Court Opinion

ID: 3210960
Source: CourtListenerOpinion
Date Created: 2016-06-09 02:16:26.354928+00
Date Added: 2024-06-11T14:29:34.188661
License: Public Domain

AFFIRM; and Opinion Filed June 6, 2016.

                                          S   In The
                                  Court of Appeals
                           Fifth District of Texas at Dallas
                                       No. 05-15-00272-CV

                    JERRY WRIGHT AND STACI WRIGHT, Appellants
                                      V.
                           GREGORY S. MENTA, Appellee

                          On Appeal from the 59th Judicial District Court
                                     Grayson County, Texas
                               Trial Court Cause No. CV-12-0093

                               MEMORANDUM OPINION
                          Before Justices Bridges, Lang-Miers, and Schenck
                                   Opinion by Justice Lang-Miers
       Gregory S. Menta sued Jerry Wright, Staci Wright, and several corporate defendants for,

among other things, breach of contract relating to the design and sale of a face protector. The

parties arbitrated their dispute, and the arbitrator found in favor of Menta. The trial court

confirmed the arbitration award, and the Wrights appeal. Because all dispositive issues are

settled in law, we issue this memorandum opinion. TEX. R. APP. P. 47.2(a), 47.4. We affirm the

trial court’s judgment.

                                          BACKGROUND

       Menta and Jerry Wright were friends. Wright showed Menta a face protector he designed

for the sports industry, and Menta suggested redesigning it for use in the welding and grinding

industry. Menta claimed that he and Wright orally agreed to work together on the redesigned

face protector and to split the net profits 50/50. When Menta learned that Wright applied for
patents relating to the redesigned face protector listing himself as the sole inventor and had not

been sharing the profits as agreed, Menta sued.

       The parties agreed to arbitrate their dispute. However, at some point the Wrights and

corporate defendants removed the case from arbitration to federal court arguing that the

arbitrator did not have jurisdiction to determine patent issues. The federal magistrate judge

recommended that all claims be remanded to the arbitrator except for the claim regarding

inventorship of the face protector, which all parties agree is exclusively a matter of federal

jurisdiction. In the magistrate’s recommendation, he stated that the issue of who owned the

patents was suitable for arbitration, and that the issue of who invented the design would be

indirectly relevant to the determination of ownership.

       During the arbitration hearing, the parties presented evidence related to ownership and

inventorship of the redesigned face protector and whether they had formed a contract to split the

net profits.   Menta claimed they formed a contract; the Wrights and corporate defendants

claimed they did not. At the conclusion of arbitration, the arbitrator asked the parties to submit

their respective applications for attorneys’ fees. The parties did so by affidavit.

       The arbitrator issued a final arbitration award finding that Menta and Wright formed an

oral contract to evenly divide the net profits from the sale of the face protector, that Menta

performed under the agreement, that Wright and the corporate defendants did not, and that Menta

is a co-owner of the patents relating to the face protector.        The arbitrator awarded Menta

$962,830.27 in damages and $595,079.47 in attorneys’ fees. Pursuant to post-hearing motions,

the arbitrator amended the final arbitration award to “remove Staci Wright as a liable party” and

include the specific patent and patent application numbers related to the face protector. The

amended arbitration award did not change the decision on the merits or modify the monetary

                                                –2–
awards. Menta moved to confirm the amended arbitration award. The Wrights objected to the

amended arbitration award and also moved to vacate or, alternatively, modify the award. 1

          The trial court held a hearing on the motions and took the matter under advisement. The

court subsequently remanded the Wrights’ objections to the arbitrator for further consideration.

The arbitrator overruled the objections, stating in his order that he had “carefully considered” the

objections and found them to be “without merit.”

          Menta then filed a proposed order confirming the amended arbitration award, and the

Wrights reasserted their objections. The trial court issued an “Order and Final Judgment”

confirming the amended final arbitration award. This appeal followed.

                                           APPLICABLE LAW & STANDARD OF REVIEW

          Texas law favors arbitration. E. Tex. Salt Water Disp. Co. v. Werline, 307 S.W.3d 267,

271 (Tex. 2010).                A trial court must confirm an arbitration award except in limited

circumstances.           See TEX. CIV. PRAC. & REM. CODE ANN. § 171.087 (West 2011) (“Unless

grounds are offered for vacating, modifying, or correcting an award under Section 171.088 or

171.091, the court, on application of a party, shall confirm the award.”). An arbitration award

has the same effect as a judgment of a court of last resort. CVN Group, Inc. v. Delgado, 95
S.W.3d 234, 238 (Tex. 2002). A party may appeal a judgment confirming an arbitration award,

but judicial review is extraordinarily narrow. Werline, 307 S.W.3d at 271.

          We review an arbitration award de novo. Humitech Dev. Corp. v. Perman, 424 S.W.3d
782, 790 (Tex. App.—Dallas 2014, no pet.). In doing so, we indulge presumptions in favor of

the award and none against it. CVN Group, 95 S.W.3d at 238; Humitech Dev. Corp., 424
S.W.3d at 790. We may vacate an arbitration award if, among other reasons, a party’s rights

     1
        Meanwhile, the corporate defendants filed bankruptcy. The bankruptcy court modified the automatic stay to allow this lawsuit to proceed
to final judgment and appeal. The corporate defendants are not parties to this appeal.

                                                                    –3–
were prejudiced by the misconduct or willful misbehavior of the arbitrator, the arbitrator

exceeded his powers, or the arbitrator conducted the hearing contrary to Chapter 171. TEX. CIV.

PRAC. & REM. CODE ANN. § 171.088. But an award is conclusive as to all matters of fact and

law. Humitech Dev. Corp., 424 S.W.3d at 790 (“we may not vacate an award even if it is based

upon a mistake of fact or law”).

                                                                DISCUSSION

          In four issues, the Wrights contend that the trial court erred by confirming the amended

arbitration award because the arbitrator conducted the hearing in violation of the Texas Civil

Practice and Remedies Code, the amended arbitration award is unenforceable for vagueness, the

arbitrator awarded attorneys’ fees for a claim outside its jurisdiction, and the trial court

unconstitutionally delegated its duty to the arbitrator. 2 We address each issue in turn.

          1.         Did the Arbitrator Violate the Texas Civil Practice & Remedies Code?

          In issue one, the Wrights argue that the trial court erred by confirming the amended

“arbitration award that included attorney fees awarded based on ex parte evidence in violation of

Texas Civil Practice and Remedies Code §§ 171.088(a)(3)(D) and 171.047.”

          Section 171.088 states:

          (a) On application of a party, the 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:

   2
       The Wrights’ issues are:
          Issue 1: The trial court erred when it confirmed the arbitration award that included attorney fees awarded based on ex
          parte evidence in violation of Texas Civil Practice and Remedies Code §§ 171.088(a)(3)(D) and 171.047.

          Issue 2: The trial court erred when it confirmed the arbitration award that included impermissibly vague and undefined
          interests in patents and interests in foreign patents awarded without evidence.

          Issue 3: The trial court erred when it confirmed the arbitration award that included attorney fees for patent inventorship
          claims outside of state court jurisdiction as well as beyond the agreement to arbitrate and the authority of the arbitrator.

          Issue 4: The trial court erred when it confirmed the arbitration award after delegating to the arbitrator the trial court’s duty
          to review and rule upon objections to the confirmation of the award and the motion to vacate the award.

                                                                       –4–
                       (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 Section 171.043, 171.044,
                       171.045, 171.046, or 171.047, 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.

TEX. CIV. PRAC. & REM. CODE ANN. § 171.088 (internal footnote omitted).                 The specific

provisions relied on by the Wrights in their appellate briefing are subsection (a)(3)(D) and

section 171.047. Section 171.047 states that unless otherwise provided by the parties’ arbitration

agreement, the arbitrator must give a party the opportunity to be heard, to present evidence

material to the controversy, and to cross-examine witnesses. Id. § 171.047. The Wrights also

refer to the arbitrator’s alleged “misconduct” in their discussion of this issue, but do not

specifically cite subsection (a)(2)(C). See id. § 171.088(a)(2)(C).

       The record shows that at the conclusion of the arbitration hearing, the arbitrator asked the

parties to submit their respective applications for attorneys’ fees. They did so by affidavit.

Menta’s application for attorneys’ fees contained three attorneys’ affidavits, each setting out the

work the attorney and his staff performed and the amount of fees Menta sought for those

services. Each attorney’s affidavit stated that his billing records would be submitted to the

arbitrator for in camera inspection because the records contained privileged information. Menta

sent his application for attorneys’ fees by e-mail to the arbitrator. In the e-mail, Menta told the

arbitrator that he was separately submitting the detailed billing records of his attorneys.

                                                –5–
         The Wrights objected to the separate submission of detailed billing records because those

records had not been produced to them. They argued that they were entitled to see any billing

records relied on by Menta and the arbitrator and that the arbitrator should not consider the

records as evidence because the records had not been produced in discovery. They also argued

that the remedy for failing to produce those records was either to strike the attorneys’ affidavits

or order Menta to produce redacted billing records and give the Wrights additional time in which

to lodge objections. The arbitrator overruled the Wrights’ objections in the final arbitration

award.

         The Wrights re-urged this objection, along with others, in the trial court in response to

Menta’s motion to confirm the award. The trial court took all of the Wrights’ objections under

advisement and subsequently remanded them to the arbitrator for “further consideration.” The

arbitrator issued an order overruling the objections, stating he had “carefully considered” the

objections and concluded they were “without merit.”

         On appeal the Wrights contend that the arbitrator considered ex parte evidence in

awarding attorneys’ fees, and the misconduct deprived them of the opportunity to be heard and

resulted in an unfair hearing. They contend that the “receipt and reliance upon material ex parte

evidence to render an attorneys’ fees award of over a half million dollars is a fundamental error

related to the fairness of the arbitration process” and violated their due process rights. And they

contend that substantial prejudice resulted because the billing records “allegedly showed the

work that had been done in a case in which numerous claims had been brought for which no

recovery of attorneys’ fees is allowed and for which the arbitrator and the trial court had no

jurisdiction to award.”

         The receipt of ex parte evidence does not necessarily rise to the level of “misconduct” so

as to justify vacating an arbitration award. See Mullinax, Wells, Baab & Cloutman, P.C. v. Sage,

                                                –6–
692 S.W.2d 533, 536 (Tex. App.—Dallas 1985, writ ref’d n.r.e.).             Instead, “misconduct”

justifying the vacatur of an arbitration award must be conduct that “evince[ed] unfairness or

[was] contrary to all the principles of a just proceeding.” Id.; see also IPCO-G.&C. Joint

Venture v. A.B. Chance Co., 65 S.W.3d 252, 258 (Tex. App.—Houston [1st Dist.] 2001, pet.

denied) (quoting Mullinax, 692 S.W.2d at 536).            The Wrights argue that this case is

distinguishable from Mullinax because in that case the record showed the arbitrator did not rely

on the ex parte evidence and, in this case, the arbitrator said he considered “the records

submitted,” which were the detailed billing records.

       But the amended arbitration award does not state whether “the records submitted”

referred to the affidavits submitted by Menta’s attorneys, the detailed billing records, or both.

And the record does not otherwise indicate that the arbitrator considered the detailed billing

records as opposed to just the affidavits. Additionally, the arbitrator did not deny the Wrights an

opportunity to be heard. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.047. The Wrights were

given notice that Menta intended to submit the records in camera, they objected to the

arbitrator’s consideration of the detailed billing records as evidence, and the arbitrator overruled

their objections, twice. See Statewide Remodeling, Inc. v. Odom, No. 05-07-01527-CV, 2009
WL 1018253, at *3 (Tex. App.—Dallas Apr. 16, 2009, no pet.) (mem. op.) (due process requires

notice and opportunity to present objections).

       Even assuming without deciding that the arbitrator’s receipt of billing records could have

amounted to misconduct, however, we have reviewed the record and conclude that any alleged

misconduct did not rise to the level of depriving the Wrights of a fair hearing. See Mullinax, 692
S.W.2d at 536; IPCO-G.&C. Joint Venture, 65 S.W.3d at 258. The record contains evidence to

support the arbitrator’s award of attorneys’ fees even without the detailed billing records.

Menta’s attorneys’ affidavits contained considerable detail about the services rendered and the

                                                 –7–
fees charged for those services. See IPCO, 65 S.W.3d at 258. And each attorney explained why

those fees were recoverable.      The Wrights did not lodge specific objections aimed at the

affidavits themselves. And because the affidavits alone support the amount of attorneys’ fees

awarded, there is no record support for the Wrights’ argument that they were substantially

prejudiced by the arbitrator’s consideration of the detailed billing records. See TEX. CIV. PRAC.

& REM. CODE ANN. § 171.088(a)(3)(D) (hearing that violated code must have been conducted “in

a manner that substantially prejudiced the rights of a party”).

       The arbitrator also stated that he considered many factors in awarding attorneys’ fees,

only one of which was “the records submitted”:

       Having engaged in the analysis depicted in applicable law and having considered
       all of the relevant factors identified by the courts and having considered these
       proceedings as they unfolded, including the time and labor required for the
       matter; the novelty and difficulty of the questions presented; hours billed; the
       records submitted; the reasonableness of the hours; the work performed; the
       experience, reputation, and ability of counsel; the customary fee for similar work
       in arbitration; the skill required to perform the legal services properly in
       arbitration; time limitations imposed by the client or circumstances; the amount
       involved and the results obtained; and awards in similar cases for reasonable
       attorneys’ fees, Menta is awarded $595,079.47 for reasonable and necessary
       attorneys’ fees, costs and expenses against Wright and the Corporate
       Respondents, jointly and severally.

       Having considered the arguments and reviewed the entire record, we conclude that the

Wrights have not presented a basis for vacating the amended arbitration award. Accordingly, we

conclude that the trial court did not err by confirming the amended final arbitration award, and

we resolve issue one against the Wrights.

       2.      Is the Award Unenforceable for Vagueness?

       In issue two, the Wrights argue that the amended arbitration award “was impermissibly

vague regarding undefined interests in patents for which there was no evidence.” The arbitrator

concluded that Menta was a “co-owner” of the patents without stating the percentage of co-

ownership belonging to either Menta or Jerry Wright. The Wrights contend that this makes the
                                                –8–
arbitration award “impermissibly vague.” They also contend that the final judgment confirming

the amended arbitration award “is void in that it grants an unspecified ownership interest in

patents” and is unenforceable for the same reason. Additionally, the Wrights argue that the

phrases “relating to” and “including” instead of “consist of” or “are” when referring to the

patents and patent applications also caused the amended arbitration award to be vague.

       The Wrights do not assert a statutory basis allowing us to vacate an arbitration award for

vagueness, and we have not found any authority stating that vagueness is a basis upon which to

vacate an arbitration award.     See TEX. CIV. PRAC. & REM. CODE ANN. § 171.088; cf. id.

§ 171.054(a)(2) (authorizing parties to return to arbitrator to clarify award for 20 days after its

delivery). Additionally, to the extent the Wrights argue that there was no evidence to support a

finding “regarding undefined interests in patents,” this complaint is in the nature of a mistake-of-

law argument for which we have no authority to vacate an arbitration award. See Humitech Dev.

Corp., 424 S.W.3d at 794 (we may not vacate award based upon mistake of fact or law).

Consequently, we resolve issue two against the Wrights.

       3.      Did the Arbitrator Exceed His Authority?

       In issue three, the Wrights contend that the trial court erred by confirming the amended

arbitration award because the arbitrator exceeded his authority by awarding attorneys’ fees for

claims outside its jurisdiction and outside the scope of the arbitration agreement, specifically,

attorneys’ fees for patent inventorship.     The Wrights argue that one of Menta’s attorneys

rendered services for “substantial work on inventorship claims,” a matter reserved exclusively

for federal courts, and that the arbitrator exceeded his powers by awarding fees to Menta for

those services. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(3)(A) (arbitration award

may be vacated when arbitrator exceeded powers).

                                                –9–
       In a Rule 11 agreement, the parties agreed “to arbitrate all claims, defenses, counter-

claims and issues by all parties that could have been brought in the above-styled lawsuit . . . .”

And they agreed that “[t]he arbitrator may award any and all relief allowed under the applicable

law for the claims made.”

       The attorney whose fees the Wrights complain about stated in his affidavit that “virtually

all of the claims/causes of action in this arbitration . . . have been inextricably intertwined with

each other . . . . As such, the entirety of the undersigned’s professional fees and expenses

incurred in this matter . . . have been relevant to and required for furthering all of Menta’s claims

that are entitled to an award of attorneys’ fees to date in this arbitration.” The award of

attorneys’ fees was based on the arbitrator’s finding that Wright breached the contract with

Menta to divide the net profits 50/50. Accordingly, we conclude that the attorney’s affidavit and

the parties’ arbitration agreement show that the arbitrator did not exceed the scope of the parties’

agreement in awarding attorneys’ fees.

       Additionally, the arbitrator specifically stated in the amended arbitration award that he

did “not address inventorship of the patents, exclusively the jurisdiction of the federal courts”

and determined only the issue of ownership of the patents. We presume the arbitrator’s award of

attorneys’ fees was for claims properly submitted to him to decide, and nothing in the record

rebuts that presumption. See CVN Group, 95 S.W.3d at 238; Humitech Dev. Corp., 424 S.W.3d

at 792. Accordingly, we resolve issue three against the Wrights.

       4.      Did the Trial Court Unconstitutionally Delegate its Duty?

       In issue four, the Wrights argue that the trial court unconstitutionally delegated its duty

by remanding their objections to the arbitrator for further consideration. They contend that the

trial court may return the matter to the arbitrator only after the court vacates the award. We

disagree.

                                               –10–
       Section 171.054 gives an arbitrator the authority to clarify an award upon request by a

party or the trial court. TEX. CIV. PRAC. & REM. CODE ANN. § 171.054(a)(2), (b); see also

Barsness v. Scott, 126 S.W.3d 232, 240–41 (Tex. App.—San Antonio 2003, pet. denied)

(arbitrator may clarify award when original award is ambiguous); Daniewicz v. Thermo

Instrument Sys., Inc., 992 S.W.2d 713, 716–18 (Tex. App.—Austin 1999, pet. denied) (arbitrator

may correct or modify award to clarify it).

       Although Menta sought clarification from the arbitrator in a post-hearing motion, the

record does not indicate that the Wrights asked the arbitrator to clarify its award to eliminate

vagueness with regard to the patent ownership issue or to delete the award of attorneys’ fees that

they claimed were solely for the patent inventorship issue. See TEX. CIV. PRAC. & REM. CODE

ANN. §§ 171.054(a)(1), .091(a)(2) (arbitrator may clarify award if made award on matter not

submitted and award may be corrected without affecting merits of decision on issues that were

submitted). Instead, the Wrights filed those objections in the trial court, and pursuant to Chapter

171, the trial court was within its discretion to ask the arbitrator to further consider those issues.

See TEX. CIV. PRAC. & REM. CODE ANN. §§ 171.054(a)(1), .091(a)(2); see also Barsness, 126
S.W.3d at 240–41; Daniewicz, 992 S.W.2d at 716–18. The trial court did not delegate its duty to

either confirm or vacate the award. Accordingly, we conclude that the Wrights have not shown

the trial court unconstitutionally delegated its duties to the arbitrator, and we resolve issue four

against them.

                                                –11–
                                        CONCLUSION

       Having resolved all issues against the Wrights, we affirm the trial court’s judgment

confirming the amended final arbitration award.

                                                  /Elizabeth Lang-Miers/
                                                  ELIZABETH LANG-MIERS
                                                  JUSTICE

150272F.P05

                                             –12–
                                         S
                               Court of Appeals
                        Fifth District of Texas at Dallas
                                       JUDGMENT

JERRY WRIGHT AND STACI WRIGHT,                        On Appeal from the 59th Judicial District
Appellants                                            Court, Grayson County, Texas
                                                      Trial Court Cause No. CV-12-0093.
No. 05-15-00272-CV         V.                         Opinion delivered by Justice Lang-Miers.
                                                      Justices Bridges and Schenck participating.
GREGORY S. MENTA, Appellee

     In accordance with this Court’s opinion of this date, the judgment of the trial court is
AFFIRMED.

       It is ORDERED that appellee Gregory S. Menta recover his costs of this appeal from
appellants Jerry Wright and Staci Wright.

Judgment entered this 6th day of June, 2016.

                                               –13–