In
May 2012 Premium Plastics Supply, Inc signed a two-year lease for commercial
space owned by Thomas and Laura Howell. The Lease contained an arbitration
provision, providing that all disputes related to it must be arbitrated.
The
Lease term ended in May 2014, but Premium continued to occupy the space. In
October 2014 the Howells sent a notice of default to Premium seeking payment
under the holdover clause of the Lease. When Premium did not pay, the Howells
started an arbitration proceeding.
After
initiating arbitration, the Howells then changed the door locks on the leased
space. Premium responded by claiming wrongful lockout under the Texas Property
Code and several other claims, but ultimately all were voluntarily dismissed by
Premium before the commencement of the arbitration.
The
Howells were awarded $33,000 in unpaid rental at the arbitration. So the
Howells filed a lawsuit in Harris County to confirm the award.
Premium
responded to the lawsuit by reasserting the counterclaims previously raised and
withdrawn in the arbitration.
The
Howells obtained a confirmation of the arbitration award from the Harris County
court, now converted to a Judgment. In rendering the Judgment, the court found
that Premium no longer had the right to assert its counterclaims, as those
matters should have been asserted in the arbitration.
The
failure of Premium to timely assert those counterclaims, the trial court held,
is not so much a waiver of legal rights as res
judicata – a legal theory that says judicial resources will not be used to
rehash the same arguments over and over, that have already been heard and
decided.
Or,
should have been heard. And decided.
So
Premium appealed, claiming it had claims that needed to be heard in the
litigation forum.
The
Appellate Court started by evaluating our Texas Rules of Civil Procedure,
requiring counterclaims to be litigated in an initial arbitration or lawsuit
when it arises out of the same transaction or occurrence, and does not need the
presence of third parties of whom the court cannot acquire jurisdiction.
Next,
it was time to consider the impact of arbitration awards. Basically, the Court
concluded that there is not much difference between an arbitration award and a
Court-ordered judgment. And an arbitration award is treated as a prior final
judgment for purposes of res judicata.
Based
on this, the Appellate Court had little trouble ruling for the Howells. It
appears that Premium made a decision not to assert its claims in the
arbitration, perhaps thinking those claims could be held for a later date. The
Appellate Court did not agree that Premium could postpone the assertion of
those claims, and found that the failure to assert such claims in the
arbitration proceeding fatally impaired the ability of Premium to later assert
them in Court.
So,
Judgment is affirmed for the Howells. See Premium
Plastics Supply, Inc. v. Thomas Howell and Laura Howell; Case No. 01-16-00481-CV;
Texas Court of Appeals 1st District-Houston; September 28, 2017: http://scholar.google.com/scholar_case?case=2032118509891223314&q=premium+plastics+v.+howell&hl=en&as_sdt=6,44.
Lessons
learned:
1. Arbitration
is unusual in a commercial leasing context. Commercial landlords want the
unrestrained right to claim a lease default and start court eviction
proceedings in JP Court, as opposed to waiting for an arbitration award and
then confirming it in a following lawsuit to convert the award into a Judgment.
Typically JP Court eviction trials occur in only a few weeks after the eviction
lawsuits are filed, but it can take years to obtain both an arbitration award
and a Court-ordered confirmation and conversion to Judgment.
2. This
case is helpful to illustrate a sidebar point: Texas constables and sheriffs
will not enforce an arbitration award. Only Judgments can be enforced. And Judgments
only come from our courts – no arbitrator has the ability to issue a Judgment.
3. Now
you should be seeing how cumbersome arbitration proceedings can be in the
context of a commercial lease. Most landlords won’t allow it; some
power-tenants insist on it. In the latter situation, be sure to consider what
happens when the tenant fails to pay rent or commits some other obvious lease
default. An arbitration procedure followed by litigation might delay justice
for a year or more.
Stuart A. Lautin, Esq.*
* Board Certified,
Commercial (1989) and Residential (1988) Real Estate Law,
Texas
Board of Legal Specialization
Licensed
in the States of Texas and New York
Reprinted with
the permission of the North Texas Commercial Association of REALTORS®, Inc.
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