Precision-Hayes International, Inc. v. JDH Pacific, Inc.

Court of Appeals of Texas·Decided August 31, 2022·No. 02-21-00374-CV·Published

Opinion

In the

Court of Appeals

Second Appellate District of Texas at Fort Worth

No. 02-21-00374-CV

PRECISION-HAYES INTERNATIONAL, INC., Appellant V.

JDH PACIFIC, INC., Appellee

On Appeal from the 342nd District Court Tarrant County, Texas

Trial Court No. 342-329266-21

Before Kerr, Bassel, Walker, JJ.

Memorandum Opinion by Justice Walker

MEMORANDUM OPINION

An arbitrator awarded Appellant Precision-Hayes International, Inc. (Precision)

damages and attorney’s fees in its licensing dispute with Appellee JDH Pacific, Inc. (JDH). After competing motions to vacate and confirm the arbitration award, the trial court vacated the award. Precision argues on appeal that the trial court erred because none of the grounds presented by JDH supported vacatur of the arbitration award, and therefore, the court should have confirmed the award. We will reverse the trial court’s order vacating the arbitration award and render judgment confirming the arbitrator’s award.

I. BACKGROUND

Precision entered into license agreements with JDH in 2005 and 2012.1 Precision granted JDH exclusive licenses to manufacture and sell cast metal anchor plates and castings bearing Precision’s trademark. Both agreements contained an arbitration clause. The 2005 agreement provided:

DISPUTE RESOLUTION/ARBITRATION – The parties hereto will attempt to amicably settle all disputes, controversies, or differences arising out of or in relation to the AGREEMENT by good faith negotiation. If such amicable settlement cannot be obtained, then any such dispute shall be submitted to binding arbitration in Dallas, Texas in accordance with the rules of the American Arbitration Association.

1 The 2005 agreement was entered into by Precision Sure-Lock; the 2012 agreement was entered into by Hayes Specialty Machining. Precision succeeded to the rights of both by merger.

The 2012 agreement’s arbitration clause was identical except for the addition of a final sentence: “Judgment may be entered on the award of the arbitrator in any court of competent jurisdiction.” Only the 2012 agreement addressed attorney’s fees:

ATTORNEYS’ FEES – In any arbitration or other legal action or proceeding brought to enforce any provision of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees, in addition to its costs and expenses and any other available remedy.

Precision later learned that JDH was manufacturing and selling trademarked anchors that neither met the quality specifications required in the agreements nor carried the ® for Precision’s mark. Accordingly, Precision terminated both agreements and filed suit against JDH in state court in Fort Bend County, Texas. JDH removed the action to federal court and sought to compel arbitration under the Federal Arbitration Act (the FAA). The federal court granted JDH’s motion to compel all issues to arbitration—accepting JDH’s invocation of the FAA—but denied JDH’s request for its attorney’s fees as a prevailing party under the 2012 agreement. Accordingly, the federal court dismissed Precision’s claims with prejudice in its final judgment.2 JDH then filed an arbitration claim with the American Arbitration Association (the AAA), raising various contract and tort claims and requesting attorney’s fees as the prevailing party under the 2012 agreement. JDH also sought declaratory

2 The federal court dismissed each of Precision’s claims after deciding that they were all subject to arbitration. Precision-Hayes, Int’l, Inc. v. JDH Pac., Inc., CV H-19- 1805, 2019 WL 5748889, at *4 (S.D. Tex. Nov. 5, 2019).

judgments aimed at invalidating Precision’s patents and absolving JDH of alleged trademark and patent violations. The AAA appointed an arbitrator under its Commercial Arbitration Rules.

JDH then returned to the Fort Bend County court and filed, in the original cause, an application for a prejudgment writ of garnishment in the removed action. See Tex. R. Civ. P. 658. That court granted the writ against a bank to garnish Precision’s funds in an amount equal to JDH’s unreimbursed attorney’s fees. The court later withdrew its order granting the writ, and JDH appealed this order.3 Meanwhile, Precision filed a counterclaim in the pending arbitration, alleging that JDH had wrongfully garnished Precision’s funds by seeking (and briefly obtaining) the pretrial writ of garnishment in a court without jurisdiction. Precision also sought a declaration that it had rightfully terminated the agreements and sought its attorney’s fees as a prevailing party under the 2012 agreement. JDH objected to the arbitrability of and the arbitrator’s jurisdiction over Precision’s counterclaims.

After a six-day final hearing, the arbitrator found that Precision had lawfully terminated the agreements and had successfully proven its wrongful garnishment claim. Precision was awarded $9,092.51 in damages and $498,094.52 in attorney’s

3 On June 29, 2021, the Fourteenth Court of Appeals dismissed JDH’s appeal of the Fort Bend County court’s withdrawal of its order granting a pretrial writ of garnishment because “the case ha[d] not been remanded to state court” after JDH removed it to federal court. JDH Pac., Inc. v. Precision-Hayes Int’l, Inc., No. 14-21- 00027-CV, 2021 WL 2656774, at *1 (Tex. App.—Houston [14th Dist.] June 29, 2021, pet. filed) (per curiam) (mem. op.).

fees. The arbitrator ruled against JDH on each of its claims. No transcript of the arbitration proceedings was created.

JDH then filed its motion to vacate the arbitration award, which was followed by Precision’s motion to confirm the award. JDH argued that the award should be vacated because the arbitrator exceeded its authority when it considered Precision’s wrongful garnishment claim, awarded Precision its attorney’s fees, and failed to make a reasoned award. JDH filed an opposition to Precision’s motion to confirm in which it argued that Precision’s motion should be denied as “not ripe” due to defective service.

Each motion was set for a hearing on November 5, 2021, at which both parties appeared through their attorneys. The trial court granted JDH’s motion to vacate the arbitrator’s award without identifying the grounds relied upon and denied Precision’s motion to confirm.

II. STANDARD OF REVIEW AND RELEVANT LAW A. THE FAA APPLIES TO THIS DISPUTE At the outset we must determine whether the FAA or Texas Arbitration Act (the TAA) governs this dispute because, although similar, the two arbitration schemes are not identical regarding the review of arbitration awards. See 9 U.S.C.A. §§ 1–16 (FAA); Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001–98 (TAA); see also Black v. Shor, 443 S.W.3d 154, 162 (Tex. App.—Corpus Christi–Edinburg 2013, pet. denied). Though the parties before the trial court and on appeal have interchangeably invoked

both the FAA and TAA, it is undisputed that the arbitration proceeded under the FAA after the federal court granted JDH’s motion to compel an FAA arbitration. See Precision-Hayes, 2019 WL 5748889, at *1. Thus, we will apply the FAA substantively while being mindful that the TAA applies to matters of procedure. See Prudential Secs. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995) (“When a party asserts a right to arbitration under the Federal Arbitration Act, the question of whether a dispute is subject to arbitration is determined under federal law.”); see also Miller v. Walker, 582 S.W.3d 300, 304 (Tex. App.—Fort Worth 2018, no pet.) (applying the FAA where the arbitration petition was filed under the FAA and no dispute otherwise existed as to its application); In re Chestnut Energy Partners, Inc., 300 S.W.3d 386, 394–95 (Tex. App.—Dallas 2009, pet. denied) (orig. proceeding).

B. DE NOVO REVIEW

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