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Construction Financial Services, Inc. v. Douzart

Court of Appeals of Texas, Ninth District, Beaumont

February 28, 2018


          Submitted on July 5, 2017

         On Appeal from the 410th District Court Montgomery County, Texas Trial Cause No. 16-01-00014-CV

          Before McKeithen, C.J., Kreger and Horton, JJ.


          HOLLIS HORTON, Justice

         Construction Financial Services, Inc. (CFS) appeals from a final judgment that confirmed an arbitrator's award resolving its dispute with Shannon and Marlene Douzart. The Douzarts' dispute arose after CFS financed the construction of a new home with a builder, who then failed to finish the project. In three issues, CFS claims the trial court should have vacated the arbitrator's award because the arbitrator acted beyond her authority in three ways, by (1) voiding the Douzarts' promissory note to CFS when the Douzarts never requested rescission as a remedy in the claims they made against CFS; (2) awarding damages to the Douzarts on their claims against both CFS and Texas Star Home Builders (Home Builders), [1] the business that agreed to build the home, because the awards, in the aggregate, created the possibility that the Douzarts would receive more than a double recovery on their claims; and (3) rendering an award that created the possibility the Douzarts might achieve a double recovery on the awards for attorney's fees. Given the limited right the Legislature has delegated to the courts to review the merits or excessiveness of an arbitrator's award, we hold that CFS has not shown the arbitrator exceeded her authority in rendering the award against CFS. Accordingly, we affirm.


         In February 2013, the Douzarts signed a construction contract with Texas Star Home Builders (Home Builders) to build a new home and barn. The contract had a fixed price, and required Home Builders to complete the project for $335, 700. The obligations of the parties under the contract were contingent upon the Douzarts securing a construction loan covering the entire $335, 700 price placed on the project.

         Several months later, the Douzarts obtained a construction loan from CFS for $270, 400, approximately $65, 000 less than the fixed price established by their contract with Home Builders. Nevertheless, the Douzarts and Home Builders decided to proceed, operating under the assumption that the value of the home, when completed, would allow the Douzarts to replace their construction loan with a mortgage in an amount that covered both the construction loan and any remaining balance they owed to Home Builders.

         The Douzarts, Home Builders, and CFS memorialized the arrangement that called for CFS to finance the project in a document titled "Tri-Party Financing Agreement" (the Tri-Party Agreement). The Tri-Party Agreement required CFS to release the proceeds of the $270, 400 construction loan "from time to time during the term of the Construction Loan after Work has commenced and shall be solely for Work done preceding the date of request." The arbitrator found that CFS breached the agreement by releasing construction funds to Home Builders without regard to whether it had earned the progress payments. Additionally, Shannon[2] gave CFS a promissory note that expressly referenced the Tri-Party Agreement. For example, the Tri-Party Agreement states the promissory note "is entitled to the benefits of the terms and conditions set forth in that certain Tri-Party Financing Agreement[.]"

         The Douzarts executed a deed of trust to secure Shannon's payment of his note. The deed of trust, which includes an addendum the Douzarts signed, expressly incorporates the terms, conditions, and warranties found in the Tri-Party Agreement. The Douzarts also signed an arbitration agreement when they signed the other agreements relevant to the arrangements they made to build a new home. The arbitration agreement provides that should the parties have a dispute "relating to any agreement" they are unable to resolve, "all unresolved disputes (not limited to breach of contract action[s]) . . . shall be submitted for binding arbitration[.]"

         Although Home Builders performed a substantial amount of work on the project, the project was not completed. During construction, and before the home was finished, CFS released all of the money Shannon borrowed to Home Builders without making sure that the proceeds of the loan were being spent on the Douzarts' home. In April 2014, the Douzarts sued CFS and Home Builders, alleging that they had breached the terms of their written agreements regarding the project to build the home. The Douzarts' claims included a claim against CFS for fraudulent conduct. CFS answered and filed a counterclaim against the Douzarts alleging Shannon breached his obligation to pay the interest and principal he owed on his note. Additionally, CFS demanded that, pursuant to the arbitration agreement, the dispute be referred to arbitration. Home Builders never filed an answer to the Douzarts' suit.

         Several months after answering the Douzarts' suit, CFS filed a motion to compel arbitration. The trial court granted the motion, ordering the Douzarts, Home Builders, and CFS to arbitrate "all unresolved issues[.]" Following an arbitration hearing, which included the presentation of evidence, [3] the arbitrator issued an award resolving the dispute.[4] The language in the arbitration award against Home Builders reflects that it neither responded to the notice of arbitration nor appeared in the arbitration hearing conducted on the Douzarts' claims. In its award against CFS, the arbitrator found CFS breached the Tri-Party Agreement in twelve separate ways, and found that Shannon's failure to pay his promissory note was "excused by CFS's prior material breach" of the obligations that it owed the Douzarts under the Tri-Party Agreement. The award against CFS included a damage award for $99, 175, [5] an amount that represents the interest the Douzarts paid on Shannon's loan and the out-of-pocket losses they suffered when Home Builders failed to complete their home. The arbitration award further states that "[t]he Douzarts are discharged from any further liability to CFS under the Promissory Note." The award the arbitrator signed also obligates the Douzarts to deed the property and fixtures on the project to CFS. However, the Douzarts did not prevail on all of their claims, as they were denied relief on the claims they brought against CFS "for breach of the [Deceptive Trade Practices Act], conspiracy, and fraud[.]" In a separate award, the arbitrator ordered Home Builders to pay the Douzarts damages of $406, 000, which the award represents "the cost of repairing and finishing the house."

         Several months after the arbitrator issued the two awards, the Douzarts filed a motion asking that the trial court confirm the awards. CFS opposed the application, and filed a motion to vacate or to modify the award the arbitrator issued against it. A few days later, the trial court issued an order that confirmed the awards and severed the causes against Home Builders and CFS into separate actions so that final judgments could be rendered on all of the claims the court sent to ...

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