Royce Homes, L.P.; Hammersmith Group, Inc. v. Deborah F. Bates, Verdia L. Boyce, Wadie & Demetria Butler, Robert & Billye Evans, Darlene Handy, Josaulyn Hoskins, Jinnell Ray, Trilyon Taylor, Barbara Wilson

Houston, TX – Property lawyer represented Appellant with appealing the order of the trial court confirming an arbitration award and final judgment in favor of appellee.

The nine homeowner appellees purchased homes from Royce Homes in the Garden Valley Estates subdivision. In purchasing their homes, each homeowner received a "2-10 Home Buyer's Warranty,” which was to be

administered by Home Buyer's Warranty, Inc. ("HBW”). The "2-10 Home Buyer's

Warranty” stated: "This Warranty is a contract between you and your Builder. HBW

is the warranty administrator, but NOT a warrantor under the contract.” The

arbitration provision in the warranty stated:

Any and all claims, disputes and controversies arising under or relating

to this Agreement, including without limitation, any claim of breach of

contract, negligent or intentional misrepresentation or nondisclosure in

the inducement, execution or performance of any contract, and breach

of any alleged duty of good faith and fair dealing, shall be submitted to

arbitration by and pursuant to the rules of Construction Arbitration

Construction Arbitration Services is an independent arbitration service that specializes 1

in disputes arising from residential home construction.

These homeowners include the Evanses, Taylor, and Wilson. 2

3

Services,Inc. (hereinafter "CAS”) in effect at the time of the request for 1

arbitration. If CAS shall for any reason be unable or unwilling to

conduct, or is disabled from conducting such arbitration, the arbitration

shall be conducted by and pursuant to the rules of the American

Arbitration Association applicable to home warranty arbitration

proceedings in effect at the time of the request for arbitration. The

decision of the arbitrator shall be final and binding and may be entered

as a judgment in any State or Federal court of competent jurisdiction.

. . . .

The parties expressly agree that this arbitration provision involves and

concerns interstate commerce and is governed by the provisions of the

Federal Arbitration Act, (9 U.S.C. § 1, et seq.), now in effect and as the

same may from time to time be amended.

Some of the homeowners also signed earnest money contracts that each contained 2

an arbitration provision in an attached arbitration addendum ("Espree Arbitration

Addendum”). That provision stated, "Any controversy, claim or dispute arising out

of or related directly or indirectly but not limited to . . . the construction or repair of

the home . . . shall be settled by arbitrations [conducted by CAS].”

On February 11, 1999, disgruntled residents of the Green Valley Estates filed

suit against their homebuilders, the neighborhood developer, and various other

entities. This original lawsuit sought to establish a separate homeowner's association

and to address claims surrounding the creation of the subdivision and construction

defects. None of the homeowners filed warranty complaints by HBW under the

Royce Homes states that it filed a motion to compel arbitration with CAS acting as 3

the arbitrator; however, the motion that it cites in its brief is the August 8, 2006

motion that it did not file until after the current parties' disputes were severed from

the rest of the case. Royce Homes also points out that the parties' attorneys signed

an agreed order to enforce the arbitration agreement in the warranties, but this order

was never signed by the trial court and is undated.

4

Home Buyer's Warranty provisions for the construction defects that were the subject

of their claims. Nor did Royce Homes seek to compel arbitration at this point. After 3

several interventions and amendments of the pleadings, additional plaintiffs were

joined, and some plaintiffs expanded their claims to include claims for construction

defects, breach of contract, fraud, and DTPA violations. Royce Homes and its

general partner Hammersmith were made parties to the litigation in 2002.

In February 2004, the parties entered into a settlement agreement ("Settlement

Agreement”). This agreement expressly excluded the homeowners' construction

defect claims against Royce Homes and Hammersmith. The Settlement Agreement

stated:

Notwithstanding anything to the contrary herein, it is understood and

agreed that this settlement and the compliance with the terms and receipt

of and payments made hereunder shall not settle or affect any of the

claims and causes of action arising out of or created by the alleged

deficiencies in the construction of any home, Construction Defects

Claims, now pending against Royce Homes, L.P. by any of the

homeowners who purchased homesfrom Royce Homes, L.P. All claims

against Royce Homes, L.P. related to such alleged construction defects

remain pending, abated for arbitration under Cause No. 107,892-D. . . .

Specifically, all claims against Royce Homes, L.P. related to

construction defects in the construction of the property itself

("Construction Defect Claims”) as set forth in Plaintiffs' and

Royce Homes states that the trial court issued an order staying the litigation of the 4

construction defect claims pending arbitration. However, the record does not contain

an order to this effect—the one reference made by Royce Homes in its briefing is to

the order severing the construction defect claims from the rest of the litigation.

5

Intervenors' First Supplemental Petition in Response to DWM

Holdings' Special Exceptions and Pursuant to Court Order, shall remain

pending and are abated for arbitration.

. . . .

The parties further acknowledge that the purpose of this agreement is to

resolve disputed claims made, in order that these parties may buy their

peace forever, with the exception of all construction defects claims

which are to be resolved through either settlement and/or arbitration.

. . . .

This document together with the take nothing judgment dismissing

Cause No. 107,892 contains the entire agreement between the parties

and the terms hereof are contractual and not mere recitals.

. . . .

This agreement shall be governed by the laws of the State of Texas.

(Emphasis added.) The construction defect claims were severed from the rest of the

litigation on April 12, 2004. Neither the homeowners nor Royce Homes filed the

4

arbitration proceedings contemplated in the settlement agreement.

On May 6, 2004, the homeowners filed their eleventh amended petition against

Royce Homes and its general partner, Hammersmith, on the severed claims. The

eleventh amended petition alleged causes of action for breach of contract based on

Royce Homes' alleged breach of "numerous material terms of the contractual

The record and the briefing do not reveal what occurred during this two-year gap. 5

This motion to appoint an arbitrator named the following appellees: Bates, Boyce, the 6

Butlers, the Evanses, Handy, Hoskins, and Ray.

6

agreements . . . including the failures to construct the homes as promised and in a

good and workmanlike fashion [and] the implied warranty of habitability and implied

warranty of good workmanship”; common law fraud and unconscionability based on

statements and respresentations made byRoyce Homes "concerning the quality of the

construction and the skill to be utilized by” Royce Homes; statutory fraud in a real

estate transaction in violation of Texas Business and Commerce Code section 27.01;

and deceptive trade practices.

Two years later, on June 29, 2006, the trial court notified the parties that it had 5

set the case on the non-jury trial docket on September 6, 2006 and that "there will be

no continuances or passes [granted].” A month later, on July 25, 2006, ten of the

fifteen homeowners, whose claims had been severed but who had not signed Espree 6

Arbitration Addendums with their earnest money contracts, moved the trial court to

appoint an arbitrator pursuant to section 171.041 of the Texas Arbitration Act (TAA).

This motion stated:

All . . . 15 homeowner disputes were referred to arbitration by

agreement. Five of the homeowners had previously signed an Espree

Arbitration Addendum wherein an arbitrator was designated in advance.

The remaining [homeowners] have no such agreement, but have agreed

to arbitrate solely in accordance with the Texas Arbitration Act.

[The 10 moving homeowners] have proposed to [Royce Homes]

that an agreed arbitrator arbitrate all 15 disputes at one hearing. To date,

7

the [homeowners] have received no response to this suggestion or

request. Therefore, due to the limited time schedule set forth by the

Court, and in order to avoid dismissal, the [10 moving homeowners] are

pursuing their rights under the Texas Arbitration Act and the other 5

homeowners are pursuing theirs under their agreements.

(Emphasis added.) The motion also stated that the ten moving homeowners had

agreed to no "defined method of appointment of arbitrators” and that it was proper

for the trial court to appoint one for them under section 171.041(b) of the TAA. The

homeowners suggested three candidates for arbitrator, including Tom McDonald. On

July 31, 2006, the trial court appointed Tom McDonald arbitrator for the fifteen

homeowners named in the motion.

In response to the homeowners' application to appoint an arbitrator under the

TAA, on August 8, 2006, Royce Homes filed a motion to enforce the arbitration

agreements signed by all fifteen of the homeowners in purchasing their homes, which

provided that CAS should act as arbitrator, and it filed a motion to reconsider the

appointment of Tom McDonald as arbitrator. Royce Homes argued that because all

fifteen homeowners with pending construction defect claims had signed arbitration

provisions in their Home Buyer's Warranty agreements and some of the homeowners

had signed arbitration agreements in the Espree Arbitration Addendums, and because

both required arbitration to be conducted by CAS, the arbitration should be conducted

by CAS.

On August 17, 2006, the five homeowners who had not joined the original

Appellees Taylor and Wilson were specifically named as movants in this second 7

motion to appoint an arbitrator.

8

motion to appoint an arbitrator pursuant to the TAA moved the trial court for 7

appointment of Tom McDonald as arbitrator for their claims. This motion stated, "At

the time of the filing of the first motion for appointment of an arbitrator, it was

believed that Construction Arbitration Services ("CAS”) would act as arbitrator for

the remaining five [homeowners].” The motion stated that the homeowners had

attempted to comply with CAS's procedural rules by filing the proper applications

and arranging to pay the applicable fees, but CAS refused to accept the role of

arbitrator.

Specifically, in his supporting affidavit, the attorney for the homeowners

averred that in June 2006, the homeowners contacted CAS through its Construction

Dispute Representative, Cardell Wade, who "directed [lawyers for the homeowners]

to CAS's website and advised [them] of the necessary applications, rules and

information needed” to pursue arbitration though CAS. In July 2006, attorneys for

the homeowners prepared applications and helped the homeowners make

arrangements to pay the application fee to CAS "in order to have it immediately

appoint its names arbitrator and enter a scheduling order” to avoid the trial court's

order for dismissal. The motion further stated:

Then, on August 14, 2006, CAS's representative, Cardell Wade,

for no apparent reason, informed counsel for [the homeowners] that

9

CAS would no longer accept the role as arbitrator under these contracts.

He further informed counsel that unless the [homeowners] made

applications for limited warranty claims, only, through Home Buyer's

Warranty, Inc., the purported administrator of an alleged warranty

program in which the builder Royce Homes, L.P., attempted to enroll

Movants at the time of their respective closings, and Home Buyers

Warranty, Inc. and Royce Homes, L.P., made an application to CAS,

CAS would not arbitrate these five claims.

Despite being informed that the claims in this dispute were being

submitted to arbitration pursuant to the agreements reached in this case

and upon the Court's order severing the fifteen remaining claims,

Cardell Wade informed counsel for Movants that CAS still refused to

accept a request of demand for arbitration from the Movants and that

CAS would refuse to act as arbitrator even if ordered by this Court to do

so, unless the homebuilder, Royce Homes, L.P., and Home Buyers

Warranty, Inc., requested CAS to do so.

CAS's refusal to arbitrate this matter coupled with its refusal to

act under any order entered by this Court and Royce Homes, L.P.'s

refusal to arbitrate this dispute as a joint claims arbitration leaves

Movants with no alternative but to seek appointment of an arbitrator

pursuant to Section 171.041 of the Texas Arbitration Act. . . .

The affidavit of the attorney for the homeowners also related the details of the

interaction between the homeowners and CAS in support of these claims.

Also on August 17, 2006, Royce Homes filed a motion for reconsideration,

arguing that Royce Homes had sought to compel the homeowners to arbitration with

CAS since it had first made an appearance in the case and that, under both the TAA

and the FAA, the trial court was required to appoint the arbitrator specified in the

arbitration agreements.

On August 22, 2006, Royce Homes filed a response to the remaining five

homeowners' motion to have Tom McDonald appointed as arbitrator. This response

10

outlined Royce Homes' procedure for resolving warranty disputes, including

arbitration before CAS. Royce Homes claimed that it was the homeowners' failure

to follow the procedures required to invoke arbitration before CAS that had led to the

dispute over appointment of an arbitrator. Royce Homes attached the affidavit of

Cardell Wade, which stated:

The CAS Rules for the Arbitration of Home Warranty Disputes

. . . require that the Parties agree to utilize the CAS Rules either through

a separate agreement or as part of a warranty program. In those

instances in which the home is enrolled in a warranty program, a

Homeowner making a claim starts the arbitration process by filing the

appropriate forms with his or her warranty insurer, which then forwards

the case to CAS, which then initiates the arbitration process and

appoints an Arbitrator. CAS will accept a court appointment to act as

an arbitration administrative agency, pursuant to the terms of a court

order issued by a court of competent jurisdiction.

CAS has arbitrated numerous warranty claims involving homes

in the Home Buyers Warranty (2-10) program. However, it is necessary

for the Homeowner to complete the forms required by Home Buyers

Warranty (2-10), and to initiate the process with Home Buyers Warranty

(2-10), in order for the Arbitration process to ultimately be administered

by CAS.

In a prior phone conference I previously advised Karl Hoppess,

Esq., that his client's home is enrolled in the Home Buyers Warranty (2-

10) program, and Home Buyers Warranty (2-10) must be contacted in

order for this clients to initiate their "Pre-Arbitration” process, and to

prevent the Homeowner(s) warranty from being voided with Home

Buyers Warranty (2-10), along with the possible resolving [sic] the

dispute between the Parties before send [sic] the case to CAS. Upon

receipt of the Homeowner(s) case file from Home Buyers Warranty (2-

10), CAS can then initiate the Arbitration process, and appoint an

Arbitrator from its panel of Arbitrators.

On August 22, 2006, the trial court signed an order denying Royce Homes'

motions to enforce the arbitration agreement and to reconsider the appointment of

In re Royce Homes, L.P., No. 01-06-00920-CV, 2007 WL 926562 (Tex. 8

App.—Houston [1st Dist.] Mar. 29, 2007) (not designated for publication).

11

Tom McDonald as arbitrator. On September 1, 2006, the trial court also denied

Royce Homes' motion for reconsideration of those rulings and ordered the trial

setting removed from its September 6, 2006 docket.

Royce Homes subsequently filed a petition for writ of mandamus in this Court

seeking to enforce the arbitration provisions selecting CAS as arbitrator, or

alternatively, applying CAS procedural rules. This petition for writ of mandamus was

denied without an opinion on the merits on March 29, 2007.8

On April 12, 2007, Royce Homes filed a motion with McDonald, the courtappointed arbitrator, again seeking to enforce the arbitration provisions designating

CAS as arbitrator, or alternatively, implementing CAS procedures. The arbitrator

denied this motion and set a schedule for conducting the arbitration proceedings. At

the beginning of the arbitration hearing on November 12, 2007, Royce Homes

repeated its request to have CAS appointed as arbitrator or to have the arbitration

conducted following CAS procedures. The arbitrator denied Royce Homes' request

again and began the hearing.

On January 1, 2008, the arbitrator granted the homeowners collectively a

$336,121.26 award, including over $82,000 for actual damages and more than

$245,000 as treble damages, plus $75,000 in attorney's fees and $15,000 in litigation

12

expenses.

Royce Homes moved the trial court to vacate the arbitration award. The

homeowners filed a motion to confirm the award. On February 29, 2008, the trial

court entered a final judgment confirming the full amount of the arbitration award.

Royce Homes appeals.

Controlling Law

We first determine whether the contract is controlled by the Federal Arbitration

Act (FAA) or the Texas General Arbitration Act (TAA), or both. The parties dispute

which statute governs here. Royce Homes argues that the FAA applies, while the

homeowners argue that the settlement agreement provided that it was "governed by

the laws of the State of Texas.”

The FAA preempts all otherwise applicable inconsistent state laws, including

any inconsistent provisions of the TAA, under the Supremacy Clause of the United

States Constitution. U.S. CONST. art. VI; see Allied-Bruce Terminix Co. v. Dobson,

513 U.S. 265, 272, 115 S. Ct. 834, 838 (1995). The FAA applies to contracts

involving interstate commerce. 9 U.S.C. § 2. It requires only that interstate

commerce be involved or affected. Allied-Bruce, 513 U.S. at 277–81, 115 S. Ct. at

841–43; see also In re Brock Specialty Servs., 286 S.W.3d 649, 653 (Tex.

App.—Corpus Christi 2009, orig. proceeding) ("'Commerce' has been broadly

defined and encompasses contracts relating to interstate commerce.”). Interstate

13

commerce is evidenced by location of headquarters in another state, manufacture of

components in a different state, transportation of goods across state lines, and billings

prepared in another state, among other factors. Stewart Title Guar. Co. v. Mack, 945

S.W.2d 330, 333 (Tex. App.—Houston [1st Dist.] 1997, writ dism'd w.o.j.);see also

Robinson v. TCI/US West Commc'ns Inc., 117 F.3d 900, 904 (5th Cir. 1997) (defining

interstate commerce as "trade, commerce, transportation, or communication among

the several States, or between any foreign country and any place or ship outside

thereof”). The burden is on the party seeking to compel arbitration to establish its

right under the FAA. Ikon Office Solutions, Inc. v. Eifert, 2 S.W.3d 688, 696 (Tex.

App.—Houston [14th Dist.] 1999, no pet).

The Texas Supreme Court has held that a Texas choice-of-law provision will

not be construed to select the TAA to the exclusion of the FAA unless the clause

specifically excludes the application of federal law. In re L & L Kempwood Assocs.,

L.P., 9 S.W.3d 125, 127–28 (Tex. 1999); Roehrs v. FSI Holdings, Inc., 246 S.W.3d

796, 803 (Tex. App.—Dallas 2008, pet. denied). Texas courts have also held that a

general choice-of-law clause such as the one in the settlement agreement does not

satisfy that standard. Roehrs, 246 S.W.3d at 803 (citing Dewey v. Wegner, 138

S.W.3d 591, 596 & n.5 (Tex. App.—Houston [14th Dist.] 2004, no pet.)).

Royce Homes, L.P. is a Delaware Limited Partnership; therefore, this

agreement affects interstate commerce. See Stewart Title Guar. Co., 945 S.W.2d at

14

333. Accordingly, we apply the FAA, while recognizing that the TAA also applies

to the extent it is consistent with the FAA. See Roerhs, 246 S.W.3d at 803 (citing In

re D. Wilson Constr. Co., 196 S.W.3d 774, 779–80 (Tex. 2006)).

Review of Confirmation of Arbitration Award

We review de novo a trial court's confirmation of an arbitration award under

the FAA based on the entire record. Myer v. Americo Life, Inc., 232 S.W.3d 401, 407

(Tex. App.—Dallas 2007, no pet.); 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). All reasonable presumptions are indulged to uphold the arbitrator's decision,

and none are indulged against it. Bailey & Williams v. Westfall, 727 S.W.2d 86, 90

(Tex. App.—Dallas 1987, writ ref'd n.r.e.).

An arbitration award is presumed valid and entitled to great deference. Myer,

232 S.W.3d at 407–08. When reviewing an arbitration award, we may not substitute

our judgment merely because we would have reached a different decision. Bailey,

727 S.W.2d at 90. Because judicial review of an arbitration award adds expense and

delay that diminishes the benefits of arbitration as an efficient, economical system for

resolving disputes, our review of the arbitration award is "extraordinarily narrow.”

See Myer, 232 S.W.3d at 408. Accordingly, we may not vacate an award even if it

is based upon a mistake in law or fact. Anzilotti v. Gene D. Liggin, Inc., 899 S.W.2d

264, 266 (Tex. App.—Houston [14th Dist.] 1995, no writ).

Hall Street specifically addressed the ability of parties to an arbitration agreement to 9

contractually agree to expanded grounds for judicial review of an arbitration award.

The Supreme Court held that parties could not contractually agree to grounds that

deviated from those prescribed in the FAA. See Hall St. Assocs., L.L.C. v. Mattel,

Inc., 552 U.S. 576, 128 S. Ct. 1396, 1400–03 (2008).

15

The Supreme Court has recently held that the statutory grounds provided in

sections 10 and 11 of the FAA for vacating, modifying, or correcting an arbitration

award are the exclusive grounds for vacating an arbitration award. Hall St. Assocs.,

L.L.C. v. Mattel, Inc., 522 U.S. 576, 128 S. Ct. 1396, 1403 (2008). Section 10(a) 9

permits a court to vacate an arbitration award:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or

either of them;

(3) where the arbitrators were guilty of misconduct in refusing to

postpone the hearing, upon sufficient cause shown, or in refusing to hear

evidence pertinent and material to the controversy; or of any other

misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly

executed them that a mutual, final, and definite award upon the subject

matter submitted was not made.

9 U.S.C. § 10(a).

Validity of the Arbitration Proceedings

In its first and second issues, Royce Homes argues that the trial court erred in

appointing an arbitrator who was not specified in the agreement between the parties

and that the trial court erred in failing to vacate the arbitration award because the

We consider Royce Homes' issues one and two together because under the FAA after 10

Hall Street, an arbitration award cannot be vacated based on the appointment of an

improper arbitrator unless that appointment would also implicate one of the statutory

provisions for vacatur. See Hall St. Assocs., 128 S. Ct. at 1403; Citigroup Global

Mkts., Inc. v. Bacon, 562 F.3d 349, 350 (5th Cir. 2009) (holding that Hall Street

restricts grounds for vacatur to those set forth in section 10 of FAA). Therefore, we

consider Royce Homes' argument that the trial court erred in appointing Tom

McDonald arbitrator as part of its argument that McDonald exceeded his authority.

16

appointed arbitrator exceeded his authority. In its third issue, Royce Homes argues 10

that the trial court erred in failing to vacate the arbitration award because the award

demonstrated a manifest disregard of the law and gross mistake.

A. Scope of Arbitrator's Powers

Royce Homes argues that the arbitration should have been conducted by CAS,

or in the alternative, that it should have been conducted following CAS procedures.

Royce Homes argues that the trial court erred in appointing Tom McDonald as

arbitrator instead of CAS, and that McDonald exceeded the scope of his powers by

notreferring the arbitration to CAS or, alternatively, by not conducting the arbitration

following CAS procedures.

Arbitration is a matter of contract, and "the power and authority of the

arbitrators in an arbitration proceeding is dependent on the provisions under which

the arbitrators were appointed.” Brook v. Peak Int'l, Ltd., 294 F.3d 668, 672 (5th Cir.

2002) (quoting Szuts v. Dean Witter Reynolds, Inc., 931 F.2d 830, 831 (11th Cir.

1991); see also Myer, 232 S.W.3d at 408 (holding that arbitrator's authority "is

defined by the contract containing the arbitration clause and by the issues actually

17

submitted to arbitration”). Parties to an arbitration agreement may determine by

contract the method for appointing an arbitrator and, under the FAA, the agreed upon

method of appointment "shall be followed.” See id. (citing 9 U.S.C. § 5).

However, section 5 of the FAA also provides that the agreed-upon method of

appointing an arbitrator can be set aside under some circumstances. Section 5 of the

FAA provides:

If in the agreement provision be made for a method of naming or

appointing an arbitrator or arbitrators or an umpire, such method shall

be followed; but if no method be provided therein, or if a method be

provided and any party thereto shall fail to avail himself of such method,

or if for any other reason there shall be a lapse in the naming of an

arbitrator or arbitrators or umpire, or in filling a vacancy, then upon the

application of either party to the controversy the court shall designate

and appoint an arbitrator or arbitrators or umpire, as the case may

require, who shall act under the said agreement with the same force and

effect as if he or they had been specifically named therein; and unless

otherwise provided in the agreement the arbitration shall be by a single

arbitrator.

9 U.S.C. § 5. As the Texas Supreme Court has stated, "Courts interpreting the 'fail

to avail' or 'lapse' language of the FAA have generally held that the section 5

substitution process should be invoked by the trial court only when some 'mechanical

breakdown in the arbitrator selection process' occurs or when 'one of the parties

refuses to comply, thereby delaying arbitration indefinitely.'” In re La. Pac. Corp.,

972 S.W.2d 63, 64–65 (Tex. 1998) (citing In re Salomon Inc., 68 F.3d 554, 560 (2d

Cir. 1995)); see also Pac. Reins. Mgmt. Corp. v. Ohio Reins. Corp., 814 F.2d 1324,

18

1329 (9th Cir. 1987) (holding section 5 substitution process can also be used when

parties reach impasse in making their selection).

Here, Royce argues that the arbitration of the homeowners' construction defect

claims was subject to the arbitration provisions outlined in the "2-10 Home Buyers

Warranty” or in the earnest money contracts signed by some of the homeowners. The

homeowners dispute that either of those provisions governed the current proceedings,

arguing that the settlement agreement governed the arbitration of their construction

defect claims.

Therefore, we must first determine which agreement, if any, governed the

arbitration of the construction defect claims.

1. Settlement Agreement

The homeowners contend that the settlement agreement contained an

arbitration provision that superseded all prior arbitration agreements. The primary

concern of a court in construing a written contract is to ascertain the true intent of the

parties as expressed in the instrument. Nat'l Union Fire Ins. Co. v. CBI Indus., Inc.,

907 S.W.2d 517, 520 (Tex. 1995). If a written contract is so worded that it can be

given a definite or certain legal meaning, then it is not ambiguous. Id.

However, the settlement agreement expressly excepted the construction defect

claims of the homeowners who are currently parties to this appeal from the settlement

agreement and provided that those claims remained pending and were "abated for

19

arbitration.” The settlement agreement specifically contemplated that the claims

would be either settled or arbitrated, but it did not specify a method of arbitration.

Subsequently, the homeowners acknowledged that the five homeowners who had

signed an Espree Arbitration Addendum for CAS to arbitrate their claims considered

themselves bound to arbitrate in accordance with their agreements. However,

although all fifteen homeowners were signatories of warranty agreements that

contained provisions to arbitrate under CAS rules, the remaining ten homeowners did

not consider themselves bound by the terms of those agreements.

The homeowners who moved for arbitration acknowledged in a written motion

their agreement to submit to arbitration in the Settlement Agreement, but they

asserted that the Settlement Agreement entitled them to arbitration under the TAA,

which we have held is superseded by the FAA to the extent it is inconsistent with the

TAA. No method of arbitration was, however, specified. Under Texas law, "A

partially integrated agreement is a final and complete expression of all the terms

addressed in that written agreement, but is not a final and complete expression of all

the terms the parties have agreed upon.” Morgan Bldgs. & Spas, Inc. v. Humane

Soc'y, 249 S.W.3d 480, 486 (Tex. App.—Beaumont 2008, no pet.). Rather, courts

must consider "surrounding circumstances in determining whether, and to what

degree, an agreement is integrated.” Id.; see also Sun Oil Co. v. Madeley, 626 S.W.2d

726, 731–32 (Tex. 1981) (holding that surrounding circumstances are considered in

20

determining whether written agreement is complete and exclusive statement of

terms); DeClaire v. G & B McIntosh Family Ltd. P'ship, 260 S.W.3d 34, 45 (Tex.

App.—Houston [1st ] 2008, no pet.) (holding that all prior negotiations and

agreements are presumed merged into the final agreement but that parol evidence may

be admissible to show collateral, contemporaneous agreements that are consistent

with the underlying agreement).

We hold that, while the Settlement Agreement does constitute an agreement to

submit the construction defect claims to arbitration, it does not contain a final and

complete expression of all the terms the parties had agreed upon, specifically, the

method of arbitration, which the parties had previously agreed should be conducted

by CAS. See Morgan Bldgs. & Spas, 249 S.W.3d at 486; see also Sun Oil Co., 626

S.W.2d at 731–32; DeClaire, 260 S.W.3d at 45.

We turn, therefore, to whether the trial court erred by not referring the

arbitration to CAS.

2. Failure to Appoint CAS Arbitrator

The homeowners contend that, even if the settlement agreement did not

supersede the previous arbitration agreements, those arbitration provisions were not

binding on the arbitration of the construction defect claims. The homeowners argue

that the construction defect claims "are completely independent of the third party

insured limited warranty contract and have been maintained without reference to the

This argument by the homeowners is supported by the affidavit from CAS 11

representative Cardell Wade, which indicated that the homeowners had never filed the

construction defect complaints with HBW that they raised against Royce Homes in

this litigation and that they were not entitled to proceed with arbitration through CAS

until such complaints had been filed with HBW.

Our analysis here does not address the broad arbitration clause in the

arbitration addendum to the earnest money contract signed by three of the appellee

homeowners. Presumably, they do not dispute that those three homeowners should

have been required to arbitrate under the terms of that arbitration agreement except

for their arguments that the agreed method of arbitration failed, as discussed below.

21

supplied warranty booklet; therefore these claims are not subject to and are not

governed by limited warranty provisions.” The homeowners also argue that 11

Royce's two-year delay in seeking to have a CAS arbitration initiated constituted a

failure of the agreed method of arbitration and that CAS arbitration was not possible

under the circumstances of this case because CAS refused to proceed with the

arbitration as the claims stood at the time it was contacted by counsel for the

homeowners. We conclude that we need not reach the homeowners' argument that

their construction defect claims were not subject to CAS arbitration under their

warranty agreements because the trial court did not err in appointing McDonald the

arbitrator for all fifteen homeowners.

Section 5 of the FAA provides that the agreed-upon method of appointing an

arbitrator can be set aside under some circumstances. 9 U.S.C. § 5; see also In re La.

Pac. Corp., 972 S.W.2d at 64–65 (holding that section 5 substitution process should

be invoked by trial court when some "mechanical breakdown in the arbitrator

See Perry Homes v. Cull, 258 S.W.3d 580, 590–593 (Tex. 2008) (discussing waiver 12

of right to arbitration by substantially invoking litigation process and stating that "a

party who enjoys substantial direct benefits by gaining an advantage in the pretrial

litigation process should be barred from turning around and seeking arbitration with

the spoils”).

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selection process” occurs); Pac. Reins. Mgmt. Corp., 814 F.2d at 1329 (holding

section 5 substitution process can also be used when parties reach impasse in making

their selection).

Here, the trial court did not abuse its discretion by appointing an arbitrator

because the record reflects that there was a mechanical breakdown in the process of

appointing CAS as arbitrator. The affidavits of both the homeowners' counsel and

of Cardell Wade of CAS reflect that arbitration through CAS could not be conducted

unless the homeowners filed their construction defect complaints against Royce

Homes through HBW, which the homeowners had declined to do, citing the

inapplicability of the warranty agreements to their claims.

Despite having had the warranty agreements in place prior to the initiation of

litigation, Royce Homes never moved to compel arbitration conducted by CAS until

two years after the settlement agreement was entered and more than four years after

it was made a party to the litigation. When the homeowners eventually contacted

CAS, CAS refused to serve as arbitrator. Thus, even if Royce Homes did not waive

its right to arbitration before CAS, a matter we do not decide, we find that at this 12

point there was a mechanical breakdown in the process of appointing an arbitrator.

23

Therefore, the trial court was justified in invoking the substitution process set out in

section 5 of the FAA. See In re La. Pac. Corp., 972 S.W.2d at 64–65; see also In re

Brock Specialty Servs., Ltd., 286 S.W.3d 649, 655 (Tex. App.—Corpus Christi 2009,

orig. proceeding) ("Section five of the FAA has been utilized in situations . . . where

the arbitrator specified in the contract was no longer in existence.”).

We hold that the trial court did not err in appointing an arbitrator not named in

the agreement. We further hold that Tom McDonald did not exceed his authority by

refusing to refer the arbitration to CAS and refusing to conduct the arbitration and

issue the award following CAS procedures because the trial court properly appointed

him as an alternate arbitrator when arbitration through CAS failed. McDonald acted

within the scope of his authority by deciding the issues properly submitted to

arbitration under the parties' Settlement Agreement—the homeowners' claims for

construction defects. See Myer, 232 S.W.3d at 408.

We overrule Royce Homes' first and second issue.

B. Manifest Disregard of the Law and Gross Mistake

Royce Homes also argues that the trial court erred in failing to vacate the award

on the common law ground that the award demonstrates manifest disregard of the law

and gross mistake. Specifically, Royce Homes argues that "McDonald ignored the

well-established law that the rights of the parties are limited by the express warranty

agreements into which they entered,” that "there was absolutely no evidence to

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support findings of either liability or actual damages[, or treble damages] under the

DTPA,” that there was no evidence of any breach of an express or implied warranty

or of an unconscionable action, that the homeowners' DTPA claims were barred by

the statute of limitations, and that the warranty agreement did not provide a basis for

awarding attorney's fees.

As we have already discussed, the United States Supreme Court has expressly

rejected the idea that an arbitrator's "manifest disregard of the law” expanded the

grounds for vacatur of an arbitration award beyond those listed in the FAA. Hall

Street, 128 S. Ct. at 1403; see also Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d

349, 350 (5th Cir. 2009) (holding that Hall Street restricts grounds for vacatur to

those set forth in section 10 of the FAA); cf. Wilko v. Swan, 346 U.S. 427, 74 S. Ct.

182 (1953) (recognizing manifest disregard as ground for vacating arbitration award).

All of the authority cited by Royce Homes in its brief in support of these common-law

grounds for vacatur predates the Supreme Court's holding in Hall Street.

We have already held that the FAA applies to this case. We conclude that Hall

Street forecloses any common-law grounds for vacatur of an arbitration award such

as manifest disregard of the law and gross mistake. See Hall Street, 128 S. Ct. at

1403; see also Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 350 (5th Cir.

2009) (holding that Hall Street restricts grounds for vacatur to those set forth in

section 10 of the FAA); Anzilotti, 899 S.W.2d at 266 (holding that courts may not

25

vacate arbitration award even if it is based upon mistake in law or fact).

We overrule Royce Homes' third issue.

We affirm the judgment of the trial court.