EAST TEXAS SALT WATER DISPOSAL COMPANY, INC., Petitioner, v. Richard Leon WERLINE, Respondent.
No. 07-0135.
Supreme Court of Texas.
March 12, 2010.
Rehearing Denied May 7, 2010.
307 S.W.3d 267
Gregory Jordan Wright, Law Office of Gregory J. Wright, Jason Andrew Holt, Bunt & Wright, P.L.L.C., Longview, for Respondent.
Justice HECHT delivered the opinion of the Court, in which Justice O‘NEILL, Justice WAINWRIGHT, Justice JOHNSON, Justice WILLETT, and Justice GUZMAN joined.
The issue in this case is whether the Texas General Arbitration Act (TAA)1 allows an appeal from a trial court‘s order that denies confirmation of an arbitration award and instead, vacates the award and directs that the dispute be arbitrated anew. We hold that it does and accordingly affirm the judgment of the court of appeals.2
I
Petitioner East Texas Salt Water Disposal Company, an oilfield service business, employed respondent Richard Leon Werline, an experienced petroleum engineer, as its Operations Manager under a written Employment Agreement. If the Company materially breached the Agreement, Werline had the right to terminate and receive two years’ salary as severance pay. A little over halfway into the Agreement‘s five-year term, Werline gave notice of termination and demanded severance pay, claiming that the Company had changed his position and stripped him of his duties. The Company denied that it had breached the Agreement and contended that Werline had simply quit. As required by the Agreement, Werline and the Company submitted their dispute to “final and binding” arbitration. They selected an AAA arbitrator, who, after a three-day hearing, found for Werline and awarded him severance pay ($244,080.00), stipulated attorney fees ($28,272.50) and expenses ($11,116.76), and costs ($9,535.73).
The Company petitioned the district court to vacate, modify, or correct the award, and Werline counterclaimed for confirmation. The Company did not assert in its petition, and made no effort to establish, any of the grounds for vacating, modifying, or correcting an arbitration award under the TAA.3 Rather, the Com
The court‘s judgment denied confirmation and vacated the arbitration award, holding that “the material factual findings in the Award are so against the evidence that they manifest gross mistakes in fact and law“.4 The judgment also ordered that the matter be “re-submitted to arbitration by a new arbitrator with the sole issue before that Arbitrator being whether or not there was a material breach of the Employment Agreement by ETSWD [the Company] consistent with the findings in this Judgment.” Those findings were:
- “There is no evidence to support a finding of a material breach of any provision of the Employment Agreement“;
- “[A]n assignment of new and/or additional duties for Werline ... was not a material breach of the Employment Agreement“;
- “The change in Werline‘s title ... was not a material breach of the Employment Agreement“;
- “There is no evidence to support a finding that ... a material breach was committed by the Board of Directors, officers, or representatives of ETSWD with regard to Werline and the Employment Agreement“; and
- “Werline voluntarily resigned his employment with ETSWD“.
Thus, the do-over the court ordered was to be one in which every material fact, and even the result itself, were already conclusively established against Werline.
Werline appealed. The court of appeals held that it had jurisdiction to consider the appeal,5 that there was evidence to support the award,6 and that “[t]he arbitrator did
The Company petitions for review on one ground only: that the court of appeals had no jurisdiction over the appeal under section
II
Section
A party may appeal a judgment or decree entered under this chapter or an order:
(1) denying an application to compel arbitration...;
(2) granting an application to stay arbitration...;
(3) confirming or denying confirmation of an award;
(4) modifying or correcting an award; or
(5) vacating an award without directing a rehearing.
The district court‘s judgment expressly denied confirmation of Werline‘s arbitration award and was thus appealable under subsection (3).
But the Company argues that the statute cannot be read so simply or so literally. Rather, the Company contends, subsection (5) implies (though it does not state) that a court order vacating an award and directing a rehearing is not appealable, and that implication creates an exception to subsection (3), so that an order denying confirmation and therefore appealable under subsection (3) is rendered not appealable by subsection (5) if it also vacates the award and directs a rehearing. For several reasons, we disagree.
First: The court‘s judgment denying confirmation of the arbitration award fits squarely under subsection (3). The judgment is not insulated from appellate review expressly conferred under subsection (3) merely because the trial court also vacated the award and directed a rehearing. In denying Werline‘s request for confirmation of the award, the district court made clear that it rejected the award and all bases on which it rested. The court went so far as to hold that the material factual facts the parties had vigorously disputed in the first arbitration should all be established against Werline in the second arbitration.
When an arbitration award is unclear or incomplete or contains an obvious error, a limited rehearing to correct the problem is but a preface to determining confirmation, not a decision on the issue. If, for example, the arbitrator‘s award required clarification or interpretation,9 a re
Second: The Company‘s argument requires that subsection (5) operate as an exception to subsection (3), even though it provides a separate basis for appeal. In essence, the Company reads subsection (3) to allow an appeal from an order denying confirmation unless it also vacates the award and directs rehearing. But section
“denying confirmation ... or ... vacating an award without directing a rehearing”
with
denying confirmation ... but not if ... vacating an award and directing a rehearing
is a strange reading of the word “or“. Instead of two separate categories of appealable orders, the Company argues there should be but one smaller category. The proper construction of section
Third: Because Texas law favors arbitration,10 judicial review of an arbitration award is extraordinarily narrow.11 The right of appeal provided by section
The Company argues that the district court‘s order should not be appealable because it was like granting a motion for new trial in a case, which is not appealable. But the analogy does not fit. A new trial occurs in the court that granted the motion; the rehearing here is not before
Fourth: The law in other states does not require that we embrace the Company‘s argument. The TAA provides that it “shall be construed to effect its purpose and make uniform the construction of other states’ law applicable to an arbitration.”15 Other states appear to differ in whether an appeal should be allowed in the situation here presented, although many cases are far from clear. In New York, where there is no statute governing appeals in arbitration cases specifically, an appeal would be allowed.16 One other state, West Virginia, has no specific statute. The Uniform Arbitration Act17 or the Revised Uniform Arbitration Act18 provision regarding appeals has been adopted in thirty-four other states and the District of Columbia,19 and two other states have
Two courts of appeals have concluded that an appeal should not be allowed in this situation, and to that extent, we disapprove them.41
*
*
*
In sum: The district court‘s order denied confirmation, expressly and effectively, and was thus made appealable by the literal text of the TAA. The judgment of the court of appeals is accordingly
Affirmed.
Justice WILLETT filed a concurring opinion.
Justice WILLETT, concurring.
I join fully the Court‘s opinion that the Texas Arbitration Act (TAA)1 allows an appeal when a trial court denies confirmation of an arbitration award, vacates the award, and sends the dispute back for re-arbitration. The Court explains cogently why appellate-court jurisdiction exists in a do-over situation like this, but a bit more can be said.
The governing language, section
A party may appeal a judgment or decree entered under this chapter or an order:
(1) denying an application to compel arbitration...;
(2) granting an application to stay arbitration...;
(3) confirming or denying confirmation of an award;
(4) modifying or correcting an award; or
(5) vacating an award without directing a rehearing.
First, the Company reads more into subsection (5) than it says. By its terms subsection (5) allows an appeal when a rehearing is not granted, but does it also disallow every appeal when a rehearing is granted? The answer, as the Court explains, depends on subsection (3), which indicates, with no indication of exception, that a judgment or decree “denying confirmation of an award” is appealable. A vacatur with rehearing is appealable if it amounts to a denial of confirmation; otherwise not.
When as here a trial court vacates an award and directs rehearing because it believes the award is wrong and should be set aside completely, the ruling is indistinguishable from a denial of confirmation appealable under subsection (3). As the Court points out, this trial court‘s denial of confirmation left no doubt the court was rejecting the award topside and bottom, going so far as to say the disputed facts from Arbitration 1 should be established against Werline in Arbitration 2. The Court is right that this “fits squarely under subsection (3).”2
Second, to construe section
In general, deferring appeal until after re-arbitration is not likely to be more efficient, since judicial review of arbitration awards is very limited and the issues are much narrower than those involved in the arbitrated dispute. Nor is there reason to think that mandamus review of orders requiring re-arbitration would be more efficient than appeal. On the other hand, deferring appeal allows the possibility that a trial court can avoid confirmation and the limits on its review by simply ordering re-arbitration until there is a result the court approves, or one or both parties have been exhausted. Such a construction of section
Third, while this case arises solely under the TAA, which is free to vary from the Federal Arbitration Act (FAA)4 (assuming no preemption), it is worth noting that the Court‘s result mirrors what the result would be under federal law. Section 16 of the FAA provides in pertinent part that “[a]n appeal may be taken from ... (1) an order ... (D) confirming or denying confirmation of an award or partial award, or (E) modifying, correcting, or vacating an award....”5 Subsection (1)(E) does not include the TAA‘s limiting phrase, “without directing a rehearing.” The federal courts “routinely assume ... that an order vacating an arbitrator‘s decision but remanding for additional arbitration is appealable under § 16(a)(1)(E)....”6 But the lack of any caveat does not mean that every vacatur is appealable. A vacatur with a remand to the same arbitrators merely for clarification does not have the degree of finality required for an appealable order.7 Thus, federal courts have construed section 16 of the FAA to operate with respect to vacaturs the same way we construe section
In sum, the Company‘s position invites us to:
- draw an inference when none is permitted;8
- create an exception in a statutory provision that has none;9
- weaken the strictures on limited judicial review of arbitration awards;10
- create the real possibility of a serious injustice by allowing endless re-arbitrations;11 and
- inject the disruption of needless inconsistency with the FAA.12
The Court is wise to decline.
The Texas General Arbitration Act (TAA) permits a party to appeal an order “confirming or denying confirmation of an award” or “vacating an award without directing a rehearing.”
I. The trial court‘s interlocutory order lacks finality under the TAA.
The TAA appeals provision, adopted verbatim in 1965 from the Uniform Arbitration Act, authorizes appeals of certain trial court orders, even if they are interlocutory, as long as they have attributes of finality. See
II. The Court‘s holding conflicts with the majority of courts to examine the issue.
The TAA requires Texas courts to construe the act to “effect its purpose and make uniform the construction of other states’ law applicable to an arbitration.”
The Nevada Supreme Court examined the caselaw on both sides of the issue and held:
[W]e find the decisions concluding that appellate courts lack jurisdiction to review orders denying confirmation of an arbitration award and vacating the award while directing a rehearing better reasoned and more persuasive. In particular, we agree with the various courts that have concluded that the plain language of their version of [the UAA], which provides for an appeal from orders vacating an arbitration award without directing a rehearing, bars appellate review of orders vacating an award while directing a rehearing, even if the order also denies confirmation of the award, which, on its own, would be appealable under a statute analogous to [the UAA]. As noted in these decisions, because in this matter the district court directed a rehearing, permitting appellate review at this point would render [the UAA‘s] “without directing a rehearing” language superfluous.
Further, we agree with the conclusion reached by several courts that the statutory structure providing for appeals from arbitration-related orders, when read as a whole, is designed to permit appeals only from orders that bring an element of finality to the arbitration process. Here, the district court‘s order vacating the arbitration award and remanding for supplemental proceedings extended, rather than concluded, the arbitration process, and has not been identified by [the UAA] as sufficiently final to be suitable for appellate review. Accordingly, finding no statutory basis for an appeal from the district court order,
The Court asserts that “jurisdictions, other than Texas, that have considered whether to allow appeal in a situation like the one in this case appear about evenly divided on the issue,” 307 S.W.3d at 274, but the case law in fact leans the other way. See Stephen K. Huber, State Regulation of Arbitration Proceedings: Judicial Review of Arbitration Awards by State Courts, 10 CARDOZO J. CONFLICT RESOL. 509, 576 (2009) (noting that states may require re-arbitration with an appeal of the initial order awaiting completion of the arbitration process and observing that “most states have in fact adopted precisely this approach“). Of the cases enumerated by the Court, almost all are distinguishable and most were decided a decade or more ago.
The Court‘s reliance on a New York case, In re Baar & Beards, Inc., is beside the point, because New York has no statute governing appeals in arbitration cases. The court in Baar turned to state common law to resolve the issue, and its analysis is therefore inapplicable for our purposes. See In re Baar & Beards, Inc., 30 N.Y.2d 649, 331 N.Y.S.2d 670, 282 N.E.2d 624, 625 (1972). The Arizona and Missouri cases are also inapposite because both of those states, by statute, authorize general appeals from orders granting new trials, which is not so in Texas. Compare Fruehauf Corp. v. Carrillo, 848 S.W.2d 83, 84 (Tex.1993) (“An order granting a new trial is an unappealable, interlocutory order.“), with Wages v. Smith Barney Harris Upham & Co., 188 Ariz. 525, 937 P.2d 715, 719 (Ariz.Ct.App.1997), and Nat‘l Ave. Bldg. Co. v. Stewart, 910 S.W.2d 334, 338 (Mo.Ct.App.1995) (noting that Missouri practice is distinguishable because “[The Missouri statute] specifically authorizes an appeal ‘from any order granting a new trial’ in any civil case“). Furthermore, as noted by the Court, Missouri case law has in fact come out both ways. See, e.g., Crack Team USA, Inc. v. Am. Arbitration Ass‘n, 128 S.W.3d 580, 583 (Mo.Ct.App.2004) (dismissing appeal).
Although the Court cites a Massachusetts case that appears to allow an appeal from an order that denies confirmation and directs a rehearing, the case never discusses the nature of the interlocutory order, or the authority on which it grants the appeal. See Fazio v. Employers’ Liab. Assurance Corp., 347 Mass. 254, 197 N.E.2d 598, 600 (1964). More recent Massachusetts decisions have directly addressed the issue of orders to vacate with a rehearing (without denying confirmation), and have denied the right of appeal—without even citing Fazio. See Suffolk County Sheriff‘s Dep‘t v. AFSCME Council 93, 50 Mass.App.Ct. 473, 737 N.E.2d 1276, 1277 (2000) (holding that the ordering of a rehearing caused the judgment to not be final and appealable); School Comm. of Quincy v. Quincy Educ. Ass‘n, 22 Mass.App.Ct. 914, 491 N.E.2d 672, 673-74 (1986) (“Since the order was one which contemplated a further hearing, it was not appealable.“).
The Court also points to a recent Utah court of appeals decision allowing for appeal. However, in that case, the court was required to do so because of state precedent interpreting the Utah constitutional provision authorizing appeals, not because the UAA mandated such a result. See Hicks v. UBS Fin. Servs., Inc., No. 20080950-CA, 2010 WL 375564, at *5, 2010 Utah App. LEXIS 20, at *16-*17 (Utah Ct.App. Feb.4, 2010) (noting that a “majority” of courts have dismissed such appeals, while a “minority” have allowed them).
A few cases do, in fact, support the Court‘s interpretation: an unpublished appellate case out of Tennessee, which pro
The TAA directs us to construe its provisions so as to “make uniform the construction of other states’ law applicable to an arbitration“; we come closer to that mandate by holding that an interlocutory order that directs a rehearing may not be appealed.
III. Precedent and statutory interpretation instruct us to treat an order vacating an award and directing a rehearing as the functional equivalent of an order granting a new trial.
The Court takes issue with the analogy drawn between the district court‘s order in this case and the granting of a motion for new trial. 307 S.W.3d at 271 (“The Company argues that the district court‘s order should not be appealable because it was like granting a motion for new trial in a case, which is not appealable. But the analogy does not fit.“).
Whether the Court can find a more fitting analogy is beside the point: both precedent and the statute itself direct us to treat much of the process as we would a civil trial, and “an order vacating an arbitration award and directing a rehearing is the functional equivalent of an order granting a new trial.” Stolhandske, 14 S.W.3d at 814; see also Bison Bldg. Materials, Ltd. v. Aldridge, 263 S.W.3d 69, 75 (Tex.App.-Houston [1st Dist.] 2006, pet. granted) (holding that order to vacate award and order new arbitration “is the functional equivalent of an order granting a new trial” and therefore not subject to direct appellate review (quoting Stolhandske, 14 S.W.3d at 814)); Thrivent, 251 S.W.3d at 623 (same); Me. Dep‘t of Transp., 581 A.2d at 815 (holding that barring appeal from an order that vacates an arbitration award and directs a rehearing “is consistent with the policy of barring an immediate appeal from the granting of a new trial in a civil case“); Minn. Teamsters Pub. & Law Enforcement Employees Union, Local No. 320 v. County of Carver, 571 N.W.2d 598, 599 (Minn.Ct.App.1997) (holding that order vacating award and ordering rehearing is analogous to order granting new trial).
Notably, the TAA looks to civil court procedure to define how parties are to conduct multiple aspects of the arbitration and appeals process, including the taking of oaths,
IV. The concurrence observes that the Court‘s result “mirrors what the result would be under federal law” but ignores the substantive differences between the FAA and the TAA.
This case concerns only the Texas Arbitration Act, not its federal counterpart, which perhaps explains why the Court rejects JUSTICE WILLETT‘S proposal to conflate the two. See Huber, supra, at 577 (“Neither the Supreme Court nor any federal court of appeals have seriously suggested, let alone decided, that [the FAA appeals provision] supplants different state law in state courts.“). Where parties agree to abide by state rules of arbitration, and where the dispute is not preempted by the FAA, courts apply state law, even when it differs from the FAA. Ford v. NYLCare Health Plans of the Gulf Coast, Inc., 141 F.3d 243, 248 (5th Cir.1998) (” ‘Where ... the parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA, even if the result is that arbitration is stayed where the [FAA] would otherwise permit it to go forward.’ ” (quoting Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989))). The TAA prohibits appeal of an order “vacating an award without directing a rehearing“; the FAA omits “without directing a rehearing” from its appellate provision. Compare
The Court and the concurrence rewrite the TAA to make it consistent with the FAA, even though the TAA explicitly differs. This is contrary to the TAA‘s plain language as well as its mandate—that we construe it “to effect its purpose and make uniform the construction of other states’ law applicable to an arbitration.”
V. Section 171.098(a)(5) is uniformly interpreted to prohibit appeals when a rehearing is granted.
The concurrence also argues that “subsection (5) allows an appeal when a rehearing is not granted,” but does not “disallow every appeal when a rehearing is granted.” 307 S.W.3d at 275. Instead, the concurrence crafts an exception for a vaca
VI. Conclusion
The Court and the concurrence fear that a trial court can avoid confirmation by simply ordering rearbitration until the court likes the result, or one or both parties have given up. I share that concern. But a trial court‘s rehearing order does not confer jurisdiction where the Legislature has said none exists. Appellate jurisdiction should not hinge on whether the trial court, in conjunction with an order vacating an award and directing rehearing, denies rather than dismisses as moot a motion to confirm. See Me. Dep‘t of Transp., 581 A.2d at 815 (noting that a trial court “should not even consider a motion to confirm once the court has granted a motion to vacate, because vacating an arbitration award renders determination of a motion to confirm the award moot“). The TAA does not authorize an appeal of an order that directs a rehearing. I would reverse the court of appeals’ judgment and dismiss the appeal. Because the Court does otherwise, I respectfully dissent.
