George Davis, MD, Anteneh Roba, MD, Levon Vartanian, MD, Woodrow Dolino, MD, Nw. Houston Emergency Specialist Grp., PLLC v. Bentz

GEORGE DAVIS, MD, ANTENEH ROBA, MD, LEVON VARTANIAN, MD,WOODROW DOLINO, MD, NORTHWEST HOUSTON EMERGENCY SPECIALIST GROUP, PLLC,ESG MD, PLLC, AND ESG MLP, LLC, Appellants v. ALAN BENTZ, MD, Appellee

NO. 01-15-00230-CV

Court of Appeals For The First District of Texas

July 19, 2016

On Appeal from the 190th District Court Harris County, Texas

Trial Court Case No. 2012-44569

MEMORANDUM OPINION

Doctors George Davis, Anteneh Roba, Levon Vartanian, and Woodrow Dolino expelled fellow physician Alan Bentz from three companies that the five doctors had founded and owned together. They also invoked provisions of the company agreements authorizing them to purchase the membership interests of expelled members. Bentz contested his expulsion and claimed that his membership interests were worth more than the remaining doctors offered to pay.

An arbitrator awarded Bentz his share of the distributions made during the pendency of the parties' disputes and the "Fair Market Value" of his membership interests, as defined by the company agreements. He sought judicial confirmation of the award, which the other doctors and the companies opposed.

The trial court confirmed the arbitration award and entered a final judgment. The other doctors and the companies appeal the trial court's judgment, arguing that the arbitration award is void in whole or part on three grounds:

(1) the arbitrator exceeded his authority by determining the Fair Market Value of Bentz's membership interests because the company agreements require their value to be determined by appraisal outside of arbitration;

(2) the arbitrator exceeded his authority by awarding past distributions to Bentz, which is inconsistent with "the essence" of the company agreements; and

(3) the award of both the Fair Market Value of Bentz's membership interests and distributions made during the pendency of the parties' disputes violates a fundamental Texas public policy against double recoveries.

We hold that the record is insufficient to permit review of the first issue. And while the record before us suffices to permit review of the second and third issues,they do not present a basis for reversal under the narrow scope of judicial review accorded to arbitration awards. We therefore affirm the trial court's judgment.

Background

Davis, Roba, Vartanian, Dolino, and Bentz founded three companies—Northwest Houston Emergency Specialist Group, PLLC; ESG MD, PLLC; and ESG MLP, LLC—to provide and manage physician and medical services.

The parties' dispute arose when the other four doctors attempted to expel Bentz from the companies. The company agreements, which are identical except for the names of the companies, provide for the expulsion of company founders but only for cause. Bentz disputed that there was cause for his expulsion.

Upon expulsion, the company agreements grant any remaining members an option to purchase an expelled member's interests in the companies at Fair Market Value. The four doctors invoked this provision. But the parties could not agree on the Fair Market Value of Bentz's interests. Section 2.09(a) of the company agreements defines Fair Market Value as the price at which the membership interests "would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts, including, without limitation, that membership is restricted" to those qualifying as an "authorized person" under Section 301.004 of the Texas Business Organizations Code. Section 2.09(c) of the agreements further provides that FairMarket Value "shall be determined on the basis that" an owner of membership interests does not have the right to withdraw, terminate, or liquidate the membership before the companies terminate and, therefore, "under the assumption" that the sole distributions that he will receive are his "proportionate share" of "cash distributions" made by the companies from time to time and his "proportionate share of the properties" owned by the membership when the companies terminate.

The company agreements provide two mechanisms for the resolution of disputes. Under Section 9.01, disputes about the Fair Market Value of membership interests are subject to an appraisal process in which the disputants obtain separate appraisals and a neutral appraiser then decides which is controlling. Under Section 9.02, all other disputes are subject to arbitration.

A neutral appraiser decided that the appraisal obtained by the other four doctors and the companies was controlling. That appraisal valued Bentz's membership interests at two different amounts depending on the methodology used: $257,969 when using an asset-based analysis and $526,796 when using an income-based analysis.

After the neutral appraiser decided that the other four doctors' appraisal controlled, the parties' other disputes about Bentz's expulsion were arbitrated. An evidentiary hearing was held over the course of several days. The majority of these proceedings was not transcribed. None of the witness testimony, for example, is inthe record. But there are indications that the arbitrator received testimony and documents into evidence.

The arbitrator made three rulings relevant to this appeal. First, he found that Bentz was not improperly expelled. Second, he ruled that "[a]ll Parties have acknowledged and I hereby find that the appropriate Fair Market Value of Dr. Bentz's Membership Interests is $526,796" and awarded him that sum plus prejudgment interest. Third, he concluded that Bentz remained a member of the companies during the pendency of the parties' disputes and thus was entitled to his share of the distributions made during that time. Accordingly, the arbitrator awarded Bentz $249,210 from each of the other four doctors for past distributions and prejudgment interest in addition to the award for the Fair Market Value of his membership interests.

Bentz sought judicial confirmation of the arbitration award. The other four doctors and the companies opposed confirmation and requested that the trial court vacate the award in whole or in part or modify it. The trial court confirmed the award and entered a final judgment. After the trial court denied their motions for reconsideration, the other doctors and the companies appealed.

Standard of Review

When, as here, the parties' contracts contain arbitration provisions that do not specify whether the Federal Arbitration Act or the Texas Arbitration Act governsbut include a choice-of-law provision that specifies the application of Texas law, both statutes apply. In re Devon Energy Corp., 332 S.W.3d 543, 547 (Tex. App.—Houston [1st Dist.] 2009, orig. proceeding); Roehrs v. FSI Holdings, 246 S.W.3d 796, 803 (Tex. App.—Dallas 2008, pet. denied). Under both statutes, we review de novo a trial court's confirmation of an arbitration award. Port Arthur Steam Energy LP v. Oxbow Calcining LLC, 416 S.W.3d 708, 713 (Tex. App.—Houston [1st Dist.] 2013, pet. denied); Royce Homes, L.P. v. Bates, 315 S.W.3d 77, 85 (Tex. App.—Houston [1st Dist.] 2010, no pet.). We examine the entire record in making this review. Forest Oil Corp. v. El Rucio Land & Cattle Co., 446 S.W.3d 58, 75 (Tex. App.—Houston [1st Dist.] 2014, pet. denied); Royce Homes, 315 S.W.3d at 85.

Both federal and Texas law favor arbitration. E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 271 (Tex. 2010); In re FirstMerit Bank, 52 S.W.3d 749, 753 (Tex. 2001). Therefore, the scope of review of an award is very narrow. Forged Components, Inc. v. Guzman, 409 S.W.3d 91, 103 (Tex. App.—Houston [1st Dist.] 2013, no pet.); Jones v. Brelsford, 390 S.W.3d 486, 492 (Tex. App.—Houston [1st Dist.] 2012, no pet.). A reviewing court may not vacate or modify an award simply because it would have reached a different result. Forest Oil, 446 S.W.3d at 75; Royce Homes, 315 S.W.3d at 85. The court must indulge every reasonable presumption to uphold an arbitrator's award and indulge none against it. Forest Oil, 446 S.W.3d at 75; Forged Components, 409 S.W.3d at 103. Even a mistake of law or fact by thearbitrator is not grounds for vacating or modifying an award. Forest Oil, 446 S.W.3d at 75; Forged Components, 409 S.W.3d at 103-04.

Instead, both the federal and Texas statutes permit a court to vacate or modify an arbitration award only under limited circumstances. 9 U.S.C. §§ 10(a), 11; TEX. CIV. PRAC. & REM. CODE ANN. §§ 171.087-.088, 171.091 (West Supp. 2015). A reviewing court may not vacate or modify an arbitration award governed by the Federal Arbitration Act or the Texas Arbitration Act on any grounds other than those specified in the statutes. Hall Street Assocs. v. Mattel, Inc., 552 U.S. 576, 584-90 (2008); Hoskins v. Hoskins, No. 15-0046, 2016 WL 2993939, at *3-5 (Tex. May 20, 2016). Relevant to this appeal, both Acts permit a court to vacate an award when the arbitrator has exceeded his authority and to modify an award when the arbitrator has decided a matter not submitted to arbitration. 9 U.S.C. §§ 10(a)(4), 11(b); TEX. CIV. PRAC. & REM. CODE ANN. §§ 171.088(a)(3)(A), 171.091(a)(2) (West Supp. 2015).

Because an arbitrator's authority to decide disputes derives from the parties' contractual agreement, an arbitrator exceeds his authority when his award encompasses matters that the parties did not submit. New Med. Horizons II, Ltd. v. Jacobson, 317 S.W.3d 421, 429 (Tex. App.—Houston [1st Dist.] 2010, no pet.). Likewise, the arbitrator cannot simply disregard the parties' agreements and mete out justice as he sees fit. Forest Oil, 446 S.W.3d at 81. Thus, a contractualinterpretation that is not grounded in the essence of the agreement—its letter or purpose—is beyond the arbitrator's authority. Id. at 81-82. But the proper inquiry focuses on whether the ultimate result, however explained, is rationally inferable from the contract. Id. at 82. And the arbitrator's chosen remedy lies outside his authority only if there is no way to rationally explain it as a...