Beaumont court upholds arbitrator's ruling in home construction lawsuit

By Carrie Salls | Mar 8, 2018

BEAUMONT – The Court of Appeals for the 9th District of Texas at Beaumont ruled in a Feb. 28 opinion that an arbitrator who entered an award in a construction project dispute between Construction Financial Services Inc. (CFS) and two individuals that signed an agreement for construction of a new house and barn had not “exceeded her authority in rendering the award against CFS.”

BEAUMONT – The Court of Appeals for the 9th District of Texas at Beaumont ruled in a Feb. 28 opinion that an arbitrator who entered an award in a construction project dispute between Construction Financial Services Inc. (CFS) and two individuals that signed an agreement for construction of a new house and barn had not “exceeded her authority in rendering the award against CFS.”

According to the appeals court opinion, which was written by justices Steve McKeithen, Charles Kreger and Hollis Horton, the arbitrator in question ruled in favor of Shannon and Marlene Douzart, who hired Peter Tovar, doing business as Texas Star Builders, and Texas Star Home Builders, to “build a new home and barn.”

“The Douzarts’ dispute arose after CFS financed the construction of a new home with a builder, who then failed to finish the project,” the appeals court opinion said.

CFS asked the 410th District Court Montgomery County to vacate the arbitrator’s decision, arguing, according to the appeals court ruling, that “the arbitrator acted beyond her authority in three ways, by (1) voiding the Douzarts’ promissory note to CFS when the Douzarts never requested rescission as a remedy in the claims they made against CFS; (2) awarding damages to the Douzarts on their claims against both CFS and Texas Star Home Builders, the business that agreed to build the home, because the awards, in the aggregate, created the possibility that the Douzarts would receive more than a double recovery on their claims; and (3) rendering an award that created the possibility the Douzarts might achieve a double recovery on the awards for attorney’s fees.”

In the opinion, the justices said their hands were somewhat tied in the case at hand.

“Given the limited right the legislature has delegated to the courts to review the merits or excessiveness of an arbitrator’s award, we hold that CFS has not shown the arbitrator exceeded her authority in rendering the award against CFS,” the opinion said. “Accordingly, we affirm.”

The appeals court said the Douzarts agreed in February 2013 to pay Texas Star $335,700 for the new construction, “contingent upon the Douzarts securing a construction loan covering the entire $335,700 price placed on the project.”

Although the Douzarts were only able to secure a loan from CFS for $270,400, the appeals court opinion said “the Douzarts and Home Builders decided to proceed, operating under the assumption that the value of the home, when completed, would allow the Douzarts to replace their construction loan with a mortgage in an amount that covered both the construction loan and any remaining balance they owed to Home Builders.”

According to the opinion, the arbitrator found that, “CFS breached the (tri-party financing agreement) by releasing construction funds to Home Builders without regard to whether it had earned the progress payments.”

The appeals court said the arbitration agreement “provides that should the parties have a dispute ‘relating to any agreement’ they are unable to resolve, ‘all unresolved disputes (not limited to breach of contract action[s]) . . . shall be submitted for binding arbitration.’”

However, according to the opinion, “several months after answering the Douzarts’ suit, CFS filed a motion to compel arbitration.” The lower court then ordered the parties to resolve the issues in arbitration.

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