Sunday, September 2, 2007
Texas Supreme Court grants mandamus to force financial services customer to arbitrate all claims. In re Merrill Lynch Trust Co., No. 03-1059 (Tex. Aug 31, 2007)(per curiam)(arbitration mandamus, financial services) In re Merrill Lynch Trust Company FSB, Henry Medina, and Medina & Medina Group, Relators ═════════════════════= On Petition for Writ of Mandamus ══════════════════════ After Chris Pereyra recovered $2 million in a personal injury settlement, she retained Merrill Lynch, Pierce, Fenner & Smith Inc. and its employee Henry Medina as her financial advisors. Her agreement with Merrill Lynch contained a broad arbitration clause: I agree that all controversies which may arise between us, including but not limited to those involving any transaction or the construction, performance, or breach of this or any other agreement between us, whether entered into prior, on or subsequent to the date hereof, shall be determined by arbitration. Among other investments, Medina advised Pereyra to set up a trust account and name Merrill Lynch Trust Company of Texas as trustee. The sole asset of the trust is a variable life policy bought from Merrill Lynch Life Insurance Company. Both of these Merrill Lynch affiliates – ML Trust and ML Life – had their own contracts with Pereyra, neither of which contained an arbitration clause. In September 2002, Pereyra initiated an arbitration proceeding against Merrill Lynch, Merrill Lynch & Co., Henry Medina, and Medina & Medina Group, alleging breach of fiduciary duty, fraud, and other claims related to the financial services she received. Pereyra also filed this lawsuit against Medina, Medina & Medina, and ML Trust asserting several torts as well as violations of the Texas Trust Code and Texas Insurance Code. Medina and Merrill Lynch filed a motion to compel arbitration and stay litigation. The trial court denied the motion, and the court of appeals denied mandamus relief. __ S.W.3d __ (Tex. App.—San Antonio 2003). For the reasons stated in an almost identical case, In re Merrill Lynch Trust Co., __ S.W.3d__ (Tex. [Aug. 24] 2007), we hold the trial court abused its discretion in refusing to compel arbitration with the Medina parties, and in refusing to stay the litigation against ML Trust. Accordingly, without hearing oral argument, see Tex. R. App. P. 52.8(c), we conditionally grant the writ of mandamus and order the trial court to vacate its order and enter a new order in accordance with this opinion. We are confident the trial court will comply, and our writ will issue only if it does not. OPINION DELIVERED: August 31, 2007  Merrill Lynch & Co. is the parent company of Defendant Merrill Lynch, Pierce, Fenner & Smith, Inc. Medina & Medina is a trade name used by Defendant Henry Medina. ------- Texas Supreme Court Cause No. 03-1059 IN RE MERRILL LYNCH TRUST COMPANY FSB, HENRY MEDINA, AND MEDINA & MEDINA GROUP; from Duval County; 4th district (04‑03‑00424‑CV, 123 SW3d 549, 10‑29‑03)stay order issued November 20, 2003, liftedmotion for leave to file supplement brief on the merits, denied 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 (Justice Green not sitting)
Friday, August 31, 2007
Houston's Fourteenth Court of Appeals dismisses appeal because the parties ignored the court's mediation order and did report back on whether the case had settled. Luis Rey Flores v. Patricia Flores, No. 14-06-01059-CV (Tex.App.- Houston [14th Dist.] Aug. 30, 2007)(Per Curiam)(order to compel mediation)(Before Chief Justice Hedges, Justices Brock Yates and Frost) Appeal from County Court at Law of Waller County On Appeal from the County Court at Law Waller County, Texas Trial Court Cause No. 98-03-14479 M E M O R A N D U M O P I N I O N This is an appeal from a judgment signed August 3, 2006. On February 15, 2007, this court ordered the parties to mediation. On July 19, 2007, notification was transmitted to all parties of the Court's intent to dismiss the appeal for failing to comply with this court's order of May 31, 2007, which ordered the parties to conduct mediation and advise the court in writing whether the case settled within thirty days of the order. See Tex. R. App. P. 42.3(c). No response was filed. Accordingly, the appeal is ordered dismissed. PER CURIAM Judgment rendered and Memorandum Opinion filed August 30, 2007. Panel consists of Chief Justice Hedges, Justices Yates and Frost. Do Not Publish.
Thursday, August 30, 2007
In parallel proceeding Houston-based First Court of Appeals also denied mandamus relief. William E. Trump v. Vaughn Arthur Motsko, No. 01-07-00486-CV (Tex.App.- Houston [1st Dist.] Aug. 30, 2007)(Per Curiam)(Before Justices Nuchia, Hanks and Bland)(appeal dismissed, DWOJ) Appeal from Probate Court No 3 of Harris County Trial Court Cause No. 371,418-401 MEMORANDUM OPINION This is an attempted interlocutory appeal from the probate court's order denying appellant William E. Trump's motion to abate proceedings and quash his deposition. Trump alleges that conducting the deposition violates the Federal Arbitration Act. See 9 U.S.C. §§ 1-16 (2000). Trump also filed a petition for a writ of mandamus in this Court, which was denied. In re Trump, No. 01-07-00485-CV (Tex. App.--Houston [1st Dist.] June 18, 2007, orig. proceeding) (mem. op.). There is no statute authorizing an interlocutory appeal from an order granting or denying a request to compel arbitration under the Federal Arbitration Act. Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992). The probate court's order is also not a final, appealable order. See Tex. Prob. Code Ann. § 5(g) (Vernon Supp. 2006). We dismiss the appeal for want of jurisdiction. The Clerk of this Court is directed to issue the mandate immediately. See Tex. R. App. P. 18.6. PER CURIAM Panel consists of Justices Nuchia, Hanks, and Bland.
Sunday, August 26, 2007
In re Merrill Lynch Trust Company FSB, Merrill Lynch Life Insurance Company, and Henry Medina, Relators, No. 04-0865 (Tex. August 24, 2007)(Brister) ══════════════════════ On Petition for Writ of Mandamus ══════════════════════ Argued March 23, 2005 Justice Brister delivered the opinion of the Court, in which Chief Justice Jefferson, Justice Green, and Justice Willett joined, and in which Justice Hecht and Justice Medina joined as to Parts I, III-A, and IV, Justice O’Neill joined as to Parts I, III, and IV, and Justice Wainwright and Justice Johnson joined as to Parts I, II, and IV. Justice Hecht filed an opinion concurring in part and dissenting in part, in which Justice Medina joined, and in Part I of which Justice O’Neill joined. Justice Johnson filed an opinion concurring in part and dissenting in part, in which Justice Wainwright joined. In considering referral to arbitration, the question is not which forum is quicker, cheaper, or more convenient, but which one the parties picked. Here, the plaintiffs agreed to arbitrate with Merrill Lynch, but not the employee or affiliates they have sued. Because their claims against the employee are in substance claims against Merrill Lynch, we hold those claims must be arbitrated. Because there is no contract theory that ties the affiliates to the same agreement, we hold those claims do not. And to the extent these separate proceedings overlap, we hold the litigation must be stayed until the arbitration is completed. I. Background Juan Alaniz was severely injured in a refinery explosion. He and his wife filed suit and recovered a settlement of more than $2 million. To preserve this recovery, they engaged Merrill Lynch, Pierce, Fenner & Smith Inc. through its employee Henry Medina to provide financial and investment services. In September 1993, the Alanizes opened a series of cash and investment accounts with Merrill Lynch. For each account, the Alanizes agreed to arbitrate any disputes that might arise with Merrill Lynch: I agree that all controversies which may arise between us, including but not limited to those involving any transaction or the construction, performance, or breach of this or any other agreement between us, whether entered into prior, on or subsequent to the date hereof, shall be determined by arbitration. As a part of their financial plan, the Alanizes set up an irrevocable life insurance trust with Merrill Lynch Trust Company as trustee, which then purchased a variable life policy from Merrill Lynch Life Insurance Company. Both of these Merrill Lynch affiliates had their own contracts with the Alanizes, neither of which contained an arbitration clause. The Alanizes transferred more than $200,000 from their Merrill Lynch accounts to ML Trust to pay premiums to ML Life. ML Life paid a commission on the sale to Merrill Lynch, which then paid Medina, a licensed agent for ML Life and other insurers. In April 2003, the Alanizes sued ML Trust, ML Life, and Medina — but not Merrill Lynch — alleging a dozen multifarious claims, all related to the insurance trust, and all asserted against the defendants collectively without differentiating the actions of each. The defendants moved to stay the litigation and compel arbitration, which the trial court denied. The Thirteenth Court of Appeals denied mandamus relief. The parties agree that the Federal Arbitration Act applies. Accordingly, mandamus relief is appropriate if the trial court abused its discretion in failing to stay the litigation and compel arbitration. II. Arbitration with Corporate Employees: Henry Medina The claims against Merrill Lynch’s employee, Henry Medina, must go to arbitration for two reasons. First, “parties to an arbitration agreement may not evade arbitration through artful pleading, such as by naming individual agents of the party to the arbitration clause and suing them in their individual capacity.” Corporations can act only through human agents, and many business-related torts can be brought against either a corporation or its employees. If a plaintiff’s choice between suing the corporation or suing the employees determines whether an arbitration agreement is binding, then such agreements have been rendered illusory on one side. As we recently noted, this would not place arbitration agreements on equal footing with other contracts: When contracting parties agree to arbitrate all disputes “under or with respect to” a contract (as they did here), they generally intend to include disputes about their agents’ actions because “[a]s a general rule, the actions of a corporate agent on behalf of the corporation are deemed the corporation’s acts.” If arbitration clauses only apply to contractual signatories, then this intent can only be accomplished by having every officer and agent (and every affiliate and its officers and agents) either sign the contract or be listed as a third-party beneficiary. This would not place such clauses on an equal footing with all other parts of a corporate contract. Second, the substance of the plaintiffs’ suit here is against Merrill Lynch, even though it has not been named as a party. While the plaintiffs allege they are suing Medina only for his actions while wearing “the hat of the insurance agent,” brokers do not change employers every time they sell someone else’s product. The commission on this insurance transaction was paid directly to Merrill Lynch, not Medina; if the latter was acting as an agent for ML Life or ML Trust, then so was the former. As there is no question Medina was acting in the course and scope of his employment, if he is liable for the torts alleged against him, then Merrill Lynch is too. While the plaintiffs have not sued Merrill Lynch yet, they have not “disavowed” such claims (as Justice Hecht asserts). They have never so stipulated under oath or in their pleadings, and their appellate brief says only that the defendants have not shown that Merrill Lynch has any potential liability, thus carefully leaving the door open for the plaintiffs to pursue precisely that option. Nor do the plaintiffs’ trial court pleadings “focus solely” on the insurance sale (again per Justice Hecht); to the contrary, they focus entirely on the alleged misrepresentations, omissions, and fiduciary breaches leading up to it. While only ML Trust might be liable for the transaction itself, Medina and his employer would both be liable for the preliminary tort and statutory claims the plaintiffs have actually alleged. Finally, the plaintiffs also assert their arbitration agreements were illusory as Merrill Lynch could modify or rescind those agreements at any time. As this defense relates to the parties’ entire contract rather than the arbitration clause alone, it is a question for the arbitrators. Additionally, the plaintiffs’ testimony that they failed to read the arbitration provisions until this dispute arose is not a valid ground for setting aside their signed agreements. We do not hold today that employees can always invoke an employer’s arbitration agreement. When actions outside the course of employment cannot be attributed to an employer, the latter would have no need to invoke its arbitration protections. But under both Texas and federal law, arbitrability turns on the substance of a claim, not artful pleading. Because the plaintiffs’ claims against Medina are in substance claims against Merrill Lynch, they must abide by their agreement to arbitrate those claims. III. Arbitration with Affiliates: ML Life and ML Trust A. The Agreements Merrill Lynch’s cash management agreements referred to some affiliates and third parties, but not ML Trust or ML Life. Those affiliates signed their own contracts with the plaintiffs, which had no arbitration clauses. As allowing these affiliates to compel arbitration would effectively rewrite their contracts, we hold they cannot. “A corporate relationship is generally not enough to bind a nonsignatory to an arbitration agreement.” Unlike a corporation and its employees, corporate affiliates are generally created to separate the businesses, liabilities, and contracts of each. Thus, a contract with one corporation — including a contract to arbitrate disputes — is generally not a contract with any other corporate affiliates. Of course, if two corporations are actually operated as one, many courts recognize an alter-ego exception that will bind one to the arbitration agreements of the other. But there are no such allegations here, and the exception itself illustrates that arbitration agreements generally do not apply to all corporate affiliates. Thus, we hold ML Trust and ML Life are not covered by the plaintiffs’ arbitration agreements with Merrill Lynch. B. Concerted-Misconduct Equitable Estoppel ML Life and ML Trust also assert that they can invoke Merrill Lynch’s arbitration agreements through an estoppel theory based on substantially interdependent and concerted misconduct. Estoppel is one of five or six instances in which the federal circuit courts require arbitration with nonsignatories. We too have applied estoppel when nonsignatories seek a direct benefit from a contract with an arbitration clause. But we have never compelled arbitration based solely on substantially interdependent and concerted misconduct, and for several reasons we decline to do so here. First, the United States Supreme Court has never construed the Federal Arbitration Act to go this far. It has repeatedly emphasized that arbitration “is a matter of consent, not coercion,” that the Act “does not require parties to arbitrate when they have not agreed to do so,” and its purpose is to make arbitration agreements “as enforceable as other contracts, but not more so.” Thus, arbitration is not required merely because two claims arise from the same transaction, as the Court made clear in Moses H. Cone Memorial Hospital v. Mercury Construction Corp. In that case, a hospital sued a contractor (with whom it had an arbitration agreement) and an architect (with whom it did not) alleging the two had improperly agreed to waive the deadline for claiming extra construction costs without the hospital’s consent. Despite these allegations of substantially interdependent and joint misconduct, the court held that the nonsignatory architect could not be forced into arbitration: The Hospital points out that it has two substantive disputes here — one with Mercury, concerning Mercury’s claim for delay and impact costs, and the other with the Architect, concerning the Hospital’s claim for indemnity for any liability it may have to Mercury. The latter dispute cannot be sent to arbitration without the Architect’s consent, since there is no arbitration agreement between the Hospital and the Architect. Recognizing the “misfortune” inherent in resolving these related issues in two different places, the Court nevertheless held that considerations of efficiency and convenience cannot override either a signatory’s arbitration agreement or a nonsignatory’s right to a jury trial: It is true, therefore, that if Mercury obtains an arbitration order for its dispute, the Hospital will be forced to resolve these related disputes in different forums. That misfortune, however, is not the result of any choice between the federal and state courts; it occurs because the relevant federal law requires piecemeal resolution when necessary to give effect to an arbitration agreement. Under the Arbitration Act, an arbitration agreement must be enforced notwithstanding the presence of other persons who are parties to the underlying dispute but not to the arbitration agreement. If the dispute between Mercury and the Hospital is arbitrable under the Act, then the Hospital’s two disputes will be resolved separately – one in arbitration, and the other (if at all) in state-court litigation. While the Fifth Circuit has recognized concerted-misconduct estoppel, the theory is far from well-settled in the federal courts. Despite hundreds of federal appeals involving arbitration, it appears in only 10 reported opinions. In the two leading cases, Grigson v. Creative Artists Agency L.L.C. and MS Dealer Service Corp. v. Franklin, the Fifth and Eleventh Circuits held that both direct-benefits and concerted-misconduct estoppel were present, so it is unclear what the latter theory added to the result. Of the remainder, the theory was found inapplicable in 4, and it was not reached in 2 more. In only 2 cases did the result hinge on the exception — and in those the Fifth Circuit compelled arbitration in one and refused to do so in the other. In the latter case, Hill v. G E Power Systems, Inc., the Fifth Circuit found that “Grigson’s second prong is met” (direct-benefits being the first estoppel prong and concerted-misconduct the second), and at the same time that “the district court did not abuse its discretion” in refusing to compel arbitration because “the district court is better equipped to make the call than this court, and we do not lightly override that discretion.” But the right to a jury trial is not discretionary. Nor is the right to have an arbitration contract enforced. If the parties have not agreed to arbitration, no trial court has discretion to make them go; if they have agreed to arbitration, no trial court has discretion to let one wriggle out. This Court has already rejected the argument that equitable estoppel allows trial judges to send cases to arbitration or litigation depending on which they think would be fair. It is true that other federal circuit courts have estopped signatory plaintiffs from avoiding arbitration with nonsignatories using an “intertwined-claims” test. For example, the Second Circuit has compelled arbitration when a nonsignatory defendant has a “close relationship” with one of the signatories and the claims are “intimately founded in and intertwined with the underlying contract obligations.” But the “close relationship” requirement has generally limited this exception to instances of strategic pleading by a signatory who, in lieu of suing the other party for breach, instead sues that party’s nonsignatory principals or agents for pulling the strings. As discussed above with reference to employees, allowing litigation to proceed that is in substance against a signatory though in form against a nonsignatory would allow indirectly what cannot be done directly. By contrast, the concerted-misconduct test has no “close relationship” component, and would sweep independent entities and even complete strangers into arbitration agreements. Similarly, while Texas law has long recognized that nonparties may be bound to a contract under traditional contract rules like agency or alter ego, there has never been such a rule for concerted misconduct. Conspiracy is a tort, not a rule of contract law. And while conspirators consent to accomplish an unlawful act, that does not mean they impliedly consent to each other’s arbitration agreements. As other contracts do not become binding on nonparties due to concerted misconduct, allowing arbitration contracts to become binding on that basis would make them easier to enforce than other contracts, contrary to the Arbitration Act’s purpose. Until the United States Supreme Court clarifies whether concerted-misconduct estoppel correctly reflects federal law, or even whether federal or state law governs the issue, today’s decision must remain somewhat tentative. But we find nothing in Texas contract law, and no settled principles of federal arbitration law, that would require the plaintiffs to arbitrate with Merrill Lynch’s affiliates. IV. Stay of Litigation Pending Arbitration In addition to moving to compel arbitration, ML Trust and ML Life moved to stay the plaintiffs’ litigation against them. Assuming the same issues must be decided both in arbitration (against Medina) and in court (against the affiliates), we hold the latter must be stayed until the former is completed. Trial judges cannot deny a party its day in court, but they have always had wide discretion to say when that day will be. Both the Federal and Texas Arbitration Acts require courts to stay litigation of issues that are subject to arbitration. Without such a stay, arbitration would no longer be the “rapid, inexpensive alternative to traditional litigation” it was intended to be, so long as one could find a trial judge willing to let the litigation proceed for awhile. The Federal Arbitration Act was passed precisely to overcome such judicial hostility. Thus, when an issue is pending in both arbitration and litigation, the Federal Arbitration Act generally requires the arbitration to go forward first; arbitration “should be given priority to the extent it is likely to resolve issues material to this lawsuit.” This has been the practice in all the federal courts. As Judge Posner has noted: [There] are cases in which a party to an arbitration agreement, trying to get around it, sues not only the other party to the agreement but some related party with which it has no arbitration agreement, in the hope that the claim against the other party will be adjudicated first and have preclusive effect in the arbitration. Such a maneuver should not be allowed to succeed . . . [and] would require the court to stay the proceedings before it and let the arbitration go forward unimpeded. We encountered the problem in different circumstances in In re Kellogg Brown & Root, Inc., in which a nonsignatory’s litigation of a lien claim was abated while arbitrators decided who owned the equipment to which the lien claim attached. Once arbitration was completed, we held the litigation could proceed. The case illustrates one of many circumstances in which litigation must be abated to ensure that an issue two parties have agreed to arbitrate is not decided instead in collateral litigation. In this case, if the alleged misrepresentations and omissions by Medina must be arbitrated, that proceeding must be given priority so that it is not rendered moot by deciding the same issues in court. After the arbitration is completed, the plaintiffs’ claims against ML Trust and ML Life can then be litigated (to the extent they survive) without infringing the arbitration agreement. In the interim, a stay of litigation ensures that the Alanizes do not “both have [their] contract and defeat it too.” * * * Accordingly, we hold the trial court abused its discretion in failing to compel arbitration of the plaintiffs’ claims against Henry Medina, and in failing to stay their litigation against ML Trust and ML Life until that arbitration was concluded. We conditionally grant the writ of mandamus and order the trial court to vacate its order and enter a new order in accordance with this opinion. We are confident the trial court will comply, and our writ will issue only if it does not. __________________________________ Scott Brister Justice OPINION DELIVERED: August 24, 2007  See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947 (1995).  159 S.W.3d 162, 165.  See 9 U.S.C. §§ 1-16.  In re D. Wilson Constr. Co., 196 S.W.3d 774, 780 (Tex. 2006); In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005).  Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1318 (11th Cir. 2002) (internal quotations omitted); accord, Pritzker v. Merrill Lynch, Inc., 7 F.3d 1110, 1121 (3d Cir. 1993) (“Because a principal is bound under the terms of a valid arbitration clause, its agents, employees, and representatives are also covered under the terms of such agreements.”); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 762-63 (Tex. 2006).  See, e.g., Miller v. Keyser, 90 S.W.3d 712, 717 (Tex. 2002) (noting “Texas’ longstanding rule that a corporate agent is personally liable for his own fraudulent or tortious acts”); Liberty Mut. Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482, 486 (Tex. 1998) (holding both insurer and its employees may be liable for Insurance Code violations); Weitzel v. Barnes, 691 S.W.2d 598, 601 (Tex. 1985) (holding both corporation and its individual agents may be liable under DTPA); Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d 369, 375 (Tex. 1984) (holding both corporation and its agents may be liable for defamation).  See In re Dillard Dep’t Stores, Inc., 198 S.W.3d 778, 782 (Tex. 2006); In re Halliburton Co., 80 S.W.3d 566, 569 (Tex. 2002).  In re Vesta, 192 S.W.3d at 762 (quoting Holloway v. Skinner, 898 S.W.2d 793, 795 (Tex. 1995) (citation omitted)).  See Minyard Food Stores, Inc. v. Goodman, 80 S.W.3d 573, 577 (Tex. 2002) (“The general rule is that an employer is liable for its employee’s tort only when the tortious act falls within the scope of the employee’s general authority in furtherance of the employer’s business and for the accomplishment of the object for which the employee was hired.”); GTE Sw., Inc. v. Bruce, 998 S.W.2d 605, 617–18 (Tex. 1999) (“Generally, a master is vicariously liable for the torts of its servants committed in the course and scope of their employment. This is true even though the employee’s tort is intentional when the act, although not specifically authorized by the employer, is closely connected with the servant’s authorized duties.”) (citations omitted).  See, e.g., Hennigan v. I.P. Petroleum Co., 858 S.W.2d 371, 372 (Tex. 1993) (per curiam) (holding plaintiff did not abandon gender discrimination claim by testifying at her deposition that she did not believe she had been fired because of her gender). Accordingly, such a statement is neither a judicial admission (“a formal waiver of proof usually found in pleadings or the stipulations of the parties”), nor even a quasi-admission (“[a] party’s testimonial declaration” that is evidentiary but “not conclusive”). Id.  See, e.g., Liberty Mut. Ins. Co., 966 S.W.2d at 486 (holding both insurer and its employees may be liable for Insurance Code violations); Weitzel, 691 S.W.2d at 601 (holding both corporation and its individual agents may be liable under DTPA); see also Tex. Rev. Civ. Stat. art. 581-33, §§ A(2), F(1) (holding one who offers securities and those who directly or indirectly control them liable for securities fraud).  See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449 (2006) (“We reaffirm today that . . . a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.”); In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001).  See In re AdvancePCS Health L.P., 172 S.W.3d 603, 608 (Tex. 2005); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90 (Tex. 1996) (“Gonzalez’ failure to read the agreement does not excuse him from arbitration. We presume a party, like Gonzalez, who has the opportunity to read an arbitration agreement and signs it, knows its contents.”).  See, e.g., McCarthy v. Azure, 22 F.3d 351, 362-63 (1st Cir. 1994) (refusing to allow nonsignatory owner acting in his own interest from invoking arbitration clause signed by his wholly owned corporation).  See Am. Bankers Ins. Group, Inc. v. Long, 453 F.3d 623, 626-28 (4th Cir. 2006); Ford v. NYLCare Health Plans of Gulf Coast, Inc., 141 F.3d 243, 250 (5th Cir. 1998); Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 757–58 (11th Cir. 1993); Bonny v. Soc’y of Lloyd’s, 3 F.3d 156, 162 (7th Cir. 1993); Letizia v. Prudential Bache Sec., Inc., 802 F.2d 1185, 1188 n.4 (9th Cir. 1986); In re Weekley Homes, L.P., 180 S.W.3d 127, 131–32 (Tex. 2005).  We disagree with the plaintiffs’ alternative argument that if New York law applies, this result would be any different. Compare Hirschfeld Prods. v. Mirvish, 630 N.Y.S.2d 726, 728 (N.Y. App. Div. 1995) (“The attempt to distinguish officers and directors from the corporation they represent for the purposes of evading an arbitration provision is contrary to the established policy of this State . . . . If it were otherwise, it would be too easy to circumvent the agreement by naming individuals as defendants instead of the entity Agents themselves.”) (quotations and citations omitted), with In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 762 (Tex. 2006) (“When contracting parties agree to arbitrate all disputes . . . they generally intend to include disputes about their agents’ actions because ‘as a general rule, the actions of a corporate agent on behalf of the corporation are deemed the corporation’s acts.’ If arbitration clauses only apply to contractual signatories, then this intent can only be accomplished by having every officer and agent (and every affiliate and its officers and agents) either sign the contract or be listed as a third-party beneficiary. This would not place such clauses on an equal footing with all other parts of a corporate contract.”) (citation omitted).  Zurich Am. Ins. Co. v. Watts Indus., Inc., 417 F.3d 682, 688 (7th Cir. 2005).  See, e.g., S. Union Co. v. City of Edinburg, 129 S.W.3d 74, 86 (Tex. 2003) (holding franchise tax agreement inapplicable to corporate affiliate under single-business-enterprise theory); Bell Oil & Gas Co. v. Allied Chem. Corp., 431 S.W.2d 336, 341 (Tex. 1968) (holding corporation not liable for affiliate’s debts).  See, e.g., Am. Bankers, 453 F.3d at 627 n.3; Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 447 F.3d 411, 416 (5th Cir. 2006); Comer v. Micor, Inc., 436 F.3d 1098, 1101 (9th Cir. 2006).  See Bridas, 447 F.3d at 415; Comer, 436 F.3d at 1101; Zurich Am., 417 F.3d at 687; Denney v. BDO Seidman, L.L.P., 412 F.3d 58, 71 (2d Cir. 2005); Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005); InterGen N.V. v. Grina, 344 F.3d 134, 145-46 (1st Cir. 2003); Javitch v. First Union Sec., Inc., 315 F.3d 619, 629 (6th Cir. 2003); Employers Ins. of Wausau v. Bright Metal Specialties, Inc., 251 F.3d 1316, 1322 (11th Cir. 2001); Int’l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 416-17 (4th Cir. 2000); see also In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005).  See In re Weekley Homes, L.P., 180 S.W.3d 127, 131–32 (Tex. 2005); Kellogg, 166 S.W.3d at 741.  We noted allegations of concerted misconduct in Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 306–07 (Tex. 2006), but compelled arbitration because the plaintiff’s claims depended on the underlying agreement, and thus were governed by principles of direct-benefits estoppel.  Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989).  EEOC v. Waffle House, Inc., 534 U.S. 279, 293 (2002) (quoting Volt, 489 U.S. at 478).  Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967).  460 U.S. 1 (1983).  Id. at 19-20.  Id. at 20 (emphasis in original).  “The federal courts of appeal are currently publishing more than one hundred cases per year substantially dealing with arbitration.” Frank Z. LaForge, Note, Inequitable Estoppel: Arbitrating with Nonsignatory Defendants Under Grigson v. Creative Artists, 84 Tex. L. Rev. 225, 225 (2005).  210 F.3d 524, 528-31 (5th Cir. 2000).  177 F.3d 942, 947 (11th Cir. 1999).  Though the Grigson court stated that equitable estoppel “is much more readily applicable when the case presents both independent bases,” 210 F.3d at 527, if the two bases are independent and each alone is sufficient, it is hard to see why either is made “more applicable” by having both. See also In re Humana Inc. Managed Care Litig., 285 F.3d 971, 976 (11th Cir. 2002) (“The plaintiff’s actual dependance on the underlying contract in making out the claim against the nonsignatory defendant is therefore always the sine qua non of an appropriate situation for applying equitable estoppel.”).  See Brantley v. Republic Mortgage Ins. Co., 424 F.3d 392, 396 (4th Cir. 2005); Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347, 360-61 (5th Cir. 2003); Westmoreland v. Sadoux, 299 F.3d 462, 467 (5th Cir. 2002); Humana, 285 F.3d at 976.  See Am. Bankers Ins. Group, Inc. v. Long, 453 F.3d 623, 627 n.3 (4th Cir. 2006); Am. Heritage Life Ins. Co. v. Orr, 294 F.3d 702, 706 (5th Cir. 2002) (noting that exception was applied by district court but that appeal addressed other issues).  See Brown v. Pac. Life Ins. Co., 462 F.3d 384, 399 (5th Cir. 2006) (compelling arbitration); Hill v. G E Power Sys., Inc., 282 F.3d 343, 349 (5th Cir. 2002) (refusing to compel arbitration).  Hill, 282 F.3d at 349.  Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 225 (1987) (citation omitted) (noting that Federal Arbitration Act was specifically enacted to overcome “judicial hostility to arbitration agreements”).  See Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 308 (Tex. 2006) (“WMCO also argues that the trial court had discretion not to apply equitable estoppel, even if it could be applied in the same circumstances. We disagree. A trial court has no ‘discretion’ in determining what the law is or applying the law to the facts.”) (internal quotations omitted).  Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 779 (2d Cir. 1995) (internal citations omitted); accord, Denney v. BDO Seidman, L.L.P., 412 F.3d 58, 70 (2d Cir. 2005); JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 177 (2d Cir. 2004); Astra Oil Co., v. Rover Navigation, Ltd., 344 F.3d 276, 279 (2d Cir. 2003); Choctaw Generation Ltd. P’ship v. Am. Home Assurance Co., 271 F.3d 403, 406 (2d Cir. 2001); Smith/Enron Cogeneration Ltd. v. Smith Cogeneration Int’l, Inc., 198 F.3d 88, 97–98 (2d Cir. 1999).  See CD Partners, LLC v. Grizzle, 424 F.3d 795, 799 (8th Cir. 2005) (allowing nonsignatory owners of signatory franchisor to invoke its arbitration clause); JLM Indus., 387 F.3d at 177 (allowing nonsignatory owners of subsidiary to invoke its arbitration clauses); Astra, 344 F.3d at 279 (allowing nonsignatory affiliate that acted as agent for signatory corporation to invoke its arbitration clause); Smith/Enron, 198 F.3d at 97–98 (allowing nonsignatory affiliates and assignors of signatory corporations to invoke their arbitration clauses); Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 758 (11th Cir. 1993) (allowing nonsignatory parent to invoke subsidiary’s arbitration clause); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 321 (4th Cir. 1988) (same); see also E.I. DuPont de Nemours and Co. v. Rhone Poulenc Fiber and Resin Intermediates, S.A.S., 269 F.3d 187, 201 (3d Cir. 2001) (“In essence, a non-signatory voluntarily pierces its own veil to arbitrate claims against a signatory that are derivative of its corporate-subsidiary’s claims against the same signatory.”); cf. Choctaw Generation, 271 F.3d at 406 (allowing nonsignatory surety to invoke debtor’s arbitration clause); but see Denney, 412 F.3d at 70 (allowing unaffiliated nonsignatories to invoke arbitration by estoppel); McCarthy v. Azure, 22 F.3d 351, 362–63 (1st Cir. 1994) (refusing to allow nonsignatory owner of signatory corporation to invoke its arbitration clause).  Cf. In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006) (“We agree with Cashion that he would not be required to arbitrate a tortious interference claim against a complete stranger to his contract and its arbitration clause.”).  See In re Weekley Homes, L.P., 180 S.W.3d 127, 131 (Tex. 2005).  See Tilton v. Marshall, 925 S.W.2d 672, 680–81 (Tex. 1996).  See Triplex Commc’ns, Inc. v. Riley, 900 S.W.2d 716, 719 (Tex. 1995).  See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n. 12 (1967); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 740 (Tex. 2005).  See Weekley, 180 S.W.3d at 130; Kellogg, 166 S.W.3d at 738–39.  9 U.S.C. § 3; Tex. Civ. Prac. & Rem. Code §§ 171.025, 172.174.  Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272–73 (Tex. 1992).  Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 225–26 (1987).  AgGrow Oils, L.L.C. v. Nat’l Union Fire Ins. Co., 242 F.3d 777, 783 (8th Cir. 2001).  See, e.g., Volkswagen Of Am., Inc. v. Sud’s Of Peoria, Inc., 474 F.3d 966, 972 (7th Cir. 2007); Waste Mgmt., Inc. v. Residuos Industriales Multiquim, S.A. de C.V., 372 F.3d 339, 345 (5th Cir. 2004); Hill v. G E Power Sys., Inc., 282 F.3d 343, 348 (5th Cir. 2002); Harvey v. Joyce, 199 F.3d 790, 796 (5th Cir. 2000); Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 329 (5th Cir. 1999); WorldCrisa Corp. v. Armstrong, 129 F.3d 71, 76 (2d Cir. 1997); IDS Life Ins. Co. v. SunAmerica, Inc., 103 F.3d 524, 530 (7th Cir. 1996); Sam Reisfeld & Son Import Co. v. S.A. Eteco, 530 F.2d 679, 681 (5th Cir. 1976).  IDS Life Ins. Co., 103 F.3d at 530.  166 S.W.3d 732 (Tex. 2005).  Id. at 742.  In re Weekley Homes, L.P., 180 S.W.3d 127, 135 (Tex. 2005).
In re Kaplan Higher Educ. Corp., No. 06-0072 (Tex. Aug. 24, 2007)(per curiam)(arbitration mandamus)(students compelled to arbitrate fraudulent inducement claim against vocational school; may not avoid arbitration clause by suing school's agents) In re Kaplan Higher Education Corporation and Leticia Ventura, Relators ═══════════════════════════════════════════════ On Petition for Writ of Mandamus ═══════════════════════════════════════════════ A vocational college and 45 of its students agreed to arbitrate any dispute “arising from or relating to” their enrollment agreement. Claiming they were fraudulently induced to sign up, the students nevertheless seek to avoid arbitration by pursuing their claims only against two nonsignatories. The parties agree the Federal Arbitration Act applies. See 9 U.S.C. § 1 et. seq. The trial court refused to compel arbitration, and the Thirteenth Court of Appeals denied mandamus relief. We conditionally grant it. See In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) (“Mandamus relief is proper to enforce arbitration agreements governed by the FAA.”). The students enrolled in an electrician’s program at the San Antonio College of Medical and Dental Assistants – McAllen Branch (“the College”), a wholly-owned subsidiary of Kaplan Higher Education Corporation. They allege they were fraudulently induced to enroll by assurances that upon graduation they would be eligible for licenses as journeymen or master electricians. Each student signed an enrollment agreement detailing tuition, rules, and graduation requirements, and requiring them to arbitrate “[a]ny controversy or claim arising out of, or relating to, this Agreement.” Initially, the plaintiffs filed suit against Kaplan, the College, Frank Jennings (the College’s president) and Leticia Ventura (the College’s admissions director). When the defendants moved for arbitration, the plaintiffs dropped their claims against the College and Jennings (both signatories to the agreements) as well as all claims of joint venture or enterprise, leaving only claims against Kaplan and Ventura (both nonsignatories). Although alleged in various forms, the substance of the students’ claim was fraudulent inducement, as they seek refunds of tuition and other costs they would not have incurred had they not been induced to sign up. See Weekley, 180 S.W.3d at 131–32 (stating that arbitrability “turns on the substance of the claim, not artful pleading”); Haase v. Glazner, 62 S.W.3d 795, 797– 800 (Tex. 2001) (distinguishing fraudulent inducement from other fraud claims as it “presupposes that a party has been induced to enter a contract”). We have held that such claims fall within an agreement to arbitrate all disputes “involving” an underlying contract. See In re J.D. Edwards World Solutions Co., 87 S.W.3d 546, 550–51 (Tex. 2002). Clearly, the students’ complaints arise out of and relate to their enrollment agreements. We disagree with Kaplan that the students are suing on those agreements. “Claims must be brought on the contract (and arbitrated) if liability arises solely from the contract . . . . [C]laims can be brought in tort (and in court) if liability arises from general obligations imposed by law.” Weekley, 180 S.W.3d at 132. Claims of fraudulent inducement arise from general obligations imposed by law, not the underlying contract. Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 304 (Tex. 2006) (“The duty not to fraudulently procure a contract arises from the general obligations of law rather than the contract itself, and may be asserted in tort even if the only damages are economic.”); Formosa Plastics Corp. USA v. Presidio Eng’rs and Contractors, Inc., 960 S.W.2d 41, 46 (Tex. 1998) (“[I]t is well established that the legal duty not to fraudulently procure a contract is separate and independent from the duties established by the contract itself.”). Nevertheless, the agents of a signatory may sometimes invoke an arbitration clause even if they themselves are nonsignatories and a claimant is not suing on the contract. Thus, if two companies sign a contract to arbitrate disputes, one cannot avoid it by recasting a contract dispute as a tortious interference claim against an owner, officer, agent, or affiliate of the other. In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 762–63 (Tex. 2006) (per curiam). “Every contract claim against a corporation could be recast as a tortious interference claim against its agents,” and it is impractical to require every corporate agent to sign or be listed in every contract. Id. at 762. As a contracting party generally cannot avoid unfavorable clauses by suing the other party’s agents, this rule is necessary “‘to place arbitration agreements on equal footing with other contracts’.” Id. (quoting E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 293 (2002)). For the same reasons, the same rule must apply when a party to an arbitration contract seeks to avoid it by pleading a contract dispute as fraudulent inducement by an officer, agent, or affiliate of the other. Here too, almost every contract claim against a corporation could be recast as a fraudulent inducement claim against the agents or employees who took part in the negotiations preceding it. If such arbitration clauses are enforceable only if every officer, employee, agent, or affiliate signs or is listed in the contract, they would be more easily avoided than other contract clauses. Further, the students’ agreements with the College require arbitration here because the College will be liable for the judgment if their suit is successful. The Texas Education Code requires vocational schools to provide full refunds if enrollment was procured by representations “by the owner or representatives of the school.” Tex. Educ. Code § 132.061(a)(2); see also Minyard Food Stores, Inc. v. Goodman, 80 S.W.3d 573, 577 (Tex. 2002) (stating that employers are generally liable for employees’ torts committed in course, scope, and furtherance of employer’s business). The enrollment agreements specifically provided for tuition refunds in the event enrollment was induced by misrepresentation. If the College’s liability for such refunds (about $10,000 for each student) can be decided in court by suing its agents, then the arbitration contract has been effectively abrogated. The students argue that Ventura and the other admissions officers to whom they spoke were not employees of the College but of Kaplan. But the undisputed facts (and the students’ own pleadings) show that regardless of who paid them, they were acting as agents of the College when they advertised, recruited, and procured contracts on its behalf, and that the College itself will have to answer for any misrepresentations they made in doing so. The students also assert that Kaplan cannot seek arbitration because of “unclean hands” in its dealings with them. But this defense pertains to the enrollment agreement in general rather than the arbitration clause in particular, and thus must be arbitrated. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449 (2006) (“We reaffirm today that . . . a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.”); In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001). We emphasize again today that arbitration clauses do not automatically cover all corporate agents or affiliates. See In re Merrill Lynch Trust Co., __ S.W.3d __ , __ (Tex. 2007); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006) (per curiam). Like other contracts, arbitration agreements “are enforced according to their terms and according to the intentions of the parties.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947 (1995) (internal citation omitted). Thus, for example, owners may not be able to invoke a subsidiary’s arbitration clause when they act on their own behalf rather than for their subsidiary. See, e.g., Westmoreland v. Sadoux, 299 F.3d 462, 466 (5th Cir. 2002). But when an agreement between two parties clearly provides for the substance of a dispute to be arbitrated, one cannot avoid it by simply pleading that a nonsignatory agent or affiliate was pulling the strings. Accordingly, without hearing oral argument, see Tex. R. App. P. 52.8(c), we conditionally grant the writ of mandamus and direct the trial court to order that the students’ claims proceed to arbitration. Our writ will not issue unless the trial court fails to do so. OPINION DELIVERED: August 24, 2007  Each enrollment agreement contained the following arbitration provision: ACKNOWLEDGEMENT OF OBLIGATION: . . . Any controversy or claim arising out of, or relating to, this Agreement, or breach thereof, no matter how pleaded or styled, shall be settled by arbitration in accordance with the Commercial Rules of Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction.  The students’ pleadings alleged negligence, negligence per se based on alleged violations of the Texas Education and Texas Administrative Codes, violations of the Texas Deceptive Trade Practices Act, and negligent misrepresentation.
In Re H&R Block, No. 04-0061 (Tex. Aug. 24, 2007)(per curiam)(investments, arbitration mandamus granted, company's name change irrelevant to validity and enforceability of arbitration agreement) In re H&R Block Financial Advisors, Inc. and Robert Bullock, Relators ══════════════════════ On Petition for Writ of Mandamus ══════════════════════ PER CURIAM After losing a substantial investment in the Enron debacle, two investors sued their investment advisor and his firm. Although they had signed contracts with the firm containing broad arbitration clauses, they sought to avoid them on grounds that (1) the firm had changed its name, and (2) the employee did not sign the contracts in his personal capacity. Because all the other terms of the parties’ contracts could not be avoided on these grounds, neither could the arbitration clauses. Accordingly, we conditionally grant mandamus relief. See In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) (“Mandamus relief is proper to enforce arbitration agreements governed by the FAA.”). In 1992 and again in 1996, Robert and Gilda Bonds entered into investment account agreements with Olde Discount Corporation. Both contracts contained arbitration clauses covering “any and all controversies or claims arising out of the relationship established by this agreement or any corresponding agreement to arbitration.” Robert Bullock, an Olde employee, signed both on Olde’s behalf. When Olde changed its name in 2000 to H&R Block Financial Advisors, Inc., Bullock continued to advise the Bonds, and recommended investments in Enron Corporation. In 2001, H&R Block sent the Bonds an Addendum to their account agreements that changed some terms but did not mention arbitration. In October 2002, the Bonds sued H&R Block and Bullock alleging negligence, gross negligence, fraud, breach of fiduciary duty, and violations of the Texas Securities Act and the Texas Deceptive Trade Practices Act. The Bonds sought recovery of their entire $119,031.92 investment in Enron. H&R Block and Bullock moved to stay proceedings pursuant to the Federal Arbitration Act. The trial court denied the motion, and the court of appeals denied mandamus relief. __ S.W.3d __ (Tex. App.–Corpus Christi 2003). The Bonds concede signing an arbitration agreement with Olde, but argue that H&R Block and Bullock are nonsignatories who cannot invoke it. But H&R Block established that it was the same company as Olde, now operating under a different name. H&R Block tendered affidavits and a Certificate of Amendment showing that Olde amended its Articles of Incorporation in July 2000 to change its name to H&R Block. Under ordinary legal principles, a contracting party that has merely changed its name is still a contracting party. See, e.g., Coulson v. Lake LBJ Mun. Util. Dist., 781 S.W.2d 594, 595 (Tex. 1989); Texas Co. v. Lee, 157 S.W.2d 628, 630 (Tex. 1941). Accordingly, the company’s change of name does not prevent it from invoking its own arbitration agreements. See Contec Corp. v. Remote Solution Co., 398 F.3d 205, 207 (2d Cir. 2005); Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 757 (11th Cir. 1993). Nor can the Bonds skirt arbitration with Bullock when the substance of the suit is against both him and his employer. Bullock had no duty to provide investment advice to the Bonds but for their contract with Olde/H&R Block, and the damages the Bonds seek is the investment they made through that contract. As Bullock’s liability arises from and must be determined by reference to the parties’ contract rather than general obligations imposed by law, the suit is subject to the contract’s arbitration provisions. In re Weekley Homes, L.P., 180 S.W.3d 127, 131–32 (Tex. 2005); see also In re Vesta Ins. Group, Inc. 192 S.W.3d 759, 762 (Tex. 2006) (“When contracting parties agree to arbitrate all disputes ‘under or with respect to’ a contract (as they did here), they generally intend to include disputes about their agents’ actions . . . .”). The Bonds claim the 2001 Addendum (which contained no arbitration clause) overrides the earlier account agreements (which did). But the Addendum’s first two sentences expressly incorporate all nonconflicting terms of the earlier agreements: The following are changes and/or additions to your Investor Account Agreement that you may have signed previously. . . . [W]here conflict exists, this addendum shall control and be binding on you. As the Addendum was silent regarding arbitration, it did not conflict with the existing arbitration provisions and thus left them intact. Finally, the Bonds assert the trial court properly refused to compel arbitration because the evidence regarding Olde’s name change was not produced promptly in response to discovery requests. But even if exclusion were a proper discovery sanction (a question we do not reach), the trial court did not exclude it here; to the contrary, the court gave the Bonds extra time to respond to the evidence before ruling on the motion. By the time the trial court made that ruling three months later, the Bonds had filed nothing contradicting Olde’s change of name evidence. Once this undisputed evidence was tendered, the court was not at liberty to ignore it. Accordingly, without hearing oral argument, see Tex. R. App. P. 52.8(c), we conditionally grant the writ of mandamus and direct the trial court to order that the Bonds’ claims proceed to arbitration. Our writ will not issue unless the trial court fails to do so. OPINION DELIVERED: August 24, 2007  The defendants also moved to compel arbitration under the Texas Arbitration Act and filed an interlocutory appeal related thereto. We do not address that claim as the court of appeals determined that the FAA applies and neither party contests that determination.
Thursday, August 16, 2007
First Court of Appeals, in an opinion authored by Justice Terry Jennings, holds that arbitor exceeded his authority by entering an award on a matter not submitted to him, and not part of the parties' arbitration agreement. Reverses trial court's confirmation of award. Burlington Resources Oil & Gas Company LP v. San Juan Basin Royalty Trust, No. 01-06-00485-CV (Tex.App.- Houston [1st Dist.] Aug. 16, 2007)(Opinion by Justice Jennings)(arbitration award set aside)(Before Justices Nuchia, Jennings and Higley) Appeal from 281st District Court of Harris County (Judge David J. Bernal) OPINION Appellant, Burlington Resources Oil & Gas Company LP ("Burlington"), challenges the trial court's judgment rendered in favor of appellee, San Juan Basin Royalty Trust (the "Trust"), confirming a portion of an arbitration award in favor of the Trust and ordering that the Trust recover from Burlington damages in the amount of $6,019,370, plus interest, for a total disputed award of $6,243,990. In its first issue, Burlington contends that the parties did not agree, by clear and unmistakable language, to submit questions regarding the scope of arbitrable issues to the arbitrator. In its second issue, Burlington contends that "construing the scope of the arbitration agreement de novo," the parties' dispute is not within the scope of the arbitration agreement. We reverse and render in part and remand in part. Factual and Procedural Background Burlington (1) owns and operates several oil and gas properties in New Mexico. The Trust holds a net overriding royalty interest in those properties and, pursuant to the terms of a "Conveyance," is entitled to receive a 75% interest in the net proceeds from those properties. (2) Burlington is required by the Conveyance to issue quarterly accounting statements to the Trust, and the Trust has 180 days to except to those statements. In October 2004, in order to resolve a number of specific existing "audit disputes," the parties entered into an "Agreement Dealing with the Resolution of Existing Audit Disputes" (the "Arbitration Agreement"). However, the parties ultimately disagreed regarding the abitrability of one of the Trust's claims ruled upon by the arbitrator. After the arbitrator ruled in favor of the Trust on this claim, Burlington filed its application to vacate, modify, or correct the arbitration award. The parties' dispute relevant to this appeal originates from Burlington's entry into a settlement agreement in 1990 with the Gas Company of New Mexico ("GCNM") to resolve litigation involving properties covered by the Conveyance (the "GCNM settlement agreement"). Pursuant to the terms of the GCNM settlement agreement, Burlington received $54.5 million in settlement payments. At that time, Burlington allocated $6.7 million of those proceeds to take-or-pay claims, $21 million to past-pricing claims, and $26.8 million to future-pricing claims. In accordance with the terms of the Conveyance, in calculating the amount of the GCNM settlement proceeds owed to the Trust for its net overriding royalty interest, Burlington did not include the $6.7 million allocated to the take-or-pay claims. As the Trust notes, however, the Trust also was not burdened with a charge for any royalty payments due to other royalty owners on that portion of the GCNM settlement. At that time, the Trust did not challenge Burlington's allocation of the GCNM settlement proceeds or Burlington's exclusion of the $6.7 million portion of the settlement in calculating the amounts owed to the Trust. In 2001, Burlington entered into a settlement agreement with the Minerals Management Service of the United States Department of Interior ("MMS") and the Jicarilla Apache Indian Nation ("Jicarilla"), other royalty interest holders in properties covered by the Conveyance (the "MMS/Jicarilla settlement"). Burlington, MMS, and Jicarilla entered into the MMS/Jicarilla settlement in order to resolve MMS's and Jicarilla's complaints regarding the amount of royalty payments due and owing to them from the proceeds of the GCNM settlement. The Trust asserts that as part of its MMS/Jicarilla settlement, Burlington agreed to pay MMS and Jicarilla royalties on the $6.7 million portion of the GCNM settlement that had been originally allocated to "non-royalty-bearing take-or-pay claims." Burlington disputes the Trust's claim and asserts, to the contrary, that MMS and Jicarilla expressly acknowledged that they were not entitled to royalty payments on the $6.7 million portion of the GCNM settlement. Although the parties disagree as to the whether MMS and Jicarilla received royalty payments on the $6.7 million portion of the GCNM settlement, the Trust asserts that, following the MMS/Jicarilla settlement, Burlington erroneously charged the Trust with its 75% share of the MMS/Jicarilla settlement payment by deducting this charge from the amount of proceeds due to the Trust for its net overriding royalty interest on the properties. The Trust complained that the charge assessed against it by Burlington had been calculated based on the full amount of the MMS/Jicarilla settlement, including the $6.7 million originally allocated to take-or-pay claims. The parties entered into the Arbitration Agreement to settle this "audit dispute" and a number of other existing audit disputes, many of which are not relevant to this appeal. The Arbitration Agreement, our focus in resolving the parties' dispute, states, in relevant part, 3. Exhibit "C" attached hereto identifies audit exceptions that the parties have identified for submission to binding arbitration pursuant to the procedures set forth hereafter. . . . [T]he exceptions identified in Exhibit "C" constitute the only items that will be subjected to arbitration. 4. Arbitration Agreement The existing audit disputes described on attached Exhibit "C," . . . shall be finally settled by arbitration pursuant to the provisions hereof. This agreement to arbitrate applies only to the audit disputes identified on Exhibit "C" . . . all of which shall be collectively referred to as the "Audit Disputes." (a) The Audit Disputes shall be heard and determined by one Arbitrator. . . . . (b) The proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, unless otherwise specified herein. . . . In the event of a conflict between such Commercial Arbitration Rules and this Agreement, this Agreement shall control. (Emphasis added). Exhibit C, attached to the Arbitration Agreement, lists a number of audit disputes, and, as Burlington emphasizes, includes a column entitled "Arbitrate Amount," which details specific amounts at issue for each of the identified audit disputes. On the first page of Exhibit C, the sum total "arbitrate amount" for all of the audit disputes listed in Exhibit C, including many of which that are not relevant to the underlying award or this appeal, is identified as $1,528,223. In fact, among the numerous audit disputes identified on Exhibit C, only two specific disputes are relevant to this appeal, and the total "arbitrate amount" for these two disputes is identified as $374,978. The parties identified the first dispute as "Gross Proceeds under stated due to excess royalties charged from MMS/Jicarilla settlement," and the total arbitrate amount for that dispute is identified as $342,477. The parties labeled their second dispute as "Interest Overcharged on MMS/Jicarilla Settlement," and the total arbitrate amount for that dispute is identified as $32,501. There is no mention of the GCNM settlement or any audit issues specifically relating to the GCNM settlement anywhere in the Arbitration Agreement or Exhibit C. At the conclusion of the arbitration, the arbitrator entered an arbitration award in favor of the Trust, including an award of over $6 million on the two relevant audit disputes for the Trust's "75% share of additional gross proceeds resulting from the reallocation of $6.7 million [of the 1990 GCNM settlement] to past pricing." In its award, the arbitrator conceded that Burlington had objected to consideration of the Trust's claim for its share of the $6.7 million in reallocated proceeds. However, the arbitrator determined that it had jurisdiction to decide its "own jurisdiction" pursuant to the terms of the Arbitration Agreement, which provided that the arbitration would be conducted "in accordance with the Commercial Arbitration Rules of the American Arbitration Association unless otherwise specificed." The arbitrator then cited in his opinion Rule 7(a) of the Commercial Rules, which provides, "The Arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the Arbitration Agreement." Commercial Rules of the American Arbitration Association, Rule 7(a). After determining that it had the power to decide arbitrability, the arbitrator concluded that "the Trust's claim to its proportionate share of the $6.7 million proceeds [from the 1990 GCNM settlement] is within the scope of the Arbitration Agreement." The arbitrator contended that Exhibit C identified "an exception related to the MMS/Jicarilla settlement" and that the Trust's claim arose from Burlington's charging the Trust for additional royalty payments Burlington made to Jicarilla and MMS to settle their claims even though Burlington had not shared the $6.7 million portion on which the additional royalty payments had been calculated. Based on this, the arbitrator stated, From the testimony and documents attached to the Arbitration Agreement, it is clear that the dispute between the parties over the MMS/Jicarilla [settlement] flows directly from Burlington's charge of royalty on the $6.7 million initially attributed to take-or-pay. The arbitrator further concluded that there was a "nexus between the royalty charge and the excluded $6.7 million" and that "an adjustment to gross proceeds to include the Trust's proportionate share of the $6.7 million on which it has been charged royalty is an arbitrable claim." After determining the scope of its jurisdiction, the arbitrator stated that "[b]y making this reallocation, Burlington characterized the entire $54.5 million GCNM settlement proceeds (including the $6.7 million Burlington originally allocated to take-or-pay) as past pricing in which the Trust is entitled to share." Thus, the arbitrator ruled that the Trust was entitled to a 75% share of additional gross proceeds from the reallocation of the $6.7 million to past-pricing claims. Following arbitration, Burlington filed an application to vacate or modify the arbitration award. See 9 U.S.C. §§ 10, 11; see also Tex. Civ. Prac. & Rem. Code Ann. §§ 171.088(a)(3)(A), 171.091(a)(2) (Vernon 2005). In its application, Burlington asserted that, in awarding the Trust $6,243,990 on its claim for a portion of the allegedly reallocated proceeds from the 1990 GCNM settlement (referred to in the arbitration award as "MMS/Jicarilla--Case A"), the arbitrator rendered an award on a matter not submitted to him and thereby exceeded his powers. Burlington asserted that this portion of the arbitration award should be modified, corrected, or vacated. Burlington also asserted a claim for breach of the Arbitration Agreement on the ground that the Trust's attempt to assert a claim for a portion of the GCNM settlement, i.e., its newly crafted MMS/Jicarilla--Case A, violated the agreement and caused it to incur substantial unnecessary expenses in defending the arbitration and pursuing relief in the trial court. The Trust filed a counterclaim for confirmation of the arbitration award. The trial court rendered judgment in favor of the Trust, denying Burlington's application and granting the Trust's application to confirm the arbitration award. The trial court denied all other requested relief, including Burlington's claim for breach of the Arbitration Agreement. Arbitrability In its first issue, Burlington argues that the parties did not agree, by clear and unmistakable language, to submit questions regarding the scope of arbitrable issues to the arbitrator because the Arbitration Agreement itself "carefully limited the scope of arbitration to identified audit disputes" and "withheld from the arbitrator [the] power to decide any additional questions, including the question of arbitrability." The Trust counters that the parties' incorporation of the American Arbitration Association ("AAA") rules clearly and unmistakably granted the arbitrator the power to determine Burlington's objection to the scope of the arbitration. In First Options of Chicago, Inc. v. Kaplan, the United States Supreme Court stated that "[w]hen deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally  should apply ordinary state-law principles that govern the formation of contracts," with the qualification that, "when courts decide whether a party has agreed that arbitrators should decide arbitrability," courts "should not assume that the parties agreed to arbitrate arbitrability unless there is 'clea[r] and unmistakabl[e]' evidence that they did so." 514 U.S. 938, 944, 115 S. Ct. 1920, 1924 (1995) (citations omitted). The Supreme Court noted that "the law treats silence or ambiguity about the question 'who (primarily) should decide arbitrability' differently from the way it treats silence or ambiguity about the question 'whether a particular merits-related dispute is arbitrable because it is within the scope of a valid arbitration agreement'" so as to not "force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide." Id., 514 U.S. at 944-45, 115 S. Ct. at 1924-25; see also Gen. Motors Corp. v. Pamela Equities Corp., 146 F.3d 242, 249 (5th Cir. 1998) ("[W]hen a party to a dispute contends that he and the other disputant agreed to submit . . . the question of whether that arbitrator had authority to arbitrate their dispute, that party must bear the burden of demonstrating clearly and unmistakably that the parties agreed to have the arbitrator decide that threshold question of arbitrability."); In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) ("[A]bsent unmistakable evidence that the parties intended the contrary, it is the courts rather than the arbitrators that must decide 'gateway matters' such as whether a valid arbitration agreement exists. Whether an arbitration agreement is binding on a nonparty is one of those gateway matters."); In re Ford Motor Co., 220 S.W.3d 21, 23 (Tex. App.--San Antonio 2006, no pet.) (same). Paragraphs 3 and 4 of the Arbitration Agreement expressly state that the audit exceptions identified in Exhibit C "constitute the only items that will be subjected to arbitration" and that the Arbitration Agreement "applies only to the audit disputes identified on Exhibit C." Here, there is no clear and unmistakable statement in the Arbitration Agreement that matters of arbitrability will be submitted to an arbitrator. In fact, Burlington and the Trust purposefully drafted an Arbitration Agreement of very narrow scope. Although, as the Trust emphasizes, the Arbitration Agreement generally provides that the proceeding "shall be conducted in accordance with the Commercial Arbitration Rules of the [AAA], unless otherwise specified herein," the Arbitration Agreement further provides that the terms of the Arbitration Agreement control in the event of any conflict with the rules. We conclude that there is no conflict because the parties, in their Arbitration Agreement, unambiguously detailed the specific subjects and amounts subject to arbitration, and arbitrability was not one of those matters. Even if we were to conclude, based, in part, on the authority cited below, that some ambiguity was created by the parties' reference to the AAA rules, the parties simply did not clearly and unmistakably submit the issue of arbitrability to arbitration. We recognize that Rule 7(a) of the Commercial Arbitration Rules of the AAA grants an arbitrator "the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the Arbitration Agreement." Commercial Rules of the American Arbitration Association, Rule 7(a). We further recognize that, "[a]lthough the United States Court of Appeals for the Fifth Circuit has not addressed the effect of a reference to AAA Rules contained in an arbitration clause," (3) other courts have generally concluded that an arbitration agreement's incorporation of rules empowering an arbitrator to decide arbitrability clearly and unmistakably evidences the parties' intent to allow the arbitrator to decide issues of arbitrability. See, e.g., Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1372-73 (Fed. Cir. 2006) (concluding that agreement's incorporation of AAA rules clearly and unmistakably showed parties' intent to delegate issue of determining arbitrability to arbitrator); Terminix Int'l Co., LP v. Palmer Ranch Ltd. P'ship, 432 F.3d 1327, 1332-33 (11th Cir. 2005) (holding that by incorporating AAA Rules into arbitration agreement, parties clearly and unmistakably agreed that arbitrator should decide whether arbitration clause was valid); Contec Corp. v. Remote Solution, Co., 398 F.3d 205, 208 (2d Cir. 2005) ("[W]hen . . . parties explicitly incorporate rules that empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties' intent to delegate such issues to an arbitrator."); Citifinancial, Inc. v. Newton, 359 F. Supp. 2d 545, 549-52 (S.D. Miss. 2005) (holding that by agreeing to be bound by procedural rules of AAA, including rule giving arbitrator power to rule on his or her own jurisdiction, defendant agreed to arbitrate questions of jurisdiction before arbitrator); Sleeper Farms v. Agway, Inc., 211 F. Supp. 2d 197, 200 (D. Me. 2002) (holding arbitration clause stating that arbitration shall proceed according to rules of AAA provides clear and unmistakable delegation of scope-determining authority to arbitrator). We are also mindful that, in certain circumstances, the incorporation of AAA rules may constitute clear and unmistakable evidence of an intent to allow an arbitrator to decide issues of arbitrability. However, we conclude, based on the express terms of the Arbitration Agreement before us, that the agreement's mere reference to the AAA's rules does not provide clear and unmistakable evidence of the parties' delegation of issues of arbitrabilty to an arbitrator. In determining whether an agreement provides clear and unmistakable language of such delegation, we consider the specific language of the Arbitration Agreement. See Kaplan, 514 U.S. at 944, 115 S. Ct. at 1924 ("When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally  should apply ordinary state-law principles that govern the formation of contracts."). We also apply general principles of Texas contract law governing the formation of contracts. See In re Dillard Dep't Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006) (stating that ordinary principles of "[c]ontract law determine the validity of arbitration agreements," a "trial court's determination of an arbitration agreement's validity is a legal question," and "[t]he objective intent as expressed in the agreement controls the construction of an unambiguous contract"). Here, the Arbitration Agreement restricted the arbitrator's reach only to specifically identified "audit disputes," and for specific amounts. There is not a clear and unmistakable indication that the parties authorized an arbitrator to decide the arbitrability of claims or amounts not specifically identified in the Arbitration Agreement. Moreover, the agreement provided that to the extent there was any conflict between the parties' agreement and the AAA rules, any such conflict would be resolved in favor of the agreement. Although not directly on point, we note that the San Antonio Court of Appeals has recently concluded that an arbitration agreement providing for any dispute to be settled "in accordance with the rules and procedures of the AAA" did not contain unmistakable evidence that the parties intended for an arbitrator to decide whether nonparties were bound by the arbitration agreement. In re Ford Motor Co., 220 S.W.3d at 23-24. In so holding, the court highlighted "the established Texas law [of] placing the initial burden of proving the existence of a valid arbitration agreement and claims within the scope of that agreement on the party seeking to compel arbitration." Id. We also find the opinion of the United States Court of Appeals for the Second Circuit in Katz v. Feinberg helpful to our analysis. See 290 F.3d 95 (2d Cir. 2002). In Katz, the court found that the parties did not agree to arbitrate questions of arbitrability. Id. at 96-97. The Katz court recognized that a "broadly worded arbitration clause committing resolution of all disputes to arbitration" would satisfy the clear and unmistakable standard. Id. at 97. However, the court could not conclude that "where a single agreement contains both a broadly worded arbitration clause and a specific clause assigning a certain decision to an independent accountant, that the parties intention to arbitrate questions of arbitrability under the broad clause remains clear." Id. Similarly, in James & Jackson, LLC v. Willie Gary, LLC, the Delaware Supreme Court court recognized the "majority view" that an arbitration agreement's reference to AAA rules might provide clear and unmistakable evidence of the parties' intent to have an arbitrator determine arbitrability. 906 A.2d 76, 78, 80 (Del. 2006). However, the court stated that the majority view did not "mandate that arbitrators decide arbitrability in all cases where an arbitration clause incorporates the AAA rules." Id. at 80. Rather, the court stated, the majority view "applies in those cases where the arbitration clause generally provides for arbitration of all disputes and also incorporates a set of arbitration rules that empower arbitrators to decide arbitrability." Id. The court noted that although the arbitration agreement before it required arbitration of "any controversy arising out of or related to [the agreement]," it also expressly authorized the non-breaching parties to obtain some limited types of relief in the courts. Id. at 81. Thus, the court concluded, "despite the broad language" at the outset of the arbitration agreement and the reference in the agreement to the AAA rules, that "[s]ince this arbitration clause does not generally refer all controversies to arbitration, the federal majority rule does not apply, and something other than the incorporation of the AAA rules would be needed to establish that the parties intended to submit arbitrability questions to an arbitrator." Id. We recognize that the arbitration agreements in both Katz and James & Jackson, LLC are quite different than the Arbitration Agreement before us. For example, the Arbitration Agreement here does not contain any provisions assigning decision-making authority on the specifically identified existing audit disputes to anyone other than the arbitrator. However, both Katz and James & Jackson, LLC illustrate the application of the principle that a court must carefully consider the language of the specific arbitration agreement before it in determining whether the parties have clearly and unmistakably ceded authority to decide matters of abitrabilty to an arbitrator. See id.; Katz, 290 F.3d at 97. A court should not blindly apply the majority view regarding the effect of mere reference to AAA rules and ignore the "clear and unmistakable standard" set forth by the Supreme Court in Kaplan. See Kaplan, 514 U.S. at 944, 115 S. Ct. at 1924. Accordingly, we hold that Burlington and the Trust did not agree in the Arbitration Agreement, by clear and unmistakable language, to submit questions regarding the scope of arbitrable issues to the arbitrator. See id., 514 U.S. at 942-44, 115 S. Ct. at 1923-25. We sustain Burlington's first issue. Scope of Arbitration Agreement In its second issue, Burlington argues that "construing the scope of the arbitration agreement de novo," the Trust's claim for its "75% share of additional gross proceeds resulting from the reallocation of $6.7 million to past pricing" is not within the scope of the Arbitration Agreement. (4) Burlington asserts that the audit disputes identified in Exhibit C to the Arbitration Agreement confirm that (1) the parties agreed to arbitrate only the Trust's complaint that its "gross proceeds were understated due to excess royalties" charged against it based on the full value of the GCNM settlement and (2) the Trust's claim for a 75% share of the $6.7 million portion of the allegedly reallocated GCNM settlement proceeds was never contemplated by the parties to be an arbitrable claim. Rather, Burlington complains that the Trust asserted this new claim only after the commencement of arbitration. Burlington notes that the expressly stated subject matter of the first audit dispute was that Burlington, "in adjusting gross proceeds to reflect the MMS/Jicarilla settlement[,] . . . improperly deducted royalties paid supposedly on account of the $6.7 million in take-or-pay claims not covered by the Conveyance." In fact, the dispute to be arbitrated arose from the Trust's allegation that the MMS/Jicarilla settlement was based upon the full amount of the GCNM settlement, including the $6.7 million take-or-pay portion, that 12.3% of the MMS/Jicarilla settlement, or approximately $500,000, was allocable to production in which the Trust had no interest, and that the Trust should not have been charged for 75% of those payments. Moreover, the Trust's complaint about the second audit dispute simply concerned its claim for interest on the amount at issue in the first audit dispute. In spite of these specifically identified and narrowly limited audit disputes, the arbitrator ruled on a claim by the Trust that its "gross proceeds were understated, not due to the deduction or charge of royalties paid to MMS and the Jicarilla tribe, but, instead, due to the exclusion of $6.7 million of receipts under gas purchase contracts in the GCNM settlement that [Burlington] has attributed to take-or-pay obligations." Yet, as Burlington highlights, there is absolutely no mention of the GCNM settlement in Exhibit C, nor is there any suggestion that the Trust would be seeking to recover in arbitration approximately $6 million based on its theory that Burlington had reallocated funds from its 1990 settlement. Burlington argues that "the sheer numbers involved" in the Trust's newly asserted claim preclude it "from being shoehorned into the 'excess royalties' concept" identified in Exhibit C. The Trust, on the other hand, asserts that the audit disputes describe its complaint that Burlington had charged it with excess royalties relating to Burlington's reallocation of the $6.7 million in take-or-pay claims without sharing those proceeds with the Trust. The Trust notes that, despite the specific arbitrate amounts, Exhibit C states that "[a]ll amounts stated are subject to change." The Trust asserts that this language justifies the arbitration award of over $6 million, even though the relevant "arbitrate amount" for the two audit disputes was $374,978. The Trust, as additional support for its claim for a 75% share of the full value of the GCNM settlement, cites a November 1, 2002 letter from it to Burlington stating, The Trust was not paid any royalties on the take-or-pay settlement [of 6.7 million]. The Trust did not pursue a claim for royalties on that amount, and does not now want to be assessed any portion of the current settlement which is attributable to royalties which should have been paid to the MMS or Jicarillas on the take-or-pay portion because the Trust did not share in the economic benefits attributable to the take-or-pay settlement in 1990. If the "major portion" settlement took into account the take-or-pay claim, the amount allocated to the Trust should be reduced . . . If instead the 1990 settlement was "reallocated" such that more or all of the amount received by Burlington's successor [sic] was treated as "past pricing" or "contract buyout," then the Trust is entitled to 75% net overriding royalty interest on the 6.7 [million] no longer allocable to take-or-pay. Based on this letter, the Trust asserts that it "made clear" throughout its dispute "its complaint that Burlington improperly had charged the Trust with royalty on settlement proceeds without sharing those proceeds with the Trust" and "the alternative remedies that it was seeking . . . [to] either eliminate the charge to the Trust of the royalties on the proceeds or give the Trust its share of the proceeds." The Supreme Court stated in Kaplan that if "the parties did not agree to submit the arbitrability question itself to arbitration, then the court should decide that question just as it would decide any other question that the parties did not submit to arbitration, namely, independently." Kaplan, 514 U.S. at 943, 115 S. Ct. at 1923-24. The Federal Arbitration Act provides that a court may vacate an arbitration award "where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made" and may modify or correct an arbitration award "[w]here the arbitrators have awarded upon a matter not submitted to them." 9 U.S.C. §§ 10, 11; see also Tex. Civ. Prac. & Rem. Code Ann. §§ 171.088(a)(3)(A) (providing that court shall vacate award if arbitrators exceed their powers), 171.091(a)(2) (providing that court shall modify or correct award if "the arbitrators have made an award with respect to a matter not submitted to them and the award may be corrected without affecting the merits of the decision made with respect to the issues that were submitted"). In reviewing the arbitrator's decision independently, we recognize the strong presumption under the Federal Arbitration Act of favoring arbitration. See In re D. Wilson Constr. Co., 196 S.W.3d 774, 782-83 (Tex. 2006). Furthermore, we note that any doubt as to whether a party's claim falls within the scope of an arbitration agreement must be resolved in favor of arbitration. Id. Also, a court should not deny arbitration unless it can be said with positive assurance that an arbitration clause is not susceptible to an interpretation that would cover the dispute at issue. Id.; see also In re Dillard Dept. Stores, Inc., 186 S.W.3d at 516. Of course, "the policy that favors resolving doubts in favor of arbitration cannot serve to stretch a contractual clause beyond the scope intended by the parties or authorize an arbiter to disregard or modify the plain and unambiguous provisions of the agreement." Smith v. Transp. Workers Union of Am., AFL-CIO Air Transp. Local 556, 374 F.3d 372, 375 (5th Cir. 2004) (citations omitted); see also Belmont Constructors, Inc. v. Lyondell Petrochemical Co., 896 S.W.2d 352, 356 (Tex. App.--Houston [1st Dist.] 1995, no writ) (stating that "federal policy of resolving doubts in favor of arbitration" cannot stretch contractual clause beyond scope intended or allow modification of plain and unambiguous provisions). With these principles in mind, and reviewing the arbitrator's decision independently, we conclude that the relevant audit disputes describing the Trust's complaint about its understated gross proceeds due to Burlington's charge of excess royalties from the MMS/Jicarilla settlement is not susceptible to an interpretation for an alternative claim by the Trust for a 75% interest in the allegedly reallocated proceeds of $6.7 million portion of the 1990 GCNM settlement. We can say, with positive assurance, that by making a claim for reallocated proceeds from the 1990 GCNM settlement, the Trust was making a separate and new claim rather than a claim covered by the "audit disputes" contemplated by the parties in the Arbitration Agreement. The inescapable fact is that the Arbitration Agreement provided specific "arbitrate amounts" for each of the identified audit disputes, and the amount ultimately awarded by the arbitrator on the Trust's newly asserted claim greatly exceeded, beyond any amount that could have reasonably been contemplated by the parties, the amounts identified in the Arbitration Agreement. As the Trust points out, the Arbitration Agreement did provide that the arbitrate amounts were "subject to change"; however, the inclusion of this language cannot justify the assertion of a wholly separate claim. Again, the 1990 GCNM settlement is not mentioned in the Arbitration Agreement. Allowing the Trust to assert a claim for over $6 million shortly after executing an agreement identifying the arbitration amounts for the relevant audit disputes to be approximately $375,000 stretches the Arbitration Agreement beyond its breaking point. Had the parties intended to arbitrate the Trust's claim for reallocated proceeds from the 1990 GCNM settlement, the parties could have included a reference to this settlement in the Arbitration Agreement and stated the appropriate arbitrate amount. The Trust contends, in post-submission briefing, that "the parties were not required to include in Exhibit C all sub-issues entailed within that general description of the dispute and the alternative remedies to which the Trust might be entitled, depending on facts that were solely within the control of Burlington and which became known to the Trust only following discovery undertaken in the course of arbitration proceedings." First, one cannot reasonably conclude that a claim for over $6 million for allegedly reallocated proceeds from the 1990 GCNM settlement qualifies as a "sub-issue" of a specific "audit dispute" over understated gross proceeds in the amount of $374,978. Second, the Trust's admission that it did not learn of the underlying facts supporting its newly asserted claim until after the commencement of arbitration establishes that such a claim was not one of the "existing" audit disputes between the parties to be resolved by the Arbitration Agreement. Finally, we cannot, as suggested by the Trust, rely on its November 2002 letter as "clearly" putting Burlington "on notice of the Trust's position" that it was always seeking alternative remedies. Rather, the unambiguous provisions of the Arbitration Agreement, setting forth detailed descriptions of the relevant audit disputes and the associated arbitrate amounts, control our inquiry. See In re Dillard Dept. Stores, Inc.,186 S.W.3d at 515 (stating that "[t]he objective intent as expressed in the agreement controls the construction of an unambiguous contract"). In sum, the Arbitration Agreement cannot reasonably be interpreted as authorizing the Trust's claim for its 75% share of the full value of the 1990 GCNM settlement proceeds. Accordingly, we hold that the Trust's claim was "clearly beyond the agreed scope of the arbitration," the arbitrator exceeded his powers in ruling on the Trust's claim, and the arbitrator entered an award on a matter not properly submitted to him. We further hold that the trial court erred in confirming the arbitration award. We sustain Burlington's second issue. Conclusion We reverse the portion of the trial court's judgment confirming the portion of the arbitration award awarding the Trust $6,243,990 (labeled in the arbitration award as "MMS/Jicarilla-Case A"), vacate that portion of the arbitration award, and modify the award to reflect that this award has been vacated. We render a take-nothing judgment in Burlington's favor on the Trust's claim giving rise to the arbitration award of $6,243,990. We also reverse the portion of the trial court's judgment denying Burlington's claim for breach of the Arbitration Agreement, and we remand for further proceedings consistent with this opinion. Terry Jennings Justice Panel consists of Justices Nuchia, Jennings, and Higley. 1. To avoid confusion, we make no distinction between Burlington and its predecessor, Southland Royalty Company ("Southland"). 2. The Trust explains that "[t]he overriding royalty interest is a 'net' interest, in the sense that Burlington, in calculating the payments to which the Trust is entitled, includes certain revenues (including proceeds from the sale of production from the properties) and certain expenses incurred in the operation of the properties (including royalties on production paid to royalty owners holding royalty interests in the properties)." 3. Citifinancial, Inc. v. Newton, 359 F. Supp. 2d 545, 551 (S.D. Miss. 2005). 4. Having held that the Arbitration Agreement does not clearly and unmistakably evidence the parties' intent to delegate the issue of determining arbitrability to the arbitrator, we need not consider Burlington's alternative contention in its second issue that even if the arbitrator is afforded "considerable leeway" in construing the scope of the arbitration agreement, the parties' dispute is "clearly beyond the agreed scope of the arbitration." See Kaplan, 514 U.S. at 943, 115 S. Ct. at 1923-24.