Prudential Securities Inc. v. Shoemaker

¶1OPINION EN BANC

¶2This appeal challenges a judgment confirming an arbitration award. In two points of error, appellants Prudential Securities Inc. and William C. Skinner (collectively “Prudential”) allege that the trial court erred (1) in confirming the award of punitive damages and (2) by not filing findings of fact and conclusions of law. We affirm.

¶3STATEMENT OF FACTS

¶4The Shoemakers alleged they lost money due to Prudential’s mismanagement. In accordance with their account agreement, the Shoemakers filed a claim with the National Association of Securities Dealers (“NASD”). In their “Statement of Claim,” the Shoemakers alleged state and federal securities fraud,1 common-law fraud, statutory fraud,2 violations of the Texas Deceptive Trade Practices Act (“DTPA”),3 breach of contract, and other state and federal statutory violations.4 They sought actual damages of “not less than $140,000.00.” Their claim stated, “The Shoemakers believe that the nature of the violations of Texas and federal laws ... dictate that they should be awarded treble damages.... ”

¶5Three NASD arbitrators conducted a three-day hearing and unanimously awarded the Shoemakers $126,300 in actual damages, $100,000 in “punitive damages,” and attorney’s fees.

¶6Prudential then sued in the district court, alleging the award should be vacated because (1) the panel exceeded its authority by deciding an issue not before it, i.e., punitive damages; (2) one arbitrator misrepresented his credentials; and (3) the hearing was unfair. The trial court confirmed the award.

¶7*793PUNITIVE DAMAGES

¶8In point of error one, Prudential alleges that the arbitration panel exceeded its authority “by deciding a matter not submitted for arbitration,” punitive damages, because the Shoemakers did not plead a claim for punitive damages.

¶9The Shoemakers contend they pleaded a claim for punitive damages and, in any event, that interpretation of issues presented during arbitration is a procedural matter to be left to the arbitration panel, not to a reviewing court.

¶10Standard of Review

¶11Judicial review of arbitration awards is “very deferential.” Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1320 (5th Cir.1994); Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W.2d 225, 229 (Tex.App.—Houston [14th Dist.] 1993, writ denied). The reviewing court resolves all doubts in favor of the arbitration panel when reviewing whether it exceeded its authority. Executone, 26 F.3d at 1320. The reviewing court must indulge every reasonable presumption to uphold the arbitration award. Massey v. Galvan, 822 S.W.2d 309, 316 (Tex.App.—Houston [14th Dist.] 1992, writ denied).

¶12Arbitration is a contractual remedy, and the scope of the arbitrator’s authority is defined by the contract. United Steelworkers of Am. v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597-99, 80 S.Ct. 1358, 1361-62, 4 L.Ed.2d 1424 (1960). “The single question is whether the award, however arrived at, is rationally inferable from the contract.” Executone, 26 F.3d at 1325.

¶13As the party attacking the arbitration award, Prudential must prove the arbitration panel exceeded its authority. Thomas v. Prudential Sec., Inc., 921 S.W.2d 847, 849 (Tex.App.—Austin 1996, no writ). The arbitration panel exceeds its authority by deciding a matter not presented to it. 9 U.S.C. §§ 10(a)(4), 11(b) (1994). The issues before the arbitration panel are framed by the contract between the parties and by the pleadings. Davis v. Prudential Sec., Inc., 59 F.3d 1186, 1195 (11th Cir.1995).

¶14Discussion

¶15The contract between these parties is not in the appellate record. For that reason alone, Prudential cannot prevail. We must presume that the contract provides for punitive damages. City of Baytown v. C.L. Winter, Inc., 886 S.W.2d 515, 520 (Tex.App.—Houston [1st Dist.] 1994, writ denied) (holding that missing parts of record are presumed to support the judgment).

¶16Moreover, the Shoemakers pleaded a fraud claim under Tex. Bus. & Com.Code § 27.01, which expressly provides for “exemplary damages.”5 The Shoemakers also pleaded a claim for common-law fraud, for which punitive damages are recoverable. This was in addition to their claim for “treble damages”6 for “violations of Texas and federal laws ...,” including the DTP A. The punitive damages awarded, $100,000, is much less than treble damages, being less than the actual damages awarded ($126,300). The *794award specifically mentioned the Shoemakers’ claims for statutory fraud under § 27.01, for common-law fraud, and for treble damages. The arbitrators did not state grounds for their award; therefore, we presume they found against Prudential on all these grounds.

¶17We hold that appellees pleaded a claim for punitive damages. Even if they had not, the award in the amount of $100,000 was well within their request for treble damages under Texas and federal law, and therefore, Prudential should not have been surprised.7 A different question would be presented if the punitive damages had exceeded treble actual damages. Pleadings are liberally construed, absent special exceptions. Roark v. Allen, 633 S.W.2d 804, 809-10 (Tex.1982). There were no special exceptions. Therefore, we construe the pleadings liberally in favor of the Shoemakers. We hold that they gave fair notice. Tex.R. Crv. P.45.

¶18There are other reasons Prudential cannot prevail. “Once it is determined ... that the parties are obligated to submit the subject matter of a dispute to arbitration, ‘procedural’ questions which grow out of the dispute and bear on its final disposition should be left to the arbitrator.” John Wiley & Sons v. Livingston, 376 U.S. 543, 556, 84 S.Ct. 909, 918, 11 L.Ed.2d 898 (1964); accord USX Corp. v. West, 781 S.W.2d 453, 455 (Tex.App.—Houston [1st Dist.] 1989, no writ) (“Although Energy Buyers’ counterclaim does not refer specifically to punitive damages, the enforcement of pleading requirements before the arbitrator is a procedural matter for the arbitrator.”) Whether Prudential had proper notice was a procedural issue for the arbitrators.

¶19Finally, Prudential tried in the district court to admit in evidence the typed transcript of the tape recorded arbitration hearing. The Shoemakers objected, stating (correctly) that the sole proof of authenticity was an illegible signature, by an untitled individual, giving an unsworn statement that the transcription was accurate. The trial judge took the objection under advisement, along with the case. He never admitted the evidence. Therefore, Prudential cannot rely on that transcript.8 Thus, we must presume that the arbitration record supports the award. But even if we considered the arbitration record, Prudential would lose because the unauthenticated record is also incomplete. It does not contain any of Prudential’s at least 4 exhibits, nor any of the Shoemakers’ at least 17 exhibits, nor the arbitrators’ exhibit, which was the “claimant’s submission agreement.”9

¶20Point of error one is overruled.

¶21In its second point of error, Prudential contends the district judge erred by refusing to file findings of facts and conclusions of law.

¶22A judge’s refusal to make findings of fact and conclusions of law is presumed harmful unless the record affirmatively shows the complaining party has suffered no injury. Cherne Indus, v. Magallanes, 763 S.W.2d 768, 772 (Tex.1989). Injury is apparent if the missing findings “probably prevented the appellant from properly presenting the case to the court of appeals.” Tex. R.App. P. 44.1(a)(2); Cherne, 763 S.W.2d at *795772 (referencing former Tex.R.App. P. 184, repealed, reenacted as Tex.R.App. P. 61.1).

¶23Prudential contends it needed findings in order to argue on appeal that: (1) the arbitrators exceeded their authority by awarding punitive damages; (2) one arbitrator misrepresented his credentials; and (3) the hearing was unfair. If the judge had made findings concerning the first and third issues, we would presume, absent a record of the arbitration, that they were supported by evidence. Therefore, we would uphold them.

¶24Prudential faces a similar problem on the second issue. Its only evidence on that issue was an affidavit that, upon appellee’s sustained objection, was excluded from evidence. Therefore, any adverse finding against Prudential on that issue would inevitably be upheld on appeal. The record thus affirmatively shows that Prudential was not harmed by the judge’s refusal to make findings.

¶25Point of error two is overruled.

¶26The judgment is affirmed.

¶27En banc consideration was requested.

¶28A majority of the justices of the Court voted to consider the case en banc.