Texas Divorce Attorney Blog
Parties in a high profile divorce might want to enter an agreement that goes beyond dividing the property. Celebrities, business owners, or CEOs might seek an agreement that prohibits their former spouse from disclosing private information, disparaging them or their business, or engaging in other behaviors that might damage their reputation or their business. The agreement can include liquidated damages for violations. In a recent case, a former wife, her former husband, and his business all appealed a judgment confirming an arbitration award relating to an agreement incident to divorce.
The Agreement
At the time of the divorce, the parties entered into an agreement incident to divorce providing for arbitration if a party engaged in certain conduct prohibited by the agreement. The agreement provided for an award of the greater of $500,000 or actual damages. Additionally, the wife would forfeit interest in a trust as liquidated damages if she engaged in certain behaviors. The parties agreed to arbitrate any issue of whether a party committed a prohibited behavior, whether the wife violated specified provisions in the agreement, and whether the wife’s interest in the trust would be forfeited as a result of violating provisions of the agreement. Binding arbitration was to occur within 90 days of notice of a violation. Pursuant to the Agreement, the losing party would pay the arbitration costs and the other parties’ costs and fees. The husband’s company was a third party to the divorce and to the agreement. The decree incorporated the agreement.
Arbitration Demand
The husband and his company subsequently demanded arbitration, alleging the wife violated the agreement. The wife objected and argued the forfeiture and liquidated provisions were unenforceable and that the arbitration clause was therefore also unenforceable.
The company requested temporary restraining and show cause orders to prevent the wife from additional violations. The court issued temporary orders and found the wife had violated the decree. The court issued a cease-and-desist order to prevent the wife from further violations. The court also compelled arbitration.
Arbitration
The arbitrator found the wife had committed prohibited behaviors on multiple occasions and had therefore forfeited her interests in the trust. The arbitrator ordered the wife to pay $122,241.25 for the husband’s and company’s attorney’s fees and arbitration costs of $18,768.75. The arbitrator also included in the award conditional fees of $50,000 requested by the husband and company if the wife unsuccessfully attempted to overturn or invalidate the arbitration award through the trial court and $75,000 if she unsuccessful appealed the trial court’s confirmation, and another $75,000 if appealed to the state supreme court unsuccessfully.
After the arbitration, the husband and company filed suit to confirm the arbitration award. The wife moved to vacate the arbitration award. The wife also argued the trial court did not have subject matter jurisdiction to compel arbitration. She also moved in the divorce proceeding to vacate the order compelling arbitration. The court affirmed the award, but crossed out the $50,000 in trial court attorney’s fees.
The parties all appealed.
The Wife’s Appeal
The appeals court rejected the wife’s argument the trial court did not have subject matter jurisdiction to compel arbitration because it had lost its plenary power in the divorce case. The husband and company had filed the equivalent of a new suit with their motion to enforce the decree by compelling arbitration.
The appeals court also rejected all of the wife’s arguments that the arbitration award should have been vacated because she had not preserved them for appeal.
The Husband and Company’s Appeals
The husband and company argued the trial court erred in striking the conditional trial court attorney’s fees. A court must confirm an arbitration award unless there are ground for vacating, modifying, or correcting it. Tex. Civ. Prac. & Rem. Code Ann. § 171.087. Grounds for vacating an award include: corruption, fraud or other undue means; prejudice to the party because of partiality, corruption, or misconduct or willful misbehavior by the arbitrator; an arbitrator exceeding their powers, refusing to postpone the hearing despite sufficient cause, refusal to hear material evidence, or conducting the hearing contrary to applicable laws and in a way that substantially prejudiced a party’s rights; or a lack of agreement to arbitrate where the issue was not adversely determined in a proceeding to compel or stay the arbitration and the party did not participate without objection in the arbitration hearing. Tex. Civ. Prac. & Rem. Code § 171.088. The wife did raise several of these grounds in her argument for vacating the award, but the court rejected them. Pursuant to Section 171.088, if the court denies an application to vacate and there is no pending motion to modify or correct, the court shall confirm the award. The appeals court reversed the part of the judgment striking the $50,000 conditional attorney’s fees award.
Seek Skilled Legal Advice
In this case, the wife’s challenges to the agreement failed and the arbitrator awarded the husband and company the liquidated damages and attorney’s fees under the agreement. Violation of the agreement resulted in significant financial consequences. Texas law favors arbitration and there are limited grounds for challenging an arbitration award through the courts. Arbitration does provide more privacy than litigation, however, which is often desirable in a celebrity or high net worth divorce. If you are facing the end of your marriage, and want to hire the best divorce lawyers in Dallas, the divorce attorneys at McClure Law Group are the team for you.