Nancy Higginson, Debbie Cheadle, Edward Cheadle, Arthur Cheadle, Wayne Carson, Finney Cheadle, Cheryl Shoop, and Keith Sawaya v. Raeanne Martin

ACCEPTED

07-15-00343-CV

SEVENTH COURT OF APPEALS

AMARILLO, TEXAS

12/18/2015 3:30:14 PM

Vivian Long, Clerk

Oral Argument Requested

No. 07-15-00343-CV

____________________________________________

FILED IN

7th COURT OF APPEALS

COURT OF APPEALS AMARILLO, TEXAS

for the 12/18/2015 3:30:14 PM

SEVENTH DISTRICT OF TEXAS VIVIAN LONG

CLERK

________________________________________

Nancy Higginson, Debbie Cheadle, Edward Cheadle, Arthur Cheadle,

Wayne Carson, Finney Cheadle, Cheryl Shoop, and Keith Sawaya,

Appellants,

v.

Raeanne Martin,

Appellee.

________________________________________

Appeal from the 72nd Judicial District Court

of Lubbock County, Texas

Honorable Ruben G. Reyes, Presiding Judge

________________________________________

BRIEF FOR APPELLEE

________________________________________

Terry Scarborough G. Michael Gruber Jeffrey S. Levinger

State Bar No. 17716000 State Bar No. 08555400 State Bar No. 12258300

tscarborough@hslawmail.com mgruber@ghetrial.com Levinger PC

Hance Scarborough, L.L.P. Michael J. Lang 1445 Ross Avenue

400 West 15th Street State Bar No. 24036944 Suite 2500

Suite 950 mlang@ghetrial.com Dallas, Texas 75202

Austin, Texas 78701 Priya A. Bhaskar Tel: 214-855-6817

Tel: 512-479-8888 State Bar No. 24082690 Fax: 214-855-6808

Fax: 512-479-6891 pbhaskar@ghetrial.com jlevinger@levingerpc.com

Gruber Hurst Elrod Attorneys for Appellee

Johansen Hail Shank LLP

1445 Ross Avenue

Suite 2500

Dallas, Texas 75202

Tel: 214-855-6800

Fax: 214-855-6808

IDENTITY OF PARTIES AND COUNSEL

Pursuant to TEX. R. APP. P. 38.1(a), the following is a complete list of all

parties to the trial court’s judgment and the names and addresses of all trial counsel

and appellate counsel.

1. Defendants-Appellants:

Nancy Higginson Wayne Carson

Debbie Cheadle Cheryl Shoop

Edward Cheadle Finney Cheadle

Arthur Cheadle Keith Sawaya

2. Counsel for Defendants-Appellants:

J. Paul Manning (trial and appeal)

Anna McKim (appeal)

Field, Manning, Stone, Hawthorne

& Aycock, P.C.

2112 Indiana

Lubbock, Texas 79410

3. Plaintiff-Appellee:

Raeanne Martin

4. Counsel for Plaintiff-Appellee:

Terry Scarborough G. Michael Gruber Jeffrey S. Levinger

Hance Scarborough, Michael J. Lang Levinger PC

L.L.P. Priya A. Bhaskar 1445 Ross Avenue

400 West 15th Street Gruber Hurst Elrod Suite 2500

Suite 950 Johansen Hail Shank LLP Dallas, Texas 75202

Austin, Texas 78701 1445 Ross Avenue (Appeal)

(Trial and appeal) Suite 2500

Dallas, Texas 75202

(Trial and appeal)

i

TABLE OF CONTENTS

Identity of Parties and Counsel ...................................................................................i

Index of Authorities ..................................................................................................iv

Statement of the Case.............................................................................................. vii

Statement Regarding Oral Argument .................................................................... viii

Issues Presented ........................................................................................................ix

Statement of Facts and Procedural History................................................................ 1

Summary of the Argument.......................................................................................12

Argument..................................................................................................................15

I. Standards of Reviewing Arbitration Awards. ...............................................15

II. The Trial Court Correctly Vacated the Arbitration Award Because the

Arbitrators Exceeded Their Powers by Awarding Damages Resulting

from a Stock Transfer that the Parties Agreed Is Void and Inoperative. ...... 17

A. Once the Arbitrators Determined that the Purported Transfer

Breached the Shareholders’ Agreement, Their Only Power Was

to Hold that the Transfer Is Void. .......................................................18

B. The Higginson Parties’ Speculation About What the Arbitrators

Might Have Done Is Inconsistent With the Shareholders’

Agreement, the Arbitration Pleadings, and the Law. ..........................25

III. The Trial Court Correctly Vacated the Arbitration Award Because the

Arbitrators Exceeded Their Powers by Refusing to Accept the Parties’

Settlement Agreement that Would Have Ended Their Dispute. ................... 34

A. Once the Parties Agreed to Settle Their Dispute, the Arbitrators

Had No Power to Require Further Proceedings or to Award

Damages. .............................................................................................35

B. Contrary to the Higginson Parties’ Arguments, the Parties’

Settlement Agreement Was Enforceable and Binding on the

Arbitrators. ..........................................................................................38

ii

C. The Trial Court Properly Handled the Settlement Issue. ....................43

IV. The Trial Court Correctly Denied the Higginson Parties’ Petition to

Confirm the Arbitration Award. ....................................................................45

Prayer .......................................................................................................................47

Certificate of Compliance ........................................................................................48

Certificate of Service ...............................................................................................49

Appendix:

Order Granting Amended Motion to Vacate Arbitration Award

and Denying Petition to Confirm and Enforce Award of

Arbitrators, signed on September 1, 2015 (2 CR 1909-11)....................... tab 1

Shareholders’ Agreement between Certain Shareholders of

Russell E. Womack, Inc., dated January 1, 2008 (4 RR at PX 3) ............. tab 2

Plaintiffs’ First Amended Original Petition in Arbitration,

dated October 1, 2014 (4 RR at PX 5)....................................................... tab 3

February 5, 2015 email attaching Arbitration Award

(4 RR at PX 11) ......................................................................................... tab 4

Amended Motion to Vacate or Modify Arbitration Award,

filed August 19, 2015 (2 CR 1720-33) ...................................................... tab 5

iii

INDEX OF AUTHORITIES

Cases

Abraham Investment Co. v. Payne Ranch, Inc.,

968 S.W.2d 518 (Tex. App. -- Amarillo 1998, pet. denied) ................................32

Bakers Union Factory No. 326 v. ITT Continental Baking Co., Inc.,

749 F.2d 350 (6th Cir. 1984) ........................................................................ passim

Centex/Vestal v. Friendship West Baptist Church,

314 S.W.3d 677 (Tex. App. -- Dallas 2010, pet. denied) ............................. 29, 30

Commonwealth Land Title Ins. Co. v. Nelson, 889 S.W.2d 312

(Tex. App. -- Houston [14th Dist.] 1994, writ denied) ........................................19

Cooper Natural Resources, Inc. v. Int’l Union of Operating

Engineers, Local 351, No. 4:97-CV-669-A, 1998 WL 25547

(N.D. Tex. Jan. 12, 1998) .....................................................................................37

Delta Queen Steamboat Co. v. District 2 Marine Engineers

Beneficial Ass’n, 889 F.2d 599 (5th Cir. 1989) ...................................... 15, 22, 23

Disney v. Gollan, 233 S.W.3d 591 (Tex. App. --

Dallas 2007, no pet.) ............................................................................................41

Executone Information Sys., Inc. v. Davis, 26 F.3d 1314 (5th Cir. 1994) ...............16

Flanagan v. Martin, 880 S.W.2d 863 (Tex. App. --

Waco 1994, writ dism’d w.o.j.)............................................................................36

Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671 (Tex. 2000) ............................27

Gulf Oil Corp. v. Guidry, 327 S.W.2d 406 (Tex. 1959) .................................. passim

Harris v. Archer, 134 S.W.3d 411 (Tex. App. --

Amarillo 2004, pet. denied)..................................................................................20

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

(Tex. App. -- Dallas 2009, pet. denied)...............................................................15

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

(Tex. App. -- Houston [14th Dist.] 1997, writ denied) ........................................16

iv

Lone Star Cotton Mills v. Thomas, 227 S.W.2d 300

(Tex. Civ. App. -- El Paso 1949, writ ref’d n.r.e.) ...............................................22

Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84 (Tex. 2011) ............................... 15, 18

Padilla v. LaFrance, 907 S.W.2d 454 (Tex. 1995) .................................................42

Peacock v. Wave Tec Pools, Inc., 107 S.W.3d 631 (Tex. App. --

Waco 2003, no pet.) .............................................................................................16

Plains Exploration & Prod. Co. v. Torch Energy Advisors Inc.,

___ S.W.3d ___, 2015 WL 3653330 (Tex. June 12, 2015) .................................19

Russ Berrie and Co., Inc. v. Gantt, 998 S.W.2d 713 (Tex. App. --

El Paso 1999, no pet.)...........................................................................................46

Seals v. Herzing Inc.-New Orleans, 482 Fed. Appx. 893

(5th Cir. June 29, 2012)........................................................................................40

Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564 (Tex. App. --

Dallas 2008, no pet.) ............................................................................................16

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.,

___ U.S. ___, 130 S. Ct. 1758 (2010) ..................................................................18

Totem Marine Tug & Barge, Inc. v. North American

Towing, Inc., 607 F.2d 649 (5th Cir. 1979) ................................................. 30, 31

Townes Telecommunications, Inc. v. Travis, Wolff & Co., L.L.P.,

291 S.W.3d 490 (Tex. App. -- Dallas 2009, pet. denied) ....................... 15, 16, 23

Rules

TEX. R. APP. P. 44.1 .................................................................................................45

TEX. R. CIV. P. 11 ............................................................................................. passim

TEX. R. EVID. 408 .....................................................................................................45

Statutes

9 U.S.C. § 10 ............................................................................................................22

9 U.S.C. § 10(a)(4) ............................................................................................ 15, 47

v

TEX. CIV. PRAC. & REM. CODE § 154.073................................................................44

TEX. CIV. PRAC. & REM. CODE § 154.073(c) ...........................................................44

TEX. CIV. PRAC. & REM. CODE § 171.088(a)(3)(A) ......................................... passim

Other Authorities

97 AM. JUR. TRIALS, Arbitrator Selection and Service § 121 (2005) ......................37

AAA COMM. R. 43 ...................................................................................................43

AAA COMM. R. 47 ...................................................................................................40

AAA COMM. R. 47(a) ..............................................................................................40

AAA COMM. R. 48 ...................................................................................................39

BLACK’S LAW DICTIONARY (6th ed. 1990) ..............................................................19

vi

STATEMENT OF THE CASE

Nature of This case involves a dispute among the shareholders of

the Case: Russell E. Womack, Inc. (“REW”) concerning the right of

Raeanne Martin (“Martin”) to transfer her shares in REW

to members of one group of shareholders (“the Byrne

Parties”) instead of another group of shareholders (“the

Higginson Parties”).

Course of The trial court ordered Martin and the Higginson Parties to

Proceedings: arbitrate their dispute in accordance with the Shareholders’

Agreement to which they were parties. (1 CR 1253-55)

The arbitrators awarded the Higginson Parties $2,000,000

in damages resulting from Martin’s purported transfer of

her shares to the Byrnes, along with $322,023.25 in legal

fees and $5,725 in costs. (1 CR 1351; 4 RR at PX 2) The

Higginson Parties petitioned the trial court to confirm the

arbitration award (1 CR 1346-52), and Martin moved to

vacate or modify it on the ground that the arbitrators had

exceeded their powers by (1) awarding damages for a

transfer that the Shareholders’ Agreement provided was

void and inoperative, and (2) refusing to accept a

settlement agreement that would have resolved all disputes

between Martin and the Higginson Parties (2 CR 1720-33

[App. 5]).

Trial Court: 72nd Judicial District Court of Lubbock County, Texas;

Honorable Ruben G. Reyes, presiding judge.

Trial Court’s After an evidentiary hearing, the trial court signed an order

Disposition of the on September 1, 2015 granting Martin’s motion to vacate

Case: the arbitration award and denying the Higginson Parties’

petition to confirm the award. (2 CR 1909-11 [App. 1])

vii

STATEMENT REGARDING ORAL ARGUMENT

Given the relative size and complexity of the record in this case, Appellee

believes that oral argument may significantly aid this Court’s decisional process.

viii

ISSUES PRESENTED

1. Did the trial court correctly grant Martin’s motion to vacate the

arbitrators’ award of $2,000,000 in damages and $322,023.25 in legal fees, when

(1) the parties’ Shareholders’ Agreement provided that the sole remedy for a stock

transfer in breach of the Agreement was to void the purported transfer and return the

shares to the breaching transferor, and (2) the arbitrators thus exceeded their powers

by awarding damages for a purported stock transfer that the parties agreed would be

treated as if it had never happened?

2. Did the trial court correctly grant Martin’s motion to vacate the

arbitrators’ award on the alternative ground that (1) the parties agreed to settle their

dispute and submitted an agreed “Arbitration Award” to the arbitrators, and (2) the

arbitrators exceeded their powers by refusing to approve the settlement agreement

and instead proceeding to a hearing where they issued an award inconsistent with

the parties’ settlement agreement?

3. Having correctly granted Martin’s motion to vacate the arbitration

award, did the trial court also correctly deny the Higginson Parties’ petition to

confirm the arbitration award?

ix

STATEMENT OF FACTS AND PROCEDURAL HISTORY

The Higginson Parties’ “statement of facts” has the virtue of being brief, but

the result is that it omits or glosses over many important facts -- both historical and

procedural -- that demonstrate why the trial court was correct in vacating the $2.3

million arbitration award against Martin. The following statement will attempt to

fill in the missing gaps.

1. The Parties’ Agreements

Russell E. Womack was the sole shareholder of Russell E. Womack, Inc.

(“REW”), a closely-held Texas corporation. (1 CR 10, 1357) Upon his death, his

entire estate, including his stock in REW, was left to his and his late wife’s nieces

and nephews. (1 CR 10, 1357) Through inheritance and transfers, three groups of

family members came to own the stock in REW:

● The Higginson Parties, which included Nancy Higginson,

Debbie Cheadle, Edward Cheadle, Arthur Cheadle, Wayne

Carson, Finney Cheadle, Cheryl Shoop, and Keith Sawaya.

● Raeanne Martin.

● The Byrne Parties, which included Michael Byrne, Richard

Byrne, James Byrne, Jr., Barbara Holladay, West Womack,

and Carolyn Cain.

(1 CR 10, 967) Importantly, none of these groups owned or controlled a majority of

the REW shares -- even if every person in each group had voted together. (1 CR

967)

1

In 2007, shortly after the final disposition of Womack’s estate, Nancy

Higginson proposed that Martin and the Higginson Parties consolidate the voting

power of their shares in order to obtain majority control over REW. (1 CR 11) To

that end, Martin and the Higginson Parties entered into a Voting Trust Agreement

dated December 31, 2007 and a Shareholders’ Agreement between Certain

Shareholders of Russell E. Womack, Inc. dated January 1, 2008. (1 CR 20, 38; 4

RR at PX 3 [App. 2], PX 4)

The stated purpose of the Voting Trust Agreement was to “concentrat[e] the

vote of the shares represented under this Agreement into a clear and definite policy

of management under the discretion of the Voting Trustees.” (1 CR 38; 4 RR at PX

4, § 1.2) Nancy Higginson and Debbie Cheadle were named as the Trustees, with

the power to take control of the stock certificates of the parties who signed the

Agreement and to vote the shares “in their unrestricted discretion.” (1 CR 38, 40; 4

RR at PX 4, §§ 2.1(b), 5.1) Because Martin was reluctant to permanently commit

her vote to the Trustees, the Voting Trust Agreement included a “revocation option,”

applicable to her and her brother Wayne Carson, that permitted them to opt out of

the Agreement at certain times. (1 CR 11-12, 45; 4 RR at PX 4, § 8.1)

The Shareholders’ Agreement had a similar purpose -- to “secure continuity

and stability of the policies of the management of [REW]” by requiring the parties

who signed it to “agree to restrict the transfer of Shares under certain circumstances.”

2

(1 CR 21; 4 RR at PX 3, Art. 1) To effectuate that purpose, the Shareholders’

Agreement prohibited stock transfers “except in accordance with and subject to the

terms and conditions of this Agreement.” (1 CR 23-24; 4 RR at PX 3, § 3.1)

Transfers “to any Person who is not a party to this Agreement” were prohibited, and

even permitted transfers were subject to a right-of-first-refusal by the other parties

to the Agreement. (1 CR 23-24; 4 RR at PX 3, §§ 3.2, 3.3)

Importantly, the Shareholders’ Agreement also specified precisely what the

remedy would be in the event of a stock transfer that breached the Agreement:

9.2 Breach and Equitable Relief. Any purported Transfer in

breach of any provision of this Agreement is void, will not operate to

Transfer any interest or title in the purported transferee, and will

constitute an offer by the breaching Shareholder to sell his Shares to

the Corporation at the purchase price per Share determined pursuant to

Section 7.2(b). In connection with any attempted Transfer in breach of

this Agreement, the Corporation may refuse to transfer any Shares or

any stock certificate tendered to it for Transfer, in addition to and

without prejudice to any other rights or remedies available to the

Corporation. Each party to this Agreement acknowledges that each

other party will suffer immediate and irreparable harm if a party hereto

breaches, attempts to breach, or threatens to breach this Agreement and

that monetary damages will be inadequate to compensate the

nonbreaching parties for any actual, attempted, or threatened breach.

Accordingly, each party hereto agrees that each of the other parties will,

in addition to any other remedies available to them at law or in equity,

be entitled to specific performance or temporary, preliminary, and

permanent injunctive relief to enforce the terms and conditions of this

Agreement without the necessity of proving inadequacy of legal

remedies or irreparable harm, or posting bond, any requirements to

equitable and injunctive relief being hereby specifically waived.

3

(1 CR 32; 4 RR at PX 3, § 9.2) (emphasis added) Finally, the Shareholders’

Agreement required the parties to mediate and arbitrate their disputes under the

Agreement. (1 CR 34-35; 4 RR at PX 3, § 12.5)

Over time, Martin became dissatisfied with Nancy Higginson’s management

of REW, particularly because of the company’s failure to make distributions. (1 CR

12, 1358) In the summer of 2012, Michael Byrne -- who served as co-president of

REW along with Nancy Higginson -- told Martin that she was not receiving

distributions because the Higginson Parties had saddled REW with excessive debt

to the point that its lender had prohibited distributions. (1 CR 1358) Byrne also told

her that REW’s financial condition would improve if he managed the business, and

he sought her vote. (1 CR 1358) In December 2012, Martin exercised her right to

opt out of the Voting Trust Agreement, and she withdrew her share certificates from

the voting trust. (1 CR 391-92)

On February 28, 2013, Michael and Richard Byrne offered to buy Martin’s 70

shares in REW for $3,130,000. (4 RR at PX 6) Martin “conditionally accepted” the

Byrnes’ offer, expressly reserving the “right to withdraw from the proposed

transaction without penalty at any time prior to closing and receipt by her of the

payment due to her under the terms of [the Byrnes’] offer.” (4 RR at PX 7) By letter

dated March 5, 2013, the Byrnes agreed to the terms of Martin’s conditional

acceptance of their offer. (4 RR at PX 45)

4

Although Martin and her attorney did not believe that the Shareholders’

Agreement was enforceable -- either to restrict any transfer of her shares or to give

the Higginson Parties any right to match an offer to buy her shares -- her counsel

nonetheless advised the Higginson Parties, as “a courtesy,” of the Byrnes’ offer and

Martin’s conditional acceptance and right to withdraw from it. (4 RR at PX 41, 42)

On March 18, 2013, the Higginson Parties purported to accept the $3,130,000 offer

for Martin’s shares, as reflected in the Byrnes’ February 28 letter and Martin’s

conditional acceptance. (4 RR at PX 43)

2. The Parties’ Lawsuits

Faced with competing demands for her shares, Martin filed suit against the

Higginson Parties and the Byrne Parties in the 72nd Judicial District Court. (1 CR

7-18; 4 RR at PX 8) In her suit, Martin sought a declaratory judgment that (1) the

Shareholders’ Agreement is unenforceable and does not give the Higginson Parties

a preemptive right to purchase her shares; (2) she has the right to withdraw from any

sale of her shares before closing; and (3) in the event the Shareholders’ Agreement

is enforceable, the Higginson Parties’ sole remedy is to void any transfer she

purported to make, as set forth in section 9.2. (1 CR 14-17; 4 RR at PX 8)

The Higginson Parties responded by filing their own counter-petition for

declaratory relief, asking the court to prohibit the transfer, find that they had a right

of first refusal to acquire Martin’s shares, and order her to sell them her shares. (1

5

CR 66, 72-80) They also sought a temporary restraining order to prevent the transfer

of Martin’s shares. (1 CR 77-80) Martin agreed to the TRO and one extension of

it. (1 CR 346-49, 396-98) But when the TRO subsequently expired on September

13, 2013 and was not extended by the trial court (1 Supp. RR 60), Martin purported

to transfer her shares to the Byrnes on September 23, 2013 (1 CR 1064, 1088).

Having failed to stop the transfer, the Higginson Parties amended their

counter-petition to specifically allege that Martin’s transfer to the Byrnes “is a direct

violation of the Shareholder Agreement [and] said transfer is void per the

Shareholder Agreement.” (1 CR 1058, 1064, 1072) (emphasis added) Although the

Higginsons continued to seek declaratory and injunctive relief from the court (1 CR

1065-73), they later changed course by asking the court to compel arbitration of the

dispute between themselves and Martin, to the exclusion of the Byrne Parties (1 CR

1155-59, 1211-14). Martin objected to such a piecemeal resolution of the dispute (1

CR 1140, 1143, 1215-19), but the court ultimately compelled only the Higginson

Parties and Martin to arbitrate (1 CR 1253-55). The Byrne Parties declined to

voluntarily participate in the arbitration. (1 CR 1205, 1209, 1254)

3. The Arbitration

In April 2014, arbitration commenced before a three-person panel of the

American Arbitration Association. (1 CR 1360; 4 RR at DX E) There, the

Higginson Parties changed course once again; instead of reasserting their previous

6

allegation that Martin’s purported transfer of her shares to the Byrnes “is a direct

violation of the Shareholder Agreement [and] is void per the Shareholder

Agreement” (1 CR 1064), the Higginson Parties alleged that the transfer was a

breach of the Shareholders’ Agreement that resulted in damages to the Higginson

Parties (1 CR 1381-97; 4 RR at PX 5 [App. 3]). Specifically, the Higginson Parties’

amended arbitration petition alleged in pertinent part:

43. Martin’s breach of contract in transferring the shares

subject of the Shareholder Agreement to a non-contracting party is a

natural, probable, and foreseeable consequence of the damages

suffered by the Carson Family collectively and individually. Pursuant

to the Shareholder Agreement, the Carson Family is entitled to all legal

remedies available to them for the breach of the Shareholder Agreement

by Martin. . . .

44. Accordingly, the Carson Family chooses to seek only

actual monetary damages against Martin which include but are not

limited to economic damages from the dimunition in value of their

respective shares, expectation and reliance damages, unjust

enrichment, nominal damages, pre-judgment and post-judgment

interest, attorney fees, and costs.

(1 CR 1393-94; 4 RR at PX 5) (emphasis added) The Higginson Parties also

designated a damages expert, who purported to calculate the “diminution in value”

of their shares resulting from Martin’s transfer of her shares to the Byrnes in

violation of the Shareholders’ Agreement. (4 RR at PX 5, 21)

In response, Martin contended -- in both her answering statement and in a

dispositive motion -- that she was not liable because the Shareholders’ Agreement

was unenforceable. (4 RR at DX B, DX F) She also asserted that damages were not

7

available to the Higginson Parties -- and the arbitrators had no authority to award

them -- because the parties had agreed in section 9.2 of the Shareholders’ Agreement

that the sole remedy for a transfer in breach of the Agreement was to “void” the

transfer and treat it as if it had never occurred. (Id.)

Moreover, to make sure that the Higginson Parties were locked into their

claim for damages (which Martin contended were unavailable under the

Shareholders’ Agreement), Martin filed a motion asking the arbitrators “to limit

remedies, or in the alternative, to dismiss for absence of indispensable parties.” (3

RR 58-59; 4 RR at DX C) The arbitrators granted the motion and ordered that the

Higginson Parties “shall be bound in this proceeding . . . to the representation made

in paragraph 44 of the First Amended Original Petition in Arbitration” -- stating that

they “choose[ ] to seek only actual monetary damages against Martin” -- and “shall

be permitted to assert only monetary damages remedies against [Martin] in this

arbitration.” (4 RR at DX E) 1

Several months later, after Martin filed her dispositive motion arguing that

damages were not recoverable, Martin and the Higginson Parties settled all of their

disputes. (3 RR 41; 2 CR 1730) On February 5, 2015, the Higginson Parties’

1

As noted above, paragraph 44 began with the word “[a]ccordingly,” indicating that it was

based upon the allegations in Paragraph 43. Paragraph 43, in turn, alleged that both liability and

damages were based solely on Martin’s transfer of her shares to the Byrnes. (4 RR at PX 5)

8

counsel sent an email to the AAA administrator and the arbitrators attaching an

“Arbitration Award approved as to form by the attorneys of record.” (3 RR 30-32;

4 RR at PX 11 [App. 4]) The Arbitration Award, which was attached to the email,

stated:

After consideration of the evidence, arguments, and authorities

presented by counsel for the parties, The Panel finds in favor of

Claimants that the “Shareholders Agreement Between Certain

Shareholders of Russell E. Womack, Inc.” dated January 1, 2008

(“Shareholder Agreement”) is valid and enforceable and that

Respondent breached the “Shareholder Agreement” by failing to sell

and transfer her shares in Russell E. Womack, Inc. to Claimants. The

Panel further finds that under the provisions of the Shareholder

Agreement the transfer of shares by Respondent to Michael Byrne and

Richard Byrne is void, that Claimants are entitled to specific

performance of the sale and transfer of Respondent’s shares in Russell

E. Womack, Inc. and as a result, the Claimants do not have a monetary

damage remedy against Respondent for breach of the Shareholder

Agreement. These findings do not preclude all or any of the other

remedies that may be available to Claimants either under the

Shareholder Agreement, or otherwise available at law or in equity.

The Panel further finds the administrative fees and expenses of

the American Arbitration Association total _______ and the

compensation and expenses of the Arbitrators total _______.

The Panel further finds that an award of costs of arbitration and

attorneys’ fees in favor of Claimants as the prevailing parties on the

issue of whether Respondent breached the Shareholder Agreement is

justified, and hereby awards Claimants the sum total of $400,000.00

determined for arbitration fees, costs and reasonable and necessary

attorneys’ fees attributable to Claimants’ claim against Respondent.

(4 RR at PX 11) (emphasis added, blanks in original) Accordingly, all the arbitrators

had to do was fill in the amounts of their fees and the AAA’s fees (neither of which

9

had been determined at the time), and Martin would pay the Higginson Parties

whatever amount was left, up to the agreed-upon cap of $400,000. (4 RR at PX 11)

As Martin’s counsel later testified, the dispute between Martin and the Higginson

Parties would then be “fully resolved” and the arbitration “was over.” (3 RR 33, 36-

37, 41, 62)

Despite the parties’ settlement agreement, the arbitrators refused to accept or

sign the Arbitration Award the parties had submitted to them on February 5. (3 RR

55; 4 RR at PX 13, 14) Because the arbitrators would not accept the parties’

Arbitration Award, and Martin was unwilling to amend the terms of the parties’

settlement agreement to meet the arbitrators’ requests, the arbitration went to final

hearing on May 26, 2015. (4 RR at PX 2, PX 13) Following three days of testimony,

the arbitrators issued a “standard award” on June 26, 2015, finding Martin liable for

“the total sum of $2,000,000.00 in damages plus legal fees in the amount of

$322,023.25” and costs of $5,725. (1 CR 1351; 4 RR at PX 2)

4. The trial court’s rulings

On July 7, 2015, the Higginson Parties returned to the trial court and filed a

petition to confirm the arbitration award. (1 CR 1346-52) They also filed (but later

non-suited) a cross-claim against the Byrne Parties seeking the same damages the

arbitrators had awarded against Martin. (1 CR 1332-45; 2 CR 1523-25) For her

part, Martin filed an amended petition asserting a variety of contract and tort theories

10

against Michael and Richard Byrne (2 CR 1402-18), as well as a motion to vacate

or modify the arbitration award (2 CR 1445-53, 1720-33 [App. 5]). Martin asserted

two primary grounds for vacating or modifying the award: (1) the arbitrators had

exceeded their powers by issuing an award of damages for a purported stock transfer

that the parties agreed would be treated as void; and (2) the arbitrators exceeded their

powers by refusing to accept the parties’ settlement agreement and to enter an agreed

award that would have ended their dispute. (2 CR 1727-31) 2

The trial court held a lengthy hearing on both parties’ motions on August 25,

2015. (3 RR 1-150) At the outset, the parties stipulated to the admissibility of

certain exhibits. (3 RR 9-10) The court then asked the parties to identify the

statutory grounds for confirming or vacating the arbitration award; Martin cited to

provisions of the Texas Arbitration Act, while the Higginson Parties stated that they

were seeking confirmation under both the TAA and the Federal Arbitration Act. (Id.

at 10-12) In support of their petition to confirm the award, the Higginson Parties

relied solely upon “the evidence that’s already been submitted to the Court and

admitted,” and then rested. (Id. at 14) Martin, in contrast, presented testimony from

2

Martin also asserted that the arbitrators exceeded their powers by issuing an award for

damages that arose under the Voting Trust Agreement, which did not have an arbitration clause.

(2 CR 1726-27) But Martin did not urge that argument at the hearing on her motion to vacate, and

she does not urge it here. Accordingly, this Court need not address the Higginson Parties’

argument on pages 17-20 of their brief concerning the relationship between their claim of damages

and the Voting Trust Agreement.

11

her trial and arbitration attorney about: (1) the parties’ settlement agreement that the

arbitrators refused to accept; and (2) his effort to pin down the Higginson Parties to

a claim for damages that were not available as a remedy under the Shareholders’

Agreement. (Id. at 29-65) After extensive oral argument -- in which the trial court

was actively engaged -- the court took the motions under advisement. (Id. at 66-

150)

On September 1, 2015, the trial court signed an order granting Martin’s

motion to vacate the arbitration award and denying the Higginson Parties’ petition

to confirm the award. (2 CR 1909-11 [App. 1]) The court also signed a scheduling

order setting the case for trial in September 2016. (2 CR 1907) The Higginson

Parties timely appealed from the order vacating the arbitration award. (2 CR 1912-

13)

SUMMARY OF THE ARGUMENT

Because arbitration is a creature of contract, arbitrators necessarily derive

their powers from the parties’ agreements. These agreements include pre-arbitration

contracts and post-arbitration settlements. If the arbitrators issue an award that is

inconsistent with or in disregard of the parties’ agreements, the arbitrators will

exceed their powers and trial courts have the statutory authority under both the Texas

Arbitration Act and the Federal Arbitration Act to vacate the arbitrators’ award. In

this case, the arbitrators’ award of $2,000,000 in damages and nearly $325,000 in

12

legal fees exceeded the powers conferred upon them in two independent respects,

and the court below was correct in vacating the arbitrators’ award on either ground.

First, the arbitrators’ award of damages and legal fees exceeded the powers

conferred upon them by the parties’ Shareholders’ Agreement, which contained both

the arbitration clause and the relevant provisions dealing with the stock transfer at

issue in this dispute. In the Shareholders’ Agreement, the parties specifically agreed

that there would be only one remedy for a stock transfer that breached the

Agreement -- namely, to “void” the purported transfer and render it inoperative, and

to return the shares to the breaching transferor so that they could be offered to the

corporation. Based on the meaning and legal effect of the term “void,” it is

impossible for the nonbreaching party to sustain any “damages” from a breaching

stock transfer that the Shareholders’ Agreement treats as a nullity. The effect of this

remedial limitation here is that once the arbitrators determined that Martin’s transfer

of her shares to the Byrnes breached the Shareholders’ Agreement, their only power

was to “void” the transfer. By instead awarding $2,000,000 in damages for a transfer

the parties agreed to treat as a nullity, the arbitrators exceeded their powers. And

the Higginson Parties’ present speculation about the “multiple scenarios” that might

support an award of damages (Br. at 10) does not help them in the least, because the

arbitrators still would have exceeded their powers if they had done what the

Higginson Parties suggest.

13

Second, the arbitrators’ award exceeded the powers conferred upon them as a

result of the parties’ post-arbitration settlement agreement, which was embodied in

an “Arbitration Award” that the parties asked the arbitrators to sign in order to end

their dispute. The arbitrators, however, refused to accept the settlement agreement

and instead forced the parties to proceed to a hearing, where the arbitrators issued a

vastly different award from what the parties had agreed to in their settlement. In so

doing, the arbitrators exceeded their powers under the statute and relevant case law.

Contrary to the Higginson Parties’ contentions, neither the rules of the American

Arbitration Association nor Rule 11 of the Texas Rules of Civil Procedure permitted

the arbitrators to simply ignore and override the parties’ binding settlement

agreement. And even if Rule 11 applied in the context of an arbitration proceeding,

it was satisfied here because the settlement agreement contained all the essential

terms, was signed by counsel on behalf of all parties, and was filed (and properly

admitted into evidence) at the trial court’s hearing on whether the arbitrators’ award

should be vacated or confirmed.

Because the trial court therefore was correct in vacating the arbitrators’ award

on the ground that it exceeded their powers, the court was also correct in declining

to confirm the award. The trial court’s order vacating the award is consistent with

the statute and the case law, and it should be affirmed in its entirety.

14

ARGUMENT

I. Standards of Reviewing Arbitration Awards.

Review of a trial court’s decision to vacate or confirm an arbitration award is

de novo and the appellate court reviews the entire record. See In re Chestnut Energy

Partners, Inc., 300 S.W.3d 386, 397 (Tex. App. -- Dallas 2009, pet. denied).

Although courts favor arbitration and ordinarily give deference to arbitration awards,

both the Texas Arbitration Act and the Federal Arbitration Act authorize courts to

vacate arbitration awards whenever “the arbitrators exceeded their powers.” TEX.

CIV. PRAC. & REM. CODE § 171.088(a)(3)(A); 9 U.S.C. § 10(a)(4). Arbitrators

derive their power from the parties’ agreement to submit to arbitration, Nafta

Traders, Inc. v. Quinn, 339 S.W.3d 84, 90 (Tex. 2011), and arbitrators will “exceed

their power when they decide matters not properly before them.” Townes

Telecommunications, Inc. v. Travis, Wolff & Co., L.L.P., 291 S.W.3d 490, 493 (Tex.

App. -- Dallas 2009, pet. denied). When that occurs, the Texas Supreme Court has

made clear that the arbitrators’ award is “in excess of their jurisdiction and void.”

Gulf Oil Corp. v. Guidry, 327 S.W.2d 406, 408 (Tex. 1959) (emphasis added). 3

3

The United States Court of Appeals for the Fifth Circuit has made the same point. See

Delta Queen Steamboat Co. v. Dist. 2 Marine Engineers Beneficial Ass’n, 889 F.2d 599, 602 (5th

Cir. 1989) (holding that “judicial deference is at an end” when “the arbitrator exceeds the express

limitations of his contractual mandate”).

15

In determining whether arbitrators have exceeded their powers, courts

ordinarily consider the parties’ agreement to arbitrate, their arbitration pleadings,

and the arbitrators’ award. See, e.g., Peacock v. Wave Tec Pools, Inc., 107 S.W.3d

631, 638-39 (Tex. App. -- Waco 2003, no pet.); Executone Information Sys., Inc. v.

Davis, 26 F.3d 1314, 1323 (5th Cir. 1994). Given “the nature of the error asserted”

in cases challenging the arbitrators’ exercise of their powers, appellate courts do not

require or need an entire record of the arbitration proceedings. Townes

Telecommunications, 291 S.W.3d at 493 n.2. These types of challenges are

inherently different from record-intensive challenges involving the arbitrators’

partiality, their evidentiary rulings, or claims of fraud, misconduct, or gross mistake.

See, e.g., Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 568 (Tex.

App. -- Dallas 2008, no pet.) (complete record of arbitration hearing is required

when award is challenged based on arbitrator’s mistake and failure to exercise honest

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

App. -- Houston [14th Dist.] 1997, writ denied) (record of arbitration hearing is

required when challenge is based on arbitrator’s refusal to hear evidence and errors

of law).

In this case, Martin’s motion to vacate the arbitration award was based solely

on the arbitrators having “exceeded their powers.” TEX. CIV. PRAC. & REM. CODE

§ 171.088(a)(3)(A). And as the following discussion will show, the arbitrators

16

exceeded their powers in two independent ways -- first, by awarding damages for a

purported stock transfer that the parties previously agreed would be “void” and

treated as if it had never occurred; and second, by refusing to accept the parties’

settlement agreement reached during the arbitration proceeding that would have

ended their dispute.

II. The Trial Court Correctly Vacated the Arbitration Award Because the

Arbitrators Exceeded Their Powers by Awarding Damages Resulting

from a Stock Transfer that the Parties Agreed Is Void and Inoperative.

The Higginson Parties’ arbitration claims against Martin were based on three

propositions:

● the Shareholders’ Agreement is enforceable;

● Martin breached the Shareholders’ Agreement by

transferring her shares in REW to the Byrnes; and

● the breaching stock transfer to the Byrnes resulted in

damages to the Higginson Parties measured by the

“diminution in value” of their shares.

(4 RR at PX 5) But as the trial court correctly and succinctly stated, these claimed

damages “stem from a transfer that, by the [Shareholders’] [A]greement itself, could

not happen because it was void, not voidable.” (3 RR 79) (emphasis added) Because

the parties thus contracted for an exclusive remedy in the event of a stock transfer

that breached the Shareholders’ Agreement -- namely, to treat it as void and

inoperative -- the arbitrators had no power to ignore that exclusive contractual

remedy and award damages instead. The Higginson Parties’ current effort to divine

17

some alternative explanation for why the arbitrators could award damages is

inconsistent with the Shareholders’ Agreement, the arbitration pleadings, and the

law.

A. Once the Arbitrators Determined that the Purported Transfer

Breached the Shareholders’ Agreement, Their Only Power Was to

Hold that the Transfer Is Void.

Arbitration is a creature of contract, and arbitrators derive their powers from

the parties’ agreements about the issues subject to arbitration. See Nafta Traders,

339 S.W.3d at 90 (citing Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., ___ U.S.

___, 130 S. Ct. 1758, 1773-74 (2010)). As such, courts are responsible for

scrutinizing arbitration awards to ensure that the arbitrators acted in conformity with

the parties’ agreements. See Gulf Oil, 327 S.W.2d at 408. This analysis consists of

two steps -- interpreting the parties’ applicable agreements, and determining whether

the arbitrators’ award exceeded the scope of those agreements. Following these

steps in this case leads to only one proper conclusion -- that the arbitrators exceeded

their powers by awarding damages resulting from a purported stock transfer that the

parties had previously agreed would be remedied solely by treating it as null and

void, thus incapable of causing any damages.

When courts construe a contract, their “primary objective is to ascertain the

parties’ true intentions as expressed in the language they chose.” Plains Exploration

& Prod. Co. v. Torch Energy Advisors Inc., ___ S.W.3d ___, 2015 WL 3653330, at

18

*7 (Tex. June 12, 2015). Here, the parties agreed in section 12.5 of the Shareholders’

Agreement that “any unresolved controversy or claim relating to this Agreement or

breach thereof will be settled by binding arbitration.” (4 RR at PX 3, § 12.5) They

further agreed that any transfer of shares to a non-contracting party is prohibited (id.

at § 3.2), and specified precisely what the remedy would be in the event of a transfer

that breached the Agreement:

Any purported Transfer in breach of any provision of this Agreement

is void, and will not operate to transfer any interest or title in the

purported transferee, and will constitute an offer by the breaching

Shareholder to sell his Shares to the Corporation. . . .

(Id. at § 9.2) This provision is unambiguous, and it treats a breaching stock transfer

as if it had never occurred by simply nullifying it and returning the transferred shares

to the transferor to be offered to REW.

Moreover, based on the meaning and legal effect of the term “void” in section

9.2, it is impossible for a nonbreaching party to sustain any “damages” from a

purported transfer in breach of the Shareholder Agreement. The term “void” means:

Null; ineffectual; nugatory; having no legal force or binding effect;

unable, in law, to support the purpose for which it was intended. . . .

An instrument or transaction which is wholly ineffective, inoperative,

and incapable of ratification and which thus has no force or effect so

that nothing can cure it.

Commonwealth Land Title Ins. Co. v. Nelson, 889 S.W.2d 312, 318 (Tex.

App. -- Houston [14th Dist.] 1994, writ denied) (citing BLACK’S LAW DICTIONARY

1573 (6th ed. 1990)). As a matter of simple logic, no damages can result from a

19

transaction -- such as a stock transfer in breach of the Shareholders’

Agreement -- that the parties have agreed must be treated as if it had never occurred.

And the law is to the same effect: if a transaction is merely voidable, the

nonbreaching party has the right either to rescind it or to ratify it and sue for

damages; but if the transaction is void, the nonbreaching party’s only right is to treat

it as if it were a nullity from its inception. See, e.g., Harris v. Archer, 134 S.W.3d

411, 427, 445-46 (Tex. App. -- Amarillo 2004, pet. denied).

Because the Higginson Parties and Martin thus agreed to an exclusive remedy

in the event of a breaching stock transfer -- namely, voiding the purported transfer

and returning the shares to the breaching transferor to be offered to REW -- the

arbitrators’ powers were subject to, and limited by, the parties’ contractual remedy.

Accordingly, once the arbitrators in this case found that the Shareholders’

Agreement was enforceable and had been breached by Martin’s purported transfer

of her shares to the Byrnes, they had no power to do anything other than honor the

parties’ agreed remedy of voiding the transfer. Indeed, to award damages was to

recognize the effectiveness of a transfer that section 9.2 prohibited anyone from

treating as effective. By awarding damages instead of honoring the parties’ agreed-

upon remedy for a breaching transfer, the arbitrators exceeded the powers conferred

upon them by the parties, and the trial court correctly vacated their damages award

on that statutory ground.

20

Importantly, the trial court’s ruling is entirely consistent with that of other

courts faced with arbitration awards that similarly exceeded the arbitrator’s powers.

In Gulf Oil Corp. v. Guidry, for example, an agreement between an employer and its

employees’ union reserved to the employer the right to discharge or suspend

employees “for cause,” but provided that a three-person arbitration panel would

decide whether a discharge in fact was “for cause.” 327 S.W.2d at 407. After the

employer discharged one of its employees for fighting with another, the arbitrators

determined that: (1) the discharge was “unreasonably discriminatory”; (2) the

employee should not be discharged but instead should be demoted to his former job

without eligibility for promotion; and (3) he should be paid “back wages.” Id. In

determining whether this award exceeded the arbitrators’ powers, the Texas

Supreme Court did not question that the arbitrators’ first determination “implied a

finding that cause did not exist for [the employee’s] discharge” and thus was within

the scope of their authority. Id. at 408. But the Court held that the arbitrators’

remedial rulings represented an “attempt to determine matters not submitted to their

determination” and therefore were “in excess of their jurisdiction and void.” Id.

And the Court so held even though “a decision favorable to [the employee] on the

21

only question submitted to arbitration would not have solved the controversy

between the parties completely.” Id. 4

The U.S. Court of Appeals for the Fifth Circuit reached a similar result in

Delta Queen Steamboat Company v. District 2 Marine Engineers Beneficial

Association, 889 F.2d 599 (5th Cir. 1989), holding that the arbitrator’s award was in

excess of his power under 9 U.S.C. § 10. There, the employer and the employees’

union agreed that an arbitrator would determine whether “proper cause” existed for

the discharge of an employee, but that the employer would have responsibility for

disciplinary action if proper cause did exist. Id. at 601, 604. After the employer

discharged one if its riverboat captains following a near-accident on the Mississippi

River, the arbitrator found that the captain had been “grossly careless” in his exercise

of professional judgment but ordered the employer to reinstate him with back pay

because he had been “the victim of disparate company discipline.” Id. at 601.

Noting that “judicial deference is at an end” when “the arbitrator exceeds the express

limitations of his contractual mandate,” id. at 602, the Fifth Circuit “vacated that

portion of the arbitral award requiring reinstatement.” Id. at 604. The court reasoned

4

Based on similar facts, the court held in Lone Star Cotton Mills v. Thomas, 227 S.W.2d

300, 307 (Tex. Civ. App. -- El Paso 1949, writ ref’d n.r.e.), that an arbitration panel exceeded its

authority in ordering an employer to reinstate and pay damages to a discharged employee because

the parties had agreed that the arbitrators had the power only to determine whether the discharge

was “unjust.” The court stated: “Unless the arbitrator is given the power to award damages or

order reinstatement, an award attempting to do this is void and beyond the[ir] power.” Id.

22

that the arbitrator, having found the employee to be grossly careless, “impliedly

found proper cause for discipline, [and] [t]hat being so, the arbitrator was without

authority, under the collective bargaining agreement, to reinstate [the employee].”

Id.

Even outside the context of labor arbitrations, courts have not hesitated to

vacate arbitration awards that exceed the powers conferred on them by the parties’

pre-arbitration agreements. Thus, in Townes Telecommunications, the Dallas Court

of Appeals reviewed an arbitration award that allocated costs between the parties to

the arbitration. 291 S.W.3d at 491-92. Although the court recognized “compelling

reasons” for the arbitrators’ decision to allocate costs between the parties, it

nonetheless vacated the award because the parties’ arbitration agreement specifically

required costs to “be borne entirely by the non-prevailing party” and prohibited costs

from being “allocated between the parties.” Id. at 492-93. Given this remedial

limitation, the court held that “the panel acted in direct contravention of the

agreement and exceeded the powers granted to them by the parties” when it allocated

the arbitration costs and refused to designate a non-prevailing party. Id. at 494.

Gulf Oil, Delta Queen, and Townes Telecommunications fully

support -- indeed, compelled -- the ruling of the trial court here that the arbitrators’

award of damages and legal fees exceeded the powers conferred upon them by the

Shareholders’ Agreement. Although the parties agreed that the arbitrators had the

23

power to determine whether the Shareholders’ Agreement was enforceable and had

been breached by Martin’s purported transfer of shares to the Byrnes, the parties also

agreed to precisely what would happen as a remedy in the event of a breaching stock

transfer -- namely, the purported transfer would be voided, the shares would remain

with Martin, and they would be offered to REW. (4 RR at PX 3, § 9.2) Accordingly,

once the arbitrators determined that the Shareholders’ Agreement was enforceable

and that Martin had breached it by transferring her shares to the Byrnes -- a

determination that is implicit in the arbitrators’ finding of liability on the part of

Martin -- the arbitrators had to simply stop. They had no authority to exceed the

scope of the parties’ contractual remedy by awarding damages for a void transfer.

And as Gulf Oil makes plain, the possibility that voiding the transfer might “not have

solved the controversy between the parties completely” does not justify a self-

imposed arbitral remedy that exceeds what the parties had previously agreed upon.

Gulf Oil, 327 S.W.2d at 408.

For all these reasons, the trial court was correct in vacating the arbitrators’

award of over $2.3 million in damages and legal fees. The court’s September 1,

2015 order therefore should be affirmed in its entirety.

24

B. The Higginson Parties’ Speculation About What the Arbitrators

Might Have Done Is Inconsistent With the Shareholders’

Agreement, the Arbitration Pleadings, and the Law.

Unable to justify the arbitrators’ award of damages for a breaching stock

transfer that the parties agreed to treat as void and inoperative, the Higginson Parties

spend eight pages conjuring up “different scenarios” they contend would have

supported an award of damages. (Br. at 20-28) But none of these

scenarios -- especially the notion that the stock transfer prevented the Higginson

Parties from being “allowed to exercise their right of first refusal” (Br. at 20) -- can

support any award of damages. To the contrary, each one is irreconcilable with the

Shareholders’ Agreement, with the Higginson Parties’ own submissions to the

arbitrators, and with Texas law. Thus, the arbitrators would have exceeded their

powers if they had done what the Higginson Parties suggest.

“Loss of Shares to the Corporation”: Section 9.2 of the Shareholders’

Agreement provides that any purported transfer of shares in breach of the Agreement

is void, will not operate to transfer the shares to the purported transferee, and “will

constitute an offer by the breaching Shareholder to sell his Shares to the

Corporation” at a defined purchase price. (4 RR at PX 3, § 9.2) Seizing upon the

quoted language, the Higginson Parties postulate that the arbitrators potentially

could have found damages from the possibility that REW would transfer Martin’s

shares “somewhere,” causing the Higginson Parties to incur “a loss of opportunity

25

to obtain majority control.” (Br. at 21-22) For at least three reasons, this speculative

scenario cannot support any award of damages.

First and foremost, the scenario is entirely premature -- since the Higginson

Parties refused to pursue the agreed-upon remedy of voiding the purported transfer,

Martin has not yet offered to sell her shares to REW in accordance with section 9.2.

Thus, there is no way to know whether REW will exercise its option to acquire

Martin’s shares or what REW will do with the shares after acquiring them.

Moreover, even if REW were to exercise its option to acquire Martin’s shares, that

is precisely what the Higginson Parties agreed to in section 9.2; as a matter of law,

they cannot be “damaged” from an event they agreed to, especially when the result

is merely to place Martin’s shares in the neutral hands of REW. Finally, as discussed

in detail below, the Higginson Parties’ suggestion that the arbitrators compensated

them for “a loss of opportunity to obtain majority control” (Br. at 21) is insupportable

because the Higginson Parties never sought such a remedy from the arbitrators. And

it would be foreclosed, in any event, by the exclusive remedy in section 9.2.

“Loss of Shares to Appellee”: For similar reasons, the Higginson Parties

cannot justify the arbitrators’ damages award by complaining about the shares

“being returned to the hand of [Martin]” once her purported transfer is treated as

void. (Br. at 22) First of all, that remedy is precisely what the Higginson Parties

agreed to, and they cannot be “damaged” from the very outcome they contemplated

26

and accepted. Moreover, they cannot have sustained any “diminution in value”

damages as a result of the shares merely being returned to Martin’s hands; Martin

was free to vote her shares in whatever way she wanted before the transfer, and she

is free to do the same after the transfer is voided. And the Higginson Parties’

contention that the “reversion back” to Martin resulted in a “loss of opportunity to

obtain majority control” (Br. at 22) is doubly flawed -- first, they did not have

majority control before the “reversion” and nothing would change after the

reversion; and second (as discussed next in detail), they never requested any “loss

of opportunity” damages from the arbitrators, who therefore would have exceeded

their powers if they had made any such award.5

“Authority to Award Damages for Loss of Shares”: Next, relying on the

language of section 9.2 giving the parties “any other remedies available to them at

law or in equity,” the Higginson Parties contend that the arbitrators could have

awarded them damages caused by Martin’s “failure to timely delivery the shares to

5

For similar reasons, there is no merit to the Higginson Parties’ conclusory and

unsupported suggestion that the arbitrators’ award could have compensated them for the “unjust

enrichment” of Martin. (Br. at 10, 20, 39) The arbitrators did not base their damages award on a

claim for unjust enrichment, nor could they have done so without exceeding their powers. Unjust

enrichment is recoverable in circumstances where there is no contract between the parties, see,

e.g., Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 684 (Tex. 2000), but the Higginson

Parties’ arbitration claim was based solely on breach of contract. (4 RR at PX 5; DX E) Moreover,

the arbitrators’ damages award was well in excess of the maximum amount the Higginson Parties

sought for unjust enrichment (4 RR at PX 5, ¶ 48; PX 21, p. 3), and also included an award of legal

fees that is ordinarily not available for unjust enrichment claims. Thus, the Higginson Parties’

unjust enrichment theory does not, and could not, support the arbitrators’ award.

27

[them] upon their acceptance under the right of first refusal.” (Br. at 23) Although

such a remedy is not legally available for the reasons discussed below on page 32,

the more immediate problem with the Higginson Parties’ theory is that they never

sought or proved any damages resulting from the lost opportunity to obtain Martin’s

shares “under the right of first refusal.” (Br. at 23) Thus, the arbitrators would have

exceeded their powers if they had actually done what the Higginson Parties now

suggest.

As the arbitrators confirmed in an October 13, 2014 order, the Higginson

Parties were “bound in this proceeding . . . to the representation made in paragraph

44” of their arbitration petition, in which they sought damages from only one

claimed breach of the Shareholders’ Agreement -- Martin’s act of transferring her

shares to the Byrnes. (4 RR at DX E; PX 5, ¶¶ 43-44) Nowhere in their arbitration

pleadings did the Higginson Parties seek “benefit of the bargain” or “lost

opportunity” damages from not being able to exercise their “right of first refusal.”

(4 RR at PX 5) Nor did their expert offer any opinions relating to such purported

damages. (4 RR at PX 21) And the reason the Higginson Parties did not seek such

damages is obvious: they would have had to pay Martin (or offset against any

recovery from Martin) the same $3,130,000 that the Byrnes had paid for Martin’s

shares. Because the Higginson Parties did not seek such a remedy -- even assuming

28

it was otherwise available under the Shareholders’ Agreement and the law -- the

arbitrators would have exceeded their powers had they awarded it.

Contrary to the Higginson Parties’ suggestion, the Dallas Court of Appeals’

opinion in Centex/Vestal v. Friendship West Baptist Church, 314 S.W.3d 677 (Tex.

App. -- Dallas 2010, pet. denied), does not support their argument that the arbitrators

had the power to award damages arising from Martin’s purported stock transfer. (Br.

at 24-25) In Centex/Vestal, the court held that the arbitrator did not exceed his power

in requiring the owner of a construction project to pay damages to a contractor’s

subcontractor and sub-subcontractor because: (1) the arbitration clause broadly

covered disputes involving those entities, and (2) the parties asked the arbitrator to

determine whether the law allowed the contractor to pursue the “pass-through”

claims of those entities. Id. at 685-86. In this case, by contrast, the Shareholders’

Agreement limited the available remedy to the voiding of the breaching stock

transfer; the Higginson Parties only sought damages resulting from a transfer they

had previously agreed was void (and thus never occurred); and Martin never agreed

to the submission of any other damages theory to the arbitrators. Thus, the

arbitrators exceeded their powers by awarding damages for a purported transfer the

parties agreed would be remedied only by voiding it, and they would have exceeded

29

their powers if they had awarded damages based on some other theory that was never

arbitrated.6

If any legal authority applies to the Higginson Parties’ present “loss of

opportunity” argument, it is Totem Marine Tug & Barge, Inc. v. North American

Towing, Inc., 607 F.2d 649 (5th Cir. 1979). There, the owner of a vessel submitted

to the arbitrators an “itemized statement” of the damages it was seeking from a

charterer of its vessel, identifying the expenses of returning the vessel as its largest

item of damages. Id. at 650. The arbitrators, however, awarded the vessel owner a

larger sum for a different item, which consisted of “damages for charter hire.” Id.

Noting that “[a]rbitration is contractual and arbitrators derive their authority from

the scope of the contractual agreement,” the Fifth Circuit held that “[t]he arbitration

panel exceeded its powers by awarding damages for charter hire” when the vessel

owner had “fail[ed] to list charter hire in its itemized statement of damages.” Id. at

651. So too here: if the arbitrators had attempted to award damages for Martin’s

“failure to timely deliver the shares to Appellants upon their acceptance under the

6

This case is distinguishable from Centex/Vestal in another significant respect. There, the

court of appeals noted that the owner’s argument -- to the effect that “pass-through” claims were

prohibited by Texas law -- was “couched in terms of whether the arbitrator exceeded his authority”

but was “really a complaint that the arbitrator committed an error of law.” 314 S.W.3d at 686.

Here, by contrast, Martin’s challenge to the arbitrators’ award is based not on a claimed error of

law but on the parties’ agreement, which limited the remedy for a breaching stock transfer to

voiding the transfer and returning the shares to the transferor. Unlike the arbitrator in

Centex/Vestal, the arbitrators here exceeded the authority conferred on them by disregarding the

parties’ contractual remedy and awarding damages instead.

30

right of first refusal” -- as the Higginson Parties now suggest (Br. at 23) -- the

arbitrators would have exceeded their powers because the Higginson Parties never

asserted any such theory of damages or designated an expert on such a theory.

“Agreement Anticipates Damages for Attempted Transfer”: In yet another

example of revisionism, the Higginson Parties note that section 9.2 forbids an

“attempted or threatened breach,” and assert that the arbitrators could have awarded

them damages for the “benefit” of “not obtain[ing] what they bargained for -- timely

delivery of the shares” pursuant to their right of first refusal. (Br. at 25-26) Again,

this argument is inconsistent with the Shareholders’ Agreement, their own

arbitration submission, and the law.

To begin with, the Higginson Parties did not seek to arbitrate any “attempted

or threatened breach”; rather, they argued that Martin had actually breached the

Shareholders’ Agreement by transferring her shares to the Byrnes. (4 RR at PX 5)

But under section 9.2, voiding the transfer is the exclusive remedy for such a breach,

and damages therefore are not “available” under section 9.2 as a matter of law or

logic. And as previously discussed, the Higginson Parties did not seek or prove any

“benefit of the bargain” damages resulting from not obtaining Martin’s shares under

the right of first refusal. Accordingly, the arbitrators would have exceeded their

powers if they had awarded such unrequested and unproven damages. Totem

Marine, 607 F.2d at 651.

31

Moreover, although this Court need not address the Higginson Parties’

discussion of what “Texas law mandates” with respect to a right of first refusal (Br.

at 25-26), it is worth nothing that their legal argument is incorrect in any event.

Citing to Abraham Investment Co. v. Payne Ranch, Inc., 968 S.W.2d 518 (Tex.

App. -- Amarillo 1998, pet. denied), the Higginson Parties assert that once they

“stated their intention to match [the Byrnes’] offer, it was a requirement of the

Shareholders’ Agreement for [Martin] to deliver the shares” to the Higginson Parties

because “the offer becomes an irrevocable option.” (Br. at 25-26) What Abraham

actually holds, however, is that “[t]he terms of that option are formed by the

provisions granting the preferential right [of first refusal] and by the provisions

within the notice-of-intent-to-sell given to the rightholder.” 968 S.W.2d at 524-25

(emphasis added). Here, the notice-of-intent-to-sell that Martin sent to the

Higginson Parties specifically advised them of the Byrnes’ offer and her conditional

acceptance of it, including her right to withdraw from the transaction at any time

before closing and receipt of payment. (4 RR at PX 41, 42) Because the Higginson

Parties’ option necessarily included the same right on the part of Martin to withdraw

from any transaction with them, the Higginson Parties would not have been able to

prove any compensable “bargain” from such an option -- even if they had tried to do

so in the arbitration.

32

“Damage Question to Arbitration Panel”: Finally, in another variation of

their same theme, the Higginson Parties argue that section 9.2 contemplated an

award of damages because it provided for specific performance or injunctive relief

“in addition to any other remedies available to them at law or in equity.” (Br. at 26-

27, citing 1 CR 32) But as previously discussed, damages from a breaching stock

transfer cannot possibly be “available,” as a matter of law or logic, when the parties

have previously agreed that the sole remedy for any such transfer is to treat it as void

and inoperative.

Equally erroneous is the Higginson Parties’ related contention that Martin

somehow made a “concession” that the arbitrators were “authorized to award

damages” when she filed a motion to limit the Higginson Parties’ remedies. (Br. at

27-28, citing 4 RR at DX C, pp. 4-5) Nothing can be further from the truth. As

Martin’s counsel testified at the August 25 hearing, and as Martin’s motion to limit

makes clear, Martin was only attempting to lock the Higginson Parties into a

damages remedy that Martin contended was unavailable to them. (3 RR 58-59; 4

RR at DX C) Importantly, Martin never “conceded” that the Higginsons were

entitled to recover such damages or that the arbitrators were authorized to award

them. To the contrary, in both her answering statement (filed before her motion to

limit) and her dispositive motion (filed after her motion to limit), Martin made clear

that the Higginson Parties were not entitled to recover damages for a transfer they

33

agreed is void, and that the arbitrators had no authority to award any such damages.

(4 RR at DX B, pp. 5-6; DX F, pp. 6-13) There is simply no evidence that Martin

ever waived or agreed to modify the exclusive remedy provided in section 9.2 for a

breaching stock transfer.

For all these reasons, the Higginson Parties’ arguments on pages 20-28 should

be rejected, and the trial court’s order vacating the arbitrators’ award as an excess of

power should be affirmed.

III. The Trial Court Correctly Vacated the Arbitration Award Because the

Arbitrators Exceeded Their Powers by Refusing to Accept the Parties’

Settlement Agreement that Would Have Ended Their Dispute.

Arbitrators derive their powers not only from the parties’ pre-dispute

arbitration agreements, but also from any agreements the parties may make during

the course of the arbitration itself. See, e.g., Bakers Union Factory No. 326 v. ITT

Continental Baking Company, Inc., 749 F.2d 350, 354-56 (6th Cir. 1984). Thus,

even if the Shareholders’ Agreement had not limited the remedy the arbitrators could

impose for a breaching stock transfer, the settlement agreement that the parties

submitted to the arbitrators on February 5, 2015 had precisely the same effect. By

refusing to accept the settlement agreement and instead forcing the parties to proceed

to a hearing where the arbitrators awarded a different remedy from what the parties

had agreed to accept, the arbitrators exceeded their powers for this additional reason.

Although the Higginson Parties try to challenge the validity of the settlement

34

agreement (Br. at 28-33), their arguments cannot withstand scrutiny. And their

attacks on the trial court’s evidentiary rulings relating to the settlement (id. at 33-35)

are also without merit.

A. Once the Parties Agreed to Settle Their Dispute, the Arbitrators

Had No Power to Require Further Proceedings or to Award

Damages.

After the arbitration commenced, Martin and the Higginson Parties settled

their dispute and sent the AAA administrator and arbitrators an “Arbitration Award

approved as to form by the attorneys of record.” (3 RR 30-32, 41; 4 RR at PX 11; 2

CR 1730) The parties’ settlement agreement, as reflected in this Arbitration Award,

largely tracked the Shareholders’ Agreement and the remedy in section 9.2 by

providing that: (1) the Shareholders’ Agreement “is valid and enforceable”;

(2) Martin breached the Shareholders’ Agreement by not selling her shares to the

Higginson Parties; (3) her transfer of shares to the Byrnes “is void”; and (4) the

Higginson Parties would be entitled to specific performance because they “do not

have a monetary damage remedy against [Martin] for breach of the Shareholder

Agreement.” (4 RR at PX 11) The parties’ settlement agreement also provided that

Martin would pay the total amount of $400,000, which would be allocated to the

AAA’s fees and the arbitrators’ fees (once those amounts were determined), with

the remaining amount going to the Higginson Parties for their attorney’s fees. (Id.)

35

Under basic principles of contract law, this settlement agreement had the

effect of superseding the parties’ previous agreements and submissions relating to

the arbitration. See, e.g., Flanagan v. Martin, 880 S.W.2d 863, 867 (Tex.

App. -- Waco 1994, writ dism’d w.o.j.) (parties’ mutual agreement to accept new

contract had the effect of extinguishing their old contract). Upon receiving the

settlement agreement, the arbitrators had to do no more than fill in the amounts of

their fees and the AAA’s fees, sign the Arbitration Award, and end the dispute

between Martin and the Higginson Parties. (3 RR 33, 36-37, 41, 62) Although the

settlement agreement thus relieved the arbitrators of any further authority to

adjudicate the dispute, they refused to accept the agreement and instead forced a

hearing and issued an award vastly different from what the parties had agreed to

accept. (4 RR at PX 2, PX 13) By proceeding in this manner, the arbitrators usurped

the parties’ right to settle their own disputes and thereby “exceeded their powers”

under section 171.088(a)(3)(A).

The rationale for vacating an arbitration award in these circumstances was

clearly and succinctly explained in Bakers Union Factory No. 326 v. ITT Continental

Baking Company, Inc., 749 F.2d 350 (6th Cir. 1984). There, an employer and union

resolved a grievance by agreeing to reinstate the employee subject to dismissal if he

failed to comply with certain conditions. Id. at 351. When the employee later failed

to comply and was dismissed, the union filed another grievance and an arbitrator

36

ordered the employer to reinstate the employee. Id. at 351-52. Faced with the

question whether “the arbitrator ha[d] the authority to disregard the explicit terms of

the prior settlement agreement reached by the parties,” the Sixth Circuit held he did

not and instructed the district court “to vacate the award of the arbitrator.” Id. at

353, 356.

In language that fully applies to the present case, the Sixth Circuit reasoned

that courts must not “defer” to arbitrators’ decisions that improperly “override” the

parties’ settlement agreements:

Our tradition of deference to arbitral decisions is not based on a

solicitude for arbitrators. That tradition is based on our desire to give

effect to the parties’ chosen means of dispute resolution. When a party

claims that the chosen means of dispute resolution is private settlement,

we have no reason to defer to the arbitrator’s decision. Therefore, we

will not defer to the arbitrator’s determination of his or her authority to

override the terms of a settlement agreement in that narrow category of

cases in which a party claims that the chosen means of dispute

resolution is private settlement rather than arbitration.

Id. at 354. The court further held that “even if the settlement agreement is not final

and binding in the sense that it can be enforced in federal court without first having

been submitted to an arbitrator, the settlement agreement still is binding on the

arbitrator.” Id. at 355.7

7

See also Cooper Natural Resources, Inc. v. Int’l Union of Operating Engineers, Local

351, No. 4:97-CV-669-A, 1998 WL 25547, at *3 (N.D. Tex. Jan. 12, 1998) (arbitrator exceeded

his authority by ignoring the parties’ agreement to settle their disputes); 97 AM. JUR. TRIALS,

Arbitrator Selection and Service § 121 (2005) (“if there is a direct settlement by the parties of

37

Based on the reasoning of Bakers Union, the trial court in this case was correct

in refusing to defer to the arbitrators’ award of damages because it was issued in

disregard of the parties’ chosen means of settling their dispute and ending the

arbitration. When the parties asked the arbitrators to simply fill in the amounts of

the arbitration fees and sign the Arbitration Award, the arbitrators were deprived of

any power to insist on further proceedings, to incur more fees, and to ultimately issue

a vastly different award from what the parties had agreed to in their settlement.

Indeed, if the court below had done anything other than vacate the arbitrators’ award

in these circumstances, it would have “undermine[d] the validity of a system that

seeks to encourage settlements reached without the aid of an arbitrator.” Bakers

Union, 749 F.2d at 354. For this additional reason, the trial court’s order vacating

the arbitrators’ award was correct and should be affirmed in its entirety.

B. Contrary to the Higginson Parties’ Arguments, the Parties’

Settlement Agreement Was Enforceable and Binding on the

Arbitrators.

The Higginson Parties do not deny that the parties settled their dispute on the

terms reflected in the Arbitration Award sent to the AAA and the arbitrators, and

they do not try to justify the arbitrators’ refusal to accept the parties’ settlement

agreement. Instead, they attempt to avoid the effect of the settlement agreement

some or all issues in a case, regardless of what stage in the proceedings that may occur, the

arbitrator is relieved of further jurisdiction over such issues”).

38

based on certain “implications” they draw from the “AAA Rules” and from “Rule

11” of the Texas Rules of Civil Procedure. (Br. at 29-33) The Higginson Parties’

reliance on these two rules is misplaced because neither overrides the statutory

provision, as interpreted by the courts, forbidding arbitrators from exceeding their

powers by disregarding parties’ settlement agreements.

Contrary to the Higginson Parties’ first argument (Br. at 29-30), Rule 48 of

the AAA Commercial Rules cannot be read to excuse the arbitrators’ refusal to

accept the parties’ settlement agreement. Rule 48 provides that “[i]f the parties settle

their dispute during the course of the arbitration and if the parties so request, the

arbitrator may set forth the terms of the settlement in a ‘consent award.’” See AAA

COMM. R. 48. Although the rule’s use of the word “may” arguably gives the

arbitrators discretion in the precise manner by which they “set forth the terms of the

settlement,” the rule cannot be interpreted to allow arbitrators to outright ignore the

parties’ settlement agreement. See 97 AM. JUR. TRIALS, Arbitrator Selection and

Service § 121 (“While the arbitrator may adopt such a consent award, to be clear, an

arbitrator must adopt a consent award as a matter of contractual arbitrability if all

terms of the award are proper, fair, sound, and lawful.”) (emphasis in original).

Tellingly, the Higginson Parties cite no case holding that Rule 48 overrides the legal

39

principles requiring arbitrators to give effect to the parties’ chosen means of

resolving their disputes.8

The Higginson Parties are also wrong in suggesting that the Arbitration Award

presented to the arbitrators was “not binding or enforceable” because the arbitrators

did not sign it. (Br. at 30) This argument is entirely circular, and conflates the

distinction between a settlement agreement reached in arbitration that is binding on

a court and one that is binding on the arbitrators. Thus, as the court explained in

Bakers Union, “even if the settlement agreement is not final and binding in the sense

that it can be enforced in federal court without first having been submitted to an

arbitrator, the settlement agreement still is binding on the arbitrator.” 749 F.2d at

355 (emphasis added).

Equally without merit is the Higginson Parties’ argument that the parties’

settlement agreement “is not a Rule 11 Agreement as a matter of law.” (Br. at 30)

As a threshold matter, the Higginson Parties cite no case holding that a settlement

agreement in an arbitration proceeding must comply with TEX. R. CIV. P. 11 before

8

The one case the Higginson Parties do cite -- Seals v. Herzing Inc.-New Orleans, 482 Fed.

Appx. 893 (5th Cir. June 29, 2012) -- is inapposite. There, the court described the method by

which the settlement agreement was reached and recorded in the arbitration hearing, but it had no

occasion to decide, and did not hold, that this method was necessary or required for an enforceable

settlement in an arbitration proceeding. The Higginson Parties’ reference to AAA Commercial

Rule 47 is also unavailing. (Br. at 29) If anything, Rule 47 undermines their argument because it

provides that “any remedy or relief” granted by an arbitrator must be “within the scope of the

agreement of the parties.” AAA COMM. R. 47(a).

40

it can be binding on an arbitrator. The plain language of Rule 11 suggests otherwise,

because a settlement agreement made in an arbitration proceeding is not “touching

on any suit pending.” TEX. R. CIV. P. 11 (emphasis added). Nor is it something that

needs to “be enforced” by a court. Id.

In any event, even if Rule 11 applied in this context, the parties’ settlement

agreement satisfied all the requirements of Rule 11. Contrary to the Higginson

Parties’ first contention, the agreement had no “missing terms” -- whether material

or not -- merely because it contained two blanks. (Br. at 31) As the settlement

agreement makes clear, Martin agreed to pay a total of $400,000 allocated between

the AAA’s fees, the arbitrators’ fees, and the Higginson Parties’ attorney’s fees, and

even though the parties did not yet know the first two amounts, the Higginson Parties

agreed that they would accept whatever amount was left up to a cap of $400,000. (4

RR at PX 11) All essential terms were accounted for and agreed to. See, e.g., Disney

v. Gollan, 233 S.W.3d 591, 596 (Tex. App. -- Dallas 2007, no pet.) (Rule 11

settlement agreement contained all essential terms, despite need for “parol evidence”

to “clarify” certain terms about the permissible deductions from payments).

Moreover, there are no “missing signatures,” as the Higginson Parties state.

(Br. at 31-32) The Arbitration Award was signed by both the attorney for the

Higginson Parties and the attorney for Martin (4 RR at PX 11), and their signatures

are binding on the parties as a matter of law. See Padilla v. LaFrance, 907 S.W.2d

41

454, 460-61 (Tex. 1995) (enforcing Rule 11 settlement agreement based on series of

letters between plaintiff’s attorney and adjuster for defendant’s insurer). And even

though the settlement agreement was “approved only as to form” (4 RR at PX 11),

Rule 11 neither forbids agreements when they are approved only as to form nor

requires agreements to be approved as to both form and substance. Indeed, Martin’s

counsel testified that the agreement was approved as to form “so that we could get

it submitted to settle the dispute,” and that the only reason he did not approve it as

to substance was because he knew Martin would answer “no” if she were “asked in

subsequent proceedings whether she agreed that she breached” the Shareholders’

Agreement. (3 RR 44) Under Rule 11, that reservation had no effect on the binding

nature of the settlement agreement on the arbitrators.

Finally, the Higginson Parties’ contention that the settlement agreement was

“not filed” and therefore unenforceable (Br. at 32-33) is contrary to both the law and

the evidence. Like the defendants in Padilla, the Higginson Parties “confuse the

requirements for an agreed judgment with those for an enforceable settlement

agreement.” 907 S.W.2d at 461. While the former must be approved at the time it

is rendered, the latter is enforceable under Rule 11 as long as it is filed at any time

“before it is sought to be enforced.” Id. Martin indisputably met that requirement

when she filed the settlement agreement as an attachment to her amended motion to

vacate the arbitration award. (2 CR 1799-1802) And the Higginson Parties’

42

contention that the agreement “was not filed of record before the Panel” (Br. at 32)

is flat wrong. Rule 43 of the AAA Commercial Rules provides that “notice and

communications” are to be served by e-mail on the parties and the arbitrators, and

that is precisely what the Higginson Parties’ counsel did with the settlement

agreement. (4 RR at PX 11) The agreement is therefore enforceable under Rule 11,

even assuming compliance with Rule 11 were necessary to make it binding on the

arbitrators. 9

C. The Trial Court Properly Handled the Settlement Issue.

In one paragraph devoid of any legal authority, the Higginson Parties suggest

that the trial court must not have found “any valid settlement agreement” -- and

therefore “could not have found the Panel exceeded their authority” -- because the

court vacated the award rather than “modifying it or compelling the parties back to

arbitration.” (Br. at 33-34) This argument is a non sequitur. Like the court in Bakers

Union, the court below properly vacated the arbitration award, and it was entitled to

do so based on the evidence of a “settlement agreement [that] is binding on the

arbitrators.” 749 F.2d at 355-56. But because the settlement agreement had not been

9

The Higginson Parties also misstate the evidence in arguing that Martin’s counsel

“admitted that no settlement agreement existed and requested the matter proceed to final hearing

by the Panel.” (Br. at 33) In fact, Martin’s counsel believed that the parties had an agreement that

would settle their dispute and end the arbitration, and he requested that the case proceed to hearing

only after the arbitrators refused to accept the settlement agreement and demanded changes that

Martin was unwilling to make. (3 RR 33, 41, 55-56, 62; 4 RR at PX 13)

43

signed by the arbitrators, the trial court could not enforce it by either modifying the

award or sending the parties back to arbitration. Id. at 355. Nor did it need to do so

under the authority of Bakers Union and section 171.088(a)(3)(A).

The Higginson Parties also miss the mark with their additional argument that

the trial court abused its discretion in admitting “evidence and testimony regarding

settlement discussions.” (Br. at 34-35) As a preliminary matter, the Higginson

Parties inaccurately describe the trial court’s evidentiary rulings. The court did not,

for example, permit Martin’s counsel “to discuss settlement negotiations” (Br. at

34); in fact, the court specifically prohibited Martin’s counsel from testifying about

settlement discussions or negotiations (3 RR 28). And while the Higginson Parties

now object to the “admissibility of Exhibits 1, 10-14, 21-22” (Br. at 35), exhibits 1,

12, and 22 were not admitted (3 RR 4); exhibits 10 and 21 do not relate to the

settlement issue at all (id.); and exhibits 13 and 14 are post-settlement emails that

the Higginson Parties are now relying on for their arguments on appeal (Br. at 33).

That leaves exhibit 11 -- the Arbitration Award approved by the parties’

counsel and sent to the arbitrators -- and the trial court’s admission of that exhibit is

not precluded by TEX. CIV. PRAC. & REM. CODE § 154.073, as the Higginson Parties

now allege. (Br. at 34-35) To the contrary, section 154.073(c) specifically provides

that a court can admit written materials used in an ADR proceeding if they are

“admissible . . . independent of the [ADR] proceeding.” That is precisely the case

44

here, where the trial court admitted exhibit 11 in a hearing on the Higginson Parties’

petition to confirm and Martin’s motion to vacate the arbitration award -- a hearing

that was plainly “independent” of the arbitration proceeding itself. And no other

rule of evidence or procedure barred the trial court from admitting exhibit 11 for the

limited purpose of determining whether the arbitrators exceeded their powers by

rejecting the settlement agreement and issuing a different award. See TEX. R. EVID.

408 (settlement agreement not subject to exclusion when it is offered for a purpose

other than proving “liability for or invalidity of [a] claim or the amount”). The trial

court thus committed no error, let alone reversible error, in admitting exhibit 11 and

hearing the limited testimony of Martin’s counsel. TEX. R. APP. P. 44.1.

IV. The Trial Court Correctly Denied the Higginson Parties’ Petition to

Confirm the Arbitration Award.

Because the trial court was correct in granting Martin’s motion to vacate the

arbitrators’ award under the statutory “exceeding their powers” ground, it

necessarily follows that the court was also correct in denying the Higginson Parties’

petition to confirm the arbitration award. But in a final effort to avoid this result, the

Higginson Parties urge that their petition to confirm was based on both the TAA and

the FAA, that Martin did not seek to vacate the award under the FAA, and that the

trial court therefore “erred in vacating the Award under the Federal Act and failing

to confirm the Award as no pleadings exist to support same.” (Br. at 36-38) Putting

aside the fact that the trial court did not “vacat[e] the Award under the Federal

45

Act” -- the September 1 order did not specify which statute the court was

applying -- the Higginson Parties’ argument is wrong as a matter of procedure and

substance.

From a procedural standpoint, the Higginson Parties overlook the fact that the

Shareholders’ Agreement -- which formed the basis of the parties’ dispute and

contained the arbitration clause -- specifically provides that “[a]ll questions

concerning the construction, validity, and interpretation of this Agreement, including

the relative rights of the Corporation and the Shareholders, are governed by and

construed in accordance with the laws of the state of Texas.” (4 RR at PX 3, § 9.3)

(emphasis added) The “laws of the state of Texas” obviously include the TAA. And

even if this valid choice-of-law provision did not exist, the Higginson Parties had

the burden of proving that the Shareholders’ Agreement had a “substantial effect on

interstate commerce,” as is required for the FAA to apply. See Russ Berrie and Co.,

Inc. v. Gantt, 998 S.W.2d 713, 715 (Tex. App. -- El Paso 1999, no pet.). But when

Martin pointed this out at the August 25 hearing on the petition to confirm and

motion to vacate, the Higginson Parties did no more than offer into evidence seven

exhibits, none of which established that the dispute under the Shareholders’

Agreement involved anything more than the transfer of stock in a Texas corporation

from one Texas resident to another Texas resident. (3 RR 4-5, 10, 13-14) Thus,

46

based on either the choice-of-law provision or the evidentiary record, the Higginson

Parties failed to prove that the FAA governs this case.

In any event, it makes no difference as a substantive matter whether the TAA

or the FAA applies. Using identical language, both the TAA and the FAA authorize

a trial court to vacate an arbitration award where “the arbitrators exceeded their

powers.” TEX. CIV. PRAC. & REM. CODE § 171.088(a)(3)(A); 9 U.S.C. § 10(a)(4).

As the discussion above in parts II and III demonstrate, state and federal courts apply

the same principles under both the TAA and FAA in determining whether arbitrators

have “exceeded their powers.” Indeed, Martin’s amended motion to vacate the

arbitration award specifically noted that the FAA “has a like provision” to section

171.088(a)(3)(A), and throughout her motion, she cited and discussed cases applying

section 10(a)(4) of the FAA. (2 CR 1726 & n.16 - 1731) Accordingly, even if the

trial court had applied the FAA in vacating the arbitration award, it would have been

correct in doing so.

PRAYER

For the reasons stated above, Appellee Raeanne Martin respectfully prays that

the Court affirm the trial court’s September 1, 2015 order granting her motion to

vacate the arbitration award and denying the Higginson Parties’ motion to confirm

it. Martin requests such other relief to which she is entitled.

47

Respectfully submitted,

/s/ Jeffrey S. Levinger

G. Michael Gruber Jeffrey S. Levinger

State Bar No. 08555400 State Bar No. 12258300

Email: mgruber@ghetrial.com Email: jlevinger@levingerpc.com

Michael J. Lang Levinger PC

State Bar No. 24036944 1445 Ross Avenue, Suite 2500

Email: mlang@ghetrial.com Dallas, Texas 75202

Priya A. Bhaskar Telephone: 214-855-6817

State Bar No. 24082690 Facsimile: 214-855-6808

Email: pbhaskar@ghetrial.com

Gruber Hurst Elrod Johansen Hail Terry Scarborough

Shank LLP State Bar No. 17716000

1445 Ross Avenue, Suite 2500 Email: tscarborough@hslawmail.com

Dallas, Texas 75202 Hance Scarborough, L.L.P.

Telephone: 214-855-6800 400 West 15th Street, Suite 950

Facsimile: 214-855-6808 Austin, Texas 78701

Telephone: 512-479-8888

Facsimile: 512-479-6891

Attorneys for Appellee

CERTIFICATE OF COMPLIANCE

1. This brief complies with the type-volume limitation of TEX. R. APP. P.

9.4(i)(2)(B) because it contains 12,234 words, excluding the parts of the brief

exempted by TEX. R. APP. P. 9.4(i)(1).

2. This brief complies with the typeface requirements of TEX. R. APP. P.

9.4(e) because it has been prepared in a proportionally spaced typeface using

Microsoft Word 2013 in 14 point Times New Roman font (and 12 point for

footnotes).

/s/ Jeffrey S. Levinger

Jeffrey S. Levinger

48

CERTIFICATE OF SERVICE

The undersigned certifies that a copy of this Appellee’s Brief was served via

the Court’s electronic filing system on the following Appellants’ counsel on this

18th day of December, 2015.

Anna McKim

J. Paul Manning

Field, Manning, Stone,

Hawthorne, and Aycock, P.C.

2112 Indiana Ave.

Lubbock, Texas 79410

/s/ Jeffrey S. Levinger

Jeffrey S. Levinger

49

APPENDIX

Order Granting Amended Motion to Vacate Arbitration Award

and Denying Petition to Confirm and Enforce Award of

Arbitrators, signed on September 1, 2015 (2 CR 1909-11) ................................. tab 1

Shareholders’ Agreement between Certain Shareholders of

Russell E. Womack, Inc., dated January 1, 2008 (4 RR at PX 3) ....................... tab 2

Plaintiffs’ First Amended Original Petition in Arbitration,

dated October 1, 2014 (4 RR at PX 5) ................................................................. tab 3

February 5, 2015 email attaching Arbitration Award

(4 RR at PX 11) .................................................................................................... tab 4

Amended Motion to Vacate or Modify Arbitration Award,

filed August 19, 2015 (2 CR 1720-33) ................................................................ tab 5

TAB 1

1909

1910

1911

TAB 2

c

Shareholders' Agreement

between

Certain Shareholders

of

Russell E. Womack, Inc.

0.

January 1, 2008

0

c Shareholders' Agreement

Russell E. Womack, Inc.

This Shareholders' Agreement ("Agreement'') is entered into effective on the 1st day of

January, 2008, by and between the undersigned shareholders of Russell E. Womack, Inc., a

Texas corporation ("Corporation"), as listed on the attached Exhibit "A", the spouses of the

listed shareholders, and any person who subsequently becomes a party to this Agreement under

its terms.

Article 1

Nature and Purposes of Agreement

To secure continuity and stability of the policies and the management of the Corporation,

as among the shareholders who participate in this Agreement, all parties to this Agreement agree

to restrict the transfer of Shares under certain circumstances, to preserve the closely held natme

of the Shares owned by the parties to this Agreement, and to establish a plan for the pmchase of

Shares on a Shareholder's bankruptcy. divorce, or death, the death of a Shareholder's Spouse. or

on the imposition of a creditor lien on Shares that are subject to this Agreement.

Therefore, in consideration of the premises and mutual promises contained in this

Q Agreement, the parties agree as follows:

Article2

Dermed Terms

As used in this Agreement, the following tenns shall have the following meaning, and

other terms are defmed herein:

"Common Stock" means the common stock, $1.00 par value per share, of the Corporation.

"Immediate Family" means parents, siblings, a spouse during marriage and not incident to

divorce, lineal descendants (including those by adoption), spouses of lineal descendants, and a

"stepchild" or "stepchildren" of the Shareholder who is a child of the Spouse of the Shareholder

at the time of a transfer of shares by the Shareholder that is subject to this Agreement, but only if

the Shareholder spc:cifically names such stepchild(ren) as beneficiaries of a trust or under the

Shareholder's will or as part of a transfer document, as a person who would share in a

distribution of the Shares by reason of Shareholder's transfer of shares subject to this Agreement.

"Involuntary Transfer" means, with respect to any Shares, any Transfer of Shares other than a

Voluntary Transfer. Examples of an Involuntary Transfer include an attachment, seizure, or

sherifrs sale in connection with the perfection of a judgment lien, sequestration, appaintment of

a gutrdian for the estate of a mentally incapacitated individual, the filing of a petition or transfer

in bankruptcy, an award of property to a Spouse pursuant to a divorce decree, and a Transfer at

Death.

SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC.

PAGE 1OF17

0 "Offer'' is defined in Section 3.3Ca) of this Agreement

"Offer Notice" means, with respect to a proposed Voluntary Transfer to be made by a

Shareholder, a written notice provided by the Shareholder of the tenns, conditions, and other

infonnation relating to the proposed Voluntary Transfer, including ( 1) the name and address of

the Shareholder proposing to make the Voluntary Transfer, (2) the number of Shares the

Shareholder owns, (3) the nwnber of Shares the Shareholder proposes to Transfer, (4) a copy of

the proposed transferee's offer to purchase, (5) the proposed transferee's name and address, (6)

the price per Share the proposed transferee will pay, (7) how the proposed transferee detennined

the purchase price per Share, (8) the terms and conditions of payment to be made by the

proposed transferee, and (9) any other !!Weements, documents, or instruments relating to the

proposed Voluntary Transfer. Notwithstanding the date thereof, no Offer Notice will be effective

and time periods set forth in this Agreement will not begin to run until that Offer Notice is

deemed given in accordance with Section 8.2 of this Agreement to all parties entitled to receive

that Offer Notice.

"Other Shareholders" means, with respect to any event or transaction, all the Shareholders other

than the Shareholder or Shareholders who are the subject of the event or transaction.

"Permitted Transferee" means any of the Persons listed in Section 4.1 of this Agreement

"'Person" means an individual, a corporation, a limited liability company, a trust, a partnership, a

0 joint stock association, a business trust, or a government or agency or subdivision thereof.

"Personal Representative" means the executor, administrator, guardian, or conservator of the

estate of a Shareholder or a Spouse.

"Pro Rata" means, with respect to any Shareholder, the nwnber of Shares owned by the

Shareholder divided by the total nwnber of Shares owned by the Other Shareholders.

"Purchasers" is defined in Section 7.2 of this Agreement.

"Recipient" is defined in Section 3.2 of this Agreement.

ushareholder" means any Person who is or becomes, at any time, a party to this Agreement

pursuant to its tenns and owns Shares at that time registered in his or her own name.

Shareholder shall not include Shareholder's spouse, unless such spouse owns Shares registered

in his or her own name.

"'Shares" means issued and outstanding shares of the Common Stock, excluding treasury shares,

which are owned at any time by any party to this Agreement. All references to Shares owned by

a Shareholder include the community interest, if any. of the Spouse of that Shareholder.

"Spouse" means the spouse of an individual Shareholder.

"Spousal Interest" means any interest in the Shares owned or claimed by a Spouse.

0 SHAREHOLDERS' AGREEMENT- RllSSELL E. WOMACK, INC.

PAGE 20F 17

c "Successor" means, with respect to any deceased individual who owned any Shares at the time of

that individual's death, (1) that deceased individual's heirs or legatees then owning title to that

deceased individual's Shares or the deceased individual's Personal Representative, as the case

may be; and (2) the deceased individual's surviving Spouse, to the extent that Spouse owns a

community interest in the deceased individual's Shares.

"Transfer" when used as a noun means any direct or indirect sale, assignment, gift, devise,

pledge, hypothecation, or other encumbrance or any other disposition of Shares (or any interest

in or voting power of Shares) either voluntarily or by operation of law. "Transfer" when used as

a verb means the act of directly or indirectly selling, assigning, granting by gift, devising,

pledging, hypothecating, or otherwise encumbering or disposing of Shares (or any interest in or

voting power of Shares) either voluntarily or by operation of law. In connection with the use of

the term "Transfer,'' the following tenns will have the meanings indicated below:

..Transfer at Death'' means, with respect to any Shares owned by an individual, the

Transfer of those Shares to that individual's heirs, devisees, or legatees at the time of the

death of the individual, whether the Shares pass by the laws of intestate succession, the

terms of a last will and testament, or pursuant to the marital property laws of any state.

••Transfer by Gift" means, with respect to any Shares, a Voluntary Transfer of all or any

portion of the transferor's interest in those Shares to or for the benefit of a charitable

organization or a natmal object of the ~feror's bounty for less than adequate

0 consideration, but specifically excluding any Transfer at Death.

"Voluntary Transfer" means, with respect to any Shares, a Transfer of any interest in

those Shares by the free and voluntary act of the transferor (other than a Transfer of

Shares resulting from the filing of a petition in bankruptcy), Transfers by Gift, Transfers

by sales, and voluntary pledges.

Article 3

Transfer Restrictions Generally

3.1 Shareholder Agreement. Each Shareholder and Spouse agree not to Transfer or

permit to be Transferred all or any portion of the Shares now owned or subsequently acquired

except in accordance with and subject to the terms and conditions of this Agreement.

3.2 New Shareholders. Notwithstanding any other provision of this Agreement, no

Shares may be Transferred to any Person who is not a party to this Agreement. As a condition

precedent to the acquisition of Shares by any Person (a "Recipient") by Transfer from a

Shareholder, the Recipient and, if applicable, the Recipient's spouse, shall sign an adoption

agreement in substantially the same form attached hereto as Exhibit B pursuant to which the

Recipient and the Recipient's spouse agree to be bound by this Agreement. By signing the

adoption agreement, the Recipient and the Recipient's spouse agree for themselves and for their

respective successors, successors in interest, heirs, legatees, devisees, and legal representatives to

be bound by the tenns and conditions of this Agreement On execution of the adoption

0 SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC.

PAGEJ OF 17

c agreement, the Recipient and the Recipient's spouse will become a "Shareholder" and a

"Spouse" for all purposes of this Agreement. The adoption agreement shall be delivered by the

Recipient to the Corporation and all Shareholders who are parties to this Agreement.

3.3 Voluntazy Transfer Restrictions. Any proposed Voluntary Transfer of any

Shares by a Shareholder is subject to the following provisions:

(a) Before the Voluntary Transfer, the Shareholder must send an Offer Notice

to the Other Shareholders who are parties to this Agreement describing the Voluntary

Transfer (the "Offer''). If any term of the proposed Voluntary Transfer changes after the

delivery of an Offer Notice, the Shareholder must promptly notify the Other Shareholders

who are parties to this Agreement of the changes, and the subsequent notice will

constitute a new Offer Notice for purposes of this Section 3.3(a).

(b) For a period of sixty days after the date of the delivery of the Offer Notice

to the Other Shareholders who are parties to this Agreement, the Other Shareholders have

the right to accept or reject the Offer in writing. Each Other Shareholder's response to the

Offer must specify the maximwn number of Shares that Other Shareholder would be

willing to purchase. If any Other Shareholder accepts the Offer, the purchase price shall

be a per-Share price equal to the offering price per Share specified in the Offer Notice.

The purchase price for the Shares to purchase pursuant to acceptance of the Offer is

payable in accordance with Section 7.2 below ... If more than one Other Shareholder

accepts the Offer, each Other Shareholder who accepts the Offer will be entitled to

0 purchase a portion of Shares being sold equal to a percentage determined by dividing the

number of Shares owned by the Other Shareholder by the number of Shares owned by all

Other Shareholders who accept the Offer.

(c) If the Other Shareholders do not accept the Offer to purchase all the

Shares that are the subject of the Offer by the expiration of the time periods described in

Section 3.3Cbl or if before the time periods expire the Other Shareholders reject the Offer

in writing, the Shareholder is entitled to sell the remaining Shares strictly in accordance

with the terms contained in the Offer Notice.

3.4 Transfer by Pledge. No Shares may be pledged or otherwise voluntarily

encumbered by any Shareholder unless the Other Shareholders approve the pledge by a two-

thirds vote of the Other Shareholders. The Other Shareholders have sole discretion to allow

Shares to be pledged for any purpose. If, for any reason, any pledged Shares are foreclosed on,

the foreclosure will be considered an Involuntary Transfer and the provisions of Section 5.1

below will govern.

3.5 "S" Comoration Restrictions

(a) The Corporation has elected to be taxed as an "S" corporation under the

Internal Revenue Code of 1986, as amended (the "!RC"). Notwithstanding any other

provision of this Agreement, unless and until the Corporation effectively terminates its

status as an "S" corporation, any attempted Transfer of Shares that would cause the

0 SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC.

PAGE40F 17

c Corporation to lose its status as an "S" corporation under the IRC is prohibited. and any

such Transfer is void.

(b) If, notwithstanding the restrictions contained in Section 3.S(a), any Shares

are effectively made the subject of a Transfer to any Person that would cause the

Corporation to lose its status as an "S" corporation or if any change should occur with

respect to a Shareholder that would cause the Corporation to lose its status as an "S"

corporation, the Other Shareholders have an option exercisable at any time thereafter by

providing notice to that Person or that Shareholder to purchase all the Shares owned by

that Person or that Shareholder at the purchase price per Share determined pursuant to the

provisions of Section 7 .1 below, to be payable in accordance with Section 7.2®.

Article4

Permitted Transfers by Gift

4.1 Permitted Transfers by Gift. Subject to the provisions of Section 4.2, the

provisions of Section 3.3 above do not apply to any Transfer by Gift made by a Shareholder

during his life to--

(a) any member of the Shareholder's Immediate Family, including but not

limited to any stepchild of the Shareholder who is specifically named in the gift

instrument as a transferee and who is part of the definition of stepchild herein;

0 (b) a guardian of the estate of the Shareholder; or

(c) the trustee of an inter vivos trust for the sole benefit of one or more

members of the Shareholder's Immediate Family, provided that the Other Shareholders

are notified in writing at ]east thirty days before the proposed Transfer. The notice must

specify (I) the exact name of the trust and its federal tax identification number (or

indicate that the number has been applied for but not received) and (2) the name, address,

and relationship to the Shareholder of all trustees and beneficiaries of the trust or trusts

and their respective federal tax identification or Social Security numbers (or indicate that

the numbers have been applied for but not received).

Any transfer to a child who is less than twenty-one years old at the time of the transfer must be

conditioned on the Shareholder's retaining the right to do any act with respect to the transferred

Shares on behalf of the transferee that is permitted, authorized, or required by this Agreement

4.2 Permitted Transfer Restrictions. Before any Transfer of Shares is made under

Section 4.1. the Permitted Transferee must become a party to this Agreement in accordance with

the provisions of Section 3.2.

4.3 Transfers by Permitted Transferees. The provisions of Section 3.3 do not apply

to any Voluntary Transfer of Shares made by a Permitted Transferee back to the Shareholder

who originally made a Transfer by Gift to the Pennitted Transferee in accordance with Section

4.1.

0 SHAREHOLDERS'AGREEMENT- RVSSELL E. WOMACK, INC.

PAGESOF 17

0

4.4 Transfer Restrictions on Gifted Stock. Notwithstanding anything else to the

contrary in this Agreement, on any stock transferred by gift by a shareholder under this Article 4,

the Shareholder making such transfer shall have the exclusive right to purchase back the stock

from the transferee pursuant to the pmchase price and terms of Article 7, before any other

shareholder has any right to plll'Chase the stock pursuant to the other terms of this Agreement.

Article S

Notice

5.1 Involwitary Transfers

(a) If a Shareholder has any notice or knowledge of any attempted,

impending, or completed Involuntary Transfer (other than an Involuntary Transfer

subject to Article 6 of this Agreement) of any of his Shares, whether by operation of law

or otherwise, he must give immediate written notice to the Other Shareholders specifying

the number of Shares that are subject to the Involuntary Transfer and all pertinent

infonnation in his possession relating to the Involuntary Transfer. If any Shares are ever

subject to an Involuntary Transfer (other than pursusnt to Article 6 of this Agreement),

the Other Shareholders will, at all times thereafter, have the immediate and continuing

option by notice to the owner of the Shares within one year after the date the Other

Shareholders first learn or have notice of the Involuntary Transfer, to purchase all the

Shares for a purchase price per Share determined pursuant to Section 7.1 below to be

0 payable in accordance with Section 7.2Cb).

(b) If more than one Shareholder exercises the option, each Shareholder is

entitled to purchase that portion of the Shares equal to a percentage determined by

dividing the number of Shares owned by the Shareholder by the number of Shares owned

by all Shareholders who exercise the option.

5.2 Transfers in Bankruptcy

(a) If a Shareholder or Spouse is the named debtor in bankruptcy or

receivership proceedings, the Other Shareholders will, at all times thereafter, have the

immediate and continuing option by notice to the bankruptcy or receivership trustee or

other applicable party to purchase all the Shares that are the subject of the bankruptcy or

receivership proceedings for a purchase price per Share determined pursuant to Section

Ll to be payable in accordance with Section 7.2{b).

(b) If the Other Shareholders purchase option described in Section 5.2(a)

should not be exercised by the Other Shareholders for any reason or is not enforceable by

the Other Shareholders for any reason and all or any portion of the Shares subject to the

bankruptcy or receivership proceedings are proposed to be made the subject of any kind

of Transfer, the Transfer will be deemed to be a Voluntary Transfer by a Shareholder and

will be subject to the provisions of Section 3.3.

0 SHAREHOLDERS' ACREEMENT - RUSSELL E. WOMACK, INC.

PAGE60F 17

c Article 6

Buy.Sell Agreement

6.1 Death of Spouse

(a) Each Spouse agrees to bequeath his entire Spousal Interest to the

Shareholder. This promise is made with Spouse's full knowledge, is made for good and

valuable consideration, and constitutes a covenant binding on Spouse's estate, Personal

Representative, heirs, and beneficiaries.

(b) If a Spouse dies and does not leave a valid will admitted to probate

bequeathing the entire Spousal Interest to Shareholder or if any will contest is filed by

any Person challenging the validity of the bequest of the Spousal Interest to Shareholder,

Shareholder and Spouse's Personal Representative must each notify the Other

Shareholders. For a period of ninety days following the earliest to occur of (1) the

qualification of Spouse's Personal Representative, (2) the entry of an order of the probate

court concluding that Spouse's wilJ does not bequeath the entire Spousal Interest to

Shareholder, or (3) the filing of a will contest suit, the Shareholder has the exclusive right

and option to purchase the Shares at the purchase price per Share determined pursuant to

Section 7.1 below to be payable in accordance with Section 7.2Cbl.

(c) If the Shareholder does not purchase the entire Spousal Interest in the

Shares pursuant to Section 6.1 (.b) within ninety days, for a period beginning on the first

0 day after expiration of the ninety-day period and ending one year after the entry of a fmal

order by the probate court disposing of the Spousal Interest in the Shares, the Other

Shareholders have an exclusive option to purchase all or any portion of the Shares not

purchased or awarded to Shareholder at the purchase price per Share determined pursuant

to Section 7.1 to be payable in accordance with Section 7.2Cbl. The Other Shareholder's

right to purchase all or any portion of the remaining Shares shall be on a Pro Rata basis or

as the Other Shareholders may otherwise agree among themselves.

(d) If and to the extent that the Other Shareholders do not purchase all of

those Shares, each Successor of that Spouse is entitled to require the Corporation to

transfer the appropriate portion of the Spouse's Shares to that Successor on the provision

that (1) the Successor give to the Corporation and the Other Shareholders documentation

as requested by the Corporation or the Other Shareholders to evidence the rightful

ownership interest of the Successor in the Spouse's Shares and (2) the Successor

becomes a party to this Agreement in accordance with the provisions of Section 3.2

above.

6.2 Death of SbarehoJder

0 SHAREHOLDERS, AGREEMENT- RllSSELL E. WOMACK, INC..

PACE 70F 17

0 (a) Subject to the provisions of Section 6.2(dl, the provisions of Section 3.3

above and ~ below do not apply to any Transfer by Death made by a Shareholder at

his death to-

(i) any member of the Shareholder's Immediate Family;

(ii) the trustee of a testamentary trust for the sole benefit of one or

more members of the Shareholder's Immediate Family, provided that the trust qualifies to be a

shareholder of an S-Corp, and the trust terminates before the time at which the trust would cease

to be a qualified shareholder of an S-Corp..

Any transfer to a child (or adopted child or step child) who is less than twenty-one years old at

the time of the transfer must be conditioned on the guardian of such child's retaining the right to

do any act with respect to the transferred Shares on behalf of the transferee that is permitted,

authoriz.ed, or required by this Agreement.

(b) On the death of a Shareholder, and in the event that the Shareholder is not

survived by the Shareholder's Immediate Family, or for any Shares that the Shareholder

attempts by will, trust, intestacy or other testamentary devise to gift, transfer, bequeath or

devise to anyone other than one of the Other Shareholders to this Agreement, or to the

Immediate Family of the Shareholder or to the Immediate Family of one of the Other

Shareholders, the Other Shareholders have the exclusive right and option to purchase all

or any portion of the Shares owned by the Shareholder, that would otherwise pass to a

0 person who is not one of the Other Shareholders, or a member of the Immediate Family

of the Other Shareholders or the Shareholder, and the Shareholder (or his Personal

Representative) has the right and option to require the Other Shareholders to purchase all

or any portion of the Shares that would otherwise pass to a person who is not one of the

Other Shareholders, or a member of the Immediate Family of the Other Shareholders or

the Shareholder, at the purchase price per Share determined pursuant to Section 7.1

below to be payable in accordance with Section 7.2Ca). On exercise of this option, the

Shareholder's Personal Representative is obligated to sell the Shares to the Other

Shareholders on these terms, and the Other Shareholders are obligated, to the extent it

may lawfully do so, to purchase the Shares. Notice of the exercise of the option granted

puriuant to this Section 6.2 is to be given to or by the Shareholder (or his Personal

Representative) within thirty days after the Other Shareholders receive notice of the

qualification of Shareholder's Personal Representative.

(c) The Other Shareholders have the right to purchase all or any portion of the

remaining available Shares on a Pro Rata basis or as the Other Shareholders may

otherwise agree among themselves.

(d) If and to the extent that the Other Shareholders do not purchase all the

available Shares, each Successor of that Shareholder is entitled to require the Corporation

to transfer the appropriate portion of the Shareholder's Shares to the Successor on the

provision that (1) the Successor give to the Corporation and the Other Shareholders

documentation as may be requested by the Corporation and/or the Other Shareholders to

0 SHAREHOLDERS~ ACREEMENT- RUSSELL E. WOMAC~ INC.

PAGE80F 17

c evidence the rightful ownership interest of the Successor in the Shareholder's Shares and

(2) the Successor becomes a party to this Agreement in accordance with the provisions of

Section 3.2 above.

6.3 Divorce of Shareholder and Spouse. If any Shares are owned by a Shareholder

and Spouse jointly and that Shareholder or Spouse files a petition for divorce or institutes any

other legal proceedings to tenninate their marriage, the following procedures apply:

(a) Shareholder's interest in the Shares and Spouse'.s Spousal Interest in the

Shares will be reflected on their respective inventories of marital and separate assets at a

value not in excess of the purchase price determined pursuant to Section 7.1 below.

(b) Shareholder will seek, and the Spouse will agree to accept, an order for the

division of marital and separate property under which Shareholder receives the entire

Spousal Interest in the Shares in exchange for awarding to the Spouse other marital and

separate assets in which Shareholder has an interest that have a value approximately

equal to the Spousal Interest (as valued pursuant to Section 6.3CaU.

( c) If the marriage of Shareholder and Spouse is terminated by divorce or

8JU1Ulment and Shareholder does not obtain all of Spouse's interest in the Shares incident

to the divorce or annulment., Shareholder and Spouse will simultaneously give written

notice to the Other Shareholders within thirty days after the effective date of the final,

nonappealable divorce decree or of the annulment The written notice will specify the

0 effective date of termination of the marriage and the number of Shares in which the

Shareholder's former Spouse retains an interest. For a period of sixty days after the

effective date of tennination of the marriage, the Shareholder has an exclusive option to

purchase all or any portion of the former Spouse's retained interest in the Shares at the

purchase price per Share determined pursuant to Section 7.1 to be payable in accordance

with Section 7.2(b). The Shareholder's sixty-day option is exercised by delivering to the

fonner Spouse and the Other Shareholders written notice specifying the number of Shares

as to which the option is being exercised.

(d) If the Shareholder does not purchase all of the former Spouse's Shares, for

a period of sixty days after the lapse of the sixty-day option period, the Other

Shareholders have an exclusive option exercisable by written notice to the former Spouse

to purchase all or any portion of the former Spouse's remaining Shares at the purchase

price per Share determined pursuant to Section 7.1 to be payable in accordance with

Section 7.2Cbl on a Pro Rata basis or as the Other Shareholders may othetwise agree

among themselves.

(e) If any option is exercised pursuant to this Section 6.3. the former Spouse

is obligated to sell the Shares retained incident to divorce or annulment with respect to

which the option or options are exercised. If a Shareholder should exercise his option to

purchase any number of Shares owned by the former Spouse pursuant to the provisions of

this Section 6.3, the provisions of Sections 7.2. U. U. and t l below will apply with

respect to the purchase of the Shares by the Shareholder.

0 SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC

PAGE 90F 17

0

(f) Shareholder and Spouse each agree that the Other Shareholders may

intervene in their divorce or annulment proceeding without their objection for the purpose

of enforcing the Other Shareholders' rights under this Section 6.3.

Article 7

Purchase Price and Terms

7.1 Purchase Price. The parties to this Agreement acknowledge that the Common

Stock is closely hel~ no public market exists for the Common Stock, and, consequently, a fair

market value for the Shares is not readily determinable. Therefore, as used throughout this

Agreement, the phrase the purchase price per Share determined pursuant to Section 7.1 will be

the quotient of the Corporation's accrual basis book value as of the last day of the month

immediately preceding the closing of the purchase of the Shares being purchased (determined in

accordance with generally accepted accounting principles) divided by the total number of Shares

then issued and outstanding for all shareholders of the Corporation, including shareholders of the

Corporation who are not parties to this Agreement (determined in accordance with the

Corporation's stock records).

7.2 Payment of Purchase Price. Payment of the purchase price for Shares purchased

by the Other Shareholders (the "Purchasers") pursuant to this Agreement is to be made, at the

sole discretion of the Purchasers by either one of the two following methods:

0 (a) On the closing date of the purchase, the Purchasers deliver to the selling

Shareholder a cash payment equal to 100 percent of the total purchase price; or

(b) On the closing date of the purchase, the Purchasers deliver to the selling

Shareholder a cash down payment equal to l 0% percent of the total purchase price, and

the Purchasers pay the balance of the total purchase price in 10 equal annual installments.

7.3 Deliveries at Closing. At the closing of the purchase of any Shares to be made

by the Purchasers under any provision of this Agreement, the selling Shareholder and the

Purchasers are obligated to sign and deliver the following instruments, certificates, and

agreements:

(a) The Purchasers deliver to the selling Shareholder--

( l) the amount of cash required to be delivered; and

(2) a promissory note for the balance of the purchase price if the purchase

price is payable in accordance with Section 7.2(b).

(b) The selling Shareholder delivers to the Purchasers-

( 1) certificates representing the Shares being purchased by the Purchasers

c endorsed for transfer to the Purchasers, free of all liens, claims, and encumbrances; and

SHAREHOLDERS'AGREEMENT- RUSSELL E. WOMACK, lNC

PACE100F 17

0

(2) other instruments of assignment, certificates of authority, tax releases,

consents to transfer, and instruments in evidence of title in compliance with this

Agreement as may be reasonably required by the Purchasers.

Article 8

Closing Date and Notices

8.1 Closing Date. Whenever the Purchasers agree or become obligated to purchase

Shares under the terms of this Agreement, the closing date of the transaction will be a date and

time specified by the Pm-chasers at a designated location. Unless the parties agree to the contrary,

the closing date· may not be more than ninety days after the event or notice that fixed the

obligation of the Purchasers to purchase the Shares. Notice of the details of closing will be

furnished by the Purchasers no later than ten days before the closing date.

8.2 Notices. All notices, communication~ and deliveries made under this

Agreement will be made in writing signed by or on behalf of the party, will specify the section of

the Agreement ·under which it is given or made, and will be delivered personally, by facsimile

transmission, by registered or certified mail (return receipt requested), or by any courier service,

with postage or other fees prepaid, to the addresses listed on Exhibit A:

Any such notice, communication, or delivery may also be made to any other address or

person designated in writing by the party. Such addresses may be changed from time to time by

0 written notice to the other party. Any notice, communication, or delivery will be deemed given

or made (a) on the date of delivery if delivered in person or by courier service, (b) on

transmission by facsimile if receipt is confinned by telephone, or (c) on the fifth business day

after it is maiJed by registered or certified mail.

Article9

Enforcement

9.1 Endorsements on Stock Certificates. Each certificate representing Shares now

owned or hereafter owned by the Shareholders or any transferee must conspicuously state

substantially as follows, in addition to any other legends required by law:

THESE SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS AGAINST TRANSFER

PURSUANT TO THE TERMS OF A SHAREHOLDERS' AGREEMENT BETWEEN

CERTAIN SHAREHOLDERS OF THIS CORPORATION THAT PROVIDES FOR, AMONG

OTHER TIDNGS, AN OPTION IN FAVOR OF THE PARTIES TO SUCH AGREEMENT TO

PURCHASE THESE SHARES IN CERTAIN INSTANCES. THE PARTIES TO SUCH

AGREEMENT WILL FURNISH WITHOUT CHARGE A COPY OF THE AGREEMENT TO

THE RECORD HOLDER OF THIS CERTIFICATE ON WRITTEN REQUEST TO

THESE SHARES ARE SUBJECT TO THE PROVISIONS OF A SHAREHOLDERS'

c AGREEMENT THAT MAY PROVIDE FOR MANAGEMENT OF THE CORPORATION IN

SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC.

PAGE 11OF17

c A MANNER DIFFERENT THAN IN OTHER CORPORATIONS AND MAY SUBJECT A

SHAREHOLDER TO CERTAIN OBLIGATIONS OR LIABILITIES NOT OTHERWISE

IMPOSED ON SHAREHOLDERS IN OTHER CORPORATIONS.

THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF

1933, AS AMENDED (THE "SECURITIES ACT''), OR UNDER ANY APPLICABLE STATE

SECURITIES LAWS, AND THEY CANNOT BE OFFERED FOR SALE, SOLD,

TRANSFERRED, PLEDGED, OR OTHERWISE HYPOTHECATED EXCEPT IN

ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE SECURITIES

ACT AND STATE SECURITIES LAWS OR ON DELIVERY TO THE CORPORATION OF

AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE CORPORATION THAT

AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

THIS CORPORATION HAS ELECTED TO BE TAXED AS AN "S" CORPORATION FOR

FEDERAL INCOME TAX PURPOSES UNDER THE INTERNAL REVENUE CODE OF

1986, AS AMENDED (THE "CODE"). ANY SALE, TRANSFER, OR OTHER FORM OF

DISPOSITION OF THESE SHARES THAT WOULD CAUSE THIS CORPORATION TO

LOSE ITS STATUS AS AN "S" CORPORATION UNDER THE CODE IS VOID.

9.2 Breach and Eguitable Relief. Any purported Transfer in breach of any provision

of this Agreement is void, will not operate to Transfer any interest or title in the purported

transferee, and will constitute an offer by the breaching Shareholder to sell his Shares to the

Corporation at the purchase price per Share determined pursuant to Section 7.1 above to be

0 payable in accordance with Section 7.2Cb). In connection with any attempted Transfer in breach

of this Agreement, the Corporation may refuse to transfer any Shares or any stock certificate

tendered to it for Transfer, in addition to and without prejudice to any other rights or remedies

available to the Corporation. Each party to this Agreement acknowledges that each other party

will suffer immediate and irreparable hann if a party hereto breaches, attempts to breach, or

threatens to breach this Agreement and that monetary damages will be inadequate to compensate

the nonbreaching parties for any actual, attempted, or threatened breach. Accordingly, each party

hereto agrees that each of the other parties will, in addition to any other remedies available to

them at law or in ·equity, be entitled to specific performance or temporary, preliminary, and

pennanent injunctive relief to enforce the terms and conditions of this Agreement without the

necessity of proving inadequacy of legal remedies or irreparable harm, or posting bond, any

requirements to equitable and injunctive relief being hereby specifically waived.

9.3 Governing Law and Severability. All questions concerning the construction.,

validity, and interpretation of this Agreement, including the relative rights of the Corporation and

the Shareholders, are governed by and construed in accordance with the laws of the state of

Texas. If any term, provision, covenant, or restriction of this Agreement is held by a court of

competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms,

provisions, covenants, and restrictions will remain in full force and effect and will in no way be

affected, impaired, or invalidated. It is hereby stipulated and declared to be the intention of the

parties that they would have signed this Agreement had any terms, provisions, covenants, and

restrictions that may be hereafter declared invalid, void, or unenforceable not initially been

included in this Agreement.

(

SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC.

PAGE 12OF17

c Article 10

Effect

I0.1 Binding Effect. Nothing in this Agreement, express or implied, is intended to

confer on any party. other than the parties hereto and their respective permitted assigns, any

rights, remedies, obligations, or liabilities under or by reason of this Agreement, and no person

who is not a party to this Agreement may rely on the terms except as otherwise set out This

Agreement {a) constitutes the entire agreement between the parties relating to the subject matter

hereof and (b) supersedes all previous understandings and agreements between the parties

relating to the subject matter hereo~ both oral and written. This Agreement is binding on, inures

to the benefit of, and is enforceable by the parties hereto, including the Corporation and its

successors and assigns as well as the Shareholders and Spouses and their respective heirs,

legatees, devisees, legal representatives, successors, and permitted assigns.

10.2 Spouses. The Spouses are fully aware of, understand, and agree to the

provisions of this Agreement and its binding effect on any interest that Spouse may have by

reason of marriage to a Shareholder in any Shares subject to the terms of this Agreement held in

the Shareholder's name on the stock records of the Corporation at or after execution of this

Agreement. Any obligation of a Shareholder or his legal representative to sell or offer to sell

Shares under the terms of this Agreement includes an obligation on the part of the Shareholder's

Spouse to sell or offer to sell any interest that Spouse may have in the Shares in the same

manner.

0 10.3 Rqiresentations and Warranties. No party to this Agreement is making any

representations or warranties concerning the business operations or financial condition of the

Corporation, because all the parties are equally familiar with the business operations and

financial condition of the Corporation. All parties to this Agreement represent, warrant, and

covenant that they have full power, legal capacity, and authority to enter into and perform this

Agreement in accordance with its terms and that they will perform all agreements made by them

under this Agreement in accordance with its terms.

Article 11

Assignment, Amendment., Waiver, and Termination

11. l Assignment. No party to this Agreement may assign its rights or delegate its

obligations hereunder without the prior written consent of each party. Any such attempted

assignment will be void ab initio. Subject to the preceding sentences, this Agreement will be

binding on and inure to the benefit of the parties and their respective successors and assigns.

11.2 Amendment. This Agreement may be amended at any time by a written

instrument signed by the Shareholders holding at least two-thirds of the Shares then subject to

this Agreement, provided that no amendment may adversely affect any rights of any party under

this Agreement that have vested before amendment.

11.3 Waiver. Any waiver of the terms or conditions in this Agreement may be made

only by a written instrument signed and delivered by the party waiving compliance. The failure

0 SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC.

PACE 130F 17

0 of any party at any time to require performance of any provisions of this Agreement in no

manner affects the right to enforce. No waiver by any party of any term or condition, nor the

breach of any term or condition contained in this Agreement, is deemed to be (a) a further or

continuing waiver of the term, condition, or breach or (b) a waiver of any other term, condition,

or breach of any other term or condition.

11.4 Termination. This Agreement terminates on the occurrence of.-

{a) the written agreement of Shareholders holding at least two-thirds of the

Shares then subject to this Agreement, provided that no termination may affect adversely

any rights that have vested before termination;

(b) the naming of the Corporation as debtor in bankruptcy proceedings for a

period of sixty days without dismissal, the execution by the Corporation of an assignment

for the benefit of its creditors, the appointment of a receiver for the Corporation, or the

voluntary or involuntary liquidation or dissolution of the Corporation; or

( c) the consummation of an initial public offering by the Corporation.

Article 12

Miscellaneous

12.1 Further Assurances. All parties to this Agreement agree to take further actions

0 and execute and deliver other documents, certificates., agreements, and other instruments as may

be reasonably necessary or desirable to implement transactions contemplated by this Agreement

12.2 Construction and Certain References. When the context requires; the gender of

all words used in this Agreement includes the masculine, feminine, end neuter, and the number

of all words includes the singular end plural. Unless expressly stated otherwise, references to

"include" or "including" mean ..including, without limitation." "Hereto," "herein," or

..hereunder" refer to this Agreement as a whole and not to any particular article or section hereof.

All titles and headings to articles and sections in this Agreement are included for convenience

and ease of reference only and do not affect the meaning or interpretation of articles or sections

of this Agreement. Unless otherwise specified, all references to specific articles, sections, or

exhibits are references to articles, sections, and exhibits to this Agreement

12.3 Time of Essence. Time is of the essence in the performance of obligations of

this Agreement.

12.4 Countemarts. This Agreement may be signed in multiple counterparts., each of

which will be considered an original but all of which together will constitute one and the same

instrument, and in making proof of this Agreement it is not necessary to produce or account for

more than one counterpart.

12.S Mediation and Arbitration. If a claim. demand, disagreement, controversy, or

dispute (collectively, "Dispute") arises in connection with this Agreement or the breach thereof

0 SHAREHOLDERStACREEMENT- RUSSELL E. WOMACK, INC.

PAGE140F 17

c and if the Dispute cannot be settled through direct discussions, the parties agree to endeavor first

to settle the Dispute in an amicable manner by mediation to be held in Lubbock, Lubbock

County, Texas, United States of America, administered by the American Arbitration Association

under its Commercial Mediation Rules before resorting to arbitration. The mediation will be

completed within thirty days of receipt of written demand for mediation. Thereafter, any

unresolved controversy or claim relating to this Agreement or breach thereof will be settled by

binding arbitration initiated by written notice by either party to the other of the intent to arbitrate.

The arbitration will be held in Lubbock, Lubbock County, Texas, United States of America, and

administered by the American Arbitration Association in accordance with its Commercial

Arbitration Rules, and judgment on the award rendered may be entered in any court having

jurisdiction. Notwithstanding any other provision of this Agreement or this Section 12.5 to the

contrary, no party will be precluded from seeking injunctive relief or a temporary restraining

order before implementing procedures for mediation or arbitration, provided that such party

determines in the goodMfaith exercise of its reasonable best judgment that it will suffer

irreparable harm or injury by any delay caused by mediation or arbitration proceedings.

By signing below, the aboveMnamed Shareholder and Spouse, if applicable, (l) agree to become

parties to and bound by the terms and provisions contained in the Shareholders' Agreement of

Russell E. Womack, Inc. dated effective [date] and (2) acknowledge that they have previously

received a copy of the Shareholders' Agreement.

SHAREHOLDERS:

0 SIGNATURES NUMBER OF SHARES DATE SIGNED

/-.=2-fJc9

Debbie Cheadle /i /• _/ _. I 1 /J ttf

AddressforNotice: /18'9a fl> ag9-- )lftP.v WOif

1

.</f~o

&ai£~sentative /- l-O ~

of Camille Sawaya, Deceased 1

AddreSs for Notice: le; 't'f Lol~hr~h llc Dcc'-f£6:, Ctt ·f- Yt.(Ol.C::I

/-2-~

Arthur Cheadle

Address for Notice: {;, 3 a 7 c:> I ~s ~ ...,.,,_ S.L. C.. u..f= ~/2/

0 SHAREHOLDERS' AGREEMENT- RIJSSELL E. WOMACK, INC.

PAGE lSOF 17

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0 SHAREHOLDERS' AGREEMENT- RUSSELL E. WOMACK, INC.

PAGE 160F 17

c Exhibit A

List of Sbareholden

Name Number of Shares %ownership

Nancy Higginson

Address for Notice: /I 30fc., C!t 7/ QC) I UJc 1.£-fu cfl. T'i' r 7 q .'ff J-

1

Edward Cheadle, as personal - - - - - -

representative of Camille Sawaya, Deceased

Address for Notice: /7~tf ~~6r~tvc.L ]?_,. 1

Dro..r2" Ll..b ~LI O'?....o

0

Arthur Cheadle

Address for Notice: ' '3 IJ 7 C>le.s J.'i-"'IA!.. S •L , C c.J+ 'r-112/

Raeanne Martin

Address for Notice: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

Wayne Carson

Address for Notice: S3o2. h.o" ~ tJ

0 SHAREHOLDERS' ACREEMENT- RUSSELL E. WOMACK, INC.

PACE 17OF17

TAB 3

c WAYNE CARSON, DEBBIE CHEADLE, §

EDWARD CHEADLE, EDWARD CHEADLE, §

ARTHUR CHEADLE, NANCY HIGGINSON, §

FINNEY CHEADLE, CHERYL SHOOP, §

KEITI!SAWAYA § AAA ARBITRATION

§ NO. 71-20-1400-2743

v. §

§

RAEANNE MARTIN §

PLAINTIFFS' FIRST AMENDED ORIGINAL PETITION IN ARBITRATION

COMES NOW Plaintiffs, WAYNE CARSON, DEBBIE CHEADLE, EDWARD CHEADLE,

.ARTHUR CHEADLE, NANCY HIGGINSON, FINNEY CHEADLE, CHERYL SHOOP, KEITH SAWAYA

complaining of Defendant, RAEANNE MARTIN, and would show the Court as follows:

I.PARTIES

0 1. Plaintiffs, Wayne Carson, is a resident of Randall County, Texas; Arthur Cheadle,

is a resident of Salt Lake City, Utah, Debbie Cheadle, is a resident of Draper, Utah, Edward

Cheadle, is a resident of Sandy, Utah, Finney Cheadle, is a resident of Houston, Texas, Nancy

Higginson, is a resident of Lubbock, Texas, Keith Sawaya, is a resident of Sandy, Utah, and

Cheryl Shoop, is a resident of Tooele, Utah (Collectively referred to as "Plaintiffs" or "Carson

i

Family").

2. Defendant, Raeanne Martin, is an individual who resides in Van Alstyne, Texas,

and bas appeared in this arbitration by and through her attorney ofrecord Jeff Lane.

II. JURISDICTION AND VENUE

3. The parties voluntarily agreed to jurisdiction and venue of their claims arising out

of a Shareholder Agreement in Lubbock County, Texas because the Shareholder Agreement

specifically requires the arbitration to be held Lubbock County, Texas. (Exh. 1 pp. 14-15, ~

c 12.5). Further, the 72nd Judicial District Court of Lubbock County, Texas has ordered the

Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Pagel

c aforementioned parties to arbitration pursuant to their agreement. (Exb. 16). The parties have

attended AAA mediation pursuant to the agreement but were unable to reconcile.

ID. BACKGROUND

4. Russell E. Womack ("Russell'') was the original sole shareholder in Russell E.

Womack, Inc. ("The Company"). He was married to Beverly B. Womack ("Beverly") who

predeceased him. Russell and Beverly did not have any children during their marriage. Russell

died on January 18, 2006 leaving a handwritten will and codicil giving his entire estate to both

his and Beverly's nieces and nephews.

The Probate

5. On April 27, 2006 a suit was initiated regarding the Combined Application for

Identification ofDistributees for Probate of Will, For Appointment of Independent Executor, and

0 for Waiver of Bond (''the Application"), filed by James E. Byrne.

6. The Application alleged that James B. Byrne, Jr., Barbara Holladay, Michael V.

Byrne, Richard H. Byrne, West Womack, and Carolyn Victoria Cain ("the Byrnes Family") were

the only nieces and nephews of Russell. ~

( 7. Thereafter, Deah'dra Anne Cummings ("Cummings"), asserted a claim as an adopted

niece of Russell.

8. The nieces and nephews of Beverly included in the probate litigation were Raeanne

Martin, Wayne Carson, Arthur Cheadle, Debbie Cheadle, Edward Cheadle as personal

representative of the Estate of Camille Sawaya, Finney Cheadle, and Nancy Higginson

(collectively referred to as "The Family'). The Family each and collectively objected to

Cwnming's claim to the inheritance. The Family was jointly represented in Russell's probate by

c Andy Stewart of Mullin, Hoard, & Brown, LLP. After negotiating a future joint purchase of

Plaintiffs', the Carson Family, First Amended Original Petition in Arbitration Page2

c Cumming' s shares in the Company, the Family removed their joint objections to Cummings

claims. .

9. The Court foWld that as a matter of law, Russell intended to distribute his estate to

James E. Byrne, Jr., Barbara Holladay, Michael V. Byrne, Richard H. Byrne, West Womack,

Carolyn Victoria Cain, Nancy Higginson, Arthur Cheadle, Debbie Cheadle, Camille Sawaya,

Raeanne Martin, Wayne Carson, and Deah'dra Anne Cummings.

10. The Byrnes Family appealed the Court's determination but the Appellate Court

affirmed and the Russell's estate was distributed according to the trial court's dete1111ination

found in paragraph 9 hereinabove.

The Shareholder Agreement

11. After the appeal, The Family which includes only the parties to this arbitration

0 purchased Cumming' s shares in the company and distributed them among themselves pro rata.

The acquisition of the Cwnming's shares gave

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