Opinion
14-21-00712-CV
08-08-2023
DR. PRADIP JETHALAL MORBIA, PJ AND JP MORBIA CHILDREN'S TRUST, AND MAHAVIR IRREVOCABLE TRUST, Appellants v. TRADE RESOURCES, INC., BENCHMARK HOLDINGS, LLC, DAVID ENG, YI JING CAI, AND BUILDING MATERIAL, INC., Appellees
On Appeal from the 269th District Court Harris County, Texas Trial Court Cause No. 2019-24793
Panel consists of Justices Wise, Jewell, and Poissant.
MEMORANDUM OPINION
Ken Wise, Justice
Appellants Dr. Pradip Jethalal Morbia, PJ and JP Morbia Children's Trust, and Mahavir Irrevocable Trust appeal the trial court's judgment confirming the arbitration award. In four issues appellants contend that the trial court erred in confirming the arbitration award. We affirm.
Ratification
In their second and third issues, appellants contend that there is no agreement for binding arbitration because their prior counsel lacked the authority to execute such an agreement. Appellants contend that they agreed to go to non-binding arbitration in an effort to settle their claims against appellees but that they never authorized their prior counsel to execute any agreement requiring binding arbitration. Appellants contend that an attorney must have specific authority to enter into an agreement to binding arbitration on the clients' behalf, and without such authority, such an agreement is unenforceable. Appellees argue that appellants ratified their prior counsel's agreement by failing to object or otherwise raise the issue once they became aware of prior counsel's agreement to binding arbitration and by requesting that the arbitrator issue an award after learning of their prior counsel's unauthorized agreement.
Appellees are Trade Resources, Inc., Benchmark Holdings, LLC, David Eng, Yi Jing Cai, and Building Material, Inc.
A. General Legal Principles
A party seeking to compel arbitration bears the burden that an arbitration agreement exists and that the claims presented fall within its scope. Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018); Nationwide Coin & Bullion Reserve, Inc. v. Thomas, 625 S.W.3d 498, 503 (Tex. App.-Houston [14th Dist.] 2020, pet. denied). If the party seeking to compel arbitration meets this burden, then the burden shifts. Henry, 551 S.W.3d at 115. The party opposing arbitration must prove an affirmative defense to the provision's enforcement to avoid arbitration. Id.
"If there is conflicting evidence as to the material facts necessary to determine the issues, the trial court is to conduct an evidentiary hearing to resolve the dispute." Thomas, 625 S.W.3d at 503. "Texas courts give arbitration awards great deference and indulge every reasonable presumption to uphold arbitrators' decisions." Ctr. Rose Partners, Ltd. v. Bailey, 587 S.W.3d 514, 528 (Tex. App.- Houston [14th Dist.] 2019, no pet.). "Generally, a court will indulge every reasonable presumption to support a settlement agreement made by a duly employed attorney." Ebner v. First State Bank of Smithville, 27 S.W.3d 287, 300 (Tex. App.-Austin 2000, pet. denied).
"Ratification is the adoption or confirmation by a person with knowledge of all material facts of a prior act that did not legally bind that person and that the person had the right to repudiate." BPX Op. Co. v. Strickhausen, 629 S.W.3d 189, 196 (Tex. 2021) (quotation omitted); Mission Petroleum Carriers, Inc. v. Kelley, 449 S.W.3d 550, 553 (Tex. App.-Houston [14th Dist.] 2014, no pet.). "Ratification may be express or implied from a course of conduct." Kelley, 449 S.W.3d at 553 (quotation omitted). "An act inconsistent with the intent to avoid a contract ratifies the contract." Id. Once ratified a party may not later withdraw his ratification and seek to avoid the contract. Id. The inquiry focuses on the actions of the party seeking to avoid the contract once that party became fully aware that his prior actions did not legally bind him. Id. Ratification extends to the entire transaction-a party may not ratify those parts of the transaction which are beneficial portions and disavow those which are detrimental. Strickhausen, 629 S.W.3d at 196.
"Ratification is often treated as a mixed question of law and fact." Id. However, when the facts are uncontroverted, the court may decide the question as a matter of law. Id. "A party's subjective state of mind is immaterial to a claim of implied ratification." Id. at 197. Courts look instead to objective evidence of intent, such as the party's conduct. Id. We must examine the totality of the circumstances to determine a party's objective intent. Id. We should only find implied ratification if the party's actions "clearly evidence[e] an intention to ratify." Id. (quoting Chrisman v. Electrastart of Hous., Inc., No. 14-02-00516-CV, 2003 WL 22996909, at *5 (Tex. App.-Houston [14th Dist.] Dec. 23, 2003, no pet.).
Acceptance of benefits is a quintessential indicator of ratification, and it will support a finding of ratification as a matter of law in many cases. Id. "But as with any objective inquiry, adjudicating a claim of implied ratification requires an examination of the totality of circumstances, not a narrow focus on one fact to the exclusion of all others." Id. at 200 (quotation omitted).
B. Background
The parties filed suit against one another. Their cases were consolidated into a single cause before the trial court. The parties agreed to abate the case in the trial court and attend arbitration. The attorneys for the parties executed an agreement to attend "final, binding, non-appealable arbitration." Appellants never agreed to binding arbitration, though they agreed to non-binding arbitration as a means of furthering settlement negotiations.
The final arbitration hearing took place in November 2020 over the course of four days. The arbitrator heard evidence and arguments from the parties and took the matter under advisement. Approximately three months later, the arbitrator contacted the parties to inform them that she did not have an award ready and would not have one ready in the immediate future. The arbitrator offered to refund the parties their arbitration fees so they could start over with another arbitrator. It is undisputed that at this point appellants were aware that their prior counsel had agreed to binding arbitration without their approval or authority. Appellants did not object or raise the issue of the binding nature of the arbitration with the arbitrator, the trial court, or opposing counsel. Instead, appellants continued with arbitration. The arbitrator sent the parties to mediation in an unsuccessful attempt to resolve the case.
Nearly nine months after the arbitration hearings and six months after appellants were made aware of their prior counsel's agreement to binding arbitration, the arbitrator issued a final award. Appellants, again, did not object or otherwise raise the issue with the arbitrator. Only when appellees moved the trial court to confirm the award did appellants finally raise the issue of their prior counsel's lack of authority to agree to binding arbitration.
In the trial court, appellants argued that they had no obligation to raise any objection sooner because they had already attended the arbitration. Appellants contended that they only had an obligation to object and raise the issue once appellees moved to confirm the award. The trial court confirmed the arbitration award.
C. Analysis
We assume without deciding that appellants did not authorize their prior counsel to agree to binding arbitration and that appellants' authority is required for such an agreement. Even if appellants did not authorize their prior counsel to agree to binding arbitration, the award must be upheld if the agreement was ratified by appellants. See Miller v. Kennedy & Minshew, Prof'l Corp., 142 S.W.3d 325, 342 (Tex. App.-Fort Worth 2003, pet. denied) ("A person ratifies an unauthorized act if, by word or conduct, with knowledge of all material facts, he confirms or recognizes the act as valid."); OurLink, LLC v. Goldberg, No. 3-08-CV-0745-BD, 2011 WL 796794, *1 (N.D. Tex. Feb. 25, 2011) ("Under Texas law, . . . a principal may be bound by the acts of his agent when the agent has actual or apparent authority to do those acts, or when the principal ratifies those acts.").
Here, appellants argue that because the arbitrator issued an award for appellees, they did not accept any benefit, so they could not have ratified the agreement. However, appellants may also ratify the previously unauthorized act through their own course of conduct. See Strickhausen, 629 S.W.3d at 196. Appellants failed to raise the issue or object in any way. In addition, appellants accepted the benefit of possibly obtaining a binding award in their favor by failing to raise the issue after they had full knowledge of the terms of the agreement.
Instead of objecting or otherwise alerting appellees, the arbitrator, or the trial court, appellants allowed the arbitration to continue under the understanding that the agreement was for binding arbitration, as was provided expressly in the agreement between the parties. Land Title Co. of Dallas, Inc. v. F.M. Stigler, Inc., 609 S.W.2d 754, 757 (Tex. 1980) ("[Party's] failure to repudiate after learning of the agreement gives rise to ratification."). "The critical factor in determining whether a principal has ratified an unauthorized act by his agent is the principal's knowledge of the transaction and his actions in light of such knowledge." Id. at 756. Here, appellants did nothing to repudiate or reject the agreement made without their authority until after an award was issued against them. Instead of raising the argument, they chose to wait for an outcome before alerting anyone that the agreement was not authorized. See In re Citigroup Global Markets, Inc., 258 S.W.3d 623, 626 (Tex. 2008) (in the context of waiver, discussing the "inherent unfairness caused by a party's attempt to have it both ways by switching between litigation and arbitration to its own advantage" (quotation omitted)).
Appellants contend that waiting for the arbitration award is merely upholding the "status quo" and obtaining what appellants agreed to-a non-binding award. This fails to consider that without an agreement on whether the arbitration was binding or non-binding, the contract lacked mutual assent on this term. By proceeding with arbitration to an award after full knowledge that there was no agreement on what appellants viewed as an essential and material term of the parties' agreement, and without alerting appellees of the lack of agreement as to such term, appellants sought to impose their own contractual terms upon appellees without their consent or knowledge. And further sought to deprive appellees of the benefit of the bargain they thought they had made. This is not upholding the "status quo."
Appellants argue that non-binding arbitration is the "default" term, citing Chapter 154 of the Texas Civil Practice and Remedies Code. See Tex. Civ. Prac. & Rem. Code § 154.027. However, "Chapter 154 applies to court-ordered referrals to alternative methods of dispute resolution, not to private, contractual agreements to resolve disputes." See In re Cartwright, 104 S.W.3d 706, 711 (Tex. App.-Houston [1st Dist.] 2003, no pet.) Whereas, "[t]he [Texas Arbitration Act] necessarily contemplates that the arbitration award be binding, it makes no provision for a nonbinding arbitration procedure." Id. The agreement herein was not court-ordered, but instead a private, contractual agreement to arbitrate. Therefore, the "default" term of Chapter 154 is inapplicable here. See id.
It is undisputed that appellants were fully aware of their counsel's agreement in February 2021. It is further undisputed that appellants never objected or raised any argument with regard to the unauthorized agreement until after the award was issued in favor of appellees in August 2021. Based on appellants' objective acts, we conclude that the evidence supports the trial court's conclusion that appellants ratified the agreement.
We overrule appellants' second and third issues.
Appellants' first issue is that their prior counsel did not have the authority to enter into an agreement for binding arbitration. We need not decide this issue because even if we agree with appellants, it will not change the disposition on appeal. See Tex. R. App. P. 47.1.
Substantial Prejudice
In their fourth issue appellants argue that the award should be vacated because "the nine-month delay substantially prejudiced the parties' rights to a timely and reliable award." Appellants further argue that the schedule under the agreement was not followed, also prejudicing their rights. Appellants argue that they were deprived of a fair hearing before the arbitrator.
The parties elected to not record the arbitration proceedings. Thus, there is no record to review on appeal of the proceedings themselves. Instead, appellants point to appellees' objections to the award that appellees filed with the arbitrator. However, we indulge every presumption in favor of the arbitrator's award. See CVN Group v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). Where there is no record of the proceedings before the arbitrator, we cannot review whether appellants were "deprived of a fair hearing." See Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 568 (Tex. App.-Dallas 2008, no pet.) ("When there is no transcript of the arbitration hearing, the appellate court will presume the evidence was adequate to support the award."); House Grain v. Obst, 659 S.W.2d 903, 906 (Tex. App.-Corpus Christi 1983, writ ref'd n.r.e.) (appellate court must presume adequate evidence to support the award when the appellant sought to vacate the award based on 'gross mistake' with no transcript of the arbitration proceedings).
Appellants further contend that because the contemplated schedule in the agreement was not followed, they were substantially prejudiced. The agreement provided that a "final arbitration hearing" would occur "within 60 to 75 days from the date of execution of this agreement." Appellants submit that while the agreement is undated, the parties submitted the agreement to the trial court on August 31, 2020. It is undisputed that the final hearing occurred on November 21, 2020-one week after the agreed schedule. Appellants provide no indication how a delay of one week in the scheduling order caused them prejudice, and we decline to conclude on these facts that such a delay was prejudicial.
Next appellants argue that the agreement provided that a final arbitration award would be issued within ninety days after the agreement was executed. However, the agreement did not provide a deadline for a final award to be issued. Instead, the parties requested the trial court to abate the proceedings for "at least 90 days." While appellants urge that this indicates that the parties intended that the final award would be issued within ninety days, there is no such express agreement.
We overrule appellant's fourth issue.
Conclusion
Having overruled appellants' issues, we affirm the judgment of the trial court.