Texas Arbitration Act Allows What Hall Street Doesn't: Broader Judicial Review

Article excerpt

STATE COURT DEVELOPMENTS

The Texas Supreme Court has held that the Texas Arbi tra - tion Act (TAA) does not preclude the parties from agreeing in their contract to judicial review of an arbitration award for reversible error. It further held that the Federal Arbi - tration Act does not preempt enforcement of such an agreement.

The decision in Nafta Traders, Inc. v. Quinn (No. 08-0613, 2011 WL 1820875, May 13, 2011) rejects the U.S. Supreme Court ruling in Hall Street Associates v. Mattel (552 U.S. 576, 2008), which concluded that the FAA precludes party expansion of the grounds for review under the FAA.

Nafta Traders is an employment case in which the employer terminated Margaret Quinn's employment as vice president of operations on the ground that worsening business conditions warranted a reduction in the workforce. Quinn sued alleging sex discrimination in violation of the Texas Commission on Human Rights Act. The employer moved to compel arbitration under the FAA, citing the arbitration clause in the employee handbook. Although the handbook did not state the governing law, Quinn did not object to the FAA, so the court issued an agreed order to arbitrate. The arbitrator awarded Quinn back pay and other relief. When she moved to confirm the award under the TAA, the employer moved to vacate under both the FAA and the TAA. It also relied on a provision in the arbitration clause that denied the arbitrator authority "(i) to render a decision which contains a reversible error of state or federal law, or (ii) to apply a cause of action or remedy not expressly provided for under existing state or federal law." The employer argued that this provision showed that the parties agreed to more expansive judicial review than the TAA and FAA al lowed.

Just before the court ruled, the U.S. Supreme Court decided Hall Street, ruling that the grounds for review in the FAA are exclusive and parties cannot expanded them by contract. Thereafter, the Texas court issued a brief order confirming the award.

On the employer's appeal, the Texas Court of Appeals ruled that similarities between the TAA and the FAA weighed heavily in favor of construing them as the Supreme Court had in Hall Street. Accordingly, the appeals court held that parties are limited to judicial review based on the statutory grounds enumerated in the TAA. It also held that an arbitrator does not exceed his powers by deciding matters incorrectly.

Texas Supreme Court Reasoning

The Texas Supreme Court granted review and re versed. Saying it was not per suaded by the Supreme Court's reasoning in Hall Street, the court construed the TAA to permit parties to agree to allow the same kind of re - view as a judge would have, or to a corresponding limit on the arbitrator's authority. …