Opinion
No. 04-06-00820-CV
Delivered and Filed: February 20, 2008.
Appeal from the 111th Judicial District Court, Webb County, Texas, Trial Court No. 2003-CVQ-000530D2, Honorable Raul Vasquez, Judge Presiding.
Affirmed.
Sitting: CATHERINE STONE, Justice, KAREN ANGELINI, Justice, REBECCA SIMMONS, Justice.
MEMORANDUM OPINION
Gilberto and Claudia Galvan appeal the judgment of the trial court confirming an arbitration award in favor of Centex Home Equity Co., L.L.C. ("Centex"). The Galvans contend the trial court's judgment should be vacated and the lien and foreclosure sale be declared void, thereby entitling the Galvans to collect all principal and interest under the credit transaction plus attorney's fees. We affirm the judgment of the trial court.
Background
The Galvans received a home equity loan from Centex on their homestead residence. After the Galvans defaulted on the note, Centex accelerated payment and bought the residence at a foreclosure sale. The Galvans sued Centex alleging Centex violated: (1) the home equity loan provisions of the Texas Constitution by not providing statutory notice in Spanish; and (2) the terms of their home equity loan by not providing notice of the foreclosure sale to their attorney. Under the terms of an arbitration agreement, the dispute was submitted to arbitration under the Federal Arbitration Act ("FAA") on stipulated facts, which yielded a ruling in favor of Centex. The Galvans filed a motion to vacate and correct the arbitration award. Although the trial court confirmed the award, the Galvans have retained possession of the property. The Galvans appeal the trial court's confirmation of the award claiming: (1) the trial court used an incorrect standard of review in confirming the arbitration award; (2) Centex's failure to provide statutory notice in Spanish was incurable; (3) the arbitrator manifestly disregarded the law with respect to Centex's violations; and (4) the Galvans are entitled to the principal and interest under the extension of credit plus attorney's fees.
Standards of Review for Arbitration Awards
A. Applicable Law
Typically, a trial court's review of an arbitration award under the FAA is governed by the Act unless the parties expressly agree to expand the court's scope of review. Harris v. Parker Coll. of Chiropractic, 286 F.3d 790, 793 (5th Cir. 2002). Review of an arbitration award under the FAA is very limited and "exceedingly deferential" regardless of whether a trial court or an appellate court is reviewing the award. Kergosien v. Ocean Energy, Inc., 390 F.3d 346, 352 (5th Cir. 2004); see also Myer v. Americo Life, Inc., 232 S.W.3d 401, 407-08 (Tex.App.-Dallas 2007, no pet.). Under the FAA standard, a court "may not review the arbitrators' decision on the merits even if it is alleged that the decision is based on factual error or it misinterprets the parties' agreement." Tanox, Inc. v. Akin, Gump, Strauss, Hauer Feld, L.L.P., 105 S.W.3d 244, 250 (Tex.App.-Houston [14th Dist.] 2003, pet. denied). The parties to an arbitration agreement, however, may contractually change a reviewing court's standard of review of an arbitration award if the agreement's language is clear and express. Tanox, 105 S.W.3d at 251-52. The language must specify "with certain exactitude how the FAA rules are to be modified." Action Indus., Inc. v. U.S. Fid. Guar. Co., 358 F.3d 337, 341 (5th Cir. 2004). If the parties expand judicial review beyond the standard in the FAA, "federal arbitration policy demands that the court conduct its review according to the terms of the arbitration contract." Gateway Techs., Inc. v. MCI Telecomms. Corp., 64 F.3d 993, 997 (5th Cir. 1995).
B. Discussion
The Galvans argue that the arbitrator disregarded the agreed methodology for the arbitration proceeding and ignored the clear intent of the parties. The Galvans further contend that because an arbitration agreement is a contract, the trial court should have employed a de novo standard of review to determine whether the arbitrator followed the agreement in making the award. The threshold question is whether the agreement clearly and expressly changed the trial court's standard of review and, if so, the standard of review that was agreed upon. Here, the language of the arbitration agreement is unambiguous. The pertinent sections, provided in the order of the agreement, set forth:
The arbitration shall be administered by the American Arbitration Association under the Commercial Arbitration rules then in effect.
. . . .
. . . The arbitrator shall apply all relevant law. . . . The decision of the arbitrator shall be evidenced by written, reasoned findings of fact and conclusions of law. An award by the arbitrator shall be final and binding on all parties to the proceeding. Judgment on the award may be entered in any court having jurisdiction thereof. . . . Nothing in this Agreement or in the Credit Transaction shall be deemed to give the arbitrator any authority, power or right to alter, change, amend, modify, add to or subtract from the provisions of the Credit Transaction.
. . . .
. . . this Agreement shall be subject to and governed by the Federal Arbitration Act, 9 U.S.C. Sections 1- 16 as amended.
. . . YOUR RIGHTS TO APPEAL OR CHANGE AN ARBITRATION AWARD IN COURT ARE VERY LIMITED.
(italics added). The language clearly expresses that this agreement is subject to and governed by the FAA and further emphasizes that the Galvans' rights to change the outcome of the arbitration award are very limited.
The Galvans focus on the portion of the agreement that states neither the agreement nor the credit transaction give the arbitrator the authority or power to depart from or add to the credit transaction. They insist that this clause, when read with the loan documents, somehow changes the trial court's standard of review for the arbitration award because "interpretation of an unambiguous contract is a question of law which is reviewed de novo." The Galvans' argument is without merit.
In cases where courts have concluded that the parties to an arbitration agreement had changed the court's standard of review, the language was clear. For example, in Harris, the clause "[t]he award of the Arbitrator shall be binding on the parties hereto, although each party shall retain his right to appeal any questions of law" indicated the parties intended to use the standard of review reserved for appealing questions of law — the de novo standard. Harris, 286 F.3d at 793. In Gateway, similar language stating "[t]he arbitration decision shall be final and binding on both parties, except that errors of law shall be subject to appeal" indicated the parties intended to use the de novo standard of review. Gateway Techs., Inc., 64 F.3d at 996. In Hughes, the Fifth Circuit concluded the parties had expanded the scope of judicial review by the agreement's language: "in actions seeking to vacate an award, the standard of review to be applied to the arbitrator's findings of fact and conclusions of law will be the same as that applied by an appellate court reviewing a decision of a trial court sitting without a jury." Hughes Training Inc. v. Cook, 254 F.3d 588, 590 (5th Cir. 2001). Here, the arbitration agreement "lacks the clear and express language altering the standard of review" demonstrated in these cases. Tanox, 105 S.W.3d at 251.
The Galvans also claim that the paragraph of the agreement pertaining to costs indicates the parties intended to change the standard of review because it states: "In the case of an appeal, the appealing party will pay the cost of filing an appeal. The non-prevailing party shall pay all costs, fees, and expenses of the appeal proceeding and, if applicable, shall reimburse the prevailing party for the cost of filing an appeal." This clause simply outlines the parties' financial responsibilities in regards to paying the costs of an appeal. It does not change the standard of review by suggesting there could be an appeal.
Manifest Disregard of the Law A. Standard of Review
Having determined that the parties did not alter the court's standard of review, we review the trial court's confirmation of the arbitration award de novo under the FAA. Tanox, 105 S.W.3d at 250. The FAA clearly defines the circumstances under which an arbitration award may be vacated. 9 U.S.C. § 10(a). A trial court may vacate an arbitration award under the FAA only if the challenger asserts one of four statutory grounds or one of two common law exceptions. Myer, 232 S.W.3d at 408. The statutory grounds set forth in the FAA are: (1) the award was fraudulently procured; (2) there was evidence of partiality or corruption of the arbitrator; (3) the arbitrator was guilty of misconduct that prejudiced the rights of a party; or (4) the arbitrator exceeded her powers or so imperfectly executed them that a definite award was not made. 9 U.S.C. § 10(a). The two common law exceptions recognized by the Fifth Circuit and Texas's appellate courts are: (1) an award resulting from manifest disregard for the law, and (2) an award that is contrary to public policy. Myer, 232 S.W.3d at 408.
It is the burden of the party opposing the arbitration award to demonstrate that the arbitrator manifestly disregarded the law. Tanox, 105 S.W.3d at 253. Manifest disregard of the law requires "more than error or misunderstanding with respect to the law. The error must have been obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator." Prestige Ford v. Ford Dealer Computer Servs., Inc., 324 F.3d 391, 393 (5th Cir. 2003). Under this standard, the arbitrator recognizes a clearly governing principle, but ignores it. Id.; see also Tanox, 105 S.W.3d at 252. The reviewing court may not vacate an arbitrator's award "because of an arguable difference regarding the meaning or applicability of laws urged upon [the arbitrator]." Carte Blanche (Singapore) Pte., Ltd. v. Carte Blanch Int'l, Ltd., 888 F.2d 260, 265 (2d Cir. 1989). Furthermore, we may not review the arbitrator's error in the application of substantive law, and any such error is insufficient to vacate an award. Jamison Harris v. Nat'l Loan Investors, 939 S.W.2d 735, 737 (Tex.App.-Houston [14th Dist.] 1997, writ denied). Our judicial review under the manifest disregard of the law standard is "extremely limited." Prestige Ford, 324 F.3d at 395.
B. Discussion 1. Statutory Notice
The Galvans contend the arbitrator erred in applying the requirements of article XVI, section 50(g) of the Texas Constitution, thereby acting in manifest disregard of the law. Section 50(g) requires an additional copy of the prescribed statutory notice to be given to the borrower in the same language in which the negotiations were conducted. Tex. Const. art. XVI, § 50(g). Section 50(a)(6)(Q)(x) provides that the lender for an extension of credit shall forfeit all principal and interest of the extension of credit if the lender fails to comply with the lender's obligations under the extension of credit within a reasonable time after the lender is notified by the borrower of the lender's failure to comply. Tex. Const. art. XVI, § 50(a)( 6)(Q)(x) (amended 1997). The Galvans claim that Centex's failure to provide them with a Spanish version of the statutory notice was incurable even though: (1) Centex provided the Galvans statutory notice in English at the time of the loan; and (2) Centex gave the Galvans the statutorily required $1,000 credit and offered to refinance their loan under the original terms once Centex was notified of the mistake. See Tex. Const. art. XVI, § 50(a)( 6)(Q)(x)(f). The record reveals the arbitrator considered these stipulated facts, the parties' briefs, and all authorities cited by the parties in determining the award. The arbitrator applied the relevant law and determined Centex had made a good faith effort to cure the mistake within a reasonable time.
The Galvans' complaint centers on the fact that they disagree with the way the arbitrator applied the law to the notice issue because they claim certain violations of the Texas Constitution are incurable and the specific cure tendered by Centex was not promulgated until 2003. Centex mainly relies on Doody v. Ameriquest Mortgage Co. in its brief. 49 S.W.3d 342 (Tex. 2001). The Doody court, however, concluded that under the 1997 provisions of the constitution, section 50(a)(6)(Q)(x) applied to all of the lender's obligations under the extension of credit including those requirements considered necessary to create a valid lien. Doody, 49 S.W.3d at 345-47. We may not review the arbitrator's good faith application of the relevant law, see Jamison Harris, 939 S.W.2d at 737, nor may we analyze the merits of each parties' argument regarding their interpretation of the law. See Carte Blanche (Singapore), 888 F.2d at 265. The Galvans have failed to present evidence that the arbitrator considered the applicable law and then chose not to follow it. See Prestige Ford, 324 F.3d at 393. Accordingly, the Galvans have failed to demonstrate that the arbitrator manifestly disregarded the law.
2. Foreclosure Notice
The Galvans also contend the arbitrator disregarded applicable law regarding the proper remedy for Centex's failure to provide notice of the foreclosure sale to counsel for the Galvans. See Tex. R. Civ. P. 736 § 8(B). The Galvans argue that their loan agreement and the Texas Constitution set forth the appropriate remedy for "wrongful foreclosure": the lender shall forfeit all principal and interest of the extension of credit if the lender fails to comply with the lender's obligations under the extension of credit within a reasonable time after the lender is notified by the borrower of the lender's failure to comply. See Tex. Const. art. XVI, § 50(a)( 6)(Q)(x) (amended 1997). The Galvans argue that Centex never complied with the notice requirement even after a reasonable time.
Centex exercised its option under the agreement to expedite foreclosure under Texas Rule of Civil Procedure 736, which requires notice to be given to respondent's attorney and permits a party to such a proceeding to seek relief in law or in equity. Tex. R. Civ. P. §§ 8(B), 9. Texas courts have recognized that the proper remedy for wrongful foreclosure is either: (1) damages equal to the difference between the value of the property and the indebtedness; or (2) the setting aside of the foreclosure sale. Diversified, Inc. v. Gibraltar Sav. Ass'n, 762 S.W.2d 620, 623 (Tex.App.-Houston [14th Dist.] 1988, writ denied); see also Farrell v. Hunt, 714 S.W.2d 298, 299 (Tex. 1986). In order to set aside the foreclosure sale, however, the mortgagor must tender the amount owed on the mortgage. Fillion v. David Silvers Co., 709 S.W.2d 240, 246 (Tex.App.-Houston [14th Dist.] 1986, writ ref'd n.r.e.). Setting aside a trustee sale is an equitable remedy which requires the mortgagor to make a valid tender of the amount due to receive equity. Lambert v. First Nat'l Bank of Bowie, 993 S.W.2d 833, 835 (Tex.App.-Fort Worth 1999, pet. denied).
Here, the arbitrator determined that the loan was not in violation of the Texas Constitution. Accordingly, Centex's failure to give notice of the foreclosure sale to Galvan's attorney was a violation of Texas Rule of Civil Procedure 736 but not a violation of the Texas Constitution. Forfeiture of principal and interest, therefore, is not an appropriate remedy. Vincent v. Bank of Am., N.A., 109 S.W.3d 856, 862 (Tex.App.-Dallas 2003, pet. denied) (concluding that if the loan agreement is constitutional, "forfeiture is not an appropriate remedy"). Because the arbitrator found that Centex failed to give the Galvan's attorney notice of the foreclosure sale but found that the Galvans had actual notice of the sale, the arbitrator included the equitable remedy of setting aside the foreclosure sale in the award. The arbitrator gave the Galvans the opportunity to set aside the foreclosure sale by tendering the amount due on the loan to Centex plus attorney's fees. The Galvans did not tender payment. Again, the Galvans have failed to present evidence that the arbitrator manifestly disregarded the applicable law. See Prestige Ford, 324 F.3d at 393. Because the arbitrator applied the relevant law in good faith, we may not review his actions. See Jamison Harris, 939 S.W.2d at 737.
Attorney's Fees
A. Applicable Law
The FAA does not provide for attorney's fees nor does it prohibit an award of attorney's fees. 9 U.S.C. § 2. However, Texas Rule of Civil Procedure 131 provides: "The successful party to a suit shall recover of his adversary all costs incurred therein, except where otherwise provided." Tex. R. Civ. P. 131. A successful party is one that prevails by obtaining a judgment or award in a court of competent jurisdiction. Univ. of Houston — Clear Lake v. Marsh, 981 S.W.2d 912, 914 (Tex.App.-Houston [1st Dist.] 1998, no pet.). Parties may, however, contractually agree to modify this general rule regarding costs. Epperson v. Greer, 626 S.W.2d 884, 886 (Tex.App.-San Antonio 1981, no writ).
B. Discussion
The arbitrator found in favor of Centex, and the trial court confirmed the arbitration award. As the prevailing party in both proceedings, Centex was awarded the stipulated attorney's fees of $12,810.00 and all costs of the arbitration proceeding. The loan agreement provided that Centex could collect attorney's fees and other reasonable costs from the Galvans for enforcing the note and pursuing acceleration and foreclosure. The arbitration agreement further stated that the arbitrator would decide which party would pay fees in connection with the arbitration. There is no other statutory provision or agreement between Centex and the Galvans that entitles the Galvans to collect attorney's fees. Because Centex was the prevailing party and the parties had contractually agreed that Centex could collect reasonable attorney's fees from the Galvans in the event of default and foreclosure, we may not disturb the arbitrator's award. See Ahmad v. Booth Booth, Ltd., No. 04-98-00860-CV, 2000 WL 31970, at *2 (Tex.App.-San Antonio Jan. 12, 2000, no pet.) (not designated for publication) (sustaining an arbitrator's award of attorney's fees as falling within the meaning of the parties' agreement).
Conclusion
For the reasons provided in this opinion, we affirm the judgment of the trial court.