Rule 202 petition does not confer jurisdiction on trial court to enter order compelling arbitration over objection of the other party, Dallas Court of Appeal says in case in which it also awards mandamus relief against the trial court's order permitting Rule 202 discovery (presuit discovery to investigate claim, here female attorney's sex discrimination claim against law firm in which she was partner on equal pay issue).
Patton Boggs, LLP v. Kate Moseley (Tex.App.- Dallas, Dec. 29, 2011)
EXCERPT FROM OPINION BY JUSTICE ROBERT M. FILLMORE
Appellant Patton Boggs filed this interlocutory appeal challenging the trial court's denial of its motion to compel arbitration. See Tex. Civ. Prac. & Rem. Code Ann. § 51.016 (West Supp. 2011) (appeal or writ of error to the court of appeals from the judgment or interlocutory order of a district court in a matter subject to Federal Arbitration Act); Tex. Civ. Prac. & Rem. Code Ann. § 171.098(a)(1) (West 2011) (party may appeal an order denying an pplication to compel arbitration under section 171.021); see Tex. Civ. Prac. & Rem. Code Ann. § 171.021(a) (West 2011) (court shall order parties to arbitration on application of a party showing an agreement to arbitrate and the opposing party's refusal to arbitrate). See Footnote 7 In its sole issue on appeal, Patton Boggs contends the trial court erred by denying Patton Boggs's motion to compel arbitration and to stay the rule 202 proceedings.
Moseley responds that the trial court lacked jurisdiction over Patton Boggs's motion to compel arbitration filed in the rule 202 proceeding. We agree. Because the only proceeding before the trial court was a rule 202 petition, the trial court had no jurisdiction to grant a motion to compel arbitration absent an agreement between the parties that the motion should be granted. See In re Southwest Sec., Inc., No. 05-99-01836-CV, 2000 WL 770117, at *2 (Tex. App.-Dallas, June 14, 2000, orig. proceeding.) (not designated for publication). The trial court lacked jurisdiction to compel arbitration in the rule 202 proceeding. Accordingly, we dismiss this interlocutory appeal for lack of jurisdiction. Tex. R. App. P. 42.3(a).
Conclusion
We conditionally grant the petition for writ of mandamus and order the trial court to vacate the portions of its August 15, 2011 order that grant Moseley's rule 202 request to take depositions and that grant in part Moseley's request for production of documents. A writ will issue only in the event the trial court fails to vacate the portions of its August 15, 2011 order that grant Moseley's rule 202 request to take depositions and that grant in part Moseley's request for production of documents in conjunction with those depositions.
We dismiss this interlocutory appeal for lack of jurisdiction.
SOURCE: DALLAS COURT OF APPEALS - 05-11-01097-CV - 12/29/11
Saturday, December 31, 2011
Friday, December 16, 2011
Sup. Ct. SCI Arbitration case decided: In Re Services Corporation International (Tex. 2011)(orig. proceeding)
In Re Service Corporation International (SCI) (Tex. 2011)
PER CURIAM OPINION OF THE TEXAS SUPREME COURT
This mandamus proceeding arises from an arbitration agreement governed by the Federal
Arbitration Act (FAA). The parties entered into a contract for interment rights and services. The
contract obligated the parties to arbitrate this dispute over the care and maintenance of the cemetery.
The arbitration agreement provides that an arbitrator would either be selected by mutual agreement
of the parties or appointed by the American Arbitration Association (AAA). The parties failed to
agree to an arbitrator and the trial court appointed an arbitrator without allowing a reasonable
opportunity to procure an appointment by AAA. We conclude that the trial court abused its
discretion and conditionally grant the petition for writ of mandamus.
 |
| SERVICE CORPORATION INTERNATIONAL OFFICE TOWER IN HOUSTON |
SCI) entered into a written contract with Gabriel and Yolanda Serna for two burial plots in the
Magic Valley Memorial Gardens after the death of their son. The contract contained an arbitration
clause to be utilized for dispute resolution. Under the arbitration clause, the parties would choose
an arbitrator by mutual agreement. If the parties were unable to agree on an arbitrator, the AAA
would select the arbitrator upon application of one or both of the parties.
The Sernas filed a suit against SCI on March 19, 2009, alleging, among other things, that SCI
had misrepresented the cemetery as a licensed endowment-care facility and failed to properly
maintain the cemetery. In its original answer, SCI asserted that the dispute was bound for
arbitration. The parties were unable to agree on an arbitrator for several months. When the parties
eventually reached an agreement on an arbitrator on October 14, 2009, he was disqualified because
he represented employees of SCI in an unrelated case. On October 27, the Sernas asked the trial
court to appoint an arbitrator, arguing that SCI had waived its right to seek an appointment by the
AAA. On November 10, the trial court appointed former district judge Abel C. Limas to arbitrate
the case after concluding that the parties were unable to agree on an arbitrator and SCI had waived
the right to seek an AAA appointment. SCI filed a motion for rehearing arguing that the contractual
provision required that the AAA appoint the arbitrator, and that the Sernas were responsible for
initiating proceedings with the AAA. The trial court denied the motion for rehearing on December
15. SCI unsuccessfully sought a writ of mandamus from the court of appeals. In this Court, SCI
requests that we direct the trial court to vacate its order naming Limas as arbitrator.
Mandamus relief is appropriate when the trial court has abused its discretion and there is no
adequate remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004)
(citations omitted). When a trial court errs in determining the law or in applying the law to the facts,
it has abused its discretion. Id. at 135 (citations omitted). No adequate remedy by appeal exists
when a trial court erroneously appoints an arbitrator pursuant to section 5 of the Federal Arbitration
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Act because the FAA does not provide for review of the trial court’s actions in state court.1 See 9
U.S.C. § 5; In re La. Pac. Corp., 972 S.W.2d 63, 65 (Tex. 1998) (per curiam). Because the terms
of the contract require the parties to apply to the AAA to appoint an arbitrator upon their failure to
agree to an arbitrator, we conditionally issue a writ of mandamus.
The parties agree that this case is governed by the FAA, 9 U.S.C. §§ 1–16. Section 5 of the
FAA provides:
If in the agreement provision be made for a method of naming or appointing an
arbitrator or arbitrators or an umpire, such method shall be followed; but if no
method be provided therein, or if a method be provided and any party thereto shall
fail to avail himself of such method, or if for any other reason there shall be a lapse
in the naming of an arbitrator or arbitrators or umpire, or in filling a vacancy, then
upon the application of either party to the controversy the court shall designate and
appoint an arbitrator or arbitrators or umpire, as the case may require, who shall act
under the said agreement with the same force and effect as if he or they had been
specifically named therein . . . .
9 U.S.C. § 5 (emphasis added). The primary purpose of the FAA is to require enforcement of
arbitration agreements “according to their terms.” Volt Info. Scis. v. Bd. of Trs., 489 U.S. 468, 479
(1989). Before the trial court can intervene and appoint an arbitrator, section 5 requires that parties
follow the previously agreed method of arbitrator selection. CMH Homes v. Perez, 340 S.W.3d 444,
449 (Tex. 2011). Because the FAA requires the trial court to follow the arbitrator selection method
detailed in the contract, we first determine the method of appointment required by the contract.
Footnote 1 This case was filed prior to the 2009 addition of section 51.016 to the Texas Civil Practice and Remedies Code expanding state court interlocutory review of certain FAA arbitration matters. See CMH Homes v. Perez, 340 S.W.3d 444 (Tex. 2011) (discussing the appellate remedies available to parties in arbitration proceedings following the 2009 amendment).
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The contract signed by SCI and the Sernas outlined the following method of appointing an
arbitrator:
[T]he arbitrator shall be selected by mutual agreement of the parties. If the parties fail
to or are unable to agree on the selection of an appropriate arbitrator, the AAA shall
select the arbitrator pursuant to its rules and procedures upon the application of one
or both parties.
The agreement provides only two ways that the parties may select an arbitrator: (1) mutual
agreement, or (2) if the parties cannot agree, the AAA selects an arbitrator. When the parties failed
to agree on an arbitrator, the contract required petitioning the AAA to appoint an arbitrator. Because
the contract plainly requires the AAA to appoint an arbitrator when mutual agreement fails, the trial
court abused its discretion by appointing an arbitrator unless an exception under section 5 applies.
The parties contracted to this method of appointing an arbitrator. The trial court is permitted
to appoint an arbitrator under section 5 of the FAA only if one or both of the parties “fail[s] to avail”
itself of the agreed-upon arbitrator selection method, or there is a “lapse” in the selection of an
arbitrator. 9 U.S.C. § 5. The section 5 substitution process triggered by the “fail to avail” and
“lapse” language of the FAA should be invoked by the trial court when there is some “mechanical
breakdown in the arbitrator selection process” or “one of the parties refuses to comply, thereby
delaying arbitration indefinitely.” In re La. Pac. Corp., 972 S.W.2d at 64–65 (Tex. 1998) (citing
In re Salomon Inc., 68 F.3d 554, 560 (2d Cir. 1995) (interpreting “lapse” and “fail to avail” in
section 5 of the FAA)). The Sernas argue that SCI has forfeited its right to involve the AAA in the
arbitrator selection process because of a lapse due to the time that had passed, the failure of SCI to
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apply to the AAA, and a mechanical breakdown in the method of selecting an arbitrator. We do not
agree.
The Sernas contend that a time lapse in applying to the AAA triggered the trial court’s
authority to appoint an arbitrator under section 5 of the FAA. It is important to remember that the
FAA disfavors waiver and similar forfeitures of arbitration rights, and there is a strong presumption
against them. Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983)
(observing that, under the FAA, any doubts concerning “an allegation of waiver, delay or a like
defense to arbitrability” should be “resolved in favor of arbitration”); Prudential Secs. Inc. v.
Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (noting the presumption, under both federal and state
law, against waiver of a contractual right to arbitration). We have observed that “one of the central
purposes of the FAA has been to allow the parties to select their own arbitration panel if they choose
to do so.” In re La. Pac. Corp., 972 S.W.2d at 65. However, section 5 tempers the principle that
parties are free to make – and enforce – their arbitration agreements as they see fit, with the
countervailing grant of authority to a district court to intercede and “spur the arbitral process
forward” when the parties reach a stalemate in naming an arbitrator. Pac. Reins. Mgmt. Corp. v.
Ohio Reins. Corp., 814 F.2d 1324, 1329 (9th Cir. 1987).
In Pacific Reinsurance, a district judge appointed an umpire, notwithstanding the parties’
arbitration agreement, under circumstances in which the litigants had “tried and failed” to name an
umpire. Id. at 1329. Finally, after “five months of impasse,” the trial court appointed an umpire on
motion of one of the parties. Id. The Court affirmed the appointment on failure-to-avail and lapse
grounds, holding that section 5 may properly be invoked when the parties’ “impasse” had lasted for
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five months. Id. The Court explained that while parties should be afforded every reasonable
opportunity “to comply with their agreement,” section 5 may be invoked by a trial court to appoint
an arbitrator where the arbitration process “stagnate[s] into endless bickering over the selection
process.” Id.
This is not such a case. The contract provides consensual methods for appointment of an
arbitrator, and the court must allow the parties sufficient time to utilize the contractual method
before intervening to appoint an arbitrator. An unreasonable delay in such an appointment,
sufficient to constitute a lapse or failure to avail, should be measured from the point when mutual
agreement failed. See id.; cf. In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 409
(Tex. 2011) (holding, in the context of the right to an appraisal under an insurance contract, that an
unreasonable delay sufficient to invoke waiver must be measured from the point of impasse – the
point at which the parties become aware of the futility of further negotiations). Seven months
elapsed from SCI’s motion to compel arbitration in April 2009 to the time the trial court appointed
an arbitrator in November. The Sernas argue the seven-month period establishes a deadlock or
impasse between the parties justifying the trial court’s intervention. On the contrary, that sevenmonth
period includes the time the parties worked to reach a mutual agreement and did agree on an
arbitrator, only to have him recused on conflict-of-interest grounds. The arbitration clause
contemplated efforts to reach such an agreement. The applicable delay is the time after an impasse
or deadlock is reached. See Pac. Reins., 814 F.2d at 1329.
An impasse, if any, occurred after the agreed arbitrator was disqualified. Acting on the Sernas’ motion, filed less than two weeks after the agreed arbitrator was disqualified, the trial court
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appointed an arbitrator, notwithstanding the contract. This appointment occurred just one month
after the parties had been in apparent agreement on an arbitrator. Thus, the disagreement of the
parties as to the selection of the arbitrator was at most one month old. We are unable to locate any
instance in which a federal court held that a delay in appointing an arbitrator as short as one month
constituted a lapse under section 5. In the instances in which courts have found a lapse, the periods
between the impasse and the appointment of an arbitrator are significantly longer than one month.
See e.g., Pac. Reins. Mgt. Corp., 814 F.2d at 1328 (concluding that a five-month “impasse” between
the parties resulted in both a “lapse” and “fail[ure] to utilize” the agreed-to umpire-selection
method); Trustmark Ins. Co. v. Clarendon Nat’l Ins. Co., No. 09 C 6169, 2010 U.S. Dist. LEXIS
8078, at *14 (N.D. Ill. Feb. 1, 2010) (holding that a four-month delay, measured from the time the
defendants sent a list of potential umpires to the plaintiffs with no response to the time the
defendants asked the trial court to appoint an umpire, constituted a lapse). As a matter of law, a one month interval following an impasse, by itself, cannot reasonably be construed as a lapse in
appointing an arbitrator. The parties had reached an agreement previously; both their contract and
section 5 entitled them to a reasonable opportunity to do so again.
Arguing a failure-to-avail point, the Sernas assert that it was clear that neither party intended
to apply to the AAA and, further, SCI’s position was that it did not have the obligation to petition
the AAA for appointment of an arbitrator. Again relying on the seven-month period from the filing
of SCI’s motion to compel through the time the trial court appointed an arbitrator, the Sernas
contend that a stalemate had been reached. Reiterating, the period of time during which the parties
are in discussions or negotiations toward mutual selection of an arbitrator does not count as delay
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after an impasse. See generally In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d at
408–09. As a matter of law, we conclude that under section 5 a one-month halt in negotiations
between the parties does not in itself constitute a failure to avail by SCI of its contractual right to
have the AAA select the arbitrator, irrespective of whether one or both parties had the contractual
burden to pursue AAA appointment.
The Sernas also argue that an ambiguity in the contract resulted in a mechanical breakdown
in the selection of an arbitrator. The contract states that “in the absence of [applicable state laws
governing arbitration], the arbitration proceedings shall be conducted in accordance with the
applicable rules of the [AAA]; provided, however, that the foregoing reference to the AAA rules
shall not be deemed to require any filing with that organization . . . .” The Sernas argue that these
provisions are contradictory and ambiguous and should be construed against the contract drafter,
SCI. When interpreting a contract, our primary concern is to ascertain and give effect to the intent
of the parties as expressed in the contract. Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207
S.W.3d 342, 345 (Tex. 2006) (citations omitted). “To discern this intent, we ‘examine and consider
the entire writing in an effort to harmonize and give effect to all the provisions of the contract so
that none will be rendered meaningless. No single provision taken alone will be given controlling
effect; rather, all the provisions must be considered with reference to the whole instrument.’”Id.
(citations omitted).
The provisions that the Sernas argue are ambiguous simply define the rules applicable to
arbitration proceedings and do not conflict with other portions of the arbitration agreement. Because
the contract allows for the appointment of an arbitrator without the involvement of the AAA, the
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contract provides that, although the parties may use AAA rules to govern their dispute, no filing with
the AAA is required when the parties mutually agree. However, if the parties cannot agree, then
either party may apply to have an arbitrator appointed through the AAA’s procedures. We conclude
that the contract is not ambiguous on this point. If the parties cannot agree on an arbitrator, the
contract requires that they use AAA to appoint the arbitrator.
Accordingly, without hearing oral argument, we conditionally grant mandamus relief to SCI
and direct the trial court to vacate its prior order appointing an arbitrator and allow the parties a
reasonable opportunity to select an arbitrator pursuant to their agreement. TEX. R. APP. P. 59.1,
52.8(c). We are confident the trial court will comply, and the writ will issue only if it fails to do so.
OPINION DELIVERED: December 16, 2011
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FULL STYLE AND CASE DETAILS
IN RE SERVICE CORPORATION INTERNATIONAL AND SCI TEXAS FUNERAL SERVICES, INC. D/B/A MAGIC VALLEY MEMORIAL GARDENS; from Hidalgo County; 13th district (13-09-00681-CV, ___ SW3d ___, 02-17-10) stay order issued March 12, 2010, lifted
Pursuant to Texas Rule of Appellate Procedure 52.8(c), without hearing oral argument, the Court conditionally grants the writ of mandamus.
Per Curiam Opinion
Click below to read the opinion of the Corpus Christi Court of Appeals:
IN RE SERVICE CORPORATION INTERNATIONAL, Tex: Court of Appeals, 13th Dist. 2010
Americo Life, Inc. v. Robert L. Myer, No. 10-0734 (Tex. 2011)
Americo Life, Inc. v. Myer, No. 10-0734 (Tex. Dec. 16, 2011)
PER CURIAM OPINION OF THE TEXAS SUPREME COURT
This case concerns an arbitration provision that allows each party to appoint one arbitrator to a panel, subject to certain requirements. At issue is whether Americo Life, Inc. waived its objection to the removal of the arbitrator it selected. The underlying dispute concerned the financing mechanism for Americo’s purchase of several insurance companies from Robert Myer. FN1 Pursuant to the financing agreement, Americo and Myer submitted their dispute to arbitration under American Arbitration Association (AAA) rules. The arbitrators found in favor of Myer, and Americo filed a
This case concerns an arbitration provision that allows each party to appoint one arbitrator to a panel, subject to certain requirements. At issue is whether Americo Life, Inc. waived its objection to the removal of the arbitrator it selected. The underlying dispute concerned the financing mechanism for Americo’s purchase of several insurance companies from Robert Myer. FN1 Pursuant to the financing agreement, Americo and Myer submitted their dispute to arbitration under American Arbitration Association (AAA) rules. The arbitrators found in favor of Myer, and Americo filed a
FN 1: Petitioners Americo Life, Inc., Americo Financial Life and Annuity Insurance Company, Great Southern Life Insurance Company, the Ohio State Life Insurance Company, and National Farmers’ Union Life Insurance Company are referred to as Americo. Respondents Robert L. Myer and Strider Marketing Group, Inc. are referred to as Myer.
motion to vacate the award. The trial court granted the motion. It held that Americo was entitled to any arbitrator that met the requirements set forth in the financing agreement and that the arbitrator removed by the AAA met those requirements. The court of appeals reversed, holding that Americo had waived these arguments by not presenting them to the AAA. Because the record demonstrates otherwise, we reverse the court of appeals’ judgment and remand the case to the court of appeals for further proceedings.
The parties entered into a financing agreement for Americo’s purchase of several insurance
companies from Myer. This agreement provides that any disputes “shall be referred to three
arbitrators.” It further provides that “Americo shall appoint one arbitrator and Myer shall appoint
one arbitrator and such two arbitrators to select the third.” The financing agreement provides that
each arbitrator “shall be a knowledgeable, independent businessperson or professional.”
However, the contract also provides that, subject to exceptions not at issue here, the
proceedings “shall be conducted in accordance with the commercial arbitration rules of the
American Arbitration Association.” At the time the parties entered into the financing agreement,
the AAA rules provided that its “rules and any amendment of them shall apply in the form in effect
at the time the administrative filing requirements are met for a demand for arbitration or submission
agreement received by the AAA.” At the time of the demand for arbitration between the parties, the
AAA rules provided that “[a]ny arbitrator shall be impartial and independent . . . and shall be subject
to disqualification for (i) partiality or lack of independence . . . .”
Here, Myer argued to the AAA that Americo’s selected arbitrator, Ernest Figari, Jr., was not
impartial and therefore should be removed. Americo responded that Figari was, in fact, impartial.
-- Page 2 end --
The parties dispute whether Americo additionally responded that its selected arbitrator need only
meet the “independent” and “knowledgeable” requirements from the financing agreement.
The AAA agreed with Myer and removed Figari from the arbitration panel. Americo
asserted a standing objection to the continuation of the arbitration without Figari. Americo also
stated that it would proceed to arbitrate without waiving its objection and without waiver of the right
to appeal any decision based on the removal of Figari. Americo subsequently selected another
arbitrator.
The arbitration panel rendered a unanimous decision awarding Myer declaratory relief,
breach of contract damages of $9.29 million, $15.8 million in damages for wrongfully withheld
payments under the financing agreement, and $1.29 million in attorney’s fees and costs. Myer filed
a petition to confirm the award in the district court and Americo filed a motion to vacate or modify
the award. Americo argued that, inter alia, the award was not made by arbitrators selected under
the financing agreement’s requirements and was therefore void.2 The court granted Americo’s
motion to vacate and found that the AAA failed to follow the arbitration selection method contained
in the financing agreement, that the AAA had no authority to strike Figari, and that the award was
void because it was issued by an improperly appointed panel.
The court of appeals reversed. It held that:
After arbitration, appellees argued to the trial court the award should be
vacated under section five of the Federal Arbitration Act because the award was not
made by arbitrators who were appointed under the method provided in the
FN 2: Americo’s motion to vacate or modify the award was pursuant to section five of the Federal Arbitration Act (FAA), which provides: “If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed . . . .” 9 U.S.C. § 5.
-- Page 3 end --
[financing] agreement. In their brief in support of their motion to vacate the
arbitration award, appellees further explained their argument to mean the [financing]
agreement did not require the party-appointed arbitrators to be “independent and
impartial. Nor does the Agreement allow the AAA to disqualify a party’s appointed
arbitrator for partiality, bias, or any other basis.” They continued to argue that
because their right to select an arbitrator was governed by the standards in the
[financing] agreement, the impartiality standard set out in the AAA rules was
inapplicable. Essentially, appellees argued to the trial court they had a right to a
non-neutral arbitrator. This, however, is not the argument they raised to the AAA
in response to appellants’ objection to Figari.
315 S.W.3d 72, 75 (Tex. App.—Dallas 2009, pet. filed) (emphasis in original) (footnote omitted).
We have held that “appellate courts should reach the merits of an appeal whenever
reasonably possible.” Perry v. Cohen, 272 S.W.3d 585, 587 (Tex. 2008) (citing Verburgt v. Dorner,
959 S.W.2d 615, 616 (Tex. 1997)). Here, the record demonstrates that Americo argued to both the
AAA and the district court that it was entitled to any arbitrator who met the requirements set forth
in the financing agreement, regardless of the AAA’s requirements.
In response to Myer’s objection to Figari, Americo argued to the AAA that Figari was
neutral. However, Americo also asserted:
Finally, an argument can be made that the AAA rules do not govern the
selection of and qualifications for arbitrators in this proceeding. . . . The Agreement
states that “[e]ach arbitrator shall be a knowledgeable, independent businessperson
or professional.” . . .
As long as Mr. Figari is “a knowledgeable, independent businessperson or
professional,” he is an acceptable designee for the arbitration panel hearing this
matter, irrespective of the AAA rules. . . . Here, the parties’ arbitration agreement
plainly provides the method for selecting arbitrators for the three-person panel and
establishes the qualifications for serving on the panel. . . . Mr. Figari possesses the
requisite qualifications and the fact that he has served previously and is now serving
as a member of a panel considering a dispute between some of these same parties
does not change that fact. There has been—and can be—no allegation that Mr.
Figari has been anything but knowledgeable and independent in his performance on
the panels in Myer I and Myer II.
-- Page 4 end --
Furthermore, Americo wrote the AAA again after the AAA removed Figari but before the
arbitration, stating:
[T]he AAA Commercial Arbitration Rules do not govern the selection of and
qualifications for arbitrators to hear disputes between Americo and Myer. . . . The
Agreement states that “[e]ach arbitrator shall be a knowledgeable, independent
businessperson or professional.” . . .
Mr. Figari is “a knowledgeable, independent businessperson or professional”.
Therefore, he is a proper designee for the Panel to hear this matter.
In addition, Americo’s letter to the AAA cited Brook v. Peak International, Ltd., which discusses
the vacation of arbitration awards by arbitrators not appointed under the method provided by a
contract and the preservation of such a complaint by presenting it during arbitration. 294 F.3d 668,
673 (5th Cir. 2002). Americo reiterated this argument in the district court, stating that “the Award
must be vacated under FAA § 5 and applicable law, because the Award was not made by arbitrators
who were appointed under the method provided in the Agreement.”
The court of appeals is correct that Americo did not expressly state that arbitrators were not
required to be neutral. 315 S.W.3d at 75–76. However, Americo argued that the AAA requirements
did not apply, that the only applicable requirements were that they be knowledgeable and
independent businesspersons or professionals, and that Figari met these qualifications. Americo
properly preserved this argument. Therefore, without hearing oral argument, TEX. R.APP. P. 59.1,
we reverse the court of appeals’ judgment and remand the case to the court of appeals for further
proceedings consistent with this opinion.
OPINION DELIVERED: December 16, 2011
-- Page 5 end --
CASE DETAILS:
AMERICO LIFE, INC., AMERICO FINANCIAL LIFE AND ANNUITY INSURANCE COMPANY, GREAT SOUTHERN LIFE INSURANCE COMPANY, THE OHIO STATE LIFE INSURANCE COMPANY, AND NATIONAL FARMERS' UNION LIFE INSURANCE COMPANY v. ROBERT L. MYER AND STRIDER MARKETING GROUP, INC.; from Dallas County; 5th district (05-08-01053-CV, 315 SW3d 72, 10-22-09)
Pursuant to Texas Rule of Appellate Procedure 59.1, after granting the petition for review and without hearing oral argument, the Court reverses the court of appeals' judgment and remands the case to that court.
Per Curiam Opinion
Click below to read the Dallas Court of Appeal's Opinion: 315 S.W.3d 72 (2009)
Texas Supreme Court again addresses arbitration issues, hands down three arb-related decisions in one day
Among the opinions released by the Texas Supreme Court in almost a dozen cases decided today, Friday December 16, 2011, no less than three deal with arbitration, and all three relate in one way or another to the selection of arbitrators. Here is the list, with opinion excerpts:
In re Service Corporation International, (Tex. 2011)
No. 10-0158 (Tex. Dec. 16, 2011)(appointment of arbitrator based on agreement on method, rather than selection by the trial court judge) (mandamus relief granted)
Norma Sandoval and her sister, Nora Martinez, jointly filed suit against Service Corporation International (SCI) alleging fraud, deceptive trade practices, and other tort claims arising from their respective interment rights and services contracts for family burial plots at Mont Meta Memorial Park.1 The parties agree the dispute was required to be arbitrated pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-16.
SCI asserts that the trial court’s appointment of an arbitrator interfered with the contractual rights of the parties and was not authorized by the Federal Arbitration Act. Without reaching the parties’ arguments as to which party or parties have the burden of approaching the AAA to appoint an arbitrator, we agree with SCI that the trial court’s appointment was an abuse of discretion from which there is no adequate remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004). In a related case also decided today, In re Service Corp. International & SCI Tex. Funeral Services, Inc. d/b/a Magic Valley Memorial Gardens, we analyzed an identical arbitration provision. __ S.W.3d __ (Tex. 2011). Following the rationale in Magic Valley Memorial Gardens, we conclude the trial court abused its discretion by appointing an arbitrator instead of following the agreed-upon method of selection outlined in the contract. As a matter of law, the two month delay in the selection of an arbitrator in this case, by itself, does not establish a lapse or failure of the parties to avail themselves of the contractual selection method. See 9 U.S.C. § 5; Magic Valley Memorial Gardens, __ S.W.3d __ (Tex. 2011). Accordingly, without hearing oral argument, we conditionally grant SCI’s petition for writ of mandamus and direct the trial court to vacate its prior order appointing David Calvillo as arbitrator. TEX. R.APP. P. 59.1, 52.8(c). We are confident the trial court will comply, and the writ will issue only if it fails to do so.
OPINION DELIVERED: December 16, 2011
Pursuant to Texas Rule of Appellate Procedure 52.8(c), without hearing oral argument, the Court conditionally grants the writ of mandamus.
Per Curiam Opinion
Links to pdf version of opinion and to Electronic Briefs in this case can be found on the Texas Supreme Court's web site
Full case style and lower-court info: IN RE SERVICE CORPORATION INTERNATIONAL AND SCI TEXAS FUNERAL SERVICES, INC., JOINTLY D/B/A MONT META MEMORIAL GARDENS; from Cameron County; 13th district (13-10-00026-CV, ___ SW3d ___, 02-23-10)
In Re SCI, (Tex. 2011)
No. 10-0155 (Tex. Dec. 16, 2011)(arbitration, procedure to select arbitrator)(mandamus relief granted)
This mandamus proceeding arises from an arbitration agreement governed by the Federal Arbitration Act (FAA). The parties entered into a contract for interment rights and services. The contract obligated the parties to arbitrate this dispute over the care and maintenance of the cemetery.
The arbitration agreement provides that an arbitrator would either be selected by mutual agreement of the parties or appointed by the American Arbitration Association (AAA). The parties failed to agree to an arbitrator and the trial court appointed an arbitrator without allowing a reasonable opportunity to procure an appointment by AAA. We conclude that the trial court abused its discretion and conditionally grant the petition for writ of mandamus.
We conclude that the contract is not ambiguous on this point. If the parties cannot agree on an arbitrator, the contract requires that they use AAA to appoint the arbitrator.
Full case style and lower-court info: IN RE SERVICE CORPORATION INTERNATIONAL AND SCI TEXAS FUNERAL SERVICES, INC. D/B/A MAGIC VALLEY MEMORIAL GARDENS; from Hidalgo County; 13th district (13-09-00681-CV, ___ SW3d ___, 02-17-10) stay order issued March 12, 2010, lifted
Pursuant to Texas Rule of Appellate Procedure 52.8(c), without hearing oral argument, the Court conditionally grants the writ of mandamus.
Per Curiam Opinion
Links to pdf version of opinion and to Electronic Briefs in this case can be found on the Texas Supreme Court's web site
Americo Life, Inc. v. Myer, (Tex. 2011)
No. 10-0734 (Tex. Dec. 16, 2011)(selection of arbitrators on panel, issue of neutrality of chosen arbitrator)
This case concerns an arbitration provision that allows each party to appoint one arbitrator to a panel, subject to certain requirements. At issue is whether Americo Life, Inc. waived its objection to the removal of the arbitrator it selected. The underlying dispute concerned the financing mechanism for Americo’s purchase of several insurance companies from Robert Myer.1 Pursuant to the financing agreement, Americo and Myer submitted their dispute to arbitration under American Arbitration Association (AAA) rules. The arbitrators found in favor of Myer, and Americo filed a motion to vacate the award. The trial court granted the motion. It held that Americo was entitled to any arbitrator that met the requirements set forth in the financing agreement and that the arbitrator removed by the AAA met those requirements. The court of appeals reversed, holding that Americo had waived these arguments by not presenting them to the AAA. Because the record demonstrates otherwise, we reverse the court of appeals’ judgment and remand the case to the court of appeals for further proceedings.
The court of appeals is correct that Americo did not expressly state that arbitrators were not required to be neutral. 315 S.W.3d at 75–76. However, Americo argued that the AAA requirements did not apply, that the only applicable requirements were that they be knowledgeable and independent businesspersons or professionals, and that Figari met these qualifications. Americo properly preserved this argument. Therefore, without hearing oral argument, TEX. R.APP. P. 59.1, we reverse the court of appeals’ judgment and remand the case to the court of appeals for further proceedings consistent with this opinion.
OPINION DELIVERED: December 16, 2011
Full case style and lower-court info: AMERICO LIFE, INC., AMERICO FINANCIAL LIFE AND ANNUITY INSURANCE COMPANY, GREAT SOUTHERN LIFE INSURANCE COMPANY, THE OHIO STATE LIFE INSURANCE COMPANY, AND NATIONAL FARMERS' UNION LIFE INSURANCE COMPANY v. ROBERT L. MYER AND STRIDER MARKETING GROUP, INC.; from Dallas County; 5th district (05-08-01053-CV, 315 SW3d 72, 10-22-09)
Pursuant to Texas Rule of Appellate Procedure 59.1, after granting the petition for review and without hearing oral argument, the Court reverses the court of appeals' judgment and remands the case to that court.
Per Curiam Opinion
Links to pdf version of opinion and to Electronic Briefs in this case can be found on the Texas Supreme Court's web site
Thursday, December 8, 2011
Interpretation of disputed provision of MSA in divorce case left to discretion of mediator, given the parties agreement to that effect
Houston Court of appeals reverses trial court for deciding dispute over a specific provision of a mediated stettlement agreement in a divorce case based on parties' agreement to have the mediator decide such dispute and - in effect - act as arbitrator. Court would ordinarily have role in construction of mediated settlement agreement (MSA) as a contract, but not where - as here - the parties put the mediator in charge of arbitrating subsequent disagreements.
Entry of Judgment on the Mediated Settlement Agreement
Texas public policy encourages the peaceable resolution of disputes, particularly those involving the parent-child relationship, and the early settlement of pending litigation through voluntary settlement procedures. Tex. Civ. Prac. & Rem. Code Ann. § 154.002 (West 2011).
The Family Code furthers this policy by providing alternative dispute resolution procedures through which parties may settle a suit for dissolution of a marriage. See, e.g., Tex. Fam. Code Ann. §§ 6.601-.604 (West 2006). One such procedure is mediation. See id. § 6.602.
A mediated settlement agreement is binding under section 6.602 of the Family Code if the agreement:
(1) provides, in a prominently displayed statement that is in boldfaced type or capital letters or underlined, that the agreement is not subject to revocation;
(2) is signed by each party to the agreement; and
(3) is signed by the party’s attorney, if any, who is present at the time the agreement is signed.
Id. § 6.602(b).
Settlement agreements complying with section 6.602 are immediately enforceable, not subject to repudiation by a party, and, with certain limited exceptions, binding on the trial court without approval or determination of whether the agreement’s terms are just and right. See In re Joyner, 196 S.W.3d 883, 889 (Tex. App.—Texarkana 2006, orig. proceeding); Cayan v. Cayan, 38 S.W.3d 161, 164-66 (Tex. App.—Houston [14th Dist.] 2000, pet. denied); see also Spiegel v. KLRU Endowment Fund, 228 S.W.3d 237, 242 (Tex. App.—Austin 2007, pet. denied) (noting that when MSA meets section 6.602’s requirements, “it must be enforced in the absence of allegations that the agreement calls for the performance of an illegal act or that it was ‘procured by fraud, duress, coercion, or other dishonest means.’”) (quoting Boyd v. Boyd, 67 S.W.3d 398, 403 (Tex. App.—Fort Worth 2002, no pet.). “After all, the purpose of mediation is to let parties settle their property as they see fit, keeping those matters out of the courtroom.” Joyner, 196 S.W.3d at 889. A trial court has no authority to enter a judgment that varies from the terms of a mediated settlement agreement. Cf. Garcia-Udall v. Udall, 141 S.W.3d 323, 332 (Tex. App.—Dallas 2004, no pet.) (concluding that trial court abused its discretion under Tex. Fam. Code Ann. § 153.0071 (West 2002) by entering judgment not conforming with MSA in suit affecting parent-child relationship).
Neither WIFE nor HUSBAND disputes that the MSA here meets the requirements of section 6.602. Likewise, they do not dispute that the MSA is enforceable; there is no allegation that the agreement requires the performance of an illegal act or was procured by fraud, duress, or coercion. Rather, the parties’ only dispute is with respect to the meaning of that part of the MSA dividing HUSBAND’s “future retirement disbursements” equally and whether future distributions from HUSBAND’s ESOP are included within its scope.
Ordinarily, if the terms of the MSA could be given a certain or definite meaning, we would construe the agreement as a matter of law to determine whether WIFE’s or HUSBAND’s construction is correct. See Garcia-Udall, 141 S.W.3d at 328. But, this case presents a unique circumstance in that the parties agreed in the MSA to submit “(a) all drafting disputes[,] (b) all issues regarding the interpretation of [the MSA,] and (c) all issues regarding the intent of the parties as reflected in the [MSA]” to the mediator and to make his decision on these matters binding. Thus, by their agreement, WIFE and HUSBAND removed the resolution of their dispute from the province of the courts and assigned that responsibility to the mediator. Absent some allegation that the MSA requires an illegal act or was procured by fraud, duress, coercion, or other dishonesty, the trial court was obligated to enforce their agreement. See id. at 332; Spiegel, 228 S.W.3d at 242.
We reject HUSBAND’s contention that the mediator’s “flip-flopping” somehow nullifies his decision regarding the parties’ intended division of HUSBAND’s “future retirement disbursements.” HUSBAND has offered no reason why a mediator should not have the same discretion afforded trial courts to reconsider a ruling. See generally Fruehauf Corp. v. Carrillo, 848 S.W.2d 83, 84 (Tex. 1993) (noting that trial court has power to set aside interlocutory orders at any time before a final judgment is entered). The record we have of the parties’ dispute before the mediator is limited, consisting only of the MSA, counsels’ representations at the hearing on the entry of judgment, and the three letters issued by the mediator. We will not speculate about the reasons for the mediator’s reconsideration of his initial determination nor the arguments presented to him by the parties. We note only that the mediator acknowledged the parties’ continuing dispute and professed an understanding of their “concerns and the practical effect that certain language may or may not have” in his third letter. We conclude that letter, being the last of the mediator’s communications, constitutes the final expression of his decision with respect to the division of HUSBAND’s “future retirement benefits.”
Moore v. Moore, No. 01-11-00163-CV (Tex.App.- Houston [1st Dist.] Dec. 8, 2011)
Click below to read the opinion (names of parties replaced by designations HUSBAND and WIFE)
Thursday, October 13, 2011
Schlumberger Technology Corporation v. Baker Hughes Inc. - Appeals Court rules in complex arbitration-within-arbitration dispute
First Court of Appeals in Houston hands down lengthy opinion in interlocutory appeal of complex dispute over who should hear and resolve subsidiary issue in a pending arbitration proceeding. Parties filed duelling motions to compel arbitration. Finding it has interlocutory jurisdiction over the appeal, the higher court reverses the trial court's decision, holding that in this case the parties agreed to have the issue of arbitrability/arbitral forum decided by arbitration -- rather than the trial court deciding it as a gateway issue, which would ordinarily be the rule.
Schlumberger Technology Corporation v. Baker Hughes Inc.,
No. 01-11-00562-CV (Tex.App. - Houston [1st Dist.] Oct. 13, 2011, no pet. h.)
In The
Court of Appeals
Schlumberger Technology Corporation and Baker Hughes Incorporated are in the midst of an arbitration proceeding to resolve patent disputes. A disagreement has arisen about whether the presiding panel of arbitrators has jurisdiction to determine a discrete subissue raised by Baker Hughes in the proceeding. Schlumberger contends that the subissue should be resolved by the same panel, but Baker Hughes argues that the issue is governed by a prior settlement agreement between the parties and must be resolved by the mediator who facilitated that agreement.
Baker Hughes initiated court proceedings, and both parties filed motions to compel arbitration in accordance with their respective positions. The trial court granted Baker Hughes’s requested relief and denied Schlumberger’s motion. Schlumberger now appeals from the trial court’s interlocutory order that denied its motion to compel arbitration.
We conclude that we have jurisdiction over this interlocutory appeal. We further conclude that the parties agreed to let the arbitrators resolve their disagreement about the proper arbitral forum for their dispute and that the trial court should have compelled arbitration of that issue. Accordingly, we reverse the trial court’s order denying Schlumberger’s motion, and we remand for further proceedings consistent with this opinion.
Background
Schlumberger and Baker Hughes are competitors in the business of developing, manufacturing, and marketing tools for use in the oil and gas industry. Both own or control patents related to such tools. At various times, disputes have arisen about each party’s alleged infringement of the other’s patents. One of these disputes involved reciprocal claims relating to sensor tools used to gather information and fluid samples from oil and gas wells. Baker Hughes claimed that Schlumberger’s tool infringed a certain patent, and Schlumberger alleged that Baker Hughes’s tool infringed certain of its patents. The parties mediated this dispute, and in October 2004 they executed a settlement agreement. The parties granted each other reciprocal licenses to the patents at issue in that dispute, and they released and discharged each other from "any and all claims, demands or suits, known or unknown, fixed or contingent, liquidated or unliquidated whether or not asserted in the above case, as of this date, arising from or related to the events and transactions which are subject matter to this case." The 2004 settlement agreement also contained the following dispute resolution provision:
If a dispute arises with regard to the interpretation and/or performance of this agreement or any of its provisions, the parties agree to attempt to resolve same by phone conference with the Mediator who facilitated this settlement. If the parties cannot resolve their differences by telephone conference, then each agrees to schedule a day of mediation with the Mediator within thirty (30) days to resolve the disputes and to share the costs of the same equally. If a party refuses to mediate, then the parties agree to submit the issue to binding arbitration before the Mediator in this matter and the party bringing the arbitration shall be entitled to recover attorney’s fees or costs in such arbitration.
After the 2004 settlement agreement was finalized, additional disputes arose between the parties concerning their intellectual property. To facilitate efficient resolution of these disputes, in 2009 the parties entered into two additional agreements: the Patent Dispute Resolution Agreement and the Patent Dispute Procedure Agreement. The Resolution Agreement provided that its purpose was to address and resolve then-current disputes and to provide a process for addressing future disputes about the infringement and validity of each party’s patents. That agreement defined "Current Disputes" as "those Disputes for which assertions have been made prior to the signing of this Agreement," and it expressly referenced an attached exhibit that listed the Current Disputes. The Resolution Agreement also defined "Dispute" as:
. . . any dispute between the Parties arising out of or relating to or in connection with a claim of 1) infringement or the damages arising therefrom, or 2) the invalidity or unenforceability of either Party’s Patents. "Dispute" shall also include disputes relating to the interpretation, construction, alleged breach of this Agreement, the Procedure Agreement, a license agreement or covenant not to sue relating to a Patent or Patents, or amounts paid under such a license agreement or covenant not to sue. Disputes arising under existing licenses or covenants not to sue shall be treated in accordance with Section 3.2, below.
Schlumberger and Baker Hughes agreed that "any Current Disputes or future Disputes . . . shall be solely resolved as set forth in the Procedure Agreement."
Section 3 of the Resolution Agreement carved out an exception for disputes arising from any preexisting patent or license agreement that contained its own dispute resolution procedures. By that provision the parties agreed:
3. TREATMENT OF EXISTING AND FUTURE PATENT AGREEMENTS
3.1 Existing, unexpired patent agreements and licenses between the Parties will remain in effect and this Agreement and the Procedure Agreement shall have no impact on their terms, including negotiated royalty rates, royalty base, or restrictions on field of use.
3.2 Unless a dispute resolution process is set forth in an existing or future patent agreement or license, breaches of those agreements shall be subject to resolution in accordance with the terms of this Agreement.
Consistent with this provision, a merger clause provided that the Resolution Agreement constituted the parties’ "entire agreement . . . with respect to the same subject matter hereof" and superseded "all other agreements, whether written or oral except as provided by Section 3.1 . . . ."
If direct negotiations should fail to resolve a dispute encompassed by the Resolution Agreement, the Procedure Agreement specifies resolution by arbitration before a panel of American Arbitration Association arbitrators, pursuant to AAA rules. Pursuant to the Resolution and Procedure Agreements, the parties began arbitration before a panel of three AAA arbitrators to resolve a dispute as to whether a module of Baker Hughes’s sensor tool infringes Schlumberger’s patents. The parties agree that this dispute, which they reference as the "four-patent dispute," was one of the Current Disputes expressly identified in the Resolution Agreement. During the course of that proceeding, Schlumberger submitted a report from its damages expert. Baker Hughes contends that Schlumberger’s expert did not confine his analysis to the module and patents at issue in the four-patent dispute but instead included damages relating to the entire sensor tool. Baker Hughes argues that Schlumberger’s damages model includes damages arising from alleged infringement of the patents that were licensed to Baker Hughes in the 2004 settlement agreement. Baker Hughes also contends that this damages claim was itself a breach of the 2004 settlement agreement.
Baker Hughes raised affirmative defenses of license and release in the four-patent dispute, and it invoked the dispute resolution provisions of the 2004 settlement agreement, contending that the new dispute about the scope of the releases under that agreement must be arbitrated before that agreement’s mediator. Schlumberger took the position that this dispute about the proper arbitral forum was encapsulated within an expressly designated Current Dispute, governed by the Resolution and Procedure Agreements, and thereby should be determined within the ongoing AAA arbitration. In light of the parties’ disagreement about the proper arbitral forum, the mediator informed the parties that she would not proceed with the dispute resolution process absent an order from the district court or agreement of the parties. Baker Hughes then filed an application to compel arbitration of the license and release issue before the mediator and a petition for declaratory judgment.
Meanwhile, the parties presented their arguments to the AAA panel by letter, and that panel responded with an "Interim Ruling on Defenses." The Interim Ruling summarized the dispute as encompassing two issues: (1) "who has jurisdiction to decide particular substantive issues" and (2) "the substantive issues, namely whether the affirmative defenses of license or release . . . were raised in a timely manner or were waived." The panel concluded, based on the Resolution Agreement, the Procedure Agreement, and the AAA rules applicable to the arbitration, that it had jurisdiction to determine its own jurisdiction and "sole jurisdiction" to resolve the "substantive" issue of whether Baker Hughes’s affirmative defenses were waived. However, acknowledging that Baker Hughes had filed a motion to compel arbitration in the district court, and expressly invoking "the interest of judicial economy," the AAA panel temporarily stayed its own consideration of the "substantive" waiver issue to allow the district court time to consider the motion to compel arbitration under the 2004 settlement agreement. A few days later, Schlumberger filed in the district court its own Motion to Compel Arbitration and to Stay Proceedings, seeking an order staying proceedings in the district court and "compelling" Baker Hughes "to litigate its claims and defenses solely in the ongoing [AAA] arbitration."
After considering the parties’ competing motions, the district court granted Baker Hughes’s application to compel arbitration. In the same order, the court denied Schlumberger’s motion and ordered the parties to arbitrate the disputes relating to the 2004 settlement agreement before its mediator. Schlumberger then filed this interlocutory appeal from the trial court’s order denying its motion.
Analysis
I. Jurisdiction
Baker Hughes has moved to dismiss this appeal for lack of jurisdiction, so that is the threshold issue for our consideration. See CMH Homes v. Perez, 340 S.W.3d 444, 447 (Tex. 2011). "Unless a statute authorizes an interlocutory appeal, appellate courts generally only have jurisdiction over final judgments." Id.; see also Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992). "We strictly apply statutes granting interlocutory appeals because they are a narrow exception to the general rule that interlocutory orders are not immediately appealable." CMH Homes, 340 S.W.3d at 447; see also Bally Total Fitness Corp. v. Jackson, 53 S.W.3d 352, 355 (Tex. 2001). Both parties invoke authorities applying the Federal Arbitration Act and the Texas Arbitration Act, and neither party suggests that one applies to the exclusion of the other, or that the result depends upon which law applies. Accordingly, we focus our analysis on the application of the TAA’s interlocutory appeal provisions, which provide that a party may appeal an interlocutory order that denies an application to compel arbitration made under Section 171.021. TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1) (West 2011).
A. Schlumberger’s motion
Baker Hughes argues that the trial court’s order does not fit within the narrow statutory categories for which an interlocutory appeal is permitted. It first argues that Schlumberger’s motion in the trial court was not truly an "application to compel arbitration" in the sense contemplated by the statute. See id. §§ 171.021, 171.098(a)(1). A primary contention supporting this argument is that the relief requested by Schlumberger merely would result in the parties continuing their ongoing arbitration proceeding. Thus Baker Hughes argues that the motion did not ask the trial court to compel a new arbitration but instead called upon the trial court to interfere with the arbitrators’ administration of an ongoing proceeding. Baker Hughes also argues that Schlumberger’s motion did not qualify as an application to compel arbitration because Schlumberger could not satisfy the threshold requirement of a refusal to arbitrate. See id. § 171.021(a)(2). In response, Schlumberger contends that its motion was a proper application to compel arbitration and the trial court’s denial of it is appealable under the plain language of the statute.
Section 171.098(a)(1) requires, as a predicate to our interlocutory appellate jurisdiction under that provision, the filing of "an application to compel arbitration made under Section 171.021" and an order denying that application. To prevail under Section 171.021, such a motion must show the existence of an agreement to arbitrate that applies to the parties’ dispute and that the opposing party has refused to arbitrate. See id. We do not agree with Baker Hughes, however, that a searching examination of the merits of Schlumberger’s motion is the appropriate method to determine whether it qualifies as "an application to compel arbitration" contemplated by Section 171.098(a)(1). Instead, it is the substance and function of the application viewed in the context of the record that controls our interlocutory jurisdiction. Cf. Walker Sand, Inc. v. Baytown Asphalt Materials, Ltd., 95 S.W.3d 511, 515 (Tex. App.—Houston [1st Dist.] 2002, no pet.) (analyzing substance and function of order purportedly giving rise to interlocutory appellate jurisdiction under Section 171.098(a)(1)). Accordingly, we will consider Schlumberger’s motion in the context of the record to determine whether the denial of the application is subject to interlocutory review.
Schlumberger filed a document in the trial court entitled "Defendant’s Motion to Compel Arbitration and to Stay Proceedings." In this motion, Schlumberger alleged the existence of an agreement to arbitrate arising from the Resolution and Procedure Agreements. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(a)(1). Schlumberger further alleged that the AAA panel was empowered to determine and already had determined that the scope of that proceeding included Baker Hughes’s release and license defense. Finally, Schlumberger alleged that rather than arbitrating this issue before the AAA panel, Baker Hughes filed suit to compel arbitration under the 2004 settlement agreement. Thus, Schlumberger clearly informed the trial court that in the context of an ongoing arbitration, the parties had a discrete disagreement about the appropriate venue in which a particular subissue was to be arbitrated and both parties relied on separate arbitration agreements to support their positions.
1. Jurisdictional effect of pending arbitration proceeding
Baker Hughes contends that this could not be a motion to compel arbitration in the sense contemplated by the statute because the parties were already in engaged in an ongoing arbitration. Although we are obliged to construe the jurisdictional statute narrowly, see, e.g., CMH Homes, 340 S.W.3d at 447, the text of the statute does not provide any basis for Baker Hughes’s proposed distinction between a request to initiate a new arbitration proceeding and a request to require arbitration of a subsidiary issue when its arbitrability has been disputed. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1). The sole authority relied upon by Baker Hughes for this proposition lends no support. In Dealer Computer Services, Inc. v. Red Hill Ford, Inc., No. 05-10-00983-CV, 2010 WL 3566124, at *1 (Tex. App.—Dallas Sept. 15, 2010, no pet.) (mem. op.), the trial court had issued a restraining order staying arbitration proceedings after Red Hill Ford alleged that the arbitration panel had engaged in misconduct. See 2010 WL 3566124, at *1. Two months after the restraining order expired, the final arbitration hearing had not yet been rescheduled "due to pending motions and other issues," and Dealer Computer moved to compel a return to the pending arbitration. Id. The court of appeals held that it lacked jurisdiction because there was no allegation that Red Hill Ford failed, neglected, or refused to arbitrate under a written agreement. Id. Unlike an attempt to stay proceedings based on alleged arbitrator misconduct, Schlumberger’s allegation that Baker Hughes sought to compel a separate arbitration rather than submitting its defenses to the AAA panel is functionally equivalent to an allegation that Baker Hughes failed, neglected, or refused to arbitrate the disputed issue.
Baker Hughes also contends that "interlocutory appeal is not available to challenge orders in cases where arbitration was originally compelled." But there is nothing in the appellate record to show that the AAA arbitration was "originally compelled." Indeed, the parties’ briefing in this Court suggests that the AAA arbitration was instituted by agreement of the parties. Moreover, the authority relied upon by Baker Hughes in this regard, HEB Grocery Co., L.P. v. Kirksey, No. 14-10-00217-CV, 2010 WL 1790878 (Tex. App.—Houston [14th Dist.] May 6, 2010, no pet.) (mem. op.) (per curiam), is not applicable to this dispute because the jurisdictional defect in that case was that no statutory provision authorized an interlocutory appeal from an order granting recusal of one arbitrator and substituting another. See 2010 WL 1790878, at *2.
2. Jurisdictional effect of the merits of Schlumberger’s motion
Baker Hughes also argues that this court lacks jurisdiction because Schlumberger cannot show that Baker Hughes refused to arbitrate, which must be shown to compel arbitration under Section 171.021(a). This argument conflates the characterization of Schlumberger’s motion as an "application to compel arbitration" with its ultimate merits. Put another way, under Baker Hughes’s interpretation of Section 171.098(a)(1), we would only have appellate jurisdiction when a trial court incorrectly denied an application to compel arbitration made under Section 171.021. Again acknowledging that we narrowly construe all statutes establishing our interlocutory appellate jurisdiction, see, e.g., CMH Homes, 340 S.W.3d at 447, no practical limitation of our review is achieved if we review the merits of the underlying motion in order to determine whether we have jurisdiction over the denial of it.
Instead, we consider the nature of the motion in the context of the record. Cf. Walker Sand, 95 S.W.3d at 515. Viewed in that light, it is apparent that while Baker Hughes did not flatly refuse to arbitrate the dispute in any arbitral forum (it was willing to arbitrate the dispute before the mediator of the 2004 settlement agreement), by initiating these proceedings and by withholding its consent to arbitrating in accordance with what Schlumberger contends in its motion is the controlling agreement, Baker Hughes resisted arbitration of the particular dispute at issue before the AAA panel. Reserving judgment on the ultimate merits of the motion for purposes of our jurisdictional inquiry, we conclude that the motion is an application to compel arbitration on the grounds that Baker Hughes is actively resisting arbitration under the terms of what Schlumberger alleges is the controlling arbitration agreement.
3. Jurisdictional effect of the relief sought by Schlumberger’s motion
Finally, Baker Hughes argues that rather than constituting an application to compel arbitration, Schlumberger’s motion is merely a response to Baker Hughes’s motion, particularly because the relief sought by Schlumberger allegedly was no different from what would have resulted if the trial court had denied Baker Hughes’s motion. This argument fails because Schlumberger, in its motion, sought affirmative relief beyond the mere denial of Baker Hughes’s motion. Schlumberger argued that the AAA panel has the sole power to decide the proper arbitral venue for the merits of Baker Hughes’s defenses, and it also argued that the AAA panel had actually decided that question in favor of its own jurisdiction. Schlumberger thus sought an order from the trial court ordering Baker Hughes "to litigate its claims and defenses solely in the ongoing [AAA] arbitration." The mere denial of Baker Hughes’s motion would not necessarily mean that the AAA panel would decide these disputed issues against Baker Hughes (unless the AAA panel had already decided them in its Interim Ruling, which the parties dispute and Baker Hughes has denied). Accordingly, Baker Hughes would remain free to argue to the AAA panel that a separate arbitration is required on its defenses. Schlumberger’s motion asked for something more than the mere denial of the Baker Hughes motion; it sought an affirmative order from the trial court deciding the underlying arbitrability question in its favor.
* * *
Viewing the motion in the context of the record, we conclude that the substance and function of Schlumberger’s motion was to allege the existence of an agreement to arbitrate that applied to the parties’ dispute—i.e. the Resolution Agreement—and that Baker Hughes refused to arbitrate in accordance with that agreement. Cf. Walker Sand, 95 S.W.3d at 515. We therefore hold that Schlumberger’s motion qualified as "an application to compel arbitration made under Section 171.021" for the purposes of our interlocutory jurisdiction under Section 171.098(a)(1).
B. Trial court’s order
We next consider whether the trial court’s order qualifies as an "order denying" such an application. Under the plain language of the TAA, it is the denial of "an application to compel arbitration"—not the denial of arbitration in the general sense—that gives rise to the right to an interlocutory appeal. TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1). "[I]t is the substance and function of the order viewed in the context of the record that controls our interlocutory jurisdiction," not Baker Hughes’s characterization of the order. Walker Sand, 95 S.W.3d at 515; see also Texas La Fiesta Auto Sales, LLC v. Belk, No. 14-10-01146-CV, 2011 WL 4090381, at *4 (Tex. App.—Houston [14th Dist.] Sept. 15, 2011, no. pet. h.); McReynolds v. Elston, 222 S.W.3d 731, 738 (Tex. App.—Houston [14th Dist.] 2007, no pet.).
The trial court evidently understood Schlumberger’s motion to be a motion to compel arbitration. In a single order, the court stated that it had considered both Baker Hughes’s "Application to Compel Arbitration And Petition for Declaratory Judgment" and Schlumberger’s "Motion to Compel Arbitration and Stay Proceedings." In its order, the court expressly granted "Baker Hughes’s application," denied "Schlumberger’s motion," and ordered the parties "to arbitrate the disputes relating to the 2004 Settlement Agreement" before the mediator. Thus, at least on its face, the order purports and appears to be one "denying an application to compel arbitration." See TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1).
The substance and function of the order support the trial court’s express characterization. Baker Hughes sought to enforce its alleged contractual right to arbitration that arose under the 2004 settlement agreement. Likewise, Schlumberger sought to enforce its alleged contractual right to arbitration that arose under the Resolution and Procedure Agreements. The parties’ dispute about the appropriate arbitral forum indicates that the difference between the two alternatives is significant, including different methods of arbitration and different arbitrators. The trial court considered two related arbitration agreements, granted a motion seeking to compel arbitration under one of them, and denied a motion seeking to compel arbitration under the other. As in McReynolds, Schlumberger did not simply seek to substitute one arbitrator for another; it sought to enforce an express contractual right. See McReynolds, 222 S.W.3d at 738. Baker Hughes attempts to distinguish the holding that interlocutory jurisdiction existed in McReynolds because, although it involved competing arbitration agreements, the appellant in that case sought to initiate a new and separate arbitration proceeding, unlike Schlumberger, which is seeking to continue in an ongoing arbitration. We acknowledge that distinction between the two fact patterns, but it does not alter our analysis. Although the trial court ordered an arbitration under the 2004 settlement agreement to proceed, it specifically denied Schlumberger’s claimed contractual right to arbitration under the Resolution and Procedure Agreements, which Schlumberger sought to enforce through its own motion to compel arbitration.
Based on the trial court’s characterization of Schlumberger’s motion as one to compel arbitration, its express denial of that motion, and the resulting denial of Schlumberger’s asserted contractual right to arbitration, we conclude that the trial court’s order was an order denying an application to compel arbitration. See McReynolds, 222 S.W.3d at 738–39. This order is not insulated from appellate review conferred by statute simply because it also grants a competing motion to compel arbitration. Cf. E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 270 (Tex. 2010) (holding that judgment denying confirmation of arbitral award was appealable even though order also vacated award and directed rehearing). Accordingly we hold that we have jurisdiction over this interlocutory appeal, and we deny Baker Hughes’s motion to dismiss.
II. Application to compel arbitration
We now consider the merits of Schlumberger’s appeal from the denial of its application to compel arbitration. Generally speaking, we review the trial court’s denial of a motion to compel arbitration for abuse of discretion. See Okorafor v. Uncle Sam & Assocs., Inc., 295 S.W.3d 27, 38 (Tex. App.—Houston [1st Dist.] 2009, pet. denied); see also W. Wendall Hall et al., Hall’s Standards of Review in Texas, 42 St. Mary’s L.J. 1, 78 (2010) (citing Jack B. Anglin Co., 842 S.W.2d at 271). However, "[w]hen an appeal from a denial of a motion to compel arbitration turns on a legal determination . . . we apply a de novo standard." Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 55 n.9 (Tex. 2008).
Schlumberger argues that the AAA panel had the authority to determine its own jurisdiction, the panel determined that it had jurisdiction to decide the merits of Baker Hughes’s defenses based on the 2004 settlement agreement, and the trial court should have deferred to that ruling. Baker Hughes responds that there is no reason to reach these questions because it never refused to arbitrate. On the merits, Baker Hughes contends as a matter of contract interpretation that the 2004 settlement agreement rather than the Resolution Agreement controls the dispute resolution procedure. It argues, therefore, that the Resolution Agreement is inapplicable, and the dispute was appropriately resolved by the district court because the 2004 agreement does not reserve arbitrability disputes for the arbitrator.
A. ReFusal to arbitrate
First, we confront the contention that Schlumberger was not entitled to relief on the theory that Baker Hughes’s willingness to arbitrate in its preferred arbitral forum means that it has not refused to arbitrate. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(a)(2). Baker Hughes reasons that it has agreed to arbitrate, and it is simply following proper arbitration procedure to assert its rights under the parties’ contracts.
The sole authority relied upon by Baker Hughes for this position is Jacobs v. USA Track & Field, 374 F.3d 85 (2d Cir. 2004), a case decided under the Federal Arbitration Act, 9 U.S.C. § 4. The parties in Jacobs both agreed to arbitrate their dispute before the AAA, but they disagreed about the rules to govern the arbitration, including the procedure for selecting arbitrators. See Jacobs, 374 F.3d at 86. Both of the alternative sets of procedures provided that the arbitrators had the power to decide which rules applied. See id. The AAA considered submissions from both parties and ruled against Jacobs, who then filed a motion to compel arbitration under her preferred rules. The trial court dismissed the case for want of jurisdiction, and the Second Circuit affirmed on the basis that the respondents had not refused to arbitrate, which is a prerequisite to compelling arbitration under Section 4 of the FAA. See id. In so holding, the court specifically noted that, unlike Baker Hughes in this case, "respondents have not commenced litigation against petitioner." Id. at 89. The case that the Jacobs court identified as controlling the result, Downing v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 725 F.2d 192 (2d Cir. 1984), went further and identified the commencement of litigation as a "default" of an arbitration agreement giving rise to the right to seek relief under Section 4. See Downing, 725 F.2d at 195; see also Jones v. Gen. Motors Corp., 640 F. Supp. 2d 1124, 1145 (D. Ariz. 2009) ("the very commencing of litigation can itself be interpreted as a refusal to arbitrate").
We find the reasoning of Downing and its progeny to be persuasive and equally applicable to the similar language in the TAA requiring that a party refuse to arbitrate as a predicate to an order compelling arbitration. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(a)(2). As applied to this case, the parties were already involved in an ongoing arbitration pursuant to the Resolution Agreement. As discussed in greater detail below, the parties clearly and unmistakably agreed to submit disputes about the interpretation of the Resolution Agreement to the arbitration panel. In the course of that proceeding, Baker Hughes asserted that its license or release defenses must be arbitrated in another forum; Schlumberger disagreed. Baker Hughes’s initiation of this court proceeding to compel a separate arbitration before a separate arbitrator pursuant to different rules constitutes an effective refusal to arbitrate pursuant to the Resolution Agreement because Baker Hughes sought to circumvent a resolution of this arbitrability dispute by the AAA panel despite agreeing in the Resolution Agreement to submit such disputes to the AAA panel. We therefore conclude, as a matter of law as applied to the undisputed procedural facts, that Baker Hughes refused to arbitrate under the Resolution Agreement and Schlumberger properly invoked Section 171.021 to compel arbitration under that agreement.
B. Arbitrability of dispute over proper arbitral forum
Turning to the merits of the motion denied by the trial court, we begin by considering Schlumberger’s contention that the AAA panel had authority under the Resolution Agreement to determine its own jurisdiction. This is an essential element of Schlumberger’s motion to compel because otherwise there is no enforceable "agreement to arbitrate." Id. § 171.021(a)(1). This determination depends on an interpretation of the parties’ contracts, which we review de novo. See In re Dillard Dep’t Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Unless the parties clearly and unmistakably agree to submit threshold questions of arbitrability to arbitration, these issues are to be resolved by courts. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S. Ct. 1920, 1923 (1995); In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005); Burlington Res. Oil & Gas Co. v. San Juan Basin Royalty Trust, 249 S.W.3d 34, 39–40 (Tex. App.—Houston [1st Dist.] 2007 pet. denied). However, the express incorporation of rules that empower the arbitrator to determine arbitrability—such as the AAA Commercial Arbitration Rules—has been held to be clear and unmistakable evidence of the parties’ intent to allow the arbitrator to decide such issues. See, e.g., Burlington Res. Oil & Gas Co., 249 S.W.3d at 40–41; Haddock v. Quinn, 287 S.W.3d 158, 172 (Tex. App.—Fort Worth 2009, pet. denied).
The pending four-patent dispute is governed by the Resolution Agreement, which provides that "any Current Disputes or future Disputes . . . shall be solely resolved as set forth in the Procedure Agreement." The parties agree that the underlying four-patent dispute is a Current Dispute under the Resolution Agreement. Other "Disputes" to be "solely resolved as set forth in the Resolution Agreement" include "disputes relating to the interpretation, construction, alleged breach of this [Resolution] Agreement, [and] the Procedure Agreement," but as noted above and argued by Baker Hughes, "[d]isputes arising under existing licenses . . . shall be treated in accordance with Section 3.2," which excepts any existing or future patent agreement or license with its own dispute resolution process.
It is therefore apparent that Schlumberger and Baker Hughes have identified two separate "Disputes." One dispute is a disagreement of contract interpretation about whether the merits of Baker Hughes’s license or release defense should be decided under the Resolution and Procedure Agreements by the AAA panel or under the 2004 settlement agreement’s dispute resolution procedure by the mediator who facilitated that agreement. A separate dispute concerns the choice of forum to decide the answer to the contract interpretation dispute.
This latter dispute about the appropriate forum arose in the context of an ongoing arbitration governed by the Resolution Agreement. As reflected by the parties’ arguments as described above, the answer depends on an interpretation of the Resolution Agreement. Although Baker Hughes has a colorable argument that the merits of the contract interpretation dispute require a separate proceeding under the 2004 settlement agreement, that argument itself depends on an interpretation of the Resolution Agreement. And the parties agreed that "disputes relating to the interpretation" and "construction" of the Resolution Agreement are themselves "Disputes," which are to be "solely resolved as set forth in the Procedure Agreement."
The Procedure Agreement requires arbitration to be conducted "pursuant to administration by the AAA" under the AAA Commercial Arbitration Rules. Under Rule 7(a) of the Commercial Arbitration Rules, the "arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement." COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION, Rule 7(a) (2009). The parties thus incorporated the AAA Commercial Arbitration Rules into the Resolution and Procedure Agreements. Under Rule 7(a) of the Commercial Arbitration Rules, the AAA panel had authority to interpret the Resolution Agreement and thereby determine the scope of the four-patent arbitration. The AAA panel’s authority extends to determining whether Baker Hughes’s license and release defense relates to a claim of infringement or the damages arising therefrom such that it is to be resolved by the AAA panel as part of the pending four-patent arbitration, as contemplated by the Resolution Agreement’s definition of "dispute." Or, the panel could determine the license and release defense implicates a breach of an existing agreement, as contemplated by the carve-out provision in section 3 of the Resolution Agreement, thus triggering the dispute resolution provision of the 2004 settlement agreement. There are no provisions in the Resolution or Procedure Agreements that negate the arbitrators’ power under AAA Rule 7(a) to determine the arbitrability of a defense raised in arbitration. Thus, we conclude that this issue of contract interpretation was a question for the AAA panel, not the trial court and not this court. See Green Tree Fin. Corp. v. Bazzle, 539 U.S 444, 452–53, 123 S. Ct. 2402, 2407 (2003) (holding that interpretation of arbitration contract was question for arbitrators).
In its motion to compel arbitration, Schlumberger asserted that the merits of Baker Hughes’s defense was within the scope of the AAA arbitration and that the parties had agreed to let the AAA panel determine issues of arbitrability. Because the AAA panel had authority to determine the question of contract interpretation, the trial court should have granted this aspect of Schlumberger’s motion so that the dispute could be resolved by the AAA panel, as the parties agreed in the Resolution Agreement. See id. at 452–53, 123 S. Ct. at 2407.
C. Determination by AAA panel
Finally, we address the ultimate relief requested by Schlumberger, an order that these proceedings be stayed and that Baker Hughes be required to litigate the merits of its license and release defense before the AAA panel. To the extent Schlumberger argues it is entitled to this relief on the merits of its arguments about the interpretation of the various arbitration agreements, Schlumberger’s arguments are appropriately addressed to the AAA panel, as explained above. To the extent Schlumberger contends that the AAA panel has already resolved the question in favor of its own jurisdiction, we conclude that the appellate record provided to us is inconclusive as to whether that was the intended effect of the AAA panel’s Interim Ruling. If Schlumberger’s contention in this regard is a correct representation of the AAA panel’s intended ruling, then it can be implemented by the panel. If, on the other hand, the AAA has reserved and not yet resolved the question, the parties should direct their arguments to that panel. In deference to the parties’ agreement to submit the question to the arbitrators, we express no opinion on the proper legal conclusion.
Conclusion
We deny Baker Hughes’s motion to dismiss this appeal. We reverse the trial court’s interlocutory order denying Schlumberger’s motion in its entirety, and we remand the case to the trial court with an instruction to grant Schlumberger’s motion to compel in part by ordering the parties to arbitrate before the AAA panel the contract interpretation question of whether the AAA panel has jurisdiction over the merits of Baker Hughes’s license and release defense.
Michael Massengale
Justice
Panel consists of Justices Jennings, Keyes, and Massengale.
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Schlumberger Technology Corporation v. Baker Hughes Inc., No. 01-11-00562-CV (Tex.App. - Houston [1st Dist.] Oct. 13, 2011, no pet. h.) (Appeal from 270th District Court of Harris County)
Schlumberger Technology Corporation v. Baker Hughes Inc.,
No. 01-11-00562-CV (Tex.App. - Houston [1st Dist.] Oct. 13, 2011, no pet. h.)
Opinion issued October 13, 2011
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-11-00562-CV
———————————
SCHLUMBERGER TECHNOLOGY CORPORATION, Appellant
V.
BAKER HUGHES INCORPORATED, Appellee
On Appeal from the 270th District Court
Harris County, Texas
Trial Court Case No. 2011-25539
O P I N I O N
Schlumberger Technology Corporation and Baker Hughes Incorporated are in the midst of an arbitration proceeding to resolve patent disputes. A disagreement has arisen about whether the presiding panel of arbitrators has jurisdiction to determine a discrete subissue raised by Baker Hughes in the proceeding. Schlumberger contends that the subissue should be resolved by the same panel, but Baker Hughes argues that the issue is governed by a prior settlement agreement between the parties and must be resolved by the mediator who facilitated that agreement.
Baker Hughes initiated court proceedings, and both parties filed motions to compel arbitration in accordance with their respective positions. The trial court granted Baker Hughes’s requested relief and denied Schlumberger’s motion. Schlumberger now appeals from the trial court’s interlocutory order that denied its motion to compel arbitration.
We conclude that we have jurisdiction over this interlocutory appeal. We further conclude that the parties agreed to let the arbitrators resolve their disagreement about the proper arbitral forum for their dispute and that the trial court should have compelled arbitration of that issue. Accordingly, we reverse the trial court’s order denying Schlumberger’s motion, and we remand for further proceedings consistent with this opinion.
Background
Schlumberger and Baker Hughes are competitors in the business of developing, manufacturing, and marketing tools for use in the oil and gas industry. Both own or control patents related to such tools. At various times, disputes have arisen about each party’s alleged infringement of the other’s patents. One of these disputes involved reciprocal claims relating to sensor tools used to gather information and fluid samples from oil and gas wells. Baker Hughes claimed that Schlumberger’s tool infringed a certain patent, and Schlumberger alleged that Baker Hughes’s tool infringed certain of its patents. The parties mediated this dispute, and in October 2004 they executed a settlement agreement. The parties granted each other reciprocal licenses to the patents at issue in that dispute, and they released and discharged each other from "any and all claims, demands or suits, known or unknown, fixed or contingent, liquidated or unliquidated whether or not asserted in the above case, as of this date, arising from or related to the events and transactions which are subject matter to this case." The 2004 settlement agreement also contained the following dispute resolution provision:
If a dispute arises with regard to the interpretation and/or performance of this agreement or any of its provisions, the parties agree to attempt to resolve same by phone conference with the Mediator who facilitated this settlement. If the parties cannot resolve their differences by telephone conference, then each agrees to schedule a day of mediation with the Mediator within thirty (30) days to resolve the disputes and to share the costs of the same equally. If a party refuses to mediate, then the parties agree to submit the issue to binding arbitration before the Mediator in this matter and the party bringing the arbitration shall be entitled to recover attorney’s fees or costs in such arbitration.
After the 2004 settlement agreement was finalized, additional disputes arose between the parties concerning their intellectual property. To facilitate efficient resolution of these disputes, in 2009 the parties entered into two additional agreements: the Patent Dispute Resolution Agreement and the Patent Dispute Procedure Agreement. The Resolution Agreement provided that its purpose was to address and resolve then-current disputes and to provide a process for addressing future disputes about the infringement and validity of each party’s patents. That agreement defined "Current Disputes" as "those Disputes for which assertions have been made prior to the signing of this Agreement," and it expressly referenced an attached exhibit that listed the Current Disputes. The Resolution Agreement also defined "Dispute" as:
. . . any dispute between the Parties arising out of or relating to or in connection with a claim of 1) infringement or the damages arising therefrom, or 2) the invalidity or unenforceability of either Party’s Patents. "Dispute" shall also include disputes relating to the interpretation, construction, alleged breach of this Agreement, the Procedure Agreement, a license agreement or covenant not to sue relating to a Patent or Patents, or amounts paid under such a license agreement or covenant not to sue. Disputes arising under existing licenses or covenants not to sue shall be treated in accordance with Section 3.2, below.
Schlumberger and Baker Hughes agreed that "any Current Disputes or future Disputes . . . shall be solely resolved as set forth in the Procedure Agreement."
Section 3 of the Resolution Agreement carved out an exception for disputes arising from any preexisting patent or license agreement that contained its own dispute resolution procedures. By that provision the parties agreed:
3. TREATMENT OF EXISTING AND FUTURE PATENT AGREEMENTS
3.2 Unless a dispute resolution process is set forth in an existing or future patent agreement or license, breaches of those agreements shall be subject to resolution in accordance with the terms of this Agreement.
Consistent with this provision, a merger clause provided that the Resolution Agreement constituted the parties’ "entire agreement . . . with respect to the same subject matter hereof" and superseded "all other agreements, whether written or oral except as provided by Section 3.1 . . . ."
If direct negotiations should fail to resolve a dispute encompassed by the Resolution Agreement, the Procedure Agreement specifies resolution by arbitration before a panel of American Arbitration Association arbitrators, pursuant to AAA rules. Pursuant to the Resolution and Procedure Agreements, the parties began arbitration before a panel of three AAA arbitrators to resolve a dispute as to whether a module of Baker Hughes’s sensor tool infringes Schlumberger’s patents. The parties agree that this dispute, which they reference as the "four-patent dispute," was one of the Current Disputes expressly identified in the Resolution Agreement. During the course of that proceeding, Schlumberger submitted a report from its damages expert. Baker Hughes contends that Schlumberger’s expert did not confine his analysis to the module and patents at issue in the four-patent dispute but instead included damages relating to the entire sensor tool. Baker Hughes argues that Schlumberger’s damages model includes damages arising from alleged infringement of the patents that were licensed to Baker Hughes in the 2004 settlement agreement. Baker Hughes also contends that this damages claim was itself a breach of the 2004 settlement agreement.
Baker Hughes raised affirmative defenses of license and release in the four-patent dispute, and it invoked the dispute resolution provisions of the 2004 settlement agreement, contending that the new dispute about the scope of the releases under that agreement must be arbitrated before that agreement’s mediator. Schlumberger took the position that this dispute about the proper arbitral forum was encapsulated within an expressly designated Current Dispute, governed by the Resolution and Procedure Agreements, and thereby should be determined within the ongoing AAA arbitration. In light of the parties’ disagreement about the proper arbitral forum, the mediator informed the parties that she would not proceed with the dispute resolution process absent an order from the district court or agreement of the parties. Baker Hughes then filed an application to compel arbitration of the license and release issue before the mediator and a petition for declaratory judgment.
Meanwhile, the parties presented their arguments to the AAA panel by letter, and that panel responded with an "Interim Ruling on Defenses." The Interim Ruling summarized the dispute as encompassing two issues: (1) "who has jurisdiction to decide particular substantive issues" and (2) "the substantive issues, namely whether the affirmative defenses of license or release . . . were raised in a timely manner or were waived." The panel concluded, based on the Resolution Agreement, the Procedure Agreement, and the AAA rules applicable to the arbitration, that it had jurisdiction to determine its own jurisdiction and "sole jurisdiction" to resolve the "substantive" issue of whether Baker Hughes’s affirmative defenses were waived. However, acknowledging that Baker Hughes had filed a motion to compel arbitration in the district court, and expressly invoking "the interest of judicial economy," the AAA panel temporarily stayed its own consideration of the "substantive" waiver issue to allow the district court time to consider the motion to compel arbitration under the 2004 settlement agreement. A few days later, Schlumberger filed in the district court its own Motion to Compel Arbitration and to Stay Proceedings, seeking an order staying proceedings in the district court and "compelling" Baker Hughes "to litigate its claims and defenses solely in the ongoing [AAA] arbitration."
After considering the parties’ competing motions, the district court granted Baker Hughes’s application to compel arbitration. In the same order, the court denied Schlumberger’s motion and ordered the parties to arbitrate the disputes relating to the 2004 settlement agreement before its mediator. Schlumberger then filed this interlocutory appeal from the trial court’s order denying its motion.
Analysis
I. Jurisdiction
Baker Hughes has moved to dismiss this appeal for lack of jurisdiction, so that is the threshold issue for our consideration. See CMH Homes v. Perez, 340 S.W.3d 444, 447 (Tex. 2011). "Unless a statute authorizes an interlocutory appeal, appellate courts generally only have jurisdiction over final judgments." Id.; see also Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992). "We strictly apply statutes granting interlocutory appeals because they are a narrow exception to the general rule that interlocutory orders are not immediately appealable." CMH Homes, 340 S.W.3d at 447; see also Bally Total Fitness Corp. v. Jackson, 53 S.W.3d 352, 355 (Tex. 2001). Both parties invoke authorities applying the Federal Arbitration Act and the Texas Arbitration Act, and neither party suggests that one applies to the exclusion of the other, or that the result depends upon which law applies. Accordingly, we focus our analysis on the application of the TAA’s interlocutory appeal provisions, which provide that a party may appeal an interlocutory order that denies an application to compel arbitration made under Section 171.021. TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1) (West 2011).
A. Schlumberger’s motion
Baker Hughes argues that the trial court’s order does not fit within the narrow statutory categories for which an interlocutory appeal is permitted. It first argues that Schlumberger’s motion in the trial court was not truly an "application to compel arbitration" in the sense contemplated by the statute. See id. §§ 171.021, 171.098(a)(1). A primary contention supporting this argument is that the relief requested by Schlumberger merely would result in the parties continuing their ongoing arbitration proceeding. Thus Baker Hughes argues that the motion did not ask the trial court to compel a new arbitration but instead called upon the trial court to interfere with the arbitrators’ administration of an ongoing proceeding. Baker Hughes also argues that Schlumberger’s motion did not qualify as an application to compel arbitration because Schlumberger could not satisfy the threshold requirement of a refusal to arbitrate. See id. § 171.021(a)(2). In response, Schlumberger contends that its motion was a proper application to compel arbitration and the trial court’s denial of it is appealable under the plain language of the statute.
Section 171.098(a)(1) requires, as a predicate to our interlocutory appellate jurisdiction under that provision, the filing of "an application to compel arbitration made under Section 171.021" and an order denying that application. To prevail under Section 171.021, such a motion must show the existence of an agreement to arbitrate that applies to the parties’ dispute and that the opposing party has refused to arbitrate. See id. We do not agree with Baker Hughes, however, that a searching examination of the merits of Schlumberger’s motion is the appropriate method to determine whether it qualifies as "an application to compel arbitration" contemplated by Section 171.098(a)(1). Instead, it is the substance and function of the application viewed in the context of the record that controls our interlocutory jurisdiction. Cf. Walker Sand, Inc. v. Baytown Asphalt Materials, Ltd., 95 S.W.3d 511, 515 (Tex. App.—Houston [1st Dist.] 2002, no pet.) (analyzing substance and function of order purportedly giving rise to interlocutory appellate jurisdiction under Section 171.098(a)(1)). Accordingly, we will consider Schlumberger’s motion in the context of the record to determine whether the denial of the application is subject to interlocutory review.
Schlumberger filed a document in the trial court entitled "Defendant’s Motion to Compel Arbitration and to Stay Proceedings." In this motion, Schlumberger alleged the existence of an agreement to arbitrate arising from the Resolution and Procedure Agreements. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(a)(1). Schlumberger further alleged that the AAA panel was empowered to determine and already had determined that the scope of that proceeding included Baker Hughes’s release and license defense. Finally, Schlumberger alleged that rather than arbitrating this issue before the AAA panel, Baker Hughes filed suit to compel arbitration under the 2004 settlement agreement. Thus, Schlumberger clearly informed the trial court that in the context of an ongoing arbitration, the parties had a discrete disagreement about the appropriate venue in which a particular subissue was to be arbitrated and both parties relied on separate arbitration agreements to support their positions.
1. Jurisdictional effect of pending arbitration proceeding
Baker Hughes contends that this could not be a motion to compel arbitration in the sense contemplated by the statute because the parties were already in engaged in an ongoing arbitration. Although we are obliged to construe the jurisdictional statute narrowly, see, e.g., CMH Homes, 340 S.W.3d at 447, the text of the statute does not provide any basis for Baker Hughes’s proposed distinction between a request to initiate a new arbitration proceeding and a request to require arbitration of a subsidiary issue when its arbitrability has been disputed. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1). The sole authority relied upon by Baker Hughes for this proposition lends no support. In Dealer Computer Services, Inc. v. Red Hill Ford, Inc., No. 05-10-00983-CV, 2010 WL 3566124, at *1 (Tex. App.—Dallas Sept. 15, 2010, no pet.) (mem. op.), the trial court had issued a restraining order staying arbitration proceedings after Red Hill Ford alleged that the arbitration panel had engaged in misconduct. See 2010 WL 3566124, at *1. Two months after the restraining order expired, the final arbitration hearing had not yet been rescheduled "due to pending motions and other issues," and Dealer Computer moved to compel a return to the pending arbitration. Id. The court of appeals held that it lacked jurisdiction because there was no allegation that Red Hill Ford failed, neglected, or refused to arbitrate under a written agreement. Id. Unlike an attempt to stay proceedings based on alleged arbitrator misconduct, Schlumberger’s allegation that Baker Hughes sought to compel a separate arbitration rather than submitting its defenses to the AAA panel is functionally equivalent to an allegation that Baker Hughes failed, neglected, or refused to arbitrate the disputed issue.
Baker Hughes also contends that "interlocutory appeal is not available to challenge orders in cases where arbitration was originally compelled." But there is nothing in the appellate record to show that the AAA arbitration was "originally compelled." Indeed, the parties’ briefing in this Court suggests that the AAA arbitration was instituted by agreement of the parties. Moreover, the authority relied upon by Baker Hughes in this regard, HEB Grocery Co., L.P. v. Kirksey, No. 14-10-00217-CV, 2010 WL 1790878 (Tex. App.—Houston [14th Dist.] May 6, 2010, no pet.) (mem. op.) (per curiam), is not applicable to this dispute because the jurisdictional defect in that case was that no statutory provision authorized an interlocutory appeal from an order granting recusal of one arbitrator and substituting another. See 2010 WL 1790878, at *2.
2. Jurisdictional effect of the merits of Schlumberger’s motion
Baker Hughes also argues that this court lacks jurisdiction because Schlumberger cannot show that Baker Hughes refused to arbitrate, which must be shown to compel arbitration under Section 171.021(a). This argument conflates the characterization of Schlumberger’s motion as an "application to compel arbitration" with its ultimate merits. Put another way, under Baker Hughes’s interpretation of Section 171.098(a)(1), we would only have appellate jurisdiction when a trial court incorrectly denied an application to compel arbitration made under Section 171.021. Again acknowledging that we narrowly construe all statutes establishing our interlocutory appellate jurisdiction, see, e.g., CMH Homes, 340 S.W.3d at 447, no practical limitation of our review is achieved if we review the merits of the underlying motion in order to determine whether we have jurisdiction over the denial of it.
Instead, we consider the nature of the motion in the context of the record. Cf. Walker Sand, 95 S.W.3d at 515. Viewed in that light, it is apparent that while Baker Hughes did not flatly refuse to arbitrate the dispute in any arbitral forum (it was willing to arbitrate the dispute before the mediator of the 2004 settlement agreement), by initiating these proceedings and by withholding its consent to arbitrating in accordance with what Schlumberger contends in its motion is the controlling agreement, Baker Hughes resisted arbitration of the particular dispute at issue before the AAA panel. Reserving judgment on the ultimate merits of the motion for purposes of our jurisdictional inquiry, we conclude that the motion is an application to compel arbitration on the grounds that Baker Hughes is actively resisting arbitration under the terms of what Schlumberger alleges is the controlling arbitration agreement.
3. Jurisdictional effect of the relief sought by Schlumberger’s motion
Finally, Baker Hughes argues that rather than constituting an application to compel arbitration, Schlumberger’s motion is merely a response to Baker Hughes’s motion, particularly because the relief sought by Schlumberger allegedly was no different from what would have resulted if the trial court had denied Baker Hughes’s motion. This argument fails because Schlumberger, in its motion, sought affirmative relief beyond the mere denial of Baker Hughes’s motion. Schlumberger argued that the AAA panel has the sole power to decide the proper arbitral venue for the merits of Baker Hughes’s defenses, and it also argued that the AAA panel had actually decided that question in favor of its own jurisdiction. Schlumberger thus sought an order from the trial court ordering Baker Hughes "to litigate its claims and defenses solely in the ongoing [AAA] arbitration." The mere denial of Baker Hughes’s motion would not necessarily mean that the AAA panel would decide these disputed issues against Baker Hughes (unless the AAA panel had already decided them in its Interim Ruling, which the parties dispute and Baker Hughes has denied). Accordingly, Baker Hughes would remain free to argue to the AAA panel that a separate arbitration is required on its defenses. Schlumberger’s motion asked for something more than the mere denial of the Baker Hughes motion; it sought an affirmative order from the trial court deciding the underlying arbitrability question in its favor.
* * *
Viewing the motion in the context of the record, we conclude that the substance and function of Schlumberger’s motion was to allege the existence of an agreement to arbitrate that applied to the parties’ dispute—i.e. the Resolution Agreement—and that Baker Hughes refused to arbitrate in accordance with that agreement. Cf. Walker Sand, 95 S.W.3d at 515. We therefore hold that Schlumberger’s motion qualified as "an application to compel arbitration made under Section 171.021" for the purposes of our interlocutory jurisdiction under Section 171.098(a)(1).
B. Trial court’s order
We next consider whether the trial court’s order qualifies as an "order denying" such an application. Under the plain language of the TAA, it is the denial of "an application to compel arbitration"—not the denial of arbitration in the general sense—that gives rise to the right to an interlocutory appeal. TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1). "[I]t is the substance and function of the order viewed in the context of the record that controls our interlocutory jurisdiction," not Baker Hughes’s characterization of the order. Walker Sand, 95 S.W.3d at 515; see also Texas La Fiesta Auto Sales, LLC v. Belk, No. 14-10-01146-CV, 2011 WL 4090381, at *4 (Tex. App.—Houston [14th Dist.] Sept. 15, 2011, no. pet. h.); McReynolds v. Elston, 222 S.W.3d 731, 738 (Tex. App.—Houston [14th Dist.] 2007, no pet.).
The trial court evidently understood Schlumberger’s motion to be a motion to compel arbitration. In a single order, the court stated that it had considered both Baker Hughes’s "Application to Compel Arbitration And Petition for Declaratory Judgment" and Schlumberger’s "Motion to Compel Arbitration and Stay Proceedings." In its order, the court expressly granted "Baker Hughes’s application," denied "Schlumberger’s motion," and ordered the parties "to arbitrate the disputes relating to the 2004 Settlement Agreement" before the mediator. Thus, at least on its face, the order purports and appears to be one "denying an application to compel arbitration." See TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1).
The substance and function of the order support the trial court’s express characterization. Baker Hughes sought to enforce its alleged contractual right to arbitration that arose under the 2004 settlement agreement. Likewise, Schlumberger sought to enforce its alleged contractual right to arbitration that arose under the Resolution and Procedure Agreements. The parties’ dispute about the appropriate arbitral forum indicates that the difference between the two alternatives is significant, including different methods of arbitration and different arbitrators. The trial court considered two related arbitration agreements, granted a motion seeking to compel arbitration under one of them, and denied a motion seeking to compel arbitration under the other. As in McReynolds, Schlumberger did not simply seek to substitute one arbitrator for another; it sought to enforce an express contractual right. See McReynolds, 222 S.W.3d at 738. Baker Hughes attempts to distinguish the holding that interlocutory jurisdiction existed in McReynolds because, although it involved competing arbitration agreements, the appellant in that case sought to initiate a new and separate arbitration proceeding, unlike Schlumberger, which is seeking to continue in an ongoing arbitration. We acknowledge that distinction between the two fact patterns, but it does not alter our analysis. Although the trial court ordered an arbitration under the 2004 settlement agreement to proceed, it specifically denied Schlumberger’s claimed contractual right to arbitration under the Resolution and Procedure Agreements, which Schlumberger sought to enforce through its own motion to compel arbitration.
Based on the trial court’s characterization of Schlumberger’s motion as one to compel arbitration, its express denial of that motion, and the resulting denial of Schlumberger’s asserted contractual right to arbitration, we conclude that the trial court’s order was an order denying an application to compel arbitration. See McReynolds, 222 S.W.3d at 738–39. This order is not insulated from appellate review conferred by statute simply because it also grants a competing motion to compel arbitration. Cf. E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 270 (Tex. 2010) (holding that judgment denying confirmation of arbitral award was appealable even though order also vacated award and directed rehearing). Accordingly we hold that we have jurisdiction over this interlocutory appeal, and we deny Baker Hughes’s motion to dismiss.
II. Application to compel arbitration
We now consider the merits of Schlumberger’s appeal from the denial of its application to compel arbitration. Generally speaking, we review the trial court’s denial of a motion to compel arbitration for abuse of discretion. See Okorafor v. Uncle Sam & Assocs., Inc., 295 S.W.3d 27, 38 (Tex. App.—Houston [1st Dist.] 2009, pet. denied); see also W. Wendall Hall et al., Hall’s Standards of Review in Texas, 42 St. Mary’s L.J. 1, 78 (2010) (citing Jack B. Anglin Co., 842 S.W.2d at 271). However, "[w]hen an appeal from a denial of a motion to compel arbitration turns on a legal determination . . . we apply a de novo standard." Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 55 n.9 (Tex. 2008).
Schlumberger argues that the AAA panel had the authority to determine its own jurisdiction, the panel determined that it had jurisdiction to decide the merits of Baker Hughes’s defenses based on the 2004 settlement agreement, and the trial court should have deferred to that ruling. Baker Hughes responds that there is no reason to reach these questions because it never refused to arbitrate. On the merits, Baker Hughes contends as a matter of contract interpretation that the 2004 settlement agreement rather than the Resolution Agreement controls the dispute resolution procedure. It argues, therefore, that the Resolution Agreement is inapplicable, and the dispute was appropriately resolved by the district court because the 2004 agreement does not reserve arbitrability disputes for the arbitrator.
A. ReFusal to arbitrate
First, we confront the contention that Schlumberger was not entitled to relief on the theory that Baker Hughes’s willingness to arbitrate in its preferred arbitral forum means that it has not refused to arbitrate. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(a)(2). Baker Hughes reasons that it has agreed to arbitrate, and it is simply following proper arbitration procedure to assert its rights under the parties’ contracts.
The sole authority relied upon by Baker Hughes for this position is Jacobs v. USA Track & Field, 374 F.3d 85 (2d Cir. 2004), a case decided under the Federal Arbitration Act, 9 U.S.C. § 4. The parties in Jacobs both agreed to arbitrate their dispute before the AAA, but they disagreed about the rules to govern the arbitration, including the procedure for selecting arbitrators. See Jacobs, 374 F.3d at 86. Both of the alternative sets of procedures provided that the arbitrators had the power to decide which rules applied. See id. The AAA considered submissions from both parties and ruled against Jacobs, who then filed a motion to compel arbitration under her preferred rules. The trial court dismissed the case for want of jurisdiction, and the Second Circuit affirmed on the basis that the respondents had not refused to arbitrate, which is a prerequisite to compelling arbitration under Section 4 of the FAA. See id. In so holding, the court specifically noted that, unlike Baker Hughes in this case, "respondents have not commenced litigation against petitioner." Id. at 89. The case that the Jacobs court identified as controlling the result, Downing v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 725 F.2d 192 (2d Cir. 1984), went further and identified the commencement of litigation as a "default" of an arbitration agreement giving rise to the right to seek relief under Section 4. See Downing, 725 F.2d at 195; see also Jones v. Gen. Motors Corp., 640 F. Supp. 2d 1124, 1145 (D. Ariz. 2009) ("the very commencing of litigation can itself be interpreted as a refusal to arbitrate").
We find the reasoning of Downing and its progeny to be persuasive and equally applicable to the similar language in the TAA requiring that a party refuse to arbitrate as a predicate to an order compelling arbitration. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(a)(2). As applied to this case, the parties were already involved in an ongoing arbitration pursuant to the Resolution Agreement. As discussed in greater detail below, the parties clearly and unmistakably agreed to submit disputes about the interpretation of the Resolution Agreement to the arbitration panel. In the course of that proceeding, Baker Hughes asserted that its license or release defenses must be arbitrated in another forum; Schlumberger disagreed. Baker Hughes’s initiation of this court proceeding to compel a separate arbitration before a separate arbitrator pursuant to different rules constitutes an effective refusal to arbitrate pursuant to the Resolution Agreement because Baker Hughes sought to circumvent a resolution of this arbitrability dispute by the AAA panel despite agreeing in the Resolution Agreement to submit such disputes to the AAA panel. We therefore conclude, as a matter of law as applied to the undisputed procedural facts, that Baker Hughes refused to arbitrate under the Resolution Agreement and Schlumberger properly invoked Section 171.021 to compel arbitration under that agreement.
B. Arbitrability of dispute over proper arbitral forum
Turning to the merits of the motion denied by the trial court, we begin by considering Schlumberger’s contention that the AAA panel had authority under the Resolution Agreement to determine its own jurisdiction. This is an essential element of Schlumberger’s motion to compel because otherwise there is no enforceable "agreement to arbitrate." Id. § 171.021(a)(1). This determination depends on an interpretation of the parties’ contracts, which we review de novo. See In re Dillard Dep’t Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Unless the parties clearly and unmistakably agree to submit threshold questions of arbitrability to arbitration, these issues are to be resolved by courts. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S. Ct. 1920, 1923 (1995); In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005); Burlington Res. Oil & Gas Co. v. San Juan Basin Royalty Trust, 249 S.W.3d 34, 39–40 (Tex. App.—Houston [1st Dist.] 2007 pet. denied). However, the express incorporation of rules that empower the arbitrator to determine arbitrability—such as the AAA Commercial Arbitration Rules—has been held to be clear and unmistakable evidence of the parties’ intent to allow the arbitrator to decide such issues. See, e.g., Burlington Res. Oil & Gas Co., 249 S.W.3d at 40–41; Haddock v. Quinn, 287 S.W.3d 158, 172 (Tex. App.—Fort Worth 2009, pet. denied).
The pending four-patent dispute is governed by the Resolution Agreement, which provides that "any Current Disputes or future Disputes . . . shall be solely resolved as set forth in the Procedure Agreement." The parties agree that the underlying four-patent dispute is a Current Dispute under the Resolution Agreement. Other "Disputes" to be "solely resolved as set forth in the Resolution Agreement" include "disputes relating to the interpretation, construction, alleged breach of this [Resolution] Agreement, [and] the Procedure Agreement," but as noted above and argued by Baker Hughes, "[d]isputes arising under existing licenses . . . shall be treated in accordance with Section 3.2," which excepts any existing or future patent agreement or license with its own dispute resolution process.
It is therefore apparent that Schlumberger and Baker Hughes have identified two separate "Disputes." One dispute is a disagreement of contract interpretation about whether the merits of Baker Hughes’s license or release defense should be decided under the Resolution and Procedure Agreements by the AAA panel or under the 2004 settlement agreement’s dispute resolution procedure by the mediator who facilitated that agreement. A separate dispute concerns the choice of forum to decide the answer to the contract interpretation dispute.
This latter dispute about the appropriate forum arose in the context of an ongoing arbitration governed by the Resolution Agreement. As reflected by the parties’ arguments as described above, the answer depends on an interpretation of the Resolution Agreement. Although Baker Hughes has a colorable argument that the merits of the contract interpretation dispute require a separate proceeding under the 2004 settlement agreement, that argument itself depends on an interpretation of the Resolution Agreement. And the parties agreed that "disputes relating to the interpretation" and "construction" of the Resolution Agreement are themselves "Disputes," which are to be "solely resolved as set forth in the Procedure Agreement."
The Procedure Agreement requires arbitration to be conducted "pursuant to administration by the AAA" under the AAA Commercial Arbitration Rules. Under Rule 7(a) of the Commercial Arbitration Rules, the "arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement." COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION, Rule 7(a) (2009). The parties thus incorporated the AAA Commercial Arbitration Rules into the Resolution and Procedure Agreements. Under Rule 7(a) of the Commercial Arbitration Rules, the AAA panel had authority to interpret the Resolution Agreement and thereby determine the scope of the four-patent arbitration. The AAA panel’s authority extends to determining whether Baker Hughes’s license and release defense relates to a claim of infringement or the damages arising therefrom such that it is to be resolved by the AAA panel as part of the pending four-patent arbitration, as contemplated by the Resolution Agreement’s definition of "dispute." Or, the panel could determine the license and release defense implicates a breach of an existing agreement, as contemplated by the carve-out provision in section 3 of the Resolution Agreement, thus triggering the dispute resolution provision of the 2004 settlement agreement. There are no provisions in the Resolution or Procedure Agreements that negate the arbitrators’ power under AAA Rule 7(a) to determine the arbitrability of a defense raised in arbitration. Thus, we conclude that this issue of contract interpretation was a question for the AAA panel, not the trial court and not this court. See Green Tree Fin. Corp. v. Bazzle, 539 U.S 444, 452–53, 123 S. Ct. 2402, 2407 (2003) (holding that interpretation of arbitration contract was question for arbitrators).
In its motion to compel arbitration, Schlumberger asserted that the merits of Baker Hughes’s defense was within the scope of the AAA arbitration and that the parties had agreed to let the AAA panel determine issues of arbitrability. Because the AAA panel had authority to determine the question of contract interpretation, the trial court should have granted this aspect of Schlumberger’s motion so that the dispute could be resolved by the AAA panel, as the parties agreed in the Resolution Agreement. See id. at 452–53, 123 S. Ct. at 2407.
C. Determination by AAA panel
Finally, we address the ultimate relief requested by Schlumberger, an order that these proceedings be stayed and that Baker Hughes be required to litigate the merits of its license and release defense before the AAA panel. To the extent Schlumberger argues it is entitled to this relief on the merits of its arguments about the interpretation of the various arbitration agreements, Schlumberger’s arguments are appropriately addressed to the AAA panel, as explained above. To the extent Schlumberger contends that the AAA panel has already resolved the question in favor of its own jurisdiction, we conclude that the appellate record provided to us is inconclusive as to whether that was the intended effect of the AAA panel’s Interim Ruling. If Schlumberger’s contention in this regard is a correct representation of the AAA panel’s intended ruling, then it can be implemented by the panel. If, on the other hand, the AAA has reserved and not yet resolved the question, the parties should direct their arguments to that panel. In deference to the parties’ agreement to submit the question to the arbitrators, we express no opinion on the proper legal conclusion.
Conclusion
We deny Baker Hughes’s motion to dismiss this appeal. We reverse the trial court’s interlocutory order denying Schlumberger’s motion in its entirety, and we remand the case to the trial court with an instruction to grant Schlumberger’s motion to compel in part by ordering the parties to arbitrate before the AAA panel the contract interpretation question of whether the AAA panel has jurisdiction over the merits of Baker Hughes’s license and release defense.
Michael Massengale
Justice
Panel consists of Justices Jennings, Keyes, and Massengale.
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Schlumberger Technology Corporation v. Baker Hughes Inc., No. 01-11-00562-CV (Tex.App. - Houston [1st Dist.] Oct. 13, 2011, no pet. h.) (Appeal from 270th District Court of Harris County)
Wednesday, October 12, 2011
Mediation does not affect Court's jurisdiction
Section 154.021(a) of the Civil Practice and Remedies Code authorizes a trial court to refer a pending dispute for resolution by an alternative dispute resolution procedure such as mediation. TEX. CIV. PRAC. & REM. CODE ANN. §§ 154.021(a), 154.023 (West 2011).
When a matter is referred to mediation, the trial court does not lose jurisdiction over the case as a mediator does not have the power to render judgment; only the trial court has the authority to render a final judgment. Id. § 154.023(b) (mediator may not impose own judgment on the issues); id. § 154.071(b) (West 2011) (providing that the trial court may, in its discretion, incorporate the terms of a settlement agreement into the court’s final decree disposing of the case). The trial court retains jurisdiction over the case until a final judgment is rendered disposing of all parties and issues. Lehmann v. Har-Con Corp., 39 S.W.3d 191, 200 (Tex. 2001).
After entry of a final judgment, the trial court does not lose jurisdiction over the case until its plenary power expires. See TEX. R. CIV. P. 329b.
A mediated settlement agreement is enforceable in the same manner as any other contract. TEX. CIV. PRAC. & REM. CODE ANN. § 154.071(a) (West 2011); Hardman v. Dault, 2 S.W.3d 378, 380 (Tex. App.—San Antonio 1999, no pet.).
Stevens v. Snyder, 874 S.W.2d 241, 243 (Tex. App.—Dallas 1994, writ denied) (once parties have accepted settlement agreement, enforcement is by suit upon the contract, either for breach or specific performance)
Pickell v. Guaranty Nat’l Life Ins. Co., 917 S.W.2d 439, 441-42 (Tex. App.—Houston [14th Dist.] 1996, no writ) (court cannot take action on mediated settlement agreement without an affirmative request to do so through pleadings); see also Martin v. Black, 909 S.W.2d 192, 195 (Tex. App.—Houston [14th Dist.] 1995, writ denied).
Dora Serna v. International Bank of Commerce, No. 04-11-00097-CV (Tex.App.- San Antonio, Oct. 12, 2011)
Thursday, August 18, 2011
Forum-selection clause enforced by mandamus; suit ordered dismissed
Dallas Court of Appeals finds absence of other adequate remedy and grants mandamus relief to countermand and correct trial court's failure to enforce forum-selection clause by dismissing suit filed in wrong court. One justice on the panel dissented.
In re Cornerstone Healthcare Holding Group, Inc.,
No. 05-11-00634-CV (Tex.App. - Dallas, Aug. 18, 2011)(mandamus)(case ordered dismissed in accordance with forum-selection clause)
CONCLUSION
A trial court abuses its discretion when it does not properly interpret or apply a forum- selection clause. Laibe Corp., 307 S.W.3d at 316. In addition, the Texas Supreme Court has held there is no adequate remedy by appeal when a trial court abuses its discretion by refusing to enforce a valid forum-selection clause that covers the dispute. See In re Int'l Profit Assocs., Inc., 274 S.W.3d 672, 675 (Tex. 2009) (orig. proceeding). Thus, the trial court's failure to enforce the forum- selection clause in this case is properly corrected by issuance of a writ of mandamus. See In re Lisa Laser USA, Inc., 310 S.W.3d 880, 883 (Tex. 2010) (orig. proceeding); Laibe Corp., 307 S.W.3d at 316. We conditionally grant the relators' petition for writ of mandamus. A writ will issue only in the event the trial court fails to vacate its April 26, 2011 Order Denying Defendants' Motion to Dismiss and to enter an order granting the motion to dismiss.
OPINION BY JUSTICE FITZGERALD
Relators Cornerstone Healthcare Holding Group, Inc. (“Cornerstone”) and Highland Capital Management, L.P. (“Highland”) filed this mandamus proceeding after the trial court denied their motion to dismiss based on the parties' forum selection. We conclude the trial court abused its discretion in denying the motion and relators have no adequate remedy by appeal. We therefore conditionally grant the writ of mandamus.
Background
Real party in interest MHC Holding Company (“Mariner”) sold a chain of hospitals to CS Healthcare Holdco, LLC (“Holdco LLC”), for $161 million in the summer of 2005. The transaction was accomplished by the parties' execution of an Asset Purchase Agreement (the “APA”). As part of the transaction, Mariner received $151 million in cash and a $10 million promissory note (the “Note”) from CS Healthcare Holdco, Inc. (“Holdco”), a wholly-owned subsidiary of Holdco LLC and a defendant in the suit below. Immediately after the closing of the APA, Holdco LLC assigned all of its rights and interest in the APA to Cornerstone, pursuant to an assignment and assumption agreement. Thus, Cornerstone became the owner of all the assets originally transferred by Mariner.
in 2007, Holdco and Cornerstone entered into a Restructuring and Support Agreement (the “Restructuring Agreement”) with relator Highland, which had come to own more than $55 million of Cornerstone's debt. Pursuant to the Restructuring Agreement, ownership of the hospitals was transferred to Highland. Mariner was not a party to the Restructuring Agreement. The Note was identified in a schedule to the Restructuring Agreement as a material agreement into which Holdco had entered, but the debt created by the Note was not addressed by the Restructuring Agreement.
In 2010, Mariner sued Highland, Cornerstone, and Holdco, alleging a fraudulent transfer that left Holdco insolvent and unable to repay the Note. In its live petition, Mariner seeks the alternative remedies of avoidance of the 2007 restructuring transaction to the extent necessary to satisfy Mariner's claim for the $10 million owed by Holdco, or judgment “in the amount due under the [Note]” against either Highland or Cornerstone.
Cornerstone and Highland jointly filed a motion to dismiss the lawsuit on the basis of forum- selection clauses in the APA and the Note, both of which called for disputes to be resolved in New York County, New York. The trial court denied the motion. This original proceeding followed.
The Forum-Selection Clauses
In order to obtain mandamus relief, Cornerstone and Highland must show both that the trial court abused its discretion and that they have no adequate appellate remedy. In re Prudential Ins. Co., 148 S.W.3d 124, 135-36 (Tex. 2004) (orig. proceeding). Forum-selection clauses are generally enforceable and presumptively valid. In re Laibe Corp., 307 S.W.3d 314, 316 (Tex. 2010) (orig. proceeding). A trial court abuses its discretion when it does not properly interpret or apply a forum- selection clause. Id. Moreover, an appellate remedy is inadequate when a trial court improperly refuses to enforce a forum-selection clause; allowing the trial to go forward will simply vitiate the subject matter of an appeal, which is trial in the proper forum. See In re AIU Ins. Co., 148 S.W.3d 109, 115 (Tex. 2004) (orig. proceeding).
Paragraph 12.11 of the APA, entitled “Consent to Jurisdiction,” contains the following forum-selection clause:
The parties hereto each hereby irrevocably submit to the exclusive jurisdiction of any state or federal court sitting in New York County, New York for the purposes of any suit, action or other proceeding arising out of or based upon this Agreement or the subject matter hereto brought by any other party hereto. Each party also agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court . . . .
The Note contains the following forum-selection clause:
The parties disagree concerning which (if either) of these clauses is implicated by the current litigation, and they disagree as to the scope of the clause in the Note. They cast their issues differently, but the forum-selection issues before us come down to which clause is implicated by Mariner's suit and whether Mariner's suit is properly within the scope of the implicated clause.
As to the clause implicated, Cornerstone and Highland contend there is actually only one forum-selection clause and that the Note merely incorporates the APA's clause by reference. Thus, for the relators, the APA's clause is implicated by this action. Mariner, for its part, contends initially that neither clause is implicated in this case because its claims do not arise under the APA or the Note. However, if forum selection is implicated in this litigation, Mariner urges us to apply the Note's forum-selection clause. That clause, Mariner contends, was purposefully negotiated to be narrower than the APA's, because it envisions applying the APA's provision only “in connection with any dispute under or enforcement of” the Note. Mariner argues that if we apply the Note's clause, we will conclude-as Mariner does-that its lawsuit below is not subject to the forum- selection provision.
We are persuaded by relators' argument. Both sides acknowledge that the Note is tied to the APA. Indeed, Mariner asserts that “the Note and the APA were parts of a unified transaction.” The Note itself states that it is “issued pursuant to, and in accordance with the terms of, that certain Asset Purchase Agreement . . . .” Likewise, the APA includes the Note among its exhibits that were to be executed along with the APA. Settled law requires separate documents executed at the same time, for the same purpose, and in the course of the same transaction to be construed together. See Jim Walter Homes, Inc. v. Schuenemann, 668 S.W.2d 324, 327 (Tex. 1984).
When we construe the forum-selection clauses in the Note and the APA together, two points cannot be ignored. First, the drafters incorporated the APA's clause-in its entirety-into the Note. Had they desired a separate clause with different underpinnings, they would have drafted such a clause. Second, the clauses select the same forum, i.e., New York County, New York. Thus, unlike most exercises in contract construction, this one is not based on conflicting provisions. Instead, viewing the clauses together underscores the parties' intention that litigation related to the unified transaction would occur in the same location.
As to the breadth of the two clauses, given their origins in the same transaction we see no reason to read restrictions into the Note's provision. Again, the Note was issued pursuant to the APA and incorporates the entirety of the APA's forum-selection clause. Thus, we conclude Mariner's claims fall within the intended forum selection of the parties so long as they qualify as “action[s] or proceeding[s] arising out of or relating to” the transaction. We conclude further that Mariner's fraudulent-transfer suit below does arise out of or relate to that transaction. Specifically, the suit arises out of or relates to rights Mariner possesses pursuant to the Note: the injury it claims is Holdco's inability to pay on the Note; its standing as a creditor will require proof of Holdco's debt created by the Note; and the remedies it seeks amount to repayment pursuant to the Note. Simply put, Mariner would have no right to complain of the Restructuring Agreement except for its status as Holdco's creditor pursuant to the Note.
Mariner's lawsuit involves a dispute under the Note. Accordingly, the parties' single forum- selection clause applies to Mariner's claims. We conclude the parties agreed to litigate this matter in New York County, New York.
The Right to Enforce Forum Selection
We have concluded the parties agreed to a single forum-selection clause and that this dispute is within the scope of that clause. We next address whether relators-who were not parties to the APA or the Note-have the right to enforce the forum-selection clause against Mariner. See Footnote 1 Cornerstone and Highland asserted in their motion to dismiss that they were entitled to do so. Cornerstone based its right to enforce the clause on its status as assignee of Holdco LLC, which allowed Cornerstone to assert all of Holdco LLC's rights pursuant to the APA, including the Note that was appended to and made part of that agreement. See Phoenix Network Tech. (Europe) v. Neon Sys., Inc., 177 S.W.3d 605, 620 (Tex. App.-Houston [1st Dist.] 2005, no pet.) (contracting party's assignee can enforce contract's forum-selection clause). Mariner did not challenge Cornerstone's right to enforce the forum-selection clause in its response to the motion to dismiss below. Nor has it made any argument against Cornerstone's right to enforce the clause in this Court. Thus, the issue of Cornerstone's right to enforce forum selection is not before us. See Footnote 2
In the motion to dismiss, Highland asserted it was entitled to enforce the forum-selection clauses under a theory of equitable estoppel. Texas law includes a number of variations on the general principle of equitable estoppel. See, e.g., Meyer v. WMCO-GP, L.L.C., 211 S.W.3d 302, 306 (Tex. 2006) (interdependent and concerted misconduct estoppel); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005) (orig. proceeding) (direct-benefit estoppel); In re Polymerica, LLC, 271 S.W.3d 442, 449 (Tex. App.-El Paso 2008, orig. proceeding, pet. struck) (substantial- benefit estoppel); Cook Composites, Inc. v. Westlake Styrene Corp., 15 S.W.3d 124, 136 (Tex. App.-Houston [14th Dist.] 2000, pet. dism'd) (quasi-estoppel). Estoppel is an equitable doctrine and its application depends on the facts of each case. Van Zanten v. Energy Transfer Partners, L.P., 320 S.W.3d 845, 848-49 (Tex. App.-Houston [1st Dist.] 2010, no pet.) (citing In re Weekley Homes, 180 S.W.3d 127, 134-35 (Tex. 2005)). The lynchpin for all equitable estoppel is equity. Hill v. G E Power Sys., Inc., 282 F.3d 343, 349 (5th Cir. 2002).
In the motion to dismiss below, Highland urged application of an estoppel based on Mariner's allegations of interdependent and concerted misconduct by Holdco, Cornerstone, and Highland. Highland contended that Mariner's suit was an attempt to gain the benefits of the Note (while not specifically suing to enforce the Note on its terms) by asserting “intertwined claims” against the three parties. The result was a claim that purported to tie all three defendants to the obligations of Holdco under the Note. Highland asserted that, under these circumstances, equity required that it be allowed to join in the enforcement of the parties' forum selection. In this Court, Highland continues to rely on the estoppel theory, stressing that Mariner's claims invoke equitable concerns based on both concerted misconduct and intertwined claims against related defendants.
Highland's theory is supported, inter alia, by the opinion in Deep Water Slender Wells, Ltd. v. Shell International Exploration & Production, Inc., 234 S.W.3d 679 (Tex. App.-Houston [14th Dist.] 2007, pet. denied). In that case, the court advised: “Courts should apply equitable estoppel when a signatory to the contract containing the forum-selection clause raises allegations of substantially interdependent and concerted misconduct by both nonsignatories and one or more signatories to the contract.” Id. at 694 (citing Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 527 (5th Cir. 2000), and Meyer v. WMCO-GP, L.L.C., 211 S.W.3d 302, 306 (Tex. 2006)). In the situation described by Deep Water Slender Wells, the signatory has brought nonsignatories into a lawsuit based on an instrument they did not sign, but it has made allegations that they acted in concert with another signatory. This is precisely the situation in Mariner's lawsuit.
Mariner contends the theory of equitable estoppel relied upon by relators has been rejected by the Texas Supreme Court in In re Merrill Lynch Trust Co., 235 S.W.3d 185 (Tex. 2007) (orig. proceeding). Mariner reads Merrill Lynch too broadly. In that case, the plaintiffs (a husband and wife) were signatories to an agreement that contained an arbitration clause. The plaintiffs did not sue the other signatory; instead, they sued a number of nonsignatories, who attempted to compel arbitration. The supreme court concluded some parties could enforce the arbitration clause and some could not. For example, where the parties sued certain employees of the signatory, but not the signatory itself, for conduct in the course of their employment, the employees were entitled to enforce their employer's arbitration clause. See id. at 189-90. However, the plaintiffs also sued a pair of companies that had their own contracts with the plaintiffs; those contracts did not contain arbitration clauses. The supreme court concluded that allowing those companies to compel arbitration would, in effect, permit them to re-write their contracts with the plaintiffs. Id. at 191.
The defendant companies then urged the supreme court to apply an equitable estoppel based upon concerted misconduct and allow them to force the plaintiffs to arbitrate against them as well. The court asserted that it had “never compelled arbitration based solely on substantially interdependent and concerted misconduct,” and it declined to do so in Merrill Lynch as well. Id. (emphasis added). Amidst this very conclusion, however, the supreme court stated:
We noted allegations of concerted misconduct in Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 306-07 (Tex. 2006), but compelled arbitration because the plaintiff's claims depended on the underlying agreement, and thus were governed by principles of direct-benefit estoppel.
Id. at 191 n.22. Meyer was decided just a year before Merrill Lynch, and this reference to it within Merrill Lynch assures us that Meyer is still good law. Meyer actually sets forth two scenarios when equitable estoppel would support a nonsignatory compelling compliance with a contract:
Existing case law demonstrates that equitable estoppel allows a nonsignatory to compel arbitration in two different circumstances. First, equitable estoppel applies when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting its claims against the nonsignatory. When each of a signatory's claims against a nonsignatory makes reference to or presumes the existence of the written agreement, the signatory's claims arise out of and relate directly to the written agreement, and arbitration is appropriate. Second, application of equitable estoppel is warranted when the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract. Otherwise the arbitration proceedings between the two signatories would be rendered meaningless and the federal policy in favor of arbitration effectively thwarted.
Meyer, 211 S.W.3d at 305-06 (emphasis added). In the case before us, both of these bases for equitable estoppel exist. Mariner, a signatory, must rely on the Note in asserting its claims against Cornerstone and Highland. And Mariner has made allegations of substantially interdependent and concerted misconduct by Holdco, Cornerstone, and Highland.
We agree this is not a typical direct-benefit-estoppel case. In such a case, a nonsignatory plaintiff who seeks the benefits of a contract is estopped from simultaneously attempting to avoid the contract's burdens. In re Kellogg Brown & Root, Inc. 166 S.W.3d at 739. However, the supreme court included the Meyer estoppel within this category, and we can certainly see parallels in Mariner's case. Here, the signatory is attempting to avoid its own contract's burden while enforcing the benefits it derived from the contract. As we noted above, the lynchpin for all equitable estoppel is equity. Hill, 282 F.3d at 349. Under the facts of this case, equity demands that Highland be permitted to hold Mariner to its own bargain.
We conclude Highland may enforce the parties' selection of the New York forum by virtue of equitable estoppel.
Conclusion
A trial court abuses its discretion when it does not properly interpret or apply a forum- selection clause. Laibe Corp., 307 S.W.3d at 316. In addition, the Texas Supreme Court has held there is no adequate remedy by appeal when a trial court abuses its discretion by refusing to enforce a valid forum-selection clause that covers the dispute. See In re Int'l Profit Assocs., Inc., 274 S.W.3d 672, 675 (Tex. 2009) (orig. proceeding). Thus, the trial court's failure to enforce the forum- selection clause in this case is properly corrected by issuance of a writ of mandamus. See In re Lisa Laser USA, Inc., 310 S.W.3d 880, 883 (Tex. 2010) (orig. proceeding); Laibe Corp., 307 S.W.3d at 316. We conditionally grant the relators' petition for writ of mandamus. A writ will issue only in the event the trial court fails to vacate its April 26, 2011 Order Denying Defendants' Motion to Dismiss and to enter an order granting the motion to dismiss.
KERRY P. FITZGERALD
JUSTICE
Murphy, J., dissenting.
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Footnote 1
The parties sometimes use the term “standing” in this context of the right to enforce forum selection. See, e.g., “But Mariner is wrong about Highland's standing.” Relators' Reply Brief, p. 13. We avoid that term in this context because of the potential for confusion. The right to enforce a contractual agreement is a defensive issue for a contracting party, not a jurisdictional one. Unlike standing that is a component of subject matter jurisdiction, the right to enforce a contractual agreement can be waived. Moreover, we will not raise the issue in this Court-as we would an issue of subject matter jurisdiction-if it is not raised as an issue by the parties.
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Footnote 2
We disagree with the dissent's conclusion that Mariner challenged Cornerstone's right to enforce forum selection in the trial court. Mariner made an argument below concerning the scope of the Note's forum-selection clause. That argument asserted Cornerstone treated the Note's forum- selection clause as “non-existent” and stated Cornerstone had “not even tried” to establish a right to enforce it. Mariner's characterization is flawed substantively: Cornerstone does not treat the Note's forum-selection clause as non-existent. Instead, Cornerstone has consistently maintained that the Note merely incorporates by reference the forum-selection clause in the APA, as part of a unified transaction. Consistent with that analysis, Cornerstone asserts a right to enforce forum selection as assignee to the rights under the APA. Nevertheless, the dissent adopts Mariner's characterization of Cornerstone's argument and treats it as a challenge to Cornerstone's right to enforce the forum-selection clause in the Note. The dissent charges that “Cornerstone never asserted the right to enforce the Note, either below or in this proceeding.” Given its theory of this issue, Cornerstone had no reason to contend it had a right, independently, to enforce the Note or its forum-selection clause.
Mariner raised three arguments below in response to the motion to dismiss: (1) neither forum-selection clause governs this dispute; (2) the forum-selection clause in the Note excludes this dispute; and (3) Highland is not entitled to dismissal because its only asserted basis for enforcing a forum-selection clause has been overruled. In this Court, Mariner argues: (1) the trial court did not abuse its discretion in overruling the motion to dismiss (addressing rules of contract construction); (2) the relators' arguments for a single clause are unconvincing; (3) the dispute is too remote to come under the 2005 forum-selection clause; and (4) Highland cannot enforce any forum-selection clause as a nonsignatory. Both times, Mariner unambiguously raised Highland's right to enforce forum selection, not Cornerstone's, as a specific issue in its briefing.
Even if Mariner's discussion below of the scope of the Note's forum-selection clause could be read as a challenge to Cornerstone's right to enforce it-and we do not read it that way-the issue is not raised in this original proceeding.
Relators Cornerstone Healthcare Holding Group, Inc. (“Cornerstone”) and Highland Capital Management, L.P. (“Highland”) filed this mandamus proceeding after the trial court denied their motion to dismiss based on the parties' forum selection. We conclude the trial court abused its discretion in denying the motion and relators have no adequate remedy by appeal. We therefore conditionally grant the writ of mandamus.
Background
Real party in interest MHC Holding Company (“Mariner”) sold a chain of hospitals to CS Healthcare Holdco, LLC (“Holdco LLC”), for $161 million in the summer of 2005. The transaction was accomplished by the parties' execution of an Asset Purchase Agreement (the “APA”). As part of the transaction, Mariner received $151 million in cash and a $10 million promissory note (the “Note”) from CS Healthcare Holdco, Inc. (“Holdco”), a wholly-owned subsidiary of Holdco LLC and a defendant in the suit below. Immediately after the closing of the APA, Holdco LLC assigned all of its rights and interest in the APA to Cornerstone, pursuant to an assignment and assumption agreement. Thus, Cornerstone became the owner of all the assets originally transferred by Mariner.
in 2007, Holdco and Cornerstone entered into a Restructuring and Support Agreement (the “Restructuring Agreement”) with relator Highland, which had come to own more than $55 million of Cornerstone's debt. Pursuant to the Restructuring Agreement, ownership of the hospitals was transferred to Highland. Mariner was not a party to the Restructuring Agreement. The Note was identified in a schedule to the Restructuring Agreement as a material agreement into which Holdco had entered, but the debt created by the Note was not addressed by the Restructuring Agreement.
In 2010, Mariner sued Highland, Cornerstone, and Holdco, alleging a fraudulent transfer that left Holdco insolvent and unable to repay the Note. In its live petition, Mariner seeks the alternative remedies of avoidance of the 2007 restructuring transaction to the extent necessary to satisfy Mariner's claim for the $10 million owed by Holdco, or judgment “in the amount due under the [Note]” against either Highland or Cornerstone.
Cornerstone and Highland jointly filed a motion to dismiss the lawsuit on the basis of forum- selection clauses in the APA and the Note, both of which called for disputes to be resolved in New York County, New York. The trial court denied the motion. This original proceeding followed.
The Forum-Selection Clauses
In order to obtain mandamus relief, Cornerstone and Highland must show both that the trial court abused its discretion and that they have no adequate appellate remedy. In re Prudential Ins. Co., 148 S.W.3d 124, 135-36 (Tex. 2004) (orig. proceeding). Forum-selection clauses are generally enforceable and presumptively valid. In re Laibe Corp., 307 S.W.3d 314, 316 (Tex. 2010) (orig. proceeding). A trial court abuses its discretion when it does not properly interpret or apply a forum- selection clause. Id. Moreover, an appellate remedy is inadequate when a trial court improperly refuses to enforce a forum-selection clause; allowing the trial to go forward will simply vitiate the subject matter of an appeal, which is trial in the proper forum. See In re AIU Ins. Co., 148 S.W.3d 109, 115 (Tex. 2004) (orig. proceeding).
Paragraph 12.11 of the APA, entitled “Consent to Jurisdiction,” contains the following forum-selection clause:
The parties hereto each hereby irrevocably submit to the exclusive jurisdiction of any state or federal court sitting in New York County, New York for the purposes of any suit, action or other proceeding arising out of or based upon this Agreement or the subject matter hereto brought by any other party hereto. Each party also agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court . . . .
The Note contains the following forum-selection clause:
The execution, delivery and performance of this Note shall be governed by and construed in accordance with the laws of the State of New York . . . . Sections 12.11 (entitled “Consent to Jurisdiction”) and 12.12 (entitled “Waiver of Jury Trial”) of the Asset Purchase Agreement shall apply in connection with any dispute under or enforcement of this Note.
The parties disagree concerning which (if either) of these clauses is implicated by the current litigation, and they disagree as to the scope of the clause in the Note. They cast their issues differently, but the forum-selection issues before us come down to which clause is implicated by Mariner's suit and whether Mariner's suit is properly within the scope of the implicated clause.
As to the clause implicated, Cornerstone and Highland contend there is actually only one forum-selection clause and that the Note merely incorporates the APA's clause by reference. Thus, for the relators, the APA's clause is implicated by this action. Mariner, for its part, contends initially that neither clause is implicated in this case because its claims do not arise under the APA or the Note. However, if forum selection is implicated in this litigation, Mariner urges us to apply the Note's forum-selection clause. That clause, Mariner contends, was purposefully negotiated to be narrower than the APA's, because it envisions applying the APA's provision only “in connection with any dispute under or enforcement of” the Note. Mariner argues that if we apply the Note's clause, we will conclude-as Mariner does-that its lawsuit below is not subject to the forum- selection provision.
We are persuaded by relators' argument. Both sides acknowledge that the Note is tied to the APA. Indeed, Mariner asserts that “the Note and the APA were parts of a unified transaction.” The Note itself states that it is “issued pursuant to, and in accordance with the terms of, that certain Asset Purchase Agreement . . . .” Likewise, the APA includes the Note among its exhibits that were to be executed along with the APA. Settled law requires separate documents executed at the same time, for the same purpose, and in the course of the same transaction to be construed together. See Jim Walter Homes, Inc. v. Schuenemann, 668 S.W.2d 324, 327 (Tex. 1984).
When we construe the forum-selection clauses in the Note and the APA together, two points cannot be ignored. First, the drafters incorporated the APA's clause-in its entirety-into the Note. Had they desired a separate clause with different underpinnings, they would have drafted such a clause. Second, the clauses select the same forum, i.e., New York County, New York. Thus, unlike most exercises in contract construction, this one is not based on conflicting provisions. Instead, viewing the clauses together underscores the parties' intention that litigation related to the unified transaction would occur in the same location.
As to the breadth of the two clauses, given their origins in the same transaction we see no reason to read restrictions into the Note's provision. Again, the Note was issued pursuant to the APA and incorporates the entirety of the APA's forum-selection clause. Thus, we conclude Mariner's claims fall within the intended forum selection of the parties so long as they qualify as “action[s] or proceeding[s] arising out of or relating to” the transaction. We conclude further that Mariner's fraudulent-transfer suit below does arise out of or relate to that transaction. Specifically, the suit arises out of or relates to rights Mariner possesses pursuant to the Note: the injury it claims is Holdco's inability to pay on the Note; its standing as a creditor will require proof of Holdco's debt created by the Note; and the remedies it seeks amount to repayment pursuant to the Note. Simply put, Mariner would have no right to complain of the Restructuring Agreement except for its status as Holdco's creditor pursuant to the Note.
Mariner's lawsuit involves a dispute under the Note. Accordingly, the parties' single forum- selection clause applies to Mariner's claims. We conclude the parties agreed to litigate this matter in New York County, New York.
The Right to Enforce Forum Selection
We have concluded the parties agreed to a single forum-selection clause and that this dispute is within the scope of that clause. We next address whether relators-who were not parties to the APA or the Note-have the right to enforce the forum-selection clause against Mariner. See Footnote 1 Cornerstone and Highland asserted in their motion to dismiss that they were entitled to do so. Cornerstone based its right to enforce the clause on its status as assignee of Holdco LLC, which allowed Cornerstone to assert all of Holdco LLC's rights pursuant to the APA, including the Note that was appended to and made part of that agreement. See Phoenix Network Tech. (Europe) v. Neon Sys., Inc., 177 S.W.3d 605, 620 (Tex. App.-Houston [1st Dist.] 2005, no pet.) (contracting party's assignee can enforce contract's forum-selection clause). Mariner did not challenge Cornerstone's right to enforce the forum-selection clause in its response to the motion to dismiss below. Nor has it made any argument against Cornerstone's right to enforce the clause in this Court. Thus, the issue of Cornerstone's right to enforce forum selection is not before us. See Footnote 2
In the motion to dismiss, Highland asserted it was entitled to enforce the forum-selection clauses under a theory of equitable estoppel. Texas law includes a number of variations on the general principle of equitable estoppel. See, e.g., Meyer v. WMCO-GP, L.L.C., 211 S.W.3d 302, 306 (Tex. 2006) (interdependent and concerted misconduct estoppel); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005) (orig. proceeding) (direct-benefit estoppel); In re Polymerica, LLC, 271 S.W.3d 442, 449 (Tex. App.-El Paso 2008, orig. proceeding, pet. struck) (substantial- benefit estoppel); Cook Composites, Inc. v. Westlake Styrene Corp., 15 S.W.3d 124, 136 (Tex. App.-Houston [14th Dist.] 2000, pet. dism'd) (quasi-estoppel). Estoppel is an equitable doctrine and its application depends on the facts of each case. Van Zanten v. Energy Transfer Partners, L.P., 320 S.W.3d 845, 848-49 (Tex. App.-Houston [1st Dist.] 2010, no pet.) (citing In re Weekley Homes, 180 S.W.3d 127, 134-35 (Tex. 2005)). The lynchpin for all equitable estoppel is equity. Hill v. G E Power Sys., Inc., 282 F.3d 343, 349 (5th Cir. 2002).
In the motion to dismiss below, Highland urged application of an estoppel based on Mariner's allegations of interdependent and concerted misconduct by Holdco, Cornerstone, and Highland. Highland contended that Mariner's suit was an attempt to gain the benefits of the Note (while not specifically suing to enforce the Note on its terms) by asserting “intertwined claims” against the three parties. The result was a claim that purported to tie all three defendants to the obligations of Holdco under the Note. Highland asserted that, under these circumstances, equity required that it be allowed to join in the enforcement of the parties' forum selection. In this Court, Highland continues to rely on the estoppel theory, stressing that Mariner's claims invoke equitable concerns based on both concerted misconduct and intertwined claims against related defendants.
Highland's theory is supported, inter alia, by the opinion in Deep Water Slender Wells, Ltd. v. Shell International Exploration & Production, Inc., 234 S.W.3d 679 (Tex. App.-Houston [14th Dist.] 2007, pet. denied). In that case, the court advised: “Courts should apply equitable estoppel when a signatory to the contract containing the forum-selection clause raises allegations of substantially interdependent and concerted misconduct by both nonsignatories and one or more signatories to the contract.” Id. at 694 (citing Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 527 (5th Cir. 2000), and Meyer v. WMCO-GP, L.L.C., 211 S.W.3d 302, 306 (Tex. 2006)). In the situation described by Deep Water Slender Wells, the signatory has brought nonsignatories into a lawsuit based on an instrument they did not sign, but it has made allegations that they acted in concert with another signatory. This is precisely the situation in Mariner's lawsuit.
Mariner contends the theory of equitable estoppel relied upon by relators has been rejected by the Texas Supreme Court in In re Merrill Lynch Trust Co., 235 S.W.3d 185 (Tex. 2007) (orig. proceeding). Mariner reads Merrill Lynch too broadly. In that case, the plaintiffs (a husband and wife) were signatories to an agreement that contained an arbitration clause. The plaintiffs did not sue the other signatory; instead, they sued a number of nonsignatories, who attempted to compel arbitration. The supreme court concluded some parties could enforce the arbitration clause and some could not. For example, where the parties sued certain employees of the signatory, but not the signatory itself, for conduct in the course of their employment, the employees were entitled to enforce their employer's arbitration clause. See id. at 189-90. However, the plaintiffs also sued a pair of companies that had their own contracts with the plaintiffs; those contracts did not contain arbitration clauses. The supreme court concluded that allowing those companies to compel arbitration would, in effect, permit them to re-write their contracts with the plaintiffs. Id. at 191.
The defendant companies then urged the supreme court to apply an equitable estoppel based upon concerted misconduct and allow them to force the plaintiffs to arbitrate against them as well. The court asserted that it had “never compelled arbitration based solely on substantially interdependent and concerted misconduct,” and it declined to do so in Merrill Lynch as well. Id. (emphasis added). Amidst this very conclusion, however, the supreme court stated:
We noted allegations of concerted misconduct in Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 306-07 (Tex. 2006), but compelled arbitration because the plaintiff's claims depended on the underlying agreement, and thus were governed by principles of direct-benefit estoppel.
Id. at 191 n.22. Meyer was decided just a year before Merrill Lynch, and this reference to it within Merrill Lynch assures us that Meyer is still good law. Meyer actually sets forth two scenarios when equitable estoppel would support a nonsignatory compelling compliance with a contract:
Existing case law demonstrates that equitable estoppel allows a nonsignatory to compel arbitration in two different circumstances. First, equitable estoppel applies when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting its claims against the nonsignatory. When each of a signatory's claims against a nonsignatory makes reference to or presumes the existence of the written agreement, the signatory's claims arise out of and relate directly to the written agreement, and arbitration is appropriate. Second, application of equitable estoppel is warranted when the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract. Otherwise the arbitration proceedings between the two signatories would be rendered meaningless and the federal policy in favor of arbitration effectively thwarted.
Meyer, 211 S.W.3d at 305-06 (emphasis added). In the case before us, both of these bases for equitable estoppel exist. Mariner, a signatory, must rely on the Note in asserting its claims against Cornerstone and Highland. And Mariner has made allegations of substantially interdependent and concerted misconduct by Holdco, Cornerstone, and Highland.
We agree this is not a typical direct-benefit-estoppel case. In such a case, a nonsignatory plaintiff who seeks the benefits of a contract is estopped from simultaneously attempting to avoid the contract's burdens. In re Kellogg Brown & Root, Inc. 166 S.W.3d at 739. However, the supreme court included the Meyer estoppel within this category, and we can certainly see parallels in Mariner's case. Here, the signatory is attempting to avoid its own contract's burden while enforcing the benefits it derived from the contract. As we noted above, the lynchpin for all equitable estoppel is equity. Hill, 282 F.3d at 349. Under the facts of this case, equity demands that Highland be permitted to hold Mariner to its own bargain.
We conclude Highland may enforce the parties' selection of the New York forum by virtue of equitable estoppel.
Conclusion
A trial court abuses its discretion when it does not properly interpret or apply a forum- selection clause. Laibe Corp., 307 S.W.3d at 316. In addition, the Texas Supreme Court has held there is no adequate remedy by appeal when a trial court abuses its discretion by refusing to enforce a valid forum-selection clause that covers the dispute. See In re Int'l Profit Assocs., Inc., 274 S.W.3d 672, 675 (Tex. 2009) (orig. proceeding). Thus, the trial court's failure to enforce the forum- selection clause in this case is properly corrected by issuance of a writ of mandamus. See In re Lisa Laser USA, Inc., 310 S.W.3d 880, 883 (Tex. 2010) (orig. proceeding); Laibe Corp., 307 S.W.3d at 316. We conditionally grant the relators' petition for writ of mandamus. A writ will issue only in the event the trial court fails to vacate its April 26, 2011 Order Denying Defendants' Motion to Dismiss and to enter an order granting the motion to dismiss.
KERRY P. FITZGERALD
JUSTICE
Murphy, J., dissenting.
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Footnote 1
The parties sometimes use the term “standing” in this context of the right to enforce forum selection. See, e.g., “But Mariner is wrong about Highland's standing.” Relators' Reply Brief, p. 13. We avoid that term in this context because of the potential for confusion. The right to enforce a contractual agreement is a defensive issue for a contracting party, not a jurisdictional one. Unlike standing that is a component of subject matter jurisdiction, the right to enforce a contractual agreement can be waived. Moreover, we will not raise the issue in this Court-as we would an issue of subject matter jurisdiction-if it is not raised as an issue by the parties.
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Footnote 2
We disagree with the dissent's conclusion that Mariner challenged Cornerstone's right to enforce forum selection in the trial court. Mariner made an argument below concerning the scope of the Note's forum-selection clause. That argument asserted Cornerstone treated the Note's forum- selection clause as “non-existent” and stated Cornerstone had “not even tried” to establish a right to enforce it. Mariner's characterization is flawed substantively: Cornerstone does not treat the Note's forum-selection clause as non-existent. Instead, Cornerstone has consistently maintained that the Note merely incorporates by reference the forum-selection clause in the APA, as part of a unified transaction. Consistent with that analysis, Cornerstone asserts a right to enforce forum selection as assignee to the rights under the APA. Nevertheless, the dissent adopts Mariner's characterization of Cornerstone's argument and treats it as a challenge to Cornerstone's right to enforce the forum-selection clause in the Note. The dissent charges that “Cornerstone never asserted the right to enforce the Note, either below or in this proceeding.” Given its theory of this issue, Cornerstone had no reason to contend it had a right, independently, to enforce the Note or its forum-selection clause.
Mariner raised three arguments below in response to the motion to dismiss: (1) neither forum-selection clause governs this dispute; (2) the forum-selection clause in the Note excludes this dispute; and (3) Highland is not entitled to dismissal because its only asserted basis for enforcing a forum-selection clause has been overruled. In this Court, Mariner argues: (1) the trial court did not abuse its discretion in overruling the motion to dismiss (addressing rules of contract construction); (2) the relators' arguments for a single clause are unconvincing; (3) the dispute is too remote to come under the 2005 forum-selection clause; and (4) Highland cannot enforce any forum-selection clause as a nonsignatory. Both times, Mariner unambiguously raised Highland's right to enforce forum selection, not Cornerstone's, as a specific issue in its briefing.
Even if Mariner's discussion below of the scope of the Note's forum-selection clause could be read as a challenge to Cornerstone's right to enforce it-and we do not read it that way-the issue is not raised in this original proceeding.
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