Choose the Wording of your Arbitration Clause Carefully – The Texas Supreme Court Sheds Light on Proper Grounds for Vacatur of Arbitration Awards

Chris Hanslik, Kasi Chadwick

May 25, 2016

Texas law favors arbitration and a party’s right to contract. Accordingly, meaningful judicial review of an arbitration award is generally difficult to obtain absent express language in an arbitration agreement so providing. Though historically, Texas common-law established grounds for vacatur of an arbitration award, Section 171.088 of the Texas General Arbitration Act (“TAA”) lists specific grounds upon which an arbitration award may be vacated.

Last week, the Texas Supreme Court confirmed that a party seeking to vacate an arbitration award under the TAA is limited to the grounds enumerated in Section 171.088 of the TAA. In Hoskins v. Hoskins, the parties signed an arbitration agreement in which they “agreed to resolution through arbitration pursuant to the provisions of the Texas General Arbitration Act.” One of the parties in Hoskins filed a petition to vacate the arbitration award. In so moving, the movant contended the award was improper, in part, because the arbitrator’s award demonstrated a manifest disregard of the law—a common-law ground for vacatur. Importantly, the parties’ arbitration agreement contained no limitation on the arbitrator’s authority to issue an award and did not otherwise define the arbitrator’s powers.

Both the Trial Court and the Appellate Court denied the movant’s petition to vacate. The Texas Supreme Court agreed holding that because a “manifest disregard for the law” is not a valid ground to vacate an arbitration award under the TAA. Also, because the parties did not agree to limit the arbitrator’s authority so as to authorize vacatur on that basis, the movant was not entitled to relief. While Section 171.088 does require a court to vacate an arbitration award if the arbitrators “exceeded their powers[,]” post Hoskins, the parties must contract for what constitutes arbitrator overreaching. Common-law grounds for vacatur will not be read into arbitration agreements that are governed by the TAA.

Hoskins presents an important lesson for those drafting arbitration agreements pursuant to the TAA. To protect yourself from an arbitration award that is unsupported by the law, express contractual provisions must be included providing for vacatur of any such award.