September 26, 2018 practice point

Texas Court Affirms Award Against Absent Party

By Melanie Mohr

In Dixie Equipment LLC et al (Dixie) v. Energia de Ramos, SAPI de CV f/k/a Deacero Power SAPI de CV (Deacero), No. 03-17-00492-CV, (Aug. 8, 2018), a Texas appellate court confirmed a $16 million arbitration award against a party (Dixie) who, apparently for financial reasons, absented itself from the evidentiary hearings and failed to pay the fee for its counterclaim. The court rejected Dixie’s argument that the arbitration panel committed reversible error by failing to have the proceedings transcribed or that Dixie’s due process rights were violated because it was not permitted to pursue its counterclaim.

Dixie and Deacero entered into two contracts relating to the construction of an electrical power plant in Mexico. Under the contracts, Dixie was to provide and install refurbished electrical generation equipment at the plant. Deacero claimed that Dixie abandoned the project in September 2014 and that it was forced to hire other contractors to correct and finish Dixie’s work. In September 2015, Deacero filed an arbitration against Dixie for damages. The parties selected an arbitration panel, agreed that the arbitration would be conducted under the rules of the International Center for Dispute Resolution (ICDR) and agreed on a scheduling order that set the final arbitration hearing for September 12, 2016, in Austin, Texas.

In April 2016, Dixie informed Deacero and the panel that, due to financial difficulties, it would not pay its portion of the arbitration fees. In June 2016, Dixie further advised that it was financially unable to defend against Deacero’s claims and that it would not actively participate in the arbitration hearing. Dixie also did not pay the filing fee for its counterclaim. The panel conducted the arbitration hearing and ultimately issued an award in favor of Deacero and against Dixie for $16 million for breach of contract. When Deacero petitioned to confirm the award, Dixie responded with a motion to vacate arguing that its due process rights were violated because there was no transcript of the arbitration hearings and because it was barred for financial reasons from pursuing its counterclaim. The trial court rejected Dixie’s arguments, and Dixie appealed.

Dixie fared no better in the Texas Court of Appeal. Citing Vorwerk v. Williamson Cty. Grain, Inc., 2012 WL 593481 (Feb. 23, 2012), the Texas court held that it will not presume misconduct at an arbitration hearing simply from the absence of a transcript. The court also noted that the parties agreed to arbitrate under the ICDR procedures, which state that when a party fails to pay the required fee deposit, its counterclaim will be deemed withdrawn. The court stated that Dixie had submitted no proof to the arbitration panel to substantiate its claim that it was unable to pay the required deposit and, as a result, the arbitration panel was justified in withdrawing Dixie’s counterclaim.

Practice Point
This decision illustrates at least three practical points. First, a party who wants a transcript of an arbitration hearing should take responsibility for ordering and obtaining a transcript and cannot blame the arbitrators or its adversary if no transcript is made. Second, if a party cannot afford to pay the filing fee for a counterclaim, it should present evidence of that fact and ask the arbitration panel for relief or it may lose any argument that the panel’s failure to hear its counterclaim was a violation of its rights. Third, all parties should pay close attention to the rules that govern their arbitration proceeding, including the consequences of failing to pay arbitration fees.

Melanie Mohr is a summer intern at Novack and Macey, LLP, in Chicago, Illinois, and a law student at Goethe University in Frankfurt, Germany.

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