ANCILLARY ARBITRATION ISSUES IN CONSTRUCTION DISPUTES Lionel M. Schooler1 INTRODUCTION The use of arbitration as a means of alternative dispute resolution is well-known in the construction industry. What is less well-understood is the breadth and impact of the arbitration process, particularly who can be compelled to participate in an arbitration proceeding and the impact of such an award on subsequent disputes. This Article explores the interstices of this process through the mechanics of an elaborate hypothetical (but all too realistic) scenario about the construction of the Spindletop Office Building. THE BUILDING OF THE SPINDLETOP OFFICE BUILDING: INCEPTION OF THE PROJECT In January of 2000, Oliver Owner, a well-known Texas oilman, decided to build a new office complex in Houston, Texas, named “Spindletop.” He contracted with Alex Architect to design plans and specifications for Spindletop. The contract for architectural services between Oliver and Alex contained, among other things, an arbitration clause invoking the Federal Arbitration Act, and also provided that any other arbitration proceeding instituted by Owner could not require consolidation of Owner’s claims against Alex without Alex’s written consent. The contract also called for fifty percent of Alex’s payment to be withheld for one year, at which time the Project was scheduled to be substantially complete. After working day and night for three weeks, Alex completed the designs and specifications and took them to Oliver Owner for review. Mr. Owner was so excited about the plans for his new building that he barely glanced at them before inviting bids for the construction of Spindletop from twenty local general contractors with whom he had worked on other projects.
1
Lionel M. Schooler is a partner in the law firm of Jackson Walker L.L.P. and a member of the panel of arbitrators of the American Arbitration Association.
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One such general contractor was Greg Cummings, Incorporated (“GCI”). Greg Cummings was very excited to have the opportunity to bid on Spindletop. In preparing his general contractor’s bid, Mr. Cummings obtained bids from numerous subcontractors including Ernie’s Electrical and Hank’s Heating, Ventilating & Air Conditioning (“HVAC”). Ernie’s Electrical provided Greg Cummings with a bid for the electrical scope of work. To do so, Ernie’s Electrical solicited numerous bids for supplies, including one from Cam the Conduit Supplier. Ernie’s Electrical relied upon Cam’s bid when submitting the electrical bid. Hank’s HVAC also solicited numerous bids for supplies. He received one from Derek the Duct Supplier for the HVAC supplies, upon which he relied when submitting his HVAC bid. At the bid opening in March, GCI was determined to be the low bidder on the Project with an acceptable bid, and Oliver Owner therefore signed a contract with GCI to construct Spindletop per Alex Architect’s plans and specifications. The contract between Oliver Owner and GCI contained a broad arbitration clause that stated “any and all controversies or claims arising out of and/or relating to the contract shall be resolved through binding arbitration pursuant to the Federal Arbitration Act.” After GCI signed the contract with Oliver Owner, Greg Cummings contacted his surety, Safe Bonding, to obtain Payment and Performance Bonds to comply with the requirements of the contract. Once he obtained the necessary bonds, Greg Cummings then signed contracts with the low bidders upon whose numbers he had relied when formulating and submitting his bid. These low bidders included Ernie’s Electrical and Hank’s HVAC. GCI’s contract with Ernie’s Electrical contained an arbitration clause utilizing the same language as the contract between GCI and Oliver Owner. Hank’s HVAC also contained the same clause, but because Hank refused to agree to any contract with an arbitration clause, it was deleted from the contract that Hank’s HVAC and GCI signed.
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After receiving the signed contract with GCI, Ernie’s Electrical solicited an invoice from Cam the Conduit Supplier for the electrical supplies needed to perform the electrical scope of work. Cam’s invoice contained an arbitration provision. Upon hearing his company was the low bidder, Hank immediately contracted with Derek the Duct Supplier for the duct and other HVAC supplies needed to complete that scope of work. This contract did not have an arbitration clause. THE BUILDING OF THE SPINDLETOP OFFICE BUILDING: EVENTS AT THE JOB SITE The construction of the Project commenced. Within four months, the foundation and shell of the building were complete. However, a few weeks later, the weather turned cold and wet. While the shell of the building was intact, the windows and doors were not installed and rain water managed to infiltrate the building. Knowing that the completion date was quickly approaching, GCI’s job superintendent and job foreman ordered work to continue despite the presence of standing water throughout the building. Outside in the mud, Ernie’s Electrical crew diligently tried to locate the electrical main shown on the plans to tie into it and supply the building with electricity. After numerous failed attempts, Ernie’s contacted the local utility company for assistance in locating the electrical main and was informed that the actual location was more than three hundred yards away from the designated location. Ernie’s Electrical promptly notified GCI of the discrepancy and submitted a change order for the additional material and labor it estimated would be required to trench the extra three hundred yards to install the underground electrical connections. In consultation with Alex the Architect, GCI rejected the change order, stating that the contract with Ernie’s Electrical called for Ernie’s Electrical to locate and make connections to the electrical main as needed. GCI thus insisted that the additional three hundred yards of trenching was part of Ernie’s Electrical’s scope of work and refused to agree to pay any additional money for this 3
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work. The parties spent several days in fruitless discussions, and ultimately, when the stalemate could not be resolved, Ernie’s Electrical’s crew walked off the Project site. Hank’s HVAC continued working diligently inside the building installing the HVAC components of the project. After installing the duct, thermostats, compressors, air handlers, and other necessary accessories, Hank’s HVAC contacted GCI to inform it that electrical power was needed to provide energy to the HVAC units. After Ernie’s Electrical walked off the job, GCI was not able to locate a replacement electrical subcontractor. GCI therefore called Ernie back and told Ernie it would sign Ernie’s Electrical’s proposed change order if Ernie would return to the Project immediately and install the underground electrical supply required to provide power to the building. By the time Ernie’s Electrical returned to the job site, nearly six weeks had elapsed. Ernie’s Electrical proceeded to install the underground electrical connections but the six-week delay in completing this task prevented the use of the HVAC equipment at the job site for eight weeks. In this two month interim, the interior subcontractors had continued to work at the instruction of GCI’s project superintendent. The drywall, insulation, and ceiling tiles were installed and the millwork neared completion. When the HVAC system was finally turned on, however, GCI discovered that the delay had caused mold to develop on the drywall, insulation, and ceiling tiles. Responding to this development, GCI retained the services of a mold consulting firm to conduct tests in the building. Its report identified the HVAC system as being entirely inadequate to provide positive pressure in the building and attributed the presence of mold to a negative pressure condition existing inside the building which drew outside water into the building, causing the mold. GCI notified Hank’s HVAC of the test results and suspended payment of any progress payment application submitted by or pending from Hank’s HVAC. In response, Hank’s HVAC
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issued a notice of default to GCI and a claim of lien for unpaid work, but this notice was not sent within the twenty-one days required by the terms and conditions of the contract between GCI and Hank’s HVAC. When Oliver Owner learned of this, he insisted that GCI replace all the interior finishes and complete the project according to the original schedule. Relying upon the mold report, GCI insisted Oliver Owner sign a time and materials change order before agreeing to proceed with mold remediation. Oliver Owner rejected this request and suspended payments to GCI. He also notified Alex the Architect of a potential breach by Alex regarding this dispute and invoked the penalty clause of the contract between Owner and Architect to suspend the deadline for paying the balance of Architect’s fee. Oliver Owner then contacted Safe Bonding, insisting that it complete the project under its Performance Bond. Safe Bonding replied that the terms of the bond were not satisfied and refused to complete the project. THE BUILDING OF THE SPINDLETOP OFFICE BUILDING: THE DISPUTES A. Lawsuits Are Filed Weary of the mounting problems and threats of lien, which created concerns over potential defaults with his financing, Oliver Owner filed suit against GCI and Safe Bonding for breach of contract and violations of the Texas Deceptive Trade Practices Act (“DTPA”).2 Oliver Owner also sued Alex Architect, Hank’s HVAC, and Ernie’s Electrical for negligence for designing and installing inadequate HVAC equipment. After learning of the suit, GCI immediately filed a counterclaim against Oliver Owner for breach of contract and asserted a lien claim against the Project. GCI also stopped paying its subcontractors because it was not being paid by Oliver Owner. As a result, the subcontractors were
2
TEX. BUS. & COM. CODE §§ 17.45 et seq.
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unable to pay their suppliers. GCI also filed suit against Alex Architect for negligent design in providing plans and specifications with an inadequate HVAC design. Alex Architect filed suit against Oliver Owner for breach of contract for not paying the outstanding balance of fifty percent of his fee. After not receiving payment, Ernie’s Electrical filed suit against GCI for quantum meruit for failure to pay for the change order work to install the underground electrical from its new location. On being notified of the lawsuit by Ernie’s Electrical, GCI filed a counterclaim for breach of contract for Ernie’s abandonment of the job. Cam the Conduit Supplier, who had not been paid by Ernie’s Electrical, filed a lien against Spindletop and filed a suit against Ernie’s Electrical for breach of contract. Hank’s HVAC stopped paying Derek the Duct Supplier because Hank’s HVAC was not paid by GCI. Hank’s HVAC also filed a lawsuit against GCI for breach of contract as well as a lien against Spindletop. Derek filed a lien against Spindletop and filed a breach of contract claim against Hank’s HVAC. B. The Pending Claims As the result of the filing of all of these lawsuits, the following claims were outstanding when the dust settled. No.
1. 2. 3. 4. 5. 6.
Plaintiff Owner Owner Owner Owner General Contractor General
Defendant General Contractor and Bonding Co. Architect HVAC Subcontractor Electrical Subcontractor Owner Architect
Claim Breach of contract; DTPA Negligence Negligence Negligence Counterclaim for breach of contract Negligent Design 6
Basis Failure to Perform; Failure to honor the bond Installing inadequate HVAC Installing inadequate HVAC Installing inadequate HVAC Failing to pay progress payments and failing to approve change order Inadequate HVAC
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No.
7. 8. 9. 10. 11. 12. 13. 14.
Plaintiff Contractor Architect Electrical Subcontractor General Contractor Conduit Supplier Conduit Supplier HVAC Subcontractor Duct Supplier Duct Supplier
Defendant Owner General contractor and Owner Electrical Subcontractor Electrical Subcontractor Owner/General Contractor General Contractor and Owner Owner/General Contractor HVAC Subcontractor
Claim Breach of contract Quantum Meruit Counterclaim for breach of contract Breach of contract Lien claim Breach of contract and lien claim Lien claim Breach of contract
Basis design Failing to pay 50% of fee Failing to pay for change order work Abandoning the job Failure to pay for supplies Failure to pay for supplies Failure to pay for work performed Failure to pay for supplies Failure to pay for supplies
C.
The Fora for Resolving the Disputes All of the lawsuits were consolidated into one proceeding in Harris County, Texas, state
district court, the county where the Project was being constructed. As the court was assessing the multitude of claims, it noticed that several of the agreements attached to the pleadings contained arbitration claims and several of the responsive pleadings asserted pleas in abatement to require submission of claims to arbitrate. Thus, to assess the impact of arbitration as an alternative means of resolving disputes in the Spindletop litigation, the court realized that its first procedural step would be to determine whose claims were arbitrable, how they would proceed to arbitrate, and which parties could be compelled to arbitrate.
ARBITRATION #1 (DISPUTES AMONG THE OWNER, THE GENERAL CONTRACTOR, THE ELECTRICAL SUBCONTRACTOR AND ITS SUPPLIER)
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In light of the numerous claims against it, GCI moved the court to compel arbitration as to all the parties and all claims pursuant to the arbitration clause contained in the contracts it had with Oliver Owner and Ernie’s Electrical. The court noted that the claims in issue involved transactions in commerce as that term is used in the Federal Arbitration Act (“FAA”)3 and that the contract containing arbitration clauses also referred to adjudication of these clauses under the FAA. The court granted GCI’s motion to compel in part, citing In re Oakwood Mobile Homes, Inc.,4 holding that where there is a valid agreement to arbitrate and the subject dispute falls within the scope of that agreement, then signatories to that agreement are compelled to arbitrate. Therefore, Oliver Owner was directed by the court to arbitrate his breach of contract and DTPA claims against GCI based upon the common nucleus of operative facts giving rise to these claims and the operative agreement to arbitrate in the contract between Oliver Owner and GCI.5 Ernie’s Electrical resisted compulsion to arbitrate its claims against GCI. Ernie’s acknowledged that it was a signatory to a contract containing an arbitration agreement but argued that its claim was not subject to arbitration as being beyond the scope of the arbitration clause because it was suing in quantum meruit, not breach of that contract. The court overruled this objection and held that Ernie’s Electrical’s change order claim was subject to arbitration on the basis of Dustrol, Inc. v. Champagne-Webber, Inc.,6 which upholds the arbitration of change order claims based upon a broadly worded arbitration agreement in the original contract. The court found that, regardless of the nature of the relief claimed by Ernie’s Electrical, the relationship it had with GCI
3
9 U.S.C. § 2 (2000). 987 S.W.2d 571 (Tex. 1999) (orig. proceeding). Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 271 (Tex. 1992). Dustrol, Inc. v. Champagne-Webber, Inc., No. CIV.A.3:01-CV-0650-G, 2001 WL 1326477 (N.D. Tex. Oct. 16, 2001).
4 5
6
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arose from an agreement containing an arbitration clause by which Ernie’s Electrical was bound. The court also held that all of Ernie’s Electrical’s counterclaims against GCI would be arbitrated in the same proceeding, except for the issue of enforcement of Ernie’s Electrical’s claim of lien. In response to the court’s holding, Ernie’s Electrical sought to compel Oliver Owner to arbitrate its negligence claim against Ernie’s Electrical. Relying upon Associated Glass, Ltd. v. Eye Ten Oaks Investments, Ltd., 7 the court granted Ernie’s Electrical’s motion to compel. Therefore, Oliver Owner, a non-signatory to such a contract, was directed to arbitrate his negligence claim against Ernie’s Electrical in the same arbitration proceeding as the one adjudicating the disputes between GCI and Ernie’s Electrical. Ernie’s Electrical also requested the court compel Cam the Conduit Supplier to arbitrate its claim against Ernie for breach of contract on the basis of the arbitration clause in the invoice issued by Cam’s to Ernie’s Electrical, including Cam’s lien claims. Cam objected to arbitrating his lien claims, contending that such claims were not subject to any contract and were statutorily based. On the basis of the holding in Dalton Contractors, Inc. v. Bryan Autumn Woods, Ltd., 8 the court granted Ernie’s Electrical’s motion and required Cam’s lien claims to be arbitrated in the same proceeding.9 ARBITRATION #2 (DISPUTES AMONG THE OWNER, THE GENERAL CONTRACTOR, AND THE HVAC SUBCONTRACTOR)
7
Associated Glass, Ltd. v. Eye Ten Oaks Invs., Ltd., 147 S.W.3d 507 (Tex. App.—San Antonio 2004, no pet.) (building owner's claims against glass installation subcontractor and masonry subcontractor for negligence, fraud, fraudulent concealment, and negligent misrepresentation, relating to water incursions and moisture accumulation arose out of or were related to subcontractors' contractual duties under their subcontracts with general contractor, and thus, owner was bound by arbitration provision of subcontract, though owner was not a party to subcontracts).
8
Dalton Contractors, Inc. v. Bryan Autumn Woods, Ltd., 60 S.W.3d 351 (Tex. App.—Houston [1st Dist.] 2001, no pet.).
9
See CVN Group, Inc. v. Delgado, 95 S.W.3d 234 (Tex. 2002) (scope of agreement to arbitrate can control arbitrability of mechanics’ lien claims).
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GCI sought to have claims asserted by Hanks’ HVAC against it dismissed on the basis that Hanks’ HVAC had failed to timely submit claims within the terms of their applicable agreement. Alternatively, GCI sought to compel to arbitration the claims asserted by Hank’s HVAC. Hank’s HVAC resisted being compelled to arbitrate on the basis that it did not have any written agreement to arbitrate with GCI, nor one that was enforceable by GCI. The court first considered the question of arbitrability of Hank’s HVAC’s claim under quantum meruit, which required it to examine the jurisprudence of compelling non-signatories to arbitrate, including the recent, far-reaching decision of the Texas Supreme Court in In Re Kellogg Brown & Root.10 THE IMPACT OF IN RE KELLOGG BROWN & ROOT The court analyzed the history of the jurisprudence of compelling non-signatories to arbitrate. The court noted that several earlier cases had evaluated this issue,11 with the majority holding that in certain instances, non-signatories could be compelled to arbitrate. The court then focused upon recent decisions by the Texas Supreme Court. In the first, In Re FirstMerit Bank,12 the court noted that the supreme court upheld arbitrability against non-signatories who were attempting to invoke the benefits of a contract that contained an arbitration agreement. In the second, In Re Halliburton,13 the court noted that the supreme court upheld arbitrability against non-signatories in an employment context, where the non-signatories by their conduct (e.g.,
10
No. 03-1129, 2005 WL 1187775 (Tex. May 20, 2005).
11
Compare Nationwide of Bryan v. Dyer, 969 S.W.2d 518 (Tex. App.—Austin 1998, no pet.) (upholding arbitrabilityas to non-signatories); In Re Rangel, 45 S.W.3d 783 (Tex. App.—Waco 2001, no pet.) (same); In Re James Keith Rose, 82 S.W.3d 523 (Tex. App.—Corpus Christi 2002, no pet.) (same); with In Re Conseco Fin., 19 S.W.3d 562 (Tex. App.— Waco 2000, no pet.) (preventing arbitrability as to non-signatories); Southwest Tex. Pathologyv. Roosth, 27 S.W.3d 204 (Tex. App.—San Antonio 2000, no pet.) (same); Fleetwood Enters. v. Gaskamp, 280 F.3d 1069 (5th Cir. 2002) (same).
12
52 S.W.3d 749 (Tex. 2001). 80 S.W.3d 566 (Tex. 2002).
13
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continuing to come to work, even though at will) “accepted” changes to the employer’s personnel manual, which included the obligation to arbitrate disputes in the workplace. In the third and most recent decision, In Re Kellogg Brown & Root (“KBR”), the court noted that the Texas Supreme Court had rejected compelling a non-signatory to arbitrate on the facts of that case. The court took particular interest in the KBR decision because, unlike FirstMerit Bank and In Re Halliburton, the KBR case arose specifically in the context of a commercial construction project. In the KBR case, a general contractor had contracted to build elevator trunks for two cruise ships. The general contractor then subcontracted part of the job to another entity, which agreed to fabricate a set of the elevator trunks for one of the ships. The general contractor and this subcontractor had a written contract which contained an arbitration clause. Subsequent to this agreement, the subcontractor retained the services of another entity in a so-called second-tier subcontract, under which the third party, KBR, agreed to furnish labor, equipment, and facilities to fabricate the elevator trunks. The subcontractor and KBR had a written agreement, but it did not contain any arbitration provision.14 Later, the owner defaulted, and the general contractor was instructed to cease work and notify its subcontractors to do the same. The general contractor did so, and the subcontractor correspondingly notified KBR to do the same. KBR complied and then issued invoices for unpaid fabrication services and storage costs. Because KBR had not been paid in full, it asserted liens on the collateral that was the subject of the disputants’ agreements. 15
14
Id. Id.
15
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The general contractor and the subcontractor then became involved in a dispute regarding who owned the collateral and who owed KBR for KBR’s fabrication services and storage costs. This dispute went to arbitration pursuant to the terms of the agreement between the general contractor and the subcontractor. While the arbitration was proceeding, both the arbitrating parties demanded that KBR release the collateral. KBR refused and filed suit against both companies, claiming that the subcontractor had breached its agreement with KBR or, alternatively, that KBR was entitled to recover quantum meruit damages against both the subcontractor and the general contractor. In response, the general contractor requested that the court where KBR’s lawsuit had been filed compel KBR to pursue any claims in the ongoing arbitration between the general contractor and the subcontractor. The trial court refused to do so, but the court of appeals reversed, holding that KBR was required to arbitrate as a “third-party” beneficiary. 16 Granting the application for writ of mandamus requested by KBR, the Texas Supreme Court reversed the court of appeals and ruled that KBR could not be compelled to arbitrate. The supreme court first acknowledged that under the FAA (which applied in that case), arbitration is presumptively favored. However, the court also noted that “the presumption arises only after the party seeking to compel arbitration proves that a valid arbitration agreement exists,”17 because “the purpose of the FAA was to make arbitration agreements as enforceable as other contracts, not more so.”18
16
MacGregor v. Kellogg, Brown & Root, Inc., 126 S.W.3d 176 (Tex. App.—Houston [1st Dist.] 2003), rev’d, No. 031129, 2005 WL 1187775 (Tex. May 20, 2005) (“Court of Appeals considers a non-signatory subcontractor's relationship to the principal contract signatories to be a relationship that is equivalent to the status of a donee, assignee, or third-party beneficiary, sufficient to subject the non-signatory to an arbitration clause in an agreement between the signatories.”).
17
Kellogg, Brown & Root, No. 03-1129, 2005 WL 1187775 (citing J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003)).
18
Id. (citing Bridas S.A.P.I.C. v. Gov’t of Turkm., 345 F.3d 347, 354 n.4 (5th Cir. 2003)).
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The KBR court also acknowledged “[i]t does not follow . . . that under the [FAA] an obligation to arbitrate attaches only to one who has personally signed the written arbitration provision”; instead, under certain circumstances, principles of contract law and agency may bind a non-signatory to an arbitration agreement.”19 Turning to available precedent concerning the circumstances under which a non-signatory could be compelled to arbitrate under the FAA, the KBR court identified six recognized theories sustaining arbitrability as to non-signatories arising out of common principles of contract and agency law: (1) incorporation by reference; (2) assumption; (3) agency; (4) alter ego; (5) equitable estoppel, and (6) third-party beneficiary.20 The general contractor contended that KBR should be required to arbitrate under the doctrine of “direct benefits estoppel” (or equitable estoppel), asserting that KBR was attempting to enjoy the benefits of a contract and thus should be estopped from simultaneously attempting to avoid the contract’s burdens, such as the obligation to arbitrate disputes. The KBR court rejected this contention. It acknowledged that KBR brought a quantum meruit claim and also sought to enforce allegedly valid liens. However, the court determined that the equitable remedy of quantum meruit “is based upon the promise implied by law to pay for beneficial services rendered and knowingly accepted,”21 a claim usually precluded to a party when there is a valid contract covering the services or materials furnished.22
19
Id. (citing Fisser v. Int’l Bank, 282 F.2d 231, 233 (2d Cir. 1960)) (quoted in Int’l Paper Co. v. Schwabedissen Maschinen & Anlagen, 206 F.3d 411, 416 (4th Cir. 2000); Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 776 (2d Cir. 1995)); see also Bailey, 364 F.3d at 267; FirstMerit Bank, 52 S.W.3d at 755; S.W. Tex. Pathology Assocs. v. Roosth, 27 S.W.3d 204, 208 (Tex. App.??San Antonio 2000, pet. dism’d w.o.j.) (internal citations omitted).
20
Id. (citing Bridas, 345 F.3d at 356).
21
Id. (quoting Vortt Exploration Co., Inc. v. Chevron U.S.A., Inc., 787 S.W.2d 942, 944 (Tex. 1990); Truly v. Austin, 744 S.W.2d 934, 936 (Tex. 1988)).
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Therefore, even though the KBR court recognized that KBR’s quantum meruit claim was generically “based on” the subcontract that the general contractor had with its subcontractor, including the fabrication subcontract’s specifications, it concluded that the mere existence of this contract could not be used to compel KBR to arbitrate its claims because it was not seeking “to derive a direct benefit from the contract containing the arbitration provision.”23 On the basis of the holding of In Re Kellogg Brown & Root, the court in the Spindletop litigation found that the contract between GCI and Hank’s HVAC did not contain an arbitration provision and that Hank’s HVAC was not trying to obtain benefit from an agreement while avoiding the obligation to arbitrate by pursuing its quantum meruit claim. The court therefore denied GCI’s motion to compel as to Hank’s HVAC’s quantum meruit claim. The court did find, however, that Hank’s HVAC was trying to enjoy the benefits of the agreement between GCI and Oliver Owner concerning its lien claim. The court therefore held that this latter claim was subject to arbitration to be decided before the court determined the amount, if any, of such lien claim. Turning next to the question of GCI’s motion to dismiss, the court ruled that GCI’s basis for seeking dismissal was premised on an alleged procedural defect in Hank’s HVAC’s presentation of its claim. The court construed this to be a matter of procedure and therefore ruled that it was for the arbitration panel, in the first instance, to adjudicate this claim.24 For the convenience of the parties, the court also held that Arbitration No. 2 would include Oliver Owner’s claim against Hank’s HVAC for negligence.
22 23
Id. (citing Murray v. Crest Constr., Inc., 900 S.W.2d 342, 345 (Tex. 1995)). Id. (citations omitted).
24
In Re Global Constr. Co., 159 S.W.3d 274 (Tex. App.—Houston [14th Dist.] 2005) (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002)).
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In response to this ruling, Hank requested the court compel Derek the Duct Supplier to arbitrate its breach of contract claim against Hank and its lien claims against Oliver Owner and GCI. The court rejected this request on the basis of In Re Kellogg Brown & Root. The court held that because Derek was not a signatory to a contract containing an arbitration clause, was not suing under a contract containing such a provision, was not seeking to take advantage of any rights or obligations in another contract as a third-party beneficiary, and was not suing to recover under an agreement that contained an arbitration clause, Derek could not be compelled to arbitrate his claims. The court stated, “notions of fairness prevent a supplier from being forced to arbitrate its claims, absent an agreed to arbitration provision, when the supplier merely supplied materials for which it now seeks payment.” ARBITRATION #3 (DISPUTES BETWEEN THE OWNER AND THE ARCHITECT) In response to these rulings, Oliver Owner moved to compel Alex Architect to arbitrate his breach of contract claim based upon the contract signed by Oliver and Alex and also moved the court to consolidate that arbitration proceeding with the arbitration of the claims and counterclaims involving Oliver Owner and GCI. The court granted Oliver’s motion to compel Alex to arbitrate pursuant to the arbitration clause contained in their contract and also ordered Alex Architect’s counterclaim for payment to arbitration on the same basis. However, the court denied Oliver’s consolidation request. Citing Callahan & Associates v. Clark, 25 the court held that an architect cannot be compelled to arbitrate its
25
Callahan & Assocs. v. Clark, No. 09-96-281CV, 1996 WL 715450 (Tex. App.—Beaumont Dec. 12, 1996, no writ) (architect was not forced to consolidate its arbitration proceeding with the arbitration proceeding between the Owner and General Contractor arising from the same project). See Gov’t of United Kingdom v. Boeing Co., 998 F.2d 68 (2d Cir. 1993) (consolidation of two arbitration proceedings precluded). But see New England Energy, Inc. v. Keystone Shipping Co., 855 F.2d 1 (1st Cir. 1988) (state law specifically providing for consolidation could be utilized when agreement between parties was silent on issue of consolidation).
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claims simultaneously with those between an owner and a general contractor arising from the same project. ARBITRATION #4 (DISPUTES BETWEEN THE GENERAL CONTRACTOR AND THE ARCHITECT) In response to the court’s ruling granting Oliver Owner’s motion to compel Alex Architect to arbitrate, Alex requested the court compel GCI to arbitrate its claim against Alex for negligent design. The court found that GCI and Alex Architect had no contract at all, although Alex Architect had been designated as Oliver Owner’s agent in the agreement between Oliver Owner and GCI. On the basis of equitable estoppel, the court granted Alex Architect’s motion, citing Grigson v. Creative Artists Agency. 26 The court ruled that Grigson stands for the proposition that “equitable estoppel applies when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting its claims against the non-signatory.” It applied this holding to find that GCI’s claims against Alex Architect relied upon the terms of the written agreement between GCI and Oliver Owner. Therefore, GCI was ordered to arbitrate its negligent design claim against Alex Architect, but the court also ruled that this arbitration proceeding would proceed independently from the one adjudicating claims between Oliver Owner and Alex Architect.27 OUTCOME OF THE ARBITRATION PROCEEDINGS
26
210 F.3d 524 (5th Cir. 2000).
27
Cf. Del Webb Constr. v. Richardson Hosp. Auth., 823 F.2d 145, 150 (5th Cir. 1987) (“question of consolidation is for the district court” under the FAA absent a written agreement among the parties providing for consolidation of arbitration proceedings). But see Pedcor Mgmt. Co. Welfare Benefit Plan v. Nations Personnel of Texas, Inc., 343 F.3d 355, 363 (5th Cir. 2003). In Pedcor Management, the United States Court of Appeals for the Fifth Circuit stated that it considers the holding in Del Webb Construction to have been “effectively overruled” by the decision of the United States Supreme Court in Green Tree Financial Corporation v. Bazzle, 539 U.S. 444 (2003). The Pedcor Management court explained that Bazzle stands for the proposition that arbitrators, not courts, may decide in the first instance whether certain kinds of cases can be maintained as class-wide arbitrations. It is not clear from this statement whether Del Webb Construction’s additional holding barring consolidation without consent remains good law.
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In each arbitration proceeding, the parties paid for preparation of a record of the proceedings. Each Arbitration Panel ruled that there was an official record of the proceedings.28 At the conclusion of each proceeding, each Panel rendered a reasoned award.29 ARBITRATION NO. 4 (OWNER AND ARCHITECT) The hearing on the merits of the arbitration involving Oliver Owner and Alex Architect occurred first. The arbitration panel issued an award which sustained Owner’s claims against Alex Architect for negligent design and also sustained Alex Architect’s counterclaim against Owner for non-payment of the balance of the architectural fee. It further ruled that this balance was to operate as an offset to Owner’s claim for damages. Each party was awarded attorney’s fees.
ARBITRATION NO. 3 (ARCHITECT AND GENERAL CONTRACTOR) In Arbitration No. 3, the arbitration panel ruled that Alex Architect had engaged in negligent design but that GCI could not recover damages directly against Alex Architect for negligent design on the basis of contract language precluding a direct claim since Architect was Owner’s
28
Rule R-27 of the American Arbitration Association Construction Industry Rules states as follows: R-27. Stenographic Record Any party desiring a stenographic record shall make arrangements directly with a stenographer and shall notify the other parties of these arrangements at least three days in advance of the hearing. The requesting party or parties shall pay the cost of the record. If the transcript is agreed by the parties, or determined by the arbitrator to be the official record of the proceeding, it must be provided to the arbitrator and made available to the other parties for inspection, at a date, time, and place determined by the arbitrator. Texas courts have emphasized the importance of the existence of an adequate record of an arbitration proceeding to facilitate full judicial consideration of arbitral awards. See Prudential Sec., Inc. v. Shoemaker, 981 S.W.2d 791 (Tex. App.—Houston [1st Dist.] 1998, no pet.). Further, appellate courts have indicated their willingness to use the record from an arbitration proceeding just as they do the record from a trial to make their findings. If there is no transcript of the proceedings, appellate courts have determined that they are entitled to make presumptions in favor of the arbitral result, leaving the result intact. See Thomas v. Prudential Sec., Inc. 921 S.W.2d 847, 851 (Tex. App.—Austin 1996, no writ). The courts favor the presumption of adequacy such that there is no rule requiring arbitrators to specify any basis for their award. Id. (citing Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W.2d 225, 235 (Tex. App.—Houston [14th Dist.] 1993, writ denied)).
29
AAA Rules, for example, differentiate between an award (which merely states the outcome), a reasoned award, and findings of fact and conclusions of law. See AAA Const. Rules 43–44.
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representative under the applicable contract. This panel further stated that the evidence indicated that GCI should be awarded damages against Owner because of the negligent design engaged in by Architect. The panel indicated in the award that a representative of Oliver Owner testified during Arbitration No. 3. ARBITRATION NO. 1 (OWNER, GENERAL CONTRACTOR, ERNIE’S ELECTRICAL AND CAM CONDUIT SUPPLIER) The award in Arbitration No. 3 was issued before a hearing on the merits occurred in Arbitration No. 1, among Oliver Owner, GCI, Ernie’s Electrical and Cam the Conduit Supplier. GCI thus asserted that the determination by Arbitration No. 3 concerning its entitlement to damages from Owner required the arbitrators in Arbitration No. 1 to award it such damages against Oliver Owner. The Panel declined to make a summary ruling on this request and instead carried it with the case. After hearing the evidence of the parties, Arbitration Panel No. 1 issued the following award: (a) (b) (c) (d) It sustained Owner’s claim against the General Contractor for breach of contract, but rejected Owner’s claim of violation of the Deceptive Trade Practices Act; It rejected the General Contractor’s claims against Owner, holding that Owner should not be liable for any negligence attributable to Architect; It sustained Owner’s claim against Ernie’s Electrical for installing inadequate power for the HVAC; It sustained Ernie’s Electrical’s claim against the General Contractor for failing to pay for the requested change order, upholding the subcontractor’s contention that the extra work in question constituted a change order to the scope of the Work as defined in the contract, but it reduced the amount to be awarded by the amount it determined to be the cost of Owner to repair the inadequate HVAC; It sustained Cam the Conduit Supplier’s claim against Ernie’s Electrical for nonpayment of supplies and correspondingly sustained Ernie’s Electrical’s claim against the General Contractor for non-payment of this amount included as part of the subcontract fee; and It sustained Cam the Conduit Supplier’s lien claim against Owner for non-payment of its invoices.
(e)
(f)
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ARBITRATION NO. 2 (OWNER, GENERAL CONTRACTOR AND HANK’S HVAC) Arbitration Panel No. 2 conducted its proceeding within a few days of Arbitration No. 1, and issued its award almost simultaneously. It stated that after hearing the evidence of the parties, Arbitration Panel No. 2 would issue the following award: (a) It sustained Hank’s HVAC’s claim against GCI for failure to pay for work performed, and Hank’s HVAC’s lien claim against Owner for non-payment of its invoices. However, it also held that Hank’s HVAC was not entitled to recover against GCI because of its failure to comply with the contractual requirements for the proper and timely filing of its claim. THE SPINDLETOP LITIGATION POST-ARBITRATION USE OF ARBITRAL RULINGS AND EVIDENCE POST-ARBITRATION Following the completion of all of the arbitration proceedings, the court conducted a trial of all non-arbitrated claims asserted by Derek the Duct Supplier, Hank’s HVAC, Oliver Owner and GCI. All arbitration awards were confirmed by the court pursuant to the requirements of the FAA. Nevertheless, these judgments of confirmation were pending appeal at the time of the subsequent trial. Hank’s HVAC sought a determination by the court that the arbitration award it had obtained in its favor precluded any liability against it in favor of Derek the Duct Supplier. Oliver Owner sought a determination by the court that the award in his favor concerning no liability for any of the problems on the project barred the claim of Derek the Duct Supplier. Oliver Owner also sought a determination that the rejection of the lien claim of Hank’s HVAC perforce barred Hank’s HVAC’s claim for quantum meruit, and GCI joined that motion. Oliver Owner also sought contribution and indemnity from GCI on the basis of any award issued against him for any lien claim.
(b)
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GCI contended that the award against Hank’s HVAC precluded any determination in favor of Derek the Duct Supplier that GCI was liable for any amounts incurred as the result of the work or supplies of Derek the Duct Supplier. GCI further contended that the award in its favor against Alex the Architect dictated that it could not be liable for any claims arising out of the issues pertaining to duct work because Architect was found to have been the liable party for such problems on the Project. At a pre-trial hearing, all Defendants filed motions in limine to preclude Derek the Duct Supplier from introducing any evidence concerning any arbitration award characterized as adverse to any of them. They also filed motions in limine to preclude Derek the Duct Supplier from introducing any testimony, for impeachment purposes or otherwise, that was given during the arbitration proceedings. RES JUDICATA/COLLATERAL ESTOPPEL IN POST-ARBITRATION PROCEEDINGS The court first addressed the issues of res judicata (claim preclusion) and collateral estoppel (or issue preclusion). The court began by enunciating the following general principles about the doctrines of res judicata and collateral estoppel. Regarding res judicata, the court stated that after a final judgment has been rendered, a claimant cannot later raise issues or theories of recovery based on the same transaction that were raised or could have been raised in the prior action, nor can a defendant raise defenses or counterclaims arising from the transaction giving rise to the claimant’s original claim.30 The court adopted Texas authority concerning the elements of res judicata.31
30
Montana v. United States, 440 U.S. 147, 153 (1979); see United States ex rel. Portland Constr. Co. v. Weiss Pollution Control Corp., 532 F.2d 1009 (5th Cir. 1976); Waterfront Marine Constr., Inc. v. N. End 49ers Sandbridge Bulkhead Groups, 468 S.E.2d 894 (Va. 1996). “Arbitration would be of little value if the entire controversy or any part thereof could be reopened later by a mere” change in the wording of the matters included in the claim the arbitrators had rejected. Goldstein v. Doft, 353 F.2d 484 (2d Cir. 1965).
31
The elements of res judicata are: (1) a prior final judgment on the merits by a court of competent jurisdiction; (2)
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The court further pronounced that a party need not have been a participant in the first case in question to assert issue preclusion. Any party could invoke collateral estoppel “defensively” against a claimant bringing a second suit on an issue the claimant litigated and lost in a prior action.32 A claimant in a subsequent action was deemed allowed to invoke issue preclusion “offensively” against a defendant who had litigated and lost an issue in a prior proceeding.33 The court then opined that assessing the collateral estoppel effect of an arbitral finding requires use of a case-by-case approach.34 The court adopted Texas authority concerning the elements of collateral estoppel. 35 The court continued by noting limited direct authority in Texas which addressed whether findings in arbitration could provide a basis for the application of the doctrine of res judicata. The court indicated that Texas courts have held that an arbitration award has the same effect as a judgment of a court of last resort with every reasonable presumption given to the findings in order to uphold the arbitration proceedings. 36 It noted that certain Texas cases had analogized from
identity of parties or those in privity with them; and (3) a second action based on the same claims as were raised or could have been raised in the first action. Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996).
32
Blonder-Tongue Labs. v. Univ. of Illinois Found., 402 U.S. 313, 324 (1971).
33
Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979); In Re Lewisville Props., Inc., 849 F.2d 946, 949 (5th Cir. 1988).
34
Universal Am. Barge Corp. v. J-Chem, Inc., 946 F.2d 1131, 1136–37 (5th Cir. 1991) (citing Greenblatt v. Drexel Burnham Lambert, Inc., 763 F.2d 1352, 1361 (11th Cir. 1985)).
35
The elements of collateral estoppel are: (1) the facts sought to be litigated in the second action were fully and fairly litigated in the prior action; (2) those facts were essential to the judgment in the first action; and (3) the parties were cast as adversaries in the first action. Eagle Properties, Ltd. v. Scharbauer, 807 S.W.2d 714, 721 (Tex. 1990). The issue decided in the prior action must be identical to the issue in the pending action. State & County Mut. Fire Ins. Co. v. Miller, 52 S.W.3d 693, 696 (Tex. 2001). Collateral estoppel further requires a final judgment. Frost Nat'l Bank v. Burge, 29 S.W.3d 580, 595 (Tex. App.—Houston [14th Dist.] 2000, no pet.).
36
J.J. Gregory Gourmet Serv., Inc. v. Antone’s Import Co., 927 S.W.2d 31, 33 (Tex. App.—Houston [1st Dist.] 1995, no writ) (citing RESTATEMENT (SECOND) OF JUDGMENTS § 84 (1982) in support of the proposition that res judicata principles apply to arbitration proceedings); see Anzilotti v. Gene D. Liggin, Inc., 899 S.W.2d 264 (Tex. App.—Houston [14th Dist.] 1995); Glazer’s Wholesale Distribs., Inc. v. Heineken USA, Inc., 95 S.W.3d 286 (Tex. App.—Dallas 2001, pet. granted, judgm’t vacated w.r.m.).
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the finality of a trial court’s judgment for purposes of res judicata and collateral estoppel,37 to uphold the same dignity and standing of an arbitration award because it carries the same effect as a final judgment. The trial court thus stated, as a preliminary matter, that the rules of res judicata and collateral estoppel apply to arbitration awards.38 The court also noted that Texas courts can look to the federal rules for applying the doctrines of res judicata and collateral estoppel for guidance.39 The court based this comity on the Texas Supreme Court’s holding in Eagle Properties, Ltd. v. Scharbauer, 40 which found no material difference between the Texas and federal laws of collateral estoppel. Analyzing such federal authority, the court indicated that arbitral findings can be given preclusive effect in a subsequent legal action.41 The court thus accepted the premise that once an issue is determined in arbitration, a party is precluded from re-litigating that issue in a later court proceeding.42 In reaching this conclusion, the court noted that there was conflicting authority to the
37
Scurlock Oil Co. v. Smithwick, 724 S.W.2d 1, 6 (Tex. 1986).
38
Tanox, Inc. v. Akin, Gump, Strauss, Hauer & Feld, L.L.P., 105 S.W.3d 244, 270 (Tex. App.—Houston [1st Dist.] 2003, pet. denied); see Cont’l Holdings, Ltd. v. Leahy, 132 S.W.3d 471, 474 (Tex. App.—Eastland 2003, no pet. h.). It should also be noted that just as with a final judgment from a trial court, the preclusive effect of an arbitration award will remain while on appeal, but it will be limited if an appellate court reverses the trial court’s decision. The finality necessary for res judicata and collateral estoppel is eliminated in that instance. See Scurlock Oil Co., 724 S.W.2d at 6; J.J. Gregory Gourmet Serv., Inc., 927 S.W.2d at 34. Further, one court has held that a final arbitration award can be applied even against one who did not directly participate in an arbitration. Drago Daic, Tr. v. Nauru Phosphate Royalties, Inc., 27 S.W.3d 695 (Tex. App.—Beaumont 2000, pet. denied) (citing Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d 160 (5th Cir. 1998)).
39
See Andrew L. Pickens, Applying Collateral Estoppel from Findings Made in Arbitration, HOUS. LAW., Mar.–Apr. 1995, at 33.
40 41
807 S.W.2d 714, 721 (Tex. 1990).
Universal Am. Barge Corp. v. J-Chem, Inc., 946 F.2d 1131, 1136 (5th Cir. 1991) (citing Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 223 (1985)); see also In re Pancake, 106 F.3d 1242 (5th Cir. 1997) (upholding an arbitration award and holding the parties were collaterally estopped from re-litigating the issues already decided in the prior arbitration.)
42
See Pickens supra, note 39.
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contrary. One limitation to finality can occur when the rules allow for de novo review on appeal.43 Other jurisdictions limit collateral estoppel when an arbitration award is non-binding and an appeal results in a new trial.44 The policy supporting this rationale is the procedural protection of parties during trial when no such protections exist in arbitrations, including keeping a record of the proceedings and issuing findings of fact or law.45 The court further stated that support for applying the doctrine of collateral estoppel to arbitration proceedings can be found in decisions of other non-traditional tribunals, such as bankruptcy courts46 and the Industrial Accident Board.47 Applying these general principles, the court then turned to the question of the impact of each arbitration award on the upcoming trial. The court held that the awards would collaterally estop any subsequent litigation regarding that award and the same issues resolved during those prior proceedings. The court further stated that because of the existence of a record of each arbitration proceeding, and because of the rendition of a reasoned award in each instance, the court could clearly ascertain what had occurred in each arbitration proceeding. The court simultaneously acknowledged that if necessary, it would utilize its best judgment to determine what had occurred in each arbitration proceeding because, in each underlying arbitration, a presumption existed that all
43
Scurlock, 724 S.W.2d at 6.
44
Malloy v. U.S. Fid. & Guar., No. 89C-JL-10, 1991 W.L. 18005, at *1 (Del. Super. Ct. Jan. 10, 1991); Vandenberg v. Superior Court, 982 P.2d 229 (Cal. Ct. App. 1999).
45
See, e.g., Hudson v. Shoemaker, 25 Phila. County Rptr. 54, 16 Pa. D. & C. 4th 143, 149 (1992); Vandenberg, 982 P.2d at 241–43.
46
Wilhite v. Adams, 640 S.W.2d 875 (Tex. 1982). Puga v. Donna Fruit Co., 634 S.W.2d 677 (Tex. 1982).
47
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claims of all parties had been addressed.48 The court stated that because of the record in this case, it could avoid any issue such as had been noted in other jurisdictions about the sometimes challenging task of applying the doctrine of res judicata to an arbitral award that did not set forth a rationale for the award.49 USE OF ARBITRATION TESTIMONY / EVIDENCE The court then evaluated applicable principles pertinent to the use of arbitration evidence in a subsequent proceeding. The court noted that in some jurisdictions, such as California, the use of arbitration testimony or evidence is guided by statute and depends on the permanency of the arbitration.50 When an arbitration award is non-binding, no testimony from the arbitration may be used in a subsequent trial.51 “The case must be tried as though no arbitration proceedings had occurred. No reference may be made during the trial to . . . the evidence adduced at the arbitration hearing . . . or . . . may be used as affirmative evidence, or by way of impeachment, or for any other purpose at the trial.”52 One author has opined that the analysis of admissibility falls into a different realm and focuses upon whether the prior evidence in question constitutes an admission by the witness; if so, according to this author, then under generally accepted rules of evidence, the prior testimony should be admissible.53
48
Am. Renaissance Lines, Inc. v. Saxis Steamship Co., 502 F.2d 674, 678 (2d Cir. 1974). See Postlewaite v. McGraw-Hill, Inc., 333 F.3d 42, 49–51 (2d Cir. 2003).
49
50
See, e.g., CAL. R. COURT § 1616(c); CAL. CIV. PROC. CODE § 1141.10 et seq. (West 2003) (emphasizing California’s strong support for judicial arbitration as an alternative to traditional trials).
51 52
CAL. R. COURT § 1616(c); see also Jimena v. Alesso, 43 Cal. Rptr. 2d 18, 36 Cal. App. 4th 1028, 1029 (1995). CAL. R. COURT § 1616(c).
53
John M. McCoy, The Admissibility of Arbitration Depositions at Trial: Depositions from Prior Contractual Arbitrations Can Be a Source of Valuable Evidence, 26 June L.A. LAW., at 13 (2003).
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The court further noted the decision by the United States Court of Appeals for the Fifth Circuit in United States v. Fisher.54 In that case, the defendants were indicted for illegal actions allegedly undertaken as promoters soliciting investments in a failed housing project. The investors had previously filed suit seeking to have their investments repurchased by the promoters. That litigation was referred to arbitration, and the arbitration panel issued an award in favor of the promoters.55 In the subsequent criminal trial, the defendants sought to introduce evidence of the arbitration award but the trial court excluded the evidence. On appeal, the United States Court of Appeals for the Fifth Circuit reversed. The court first held that the evidence was highly relevant, stating that “[e]vidence that an arbitration proceeding occurred and that the defendants were not found obliged to repurchase the Players' shares” went to the heart of the matters in issue in the criminal proceeding. Rejecting the government’s objections, such as that the arbitrator did not detail reasons for his findings, the court deemed those reasons insufficient to exclude the evidence, particularly in light of the exposure the defendants had to substantial jail terms. The court further stated that the arbitration results were not so inherently confusing to preclude defense use of the evidence. Turning to a question of “claim preclusion” raised by the government, the Fisher court ruled that the excluded evidence from the arbitration proceeding “had not been offered to prove innocence, but to show that contrary to the Government’s assertions, the defendants’ legal position against the investors was not a ‘ruse’ or a position taken in bad faith.” The court thus held that it was error to exclude this evidence.56
54 55
106 F.3d 622, 633–34 (5th Cir. 1997). Id.
56
In Texas, the analysis varies because of statutory guidance which exists allowing the use of evidence from a prior arbitration in certain specific instances. The Agriculture Code, for example, sets forth a specific provision for the effect
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CONTRIBUTION Finally, the court then turned to a discussion of the general principles applicable to indemnity and contribution in the context of arbitration awards. The court began by noting that in Texas, to be a liable defendant eligible for contribution or subrogation, a party must meet the requirements of the Texas Civil Practice and Remedies Code.57 “A liable defendant is one against whom a judgment can be entered for at least a portion of the damages awarded to the claimant.”58 The court noted the holding of Pacesetter Pools, Inc. v. Piece Homes, Inc.59: a party seeking contribution based on an arbitration award does not have to engage in useless acts, such as seeking to vacate an arbitration award, to be considered a liable defendant. In Pacesetter Pools, the homebuilder did not first seek to vacate an arbitration award but was still able to seek contribution from the pool company as a joint tortfeasor.60 RULINGS BY THE COURT From a consideration of the above principles, the court issued the following pre-trial rulings. The court denied the motion of Hank’s HVAC for claim preclusion in the lawsuit against it by Derek the Duct Supplier. It ruled that Derek the Duct Supplier was entitled to a trial on the merits of its claims against Hank’s HVAC. The court denied the request of Oliver Owner that the award in his favor concerning no liability for any of the problems on the project barred the claim of Derek the Duct Supplier. The
of a binding arbitration. “In any litigation involving a complaint that has been the subject of arbitration . . . anypartymay introduce the report of the arbitration as evidence of the facts found in the report.” TEX. AGRIC. CODE ANN. § 64.004 (Vernon 2003). Similarly, the Tax Code sets forth rules for appeals of non-binding arbitration and allows either party to introduce the award or findings into evidence at a later trial, if any. TEX. TAX CODE § 42.225 (Vernon 2002).
57 58
TEX. CIV. PRAC. & REM. CODE § 33.016 (2003). TEX. CIV. PRAC. & REM. CODE § 33.011(3) (2003). 86 S.W.3d 827 (Tex. App.—Austin 2002, no pet.) Id.
59
60
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court held that Derek the Duct Supplier was entitled to proceed on any contractual or statutoryclaim pending that involved Owner. The court further sustained Oliver Owner’s claim for contribution and indemnity from GCI, holding that in view of the rulings by the Arbitration Panels, GCI was precluded from relitigating these issues. In so holding, the court specifically rejected the statement by the Arbitration Panel in Arbitration No. 3 that GCI was, in its view, entitled to damages from Owner because of Architect’s negligent design, holding that such a statement was beyond the scope of the issues in Arbitration No. 3. The court rejected the motion of Oliver Owner to bar the lien claim against him by Hank’s HVAC. The court ruled that it was going to evaluate Hank’s HVAC’s claim for quantum meruit de novo. The court further held that any judgment in favor of Hank’s HVAC on this claim would also be included in Oliver Owner’s claim for indemnity and contribution against GCI. The court further denied GCI’s motion for dismissal of the claims by Derek the Duct Supplier on the basis of the ruling in Arbitration No. 2 that Hank’s HVAC was barred from recovery for failing to submit its claims timely. The court held that this award would not preclude the claim of Derek the Duct Supplier because there had been no determination as to the substance of Hank’s HVAC’s claim. The court also denied GCI’s motion because of the result of Arbitration No. 3, although the court stated it would allow the determination of that Panel concerning the Architect’s negligent design to be introduced at the trial. The court upheld Derek the Duct Supplier’s right to introduce evidence concerning the arbitration awards characterized as adverse by the Defendants. The court also upheld the right of Derek the Duct Supplier and the Defendants to introduce any testimony of any advice party, for impeachment purposes or otherwise, that was elicited during the arbitration proceedings, directly from the record of each such proceeding
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CONCLUSION Oliver Owner recovered enough money from the arbitration process to be able to fund completion of the Spindletop Project, albeit with a new architect, a new general contractor, and new subcontractors. Oliver Owner also insisted that in the new contract, all parties sign a document acknowledging their obligation to participation in one, consolidated arbitration proceeding. He also vowed to himself that this would be the last construction project he would build.
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