Prescription Health Network, LLC v. Toby R. Adams, Lisa B. Adams, & Adams Mktg. Consulting, Inc., 02-15-00279-CV

• Decision Date: 20 April 2017
• Docket Number: NO. 02-15-00279-CV,02-15-00279-CV
• Parties: PRESCRIPTION HEALTH NETWORK, LLC, AND WILLIAM M. BLACKSHEAR JR., M.D. APPELLANTS v. TOBY R. ADAMS, LISA B. ADAMS, AND ADAMS MARKETING CONSULTING, INC. APPELLEES
• Court: Texas Court of Appeals

PRESCRIPTION HEALTH NETWORK, LLC, AND WILLIAM M. BLACKSHEAR JR., M.D. APPELLANTS v. TOBY R. ADAMS, LISA B. ADAMS, AND ADAMS MARKETING CONSULTING, INC. APPELLEES

NO. 02-15-00279-CV

COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH

April 20, 2017

FROM THE 442ND DISTRICT COURT OF DENTON COUNTY

TRIAL COURT NO. 2013-50459-367

MEMORANDUM OPINION¹

Appellants Prescription Health Network, LLC (PHN) and William M. Blackshear Jr., M.D. (collectively, the PHN Defendants) appeal from the trial court's judgment confirming an arbitration award in favor of Appellees Toby R.Adams, Lisa B. Adams, and Adams Marketing Consulting, Inc. (AMC) (collectively, the Adams Plaintiffs). We affirm.

I. Factual and Procedural Background

On June 11, 2013, the Adams Plaintiffs filed a lawsuit in the trial court asserting claims for common law fraud, fraud by nondisclosure, fraudulent inducement, negligent misrepresentation, breach of contract, tortious interference, civil conspiracy, and violations of the Texas Deceptive Trade Practices Act (DTPA), Tex. Bus. & Com. Code Ann. §§ 17.41-17.63 (West 2011 & Supp. 2016), arising from a franchise agreement (the Franchise Agreement) entered between the parties on June 8, 2012. The Franchise Agreement concerned a Prescription Weight Loss Clinic that was being offered by the PHN Defendants to the Adams Plaintiffs. In addition to the Franchise Agreement, PHN and AMC entered a "Social Media Marketing Services Agreement" that set forth certain obligations between the parties related to their agreement to do business.

The PHN Defendants moved to compel arbitration based on the arbitration clause in the Franchise Agreement that provided if a dispute among the parties was not resolved by mediation, the parties would resolve their dispute through arbitration governed by the Federal Arbitration Act (FAA), 9 U.S.C.A. §§ 1-16 (West 2009). On October 30, 2013, the trial court granted the motion and stayed the litigation pending the outcome of the arbitration.

The parties submitted their dispute to a three-member arbitration panel (the Arbitration Panel). After a three-day hearing conducted September 17 to 19, 2014 and the submission of prehearing and posthearing briefs, the Arbitration Panel entered a "reasoned award" on October 30, 2014 (the Award). In the Award, the Arbitration Panel stated that it would interpret and enforce the Franchise Agreement under Florida law per its choice-of-law provisions but that it would apply Texas law to the tort claims asserted by the Adams Plaintiffs in accordance with the "most significant relationship" test.

The Arbitration Panel found that AMC did not comply with the Franchise Agreement and found that $2,100.25 was due to PHN from AMC for PHN's unreimbursed costs for product purchases and fees. The Arbitration Panel also found that AMC did not comply with the Franchise Agreement by not paying PHN the balance of the initial franchise fees and royalties. However, the panel denied recovery of these fees and royalties to the PHN Defendants and held that any sums paid by AMC to PHN for the franchise fees and royalties would be offset by the damages it awarded to AMC on its claim against the PHN Defendants for violating the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), Fla. Stat. §§ 501.201-501.213 (West 2016). The panel then concluded that the PHN Defendants violated the FDUTPA and breached the Social Media Marketing Services Agreement.

The Arbitration Panel awarded $41,045.90 to AMC on its FDUTPA and breach of the Social Media Marketing Services Agreement claims and reducedthe amount by the $2,100.25 that the panel found was owed to PHN for product purchases and fees under the Franchise Agreement. As a result, the panel awarded AMC actual damages in the amount of $38,945.65, recoverable jointly and severally from the PHN Defendants. In February 2015, the Arbitration Panel issued a supplemental award concerning attorney's fees and costs, awarding AMC $90,150 in attorney's fees and $45,402 in costs, also recoverable jointly and severally from the PHN Defendants.

The PHN Defendants filed a motion to modify or vacate the Award in the trial court. They argued that the Award should be vacated or modified because the Arbitration Panel acted with "manifest disregard of the law," "exceeded their powers," or awarded damages on a matter not presented to them. Specifically, the PHN Defendants contended that the Arbitration Panel stated in the Award that the Adams Plaintiffs' tort claims would be governed by Texas law, yet when reviewing the Adams Plaintiffs' deceptive trade practices claims, the panel applied Florida law under the FDUTPA rather than Texas law under the DTPA.

The Adams Plaintiffs filed a response and motion to confirm the arbitration award. After a hearing on the competing motions, the trial court signed a judgment denying the PHN Defendants' motion and granting the Adams Plaintiffs' motion to confirm the award in the amount of $175,497.65.²

II. Issues

In four issues, the PHN Defendants argue: (1) the Award should be vacated because the Arbitration Panel "exceeded their powers", (2) the Award should be vacated because the Arbitration Panel acted with "manifest disregard", (3) alternatively, the award should be modified because the Arbitration Panel acted on a matter not submitted to them, and (4) the award of attorney's fees and costs to AMC should be vacated and damages, attorney's fees, and costs should instead be awarded to the PHN Defendants. In their reply brief, the PHN Defendants argue for the first time that the Award should be vacated because the Arbitration Panel failed to issue a "reasoned award."

III. Discussion

A. The Standard of Review for Vacating or Modifying Arbitration Awards Is Extraordinarily Narrow.

The parties agree that the FAA governs this case. See 9 U.S.C.A. §§ 1-16. Further, there is no dispute that Texas courts have jurisdiction to consider confirmation of an arbitration award under the FAA. See Banc of Am. Inv. Servs., Inc. v. Lancaster, No. 2-06-314-CV, 2007 WL 2460277, at *3 (Tex. App.—Fort Worth Aug. 31, 2007, no pet.) (mem. op.); see also Credigy Receivables, Inc. v. Mahinay, 288 S.W.3d 565, 568 (Tex. App.—Houston [14th Dist.] 2009, no pet.). We review de novo a trial court's order confirming, modifying, or vacating an arbitration award under the FAA. Banc of Am. Inv. Servs., 2007 WL 2460277, at *3 (citing McIlroy v. PaineWebber, Inc., 989 F.2d817, 819-20 (5th Cir. 1993)). This de novo standard is intended to give this court full power to give strong deference to the award. See id. An arbitration award has the same effect as a judgment of a court of last resort; accordingly, all reasonable presumptions are indulged in favor of the award and none against it. CVN Grp., Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). "A party seeking to vacate an arbitration award bears the burden of presenting a complete record that establishes grounds for vacatur." Amoco D.T. Co. v. Occidental Petroleum Corp., 343 S.W.3d 837, 841 (Tex. App. —Houston [14th Dist.] 2011, pet. denied).

An arbitration award governed by the FAA must be confirmed unless it is vacated, modified, or corrected under certain limited grounds. Id.; see Hughes Training, Inc. v. Cook, 148 F. Supp. 2d 737, 742 (N.D. Tex.) ("[R]eview of an arbitration award is extraordinarily narrow under the FAA"), aff'd, 254 F.3d 588 (5th Cir. 2001), cert. denied, 534 U.S. 1172 (2002). In fact, this court's review is so limited that "we may not vacate an award even if it is based upon a mistake in law or fact." Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc., 294 S.W.3d 818, 826 (Tex. App.—Dallas 2009, no pet.). Due to our deference to arbitration awards, judicial scrutiny focuses on the integrity of the process, not the propriety of the result. Id. (citing Tuco, Inc. v. Burlington N. R.R. Co., 912 S.W.2d 311, 315 (Tex. App.—Amarillo 1995), modified on other grounds, 960 S.W.2d 629 (Tex. 1997)). "Ultimately, our review is a determination of whether the '[a]ward [is] so deficient that it warrant[s] sending the parties back to square one.'" Howerton v. Wood, No. 02-15-00327-CV, 2017 WL 710631, at*3 (Tex. App.—Fort Worth Feb. 23, 2017, no pet. h.) (mem. op.) (quoting Cat Charter, LLC v. Schurtenberger, 646 F.3d 836, 842 (11th Cir. 2011)). "A party seeking to vacate an arbitration award bears the burden of presenting a complete record that establishes grounds for vacatur." Amoco, 343 S.W.3d at 841.

B. The Statutory Grounds for Vacating an Arbitration Award Under the FAA are Limited and Explicit.

Section 10(a) of the FAA provides that a trial court may vacate an arbitration award upon the application of any party to the arbitration:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C.A. § 10(a)(1)-(4); cf. Gilbert v. Rain & Hail Ins., No. 02-16-00277-CV, 2017 WL 710702, at *2 (Tex. App.—Fort Worth, Feb. 23, 2017, no. pet. h.) (mem. op.) ("An arbitration award governed by the FAA must be confirmed unless it is vacated, modified, or corrected under certain limited grounds.").

C. Vacatur of the Award is not Warranted Under Section 10(a)(4) of the FAA Because the Arbitration Panel Did Not "Exceed its Powers."

In their first issue, the PHN Defendants argue that the Arbitration Panel's finding of liability for the Adams Plaintiffs under the FDUTPA should be vacated under section 10(a)(4) because the panel "exceeded its powers." We disagree.

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