Arbitration is often chosen as an alternative to litigation precisely because it is supposed to be faster and more final than court proceedings. But when a party refuses to honor an arbitration award, the winning party must take additional legal steps to convert that award into an enforceable court judgment. Understanding how to confirm and enforce an arbitration award in Texas is essential knowledge for any business that uses arbitration agreements or has participated in commercial arbitration.
This article explains the process for enforcing arbitration awards under both the Federal Arbitration Act and Texas law, the limited grounds on which awards can be challenged, and what businesses in Houston, The Woodlands, Spring, Cypress, Sugar Land, Missouri City, and Richmond need to know when they win an arbitration and need to collect on it.
The Finality of Arbitration Awards
One of the defining features of arbitration is that arbitration awards are intended to be final and binding on the parties. Unlike trial court judgments, which can be appealed as a matter of right on a broad range of grounds, arbitration awards are subject to only very limited judicial review. Courts have consistently interpreted the Federal Arbitration Act and the Texas General Arbitration Act as reflecting a strong policy favoring arbitration and limiting the circumstances under which courts will set aside an award.
This finality is a double-edged sword. For the winning party, it means the award is relatively secure and difficult to overturn. For the losing party, it means that even significant legal errors by the arbitrator are generally not grounds for vacating the award.
Confirming an Arbitration Award
To convert an arbitration award into a court judgment that can be enforced through normal judicial processes, the winning party must file a petition to confirm the award. Under the Federal Arbitration Act, a party can move to confirm an arbitration award in federal court within one year of the date of the award. Texas law similarly provides a one-year period for confirming an award under the Texas General Arbitration Act.
Once a court confirms an award, it enters a judgment that has the same force and effect as any other court judgment. The judgment can then be enforced through the full range of judicial enforcement mechanisms, including levies on bank accounts, garnishments, liens on real property, and writs of execution.
The Grounds for Vacating an Arbitration Award
Under the Federal Arbitration Act, a court can vacate an arbitration award only on very limited grounds:
- The award was procured by corruption, fraud, or undue means
- There was evident partiality or corruption by the arbitrators
- The arbitrators were guilty of misconduct in refusing to postpone a hearing or in refusing to hear pertinent evidence
- The arbitrators exceeded their powers or so imperfectly executed them that a mutual, final, and definite award was not made
Courts have strictly construed these grounds and have consistently refused to vacate awards based on legal errors, factual mistakes, or what the losing party believes were incorrect decisions by the arbitrator. The standard is not whether the arbitrator got it right, but whether one of the specific statutory grounds for vacatur has been met.
Texas Law on Vacating Awards
The Texas General Arbitration Act provides similar but not identical grounds for vacating arbitration awards in state court proceedings. Texas courts have likewise interpreted these grounds narrowly. In practice, challenges to arbitration awards are rarely successful in Texas courts, and the bar for vacating an award is very high.
One area where Texas courts have diverged somewhat from federal courts is in their treatment of manifest disregard of the law as a basis for vacating an award. While some federal circuits have recognized this extra-statutory ground for vacatur, Texas courts have generally declined to recognize it as an independent basis for challenging an award.
What Happens When the Losing Party Refuses to Pay?
When a party refuses to voluntarily comply with an arbitration award, the winning party must take steps to enforce it. After obtaining a court judgment confirming the award, the winning party can use all available enforcement tools, including:
- Filing abstracts of judgment to create liens on the losing party’s real property
- Serving writs of garnishment on banks where the losing party holds accounts
- Obtaining writs of execution allowing the constable or sheriff to seize non-exempt property
- Conducting post-judgment discovery to identify the losing party’s assets
- Filing turnover orders requiring the losing party to turn over non-exempt property to a receiver
Texas’s homestead exemption and other exemptions protect certain categories of property from execution, but non-exempt assets such as business property, vehicles, bank accounts, and investments can be reached.
International Arbitration Awards
For businesses engaged in international commerce, arbitration awards issued in foreign countries can be enforced in United States courts under the New York Convention, to which the United States is a party. The New York Convention provides a framework for the recognition and enforcement of foreign arbitration awards, subject to a limited set of defenses similar to those available under the Federal Arbitration Act.
Enforcing a foreign arbitration award in Texas requires filing a petition in federal district court, demonstrating that the award falls within the scope of the New York Convention, and overcoming any applicable defenses. For businesses in the Houston area with international operations or business partners, understanding this framework is increasingly important.
Modifying or Correcting an Arbitration Award
Courts can modify or correct an arbitration award (as opposed to vacating it) in even narrower circumstances: where there was an evident material miscalculation of figures, where the award addresses a matter not submitted to arbitration, or where the award is imperfect in form but not affecting the merits. Successful motions to modify are rare and are limited to correcting obvious clerical or mathematical errors, not revisiting the merits of the arbitrator’s decision.
Strategic Considerations for Texas Businesses
Businesses in Houston, The Woodlands, and the surrounding area that regularly use arbitration clauses in their contracts should understand both the enforcement mechanism and the limited grounds for challenging awards. Arbitration is most effective when both parties understand that the award will be final and enforceable. Building robust arbitration clauses into commercial contracts, including specifying institutional rules, the seat of arbitration, and the governing law, can help ensure that any award obtained is readily enforceable.
How Anunobi Law Can Help
Whether you need to confirm and enforce an arbitration award or defend against enforcement of an award you believe was wrongly decided, Anunobi Law can guide you through the process. We represent businesses in arbitration enforcement proceedings and commercial disputes throughout Houston, The Woodlands, Spring, Cypress, Sugar Land, Missouri City, and Richmond. Contact us at 1-855-538-0863 to discuss your matter.
Legal Disclaimer: This article is provided for informational purposes only and does not constitute legal advice. The information contained herein is general in nature and may not apply to your specific situation. Reading this article does not create an attorney-client relationship between you and Anunobi Law. Laws and regulations vary by jurisdiction and are subject to change. You should consult a qualified attorney regarding your specific legal circumstances before taking any action. Anunobi Law makes no representations or warranties regarding the accuracy or completeness of the information in this article.