ADR LAW TEXAS

MSA given effect by court even though signatory tried to change its terms

2011-08-15T21:24:00.000-07:00

Abdulwahab v. Sam's Real Estate Business Trust
(Tex.App.- Fort Worth, Jul. 21, 2011)

Fort Worth Court of Appeals explains that agreed judgment cannot be entered when party withdraws consent to settlement agreement (or refuses to sign final court document effecting the terms of the settlement). Remedy in such cases is a claim for breach of settlement agreement by the non-breaching party. Motion to dismiss held sufficient in this case in lieu of breach-of-contract pleadings to give opposing party notice and provide a basis for dismissal in accordance with the terms of the settlement, which included release language. Breaching party -- who objected to the scope of the release -- did not respond to motion to dismiss and therefore couldn't complain later about denial of the right to assert defenses to breach-of-settlement agreement claim.

POINTS OF LAW ON WITHDRAWAL OR REVOCATION OF CONSENT TO SETTLEMENT AGREEMETN PRIOR TO ENTRY OF JUDGMENT

Written settlement agreements and rule 11 agreements may be enforced as contracts even if one party withdraws consent before judgment is entered on the agreement. Ford Motor Co. v. Castillo, 279 S.W.3d 656, 663 (Tex. 2009); Padilla v. LaFrance, 907 S.W.2d 454, 461 (Tex. 1995); see Tex. Civ. Prac. & Rem. Code Ann. § 154.071(a) (West 2011) ("If the parties reach a settlement and execute a written agreement disposing of the dispute, the agreement is enforceable in the same manner as any other written contract."); Tex. R. Civ. P. 11; City of Roanoke v. Town of Westlake, 111 S.W.3d 617, 626 (Tex. App.-Fort Worth 2003, pet. denied). When consent is withdrawn, an agreed judgment based on the settlement agreement is inappropriate; instead, the party seeking enforcement of the settlement agreement must pursue a claim for breach of contract. Ford Motor Co., 279 S.W.3d at 663; Padilla, 907 S.W.2d at 461 ("Although a court cannot render a valid agreed judgment absent consent at the time it is rendered, this does not preclude the court, after proper notice and hearing, from enforcing a settlement agreement . . . even though one side no longer consents to the settlement."); Alcantar v. Okla. Nat'l Bank, 47 S.W.3d 815, 819 (Tex. App.-Fort Worth 2001, no pet.).

A settlement agreement can be enforced as a contract by the trial court only after proper pleading, notice, hearing, and proof. Ford, 279 S.W.3d at 663; Padilla, 907 S.W.2d at 462; Neasbitt v. Warren, 105 S.W.3d 113, 117 (Tex. App.-Fort Worth 2003, no pet.); see also Mantas v. Fifth Court of Appeals, 925 S.W.2d 656, 658 (Tex. 1996) (orig. proceeding) ("Where the settlement dispute arises while the trial court has jurisdiction over the underlying action, a claim to enforce the settlement agreement should, if possible, be asserted in that court under the original cause number.").

Although an amended pleading is one method of raising a claim that a settlement agreement should be enforced as a contract, we have held that a motion seeking enforcement of the settlement agreement is a sufficient pleading to allow a trial court to render judgment enforcing the settlement because such a motion gives the alleged breaching party an opportunity to defend itself. Neasbitt, 105 S.W.3d at 117; see Twist v. McAllen Nat'l Bank, 248 S.W.3d 351, 361 (Tex. App.-Corpus Christi 2007, orig. proceeding [mand. denied]) (holding that an oral motion to enforce a settlement agreement was sufficient because "[a]s long as the motion recites the terms of the agreement, states that the other party has revoked its previously stated consent to the agreement, and requests the trial court to grant relief, the motion is sufficient"); Bayway Servs., Inc. v. Ameri-Build Constr., L.C., 106 S.W.3d 156, 160 (Tex. App.-Houston [1st Dist.] 2003, no pet.). If the motion satisfies the general purposes of pleadings, which is to give the other party fair notice of the claim and the relief sought, it is sufficient to allow the trial court to render judgment enforcing the settlement. Twist, 248 S.W.3d at 361; Neasbitt, 105 S.W.3d at 117.[7]

FULL CASE STYLE: HUSSAIN ABDULWAHAB, INDIVIDUALLY AND D/B/A FURNITURE GALAXY AND BAZAAR v. SAM'S REAL ESTATE BUSINESS TRUST, A DELAWARE STATUTORY TRUST, (Tex.App.- Dallas, July 21, 2011)

FULL TEXT OF OPINION

MEMORANDUM OPINION [1] BY TERRIE LIVINGSTON, Chief Justice.

This appeal arises from a judgment that the trial court rendered after the parties entered into a Mediation Settlement Agreement (MSA). The trial court granted appellee Sam's Real Estate Business Trust, a Delaware Statutory Trust's motion to dismiss, which sought enforcement of the MSA. We affirm the trial court's judgment.

Background Facts

In February 2007, appellee sued appellant for breach of a commercial sublease that was related to a building in Grand Prairie.[2] Appellee claimed that appellant had breached the agreement by not paying rent and other costs. Appellant admitted to entering into the sublease but asserted that although appellee had represented that it would repair various aspects of the building, it had not done so. Thus, appellant counterclaimed for breach of warranty of suitability, breach of covenant of quiet enjoyment, and deceptive trade practices.[3] Appellee answered the counterclaims, and appellee filed a motion to strike them based on appellant's alleged failure to properly answer discovery, a hybrid motion for summary judgment on the counterclaims, and a no-evidence motion for summary judgment on appellant's affirmative defenses. The trial court granted appellee's hybrid motion for summary judgment, ruling that appellee was entitled to judgment as a matter of law on appellant's counterclaims.

The parties then mediated appellee's breach of contract claim. On October 23, 2009, the parties reached an agreement to settle the case. The terms of the MSA, in its entirety, are as follows:

On this the 23th [sic] day of October 2009, the parties identified below resolved the referenced matter on the dependent terms outlined below:

1. Without stipulation as to liability, all parties agree to completely release and discharge any and all claims of any kind, asserted or unasserted, known or unknown, that were or that could have been joined in the referenced litigation between these parties.

. . . .[4]

3. Counsel for Plaintiff will prepare formal settlement and dismissal documents.

By signing below we acknowledge our understanding of and agreement to the terms outlined above.

The agreement displays appellant's signature as well as the signatures of counsel for both parties.

The MSA was filed three days later. In May 2010, seven months after the MSA had been executed, appellee filed a motion to dismiss all claims, alleging that appellant had refused to sign a formal settlement document because he was considering filing a lawsuit against the real estate broker who helped market the property that appellant subleased from appellee.[5] The motion to dismiss stated that appellant had failed to appear for two dismissal hearings scheduled by the trial court and that the court had "directed" that the motion be filed. The motion recited that the formal settlement document that appellant had refused to sign contained "customary release language" that precluded claims against agents of either party.[6] Finally, the motion informed the trial court that appellant disagreed that claims against the parties' agents should be dismissed.

On May 28, 2010, appellee gave appellant written notice that the motion to dismiss would be submitted for the trial court's consideration on June 7, 2010, without an oral hearing. Appellant did not file a response by June 7, and on that date the trial court signed an order granting the motion and stating that

any and all claims of any kind, asserted or unasserted, known or unknown, that were or that could have been joined in this lawsuit, which includes claims against potential agents of either [appellee] or [appellant] (including real estate brokers), are released by both [appellee] and [appellant] and discharged with prejudice.

Two weeks later, appellant requested findings of fact and conclusions of law. Appellee objected, arguing that the trial court's findings and conclusions would not be proper under the rules of civil procedure because the court did not hear conflicting evidence on the dismissal motion. The trial court agreed with appellee and denied appellant's request.

Appellant filed a motion to modify, reform, or correct the judgment, stating that the MSA settled claims among only the named parties. In the motion, appellant represented that he had not withdrawn his consent to the settlement agreement, but he stated that he never gave consent to "any settlement extending beyond the named parties." The trial court denied appellant's motion to reform the judgment, and appellant brought this appeal.

The Propriety of the Trial Court's Judgment

In three issues, appellant contends that the trial court erred by granting appellee's motion to dismiss with prejudice, denying appellant's request for findings of fact and conclusions of law, and denying appellant's motion to modify, reform, or correct the judgment.

The judgment complied with the MSA

In his first issue, appellant contends that the trial court erred by signing its June 7, 2010 "Order Granting Motion to Dismiss All Claims, Asserted and Unasserted, Including Potential Agents, with Prejudice" because the order does not strictly and literally comply with the MSA and because the trial court was on notice that he did not consent to a release of claims against potential agents, including real estate brokers, at the time of the judgment. Appellant argues that the trial court altered the express release language in the MSA and therefore rendered an improper consent judgment, an improper ruling that appellant had breached the settlement agreement when no pleading for breach of contract had been filed, or an improper judgment enforcing a settlement agreement when no motion for enforcement had been filed.

Texas has a public policy of encouraging the peaceful resolution of disputes and the early settlement of pending litigation through voluntary settlement procedures. Tex. Civ. Prac. & Rem. Code Ann. § 154.002 (West 2011); Brooks v. Brooks, 257 S.W.3d 418, 421 (Tex. App.-Fort Worth 2008, pet. denied). Trial and appellate courts are charged with the responsibility of carrying out this public policy. Tex. Civ. Prac. & Rem. Code Ann. § 154.003 (West 2011); Brooks, 257 S.W.3d at 421.

Appellee argues that the trial court's dismissal order was not an agreed order and that it is therefore irrelevant whether appellant withdrew his consent to the MSA before the entry of the order. Written settlement agreements and rule 11 agreements may be enforced as contracts even if one party withdraws consent before judgment is entered on the agreement. Ford Motor Co. v. Castillo, 279 S.W.3d 656, 663 (Tex. 2009); Padilla v. LaFrance, 907 S.W.2d 454, 461 (Tex. 1995); see Tex. Civ. Prac. & Rem. Code Ann. § 154.071(a) (West 2011) ("If the parties reach a settlement and execute a written agreement disposing of the dispute, the agreement is enforceable in the same manner as any other written contract."); Tex. R. Civ. P. 11; City of Roanoke v. Town of Westlake, 111 S.W.3d 617, 626 (Tex. App.-Fort Worth 2003, pet. denied). When consent is withdrawn, an agreed judgment based on the settlement agreement is inappropriate; instead, the party seeking enforcement of the settlement agreement must pursue a claim for breach of contract. Ford Motor Co., 279 S.W.3d at 663; Padilla, 907 S.W.2d at 461 ("Although a court cannot render a valid agreed judgment absent consent at the time it is rendered, this does not preclude the court, after proper notice and hearing, from enforcing a settlement agreement . . . even though one side no longer consents to the settlement."); Alcantar v. Okla. Nat'l Bank, 47 S.W.3d 815, 819 (Tex. App.-Fort Worth 2001, no pet.). A settlement agreement can be enforced as a contract by the trial court only after proper pleading, notice, hearing, and proof. Ford, 279 S.W.3d at 663; Padilla, 907 S.W.2d at 462; Neasbitt v. Warren, 105 S.W.3d 113, 117 (Tex. App.-Fort Worth 2003, no pet.); see also Mantas v. Fifth Court of Appeals, 925 S.W.2d 656, 658 (Tex. 1996) (orig. proceeding) ("Where the settlement dispute arises while the trial court has jurisdiction over the underlying action, a claim to enforce the settlement agreement should, if possible, be asserted in that court under the original cause number.").

Although an amended pleading is one method of raising a claim that a settlement agreement should be enforced as a contract, we have held that a motion seeking enforcement of the settlement agreement is a sufficient pleading to allow a trial court to render judgment enforcing the settlement because such a motion gives the alleged breaching party an opportunity to defend itself. Neasbitt, 105 S.W.3d at 117; see Twist v. McAllen Nat'l Bank, 248 S.W.3d 351, 361 (Tex. App.-Corpus Christi 2007, orig. proceeding [mand. denied]) (holding that an oral motion to enforce a settlement agreement was sufficient because "[a]s long as the motion recites the terms of the agreement, states that the other party has revoked its previously stated consent to the agreement, and requests the trial court to grant relief, the motion is sufficient"); Bayway Servs., Inc. v. Ameri-Build Constr., L.C., 106 S.W.3d 156, 160 (Tex. App.-Houston [1st Dist.] 2003, no pet.). If the motion satisfies the general purposes of pleadings, which is to give the other party fair notice of the claim and the relief sought, it is sufficient to allow the trial court to render judgment enforcing the settlement. Twist, 248 S.W.3d at 361; Neasbitt, 105 S.W.3d at 117.[7]

Appellant argues that the trial court erred by rendering judgment releasing claims against potential agents when the only pleading pending was a motion to dismiss.[8] Although appellee's motion was labeled as a motion to dismiss, it was essentially a motion to enforce the MSA because appellee alleged that appellant "refuse[d] to sign a formal settlement document `releas[ing] . . . any and all claims of any kind . . . that could have been joined in [this] litigation' as he agreed to do in [the MSA]." The motion specifically recited and attached the terms of the MSA and stated that appellee's counsel had prepared the formal settlement and dismissal documents required by the agreement. The motion further alleged that the formal settlement documents were forwarded to and approved by appellant's counsel but that appellant refused to sign them. Appellee requested that the motion to dismiss be set for a hearing with notice to appellant and asked the trial court to enforce the settlement agreement.[9] Thus, the motion contained all of the necessary elements to request enforcement of the MSA. See Twist, 248 S.W.3d at 361-62; Neasbitt, 105 S.W.3d at 117.

Furthermore, the trial court correctly enforced the settlement agreement to preclude claims against third parties that could have been brought in the litigation between appellee and appellant. The MSA is a contract and is therefore governed by the same rules of construction applicable to all contracts. See Doe v. Tex. Ass'n of Sch. Bds., Inc., 283 S.W.3d 451, 458 (Tex. App.-Fort Worth 2009, pet. denied). Thus, in construing the MSA, our primary concern is ascertaining the true intent of the parties as expressed in the agreement. Id. (citing NP Anderson Cotton Exch., L.P. v. Potter, 230 S.W.3d 457, 463 (Tex. App.-Fort Worth 2007, no pet.)); see Republic Nat'l Bank of Dallas v. Nat'l Bankers Life Ins. Co., 427 S.W.2d 76, 79-80 (Tex. Civ. App.-Dallas 1968, writ ref'd n.r.e.) (noting that courts should not consider the "intention which the parties may have had, but failed to express in the instrument"). "Words in a contract must carry their ordinary, generally accepted meanings unless the contract itself shows that the terms have been used in a technical or different sense. In construing a contract, we may not rewrite it nor add to its language." Doe, 283 S.W.3d at 458 (citation omitted). The interpretation of an unambiguous contract is a matter of law to be determined by the trial court. Gulf Ins. Co. v. Burns Motors, Inc., 22 S.W.3d 417, 423 (Tex. 2000).

The trial court literally and strictly complied with the MSA by ordering that it precluded all claims "that were or that could have been joined in this lawsuit, which includes claims against potential agents."[10] This is precisely what the MSA required when the parties agreed to "completely release and discharge any and all claims of any kind, asserted or unasserted, known or unknown, that were or that could have been joined in the referenced litigation between these parties." Appellant's interpretation of the MSA, that it releases only claims that could have been brought between appellant and appellee, is unreasonable because it would have required the trial court to rewrite the agreement to state, in effect, that the parties agreed to "completely release and discharge any and all claims of any kind between these parties, asserted or unasserted, known or unknown, that were or that could have been joined in the referenced litigation."

Because we hold that the trial court did not err by granting appellee's motion to dismiss (of which appellant had notice and an opportunity to respond) and by strictly enforcing the terms of the MSA, we overrule appellant's first issue. See Neasbitt, 105 S.W.3d at 117-19.

The request for findings of fact and conclusions of law was inappropriate

In his second issue, appellant argues that the trial court erred by refusing to file findings of fact and conclusions of law. "In any case tried in the district or county court without a jury, any party may request the court to state in writing its findings of fact and conclusions of law." Tex. R. Civ. P. 296. "Findings and conclusions are appropriate if there is an evidentiary hearing and the trial court is called upon to determine questions of fact based on conflicting evidence." Int'l Union, United Auto., Aerospace & Agric. Implement Workers of Am.-UAW v. Gen. Motors Corp., 104 S.W.3d 126, 129 (Tex. App.-Fort Worth 2003, no pet.) (citing Port Arthur ISD v. Port Arthur Teachers Ass'n, 990 S.W.2d 955, 958 (Tex. App.-Beaumont 1999, pet. denied)). When the trial court rules without determining questions of fact, a request for findings of fact and conclusions of law is inappropriate. Id.; see O'Donnell v. McDaniel, 914 S.W.2d 209, 210 (Tex. App.-Fort Worth 1995, writ denied) (stating that a dismissal of a case without an evidentiary hearing does not constitute a case that has been "tried" within the meaning of rule 296); see also Puri v. Mansukhani, 973 S.W.2d 701, 708 (Tex. App.-Houston [14th Dist.] 1998, no pet.) ("The purpose of Rule 296 is to give a party a right to findings of fact and conclusions of law finally adjudicated after a conventional trial. . . . In other cases, findings and conclusions may be proper, but a party is not entitled to them.").

The trial court did not hold an evidentiary hearing, and its decision to grant appellee's motion to dismiss and enforce the MSA was not based on the determination of any fact issue about which there was conflicting evidence. Instead, at most, it was based on the parties' competing interpretations of the principal evidence presented, the MSA, and on appellant's undisputed refusal to sign a document that complied with the MSA's language.

Appellant contends that the trial court decided a disputed fact issue of the parties' intent in signing the MSA. But intent in entering a contract is only a fact issue where the contract is ambiguous, and based on our reasoning above, we hold that the MSA was not ambiguous. See Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996); Doe, 283 S.W.3d at 459.

For these reasons, we hold that the trial court did not err by declining to file findings of fact and conclusions of law. See Tex. R. Civ. P. 296. We overrule appellant's second issue.

The trial court correctly denied appellant's motion to modify, reform, or correct the judgment

In his third issue, appellant argues that the trial court erred by denying his motion to modify, reform, or correct the judgment. That motion and the argument contained in the body of appellant's third issue recast the contentions that appellant made in his first issue. Therefore, for the same reasons that we overruled appellant's first issue, we overrule his third issue. See Neasbitt, 105 S.W.3d at 118-19.

Conclusion

Having overruled each of appellant's issues, we affirm the trial court's judgment.

[1] See Tex. R. App. P. 47.4.

[2] In January 2008, appellee obtained a no-answer default judgment against appellant for $970,097.98 plus postjudgment interest. Appellant then filed an answer, which contained affirmative defenses, and a motion for new trial. Although appellee opposed the motion for new trial, the trial court granted it and vacated the default judgment.

[3] See Tex. Bus. & Com. Code Ann. §§ 17.41-.63 (West 2011).

[4] It appears that the parties used a pre-formatted agreement, and the text following the second term is crossed out and contains blanks that were never completed.

[5] Appellant states in his brief, "[Appellee] drafted, but [appellant] did not sign, the proposed formal settlement document." In the motion to dismiss, appellee alleged that it settled its breach of contract claim with appellant because appellant had threatened to leave the country or file for bankruptcy, "leaving a minimal chance of being able to collect any money from [appellant] after a money judgment had been obtained."

[6] In the motion to dismiss, appellee argued, "In essence, [appellant] wants to pursue a claim against a potential agent of [appellee's] . . . while, at the same time, foreclosing [appellee's] opportunity to collect unpaid rent from him. Such is an absurd position to take. . . ."

[7] In Neasbitt, we explained,

"A pleading is an original or amended petition or answer, which may also include or constitute a response, plea, or motion." "When a party has mistakenly designated any plea or pleading, the court, if justice so requires, shall treat the plea or pleading as if it had been properly designated." When determining the nature of a filing with the court, the contents of the filing govern over the title of the document. "[T]he purpose of pleadings is to give the adversary parties notice of each [party's] claims and defenses, as well as notice of the relief sought."

105 S.W.3d at 117 (citations and footnotes omitted).

[8] Appellant seems to argue that he was deprived of the right to assert defenses and conduct discovery. But appellant did not respond to appellee's motion to dismiss in any respect and therefore did not make the trial court aware of his desire to assert defenses or conduct discovery. He therefore waived any argument pertaining to his lack of an opportunity to prepare a defense. See Tex. R. App. P. 33.1(a); Neasbitt, 105 S.W.3d at 118.

[9] Appellee stated in the motion, "As agreed in the [MSA], it is now time to put to rest all claims, either asserted or unasserted, that could have been joined in this lawsuit. . . ."

[10] Appellant does not dispute that he could have sued appellee's real estate broker in the same suit in which he brought claims against appellee. Texas Rule of Civil Procedure 40(a) provides, "All persons may be joined in one action as defendants if there is asserted against them jointly, severally, or in the alternative any right to relief in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences. . . ." Tex. R. Civ. P. 40(a).

Agreed Judgment cannot be rendered after consent is withdrawn

2011-08-11T21:41:00.000-07:00

Agreed Judgment cannot be rendered when a party changes his or her mind and revokes consent to the agreement.

Dallas Court of Appeals reverses on finding that trial court erred by rendering judgment on the parties' Rule 11 settlement agreement in SAPCR modification proceeding after appellant had withdrawn his consent.

Mims v. Mims
Wesley James Mims v. Mary Ann Mims (Tex.App.- Dallas, Aug. 2, 2011)

MEMORANDUM OPINION

Before Justices Moseley, Richter, and Lang-Miers
Opinion By Justice Lang-Miers

Appellant Wesley James Mims appeals the trial court's judgment in this suit to modify an order affecting the parent-child relationship. For the following reasons, we reverse the trial court's judgment and remand for further proceedings.

Background

Appellee filed this suit to modify an order affecting the parent-child relationship. The matter was set for a bench trial in July 2009. Sometime after the trial began, the parties reached a rule 11 settlement agreement on all issues. The attorneys read the agreement into the record and also worked out some of the details of the agreement as it was being read. The court made extensive notes about the agreement's details on the docket sheet. At the conclusion of the proceeding, both parties stated that they agreed to the settlement agreement and asked the trial court to approve it. Appellee prepared an agreed order and, about a month later, filed it along with a motion to sign the order. Appellant had not signed the agreed order. Two days after appellee filed the motion to sign the agreed order, appellant filed objections to the motion stating that he withdrew his consent to the settlement agreement. The record reflects that a hearing on the matter was scheduled for August 19, 2009. However, on August 18, 2009, the court made a docket entry stating, “Resp. to get cases to Court by 4:00 P.M. Review cases and transcript. Both sides announced they had no objections.” The record does not contain any other notation regarding a hearing, and on August 27, 2009, the trial court signed the agreed order. In one issue, appellant argues that the trial court erred by rendering judgment after he withdrew his consent to the agreement.

Applicable Law

A party may revoke his consent to settle a case any time before judgment is rendered on the agreement. S&A Rest. Corp. v. Leal, 892 S.W.2d 855, 857 (Tex. 1995). An agreed judgment rendered after one of the parties revokes his consent is void. Padilla v. LaFrance, 907 S.W.2d 454, 461-62 (Tex. 1995) (“court cannot render a valid agreed judgment absent consent at the time it is rendered”); Quintero v. Jim Walter Homes, Inc., 654 S.W.2d 442, 444 (Tex. 1983) (when trial court has knowledge party does not consent to judgment, trial court should refuse to sanction agreement by making it judgment of the court).

Although the parties agree with this statement of the law, they disagree about when the judgment in this case was rendered. A judgment is rendered when “the court settles and declares the decision of the law upon the matters at issue.” Formby's KOA v. BHP Water Supply Corp., 730 S.W.2d 428, 429 (Tex. App.-Dallas 1987, no writ) (quoting Coleman v. Zapp, 151 S.W.1040, 1041 (Tex. 1912)). Rendition of judgment is a present act; an expression of future intent is not a rendition. See S&A Rest., 892 S.W.2d at 858; Formby's KOA, 730 S.W.2d at 430. The words used by the trial court must clearly indicate the court's intent to render judgment at the time the words are expressed. S&A Rest., 892 S.W.2d at 858.

Discussion

At the conclusion of the trial proceeding, both parties asked the court to approve the agreement, and the court stated:

THE COURT: All right. Then I understand that [appellee's lawyer] is going to prepare the order. And I know this is going to be kind of a convoluted and very complicated order, but I still would want to have it before - can we get it before - could we get it by July the 30th or 31st?

[APPELLEE'S LAWYER]: Yes.

THE COURT: That way we'll have something in our hands.

Appellant argues that the court “utter[ly] failed to clearly and affirmatively state it was rendering judgment” during the July proceeding during which the settlement agreement was read into the record. He also argues that the agreement did not resolve all pending matters. He contends that the trial court did not render judgment until it signed the agreed order on August 27, 2009. Appellee, on the other hand, contends that no magic words are required and that the court's on-the-record statements at the July proceeding, combined with the court's notations on the docket sheet, “clearly constitute a rendition . . . .” We agree with appellant.

Although the trial court did not expressly state it approved the settlement agreement, the record shows that the court appeared to have approved it. But mere approval of a settlement agreement does not constitute rendition of judgment. S&A Rest., 892 S.W.2d at 858. And although the court appeared to have approved the agreement, the court did not order the parties to sign and follow the agreement. See Samples Exterminators v. Samples, 640 S.W.2d 873, 875 (Tex. 1982) (trial court rendered judgment by ordering parties to sign and follow the agreement); Formby's KOA, 730 S.W.2d at 430. Appellant also argues that the record shows that some matters were left unresolved when the agreement was read into the record. For example, he cites the record where appellee's attorney advised the court that the attorneys and parties would have to work out the logistics of visitation if appellee moved out of the state with the child: “And the logistics of that we'll work out in final orders pursuant to the Texas Family Law Practice Manual, but there's going to have to be some notice provisions and buying tickets.”

Additionally, the record shows that motions were pending and would not be resolved except by the court's signed order. Appellee's counsel asked appellee whether she was “asking the Court to make these terms and conditions into an order that will dispose of two pending motions?” She said yes. The record does not indicate that the trial court ruled on those pending motions at the July proceeding. Appellee responds that the trial court ruled on those matters by the notation on the docket sheet that “all other pending requests denied and non-suited.” But we do not construe that notation as a rendition of judgment. See Formby's KOA, 730 S.W.2d at 430-31 (stating that as a general rule, “a mere docket entry is not sufficient to constitute a judgment or decree of the court” without more evidence of the court's intent). Instead, it appears to be a contemporaneous note relating to appellant's counsel's statement of the parties' agreement that “all other pending requests in this cause of action, the parties have agreed will be waived by the parties and denied by the Court.”

Based on this record, we conclude that judgment was not rendered in this case at the time the parties announced their agreement on the record. We conclude that judgment was rendered on the date the trial court signed the agreed order, which was well after appellant had withdrawn his consent to the agreement. Consequently, the trial court erred by rendering judgment on the parties' agreement after appellant had withdrawn his consent. See Footnote 1

We sustain appellant's sole issue on appeal, reverse the trial court's judgment, and remand the cause for further proceedings.

ELIZABETH LANG-MIERS
JUSTICE

Richter, J., concurring without opinion.

--------------------------------------------------------------------------------
Footnote 1

We express no opinion regarding the enforceability of the settlement agreement. See Padilla, 907 S.W.2d at 461 (distinguishing between requirements of an agreed judgment and an enforceable settlement agreement); Browning v. Holloway, 620 S.W.2d 611, 614-15 (Tex. Civ. App.-Dallas 1981, writ ref'd n.r.e.) (same).

13th Court of Appeals affirms trial court's denial of motion to compel arbitration

2011-08-11T21:14:00.000-07:00

Denial of motion to compel arbitration affirmed in interlocutory appeal. Appellant did not challenge all possible grounds for the trial court's order, which did not specify any such ground. Briefing rules do not permit new grounds for appeal to be raised in a reply brief.

U.S. Lawns, Inc. v. Castillo,
U.S. Lawns, Inc. vs Rudolfo Luis Castillo, Jr. and Yadira Ivette Arroyo,
No. 13-10-00669-CV (Tex.App. - Corpus Christi, Jul. 28, 2011)

O P I N I O N

Before Chief Justice Valdez and Justices Rodriguez and Benavides

Opinion by Chief Justice Valdez

Appellant, U.S. Lawns, Inc. (“U.S. Lawns”), filed an interlocutory appeal from an order denying its motion to compel arbitration with appellees, Rodolfo Castillo Jr. and Yadira Ivette Arroyo. By one issue, U.S. Lawns contends that the trial court erred in denying its motion because Castillo was bound to an arbitration agreement between U.S. Lawns and Castillo’s employer. We affirm.

I. Background

On July 31, 2008, Castillo was injured while employed with Blue Green Services, L.P. Castillo was using a “zero radius turn” lawnmower on a steep embankment when he lost control of it. The lawnmower slid down the embankment into a cement ditch and landed on top of him. Castillo suffered severe neurological injuries and is now a paraplegic.

On February 11, 2009, appellees filed suit for personal injuries and loss of consortium against Exmark Manufacturing Company, Inc., the Toro Company, and the Young Men’s Christian Association (YMCA) of the Greater Houston Area.[1] On March 30, 2010, appellees filed an amended petition naming U.S. Lawns as an additional party. U.S. Lawns responded to appellees’ amended petition with a motion to transfer venue, original answer, and jury demand with jury fees enclosed. The jury trial was set for December 6, 2010.

On October 5, 2010, U.S. Lawns filed a motion to compel binding arbitration and to dismiss appellees’ petition, claiming an arbitration agreement existed with Castillo. Appellees filed a response to the motion to compel arbitration, contending that there was not a valid arbitration agreement and that U.S. Lawns had waived arbitration. After conducting a hearing on November 18, 2010, the trial court denied U.S. Lawns’s motion to compel arbitration. This interlocutory appeal followed.[2]

II. Standard of Review

We review the denial of a motion to compel arbitration under the Federal Arbitration Act for an abuse of discretion. Sidley Austin Brown & Wood, LLP v. J.A. Green Dev. Corp., 327 S.W.3d 859, 862–63 (Tex. App.—Dallas 2010, no pet.); In re D. Wilson Constr. Co., 196 S.W.3d 774, 780 (Tex. 2006) (orig. proceeding). A trial court abuses its discretion when it acts arbitrarily or unreasonably and without reference to any guiding rules or principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42 (Tex. 1985).

III. Waiver on Appeal

Appellees claim that the trial court could have denied U.S. Lawns’s motion to compel arbitration on a ground that U.S. Lawns has not challenged on appeal. Therefore, appellees argue that we may affirm the trial court’s judgment on that unchallenged ground. Specifically, appellees assert that the trial court could have denied U.S. Lawns’s motion to compel arbitration because U.S. Lawns waived its right to arbitration by substantially invoking the judicial process, which resulted in prejudice to appellees. See Perry Homes v. Cull, 258 S.W.3d 580, 589–90 (Tex. 2008) (“[A] party waives an arbitration clause by substantially invoking the judicial process to the other party’s detriment or prejudice.”).

A. Applicable Law

An appellant’s brief “must state concisely all issues or points presented” for appellate review. Tex. R. App. P. 38.1(d). A point or statement of an issue is treated as “covering every subsidiary question” that is reasonably included. Id. However, “the courts of appeals may not reverse the judgment of a trial court for a reason not raised in a point of error.” Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex. 1993) (citing Vawter v. Garvey, 786 S.W.2d 263, 264 (Tex. 1990); San Jacinto River Auth. v. Duke, 783 S.W.2d 209, 210 (Tex. 1990)). Moreover, “[g]rounds of error not asserted by points of error are considered waived on appeal.” Fort Bend County Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 395 (Tex. 1991) (stating that the appellant could not challenge a trial court’s general judgment notwithstanding the verdict on grounds that the appellant did not advance in his brief to the court of appeals); Garcia v. Barreiro, 115 S.W.3d 271, 273 n.2 (Tex. App.—Corpus Christi 2003, no pet.) (concluding that the appellants waived their requests for the reversal of the trial court’s orders granting the appellees’ motions for summary judgment and the trial court’s order denying appellants’ motion for new trial because they failed to raise points of error or assert arguments concerning those issues).

An appellant must challenge each independent ground that may support an adverse ruling. Fox v. Maguire, 224 S.W.3d 304, 307 (Tex. App.—El Paso 2005, pet. denied) (applying this rule in a case involving a plea to the jurisdiction); Inscore v. Karnes County Sav. & Loan Ass’n, 787 S.W.2d 183, 184 (Tex. App.—Corpus Christi 1990, no writ) (“Where a judgment may rest upon more than one ground, the party aggrieved by the judgment must assign error to each ground or the trial court’s judgment will be affirmed on the ground to which no error was assigned. In such situations, it is said that appellants have waived their right to complain of the ruling to which no error was assigned.”). If the appellant fails to challenge all possible grounds, we must affirm the judgment on the unchallenged ground. Fox, 224 S.W.3d at 307; Inscore, 787 S.W.2d at 184.

B. Discussion

U.S. Lawns argues that this Court may not affirm the trial court’s “order on the independent ground proffered by [appellees]” because: (1) the order from the trial court was not a “general” order; (2) summary judgment rules do not apply to motions to compel arbitration; and (3) even if the order was a general order, the waiver of arbitration issue needs to succeed on the merits.

1. “General” Order

First, U.S. Lawns argues that even though the trial court did not specify the basis for its denial of its motion, the order was not a “general” order. Additionally, U.S. Lawns states that because appellees did not “present, advance, reference or, even mention [their] waiver [of arbitration] argument during the entire hearing,” appellees’ “suggestion that the trial court could have based its decision on the waiver argument is not correct and [is] unsupported.” Thus, without citation to any authority, U.S. Lawns invites us to rely only on the reporter’s record of the hearing on its motion to compel arbitration to determine the ground or grounds that the trial court considered in denying its motion to compel arbitration. We decline to do so.

Here, the trial court recited in its order that it denied U.S. Lawns’s motion to compel arbitration “[a]fter considering [U.S. Lawns’s] [m]otion . . ., the response, and arguments of counsel, and after a hearing on the application . . . .” We may not ignore this recitals in the trial court’s order, and we may not simply refer to the trial court’s oral pronouncements in the reporter’s record. See Capital Fin. & Commerce AG v. Sinopec Overseas Oil & Gas, Ltd., 260 S.W.3d 67, 84 n.21 (Tex. App.—Houston [1st Dist.] 2008, no pet.) (“Recitals in a judgment or signed order of the court thus control over conflicting recitals in the record.”); Harrington v. Harrington, 742 S.W.2d 722, 724 (Tex. App.—Houston [1st Dist.] 1987, no writ); see also Pisharodi v. Six, No. 13-07-019-CV, 2008 Tex. App. LEXIS 5987, at **9–10 (Tex. App.—Corpus Christi Aug. 7, 2008, no pet.) (mem. op.) (refusing “to surmise about the reasoning behind the trial court’s general order granting summary judgment” and determining that we must only “look to the order granting summary judgment to determine the trial court’s reasons for ruling” and that “the trial court indicated in its order that it considered the motion and the supplements” when it stated that the trial court considered the “Defendants’ Motion for Summary Judgment and Exhibits, all responses, replies, and supplements thereto”). Moreover, we may not remove U.S. Lawns’s burden of attacking each of the possible grounds for the trial court’s denial of its motion to compel arbitration by simply referencing the trial court’s oral pronouncements at the motion to compel arbitration hearing, and we may not assume that the trial court did not consider all of the grounds asserted in appellees’ response to U.S. Lawns’s motion. See Strather v. Dolgencorp of Tex., Inc., 96 S.W.3d 420, 422–23 (Tex. App.—Texarkana 2002, no pet.) (explaining that the appellate court may not speculate on the trial court’s reasons for granting summary judgment and that to do so, the appellate court would be improperly placing itself in the trial court’s role). Therefore, we conclude that because the trial court did not specify in its order its reason for denying U.S. Lawns’s motion, the trial court’s order is a general order.[3] See Lang v. City of Nacogdoches, 942 S.W.2d 752, 767–68 (Tex. App.—Tyler 1997, writ denied) (“[W]hen the trial court does not specify the specific grounds upon which it granted summary judgment, it is presumed that judgment was granted on all grounds raised by the moving party and it is then the burden of the non-moving party to show that each independent argument alleged in the motion was insufficient to support the trial court's order.”) (citing Ins. Co. of N. Am. v. Sec. Ins. Co., 790 S.W.2d 407, 410 (Tex. App.—Houston [1st Dist.] 1990, no writ)). Accordingly, U.S. Lawns was required on appeal to attack each possible ground for the trial court’s denial of its motion. See id.

2. Addressing Unchallenged Grounds

Second, U.S. Lawns argues that it should not have to address each ground asserted by appellees for denying its motion because the rule requiring a party to challenge alternative grounds on appeal only applies to summary judgments. Again, without citation to authority, U.S. Lawns states that “[a]pplying the rule does not make sense in the context of a movant’s appeal of an order denying arbitration because doing so causes substantial discord with this State’s strong presumption and policy favoring arbitration.” Further, although U.S. Lawns recognizes that this Court has discussed the application of summary judgment rules regarding alternative grounds in the context of a motion to compel arbitration, U.S. Lawns claims that neither it nor appellees have found “any case applying this principle in the present context [and] [t]his Court should not be the first to do so.”

As we stated in In re Int’l Bank of Commerce—a case involving a trial court’s ruling on a motion to compel arbitration—when the trial court has not stated the grounds for its ruling, “the appellant is required to attack all possible grounds for the order or judgment or risk waiver of its complaints.” No. 13-07-693-CV, 2008 Tex. App. LEXIS 519, **41–42 (Tex. App.—Corpus Christi Jan. 18, 2008, pet. struck, original proceeding). In In re Brock Specialty Servs., Ltd., we explained that in arbitration cases where the trial court specifies its reason for its ruling, we apply summary judgment rules, and we stated, “we see no reason why [that reasoning] should not apply in the context of our interlocutory review of arbitration orders.” 286 S.W.3d 649, 656–57 (Tex. App.—Corpus Christi 2009, no pet.).

In this case, the trial court did not state its grounds for its order, and appellees asserted two possible grounds supporting the denial of U.S. Lawns’s motion to compel arbitration. Therefore, we will follow the logic in In re Int’l Bank of Commerce and In re Brock Specialty Servs., Ltd, and we cannot agree with U.S. Lawns’s assertion that on appeal, it is not required to challenge all grounds supporting the trial court’s denial of its motion to compel arbitration. See Fort. Bend County Drainage Dist., 818 S.W.2d at 395; Garcia, 115 S.W.3d at 273 n.2; Fox, 224 S.W.3d at 307; Inscore, 787 S.W.2d at 184. Accordingly, U.S. Lawns was required to attack all possible grounds supporting the trial court’s order or risk waiver of its complaints. See 2008 Tex. App. LEXIS 519, **41–42.

3. Merits of Unchallenged Grounds

Finally, U.S. Lawns argues in its reply to appellees’ brief that “independent alternate grounds, must be legally meritorious and supported in the record.” Therefore, it appears that U.S. Lawns urges this Court to determine the merits of a ground not challenged in its original brief. We decline to do so.

“It is well-settled that [r]ule 38.3 of the Texas Rules of Appellate Procedure does not allow an appellant to include in a reply brief a new issue in response to a matter pointed out in appellee’s brief but not raised by the appellant’s original brief.” In re TCW Global Project Fund II, Ltd., 274 S.W.3d 166, 171 (Tex. App.—Houston [14th Dist.] 2008, orig. proceeding) (citing Dallas County v. Gonzales, 183 S.W.3d 94, 104 (Tex. App—Dallas 2006, pet. denied); Howell v. Tex. Workers’ Comp. Comm’n, 143 S.W.3d 416, 439 (Tex. App.—Austin 2004, pet. denied); In re M.D.H., 139 S.W.3d 315, 318 (Tex. App.—Fort Worth 2004, pet. denied); Barrios v. State, 27 S.W.3d 313, 322 (Tex. App.—Houston [1st Dist.] 2000, pet. ref’d)); see Tex. R. App. P. 38.3. Here, in its original brief, U.S. Lawns did not challenge all possible grounds on which the trial court could have based its denial of the motion to compel arbitration. By attacking the merits of the unchallenged ground in its reply brief, U.S. Lawns is attempting to circumvent the briefing rules.

Because U.S. Lawns has failed to challenge in its original brief, a ground that may have been the basis for the trial court’s denial of U.S. Lawns’s motion to compel arbitration—whether U.S. Lawns waived its right to arbitration—that issue has been waived on appeal. See In re TCW Global Project Fund II, Ltd., 274 S.W.3d at 171. Moreover, because the trial court’s judgment in this case can rest on more than one ground and U.S. Lawns has not challenged each of those grounds, we may affirm the trial court’s judgment on the ground to which no error was assigned. Fox, 224 S.W.3d at 307; Inscore, 787 S.W.2d at 184. We therefore conclude that the trial court did not err in denying U.S. Lawns’s motion to compel arbitration. We overrule U.S. Lawns’s sole issue.

IV. Conclusion

Accordingly, we affirm the trial court’s order denying U.S. Lawns’s motion to compel arbitration.

Rogelio Valdez
Chief Justice

Delivered and filed the 28th day of July, 2011.

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[1] Exmark Manufacturing Company, Inc., the Toro Company, and the Young Men’s Christian Association of the Greater Houston Area, and Blue Green Services are not parties to this appeal.

[2] Section 51.016 of the civil practice and remedies code permits courts to review orders denying a motion to compel arbitration subject to the Federal Arbitration Act (FAA) by interlocutory appeal. See Tex. Civ. Prac. & Rem. Code Ann. § 51.016 (West Supp. 2010). Both parties agree that this case is governed by the FAA.

[3] We note that at the hearing on U.S. Lawns’s motion to compel arbitration, U.S. Lawns argued to the trial court, “They’re [appellees] also going to argue that I waived this motion because of significant work has been done in discovery. There is no case law supporting that. There was a summary judgment filed but it was filed the day after this motion and it was filed subject to this motion. So any argument that they put forth that I waived it, I do not agree with them and it is just simply not supported by the case law.” Therefore, at the hearing, U.S. Lawns acknowledged that appellees had in fact raised a waiver of arbitration argument to the trial court.

Court of Appeals orders case sent back to Arbitrator for clarification

2011-08-11T20:56:00.000-07:00

Thirteenth Court of Appeals reverses trial court's denial of arb award confirmation and remands with instruction to send the case back to the arbitrator for clarification.

Ramos v. Perez,
Roberto Ramos v. Javier Perez, et al. No. 13-10-00350-CV (Tex.App. - Corpus Christi, Aug. 10, 2011)

MEMORANDUM OPINION

Before Chief Justice Valdez and Justices Rodriguez and Garza

Memorandum Opinion by Justice Rodriguez

This is an arbitration case. Appellant, Roberto Ramos, filed suit against appellees, Javier Perez, individually, Hook and Lateral Investments, L.L.C., Livex and Agro, L.L.C., Monte Bonito, L.L.C., Northgate Real Estate Group, L.L.C., P&L Partners, L.L.C., Paradise Rio Carwash, G.P., L.L.C., Sharyland Investors, Ltd., and the Shary Group, L.L.C. (collectively Perez). The parties agreed to arbitrate, and the arbitrator entered a final award in favor of Ramos. On Perez's motion, the trial court vacated that award. By his sole issue, Ramos generally contends that the trial court erred in vacating the arbitrator's award because Perez failed to prove that the arbitrator executed his powers so imperfectly that no mutual, final, or definite award was rendered.[1] We reverse with instructions to submit to the arbitrator for clarification and, once resolved, to confirm.

I. Background

The parties filed various claims and counterclaims against each other disputing, among other things, ownership interests, contributions made, and actions taken in relation to Monte Bonito, L.L.C. (the Company), a limited liability corporation formed by the parties to develop, subdivide, and sell property. Rather than proceed to trial, the parties agreed to submit their claims to arbitration under the Federal Arbitration Act (FAA).
The arbitrator conducted a four-day final evidentiary hearing. Upon its conclusion, due to the complexity of the accounting issues, the arbitrator asked the parties to submit briefs limited to liability issues. Following submission of the briefs, the arbitrator issued Amended Interim Order #1 which included the following relevant and unchallenged liability findings:

7. Respondent Perez breached his fiduciary duty to Claimant [Ramos] and [the Company] in transferring 15 "repossessed" lots to Hook and Lateral Investments, LLC in violation of Texas Business Organizations Code ' 101.225 . . . ; [and]

8. Claimant [Ramos] breached his fiduciary duty to Respondent Perez and [the Company] in failing to disclose the lien created in favor of Eva Ramos on the 12 acre tract transferred to the project.[[2]]

After additional briefing, the arbitrator issued Interim Order #2. That order determined what accounting priority models would be utilized to reflect the schedule of assets and liabilities and the schedule of partner capital accounts.[3]

Finally, the parties submitted closing briefs on the issue of damages and remedies. In his closing brief,[4] Perez recommended, in relevant part, the following method of zeroing out the capital accounts and winding up the company—a method which addresses the issue of the $50,000 lien created by Ramos in favor of his sister-in-law, Eva Ramos, on the 12 acre tract transferred to the project (the Eva Ramos lien):

Considering [the goal to get Perez and Ramos "split up" thus, winding down the company by zeroing out the capital accounts of each member and distributing the assets based upon the respective ownership interest], utilizing Interim Order #2, Perez believes that the following distribution is the fairest and most expedient and expeditious way to zero out the remainder of the capital accounts and divide the company assets between its members immediately. This distribution would eliminate any need to continue on [sic] the company with both owners to have to collect note payments to generate revenue as well as resolve the issues raised by the respective breaches of fiduciary duties found by the arbitrator.
. . . . .

In order to zero-out Ramos's capital account, Ramos should be paid the total cash assets in the company, which total $91,201, thereby leaving a balance owed in the amount of $105,629.

Balance of Ramos Capital: $196,830

Less Cash (Bank/Court): <$91,201>

Balance owing to Ramos: $105,629

However, before Ramos is paid any money, the issue of the $50,000 lien created in favor of Eva Ramos, which the Arbitrator previously found was a breach of Ramos's breach of his [sic] fiduciary duty to the company must be addressed. Thus, the payment of these cash assets should be conditioned upon a release of lien executed by Eva Ramos or the payment should be made jointly payable to both Ramos and Eva Ramos, to assure that no further damages are incurred due to the lien on the property and that matter is resolved.

After discussing his proposed method of zeroing out the capital accounts and winding up the company in detail, Perez summarily stated "[i]n short, the 'zeroing out' and distribution of assets to the members of [the Company] will result in . . . [c]ash paid to Ramos" in the amount of "$91,201 (subject to Eva Ramos release)." Perez concluded this portion of his brief on damages and remedies as follows:

This proposal would allow for the fairest and most expedient and expeditious manner for the zeroing out of capital accounts and the dividing of the company. A spreadsheet of this distribution is attached as Exhibit "I". Additionally, this distribution addresses the respective breaches of fiduciary duties by Perez and Ramos by (1) conditioning the payment of the case [sic] to Ramos on obtaining a release from Eva Ramos[[5]] and (2) returns the lots transferred to Hook & Lateral and uses those to pay off capital and distributes the notes to the company members. As such, Perez urges the Arbitrator to adopt this method for zeroing out the capital accounts and distributing the assets and thus winding down the company.

On February 23, 2010, the arbitrator entered his final award in favor of Ramos, basing it, in part, on a statement of zeroing out capital accounts and winding up of the company, attached as Exhibit "I" to the award. Exhibit "I" and a companion Exhibit "IA," modified only for attorney's fees, were otherwise identical to the spreadsheet of the distribution proposed by Perez and attached to his closing brief as Exhibit "I." The arbitrator's award closed with the following language: "This Award is in full settlement of all claims submitted to this Arbitration. All claims not expressly granted herein are hereby denied."

Nonetheless, on March 29, 2010, Perez moved in the trial court to vacate the arbitration award, in relevant part, on the basis that the arbitrator executed his powers so imperfectly that there was no mutual, final, and definite award. See 9 U.S.C. ' 10(a)(4). At the hearing on the motion to vacate, Perez argued that while the arbitrator found Ramos breached his fiduciary duty to the Company by entering into an agreement with his sister-in-law to pay her $50,000 thereby creating a lien on property that was eventually sold to third parties, the arbitrator made no damage finding in his breach of fiduciary duty claim. Perez also asserted that the arbitrator did not resolve that issue by either satisfying the lien or making a requirement that it be satisfied and removed so that title to the property was clear and the Company did not have a claim filed against it. According to Perez, because this issue remained unresolved, the arbitrator executed his powers so imperfectly that there was no mutual, final, and definite award.

On June 21, 2010, the trial court granted Perez's motion thereby vacating the arbitrator's award. It is from the trial court's order that Ramos appeals.

II. Standard of Review and Applicable Law

Because it is undisputed that the FAA controlled the arbitration proceedings, we review de novo the questions regarding whether to vacate the arbitrator's award. See Kergosien v. Ocean Energy, Inc., 390 F.3d 346, 352 (5th Cir. 2004); Tanox, Inc. v. Akin, Gump, Strauss, Hauer & Feld, L.L.P., 105 S.W.3d 244, 250 (Tex. App.—Houston [14th Dist.] 2003, pet. denied) (op. on reh'g). All reasonable presumptions are indulged in favor of the award, and none against it. Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 568 (Tex. App.—Dallas 2008, no pet.).

It is well-settled that such an award can be vacated only for the reasons specified in section 10(a) of the FAA. 9 U.S.C. § 10(a). That is, section 10(a) permits a court to vacate an arbitration award only when: (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrator; (3) the arbitrator was guilty of refusing to postpone the hearing, failing to hear material evidence, or misbehaving in a way that prejudiced the rights of any party; or (4) the arbitrator exceeded his powers or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. Id.; see Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 578 (2008) (providing that bases for vacatur in section 10 of the FAA are exclusive).

"The party moving to vacate an arbitration award has the burden of proof." Lummus Global Amazonas S.A. v. Aguaytia Energy del Peru S.R. Ltda., 256 F.Supp.2d 594, 604 (S.D. Tex. 2002). When seeking to modify or vacate an arbitration award, the non-prevailing party bears the burden to bring forth a complete record to the trial court to establish its basis for vacating or modifying the award. See Statewide Remodeling, 244 S.W.3d at 568-69; see also GJR Mgmt. Holdings, L.P. v. Jack Raus, Ltd., 126 S.W.3d 257, 263 (Tex. App.—San Antonio 2003, pet. denied) (stating that without a record, the court has "no way of judging" whether allegations of arbitrator's gross mistake were supported). "When there is no transcript of the arbitration hearing, the appellate court will presume the evidence was adequate to support the award." Statewide Remodeling, 244 S.W.3d at 568.

III. Discussion

By his sole issue, Ramos contends that the trial court erred in vacating the arbitrator's award pursuant to section 10(a)(4), because all issues, specifically Perez's breach-of-fiduciary-duty claim, were resolved by the arbitrator. See 9 U.S.C. § 10(a)(4). Ramos also urges that if we agree that this breach-of-fiduciary-duty claim was resolved but determine that the award was not final because the arbitrator did not inform the parties of how to handle the Eva Ramos lien, then the award is only ambiguous. And if it is ambiguous, Ramos asserts the trial court erred in vacating the award because the proper remedy would have been to remand the award to the arbitrator for clarification of its intent regarding the lien.

A. Damages

Ramos contends that the trial court erred in vacating the award on the basis that no damages were awarded on Perez's breach of fiduciary duty claim.

We agree.

Addressing liability issues in its Amended Interim Order #1, the arbitrator found that Ramos "breached his fiduciary duty to . . . Perez and [the Company] in failing to disclose the lien created in favor of Eva Ramos on the 12 acre tract transferred to the project." The arbitrator "decline[d] to award actual damages" because "there were none at the time of the filing of the lawsuit." Rather, the arbitrator provided for equitable relief. He ordered the settlement of the Company, requiring the winding up of a partnership, an accounting, the distribution of notes, and a reduction of the parties' capital accounts to zero. See, e.g., ERI Consulting Eng'rs, Inc. v. Swinnea, 318 S.W.3d 867, 872-75 (Tex. 2010) (setting out that "courts may fashion equitable remedies such as profit disgorgement and fee forfeiture to remedy a breach of fiduciary duty") (citing Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 200 (Tex. 2002) (stating the rule that courts may disgorge any profit where "an agent diverted an opportunity from the principal or engaged in competition with the principal, [and] the agent or an entity controlled by the agent profited or benefitted in some way"); Burrow v. Arce, 997 S.W.2d 229, 237 (Tex. 1999) ("[A] person who renders service to another in a relationship of trust may be denied compensation for his service if he breaches that trust.")); Chien v. Chen, 759 S.W.2d 484, 494 n.6 (Tex. App.—Austin 1988, no writ) (recognizing equitable remedies, including a constructive trust, as a remedy for breach of fiduciary duty); Hughes v. Houston Nw. Med. Ctr., Inc., 680 S.W.2d 838, 843 (Tex. App.—Houston [1st Dist.] 1984, writ ref'd n.r.e.) (acknowledging a constructive trust as a remedy for breach of fiduciary duty that results in profit or unjust enrichment to the breaching party) (citing Omohundro v. Matthews, 161 Tex. 367, 341 S.W.2d 401, 410 (1960)); see also Tex. Bus. Orgs. Code Ann. §§ 11.051(5), 11.314(1)(B) (West Supp. 2010) (providing that a district court has jurisdiction to order the winding up and termination of the partnership on a partner's application when the court determines, among other things, that "another partner has engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business in partnership with that partner"). Thus, the requested equitable remedies were available and were ordered by the arbitrator.[6] Moreover, because equitable relief was requested and available, the arbitrator did not need to award actual damages. See Burrow, 997 S.W.2d at 238-39 (recognizing that a showing of actual damages is not required to prevail on a claim of breach of fiduciary duty) (relying on Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509, 514 (1942), to reject lack of damage to plaintiff as negating recovery for breach of fiduciary duty); see also Dairy Queen, Inc. v. Wood, 369 U.S. 469, 478 (1962) ("The necessary prerequisite to the right to maintain a suit for an equitable accounting, like all other equitable remedies, is . . . the absence of an adequate remedy at law.") (citing Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 510 (1959)); Stockton v. Altman, 432 F.2d 946, 950 (5th Cir. 1970).

In addition, the arbitrator's final award stated that it was "in full settlement of all claims submitted to" arbitration and denied all claims not expressly granted in the award. This broad language suggests that the arbitrator considered and resolved all claims submitted, including the damage element of the breach-of-fiduciary-duty claims.

Based on our de novo review, see Kergosien, 390 F.3d at 352; Tanox, 105 S.W.3d at 250, and indulging all reasonable presumptions in favor of the award and none against it, see Statewide Remodeling, 244 S.W.3d at 568, we conclude that the arbitrator's award resolved all issues submitted to arbitration, including the damage element of Perez's breach-of-fiduciary-duty claim. Thus, the trial court erred in vacating the arbitration award on the basis that no breach-of-fiduciary-duty damage finding had been made. We sustain Ramos's issue in that regard.

B. Ambiguity

Perez also urged, in his motion to vacate, that the award did not clearly set out what the parties were to do with regard to the Eva Ramos lien. While Ramos argues on appeal that there is no such ambiguity, he asserts, in the alternative, that if this Court so concludes, then the proper remedy is not to vacate the award but to remand the award to the arbitrator for clarification of that matter. We agree.

When a reviewing court finds part of an award ambiguous, the remedy is to remand the award to the arbitrator for a full explanation. San Antonio Newspaper Guild Local No. 25 v. San Antonio Light Div., 481 F.2d 821, 825 (5th Cir. 1973); see Weinberg v. Silber, 140 F.Supp.2d 712, 722-23 (N.D. Tex. 2001); see also In re Nestle USA—Beverage Div., Inc., 82 S.W.3d 767, 778 (Tex. App.—Corpus Christi 2002, orig. proceeding).

In this case, the award discussed an amount of cash, $91,201, to be paid to Ramos. The arbitrator incorporated Exhibit "I" into his final award. This exhibit, adopted from Perez's closing brief, set out that the cash in the bank and in escrow in the court to be paid to Ramos—the $91,201—was subject to "release by Eva Ramos." The arbitrator also stated in the opening paragraph of his final award that he considered all arguments presented by the parties. Based on this language, the arbitrator considered the following argument urged by Perez in his closing brief:

[T]he payment of these cash assets should be conditioned upon a release of lien executed by Eva Ramos or the payment should be made jointly payable to both Ramos and Eva Ramos, to assure that no further damages are incurred due to the lien on the property and that matter is resolved," . . . [and] this distribution[, summarized in Exhibit "I"] addresses the respective breaches of fiduciary duties by . . . Ramos by . . . conditioning the payment of the case [sic] to Ramos on obtaining a release from Eva Ramos.

Perez's proposal would have allowed for the release of the lien so that the money could have been paid to Ramos.

While stating that the payment of the money to Ramos was subject to a release from Eva Ramos and considering this proposal, the arbitrator did not, however, expressly inform the parties as to what should be done regarding the lien. Therefore, we cannot conclude that the award's language is dispositive as to how the parties should handle that part of the award, the referenced lien. The language provides no guidance. Instead, it is ambiguous.

Because the award did not clearly set out what the parties were to do with regard to the Eva Ramos lien, the trial court properly concluded the award was ambiguous and that the arbitrator executed his powers so imperfectly that no mutual, final, or definite award was rendered. See 9 U.S.C. ' 10(a)(4). Thus, we overrule Ramos's issue to the extent he challenges the ambiguity of the award as the basis for the trial court's vacatur.

However, because the proper remedy for an ambiguous award is to remand it to the arbitrator for a full explanation and clarification, see San Antonio Newspaper Guild, 481 F.2d at 825, we agree with Ramos that the trial court erred in vacating the award. Rather, the trial court should have remanded the matter of the Eva Ramos lien to the arbitrator for clarification. See id. Therefore, we sustain this issue on the basis of Ramos's alternative remedy argument.

IV. Conclusion

Accordingly, we reverse the order of the trial court and remand this cause to the trial court with instructions to submit the matter to the arbitrator for clarification of the process by which the parties should address the Eva Ramos lien and, once resolved, to enter an order confirming the arbitration award.

NELDA V. RODRIGUEZ
Justice

Delivered and filed the 11th day of August, 2011.

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[1] Ramos also contends that the trial court erred in vacating the arbitrator's award because Perez failed to prove that the arbitrator was (1) partial or biased and (2) refused to hear pertinent and material evidence related to accounting principles that were allegedly misapplied which prejudiced Perez's rights. See 9 U.S.C. § 10(a)(2)–(3) (West 2006). Perez, however, has informed the Court that he does not rely on these arguments to support his position. Neither does Perez contend that he proved the arbitrator exceeded his powers. See id. § 10(a)(4). Therefore, to the extent Ramos argues these issues on appeal, we need not address them. See Tex. R. App. P. 47.1. In other words, both parties agree that the only matter before this Court is whether the arbitrator executed his powers so imperfectly that no mutual, final, or definite award was rendered. See id.

[2] The "project" is described as the development of a tract of land in Mission, Texas, as a residential subdivision.

[3] Although Perez challenged the accounting process in the trial court, he does not assert on appeal that this was a basis for vacating the arbitration award.

[4] It is undisputed that the arbitration proceeding was not recorded. Other than the arbitrator's final award, Perez's remedies and damages brief is the only portion of the arbitration proceeding that is part of the appellate record. Although Perez offered the closing brief and its exhibits at the hearing on his motion to vacate for the limited purpose of establishing that one of its exhibits—a certain affidavit—had been submitted to the arbitrator, the trial court admitted the brief and all of its exhibits without limitation and without objection. On appeal, this brief and its exhibits appear in the reporter's record.

[5] Exhibit "I" addressed Perez's recommended disposition of Ramos's breach-of-fiduciary-duty claim through the following entry under the category of Liabilities: "Pay Cash in Bank and escrow in Court to Ramos: <$91,201> (Subject to release by Eva Ramos)."

[6] Although Perez's counterclaims do not appear in the record, it is undisputed that he filed them. Moreover, because the arbitrator granted equitable relief in this matter, we must presume that Perez requested not only actual damages but also equitable relief, as did Ramos. See Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 568 (Tex. App.—Dallas 2008, no pet.) (providing that all reasonable presumptions are indulged in favor of the award and none against it).

Walk out on mediator at your peril: Appeal dismissed for failure to complete mediation session

2011-08-11T20:15:00.000-07:00

Waco Court of Appeals dismisses appeal because Appellant terminated the mediation early by walking out. Preference for having the court decide the issues in dispute did not pass muster as a valid excuse.

In the Estate of James H. Rice,
No. 10-10-00021-CV (Tex.App.- Waco, Aug. 10, 2011)

MEMORANDUM OPINION

In an order dated April 20, 2011, the Court found that this appeal was appropriate for mediation and ordered the parties to mediate this case. The Court’s Order provided in part:

Named parties must be present during the entire mediation process, … .

Failure or refusal to attend the mediation as scheduled may result in the imposition of sanctions, as permitted by law. If Appellant James Rice, Jr. fails to attend the mediation, this appeal will be dismissed. See Tex. R. App. P. 42.3(b), (c). [Emphasis in original.]

The mediation was held at the McLennan County Dispute Resolution Center on June 15, 2011. The Court received a June 22, 2011 letter from the Executive Director of the McLennan County Dispute Resolution Center. That letter states that

the mediation session ended abruptly when Appellant, James H. Rice, Jr. unexpectedly left the premises and did not return, prior to the mediation being terminated, adjourned, or recessed by the DRC’s volunteer mediator. As a result, the parties were unable to reach any agreement and the mediator, in the absence of the Appellant, pronounced the mediation terminated with the parties at impasse.

The Court requested, and has received, statements from the parties’ counsel about “the circumstances of Appellant’s departure from the mediation and why this appeal should not be dismissed for failure to comply with the Court’s April 20 Order.” James has not justified his departure from the mediation. The only explanation, which the Court finds insufficient, for James’s departure is that he “felt it best to put this matter in the hands of the Court.” Noah’s counsel’s statement verifies the Executive Director’s description of the events. James’s departure violated both the letter and spirit of the Court’s order, which explicitly required him “to attend the mediation” and to “be present during the entire mediation process.” Accordingly, this appeal is dismissed. Tex. R. App. P. 42.3(c).

REX D. DAVIS

Justice

Before Chief Justice Gray, Justice Davis, and Justice Scoggins

Appeal dismissed

Opinion delivered and filed August 10, 2011

TAGS: dismissal for failure to comply with appellate mediation order, failure or refusal to mediate

Claim that arbitrators exceeded their powers rejected

2011-07-18T17:33:00.000-07:00

Dallas Court of Appeals rejects contention that the arbitrators went beyond the scope of their authority:

Skidmore Energy, Inc. v. Maxus (U.S.) Exploration Company,
No. 05-09-00402-CV (Tex.App.- Dallas July 12, 2011)

Claim That Arbitrators Exceeded Their Powers

Appellants additionally contend the trial court erred by entering a judgment confirming the arbitration award because the panel majority exceeded its authority. Appellants claim the panel majority exceeded its authority by ruling that Skidmore breached the 1998 Agreement because that specific argument was not advanced by Maxus at the outset of the arbitration. [fact and background section moved to the bottom of this post]

Analysis
Texas law allows for vacatur of an arbitration award if the arbitrators "exceeded their powers." Tex. Civ. Prac. & Rem. Code Ann. § 171.088 (a)(3)(A). An arbitrator's authority is limited to disposition of matters expressly covered by an arbitration agreement or implied by necessity. Gulf Oil Corp. v. Guidry, 327 S.W.2d 406, 408 (Tex. 1959); see also Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 90 (Tex. 2011) (in arbitration conducted by agreement of the parties, rule is well established that an arbitrator derives his power from parties' agreement to submit to arbitration) (citing City of Pasadena v. Smith, 292 S.W.3d 14, 20 (Tex. 2009)); Townes Telecomms. Inc. v. Travis, Wolff & Co., 291 S.W.3d 490, 493 (Tex. App.-Dallas 2009, pet. denied) (arbitrator's authority to decide matters is derived from the arbitration agreement). Arbitrators therefore exceed their authority when they decide matters not properly before them. Travis, Wolff & Co., 291 S.W.3d at 493. When determining whether an arbitration panel has exceeded its powers, any doubts concerning the scope of what is arbitrable should be resolved in favor of arbitration. Id.

When we determine whether claims are within the scope of an arbitration agreement, we examine the terms of the arbitration agreement and the factual allegations pertinent to the claim. Graham-Rutledge & Co. v. Nadia Corp., 281 S.W.3d 683, 690 (Tex. App.-Dallas 2009, no pet.). Because of policy favoring enforcement of arbitration agreements, the ability to arbitrate claims should not be denied "unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue." Marshall, 909 S.W.2d at 899 (quoting Commerce Park at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 338 (5th Cir. 1984)).

Here the arbitration agreement reflects the parties' desire to submit "all claims asserted in the Lawsuit" to binding arbitration. See Footnote 12 This phrase is broad and may encompass a wide range of issues. See Centex/Vestal, 314 S.W.3d at 685 (noting that "[a]ny claim arising out of or related to the Contract" was subject to arbitration was broad and encompassed a wide range of disputes). When an arbitration clause employs broad language such as the language in the arbitration agreement here, "it is construed as evidencing the parties' intent to be inclusive rather than exclusive." Id. Broad arbitration agreements like that at issue have been held to support awards rendered on a variety of grounds, including those not specifically argued to the arbitrators. See City of Baytown v. C.L. Winter, Inc., 886 S.W.2d 515, 518 (Tex. App.-Houston [1st Dist.] 1994, writ denied) (arbitrators did not exceed powers by awarding damages for changed conditions under contract even though issue of changed conditions was not specifically addressed in parties' briefing); J.J. Gregory Gourmet Servs., Inc. v. Antone's Import Co., 927 S.W.2d 31, 34-5 (Tex. App.-Houston [1st Dist.] 1995, no writ) (arbitrators did not exceed their powers in determining issue the resolution of which was not expressly demanded, because issue was actually discussed during arbitration proceedings).

In their motion to vacate the arbitration award, appellants stated that "at the arbitration and pursuant to the terms of the Arbitration Agreement, the arbitrators were to undertake a 'clarification of the issues.'" The arbitration agreement further provides that in exercising their discretion, the arbitrators "may direct the parties to focus their presentations on issues the decision of which could dispose of all or part of the case." Here, the parties were requested to advise the arbitrator whether either party took the position that the 1998 Agreement had been breached at the time of the closing of the lease assignments.

Appellants contend Maxus stipulated that no party to the arbitration argued a breach of contract occurred when the lease agreements were executed. Appellants argue that the stipulation is dispositive on the question of whether the panel majority exceeded its powers. We disagree. The arbitrator was attempting to clarify a dispositive legal issue and the statement of Maxus regarding its position on that legal issue was not binding on Maxus or the arbitrators. See Footnote 13 The question of when a cause of action accrues is a question of law, not fact. Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 567 (Tex. 2001). Stipulations as to legal conclusions, as opposed to facts, are not binding on courts or parties. Caprock Inv. Corp. v. Fed. Deposit Ins. Corp., 17 S.W.3d 707, 713 (Tex. App.-Eastland 2000, pet. denied); see also Fid. & Cas. Co. of N.Y. v. Horton & Horton Custom Works, Inc.. 462 S.W.2d 613, 618 (Tex. Civ. App.-Fort Worth 1971, writ ref'd n.r.e.) (since question of law would be involved, stipulation could not have operated to control the court and prevent finding on facts which might, when applicable law and legal principles were applied, compel conclusion); Humble Oil & Refining Co. v. Sun Oil Co., 191 F.2d 705, 714 (5th Cir. 1951) (citing Reynolds v. McMan Oil & Gas Co., 11 S.W.2d 778, 785 (Tex. Comm'n App. 1928)) (adoption of the principle by Supreme Court of Texas "that expressions of opinions as to the law of the case by counsel are not binding upon either his client or the court"). See Footnote 14

Skidmore's claim is that Maxus breached the parties' 1998 Agreement by surrendering five oil and gas leases without first giving Skidmore notice and an opportunity to request reassignment of the leases. See Footnote 15 In its answer, Maxus denied the claim and contended Skidmore's claims were barred by waiver, estoppel, and limitations. The parties' arbitration agreement encompassed the question of whether Skidmore breached the parties' agreement and was thereby estopped from pursuing its claim against Maxus. The matter was raised as an affirmative defense in Maxus' pleadings and discussed during the actual arbitration proceedings. In its statement of the case submitted in advance of the arbitration hearing, Maxus stated that whether Skidmore's claims are barred, in whole or in part, by the affirmative defenses of waiver, estoppel and the statute of limitations were issues in the case.

The arbitrators stated the arbitration proceeding would not be closed until the parties provided their closing memoranda. Arbitrator Ratliff, again, raised the legal issue of whether a breach occurred at the time of the closing of the lease assignments when non-conforming assignments were delivered, a matter the parties could address in their closing memoranda. In its closing memorandum to the arbitrators, Maxus addressed the issue of whether a breach of the 1998 Agreement occurred at closing:

Maxus contends that there was no breach at the August 21, 1998, closing because . . . each party had the option at closing of either (i) insisting that the other party present an assignment of the lease(s) using the Exhibit B form, failing which that party could refuse to close, or (ii) waiving the condition and accepting the tendered Assignments. Because the parties closed without insisting on delivery of the Exhibit B form of Assignment, Maxus contends that the use of that form was waived and that the failure to deliver Assignments on that form was therefore not a breach of the Agreement.

If, as Skidmore and Intervenors contend, however, the parties did not waive the use of the Exhibit B form of assignment, then the alternative is that they were still insisting on the use of that form, and since neither party delivered assignments on the Exhibit B form, the Agreement was breached at that point.

* * *

[...]

Appellants asserted in the lawsuit against Maxus that Maxus breached the 1998 Agreement and that Skidmore performed its obligations under the agreement. The affirmative defenses asserted by Maxus-waiver, estoppel, and limitations-were before the arbitration panel. The questions of whether and when there was a breach of the 1998 Agreement were before the arbitration panel. See Centex/Vestal, 314 S.W.3d at 686 (party cannot submit issue to arbitration panel and then, when unfavorable result occurs, claim arbitrators exceeded their authority in deciding the issue).

We conclude the arbitrators decided matters that were properly before them and did not exceed their powers. We overrule appellants' argument to the contrary.

[...]

Factual Background

At arbitration, it was undisputed that, although the parties had agreed that prior notice of an intention to relinquish an assigned lease and an opportunity to request reassignment of the lease would be given, the actual assignments that were prepared by Maxus and executed by Maxus and Skidmore did not contain a notice and reassignment provision. At the conclusion of the first day of the four-day arbitration hearing, arbitrator Ratliff asked if any party was contending that the preparation, execution, and delivery of assignments without the required notice and reassignment provision was a breach of contract. Counsel for the parties confirmed that no party was making the contention that a breach of contract occurred at the time of execution of the lease assignments.

In its arbitration award, the panel majority concluded that by delivering at the August 21, 1998 closing the lease assignments that omitted the notice and reassignment provision, Skidmore and Maxus breached the 1998 Agreement. The panel majority noted that it was uncontroverted that Skidmore did not file the breach-of-contract suit against Maxus within four years of the closing. See Tex. Civ. Prac. & Rem. Code Ann. § 16.051 (West 2008) (residual four-year statute of limitations); Stine v. Stewart, 80 S.W.3d 586, 592 (Tex. 2002) (statute of limitations for breach of contract is four years and breach of contract claim accrues when contract is breached). The panel majority found that Skidmore committed a material breach of the 1998 Agreement, and that Skidmore was estopped from enforcing the 1998 Agreement. See Footnote 10

Appellants contend that in their pleadings neither Skidmore nor Maxus asserted, as a claim or as an affirmative defense, that a breach of contract occurred on the closing date when the lease assignment forms were executed in a form different from that agreed upon in the 1998 Agreement. Appellants argue that because the issue of when the breach of contract occurred was not a claim or defense asserted in the lawsuit, and the arbitration award is at odds with the statements by counsel on the record that no one contended a breach of contract occurred at the closing of the lease assignments, the panel majority exceeded its authority in ruling on the matter.

Findings of the Trial Court

The trial court found that in the litigation underlying the arbitration, "Skidmore alleged that Maxus breached [the notice and reassignment] requirement with respect to six leases. By alleging that Maxus breached the Agreement and that Skidmore performed its obligations under the Agreement, Plaintiff and Intervenors placed Skidmore's performance of that Agreement at issue." Further, the trial court signed the following specific findings of fact:

19. In this case, the parties' written Arbitration Agreement encompassed "all claims asserted in the Lawsuit." Plaintiff and Intervenors claim on the merits was that Maxus breached the parties' 1998 Agreement by surrendering certain Federal Oil and Gas Leases without first giving Skidmore notice and an opportunity to request reassignment. In its Answer, Maxus denied the claim and further contended that Plaintiff and Intervenors' claims were barred by waiver, estoppel and limitations.

20. The parties Arbitration Agreement encompassed the question of whether Skidmore first breached the parties' agreement and had waived or was thereby estopped from pursuing its claims against Maxus. The matter was raised as an affirmative defense in Maxus' Answer and was discussed during the actual arbitration proceedings.

21. The Panel Majority concluded that by delivering Assignments at closing that omitted the notice and reassignment clause, Skidmore had itself breached the Agreement by failing to deliver Assignments on the proper form. Having committed a material breach of the Agreement, the Panel Majority held that Skidmore was estopped from enforcing the Agreement. In the alternative, the Panel Majority found that by closing on Assignments that did not contain the notice and reassignment provision, Skidmore waived any right to insist on Maxus' compliance with that provision. Estoppel and waiver were both pleaded by Maxus.

As indicated previously in this opinion, appellants have not raised specific challenges to the trial court's findings of fact. See McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex. 1986). Appellants assert, however, that action by the arbitration panel majority exceeded the panel's powers. We will construe that argument as attacking the trial court's findings of fact that the panel majority did not exceed its powers. See Footnote 11

[see Analysis section, which was moved to the to of this post]
Conclusion

We overrule appellants' sole issue. We affirm the trial court's judgment.

Appellate review of arb award confirmation order: Standard of Review

2011-07-13T15:34:00.000-07:00

What is the standard of review used by the reviewing court to determine whether the trial court erred in confirming an arbitration award?

CASELAW SNIPPET FROM RECENT DALLAS COURT OF APPEALS OPINION:

We review the trial court's confirmation of an arbitration award de novo, based on a review of the entire record. Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 567 (Tex. App.-Dallas 2008, no pet.). Arbitration of disputes is strongly favored under both federal and Texas law. Prudential Secs. Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (orig. proceeding).

Arbitration awards are entitled to great deference by the courts. Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.-Dallas 2004, pet. denied). “In Texas, review of arbitration awards is extraordinarily narrow.” Hisaw & Assocs. Gen. Contractors, Inc. v. Cornerstone Concrete Sys., Inc., 115 S.W.3d 16, 18 (Tex. App.-Fort Worth 2003, pet. denied).

An arbitration award has the same effect as a judgment of a court of last resort and all reasonable presumptions are indulged in favor of the award. CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). The award is conclusive on the parties as to all matters of fact and law. Centex/Vestal v. Friendship W. Baptist Church, 314 S.W.3d 677, 683 (Tex. App.-Dallas 2010, pet. denied).

SOURCE:
Skidmore Energy, Inc. v. Maxus (U.S.) Exploration Company (Tex. App.- Dallas Jul. 12, 2011) (challenges on the ground of evident partiality of arbitrator and arbitrators exceeding their powers rejected; confirmation of award affirmed)

Dallas Court of Appeals examines another "evident partiality" claim and finds waiver

2011-07-13T15:16:00.000-07:00

Failure to timely object to arbitrator's disclosed business ties resulted in waiver of "evident partiality" as ground for vacature of arbitration award. Confirmation of award affirmed.

Skidmore Energy Inc.v . Maxus (US)Exploration Company

(Tex.App. - Dallas, July 12, 2011)(Opinion by Justice Robert M. Fillmore)

Fifth Court of Appeals rejects claim of evident partiality based on business relationship and stock ownership where complaining party waited until after receiving an adverse arbitration decision to raise the issue. By failing to object prior to entry of an arbitration award by the panel majority, the panel holds, appellants waived the issue. Even if the objection would have been preserved, it should not have been sustained, the court opines in dicta, given that the arbitrator made relevant disclosures regarding the entity which was only tangentially connected to the dispute, and the parties were aware of it. The court also rejects that contention that the arbitrators exceeded their authority. Trial court's confirmation of arbitration award and denial of motion to vacate it is accordingly affirmed.

OPINION

In a single issue, appellants Skidmore Energy, Inc. (Skidmore), and Johnny L. Patton, Jr., Patton Production Company, and Puls, Taylor & Woodson, L.L.P. (collectively referred to as Intervenors) contend the trial court erred by entering a judgment confirming an arbitration award that ordered appellants take nothing from appellee Maxus (U.S.) Exploration Company (Maxus). We affirm the trial court's judgment.

Background

        Skidmore and Maxus are oil and gas exploration companies. Maxus is a subsidiary of Repsol YPF. In 1996, Maxus and Skidmore executed a written agreement to jointly evaluate and acquire oil and gas exploration and production rights relating to offshore leases on federal blocks situated in the Gulf of Mexico (the 1996 Contract). Pursuant to the 1996 Contract, Maxus and Skidmore acquired a working interest in seven offshore leases on Green Canyon Blocks 140, 162, 206, and 492, Mississippi Canyon Blocks 491 and 492, and Garden Banks Block 361.
        On August 15, 1998, Skidmore and Maxus entered into an agreement to alter their business relationship (the 1998 Agreement). Under the 1998 Agreement, Skidmore agreed to assign all of its rights, titles, and interests in leases on Green Canyon Blocks 140, 162, 206, and 492, and Mississippi Canyon Blocks 491 and 492 to Maxus, and Maxus agreed to pay Skidmore $6,500,000 and to assign all of its rights, title, and interest in the lease on Garden Banks Block 361 to Skidmore. According to the 1998 Agreement, at the time of closing Maxus and Skidmore were to execute assignments of the leases using a form of assignment attached to the 1998 Agreement as Exhibit B. The Exhibit B form of assignment provided that in the event the assignee desired to surrender a lease subject of assignment prior to the expiration of the primary lease term, the assignee would give the assignor ninety days' notice of its intent to surrender the lease and offer to reassign the lease to the assignor (the notice and reassignment provision).
        On August 21, 1998, Skidmore executed six separate assignments in which it assigned all of its interests in the leases on Green Canyon Blocks 140, 162, 206, and 492, and Mississippi Canyon Blocks 491 and 492 to Maxus and Maxus executed an assignment of its interest in the lease on Garden Banks Block 361 to Skidmore. Skidmore retained a three percent overriding royalty interest in the oil and gas produced, saved, and marketed from the leases it assigned to Maxus, and Maxus retained the same overriding royalty interest in the oil and gas produced, saved and marketed from the lease it assigned to Skidmore. The assignments executed by Maxus and Skidmore did not contain the notice and reassignment provision.   See Footnote 1 Each of the assignments stated, “[t]his Assignment is expressly made and accepted subject to the following: . . . (2) The terms and provisions of that certain Agreement dated August 15, 1998 between Assignor and Assignee.”
        In October 1999, Skidmore surrendered the lease on Garden Bank Block 361 before the expiration of its primary term. Skidmore did not provide Maxus prior notice of its intent to relinquish the lease; nor did Skidmore offer to reassign the lease to Maxus. Maxus surrendered its interests in the leases on Green Canyon Blocks 162 and 206 in December 2002, its interests in the leases on Mississippi Canyon Blocks 491 and 492 in June 2002, and its interest in the lease on Green Canyon Block 140 in July 2002. Maxus did not give Skidmore prior notice of its intent to relinquish any of those leases; nor did Maxus offer to reassign any of those leases to Skidmore.
        In November 2004, Skidmore learned Maxus relinquished its interests in the five leases. Skidmore notified Maxus of Skidmore's contention that Maxus had breached the 1998 Agreement. In May 2005, Skidmore filed suit against Maxus for breaching the terms of the 1998 Agreement by surrendering five of the leases subject of the agreement without giving Skidmore prior written notice of its intention to surrender the leases or providing Skidmore the opportunity to have the leases reassigned to it. Intervenors asserted the same breach of contract claim against Maxus.   See Footnote 2 Maxus asserted affirmative defenses of waiver, estoppel, and limitations, as well as a counterclaim for declaratory judgment that Maxus was not obligated to provide Skidmore notice and an opportunity to request reassignment prior to the relinquishment of any of the assigned leases.
        Pursuant to a written arbitration agreement entered into after the lawsuit was filed, Skidmore, Intervenors, and Maxus submitted the claims asserted in the lawsuit to binding arbitration.   See Footnote 3 A majority of the three-member arbitration panel entered an award in favor of Maxus. Skidmore and Intervenors moved to vacate the award on the grounds that (1) two of the arbitrators, Martin McNamara and Shannon Ratliff, failed to make necessary pre-arbitration disclosures, and (2) the arbitration panel majority exceeded its authority. Maxus moved for judgment confirming the panel's award. The trial court denied the motion to vacate the arbitration award and signed a judgment confirming the award. Skidmore and Intervenors appeal the trial court's judgment confirming the arbitration award.

Standard of Review

We review the trial court's confirmation of an arbitration award de novo, based on a review of the entire record. Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 567 (Tex. App.-Dallas 2008, no pet.). Arbitration of disputes is strongly favored under both federal and Texas law. Prudential Secs. Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (orig. proceeding). Arbitration awards are entitled to great deference by the courts. Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.-Dallas 2004, pet. denied). “In Texas, review of arbitration awards is extraordinarily narrow.” Hisaw & Assocs. Gen. Contractors, Inc. v. Cornerstone Concrete Sys., Inc., 115 S.W.3d 16, 18 (Tex. App.-Fort Worth 2003, pet. denied). An arbitration award has the same effect as a judgment of a court of last resort and all reasonable presumptions are indulged in favor of the award. CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). The award is conclusive on the parties as to all matters of fact and law. Centex/Vestal v. Friendship W. Baptist Church, 314 S.W.3d 677, 683 (Tex. App.-Dallas 2010, pet. denied).

Claim of Arbitrator's Evident Partiality

Appellants contend the trial court erred when it denied the motion to vacate the arbitration award because of arbitrator McNamara's evident partiality. Appellants assert the arbitration award should have been vacated because McNamara failed to disclose material financial and business relationships with Maxus which manifested a reasonable impression of McNamara's partiality.
For an appellate court to have jurisdiction to review an arbitration award, an appellant must allege a statutory or common law ground to vacate the award. Hisaw, 115 S.W.3d at 19. The Texas Legislature has decreed that, on application of a party, a court shall vacate an award if the rights of the party were prejudiced by evident partiality of an arbitrator appointed as a neutral arbitrator. Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(2)(A) (West 2011). A neutral arbitrator selected by the parties or their representatives exhibits evident partiality if he does not disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator's partiality. Burlington N. R.R. Co. v. TUCO Inc., 960 S.W.2d 629, 636 (Tex. 1997). See Footnote 4 The court emphasized that “evident partiality is established from the nondisclosure itself, regardless of whether the nondisclosed information necessarily establishes partiality or bias.” Id. (citing Commonwealth Coatings Corp. v. Cont'l Cas. Co., 393 U.S. 145, 147 (1968)). This standard reflects the supreme court's determination that courts should not undertake evaluations of partiality that are better left to the parties. TUCO, 960 S.W.2d at 636. When choosing a neutral arbitrator, the parties must weigh the competing factors of the arbitrator's knowledge and experience against his potential conflicts; parties can only perform that analysis if they have access to all of the information that could reasonably affect the arbitrator's partiality. Id. at 635. When disclosure is complete, the parties can make their determination concerning potential bias before the arbitration begins, a process that is more desirable than a court making the determination after an award is in place. See id. “While a neutral arbitrator need not disclose relationships or connections that are trivial, the conscientious arbitrator should err in favor of disclosure.” Id. at 637.
FACTUAL BACKGROUND

Factual Background

        According to the terms of the arbitration agreement entered into by appellants and Maxus, appellants appointed arbitrator Kit Cooke, and Maxus appointed arbitrator McNamara. After the two party-appointed arbitrators were selected, appellants proposed Ratliff as the third arbitrator, and Maxus accepted Ratliff as the third arbitrator.   See Footnote 5 Appellants and Maxus disagree as to whether party- appointed arbitrator McNamara was a neutral arbitrator and, consequently, whether evident partiality is an applicable statutory basis for review of the arbitration award. See Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(2)(A).
        Appellants contend all of the arbitrators, including McNamara, were intended to be neutral arbitrators. Maxus contends that, as its party-appointed arbitrator, McNamara was not intended to be a neutral arbitrator. While there is nothing in the arbitration agreement that expressly indicates the party-appointed arbitrators were to be considered neutral arbitrators, the agreement specifies that “there shall be no ex parte communications at any time by any party or its representative with any of the arbitrators, except that each party may confer with its own party-appointed arbitrator with respect to selection of the third arbitrator.” McNamara testified at the hearing on Maxus' motion to confirm the arbitration award that he believed he was a neutral arbitrator.
        The arbitration agreement required the arbitrators to disclose all actual or perceived conflicts of interest and business relationships involving the dispute or the parties, including any professional or social relationships, past or present, with any party or its affiliates, and provide an oath or undertaking of impartiality in accordance with the “Code of Ethics for Arbitrators in Commercial Disputes promulgated by [the] joint committee of the American Arbitration Association and of the American Bar Association” (the AAA Code). The arbitration agreement provided that the arbitrators could have no affiliation or interests with either party and no financial or personal interest in the outcome of the arbitration.
         In accordance with the arbitration agreement, McNamara issued disclosures. He stated he had no direct or indirect financial or personal interest in the outcome of the arbitration. In addition to providing information obtained through the computerized conflicts system of the law firm at which he was employed, including information concerning past litigation in which his firm represented a client adverse to Skidmore, McNamara disclosed the following:

With respect to personal or professional relationships, while I do not believe it would affect my impartiality or independence as an arbitrator, I serve with Roberto Monti as a member of the Board of Directors of Transocean, Inc. Mr. Monti will be leaving that Board when a pending combination closes with Global SantaFe, which is expected to occur before year end. Prior to 2002, Mr. Monti served as CEO of YPF and, after the acquisition of YPF by Repsol, as EVP of Repsol YPF. To my best recollection, I have never had any discussion with Mr. Monti about the business of Maxus (U.S.) or any matters related in any way to the dispute in the present arbitration. To my best recollection, I am not acquainted with anyone else who is or has been in a position of responsibility with respect to any of the parties here.

McNamara stated his belief that none of the relationships he disclosed would affect his impartiality or independence as an arbitrator.   See Footnote 6 McNamara also signed an oath that he would faithfully and fairly hear, entertain, determine and make an award based upon his review of the law and evidence. He represented that he had “fully and completely made those disclosures that are required under the Code of Ethics for Arbitrators,” and that apart from those disclosures he was aware of no past or present relationship with the parties or their counsel, whether financial or professional, that required disclosure.
        During the course of the arbitration, certain demonstrative exhibits and testimony indicated that drilling equipment owned by Transocean, Inc. (Transocean) had been utilized by Maxus in 1999 in connection with the drilling of a well referred to as “Haymaker” on Green Canyon Block 162, a lease subject of the arbitration. On the third day of the four-day arbitration, Maxus' witness Delmar Rumph testified regarding the length of time required to obtain necessary studies, authorizations, and equipment and to drill a deepwater offshore oil well. Rumph illustrated his point by discussing the twenty-one month period required for planning, permitting and drilling the Haymaker well. In connection with his explanation of this process, Rumph utilized four slides showing a semi- submersible mobile offshore drilling unit (MODU) with the caption “Transocean Amirante Rig” appearing next to the Maxus logo. Rumph explained that Maxus leased the Transocean Amirante MODU from Transocean at a cost of about $150,000 per day. Rumph testified that Maxus contracted with Advanced Drilling Technologies, Incorporated (ADTI) to drill the Haymaker well ulitizing the Transocean Amirante MODU. According to Rumph, a pre-drilling meeting included Maxus, ADTI, and Transocean.
        No party or attorney objected or raised a question about McNamara's service as an arbitrator when the slides depicting the Transocean Amirante MODU were shown or when Rumph testified regarding use of the MODU in the context of drilling the Haymaker well. After the arbitration award, appellants asserted evident partiality of McNamara due to his service on the board of directors of Transocean, a company that had done intermittent business with Maxus and its parent company, Repsol YPF. Appellants also asserted after the arbitration award that while McNamara disclosed his membership on the Transocean board of directors, he should also have disclosed that he owned Transocean stock.
        McNamara was deposed by appellants in post-award discovery. He indicated that at the time he made his pre-arbitration disclosures, he had no knowledge of any business relationship between Transocean and Maxus or Repsol YPF, but did not initiate an investigation into any relationship Transocean might have with Skidmore or Maxus. McNamara understood at the time of the arbitration that Maxus was a wholly-owned subsidiary of Repsol YPF. He indicated that he did not recall Skidmore or Maxus ever having been mentioned in connection with any Transocean board matter or included in any Transocean list of material clients. He testified that Transocean was and is the largest drilling company in the world with a market capitalization of about fifty billion dollars and a backlog of contracts worth between forty-two and forty-three billion dollars. McNamara would have assumed Transocean had done business with, or could have had some relationship with, almost any company involved in the offshore oil and gas business. However, he thought the potential for Transocean to have had a substantial relationship with a party to the arbitration as remote and not having an affect on him as an arbitrator. McNamara testified that if anyone had a concern about his service as an outside director of Transocean, he would have expected the concern to be raised in response to his disclosures. McNamara indicated that he assumed anyone knowing he was a director of Transocean, a publicly-held company, would have anticipated he owned stock in the company.
        McNamara further testified that he was unaware of Transocean's involvement in drilling the Haymaker well until he saw the slides depicting the Transocean Amirante MODU in the arbitration hearing. McNamara did not think there was any point to mentioning again his relationship with Transocean; he assumed all of the parties knew of the Transocean involvement in the drilling of the Haymaker well because the well was drilled on a lease that was jointly held or that had “gone back and forth” between Maxus and Skidmore, and because the information would have been known to the parties by virtue of discovery exchanged in connection with the litigation. McNamara noted that there was no reaction or demonstration of surprise from the parties regarding the slides or Rumph's testimony referencing the Transocean Amirante MODU. Further, he testified that the fact the Transocean Amirante MODU was used in connection with drilling the Haymaker well was not relevant to the principal points being made by Rumph in his arbitration testimony. Rather, McNamara understood the purpose of Rumph's testimony about the Haymaker well was to describe the amount of time required to drill a deepwater offshore oil well in the Gulf of Mexico. McNamara testified that if he had not already made disclosure of his relationship with Transocean, he might have viewed the need for disclosure at the time of Rumph's testimony differently.   See Footnote 7

Eric Brown, a senior vice president and general counsel of Transocean was deposed in the post-award discovery. Brown testified that prior to the arbitration, the 1999 Transocean Amirante MODU contract between Transocean and Repsol YPF, the parent of Maxus, would never have been discussed with McNamara in his capacity as an outside director of Transocean. Brown testified that Maxus and Repsol YPF were not significant clients of Transocean in terms of revenue, either at the time of his deposition or at the time of the arbitration in 2007. Brown testified that the compensation Transocean received from Maxus and Repsol YPF from 2003 through 2007 was a relatively small percentage of its total revenues. In 2003, Transocean received compensation from Maxus and Repsol YPF in the amount of $ 2.96 million, which represented 12/100 of 1 percent of Transocean's total revenues. From 2004 through 2006, Transocean received no compensation from Maxus or Repsol YPF. In 2007, Transocean received compensation from Maxus and Repsol YPF in the amount of $8,387,000, of which $779,000 is in dispute, which represented either 12/100 or 14/100 of 1 percent of Transocean's total revenues.
At the hearing of the motion to vacate the arbitration award, Kelly Puls, attorney for Intervenors, testified that he was aware from McNamara's disclosures that McNamara was on the board of directors of Transocean. He testified that he would never have agreed to an arbitrator who had a financial and business relationship with Maxus or Repsol YPF. When questioned about a 1999 email regarding the status of the Haymaker well, Puls confirmed that the Maxus arbitration exhibit was also designated as appellants' exhibit. That exhibit referenced ADTI finalizing the MODU contract with Transocean, and a meeting to be conducted with “ADTI, Transocean, and YPF-Maxus” personnel. Puls confirmed he knew before arbitration that a contractor used by Skidmore and Maxus had rented the Transocean Amirante MODU. When McNamara disclosed that he was a director of Transocean and Puls realized that Transocean had done business previously with Maxus, it did not concern Puls because he thought the business relationship was remote in time. Puls, who was also the attorney who filed the 2001 Fort Worth litigation, acknowledged that discovery produced by Maxus in that litigation indicated Maxus and Transocean had a business relationship.

In support of their motion to vacate the arbitration award, appellants also elicited testimony from Richard Faulkner as a tendered expert. Faulkner testified he has been active in the arbitration field for thirty years. In Faulkner's opinion, based on the AAA Code, McNamara did not make the disclosures that were required of a neutral arbitrator. Faulkner acknowledged that no statute in Texas codifies or incorporates the AAA Code, and that the code is aspirational for arbitrators conducting arbitrations in Texas. See Footnote 8
Faulkner was aware of McNamara's testimony that he did not know of any business relationship between Transocean and Maxus or Repsol YPF when he was appointed as an arbitrator. Faulkner acknowledged he had not seen anything that indicated knowledge on the part of McNamara concerning a relationship between Transocean and Maxus or Repsol YPF. Faulkner acknowledged that appellants did not ask for additional information from McNamara based on his disclosures and that, based on their knowledge of the prior business relationship between Transocean and Maxus or Repsol YPF, appellants could have objected to McNamara as an arbitrator at the time of his appointment. Faulkner acknowledged that McNamara could not disclose what he did not know, but Faulkner stated that he would expect McNamara, as a member of the board of directors of Transocean, to make a reasonable inquiry of the company before serving as an arbitrator and to ascertain whether or not the company was involved directly or indirectly with a party to the arbitration. Despite appellants' knowledge of Transocean's business relationship with Maxus/Repsol YPF based on the discovery in the 2001 Fort Worth litigation and appellants' designated exhibits in the arbitration, Faulkner stated that McNamara had a continuing duty to disclose a business relationship between Transocean and Maxus or Repsol YPF at the time the slides were presented by Rumph depicting the Transocean Amirante MODU used in connection with drilling the Haymaker well.

Findings of the Trial Court

The trial court found that even if appellants were deemed to have asserted statutory grounds for vacating an arbitration award, appellants failed to establish those grounds, including the ground of evident partiality. See Footnote 9 In addition to its finding of fact that arbitrator McNamara was not evidently partial and its conclusion of law that Skidmore failed to establish evident partiality as to McNamara, the trial court signed the following findings of fact:

15. Prior to the arbitration, Mr. McNamara disclosed that he serves on the Board of Directors of Transocean, Inc. (“Transocean”), a public company not involved in this lawsuit. He also disclosed that Robert Monti, a former officer of Maxus' parent company, Repsol YPF, also served on that Board. [Skidmore] and Intervenors did not object to Mr. McNamara despite these disclosures. Now, however, [Skidmore] and Intervenors complain that Mr. McNamara's failure to disclose his stock ownership in Transocean and his failure to disclose that Transocean has done business with Repsol YPF establish his evident partiality. Prior to the arbitration hearing, however, Mr. McNamara had no knowledge of any business relationship between Transocean and either Repsol YPF or Maxus, and had no knowledge of any connection between Transocean and the leases involved in this case.

16. [Skidmore] and Intervenors also complain that during the course of the arbitration hearing certain demonstrative exhibits were displayed that indicated Transocean had been the drilling contractor on a well drilled for Maxus in 1999 on one of the Federal Leases in this case, and that this should have caused Mr. McNamara to make a disclosure at that time of a possible business relationship between Transocean and Maxus. However, [Skidmore] and Intervenors were equally aware of the demonstrative exhibits and their implications, but did not object or raise any question relating to Mr. McNamara's continued service as an arbitrator. Moreover, at the hearing on the motion to vacate and the motion for judgment confirming arbitration award, the evidence established that [Skidmore] and Intervenors and their counsel had been aware of these facts for several years.

Appellants have not raised specific challenges to the trial court's findings of fact.See McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex. 1986) (When findings of fact are filed and unchallenged, they occupy same position and are entitled to the same weight as the verdict of a jury. They are binding on an appellate court unless the contrary is established as a matter of law or there is no evidence to support the finding.). Appellants assert, however, that evident partiality of McNamara warranted the trial court's vacating the arbitration award. We will construe that argument as attacking the trial court's findings of fact that arbitrator McNamara was not evidently partial.

Analysis

        On application of a party, a court shall vacate an award if the rights of the party were prejudiced by evident partiality of an arbitrator appointed as a neutral arbitrator. Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(2)(A). The arbitration agreement of the parties does not explicitly indicate that the party-appointed arbitrators were to be considered neutral arbitrators. However, the arbitration agreement specifies that “there shall be no ex parte communications at any time by any party or its representative with any of the arbitrators, except that each party may confer with its own party-appointed arbitrator with respect to selection of the third arbitrator.” McNamara testified he believed he served in the capacity of a neutral arbitrator. While the trial court did not find that McNamara was a neutral arbitrator, the court's findings of fact nevertheless addressed appellants' contention of evident partiality on the part of McNamara. Assuming, without deciding, that McNamara was a neutral arbitrator, we likewise address appellants' contention of evident partiality on the part of McNamara under applicable law. See Tex. Civ. Prac. & Rem. Code Ann. § 171.088; TUCO, 960 S.W.2d at 636.
        Appellants suggest McNamara had an undisclosed interest in the arbitration because Transocean, on whose board of directors McNamara served, had a business relationship with Maxus/ Repsol YPF, and McNamara owned Transocean stock. McNamara served as an outside director on the board of Transocean, a company that had, unknown to McNamara at the time of his disclosures, done intermittent business with Maxus and its parent Repsol YPF. It is undisputed that appellants and their counsel had been aware for years prior to the arbitration that Maxus had done business with Transocean, including contracting with Transocean to utilize the Transocean Amirante MODU in connection with drilling the Haymaker well on one of the leases at issue in the arbitration. Despite the fact appellants had actual knowledge of the prior business dealings between Transocean and Maxus/Repsol YPF, appellants made no objection upon receipt of McNamara's disclosures or during the arbitration when the evidence referred to those business dealings. Further, as pointed out by Maxus, information concerning McNamara's ownership of Transocean stock, as a member of its board of directors, was publicly available in Transocean's periodic filings with the United States Securities and Exchange Commission and appellants were capable of obtaining that information at the time McNamara made the disclosure of his relationship with Transocean. Again, appellants made no objection upon receipt of McNamara's disclosures or during the arbitration concerning McNamara's Transocean stock ownership.
        Appellants did not raise an objection of evident partiality of arbitrator McNamara until after the arbitration award by the panel majority. A party who knows or has reason to know of an arbitrator's alleged bias but remains silent pending the outcome of the arbitration waives the right to complain. Bossley v. Mariner Fin. Grp., Inc., 11 S.W.3d 349, 351-52 (Tex. App.-Houston [1st Dist.] 2000), aff'd, 79 S.W.3d 30 (Tex. 2002). “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, 11 S.W.3d at 351-52 (citing Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W. 225, 232 (Tex. App.-Houston [14th Dist.] 1993, writ denied)); see also Myer v. Americo Life, Inc., 315 S.W.3d 72, 76 (Tex. App.-Dallas 2009, pet. filed); Kendall Builders, Inc. v. Chesson, 149 S.W.3d 796, 806 (Tex. App.-Austin 2004, pet. denied) (having elected to proceed with arbitration in face of their knowledge regarding arbitrator, parties could not later complain after arbitration award). “[A] party who learns of a conflict before the arbitrator issues his or her decision must promptly object to avoid waiving the complaint.” TUCO, 960 S.W.2d at 637 n.9; Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796, 806 (Tex. App.-Dallas 2007, pet. denied). We agree with the trial court that appellants have waived their complaint concerning McNamara's alleged evident partiality by failing to raise the issue prior to issuance of the arbitration award.
        But even if appellants had not waived their complaint, we conclude based upon the entirety of this record that McNamara did not fail to disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator's partiality. See TUCO, 960 S.W.2d at 636. McNamara properly disclosed at the outset of the arbitration that he served on the Transocean board of directors. The undisputed evidence is that McNamara was unaware of an intermittent business relationship between Transocean and Maxus/Repsol YPF at the time he made his pre-arbitration disclosures. At the point during the arbitration that McNamara viewed demonstrative exhibits and heard testimony concerning a business relationship between Transocean and Maxus/Repsol YPF, it was apparent that the parties to the arbitration were aware of the business relationship. The intermittent business relationship between Transocean and Maxus/Repsol YPF produced compensation to Transocean that constituted no more than a very small portion of Transocean's annual revenue in 2003 and 2007. The trial court properly concluded that appellants' failed to establish evident partiality of McNamara. We conclude the trial court did not err in confirming the arbitration award in favor of Maxus and in denying appellants' motion to vacate the arbitration award based on appellants' claim of arbitrator McNamara's evident partiality. We overrule appellants' argument to the contrary in their sole issue.

Claim That Arbitrators Exceeded Their Powers

[omitted -- click hot-line to go to separate blog post]

Conclusion

We overrule appellants' sole issue. We affirm the trial court's judgment.

CASE DETAILS AND LINK TO DOCKET SHEET

05-09-00402-CV AFFIRM - Docket Sheet
Skidmore Energy, Inc. Patton Production Co., Johnny L. Patton, Jr. and Puls, Taylor; Woodson, LLP v. Maxus (U.S.) Exploration Company
Opinion by: Justice Robert M. Fillmore
Case Type: CONTRACT

Arbitrator Bias: Dallas Court of Appeals finds evident partiality in case involving arbitrator who did not disclose pre-existing relationship with counsel

2011-07-11T19:25:00.000-07:00

Confirmation of multi-million dollar award reversed

Karlseng v. Cooke (Tex.App.- Dallas - June 28, 2011)(Opinion by Justice FitzGerald)
("Our examination of the entire record in this case shows a direct, personal, professional, social, and business relationship between arbitrator and [counsel for one party]. The facts demonstrating this relationship “might, to an objective observer, create a reasonable impression of the arbitrator's partiality” if not disclosed by the arbitrator. Thus, [ arbitrator's ] duty of disclosure was triggered as to that relationship.[...]. His failure to disclose the relationship constitutes evident partiality.

OPINION

This is an appeal from an order confirming an arbitrator's award of approximately $22 million in favor of appellee. Appellants raise four issues on appeal. In their first issue, they contend that their rights were prejudiced by the evident partiality of the arbitrator because the arbitrator failed to disclose his close personal and professional relationship with appellee's counsel. See Footnote 1 We conclude the first issue is dispositive of this appeal. For the reasons discussed below we reverse the trial court's confirmation order and final judgment, vacate the arbitration award, and remand the case for further proceedings.

Procedural Background

This is a partnership dispute. See Footnote 2 The parties agreed to arbitrate their dispute under the rules of JAMS, a provider of alternative dispute resolution services. They selected Robert Faulkner, a former federal magistrate judge, as their single arbitrator. Appellee was represented in the arbitration by the firm of Fish & Richardson, P.C. and, specifically, by attorneys Elizabeth Bedell and Geoffrey Harper. Faulkner made certain disclosures using the JAMS form. Faulkner disclosed that he had, within the preceding five years, served as a neutral arbitrator in another arbitration involving appellee's lawyer Harper. Faulkner answered "No" to all other questions posed to him on the disclosure form.

Attorney Brett Johnson of Fish & Richardson first appeared in the arbitration on behalf of appellee four days after Faulkner made his disclosures; he was identified as lead counsel on appellee's claim for relief. Faulkner did not supplement his initial disclosures following Johnson's appearance. Following a five-day arbitration hearing, Faulkner ruled in favor of appellee and awarded appellee approximately $22 million, including more than $6 million in attorney's fees.

Appellee moved to confirm the award. Appellants sought a continuance, arguing they had not had adequate time to develop grounds for vacating the award. Among the grounds appellants wished to investigate was evident partiality, based on Faulkner's undisclosed relationship with Johnson. After appellants offered preliminary evidence concerning their claim of evident partiality, they sought more time to develop their theory, but the trial court denied the continuance and confirmed the arbitration award. They appealed. This Court concluded appellants should have been allowed an adequate opportunity to investigate the evident-partiality issue and, thus, the trial court abused its discretion in denying the continuance. Karlseng v. Cooke, 286 S.W.3d 51, 58 (Tex. App.-Dallas 2009, no pet.). We reversed the trial court's judgment confirming the arbitration award and remanded the cause. Id.

On remand, the trial court held another evidentiary hearing, which commenced on June 30, 2009. The court and the parties agreed this hearing would be an extension of the initial continuance hearing. Accordingly, the evidence from the initial continuance hearing was before the trial court along with the evidence presented after remand. Once again, the trial court confirmed the award.

The Relationship Between Arbitrator Faulkner and Fish & Richardson Lawyer Brett Johnson

The record of the hearings held February 22, 2008 and June 30, 2009 provides a description of the nature and development of the relationship between arbitrator Robert Faulkner and Cooke's attorney Brett Johnson. The events are summarized in chronological order, beginning with Johnson's clerkship and continuing well after confirmation of the arbitration award in this case.

1. Johnson's clerkship years

Johnson testified about his relationship with Faulkner. He characterized his relationship with Faulkner as a friendship "in a business, professional type of way." The professional, collegial aspect of the relationship began when Johnson clerked for Judge Brown in Sherman, Texas from August 1994 through September 1996. When Johnson began his clerkship, Faulkner was the only magistrate judge for Sherman and Texarkana. Johnson saw Faulkner in the hallway on a weekly basis and would say hello, but they did not socialize during this time.

2. Early socializing

Johnson's ex-wife Katie was briefly questioned See Footnote 3 about Faulkner and the contacts she and Johnson had with Faulkner. After Katie testified that she knew Faulkner, she was asked whether the nature of the relationship between Johnson and Faulkner was trivial. Katie responded that Johnson and Faulkner were friends and that she and Johnson socialized with Judge Faulkner and his wife Sheila.

Twice during 2002, Johnson, Katie, and their child traveled to Sherman to visit Judge Brown. On one of these trips, Johnson ran into Faulkner, and they exchanged greetings. Johnson testified that he had not visited Sherman with the intent of seeking out Faulkner. Faulkner testified that he did not recall this meeting.

3. Private Capital Grille dinner celebrating Faulkner's retirement

When his clerkship ended, Johnson entered private practice. He joined the law firm of Fish & Richardson in 2000. He maintained contact with Judge Brown.

Shortly after Faulkner retired in February 2003, See Footnote 4 Johnson and Katie invited Faulkner and his wife Sheila to a private dinner at the Capital Grille to celebrate Faulkner's retirement. They discussed Faulkner's future plans concerning his becoming an arbitrator. Faulkner testified that he did not remember this dinner until he heard the opening statements in the hearing to vacate the arbitration award. Johnson and Katie later divorced. In the fall of 2005, Johnson and his then-girlfriend Kimberly ran into Faulkner and Sheila at a fundraiser. Johnson testified the two couples exchanged greetings and brief introductions. Faulkner testified he remembers the fundraiser and meeting Kimberly.

4. Private affair at Arbitrator Faulkner's home and Stonebriar Country Club, February 2006

Johnson married Kimberly in January 2006, and on February 10, 2006, Faulkner hosted and paid for a dinner at the Stonebriar Country Club. Faulkner, Johnson, and their wives were in attendance. Johnson testified that he and Kimberly went to the Faulkners' house before dinner, and either he or Kimberly had a drink while the Faulkners finished getting ready. One purpose of this dinner was to discuss Kimberly's interest in how one became a United States magistrate judge. Kimberly, an attorney, was expecting a child and wondered "how you did that." At some point during the evening, Johnson invited Faulkner to attend a Dallas Mavericks basketball game.

5. Numerous business calls and personal emails exchanged between Johnson and arbitrator Faulkner, including those setting up Mavericks game April 2, 2006.

On February 13, 2006, Faulkner sent Johnson an email thanking him for attending the dinner on February 10. Faulkner wrote that he and Sheila enjoyed the visit and that Kimberly was "quite a woman." He also proposed some dates for the Mavericks game and thanked Johnson for inviting him to the game-a "very generous offer." Johnson replied, "Thank you for having us out. We had a terrific time. You and Sheila were the perfect hosts." Johnson said he would get back to Faulkner about the dates and also proposed some dates of his own. Faulkner confirmed that April 2 would be a good day to attend the Mavericks game. This email series is not unique; the parties often communicated by email. Faulkner used his personal email account; Faulkner, Sheila, and Johnson used their first names. The tone and content of these emails is personal. Johnson acknowledged that he and Faulkner were "friends, generic friends and business colleague friends . . . at a minimum." Johnson also estimated that he "talk[s]" to Faulkner "probably six times a year on the telephone" about business. See Footnote 5

6. Arbitrator Faulkner and wife's recommendations on wineries, restaurants, and marketplaces to visit on Johnsons' California vacation.

On March 1, 2006, Johnson emailed Faulkner, saying, "Judge: Hope all is well. Am leaving for wine country tomorrow and wanted to see what restaurants and vineyards you reccomended [sic]? Looking forward to our Mavs game on 4/2." Faulkner and Sheila each responded. Faulkner replied, "Brett, I will try to get the names of restaurants before you leave if I can, but be sure and stop at the Viansa winery and Italian Marketplace. . . . A fun place to brouse [sic], eat and drink. Bob." Sheila responded, "Brett, this is Sheila. Another favorite restaurant of ours is Mustard's Grill north of Yountsville. . . . Ya'll have a great time!!!!" Faulkner stated that he did not remember any of the conversations in these emails until his wife reminded him. Faulkner testified that he receives numerous emails and may have responded but did not recall responding to any particular emails.

7. The Busking arbitration

The so-called Busking arbitration grew out of a pair of lawsuits involving the law firm of Fish & Richardson in roughly mid-2004. The law firm sued a former client and its principals for nonpayment of fees, and the former client filed a separate lawsuit against the law firm and Geoff Harper, an attorney at the law firm, for malpractice. The parties agreed to send their dispute to arbitration. Demand for arbitration was filed in approximately January 2006. Faulkner was the arbitrator. The arbitration hearing was scheduled to begin in April 2006. It would last several days. Terry Garrett represented the former client. Harper apparently appeared as a party defendant and also counsel but did not act as primary legal counsel at the hearing because he was a named defendant. Johnson was a principal at Fish & Richardson at the time. In May 2006, Faulkner rendered his award in the Busking arbitration in favor of Fish & Richardson in the amount of $220,000 for attorneys fees. The award was confirmed on November 20, 2006.

Garrett testified that at some point during the Busking arbitration hearing, Harper told him how he thought Faulkner would rule. See Footnote 6 Garrett became concerned because the way Harper talked about what Faulkner would do sounded to him like Harper and Faulkner "knew each other pretty well." Garrett immediately sent a written request to Faulkner inquiring into Faulkner's relationship with Harper, "because it seemed they were awfully friendly." Garrett had a phone conversation about Garrett's letter and was told that Faulkner did not have a relationship with Harper. See Footnote 7 Garrett testified that at the time of the phone conversation, Johnson had not yet made his appearance in the Busking arbitration, so Garrett did not inquire about any relationship between Johnson and Faulkner. Garrett testified that he did not think he saw Johnson in the case until it was set for arbitration or "maybe even the day of arbitration." Faulkner, Johnson, the law firm, and JAMS never made any disclosures about any relationship between Faulkner and Johnson. According to Johnson, he appeared as counsel shortly before the hearing. He and Faulkner agreed that they should not go to the April 2, 2006 basketball game they had planned, and that it would be the wrong thing to do on the eve of an arbitration hearing. They canceled their plan to attend the game. Johnson did not believe Faulkner should have disclosed their relationship, even though he and his firm were counsel of record in the arbitration and his firm was one of the parties as well. Johnson testified it was appropriate for him to renew contact with Faulkner after the post-award modification period expired.

David Newman, who was one of Fish & Richardson's and Harper's opponents in the Busking arbitration, testified he did not have independent knowledge of the Faulkner-Johnson relationship until learning of the Karlseng v. Cooke case before this Court. Newman also testified the attorney-arbitrator relationship would not necessarily have disqualified Faulkner, but he would have liked to have known about the contacts between the men.

8. Arbitrator Faulkner's private Tower Club function with Johnson, his wife and child, September or October, 2006.

Sometime in September or October of 2006-after Faulkner made his award in Busking but before it was confirmed-Faulkner hosted Johnson, Kimberly, and their four-month-old son for a meal at the Tower Club in Dallas.

9. Emails rescheduling Mavericks game.

In October, the men exchanged emails rescheduling their earlier plan to attend a Mavericks game. Faulkner wrote: "Brett, thanks for the note. We would love to go with you guys to one of the games, the Dec. 1 date sounds great to us. . . . We will see you in Galveston. Thanks again. Bob." See Footnote 8

10. Arbitrator Faulkner and wife and Johnsons' sponsored Mavericks game and Capital Grille private dinner.

On December 1, 2006, the Johnsons and the Faulkners attended the rescheduled Mavericks game and again ate dinner at Capital Grille. The game tickets (paid for by Johnson) had a face value of $1,200. The dinner (also paid for by Johnson) cost approximately $428. After consulting with his wife, Faulkner recalled attending the Mavericks game and having dinner with the Johnsons. Faulkner testified that he has attended two other Mavericks games with another attorney, but did not remember the Mavericks game with Johnson until his wife refreshed his memory.

11. Johnsons' gift of wine basket to arbitrator Faulkner and wife

Also in December 2006, the Johnsons sent the Faulkners a Christmas card and a basket of wine valued at $75. The Johnsons received a handwritten thank-you card signed by Sheila for the Christmas wine basket. Faulkner testified that he does not recall ever receiving a Christmas card or gift from Johnson; rather, his wife opens and enjoys the Christmas gifts.

12. Faulkner selected as arbitrator in Cooke's case. Arbitrator Faulkner made no disclosure of Faulkner-Johnson relationship.

In February 2007, a demand was made for arbitration in appellants' case. The parties agreed to arbitrate under the rules of JAMS. Faulkner was appointed their single arbitrator on April 5, 2007. The JAMS rules require neutral arbitrators to make certain disclosures. The disclosure obligation continues throughout the arbitration process. JAMS Ethical Guideline V recommends that the arbitrator "ensure that he or she has no known conflict of interest regarding the case," and it provides that the arbitrator "should endeavor to avoid any appearance of a conflict of interest." Guideline V.A further recommends the arbitrator "promptly disclose, or cause to be disclosed all matters required by applicable law and any actual or potential conflict of interest or relationship or other information, of which the Arbitrator is aware, that reasonably could lead a Party to question the Arbitrator's impartiality." Faulkner made certain disclosures using the JAMS form on or around April 5, 2007. He described the disclosure process as a "very quick and hurried event." As previously noted, Faulkner disclosed that he had, within the preceding five years, served as a neutral arbitrator in another arbitration involving appellee's lawyer Harper. Faulkner answered "No" to all other questions posed to him on the disclosure form, including:

* Arbitrator or a member of arbitrator's family has or has had a significant personal relationship with any party or lawyer for a party?

* Arbitrator or arbitrator's family has or has had any other professional relationship with a party or lawyer for party, including as an expert witness or consultant?[ See Footnote 9 ]

* Is there any other matter that [m]ight cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial?

In the disclosure form signed by Faulkner, he represented he had "made a reasonable effort to inform myself of any matters that could cause a person aware of the facts to reasonably entertain a doubt that as the proposed Arbitrator, I would be able to be impartial. In addition, I have disclosed all such matters to the parties." Similar representations were made to the parties in a JAMS notification letter. Finally, Faulkner affirmed his "responses to the questions . . . are true and correct to the best of my knowledge."

Johnson first appeared in the arbitration shortly after Faulkner made his disclosures, around April 9, 2007. Johnson was identified as lead counsel on appellee's original claim for relief. Faulkner did not supplement his initial disclosures following Johnson's appearance. Faulkner testified that the reason for his failure to supplement was because he was "kind of hostile that morning to JAMS about the facilities that they put [the parties to the Cooke arbitration] in, and so [he] may not have focused."

13. Undisputed evidence Arbitrator Faulkner and Johnson acted as "strangers" when they introduced themselves to each other at the Cooke arbitration on or about December 10, 2007

Appellant Jacques LeBlanc testified that he did not have independent knowledge of the Faulkner-Johnson relationship. LeBlanc testified that he was talking to the court reporter for the Cooke arbitration about the spelling of his name when Johnson entered the room and moved to his spot. At that point, Faulkner said, "I see we have another attorney or a new attorney . . . on the case." Johnson leaned over and said "yes, judge." He reached out his hand and said "Brett Johnson." Faulkner extended his hand and said "Robert Faulkner." LeBlanc testified that at that time it did not strike him as odd because he was completely ignorant of any relationship between Faulkner and Johnson and thought they were strangers, but in light of the testimony, it definitely seemed unusual to him. There was an objection to LeBlanc's testifying as to whether he would have approved Faulkner if he had known of the relationship. The trial court allowed the testimony as some-but not binding-evidence of what an objective person would believe. LeBlanc testified he would "absolutely not" have approved Faulkner if he had known about his relationship with Johnson. Neither arbitrator Faulkner nor Johnson contradicted LeBlanc's testimony.

14. Johnson's temporary suspension of wine-basket gift to arbitrator Faulkner

That particular year, 2007, Johnson decided not to send a Christmas card or gift to Faulkner because of the pending arbitration. On January 31, 2008, Faulkner ruled in favor of appellee and awarded appellee approximately $14.6 million in damages, attorneys' fees "equal to 45% of the award," and prejudgment interest of about $1.3 million. On February 12, 2008, Faulkner signed an amended award reducing appellee's damage award to approximately $14.3 million, specifying the amount of attorneys' fees as roughly $6.4 million, and again awarding about $1.3 million in prejudgment interest. 15.

Arbitrator Faulkner made no effort to determine whether he should disclose his relationship with Johnson in order to assure his impartiality after Johnson appeared in case

Faulkner's testimony regarding the Cooke arbitration was significantly limited by the trial court. Faulkner testified that most of his current recollection is a result of having consulted with his wife prior to the hearing on remand or having heard appellants' opening statements in that hearing. The following question was posed to Faulkner: "What efforts did Arbitrator Faulkner make to inform himself or to refresh his memory of his relationship with Brett Johnson when he first saw Brett Johnson come into the arbitration room on the Karlseng arbitration?" Faulkner replied, "I didn't make any." He conceded he "didn't go through any thought process of What do I know, or when did I go or have dinner with [Johnson]?" But when asked if he recognized Johnson when he saw him at the hearing, Faulkner testified: "Oh, yes, sir, absolutely." Johnson confirmed that Faulkner would have remembered him. Johnson was asked, "Is there any way in the world th[at] Judge Faulkner would forget who you are?" and he answered, "No, sir."

16. Continuation of Faulkner-Johnson dinners: the $1,000 Mansion dinner, March/April 2008.

Johnson testified that the men's relationship continued after the Cooke arbitration. For example, shortly after the proceeding was over, Faulkner invited the Johnsons and one other couple to join the Faulkners for dinner at the Mansion in Dallas. See Footnote 10 The bill was estimated to be $1000 for dinner for the three couples. Faulkner testified that after hearing of this event on the first day of the proceedings in the present case, he remembered hosting the dinner at the Mansion and that the dinner was expensive. 17.

The JAMS New York business development roundtable planned by arbitrator Faulkner, who solicited Fish & Richardson firm's attendance, in spring 2008

In April 2008, Faulkner called Johnson. Faulkner was planning roundtable lunches for JAMS and "wanted to know who in the New York office he should contact regarding inviting anyone from Fish & Richardson who would want to come." Faulkner testified he recalled this phone call to Johnson. Johnson initially characterized the JAMS program as "professional improvement" or "peer review" for JAMS. He later conceded the program "had a business development aspect to it." On April 25, 2008, Johnson attended one of those lunches at which Faulkner spoke. Johnson testified he said hello to Faulkner at the lunch. Faulkner testified that he did not remember seeing Johnson at this lunch but was sure that Johnson attended because he remembered Johnson's name being on the invitation list.

18. Johnson's wine-basket gift to Faulkner and wife resumed

In December 2008, Johnson resumed sending the Faulkners a Christmas card and wine basket. Again, Faulkner testified that he does not recall receiving a Christmas card or gift from Johnson in 2008.

19. Testimony regarding the propriety of the nondisclosure of Faulkner and Johnson's relationship

As to whether contacts like those between Johnson and Faulkner should be disclosed, Johnson testified he would not want to know about them as an attorney, but his clients might potentially want to know. Indeed, he testified he could imagine circumstances where clients might want to know some of the contacts between him and Faulkner. And he agreed that if he were his opposing counsel, he would want to know. He testified, hypothetically, if he knew an arbitrator and attorney had planned to attend a basketball game and then canceled the game because of the pending arbitration, he would "probably" tell his client. He "would not affirmatively hide it." He also conceded that he "could see" how clients might want to know about dinners between arbitrators and attorneys, basketball games, and other such contacts.

Harper, appellee's only witness, testified he knew nothing about the Faulkner-Johnson relationship. He asked Johnson to work on this arbitration because "as a team" they had done well on the Busking arbitration. Harper stated that, to the best of his knowledge, he had never had a meal with a full-time neutral arbitrator. He stated that as an attorney there were some contacts on the chronology that he would want to know about. He conceded that some clients would want to know about the kind of relationship evidenced by the chronology; some would not.

Robert Wood, offered as an expert witness, testified to his many years practicing law and teaching arbitration at Texas Tech law school. Under the circumstances described in this case, Wood opined Faulkner had an obligation to disclose his relationship with Johnson as well as Johnson's law firm, Fish & Richardson, under JAMS rules and Texas arbitration practices, the moment Faulkner realized the attorney or his law firm were involved in the arbitration. He also opined Johnson had a similar obligation. Wood further testified he would teach his students to disclose gifts, sports tickets, and expensive meals, which indicate to him that the relationship is more than casual or trivial. Were he serving as an arbitrator, Wood would disclose a relationship that included a Christmas gift valued at $75 and attendance at a sporting event. Wood testified that temporarily stopping the described interactions between arbitrator and lawyer during an arbitration would never justify nondisclosure of the relationship. The relationship must be disclosed regardless of contemporaneous interactions. In Wood's opinion, Faulkner was required to disclose the relationship as soon as Johnson appeared or Faulkner realized Johnson had appeared. See Footnote 11 Wood also believed that Johnson was required to disclose the nature of his and Faulkner's relationship even if Faulkner did not.

Evident Partiality

Arbitration of disputes is strongly favored under both federal and Texas law. Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995). And arbitration awards are entitled to great deference by the courts. Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.-Dallas 2004, pet. denied). We review the trial court's decision to confirm an arbitration award de novo, and we review the entire record. Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 567 (Tex. App.-Dallas 2008, no pet.). But we may not merely substitute our judgment for that of the arbitrator. See id. at 568.

Despite the narrowness of review of the award itself, the Texas Legislature has decreed that-on application of a party-a court shall vacate an award if the rights of the party were prejudiced by evident partiality of an arbitrator appointed as a neutral arbitrator. Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(2)(A) (West 2011). The supreme court adopted the following test to determine "evident partiality": a neutral arbitrator selected by the parties or their representatives exhibits evident partiality if he does not disclose facts that might, to an objective observer, create a reasonable impression of the arbitrator's partiality. Burlington N. R.R. Co. v. TUCO Inc., 960 S.W.2d 629, 636 (Tex. 1997). See Footnote 12 The court emphasized that "evident partiality is established from the nondisclosure itself, regardless of whether the nondisclosed information necessarily establishes partiality or bias." Id. (emphasis in original). This test was explicitly intended to be an "objective" one, with "the consequences for nondisclosure . . . directly tied to the materiality of the unrevealed information." Mariner Fin. Group, Inc. v. Bossley, 79 S.W.3d 30, 32 (Tex. 2002).

While the courts have primarily addressed issues related to business and financial transactions, they are not unaware of other important relationships that certainly impact an arbitrator's judgment, such as personal and social relationships. Information about the existence and extent of each of these relationships is essential to the fair and impartial nature of the arbitration process, particularly in view of the substantial discretion invested in an arbitrator to decide both law and facts and the limited appellate review of these decisions. Commonwealth Coatings Corp. v. Cont'l Cas. Co., 393 U.S. 145, 149 (1968); TUCO, 960 S.W.2d at 633, 635.

The supreme court observed that the standard of disclosure mandated in TUCO was in accord with Canon II of the Code of Ethics for Arbitrators in Commercial Disputes, a portion of which it quoted:

A. Persons who are requested to serve as arbitrators should, before accepting, disclose:

******

(2) Any existing or past financial, business, professional, family or social relationships which are likely to affect impartiality or which might reasonably create any appearance of partiality or bias . . . .

TUCO, 960 S.W.2d at 636. The carriers in TUCO next approached the type of relationship which must be at issue before the question of "evident partiality" arises. The carriers contended an arbitrator is evidently partial "only if the arbitrator fails to disclose a direct financial or business relationship with a party or its agent." Id. at 637 (internal quotations omitted). Cooke likewise argues the relationship "must involve a pecuniary interest," that a personal/social relationship standing alone is insufficient to create a reasonable impression of the arbitrator's partiality. The supreme court specifically disagreed with such a restrictive standard. On the contrary, the supreme court stated: "[T]he parties should have access to all information that might reasonably affect the potential arbitrator's impartiality. This could obviously include, for example, a familial or close social relationship." Id. at 637 (emphasis added).

Further, this Court's prior opinion recognized the significance of information regarding "a familial or close social relationship" when it cited to this language in TUCO. See Karlseng v. Cooke, 286 S.W.3d 51, 56 (Tex. App.-Dallas 2009, no pet.) (citing TUCO, 960 S.W.2d at 636); see also Amoco D.T. Co. v. Occidental Petroleum Corp., No. 14-09-00651-CV, 2011 WL 1843527, at *4 (Tex. App.-Houston [14th Dist.] May 17, 2011, no pet. h.) (quoting TUCO's reference to "familial or close social relationship[s]").

This standard reflects the supreme court's determination that courts should not involve themselves in evaluations of partiality that are better left to the parties. TUCO, 960 S.W.2d at 636. When choosing a neutral arbitrator, the parties must weigh the competing factors of the arbitrator's knowledge and experience against his potential conflict. Parties can gauge the neutrality of an arbitrator only if they have access to all the information that could reasonably affect the arbitrator's partiality. Id. at 635. When disclosure is complete, the parties can make their determination concerning potential bias before the arbitration begins, a process that is much more desirable than a court's having to make the determination after an award is in place. See id. "While a neutral arbitrator need not disclose relationships or connections that are trivial, the conscientious arbitrator should err in favor of disclosure." Id. at 637. Finally, the court emphasized the articulated disclosure standard was a continuing obligation of the parties, to extend "during the course of the arbitration proceedings." Id.

Analysis

We review the entire record. See Williams, 244 S.W.3d at 567. And we view the record from the perspective of an objective observer, to determine whether the relationship should have been disclosed. See TUCO, 960 S.W.2d at 636. We do not merely count contacts. Instead, we assess all the contacts between the individuals as evidence of their relationship. JAMS required Faulkner to disclose any significant personal relationship with Johnson, and business relationship with Johnson, and any other facts that might cause a person reasonably to doubt Faulkner's ability to be impartial.

The Faulkner-Johnson relationship appears to have started in 1994 with the occasional contacts of people who work in the same building. Faulkner was a United States Magistrate Judge for a United States District Judge, and Johnson was a law clerk for the same United States District Judge. Thus, they saw each other on a weekly basis. Johnson's clerkship ended in 1996. According to Johnson, their friendship grew over the years. Shortly after Faulkner's formal retirement party, Johnson and his wife took Faulkner and his wife out for a private dinner to celebrate Faulkner's retirement where they discussed Faulkner's future plans to become an arbitrator. In 2005 Johnson divorced and remarried. After that, Faulkner and Johnson ran into each other at seminars and fundraising events, but it is apparent the men also purposefully sought out social interaction with each other. The relationship was not one-sided: both men hosted expensive social events. For example, in 2006, Johnson treated the Faulkners to a dinner and basketball game at a total cost of over $1,600. Their spouses actively participated in their socializing. The contacts among the foursome included drinks at the Faulkners' home as well as career and vacation advice. Johnson sent Christmas gifts to Faulkner. Moreover, the social relationship between Faulkner and Johnson clearly had business overtones. Johnson testified he spoke to Faulkner about six times a year for business reasons. Faulkner testified, albeit more generally, that he tried whenever possible to take attorneys he was working with or would like to work with to meals at a downtown restaurant. Shortly after the arbitration, Faulkner called Johnson for help in making contacts within Johnson's firm for business- development purposes. This contact, while occurring after the arbitration, does further evidence the nature of the relationship itself.

Under TUCO, we must examine this relationship for its effect on an objective observer. Both Newman and LeBlanc testified they would have wanted to know about the relationship. Both Johnson and Harper testified that their clients might want to know about it as well. Wood's uncontroverted expert testimony was that the relationship should have been disclosed.

Cooke contends the arbitrator's lack of knowledge and recollection of specific facts is "decisive" in determining no disclosures were necessary. Cooke relies on arbitrator Faulkner's testimony that he did not recall certain events until his wife refreshed his memory shortly before he gave testimony pursuant to this Court's previous decision. It is beyond any question that an arbitrator has a duty of disclosure. Such a duty is predicated upon the enormous power, responsibility, and discretion vested in the arbitrator and the very limited judicial review of the arbitrator's decisions. So often, significant sums of money are at stake. And, of course, an experienced arbitrator whose livelihood depends upon his reputation and skill, always recognizes there is a competitive market for such services. Thus, the duty of disclosure requires a certain degree of introspective reflection or what is commonly known as due diligence. While an arbitrator need not launch a full investigation into his past, an arbitrator must make a reasonable effort, consistent with the effort and care ordinarily exercised by a person who seeks to satisfy a legal obligation, to inform himself/herself of the interests, contacts, and/or relationships that are required to be disclosed. Cf. Amoco D.T. Co., 2011 WL 1843527, at *8 n.7 ("[A]n arbitrator cannot intentionally fail to determine whether information known to him is trivial or material and later claim, when accused of evident partiality, that he was unaware of the nature of the information.").

Our record reflects that when arbitrator Faulkner was given an opportunity to explain what efforts he made to inform himself or refresh his memory as to the relationship he had with Johnson, he responded that he had done absolutely nothing. Faulkner's admission completely undermines the argument Cooke makes in this Court See Footnote 13 that the arbitrator should not be expected to make any disclosures because he later testified he either did not know or could not recall specific facts until his memory was refreshed by, among others, his wife.

The record establishes that arbitrator Faulkner and Johnson were friends. Both Faulkner and Johnson acknowledged Faulkner would immediately have known who Johnson was the moment he presented himself at the arbitration hearing. Cooke stresses Faulkner testified he did not recall specific times, dates, places, and the like. The record clearly shows Faulkner recalled many of these events when, facing the prospect of giving testimony, he took measures to refresh his memory. The situation called for a simple solution: disclose at a minimum the general nature of his friendship with Johnson, of which appellants were entirely ignorant, and thus permit the parties to further investigate this relationship before proceeding with the hearing. Faulkner failed to make any effort to reflect on the interests, contacts, and relationship he enjoyed for many years with Johnson, in order to assure the appellants of his impartiality and to safeguard the integrity of the arbitration process. Cooke's reliance on Mariner Financial Group, Inc. v. Bossley, 79 S.W.3d 30 (Tex. 2002), is misplaced. In Bossley, an appeal from a summary judgment, the arbitrator had not disclosed any relationship with an expert witness for the Bossleys, the parties that eventually lost at arbitration. The expert herself only remembered after the arbitration that she had testified against the arbitrator in a malpractice action more than two years earlier. Id. at 32. In her affidavit, the expert stated that the arbitrator did not attend her deposition and that she never met or saw the arbitrator before the arbitration; she had no further involvement with the malpractice case against the arbitrator after that deposition. The case was settled and the settlement documents were sealed. The Bossleys alleged evident partiality, and Mariner Financial, the winning party, moved for a traditional summary judgment. The trial court granted the summary judgment. Id. The supreme court stated that Mariner Financial had to establish the arbitrator was not evidently partial as a matter of law and concluded there was a fact issue on evident partiality because the summary-judgment record was silent as to whether the arbitrator knew or remembered the expert when he failed to disclose their relationship. Id. at 33. Cooke contends Bossley supports his argument that Faulkner had no obligation to disclose forgotten contacts. However, JAMS-like Bossley, 79 S.W.3d at 35-requires disclosure of relationships. And although Faulkner claimed he had forgotten specific contacts with Johnson, he had not forgotten their relationship. Indeed when asked if he remembered Johnson when Johnson appeared at the arbitration hearing, Faulkner replied that he "absolutely" did. And when Johnson was asked whether there was any way in the world Faulkner would forget who he was, he replied "No, sir." Bossley does not support Faulkner's failure to disclose the known relationship he had with Johnson. TUCO, however, is a closer fit to the facts and supports appellants' position. In TUCO, the arbitration panel's neutral arbitrator accepted a business referral from a partisan arbitrator's law firm during the arbitration. 960 S.W.2d at 631. In TUCO, there was no question the neutral arbitrator knew about the relationship. Similarly, in the instant case, there is no question arbitrator Faulkner knew about his relationship with Johnson.

Cooke also argues disclosure is required only if the relationship contains a substantial business or pecuniary aspect, and that social relationships standing alone are insufficient. The Texas Supreme Court has expressly rejected this standard as being too narrow. The duty of disclosure is not limited to direct financial or business relationships. Id. at 637. Instead, "the parties should have access to all information that might reasonably affect the potential arbitrator's impartiality." Id.

The record in this case reflects substantial evidence of a personal, social, and professional relationship between arbitrator Faulkner and Johnson. This relationship grew over a long period of time, commencing in 1994. It involved private dinners at restaurants and country clubs. The meals were expensive. Cooke's claim that Faulkner "has never been to Mr. Johnson's home" is not compelling in view of the evidence that Johnson and his wife were, in fact, entertained in Faulkner's home. Cooke's claim that neither Johnson nor Faulkner has confided in one another about personal, financial, or career matters nor exchanged gifts (or even cards) is not impressive in view of the evidence that Faulkner discussed his career plans to become an arbitrator with the Johnsons, Johnson and Faulkner did have private telephone conversations about business through the years, the Johnsons did send gifts and cards to the Faulkners, and the Johnsons did have a conversation with the Faulkners about how one could become a federal magistrate, certainly a discussion with career overtones. They also discussed recommendations about vacation plans.

In addition, we are also troubled by Cooke's blanket assertion that the record shows neither arbitrator Faulkner nor Johnson had any business connections from which "either would derive a pecuniary benefit." The record shows over a period of years both individuals exchanged telephone calls over what was generally described as "business." The record also shows the Busking arbitration was a dispute which involved Fish & Richardson's claim for substantial legal fees. Harper and Johnson were principals of this firm. Opposing counsel testified about concerns that were generated by Harper's remarks as to how Faulkner would rule, which in turn caused opposing counsel to ask Faulkner in writing if he had any sort of relationship with Harper. The evidence shows that while the Busking arbitration was ongoing, Johnson conducted substantial contacts with arbitrator Faulkner in February and September at Faulkner's home and at an expensive restaurant, and Johnson solicited advice from Faulkner regarding Johnson's California vacation plans. A Mavericks basketball game they both planned to attend April 2, 2006 was canceled because of the imminent arbitration hearing. It was rescheduled and took place December 1, 2006, less than two weeks after the award was confirmed. Faulkner ultimately awarded $220,000 in attorneys' fees to Fish & Richardson. Thus, arbitrator Faulkner ruled on the merits of a case involving Fish & Richardson and Harper as parties while engaging in undisclosed, behind-the-scenes social meetings with Johnson, a principal of Fish & Richardson. To this date, Johnson and Fish & Richardson claim they and Faulkner had no duty to disclose these contacts.

In the Cooke arbitration, Faulkner and Johnson presented themselves at the commencement of the arbitration hearing as complete strangers. This attitude was a dramatic turnabout from the friendly attitude exhibited by Fish & Richardson counsel during the prior Busking arbitration. Opposing counsel in the Busking arbitration testified he was caught by surprise to learn of the recently discovered Faulkner-Johnson relationship through evidence developed in the Cooke case. Cooke completely failed to dispute this evidence. In a case of this magnitude, in which Cooke requested over $6 million in attorneys' fees See Footnote 14 and in which arbitrator Faulkner and Johnson did not disclose the nature of their relationship, the evidence of the relationship between arbitrator Faulkner and Johnson is particularly alarming. The record also shows the formula for computing attorneys fees sought in the Cooke arbitration was revised shortly before the arbitration hearing. According to Fish & Richardson, after the firm had represented Cooke for over two years, it determined its legal-fee contract was not enforceable and changed the arrangement to a contingency-fee contract. This revision preceded the award of over $6 million to Fish & Richardson.

We further conclude the post-award conduct of arbitrator Faulkner and Johnson is both relevant and enlightening. They engaged in an expensive dinner at the Mansion, said to approach $1,000, immediately after the award; and Johnson resumed his annual wine-basket gift to the Faulkners. Equally important, arbitrator Faulkner solicited Fish & Richardson lawyers to attend a business-development roundtable in New York in the spring of 2008. This evidence continues to show the same substantial pattern of personal social contacts and potential business relationships.

Our conclusion that the relationship between arbitrator Faulkner and Johnson was significant is further supported by their own conduct during arbitration proceedings. Faulkner and Johnson did not suspend their activities during the Busking arbitration between January and November 2006. See Footnote 15 Faulkner, Johnson, and their wives had dinner together in February 2006, and Johnson then invited Faulkner to a basketball game. The two men exchanged emails and confirmed April 2, 2006 as the date for their basketball outing. In March, Johnson and the Faulkners corresponded by email about Johnson's vacation plans and the Faulkners' suggestions. Then Johnson and Faulkner agreed to cancel their April 2 basketball outing, which would have been very shortly before the Busking hearing. In September or October 2006, Faulkner hosted Johnson and his family for a meal at the Tower Club in Dallas, and the two men rescheduled their basketball game.

The Cooke arbitration commenced in February 2007 and did not result in a final award until February 2008. There is no evidence of social outings during 2007, but we are mindful of Johnson's testimony that he talked to Faulkner on the telephone probably six times a year on business. Johnson sent the Faulkners a Christmas gift in 2006, refrained from doing so in 2007, and then sent them another Christmas gift in 2008. After Faulkner rendered the amended award in February 2008, he treated the Johnsons to dinner at the Mansion in March or April, and in April he called Johnson for assistance in identifying a Fish & Richardson person to contact about a JAMS roundtable lunch.

Cooke contends contacts such as these are "expected and accepted" among attorneys practicing in the same community. However, Harper testified otherwise, stating he had never had a meal with a full-time neutral. Further, the test is whether the facts might create a reasonable impression of partiality in the mind of an objective observer. The objective observer may include an attorney but it is not limited to an attorney. See TUCO, 960 S.W.2d at 636.

Our examination of the entire record in this case shows a direct, personal, professional, social, and business relationship between arbitrator Faulkner and Johnson. The facts demonstrating this relationship "might, to an objective observer, create a reasonable impression of the arbitrator's partiality" if not disclosed by the arbitrator. Thus, Faulkner's duty of disclosure was triggered as to that relationship. See id. at 639. His failure to disclose the relationship constitutes evident partiality. See id. We decide appellants' first issue in their favor.

Conclusion

Because we have resolved the first issue in favor of appellants, we need not address their remaining issues. We reverse the trial court's order confirming arbitration award and judgment, vacate the arbitration award, and remand the case for further proceedings.

KERRY P. FITZGERALD

JUSTICE

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Footnote 1

Appellants also contend that the trial court erroneously limited questioning of the arbitrator concerning that relationship; the trial court erroneously denied appellants' request for a jury trial; and the award is not appropriate on substantive grounds.

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Footnote 2

The facts underlying the parties' substantive dispute are set forth in detail in this Court's 2009 opinion. See Karlseng v. Cooke, 286 S.W.3d 51, 52-53 (Tex. App.-Dallas 2009, no pet.). Because we do not reach the merits of the dispute, we do not repeat those facts here.

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Footnote 3

She appeared under subpoena.

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Footnote 4

Johnson testified that in February 2003 he was invited to and attended Faulkner's retirement party. The formal ceremony was held at the courthouse in Sherman; the reception followed afterward at the Stonebriar Country Club. Johnson testified that his invitation was not unique; rather, all of Judge Brown's former law clerks were invited. Faulkner testified that a multitude of family, friends, and colleagues were invited by his secretarial staff and that he did not recall Johnson's attendance.

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Footnote 5

The record contains no evidence concerning the nature of the "business" that spurred an average of six calls a year. Johnson did testify that once, when Faulkner had called him about another case, Faulkner asked about the status of the Karlseng matter. But that is the single reference we find concerning a specific business call.

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Footnote 6

According to Harper's testimony, his conversation with Garrett concerned Faulkner's ruling on a motion for death-penalty sanctions.

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Footnote 7

The record is not entirely clear whether this telephone conversation was with Faulkner or with someone else at JAMS.

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Footnote 8

Johnson and Faulkner separately attended an annual Bar conference in Galveston from October 12-13, 2006. On one of the days of the conference, Johnson and Faulkner ran into each other and spoke briefly-less than five minutes. Kimberly and Sheila, also in attendance, independently ran into each other as well. Faulkner testified that he attends the Bar conference every year, so he could not confirm that Johnson also attended the conference in 2006.

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Footnote 9

This question speaks to "any other" professional relationship. The question follows questions requiring the arbitrator to disclose (1) recent service as an arbitrator or mediator for the parties or attorneys, and (2) an attorney-client relationship with the parties or attorneys.

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Footnote 10

In his deposition, Johnson testified the dinner was in February of 2008. At trial, he testified he thought it was "more like March or April." There was no documentation from the dinner.

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Footnote 11

There was some discussion during Wood's testimony concerning whether ABA and AAA arbitration standards should apply in this case. The parties agreed to arbitrate under JAMS rules, so we look solely to the issues posed by the JAMS disclosure form. Of course, we look to Texas law when analyzing those disclosure issues.

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Footnote 12

The TUCO opinion resolved conflicts within Texas and federal courts concerning the proper standard for identifying evident partiality. See TUCO, 960 S.W.2d at 632-37. Both section 171.088 and TUCO date from 1997. Accordingly we look to Texas authority from that date forward in analyzing the issue before us.

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Footnote 13

Cooke asserts in his appellate brief, "Absent a recollection of these events, Judge Faulkner cannot be condemned for not having disclosed them in connection with the underlying arbitration."

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Footnote 14

After the hearing, Cooke submitted a proposed arbitration award. The proposed award included awards of attorneys' fees totaling over $6.5 million.

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Footnote 15

The Busking arbitration commenced in January 2006, was heard in April 2006, and resulted in an award in May 2006. The award was judicially confirmed in November 2006.

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CASE DETAILS:
Case Number: 05-09-01002-CV
Click Cause Number to View Full Docket Sheet
Robert C. Karlseng, Karlseng Law Firm et al v. H. Jonathan Cooke
Date Filed: 08/21/2009 Original Proceeding (Y/N): N
Type Case: OTH CIV
Trial Cause#: DC-06-02783
Trial Court: 193RD DISTRICT COURT Trial Court ID: 320570193
Trial Court Judge: Ginsberg, Carl County: DALLAS

Dallas Court of Appeals finds Waiver of Right to Arbitrate

2011-07-09T15:12:00.000-07:00

Trial court's denial of motion to compel arbitration upheld in interlocutory appeal on waiver grounds.

Adams v. Staxxring, Inc.
Adams, William Bryan "Bill" v. Staxxring, Inc. and Molly Langford, ex rel Staxxring, Inc.,
No. 05-10-01142-CV (Tex. App.- Dallas July 7, 2011) (Opinion by Justice Mary L. Murphy)

Pretrial activity included not only substantial discovery and discovery-related motions, but also amended pleadings with affirmative defenses, counterclaims, third-party claims, Rule 12 motion, a mandamus proceeding in the court of appeals, and a trip to bankruptcy court with associated stay (and delay) in state court.

Trial court found that aggressive litigation activity was prejudicial to the opposing party and denied motion to compel arbitration filed near the end of the discovery period after multiple trial resets. Fifth Court of Appeals affirms waiver ruling. Given the absence of a bright-line rule governing waiver of contractual arbitration rights under the Supreme Court's totality-of-the-circumstances precedent in Perry Homes v. Cull, the reviewing Court spends much time elaborating on the procedural history of the case in the trial court.

In The Court of Appeals
Fifth District of Texas at Dallas
...........................
No. 05-10-01142-CV
............................

WILLIAM B. ADAMS, Appellant

V.

STAXXRING, INC. AND MOLLY LANGFORD, Appellees

.............................................................
On Appeal from the 95th Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-09-07879-D
.............................................................

THE GIST: Because Adams substantially invoked the judicial process to the detriment and prejudice of Langford and StaxxRing, we conclude Adams waived any arbitration rights under the StaxxRing bylaws. We affirm the trial court's order denying Adams's motion to compel arbitration.

OPINION

Before Justices Murphy, Fillmore, and Myers

Opinion By Justice Murphy

William B. Adams appeals the trial court's denial of his motion

to compel arbitration of the lawsuit filed by Molly Langford and

StaxxRing, Inc. We conclude Adams waived any right to arbitration and

affirm the trial court's order.

BACKGROUND

Langford and Adams are each fifty-percent owners of StaxxRing, a

closely held corporation in the jewelry business. The trial court

described their underlying dispute as a power struggle over the control

of StaxxRing, which “more nearly resembles a corporate food fight.”

Because of the nature of the dispute and our consideration of the level

to which Adams invoked the judicial process, our review of background

information is detailed.

The Pleadings and Injunctive Relief

The litigation began on June 22, 2009, when StaxxRing and

Langford See Footnote 1 filed suit against Adams alleging he usurped

Langford's authority and undermined her efforts as president of

StaxxRing. The petition included a jury demand and claims for breach of

fiduciary duty, tortious interference, negligence, conversion, theft of

property and violations of the theft liability act, and a violation of

the Uniform Fraudulent Transfer Act. Langford and StaxxRing sought

declaratory and injunctive relief as well as a constructive trust,

damages, attorney's fees, and exemplary damages.

The next day, with allegations Langford was “freezing” him out

of StaxxRing, Adams answered the lawsuit; asserted affirmative defenses

of fraud, unclean hands, and estoppel and quasi- estoppel; and

counterclaimed against Langford for fraud, conversion, and shareholder

oppression, requesting damages, exemplary damages, and attorney's fees.

Adams also joined as a defendant Robert Swift, StaxxRing's sales

manager, and alleged claims of breach of fiduciary duty against Swift

and Langford individually. Quoting from StaxxRing's bylaws, Adams

demanded inspection of StaxxRing's books and records and sought

injunctive relief, the appointment of a receiver for StaxxRing,

expedited discovery, and rule 194 disclosures.

Counsel for Adams sent a letter to the trial court the next day,

June 24, requesting a hearing to “entertain Adams' motion for expedited

discovery on an expedited basis.” On June 25, Adams's counsel requested

and participated in a telephone conference with the trial court and

plaintiffs' counsel. The trial court granted Adams's request and ordered

Langford to provide StaxxRing's books and records no later than July 2,

2009.

Adams also amended his answer and counterclaim on July 1, adding

third-party claims for conversion and negligence against Bank of

America, N.A., the depository for StaxxRing's operating funds. Adams

added the Bank to his request for injunctive relief and included a

demand for accounting by StaxxRing. Adams again cited to and quoted

StaxxRing's bylaws, and attached the entirety of the bylaws to an

affidavit included in his amended answer. Article II, section 13 of the

bylaws provides: Arbitration. All claims, disputes, demands or

disagreements, relating to or arising out of, directly or indirectly,

this Article II among the shareholders of the Corporation shall be

settled by arbitration in Dallas, Texas. Such arbitration shall be

subject to the Texas General Arbitration Act and the rules of the

American Arbitration Association, in accordance with this Section 13. .

. . Any determination by such arbitrator(s) shall be a conclusive

determination of the matter, shall be binding upon the shareholders and

shall not be contested by them.

At Adams's request, the trial court held a hearing on his

application for temporary restraining order on July 2. The trial court

granted Adams's request as to Langford in part, finding Adams “is likely

to prevail on the merits of at least one of his claims.” The same day,

the trial court ordered Adams and Langford to mediation. As of the date

this appeal was filed, the parties had mediated twice unsuccessfully.

Eight days after the TRO hearing, Adams served Langford with a

subpoena duces tecum to produce documents by July 16, the day before the

hearing on the parties' cross-applications for temporary injunctions.

The subpoena requested nine groups of documents related to Langford's

net worth as well as the financial position of StaxxRing. Objecting to

the requests, Langford filed a motion to quash and for a protective

order. Pursuant to the parties' agreement, the court signed an order

requiring Langford to produce documents but otherwise granting

Langford's motion.

Also on July 16, Langford and StaxxRing filed a first amended

petition, embellishing the factual background and including an

allegation of sexual harassment against Adams. The amended petition

included Langford's affidavit attaching several documents, including

StaxxRing's financial records. The same day, Adams supplemented his

first amended counterclaim by adding an indemnification claim for legal

fees pursuant to the StaxxRing bylaws.

The temporary-injunction hearing began on July 17, 2009. The

appellate record does not include a reporter's record of the hearing,

but the trial court characterized it as involving “substantial

testimonial and documentary evidence.” Langford testified at the hearing

and was subject to cross- examination by Adams's counsel. The hearing

lasted for several days and concluded July 22, 2009.

The same day , Adams filed his second supplement to his first

amended counterclaim in which he added a breach-of-contract claim

against Langford and StaxxRing, jointly. He maintained his requests for

injunctive relief, attorney's fees, expedited discovery, appointment of

a receiver, and indemnification pursuant to StaxxRing's bylaws.

On July 23, 2009, the day after the injunction hearing

concluded, Adams filed a letter brief in support of his requested

injunctive relief. On July 25, the trial court granted injunctions in

part for both sides, finding they were “likely to prevail on the merits”

of at least one of their respective claims. The court set trial for

January 11, 2010 as part of the same order.

Just over a week later, Adams filed a motion to clarify or

modify the temporary injunction, relying on StaxxRing's bylaws. Adams

also described a line of credit to StaxxRing he personally had

guaranteed through Fidelity Bank and expressed concern that Fidelity

would call the note due and payable on its maturity date of August 7,

2009.

The trial court heard Adams's motion on August 20 and, on August

24, 2009, signed its order denying Adams's request for clarification. As

part of its order, the trial court stated it “has also had the

opportunity to keenly observe the in-court demeanor of the parties (as

witnesses and participants) and their actions since the filing of this

lawsuit.” Commenting that Adams's “mission has begun to take on the

appearance of a vendetta,” the trial court added that “the unchallenged

evidence before the Court indicates that Adams only recently

deliberately used his personal relationships to interfere with and

influence the termination of a [StaxxRing] line of credit at Fidelity

Bank.” Questioning the validity of Adams's third-party claims against

the Bank, the trial court noted “Adams continues to vigorously press

claims against Bank of America, the admitted purpose of which is to

force a termination of (or 'freeze,' as Adams puts it) [StaxxRing's]

bank account . . . .” The trial court concluded the order with the

“further opinion that at any future hearings at which he is present,

Defendant Adams must seek advance approval of the Court before leaving

the courtroom.” Adams subsequently non-suited his claims against the

Bank.

On October 30, 2009, Adams filed a second amended answer and

counterclaim, adding claims against Langford for equitable buy-out and

malicious suppression of dividends. He maintained his request for

injunctive relief, appointment of a receiver, inspection of books and

records, accounting, attorney's fees, and damages.

On November 23, 2009, Adams paid the jury fee.

In December 2009, both sides filed motions for contempt,

claiming violations of the temporary injunction.

Discovery

Meanwhile, Adams pursued additional discovery from Langford and

StaxxRing. After the initial expedited discovery, which included the

subpoena duces tecum served on Langford and the related order, Adams

served Langford and StaxxRing with merits discovery consisting of

twenty-six requests for production of documents and additional requests

for disclosure. On September 25, 2009, Adams served a second request for

production of documents, which included twenty-three requests for

documentation supporting StaxxRing's balance sheet and profit-and-loss

statement produced earlier. Upon receipt of Langford and StaxxRing's

responses to his requests for documents, Adams filed a motion and

supplemental motion to compel, attaching the discovery responses as well

as Langford's testimony from the temporary-injunction hearing where she

was cross-examined by Adams's counsel.

During the same time period, Adams resisted discovery. On

September 2, 2009, he filed a motion seeking to quash a subpoena and

document request Langford and StaxxRing directed to Fidelity. In late

October, Langford and StaxxRing served a deposition notice for Adams and

two others, which Adams promptly moved to quash. StaxxRing and Langford

responded with a motion to compel and a motion for attorney's fees,

costs, and sanctions, attaching correspondence evidencing a history of

their attempts to depose Adams. In November, Langford and StaxxRing

served another deposition notice for Adams and the same two individuals;

again, Adams filed a motion to quash. In July of 2010, StaxxRing and

Langford served Adams with their last deposition notice, which Adams

again moved to quash and for a protective order. StaxxRing and Langford

filed a second motion to compel Adams's deposition and a motion for

sanctions.

The Rule 12 Motion

In early October 2009, after serving Langford and StaxxRing with

multiple discovery requests, Adams filed a motion under rule 12 of the

Texas Rules of Civil Procedure for counsel to show authority to

represent StaxxRing. See Tex. R. Civ. P. 12. Adams again attached

StaxxRing's bylaws to this motion. A few weeks later, Adams filed an

amended motion to show authority, which included an additional copy of

StaxxRing's bylaws.

The trial court heard Adams's rule-12 motion on November 6,

2009. The hearing also included Adams's motion to compel responses to

certain discovery requests. On November 14, 2009, the trial court signed

an order denying Adams's rule-12 motion, granting his motion to compel

production of certain documents, and otherwise denying Adams's motion to

compel. Within a week, Adams filed a petition for writ of mandamus and

emergency motion, again attaching a copy of StaxxRing's bylaws, based on

the trial court's denial of Adams's rule-12 motion. This Court denied

Adams's petition for writ of mandamus on December 8, 2009. See In re

William Adams, No. 05-09- 01406-CV, 2009 WL 4601163, at *1 (Tex.

App.-Dallas Dec. 8, 2009, orig. proceeding) (mem. op.).

Adams's Motion for Continuance of Trial Setting

The year 2009 closed with Adams filing a verified motion to

continue the January 11, 2010 trial setting due to an injury his counsel

sustained. Langford and StaxxRing did not oppose the motion, although

their counsel announced that they were ready for trial. The trial court

granted Adams's requested continuance on January 5, 2010 and re-set the

trial for April 5, 2010.

Adams's Petition for Involuntary Bankruptcy of StaxxRing

After the trial court granted Adams's a continuance of the

January trial setting, he, his wife, his accounting firm, and other

creditors filed a petition for involuntary bankruptcy of StaxxRing. The

bankruptcy petition was filed January 29, and Adams filed a suggestion

of bankruptcy with the trial court on February 15. Five days later, the

trial court signed an order staying proceedings as to Langford and

StaxxRing but not as to Adams's third-party claims against Swift. Adams

non-suited his claims against Swift shortly thereafter.

In response to the bankruptcy petition, StaxxRing filed a motion

to dismiss that was heard by the bankruptcy court on April 28, 2010. A

month later, the bankruptcy court dismissed the bankruptcy petition with

prejudice. In the meantime, the April 5 trial setting passed. See

Footnote 2

The BA Acquisitions Lawsuit against StaxxRing and Langford

On June 17, 2010, an entity named BA Acquisitions filed suit

against StaxxRing and Langford in the 116th district court in Dallas

County. Testimony revealed that Adams was the sole officer, director,

and shareholder of BA Acquisitions and he had created the company for

the sole purpose of purchasing the StaxxRing note held by Fidelity. BA

Acquisitions, represented by the same attorneys who represented

Fidelity, sought payment of the note previously held by Fidelity.

Langford and StaxxRing filed an answer and third-party petition against

Adams and moved to transfer the lawsuit from the 116th to the 95th

judicial district court where their original litigation was pending. On

August 6, Adams filed a motion to compel arbitration of that dispute,

and on August 12, BA Acquisitions filed a notice of non-suit. The

third-party petition filed against Adams remained pending.

Lifting the Bankruptcy Stay and Adams's Motion to Compel Arbitration

In mid-June, Langford and StaxxRing filed a motion to reopen

this case and to lift the stay imposed as a result of the bankruptcy.

Adams subsequently agreed to the request and the trial court signed an

agreed order on July 8, 2010. A few days later, Adams began the process

of changing counsel. On July 19, 2010, after discovery closed, Adams

moved to compel arbitration, relying on article II, section thirteen of

StaxxRing's bylaws. Adams supplemented his motion to compel arbitration

on August 3, 2010; the next day, he filed a demand for arbitration with

the American Arbitration Association. On August 9, 2010, the trial court

reset the matter for trial for the third time: November 29, 2010.

The trial court heard Adams's motion to compel arbitration on

August 10 and 11, 2010, during which documents and testimony were

admitted. On August 27, 2010, the trial court heard Langford and

StaxxRing's motion to compel Adams's deposition and motion for

sanctions. In a single, hand-crafted order signed August 28, 2010, the

trial court denied Adams's motion to compel arbitration, ordered Adams's

deposition for September 28, 2010, and carried Langford and StaxxRing's

motion for sanctions.

Pursuant to its August 28 order, the trial court denied Adams's

motion to compel arbitration on the bases that (1) there was no

agreement to arbitrate the dispute before the court, (2) Adams waived

any right he may have had to arbitrate the claims in this case by

substantially invoking the judicial process “to the clear detriment and

prejudice of the plaintiffs,” and (3) the arbitration demanded by Adams

would not provide StaxxRing and Langford with “an accessible and

equivalent forum for them to redress their grievances.” This

interlocutory appeal followed.

DISCUSSION

In a single issue, Adams asserts that the trial court erred in

denying his motion to compel arbitration, arguing: (1) the claims are

within the scope of the arbitration agreement found within article II,

section 13 of StaxxRing's bylaws, (2) the agreement to arbitrate is not

substantively unconscionable, and (3) he has not waived his right to

arbitration because he has not substantially invoked the judicial

process and Langford and StaxxRing have not proven they have suffered

prejudice.

We address the question of whether Adams waived his right to

arbitration, because resolution of that issue is dispositive of this

appeal. In doing so, we assume without deciding that the claims are

subject to arbitration and the parties' agreement is not substantively

unconscionable.

Standard of Review and Applicable Law

Waiver of arbitration is a question of law that this Court

reviews de novo. Perry Homes v. Cull, 258 S.W.3d 580, 598 (Tex. 2008);

In re Bruce Terminix Co., 988 S.W.2d 702, 703-04 (Tex. 1998) (orig.

proceeding) (per curiam). Arbitration rights are contractual, and the

law includes a strong presumption against the waiver of those rights.

See Bruce Terminix, 988 S.W.2d at 704. When presented with questions of

waiver, we are required to resolve any doubts in favor of arbitration.

In re Oakwood Mobile Homes, 987 S.W.2d 571, 574 (Tex. 1999) (orig.

proceeding) (per curiam), abrogated in part on other grounds by In re

Halliburton Co., 80 S.W.3d 566, 572 (Tex. 2002) (orig. proceeding). The

standard for determining waiver is the same under federal and state law.

See Holmes, Woods & Diggs v. Gentry, 333 S.W.3d 650, 654 (Tex.

App.-Dallas 2009, no pet.). Waiver may be implied from a party's

conduct, so long as that conduct is unequivocal. Perry Homes, 258 S.W.3d

at 593. In “close cases, the 'strong presumption against waiver' should

govern.” Id. (quoting In re D. Wilson Constr. Co., 196 S.W.3d 774, 783

(Tex. 2006) (orig. proceeding)).

As the parties claiming waiver, Langford and StaxxRing had the

heavy burden of establishing Adams substantially invoked the judicial

process. See Bruce Terminix, 988 S.W.2d at 704; Valero Energy Corp. v.

Teco Pipeline Co., 2 S.W.3d 576, 594 (Tex. App.-Houston [14th Dist.]

1999, no pet.). Additionally, “waiver of arbitration requires a showing

of prejudice.” Perry Homes, 258 S.W.3d at 595. In determining whether

Langford and StaxxRing met their burden, we must examine the

case-specific facts and look to the totality of the circumstances. Id.

at 591.

Analysis

The supreme court in Perry Homes emphasized what would

constitute waiver: “allowing a party to conduct full discovery, file

motions going to the merits, and seek arbitration only on the eve of

trial.” Id. at 590 (quoting In re Vesta Ins. Group, Inc., 192 S.W.3d

759, 764 (Tex. 2006) (orig. proceeding) (per curiam)). The court also

recognized, as in that case where only two of these three requirements

were met, waiver “involves substantial invocation of the judicial

process, not just judgment on the merits.” Id. at 592. Here, the record

does not fit squarely within the circumstances that clearly would

constitute waiver, and we therefore must review relevant factors in the

context of the totality of the circumstances. Those factors include:

when Adams knew of the arbitration clause; the extent of discovery, who

initiated it, whether it related to the merits rather than arbitrability

or standing, and how much of it would be useful in arbitration; and,

whether Adams sought judgment on the merits. See id. at 591-92. See

Footnote 3

The record here is extensive. Although we have a reporter's

record for only one of the several hearings, the clerk's record consists

of over thirteen hundred pages, and the trial court took judicial notice

of its file. The trial court also issued two orders discussing

extensively the procedural history of the parties' dispute. See

Footnote 4

Adams's Knowledge of Arbitration Clause and Delay

Adams does not contest his knowledge of the arbitration clause

in StaxxRing's 2005 bylaws, which were adopted by the same unanimous

consent that elected Adams as an officer and director and issued him

100,000 shares of stock. The day after he was sued, Adams responded with

a pleading citing to and quoting the same bylaws. He also attached and

relied on the bylaws repeatedly as part of the relief sought by him in

the litigation and as part of his mandamus proceeding when the trial

court denied his rule-12 motion. Langford also testified to the

uncontroverted fact that the StaxxRing bylaws have been reviewed

repeatedly at the various hearings in the case. Yet Adams did not seek

to invoke arbitration until after thirteen months of extensive and

fast-paced litigation of a matter that had been reset for trial twice,

both times at Adams's request or as a result of his conduct. See Perry

Homes, 258 S.W.3d at 596 (waiver found when party delayed fourteen

months after filing suit); see also In re Christus Spohn Health Sys.

Corp., 231 S.W.3d 475, 481-82 (Tex. App.-Corpus Christi 2007, orig.

proceeding) (finding waiver after fourteen months of litigation and

resetting matter for trial three times).

Discovery

Relevant discovery factors in determining whether a movant has

substantially invoked the judicial process include how much discovery

has been conducted and who initiated it, whether the discovery related

to the merits rather than arbitrability or standing, and how much of the

discovery would be useful in arbitration. Holmes, 333 S.W.3d at 654

(citing Perry Homes, 258 S.W.3d at 591-92). “How much litigation conduct

will be 'substantial' depends very much on the context; three or four

depositions may be all the discovery needed in one case, but purely

preliminary in another.” Perry Homes, 258 S.W.3d at 593.

Adams not only initiated, but expedited discovery while avoiding

discovery directed to him. He served almost two hundred merits-related

requests-none going to issues of standing or arbitrability-and nothing
in the record suggests he responded to any discovery. See Holmes, 333

S.W.3d at 655 (“Although the discovery may not have involved the merits

per se, it did not involve arbitrability or standing.”). He also sought

and obtained orders from the court compelling discovery he was

requesting, cross-examined Langford during at least three evidentiary

hearings, and used that evidence as part of his requests for additional

relief.

While initiating and conducting his own discovery, Adams filed

repeated motions for protection and moved to compel arbitration only

after the discovery deadline had passed. It would appear discovery was

substantially completed. See Perry Homes, 258 S.W.3d at 596 (“[T]he

record is nevertheless clear that most of the discovery in the case had

already been completed before the Culls requested arbitration. The rule

that one cannot wait until 'the eve of trial' to request arbitration is

not limited to the evening before trial; it is a rule of proportion that

is implicated here.”). Adams argues that all of the discovery would be

useful in the arbitration. This is but a factor to be considered. See

Citizens Nat'l Bank v. Bryce, 271 S.W.3d 347, 358 (Tex. App.-Tyler 2008,

orig. proceeding) (citing Perry Homes, 258 S.W.3d at 591-92). What, if

any, remedies would be available in arbitration as to the discovery

resisted by Adams in the trial court is unknown. See Perry Homes, 258

S.W.3d at 599.

Merits Activity

As to merits activity conducted by Adams, he sought a temporary

restraining order and temporary injunctive relief on the merits

immediately after suit was filed and well before any answer would have

been due. He participated fully in the related hearings, and the trial

court specifically found as part of its order granting Adams injunctive

relief that he was “likely to prevail on the merits” of at least one of

his claims. Not only did Adams later seek to modify or clarify the

injunction, but he also asked the trial court to find Langford in

contempt for allegedly violating the injunction in Adams's favor. Even

if Adams's merits activity alone is insufficient to waive any right he

had to arbitrate his claims, this is an additional factor we consider.

See Perry Homes, 258 S.W.3d at 591-92.

Other Factors

Other factors implicated by Adams's actions are relevant to our

inquiry. Not only did Adams embrace the judicial process the day after

suit was filed by filing an answer, affirmative defenses, and

counterclaims, but he also brought in third parties. The trial date was

reset repeatedly either at the request of Adams or as a direct result of

his conduct. Months after the case was filed and Adams had engaged in

discovery, filed motions to compel and to show authority, pursued and

obtained injunctive relief, and had filed his second amended answer and

counterclaim, he paid a jury fee. By the time Adams filed his motion to

compel arbitration, the clerk's record included over eight hundred pages

of pleadings, motions, and other documentation. The trial court took

judicial notice of its “ample file” and noted that “the majority of the

file was generated by Adams'[s] own vigorous litigation of this case.”

In addition, Adams filed a rule-12 motion and sought mandamus

appellate review when the trial court denied him relief. Although the

rule-12 motion and Adams's immediate detour to the appellate court did

not implicate the merits of the underlying dispute, the journey delayed

and frustrated the trial court's ability to resolve the case and

increased the litigation costs for the parties. Importantly, Adams's use

of mandamus appellate review is activity otherwise not available in

arbitration.

Adams also invoked the judicial process through independent

proceedings: the involuntary bankruptcy petition and BA Acquisition's

suit against Langford and StaxxRing in the 116th district court.

Although we normally would not consider litigation activity in other

forums as evidencing waiver, Adams's other lawsuits support the

conclusion he was willing to engage in all methods of litigation

activity inconsistent with the right to arbitrate as part of his

strategy against Langford and StaxxRing. See Christus Spohn, 231 S.W.3d

at 481 (“While we ordinarily would not consider actions in a separate

cause as indicative of waiver, . . . we construe [movant's] actions in

this separate lawsuit as part of its strategic plan of defense in the

underlying matter that would be inconsistent with a right to

arbitrate.”); cf. Haddock v. Quinn, 287 S.W.3d 158, 180 (Tex. App.-Fort

Worth 2009, pet. denied) (“Moreover, participation in litigation to gain

an advantage in future litigation can result in waiver.”). We

conclude, considering the totality of the circumstances, Adams

substantially invoked the judicial process. By arguing Langford and

StaxxRing failed to meet their difficult burden of showing his

individual actions were sufficient to constitute waiver, Adams ignores

the requirement that we examine all circumstances in determining whether

he exhibited an intent to avail himself of the judicial process. See

Perry Homes, 258 S.W.3d at 591; see also Nw. Constr. Co. v. Oak

Partners, L.P., 248 S.W.3d 837, 849 (Tex. App.-Fort Worth 2008, pet.

denied) (“Northwest focuses on its various activities in the suit in

isolation; however, when viewed together, all of Northwest's actions in

the suit indicate an intention to avail itself of the judicial

process.”). At the time Adams invoked the arbitration clause contained

in the StaxxRing bylaws he had cited, quoted, and relied on early and

often, discovery was closed. All that appeared to remain in the case

were court-ordered depositions, including his, and trial of the case.

The trial court did not err in finding Adams had substantially invoked

the judicial process. See Christus Spohn, 231 S.W.3d at 479 (noting

actions inconsistent with right to arbitrate include some combination of

filing answer and counterclaim, conducting extensive discovery, moving

for continuance, and failing to timely request arbitration); Okorafor v.

Uncle Sam & Assocs., Inc., 295 S.W.3d 27, 40 (Tex. App.-Houston [1st

Dist.] 2009, pet. denied) (finding circumstances reflected concerted

effort seven months into simple defense strategy of denying sworn

account, to escalate process by multiple sworn and affirmative defenses,

claims of failures of conditions precedent, and affirmative claims for

relief, including declaratory relief, attorney's fees, and sanctions).

Prejudice

In determining whether Adams's substantial invocation of the

judicial process constitutes a waiver of his arbitration rights, we also

must determine whether StaxxRing and Langford showed prejudice. Perry

Homes, 258 S.W.3d at 595. In this context, “prejudice refers to the

inherent unfairness in terms of delay, expense, or damage to a party's

legal position that occurs when the party's opponent forces it to

litigate an issue and later seeks to arbitrate the same issue.” Id. at

597 (quoting Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341,

346 (5th Cir. 2004)). Prejudice is more easily shown when a party delays

his request for arbitration and in the meantime engages in pretrial

activity inconsistent with an intent to arbitrate. Id. at 600 (quoting

PAICO, 383 F.3d at 346)).

Here, Langford and StaxxRing presented sufficient evidence of

prejudice resulting from Adams's failure to invoke his arbitration

rights for thirteen months. They showed that over 5,000 pages of

documents were produced in response to Adams's discovery requests while

they continued unsuccessfully to obtain discovery from Adams. The trial

court had ordered Adams's deposition at the same time it denied Adams's

motion to compel arbitration; Adams then filed this interlocutory appeal

and obtained a stay of the trial court proceedings. Langford and

StaxxRing also incurred approximately $21,000 in legal fees solely for

the purpose of responding to Adams's discovery requests and motions and

$35,000 in legal fees in addressing Adams's rule-12 motion and appeal.

As of the date of the hearing on Adams's motion to compel arbitration,

Langford and StaxxRing had incurred $110,000 in legal fees in this

matter alone. Langford also testified that, in responding to discovery

requests, she lost “hundreds of hours” of income-producing activity and

needed to hire an accounting person to assist StaxxRing with production.

See Christus Spohn, 231 S.W.3d at 482 (considering personal prejudice

suffered by party as result of delay). StaxxRing also spent over $20,000

to handle the involuntary bankruptcy proceeding. See Footnote 5

In addition, when Adams filed his motion to compel arbitration,

discovery was closed with the exception of court-ordered depositions.

Thus, after Adams had obtained thousands of pages of documents from

Langford and StaxxRing under the rules of civil procedure, he sought to

apply the arbitration rules to any further proceedings. See Okorafor,

295 S.W.3d at 40 (“Armed with discovery provided by Uncle Sam and facing

a looming deadline to produce discovery requested by Uncle Sam, the

Okorafors tried to have it both ways and moved to compel arbitration.

Having substantially invoked the litigation process, the Okorafors

abruptly attempted to arrest it to gain the advantage of avoiding

reciprocal discovery.”) (internal citations omitted).

Adams argues that in order to show prejudice from pretrial

discovery, Langford and StaxxRing must show that discovery would not be

useful in arbitration and any costs would not have been incurred in

arbitration. The authority cited by Adams precedes Perry Homes, in which

the court stated such considerations were factors to consider but were

not dispositive on the issue of waiver. Perry Homes, 258 S.W.3d at

591-92. The majority in Perry Homes emphasized in response to a

dissenting argument that there would be no prejudice “from extensive

discovery without proof that an arbitration would have prohibited it”:

That again is impossible; arbitrators have almost unbridled discretion

regarding discovery, so no one can predict what they might do in

advance. Presuming (as the dissents do) that broad discovery is

generally available in arbitration simply ignores one of its most

distinctive features.

Id. at 599. That Langford and StaxxRing did not prove the discovery

incurred during litigation (and the attendant costs) would not have

occurred in arbitration, does not negate a conclusion they were

prejudiced by Adams's failure to timely invoke the arbitration clause

while simultaneously actively obtaining discovery under the rules of

civil procedure. See Bryce, 271 S.W.3d at 357-58; see also Perry Homes,

258 S.W.3d at 599 (“This confuses proof of the fact of prejudice with

proof its extent; the Defendants had to show substantial invocation that

prejudiced them, not precisely how much it all was.”).

In addition to this record evidencing costs involved, the status

of discovery, and the status of the litigation, Langford and StaxxRing

also presented their attorney's affidavit, in which he described the

effect Adams's litigation activities had on his clients' legal

positions: Perhaps more significant to the issue of prejudice than

attorneys' fees themselves is the fact that Adams forced Plaintiffs to

marshal their evidence, thought process, and legal analysis of its

attorneys in responding to Adams'[s] Mandamus, Emergency Appeal, Motion

to Show Authority, Temporary Injunction, Motion to Clarify/Modify and

reconsider, and the other pleadings and discovery Adams conducted in

this case that he would not have been able to in arbitration.

Evidence of compromise to Langford's and StaxxRing's legal positions is

another factor relevant to our consideration in determining prejudice.

See Perry Homes, 258 S.W.3d at 597. Much of their briefing and the

evidence they presented required Langford and StaxxRing to address the

merits of the dispute with Adams and to marshal their legal strategy in

defense of Adams's aggressive litigation activities.

Reviewing the record before us, we agree Langford and StaxxRing

presented sufficient evidence of prejudice to support the trial court's

findings. This record is not unlike that described by the supreme court

in its Perry Homes decision: [Movants] got extensive discovery under one

set of rules and then sought to arbitrate the case under another. They

delayed disposition by switching to arbitration when trial was imminent

and arbitration was not. They got the court to order discovery for them

and then limited their opponents' rights to appellate review. Such

manipulation of litigation for one party's advantage and another's

detriment is precisely the kind of inherent unfairness that constitutes

prejudice under federal and state law.

Perry Homes, 258 S.W.3d at 597. Similarly, Langford and StaxxRing were

prejudiced by Adams's strategic attempt to switch to arbitration and a

different set of rules after thirteen months of aggressive litigation in

which he got extensive discovery, took full advantage of the rules of

procedure and appellate remedies, and repeatedly avoided both a trial

date and his own deposition.

Conclusion

Because Adams substantially invoked the judicial process to the

detriment and prejudice of Langford and StaxxRing, we conclude Adams

waived any arbitration rights under the StaxxRing bylaws. We affirm the

trial court's order denying Adams's motion to compel arbitration.

MARY MURPHY

JUSTICE

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

Footnote 1

The suit is styled “StaxxRing, Inc.; and Molly Langford ex rel
StaxxRing, Inc. v. William Bryan 'Bill' Adams,” but both the original
petition and first amended petition state that the suit “is brought on
behalf of the Company and Ms. Langford individually” against Adams.

Footnote 2

While the bankruptcy proceeded, Adams filed a state-bar grievance
against Langford and StaxxRing's counsel on the same grounds alleged in
his rule-12 motion to show authority.

Footnote 3

The court in Perry Homes also noted federal courts examine other
factors in determining waiver, including: whether the movant was the
plaintiff who elected to file in court or the defendant who merely
responded, how long the movant delayed before requesting arbitration,
whether the movant knew of the arbitration clause “all along,” how much
pretrial activity related to the merits rather than arbitrability or
jurisdiction, how much time and expense was incurred in litigation,
whether the movant sought or opposed arbitration previously in the case,
whether the movant filed affirmative claims or dispositive motions, what
discovery would be unavailable in arbitration, whether litigation
activity would be duplicated in arbitration, and when the case was to be
tried. Perry Homes, 258 S.W.3d at 590-91.

Footnote 4

The extensive record here contrasts the record in our earlier case of
Small v. Specialty Contractors, Inc., 310 S.W.3d 639 (Tex. App.-Dallas
2010, no pet.), in which we concluded the movants had not waived their
right to arbitration by invoking the judicial process to the prejudice
of nonmovant. Id. at 649. The record in Small contained no reporter's
record of argument before the trial court and no evidentiary hearing
regarding that motion to compel arbitration. Id. at 645-46. The trial
court in Small did not make findings, and the appellate record merely
contained the docket sheet, pleadings, briefing on a motion for summary
judgment, briefing on the motion to compel arbitration, and a notice of
partial non-suit. Id. at 646.

Footnote 5

Adams argues that any costs Langford and StaxxRing incurred as a result
of the bankruptcy filing should not be considered, citing an agreed
order in that suit for payment by Adams of $16,500 to resolve relief
sought by StaxxRing. The referenced order, however, is not part of the
appellate record, but is instead attached as an appendix to Adams's
opening brief on appeal. Even if we were to take judicial notice of the
order, it does not negate StaxxRing and Langford's showing of prejudice.
The settlement amount is less than the amount Langford's testimony shows
was expended as legal fees and the settlement does not address the
months of delay due to the bankruptcy stay.

Mandatory Attorney-Client Arbitration: Enforceability of arbitration clauses in agreements for legal services

2010-03-04T13:43:00.000-08:00

Should courts enforce arbitration clauses included in contracts for legal services? If so as a general proposition, under what circumstances should former clients be able to avoid an arbitration clause contained in retainer agreement, letter agreement, or other type of contract for legal services?

In a case decided today, a panel of the First Court of Appeals in Houston rejected public policy and unconscionability arguments and granted mandamus relief to enforce arbitration against a client whom the defendant attorney had represented in a personal injury case. One justice on the three-member panel, however, dissented and wrote separately to express concern about the propriety of forcing clients to arbitrate malpractice claims against their former counsel when they were not aware of the consequences and appraised of the implications due to the attorney's failure to expressly disclose and explain the arbitration requirement.

DISSENTING OPINION BY JUSTICE CHARLES SEYMORE

In consideration of the unique relationship between attorney and client, I write this dissenting opinion to express my concern about mandatory arbitration provisions in attorney-client agreements.

I have no disagreement with the majority’s analysis and disposition of all issues with the exception of Shelly Letney’s claim that the method or means of inducing her signature on the agreement renders enforcement procedurally unconscionable. I adopt former Fourth Court of Appeals Chief Justice Phil Hardberger’s concern that special public-policy considerations are implicated when an attorney imposes an arbitration provision on his or her client. See Henry v. Gonzalez, 18 S.W.3d 684, 692 (Tex. App.—San Antonio 2000, pet. dism’d) (Hardberger, C.J., dissenting). Accordingly, I disagree with the majority’s decision to “decline to impose a requirement that attorneys must, in all cases, fully inform prospective clients regarding implications of an arbitration clause in an attorney-client contract.”

Whatever public policy may be served by enforcing arbitration agreements is more than offset by the public policy of insuring that consumers of legal services have protection from attorneys who might take advantage of their clients. Shelly Letney, a personal-injury claimant, is representative of the average consumer of legal services. She should be afforded the expectation that an attorney is obligated to fully reveal and explain potential conflicts of interests at the inception of the relationship. Moreover, the attorney should offer the prospective client an opportunity to seek advice from another source before signing an attorney-client agreement that contains language potentially detrimental to the client’s interests if the client later finds it appropriate or necessary to pursue the attorney for malpractice or other misconduct.

Under the Texas Disciplinary Rules of Professional Conduct, “A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.” Tex. Disciplinary R. Prof’l Conduct 1.03(b), reprinted in Tex. Gov’t Code Ann., tit. 2, subtit. G app. A (Vernon 2005) (Tex. State Bar R. art. X, §9). The Supreme Court of Texas Professional Ethics Committee agrees that lawyers should be allowed to insert arbitration clauses in their client contracts as long as “(1) the client is aware of the significant advantages and disadvantages of arbitration and has sufficient information to permit the client to make an informed decision about whether to agree to the arbitration provision, and (2) the arbitration provision does not limit the lawyer’s liability for malpractice.” See Tex. Comm. On Prof’l Ethics, Op. 586 (2008).

Notwithstanding the application of settled contract law and public policy favoring alternate dispute resolution, many respected jurists and lawyers oppose arbitration because it is not cost effective, disgorges unwary consumers of the right to a jury trial, and eliminates appellate review for errors of law. I remain a proponent of arbitration. However, when the legislature and rule-making authority in the legal profession fail to protect consumers of legal services, I believe the courts have an obligation to act because public perception of the legal profession’s ability to self-police is not favorable.

Based on Shelly Letney’s averment that she was unaware of the arbitration agreement and her sworn statement that petitioner did not fully explain the terms, I would hold the trial court did not abuse its discretion by denying the petitioner’s motion to compel arbitration. Accordingly, I respectfully dissent.

LINK TO MAJORITY OPINION: Pham v. Letney (Tex.App.- Houston [1st Dist.] March 4, 2010)(Hedges) (arbitration agreement in legal services contract between lawyer and client enforced by mandamus, interlocutory appeal of order denying motion to compel arbitration dismissed, FAA applied, TAA would be preempted)
INTERLOCUTORY APPEAL DISMISSED: Opinion by Chief Justice Hedges
Before Chief Justice Hedges, Justices Seymore and Justice Sullivan
14-08-01153-CV Steven Tuan Pham v. Shelly Letney
Appeal from 215th District Court of Harris County
Trial Court Judge: Levi James Benton
DISSENTING OPINION by Justice Seymore in Pham v. Letney
(In consideration of the unique relationship between attorney and client, Justice Seymore dissents and writes
separately to express his concern about mandatory arbitration clauses in attorney-client
retainer agreements / contracts for legal services)
THE PETITION FOR MANDAMUS WAS DOCKETED SEPARATELY [links to pdf version of opinions]
In re Tuam Pham (pdf) (Tex.App.- Houston [1st Dist.] March 4, 2010)(Hedges)
MOTION OR WRIT GRANTED: Opinion by Chief Justice Adele Hedges
Before Chief Justice Hedges, Justices Seymore and Sullivan
14-09-00387-CV In Re Steven Tuam Pham
Appeal from 215th District Court of Harris County
Dissenting Opinion by Justice Seymore In re Tuam Pham (pdf)

RELATED HOUSTON COURT OF APPEALS CASE:

Labidi v. Sydow, 287 S.W.3d 922 (Tex. App.—Houston [14th Dist.] 2009, orig. proceeding).

Labidi, MD v. Sydow (pdf) (Tex.App.- Houston [14th Dist.] Jun. 25, 2009)(Guzman)
(consolidation of an interlocutory appeal and a petition for writ of mandamus, challenge to district court's
order compelling arbitration and staying proceedings in the trial court fails)(unconscionabiltiy argument
rejected re arbitration of attorney-client disputes)(public policy arguments overruled)
DISMISSED: Opinion by Justice Eva Guzman
Panel members: Justices Guzman, Mirabal and Boyce
14-08-00527-CV Abdel Hakim Labidi, M.D. Ph.D. v. Michael D. Sydow, Et Al
Appeal from 61st District Court of Harris County

RELATED TERMS: attorney-client relationship, fiduciary duty, confidentiality, arbitration of attorney-client disputes, legal services contract with arbitration clause provision, professional legal malpractice

Lindley v. FIA Card Services NA [BofA] - Confirmation of Arb Award Set Aside on Appeal

2010-02-18T17:45:00.000-08:00

Cardholder "wins" risky appeal from trial court's default judgment confirming arbitration award entered on FIA Card Services NA [Bank of America] credit card debt in an amount substantially lower than the amount awarded by the arbitrator. Houston Court of Appeals reverses and remands based on the discrepancy, which was not supported by any evidence in the record. Consumer will now face prospect of judgment for the entire amount, unless consumer can demonstrate that there are other reasons why the trial court should not confirm it -- a tall order.

Lindley v. FIA Card Services, N.A. f/k/a MBNA America Bank, N.A. (Tex.App.- Houston [1st Dist.] Feb. 18, 2010) (restricted appeal, amount of judgment confirming arbitration award varied from arbitration award, no evidence supporting modification of amount)

MEMORANDUM OPINION
BY JUSTICE LAURA CARTER HIGLEY

This is a restricted appeal in a suit to confirm an arbitration award. Appellant, John R. Lindley, appeals from a default judgment granted in favor of appellee, FIA Card Services N.A., f/k/a MBNA Bank America, N.A. (“FIA”) on a credit card debt.

In three issues, Lindley contends that (1) FIA’s suit was improperly reinstated; (2) FIA failed to serve him with notice of trial settings; and (3) the default judgment is “defective.” Lindley requests a new trial, and FIA “agrees to a new trial.”

We reverse and remand.

Background

On January 23, 2007, after arbitration proceedings on a credit-card debt, creditor FIA was awarded $16,010.84 against debtor Lindley. On April 19, 2007, FIA sued in the trial court to confirm the award. To its petition, FIA appended a copy of the arbitrator’s findings, conclusions, and award to FIA of $16,010.84. Lindley does not dispute that notice was properly served and that he did not answer the suit to confirm the award.

In August 2007, FIA sought a default judgment, which the trial court denied. Trial was set for March 4, 2008.

On the eve of trial, March 3, 2008, FIA moved to non-suit its claim without prejudice, which the trial court granted. A month later, on April 3, 2008, FIA filed a verified motion to reinstate its suit, which the trial court granted.

On September 22, 2008, FIA again moved for a default judgment, asserting that it had filed its petition on April 19, 2007, that it had served Lindley with citation on June 22, 2007, and that Lindley had failed to answer. On October 17, 2008, the trial court granted the default judgment. The court ordered that FIA recover $7,279.17 from Lindley, as the balance due on the account. On April 14, 2009, Lindley filed a notice of restricted appeal.

Restricted Appeal

A party can prevail in a restricted appeal only if (1) it filed notice of the restricted appeal within six months after the judgment was signed; (2) it was a party to the underlying lawsuit; (3) it did not participate in the hearing that resulted in the judgment complained of and did not timely file any post-judgment motions or requests for findings of fact and conclusions of law; and (4) error is apparent on the face of the record. Ins. Co. of State of Penn. v. Lejeune, 297 S.W.3d 254, 255 (Tex. 2009); see Tex. R. App. P. 26.1(c), 30.

Here, it is undisputed that Lindley filed notice of his restricted appeal within six months after the judgment was signed, that he was a party to the underlying lawsuit, that he did not participate in the hearing that resulted in the default judgment, which is the judgment complained of, and that he did not timely file any post-judgment motions or requests for findings of fact and conclusions of law. The only issue remaining is whether error appears on the face of the record.

The face of the record consists of all the papers on file in the appeal. See Norman Comm. v. Tex. Eastman Kodak, 955 S.W.2d 269, 270 (Tex. 1997) (stating that review by restricted appeal affords appellant same scope of review as ordinary appeal, which is review of entire case). “It necessarily follows that review of the entire case includes review of legal and factual insufficiency claims.” Id. (remanding for review of appellant’s legal sufficiency point); see Herbert v. Greater Gulf Coast Enter., 915 S.W.2d 866, 870 (Tex. App.—Houston [1st Dist.] 1995, no writ).

A. Motion to Reinstate

In his first issue, Lindley contends that the trial court erred by reinstating FIA’s suit because FIA failed to comply with Rule of Civil Procedure 165a.

Rule 165a governs reinstatement after dismissal for want of prosecution. See Tex. R. Civ. P. 165a(3). The record before us, however, does not reflect that FIA’s suit was dismissed for want of prosecution. The record reflects that FIA took a non-suit, which is not governed by Rule 165a. Lindley’s issue cannot be sustained on the grounds he advances.

Accordingly, we overrule Lindley’s first issue.

B. Default Judgment

In his third issue, Lindley contends that error is apparent on the face of the record because FIA failed to present any evidence to support the trial court’s modification of the arbitration award. Specifically, Lindley contends that the record shows that FIA sought to confirm the arbitration award it attached to the petition, which states that FIA was awarded $16,010.04. In its judgment, however, the trial court awarded $7,279.17 to FIA. Lindley contends that there is no record of any hearing on unliquidated damages and that “there is no evidence” in the record supporting the trial court’s award. Lindley contends that “[t]he default judgment in this matter should be reversed” and that he should be “provided his day in Court.”

Lindley may challenge the legal sufficiency of the evidence to support the trial court’s judgment in a restricted appeal. See Norman Comm., 955 S.W.2d at 270. Lindley does not challenge the entry of a default Footnote ; rather, he solely challenges the amount of the trial court’s award. FIA states in its response that it “agrees to a new trial on this issue.”

We sustain a legal sufficiency point (1) when there is a complete absence of a vital fact; (2) when rules of law or evidence preclude according weight to the only evidence offered to prove a vital fact; (3) when the evidence offered to prove a vital fact is no more than a scintilla; or (4) when the evidence conclusively establishes the opposite of the vital fact. City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex. 2005); El-Khoury v. Kheir, 241 S.W.3d 82, 86 (Tex. App.—Houston [1st Dist.] 2007, pet. denied). “The final test for legal sufficiency must always be whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review.” City of Keller, 168 S.W.3d at 827.

The face of the record in a restricted appeal consists of the documents and evidence before the trial court when it rendered its judgment. See Norman Comm., 955 S.W.2d at 270. Here, the arbitration award states that the matter in this case involves interstate commerce and is governed by the Federal Arbitration Act (“FAA”). The FAA requires a trial court to confirm an arbitration award unless grounds are offered to vacate, modify, or correct the award. 9 U.S.C §§ 10,11; see Ancor Holdings, L.L.C. v. Peterson, Goldman & Villani, Inc., 294 S.W.3d 818, 826–27 (Tex. App.—Dallas 2009, no pet.) (citing Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S.Ct. 1396, 1403 (2008) (holding that statutory grounds for modifying or correcting arbitration award are exclusive grounds for modification of award pursuant to FAA)); see also Tex. Civ. Prac. & Rem. Code Ann. 171.091 (Vernon 2005). Here, the record shows that the arbitrator awarded to FIA $16,010.04. The trial court issued a judgment awarding $7,279.17 to FIA. There is no testimony or evidence in the record before us regarding the trial court’s modification.

We hold that the evidence is legally insufficient to support the trial court’s modification of the arbitration award.

Accordingly, we sustain Lindley’s third issue.

Conclusion

We conclude that Lindley has met the requirements for review by restricted appeal of the trial court’s judgment awarding $7,279.17 to FIA. We reverse the trial court’s judgment and remand for further proceedings. Footnote All pending motions relating to this appeal are denied as moot.
[footnotes omitted]

REVERSE TRIAL COURT JUDGMENT AND REMAND CASE TO TRIAL COURT FOR FURTHER PROCEEDINGS: Opinion by Justice Higley
Before Chief Justice Radack, Justices Alcala and Higley
01-09-00323-CV John R. Lindley v. FIA Card Service, N. A. fka MBNA America Bank, N. A. [FIA is the credit card arm of Bank of America, BoA, BofA]
Appeal from County Civil Court at Law No 3 of Harris County
Trial Court Judge: Hon. Linda Storey

TAGS: Credit card debt arbitration, debt collection, suit / motion to confirm arbitration award, judicial confirmation and modification of award by arbitrator, MBNA Bank of America d/b/a FIA Card Services NA arbitration, debt collection lawsuits

EMPLOYMENT ARBITRATION: Hatton v. D.R. Horton, Inc. Sequel: Appeal After Arbitration Based on EAF Was Enforced by Mandamus Fails

2010-02-13T10:14:00.000-08:00

APPELLATE OPINION AFTER MANDAMUS OFFERS NOTHING NEW

In a short but signed opinion by its newest member - Justice Tracy Christopher - Houston's Fourteenth Court of Appeals declines to revisit - in an appeal from final take-nothing judgment - questions of enforceability of an arbitration requirement imposed by an employer that were previously the subject of a mandamus proceeding favorably decided for the employer. (A prior mandamus does not preclude a subsequent appeal).

Hatton v. D.R. Horton, Inc. (Tex.App.- Houston [14th Dist.] Feb. 11, 2010) (arbitration agreement held enforceable in appeal from final judgment, with reference to prior grant of mandamus relief on same facts and legal arguments) (arbitration in the employment context, consent to arbitration by signing of AEF - employee acknowledgment form)

MEMORANDUM OPINION

The enforceability of the arbitration clause contained in D.R. Horton, Inc.’s employee handbook acknowledgment form is again before this Court. As we have already twice determined that the arbitration clause at issue here is valid and enforceable,[1] we issue this memorandum opinion and affirm the trial court’s judgment.

Appellant Brenda Hatton began working for D.R. Horton in June of 1997 and signed its “Employee Acknowledgment Form” (“EAF”) in 2001. The EAF contained, among other matters, the arbitration clause at issue here. Hatton sued D.R. Horton in 2005 for discrimination and breach of contract. D.R. Horton filed a motion to dismiss and compel arbitration, and the trial court denied the motion.

In November 2006, a panel of this court conditionally granted D.R. Horton’s petition for writ of mandamus in this lawsuit.[2] The trial court subsequently vacated its order denying D.R. Horton’s motion to dismiss and compel arbitration. D.R. Horton and Hatton submitted to court-ordered binding arbitration. Following arbitration, the trial court entered a final take-nothing judgment in favor of D.R. Horton on December 11, 2008. Hatton timely filed this appeal from the trial court’s final judgment.

As she did in her response to D.R. Horton’s petition for writ of mandamus, Hatton argues the arbitration provision contained in the EAF is unenforceable because it is (a) illusory, (b) indefinite, and (c) unconscionable. These are the same legal arguments made and addressed in both our prior opinion in this case and in a similar case, D.R. Horton, Inc. v. Brooks.[3] In these opinions, we determined the arbitration clause at issue is valid and enforceable. Because the legal arguments in this case are the same as those addressed in our prior opinions, these opinions are controlling and we cite the parties to them.

We therefore overrule Hatton’s three issues and affirm the trial court’s judgment.

/s/ Tracy Christopher, Justice

Panel consists of Chief Justice Hedges and Justices Anderson and Christopher.

[1] D.R. Horton, Inc. v. Brooks, 207 S.W.3d 862 (Tex. App.—Houston [14th Dist.] 2006, orig. proceeding); D.R. Horton, Inc. v. Hatton, Nos. 14-06-00262-CV, 14-06-00284-CV, 2006 WL 3193722, at *1 (Tex. App.—Houston [14th Dist.] Nov. 7, 2006, orig. proceeding) (mem. op.).
[2] Hatton, 2006 WL 3193722, at *1.
[3] 207 S.W.3d at 867–870. The arbitration clause and other provisions contained in the EAF at issue here are set forth in Brooks; except for minor grammatical differences, the EAF signed by Hatton is the same as that set forth in that opinion.

TRIAL COURT'S JUDGMENT AFFIRMED: Opinion by Justice Christopher
Panel members: Chief Justice Hedges and Justices Anderson and Christopher.
14-09-00054-CV Brenda Hatton v. D.R. Horton, Inc. [link to pdf version]
Appeal from 152nd District Court of Harris County
Trial Court Judge: Kenneth Price Wise

ORIGINAL MANDAMUS OPINION BY JUSTICE EVA GUZMAN

The enforceability of the arbitration clause contained in D.R. Horton, Inc.'s employee handbook acknowledgment form is again before this Court. In Cause No. 14-06-00262-CV, an interlocutory appeal, and Cause No. 14-06-00284-CV,[1] a petition for writ of mandamus, D.R. Horton seeks relief from the trial court's order denying its motion to compel arbitration pursuant to the arbitration clause.

Brenda Hatton, the appellee and real party in interest in the subject cases, began working for D.R. Horton in June of 1997 and signed its “Employee Acknowledgment Form" (“EAF") in 2001, which contained, among other matters, the arbitration clause at issue here. In 2005, Hatton filed suit against D.R. Horton, asserting a discrimination claim under the Texas Labor Code and a breach of contract claim. D.R. Horton filed a motion to compel arbitration, and the trial court denied the motion.

In the subject cases, D.R. Horton argues that the trial court abused its discretion by denying arbitration because the arbitration clause is valid and covers the parties' dispute. Hatton argues the arbitration provision contained in the EAF is unenforceable because it is illusory, unconscionable, and its terms are too indefinite to form a binding contract. These are the same arguments made and addressed in our opinion issued on November 2, 2006, in D.R. Horton, Inc. v. Brooks, Cause No. 14-06-00099-CV, and In re D.R. Horton, Inc., Cause No. 14-06-00152-CV.[2] In that opinion, we determined the arbitration clause was valid.

We conditionally granted D.R. Horton's petition for a writ of mandamus and dismissed its interlocutory appeal as moot. Because the facts and legal arguments in the subject consolidated cases are the same as those addressed in our November 2, 2006 opinion, that opinion is controlling and we cite the parties to it.

For the reasons stated in our November 2, 2006 opinion, we conclude that the trial court abused its discretion in failing to order Hatton to arbitrate her claims against D.R. Horton pursuant to the arbitration agreement between the parties. Accordingly, we conditionally grant D.R. Horton's petition for writ of mandamus in Cause No. 14-06-00284-CV and direct the trial court to vacate the order denying D.R. Horton's motion to compel and to enter an order compelling the parties to arbitration. The writ will issue only if the trial court fails to comply with this opinion. Having granted full relief under our mandamus jurisdiction, we dismiss as moot D.R. Horton's interlocutory appeal, Cause No. 14-06-00262-CV. See In re D. Wilson Constr. Co., 196 S.W.3d 774, 780 (Tex. 2006) (orig. proceeding).

/s/ Eva M. Guzman, Justice

Petition for Writ of Mandamus Conditionally Granted and Memorandum Opinion filed November 7, 2006.

Panel consists of Chief Justice Hedges, and Justices Yates and Guzman.

NOTE: Justice Eva Guzman is now a member of the Texas Supreme Court

Mediation Ordered on Appeal -- But not quite consummated

2010-02-11T21:26:00.000-08:00

Houston appellate panel disses appeal for failure to comply with mediation order.

Jones v. Union Pacific RR Co. (Tex.App. - Houston [14th Dist.] Feb. 11, 2010)(per curiam dismissal) (appeal dismissed for noncompliance with terms of mediation order)

MEMORANDUM OPINION

This is an appeal from a judgment signed March 27, 2009. On July 9, 2009, this court ordered the parties to mediation. The order states, in pertinent part, “If mediation fully resolves the issues in the case, the court ORDERS the parties to file a joint dispositive motion within 10 days of the conclusion of the mediation. If the parties need more time to effectuate the terms of the settlement agreement, they shall, within 10 days of the conclusion of the mediation, file a joint or agreed motion for an extension of time to file their dispositive motion.”

On September 29, 2009, the court was advised the parties did not settle at mediation, but that a tentative agreement was reached and the parties hoped to complete the settlement within thirty days. More than thirty days passed, and no notice that the settlement had been completed was filed.

On December 3, 2009, the court ordered the parties to file a response within fifteen days informing the court of the status of the settlement of this case. No response was filed.

On January 6, 2010, notification was transmitted to all parties of the court’s intention to dismiss the appeal for failing to comply with this court’s December 3, 2009, order, unless a response was filed within fifteen days demonstrating good cause to continue the appeal. See Tex. R. App. P. 42.3(c). No response was filed.

Accordingly, the appeal is ordered dismissed.

PER CURIAM

DISMISSED: Per Curiam
Panel members: Chief Justice Hedges, Justice Anderson and Justice Christopher
14-09-00541-CV Donald R. Jones, Sr. v. Union Pacific Railroad Company [pdf version]
Appeal from 164th District Court of Harris County
Trial Court Judge: Alexandra Smoots-Hogan

No Meeting of the Minds on Terms of Mediation - No Actionable Breach of Agreement to Mediate

2010-01-25T15:04:00.000-08:00

MEDIATOR'S LAWSUIT SEEKING TO COLLECT MEDIATION CANCELLATION FEE ON BREACH-OF-CONTRACT THEORY FAILS - ENFORCEABLE AGREEMENT WAS NOT ESTABLISHED

In this appeal from a rather unusual case on the ADR litigation front, Houston's 14th Court of Appeals last week affirmed the trial court's grant of summary judgment against a mediator who had sued an attorney for damages following a mediation that did not take place as scheduled. Both the trial court and reviewing court found that there was no agreement on specific terms, such as the rather hefty cancellation fee, and in-person attendance by the client. A mere letter stating the terms to govern the mediation followed by silence on the part of the attorney (against whom the claim of breach of mediation-agreement was brought) did not suffice the establish meeting of the minds element under contract formation principles. Moreover, the client who could not attend in person was willing to be available by telephone.

The Levin Law Group, PC v. Sigmon
(Tex.App.- Houston [14th Dist.] Jan. 21, 2010)(Sullivan)
(no breach of agreement to mediate on specific terms that were not agreed to, silence not assent, no meeting of the minds on cancellation fee, unforceable contract / agreement to mediate under specific terms not formed)

EXCERPT FROM THE APPELLATE OPINION BY JUSTICE KENT SULLIVAN:

Background

On January 25, 2008, Allan G. Levine, an attorney for one of the plaintiffs in the underlying civil lawsuit, contacted LLG to obtain potential dates for scheduling mediation of the dispute with Alan F. Levin, the principal shareholder of LLG. After obtaining several available dates, Levine contacted Sigmon, the defendant’s attorney, and Don Fogel, the other plaintiff’s attorney in the underlying case. After checking their respective calendars, the attorneys “settled on February 8, 2008” to mediate the underlying dispute.

Levine notified Levin’s office and confirmed the date. LLG faxed a letter containing information regarding the mediation to all three attorneys on January 29, 2008. This letter provided: “In the absence of [two weeks’] advance written notice the attorneys are responsible to see that the mediator is promptly paid fifty percent (50%) of the total mediation fee as an agreed cancellation/rescheduling fee.” LLG also faxed to the attorneys an “Attorney Confidential Information Sheet and Request for Mediation” form (the “mediation request form”) and a “Rules for Mediation” form (the “mediation rules form”).

Sigmon neither completed nor signed the mediation request form. The mediation rules form contained the following paragraph:

CANCELLATION/RESCHEDULING FEE AGREEMENT. ONCE A CASE HAS BEEN SET FOR MEDIATION, THE ATTORNEYS AND THE PARTIES RECOGNIZE THAT THE MEDIATOR’S CALENDAR HAS BEEN RESERVED, AND THEY MUST THEREFORE PROVIDE THE MEDIATOR AT LEAST TWO (2) WEEKS ADVANCE WRITTEN NOTICE OF CANCELLATION/RESCHEDULING. IN THE ABSENCE OF SUCH ADVANCE WRITTEN NOTICE, THE ATTORNEYS AND PARTIES AGREE TO AND SHALL PAY THE MEDIATOR FIFTY PERCENT (50%) OF THE TOTAL MEDIATION FEE FOR THE DAY(S) AS AN AGREED CANCELLATION/RESCHEDULING FEE. THIS RULE ALSO APPLIES TO MEDIATIONS SCHEDULED LESS THAN TWO (2) WEEKS IN ADVANCE OF THE MEDIATION DATE.

Sigmon’s client in the underlying suit was unable to attend the mediation in person, but was willing to be available by telephone; Sigmon was available and prepared to attend the mediation on his client’s behalf. Fogel objected to the lack of personal attendance by Sigmon’s client, and the mediation was cancelled.

In April 2008, LLG filed suit against Sigmon, alleging breach of contract because Sigmon refused to pay the cancellation fee listed in the mediation request form. After generally denying the allegations and asserting several affirmative defenses, Sigmon filed a traditional motion for summary judgment.

In the summary-judgment motion, Sigmon asserted (1) there was no agreement to mediate, either written or oral, (2) he did not agree to be personally obligated for any cancellation or rescheduling fees caused by his client or anyone else, and (3) his client’s intended appearance at the mediation via telephone was not a breach of any such agreement. In an affidavit attached to the motion, Sigmon stated, among other things:

· He made no agreement with respect to mediating the underlying suit;

· He made no agreement regarding the amount of or obligation for any cancellation or rescheduling fees;

· He did not reschedule or cancel the mediation;

· Fogel declined to go forward with the mediation when Sigmon’s client was unable to physically attend the mediation;

· Neither Sigmon nor his client “accepted, acquiesced, or otherwise agreed to the matters contained in (i) The Levin Law Group, P.C.’s letter of January 29, 2008, (ii) an unsigned pre-printed one page document entitled ‘Rules for Mediation,’ or (iii) a pre-printed uncompleted document entitled ‘Attorney’s Confidential Information Sheet and Request for Mediation.’”

LLG filed a response to Sigmon’s summary-judgment motion, in which it stated:

Sigmon consented to the scheduling of the mediation for February 8, 2008; he received the correspondence of January 29, 2008 with the Rules of Mediation and the Attorney’s Confidential Information Sheet and Request for Mediation; he did not object to the terms contained within those documents. Further, he received the January 30, 2008 letter reemphasizing the terms and made no objection.

LLG also attached affidavits from Levin and Levine. In his affidavit, Levin stated that because last-minute cancellations are a “huge problem” for mediators, he had implemented a cancellation policy. He stated that, in his experience, generally “all the attorneys are well familiar with the cancellation policy of this mediator as well as other quality mediators” but he “specifically call[s] the policy to the attorney’s attention every single time.”

In the affidavit, Levin also indicated that, in this specific situation, his staff forwarded a letter by facsimile to all three attorneys in the underlying case. In the first paragraph of the letter, he stated “I specifically alert you to Rule 19 dealing with cancellation/rescheduling fees.” Levin also specified the total mediation fee in this case was $6,375.00; thus the cancellation/rescheduling fee would be $3,187.50.

LLG also attached an affidavit from Levine, indicating that he contacted Levin’s assistant to obtain potential dates for mediation. Levine stated that after “dialoging” with Sigmon and Fogel, they settled on February 8, 2008, and Levine notified Levin’s office and confirmed the date. Levine averred that it was his belief the other attorneys understood personal attendance at the mediation was essential. He further stated that he recognized he and his clients were bound by the Rules of Mediation provided by Levin, including “the cancellation fee and the fact that the attorney and/or party who causes the cancellation is responsible to pay fifty percent (50%) of Mr. Levin’s total fee.” Levine explained he had never been asked by a mediator to sign any type of “formal agreement”, and he and all other “practicing, experienced attorneys who engage in mediation in Harris County, Texas, deem [themselves] and [their] clients bound to the Rules of Mediation once Mr. Levin and the date for mediation have been selected.”[1]

Sigmon replied to LLG’s response, objecting to much of the affidavit evidence. The trial court did not rule on these objections, but granted Sigmon’s summary-judgment motion on August 1, 2008. The judgment became final on September 17, 2008, and, after a motion for new trial was overruled by operation of law, this appeal timely ensued.

Discussion

I. Standard of Review [omitted]

II. Existence of a Contract

The parties agree there is no written contract in this case. LLG asserts, however, that “there is a fact issue concerning whether [Sigmon] accepted the terms of mediation by scheduling the date and failing to object to any of the terms contained in the mediation agreement,” thus precluding summary judgment.

The elements of written and oral contracts are the same and must be present for a contract to be binding. Wal-Mart Stores, Inc. v. Lopez, 93 S.W.3d 548, 555 (Tex. App.—Houston [14th Dist.] 2002, no pet.). A binding contract must have an offer and an acceptance; the acceptance must be in strict compliance with the terms of the offer. Advantage Physical Therapy, Inc. v. Cruse, 165 S.W.3d 21, 25 (Tex. App.—Houston [14th Dist.] 2005, no pet.). Generally, acceptance of an offer must be communicated to the offeror for a contract to be binding. Id. at 26. Thus, silence does not ordinarily indicate acceptance of an offer. See id. (citing Restatement (Second) of Contracts § 69(1) cmt. a (1981)); see also Tex. Ass’n of Counties County Gov’t Risk Mgmt. Pool v. Matagorda County, 52 S.W.3d 128, 132 (Tex. 2000) (noting that “as a general rule, ‘silence and inaction will not be construed as an assent to an offer’” (quoting 2 Williston on Contracts § 6:49 (4th ed. 1991))).

In this case, Levine was the only attorney who spoke with LLG and Sigmon about scheduling the mediation. In his affidavit, Levine does not indicate that, before Sigmon agreed to mediate the underlying dispute, Levine communicated either Levin’s mediation fee or cancellation/rescheduling charges. The parties agree that these terms were communicated to Sigmon after the mediation was scheduled. Thus, the fact that Sigmon agreed to mediate the dispute does not support an inference that Sigmon agreed to the mediation rules or cancellation fees. See Advantage Physical Therapy, Inc., 165 S.W.3d at 25 (acceptance must be in strict compliance with terms of offer).

In fact, Sigmon presented uncontroverted affidavit evidence that he never entered into an agreement to mediate the underlying suit under the terms and conditions specified by the letters from LLG, the mediation request form, or the mediation rules form. The only evidence LLG specifies to support its claim of an oral agreement to mediate under the written terms it provided is Sigmon’s “lack of objection” to these terms, i.e., Sigmon’s silence, after LLG faxed the written terms to him. But silence rarely indicates acceptance of an offer. See id. at 26; see also Tex. Ass’n of Counties County Gov’t Risk Mgmt. Pool, 52 S.W.3d at 132; Restatement (Second) of Contracts, § 69(1) (noting that assent may be inferred “[w]here an offeree takes the benefit of offered services with reasonable opportunity to reject them”).

Here, Sigmon did not take the benefit of the offered services with a “reasonable opportunity” to reject them. Ultimately, he did not take the benefit of the offered services at all. Further, the confirmation letter, mediation rules form, and mediation agreement form were faxed to Sigmon on January 29, 2008. Six days later, on Monday, February 4, 2008, Sigmon notified LLG that his client would be unable to physically attend the mediation. Thus, Sigmon’s purported lack of objection to the terms of the mediation does not indicate acceptance of LLG’s mediation rules. See Tex. Ass’n of Counties County Gov’t Risk Mgmt. Pool, 52 S.W.3d at 132; Advantage Physical Therapy, Inc., 165 S.W.3d at 26.

Additionally, it is uncontroverted that Sigmon was willing to attend the mediation on behalf of his client, and his client agreed to be available throughout the mediation by telephone. Levin and Levine both stated in their affidavits that they were willing to conduct the mediation under these conditions. The parties agree that Fogel objected to this format, and the mediation was cancelled as a result of Fogel’s objection.

Thus, if the rules for mediation require “personal attendance” as Levin states in his affidavit, Sigmon objected to the offered mediation terms by notifying LLG that his client would not be able to personally attend the mediation. If anything, this objection to LLG’s mediation terms could be deemed a counter-offer by Sigmon, which Levin and Levine accepted, but Fogel rejected. See, e.g., Lewis v. Adams, 979 S.W.2d 831, 834 (Tex. App.—Houston [14th Dist.] 1998, no pet.) (“It is elementary that an acceptance must not change or qualify the terms of an offer; if it does, there is no meeting of the minds between the parties because the modification then becomes a counteroffer.”). At any rate, the “communications between the parties and the acts and circumstances surrounding those communications” in this case indicate that there was no meeting of the minds, and thus no offer and acceptance, regarding the essential terms of the mediation. Wal-Mart Stores, Inc., 93 S.W.3d at 556.

Under these circumstances, we conclude that Sigmon conclusively established that he did not accept the terms of the mediation specified in the letters faxed by LLG, the mediation rules form, or the mediation agreement form—an essential element of LLG’s breach of contract claim. Cf. IHS Cedars Treatment Ctr. of Desoto, Tex., Inc., 143 S.W.3d at 798; see Advantage Physical Therapy, Inc., 165 S.W.3d at 25–26. Because LLG presented no evidence raising a genuine issue of material fact regarding this issue, the trial court properly granted summary judgment to Sigmon. We accordingly overrule LLG’s issue.

AFFIRMED: Opinion by Justice Kent Sullivan
14-08-01165-CV The Levin Law Group, P.C. v. Ernesto De Andre Sigmon
Appeal from County Civil Court at Law No 4 of Harris County
Trial Court Judge: Roberta Anne Lloyd

TAGS: formation of contract, agreement to mediate / arbitrate, ADR - mediation costs, cancellation fee charges, meeting of the minds element in contract formation

See related blog post by Victoria VanBuren on Karl Bayer's Disputing Blog:
Texas Appeals Court Finds No ‘Meeting of the Minds’ in Dispute Over Mediation Cancellation Fee

NONSIGNATORIES: Wrongful Death Plaintiffs Compelled to Arbitrate by Texas Supreme Court

2009-11-20T10:16:00.000-08:00

Following its recent decision in In re Labatt Food Service, L.P., 279 S.W.3d 640 (Tex. 2009), the Texas Supreme Court today issued a per curiam opinion requiring the survivors of another worker killed on the job to arbitrate - rather than litigate - their wrongful death claims based on the worker's agreement to arbitrate personal injury and death claims against the employer, a nonsubscriber under the Texas Workers Compensation Act.

The Court re-iterated that the Plaintiffs were bound by the agreement as nonsignatories because their claims were entirely derivative of the claims of the dead employee. The Court further rejected the contention that the Arbitration Agreement attached to the company's Employee Injury Benefits Plan was unenforceable because it constituted an illegal pre-injury/death waiver, reasoning that the duty to arbitrate, rather than litigate, merely took the resolution of the claims to a different forum, rather than altering their availability or viability substantively. As such, it did not amount to an illegal waiver.

In Re Golden Peanut Co.,LLC, (Tex. 2009)
No. 09-0122 (Tex. Nov. 20, 2009)(per curiam)(mandamus compelling arbitration granted) (arbitration and nonsignatories, wrongful death plaintiffs bound by arb agreement signed by worker killed on the job as derivative claimants and must arbitrate claim against employer, pre-injury waivers, forum selection vs. waiver of substantive rights)
IN RE GOLDEN PEANUT COMPANY, LLC; from Gaines County;
11th district (11 08 00215 CV, 269 SW3d 302, 11 13 08)
Pursuant to Texas Rule of Appellate Procedure 52.8(c), without hearing oral argument, the Court conditionally grants the petition for writ of mandamus.

EXCERPTS FROM THE OPINION

Texas Labor Code section 406.033(e), which prohibits pre-injury waivers of personal injury or death claims, does not invalidate the decedent’s arbitration agreement.

Golden Peanut petitioned the court of appeals for mandamus relief. The court held that the Mutual Agreement to Arbitrate was valid, was supported by consideration, and did not violate Texas Labor Code section 406.033(e), which prohibits pre-injury waivers of personal injury or wrongful death claims. 269 S.W.3d 302, 307– 09. However, without the benefit of our holding in In re Labatt Food Service, L.P., the court of appeals held that the trial court did not abuse its discretion in refusing to compel arbitration because the Drennans, as nonsignatories, were not bound by the agreement to arbitrate. Id. In Labatt, we held that a decedent's pre-death arbitration agreement binds his or her wrongful death beneficiaries because, under Texas law, the wrongful death cause of action is entirely derivative of the decedent’s rights. Id. at 646.

The Drennans contend the arbitration agreement is nevertheless unenforceable because it violates section 406.033(e) of the Texas Labor Code, which provides

[a] cause of action [against a nonsubscriber] may not be waived by an employee before the employee’s injury or death. Any agreement by an employee to waive a cause of action or any right described in Subsection (a) before the employee’s injury or death is void and unenforceable.

Tex. Lab. Code §406.033(e). Subsection (a), in turn, limits the common law defenses available to an employer who does not carry workers’ compensation insurance. Id. § 406.033(a). However, an agreement to arbitrate is a waiver of neither a cause of action nor the rights provided under section 406.033(a), but rather an agreement that those claims should be tried in a specific forum. See, e.g., Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 (1974) (holding that arbitration clauses are, “in effect, a specialized kind of forum-selection clause”). See also Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985) (stating that, “[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum”). Accordingly, section 406.033(e) does not render the arbitration agreement void.

[the hyperlinks are not part of the opinion as issued by the court]

Arbitration of Wrongful Termination Claim Ordered: In Re Polymerica, LLC (Tex. Oct. 23, 2009)

2009-10-28T20:06:00.000-07:00

TEXAS SUPREME COURT GRANTS EMPLOYER'S PETITION FOR MANDAMUS TO REQUIRE EMPLOYEE TO ARBITRATE HER WRONGFUL TERMINATION CLAIM

In Re Polymerica, L.L.C., (Tex. Oct. 23, 2009) (orig. proceeding)

Former employee required to arbitrate wrongful termination claim under arbitration agreement signed in connection with operating agreement of her employer with staffing company even though claim accrued after the operating agreement between the two companies had been terminated and the company against whom the wrongful discharge claims was asserted had not signed the dispute resolution plan containing the provision for binding arbitration.

The court of appeals below had held that only claims accruing while operating agreement was in force were subject to mandatory arbitration.

═══════════════════════════════════

In re Polymerica, LLC d/b/a Global Enterprises, Inc.

═══════════════════════════════════

PER CURIAM

Polymerica, L.L.C. d/b/a Global Enterprises, Inc. (“Global”) seeks a writ of mandamus ordering the trial court to grant its motion to compel arbitration. Global, an El Paso-based manufacturer of plastics, hired Angelica Soltero in 1998. In 2002, Global contracted with dmDickason Staff Leasing Company (“Dickason”) to manage Global’s human resources department. Soltero signed a Dispute Resolution Plan, which “appl[ies] to any disputes between dmDickason/Global Enterprises and any applicant for employment, employee or former employee, including legal claims such as discrimination, wrongful discharge or harassment.” The Plan includes a four-step process for resolving disputes, the fourth of which requires binding arbitration under the Federal Arbitration Act. The Plan notes that it is “a condition of employment and of continued employment” and that “employment or continued employment after the effective date of this Plan constitutes consent by the Employee to be bound by this Plan.”

Subsequently, Global distributed an employee handbook and required Soltero and all other employees to acknowledge its receipt. The acknowledgment recites that the handbook “takes precedence over, supercedes, and revokes any previous memo, bulletin, policy or procedure issued prior to [July 6, 2003], by Global Enterprises on any subject discussed in the Handbook.” The handbook includes a section on arbitration, which provides, in pertinent part:

All disputes between you and dmDickason/Global shall be resolved exclusively through arbitration under the Federal Arbitration Act. All employees are required to sign a Dispute Resolution Plan Agreement, as a condition of employment, during their new employee orientation on the first day of employment.

dmDickason/Global’s Dispute Resolution Plan and Arbitration Agreement is intended to provide a method for solving problems that is fair, prompt and effective.

. .

Your decision to accept employment with Global, or to continue your current employment after the effective date of the Dispute Resolution Plan, will mean that you have agreed to, and are bound by the Plan. All disputes between you and dmDickason, and/or you and Global shall be resolved exclusively through arbitration under the Federal Arbitration Act, the American Arbitration Association’s National Rules for the Resolution of Employment Disputes, and dmDickason’s dispute resolution plan that is given to all employees during their initial employment orientation with dmDickason.

On December 31, 2005, Global ended its operating agreement with Dickason and resumed full management of its human resources department. Five days later, Global terminated Soltero.

Soltero sued Global under chapter 21 of the Texas Labor Code alleging wrongful termination based on her national origin as well as retaliation for reporting alleged sexual harassment. The trial court denied Global’s motion to compel arbitration. Global sought mandamus relief, which the court of appeals granted in part. 271 S.W.3d 442. The court of appeals held that Soltero’s claims arising before Global and Dickason ended their relationship must be arbitrated, but that those arising after Global and Dickason’s operating agreement ended should not. Id. at 449. Soltero then nonsuited any claim arising before January 1, 2006 and alleged that, because her termination occurred after the Global/Dickason agreement ended, none of her claims were subject to arbitration. The trial court agreed, concluding that “all of [Soltero’s] claims in this suit arise from the wrongful termination occurring after the operating agreement between Global and Dickason ended.” The trial court lifted the previously ordered stay and placed the case on the trial docket. Global asks us to order the trial court to compel arbitration as to all of Soltero’s claims and to stay the proceedings pending arbitration.

Soltero concedes that she signed the Dispute Resolution Plan and the 2003 Handbook, but she argues that the Handbook’s statement revoking prior versions nullifies the Dispute Resolution Plan. That Handbook provision, however, does not cover contracts like the Plan’s arbitration agreement. We also note that the Handbook and the Dispute Resolution Plan were intended to work in tandem. 227 S.W.3d at 448 (“We fail to see how the handbook nullifies the arbitration agreements; rather, it appears to reference them.”); see also J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). If the 2003 Handbook’s discussion of arbitration eliminated the Dispute Resolution Plan, the Handbook’s discussion of—and multiple references to—the Plan would be meaningless. See Davidson, 128 S.W.3d at 229.

Soltero also asserts that the Dispute Resolution Plan is illusory because the 2003 Handbook could be modified at any time. See id. at 230 n.2 (noting that “most courts . . . have held that, if a party retains the unilateral, unrestricted right to terminate the arbitration agreement, it is illusory”). But the Dispute Resolution Plan has its own termination provision, which requires notice to employees and applies prospectively only. Because Global cannot “avoid its promise to arbitrate by amending the provision or terminating it altogether,” In re Halliburton Co., 80 S.W.3d 566, 570 (Tex. 2002), the Dispute Resolution Plan is not illusory.

Next, Soltero contends that because only Dickason, not Global, was a party to the Dispute Resolution Plan, Global may not enforce the Plan’s terms. Global counters that even though it did not sign the Plan, it can enforce Dickason’s agreement with Soltero under the equitable theory of direct-benefits estoppel. We need not address direct-benefits estoppel, however, because both Global and Soltero were parties to the Plan. The Plan notes that it “will apply to any disputes between dmDickason/Global Enterprises and any applicant for employment, employee or former employee.” It also defines “covered dispute” as including any claim, demand, or controversy “between Employee and dmDickason and/or Global Enterprises.” Although the Plan is signed only by Soltero and Dickason, we have never held that the employer must sign the arbitration agreement before it may insist on arbitrating a dispute with its employee. “[N]either the FAA nor Texas law requires that arbitration clauses be signed, so long as they are written and agreed to by the parties.” In re AdvancePCS Health, L.P., 172 S.W.3d 603, 606 n.5 (Tex. 2005) (noting, however, that Texas Arbitration Act requires signatures for contracts of less than $50,000 or personal injury claims); see also In re Macy’s Tex., Inc., 291 S.W.3d 418, 418 (Tex. 2009) (per curiam) (observing that “[t]he FAA contains no requirements for the form or specificity of arbitration agreements except that they be in writing; it does not even require that they be signed”); Halliburton, 80 S.W.3d at 569 (holding arbitration clause was accepted by continued employment). And while the Plan provides that it covers disputes involving former employees of the “company,” defined as “dmDickason Staff Leasing Company, Inc. together with its subsidiaries, parent companies, affiliates, officers, directors, employees, agents, representatives, shareholders and assigns,” it also states that it applies to “any disputes between dmDickason/Global Enterprises and any . . . former employee.” See In re D. Wilson Construction Co., 196 S.W.3d 774, 782 (Tex. 2006) (observing that “we resolve doubts as to the scope of the agreements in favor of coverage”); In re FirstMerit Bank, 52 S.W.3d 749, 753 (noting that “courts must resolve any doubts about an arbitration agreement’s scope in favor of arbitration”).

The court of appeals held that Global could not enforce the arbitration agreements “for those claims arising from the alleged wrongful termination occurring after the operating agreement between Global and Dickason ended.” 271 S.W.3d at 449.

The court relied on In re Neutral Posture, Inc., 135 S.W.3d 725, 730 (Tex. App.—Houston [1st Dist.] 2003, no pet.), to explain why claims post-dating the operating agreement must be tried rather than arbitrated, but we find Neutral Posture to be distinguishable. The arbitration agreement there included a condition stating that the parties must resolve disputes via arbitration only during a set five-year period, and the claim at issue was filed after the expiration of that period. Id. There is no such time limitation in the Dispute Resolution Plan, nor is there a condition that the Global and Dickason relationship must be in existence for either to enforce the Plan. Soltero’s agreement to arbitrate survives the dissolution of that relationship, and the Dispute Resolution Plan explicitly covers former employees like Soltero.

The court of appeals also noted that Global’s former human resources manager, Valerie Scott, “was unaware of any arbitration agreement after the termination of Global’s relationship with Dickason,” and “[s]he agreed that from January 2006 until July 2007, when Global created a new arbitration agreement, there was no arbitration agreement in effect.” 271 S.W.3d at 446-47. But Scott’s testimony is ambiguous on this point. She testified that she “never even thought about [whether the 2002 agreement]” was still in effect after the relationship between Global and Dickason ended. When asked whether Global employees were covered by an arbitration agreement in 2006, she answered that “[t]here was not an arbitration agreement that we — that was created by Global Enterprises” and that she was unaware of any other arbitration agreement that might have applied to Global’s employees. Even if Scott had testified that no arbitration agreement was in effect, her statements could not alter the effect of the unambiguous agreement. See In re Dillard’s Dep’t Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006) (noting that “[t]he objective intent as expressed in the agreement controls the construction of an unambiguous contract, not a party’s after-the-fact conduct”); Davidson, 128 S.W.3d at 229 (“In construing this agreement, we first determine whether it is possible to enforce the contract as written, without resort to parol evidence.”).

Soltero’s promise to arbitrate includes her claims against Global. Mandamus relief is appropriate when a party is forced to trial despite an enforceable agreement to arbitrate. In re McAllen Med. Ctr., Inc., 275 S.W.3d 458, 462 (Tex. 2008).

Accordingly, without hearing oral argument, TEX. R. APP. P. 52.8(c), we conditionally grant Global’s petition for writ of mandamus and direct the trial court to compel arbitration as to all of Soltero’s claims and stay the proceedings pending arbitration. We are confident the trial court will comply, and our writ will issue only if it does not.

Opinion Delivered: October 23, 2009

In Re Polymerica, LLC, No. 08-1064 (Tex. Oct. 23, 2009)(per curiam) (arbitration mandamus granted in employment dispute) (terminated employee required to arbitrate wrongful termination claim against her employer even though arb agreement was with staffing company whose relationship with employer had been terminated prior to employee's claim)
IN RE POLYMERICA, LLC D/B/A GLOBAL ENTERPRISES, INC.; from El Paso County; 8th district (08-08-00070-CV, 271 SW3d 442, 11-25-08) stay order of February 24, 2009 lifted
Pursuant to Texas Rule of Appellate Procedure 52.8(c), without hearing oral argument, the Court conditionally grants the petition for writ of mandamus. Per Curiam Opinion
View Electronic Briefs in IN RE POLYAMERICA, LLC D/B/A GLOBAL ENTERPRISES, INC.

OTHER BLOG ENTRIES ON IN RE POLYMERICA, LLC (Tex. Sup. Ct. 2009):
Supreme Court of Texas Compels Arbitration of Discrimination and Retaliation Claims By Russell Cawyer (Texas Employment Law Update)
Texas Supreme Court Compels Arbitration of Employment Discrimination Claims By Victoria VanBuren (Disputing)

Ratification by Acceptance of Benefits Held to Bar Challenge to Enforceability of Post-Injury Agreement to Arbitrate

2009-10-26T14:03:00.000-07:00

POST-INJURY WAIVER OF RIGHT TO LITIGATE IN FAVOR OF RESOLUTION BY ARBITRATION ENFORCED BY MANDAMUS.

Argument that post-injury arbitration agreement was unenforceable as invalid precluded by worker's acceptance and retention of benefits in the form of continuing payment of wages by employer.

In Re Weeks Marine, Inc. (Tex.App.- Houston [14th Dist.] Oct. 8, 2009)

MEMORANDUM OPINION OF THE 14TH COURT OF APPEALS

On July 1, 2009, relator Weeks Marine, Inc., filed a petition for writ of mandamus in this Court. See Tex. Gov’t Code Ann. §22.221 (Vernon 2004); see also Tex. R. App. P. 52. In the petition, Weeks Marine requests that we compel the respondent, the Honorable Steven Kirkland, presiding judge of the 215th District Court of Harris, to vacate his March 30, 2009 order denying its motion to abate and stay the proceedings and compel arbitration.

We conditionally grant the petition.

Background

On April 29, 2006, Jose Jimenez was injured while working on a dredging vessel for his employer, Weeks Marine. On May 8, 2006, several days after Jimenez had surgery for his injuries, Weeks Marine sent him a Claims Arbitration Agreement (the “Agreement”) in which he agreed to arbitrate any claims arising from his injury in exchange for Weeks Marine’s agreement to pay him advanced wages, which would be applied toward any recovery Jimenez might have against Weeks Marine.[1]

Jimenez signed the Agreement the next day. On June 29, 2006, Jimenez filed the underlying lawsuit against Weeks Marine alleging that his injuries were caused by Weeks Marine’s negligence and the unseaworthiness of the vessel. Weeks Marine formally requested that Jimenez submit his claims to arbitration pursuant to the Agreement. When Jimenez refused to do so, Weeks Marine moved to compel arbitration.

The trial court denied Weeks Marine’s motion to compel arbitration.

Weeks Marine then sought mandamus relief in this court. See In re Weeks Marine, Inc., 242 S.W.3d 849 (Tex. App.—Houston [14th Dist.] 2007, orig. proceeding [mand. denied]). We rejected Jimenez’s arguments that (1) the Agreement is not subject to the Federal Arbitration Act (“FAA”)[2] because post-injury agreements between a seaman and his employer are invalid under Section 5 of the Federal Employers’ Liability Act; (2) the Agreement does not meet the standards applied in Garret v. Moore-McCormack Co., 317 U.S. 239 (1942), to agreements that diminish a seaman’s substantive right; (3) and the Agreement is substantively unconscionable. Id. at 857–60.

With respect to Jimenez’s defense of procedural unconscionability, we concluded that the trial court was required to hold an evidentiary hearing because the parties had submitted conflicting affidavits. Id. at 862–63 (citing Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 269 (Tex. 1992) (orig. proceeding)). We granted the petition in part, but did not direct the trial court to enter an order compelling arbitration while disputed fact issues remained regarding procedural unconscionability. Id. at 863.

Weeks Marine filed a petition for writ of mandamus in the Texas Supreme Court, which was denied on October 10, 2008.

On January 27, 2009, Weeks Marine filed its first amended motion to compel arbitration and motion for an evidentiary hearing. On March 13, 2009, the trial court conducted an evidentiary hearing and, on March 30, 2009, denied Weeks Marine’s first amended motion to compel arbitration. Jimenez and Weeks Marine each filed proposed findings of fact and conclusions of law. On May 20, 2009, the trial court signed its findings of fact and conclusions of law, concluding that the Agreement is invalid because it is procedurally unconscionable and Weeks Marine procured it by use of duress. On May 27, 2009, Weeks Marine filed an amended request for additional findings of fact and conclusions of law, which the trial court denied.

Standard of Review

In the prior mandamus proceeding, this court determined that the arbitration agreement is subject to the FAA. See In re Weeks Marine, 242 S.W.3d at 853. Mandamus is the appropriate vehicle to seek relief from a trial court order denying a motion to compel arbitration under the FAA. In re Bank One, N.A., 216 S.W.3d 825, 826 (Tex. 2007) (orig. proceeding) (per curiam).[3] To be entitled to the extraordinary relief of a writ of mandamus, the relator must show that the trial court clearly abused its discretion and it has no adequate remedy by appeal. In re Team Rocket, L.P., 256 S.W.3d 257, 259 (Tex. 2008) (orig. proceeding).

[...]

The party seeking to compel arbitration under the FAA must establish that (1) a valid arbitration agreement exists, and (2) the claims at issue fall within the scope of the agreement. In re Dillard Dep't Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006) (orig. proceeding) (per curiam). Jimenez does not dispute that he signed the Agreement or that his claims are subject to the Agreement, but, instead, challenges its validity.

An agreement to arbitrate is valid under the FAA if its meets the requirements of the general contract law of the appropriate state. In re Poly-Am., L.P., 262 S.W.3d 337, 347 (Tex. 2008) (orig. proceeding). In determining the validity of an agreement to arbitrate under the FAA, courts must first apply state law governing contract formation. Id.

As with any other contract, agreements to arbitrate are valid unless grounds exist at law or in equity for revocation of the agreement. Id. at 348. Whether a valid arbitration agreement exists is a legal question subject to de novo review. In re D. Wilson Constr. Co., 196 S.W.3d at 781. Because the law favors arbitration, the burden of proving a defense to arbitration is on the party opposing arbitration. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001 (orig. proceeding).

Ratification

Weeks Marine asserts Jimenez ratified the Agreement and, therefore, any defenses to the creation of the Agreement are irrelevant.[4] In light of the trial court’s finding that the Agreement is procedurally unconscionable, Jimenez argues that Weeks Marine must establish he later developed an intent to contract.

Ratification is the adoption or confirmation by a person, with knowledge of all material facts, of a prior act which did not legally bind that person and which that person had the right to repudiate. Facciolla v. Linbeck Constr. Corp., 968 S.W.2d 435, 440 (Tex. App.—Texarkana 1998, no pet.); Enserch Corp. v. Rebich, 925 S.W.2d 75, 84 (Tex. App.—Tyler 1996, writ dism’d).

Ratification may be express or implied from a course of conduct. Isaacs v. Bishop, 249 S.W.3d 100, 110 n.9 (Tex. App.—Texarkana 2008, pet. denied); Zieben v. Platt, 786 S.W.2d 797, 802 (Tex. App.—Houston [14th Dist.] 1990, no writ). Any act inconsistent with an intent to avoid a contract has the effect of ratifying the contract. Isaacs, 249 S.W.3d at 110 n.9.Once a party ratifies a contract, it may not later withdraw its ratification and seek to avoid the contract. Mo. Pac. R.R. Co. v. Lely Dev. Corp., 86 S.W.3d 787, 792 (Tex. App.—Austin 2002, pet. dism’d).

The relevant inquiry focuses on the actions - taken by the party seeking to avoid the contract once that party became fully aware of the subject prior act which did not legally bind the party. Harris v. Archer, 134 S.W.3d 411, 427 (Tex. App.—Amarillo 2004, pet. denied). A party cannot avoid an agreement by claiming there was no intent to ratify after that party has accepted the benefits of the agreement. See Oram v. Gen. Am. Oil Co. of Tex., 513 S.W.2d 533, 534 (Tex. 1974) (per curiam) (“Whatever her mental reservations have been, her acceptance of the payments are inconsistent with the intention to avoid the lease. . . . The effect is to waive or abandon any right of rescission or of attack upon the initial invalidity, if any, of the lease.").

Whether a party has ratified a contract may be determined as a matter of law if the evidence is not controverted or is incontrovertible. Mo. Pac. R.R. Co., 86 S.W.3d at 792. Although some cases have stated ratification must be “intentional,” that intent may be inferred from the acceptance of benefits under the agreement after having full knowledge of the act that would make the agreement voidable. Williams v. City of Midland, 932 S.W.2d 679, 685 (Tex. App.—El Paso 1996, no pet.) (stating that intentional ratification may be shown by party’s acceptance of benefits under agreement, after becoming fully aware of fraud); Motel Enters., Inc. v. Nobani, 784 S.W.2d 545, 547 (Tex. App.—Houston [1st Dist.] 1990, no writ) (op. on reh’g) (stating that intent to give validity to former transaction may be inferred from existing facts and circumstances such as retaining benefits of invalid contract with full knowledge of facts that make contract invalid). The “intention” of giving validity to an earlier act is susceptible to misinterpretation and misapplication—as is shown by Jimenez’s position. Old Republic Ins. Co. v. Fuller, 919 S.W.2d 726, 728 n.1 (Tex. App.—Texarkana 1996, writ denied).

“A party’s intent is indeed important in determining the question of ratification, but not because the party must possess intent to ratify. Rather, the party must perform a voluntary, intentional act which is inconsistent with an intention of avoiding the prior agreement.” Id.

Therefore, Weeks Marine is required to demonstrate only that Jimenez performed an intentional act that was inconsistent with any intention to avoid the Agreement. Weeks Marine contends that Jimenez ratified the Agreement by accepting the benefits of the Agreement, i.e., the payment of the advanced wages.

The trial court found that relator had received approximately $20,000 from Weeks Marine under the Agreement. Jimenez signed the Agreement on May 9, 2006, and started receiving the wage payments soon thereafter. While still receiving payments, Jimenez hired an attorney and, on June 29, 2006, filed the underlying lawsuit against Weeks Marine. On September 21, 2006, Weeks Marine requested that Jimenez submit his claims to arbitration pursuant to the Agreement, but, on September 25, he refused to do so. On October 3, 2006, Weeks Marine filed its motion to compel arbitration.

It is not disputed that Jimenez continued to receive and accept advanced wage payments until they were exhausted on October 28, 2006, under the terms of the Agreement, or that he did not return any of those payments, even after he had hired an attorney and after Weeks Marine had formally requested arbitration.

Even if the Agreement were unenforceable due to procedural unconscionability or duress, Jimenez ratified it by accepting and retaining the benefits of the Agreement. See In re Border Steel, Inc., 229 S.W.3d 825, 835 (Tex. App.—El Paso 2007, orig. proceeding [mand. denied]) (“[A]ssuming for a moment that the Agreement [to arbitrate] were unenforceable, Juarez ratified it by accepting and retaining benefits under the Plan following his injury.”); In re Leadership Ford, Inc., No. 05-99-00618-CV, 1999 WL 424303, at *4 (Tex. App.—Dallas June 25, 1999, orig. proceeding) (not designated for publication) (holding employee ratified his agreement to be bound by plan and its arbitration requirements when he accepted plan’s benefits after his injury and did not return such benefits after he knew his employer intended to enforce plan’s arbitration requirements).[5]

Having accepted the advanced wage payments after becoming aware that the Agreement is allegedly invalid due to procedural unconscionability or duress, Jimenez cannot now avoid the Agreement on those grounds. See Harris, 134 S.W.3d at 427 (stating that party, who has been fraudulently induced to enter into voidable agreement engages in conduct that recognizes agreement as binding after it has become aware of fraud, ratifies agreement and waives any right to assert fraud as basis to avoid agreement). Jimenez further contends that Weeks Marine must also show that the circumstances surrounding the later contract formation were not unconscionable. Jimenez’s attorney filed the underlying lawsuit against Weeks Marine on Jimenez’s behalf less than two months after Jimenez signed the Agreement.

Because Jimenez continued to accept wage payments after he was represented by an attorney, it cannot be said that the circumstances surrounding the subsequent ratification of the Agreement were unconscionable. We sustain this issue.

Conclusion

We hold that the trial court abused its discretion in denying Weeks Marine’s motion to compel arbitration.[6] Accordingly, we conditionally grant the petition for writ of mandamus and direct the trial court to vacate its March 30, 2009 order and compel arbitration of Jimenez’s claims. The writ will issue only if the trial court fails to act in accordance with this opinion.We lift the stay issued on July 2, 2009.

/s/ John S. Anderson

CASE DETAILS AND LINKS: In Re Weeks Marine, Inc. (Tex.App.- Houston [14th Dist.] Oct. 8, 2009)(Anderson)(ratification of agreement to arbitrate by acceptance of benefits; post-injury waiver of right to litigate) (arbitration compelled by mandamus)
Decision: MOTION OR WRIT GRANTED: Opinion by Justice Anderson
Panel composition: Before Justices Anderson, Guzman and Boyce
Appellate cause no: 14-09-00580-CV Case style: In Re: Weeks Marine, Inc .
Appeal from 215th District Court of Harris County
Trial Court Judge: Steven Kirkland

Also see prior blog post on 2007 mandamus case referenced in the opinion:
In Re Weeks Marine, Inc. (Tex.App.- Houston [14th Dist.] Dec. 19, 2007)(Seymore) (arbitration mandamus)

Mandamus to Compel Arbitration Denied in the Absence of Underlying Agreement to Arbitrate

2009-10-26T13:49:00.000-07:00

In Re Ge o M et, Inc. (Tex.App.- Houston [14th Dist.] Oct. 22, 2009)

MEMORANDUM OPINION OF THE FOURTEENTH COURT OF APPEALS

On August 10, 2009, relator, GeoMet, Inc., filed a petition for writ of mandamus in this Court. See Tex. Gov’t Code Ann. §22.221 (Vernon 2004); see also Tex. R. App. P. 52. In the petition, relator asks this Court to compel the Honorable Mike Engelhart, presiding judge of the 151st District Court of Harris County, to set aside his May 18, 2009 order denying its motion to compel arbitration.

Relator has not established that the claims of real party interest, El Paso E&P Company, L.P. f/k/a El Paso Production Company, are subject to an agreement to arbitrate. See In re Dillard Dep’t Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006) (orig. proceeding) (per curiam). Therefore, relator has not established its entitlement to the extraordinary relief of a writ of mandamus.

Accordingly, we deny relator’s petition for writ of mandamus.

PER CURIAM

Panel consists of Chief Justice Hedges and Justices Seymore and Sullivan.

CASE DETAILS AND LINKS: In Re G e o M et, Inc. (Tex.App.- Houston [14th Dist.] Oct. 22, 2009)(per curiam)(arbitration mandamus denied, n o ag reement to arbitrat e established)
Disposition on appeal: MOTION OR WRIT DENIED in Per Curiam Opinion
Panel members: Chief Justice Adele Hedges, Justices Charles Seymore and Kent Sullivan
Appellate cause no: 14-09-00685-CV Style: In Re Gomet, Inc.
Appeal from 151st District Court of Harris County (Houston)
Trial Court Judge: Mike Engelhart

Supreme Court Clarifies Recent Ruling on Pre-Arbitration Discovery

2009-10-25T10:59:00.000-07:00

CAN ANY DISCOVERY BY DONE BEFORE ARBITRATION?

Recent Holding Disapproving of Pre-Arbitration Discovery "Reiterated"

Perhaps as a noble gesture to a former colleague (Craig Enoch), who is listed as one of eleven (11) attorneys for the real party in interest (O'Connor & Hewitt, Ltd.), the Texas Supreme Court last Friday issued a brief supplemental opinion on motion for re-hearing clarifying that all discovery is not necessarily precluded when a motion to compel arbitration is filed and pending.

For undivinable reasons, the original mandamus opinion in IN RE HOUSTON PIPE LINE COMPANY, ET AL (Tex. 2009) is not even cited in the one-page follow-up opinion.

See prior post: Pre-Arbitration Discovery Quashed by Texas High Court

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In re Houston Pipe Line Company, et al.

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Connor complains on rehearing that our opinion may be misinterpreted to foreclose all pre-arbitration discovery in the underlying case because we have vacated the underlying discovery order and directed the trial court to rule on the pending motion to compel arbitration.

O'Connor submits that such an interpretation would conflict with the Court's recognition here that pre-arbitration discovery is permissible when a trial court needs additional information to make its determination regarding the scope of the arbitration provision or other issues of arbitrability.

We reiterate that the discovery order below was overbroad and must be vacated, but that the trial court retains discretion to order limited discovery on issues of scope or arbitrability, if necessary.

We further reiterate that motions to compel arbitration and any reasonable discovery should be resolved without delay. O'Connor's motion for rehearing is overruled.

OPINION DELIVERED: October 23, 2009.

REPRESENTATIVES FOR THIS PARTY: O'Connor & Hewitt, Ltd.

	Attorneys
	Mr. Thomas J. Sims
	Mr. Timothy S. Perkins
	Mr. James W. Cole
	Mr. William F. Seerden
	Mr. Ronald B. Walker
	Mr. Gilberto Hinojosa
	Mr. Craig T. Enoch
	Ms. Melissa Prentice Lorber
	Mr. Neel Alan Choudhury
	Mr. Stanley B. Binion
	Mr. Alex S. Valdes

LINKS FOR ORIGINAL OPINION ON PETITION FOR WRIT OF MANDAMUS AND RELATED CASE INFORMATION FOR

In Re Houston Pipe Line Co., L.P. (Tex. 2009),
No. 08-0800 (Tex. Jul. 3, 2009) (per curiam) (arbitration mandamus) (trial court ordered to rule on motion to compel arbitration, and to vacate pre-arbitration discovery orders determined by the supreme court to be overbroad)
THE GIST: At issue in this proceeding is whether the trial court abused its discretion by permitting discovery on damage calculations and other potential defendants, instead of deciding the motion to compel arbitration. For the reasons below, we conclude the trial court should not have ordered pre-arbitration discovery, but rather should have decided the motion to compel arbitration. ... [W]e conditionally grant the writ and direct the trial court to vacate the discovery order and to rule on the motion to compel arbitration.
IN RE HOUSTON PIPE LINE COMPANY, L.P., ET AL.; from Victoria County;
13th district (13-07-00299-CV & 13-07-00362-CV, [interlocutory appeal and mandamus petition] 269 SW3d 90, 08-26-08 Opinion of the Thirteenth Court of Appeals by Chief Justice Rogelio Valdez denying mandamus relief) stay order issued October 17, 2008, lifted
Pursuant to Texas Rule of Appellate Procedure 52.8(c), without hearing oral argument, the Texas Supreme Court conditionally grants the petition for writ of mandamus.
Get this Per Curiam Opinion [4 pages in pdf]
E -Briefs in IN RE HOUSTON PIPE LINE CO., LP d/b/a HOUSTON PIPE LINE CO.