## Facts

- Nafta Traders, Inc. employed Margaret A. Quinn as Vice President of Operations and later terminated her, characterizing the termination as a reduction in force.
- Quinn asserted a sex-discrimination claim under the Texas Commission on Human Rights Act.
- Nafta’s employee handbook required binding arbitration for disputes arising out of employment or termination and required proceedings in Dallas, Texas.
- The arbitration clause stated the arbitrator lacked authority to render a decision containing a “reversible error of state or federal law” and lacked authority to apply a remedy not expressly provided by state or federal law.
- Nafta moved to compel arbitration under the Federal Arbitration Act (FAA); Quinn did not object; the trial court compelled arbitration by agreed order.
- The arbitrator issued an award in Quinn’s favor.
- Quinn sought confirmation under the Texas General Arbitration Act (TAA); Nafta sought vacatur under the FAA, the TAA, and the handbook’s arbitration provisions, arguing the parties had agreed to expanded judicial review for reversible legal error.

## Issues

1. Whether the Texas General Arbitration Act permits parties to contract for judicial review of an arbitration award for “reversible error of law” by limiting the arbitrator’s authority.
2. If the TAA permits such review, whether the Federal Arbitration Act preempts enforcement of that contractual arrangement.

## Decision

- The Texas Supreme Court reversed the court of appeals and remanded.
- The court held the TAA does not preclude an agreement that limits an arbitrator’s authority so as to allow judicial review for reversible legal error.
- The court held the FAA does not preempt enforcement, under Texas law, of such an agreement.
- The case was remanded for the court of appeals to determine whether the record permitted review and, if so, to address Nafta’s claims that the award contained reversible legal error under the parties’ agreement.

## Legal Principles

- Arbitration is a matter of contract; parties may define the arbitrator’s powers and the nature of the tribunal’s authority.
- Under the TAA, an award may be vacated when the arbitrator “exceeded” his or her powers; parties may contractually limit those powers to exclude decisions containing reversible legal error.
- An agreement providing that the arbitrator lacks authority to commit reversible legal error can be enforced through the TAA’s “exceeded powers” vacatur ground, rather than by adding new statutory vacatur grounds.
- The FAA’s limits on vacatur and modification under federal statute do not bar Texas courts from enforcing contractual limits on arbitral authority through state-law vacatur standards where no conflict with the FAA’s purpose is shown.
- Hall Street’s holding that FAA vacatur/modification grounds are exclusive does not prevent state-law enforcement of contractual limitations on arbitrators’ authority framed as an “exceeded powers” question.

## Conclusion

The court held that Texas law permits parties to require judicial review of arbitration awards for reversible legal error by contractually withholding from the arbitrator the power to decide the law incorrectly, and it further held that the FAA does not preempt enforcing that arrangement under the TAA; the case was remanded for merits review consistent with the parties’ agreement.


Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84 (Tex. 2011)