From JDSupra, J. David Pugh and Sydney Warren discuss a recent case in which an arbitration award was vacated because the contract required mediation before the arbitration – a strong reminder to read and follow all steps in a contract. David and Sydney write:
Imagine receiving an arbitration award in favor of your client. You move to confirm the award, and the award is vacated because the parties failed to mediate prior to arbitration. That is exactly what happened in Burke v. Roberson.
In December 2020, the First Court of Appeals in Houston affirmed the vacatur of an arbitration award because a condition precedent to arbitration under the governing contract – i.e., mediation – was not satisfied or waived by the parties prior to arbitration. In affirming the vacatur, the court held that the dispute was never properly before the arbitrator and that the arbitrator therefore exceeded his powers in issuing the award.
Texas law favors arbitration, and the construction industry is no exception in the pursuit of finality and findings generally not susceptible to challenge. An arbitration award “has the same effect as a judgment of a court of last resort,” thus “all reasonable presumptions are indulged in its favor” (see Port Arthur Steam Energy LP v. Oxbow Calcining LLC). Under the Texas Arbitration Act, a trial court shall confirm an arbitration award “unless grounds are offered for vacating” the award. The exclusive grounds for vacating an arbitration award are set forth in Section 171.088, the relevant ground in Burke being when an arbitrator exceeds his or her powers. An arbitrator exceeds his or her powers “by deciding a matter not properly before” them.
In Burke, the agreement at issue stated: “any controversy which touches or concerns [the Agreement] shall be resolved by mediation, and if such mediation is unable to resolve the controversy then exclusively by binding arbitration.” The court held this conditional language established mediation as a condition precedent to arbitration. Unless and until the parties mediated, the court reasoned that the controversy was not properly before the arbitrator. Notably, the court was not sympathetic to the appellant’s repeated attempts to mediate with appellees prior to arbitration and held such “inaction” was not a waiver of their right to mediate.
While it was a straightforward decision and premised on the very terms the parties agreed to in the governing contract, the court’s decision in Burke is every client’s nightmare that affects all parties equally – i.e., the party attempting to confirm an arbitration award. The decision suggests a potential broadening of what courts consider an arbitrator exceeding his or her powers – and yet another basis upon which a seemingly final arbitration award can be vacated.
To avoid the result in Burke when faced with a similar agreement, the parties should either mediate as required under the agreement or enter into an agreed waiver of mediation. The parties can always mediate later on should they decide to do so.