Banc of America Investment Services, Inc., Michael Degolier, and Terry Johnson v. Rebecca Diane Lancaster and Carol Denise Lucky, Independent Co-Executrixes of the Estate of Marie Lancaster

Citation: Not availableDocket: 02-06-00314-CV

Court: Court of Appeals of Texas; August 31, 2007; Texas; State Appellate Court

Original Court Document: View Document

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Appellants Banc of America Investment Services, Inc. (BAISI), along with Michael Degolier and Terry Johnson, argue that the trial court erred by not confirming an arbitration award that granted them $14,310.24 for costs and expenses related to arbitration. The Federal Arbitration Act does not explicitly address attorney's fees as costs, and the court must defer to arbitration awards, leading to a reversal and rendering of the trial court's decision.

Marie Lancaster, who invested through BAISI, alleged that BAISI failed to take action regarding her declining investments. She had signed multiple arbitration agreements; however, she claimed these lacked mutuality since they did not require BAISI to arbitrate disputes. After Lancaster's death, her daughters, as co-executrices of her estate, continued the legal proceedings. The arbitration, conducted by a panel appointed by the National Association of Securities Dealers (NASD), resulted in an award that denied both parties' claims but awarded costs to the Brokers, which the trial court did not confirm. Lancaster had previously contested the enforceability of the arbitration agreements, which did not mention attorney's fees. The Brokers sought to compel arbitration, presenting evidence of the agreements and citing the relevant NASD rules.

On June 18, 2004, a trial court hearing was held regarding a motion from the Brokers, but no ruling was made over the following five months. Instead, the court ordered mediation, which did not lead to a settlement. The Brokers then sought relief via appeal and a mandamus petition due to the court's inaction, but these attempts were unsuccessful. The court subsequently ordered a deposition instead of ruling on the motion to compel arbitration. After further mandamus relief was granted, the court was directed to rule within fifteen days. It later compelled arbitration and stayed all proceedings in accordance with the Federal Arbitration Act (FAA).

Lancaster filed her arbitration request with NASD on March 8, 2005, after the court's order. She signed an NASD Arbitration Uniform Submission Agreement. After her death, the Executrixes were substituted as claimants due to the binding nature of the contracts signed by Lancaster.

The arbitration resulted in the Executrixes receiving nothing on their claims, while the Brokers were awarded $14,310.24 for costs and expenses. The arbitration also specified that remaining costs would be borne by the party incurring them, that the Brokers' records would not be expunged, and denied all other relief not explicitly addressed.

During the confirmation hearing, the Brokers requested full confirmation of the award, while the Executrixes sought to have a judgment entered stating that all parties take nothing. The court queried if it could selectively confirm portions of the award, and the Executrixes' counsel affirmed, while the Brokers' counsel disagreed. Ultimately, the court entered a final judgment reflecting certain aspects of the arbitration award but omitted the Brokers' request for expunction and the costs awarded. The Brokers appealed, arguing that the trial court erred in not confirming the entire arbitration award.

The standard of review for the trial court's decision is de novo, allowing the appellate court to give strong deference to the arbitration award. Recent Fifth Circuit cases have elaborated on applying this standard when a party seeks to vacate an arbitration award.

In Brabham v. A.G. Edwards, Sons, Inc., the Fifth Circuit emphasized the limited grounds for vacating arbitration awards, highlighting a deferential standard of review. The court stated that vacatur can only occur under very narrow conditions, specifically referencing "manifest disregard of the law," which requires proof that arbitrators knowingly ignored a clear governing principle. The court reinforced that uncertainty in the reasoning of arbitrators does not justify vacatur, as all doubts must favor arbitration. In Action Industries, the court ruled against applying broader state standards for vacatur under the Tennessee Uniform Arbitration Act, affirming that the Federal Arbitration Act (FAA) governs unless explicitly stated otherwise in the contract. The court also clarified that limitations on arbitrators' powers must be clear; otherwise, they will be interpreted narrowly. The reviewing court is required to resolve doubts in favor of arbitration, maintaining the principle of deference to arbitrators’ decisions. The arbitration panel ultimately made its decision based on the evidence and arguments presented during the hearing.

The Panel concluded that the Respondents suffered no recoverable injury, leading to the dismissal of the Claimant's claims with prejudice. Consequently, Rebecca Diane Lancaster and Carol Denise Lucky, as Independent Co-Executrixes of the Estate of Marie Lancaster, are jointly and severally liable to the Respondents—Banc of America Investment Services, Inc., Michael Dennis Degolier, and Terry Wayne Johnson—for $14,310.24. This amount is designated as partial reimbursement for expenses incurred in defending against the claims and securing the agreed arbitration forum.

All other arbitration costs, including attorney's fees, will be the responsibility of the party incurring them unless otherwise specified. The arbitration panel awarded some attorney's fees to the Brokers for their efforts in moving the case to arbitration.

During the confirmation hearing, the Executrixes did not provide witnesses or the arbitration record but submitted two exhibits: the authenticated arbitration award and a notice to creditors from probate court.

The Brokers argue that the arbitration, governed by the Federal Arbitration Act (FAA), must be confirmed unless validly vacated, modified, or corrected under specific FAA provisions (9 U.S.C.A. §§ 10, 11). The Executrixes claimed FAA inapplicability, but the court previously ruled that the FAA applied, and this determination was not contested, rendering their claim waived. The FAA does not specifically address attorney's fees but neither prohibits their award.

Only the ground of the arbitration panel exceeding its powers is asserted for vacatur. The Texas Supreme Court states that arbitrators’ authority is limited to the matters submitted in the arbitration agreement. An arbitration award can only be vacated if arbitrators decide issues not properly before them. A simple mistake in law or fact does not justify vacating an award. The Executrixes argue that the panel exceeded its authority by issuing an award against them in their representative capacities.

The Executrixes argue that any award should have been against the Estate of Marie Lancaster, asserting that a decedent's estate is not a legal entity capable of being sued. Instead, claims against a decedent typically should be directed toward personal representatives. The court affirms that the attorney's fees were correctly awarded against the Executrixes in their representative capacities. The Executrixes further contend that an initial finding by the arbitration panel indicated no recoverable injury for the Brokers, thus disqualifying them from receiving attorney's fees. However, the court clarifies that the awarded amount of $14,310.24 was intended to partially compensate the Brokers for their defense expenses related to the arbitration process.

The Executrixes also reference the Federal Arbitration Act (FAA), the Texas Arbitration Act, and common law regarding the grounds for awarding attorney's fees, noting that the FAA does not explicitly allow for such awards and that the Texas Arbitration Act permits them only if provided for in the arbitration agreement. The court holds that, while the FAA does not prohibit attorney's fees, the arbitration panel acted within its authority by awarding them.

Additionally, the Executrixes argue that the arbitration panel exceeded its authority by holding them jointly and severally liable for the Brokers' attorney's fees. The court maintains that the arbitration agreements and the FAA do not expressly forbid such awards, affirming the panel's authority in this regard.

Finally, the Executrixes question whether the arbitration panel exhibited a manifest disregard of the law by awarding attorney's fees without clear authority under the FAA. The burden rests on the Executrixes to demonstrate that the panel knowingly disregarded a governing law prohibiting such awards. However, they failed to provide a record of the arbitration proceedings, preventing the court from evaluating any applicable law that may have been relevant. Thus, the Executrixes could not prove that the arbitration panel acted with manifest disregard of the law.

The absence of a record from the arbitration panel prevents a determination of whether it manifestly disregarded the law in awarding attorney's fees to the Brokers. The Executrixes did not fulfill their burden of proof in showing this disregard, leading to the conclusion that the trial court erred by not confirming the award of attorney's fees classified as "costs and expenses." This ruling does not imply agreement with the arbitration panel's decision to grant these fees. Consequently, the court sustains the Brokers’ appeal, reverses the trial court’s judgment, and orders the award of $14,310.24 for "costs and expenses" as specified in the arbitration award. The decision was delivered on August 31, 2007, with Judge Livingston concurring without further comment. The Brokers' request for expunction is not relevant to this appeal, although the context indicates that the award pertains to attorney's fees associated with moving the proceedings to arbitration. Further briefing on this issue was requested post-submission.