Beech Street Corporation v. Baylor Health Care System

• Court: Court of Appeals of Texas
• Decided: July 29, 2014
• Docket: 05-12-01671-CV
• Status: Published

Opinion

AFFIRM; and Opinion Filed July 29, 2014.

In The (Court of AppeaLs 11ft11 District of exas at Dallas No. 05- 12-01671-CV

BEECH STREET CORPORATION, Appellant V. BAYLOR HEALTH CARE SYSTEM. Appellee

On Appeal from the 44th judicial District Court Dallas County, Texas Trial Court Cause No. DC-12-04919-B

MEMORANDUM OPINION Before Justices O’Neill, Myers, and Brown Opinion by Justice O’Neill Appellant Beech Street Corporation appeals the trial court’s judgment confirming an

arbitration award in favor of Baylor Health Care System. In three issues, Beech Street generally

contends the trial court erred in confirming the award because the arbitrators acted in manifest

disregard of Texas law in awarding damages. attorney’s fees, and assessing the costs of

arbitration. For the following reasons, we affirm the trial court’s judgment.

Beech Street is a preferred provider organization (PPO). Beech Street negotiates

discounts with healthcare providers for the benefit of certain “Payors,” consisting of insurance

companies and other types of health plans that are obligated to pay for covered services for

eligible individuals. In 1998, Beech Street’ and appellee entered into a “Preferred Hospital Agreement”

(PHA) in which Baylor agreed to provide discounted services to certain “Payors” that Beech

Street had contracted with. Under the PHA, the Payors, not Beech Street, were responsible for

payment and Beech Street did not assume any responsibility or liability for their payment. The

PHA also provided that if Payors did not pay any claim within forty-ñve days, they would forfeit

the discount and be responsible for payment of Baylor’s “usual charges.”

Although only Baylor and Beech Street executed the PHA, it stated that Payors were also

parties to the contract. In the agreement, Beech Street stated it was executing the agreement on

behalf of each of the Payors “[t]or convenience,” and represented and warranted that each Payor

had executed a valid Power of Attorney giving it authority to do so. The PHA also contemplated

Beech Street entering into separate Payor Agreements with each of the Payors by which Beech

Street would arrange for the provision of covered services. Beech Street had not, however,

obtained authorizations binding the Payors to the terms of the PHA or entered into Payor

Agreements with some of the Payors.

When Baylor sought to enforce its right to recover for discounts that Payors forfeited

because of untimely payment, Baylor discovered that Beech Street had not obtained agreements

from the Payors binding them to the terms of the PHA. Baylor demanded payment from Beech

Street asserting its failure to do so constituted a breach of the PHA. It sought. as consequential

damages, the forfeited discounts which totaled SI. [ million. Beech Street refused the claim, and

Baylor instituted arbitration proceedings as provided in the PHA.

After a two-day evidentiary hearing before a three-person arbitration panel, two of the

arbitrators ruled in favor of Beech Street. The majority concluded that, although Beech Street

The agrecincilt was actually c ccuted by Beech Street’s predecessor. CAIN’ CARE. I,,c. The parties agree hat Beech Street stands in CAPP CARE’s place.

_2_ had breached the PHA, Baylor had failed to prove recoverable damages. The majority based its

decision on the PHA provision that Beech Street was not responsible for payment and its

determination that the damages claimed were not foreseeable. Baylor filed a motion to

reconsider. One of the arbitrators changed his decision, resulting in a majority now finding in

favor of Baylor. hut only on a portion of its claims. The dissenting arbitrator would have denied

Baylor recovery on the grounds initially stated.

Baylor then flied a motion in the trial court for confirmation of the award. Beech Street

flied a counter motion requesting that the trial court vacate the award. As grounds for vacatur,

Beech Street asserted the panel entered the award in “manifest disregard” for the law and

committed a “gross mistake.” Beech Street did not, however, provide the trial court with a

record of the arbitration proceedings. The trial court denied Beech Street’s motion and entered a

judgment confirming the award. Beech Street appeals.

Arbitration of disputes is strongly favored under Texas law. Prudential Sees. Inc. v.

Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (per curiam); Hiun (tech Dcv. Corp. v. Penman, 424

S.W.3d 782, 790 (Tex. App—Dallas 2014, no pet.). We review a trial court’s decision to vacate

or confirm an award de novo based on a review of the entire record. Hmnitech Dcv., 424 S.W.3d

at 790. An arbitration award is presumed valid and we will not vacate it even if it is based on a

mistake of law or fact. Id. The party seeking to vacate the award has the burden of proving

grounds for vacatur exist. Roehrs v. PSI Holdings, Inc., 246 S.W.3d 796, 804 (Tex. App.—

Dallas 2008, pet. denied).

The Federal Arbitration Act (FAA) and the Texas Arbitration Act (TAA) both provide

for statutory grounds to vacate an arbitration award. Sec 9 U.S.C.A. § 10(a) (statutory grounds

under FAA); TEX. Civ. PRAC. & REM. CODE ANN. § 17 1.088(a) (West 2011) (statutory grounds

under TAA). Beech Street does not rely on any statutory grounds, but on the common-law

—3— grounds of “manifest disregard” of the law and “gross error.” This Court has held, relying on

authority from the United State Supreme Court, that these grounds are not available tinder the

FAA. See Anchor Holding.s LLC i’. Peterson, Golcbnan, & Villani, 294 S.VL3d 818, 829 (Tex.

App—Dallas 2009, no pet.). Baylor asserts Beech Street cannot rely on the common-law

grounds because they have been preempted by the FAA. We have recently rejected Baylor’s

argument. concluding the FAA does not preempt any common-law grounds that might exist to

vacate an award under the TAA. Humitech Dcv., 424 S.W.3d at 791.

Manifest disregard is a federal common-law doctrine. .4tio? Box Co., Inc. ;‘. Panel

Prints, Inc.. 130 S.W.3d 249, 252 (Tex. App.—Houston [14th Dist.] 2004, no pet.); Int’l Bank (4

Co,nnzerce-Bmwnsville t’. Int’l Energy Dcv. Corp.. 981 S.W.2d 38, 48 (Tex. App.—Corpus

Christi 1998. pet. denied). The doctrine, where applicable, requires a showing that the arbitrator,

“knowing the law and recognizing that the law required a particular result, simply disregarded

the law.” Hunjitech Dcv. 424 S.W.3d at 795 (citing Xtria L.L.C. v. Int’l. his. Alliance, Inc., 286

S.W.3d 583, 594 (Tex. App.—Texarkana 2009, pet. denied)).

Gross mistake is a Texas common-law doctrine conceptually analogous to manifest

disregard. See Humitech Dcv., 423 .W.3d at 795; Int’l Bank of Conunerce-Brovnsvifle, 981

S.W.2d at 48. To show “gross mistake” a party must show an error that implies “bad faith” or

failure to exercise “honest judgment” and results in a decision that is arbitrary and capricious.

Humitech Dcv., 424 S.W.3d at 795. A decision, no matter how erroneous, that is made after

honest consideration of conflicting claims is not arbitrary or capricious. Id.

Assuming the common-law doctrines of “manifest disregardS’ and “gross mistake” are

valid grounds for vacating an arbitration award under the TAA, we conclude Beech Street has

not shown the trial court should have vacated the award. See Humitec’h Dcv., 424 S.W.3d at 794

(questioning the validity of the common-law grounds tinder the TAM; see also Callahan &

-4- Assoc. v. Orangefleld Indep. Suit. Dist., 92 S.W.3d 841, 844 (Tex. 2002) (assuming, without

deciding, gross mistake valid ground under the TAA); see also Action Box Co., 130 S.W.3d at

252 (manifest disregard, as a federal common-law doctrine, does not apply to the TAA.).

A party seeking to vacate an arbitration award bears the burden of bringing forward a

sufficient record establishing a basis for vacating the award. In re Chestnut Energy Partners,

Inc., 300 S.W.3d 386, 400 (Tex. App.—Dallas 2009, pet, denied); Statewide Remodeling, Inc. v.

Williams, 244 S.W.3d 564, 567 (Tex.App.—Dallas 2008, no pet.). In the absence of a complete

record, we must presume the arbitration evidence adequately supported the award. Statewide

Reiiiodeling, 244 S.W.3d at 567. In the absence of a complete record, we can only consider

complaints that do not require a review of the omitted portions of the record or missing evidence.

See, e.g., CentexJVestal v. Friendship Ill. BaptLct Church, 314 S.W.3d 677, 685 (Tex. App.—

Dallas 2010, pet. denied).

Here,. Beech Street contends the arbitrators’ award of damages to Baylor was a gross

error, made in manifest disregard of the law. First, it contends the arbitrator’s award conflicted

with portions of the contract and with our opinion in GPA Holding v. Baylor Health Care Syst,

344 S.W.3d 467 (Tex. App.--Dallas 2011, pet. denied)2. But it is well-settled that a mistake of

law or fact is not sufficient to vacate an award. Hiunitech Dcv. Corp., 424 S.W.3d at 790.

Therefore, to show the arbitrators intentionally disregarded the law and committed a gross

mistake, Beech Street relies on the dissenting arbitrator’s decision. The dissent, however, does

not show the majority intentionally disregarded the law or acted in bad faith, but only that a

disagreement existed between the arbitrators. Regardless, without a record of the arbitration

proceedings showing the evidence or the law that was presented to the arbitrators, we cannot

2 In CPA Holdings, we concluded a Payor under a Health Care Plan was liable to Ilaylor even though ii had no direct contractual it I a’ ionsl,i p with Bay I or hecau se it had agreed o he hound by I lie PPO’ s agrcci ncnt wi I Ii Baylor. See CPA lb ‘Iding. 314 S W 3d at 173

—5— conclude the arbitrators manifestly disregarded the law or committed a gross mistake. Home

Owners Mg,nL Enters., flu. v. Dewi, 230 S.W.3d 766, 796 (Tex. App.—Dallas 2007, no peL).

The arbitrators also awarded Beech Street reasonable attorney’s fees and ordered Beech

Street to pay the cost of arbitration. Beech Street asserts the arbitrators’ award of attorney’s lees

and ordering it to pay the costs of arbitration must be vacated because ii was “arbitrary and

capricious.” It asserts the attorney’s fee award was “excessive” and the allocation of costs was

“unsupported.” In making this argument, it is not clear the ground on which Beech Street is

relying on to vacate the award. To the extent Beech Street suggests the arbitrators exceeded their

powers in entering the award, it is undisputed that (he arbitration provisions of the PHA gave the

arbitrators the authority to award attorney’s fees and to assess the costs of arbitration. See

Hitniltech Dcv.. 424 S.W.3d at 791 (arbitrators exceed their authority when they decide a matter

not properly before them or decide an issue in manner inconsistent with the express terms of the

agreement to arbitrate.) To the extent Beech Street asserts the award constituted a gross mistake,’

without a record establishing what evidence or law was presented to the arbitrators, we cannot

review this argument. See Home Owners Mgmt. Enters., 230 S.W.3d at 769. We conclude

Beech Street has Failed to show grounds requiring the trial court to vacate the award. We affirm

the trial court’s judgment.

/Michael J. O’NeiIl/ MICHAEL J. ONEILL JUSTICE

12 167 IF.P05

—6— CLiurt uf Appeals Hilt!! Oistrirt of rxas at Dallas JUDGMENT

BEECH STREET CORPORATION, On Appeal from the 44th Judicial District Appellant Court, Dallas County, Texas Trial Court Cause No. DC-12-049 19-B. No. 05-12-01671-CV V. Opinion delivered by Justice O’Neill. Justices Myers and Brown participating BAYLOR HEALTH CARE SYSTEM, Appellee

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

It is ORDERED that appellee BAYLOR HEALTH CARE SYSTEM recoer its costs of this appeal and the lull amount of the trial courts judgment from appellant BEECH STREET CORPORATION and from Westchester Fire Insurance Company as surety on appellant’s supersedeas bond.

Judgment entered this 29th day of July, 2014.

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