Sanchez v. Doctor's Hosp. at Renaissance, Ltd.

VICTOR H. SANCHEZ AND SM3 INVESTMENTS, LTD., Appellants, v. DOCTOR'S HOSPITAL AT RENAISSANCE, LTD. AND RGV MED, LLC, Appellees.

NUMBER 13-19-00365-CV

COURT OF APPEALS THIRTEENTH DISTRICT OF TEXAS CORPUS CHRISTI - EDINBURG

January 21, 2021

On appeal from the 332nd District Court of Hidalgo County, Texas.

MEMORANDUM OPINION

Before Chief Justice Contreras and Justices Longoria and Perkes¹

Memorandum Opinion by Chief Justice Contreras

Following a dispute arising out of a partnership agreement, appellants, Victor H. Sanchez and SM3 Investments, Ltd. (SM3), initiated arbitration proceedings against appellees, Doctor's Hospital at Renaissance, Ltd. (DHR) and RGV Med, LLC (RGV) (collectively, the partnership). The claims were tried before a panel of three arbitrators. Ultimately, the panel found in favor of the partnership and found Sanchez and SM3 to be jointly and severally liable for the partnership's attorney's fees and expenses. Appellees subsequently sought to confirm the arbitration award in the district court. However, appellants requested that the court vacate the panel's award, arguing that the panel committed reversible error and that the parties contracted for "expanded judicial review" of the award. The trial court confirmed the arbitration award and entered final judgment in favor of appellees. By five issues, appellants seek to overturn the trial court's judgment and the panel's award.² We affirm.

I. BACKGROUND

In 2001, Sanchez made investments and entered into various agreements with the partnership regarding operations of and certain real estate related activities of DHR. The controlling version of the agreements are the DHR, Fifth Amended and Restated Agreement of Limited Partnership (partnership agreement) and the RGV Fifth Amended and Restated Regulations (regulations), both dated December 30, 2013 (collectively, the agreements). RGV operated as the general partner of DHR while Sanchez—andsubsequently SM3—was a limited partner. In 2003, the partnership added a requirement that the limited partners must reside in Hidalgo, Cameron, or Starr County, Texas. Failure to maintain the residence permitted the partnership to purchase the partnership interest from the limited partner.

In February 2012, Sanchez formed SM3. At the end of 2012, Sanchez, with the permission and assistance of the partnership, transferred his partnership interest to SM3. However, the partnership agreement required non-individual partners, such as SM3, to designate a sponsor. The sponsor of the non-individual partner was required to abide by the residency requirement. SM3 designated Sanchez as its sponsor. At the time, Sanchez was primarily residing in Hidalgo County, Texas, while his wife and two younger children moved to Bexar County, Texas, where Sanchez owned a second home.

In November 2014, the partnership sent a letter to Sanchez notifying him of the partnership's intent to purchase SM3's interest in the partnership, alleging Sanchez was in violation of the residency requirement. Sanchez and SM3 responded to the letter, disagreeing with the allegation and opposing a forced sale of the partnership interest. On December 11, 2014, Israel Rocha, then CEO of the partnership, sent Sanchez another letter stating the partnership was giving Sanchez notice that the partnership was exercising its right to purchase SM3's shares as a result of breaching the residency requirement. Attached to the letter was a check for $4,783,872.64, an amount calculated using the purchase price formula from the partnership agreement. However, Sanchez did not initially accept the check.

After some negotiation, Sanchez ultimately accepted the amount through a wire transfer and executed a repurchase assignment conveying SM3's interest back to thepartnership for the amount as calculated. The repurchase assignment did not contain a release of claims by either party. The assignment is dated December 17, 2014, but was not delivered to appellees until January 2015. The consideration for the shares was transferred by the partnership to SM3 on January 8, 2015.

Pursuant to arbitration clauses in the agreements, appellants filed a demand for arbitration on May 17, 2017. Appellants alleged, among other things, that appellees breached the partnership agreement by forcing appellants to sell the shares back to the partnership. Appellants further sought to set aside the assignment agreement under theories of fraud in the inducement, fraud, negligent misrepresentation, and unjust enrichment. Appellees asserted the affirmative defenses of estoppel, waiver, and laches. Appellees also challenged Sanchez's standing and raised a statute of limitations challenge to appellants' negligent misrepresentation claim. Both parties sought attorney's fees, costs, and expenses pursuant to the agreements.

The parties' dispute culminated in a four-day arbitration before a panel of three arbitrators. On December 17, 2018, the panel issued a final award in favor of appellees and ordered appellants jointly and severally liable for appellees' attorney's fees and costs in the amount of $435,880.21. The panel further awarded appellees $46,322.77 for fees and expenses in excess of the arbitration's apportioned costs. The panel's findings and reasonings were set forth in an eleven-page final award. The final award included a summary of the background facts, the parties' claims and defenses, and the panel's findings and decisions.

The panel found, in pertinent part, that Sanchez did not violate the residency requirement, and thus "the forced repurchase of the [s]ubject [u]nits was without sufficientjustification under the DHR and RGV [a]greements." However, the panel concluded that said breach by appellees did not determine the outcome of the proceeding. The panel determined that the repurchase agreement executed by Sanchez was the result of negotiation, that Sanchez was aware of his options to challenge the repurchase, and that "Sanchez repeatedly indicated his assent to the repurchase and cooperated with it . . . ." The panel determined that the repurchase assignment "constituted a subsequent enforceable agreement among the parties." The panel rejected appellants' arguments to set aside the repurchase assignment and further ruled in favor of appellees' challenge to Sanchez's standing.

On January 6, 2019, appellants timely filed a motion to modify or correct the award, asking the panel to clarify the justification for ruling against appellants, set aside the award and rule in favor of appellants, and modify the award of attorney's fees by segregating the fees owed by Sanchez and SM3 based on Sanchez's lack of standing. Appellees filed a response on January 16, 2019. The panel rejected appellants' request on January 17, 2019.

Appellees filed a motion to confirm the arbitration award on January 7, 2019. Conversely, appellants filed a motion to vacate the arbitration award. Appellants requested that the trial court review the arbitration award and find reversible error because the panel exceeded its power by ruling incorrectly. Appellants asserted that, through the agreements, the parties agreed to expanded judicial review of the panel's award. After considering the parties' respective motions, the court entered an order confirming the award and rendered a judgment in accordance with that award. This appeal followed.

II. STANDARD OF REVIEW

"Review of a trial court's decision as to vacatur or confirmation of an arbitration award is de novo and the appellate court reviews the entire record." O'Grady v. Nat'l Union Fire Ins. Co. of Pittsburgh, P.A., 506 S.W.3d 121, 124-25 (Tex. App.—Corpus Christi-Edinburg 2016, pet. denied) (quoting In re Guardianship of Cantu de Villarreal, 330 S.W.3d 11, 17 (Tex. App.—Corpus Christi-Edinburg 2010, no pet.)). "However, all reasonable presumptions are indulged in favor of the award, and none against it." Id. (quoting In re Chestnut Energy Partners, Inc., 300 S.W.3d 386, 397 (Tex. App.—Dallas 2009, pet. denied)). "Because Texas law favors arbitration, judicial review of an arbitration award is extraordinarily narrow." Id. (quoting In re Cantu, 330 S.W.3d at 17). "We give strong deference to the arbitrator with respect to issues properly left to the arbitrator's resolution." Id. at 124-25 (quoting Age Indus., Ltd. v. Edwards, 318 S.W.3d 461, 462 (Tex. App.—El Paso 2010, pet. dism'd)).

III. APPLICABLE LAW

The Texas Arbitration Act (TAA) governs arbitrations in Texas.³ See TEX. CIV. PRAC. & REM. CODE ANN. §§ 171.001-.098. "A written agreement to arbitrate is valid and enforceable if the agreement is to arbitrate a controversy that . . . arises between the parties after the date of the agreement." Id.§ 171.001. "Unless grounds are offered for vacating, modifying, or correcting an award under [§§] 171.088 or 171.091, the court, on application of a party, shall confirm the award." Id. § 171.087. "[T]he court shall vacate an award if . . . the arbitrators exceeded their powers." Id. § 171.088(a)(3)(A). "[A]n arbitrator derives his power from the parties' agreement to submit to arbitration." Nafta Traders, Inc.v. Quinn, 339 S.W.3d 84, 90 (Tex. 2011) (quoting City of Pasadena v. Smith, 292 S.W.3d 14, 20 (Tex. 2009)). Generally, an arbitrator exceeds their power by deciding matters not before them, not just by deciding them incorrectly. Forest Oil Corp. v. El Rucio Land & Cattle Co., 518 S.W.3d 422, 431 (Tex. 2017); Denbury Onshore, LLC v. Texcal Energy S. Tex., L.P., 513 S.W.3d 511, 520 (Tex. App.—Houston [14th Dist.] 2016, no pet.) ("Committing mistakes of fact or law is not a proper ground for vacating an award; instead, a party must show that the arbitrator decided a matter not properly before him at all.").

The parties may agree to limit the arbitrator's power. See Nafta Traders, Inc., 339 S.W.3d at 97 ("[W]e hold that the TAA presents no impediment to an agreement that limits the authority of an arbitrator in deciding a matter and thus allows for judicial review of an...