ADR LAW TEXAS

Trial court order compelling arbitration not immediately appealable

2013-03-19T14:10:00.000-07:00

Can an order compelling arbitration signed by a trial judge be challenged in an immediate appeal so as to avoid the need to arbitrate? Generally no. Arbitration is favored. An order denying arbitration is a different matter. Texas statute authorizing interlocutory appeal tracks federal provision for such appeals.

Under the Federal Arbitration Act (FAA), an order compelling arbitration and granting a stay is not immediately reviewable. In re Gulf Exploration, LLC, 289 S.W.3d at 842; see 9 U.S.C.A. § 16(b)(1),(3)(West 2009)(interlocutory orders compelling arbitration and staying proceeding are not immediately reviewable under the FAA). Because such an order is not appealable under the FAA, it is not appealable under Section 51.016 of the Texas Civil Practice and Remedies Code. See TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West Supp. 2012)(in matters subject to the FAA, an appeal is available only under the same circumstances that an appeal from federal district court's order would be permitted).

MEMORANDUM OPINION FROM EL PASO

In this employment-discrimination and -retaliation case, Benjamin Tice, Jr. appeals from the trial court's order granting El Paso Education Initiative, Inc. d/b/a Burnham Wood Charter School District's motion to compel arbitration and stay the proceedings. El Paso Education Initiative now moves to dismiss the appeal for want of jurisdiction.[1] Concluding that we lack jurisdiction over this appeal, we dismiss it.

It is well settled that appellate courts have jurisdiction over final judgments. Lehmann v. Har-Con Corp., 39 S.W.3d 191, 195 (Tex. 2001). A judgment is final if it disposes of all pending parties and claims. Id. An order compelling arbitration and staying proceedings pending arbitration does not dispose of all claims and parties. In re Gulf Exploration, LLC, 289 S.W.3d 836, 840-41 (Tex. 2009)(orig. proceeding). Thus, the trial court's order at issue here is interlocutory.

Appellate courts have jurisdiction to consider immediate appeals of interlocutory orders only if a statute explicitly confers appellate jurisdiction. See Stary v. DeBord, 967 S.W.2d 352, 352-53 (Tex. 1998). If a statute authorizes an interlocutory appeal, we strictly construe it. CMH Homes v. Perez, 340 S.W.3d 444, 447-48 (Tex. 2011); Nazareth Hall Nursing Ctr. v. Castro, 374 S.W.3d 590, 593 (Tex.App.-El Paso 2012, no pet.); Lucchese, Inc. v. Solano, 388 S.W.3d 343, 348 (Tex.App.-El Paso 2012, no pet.). The substance and function of the interlocutory order from which an appeal is taken controls our interlocutory jurisdiction. Castro, 374 S.W.3d at 593; Solano, 388 S.W.3d at 348; Texas La Fiesta Auto Sales, LLC v. Belk, 349 S.W.3d 872, 878 (Tex.App.-Houston [14th Dist.] 2011, no pet.). When a party attempts to appeal a non-appealable interlocutory order, we have no jurisdiction except to dismiss the appeal. Cantu Servs., Inc. v. United Freedom Assoc., Inc., 329 S.W.3d 58, 63 (Tex.App.-El Paso 2010, no pet.) [Quotation marks omitted].

Under the Federal Arbitration Act (FAA), an order compelling arbitration and granting a stay is not immediately reviewable. In re Gulf Exploration, LLC, 289 S.W.3d at 842; see 9 U.S.C.A. § 16(b)(1),(3)(West 2009)(interlocutory orders compelling arbitration and staying proceeding are not immediately reviewable under the FAA). Because such an order is not appealable under the FAA, it is not appealable under Section 51.016 of the Texas Civil Practice and Remedies Code. See TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West Supp. 2012)(in matters subject to the FAA, an appeal is available only under the same circumstances that an appeal from federal district court's order would be permitted).

Here, both parties agreed at trial that the arbitration agreement was governed by the FAA, not the Texas General Arbitration Act (TAA).[2] The trial court's order compelling arbitration and staying the proceedings pending arbitration is therefore not reviewable by interlocutory appeal. We thus lack jurisdiction to consider Tice's appeal. Appellee's motion to dismiss the appeal for want of jurisdiction is hereby granted. Accordingly, we dismiss the appeal for want of jurisdiction.

SOURCE: EL PASO COURT OF APPEALS - No. 08-13-00014-CV – 1/13/2013

When should a motion to compel arbitration be granted, when not?

2013-03-15T22:53:00.001-07:00

General principles of determining arbitrability as articulated by the Corpus Christi Court of Appeals in a recent appellate opinion.

STANDARD OF REVIEW AND APPLICABLE LAW

"We review a trial court's denial on a motion to compel arbitration for an abuse of discretion." Nazareth Hall Nursing Ctr. v. Melendez, 372 S.W.3d 301, 304 (Tex. App.-El Paso 2012, no pet.) (citing Sidley Austin Brown & Wood, LLP v. J.A. Green Dev. Corp., 327 S.W.3d 859, 862-63 (Tex. App.-Dallas 2010, no pet.)). Under that standard, "we defer to the trial court's factual determinations if they are supported by evidence, but we review the trial court's legal determinations de novo." In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009); see Melendez, 372 S.W.3d at 305.

"Whether an arbitration clause imposes a duty to arbitrate is a matter of contract interpretation and a question of law for the Court to review de novo." Ascendant Anesthesia PLLC v. Abazi, 348 S.W3d 454, 458 (Tex. App.-Dallas 2011, no pet.). "In a de novo review, the trial court's decision is given absolutely no deference." Id.

Although Villareal opposes arbitration, he does not contest that the FAA applies to the Account Agreement with Edward Jones.

"A party seeking to compel arbitration under the FAA must establish that (1) there is a valid arbitration clause, and (2) the claims in dispute fall within that agreement's scope." In re Rubiola, 334 S.W.3d 220, 223 (Tex. 2011) (orig. proceeding); see In re East Rio Hondo Water Supply Corp., No. 13-12-538-CV, 2012 Tex. App. LEXIS 9098, at *10 (Tex. App.-Corpus Christi Oct. 29, 2012, orig. proceeding) (mem. op.). "When deciding whether claims fall within an arbitration agreement, courts employ a strong presumption in favor of arbitration." In re Rubiola, 334 S.W.3d at 225.

"Nonetheless, the strong policy in favor of arbitration cannot serve to stretch a contractual clause beyond the scope intended by the parties or to allow modification of the unambiguous meaning of the arbitration clause." Osornia v. AmeriMex Motor & Controls, Inc., 367 S.W.3d 707, 712 (Tex. App.-Houston [14th Dist.] 2012, no pet.).

"To determine whether a claim falls within the scope of the agreement, courts must `focus on the factual allegations of the complaint, rather than the legal causes of action asserted.'" In re Rubiola, 334 S.W.3d at 225 (quoting Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 900 (Tex. 1995)); In re Stanford Group, 273 S.W.3d 807, 813 (Tex. App.-Houston [14th Dist.] 2008, orig. proceeding) ("We look at the facts alleged, rather than the legal causes of actions presented, and consider whether the facts touch matters covered by the underlying arbitration agreement.") Generally, under the FAA, state law governs whether the contracting parties agreed to arbitrate and federal law determines the scope of the arbitration clause. In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) (orig. proceeding); see In re Rubiola, 334 S.W.3d at 224 ("Under the FAA, ordinary principles of state contract law determine whether there is a valid agreement to arbitrate.").

Arbitration agreements containing phrases such as "relating to" are interpreted broadly. In re Guggenheim Corporate Funding, LLC, 380 S.W.3d 879, 887-88 (Tex. App.-Houston [14th Dist.] 2012, orig. proceeding) (citing In re Bank One, N.A., 216 S.W.3d 825. 826-27 (Tex. 2007) (resolving doubt as to scope of arbitration agreement covering disputes "arising from or relating in any way to this Agreement" in favor of coverage); 950 Corbindale, L.P. v. Kotts Capital Holdings Ltd. P'ship, 316 S.W.3d 191, 196-97 (Tex. App.-Houston [14th Dist.] 2010, no pet.) (holding that broad arbitration provision defining "disputes" as "any dispute under or related to the partnership agreement or any document executed pursuant to the partnership agreement or any of the transactions contemplated by the partnership agreement shall be subject to arbitration" applied to all claims); TMI Inc. v. Brooks, 225 S.W.3d 783, 791 n.7 (Tex. App.-Houston [14th Dist.] 2007, orig. proceeding) (holding that phrase "arising out of and/or related to" in arbitration agreement is "broad form in nature, evidencing the parties' intent to be inclusive rather than exclusive")). "

However, if the facts alleged in support of the claim stand alone, are completely independent of the contract, and the claim could be maintained without reference to the contract, the claim is not subject to arbitration." Serv. Corp. Int'l v. Lopez, 162 S.W.3d 801, 810 (Tex. App.-Corpus Christi 2005, no pet.); see Osornia, 367 S.W.3d at 714 n.4.; AutoNation USA Corp. v. Leroy, 105 S.W.3d 190, 195 (Tex. App.-Houston [14th Dist.] 2003, orig. proceeding); see also In re Estate of Rowan, No. 05-06-681-CV, 2007 Tex. App. LEXIS 4466, at *8-9 (Tex. App.-Dallas June 7, 2007, no pet.) (mem. In construing the arbitration provision, we first determine whether it is possible to enforce the contract as written, without resort to parol evidence. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003).

In construing a written contract, the primary concern of the court is to ascertain the true intentions of the parties as expressed in the instrument. In re Guggenheim Corporate Funding LLC, 380 S.W.3d at 887 (citing J.M. Davidson, 128 S.W.3d at 229). In the arbitration context, we must give effect to the parties' intent, whether enforcing an agreement to arbitrate or construing an arbitration clause. Id. Following arbitration jurisprudence, we apply a common-sense examination of the underlying claim and the forum-selection clause to determine if the claim comes within the scope of the clause. Id. (citing In re Lisa Laser USA, Inc., 310 S.W.3d 880, 884 (Tex. 2010) (orig. proceeding) (per curiam)). "A contract is unambiguous if it can be given a definite or certain legal meaning." J.M. Davidson, 128 S.W.3d at 229. "On the other hand, if the contract is subject to two or more reasonable interpretations after applying the pertinent rules of construction, the contract is ambiguous, creating a fact issue on the parties' intent." Id. A contract is not ambiguous merely because the parties disagree on its meaning. Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 345 (Tex. 2006). The issue of contractual ambiguity may be considered sua sponte by a reviewing court. See Progressive Cnty. Mut. Ins. Co. v. Kelley, 284 S.W.3d 805, 808 (Tex. 2009). op.).

SOURCE: CORPUS CHRIST-EDINBURG COURT OF APPEALS - 13-12-00166-CV – 2/21/2013

Undue delay renders mandamus relief unavailable

2013-03-11T21:20:00.000-07:00

Due diligence is required in seeking mandamus relief. That alone will not guarantee success, of course; but if you wait too long before deciding to complain about the trial court judge in the court of appeals, you may as well forget it.

PER CURIAM MEMORANDUM OPINION FIRST COURT OF APPEALS IN HOUSTON

By petition for writ of mandamus, relator, Cox Ventures, Inc. d/b/a Media Ink, seeks mandamus relief compelling the trial court to vacate its order granting Real Party in Interest, KNG L.L.C. d/b/a Texas Direct Bindery & Letterpress's application to compel arbitration and motion to sever.[1] We deny Cox's petition for writ of mandamus.

Background

On October 4, 2011, KNG sued Cox alleging claims based on a sworn account, breach of contract, quantum meruit, and unjust enrichment. Following the filing of its original answer, Cox asserted a counterclaim against KNG alleging breach of contract and conversion. KNG timely filed its answer.

KNG subsequently filed an application to compel arbitration of Cox's counterclaim and a motion to sever it from KNG's claims. Cox filed its response and a counter-motion to compel arbitration of all of the parties' claims. On April 9, 2012, the trial court signed an order granting KNG's application to compel arbitration of Cox's counterclaim and its motion to sever.

Discussion

On September 28, 2012, Cox filed this petition for writ of mandamus. In its petition, Cox complains that the trial court abused its discretion by compelling arbitration of Cox's counterclaim and severing it from KNG's claims rather than compelling arbitration of all of the parties' claims.

Mandamus is an extraordinary remedy; it is not issued as a matter of right but rather at the discretion of the court. Rivercenter Assocs. v. Rivera, 858 S.W.2d 366, 367 (Tex. 1993). Mandamus relief is not an equitable remedy but its issuance is largely controlled by equitable principles. Id. One such principle is that "[e]quity aids the diligent and not those who slumber on their rights." Id. (quoting Callahan v. Giles, 155 S.W.3d 793 (1941)).

Here, Cox filed its petition for writ of mandamus nearly six months after the court signed its April 9 order.[2] Cox offers no justification for its delay in seeking mandamus relief and the record reveals none. Delay alone provides ample ground to deny mandamus relief. See International Awards, Inc. v. Medina, 900 S.W.2d 934, 936 (Tex. App.-Amarillo 1995, orig. proceeding) (finding four-month delay between court's severance order of counterclaim and relator's petition for writ of mandamus provided grounds to deny requested relief); Furr's Supermarkets, Inc. v. Mulanax, 897 S.W.2d 442, 443 (Tex. App.-El Paso 1995, orig. proceeding) (denying relator's motion for leave to file petition for writ of mandamus filed four months after court's oral discovery ruling and one month after written order was signed and where relator offered no explanation for delay); Bailey v. Baker, 696 S.W.2d 255, 256 (Tex. App.-Houston [14th Dist.] 1985, orig. proceeding) (denying motion for leave to file petition for writ of mandamus where relator waited nearly four months to file motion and provided no justification for delay). Accordingly, we deny Cox's petition for writ of mandamus and lift the stay entered on September 26, 2012.

SOURCE: HOUSTON COURT OF APPEALS - No. 01-12-00879-CV - 3/7/2013

[1] The underlying case is KNG, L.L.C. d/b/a Texas Direct Bindery & Letterpress v. Cox Ventures, Inc. d/b/a Media Ink, Cause No. 1002161, pending in County Civil Court at Law No. 1 of Harris County, Texas, the Honorable Debra Ibarra Mayfield, presiding.

What happens to additional parties in the same lawsuit that are not required to arbitrate when others are sent to arbitration?

2013-02-27T20:35:00.000-08:00

Fort Worth Court of Appeals says when arbitration stay kicks in, it also affects other parties in the lawsuit that are not required to submit to arbitration, i.e. the entire action is stayed. The appellate panel opinion does not discuss whether a motion to sever the portion of the case not subject to arbitration would be appropriate.

Whether Suit Must Be Abated Pending Arbitration

In their second issue, appellants contend the trial court also erred by failing to stay the underlying proceedings pending resolution of arbitration. Federal law requires courts to stay litigation of claims that are subject to arbitration until arbitration is completed. 9 U.S.C.A. § 3; In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 195-96 (Tex. 2007) (orig. proceeding). Even when a party has brought arbitrable claims against one party and claims not subject to arbitration against another party in the same lawsuit, courts should stay all litigation. See In re Merrill Lynch Trust Co., 235 S.W.3d at 195-96. Accordingly, because we have determined that appellees' claims against appellants are subject to arbitration, we conclude and hold that the litigation must be stayed pending arbitration. See In re Helix Energy Solutions Group, Inc., 303 S.W.3d 386, 403 (Tex. App.-Houston [14th Dist.] 2010, orig. proceeding). We sustain appellants' second issue.

SOURCE: FORT WORTH COURT OF APPEALS - No. 02-12-00276-CV – 2/14/2013

Trial court judge strayed beyond the gateway area - mandamus granted

2013-02-26T08:30:00.000-08:00

Houston Court of Appeals holds that trial court went beyond its limited role of determining gateway matters and strayed into arbitrators' territory by taking up issues of manner and procedure relating to the arbitration process.

OPINION BY JANE BLAND

This is an interlocutory appeal and a companion petition for a writ of mandamus that challenge the trial court's order designating an arbitral forum. Donna Miller, both individually and as the executor of her deceased husband's estate, has sued her husband's former employers, Academy, Ltd. and Academy Managing Co., L.L.C. (Academy), contending that Academy breached its agreement, pursuant to its executive compensation plan, to pay the estate $2.4 million if Academy underwent a change of control within a three-year period.

Academy invoked the agreement's arbitration provision and moved in the trial court to compel arbitration, which it did. Then, in a motion to clarify that ruling, Miller asked the trial court to interpret the arbitration provision as not requiring administration by the American Arbitration Association. In its order granting Miller's motion, the trial court declared that "the previously ordered arbitration of this cause shall be conducted privately and without having to file and administer the arbitration with the American Arbitration Association."

Academy seeks either appellate or mandamus relief from the trial court's order granting Miller's motion to clarify and supplementing its prior order compelling arbitration. We hold that we lack jurisdiction over Academy's appeal, but we exercise our mandamus jurisdiction to correct the trial court's error in interpreting a contract issue that properly belongs to the arbitrators. We therefore conditionally grant the writ.

Background

In 2007, Academy established an executive compensation plan, named "Plan I," for certain employees, including the decedent. Plan I contains the following arbitration provision:

Section 14. Dispute Resolution; Governing Law

(a) The exclusive venue for any action in respect of Section 13 of this Retention Plan shall be the state and Federal courts located in Harris County, Texas.

(b) Except as provided in Section 14(a) above, any controversy or claim arising out of or relating to this Retention Plan Shall be settled by arbitration in Harris County, Texas by three arbitrators appointed by the parties. If the parties cannot agree within 30 days on the appointment of arbitrators, one shall be appointed by the Company and one by the applicable Participant, and the third shall be appointed by the first two arbitrators. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association for resolution of commercial disputes, except with respect to the selection of arbitrators, which shall be as provided in this paragraph. Any award entered by the arbitrators shall be final, binding and nonappealable and judgment may be entered thereon by either party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The arbitrators have no authority to modify any provision of this Retention Plan other than a benefit specifically provided under or by virtue of the Retention Plan. If a Participant substantially prevails on at least one material issue which is the subject of such arbitration, the Company shall be responsible for all of the fees and expenses of the American Arbitration Association and the arbitrators. Otherwise, each party shall share the fees and expenses of the American Arbitration Association and the arbitrators equally.

Discussion

I. Appellate Jurisdiction

The parties do not contend that their arbitration agreement is governed exclusively by either the Federal Arbitration Act or the Texas General Arbitration Act, and Academy has invoked both sections 51.016 and 171.098 of the Texas Civil Practice and Remedies Code as the basis for our jurisdiction over its appeal. As a threshold issue, Miller challenges whether appellate jurisdiction exists, contending that Academy's challenge to the trial court's order requiring a non-AAA-administered arbitration does not fall within any of the specific grounds for appeal that either of these sections authorizes.

Section 171.098(a)(1), the appeal provision of the state arbitration statute, requires, as a predicate to our interlocutory appellate jurisdiction, the filing of "an application to compel arbitration made under Section 171.021" and an order denying that application. TEX. CIV. PRAC. & REM. CODE ANN. § 171.098 (West 2012). To prevail under Section 171.021, such a motion must show the existence of an agreement to arbitrate that applies to the parties' dispute and that the opposing party has refused to arbitrate. TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(a) (West 2012). Section 51.016 allows for state court appeals in agreements governed by the FAA. TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West 2012). Pertinent to this case, a party may appeal (1) an order refusing to stay litigation pending arbitration of its subject matter, (2) denial of a petition to order arbitration, and (3) an order denying an application to compel arbitration. Id. (incorporating grounds set forth in 9 U.S.C. § 16).

The appealed order, purporting to clarify the parties' rights under the arbitration agreement, does not fall within any of the types of appealable orders identified under either the state or federal statutes. We therefore lack appellate jurisdiction over Academy's attempted interlocutory appeal.

II. Mandamus Jurisdiction

Academy alternatively seeks mandamus relief, complaining that the trial court abused its discretion in signing the order, because it effectively denies Academy's right to arbitrate the underlying dispute according to the arbitration agreement's terms. A writ of mandamus issues to correct a clear abuse of discretion when no adequate remedy at law exists. Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992). A trial court has no discretion to apply the law incorrectly. Id. at 840. A party seeking relief from the failure to enforce a valid arbitration agreement, according to its terms, has no adequate remedy at law and is entitled to mandamus relief to correct the trial court's error. See In re Serv. Corp. Int'l, 355 S.W.3d 655, 657 (Tex. 2011) (orig. proceeding) (holding that mandamus relief is available from trial court's appointment of arbitrator in contravention of parties' agreement that they would select arbitrator by mutual agreement or, if unable to agree, seek appointment by AAA); see Aspen Tech., Inv. v. Shasha, 253 S.W.3d 857 (Tex. App.-Houston [14th Dist.] 2008, orig. proceeding) (granting relief from trial court's order compelling arbitration under clause in parties' 2006 agreement instead of under parties' 2008 agreement, which had valid arbitration clause that supplanted earlier one); accord BP Exploration Libya Ltd. v. ExxonMobil Libya Ltd., 689 F.3d 481, 496-97 (5th Cir. 2012) (vacating district court's order requiring parties to proceed to arbitration before five arbitrators, where parties had expressly agreed to arbitrate before three-member panel).

The parties' arbitration agreement provides that they are to select three arbitrators by mutual agreement, or, if they "cannot agree within 30 days on the appointment of arbitrators, one shall be appointed by the Company and one by the applicable Participant, and the third shall be appointed by the first two arbitrators." The parties apparently have no quarrel over this selection method, and they can comply with it before determining whether the arbitration is subject to formal AAA administration.

Because no obstacle to the appointment of the arbitrators exists, we next consider if the question decided by the trial court—whether the arbitration agreement requires the parties to file and administer the arbitration through the American Arbitration Association or merely requires that the arbitrators use the rules set forth by the AAA—is for the courts or the arbitrators to decide. In Green Tree Financial Corp. v. Bazzle, the United States Supreme Court explained the narrow scope of the judicial role in interpreting arbitration agreements:

In certain limited circumstances, courts assume that the parties intended courts, not arbitrators, to decide a particular arbitration-related matter (in the absence of "clea[r] and unmistakabl[e]" evidence to the contrary). AT&T Technologies, Inc. v. Communications Workers, 475 U. S. 643, 649 (1986). These limited instances typically involve matters of a kind that "contracting parties would likely have expected a court" to decide. Howsam v. Dean Witter Reynolds, Inc., 537 U. S. 79, 83 (2002). They include certain gateway matters, such as whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy. See generally Howsam, supra. See also John Wiley & Sons, Inc. v. Livingston, 376 U. S. 543, 546-547 (1964) (whether an arbitration agreement survives a corporate merger); AT&T, supra, at 651-52 (whether a labor-management layoff controversy falls within the scope of an arbitration clause).

539 U.S. 444, 452 (2003); see also Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 82-83, 123 S. Ct. 588, 591 (2002) (holding that applicability of NASD time limit rule is matter presumptively for arbitrator, not for judge). The question of whether the parties agreed to formal AAA administration in this case concerns neither the validity nor the scope of the arbitration agreement. Consequently, the issue belongs to the arbitrators, not to the courts. See Howsam, 537 U.S. at 83; In re D. Wilson Constr. Co., 196 S.W.3d 774, 780-81 (Tex. 2006) (orig. proceeding); see also Austin Commercial Contractors, L.P. v. Carter & Burgess, Inc., 347 S.W.3d 897, 902 (Tex. App.-Dallas 2011, pet. denied) (holding that challenge to Civilian Board of Contract Appeals' [CBCA] jurisdiction as arbitrator of dispute, as well as waiver and election-of-remedies complaints, "are matters of procedure that are for the arbitrator and not for the court," and conditionally granting writ of mandamus directing trial court to vacate portion of order requiring arbitration to proceed under AAA instead of CBCA); Am. Realty Trust, Inc. v. JDN Real Estate—McKinney, L.P., 74 S.W.3d 527, 531 (Tex. App.-Dallas 2002, pet. denied) (citing John Wiley & Sons v. Livingston, 376 U.S. 543, 557, 84 S. Ct. 909, 918 (1964) ("[I]f a court determines the parties have an obligation to submit the subject matter of a dispute to arbitration, `procedural' questions concerning the dispute . . . are left to the arbitrator.")). We hold that the trial court erred in straying past the gateway and into the arbitrators' presumptive arena by addressing whether the parties agreed to formal AAA administration and ordering that they did not.

Conclusion

We dismiss Academy's appeal for lack of jurisdiction. We conditionally grant mandamus relief to Academy and direct the trial court to vacate its March 5, 2012 order supplementing its earlier order compelling arbitration. We are confident the trial court will comply, and the writ will issue only if it fails to do so.

SOURCE: HOUSTON COURT OF APPEALS - Nos. 01-12-00293-CV & 01-12-00356-CV – 2/21/2013

Don’t miss the deadline for interlocutory appeal, then try to mandamus the trial judge who did not order arbitration

2013-02-25T18:37:00.001-08:00

First Court of Appeals (Houston) denies mandamus petition of a defendant who lost on a motion to compel arbitration under the FAA in the trial court, but did not avail itself of interlocutory appeal, which the Texas legislature authorized to obviate the need for the court of appeals to entertain mandamus petitions as a gap-filler mechanism. But the majority on the panel stops short of announcing a bright-line rule to the effect that mandamus is no longer available at all under these circumstances, based on the remedy of accelerated appeal having been created by statute. One panel member only concurred in the result.

IN RE SANTANDER CONSUMER USA, INC ,
No. 01-12-00728-CV (Tex.App.- Houston [1^st Dist.] Feb. 21, 2013) (majority opinion by Justice Harvey Brown)

COMMENT: By failing to hold that an interlocutory appeal always constitutes an adequate remedy precluding mandamus relief (which is supposed to be extra-ordinary), the panel is only inviting more mandamus petitions by counsel for defendants who would rather arbitrate, but aren't diligent in bringing an immediate appeal, or are simply not up-to-speed on the change in the law, which has now been on the books for more than two years. A clear precedent ruling out mandamus relief would have been more useful, and would no doubt have prevented energy and time being spent on excursions to the courts of appeals in at least some subsequent cases in which a denial of arbitration was not timely appealed, since a mandamus petition would have been rendered an exercise in futility.

OPINION BY HARVEY BROWN

The trial court denied Santander Consumer USA, Inc.'s motion to compel arbitration pursuant to the Federal Arbitration Act.[1] Although the Civil Practice and Remedies Code provides for immediate, interlocutory review of the denial of a motion to compel arbitration under the FAA, Santander did not appeal the trial court's order. See TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West Supp. 2011) ("In a matter subject to the [FAA], a person may take an appeal . . . to the court of appeals from the judgment or interlocutory order of a district court, county court at law, or county court under the same circumstances that an appeal from a federal district court's order or decision would be permitted by 9 U.S.C. Section 16."); 9 U.S.C. § 16(a)(1)(C) (2006) (FAA provision permitting appeals of orders denying application to compel arbitration); CMH Homes v. Perez, 340 S.W.3d 444, 448-49 (Tex. 2011) (explaining that section 51.016 provides for interlocutory appeals in FAA cases so long as "it would be permitted under the same circumstances in federal court under section 16"). Instead, after the expiration of the time for filing an interlocutory appeal, Santander challenged the trial court's order by petition for writ of mandamus. We conclude that the writ should not issue under the circumstances of this case, and we therefore deny Santander's petition.

Background

Jan Bonner executed a retail installment contract and security agreement with Ron Hoover RV and Marine for the purchase of boating equipment. An assignment from Ron Hoover to GEMB Lending, Inc. appears on the face of the contract. Santander alleges that it later acquired the contract from GEMB. When Santander attempted to collect amounts due under the contract from Bonner, Bonner filed the underlying lawsuit alleging that he was not liable to Santander on the contract and that Santander's collection efforts violated the Texas Fair Debt Collection Practices Act and the Texas Deceptive Trade Practices Act. Santander answered the lawsuit and moved to compel arbitration pursuant to an arbitration clause in the contract providing in pertinent part:

[A]ny claim or dispute in contract, tort, statute or otherwise . . . that arises out of or relates to your credit application, this Contract or any resulting transaction or relationship, including those with third parties who do no sign this Contract, is to be decided by neutral binding arbitration. . . . The Federal Arbitration Act (9 U.S.C. § 1 et seq.) governs this arbitration agreement and not any state law concerning arbitration, including state law arbitration rules and procedures.

Bonner opposed the motion to compel on the ground that Santander failed to establish that it had properly acquired the contract from GEMB. The trial court denied Santander's motion.

Rather than file a timely notice of interlocutory appeal from the trial court's order denying the motion to compel arbitration, Santander filed this petition for writ of mandamus more than forty days after the time for taking an interlocutory appeal had expired.

Mandamus Standard

The standard for the issuance of a writ of mandamus is well established. The writ will issue only if the trial court clearly abused its discretion and, relevant here, the relator has no adequate remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex. 2004) (orig. proceeding); Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding). Although "the standard's `operative word, "adequate", has no comprehensive definition' and demands a `careful balance of jurisprudential considerations that determine when appellate courts will use original mandamus proceedings to review the actions of lower courts,' mandamus will not issue when the law provides another plain, adequate, and complete remedy." In re Tex. Dep't of Family & Protective Servs., 210 S.W.3d 609, 613 (Tex. 2006) (orig. proceeding) (quoting In re Prudential, 148 S.W.3d at 135-36); see also In re Columbia Med. Ctr. of Las Colinas, Subsidiary, L.P., 290 S.W.3d 204, 207 (Tex. 2009) (orig. proceeding) ("Mandamus should not issue to correct grievances that may be addressed by other remedies."); State v. Walker, 679 S.W.2d 484, 485 (Tex. 1984) (orig. proceeding) (holding mandamus will not issue where there is "a clear and adequate remedy at law, such as a normal appeal").

Santander has not established its entitlement to mandamus relief

According to Santander, the Texas Supreme Court has determined that mandamus is the appropriate remedy for the wrongful denial of a motion to compel arbitration under the FAA without the necessity of demonstrating the lack of an adequate appellate remedy on a case-specific basis. See, e.g., In re Dillard Dept. Stores, Inc., 198 S.W.3d 778, 782 (Tex. 2006) (orig. proceeding, per curiam) (granting writ of mandamus and ordering trial court to vacate its order denying motion to compel arbitration without reviewing whether an adequate remedy existed); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763-64 (Tex. 2006) (orig. proceeding, per curiam) (same). The Court first addressed the issue of whether to grant mandamus relief to a party denied arbitration under the FAA in Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 269, 272 (Tex. 1992) (orig. proceeding). There, the Court determined that a party improperly denied the benefit of arbitration under the FAA had no right to an interlocutory appeal and "urge[d] the legislature to consider amending the Texas [Arbitration] Act to permit interlocutory appeals of orders issued pursuant to the Federal Act." Id. at 272. The Court stated, "Such a procedure, already available for orders under the Texas Act, [would be] preferable to reliance on the writ of mandamus to fill this gap in appellate jurisdiction." Id. Until such time as the legislature acted, the Court determined that a party could seek mandamus relief or else the very subject of an appeal—the right not to litigate but to arbitrate as contracted for by the parties—would be rendered illusory. Id. Absent mandamus relief, the party seeking arbitration —would be deprived of the benefits of the arbitration clause it contracted for, and the purpose of providing a rapid, inexpensive alternative to traditional litigation would be defeated." Id. at 272-73.

The legislature responded to the Court's request and closed the gap in appellate jurisdiction by enacting section 51.016 of the Civil Practice and Remedies Code, which authorizes interlocutory appeals under the FAA in suits filed after September 1, 2009. See Act of June 19, 2009, 81st Leg., R.S., ch. 820, § 2, 2009 Tex. Gen. Laws. 2061 (codified at TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West Supp. 2011)); CMH Homes, 340 S.W.3d at 448-49.

Santander does not dispute that section 51.016 confers a right to prosecute an accelerated, interlocutory appeal of the trial court's order denying the motion to compel arbitration in this case. This is not a case in which the parties are uncertain whether the FAA applies—they have expressed agreement on that matter.[2] And the underlying case was filed in December 2011, more than two years after section 51.016's effective date. See TEX. CIV. PRAC. & REM. CODE ANN. § 51.016. Yet Santander does not offer any explanation for its failure to timely appeal the trial court's order. Instead, Santander argues that because section 51.016 uses permissive language—a party "may" appeal a judgment or interlocutory order that would be appealable under the FAA—its failure to exercise the appellate remedy provided therein does not constitute a waiver of the right to challenge the trial court's order by petition for writ of mandamus.[3] Id. Stated differently, Santander argues that because section 51.016 does not require an interlocutory appeal of the trial court's order as the sole means of challenging such an order, Santander may pursue mandamus relief under Texas Supreme Court authority predating the enactment of section 51.016. See, e.g., In re D. Wilson Constr. Co., 196 S.W.3d 774, 780 (Tex. 2006) (orig. proceeding); Jack B. Anglin, 842 S.W.2d at 272. Thus, Santander essentially contends that a party improperly denied arbitration may always either take an interlocutory appeal or request mandamus relief and if it chooses mandamus, that party need not demonstrate any case-specific reason why an appeal was not adequate. Bonner, on the other hand, contends that because an avenue for immediate review exists through interlocutory appeal, a party may never obtain mandamus relief.

Santander's argument relies on Hernandez v. Ebrom, a case in which the Texas Supreme Court determined that a defendant's failure to challenge the adequacy of an expert report by interlocutory appeal under section 51.014(a)(9) of the Civil Practice and Remedies Code did not bar the defendant from challenging the report by appeal from a final judgment. 289 S.W.3d 316, 318-19 (Tex. 2009); see TEX. CIV. PRAC. & REM. CODE ANN. § 51.014(a)(9) (West Supp. 2011) (authorizing interlocutory appeal of orders denying all or part of challenge to expert reports in health-care-liability claims). The Court reasoned, "The Legislature authorized health care providers to pursue interlocutory appeals from trial court denials of challenges to plaintiffs' expert reports, but we see no indication that the Legislature effectively mandated interlocutory appeals by providing that if no appeal was taken, then the health care provider waived the right to challenge the report under all circumstances." Id. at 319. While Hernandez supports Santander's assertion that a challenge to the trial court's denial of arbitration under the FAA is not waived by Santander's failure to pursue an interlocutory appeal, Hernandez does not clarify whether Santander may have immediate review of its challenge by petition for writ of mandamus. Hernandez merely protects Santander's right to assert his complaint at some later time, specifically, on appeal from a final judgment.[4] See id.

In the cases cited by Santander, which predate section 51.016's enactment, the Texas Supreme Court recognized mandamus as the appropriate remedy for the wrongful denial of motions to compel arbitration under the FAA only because there was no alternative appellate remedy at the time. See In re D. Wilson Constr. Co., 196 S.W.3d at 780; Jack B. Anglin, 842 S.W.2d at 272-73. Mandamus functioned as a "statutory `gap-filler.'"[5] In re Reece, 341 S.W.3d 360, 395 (Tex. 2011) (Willett, J., dissenting).

This case, however, is distinguishable from the cases in which parties challenging the denial of a motion to compel arbitration under the FAA were granted mandamus relief in the past because the statutory gap with respect to the availability of immediate appellate review no longer exists. See TEX. CIV. PRAC. & REM. CODE ANN. § 51.016. Thus, unlike the parties seeking relief before section 51.016's enactment, Santander had an avenue for immediate appellate review of the trial court's order denying its motion to compel arbitration under the FAA. See id. ("In a matter subject to the [FAA], a person may take an appeal . . . to the court of appeals from the judgment or interlocutory order of a district court, county court at law, or county court under the same circumstances that an appeal from a federal district court's order or decision would be permitted by 9 U.S.C. Section 16."); 9 U.S.C. § 16(a)(1)(C) (permitting appeals of orders denying application to compel arbitration); see also TEX. R. APP. P. 29.3 (authorizing appellate courts to "make any temporary orders necessary to preserve the parties' rights until disposition of the [interlocutory] appeal. . . .").

This case could potentially raise the question of whether Santander's petition must be categorically denied because section 51.016 would have afforded Santander a remedy by appeal had Santander timely availed itself of the statute, as mandamus is not ordinarily available if another remedy, though it would have been adequate and complete, was not exercised. See In re Tex. Dep't of Family & Protective Servs., 210 S.W.3d at 613 ("[M]andamus will not issue when the law provides another plain, adequate, and complete remedy."); see also In re Columbia Med. Ctr., 290 S.W.3d at 207 ("Mandamus should not issue to correct grievances that may be addressed by other remedies."). But we need not decide that issue for every future case by announcing a rule applicable to all cases; instead we limit ourselves to the record presented here.

The Texas Supreme Court demonstrated judicial restraint in the application of mandamus principles in In re Texas Department of Family & Protective Services. There, the trial court abused its discretion by failing to dismiss a suit affecting the parent-child relationship within the statutory deadline. 210 S.W.3d at 613; see also TEX. FAM. CODE ANN. § 263.401(a) (West 2011) ("Unless the court has commenced the trial on the merits or granted an extension . . ., on the first Monday after the first anniversary of the date the court rendered a temporary order appointing the department as temporary managing conservator, the court shall dismiss the suit affecting the parent-child relationship. . . ."). The Court, after acknowledging the special need for accelerated disposition of cases involving child custody, concluded that, nevertheless, mandamus was not available because "an accelerated appeal provided an adequate remedy." In re Tex. Dep't of Family & Protective Servs., 210 S.W.3d at 613-14. The Court made clear that the scope of its holding was narrow, declining to foreclose mandamus relief from a trial court's failure to dismiss a SAPCR within the statutory deadline in all cases and stating that, "under the facts of this case, [the Court cannot] conclude that an accelerated appeal was not an adequate remedy." Id. at 614.

Following the Court's cautious approach in In re Texas Department of Family & Protective Services, we decline to announce a broad rule applying in all cases. Rather than state a blanket rule that mandamus is never available when a party does not take an interlocutory appeal from an order denying a motion to compel arbitration under the FAA (as suggested by Bonner and as the concurrence would hold), we conclude that judicial restraint requires us to consider only the circumstances presented by this case and to make a narrow holding that Santander has not demonstrated its entitlement to the writ here.[6]

First, Santander has not demonstrated that a timely filed, accelerated appeal would not have afforded it a complete and adequate remedy. It is unnecessary to determine whether, by creating an avenue of appeal under section 51.016, the Legislature has by implication negated one of the elements of obtaining mandamus relief (no adequate remedy by appeal) in other cases.[7] It is sufficient here to decide that under the facts of this case Santander has not demonstrated that the benefits of proceeding by mandamus outweigh the detriments. See In re Prudential, 148 S.W.3d at 136 (requiring "careful balance" of "jurisdprudential concerns" in determining whether "any benefits to mandamus review are outweighed by the detriments"). Prudential provides that the requirement of an "adequate" remedy on appeal is not subject to simple categories or bright-line rules and instead "is simply a proxy for the careful balance of jurisprudential considerations that determine when appellate courts will use original mandamus proceedings to review the actions of lower courts." Id. The test "is practical and prudential." Id. A complete analysis of the adequacy of appellate remedies requires consideration of the degree to which "important substantive and procedural rights" are subject to "impairment or loss" as one of the factors affecting the adequacy of appeal,[8] none of which is discussed by Santander.

Without briefing on the benefits and detriments of mandamus review, we conclude that it would be unnecessary and advisory to announce a bright-line rule that a party who fails to exercise its statutory remedy of interlocutory appeal has an adequate remedy in every circumstance.[9] We therefore refuse to speculate on whether a remedy that in fact existed through interlocutory appeal, but was not exercised, is always "adequate." Furthermore, it is unnecessary for us to decide whether practical or prudential concerns countenance ever permitting a party to proceed in an original proceeding or whether the balancing of such concerns would only create an impermissible end-run around the rules for filing interlocutory appeals. See, e.g., TEX. R. APP. P. 26.1(b) (requiring notice of accelerated appeal to be filed within twenty days after the judgment or order is signed). Nor will we speculate whether any exceptional circumstances exist here that would excuse Santander's failure to pursue an interlocutory appeal or otherwise warrant the issuance of mandamus relief in this case.

In refusing to engage in such speculation—without the benefit of any briefing pertinent to the issue—we are not, as our concurring colleague suggests, expressing an opinion that there could be circumstances under which section 51.016 might fail to provide a complete remedy. We merely decline to give an advisory opinion on that issue in this case. We conclude instead that Santander has not carried its burden to establish the inadequacy of its remedies on appeal, and therefore it has not established its entitlement to mandamus relief. See In re Reece, 341 S.W.3d at 374 (observing that mandamus is extraordinary remedy issued not as matter of right but at court's discretion).[10]

Conclusion

Having concluded that Santander has not established its entitlement to mandamus relief, we deny the petition. All outstanding motions are overruled as moot.

Trial court's order permitting arbitration-related discovery not reviewable by interlocutory appeal

2013-01-03T19:24:00.000-08:00

Texas Court of Appeals in El Paso dismisses attempted appeal from order that postponed ruling on arbitrability pending arbitration-related discovery as unappealable by interlocutory appeal given that the order did not effectively deny arbitration and did not fit any of the categories of arbitration-related orders for which statute authorizes an immediate complaint to the appellate courts by an aggrieved party.

ReadyOne Industries, Inc. v. Simental (Tex.App.- El Paso, Dec. 21, 2012)

OPINION BY JUSTICE ANTCLIFF

In this non-subscriber negligence case, ReadyOne Industries, Inc. brings an interlocutory appeal from the trial court's order permitting arbitration-related discovery.^[1] Because the trial court did not rule on the merits of ReadyOne's motion to compel arbitration, but rather expressly postponed its ruling on the motion until after the discovery it had ordered was completed, we dismiss the appeal for want of jurisdiction.

FACTUAL AND PROCEDURAL BACKGROUND

Alleging that she sustained an on-the-job injury, Margarita Simental sued ReadyOne for negligence. After filing an answer, ReadyOne moved to compel arbitration pursuant to an agreement requiring claims of on-the-job injuries to be submitted to binding arbitration. In response, Simental moved for limited discovery on the issue of arbitrability to "develop [her] case, and defend against [ReadyOne's] contentions that a valid arbitration agreement exists[,] . . . [and]. . . to develop or inquire into any factual issues that may preclude or discredit the existence of a valid arbitration agreement."

At the hearing on these matters, Simental argued that because her affidavit, attached to the response to ReadyOne's motion to compel arbitration, raised concerns about fraudulent inducement and no meeting of the minds, discovery on the validity of the arbitration agreement was required.[2] Simental also argued that her claims against ReadyOne are not arbitrable because the Franken Amendment[3] prevents federal contractors from enforcing agreements to arbitrate tort claims related to or arising out of negligent hiring, supervision, or retention.[4] After considering the parties' arguments, the trial court ordered limited discovery on the applicability of the Franken Amendment and on Simental's claims of fraudulent inducement and no meeting of the minds. In its order, the trial court made clear that "[it] has not provided a final ruling on Defendant's Motion to Compel Arbitration and will not provide such ruling until . . . the . . . discovery [ordered] should be complete."

JURISDICTION

ReadyOne contends that the trial court's order is reviewable by interlocutory appeal pursuant to Section 51.016 of the Texas Civil Practice and Remedies Code. See TEX.CIV.PRAC.&REM.CODE ANN. § 51.016 (West Supp. 2012). Simental, on the other hand, argues that ReadyOne cannot bring an interlocutory appeal of the trial court's order under Section 51.016 because the trial court did not rule on the merits of ReadyOne's motion to compel arbitration. We agree.

Standard of Review

Appellate courts have jurisdiction over interlocutory orders permitted by statute. See TEX.CIV.PRAC.&REM.CODE ANN. §§ 51.012 and 51.014 (West Supp. 2012). We strictly construe such statutes because interlocutory orders are a narrow exception to the general rule that interlocutory orders are not immediately appealable. CMH Homes v. Perez, 340 S.W.3d 444, 447-48 (Tex. 2011); Nazareth Hall Nursing Ctr. v. Castro, 374 S.W.3d 590, 593 (Tex.App.-El Paso 2012, no pet.); Lucchese, Inc. v. Solano, 08-11-00101-CV, 2012 WL 2409659, *2 (Tex.App.-El Paso 2012, no pet.). The substance and function of the interlocutory order from which an appeal is taken controls our interlocutory jurisdiction. Castro, 374 S.W.3d at 593; Solano, 2012 WL 2409659, at *3; Texas La Fiesta Auto Sales, LLC v. Belk, 349 S.W.3d 872, 878 (Tex.App.-Houston [14th Dist.] 2011, no pet.). When a party attempts to appeal a non-appealable interlocutory order, we have no jurisdiction except to dismiss the appeal. Cantu Servs., Inc. v. United Freedom Assoc., Inc., 329 S.W.3d 58, 63 (Tex.App.-El Paso 2010, no pet.) (quotation marks omitted).

Applicable Law

Section 51.016 of the Texas Civil Practice and Remedies Code provides that in a matter subject to the Federal Arbitration Act (FAA), a party may appeal from an interlocutory order of a district court "under the same circumstances that an appeal from a federal district court's order . . . would be permitted by 9 U.S.C. Section 16." TEX.CIV.PRAC.&REM.CODE ANN. § 51.016 (West Supp. 2012). Section 16 of the FAA identifies the types of orders from which an appeal may be taken. Pursuant to Section 16, an appeal may be taken from:

(1) an order—

(A) refusing a stay of any action under section 3 of this title,

(B) denying a petition under section 4 of this title to order arbitration to proceed,

(D) confirming or denying confirmation of an award or partial award, or

(E) modifying, correcting, or vacating an award;

(2) an interlocutory order granting, continuing, or modifying an injunction against an arbitration that is subject to this title; or

(3) a final decision with respect to an arbitration that is subject to this title.

9 U.S.C.A. § 16(a)(West 2009).

Discussion

When strictly construed, Section 51.016 of the Texas Civil Practice and Remedies Code does not permit an interlocutory appeal from a trial court's order deferring ruling on a motion to compel arbitration. As established above, Section 16 of the FAA refers only to orders denying an application to compel arbitration and not to orders postponing a ruling on a motion to compel arbitration. See 9 U.S.C.A. § 16 (no express provision authorizing appeal from trial court's postponement of ruling on a motion to compel arbitration under the FAA). Accordingly, an order deferring a ruling on a motion to compel arbitration is not appealable under Section 16. Because such an order is not appealable under the FAA, it is not an appealable order under Section 51.016. See TEX.CIV.PRAC.&REM.CODE ANN. § 51.016 (in matters subject to the FAA, an appeal is available only under the same circumstances that an appeal from federal district court's order would be permitted). We therefore conclude that the trial court's order permitting arbitration-related discovery is not reviewable by interlocutory appeal.

ReadyOne argues that Section 16 "allow[s] an interlocutory appeal from a district court order that postpones a ruling on a motion to compel arbitration pending further discovery." In support of its argument, ReadyOne points us to several decisions from various intermediate federal appellate courts that stand for the proposition that if the substance of the order effectively denies a motion to compel arbitration, it is an appealable order under Section 16, even if the order does not determine conclusively whether the dispute should be referred to an arbitrator. [5] Although we may rely on decisions from intermediate federal appellate courts as persuasive authority, we are not persuaded by those relied upon by ReadyOne. See Penrod Drilling Corp. v. Williams, 868 S.W.2d 294, 296 (Tex. 1993)(stating that opinions from any federal or state court may be relied on a persuasive authority, but Texas appellate courts are obligated to follow only higher Texas courts and the United States Supreme Court). Here, unlike in the cases on which ReadyOne relies, the substance of the trial court's order did not effectively deny ReadyOne's motion to compel arbitration. Moreover, our sister court considered this identical issue in In re F.C. Holdings, Inc. and held that, "[r]egardless of whether arbitration is sought under the [FAA] or the Texas Arbitration Act, appeal is not available when a trial court defers ruling on a motion to compel arbitration." 349 S.W.3d 811, 815 (Tex.App.-Tyler 2011, orig. proceeding)(citations omitted). We are thus more persuaded by our reasoning and that of our sister court in In re F.C. Holdings, Inc. than by the reasoning of the federal appeals courts in the cases relied upon by ReadyOne.

CONCLUSION

Because the trial court's order permitting arbitration-related discovery and deferring ruling on ReadyOne's motion to compel arbitration is not an appealable order under Section 16 of the FAA, and thus, is not an appealable order under Section 51.016 of the Texas Civil Practice and Remedies Code, we do not have jurisdiction to consider ReadyOne's appeal. Accordingly, we dismiss the appeal for want of jurisdiction.

[1] ReadyOne also filed a companion petition for writ of mandamus seeking to compel the trial court to vacate its order.

[2] Simental's response to ReadyOne's motion to compel arbitration is not in the record. However, there is no doubt that ReadyOne was aware of its existence. At the hearing, counsel for ReadyOne acknowledged receiving Simental's response that day and, despite receiving it then, argued that Simental's affidavit was insufficient to require discovery on the issues of fraudulent inducement and no meeting of the minds. In any event, neither party complains about the absence of the response from the record, and more importantly, the response is unnecessary for the resolution of this appeal.

[3] Section 8116 of the Department of Defense Appropriations Act of 2010 is known as the Franken Amendment because of its author, Senator Al Franken of "Saturday Night Live" fame.

[4] Counsel for Simental informed the trial court that he had briefed this issue in the response to ReadyOne's motion to compel arbitration. As noted above in footnote two, the response is not in the record.

[5] See, e.g., Madol v. Dan Nelson Auto. Grp., 372 F.3d 997, 998-99 (8th Cir. 2004)(concluding that the district court's order that did not determine conclusively whether the dispute should be referred to an arbitrator, but rather rejected the magistrate judge's order compelling arbitration, stayed proceedings, and reopened discovery, was an appealable order under Section 16 because the order refused a stay and directed that the litigation proceed); Boomer v. AT&T Corp., 309 F.3d 404, 411-12 (7th Cir. 2002)(concluding that the district court's order explicitly denying a motion to compel arbitration was immediately appealable under Section 16, notwithstanding the issuance of a subsequent minute order directing the parties to confer and advise it regarding whether a separate trial on arbitrability of the claims was warranted).

Contract Law governs Rule 11 Settlement Agreements

2012-05-24T20:21:00.005-07:00

VALIDITY AND ENFORCEABILITY OF AGREEMENTS UNDER TRCP 11 (Tex. R. Civ. P. 11)

General Metal Fabricating Corporation v Stergiou (Tex.App.- Houston [1st Dist.] May 24, 2012)

OPINION EXCERPT

Contract law governs agreements made in open court pursuant to rule 11. Ronin v. Lerner, 7 S.W.3d 883, 886 (Tex. App.—Houston [1st Dist.] 1999, no pet.). A contract is legally binding only if its terms are sufficiently definite to enable a court to understand the parties’ obligations. See Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 846 (Tex. 2000).“ Each contract should be considered separately to determine its material terms.” T.O. Stanley Boot Co., Inc. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992). Although the contract’s material terms must be agreed upon before a court may enforce the contract, a binding settlement contract may exist even if the parties contemplate that a more formal document memorializing their agreement will be executed at a later date. See City of Fort Worth, 22 S.W.3d at 846; Foreca, S.A. v. GRD Dev. Co., 758 S.W.2d 744, 745-46 (Tex. 1988); see also McLendon v. McLendon, 847 S.W.2d 601, 606-07 (Tex. App.—Dallas 1992, writ denied) (“[T]he attempts by the parties to reduce the rule 11 stipulations to writing do not affect the nature and effect of the stipulations dictated at the [hearing in open court.]”).When an agreement leaves material matters open for future adjustment and agreement on the additional matters never occurs, however, the agreement is not binding upon the parties. City of Fort Worth, 22 S.W.3d at846.

Whether the rule11 agreement is an enforceable settlement agreement—or whether it fails forlack of an essential term—is a question of law. See Ronin, 7 S.W.3d at 888; see also Martin v. Martin, 326 S.W.3d 741, 746 (Tex. App.—Texarkana 2010, pet. denied) (“The question of whether an agreement is an unenforceable agreement to agree is a question of law, not a question for the jury.”).The parties’ intent to be bound, however, generally is a question of fact. See Herring v. Herron Lakes Estates Owners Ass’n, Inc., No. 14-09-00772-CV, 2011 WL 2739517, at *3 (Tex. App.—Houston [14th Dist.] Jan. 4, 2011, no pet.) (mem. op.) (citing Foreca, 758 S.W.2d at 746).We may determine the issue as a matter of law only if an unambiguous writing shows that the parties intended to be bound by the agreement. Herring, 2011 WL 2739517 at *3 (citing Padilla v. LaFrance, 907 S.W.2d 454, 461-62 (Tex. 1995)).

SOURCE: HOUSTON COURT OF APPEALS - 01-11-00460-CV – 5/25/12

CASE STYLE: GeneralMetal Fabricating Corporation, GMF Leasing, Inc., and Arnold Curry vs. John Stergiou and Main Marine RepairIndustrial Cleaning Company

We begin by noting that nothing in the rule 11 agreement indicates the parties did not intend to be bound. Like most settlement agreements, the rule 11 agreement included essential terms for the payment of money in exchange for the performance of some act: Stergiou would return his shares of the GMF Companies’ stock, Curry would pay $300,000, and together the parties would dismiss the lawsuit with prejudice. See Padilla, 907 S.W.2d at 460-61 (noting that material terms of rule 11 settlement agreement include payment and release of claims); see also CherCo Props., Inc. v. Law, Snakard & Gambill, P.C., 985 S.W.2d 262, 266 (Tex. App.—Fort Worth 1999, no pet.) (holding settlement agreement that included terms of payment and statement that parties would execute mutual releases contained all material terms).The rule 11 agreement further detailed when the stock would be returned (“upon payment of the $20,000 down payment . . . and the execution of all documents necessary to provide the security described therein”), how and when the money would be paid (in the form of a “promissory note” with “$20,000 of principal . . . paid on or before May 3, 2006” and monthly installments of $4,000 thereafter), the interest that would accrue (“6.5% per annum”), and the nature of the collateral (“all furniture, fixtures, equipment, receivables (from the ordinary course of business), inventory, and real property owned by the GMF Companies known [as] (the White Buildings and the empty lot) (excluding the four lots the ‘Blue Building’ resides upon and the ‘Blue Building’”)).See T.O. Stanley Boot Co., 847 S.W.2d at 221 (noting that material terms of contract to loan money are amount to be loaned, maturity date of loan, interest rate, and repayment terms).

We acknowledge that the rule 11 agreement required the parties to execute a promissory note, a deed of trust, a security agreement, and a financing statement, and that, as an affidavit included in Stergiou’s summary judgment evidence suggests, the “forms” for those documents include certain standard provisions for things like collateral descriptions; defaults; inspection rights; insurance, maintenance, and repair of collateral; and prepayment of the debt. However, to the extent these particular provisions are missing from the rule 11 agreement, the two cases on which Stergiou primarily relies do not persuade us that those provisions were essential to an enforceable settlement of this case.[4]See Martin, 326 S.W.3d at 741; see also DKH Homes, LP v. Kilgo, No. 03-10-00656-CV, 2011 WL 1811435, at *3-4 (Tex. App.—Austin May 11, 2011, no pet.) (mem. op.).

In Martin, two brothers had a dispute over the management of their closely-held corporation.326 S.W.3d at 743.In an effort to settle their dispute over “corporate control,” the brothers reached a “settlement agreement” that, among other things, required them to negotiate a shareholder agreement. Id. at 743-44.They never agreed as to the terms of the shareholder agreement. The court of appeals concluded that their settlement was not an enforceable agreement because the to-be-negotiated shareholder agreement “would be the foundational document of [the company] and would define the [brothers’] rights vis-à-vis each other and [the company].”Id. at 754.Here, the additional documents do not have the same “foundational” importance to the underlying dispute. The essence of Stergiou and Curry’s rule 11 agreement is the promise to pay $300,000in exchange for the return of the GMF Companies’ stock and the dismissal of the lawsuit. Although the rule 11 agreement requires Curry to make installment payments for a number of years, it does not require Stergiou and Curry to have a relationship akin to the parties in Martin, who continued to be involved in the operation of the same closely-held corporation.

In Kilgo, a homebuilder alleged that the Kilgos failed to comply with a contractual obligation to build a new home.2011 WL 1811435, at *1.The court of appeals determined that the parties’ agreement did not include terms essential to a contract for the construction of a new home. Id. at *3.The agreement did not include any information defining the undertaking, such as the size of the house contemplated, the price of the house on a per-square-foot or other basis, or the time for completing construction. Id. Here, unlike in Kilgo, the terms that Stergiou asserts are essential—i.e., those terms describing the parties’ obligations to insure, maintain, and repair the collateral, the notice and cure periods for default, and the right of prepayment—do not define the undertaking in the rule 11 agreement to pay for the return of Stergiou’s stock in the GMF Companies.

Instead, this case is more analogous to Montanaro v. Montanaro, 946 S.W.2d 428 (Tex. App.—Corpus Christi 1997, no writ). Montanaro was a suit for an accounting, dissolution of a family-owned partnership, fraud, and breach of fiduciary duties. The parties agreed on the general terms of their settlement, including payment obligations and the release of claims. Id. at 429.The payment obligations were to be secured by a to-be-drafted promissory note, but despite having exchanged drafts, the parties could not agree on the promissory note’s terms. Id. at 431.The court of appeals concluded that the record nevertheless established the essential terms of a settlement agreement because, like Stergiou and the GMF Companies, the parties agreed as to the exact amount of the payments and the period over which they were to be made. Id. “Additional terms regarding overdue, or post-maturity, interest and acceleration upon default were not necessary to enable the parties to comply with the terms of the note, or the underlying settlement agreement.”Id. Likewise here, we conclude that the particular terms of the additional documents were not material and therefore did not destroy the rule 11 agreement’s effectiveness, and we hold that the rule 11 agreement is not an unenforceable “agreement to agree.”

To hold otherwise would undermine well-established policy favoring the peaceable resolution of disputes by agreement and would encourage continued litigation of disputes that have already been decided by agreement. See Kennedy v. Hyde, 682 S.W.2d 525, 529 (Tex. 1984) (noting that “[i]n a day of burgeoning litigation and crowded dockets, the amicable settlement of lawsuits is greatly to be desired”). Moreover, the parties behaved as though their settlement was binding. The transcript of the trial court’s proceedings reflects that the parties were entering into a settlement agreement. Stergiou’s counsel dictated the terms of the agreement into the record. Each party, on the record, appeared in open court and expressed under oath that they had reached an agreement, had reviewed and understood its terms, had authority to enter into that agreement, and wished the trial court to approve it. The trial court did so. At no time did either Stergiou or Curry state on the record that the rule 11 agreement was only a preliminary agreement. See Ronin, 7 S.W.3d at 888 (considering lack of statement on record that rule 11 agreement was only preliminary a factor in enforcing the agreement).

The timing and circumstances under which the rule 11 agreement was executed also indicate the parties’ intent to be bound. The specific terms of the settlement were contingent on the jury’s verdict. If the rule 11 agreement was only preliminary, and not intended to be final until the details of the additional documents were agreed upon, the party that prevailed before the jury would prefer the “win” over the compromised settlement and would have little incentive to agree to those details. Stergiou did not present any summary judgment evidence establishing that his intent was otherwise. And, after the trial court approved the rule 11 agreement, the parties exchanged drafts of the additional documents contemplated by the rule 11 agreement, and they twice extended the agreed deadline for dismissing the lawsuit in order to continue negotiating the terms of the additional documents.

On this record, we overrule Stergiou’s first sub-issue.

B. Definiteness of Terms

Stergiou’s next complaint—that the rule 11 agreement cannot be enforced as written—is closely related to the issue already decided. Stergiou contends that the rule 11 agreement cannot be enforced until the additional documents are actually executed, which is not possible because there has not been any agreement as to the terms of those additional documents and a reviewing court cannot supply the terms not agreed upon. That is, a court cannot force Stergiou or Curry to accept one or the other’s version of the additional documents.

In support of his contention, Stergiou argues this case is analogous to Nash v. Conatser, 410 S.W.2d 512 (Tex. App.—Dallas 1966, no writ).There, the court observed that specific performance of a contract cannot be ordered when the contract is unenforceable for lack of material terms. Id. at 519-21.We have already disapproved of Stergiou’s assertion that the rule 11 agreement lacked material terms by overruling Stergiou’s first issue, so Nash is not controlling here.

Because the rule 11 agreement set out the amounts to be paid for the return of the GMF Companies’ stock and the dismissal of the lawsuit, how those amounts were to be paid and when, and the interest rate, the parties’ obligations are sufficiently defined.We hold that the terms of the rule 11 agreement are not so indefinite so as to preclude its enforcement, and we overrule Stergiou’s second sub-issue.

C. Statute of Frauds

Part of the dispute on appeal concerns the description of the security for Curry’s promise to pay Stergiou $300,000 for the return of his stock. The rule 11 agreement provides that the promissory note “will be secured by a first lien Deed of Trust and Security Agreement covering all furniture, fixtures, equipment, receivables (from the ordinary course of business), inventory, and real property owned by the GMF Companies known [as] (the White Buildings and the empty lot) (excluding the four lots the ‘Blue Building’ resides upon and the ‘Blue Building’) of General Metal Fabrication, Inc. and GMF Leasing, Inc.”

Stergiou argues that we should reverse the trial court’s summary judgment and render judgment that the rule 11 agreement is not enforceable because it does not sufficiently describe the real property offered as security. This argument rests on the premise that the rule 11 agreement is a contract for the sale of real estate and thus subject to the statute of frauds. See Tex. Bus. & Comm. Code Ann. § 26.01(b)(4) (West 2009) (statute of frauds).Without deciding whether that premise is sound, we conclude that the rule 11 agreement, together with the writings referenced by it, describes the property in a manner sufficient to satisfy the statute of frauds.

The statute of frauds does not require that a complete description of the land to be conveyed appear in a single document. See Padilla, 907 S.W.2d at 460 (holding that series of letters between parties satisfied statute of frauds).A property description is sufficient if the writing furnishes within itself, or by reference to some other existing writing, the means or data by which the particular land to be conveyed may be identified with reasonable certainty. See AIC Mgmt. v. Crews, 246 S.W.3d 640, 645 (Tex. 2008).The description of the land may be obtained from documents that are prepared in the course of the transaction, even if those documents are prepared after the parties’ contract for sale. See Porter v. Reaves, 728 S.W.2d 948, 949 (Tex. App.—Fort Worth 1987, no writ) (description of land as “1/2 of 20-acre tract” satisfied statute of frauds because location of tract was not disputed, the parties referenced a drawing of the tract in their contract, and seller was required to furnish “current survey” of land after contract was executed); see also Adams v. Abbott, 254 S.W.2d 78, 80 (Tex. 1952) (description furnished by exchange of correspondence between the parties)

The GMF Companies’ summary judgment evidence included Curry’s affidavit testimony that they owned three tracts of land, which were commonly referred to as the “Blue Building,” the “White Buildings,” and the “empty lot.”Stergiou’s attorney drafted the rule 11 agreement using those same terms. Although the rule 11 agreement describes the property to be secured by the deed of trust only as the “White Buildings” and “empty lot,” but not “the four lots the ‘Blue Building’ resides upon and the ‘Blue Building,’” the various deeds of trust and the security agreements circulated as drafts between the parties contain sufficient legal descriptions of those properties. The “White Buildings” are described as:

Lots Five (5), Six (6), Fifteen (15) and Sixteen (16), in Block Fifty-Four (54), of KING’S COURT, an addition in Harris County, Texas, according to the map of the plat thereof recorded in Volume 7, Page 65 of the Map Records of Harris County, Texas.

The “empty lot” is described as:

Lots 7, 8, 9 and 10, in Block 54 of KING’S COURT, an addition in Harris County, Texas, according to the map or plat thereof recorded in Volume 7, Page 65 of the Map of Records of Harris County, Texas.

These same legal descriptions appear in the drafts prepared by Stergiou and in the drafts prepared by the GMF Companies. Thus, there was no dispute between the parties regarding the identification of the real estate.

For this reason, we hold that the statute of frauds does not bar enforcement of the rule 11 agreement, and we overrule Stergiou’s third sub-issue.

Interpretation of the Rule 11 Agreement

Having determined that the rule 11 agreement is enforceable, we now consider whether, as argued by the GMF Companies in their appeal, the agreement authorized Curry to pay the entire amount owed under the agreement at one time In four issues, the GMF Companies contend (1) the rule 11 agreement included a right of prepayment, (2) Curry’s tender of the full $300,000 constituted substantial performance of the rule 11 agreement, (3) by refusing that tender, Stergiou waived his right to interest under the rule 11 agreement, and (4) Stergiou’s failure to mitigate his damages by accepting the tender relieves Curry of any continuing burden to make interest payments. For reasons discussed below, only the GMF Companies’ first issue is properly within the scope of this agreed interlocutory appeal.

SOURCE: HOUSTON COURT OF APPEALS - 01-11-00460-CV – 5/25/12

CASE STYLE: General Metal Fabricating Corporation, GMF Leasing, Inc., and Arnold Curry vs. John Stergiou and Main Marine Repair Industrial Cleaning Company

Judicial Review of Arbitration Awards under the Texas Arb Act (TGAA aka TAA)

2012-05-22T08:55:00.000-07:00

Arbitration awards are sometimes properly overturned by the courts even if grounds for judicial review & appeal are very narrow, as seen in a recent case from Houston arising from a probate dispute.

JUDICIAL REVIEW OF ARB AWARDS UNDER THE TEXAS GENERAL ARBITRATION ACT

Jones v. Brelsford (Tex.App. -Houston [1st Dist] May 17, 2012) (probate court's order vacating arbitration award affirmed)

EXCERPT FROM OPINION BY JUSTICE HARVEY BROWN

Texas law favors the arbitration of disputes. See E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 271 (Tex. 2010); Brazoria Cnty. v. Knutson, 176 S.W.2d 740, 743 (Tex. 1943) ("Arbitration is a proceeding so favored by Texas law that both our Constitution and statutes provide for the submission of differences to arbitration."). Consequently, judicial review of an arbitration award is extraordinarily narrow and focuses on the integrity of the process, not the propriety of the result. See Women's Reg'l Healthcare, P.A. v. FemPartners of N. Tex., Inc., 175 S.W.3d 365, 367 68 (Tex. App.-Houston [1st Dist.] 2005, no pet.); TUCO, Inc. v. Burlington N. R.R. Co.,912 S.W.2d 311, 315 (Tex. App.-Amarillo 1995), modified on other grounds, 960 S.W.2d 629 (Tex. 1997). A reviewing court may not substitute its judgment for the arbitrator's simply because that court would have reached a different result. Royce Homes, L.P. v. Bates, 315 S.W.3d 77, 85 (Tex. App.-Houston [1st Dist.] 2010, no pet.).We indulge every reasonable presumption to uphold an arbitrator's decision.New Med. Horizons II, Ltd. v. Jacobson, 317 S.W.3d 421, 428 (Tex. App.-Houston [1st Dist.] 2010, no pet.).

The parties agree that the Texas General Arbitration Act (TAA) governs this case. See TEX. CIV. PRAC. & REM. CODE ANN. §§ 171.001 .098 (West 2011). Under the TAA, a court must affirm an arbitration award unless a party establishes one of four statutory bases for vacating the award: (1) the award was procured by fraud, corruption, or other undue means; (2) there was evident partiality, corruption, or willful misconduct by the arbitrator that prejudices the rights of a party; (3) the arbitrator exceeded her power, refused to postpone a hearing on a showing of sufficient cause, or refused to hear material evidence; or (4) "there was no agreement to arbitrate, the issue was not adversely determined in a proceeding under Subchapter B, and the party did not participate in the arbitration hearing without raising the objection."[4]Id. §§ 171.087 .088(a); see Women's Reg'l Healthcare, 175 S.W.3d at 367. Our review of an order vacating an arbitrator's award for any of these reasons is de novo. See Grand Homes 96, L.P. v. Loudermilk, 208 S.W.3d 696, 705 (Tex. App.-Fort Worth 2006, pet. denied).

Order Vacating the Arbitration Award
Dianna's complaints about the probate court's order vacating the arbitration award are divided into six sub-issues, each addressing a statutory or common-law ground for vacatur asserted by her siblings—Harold, Susanna, John, and Madge— or the grandchildren. We begin with Dianna's sixth sub-issue, which challenges the vacatur grounds asserted by Madge in her motion attacking "the portions of the arbitration award that require Madge to sign over her interests in real estate to Dianna Brelsford and to appear and sign transfer documents."

Madge argues that the arbitrator's award divesting her of a property interest in the ranch subjected her to an arbitration to which she did not agree and in which she did not participate. She asserts that, under these circumstances, the probate court properly vacated the award under sections of the Civil Practice and Remedies Code providing for vacatur if the arbitrator exceeded her powers or if there was no agreement to arbitrate. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(3)(A), (a)(4). Dianna asserts that Madge's complaints about the arbitration award are merely "ministerial" and "not a basis to vacate" because Madge had already agreed to transfer her interests to Harold, Susanna, and John. We disagree with Dianna.

We look to the parties' various provisions for dispute resolution to determine the arbitrator's authority to order Madge, a non-participant in the second arbitration, to convey her property interest in the ranch to Dianna instead of Harold, Susanna, and John. See Baker Hughes Oilfield Operations v. Hennig Prod. Co., 164 S.W.3d 438, 443 (Tex. App.-Houston [14th Dist.] 2005, no pet.). Attached to the MSA, which is a global document signed by all of the siblings, the trusts, and the estate, are (1) Dianna'sagreement with Harold, Susanna, and John and (2) Madge's agreement with Harold, Susanna, and John. The MSA and the attached agreements contain different provisions for dispute resolution. The MSA provided "that any dispute as to interpretation of terms of this agreement shall be submitted to binding arbitration. . . ." In the attached agreements, which the parties treat as separate and distinct agreements, Dianna and Madge individually agreed to transfer their interests in family properties, including the ranch, to Harold, Susanna, and John in exchange for payment. They both also agreed to a two-step process in the event of future disputes: "attend a ½ day mediation with Judge Garcia; if no agreement, then Judge Garcia shall serve as arbitrator, and she shall rule in a manner that she believes is fair and just, and her decision is non-appealable and final."

Although Dianna's and Madge's individual agreements incorporated nearly identical terms for resolving their disputes with their siblings, Dianna did not sign Madge's agreement with Harold, Susanna, and John, and Madge did not sign Dianna's agreement with Harold, Susanna, and John. Madge is also not a signatory to the agreement entered on the eve of the second arbitration, granting the arbitrator broad authority to decide "any and all issues and/or disputes related to the above causes of action and any and all issues or disputes with regard to any mediation agreement and/or settlement agreement." Only Harold, Susanna, John, and Dianna signed that agreement. Thus, the only agreement to arbitrate signed by both Dianna and Madge is the agreement to submit to arbitration "any dispute as to interpretation of terms of" the MSA between the siblings, the trusts, and the estate.

Considering the written submissions to the arbitrator, we note that Madge did not have a dispute with either Dianna or her other siblings "as to interpretation of terms" of their settlement agreement with the trusts and the estate, and Dianna did not allege any such dispute with Madge. In fact, Dianna did not allege any dispute with Madge or any dispute as to the MSA between the siblings, the trusts, and the estate. Although she requested an award of the entire ranch, Dianna's written submission focused exclusively on Harold, Susanna, and John's non-performance and alleged fraudulent inducement of her individual settlement agreement with them. The arbitrator specifically noted in the award that Madge did not participate in the second arbitration because she had settled her disputes with Harold, Susanna, and John. The arbitrator found that "an award of 100% of [the ranch] to Dianna is a partition in kind for her debt under the MSA, for actual and punitive damages from the intentional and repeated breaches of the MSA by Harold, Susanna, and John in the breaches described here." The breaches described in the arbitration award related to breaches of Dianna's settlement with Harold, Susanna, and John and no other agreement. To give effect to her award, however, the arbitrator ordered Madge, along with Harold, Susanna, and John, to execute deeds transferring their interests in the ranch to Dianna. No findings were entered against Madge in the award. Nor can we find any evidence in this record that Harold, Susanna, and John paid Madge and therefore were entitled to demand transfer of Madge's interest in the ranch.

Even considering the presumptions in favor of arbitration, we agree with Madge that she did not agree to submit to arbitration of disputes arising from Dianna's agreement with Harold, Susanna, and John. The arbitrator could not order Madge, as part of the second arbitration, to transfer her interest in the ranch to Dianna as a consequence of Harold, Susanna, and John's breaches of an agreement to which Madge was not a party because any dispute as to Madge's interest in the ranch was not properly before the arbitrator. We are not persuaded that simply because Madge had already agreed to transfer her interests to Harold, Susanna, and John, an order that she transfer her interests to someone else is inconsequential. The arbitrator's award required Madge to perform an act that contravened her settlement with Harold, Susanna, and John and undermined their obligation to pay Madge under that agreement. We therefore conclude that the probate court correctly vacated that part of the award giving Dianna full ownership of the ranch and ordering Madge to "execute the deeds . . . to transfer full ownership of [the ranch], its cattle and improvements to [Dianna]" under section 171.008(a)(4). See TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(4) (providing for vacatur of arbitration award when "there was no agreement to arbitrate, the issue was not adversely determined in a proceeding under Subchapter B, and the party did not participate in the arbitration hearing without raising the objection").

Our conclusion that Madge did not agree to arbitrate the issues decided at the second arbitration is dispositive of this appeal. Although we have held invalid only those parts of the arbitrator's award affecting Madge, the entire award must be set aside because, here, the invalid parts of the award are not "distinct and independent" from the remaining parts of the award. City of Waco v. Kelley, 309 S.W.3d 536, 551 (Tex. 2010) ("In an appeal from an arbitration award, if a portion of the award is invalid, the other portion will be unaffected only if the two parts are so distinct and independent that the valid part will truly express the judgment of the arbitrator. But if an invalid portion is not severable and distinct so that the remaining valid part of the award truly expresses the arbitrator's judgment, the entire award is void."); see Gulf Oil Corp. v. Guidry, 327 S.W.2d 406, 409 (Tex. 1959). The arbitrator determined that it was equitable that Dianna be awarded 100 percent ownership of the ranch in satisfaction of the amounts owed by Harold, Susanna, and John for their breaches of contract and fraud. To affirm the remaining portions of the award ordering Harold, Susanna, and John to convey their interests in the ranch would be to affirm an award to Dianna of less than 100 percent ownership of the ranch. Such an award is less than what the arbitrator determined was equitable and would not "truly express the arbitrator's judgment." See Kelley, 309 S.W.3d at 551. Accordingly, we conclude that the entire arbitration award must be set aside and that a new arbitration hearing must be conducted, and we overrule Dianna's sixth sub-issue.

Order Appointing a New Arbitrator
Our holding in this case will require a rehearing of Dianna's dispute with Harold, Susanna, and John. In her second issue, Dianna contends that the trial court erred in appointing a new arbitrator for the rehearing. See Werline, 307 S.W.3d at 270 74 (allowing appeal when trial court denied confirmation of arbitration award, vacated award, and sent dispute to re-arbitration before new arbitrator). We agree. Section 171.089 permits a court to order rehearing before a new arbitrator upon the vacatur of an award "on grounds other than the grounds stated in Section 171.088(a)(4)." See TEX. CIV. PRAC. & REM. CODE ANN. § 171.089(a). The only grounds for vacatur we affirm are stated in section 171.088(a)(4). Id. § 171.088(a)(4). Consequently, the vacatur of the arbitration award in this case will not support the appointment of a new arbitrator for rehearing. See id. § 171.089(a). We sustain Dianna's second issue.

Conclusion

We affirm the probate court's order vacating the arbitration award, but we reverse the probate court's order appointing a new arbitrator for the rehearing. This case is remanded for further proceedings consistent with this opinion. All outstanding motions are denied as moot.

SOURCE: FIRST COURT OF APPEALS - HOUSTON - Nos. 01-11-00265-CV, 01-11-00266-CV - 5/17/12 Dianna Jones v. Harold Petsch Brelsford et al

Mandamus petition no longer proper way to complain of judge’s failure to order parties to arbitration

2012-05-18T18:57:00.002-07:00

Word should have gotten around by now that orders denying arbitration under the FAA are immediately appealable these days, but errors are still being made, as seen a doomed mandamus petition in San Antonio. Mandamus is proper to correct a clear abuse of discretion when there is no adequate remedy by appeal. CMH Homes v. Perez, 340 S.W.3d 444, 452-53 (Tex. 2011). Because the availability of interlocutory review based on statutory enactment precludes mandamus relief, the Fourth Court predictably denied the requested relief without delving into the merits of the complaint about the trial court’s failure to order arbitration.

In re Green Tree Servicing, LLC (Tex.App.- San Antonio, 2012)

PER CURIAM MEMORANDUM OPINION

On May 4, 2012, Relator Green Tree Servicing, LLC as Successor Servicer for BAHS — A Division of Bank of America, FSB, filed a petition for writ of mandamus complaining that the trial court erred in denying a motion to compel arbitration. Mandamus, however, will issue only to correct a clear abuse of discretion for which the relator has no adequate remedy at law. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135 (Tex. 2004) (orig. proceeding); Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex.1992) (orig. proceeding). Texas Civil Practice and Remedies Code section 51.016 permits interlocutory appeals "to the court of appeals from the judgment or interlocutory order of a district court . . . under the same circumstances that an appeal from a federal district court's order or decision would be permitted by 9 U.S.C. Section 16." TEX. CIV. PRAC. & REM CODE ANN. § 51.016; CMH Homes v. Perez, 340 S.W.3d 444, 448-49 (Tex. 2011) (explaining that section 51.016 provides for interlocutory appeals in Federal Arbitration Act cases so long as "it would be permitted under the same circumstances in federal court under section 16."). We, therefore, conclude Relator failed to establish he lacks an adequate remedy by appeal. Accordingly, the petition for writ of mandamus is denied. See TEX. R. APP. P. 52.8(a).

In re Green Tree Servicing, LLC as Successor Servicer for BAHS — A Division of Bank of America, FSB, 04-12-00277-CV (Tex.App.- San Antonio, May 15, 2012) (arbitration-related mandamus petition denied because interlocutory appeal now available)

EXCERPT FROM TEXAS SUPREME COURT’S OPINION IN

CMH Homes v. Perez, 340 S.W.3d 444(Tex. 2011).

Texas Civil Practice and Remedies Code Section 51.016

Prior to the Legislature's 2009 amendment to the Texas Arbitration Act (TAA), parties seeking to appeal an order refusing to compel arbitration would commonly file two separate appellate proceedings. Under the TAA, a party could bring an interlocutory appeal of an order denying arbitration. See TEX. CIV. PRAC. & REM. CODE § 171.098. Under the Federal Arbitration Act (FAA), a party could only challenge an order denying arbitration by mandamus. Jack B. Anglin, 842 S.W.2d at 271-72. As a result, parallel proceedings were the norm in Texas arbitration disputes where parties were unsure which arbitration act applied. Although "unnecessarily expensive and cumbersome," such parallel proceedings were required. Id. at 272. Twice, this Court requested that the Legislature "consider amending the Texas Act to permit interlocutory appeals of orders issued pursuant to the Federal Act." Id.; In re D. Wilson Constr. Co., 196 S.W.3d 774, 780 n. 4 (Tex.2006) (quoting Jack B. Anglin, 842 S.W.2d at 272). In response, the Legislature added section 51.016 to the Civil Practice and Remedies Code in 2009. Act of May 27, 2009, 81st Leg., R. S., ch. 820, §§ 1, 3, 2009 Tex. Gen. Laws 2061 (codified at TEX. CIV. PRAC. & REM.CODE § 51.016). This is our first opportunity to construe the scope of the Legislature's remedial action.

Section 51.016 provides that a party may appeal a judgment or interlocutory order "under the same circumstances that an appeal from a federal district court's order or decision would be permitted by 9 U.S.C. Section 16." TEX. CIV. PRAC. & REM. CODE § 51.016. Section 16 of the FAA provides:

(a) An appeal may be taken from—

(1) an order—

(A) refusing a stay of any action under section 3 of this title,

(B) denying a petition under section 4 of this title to order arbitration to proceed,

(D) confirming or denying confirmation of an award or partial award, or

(E) modifying, correcting, or vacating an award;

(2) an interlocutory order granting, continuing, or modifying an injunction against an arbitration that is subject to this title; or

(3) a final decision with respect to an arbitration that is subject to this title.

(b) Except as otherwise provided in section 1292(b) of title 28, an appeal may not be taken from an interlocutory order—

(1) granting a stay of any action under section 3 of this title;

(2) directing arbitration to proceed under section 4 of this title;

(3) compelling arbitration under section 206 of this title; or

(4) refusing to enjoin an arbitration that is subject to this title.

9 U.S.C. § 16. Civil Practice and Remedies Code section 51.016 expressly incorporates federal law. Thus, an interlocutory appeal in this case is permitted only if it would be permitted under the same circumstances in federal court under section 16. See Little v. Tex. Dep't of Crim. Justice, 148 S.W.3d 374, 381-82 (Tex.2004) (examining federal law when interpreting state statute that incorporated federal statute).

In considering the scope of section 16's jurisdictional grant, we first determine the nature of the order being appealed. The order at issue is entitled "Order on Plaintiff's Motion to Compel Arbitration" and appoints Gilberto Hinojosa as arbitrator. Although Perez's motion to compel arbitration did not request that the trial court appoint an arbitrator, Perez submitted letters to the court administrator declaring an impasse and requesting the trial judge appoint an arbitrator.

At first glance, this order may appear to fit within section 16(b)(2) as an order "directing arbitration to proceed." 9 U.S.C. § 16(b)(2). The "Order on Plaintiff's Motion to Compel Arbitration" was issued in response to Perez's motion requesting that the trial court compel arbitration. But the substance of the order is the appointment of Gilberto Hinojosa as arbitrator. See Del Valle Indep. Sch. Dist. v. Lopez, 845 S.W.2d 808, 809 (Tex.1992) ("[I]t is the character and function of an order that determine its classification."). While it may be argued that by appointing an arbitrator the order implicitly compels the parties to arbitration, the order does not explicitly grant Perez's motion to compel and does not explicitly compel the parties to arbitrate their dispute. There is no question that both parties agreed to arbitrate their dispute; the open question remaining was who would serve as the arbitrator. The purpose of the order was to answer that question.

Section 5 of the FAA explicitly permits a trial court to appoint an arbitrator under certain circumstances. 9 U.S.C. § 5. Where the parties have previously agreed to a method for selecting an arbitrator, the parties must follow that method. Id. However, if the agreed upon method breaks down and there is a lapse in appointing an arbitrator, the parties may petition the trial court to appoint an arbitrator. Id.

An order appointing an arbitrator under section 5 is neither listed in section 16(a) (where appeals may be taken) nor in section 16(b) (where appeals may not be taken). 9 U.S.C. § 16(a), (b). Even though section 16 is silent on the matter, CMH Homes argues that an appeal of an order appointing an arbitrator is "permitted by Section 16" because some federal circuit cases may have entertained interlocutory appeals regarding appointment of arbitrators pursuant to section 5.[2] However, none of the cited cases mentions whether the appeal is interlocutory and all but one of the cited cases fails to specifically discuss its jurisdictional basis or cite section 16.[3] Nat'l Am. Ins. Co. v. Transamerica Occidental Life Ins. Co., 328 F.3d 462 (8th Cir.2003) (affirming the district court's selection of an arbitrator pursuant to section 5); ACEquip Ltd. v. Am. Eng'g Corp., 315 F.3d 151 (2d Cir.2003) (same); see also The Stop & Shop Supermarket Co. LLC v. United Food & Commercial Workers Union Local 342, 246 Fed.Appx. 7 (2d Cir.2007) (same). The one exception, Universal Reinsurance, specifically establishes its jurisdiction "pursuant to 9 U.S.C. § 16(a)(3), which authorizes review of `a final decision with respect to an arbitration....'" Universal Reinsurance Corp. v. Allstate Ins. Co., 16 F.3d 125, 126 (7th Cir.1994). Neither CMH Homes nor Perez has suggested that this appeal was anything other than interlocutory. Because the trial court did not enter a dismissal or otherwise dispose of all parties and claims, the order remains interlocutory and cannot be appealed under section 16(a)(3).[4] See In re Gulf Exploration, LLC, 289 S.W.3d 836, 839 (Tex.2009) ("[T]here can be an appeal if the underlying case is dismissed." (citing Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 86-87, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000))). Although we presume a court always evaluates its jurisdiction before deciding a matter, these cases do not indicate whether their jurisdictional basis was section 16, and if so, whether the basis was section 16(a)(3) for final orders.[5] The only federal circuit case that speaks directly to the jurisdictional issue is O.P.C. Farms Inc. v. Conopco Inc., which held that under section 16, the trial court's order appointing an arbitrator was not a final decision and was thus unappealable.[6] 154 F.3d 1047, 1048-49 (9th Cir. 1998). The court explained: "[T]he only basis for an appeal ... that could even be plausibly argued is § 16(a)(3). It is, however, clear that the appointment of the third arbitrator is not the final decision in this case.... Consequently § 16 effectively deprives us of jurisdiction." Id.

The appellate jurisdiction of Texas courts in this case is based on federal law. The court of appeals had jurisdiction to consider the trial court's order if "appeal... would be permitted by 9 U.S.C. Section 16" in federal court. TEX. CIV. PRAC. & REM.CODE § 51.016. Because there is no apparent federal approach to judicial review under section 16 of orders appointing arbitrators, we will not extrapolate jurisdiction from a dearth of federal authority to allow an interlocutory appeal where the law is unclear and section 16 suggests otherwise.

Before the enactment of section 51.016, we specifically invited the Legislature "`[i]n the interests of promoting the policy considerations of rigorous and expedited enforcement of arbitration agreements,... to consider amending the Texas Act to permit interlocutory appeals of orders issued pursuant to the Federal Act.'" See In re D. Wilson, 196 S.W.3d at 780 n. 4 (quoting Jack B. Anglin, 842 S.W.2d at 272). While we agree the Legislature added section 51.016 to prevent unnecessary parallel proceedings, this inconsistency generally arose when parties were unsure whether the TAA or the FAA applied to their agreement. See Jack B. Anglin, 842 S.W.2d at 272 ("[L]itigants who allege entitlement to arbitration under the Federal Act, and in the alternative, under the Texas Act, are burdened with the need to pursue parallel proceedings—an interlocutory appeal of the trial court's denial under the Texas Act, and a writ of mandamus from the denial under the Federal Act."). The Legislature in enacting section 51.016 has remedied this particular situation and enacted a policy change that promotes efficiency and common sense. See Sidley Austin Brown & Wood, LLP v. J.A. Green Dev. Corp., 327 S.W.3d 859, 862 (Tex.App.-Dallas 2010, no pet.); Ranchers & Farmers Mut. Ins. Co. v. Stahlecker, No. 09-10-00286-CV, 2010 WL 4354020, at *1 (Tex. App.-Beaumont Nov. 4, 2010, no pet.) (mem.op.); In re Rio Grande Xarin II, Ltd., Nos. 13-10-00115-CV, 13-10-00116-CV, 2010 WL 2697145, at *3-4 (Tex.App.-Corpus Christi-Edinburg July 6, 2010, pet. dism'd) (mem.op.); 950 Corbindale, L.P. v. Kotts Capital Holdings Ltd. P'ship, 316 S.W.3d 191, 195 n. 1 (Tex.App.-Houston [14th Dist.] 2010, no pet.).

Here, however, the issue is not which Act applies, but whether this particular type of order is appealable. Just as all interlocutory arbitration orders are not subject to appeal under the TAA, the Legislature in enacting section 51.016 did not intend to make all interlocutory orders under the FAA appealable, only those permitted by section 16 of the FAA.[7] Our interpretation does not promote parallel proceedings of arbitration orders under the TAA and FAA and does not frustrate 452*452 the Legislature's intent in enacting section 51.016.

The court of appeals below correctly determined it was without jurisdiction to hear an interlocutory appeal pursuant to section 51.016. The only remaining appellate option for the parties at this juncture is mandamus relief.

Contract-formation and Arbitrability under Delaware law [in Texas Court]

2012-05-01T22:00:00.001-07:00

The Federal Arbitration Act ("FAA") preempts state law that would otherwise render arbitration agreements unenforceable in a contract involving interstate commerce. 9 U.S.C. § 2 (West 2008); Southland Corp. v. Keating, 465 U.S. 1, 10-11, 104 S Ct. 852, 858, 79 L. Ed. 2d 1 (1984); In re Olshan Found. Repair Co., LLC, 328 S.W.3d 883, 888 (Tex. 2010).

The parties in this case do not dispute that the two Delaware LLC agreements involve interstate commerce.[9] Under the FAA, courts should apply ordinary state-law principles governing the formation of contracts when determining issues of substantive arbitrability. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct. 1920, 1924, 131 L. Ed. 2d 985 (1995). As noted, the two Delaware LLC agreements provide that they should be "construed and enforced in accordance with and governed by the laws of the State of Delaware." The arbitration clauses contained in those agreements specify that any actual arbitration is to be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("the AAA Rules"), but the arbitration agreements themselves are expressly governed by Delaware law.

The Delaware Supreme Court has confirmed that "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 78 (Del. 2006). A Delaware LLC is bound by the arbitration provisions of its own governance and operation agreement, even where the LLC did not itself execute the agreement. Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 287 (Del. 1999). Delaware arbitration law mirrors federal policy in presuming the validity of arbitration agreements and resolving doubts about the scope of arbitrable issues in favor of arbitration. See Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765 (1983) (explaining federal law and policy); Willie Gary 906 A.2d at 78 (explaining Delaware law).

The question of whether parties have agreed to arbitrate their disputes is to be decided by the court, unless there is clear and unmistakable evidence that the parties delegated that question to the arbitrator instead. First Options, 514 U.S. at 944-45, 115 S. Ct. at 1924. Federal law refers gateway matters such as (1) whether the parties are bound by a given arbitration clause and (2) whether a certain dispute is within the arbitration agreement to the court in order to "avoid the risk of forcing parties to arbitrate a matter they may well not have agreed to arbitrate." Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83-84, 123 S. Ct. 588, 591-92, 154 L. Ed. 2d 491 (2002).

The Delaware Supreme Court has adopted the majority federal view that a reference to the AAA Rules in an arbitration agreement serves as the type of clear and unmistakable evidence that the parties agreed to submit the question of the arbitrability of a particular dispute to the arbitrator. Willie Gary, 906 A.2d at 80. However, the court limited this interpretation to arbitration clauses that broadly refer all disputes to arbitration under the referenced rules. Id. Where an arbitration agreement specifically reserves carve-outs for judicial remedies, something more than reference to the AAA Rules is needed to establish that the parties intended to arbitrate the arbitrability of their dispute. Id. at 81.

Whether the court or the arbitrator decides the question of substantive arbitrability, Delaware law strongly favors arbitration. See Elf, 727 A.2d at 295. An arbitration clause, though, only covers claims that touch on the legal rights contained in the underlying contract or agreement within which the clause is found. See Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149, 159-60 (Del. 2002) (holding that a fiduciary duty claim was not covered by an arbitration provision in a stock underwriting agreement). Where an arbitration clause is broad in scope, courts will defer to it where a claim touches on any issues of contract rights or contract performance. Id. at 155.

STANDARD OF REVIEW

We review a trial court's grant of a motion to stay arbitration under an abuse-of-discretion standard. See McReynolds v. Elston, 222 S.W.3d 731, 739 (Tex. App.-Houston [14th Dist.] 2007, no pet.) (so holding on appeal of order denying motion to compel arbitration under TAA); see also Garcia v. Huerta, 340 S.W.3d 864, 868-69 (Tex. App.-San Antonio 2011, pet. filed) (so holding on appeal of order denying motion to compel arbitration under FAA); Sidley Austin Brown & Wood, LLP v. J.A. Green, 327 S.W.3d 859, 863 (Tex. App.-Dallas 2010, no pet.) (same); SEB, Inc. v. Campbell, No. 03-10-00375-CV, 2011 WL 749292, at *2 (Tex. App.-Austin Mar, 2, 2011, no pet.) (mem. op.) (same). Under this standard, we defer to the trial court's factual determinations if they are supported by evidence, but we review the trial court's legal determinations de novo. In re Labatt Food Service, L.P., 279 S.W.3d 640, 643 (Tex. 2009). Determining whether a claim falls within the scope of an arbitration agreement involves the trial court's legal interpretation of the agreement, and we review such interpretations de novo. McReynolds, 222 S.W.3d at 740.

SOURCE: HOUSTON COURT OF APPEALS - 14-11-00439-CV – 4/17/2012

Arbitration is a creature of contract – No arbitration without prior agreement to arbitrate

2012-05-01T20:16:00.000-07:00

State contract law governs arbitration agreements.

The Federal Arbitration Act (FAA)

The FAA provides, in relevant part:

A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

See 9 U.S.C. § 2 (West 2009); Rent-A-Center, West, Inc. v. Jackson, ___ U.S. ___, 130 S.Ct. 2772, 2776, 177 L.Ed.2d 403 (2010), quoting Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). The above provision has been described as reflecting both a "liberal federal policy favoring arbitration," and the "fundamental principle that arbitration is a matter of contract." See AT&T Mobility LLC v. Conception, ___ U.S. ___,131 S.Ct. 1740, 1745, 179 L.Ed.2d 742 (2011) citing Moses H. Cone Memorial Hospital, 460 U.S. at 24, 103 S.Ct. at 927 and Rent-A-Center, ___ U.S. at ___, 130 S.Ct. at 2776. "The FAA thereby places arbitration agreements on an equal footing with other contracts, and requires courts to enforce them according to their terms." Rent-A-Center, ___ U.S. ___, 130 S.Ct. 2776 (internal citations omitted); citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) and Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989).

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. As such, a party cannot be required to submit to arbitration any dispute which she has not agreed to submit. See AT&T Mobility LLC, 131 S.Ct. at 1740 ( (arbitration is a creature of contract; a person can be compelled to arbitrate a dispute only if, to the extent that, and in the manner which, he has agreed so to do). Because arbitration is based on a contractual relationship, a party who has not consented cannot not be forced to arbitrate a dispute. Since arbitration is generally a matter of contract, the FAA requires courts to honor parties' expectations. 9 U.S.C.A. § 1 et seq.; AT&T Mobility LLC, 131 S.Ct. at 1740.

Texas Law — Formation of Contracts

When determining the validity of arbitration agreements that are subject to the FAA, we apply ordinary state law contract principles that govern the formation of contracts. In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 676 (Tex. 2006), citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738 (Tex. 2005). The party attempting to compel arbitration must show that the arbitration agreement meets all requisite contract elements. J.M. Davidson, Inc., 128 S.W.3d at 228.

The following elements are required for the formation of a valid and binding contract: (1) an offer; (2) acceptance in strict compliance with the terms of the offer; (3) a meeting of the minds; (4) each party's consent to the term; and (5) execution and delivery of the contract with the intent that it be mutual and binding. Cessna Aircraft Co. v. Aircraft Network, L.L.C., 213 S.W.3d 455, 465 (Tex.App.-Dallas 2006, pet. denied). Like other contracts, an agreement to arbitrate must be supported by consideration. In re Palm Harbor Homes, Inc., 195 S.W.3d at 676; In re AdvancePCS Health L.P., 172 S.W.3d 603, 607 (Tex. 2005)(per curiam).

Mutual Promises and Consideration

Mutual, reciprocal promises which bind both parties may constitute consideration for a contract. Texas Custom Pools, Inc. v. Clayton, 293 S.W.3d 299, 309 (Tex.App.-El Paso 2009, no pet.). In the case of a stand-alone arbitration agreement, both sides are required to enter into binding promises to arbitrate. In re AdvancePCS, 172 S.W.3d at 607; see also In re 24R, Inc., 324 S.W.3d 564, 566 (Tex. 2010)(mutual promises to submit a dispute to arbitration are sufficient consideration to support an arbitration agreement); see also In re Halliburton Co., 80 S.W.3d at 569-70 and J.M. Davidson, Inc., 128 S.W.3d at 228 (cases noting that when mutual promises to submit employment disputes to arbitration bind both parties to their promises to arbitrate, sufficient consideration exists to support an arbitration agreement between the employer and the at-will employee.)

Illusory Promises

A promise which does not bind the promisor, as when the promisor retains the option to discontinue performance, is illusory. In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010), citing Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 849 (Tex. 2009); see also J.M. Davidson, Inc., 128 S.W.3d at 228; Light v. Centel Cellular Co., 883 S.W.2d 642, 645 (Tex. 1994)(employer's promises were illusory because they were dependent upon at-will employee's period of continued employment; thus, employer could avoid performance by terminating at-will employee's employment while the employee was bound to her promise whether or not she remained employed). Consequently, when a purported bilateral contract is supported only by illusory promises, there is no contract. In re 24R, Inc., 324 S.W.3d at 567, citing Vanegas v. American Energy Services, 302 S.W.3d 299, 302 (Tex. 2009), quoting Light, 883 S.W.2d at 644-45.

However, where an employer cannot avoid its promise to arbitrate by amending a termination provision or terminating it altogether, the dispute resolution plan is not illusory. See J.M. Davidson, Inc., 128 S.W.3d at 228; In re Polymerica, LLC, 296 S.W.3d 74, 76 (Tex. 2009); see also In re Halliburton Co., 80 S.W.3d at 569-70 (when mutual promises to submit employment disputes to arbitration bind both parties to their promises to arbitrate, sufficient consideration exists to support an arbitration agreement between the employer and the at-will employee.)

SOURCE: EL PASO COURT OF APPEALS - 08-11-00091-CV – 4/25/2012

Who decides the gateway issues? Court of Arbitrator?

2012-05-01T15:55:00.000-07:00

Generally the Court resolves the treshhold issue of arbitrability, but the underlying agreement may allocate that function to the arbitrator or panel of arbitrators, as demonstrated by the following caselaw snippet from a recent opinion by the El Paso Court of Appeals:

Court Or Arbitrator?

When a dispute involving an agreement to arbitrate is brought to a court for resolution, it is the court's obligation to determine whether the parties agreed to submit a particular issue to arbitration. See United Steelworkers of America v. American Mfg. Co., 363 U.S. 564, 80 S.Ct. 1343, 4 L.Ed.2d 1403 (1960); Del E. Webb Const. v. Richardson Hosp. Authority, 823 F.2d 145 (5th Cir. 1987).

An arbitration provision may give the arbitrator the power to resolve gateway issues regarding validity and enforceability of the arbitration agreement. In that event, the entire matter of arbitrability is transferred from the courts to the arbitrator. Unless the agreement clearly demonstrates that the parties intended to confer on the arbitrator the power to determine what disputes are arbitrable, the court retains the duty to decide that issue. Arbitration agreements that clearly and unmistakably show intent to assign gateway issues to the arbitrator are fully enforceable. See Rent-A-Center, ___ U.S. ___, 130 S.Ct. at 2777; First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1985)(holding question of primary power to decide arbitrability "turns upon what the parties agreed about that matter"); AT&T Technologies, Inc. v. Communications. Workers, 475 U.S. 643, 649, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986)(holding parties may agree to arbitrate arbitrability). Accordingly, under First Options, gateway questions which are normally decided by a court will be submitted to an arbitrator where the agreement was clear and unmistakable. See First Options, 514 U.S. at 943; AT&T Technologies, Inc., 475 U.S. at 649, 106 S.Ct. at 1418.

SOURCE: EL PASO COURT OF APPEALS - 08-11-00091-CV – 4/25/2012

CASE: HIS Acquisition No. 131 v. Iturralde (Tex.App.- El Paso [8^th Dist.] April 25, 2012)

Here, the Agreement provided that "any and all claims challenging the validity or enforceability of this Agreement . . ." are subject to arbitration. It thus clearly and unmistakably provided for issues of validity and enforceability to go to the arbitrator. Iturralde argues that whether the contract is supported by adequate consideration is not an issue of validity or enforceability but rather an issue of formation for the court to decide. We disagree. The Agreement bears Iturralde's signature evidencing her assent to its terms and clearly provides for an arbitrator to decide all issues of arbitrability.

In Rent-A-Center, the Supreme Court clarified how courts must treat challenges to an arbitration agreement's delegation provision. See Rent-A-Center, ___ U.S. ___, 130 S.Ct. 2772.

The Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable.

Id. at 2775-76. According to the Supreme Court, the analysis in situations challenging a stand-alone arbitration agreement containing a delegation provision depends on the kind of challenge being made. Id. If the challenge relates to the arbitration agreement as a whole, and the agreement contains a provision delegating issues of arbitrability to the arbitrator, then the challenge must be directed to arbitration. Id. If the challenge is specific to the issue of delegation, however, then the court must resolve the challenge. Id.

The Agreement presented clearly and unmistakably provides that issues of validity and enforceability go to the arbitrator. Iturralde signed the Agreement, manifesting her intent that gateway issues be arbitrated. Additionally, Iturralde challenges the entire arbitration agreement based on the assertion that the term provision renders the Agreement illusory. Under Rent-A-Center, because there is a specific delegation provision, and Iturralde challenges the Agreement as a whole, rather than the specific delegation provision, the issue goes to the arbitrator. Therefore, the determination of whether the agreement is illusory is for the arbitrator and not the court.

SOURCE: EL PASO COURT OF APPEALS - 08-11-00091-CV – 4/25/2012

Hearing examiner did not exceed his powers in upholding indefinite suspension in firefighter's disciplinary appeal, San Antonio Court of Appeals rules

2012-04-24T23:16:00.001-07:00

Mata v. City of San Antonio (Tex.App.- San Antonio [4th Dist.] April 18, 2012)

MEMORANDUM OPINION BY JUSTICE REBECCA SIMMONS

Appellant ["FIREFIGHTER" substituted for name] appealed the termination of his employment with the San Antonio Fire Department to a hearing examiner, who upheld the termination. FIREFIGHTER then appealed the hearing examiner's decision to district court, where the court denied his motion for summary judgment and granted summary judgment in favor of appellees City of San Antonio and San Antonio Firefighters' and Police Officers' Civil Service Commission (collectively the City). On appeal, FIREFIGHTER contends the trial court erred because the hearing examiner's decision was capricious and not supported by substantial evidence, or alternatively, that the hearing examiner exceeded his jurisdiction. We affirm the trial court's judgment.

BACKGROUND

On November 19, 2007, FIREFIGHTER, a San Antonio fire fighter, tested positive for cocaine use. The drug test was administered according to the terms of a collective bargaining agreement (CBA) between the City and the San Antonio fire fighters' bargaining agent, International Association of Firefighters, Local 624. The CBA allowed the City to randomly drug test each fire fighter once in a twelve-month period. Based on the positive results of FIREFIGHTER's drug test, San Antonio Fire Chief Charles Hood issued FIREFIGHTER a notice of proposed indefinite suspension. A meeting regarding FIREFIGHTER's discipline was scheduled for April 1, 2008. Local 624's Grievance Committee Chairperson Carlos Cordell accompanied FIREFIGHTER to the April 1st meeting in an effort to seek a lesser disciplinary penalty than employment termination. FIREFIGHTER, Chief Hood, and one witness signed the notice of indefinite suspension, Cordell did not. FIREFIGHTER's employment was thereby terminated,[1] and FIREFIGHTER did not appeal that decision.

However, after the suspension was signed, FIREFIGHTER, Cordell, Chief Hood, and several other attendees at the meeting discussed and reviewed the terms and conditions of a "Release and Settlement Agreement," or "last chance agreement," that would reinstate FIREFIGHTER as a fire fighter. This agreement permitted FIREFIGHTER to return to work conditioned on his execution of the agreement, his consent to submit to non-random drug testing, and his completion of a drug rehabilitation program. Cordell and FIREFIGHTER asked for a few changes in the terms of the agreement, which the City made. Notably, Cordell and FIREFIGHTER did not seek to change the non-random drug tests required by the last chance agreement. At the time, neither FIREFIGHTER nor Cordell questioned the legality of nor argued that the last chance agreement violated the terms of the CBA. FIREFIGHTER, Chief Hood, and one witness signed the last chance agreement, Cordell did not.

Later, following completion of a drug rehabilitation program, FIREFIGHTER again tested positive for cocaine use. The non-random drug test was conducted according to the terms of the last chance agreement. FIREFIGHTER was indefinitely suspended and his employment was terminated. FIREFIGHTER appealed the suspension to an independent third-party hearing examiner and contended the last chance agreement was unenforceable and void because the CBA did not permit non-random drug testing. FIREFIGHTER did not contest the accuracy of the drug test, nor did he assert that he did not use cocaine. The hearing examiner upheld FIREFIGHTER's termination.

FIREFIGHTER appealed the decision to the trial court and filed a motion for summary judgment claiming the hearing examiner acted arbitrarily and capriciously or exceeded his jurisdiction in upholding FIREFIGHTER's termination. The City responded with a motion for summary judgment contending (1) FIREFIGHTER is estopped from denying enforcement of the last chance agreement, (2) the hearing examiner neither exceeded his authority nor acted capriciously in upholding FIREFIGHTER's termination, and the examiner's decision should be confirmed as a matter of law, and (3) alternatively, if the court determined the random drug testing provision of the last chance agreement void, the agreement should be rescinded in its entirety and FIREFIGHTER's original termination upheld. The City also sought (1) a declaration that the last chance agreement was valid and enforceable, (2) a judgment confirming the hearing examiner's award, and (3) attorney's fees. The trial court granted summary judgment in favor of the City without stating the grounds upon which it was granted. FIREFIGHTER appeals the trial court's summary judgment.

STANDARD OF REVIEW

We review a summary judgment de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). "When both parties move for partial summary judgment on the same issues and the trial court grants one motion and denies the other, as here, the reviewing court considers the summary judgment evidence presented by both sides, determines all questions presented, and if the reviewing court determines that the trial court erred, renders the judgment the trial court should have rendered." Id.

In this case the parties agree on the underlying facts. They disagree on the enforceability of the last chance agreement and the interpretation of the CBA. Specifically, they disagree on the standard to employ in reviewing the hearing examiner's decision.

THIRD-PARTY HEARING EXAMINERS

The threshold issue on appeal is the determination of the applicable standard of review of the hearing examiner's decision. FIREFIGHTER contends the trial court should have reviewed the hearing examiner's decision under either a "substantial evidence or capricious" standard. The City argues review is severely restricted to whether the hearing examiner had jurisdiction to make his decision or exceeded his jurisdiction in making his decision.

A. Standard of Review of a Hearing Examiner's Decision

The statutory framework of the Fire Fighters and Police Officers Civil Service Act (the Act) establishes a process for fire fighters challenging disciplinary suspensions. See TEX. LOC. GOV'T CODE ANN. §§ 143.001-.363 (West 2008 & Supp. 2012); City of Houston v. Williams, 99 S.W.3d 709, 713 (Tex. App.-Houston [14th Dist.] 2003, no pet.). Under this scheme, a fire fighter can elect to have his suspension reviewed by a hearing examiner or the Civil Service Commission. See TEX. LOC. GOV'T CODE ANN. §§ 143.010, 143.053, 143.057; City of DeSoto v. White, 288 S.W.3d 389, 392 (Tex. 2009). A hearing examiner's decision is ordinarily reviewable "only on the grounds that the arbitration panel was without jurisdiction or exceeded its jurisdiction or that the order was procured by fraud, collusion, or other unlawful means." See TEX. LOC. GOV'T CODE ANN. § 143.057(j); City of Pasadena v. Smith, 292 S.W.3d 14, 17 (Tex. 2009). However, the Act provides that a "collective bargaining contract [that] specifically provides otherwise" prevails over a "civil service provision." See TEX. LOC. GOV'T CODE ANN. § 174.006(a); City of San Antonio v. Scott, 16 S.W.3d 372, 376 (Tex. App.-San Antonio 1999, pet. denied).

B. The Standard Provided in Section 143.057 Governs this Dispute

FIREFIGHTER argues the CBA specifically provides for a substantial evidence or capricious standard of review and therefore this standard prevails over the standard set forth in section 143.057(j) of the Local Government Code. The City responds that the substantial evidence or capricious review is limited to the grievance process outlined in the CBA, and that disciplinary proceedings are specifically excluded from that process. To determine the proper standard of review of the hearing examiner's decision we must review the CBA. "The construction of an unambiguous contract is a question of law for the court, which we may consider under a de novo standard of review." Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011); accord Coker v. Coker, 650 S.W.2d 391, 393-94 (Tex. 1983).

Article 30 (Grievance Procedure) of the CBA prescribes a grievance procedure for disputes between the City and Local 624 or one of its fire fighters. Section (1)(D) of Article 30 contains an exception from the grievance procedure for certain disciplinary matters that are subject to the Local Government Code:

Disciplinary matters subject to the appeals procedure provided by Texas Local Government Code Chapter 143 shall not be subject to the grievance/arbitration procedure; provided that such matters, at the employee's election, will be subject to the Civil Service Commission or grievance/arbitration procedure under a just-cause standard, if Texas Local Government Code Section 143.057 is repealed or amended to eliminate the optional appeal of disciplinary matters to a Hearing Examiner. If the provisions of Chapter 143 are not repealed, and should the employee elect to proceed to the optional appeal of disciplinary matters to a Hearing Examiner, the examiner shall be one of the six (6) pre-selected, qualified neutrals as called for in Section 5(A) hereof. The powers, duties, and/or obligations of said arbitrator/hearing examiner shall likewise be as provided for in this Agreement and applicable provisions of the Texas Local Government Code, Chapter 143.

FIREFIGHTER argues that the terms "arbitrator" and "hearing examiner" are used interchangeably and that Article 31 of the CBA provides the standard of review for the hearing examiner's award:

If, at any time after a decision and/or award of the Civil Service Commission and/or an arbitrator, any affected party contests or challenges the decision or award in any other legal proceeding, the following shall apply:

. . . The decision and award of the arbitrator and/or the Commission must be upheld, unless the contesting party can establish the award was not supported in whole or in part by substantial evidence and/or that the award of the arbitrator and/or the Commission was capricious.

We do not agree with FIREFIGHTER's interpretation of the CBA and its interaction with the Local Government Code. The CBA is unambiguous. See Coker, 650 S.W.2d at 393 (holding language that can be given certain or definite legal meaning is unambiguous). By its very terms Article 31 provides the standard of review for the decision and award solely for arbitrators and the Civil Service Commission. It is silent as to hearing examiners. If the employee elects to appeal a suspension to a hearing examiner, Article 30(1)(D) of the CBA specifically subjects such disciplinary procedures to the provisions of Local Government Code section 143.057. Contrary to FIREFIGHTER's interpretation, Article 30(1)(D) of the CBA clearly distinguishes between a hearing examiner and an arbitrator under the grievance procedures. Article 30 contains a number of sections setting forth the procedures to be followed in a grievance proceeding including the submission of unresolved grievances to arbitration before an arbitrator. Article 30 section 5 clearly recognizes the difference between a "grievance . . . submitted to arbitration" and an "employee appeal to a Hearing Examiner." We presume these distinctions were intentional. See Ogden v. Dickinson State Bank, 662 S.W.2d 330, 332 (Tex. 1983) ("Generally, the parties to a contract intend every clause to have some effect. . . ."); accord Birnbaum v. Swepi LP, 48 S.W.3d 254, 257 (Tex. App.-San Antonio 2001, pet. denied). It is undisputed that (1) FIREFIGHTER's termination was subject to a disciplinary procedure, and (2) FIREFIGHTER elected to have his suspension reviewed by a hearing examiner. Therefore, FIREFIGHTER is subject to the standard of review set forth in Local Government Code section 143.057(j).

C. Did the Hearing Examiner Exceed His Jurisdiction?

If a fire fighter appeals his termination to a hearing examiner, "his ability to seek further review in a district court is severely limited." See City of DeSoto v. White, 288 S.W.3d 389, 391 (Tex. 2009). It is undisputed that the hearing examiner had jurisdiction to hear FIREFIGHTER's appeal; moreover, FIREFIGHTER makes no allegation that the hearing examiner's decision was procured by fraud, collusion, or other unlawful means. See TEX. LOC. GOV'T CODE ANN. § 143.057(j). Thus, the issue in this case is whether the hearing examiner exceeded his authority by enforcing the last chance agreement. See id. The supreme court has provided the following test to guide our inquiry: "[A] hearing examiner exceeds his jurisdiction when his acts are not authorized by the Act or are contrary to it, or when they invade the policy-setting realm protected by the nondelegation doctrine." City of Waco v. Kelley, 309 S.W.3d 536, 542 (Tex. 2010) (quoting City of Pasadena v. Smith, 292 S.W.3d 14, 21 (Tex. 2009)). FIREFIGHTER makes no argument that the hearing examiner's acts violated the nondelegation doctrine; therefore, we will address whether the hearing examiner's acts were not authorized by the Act or whether they were contrary to the Act. See Kelley, 309 S.W.3d at 542.

1. The Hearing Examiner's Decision Was Authorized by the Act

The hearing examiner's decision to uphold the indefinite suspension of FIREFIGHTER's employment was authorized by section 143.052 of the Act, which provides that the head of a fire department "may suspend a fire fighter . . . for the violation of a civil service rule." See TEX. LOC. GOV'T CODE ANN. § 143.052(b). A commission rule allowing for removal or suspension is valid if the ground for removal is a "violation of an applicable fire or police department rule." Id. § 143.051(12). The applicable rule in this case is San Antonio Fire Fighters' and Police Officers' Civil Service Commission Rule XIII(C)(12)(4.09) which states, "The use, possession, sale or acceptance of illegal drugs or narcotics by Members of the San Antonio Fire Department either on or off duty is prohibited."

FIREFIGHTER has not contested his cocaine use, nor has he challenged the reliability or accuracy of the drug tests that indicated his cocaine use. Thus, FIREFIGHTER violated the Fire Department's rules and the hearing examiner did not exceed his authority under the Act to uphold the suspension. See TEX. LOC. GOV'T CODE ANN. § 143.051(12), 143.052(b).

2. The Hearing Examiner's Decision Was Not Contrary to the Act

FIREFIGHTER contends that because the last chance agreement altered the CBA, the hearing examiner's decision violated the Act's "exclusive bargaining" requirement that only the Union could bargain on FIREFIGHTER's behalf. The Act provides, "fire fighters . . . are entitled to organize and bargain collectively with their public employer," id. § 174.023, and "[a] public employer shall recognize an association selected by a majority of the fire fighters of the fire department of a political subdivision as the exclusive bargaining agent for the fire fighters of that department unless a majority of the fire fighters withdraw the recognition," id. § 174.101.

Article 9 of the CBA, entitled "Maintenance of Standards," states that "[a]ll standards, privileges, and working conditions enjoyed by the City of San Antonio Fire Fighters at the effective date of this Agreement, which are not included in this Agreement shall remain unchanged for the duration of this Agreement." The hearing examiner found that "[t]he record indicates there is a history of settlement agreements in the San Antonio Fire Department." FIREFIGHTER does not dispute this history. Based on the examiner's findings and the plain language of the CBA, fire fighters had the privilege or work condition of entering into last chance agreements prior to the effective date of the CBA. Accordingly, the record shows that the execution of a last chance agreement was not contrary to the CBA. Thus, the hearing examiner's decision to uphold the suspension was not contrary to the "exclusive bargaining" provisions in the Code. See generally TEX. LOC. GOV'T CODE ANN. § 174.023-.109 (West 2008 & Supp. 2012).

In addition, the hearing examiner noted FIREFIGHTER's failure to challenge his first indefinite suspension:

Had Mr. FIREFIGHTER believed that the indefinite suspension issued to him for his first offense (April 1, 2008) was improper, the appropriate means of challenging the discipline was to file an appeal. The appeal of a subsequent disciplinary action (November 2008), is not the proper step, means, or forum for questioning the prior disciplinary action.

There is no evidence in the record that FIREFIGHTER appealed his first indefinite suspension. See TEX. LOC. GOV'T CODE ANN. § 143.052(d) (requiring a suspended fire fighter to appeal his suspension within ten days). See generally TEX. LOC. GOV'T CODE ANN. §§ 143.001-.363 (West 2008) (providing procedures to fire fighters for appealing disciplinary actions); City of Houston v. Williams, 99 S.W.3d 709, 713 (Tex. App.-Houston [14th Dist.] 2003, no pet.). After his first indefinite suspension, FIREFIGHTER was reinstated contingent upon his execution of the last chance agreement. In his appeal of his second indefinite suspension, FIREFIGHTER asked the hearing examiner for reinstatement because the last chance agreement was void. If the last chance agreement is void, then FIREFIGHTER's first indefinite suspension remains in place.[2] Thus, under the facts available to the hearing examiner, he could not have reinstated FIREFIGHTER. Cf. City of Pasadena v. Smith, 292 S.W.3d 14, 20 (Tex. 2009) ("[T]he Act does not empower a hearing examiner to make rules."). The Act's ten-day period to appeal a suspension would bar FIREFIGHTER's untimely appeal from the original indefinite suspension. See TEX. LOC. GOV'T CODE ANN. § 143.052(d); see also City of Temple Firemen's & Policemen's Civil Serv. Comm'n v. Bender, 787 S.W.2d 951, 951 (Tex. 1990) (per curium) ("We hold that a civil service commission's jurisdiction is not invoked unless a fire fighter or police officer files a notice of appeal with the commission within ten days after the occurrence of the action being appealed. . . ."); Downs v. City of Fort Worth, 692 S.W.2d 209, 212 (Tex. App.-Fort Worth 1985, writ ref'd n.r.e.) (citing the precursor statutes to sections 143.052, 143.053, and 143.057, and holding that compliance with the ten-day timeframe is mandatory).

CONCLUSION

For the reasons given above, we hold that the hearing examiner did not exceed his jurisdiction by upholding FIREFIGHTER's employment termination. Therefore, we affirm the trial court's summary judgment.

[1] "An indefinite suspension is equivalent to dismissal from the department." TEX. LOC. GOV'T CODE ANN. § 143.052(b) (West 2008).
[2] Cf. Summers v. Keebler Co., 133 Fed. App'x 249, 252 (6th Cir. 2005) ("For even if the last chance agreement were construed to violate the collective bargaining agreement, such a violation did not cause the Plaintiff's injury. The Plaintiff alleges she was injured by being discharged from her job. Without signing the last chance agreement in the first place after she had passed out on the job due to intoxication, she would have been justifiably terminated. Her signing of the last chance agreement saved her from being terminated.").

Thwarted demand to arbitrate employment dispute did not extend the statute of limitations for lawsuit

2012-04-18T20:33:00.001-07:00

Time employee’s claim against former employer spent in arbitration (which did not go forward because of employer’s refusal to pay the required fees) not added to limitations period under equitable tolling theory. Fifth Circuit affirms district court’s summary judgment based on four-year statute of limitations in opinion that is not precedent, but nevertheless instructive.

Fonseca v. USG Insurance Services, Inc. No 11-11063 (5^th Cir., Apr. 13, 2012) (per curiam)

From July 2001 until August 2006, Plaintiff-Appellant Victoria Fonseca worked for USG Insurance Services, Inc. ("USG") as the branch manager of USG's Arlington, Texas branch. Throughout Fonseca's employment, Gerald W. Horton served as USG's President. In November 2005, Horton offered Fonseca the opportunity to enter into a deferred compensation agreement ("DCA"). Subsequently, on August 29, 2006, USG fired Fonseca. Shortly thereafter, on September 8, 2006, Fonseca learned that USG did not intend to pay her under the DCA because USG had never received a signed acceptance.

On May 7, [2006], Fonseca filed an arbitration demand with the American Arbitration Association ("AAA"). On July 16, 2006, the AAA declined to serve as a arbitrator because USG failed to pay the required arbitration fees for this type of dispute. Fonseca then filed a suit on October 13, 2010 in Texas state court alleging fraud and breach of contract against Defendant-Appellees USG and Universal Specialty Underwriters, Inc. (collectively "the Defendants"). Defendants removed to district court on the basis of diversity. On summary judgment, the district court held that Fonseca's suit was time-barred based on Texas's four-year statute of limitations for these claims. Tex. Civ. Prac. & Rem. Code § 16.004 (fraud); id. at § 16.051 (breach of contract).

We review a district court's decision refusing to exercise its equitable tolling powers for abuse of discretion. Granger v. Aaron's, Inc., 636 F.3d 708, 712 (5th Cir. 2011). The doctrine of equitable tolling "preserves a plaintiff's claim when strict application of the statue of limitations would be inequitable." United States v. Patterson, 211 F.3d 927, 930 (5th Cir. 2000). It principally applies when the "plaintiff is actively misled by the defendant . . . or is prevented in some extraordinary way from exerting his rights." Id. Fonseca admits that under Texas's four-year statute of limitations, her claims expired on September 8, 2010 but contends that the statute of limitations should have been tolled during the period that the AAA considered her arbitration demand.

We have previously stated, albeit in dicta, that a "demand for arbitration does not toll the statute of limitations." United States ex rel. Portland Const. Co. v. Weiss Pollution Control Corp., 532 F.2d 1009, 1013 (5th Cir. 1976). In Portland Construction, we held that a claimant who demanded arbitration is not required to wait until the outcome of the arbitration to file a lawsuit. Id. In this case, Fonseca could have (and should have) filed her suit within the statute of limitations and, thereafter, sought a stay of the action pending arbitration. See id. Such a course would have guaranteed that the lawsuit was brought within the limitations period without waiving any right to arbitration which may have existed. Moreover, Fonseca has shown no evidence that she was misled by defendants or that she was prevented from pursuing her cause in any way. In fact, the record reveals that Fonseca had ample time both before and after the AAA's refusal to arbitrate her case in which to file her lawsuit, yet she took none of the steps "recognized as important by the statute before the end of the limitations period." Granger, 636 F.3d at 712. Therefore, in light of our decision in Portland Construction and the facts of this case, we cannot say that the district court abused its discretion when it declined to equitably toll the statute of limitations.

AFFIRMED.

[*] Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

"Gross mistake" challenge to arbitration award under TAA rejected in appeal from confirmation order

2012-04-16T22:57:00.003-07:00

A few years ago the U.S. Supreme Court held that the statutory grounds provided in sections 10 and 11 of the Federal Arbitration Act (FAA) for vacating, modifying, or correcting an arbitration award are the exclusive grounds for vacature of an arbitration award. Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 584, 128 S. Ct. 1396, 1403 (2008). The Texas Supreme Court, by contrast, has yet to decide whether common law grounds for attacking an arbitration award under the Texas Arbitration Act (TAA) are viable. See E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 270 n.7 (Tex. 2010) ("We express no opinion on this issue [of whether an arbitration under the TAA can be set aside on common law grounds.]." In a case decided last week, the First Court of Appeals in Houston entertained a challenge on the basis of “gross mistake”, and rejected it on the merits. The appellate panel, which upon rehearing had shrunk from three to two, also rejected other common-law grounds for vacature in an opinion written by Chief Justice Radack. Justice Elsa Alcala, a member of the original panel, was no longer on the Houston Court to revisit the issues on motion for re-hearing due to her elevation to the Texas Court of Criminal Appeals by gubernatorial appointment.

Ouzenne v. Haynes, No. 01-10-00112-CV (Tex.App.- Houston [1^st Dist] April 12, 2012)(substituted opinion following motion for rehearing, which was denied)

MEMORANDUM OPINION

SHERRY RADACK, Chief Justice.

We deny appellant's motion for rehearing; however, we withdraw this Court's opinion of May 12, 2001, and issue this opinion in its stead. Our judgment of May 12, 2011 remains unchanged.

This is an appeal from an order confirming an arbitration award in favor of appellee, Carnell Haynes, on his claims against appellant, Paul Ouzenne, arising out of a construction contract. In seven issues on appeal, Ouzenne contends the trial court erred in confirming the award because the arbitrator (1) made a "gross mistake," (2) exceeded his powers, and (3) violated public policy and the law. We affirm.

BACKGROUND

According to his petition, Haynes approached Ouzenne about the possibility of Ouzenne building a four-plex apartment structure on Haynes's property. In December 2006, Haynes and Ouzenne signed a construction contract for the proposed four-plex. Unable to obtain financing for the project himself, Haynes alleged that Ouzenne told him that he would obtain the financing for Haynes. Thereafter, Haynes alleged that Ouzenne had him sign a contract of sale for the property from Haynes to Ouzenne. Haynes did so because he believed that it was necessary to obtain financing for the building project, but he did not realize that he would be transferring title to the property to Ouzenne. Thereafter, Ouzenne gave Haynes notice that he intended to evict Haynes from the property.

In response, Haynes sued Ouzenne in 2007, asserting common-law fraud, statutory fraud, breach of fiduciary duty, promissory estoppel, and violations of the Texas Deceptive Trade Practices Act. Ouzenne filed a motion to compel arbitration, which the trial court granted.

After an arbitration before C. Johnson at the Dispute Resolution Center of Harris County, the arbitrator issued an award in Haynes's favor for $136,410.60, plus pre and post-judgment interest. Haynes moved to enter judgment based on the arbitrator's award, and Ouzenne moved to vacate the arbitrator's award. On December 15, 2009, the trial court granted Haynes's motion, denied Ouzenne's motion, and entered a judgment confirming the arbitrator's award. After the trial court denied Ouzenne's motion for new trial, this appeal followed.

CONFIRMATION OF ARBITRATION

Standard of Review

Review of a trial court's decision as to vacatur or confirmation of an arbitration award is de novo and an appellate court reviews the entire record. In re Chestnut Energy Partners, Inc., 300 S.W.3d 386, 397 (Tex. App.-Dallas 2009, pet. denied); see also Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 567-68 (Tex. App.-Dallas 2008, no pet.) (discussing standard of review for confirmation of award). Because Texas law favors arbitration, however, our review is "extremely narrow." See Hisaw & Assocs. Gen. Contractors, Inc. v. Cornerstone Concrete Sys., Inc., 115 S.W.3d 16, 18 (Tex. App.-Fort Worth 2003, pet. denied); IPCO-G. & C. Joint Venture v. A.B. Chance Co., 65 S.W.3d 252, 256 (Tex. App.-Houston [1st Dist.] 2001, pet. denied). An arbitration award has the same effect as a judgment of a court of last resort; accordingly, all reasonable presumptions are indulged in favor of the award and the award is conclusive on the parties as to all matters of fact and law. CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). Review of an arbitration award is so limited that even a mistake of fact or law by the arbitrator in the application of substantive law is not a proper ground for vacating an award. Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.-Dallas 2004, pet. denied). Here, the parties agree that the Texas Arbitration Act governs their case. See TEX. CIV. PRAC. & REM. CODE ANN. §§ 171.001-.098 (Vernon 2001).

Gross Mistake

In issues one, two, four, and seven, appellant contends the trial court erred in failing to vacate the arbitration award because the arbitrator committed a "gross mistake"[1] by (1) entering an award that relied on tax appraisals for determining fair market value (issues one and two), (2) failing to consider evidence that Haynes was aware and fully intended to sell his property to Ouzenne (issue four), and (3) failing to properly apply the parol evidence rule (issue seven).

Gross mistake is a Texas state common law standard that has been used to attack arbitration awards. Callahan & Assocs. v. Orangefield Indep. Sch. Dist., 92 S.W.3d 841, 844 (Tex. 2002). A "gross mistake" is a mistake by the arbitrator that implies bad faith or failure to exercise honest judgment. Anzilotti v. Gene D. Liggin, Inc., 899 S.W.2d 264, 266 (Tex. App.-Houston [14th Dist.] 1995, no writ) (quoting Carpenter v. N. River Ins. Co., 436 S.W.2d 549, 551 (Tex. App.-Houston [14th Dist.] 1968, writ ref'd n.r.e.)). Ouzenne argues that relying on the tax rolls to determine value was a gross mistake because tax rolls are no evidence of actual value. In support, Ouzenne relies on Housing Auth. of Dallas v. Brown, 256 S.W.2d 656, 659 (Tex. Civ. App.-Dallas 1953, no writ), which held that error, if any, in refusing to admit evidence of tax value was harmless because "tax rolls do not reflect actual value," but an "approximate percentage of actual value." Id. Brown, however, does not state that the value as reflected on the tax rolls is of no probative value.

Ouzenne also relies on In re Marriage of Scott, 117, S.W.3d 580, 585 (Tex. App.-Amarillo 2003, no pet.), which we also find distinguishable. In Scott, the wife in a divorce case presented evidence that the marital home was valued at $35,610. Id. at 583. She reached this value by relying on the tax appraisal from Hutchison County Appraisal District. Id. at 585. The court of appeals held this evidence of value was factually insufficient because the tax appraisal was over three years old on the date of trial and two experts, including the wife's own expert, valued the property at much more. Id. Scott, however, does not stand for the proposition that tax appraisals are no evidence, i.e., legally insufficient evidence, of fair market value.[2]

Thus, we conclude that the arbitrator's reliance on tax rolls to determine value does not rise to a level that implies the bad faith or failure to exercise honest judgment required to show gross mistake.

Ouzenne also argues that the arbitrator committed gross mistake by disregarding testimony indicating that Haynes knew that he was selling the property to Ouzenne. However, contentions that an arbitrator disregarded even uncontroverted testimony may show a mistake of fact or law, but do not rise to the level of gross mistake. See Graham-Rutledge & Co. v. Nadia Corp., 281 S.W.3d 683, 689 (Tex. App.-Dallas 2009, no pet.). Furthermore, as fact-finder, the arbitrator could judge the credibility of the witnesses and choose who to believe or disbelieve. See Xtria L.L.C. v. Intern. Ins. Alliance, Inc., 286 S.W.3d 583, 597 (Tex. App.-Texarkana 2009, pet. denied).

Thus, we conclude that the arbitrator's decision to believe Haynes's evidence over Ouzenne's, even if erroneous, does not rise to a level that implies the bad faith or failure to exercise honest judgment required to show gross mistake.

Finally, Ouzenne contends that the arbitrator committed a "gross mistake" by failing to properly apply the parol evidence rule. The arbitrator's evidentiary ruling, even if erroneous, does not rise to a level that implies the bad faith or failure to exercise honest judgment required to show gross mistake. See Anzilotti., 899 S.W.2d at 266 (holding that mistake of law is insufficient to set aside arbitration award).

To the extent that points of error one, two, four, and seven claim that the arbitrator failed to give an honest consideration resulting in a gross mistake, they are overruled.

Exceeds Powers

In issue three, Ouzenne contends the arbitrator exceeded his powers, which is a statutory ground for vacating an arbitration award under section 171.088(a)(3)(A) of the Civil Practices and Remedies Code. TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(3)(A). The authority of arbitrators is derived from the arbitration agreement and is limited to a decision of the matters submitted therein either expressly or by necessary implication. Gulf Oil Corp. v. Guidry, 160 Tex. 139, 327 S.W.2d 406, 408 (1959); see also Allstyle Coil Co., L.P., v. Carreon, 295 S.W.3d 42, 44 (Tex. App.-Houston [1st Dist.] 2009, no pet.) (stating scope of authority depends on the agreement). Arbitrators exceed their powers when they decide matters not properly before them. Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc., 294 S.W.3d 818, 829 (Tex. App.-Dallas 2009, no pet.); Barsness v. Scott, 126 S.W.3d 232, 241 (Tex. App.-San Antonio 2003, pet. denied).

Ouzenne argues that the arbitrator exceeded his powers because the arbitration agreement requires that all disputes "be resolved by binding arbitration in accordance with the rules of the American Arbitration Association ["AAA"]," and the arbitrator was not selected in accordance with those rules. Instead, Ouzenne complains that the "parties were ordered to binding arbitration at the Harris County Dispute Resolution Center," which "unilaterally selected the Arbitrator, without providing a selection process."

However, the record shows that Ouzenne did not object to the method of appointing the arbitrator until after the arbitration was completed. In fact, Ouzenne did not complain about the method for appointing the arbitrator until he filed his motion for new trial after the trial court confirmed the award.

The AAA rules upon which Ouzenne rely provide that a party must object to the jurisdiction of the arbitrator in a timely manner. See Thomas Petroleum, Inc. v. Morris, No. 01-09-01065-CV, 2011 WL 742651, at *3, (Tex. App.-Houston [1st Dist.] Mar. 3, 2011, no pet.) (citing EMPLOYMENT ARBITRATION RULES AND MEDIATION PROCEDURES, Rule 6(c) (formerly known as NATIONAL RULES FOR RESOLUTION OF EMPLOYMENT DISPUTES)). The same is true under Texas common law. Id. (citing L.H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 352-53 (Tex. 1977) (holding that, when both parties participate in arbitration proceedings, neither unequivocally withdraws its consent to arbitrate, and arbitration proceedings result in award, award is valid and enforceable)).

Thus, Ouzenne's right to complain about the method by which the arbitrator was selected is waived. See Slaughter v. Crisman & Nesbit, 152 S.W. 205, 207-08 (Tex. Civ. App-San Antonio 1912, no writ) (holding that when party to arbitration appeared and offered testimony before and after appointment of third arbitrator, he waived any irregularity in procedure occurring before the appointment of third arbitrator as required by agreement).

Because Ouzenne participated in the arbitration without complaining about the method by which the arbitrator was selected until after the arbitration was concluded and a judgment thereon was confirmed, the trial court did not err by concluding that the arbitrator did not exceed his authority by deciding matters not properly before him.

We overrule issue three.

Violates Public Policy and the Law

In issues five and six, Ouzenne contends the trial court erred in failing to vacate the arbitration award because it "violates public policy and the law." Specifically, Ouzenne complains that (1) the arbitration award did not specify a "laundry list" DTPA violation, and (2) was not based on a good or service as defined by the DTPA.

Ouzenne's claim, however, is not that the award should be vacated because it is unlawful,[3] but that the trial court committed an error of law. And, although Ouzenne claims that the award violates public policy, he cites no way in which the award violates "carefully articulated, fundamental policy." CVN Group, 95 S.W.3d at 239.

"[A]lleged errors in the application of substantive law by the arbitrators during the proceedings in arbitration are not reviewable by the court on a motion to vacate an award." Jamison & Harris v. Nat'l Loan Investors, 939 S.W.2d 735, 737 (Tex. App.-Houston [14 Dist.] 1997, writ denied). A mistake of fact or law is insufficient to set aside an arbitration award. Anzilotti, 899 S.W.2d at 266.

We overrule issues five and six.

CONCLUSION

We affirm the judgment of the trial court.[4]

For footnotes, click below:

[1] The Supreme Court has recently held that the statutory grounds provided in sections 10 and 11 of the Federal Arbitration Act for vacating, modifying, or correcting an arbitration award are the exclusive grounds for vacating an arbitration award. Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 584, 128 S. Ct. 1396, 1403 (2008). However, the Texas Supreme Court has expressed no opinion as to the continued viability of common law grounds for attacking an arbitration under the TAA. See E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 270 n.7 (Tex. 2010) ("We express no opinion on this issue [of whether an arbitration under the TAA can be set aside on common law grounds.]."

[2] We also note that commentators have suggested that "[t]he Scott case may be good law in rural counties where years may intervene between value appraisal dates or where expert opinions vary greatly from the tax rolls, but this case may not apply to urban counties where values are updated yearly." 2 Stewart W. Gagnon, et al., Tex. Practice Guide: Family Law § 8.428 (2010).

[3] For example, an arbitration may be set aside as unlawful if it is based on an unlawful contract. See CVN Group, 95 S.W.3d at 238 ("[A]n illegal contract unenforceable by litigation should not gain legitimacy through arbitration.").

[4] Justice Elsa Alcala, who participated in this case on original submission, took the oath of office as a Judge of the Court of Criminal Appeals of Texas on May 20, 2011 and is no longer a member of this Court. See TEX. CONST. art. XVI, § 40. Thus, Justice Alcala did not participate in the decision to deny rehearing in this case.

El Paso Court of Appeals sustains challenge to stand-alone arbitration requirement on the ground that did not impose mutual obligations on employer and at-will employee

2012-01-17T23:57:00.000-08:00

Stand-alone arbitration agreements require binding promises from both sides as they are the only consideration rendered to create a contract. Because there was no valid arbitration agreement, the trial court erred in compelling arbitration. Judgment reversed.

Daniel Mendivil v. Zanios Foods, Inc. (Tex. App. – El Paso,Jan. 11, 2012, n. pet h.)

OPINION BY CHIEF JUSTICE ANN CRAWFORD McCLURE

Daniel Mendivil appeals the trial court's order compelling arbitration, complaining that the arbitration provision was invalid, illusory, and unconscionable. For the reasons that follow, we reverse and remand.

FACTUAL SUMMARY

Mendivil was employed as a delivery-truck driver for Zanios Foods, Inc. in El Paso, Texas, and made deliveries both within El Paso and outside of Texas. Upon commencement of his employment, Mendivil was the sole signatory of an Arbitration Policy Statement (APS) prepared by Zanios, which states:

In consideration of Zanios Foods, Inc.'s offer to employ or to continue to employ me and my agreement to accept employment or continued employment under the terms set forth in this Arbitration Policy Statement, I acknowledge that my employment at Zanios is "at will", meaning I can be terminated or quit my employment at any time for any or no reason and I further agree that any controversy, claim, or dispute against Zanios Foods, Inc. ("Zanios") arising out of or relating to my employment with Zanios or the termination of my employment with Zanios . . . shall be resolved exclusively by final and binding arbitration. . . .

Arbitration shall be the sole and exclusive remedy for any such controversy, claim, or dispute against Zanios. I acknowledge that I am knowingly and voluntarily waiving the right to purse [sic] any such controversy, claim, or dispute against Zanios in any court or administrative forum and instead will pursue them through arbitration.

I understand that if I decide to submit any dispute to arbitration in accordance with this Arbitration Policy Statement, I must submit a written request for arbitration to Zanios's President within one (1) month from the date of the incident in question, and I must respond within ten (10) calendar days to each communication regarding the selection of an arbitrator, the scheduling of an arbitration hearing, or any other matters related to the arbitration proceeding. If Zanios does not receive a written request for arbitration from me within one (1) month, or if I do not respond to any communication about the arbitration proceeding within ten (10) calendar days, I understand and acknowledge that I will have knowingly and voluntarily waived my right to arbitration on the incident in question[.] The arbitration shall be held in Albuquerque, New Mexico. The parties shall each pay one-half of the cost of the arbitrator and each party shall otherwise pay its own costs and attorneys' fees.

If this Arbitration Policy Statement shall for any reason be declared unenforceable, I knowingly and voluntarily waive the right to a trial by jury in any action or judicial proceeding which would otherwise have been subject to arbitration.

By signing below, I acknowledge that I have read this Arbitration Policy Statement, understand its contents, and voluntarily agree to abide by its terms.

After Mendivil suffered an injury in the course of his employment, Zanios terminated his employment, allegedly for a reason unrelated to the injury. Mendivil filed suit against Zanios under Chapter 451 of the Texas Labor Code, which prohibits the discharge of or discrimination against an employee who files a workers' compensation claim in good faith or hires a lawyer to represent the employee in a claim. TEX. LAB. CODE ANN. § 451.001 (West 2006).

In a motion to compel arbitration, Zanios alleged that Mendivil's signature on the APS represented his understanding that the offer of employment was conditioned upon a promise to arbitrate his claims. Mendivil countered that no valid arbitration agreement existed because the APS lacked proper consideration and mutual language requiring Zanios to arbitrate, to be bound by arbitration, or to perform any mutual promise. Mendivil maintained that the APS was illusory because it contained no provisions by which Mendivil could either enforce the arbitration agreement against Zanios or require Zanios to arbitrate because Zanios had not promised anything. Mendivil likewise declared the APS unconscionable in part because the provisions required that he arbitrate his claims in Albuquerque, New Mexico, give notice of his intent to arbitrate within thirty days of any incident or waive arbitration, respond to all letters from Zanios within ten days or risk waiving his opportunity to arbitrate, and pay one-half of any arbitration fees.

In response, Zanios argued that no case law requires an employer's reciprocal, mirrored promise to arbitrate any claims it might have against an employee in exchange for the employee's promise to arbitrate, and contended that an employer need only provide "some" consideration to render an arbitration agreement enforceable. According to Zanios, it had provided sufficient consideration to form a valid arbitration agreement with Mendivil by agreeing: (1) to binding arbitration; (2) to be bound by the result; (3) to arbitrate in a particular venue; (4) to have arbitration conducted under particular rules; (5) to pay for one-half of the arbitration fee; (6) to pay its own attorney's fees and costs; and (7) to forego recovery of its attorney's fees. Zanios informed the trial court that it would agree to conduct arbitration in El Paso and pay the entirety of arbitration costs up to $10,000.

Without expressly finding the APS to be a valid agreement, the trial court granted the motion to compel, ordered that the parties arbitrate in El Paso, and directed that Zanios pay all arbitration fees up to $10,000, after which Mendivil and Zanios would each pay one-half of the arbitration fees in excess of $10,000.

WAS THERE AN AGREEMENT TO ARBITRATE?

In Issues One and Five Mendivil generally challenges the order compelling arbitration as written and as modified by the trial court. In Issue Four, he contends the APS was unconscionable. In Issues Two and Three, he complains that the APS is illusory and invalid for lack of mutual consideration. We review de novo a trial court's determination regarding the validity of an agreement to arbitrate. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003).

Applicable Law

It is undisputed that the Federal Arbitration Act (FAA), which typically governs arbitration provisions in contracts involving interstate commerce, applies here. See 9 U.S.C.A. §§ 1-16 (West 2009); In re Rubiola, 334 S.W.3d 220, 223 (Tex. 2011). To compel arbitration under the FAA, a party must establish that there is a valid arbitration agreement and that the claims fall within the scope of the agreement. In re Dillard Dep't Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006). While a strong presumption favoring arbitration exists, "the presumption arises only after the party seeking to compel arbitration proves that a valid arbitration agreement exists." J.M. Davidson, Inc., 128 S.W.3d at 227.

When determining the validity of arbitration agreements that are subject to the FAA, we apply state-law principles that govern the formation of contracts. In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 676 (Tex. 2006). When deciding whether a party has met its burden to establish a valid agreement to arbitrate, we do not resolve doubts or indulge a presumption in favor of arbitration. J.M. Davidson, Inc., 128 S.W.3d at 227. Rather, the party attempting to compel arbitration must show that the arbitration agreement meets all requisite contract requirements. Id. at 228. If the trial court determines that a valid agreement exists, the burden shifts to the party opposing arbitration to raise an affirmative defense to enforcement of the arbitration agreement. Id. at 227-28. Nonetheless, although a court may enforce agreements to arbitrate disputes, a court cannot order arbitration in the absence of such an agreement. Freis v. Canales, 877 S.W.2d 283, 284 (Tex. 1994), citing United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1352-53, 4 L.Ed.2d 1409 (1960); see 9 U.S.C. § 2.

Contract Elements

The elements required for the formation of a valid and binding contract include: (1) an offer; (2) acceptance in strict compliance with the terms of the offer; (3) a meeting of the minds; (4) each party's consent to the term; and (5) execution and delivery of the contract with the intent that it be mutual and binding. Cessna Aircraft Co. v. Aircraft Network, L.L.C., 213 S.W.3d 455, 465 (Tex.App.-Dallas 2006, pet. denied). An agreement to arbitrate, like other contracts, must also be supported by consideration. In re Palm Harbor Homes, Inc., 195 S.W.3d at 676; In re AdvancePCS Health L.P., 172 S.W.3d 603, 607 (Tex. 2005) (per curiam).

Mutual Promises and Consideration

Mutual, reciprocal promises which bind both parties may constitute consideration for a contract. Texas Custom Pools, Inc. v. Clayton, 293 S.W.3d 299, 309 (Tex.App.-El Paso 2009, no pet.). Arbitration clauses generally do not require mutuality of obligation so long as adequate consideration supports the underlying contract. In re Lyon Financial Services, Inc., 257 S.W.3d 228, 233 (Tex. 2008), citing In re FirstMerit Bank, N.A., 52 S.W.3d 749, 757 (Tex. 2001). Thus, when an agreement to arbitrate is part of a larger underlying contract, the remainder of the contract may constitute sufficient consideration for the arbitration provision. In re Palm Harbor Homes, Inc., 195 S.W.3d at 676; In re AdvancePCS, 172 S.W.3d at 607.

However, stand-alone arbitration agreements require binding promises from both sides as they are the only consideration rendered to create a contract. In re AdvancePCS, 172 S.W.3d at 607; see also In re 24R, Inc., 324 S.W.3d 564, 566 (Tex. 2010) (mutual promises to submit a dispute to arbitration are sufficient consideration to support an arbitration agreement); Vanegas v. American Energy Services, 302 S.W.3d 299, 302 (Tex. 2009) ("`A bilateral contract is one in which there are mutual promises between two parties to the contract, each party being both a promisor and a promisee.'"), citing Hutchings v. Slemons, 141 Tex. 448, 174 S.W.2d 487, 489 (1943).

In In re Halliburton Co., an employer provided notice to its employee that it was adopting a new dispute resolution program, by which both the employer and all employees were required to submit all employment disputes to binding arbitration and waived all rights each may have to a trial by jury for employment-related matters. In re Halliburton, Co., 80 S.W.3d 566, 568-69 (Tex. 2002). The employer informed its employees if an employee accepted or continued employment after January 1, 1998, the employee agreed to resolve all legal claims against the employer through the new program rather than in the courts. In re Halliburton, Co., 80 S.W.3d at 569. The Texas Supreme Court determined that the new dispute resolution program was not dependent upon the employee's continuing employment but rather that the employee accepted the terms of the new program as a matter of law by continuing employment beyond January 1, 1998. In re Halliburton, Co., 80 S.W.3d at 569. Because both the employer and the employee mutually promised to submit all employment disputes to arbitration, thus binding both parties to the terms of the new dispute resolution program, the Texas Supreme Court found that the new dispute resolution agreement between the employer and the at-will employee was supported by sufficient consideration and was not illusory. In re Halliburton, Co., 80 S.W.3d at 566, 569-70.

Thus, employers and their at-will employees are not precluded from forming other contracts between themselves, "so long as neither party relies on continued employment as consideration for the contract." J.M. Davidson, Inc., 128 S.W.3d at 228; In re Polymerica, L.L.C, 296 S.W.3d 74, 76 (Tex. 2009) (where employer could not avoid its promise to arbitrate by amending a termination provision or terminating it altogether, the dispute resolution plan was not illusory). When mutual promises to submit employment disputes to arbitration bind both parties to their promises to arbitrate, sufficient consideration exists to support an arbitration agreement between the employer and the at-will employee. In re Halliburton, Co., 80 S.W.3d at 569-70; see also J.M. Davidson, Inc., 128 S.W.3d at 228.

Illusory Promises

A promise which does not bind the promisor, as when the promisor retains the option to discontinue performance, is illusory. In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010), citing Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 849 (Tex. 2009); see also J.M. Davidson, Inc., 128 S.W.3d at 228; Light v. Centel Cellular Co., 883 S.W.2d 642, 645 (Tex. 1994) (employer's promises were illusory because they were dependent upon at-will employee's period of continued employment; thus, employer could avoid performance by terminating at-will employee's employment while the employee was bound to her promise whether or not she remained employed); compare In re Halliburton, Co., 80 S.W.3d at 569-70 (because mutual promises to submit employment disputes to arbitration bound both parties to their promises to arbitrate, sufficient consideration existed to support the arbitration agreement between the employer and the at-will employee). An agreement to arbitrate may be illusory if a party can unilaterally avoid the agreement to arbitrate. In re Palm Harbor Homes, Inc., 195 S.W.3d at 677; J.M. Davidson, Inc., 128 S.W.3d at 228-30; In re Halliburton Co., 80 S.W.3d at 569-70. Consequently, when a purported bilateral contract is supported only by illusory promises, there is no contract. In re 24R, Inc., 324 S.W.3d at 567, citing Vanegas v. American Energy Services, 302 S.W.3d 299, 302 (Tex. 2009), quoting Light, 883 S.W.2d at 644-45.

Analysis

The stand-alone APS requires binding promises from both Zanios and Mendivil as such promises are the only consideration provided for the formation of the contract. In re AdvancePCS, 172 S.W.3d at 607; see also In re 24R, Inc., 324 S.W.3d at 566-67. But Zanios never expressly agreed to arbitrate its disputes with Mendivil nor to be bound by the result of such arbitration. Clearly, the language of the purported contract does not apply to any claims that Zanios may assert against Mendivil. Indeed, other than Zanios' recital of consideration, there are only two other recitals that are not wholly burdensome to Mendivil alone: (1) the statement identifying the arbitration venue; and (2) the allocation of arbitration costs as well as attorney's fees and costs.

While the benefits to Zanios are clear, those to Mendivil are not. Zanios did not agree to waive a trial by jury and did not agree to resolve any controversy, claim, or dispute that it may have against Mendivil by final and binding arbitration. We are unable to discern from the APS that Zanios has made a mutual, binding promise to Mendivil. When a promise does not bind a promisor, the promise is illusory. In re 24R, Inc., 324 S.W.3d at 564, 567. Had Mendivil sought to compel Zanios to arbitrate under the terms of the APS, he would be unsuccessful as no provision therein binds Zanios to perform such obligation or to be bound by the arbitration result. Consequently, because the APS lacks binding promises from each party as required for the formation of a contract, it lacks the requisite consideration and is illusory. In re AdvancePCS, 172 S.W.3d at 607; see also In re 24R, Inc., 324 S.W.3d at 566-67.

Zanios failed to prove the existence of a valid arbitration agreement in the trial court. Because there was no valid arbitration agreement, the trial court erred in compelling arbitration. In re Dillard Dep't Stores, Inc., 186 S.W.3d at 515. We sustain Issues Two and Three. Our resolution of these issues renders it unnecessary for us to consider Issues One, Four, and Five.

We reverse and remand for further proceedings.

CASE INFO: EL PASO COURT OF APPEALS –No. 08-10-00359-CV – Opinion released 1/14/11

REVERSED AND REMANDED: Opinion by Chief Justice Mcclure [ PDF ]
(Before Chew, Chief Justice Mcclure, Justice Antcliff)

08-10-00359-CV

Daniel Mendivil v. Zanios Foods, Inc.--Appeal from County Court at Law No 5 of El Paso County

No Orders Compelling Arbitration in Rule 202 Proceeding (unless agreed by the parties)

2011-12-31T13:36:00.000-08:00

Rule 202 petition does not confer jurisdiction on trial court to enter order compelling arbitration over objection of the other party, Dallas Court of Appeal says in case in which it also awards mandamus relief against the trial court's order permitting Rule 202 discovery (presuit discovery to investigate claim, here female attorney's sex discrimination claim against law firm in which she was partner on equal pay issue).

Patton Boggs, LLP v. Kate Moseley (Tex.App.- Dallas, Dec. 29, 2011)

EXCERPT FROM OPINION BY JUSTICE ROBERT M. FILLMORE

Appellant Patton Boggs filed this interlocutory appeal challenging the trial court's denial of its motion to compel arbitration. See Tex. Civ. Prac. & Rem. Code Ann. § 51.016 (West Supp. 2011) (appeal or writ of error to the court of appeals from the judgment or interlocutory order of a district court in a matter subject to Federal Arbitration Act); Tex. Civ. Prac. & Rem. Code Ann. § 171.098(a)(1) (West 2011) (party may appeal an order denying an pplication to compel arbitration under section 171.021); see Tex. Civ. Prac. & Rem. Code Ann. § 171.021(a) (West 2011) (court shall order parties to arbitration on application of a party showing an agreement to arbitrate and the opposing party's refusal to arbitrate). See Footnote 7 In its sole issue on appeal, Patton Boggs contends the trial court erred by denying Patton Boggs's motion to compel arbitration and to stay the rule 202 proceedings.

Moseley responds that the trial court lacked jurisdiction over Patton Boggs's motion to compel arbitration filed in the rule 202 proceeding. We agree. Because the only proceeding before the trial court was a rule 202 petition, the trial court had no jurisdiction to grant a motion to compel arbitration absent an agreement between the parties that the motion should be granted. See In re Southwest Sec., Inc., No. 05-99-01836-CV, 2000 WL 770117, at *2 (Tex. App.-Dallas, June 14, 2000, orig. proceeding.) (not designated for publication). The trial court lacked jurisdiction to compel arbitration in the rule 202 proceeding. Accordingly, we dismiss this interlocutory appeal for lack of jurisdiction. Tex. R. App. P. 42.3(a).

Conclusion

We conditionally grant the petition for writ of mandamus and order the trial court to vacate the portions of its August 15, 2011 order that grant Moseley's rule 202 request to take depositions and that grant in part Moseley's request for production of documents. A writ will issue only in the event the trial court fails to vacate the portions of its August 15, 2011 order that grant Moseley's rule 202 request to take depositions and that grant in part Moseley's request for production of documents in conjunction with those depositions.
We dismiss this interlocutory appeal for lack of jurisdiction.

SOURCE: DALLAS COURT OF APPEALS - 05-11-01097-CV - 12/29/11

Sup. Ct. SCI Arbitration case decided: In Re Services Corporation International (Tex. 2011)(orig. proceeding)

2011-12-16T18:13:00.000-08:00

In Re Service Corporation International (SCI) (Tex. 2011)

PER CURIAM OPINION OF THE TEXAS SUPREME COURT

This mandamus proceeding arises from an arbitration agreement governed by the Federal
Arbitration Act (FAA). The parties entered into a contract for interment rights and services. The
contract obligated the parties to arbitrate this dispute over the care and maintenance of the cemetery.

The arbitration agreement provides that an arbitrator would either be selected by mutual agreement
of the parties or appointed by the American Arbitration Association (AAA). The parties failed to
agree to an arbitrator and the trial court appointed an arbitrator without allowing a reasonable
opportunity to procure an appointment by AAA. We conclude that the trial court abused its
discretion and conditionally grant the petition for writ of mandamus.

SERVICE CORPORATION INTERNATIONAL
OFFICE TOWER IN HOUSTON

Relators Service Corporation International and SCI Texas Funeral Services, Inc. (jointly
SCI) entered into a written contract with Gabriel and Yolanda Serna for two burial plots in the
Magic Valley Memorial Gardens after the death of their son. The contract contained an arbitration
clause to be utilized for dispute resolution. Under the arbitration clause, the parties would choose
an arbitrator by mutual agreement. If the parties were unable to agree on an arbitrator, the AAA
would select the arbitrator upon application of one or both of the parties.

The Sernas filed a suit against SCI on March 19, 2009, alleging, among other things, that SCI
had misrepresented the cemetery as a licensed endowment-care facility and failed to properly
maintain the cemetery. In its original answer, SCI asserted that the dispute was bound for
arbitration. The parties were unable to agree on an arbitrator for several months. When the parties
eventually reached an agreement on an arbitrator on October 14, 2009, he was disqualified because
he represented employees of SCI in an unrelated case. On October 27, the Sernas asked the trial
court to appoint an arbitrator, arguing that SCI had waived its right to seek an appointment by the
AAA. On November 10, the trial court appointed former district judge Abel C. Limas to arbitrate
the case after concluding that the parties were unable to agree on an arbitrator and SCI had waived
the right to seek an AAA appointment. SCI filed a motion for rehearing arguing that the contractual
provision required that the AAA appoint the arbitrator, and that the Sernas were responsible for
initiating proceedings with the AAA. The trial court denied the motion for rehearing on December
15. SCI unsuccessfully sought a writ of mandamus from the court of appeals. In this Court, SCI
requests that we direct the trial court to vacate its order naming Limas as arbitrator.

Mandamus relief is appropriate when the trial court has abused its discretion and there is no
adequate remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004)
(citations omitted). When a trial court errs in determining the law or in applying the law to the facts,
it has abused its discretion. Id. at 135 (citations omitted). No adequate remedy by appeal exists
when a trial court erroneously appoints an arbitrator pursuant to section 5 of the Federal Arbitration

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Act because the FAA does not provide for review of the trial court’s actions in state court.1 See 9
U.S.C. § 5; In re La. Pac. Corp., 972 S.W.2d 63, 65 (Tex. 1998) (per curiam). Because the terms
of the contract require the parties to apply to the AAA to appoint an arbitrator upon their failure to
agree to an arbitrator, we conditionally issue a writ of mandamus.

The parties agree that this case is governed by the FAA, 9 U.S.C. §§ 1–16. Section 5 of the
FAA provides:

If in the agreement provision be made for a method of naming or appointing an
arbitrator or arbitrators or an umpire, such method shall be followed; but if no
method be provided therein, or if a method be provided and any party thereto shall
fail to avail himself of such method, or if for any other reason there shall be a lapse
in the naming of an arbitrator or arbitrators or umpire, or in filling a vacancy, then
upon the application of either party to the controversy the court shall designate and
appoint an arbitrator or arbitrators or umpire, as the case may require, who shall act
under the said agreement with the same force and effect as if he or they had been
specifically named therein . . . .

9 U.S.C. § 5 (emphasis added). The primary purpose of the FAA is to require enforcement of
arbitration agreements “according to their terms.” Volt Info. Scis. v. Bd. of Trs., 489 U.S. 468, 479
(1989). Before the trial court can intervene and appoint an arbitrator, section 5 requires that parties
follow the previously agreed method of arbitrator selection. CMH Homes v. Perez, 340 S.W.3d 444,
449 (Tex. 2011). Because the FAA requires the trial court to follow the arbitrator selection method
detailed in the contract, we first determine the method of appointment required by the contract.

Footnote 1 This case was filed prior to the 2009 addition of section 51.016 to the Texas Civil Practice and Remedies Code expanding state court interlocutory review of certain FAA arbitration matters. See CMH Homes v. Perez, 340 S.W.3d 444 (Tex. 2011) (discussing the appellate remedies available to parties in arbitration proceedings following the 2009 amendment).

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The contract signed by SCI and the Sernas outlined the following method of appointing an
arbitrator:

[T]he arbitrator shall be selected by mutual agreement of the parties. If the parties fail
to or are unable to agree on the selection of an appropriate arbitrator, the AAA shall
select the arbitrator pursuant to its rules and procedures upon the application of one
or both parties.

The agreement provides only two ways that the parties may select an arbitrator: (1) mutual
agreement, or (2) if the parties cannot agree, the AAA selects an arbitrator. When the parties failed
to agree on an arbitrator, the contract required petitioning the AAA to appoint an arbitrator. Because
the contract plainly requires the AAA to appoint an arbitrator when mutual agreement fails, the trial
court abused its discretion by appointing an arbitrator unless an exception under section 5 applies.

The parties contracted to this method of appointing an arbitrator. The trial court is permitted
to appoint an arbitrator under section 5 of the FAA only if one or both of the parties “fail[s] to avail”
itself of the agreed-upon arbitrator selection method, or there is a “lapse” in the selection of an
arbitrator. 9 U.S.C. § 5. The section 5 substitution process triggered by the “fail to avail” and
“lapse” language of the FAA should be invoked by the trial court when there is some “mechanical
breakdown in the arbitrator selection process” or “one of the parties refuses to comply, thereby
delaying arbitration indefinitely.” In re La. Pac. Corp., 972 S.W.2d at 64–65 (Tex. 1998) (citing
In re Salomon Inc., 68 F.3d 554, 560 (2d Cir. 1995) (interpreting “lapse” and “fail to avail” in
section 5 of the FAA)). The Sernas argue that SCI has forfeited its right to involve the AAA in the
arbitrator selection process because of a lapse due to the time that had passed, the failure of SCI to

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apply to the AAA, and a mechanical breakdown in the method of selecting an arbitrator. We do not
agree.

The Sernas contend that a time lapse in applying to the AAA triggered the trial court’s
authority to appoint an arbitrator under section 5 of the FAA. It is important to remember that the
FAA disfavors waiver and similar forfeitures of arbitration rights, and there is a strong presumption
against them. Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983)
(observing that, under the FAA, any doubts concerning “an allegation of waiver, delay or a like
defense to arbitrability” should be “resolved in favor of arbitration”); Prudential Secs. Inc. v.
Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (noting the presumption, under both federal and state
law, against waiver of a contractual right to arbitration). We have observed that “one of the central
purposes of the FAA has been to allow the parties to select their own arbitration panel if they choose
to do so.” In re La. Pac. Corp., 972 S.W.2d at 65. However, section 5 tempers the principle that
parties are free to make – and enforce – their arbitration agreements as they see fit, with the
countervailing grant of authority to a district court to intercede and “spur the arbitral process
forward” when the parties reach a stalemate in naming an arbitrator. Pac. Reins. Mgmt. Corp. v.
Ohio Reins. Corp., 814 F.2d 1324, 1329 (9th Cir. 1987).

In Pacific Reinsurance, a district judge appointed an umpire, notwithstanding the parties’
arbitration agreement, under circumstances in which the litigants had “tried and failed” to name an
umpire. Id. at 1329. Finally, after “five months of impasse,” the trial court appointed an umpire on
motion of one of the parties. Id. The Court affirmed the appointment on failure-to-avail and lapse
grounds, holding that section 5 may properly be invoked when the parties’ “impasse” had lasted for

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five months. Id. The Court explained that while parties should be afforded every reasonable
opportunity “to comply with their agreement,” section 5 may be invoked by a trial court to appoint
an arbitrator where the arbitration process “stagnate[s] into endless bickering over the selection
process.” Id.

This is not such a case. The contract provides consensual methods for appointment of an
arbitrator, and the court must allow the parties sufficient time to utilize the contractual method
before intervening to appoint an arbitrator. An unreasonable delay in such an appointment,
sufficient to constitute a lapse or failure to avail, should be measured from the point when mutual
agreement failed. See id.; cf. In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 409
(Tex. 2011) (holding, in the context of the right to an appraisal under an insurance contract, that an
unreasonable delay sufficient to invoke waiver must be measured from the point of impasse – the
point at which the parties become aware of the futility of further negotiations). Seven months
elapsed from SCI’s motion to compel arbitration in April 2009 to the time the trial court appointed
an arbitrator in November. The Sernas argue the seven-month period establishes a deadlock or
impasse between the parties justifying the trial court’s intervention. On the contrary, that sevenmonth
period includes the time the parties worked to reach a mutual agreement and did agree on an
arbitrator, only to have him recused on conflict-of-interest grounds. The arbitration clause
contemplated efforts to reach such an agreement. The applicable delay is the time after an impasse
or deadlock is reached. See Pac. Reins., 814 F.2d at 1329.

An impasse, if any, occurred after the agreed arbitrator was disqualified. Acting on the Sernas’ motion, filed less than two weeks after the agreed arbitrator was disqualified, the trial court

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appointed an arbitrator, notwithstanding the contract. This appointment occurred just one month
after the parties had been in apparent agreement on an arbitrator. Thus, the disagreement of the
parties as to the selection of the arbitrator was at most one month old. We are unable to locate any
instance in which a federal court held that a delay in appointing an arbitrator as short as one month
constituted a lapse under section 5. In the instances in which courts have found a lapse, the periods
between the impasse and the appointment of an arbitrator are significantly longer than one month.
See e.g., Pac. Reins. Mgt. Corp., 814 F.2d at 1328 (concluding that a five-month “impasse” between
the parties resulted in both a “lapse” and “fail[ure] to utilize” the agreed-to umpire-selection
method); Trustmark Ins. Co. v. Clarendon Nat’l Ins. Co., No. 09 C 6169, 2010 U.S. Dist. LEXIS
8078, at *14 (N.D. Ill. Feb. 1, 2010) (holding that a four-month delay, measured from the time the
defendants sent a list of potential umpires to the plaintiffs with no response to the time the
defendants asked the trial court to appoint an umpire, constituted a lapse). As a matter of law, a one month interval following an impasse, by itself, cannot reasonably be construed as a lapse in
appointing an arbitrator. The parties had reached an agreement previously; both their contract and
section 5 entitled them to a reasonable opportunity to do so again.

Arguing a failure-to-avail point, the Sernas assert that it was clear that neither party intended
to apply to the AAA and, further, SCI’s position was that it did not have the obligation to petition
the AAA for appointment of an arbitrator. Again relying on the seven-month period from the filing
of SCI’s motion to compel through the time the trial court appointed an arbitrator, the Sernas
contend that a stalemate had been reached. Reiterating, the period of time during which the parties
are in discussions or negotiations toward mutual selection of an arbitrator does not count as delay

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after an impasse. See generally In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d at
408–09. As a matter of law, we conclude that under section 5 a one-month halt in negotiations
between the parties does not in itself constitute a failure to avail by SCI of its contractual right to
have the AAA select the arbitrator, irrespective of whether one or both parties had the contractual
burden to pursue AAA appointment.

The Sernas also argue that an ambiguity in the contract resulted in a mechanical breakdown
in the selection of an arbitrator. The contract states that “in the absence of [applicable state laws
governing arbitration], the arbitration proceedings shall be conducted in accordance with the
applicable rules of the [AAA]; provided, however, that the foregoing reference to the AAA rules
shall not be deemed to require any filing with that organization . . . .” The Sernas argue that these
provisions are contradictory and ambiguous and should be construed against the contract drafter,
SCI. When interpreting a contract, our primary concern is to ascertain and give effect to the intent
of the parties as expressed in the contract. Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207
S.W.3d 342, 345 (Tex. 2006) (citations omitted). “To discern this intent, we ‘examine and consider
the entire writing in an effort to harmonize and give effect to all the provisions of the contract so
that none will be rendered meaningless. No single provision taken alone will be given controlling
effect; rather, all the provisions must be considered with reference to the whole instrument.’”Id.
(citations omitted).

The provisions that the Sernas argue are ambiguous simply define the rules applicable to
arbitration proceedings and do not conflict with other portions of the arbitration agreement. Because
the contract allows for the appointment of an arbitrator without the involvement of the AAA, the

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contract provides that, although the parties may use AAA rules to govern their dispute, no filing with
the AAA is required when the parties mutually agree. However, if the parties cannot agree, then
either party may apply to have an arbitrator appointed through the AAA’s procedures. We conclude
that the contract is not ambiguous on this point. If the parties cannot agree on an arbitrator, the
contract requires that they use AAA to appoint the arbitrator.

Accordingly, without hearing oral argument, we conditionally grant mandamus relief to SCI
and direct the trial court to vacate its prior order appointing an arbitrator and allow the parties a
reasonable opportunity to select an arbitrator pursuant to their agreement. TEX. R. APP. P. 59.1,
52.8(c). We are confident the trial court will comply, and the writ will issue only if it fails to do so.

OPINION DELIVERED: December 16, 2011

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FULL STYLE AND CASE DETAILS

IN RE SERVICE CORPORATION INTERNATIONAL AND SCI TEXAS FUNERAL SERVICES, INC. D/B/A MAGIC VALLEY MEMORIAL GARDENS; from Hidalgo County; 13th district (13-09-00681-CV, ___ SW3d ___, 02-17-10) stay order issued March 12, 2010, lifted
Pursuant to Texas Rule of Appellate Procedure 52.8(c), without hearing oral argument, the Court conditionally grants the writ of mandamus.
Per Curiam Opinion

Click below to read the opinion of the Corpus Christi Court of Appeals:
IN RE SERVICE CORPORATION INTERNATIONAL, Tex: Court of Appeals, 13th Dist. 2010

IN RE SERVICE CORPORATION INTERNATIONAL AND SCI TEXAS FUNERAL SERVICES, INC. D/B/A MAGIC VALLEY MEMORIAL GARDENS.

No. 13-09-00681-CV

Court of Appeals of Texas, Thirteenth District, Corpus Christi.

Delivered and filed February 17, 2010.

Before Justices RODRIGUEZ, GARZA, and BENAVIDES.

MEMORANDUM OPINION

PER CURIAM.[1]

Relators, Service Corporation International and SCI Texas Funeral Services, Inc. d/b/a Magic Valley Memorial Gardens, filed a petition for writ of mandamus in the above cause on December 18, 2009. On December 28, 2009, relators filed a motion for expedited relief in connection with this petition for writ of mandamus, which motion was granted by this Court the following day. The Court requested and received a response to the petition from the real parties in interest, Gabriel Serna and Yolanda Serna, and such response and a supplemental record were duly filed on January 19, 2010. On January 25, 2010, relators filed a reply in support of their petition for writ of mandamus.

The Court, having examined and fully considered the petition for writ of mandamus, the response, and the reply thereto, is of the opinion that relators have not shown themselves entitled to the relief sought. See 9 U.S.C. § 5; In re FirstMerit Bank, N.A., 52 S.W.3d 749, 757 (Tex. 2001) (orig. proceeding) (stating that the "FAA permits the trial court to choose an alternate set of arbitrators"); In re La. Pac. Corp., 972 S.W.2d 63, 64-65 (Tex. 1998) (orig. proceeding) ("Courts interpreting the "fail to avail" or "lapse" language of the FAA have generally held that the section 5 substitution process should be invoked by the trial court only when some "mechanical breakdown in the arbitrator selection process" occurs or when "one of the parties refuses to comply, thereby delaying arbitration indefinitely."); see also Royce Homes, L.P. v. Bates, No. 01-08-00121-CV, 2010 Tex. App. LEXIS 389, at *29-30 (Tex. App.-Houston [1st Dist.] Jan. 21, 2010, no pet. h.) (op.) ("Here, the trial court did not abuse its discretion by appointing an arbitrator because the record reflects that there was a mechanical breakdown in the process of appointing CAS as arbitrator."). Cf. Tex. Civ. Prac. & Rem. Code Ann. § 171.041(b) (Vernon 2005) (providing for the substitution of arbitrators where the agreed method of appointment of arbitrators "fails or cannot be followed" under the Texas Arbitration Act); In re Brock Specialty Servs., Ltd., 286 S.W.3d 649, 656 (Tex. App.-Corpus Christi 2009, orig. proceeding) (applying section 5 of the FAA to allow the trial court to choose an alternate arbitrator where the arbitrator specified by contract was no longer in existence).

Accordingly, the stay previously imposed by this Court is LIFTED. See Tex. R. App. P. 52.10(b) ("Unless vacated or modified, an order granting temporary relief is effective until the case is finally decided."). The petition for writ of mandamus is DENIED. See id. 52.8(a).

[1] See Tex. R. App. P. 52.8(d) ("When denying relief, the court may hand down an opinion but is not required to do so."); Tex. R. App. P. 47.4 (distinguishing opinions and memorandum opinions).

Americo Life, Inc. v. Robert L. Myer, No. 10-0734 (Tex. 2011)

2011-12-16T17:30:00.000-08:00

Americo Life, Inc. v. Myer, No. 10-0734 (Tex. Dec. 16, 2011)

PER CURIAM OPINION OF THE TEXAS SUPREME COURT

This case concerns an arbitration provision that allows each party to appoint one arbitrator to a panel, subject to certain requirements. At issue is whether Americo Life, Inc. waived its objection to the removal of the arbitrator it selected. The underlying dispute concerned the financing mechanism for Americo’s purchase of several insurance companies from Robert Myer. FN1 Pursuant to the financing agreement, Americo and Myer submitted their dispute to arbitration under American Arbitration Association (AAA) rules. The arbitrators found in favor of Myer, and Americo filed a

FN 1: Petitioners Americo Life, Inc., Americo Financial Life and Annuity Insurance Company, Great Southern Life Insurance Company, the Ohio State Life Insurance Company, and National Farmers’ Union Life Insurance Company are referred to as Americo. Respondents Robert L. Myer and Strider Marketing Group, Inc. are referred to as Myer.

motion to vacate the award. The trial court granted the motion. It held that Americo was entitled to any arbitrator that met the requirements set forth in the financing agreement and that the arbitrator removed by the AAA met those requirements. The court of appeals reversed, holding that Americo had waived these arguments by not presenting them to the AAA. Because the record demonstrates otherwise, we reverse the court of appeals’ judgment and remand the case to the court of appeals for further proceedings.

The parties entered into a financing agreement for Americo’s purchase of several insurance
companies from Myer. This agreement provides that any disputes “shall be referred to three
arbitrators.” It further provides that “Americo shall appoint one arbitrator and Myer shall appoint
one arbitrator and such two arbitrators to select the third.” The financing agreement provides that
each arbitrator “shall be a knowledgeable, independent businessperson or professional.”
However, the contract also provides that, subject to exceptions not at issue here, the
proceedings “shall be conducted in accordance with the commercial arbitration rules of the
American Arbitration Association.” At the time the parties entered into the financing agreement,
the AAA rules provided that its “rules and any amendment of them shall apply in the form in effect
at the time the administrative filing requirements are met for a demand for arbitration or submission
agreement received by the AAA.” At the time of the demand for arbitration between the parties, the
AAA rules provided that “[a]ny arbitrator shall be impartial and independent . . . and shall be subject
to disqualification for (i) partiality or lack of independence . . . .”

Here, Myer argued to the AAA that Americo’s selected arbitrator, Ernest Figari, Jr., was not
impartial and therefore should be removed. Americo responded that Figari was, in fact, impartial.

-- Page 2 end --

The parties dispute whether Americo additionally responded that its selected arbitrator need only
meet the “independent” and “knowledgeable” requirements from the financing agreement.
The AAA agreed with Myer and removed Figari from the arbitration panel. Americo
asserted a standing objection to the continuation of the arbitration without Figari. Americo also
stated that it would proceed to arbitrate without waiving its objection and without waiver of the right
to appeal any decision based on the removal of Figari. Americo subsequently selected another
arbitrator.

The arbitration panel rendered a unanimous decision awarding Myer declaratory relief,
breach of contract damages of $9.29 million, $15.8 million in damages for wrongfully withheld
payments under the financing agreement, and $1.29 million in attorney’s fees and costs. Myer filed
a petition to confirm the award in the district court and Americo filed a motion to vacate or modify
the award. Americo argued that, inter alia, the award was not made by arbitrators selected under
the financing agreement’s requirements and was therefore void.2 The court granted Americo’s
motion to vacate and found that the AAA failed to follow the arbitration selection method contained
in the financing agreement, that the AAA had no authority to strike Figari, and that the award was
void because it was issued by an improperly appointed panel.

The court of appeals reversed. It held that:

After arbitration, appellees argued to the trial court the award should be
vacated under section five of the Federal Arbitration Act because the award was not
made by arbitrators who were appointed under the method provided in the

FN 2: Americo’s motion to vacate or modify the award was pursuant to section five of the Federal Arbitration Act (FAA), which provides: “If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed . . . .” 9 U.S.C. § 5.

-- Page 3 end --

[financing] agreement. In their brief in support of their motion to vacate the
arbitration award, appellees further explained their argument to mean the [financing]
agreement did not require the party-appointed arbitrators to be “independent and
impartial. Nor does the Agreement allow the AAA to disqualify a party’s appointed
arbitrator for partiality, bias, or any other basis.” They continued to argue that
because their right to select an arbitrator was governed by the standards in the
[financing] agreement, the impartiality standard set out in the AAA rules was
inapplicable. Essentially, appellees argued to the trial court they had a right to a
non-neutral arbitrator. This, however, is not the argument they raised to the AAA
in response to appellants’ objection to Figari.

315 S.W.3d 72, 75 (Tex. App.—Dallas 2009, pet. filed) (emphasis in original) (footnote omitted).

We have held that “appellate courts should reach the merits of an appeal whenever
reasonably possible.” Perry v. Cohen, 272 S.W.3d 585, 587 (Tex. 2008) (citing Verburgt v. Dorner,
959 S.W.2d 615, 616 (Tex. 1997)). Here, the record demonstrates that Americo argued to both the
AAA and the district court that it was entitled to any arbitrator who met the requirements set forth
in the financing agreement, regardless of the AAA’s requirements.

In response to Myer’s objection to Figari, Americo argued to the AAA that Figari was
neutral. However, Americo also asserted:

Finally, an argument can be made that the AAA rules do not govern the
selection of and qualifications for arbitrators in this proceeding. . . . The Agreement
states that “[e]ach arbitrator shall be a knowledgeable, independent businessperson
or professional.” . . .

As long as Mr. Figari is “a knowledgeable, independent businessperson or
professional,” he is an acceptable designee for the arbitration panel hearing this
matter, irrespective of the AAA rules. . . . Here, the parties’ arbitration agreement
plainly provides the method for selecting arbitrators for the three-person panel and
establishes the qualifications for serving on the panel. . . . Mr. Figari possesses the
requisite qualifications and the fact that he has served previously and is now serving
as a member of a panel considering a dispute between some of these same parties
does not change that fact. There has been—and can be—no allegation that Mr.
Figari has been anything but knowledgeable and independent in his performance on
the panels in Myer I and Myer II.

-- Page 4 end --

Furthermore, Americo wrote the AAA again after the AAA removed Figari but before the
arbitration, stating:

[T]he AAA Commercial Arbitration Rules do not govern the selection of and
qualifications for arbitrators to hear disputes between Americo and Myer. . . . The
Agreement states that “[e]ach arbitrator shall be a knowledgeable, independent
businessperson or professional.” . . .

Mr. Figari is “a knowledgeable, independent businessperson or professional”.
Therefore, he is a proper designee for the Panel to hear this matter.

In addition, Americo’s letter to the AAA cited Brook v. Peak International, Ltd., which discusses
the vacation of arbitration awards by arbitrators not appointed under the method provided by a
contract and the preservation of such a complaint by presenting it during arbitration. 294 F.3d 668,
673 (5th Cir. 2002). Americo reiterated this argument in the district court, stating that “the Award
must be vacated under FAA § 5 and applicable law, because the Award was not made by arbitrators
who were appointed under the method provided in the Agreement.”

The court of appeals is correct that Americo did not expressly state that arbitrators were not
required to be neutral. 315 S.W.3d at 75–76. However, Americo argued that the AAA requirements
did not apply, that the only applicable requirements were that they be knowledgeable and
independent businesspersons or professionals, and that Figari met these qualifications. Americo
properly preserved this argument. Therefore, without hearing oral argument, TEX. R.APP. P. 59.1,
we reverse the court of appeals’ judgment and remand the case to the court of appeals for further
proceedings consistent with this opinion.

OPINION DELIVERED: December 16, 2011

-- Page 5 end --

CASE DETAILS:
AMERICO LIFE, INC., AMERICO FINANCIAL LIFE AND ANNUITY INSURANCE COMPANY, GREAT SOUTHERN LIFE INSURANCE COMPANY, THE OHIO STATE LIFE INSURANCE COMPANY, AND NATIONAL FARMERS' UNION LIFE INSURANCE COMPANY v. ROBERT L. MYER AND STRIDER MARKETING GROUP, INC.; from Dallas County; 5th district (05-08-01053-CV, 315 SW3d 72, 10-22-09)

Pursuant to Texas Rule of Appellate Procedure 59.1, after granting the petition for review and without hearing oral argument, the Court reverses the court of appeals' judgment and remands the case to that court.

Per Curiam Opinion

Click below to read the Dallas Court of Appeal's Opinion: 315 S.W.3d 72 (2009)

Robert L. MYER and Strider Marketing Group, Inc., Appellants,

v.

AMERICO LIFE, INC., Americo Financial Life and Insurance Annuity Company, Great Southern Life Insurance Company, The Ohio State Life Insurance Company, and National Farmer's Union Life Insurance Company, Appellees.

No. 05-08-01053-CV.

Court of Appeals of Texas, Dallas.

October 22, 2009.

Rehearing Overruled July 30, 2010.

73*73 D. Douglas Brothers, Craig T. Enoch, Winstead Sechrest & Minick P.C., Peter E. Ferraro, The Ferraro Law Firm, P.C., Austin, TX, for Appellants.

Mike A. Hatchell, Locke Liddell & Sapp, LLP, John K. Schwartz, Barbara M. Ellis, Susan Kidwell, Austin, TX, Edwin R. De Young, Roger B. Cowie, Locke Liddell & Sapp, LLP, Dallas, TX, for Appellees.

Before Justices MOSELEY, O'NEILL, and MURPHY.

OPINION

Opinion By Justice O'NEILL.

Appellants Robert L. Myer and Strider Marketing Group, Inc. (collectively referred to as appellants) and Americo Life, Inc., Americo Financial Life and Insurance Annuity Company, Great Southern Life Insurance Company, The Ohio State Life Insurance Company, and National Farmer's Union Life Insurance Company (collectively referred to as appellees) participated in arbitration. Appellants filed a petition with the district court to confirm the award, and appellees filed a motion to vacate or modify the award. The trial court denied appellants' motion to confirm the award and granted appellees' motion to vacate.

On appeal, appellants assert the trial court ignored rules of contract construction regarding whether the parties' arbitration agreement was ambiguous and whether an arbitrator can be disqualified by the American Arbitration Association (AAA). Further, they argue each of appellees' remaining challenges fails as a matter of law. The parties agree the Federal Arbitration Act applies to this dispute. We reverse and remand for further proceedings.

Background

The parties acknowledge the facts are generally undisputed; therefore, we will discuss only those facts relevant to the arguments on appeal, rather than detailing the business dealings leading up to the arbitration.

Appellant Myer built a business platform for the sale and servicing of tax-sheltered insurance products. Myer sold the insurance companies to appellees in 1998. Appellees were unwilling to pay the full value up front, so the parties agreed to use "trailer agreements" as a financing mechanism. The parties entered into a new trailer agreement in October 1998, which contained, in part, the following arbitration clause:

In the event of any dispute arising after the date of this Agreement among the parties hereto with reference to any transaction contemplated by this Agreement the same shall be referred to three arbitrators. Americo shall appoint one arbitrator and Myer shall appoint one arbitrator and such two arbitrators to select the third.... Each arbitrator shall be a knowledgeable, independent businessperson or professional. If either Americo or Myer refuses or neglects 74*74 to appoint an arbitrator within 30 days after receipt of the written request for arbitration, the initiating party may appoint a second arbitrator....

Several controversies arose between the parties and in February of 2005, appellees filed a Demand for Arbitration and Complaint in Arbitration with the AAA. Appellees appointed Ernest E. Figari, Jr. as an arbitrator, and appellants appointed Rodney D. Moore. Appellants filed an objection to Figari under AAA rule R-17, which required that "any arbitrator shall be impartial and independent and shall perform his or her duties with diligence and good faith." In March of 2005, a AAA case manager issued a decision disqualifying and removing Figari as arbitrator.

After the AAA removed Figari, appellees sent a letter to the AAA and appellants stating the following:

Americo will proceed to arbitrate this matter subject to and without waiving its objection to the AAA's decision and without waiver of the right to appeal any decision in this matter based on the erroneous removal of Mr. Figari as Americo's designated member of the Arbitration panel (citations omitted). Americo hereby places its standing objection to conducting this arbitration without Mr. Figari on the Panel.

Based on the running objection, appellees contend they were not required to do anything else to preserve their complaint. Appellees then appointed Richard A. Sayles as an arbitrator. The parties later agreed to the appointment of the third arbitrator.

The arbitration commenced on March 27, 2007 and a final award was rendered on June 29, 2007. The arbitrators reached a 3-0 decision in appellants' favor and awarded declaratory relief, $9.29 million in breach of contract damages, $15.8 million in damages for amounts wrongfully withheld under the new trailer agreement, and $1.29 million in attorneys' fees and costs.

On July 9, 2008, appellants filed a petition to confirm the arbitration award in the district court. Appellees later filed a motion to vacate or modify the arbitration award and argued the award was not by arbitrators appointed under the method required in the agreement and the panel exceeded its authority. On July 15, 2008, the trial court denied the motion to confirm and granted appellees' motion to vacate the arbitration award. In its conclusions of law, the trial court stated the AAA failed to follow the arbitration selection method contained in the first paragraph of section 3.3 of the new trailer agreement by not allowing appellees to appoint Figari, and because the award was not issued by a properly appointed and authorized panel, it was void and had no binding effect. The trial court did not consider appellees' remaining grounds for vacating the award because it concluded any remaining arguments were moot.

Appellants filed a motion to reconsider. The trial court denied the motion on September 8, 2008. This appeal followed.

Discussion

We begin our analysis by considering appellants' contention that appellees waived the argument they made to the trial court—and now make on appeal—to sustain the trial court's order vacating the arbitration award because the argument was never presented to the arbitration panel or any other proper tribunal before appellees participated in the arbitration. Appellees respond they properly objected and notified the arbitration panel and appellants of their running objection to Figari's removal from the panel; therefore, the issue is properly preserved for our review. We agree with appellants.

75*75 After appellants objected to Figari, appellees responded by arguing appellants' objection was based on "the erroneous contention that Mr. Figari served as a non-neutral arbitrator" in two previous arbitrations involving the same parties; however, they alleged he served as a neutral arbitrator in both proceedings. They further argued the AAA rules allowed the parties to agree to use a non-neutral arbitrator, but they acknowledged the parties had not reached such an agreement.

Appellees cited to rule R-12(a), which provides that "[w]here the parties have agreed that each party is to name one arbitrator, the arbitrators so named must meet the standards of rule R-17 with respect to impartiality and independence...." AAA Rule R-12(a) (2003). Rule R-17(a) states an arbitrator must be impartial and independent and shall perform his duties with diligence and in good faith. Id. Rule R-17(a). An arbitrator is subject to disqualification for (i) partiality or lack of independence, (ii) inability or refusal to perform his or her duties with diligence and in good faith, and (iii) any grounds for disqualification provided by applicable law. Id. Appellees then contended "there is no evidence that Mr. Figari does not meet all of the requirements of Rule R-17(a)." Thus, under rule R-17(b)[1], appellees urged the AAA to overrule appellants' objection to Figari serving on the arbitration panel.

After arbitration, appellees argued to the trial court the award should be vacated under section five of the Federal Arbitration Act because the award was not made by arbitrators who were appointed under the method provided in the trailer agreement.[2] In their brief in support of their motion to vacate the arbitration award, appellees further explained their argument to mean the trailer agreement did not require the party-appointed arbitrators to be "independent and impartial. Nor does the Agreement allow the AAA to disqualify a party's appointed arbitrator for partiality, bias, or any other basis." They continued to argue that because their right to select an arbitrator was governed by the standards in the trailer agreement, the impartiality standard set out in the AAA rules was inapplicable. Essentially, appellees argued to the trial court they had a right to a non-neutral arbitrator. This, however, is not the argument they raised to the AAA in response to appellants' objection to Figari.

In fact, they repeatedly argued to the arbitration panel that Figari was neutral and met the rules of impartiality and independence as required under rule R-17(a). They specifically stated "there is no evidence 76*76 that Mr. Figari does not meet all of the requirements of Rule R-17(a)." At no time did they object or argue to the arbitration panel that they had a right to a non-neutral arbitrator that did not meet the requirements of independence and impartiality, nor have they cited us to any such record reference. Not until after the arbitration panel ruled against them did appellees then assert this new argument to the trial court.

As noted above, appellees did not raise the argument they now make on appeal to the arbitrating entity (AAA) or the arbitration panel prior to the arbitration proceeding. See, e.g., Kendall Builders, Inc. v. Chesson, 149 S.W.3d 796, 806 (Tex.App.-Austin 2004, pet. denied) ("A party may not sit idly by during an arbitration procedure and then collaterally attack that procedure on grounds not raised before the arbitrator when the result turns out to be adverse."); Bossley v. Mariner Fin. Group, Inc., 11 S.W.3d 349, 351-52 (Tex. App.-Houston [1st Dist.] 2000), aff'd, 79 S.W.3d 30 (Tex.2002).

We acknowledge that rule R-17(a)(iii) allows the parties to agree in writing that arbitrators directly appointed by a party under rule R-12 shall be non-neutral, in which case such arbitrators need not be impartial or independent and shall not be subject to disqualification for partiality or lack of independence. AAA Rule R-17(a)(iii). However, both parties conceded at oral argument there is no document in the record showing the parties agreed to use a non-neutral arbitrator. Had the appellees asserted their alleged right to a non-neutral arbitrator to the AAA or the arbitration panel, the objection they later raised to the trial court might not have been waived, and thus available to sustain the trial court's holding in appellees' favor. However, on the record before us, appellees waived their argument that they were entitled to appoint Figari as a non-neutral arbitrator. Kendall, 149 S.W.3d at 806; Bossley, 11 S.W.3d at 351-52.

Appellees contend the arbitration panel's authority to enter the award is a claim of fundamental error that cannot be waived and cite to a 1986 Second Circuit case. See Avis Rent A Car Sys., Inc. v. Garage Employees Union, Local 272, 791 F.2d 22 (2d Cir.1986). However, we are persuaded by the holding in Brook v. Peak International, Ltd., 294 F.3d 668, 673 (5th Cir.2002), in which the court determined the "failure to file a clear written objection to a defect in the [arbitrator] selection process constitutes waiver." Because appellees failed to file a clear written objection to the arbitration panel regarding the defect they now complain about on appeal, their issue is waived.

Further, before proceeding to arbitration, appellees could have sought an order from a district court compelling arbitration before what they considered a properly selected arbitrator. See 9 U.S.C.A. § 4 (2009) ("A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction ... for an order directing that such arbitration proceed in a manner provided for in such agreement."); Brook, 294 F.3d at 673. This they failed to do.

Thus, we agree with appellants and conclude appellees waived the argument they made below regarding whether the panel was appointed in violation of the method provided for in the arbitration agreement. We sustain appellants' first issue. Because the trial court expressly stated in its findings of fact and conclusions of law that "because the Court has found that the Award is void and had no binding effect, the remaining grounds raised by Defendants 77*77 for vacating the Award are moot and, therefore, the Court has not reached them," we likewise will not consider them.

We reverse and remand to the trial court for further proceedings.

[1] Rule R-17(b) states "[u]pon objection of a party to the continued service of an arbitrator, or on its own initiative, the AAA shall determine whether the arbitrator should be disqualified under the grounds set out above, and shall inform the parties of its decision, which decision shall be conclusive." AAA Rule R-17(b).

[2] Section five of the Federal Arbitration Act states the following:

If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed; but if no method be provided therein, or if a method be provided and any party thereto shall fail to avail himself of such method, or if for any other reason there shall be a lapse in the naming of an arbitrator or arbitrators or umpire, or in filling a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator or arbitrators or umpire, as the case may require, who shall act under the said agreement with the same force and effect as if he or they had been specifically named therein; and unless otherwise provided in the agreement the arbitration shall be by a single arbitrator.

9 U.S.C. § 5 (2009).

Texas Supreme Court again addresses arbitration issues, hands down three arb-related decisions in one day

2011-12-16T17:11:00.000-08:00

Among the opinions released by the Texas Supreme Court in almost a dozen cases decided today, Friday December 16, 2011, no less than three deal with arbitration, and all three relate in one way or another to the selection of arbitrators. Here is the list, with opinion excerpts:

In re Service Corporation International, (Tex. 2011)

No. 10-0158 (Tex. Dec. 16, 2011)(appointment of arbitrator based on agreement on method, rather than selection by the trial court judge) (mandamus relief granted)

Norma Sandoval and her sister, Nora Martinez, jointly filed suit against Service Corporation International (SCI) alleging fraud, deceptive trade practices, and other tort claims arising from their respective interment rights and services contracts for family burial plots at Mont Meta Memorial Park.1 The parties agree the dispute was required to be arbitrated pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-16.

SCI asserts that the trial court’s appointment of an arbitrator interfered with the contractual rights of the parties and was not authorized by the Federal Arbitration Act. Without reaching the parties’ arguments as to which party or parties have the burden of approaching the AAA to appoint an arbitrator, we agree with SCI that the trial court’s appointment was an abuse of discretion from which there is no adequate remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004). In a related case also decided today, In re Service Corp. International & SCI Tex. Funeral Services, Inc. d/b/a Magic Valley Memorial Gardens, we analyzed an identical arbitration provision. __ S.W.3d __ (Tex. 2011). Following the rationale in Magic Valley Memorial Gardens, we conclude the trial court abused its discretion by appointing an arbitrator instead of following the agreed-upon method of selection outlined in the contract. As a matter of law, the two month delay in the selection of an arbitrator in this case, by itself, does not establish a lapse or failure of the parties to avail themselves of the contractual selection method. See 9 U.S.C. § 5; Magic Valley Memorial Gardens, __ S.W.3d __ (Tex. 2011). Accordingly, without hearing oral argument, we conditionally grant SCI’s petition for writ of mandamus and direct the trial court to vacate its prior order appointing David Calvillo as arbitrator. TEX. R.APP. P. 59.1, 52.8(c). We are confident the trial court will comply, and the writ will issue only if it fails to do so.

OPINION DELIVERED: December 16, 2011

Pursuant to Texas Rule of Appellate Procedure 52.8(c), without hearing oral argument, the Court conditionally grants the writ of mandamus.
Per Curiam Opinion
Links to pdf version of opinion and to Electronic Briefs in this case can be found on the Texas Supreme Court's web site

Full case style and lower-court info: IN RE SERVICE CORPORATION INTERNATIONAL AND SCI TEXAS FUNERAL SERVICES, INC., JOINTLY D/B/A MONT META MEMORIAL GARDENS; from Cameron County; 13th district (13-10-00026-CV, ___ SW3d ___, 02-23-10)

In Re SCI, (Tex. 2011)

No. 10-0155 (Tex. Dec. 16, 2011)(arbitration, procedure to select arbitrator)(mandamus relief granted)

This mandamus proceeding arises from an arbitration agreement governed by the Federal Arbitration Act (FAA). The parties entered into a contract for interment rights and services. The contract obligated the parties to arbitrate this dispute over the care and maintenance of the cemetery.

The arbitration agreement provides that an arbitrator would either be selected by mutual agreement of the parties or appointed by the American Arbitration Association (AAA). The parties failed to agree to an arbitrator and the trial court appointed an arbitrator without allowing a reasonable opportunity to procure an appointment by AAA. We conclude that the trial court abused its discretion and conditionally grant the petition for writ of mandamus.

We conclude that the contract is not ambiguous on this point. If the parties cannot agree on an arbitrator, the contract requires that they use AAA to appoint the arbitrator.

Full case style and lower-court info: IN RE SERVICE CORPORATION INTERNATIONAL AND SCI TEXAS FUNERAL SERVICES, INC. D/B/A MAGIC VALLEY MEMORIAL GARDENS; from Hidalgo County; 13th district (13-09-00681-CV, ___ SW3d ___, 02-17-10) stay order issued March 12, 2010, lifted
Pursuant to Texas Rule of Appellate Procedure 52.8(c), without hearing oral argument, the Court conditionally grants the writ of mandamus.
Per Curiam Opinion
Links to pdf version of opinion and to Electronic Briefs in this case can be found on the Texas Supreme Court's web site

Americo Life, Inc. v. Myer, (Tex. 2011)

No. 10-0734 (Tex. Dec. 16, 2011)(selection of arbitrators on panel, issue of neutrality of chosen arbitrator)

This case concerns an arbitration provision that allows each party to appoint one arbitrator to a panel, subject to certain requirements. At issue is whether Americo Life, Inc. waived its objection to the removal of the arbitrator it selected. The underlying dispute concerned the financing mechanism for Americo’s purchase of several insurance companies from Robert Myer.1 Pursuant to the financing agreement, Americo and Myer submitted their dispute to arbitration under American Arbitration Association (AAA) rules. The arbitrators found in favor of Myer, and Americo filed a motion to vacate the award. The trial court granted the motion. It held that Americo was entitled to any arbitrator that met the requirements set forth in the financing agreement and that the arbitrator removed by the AAA met those requirements. The court of appeals reversed, holding that Americo had waived these arguments by not presenting them to the AAA. Because the record demonstrates otherwise, we reverse the court of appeals’ judgment and remand the case to the court of appeals for further proceedings.

The court of appeals is correct that Americo did not expressly state that arbitrators were not required to be neutral. 315 S.W.3d at 75–76. However, Americo argued that the AAA requirements did not apply, that the only applicable requirements were that they be knowledgeable and independent businesspersons or professionals, and that Figari met these qualifications. Americo properly preserved this argument. Therefore, without hearing oral argument, TEX. R.APP. P. 59.1, we reverse the court of appeals’ judgment and remand the case to the court of appeals for further proceedings consistent with this opinion.

OPINION DELIVERED: December 16, 2011

Full case style and lower-court info: AMERICO LIFE, INC., AMERICO FINANCIAL LIFE AND ANNUITY INSURANCE COMPANY, GREAT SOUTHERN LIFE INSURANCE COMPANY, THE OHIO STATE LIFE INSURANCE COMPANY, AND NATIONAL FARMERS' UNION LIFE INSURANCE COMPANY v. ROBERT L. MYER AND STRIDER MARKETING GROUP, INC.; from Dallas County; 5th district (05-08-01053-CV, 315 SW3d 72, 10-22-09)
Pursuant to Texas Rule of Appellate Procedure 59.1, after granting the petition for review and without hearing oral argument, the Court reverses the court of appeals' judgment and remands the case to that court.
Per Curiam Opinion
Links to pdf version of opinion and to Electronic Briefs in this case can be found on the Texas Supreme Court's web site

Interpretation of disputed provision of MSA in divorce case left to discretion of mediator, given the parties agreement to that effect

2011-12-08T11:14:00.000-08:00

Houston Court of appeals reverses trial court for deciding dispute over a specific provision of a mediated stettlement agreement in a divorce case based on parties' agreement to have the mediator decide such dispute and - in effect - act as arbitrator. Court would ordinarily have role in construction of mediated settlement agreement (MSA) as a contract, but not where - as here - the parties put the mediator in charge of arbitrating subsequent disagreements.

Entry of Judgment on the Mediated Settlement Agreement

Texas public policy encourages the peaceable resolution of disputes, particularly those involving the parent-child relationship, and the early settlement of pending litigation through voluntary settlement procedures. Tex. Civ. Prac. & Rem. Code Ann. § 154.002 (West 2011).

The Family Code furthers this policy by providing alternative dispute resolution procedures through which parties may settle a suit for dissolution of a marriage. See, e.g., Tex. Fam. Code Ann. §§ 6.601-.604 (West 2006). One such procedure is mediation. See id. § 6.602.

A mediated settlement agreement is binding under section 6.602 of the Family Code if the agreement:

(1) provides, in a prominently displayed statement that is in boldfaced type or capital letters or underlined, that the agreement is not subject to revocation;

(2) is signed by each party to the agreement; and

(3) is signed by the party’s attorney, if any, who is present at the time the agreement is signed.

Id. § 6.602(b).

Settlement agreements complying with section 6.602 are immediately enforceable, not subject to repudiation by a party, and, with certain limited exceptions, binding on the trial court without approval or determination of whether the agreement’s terms are just and right. See In re Joyner, 196 S.W.3d 883, 889 (Tex. App.—Texarkana 2006, orig. proceeding); Cayan v. Cayan, 38 S.W.3d 161, 164-66 (Tex. App.—Houston [14th Dist.] 2000, pet. denied); see also Spiegel v. KLRU Endowment Fund, 228 S.W.3d 237, 242 (Tex. App.—Austin 2007, pet. denied) (noting that when MSA meets section 6.602’s requirements, “it must be enforced in the absence of allegations that the agreement calls for the performance of an illegal act or that it was ‘procured by fraud, duress, coercion, or other dishonest means.’”) (quoting Boyd v. Boyd, 67 S.W.3d 398, 403 (Tex. App.—Fort Worth 2002, no pet.). “After all, the purpose of mediation is to let parties settle their property as they see fit, keeping those matters out of the courtroom.” Joyner, 196 S.W.3d at 889. A trial court has no authority to enter a judgment that varies from the terms of a mediated settlement agreement. Cf. Garcia-Udall v. Udall, 141 S.W.3d 323, 332 (Tex. App.—Dallas 2004, no pet.) (concluding that trial court abused its discretion under Tex. Fam. Code Ann. § 153.0071 (West 2002) by entering judgment not conforming with MSA in suit affecting parent-child relationship).

Neither WIFE nor HUSBAND disputes that the MSA here meets the requirements of section 6.602. Likewise, they do not dispute that the MSA is enforceable; there is no allegation that the agreement requires the performance of an illegal act or was procured by fraud, duress, or coercion. Rather, the parties’ only dispute is with respect to the meaning of that part of the MSA dividing HUSBAND’s “future retirement disbursements” equally and whether future distributions from HUSBAND’s ESOP are included within its scope.

Ordinarily, if the terms of the MSA could be given a certain or definite meaning, we would construe the agreement as a matter of law to determine whether WIFE’s or HUSBAND’s construction is correct. See Garcia-Udall, 141 S.W.3d at 328. But, this case presents a unique circumstance in that the parties agreed in the MSA to submit “(a) all drafting disputes[,] (b) all issues regarding the interpretation of [the MSA,] and (c) all issues regarding the intent of the parties as reflected in the [MSA]” to the mediator and to make his decision on these matters binding. Thus, by their agreement, WIFE and HUSBAND removed the resolution of their dispute from the province of the courts and assigned that responsibility to the mediator. Absent some allegation that the MSA requires an illegal act or was procured by fraud, duress, coercion, or other dishonesty, the trial court was obligated to enforce their agreement. See id. at 332; Spiegel, 228 S.W.3d at 242.

We reject HUSBAND’s contention that the mediator’s “flip-flopping” somehow nullifies his decision regarding the parties’ intended division of HUSBAND’s “future retirement disbursements.” HUSBAND has offered no reason why a mediator should not have the same discretion afforded trial courts to reconsider a ruling. See generally Fruehauf Corp. v. Carrillo, 848 S.W.2d 83, 84 (Tex. 1993) (noting that trial court has power to set aside interlocutory orders at any time before a final judgment is entered). The record we have of the parties’ dispute before the mediator is limited, consisting only of the MSA, counsels’ representations at the hearing on the entry of judgment, and the three letters issued by the mediator. We will not speculate about the reasons for the mediator’s reconsideration of his initial determination nor the arguments presented to him by the parties. We note only that the mediator acknowledged the parties’ continuing dispute and professed an understanding of their “concerns and the practical effect that certain language may or may not have” in his third letter. We conclude that letter, being the last of the mediator’s communications, constitutes the final expression of his decision with respect to the division of HUSBAND’s “future retirement benefits.”

Moore v. Moore, No. 01-11-00163-CV (Tex.App.- Houston [1st Dist.] Dec. 8, 2011)

Click below to read the opinion (names of parties replaced by designations HUSBAND and WIFE)

MEMORANDUM OPINION

WIFE appeals the trial court’s final decree of divorce entered after she had reached a mediated settlement agreement (MSA) with her husband, HUSBAND. In her sole issue, WIFE argues that the trial court abused its discretion by entering a decree inconsistent with the terms of the MSA. Finding error, we reverse in part, reform in part, and affirm in part.

Background

WIFE and HUSBAND entered into a mediated settlement of their divorce case that divided their marital estate, provided for conservatorship of their five children, and established child support. The MSA, signed by HUSBAND, WIFE, and their respective attorneys, provided in boldfaced, capitalized, and underlined type that it was “NOT SUBJECT TO REVOCATION” and that HUSBAND and WIFE were “ENTITLED TO JUDGMENT” thereon. To resolve future disagreements with respect to the MSA, the parties agreed to submit:

(a) all drafting disputes; (b) all issues regarding the interpretation of this Mediated Settlement Agreement; and (c) all issues regarding the intent of the parties as reflected in the Mediated Settlement Agreement to [the mediator], whose decision shall be binding on the parties, including decisions on the payment for additional mediation fees (if any).

After the trial court rendered judgment on the MSA and while the parties were drafting the final decree of divorce, a dispute arose regarding the division of future disbursements from HUSBAND’s employee stock ownership plan (ESOP).

The MSA divided HUSBAND’s employment benefits as follows:

WIFE contended that this division entitled her to fifty percent of all HUSBAND’s “future retirement disbursements,” including disbursements from his 401(k) plan and his ESOP. HUSBAND agreed that WIFE was entitled to fifty percent of the future disbursements from his 401(k) plan, but not from his ESOP. As provided in the MSA, they submitted their dispute to the mediator.

The mediator issued three separate letters announcing his decision. In his first letter, the mediator stated his recollection that the parties intended to “split” the 401(k) plan, grant one hundred percent of the ESOP to HUSBAND, and “split” the “future retirement disbursement . . . 50/50 between the parties.” With respect to the language dividing the “future retirement disbursements,” the mediator instructed that specific language be included in the divorce decree:

W-6: 50.00% of HUSBAND’s future retirement disbursements from ISI Specialist, Inc. and/or Brand Industrial Specialist, LLC arising out of HUSBAND’s employment with ISI Specialist, Inc. and/or Brand Industrial Specialist, LLC as will be more particularly defined in a Qualified Domestic Relations Order entered by this Court.

Three months later, the mediator issued a second letter regarding the scope of the “future retirement disbursements.” He wrote that he could “not recall that the parties were aware of whether item 15 [the ESOP] was separate from or a part of item 16 [the future retirement disbursements]. However, it is clear from my notes, my recollection, and the Mediated Settlement Agreement, that Mr. Moore was awarded 100.00% of item 15. Save and except for item 15, then whatever value was left in or left over from item 16 was then awarded on a 50/50 basis.” Thus, in both his first and second letters, the mediator seemingly agreed with HUSBAND’s construction of the MSA, concluding that WIFE was not entitled to future disbursements from the ESOP because it had been awarded solely to HUSBAND.

Apparently these two letters did not finally resolve the parties’ dispute about “future retirement disbursements” because the mediator issued a third letter. In it he stated that he was “aware of everyone’s concerns and the practical effect that certain language may or may not have.” He then suggested the following language for the division of HUSBAND’s employee benefits, which was different from the previously suggested language and more in agreement with WIFE’s construction of the MSA:

H-3 Fifty percent (50.00%) of Industrial Specialists, Inc. 401(k) Plan; Balance: unknown

H-4 One hundred percent (100.00%) of the balance of ISI Specialists, Inc. Employees’ Stock Ownership Plan; Plan No. 4-51128, as of August 11, 2009 with an approximate balance of $46,765.44.

H-5 Save and except for that portion awarded to HUSBAND in Item H-4, fifty percent (50.00%) of all future retirement disbursements arising out of HUSBAND’s employment with ISI Specialist, Inc. and/or Brand Industrial, whether from retirement or participation in the employee stock ownership plan.

W-5 Fifty percent (50.00%) of HUSBAND’s interest in Industrial Specialists, Inc. 401(k) Plan as of January 26, 2010 arising out of HUSBAND’s employment with Industrial Specialist, Inc. and more particularly defined in a Qualified Domestic Relations Order which will be entered with this court.

W-6 Save and except for that portion awarded to HUSBAND in item H-4, fifty percent (50.00%) of all future retirement disbursements arising out of HUSBAND’s employment with ISI Specialist, Inc. and/or Brand Industrial, whether from retirement or participation in the employee stock ownership plan, and more particularly defined in a Qualified Domestic Relations Order to be entered by this Court.

WIFE and HUSBAND then sought entry of the final divorce decree in the trial court. In their proposed decrees, they offered competing provisions with respect to the future disbursements from HUSBAND’s ESOP. WIFE’s tender incorporated the language used in the mediator’s third and final letter, whereas HUSBAND’s tender was consistent with the mediator’s first two announcements.

The court, finding that the mediator’s letters were not “helpful because they’re 180 degrees opposite of each other,” entered a final decree dividing the employee benefits in the manner proposed by HUSBAND and suggested in the mediator’s first and second letters.

Property to Husband

H-3. 50% of Industrial Specialists, Inc. 401(k) Plan; Balance unknown

H-4. 100% of ISI Specialists, Inc. Employees Stock Ownership Plan;

H-5. 50% of all future retirement disbursements due to Bill[y] Joe Moore’s employment and the benefits arising from such employment with ISI Specialist, Inc. and/or Brand Industrial, save and except 100% of the Employee Stock Ownership Plan which is awarded solely to HUSBAND.

Property to Wife

W-5. 50% of HUSBAND’s interest in Industrial Specialists, Inc. 401(k) Plan as of January 26, 2010 arising out of HUSBAND’s employment with Industrial Specialist, In[c]. and more particularly defined in a Qualified Domestic Relations Order which will be entered with the Court.

W-6. 50% of HUSBAND’s future retirement disbursements from ISI Specialist, Inc. [a]nd/or Brand Industrial Specialists, save and except for 100% of the Employee Stock Ownership Plan which is awarded solely to HUSBAND here in [sic], and more particularly defined in a Qualified Domestic Relations Order which will be entered with this court.

WIFE, arguing that the construction and language provided by the mediator in his third letter was binding on the parties and the trial court, appeals the divorce decree on the ground that its terms “vary from the terms of the MSA and operate to deprive [her] of one-half of the future disbursements under the employees’ stock ownership plan as called for by the MSA.”

Entry of Judgment on the Mediated Settlement Agreement

Texas public policy encourages the peaceable resolution of disputes, particularly those involving the parent-child relationship, and the early settlement of pending litigation through voluntary settlement procedures. Tex. Civ. Prac. & Rem. Code Ann. § 154.002 (West 2011). The Family Code furthers this policy by providing alternative dispute resolution procedures through which parties may settle a suit for dissolution of a marriage. See, e.g., Tex. Fam. Code Ann. §§ 6.601-.604 (West 2006). One such procedure is mediation. See id. § 6.602. A mediated settlement agreement is binding under section 6.602 of the Family Code if the agreement:

(1) provides, in a prominently displayed statement that is in boldfaced type or capital letters or underlined, that the agreement is not subject to revocation;

(2) is signed by each party to the agreement; and

(3) is signed by the party’s attorney, if any, who is present at the time the agreement is signed.

Id. § 6.602(b).

Settlement agreements complying with section 6.602 are immediately enforceable, not subject to repudiation by a party, and, with certain limited exceptions, binding on the trial court without approval or determination of whether the agreement’s terms are just and right. See In re Joyner, 196 S.W.3d 883, 889 (Tex. App.—Texarkana 2006, orig. proceeding); Cayan v. Cayan, 38 S.W.3d 161, 164-66 (Tex. App.—Houston [14th Dist.] 2000, pet. denied); see also Spiegel v. KLRU Endowment Fund, 228 S.W.3d 237, 242 (Tex. App.—Austin 2007, pet. denied) (noting that when MSA meets section 6.602’s requirements, “it must be enforced in the absence of allegations that the agreement calls for the performance of an illegal act or that it was ‘procured by fraud, duress, coercion, or other dishonest means.’”) (quoting Boyd v. Boyd, 67 S.W.3d 398, 403 (Tex. App.—Fort Worth 2002, no pet.). “After all, the purpose of mediation is to let parties settle their property as they see fit, keeping those matters out of the courtroom.” Joyner, 196 S.W.3d at 889. A trial court has no authority to enter a judgment that varies from the terms of a mediated settlement agreement. Cf. Garcia-Udall v. Udall, 141 S.W.3d 323, 332 (Tex. App.—Dallas 2004, no pet.) (concluding that trial court abused its discretion under Tex. Fam. Code Ann. § 153.0071 (West 2002) by entering judgment not conforming with MSA in suit affecting parent-child relationship).

Neither WIFE nor HUSBAND disputes that the MSA here meets the requirements of section 6.602. Likewise, they do not dispute that the MSA is enforceable; there is no allegation that the agreement requires the performance of an illegal act or was procured by fraud, duress, or coercion. Rather, the parties’ only dispute is with respect to the meaning of that part of the MSA dividing HUSBAND’s “future retirement disbursements” equally and whether future distributions from HUSBAND’s ESOP are included within its scope.

Ordinarily, if the terms of the MSA could be given a certain or definite meaning, we would construe the agreement as a matter of law to determine whether WIFE’s or HUSBAND’s construction is correct. See Garcia-Udall, 141 S.W.3d at 328. But, this case presents a unique circumstance in that the parties agreed in the MSA to submit “(a) all drafting disputes[,] (b) all issues regarding the interpretation of [the MSA,] and (c) all issues regarding the intent of the parties as reflected in the [MSA]” to the mediator and to make his decision on these matters binding. Thus, by their agreement, WIFE and HUSBAND removed the resolution of their dispute from the province of the courts and assigned that responsibility to the mediator. Absent some allegation that the MSA requires an illegal act or was procured by fraud, duress, coercion, or other dishonesty, the trial court was obligated to enforce their agreement. See id. at 332; Spiegel, 228 S.W.3d at 242.

We reject HUSBAND’s contention that the mediator’s “flip-flopping” somehow nullifies his decision regarding the parties’ intended division of HUSBAND’s “future retirement disbursements.” HUSBAND has offered no reason why a mediator should not have the same discretion afforded trial courts to reconsider a ruling. See generally Fruehauf Corp. v. Carrillo, 848 S.W.2d 83, 84 (Tex. 1993) (noting that trial court has power to set aside interlocutory orders at any time before a final judgment is entered). The record we have of the parties’ dispute before the mediator is limited, consisting only of the MSA, counsels’ representations at the hearing on the entry of judgment, and the three letters issued by the mediator. We will not speculate about the reasons for the mediator’s reconsideration of his initial determination nor the arguments presented to him by the parties. We note only that the mediator acknowledged the parties’ continuing dispute and professed an understanding of their “concerns and the practical effect that certain language may or may not have” in his third letter. We conclude that letter, being the last of the mediator’s communications, constitutes the final expression of his decision with respect to the division of HUSBAND’s “future retirement benefits.”

The mediator suggested this division of the “future disbursements”:

H-5 Save and except for that portion awarded to HUSBAND in item H-4, fifty percent (50.00%) of all future retirement disbursements arising out of HUSBAND’s employment with ISI Specialist, Inc. and/or Brand Industrial, whether from retirement or participation in the employee stock ownership.

…

W-6 Save and except for that portion awarded to HUSBAND in item H-4, fifty percent (50.00%) of all future retirement disbursements arising out of HUSBAND’s employment with ISI Specialist, Inc. and/or Brand Industrial, whether from retirement or participation in the employee stock ownership plan, and more particularly defined in a Qualified Domestic Relations Order to be entered by this Court.

The trial court’s departure from the suggested language is not insignificant. By entering a divorce decree that awards WIFE only fifty percent of HUSBAND’s “future retirement disbursements from ISI Specialist, Inc. and/or Brand Industrial arising out of HUSBAND’s employment,” the trial court deprived WIFE of her right to fifty percent of all “future retirement disbursements . . . [from HUSBAND’s] participation in the employee stock ownership plan,” which is a right the mediator finally determined the parties intended her to have as a part of the MSA. The entry of a divorce decree like this one, which varies from the terms of the MSA, is inconsistent with the public policy favoring the resolution of disputes outside of our courthouses in the manner the parties see fit.

To defend the trial court’s judgment, HUSBAND argues that the language suggested by the mediator in his third letter is technically incorrect because the ESOP is not a retirement plan and is not community property. But, we cannot pass upon the character of HUSBAND’s ESOP because we have no record of the plan’s terms or the history of his participation in it. The mediator, in contrast, was the decision-maker with whom the parties presumably discussed the character and division of their property. Even if the future dividends paid under the ESOP are properly characterized as HUSBAND’s separate property, the parties certainly may agree to divide their property in a manner different than a court might divide it. See Cayan, 38 S.W.3d at 166 (“[T]he prohibition against divesting a spouse of separate property applies only to judicial, i.e., unagreed, divestitures and does not restrict the parties from dividing separate property by agreement.”).

Although the trial court merely sought to give effect to the parties’ true intent in its divorce decree, as the trial court understood that intent, the trial court erred in dividing the future disbursements from HUSBAND’s ESOP in a manner other than that provided by the mediator. See Garcia-Udall, 141 S.W.3d at 332; see also Tex. Fam. Code Ann. § 6.602(c); Reza v. Reza, No. 02-07-00371-CV, 2008 WL 4445619, at *1 (Tex. App.—Fort Worth Oct. 2, 2008, no pet.) (holding that court abused discretion by dividing property not mentioned in the MSA).

Accordingly, we sustain WIFE’s sole issue.

Necessity of Findings of Fact and Conclusions of Law

HUSBAND contends that because WIFE did not request, and the trial court did not file, findings of fact and conclusions of law explaining the trial court’s reasons for departing from the division of property set forth in the mediator’s third letter, WIFE has waived any error.[1] We disagree.

[1] HUSBAND relies on section 6.711(a) of the Family Code, which provides:

(a) In a suit for dissolution of a marriage in which the court has rendered a judgment dividing the estate of the parties, on request by a party, the court shall state in writing its findings of fact and conclusions of law concerning:

(1) the characterization of each party’s assets, liabilities, claims, and offsets on which disputed evidence has been presented; and

(2) the value or amount of the community estate’s assets, liabilities, claims, and offsets on which disputed evidence has been presented.

Tex. Fam. Code Ann. § 6.711(a) (West 2006).

In each of the family law cases cited by HUSBAND the trial court heard evidence and made a determination based on that evidence, and, when the appellant failed to request findings of fact and conclusions of law, the appellate court concluded the scope of its review was limited. See Worford v. Stamper, 801 S.W.2d 108, 109 (Tex. 1990) (concluding that trial court impliedly made all findings necessary to support its order modifying child support obligations); Smith v. Smith, 22 S.W.3d 140, 150 (Tex. App.—Houston [14th Dist.] 2000, no pet.) (same with respect to trial court’s division of community property); Frommer v. Frommer, 981 S.W.2d 811, 813 (Tex. App.—Houston [1st Dist.] 1998, pet. dism’d) (same). These authorities do not necessitate a request for findings of fact and conclusions of law in this case. The parties here agreed to the division of their marital estate in a binding MSA pursuant to section 6.602. See Tex. Fam. Code Ann. § 6.602. They did not leave that matter to the trial court’s discretion. Consequently, they did not present any evidence to the trial court as to the character or value of their property, and the trial court was required to render judgment on the MSA. See Cayan, 38 S.W.3d at 166-67. Under the circumstances of this case, the absence of any findings of fact or conclusions of law does not preclude WIFE’s complaint that she was entitled to judgment on the MSA and the trial court failed to correctly enter that judgment.

Conclusion

We reverse the trial court’s final decree of divorce with respect to the division of the future disbursements from HUSBAND’s ESOP in items H-5 and W-6. In accordance with the mediator’s third ruling, we reform the judgment to include this language for items H-5 and W-6:

H-5 Save and except for that portion awarded to HUSBAND in item H-4, fifty percent (50.00%) of all future retirement disbursements arising out of HUSBAND’s employment with ISI Specialist, Inc. and/or Brand Industrial, whether from retirement or participation in the employee stock ownership plan.

W-6 Save and except for that portion awarded to HUSBAND in item H-4, fifty percent (50.00%) of all future retirement disbursements arising out of HUSBAND’s employment with ISI Specialist, Inc. and/or Brand Industrial, whether from retirement or participation in the employee stock ownership plan, and more particularly defined in a Qualified Domestic Relations Order to be entered by this Court.

We affirm the trial court’s final decree of divorce in all other respects.

Harvey Brown

Justice

Panel consists of Justices Jennings, Sharp, and Brown.

--------------------------------------------------------------------------------

[1] HUSBAND relies on section 6.711(a) of the Family Code, which provides:

(a) In a suit for dissolution of a marriage in which the court has rendered a judgment dividing the estate of the parties, on request by a party, the court shall state in writing its findings of fact and conclusions of law concerning:

(1) the characterization of each party’s assets, liabilities, claims, and offsets on which disputed evidence has been presented; and

(2) the value or amount of the community estate’s assets, liabilities, claims, and offsets on which disputed evidence has been presented.

Tex. Fam. Code Ann. § 6.711(a) (West 2006).

Schlumberger Technology Corporation v. Baker Hughes Inc. - Appeals Court rules in complex arbitration-within-arbitration dispute

2011-10-13T15:47:00.000-07:00

First Court of Appeals in Houston hands down lengthy opinion in interlocutory appeal of complex dispute over who should hear and resolve subsidiary issue in a pending arbitration proceeding. Parties filed duelling motions to compel arbitration. Finding it has interlocutory jurisdiction over the appeal, the higher court reverses the trial court's decision, holding that in this case the parties agreed to have the issue of arbitrability/arbitral forum decided by arbitration -- rather than the trial court deciding it as a gateway issue, which would ordinarily be the rule.

Schlumberger Technology Corporation v. Baker Hughes Inc.,
No. 01-11-00562-CV (Tex.App. - Houston [1st Dist.] Oct. 13, 2011, no pet. h.)

Opinion issued October 13, 2011

In The

Court of Appeals

For The

First District of Texas

————————————

NO. 01-11-00562-CV

———————————

SCHLUMBERGER TECHNOLOGY CORPORATION, Appellant

BAKER HUGHES INCORPORATED, Appellee

On Appeal from the 270th District Court

Harris County, Texas

Trial Court Case No. 2011-25539

O P I N I O N

Schlumberger Technology Corporation and Baker Hughes Incorporated are in the midst of an arbitration proceeding to resolve patent disputes. A disagreement has arisen about whether the presiding panel of arbitrators has jurisdiction to determine a discrete subissue raised by Baker Hughes in the proceeding. Schlumberger contends that the subissue should be resolved by the same panel, but Baker Hughes argues that the issue is governed by a prior settlement agreement between the parties and must be resolved by the mediator who facilitated that agreement.

Baker Hughes initiated court proceedings, and both parties filed motions to compel arbitration in accordance with their respective positions. The trial court granted Baker Hughes’s requested relief and denied Schlumberger’s motion. Schlumberger now appeals from the trial court’s interlocutory order that denied its motion to compel arbitration.

We conclude that we have jurisdiction over this interlocutory appeal. We further conclude that the parties agreed to let the arbitrators resolve their disagreement about the proper arbitral forum for their dispute and that the trial court should have compelled arbitration of that issue. Accordingly, we reverse the trial court’s order denying Schlumberger’s motion, and we remand for further proceedings consistent with this opinion.

Background

Schlumberger and Baker Hughes are competitors in the business of developing, manufacturing, and marketing tools for use in the oil and gas industry. Both own or control patents related to such tools. At various times, disputes have arisen about each party’s alleged infringement of the other’s patents. One of these disputes involved reciprocal claims relating to sensor tools used to gather information and fluid samples from oil and gas wells. Baker Hughes claimed that Schlumberger’s tool infringed a certain patent, and Schlumberger alleged that Baker Hughes’s tool infringed certain of its patents. The parties mediated this dispute, and in October 2004 they executed a settlement agreement. The parties granted each other reciprocal licenses to the patents at issue in that dispute, and they released and discharged each other from "any and all claims, demands or suits, known or unknown, fixed or contingent, liquidated or unliquidated whether or not asserted in the above case, as of this date, arising from or related to the events and transactions which are subject matter to this case." The 2004 settlement agreement also contained the following dispute resolution provision:

If a dispute arises with regard to the interpretation and/or performance of this agreement or any of its provisions, the parties agree to attempt to resolve same by phone conference with the Mediator who facilitated this settlement. If the parties cannot resolve their differences by telephone conference, then each agrees to schedule a day of mediation with the Mediator within thirty (30) days to resolve the disputes and to share the costs of the same equally. If a party refuses to mediate, then the parties agree to submit the issue to binding arbitration before the Mediator in this matter and the party bringing the arbitration shall be entitled to recover attorney’s fees or costs in such arbitration.

After the 2004 settlement agreement was finalized, additional disputes arose between the parties concerning their intellectual property. To facilitate efficient resolution of these disputes, in 2009 the parties entered into two additional agreements: the Patent Dispute Resolution Agreement and the Patent Dispute Procedure Agreement. The Resolution Agreement provided that its purpose was to address and resolve then-current disputes and to provide a process for addressing future disputes about the infringement and validity of each party’s patents. That agreement defined "Current Disputes" as "those Disputes for which assertions have been made prior to the signing of this Agreement," and it expressly referenced an attached exhibit that listed the Current Disputes. The Resolution Agreement also defined "Dispute" as:

. . . any dispute between the Parties arising out of or relating to or in connection with a claim of 1) infringement or the damages arising therefrom, or 2) the invalidity or unenforceability of either Party’s Patents. "Dispute" shall also include disputes relating to the interpretation, construction, alleged breach of this Agreement, the Procedure Agreement, a license agreement or covenant not to sue relating to a Patent or Patents, or amounts paid under such a license agreement or covenant not to sue. Disputes arising under existing licenses or covenants not to sue shall be treated in accordance with Section 3.2, below.

Schlumberger and Baker Hughes agreed that "any Current Disputes or future Disputes . . . shall be solely resolved as set forth in the Procedure Agreement."

Section 3 of the Resolution Agreement carved out an exception for disputes arising from any preexisting patent or license agreement that contained its own dispute resolution procedures. By that provision the parties agreed:

3. TREATMENT OF EXISTING AND FUTURE PATENT AGREEMENTS

3.1 Existing, unexpired patent agreements and licenses between the Parties will remain in effect and this Agreement and the Procedure Agreement shall have no impact on their terms, including negotiated royalty rates, royalty base, or restrictions on field of use.
3.2 Unless a dispute resolution process is set forth in an existing or future patent agreement or license, breaches of those agreements shall be subject to resolution in accordance with the terms of this Agreement.
Consistent with this provision, a merger clause provided that the Resolution Agreement constituted the parties’ "entire agreement . . . with respect to the same subject matter hereof" and superseded "all other agreements, whether written or oral except as provided by Section 3.1 . . . ."

If direct negotiations should fail to resolve a dispute encompassed by the Resolution Agreement, the Procedure Agreement specifies resolution by arbitration before a panel of American Arbitration Association arbitrators, pursuant to AAA rules. Pursuant to the Resolution and Procedure Agreements, the parties began arbitration before a panel of three AAA arbitrators to resolve a dispute as to whether a module of Baker Hughes’s sensor tool infringes Schlumberger’s patents. The parties agree that this dispute, which they reference as the "four-patent dispute," was one of the Current Disputes expressly identified in the Resolution Agreement. During the course of that proceeding, Schlumberger submitted a report from its damages expert. Baker Hughes contends that Schlumberger’s expert did not confine his analysis to the module and patents at issue in the four-patent dispute but instead included damages relating to the entire sensor tool. Baker Hughes argues that Schlumberger’s damages model includes damages arising from alleged infringement of the patents that were licensed to Baker Hughes in the 2004 settlement agreement. Baker Hughes also contends that this damages claim was itself a breach of the 2004 settlement agreement.

Baker Hughes raised affirmative defenses of license and release in the four-patent dispute, and it invoked the dispute resolution provisions of the 2004 settlement agreement, contending that the new dispute about the scope of the releases under that agreement must be arbitrated before that agreement’s mediator. Schlumberger took the position that this dispute about the proper arbitral forum was encapsulated within an expressly designated Current Dispute, governed by the Resolution and Procedure Agreements, and thereby should be determined within the ongoing AAA arbitration. In light of the parties’ disagreement about the proper arbitral forum, the mediator informed the parties that she would not proceed with the dispute resolution process absent an order from the district court or agreement of the parties. Baker Hughes then filed an application to compel arbitration of the license and release issue before the mediator and a petition for declaratory judgment.

Meanwhile, the parties presented their arguments to the AAA panel by letter, and that panel responded with an "Interim Ruling on Defenses." The Interim Ruling summarized the dispute as encompassing two issues: (1) "who has jurisdiction to decide particular substantive issues" and (2) "the substantive issues, namely whether the affirmative defenses of license or release . . . were raised in a timely manner or were waived." The panel concluded, based on the Resolution Agreement, the Procedure Agreement, and the AAA rules applicable to the arbitration, that it had jurisdiction to determine its own jurisdiction and "sole jurisdiction" to resolve the "substantive" issue of whether Baker Hughes’s affirmative defenses were waived. However, acknowledging that Baker Hughes had filed a motion to compel arbitration in the district court, and expressly invoking "the interest of judicial economy," the AAA panel temporarily stayed its own consideration of the "substantive" waiver issue to allow the district court time to consider the motion to compel arbitration under the 2004 settlement agreement. A few days later, Schlumberger filed in the district court its own Motion to Compel Arbitration and to Stay Proceedings, seeking an order staying proceedings in the district court and "compelling" Baker Hughes "to litigate its claims and defenses solely in the ongoing [AAA] arbitration."

After considering the parties’ competing motions, the district court granted Baker Hughes’s application to compel arbitration. In the same order, the court denied Schlumberger’s motion and ordered the parties to arbitrate the disputes relating to the 2004 settlement agreement before its mediator. Schlumberger then filed this interlocutory appeal from the trial court’s order denying its motion.

Analysis

I. Jurisdiction

Baker Hughes has moved to dismiss this appeal for lack of jurisdiction, so that is the threshold issue for our consideration. See CMH Homes v. Perez, 340 S.W.3d 444, 447 (Tex. 2011). "Unless a statute authorizes an interlocutory appeal, appellate courts generally only have jurisdiction over final judgments." Id.; see also Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992). "We strictly apply statutes granting interlocutory appeals because they are a narrow exception to the general rule that interlocutory orders are not immediately appealable." CMH Homes, 340 S.W.3d at 447; see also Bally Total Fitness Corp. v. Jackson, 53 S.W.3d 352, 355 (Tex. 2001). Both parties invoke authorities applying the Federal Arbitration Act and the Texas Arbitration Act, and neither party suggests that one applies to the exclusion of the other, or that the result depends upon which law applies. Accordingly, we focus our analysis on the application of the TAA’s interlocutory appeal provisions, which provide that a party may appeal an interlocutory order that denies an application to compel arbitration made under Section 171.021. TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1) (West 2011).

A. Schlumberger’s motion

Baker Hughes argues that the trial court’s order does not fit within the narrow statutory categories for which an interlocutory appeal is permitted. It first argues that Schlumberger’s motion in the trial court was not truly an "application to compel arbitration" in the sense contemplated by the statute. See id. §§ 171.021, 171.098(a)(1). A primary contention supporting this argument is that the relief requested by Schlumberger merely would result in the parties continuing their ongoing arbitration proceeding. Thus Baker Hughes argues that the motion did not ask the trial court to compel a new arbitration but instead called upon the trial court to interfere with the arbitrators’ administration of an ongoing proceeding. Baker Hughes also argues that Schlumberger’s motion did not qualify as an application to compel arbitration because Schlumberger could not satisfy the threshold requirement of a refusal to arbitrate. See id. § 171.021(a)(2). In response, Schlumberger contends that its motion was a proper application to compel arbitration and the trial court’s denial of it is appealable under the plain language of the statute.

Section 171.098(a)(1) requires, as a predicate to our interlocutory appellate jurisdiction under that provision, the filing of "an application to compel arbitration made under Section 171.021" and an order denying that application. To prevail under Section 171.021, such a motion must show the existence of an agreement to arbitrate that applies to the parties’ dispute and that the opposing party has refused to arbitrate. See id. We do not agree with Baker Hughes, however, that a searching examination of the merits of Schlumberger’s motion is the appropriate method to determine whether it qualifies as "an application to compel arbitration" contemplated by Section 171.098(a)(1). Instead, it is the substance and function of the application viewed in the context of the record that controls our interlocutory jurisdiction. Cf. Walker Sand, Inc. v. Baytown Asphalt Materials, Ltd., 95 S.W.3d 511, 515 (Tex. App.—Houston [1st Dist.] 2002, no pet.) (analyzing substance and function of order purportedly giving rise to interlocutory appellate jurisdiction under Section 171.098(a)(1)). Accordingly, we will consider Schlumberger’s motion in the context of the record to determine whether the denial of the application is subject to interlocutory review.

Schlumberger filed a document in the trial court entitled "Defendant’s Motion to Compel Arbitration and to Stay Proceedings." In this motion, Schlumberger alleged the existence of an agreement to arbitrate arising from the Resolution and Procedure Agreements. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(a)(1). Schlumberger further alleged that the AAA panel was empowered to determine and already had determined that the scope of that proceeding included Baker Hughes’s release and license defense. Finally, Schlumberger alleged that rather than arbitrating this issue before the AAA panel, Baker Hughes filed suit to compel arbitration under the 2004 settlement agreement. Thus, Schlumberger clearly informed the trial court that in the context of an ongoing arbitration, the parties had a discrete disagreement about the appropriate venue in which a particular subissue was to be arbitrated and both parties relied on separate arbitration agreements to support their positions.

1. Jurisdictional effect of pending arbitration proceeding

Baker Hughes contends that this could not be a motion to compel arbitration in the sense contemplated by the statute because the parties were already in engaged in an ongoing arbitration. Although we are obliged to construe the jurisdictional statute narrowly, see, e.g., CMH Homes, 340 S.W.3d at 447, the text of the statute does not provide any basis for Baker Hughes’s proposed distinction between a request to initiate a new arbitration proceeding and a request to require arbitration of a subsidiary issue when its arbitrability has been disputed. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1). The sole authority relied upon by Baker Hughes for this proposition lends no support. In Dealer Computer Services, Inc. v. Red Hill Ford, Inc., No. 05-10-00983-CV, 2010 WL 3566124, at *1 (Tex. App.—Dallas Sept. 15, 2010, no pet.) (mem. op.), the trial court had issued a restraining order staying arbitration proceedings after Red Hill Ford alleged that the arbitration panel had engaged in misconduct. See 2010 WL 3566124, at *1. Two months after the restraining order expired, the final arbitration hearing had not yet been rescheduled "due to pending motions and other issues," and Dealer Computer moved to compel a return to the pending arbitration. Id. The court of appeals held that it lacked jurisdiction because there was no allegation that Red Hill Ford failed, neglected, or refused to arbitrate under a written agreement. Id. Unlike an attempt to stay proceedings based on alleged arbitrator misconduct, Schlumberger’s allegation that Baker Hughes sought to compel a separate arbitration rather than submitting its defenses to the AAA panel is functionally equivalent to an allegation that Baker Hughes failed, neglected, or refused to arbitrate the disputed issue.

Baker Hughes also contends that "interlocutory appeal is not available to challenge orders in cases where arbitration was originally compelled." But there is nothing in the appellate record to show that the AAA arbitration was "originally compelled." Indeed, the parties’ briefing in this Court suggests that the AAA arbitration was instituted by agreement of the parties. Moreover, the authority relied upon by Baker Hughes in this regard, HEB Grocery Co., L.P. v. Kirksey, No. 14-10-00217-CV, 2010 WL 1790878 (Tex. App.—Houston [14th Dist.] May 6, 2010, no pet.) (mem. op.) (per curiam), is not applicable to this dispute because the jurisdictional defect in that case was that no statutory provision authorized an interlocutory appeal from an order granting recusal of one arbitrator and substituting another. See 2010 WL 1790878, at *2.

2. Jurisdictional effect of the merits of Schlumberger’s motion

Baker Hughes also argues that this court lacks jurisdiction because Schlumberger cannot show that Baker Hughes refused to arbitrate, which must be shown to compel arbitration under Section 171.021(a). This argument conflates the characterization of Schlumberger’s motion as an "application to compel arbitration" with its ultimate merits. Put another way, under Baker Hughes’s interpretation of Section 171.098(a)(1), we would only have appellate jurisdiction when a trial court incorrectly denied an application to compel arbitration made under Section 171.021. Again acknowledging that we narrowly construe all statutes establishing our interlocutory appellate jurisdiction, see, e.g., CMH Homes, 340 S.W.3d at 447, no practical limitation of our review is achieved if we review the merits of the underlying motion in order to determine whether we have jurisdiction over the denial of it.

Instead, we consider the nature of the motion in the context of the record. Cf. Walker Sand, 95 S.W.3d at 515. Viewed in that light, it is apparent that while Baker Hughes did not flatly refuse to arbitrate the dispute in any arbitral forum (it was willing to arbitrate the dispute before the mediator of the 2004 settlement agreement), by initiating these proceedings and by withholding its consent to arbitrating in accordance with what Schlumberger contends in its motion is the controlling agreement, Baker Hughes resisted arbitration of the particular dispute at issue before the AAA panel. Reserving judgment on the ultimate merits of the motion for purposes of our jurisdictional inquiry, we conclude that the motion is an application to compel arbitration on the grounds that Baker Hughes is actively resisting arbitration under the terms of what Schlumberger alleges is the controlling arbitration agreement.

3. Jurisdictional effect of the relief sought by Schlumberger’s motion

Finally, Baker Hughes argues that rather than constituting an application to compel arbitration, Schlumberger’s motion is merely a response to Baker Hughes’s motion, particularly because the relief sought by Schlumberger allegedly was no different from what would have resulted if the trial court had denied Baker Hughes’s motion. This argument fails because Schlumberger, in its motion, sought affirmative relief beyond the mere denial of Baker Hughes’s motion. Schlumberger argued that the AAA panel has the sole power to decide the proper arbitral venue for the merits of Baker Hughes’s defenses, and it also argued that the AAA panel had actually decided that question in favor of its own jurisdiction. Schlumberger thus sought an order from the trial court ordering Baker Hughes "to litigate its claims and defenses solely in the ongoing [AAA] arbitration." The mere denial of Baker Hughes’s motion would not necessarily mean that the AAA panel would decide these disputed issues against Baker Hughes (unless the AAA panel had already decided them in its Interim Ruling, which the parties dispute and Baker Hughes has denied). Accordingly, Baker Hughes would remain free to argue to the AAA panel that a separate arbitration is required on its defenses. Schlumberger’s motion asked for something more than the mere denial of the Baker Hughes motion; it sought an affirmative order from the trial court deciding the underlying arbitrability question in its favor.

* * *

Viewing the motion in the context of the record, we conclude that the substance and function of Schlumberger’s motion was to allege the existence of an agreement to arbitrate that applied to the parties’ dispute—i.e. the Resolution Agreement—and that Baker Hughes refused to arbitrate in accordance with that agreement. Cf. Walker Sand, 95 S.W.3d at 515. We therefore hold that Schlumberger’s motion qualified as "an application to compel arbitration made under Section 171.021" for the purposes of our interlocutory jurisdiction under Section 171.098(a)(1).

B. Trial court’s order

We next consider whether the trial court’s order qualifies as an "order denying" such an application. Under the plain language of the TAA, it is the denial of "an application to compel arbitration"—not the denial of arbitration in the general sense—that gives rise to the right to an interlocutory appeal. TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1). "[I]t is the substance and function of the order viewed in the context of the record that controls our interlocutory jurisdiction," not Baker Hughes’s characterization of the order. Walker Sand, 95 S.W.3d at 515; see also Texas La Fiesta Auto Sales, LLC v. Belk, No. 14-10-01146-CV, 2011 WL 4090381, at *4 (Tex. App.—Houston [14th Dist.] Sept. 15, 2011, no. pet. h.); McReynolds v. Elston, 222 S.W.3d 731, 738 (Tex. App.—Houston [14th Dist.] 2007, no pet.).

The trial court evidently understood Schlumberger’s motion to be a motion to compel arbitration. In a single order, the court stated that it had considered both Baker Hughes’s "Application to Compel Arbitration And Petition for Declaratory Judgment" and Schlumberger’s "Motion to Compel Arbitration and Stay Proceedings." In its order, the court expressly granted "Baker Hughes’s application," denied "Schlumberger’s motion," and ordered the parties "to arbitrate the disputes relating to the 2004 Settlement Agreement" before the mediator. Thus, at least on its face, the order purports and appears to be one "denying an application to compel arbitration." See TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1).

The substance and function of the order support the trial court’s express characterization. Baker Hughes sought to enforce its alleged contractual right to arbitration that arose under the 2004 settlement agreement. Likewise, Schlumberger sought to enforce its alleged contractual right to arbitration that arose under the Resolution and Procedure Agreements. The parties’ dispute about the appropriate arbitral forum indicates that the difference between the two alternatives is significant, including different methods of arbitration and different arbitrators. The trial court considered two related arbitration agreements, granted a motion seeking to compel arbitration under one of them, and denied a motion seeking to compel arbitration under the other. As in McReynolds, Schlumberger did not simply seek to substitute one arbitrator for another; it sought to enforce an express contractual right. See McReynolds, 222 S.W.3d at 738. Baker Hughes attempts to distinguish the holding that interlocutory jurisdiction existed in McReynolds because, although it involved competing arbitration agreements, the appellant in that case sought to initiate a new and separate arbitration proceeding, unlike Schlumberger, which is seeking to continue in an ongoing arbitration. We acknowledge that distinction between the two fact patterns, but it does not alter our analysis. Although the trial court ordered an arbitration under the 2004 settlement agreement to proceed, it specifically denied Schlumberger’s claimed contractual right to arbitration under the Resolution and Procedure Agreements, which Schlumberger sought to enforce through its own motion to compel arbitration.

Based on the trial court’s characterization of Schlumberger’s motion as one to compel arbitration, its express denial of that motion, and the resulting denial of Schlumberger’s asserted contractual right to arbitration, we conclude that the trial court’s order was an order denying an application to compel arbitration. See McReynolds, 222 S.W.3d at 738–39. This order is not insulated from appellate review conferred by statute simply because it also grants a competing motion to compel arbitration. Cf. E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 270 (Tex. 2010) (holding that judgment denying confirmation of arbitral award was appealable even though order also vacated award and directed rehearing). Accordingly we hold that we have jurisdiction over this interlocutory appeal, and we deny Baker Hughes’s motion to dismiss.

II. Application to compel arbitration

We now consider the merits of Schlumberger’s appeal from the denial of its application to compel arbitration. Generally speaking, we review the trial court’s denial of a motion to compel arbitration for abuse of discretion. See Okorafor v. Uncle Sam & Assocs., Inc., 295 S.W.3d 27, 38 (Tex. App.—Houston [1st Dist.] 2009, pet. denied); see also W. Wendall Hall et al., Hall’s Standards of Review in Texas, 42 St. Mary’s L.J. 1, 78 (2010) (citing Jack B. Anglin Co., 842 S.W.2d at 271). However, "[w]hen an appeal from a denial of a motion to compel arbitration turns on a legal determination . . . we apply a de novo standard." Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 55 n.9 (Tex. 2008).

Schlumberger argues that the AAA panel had the authority to determine its own jurisdiction, the panel determined that it had jurisdiction to decide the merits of Baker Hughes’s defenses based on the 2004 settlement agreement, and the trial court should have deferred to that ruling. Baker Hughes responds that there is no reason to reach these questions because it never refused to arbitrate. On the merits, Baker Hughes contends as a matter of contract interpretation that the 2004 settlement agreement rather than the Resolution Agreement controls the dispute resolution procedure. It argues, therefore, that the Resolution Agreement is inapplicable, and the dispute was appropriately resolved by the district court because the 2004 agreement does not reserve arbitrability disputes for the arbitrator.

A. ReFusal to arbitrate

First, we confront the contention that Schlumberger was not entitled to relief on the theory that Baker Hughes’s willingness to arbitrate in its preferred arbitral forum means that it has not refused to arbitrate. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(a)(2). Baker Hughes reasons that it has agreed to arbitrate, and it is simply following proper arbitration procedure to assert its rights under the parties’ contracts.

The sole authority relied upon by Baker Hughes for this position is Jacobs v. USA Track & Field, 374 F.3d 85 (2d Cir. 2004), a case decided under the Federal Arbitration Act, 9 U.S.C. § 4. The parties in Jacobs both agreed to arbitrate their dispute before the AAA, but they disagreed about the rules to govern the arbitration, including the procedure for selecting arbitrators. See Jacobs, 374 F.3d at 86. Both of the alternative sets of procedures provided that the arbitrators had the power to decide which rules applied. See id. The AAA considered submissions from both parties and ruled against Jacobs, who then filed a motion to compel arbitration under her preferred rules. The trial court dismissed the case for want of jurisdiction, and the Second Circuit affirmed on the basis that the respondents had not refused to arbitrate, which is a prerequisite to compelling arbitration under Section 4 of the FAA. See id. In so holding, the court specifically noted that, unlike Baker Hughes in this case, "respondents have not commenced litigation against petitioner." Id. at 89. The case that the Jacobs court identified as controlling the result, Downing v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 725 F.2d 192 (2d Cir. 1984), went further and identified the commencement of litigation as a "default" of an arbitration agreement giving rise to the right to seek relief under Section 4. See Downing, 725 F.2d at 195; see also Jones v. Gen. Motors Corp., 640 F. Supp. 2d 1124, 1145 (D. Ariz. 2009) ("the very commencing of litigation can itself be interpreted as a refusal to arbitrate").

We find the reasoning of Downing and its progeny to be persuasive and equally applicable to the similar language in the TAA requiring that a party refuse to arbitrate as a predicate to an order compelling arbitration. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(a)(2). As applied to this case, the parties were already involved in an ongoing arbitration pursuant to the Resolution Agreement. As discussed in greater detail below, the parties clearly and unmistakably agreed to submit disputes about the interpretation of the Resolution Agreement to the arbitration panel. In the course of that proceeding, Baker Hughes asserted that its license or release defenses must be arbitrated in another forum; Schlumberger disagreed. Baker Hughes’s initiation of this court proceeding to compel a separate arbitration before a separate arbitrator pursuant to different rules constitutes an effective refusal to arbitrate pursuant to the Resolution Agreement because Baker Hughes sought to circumvent a resolution of this arbitrability dispute by the AAA panel despite agreeing in the Resolution Agreement to submit such disputes to the AAA panel. We therefore conclude, as a matter of law as applied to the undisputed procedural facts, that Baker Hughes refused to arbitrate under the Resolution Agreement and Schlumberger properly invoked Section 171.021 to compel arbitration under that agreement.

B. Arbitrability of dispute over proper arbitral forum

Turning to the merits of the motion denied by the trial court, we begin by considering Schlumberger’s contention that the AAA panel had authority under the Resolution Agreement to determine its own jurisdiction. This is an essential element of Schlumberger’s motion to compel because otherwise there is no enforceable "agreement to arbitrate." Id. § 171.021(a)(1). This determination depends on an interpretation of the parties’ contracts, which we review de novo. See In re Dillard Dep’t Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Unless the parties clearly and unmistakably agree to submit threshold questions of arbitrability to arbitration, these issues are to be resolved by courts. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S. Ct. 1920, 1923 (1995); In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005); Burlington Res. Oil & Gas Co. v. San Juan Basin Royalty Trust, 249 S.W.3d 34, 39–40 (Tex. App.—Houston [1st Dist.] 2007 pet. denied). However, the express incorporation of rules that empower the arbitrator to determine arbitrability—such as the AAA Commercial Arbitration Rules—has been held to be clear and unmistakable evidence of the parties’ intent to allow the arbitrator to decide such issues. See, e.g., Burlington Res. Oil & Gas Co., 249 S.W.3d at 40–41; Haddock v. Quinn, 287 S.W.3d 158, 172 (Tex. App.—Fort Worth 2009, pet. denied).

The pending four-patent dispute is governed by the Resolution Agreement, which provides that "any Current Disputes or future Disputes . . . shall be solely resolved as set forth in the Procedure Agreement." The parties agree that the underlying four-patent dispute is a Current Dispute under the Resolution Agreement. Other "Disputes" to be "solely resolved as set forth in the Resolution Agreement" include "disputes relating to the interpretation, construction, alleged breach of this [Resolution] Agreement, [and] the Procedure Agreement," but as noted above and argued by Baker Hughes, "[d]isputes arising under existing licenses . . . shall be treated in accordance with Section 3.2," which excepts any existing or future patent agreement or license with its own dispute resolution process.

It is therefore apparent that Schlumberger and Baker Hughes have identified two separate "Disputes." One dispute is a disagreement of contract interpretation about whether the merits of Baker Hughes’s license or release defense should be decided under the Resolution and Procedure Agreements by the AAA panel or under the 2004 settlement agreement’s dispute resolution procedure by the mediator who facilitated that agreement. A separate dispute concerns the choice of forum to decide the answer to the contract interpretation dispute.

This latter dispute about the appropriate forum arose in the context of an ongoing arbitration governed by the Resolution Agreement. As reflected by the parties’ arguments as described above, the answer depends on an interpretation of the Resolution Agreement. Although Baker Hughes has a colorable argument that the merits of the contract interpretation dispute require a separate proceeding under the 2004 settlement agreement, that argument itself depends on an interpretation of the Resolution Agreement. And the parties agreed that "disputes relating to the interpretation" and "construction" of the Resolution Agreement are themselves "Disputes," which are to be "solely resolved as set forth in the Procedure Agreement."

The Procedure Agreement requires arbitration to be conducted "pursuant to administration by the AAA" under the AAA Commercial Arbitration Rules. Under Rule 7(a) of the Commercial Arbitration Rules, the "arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement." COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION, Rule 7(a) (2009). The parties thus incorporated the AAA Commercial Arbitration Rules into the Resolution and Procedure Agreements. Under Rule 7(a) of the Commercial Arbitration Rules, the AAA panel had authority to interpret the Resolution Agreement and thereby determine the scope of the four-patent arbitration. The AAA panel’s authority extends to determining whether Baker Hughes’s license and release defense relates to a claim of infringement or the damages arising therefrom such that it is to be resolved by the AAA panel as part of the pending four-patent arbitration, as contemplated by the Resolution Agreement’s definition of "dispute." Or, the panel could determine the license and release defense implicates a breach of an existing agreement, as contemplated by the carve-out provision in section 3 of the Resolution Agreement, thus triggering the dispute resolution provision of the 2004 settlement agreement. There are no provisions in the Resolution or Procedure Agreements that negate the arbitrators’ power under AAA Rule 7(a) to determine the arbitrability of a defense raised in arbitration. Thus, we conclude that this issue of contract interpretation was a question for the AAA panel, not the trial court and not this court. See Green Tree Fin. Corp. v. Bazzle, 539 U.S 444, 452–53, 123 S. Ct. 2402, 2407 (2003) (holding that interpretation of arbitration contract was question for arbitrators).

In its motion to compel arbitration, Schlumberger asserted that the merits of Baker Hughes’s defense was within the scope of the AAA arbitration and that the parties had agreed to let the AAA panel determine issues of arbitrability. Because the AAA panel had authority to determine the question of contract interpretation, the trial court should have granted this aspect of Schlumberger’s motion so that the dispute could be resolved by the AAA panel, as the parties agreed in the Resolution Agreement. See id. at 452–53, 123 S. Ct. at 2407.

C. Determination by AAA panel

Finally, we address the ultimate relief requested by Schlumberger, an order that these proceedings be stayed and that Baker Hughes be required to litigate the merits of its license and release defense before the AAA panel. To the extent Schlumberger argues it is entitled to this relief on the merits of its arguments about the interpretation of the various arbitration agreements, Schlumberger’s arguments are appropriately addressed to the AAA panel, as explained above. To the extent Schlumberger contends that the AAA panel has already resolved the question in favor of its own jurisdiction, we conclude that the appellate record provided to us is inconclusive as to whether that was the intended effect of the AAA panel’s Interim Ruling. If Schlumberger’s contention in this regard is a correct representation of the AAA panel’s intended ruling, then it can be implemented by the panel. If, on the other hand, the AAA has reserved and not yet resolved the question, the parties should direct their arguments to that panel. In deference to the parties’ agreement to submit the question to the arbitrators, we express no opinion on the proper legal conclusion.

Conclusion

We deny Baker Hughes’s motion to dismiss this appeal. We reverse the trial court’s interlocutory order denying Schlumberger’s motion in its entirety, and we remand the case to the trial court with an instruction to grant Schlumberger’s motion to compel in part by ordering the parties to arbitrate before the AAA panel the contract interpretation question of whether the AAA panel has jurisdiction over the merits of Baker Hughes’s license and release defense.

Michael Massengale

Justice

Panel consists of Justices Jennings, Keyes, and Massengale.

=========

Schlumberger Technology Corporation v. Baker Hughes Inc., No. 01-11-00562-CV (Tex.App. - Houston [1st Dist.] Oct. 13, 2011, no pet. h.) (Appeal from 270th District Court of Harris County)

Mediation does not affect Court's jurisdiction

2011-10-12T22:59:00.000-07:00

Section 154.021(a) of the Civil Practice and Remedies Code authorizes a trial court to refer a pending dispute for resolution by an alternative dispute resolution procedure such as mediation. TEX. CIV. PRAC. & REM. CODE ANN. §§ 154.021(a), 154.023 (West 2011).

When a matter is referred to mediation, the trial court does not lose jurisdiction over the case as a mediator does not have the power to render judgment; only the trial court has the authority to render a final judgment. Id. § 154.023(b) (mediator may not impose own judgment on the issues); id. § 154.071(b) (West 2011) (providing that the trial court may, in its discretion, incorporate the terms of a settlement agreement into the court’s final decree disposing of the case). The trial court retains jurisdiction over the case until a final judgment is rendered disposing of all parties and issues. Lehmann v. Har-Con Corp., 39 S.W.3d 191, 200 (Tex. 2001).

After entry of a final judgment, the trial court does not lose jurisdiction over the case until its plenary power expires. See TEX. R. CIV. P. 329b.

A mediated settlement agreement is enforceable in the same manner as any other contract. TEX. CIV. PRAC. & REM. CODE ANN. § 154.071(a) (West 2011); Hardman v. Dault, 2 S.W.3d 378, 380 (Tex. App.—San Antonio 1999, no pet.).

Stevens v. Snyder, 874 S.W.2d 241, 243 (Tex. App.—Dallas 1994, writ denied) (once parties have accepted settlement agreement, enforcement is by suit upon the contract, either for breach or specific performance)

Pickell v. Guaranty Nat’l Life Ins. Co., 917 S.W.2d 439, 441-42 (Tex. App.—Houston [14th Dist.] 1996, no writ) (court cannot take action on mediated settlement agreement without an affirmative request to do so through pleadings); see also Martin v. Black, 909 S.W.2d 192, 195 (Tex. App.—Houston [14th Dist.] 1995, writ denied).

Dora Serna v. International Bank of Commerce, No. 04-11-00097-CV (Tex.App.- San Antonio, Oct. 12, 2011)

OPINION

No. 04-11-00097-CV

Dora SERNA,

Appellant

v.

INTERNATIONAL BANK OF COMMERCE,

Appellee

From the 111th Judicial District Court, Webb County, Texas

Trial Court No. 2005-CVQ-000148-D2

Honorable Raul Vasquez, Judge Presiding

Opinion by: Sandee Bryan Marion, Justice

Sitting: Karen Angelini, Justice

Sandee Bryan Marion, Justice

Steven C. Hilbig, Justice

Delivered and Filed: October 12, 2011

AFFIRMED

Appellant, Dora Serna, and appellee, International Bank of Commerce (“IBC”) entered into negotiations involving Serna’s purchase of three properties pursuant to an earnest money contract. When the negotiations failed, Serna sued IBC for fraud and for violations of the Texas Deceptive Trade Practices Act. Less than two months after being sued, IBC filed a “Motion to Compel Arbitration and Stay Civil Proceedings.” On May 17, 2006, the trial court granted the motion. Following the denial of her petition for writ of mandamus seeking to overturn the trial

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court’s order, Serna filed a “Demand for Arbitration with the American Arbitration Association.” In her demand, Serna identified the “nature of the dispute” as “misrepresentations made in connection with the attempted purchase of real estate in Mexico. Texas Law applies.” A hearing before the arbitration panel commenced on April 7, 2010, and on June 11, 2010, the panel denied all relief sought by Serna. Serna later moved to vacate the arbitration award, while IBC moved to confirm the award. The trial court affirmed the award and this appeal by Serna ensued. On appeal, Serna asserts the trial court erred in sending the case to arbitration and her constitutional right to a jury trial was violated. We affirm.

MANDATORY ARBITRATION

In her first issue, Serna argues the arbitration provision contained in the earnest money contract was not mandatory. Serna relies on a single sentence in the arbitration provision that she contends allows the parties to seek either arbitration or judicial proceedings to resolve their disputes. In the alternative, Serna contends she and IBC agreed not to arbitrate her DTPA claim.

We interpret arbitration agreements under traditional contract principles. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). We examine and consider the entire writing in an effort to harmonize potential conflicts between differing provisions and give effect to all the provisions of the contract so that none will be rendered meaningless. MCI Telecomms. Corp. v. Texas Utils. Elec. Co., 995 S.W.2d 647, 652 (Tex. 1999); In re Premont Indep. Sch. Dist., 225 S.W.3d 329, 333 (Tex. App.—San Antonio 2007, orig. proceeding). No single provision taken alone will be given controlling effect. In re Premont Indep. Sch. Dist., 225 S.W.3d at 333. If a written contract is so worded that it can be given a certain or definite legal meaning or interpretation, then it is not ambiguous and the court will construe the contract as a matter of law. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). When a contract is not ambiguous, the

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contract should be enforced as written. Lopez v. Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 862 (Tex. 2000).

Here, the arbitration provision contained in the earnest money contract provides as follows:

ARBITRATION

The parties agree as follows:

(a) Any arbitrable dispute (defined below) between The Parties shall be settled by arbitration, in accordance with the Commercial Arbitration Rules, then obtaining, of the American Arbitration Association. . . . The award of the arbitrators, or a majority of them, shall be final, and judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction.

(b) “Arbitrable disputes” include any controversy or claim between The Parties including any claim based on contract, tort or statute, arising out or relating to [sic] transaction evidenced by this Contract and all past, present and future agreements involving The Parties, any transaction contemplated hereby, and any aspect of the past, present or future relationship of The Parties.

. . .

(e) Any aggrieved Party shall serve a written notice of intention to arbitrate to any and all opposing Parties and to an American Arbitration Association office within the State of Texas within 365 days after [the] dispute has arisen. A dispute is deemed to have arisen upon receipt of written demand or service of judicial process. Failure to serve a notice of intention to arbitrate within the time specified above shall be deemed a waiver of the aggrieved Party’s right to compel arbitration of such claim. Such notice of intention to arbitrate may be informal and need not comply with Rule 6 of the American Arbitration Association. The Parties agree that legal action regarding this agreement and any liabilities hereunder shall either be brought by arbitration, as described herein, or by judicial proceedings, but shall not be pursued in different or alternate forums. The issue of waiver pursuant to this paragraph is an arbitrable issue.

. . . .

On appeal, Serna asserts the statement that “[t]he Parties agree that legal action regarding this agreement and any liabilities hereunder shall either be brought by arbitration, as described herein, or by judicial proceedings” indicates arbitration was not mandatory and either party could

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elect to resolve their dispute in a judicial proceeding. Alternatively, Serna contends this sentence renders the arbitration provision ambiguous, and therefore, unenforceable. We disagree with both arguments.

Paragraph (a) unambiguously mandates that any “arbitrable dispute” “shall be settled by arbitration.” Paragraph (b) broadly defines “arbitrable dispute” to include “any claim based on contract, tort or statute” that arises out of or relates to the transaction evidenced by the earnest money contract. Paragraphs (a) and (b), therefore, require that any contractual, tort-based, or statutory claim arising out of or related to the earnest money contract must be submitted to arbitration. The sentence in paragraph (e) on which Serna relies may be harmonized with this mandate because paragraph (e) addresses the resolution of any dispute other than one arising out of or related to the earnest money contract, arising in contract, tort or statute, and provides that any other such dispute may be brought by arbitration or by judicial proceedings, so long as the dispute is not pursued in different or alternate forums. Because Serna does not contend her claims against IBC are not within the scope of an “arbitrable dispute” as that term is defined in the agreement, paragraph (a) requires that the dispute be settled by arbitration. To hold otherwise, would render paragraph (a) meaningless.

As to Serna’s argument that she and IBC agreed not to arbitrate whether the bank violated the DTPA, Serna relies on the following clause, which is contained in a section entitled “DISCLAIMER, WAIVER OF CLAIMS, AND INDEMNIFICATION”:

To the extent applicable and permitted by law (and without admitting such applicability), [Serna] hereby waives the provisions of the Texas Deceptive Trade Practices-Consumer Protection Act, Chapter 17, Subchapter E, Sections 17.41 through 17.63 inclusive (other than Section 17.555, which is not waived).

04-11-00097-CV

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Contrary to Serna’s contention on appeal, this provision does not evidence an agreement between the parties that DTPA claims will not be subject to arbitration. Instead, this clause addresses Serna’s waiver of her right to bring a DTPA claim.1

RIGHT TO A JURY TRIAL

In her final issue, Serna asserts the trial court erred in compelling arbitration because she did not agree to mandatory arbitration and she did not waive her constitutional right to trial by jury.

As we concluded above, the arbitration provision contained in the earnest money contract was mandatory. There is no dispute Serna signed the earnest money contract that contained this provision, that she filed her own “Demand for Arbitration with the American Arbitration Association,” and that she fully participated in the arbitration proceeding. Therefore, the record does not support Serna’s contention that she did not agree to mandatory arbitration. See Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996) (Texas law presumes a party who signs a contract has read it and knows of its contents).

Serna’s argument that arbitration deprived her of her constitutional right to a jury trial also lacks merit. When, as here, a party agrees to have a dispute resolved through arbitration rather than a judicial proceeding, that party has waived its right to a jury trial. Massey v. Galvan, 822 S.W.2d 309, 318 (Tex. App.—Houston [14th Dist.] 1992, writ denied) (holding appellants could not claim they were entitled to jury trial after they submitted to arbitration and arbitrators made an award appellants felt was in error).

1 We do not address the propriety or enforceability of this waiver clause because that issue is not before us.

04-11-00097-CV

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CONCLUSION

We overrule Serna’s issues on appeal and affirm the trial court’s judgment.

Sandee Bryan Marion, Justice

Forum-selection clause enforced by mandamus; suit ordered dismissed

2011-08-18T20:35:00.000-07:00

Dallas Court of Appeals finds absence of other adequate remedy and grants mandamus relief to countermand and correct trial court's failure to enforce forum-selection clause by dismissing suit filed in wrong court. One justice on the panel dissented.

In re Cornerstone Healthcare Holding Group, Inc.,

No. 05-11-00634-CV (Tex.App. - Dallas, Aug. 18, 2011)(mandamus)(case ordered dismissed in accordance with forum-selection clause)

CONCLUSION

A trial court abuses its discretion when it does not properly interpret or apply a forum- selection clause. Laibe Corp., 307 S.W.3d at 316. In addition, the Texas Supreme Court has held there is no adequate remedy by appeal when a trial court abuses its discretion by refusing to enforce a valid forum-selection clause that covers the dispute. See In re Int'l Profit Assocs., Inc., 274 S.W.3d 672, 675 (Tex. 2009) (orig. proceeding). Thus, the trial court's failure to enforce the forum- selection clause in this case is properly corrected by issuance of a writ of mandamus. See In re Lisa Laser USA, Inc., 310 S.W.3d 880, 883 (Tex. 2010) (orig. proceeding); Laibe Corp., 307 S.W.3d at 316. We conditionally grant the relators' petition for writ of mandamus. A writ will issue only in the event the trial court fails to vacate its April 26, 2011 Order Denying Defendants' Motion to Dismiss and to enter an order granting the motion to dismiss.

OPINION BY JUSTICE FITZGERALD

Relators Cornerstone Healthcare Holding Group, Inc. (“Cornerstone”) and Highland Capital Management, L.P. (“Highland”) filed this mandamus proceeding after the trial court denied their motion to dismiss based on the parties' forum selection. We conclude the trial court abused its discretion in denying the motion and relators have no adequate remedy by appeal. We therefore conditionally grant the writ of mandamus.

Background

Real party in interest MHC Holding Company (“Mariner”) sold a chain of hospitals to CS Healthcare Holdco, LLC (“Holdco LLC”), for $161 million in the summer of 2005. The transaction was accomplished by the parties' execution of an Asset Purchase Agreement (the “APA”). As part of the transaction, Mariner received $151 million in cash and a $10 million promissory note (the “Note”) from CS Healthcare Holdco, Inc. (“Holdco”), a wholly-owned subsidiary of Holdco LLC and a defendant in the suit below. Immediately after the closing of the APA, Holdco LLC assigned all of its rights and interest in the APA to Cornerstone, pursuant to an assignment and assumption agreement. Thus, Cornerstone became the owner of all the assets originally transferred by Mariner.

in 2007, Holdco and Cornerstone entered into a Restructuring and Support Agreement (the “Restructuring Agreement”) with relator Highland, which had come to own more than $55 million of Cornerstone's debt. Pursuant to the Restructuring Agreement, ownership of the hospitals was transferred to Highland. Mariner was not a party to the Restructuring Agreement. The Note was identified in a schedule to the Restructuring Agreement as a material agreement into which Holdco had entered, but the debt created by the Note was not addressed by the Restructuring Agreement.

In 2010, Mariner sued Highland, Cornerstone, and Holdco, alleging a fraudulent transfer that left Holdco insolvent and unable to repay the Note. In its live petition, Mariner seeks the alternative remedies of avoidance of the 2007 restructuring transaction to the extent necessary to satisfy Mariner's claim for the $10 million owed by Holdco, or judgment “in the amount due under the [Note]” against either Highland or Cornerstone.

Cornerstone and Highland jointly filed a motion to dismiss the lawsuit on the basis of forum- selection clauses in the APA and the Note, both of which called for disputes to be resolved in New York County, New York. The trial court denied the motion. This original proceeding followed.

The Forum-Selection Clauses

In order to obtain mandamus relief, Cornerstone and Highland must show both that the trial court abused its discretion and that they have no adequate appellate remedy. In re Prudential Ins. Co., 148 S.W.3d 124, 135-36 (Tex. 2004) (orig. proceeding). Forum-selection clauses are generally enforceable and presumptively valid. In re Laibe Corp., 307 S.W.3d 314, 316 (Tex. 2010) (orig. proceeding). A trial court abuses its discretion when it does not properly interpret or apply a forum- selection clause. Id. Moreover, an appellate remedy is inadequate when a trial court improperly refuses to enforce a forum-selection clause; allowing the trial to go forward will simply vitiate the subject matter of an appeal, which is trial in the proper forum. See In re AIU Ins. Co., 148 S.W.3d 109, 115 (Tex. 2004) (orig. proceeding).

Paragraph 12.11 of the APA, entitled “Consent to Jurisdiction,” contains the following forum-selection clause:

The parties hereto each hereby irrevocably submit to the exclusive jurisdiction of any state or federal court sitting in New York County, New York for the purposes of any suit, action or other proceeding arising out of or based upon this Agreement or the subject matter hereto brought by any other party hereto. Each party also agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court . . . .

The Note contains the following forum-selection clause:

The execution, delivery and performance of this Note shall be governed by and construed in accordance with the laws of the State of New York . . . . Sections 12.11 (entitled “Consent to Jurisdiction”) and 12.12 (entitled “Waiver of Jury Trial”) of the Asset Purchase Agreement shall apply in connection with any dispute under or enforcement of this Note.

The parties disagree concerning which (if either) of these clauses is implicated by the current litigation, and they disagree as to the scope of the clause in the Note. They cast their issues differently, but the forum-selection issues before us come down to which clause is implicated by Mariner's suit and whether Mariner's suit is properly within the scope of the implicated clause.

As to the clause implicated, Cornerstone and Highland contend there is actually only one forum-selection clause and that the Note merely incorporates the APA's clause by reference. Thus, for the relators, the APA's clause is implicated by this action. Mariner, for its part, contends initially that neither clause is implicated in this case because its claims do not arise under the APA or the Note. However, if forum selection is implicated in this litigation, Mariner urges us to apply the Note's forum-selection clause. That clause, Mariner contends, was purposefully negotiated to be narrower than the APA's, because it envisions applying the APA's provision only “in connection with any dispute under or enforcement of” the Note. Mariner argues that if we apply the Note's clause, we will conclude-as Mariner does-that its lawsuit below is not subject to the forum- selection provision.

We are persuaded by relators' argument. Both sides acknowledge that the Note is tied to the APA. Indeed, Mariner asserts that “the Note and the APA were parts of a unified transaction.” The Note itself states that it is “issued pursuant to, and in accordance with the terms of, that certain Asset Purchase Agreement . . . .” Likewise, the APA includes the Note among its exhibits that were to be executed along with the APA. Settled law requires separate documents executed at the same time, for the same purpose, and in the course of the same transaction to be construed together. See Jim Walter Homes, Inc. v. Schuenemann, 668 S.W.2d 324, 327 (Tex. 1984).

When we construe the forum-selection clauses in the Note and the APA together, two points cannot be ignored. First, the drafters incorporated the APA's clause-in its entirety-into the Note. Had they desired a separate clause with different underpinnings, they would have drafted such a clause. Second, the clauses select the same forum, i.e., New York County, New York. Thus, unlike most exercises in contract construction, this one is not based on conflicting provisions. Instead, viewing the clauses together underscores the parties' intention that litigation related to the unified transaction would occur in the same location.

As to the breadth of the two clauses, given their origins in the same transaction we see no reason to read restrictions into the Note's provision. Again, the Note was issued pursuant to the APA and incorporates the entirety of the APA's forum-selection clause. Thus, we conclude Mariner's claims fall within the intended forum selection of the parties so long as they qualify as “action[s] or proceeding[s] arising out of or relating to” the transaction. We conclude further that Mariner's fraudulent-transfer suit below does arise out of or relate to that transaction. Specifically, the suit arises out of or relates to rights Mariner possesses pursuant to the Note: the injury it claims is Holdco's inability to pay on the Note; its standing as a creditor will require proof of Holdco's debt created by the Note; and the remedies it seeks amount to repayment pursuant to the Note. Simply put, Mariner would have no right to complain of the Restructuring Agreement except for its status as Holdco's creditor pursuant to the Note.

Mariner's lawsuit involves a dispute under the Note. Accordingly, the parties' single forum- selection clause applies to Mariner's claims. We conclude the parties agreed to litigate this matter in New York County, New York.

The Right to Enforce Forum Selection

We have concluded the parties agreed to a single forum-selection clause and that this dispute is within the scope of that clause. We next address whether relators-who were not parties to the APA or the Note-have the right to enforce the forum-selection clause against Mariner. See Footnote 1 Cornerstone and Highland asserted in their motion to dismiss that they were entitled to do so. Cornerstone based its right to enforce the clause on its status as assignee of Holdco LLC, which allowed Cornerstone to assert all of Holdco LLC's rights pursuant to the APA, including the Note that was appended to and made part of that agreement. See Phoenix Network Tech. (Europe) v. Neon Sys., Inc., 177 S.W.3d 605, 620 (Tex. App.-Houston [1st Dist.] 2005, no pet.) (contracting party's assignee can enforce contract's forum-selection clause). Mariner did not challenge Cornerstone's right to enforce the forum-selection clause in its response to the motion to dismiss below. Nor has it made any argument against Cornerstone's right to enforce the clause in this Court. Thus, the issue of Cornerstone's right to enforce forum selection is not before us. See Footnote 2

In the motion to dismiss, Highland asserted it was entitled to enforce the forum-selection clauses under a theory of equitable estoppel. Texas law includes a number of variations on the general principle of equitable estoppel. See, e.g., Meyer v. WMCO-GP, L.L.C., 211 S.W.3d 302, 306 (Tex. 2006) (interdependent and concerted misconduct estoppel); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005) (orig. proceeding) (direct-benefit estoppel); In re Polymerica, LLC, 271 S.W.3d 442, 449 (Tex. App.-El Paso 2008, orig. proceeding, pet. struck) (substantial- benefit estoppel); Cook Composites, Inc. v. Westlake Styrene Corp., 15 S.W.3d 124, 136 (Tex. App.-Houston [14th Dist.] 2000, pet. dism'd) (quasi-estoppel). Estoppel is an equitable doctrine and its application depends on the facts of each case. Van Zanten v. Energy Transfer Partners, L.P., 320 S.W.3d 845, 848-49 (Tex. App.-Houston [1st Dist.] 2010, no pet.) (citing In re Weekley Homes, 180 S.W.3d 127, 134-35 (Tex. 2005)). The lynchpin for all equitable estoppel is equity. Hill v. G E Power Sys., Inc., 282 F.3d 343, 349 (5th Cir. 2002).

In the motion to dismiss below, Highland urged application of an estoppel based on Mariner's allegations of interdependent and concerted misconduct by Holdco, Cornerstone, and Highland. Highland contended that Mariner's suit was an attempt to gain the benefits of the Note (while not specifically suing to enforce the Note on its terms) by asserting “intertwined claims” against the three parties. The result was a claim that purported to tie all three defendants to the obligations of Holdco under the Note. Highland asserted that, under these circumstances, equity required that it be allowed to join in the enforcement of the parties' forum selection. In this Court, Highland continues to rely on the estoppel theory, stressing that Mariner's claims invoke equitable concerns based on both concerted misconduct and intertwined claims against related defendants.

Highland's theory is supported, inter alia, by the opinion in Deep Water Slender Wells, Ltd. v. Shell International Exploration & Production, Inc., 234 S.W.3d 679 (Tex. App.-Houston [14th Dist.] 2007, pet. denied). In that case, the court advised: “Courts should apply equitable estoppel when a signatory to the contract containing the forum-selection clause raises allegations of substantially interdependent and concerted misconduct by both nonsignatories and one or more signatories to the contract.” Id. at 694 (citing Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 527 (5th Cir. 2000), and Meyer v. WMCO-GP, L.L.C., 211 S.W.3d 302, 306 (Tex. 2006)). In the situation described by Deep Water Slender Wells, the signatory has brought nonsignatories into a lawsuit based on an instrument they did not sign, but it has made allegations that they acted in concert with another signatory. This is precisely the situation in Mariner's lawsuit.

Mariner contends the theory of equitable estoppel relied upon by relators has been rejected by the Texas Supreme Court in In re Merrill Lynch Trust Co., 235 S.W.3d 185 (Tex. 2007) (orig. proceeding). Mariner reads Merrill Lynch too broadly. In that case, the plaintiffs (a husband and wife) were signatories to an agreement that contained an arbitration clause. The plaintiffs did not sue the other signatory; instead, they sued a number of nonsignatories, who attempted to compel arbitration. The supreme court concluded some parties could enforce the arbitration clause and some could not. For example, where the parties sued certain employees of the signatory, but not the signatory itself, for conduct in the course of their employment, the employees were entitled to enforce their employer's arbitration clause. See id. at 189-90. However, the plaintiffs also sued a pair of companies that had their own contracts with the plaintiffs; those contracts did not contain arbitration clauses. The supreme court concluded that allowing those companies to compel arbitration would, in effect, permit them to re-write their contracts with the plaintiffs. Id. at 191.

The defendant companies then urged the supreme court to apply an equitable estoppel based upon concerted misconduct and allow them to force the plaintiffs to arbitrate against them as well. The court asserted that it had “never compelled arbitration based solely on substantially interdependent and concerted misconduct,” and it declined to do so in Merrill Lynch as well. Id. (emphasis added). Amidst this very conclusion, however, the supreme court stated:

We noted allegations of concerted misconduct in Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 306-07 (Tex. 2006), but compelled arbitration because the plaintiff's claims depended on the underlying agreement, and thus were governed by principles of direct-benefit estoppel.

Id. at 191 n.22. Meyer was decided just a year before Merrill Lynch, and this reference to it within Merrill Lynch assures us that Meyer is still good law. Meyer actually sets forth two scenarios when equitable estoppel would support a nonsignatory compelling compliance with a contract:

Existing case law demonstrates that equitable estoppel allows a nonsignatory to compel arbitration in two different circumstances. First, equitable estoppel applies when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting its claims against the nonsignatory. When each of a signatory's claims against a nonsignatory makes reference to or presumes the existence of the written agreement, the signatory's claims arise out of and relate directly to the written agreement, and arbitration is appropriate. Second, application of equitable estoppel is warranted when the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract. Otherwise the arbitration proceedings between the two signatories would be rendered meaningless and the federal policy in favor of arbitration effectively thwarted.

Meyer, 211 S.W.3d at 305-06 (emphasis added). In the case before us, both of these bases for equitable estoppel exist. Mariner, a signatory, must rely on the Note in asserting its claims against Cornerstone and Highland. And Mariner has made allegations of substantially interdependent and concerted misconduct by Holdco, Cornerstone, and Highland.

We agree this is not a typical direct-benefit-estoppel case. In such a case, a nonsignatory plaintiff who seeks the benefits of a contract is estopped from simultaneously attempting to avoid the contract's burdens. In re Kellogg Brown & Root, Inc. 166 S.W.3d at 739. However, the supreme court included the Meyer estoppel within this category, and we can certainly see parallels in Mariner's case. Here, the signatory is attempting to avoid its own contract's burden while enforcing the benefits it derived from the contract. As we noted above, the lynchpin for all equitable estoppel is equity. Hill, 282 F.3d at 349. Under the facts of this case, equity demands that Highland be permitted to hold Mariner to its own bargain.

We conclude Highland may enforce the parties' selection of the New York forum by virtue of equitable estoppel.

Conclusion

A trial court abuses its discretion when it does not properly interpret or apply a forum- selection clause. Laibe Corp., 307 S.W.3d at 316. In addition, the Texas Supreme Court has held there is no adequate remedy by appeal when a trial court abuses its discretion by refusing to enforce a valid forum-selection clause that covers the dispute. See In re Int'l Profit Assocs., Inc., 274 S.W.3d 672, 675 (Tex. 2009) (orig. proceeding). Thus, the trial court's failure to enforce the forum- selection clause in this case is properly corrected by issuance of a writ of mandamus. See In re Lisa Laser USA, Inc., 310 S.W.3d 880, 883 (Tex. 2010) (orig. proceeding); Laibe Corp., 307 S.W.3d at 316. We conditionally grant the relators' petition for writ of mandamus. A writ will issue only in the event the trial court fails to vacate its April 26, 2011 Order Denying Defendants' Motion to Dismiss and to enter an order granting the motion to dismiss.

KERRY P. FITZGERALD

JUSTICE

Murphy, J., dissenting.

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Footnote 1

The parties sometimes use the term “standing” in this context of the right to enforce forum selection. See, e.g., “But Mariner is wrong about Highland's standing.” Relators' Reply Brief, p. 13. We avoid that term in this context because of the potential for confusion. The right to enforce a contractual agreement is a defensive issue for a contracting party, not a jurisdictional one. Unlike standing that is a component of subject matter jurisdiction, the right to enforce a contractual agreement can be waived. Moreover, we will not raise the issue in this Court-as we would an issue of subject matter jurisdiction-if it is not raised as an issue by the parties.

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Footnote 2

We disagree with the dissent's conclusion that Mariner challenged Cornerstone's right to enforce forum selection in the trial court. Mariner made an argument below concerning the scope of the Note's forum-selection clause. That argument asserted Cornerstone treated the Note's forum- selection clause as “non-existent” and stated Cornerstone had “not even tried” to establish a right to enforce it. Mariner's characterization is flawed substantively: Cornerstone does not treat the Note's forum-selection clause as non-existent. Instead, Cornerstone has consistently maintained that the Note merely incorporates by reference the forum-selection clause in the APA, as part of a unified transaction. Consistent with that analysis, Cornerstone asserts a right to enforce forum selection as assignee to the rights under the APA. Nevertheless, the dissent adopts Mariner's characterization of Cornerstone's argument and treats it as a challenge to Cornerstone's right to enforce the forum-selection clause in the Note. The dissent charges that “Cornerstone never asserted the right to enforce the Note, either below or in this proceeding.” Given its theory of this issue, Cornerstone had no reason to contend it had a right, independently, to enforce the Note or its forum-selection clause.

Mariner raised three arguments below in response to the motion to dismiss: (1) neither forum-selection clause governs this dispute; (2) the forum-selection clause in the Note excludes this dispute; and (3) Highland is not entitled to dismissal because its only asserted basis for enforcing a forum-selection clause has been overruled. In this Court, Mariner argues: (1) the trial court did not abuse its discretion in overruling the motion to dismiss (addressing rules of contract construction); (2) the relators' arguments for a single clause are unconvincing; (3) the dispute is too remote to come under the 2005 forum-selection clause; and (4) Highland cannot enforce any forum-selection clause as a nonsignatory. Both times, Mariner unambiguously raised Highland's right to enforce forum selection, not Cornerstone's, as a specific issue in its briefing.

Even if Mariner's discussion below of the scope of the Note's forum-selection clause could be read as a challenge to Cornerstone's right to enforce it-and we do not read it that way-the issue is not raised in this original proceeding.