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COURT
OF APPEALS

SECOND DISTRICT OF
TEXAS

FORT WORTH

NO.
2-04-052-CV

PERRY HOMES, A
JOINT                                                      APPELLANTS

VENTURE; HOME OWNERS

MULTIPLE EQUITY, INC.

D/B/A HOME/RWC OF

TEXAS; AND WARRANTY

UNDERWRITERS INSURANCE
COMPANY

V.

ROBERT E. CULL AND S. JANE
CULL                                        APPELLEES

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FROM THE
236TH DISTRICT COURT OF TARRANT COUNTY

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OPINION

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Appellees
Robert and Jane Cull (“the Culls”) sued Appellants Perry Homes, A Joint
Venture (“Perry Homes”), Home Owners Multiple Equity, Inc. d/b/a Home/RWC
of Texas (“HOME”), and Warranty Underwriters Insurance Company (“WUIC”)
for the faulty construction of their home. Approximately a year after
filing suit, the Culls filed a motion to compel arbitration. Although
Appellants opposed arbitration, the trial court granted the Culls’ motion
to compel arbitration. After arbitration was completed, the Culls filed a
motion to confirm the arbitration award, and Appellants filed a motion to
vacate or alternatively to modify the arbitration award. In its final
judgment, the trial court confirmed the arbitration award. In six issues,
Appellants now generally argue that the trial court erred by compelling
the parties to participate in arbitration, confirming the resulting
arbitration award, and denying Appellants’ motion to vacate or modify that
award. Because we hold that (1) the Culls did not waive arbitration, (2)
the arbitrator was not evidently partial, (3) the arbitrator did not act
in manifest disregard of the law, and (4) the Culls did not fail to meet
their summary judgment burden, but (5) the trial court did err by failing
to modify its award of post-judgment interest that was awarded in addition
to the interest in the arbitration award, we affirm the trial court’s
judgment as modified.

Background
Facts

In
1996, the Culls purchased a newly constructed home from Perry Homes for
$233,730 and also purchased a home warranty from HOME and WUIC. After
years of struggling with Appellants over repairs required to fix
significant structural damage caused by foundation and drainage problems,
which lowered the appraised value of the home to $41,000, in 2000, the
Culls filed suit against Appellants. HOME and WUIC filed a motion to
compel arbitration. The Culls opposed the use of the American Arbitration
Association (“AAA”) as unconscionable, but they did not oppose
arbitration. The trial court never ruled on this motion. After about a
year of discovery, the Culls filed a combined motion to compel arbitration
and plea in abatement four days before trial. The trial court granted
arbitration.

Appellants
filed a petition for writ of mandamus, arguing that the Culls waived the
right to arbitration. In April of 2002, this court denied Appellants’
petition, and in May of 2002, the Texas Supreme Court denied Appellants’
petition.

This
case then proceeded to arbitration. The parties jointly selected the
arbitrator and did not object even after receiving his disclosure that he
had litigated residential construction suits for fifteen years, was
familiar with two of the experts, and had opposed Perry Homes’s trial
counsel’s firm on multiple occasions but had not had any dealings with
Perry Homes’s specific counsel. The Culls submitted their statement of
claims in arbitration. They claimed negligence, gross negligence, breach
of contract and warranty, violations of the DTPA, common law fraud and
fraud under the business code, violations of the insurance code, and
breach of the duty of good faith. In addition to damages, the Culls
requested attorney’s fees and litigation/arbitration expenses including
court costs, arbitration costs, and expert fees.

After
the arbitrator heard the case, he awarded the Culls over $800,000 in
damages, costs, and attorney’s fees. The Culls filed a motion to confirm
the arbitration award in the trial court. In response, Appellants filed a
motion to vacate or alternatively to modify the arbitration award.
Following a hearing, the trial court granted the Culls’ motion and
confirmed the arbitration award in its final
judgment.

Waiver of
the Right to Arbitrate

In
their first issue, Appellants argue that the Culls waived their right to
arbitrate. We disagree.

Because
public policy favors arbitration, the Federal Arbitration Act (“FAA”)
imposes a strong presumption against waiver.

Waiver of an
arbitration right must be intentional.

Thus, implying waiver
from a party’s actions is appropriate only if the facts demonstrate that
the party seeking to enforce arbitration intended to waive its arbitration
right.

The party seeking to
prove waiver bears a “heavy burden of proof,” and any doubts regarding
waiver are resolved in favor of arbitration.

Courts will not find
that a party has waived its right to enforce an arbitration clause by
merely taking part in litigation unless it has substantially invoked the
judicial process to its opponent’s detriment.

Therefore, the test
for determining waiver is two-pronged: (1) did the party seeking
arbitration substantially invoke the judicial process; and (2) did the
opposing party prove that it suffered prejudice as a
result?

In
this case, the parties participated in written and oral discovery,
presented motions to compel discovery, and received orders disposing of
those motions. Although Appellants allege that the Culls opposed
arbitration early on, the Culls merely opposed the use of the AAA; the
Culls did not oppose arbitration as a whole. Furthermore, HOME and WUIC
did not obtain a ruling on their early motion to compel arbitration.
Additionally, the Culls did not ask the court to make any judicial
decisions on the merits of their case, for example, by requesting summary
judgment or participating in trial.

Thus, this case is
not a case in which a party who has tried and failed to obtain a
satisfactory result in court then turns to
arbitration.

Even
if we were to assume without deciding that the Culls had substantially
invoked the judicial process, the second prong of the test would defeat
Appellants’ claim of waiver. Our review of the record shows that
Appellants presented no evidence that they suffered prejudice in their
response to the Culls’ motion to compel arbitration or at the hearing on
the motion. As the trial court noted at the hearing, Appellants’ claim of
prejudice was that they have participated in litigation activities that
may or may not have been required by the
arbitrator.

Although
generally referencing discovery requests and depositions taken, Appellants
did not provide any evidence of the work done, time spent, or costs
incurred that would not have been done or incurred in anticipation of an
arbitration hearing. It was not until after the arbitration had been
completed that Appellants, in their motion to vacate or, alternatively,
modify the arbitration award and their response to plaintiffs’ motion to
confirm arbitration, provided evidence of the work, time, and costs to
prove they suffered prejudice. In determining whether the Culls waived
arbitration, however, we review only the evidence that was before the
trial court when it ruled on the Culls’ motion to compel arbitration, not
evidence submitted untimely.

Because Appellants
failed to provide sufficient evidence of prejudice at the proper time, we
hold that the Culls did not waive arbitration. We overrule Appellants’
first issue.Grounds for Vacating Arbitration
Award

Arbitration
awards can be vacated on limited grounds. The FAA provides four grounds
for vacating an arbitration award:

(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.

In addition to the
four grounds the FAA provides, federal common law allows for vacating an
arbitration award when the arbitrator manifestly disregards the
law.

A.
Evident Partiality

In
their third issue, Appellants argue that the trial court erred by refusing
to vacate the arbitration award because the arbitrator’s failure to
disclose that he represented homeowners in residential construction cases
constituted evident partiality. We disagree.

The
trial court must vacate an award if a neutral arbitrator exhibits “evident
partiality.”

A neutral arbitrator
selected by the parties or their representatives exhibits evident
partiality if he does not disclose facts that might create a reasonable
impression of the arbitrator’s partiality to an objective
observer.

Courts have
recognized that parties agree to arbitrate because they prefer a panel
with expertise regarding the subject matter of dispute, and this expertise
often comes from experience in the field, which may have involved personal
dealings with the parties.

Information regarding
a relationship with a party—such as representation or familial or close
social ties—should be disclosed, but a neutral arbitrator need not
disclose relationships or connections that are
trivial.

In
this case, the arbitrator disclosed that he knew a lot of the attorneys in
Perry Homes’s trial counsel’s firm, that he had represented clients in
which Perry Homes’s trial counsel’s firm represented the opposing party,
and that he did not know the attorney in this case. He disclosed that he
had litigated residential construction cases for about fifteen years, so
“a number of the witnesses [were] familiar to [him] or [he had] heard of
them.” He further disclosed that one of the witnesses “did a report on
[his] client’s property” and that another witness “did a foundation
analysis on [his] client’s home and was being paid by the
builder.”

Despite
the arbitrator’s statements that he had fifteen years’ experience in the
residential construction field, implying that he had represented
residential homeowners in these cases, and that Appellant Perry Homes’s
trial counsel’s firm had actually litigated against him in previous cases,
Appellants allege that because they discovered after arbitration that the
arbitrator had represented homeowners in five cases, the arbitrator was
evidently partial. We disagree and hold that the arbitrator properly
disclosed information that might indicate bias before the arbitration
began. Appellants did not object.

Additionally,
although Appellants allege that the arbitrator represented homeowners in
five residential construction cases, they did not produce any withheld
evidence (1) of the total number of cases that the arbitrator handled
during his practice of at least fifteen years or the percentage of cases
that he handled on behalf of homeowners versus builders, (2) that he knew
any of the parties in this case, or (3) that he had an association with
anyone or a membership anywhere that would create a reasonable impression
of the arbitrator’s partiality to an objective
observer.

Thus, we hold that
the undisclosed information complained about was trivial. We overrule
Appellants’ third issue.

B.
Manifest Disregard of the Law

In
their fifth issue, Appellants argue that the arbitrator acted in manifest
disregard of the law by awarding the Culls expert witness fees and
disregarded the argument that the Culls had waived arbitration. We
disagree.

An
arbitrator’s interpretation of the law is not subject to review for error
unless the arbitrator manifestly disregarded the law in his
decision.

“Manifest disregard
of the law” is a judicially-created ground for vacating arbitration
awards.

Manifest disregard of
the law is more than mere error or misunderstanding with respect to the
law.

Under this standard,
the arbitrator clearly recognizes the applicable law, but chooses to
ignore it.

“To adopt a less
strict standard of judicial review would be to undermine our
well-established deference to arbitration as a favored method of settling
disputes when agreed to by the parties.”

Therefore, the
court’s “review for manifest disregard of the law does not open the door
to extensive judicial review.”

Accordingly, judicial
review under this standard is “extremely limited.”

The party seeking to
vacate an arbitration award bears the burden of demonstrating the
arbitration panel acted in manifest disregard of the
law.

In
this case, Appellants rely only on the general rule that although the
prevailing party will recover all court costs, costs of experts are
incidental expenses in preparation for trial and not
recoverable.

This rule, however,
does not apply where a statute or contract provides for recovery of
witness fees.

While the contracts
between the Culls and Appellants do not discuss expert witness fees, Texas
law permits recovery of expert witness fees for statutory fraud in real
estate claims.

Furthermore, the AAA
rules authorize the arbitrator to “grant any remedy or relief that the
arbitrator deems just and equitable.”

Thus, the arbitrator
did not act with manifest disregard of the law when he awarded expert
fees.

Additionally,
because we have already held that the Culls did not waive their right to
arbitrate the claims in this case, the arbitrator did not act with
manifest disregard of the law by ruling that the Culls did not waive
arbitration. Consequently, we overrule Appellants’ fifth issue.Burden of
Proof

In
their fourth issue, Appellants alternatively argue that the Culls failed
to meet their summary judgment burden to negate Appellants’ defense of
evident partiality. We disagree.

A
defendant is entitled to summary judgment on an affirmative defense if the
defendant conclusively proves all the elements of the affirmative
defense.

To accomplish this,
the defendant-movant must present summary judgment evidence that
establishes each element of the affirmative defense as a matter of
law.

In this case, it was
Appellants’ burden to prove their defense, and, although the Culls could
have filed a reply to Appellants’ response to their motion to confirm the
arbitration award, the Culls were not required to put on evidence
to negate Appellants’ defense. As set forth above, Appellants did not
conclusively prove that the arbitrator was evidentially partial. We
overrule Appellants’ fourth issue.

Modification of the Trial Court’s
Judgment

In
their sixth issue, Appellants argue that the trial court erred by refusing
to modify its judgment to correct errors in the arbitration award that
resulted in contradictory deadlines for complying with the injunctive
relief, an award of interest above what the arbitrator awarded, an award
of post-confirmation attorney’s fees, and an award of costs taxed on
parties that the Culls had previously nonsuited.

First,
Appellants argue that the award of post-arbitration attorney’s fees
exceeded the arbitrator’s authority. We disagree. Although a trial court
may not add post-arbitration attorney’s fees to the arbitration award that
includes such fees in its final judgment, the arbitrator may award such
fees in the arbitration award.

Additionally,
attorney’s fees are allowed in cases such as this one involving DTPA and
fraud in real estate claims.

Thus, the trial court
did not err by confirming the arbitrator’s award of post-arbitration
attorney’s fees in its final judgment.

Second,
Appellants argue that the trial court’s judgment should be modified
because it awards costs on parties that the Culls previously nonsuited. We
disagree. Because Jerald W. Kunkel, P.E., and Jerald W. Kunkel, P.E.,
Inc., d/b/a Jerald W. Kunkel Consulting Engineers, Inc. had been nonsuited
before the final judgment, the trial court’s reference to “defendants” in
its final judgment refers to the remaining defendants in this case
regardless of the fact that the nonsuited defendants remained in the style
of the case. Appellants were the only remaining defendants at the time of
the trial court’s judgment, and thus, the trial court’s judgment makes
them and only them responsible for the fees.

Third,
Appellants allege that the judgment is inconsistent in two respects. The
judgment provides that the closing shall take place within sixty days
after the date of the judgment, but it also provides that the actions are
to be taken and sums paid on or before thirty days from the date of the
judgment. Although Appellants have not clearly specified the modification
in the dates of the judgment requested, the Culls agree to a modification
of the judgment to state that the closing shall take place within sixty
days after the date of the final judgment and that all other sums not
related to paragraph (a) shall be due thirty days after the date of the
final judgment. Because this modification appears to represent Appellants’
requested modification and will resolve any alleged inconsistency in the
judgment, we modify the judgment to reflect those
changes.

Finally,
Appellants argue that the trial court erred by awarding interest in
addition to what the arbitrator awarded. Because the trial court’s
judgment regarding this additional interest is ambiguous, we agree with
Appellants. The trial court’s judgment states that “the judgment here
rendered shall bear post-judgment interest at the rate of 10% per annum
from the date of signing until paid.” This interest could be interpreted
to add 10% interest on the interest awarded by the arbitrator, which was
“ten percent (10%) per annum from thirty (30) days after the date of this
Award until paid.” We find no statutory or case law in support of this
modification.

Thus, the trial court
should not have included this additional interest in its judgment. We
therefore further modify the trial court’s judgment to delete “that the
Judgment here rendered shall bear post-judgment interest at the rate of
10% per annum from the date of signing until paid” and overrule the
remaining arguments Appellants raised in their sixth
issue.

Findings
of Fact

Alternatively,
Appellants argue in their second issue that the trial court erred by
failing to enter findings of fact and request that this case be abated to
the trial court for entry of findings of fact. According to Rules 296 and
297 of the Texas Rules of Civil Procedure, a trial judge must prepare
findings of fact in cases tried in the district court or county court
without a jury, that is, where there has been an evidentiary hearing to
the court or a bench trial on the merits.

When a trial court
grants summary judgment relief, however, findings of fact have no place in
the proceeding because the summary judgment proceeding has not been
“tried” within the scope of Rule 296.

Although Appellants
argue in this issue that the motion to vacate hearing was an evidentiary
hearing requiring findings of fact, they contradictorily argue in their
fourth issue that their motion to vacate the arbitration award was their
response to the Culls’ motion to confirm the arbitration award, which was
a summary judgment proceeding. Our review of the record shows that this
hearing was not a bench trial on the merits of the case. The hearing was
held in the form of a summary judgment hearing; only arguments were given,
no live testimony was given, and the only evidence presented was not
offered or admitted at the hearing but was attached to the parties’
motions. Thus, because findings of fact have no place in summary judgment
proceedings,

we overrule
Appellants’ second issue.

Conclusion

Having
held that the trial court erred by awarding post-judgment interest in
addition to the interest awarded by the arbitrator, we modify the trial
court’s judgment by removing the following, “[T]hat the Judgment here
rendered shall bear post-judgment interest at the rate of 10% per annum
from the date of signing until paid.”

Having
held that the trial court’s judgment is ambiguous regarding the time
periods by which Appellants must comply with the judgment, we modify the
paragraph following paragraph g. of the trial court’s judgment to state,
“The action are to be taken and sums are to be paid as set forth in
paragraphs b., c., d., e., f., and g., herein, on or before thirty (30)
days from the date of this Final Judgment.”

We
affirm the trial court’s judgment as modified.

LEE
ANN DAUPHINOT

JUSTICE

PANEL
B:   DAUPHINOT, HOLMAN, and WALKER,
JJ.

DELIVERED: August 31,
2005