Court Opinion

ID: 3103569
Source: CourtListenerOpinion
Date Created: 2015-10-16 05:29:21.850442+00
Date Added: 2024-06-11T11:25:05.624715
License: Public Domain

AFFIRM; and Opinion Filed July 22, 2013.

                                                             S
                                                           In The
                                                     Court of Appeals
                                              Fifth District of Texas at Dallas

                                                         No. 05-12-00991-CV

                                CAMBRIDGE LEGACY GROUP, INC., Appellant
                                                V.
                                         RAVI JAIN, Appellee

                                 On Appeal from the 162nd Judicial District Court
                                              Dallas County, Texas
                                      Trial Court Cause No. DC-06-11807-I

                                                         OPINION
                                            Before Justices FitzGerald and Lewis 1
                                                  Opinion by Justice Lewis
            The issue in this appeal centers on the judicial confirmation of an arbitration award.

Appellant Cambridge Legacy Group, Inc. (Cambridge) appeals the trial court’s final judgment

confirming an arbitration award in favor of appellee Ravi Jain (Jain). In one issue, Cambridge

argues the trial court erred in confirming the arbitration award because the arbitrators exceeded

their powers in making an award in favor of Jain. For the reasons stated below, we affirm the

judgment of the trial court.

                              I. FACTUAL AND PROCEDURAL BACKGROUND

            Jain is a registered representative and advisor in the securities business. Cambridge, a

Texas corporation, is a securities brokerage and registered investment advisor firm. In March

1
    The Honorable Mary Murphy was on the panel and participated at the submission of this case. Due to her retirement from this Court on June 7,
    2013, she did not participate in the issuance of this Opinion. See TEX. R. APP. P. 41.1(a), (b).
2002, Jain and Cambridge executed a letter agreement (the option income agreement) whereby

Jain agreed to implement and manage an investment program for the benefit of the clients of

Cambridge and its affiliated companies and advisors. The option income agreement set out

terms for expense and revenue sharing, performance bonuses, and buyout considerations. In

October 2003, the parties executed an addendum to the option income agreement, adding a

second investment program (the CaGe program) to Jain’s portfolio management. The addendum

included provisions detailing fee arrangements, revenue sharing, and buyout considerations.

       On March 5, 2004, Jain executed a solicitor agreement with Cambridge Legacy Advisors,

Inc. (CLA), a wholly owned subsidiary of Cambridge, whereby Jain agreed to solicit potential

investment clients for CLA in return for referral fees to be paid by CLA. In January 2005,

Cambridge and Jain executed a second addendum to the option income agreement, adding a third

investment program (the dividend plus program) to Jain’s portfolio management. The second

addendum was signed by O. Ben Carroll, Chairman & CEO, The Cambridge Legacy Group, and

Ravi Jain, Portfolio Manager; however, the first paragraph of the second addendum recites that

the agreement was among Cambridge, its affiliate CLA, and Jain.

       In November 2006, Cambridge notified Jain that it had determined the investment

programs managed by Jain were not economically feasible and it intended to terminate them.

Jain rejected Cambridge’s assertion of non-feasibility and demanded that Cambridge pay the

revenue sharing fees, referral fees, and buyout fees allegedly due him. When Cambridge refused

to pay the amounts demanded by Jain, Jain filed suit against Cambridge for breach of contract.

Cambridge filed an answer and counterclaim. For over a year, the parties conducted discovery

and filed amended pleadings. In February 2008, Cambridge filed a motion to compel arbitration

before a Financial Industry Regulatory Authority (FINRA) panel of arbitrators, and to stay the

litigation pending arbitration. On February 21, 2008, the trial court signed an order granting

                                              –2–
Cambridge’s motion and directing the parties to proceed to arbitration in accordance with the

terms of the FINRA Code of Arbitration Procedure (the FINRA code).

        On May 27, 2010, Jain filed a statement of claim with FINRA. Jain asserted claims for

breach of contracts, promissory and equitable estoppel, and tortious interference with contracts

and prospective advantage. He alleged Cambridge breached the program agreements, refused to

pay buyout fees, commissions, and management fees due, breached the solicitor agreement by

terminating him without prior written notice, and misappropriated his customers and clients.

Cambridge filed a statement of answer and counterclaim, denying the allegations made in Jain’s

statement of claim and asserting various affirmative defenses.       In its statement of answer,

Cambridge admitted the parties entered into the option program agreement and two addendums.

Cambridge further admitted the parties entered into the solicitor agreement. In its counterclaim,

Cambridge alleged that Jain’s negligence with respect to certain orders caused damage to

Cambridge.

        In February 2012, a panel of three FINRA arbitrators conducted a hearing during which

both parties presented witnesses and documentary evidence. On March 5, 2012, the panel

entered its award in favor of Jain, awarding him $41,600.00 in compensatory damages, and

$42,000.00 in attorney’s fees. Cambridge filed a motion with the trial court to vacate the

arbitration award, and Jain filed a motion to confirm arbitration award. The trial court conducted

a hearing on both motions and on April 24, 2012, denied the motion to vacate, granted the

motion to confirm, and signed a final judgment in favor of Jain and against Cambridge.

Cambridge filed a motion for new trial that was overruled by operation of law. Cambridge then

filed this appeal.

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                                   II. APPLICABLE LAW

A. Standard Of Review

       Arbitration of disputes is strongly favored under both federal and Texas law. Prudential

Sec. Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (per curiam). We review a trial court’s

decision to vacate or confirm an arbitration award de novo, based on the entire record. See

Skidmore Energy, Inc. v. Maxus (U.S.) Exploration Co., 345 S.W.3d 672, 677 (Tex. App.—

Dallas 2011, pet. denied); Centex/Vestal v. Friendship West Baptist Church, 314 S.W.3d 677,

683 (Tex. App.—Dallas 2010, pet. denied); Ancor Holdings, LLC v. Peterson, Goldman &

Villani, Inc., 294 S.W.3d 818, 826 (Tex. App.—Dallas 2009, no pet.). However, all reasonable

presumptions are indulged to uphold the arbitrator’s decision, and none are indulged against it.

Ancor Holdings, 294 S.W.3d at 826; Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564,

568 (Tex. App.—Dallas 2008, no pet.). An arbitration award has the same effect as a judgment

of a court of last resort. Skidmore Energy, 345 S.W.3d at 677; Ancor Holdings, 294 S.W.3d at

826. It is presumed valid and entitled to great deference. Myer v. Americo Life, Inc., 232
S.W.3d 401, 407–08 (Tex. App.—Dallas 2007, no pet.); Royce Homes, L.P. v. Bates, 315
S.W.3d 77, 85 (Tex. App.—Houston [1st Dist.] 2010, no pet.). When reviewing an arbitration

award, we may not substitute our judgment for that of the arbitrators merely because we would

have reached a different decision. Royce Homes, 315 S.W.3d at 85. Judicial review of an

arbitration award adds expense and delay and thereby diminishes the benefits of arbitration as an

efficient, economical system for resolving disputes. CVN Group, Inc. v. Delgado, 95 S.W.3d
234, 238 (Tex. 2002). Importantly, our review is so limited that we may not vacate an award

even if it is based upon a mistake in law or fact. Centex/Vestal, 314 S.W.3d at 683; Royce

Homes, 315 S.W.3d at 86.

                                              –4–
B. Statutory Grounds For Vacating or Confirming Arbitration Award

       In their respective motions filed with the trial court, the parties agreed that the trial court

had jurisdiction to vacate or confirm the arbitration award pursuant to the Federal Arbitration Act

(FAA) and the Texas Arbitration Act (TAA). We note that the FAA and the TAA are not

mutually exclusive. See In re D. Wilson Constr. Co., 196 S.W.3d 774, 779 (Tex. 2006) (orig.

proceeding) (FAA only preempts contrary state law); see also Senter Invs., L.L.C. v. Veerjee, 358
S.W.3d 841, 845 n.5 (Tex. App.—Dallas 2012, no pet.). Even where the FAA applies to

substantive issues, we apply Texas law to procedural issues in arbitration proceedings. See

NAFTA Traders, Inc. v. Quinn, 339 S.W.3d 84, 99–100 (Tex. 2011); see also Alim v. KBR

(Kellogg, Brown & Root)–Halliburton, 331 S.W.3d 178, 181 (Tex. App.—Dallas 2011, no pet.).

Here, we need not determine whether confirmation of an award is procedural or substantive or

which act applies because our conclusion would be the same under either act. See Hamm v.

Millennium Income Fund, L.L.C., 178 S.W.3d 256, 260 n.3 (Tex. App.—Houston [1st Dist.]

2005, pet. denied).

       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

FAA. See 9 U.S.C. §§ 9–11 (West 2009). Under section 10 of the FAA, a court may vacate an

arbitration award upon the application of any party to the arbitration where the arbitrators

exceeded their powers. 9 U.S.C. § 10(a)(3). Likewise, under the TAA, the trial court shall

confirm an arbitration award on application of a party unless grounds are offered for vacating,

modifying, or correcting the award under section 171.088 or 171.091 of the TAA. See TEX. CIV.

PRAC. & REM. CODE ANN. § 171.087 (West 2011). Section 171.088 of the TAA provides that a

court may vacate an arbitration award upon application of a party if the arbitrators exceeded their

powers. TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(3)(A). The grounds allowing a trial

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court to vacate an arbitration award are limited to those expressly identified in the statute. See

Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 584 (2008) (The statutory grounds provided

in sections 10 and 11 of the FAA for vacating, modifying, or correcting an arbitration award are

exclusive and cannot be supplemented by contract.); Callahan & Assocs. v. Orangefield Indep.

Sch. Dist., 92 S.W.3d 841, 844 (Tex. 2002) (per curiam) (“The statutory grounds allowing a

court to vacate, modify, or correct an award are limited to those the [TAA] expressly

identifies.”).

                                       III. DISCUSSION

         In its sole issue on appeal, Cambridge argues that because the arbitrators exceeded their

powers, the trial court erred in confirming the arbitration award and entering final judgment in

favor of Jain. In response, Jain raises a cross-point that Cambridge waived judicial review of the

arbitration award.

A. Waiver of Judicial Review

         We first consider Jain’s contention that Cambridge waived any right to judicial review of

the arbitration award. Citing NAFTA Traders, Inc. v. Quinn, 339 S.W.3d 84, 97 (Tex. 2011),

Jain asserts the FAA and TAA allow parties to contractually limit the authority of an arbitrator or

expand judicial review of an arbitration award. Jain then argues that in the case before this

Court, the parties’ agreement to arbitrate in accordance with the FINRA bylaws, rules, and code

of arbitration procedure was a contractual agreement to waive judicial review of the arbitration

award.    Jain bases his argument on FINRA rule 13904(b) which provides:             “[u]nless the

applicable law directs otherwise, all awards rendered under the Code are final, and are not

subject to review or appeal.” We do not agree with Jain’s reasoning. First, our review of the

record reveals that the FINRA arbitration submission agreement signed by both parties is silent

with respect to judicial review of an arbitration award. The agreement expressly provides that

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the parties agree that a judgment may be entered upon such an award, and the parties consent to

the jurisdiction of any court that could properly enter such a judgment.

         Second, we note that the FINRA rule does not state that FINRA arbitration awards are

not subject to judicial review or judicial appeal of any kind. Instead, the FINRA rule states that

all awards rendered under the FINRA code are final unless applicable law directs otherwise. The

FAA and the TAA clearly state that arbitration awards may be vacated, modified, or corrected on

certain limited statutory grounds. See 9 U.S.C. §§ 9–11; TEX. CIV. PRAC. & REM. CODE ANN. §§

171.087–.091. As further evidence that an agreement to arbitrate before FINRA is not an

agreement to waive judicial review, we note that FINRA rule 13904(j) directs all monetary

awards to be paid within 30 days of receipt “unless a motion to vacate has been filed with a court

of competent jurisdiction.” Therefore, on its face, the FINRA rule does not constitute a waiver

of judicial review. We conclude that Cambridge did not waive judicial review of the arbitration

award.

B. Confirmation Of An Arbitration Award

         As the party seeking to vacate the arbitration award, Cambridge bears the ultimate burden

of proving the grounds for vacatur. In re Chestnut Energy Partners, Inc., 300 S.W.3d 386, 401

(Tex. App.—Dallas 2009, pet. denied); Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796, 804 (Tex.

App.—Dallas 2008, pet. denied).       Cambridge complains that the arbitrators exceeded their

powers by (1) deciding matters outside the scope of the arbitration agreement, and (2) ignoring

well-settled controlling law. First, Cambridge argues the arbitrators decided matters outside the

scope of the arbitration agreement between Cambridge and Jain by effectively adjudicating

Jain’s claims against Cambridge Legacy Advisors, Inc. (CLA) and Cambridge Legacy Securities,

LLC (CLS), two subsidiary companies that were wholly owned by Cambridge but were not

parties to the arbitration. During the arbitration hearing, Cambridge moved to dismiss Jain’s

                                               –7–
claims for unpaid commissions and unpaid referral fees. Cambridge explained that Jain had been

receiving commissions because he was a registered representative of CLS, a broker-dealer.

Therefore, if Jain had a claim for unpaid commissions, it should have been asserted against CLS

and not Cambridge. Likewise, Jain had been receiving referral fees under the terms of his

solicitor agreement with CLA. Cambridge argued that if Jain had a claim for unpaid referral

fees, it should have been asserted against CLA and not Cambridge. After argument from both

parties, the arbitration panel denied Cambridge’s motion to dismiss and stated they would

continue on with the arbitration hearing as if all three companies were in the same group under

the same claim.

       Arbitrators exceed their power when they decide matters not properly before them. See

NAFTA Traders, 339 S.W.3d at 90; see also Townes Telecomms., Inc. v. Travis, Wolff & Co.,

L.L.P., 291 S.W.3d 490, 493 (Tex. App.—Dallas 2009, pet. denied). The arbitrators’ authority to

decide matters is derived from the arbitration agreement. NAFTA Traders, 339 S.W.3d at 90;

Ancor Holdings, 294 S.W.3d at 829. “When determining whether an arbitration panel has

exceeded its powers, any doubts concerning the scope of what is arbitrable should be resolved in

favor of arbitration.” Skidmore Energy, 345 S.W.3d at 687. If the panel is even arguably

construing or applying the agreement, the fact that a court may be convinced the panel has

committed a serious error does not suffice to overturn the decision. Townes Telecomms., 291
S.W.3d at 493–94. It is only when the panel departs from the agreement and, in effect, dispenses

its own idea of justice that the award may be unenforceable. Id.; see also Centex/Vestal, 314
S.W.3d at 684.

       In this case, the parties agreed to submit “the present matter in controversy, as set forth in

the attached statement of claim, answers, and all related cross claims, counterclaims, and/or

third-party claims which may be asserted” to arbitration in accordance with the FINRA by-laws,

                                                –8–
rules and code of arbitration procedure. This phrase is broad and may encompass a wide range

of issues. See Centex/Vestal, 314 S.W.3d at 685 (contract provision that “any claim arising out

of or related to the Contract is subject to arbitration” was broad and encompassed a wide range

of disputes). In his statement of claim, Jain asserted claims for breach of contracts, promissory

and equitable estoppel, and tortious interference with contracts and prospective advantage. He

alleged Cambridge breached the program agreements, refused to pay buyout fees, commissions,

and management fees due, breached the solicitor agreement by terminating him without prior

written notice, and misappropriated his customers and clients. He sought damages including

buyout fees, accrued commissions, advisory fees, referral fees, lost profits, attorneys’ fees, and

exemplary damages. In its statement of answer and counterclaim, Cambridge denied Jain’s

allegations, asserted various affirmative defenses, and counterclaimed for damage allegedly

caused by Jain’s negligence. When an arbitration clause employs broad language such as the

language in the arbitration agreement before this Court, “it is construed as evidencing the parties’

intent to be inclusive rather than exclusive.” Id.; see also Skidmore Energy, 345 S.W.3d at 687.

Given the breadth of the arbitration agreement, we conclude that the arbitration panel was

authorized to determine whether Jain was entitled to recover commissions and referral fees from

Cambridge. See Centex/Vestal, 314 S.W.3d at 685.

       The arbitration panel made a general award in favor of Jain, awarding him $41,600 in

compensatory damages and $42,000 in attorneys’ fees. The award states:

       After considering the pleadings, the testimony, and the evidence presented at the
       hearing, the Panel has decided in full and final resolution of the issues submitted
       for determination as follows:

       1.) Respondent, Cambridge Legacy Group, Inc. is liable for and shall pay to
           Claimant, Ravi Jain, the sum of $41,600.00 in compensatory damages;

       2.) Respondent, Cambridge Legacy Group, Inc. is liable for and shall pay to
           Claimant, Ravi Jain, interest on the above-stated sum at the rate of 6% per

                                                –9–
           annum from and including December 1, 2006 through and including February
           29, 2012;

       3.) Respondent, Cambridge Legacy Group, Inc. is liable for and shall pay to
           Claimant, Ravi Jain, the sum of $42,000.00 in attorneys’ fees pursuant to
           Section 38 of the Texas Business and Commerce Code;

       4.) Other than Forum Fees which are specified below, the parties shall each bear
           their own costs and expenses incurred in this matter; and

       5.) Any relief not specifically enumerated, including punitive damages, is hereby
           denied with prejudice.

The parties present this Court with opposing theories as to the basis for the panel’s award of

compensatory damages. However, there is nothing in the award to reveal the liability theory

relied upon or the methodology for calculating the amount of the award. To suggest otherwise is

mere speculation. We must indulge all reasonable presumptions in favor of upholding the

arbitration award. Ancor Holdings, 294 S.W.3d at 826; Statewide Remodeling, 244 S.W.3d at

568. The award contains no language to indicate that the panel awarded damages for unpaid

commissions that Jain was allegedly owed by CLS. Likewise, there is no language to indicate

that the panel awarded damages for unpaid referral fees allegedly owed under the solicitor

agreement with CLA. Therefore, there is no indication that the arbitrators exceeded their powers

by relying upon impermissible matters outside the scope of the arbitration agreement. Skidmore

Energy, 345 S.W.3d at 687; Centex/Vestal, 314 S.W.3d at 684.

       Second, Cambridge argues the arbitrators ignored well-settled law by holding Cambridge

liable for the conduct, debts, and obligations of CLS and CLA, even though Jain did not plead or

prove agency, alter ego, or fraud sufficient to pierce the corporate veil and give rise to liability

on Cambridge’s part for the acts and omissions of its subsidiaries. Although Cambridge’s

argument is couched in terms of whether the arbitrators exceeded their authority, Cambridge’s

argument is really a complaint that the arbitrators committed an error of law. But a complaint

that the arbitrators decided an issue incorrectly or made a mistake of law is not a complaint that
                                               –10–
the arbitrators exceeded their powers. Centex/Vestal, 314 S.W.3d at 686; see Pheng Invs., Inc. v.

Rodriguez, 196 S.W.3d 322, 329 (Tex. App.—Fort Worth 2006, no pet.). A reviewing court is

not at liberty to substitute its judgment for that of the arbitrators’ merely because it would have

reached a different decision. Statewide Remodeling, 244 S.W.3d at 568. Further, our review is

so limited that we may not vacate an award even if it is based upon a mistake in law.

Centex/Vestal, 314 S.W.3d at 683; Royce Homes, 315 S.W.3d at 86.

       We conclude the arbitrators decided matters that were properly before them and did not

exceed their powers. We overrule Cambridge’s argument to the contrary.

                                      IV. CONCLUSION

       We overrule Cambridge’s sole issue on appeal. We affirm the trial court’s judgment.

                                                   /David Lewis/
                                                   DAVID LEWIS
                                                   JUSTICE

120991F.P05

                                              –11–
                                         S
                               Court of Appeals
                        Fifth District of Texas at Dallas
                                       JUDGMENT

CAMBRIDGE LEGACY GROUP, INC.,                          On Appeal from the 162nd Judicial District
Appellant                                              Court, Dallas County, Texas
                                                       Trial Court Cause No. DC-06-11807-I.
No. 05-12-00991-CV         V.                          Opinion delivered by Justice Lewis.
                                                       Justice FitzGerald participating.
RAVI JAIN, Appellee

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

    It is ORDERED that appellee RAVI JAIN recover his costs of this appeal from appellant
CAMBRIDGE LEGACY GROUP, INC.

Judgment entered this 22nd day of July, 2013.

                                                   /David Lewis/
                                                   DAVID LEWIS
                                                   JUSTICE

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