EcoClean USA, Inc. v. GenEon Techs., LLC

Full title: ECOCLEAN USA, INC., Appellant v. GENEON TECHNOLOGIES, LLC, John P…

Court: Fourth Court of Appeals San Antonio, Texas

Date published: Dec 6, 2017

No. 04-17-00177-CV (Tex. App. Dec. 6, 2017)

Opinion

No. 04-17-00177-CV

12-06-2017

ECOCLEAN USA, INC., Appellant v. GENEON TECHNOLOGIES, LLC, John P. Shanahan and Syd Williams, Appellees

Opinion by: Irene Rios, Justice

MEMORANDUM OPINION

From the 166th Judicial District Court, Bexar County, Texas
Trial Court No. 2017CI01153
Honorable Laura Salinas, Judge Presiding Opinion by: Irene Rios, Justice Sitting: Marialyn Barnard, Justice Rebeca C. Martinez, Justice Irene Rios, Justice AFFIRMED

Appellees Geneon Technologies, LLC, John. P. Shanahan, and Syd Williams filed suit against appellant EcoClean USA, Inc. to confirm an arbitration award. In response, EcoClean filed motions to dismiss for want of jurisdiction and to vacate the arbitration award. The trial court denied EcoClean's motions and signed a final judgment confirming the arbitration award. On appeal, EcoClean contends the arbitration clause was unenforceable and the arbitration award void because the arbitration did not take place "in a mutually agreed upon location." We affirm the judgment of the trial court.

BACKGROUND

In April 2014, EcoClean and Geneon entered into an purchasing agreement for EcoClean to sell Geneon's product. In November 2014, the parties signed the First Amendment to the purchasing agreement. The First Amendment included Paragraph 12, which stated controversies or claims would be settled by arbitration under the American Arbitration Association's (AAA) Commercial Arbitration Rules, with the arbitration hearing to take place "in a mutually agreed upon location."

The record indicates EcoClean did not pay for merchandise delivered by Geneon, and on September 15, 2015, Geneon filed a demand for arbitration with the AAA, requesting arbitration be held in San Antonio. On October 9, 2015, EcoClean filed suit in a California court against Geneon, as well as John Shanahan and Syd Williams. On December 29, 2015, Geneon filed a motion to compel arbitration in the California case. EcoClean opposed the motion to compel, arguing that because the parties could not agree to a location for the arbitration hearing, the arbitration clause was unenforceable.

The California court determined the "mutually agreed upon location" term was not an essential term of the parties' agreement to arbitrate and the parties leaving the decision of where arbitration would take place to a later time did not render the parties' agreement to arbitrate fatally uncertain. The California court additionally determined that all the claims or controversies arising from the parties' purchasing agreement and amendment to the purchasing agreement were intended to be settled by arbitration, including the location of the arbitration. Accordingly, the California court found that an enforceable agreement to arbitrate existed between the parties and the arbitration location was for the arbitrator to decide.

Following the California court's decision and receipt of the parties' arguments regarding the venue, the AAA determined San Antonio was a proper venue for arbitration, and chose Hon. Phylis Speedlin as arbitrator. The arbitrator allowed further briefing regarding the arbitration location and ultimately ruled San Antonio was a proper venue for arbitration. The hearing took place from October 31, 2016 to November 3, 2016. On January 12, 2017, the arbitrator entered an award in favor of appellees and denied EcoClean's claims against appellees.

Appellees filed suit to confirm the award. In response, EcoClean filed motions to dismiss for want of jurisdiction and to vacate the arbitration award. The trial court denied EcoClean's motions and confirmed the arbitration award.

This appeal followed.

ANALYSIS

EcoClean's underlying complaint is that the arbitration did not take place in a mutually agreed upon location. According to EcoClean, because the parties could not agree to a location, the arbitration clause became unenforceable.

To enforce an arbitration clause, a party must prove the existence of an arbitration agreement and that the claims asserted fall within the scope of the agreement. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). We interpret arbitration agreements under general contract principles. See In re Kellogg Brown & Root, 166 S.W.3d 732, 738 (Tex. 2005).

Here, there is no dispute regarding whether the claims fall within the scope of the parties' agreement. Rather, EcoClean argues mutually agreeing upon a location for arbitration was an essential or material term. Essential or material terms are those terms that the parties "would reasonably regard as vitally important elements of their bargain." Kanan v. Plantation Homeowner's Ass'n, Inc., 407 S.W.3d 320, 330 (Tex. App.—Corpus Christi 2013, no pet.). As long as the parties' agree to the essential or material terms of a contract, the agreement may leave other non-essential provisions open for future adjustment and agreement. Id. In some circumstances, an agreement may be upheld by supplying missing terms. Id.

In this case, the parties agreed to follow the AAA Commercial Arbitration Rules. Rule 11 of the Commercial Arbitration Rules provides that disputes regarding locale shall be determined in the following manner:

(a) When the parties' arbitration agreement is silent with respect to locale, and if the parties disagree as to the locale, the AAA may initially determine the place of arbitration, subject to the power of the arbitrator after appointment, to make a final determination on the locale.

(b) When the parties' arbitration agreement requires a specific locale, absent the parties' agreement to change it, or a determination by the arbitrator upon appointment that applicable law requires a different locale, the locale shall be that specified in the arbitration agreement.

(c) If the reference to a locale in the arbitration agreement is ambiguous, and the parties are unable to agree to a specific locale, the AAA shall determine the locale, subject to the power of the arbitrator to finally determine the locale.

See AMERICAN ARBITRATION ASSOCIATION, COMMERCIAL ARBITRATION RULES AND MEDIATION PROCEDURES, 14-15 (2013).¹ The parties' agreement to follow the Commercial Arbitration Rules provided a vehicle through which a location could be determined.

1 Found at https://www.adr.org/sites/default/files/document_repository/commercial_rules.pdf.

We are not persuaded by EcoClean's argument that by leaving the decision of arbitration locale to future determination, the parties considered the "mutually agreed upon location" an essential or material term or that the agreement to arbitrate was contingent upon a "mutually agreed upon location." Accordingly, we conclude an enforceable agreement to arbitrate existed between the parties.

Having addressed this gateway issue, we turn to the specific issues raised by EcoClean in its appeal.

DENIAL OF ECOCLEAN'S MOTION TO DISMISS FOR WANT OF JURISDICTION

In issue one, EcoClean contends that because the parties were not able to agree on a location, the trial court lacked jurisdiction to confirm the arbitration award under Texas Civil Practices and Remedies Code 171.081. EcoClean argues that under section 171.081, the trial court only has jurisdiction to confirm an award if the award is based on an agreement for an arbitration in this state. EcoClean asserts that because the parties' agreement states that arbitration was to be conducted only in "a mutually agreed upon location," and the parties were not able to agree upon any location (much less San Antonio, Texas), the trial court lacked jurisdiction to confirm the award.

Section 171.081 provides:

The making of an agreement described by Section 171.001 that provides for or authorizes an arbitration in this state and to which that section applies confers jurisdiction on the court to enforce the agreement and to render judgment on an award under this chapter.

TEX. CIV. PRAC. & REM. CODE ANN. § 171.081 (West 2011).

The agreement to arbitrate in this case states the parties will arbitrate in a mutually agreed upon location and follow the AAA Commercial Arbitration Rules, which provides the AAA will determine the arbitration locale if the parties cannot agree upon that location. The agreement thus authorizes arbitration in Texas should the parties agree to arbitrate in Texas, or as in this case, the AAA determines Texas is the appropriate venue for arbitration.

Issue one is overruled.

CONFIRMATION OF ARBITRATION AWARD AND

DENIAL OF ECOCLEAN'S MOTION TO VACATE THE ARBITRATION AWARD

In issues two and three, which EcoClean briefed together, EcoClean contends that by obligating it to participate in the arbitration in a location that was not mutually agreed upon, the arbitrator exceeded her powers to the substantial prejudice of EcoClean's right not to participate in an arbitration at a location that was not agreeable. EcoClean further argues the arbitrator engaged in misbehavior and conducted the arbitration hearing in a manner that substantially prejudiced its rights and asserts the trial court should have vacated the arbitration award for these reasons.

Standard of Review

We review a trial court's decision to confirm or vacate an arbitration award under a de novo standard of review. 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 thus review of arbitration awards is very narrow. See Hoskins v. Hoskins, 497 S.W.3d 490, 494 (Tex. 2016); 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.). We afford the award great deference, indulging all reasonable presumptions in its favor and none against it. CVN Grp., Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). The Texas General Arbitration Act (TAA) requires the trial court to confirm the award "[u]nless grounds are offered for vacating, modifying, or correcting [the] award under Section 171.088 or 171.091." TEX. CIV. PRAC. & REM. CODE § 171.087.5 Under the TAA a party may avoid confirmation of the arbitrator's award "only by demonstrating a ground expressly listed in section 171.088." Hoskins, 497 S.W.3d at 495. The TAA "leaves no room for courts to expand on those grounds" in vacating an arbitration award. Id. at 494. A party seeking to vacate an arbitration award may not invoke extra-statutory or common law reasons for vacatur. Id. at 495. Arbitration awards are entitled to great deference by the courts "lest disappointed litigants seek to overturn every unfavorable arbitration award in court." Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.—Dallas 2004, pet. denied).

Alleged Statutory Grounds for Vacating Award

EcoClean alleges three statutory grounds for vacating the arbitration award, arguing the arbitrator: (1) exceeded her powers; (2) engaged in misbehavior; and (3) conducted the hearing in a manner contrary to Civil Practice and Remedies Code section 171.044 that substantially prejudiced its rights. The complaint underlying all three statutory grounds is that the arbitrator determined San Antonio was a proper venue for arbitration and conducted the arbitration in San Antonio.

The Texas Supreme Court has stated that the "authority of arbitrators is derived from the arbitration agreement and is limited to a decision of the matters submitted therein either expressly or by necessary implication." Therefore arbitrators exceed their powers when they decide matters not properly before them. See Pettus v. Pettus, 237 S.W.3d 405, 419 (Tex. App.—Fort Worth 2007, pet. denied). Additionally, "[a]n award can be vacated based on misconduct only if the conduct so affects the rights of the party that it may be said to deprive him of a fair hearing." GJR Mgmt. Holdings, L.P. v. Jack Raus, Ltd., 126 S.W.3d 257, 263 (Tex. App.—San Antonio 2003, pet. denied). Finally, Civil Practice and Remedies Code section 171.044 provides generally that the arbitrator must notify the parties of the time and place of the arbitration hearing. TEX. CIV. PRAC. & REM. CODE ANN. § 171.044 (West 2011).

EcoClean argues the matter was not properly before the arbitrator because the arbitration did not take place in a mutually agreed upon location. EcoClean also argues the arbitrator exceeded her powers by finding San Antonio was a proper venue when it was not an agreed upon location. EcoClean further argues the arbitrator held the hearing in a manner contrary to section 171.044 because "the arbitration provision provides the place of the hearing by 'mutual agreement,' and therefore, it was improper for the arbitrator to impose a location that was not by mutual agreement." (emphasis in original). In this case, EcoClean argues its affected substantial right was to not participate in arbitration at a location that was not agreeable. However, EcoClean does not argue it was deprived of a fair hearing, nor does EcoClean allege it did not receive notice of the arbitration hearing.

The party seeking to vacate an arbitration award has the burden of bringing forth the complete record and establishing the basis for vacating the award. See GJR Mgmt. Holdings, L.P. v. Jack Raus, Ltd., 126 S.W.3d 257, 263 (Tex. App.—San Antonio 2003, pet. denied); see also Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 569 (Tex. App.—Dallas 2008, no pet.) (holding movant did not carry burden of showing arbitrator misconduct or prejudice where there was no record of arbitration proceedings).

Here, there is no record of the arbitration proceeding. We therefore cannot determine whether the arbitrator exceeded her powers or engaged in misconduct and — if she did so — whether it substantially prejudiced EcoClean's rights. See GJR Mgmt. Holdings, L.P., 126 S.W.3d at 263 ("Because we have no record, we have no way of judging whether the misconduct in fact occurred and, if it occurred, whether it deprived GJR of a fair hearing.").

The record that does exist before this court does not support EcoClean's contentions. We again note EcoClean's argument regarding section 171.044 does not contend it did not receive notice of the hearing. Further, EcoClean presents this court with no argument it did not receive a fair hearing.

Accordingly, we conclude the trial court did not err by denying EcoClean's motion to vacate or by confirming the arbitration award.

Issues two and three are overruled.

CONCLUSION

Based on the foregoing reasons, the judgment of the trial court is affirmed.

Irene Rios, Justice