Pu Chang Tsai v. Han Kuei Su and Sun Cha Su

Opinion issued August 19, 2010 In The Court of Appeals For The First District of Texas ———————————— NO. 01-09-00096-CV ——————————— Pu Chang Tsai, Appellant V. Han Kuei Su and Sun Cha Su, Appellees On Appeal from the 129th District Court Harris County, Texas Trial Court Case No. 2000-38080 MEMORANDUM OPINION This lawsuit arises out of the demise of a business relationship that involved the ownership and operation of Mantai Shrimp Farm, Inc. (Mantai) in Aransas County, Texas among plaintiffs-appellees Han Kuei Su and Sun Cha Su, appellant Pu Chang Tsai, and Rong Dong Liao. After Tsai sued for alleged mishandling of the business, Tsai and the Sus signed a mediated settlement agreement (MSA) on March 10, 2001 intending to resolve their dispute by dividing the business’s assets and liabilities. Despite the settlement, however, Tsai did not dismiss his lawsuit. In addition, challenges to the meaning of certain of the MSA’s terms resulted in three arbitration rulings, issued on June 11, 2001, January 31, 2002, and June 5, 2007, respectively. When Tsai still failed to perform under the MSA, the Sus counterclaimed for breach of the MSA and moved the trial court for summary judgment on that counterclaim. Tsai appeals the trial court’s summary judgment in favor of the Sus. He first contends that the trial court exceeded its authority to confirm an arbitration award. Tsai further complains that the trial court’s judgment impermissibly deviates from the terms of the arbitration awards by (a) converting Tsai’s obligation to assume a debt into a requirement to pay a debt; (b) requiring Tsai to pay Su’s attorney the specified sum before, rather than after, the Sus convey their right, title, and interests in the Mantai Shrimp Farm; (c) denying Tsai the right to offset the debt to Liao against any potential recovery from Liao; (d) awarding the Sus post-judgment interest on the arbitration award and their attorney’s fees in connection with the summary judgment proceedings; and (e) appointing the Sus’ counsel as trustee of the proceeds. We conclude that the trial court judgment amounts to confirmation of the arbitration awards except to the extent it awards the Sus their attorney’s fees and post-judgment interest. We therefore modify the judgment to omit the attorney’s fees and post-judgment interest awards and, as modified, affirm. Background Tsai, the Sus, and Liao embarked on a business plan involving the finance and operation of Mantai Shrimp Farm, Inc. The “Liao debt” refers to a $100,000 promissory note executed by Mr. Su, payable to Liao. Liao used Su’s note toward payment of a purchase money promissory note to Copano Ranch, Inc., from which Mantai originally acquired the property. Liao, in turn, executed a promissory note and deed of trust lien naming Mantai as beneficiary. The promissory note provides: If Maker defaults in the payment of this note or in the performance of any obligation in any instrument securing or collateral to it, . . . then Payee may declare the unpaid principal balance and earned interest on this Note immediately due, and Payee’s sole remedy is to reclaim the property as provided in the Deed of Trust executed on this same date. The deed of trust lien contains two nonrecourse provisions. The first provision specifies that if default occurs, [Mantai’s] SOLE REMEDY is to: a. request Trustee to foreclose this lien, in which case [Mantai] or [its] agent shall give Grantor 30 days notice of the foreclosure by Certified Mail Return Receipt Requested and Regular Mail; b. receive and recover any closing costs paid by [Mantai] at the time of closing; and c. reclaim the property at the scheduled foreclosure by transferring the property to [Mantai]. The second provides: SPECIAL PROVISION: [Mantai] acknowledges that [Mantai]’s right and remedy were limited to reclaiming this property. [Mantai] waives any and all rights to foreclose on the property as provided under the Texas Property Code, except those rights applicable to the performance of rights under this Deed of Trust. Liao defaulted on the note, and Mantai foreclosed on the deed of trust lien. As their business relationship proved untenable, the parties agreed to mediate the claims and controversies between them relating to the operation, financing, and sale of the property. In the March 10, 2001 mediated settlement agreement (MSA), Tsai agreed to assume certain obligations in exchange for Sus’ conveyance to Tsai of their ownership interest in Mantai. Both arbitration proceedings arising out of the MSA centered on the provision that sets forth Tsai’s obligations. It provides: (2) Mr. Tsai assumes the following (A) $12,500.00 payment to Robert Pham, trustee (B) Debt to Central Power & Light Co. not to exceed $25,000.00 (C) Note to Copano Ranch, Inc., or assigns & Liao debt only to the extent it inured to the benefit and direct use of the corporation to pay the note and taxes on the 183 acres. Shortly after signing the MSA, a dispute arose concerning paragraph 2(A). The parties returned to the arbitrator who assisted them in reaching the settlement, who ruled that “[j]udgment should be entered as agreed save and except that [Tsai] pays $5,000.00 cash instead of the $12,500.00 [to Pham].” The second arbitration award clarified that (1) the amount of the note owed to Copano Ranch, Inc., or assigns was $90,153.46; (2) the amount of the debt owed to Central Power & Light was $23,455.53; and (3) the amount of the Liao debt, “only to the extent it inures to the benefit and direct use of the corporation to pay the note and taxes on the 183 acres,” was $87,629.73. The third arbitration ruling addressed the meaning of “assumes” as used in the provision. The arbitrator held that: By agreeing to “assume” the obligations . . ., Mr. Tsai, in essence, agreed to make the obligations, debts and/or liabilities his own and assumed an independent duty to perform whatever the assumed obligations, debts and/or liabilities were to be. In effect, Mr. Tsai steps into the shoes of the party[] previously responsible for performance. However, it is well settled in Texas that any party assuming the obligations, debts and/or liabilities of another does so subject to the terms and conditions of the debt or obligations being assumed and further subject to any defenses, rights of offset, claims, or counterclaims legally available to the parties. Therefore, by virtue of Mr. Tsai agreeing to “assume” certain payments, debt and note as more particularly set forth in . . . paragraph 2 (A), (B) & (C), Mr. Tsai is contractually obligated and personally liable as the principal obligor to specifically perform under the payment and performance terms and conditions set forth therein, subject only to any defenses, rights of offset, claims or counterclaims that may be legally available to him. The parties did not submit any issue relating to Su’s obligations under the MSA for arbitration. A year passed and Tsai still had not performed his obligations under the MSA. In particular, he persisted in claiming that, because the property sold at foreclosure for less than the amount of the note, he was entitled to an offset or credit against the amount he owed under paragraph 2(C) of the MSA for the note on the Liao debt. The Sus moved for summary judgment on their breach claim, arguing that (1) the nonrecourse provisions in the promissory note and deed of trust lien precluded Tsai’s claim to any offset or credit on the $87,625.73 of Liao debt Tsai assumed under the MSA, entitling them to summary judgment as a matter of law, and (2) there was no evidence of any offset or credit available to Tsai. The Sus also asked the court to sever and abate their counter- and third-party claims against Tsai and others to render the judgment final for purposes of appeal. The trial court granted the Sus’ motion. In its December 22, 2008 final judgment, the trial court took judicial notice of and incorporated by reference the arbitration rulings and awarded judgment in the Sus’ favor and against Tsai for the amounts determined to be due by the January 31, 2002 arbitrator’s ruling as it interpreted paragraph 2 of the MSA, namely: (1) $90,153.46, representing the amount of the note to Copano Ranch or its assigns; (2) $87,629.73, representing the amount of the Liao debt; and (3) $23,455.53, representing the amount of the debt due to Central Power & Light. The trial court ordered Tsai to deliver the amounts to be paid to the Sus’ counsel for deposit into his trust account. The trial court directed the Sus to perform their reciprocal obligations under the MSA following receipt of Tsai’s payment. The trial court also awarded the Sus their attorney’s fees and pre- and post-judgment interest. The court granted the Sus’ severance request, rendering the judgment a final one. This appeal followed. Discussion I. Effect of arbitration awards on the Sus’ breach of contract claim Tsai points out that the MSA, which provides the basis for the Sus’ breach of contract claim, is also the subject of arbitration decisions interpreting certain disputed provisions in that contract, and that the existence of the arbitration rulings construing Tsai’s obligations under the MSA left the trial court with the power only to confirm, modify, or vacate those arbitration awards. Tsai claims that the trial court exceeded its authority in awarding relief beyond that available under the arbitration awards. To determine whether we should review the Sus’ summary judgment motion as one merely for confirmation of the arbitration awards or one for breach of contract unconstrained by the prior arbitrations, we examine the plain language of the MSA’s arbitration clause. It provides: If any dispute arises with regard to the interpretation and/or performance of this Agreement, of any of its provisions, the parties agree to submit such dispute to binding arbitration. The arbitrator shall be selected by the mutual [a]greement of the parties. If the parties cannot agree[] on the arbitrator, the parties agree that [the mediator] shall have the right to designate the arbitrator, who must acknowledge that he or she has no conflict of interest or bias in the matter. The parties shall equally share and pay the costs of arbitration. The [a]rbitration shall be governed by the Rules of the AAA. The Sus’ breach of contract claim is a “dispute . . . with regard to the interpretation and/or performance” of the MSA, and, accordingly, is a claim that the parties agreed to arbitrate under this broad provision. The trial court’s authority is therefore limited to vacating, modifying, or confirming the prior arbitration awards. See Tex. Civ. Prac. & Rem. Code Ann. §§ 171.087, 171.088, 171.091 (Vernon 2005). II. Standard of review The Texas General Arbitration Act (TGAA) specifically authorizes a trial court to hear an application for confirmation following the same procedure used in other civil cases. New Med. Horizons II, Ltd. v. Jacobson, No. 01-09-00238-CV (Tex. App.—Houston [1st Dist.] May 10, 2010, no pet.) (citing Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 430 (Tex. App.—Dallas 2004, pet. denied); see Tex. Civ. Prac. & Rem. Code Ann. § 171.093. “Thus, applications to confirm or vacate an arbitration award should be decided as other motions in civil cases; on notice and an evidentiary hearing if necessary.” Hazar, 124 S.W.3d at 430. A party may move simply for enforcement or for summary judgment on the award. See id. An arbitration award has the same effect as the judgment of a court of last resort, and a reviewing court may not substitute its judgment for that of the arbitrators merely because it would have reached a different result. Universal Computer Sys., Inc. v. Dealer Solutions, L.L.C., 183 S.W.3d 741, 752 & n.12 (Tex. App.—Houston [1st Dist.] 2005, pet. denied) (citing CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002)); see Tex. Civ. Prac. & Rem. Code Ann. § 171.093 (Vernon 2005); J.J. Gregory Gourmet Servs., Inc. v. Antone’s Import Co., 927 S.W.2d 31, 33 (Tex. App.—Houston [1st Dist.] 1995, no writ). Judicial review of an arbitration decision is “extremely narrow” because Texas law favors arbitration. Universal Computer Sys., Inc., 183 S.W.3d at 752. Because arbitration is favored as a means of dispute resolution, every reasonable presumption must be indulged to uphold the arbitrators’ decision, and none is indulged against it. CVN Group, Inc., 95 S.W.3d at 238. We agree with Tsai that the MSA’s arbitration provision and the awards secured pursuant to that provision limit the trial court to confirming, modifying, or vacating the arbitration awards under the TGAA. The trial court’s judgment strives to comply with the prior arbitration rulings; the trial court incorporated them by reference into its judgment and expressly referenced them in determining the amount that Tsai owed the Sus. The trial court thus properly acknowledged the arbitration rulings as binding decisions governing the interpretation and performance of the MSA in ruling on the Sus’ motion for enforcement and summary judgment. We nevertheless review the judgment de novo to ensure that the trial court gave proper deference to the arbitrator’s rulings. III. Variances between the judgment and the MSA Tsai complains of impermissible variances between his obligations under the MSA, as clarified by the arbitration rulings, and those imposed by the trial court’s judgment. Specifically, he contends that the trial court’s judgment erroneously requires that he pay the amount of the debt obligations he assumed without accounting for any offset, appoints the Sus’ counsel as trustee for the funds, defers performance of the Sus’ obligations under the MSA until after he makes that payment, and orders payment of pre-judgment interest and attorney’s fees—all requirements that differ from or do not appear in the MSA. We consider each of these contentions in turn. A. Payment in lieu of assumption of debt With respect to the requirement that Tsai pay the amount of debt he assumed under the MSA, Texas courts consistently treat an assumption agreement as an unconditional promise to pay the debt assumed. See, e.g., Straus v. Brooks, 148 S.W.2d 893, 896 (Tex. Comm’n App. 1941); Hill v. Hoeldtke, 142 S.W. 871, 874 (Tex. 1912) (observing that when plaintiff accepted Hill’s promise to pay note, Hill’s obligation to pay plaintiff’s note “was as binding as if Hill had executed and delivered plaintiff his written obligation promising to pay same, and could no more be revoked by any subsequent agreement between Hill and [the creditor] without the consent of plaintiff than could any other obligation of Hill be revoked independent of the assent of the payee whose rights had been established by the concurrence of a promise to pay”); Shenandoah Assocs. v. J & K Props., Inc., 741 S.W.2d 470, 493 (Tex. App.—Dallas 1987, writ denied) (observing that “when Shenandoah obligated itself to pay Home[, the holder of the note], Shenandoah was not obligating itself to pay a debt it owed J & K; rather, it was obligating itself to pay a debt to J & K’s creditor, Home, and when Home agreed with J & K to accept Shenandoah’s promise to pay the note, Shenandoah became the principal debtor on the note and J & K became a surety for the debt”). B. Right to offset Tsai complains that the trial court’s judgment denies him the right to offset against the debt he assumed, in contravention of the MSA. The Sus’ motion for summary judgment, however, rested in part on the ground that the Liao debt that Tsai had agreed to pay was based on a non-recourse note. “A nonrecourse note has the effect of making a note payable out of a particular fund or source, namely, the proceeds of the sale of the collateral securing the note.” Fein v. R.P.H., Inc., 68 S.W.3d 260, 266 (Tex. App.—Houston [14th Dist.] 2002, pet. denied); see also Messagephone, Inc. v. Texas Life, Accid., Health & Hosp. Serv. Ins. Guar. Ass’n, 966 S.W.2d 133, 135 (Tex. App.—Austin 1998, no pet.) (observing that under nonrecourse note, payee agreed to look only to property securing note rather than to maker); Schultz v. Weaver, 780 S.W.2d 323, 324 (Tex. App.—Austin 1989, no writ) (acknowledging that nonrecourse clause provided maker bore no personal liability for payment of note and payee would only look to property securing note in event of default); Trafalgar Invs., Ltd. v. Westminster Assocs., Ltd., 715 S.W.2d 745, 747 (Tex. App.—Austin 1986, no writ) (noting that nonrecourse meant that in event of default, payee could look only to collateral for unpaid funds). The Sus supported their summary judgment motion with the nonrecourse note as well as Tsai’s admission during his deposition that no offset credit is available for the Liao debt, and alternately moved for summary judgment on the ground that there was no evidence of any offset or credit. Tsai did not raise a fact issue on this ground in the trial court and does not contend here that any offset exists on which he could exercise that right. We hold that the trial court properly applied the arbitration rulings construing the nature of the Liao debt in determining that no offset exists and requiring Tsai to pay the full amount of the Liao debt. C. Requirement to pay Sus’ attorney as trustee Tsai next complains that the trial court’s judgment erroneously appoints the Sus’ counsel as trustee for Liao debt and defers performance of the Sus’ obligations under the MSA until after Tsai makes payment to the Sus’ counsel. Specifically, Tsai asserts that the trial court’s judgment “reverse[s] the order in which the obligations contained in the arbitration awards were to be performed.” We disagree. The MSA declares that the Sus are “to convey all right, title & interests [the Sus] own in [Mantai] and 183 acres,” and, in the next paragraph, directs Tsai to assume specified debts. The MSA does not, however, direct that these obligations be performed in any specific order or manner. Further, we construe the trial court’s order that Tsai pay Sus’ counsel as trustee as a reasonable means to ensure that all parties perform their obligations under the MSA without unreasonable delay and to facilitate transfer of the appropriate amount of funds to the three creditors identified in the MSA.[1] See Tex. Civ. Prac. & Rem. Code Ann. § 171.091 (permitting court to modify or correct arbitration award if “the form of the award is imperfect in a manner not affecting the merits of the controversy”). The trial court’s judgment comports with the MSA and does not alter any of Tsai’s obligations as construed in arbitration. We therefore hold that the trial court did not err in specifying terms for discharging the parties’ obligations under the MSA. D. Attorney’s fees and post-judgment interest Tsai further contends that the trial court did not have the authority to award the Sus their attorney’s fees or post-judgment interest because the arbitration rulings do not contain such awards. We agree that the trial court exceeded its authority by granting attorney’s fees and post-judgment interest in the absence of an arbitration award of those items. The MSA binds the Sus to pursue their claims in the abitral forum in the first instance, and by adding fees and post-judgment interest, the trial court impermissibly modified the arbitration awards. See Fogal v. Stature Constr., Inc., 294 S.W.3d 708, 723 (Tex. App.—Houston [1st. Dist.] 2009, pet. denied); Kosty v. S. Shore Harbour Cmty. Assoc., Inc., 226 S.W.3d 459, 465 (Tex. App.—Houston [1st Dist.] 2006, pet. denied) (holding trial court erred by adding attorney’s fees to arbitration award); Kline v. O’Quinn, 874 S.W.2d 776, 781 (Tex. App.—Houston [14th Dist.] 1994, writ denied) (concluding that trial court did not err in refusing to award attorney’s fees where arbitration provision provided that “each party shall be responsible for the fees of its own counsel” and arbitration award ordered that “each party shall bear its own attorney’s fees”); see also Tex. Fin. Code Ann. § 304.001 (Vernon 2005) (post-judgment interest provision applies to “money judgment of a court in this state” (emphasis added)); Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W.2d 225, 236 (Tex. App.—Houston [14th Dist.] 1993, writ denied) (holding that judicial proceeding to confirm an arbitration award is in nature of enforcement proceeding, not contract claim. Finally, Tsai complains that the Sus are not entitled to recover attorney’s fees because the MSA does not provide for fee recovery. We disagree. An arbitrator may award attorney’s fees if the arbitration agreement or applicable law supports such an award. See Tex. Civ. Prac. & Rem. Code Ann. § 171.048(c) (Vernon 2005). The MSA is silent concerning attorney’s fees, but an arbitrator may find that the Sus are entitled to their attorney’s fees under a breach of contract theory. See Tex. Civ. Prac. & Rem. Code Ann. § 38.001 (Vernon 2008). Unlike the records in Kosty and Kline, the record here does not reflect that the parties submitted the issue of attorney’s fees to an arbitrator. See Kosty, 226 S.W.3d at 465; Kline, 874 S.W.2d at 785. We therefore vacate the awards of attorney’s fees and post-judgment interest in the judgment, modify to omit those awards, and as modified, affirm. Conclusion The trial court’s judgment correctly confirms the arbitration award in requiring Tsai to pay the sum equivalent to the debt he assumed and directing the parties to execute their obligations under the settlement. The trial court erred, however, in adding attorney’s fees and post-judgment interest to the award. We therefore modify the judgment to omit the awards of attorney’s fees and post-judgment interest and affirm the remainder of the judgment. Jane Bland Justice Panel consists of Chief Justice Radack and Justices Hanks and Bland. [1] Tsai waived any complaint about the absence of a requirement that the Sus’ counsel obtain a bond or post security for serving as trustee under the judgment by failing to request such relief in the trial court. See Tex. R. App. P. 33.1.