United States: Texas Appeals Court Denies Petition For A Writ Of Mandamus That Trial Court Erred In Denying Motion To Vacate Arbitration Panel's Orders

A Texas appeals court denied a petition for a writ of mandamus filed by Irving Drobny, on behalf of National Accident Insurance Group ("NAIG") and National Accident Insurance Underwriters ("NAIU") (collectively, "NAIU"), challenging a trial court's denial of NAIU's motion to vacate an arbitration panel's pre-hearing security and discovery orders in favor of American National Insurance Corporation ("ANICO").

The background of this case can be found here. In sum, ANICO and NAIU were parties to an Underwriting Agreement, in which ANICO authorized NAIU to market, underwrite, issue and collect premiums for ANICO insurance policies. A dispute arose between the parties because one of NAIU's vice presidents allegedly defrauded both NAIU and ANICO of approximately $43 million. The parties participated in an arbitration, in which ANICO filed a motion for pre-hearing security. On October 24, 2014, the arbitration panel granted ANICO's motion and ordered NAIU to post $20 million in pre-hearing security. On January 12, 2015, the panel issued another order granting a motion to compel discovery responses and depositions, a motion to compel compliance with order requiring pre-hearing security and a motion for continuance. On March 4, 2015, NAIU filed in a Texas trial court a motion for temporary restraining order, temporary injunction and motion to compel arbitration, essentially asking the court to vacate the pre-hearing security order. The Texas court found that it had no authority to grant NAIU's motion to vacate the panel's pre-hearing security order because under the Federal Arbitration Act (the "FAA"), NAIU had failed to timely challenge it, and thus, the court denied NAIU's motion. The court did not expressly rule on any discovery issues. NAIU appealed the trial court's order, or in the alternative, requested that it be treated as a petition for a writ of mandamus. The Texas appeals court held that it did not have jurisdiction over NAIU's appeal as it was interlocutory, and thus the appeal was treated as a petition for a writ of mandamus.

In its order, the Texas appeals court found that the trial court did not abuse its discretion in denying NAIU's motion to vacate the arbitration panel's pre-hearing security order because it was not timely challenged within the 90-day period under Texas law and the 3-month period under the FAA. With respect to NAIU's argument that there is no authority for pre-hearing security during arbitration, the court noted while the FAA does not speak to pre-hearing security, Texas law allows for pre-hearing security. The court also noted that the trial court held a hearing on the motion to vacate the pre-hearing security order at which NAIU presented no evidence. Thus, the Texas appeals court held that the trial court did not abuse its discretion in denying the motion to vacate the panel's award of pre-hearing security. Further, as the trial court did not rule on any discovery issues, the Texas appeals court overruled NAIU's second issue and denied NAIU's petition for a writ of mandamus.

In Re Irving Drobny, as Representative of National Accident Insurance Group, et al., No. 01-15-00435-CV (Tex. Ct. App. Aug. 30, 2016).

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