Opinions Released September 15, 2016

In this weekly blog, the Law Offices of Brandy Wingate Voss, PLLC will summarize recent decisions from the Thirteenth Court of Appeals and provide links to decisions on the court’s website.

O’Grady et. al v. National Union Fire Insurance Co. of Pittsburgh, No. 13-15-00312-CV (Memorandum Opinion by Justice Benavides; Panel Members: Justices Rodriguez and Perkes)

In this appeal from a trial court’s affirmation of an arbitration award, the Thirteenth Court of Appeals discussed the presumptions in favor of arbitration awards and upheld the American Arbitration Association’s award due to a lack of evidence justifying its vacatur.

Brian O’Grady purchased investments from Woodbury Financial Services, and specifically from Woodbury employees David Miller and Brett Schulick. Woodbury, Miller, Schulick, and a related entity—River Oaks Capital Management—were all insured by Nation Union Fire for wrongful acts performed as part of their professional services. O’Grady sued Woodbury, Miller, Schulick, and River Oaks for providing false information about his investments, and the case was sent to arbitration before the Financial Industry Regulatory Authority (“FINRA”). Woodbury settled prior to the judgment. The arbitrator found Miller, Schulick, and River Oaks liable for gross negligence and violations of various statutory provisions, holding them jointly and severally liable for approximately $3.3 million. The trial court approved the award and issued judgment accordingly. However, National refused to pay the judgment. O’Grady secured a turnover order awarding him Schulick’s, Miller’s, and River Oaks’ causes of action against National, then sued National for the judgment. National claimed the judgment was not covered by its insurance policy.

The coverage dispute was submitted to arbitration before the American Arbitration Association (“AAA”), and both parties moved for summary judgment. The AAA panel granted National’s motion, finding that O’Grady’s Award was not covered by the insurance policy as a matter of law. The trial court confirmed the award.

O’Grady appealed, arguing that the arbitration panel did not have the authority to make findings of fact and determine coverage.

Held: O’Grady bore the burden of establishing that the panel acted outside the scope of its authority, yet he failed to produce a transcript of the arbitration hearing. Thus, the Thirteenth Court held that the arbitration panel acted within their proper authority by deciding the coverage issue.

The court of appeals reviewed the trial court’s confirmation of the arbitration award de novo. As to the award itself however, all reasonable presumptions were indulged in its favor to give deference to the arbitrator. Any doubts about the scope of arbitration were resolved in favor of the award. Since O’Grady did not provide a transcript of the arbitration hearing, the appellate court presumed the evidence was sufficient to support the award.

It was unclear whether the federal or Texas arbitration act applied to the proceeding before the AAA. Under the Texas Arbitration Act, the trial court must vacate an arbitration order if the arbitrator exceeds his power, whereas the Federal Arbitration Act merely permits a trial court to vacate an arbitration order on such a basis. Regardless, O’Grady bore the burden of proof; the trial court was required to confirm the arbitration award unless grounds were offered to justify vacating or modifying the award. To justify vacating an arbitrator’s award, O’Grady was required to establish misconduct that goes beyond a mere error of law and affects the rights of a party, depriving such party of a fair hearing.

O’Grady claimed that the arbitration panel acted outside the scope of its authority by deciding the issue of coverage. Yet, both parties submitted motions for summary judgment on an understanding that they would determine which issues had merit before proceeding. Furthermore, although O’Grady provided the Thirteenth Court with a copy of the arbitration agreement at issue, he did not provide a transcript of the hearing. Thus, the appellate court could not fully analyze the issue and had to presume that the arbitration panel acted within their proper authority.

Read the Full Opinion Here

Lerma v. State, No. 13-15-00417-CR (Memorandum Opinion by Justice Garza; Panel Members: Chief Justice Valdez and Justice Longoria)

In this appeal from a conviction for second-degree possession of cocaine, Lerma challenged the trial court’s denial of his motion to suppress.

On November 2, 2014, Lerma was riding in the passenger seat of a vehicle in Corpus Christi. Officer Salinas stopped Lerma’s vehicle for failure to stop behind the line and failure to use his turn signal at least 100 ft. before an intersection. Salinas asked the driver for identification and insurance information before asking Lerma for identification. Lerma did not have any identification on him and told Salinas his name was Bobby Diaz and his birthdate was September 22, 1984. The officer retained the driver’s identification to check for warrants, but asked Lerma to step out of the vehicle. When Lerma hesitated, Salinas pressed, “Is there a reason you don’t want to come out or something?”

Lerma told Salinas he had a pocketknife, which he turned over to the officer. Salinas then performed a Terry frisk, patting Lerma down and feeling something in Lerma’s pocket. Salinas then asked Lerma when he was last arrested, Lerma responded that it had been “months ago.”

A second officer then arrived at the scene. Salinas asked Lerma again if he had any weapons or illegal contraband on him, and Lerma stated he did not. Salinas asked “You okay if I check your pockets to make sure you don’t got nothing on you?” and Lerma responded, “I’d rather you didn’t.”

Salinas told Lerma to “chill out” and sit on the curb with the second officer while he ran the name Bobby Diaz. Determining that Lerma did not match Bobby Diaz’s description, Salinas asked Lerma when was the last time he smoked weed. Lerma stated it had been “a while ago,” but Salinas insisted he could “smell it all over you.” Lerma then admitted that he had smoked synthetic marijuana. Salinas began to search Lerma’s pockets, and Lerma attempted to flee on foot. Lerma was quickly arrested and searched for contraband. Lerma admitted that he was a habitual offender who faced 25 years to life in prison and had a warrant for his arrest. The officers found synthetic marijuana on Lerma’s person along with 17 crack cocaine rocks.

Lerma was charged with second-degree possession of cocaine and filed a motion to suppress based on the traffic stop. At the hearing, the trial court heard testimony from Officer Salinas and admitted the dash camera video into evidence. Salinas testified that after he saw the driver’s insurance papers he had already decided to give the driver a warning. However, the driver was not free to leave while Salinas was running his identification and name. Salinas also testified that he needed to check the passengers for warrants, and he could see Lerma moving around, shaking and trying to reach into his pockets. Salinas asked Lerma to step out of the car to separate him from the other passengers and “get a proper identification.” He frisked Lerma as standard procedure, and felt cigar-like items in Lerma’s pocket consistent with synthetic marijuana. Salinas testified that, at that point, he suspected Lerma of having narcotics.

The trial court denied the motion to suppress without issuing findings of fact or conclusions of law. Lerma then pleaded guilty to possession of cocaine, and received 25 years’ imprisonment.

Lerma appealed the suppression issue, claiming that the traffic stop violated his rights under the Fourth Amendment because (a) there was no reasonable suspicion for an extended detention; (b) the frisk was unlawful because there was no reason to believe Lerma was armed; and (c) even if the frisk was initially lawful, it ultimately exceeded the scope of Terry. The first two issues were dispositive.

Held: An officer cannot investigate a passenger without reasonable suspicion, or frisk a passenger without reason to believe he has a weapon in his possession. The trial court erred in denying the motion to suppress; the judgment is reversed and remanded.

The trial court’s ruling on the motion to suppress was reviewed for abuse of discretion. However, the issue of reasonable suspicion was reviewed de novo. Since no findings of fact or conclusions of law had been filed, the appellate court assumed that the court made all findings necessary to support the judgment, consistent with the record.

Regarding the Terry frisk, the Thirteenth Court noted that “an investigate detention is authorized once an officer has a reasonable suspicion to believe that an individual is involved in criminal activity.” However, a corresponding search is only permitted if the officer can point to specific articulable facts that the suspect might possess a weapon.

During a traffic stop an officer is permitted only to ask the questions, request license, registration and insurance information, and check his system for outstanding warrants. The stop may last no longer than necessary. The officer may extend or expand the scope of the stop only if he develops reasonable suspicion that another violation has occurred.

Lerma compared his case to St George v. State. There, the Texas Court of Criminal Appeals held that extended questioning of a front-seat passenger regarding his identity was unreasonable because the purpose of the stop had terminated (the driver was had been issued a citation), and the officers lacked reasonable suspicion to suspect the passenger of criminal activity. Although St. George had provided the officers a false name and the police dispatcher could not find a driver’s license issued under the name given, the officer nonetheless did not know that St. George had lied about his identity at the time the traffic stop terminated. Thus, the officers did not have reasonable suspicion sufficient to justify a prolonged stop.

Although the State attempted to distinguish St. George—claiming that Salinas had not terminated the stop when he frisked Lerma—the Thirteenth Court held that the case was analogous. The court noted that officers can investigate a driver following a traffic stop, but cannot investigate a passenger without reasonable suspicion. When Salinas initiated the pat-down, he knew only that Lerma was a passenger with no identification on him, who moved around and reached for his pockets. This did not constitute reasonable suspicion, nor did it justify a belief that Lerma had a weapon. Consequently, both the Terry frisk and the prolonged stop were unconstitutional, and the trial court erred in denying the motion to suppress.

Read the Full Opinion Here