FCA Construction Company, LLC v. J & G Plumbing Services, LLC--Appeal from 164th District Court of Harris County (Majority)
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Opinion issued March 8, 2012.
Court of Appeals
First District of Texas
FCA CONSTRUCTION COMPANY, LLC, Appellant
J&G PLUMBING SERVICES, LLC, Appellee
On Appeal from the 164th District Court
Harris County, Texas
Trial Court Case No. 2010-58685
FCA Construction Company, LLC appeals from the trial court’s
confirmation of an arbitration award in favor of J&G Plumbing Services, LLC. In
two issues, FCA contends that the trial court should have vacated the arbitration
award on grounds of (1) “evident partiality” under section 171.088 of the Texas
Civil Practices and Remedies Code and (2) “gross mistake” under Texas common
law. We affirm the trial court’s judgment.
FCA hired J&G as a plumbing subcontractor on the construction of a fitness
center in Humble, Texas. Disputes arose between them, and FCA ultimately
terminated J&G and hired a new plumbing subcontractor. The subcontract between
FCA and J&G contained a arbitration provision, and the parties submitted their
dispute to final and binding arbitration. They selected William Andrews as their
arbitrator. Before the arbitration began, Andrews sent counsel for FCA and J&G a
letter disclosing his existing relationship with Grady Schneider, LLP, counsel for
J&G. The letter stated:
Last year, Grady & Schneider, with my assistance, represented the
husband of my wife’s niece in the trial of a serious personal injury
case. The case was tried to verdict and has since settled. Currently,
Grady & Schneider is representing at least two of our clients in
commercial and/or construction cases we have referred to them. Over
the past ten years, our firm referred several clients to this firm. I
personally know the two named partners, Keith Grady and Peter
The above disclosure will not impact or impair my ability to serve as a
fair and impartial arbitrator in this matter.
After receiving this disclosure, FCA nevertheless agreed to have the arbitration
heard by Andrews.
After three days of arbitration hearings, Andrews entered a final arbitration
award. Andrews awarded FCA nothing on its claims against J&G. He awarded
J&G $89,625 on its wrongful termination and breach of contract claims against
FCA, plus $40,000 in reasonable attorney’s fees. The trial court confirmed the
Standard of Review
Review of an arbitration award is “extraordinarily narrow.” E. Tex. Salt
Water Disposal Co., Inc. v. Werline, 307 S.W.3d 267, 271 (Tex. 2010); see also
IPCO-G.&C. Joint Venture v. A.B. Chance Co., 65 S.W.3d 252, 256 (Tex. App.—
Houston [1st Dist.] 2001, pet. denied) (stating that review is “extremely narrow”).
Every reasonable presumption must be indulged to uphold the arbitrator’s decision,
and none is indulged against it. CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 245
(Tex. 2002); New Med. Horizons II, Ltd. v. Jacobson, 317 S.W.3d 421, 428 (Tex.
App.—Houston [1st Dist.] 2010, no pet.). Review of an arbitration award is so
limited that even a mistake of fact or law by the arbitrator is not a proper ground
for vacating an award. Universal Computer Sys., Inc. v. Dealer Solutions, L.L.C.,
183 S.W.3d 741, 752 (Tex. App.—Houston [1st Dist.] 2005, pet. denied).
Generally, whether a trial court should have vacated an arbitration award is a
question of law, which we review de novo. Swonke v. Swonke, No. 01-09-00059CV, 2011 WL 1584809, at *4 (Tex. App.—Houston [1st Dist.] Apr. 21, 2011, no
pet.) (mem. op. on reh.) (citing Henry v. Halliburton Energy Servs., Inc., 100
S.W.3d 505, 508 (Tex. App.—Dallas 2003, pet. denied); Thomas James Assocs.,
Inc. v. Owens, 1 S.W.3d 315, 319–20 (Tex. App.—Dallas 1999, no pet.)).
Section 171.088(a)(2)(A) of the Texas Civil Practices and Remedies Code
(CPRC) instructs a trial court to vacate an arbitration award if “the rights of a party
were prejudiced by . . . evident partiality by an arbitrator appointed as a neutral
arbitrator[.]” TEX. CIV. PRAC. & REM. CODE § 171.088 (West 2011). The Texas
Supreme Court announced the standard for evaluating whether a purportedly
neutral arbitrator selected by the parties exhibits “evident partiality” in Burlington
North Railroad Co. v. TUCO Inc., 960 S.W.2d 629, 636 (Tex. 1997). The Court
recognized that the most capable arbitrators are often those “with extensive
experience in the industry, who may naturally have had past dealings with the
parties.” Id. at 635. Thus, the Court rejected a “per se” disqualification where the
arbitrator has a business relationship with a party. Id. “Instead, the competing goals
of expertise and impartiality must be balanced.” Id.
This balancing should be performed by the parties before the arbitration, not
by the courts after the arbitration. Id. “The judiciary should minimize its role in
arbitration as judge of the arbitrator’s impartiality. That role is best consigned to
the parties, who are the architects of their own arbitration process, and are far
better informed of the prevailing ethical standards and reputations within their
business.” Id. at 635–36 (quoting Commonwealth Coatings Corp. v. Cont’l Cas.
Co., 393 U.S. 145, 151, 89 S. Ct. 337, 340 (1968)). But the parties’ ability to
accurately balance these interests is dependent on access to relevant information
which might reasonably affect the arbitrator’s partiality. TUCO, 960 S.W.2d at
636. Thus, the standard Texas courts apply in determining whether a purportedly
neutral arbitrator selected by the parties exhibits “evident partiality” is whether the
arbitrator “does not disclose facts which might, to an objective observer, create a
reasonable impression of the arbitrator’s partiality.” Id. When an arbitrator has
failed to disclose such facts, “evident partiality” is established by the nondisclosure itself, regardless of whether the undisclosed information necessarily
establishes partiality or bias. Id.
FCA does not contend that Andrews failed to disclose any facts. Instead,
FCA urges us to adopt a second standard for establishing evident partiality under
section 171.088(a)(2)(A), adopted by the El Paso Court of Appeals in Las Palmas
Medical Center v. Moore, 2010 WL 3896501, *12 (Tex. App.—El Paso 2010, pet.
denied).1 In Las Palmas, the El Paso court looked to federal law to determine that
“evident partiality” can be shown by “actual bias” in addition to nondisclosure. Id.
FCA also cites to Babcock & Wilson Co. v. PMAC, Ltd., 863 S.W.2d 225, 233–34
(Tex. App.—Houston [14th Dist.] 1993), but that case interprets federal law rather
than section 171.088 of the CPRC.
The “actual bias” test adopted in Las Palmas requires a party asserting “actual
bias” to produce “specific facts” demonstrating that “a reasonable person would
have concluded that the arbitrator was partial to one party.” Id. This Court has not
addressed whether “evident partiality” can be established based on a showing of
“actual bias.” We need not decide that issue here because FCA had not met its
burden of demonstrating “actual bias” under that test.
FCA’s argument that there was “actual bias” in the arbitration proceeding is
As reflected by the transcript, Arbitrator Andrews was anything but
“fair and impartial” during the course of the arbitration proceeding.
Indeed, Arbitrator Andrews abandoned his role as a neutral arbitrator,
and instead assumed an adversarial role against FCA by crossexamining its witnesses and voicing displeasure when these witnesses
refused to recant their testimony. Arbitrator Andrews did not subject
any of J&G’s witnesses to cross-examination, and certainly never
challenged their veracity.
The record demonstrates that Andrews participated actively in the hearing,
questioning witnesses, managing the presentation of evidence, and controlling the
procedure of the hearing. Andrews questioned witnesses from both sides and made
decisions on evidence and procedure that were sometimes favorable to one side
and sometimes favorable to the other side. To the extent Andrews may have asked
more questions of FCA’s witnesses, we will not impute partiality on that basis
alone, especially because FCA’s witnesses testified first—Andrews may simply
have had more questions at the earlier stages of the evidence. FCA does not
identify its basis for categorizing Andrews’s questioning of its witnesses as “crossexamination” or explain how Andrews’s questioning of J&G’s witnesses does not
constitute such “cross-examination.” Nor does FCA identify what statements by
Andrews constituted “voicing displeasure when [FCA’s] witnesses refused to
recant their testimony.” As the fact-finder, Andrews is free to determine which
witnesses’ testimony was credible and which witnesses’ testimony was not. See
Ouzenne v. Haynes, No. 01-10-00112-CV, 2011 WL 1938430, *2 (Tex. App.—
Houston [1st Dist.] May 12, 2011, no pet.) (mem. op.).
Thus, even if we were to adopt the El Paso court’s “actual bias” test, FCA’s
allegations do not arise to the level of producing “specific facts” from which a
reasonable person would conclude that the arbitrator was partial to one party.
Moreover, FCA has identified no Texas or federal authority for the
proposition that we may infer bias based on an arbitrator’s questioning of one
side’s witnesses more extensively than the other side’s. Cf. Ballantine Books, Inc.
v. Capital Distrib. Co., 302 F.2d 17, 21 (2nd Cir. 1962) (rejecting “evident
partiality” complaint under federal standard when arbitrator allegedly “usurped”
role of opposing party’s counsel by questioning party’s witnesses throughout
proceeding); Matter of Arbitration Between Advest, Inc. & Asseoff, 92 CIV. 2269
(KMW), 1993 WL 119690, at *2 (S.D.N.Y. Apr. 14, 1993) (rejecting “evident
partiality” complaint under federal standard when arbitrator “had to be admonished
for taking over the direct examination of [party’s] witnesses and asking them
leading questions designed to fortify the [party’s] case.”).
We overrule FCA’s first issue.
Texas common law allows a trial court to set aside an arbitration award if
the arbitrator’s decision is tainted by fraud, misconduct, or “gross mistake as
would imply bad faith and failure to exercise honest judgment.”2 IPCO-G.&C.
Joint Venture, 65 S.W.3d at 256. Gross mistake results in a decision that is
arbitrary or capricious; an honest judgment made after due consideration given to
conflicting claims is not arbitrary or capricious, even if the judgment is erroneous.
Universal Computer Sys., 183 S.W.3d at 752 (quoting Bailey & Williams v.
Westfall, 727 S.W.2d 86, 90 (Tex. App.—Dallas 1987, writ ref’d n.r.e.)). This
Court may not vacate an arbitration award merely because the award is based on a
mistake of fact or law. Id.
FCA essentially contends that the contract language and undisputed facts
establish its right to recover on its breach of contract claim and defeat J&G’s right
to recover. FCA asserts that Andrews committed “gross mistake” by concluding
otherwise. FCA’s breach of contract claim rested on allegations that J&G failed to
Neither party argues that gross mistake is not a valid grounds for vacating the
complete work by specific dates and failed to keep the project clear of liens filed
by its subcontractors and suppliers. J&G claimed, on the other hand, that its
alleged breaches were not material breaches or events of default that entitled FCA
to terminate the subcontract; therefore, J&G asserted that FCA breached the
contract by improperly terminating J&G. J&G also asserted that its failure to pay
subcontractors and suppliers was caused by FCA’s improper termination of the
The crux of the Andrews’s decision was the materiality of J&G’s alleged
breaches of the subcontract. Andrews concluded that J&G’s alleged breaches were
not material. As a result, he concluded that (1) the alleged breaches did not entitle
FCA to breach of contract damages and did not justify FCA’s termination of J&G
and (2) FCA’s termination of J&G was wrongful and material, entitling J&G to
breach of contract damages. FCA asserts that Andrews’s conclusion that J&G’s
breaches were not material was “absurd” and contrary to the express terms of the
subcontract and unspecified evidence presented at the hearing. In support of this
position, FCA points out that the subcontract expressly provides that “[t]ime is of
the essence of the Subcontractor’s obligations under the Contract Documents.”
In his arbitration award, Andrews concluded that FCA “place[d] undue
reliance” on this contract language, treating it as “a fail-safe for proof of facts
required to establish a material breach of contract by J&G.” Andrews further
determined that the “credible evidence adduced at the hearing does not support
finding J&G materially breached the Subcontract” and that “FCA continually
waived this date as its own substantial completion date with the Owner of the
Project was extended on more than one occasion.” Andrews discussed the evidence
supporting his conclusion, including the lack of a customary project schedule, the
absence of documentation that would be expected before making the decision to
terminate a subcontractor, the “sketchy and vague” testimony of FCA’s witnesses,
and FCA’s failure to rely on late performance in its notice of default to J&G.
Instead, the notice alleged that J&G had defaulted by failing to “supply sufficient
skilled workers, sufficient equipment, or materials of proper quality as determined
by [FCA]”—an alleged default Andrews found to be contrary to the evidence.
If we were to adopt FCA’s contention that the “time is of the essence”
provision of the subcontract precluded Andrews from determining that J&G’s
failure to comply with deadlines for completion of work, we would be replacing
Andrews’s construction of the subcontract with our own. But “[i]t is not our
province to determine the proper construction of the parties’ [subcontract].”
Universal Computer Sys., 183 S.W.3d at 753. “Instead, our review is limited to
whether [Andrews’s] failure to adopt [FCA’s] interpretation of the [subcontract]
constitutes bad faith or a failure to exercise honest judgment.” Id.; see also
Chambers v. O’Quinn, No. 01-05-00635-CV, 2006 WL 2974318, *5 (Tex. App.—
Houston [1st Dist.] Oct. 19, 2006, no pet.) (mem. op.) (“alleged error in the
application of substantive law by the arbitrator during the proceedings in
arbitration is not reviewable by the court on a motion to vacate an award.”).
The record contains conflicting evidence as to the interpretation of the
subcontract and the materiality of J&G’s breach, as discussed in the arbitration
award. The parties were given an opportunity to brief the materiality issue for
Andrews, and J&G submitted substantial legal analysis of the materiality issue and
the effect of the “time is of the essence” language in the contract. Additionally,
FCA does not address Andrews’s conclusion that FCA waived compliance with the
substantial completion deadline in the subcontract as its own substantial
completion deadline was extended, nor does it address the evidence that the
substantial completion date was linked to the opening date for the gym, which was
moved back during the project.
FCA’s complaint that the arbitrator disregarded FCA’s unspecified “detailed
testimony and voluminous exhibits” is likewise an attack on whether Andrews
correctly determined the facts and the law, but does not tend to show bad faith or a
failure by Andrews to exercise honest judgment. See Ouzenne, 2011 WL 1938430,
at *2. “[C]ontentions that an arbitrator disregarded even uncontroverted testimony
may show a mistake of fact or law, but do not rise to the level of gross mistake.”
Id. (citing Graham–Rutledge & Co. v. Nadia Corp., 281 S.W.3d 683, 689 (Tex.
App.—Dallas 2009, no pet.)). Additionally, judging the credibility of the witnesses
and choosing who to believe or disbelieve is the sole province of Andrews, as the
fact-finder. See id. (citing Xtria L.L.C. v. Intern. Ins. Alliance, Inc., 286 S.W.3d
583, 597 (Tex. App.—Texarkana 2009, pet. denied)).
Moreover, Andrews’s decision rests largely on customs and practices in the
construction industry. Having a dispute adjudicated by a decision maker with
industry expertise is one of the advantages offered by arbitration. See TUCO, 960
S.W.2d at 635. That advantage is undercut if courts may second-guess the
arbitrator’s assessment of such issues, particularly when the court has heard no
evidence on the customs and practices of the industry. Cf. Monday v. Cox, 881
S.W.2d 381, 385 (Tex. App.—San Antonio 1994, writ denied) (“The courts are not
permitted to second-guess the correctness of an arbitrator’s decision on the
FCA’s complaints are essentially arguments that Andrews erred in applying
the law and in determining the facts. But mistake of fact or law is not a basis upon
which we may vacate an arbitration award. Universal Computer Sys., 183 S.W.3d
at 752; Chambers, 2006 WL 2974318, at *5. FCA has not established that
Andrews acted in bad faith or failed to exercise honest judgment. See Universal
Computer Sys., 183 S.W.3d at 753.
We overrule FCA’s second issue.
We affirm the trial court’s judgment.
Panel consists of Justices Jennings, Sharp, and Brown.