In The
Court of Appeals Ninth District of Texas at Beaumont ____________________ NO. 09-16-00035-CV ____________________
CONSTRUCTION FINANCIAL SERVICES, INC., Appellant
V.
SHANNON DOUZART AND MARLENE DOUZART AND PETER TOVAR D/B/A TEXAS STAR BUILDERS AND TEXAS STAR HOME BUILDERS, Appellees
_______________________________________________________ ______________
On Appeal from the 410th District Court Montgomery County, Texas Trial Cause No. 16-01-00014-CV
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MEMORANDUM OPINION
Construction Financial Services, Inc. (CFS) appeals from a final judgment
that confirmed an arbitrator’s award resolving its dispute with Shannon and Marlene
Douzart. The Douzarts’ dispute arose after CFS financed the construction of a new
home with a builder, who then failed to finish the project. In three issues, CFS claims
the trial court should have vacated the arbitrator’s award because the arbitrator acted
1 beyond her authority in three ways, by (1) voiding the Douzarts’ promissory note to
CFS when the Douzarts never requested rescission as a remedy in the claims they
made against CFS; (2) awarding damages to the Douzarts on their claims against
both CFS and Texas Star Home Builders (Home Builders),1 the business that agreed
to build the home, because the awards, in the aggregate, created the possibility that
the Douzarts would receive more than a double recovery on their claims; and (3)
rendering an award that created the possibility the Douzarts might achieve a double
recovery on the awards for attorney’s fees. Given the limited right the Legislature
has delegated to the courts to review the merits or excessiveness of an arbitrator’s
award, we hold that CFS has not shown the arbitrator exceeded her authority in
rendering the award against CFS. Accordingly, we affirm.
Background
In February 2013, the Douzarts signed a construction contract with Texas Star
Home Builders (Home Builders) to build a new home and barn. The contract had a
fixed price, and required Home Builders to complete the project for $335,700. The
1 Texas Star Home Builders is the assumed business name that Peter Tovar used as the name of his construction business. For convenience, we refer to Tovar using his business’s assumed name since the assumed name reinforces the fact that Home Builders was the entity that performed the work on the Douzarts’ home. 2 obligations of the parties under the contract were contingent upon the Douzarts
securing a construction loan covering the entire $335,700 price placed on the project.
Several months later, the Douzarts obtained a construction loan from CFS for
$270,400, approximately $65,000 less than the fixed price established by their
contract with Home Builders. Nevertheless, the Douzarts and Home Builders
decided to proceed, operating under the assumption that the value of the home, when
completed, would allow the Douzarts to replace their construction loan with a
mortgage in an amount that covered both the construction loan and any remaining
balance they owed to Home Builders.
The Douzarts, Home Builders, and CFS memorialized the arrangement that
called for CFS to finance the project in a document titled “Tri-Party Financing
Agreement” (the Tri-Party Agreement). The Tri-Party Agreement required CFS to
release the proceeds of the $270,400 construction loan “from time to time during the
term of the Construction Loan after Work has commenced and shall be solely for
Work done preceding the date of request.” The arbitrator found that CFS breached
the agreement by releasing construction funds to Home Builders without regard to
whether it had earned the progress payments. Additionally, Shannon2 gave CFS a
2 Marlene Douzart, Shannon’s wife, was not a co-maker on the note that Shannon signed to finance the project. 3 promissory note that expressly referenced the Tri-Party Agreement. For example,
the Tri-Party Agreement states the promissory note “is entitled to the benefits of the
terms and conditions set forth in that certain Tri-Party Financing Agreement[.]”
The Douzarts executed a deed of trust to secure Shannon’s payment of his
note. The deed of trust, which includes an addendum the Douzarts signed, expressly
incorporates the terms, conditions, and warranties found in the Tri-Party Agreement.
The Douzarts also signed an arbitration agreement when they signed the other
agreements relevant to the arrangements they made to build a new home. The
arbitration agreement provides that should the parties have a dispute “relating to any
agreement” they are unable to resolve, “all unresolved disputes (not limited to breach
of contract action[s]) . . . shall be submitted for binding arbitration[.]”
Although Home Builders performed a substantial amount of work on the
project, the project was not completed. During construction, and before the home
was finished, CFS released all of the money Shannon borrowed to Home Builders
without making sure that the proceeds of the loan were being spent on the Douzarts’
home. In April 2014, the Douzarts sued CFS and Home Builders, alleging that they
had breached the terms of their written agreements regarding the project to build the
home. The Douzarts’ claims included a claim against CFS for fraudulent conduct.
CFS answered and filed a counterclaim against the Douzarts alleging Shannon
4 breached his obligation to pay the interest and principal he owed on his note.
Additionally, CFS demanded that, pursuant to the arbitration agreement, the dispute
be referred to arbitration. Home Builders never filed an answer to the Douzarts’ suit.
Several months after answering the Douzarts’ suit, CFS filed a motion to
compel arbitration. The trial court granted the motion, ordering the Douzarts, Home
Builders, and CFS to arbitrate “all unresolved issues[.]” Following an arbitration
hearing, which included the presentation of evidence,3 the arbitrator issued an award
resolving the dispute.4 The language in the arbitration award against Home Builders
reflects that it neither responded to the notice of arbitration nor appeared in the
arbitration hearing conducted on the Douzarts’ claims. In its award against CFS, the
arbitrator found CFS breached the Tri-Party Agreement in twelve separate ways, and
found that Shannon’s failure to pay his promissory note was “excused by CFS’s prior
material breach” of the obligations that it owed the Douzarts under the Tri-Party
Agreement. The award against CFS included a damage award for $99,175,5 an
3 The appellate record does not include a transcript of the evidentiary hearing conducted by the arbitrator. 4 The award states that the Douzarts withdrew their negligence claims and the claim that CFS violated the Texas Theft Liability Act. See Tex. Civ. Prac. & Rem. Code Ann. §§ 134.001-.005 (West 2011 & Supp. 2017) (Texas Theft Liability Act). 5 For convenience, the dollar amounts referenced in the opinion have been rounded to the nearest dollar. 5 amount that represents the interest the Douzarts paid on Shannon’s loan and the out-
of-pocket losses they suffered when Home Builders failed to complete their home.
The arbitration award further states that “[t]he Douzarts are discharged from any
further liability to CFS under the Promissory Note.” The award the arbitrator signed
also obligates the Douzarts to deed the property and fixtures on the project to CFS.
However, the Douzarts did not prevail on all of their claims, as they were denied
relief on the claims they brought against CFS “for breach of the [Deceptive Trade
Practices Act], conspiracy, and fraud[.]” In a separate award, the arbitrator ordered
Home Builders to pay the Douzarts damages of $406,000, which the award
represents “the cost of repairing and finishing the house.”
Several months after the arbitrator issued the two awards, the Douzarts filed
a motion asking that the trial court confirm the awards. CFS opposed the application,
and filed a motion to vacate or to modify the award the arbitrator issued against it.
A few days later, the trial court issued an order that confirmed the awards and
severed the causes against Home Builders and CFS into separate actions so that final
judgments could be rendered on all of the claims the court sent to arbitration. After
effecting a severance, the trial court rendered final judgments confirming the awards
against CFS and Home Builders.
6 Applicable Law
We review a trial court’s decision to confirm or vacate an arbitration award
under a de novo standard of review. See D.R. Horton-Tex., Ltd. v. Bernhard, 423
S.W.3d 532, 534 (Tex. App.—Houston [14th Dist.] 2014, pet. denied). Texas law
favors arbitration, and under Texas law, the review of arbitration awards is
“extraordinarily narrow.” Hoskins v. Hoskins, 497 S.W.3d 490, 494 (Tex. 2016)
(citation omitted); Southwinds Express Constr., LLC v. D.H. Griffin of Tex., Inc.,
513 S.W.3d 66, 70 (Tex. App.—Houston [14th Dist.] 2016, no pet.). An arbitrator’s
award is given great deference when it is reviewed by a court, and such awards are
presumed to be valid. See Southwinds Express Constr., 513 S.W.3d at 70 (citing
CVN Grp., Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002)). Generally, even where
the arbitrator has made a mistake of law or fact, courts are not allowed to vacate or
modify the award. See Forest Oil Corp. v. El Rucio Land & Cattle Co., Inc., 446
S.W.3d 58, 75 (Tex. App.—Houston [1st Dist.] 2014, pet. denied).
In their briefs, both CFS and the Douzarts recognize that the Texas Arbitration
Act (TAA) governs the agreement they made to arbitrate their disputes. See Tex.
Civ. Prac. & Rem. Code Ann. §§ 171.001-.098 (West 2011). Under the TAA, a court
must confirm an arbitrator’s award unless it is shown that one of a statutorily
enumerated exception applies to the award. Id. §§ 171.087-.088. The TAA also
7 authorizes trial courts to correct or modify arbitration awards under limited
circumstances, and these are also specified in the statute. Id. § 171.091. A reviewing
court may not vacate or modify an arbitration award governed by the Texas
Arbitration Act on grounds that are not in the statute. Hoskins, 497 S.W.3d at 494.
CFS characterizes its complaints about the trial court’s decision to confirm
the arbitration award against it as a matter that relates to the arbitrator’s authority to
render the award. The scope of authority the arbitrator has to resolve a dispute is
based on the scope of the parties’ arbitration agreement. Nafta Traders, Inc. v.
Quinn, 339 S.W.3d 84, 90 (Tex. 2011). An arbitrator exceeds her authority if she
decides a matter that lies outside the scope of the agreement. See Forged
Components, Inc. v. Guzman, 409 S.W.3d 91, 104 (Tex. App.—Houston [1st. Dist.]
2013, no pet.). Doubts that may exist regarding the scope of an arbitration agreement
must be resolved in favor of arbitration. See Centex/Vestal v. Friendship W. Baptist
Church, 314 S.W.3d 677, 684 (Tex. App.—Dallas 2010, pet. denied). The TAA
authorizes courts to vacate arbitration awards if the agreement did not include the
dispute that the arbitrator decided. See Tex. Civ. Prac. & Rem. Code Ann. §
171.088(a)(3)(A). Courts may also modify awards if the arbitrator “made an award
with respect to a matter not submitted to them” if the award can “be corrected
8 without affecting the merits of the decision made with respect to the issues that were
submitted.” Id. § 171.091(a)(2).
Issue One
In issue one, CFS contends the arbitrator exceeded her authority by voiding
Shannon’s promissory note to CFS because the Douzarts did not seek the remedy of
rescission in their pleadings. To determine the scope of the arbitrator’s authority, we
look to the terms of the parties’ arbitration agreement. The language in the agreement
to arbitrate between the Douzarts and CFS is very broad, as it covers “all unresolved
disputes” arising from the agreements the parties entered into for the project. The
language clearly included claims arising from any breaches of the Tri-Party
Agreement, and that is the theory on which the arbitrator based the awards she
allowed against CFS. See Centex/Vestal, 314 S.W.3d at 685 (holding that an
arbitration agreement that provided the parties would arbitrate claims “‘arising out
of or related to the Contract’” encompassed a wide range of disputes); Baker Hughes
Oilfield Operations, Inc. v. Hennig Prod. Co., Inc., 164 S.W.3d 438, 443-44 (Tex.
App.—Houston [14th Dist.] 2005, no pet.) (same); City of Baytown v. C.L. Winter,
Inc., 886 S.W.2d 515, 518 (Tex. App.—Houston [1st Dist.] 1994, writ denied)
(same). In some circumstances, rescission is an available remedy when a party
breaches a material term of an executory contract. See Turner v. Turner, No. 09-06-
9 570 CV, 2008 Tex. App. LEXIS 4720, at *6 (Tex. App.—Beaumont June 26, 2008,
pet. denied) (mem. op.), Boyter v. MCR Constr. Co., 673 S.W.2d 938, 941 (Tex. Civ.
App.—Dallas 1984, writ ref’d n.r.e.); Ennis v. Interstate Distributors, Inc., 598
S.W.2d 903, 906 (Tex. Civ. App.—Dallas 1980, no writ).
In its brief, CFS argues that the remedy of rescission was not available to the
Douzarts because the Douzarts failed to seek rescission regarding the note Shannon
signed in their pleadings. Additionally, CFS argues that the promissory note should
not have been considered as part of the Tri-Party Agreement, the instrument that the
arbitrator determined CFS had breached. CFS concludes that because a dispute over
Shannon’s promissory note was not within the scope of the matters that were before
the arbitrator, the arbitrator exceeded her authority by ordering rescission on
Shannon’s note.
The agreement to arbitrate provides that “any party to the agreement(s)” may
request that a dispute “relating to any agreement” or “the agreement(s)” be submitted
to arbitration. The language of the arbitration agreement encompasses all of the
Douzarts agreements with CFS on the project, so by implication the agreement to
arbitrate encompassed any dispute over the obligations Shannon had under his note.
The Tri-Party Agreement also references the promissory note, as it states the note
“is entitled to the benefits of the terms and conditions set forth in” the Tri-Party
10 Agreement. The Tri-Party Agreement required CFS to advance funds to Home
Builders in phases as Home Builders completed its work, less a percentage that CFS
was required to retain pending the completion of the project. Under Texas law,
“[d]ocuments incorporated into a contract by reference become part of that contract.”
In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010).
CFS argues that the Douzarts’ failure to plead a claim for rescission prevented
the arbitrator from granting equitable relief. We acknowledge that a trial court (in
contrast to an arbitrator) can abuse its discretion by rendering a judgment on a claim
that is not included in the pleadings. See Stoner v. Thompson, 578 S.W.2d 679, 682-
84 (Tex. 1979). According to CFS, similar pleading rules govern the forum where
the arbitration occurred.
Nonetheless, a procedural error that arises from an arbitrator’s alleged failure
to follow the pleading rules of the forum is a matter that is beyond the limited scope
we are granted to review an arbitration award. See Forest Oil Corp., 446 S.W.3d at
75. The Douzarts’ pleading did include a request to cancel Shannon’s note, a claim
that is similar but not identical to a request for rescission. And, nothing in the
language of the parties’ agreement to arbitrate reflects that the arbitrator could not
consider granting equitable remedies such as rescission as a remedy for a breach of
contract claim. Even if rescission is a remedy that expanded beyond the remedies
11 the Douzarts’ requested in their pleadings, our review focuses on the authority the
parties gave the arbitrator under the agreement to arbitrate. See Nafta Traders, 339
S.W.3d at 89-91 (explaining that when an arbitration is conducted based on an
agreement between the parties, the arbitrator derives her power from the agreement
to arbitrate). Therefore, we examine whether the arbitrator was authorized by the
agreement to order rescission. Id.
The language of the agreement to arbitrate between the Douzarts and CFS is
sufficiently broad to include equitable remedies. Additionally, the agreement to
arbitrate provided that the arbitration would be conducted pursuant to the Better
Business Bureau Rules of Arbitration. Those rules provide, in pertinent part:
The arbitrator may award any remedy that is permitted under applicable law; provided, however, that the arbitrator may not award any remedies that the parties have agreed in writing may not be awarded in arbitration.
Significantly, the Texas Arbitration Act provides: “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.” Tex. Civ. Prac.
& Rem. Code Ann. § 171.090. CFS does not point to anything in the record that
purports to be a written agreement between the parties restricting the arbitrator from
fashioning an equitable remedy to cure the damages the arbitrator determined
occurred when CFS breached its obligations under the Tri-Party Agreement. Given 12 the broad language in the agreement to arbitrate, the arbitrator’s error, if she made
one, was a mistake in the manner she applied the pleading rules governing the
arbitration proceeding. We conclude that her alleged error should be characterized
as either a mistake of law or of fact, so it is the type of error that lies beyond our
limited scope of review. See Forest Oil Corp., 446 S.W.3d at 75; Crossmark, Inc. v.
Hazar, 124 S.W.3d 422, 429 (Tex. App.—Dallas 2004, pet. denied). Issue one is
overruled.
Issue Two
In issue two, CFS argues the arbitrator exceeded her authority by extending
remedies to the Douzarts that allowed them the possibility that they could recover
more than the actual damages that resulted from CFS’s breaches of the Tri-Party
Agreement. The argument CFS makes suggests that double recovery resulted
because the arbitrator cancelled Shannon’s note, awarded the Douzarts damages
against Home Builders based on the costs to repair a home the award required be
deeded to CFS, and awarded the Douzarts $99,175 in out-of-pocket damages. “A
double recovery exists when a plaintiff obtains more than one recovery for the same
injury.” Waite Hill Servs., Inc. v. World Class Metal Works, Inc., 959 S.W.2d 182,
184 (Tex. 1998).
13 Even were we to agree that the arbitrator mistakenly created the possibility
that, should the Douzarts recover under both arbitration awards, a double recovery
of at least some damages could occur, the trial court could not have refused the
Douzarts’ request to confirm the awards based on the argument that CFS made to
the trial court. See Tex. Civ. Prac. & Rem. Code Ann. § 171.090. Nothing in the
record suggests the Douzarts collected anything under the award the arbitrator
rendered against Home Builders. Consequently, the record now before us does not
show that the Douzarts actually obtained a double recovery on any of their awards.
See Burchfield v. Prosperity Bank, 408 S.W.3d 542, 548-49 (Tex. App.—Houston
[1st Dist.] 2013, no pet.) (holding that an uncollected default judgment against one
party did not bar collecting the damages against another party because the judgments
did not represent a double recovery). Consequently, the principles of double
recovery have not been shown to apply to the judgment the trial court rendered
against CFS. We overrule issue two.
Issue Three
In issue three, CFS argues the separate awards of attorney’s fees to the
Douzarts on their claims against Home Builders and their claims against CFS
allowed the Douzarts to achieve a double recovery on their claims for attorney’s
fees. We disagree. The arbitration award against CFS awarded the Douzarts
14 $184,450 in attorney’s fees. The arbitrator rendered a separate award against Home
Builders for attorney’s fees in that amount. The awards are silent with respect to
whether the arbitrator intended her awards of attorney’s fees to be joint and several,
but the fact the awards are in the exact same amount and that both are based on the
same attorney’s fees affidavit requesting aggregate fees totaling $184,450 makes us
doubt that the arbitrator intended to allow the Douzarts to recover more than a total
of $184,450 in fees. The attorney’s fee affidavit filed by the Douzarts’ attorney
explained that the fees he sought were based on the time expended on the matter by
the members of his firm in pursuing the case against both Home Builders and CFS.
While the fees identified in the affidavit are not properly segregated as between CFS
and Home Builders, the affidavit makes it clear that the Douzarts were seeking an
aggregate award for attorney’s fees, not a cumulative award of twice the amount
supported by the affidavit signed by their attorney.
On this record, there is nothing to suggest the Douzarts have actually collected
on the attorney’s fees award they received against Home Builders. Because CFS
failed to show that the separate awards of attorney’s fees have actually resulted in a
double recovery, the trial court, for this reason, could have decided to confirm the
awards. See Burchfield, 408 S.W.3d at 548-49.
15 Finally, CFS complains the trial court improperly modified the award of
attorney’s fees to make the awards joint and several. Relying on Broemer v. Houston
Lawyer Referral Service, CFS argues that the trial court was not authorized to
modify the attorney’s fee award to impose joint and several liability on CFS for
attorney’s fees. 407 S.W.3d 477, 484 (Tex. App.—Houston [14th Dist.] 2013, no
pet.). However, the error identified in Broemer was that the trial court imposed joint
and several liability on a party when the arbitrator, in the arbitration award, found
the individual had no personal liability. Id. Therefore, the modification the court
imposed in Broemer was a modification that affected the merits of the controversy
because it created liability on one of the parties to the case when the arbitrator had
found that party not liable. Id.
By modifying the attorney’s fee awards to make them joint and several, the
trial court prevented the possibility of a double recovery. Thus, given that the
Douzarts filed an attorney’s fee affidavit that reflects they were seeking only
$184,450 in attorney’s fees, we conclude the modification is one that did not affect
the merits of the controversy. By making the attorney’s fee award joint and several,
the judgment clarified the award by making it clear the Douzarts may collect a total
of only $184,450 in attorney’s fees against Home Builders and CFS. In this case, we
conclude the attorney’s fees were awarded in an imperfect manner, and the trial court
16 properly corrected the awards without affecting the merits of the arbitrator’s
decisions. See Tex. Civ. Prac. & Rem. Code Ann. § 171.091(B)(3) (allowing a court
to modify an arbitration award if the form of the award is imperfect in a manner that
does not affect the merits of the controversy).
We overrule issue three. Because we have concluded that the arbitrator acted
within her authority when she rendered her awards, we hold the trial court was
required by the TAA to confirm the awards. Accordingly, we affirm the final
judgment.
AFFIRMED.
_________________________ HOLLIS HORTON Justice
Submitted on July 5, 2017 Opinion Delivered February 28, 2018
Before McKeithen, C.J., Kreger and Horton, JJ.