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C Tekk Solutions, Inc. v. Sricom, Inc.

Court of Appeals of Texas, Fifth District, Dallas

May 1, 2018

SRICOM, INC., Appellee

          On Appeal from the 68th Judicial District Court Dallas County, Texas Trial Court Cause No. DC-17-01617

          Before Justices Lang-Miers, Myers, and Boatright



         C Tekk Solutions, Inc. appeals the trial court's judgment confirming an arbitration award in favor of Sricom, Inc. In one issue, C Tekk argues the arbitration award should be vacated because the arbitrator manifestly disregarded the law by failing to rule that Sricom lacked capacity to recover damages. We affirm the trial court's judgment.


         In a 2012 consulting services contract, C Tekk Solutions, Inc. and Sricom, Inc. agreed to resolve all disputes by arbitration. C Tekk submitted a claim against Sricom to the American Arbitration Association, and Sricom filed a counterclaim. After a hearing, an arbitrator determined that C Tekk breached the contract. The arbitrator awarded Sricom damages, attorney's fees, and expenses in a written "Final Award" on November 29, 2016. The award recites that it is "Final and in full disposition of all claims, defenses and counterclaims submitted to this Arbitration. All claims, defenses and counterclaims not expressly granted herein are hereby denied." The award does not otherwise address C Tekk's argument that Sricom lacks capacity to recover damages.

         Sricom filed an application to confirm the award in the trial court. C Tekk responded by filing a motion to vacate the award, arguing that (1) Sricom lacked capacity to recover affirmative relief; (2) the arbitrator failed to rule on this defense; and (3) the arbitrator's award should be set aside for "manifest disregard of the law" because the award did not address the lack of capacity defense.

         C Tekk's motion to vacate was premised on its contention that Sricom cannot recover damages because it was not registered to do business in Texas. Citing Coastal Liquids Transportation, L.P. v. Harris County Appraisal District, 46 S.W.3d 880, 884-85 (Tex. 2001), C Tekk contended that Sricom's attempt to cure the problem by filing a registration of a foreign for-profit company with the Texas Secretary of State on September 1, 2016, was ineffective. C Tekk argued that (1) the filing was for a different company, not the party to the contract; (2) the filing only covered 2016, not 2012, when the parties signed the contract; and (3) Sricom did not submit evidence that it paid the required fee to the Texas Secretary of State.

         The trial court rendered judgment for Sricom on the award. This appeal followed.


         The parties disagree whether the Texas Arbitration Act (TAA)[1] or the Federal Arbitration Act (FAA)[2] applies to this case. C Tekk relies on the FAA, and Sricom on the TAA. In addition, the arbitrator's final award recites that "The Parties agreed that . . . the Texas Arbitration Act governs this arbitration." But Sricom also argues that even if the FAA applies, we should affirm the trial court's judgment.[3] We review de novo a trial court's confirmation of an arbitration award under the FAA based on the entire record. Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc., 294 S.W.3d 818, 826 (Tex. App.-Dallas 2009, no pet.). An arbitration award is treated the same as the judgment of a court of last resort, is presumed valid, and is entitled to great deference. Id. All reasonable presumptions are indulged to uphold the arbitrator's decision, and none is indulged against it. Id.

         Under the terms of the FAA, an arbitration award must be confirmed unless it is vacated, modified, or corrected under one of the limited grounds set forth in sections 10 and 11 of the Act. Id.; see also 9 U.S.C. §§ 9-11. Courts may not substitute their judgment merely because they would have reached a different decision. Ancor Holdings, 294 S.W.3d at 826. Judicial review of the arbitration award is "extraordinarily narrow." Id. (quoting Myer v. Americo Life, Inc., 232 S.W.3d 401, 408 (Tex. App.-Dallas 2007, no pet.)). Courts may not vacate an award even if it is based upon a mistake in law or fact. Id. Judicial scrutiny focuses on the integrity of the process, not the propriety of the result. Id. Although FAA section 10(a)(4) permits a trial court to vacate an award "where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter was not made, " 9 U.S.C. § 10(a)(4), courts may not vacate an arbitration award under section 10(a)(4) for "errors in interpretation or application of the law or facts." Id. at 830 (citing Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.- Dallas 2004, pet. denied)).

         Relying on two federal appellate cases, C Tekk argues that the trial court was required to vacate the arbitration award because it was "in manifest disregard of the law." See Am. Cent. E. Tex. Gas Co. v. Union Pac. Res. Grp., Inc., 93 Fed.Appx. 1 (5th Cir. Jan. 27, 2004), and Prestige Ford v. Ford Dealer Computer Servs., Inc., 324 F.3d 391, 395-96 (5th Cir. 2003). C Tekk concedes that subsequent to these rulings, the United States Supreme Court held that the grounds listed in FAA section 10(a) are the exclusive grounds for vacating an arbitration award under the FAA. Hall St. Assocs., L.L.C. v. Mattell, Inc., 552 U.S. 576, 581 (2008); see also Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 350 (5th Cir. 2009) ("We conclude that Hall Street restricts the grounds for vacatur to those set forth in § 10 of the [FAA], and consequently, manifest disregard of the law is no longer an independent ground for vacating arbitration awards under the FAA.").[4] But C Tekk argues that "manifest disregard of the law is encompassed within section 10(a)(4)'s failure to rule on a controlling issue or ground that is a valid basis for vacating an arbitration award." Federal courts have debated this issue. See, e.g., Citigroup, 562 F.3d at 355- 57; Wachovia Secs., LLC v. Brand, 671 F.3d 472, 481-82 & n.7 (4th Cir. 2012) (collecting cases). Even assuming that "manifest disregard of the law" is a basis for vacating an arbitration award, C Tekk has not met the standard for establishing it. In Citigroup, the court explained that manifest disregard of the law "means more than error or misunderstanding with respect to the law." Citigroup, 562 F.3d at 354. Instead, the term "'disregard' implies that the arbitrator appreciates the existence of a clearly governing principle but decides to ignore or pay no attention to it." Id. (quoting Prestige Ford, 324 F.3d at 395). The term is "very narrow"; it "does not include an erroneous application" of a controlling principle of law. Id. at 357. The parties agree that the arbitrator heard evidence and argument offered by both parties on the question of Sricom's capacity to recover on its counterclaim. This evidence included Sricom's certificate of authority to do business in Texas, the parties' contract, and evidence of the parties' alleged breaches and when those breaches occurred. The arbitrator's acceptance of Sricom's arguments and evidence instead of C Tekk's, even if erroneous, was not manifest disregard of the law.

         Nor do we agree that because the arbitrator's final award did not explicitly mention the capacity argument, the arbitrator necessarily failed to rule on a controlling issue for purposes of FAA section 10(a)(4). First, arbitrators need not give reasons for their ...

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