Contract Law governs Rule 11 Settlement Agreements

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

The rule the Rule Eleven Agreement takes its name from: Tex. R. Civ. P. 11

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

OPINION EXCERPT

 

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

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

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

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

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

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

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

In Kilgo, a homebuilder alleged that the Kilgos failed to comply with a contractual obligation to build a new home.2011 WL 1811435, at *1.The court of appeals determined that the parties’ agreement did not include terms essential to a contract for the construction of a new home. Id. at *3.The agreement did not include any information defining the undertaking, such as the size of the house contemplated, the price of the house on a per-square-foot or other basis, or the time for completing construction. Id. Here, unlike in Kilgo, the terms that Stergiou asserts are essential—i.e., those terms describing the parties’ obligations to insure, maintain, and repair the collateral, the notice and cure periods for default, and the right of prepayment—do not define the undertaking in the rule 11 agreement to pay for the return of Stergiou’s stock in the GMF Companies.
  
Instead, this case is more analogous to Montanaro v. Montanaro, 946 S.W.2d 428 (Tex. App.—Corpus Christi 1997, no writ). Montanaro was a suit for an accounting, dissolution of a family-owned partnership, fraud, and breach of fiduciary duties. The parties agreed on the general terms of their settlement, including payment obligations and the release of claims. Id. at 429.The payment obligations were to be secured by a to-be-drafted promissory note, but despite having exchanged drafts, the parties could not agree on the promissory note’s terms. Id. at 431.The court of appeals concluded that the record nevertheless established the essential terms of a settlement agreement because, like Stergiou and the GMF Companies, the parties agreed as to the exact amount of the payments and the period over which they were to be made. Id. “Additional terms regarding overdue, or post-maturity, interest and acceleration upon default were not necessary to enable the parties to comply with the terms of the note, or the underlying settlement agreement.”Id. Likewise here, we conclude that the particular terms of the additional documents were not material and therefore did not destroy the rule 11 agreement’s effectiveness, and we hold that the rule 11 agreement is not an unenforceable “agreement to agree.”

  

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

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

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

  

B.      Definiteness of Terms
   

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

  

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

 

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

  

C.      Statute of Frauds

  

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

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

  

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

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

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

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

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

For this reason, we hold that the statute of frauds does not bar enforcement of the rule 11 agreement, and we overrule Stergiou’s third sub-issue.
   
Interpretation of the Rule 11 Agreement  
   
Having determined that the rule 11 agreement is enforceable, we now consider whether, as argued by the GMF Companies in their appeal, the agreement authorized Curry to pay the entire amount owed under the agreement at one time In four issues, the GMF Companies contend (1) the rule 11 agreement included a right of prepayment, (2) Curry’s tender of the full $300,000 constituted substantial performance of the rule 11 agreement, (3) by refusing that tender, Stergiou waived his right to interest under the rule 11 agreement, and (4) Stergiou’s failure to mitigate his damages by accepting the tender relieves Curry of any continuing burden to make interest payments. For reasons discussed below, only the GMF Companies’ first issue is properly within the scope of this agreed interlocutory appeal.
   

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

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

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

Arbitration awards are sometimes properly overturned by the courts even if grounds for judicial review & appeal are very narrow, as seen in a recent case from Houston arising from a probate dispute.
  
JUDICIAL REVIEW OF ARB AWARDS UNDER THE TEXAS GENERAL ARBITRATION ACT

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

EXCERPT FROM OPINION BY JUSTICE HARVEY BROWN

    
Texas law favors the arbitration of disputes. See E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 271 (Tex. 2010); Brazoria Cnty. v. Knutson, 176 S.W.2d 740, 743 (Tex. 1943) ("Arbitration is a proceeding so favored by Texas law that both our Constitution and statutes provide for the submission of differences to arbitration."). Consequently, judicial review of an arbitration award is extraordinarily narrow and focuses on the integrity of the process, not the propriety of the result. See Women's Reg'l Healthcare, P.A. v. FemPartners of N. Tex., Inc., 175 S.W.3d 365, 367 68 (Tex. App.-Houston [1st Dist.] 2005, no pet.); TUCO, Inc. v. Burlington N. R.R. Co.,912 S.W.2d 311, 315 (Tex. App.-Amarillo 1995), modified on other grounds, 960 S.W.2d 629 (Tex. 1997). A reviewing court may not substitute its judgment for the arbitrator's simply because that court would have reached a different result. Royce Homes, L.P. v. Bates, 315 S.W.3d 77, 85 (Tex. App.-Houston [1st Dist.] 2010, no pet.).We indulge every reasonable presumption to uphold an arbitrator's decision.New Med. Horizons II, Ltd. v. Jacobson, 317 S.W.3d 421, 428 (Tex. App.-Houston [1st Dist.] 2010, no pet.).
  
The parties agree that the Texas General Arbitration Act (TAA) governs this case. See TEX. CIV. PRAC. & REM. CODE ANN. §§ 171.001 .098 (West 2011). Under the TAA, a court must affirm an arbitration award unless a party establishes one of four statutory bases for vacating the award: (1) the award was procured by fraud, corruption, or other undue means; (2) there was evident partiality, corruption, or willful misconduct by the arbitrator that prejudices the rights of a party; (3) the arbitrator exceeded her power, refused to postpone a hearing on a showing of sufficient cause, or refused to hear material evidence; or (4) "there was no agreement to arbitrate, the issue was not adversely determined in a proceeding under Subchapter B, and the party did not participate in the arbitration hearing without raising the objection."[4]Id. §§ 171.087 .088(a); see Women's Reg'l Healthcare, 175 S.W.3d at 367. Our review of an order vacating an arbitrator's award for any of these reasons is de novo. See Grand Homes 96, L.P. v. Loudermilk, 208 S.W.3d 696, 705 (Tex. App.-Fort Worth 2006, pet. denied).
  
Order Vacating the Arbitration Award  
Dianna's complaints about the probate court's order vacating the arbitration award are divided into six sub-issues, each addressing a statutory or common-law ground for vacatur asserted by her siblings—Harold, Susanna, John, and Madge— or the grandchildren. We begin with Dianna's sixth sub-issue, which challenges the vacatur grounds asserted by Madge in her motion attacking "the portions of the arbitration award that require Madge to sign over her interests in real estate to Dianna Brelsford and to appear and sign transfer documents."
  
Madge argues that the arbitrator's award divesting her of a property interest in the ranch subjected her to an arbitration to which she did not agree and in which she did not participate. She asserts that, under these circumstances, the probate court properly vacated the award under sections of the Civil Practice and Remedies Code providing for vacatur if the arbitrator exceeded her powers or if there was no agreement to arbitrate. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(3)(A), (a)(4). Dianna asserts that Madge's complaints about the arbitration award are merely "ministerial" and "not a basis to vacate" because Madge had already agreed to transfer her interests to Harold, Susanna, and John. We disagree with Dianna.
  
We look to the parties' various provisions for dispute resolution to determine the arbitrator's authority to order Madge, a non-participant in the second arbitration, to convey her property interest in the ranch to Dianna instead of Harold, Susanna, and John. See Baker Hughes Oilfield Operations v. Hennig Prod. Co., 164 S.W.3d 438, 443 (Tex. App.-Houston [14th Dist.] 2005, no pet.). Attached to the MSA, which is a global document signed by all of the siblings, the trusts, and the estate, are (1) Dianna'sagreement with Harold, Susanna, and John and (2) Madge's agreement with Harold, Susanna, and John. The MSA and the attached agreements contain different provisions for dispute resolution. The MSA provided "that any dispute as to interpretation of terms of this agreement shall be submitted to binding arbitration. . . ." In the attached agreements, which the parties treat as separate and distinct agreements, Dianna and Madge individually agreed to transfer their interests in family properties, including the ranch, to Harold, Susanna, and John in exchange for payment. They both also agreed to a two-step process in the event of future disputes: "attend a ½ day mediation with Judge Garcia; if no agreement, then Judge Garcia shall serve as arbitrator, and she shall rule in a manner that she believes is fair and just, and her decision is non-appealable and final."
  
Although Dianna's and Madge's individual agreements incorporated nearly identical terms for resolving their disputes with their siblings, Dianna did not sign Madge's agreement with Harold, Susanna, and John, and Madge did not sign Dianna's agreement with Harold, Susanna, and John. Madge is also not a signatory to the agreement entered on the eve of the second arbitration, granting the arbitrator broad authority to decide "any and all issues and/or disputes related to the above causes of action and any and all issues or disputes with regard to any mediation agreement and/or settlement agreement." Only Harold, Susanna, John, and Dianna signed that agreement. Thus, the only agreement to arbitrate signed by both Dianna and Madge is the agreement to submit to arbitration "any dispute as to interpretation of terms of" the MSA between the siblings, the trusts, and the estate.
  
Considering the written submissions to the arbitrator, we note that Madge did not have a dispute with either Dianna or her other siblings "as to interpretation of terms" of their settlement agreement with the trusts and the estate, and Dianna did not allege any such dispute with Madge. In fact, Dianna did not allege any dispute with Madge or any dispute as to the MSA between the siblings, the trusts, and the estate. Although she requested an award of the entire ranch, Dianna's written submission focused exclusively on Harold, Susanna, and John's non-performance and alleged fraudulent inducement of her individual settlement agreement with them. The arbitrator specifically noted in the award that Madge did not participate in the second arbitration because she had settled her disputes with Harold, Susanna, and John. The arbitrator found that "an award of 100% of [the ranch] to Dianna is a partition in kind for her debt under the MSA, for actual and punitive damages from the intentional and repeated breaches of the MSA by Harold, Susanna, and John in the breaches described here." The breaches described in the arbitration award related to breaches of Dianna's settlement with Harold, Susanna, and John and no other agreement. To give effect to her award, however, the arbitrator ordered Madge, along with Harold, Susanna, and John, to execute deeds transferring their interests in the ranch to Dianna. No findings were entered against Madge in the award. Nor can we find any evidence in this record that Harold, Susanna, and John paid Madge and therefore were entitled to demand transfer of Madge's interest in the ranch.
 
Even considering the presumptions in favor of arbitration, we agree with Madge that she did not agree to submit to arbitration of disputes arising from Dianna's agreement with Harold, Susanna, and John. The arbitrator could not order Madge, as part of the second arbitration, to transfer her interest in the ranch to Dianna as a consequence of Harold, Susanna, and John's breaches of an agreement to which Madge was not a party because any dispute as to Madge's interest in the ranch was not properly before the arbitrator. We are not persuaded that simply because Madge had already agreed to transfer her interests to Harold, Susanna, and John, an order that she transfer her interests to someone else is inconsequential. The arbitrator's award required Madge to perform an act that contravened her settlement with Harold, Susanna, and John and undermined their obligation to pay Madge under that agreement. We therefore conclude that the probate court correctly vacated that part of the award giving Dianna full ownership of the ranch and ordering Madge to "execute the deeds . . . to transfer full ownership of [the ranch], its cattle and improvements to [Dianna]" under section 171.008(a)(4). See TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(4) (providing for vacatur of arbitration award when "there was no agreement to arbitrate, the issue was not adversely determined in a proceeding under Subchapter B, and the party did not participate in the arbitration hearing without raising the objection").
 
Our conclusion that Madge did not agree to arbitrate the issues decided at the second arbitration is dispositive of this appeal. Although we have held invalid only those parts of the arbitrator's award affecting Madge, the entire award must be set aside because, here, the invalid parts of the award are not "distinct and independent" from the remaining parts of the award. City of Waco v. Kelley, 309 S.W.3d 536, 551 (Tex. 2010) ("In an appeal from an arbitration award, if a portion of the award is invalid, the other portion will be unaffected only if the two parts are so distinct and independent that the valid part will truly express the judgment of the arbitrator. But if an invalid portion is not severable and distinct so that the remaining valid part of the award truly expresses the arbitrator's judgment, the entire award is void."); see Gulf Oil Corp. v. Guidry, 327 S.W.2d 406, 409 (Tex. 1959). The arbitrator determined that it was equitable that Dianna be awarded 100 percent ownership of the ranch in satisfaction of the amounts owed by Harold, Susanna, and John for their breaches of contract and fraud. To affirm the remaining portions of the award ordering Harold, Susanna, and John to convey their interests in the ranch would be to affirm an award to Dianna of less than 100 percent ownership of the ranch. Such an award is less than what the arbitrator determined was equitable and would not "truly express the arbitrator's judgment." See Kelley, 309 S.W.3d at 551. Accordingly, we conclude that the entire arbitration award must be set aside and that a new arbitration hearing must be conducted, and we overrule Dianna's sixth sub-issue.
  
Order Appointing a New Arbitrator 
Our holding in this case will require a rehearing of Dianna's dispute with Harold, Susanna, and John. In her second issue, Dianna contends that the trial court erred in appointing a new arbitrator for the rehearing. See Werline, 307 S.W.3d at 270 74 (allowing appeal when trial court denied confirmation of arbitration award, vacated award, and sent dispute to re-arbitration before new arbitrator). We agree. Section 171.089 permits a court to order rehearing before a new arbitrator upon the vacatur of an award "on grounds other than the grounds stated in Section 171.088(a)(4)." See TEX. CIV. PRAC. & REM. CODE ANN. § 171.089(a). The only grounds for vacatur we affirm are stated in section 171.088(a)(4). Id. § 171.088(a)(4). Consequently, the vacatur of the arbitration award in this case will not support the appointment of a new arbitrator for rehearing. See id. § 171.089(a). We sustain Dianna's second issue.
  
Conclusion
  
We affirm the probate court's order vacating the arbitration award, but we reverse the probate court's order appointing a new arbitrator for the rehearing. This case is remanded for further proceedings consistent with this opinion. All outstanding motions are denied as moot.
  
SOURCE: FIRST COURT OF APPEALS - HOUSTON - Nos. 01-11-00265-CV, 01-11-00266-CV - 5/17/12 Dianna Jones v. Harold Petsch Brelsford et al

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

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

  

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

  

PER CURIAM MEMORANDUM OPINION

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

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

EXCERPT FROM TEXAS SUPREME COURT’S OPINION IN

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

Texas Civil Practice and Remedies Code Section 51.016

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

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

 (a) An appeal may be taken from—

 (1) an order—

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

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

 (C) denying an application under section 206 of this title to compel arbitration,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  

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

  

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

  

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

 

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

  

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

 

STANDARD OF REVIEW

 

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

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

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

 

State contract law governs arbitration agreements.

The Federal Arbitration Act (FAA)

The FAA provides, in relevant part:

 

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

   

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

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

Texas Law — Formation of Contracts

   

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

  

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

  

Mutual Promises and Consideration

  

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

  

Illusory Promises

  

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

  

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

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

Who decides the gateway issues? Judge or Arbitrator?

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

      

Court Or Arbitrator?           

El Paso courthouse

  

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

   

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

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

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

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

  

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

  

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

  

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

  

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

  

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

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

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

MEMORANDUM OPINION BY JUSTICE REBECCA SIMMONS

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

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

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

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

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

STANDARD OF REVIEW

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

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

THIRD-PARTY HEARING EXAMINERS

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

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

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

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

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

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

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

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

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

C. Did the Hearing Examiner Exceed His Jurisdiction?

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

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

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

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

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

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

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

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

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

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

CONCLUSION

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

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