Deander & Felhaber, LP v. Montgomery

• Decision Date: 10 December 2020
• Docket Number: No. 08-18-00209-CV,08-18-00209-CV
• Parties: DEANDER & FELHABER, LP; Delta Distribution & Warehouse, Inc.; F.C. Felhaber & Co., Inc.; FCF Holdings, LLC; Franz Felhaber, Individually, and Franz & Monica Felhaber Family Limited Partnership, Appellants, v. Patricia A. MONTGOMERY, CPA, Appellee.
• Court: Texas Court of Appeals

615 S.W.3d 352

DEANDER & FELHABER, LP; Delta Distribution & Warehouse, Inc.; F.C. Felhaber & Co., Inc.; FCF Holdings, LLC; Franz Felhaber, Individually, and Franz & Monica Felhaber Family Limited Partnership, Appellants,

v.Patricia A. MONTGOMERY, CPA, Appellee.

No. 08-18-00209-CV

Court of Appeals of Texas, El Paso.

December 10, 2020

(ATTORNEY FOR APPELLANTS): Robert L. Blumenfeld, Mendel Blumenfeld PLLC, 5809 Acacia Circle, El Paso, TX 79912.

(ATTORNEY FOR APPELLEE): Stewart W. Forbes, Forbes & Forbes, 711 Myrtle, El Paso, TX 79901.

Before Alley, C.J., Rodriguez, and Palafox, JJ.

OPINION

GINA M. PALAFOX, Justice

This is an appeal from a judgment confirming an arbitration award in favor of Patricia A. Montgomery, CPA ("Appellee"). Appellants DeAnder & Felhaber, LP; Delta Distribution & Warehouse, Inc.; F.C. Felhaber & Co., Inc.; FCF Holdings, LLC; Franz Felhaber, Individually, and Franz & Monica Felhaber Family Limited Partnership (collectively, the "Felhaber Group") challenge an evidentiary ruling made by the trial court before the case was referred to arbitration, and further challenge the arbitrator's consideration of certain business records. We affirm.

I. BACKGROUND

On August 1, 2008, Appellee purchased the assets, including accounts receivable, of Lee H. Burkholder's accounting firm from Lee Burkholder's estate. In 2011, she filed suit against the Felhaber Group, later amended, to recover fees for services rendered both by Burkholder's firm prior to August 1, 2008, and by herself after that date. Appellee sought recovery based on a suit on a sworn account, breach of contract, and quantum meruit. Her suit on a sworn account was supported by affidavits of indebtedness signed by herself, which were accompanied by invoices reflecting services rendered to the Felhaber Group. The only invoices here at issue are those reflecting services rendered by Burkholder's firm ("Burkholder Invoices"). The Felhaber Group originally responded by filing a general denial, but later amended its answer to include a verified denial.¹

Appellee filed two business records affidavits to authenticate certain records, including the Burkholder Invoices, which she intended to introduce at trial. See TEX. R. EVID. 902 (proponent of business records must serve records and accompanying affidavit on each other party at least 14 days prior to trial). One affidavit was signed by Alleen Burkholder, who was Lee Burkholder's widow and custodian of records for his estate. The other affidavit was signed by Appellee. The Felhaber Group moved to strike both affidavits, and the accompanying Burkholder Invoices, as hearsay. The trial court overruled the Felhaber Group's objections and denied the motion to strike in its entirety.

The following day, the court signed an agreed order referring the case to binding arbitration. The order further provided that "all Orders and Rulings of Open Court of Record entered by the Honorable Judge William Moody, Judge of the 34th Judicial District Court prior to the date of this Order shall remain in full force and effect and shall not be altered or changed in any way."

After an evidentiary hearing, the arbitrator rendered a decision in favor of Appellee on her suit on a sworn account,² awarding her both damages and attorney's fees. Appellee then filed a motion to confirm the arbitrator's award and to enter judgment on that award. The trial court found that the arbitration award should be confirmed and entered judgment accordingly. The Felhaber Group now seeks to overturn that judgment and the underlying arbitration award based on the admission into evidence of the business records affidavits and the Burkholder Invoices.

II. ISSUES

The Felhaber Group raises four issues on appeal. In its first two issues, it contends that the trial court erred by admitting the business records affidavits and Burkholder Invoices because they qualify as hearsay. The substance of its argument, though, is more precisely that the business records affidavits are insufficient to bring the Burkholder Invoices within the business records exception to the hearsay rule. In its third issue, the Felhaber Group contends that the trial court erred by confirming the arbitration award because it established through testimony at the arbitration hearing that the Burkholder Invoices are unreliable. In its final issue, the Felhaber Group urges that the amount of attorney's fees awarded to Appellee should be reduced to reflect the proportion of the invoices on which she can recover.

III. STANDARD OF REVIEW

A. Review of an arbitration award

"Because Texas law favors arbitration, judicial review of an arbitration award is extraordinarily narrow." E. Tex. Salt Water Disposal Co. v. Werline , 307 S.W.3d 267, 271 (Tex. 2010) ; see Hoskins v. Hoskins , 497 S.W.3d 490, 494 (Tex. 2016). This Court has held that the standard of review employed in reviewing confirmation of an arbitration award "depends on whether the trial court resolved any factual issues." Las Palmas Med. Ctr. v. Moore , 349 S.W.3d 57, 66 (Tex. App.—El Paso 2010, pet. denied). If fact findings are at issue, the review is for legal or factual sufficiency. Id. A court's legal conclusions, however, are reviewed de novo. Id.

B. Review of an evidentiary ruling

Evidentiary rulings are reviewed for abuse of discretion. U-Haul Int'l, Inc. v. Waldrip , 380 S.W.3d 118, 132 (Tex. 2012) ; Bay Area Healthcare Grp., Ltd. v. McShane , 239 S.W.3d 231, 234 (Tex. 2007) (per curiam). "A trial court abuses this discretion when it acts without regard for guiding rules or principles." Waldrip , 380 S.W.3d at 132 (citing Owens–Corning Fiberglas Corp. v. Malone , 972 S.W.2d 35, 43 (Tex. 1998) ). But even if a trial court's evidentiary ruling is an abuse of discretion, reversal is appropriate only if the error was harmful. Id. ; TEX. R. APP. P. 44.1.

IV. DISCUSSION

A. Grounds for challenging the arbitration award

We first note that the Felhaber Group asserts in its first two issues that the trial court erred by admitting the business records affidavits, with accompanying Invoices, from affiants Patricia Montgomery, CPA, and Alleen Burkholder. And, as stated earlier, the Felhaber Group asserts in its third issue that the trial court erred by confirming the arbitration award based on Invoices that were hearsay, unreliable, and were only otherwise supported by an expert report that merely re-stated the hearsay in the form of an expert report. In its final issue, which is contingent on at least partial success on at least one of the prior three issues, the Felhaber Group seeks a reduction in the award of attorney's fees proportional to the amount of the invoices upon which Appellee can recover. From these four issues, we glean that the ultimate goal of the appeal is to vacate or modify that portion of the arbitration award (as incorporated into the trial court's judgment) awarding damages for services rendered by Burkholder's firm, and to proportionally modify that portion of the award granting attorney's fees. Given the nature of these challenges, we must initially address, as a threshold matter, the cognizable grounds for vacating or modifying an arbitration award under the Texas General Arbitration Act ("TAA"). See TEX. CIV. PRAC. & REM. CODE ANN. §§ 171.087, .088, and .091.

Based on a plain reading of the TAA, the Texas Supreme Court held that a court may vacate or modify an arbitration award only if the party challenging the award demonstrates a ground specifically enumerated in the statute. Hoskins , 497 S.W.3d at 495 ; see TEX. CIV. PRAC. & REM. CODE ANN. § 171.087. In the absence of any such statutory ground, the Supreme Court reiterated that "the court shall confirm the award." Hoskins , 497 S.W.3d at 495 (citing TEX. CIV. PRAC. & REM. CODE ANN. § 171.087 ). Said differently, "a party may avoid confirmation only by demonstrating a ground expressly listed in section 171.088." Id.

The TAA states the following grounds for vacating an arbitration award:

(1) the award was obtained by corruption, fraud, or other undue means;

(2) the rights of a party were prejudiced by:

(A) evident partiality by an arbitrator appointed as a neutral arbitrator;

(B) corruption in an arbitrator; or

(C) misconduct or wilful misbehavior of an arbitrator;

(3) the arbitrators:

(A) exceeded their powers;

(B) refused to postpone the hearing after a showing of sufficient cause for the postponement;

(C) refused to hear evidence material to the controversy; or

(D) conducted the hearing, contrary to Section 171.043, 171.044, 171.045, 171.046, or 171.047, in a manner that substantially prejudiced the rights of a party; or

(4) there was no agreement to arbitrate, the issue was not adversely determined in a proceeding under Subchapter B, and the party did not participate in the arbitration hearing without raising the objection.

TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a).

The statutorily enumerated grounds for modifying or correcting an award are:

(1) the award contains:

(A) an evident miscalculation of numbers; or

(B) an evident mistake in the description of a person, thing, or property referred to in the award;

(2) the arbitrators have made an award with respect to a matter not submitted to them and the award may be corrected without affecting the merits of the decision made with respect to the issues that were submitted; or

(3) the form of the award is imperfect in a manner not affecting the merits of the controversy.

TEX. CIV. PRAC. & REM. CODE ANN. § 171.091(a).

Here, the Felhaber Group seeks vacatur or modification of the arbitration award on the grounds that (1) the trial court committed evidentiary error before the case was referred to arbitration by refusing to strike certain business records affidavits, and (2) the arbitrator committed error by considering the Burkholder Invoices because they were unreliable. These alleged errors, however, are not encompassed within any of the statutorily enumerated grounds for award vacatur or modification. See TEX. CIV. PRAC. & REM. CODE...