U.S. Court of Appeals for the Fifth Circuit/photo by Michael A. Scarcella/ALM

In a case of first impression, Dallas’ Fifth Court of Appeals has refused to hear an interlocutory appeal from arbitration panel involving a breach of contract claim against an architecture firm after concluding that state law doesn’t give the court jurisdiction to hear the dispute.

According to the decision in SM Architects v. AMX Veteran Specialty Services, AMX filed a demand for arbitration in 2016 with the American Arbitration Association against SM Architects. As part of their claim, AMS heeded §150.002 of the Texas Civil Practices & Remedies Code by filing a “certificate of merit” with their demand. That law requires that any action or arbitration filed against an architect must contain an affidavit from a third-party licensed architect in support of the plaintiff's claims.

Eight months after the arbitration proceeding commenced, SM Architects filed a motion to dismiss AMX’s claims by alleging that their certificate of merit was inadequate, noting that under §150.002, failure to file such an affidavit was grounds for dismissal. The arbitration panel denied SM Architects' motion without a hearing.

SM Architects alleged that an order denying or granting relief under §150.002 is immediately appealable and requested a state district court to vacate the arbitration panel’s decision.

However, AMX moved to dismiss SM Architects’ motion by stating there was nothing in §150.002 to indicate that the Texas Legislature intended to confer jurisdiction on state courts to review an interlocutory order issued by an arbitration panel. The trial court denied the motion to vacate the arbitration panel’s decision, but stated its order was a “final appealable order.”

SM Architects then appealed the denial of vacatur to the Fifth Court.

In its decision, the Fifth Court agreed with AMX’s arguments that §150.002 does not provide a mechanism for judicial review of an interlocutory arbitration panel order, and allowing a party to do so would conflict with the Texas Arbitration Act’s (TAA) goal of providing an efficient and economical way to resolve disputes by limiting judicial review and its accompanying expense and delay.

“We recognize the goal of section 150.002, like the TAA, is to increase efficiency in conflict resolution. It does so by providing a means to quickly eliminate patently unmeritorious claims against licensed or registered professionals. Plaintiffs must make a ‘threshold showing’ of the viability of their claims through a certificate or merit or have those claims subject to dismissal,” wrote Justice Molly Francis.

“But the application of the certificate of merit requirement to an arbitration proceeding does not evince a concomitant intent to expand the court’s jurisdiction over the proceeding. Even without the right to interlocutory appeal, a defendant in an arbitration proceeding maintains the benefits of the certificate or merit, which allows both him and the arbitration panel to assess the merits of the plaintiff’s allegations early in the process,” Francis wrote. “Section 150.002 is not rendered meaningless with respect to arbitrations simply because a panel’s refusal to dismiss claims, like most interlocutory decisions, is not immediately reviewable.”

David Kallus, an attorney in The Woodlands who represents AMX, was pleased with the Fifth Court's decision.

“They are correct as a matter of statutory construction to begin with. The TAA, the statute that governs arbitrations, simply doesn’t contemplate interlocutory review of an arbitration panel's order. To allow that would go against the fundamental aspect of arbitration which is supposed to be a more expeditious proceeding as contrasted with litigation in court,” Kallus said. “It’s a choice parties make. And by trying to obtain judicial review of an interlocutory order from an arbitration panel, what SM was doing was interrupting the entire arbitration process and effectively did so while this appeal was pending for more than a year.’’

Gregory Ziegler, a shareholder in Dallas’ Macdonald Devin who represents SM Architects, said he plans to appeal the Fifth Court's decision to the Texas Supreme Court. He also alleges that the plaintiff's counsel in the case helped contribute to the delay in the arbitration case.

“Our case was delayed because my opposing counsel asked for multiple discovery request delays. I gave him months worth of extensions,” Ziegler said.

Ziegler said that overturning the Fifth Court’s decision at the Texas Supreme Court is important goal for more businesses than just his single client.

“This is important not only for this particular case, but also for design professionals and their insurance carriers,” Ziegler said. “The carriers are very interested in getting this before the Supreme Court, and I’m sure we’ll get quite a bit of amicus activity.’’