Until last summer, the title of this post would have been laughable because the grounds for reversal of an arbitration award were extremely narrow. But after the Texas Supreme Court held that the Texas Arbitration Act permits parties to contractually expand review of arbitration awards, preserving error may become a bigger issue. A recent case from the Dallas Court of Appeals provides a good primer.
In Nafta Traders, Inc. v. Quinn, the Texas Supreme Court held that parties can agree to expand the scope of judicial review of arbitration awards. 339 S.W.3d 84, 102 (Tex. 2011). The Supreme Court did not consider the merits of the challenges to the arbitration award, but remanded the case for further consideration.
Appropriately, the Dallas Court of Appeals' opinion on remand is one of the first cases to address error preservation during arbitration. Quinn v. Nafta Traders, Inc., No. 05-07-00340-CV, 2012 WL 549873 (Tex. App.—Dallas Feb. 21, 2012, no pet. h.) (Slip opinion available here). As an initial matter, the court rejected Nafta Traders, Inc's argument that it was not required to preserve any error during arbitration. The court noted that "a party should not be able to sit idle through an arbitration and then, after an adverse result, collaterally attack that procedure on grounds never presented to the arbitrator." Id. at *3.
The court then considered whether Nafta Traders had preserved its complaints during the arbitration. First, the court found that Nafta Traders waived its arguments about the application of federal law instead of state law because it never raised that argument during the arbitration.
Second, Nafta Traders also complained about the legal and factual sufficiency of the evidence, but did not make those arguments to the arbitrators. The court fo appeals analogized an arbitration hearing to a bench trial and concluded that (just as with a bench trial) complaints about the sufficiency of the evidence can be raised for the first time on appeal.
Finally, Nafta Traders complained that the arbitrator was not allowed under the American Arbitration Association's rules to re-open the hearing to permit affidavit evidence of attorney's fees. But because Nafta Traders never complained about the timing of the evidence or about the use of affidavits, the court of appeals found that the argument was waived.
In short, counsel at arbitration should be aware of error preservation issues. The general rule that objections should be raised timely and specifically provides a good rule of thumb. The wisest course is to ensure that the arbitrator is made aware of the alleged error at a time that it can be corrected. Counsel should also be aware that, because an arbitration is similar to a bench trial, similar error preservation rules may apply.
-- Rich Phillips, Thompson & Knight
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