Does an arbitration award force a Texas state agency to pay a manufactured-home consumer claim in full?

Plain-English summary

The Texas Manufactured Housing Standards Act, Occupations Code chapter 1201, sets up a Consumer Claims Program run by the Manufactured Housing Division. When a licensed manufacturer, retailer, broker, rebuilder, or installer harms a buyer through prohibited conduct, the Program can pay the buyer for actual damages from an unsatisfied claim, but only within tight statutory limits: the violation has to fall within a listed set of rules and statutes, the claim must be filed on a particular form by a deadline, and the Program is self-funding (it recoups payments from the licensee's surety bond). To decide how much to pay, the Program director "shall make an independent inquiry as to the damages actually incurred, unless the damages have been previously established through a contested trial."

That last phrase drove the question. The Division expected a wave of claims against one licensee. It had agreed to accept arbitration in place of contested trials for claims within its jurisdiction. But the claimants' lawyer was also pressing claims the Division had found to be outside the Program's jurisdiction, had obtained arbitration awards, and had them confirmed by a district court and a bankruptcy court. He argued that a court-confirmed arbitration award is a "contested trial," so the Division had to pay the awarded amounts without any further determination of jurisdiction or evidence. The Division asked the AG whether an arbitration award binds the Program on payment amounts.

The AG said no, for two independent reasons. First, an arbitration is a private, contractual substitute for litigation, not a judicial examination of the issues, so it is not a "trial," let alone a "contested trial." And a court proceeding that confirms an arbitration award does not review the merits of the underlying claim; it only checks for grounds to vacate or modify the award. So neither the arbitration nor its judicial confirmation is a "contested trial" under section 1201.405(e), and the director must still make an independent damages inquiry. Second, even assuming a confirmed award did qualify, the Program may pay only for violations of the listed rules and statutes, and the Division was not a party to the arbitration. A judgment cannot bind someone who was not a party to it, so a confirmed award cannot force the Program to pay a claim that falls outside its statutory limits.

The AG added an important qualifier. Nothing stops the director from using a court-confirmed arbitration award as supporting evidence when calculating actual damages for a claim that is within the Program's scope. The director's duty to make an independent determination is discretionary, not ministerial, so the director decides what evidence to weigh.

Currency note

This opinion was issued in 2019. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

The Manufactured Housing Division and the Program director: At the time of the opinion, the AG read section 1201.405(e) to leave the director with a duty to make an independent inquiry into actual damages, because a court-confirmed arbitration award was not a "contested trial." The opinion meant the Division was not bound to pay arbitration amounts on claims it had found to be outside the Program's jurisdiction, and that it could still apply the Act's payment limits and verification requirements.

Manufactured-home buyers and their counsel: The opinion explained that obtaining and confirming an arbitration award did not, by itself, compel the Program to pay. A claim still had to fall within the listed violations and be verified by the director. A confirmed award could, though, be offered as evidence of actual damages for a qualifying claim.

Licensees and surety bond issuers: The opinion described a Program in which payments are tied to specific statutory violations and later recouped from the surety, so the statutory limits on what the Program pays remained intact regardless of an arbitration outcome.

Common questions

Is an arbitration the same as a trial for purposes of this Program?
No. The AG concluded an arbitration is a private contractual proceeding, not a judicial examination of the issues, so it is not a "trial" and not a "contested trial" under section 1201.405(e).

Does a court confirming the arbitration award change that?
No. The AG explained that confirming an award does not review the merits of the underlying claim, only whether grounds exist to vacate or modify it, so a confirmation is not a contested trial either.

Can an arbitration award force the Program to pay a claim it found outside its jurisdiction?
No. The Program may pay only for violations of the listed rules and statutes, and the Division was not a party to the arbitration, so the award cannot bind it to pay a claim outside the statutory limits.

Can the director use the arbitration award at all?
Yes. The opinion said the director may consider a court-confirmed arbitration award as supporting evidence when determining actual damages for a claim that is within the Program's scope, because the determination is discretionary.

Background and statutory framework

The Manufactured Homeowner Consumer Claims Program is part of the Texas Manufactured Housing Standards Act, Occupations Code chapter 1201, whose purposes include encouraging housing construction and protecting buyers (sections 1201.001-.611, 1201.002(b)). The Program provides a limited remedy: section 1201.404(a) pays actual damages from an unsatisfied claim only when the claim results from a violation of listed authorities, including chapter 1201, division rules, the National Manufactured Housing Construction and Safety Standards Act of 1974, HUD rules, or the Deceptive Trade Practices-Consumer Protection Act (Business and Commerce Code subchapter E, chapter 17). Claims must be sworn, on a specified form, and timely under section 1201.406(a), the Division is not liable beyond available Program funds under section 1201.404(b), and the director "shall make an independent inquiry as to the damages actually incurred, unless the damages have been previously established through a contested trial" under section 1201.405(e).

Because chapter 1201 does not define "contested trial," the AG looked to the ordinary meaning of "trial" as a judicial examination of the issues (Marrs v. Railroad Commission) and "contested" as disputed or challenged (Black's Law Dictionary; Merriam-Webster). It described arbitration as a contractual substitute for litigation governed by contract law (Tex. Att'y Gen. LO-94-089; IHS Acquisition No. 171, Inc. v. Beatty-Ortiz; Civil Practice and Remedies Code sections 171.001 and 171.021). It then explained that a court's confirmation of an award under sections 171.081, 171.082(a), 171.087, and 171.092(a) does not reach the merits (Crossmark, Inc. v. Hazar), so neither the arbitration nor its confirmation is a "contested trial."

On the independent ground, the AG relied on the rule that a statutory list without "includes, but is not limited to" is exclusive (Allstate Insurance Co. v. Watson) to confine Program payments to listed violations, and on the rule that people are not bound by a judgment in a suit to which they were not parties (Amstadt v. U.S. Brass Corp.) to hold that an arbitration the Division did not join cannot bind the Program. The AG cited a Senate Research Center analysis of S.B. 499 (2013) to explain that the "contested trial" exception exists to spare the Division a redundant damages inquiry, and JC-0277 (2000) for the distinction between ministerial and discretionary duties, supporting the director's discretion to weigh a confirmed award as evidence for a qualifying claim.

Citations

Statutory and session-law provisions:

• Tex. Occ. Code § 1201.001; §§ 1201.001-.611; § 1201.002(b); §§ 1201.101, .103; § 1201.003; § 1201.401(a), (b); § 1201.404(a), (b); § 1201.405(a), (c), (d), (e), (f); § 1201.406(a), (b)(1), (b)(2), (c); § 1201.407; § 1201.409(a)
• Tex. Bus. & Com. Code § 17.41; §§ 17.41-.63
• Tex. Civ. Prac. & Rem. Code §§ 171.001, 171.021; § 171.081; § 171.082(a); § 171.087; § 171.092(a); §§ 171.001-.098
• National Manufactured Housing Construction and Safety Standards Act of 1974
• Tex. S.B. 499, 83d Leg., R.S. (2013)

Cases:

• Marrs v. R.R. Comm'n, 177 S.W.2d 941, 947 (Tex. 1944)
• IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799, 806 (Tex. App.-El Paso 2012, no pet.)
• Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 433 (Tex. App.-Dallas 2004, pet. denied)
• Allstate Ins. Co. v. Watson, 876 S.W.2d 145, 147 (Tex. 1994)
• Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996)

Attorney General opinions:

• Tex. Att'y Gen. LO-94-089
• Tex. Att'y Gen. Op. No. JC-0277 (2000)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0258
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2019/kp0258.pdf

Original opinion text

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

June 14, 2019

Mr. Joe A. Garcia Opinion No. KP-0258
Executive Director
Manufactured Housing Division Re: Whether an arbitration decision binds the
Texas Department of Housing and Manufactured Housing Division of the Texas
Community Affairs Department of Housing and Community Affairs
Post Office Box 12489 with respect to payment amounts under the
Austin, Texas 78711-2489 Manufactured Homeowner Consumer Claims
Program (RQ-0262-KP)

Dear Mr. Garcia:

   You ask whether an arbitration decision binds the Manufactured Housing Division of the Texas Department of Housing and Community Affairs ("Division") with respect to payment amounts under the Manufactured Homeowner Consumer Claims Program ("Program").1 The Program is part of Occupations Code chapter 1201, which is the Texas Manufactured Housing Standards Act (the "Act"). See TEX. OCC. CODE § 1201.001; see also id. §§ 1201.001-.611. The Act's purpose includes encouraging the construction of housing for Texas residents and improving the general welfare and safety of purchasers of manufactured housing. Id. § 1201.002(b). The Act creates a licensing framework for manufacturers, retailers, brokers, rebuilders, and installers of manufactured homes. See id. §§ 1201.101, .103.

    The Division administers the Program "to provide a remedy for damages resulting from prohibited conduct by a person licensed under" the Act. Id. § 1201.401(a). It is a limited remedy. Subsection 1201.404(a) limits the payment of claims to "actual damages resulting from an unsatisfied claim" against specified licensees if the claim results from a violation of one of the listed rules or statutes.2 Id. § 1201.404(a); see also id. §§ 1201.401(b), .405(a), (c), (d) (all further limiting the types of payments allowed under the Program). To recover under the Program, a consumer must file a written, sworn complaint on a specified form and within the statutory time period.3 Id. § 1201.406(a). The Division is not liable to a consumer if the Program does not have the money necessary to pay the actual damages. Id. § 1201.404(b). The Division, upon receipt of a verified complaint, must notify each appropriate licensee and their surety bond issuers. Id. § 1201.406(b)(1). The Division must also "investigate the claim and issue a preliminary determination" giving all parties "an opportunity to resolve the matter by agreement or to dispute the preliminary determination." Id. § 1201.406(b)(2). The Act establishes when the preliminary determination becomes final. See id. §§ 1201.406(c), .407. It also provides for the payment of the finally determined claim to the consumer and, as a self-funding mechanism, for the reimbursement of the Program by the surety on a bond or from other security. See id. §§ 1201.404(a), .409(a). To determine the amount of actual damages to be paid to the consumer, the director of the Program "shall make an independent inquiry as to the damages actually incurred, unless the damages have been previously established through a contested trial." Id. § 1201.405(e). The reference to a "contested trial" prompts your questions.

     For context, you tell us the Division expects to receive numerous claims for payment against the Program based on allegations against a particular licensee. Request Letter at 2. You state that the Division previously investigated these claims and paid many, but found others to be for violations outside the jurisdiction of the Division. Id. You tell us, with regard to claims within the Division's jurisdiction, that it agreed to accept arbitration proceedings in lieu of contested trials to determine the amount of actual damages. See id. However, you explain that the complaints found by the Division to be outside of the Program's jurisdiction "are now being held in arbitration with the intention of seeking reimbursement from the Division," regardless of the Division's determination regarding sufficient evidence or jurisdiction over submitted claims. Id.

      Counsel representing the numerous claimants informs us that he sought arbitration between the licensee and the individual claimants, which resulted in arbitration awards that have been approved by a district court and confirmed by a bankruptcy court.4 He claims that the judicial confirmation of the arbitration awards constitutes the establishment of damages through a "contested trial" and that, as a court order, the damages must be paid without any further determination by the Division that the associated claim falls within the Program's jurisdiction and is supported by evidence.5 Thus, while your initial question is whether the underlying arbitration is a contested trial, the fundamental issue is whether the Program is bound by an arbitration award incorporated into a court judgment. See id. at 1-2.

     Subsection 1201.405(e) provides that "[i]n determining the amount of actual damages ... the director shall make an independent inquiry . . . unless the damages have been previously established through a contested trial." TEX. OCC. CODE § 1201.405(e) (emphasis added). Chapter 1201 does not define "contested trial." See generally id. § 1201.003 ("Definitions"). "A trial as commonly understood contemplates a judicial examination of all the issues of law and fact." Marrs v. R.R. Comm'n, 177 S.W.2d 941, 947 (Tex. 1944). The term "contested" indicates that the trial involves a disputed or challenged matter. See BLACK'S LAW DICTIONARY 386 (10th ed. 2014) (defining "contest" to mean "to litigate or call into question; challenge"); MERRIAM WEBSTER 250 (10th ed. 1993) (defining "contest" to mean "to make the subject of dispute, contention, or litigation"). The arbitration underlying the court's judgment here is not a judicial examination but instead

            a contractual proceeding by which ... the parties to a controversy voluntarily select an arbitrator or arbitrators to resolve the controversy instead of trying the case before a judicial tribunal. Thus, an arbitration is "a substitute for, rather than a mere prelude to, litigation, and where an agreement provides for arbitration that is the forum for a dispute and not the court."

Tex. Att'y Gen. LO-94-089 at 2 (discussing arbitration in the context of the Act) (citation omitted); see IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799, 806 (Tex. App.-El Paso 2012, no pet.) ("An agreement to arbitrate is a contract, the relation of the parties is contractual, and the rights and liabilities of the parties are controlled by the law of contracts."); TEX. CIV. PRAC. & REM. CODE §§ 171.001 (referring to a written agreement to arbitrate), 171.021 (allowing a court to compel a party to arbitrate on a showing, in part, of an agreement to arbitrate). Accordingly, an arbitration is not a trial and thus not a "contested trial" for purposes of subsection 1201.405(e).

    Under chapter 171 of the Civil Practice and Remedies Code, which governs arbitrations, an arbitration agreement complying with subsection 171.001 "confers jurisdiction on the court to enforce the agreement and to render judgment on an [arbitration] award." TEX. CIV. PRAC. & REM. CODE § 171.081; see also id. § 171.082(a) (providing that filing an application for an order invokes the jurisdiction of the court). "Unless grounds are offered for vacating, modifying, or correcting an award under [specified subsections], the court ... shall confirm the award." Id. § 171.087. Then, "[o]n granting an order that confirms ... an award, the court shall enter a judgment or decree conforming to the order. The judgment or decree may be enforced in the same manner as any other judgment or decree." Id. § 171.092(a). Yet, despite the enforceability of a judicially confirmed arbitration, the judicial proceeding for the confirmation of an arbitration award does not involve a review of the merits of the claim at issue in the underlying arbitration. See generally id. §§ 171.001-.098; see also Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 433 (Tex. App.-Dallas 2004, pet. denied) (recognizing that "the only issues involved in a proceeding to confirm an arbitration award are whether statutory, common law, or public policy grounds exist to vacate or modify the award[; t]hese are not the same issues as the issues on the merits involved in the underlying arbitration proceeding"). A judicial confirmation of an arbitration award is not contested and thus not a "contested trial" for purposes of subsection 1201.405(e). Accordingly, a court would likely conclude that neither an arbitration nor a judicial confirmation of an arbitration award issued as a judgment is a "contested trial" under subsection 1201.405(e).

    Even were a court to conclude otherwise, chapter 1201 restricts the Program from paying a claim for a violation outside the listed rules and statutes. See TEX. OCC. CODE § 1201.404(a); see also Allstate Ins. Co. v. Watson, 876 S.W.2d 145, 147 (Tex. 1994) (noting that statutory list without the language "includes, but is not limited to" is exclusive). Further, it requires a claim to be on a certain form and to be submitted by a specified date. See TEX. OCC. CODE § 1201.406(a). And it places verification of these matters with the director and the Division as administrators of the Program. See id. §§ 1201.401(a), .404(b). An arbitration award confirmed by a court cannot bind the Program for payment of a claim that is contrary to the statute providing for the Program. See id. §§ 1201.404(a) (listing specific provisions the violation of which support a claim), (b) (providing for the verification of claims by director), 1201.405(a) (limiting the amount of a claim to lesser of two amounts), (d) (excluding claims from specified causes of actions), (f) (limiting payment for specified damages other than actual damages). Instead, the contested trial in subsection 1201.405(e) is merely a method by which to establish the amount of actual damages designed to save the Division a redundant and expensive inquiry into actual damages.6 See id. § 1201.405(e). Moreover, the "contested trial" is not a judicial forum involving the Division and the Program and cannot bind the Division. See Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996) (noting that "[g]enerally people are not bound by a judgment in a suit to which they were not parties").

    This conclusion does not prohibit the Division from utilizing a judicially confirmed arbitration award that concerns a claim within the scope of the Program as supporting evidence in determining actual damages. See TEX. OCC. CODE § 1201.405(e). As the director's duty to make an independent determination is not assigned by the Legislature with such precision and certainty as to make the task ministerial, it is discretionary and for the director to decide what evidence to consider in making the determination. See Tex. Att'y Gen. Op. No. JC-0277 (2000) at 5 ("An act is ministerial when the law clearly spells out the duty to be performed ... with such certainty that nothing is left to the exercise of discretion or judgment." (quotations marks omitted)).

                                  SUMMARY

                  The Manufactured Housing Division of the Department of Housing and Community Affairs administers the Manufactured Homeowner Consumer Claims Program ("Program"), provided for in Occupations Code chapter 1201, which provides relief to certain consumers of a manufactured housing licensee. In establishing damages for the consumers, subsection 1201.405(e) provides that the director of the Program shall make an independent inquiry into the amount of damages actually incurred, "unless the damages have been previously established through a contested trial." A court would likely conclude that neither an arbitration nor a judicial confirmation of an arbitration judgment is a "contested trial" within the scope of subsection 1201.405(e).

                  Subsection 1201.404(a) limits payments from the Program to violations of specified rules or statutes. Even were a judicially confirmed arbitration award to constitute a contested trial under subsection 1201.405(e), an arbitration judgment cannot bind the Program for payment of a claim that is outside the statutory limits of the Program. However, such an award could serve as supporting evidence for the director to consider in determining actual damages for a claim within the scope of the Program.

                                        Very truly yours,

                                        KEN PAXTON
                                        Attorney General of Texas

JEFFREY C. MATEER
First Assistant Attorney General

RYAN L. BANGERT
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

CHARLOTTE M. HARPER
Assistant Attorney General, Opinion Committee

1See Letter from Mr. Joe A. Garcia, Exec. Dir., Tex. Dep't of Hous. & Cmty. Affairs, Manufactured Hous. Div., to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (Dec. 20, 2018), https://www2.texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter").
2Subsection 1201.404(a) lists the following rules or statutes for which a violation supports a payment from the Program: chapter 1201; a rule adopted by the director of the Division; the National Manufactured Housing Construction and Safety Standards Act of 1974; a rule or regulation of the United States Department of Housing and Urban Development; or subchapter E, chapter 17, of the Business and Commerce Code. TEX. OCC. CODE § 1201.404(a). Subchapter E, chapter 17, Business and Commerce Code, is the Deceptive Trade Practices-Consumer Protection Act. TEX. BUS. & COM. CODE § 17.41; see also id. §§ 17.41-.63.
3The consumer complaint form can be found at: https://www.tdhca.state.tx.us/mh/docs/1010-complaint.pdf.
4See Brief from Mr. Raul Noriega, Tex. RioGrande Legal Aid, Inc. at 4-5 (Feb. 18, 2019) (on file with the Op. Comm.).
5See Request Letter attachment (email from Raul Noriega to Amy Jones (Dec. 19, 2018, 12:10 PM) ("Because contested arbitration takes the place of a contested trial, once the arbitration award is confirmed, [section] 1201.405(e) replaces the director's authority to modify or deny the award of damages.") (on file with the Op. Comm.).
6SENATE RESEARCH CTR., Bill Analysis, Tex. S.B. 499, 83d Leg., R.S. (2013) (stating that "claims related to mobile home transactions are often decided in trials heard by judges and not by juries[; w]hen a homeowner wins a bench trial ... against a ... dealer, there is no reason for the manufactured housing division to undertake an inefficient and expensive inquiry into the same facts simply because the fact-finder at trial was a judge and not a jury").