Construction Financial Services, Inc. v. Shannon Douzart and Marlene Douzart and Peter Tovar D/B/A Texas Star Builders and Texas Star Home Builders

In The

Court of Appeals
Ninth District of Texas at Beaumont
____________________
NO. 09-16-00035-CV
____________________

CONSTRUCTION FINANCIAL SERVICES, INC., Appellant

V.

SHANNON DOUZART AND MARLENE DOUZART AND
PETER TOVAR D/B/A TEXAS STAR BUILDERS AND
TEXAS STAR HOME BUILDERS, Appellees

_______________________________________________________ ______________

On Appeal from the 410th District Court
Montgomery County, Texas
Trial Cause No. 16-01-00014-CV

________________________________________________________ _____________

MEMORANDUM OPINION

Construction Financial Services, Inc. (CFS) appeals from a final judgment

that confirmed an arbitrator’s award resolving its dispute with Shannon and Marlene

Douzart. The Douzarts’ dispute arose after CFS financed the construction of a new

home with a builder, who then failed to finish the project. In three issues, CFS claims

the trial court should have vacated the arbitrator’s award because the arbitrator acted

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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 (Home Builders),1 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. 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. Accordingly, we affirm.

Background

In February 2013, the Douzarts signed a construction contract with Texas Star

Home Builders (Home Builders) to build a new home and barn. The contract had a

fixed price, and required Home Builders to complete the project for $335,700. The

1
Texas Star Home Builders is the assumed business name that Peter Tovar
used as the name of his construction business. For convenience, we refer to Tovar
using his business’s assumed name since the assumed name reinforces the fact that
Home Builders was the entity that performed the work on the Douzarts’ home.
2
obligations of the parties under the contract were contingent upon the Douzarts

securing a construction loan covering the entire $335,700 price placed on the project.

Several months later, the Douzarts obtained a construction loan from CFS for

$270,400, approximately $65,000 less than the fixed price established by their

contract with Home Builders. Nevertheless, 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.

The Douzarts, Home Builders, and CFS memorialized the arrangement that

called for CFS to finance the project in a document titled “Tri-Party Financing

Agreement” (the Tri-Party Agreement). The Tri-Party Agreement required CFS to

release the proceeds of the $270,400 construction loan “from time to time during the

term of the Construction Loan after Work has commenced and shall be solely for

Work done preceding the date of request.” The arbitrator found that CFS breached

the agreement by releasing construction funds to Home Builders without regard to

whether it had earned the progress payments. Additionally, Shannon2 gave CFS a

2
Marlene Douzart, Shannon’s wife, was not a co-maker on the note that
Shannon signed to finance the project.
3
promissory note that expressly referenced the Tri-Party Agreement. For example,

the Tri-Party Agreement states the promissory note “is entitled to the benefits of the

terms and conditions set forth in that certain Tri-Party Financing Agreement[.]”

The Douzarts executed a deed of trust to secure Shannon’s payment of his

note. The deed of trust, which includes an addendum the Douzarts signed, expressly

incorporates the terms, conditions, and warranties found in the Tri-Party Agreement.

The Douzarts also signed an arbitration agreement when they signed the other

agreements relevant to the arrangements they made to build a new home. 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[.]”

Although Home Builders performed a substantial amount of work on the

project, the project was not completed. During construction, and before the home

was finished, CFS released all of the money Shannon borrowed to Home Builders

without making sure that the proceeds of the loan were being spent on the Douzarts’

home. In April 2014, the Douzarts sued CFS and Home Builders, alleging that they

had breached the terms of their written agreements regarding the project to build the

home. The Douzarts’ claims included a claim against CFS for fraudulent conduct.

CFS answered and filed a counterclaim against the Douzarts alleging Shannon

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breached his obligation to pay the interest and principal he owed on his note.

Additionally, CFS demanded that, pursuant to the arbitration agreement, the dispute

be referred to arbitration. Home Builders never filed an answer to the Douzarts’ suit.

Several months after answering the Douzarts’ suit, CFS filed a motion to

compel arbitration. The trial court granted the motion, ordering the Douzarts, Home

Builders, and CFS to arbitrate “all unresolved issues[.]” Following an arbitration

hearing, which included the presentation of evidence,3 the arbitrator issued an award

resolving the dispute.4 The language in the arbitration award against Home Builders

reflects that it neither responded to the notice of arbitration nor appeared in the

arbitration hearing conducted on the Douzarts’ claims. In its award against CFS, the

arbitrator found CFS breached the Tri-Party Agreement in twelve separate ways, and

found that Shannon’s failure to pay his promissory note was “excused by CFS’s prior

material breach” of the obligations that it owed the Douzarts under the Tri-Party

Agreement. The award against CFS included a damage award for $99,175,5 an

3
The appellate record does not include a transcript of the evidentiary hearing
conducted by the arbitrator.
4
The award states that the Douzarts withdrew their negligence claims and the
claim that CFS violated the Texas Theft Liability Act. See Tex. Civ. Prac. & Rem.
Code Ann. §§ 134.001-.005 (West 2011 & Supp. 2017) (Texas Theft Liability Act).
5
For convenience, the dollar amounts referenced in the opinion have been
rounded to the nearest dollar.
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amount that represents the interest the Douzarts paid on Shannon’s loan and the out-

of-pocket losses they suffered when Home Builders failed to complete their home.

The arbitration award further states that “[t]he Douzarts are discharged from any

further liability to CFS under the Promissory Note.” The award the arbitrator signed

also obligates the Douzarts to deed the property and fixtures on the project to CFS.

However, the Douzarts did not prevail on all of their claims, as they were denied

relief on the claims they brought against CFS “for breach of the [Deceptive Trade

Practices Act], conspiracy, and fraud[.]” In a separate award, the arbitrator ordered

Home Builders to pay the Douzarts damages of $406,000, which the award

represents “the cost of repairing and finishing the house.”

Several months after the arbitrator issued the two awards, the Douzarts filed

a motion asking that the trial court confirm the awards. CFS opposed the application,

and filed a motion to vacate or to modify the award the arbitrator issued against it.

A few days later, the trial court issued an order that confirmed the awards and

severed the causes against Home Builders and CFS into separate actions so that final

judgments could be rendered on all of the claims the court sent to arbitration. After

effecting a severance, the trial court rendered final judgments confirming the awards

against CFS and Home Builders.

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 Applicable Law

We review a trial court’s decision to confirm or vacate an arbitration award

under a de novo standard of review. See D.R. Horton-Tex., Ltd. v. Bernhard, 423

S.W.3d 532, 534 (Tex. App.—Houston [14th Dist.] 2014, pet. denied). Texas law

favors arbitration, and under Texas law, the review of arbitration awards is

“extraordinarily narrow.” Hoskins v. Hoskins, 497 S.W.3d 490, 494 (Tex. 2016)

(citation omitted); Southwinds Express Constr., LLC v. D.H. Griffin of Tex., Inc.,

513 S.W.3d 66, 70 (Tex. App.—Houston [14th Dist.] 2016, no pet.). An arbitrator’s

award is given great deference when it is reviewed by a court, and such awards are

presumed to be valid. See Southwinds Express Constr., 513 S.W.3d at 70 (citing

CVN Grp., Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002)). Generally, even where

the arbitrator has made a mistake of law or fact, courts are not allowed to vacate or

modify the award. See Forest Oil Corp. v. El Rucio Land & Cattle Co., Inc., 446

S.W.3d 58, 75 (Tex. App.—Houston [1st Dist.] 2014, pet. denied).

In their briefs, both CFS and the Douzarts recognize that the Texas Arbitration

Act (TAA) governs the agreement they made to arbitrate their disputes. See Tex.

Civ. Prac. & Rem. Code Ann. §§ 171.001-.098 (West 2011). Under the TAA, a court

must confirm an arbitrator’s award unless it is shown that one of a statutorily

enumerated exception applies to the award. Id. §§ 171.087-.088. The TAA also

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authorizes trial courts to correct or modify arbitration awards under limited

circumstances, and these are also specified in the statute. Id. § 171.091. A reviewing

court may not vacate or modify an arbitration award governed by the Texas

Arbitration Act on grounds that are not in the statute. Hoskins, 497 S.W.3d at 494.

CFS characterizes its complaints about the trial court’s decision to confirm

the arbitration award against it as a matter that relates to the arbitrator’s authority to

render the award. The scope of authority the arbitrator has to resolve a dispute is

based on the scope of the parties’ arbitration agreement. Nafta Traders, Inc. v.

Quinn, 339 S.W.3d 84, 90 (Tex. 2011). An arbitrator exceeds her authority if she

decides a matter that lies outside the scope of the agreement. See Forged

Components, Inc. v. Guzman, 409 S.W.3d 91, 104 (Tex. App.—Houston [1st. Dist.]

2013, no pet.). Doubts that may exist regarding the scope of an arbitration agreement

must be resolved in favor of arbitration. See Centex/Vestal v. Friendship W. Baptist

Church, 314 S.W.3d 677, 684 (Tex. App.—Dallas 2010, pet. denied). The TAA

authorizes courts to vacate arbitration awards if the agreement did not include the

dispute that the arbitrator decided. See Tex. Civ. Prac. & Rem. Code Ann. §

171.088(a)(3)(A). Courts may also modify awards if the arbitrator “made an award

with respect to a matter not submitted to them” if the award can “be corrected

8
without affecting the merits of the decision made with respect to the issues that were

submitted.” Id. § 171.091(a)(2).

Issue One

In issue one, CFS contends the arbitrator exceeded her authority by voiding

Shannon’s promissory note to CFS because the Douzarts did not seek the remedy of

rescission in their pleadings. To determine the scope of the arbitrator’s authority, we

look to the terms of the parties’ arbitration agreement. The language in the agreement

to arbitrate between the Douzarts and CFS is very broad, as it covers “all unresolved

disputes” arising from the agreements the parties entered into for the project. The

language clearly included claims arising from any breaches of the Tri-Party

Agreement, and that is the theory on which the arbitrator based the awards she

allowed against CFS. See Centex/Vestal, 314 S.W.3d at 685 (holding that an

arbitration agreement that provided the parties would arbitrate claims “‘arising out

of or related to the Contract’” encompassed a wide range of disputes); Baker Hughes

Oilfield Operations, Inc. v. Hennig Prod. Co., Inc., 164 S.W.3d 438, 443-44 (Tex.

App.—Houston [14th Dist.] 2005, no pet.) (same); City of Baytown v. C.L. Winter,

Inc., 886 S.W.2d 515, 518 (Tex. App.—Houston [1st Dist.] 1994, writ denied)

(same). In some circumstances, rescission is an available remedy when a party

breaches a material term of an executory contract. See Turner v. Turner, No. 09-06-

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570 CV, 2008 Tex. App. LEXIS 4720, at *6 (Tex. App.—Beaumont June 26, 2008,

pet. denied) (mem. op.), Boyter v. MCR Constr. Co., 673 S.W.2d 938, 941 (Tex. Civ.

App.—Dallas 1984, writ ref’d n.r.e.); Ennis v. Interstate Distributors, Inc., 598

S.W.2d 903, 906 (Tex. Civ. App.—Dallas 1980, no writ).

In its brief, CFS argues that the remedy of rescission was not available to the

Douzarts because the Douzarts failed to seek rescission regarding the note Shannon

signed in their pleadings. Additionally, CFS argues that the promissory note should

not have been considered as part of the Tri-Party Agreement, the instrument that the

arbitrator determined CFS had breached. CFS concludes that because a dispute over

Shannon’s promissory note was not within the scope of the matters that were before

the arbitrator, the arbitrator exceeded her authority by ordering rescission on

Shannon’s note.

The agreement to arbitrate provides that “any party to the agreement(s)” may

request that a dispute “relating to any agreement” or “the agreement(s)” be submitted

to arbitration. The language of the arbitration agreement encompasses all of the

Douzarts agreements with CFS on the project, so by implication the agreement to

arbitrate encompassed any dispute over the obligations Shannon had under his note.

The Tri-Party Agreement also references the promissory note, as it states the note

“is entitled to the benefits of the terms and conditions set forth in” the Tri-Party

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Agreement. The Tri-Party Agreement required CFS to advance funds to Home

Builders in phases as Home Builders completed its work, less a percentage that CFS

was required to retain pending the completion of the project. Under Texas law,

“[d]ocuments incorporated into a contract by reference become part of that contract.”

In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010).

CFS argues that the Douzarts’ failure to plead a claim for rescission prevented

the arbitrator from granting equitable relief. We acknowledge that a trial court (in

contrast to an arbitrator) can abuse its discretion by rendering a judgment on a claim

that is not included in the pleadings. See Stoner v. Thompson, 578 S.W.2d 679, 682-

84 (Tex. 1979). According to CFS, similar pleading rules govern the forum where

the arbitration occurred.

Nonetheless, a procedural error that arises from an arbitrator’s alleged failure

to follow the pleading rules of the forum is a matter that is beyond the limited scope

we are granted to review an arbitration award. See Forest Oil Corp., 446 S.W.3d at

75. The Douzarts’ pleading did include a request to cancel Shannon’s note, a claim

that is similar but not identical to a request for rescission. And, nothing in the

language of the parties’ agreement to arbitrate reflects that the arbitrator could not

consider granting equitable remedies such as rescission as a remedy for a breach of

contract claim. Even if rescission is a remedy that expanded beyond the remedies

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the Douzarts’ requested in their pleadings, our review focuses on the authority the

parties gave the arbitrator under the agreement to arbitrate. See Nafta Traders, 339

S.W.3d at 89-91 (explaining that when an arbitration is conducted based on an

agreement between the parties, the arbitrator derives her power from the agreement

to arbitrate). Therefore, we examine whether the arbitrator was authorized by the

agreement to order rescission. Id.

The language of the agreement to arbitrate between the Douzarts and CFS is

sufficiently broad to include equitable remedies. Additionally, the agreement to

arbitrate provided that the arbitration would be conducted pursuant to the Better

Business Bureau Rules of Arbitration. Those rules provide, in pertinent part:

The arbitrator may award any remedy that is permitted under applicable
law; provided, however, that the arbitrator may not award any remedies
that the parties have agreed in writing may not be awarded in
arbitration.

Significantly, the Texas Arbitration Act provides: “The fact that the relief

granted by the arbitrators could not or would not be granted by a court of law or

equity is not a ground for vacating or refusing to confirm the award.” Tex. Civ. Prac.

& Rem. Code Ann. § 171.090. CFS does not point to anything in the record that

purports to be a written agreement between the parties restricting the arbitrator from

fashioning an equitable remedy to cure the damages the arbitrator determined

occurred when CFS breached its obligations under the Tri-Party Agreement. Given
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the broad language in the agreement to arbitrate, the arbitrator’s error, if she made

one, was a mistake in the manner she applied the pleading rules governing the

arbitration proceeding. We conclude that her alleged error should be characterized

as either a mistake of law or of fact, so it is the type of error that lies beyond our

limited scope of review. See Forest Oil Corp., 446 S.W.3d at 75; Crossmark, Inc. v.

Hazar, 124 S.W.3d 422, 429 (Tex. App.—Dallas 2004, pet. denied). Issue one is

overruled.

Issue Two

In issue two, CFS argues the arbitrator exceeded her authority by extending

remedies to the Douzarts that allowed them the possibility that they could recover

more than the actual damages that resulted from CFS’s breaches of the Tri-Party

Agreement. The argument CFS makes suggests that double recovery resulted

because the arbitrator cancelled Shannon’s note, awarded the Douzarts damages

against Home Builders based on the costs to repair a home the award required be

deeded to CFS, and awarded the Douzarts $99,175 in out-of-pocket damages. “A

double recovery exists when a plaintiff obtains more than one recovery for the same

injury.” Waite Hill Servs., Inc. v. World Class Metal Works, Inc., 959 S.W.2d 182,

184 (Tex. 1998).

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 Even were we to agree that the arbitrator mistakenly created the possibility

that, should the Douzarts recover under both arbitration awards, a double recovery

of at least some damages could occur, the trial court could not have refused the

Douzarts’ request to confirm the awards based on the argument that CFS made to

the trial court. See Tex. Civ. Prac. & Rem. Code Ann. § 171.090. Nothing in the

record suggests the Douzarts collected anything under the award the arbitrator

rendered against Home Builders. Consequently, the record now before us does not

show that the Douzarts actually obtained a double recovery on any of their awards.

See Burchfield v. Prosperity Bank, 408 S.W.3d 542, 548-49 (Tex. App.—Houston

[1st Dist.] 2013, no pet.) (holding that an uncollected default judgment against one

party did not bar collecting the damages against another party because the judgments

did not represent a double recovery). Consequently, the principles of double

recovery have not been shown to apply to the judgment the trial court rendered

against CFS. We overrule issue two.

Issue Three

In issue three, CFS argues the separate awards of attorney’s fees to the

Douzarts on their claims against Home Builders and their claims against CFS

allowed the Douzarts to achieve a double recovery on their claims for attorney’s

fees. We disagree. The arbitration award against CFS awarded the Douzarts

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$184,450 in attorney’s fees. The arbitrator rendered a separate award against Home

Builders for attorney’s fees in that amount. The awards are silent with respect to

whether the arbitrator intended her awards of attorney’s fees to be joint and several,

but the fact the awards are in the exact same amount and that both are based on the

same attorney’s fees affidavit requesting aggregate fees totaling $184,450 makes us

doubt that the arbitrator intended to allow the Douzarts to recover more than a total

of $184,450 in fees. The attorney’s fee affidavit filed by the Douzarts’ attorney

explained that the fees he sought were based on the time expended on the matter by

the members of his firm in pursuing the case against both Home Builders and CFS.

While the fees identified in the affidavit are not properly segregated as between CFS

and Home Builders, the affidavit makes it clear that the Douzarts were seeking an

aggregate award for attorney’s fees, not a cumulative award of twice the amount

supported by the affidavit signed by their attorney.

On this record, there is nothing to suggest the Douzarts have actually collected

on the attorney’s fees award they received against Home Builders. Because CFS

failed to show that the separate awards of attorney’s fees have actually resulted in a

double recovery, the trial court, for this reason, could have decided to confirm the

awards. See Burchfield, 408 S.W.3d at 548-49.

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 Finally, CFS complains the trial court improperly modified the award of

attorney’s fees to make the awards joint and several. Relying on Broemer v. Houston

Lawyer Referral Service, CFS argues that the trial court was not authorized to

modify the attorney’s fee award to impose joint and several liability on CFS for

attorney’s fees. 407 S.W.3d 477, 484 (Tex. App.—Houston [14th Dist.] 2013, no

pet.). However, the error identified in Broemer was that the trial court imposed joint

and several liability on a party when the arbitrator, in the arbitration award, found

the individual had no personal liability. Id. Therefore, the modification the court

imposed in Broemer was a modification that affected the merits of the controversy

because it created liability on one of the parties to the case when the arbitrator had

found that party not liable. Id.

By modifying the attorney’s fee awards to make them joint and several, the

trial court prevented the possibility of a double recovery. Thus, given that the

Douzarts filed an attorney’s fee affidavit that reflects they were seeking only

$184,450 in attorney’s fees, we conclude the modification is one that did not affect

the merits of the controversy. By making the attorney’s fee award joint and several,

the judgment clarified the award by making it clear the Douzarts may collect a total

of only $184,450 in attorney’s fees against Home Builders and CFS. In this case, we

conclude the attorney’s fees were awarded in an imperfect manner, and the trial court

16
properly corrected the awards without affecting the merits of the arbitrator’s

decisions. See Tex. Civ. Prac. & Rem. Code Ann. § 171.091(B)(3) (allowing a court

to modify an arbitration award if the form of the award is imperfect in a manner that

does not affect the merits of the controversy).

We overrule issue three. Because we have concluded that the arbitrator acted

within her authority when she rendered her awards, we hold the trial court was

required by the TAA to confirm the awards. Accordingly, we affirm the final

judgment.

AFFIRMED.

_________________________
HOLLIS HORTON
Justice

Submitted on July 5, 2017
Opinion Delivered February 28, 2018

Before McKeithen, C.J., Kreger and Horton, JJ.

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