Texas Supreme Court Limits Grounds to Vacate Arbitration Awards

If there was ever any doubt about what grounds could be used to overturn or vacate an arbitration award under the Texas General Arbitration Act, the Supreme Court of Texas put those doubts to rest in its recent opinion in Hoskins v. Hoskins, ___ S.W.3d ____, 2016 Tex. LEXIS 386 (Tex. May 20, 2016). The principal issue facing the Supreme Court of Texas was whether a party seeking to vacate an arbitration award under the Texas General Arbitration Act (the “TAA”) may invoke extra-statutory, common law grounds to vacate an arbitration award. The Hoskins¬†opinion¬†also serves as an excellent example of statutory construction by the Supreme Court.

The losing party, Leonard, in the Hoskins arbitration filed a motion to vacate the award alleging (without listing the laundry list of reasons) that the arbitrator in essence manifestly disregarded the law even though manifest disregard is not a grounds for vacatur under the TAA. The trial court confirmed the arbitration award and denied the motion to vacate and Leonard appealed choosing to focus his appeal on the manifest disregard of the law grounds. The court of appeals affirmed the trial court’s judgment and the Supreme Court of Texas took the case to resolve a split of authority by Texas courts on whether the grounds for vacatur in the TAA are exclusive.

Finding that the grounds set out in the TAA are the exclusive grounds to vacate an arbitration award under the TAA, the Supreme Court of Texas engaged in a detailed statutory analysis of the TAA which is set out in Texas Civil Practice and Remedies Code Sections 171.088 or 171.091. The Supreme Court held that the statutory text of the TAA could not be plainer and held that a trial court “shall confirm” an award unless vacatur is required under one of the enumerated grounds in section 171.088. Section 171.088 of the Texas Civil Practice and Remedies Code states that a court shall vacate an award if:

(1) the award was obtained by corruption, fraud, or other undue means;

(2) the rights of a party were prejudiced by:

(A) evident partiality by an arbitrator appointed as a neutral arbitrator;

(B) corruption in an arbitrator; or

(C) misconduct or wilful misbehavior of an arbitrator;

(3) the arbitrators:

(A) exceeded their powers;

(B) refused to postpone the hearing after a showing of sufficient cause for the postponement;

(C) refused to hear evidence material to the controversy; or

(D) conducted the hearing, contrary to statutory provisions, in a manner that substantially prejudiced the rights of a party; or

(4) there was no agreement to arbitrate, the issue was not adversely determined in a proceeding under Subchapter B, and the party did not participate in the arbitration hearing without raising the objection.

This decision by the Supreme Court of Texas is important. One of the principal purposes of arbitration is to allow fast and inexpensive resolution of disputes. Unfortunately, countless challenges to awards have crept into the law, especially under the Federal Arbitration Act, and the cost to arbitrate has skyrocketed. The Hoskins opinion provides real clarity, confirms our system of checks and balances and puts the legislature back to writing the laws and the courts to interpreting them as written. The opinions in this blog are solely the author’s and any comments, suggestions or replies may be sent to john@jrjoneslaw.com. Have a great upcoming Labor Day!