Affirm in part; Reverse and Remand in part; Opinion Filed February 27, 2014.




                                          S   In The
                                Court of Appeals
                         Fifth District of Texas at Dallas
                                       No. 05-12-00857-CV

 HUMITECH DEVELOPMENT CORPORATION, AND EMIL LIPPE, JR., Appellants
                              V.
  ALAN PERLMAN, MICHAEL PERLMAN, ANN PERLMAN, DAVID PERLMAN
MICHELLE PERLMAN BERKE, BETH PERLMAN DREIFACH, HARRY SHER, AND
                     BETTY SHER, Appellees

                       On Appeal from the 191st Judicial District Court
                                    Dallas County, Texas
                            Trial Court Cause No. DC-09-9266-J

                                           OPINION
                            Before Justices O'Neill, Myers, and Brown
                                    Opinion by Justice Myers
       Humitech Development Corporation (HDC) appeals the trial court’s judgment

confirming an arbitration award in favor of Alan Perlman, Michael Perlman, Ann Perlman,

David Perlman, Michelle Perlman Berke, Beth Perlman Dreifach, Harry Sher, and Betty Sher.

HDC’s counsel, Emil Lippe, Jr., appeals the trial court’s order imposing a $10,000 sanction

against him. Appellants bring seven issues on appeal, contending (1) the arbitration proceeding

was governed by Texas law; (2) the arbitrator exceeded his authority; (3) the arbitrator

manifestly disregarded Texas law or made a gross error in the arbitration award; (4) the

arbitrator’s award violated the public policy against kickbacks and bribes; (5) the trial court erred

by confirming the award without evidentiary support for the award and by applying the wrong
legal standard to HDC’s motion to vacate the award; (6) the trial judge erred by failing to recuse

herself or be disqualified; and (7) the trial court erred by imposing a sanction against Lippe. We

affirm the trial court’s confirmation of the arbitration award, but we reverse the trial court’s order

imposing a sanction against Lippe, and we remand the cause to the trial court for further

proceedings on appellees’ motion for sanctions.

                                                           BACKGROUND

            In 1983, appellee Alan Perlman staked claims (in his own name and in the names of the

other appellees, his family members) on land controlled by the federal Bureau of Land

Management in southern California to mine Sorbite, a type of diatomaceous earth found only in

that area that is the raw material used in filters installed in food freezers. Humitech International

Group (HIG) used Sorbite in the filters it manufactured and sold. In 2001, Perlman agreed with

C.J. Comu, HIG’s CEO, chairman of the board of directors, and majority stock owner, to pay

Comu $500,000 if Comu brought Perlman a buyer of the mining claims for $2 million. Also in

2001, Perlman contracted with HIG to supply HIG with its needs for Sorbite. In 2003, HIG

decided to buy appellees’ interest in the mining claims to reduce its costs for Sorbite. Perlman,

representing appellees, and Comu, representing HIG, agreed on a price of $2 million 1 for

appellees’ interest in the claims. The parties’ agreement contained a provision requiring any

dispute be arbitrated. 2




     1
        By the time of the closing of the transaction, HIG owned three percent of the mining claims. The final purchase price was reduced by
three percent to $1,940,000.
     2
         The purchase agreement contained a provision for “Dispute Resolution”:
            Any controversy or claim arising out of or relating to this Agreement or the transactions contemplated or consummated
            pursuant to this Agreement (a “Dispute”), shall be resolved either by direct negotiations between the parties, or, if the
            parties cannot resolve such Dispute within 60 days after one party gives the other written notice that a Dispute exists, by
            mediation held in Dallas, Texas through the personnel, facilities and mediation rules of Judicial Arbitration and Mediation
            Services, Inc. (“JAMS”). If any such Dispute is not resolved by mediation within 30 days after mediation commences,
            such Dispute shall be resolved by binding arbitration held in Dallas, Texas using JAMS’ personnel, facilities and
            commercial arbitration rules.



                                                                      –2–
       HIG created appellant HDC to purchase appellees’ claims. The purchase was funded by

an unaffiliated company, King Louie Mining, owned by Ronald Katz. King Louie Mining

loaned the purchase price to HIG, and King Louie Mining took the shares of HDC as security for

the loan to HIG. When Perlman received the purchase price, he paid Comu $500,000 as he had

promised.

       HIG, HDC, and their affiliates’ filter business faltered. In 2006, HIG defaulted on its

debt to King Louie Mining, and King Louie Mining foreclosed on the shares of HDC. Katz and

King Louie Mining then controlled HDC.

       When Katz learned of the $500,000 payment to Comu, HDC brought a claim in

arbitration against appellees for numerous causes of action, including for fraud incident to

Perlman’s payment of $500,000 to Comu. HDC sought rescission of the purchase agreement and

return of the purchase price or, alternatively, damages in the amount of the purchase price. The

arbitrator presided over the trial of the case at which the parties presented witness testimony and

other evidence. The arbitrator issued the “Final Award,” ruling that HDC take nothing on its

claims against appellees.

       The arbitration award discusses HDC’s fraud claim concerning the $500,000 payment to

Comu as follows:

               On the causes of action pled, HDC’s claim for fraud depends entirely upon
       [Stuart] Ducote [an officer and director of HDC] having no knowledge of the
       payment agreement with Comu and Perlman knowing that Ducote did not know
       of the payment agreement. To be liable for fraud, Perlman must have
       intentionally paid an undisclosed/secret “kickback”. Having heard Ducote testify
       for more than eight hours, this Arbitrator finds him not credible and unworthy of
       belief on the question of his knowledge of the Comu payment agreement. Ducote
       was sued along with Comu and [Ivan] Gatti [an officer and director of HIG], but
       managed to bargain his affidavit and testimony for his dismissal from that suit.
       Ducote was brought to HIG by Comu and performed his duties as CFO and
       director of HIG as instructed by Comu and with little or no regard to his duties to
       HIG. Perlman had never heard of Katz or KLM [King Louie Mining] when he
       first agreed to pay Comu a $500,000 “finders fee” if Comu could bring him a
       buyer for his BLM [Bureau of Land Management] claims. Comu did bring a
                                               –3–
       buyer, himself and his new company HDC, a wholly owned subsidiary of Comu’s
       other company HIG of which Comu was the majority shareholder. Comu and
       Ducote were the only officers and directors of HDC. If they both knew of the
       $500,000 payment agreement, then Perlman’s failing to tell Ducote means
       nothing; he already knew and HDC already knew.

              In contrast to Ducote, this Arbitrator finds Perlman to be quite credible.
       Under these circumstances, Perlman had reason to believe that Ducote knew that
       Comu would receive a finder’s fee. Perlman had no intent to defraud HDC.
       Perlman was simply paying a finder’s fee originally contemplated for a sale of the
       mine.

       HDC, represented by Emil Lippe, Jr., then filed this suit to vacate the arbitration award,

and appellees filed a petition to confirm the arbitration award. The petition to vacate the

arbitration award alleged the statutory ground that the arbitrator exceeded his powers and the

common-law grounds that the arbitrator acted in manifest disregard of the law, and that the final

award contained gross error and violated public policy. The trial court denied the request to

vacate the arbitration award and ordered the arbitration award confirmed. The trial court also

imposed a sanction of $10,000 on Lippe because the factual allegations in three paragraphs of

HDC’s original petition to vacate the arbitration award lacked evidentiary support.

                                 COMMERCIAL BRIBERY

       Many of appellants’ arguments concern whether Perlman’s payment to Comu was an

illegal commercial bribe. Appellants cite section 32.43 of the Texas Penal Code, which defines

commercial bribery as follows:

       (b) A person who is a fiduciary commits an offense if, without the consent of his
       beneficiary, he intentionally or knowingly solicits, accepts, or agrees to accept
       any benefit from another person on agreement or understanding that the benefit
       will influence the conduct of the fiduciary in relation to the affairs of his
       beneficiary.

       (c) A person commits an offense if he offers, confers, or agrees to confer any
       benefit the acceptance of which is an offense under Subsection (b).




                                               –4–
TEX. PENAL CODE ANN. § 32.43(b), (c) (West 2011). 3 Appellants defined fraud in the form of a

commercial bribe as “the payment of a secret commission to a corporate fiduciary.” The

arbitrator likewise concluded that resolution of whether the payment to Comu was a fraud on

HDC depended on whether the payment was disclosed to the company. The arbitrator concluded

that if both Comu and Ducote, the only officers and directors of HDC, knew of the payment

agreement, then the payment was not fraudulent. The arbitrator, after weighing the evidence and

the credibility of the witnesses determined that Ducote knew of the payment agreement, the

payment was a finder’s fee, and there was no intent to defraud HDC.

           Appellants state in their brief, “It is, therefore, crystal clear that Appellees’ conduct was

illegal under Texas law.                    The arbitrator exceeded his powers by finding such conduct

acceptable.” However, the arbitrator’s determination that there was no fraud in the form of an

illegal kickback was based on the arbitrator’s determination of the credibility of the witnesses

and the weight of the evidence, to which the reviewing courts must give due deference. See

Quinn v. Nafta Traders, Inc., 360 S.W.3d 713, 722 (Tex. App.—Dallas 2012, pet. denied).

Therefore, it was not “crystal clear that Appellees’ conduct was illegal under Texas law,” and the

arbitrator made no finding that illegal conduct was “acceptable.”

                                                           ARBITRATION

           Arbitration of disputes is strongly favored under Texas law. Prudential Secs. Inc. v.

Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (per curiam). We review a trial court’s decision to

vacate or confirm an arbitration award de novo, based on review of the entire record. Cambridge

Legacy Group, Inc. v. Jain, 407 S.W.3d 443, 447 (Tex. App.—Dallas 2013, pet. denied). “[A]n

award of arbitrators upon matters submitted to them is given the same effect as the judgment of a


     3
       Nothing in the record shows HDC raised section 32.43 before the arbitrator. One court of appeals has concluded that a violation of section
32.43 does not give rise to a private cause of action. See LeBlanc v. Lange, 365 S.W.3d 70, 87 (Tex. App.—Houston [1st Dist.] 2011, no pet.).



                                                                     –5–
court of last resort. All reasonable presumptions are indulged in favor of the award, and none

against it.” CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002) (quoting City of San

Antonio v. McKenzie Constr. Co., 150 S.W.2d 989, 996 (Tex. 1941)). The award is presumed

valid, and it is entitled to great deference. Cambridge Legacy Group, 407 S.W.3d at 447. The

award is conclusive on the parties as to all matters of fact and law; in other words, we may not

vacate an award even if it is based upon a mistake of fact or law. Id. at 448; Centex/Vestal v.

Friendship W. Baptist Church, 314 S.W.3d 677, 683 (Tex. App.—Dallas 2010, pet. denied). We

may not substitute our judgment for that of the arbitrators merely because we would have

reached a different decision. Cambridge Legacy Group, 407 S.W.3d at 447.

                                                       CHOICE OF LAW

          In their first issue, appellants contend the trial court erred by determining the Federal

Arbitration Act (FAA) applied and not the Texas General Arbitration Act (TAA). See 9 U.S.C.

§§ 1–16; TEX. CIV. PRAC. & REM. CODE ANN. §§ 171.001–.098 (West 2011). The trial court

initially ruled that the FAA applied to the exclusion of the TAA, and the court denied HDC’s

petition to vacate the arbitration award and granted appellees’ motion to confirm the arbitration

award. Later, the court sent the parties a letter stating that the TAA applied but that the outcome

of the case remained the same. On appeal, appellants argue that the arbitration proceeding was

governed exclusively by Texas law. Appellees argue that the FAA applies to the exclusion of

the TAA, but they assert that appellants cannot prevail under either act.

          In Texas, a written arbitration agreement in a transaction involving commerce that does

not specify that federal law or the law of another state applies is subject to both Texas and

federal law. 4 See Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S.

468, 477–78 (1989) (contract specified California law); Nafta Traders, Inc. v. Quinn, 339

   4
       However, the TAA does not apply to certain arbitration agreements. See CIV. PRAC. § 171.002.



                                                                   –6–
S.W.3d 84, 87, 97 & n.64 (Tex. 2011) (contract did not specify whether state or federal law

applied). The FAA does not preempt the TAA except “to the extent that [the state law] actually

conflicts with federal law—that is, to the extent that it ‘stands as an obstacle to the

accomplishment and execution of the full purposes and objectives of Congress.’” Nafta Traders,

at 97–98 (quoting Volt, 489 U.S. at 477–78 (1989) (quoting Hines v. Davidowitz, 312 U.S. 52, 67

(1941))).

        In Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), the Supreme Court

indicated that state statutes or common-law provisions permitting review of an arbitration award

beyond that authorized by the FAA would not be preempted by the FAA:

        In holding that §§ 10 and 11 [of the FAA] provide exclusive regimes for the
        review provided by the statute, we do not purport to say that they exclude more
        searching review based on authority outside the statute as well. The FAA is not
        the only way into court for parties wanting review of arbitration awards: they
        may contemplate enforcement under state statutory or common law, for example,
        where judicial review of different scope is arguable. But here we speak only to
        the scope of the expeditious judicial review under §§ 9, 10, and 11, deciding
        nothing about other possible avenues for judicial enforcement of arbitration
        awards.

Id. at 590. Thus, Hall Street indicates that Texas’s common-law grounds for vacating an

arbitration award—gross error, manifest disregard of the law, and violation of public policy—

would not be preempted by the FAA.

        Although we agree with appellants that the TAA applies in this case, the trial court also

made that determination. Because appellants have not shown the trial court erred, we overrule

appellants’ first issue.

                                   EXCEEDING POWERS

        In their second issue, appellants contend the arbitrator exceeded his powers by (a)

committing a procedural error under the arbitration body’s rules and (b) failing to apply Texas

law properly.


                                              –7–
           Unless the party challenging the award offers grounds for vacating, modifying, or

correcting an arbitration award, the trial court must confirm the award on the application of a

party. CIV. PRAC. § 171.087. The TAA requires a trial court to vacate an arbitration award in

specific circumstances, including when the arbitrators “exceeded their powers.”                                                         Id. §

171.088(a)(3)(A).

           Arbitrators derive their authority from the arbitration agreement, which limits their

authority to deciding the matters submitted therein either expressly or by necessary implication.

Centex/Vestal, 314 S.W.3d at 684. Arbitrators exceed their powers when they decide matters not

properly before them. Id.; Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc., 294

S.W.3d 818, 829 (Tex. App.—Dallas 2009, no pet.). Arbitrators may also exceed their powers

when the arbitration award is not rationally inferable from the parties’ agreement.                                                    Ancor

Holdings, 294 S.W.3d at 830. Unless the arbitration agreement expressly provides otherwise,

errors of fact or law do not constitute the exceeding of powers when those errors do not concern

whether an issue to be decided was properly before the arbitrators or whether the arbitration

award was rationally inferable from the parties’ agreement. 5 Nafta Traders, 339 S.W.3d at 97–

102; Pheng Invs., Inc. v. Rodriquez, 196 S.W.3d 322, 329 (Tex. App.—Fort Worth 2006, no

pet.).

            In Nafta Traders, the supreme court determined that the parties’ agreement could restrict

the arbitrator’s authority to make mistakes of law and could provide that the decision be

reviewable like a trial court decision. Nafta Traders, 339 S.W.3d at 101 (“The TAA, as we have

construed it, permits parties to agree to expanded review, or to a corresponding limit on the

     5
        See also Humphrey v. Mesa Operating Ltd. P’ship, No. 05-97-00827-CV, 1999 WL 652500, *5 (Tex. App.—Dallas Aug. 27, 1999, pet.
denied) (not designated for publication). In that case, the arbitration agreement required that the arbitration hearing would be governed by the
Texas rules of procedure and evidence and the common law consistent with those rules. Id. at *1. The trial court confirmed the award. On
appeal, the appellant argued the award exceeded the arbitrators’ powers because it was not rendered in accordance with Texas law and procedure.
Id. at *5. This Court disagreed, stating the arbitrators’ failure to follow Texas law and procedural rules “would not be a decision outside the
issues submitted for arbitration. Any such error would not be subject to judicial review under the appealable category of whether the arbitrators
exceeded their powers.” Id.



                                                                     –8–
arbitrator’s authority, as in this case . . . .”). In that case, the arbitration agreement stated, “The

arbitrator does not have authority (i) to render a decision which contains a reversible error of

state or federal law, or (ii) to apply a cause of action or remedy not expressly provided for under

existing state or federal law.” The supreme court concluded this arbitration agreement meant

that the arbitrator lacked the power to make a reversible error of law and gave the courts the

authority to review the arbitrator’s decision for errors of law under the courts’ authority to

determine whether the arbitrator exceeded its powers. Id. However, the court stated that absent

such a clear agreement, “the default under the TAA, and the only course permitted by the FAA,

is restricted judicial review.” Id.

                            Failure to Follow Arbitration Body’s Rules

        Appellants argue that the arbitrator exceeded his powers because he did not enforce the

arbitration body’s rule requiring the parties to exchange documents before trial. Appellants

assert that the arbitrator admitted documents offered by appellees over appellants’ objection that

the documents had not been exchanged as required by the arbitration body’s rule. Appellants

argue that the arbitrator’s admission into evidence of these documents exceeded his powers. We

disagree. The arbitration clause provided that the parties’ “Dispute shall be resolved by binding

arbitration held in Dallas, Texas using JAMS’ . . . commercial arbitration rules.” This clause did

not purport to restrict the arbitrator’s authority. Cf. Nafta Traders, 339 S.W.3d at 88 (arbitration

agreement stated “arbitrator does not have authority (i) to render a decision which contains a

reversible error of state or federal law”).

        The arbitrator’s failure to follow a procedural rule concerning the admission of evidence

did not deprive the arbitrator of authority to hear the case or result in an award not contemplated

by the parties’ contract.    Consequently, the arbitrator’s admission of this evidence did not

constitute an exceeding of the arbitrator’s powers under section 171.088(a)(3)(A).


                                                 –9–
       Appellants state in their brief, “Under Texas law, the failure to follow the arbitrator’s

own rules and guidelines constitutes grounds for vacating an arbitration award,” and cite Pettus

v. Pettus in support of this statement. See Pettus v. Pettus, 237 S.W.3d 405 (Tex. App.—Fort

Worth 2007 pet. denied). Pettus, however, does not support this statement when the violated

rules or guidelines do not affect the arbitrator’s authority to hear the case.

       In Pettus, the parties were going through a divorce proceeding. Pettus, 237 S.W.3d at

408.   The parties agreed to temporary orders for the management of their jointly owned

businesses during the divorce proceeding. The agreed orders required that certain disputes in the

management of the businesses be arbitrated, including whether and how much severance pay

should be paid to the businesses’ employees who were terminated during the divorce proceeding.

The arbitrators established a rule that for those arbitrations, the parties were to invite the

employees to be parties to the arbitration provided that the employees agreed to be bound by the

arbitrators’ decision. Pettus, 237 S.W.3d at 410. Subsequently, the trial court ordered that these

procedures be “strictly followed” in any arbitration over severance pay. Id. at 413. A dispute

arose over the severance pay for terminated employees, but the parties did not invite the

employees to participate in the arbitration. Id. at 410, 413, 419. The arbitrators proceeded to

hear the case without requiring the parties to invite the employees to become parties in the

arbitration and be bound by the arbitration. Id. at 413, 419. The arbitrators awarded the

employees $438,500 in severance pay. Id. at 413. The trial court vacated the arbitration award

to the employees because the arbitrators did not direct the parties to comply with the trial court’s

order to invite the employees before hearing the case. Id. at 415, 419. The court of appeals

observed that arbitrators “exceed their powers when they decide matters not properly before

them.” Id. at 419 (citing Pheng Invs., 196 S.W.3d at 329). The court of appeals affirmed the

vacating of the arbitration award because the arbitrators failed to follow their own declared

                                                 –10–
procedure (which the trial court had ordered be strictly followed) that the parties invite the

employees to participate in the arbitration. Id. at 420. Although the court of appeals does not

further explain its reasoning, it appears the court of appeals considered the arbitrators lacked the

power to hear the severance-pay arbitration until the divorcing parties invited the employees to

participate in the arbitration. Therefore, because the parties had not invited the employees to

participate, the arbitrators had no authority to hear the severance-pay arbitration, and they

exceeded their powers by doing so. Pettus does not stand for the proposition that a trial court

must vacate an arbitration award anytime an arbitrator violates a procedural rule of the

arbitration body.

                           Failure to Follow Texas Substantive Law

        Appellants also argue the arbitrator exceeded his powers by ruling that HDC take nothing

on its claim. Appellants assert that the arbitrator exceeded his powers because he was required

to follow the substantive law of Texas, “the undisputed evidence established that Appellees were

guilty of commercial bribery, and the decision of the arbitrator has vindicated such

behavior . . . .”

        Appellants argue the arbitration agreement restricted the arbitrator’s powers to following

Texas law correctly, meaning the arbitrator had no authority to make a mistake of law. We

disagree. Appellants’ argument is based on the “Governing Law” law provision of the parties’

contract:

        Governing Law. This agreement shall be enforced, governed by and construed in
        accordance with the laws of the State of Texas applicable to agreements made and
        to be performed entirely within such state, without regard to the principles of
        conflict of laws.

(Capitalization of all letters omitted.) This provision was the governing-law provision of the

entire contract and was in a separate provision from the arbitration provision. The governing-

law provision did not purport to restrict the arbitrator’s authority to any extent that it was not

                                               –11–
otherwise restricted by Texas law. This provision does not alter the “default” restricted judicial

review of the arbitration award. See Nafta Traders, 339 S.W.3d at 101.

       Even if the arbitrator failed to follow Texas substantive law in determining whether

appellees committed fraud in the form of commercial bribery, that does not mean the arbitrator

lacked the authority to determine the issue or that the arbitration award was not rationally

inferable from the parties’ agreement. It would mean only that the arbitrator made a mistake of

fact or law, which does not constitute the arbitrator exceeding his powers under section

171.088(a)(3)(A). See Pheng, 196 S.W.3d at 329 (“A mistake of fact or law in the application of

substantive law is insufficient to vacate an arbitration award.”). We conclude appellants have

not shown the arbitrator exceeded his powers. We overrule appellants’ second issue.

        COMMON-LAW GROUNDS FOR VACATING ARBITRATION AWARD

       In their third issue, appellants contend the arbitrator manifestly disregarded Texas law or

committed a gross mistake in entering his award. In their fourth issue, appellants contend the

arbitration award violated public policy.

       Under the TAA, the courts have traditionally permitted certain common-law, non-

statutory grounds for vacating an arbitration award, including manifest disregard of the law,

gross mistake, and an award that violates public policy. The Supreme Court’s decision in Hall

Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), has cast doubt upon the continued

viability of these common-law grounds. See Townes Telecomms., Inc. v. Travis, Wolff & Co.,

L.L.P., 291 S.W.3d 490, 493 n.1 (Tex. App.—Dallas 2009, pet. denied). The Supreme Court of

Texas has not yet ruled on whether the common-law grounds of manifest disregard, gross

mistake, and public policy survive under the TAA. We will consider appellants’ arguments

concerning these grounds.




                                              –12–
                             Manifest Disregard and Gross Mistake

       Manifest disregard is a “very narrow” or “extremely limited” standard of review. Xtria

L.L.C. v. Int’l Ins. Alliance Inc., 286 S.W.3d 583, 594 (Tex. App.—Texarkana 2009, pet. denied)

(“very narrow” standard); Home Owners Mgmt. Enters., Inc. v. Dean, 230 S.W.3d 766, 768–69

(Tex. App.—Dallas 2007, no pet.) (“extremely limited” standard). It is more than error or

misunderstanding of the law. Xtria L.L.C., 286 S.W.3d at 594; Home Owners, 230 S.W.3d at

768. The disregarding of the law is “manifest” if it was “obvious and capable of being readily

and instantly perceived by the average person qualified to serve as an arbitrator.” Xtria L.L.C.,

286 S.W.3d at 594; Myer v. Americo Life, Inc., 232 S.W.3d 401, 411. The term “disregard”

implies that the arbitrator “appreciate[d] the existence of a clearly governing principle but

decided to ignore or pay no attention to it.” Myer, 232 S.W.3d at 411. “In other words, the issue

is not whether the arbitrator correctly interpreted the law, but whether the arbitrator, knowing the

law and recognizing that the law required a particular result, simply disregarded the law.” Xtria

L.L.C., 286 S.W.3d at 594; see Pheng Invs., Inc. v. Rodriquez, 196 S.W.3d 322, 332 (Tex.

App.—Fort Worth 2006, no pet.)) (“Under this standard, the arbitrator clearly recognizes the law

but chooses to ignore it or refuses to apply it correctly.”). It is appellants’ burden to demonstrate

that the arbitrator manifestly disregarded the law. Xtria L.L.C., 286 S.W.3d at 594; Tanox, Inc.

v. Akin, Gump, Strauss, Hauer & Feld, L.L.P., 105 S.W.3d 244, 253 (Tex. App.—Houston [14th

Dist.] 2003, pet. denied).

       Gross mistake is conceptually analogous to manifest disregard.            See Int’l Bank of

Commerce v. Int’l Energy Dev. Corp., 981 S.W.2d 38, 48 (Tex. App.—Corpus Christi 1998, pet.

denied). A gross mistake is a mistake that implies bad faith or a failure to exercise honest

judgment and results in a decision that is arbitrary and capricious. Xtria L.L.C., 286 S.W.3d at

598; Werline v. E. Tex. Salt Water Disposal Co., 209 S.W.3d 888, 898 (Tex. App.—Texarkana


                                               –13–
2006), aff’d, 307 S.W.3d 267, 268 (Tex. 2010); Teleometrics Int’l, Inc. v. Hall, 922 S.W.2d 189,

193 (Tex. App.—Houston [1st Dist.] 1995, writ denied). “A judgment rendered after honest

consideration given to conflicting claims, no matter how erroneous, is not arbitrary or

capricious.” Xtria L.L.C., 286 S.W.3d at 598.

       The doctrines of manifest disregard and gross mistake do not extend to mere mistakes of

fact or law. Judicial review of an arbitration award “is so limited that even a mistake of fact or

law by the arbitrator in the application of substantive law is not a proper ground for vacating an

award.”    Centex/Vestal, 314 S.W.3d at 683; Xtria L.L.C., 286 S.W.3d at 591; Universal

Computer Sys., Inc. v. Dealer Solutions, L.L.C., 183 S.W.3d 741, 752 (Tex. App.—Houston [1st

Dist.] 2005, pet. denied).

       Appellants argue,

       Here, the overwhelming evidence established that Comu, as CEO fiduciary of
       HDC, received a $500,000 kickback, amounting to 25% of the purchase price, for
       pushing through the purchase of worthless “mining rights,” in a transaction where
       he specifically instructed that no title search be conducted to test the validity of
       the “rights” being purchased. Whether it be termed “exceeding authority” or
       “manifestly disregarding Texas law,” it is clear beyond all question that the
       arbitrator approved a transaction that constituted an illegal bribe or kickback that
       violated Texas criminal law and common law.

Appellants’ argument is that the arbitrator misinterpreted the evidence and misapplied the law.

The parties presented conflicting evidence to the arbitrator, who determined the payment was not

a fraudulent kickback. Appellants argue that the arbitrator came to the wrong conclusion on the

facts and the law, but they do not explain how the record shows the arbitrator knew the law,

recognized that the law required a particular result, but simply disregarded the law. See Xtria

L.L.C., 286 S.W.3d at 594; Pheng Invs., 196 S.W.3d at 332.

       The record shows that the arbitrator, after hearing all the evidence, determining the

credibility of the witnesses, and weighing the conflicting evidence, found that Perlman’s

$500,000 payment to Comu was a finder’s fee and not a fraudulent kickback. Nothing in the
                                                –14–
record shows the arbitrator’s decision was arbitrary or capricious. We conclude appellants have

failed to show the arbitration award was the result of manifest disregard of the law or gross

mistake. We overrule appellants’ third issue.

                                          Public Policy

       In their fourth issue, appellants contend the arbitrator’s award was made in violation of a

clearly defined public policy against kickbacks and bribes. “[A]n arbitration award cannot be set

aside on public policy grounds except in an extraordinary case in which the award clearly

violates carefully articulated, fundamental policy.” CVN Group, Inc. v. Delgado, 95 S.W.3d

234, 239 (Tex. 2002). Appellants assert that “[c]ommercial bribery and kickbacks are violative

of Texas public policy.” However, the arbitrator did not find that any kickback or commercial

bribery occurred. Instead, the arbitrator determined that appellees did not defraud HDC by

paying Comu a finder’s fee. Because the arbitrator found there was no fraudulent kickback or

bribe, the finder’s fee paid to Comu did not violate Texas public policy. We overrule appellants’

fourth issue.

                            CONFIRMATION OF THE AWARD

       In their fifth issue, appellants contend the trial court erred by confirming the arbitration

award because (1) the trial court believed the FAA applied and therefore the trial court applied

the wrong standard to determining whether the arbitration award should be vacated; and (2)

appellees did not present any affirmative evidentiary support for the award.

       The trial court’s initial order on the applications for confirmation or vacation of the

arbitration award applied only the FAA. Subsequently, the trial court sent the parties a letter

stating the TAA applied but that the outcome of the case remained the same. However, even if

the trial court did apply only the FAA to the determination of whether the arbitration award

should be vacated or confirmed, the trial court’s determination is reviewed de novo on appeal.


                                                –15–
Cambridge Legacy Group, 407 S.W.3d at 447. As discussed above, even applying the common-

law grounds of manifest disregard of the law, gross error, and public policy under Texas law for

vacating an arbitration award, appellants failed to show the arbitration award should be vacated.

Accordingly, any error by the trial court’s applying the FAA and not the TAA did not “probably

cause[] the rendition of an improper judgment” and is not reversible. See TEX. R. APP. P.

44.1(a)(1).

          Although appellants state in this issue that the trial court erred by confirming the

arbitration award because appellees did not present any affirmative evidentiary support for the

confirmation of the award, appellants do not present in their brief any argument or citation to

authorities in support of this statement. 6                        Failure to cite applicable authority or provide

substantive analysis waives an issue on appeal. Huey v. Huey, 200 S.W.3d 851, 854 (Tex.

App.—Dallas 2006, no pet.); see TEX. R. APP. P. 38.1(i) (“The brief must contain a clear and

concise argument for the contentions made, with appropriate citations to authorities and to the

record.”). Accordingly, appellants have waived this issue.

          We overrule appellants’ fifth issue.

                                    DISQUALIFICATION OF TRIAL COURT

          In their sixth issue, appellants contend the trial judge should have been recused or

disqualified.

          The grounds for disqualification of a judge are: (1) the judge served as a lawyer in the

matter in controversy, or another lawyer with whom the judge practiced at that time served as a

lawyer on the matter in controversy; (2) the judge knows that the judge has an interest in the

subject matter in controversy; and (3) either party is related to the judge by affinity or


     6
       Appellants instead argue in their brief that the trial court could review the award for manifest disregard of the law. We have already
determined appellants failed to show there was manifest disregard of the law.



                                                                  –16–
consanguinity within the third degree. TEX. CONST. art. V, § 11; TEX. R. CIV. P. 18b(a).

Grounds for recusal include that the judge’s impartiality might reasonably be questioned, the

judge has a personal bias or prejudice concerning the subject matter or a party, or the judge or

the judge’s spouse has an interest that could be substantially affected by the outcome of the

proceeding. See TEX. R. CIV. P. 18b(b)(1), (2), (6), (7)(B). “The test for recusal under rule

[18b(b)] is ‘whether a reasonable member of the public at large, knowing all the facts in the

public domain concerning the judge’s conduct, would have a reasonable doubt that the judge is

actually impartial.’” Hansen v. JP Morgan Chase Bank, NA, 346 S.W.3d 769, 776 (Tex. App.—

Dallas 2011, no pet.) (quoting Sears v. Olivarez, 28 S.W.3d 611, 615 (Tex. App.—Corpus

Christi 2000, order) (en banc) (internal quotations and citations omitted)).

           On May 5, 2010, almost three months after the trial court signed the order confirming the

arbitration award, appellants filed “Plaintiff’s Emergency Motion to Disqualify Judge and Vacate

Order Confirming Arbitration Award.” 7 Appellants alleged the trial judge should be disqualified

because her background before taking the bench had involved arbitration practice, including

incorporating and acting as an officer of a corporation in the business of alternate dispute

resolution. Appellants also alleged the trial judge’s husband was a lawyer whose practice

involved serving as an arbitrator and representing parties before arbitration panels, and that both

the trial judge and her husband had authored a paper praising arbitration and criticizing in-court

litigation. Appellants asserted that (1) the paper praising arbitration created an appearance of

bias and impropriety, and (2) the judge’s professional background and her husband’s law

practice created an appearance of indirect financial bias. Senior Judge John L. McCraw, Jr. was




      7
        Appellees assert that the motion to disqualify was not timely because it was filed “after the tenth day before the date set for trial or other
hearing.” TEX. R. CIV. P. 18a(b)(1)(B). However, because we conclude that Judge McCraw did not abuse his discretion by denying the motion
to disqualify, we do not reach the timeliness issue.



                                                                       –17–
appointed to hear the motion to disqualify. Judge McCraw heard evidence and argument on the

motion to disqualify and denied the motion to disqualify.

                                       Standard of Review

       We review an order denying a motion to recuse for an abuse of discretion. Hansen v. JP

Morgan Chase Bank, NA, 346 S.W.3d 769, 776 (Tex. App.—Dallas 2011, no pet.). “A trial

court abuses its discretion if it acts in an arbitrary or unreasonable manner without reference to

any guiding rules or principles.” Walker v. Gutierrez, 111 S.W.3d 56, 62 (Tex. 2003). Judge

McCraw did not make findings of fact and conclusions of law in support of his ruling.

Accordingly, we imply all findings necessary to support the ruling. See In re Williams, 328

S.W.3d 103, 112 (Tex. App.—Corpus Christi 2010, orig. proceeding [mand. denied]). The trial

court’s decision must be affirmed if it can be upheld on any legal theory that finds support in the

evidence. Worford v. Stamper, 801 S.W.2d 108, 109 (Tex. 1990) (per curiam); In re Williams,

328 S.W.3d at 112 (citing Worford).

                                Employment Law Seminar Paper

       At the hearing on the motion to disqualify, appellants asserted that statements in a paper

authored by the trial judge and her husband that they presented at an employment law seminar in

2001 demonstrated the trial judge’s bias in favor of arbitration. The paper was written before the

trial judge took the bench and nine years before the rulings in this case.

       Appellants pointed Judge McCraw to the statement in the paper, “Arbitrators always

listen to the case. . . . Arbitrators will hear all claims and give everyone a full and fair

opportunity to present their case.” Appellants also stated that the judge “has written complaining

of ‘perverse’ appellate decisions that are ‘anti-arbitration,’ complaining of ‘serious and numerous

defects of the court system.’” The paper does contain those quotations, but appellants have taken

them out of context.


                                                –18–
           In the motion to disqualify, appellants asserted the trial judge stated in the paper that

“‘anti-arbitration’ decisions of a United States Court of Appeals are ‘perverse.’” The quotation

comes from the introduction of the paper, where the judge and her husband wrote:

                   Arbitration is now the preferred dispute resolution method of choice for
           sophisticated employers and employees throughout the United States. The
           “debate” over the mandatory use of arbitration in non-union employment disputes
           is now over. The March 2001 United States Supreme Court decision in Adams v.
           Circuit City, infra, reversing yet another of the perverse anti-arbitration decisions
           of the Ninth Circuit Court of Appeal[s] has effectively ended realistic challenges
           to the arbitration of employment disputes. Almost every Supreme Court and
           Court of Appeal[s] decision since the Gilmer decision of a decade ago has upheld
           and enforced properly drafted arbitration provisions requiring the exclusive use of
           final and binding arbitration for the resolution of all statutory, common law and
           constitutional claims between employers and employees.                  Despite the
           ineffectually shrill protests of the E.E.O.C., the United States Supreme Court and
           all of the federal courts of appeal except the Ninth Circuit have consistently
           maintained and enforced the propositions articulated in the Gilmer decision when
           an employee has knowingly agreed to the arbitration of all disputes with their
           present or past employers. The Circuit City decision now mandates compliance
           with the law and jurisprudence even in the Ninth Circuit.

(Emphasis added.) The article did not state, as appellants’ argument in the motion to disqualify

and in their brief on appeal imply, that the Ninth Circuit’s “perverse anti-arbitration decisions”

were “perverse” because they held arbitration did not apply in those cases. Instead, the article

stated that the Ninth Circuit’s line of opinions were “perverse” because they were contrary to the

decisions of the other circuits and the Supreme Court. 8

           After the introductory section, the paper described “The Deficiencies of Litigation” and

then “The Advantages of Arbitration.” On the deficiencies of litigation, the paper stated,

                   Today, everyone knows the serious and numerous defects of the court
           system. They can be heard in the halls of Congress, the chambers of our courts,
           in “exposes” in the news media and even in our own offices when consulting with
           our clients. A few of the most notorious and best known problems of our legal
           system are:


     8
        In Adams, the Ninth Circuit held that all employment contracts were outside the reach of the Federal Arbitration Act and reversed the trial
court’s order compelling arbitration. Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 110 (2001). The Supreme Court reversed the Ninth
Circuit, holding that employment contracts were subject to the FAA except for employment contracts of transportation workers. Id. at 119.



                                                                     –19–
       1. Delay. Court proceedings are slow, cumbersome and often provide no one with
       an acceptable outcome. Employment disputes frequently require many years of
       litigation and appeals to obtain a truly final decision.

       2. Expense. Litigation is very expensive. Often, both sides in employment
       litigation spend tens of thousands of dollars in attorneys’ fees, expert witness fees,
       investigators’ charges and court costs. . . .

       3. Loss of Privacy. Litigation is public and everyone can watch and learn about
       your client’s problem. . . .

       4. No Day in Court. Employment litigation is frequently decided by courts on
       technical reasons in a Motion for Summary Judgment. Neither the employee nor
       the employer ever has a real opportunity to tell their story or to fully present their
       case. . . .

       5. Non-specialized Decision-Makers. Courts and juries do not specialize in
       resolving employment disputes. Yet, for more than 30 years, the United States
       Supreme Court has encouraged employers and employees to take advantage of
       arbitrators’ expertise in resolving employment disputes.

The paper then compared these shortcomings of traditional litigation to what the authors

perceived as the advantages of arbitration:

       Arbitration offers numerous advantages to both employees and employers. It has
       many of the same benefits as mediation, but with the difference that the
       arbitration tribunal will decide the dispute once and for all. The best-known
       advantages of arbitration are those of:

               Speed. Litigation in court, especially federal court, is frequently slow with
       the proceedings, often lasting from 2 to 5 years. If there is an appeal, that time
       period can become 5 to 10 years or even longer. An arbitration is usually
       completed in a period of months. . . . It is very difficult, indeed almost impossible,
       to appeal the decision of an arbitration tribunal. The law does permit a very
       limited opportunity to modify or change an arbitral award. However, that process
       is extraordinarily difficult and usually impossible.

               Reduced Cost. Everyone will save money in legal expenses and costs by
       using arbitration in place of litigation. A study by the Institute for Civil Justice
       found that arbitration was approximately 20.4% cheaper than litigation. Most
       arbitrations take considerably less time to complete than a trial to either a court or
       to a jury. This is because most arbitrators are experts in their field and are able to
       learn and understand a party’s case much faster than a non-specialist judge or
       jury.

              Expert decision makers.     Many arbitrators specialize in resolving
       employment disputes and now also increasingly, personal injury disputes. Courts
       do not. Parties can choose arbitrators who know and understand the law
                                               –20–
       applicable to the cases before them. They are a sophisticated expert tribunal and
       make their decisions accordingly. They are far less likely than a jury to decide a
       case based on bias, prejudice or antipathy toward a particular party or statute.

               A Full and Fair Hearing. Arbitrators always listen to the case. They will
       generally not dismiss any claim on technical grounds without giving the parties a
       hearing. The parties [in] arbitration will almost always have an opportunity to
       present their evidence and position. An arbitration tribunal will rarely prevent
       your client from telling their story by granting a Motion for Summary Judgment,
       as is often done in the federal courts. . . . Arbitrators will afford your client a fair
       hearing. Your client may not win, but will have a fair chance to present their
       case.

              Privacy. Arbitrations are conducted with only the parties and counsel
       present. . . . Thus the parties can resolve their differences without interference
       from the media or others without a legitimate interest in the parties’ dispute.

               Complete relief. . . . The arbitrators will hear all claims and give everyone
       a full and fair opportunity to present their case. They will then render an award
       which will be binding on all of the parties but without the delays, expenses or
       risks of an appeal.

(Emphasis added.)

       Appellants assert that the trial judge’s statements about litigation and arbitration before

she took the bench “are especially troubling to a party seeking to overturn an arbitrator’s

decision.” We disagree. Many of the criticisms of litigation and praises of arbitration discussed

in the article have long been recognized in Texas judicial opinions. See, e.g., In re Bruce

Terminx Co., 988 S.W.2d 702, 704 (Tex. 1998) (“There is no adequate remedy by appeal for

denial of the right to arbitrate, because the very purpose of arbitration is to avoid the time and

expense of a trial and appeal.”); Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272–73 (Tex.

1992) (“Absent mandamus relief, Anglin would be deprived of the benefits of the arbitration

clause it contracted for, and the purpose of providing a rapid, inexpensive alternative to

traditional litigation would be defeated.”); Temple v. Riverland Co., 228 S.W. 605, 609 (Tex.

Civ. App.—Amarillo 1921, no writ) (“Arbitration is an arrangement for taking and abiding by

the judgment of selected persons in some disputed matter, instead of carrying it to the established


                                                –21–
tribunals of justice; and is intended to avoid the formalities, the delay, the expense, and vexation

of ordinary litigation.”) (quoting In re Curtis, 30 A. 769, 770 (Conn. 1894)).

       Appellants argue that the statements, “Arbitrators always listen to the case. . . . The

arbitrators will hear all claims and give everyone a full and fair opportunity to present their

case,” should be “especially troubling to a party seeking to overturn an arbitrator’s decision.” In

their motion to disqualify, appellants said these statements showed that “[t]he judge herein has,

therefore, based upon her own written words, come into this case with the preconceived notion

that the arbitrator in this case must have done no wrong.” In context, however, the quoted

statements from the article meant that a party is more likely to have the opportunity to personally

describe his grievance to the decision maker in an arbitration proceeding than he is in traditional

litigation, where motions for summary judgment and other procedures and rules often prevent a

party from being able to tell his story to the court or jury. Nothing in the article, when read in

context, would lead a reasonable person to believe that the trial judge had “the preconceived

notion that the arbitrator in this case must have done no wrong.”

       We conclude that Judge McCraw could have found that a reasonable member of the

public would not have had a reasonable doubt concerning the trial judge’s impartiality based on

her statements in the paper.

          The Trial Judge’s Professional Background and Her Husband’s Practice

       Appellants presented evidence that the trial judge, before she took the bench, was an

officer and director of certain business entities promoting arbitration and other forms of alternate

dispute resolution. One document showed she remained a director of one of the businesses after

she took the bench, but her husband testified she had no interest in any of the businesses and was

not otherwise involved in them. The judge’s husband testified that the charters of all but one of

the entities had been forfeited. He also testified that, although much of his practice involved


                                               –22–
arbitration, he had no interest in the outcome of this case. He also testified that the trial judge

had no interest, marital or otherwise, in his income from his law practice.

       Based on the evidence before him, Judge McCraw could have found that neither the trial

judge nor her husband had a financial interest in the subject matter of the case or any interest that

would be substantially affected by the outcome of the case. Judge McCraw could have found

that a reasonable member of the public would not have had a reasonable doubt concerning the

trial judge’s impartiality based on her professional background and her husband’s practice.

       We conclude that Judge McCraw did not abuse his discretion by denying appellants’

motion to disqualify the trial judge. We overrule appellants’ sixth issue.

                                           SANCTION

       In the seventh issue, Emil Lippe, Jr. contends the trial court erred by imposing a sanction

of $10,000 against him. We review an order imposing a sanction for an abuse of discretion.

Low v. Henry, 221 S.W.3d 609, 614 (Tex. 2007). We may reverse the trial court’s ruling only if

the trial court acted without reference to any guiding rules or principles making the ruling

arbitrary or unreasonable. Id. An order imposing a sanction is appropriate if there is a direct

nexus between the improper conduct and the sanction imposed. Id. In general, courts presume

that pleadings are filed in good faith. Id. The party seeking sanctions has the burden of

overcoming this presumption of good faith. Id.

       Section 10.002 of the Texas Civil Practice & Remedies Code permits a party to “make a

motion for sanctions, describing the specific conduct violating section 10.001.” CIV PRAC. §

10.002(a) (West 2002). Alternatively, the trial court “on its own initiative, may enter an order

describing the specific conduct that appears to violate Section 10.001 and direct the alleged

violator to show cause why the conduct has not violated that section.” Id. § 10.002(b). Section

10.004 permits a trial court to impose a sanction on a party that has violated section 10.001. Id.


                                               –23–
§ 10.004 (West 2002). Section 10.005 requires the trial court to describe in its order “the

conduct the court has determined violated Section 10.001 and explain the basis for the sanction

imposed.” Id. § 10.005.

       Section 10.001(2) requires that “each claim, defense or other legal contention in the

pleading or motion is warranted by existing law or by a nonfrivolous argument for the extension,

modification, or reversal of existing law or the establishment of new law.” CIV. PRAC. §

10.001(2). Section 10.001(3) requires that “each allegation or other factual contention in the

pleading or motion has evidentiary support or, for a specifically identified allegation or factual

contention, is likely to have evidentiary support after a reasonable opportunity for further

investigation or discovery.” Id. § 10.001(3).

       Appellees moved for sanctions on the grounds that HDC’s original petition to vacate the

arbitration award violated section 10.001(2) and (3). Appellees alleged that appellants presented

no grounds for vacating the arbitration award because (1) HDC’s grounds of gross mistake,

manifest disregard of the law, and public policy were not permissible grounds for vacating an

arbitration award under the FAA, and the FAA clearly applied in this case; (2) appellants’

allegations that the arbitrator did not hear all of HDC’s evidence was factually groundless; and

(3) HDC’s “pleading purporting to attack the Award because the Arbitrator failed to be

convinced by HDC’s witness and evidence, is groundless.”            The trial court agreed with

appellees’ first allegation and issued an order on February 8, 2010 stating the FAA applied and

preempted any Texas law that would yield a different result than would be reached under federal

law. Following the issuance of the supreme court’s opinion in Nafta Traders, Inc. v. Quinn, 339

S.W.3d 84 (Tex. 2011), the trial court sent a letter to the parties stating it vacated its previous

order and now ruled that the TAA applied to this case. The court subsequently issued the




                                                –24–
sanctions order on appeal, which found that three paragraphs in HDC’s original petition to vacate

the arbitration award lacked evidentiary support .

                  Trial Court’s Order Imposing Sanctions for Violation of § 10.001(3)

           The trial court’s order states the trial court imposed the sanction because it found that

three paragraphs in HDC’s original petition signed by Lippe violated section 10.001(3), which

requires that “each allegation or other factual contention in the pleading or motion has

evidentiary support or, for a specifically identified allegation or factual contention, is likely to

have evidentiary support after a reasonable opportunity for further investigation or discovery.”

CIV. PRAC. § 10.001(3). The court found that paragraphs 85, 91, and 92 did not meet this

requirement because they “do not have and have never had evidentiary support.” The court also

found that Lippe “failed to make a reasonable inquiry into the facts supporting the factual

allegations of paragraphs 85, 91 and 92 and that had he done so, he would have ascertained that

the factual allegations of paragraphs 85, 91 and 92 did not have evidentiary support.” 9

           Paragraphs 85, 91, and 92 of the July 23, 2009 petition to vacate the arbitration award

alleged:

           85. Plaintiff seeks a judgment vacating the Final Award, pursuant to § 171.088 of
           the Texas Civil Practice and Remedies Code, based upon § 171.088(a)(3)(A),
           because the arbitrator exceeded his powers in making his findings both of fact and
           law, and acted arbitrarily and in violation of Texas public policy in denying
           Plaintiff/Claimant relief.

           91. Judgment should be entered vacating the Final Award because the Arbitrator
           acted arbitrarily, and exhibited manifest disregard of the law and public policy in
           making his decision and denying relief in the Final Award.

           92. Judgment should be entered vacating the Final Award because the Arbitrator
           committed a gross mistake both of fact and law in rendering his Final Award, and

     9
        Lippe also argues on appeal that the trial court’s order imposing a sanction on the ground that the three paragraphs violated section
10.001(3) was an abuse of discretion because this ground was not alleged in appellees’ motion for sanctions and the trial court’s order did not
require Lippe to show cause why the conduct did not violate section 10.001(3), as required by section 10.002(b). However, Lippe did not
complain in the trial court that the order violated section 10.002(b). Accordingly, any error from the trial court’s failure to comply with section
10.002(b) was not preserved for appellate review. See TEX. R. APP. P. 33.1(a)(1)(A).



                                                                     –25–
           acted arbitrarily in disregarding the undisputed evidence of the commercial
           bribery practiced by Defendants, and denying Plaintiff/Claimant any relief.

The “factual contention[s]” in these paragraphs are that the arbitrator disregarded evidence, made

a decision, made “findings both of fact and law,” and denied HDC relief. These contentions are

supported by the record and are undisputed. The remaining allegations in the three paragraphs,

that the arbitrator’s actions were arbitrary and that he violated public policy, manifestly

disregarded the law, and committed gross error, are legal contentions.                                                The imposition of

sanctions for unwarranted legal contentions is governed by section 10.001(2), not 10.001(3).

The trial court’s order states in two places that Lippe violated section 10.001(3), and it states in

three places that the allegations in those paragraphs lacked evidentiary support. The order does

not state that Lippe violated section 10.001(2) or that the claims were unwarranted by existing

law or a nonfrivolous argument for extension, modification, or reversal of existing law. That the

legal contentions may be unwarranted based on the alleged facts of the case is not a violation of

section 10.001(3). See Gomer v. Davis, No. 01-11-00829-CV, 2013 WL 3027532, *9 (Tex.

App.—Houston [1st Dist.] June 18, 2013, no pet.). 10


     10
         Gomer v. Davis concerned two people in litigation over possession of a poodle. Gomer, 2013 WL 3027532, at *1. The dog was
originally owned by Artall, who was in poor health. Gomer, Artall’s friend, alleged that Artall told Gomer she wanted Gomer to keep the dog
when she, Artall, was in the hospital and to have the dog after Artall died. Artall gave Gomer an AKC transfer-of-ownership form for the dog,
but Gomer did not send the form to the AKC until after Artall’s death. Gomer first took possession of the dog on August 1, 2008. When Artall
was in the hospital, Gomer kept the dog. When Artall was home, Gomer returned the dog to Artall. On November 1, 2010, Artall died with the
dog in her possession. The next day, Artall’s friend, Ann Steinlage, picked up the dog from Artall’s apartment and took it to Artall’s son, Davis,
who kept the dog. Gomer demanded Davis turn the dog over to her, and Davis refused. Id. Gomer sued Davis for conversion, alleging Artall
had gifted the dog to her. Gomer, 2013 WL 3027532, at *2. At trial, after Gomer presented evidence of these allegations, the trial court granted
Davis’s motion for directed verdict, which the court of appeals affirmed because Gomer presented no evidence of the elements necessary to
establish a gift, immediate and unconditional divestiture of ownership in the donor and immediate and unconditional vesting of ownership in the
donee. Id. at *4. The trial court imposed sanctions against Gomer under rule of civil procedure 13 and Texas Civil Practice & Remedies Code
chapter 10. Id. at *2. The court of appeals set aside the award of sanctions. In discussing whether sanctions were appropriate under section
10.001(3), the court of appeals stated,
           In her original petition, Gomer alleged that she acquired the dog from Artall on August 1, 2008 . . . . She also alleged that
           Artall passed away before she could take possession of the dog, that Steinlage took possession of the dog upon Artall’s
           death, and that Steinlage brought the dog to Davis. Gomer’s factual allegations in her petition had evidentiary support. As
           we have stated, the fatal flaw in her conversion claim was that she could not establish that Artall’s gift of the dog was
           absolute and irrevocable and thus was a valid inter vivos gift. Thus, under the facts of this case, her claim was not
           warranted by existing law. See TEX. CIV. PRAC. & REM. CODE ANN. § 10.001(2). However, the fact that she was
           ultimately unsuccessful in her claim does not control whether she should be sanctioned pursuant to section 10.001(3) for
           making factual allegations and contentions in her original pleading that did not have evidentiary support.

Gomer, at 2013 WL 3027532, at *9.



                                                                     –26–
        We conclude that the trial court’s order imposing a sanction on Lippe for violating

section 10.001(3) in paragraphs 85, 91, and 92 of HDC’s original petition was an abuse of

discretion.

                                Appellees’ Motion for Sanctions

        Appellees presented three grounds in their motion for sanctions: (1) the FAA preempted

appellants’ state-law grounds for vacating the arbitration award because the transaction involved

interstate commerce; (2) appellants’ allegation that the arbitrator did not hear all of HDC’s

evidence was factually groundless; and (3) HDC’s “pleading purporting to attack the Award

because the Arbitrator failed to be convinced by HDC’s witness and evidence, is groundless.”

Because the trial court did not expressly rule on the grounds in appellees’ motion for sanctions,

we decline to review the motion in this appeal, and we remand appellees’ motion for sanctions to

the trial court.

        We sustain appellants’ seventh issue.

                                         CONCLUSION

        We affirm the trial court’s judgment confirming the arbitration award, but we reverse the

trial court’s order imposing a $10,000 sanction on Emil Lippe, Jr., and we remand the cause to

the trial court for further proceedings on appellees’ motion for sanctions.




120857F.P05
                                                    /Lana Myers/
                                                    LANA MYERS
                                                    JUSTICE




                                                –27–
                                         S
                                Court of Appeals
                         Fifth District of Texas at Dallas
                                        JUDGMENT

HUMITECH DEVELOPMENT                                 On Appeal from the 191st Judicial District
CORPORATION, AND EMIL LIPPE, JR.,                    Court, Dallas County, Texas
Appellants                                           Trial Court Cause No. 09-9266-J.
                                                     Opinion delivered by Justice Myers.
No. 05-12-00857-CV          V.                       Justices O'Neill and Brown participating.

Alan Perlman, Michael Perlman, Ann
Perlman, David Perlman, Michelle Perlman
Berke, Beth Perlman Dreifach, Harry Sher,
and Betty Sher, Appellees

        In accordance with this Court’s opinion of this date, the judgment of the trial court
confirming the arbitration award is AFFIRMED, but the trial court’s order on motion for
sanctions imposing a $10,000 sanction on appellant Emil Lippe, Jr. is REVERSED and the
cause is REMANDED for further proceedings on appellees’ motion for sanctions.

        It is ORDERED that appellees Alan Perlman, Michael Perlman, Ann Perlman, David
Perlman, Michelle Perlman Berke, Beth Perlman Dreifach, Harry Sher, and Betty Sher recover
their costs of this appeal from appellant Humitech Development Corporation. It is further
ORDERED that appellant Emil Lippe, Jr. recover his costs of this appeal from appellees Alan
Perlman, Michael Perlman, Ann Perlman, David Perlman, Michelle Perlman Berke, Beth
Perlman Dreifach, Harry Sher, and Betty Sher.

Judgment entered this 27th day of February, 2014.




                                                    / Lana Myers/
                                                    LANA MYERS
                                                    JUSTICE




                                              –28–
