Court Opinion

ID: 9950013
Source: CourtListenerOpinion
Date Created: 2024-03-13 06:12:14.282619+00
Date Added: 2024-06-11T14:34:52.041575
License: Public Domain

AFFIRMED and Opinion Filed March 7, 2024

                                  S  In The
                            Court of Appeals
                     Fifth District of Texas at Dallas
                              No. 05-23-00263-CV

CAMPBELL BURGESS, FCCAI, LLC BURGESS CHAIN-C SERIES, JHJ -
EX NO. 1, LLC, JSB ESTATE - EX NO. 1, LLC, CHAIN C - EX NO. 1, LLC,
  THOMAS - EX NO. 1, LLC, SLEMP - EX NO. 1, LLC, JHJ - EX NO. 2,
LLC, JSB ESTATE - EX NO. 2, LLC, CHAIN C - EX NO. 2, LLC, THOMAS
       - EX NO. 2, LLC, AND SLEMP - EX NO. 2, LLC, Appellants
                                V.
 GR CHAPMAN LIMITED PARTNERSHIP, GEORGE CHAPMAN, AND
                     KAREN CHAPMAN, Appellees

               On Appeal from the 68th Judicial District Court
                           Dallas County, Texas
                    Trial Court Cause No. DC-22-03911

                        MEMORANDUM OPINION
                Before Justices Molberg, Pedersen, III, and Smith
                            Opinion by Justice Smith

      Appellants appeal the trial court’s judgment confirming the arbitration award

for appellees and denying appellants’ application to vacate the award. Because we

conclude that the arbitrator did not exceed his powers, we affirm the trial court’s

judgment.
                            Procedural and Factual Background1

        Appellant Campbell Burgess and appellee George Chapman entered into

multiple agreements to develop real estate in and around Potter County, Texas;

Chapman contributed land and Burgess contributed cash and liquidity.2 The two

relevant company agreements contained identical arbitration provisions requiring

any dispute among the members of the company agreements regarding the

interpretation of the agreements or the rights and obligations of any member to be

resolved through binding arbitration in Dallas, Texas. Such a dispute arose, and

appellees filed a claim with the American Arbitration Association seeking recission

of the company agreements and related transactions, as well as special damages to

unwind the transactions.              In the alternative, appellees sought monetary and

exemplary damages for breach of fiduciary duties, fraud, breach of contract, and

failure to perform and disclose. Appellants sought damages in the form of a buy-out

price, i.e. the loan amounts, expenses, and capital they contributed.

        After a hearing, the arbitrator issued a detailed award, finding sufficient

credible evidence that appellants were the actual, proximate, and producing cause of

damages to appellees and awarding appellees recission of the operating agreements,

    1
      The underlying facts of this case and contractual relationships are well known to the parties; thus, we
limit our discussion of the facts to those relevant to our determination of whether the trial court erred in
confirming the arbitration award. See TEX. R. APP. P. 47.1.
    2
     Appellee GR Chapman Limited Partnership owned the properties Chapman contributed. Appellee
Karen Chapman is George Chapman’s wife. The remaining appellants are LLCs, which were created to
purchase a half interest in Chapman’s properties.
                                                    –2–
as well as $14 million in lost profits damages, $228,890.80 in professional fees, and

$100 in exemplary damages. The final award to appellees, after various offsets and

credits to appellants, was $4,145,659.45.

      Appellees filed a motion to confirm the arbitration award in the trial court,

and appellants filed a motion to vacate the award. After a hearing, the trial court

entered a final order and judgment granting appellees’ motion to confirm, modifying

the award to delete certain language not relevant to this appeal, and denying

appellants’ motion to vacate. Appellants filed a motion for new trial, which was

overruled by operation of law, and this appeal followed.

      On appeal, appellants challenge the $14 million lost profits award for two

reasons. First, they contend it amounts to a double recovery. Second, even if it is

not a double recovery, it should be reduced by fifty percent per a contractual

provision that exists between the parties.

      In their first issue, appellants argue that the arbitrator exceeded his power by

providing appellees with a remedy Texas law prohibits, specifically a double

recovery of both rescission of the agreements and $14 million in lost profits

damages. Appellants assert that we can review this issue under expanded judicial

review of the arbitration award. In their second issue, appellants contend that the

arbitrator exceeded his powers, even under restricted judicial review, by failing to

draw the award from the essence of the parties’ agreements in that appellees were

                                         –3–
awarded 100% of the hypothetical lost profits when the agreements provided that

the parties would split any profits fifty, fifty.

                                        Arbitrator’s Powers

         Under the Texas Arbitration Act (TAA)3, judicial review of an arbitration

award and the trial court’s authority to vacate such award is limited to one of the

enumerated statutory grounds. Hoskins v. Hoskins, 497 S.W.3d 490, 493–94 (Tex.

2016). One of these limited grounds is if the arbitrator exceeded his powers. TEX.

CIV. PRAC. & REM. CODE ANN. § 171.088(a)(3)(A); Nafta Traders, Inc. v. Quinn,

339 S.W.3d 84, 90 (Tex. 2011). The arbitrator derives his power from the parties’

arbitration agreement. Nafta Traders, 339 S.W.3d at 90. Thus, an arbitrator exceeds

his powers when the award fails to draw its essence from the underlying contract.

Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc., 294 S.W.3d 818, 830

(Tex. App.—Dallas 2009, no pet.). An award draws its essence from the contract

when it is derived from the wording or the purpose of the contract. Id. Although

the arbitrator may not ignore the plain language of the contract, we cannot, under a

restricted judicial review, vacate an award based upon the ground that the arbitrator

made a mistake in law or fact when issuing the award. Id. at 826, 830.

         Nevertheless, the Supreme Court of Texas has determined that, under the

TAA, parties can contract to prohibit the arbitrator from making a legal error. Nafta

   3
       The parties do not dispute that the TAA applies.
                                                    –4–
Traders, 339 S.W.3d at 91–97, 101. Such agreement thereby allows for expanded

judicial review of the award to determine whether the arbitrator committed

reversible error. Id. The agreement to expand judicial review must be clear and

unambiguous. Id. at 101, 101 n.78. “[A]bsent clear agreement, the default under

the TAA . . . is restricted judicial review.” Id. at 101.

      The arbitration section at issue in Nafta provided, “The arbitrator does not

have authority (i) to render a decision which contains a reversible error of state or

federal law, or (ii) to apply a cause of action or remedy not expressly provided for

under existing state or federal law.” Id. at 88. The supreme court concluded that

such language limiting the arbitrator’s authority was, in effect, an agreement

between the parties to expand, the otherwise restricted, judicial review. Id. at 102.

      The arbitration agreements at issue here provided that the arbitrators may “act

upon their understanding or interpretation of the law on any issue without the

obligation to research the issue or accept or act upon briefs of the issue prepared by

any party.” The arbitration agreement could be modified, which the parties did in

their First Amended Agreed Scheduling Order. This scheduling order provided in

relevant part that “[t]he laws of the State of Texas govern[] the subject matter of this

arbitration.” Appellants argue that this language was an agreement by the parties to

limit the arbitrator’s power, and thus to expanded judicial review. We disagree that

this language is a clear agreement to expand judicial review of the arbitration award.

                                          –5–
      In Jones v. Carlos & Parnell, M.D., P.A., we concluded that identical

language in a scheduling order was “far different” from the language at issue in Nafta

and did not establish that the parties “‘clearly’ agreed[] to alter and expand the

TAA’s statutory review standard.” No. 05-17-00329-CV, 2017 WL 4930896, at *2–

3 (Tex. App.—Dallas Oct. 31, 2017, pet. denied) (mem. op.). “Being directed to

apply a particular law . . . is far different from so clearly depriving the arbitrator of

the power to make any error in that application as to open the resulting award to

second guessing by a court in a subsequent confirmation proceeding.” Id. at *3.

      We reach the same conclusion here. Because we conclude that the parties did

not contract to constrain the arbitrator from making a reversible error like the parties

in Nafta, we cannot exercise expanded judicial review to decide whether the

arbitrator’s award was prohibited as a double recovery under Texas law. See Forest

Oil Corp. v. El Rucio Land & Cattle Co., Inc., 518 S.W.3d 422, 431 (Tex. 2017) (“In

determining whether an arbitrator has exceeded his authority, the proper inquiry is

not whether the arbitrator decided an issue correctly, but rather, whether he had the

authority to decide the issue at all.”); see also TEX. CIV. PRAC. & REM. CODE §

171.090 (“The fact that the relief granted by the arbitrators could not or would not

be granted by a court of law or equity is not a ground for vacating or refusing to

confirm the award.”); Hoskins, 497 S.W.3d at 495 (argument that arbitrator

manifestly disregarded the law cannot be characterized as an assertion that the

arbitrator exceeded his powers). As such, we cannot conclude that the arbitrator

                                          –6–
exceeded his powers when he fashioned an award based on the claims submitted to

arbitration and the relief sought by appellees. We overrule appellants’ first issue.

      In appellants’ second issue, they contend that the arbitrator exceeded his

powers by failing to draw the award from the essence of the parties’ agreements in

that appellees were awarded 100% of the hypothetical lost profits when the

agreements provided that the parties would split any profits fifty, fifty. Appellants’

argument is based on the premise that Chapman and Burgess each owned a fifty

percent interest in the properties. Thus, any profits were required to be split evenly

between them. We disagree that the arbitrator’s award fails to draw its essence from

the contract.

      Here, the arbitrator found that appellants committed breach of their fiduciary

duties, fraud, breach of contract, and failure to perform and disclose. The arbitrator

awarded appellees lost profits from real estate development that would have

occurred but for appellants’ actions or inactions. The contracts at issue do not

mandate a specific award against a breaching party, nor does the arbitration

agreement limit the type or amount of award the arbitrator could issue. See, e.g.,

Townes Telecomms., Inc. v. Travis, Wolff & Co., L.L.P., 291 S.W.3d 490, 492–94

(Tex. App.—Dallas 2009, pet. denied) (arbitration agreement expressly required the

arbitration panel to designate the non-prevailing party to bear the costs of both sides

and prohibited the panel from allocating the costs between the parties; thus, the panel

acted in direct contravention and exceeded the powers granted to it by the parties).

                                         –7–
The arbitrator received evidence, both a report and testimony, from the parties’

experts as to lost profits and found that the lost profits to B & C Operating, LLC,

which included GR Chapman Limited Partnership and FCCAI, LLC Burgess Chain-

C Series as members, were $14 million. The arbitrator chose to award the full

amount to appellees.

      We conclude that the arbitrator’s award was “rationally inferable” from the

parties’ contracts where the purpose of the parties’ contracts was to develop real

estate for profit. See Ancor Holdings, 294 S.W.3d at 830 (an award draws its essence

from the contract when it is rationally inferable from the contract, that is when it is

derived from the wording or the purpose of the contract). As with appellants

argument that the lost profits award was a double recovery, we cannot expand our

review to determine the legal issue of whether $14 million was the proper amount

of lost profits awarded under the evidence submitted at arbitration. See id. (under

restricted judicial review, we cannot vacate an award based upon the ground that the

arbitrator misread the contract or made a mistake in law or fact when issuing the

award). We overrule appellants’ second issue.

                                         –8–
                                   Conclusion

      Having overruled appellants’ two issues on appeal challenging whether the

arbitrator exceeded his powers, we affirm the judgment of the trial court confirming

the arbitration award.

                                          /Craig Smith/
                                          CRAIG SMITH
2320263F.P05                              JUSTICE

                                        –9–
                                    S
                            Court of Appeals
                     Fifth District of Texas at Dallas
                                  JUDGMENT

CAMPBELL BURGESS,                              On Appeal from the 68th Judicial
FCCAI, LLC BURGESS CHAIN-C                     District Court, Dallas County, Texas
SERIES, JHJ - EX NO. 1, LLC,                   Trial Court Cause No. DC-22-03911.
JSB ESTATE - EX NO. 1, LLC,                    Opinion delivered by Justice Smith.
CHAIN C - EX NO. 1, LLC,                       Justices Molberg and Pedersen, III
THOMAS - EX NO. 1, LLC,                        participating.
SLEMP - EX NO. 1, LLC,
JHJ - EX NO. 2, LLC,
JSB ESTATE - EX NO. 2, LLC,
CHAIN C - EX NO. 2, LLC,
THOMAS - EX NO. 2, LLC, AND
SLEMP - EX NO. 2, LLC Appellants

No. 05-23-00263-CV           V.

GR CHAPMAN LIMITED
PARTNERSHIP, GEORGE
CHAPMAN, AND KAREN
CHAPMAN, Appellees

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

     It is ORDERED that appellees GR CHAPMAN LIMITED PARTNERSHIP,
GEORGE CHAPMAN, and KAREN CHAPMAN recover their costs of this appeal
from appellants CAMPBELL BURGESS, FCCAI, LLC BURGESS CHAIN-C
SERIES, JHJ - EX NO. 1, LLC, JSB ESTATE - EX NO. 1, LLC, CHAIN C - EX

                                        –10–
NO. 1, LLC, THOMAS - EX NO. 1, LLC, SLEMP - EX NO. 1, LLC, JHJ - EX NO.
2, LLC, JSB ESTATE - EX NO. 2, LLC, CHAIN C - EX NO. 2, LLC, THOMAS -
EX NO. 2, LLC, and SLEMP - EX NO. 2, LLC.

Judgment entered this 7th day of March 2024.

                                     –11–