Nerium Biotechnology, Inc. and Nerium Skincare, Inc. v. Neora, LLC F/K/A Nerium International, LLC, Jeff Olson, and JO Products, LLC

Citation: Not availableDocket: 05-22-00234-CV

Court: Court of Appeals of Texas; February 6, 2023; Texas; State Appellate Court

Original Court Document: View Document

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The Court of Appeals for the Fifth District of Texas affirmed the trial court's judgment confirming an arbitration award favoring Neora, LLC against Nerium Biotechnology, Inc. and Nerium Skincare, Inc. Biotech's appeal challenged the arbitrator's authority, claiming that the arbitrator exceeded his scope by deciding claims not covered by the parties' agreement, asserting that pre-arbitration notice and cure provisions were unmet, and alleging a disregard for Texas law regarding evidence supporting the damage award. The court found no reversible error in the arbitrator’s decisions.

The background includes a settlement agreement and an intellectual property agreement between Biotech, Neora, and others, which included a binding arbitration clause under AAA rules. Neora initiated arbitration alleging breach of the agreement, leading to two related cases. The arbitrator issued separate awards, and Neora sought confirmation of these awards in court. Biotech's motion to vacate parts of the award was denied, leading to the current appeal.

The standard of review for confirming or vacating arbitration awards is de novo, with a narrow focus on maintaining the efficiency of arbitration. The court emphasized the burden on the non-prevailing party (Biotech) to provide a complete record to support its claims for vacating the award. The court ultimately upheld the arbitration award, affirming the trial court's decision.

In the absence of a transcript from the arbitration hearing, appellate courts will assume the evidence supports the arbitration award. The governing law of the Agreement is undetermined between the Federal Arbitration Act (FAA) and the Texas Arbitration Act (TAA), as the Agreement does not specify which applies. The FAA applies to disputes involving interstate commerce, while both statutes govern when a contract is under Texas law. If both apply, the FAA preempts the TAA only if the latter is inconsistent with the former or affects contract enforceability. The specific act's applicability is not required for the conclusion to remain the same.

During arbitration, Biotech sought permission to file a motion claiming that Neora did not meet conditions precedent related to notice requirements. The arbitrator denied this request, opting instead to address the notice and cure defenses after the final hearing. Biotech contends that the arbitrator overstepped by resolving claims prior to determining whether the conditions precedent were satisfied, arguing that the arbitrator did not consider its notice and cure defenses.

The Agreement follows the AAA Commercial Arbitration Rules, specifically Rule R-7(a), which grants the arbitrator authority over jurisdiction and arbitrability matters. A bilateral agreement to arbitrate under these rules indicates the parties' intent to delegate arbitrability questions to the arbitrator. Thus, the court lacks authority to intervene in arbitration-related issues once the parties have clearly delegated such matters.

Biotech acknowledges that the arbitrator was tasked with determining arbitrability, which includes evaluating whether conditions precedent to arbitration were met. This determination is classified as procedural arbitrability, a matter reserved for the arbitrator, especially when it intertwines with the dispute's underlying facts. Courts cannot review the merits of the arbitrator's decision, even if it involves alleged factual errors or misinterpretations of the agreement, once the arbitrator has ruled on the satisfaction of prerequisites for arbitration.

Biotech's claims regarding the arbitrator's failure to consider its notice and cure defenses were dismissed, as the court emphasized that arbitration awards cannot be vacated due to mistakes of law or fact. The court reiterated that it does not review an arbitrator's contractual interpretations and that arbitrators exceed their authority only when they lack jurisdiction over the issues adjudicated. The absence of a record from the arbitration proceedings hindered any assessment of Biotech’s defenses or the arbitrator’s decision-making process. Biotech's assertion that the arbitrator manifestly disregarded the law was also rejected, as mistakes in law or fact do not warrant vacating an award. The court concluded that without a complete record, it could not determine the basis for the award, affirming the trial court's judgment in favor of the appellees. The judgment mandates that the appellees recover their costs from Biotech.