is a mistake by the arbitrator that

implies bad faith or failure to exercise honest judgment. Anzilotti v. Gene

D. Liggin, Inc., 899 S.W.2d 264, 266 (Tex. App.—Houston [14th Dist.] 1995,

no writ) (quoting Carpenter v. N. River Ins. Co., 436 S.W.2d 549, 551

(Tex. App.—Houston [14th Dist.] 1968, writ ref’d n.r.e.)). Ouzenne

argues that relying on the tax rolls to determine value was a gross mistake

because tax rolls are no evidence of actual value. In support, Ouzenne relies on Housing

Auth. of Dallas v. Brown , 256 S.W.2d 656, 659 (Tex. Civ. App.—Dallas 1953,

no writ), which held that error, if any, in refusing to admit evidence of tax

value was harmless because “tax rolls do not reflect actual value,” but an

“approximate percentage of actual value.”

Id. Brown , however, does not state that the value as reflected on

the tax rolls is of no probative value.

Ouzenne also relies

on In re Marriage of Scott , 117, S.W.3d 580, 585 (Tex. App.—Amarillo

2003, no pet.), which we also find distinguishable. In Scott , the wife in a divorce case

presented evidence that the marital home was valued at $35,610. Id. at 583. She reached this value by relying on the tax

appraisal from Hutchison County Appraisal District. Id. at 585. The court of appeals held this evidence of

value was factually insufficient because the tax appraisal was over

three years old on the date of trial and two experts, including the wife’s own

expert, valued the property at much more.

Id. Scott , however, does

not stand for the proposition that tax appraisals are no evidence, i.e.,

legally insufficient evidence, of fair market value. [2]

Thus,

we conclude that the arbitrator’s reliance on tax rolls to determine value does

not rise to a level that implies

the bad faith or failure to exercise honest judgment required to show gross mistake.

Ouzenne also

argues that the arbitrator committed gross mistake by disregarding testimony

indicating that Haynes knew that he was selling the property to Ouzenne. However, contentions that an arbitrator

disregarded even uncontroverted testimony may show a mistake of fact or law,

but do not rise to the level of gross mistake.

See Graham-Rutledge & Co. v. Nadia

Corp. , 281 S.W.3d 683, 689 (Tex. App.—Dallas 2009, no pet.). Furthermore, as fact-finder, the arbitrator

could judge the credibility of the witnesses and choose who to believe or

disbelieve. See Xtria L.L.C. v. Intern. Ins. Alliance, Inc ., 286 S.W.3d 583,

597 (Tex. App.—Texarkana 2009, pet. denied).

Thus, we conclude that the arbitrator’s

decision to believe Haynes’s evidence over Ouzenne’s, even if erroneous, does

not rise to a level that implies the bad faith or failure to exercise

honest judgment required to show gross mistake.

Finally, Ouzenne contends that the

arbitrator committed a “gross mistake” by failing to properly apply the parol

evidence rule. T he arbitrator’s evidentiary ruling, even if erroneous, does not rise to

a level that implies the bad faith or failure to exercise honest judgment

required to show gross mistake. See Anzilotti., 899 S.W.2d at 266

(holding that mistake of law is insufficient to set aside arbitration award).

To the extent that points of error

one, two, four, and seven claim that the arbitrator failed to give an honest

consideration resulting in a gross mistake, they are overruled.

Exceeds Powers

In issue three, Ouzenne contends the arbitrator exceeded his

powers, which is a statutory ground for vacating an arbitration award under

section 171.088(a)(3)(A) of the Civil Practices and Remedies Code. Tex. Civ. Prac. & Rem. Code

Ann. § 171.088(a)(3)(A).

The authority of arbitrators is derived from the arbitration agreement

and is limited to a decision of the matters submitted therein either expressly

or by necessary implication. Gulf Oil Corp. v. Guidry, 160 Tex. 139 , 327

S.W.2d 406, 408 (1959); see also Allstyle Coil Co., L.P., v. Carreon,

295 S.W.3d 42, 44 (Tex. App.—Houston [1st Dist.] 2009, no pet.) (stating scope

of authority depends on the agreement). Arbitrators exceed their powers when

they decide matters not properly before them. Ancor Holdings, LLC v.

Peterson, Goldman & Villani, Inc., 294 S.W.3d 818, 829 (Tex. App.—Dallas

2009, no pet.); Barsness v. Scott, 126 S.W.3d 232, 241 (Tex. App.—San

Antonio 2003, pet. denied).

Ouzenne argues that the arbitrator

exceeded his powers because the arbitration agreement requires that all

disputes “be resolved by binding arbitration in accordance with the rules of

the American Arbitration Association [“AAA”],” and the arbitrator was not

selected in accordance with those rules.

Instead, Ouzenne complains that the “parties were ordered to binding

arbitration at the Harris County Dispute Resolution Center,” which

“unilaterally selected the Arbitrator, without providing a selection process.”

However, the record shows that Ouzenne

did not object to the method of appointing the arbitrator until after the

arbitration was completed. In fact,

Ouzenne did not complain about the method for appointing the arbitrator until

he filed his motion for new trial after the trial court confirmed the award.

The AAA rules upon which Ouzenne rely provide that a party

must object to the jurisdiction of the arbitrator in a timely manner. See

Thomas Petroleum, Inc. v. Morris , No. 01-09-01065-CV, 2011 WL 742651, at *3 ,

(Tex. App.—Houston [1st Dist.] Mar. 3, 2011, no pet.) (citing Employment Arbitration Rules and Mediation

Procedures, Rule 6(c) (formerly known as National Rules for Resolution of Employment Disputes) ). The

same is true under Texas common law. Id. (citing

L.H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348 , 352–53 (Tex. 1977) (holding

that, when both parties participate in arbitration proceedings, neither

unequivocally withdraws its consent to arbitrate, and arbitration proceedings

result in award, award is valid and enforceable)).

Thus,

Ouzenne’s right to complain about the method by which the arbitrator was

selected is waived. See Slaughter v. Crisman & Nesbit , 152 S.W. 205 , 207–08 (Tex.

Civ. App—San Antonio 1912, no writ) (holding that when party to arbitration

appeared and offered testimony before and after appointment of third

arbitrator, he waived any irregularity in procedure occurring before the

appointment of third arbitrator as required by agreement).

Because Ouzenne participated in the

arbitration without complaining about the method by which the arbitrator was

selected until after the arbitration was concluded and a judgment thereon was

confirmed, the trial court did not err by concluding that the arbitrator did not

exceed his authority by deciding matters not properly before him.

We overrule issue three.

Violates Public Policy and the Law

In issues five and six, Ouzenne

contends the trial court erred in failing to vacate the arbitration award

because it “violates public policy and the law.” Specifically, Ouzenne complains that (1) the

arbitration award did not specify a “laundry list” DTPA violation, and (2) was

not based on a good or service as defined by the DTPA.

Ouzenne’s claim, however, is not that

the award should be vacated because it is unlawful, [3]

but that the trial court committed an error of law. And, although Ouzenne claims that the award

violates public policy, he cites no way in which the award violates “carefully

articulated, fundamental policy.” CVN Group , 95 S.W.3d at 239 .

“[A]lleged errors in the application of substantive law by

the arbitrators during the proceedings in arbitration are not reviewable by the

court on a motion to vacate an award.” Jamison

& Harris v. Nat’l Loan Investors , 939 S.W.2d 735, 737 (Tex.

App.—Houston [14 Dist.] 1997, writ denied). A mistake of fact or law is

insufficient to set aside an arbitration award. Anzilotti, 899 S.W.2d at

266 .

We overrule issues

five and six.

CONCLUSION

We affirm the judgment of the trial

court.

Sherry

Radack

Chief

Justice

Panel

consists of Chief Justice Radack and Justice Bland. [4]

[1]

The Supreme Court has recently

held that the statutory grounds provided in sections 10 and 11 of the Federal

Arbitration Act for vacating, modifying, or correcting an arbitration award are

the exclusive grounds for vacating an arbitration award. Hall

St. Assocs., L.L.C. v. Mattel, Inc. , 552 U.S. 576, 584 , 128 S. Ct. 1396,

1403 (2008). However, the Texas Supreme

Court has expressed no opinion as to the continued viability of common law

grounds for attacking an arbitration under the TAA. See E.

Tex. Salt Water Disposal Co. v. Werline , 307 S.W.3d 267 , 270 n.7 (Tex.

2010) (“We express no opinion on this issue [of whether an arbitration under

the TAA can be set aside on common law grounds.].”0.

[2] We

also note that commentators have suggested that “[t]he Scott case may be good law in rural counties where years may

intervene between value appraisal dates or where expert opinions vary greatly

from the tax rolls, but this case may not apply to urban counties where values

are updated yearly.” 2 Stewart W.

Gagnon, et al., Tex. Practice Guide:

Family Law § 8.428 (2010).

[3]

For example, an arbitration may

be set aside as unlawful if it is based on an unlawful contract. See CVN

Group , 95 S.W.3d at 238 (“[A]n illegal contract unenforceable by litigation

should not gain legitimacy through arbitration.”).

4 Justice Elsa

Alcala, who participated in this case on original submission, took the oath of

office as a Judge of the Court of Criminal Appeals of Texas on May 20, 2011 and

is no longer a member of this Court. See Tex. Const. art. XVI, § 40.

Thus, Justice Alcala did not participate in the decision to deny

rehearing in this case.