tag:blogger.com,1999:blog-59474567603907110982024-03-12T18:52:24.087-07:00ADR LAW TEXASAlternative Dispute Resolution in Texas -
Litigation and appeals involving issues in mediation, arbitration, and other means of nonjudicial conflict resolution and settlement.MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.comBlogger165125tag:blogger.com,1999:blog-5947456760390711098.post-44406389015792786592019-10-04T14:35:00.003-07:002019-10-28T15:22:03.116-07:00Texas law firm's bid to force out-of-state clients to arbitrate legal malpractice claim in Houston fails <div style="text-align: center;">
Shrader & Associates, LLP v. Carrasco, </div>
<div style="text-align: center;">
No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=01-19-00042-CV&coa=coa01">01-19-00042-CV</a> (Tex.App.- Houston [1st Dist.] Sep. 24, 2019, motion for rehearing filed Oct. 9, 2019, no pet. h.) </div>
<div style="text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-tt0YQ8rKdDA/XZe5fY6g-RI/AAAAAAAAQmA/bX7M5jDwQ0Y76I83zIXFVZqKbHYxp0n2ACNcBGAsYHQ/s1600/ARB%2B01-19-00042-CV%2BSHRADER%2B%2526%2BASSOCIATES%252C%2BLLP%2Bv.%2BCarrasco%252C%2BTex_%2BCourt%2Bof%2BAppeals%252C%2B1st%2BDist.%2B2019%2B%2528cover%2Bpage%2529.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="01-19-00042-CV SHRADER & ASSOCIATES, LLP v. Carrasco, Tex_ Court of Appeals, 1st Dist. 2019" border="0" data-original-height="914" data-original-width="888" height="400" src="https://1.bp.blogspot.com/-tt0YQ8rKdDA/XZe5fY6g-RI/AAAAAAAAQmA/bX7M5jDwQ0Y76I83zIXFVZqKbHYxp0n2ACNcBGAsYHQ/s400/ARB%2B01-19-00042-CV%2BSHRADER%2B%2526%2BASSOCIATES%252C%2BLLP%2Bv.%2BCarrasco%252C%2BTex_%2BCourt%2Bof%2BAppeals%252C%2B1st%2BDist.%2B2019%2B%2528cover%2Bpage%2529.JPG" title="01-19-00042-CV SHRADER & ASSOCIATES, LLP v. Carrasco, Tex_ Court of Appeals, 1st Dist. 2019" width="387" /></a></div>
<br />
This case presents an arbitrability issue in a rare procedural posture. A Texas law firm sought to force clients residing in California to arbitrate their legal malpractice claim against it in Houston, to which the former clients, who had already sued the law firm in California, responded by filing a special appearance challenging personal jurisdiction over them. A Harris County District Court resolved the matter against the local law firm.<br />
<br />
Through the lawsuit in Texas SHRADER & ASSOCIATES sought a declaration that the arbitration clause in a fee agreement that the clients had signed, but the law firm had <i><u>not</u></i> signed, was binding and enforceable. The trial court ruled contrariwise and the court of appeals affirmed on the basis that the law firm had not proven that the contract containing the arbitration agreement had been formed because no one had signed it on behalf of the law firm, and because the law firm had ultimately declined not to pursue a lawsuit on behalf of the clients. Under such circumstances, there was no showing of acceptance by conduct as an alternative to acceptance by signature.<br />
<br />
The law firm's failure to file a personal injury suit on behalf of the former clients formed the basis for the malpractice claim because the statute had run in the interim.<br />
<br />
A second interesting aspect of this case concerns the nature of the fee agreement. It was apparently a contingent fee agreement that must be signed by both client and attorney under a Texas statute. In <i>Shrader</i>, the Houston court of appeals did not delve into whether the arbitration agreement could be enforced independent of the question whether the contingent fee agreement (which contained it) was valid and enforceable under state law. That issue has previously surfaced in other cases. See, e.g., <a href="https://scholar.google.com/scholar_case?case=6598413340315599400&q=law+office+of+thomas+j+henry&hl=en&scisbd=2&as_sdt=4,44">Law Office of Thomas J. Henry v. Priscilla Ann Garcia</a>, No. <a href="http://search.txcourts.gov/Case.aspx?cn=13-18-00275-CV&coa=coa13">13-18-00275-CV</a> (Tex.App.-Corpus Christi/Edinburg, Feb. 21, 2019, no pet.), in which the Thirteenth Court of Appeals compelled arbitration even though the contingent fee agreement had also <i>not</i> been signed by the attorney).<br />
<br />
It could be argued that the clients accepted the agreement as drafted and presented to them by the law firm as long as they did not change any of the terms to turn it into a counter-offer, and that therefore a signature by the law firm was not required to create a mutual obligation to arbitrate disputes, even if such a second signature was required to make the contingent fee agreement itself valid and enforceable. Under the Federal Arbitration Act (FAA), arbitration agreements need not be signed as long as mutual assent is present, and the arbitration agreement could be severed from the remainder of the fee agreement if the other terms were held to be unenforceable as a matter of state law governing legal services agreements that provide for a contingent recovery of fees from judgment or settlement proceeds.<br />
<br />
It will be interesting to see whether the case will end up in the Texas Supreme Court, which last year passed on an opportunity to weigh in on this issue. See Law Office of Thomas J. Henry v. Cavanaugh, No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=05-17-00849-CV&coa=coa05">05-17-00849-CV</a>, 2018 WL 2126936, at *4 (Tex. App.-Dallas May 7, 2018, pet. denied in Tex. No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=18-0562&coa=cossup">18-0562</a>) (mem. op.) (firm's failure to sign fee agreement, standing alone, did not make its arbitration clause unenforceable).<br />
<blockquote class="tr_bq">
Also see related post on this blawg: <a href="https://texas-arbitration-case-law.blogspot.com/2018/10/preview-of-cavanaugh-v-law-office-of.html">Is arbitration clause in non-compliant attorney-client fee agreement enforceable?</a> - <a href="https://texas-arbitration-case-law.blogspot.com/2018/10/preview-of-cavanaugh-v-law-office-of.html">Preview of Jonathan Cavanaugh v. Law Office of Thomas J. Henry</a> (PFR filed in Texas Supreme Court). </blockquote>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
SHRADER & ASSOCIATES, L.L.P., Appellant,<br />v.<br />CRISSY CARRASCO AND DAVID CARRASCO, JR., Appellees.</h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<a href="https://scholar.google.com/scholar?scidkt=7147532491503039726&as_sdt=2&hl=en" style="color: #660099;">No. 01-19-00042-CV.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<div style="position: relative;">
<b>Court of Appeals of Texas, First District, Houston.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
Opinion issued September 24, 2019.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Stephanie Taylor, Vincent L. Marable, III, Kendall C. Montgomery, William Fred Hagans, for Crissy Carrasco and David Carrasco, Jr., Appellee.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Nicholas Bruno, Marcos Rosales, David J. Beck, for Shrader & Associates, L.L.P., Appellant.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
On Appeal from the 295th District Court, Harris County, Texas, Trial Court Case No. 2018-57553.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Panel consists of Justices Lloyd, Goodman, and Landau.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
MEMORANDUM OPINION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
GORDON GOODMAN, Justice.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Shrader & Associates, L.L.P. filed a declaratory judgment action seeking an order compelling Crissy Carrasco and David Carrasco, Jr. to arbitrate their legal malpractice claim against the firm. The Carrascos disputed personal jurisdiction. The trial court agreed with the Carrascos and dismissed the firm's suit. We affirm.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
BACKGROUND</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>Malpractice Suit</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The Carrascos, California residents who have no contacts with Texas, retained Shrader & Associates, a Texas law firm, to represent them in a personal-injury matter. After the statute of limitations had expired as to the personal-injury claim and without filing suit, the law firm informed the Carrascos that it would be unable to represent them or pursue litigation on their behalf and therefore ended its representation of the Carrascos. The Carrascos then sued the firm in California state court, alleging legal malpractice.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>Declaratory Judgment Action</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Shrader & Associates filed this declaratory judgment action against the Carrascos seeking an order compelling arbitration of their legal malpractice claim. The firm alleged that the Carrascos had signed a fee agreement containing a mandatory arbitration clause as to any attorney-client disputes.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In relevant part, the fee agreement's arbitration clause states:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
XVII. Arbitration. Any disagreement, dispute, claim or cause of action arising pursuant to the performance of this agreement shall be resolved through binding arbitration. The arbitration shall take place before a panel of three (3) arbitrators in conformance with the rules of the American Arbitration Association in Houston, Harris County, Texas.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=957102824727541656&q=01-19-00042-CV&hl=en&as_sdt=4,44#[1]" name="r[1]" style="color: #660099;">[1]</a></sup></blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
It is undisputed that the Carrascos signed the fee agreement and that a representative of Shrader & Associates did not do so despite a separate signature block for the firm. Above the parties' signature blocks, the agreement provides that, "This Attorney-Fee Contract was entered into on ______." The blank provided for the date of execution is empty.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The Carrascos filed a special appearance contesting personal jurisdiction. Shrader & Associates responded that the trial court had personal jurisdiction over the Carrascos for the limited purpose of compelling arbitration because the fee agreement's arbitration clause provided for arbitration in Houston.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The trial court granted the Carrasco's special appearance and dismissed the firm's declaratory judgment action for lack of personal jurisdiction. The trial court did not specify the rationale underlying its dismissal order.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>Arbitral Proceeding</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
On the same day that it filed its declaratory judgment action, Shrader & Associates filed an arbitration demand with the American Arbitration Association. The Association administratively determined that the firm's arbitration clause violated its consumer arbitration rules, in part because the clause's requirement that the arbitration be held in Houston was not reasonably convenient for both parties. The Association requested that Shrader & Associates waive this aspect of the arbitration clause as a prerequisite to arbitration. The firm disputed that the consumer arbitration rules applied and refused the waive the clause's specification of Houston as the location of the arbitration. The Association therefore declined to administer the arbitration.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
DISCUSSION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Shrader & Associates appeals from the trial court's order granting the Carrasco's special appearance. The firm does not contend that there is general or specific personal jurisdiction over the Carrascos. Instead, it contends that the fee agreement's arbitration clause provides personal jurisdiction over the Carrascos for the limited purpose of compelling them to arbitrate their legal malpractice claim. The Carrascos contend that the fee agreement, including its arbitration clause, is not enforceable because the firm neither signed the agreement nor submitted other evidence of its intent to be bound by the fee agreement. The Carrascos additionally contend that the American Arbitration Association's administrative dismissal of the firm's arbitration demand makes the firm's continued demand for arbitration futile.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>Standard of Review</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
We review de novo whether a trial court has personal jurisdiction. <a href="https://scholar.google.com/scholar_case?case=12326161566674631813&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Old Republic Nat'l Title Ins. Co. v. Bell,</i> 549 S.W.3d 550, 558 (Tex. 2018)</a>. Because the trial court did not issue findings of fact and conclusions of law, we imply all facts necessary to support its judgment that are supported by the record. <i>Id.</i> To the extent that the facts relevant to our jurisdictional inquiry are undisputed, whether those facts establish personal jurisdiction is question of law. <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>Applicable Law</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
When a party signs an agreement with a forum-selection clause, the party consents to personal jurisdiction in that forum, rendering ordinary principles of general and specific jurisdiction irrelevant. <i>See </i><a href="https://scholar.google.com/scholar_case?case=6458356405554591916&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Guam Indus. Servs. v. Dresser-Rand Co.,</i> 514 S.W.3d 828, 833 (Tex. App.-Houston [1st Dist.] 2017, no pet.)</a>. An arbitration clause is a type of forum-selection clause. <i>Id.</i> The fee agreement's arbitration clause in this case provided for arbitration in Houston. The dispositive question therefore is whether the arbitration clause is enforceable. <i>See id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<i><br /></i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
An arbitration clause in a valid attorney-client agreement generally is enforceable. <i>See </i><a href="https://scholar.google.com/scholar_case?case=14089149638331931809&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Royston, Rayzor, Vickery & Williams, LLP v. Lopez,</i> 467 S.W.3d 494, 500 (Tex. 2015)</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=2997062215778831117&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Labidi v. Sydow,</i> 287 S.W.3d 922, 928 (Tex. App.-Houston [14th Dist.] 2009, no pet.)</a> (attorney-client disputes involving contract, relationship, services rendered, or fees charged are arbitrable). In deciding whether to compel arbitration in a given case, a trial court must ascertain whether a valid, enforceable arbitration agreement exists, and, if so, whether the claims asserted fall within the scope of that agreement. <a href="https://scholar.google.com/scholar_case?case=14988227704286712446&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Chambers v. O'Quinn,</i> 305 S.W.3d 141, 146 (Tex. App.-Houston [1st Dist.] 2009, pet. denied)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The existence of an enforceable arbitration agreement is a legal question resolved by ordinary contract principles. <a href="https://scholar.google.com/scholar_case?case=3307363622764911323&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Parker v. Schlumberger Tech. Corp.,</i> 475 S.W.3d 914, 922 (Tex. App.-Houston [1st Dist.] 2015, no pet.)</a>. Thus, the party that is trying to enforce the agreement must show that it "meets all requisite contract elements." <a href="https://scholar.google.com/scholar_case?case=12596166907904856385&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>J.M. Davidson, Inc. v. Webster,</i> 128 S.W.3d 223, 228 (Tex. 2003)</a>. These elements include an offer, an acceptance, a meeting of the minds, each party's consent to the terms, and the execution and delivery of the contract with the intent that it be mutual and binding. <a href="https://scholar.google.com/scholar_case?case=12099212622298097074&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>APMD Holdings, Inc. v. Praesidium Med. Prof'l Liab. Ins. Co.,</i> 555 S.W.3d 697, 707 (Tex. App.-Houston [1st Dist.] 2018, no pet.)</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=773380119767415835&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>S.C. Maxwell Family P'ship v. Kent,</i> 472 S.W.3d 341, 344 (Tex. App.-Houston [1st Dist.] 2015, no pet.)</a> (contract-formation issues going to very existence of agreement containing arbitration clause must be resolved by trial court).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The party trying to compel arbitration bears the burden of proving the existence of a valid arbitration agreement. <a href="https://scholar.google.com/scholar_case?case=14988227704286712446&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Chambers,</i> 305 S.W.3d at 146</a>. Once the party trying to compel arbitration has done so, the burden shifts to the opposing party to establish a defense to the arbitration agreement, such as fraud, unconscionability, or waiver. <i>See </i><a href="https://scholar.google.com/scholar_case?case=14089149638331931809&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Lopez,</i> 467 S.W.3d at 500</a>; <a href="https://scholar.google.com/scholar_case?case=14988227704286712446&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Chambers,</i> 305 S.W.3d at 146</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>Analysis</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Shrader & Associates contends that the fee agreement's arbitration clause is enforceable even though a representative of the firm did not sign the agreement. In support, the firm primarily relies on our decision in <i>Chambers,</i> a legal malpractice suit in which we affirmed the trial court's order compelling arbitration based on an arbitration clause contained in fee agreements that had been signed by the clients but not by the attorney. <i>See </i><a href="https://scholar.google.com/scholar_case?case=14988227704286712446&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Chambers,</i> 305 S.W.3d at 147, 152-53</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The Carrascos initially contend that the firm's failure to sign the fee agreement makes its arbitration clause unenforceable. They rely on section 82.065(a) of the Government Code, which requires contingent-fee contracts for legal services to be in writing and signed by the attorney and the client. TEX. GOV'T CODE § 82.065(a).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In <i>Chambers,</i> this court rejected the position that section 82.065(a) makes an arbitration clause in a fee agreement unsigned by the attorney unenforceable. <a href="https://scholar.google.com/scholar_case?case=14988227704286712446&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;">305 S.W.3d at 152-53</a>. The court reasoned that the purpose of section 82.065(a), which is a statute of frauds, was fulfilled because the client—the party against whom the arbitration clause was being enforced—had signed the fee agreement. <i>See id.</i> at 152; <i>accord Law Office of Thomas J. Henry v. Cavanaugh,</i> No. 05-17-00849-CV, 2018 WL 2126936, at *4 (Tex. App.-Dallas May 7, 2018, pet. denied) (mem. op.) (firm's failure to sign fee agreement, standing alone, did not make its arbitration clause unenforceable). Accordingly, Shrader & Associates' failure to sign the agreement— in and of itself—does not render the agreement's arbitration clause unenforceable.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The Carrascos further contend, however, that the record lacks any evidence that the firm intended to be bound by the fee agreement. Because the firm neither signed the agreement nor introduced other evidence that the firm had accepted the agreement's terms, the Carrascos contend, <i>Chambers</i> is not dispositive.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
We agree that <i>Chambers</i> is not dispositive. While that decision is controlling as to section 82.065(a)'s effect, the firm's failure to sign the fee agreement still presents a contract-formation issue under ordinary contract principles. <i>See </i><a href="https://scholar.google.com/scholar_case?case=8000233394734215033&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>RSL Funding v. Newsome,</i> 569 S.W.3d 116, 124 (Tex. 2018)</a> (characterizing "whether a party ever signed a contract" as a contract-formation defense). In <i>Chambers,</i> there was ample evidence that the attorney had accepted the fee agreement and intended to be bound by it, despite the absence of his signature. Specifically, the attorney provided legal services under the agreement, representing the clients in litigation and settling their claims. <i>See </i><a href="https://scholar.google.com/scholar_case?case=4401156968011591863&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Chambers v. O'Quinn,</i> 242 S.W.3d 30, 31 (Tex. 2007) (per curiam)</a>. Similarly, in <i>Cavanaugh,</i> the firm filed suit on its client's behalf and represented him in litigation for more than a year, which evidenced an intent to be bound by the agreement's terms. <i>See Cavanaugh,</i> 2018 WL 2126936, at *4.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In contrast, the record in this case does not contain equivalent evidence of performance, or other evidence, showing that the firm bound itself to the agreement. Shrader & Associates admits that several months after the Carrascos signed the fee agreement, the firm "communicated to Chrissy that it would be unable to proceed with the representation" and then sent a formal letter a week later explaining that the firm "would be `unable to represent you or otherwise pursue a case.'"<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Shrader and Associates maintains that before ending its representation of the Carrascos, the firm evaluated their claims and that this work undertaken on their behalf is sufficient performance to evidence the firm's acceptance of the fee agreement. Assuming without deciding that the firm's pre-suit evaluation of its clients' claims could serve as proof of the requisites of contract formation, the record is devoid of evidence that the firm made a pre-suit evaluation of the Carrascos' claims or that it engaged in any other activities on their behalf. Because the firm bears the burden of proving an enforceable arbitration agreement, the absence of evidence supporting contract formation is fatal to its suit to compel arbitration.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Shrader & Associates contends that the requisites of contract formation are immaterial because an assertion that any of these requisites is lacking constitutes an attack on the validity of the fee agreement as a whole rather than its arbitration clause in particular. The firm argues that the Carrascos must successfully challenge the enforceability of the arbitration clause, not the entire agreement, in order to escape the arbitration clause. When a party challenges the very existence of an agreement on contract-formation grounds, however, these challenges present threshold issues that must be decided by the trial court before it can compel arbitration. <a href="https://scholar.google.com/scholar_case?case=8000233394734215033&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>RSL Funding,</i> 569 S.W.3d at 124-25</a>; <a href="https://scholar.google.com/scholar_case?case=773380119767415835&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>S.C. Maxwell,</i> 472 S.W.3d at 344</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Finally, Shrader & Associates contends that the Carrascos cannot avoid the arbitration clause because their legal malpractice claim depends on the fee agreement's existence. An attorney-client relationship, however, may exist without a written contract. <i>See </i><a href="https://scholar.google.com/scholar_case?case=10658317050726455729&q=01-19-00042-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Span Enters. v. Wood,</i> 274 S.W.3d 854, 858 (Tex. App.-Houston [1st Dist.] 2008, no pet.)</a> (attorney-client relationship may be created by express contract or implied from parties' conduct). The Carrasco's legal malpractice claim therefore does not depend on the existence of the fee agreement. <i>See id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<i><br /></i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In sum, the material facts are not in dispute. Shrader & Associates did not sign the fee agreement and the blank for indicating its date of execution is unfilled. There is no evidence that the firm performed under the fee agreement. Nor is there evidence showing that the firm otherwise intended to be bound by the fee agreement. On this record, the trial court did not err by implicitly concluding that the there was not a valid, enforceable fee agreement and that personal jurisdiction over the Carrascos therefore could not be asserted on the basis of that agreement's arbitration clause.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
As the fee agreement's arbitration clause is unenforceable, it is not necessary for us to consider the Carrascos' alternative argument that it would be futile to order them to arbitrate their legal malpractice claim due to the American Arbitration Association's administrative refusal to hear the dispute. <i>See</i> TEX. R. APP. P. 47.1.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
CONCLUSION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
We affirm the judgment of the trial court.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;"></small><br />
<div style="position: relative;">
<span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=957102824727541656&q=01-19-00042-CV&hl=en&as_sdt=4,44#r[1]" name="[1]" style="color: #660099; text-decoration: underline;">[1]</a> The original text appears in bold font and ALL CAPS. These qualities have been omitted here for ease of readability.</span></div>
<div style="position: relative;">
<br /></div>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
LAW OFFICE OF THOMAS J. HENRY, Appellant,<br />v.<br />PRISCILLA ANN GARCIA, Appellee.</h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<a href="https://scholar.google.com/scholar?scidkt=5394054271630105206&as_sdt=2&hl=en" style="color: #660099;">No. 13-18-00275-CV.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<div style="position: relative;">
<b>Court of Appeals of Texas, Thirteenth District, Corpus Christi, Edinburg.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
Delivered and filed February 21, 2019.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Jack George Ternan, Greggory A. Teeter, Gabi S. Canales, for Priscilla Ann Garcia, Appellee.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Ray N. Donley, Ryan Squires, Steve McConnico, Jane M.N. Webre, Darrell L. Barger, for Law Office of Thomas J. Henry, Appellant.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
On appeal from the County Court at Law No. 3 of Nueces County, Texas.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Before Chief Justice Contreras and Justices Longoria and Hinojosa.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=6598413340315599400&q=%22thomas+j+henry%22&hl=en&scisbd=2&as_sdt=4,44&as_ylo=2019#[1]" name="r[1]" style="color: #660099;">[1]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
MEMORANDUM OPINION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Memorandum Opinion by Justice LETICIA HINOJOSA.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The Law Office of Thomas J. Henry (the Firm), appellant, appeals from the trial court's interlocutory order staying arbitration between it and former client Priscilla Ann Garcia, appellee. <i>See</i> TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(2) (West, Westlaw through 2017 1st C.S.). In one issue, the Firm contends that the trial court abused its discretion in staying arbitration because there was an enforceable agreement to arbitrate between it and Garcia. We reverse and remand.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
I. BACKGROUND</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
On October 24, 2012, a vehicle Garcia operated collided with a commercial motor vehicle owned by Alamo Concrete Products Company (Alamo Concrete). Later the same day, Garcia signed a "Power of Attorney and Contingent Fee Contract" (the Representation Agreement). The Representation Agreement provides, in relevant part, the following:</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
THIS CONTRACT IS SUBJECT TO ARBITRATION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
This agreement is made between Client(s), referred to as "client" and the Law Offices of Thomas J. Henry, hereinafter referred to as "Attorneys".</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
. . . .</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
2. ATTORNEY'S FEES</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
In consideration of the services rendered to Client by Attorneys, Client does hereby assign, grant and convey to Attorney the following present undivided interests in all the claims and courses [sic] of action for and as a reasonable contingent fee for Attorneys' services and said contingent attorneys' fee will be figured on the total gross recovery which included any money received, including but not limited to personal injury protection (PIP), uninsured motorist coverage or any type of insurance coverages.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
37.5% of any settlement or recovery made before suit is filed thereon;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
42.5% of any settlement or recovery made after suit is filed;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
50% of any settlement or recovery made after a notice of appeal has been given or an appeal bond has been filed.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
3. ASSIGNMENT OF INTEREST</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
In consideration of Attorneys' services, the Client hereby conveys and assigns to Attorney and agrees to pay to Attorneys an undivided interest in and to all of Client's claims and causes of action to the extent of the percentage set out in Paragraph 2.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
. . . .</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
10. ARBITRATION</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Any and all disputes, controversies, claims or demands arising out of or relating to this Agreement or any provision hereof, the providing of services by Attorneys to Client, or in any way relating to the relationship between Attorneys and Client, whether in contract, tort or otherwise, at law or in equity, for damages or any other relief, shall be resolved by binding arbitration pursuant to the Federal Arbitration Act in accordance with the Commercial Arbitration Rules then in affect [sic] with the American Arbitration Association. Any such arbitration shall be conducted in Nueces County, Texas. This arbitration provision shall be enforceable in either federal or state court in Nueces County, Texas, pursuant to the substantive federal laws established by the Federal Arbitration Act. Any party to any award in such arbitration proceeding may seek a judgment upon the award and that judgment may be entered by any federal or state court in Nueces County, Texas, having jurisdiction.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
. . . .</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
THIS CONTRACT IS SUBJECT TO ARBITRATION UNDER THE TEXAS GENERAL ARBITRATION STATUTE.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The Firm admits that the Representation Agreement was not immediately signed by an authorized Firm attorney.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
On July 16, 2014, Greggory A. Teeter, an attorney affiliated with the Firm,<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=6598413340315599400&q=%22thomas+j+henry%22&hl=en&scisbd=2&as_sdt=4,44&as_ylo=2019#[2]" name="r[2]" style="color: #660099;">[2]</a></sup> filed an original petition against Alamo Concrete on Garcia's behalf. Since Garcia's lawsuit was filed, Teeter took or defended twelve depositions in the case, participated in written discovery, filed several motions or responses to motions, and attended several hearings.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In December 2016, the Firm terminated its affiliation with Teeter. Approximately a week thereafter, Garcia, represented by Teeter, notified the Firm that she was discharging it from representing her in her lawsuit against Alamo Concrete. At some point after Teeter's termination, a Firm attorney countersigned the Representation Agreement.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
On January 4, 2017, the Firm intervened in Garcia's personal injury lawsuit seeking to collect its attorney's fees under the Representation Agreement. The Firm also initiated arbitration proceedings with the American Arbitration Association. Eventually, the trial court severed the Firm's request for attorney's fees from Garcia's personal injury lawsuit.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=6598413340315599400&q=%22thomas+j+henry%22&hl=en&scisbd=2&as_sdt=4,44&as_ylo=2019#[3]" name="r[3]" style="color: #660099;">[3]</a></sup> Garcia then filed a motion to stay the Firm's arbitration proceeding in the Firm's lawsuit for attorney's fees, to which the Firm filed a written response. The trial court held an evidentiary hearing wherein it considered the in-court testimony of Garcia, Thomas J. Henry, and two paralegals who had been employed by the Firm. The trial court granted Garcia's motion to stay arbitration. This interlocutory appeal followed. <i>See</i> TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(2).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
II. DISCUSSION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Garcia's motion to stay arbitration was premised on section 82.065(a) of the Texas Government Code (the barratry statute), section 171.002(a)(3) of the Texas Civil Practice and Remedies Code (the TAA), and our opinion in <i>Godt.</i> TEX. CIV. PRAC. & REM. CODE ANN. § 171.002(a)(3) (West, Westlaw through 2017 1st C.S.); TEX. GOV'T CODE ANN. § 82.065(a) (West, Westlaw through 2017 1st C.S.); <a href="https://scholar.google.com/scholar_case?case=17494495649212992471&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="color: #660099;"><i>In re Godt,</i> 28 S.W.3d 732, 734-39 (Tex. App.-Corpus Christi 2000, orig. proceeding)</a>. The gravamen of Garcia's argument was that the Firm's failure to countersign the Representation Agreement invalidated it and the arbitration clause included therein under both statutes. As part of the Firm's issue, it contends that Garcia's reliance on the authority she referenced to the trial court is misplaced.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
A. Standard of Review</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
When reviewing an order granting a motion to stay arbitration, we apply a no-evidence standard to the trial court's factual determinations and a de novo standard to its legal determinations. <a href="https://scholar.google.com/scholar_case?case=15103022756110949795&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="color: #660099;"><i>Valerus Compression Servs., LP v. Austin,</i> 417 S.W.3d 202, 212 (Tex. App.-Austin 2013, no pet.)</a>; <i>see also </i><a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=11776121219393068704&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="border-bottom: 1px dotted rgb(102, 0, 153); color: #660099; text-decoration-line: none;"><i>Bennett v. Leas,</i> No. 13-06-00469-CV, 2008 WL 2525403, at *2 (Tex. App.-Corpus Christi Jun. 26, 2008, pet. abated)</a> (mem. op.). Whether a valid arbitration agreement exists is a legal question that we review de novo. <a href="https://scholar.google.com/scholar_case?case=12596166907904856385&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="color: #660099;"><i>J.M. Davidson, Inc. v. Webster,</i> 128 S.W.3d 223, 227 (Tex. 2003)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
B. Applicable Law</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Under the Texas Arbitration Act (TAA)<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=6598413340315599400&q=%22thomas+j+henry%22&hl=en&scisbd=2&as_sdt=4,44&as_ylo=2019#[4]" name="r[4]" style="color: #660099;">[4]</a></sup> a court may stay an arbitration commenced or threatened on application and a showing that there is not an agreement to arbitrate. TEX. CIV. PRAC. & REM. CODE ANN. § 171.023(a) (West, Westlaw through 2017 1st C.S.). Once a court finds an enforceable arbitration agreement, a "strong presumption" favoring arbitration arises "such that myriad doubts—as to waiver, scope, and other issues not relating to enforceability—must be resolved in favor of arbitration." <a href="https://scholar.google.com/scholar_case?case=11167907300663469399&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="color: #660099;"><i>In re Poly-Am., L.P.,</i> 262 S.W.3d 337, 348 (Tex. 2008)</a> (orig. proceeding). Courts determine whether an enforceable agreement to arbitrate exists by applying "ordinary principles of state contract law." <a href="https://scholar.google.com/scholar_case?case=7525206418111218344&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="color: #660099;"><i>G.T. Leach Builders, LLC v. Sapphire V.P., LP,</i> 458 S.W.3d 502, 524 (Tex. 2015)</a>. Generally, "parties must sign arbitration agreements before being bound by them." <i>Id.</i> (quoting <a href="https://scholar.google.com/scholar_case?case=7799522967503682695&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="color: #660099;"><i>In re Rubiola,</i> 334 S.W.3d 220, 224 (Tex. 2011)</a> (orig. proceeding)). But the question of who is actually bound by an arbitration agreement is essentially "a function of the intent of the parties, as expressed in the terms of the agreement." <a href="https://scholar.google.com/scholar_case?case=7799522967503682695&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="color: #660099;"><i>In re Rubiola,</i> 334 S.W.3d at 224</a> (quoting <a href="https://scholar.google.com/scholar_case?case=549706081203317635&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="color: #660099;"><i>Bridas S.A.P.I.C. v. Gov't of Turkmenistan,</i> 345 F.3d 347, 355 (5th Cir. 2003)</a>). We make this determination by interpreting the agreement as a whole in accord with the plain and ordinary meaning of the language the parties chose to use in the document. <a href="https://scholar.google.com/scholar_case?case=1771053078651564850&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="color: #660099;"><i>Great Am. Ins. Co. v. Primo,</i> 512 S.W.3d 890, 892 (Tex. 2017)</a>. "And we assign terms their ordinary and generally accepted meaning unless the contract directs otherwise." <i>Id.</i> at 893. Whether an agreement to arbitrate is enforceable is a question of law that we review de novo. <a href="https://scholar.google.com/scholar_case?case=1293776290414422271&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="color: #660099;"><i>Rachal v. Reitz,</i> 403 S.W.3d 840, 843 (Tex. 2013)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In <i>Godt,</i> a patient telephoned the Firm to discuss retaining it to represent her in a medical malpractice case stemming from complications following hip surgery. <a href="https://scholar.google.com/scholar_case?case=17494495649212992471&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="color: #660099;">28 S.W.3d at 734</a>. The Firm dispatched a paralegal to the patient's home to obtain her signature on a representation agreement. <i>Id.</i> According to the patient, the Firm failed to investigate or pursue her medical malpractice claim and withdrew from representing her shortly before limitations expired. <i>Id.</i> The patient sued the Firm and asserted claims for negligence, gross negligence, fraud, misrepresentation, breach of fiduciary duty, and violations of the Texas Deceptive Trade Practices Act. <i>Id.</i> at 735. The trial court granted the Firm's motion to compel arbitration and stayed the patient's lawsuit pending resolution by arbitration. <i>Id.</i> We granted the patient mandamus relief and directed the trial court to vacate its previous order and sign an order denying the Firm's motion to compel arbitration. <i>Id.</i> at 740. In <i>Godt</i> we addressed both of the statutory provisions that Garcia relies on. <i>Id.</i> at 738-39.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The barratry statute provides that "[a] contingent fee contract for legal services must be in writing and signed by the attorney and client." TEX. GOV'T CODE ANN. § 82.065(a). In <i>Godt,</i> we held:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
It is undisputed that the agreement was signed only by Godt; neither Henry nor anyone from his office signed the agreement. We hold, therefore, that Henry may not enforce the arbitration agreement because it fails to comply with the requirements set forth in the government code. We do not address the issue of whether Godt may enforce the agreement.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<a href="https://scholar.google.com/scholar_case?case=17494495649212992471&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="color: #660099;">28 S.W.3d at 738</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The TAA provides:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(a) This chapter does not apply to:</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
. . .</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(3) a claim for personal injury, except as provided by Subsection (c);</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
. . .</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(c) A claim described by Subsection (a)(3) is subject to this chapter if:</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(1) each party to the claim, on the advice of counsel, agrees in writing to arbitrate; and</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(2) the agreement is signed by each party and each party's attorney.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
TEX. CIV. PRAC. & REM. CODE ANN. § 171.002. In <i>Godt</i> we held that the patient's legal malpractice claim constituted a personal injury claim under section 171.002 of the Texas Civil Practice and Remedies Code. <a href="https://scholar.google.com/scholar_case?case=17494495649212992471&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="color: #660099;">28 S.W.3d at 738-39</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
C. Analysis</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
We conclude that <i>Godt</i> does not control in this case for two reasons. First, unlike in <i>Godt,</i> the Representation Agreement in this case was eventually countersigned by an attorney with the Firm. Further, in this case the Firm provided legal services by filing suit on Garcia's behalf and pursuing her claims. The Firm did not file suit on the patient's behalf in <i>Godt.</i> Therefore, for purposes of section 82.065(a) of the Texas Government Code, <i>Godt</i> is distinguishable. Second, the Firm's plea in intervention seeking attorney's fees cannot be classified as a personal injury claim under section 171.002 of the Texas Civil Practice and Remedies Code because it is premised on provisions in the Representation Agreement and not on a personal injury. <i>Cf. id.</i>; <i>see also Law Office of Thomas J. Henry v. Cavanaugh,</i> No. 05-17-00849-CV, 2018 WL 2126936, at *6 (Tex. App.-Dallas May 7, 2018, pet. denied) (holding that a lawsuit to recover attorney's fees is not based on a claim for personal injury, and therefore, section 171.002(a)(3) is not applicable).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Garcia based her motion to stay arbitration exclusively on <i>Godt</i> and its interpretation of the barratry statute and the TAA. Thus, Garcia failed to show that there was not an agreement to arbitrate. <i>See</i> TEX. CIV. PRAC. & REM. CODE ANN. § 171.023(a). Therefore, we conclude that the trial court abused its discretion in granting Garcia's motion to stay arbitration. We sustain the Firm's sole issue.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
III. CONCLUSION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
We reverse the trial court's order staying arbitration and remand for further proceedings.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="position: relative;">
<span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=6598413340315599400&q=%22thomas+j+henry%22&hl=en&scisbd=2&as_sdt=4,44&as_ylo=2019#r[1]" name="[1]" style="color: #660099;">[1]</a> Chief Justice Contreras not participating.</span></div>
<div style="position: relative;">
<span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=6598413340315599400&q=%22thomas+j+henry%22&hl=en&scisbd=2&as_sdt=4,44&as_ylo=2019#r[2]" name="[2]" style="color: #660099;">[2]</a> The trial court admitted "under seal" a document titled "Contract for Contracted Professional Services with the Law Office of Thomas J. Henry" signed by Teeter. We need not determine the exact nature of the document for our disposition.</span></div>
<div style="position: relative;">
<span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=6598413340315599400&q=%22thomas+j+henry%22&hl=en&scisbd=2&as_sdt=4,44&as_ylo=2019#r[3]" name="[3]" style="color: #660099;">[3]</a> According to representations by the Firm's counsel, Garcia settled her claims against Alamo Concrete for $650,000. The settlement proceeds were dispersed under three separate checks made out to: (1) the Firm and Teeter in the amount of $276,250 for attorney's fees; (2) Garcia in the amount of $258,825.50 for Garcia's recovery; and (3) the Firm and Teeter in the amount of $114,924.50 for expenses.</span></div>
<div style="position: relative;">
<span style="font-size: x-small;"><small style="background-color: white; color: #222222; font-family: Arial, sans-serif;"></small></span></div>
<div style="position: relative;">
<span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=6598413340315599400&q=%22thomas+j+henry%22&hl=en&scisbd=2&as_sdt=4,44&as_ylo=2019#r[4]" name="[4]" style="color: #660099; text-decoration: underline;">[4]</a> The Representation Agreement is inconsistent regarding whether it is governed by the Federal Arbitration Act (FAA) or the Texas Arbitration Act (TAA). Nothing in the record indicates that the Representation Agreement involves interstate commerce. <i>See </i><a href="https://scholar.google.com/scholar_case?case=5513412576169180013&q=%22thomas+j+henry%22&hl=en&as_sdt=4,44&as_ylo=2019" style="color: #660099; text-decoration: underline;"><i>Henry v. Cash Biz, LP,</i> 551 S.W.3d 111, 115 (Tex. 2018)</a> ("The Federal Arbitration Act (FAA) generally governs arbitration provisions in contracts involving interstate commerce."). Accordingly, we conclude that the TAA governs.</span></div>
<div style="position: relative;">
<br /></div>
<div style="position: relative;">
<div style="text-align: center;">
<b><span style="color: #0b5394;">RELATED PAPERS ON ARBITRATION AND CONTINGENT FEE CONTRACTS </span></b></div>
<div style="text-align: center;">
<b><span style="color: #0b5394;">IN TEXAS</span><span style="color: blue;"> </span></b></div>
</div>
<div style="position: relative;">
<br /></div>
<div style="position: relative;">
Must Former Client Arbitrate Fee Dispute With Law Firm When <a href="https://ssrn.com/abstract=3152325">Arbitration Clause Was Embedded in a Noncompliant Contingent Fee Contract</a>? – Texas Judges Not of One Mind (May 7, 2019). Available at SSRN: https://ssrn.com/abstract=3152325 </div>
<div style="position: relative;">
<br /></div>
<div style="position: relative;">
Dividing the Spoils: <a href="http://dx.doi.org/10.2139/ssrn.3420991">Multilateral Contingent Fee Fights in Texas</a> (Amicus Curiae Brief in Garza v. The Pruneda Law Firm, No. <a href="http://search.txcourts.gov/Case.aspx?cn=13-18-00222-CV&coa=coa13">13-18-00222-CV</a> (Tex.App.- Corpus Christi, Edinburg, June 4, 2019, pet. to be filed under Tex. No. <a href="http://search.txcourts.gov/Case.aspx?cn=19-0664&coa=cossup">19-0664</a>). Available at SSRN: https://ssrn.com/abstract=3420991 </div>
<div style="position: relative;">
<br /></div>
<div style="position: relative;">
<br /></div>
<div style="position: relative;">
<br /></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-86430972757445553952019-05-10T13:07:00.003-07:002019-06-18T07:28:04.175-07:00When a business resists a customer's bid for arbitration: Carter v. ZB NA dba Amegy Bank (Tex.App.- Houston [14th Dist.] May 7, 2019) <div style="text-align: center;">
<b><span style="color: red;">MAN-BITE-DOG SCENARIO: WHEN A BUSINESS DOES NOT WANT TO ARBITRATE</span></b></div>
<div style="text-align: center;">
<b><span style="color: red;">A DISPUTE WITH A CUSTOMER </span></b></div>
<div style="text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-2dp-_6_yjV0/XOWz56FhNMI/AAAAAAAAQUk/QY0tUpqBFoE90k2CPDV2Siauf6Dn39x8QCKgBGAs/s1600/DSC07210-Amegy-Bank.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1200" data-original-width="1600" height="300" src="https://4.bp.blogspot.com/-2dp-_6_yjV0/XOWz56FhNMI/AAAAAAAAQUk/QY0tUpqBFoE90k2CPDV2Siauf6Dn39x8QCKgBGAs/s400/DSC07210-Amegy-Bank.jpg" width="400" /></a></div>
<br />
<br />
<div style="text-align: center;">
<span style="font-size: x-small;">Carter v. ZB NA dba Amegy Bank, No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=14-17-00900-CV&coa=coa14">14-17-00900-CV</a> (Tex.App.- Houston [14th Dist.] May 7, 2019)</span></div>
<br />
Affirmed as Modified and Opinion filed May 7, 2019.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-mtheZnsjKXs/XNF3zIN2q6I/AAAAAAAAQOU/IZu8mq7ChJwArhXeJP8rr2ZPqPJ3NZXjACLcBGAs/s1600/14-17-00900-CV%2BStanwyn%2BJay%2BCater%2Bv%2BZB%2BNational%2BAssociation%2Bdba%2BAmegy%2BBank%2B2019-05-07%2B%2528snip%2Bof%2Bcover%2Bpage%2529.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="938" data-original-width="933" height="400" src="https://1.bp.blogspot.com/-mtheZnsjKXs/XNF3zIN2q6I/AAAAAAAAQOU/IZu8mq7ChJwArhXeJP8rr2ZPqPJ3NZXjACLcBGAs/s400/14-17-00900-CV%2BStanwyn%2BJay%2BCater%2Bv%2BZB%2BNational%2BAssociation%2Bdba%2BAmegy%2BBank%2B2019-05-07%2B%2528snip%2Bof%2Bcover%2Bpage%2529.JPG" width="397" /></a></div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
In The</div>
<div style="text-align: center;">
Fourteenth Court of Appeals</div>
<div style="text-align: center;">
NO. <a href="http://www.search.txcourts.gov/Case.aspx?cn=14-17-00900-CV&coa=coa14">14-17-00900-CV</a></div>
<div style="text-align: center;">
STANWYN JAY CARTER, Appellant</div>
<div style="text-align: center;">
V.</div>
<div style="text-align: center;">
ZB, NATIONAL ASSOCIATION D/B/A AMEGY BANK, Appellee</div>
<div style="text-align: center;">
On Appeal from the 55th District Court</div>
<div style="text-align: center;">
Harris County, Texas</div>
<div style="text-align: center;">
Trial Court Cause No. 2017-56775<br />
<br /></div>
<div style="text-align: center;">
<b><span style="color: #3d85c6; font-size: large;">O P I N I O N</span></b><br />
<br /></div>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
Opinion filed May 7, 2019</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
On Appeal from the 55th District Court, Harris County, Texas, Trial Court Cause No. 2017-56775.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Affirmed as Modified.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Panel consists of Chief Justice Frost and Justices Wise and Jewell.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<span style="font-size: small;">KEM THOMPSON FROST, Chief Justice.</span></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Appellant Stanwyn Jay Carter, <i>pro se,</i> appeals the trial court's order granting appellee ZB, National Association d/b/a Amegy Bank ("Amegy Bank") summary judgment on its claim for declaratory relief that Carter cannot force Amegy Bank to arbitrate the dispute in an arbitration that Carter had commenced. We modify the trial court's judgment to delete two declarations and affirm the judgment as modified.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
I. FACTUAL AND PROCEDURAL BACKGROUND</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Contours Community Development Corporation executed a promissory note dated September 1, 2010, in the principal amount of $544,000 (the "Note") payable to Amegy Bank. Carter signed the Note as Executive Director of Contours. Contours and Amegy Bank executed a "First Modification and Extension to Note and Deed of Trust," dated December 31, 2010 ("First Modification"). Carter signed the First Modification as Executive Director of Contours.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Paragraph 43 of the Note and paragraph 13 of the First Modification address dispute resolution and are substantially similar in all material respects. Each paragraph has a section entitled "JURY TRIAL WAIVER," and a section entitled "ARBITRATION." In the first section, Contours and Amegy Bank waive their right to a jury trial in connection with a claim, dispute, or controversy that arises between them with respect to the Note, related agreements, or any other agreement or business relationship between them, whether or not related to the subject matter of the Note (hereinafter a "Dispute"). In the first paragraph, Contours and Amegy Bank agree that any Dispute will be resolved "BY A JUDGE SITTING WITHOUT A JURY." Contours and Amegy Bank agree that if a court determines that the jury-trial-waiver provision is not enforceable, then before trial of a Dispute but not later than thirty days after entry of the order determining the provision to be unenforceable, either party may move the court for an order compelling arbitration and staying or dismissing such litigation pending arbitration (an "Arbitration Order.").<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In the second paragraph regarding arbitration, Contours and Amegy Bank agree that if a Dispute arises and only if a jury-trial waiver is not permitted by applicable law or by a court ruling, then either party may require that the Dispute be resolved by binding arbitration before a single arbitrator at the request of any party.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Carter, <i>pro se,</i> filed a demand for arbitration with JAMS, seeking to arbitrate claims against Amegy Bank under the arbitration provision in Paragraph 43 of the Note. When JAMS refused to dismiss the arbitration, Amegy Bank filed suit in the trial court below seeking declaratory relief, including a declaration that Carter cannot force Amegy Bank to arbitrate, and seeking to stay the arbitration proceedings. Instead of filing an answer, Carter filed a motion to compel arbitration.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Following a temporary restraining order and a temporary injunction enjoining Carter from continuing to prosecute the arbitration, Amegy Bank filed a motion for traditional summary judgment. In the motion, Amegy Bank sought various declarations as a matter of law, including a declaration that Carter cannot force Amegy Bank to arbitrate the dispute in the commenced JAMS arbitration styled <i>Carter, Stanwyn Jay v. Amegy Bank National Association</i> (hereinafter the "Carter Dispute").<br />
<br />
Amegy Bank maintains that Carter improperly commenced arbitration predicated on an arbitration provision that does not authorize arbitration at this juncture. Amegy Bank attached to its motion authenticated copies of the Note and the First Modification. Carter filed a summary-judgment response, asserting various points and arguing that he raised genuine issues of material fact.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The trial court granted Amegy Bank's summary-judgment motion, making seven declarations as a matter of law. The trial court later rendered a final judgment ordering that the Carter Dispute remain stayed. In the final judgment the trial court reiterated the same seven declarations:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
1. Pursuant to Paragraph 43 of the Promissory Note and Paragraph 13 of the First Modification and Extension to Note and Deed of Trust ("First Modification"), only a court may determine the validity, enforceability, meaning, and scope of the Promissory Note and First Modification's arbitration provisions.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
2. Pursuant to Paragraph 43 of the Promissory Note and Paragraph 13 of the First Modification, arbitration cannot be commenced unless a court determines that the jury trial waiver is not enforceable.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
3. Pursuant to Paragraph 43 of the Promissory Note and Paragraph 13 of the First Modification, arbitration cannot be commenced until there is an Arbitration Order as defined in the Promissory Note and First Modification.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
4. Pursuant to Paragraph 43 of the Promissory Note and Paragraph 13 of the First Modification, an Arbitration Order cannot issue unless a court determines that the jury trial waiver is not enforceable.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
5. An Arbitration Order has not issued.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
6. There has been no determination that the jury trial waiver is unenforceable.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
7. Defendant Stanwyn Jay Carter cannot force ZB, National Association d/b/a Amegy Bank to arbitrate the dispute in the commenced JAMS arbitration styled Carter, Stanwyn Jay vs. Amegy Bank National Association.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
On appeal Carter argues that the trial court reversibly erred in granting summary judgment.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
II. Analysis</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Liberally construing Carter's brief, we interpret Carter to assert the following points:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(1) The agreement does not require an arbitration order to issue before an arbitration may be initiated under the arbitration clause.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(2) Under their plain texts, the agreements provide for arbitration if a jury-trial waiver is not permitted by applicable law or by court ruling, and thus there is no requirement that a court determine the jury-trial waiver to be unenforceable.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(3) The jury-trial-waiver provision applies if permitted by applicable law or by a court ruling, but no summary-judgment evidence proves either proposition.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(4) Even though Carter did not sign the Note or First Modification in his individual capacity, Carter may arbitrate the Carter Dispute because he is an obligated party to an arbitration agreement that encompasses the Carter Dispute and because Amegy Bank refuses to arbitrate.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(5) The trial court erred in declaring that Carter cannot force Amegy Bank to arbitrate the Carter Dispute because the arbitration clause provides that "Arbitration shall be commenced by filing a petition with, and in accordance with the applicable arbitration rules of, JAMS or National Arbitration Forum . . . as selected by the initiating party."</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(6) The trial court's first declaration is contrary to precedent under which attacks on the validity of the contract, as opposed to attacks on the validity of the arbitration clause, are to be resolved by the arbitrator in the first instance.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(7) Under the contracts, either the jury-trial waiver is enforceable or the arbitration clause is enforceable, and because the arbitration clause is valid, irrevocable and enforceable, the jury-trial waiver necessarily is unenforceable.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
A. Standard of review</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
We review declaratory judgments decided by summary judgment under the same standards that govern summary judgments generally. <i>See</i> Tex. Civ. Prac. & Rem. Code § 37.010 (West, Westlaw through 2017 1st C.S.); <a href="https://scholar.google.co.uk/scholar_case?case=2394739165330129589&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Wolf Hollow I, L.P. v. El Paso Mktg., L.P.,</i> 472 S.W.3d 325, 332 (Tex. App.-Houston [14th Dist.] 2015, pet. denied)</a>. We review the trial court's grant of a summary judgment de novo. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=6936701091571468222&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Provident Life & Accident Ins. Co. v. Knott,</i> 128 S.W.3d 211, 215 (Tex. 2003)</a>. In a traditional motion for summary judgment, if the movant's motion and summary-judgment evidence facially establish its right to judgment as a matter of law, the burden shifts to the nonmovant to raise a genuine, material fact issue sufficient to defeat summary judgment. <a href="https://scholar.google.co.uk/scholar_case?case=17330570719512203476&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>M.D. Anderson Hosp. & Tumor Inst. v. Willrich,</i> 28 S.W.3d 22, 23 (Tex. 2000)</a>. In our de novo review of a trial court's summary judgment, we consider all the evidence in the light most favorable to the nonmovant, crediting evidence favorable to the nonmovant if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not. <a href="https://scholar.google.co.uk/scholar_case?case=634515139996330548&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Mack Trucks, Inc. v. Tamez,</i> 206 S.W.3d 572, 582 (Tex. 2006)</a>. The evidence raises a genuine issue of fact if reasonable and fair-minded jurors could differ in their conclusions in light of all of the summary-judgment evidence. <a href="https://scholar.google.co.uk/scholar_case?case=17119693818026086763&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Goodyear Tire & Rubber Co. v. Mayes,</i> 236 S.W.3d 754, 755 (Tex. 2007)</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In this case, the trial court was asked to render a declaratory judgment based on the Note and the First Modification, instruments subject to the general rules of contract construction. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=16546149564842051955&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Marzo Club, LLC v. Columbia Lakes Homeowners Ass'n,</i> 325 S.W.3d 791, 798 (Tex. App.-Houston [14th Dist.] 2010, no pet.)</a>. In construing a contract, our primary concern is to ascertain and give effect to the intentions of the parties as expressed in the contract. <a href="https://scholar.google.co.uk/scholar_case?case=16769075090386248735&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Kelley-Coppedge, Inc. v. Highlands Ins. Co.,</i> 980 S.W.2d 462, 464 (Tex. 1998)</a>. To ascertain the parties' true intentions, we examine the entire agreement in an effort to harmonize and give effect to all provisions of the contract so that none will be rendered meaningless. <a href="https://scholar.google.co.uk/scholar_case?case=13520616197277421526&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>MCI Telecomms. Corp. v. Tex. Utils. Elec. Co.,</i> 995 S.W.2d 647, 652 (Tex. 1999)</a>. Whether a contract is ambiguous is a question of law for the court. <a href="https://scholar.google.co.uk/scholar_case?case=18175448510845467654&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Heritage Res., Inc. v. NationsBank,</i> 939 S.W.2d 118, 121 (Tex. 1996)</a>. A contract is ambiguous when its meaning is uncertain and doubtful or is reasonably susceptible to more than one interpretation. <i>Id.</i> But, when a written contract is worded so that it can be given a certain or definite legal meaning or interpretation, it is unambiguous, and the court construes it as a matter of law. <a href="https://scholar.google.co.uk/scholar_case?case=10981559502251979556&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Am. Mfrs. Mut. Ins. Co. v. Schaefer,</i> 124 S.W.3d 154, 157 (Tex. 2003)</a>. We cannot rewrite the contract or add to its language under the guise of interpretation. <i>See American </i><a href="https://scholar.google.co.uk/scholar_case?case=10981559502251979556&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Mfrs. Mut. Ins. Co.,</i> 124 S.W.3d at 162</a>. Rather, we must enforce the contract as written. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=6802789811992960779&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Don's Bldg. Supply, Inc. v. OneBeacon Ins. Co.,</i> 267 S.W.3d 20, 23 (Tex. 2008)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
B. Law on arbitration</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
A party seeking to force another party to arbitrate certain claims must establish that (1) a valid arbitration agreement exists<sup><a class="gsl_hash" href="https://scholar.google.co.uk/scholar_case?case=5570336551335813780&q=Carter+v+ZB&hl=en&as_sdt=4,44#[1]" name="r[1]" style="color: #660099;">[1]</a></sup> and (2) the claims at issue are within the scope of the agreement. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=11071877925137859263&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re D. Wilson Const. Co.,</i> 196 S.W.3d 774, 780-81 (Tex. 2006)</a> (orig. proceeding); <a href="https://scholar.google.co.uk/scholar_case?case=9400586713424466145&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Igloo Prods. Corp.,</i> 238 S.W.3d 574, 577</a>(Tex. App.-Houston [14th Dist.] 2007, orig. proceeding [mand. denied]). If the party seeking arbitration proves a valid arbitration agreement, any doubts as to whether the claims fall within the scope of the arbitration clause must be resolved in favor of arbitration. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=475541471625694972&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Prudential Sec. Inc. v. Marshall,</i> 909 S.W.2d 896, 899 (Tex. 1995)</a>; <a href="https://scholar.google.co.uk/scholar_case?case=8676131836429553745&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Osornia v. AmeriMex Motor & Controls, Inc.,</i> 367 S.W.3d 707, 712 (Tex. App.-Houston [14th Dist.] 2012, no pet.)</a>. A court should not deny arbitration unless the court can say with positive assurance that an arbitration clause is not susceptible of an interpretation that would cover the claims at issue. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=475541471625694972&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Prudential Sec. Inc.,</i> 909 S.W.2d at 899</a>; <a href="https://scholar.google.co.uk/scholar_case?case=8676131836429553745&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Osornia,</i> 367 S.W.3d at 712</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
We presume for the purposes of our analysis that the arbitration clauses in the Note and First Modification are broad, making the presumption of arbitrability particularly applicable. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=8676131836429553745&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Osornia,</i> 367 S.W.3d at 712</a>. In such instances, absent any express provision excluding a particular grievance from arbitration, only the most forceful evidence of purpose to exclude the claim from arbitration can prevail, and Amegy Bank has the burden of showing that the claims fall outside the scope of the arbitration clauses. <i>See id.</i> Nonetheless, the strong policy favoring arbitration cannot serve to stretch a contractual clause beyond the scope intended by the parties or to allow the court to modify the unambiguous meaning of the arbitration clause. <i>See id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
C. Applicable language from the Note and the First Modification</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The First Modification provides in pertinent part as follows:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
13. Dispute Resolution. This paragraph contains a jury waiver, arbitration clause[,] and a class action waiver. This paragraph should be carefully read.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(a) JURY TRIAL WAIVER. AS PERMITTED BY APPLICABLE LAW, EACH PARTY WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BEFORE A JURY IN CONNECTION WITH ANY DISPUTE (HEREINAFTER DEFINED), AND DISPUTES SHALL BE RESOLVED BY A JUDGE SITTING WITHOUT A JURY.<sup><a class="gsl_hash" href="https://scholar.google.co.uk/scholar_case?case=5570336551335813780&q=Carter+v+ZB&hl=en&as_sdt=4,44#[2]" name="r[2]" style="color: #660099;">[2]</a></sup> IF A COURT DETERMINES THAT THIS PROVISION IS NOT ENFORCEABLE FOR ANY REASON, THEN AT ANY TIME PRIOR TO TRIAL OF THE DISPUTE, BUT NOT LATER THAN THIRTY (30) DAYS AFTER ENTRY OF THE ORDER DETERMINING THIS PROVISION IS UNENFORCEABLE, EITHER PARTY SHALL BE ENTITLED TO MOVE THE COURT FOR AN ORDER COMPELLING ARBITRATION AND STAYING OR DISMISSING SUCH LITIGATION PENDING ARBITRATION ("ARBITRATION ORDER").</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(b) ARBITRATION. If a claim, dispute, or controversy arises between the parties hereto with respect to [the First Modification] or the Note, related agreements, or any other agreement or business relationship between the parties hereto whether or not related to the subject matter of [the First Modification] or the Note (all of the foregoing, a "Dispute"), and only if a jury trial waiver is not permitted by applicable law or ruling by a court,<sup><a class="gsl_hash" href="https://scholar.google.co.uk/scholar_case?case=5570336551335813780&q=Carter+v+ZB&hl=en&as_sdt=4,44#[3]" name="r[3]" style="color: #660099;">[3]</a></sup> either party may require that the Dispute be resolved by binding arbitration before a single arbitrator at the request of any party. By agreeing to arbitrate a Dispute, each party gives up any right such party may have to a jury trial, as well as other rights such party would have in court that are not available or are more limited in arbitration, such as the rights to discovery and to appeal.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Arbitration shall be commenced by filing a petition with, and in accordance with the applicable arbitration rules of, JAMS or National Arbitration Forum ("Administrator") as selected by the Initiating party. If the parties agree, arbitration may be commenced by appointment of a licensed attorney who is selected by the parties and who agrees to conduct the arbitration without an Administrator. Disputes include matters [stating several matters]. However, Disputes do not include the validity, enforceability, meaning, or scope of this arbitration provision and such matters may be determined only by a court. If a third party is a party to a Dispute, each party will consent to including the third party in the arbitration proceeding for resolving the Dispute with the third party. Venue for the arbitration proceeding shall be at a location determined by mutual agreement of the parties or, if no agreement, in the city and state where lender or bank is headquartered.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
After entry of an Arbitration Order, the non-moving party shall commence arbitration. The moving party shall, at its discretion, also be entitled to commence arbitration but is under no obligation to do so, and the moving party shall not in any way be adversely prejudiced by electing not to commence arbitration. The arbitrator . . . [listing tasks that arbitrator will perform]. Filing of a petition for arbitration shall not prevent any party from [listing various actions a party may take]. The exercise of such rights shall not constitute a waiver of the right to submit any Dispute to arbitration.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Judgment upon an arbitration award may be entered in any court having jurisdiction except that, if the arbitration award exceeds $4,000,000.00, any party shall be entitled to a de novo appeal of the award before a panel of three arbitrators. To allow for such appeal, [setting forth provisions regarding the procedure for a party to exercise its right to appeal an arbitration award in excess of $4,000,000.00 to a panel of three arbitrators].</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Arbitration under this provision concerns a transaction involving interstate commerce and shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 <i>et seq.</i> This arbitration provision shall survive any termination, amendment, or expiration of [the First Modification] and the Note. If the terms of this provision vary from the Administrator's rules, this arbitration provision shall control.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The correlative parts of the Note are substantially similar in all material respects to the above-quoted text. Both the Note and the First Modification contain a provision stating that the instrument shall be governed by and construed in accordance with Texas law.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
D. Trial court's determination that no party can start an arbitration unless a court has determined that the jury-trial waiver is not enforceable</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In its second declaration, the trial court ruled that under Paragraph 43 of the Note and Paragraph 13 of the First Modification, "arbitration cannot be commenced unless a court determines that the jury trial waiver is not enforceable." On appeal, Carter asserts that under the plain text of the Note and First Modification, there is no such requirement. Amegy Bank asserts that Carter waived this argument by not presenting it in his summary-judgment response in the trial court. Even if Carter did not raise this argument in his summary-judgment response, the law does not require that he have done so because his challenge constitutes a complaint that Amegy Bank's summary-judgment evidence does not prove as a matter of law Amegy Bank's entitlement to summary judgment on a traditional ground. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=17330570719512203476&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>M.D. Anderson Hosp. & Tumor Institute v. Willrich,</i> 28 S.W.3d 22, 23 (Tex. 2000)</a>. Thus, Carter still can raise this complaint. <i>See id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br />
Under the unambiguous wording of each instrument, the parties agree to arbitrate any Dispute, but "only if a jury trial waiver is not permitted by applicable law or ruling by a court." Thus, the arbitration agreement is triggered only if: (1) a jury-trial waiver is not permitted by applicable law, or (2) a court rules that a jury-trial waiver is not permitted. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=4693815017634196572&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Morgan v. Bronze Queen Mngmt. Co., LLC,</i> 474 S.W.3d 701, 710 (Tex. App.-Houston [14th Dist.] 2014, no pet.)</a> (construing similar language). Though such a court order does trigger the arbitration clause, it is not the exclusive trigger. <i>See id.</i><br />
<i><br /></i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In the jury-trial-waiver paragraph, the parties agree that, if a court determines that the jury-trial waiver is not enforceable for any reason, then before trial and no later than thirty days after entry of the order, either party is entitled to ask the court for an order compelling arbitration and staying or dismissing the litigation pending arbitration. This language is consistent with the language in the arbitration provision, in which the parties agree that one of two situations in which their arbitration agreement is triggered is when a court rules that a jury-trial waiver is not permitted. Yet, neither in the jury-trial-waiver provision nor in the remainder of either instrument do the parties agree that such a court ruling is the only situation in which the parties agree to arbitrate a Dispute. <i>See id.</i><br />
<i><br /></i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Under the unambiguous language of the two instruments, the arbitration clause may be triggered without any court order if a jury-trial waiver is not permitted by applicable law. <i>See id.</i> Therefore, the trial court erred in declaring that under Paragraph 43 of the Note and Paragraph 13 of the First Modification, "arbitration cannot be commenced unless a court determines that the jury trial waiver is not enforceable." <i>See id.; </i><a href="https://scholar.google.co.uk/scholar_case?case=16546149564842051955&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Marzo Club, LLC,</i> 325 S.W.3d at 799-800</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
E. Trial court's determination that no party can start an arbitration until there is an order compelling arbitration</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In its second declaration, the trial court ruled that under Paragraph 43 of the Note and Paragraph 13 of the First Modification, "arbitration cannot be commenced until there is an Arbitration Order." On appeal, Carter asserts that under the plain text of the Note and First Modification, there is no such requirement. Amegy Bank asserts that Carter waived this argument by not presenting it in his summary-judgment response in the trial court. Even if Carter did not raise this argument in his summary-judgment response, the law does not require that he have done so because he is asserting that Amegy Bank's summary-judgment evidence does not prove as a matter of law Amegy Bank's entitlement to summary judgment on a traditional ground. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=17330570719512203476&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>M.D. Anderson Hosp. & Tumor Institute,</i> 28 S.W.3d at 23</a>. Thus, Carter can raise this complaint for the first time on appeal. <i>See id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br />
In the jury-trial-waiver provision, the parties agree that if a court determines that the jury-trial waiver is not enforceable for any reason then before trial and no later than thirty days after the order's entry, either party may ask the court for an order compelling arbitration and staying or dismissing the litigation pending arbitration. Under the clear text of each instrument, if a court determines that the jury-trial waiver is not enforceable, then within a certain time period either party may ask the court for an order compelling arbitration, but the parties do not make an Arbitration Order mandatory. Nothing in the Federal Arbitration Act or Texas Arbitration Act requires that parties get an order compelling arbitration, and unless the parties agree that an order compelling arbitration is a necessary prerequisite to arbitration, an arbitration may be conducted and an arbitration award may be rendered and enforced without any order compelling arbitration. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=2805800852990283624&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Ewing v. Act-Catastrophe Texas, L.C.,</i> 375 S.W.3d 545, 550-51 (Tex. App.-Houston [14th Dist.] 2012, pet. denied)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br />
The parties do not state in either instrument that an order compelling arbitration must be obtained before the parties may arbitrate a Dispute. On the contrary, under the permissive language of the jury-trial-waiver section, either party may ask the court for an order compelling arbitration if a court determines that the jury-trial waiver is not enforceable, as long as the party does so before trial and within thirty days of the trial court's order determining that the jury-trial waiver is not enforceable. To construe the instruments as requiring a party to obtain an order compelling arbitration would conflict with the parties' agreement that "EITHER PARTY SHALL BE ENTITLED TO MOVE THE COURT FOR AN ORDER COMPELLING ARBITRATION."<sup><a class="gsl_hash" href="https://scholar.google.co.uk/scholar_case?case=5570336551335813780&q=Carter+v+ZB&hl=en&as_sdt=4,44#[4]" name="r[4]" style="color: #660099;">[4]</a></sup> Though the parties agree that "[a]fter entry of an Arbitration Order, the non-moving party shall commence arbitration," the parties do not stipulate that arbitration may be commenced only after an Arbitration Order.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Amegy Bank argues that construing the instruments as not requiring an Arbitration Order before a Dispute may be arbitrated would render superfluous the requirement that a party seek an order compelling arbitration within thirty days of the trial court's order determining that the jury-trial waiver is not enforceable. According to Amegy Bank, there would be no need for a thirty-day deadline to seek an order compelling arbitration if the parties could proceed to arbitrate a Dispute after the thirty-day deadline expired.<br />
<br />
We disagree.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br />
A deadline for seeking an Arbitration Order after a court's order that the jury-trial waiver is not enforceable still has meaning even if parties are free to arbitrate without an Arbitration Order. If a party fails to seek an Arbitration Order within this thirty-day period and then files an arbitration demand, one of the respondents may refuse to arbitrate. In addition, if a jury-trial waiver is not permitted by applicable law, then a court order that the jury-trial waiver is not enforceable is not required, and a party may want to file an arbitration demand without seeking an order compelling arbitration.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Under the unambiguous language of the two instruments, arbitration may be started without an Arbitration Order in some circumstances. Therefore, the trial court erred in declaring as a matter of law that under Paragraph 43 of the Note and Paragraph 13 of the First Modification, "arbitration cannot be commenced until there is an Arbitration Order."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
F. The trial court's declaration as to who may determine arbitrability</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Carter also asserts that the trial court erred in declaring that under Paragraph 43 of the Note and Paragraph 13 of the First Modification, "only a court may determine the validity, enforceability, meaning, and scope of the [arbitration provisions in the Note and First Modification]." The parties agreed that "Disputes do not include the validity, enforceability, meaning, or scope of this arbitration provision and such matters may be determined only by a court." Under the Federal Arbitration Act, courts presume that parties to an arbitration agreement intend that courts rather than arbitrators decide issues as to the validity, scope, and enforceability of the arbitration clause. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=2982868234861987077&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Jody James Farms, JV v. Altman Group, Inc.,</i> 547 S.W.3d 624, 631-33 (Tex. 2018)</a>.<br />
<br />
Though Carter argues otherwise, this agreement does not contradict precedent under which attacks on the validity of the contract as a whole, as opposed to attacks on the validity of the arbitration clause, are to be resolved by the arbitrator in the first instance. Under the plain text of the instruments, the parties agreed that "only a court may determine the validity, enforceability, meaning, and scope of the [arbitration provisions in the Note and First Modification]." Therefore, the trial court did not err in making the first declaration in the final judgment. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=16546149564842051955&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Marzo Club, LLC,</i> 325 S.W.3d at 799-800</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
G. The declaration that Carter cannot force Amegy Bank to arbitrate the Carter Dispute</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Carter asserts that the trial court erred in declaring that Carter cannot force Amegy Bank to arbitrate the Carter Dispute because the arbitration clause provides that "Arbitration shall be commenced by filing a petition with, and in accordance with the applicable arbitration rules of, JAMS or National Arbitration Forum . . . as selected by the initiating party." But, this sentence does not address the circumstances under which the parties have agreed to arbitrate or the scope of the arbitration agreement. As discussed above, under the plain text of the instruments, the parties' agreement to arbitrate turns on either (1) a jury-trial waiver not being permitted by applicable law, or (2) a court ruling that a jury-trial waiver is not permitted. In its summary-judgment motion Amegy Bank asserted that the jury-trial waiver provision is enforceable under applicable law, and Amegy cited legal authorities showing that applicable law permits a jury-trial waiver. Indeed, Texas and federal law allow jury-trial waivers. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=6207522956368226204&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Prudential Ins. Co. of Am.,</i> 148 S.W.3d 124, 132-33 (Tex. 2004)</a>; <a href="https://scholar.google.co.uk/scholar_case?case=4693815017634196572&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Morgan,</i> 474 S.W.3d at 710</a>. In addition, the undisputed summary-judgment evidence shows that no court has ruled that a jury-trial waiver is not permitted.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Even indulging the presumption that the Carter Dispute should be arbitrated and resolving any doubts as to whether the arbitration clause requires arbitration of the Carter Dispute in favor of arbitration, we can say with positive assurance that the arbitration clauses are not susceptible of an interpretation that would require arbitration of the Carter Dispute at this juncture. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=8676131836429553745&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Osornia,</i> 367 S.W.3d at 712</a>.<br />
<br />
Under the express language of the arbitration clauses, the parties' agreement to arbitrate is conditioned on either (1) a jury-trial waiver not being permitted by applicable law, or (2) a court ruling that a jury-trial waiver is not permitted. Amegy Bank's motion and summary-judgment evidence prove as a matter of law that neither condition has occurred, so there is no agreement to arbitrate the Carter Dispute at this time. The strong policy in favor of arbitration cannot push the boundaries of a contractual provision beyond the scope intended by the parties or allow a court to modify the unambiguous meaning of the arbitration clause. <i>See id.</i><br />
<i><br /></i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Carter also asserts that under the contracts, either the jury-trial waiver is enforceable or the arbitration clause is enforceable, and because the arbitration clause is valid, irrevocable, and enforceable, the jury-trial waiver necessarily is not enforceable. This argument conflicts with the plain text of the instruments, under which the parties have not agreed to arbitrate the Carter Dispute unless (1) a jury-trial waiver is not permitted by applicable law, or (2) a court rules that a jury-trial waiver is not permitted.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Carter claims that the jury-trial-waiver provision applies if permitted by applicable law or by a court ruling, but that no summary-judgment evidence proves either proposition. In this argument, Carter does not correctly state the two conditions, which are (1) a jury-trial waiver not being permitted by applicable law, or (2) a court ruling that a jury-trial waiver is not permitted.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Under the applicable standard of review, we conclude the trial court did not err in declaring as a matter of law that Carter cannot force Amegy Bank to arbitrate the Carter Dispute. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=6207522956368226204&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Prudential Ins. Co. of Am.,</i> 148 S.W.3d at 132-33</a>; <a href="https://scholar.google.co.uk/scholar_case?case=4693815017634196572&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Morgan,</i> 474 S.W.3d at 710</a>; <a href="https://scholar.google.co.uk/scholar_case?case=8676131836429553745&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>Osornia,</i> 367 S.W.3d at 712</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
III. Conclusion</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Under the express language of the arbitration clauses, the parties conditioned their agreement to arbitrate on either (1) a jury-trial waiver not being permitted by applicable law, or (2) a court ruling that a jury-trial waiver is not permitted. Amegy Bank's motion and summary-judgment evidence prove as a matter of law that neither condition has occurred, and therefore that there is no agreement to arbitrate the Carter Dispute at this time. We conclude the trial court did not err in declaring as a matter of law that Carter cannot force Amegy Bank to arbitrate the Carter Dispute.<br />
<br />
Because the trial court's second and third declarations conflict with the unambiguous language of the instruments, we modify the trial court's judgment to delete these two declarations, and we affirm the judgment as modified.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-O8oRu6_BEDY/XNXZ3OPtxFI/AAAAAAAAQQU/A76ZbXbddv0kZ7w-mn7OXCT9um0xvnfSwCLcBGAs/s1600/14-17-00900-CV%2BCarter%2Bv%2BAmegy%2B-%2BPro%2BSe%2BAppellant%2527s%2BPrayer.PNG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="841" data-original-width="903" height="372" src="https://1.bp.blogspot.com/-O8oRu6_BEDY/XNXZ3OPtxFI/AAAAAAAAQQU/A76ZbXbddv0kZ7w-mn7OXCT9um0xvnfSwCLcBGAs/s400/14-17-00900-CV%2BCarter%2Bv%2BAmegy%2B-%2BPro%2BSe%2BAppellant%2527s%2BPrayer.PNG" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Rebuffed - Pro Se Appellant's Prayer (from Reply Brief) </td></tr>
</tbody></table>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.co.uk/scholar_case?case=5570336551335813780&q=Carter+v+ZB&hl=en&as_sdt=4,44#r[1]" name="[1]" style="color: #660099;">[1]</a> If all relevant parties did not sign the contract containing the arbitration agreement, this first prong may include issues as to whether a non-signatory is bound by or may enforce the arbitration agreement. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=7799522967503682695&q=Carter+v+ZB&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Rubiola,</i> 334 S.W.3d 220, 223-24 (Tex. 2011)</a>. Though Carter, in his individual capacity, is a non-signatory, we presume, without deciding, that Carter may enforce arbitration of the Carter Dispute under the arbitration provisions of the Note and First Modification.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.co.uk/scholar_case?case=5570336551335813780&q=Carter+v+ZB&hl=en&as_sdt=4,44#r[2]" name="[2]" style="color: #660099;">[2]</a> boldface added</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.co.uk/scholar_case?case=5570336551335813780&q=Carter+v+ZB&hl=en&as_sdt=4,44#r[3]" name="[3]" style="color: #660099;">[3]</a> emphasis added</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.co.uk/scholar_case?case=5570336551335813780&q=Carter+v+ZB&hl=en&as_sdt=4,44#r[4]" name="[4]" style="color: #660099; text-decoration: underline;">[4]</a> emphasis added</div>
<br />
<table border="1" class="rgMasterTable" id="ctl00_ContentPlaceHolder1_grdDocket_ctl00" rules="all" style="border-spacing: 0px; border-style: none; empty-cells: show; font-family: "Segoe UI", Arial, Helvetica, sans-serif; font-size: 12px; line-height: 16px; max-width: 100%; table-layout: auto; width: 810.667px;"><tbody>
<tr class="rgRow" id="ctl00_ContentPlaceHolder1_grdDocket_ctl00__6" style="cursor: default;"><td style="border-color: rgb(255, 255, 255); border-style: solid; border-width: 0px 0px 1px; padding: 4px 7px 3px; width: 148.133px;"><a href="http://www.search.txcourts.gov/Case.aspx?cn=14-17-00900-CV" id="ctl00_ContentPlaceHolder1_grdDocket_ctl00_ctl16_lnkCase" style="color: red !important; text-decoration-line: none;">14-17-00900-CV</a><br />
<div>
<table border="0" cellspacing="0" class="docGrid" id="ctl00_ContentPlaceHolder1_grdDocket_ctl00_ctl16_ddlContainer" style="border-collapse: collapse; border-spacing: 0px; border-style: none; border-width: 0px !important; font-size: 10px; max-width: 100%;"><tbody>
<tr><td style="border-style: none !important; border-width: 0px !important;">Opinion by Chief Justice Frost</td><td style="border-style: none !important; border-width: 0px !important; white-space: nowrap; width: 34.8px;"><a href="http://www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=999c1712-00af-48b6-a18c-6a9632aca69e&MediaID=1a67ce8e-7024-47c0-a233-b08ee9d63666&coa=%22%20+%20this.CurrentWebState.CurrentCourt%20+%20@%22&DT=Opinion" style="color: red !important; text-decoration-line: none;" target="_blank">[ PDF ]</a></td></tr>
</tbody></table>
</div>
</td><td class="caseStyle" style="border-color: rgb(255, 255, 255); border-style: solid; border-width: 0px 0px 1px; padding: 4px 7px 3px;"><span style="font-weight: bold;">Stanwyn Jay Carter v. ZB, National Association d/b/a Amegy Bank</span><br />
Appeal from 55th District Court of Harris County</td><td class="caseDisp" style="border-color: rgb(255, 255, 255); border-style: solid; border-width: 0px 0px 1px; padding: 4px 7px 3px; width: 148.133px;">AFFIRMED AS MODIFIED</td><td style="border-color: rgb(255, 255, 255); border-style: solid; border-width: 0px 0px 1px; padding: 4px 7px 3px; white-space: nowrap; width: 148.133px;">Chief Justice Frost<br />
Justice Wise<br />
Justice Jewell </td></tr>
</tbody></table>
<br />
<br />MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-45469689308954354632019-01-17T19:58:00.003-08:002019-06-18T15:56:52.792-07:00Variation on the Arbitration-Appeal Theme: A Dispute over Bilateral vs. Multilateral (multi-party) Arbitration <div style="text-align: center;">
UPDATE: Texas Supreme Court denied review 5/24/2019<br />
<b><span style="color: #cc0000;"><br /></span></b>
<b><span style="color: #cc0000;">CLAIM-FRACTURING <i>CUM</i> APPELLATE GALORE</span></b><br />
<b><span style="color: #cc0000;"><br /></span></b></div>
<div style="text-align: center;">
<span style="font-size: x-small;">Natgasoline LLC v. Refractory Construction Services, Co. LLC, <a href="http://www.search.txcourts.gov/Case.aspx?cn=14-17-00503-CV&coa=coa14">14-17-00503-CV</a></span></div>
<div style="text-align: center;">
<span style="font-size: x-small;">(Tex.App. - Houston [14th Dist.] Dec. 18, 2018) (motion for rehearing and for <i>en banc</i> filed Jan 2, 2019) </span></div>
<div style="text-align: center;">
<span style="font-size: x-small;"><br /></span></div>
<i><span style="color: #0b5394;">Not your typical scenario: Dispute over two competing bids to get into arbitration, one bilateral, the other encompassing all parties. Trial court in Galveston sent all parties to arbitration, but not everyone was happy. </span></i><br />
<div style="text-align: center;">
<b><span style="color: #cc0000;"><br /></span></b></div>
<i><span style="color: #0b5394;">Next complication: Can all of the compel/deny issues be appealed immediately? Given the uncertainty, three vehicles were invoked by the same party to get into the court of appeals for a second opinion: (1) Notice of regular appeal, should the order compelling multi-party arbitration be deemed final; (2) notice of interlocutory (accelerated) appeal otherwise; and (3) petition for mandamus, in case appellate jurisdiction was found to be lacking. Let the court of appeals do the picking and choosing. After all, the first order of business is for the higher court to determine whether it has jurisdiction, or to what extent, as it turns out. And the issue of finality for purposes of appeal is a tricky one indeed. </span></i><br />
<i><span style="color: #0b5394;"> </span></i><br />
<i><span style="color: #0b5394;">Leaving aside the matter of appellate jurisdiction, the issues in this case are by no means simple, and do not lend themselves to a short summary (see full text of opinion below). They illustrate the complexities that can arise in multi-party disputes, such as construction projects with multiple tiers of sub-contractors, when some contracts have arbitration clauses while others do not, and when the involved parties did not all sign the same contracts. It happens with some frequency in commercial disputes arising from large projects with numerous participants. It's a far cry from the notion that arbitration is a simpler, quicker, and cheaper way to resolve disputes. And when only some parties in a complex dispute over a troubled project or business deal have to arbitrate claims against each other while others do not, it creates additional problems that would otherwise be addressed through court rules governing interventions, third-party practice, and joinders. </span></i><br />
<br />
<i><span style="color: #0b5394;">Unsurprisingly, arbitration-related appellate litigation has emerged as a new legal practice niche. And an active one it is indeed, with the state supreme court asked to weigh in on a regular basis. </span></i><br />
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
NATGASOLINE LLC AND ORASCOM E&C USA INC., Appellants,<br />v.<br />REFRACTORY CONSTRUCTION SERVICES, CO. LLC, Appellee.</h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=14-17-00503-CV&coa=coa14">14-17-00503-CV</a>.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<div style="position: relative;">
<b>Court of Appeals of Texas, Fourteenth District, Houston.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
Opinion filed December 18, 2018.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Adam Quentin Voyles, McKenna Harper, for Crawford Industrial Services, LLC, Appellee.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Kay J. Hazelwood, Suzanna Caroline Bonham, for Natgasoline LLC and Orascom E&C USA Inc., Appellant.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Morgan G. Gullatt, Spencer G. Markle, for Refractory Construction Services, Co LLC, Appellee.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On Appeal from the 122nd District Court, Galveston County, Texas, Trial Court Cause No. 17-CV-0149.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Reversed and Remanded.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Panel consists of Justices Boyce, Christopher, and Busby.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
OPINION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
WILLIAM J. BOYCE, Justice.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
This appeal arises from competing motions to compel arbitration in a dispute involving the construction of a methanol plant.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Refractory Construction Services, Co. LLC sued Crawford Industrial Services, LLC, Orascom E&C USA, Inc., and Natgasoline LLC to recover money allegedly owed to Refractory Construction under a construction contract. Crawford, a subcontractor, asserted cross-claims against contractor Orascom and plant owner Natgasoline.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Orascom and Natgasoline filed a joint motion to compel a bilateral Orascom-Crawford arbitration. Refractory Construction and Crawford jointly filed a competing motion to compel arbitration as to all parties and all claims.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The trial court denied Orascom's and Natgasoline's motion to compel and ordered a single arbitration proceeding involving all parties and all claims. Orascom and Natgasoline appealed. For the reasons below, we reverse the trial court's orders compelling a single arbitration proceeding and remand for further proceedings consistent with this opinion.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
BACKGROUND</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
At issue are two construction contracts involving three signatories. One contract was between contractor Orascom and subcontractor Crawford (the "subcontract"). The second contract was between subcontractor Crawford and sub-subcontractor Refractory Construction (the "sub-subcontract"). The subcontract and sub-subcontract governed construction of Natgasoline's methanol plant in Beaumont, Texas.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Orascom and Crawford are the only signatories to the subcontract; only Refractory Construction signed the sub-subcontract between Refractory Construction and Crawford.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Both the subcontract and the sub-subcontract contain identical arbitration provisions:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
11.3.3 ARBITRATION</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
If the matter is unresolved after submission of the matter to a mitigation procedure or mediation, a demand for arbitration may be served by either Party. Any arbitration shall be conducted in Harris County, Texas, United States of America in the English language. The arbitration shall be conducted in accordance with the Rules of Arbitration of the International Chamber of Commerce but excluding the emergency arbitrator appointment rules ("Rules") in effect on the date of this Agreement. The arbitration shall be presided over by three (3) arbitrators appointed in accordance with the Rules. Each arbitrator shall be fluent in English. The arbitrators' decision, which shall be in writing, shall be final, binding and conclusive upon the Parties and may be confirmed or embodied in any order or judgment of any court having jurisdiction. The foregoing agreement to arbitrate shall be specifically enforceable and the award rendered by the arbitrators shall be final and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The subcontract and the sub-subcontract also contain identical provisions addressing multi-party disputes:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
11.6 MULTI-PARTY PROCEEDING</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
All parties necessary to resolve a matter agree to be parties to the same dispute resolution proceeding. To the extent disputes between the CONTRACTOR and SUBCONTRACTOR involve in whole or in part disputes between the CONTRACTOR and the OWNER, at the sole discretion of the CONTRACTOR disputes between the SUBCONTRACTOR and the CONTRACTOR shall be decided by the same tribunal and in the same forum as disputes between the CONTRACTOR and the OWNER.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Both documents define "OWNER" as Natgasoline, "CONTRACTOR" as Orascom, and "SUBCONTRACTOR" as Crawford. In the sub-subcontract, Refractory Construction is defined as the "SUPPLIER SUBCONTRACTOR."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Refractory Construction sued Crawford, Orascom, and Natgasoline in February 2017 and asserted claims for payment allegedly owed to Refractory Construction under the sub-subcontract. Crawford asserted cross-claims against Orascom and Natgasoline. Orascom and Natgasoline asserted affirmative defenses against Refractory Construction and Crawford.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Orascom and Natgasoline filed a joint motion to compel bilateral arbitration between Orascom and Crawford under the subcontract. Orascom's and Natgasoline's motion also asked the trial court to stay trial court proceedings "in their entirety pending the completion of such mandatory alternative dispute resolution." While Orascom's and Natgasoline's motion to compel bilateral arbitration was pending, Refractory Construction and Crawford filed a joint motion to compel a single arbitration as to all parties and all claims.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The trial court signed an order on May 24, 2017, stating in relevant part as follows:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
It is therefore, ORDERED, ADJUDGED, and DECREED that [Refractory Construction's and Crawford's] Motion to Compel Alternative Dispute Resolution as to All Claims and All Parties is in all things GRANTED.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Or, in the alternative, it is therefore, ORDERED, ADJUGED, and DECREED that [Orascom's and Natgasoline's] Motion to Stay the Entire Case Pending Alternative Dispute Resolution between [Orascom] and Crawford is in all things DENIED.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Orascom and Natgasoline filed a notice of appeal asserting that the trial court's May 2017 order "constitute[d] a final, appealable order." Orascom and Natgasoline alternatively perfected the appeal as an interlocutory appeal. In the further alternative, Orascom and Natgasoline asked this court to treat their appellate brief as a petition for writ of mandamus. Refractory Construction is the only party to appear as appellee; Crawford did not file an appearance on appeal or an appellate brief.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Upon receipt of the appeal, this court mailed a letter to the parties' counsel addressing appellate jurisdiction and stating that the appeal would be dismissed unless a response was filed "showing meritorious grounds for continuing the appeal." Orascom and Natgasoline filed a response asserting that appellate jurisdiction exists because this case involves (1) an appeal from a final judgment; or (2) a statutorily authorized interlocutory appeal; or (3) a mandamus proceeding.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Refractory Construction filed a motion to dismiss Orascom's and Natgasoline's appeal for lack of jurisdiction. After receiving Orascom's and Natgasoline's response, this court denied Refractory Construction's motion to dismiss.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The case was orally argued on May 7, 2018. After arguments were heard, this court issued an order abating the appeal to allow the trial court to clarify its intent with respect to the May 2017 order. The trial court signed a second order on June 6, 2018, stating that "it was the intent of the [trial court] to grant [Refractory Construction's and Crawford's] Motion to Compel Alternative Dispute Resolution as to All Claims and All Parties and that a <i>single arbitration</i> proceeding occur involving All Claims and all Parties . . ." (emphasis in original). Orascom's and Natgasoline's appeal was reinstated upon receipt of the trial court's June 2018 order. After the appeal was reinstated, the parties filed supplemental briefs addressing jurisdictional issues.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
GOVERNING LAW</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We must determine as a threshold matter whether the Federal Arbitration Act (the "FAA") or the Texas Arbitration Act (the "TAA") applies to this dispute. <i>See generally</i> 9 U.S.C.A. §§ 1-16 (West 2009); Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001-.098 (Vernon 2011). The arbitration provisions at issue do not refer to the FAA or the TAA. The subcontract and sub-subcontract state that they "shall be governed by the Law in effect at the location of the Project." The project is located in Beaumont, Texas.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
"If an arbitration agreement does not specify whether the FAA or the TAA applies, but states that it is governed by the laws of Texas, both the FAA and the TAA apply unless the agreement specifically excludes federal law." <a href="https://scholar.google.co.uk/scholar_case?case=14668748690917388229&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Devon Energy Corp.,</i> 332 S.W.3d 543, 547 (Tex. App.-Houston [1st Dist.] 2009, orig. proceeding)</a>; <i>see also </i><a class="gsl_co_link" href="https://scholar.google.co.uk/scholar_case?about=11240340734014900452&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="border-bottom: 1px dotted rgb(102, 0, 153); color: #660099; text-decoration-line: none;"><i>Roehrs v. FSI Holdings, Inc.,</i> 246 S.W.3d 796, 803 (Tex. App.-Dallas 2008, pet. denied)</a>. We apply this precept here. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=14668748690917388229&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Devon Energy Corp.,</i> 332 S.W.3d at 547</a>; <a class="gsl_co_link" href="https://scholar.google.co.uk/scholar_case?about=11240340734014900452&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="border-bottom: 1px dotted rgb(102, 0, 153); color: #660099; text-decoration-line: none;"><i>Roehrs,</i> 246 S.W.3d at 803</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
ANALYSIS</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We initially address whether we have appellate jurisdiction to review Orascom's and Natgasoline's appeal. We conclude that (1) Orascom's appeal can be heard under our interlocutory appellate jurisdiction; and (2) we lack appellate jurisdiction over Natgasoline's appeal.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The second part of our analysis examines whether the trial court's orders compelling a single arbitration proceeding comport with the subcontract's and sub-subcontract's arbitration provisions. We conclude that they do not.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
I. Appellate Jurisdiction</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Orascom and Natgasoline assert that appellate jurisdiction exists here because this proceeding is (1) an appeal from a final judgment; or (2) a statutorily authorized interlocutory appeal; or (3) a mandamus proceeding. We address these jurisdictional bases under Texas procedural law. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=2483731205566219912&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Bison Bldg. Materials, Ltd. v. Aldridge,</i> 422 S.W.3d 582, 585 (Tex. 2012)</a> (Texas courts apply Texas procedural law when the FAA governs the underlying dispute).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
A. Final Judgment</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
An appeal generally may be taken only from a final judgment. <a href="https://scholar.google.co.uk/scholar_case?case=7630537756462271755&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Lehmann v. Har-Con Corp.,</i> 39 S.W.3d 191, 195 (Tex. 2001)</a>; <a href="https://scholar.google.co.uk/scholar_case?case=10313209201471439953&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Futch v. Reliant Sources, Inc.,</i> 351 S.W.3d 929, 931 (Tex. App.-Houston [14th Dist.] 2011, no pet.)</a>. When a conventional trial on the merits has not occurred, "an order or judgment is not final for purposes of appeal unless it actually disposes of all parties and all claims, or unless the order clearly and unequivocally states that it finally disposes of all parties and all claims." <a href="https://scholar.google.co.uk/scholar_case?case=18445267510030907532&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Gutierrez v. Stewart Title Co.,</i> 550 S.W.3d 304, 309 (Tex. App.-Houston [14th Dist.] 2018, no pet.)</a>. To determine whether an order constitutes a final judgment, we look at the language of the order and the record in the case. <a href="https://scholar.google.co.uk/scholar_case?case=10313209201471439953&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Futch,</i> 351 S.W.3d at 931</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Orders compelling arbitration generally do not dispose of all parties and issues; instead, they "contemplate continuing resolution through the arbitration process." <a href="https://scholar.google.co.uk/scholar_case?case=12595578858559517712&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Brooks v. Pep Boys Auto. Supercenters,</i> 104 S.W.3d 656, 660 (Tex. App.-Houston [1st Dist.] 2003, no pet.)</a>; <i>see also John M. O'Quinn, P.C. v. Wood,</i> Nos. 12-06-00151-CV, 12-06-00188-CV, 2006 WL 3735617, at *3 (Tex. App.-Tyler Dec. 20, 2006, orig. proceeding) (mem. op.) (when a trial court "compels arbitration without dismissing the case," it "retains continuing jurisdiction of the case until a final judgment or order is entered"). An order compelling arbitration is interlocutory unless it clearly states that it dismisses the entire case and therefore is final. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=12595578858559517712&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Brooks,</i> 104 S.W.3d at 660</a>; <i>see also </i><a href="https://scholar.google.co.uk/scholar_case?case=4291517199514180774&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Small v. Specialty Contractors, Inc.,</i> 310 S.W.3d 639, 642 (Tex. App.-Dallas 2010, no pet.)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In the context of a motion to compel arbitration, a "dismissal would usually be inappropriate because the trial court cannot dispose of all claims and all parties until arbitration is completed." <a href="https://scholar.google.co.uk/scholar_case?case=9005997149465298248&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl., LLC,</i> 289 S.W.3d 836, 841 (Tex. 2009)</a> (orig. proceeding). Retaining jurisdiction over the case permits the trial court to take any action necessary to facilitate the arbitration's completion. <i>See id.</i> ("During arbitration, a court order may be needed to replace an arbitrator, compel attendance of witnesses, or direct arbitrators to proceed promptly." (internal citations omitted)). Incorporating this reasoning, the TAA requires that an order compelling arbitration "include a stay of any proceeding." <i>See</i> Tex. Civ. Prac. & Rem. Code Ann. § 171.021(c).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The trial court's May 2017 order grants Refractory Construction's and Crawford's motion to compel arbitration; in the alternative, that order denies Orascom's and Natgasoline's "Motion to Stay the Entire Case Pending Alternative Dispute Resolution between [Orascom] and Crawford." The trial court's June 2018 order states that its May 2017 order was intended "to grant [Refractory Construction's and Crawford's] Motion to Compel Alternative Dispute Resolution as to All Claims and All Parties and that a <i>single arbitration</i> proceeding occur involving All Claims and all Parties . . ." (emphasis in original). Arguing that these two orders constitute a final judgment, Orascom and Natgasoline contend that the orders "unequivocally dispose[] of all claims and all parties" and are "clearly intended to dispose of the entire case and all pending motions."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We reject this contention. The orders do not state that they are final judgments, do not dismiss the case, and do not include language suggesting finality. The trial court's orders do not "clearly and unequivocally state[]" that they "finally dispose[] of all parties and all claims" in the proceeding. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=18445267510030907532&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Gutierrez,</i> 550 S.W.3d at 309</a>; <a href="https://scholar.google.co.uk/scholar_case?case=4291517199514180774&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Small,</i> 310 S.W.3d at 642</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Instead of disposing of all parties and all claims, the trial court's orders direct the parties to participate in a single arbitration proceeding. By compelling arbitration, the trial court reasonably could have "contemplate[d] continuing resolution" as necessary to facilitate the arbitration's completion. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=12595578858559517712&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Brooks,</i> 104 S.W.3d at 660</a>; <i>see also </i><a href="https://scholar.google.co.uk/scholar_case?case=9005997149465298248&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl., LLC,</i> 289 S.W.3d at 841</a>. Moreover, under the TAA, the trial court was required to stay the underlying proceeding in conjunction with the orders compelling arbitration. <i>See</i> Tex. Civ. Prac. & Rem. Code Ann. § 171.021(c). In the absence of any language indicating finality, the trial court's orders compelling arbitration do not constitute final judgments. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=18445267510030907532&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Gutierrez,</i> 550 S.W.3d at 309</a>; <a href="https://scholar.google.co.uk/scholar_case?case=4291517199514180774&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Small,</i> 310 S.W.3d at 642</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Orascom's and Natgasoline's appeal was not properly perfected as an appeal from a final judgment.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
B. Interlocutory Appeal</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Orascom and Natgasoline assert that their appeal properly was perfected as an interlocutory appeal because the trial court's orders effected an unequivocal denial of Orascom's and Natgasoline's motion to compel a bilateral arbitration between Orascom and Crawford under the subcontract.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Appellate courts may consider appeals from interlocutory orders when a statute explicitly authorizes an appeal. <a href="https://scholar.google.co.uk/scholar_case?case=10307603840287988024&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Tex. A & M Univ. Sys. v. Koseoglu,</i> 233 S.W.3d 835, 840 (Tex. 2007)</a>. The FAA and TAA permit an interlocutory appeal from an order denying a motion to compel arbitration. <i>See</i> 9 U.S.C.A. § 16; Tex. Civ. Prac. & Rem. Code Ann. § 51.016 (Vernon 2015), § 171.098(a)(1); <i>see also </i><a href="https://scholar.google.co.uk/scholar_case?case=580627080943503623&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Helix Energy Sols. Group, Inc.,</i> 303 S.W.3d 386, 395 n.7 (Tex. App.-Houston [14th Dist.] 2010, orig. proceeding)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
When determining whether an order denies a motion to compel arbitration, "[t]he substance and function of the order viewed in the context of the record controls our interlocutory jurisdiction." <a href="https://scholar.google.co.uk/scholar_case?case=8339892433207221888&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>McReynolds v. Elston,</i> 222 S.W.3d 731, 738 (Tex. App.-Houston [14th Dist.] 2007, no pet.)</a>; <i>see also </i><a href="https://scholar.google.co.uk/scholar_case?case=12832157176298283030&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Tex. La Fiesta Auto Sales, LLC v. Belk,</i> 349 S.W.3d 872, 878 (Tex. App.-Houston [14th Dist.] 2011, no pet.)</a>. The FAA and TAA permit interlocutory appellate review of an order that denies a party's right to arbitrate in a specific manner under a specific contract. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=12832157176298283030&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Tex. La Fiesta Auto Sales, LLC,</i> 349 S.W.3d at 878</a> (analyzing the FAA); <a href="https://scholar.google.co.uk/scholar_case?case=8339892433207221888&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>McReynolds,</i> 222 S.W.3d at 738</a> (analyzing the TAA). <i>McReynolds</i> and <i>Texas La Fiesta</i> guide our analysis here.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The parties in <i>McReynolds</i> were engaged in arbitration proceedings pursuant to their partnership agreement when the plaintiff sued to compel arbitration under a separate settlement agreement. <a href="https://scholar.google.co.uk/scholar_case?case=8339892433207221888&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;">222 S.W.3d at 736-37</a>. The trial court denied the plaintiff's motion to compel and the plaintiff appealed. <i>Id.</i> at 737. Asserting that the court lacked interlocutory appellate jurisdiction under the TAA, the defendant asserted that "the court's order did not deny the [plaintiff's] `right to arbitration' but merely allowed pending arbitration to continue." <i>Id.</i> at 738.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Rejecting the defendant's argument, <i>McReynolds</i> noted that the plaintiff's motion to compel sought "to enforce his express contractual right of arbitration under the Settlement Agreement," which included arbitrating before a different arbitrator. <i>Id.</i>Concluding that the trial court's order "denied [the plaintiff's] potential contractual right to arbitration under the Settlement Agreement," the court determined that the TAA granted interlocutory jurisdiction to review the trial court's order. <i>Id.</i> at 738-39.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The parties in <i>Texas La Fiesta</i> similarly signed two agreements that included separate arbitration provisions: an arbitration agreement and an employment contract. <a href="https://scholar.google.co.uk/scholar_case?case=12832157176298283030&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;">349 S.W.3d at 875-76</a>. After the plaintiff sued the defendants, the defendants moved to compel arbitration under the arbitration agreement. <i>Id.</i> at 876. The trial court denied in part the defendants' motion to compel, concluding that the arbitration agreement was superseded by the employment contract. <i>Id.</i> at 876-77. The trial court ordered the parties to arbitrate under the employment contract. <i>Id.</i> at 877.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The defendants appealed and the plaintiff challenged the court's appellate jurisdiction. <i>Id.</i> Noting that "the trial court's order did not compel arbitration under the arbitration agreement as the [defendants] requested," the court "conclude[d] that the trial court's order denied the [defendants'] their potential contractual right to arbitration . . . as provided in the arbitration agreement." <i>Id.</i> at 879. The appellate court therefore could review the defendants' appeal under the FAA's interlocutory jurisdiction provision. <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Here, as in <i>McReynolds</i> and <i>Texas La Fiesta,</i> the parties sought different arbitrations. Orascom and Natgasoline moved to compel arbitration under the subcontract only as between Orascom and Crawford. In contrast, Refractory Construction and Crawford moved to compel arbitration under the subcontract and sub-subcontract in a single proceeding encompassing all claims and all parties. The trial court ordered a single arbitration proceeding encompassing all claims and all parties; it denied Orascom's and Natgasoline's "Motion to Stay the Entire Case Pending Alternative Dispute Resolution between [Orascom] and Crawford."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The subcontract authorizes arbitration only between the "Parties" to the subcontract — namely, Orascom and Crawford. The subcontract does not permit Refractory Construction to inject itself into the arbitration proceeding between Orascom and Crawford.<sup><a class="gsl_hash" href="https://scholar.google.co.uk/scholar_case?case=12450403650817185307&q=+14-17-00503-CV&hl=en&scisbd=2&as_sdt=4,44#[1]" name="r[1]" style="color: #660099;">[1]</a></sup> By requiring all parties to arbitrate all claims in a single arbitration proceeding, the trial court effectively denied to Orascom its right under the subcontract to arbitrate only with Crawford. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=12832157176298283030&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Tex. La Fiesta Auto Sales, LLC,</i> 349 S.W.3d at 879</a>; <a href="https://scholar.google.co.uk/scholar_case?case=8339892433207221888&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>McReynolds,</i> 222 S.W.3d at 738-39</a>. We therefore have jurisdiction over Orascom's interlocutory appeal. <i>See</i> 9 U.S.C.A. § 16; Tex. Civ. Prac. & Rem. Code Ann. §§ 51.016, 171.098(a)(1).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Although the denial of Orascom's bilateral arbitration right under the subcontract authorizes an exercise of interlocutory jurisdiction, the same logic does not extend to Natgasoline. Unlike Orascom, Natgasoline is not a party to the subcontract or the sub-subcontract and is not entitled to enforce the arbitration provisions under the particular circumstances present here. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=7525206418111218344&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach Builders, LLC v. Sapphire V.P., LP,</i> 458 S.W.3d 502, 524 (Tex. 2015)</a> ("As a general rule, an arbitration clause cannot be invoked by a non-party to the arbitration contract." (internal quotation omitted)). Natgasoline does not seek to invoke its own asserted right to participate in arbitration — rather, it seeks only to compel arbitration between two <i>other</i> parties under contracts it did not sign. Natgasoline has not presented any argument or authority that would support recognizing interlocutory appellate jurisdiction in these circumstances. Because the trial court's orders compelling arbitration do not deny to Natgasoline any contractual rights with respect to arbitration, we lack jurisdiction over Natgasoline's attempted interlocutory appeal. <i>See</i> 9 U.S.C.A. § 16; Tex. Civ. Prac. & Rem. Code Ann. §§ 51.016, 171.098(a)(1); <i>see also </i><a href="https://scholar.google.co.uk/scholar_case?case=12832157176298283030&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Tex. La Fiesta Auto Sales, LLC,</i> 349 S.W.3d at 879</a>; <a href="https://scholar.google.co.uk/scholar_case?case=8339892433207221888&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>McReynolds,</i> 222 S.W.3d at 738-39</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We turn now to Refractory Construction's arguments challenging our interlocutory appellate jurisdiction.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Asserting that the trial court did not deny Orascom's and Natgasoline's motion to compel arbitration, Refractory Construction points out that the trial court's May 2017 order denies only Orascom's and Natgasoline's "Motion to Stay the Entire Case Pending Alternative Dispute Resolution between [Orascom] and Crawford." But our jurisdictional analysis is not limited to the express language of the trial court's order. We instead examine "[t]he substance and function of the order viewed in the context of the record." <a href="https://scholar.google.co.uk/scholar_case?case=8339892433207221888&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>McReynolds,</i> 222 S.W.3d at 738</a>; <i>see also </i><a href="https://scholar.google.co.uk/scholar_case?case=12832157176298283030&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Tex. La Fiesta Auto Sales, LLC,</i> 349 S.W.3d at 878</a>. We also consider the trial court's June 2018 order signed in response to this court's request for clarification as to whether a single arbitration proceeding was contemplated. By ordering a single arbitration proceeding involving all claims and all parties, the trial court denied Orascom its right under the subcontract to arbitrate only with Crawford. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=12832157176298283030&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Tex. La Fiesta Auto Sales, LLC,</i> 349 S.W.3d at 879</a>; <a href="https://scholar.google.co.uk/scholar_case?case=8339892433207221888&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>McReynolds,</i>222 S.W.3d at 738-39</a>. This denial gives rise to interlocutory jurisdiction. <i>See</i> 9 U.S.C.A. § 16; Tex. Civ. Prac. & Rem. Code Ann. §§ 51.016, 171.098(a)(1).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Refractory Construction asserts that, even if Orascom's appeal can be construed as an interlocutory appeal from an order denying a motion to compel arbitration, Orascom nonetheless (1) failed to appeal within 20 days after the trial court's May 2017 order was signed; and (2) is not entitled to an extension of time for filing a notice of appeal.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We conclude that Orascom properly perfected its appeal from an interlocutory order. An appeal from an interlocutory order is accelerated. Tex. R. App. P. 28.1(a). "[I]n an accelerated appeal, the notice of appeal must be filed within 20 days after the judgment or order is signed[.]" <i>Id.</i> at 26.1(b). The time to file the notice of appeal may be extended if, within 15 days after the deadline for filing the notice of appeal, the appealing party files in the trial court a notice of appeal and files in the appellate court a motion to extend time for filing a notice of appeal. <i>Id.</i> at 10.5(b)(2), 26.3. A motion to extend time for filing a notice of appeal must state (1) the deadline for filing the item in question; (2) the facts relied on to reasonably explain the need for an extension; (3) the trial court; (4) the date of the trial court's judgment or appealable order; and (5) the case number or style of the case in the trial court. <i>Id.</i> at 10.5(b)(2).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Here, the trial court signed its order on May 24, 2017. Treating this as an appealable interlocutory order, Orascom's notice of appeal was due no later than 20 days later on June 13, 2017. Orascom filed its notice of appeal on June 23, 2017. Orascom's notice of appeal included a request for an extension of time:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
[T]o the extent that a court may determine that the Judgment is not a final judgment, [Orascom and Natgasoline] alternatively notice this appeal as an interlocutory appeal under Texas Civil Practice & Remedies Code §§ 51.016 and/or 171.098(a)(1) and request an extension of time based on the good cause of the legal uncertainty, if any, as to whether the Judgment is not actually a final judgment.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Citing Texas Rule of Appellate Procedure 10.5(b)(2), Refractory Construction asserts that Orascom's request is "devoid of any reference to the deadline for its filing." Refractory Construction also asserts that "[t]here is no reasonable legal uncertainty" warranting an extension.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The notice's failure to reference the deadline for its filing does not defeat Orascom's request for an extension of time, and Refractory Construction cites no authority holding otherwise. Even an implied motion for an extension of time is effective so long as the appellant "come[s] forward with a reasonable explanation to support the late filing." <a href="https://scholar.google.co.uk/scholar_case?case=17406984009004530072&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Hykonnen v. Baker Hughes Bus. Support Servs.,</i> 93 S.W.3d 562, 563 (Tex. App.-Houston [14th Dist.] 2002, no pet.)</a>; <i>see also Jones v. Funk,</i> No. 14-16-00577-CV, 2016 WL 5400217, at *1 (Tex. App.-Houston [14th Dist.] Sept. 27, 2016, no pet.) (per curiam) (mem. op.). A reasonable explanation includes any plausible statement of circumstances that shows the failure to file within the required time period was not deliberate or intentional, but was the result of inadvertence, mistake, or mischance. <a href="https://scholar.google.co.uk/scholar_case?case=17406984009004530072&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Hykonnen,</i> 93 S.W.3d at 563</a>. "Any conduct short of deliberate or intentional noncompliance qualifies as inadvertence, mistake, or mischance — even if that conduct can be characterized as professional negligence." <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Orascom's notice provides a "reasonable explanation" for its untimely filing: uncertainty with respect to the finality of the trial court's May 24, 2017 order. This explanation suffices to show that Orascom's failure to file within the required time period was not deliberate or intentional. <i>See id.</i>; <i>see also Jones,</i> 2016 WL 5400217, at *1. Orascom's motion for an extension of time was effective and makes its notice of appeal timely. <i>See</i>Tex. R. App. P. 10.5(b)(2), 26.1(b), 26.3; <i>see also </i><a href="https://scholar.google.co.uk/scholar_case?case=17406984009004530072&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Hykonnen,</i> 93 S.W.3d at 563</a>. We reject Refractory Construction's arguments challenging our interlocutory jurisdiction.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
By ordering all parties to arbitrate all claims in a single proceeding, the trial court denied to Orascom its right under the subcontract to arbitrate only with Crawford. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=12832157176298283030&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Tex. La Fiesta Auto Sales, LLC,</i> 349 S.W.3d at 879</a>; <a href="https://scholar.google.co.uk/scholar_case?case=8339892433207221888&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>McReynolds,</i> 222 S.W.3d at 738-39</a>. But the same is not true for Natgasoline — the trial court's orders compelling arbitration do not divest any contractual arbitration rights belonging to Natgasoline. Therefore, under the FAA and TAA, we have jurisdiction to consider Orascom's interlocutory appeal. We lack jurisdiction to consider Natgasoline's attempted appeal. <i>See</i> 9 U.S.C.A. § 16; Tex. Civ. Prac. & Rem. Code Ann. §§ 51.016, 171.098(a)(1); <i>see also </i><a href="https://scholar.google.co.uk/scholar_case?case=12832157176298283030&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Tex. La Fiesta Auto Sales, LLC,</i> 349 S.W.3d at 879</a>; <a href="https://scholar.google.co.uk/scholar_case?case=8339892433207221888&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>McReynolds,</i> 222 S.W.3d at 738-39</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The final section of this jurisdictional analysis examines whether mandamus relief is available to Natgasoline. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=14382127816367656486&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>CMH Homes v. Perez,</i> 340 S.W.3d 444, 453 (Tex. 2011)</a>(in an "uncertain legal environment," an appellant may in the alternative "request mandamus treatment of its appeal").</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
C. Mandamus</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Insofar as Natgasoline seeks to undo the trial court's orders compelling a single arbitration proceeding by pursuing a petition for writ of mandamus, we conclude that any mandamus relief sought by Natgasoline would be moot. This is so because, as discussed more fully below, we reverse the trial court's orders compelling arbitration in an interlocutory appeal properly pursued by Orascom. Therefore, we decline to address Natgasoline's arguments with respect to its entitlement to mandamus relief.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
II. Review of the Trial Court's Orders Compelling a Single Arbitration Proceeding</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We now turn to the merits of Orascom's authorized interlocutory appeal from the denial of its motion to compel a bilateral Orascom-Crawford arbitration under the subcontract.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We review the trial court's denial of a motion to compel arbitration under an abuse of discretion standard. <a href="https://scholar.google.co.uk/scholar_case?case=11064332715902942515&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Labatt Food Serv., L.P.,</i> 279 S.W.3d 640, 643 (Tex. 2009)</a> (orig. proceeding); <a href="https://scholar.google.co.uk/scholar_case?case=11951218591649406183&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Branch Law Firm L.L.P. v. Osborn,</i> 532 S.W.3d 1, 12 (Tex. App.-Houston [14th Dist.] 2016, pet. denied)</a>. We defer to the trial court's factual determinations if they are supported by the record; we review the trial court's legal determinations <i>de novo. </i><a href="https://scholar.google.co.uk/scholar_case?case=11064332715902942515&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Labatt Food Serv., L.P.,</i> 279 S.W.3d at 643</a>; <a href="https://scholar.google.co.uk/scholar_case?case=11951218591649406183&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Branch Law Firm L.L.P.,</i> 532 S.W.3d at 12</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Under the FAA and TAA, a party seeking to compel arbitration must establish that (1) there is a valid arbitration agreement; and (2) the claims in dispute fall within the scope of that agreement. <a href="https://scholar.google.co.uk/scholar_case?case=7799522967503682695&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Rubiola,</i> 334 S.W.3d 220, 223 (Tex. 2011)</a> (orig. proceeding) (FAA); <a href="https://scholar.google.co.uk/scholar_case?case=8339892433207221888&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>McReynolds,</i> 222 S.W.3d at 739 (TAA)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The parties do not dispute that (1) a valid arbitration agreement exists between Orascom and Crawford under the subcontract; and (2) Crawford's claims against Orascom fall within the scope of the subcontract's arbitration provision. The parties dispute whether the subcontract or the sub-subcontract authorizes the trial court to deny a bilateral Orascom-Crawford arbitration in favor of a single arbitration proceeding involving all parties and all claims. Refractory Construction asserts three arguments to support a single arbitration proceeding.</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
1. Under the sub-subcontract and Texas Rule of Civil Procedure 39(a), Refractory Construction is a necessary party to an Orascom-Crawford arbitration proceeding.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
2. Estoppel permits Refractory Construction to join a bilateral Orascom-Crawford arbitration proceeding under the subcontract.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
3. Permitting Orascom and Crawford to arbitrate without Refractory Construction is contrary to public policy.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We conclude that these arguments do not authorize a single arbitration proceeding involving all parties and all claims. Therefore, the trial court erred in denying Orascom's motion to compel a bilateral Orascom-Crawford arbitration under the subcontract.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
A. Refractory Construction is Not a Necessary Party to a Bilateral Orascom-Crawford Arbitration</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Relying heavily on the sub-subcontract's "Multi-Party Proceeding" provision, Refractory Construction asserts that "all parties in the instant litigation should be and were properly ordered to arbitrate together." Orascom argues that the sub-subcontract does not support an interpretation that authorizes a single arbitration proceeding for all parties and all claims.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
"Arbitration agreements are interpreted under traditional contract principles." <a href="https://scholar.google.co.uk/scholar_case?case=12596166907904856385&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>J.M. Davidson, Inc. v. Webster,</i> 128 S.W.3d 223, 227 (Tex. 2003)</a>. If we can give the agreement's language a certain and definite meaning, the agreement is unambiguous and we construe it as a matter of law. <a href="https://scholar.google.co.uk/scholar_case?case=12188486044996765045&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Milner v. Milner,</i> 361 S.W.3d 615, 619 (Tex. 2012)</a>. Our primary concern in construing an agreement is to ascertain the intent of the parties as expressed in the instrument. <a href="https://scholar.google.co.uk/scholar_case?case=4321349621179920395&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Valence Operating Co. v. Dorsett,</i> 164 S.W.3d 656, 662 (Tex. 2005)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
An agreement's terms are accorded their "plain and ordinary meaning" unless the agreement indicates that the parties intended a different meaning. <a href="https://scholar.google.co.uk/scholar_case?case=10712142236448072181&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Dynegy Midstream Servs., Ltd. P'ship v. Apache Corp.,</i> 294 S.W.3d 164, 168 (Tex. 2009)</a>. We presume that the parties intended each contract provision to have effect. <a href="https://scholar.google.co.uk/scholar_case?case=11309593793779309619&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Va. Power Energy Mktg., Inc. v. Apache Corp.,</i> 297 S.W.3d 397, 403 (Tex. App.-Houston [14th Dist.] 2009, pet. denied)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We examine and consider the agreement as a whole in an effort to harmonize and give effect to all provisions so that none are rendered meaningless. <a href="https://scholar.google.co.uk/scholar_case?case=11951218591649406183&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Branch Law Firm L.L.P.,</i>532 S.W.3d at 12</a>. "No single provision taken alone will be given controlling effect; rather, all the provisions must be considered with reference to the whole instrument." <a href="https://scholar.google.co.uk/scholar_case?case=12596166907904856385&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>J.M. Davidson, Inc.,</i> 128 S.W.3d at 229</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Refractory Construction focuses its arguments in particular on the sub-subcontract's "Multi-Party Proceeding" provision. The first sentence of this provision states as follows: "All parties necessary to resolve a matter agree to be parties to the same dispute resolution proceeding."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
This first sentence does not exist in isolation. To the contrary, it is followed immediately by another sentence applying this "Multi-Party Proceeding" provision "[t]o the extent disputes between [Orascom] . . . and [Crawford] . . . involve in whole or in part disputes between [Orascom] . . . and [Natgasoline] . . . ."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
If a dispute between Orascom and Crawford also involves a dispute between Orascom and Natgasoline, then "at the sole discretion of [Orascom] . . . disputes between [Crawford] . . . and [Orascom] . . . shall be decided by the same tribunal and in the same forum as disputes between [Crawford] . . . and [Natgasoline] . . . ."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Arguing in favor of a single arbitration proceeding encompassing all parties and all claims, Refractory Construction first points to the sub-subcontract's definition of "Parties:"</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
The "Parties" are collectively the CONTRACTOR and the SUBCONTRACTOR including their SubSubcontractors.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Refractory Construction contends that this definition of "Parties," when read in conjunction with the first sentence of the sub-subcontract's "Multi-Party Proceeding" provision, supports the denial of a bilateral Orascom-Crawford arbitration in favor of a single arbitration proceeding involving all parties and all claims.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The sub-subcontract is unambiguous and we ascertain its meaning as a matter of law. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=12188486044996765045&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Milner,</i> 361 S.W.3d at 619</a>. Under these unambiguous terms we reject Refractory Construction's interpretation of the sub-subcontract — and with it, Refractory Construction's reliance upon the sub-subcontract to override the bilateral Orascom-Crawford arbitration mandated under the subcontract. We do so for two reasons.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
First, the sub-subcontract defines "Parties" as a capitalized term that includes, collectively, contractor Orascom, subcontractor Crawford, and Orascom's and Crawford's sub-subcontractors. "Parties" as a capitalized term is employed in multiple sub-subcontract provisions, including those addressing the scope of the work, the progress schedule, indemnity, insurance, and bonds.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The sub-subcontract's "Multi-Party Proceeding" provision, in contrast, utilizes the word "parties" in its uncapitalized form. Ignoring the uncapitalized use of "parties" in favor of applying the defined, capitalized term would vitiate the sub-subcontract's distinction between "Parties" and "parties." We decline to apply an interpretation of the sub-subcontract that would render these distinctions meaningless. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=11951218591649406183&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Branch Law Firm L.L.P.,</i> 532 S.W.3d at 12</a>; <a href="https://scholar.google.co.uk/scholar_case?case=11309593793779309619&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Va. Power Energy Mktg., Inc.,</i> 297 S.W.3d at 403</a>; <i>see also </i><a href="https://scholar.google.co.uk/scholar_case?case=7945190502220564085&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>PopCap Games, Inc. v. MumboJumbo, LLC,</i> 350 S.W.3d 699, 708 (Tex. App.-Dallas 2011, pet. denied)</a> ("The use of different language in different parts of a contract generally means that the parties intended different things.").</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Second, even if we were to apply the defined term "Parties" to the sub-subcontract's "Multi-Party Proceeding" provision, this provision still would not authorize Refractory Construction to compel a single arbitration proceeding encompassing all parties (including Refractory Construction) and all claims.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The subcontract and sub-subcontract contain identical "Multi-Party Proceeding" provisions, and we consider these contracts together to ascertain the "Multi-Party Proceeding" provisions' intended effect. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=2446627003443403652&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>DeWitt Cty. Elec. Coop., Inc. v. Parks,</i> 1 S.W.3d 96, 102 (Tex. 1999)</a> ("Under generally accepted principles of contract interpretation, all writings that pertain to the same transaction will be considered together, even if they were executed at different times and do not expressly refer to one another."); <a href="https://scholar.google.co.uk/scholar_case?case=3103365094360432870&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Cleveland Constr., Inc. v. Levco Constr., Inc.,</i> 359 S.W.3d 843, 852-53 (Tex. App.-Houston [1st Dist.] 2012, pet. dism'd)</a> (same).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The identical "Multi-Party Proceeding" provisions in both the subcontract and the sub-subcontract provide that <i>Orascom</i> has sole discretion to add a party to an arbitration proceeding between Orascom and Crawford. That additional party is Natgasoline. Neither the subcontract nor the sub-subcontract grants Refractory Construction a parallel right to add itself or another party to an arbitration proceeding between Orascom and Crawford, or to inject itself into the bilateral Orascom-Crawford arbitration mandated by the subcontract. Refractory Construction's overbroad interpretation of the provisions' first sentence cannot be harmonized with the second sentence's limited allocation of sole discretion to Orascom to add Natgasoline to an Orascom-Crawford arbitration. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=12596166907904856385&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>J.M. Davidson, Inc.,</i> 128 S.W.3d at 229</a>; <a href="https://scholar.google.co.uk/scholar_case?case=11951218591649406183&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Branch Law Firm L.L.P.,</i> 532 S.W.3d at 12</a>. Therefore, we reject Refractory Construction's interpretation of the sub-subcontract's "Multi-Party Proceeding" provision.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Refractory Construction also relies on Texas Rule of Civil Procedure 39 to support its contention that it is a necessary party to an Orascom-Crawford arbitration. But "absent a specific agreement[,] the rules of civil procedure and joinder of claims and parties do not apply in arbitration." <a href="https://scholar.google.co.uk/scholar_case?case=1145820248795487132&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Crossmark, Inc. v. Hazar,</i> 124 S.W.3d 422, 434 (Tex. App.-Dallas 2004, pet. denied)</a>; <i>see also </i><a href="https://scholar.google.co.uk/scholar_case?case=2677424972823397203&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re F.C. Holdings, Inc.,</i> 349 S.W.3d 811, 816</a> (Tex. App.-Tyler 2011, orig. proceeding [mand. denied]).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The subcontract's and sub-subcontract's arbitration provisions do not invoke the Texas Rules of Civil Procedure; the provisions state that they are governed by the arbitration rules promulgated by the International Chamber of Commerce. Texas Rule of Civil Procedure 39 therefore does not provide a basis to compel a consolidated arbitration involving all parties and all claims.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
B. Estoppel</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Refractory Construction asserts that "equitable estoppel operates to estop [Orascom and Crawford], signatories to the subcontract, from arbitrating in [Refractory Construction's] absence."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The parties encompassed by an arbitration agreement generally are determined with reference to the parties' intent as expressed by the agreement's terms. <a href="https://scholar.google.co.uk/scholar_case?case=2982868234861987077&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Jody James Farms, JV v. Altman Group, Inc.,</i> 547 S.W.3d 624, 633 (Tex. 2018)</a>. Arbitration with a non-signatory may be required in several circumstances, including (1) incorporation by reference, (2) assumption, (3) agency, (4) alter ego, (5) estoppel, and (6) third-party beneficiary. <i>Id.; see also </i><a href="https://scholar.google.co.uk/scholar_case?case=5706604566501900836&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Cotton Commercial USA, Inc. v. Clear Creek Ind. Sch. Dist.,</i>387 S.W.3d 99, 104-04 & n.4 (Tex. App.-Houston [14th Dist.] 2012, no pet.)</a>. "Estoppel" encompasses two distinct bases for compelling arbitration with respect to non-signatories: direct benefits estoppel and intertwined claims estoppel. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=2982868234861987077&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Jody James Farms, JV,</i> 547 S.W.3d at 637-40</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Despite its status as a non-signatory to the subcontract, Refractory Construction contends that it can join an Orascom-Crawford bilateral arbitration under the subcontract pursuant to the direct benefits and intertwined claims bases for estoppel. We examine each theory in turn.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
1. Direct benefits estoppel</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Under principles of direct benefits estoppel, "`a litigant who sues based on a contract subjects him or herself to the contract's terms . . . including the Arbitration Addendum." <a href="https://scholar.google.co.uk/scholar_case?case=7525206418111218344&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach Builders, LLC,</i> 458 S.W.3d at 527</a> (quoting <a href="https://scholar.google.co.uk/scholar_case?case=4933480583271488482&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re FirstMerit Bank, N.A.,</i> 52 S.W.3d 749, 755-56 (Tex. 2001)</a> (orig. proceeding)). Direct benefits estoppel prevents a claimant from seeking benefits under a contract while simultaneously attempting to avoid the contract's obligations, such as an obligation to arbitrate disputes. <a href="https://scholar.google.co.uk/scholar_case?case=1645960464688258299&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Kellogg Brown & Root, Inc.,</i> 166 S.W.3d 732, 739 (Tex. 2005)</a> (orig. proceeding). "Thus, a non-signatory plaintiff may be compelled to arbitrate if it seeks to enforce terms of a contract containing an arbitration provision." <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Direct benefits estoppel does not apply merely because a non-signatory's claim "relates to" a contract containing an arbitration agreement. <a href="https://scholar.google.co.uk/scholar_case?case=7525206418111218344&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach</i> <i>Builders, LLC,</i> 458 S.W.3d at 527</a>. Rather, the non-signatory must "seek to derive a direct benefit" from the agreement such that its claim "depend[s] on the existence of the contract and [would] be unable to stand independently without the contract." <i>Id.</i> at 527-28 (internal quotations omitted); <i>see, e.g., </i><a href="https://scholar.google.co.uk/scholar_case?case=1293776290414422271&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Rachal v. Reitz,</i> 403 S.W.3d 840, 847-48 (Tex. 2013)</a> (by pursuing a suit based on a trust's terms and validity, the non-signatory beneficiary was barred by direct benefits estoppel from avoiding a trust's arbitration provision); <a href="https://scholar.google.co.uk/scholar_case?case=4933480583271488482&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re FirstMerit Bank, N.A.,</i> 52 S.W.3d at 752-53, 755-56</a> (by suing based on the contract, the plaintiffs sought benefits that stemmed directly from the contract; the plaintiffs therefore were subject to the contract's arbitration provision). If a non-signatory's claims can stand independently of the underlying contract, then arbitration generally should not be compelled under a theory of direct benefits estoppel. <a href="https://scholar.google.co.uk/scholar_case?case=1645960464688258299&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Kellogg Brown & Root, Inc.,</i>166 S.W.3d at 739-40</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
To support its invocation of direct benefits estoppel as a basis for joining the bilateral Orascom-Crawford arbitration, Refractory Construction asserts that Orascom "call[s] for an interpretation of the sub-subcontract . . . which would provide <i>Orascom</i> with the sole discretion to join parties to an arbitration under the sub-subcontract" (emphasis in original). When Orascom asserts its interpretation of the sub-subcontract, Refractory Construction argues that Orascom "clearly seek[s] to derive direct benefits" from the sub-subcontract — benefits that in turn permit Refractory Construction to join a bilateral Orascom-Crawford arbitration under the subcontract.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We reject Refractory Construction's contention. Direct benefits estoppel prevents a party from asserting a claim under a contract and simultaneously avoiding the contract's obligations, such as an arbitration provision. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=7525206418111218344&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach Builders, LLC,</i> 458 S.W.3d at 527</a>; <a href="https://scholar.google.co.uk/scholar_case?case=1645960464688258299&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Kellogg Brown & Root, Inc.,</i> 166 S.W.3d at 739</a>. Here, Orascom asserts no claims against Refractory Construction under the sub-subcontract to which Orascom is not a signatory. Orascom therefore does not seek to derive a "direct benefit" from the sub-subcontract as necessary to invoke direct benefits estoppel. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=7525206418111218344&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach Builders, LLC,</i> 458 S.W.3d at 527</a> (direct benefits estoppel prevents a plaintiff from asserting a claim that "depend[s] on the existence" of the contract but simultaneously avoiding the contract's arbitration provision); <a href="https://scholar.google.co.uk/scholar_case?case=1645960464688258299&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Kellogg Brown & Root, Inc.,</i> 166 S.W.3d at 739</a> ("a non-signatory plaintiff may be compelled to arbitrate if its claims are `based on a contract' containing an agreement to arbitrate").</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Under these circumstances, Refractory Construction cannot invoke the sub-subcontract and direct benefits estoppel to justify a single arbitration proceeding involving all parties and all claims in place of the bilateral Orascom-Crawford arbitration specified under the subcontract.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
2. Intertwined claims estoppel</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Refractory Construction asserts that the theory of intertwined claims estoppel prevents Orascom and Crawford from arbitrating without Refractory Construction because Refractory Construction's "claims are so intertwined with the subcontract."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In <a href="https://scholar.google.co.uk/scholar_case?case=11783117848632649238&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Merrill Lynch Investment Managers v. Optibase, Ltd.,</i> 337 F.3d 125 (2nd Cir. 2003),</a>the Second Circuit discussed an "alternative estoppel theory," also called "intertwined-claims theory." <i>Id.</i> at 131. Intertwined claims estoppel may permit a non-signatory to compel arbitration when (1) the non-signatory has a close relationship with a signatory to a contract with an arbitration agreement, and (2) the non-signatory's claims are "intimately founded in and intertwined with the underlying contract obligations." <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=14238257683202276384&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Merrill Lynch Trust Co. FSB,</i> 235 S.W.3d 185, 193 (Tex. 2007)</a> (orig. proceeding); <i>see also </i><a href="https://scholar.google.co.uk/scholar_case?case=2982868234861987077&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Jody James Farms, JV,</i> 547 S.W.3d at 639</a>. This estoppel formulation has not been adopted by the Supreme Court of Texas. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=2982868234861987077&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Jody James Farms, JV,</i> 547 S.W.3d at 639</a>; <a href="https://scholar.google.co.uk/scholar_case?case=14238257683202276384&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Merrill Lynch Trust Co. FSB,</i> 235 S.W.3d at 193</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Limiting the application of intertwined claims estoppel, the Second Circuit has clarified that the theory does not apply "whenever a relationship of any kind may be found among the parties to a dispute and their dispute deals with the subject matter of an arbitration contract made by one of them." <a href="https://scholar.google.co.uk/scholar_case?case=15235671348184883320&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Sokol Holdings, Inc. v. BMB Munai, Inc.,</i> 542 F.3d 354, 359 (2nd Cir. 2008)</a>. Instead, the Second Circuit decisions that compel arbitration on the basis of intertwined claims "typically involve some corporate affiliation between a signatory and non-signatory, not just a working relationship." <a href="https://scholar.google.co.uk/scholar_case?case=2982868234861987077&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Jody James Farms, JV,</i> 547 S.W.3d at 640</a> (citing <a href="https://scholar.google.co.uk/scholar_case?case=15235671348184883320&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Sokol Holdings, Inc.,</i> 542 F.3d at 359-61</a>).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Declining to adopt intertwined claims estoppel in <i>Jody James Farm, JV,</i> the Supreme Court of Texas noted that the defendants "may have an entangled business relationship" with respect to the transaction at issue, but no evidence "show[ed] them to be anything other than independent and distinct entities." <i>Id.</i> To compel arbitration based on intertwined claims estoppel, "the relationship must be closer than merely independent participants in a business transaction." <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Here, too, the evidence does not show that Orascom, Crawford, and Refractory Construction are "anything other than independent and distinct entities" that contracted to participate in a construction project. <i>See id.</i> Intertwined claims estoppel cannot arise solely from this working relationship. <i>See id.</i>; <i>see also </i><a href="https://scholar.google.co.uk/scholar_case?case=11783117848632649238&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Merrill Lynch Investment Managers,</i> 337 F.3d at 131</a>; <a href="https://scholar.google.co.uk/scholar_case?case=14238257683202276384&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Merrill Lynch Trust Co. FSB,</i> 235 S.W.3d at 193</a>. Because the parties are "merely independent participants in a business transaction," intertwined claims estoppel does not authorize a single arbitration proceeding involving all parties and all claims. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=11783117848632649238&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Merrill Lynch Inv. Managers,</i> 337 F.3d at 131</a>; <a href="https://scholar.google.co.uk/scholar_case?case=2982868234861987077&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Jody James Farms, JV,</i> 547 S.W.3d at 639</a>; <a href="https://scholar.google.co.uk/scholar_case?case=14238257683202276384&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Merrill</i> <i>Lynch Trust Co. FSB,</i> 235 S.W.3d at 193</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
C. Public Policy</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Refractory Construction asserts that an arbitration between Orascom and Crawford without Refractory Construction's participation would permit its "rights to be adjudicated in its absence" and would leave Refractory Construction "with effectively no remedy."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Although arbitration is favored under public policy, it also is a creature of contract and "cannot be ordered in the absence of an agreement to arbitrate." <a href="https://scholar.google.co.uk/scholar_case?case=747721896711676838&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Cedillo v. Immobiliere Jeuness Establissement,</i> 476 S.W.3d 557, 564 (Tex. App.-Houston [14th Dist.] 2015, pet. denied)</a>; <i>see also </i><a href="https://scholar.google.co.uk/scholar_case?case=1645960464688258299&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Kellogg Brown & Root, Inc.,</i> 166 S.W.3d at 738</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Here, the subcontract mandates a bilateral Orascom-Crawford arbitration proceeding. Neither the subcontract nor the sub-subcontract permits Refractory Construction to override this mandate in favor of a single arbitration proceeding involving all parties and all claims. Refractory Construction's estoppel arguments also do not provide a basis to compel a consolidated arbitration proceeding. Standing alone, Refractory Construction's policy arguments do not support denying a bilateral Orascom-Crawford arbitration under the subcontract in favor of a single proceeding involving all parties and all claims. <i>See </i><a href="https://scholar.google.co.uk/scholar_case?case=1645960464688258299&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Kellogg Brown & Root, Inc.,</i> 166 S.W.3d at 738</a>; <a href="https://scholar.google.co.uk/scholar_case?case=747721896711676838&q=+14-17-00503-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Cedillo,</i> 476 S.W.3d at 564</a>. We reject Refractory Construction's public policy arguments.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
CONCLUSION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In their notice of appeal and before this court, Orascom and Natgasoline assert that appellate jurisdiction exists here because this proceeding is (1) an appeal from a final judgment; or (2) a statutorily authorized interlocutory appeal; or (3) a mandamus proceeding. We conclude that we have jurisdiction to consider Orascom's interlocutory appeal and lack appellate jurisdiction over Natgasoline's appeal.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Considering the merits of Orascom's authorized interlocutory appeal, we conclude that the trial court erred in denying Orascom's motion to compel a bilateral Orascom-Crawford arbitration under the subcontract, and in ordering instead a single arbitration proceeding involving all parties and all claims. We reverse the trial court's May 24, 2017 and June 6, 2018 orders and remand for further proceedings consistent with this opinion.</div>
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 11px;"></small><br />
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.co.uk/scholar_case?case=12450403650817185307&q=+14-17-00503-CV&hl=en&scisbd=2&as_sdt=4,44#r[1]" name="[1]" style="color: #660099; text-decoration: underline;">[1]</a> The subcontract's "Multi-Party Proceeding" provision grants limited discretion to involve other parties in an arbitration proceeding, but this discretion is vested solely in Orascom and extends only to disputes between Orascom and Natgasoline. Orascom and Natgasoline do not assert any claims against each other in the underlying proceeding. Therefore, this provision does not authorize Refractory Construction to join an arbitration between Orascom and Crawford.</div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-53873321071969365862018-12-04T22:29:00.000-08:002019-02-22T11:15:04.969-08:00Fifth Circuit finds right to arbitration waived where adjudication on the merits had already been sought in court and had succeeded in part - Forby vs. One Technologies, L.P., No. 17-10883 (5th Cir. Nov. 28, 2018)<div style="text-align: center;">
<span style="text-align: left;">Company sought to divert DTPA case against it to arbitration when court wouldn't dismiss it in its entirety. </span><br />
<br />
<b><span style="color: red; font-size: large;">NO FULL-THROATED SECOND BITE AT THE APPLE </span></b><br />
<b><span style="color: red; font-size: large;">IN ARBITRATION</span></b><br />
<br />
<div style="text-align: left;">
Appellate cases finding that a party has waived the right to arbitration through its litigation conduct are exceedingly rare. On Nov. 28, 2018, however, the Fifth Circuit determined that such a waiver had occurred, and reversed the district court’s grant of a motion to compel, which will have the effect of the case having to be tried in court, if it is not settled on remand.<span style="text-align: center;"> </span><a href="http://www.ca5.uscourts.gov/opinions/pub/17/17-10883-CV0.pdf" style="text-align: center;">Forby vs. One Technologies, L.P.</a><span style="text-align: center;">, No. 17-10883 (5th Cir. Nov. 28, 2018). The case involves a claim of deceptive trade practices predicated on representations made on the company's website. </span></div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
In reversing the order to compel arbitration, the Fifth Circuit and the district court parted ways on the second element of the waiver test; -- whether there was prejudice to the opposing party. The court below had concluded that the prejudice was not severe enough, but the reviewing court reached the contrary conclusion, holding that the party moving for arbitration should not get a second bite at the apple, having already sought relief on the merits in court, and having been successful in part. </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
The first prong of the waiver test -- substantial invocation of the judicial process -- was clearly satisfied. Prior to seeking a decision on the merits, One Technologies had obtained a case transfer to Texas for the express purpose of having the arbitration take place in Texas. This was based on the argument that the court in which the case against it had been filed (SD of Illinois) was not the proper forum because it could not order an arbitration to take place outside its own district. Once the case was in the Texas federal court, however, One Technologies did not promptly move to compel arbitration, but sought a dismissal on the merits instead. Only when it did not receive all of the relief it sought in court, did it invoke the arbitration clause. </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
The Fifth Circuit acknowledged that delay alone was not dispositive of the waiver issue, but concluded that One Tech “demonstrated a desire to resolve the dispute in litigation rather than arbitration” by pursuing and partially obtaining a dismissal of the Plaintiff’s claims against it with prejudice. Distinguishing the case from those in which no merits ruling was sought, or where a motion to compel was filed in the alternative, the higher court agreed with the district court that One Tech had substantially invoked the judicial process. But it disagreed with the district court on the prejudice prong of the waiver test, and reversed the order to compel arbitration entered by the trial court. </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
<b><span style="color: red;">SECOND BITE AT THE ARBITRATION APPLE WITH A TWIST </span></b></div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
The procedural facts in the case presented an interesting variation on the second-bite-at-the-apple argument. </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
The standard version is well known: A litigant should not be allowed to first try to win in litigation, and then only turn to arbitration if the results are not favorable. Here, the results were partially favorable (partial dismissal on one cause of action). So this case differs from others in that One Tech did not merely <i>attempt</i> to obtain a favorable result in litigation and failed. Much rather, it scored a partial win. But it also did not succeed in part. (If it had, the case would be over and the Fifth Circuit might have seen an appeal on the merits). </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
In essence, the company was able to test its defenses to the action against it in court and – as the opinion puts it – “check the district court’s temperature” on a critical issue. </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Unlike the district court below, the Fifth Circuit panel found that the Plaintiff’s legal position was damaged as a result of One Tech’s conduct. </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
The higher court pointed out that the partial denial of One Tech’s motion to dismiss did not resolve the critical issue, and that therefore it would have to be “relitigated” in a different forum upon the grant of the motion to compel after the district court had not already reviewed the merits of the arguments for dismissal of the Plaintiff’s claims on the merits. Relitigating an issue, of course, implicates additional burdens and costs that would not be incurred otherwise. </div>
<blockquote class="tr_bq" style="text-align: left;">
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">When a party will have to re-litigate in the arbitration forum an issue already decided by the district court in its favor, that party is prejudiced. Nicholas, 565 F.3d at 911; see also Petroleum Pipe, 575 F.3d at 482 (citing Kramer v. Hammond, 943 F.2d 176, 179 (2d Cir. 1991) ("Prejudice can be substantive, such as when a party loses a motion on the merits and then attempts, in effect, to relitigate the issue by invoking arbitration."). </span></blockquote>
<div style="text-align: left;">
The bottom line: A party should not get to learn that the district court is not receptive to its arguments and then be allowed a “second bite at the apple through arbitration.” </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
The Fifth Circuit's opinion was written by U.S. District Judge Al Bennett, sitting by assignment. Bennett had previously served as a state district court judge in Harris County (Houston). </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
<b><span style="color: red;">ARB-WAIVER-BY-LITIGATION COMPLAINT ALSO PENDING IN THE TEXAS SUPREME COURT</span></b> </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
A case involving similar facts is currently pending in the Texas Supreme Court on a mandamus petition. See IN RE VANTAGE DRILLING INTERNATIONAL, VANTAGE DEEPWATER DRILLING, INC., AND VANTAGE ENERGY SERVICES, INC. (<a href="http://www.search.txcourts.gov/Case.aspx?cn=18-0626&coa=cossup">In re Vantage Tex. 2019</a>) Tex. <a href="http://www.search.txcourts.gov/Case.aspx?cn=18-0626&coa=cossup">No. 18-0626</a> (<a href="http://www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=ec6781ef-514f-40c8-bd7a-32a25ee1a302&coa=cossup&DT=BRIEFING/MERITS%20REQ.&MediaID=9aec6c46-2637-419c-85ef-408f231c3946">briefing on the merits requested</a> 11/16/2018). </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
In the <i>Vantage</i> case, a law firm had moved to compel arbitration to get a fee dispute with clients transferred out of a state district court in Houston only after a significant amount of discovery had already taken place, and after the trial judge had made some comments from the bench expressing doubts about the soundness of its legal position. </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Unlike the scenario in <a href="https://scholar.google.com/scholar_case?case=2603981242676387268&hl=en&as_sdt=6,44">Forby v. One Tech</a>, however, the district judge had not yet made a ruling on the merits of the parties’ claims (a ruling on a motion for summary judgment was potentially forthcoming) and the interpretation of the judge’s comments in open court was subject to different interpretations. As in Forby v. One Tech, the state district court judge granted the motion to compel arbitration, but did not dismiss the case, leaving the parties that had been ordered to arbitration only mandamus as a remedy to challenge the order. An interlocutory appeal would have been available from an order <i>denying</i> a motion to compel, not not from one <i>granting</i> it. </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Opinion of the Houston Court of Appeals: <a href="https://scholar.google.com/scholar_case?case=13515705188835908233&q=%22in+re+vantage%22&hl=en&as_sdt=4,44">In re Vantage</a>, No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=01-17-00592-CV&coa=coa01">01-17-00592-CV</a>, 555 S.W.3d 629 (Tex.App.- Houston [1st Dist.] June 5, 2018) (denying mandamus relief denied based on availability of adequate remedy from final judgment, with one justice dissenting). <br />
<br /></div>
<div style="text-align: left;">
Trial Court: Cause No. 2016-27737; Martinez Partners, LLP v. Offshore Group Investment Limited d/b/a Vantage Drilling International, Vantage Deepwater Drilling, Inc., and Vantage Energy Services, Inc.; In the 133rd District Court of Harris County, Texas; Hon. Jaclanel McFarland presiding.</div>
<div>
<br /></div>
</div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://2.bp.blogspot.com/-beIKuyC9Y6A/XAdx-T3O0QI/AAAAAAAAOgU/Af-2cNdve9k2yHEIz2kUAlggb39Ue8myACLcBGAs/s1600/2018-11-28%2BFifth%2BCircuit%2Barbitration%2Bwaiver%2Bby%2Blitigation%2Bconduct%2Bopinion.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt=" Forby vs. One Technologies, L.P., No. 17-10883 (5th Cir. Nov. 28, 2018)" border="0" data-original-height="936" data-original-width="1149" height="325" src="https://2.bp.blogspot.com/-beIKuyC9Y6A/XAdx-T3O0QI/AAAAAAAAOgU/Af-2cNdve9k2yHEIz2kUAlggb39Ue8myACLcBGAs/s400/2018-11-28%2BFifth%2BCircuit%2Barbitration%2Bwaiver%2Bby%2Blitigation%2Bconduct%2Bopinion.JPG" title=" Forby vs. One Technologies, L.P., No. 17-10883 (5th Cir. Nov. 28, 2018)" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"> <a href="http://www.ca5.uscourts.gov/opinions/pub/17/17-10883-CV0.pdf" style="font-size: medium;">Forby vs. One Technologies, L.P.</a><span style="font-size: small;">, No. 17-10883 (5th Cir. Nov. 28, 2018)</span></td></tr>
</tbody></table>
<blockquote class="tr_bq">
The district court's determination that One Tech did not waive its right to arbitration was in error. We hold that One Tech substantially invoked the judicial process and that Forby was prejudiced thereby. Accordingly, the order of the district court finding Forby had not suffered enough prejudice to establish waiver is REVERSED. The district court's order granting One Tech's motion to compel arbitration is VACATED. The case is hereby REMANDED to the district court for further proceedings consistent with this opinion.</blockquote>
<center style="background-color: white; font-family: arial, sans-serif; font-size: 14px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
<span style="color: #cc0000;">
VICKIE FORBY, individually and on behalf of all others similarly situated in Illinois, Plaintiff-Appellant,<br />v.<br />ONE TECHNOLOGIES, L.P., ONE TECHNOLOGIES MANAGEMENT, L.L.C.; ONE TECHNOLOGIES CAPITAL, L.L.P., Defendants-Appellees.</span></h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<a href="https://scholar.google.com/scholar?scidkt=17395185034401484862&as_sdt=2&hl=en" style="color: #660099;">No. 17-10883.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<div style="position: relative;">
<b>United States Court of Appeals, Fifth Circuit.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
Filed November 28, 2018.</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Appeal from the United States District Court for the Northern District of Texas.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Before: GRAVES and COSTA, Circuit Judges, and BENNETT, District Judge.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2603981242676387268&q=17-10883&hl=en&as_sdt=6,44#[1]" name="r[1]" style="color: #660099;">[*]</a></sup> .</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
ALFRED H. BENNETT, District Judge.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Plaintiff-Appellant Vicky Forby ("Forby") appeals the district court's grant of Defendant-Appellee One Technologies, L.P.'s ("One Tech") motion to compel arbitration. Forby contends that the district court erred in finding she was not prejudiced by One Tech's substantial invocation of the judicial process. For the reasons set forth below, we conclude that the district court erred when it found One Tech had not waived its right to arbitration because Forby had not demonstrated that she was prejudiced. Accordingly, we reverse the district court's judgment.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
I.</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On April 24, 2015, Forby filed a class action in Illinois state court that was later removed to the United States District Court for the Southern District of Illinois on July 14, 2015. Forby brought claims against One Tech for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA") and unjust enrichment under Illinois law. In the notice of removal, One Tech did not reference arbitration but rather argued that Forby's claims were baseless, and that no class should be certified. On July 21, 2015, One Tech filed a motion to dismiss for failure to state a claim and, in the alternative, moved to transfer the case for forum non conveniens, arguing that Forby's claims were subject to arbitration in Texas and that an Illinois district court could not compel arbitration outside of the confines of its district. On September 4, 2015, One Tech filed an opposed motion to stay discovery until the Illinois district court ruled on the motion to dismiss. On March 25, 2016, the Illinois district court issued a Memorandum and Order transferring the case to the Northern District of Texas.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
After the case was transferred, One Tech retained new counsel, who filed an unopposed extension of time to answer the complaint to "investigate [Forby's] claims and prepare an appropriate response." On May 9, 2016, One Tech filed a 12(b)(6) motion to dismiss, asking the Texas district court to dismiss all of Forby's claims with prejudice. The motion to dismiss did not mention arbitration. Forby filed her response to One Tech's motion to dismiss. In its reply to Forby's response, One Tech once again did not mention compelling arbitration. On March 31, 2017, the district court denied the motion to dismiss with respect to Forby's ICFA claim concerning the deceptiveness of One Tech's website and granted the motion as to the unjust enrichment claim—dismissing that claim with prejudice.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On April 17, 2017, four days after attending a Rule 26(f) conference and receiving Forby's requests for production, One Tech finally filed its motion to compel arbitration. Additionally, that same day, One Tech filed an expedited motion to stay all discovery pending the resolution of the motion to compel. On April 24, 2017, the district court conducted a hearing and granted the motion to stay.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On July 7, 2017, the district court issued an order granting One Tech's motion to compel arbitration and dismissed the case with prejudice. The district court found that One Tech had substantially invoked the judicial process but that Forby had not suffered prejudice. Specifically, the district court stated that Forby had "suffered some prejudice" but not to "the extent required by existing precedent in the," concluding that "the only prejudice that Forby has adequately demonstrated is delay, and delay alone is insufficient . . . ." Forby now appeals the decision of the district court.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
II.</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We review the district court's determination of a motion to compel arbitration de novo, but review any factual findings underlying that determination for clear error. <a href="https://scholar.google.com/scholar_case?case=1111150985568762780&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Janvey v. Alguire,</i> 847 F.3d 231, 240 (5th Cir. 2017)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
III.</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
"Although waiver of arbitration is a disfavored finding," the right to arbitrate—like all contract rights—is subject to waiver. <a href="https://scholar.google.com/scholar_case?case=17783150183982943149&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Nicholas v. KBR, Inc.,</i> 565 F.3d 904, 907 (5th Cir. 2009)</a>. "[A] party waives its right to arbitrate if it (1) `substantially invokes the judicial process' and (2) thereby causes `detriment or prejudice' to the other party." <a href="https://scholar.google.com/scholar_case?case=11178317105542937464&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Al Rushaid v. Nat'l Oilwell Varco, Inc.,</i> 757 F.3d 416, 421 (5th Cir. 2014)</a> (quoting <a href="https://scholar.google.com/scholar_case?case=6931878422019040640&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Miller Brewing Co. v. Fort Worth Distrib. Co.,</i> 781 F.2d 494, 497 (5th Cir.1986)</a>).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
A.</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We first examine whether One Tech substantially invoked the judicial process. To invoke the judicial process, a party "must, at the very least, engage in some overt act in court that evinces a desire to resolve the arbitrable dispute through litigation rather than arbitration." <a href="https://scholar.google.com/scholar_case?case=11746746670911745657&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>In Re Mirant,</i> 613 F.3d 584, 589 (5th Cir. 2010)</a> (quoting <a href="https://scholar.google.com/scholar_case?case=6305900805080878085&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Subway Equip. Leasing Corp. v. Forte,</i> 169 F.3d 324, 326 (5th Cir. 1999)</a>). "A party waives arbitration by seeking a decision on the merits before attempting to arbitrate." <i>Id.</i> (quoting <a href="https://scholar.google.com/scholar_case?case=18218288272716983892&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Petroleum Pipe Ams. Corp. v. Jindal Saw, Ltd.,</i> 575 F.3d 476, 480 (5th Cir. 2009)</a>). </div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
"A dismissal with prejudice for failure to state a claim is a decision on the merits and essentially ends the plaintiff's lawsuit." <i>Id.</i> (quoting <a href="https://scholar.google.com/scholar_case?case=11830488575125912289&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Mahone v. Addicks Util. Dist. of Harris County,</i> 836 F.2d 921, 940 (5th Cir. 1988)</a>).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
One Tech was fully aware of its right to compel arbitration when it filed its 12(b)(6) motion to dismiss. After all, it presented the right to arbitration as the reason it sought to transfer the case from Illinois to Texas. However, once in Texas, One Tech did not move to compel arbitration even in the alternative to its motion to dismiss. Rather, it pursued and partially obtained a dismissal with prejudice of Forby's claims. One Tech's action of moving to dismiss Forby's claims with no mention of compelling arbitration demonstrated a desire to resolve the dispute in litigation rather than arbitration.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The cases One Tech cites in which courts found no invocation of the judicial process are distinguishable from its full-throated attempt to win this case on the merits in federal court. Some of those cases found that the party seeking arbitration did not invoke the judicial process because its motion to dismiss was filed concurrently with a motion to seek arbitration. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=14106137300660640682&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Keytrade USA, Inc. v. Ain Temouchent M/V,</i> 404 F.3d 891, 897 (5th Cir. 2005)</a> (motion for summary judgment filed concurrently with motion to compel arbitration). In others, the party seeking arbitration did not wait for the court's merit ruling—and thus get a sense of the court's view of the case—before moving to compel arbitration. <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=11420871578129617958&q=17-10883&hl=en&as_sdt=6,44" style="border-bottom: 1px dotted rgb(102, 0, 153); color: #660099; text-decoration-line: none;"><i>Pacheco v. PCM Const. Servs., L.L.C.,</i> 602 F. App'x 945, 948 (5th Cir. 2015)</a> (motions to dismiss dealt with narrow ancillary issues and had not been ruled on when the motion to compel arbitration had been filed.). Even further afield are cases in which the party seeking arbitration never sought a merits ruling in court but only delayed or raised procedural concerns. <i>See </i><a href="https://scholar.google.com/scholar_case?case=17634992520821500044&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Gulf Guar. Life Ins. Co. v. Conn. Gen. Life Ins. Co.,</i> 304 F.3d 476, 485 (5th Cir. 2002)</a>; <a href="https://scholar.google.com/scholar_case?case=4685006306012275413&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Co.,</i> 767 F.2d 1140 (5th Cir. 1985)</a>. In contrast, One Tech sought a full dismissal on the merits—prejudice attaches to a Rule 12(b)(6) dismissal. Its conduct thus fits squarely within our caselaw recognizing that the judicial process is invoked when a party "seek[s] a decision on the merits before attempting to arbitrate." <a href="https://scholar.google.com/scholar_case?case=18218288272716983892&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Petroleum Pipe,</i> 575 F.3d at 480</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=11746746670911745657&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Mirant,</i> 613 F.3d at 589</a>. Accordingly, the district court was correct in finding One Tech substantially invoked the judicial process.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
B.</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
"In addition to invocation of the judicial process, the party opposing arbitration must demonstrate prejudice before we will find a waiver of the right to arbitrate." <a href="https://scholar.google.com/scholar_case?case=17783150183982943149&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Nicholas,</i> 565 F.3d at 910</a>. Prejudice "refers to the inherent unfairness in terms of delay, expense, or damage to a party's legal position that occurs when the party's opponent forces it to litigate an issue and later seeks to arbitrate that same issue." <a href="https://scholar.google.com/scholar_case?case=344091242446980960&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Republic Ins. Co. v. PAICO Receivables, L.L.C.,</i> 383 F.3d 341, 346 (5th Cir. 2004)</a> (quoting <a href="https://scholar.google.com/scholar_case?case=6305900805080878085&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Subway Equip.,</i> 169 F.3d at 327</a>)). It is true that delay in asserting the right to arbitrate alone will not result in waiver. <a href="https://scholar.google.com/scholar_case?case=17783150183982943149&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Nicholas,</i> 565 F.3d at 910</a> (citing <a href="https://scholar.google.com/scholar_case?case=17634992520821500044&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Gulf Guar. Life Ins. Co. v. Conn. Gen. Life Ins. Co.,</i> 304 F.3d 476, 484 (5th Cir. 2002)</a>). However, "such [a] delay `does bear on the question of prejudice, and may, along with other considerations, require a court to conclude that waiver has occurred.'" <i>Id.</i> (quoting <a href="https://scholar.google.com/scholar_case?case=344091242446980960&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Republic Ins.,</i> 383 F.3d at 346</a> (citation omitted)). When a party fails to demand arbitration and engages in activity inconsistent with the intent to arbitrate, the party later opposing a motion to compel may more easily show that its position has been prejudiced. <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<i><br /></i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
One Tech received a transfer to Texas for the sole purpose of compelling arbitration but waited thirteen months before moving to compel arbitration while it attempted to obtain a dismissal with prejudice from the district court. The district court correctly concluded that Forby experienced prejudice from One Tech's delay in invoking arbitration. "A party cannot keep its right to demand arbitration in reserve indefinitely while it pursues a decision on the merits before the district court." <a href="https://scholar.google.com/scholar_case?case=11746746670911745657&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Mirant,</i> 613 F.3d at 591</a>. However, the district court failed to find prejudice for damage to Forby's legal position or from additional expenses incurred litigating her case in the district court.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2603981242676387268&q=17-10883&hl=en&as_sdt=6,44#[2]" name="r[2]" style="color: #660099;">[1]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The district court erred in concluding that Forby failed to establish prejudice to her legal position. When a party will have to re-litigate in the arbitration forum an issue already decided by the district court in its favor, that party is prejudiced. <a href="https://scholar.google.com/scholar_case?case=17783150183982943149&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Nicholas,</i> 565 F.3d at 911</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=18218288272716983892&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Petroleum Pipe,</i> 575 F.3d at 482</a> (citing <a href="https://scholar.google.com/scholar_case?case=8204967948138949147&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Kramer v. Hammond,</i> 943 F.2d 176, 179 (2d Cir. 1991)</a> ("Prejudice can be substantive, such as when a party loses a motion on the merits and then attempts, in effect, to relitigate the issue by invoking arbitration."). A party does not get to learn that the district court is not receptive to its arguments and then be allowed "a second bite at the apple through arbitration." <a href="https://scholar.google.com/scholar_case?case=18218288272716983892&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099;"><i>Petroleum Pipe,</i> 575 F.3d at 482</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
One Tech's motion to dismiss included the attachment of declarations and exhibits detailing One Tech's website and went directly to the merits of Forby's ICFA claim. Specifically, the motion requested that the district court find the disclosures present on One Tech's website meant that the website was not deceptive as a matter of law. The district court was not receptive to One Tech's argument and declined to find that the website was not deceptive as a matter of law. To be sure, the Rule 12 ruling did not finally resolve whether the website was deceptive. However, it was not a motion seeking dismissal because of a technical pleading deficiency—it asked the court to look at the key question the case presents concerning adequacy of the website disclosures. If this case were to proceed to arbitration, Forby would have to re-litigate whether One Tech's website was deceptive in front of an arbitrator after One Tech already tested its arguments with a district court judge. Furthermore, One Tech's agreement not to seek a Rule 12 dismissal in the arbitration would not eliminate the prejudice from withdrawing this dispute from the court where its attempt at early dismissal failed. One Tech was able to check the district court's temperature on the disclosure issue. It should not now be able to move the case to a forum that might prove more favorable. Therefore, we find that Forby's legal position was damaged by One Tech's delay in moving to compel arbitration. Accordingly, the district court erred in finding Forby was not prejudiced.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
IV.</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
For the foregoing reasons, the district court's determination that One Tech did not waive its right to arbitration was in error. We hold that One Tech substantially invoked the judicial process and that Forby was prejudiced thereby. Accordingly, the order of the district court finding Forby had not suffered enough prejudice to establish waiver is REVERSED. The district court's order granting One Tech's motion to compel arbitration is VACATED. The case is hereby REMANDED to the district court for further proceedings consistent with this opinion.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2603981242676387268&q=17-10883&hl=en&as_sdt=6,44#r[1]" name="[1]" style="color: #660099;">[*]</a> District Judge for the Southern District of Texas, sitting by designation.</div>
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 11px;"></small><br />
<div style="position: relative;">
<span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2603981242676387268&q=17-10883&hl=en&as_sdt=6,44#r[2]" name="[2]" style="color: #660099; text-decoration: underline;">[1]</a> The district court concluded that it could not determine whether Forby incurred significant legal expenses because she did not "state the costs she incurred while responding to" One Tech's motion to dismiss. This Court does not require a party to put on specific "evidence in terms of dollars and cents of its litigation costs" to determine that the party suffered an increase in legal expenses. <a href="https://scholar.google.com/scholar_case?case=17783150183982943149&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099; text-decoration: underline;"><i>Nicholas,</i> 565 F.3d at 910</a>. Whether a party suffered an increase in legal expenses due to a delay in the invocation of arbitration can be discerned from the litigation activities the parties engaged in prior to the motion to compel arbitration. <i>Id.</i>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=1111150985568762780&q=17-10883&hl=en&as_sdt=6,44" style="color: #660099; text-decoration: underline;"><i>Janvey v. Alguire,</i>847 F.3d 231, 244 (5th Cir. 2017)</a>. However, with no factual finding concerning Forby's legal expenses, the Court cannot say that the district court clearly erred on this point.</span><br />
<br />
<center style="background-color: white; font-family: Arial, sans-serif; font-size: 15px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
<span style="color: #cc0000;">IN RE VANTAGE DRILLING INTERNATIONAL, VANTAGE DEEPWATER DRILLING, INC., AND VANTAGE ENERGY SERVICES, INC., Relators.</span></h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<a href="https://scholar.google.com/scholar?scidkt=7897383983443472078&as_sdt=2&hl=en" style="color: #660099;">No. 01-17-00592-CV.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<div style="position: relative;">
<b>Court of Appeals of Texas, First District, Houston.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
Opinion issued June 5, 2018. </center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Robert Arthur, Whitney Rawlinson, Christopher Paul Hanslik, for Vantage Drilling International, Vantage Deepwater Drilling, Inc., and Vantage Energy Services, Inc., Relator.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Christian `Chris' P. Di Ferrante, for Martinez Partners, LLP, Real party in interest.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Original Proceeding on Petition for Writ of Mandamus.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Panel consists of Justices Keyes, Brown, and Lloyd.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
OPINION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
RUSSELL LLOYD, Justice.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Vantage Drilling International and its affiliates (collectively, "Vantage") petition for a writ of mandamus directing the trial court<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=13515705188835908233&q=%22in+re+vantage%22&hl=en&as_sdt=4,44#[1]" name="r[1]" style="color: #660099;">[1]</a></sup> to vacate its order compelling arbitration of all claims currently asserted between them and Martinez Partners, LLP. Vantage asserts that the trial court clearly abused its discretion in compelling arbitration because (1) Martinez Partners waived arbitration and (2) a final appeal would be inadequate to review the alleged waiver. Because Vantage has not shown the inadequacy of a final appeal, we deny the petition.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Background</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Martinez Partners, a law firm, represented Vantage in a Foreign Corrupt Practices Act investigation and related matters, but the engagement was terminated, and Vantage hired a new law firm. Vantage did not pay some of Martinez Partners' legal fees, so Martinez Partners sued Vantage on a sworn account. The parties' engagement agreements contain arbitration clauses.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Martinez Partners filed its suit in Harris County district court. Vantage answered and counterclaimed for breach of contract, breach of fiduciary duty, and money had and received. Vantage's counterclaims were partially based on an allegation of improper mark-ups. Martinez Partners had engaged a document-review vendor to assist in the representation. According to Vantage, Martinez Partners paid the vendor at fixed hourly rates for the vendor's attorney document reviewers and then passed those costs through to Vantage at higher hourly rates without disclosing to Vantage that the attorney document reviewers were not Martinez Partners employees.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The parties litigated for eleven months, including extensive document discovery into the lawsuit's merits. Nine months into the lawsuit, during a hearing on a discovery motion, Vantage's allegation that Martinez Partners failed to disclose that the document reviewers were not Martinez Partners employees was referred to. The trial court commented to Martinez Partners' counsel, "that will be real interesting at trial because in that case, I think you may have a problem. . . . That's going to be interesting if y'all try it, an interesting issue." Vantage soon thereafter filed a motion for partial summary judgment on its cause of action for breach of fiduciary duty.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In month eleven of the lawsuit, Martinez Partners filed a motion to compel arbitration. Vantage responded, arguing that Martinez Partners had waived arbitration either explicitly, in comments its attorney made to the trial court, or impliedly, by substantially invoking the litigation process instead of seeking to initiate arbitration. The engagement letters signed by both parties establish that the Federal Arbitration Act ("FAA") governs the arbitration clauses.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The trial court ordered the parties to arbitrate all claims asserted in the lawsuit and stayed the lawsuit pending the arbitration's outcome. Vantage petitioned for mandamus, and Martinez Partners responded.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Final Appeal is Adequate for Reviewing Vantage's Waiver Argument</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Vantage contends that an appeal after a final judgment is inadequate to review its assertion that Martinez Partners waived arbitration. The dissent agrees with the position that arbitration was waived. However, we do not address the waiver argument because Vantage has an adequate remedy by appeal.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
I. Standard of Review and Applicable Law</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>A. Mandamus standard and adequacy of final appeal</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
A petitioner must meet both prongs of a two-part test in order to be entitled to mandamus: "To be entitled to mandamus, a petitioner must show that the trial court clearly abused its discretion and that the relator has no adequate remedy by appeal." <a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl., LLC,</i> 289 S.W.3d 836, 842 (Tex. 2009)</a> (orig. proceeding) (internal quotation omitted). Mandamus issues "to preserve important substantive and procedural rights from impairment or loss, [and] allow[s] the appellate courts to give needed and helpful direction to the law that would otherwise prove elusive in appeals from final judgments." <i>See id.</i> at 843 (first alteration in original; second added).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
"In the context of orders compelling arbitration, even if a petitioner can meet the first requirement, mandamus is generally unavailable because it can rarely meet the second." <i>Id.</i> at 842. "There is no definitive list of when an appeal will be `adequate,' as it depends on a careful balance of the case-specific benefits and detriments of delaying or interrupting a particular proceeding." <i>Id.; see also </i><a href="https://scholar.google.com/scholar_case?case=14210218039352819850&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re</i><i>McAllen Med. Ctr., Inc.,</i> 275 S.W.3d 458, 464 (Tex. 2008)</a> (orig. proceeding) ("Whether a clear abuse of discretion can be adequately remedied by appeal depends on a careful analysis of costs and benefits of interlocutory review"). Neither the FAA nor the Texas General Arbitration Act ("TGAA") encourage immediate review of orders compelling arbitration. As a direct result, "any balancing must tilt strongly against mandamus review." <a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i> 289 S.W.3d at 842</a>. "[T]he balance will generally tilt toward reviewing orders compelling arbitration only on final appeal." <i>Id.</i> at 843.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The required balancing tilts heavily against granting mandamus even if requiring the parties to wait for a final appeal results in wasted time and money: "Of course, if an order compelling arbitration is wrong, the parties may waste time and money in arbitration. But standing alone, delay and expense generally do not render a final appeal inadequate." <i>Id.</i> at 842.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
If an order compelling arbitration is found to have been error, the attorneys' fees spent on the arbitration are generally recoverable because arbitration generally involves prosecuting contract claims: "[A]rbitration clauses are usually contractual and cover contractual claims. A party that prevails on a contractual claim can recover its fees and expenses, even if they were incurred in collateral proceedings like arbitration." <i>Id.</i> at 842-43.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>B. Mandamus review under the FAA and TGAA</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
When the FAA applies to an arbitration clause, Texas courts must align appellate review under Texas procedure as consistently as possible with appellate review under federal procedure. <a href="https://scholar.google.com/scholar_case?case=11167907300663469399&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Poly-America, L.P.,</i> 262 S.W.3d 337, 345 (Tex. 2008)</a> (orig. proceeding). "Although mandamus review is generally available in federal courts to review non-appealable interlocutory rulings, mandamus is granted only in exceptional cases." <i>Id.; see also </i><a href="https://scholar.google.com/scholar_case?case=10543844785710340943&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Palacios,</i> 221 S.W.3d 564, 565 (Tex. 2006)</a> (orig. proceeding) (per curiam).<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
If a trial court compels arbitration and dismisses the underlying lawsuit, under both federal and Texas procedure, a party generally may seek review of the order compelling arbitration by directly appealing the final judgment of dismissal. <i>See </i><a href="https://scholar.google.com/scholar_case?case=10543844785710340943&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Palacios,</i> 221 S.W.3d at 565</a>. However, if the trial court compels arbitration and stays the underlying lawsuit, interlocutory relief through mandamus is generally unavailable, and a petitioner for mandamus must meet a "particularly heavy" burden. <i>See id.; </i><a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i> 289 S.W.3d at 842-43</a> (describing strong "tilt" against mandamus review of orders compelling arbitration).<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Interlocutory appeals of orders compelling arbitration are disfavored under both the FAA and the TGAA. The FAA expressly forbids them. 9 U.S.C. § 16(b)(2), (3) (2016). Texas law impliedly forbids them because the TGAA expressly allows interlocutory appeals of orders denying arbitration with no similar allowance for orders compelling arbitration and because the above-referenced provision of the FAA is expressly incorporated into Texas law. <i>See</i> TEX. CIV. PRAC. & REM. CODE ANN. §§ 51.016 (West 2015) (permitting interlocutory appeals of arbitration-related matters only to the extent they would be permitted by 9 U.S.C. § 16), 171.098(a)(1) (West 2011) (expressly permitting appeal of an order denying an application to compel arbitration); <a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry Homes v. Cull,</i> 258 S.W.3d 580, 586 & n.11 (Tex. 2008)</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The strong federal presumption in favor of arbitration extends to cases involving a litigant's alleged waiver of arbitration. The FAA "establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself <i>or an allegation of waiver,</i> delay, or a like defense to arbitrability." <a href="https://scholar.google.com/scholar_case?case=4974455257504383275&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.,</i> 460 U.S. 1, 24-25 (1983)</a> (emphasis added). The same preference for arbitration applies in waiver cases under the TGAA. <i>See </i><a href="https://scholar.google.com/scholar_case?case=11698987518088034653&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Ellis v. Schlimmer,</i> 337 S.W.3d 860, 862 (Tex. 2011) (per curiam)</a> ("Further, courts should resolve any doubts as to the agreement's scope, waiver, and other issues unrelated to its validity in favor of arbitration."); <a href="https://scholar.google.com/scholar_case?case=14387865354660895153&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Cantella & Co. v. Goodwin,</i> 924 S.W.2d 943, 944 (Tex. 1996) (per curiam)</a> ("Federal and state law strongly favor arbitration. . . . Once a party seeking to compel arbitration establishes that an agreement exists under the FAA, and that the claims raised are within the agreement's scope, the trial court has no discretion but to compel arbitration and stay its proceedings pending arbitration." (internal quotation omitted)).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>C. Reviewing orders compelling arbitration and reviewing orders denying arbitration involve different standards.</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The appellate standards for reviewing an order compelling arbitration are inherently different from those involved in interlocutory review of an order denying arbitration under either the FAA or the TGAA. The Supreme Court of Texas has recognized this dissimilarity: "[T]he FAA generally permits immediate appeal of orders hostile to arbitration . . . but bars appeal of interlocutory orders favorable to arbitration. . . . [M]ost states (including Texas) have adopted the Uniform Arbitration Act, which like the FAA authorizes immediate appeal only from orders denying arbitration." <a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i> 289 S.W.3d at 839</a> (internal quotation omitted); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=10543844785710340943&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Palacios,</i> 221 S.W.3d at 566</a> ("We recognize there is some one-sidedness in reviewing only orders that deny arbitration, but not orders that compel it. Yet both the Federal and Texas acts leave little uncertainty that this is precisely what the respective legislatures intended.") (citing 9 U.S.C. § 16; TEX. CIV. PRAC. & REM. CODE § 171.098).<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
This dissimilarity is not an anomaly; it is a conscious choice. It is a result of the legislative preference for discouraging interlocutory review of orders compelling arbitration: "[The FAA's] ban on interlocutory appeals of orders compelling arbitration was added by Congress in 1988 to prevent arbitration from bogging down in preliminary appeals. We have held that routine mandamus review of such orders in state court would frustrate this federal law." <a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry Homes,</i> 258 S.W.3d at 586</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The legislative preference for arbitration makes access to mandamus relief more difficult in part because arbitration is represented to be a lower-cost, faster alternative to jury trials: "Because arbitration is intended to provide a lower-cost, expedited means to resolve disputes, mandamus proceedings will often, if not always, deprive the parties of an arbitration agreement's intended benefits when a compel-and-stay order is at issue; accordingly, courts should be hesitant to intervene." <a href="https://scholar.google.com/scholar_case?case=11167907300663469399&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Poly-America,</i> 262 S.W.3d at 347</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Our Supreme Court imposed this heavy burden on parties seeking interlocutory review of orders compelling arbitration knowing full well that it could result in a waste of the parties' resources to require the parties to arbitrate and only later have the referral to arbitration reviewed by a court:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
We agree that post-arbitration review of referral may create . . . a huge waste of the parties' resources. But if review is available before arbitration, parties may also waste resources appealing every referral when a quick arbitration might settle the matter. Frequent pre-arbitration review would inevitably frustrate Congress's intent to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry Homes,</i> 258 S.W.3d at 587</a> (internal quotations omitted).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
With all this in mind, we turn to the balancing of case-specific benefits and detriments of interrupting or delaying this referral to arbitration. <i>See </i><a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i> 289 S.W.3d at 842</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
II. The case-specific benefits of interrupting or delaying this referral to arbitration do not outweigh the detriments.</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Vantage contends that the case-specific benefits of interrupting or delaying the referral of this case to arbitration demonstrate that it has no adequate remedy by appeal. Vantage contends that it will spend more time and money to arbitrate the case instead of continuing to litigate. It also contends that the time and money it has already spent in litigating would be wasted. Finally, it contends both that Martinez Partners should not be given its preference for arbitration because Martinez Partners' conduct is an impermissible tactical decision that prejudices Vantage and that the prejudice would be further compounded by waiting for a post-arbitration appeal.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>A. Avoiding further delay and expense</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
This purported benefit is, on its own, no benefit at all under our Supreme Court's precedents. It is well-established that avoiding further delay and expense that would occur without mandamus intervention is no basis on its own for holding that a final appeal would be inadequate. <i>See </i><a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i> 289 S.W.3d at 842</a>; <a href="https://scholar.google.com/scholar_case?case=2684937518633529515&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Frontera Generation L.P. v. Mission Pipeline Co.,</i> 400 S.W.3d 102, 114-15 (Tex. App.-Corpus Christi 2012, no pet.)</a> (denying mandamus because final appeal would be adequate in spite of alleged risk that power plant belonging to litigant would have to remain shut down during arbitration). This is true in the arbitration context even assuming the possibility of "a huge waste of the parties' resources." <i>See </i><a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry Homes,</i> 258 S.W.3d at 587</a>; <i>accord </i><a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i> 289 S.W.3d at 842</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
This purported benefit, then, does not advance Vantage's position.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>B. Time and money already spent would be wasted</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
This purported benefit has three problems.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
First, most, if not all, of the attorneys' fees Vantage has spent in the litigation may be recoverable. Vantage pleaded a claim for attorneys' fees. Attorneys' fees are not unrecoverable simply because the parties arbitrate the claim rather than litigating it. <i>See </i><a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i> 289 S.W.3d at 842-43</a> ("A party that prevails on a contractual claim can recover its fees and expenses, even if they were incurred in collateral proceedings like arbitration."). Vantage is suing on a contract and defending a contract suit, and its attorneys' fees incurred in pursuing that claim, or in pursuing or defending against sufficiently interrelated claims, may ultimately be recoverable. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=3994486142378722337&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Tony Gullo Motors I, L.P. v. Chapa,</i> 212 S.W.3d 299, 313-14 (Tex. 2006)</a>; <a href="https://scholar.google.com/scholar_case?case=6039150673471164010&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Brockie v. Webb,</i> 244 S.W.3d 905, 910 (Tex. App.-Dallas 2008, pet. denied)</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Second, Vantage contends that its time spent in paper discovery is now wasted because the parties must arbitrate. However, Vantage has not shown that it will not be able to benefit from this paper discovery in the arbitration. Any evidence discovered so far could be admissible in the arbitration hearing, and, thus, may very well have not been wasted. <i>See, e.g., Ellis v. Schlimmer,</i> No. 13-09-00426-CV, 2011 WL 3821969, at *3 (Tex. App.-Corpus Christi Aug. 24, 2011, no pet.) (mem. op.) ("The modicum of discovery accomplished related to the merits of the case and could therefore be useful in arbitration.").<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Third, Vantage relies in large part on <a href="https://scholar.google.com/scholar_case?case=6207522956368226204&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Prudential Insurance Co. of America,</i>148 S.W.3d 124 (Tex. 2004)</a> (orig. proceeding). In <i>In re Prudential Insurance,</i> the parties to a commercial lease litigated a dispute under the lease. Despite having agreed to waive the right to a jury trial for any dispute under the lease, the tenant nonetheless requested a jury trial. The landlord, Prudential, moved to quash the request for a jury trial, the trial court denied the motion, the Court of Appeals denied Prudential mandamus relief, and Prudential petitioned for mandamus in the Texas Supreme Court. The Supreme Court granted mandamus and directed the trial court to grant Prudential's motion to quash the jury-trial request, holding that Prudential lacked an adequate remedy by appeal. The Court held that the contractual waiver of jury trial that the tenant had agreed to could never be recovered if Prudential were made to litigate the dispute before a jury:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
In no real sense can the trial court's denial of Prudential's contractual right to have [tenant] waive a jury ever be rectified on appeal. If Prudential were to obtain judgment on a favorable jury verdict, it could not appeal, and its contractual right would be lost forever. If Prudential suffered judgment on an unfavorable verdict, Prudential could not obtain reversal for the incorrect denial of its contractual right "unless the court of appeals concludes that the error complained of . . . probably caused the rendition of an improper judgment". Even if Prudential could somehow obtain reversal based on the denial of its contractual right, it would already have lost a part of it by having been subject to the procedure it agreed to waive.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6207522956368226204&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Prudential Ins. Co.,</i> 148 S.W.3d at 138</a>. No analogous loss of contracted-for rights is at risk here. Indeed, Vantage agreed to arbitrate. Leaving the trial court's order compelling arbitration undisturbed enforces the parties' contracted-for arbitration rights.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The extreme cases that <i>In re Prudential Insurance</i> cited as demonstrating an inadequate remedy by appeal are distinguishable from this case. Generally, avoiding further expense and delay is, on its own, no basis for granting mandamus. An exception to that rule was identified in <i>In re Prudential Insurance.</i> It involved granting mandamus relief to protect a defendant from having to "defend[] the claims of more than 8,000 plaintiffs in litigation that would last for years." <i>Id.</i> at 136. There is no similar danger in Vantage's case. The court also noted that a grant of mandamus was necessary to correct a trial-court order that would "not only cost the carrier money but `radically skew[ed] the procedural dynamics of the case' by requiring the defendant to fund the plaintiff's prosecution of her claims." <i>Id.</i> (alteration in original). There is no risk of that in this case. The Court further noted that mandamus was necessary to correct a trial court, who "on its own motion and without any authority whatever, split two cases into sixteen and transferred venue of fourteen of them to other counties." <i>Id.</i> Mandamus was necessary there because of "the complete lack of authority for the trial court's order, and the impact on the legal system. We simply could not justify putting the civil justice system itself to the trouble of grinding through proceedings that were certain to be `little more than a fiction.'" <i>Id.</i> at 137. In contrast, the trial court here, instead of lacking authority to compel arbitration, was simply enforcing the parties' agreement to arbitrate. The only proceedings in the civil-justice system that Vantage can point to as being "little more than a fiction" is a potential future final appeal by Vantage in which Vantage invokes, and succeeds on, its objection to arbitration. The Supreme Court found this kind of relief to be adequate in <i>Perry Homes.</i> Vantage has not shown that its case is one of "those rare cases" where arbitration improperly compelled merits mandamus relief. <i>See </i><a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i> 289 S.W.3d at 843</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>C. Martinez Partners' impermissible tactical conduct</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Vantage also contends that overturning the trial court's order would avoid the inherent unfairness and prejudice caused by Martinez Partners' belated invocation of arbitration. Vantage contends that Martinez Partners was happy to litigate until the trial court made a comment that Vantage alleges could be interpreted as doubting the strength of Martinez Partners' case. Vantage points to no authority that litigating with such an alleged insight is to be valued above Congress's and the Texas Legislature's preference for arbitration as a vehicle for settling disputes. The judiciary's role among the other branches of government requires that we give deference to legislative priorities such as arbitration. <i>See </i><a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i> 289 S.W.3d at 842</a> ("[I]n balancing these matters, our place in a government of separated powers requires us to consider also the priorities of the other branches of Texas government. Legislative acts encouraging or discouraging interlocutory review must weigh heavily in the balance of benefits and detriments. Here, as both the federal and state arbitration acts pointedly exclude immediate review of orders compelling arbitration, any balancing must tilt strongly against mandamus review." (internal quotation omitted)). Intervening via mandamus does harm to those priorities.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Vantage asserts that its position is supported by <i>Perry Homes</i> and <a href="https://scholar.google.com/scholar_case?case=5518646668236894509&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Tuscan Builders, LP v. 1437 SH6 L.L.C.,</i> 438 S.W.3d 717 (Tex. App.-Houston [1st Dist.] 2014, pet. denied)</a>. <i>Perry Homes,</i> however, demonstrates just how high the bar for waiver is set.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=13515705188835908233&q=%22in+re+vantage%22&hl=en&as_sdt=4,44#[2]" name="r[2]" style="color: #660099;">[2]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<i>Tuscan Builders</i> was an interlocutory appeal from a denial of a motion to compel arbitration. <a href="https://scholar.google.com/scholar_case?case=5518646668236894509&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Tuscan Builders,</i> 438 S.W.3d at 718</a>. Appeal from a denial is specifically permitted and favored by both the FAA and the TGAA. Therefore, <i>Tuscan Builders</i> necessarily involved different appellate standards for review than does this case. Further, there was no analysis of the adequacy of final appeal in <i>Tuscan Builders.</i><sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=13515705188835908233&q=%22in+re+vantage%22&hl=en&as_sdt=4,44#[3]" name="r[3]" style="color: #660099;">[3]</a></sup> <i>Cf. </i><a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i> 289 S.W.3d at 839</a>; <a href="https://scholar.google.com/scholar_case?case=10543844785710340943&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Palacios,</i> 221 S.W.3d at 566</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Given the heavy tilt in favor of arbitration that stems from the legislative priorities expressed in the FAA, the TGAA, and cases applying them, it appears that the detriments of disrupting the arbitration outweigh any benefits. <i>See </i><a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i>289 S.W.3d at 842</a>. We resolve any doubts in favor of arbitration by declining to issue mandamus overruling the trial court's order compelling arbitration. <i>See </i><a href="https://scholar.google.com/scholar_case?case=4974455257504383275&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Moses H. Cone Mem'l Hosp.,</i> 460 U.S. at 24-25</a>; <a href="https://scholar.google.com/scholar_case?case=11698987518088034653&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Ellis,</i> 337 S.W.3d at 862</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
III. Vantage's remaining cases are distinguishable.</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Vantage relies on two arbitration mandamus cases—<a href="https://scholar.google.com/scholar_case?case=1550300588000105021&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Sthran,</i> 327 S.W.3d 839 (Tex. App.-Dallas 2010, orig. proceeding),</a> and <a href="https://scholar.google.com/scholar_case?case=11448456617030031310&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Villanueva,</i> 311 S.W.3d 475</a>(Tex. App.-El Paso 2009, orig. proceeding [mand. dism'd]). They are both distinguishable.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<i>In re Sthran</i> is distinguishable because final appeal was found to be inadequate for reasons not present in Vantage's case. Sthran's husband had died in a nursing home. Sthran sued the nursing home for negligence. The trial court compelled arbitration under the nursing home's admission contract. Sthran petitioned for a writ of mandamus directing the trial court to vacate its order compelling arbitration. The court of appeals conditionally granted Sthran's petition, reasoning that Sthran had no adequate remedy by appeal because Sthran had not brought a contract claim and because "delay and expense in cases in which arbitration clauses cover contractual claims `generally do not render a final appeal inadequate.'" <a href="https://scholar.google.com/scholar_case?case=1550300588000105021&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Sthran,</i> 327 S.W.3d at 846</a> (quoting <a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i> 289 S.W.3d at 843</a>). Because Sthran's negligence action sounded in tort, forcing Sthran to wait for an appeal was an inadequate remedy because "it is not clear that any fees and expenses incurred as a result of arbitration will be recoverable." <a href="https://scholar.google.com/scholar_case?case=1550300588000105021&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Sthran,</i> 327 S.W.3d at 846</a>. Even if the improperly compelled arbitration could be undone on final appeal, the fees and expenses that Sthran would have to incur <i>in arbitrating</i> would never be recoverable because she asserted a tort cause of action. Had Sthran brought a contract action instead, the hypothetical arbitration fees and expenses could have been recoverable.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Second, Sthran's was "one of those `rare cases' when legislative mandates might be construed to conflict." <i>Id.</i> A provision of the Medical Liability Act entitled Sthran to notice of the admission contract's arbitration clause, but no such notice was provided. The court discussed how <i>In re Gulf Exploration</i> approves mandamus review for orders compelling arbitration in order to "preserve important substantive and procedural rights from impairment and loss. . . ." <a href="https://scholar.google.com/scholar_case?case=1550300588000105021&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Sthran,</i> 327 S.W.3d at 846</a> (quoting <a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i> 289 S.W.3d at 843</a>). The court agreed with Sthran that, because the admission contract did not comply with the Medical Liability Act's notice provision, her statutory right to notice could be protected only by mandamus.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Vantage cannot rely on <i>In re Sthran</i> because, first, Martinez Partners and Vantage both assert contract actions, and Vantage is asserting and defending against interrelated counterclaims. Vantage's legal expenses may later be shown to have advanced both its contract action and one or more of its other causes of action. <i>Cf. </i><a href="https://scholar.google.com/scholar_case?case=3994486142378722337&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Tony Gullo Motors I,</i> 212 S.W.3d at 313-14</a>; <a href="https://scholar.google.com/scholar_case?case=6039150673471164010&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Brockie,</i> 244 S.W.3d at 910</a>. If, on final appeal, the referral to arbitration is found to be error, Vantage may seek to recover the arbitration fees and expenses it may have incurred. Further, Vantage identifies no statutory provisions whose enforcement would be impaired by an order compelling arbitration.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<i>In re Villanueva</i> is also distinguishable. Villanueva asserted a tort claim and not a contract claim. Further, Villanueva sued his employer for an on-the-job injury, and the trial court compelled arbitration under Villanueva's employment contract. The court of appeals held that the authority to compel arbitration came from Texas common law, not the FAA or TGAA. That was significant because "[m]andamus is the appropriate procedure by which we may review the trial court's ruling on a motion to compel arbitration under the common law." <a href="https://scholar.google.com/scholar_case?case=11448456617030031310&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Villanueva,</i> 311 S.W.3d at 481</a>. The court then held that Texas common law rendered the arbitration clause void and unenforceable. <i>Id.</i> at 482.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
However, Texas common law does not govern Vantage's case. Both parties agree that either or both of the FAA and the TGAA govern. Though mandamus may be appropriate for regularly reviewing orders compelling arbitration under Texas common law, <i>see </i><a href="https://scholar.google.com/scholar_case?case=11448456617030031310&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Villanueva,</i> 311 S.W.3d at 481,</a> it is generally not favored in most situations involving arbitration under the two statutes. <i>See </i><a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i>289 S.W.3d at 842</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Vantage also cites <a href="https://scholar.google.com/scholar_case?case=9464547285077735613&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Team Rocket, L.P.,</i> 256 S.W.3d 257 (Tex. 2008)</a> (orig. proceeding), which is a mandamus case that did not involve arbitration. It therefore did not address the strong preference for arbitration that <i>In re Gulf Exploration</i>emphasizes. Instead, the grant of mandamus there concerned litigants' statutory venue rights. A family had filed wrongful-death claims in Harris County, but venue was transferred to Williamson County. The family then nonsuited their case and re-filed the same lawsuit in Fort Bend County. The Fort Bend County court refused to transfer venue to Williamson County, and the defendants petitioned for a writ of mandamus. The court conditionally granted the writ to protect the defendants' statutory venue rights: "To say that the Fort Bend County trial court, which violated statutory venue procedure and [TEX. R. CIV. P.] 87(5), committed reversible error while declining to correct the injustice would compromise the integrity of the venue statute and result in an irreversible waste of resources." <a href="https://scholar.google.com/scholar_case?case=9464547285077735613&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Team Rocket,</i> 256 S.W.3d at 263</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The danger of "compromis[ing] the integrity of the" waiver doctrine is much less compelling here than the danger of compromising statutory venue rights was in <i>In re Team Rocket. Perry Homes</i> stands for the proposition that, in most cases, waiver of arbitration can be adequately addressed on final appeal. In contrast, the proper application of the venue statute in <i>In re Team Rocket</i> could not have been protected without mandamus because the defendants would have been forced to litigate in a forum where venue was improper. <i>In re Team Rocket,</i> like <i>In re Sthran,</i>involved using mandamus to preserve statutory rights, but Vantage asserts no statutory rights that require mandamus protection.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Vantage may challenge the referral to arbitration after the arbitration is completed as contemplated by both <i>In re Gulf Exploration</i> and <i>Perry Homes.</i> Because final appeal is adequate for Vantage, it is not entitled to mandamus relief.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Conclusion</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
We deny the petition for mandamus.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=13515705188835908233&q=%22in+re+vantage%22&hl=en&as_sdt=4,44#[4]" name="r[4]" style="color: #660099;">[4]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; font-family: arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<span style="color: red;">
DISSENTING OPINION</span></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
KEYES, J., dissenting.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
I respectfully dissent from the majority opinion denying Vantage Drilling International's (Vantage's) petition for writ of mandamus, which requests that we direct the trial court to vacate its order compelling arbitration in this case. The majority opinion effectively annuls the important procedural protection of waiver of the right to arbitrate by substantial litigation conduct.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The majority opinion fails even to acknowledge, much less to apply, the test of waiver of the right to arbitrate by substantial litigation conduct established by the Texas Supreme Court in <a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry Homes v. Cull</i></a><sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=13515705188835908233&q=%22in+re+vantage%22&hl=en&as_sdt=4,44#[5]" name="r[5]" style="color: #660099;">[1]</a></sup> and reaffirmed in <i>Henry v. Cash Biz, LP.</i><sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=13515705188835908233&q=%22in+re+vantage%22&hl=en&as_sdt=4,44#[6]" name="r[6]" style="color: #660099;">[2]</a></sup> The majority then effectively annuls this important procedural right by concluding that Vantage has an adequate remedy by appeal. I would hold that Vantage has demonstrated just the opposite. By approving the trial court's order sending this case to arbitration, the majority allows the real party in interest to take the spoils of its abusive discovery practices over almost a year and its insight into the trial court's skeptical perception of its case gained through litigation conduct into its newly-sought arbitration proceedings, thereby avoiding the trial court's ruling on Vantage's motion for partial summary judgment filed against it and creating a new playing field.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
As this case satisfies every factor of the <i>Perry Homes</i> and <i>Henry</i> test for waiver of arbitration by litigation conduct, and as Vantage has shown that it lacks an adequate remedy by appeal, I conclude that compelling arbitration of this case violates important substantive and procedural rights of the respondent that cannot be protected through any other legal mechanism than reversal of the trial court's order. I would hold that Vantage has shown a clear abuse of discretion by the trial court. Therefore, I would grant the petition.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Background</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Martinez Partners, a law firm, represented Vantage in a Foreign Corrupt Practices Act investigation and related matters, but the engagements were terminated, and Vantage hired a new law firm. Vantage did not pay some of Martinez Partners' legal fees, so Martinez Partners sued Vantage and related entities (collectively, "Vantage") on a sworn account. The parties' engagement agreements contained arbitration clauses.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Martinez Partners—the movant below for arbitration—filed suit against Vantage in Harris County district court. Vantage answered and counterclaimed for breach of contract, breach of fiduciary duty, and money had and received.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The parties litigated for eleven months, including engaging in extensive document discovery into the lawsuit's merits. Martinez Partners amended its pleadings twice, propounded extensive written discovery, and pursued numerous motions to compel additional discovery. It also added an individual defendant and then nonsuited that defendant in response to a motion to dismiss, and it sought discovery on the motion to dismiss. It later sought sanctions against Vantage's counsel in connection with the dismissed claim. It served ten sets of merits-based written discovery on each of the three defendants. It attempted to avoid providing reciprocal discovery in response to Vantage's requests by disclaiming any obligation to search its principal's email account for communications responsive to Vantage's requests for production, and it rejected Vantage's request to make that principal available to be deposed. Only after an oral ruling from the trial court did Martinez Partners produce communications responsive to Vantage's requests.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
At one point, Martinez Partners moved to compel the production of billing information about Vantage's new attorneys. During a hearing on that motion— Martinez Partners' second motion to compel—the key issue in the case arose: whether Texas law provides an offset to Martinez Partners' claims for unpaid invoices based on what Vantage claimed was the undisputed and undisclosed mark-up of almost half a million dollars that Martinez Partners had applied to third-party charges invoiced to Vantage. The trial court expressed doubt about Martinez Partners' legal position, telling Martinez Partners' counsel that "that will be real interesting at trial because in that case, I think you may have a problem. . . . That's going to be interesting if y'all try it, an interesting issue." Vantage soon thereafter filed a motion for partial summary judgment on its cause of action for breach of fiduciary duty.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Martinez Partners then filed a motion to compel arbitration under both Texas and federal arbitration statutes. Vantage responded, arguing that Martinez Partners had waived arbitration either explicitly, in comments it made to the trial court, or impliedly, by having substantially invoked the litigation process instead of seeking to initiate arbitration. While that motion was pending, Martinez Partners continued to press Vantage for supplemental document production and served more production requests. After the trial court heard preliminary argument on the arbitration issue, Martinez Partners served yet another set of production requests on Vantage.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The trial court ordered that the parties arbitrate all claims that had been asserted in the lawsuit and stayed the lawsuit pending the arbitration's outcome. Vantage petitioned for a writ of mandamus, and Martinez Partners responded. Vantage claims it spent almost $110,000 on Martinez Partners' discovery and incurred approximately $195,000 in legal fees in litigation prior to the trial court's order compelling arbitration.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Analysis</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Vantage contends in its petition for a writ of mandamus that Martinez Partners waived the right to arbitrate by its conduct in litigation and that an appeal after a final judgment is inadequate to review its waiver argument. Applying the waiver standards promulgated by the Texas Supreme Court, I agree.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
A. Standard of Review of Order Granting Motion to Compel Arbitration</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The majority has set out at length the high standard for obtaining reversal of an order granting arbitration. Essentially, when both the Federal Arbitration Act (FAA) and the Texas General Arbitration Act (TGAA) apply to an arbitration clause, as here, Texas courts must align the availability of appellate review under Texas procedure as consistently as possible with availability of appellate review under federal procedure. <a href="https://scholar.google.com/scholar_case?case=11167907300663469399&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Poly-America, L.P.,</i> 262 S.W.3d 337, 345 (Tex. 2008)</a> (orig. proceeding). "Although mandamus review is generally available in federal courts to review non-appealable interlocutory rulings, mandamus is granted only in exceptional cases." <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
However, despite the strong federal and state barriers to mandamus review of an order granting arbitration, "[e]ven when an order is not reviewable by interlocutory appeal, that does not always preclude review by mandamus." <a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl., LLC,</i> 289 S.W.3d 836, 842 (Tex. 2009)</a> (orig. proceeding). "To be entitled to mandamus, a petitioner must show that the trial court clearly abused its discretion and that the relator has no adequate remedy by appeal." <i>Id.</i> (internal quotation omitted). "There is no definitive list of when an appeal will be `adequate,' as it depends on a careful balance of the case-specific benefits and detriments of delaying or interrupting a particular proceeding." <i>Id.; see also </i><a href="https://scholar.google.com/scholar_case?case=14210218039352819850&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re McAllen Med. Ctr., Inc.,</i> 275 S.W.3d 458, 464 (Tex. 2008)</a> (orig. proceeding) ("Whether a clear abuse of discretion can be adequately remedied by appeal depends on a careful analysis of costs and benefits of interlocutory review."). "[S]tanding alone, delay and expense generally do not render a final appeal inadequate." <a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i>289 S.W.3d at 842</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Mandamus "may be essential to preserve important substantive and procedural rights from impairment or loss, [and] allow the appellate courts to give needed and helpful direction to the law that would otherwise prove elusive in appeals from final judgments.'" <a href="https://scholar.google.com/scholar_case?case=9005997149465298248&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Gulf Expl.,</i> 289 S.W.3d at 843</a> (quoting <a href="https://scholar.google.com/scholar_case?case=6207522956368226204&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Prudential Ins. Co.,</i>148 S.W.3d 124, 136 (Tex. 2004)</a>).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
B. Waiver of Arbitration by Substantial Litigation Conduct</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Here, the issue is waiver of arbitration by substantial litigation conduct. This is precisely the kind of important procedural right the Texas Supreme Court held in <i>In re Gulf Exploration</i> and in <i>In re Prudential</i> that mandamus "may be essential to preserve . . . from impairment or loss" and may "allow the appellate courts to give needed and helpful direction to the law" that would elude analysis on appeal from a final judgment. <i>See id.; </i><a href="https://scholar.google.com/scholar_case?case=6207522956368226204&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Prudential Ins. Co.,</i> 148 S.W.3d at 136</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The issue of waiver of arbitration by substantial litigation conduct is an issue for the courts rather than the arbitrators. <a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry Homes v. Cull,</i> 258 S.W.3d 580, 598 (Tex. 2008)</a>. "[A] party waives an arbitration clause by substantially invoking the judicial process to the other party's detriment or prejudice." <i>Id.</i> at 589-90. "[T]his hurdle is a high one" because of the strong presumption against waiver of arbitration. <i>Id.</i> at 590. However, "`allowing a party to conduct full discovery, file motions going to the merits, and seek arbitration on the eve of trial' would be sufficient" to constitute waiver. <i>Id.</i> (quoting <a href="https://scholar.google.com/scholar_case?case=16049730976244330088&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Vesta Ins. Group, Inc.,</i> 192 S.W.3d 759, 764 (Tex. 2006)</a>). Arbitration can be waived if the parties have agreed to resolve a dispute in court; and "[s]uch waiver can be implied from a party's conduct, although that conduct must be unequivocal." <i>Id.</i> at 593.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
To establish implied waiver of the right to arbitrate by substantial invocation of the judicial process, "the [non-movant] ha[s] the burden to prove that (1) [the party moving for arbitration] substantially invoked the judicial process in a manner inconsistent with its claimed right to compel arbitration, and (2) the [non-movant] suffered actual prejudice as a result of the inconsistent conduct." <i>Henry v. Cash Biz, LP,</i> ___ S.W.3d ___, No.16-0854, 2018 WL 1022838, *4 (Tex. Feb. 23, 2018) (citing <a href="https://scholar.google.com/scholar_case?case=7525206418111218344&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach Builders, LLC v. Sapphire V.P., L.P.,</i> 458 S.W.3d 502, 511-12 (Tex. 2015),</a> and <a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry Homes,</i> 258 S.W.3d at 589-90</a>).<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
How much invocation of the litigation process is "substantial" depends on the context and is similar to estoppel. <a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry Homes,</i> 258 S.W.3d at 593</a>. For instance, "[a] party who enjoys substantial direct benefits by gaining an advantage in the pretrial litigation process should be barred from turning around and seeking arbitration with the spoils." <i>Id.</i> However, "[e]ven substantially invoking the judicial process does not waive a party's arbitration rights unless the opposing party proves that it suffered prejudice as a result." <i>Id.</i> (quoting <a href="https://scholar.google.com/scholar_case?case=4650003754923679185&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Bruce Terminix Co.,</i>988 S.W.2d 702, 704 (Tex. 1998)</a> (orig. proceeding)).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
C. The Totality of the Circumstances Test for Waiver by Substantial Litigation Conduct</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Waiver of the right to compel arbitration by litigation conduct must be decided on a case-by-case basis under a totality-of-the-circumstances test established by the Texas Supreme Court in <i>Perry Homes</i> and recently reiterated in <i>Henry. See id.</i> at 591. The relevant factors established in <i>Perry Homes</i> include:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• when the movant knew of the arbitration clause;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• how much discovery has been conducted;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• who initiated it;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• whether it related to the merits rather than arbitrability or standing;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• how much of it would be useful in arbitration; and</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• whether the movant sought judgment on the merits.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<i>Id.</i> at 591-92. The supreme court has recently reaffirmed this test in <i>Henry,</i> stating:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Here, the factors generally examined to determine waiver—how much discovery has been conducted, who initiated it, and whether it relates to the merits; how much time and expense has been incurred in litigation; and the proximity in time between a trial setting and the filing of the motion seeking arbitration—may serve as guideposts.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
2018 WL 1022838, at *4.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Under <i>Perry Homes</i> and Henry, the courts will defer to the trial court's factual findings if they are supported by the evidence, but where there is "no factual dispute . . . regarding whether the [movant] initially opposed arbitration, whether they conducted extensive merits discovery, or whether they sought arbitration late in the litigation process," and where the only remaining question is the legal question of whether the movant's conduct prejudiced the non-movant, the appellate courts may decide the issue of waiver as a matter of law. <a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry Homes,</i>258 S.W.3d at 598</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
To determine whether a party has substantially invoked the judicial process, "courts consider a wide variety of factors and look to the specifics of each case." <i>Henry,</i> 2018 WL 1022838, at *4; <a href="https://scholar.google.com/scholar_case?case=7525206418111218344&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach Builders, LLC,</i> 458 S.W.3d at 512</a>. "The necessary conduct must go beyond merely filing suit or seeking initial discovery." <i>Henry,</i> 2018 WL 1022838, at *4 (citing <a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry Homes,</i> 258 S.W.3d at 590</a>). The courts will find waiver only in "the most unequivocal of circumstances." <i>Id.</i> (citing <a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry Homes,</i> 258 S.W.3d at 595-96</a>).<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The court in <i>Henry</i> cited <i>Perry Homes</i> as a case that was illustrative of unequivocal waiver, noting that "the plaintiffs waived the right to arbitrate by participating in extensive discovery including hundreds of requests for production and interrogatories, then requesting arbitration fourteen months after filing suit and only four days prior to the scheduled trial date." <i>Id.</i> The court contrasted the substantial invocation of the judicial process by the plaintiffs in <i>Perry Homes</i> with the much lesser participation by plaintiffs in other cases in which arbitration was subsequently granted. <i>Id.</i> (citing <a href="https://scholar.google.com/scholar_case?case=7525206418111218344&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach Builders, LLC,</i> 458 S.W.3d at 512</a>(holding plaintiffs did not waive arbitration by asserting counterclaims; seeking change of venue; filing motions to designate responsible third parties, for continuance, and to quash depositions; designating experts; and waiting six months to move for arbitration), <a href="https://scholar.google.com/scholar_case?case=13310519155792129194&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Fleetwood Homes of Tex., L.P.,</i> 257 S.W.3d 692, 694 (Tex. 2008)</a> (orig. proceeding) (holding party did not waive arbitration by noticing deposition, serving written discovery, and waiting eight months to move for arbitration), and <a href="https://scholar.google.com/scholar_case?case=4650003754923679185&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Bruce Terminix Co.,</i> 988 S.W.2d at 703-04</a> (holding arbitration was not waived by sending eighteen interrogatories and nineteen requests for production and waiting six months to seek arbitration)).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In <i>Perry Homes,</i> the plaintiffs initially opposed arbitration, complaining at length about the incompetence, bias, and unfairness of arbitration, and they asked the court to deny Perry Homes' motion to compel arbitration. <a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;">258 S.W.3d at 595-96</a>. They then noticed six designees for deposition on nine issues with an attachment requesting sixty-seven categories of documents and noticed the depositions of three of Perry Homes' experts, requesting twenty-four categories of documents. <i>Id.</i>The Texas Supreme Court concluded, "There is simply no question on this record that [the plaintiffs] conducted extensive discovery about every aspect of the merits." <i>Id.</i> at 596. After having initially opposed arbitration, the plaintiffs moved for arbitration fourteen months after filing suit and shortly before the trial setting, which the supreme court found to be "very late in the trial process" and after most of the discovery had been completed. <i>Id.</i> The court also concluded that it was "also unquestionably true that this conduct prejudiced [the non-movant defendant, Perry Homes]." <i>Id.</i> at 597.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The supreme court concluded, "Such manipulation of litigation for one party's advantage and another's detriment is precisely the kind of inherent unfairness that constitutes prejudice under federal and state law." <i>Id.</i> After finding prejudice to Perry Homes, the supreme court reversed the court of appeals' judgment, vacated the $800,000 award the plaintiffs had obtained in arbitration, and remanded the case to the trial court "for a prompt trial." <i>Id.</i> at 585, 601.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
D. Application of the Perry Homes Factors to Order Compelling Arbitration in This Case</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The abusive manipulation of the proceedings in this case by Martinez Partners is virtually identical to that in <i>Perry Homes,</i> and the prejudice to Vantage is just as great as the prejudice to the non-movant in <i>Perry Homes</i> under the relevant factors:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• There is no question that Martinez Partners knew of the arbitration clauses in both its and Vantage's engagement agreements;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• Martinez Partners itself filed the litigation;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• The parties litigated for eleven months, including extensive document discovery into the lawsuit's merits;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• Martinez Partners amended its pleadings twice, propounded extensive written discovery, and pursued numerous motions to compel additional discovery;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• It also added an individual defendant and then nonsuited that defendant in response to a motion to dismiss and sought discovery on that motion;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• It sought sanctions against Vantage's counsel in connection with the dismissed claim;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• It served ten sets of merits-based written discovery on each of the three defendants; and it attempted to avoid providing reciprocal discovery in response to Vantage's requests by disclaiming any obligation to search its principal's email account for communications responsive to Vantage's requests for production, rejected Vantage's request to make him available to be deposed, and only produced communications responsive to Vantage's requests after an oral ruling from the court;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• Martinez Partners filed a motion to compel arbitration under both Texas and federal arbitration statutes only after the trial court expressed doubt about its legal position at a hearing on its second motion to compel when the key issue in the case arose: whether Texas law provides an offset to Martinez Partners' claims for unpaid invoices based on what Vantage claims was the undisputed and undisclosed mark-up of almost half a million dollars that Martinez Partners applied to third-party charges invoiced to Vantage;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• Martinez Partners moved for arbitration only after summary judgment had been filed against it; and</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
• Even after the trial court heard preliminary argument on arbitration, Martinez Partners served yet another set of production requests on Vantage, with all of its previous requests for document production and motions to compel.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<i>See </i><a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry Homes,</i> 258 S.W.3d at 595-96</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Martinez Partners' litigation conduct satisfies every one of the factors set out by the Texas Supreme Court in <i>Perry Homes</i> for courts to consider in determining whether a party has waived arbitration and is at least as egregious, if not <i>more</i>egregious, than the litigation conduct found by the supreme court in <i>Perry Homes</i>to constitute waiver of arbitration. <i>See id.</i> at 591-92. Thus, I would conclude that Vantage Drilling established an abuse of discretion by the trial court.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
E. Lack of Adequate Remedy by Appeal</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
I would likewise hold that the prejudice to Vantage under the circumstances here cannot be remedied on appeal. Whether an appellate remedy is adequate is a practical, prudential determination based on a balancing of public and private interests. <i>See </i><a href="https://scholar.google.com/scholar_case?case=6207522956368226204&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Prudential,</i> 148 S.W.3d at 136</a>. The Texas Supreme Court has held:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Mandamus review of significant rulings in exceptional cases may be essential to preserve important substantive and procedural rights from impairment or loss, allow the appellate courts to give needed and helpful direction to the law that would otherwise prove elusive in appeals from final judgments, and spare private parties and the public the time and money utterly wasted enduring eventual reversal of improperly conducted proceedings.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<i>Id.</i> Here, these factors favor granting mandamus relief.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Any appeal of an eventual arbitration award would be clearly inadequate to compensate Vantage for Martinez Partners' litigation conduct adverse to the right to compel arbitration. Martinez Partners has effectively bought itself a new forum in which it has all the advantages of the vast amount of abusive discovery it obtained from Vantage, as well as the advantage of its own resistance to discovery, and the new forum's lack of familiarity with the circumstances that led the trial court to express skepticism as to Martinez Partners' case and Vantage to file summary judgment against it. I would conclude that this an "exceptional case" in which mandamus relief is "essential to preserve important substantive and procedural rights from impairment or loss[.]" <i>See id.</i><br />
<i><br /></i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Regarding the considerations of wasted time and money, I further observe that, in this case, there is no rapid, inexpensive alternative to traditional litigation. And all of the conditions for granting mandamus from an order compelling arbitration established in <i>Perry Homes</i> are met. There is "no factual dispute . . . regarding whether [Martinez Partners] initially opposed arbitration, whether [it] conducted extensive merits discovery, or whether [it] sought arbitration late in the litigation process." <i>See </i><a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry Homes,</i> 258 S.W.3d at 598</a>. Despite an arbitration clause in its agreement with Vantage, Martinez Partners brought this litigation, conducted extensive merits discovery for almost a year, engaged vigorously in the litigation process at great expense to Vantage, and, only when the trial court questioned its ability to prevail at trial and summary judgment had been filed, moved for arbitration while continuing to litigate and to seek additional discovery up to the date its motion to compel arbitration was granted. <i>See id.; see also </i><a href="https://scholar.google.com/scholar_case?case=6207522956368226204&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Prudential,</i> 148 S.W.3d at 136</a> (holding that mandamus relief may be essential to "spare private parties and the public the time and money utterly wasted enduring eventual reversal of improperly conducted proceedings").</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The only question remaining to determine the adequacy of Vantage's remedy by appeal is whether Martinez Partners' conduct prejudiced Vantage. <i>See id.</i> And the clear answer to that question under <i>In re Prudential</i> is "yes," in that the loss of the important procedural right to waiver of arbitration under circumstances such as those present in this case "radically skew[s] the procedural dynamics of the case" and causes "the irreversible waste of judicial and public resources." <i>See</i> <a href="https://scholar.google.com/scholar_case?case=6207522956368226204&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;">148 S.W.3d at 136-37</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Vantage's loss of the entire benefit of Martinez Partners' unequivocal waiver of the right to arbitrate by the trial court's order compelling arbitration requires the conclusion that the trial court clearly abused its discretion and that Vantage has no adequate remedy by appeal.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Conclusion</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
I would conditionally grant the petition for mandamus.<br />
<br /></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=13515705188835908233&q=%22in+re+vantage%22&hl=en&as_sdt=4,44#r[1]" name="[1]" style="color: #660099;">[1]</a> The underlying case is Cause No. 2016-27737; <i>Martinez Partners, LLP v. Offshore Group Investment Limited d/b/a Vantage Drilling International, Vantage Deepwater Drilling, Inc., and Vantage Energy Services, Inc.;</i> In the 133rd District Court of Harris County, Texas; Hon. Jaclanel McFarland presiding.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=13515705188835908233&q=%22in+re+vantage%22&hl=en&as_sdt=4,44#r[2]" name="[2]" style="color: #660099;">[2]</a> "To date, we have never found such a waiver. . . ." <a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry Homes,</i> 258 S.W.3d at 590</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=13515705188835908233&q=%22in+re+vantage%22&hl=en&as_sdt=4,44#r[3]" name="[3]" style="color: #660099;">[3]</a> The same is true for <a href="https://scholar.google.com/scholar_case?case=7131649844454947014&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;"><i>Okorafor v. Uncle Sam & Associates, Inc.,</i> 295 S.W.3d 27 (Tex. App.-Houston [1st Dist.] 2009, pet. denied),</a> on which Vantage also relies. That case reviewed an order denying arbitration. <i>See</i> above at section I.C.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=13515705188835908233&q=%22in+re+vantage%22&hl=en&as_sdt=4,44#r[4]" name="[4]" style="color: #660099;">[4]</a> We also deny as moot Vantage's pending Motion for Temporary Relief.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=13515705188835908233&q=%22in+re+vantage%22&hl=en&as_sdt=4,44#r[5]" name="[5]" style="color: #660099;">[1]</a> <a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=%22in+re+vantage%22&hl=en&as_sdt=4,44" style="color: #660099;">258 S.W.3d 580 (Tex. 2008)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=13515705188835908233&q=%22in+re+vantage%22&hl=en&as_sdt=4,44#r[6]" name="[6]" style="color: #660099; text-decoration: underline;">[2]</a> ___ S.W.3d ___, No. 16-0854, 2018 WL 1022838 (Tex. Feb. 23, 2018).<br />
<br />
WESTLAW CITE: In re Vantage Drilling Int'l, No. 01-17-00592-CV, ___ S.W.3d ___, ___, 2018 WL 2666945, at *4 (Tex. App.-Houston [1st Dist.] June 5, 2018, orig. proceeding)<br />
<br />
<br />
<br /></div>
<div style="position: relative;">
<br /></div>
<div style="position: relative;">
<br /></div>
</div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-89045256613888994732018-11-09T11:34:00.002-08:002018-11-09T13:34:29.474-08:00Arbitrators' ruling on Certificate of Merit requirement not subject to judicial review or interlocutory appeal. SM Architects, PLLC v AMX Veteran Specialty Services, LLC (Tex.App. - Dallas, No. 05-17-01064-CV (Nov 8, 2018) SM Architects, PLLC v AMX Veteran Specialty Services, LLC (Tex.App. - Dallas, No. 05-17-01064-CV (Nov 8, 2018) (right to interlocutory appeal granted by CPRC section 150.002 does not apply to an order rendered by an arbitration panel.)<br />
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
SM ARCHITECTS, PLLC AND ROGER STEPHENS, Appellant,<br />v.<br />AMX VETERAN SPECIALTY SERVICES, LLC, Appellee.</h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<a href="https://scholar.google.com/scholar?scidkt=15193947668975782649&as_sdt=2&hl=en" style="color: #660099;">No. 05-17-01064-CV.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<div style="position: relative;">
<b>Court of Appeals of Texas, Fifth District, Dallas.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
Order entered March 20, 2018. </center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<br /></center>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://2.bp.blogspot.com/-zBywIf8zEMo/W-X9FdEiNXI/AAAAAAAAOYY/6kf82UFaRGs7TQkSClugfJmgYYwHSfa0wCLcBGAs/s1600/2018-11-08%2BSM%2BArchitects%2BPLLC%2Bv%2BAMX%2BVeteran%2BSpeciality%2BServices%2BLLL%2B-%2BCertificate%2Bof%2BMerit%2Bin%2BArb%2BProceeding.GIF" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="920" data-original-width="834" height="400" src="https://2.bp.blogspot.com/-zBywIf8zEMo/W-X9FdEiNXI/AAAAAAAAOYY/6kf82UFaRGs7TQkSClugfJmgYYwHSfa0wCLcBGAs/s400/2018-11-08%2BSM%2BArchitects%2BPLLC%2Bv%2BAMX%2BVeteran%2BSpeciality%2BServices%2BLLL%2B-%2BCertificate%2Bof%2BMerit%2Bin%2BArb%2BProceeding.GIF" width="362" /></a></div>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<br /></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
</center>
<div style="background-color: white; color: #222222; font-family: arial, sans-serif; position: relative;">
<span style="font-size: x-small;">Gregory N. Ziegler, Bryan Rutherford, Weston M. Davis, for SM Architects, PLLC and Roger Stephens, Appellant.</span></div>
<div style="background-color: white; color: #222222; font-family: arial, sans-serif; position: relative;">
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Doug Drucker, David P. Kallus, Kirby D. Hopkins, for AMX Veteran Specialty Services, LLC, Appellee.</span><br />
<span style="font-size: x-small;"><br /></span></div>
<div style="background-color: white; color: #222222; font-family: arial, sans-serif; position: relative;">
<span style="font-size: x-small;">On Appeal from the 116th Judicial District Court, Dallas County, Texas, Trial Court Cause No. DC-17-11230.</span></div>
<div style="background-color: white; color: #222222; font-family: arial, sans-serif; position: relative;">
<br /></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">DISMISS and Opinion Filed November 8, 2018</span></span></div>
<div style="background-color: white; position: relative;">
<br /></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">In The</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">Court of Appeals</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">Fifth District of Texas at Dallas</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">No. 05-17-01064-CV</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">SM ARCHITECTS, PLLC AND ROGER STEPHENS, Appellants</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">V.</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">AMX VETERAN SPECIALTY SERVICES, LLC, Appellee</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">On Appeal from the 116th Judicial District Court</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">Dallas County, Texas</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">Trial Court Cause No. DC-17-11230</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<b><span style="color: #cc0000; font-size: large;">OPINION</span></b></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">Before Justices Bridges, Francis, and Lang-Miers</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">Opinion by Justice Francis</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">This is a case of first impression regarding the ability of a party in an arbitration proceeding</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">to appeal an interlocutory order denying a motion to dismiss for failure to file a certificate of merit</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">as required by section 150.002 of the Texas Civil Practice and Remedies Code. Because we</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">conclude the right to interlocutory appeal granted by section 150.002 does not apply to an order</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">rendered by an arbitration panel, and the Texas Arbitration Act (TAA) does not provide a means</span></span></div>
<div style="background-color: white; position: relative;">
<span style="font-size: x-small;"><span style="color: #222222; font-family: "arial" , sans-serif;">for judicial review of such an order, we vacate the trial court’s order as void and dismiss this appeal </span><span style="color: #222222; font-family: "arial" , sans-serif;">for lack of jurisdiction.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif; font-size: x-small;"><br /></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">On August 5, 2016, AMX Veteran Specialty Services, LLC filed a demand for arbitration</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">with the American Arbitration Association naming SM Architects, PLLC and one of its architects,</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Roger Stephens, as respondents. AMX stated the nature of the dispute was “professional </span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"> –2–</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">negligence against architect and architectural firm; breach of contract; tortious interference with</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">contract; [and] business disparagement.” Section 150.002 of the civil practice and remedies code</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">requires that, in any action or arbitration proceeding based on the provision of professional</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">architectural services, the plaintiff must file a certificate of merit affidavit by a third-party licensed</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">architect in support of its claims. See TEX. CIV. PRAC. & REM. CODE ANN. § 150.002. As an</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">attempt to meet this requirement, AMX attached to its arbitration demand an unsigned letter by</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Bradford Russell of BR Architects & Engineers.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">In response to the demand, appellants asserted a general denial and requested a more</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">definite statement of the claims being made. Six weeks later, AMX filed an amended demand for</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">arbitration, removing Stephens as a respondent and setting out the claims against SMA in more</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">detail. SMA answered asserting multiple affirmative defenses, and both SMA and Stephens</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">brought counterclaims for declaratory judgment, breach of contract, and copyright infringement.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="font-size: x-small;"><br /></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">On November 10, 2016, the parties mediated the case, but the dispute was not resolved.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">On December 28, an arbitration panel was appointed and the parties began the discovery process.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Three months later, AMX amended its demand for arbitration again to reassert its claims against</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Stephens. Attached to the second amended demand was a signed certificate of merit affidavit by</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Russell. The contents of the affidavit were substantially similar to the original unsigned letter, but</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">with added information regarding SMA’s alleged negligence. Stephens was not referenced in the</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">affidavit.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Eight months after the arbitration proceedings commenced, appellants filed a motion with</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">the panel to dismiss AMX’s claims for failure to comply with the certificate of merit requirement.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Appellants contended the unsigned letter submitted with AMX’s first demand for arbitration was</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">not an affidavit as required by section 150.002. Appellants further argued the affidavit filed with</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">AMX’s second amended demand for arbitration was ineffective because the failure to file an </span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"> –3–</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">affidavit contemporaneously with the first-filed complaint could not be cured by amendment and</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">the affidavit did not meet the statute’s specific requirements. Because section 150.002(e) states</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">the failure to file a certificate of merit affidavit “shall result in dismissal of the complaint against</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">the defendant,” appellants contended dismissal was statutorily mandated. See id. The arbitration</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">panel denied appellants’ motion to dismiss without a hearing.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Relying on section 150.002(f), which states that “[a]n order granting or denying a motion</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">for dismissal” under chapter 150 is “immediately appealable,” appellants filed a notice of appeal</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">stating they wished to appeal the arbitration panel’s order to this Court. See id. However, because</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">chapter 150 provides no process for appealing an interlocutory arbitration order, appellants stated</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">in their notice that, “out of an abundance of caution” and “to the extent a district court filing, ruling,</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">order, or other action” was required, they were filing suit in district court and requesting the court</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">render an order “entering” the arbitration panel’s order so that order could be appealed to this</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Court. In the alternative, appellants requested the district court vacate the arbitration panel’s order.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Several weeks later, appellants filed a new motion in district court requesting only that the court</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">vacate the arbitration panel’s order under either chapter 150 or section 171.088 of the TAA. See</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a).</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">AMX moved to dismiss the action in district court for lack of jurisdiction, stating there was</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">nothing in chapter 150 to indicate the legislature intended to confer jurisdiction on the district</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">courts to review an interlocutory order issued by an arbitration panel. With respect to the motion</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">to vacate, AMX argued the TAA authorized vacatur only of final awards and not interlocutory</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">orders. The trial court denied the motion to vacate the arbitration panel’s order but stated its order</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">was “a final appealable order.” The court additionally stayed the arbitration until further order of</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">the court. Appellants then amended their notice of appeal in this Court to challenge the trial court’s</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">order denying the motion to vacate. </span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"> –4–</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">AMX has requested this appeal be dismissed on essentially the same grounds urged in the</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">trial court. In response, appellants contend their appeal of the arbitration panel’s order is</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">authorized by both the plain language of section 150.002(f) and the TAA, which permits limited</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">judicial review of arbitration awards. In the alternative, they ask us to treat their brief on appeal</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">as a petition for writ of mandamus.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">In deciding whether we have jurisdiction to review the merits in this matter, we examine</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">the legislature’s decision to apply the certificate of merit requirement, with its right to immediate</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">appeal, to arbitration proceedings. This must be done in the context of the TAA, which contains</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">the legislative grant of court jurisdiction over arbitrations. See TEX. CIV. PRAC. & REM. CODE</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">ANN. § 171.081. By enacting section 150.002(f), it is clear the legislature intended to provide</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">parties in a suit before a trial court the right to immediately challenge the court’s decision on</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">whether a plaintiff has met the certificate of merit requirement. The issue before us is whether the</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">legislature intended to significantly alter the jurisdictional limitations on courts with respect to</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">arbitration proceedings to allow interlocutory judicial review of the same determination made by</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">an arbitration panel. We conclude section 150.002 does not evidence such an intent.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Because Texas law favors arbitration, judicial review of arbitration proceedings is</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">extraordinarily narrow. See E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 271</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">(Tex. 2010). The court’s jurisdiction over an arbitration proceeding is limited to enforcing the</span></span></div>
<div style="background-color: white; position: relative;">
<span style="font-size: x-small;"><span style="color: #222222; font-family: "arial" , sans-serif;">agreement to arbitrate and rendering judgment on the panel’s award. See TEX. CIV. PRAC. & REM. </span><span style="color: #222222; font-family: "arial" , sans-serif;">CODE ANN. § 171.081. The filing of an application for an order concerning arbitration invokes the</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">jurisdiction of the court. Id. § 171.082(a). But the “orders that may be rendered” include only</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">those within the purview of section 171.086 of the TAA that assist with the arbitration process or</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">involve limited review of a panel award. Id. § 171.086. Judicial review of an interlocutory order</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">issued by an arbitration panel does not fall within the scope of section 171.086. </span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"> –5–</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Similarly, chapter 150 does not provide or create a process for judicial review of an</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">interlocutory arbitration order. The absence of a review process for interlocutory arbitration orders</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">is demonstrated by appellants’ actions in this case. After the arbitration panel denied appellants’</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">motion to dismiss, they initially appealed the panel’s order directly to this Court. But, as we noted</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">in a letter to counsel, this Court’s jurisdiction is dependent on the jurisdiction of the district and</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">county courts within our district, and we do not have direct jurisdiction over arbitration panel</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">decisions. TEX. GOV’T CODE ANN. § 22.220(a) (Supp.).</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Appellants then filed suit and obtained an order from the district court refusing to vacate</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">the arbitration panel’s order and amended their notice of appeal to challenge that order. Although</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">a trial court may render an order granting or denying a motion to vacate an arbitration panel’s</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">decision, it may only do so with respect to an arbitration award. See TEX. CIV. PRAC. & REM.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">CODE ANN. §§ 171.086–.088. Here, appellants have attempted to use the process for judicial</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">review of an arbitration award to appeal the interlocutory order at issue arguing “nothing in the</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">TAA precludes the treatment of an interlocutory Chapter 150 order as an ‘award.’” We disagree.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="font-size: x-small;"><br /></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Although the TAA does not define the term “award,” where a term is undefined, we</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">consider it in context and apply the meaning of its common usage. TEX. GOV’T CODE ANN.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">§ 311.011(a). In addition, where a term has acquired a technical or particular meaning, it is</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">construed accordingly. Id. § 311.011(b). Webster’s Third New International Dictionary defines</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">“award” as “a judgment, sentence, or final decision,” especially “the decision of arbitrators in a</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">case submitted to them.” Award, WEBSTER’S THIRD NEW INT’L DICTIONARY, 152 (1993). </span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="font-size: x-small;"><span style="color: #222222; font-family: "arial" , sans-serif;">Black’s </span><span style="color: #222222; font-family: "arial" , sans-serif;">Law Dictionary defines “award” as a “final judgment or decision, esp. one by an arbitrator or </span></span><br />
<span style="font-size: x-small;"><span style="color: #222222; font-family: "arial" , sans-serif;">by a </span><span style="color: #222222; font-family: "arial" , sans-serif;">jury assessing damages.” Award, BLACK’S LAW DICTIONARY (10th ed. 2014). Both the common</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">and technical meanings of “award” contemplate finality. See Centex/Vestal v. Friendship W.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Baptist Church, 314 S.W.3d 677, 683 (Tex. App.—Dallas 2010, pet. denied) (arbitration awards </span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"> –6–</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">have the same effect as judgments in a court of last resort.) Particularly in the context of the TAA,</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">which seeks to limit the role of the courts, the term “award” cannot be read so broadly as to</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">encompass interlocutory orders – even those that are otherwise immediately appealable. Cf.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Yaseen Educ. Soc’y v. Islamic Ass’n of Arabi, Ltd., 406 S.W.3d 385, 389 (Tex. App.—Dallas 2013,</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">no pet.) (appellate court has no jurisdiction over incomplete arbitration award). To allow a party</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">to appeal an interlocutory arbitration panel order in the same manner as an arbitration award would</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">conflict with the TAA’s goal of providing an efficient, economical system for resolving disputes</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">and limiting judicial review with its accompanying expense and delay. See CVN Grp., Inc. v.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Delgado, 95 S.W.3d 234, 238 (Tex. 2002); Collins v. Tex Mall, L.P., 297 S.W.3d 409, 417 (Tex.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">App.—Fort Worth 2009, no pet).</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">We recognize the goal of section 150.002, like the TAA, is to increase efficiency in conflict</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">resolution. It does so by providing a means to quickly eliminate patently unmeritorious claims</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">against licensed or registered professionals. See Criterium-Farrell Eng’rs v. Owens, 248 S.W.3d</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">395, 399 (Tex. App.—Beaumont 2008, no pet.). Plaintiffs must make a “threshold showing” of</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">the viability of their claims through a certificate of merit or have those claims subject to dismissal.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">See M-E Eng’rs, Inc. v. City of Temple, 365 S.W.3d 497, 504 (Tex. App.—Austin 2012, pet.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">denied). But the application of the certificate of merit requirement to an arbitration proceeding</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">does not evince a concomitant intent to expand the court’s jurisdiction over the proceeding. Even</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">without the right to interlocutory appeal, a defendant in an arbitration proceeding maintains the</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">benefits of the certificate of merit, which allows both him and the arbitration panel to assess the</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">merits of the plaintiff’s allegations early in the process. Section 150.002 is not rendered</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">meaningless with respect to arbitrations simply because a panel’s refusal to dismiss claims, like</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">most interlocutory decisions, is not immediately reviewable. </span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"> –7–</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">It is noteworthy that, although the certificate of merit requirement was made applicable to</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">arbitration proceedings more than thirteen years ago, we can find no cases in which a defendant in</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">an arbitration proceeding has sought judicial review under 150.002(f). Indeed, the legislative</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">history of section 150.002 does not suggest the legislature intended to expand judicial review of</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">arbitrations. Section 150.002 was amended in 2005 by House Bill 1573. The “Statement of Intent”</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">by the bill’s author-sponsor states the bill’s purpose was to provide “a more accurate description</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">of today’s architecture practice” and “eliminate ambiguities in Chapter 150, Civil Practice and</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Remedies Code, regarding certificates of merit for design professionals.” See House Comm. on</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Bus. & Commerce, Bill Analysis, Tex. H.B. 1573, 79th Leg., R.S. (2005). None of the</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">“ambiguities” noted in the Statement of Intent pertain to arbitration proceedings or the ability of a</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">party in such a proceeding to pursue interlocutory review. Id. The statement provides no support,</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">therefore, for significant judicial intrusion into ongoing arbitration proceedings.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">The scope of the court’s jurisdiction over arbitration proceedings is specifically and</span></span></div>
<div style="background-color: white; position: relative;">
<span style="font-size: x-small;"><span style="color: #222222; font-family: "arial" , sans-serif;">narrowly defined by sections 171.081 and 171.086 of the TAA. See TEX.CIV. PRAC. & </span></span><br />
<span style="font-size: x-small;"><span style="color: #222222; font-family: "arial" , sans-serif;">REM.CODE </span><span style="color: #222222; font-family: "arial" , sans-serif;">ANN. §§ 171.081 & 171.086. If the legislature intended to expand judicial review </span></span><br />
<span style="font-size: x-small;"><span style="color: #222222; font-family: "arial" , sans-serif;">of arbitration </span></span><span style="color: #222222; font-family: arial, sans-serif; font-size: x-small;">decisions beyond our limited review of arbitration awards, it could have done so by </span><br />
<span style="color: #222222; font-family: arial, sans-serif; font-size: x-small;">amending </span><span style="color: #222222; font-family: arial, sans-serif; font-size: x-small;">these sections. Absent a clear expression of intent to expand the court’s jurisdiction, we </span><br />
<span style="color: #222222; font-family: arial, sans-serif; font-size: x-small;">cannot </span><span style="color: #222222; font-family: arial, sans-serif; font-size: x-small;">conclude the legislature intended anything more by its inclusion of arbitration proceedings in</span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">section 150.002 than to require plaintiffs in those proceedings to file a certificate of merit. See id.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">§ 150.002(a); see also CMH Homes v. Perez, 340 S.W.3d 444, 447 (Tex. 2011) (we strictly apply</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">statutes granting interlocutory appeals because they are a narrow exception to general rule that</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">interlocutory orders are not immediately appealable).</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Because neither section 150.002(f) nor the TAA provides courts with the jurisdiction to</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">review an arbitration panel’s denial of a motion to dismiss, the trial court’s order on appellant’s </span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"> –8–</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">motion to vacate the panel’s decision is void for lack of jurisdiction. Appellants have requested</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">that, if we determine the right to interlocutory appeal does not apply in this case, we treat their</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">appeal as a petition for writ of mandamus and order the trial court to render judgment dismissing</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">AMX’s arbitration claims for failure to comply with section 150.002. Absent court jurisdiction to</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">review the arbitration panel’s interlocutory decision, however, there is no further relief we can</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">grant, or action we can compel the trial court to take, with respect to the panel’s decision.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Based on the foregoing, we vacate the trial court’s order as void and dismiss this appeal</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">for want of jurisdiction.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">171064F.P05</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">/Molly Francis.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">MOLLY FRANCIS</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;">JUSTICE </span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: x-small;"> –9–</span></span></div>
<div style="background-color: white; position: relative;">
<br /></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">Court of Appeals</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">Fifth District of Texas at Dallas</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="color: #cc0000; font-size: large;"><b>JUDGMENT</b></span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">SM ARCHITECTS, PLLC AND ROGER</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">STEPHENS, Appellants</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">No. 05-17-01064-CV V.</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">AMX VETERAN SPECIALTY</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">SERVICES, LLC, Appellee</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"> On Appeal from the 116th Judicial District</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">Court, Dallas County, Texas</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">Trial Court Cause No. DC-17-11230.</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">Opinion delivered by Justice Francis.</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">Justices Bridges and Lang-Miers</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">participating.</span></span></div>
<div style="background-color: white; position: relative; text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span></div>
<div style="background-color: white; position: relative; text-align: left;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"> </span></span><span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">In accordance with this Court’s opinion of this date, the order of the trial court is </span></span><span style="color: #222222; font-family: "arial" , sans-serif; font-size: 15px;">VACATED AS VOID and the case is DISMISSED for want of jurisdiction.</span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"> It is ORDERED that appellee AMX VETERAN SPECIALTY SERVICES, LLC recover</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">its costs of this appeal from appellants SM ARCHITECTS, PLLC AND ROGER STEPHENS.</span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;">Judgment entered November 8, 2018. </span></span><br />
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span>
<br />
<center style="font-family: Arial, sans-serif; font-size: 14px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
<span style="color: #990000;">SM ARCHITECTS, PLLC AND ROGER STEPHENS, Appellant,<br />v.<br />AMX VETERAN SPECIALTY SERVICES, LLC, Appellee.</span></h3>
</center>
<center style="color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<a href="https://scholar.google.com/scholar?scidkt=15193947668975782649&as_sdt=2&hl=en" style="color: #660099;">No. 05-17-01064-CV.</a></center>
<center style="color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<div style="position: relative;">
<b>Court of Appeals of Texas, Fifth District, Dallas.</b></div>
</center>
<center style="color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
Order entered March 20, 2018.</center>
<div style="color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Gregory N. Ziegler, Bryan Rutherford, Weston M. Davis, for SM Architects, PLLC and Roger Stephens, Appellant.</div>
<div style="color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Doug Drucker, David P. Kallus, Kirby D. Hopkins, for AMX Veteran Specialty Services, LLC, Appellee.</div>
<div style="color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On Appeal from the 116th Judicial District Court, Dallas County, Texas, Trial Court Cause No. DC-17-11230.</div>
<div style="color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
ORDER</h2>
<div style="color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
ADA BROWN, Justice.</div>
<div style="color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Before the Court is appellee's March 19, 2018 unopposed motion for an extension of time to file a brief. We GRANT the motion and extend the time to March 29, 2018. We caution appellee that further requests for extension in this accelerated appeal will be disfavored.</div>
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"></span></span><br />
<div style="color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Also before the Court is appellee's March 19, 2018 motion to dismiss the appeal for want of jurisdiction. By order dated December 5, 2017, the Court deferred the issue of this Court's jurisdiction over this appeal to the submissions panel. We instructed the parties to address in their briefs on the merits both the trial court's jurisdiction to enter the October 31, 2017 order and this Court's jurisdiction over the appeal. Accordingly, we defer appellee's motion to dismiss to the submissions panel.</div>
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span>
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 15px;"><br /></span></span></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-83095130778779765552018-10-09T05:02:00.002-07:002018-11-06T14:12:53.092-08:00Is arbitration clause in non-compliant attorney-client fee agreement enforceable? - Preview of Jonathan Cavanaugh v. Law Office of Thomas J. Henry (PFR filed in Texas Supreme Court) <div style="text-align: center;">
<b><span style="color: red;"><span style="color: #cc0000; font-size: large;">Is illegality of contingent-fee contract under Texas Gov’t Code § 82.065 arbitrable?</span><span style="color: #0b5394; font-size: large;"> </span></span></b></div>
<br />
Several arbitration-related disputes have recently reached the Texas Supreme Court. One of them involves a challenge to arbitration based on an arbitration agreement within a contingent-fee contract that does not comply with Government Code §82.065(a). That section requires that such a contract be signed by both attorney and client. <a href="http://www.search.txcourts.gov/Case.aspx?cn=18-0562&coa=cossup">Cavanaugh v. Law Office of Thomas J. Henry</a>, Tex. Docket No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=18-0562&coa=cossup">18-0562</a>).<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-mZdVmJsWKdQ/W-IRDPX-D4I/AAAAAAAAK9E/CGF86ncK5pwxsFZ2lGzbUXLkrX_TRVBdACLcBGAs/s1600/DSCN0626-TexApp.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="Law Offices of Thomas J. Henry in Corpus Christi (2017 photo) " border="0" data-original-height="1200" data-original-width="1600" height="300" src="https://1.bp.blogspot.com/-mZdVmJsWKdQ/W-IRDPX-D4I/AAAAAAAAK9E/CGF86ncK5pwxsFZ2lGzbUXLkrX_TRVBdACLcBGAs/s400/DSCN0626-TexApp.JPG" title="Law Offices of Thomas J. Henry in Corpus Christi (2017 photo) " width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Law Offices of Thomas J. Henry in Corpus Christi (2017 photo) </td></tr>
</tbody></table>
The client had signed the Contract online, but nobody had signed on the signature line provided for the Law Firm. Some time after it had filed a personal injury lawsuit on behalf of Cavanaugh, the Law Firm was fired, but it subsequently intervened to assert its contingent fee interest and also filed an arbitration claim. The former client countered with a motion to abate the arbitration based on the Texas General Arbitration Act (TGAA, sometimes TAA), which the trial court granted. The Dallas Court of Appeals, however, reversed the abatement order. <a href="http://www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=6955deeb-2c1d-4d51-83d2-9af399cc5865&coa=coa05&DT=Opinion&MediaID=5f298667-5a18-4a7a-8868-fb918c6ef803">Law Office of Thomas J. Henry v. Cavanaugh</a>, No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=05-17-00849-CV&coa=coa05">05-17-00849-CV</a>, 2018 WL 2126936 (Tex.App.- Dallas, May 7, 2018, pet. filed and docketed under No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=18-0562&coa=cossup">18-0562</a>).<br />
<br />
In his petition for review to the Texas Supreme Court, Cavanaugh does not contend that there was no contract because he did not sign it, but argues that the Law Firm never assented to it because it did not also sign it and that therefore no contract existed, which supports abatement of the pending arbitration under the TGAA.<br />
<br />
An arbitration agreement, however, does not require signatures to be valid, at least not under the Federal Arbitration Act (FAA), provided the parties otherwise agreed to arbitrate. The Law Firm accordingly argued that the agreement was accepted by the Law Firm’s conduct (by assuming Cavanaugh’s representation and prosecuting his personal injury claim), that therefore the absence of the Law Firms signature was inconsequential. As to the contention of illegality, the Law Firm asserted that this challenge to the Contract under the Government Code was for the arbitrator to decide because it was a challenge to the validity of the contract as a whole, rather than a challenge to the validity of the arbitration agreement specifically.<br />
<br />
The case presents a number of atypical issues, though they are not unique.<br />
<br />
Inconsistently, the Contract invokes both the TGAA and the FAA and also contemplates litigation and specifies the county in which any litigation and/or arbitration is to take place: Nueces County. Cavanaugh moved for abatement of the arbitration initiated against him under the TGAA and argued that under the TGAA both parties and their attorneys must sign the arbitration agreement for it to pass muster. Cavanaugh did not have independent representation when he signed the Contract and the Law Firm did not sign before the attorney-client relationship terminated. This requirement under the TGAA, however, only applies to personal injury claims. Cavanaugh’s underlying claim met that definition, but the Law Firm’s claim against Cavanaugh was for fee recovery under the contingent fee provisions of the contract for representation in the personal injury suit. Does the signature requirement apply under such circumstances because the Law Firm’s claim is derivative of or sufficiently related to the personal injury claim? The court of appeals are not in agreement. Even assuming the answer is yes, this would entail an additional inquiry: Does the FAA, which contains no similar requirement, preempt the TGAA in this regard and render it unenforceable? The Court of Appeals mentioned this facet of the case in a footnote.<br />
<br />
A second issue concerns the rules governing the allocation of authority between court and arbitrator. Paragraph 10 of the Contract invokes the FAA and specifies that the arbitration is to be conducted by the American Arbitration Association under its Commercial Rules. Those Rules give the arbitrator the power to decide issues of arbitrability and contract validity. But the Rules were not offered into evidence in the trial court, and Dallas Court of Appeals accordingly concluded that the Court was required to decide arbitrability, rather than the arbitrator. Interestingly, the Appeals Court cited the Rules and provided the URL where they are available, but did not expressly take judicial notice of them. Would the outcome in the trial court have been different if the Rules had been offered by the Law Firm at the hearing? If so, the case might never have reached the appellate level. But it did because the trial court granted Cavanaugh’s motion to abate based on the TGAA, and the Law Firm took an interlocutory appeal from this ruling. Will the Texas Supreme Court agree that the AAA Rules must be offered as evidence before the trial court can give them effect? It remains to be seen.<br />
<br />
The most intriguing issue in the case concerns the effect of the apparent illegality of the contingent fee contract under Section 82.065(a) of the Government Code, whether it ultimately be decided judicially or by the arbitrator.<br />
<br />
The Texas Supreme Court recently held in the Hill v. Shamoun & Norman LLP, 544 S.W.3d 724 (Tex. 2018) that a law firm may pursue a fee claim as a quantum meruit claim where an (alleged) contingent fee agreement was not in writing and signed by both parties thus making it unenforceable under 82.065(a)—but that the measure of damages on the quantum meruit claim cannot be the percentage specified in the unenforceable contingent fee contract. Instead, the Law Firm would have to adduce evidence of the reasonable value of the services that it rendered (which would typically be less).<br />
<br />
The same should apply here. What adds a wrinkle not present in Hill v. Shamoun, however, is the presence of an arbitration clause within the unenforceable contingent fee contract. Should the arbitration clause be enforced irrespective of the apparent illegality and unenforceability of the contract as a whole? Should the arbitration clause be severed and enforced irrespective of any issues affecting the remainder of the contract? Or should the court—while considering and deciding arbitrability—sever and invalidate only the contingent fee provisions of the Contract while leaving the remainder intact, and send the case to arbitration without the contingent-fee provisions, which would preclude a breach-of-contract claim, but not one in quantum meruit?<br />
<br />
<b>The implications of Hill v. Shamoun & Norman </b><br />
<br />
The question of severability was not expressly raised in Cavanaugh’s petition for review, but the Contract contains a severance and savings clause which provides that the remainder the Contract shall remain unaffected if any part of it were be held illegal or unenforceable. The court or arbitrator would thus have a basis in the contract itself to invalidate and then sever the contingent fee provision, thereby making the Contract compliant with section 82.065(a). This would appear to entail the conclusion that the Law Firm can recover nothing from its former client because there is no provision for an alternative basis for a fee calculation. Under Hill v. Shamoun, however, the Law Firm would not be precluded from pursuing a quantum meruit claim, albeit of lesser value, even if the contingent fee provisions are null and void as against public policy. Under that theory, the recovery would likely be more modest because the Law Firm was fired before the conclusion of the underlying personal injury case and did not therefore fully perform. Whether the termination by the client was for cause involves issues of facts and appears to be disputed.<br />
<br />
It remains to be seen whether the Supreme Court even grants review. Law Office of Thomas J. Henry v. Cavanaugh would provide it with an opportunity to decide whether questions of legality in the provision of legal services in Texas, which the Supreme Court oversees, may be deferred for decision to an arbitrator, or are of such great import as to justify invalidation of a noncompliant attorney-client contract in toto as against public policy regardless of whether or not it contains an arbitration clause. The Court could do so by declaring such a contract to be void ab initio and therefore not recognized by Texas law as ever having been formed irrespective of signatures and evidence of performance.<br />
There is, of course, a strong argument that the arbitration agreement within the Contract can stand alone, does not require signatures to be valid under the FAA, and falls outside the scope of section 82.065(a). This argument is even stronger in this case because the Contract itself provides for severability of any provisions found invalid and because the arbitration clause is worded broadly. It is not limited to claims that arise from the contract. As such, it would cover a quantum meruit claim of the type the High Court allowed to go forward in Hill v. Shamoun, and it would also cover any counterclaims by the client because it encompasses any claims arising from or relating to the attorney-client relationship, which does not require a formal contract under Texas law. In other words, the arbitration agreement (paragraph 10) does not depend on the validity of the contract of which it is a part and would not be rendered moot if a breach-of-contract cause of action were barred by section 82.065(a).<br />
<br />
The Dallas Court of Appeals Opinion in Law Office of Thomas J. Henry v. Cavanaugh follows below:<br />
<div>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
LAW OFFICE OF THOMAS J. HENRY, Appellant,<br />v.<br />JONATHAN CAVANAUGH, Appellee.</h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<a href="https://scholar.google.com/scholar?scidkt=189781583572120059&as_sdt=2&hl=en" style="color: #660099;">No. 05-17-00849-CV.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<div style="position: relative;">
<b>Court of Appeals of Texas, Fifth District, Dallas.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
Opinion Filed May 7, 2018.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Jack George Ternan, Greggory Teeter, Gabbie Shamae Canales, for Jonathan Cavanaugh, Appellee.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Michael G. Terry, Ryan Squires, Jeffery E. Pratt, Thomas J. Henry, Stephen E. McConnico, Ray Donley, Jane M. N. Webre, Darrell L. Barger, for Law Office of Thomas J. Henry, Appellant.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
On Appeal from the 116th Judicial District Court, Dallas County, Texas, Trial Court Cause No. DC-17-02977.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
REVERSE and REMAND.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Before Justices Lang-Miers, Fillmore, and Stoddart.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
MEMORANDUM OPINION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Opinion by Justice ROBERT M. FILLMORE.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The Law Office of Thomas J. Henry (the Firm) brings this interlocutory appeal from the trial court's order staying an arbitration between the Firm and its former client, Jonathan Cavanaugh. <i>See</i> TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(2) (West 2011). The Firm argues the trial court erred by staying the arbitration because there was an agreement to arbitrate, the Firm did not waive its right to arbitrate, and the arbitration provision is not subject to the provisions of section 171.002(a)(3) of the civil practice and remedies code.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#[1]" name="r[1]" style="color: #660099;">[1]</a></sup> We reverse the trial court's order staying arbitration and remand this case to the trial court.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Background</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Cavanaugh was involved in a traffic accident on June 8, 2015. The next day, Cavanaugh electronically signed a "Power of Attorney and Contingent Fee Contract" (the Contract) with the Firm. The Contract identified Cavanaugh as the "Client" and the Firm as "Attorneys."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
On the first page of the Contract, above the title, is the statement, "THIS CONTRACT IS SUBJECT TO ARBITRATION." Section ten of the Contract provides:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
ARBITRATION</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Any and all disputes, controversies, claims or demands arising out of or relating to this Agreement or any provision hereof, the providing of services by Attorneys to Client, or in any way relating to the relationship between Attorneys and Client, whether in contract, tort or otherwise, at law or in equity, for damages or any other relief, shall be resolved by binding arbitration pursuant to the Federal Arbitration Act in accordance with the Commercial Arbitration Rules then in affect with the American Arbitration Association. Any such arbitration proceeding shall be conducted in Nueces County, Texas. This arbitration provision shall be enforceable in either federal or state court in Nueces County, Texas, pursuant to the substantive federal laws established by the Federal Arbitration Act. Any party to any award rendered in such arbitration proceeding may seek a judgment upon the award and that judgment may be entered by any federal or state court in Nueces County, Texas, having jurisdiction.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Immediately before the signature line for Cavanaugh is the statement, "THIS CONTRACT IS SUBJECT TO ARBITRATION UNDER THE TEXAS GENERAL ARBITRATION STATUTE." Finally, the Contract stated it would be governed by the laws of the State of Texas.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
On July 9, 2015, the Firm filed suit on behalf of Cavanaugh in the 116th Judicial District Court of Dallas County. Cavanaugh terminated the Firm's representation in December 2016. The Firm filed a petition in intervention in Cavanaugh's lawsuit on January 4, 2017, asserting the representation was terminated without good cause and that it maintained "its contractual attorney fee and expense interest in this cause of action." In its petition, the Firm requested the trial court enforce the arbitration provision in the Contract. The trial court severed the petition in intervention from the underlying lawsuit.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The Firm filed a demand for arbitration with the American Arbitration Association (AAA). Cavanaugh filed a motion to stay the arbitration on grounds (1) there was no agreement to arbitrate because the Firm did not sign the Contract; (2) the Firm materially breached the arbitration provision by filing the petition in intervention in Dallas County, excusing Cavanaugh from complying with "any forum selection obligations"; and (3) the arbitration agreement is not enforceable because Cavanaugh was not represented by separate counsel at the time he signed the Contract. In support of the motion, Cavanaugh presented evidence that he signed the Contract on June 9, 2015; he was not represented by separate counsel at the time he signed the Contract; he never received a copy of the Contract that was signed by the Firm; the Firm had a policy of not signing contingent fee agreements with clients; and he terminated the Contract for "many reasons" that he considered to be "good cause," including the Firm's failure to sign the Contract. The trial court granted Cavanaugh's motion and stayed the arbitration without specifying the basis for its ruling.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Applicable Law</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The Contract inconsistently states any arbitration between the parties shall be conducted pursuant to the Federal Arbitration Act, <i>see</i> 9 U.S.C.A. §§ 1-16 (West 2009) (the FAA), and that it is subject to arbitration under the "Texas General Arbitration statute," <i>see</i> TEX. CIV. PRAC. & REM. CODE ANN. §§ 171.001-.098 (West 2011) (the TAA). The FAA generally governs arbitration provisions in contracts involving interstate commerce. <i>Henry v. Cash Biz, LP,</i> No. 16-0854, 2018 WL 1022838, at *2 (Tex. Feb. 23, 2018). The FAA preempts state statutes that are inconsistent with the federal law. <a href="https://scholar.google.com/scholar_case?case=11071877925137859263&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>In re D. Wilson Constr. Co.,</i> 196 S.W.3d 774, 780 (Tex. 2006)</a> (orig. proceeding). The FAA, therefore, preempts the TAA if the state law precludes enforcement of an arbitration agreement enforceable under the FAA by either (1) expressly exempting the agreement from coverage, or (2) imposing an enforceability requirement not found in the FAA. <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<i><br /></i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Nothing in the appellate record indicates the Contract involves interstate commerce. Further, the Contract stated it would be governed by the laws of the State of Texas; Cavanaugh moved to stay the arbitration under the TAA; and in the trial court and this Court, both parties relied on the TAA as the law applicable to the trial court's decision to grant the motion to stay. Therefore, we presume the TAA governs. <i>See </i><a href="https://scholar.google.com/scholar_case?case=7525206418111218344&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>G.T. Leach Builders, LLC v. Sapphire V.P., LP,</i> 458 S.W.3d 502, 519 n.14 (Tex. 2015)</a>; <i>Signature Pharms., L.L.C. v. Ranbaxy, Inc.,</i> No. 05-17-00412-CV, 2018 WL 1250006, at *4 n.2 (Tex. App.-Dallas Mar. 12, 2018, no pet. filed) (mem. op.). However, we cite cases decided under both acts, as they share the same core substantive principles. <i>See </i><a href="https://scholar.google.com/scholar_case?case=2991885428483591911&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Forest Oil Corp. v. McAllen,</i> 268 S.W.3d 51, 56 n.10 (Tex. 2008)</a> (noting similarities between FAA and predecessor statute to TAA and, where appropriate, relying interchangeably on cases that discuss both acts); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=7525206418111218344&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>G.T. Leach Builders, LLC,</i> 458 S.W.3d at 519 n.14</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Under the TAA, if an arbitration has been commenced, the trial court may stay the arbitration on a showing there is not an agreement to arbitrate. TEX. CIV. PRAC. & REM. CODE ANN. § 171.023(a). A party who seeks to stay arbitration pursuant to section 171.023(a) has the burden to prove there is not an agreement to arbitrate. <i>See id.</i>; <a href="https://scholar.google.com/scholar_case?case=15103022756110949795&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Valerus Compression Servs., LP v. Austin,</i> 417 S.W.3d 202, 212 (Tex. App.-Austin 2013, no pet.)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Agreement to Arbitrate</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In its first issue, the Firm argues the trial court erred by granting Cavanaugh's motion to stay because Cavanaugh failed to establish there was not an agreement to arbitrate. It is undisputed the Contract was signed by Cavanaugh and contained an agreement to arbitrate.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#[2]" name="r[2]" style="color: #660099;">[2]</a></sup> Cavanaugh, however, asserted in his motion to stay that the arbitration agreement was not valid because (1) section 82.065 of the government code requires a contingent fee agreement for legal services to be in writing and signed by the attorney and client, and (2) the Firm's failure to sign the Contract prior to the termination of the representation established there was neither a meeting of minds regarding the terms of the Contract nor delivery of the Contract.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#[3]" name="r[3]" style="color: #660099;">[3]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>Standard of Review</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
When reviewing an order granting a motion to stay arbitration, we apply a no-evidence standard to the trial court's factual determinations and a de novo standard to legal determinations. <a href="https://scholar.google.com/scholar_case?case=15103022756110949795&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Valerus Compression Servs., LP,</i> 417 S.W.3d at 213</a>; <a href="https://scholar.google.com/scholar_case?case=4899066620197914692&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>ODL Servs., Inc. v. ConocoPhillips Co.,</i> 264 S.W.3d 399, 417 (Tex. App.-Houston [1st Dist.] 2008, no pet.)</a>; <i>see also Henry,</i> 2018 WL 1022838, at *3 (addressing standard of review applicable to order denying motion to compel arbitration). Whether a valid arbitration agreement exists is a legal question that we review de novo. <a href="https://scholar.google.com/scholar_case?case=12596166907904856385&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>J.M. Davidson, Inc. v. Webster,</i> 128 S.W.3d 223, 227 (Tex. 2003)</a>; <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=8089733622640743668&q=05-17-00849-CV&hl=en&as_sdt=2006" style="border-bottom: 1px dotted rgb(102, 0, 153); color: #660099; text-decoration-line: none;"><i>Gables Cent. Constr., Inc. v Atrium Cos., Inc.,</i> No. 05-07-00438-CV, 2009 WL 824732, at *2 (Tex. App.-Dallas Mar. 31, 2009, pet. abated)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>Analysis</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
"There are two types of challenges to an arbitration provision: (1) a specific challenge to the validity of the arbitration agreement or clause, and (2) a broader challenge to the entire contract, either on a ground that directly affects the entire agreement, or on the ground that one of the contract's provisions is illegal and renders the whole contract invalid." <a href="https://scholar.google.com/scholar_case?case=11064332715902942515&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>In re Labatt Food Serv., L.P.,</i> 279 S.W.3d 640, 647-48 (Tex. 2009)</a> (orig. proceeding) (citing <a href="https://scholar.google.com/scholar_case?case=16108030830731717705&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Buckeye Check Cashing, Inc. v. Cardegna,</i> 546 U.S. 440, 444 (2006)</a>). A court may determine the first type of challenge, but a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator. <i>Id.</i> at 648; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=14089149638331931809&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Royston, Rayzor, Vickery & Williams, LLP v. Lopez,</i> 467 S.W.3d 494, 501 (Tex. 2015)</a> ("[C]hallenges relating to an entire contract will not invalidate an arbitration provision in the contract; rather, challenges to an arbitration provision in a contract must be directed specifically to that provision.")</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
We interpret arbitration agreements under traditional contract interpretation principles. <a href="https://scholar.google.com/scholar_case?case=12596166907904856385&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>J.M. Davidson,</i> 128 S.W.3d at 227</a>. The elements of a valid written contract, including agreements to arbitrate, are: (1) an offer, (2) an acceptance, (3) a meeting of the minds, (4) each party's consent to the terms, and (5) execution and delivery of the contract with the intent it be mutual and binding. <i>Ladymon v. Lewis,</i> No. 05-16-00776-CV, 2017 WL 3097652, at *4 (Tex. App.-Dallas July 21, 2017, no pet.) (mem. op.). The term "meeting of the minds" refers to the "parties' mutual understanding and assent to the expression of their agreement." <a href="https://scholar.google.com/scholar_case?case=17731423847544754839&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Weynand v. Weynand,</i> 990 S.W.2d 843, 846 (Tex. App.-Dallas 1999, pet. denied)</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=17158545234393358113&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Izen v. Comm'n for Lawyer Discipline,</i> 322 S.W.3d 308, 318 (Tex. App.-Houston [1st Dist.] 2010, pet. denied)</a>. "The parties must agree to the same thing, in the same sense, at the same time." <a href="https://scholar.google.com/scholar_case?case=1766006021206630855&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Celmer v. McGarry,</i> 412 S.W.3d 691, 700 (Tex. App.-Dallas 2013, pet. denied)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Cavanaugh contended in his motion to stay that there was no agreement to arbitrate because the Firm's failure to sign the Contract established there was neither a meeting of the minds as to the terms of the Contract nor delivery of the Contract. Texas law, however, generally does not require that arbitration clauses be signed, "so long as they are written and agreed to by the parties." <a href="https://scholar.google.com/scholar_case?case=3285949594056466098&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>In re AdvancePCS Health L.P.,</i> 172 S.W.3d 603, 606 (Tex. 2005)</a> (orig. proceeding) (per curiam); <a href="https://scholar.google.com/scholar_case?case=3760959176604528889&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Southwinds Express Constr., LLC v. D.H. Griffin of Tex., Inc.,</i> 513 S.W.3d 66, 75 (Tex. App.-Houston [14th Dist.] 2016, no pet.)</a>. Although a "party's signature on a contract is `strong evidence' that the party unconditionally assented to its terms," <a href="https://scholar.google.com/scholar_case?case=3760959176604528889&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Southwinds Express Constr., LLC,</i> 513 S.W.3d at 75,</a> the "absence of a party's signature does not necessarily destroy an otherwise valid contract and is not dispositive of the question of whether the parties intended to be bound by the terms of the contract," <i>Ladymon,</i> 2017 WL 3097652, at *4. Rather, "other evidence may be used to establish the nonsignatory's unconditional assent to be bound by the contract, including any arbitration provision." <i>Id.</i> Specifically, "[i]f one party signs a contract, the other party may accept by his acts, conduct, or acquiescence to the terms, making it binding on both parties." <i>Foster v. Nat'l Collegiate Student Loan Trust 2007-4,</i> No. 01-17-00253-CV, 2018 WL 1095760, at *9 (Tex. App.-Houston [1st Dist.] Mar. 1, 2018, no pet. h.) (mem. op.); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=1820576798960453006&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>In re Halliburton Co.,</i> 80 S.W.3d 566, 569 (Tex. 2002)</a> (orig. proceeding) (concluding arbitration clause was accepted by continued employment); <a href="https://scholar.google.com/scholar_case?case=747721896711676838&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Cedillo v. Immobiliere Jeuness Establissement,</i> 476 S.W.3d 557, 564 (Tex. App.-Houston [14th Dist.] 2015, pet. denied)</a>. "In the absence of a signature on a contract, a court may look to other evidence to establish the parties' assent to the terms of the contract." <a href="https://scholar.google.com/scholar_case?case=9585137106010287740&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Firstlight Fed. Credit Union v. Loya,</i> 478 S.W.3d 157, 168 (Tex. App.-El Paso 2015, no pet.)</a>.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#[4]" name="r[4]" style="color: #660099;">[4]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The evidence attached to Cavanaugh's motion to stay established Cavanaugh signed the Contract on June 9, 2015. The Contract required the Firm to "sue for and recover all damages and compensation to which [Cavanaugh] may be entitled as well as to compromise and settle all claims arising out of on or about: 6/8/2015." The Firm filed suit on Cavanaugh's behalf and continued to represent him until December 2016. Because the evidence established there was conduct by the Firm indicating it had agreed to the terms of the Contract, the Firm's failure to sign the Contract, standing alone, was insufficient to establish there was no meeting of the minds as to the terms of the parties' agreement.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Cavanaugh also contended the agreement to arbitrate was not valid because the Contract failed to comply with section 82.065(a) of the government code. Section 82.065(a) provides that a "contingent fee contract for legal services must be in writing and signed by the attorney and client." TEX. GOV'T CODE ANN. § 82.065(a) (West Supp. 2017). In the absence of barratry, the statute does not state any consequence or remedy for failing to comply with its requirements. <i>See id.</i> § 82.065(b); <a href="https://scholar.google.com/scholar_case?case=16431676539701959591&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Gillespie v. Hernden,</i> 516 S.W.3d 541, 551 (Tex. App.-San Antonio 2016, pet. denied)</a>. This Court, however, addressed the validity of a contingent fee agreement that was not signed by both the attorney and client in <a href="https://scholar.google.com/scholar_case?case=10672504398419583978&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Tillery & Tillery v. Zurich Ins. Co.,</i> 54 S.W.3d 356 (Tex. App.-Dallas 2001, pet. denied)</a>. In <i>Tillery,</i> an attorney sent a contingent fee agreement to a client in a letter. <i>Id.</i> at 357-58. Although the client did not sign the letter, the attorney filed an intervention on behalf of the client. <i>Id.</i> at 358. Before the attorney had done any substantial work on the case, the client told the attorney to take no further action. <i>Id.</i> We concluded a "contingent fee agreement that does not meet the requirements of section 82.065 is voidable by the client." <i>Id.</i> at 359;<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#[5]" name="r[5]" style="color: #660099;">[5]</a></sup> <i>see also </i><a href="https://scholar.google.com/scholar_case?case=6506693617524075757&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>In re Estate of Arizola,</i> 401 S.W.3d 664, 671 (Tex. App.-San Antonio 2013, pet. denied)</a> ("The client may void a contingent fee contract that violates section 82.065 by expressing his intent to do so before the attorney has fully or substantially performed."); <a href="https://scholar.google.com/scholar_case?case=17323923736942158682&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Cobb v. Stern, Miller & Higdon,</i> 305 S.W.3d 36, 42 (Tex. App.-Houston [1st Dist.] 2009, no pet.)</a> (same); <a href="https://scholar.google.com/scholar_case?case=5332956517793048999&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Sanes v. Clark,</i> 25 S.W.3d 800, 805 (Tex. App.-Waco 2000, pet. denied)</a>(concluding oral contingent fee agreement was voidable by client).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
A "voidable" contract is one that is "valid and effective unless and until the party entitled to avoid it takes steps to disaffirm it." <a href="https://scholar.google.com/scholar_case?case=7788763723473197593&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Neese v. Lyon,</i> 479 S.W.3d 368, 378 (Tex. App.-Dallas 2015, no pet.)</a>. Those steps may include expressing an intent to void the agreement before the attorney has fully or substantially performed. <a href="https://scholar.google.com/scholar_case?case=10672504398419583978&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Tillery,</i>54 S.W.3d at 359</a>.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#[6]" name="r[6]" style="color: #660099;">[6]</a></sup> However, an attorney's failure to sign a contingent fee contract, standing alone, does not make the agreement unenforceable against the client. <a href="https://scholar.google.com/scholar_case?case=14988227704286712446&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Chambers v. O'Quinn,</i> 305 S.W.3d 141, 152 (Tex. App.-Houston [1st Dist.] 2009, pet. denied)</a> (agreeing with conclusion in <a href="https://scholar.google.com/scholar_case?case=16014494718898128337&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Enochs v. Brown,</i> 872 S.W.2d 312, 317-19 (Tex. App.-Austin 1994, no writ),</a> <i>disapproved of on other grounds by </i><a href="https://scholar.google.com/scholar_case?case=13580576374315523710&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Roberts v. Williamson,</i> 111 S.W.3d 113, 120 (Tex. 2003),</a> that failure of contingent fee agreement to comply with section 82.065 because attorney did not sign contract did not make contract void and attorney who fully performed contract could enforce it against client who signed contract).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The evidence attached to Cavanaugh's motion to stay established the Contract was signed by Cavanaugh and contained an agreement to arbitrate. The Firm's failure to sign the Contract was insufficient to establish either that the Contract was not binding on Cavanaugh or was void. Cavanaugh, therefore, failed to carry his burden to show there was no agreement to arbitrate. Cavanaugh's contention the Contract is unenforceable, which is an attack on the entire Contract, must be determined by the arbitrator. <i>See </i><a href="https://scholar.google.com/scholar_case?case=14089149638331931809&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Royston, Rayzor, Vickery & Williams, LLP,</i> 467 S.W.3d at 501</a>; <a href="https://scholar.google.com/scholar_case?case=14238257683202276384&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>In re Merrill Lynch Trust Co., FSB,</i> 235 S.W.3d 185, 190 n.12 (Tex. 2007)</a> (orig. proceeding) (concluding defenses related to the parties' entire contract rather than arbitration clause alone was question for arbitrators rather than courts). We resolve the Firm's first issue in its favor.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Prior Material Breach of the Contract</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In its second issue, the Firm argues the trial court erred by determining the Firm waived its right to arbitrate. In his motion to stay, Cavanaugh contended (1) the arbitration provision in the Contract constituted a forum selection clause, (2) the Contract required any arbitration to take place in Nueces County, (3) the Firm materially breached the Contract by filing the petition in intervention in Dallas County, and (4) the Firm's breach excused Cavanaugh from complying with the forum selection clause. Although Cavanaugh couched his argument in terms of breach of contract, he essentially asserted the Firm waived its right to arbitration by filing the petition in intervention. <i>See In re Deeb,</i> No. 03-17-00635-CV, 2017 WL 6503045, at *1 (Tex. App.-Austin Dec. 15, 2017, orig. proceeding) (mem. op.) (addressing claim defendant breached terms of arbitration agreement as argument defendant waived right to arbitrate).<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#[7]" name="r[7]" style="color: #660099;">[7]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Whether a party has waived its right to arbitration is a question of law that we review de novo. <i>Henry,</i> 2018 WL 1022838, at *3. A party waives the right to arbitration by substantially invoking the judicial process to the other party's detriment or prejudice. <i>Id.</i> at *4; <a href="https://scholar.google.com/scholar_case?case=17904719791279829693&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Kennedy Hodges, L.L.P. v. Gobellan,</i> 433 S.W.3d 542, 545 (Tex. 2014) (per curiam)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The party claiming waiver has the heavy burden of establishing the judicial process was substantially invoked. <i>Medinet Invests, LLC v. English,</i> No. 05-17-00179-CV, 2018 WL 1602525, at *4 (Tex. App.-Dallas Apr. 3, 2018, no pet. h.) (mem. op.); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=17904719791279829693&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Kennedy Hodges,</i> 433 S.W.3d at 545</a> ("The strong presumption against waiver of arbitration renders this hurdle a high bar."). Whether a party has substantially invoked the judicial process depends on the specifics of each case. <i>Henry,</i> 2018 WL 1022838, at *4. The necessary conduct must go beyond merely filing suit or seeking initial discovery. <i>Id.</i> Factors the courts consider in determining whether the judicial process was substantially invoked include the length of time the party waited to compel arbitration, any reasons for the delay, the party's knowledge of the arbitration agreement during the period of delay, how much and what kind of discovery was conducted before arbitration was sought, whether the party requested the court to dispose of any claims on the merits or asserted affirmative claims for relief, how much merits-related pretrial activity the party engaged in, how much time and expense the parties have committed to the litigation, whether the discovery conducted would be unavailable or useful in arbitration, whether activity in court would be duplicated in arbitration, and when the case was scheduled to be tried. <a href="https://scholar.google.com/scholar_case?case=7525206418111218344&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>G.T. Leach Builders, LLC,</i> 458 S.W.3d at 512</a>(citing <a href="https://scholar.google.com/scholar_case?case=12607566796162006396&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Perry Homes v. Cull,</i> 258 S.W.3d 580, 590-92 (Tex. 2008)</a>).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Shortly after Cavanaugh terminated the representation, the Firm intervened in the underlying lawsuit, asserting its right to attorneys' fees pursuant to the Contract. In its petition in intervention, the Firm requested the trial court enforce the arbitration provision in the Contract. Filing the petition in intervention did not constitute a substantial invocation of the litigation process by the Firm. <i>See Henry,</i> 2018 WL 1022838, at *4 (merely filing suit is not substantially invoking the judicial process). Because Cavanaugh failed to establish the Firm substantially invoked the judicial process, we need not consider whether Cavanaugh suffered prejudice. <i>See id.</i> at *6.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
We conclude the Firm did not waive its right to arbitrate by filing the petition in intervention in Dallas County. Accordingly, we resolve the Firm's second issue in its favor.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Compliance with Section 171.002</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In its third issue, the Firm asserts the trial court erred by applying section 171.002 of the civil practice and remedies code to preclude the enforcement of the arbitration agreement in the Contract. "The applicability of a statute is a question of law that we review de novo." <i>Landing Cmty. Improvement Ass'n, Inc. v. Young,</i> No. 01-15-00816-CV, 2017 WL 3910893, at *17 (Tex. App.-Houston [1st Dist.] Sept. 7, 2017, no pet.) (mem. op.) (citing <a href="https://scholar.google.com/scholar_case?case=8227542418100022905&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>First Am. Title Ins. Co. v. Combs,</i> 258 S.W.3d 627, 631 (Tex. 2008)</a>).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Section 171.002 provides the TAA does not apply to a claim for personal injury, unless (1) each party to the claim, on the advice of counsel agrees in writing to arbitrate, and (2) the agreement is signed by each party and each party's attorney. TEX. CIV. PRAC. & REM. CODE ANN. § 171.002(a)(3), (c). Relying on <a href="https://scholar.google.com/scholar_case?case=17494495649212992471&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>In re Godt,</i>28 S.W.3d 732 (Tex. App.-Corpus Christi 2000, orig. proceeding),</a> Cavanaugh argued in his motion to stay that the arbitration clause in the Contract was not enforceable because the Firm was "claiming an interest in and damages based on [his] personal injury claims" and he did not have independent counsel at the time he signed the Contract.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In <i>Godt,</i> Pamela Godt hired Thomas J. Henry in late 1997 to represent her in a medical malpractice claim. <i>Id.</i> at 734. Godt signed a contingent fee agreement with Henry that contained an arbitration provision. <i>Id.</i> at 734-35. Henry allegedly failed to investigate Godt's claims and withdrew from the representation shortly before limitations expired. <i>Id.</i> at 734. Godt sued Henry for, among other things, legal malpractice, and Henry filed a motion to compel arbitration based on the arbitration clause in the contingent fee agreement. <i>Id.</i> at 735. The trial court granted the motion to compel arbitration and stayed the lawsuit. <i>Id.</i> In reversing the trial court's decision, the Corpus Christi Court of Appeals concluded the parties' arbitration agreement did not conform to the requirements of section 171.002 of the civil practice and remedies code because Godt was not acting on the advice of counsel when she signed the agreement and the agreement was not signed by an attorney representing either party. <i>Id.</i> at 738-39.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The <i>Godt</i> court's conclusion the contingent agreement failed to comply with section 171.002(c) was premised on its classification of a legal malpractice claim as a claim for personal injury for all purposes. <i>Id.</i> at 738-39. Other courts of appeals have disagreed with this conclusion. <i>See </i><a href="https://scholar.google.com/scholar_case?case=14988227704286712446&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Chambers,</i> 305 S.W.3d at 147-48</a> (claim for legal malpractice is not a claim for personal injury excluded from the scope of the TAA by section 171.002(a)(3)); <a href="https://scholar.google.com/scholar_case?case=11611236446586702536&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Taylor v. Wilson,</i> 180 S.W.3d 627, 629-31 (Tex. App.-Houston [14th Dist.] 2005, pet. denied)</a> (concluding legislature intended to restrict meaning of personal injury exception of TAA to "physical personal injury" and claim for legal practice was not a claim for personal injury within meaning of section 171.002(a)(3)); <a href="https://scholar.google.com/scholar_case?case=4387852475233587172&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Miller v. Brewer,</i> 118 S.W.3d 896, 898-99 (Tex. App.-Amarillo 2003, no pet.)</a>; <a href="https://scholar.google.com/scholar_case?case=9924706988625888156&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>In re Hartigan,</i> 107 S.W.3d 684, 690-91</a> (Tex. App.-San Antonio 2003, orig. proceeding [mand. denied]). Regardless, <i>Godt</i> is not applicable to our analysis because this is not a legal malpractice case. </div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Rather, the Firm intervened in Cavanaugh's lawsuit seeking to recover attorneys' fees it contends it is owed pursuant to the Contract signed by Cavanaugh. These damages are not based on a claim for personal injury and, therefore, section 171.002(a)(3) is not applicable to the Firm's claim. <i>See </i><a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=13837785527849301924&q=05-17-00849-CV&hl=en&as_sdt=2006" style="border-bottom: 1px dotted rgb(102, 0, 153); color: #660099; text-decoration-line: none;"><i>Smith v. Duncan Land & Expl., Inc.,</i> No. 2-05-334-CV, 2006 WL 2034031, at *5 (Tex. App.-Fort Worth July 20, 2006, no pet.)</a> (mem. op.) (concluding attorney's intervention in lawsuit seeking to recover attorney's fee was not claim for personal injury subject to section 171.002(a)(3), (c)); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=4436671957138711779&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>In re Pham,</i> 314 S.W.3d 520, 525-26</a> (Tex. App.-Houston [14th Dist.] 2010, orig. proceeding [mand. denied]) (legal malpractice claim is one for economic loss, not personal injury caused by defendant, and fact that case on which malpractice action is based was for personal injury does not transform malpractice action into action alleging personal injury).<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#[8]" name="r[8]" style="color: #660099;">[8]</a></sup> We resolve the Firm's third issue in its favor.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
We reverse the trial court's order granting Cavanaugh's motion to stay arbitration and remand this case to the trial court for further proceedings.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
JUDGMENT</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In accordance with this Court's opinion of this date, the judgment of the trial court is REVERSED and this cause is REMANDED to the trial court for further proceedings consistent with this opinion.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
It is ORDERED that appellant the Law Office of Thomas J. Henry recover its costs of this appeal from appellee Jonathan Cavanaugh.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;"></small><br />
<div style="position: relative;">
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#r[1]" name="[1]" style="color: #660099;">[1]</a> As relevant to this appeal, section 171.002(a)(3) exempts a claim for personal injury from the Texas Arbitration Act unless (1) each party to the claim, on the advice of counsel, agrees in writing to arbitrate; and (2) the agreement is signed by each party and each party's attorney. TEX. CIV. PRAC. & REM. CODE ANN. § 171.002(a)(3), (c) (West 2011).</small></div>
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;">
</small>
<br />
<div style="position: relative;">
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#r[2]" name="[2]" style="color: #660099;">[2]</a> The arbitration provision in the Contract incorporated the Commercial Arbitration Rules (CARs) of the AAA. Rule R-7(a) of the CARs provides the "arbitrator shall have the power to rule on his or her own jurisdiction, including any objection with respect to the existence, scope or validity of the arbitration agreement[.]" AMERICAN ARBITRATION ASSOCIATION, <i>Commercial Arbitration Rules and Mediation Practice,</i> http://www.adr.org/sites//default/filed/Commercial%220Rules.pdf (last visited April 3, 2018). This Court has concluded a broad arbitration agreement that incorporates rules empowering an arbitrator to decide issues of arbitrability indicates a clear intent by the parties for the arbitrator to consider any objections to the existence, scope, or validity of the arbitration agreement. <i>See </i><a href="https://scholar.google.com/scholar_case?case=11054648449486945196&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Saxa Inc. v. DFD Architecture Inc.,</i> 312 S.W.3d 224, 229-30 (Tex. App.-Dallas 2010, pet. denied)</a>. However, because the CARs were not offered into evidence, the trial court was required to determine the validity of the arbitration agreement. <i>See </i><a href="https://scholar.google.com/scholar_case?case=986013900770964479&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>PER Grp. L.P. v. Dava Oncology, L.P.,</i> 294 S.W.3d 378, 386 (Tex. App.-Dallas 2009, no pet.)</a> (concluding that because the record did not contain the CARs and did not indicate the rules were offered into evidence in trial court, the trial court was required to determine scope of arbitration agreement).</small></div>
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;">
</small>
<br />
<div style="position: relative;">
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#r[3]" name="[3]" style="color: #660099;">[3]</a> We recognize the Firm contends it signed the Contract at some point. However, the Firm did not produce any evidence in response to Cavanaugh's motion to stay to support any claim that it signed the Contract prior to the termination of the representation. Accordingly, in addressing this issue, we presume the Firm did not sign the Contract prior to Cavanaugh's termination of the representation.</small></div>
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;">
</small>
<br />
<div style="position: relative;">
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#r[4]" name="[4]" style="color: #660099;">[4]</a> If the parties expressly state their intent to require a signature as a condition precedent to the agreement's enforceability, an arbitration agreement may not be enforced absent the required signature. <a href="https://scholar.google.com/scholar_case?case=16581771398470348879&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Wright v. Hernandez,</i> 469 S.W.3d 744, 758 (Tex. App.-El Paso 2015, no pet.)</a> (citing <a href="https://scholar.google.com/scholar_case?case=4954393324193306479&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Simmons & Simmons Constr. Co. v. Rea,</i> 286 S.W.2d 415, 418 (Tex. 1955)</a>). The Contract did not expressly provide the arbitration agreement is enforceable only if both Cavanaugh and the Firm signed it.</small></div>
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;">
</small>
<br />
<div style="position: relative;">
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#r[5]" name="[5]" style="color: #660099;">[5]</a> Cavanaugh requests that we follow the Corpus Christi Court of Appeals' opinion in <a href="https://scholar.google.com/scholar_case?case=17494495649212992471&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>In re Godt,</i> 28 S.W.3d 732, 738 (Tex. App.-Corpus Christi 2000, original proceeding),</a> and conclude a lawyer may not enforce a contingent fee agreement that does not comply with section 82.065(a). We, however, are bound by our own precedent. <i>See </i><a href="https://scholar.google.com/scholar_case?case=1990914641753520307&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>OAIC Commercial Assets. L.L.C. v. White,</i> 293 S.W.3d 883, 885 (Tex. App.-Dallas 2009, pet. denied)</a> (citing <a href="https://scholar.google.com/scholar_case?case=14434773840266910941&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>Weiner v. Wasson,</i> 900 S.W.2d 316, 320 (Tex. 1995)</a>).</small></div>
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;">
</small>
<br />
<div style="position: relative;">
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#r[6]" name="[6]" style="color: #660099;">[6]</a> Both the Texas Supreme Court and this Court have stated that, pursuant to section 82.065(a), a contingent fee contract for legal services must be in writing and signed by the attorney and client to be enforceable. <i>See Hill v. Shamoun & Norman, LLP,</i> No. 16-0107, 2018 WL 1770527, at *10 (Tex. Apr. 13, 2018); <i>Abuzaid v. Modjarrad & Assocs., P.C.,</i> No. 05-16-00777-CV, 2017 WL 5559591, at *8 (Tex. App.-Dallas Nov. 14, 2017, no pet.) (mem. op.). <i>Hill,</i> however, addressed whether a law firm with an alleged oral contingent fee agreement could recover for the value of its services in quantum meruit and the appropriate measure of damages for that claim. <i>See Hill,</i> 2018 WL 1770527, at *1. <i>Abuzaid</i>involved a former client of a law firm who filed a motion for new trial after a default judgment was rendered in favor of the law firm for fees incurred during the representation. <i>Abuzaid,</i> 2017 WL 5559591, at *5. The issue before this Court was whether the evidence offered by the client in support of his motion for new trial set up the meritorious defense of payment under a contingent fee agreement with the law firm. <i>Id.</i> at *7. The evidence established the client made numerous changes to the contingent fee agreement prepared by the law firm and sent at least three revised agreements to the law firm. <i>Id.</i> at *8. The client signed the revised agreements, but the law firm did not. <i>Id.</i> We concluded this evidence failed to establish a meeting of the minds on the essential terms of the contract, a necessary element of a binding contract. <i>Id.</i> Neither <i>Hill</i> nor <i>Abuzaid</i> addressed (1) the enforceability against the client of a contingent fee agreement sent by an attorney to a client, which was not signed by the attorney but was signed by the client without revision; or (2) the circumstances under which the client could seek to have such an agreement declared void.</small></div>
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;">
</small>
<br />
<div style="position: relative;">
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#r[7]" name="[7]" style="color: #660099;">[7]</a> A contractual forum-selection clause is enforceable through the filing of a timely motion to dismiss litigation brought in a forum other than the agreed-to forum. <i>See </i><a href="https://scholar.google.com/scholar_case?case=8077918099536290664&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>In re Nationwide Ins. Co. of Am.,</i> 494 S.W.3d 708, 712 (Tex. 2016)</a> (orig. proceeding). However, a party can waive a contractual forum-selection clause. <i>Id.</i> at 712-13. In this case, Cavanaugh did not seek to enforce the forum selection clause by filing a motion to dismiss the Firm's petition in intervention, but instead chose to proceed on a claim the Firm waived its right to arbitration by filing the petition in intervention.</small></div>
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;">
</small>
<div style="position: relative;">
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=2105494241196562892&q=05-17-00849-CV&hl=en&as_sdt=2006#r[8]" name="[8]" style="color: #660099;">[8]</a> Further, if the FAA applied because the Contract touches on interstate commerce, the state-specific safeguards in section 171.002(a)(3) would be preempted if they affect the arbitration agreement's enforceability. <i>See </i><a href="https://scholar.google.com/scholar_case?case=5187383634464855738&q=05-17-00849-CV&hl=en&as_sdt=2006" style="color: #660099;"><i>In re Nexion Health at Humble, Inc.,</i> 173 S.W.3d 67, 69 (Tex. 2005)</a> (orig. proceeding) (per curiam) (Section 171.002(a)(3) and (c) are preempted by the FAA because they interfere with the "enforceability of the arbitration agreement by adding an additional requirement—the signature of a party's counsel—to arbitration agreements in personal injury cases.").</small></div>
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 12px;">
</small></div>
<div>
<br /></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-10420241586043364422018-09-01T09:28:00.001-07:002018-09-13T14:10:17.528-07:00Did the Word "May" Make the Arbitration Provision Mandatory? - Consumer crossed out mandatory arbitration clause before signing and Builder accepted the changes; but consumer gets forced into arbitration anyhow, with one Justice dissenting Southern Green Builders v. Cleveland (Tex. App. - Houston 2018)<div style="text-align: center;">
<b><span style="color: red; font-size: large;">DOES <i>MAY</i> REALLY MEAN <i>MUST </i>?</span></b></div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
<a href="http://www.search.txcourts.gov/Case.aspx?cn=14-17-00483-CV&coa=coa14">Southern Green Builders, LP and Sam Seidel v. Jaime Cleveland</a> No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=14-17-00483-CV&coa=coa14">14-17-00483-CV</a> </div>
<div style="text-align: center;">
and No. 14-17-00540-CV. (Tex.App.- Houston [14th Dist.] Aug. 9, 2018)<br />
<a href="http://www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=6f7777c5-2e5f-40b6-a4ba-c2fd8289bcb3&coa=coa14&DT=Opinion&MediaID=d0f864b5-c3ab-4432-86e8-fa9d4ba3751d">Dissent by Justice Tracy Christopher</a><br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://3.bp.blogspot.com/-T2pTAUqrQrM/W4rAQYm9U5I/AAAAAAAAJ5M/3rg3T0YaQdUs0Ee0gP6VBONHMcFvGN6CwCLcBGAs/s1600/Southern%2BGreen%2BBuilders%2Bv%2BCleveland%2B-%2BSeidel%2Bemail%2Bre%2Bboilerplate%2Bnature%2Bof%2Bcontract.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="Negotiable Boilerplate Contract (Builder's Email) " border="0" data-original-height="326" data-original-width="849" height="152" src="https://3.bp.blogspot.com/-T2pTAUqrQrM/W4rAQYm9U5I/AAAAAAAAJ5M/3rg3T0YaQdUs0Ee0gP6VBONHMcFvGN6CwCLcBGAs/s400/Southern%2BGreen%2BBuilders%2Bv%2BCleveland%2B-%2BSeidel%2Bemail%2Bre%2Bboilerplate%2Bnature%2Bof%2Bcontract.JPG" title="Negotiable Boilerplate Contract (Builder's Email) " width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Negotiable Boilerplate Contract (Builder's Email) </td></tr>
</tbody></table>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-ps0giLHNufQ/W4q9FjhWn2I/AAAAAAAAJ48/mCS7BZn20pAkKRLS8M24ZbV_3aH2dV1MQCLcBGAs/s1600/Cleveland%2Bcontract%2B-%2Bchange%2Bto%2Barbitration%2Bclause%2B-%2Bshall%2Bcrossed%2Bout%2Band%2Breplaced%2Bwith%2Bmay.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="726" data-original-width="1332" height="217" src="https://3.bp.blogspot.com/-ps0giLHNufQ/W4q9FjhWn2I/AAAAAAAAJ48/mCS7BZn20pAkKRLS8M24ZbV_3aH2dV1MQCLcBGAs/s400/Cleveland%2Bcontract%2B-%2Bchange%2Bto%2Barbitration%2Bclause%2B-%2Bshall%2Bcrossed%2Bout%2Band%2Breplaced%2Bwith%2Bmay.JPG" width="400" /></a></div>
<br />
<div style="text-align: center;">
"shall" replaced with "may" but 2 of 3 justices now say it means "must"<br />
arbitrate </div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://4.bp.blogspot.com/-u6UNuWbCv8o/W4q9I3hqYSI/AAAAAAAAJ5A/rggmifb8D14_dppZBAjQwdA_-Rxj_LPTwCLcBGAs/s1600/Cleveland%2Bcontract%2B-%2Bmediation-binding%2Barbitration-waiver%2Bof%2Bjury%2Btrial%2B-%2Bfinal%2Bwording.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="768" data-original-width="1366" height="223" src="https://4.bp.blogspot.com/-u6UNuWbCv8o/W4q9I3hqYSI/AAAAAAAAJ5A/rggmifb8D14_dppZBAjQwdA_-Rxj_LPTwCLcBGAs/s400/Cleveland%2Bcontract%2B-%2Bmediation-binding%2Barbitration-waiver%2Bof%2Bjury%2Btrial%2B-%2Bfinal%2Bwording.JPG" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Final wording of ADR paragraph in the signed contract </td></tr>
</tbody></table>
<br />
<div style="text-align: center;">
<b><span style="color: red;">THE GIST OF THE DISSENT BY JUSTICE CHRISTOPHER </span></b></div>
<div style="text-align: center;">
<br /></div>
<blockquote class="tr_bq">
Southern Green sent Cleveland a form boilerplate construction contract. Cleveland modified Southern Green's boilerplate contract by removing nearly the entirety of the mandatory arbitration clause and changing the words "shall be submitted to binding arbitration" to "may be submitted to binding arbitration." He also added the language that both parties "shall have the right to seek other legal remedies as they see fit and the law allows."</blockquote>
<blockquote class="tr_bq">
"May" does not take on a special meaning in an arbitration contract. As always, the entire contract must reviewed to see if it is mandatory or permissive. See G.T. Leach Builders, 458 S.W.3d at 525 (concluding that a joinder provision in an arbitration contract that used the word "may" was permissive rather than mandatory). </blockquote>
<blockquote class="tr_bq">
The arbitration requirement in this contract is permissive, not mandatory. The trial court correctly denied the motion to compel arbitration. Because the majority holds otherwise, I respectfully dissent.</blockquote>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
SOUTHERN GREEN BUILDERS, LP AND SAM SEIDEL, Appellants,<br />v.<br />JAIME CLEVELAND, Appellee.</h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<a href="https://scholar.google.com/scholar?scidkt=14797391007826795093+14212655543642331546&as_sdt=2&hl=en" style="color: #660099;">Nos. 14-17-00483-CV, 14-17-00540-CV.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
<div style="position: relative;">
<b>Court of Appeals of Texas, Fourteenth District, Houston.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
Majority Opinion and Dissenting Opinion filed August 9, 2018.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px;">
</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Timothy C. Ross, Lauren Scroggs, for Southern Green Builders, LP, Appellant.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Crystal Parker, Jason Gregory Johns, Harris Huguenard, Lionel M. Schooler, for Jaime Cleveland, Appellee.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Jason Gregory Johns, Harris Huguenard, Lionel M. Schooler, Courtney Carlson, for Jennifer Cleveland, Appellee.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
On Appeal from the 215th District Court, Harris County, Texas, Trial Court Cause No. 2017-13499.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Reversed and Remanded.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Panel consists of Justices Christopher, Donovan, and Jewell (Christopher, J., dissenting).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
MAJORITY OPINION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
JOHN DONOVAN, Justice.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Appellant Southern Green Builders, a residential home builder, sued appellee Jaime Cleveland, prospective homeowner, for breach of contract. Cleveland responded with a counterclaim against SGB, and a third-party claim against SGB's principal, appellant Sam Seidel. SGB and Seidel both moved to compel arbitration, which the trial court denied.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=10990749918412759904&q=14-17-00483-CV&hl=en&as_sdt=4,44#[1]" name="r[1]" style="color: #660099;">[1]</a></sup> In a consolidated, accelerated, interlocutory appeal, SGB and Seidel argue the trial court erred in denying arbitration. We agree.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
I. Background</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
This is a residential construction dispute. On September 30, 2015, Seidel, on behalf of SGB, entered in to a Residential Construction Contract (the "contract") to build for Cleveland the residence at 3424 Sunset Boulevard, Houston, Harris County, Texas, at an agreed price of $1,680,340.39. The contract contained the following language regarding arbitration of disputes:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
17. RESOLUTION OF DISPUTES. The Parties desire prompt, inexpensive and efficient dispute resolution procedures and therefore agree that their disputes shall be governed by the following:</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
***</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(c) <i>Mediation-Binding Arbitration/Waiver of Jury Trial.</i> The Owner and Builder agree that all controversies, claims (and any related settlements), or matters in question arising out of or relating to (i) this Contract, (ii) any breach or termination of this Contract, (iii) the construction of the Home and/or its repairs, (iv) any acts or omissions by the Builder (and its officers, directors or agents), and/or (v) any actual or purported representations or warranties, express or implied, relating to the Property and/or the Home (herein referred to collectively as a "Dispute") may be submitted to binding arbitration, but both parties shall also have the right to seek other legal remedies as they see fit and the law allows.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
***</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
25. ENTIRE AGREEMENT. This Contract, together with all attachments, contains the entire understanding between Builder and Owner with respect to the construction of the Home, and replaces all prior agreements or understandings, if any. BUILDER IS NOT BOUND BY ANY STATEMENT, PROMISE, CONDITION OR STIPULATION NOT SPECIFICALLY SET FORTH IN THIS CONTRACT. No representative of Builder has authority to make any oral statements that modify or change the terms and conditions of this Contract. OWNER REPRESENTS THAT OWNER HAS READ AND UNDERSTANDS THIS ENTIRE CONTRACT, INCLUDING THE AGREEMENT FOR BINDING ARBITRATION OF DISPUTES RELATED TO THIS CONTRACT (AS AMENDED). OWNER ALSO REPRESENTS THAT NO VERBAL STATEMENT, PROMISE OR CONDITION NOT SPECIFICALLY SET FORTH IN THIS CONTRACT IS BEING RELIED UPON BY OWNER. IT IS ACKNOWLEDGED THAT BUILDER IS RELYING ON THESE REPRESENTATIONS AND WOULD NOT ENTER INTO THIS CONTRACT WITHOUT THIS UNDERSTANDING.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
During the construction of the residence, a dispute arose between the parties regarding payment and performance under the contract. On February 27, 2017, SGB filed a demand for arbitration of its rights as well as an original petition in the trial court, which was made subject to SGB's right to arbitrate.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In response, the Cleveland's asserted a counterclaim against SGB for fraud, Deceptive Trade Practices Act violations, negligent misrepresentation, breach of contract, breach of implied warranty, and a request for declaratory relief wherein they request the trial court to declare the arbitration language in the contract is permissive and does not compel Cleveland to arbitrate. Cleveland also added a third-party petition against appellant Sam Seidel, SGB's principal, for fraud, DTPA violations, and negligent misrepresentation.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
SGB voluntarily dismissed the arbitration proceeding without prejudice and moved the trial court to compel arbitration under the contract. On May 19, 2017, the trial court held a hearing on SGB's motion to compel and, after taking it under advisement, denied the motion on June 7, 2017. Seidel also filed a motion to compel, requesting the trial court to compel arbitration of all claims under the contract. The trial court denied Seidel's motion without a hearing on July 6, 2017. SGB and Seidel timely filed their respective notices of appeal, which were consolidated by this Court.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
II. Analysis</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The central focus of this appeal is whether the trial court erred in denying SGB and Seidel's motions to compel arbitration. Appellants raise three issues: (1) is arbitration required when requested under this contract; (2) Does Cleveland's extrinsic evidence alter the express terms of the contract; and (3) do the parties' claims fall within the scope of the arbitration agreement?</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
A. Standard of review and substantive law</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Section 171.098 of the Texas Civil Practice and Remedies Code permits the interlocutory appeal of an order denying a motion to compel arbitration. Tex. Civ. Prac. & Rem. Code § 171.098(a)(1). Under an abuse of discretion 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 <i>de novo. In re Labatt Food Servs., L.P.,</i> 279S.W.3d 640, 643 (Tex. 2009) (citing <a href="https://scholar.google.com/scholar_case?case=16307661103584566235&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Brainard v. State,</i> 12 S.W.3d 6, 30 (Tex. 1999)</a>; <i>see </i><a href="https://scholar.google.com/scholar_case?case=1890178492646002387&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Walker v. Packer,</i> 827 S.W.2d 833, 839-40 (Tex. 1992)</a>). Whether an arbitration agreement is enforceable is subject to de novo review. <i>See id.</i> (citing <a href="https://scholar.google.com/scholar_case?case=12596166907904856385&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>J.M. Davidson, Inc. v. Webster,</i> 128 S.W.3d 223, 227 (Tex. 2003)</a>).<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
"Courts cannot compel a party to arbitrate claims in the absence of an agreement to arbitrate." <a href="https://scholar.google.com/scholar_case?case=10807212477009838664&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Kehoe v. Pollack,</i> 526 S.W.3d 781, 791 (Tex. App.-Houston [14th Dist.] 2017, no pet.)</a> (citing <i>In the </i><a href="https://scholar.google.com/scholar_case?case=15184702190258050699&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Estate of Guerrero,</i> 465 S.W.3d 693, 699 (Tex. App.-Houston [14th Dist.] 2015, pet. denied) (en banc)</a>). A party moving to compel arbitration bears the initial burden of proving the existence of an arbitration agreement. <a href="https://scholar.google.com/scholar_case?case=11698987518088034653&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Ellis v. Schlimmer,</i> 337 S.W.3d 860, 862 (Tex. 2011)</a> (citing <a href="https://scholar.google.com/scholar_case?case=12596166907904856385&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>J.M. Davidson, Inc. v. Webster,</i> 128 S.W.3d 223, 227 (Tex. 2003)</a>; Tex. Civ. Prac. & Rem. Code § 171.021(a)); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=1293776290414422271&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Rachal v. Reitz,</i> 403 S.W.3d 840, 843 (Tex. 2013)</a> (The party moving to compel arbitration must establish the existence of a valid arbitration agreement and the existence of a dispute within the scope of that agreement.). A party moving to compel a party who did not sign the arbitration agreement to arbitrate also bears the burden of establishing that the arbitration agreement binds the nonsignatory. <i>See </i><a href="https://scholar.google.com/scholar_case?case=10807212477009838664&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Kehoe,</i> 526 S.W.3d at 791</a>; <a href="https://scholar.google.com/scholar_case?case=5578258521922050519&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>The Branch Law Firm, L.L.P. v. Osborn,</i> 447 S.W.3d 390, 394 (Tex. App.-Houston [14th Dist.] 2014, no pet.)</a>; <i>see also Labatt Food Servs.,</i> 279 S.W.3d at 643 (when "arbitration agreement is silent about who is to determine whether particular persons are bound by the agreement, courts, rather than the arbitrator, should determine the issue").<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The existence of a valid arbitration agreement is a legal question. <a href="https://scholar.google.com/scholar_case?case=11071877925137859263&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re D. Wilson Constr.,</i> 196 S.W.3d 774, 781 (Tex. 2006)</a>. In interpreting an agreement to arbitrate, we apply ordinary contract principles. <a href="https://scholar.google.com/scholar_case?case=12596166907904856385&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>J.M. Davidson, Inc.,</i> 128 S.W.3d at 227</a>. 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. <i>Id.</i> at 229. A trial court "has no `discretion' in determining what the law is or applying the law to the facts." <a href="https://scholar.google.com/scholar_case?case=11071877925137859263&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re D. Wilson Constr.,</i> 196 S.W.3d at 781</a>(quoting <a href="https://scholar.google.com/scholar_case?case=1890178492646002387&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Walker v. Packer,</i> 827 S.W.2d 833, 840 (Tex.1992)</a> (orig. proceeding)).<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Once an agreement is established, a strong presumption favoring arbitration arises, and the burden shifts to the party opposing arbitration to raise an affirmative defense to the agreement's enforcement. <a href="https://scholar.google.com/scholar_case?case=11698987518088034653&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Ellis,</i> 337 S.W.3d at 862</a>. Indeed, ". . . a court should not deny arbitration <i>unless it can be said with positive assurance</i> that an arbitration clause is <i>not</i> susceptible of an interpretation which would cover the dispute at issue." <a href="https://scholar.google.com/scholar_case?case=11071877925137859263&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re D. Wilson Constr.,</i> 196 S.W.3d at 783</a>(emphasis original) (internal quotation marks omitted) (quoting <a href="https://scholar.google.com/scholar_case?case=475541471625694972&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Prudential Sec. Inc. v. Marshall,</i> 909 S.W.2d 896, 899 (Tex. 1995) (per curiam)</a> (orig. proceeding)). Further, courts should resolve any doubts as to the agreement's scope, waiver, and other issues unrelated to its validity in favor of arbitration. <i>Id.</i> (<i>see </i><a href="https://scholar.google.com/scholar_case?case=11167907300663469399&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Poly-America, L.P.,</i> 262 S.W.3d 337, 348 (Tex. 2008)</a>). Here, appellants challenge the trial court's rulings on both motions to compel arbitration. We address each in turn.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
B. The trial court erred by denying appellants' motions to compel</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
SGB and Seidel, as the parties seeking to compel arbitration,<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=10990749918412759904&q=14-17-00483-CV&hl=en&as_sdt=4,44#[2]" name="r[2]" style="color: #660099;">[2]</a></sup> argue that the trial court erred in denying their motions to compel because they met their burden by demonstrating (1) the existence of a valid and enforceable arbitration agreement and (2) that the claims asserted against them fall within the scope of that agreement. <i>See </i><a href="https://scholar.google.com/scholar_case?case=1293776290414422271&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Rachal,</i> 403 S.W.3d at 843</a>.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
First, it is undisputed that the Residential Construction Contract contains an agreement to arbitrate. Section 17c lists categories of claims and provides those claims "may be submitted to binding arbitration." It also is undisputed that the claims at issue between the parties arise out of the contract.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=10990749918412759904&q=14-17-00483-CV&hl=en&as_sdt=4,44#[3]" name="r[3]" style="color: #660099;">[3]</a></sup> SGB alleges breach of contract and prompt payment claims. Cleveland alleges issues against SGB and Seidel, in his official capacity, stemming from performance of the contract. Thus, the claims fall directly within the arbitration clause. The only matter in dispute is whether the arbitration clause is enforceable.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
SGB and Seidel argue that arbitration is required if requested. They maintain that the arbitration provision in Section 17(c)—<i>i.e.,</i> that any dispute "may be submitted to binding arbitration, but both parties shall also have the right to seek other legal remedies as they see fit and the law allows"—constitutes a binding promise to arbitrate if either party requested it. They maintain to give meaning to all the terms of 17(c) it must be read as providing the scope of claims subject to arbitration, stating that those claims are subject to arbitration upon request, and confirming that, if arbitration not requested, the parties are free to pursue other forms of dispute resolution. In their motions, SGB and Seidel cite to a Texas Supreme Court decision that they contend is controlling and demands arbitration under these circumstances. <a href="https://scholar.google.com/scholar_case?case=4348962712067314173&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re U.S. Home Corp.,</i> 236 S.W.3d 761 (Tex. 2007) (per curiam)</a>("may" submit language requires arbitration when requested). Additionally, SGB and Seidel contend that requiring arbitration when requested is consistent with the rest of the contract. Under Section 25, which is entitled "Entire Agreement," the contract references an agreement for binding arbitration:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
OWNER REPRESENTS THAT OWNER HAS READ AND UNDERSTAND THIS ENTIRE CONTRACT, INCLUDING THE AGREEMENT FOR BINDING ARBITRATION OF DISPUTES RELATED TO THIS CONTRACT (AS AMENDED).</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Further, Section 25, provides the builder is "NOT BOUND BY ANY STATEMENT, PROMISE, CONDITION OR STIPULATION NOT SPECIFCIALLY SET FORTH IN THIS CONTRACT." Similarly, Cleveland represented that "NO VERBAL STATEMENT, PROMISE OR CONDITION NOT SPECIFICALLY SET FORTH IN THIS CONTRACT IS BEING RELIED UPON BY OWNER." Moreover, Section 20 of the contract references reimbursement of arbitration fees by the successful party. Finally, SGB and Seidel maintain that Cleveland accepted the contract, along with its terms and conditions, as evidenced by his signature on the final page of the contract.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Cleveland argues that the contract does not empower SGB and Seidel to unilaterally compel arbitration. Cleveland contends that he cannot be compelled to arbitrate because the arbitration clause in the contract uses permissive wording, stating that the parties "may" submit disputes to arbitration. Cleveland asserts that the parties were "permitted" but not "required" to agree mutually at some point in the future to pursue arbitration. According to Cleveland, this interpretation is evidenced by the circumstances surrounding the formation of the contract. In support of his argument, Cleveland submitted the parties' redlined draft of the contract, negotiating the replacement of "shall" with "may" in Section 17(c). Cleveland also maintains that <i>U.S. Home Corp.,</i> is inapposite because it involved two agreements, one of which contained a mandatory arbitration clause. Cleveland distinguishes <i>U.S. Home Corp.</i> by asserting that the contract in this case requires the parties to subsequently agree to arbitrate. Finally, Cleveland contends that Section 25 of the contract does not dictate arbitration, but "only identifies a procedural structure (<i>i.e.,</i> "binding" versus "non-binding") for a means of resolving existing disputes," and is considered after the question of arbitrability is resolved.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
We agree with SGB and Seidel that arbitration was required. The plain language of Section 17(c) creates a valid and enforceable mandatory arbitration clause that unambiguously provides that either party may request arbitration. Nothing in the contract suggests arbitration was optional if either side requested it.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=10990749918412759904&q=14-17-00483-CV&hl=en&as_sdt=4,44#[4]" name="r[4]" style="color: #660099;">[4]</a></sup> Hence, as interpreted by this court's precedent, this clause constitutes a binding promise to arbitrate if either party requested it. <i>See </i><a href="https://scholar.google.com/scholar_case?case=14734273627399032163&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Feldman/Matz Interests, LLP v. Settlement Capital Corp.,</i> 140 S.W.3d 879, 888 (Tex. App.-Houston [14th Dist.] 2004, no pet</a>) ("may" submit language is mandatory for arbitration). In <i>Feldman/Matz Interests, LLP,</i> the court explained its interpretation of the "may" submit clause as follows:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
That is merely another way of saying that either party may require the other to arbitrate—not a limitation on how a party may invoke arbitration. Secondly, although the agreement stated that either party "may" submit disagreements to arbitration, a number of the federal circuits—including the Fifth Circuit—have interpreted similar language to mean that either party has the power to require arbitration. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=14826125634913622624&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Deaton Truck Line, Inc., v. Local Union 612,</i> 314 F.2d 418 (5th Cir. 1962)</a>; <a href="https://scholar.google.com/scholar_case?case=7304165908954220412&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Austin v. Owens-Brockway Glass Container, Inc.,</i> 78 F.3d 875, 879 (4th Cir.),</a> <i>cert. denied,</i> <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=9591371466207970412&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="border-bottom: 1px dotted rgb(102, 0, 153); color: #660099; text-decoration-line: none;">519 U.S. 980, 117 S. Ct. 432, 136 L.Ed.2d 330 (1996)</a>; <a href="https://scholar.google.com/scholar_case?case=4175575494554725203&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Ceres Marine Terminals, Inc. v. Int'l Longshoremen's Ass'n, Local 1969,</i> 683 F.2d 242, 246-47 (7th Cir. 1982)</a>; <a href="https://scholar.google.com/scholar_case?case=4796984251434385592&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Local 771, I.A.T.S.E., AFL-CIO v. RKO Gen., Inc.,</i> 546 F.2d 1107, 1116 (2d Cir. 1977)</a>; <a href="https://scholar.google.com/scholar_case?case=15122108345889951900&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Bonnot v. Cong. of Indep. Unions Local No. 4,</i> 331 F.2d 355, 359 (8th Cir. 1964)</a>. Thus, generally, an agreement to arbitrate is mandatory even though it contains permissive terms such as "may." This interpretation supports the federal scheme to encourage arbitration. We see no reason to depart from the reasoning of these cases.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
<i>Id.; see </i><a href="https://scholar.google.com/scholar_case?case=4348962712067314173&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re U.S. Home Corp.,</i> 236 S.W.3d at 765</a> (holding clause that permitted either party to request arbitration and did not require permission from other to be mandatory); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=2770907021433288993&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Hanover Ins. Co. v. Kiva Lodge Condo. Owners' Ass'n, Inc.,</i>221 So. 3d 446, 453-54 (Ala. 2016)</a> ("Most cases throughout the country. . .[find] that use of the term "may" in an arbitration provision generally does not denote permissive arbitration because the arbitration clause would be meaningless.") (citations omitted). Moreover, this construction harmonizes and gives effect to Section 25 of the contract, wherein Cleveland acknowledges "binding arbitration of disputes."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
To the extent Cleveland introduced a redlined draft the contract demonstrating changes Cleveland made to the contract before it was executed, such evidence should not have been considered by the trial court as it is precluded by the parol evidence rule. The parol evidence rule is a rule of substantive law. <a href="https://scholar.google.com/scholar_case?case=15549018306395040676&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Lewis v. Adams,</i>979 S.W.2d 831, 836 (Tex. App.-Houston [14th Dist.] 1998, no pet.)</a> (citations omitted). The parol evidence rule provides that the terms of a written contract cannot be contradicted by evidence of an earlier, inconsistent agreement.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=10990749918412759904&q=14-17-00483-CV&hl=en&as_sdt=4,44#[5]" name="r[5]" style="color: #660099;">[5]</a></sup> <i>Id.</i><br />
<i><br /></i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Additionally, a written instrument presumes that all prior agreements relating to the transaction have been merged into it and will be enforced as written and cannot be added to, varied, or contradicted by parol testimony. <a href="https://scholar.google.com/scholar_case?case=1988050426500704553&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Smith v. Smith,</i> 794 S.W.2d 823, 827 (Tex. App.-Dallas 1990, no pet.)</a>. The rule is particularly applicable when the written contract contains a recital that it contains the entire agreement between the parties or a similarly-worded merger provision. <a href="https://scholar.google.com/scholar_case?case=8832429131858242709&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Weinacht v. Phillips Coal Co.,</i>673 S.W.2d 677, 679 (Tex. App.-Dallas 1984, no writ)</a>. Here, the merger clause in Section 25 of the contract prohibits Cleveland from relying on his redlined draft to alter the terms of the contract.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Cleveland attempts to avoid preclusion of his extrinsic evidence (<i>i.e.,</i> prior redlined draft) by arguing the Texas Supreme Court's recent decision in <i>First Bank v. Brumitt</i> permits the trial court to consider the circumstances surrounding the formation to discern the meaning of an unambiguous contract. <i>See</i> 519 S.W.3d 95, 110 (Tex. 2017) ("[T]he parol-evidence rule does not prohibit consideration of surrounding circumstances that inform, rather than vary from or contradict, the contract text." (internal citations omitted)). This case does not fall within the ambit of <i>Brummit.</i> Cleveland's suggested construction adds a requirement that is not set forth in the contract, <i>i.e.,</i> it requires Cleveland to consent or agree to arbitrate any claims, disputes, or questions that SGB and Seidel have requested to arbitrate. <i>Brumitt</i> clearly prohibits extrinsic evidence for such a purpose. "Extrinsic evidence cannot be used to show that the parties probably meant, or could have meant, something other than what their agreement stated." <i>Id.</i> at 110 (citation omitted). "[C]ourts may not rely on evidence of surrounding circumstances to make the language say what it unambiguously does not say." <i>Id.</i> The trial court in this case could not rely on extrinsic evidence to create an intent that the contract itself does not express. <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Because a valid and enforceable arbitration agreement exists and the claims at issue fall within the scope of the agreement, the trial court abused its discretion in denying SGB and Seidel's motions to compel arbitration. <i>See </i><a href="https://scholar.google.com/scholar_case?case=14734273627399032163&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Feldman/Matz Interests, LLP,</i> 140 S.W.3d at 888</a>. Accordingly, we sustain SGB's and Seidel's issues.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
III. Conclusion</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
We reverse the trial court's orders denying SGB's and Seidel's motions to compel arbitration and remand for further proceedings consistent with this opinion and compelling arbitration.<br />
<br />
<div style="color: black; font-family: "Times New Roman"; font-size: medium; position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=10990749918412759904&q=14-17-00483-CV&hl=en&as_sdt=4,44#r[1]" name="[1]" style="color: #660099;">[1]</a> In separate appeals, SGB (14-17-00483-CV) and Seidel (14-17-00540-CV) both seek enforcement of the same arbitration clause against the same party, Cleveland. We granted an agreed motion to consolidate the appeals.</div>
<div style="color: black; font-family: "Times New Roman"; font-size: medium; position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=10990749918412759904&q=14-17-00483-CV&hl=en&as_sdt=4,44#r[2]" name="[2]" style="color: #660099;">[2]</a> Although Seidel was not a signatory to the contract, he may still compel arbitration in this case because Cleveland brought third-party claims against Seidel that are tied to his official capacity as owner of SGB. Thus, the claims are "in substance" claims against SGB and, as such, fall within the scope of the arbitration provision as set forth in 17(c). <i>See </i><a href="https://scholar.google.com/scholar_case?case=14238257683202276384&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Merrill Lynch Trust Co. FSB,</i> 235 S.W.3d 185, 189-90 (Tex. 2007)</a> ("Because the plaintiffs' claims against Medina are in substance claims against Merrill Lynch, they must abide by their agreement to arbitrate those claims."); <a href="https://scholar.google.com/scholar_case?case=9313345679283806257&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Hous. Progressive Radiology Assocs., PLLC,</i> 474 S.W.3d 435, 447 (Tex. App.-Houston [1st Dist.] 2015, no pet.)</a>. Cleveland cannot circumvent his agreement to arbitrate with SGB by bringing claims against Seidel. In his brief, Cleveland offers no authority to the contrary. Because the claims against Seidel are in substance claims against SGB, our analysis of the trial court's denial of SGB's and Seidel's motions to compel is the same.</div>
<div style="color: black; font-family: "Times New Roman"; font-size: medium; position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=10990749918412759904&q=14-17-00483-CV&hl=en&as_sdt=4,44#r[3]" name="[3]" style="color: #660099;">[3]</a> Cleveland does not squarely address whether claims between himself and SGB fall within the scope of the arbitration provision of the contract; instead, he asserts that scope need not be addressed because no agreement to arbitrate exists. With respect to Seidel, Cleveland asserts a potential lack of standing to compel arbitration and again asserts that scope is irrelevant because no agreement to arbitrate exists. As set forth, <i>infra,</i> we disagree with Cleveland's interpretation of the arbitration clause and its enforceability. And, as stated, <i>infra</i> at n.2, Seidel has standing to compel arbitration. By virtue of Cleveland's failure to address scope, it is undisputed that the claims in dispute fall within the scope of the arbitration clause of the contract.</div>
<div style="color: black; font-family: "Times New Roman"; font-size: medium; position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=10990749918412759904&q=14-17-00483-CV&hl=en&as_sdt=4,44#r[4]" name="[4]" style="color: #660099;">[4]</a> The cases relied upon by Cleveland expressly require the parties to commit to arbitration and allow one party to reject such a request. <i>See Tex. Health Res. v. Kruse,</i> No. 05-13-01754-CV, 2014 WL 3408636, at *3 (Tex. App.-Dallas July 11, 2014, pet. denied) (arbitration provision required both parties to subsequently "commit" to arbitration); <i>Travelers Indem. Co. v. Tex. Mun. League Joint Self-Ins. Fund,</i>No. 01-08-00062-CV, 2008 WL 2756874, at *2 (Tex. App.-Houston [1st Dist.] July 17, 2008, no pet.) (after one party requested arbitration, arbitration provision required the other party to accept or reject the request). Here, the contract does not contain this language. Rather, the operative language provides that claims "may be submitted to binding arbitration."</div>
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=10990749918412759904&q=14-17-00483-CV&hl=en&as_sdt=4,44#r[5]" name="[5]" style="color: #660099; font-family: "times new roman"; font-size: medium;">[5]</a><span style="color: black; font-family: "times new roman"; font-size: small;"> In his brief, Cleveland argues that "[t]he Contract unambiguously provides solely for permissive arbitration." Thus, any exception permitting admissibility of parol evidence when a writing is ambiguous is not applicable in this case. </span><i style="color: black; font-family: "times new roman"; font-size: medium;">See </i><a href="https://scholar.google.com/scholar_case?case=10019660509979529461&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099; font-family: "times new roman"; font-size: medium;"><i>Gonzalez v. United Broth. Of Carpenters and Joiners of Am., Local 551,</i> 93 S.W.3d 208, 211 (Tex. App.-Houston [14th Dist.] 2002, no pet.)</a><span style="color: black; font-family: "times new roman"; font-size: small;"> (setting forth exceptions to parol evidence rule when extrinsic evidence may be shown to be admissible).</span><br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-RYl_jBfBpVw/W4rBnlgd-jI/AAAAAAAAJ5Y/HZ-vjTnKEdUCRETbnwXJxfF28elPKllPwCLcBGAs/s1600/Southern%2BGreen%2BBuilders%2BLP%2Band%2BSam%2BSeidel%2Bv%2BJaime%2BCleveland%2B-%2BDissent%2B%2528page%2B1%2529.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="614" data-original-width="713" height="343" src="https://1.bp.blogspot.com/-RYl_jBfBpVw/W4rBnlgd-jI/AAAAAAAAJ5Y/HZ-vjTnKEdUCRETbnwXJxfF28elPKllPwCLcBGAs/s400/Southern%2BGreen%2BBuilders%2BLP%2Band%2BSam%2BSeidel%2Bv%2BJaime%2BCleveland%2B-%2BDissent%2B%2528page%2B1%2529.JPG" width="400" /></a></div>
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; font-family: arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative; text-align: center;">
<span style="color: red;">
DISSENTING OPINION </span></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
TRACY CHRISTOPHER, Justice.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Because I believe that the arbitration clause is not mandatory, I respectfully dissent.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
1. The Negotiations</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Southern Green sent Cleveland a form boilerplate construction contract. Cleveland modified Southern Green's boilerplate contract by removing nearly the entirety of the mandatory arbitration clause and changing the words "shall be submitted to binding arbitration" to "may be submitted to binding arbitration." He also added the language that both parties "shall have the right to seek other legal remedies as they see fit and the law allows."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
This is what Cleveland did to the arbitration clause—he struck through most of the provision and added the underlined words:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(c) <i>Mediation-Binding Arbitration/Waiver of Jury Trial.</i> The Owner and Builder agree that all controversies, claims (and any related settlements), or matters in question arising out of or relating to (i) this Contract, (ii) any breach or termination of this Contract, (iii) the construction of the Home and/or its repairs, (iv) any acts or omissions by the Builder (and its officers, directors or agents), and/or (v) any actual or purported representations or warranties, express or implied, relating to the Property and/or the Home (herein referred to collectively as a "Dispute") shall may be submitted to binding arbitration, but both parties shall also have the right to seek other legal remedies as they see fit and the law allows. The Parties will attempt to resolve any Dispute through informal discussions and the dispute may be submitted to non-binding mediation under the Contraction Industry Mediation Rules of the American Arbitration Association ("AAA"). In the event that one or both parties do not desire to mediate, or the Dispute it not resolved by direct discussions and/or mediation, the Dispute shall be submitted to the AAA for binding arbitration in accordance with the Construction Industry Arbitration Rules of the AAA. The Parties will share equally all filing fees and administrative costs of the arbitration, however, any Award rendered may equitably reallocate those costs. The arbitration shall be governed by Texas law and the U.S. Arbitration Act, 9 U.S.C. 1-16, to the exclusion of any provisions of state law that are inconsistent with the application of the Federal Act.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
In rendering the Award, the arbitrator shall state the reasons therefor, including any computations of actual damages or offsets, if applicable. The Parties agree to abide by and fully perform in accordance with any Award rendered by the arbitration. If the non-prevailing Party fails to comply with all aspects of the Award within thirty (30) days following issuance of the Award, then the prevailing Party shall be entitled to seek enforcement of the Award in any court of competent jurisdiction. If such enforcement becomes necessary, the prevailing Party in such proceeding shall recover its necessary and reasonable attorney's fees, in addition to any other relief to which that Party is entitled.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Southern Green agreed to the changes.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
2. Under Texas Supreme Court case law, we can consider deletions.</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In <a href="https://scholar.google.com/scholar_case?case=16487276362391035017&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Houston Exploration Co. v Wellington Underwriting Agencies, LTD,</i> 352 S.W.3d 462 (Tex. 2011),</a> the Supreme Court considered the deletion of certain paragraphs from a form contract to determine the intent of the parties. The court noted that it had twice before considered deletions from a form contract in determining the meaning of a contract. <i>Id.</i> at 470-71 (citing <a href="https://scholar.google.com/scholar_case?case=13760866966548401375&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Gibson v. Turner,</i> 294 S.W.2d 781 (Tex. 1956)</a> and <a href="https://scholar.google.com/scholar_case?case=7909095670749177404&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Houston Pipe Line Co. v. Dwyer,</i> 374 S.W.2d 662 (Tex. 1964)</a>).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
And the Supreme Court has also considered deletions from a form contract in determining the scope of an arbitration contract. <i>See </i><a href="https://scholar.google.com/scholar_case?case=7525206418111218344&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach Builders, LLC v. Sapphire V.P., LP,</i> 458 S.W.3d 502, 526 (Tex. 2015)</a>. This rule of construction is not limited to where a party contends a contract is ambiguous. <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
3. Generally, "may" is permissive, and "shall" is mandatory.</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Under both the ordinary meaning of words and case law, may is permissive while shall is mandatory. <i>See</i> New Oxford American Dictionary 1082, 1604 (Angus Stevenson & Christine Lindberg eds., 3d ed. 2010) (defining "may" as "expressing permission" and "shall" as "expressing an instruction or command"); <a href="https://scholar.google.com/scholar_case?case=13618642433636387833&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Dallas Cnty. Cmty. Coll. Dist. v. Bolton,</i> 185 S.W.3d 868, 873-74 (Tex. 2005)</a> ("may" grants permission to); <a href="https://scholar.google.com/scholar_case?case=2845784534418479855&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Helena Chem. Co. v. Wilkins,</i> 47 S.W.3d 486, 493 (Tex. 2001)</a>("shall" is mandatory, creating a duty or obligation). This is also true under the Code Construction Act—"may" creates discretionary authority or grants permission or a power while "shall" imposes a duty. <i>See</i> Tex. Gov't Code 311.016.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
4. Contracts should not be interpreted to render a part of the contract meaningless.</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Courts are to examine and consider the entire writing to harmonize and give effect to all of the provisions of a contract so that "none will be rendered meaningless." <i>See </i><a href="https://scholar.google.com/scholar_case?case=13335222874099651667&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Coker v. Coker,</i> 650 S.W.2d 391, 393 (Tex. 1983)</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=7330062268051629213&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>FPL Energy, LLC v. TXU Portfolio Mgmt. Co.,</i> 426 S.W.3d 59, 69 (Tex. 2014)</a> (interpreting a contract, as a matter of law, to avoid rendering a provision of the contract meaningless).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
5. Using these rules, the agreement does not mandate arbitration.</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The deletion of the mandatory arbitration provision from a form contract indicates the intent of the parties to not make arbitration mandatory. The agreement provides that the parties <i>may</i> arbitrate and also provides that the parties <i>shall</i> have the right to seek other legal remedies as they see fit. Construing the contract to require mandatory arbitration would make the remainder of the sentence meaningless—what other legal remedies could the sentence refer to if arbitration was mandatory? The arbitration provision is not mandatory.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
6. Neither <i>U.S. Home Corp.</i> nor <i>Feldman/Matz</i>compels a different result.</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
In <a href="https://scholar.google.com/scholar_case?case=4348962712067314173&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re U.S. Home Corp.,</i> 236 S.W.3d 761 (Tex. 2007)</a> (orig. proceeding) (per curiam), the Supreme Court construed two contracts in connection with the sale of a home. The sales contract stated that any claim "shall be determined by mediation or by binding arbitration." The warranty book said that either party "may request" arbitration. The court concluded this did not render the contracts ambiguous. "While the warranty's clause allowed either party to request arbitration, nothing in it suggests that arbitration was optional if either did . . . ." <i>Id.</i> at 765. By contrast, the clause in this case does suggest that arbitration was optional for two reasons as noted above—the deletion of the mandatory language and the addition of a provision that the parties shall have the right to seek other legal remedies.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
Similarly, the contract language in <i>Feldman/Matz</i> is quite different from the contract language in this case. <i>See </i><a href="https://scholar.google.com/scholar_case?case=14734273627399032163&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>Feldman/Matz Interests, L.L.P. v. Settlement Capital Corp.,</i> 140 S.W.3d 879, 888 (Tex. App.-Houston [14th Dist.] 2004, no pet.)</a>. The contract provided in pertinent part:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; margin: 1em 0px; padding: 0px 40px; position: relative;">
With respect to any and all other disputes or claims between us whatsoever related to or arising out of our services, we agree that either of us may submit the same to a nationally recognized, neutral, arbitration association (eg., AAA, JAMS, etc.) for final, binding and nonappealable resolution pursuant to its single arbitrator, expedited arbitration rules. . . If the first arbitration organization which receives a written demand for arbitration of the dispute from either of us does not complete the arbitration to finality within four months of the written demand, either party then may file a written demand for arbitration of the dispute with another nationally recognized, neutral, arbitration association, with the prior arbitration association then being immediately divested of jurisdiction, subject to a decision being rendered by the replacement arbitration association within four months of the written demand being filed with the replacement arbitration association. The decision of the arbitrators shall be final in all respects and shall be non-appealable. Any person may have a court of competent jurisdiction enter into its record the findings of such arbitrators for all purposes including for the enforcement of such award.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
This contract language evidences an intent that "may submit" is mandatory, because it did not provide for any opt out of the arbitration, nor did it provide that the parties shall retain other legal remedies. In fact, it specifically references a request for arbitration by only one party (demand from either of us). Under this agreement, arbitration was the only remedy.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
"May" does not take on a special meaning in an arbitration contract. As always, the entire contract must reviewed to see if it is mandatory or permissive. <i>See </i><a href="https://scholar.google.com/scholar_case?case=7525206418111218344&q=14-17-00483-CV&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach Builders,</i> 458 S.W.3d at 525</a> (concluding that a joinder provision in an arbitration contract that used the word "may" was permissive rather than mandatory).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
7. Conclusion</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 15px; position: relative;">
The arbitration requirement in this contract is permissive, not mandatory. The trial court correctly denied the motion to compel arbitration. Because the majority holds otherwise, I respectfully dissent.</div>
<div style="background-color: white; font-family: arial, sans-serif; font-size: 15px; position: relative;">
<div style="color: #222222;">
<br /></div>
<b><span style="color: #990000;">CASE CITE AND LINKS:</span></b><br />
<div style="color: #222222;">
<br /></div>
</div>
<div style="position: relative;">
<a href="http://www.search.txcourts.gov/Case.aspx?cn=14-17-00483-CV&coa=coa14">Southern Green Builders, LP v. Cleveland</a>, No. 14-17-00483-CV (Tex. App.—Houston[14th Dist.] August 9, 2018, no pet. h.)(motion for rehearing not filed, PFR due 9/24/2018).<br />
<br />
<a href="https://www.law360.com/articles/1071798/texas-appeals-court-upholds-builder-s-arbitration-clause">Texas Appeals Court Upholds Builder's Arbitration Clause</a>. By Matthew Guarnaccia. Law360 (August 9, 2018).<br />
ARBITRATION: <a href="http://www.jackurquhart.com/2018/08/15/arbitration-beware-the-term-may/">Beware the Term “May”</a>. Comment By Jack E. Urquhart August 12, 2018<br />
([Houston Court of Appeals' opinion] "hammers home a crystal-clear contract drafting caution. 'May' is a perilous term for those truly desiring mandatory arbitration of contractual disputes.")<br />
Also see: <a href="http://www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=b7dcf624-4035-466b-8ee5-bc329db87171&coa=coa14&DT=Other&MediaID=5444f824-8304-4284-b1de-7f3ae70dca2a">Amicus Curiae letter in Southern Green Builders LP v. Cleveland</a> (arguing that phrasing of arbitration clause is ambiguous and that therefore verbiage expressly eliminated from the boilerplate contract should be considered in construing the intent of the parties at the time they signed the final version of the contract because the <a href="http://causeofactionelements.blogspot.com/2014/11/the-parol-evidence-rule-is-not-rule-of.html">parol evidence rule</a> does not apply).<br />
<br />
<br />
<br />
<br />
<br />
<br /></div>
<div style="position: relative;">
<br /></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-31814602588869915112018-07-01T13:20:00.001-07:002018-07-01T13:30:46.176-07:00The arbitration clause was on the back side of the contract for construction of swimming pool, but the homeowners claimed to be unaware of it <div style="text-align: center;">
<span style="font-size: x-small;">GARY ZARS HOLDIG, LLC V. WILDER, No. 13-18-00142-CV.(Tex.App. - Corpus Christi, Jun. 21, 2018) (denial of motion to compel arbitration reversed on appeal) </span></div>
<div style="text-align: center;">
<br /></div>
<i><span style="color: #0b5394;">Thirteenth Court of Appeals holds, in interlocutory appeal, that trial court should have compelled arbitration where arbitration clause was on the back side of the contract, and was only one of several general provisions. Home owners seeking to avoid arbitration of claim against swimming-pool contractor averred that they were shown only the front page and claimed fraudulent inducement. Trial court denied motion to compel, but the court of appeals disagreed, basing its ruling in favor of arbitration on the conclusion that the fraud allegation challenged the contract as a whole (or at least half of it--the backside), rather than the arbitration clause only, and that the issue should therefore be decided by the arbitrator, not the court. Appeals court also held that the contract did not need to be formally admitted into evidence at the hearing on the motion to compel, noting that both parties had proffered a copy that included the back side. </span></i><br />
<blockquote class="tr_bq">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Here, there was no evidence that the parties had any "specific negotiations or representations concerning arbitration." See Shearson Lehman, 871 S.W.2d at 929. Just the opposite, Daren testified that arbitration was never discussed in any form during negotiations. Rather, the Wilders' complaint is that Gary's salesman failed to disclose the back side of the contract, which contained twenty separate "General Conditions," only one of which related to arbitration. Thus, the Wilders are not protesting any fraud that relates specifically to the arbitration clause; instead, the alleged fraud relates to the contract as a whole—or at least half of it. See id. at 928. Because the Wilders' complaint "attacks the broader contract," the merits of the Wilders' fraud defense must be resolved by the arbitrator rather than the court. See Forest Oil, 268 S.W.3d at 56 n.13.</span></blockquote>
<center style="background-color: white; font-family: arial, sans-serif; font-size: 14px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
<span style="color: #cc0000;">GARY ZARS HOLDING, LLC AND GARY ZARS POOLS &; PATIO, LLC</span></h3>
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
<span style="color: #cc0000;">VS. </span></h3>
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
<span style="color: #cc0000;">DAREN WILDER AND DIANNE WILDER.</span></h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<a href="https://scholar.google.com/scholar?scidkt=16681791818935421923&as_sdt=2&hl=en" style="color: #660099;">No. 13-18-00142-CV.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<div style="position: relative;">
<b>Court of Appeals of Texas, Thirteenth District, Corpus Christi, Edinburg.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
Delivered and filed June 21, 2018.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
George P. Morrill, III, for Dianne Wilder and Daren Wilder, Appellees.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
David L. Cunningham, for Gary Zars Pool & Patio, LLC and Gary Zars Holding, LLC, Appellants.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On appeal from the 343rd District Court, of Live Oak County, Texas.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Before Chief Justice Valdez and Justices Rodriguez and Benavides.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
MEMORANDUM OPINION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Memorandum Opinion by Justice NELDA V. RODRIGUEZ.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Appellants Gary Zars Holding, LLC and Gary Zars Pools & Patio, LLC (collectively, "Gary") appeal the denial of their motion to compel arbitration. By one issue, Gary asserts that appellees Daren and Dianne Wilder's fraud defense is not a valid basis to avoid arbitration. We reverse and remand.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
I. BACKGROUND</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In 2015, the parties entered a written contract whereby Gary agreed to build an in-ground pool for the Wilders in exchange for the total price of $37,000. In 2016, the Wilders filed suit against Gary for breach of contract, fraudulent inducement, violation of the DTPA, and attorney's fees.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Gary filed a general denial and a motion to compel arbitration. Attached to Gary's motion was a copy of the parties' agreement ("the contract"). On the front, the contract recited the specifications for the Wilders' swimming pool, as well as various services necessary to complete construction. The front page of the contract also stated, "The general conditions to this agreement are on the back." On the back, the contract provided a list of twenty "General Conditions," one of which stated the following:<br />
<br />
<blockquote class="tr_bq">
"Any controversy or claim arising out of or relating to this contract or breach thereof or any claim whatsoever with Gary's including claims under the DTPA shall be settled by an onsite, binding Arbitration in accordance with the BBB Arbitration Rules."</blockquote>
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Wilders filed a response resisting arbitration. They asserted that Gary had fraudulently induced them to agree to the arbitration clause, along with other grounds for resisting arbitration which are not at issue on appeal.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
At the hearing, both parties proffered the contract to the trial court as a two-sided document. However, the trial court heard testimony from Daren that, throughout the process of negotiating the contract, Gary's sales representative consistently referred him to a one-sided document that was "blank on the back," which Daren reviewed with his wife Dianne.<br />
<br />
Daren testified that as the salesman walked him through the contract, he only discussed the terms listed on the front, and he "kept emphasizing that whatever was on the front of this document was the contract." Daren explained that when the negotiation was complete, the salesman then transcribed various specifications from the one-sided document onto another document, but he never disclosed that this second document had two sides. Instead, the salesman simply "put his finger on the document above where the signature line is and told me to sign."<br />
<br />
After Daren signed, Gary's salesman gave him a duplicate copy of the contract, but Daren testified that he did not notice the terms on the back, including the arbitration clause. Instead, Daren testified that he first became aware of the arbitration clause when Gary filed its motion to compel arbitration. On cross-examination, however, Daren conceded that just inches above his signature on the first page of the contract was a notice that the "general conditions to this agreement are on the back."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
At the conclusion of the hearing, the trial court denied Gary's motion to compel. Gary appeals.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
II. DISCUSSION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
By its sole issue, Gary argues that it met its initial burden to establish the existence of a valid arbitration agreement and that the Wilders' fraud defense does not offer valid grounds for avoiding arbitration.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
A. Standard of Review and General Applicable Law</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We review an order denying a motion to compel arbitration under an abuse of discretion standard. <a href="https://scholar.google.com/scholar_case?case=11064332715902942515&q=arbitration&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Labatt Food Serv., LP,</i> 279 S.W.3d 640, 642-43 (Tex. 2009)</a>(orig. proceeding). Under that standard, we defer to the trial court's factual determinations if they are supported by the record, but we review the trial court's legal determinations de novo. <i>Id.</i> at 643. The question of whether an arbitration agreement is enforceable is subject to de novo review. <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<i><br /></i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
A party seeking to compel arbitration must establish that the dispute falls within the scope of an existing agreement to arbitrate. <a href="https://scholar.google.com/scholar_case?case=8463334224818744874&q=arbitration&hl=en&as_sdt=4,44" style="color: #660099;"><i>Venture Cotton Co-op. v. Freeman,</i> 435 S.W.3d 222, 227 (Tex. 2014)</a>. Upon such proof, the burden shifts to the party opposing arbitration to raise an affirmative defense to the agreement's enforcement. <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
B. Existence of a Valid Arbitration Agreement</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We first consider whether Gary met its initial burden to establish the existence of a valid arbitration agreement. The Wilders assert that Gary failed to satisfy this burden because while the contract was attached to Gary's motion to compel and was offered at the hearing, the contract was never formally admitted into evidence at the hearing. The Wilders contend that the record is therefore devoid of evidentiary support for the existence of an arbitration agreement.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="color: #222222; font-family: arial, sans-serif; font-size: 14px; position: relative;">
<span style="background-color: white;">However, the </span><span style="background-color: yellow;">Wilders never disputed the existence of the contract or its arbitration clause before the trial court. Instead, the Wilders themselves offered the contract as an exhibit at the hearing, and Daren consulted the contract extensively during his testimony.</span><span style="background-color: white;"> </span><i style="background-color: white;">Cf. </i><a href="https://scholar.google.com/scholar_case?case=11503001930138833565&q=arbitration&hl=en&as_sdt=4,44" style="background-color: white; color: #660099;"><i>McInnes v. Yamaha Motor Corp., USA,</i> 673 S.W.2d 185, 188 (Tex. 1984)</a><span style="background-color: white;"> (holding that a party on appeal will not be heard to complain of improper evidence offered by the other side "when he, himself, introduced the same evidence"). </span></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Moreover, arbitrability proceedings are informal by default and by design, and evidentiary formality is usually required only when a material fact is in dispute:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Because the main benefits of arbitration lie in expedited and less expensive disposition of a dispute, and the legislature has mandated that a motion to compel arbitration be decided summarily, we think it unlikely that the legislature intended the issue to be resolved following a full evidentiary hearing in all cases. We also envision that the hearing at which a motion to compel arbitration is decided would ordinarily involve application of the terms of the arbitration agreement to undisputed facts, amenable to proof by affidavit. With these considerations in mind, we hold that the trial court may summarily decide whether to compel arbitration on the basis of affidavits, pleadings, discovery, and stipulations. However, if the material facts necessary to determine the issue are controverted, by an opposing affidavit or otherwise admissible evidence, the trial court must conduct an evidentiary hearing to determine the disputed material facts.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<a href="https://scholar.google.com/scholar_case?case=11167907300663469399&q=arbitration&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Poly-Am., LP,</i> 262 S.W.3d 337, 354 (Tex. 2008)</a> (orig. proceeding) (quoting <a href="https://scholar.google.com/scholar_case?case=2475598622643507507&q=arbitration&hl=en&as_sdt=4,44" style="color: #660099;"><i>Jack B. Anglin Co., Inc. v. Tipps,</i> 842 S.W.2d 266, 269 (Tex. 1992)</a> (orig. proceeding)).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="color: #222222; font-family: arial, sans-serif; font-size: 14px; position: relative;">
<span style="background-color: white;">Because </span><span style="background-color: yellow;">the Wilders never disputed the existence of the contract or its arbitration clause</span><span style="background-color: white;">, the fact that both parties proffered the contract was, for such an informal and summary proceeding, enough to satisfy Gary's burden. </span><i style="background-color: white;">See </i><a href="https://scholar.google.com/scholar_case?case=8463334224818744874&q=arbitration&hl=en&as_sdt=4,44" style="background-color: white; color: #660099;"><i>Venture Cotton,</i> 435 S.W.3d at 227</a><span style="background-color: white;">. We conclude that Gary carried its initial burden to show the existence of an arbitration agreement between the parties. </span><i style="background-color: white;">See id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
C. Defense Against Enforcement of Arbitration</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Once the party seeking arbitration has satisfied its initial burden, it becomes the burden of the party resisting arbitration to prove its defenses against enforcing an otherwise valid arbitration provision. <a href="https://scholar.google.com/scholar_case?case=7027568462900971293&q=arbitration&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Odyssey Healthcare, Inc.,</i> 310 S.W.3d 419, 422 (Tex. 2010) (per curiam)</a> (orig. proceeding). Generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements. <a href="https://scholar.google.com/scholar_case?case=1333197333627538291&q=arbitration&hl=en&as_sdt=4,44" style="color: #660099;"><i>Doctor's Assocs., Inc. v. Casarotto,</i> 517 U.S. 681, 687 (1996)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="color: #222222; font-family: arial, sans-serif; font-size: 14px; position: relative;">
<span style="background-color: white;">However, in order to avoid arbitration, </span><span style="background-color: yellow;">a fraudulent inducement defense must focus specifically on the negotiation and acceptance of the arbitration provision in a contract, not on the contract as a whole</span><span style="background-color: white;">. </span><a href="https://scholar.google.com/scholar_case?case=10689028851842364521&q=arbitration&hl=en&as_sdt=4,44" style="background-color: white; color: #660099;"><i>Shearson Lehman Bros., Inc. v. Kilgore,</i>871 S.W.2d 925, 928 (Tex. App.-Corpus Christi 1994, orig. proceeding)</a><span style="background-color: white;">; </span><i style="background-color: white;">see </i><a href="https://scholar.google.com/scholar_case?case=909671830225211864&q=arbitration&hl=en&as_sdt=4,44" style="background-color: white; color: #660099;"><i>Serv. Corp. Int'l v. Lopez,</i> 162 S.W.3d 801, 809 (Tex. App.-Corpus Christi 2005, no pet.)</a><span style="background-color: white;">. If a fraudulent-inducement defense attacks the broader contract, then the arbitrator, not a court, considers the matter. </span><a href="https://scholar.google.com/scholar_case?case=2991885428483591911&q=arbitration&hl=en&as_sdt=4,44" style="background-color: white; color: #660099;"><i>Forest Oil Corp. v. McAllen,</i> 268 S.W.3d 51, 56 n.13 (Tex. 2008)</a><span style="background-color: white;">.</span></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We have held that in order for a fraud defense to specifically relate to the arbitration provision and allow a party to avoid arbitration, there must be specific negotiations or representations concerning arbitration:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Fraud is not sufficiently focused upon the arbitration agreement when a party merely fails to read the contract which contains an arbitration clause of which he is unaware. Even though that party may have been induced to sign the contract without reading it by someone with whom he has had prior agreements or oral understandings that did not include an arbitration agreement, if there have been no specific negotiations or representations concerning arbitration, any fraudulent inducement is considered to be directed at the signing of the contract generally and not at the arbitration clause within that contract.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<a href="https://scholar.google.com/scholar_case?case=10689028851842364521&q=arbitration&hl=en&as_sdt=4,44" style="color: #660099;"><i>Shearson Lehman,</i> 871 S.W.2d at 928-29</a>; <i>see </i><a href="https://scholar.google.com/scholar_case?case=4407087825023822786&q=arbitration&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Educ. Mgmt. Corp., Inc.,</i> 14 S.W.3d 418, 426 (Tex. App.-Houston [14th Dist.] 2000, orig. proceeding)</a> (same).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="color: #222222; font-family: arial, sans-serif; font-size: 14px; position: relative;">
<span style="background-color: white;">Here, </span><span style="background-color: yellow;">there was no evidence that the parties had any "specific negotiations or representations concerning arbitration.</span><span style="background-color: white;">" </span><i style="background-color: white;">See </i><a href="https://scholar.google.com/scholar_case?case=10689028851842364521&q=arbitration&hl=en&as_sdt=4,44" style="background-color: white; color: #660099;"><i>Shearson Lehman,</i> 871 S.W.2d at 929</a><span style="background-color: white;">. Just the opposite, Daren testified that arbitration was never discussed in any form during negotiations. Rather, the Wilders' complaint is that Gary's salesman failed to disclose the back side of the contract, which contained twenty separate "General Conditions," only one of which related to arbitration. Thus, the Wilders are not protesting any fraud that relates specifically to the arbitration clause; instead, the alleged fraud relates to the contract as a whole—or at least half of it. </span><i style="background-color: white;">See id.</i><span style="background-color: white;"> at 928. </span><span style="background-color: yellow;">Because the Wilders' complaint "attacks the broader contract," the merits of the Wilders' fraud defense must be resolved by the arbitrator rather than the court</span><span style="background-color: white;">. </span><i style="background-color: white;">See </i><a href="https://scholar.google.com/scholar_case?case=2991885428483591911&q=arbitration&hl=en&as_sdt=4,44" style="background-color: white; color: #660099;"><i>Forest Oil,</i> 268 S.W.3d at 56 n.13</a><span style="background-color: white;">.</span></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We conclude that the trial court therefore abused its discretion by denying Gary's motion to compel.<br />
<br />
We sustain Gary's sole issue.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
III. CONCLUSION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We reverse the trial court's order denying Gary's motion to compel arbitration and remand the matter to the trial court for further proceedings consistent with this opinion.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-56440367096596212412018-06-27T14:04:00.000-07:002018-06-27T14:11:23.097-07:00JAMS rules, incorporated by reference, given effect by Fifth Circuit regarding delegation of arbitrability determination to arbitrator <div style="text-align: center;">
<span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 14px;"><a href="http://www.ca5.uscourts.gov/opinions/pub/17/17-60164-CV0.pdf">Green Tree Servicing, LLC v. House</a>, No. 17-60164 </span></span><span style="color: #222222; font-family: "arial" , sans-serif; font-size: 14px;">(5th Cir. May 14, 2018) </span></div>
<span style="background-color: white; color: #222222; font-family: "arial" , sans-serif; font-size: 14px;"><br /></span>
<span style="background-color: white; color: #222222; font-family: "arial" , sans-serif; font-size: 14px;">Fifth Circuit holds that the district court (S.D. of Mississippi) did not err in ruling that the parties' express incorporation of the JAMS rules provides clear evidence that they agreed that the arbitrator would decide arbitrability. The same court had previously held similarly in a case involving the AAA rules. See </span><span style="color: #222222; font-family: "arial" , sans-serif;"><span style="font-size: 14px;">Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir. 2012) </span></span><br />
<span style="background-color: white; color: #222222; font-family: "arial" , sans-serif; font-size: 14px;"><br /></span>
<br />
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The court held that, by incorporating the JAMS rules, the parties agreed to delegate questions as to arbitrability to the arbitrator. The district court referenced the version of the JAMS Comprehensive Arbitration Rules and Procedures, effective as of 2014, which provide:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Jurisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement under which Arbitration is sought, and who are proper Parties to the Arbitration, shall be submitted to and ruled on by the Arbitrator. The Arbitrator has the authority to determine jurisdiction and arbitrability issues as a preliminary matter.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[2]" name="r[2]" style="color: #660099;">[2]</a></sup></blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The House Parties also challenges the district court's determination that the parties agreed to delegate the "gateway" question of arbitrability to the arbitrator.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://3.bp.blogspot.com/-A_3D7QoVWqk/WzP8pujHTkI/AAAAAAAAIOw/DzyGXMrBkQMIpDzXEPsf8r5smXad9IebQCLcBGAs/s1600/2018-05-14%2BGreen%2BTree%2Bv%2BHouse%2B-%2BJAMS%2Barb%2Brules%2Bincorporated%2B-%2Bnonsignatories%2Bbound.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="Green Tree Servicing, LLC v. House, No. 17-60164 (5th Cir. May 14, 2018) " border="0" data-original-height="758" data-original-width="924" height="327" src="https://3.bp.blogspot.com/-A_3D7QoVWqk/WzP8pujHTkI/AAAAAAAAIOw/DzyGXMrBkQMIpDzXEPsf8r5smXad9IebQCLcBGAs/s400/2018-05-14%2BGreen%2BTree%2Bv%2BHouse%2B-%2BJAMS%2Barb%2Brules%2Bincorporated%2B-%2Bnonsignatories%2Bbound.JPG" title="Green Tree Servicing, LLC v. House, No. 17-60164 (5th Cir. May 14, 2018) " width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Green Tree Servicing, LLC v. House, No. 17-60164 (5th Cir. May 14, 2018) </td></tr>
</tbody></table>
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; position: relative;">
<span style="color: #222222; font-family: inherit;"><span style="font-size: 14px;">Like the broader question of whether a dispute is subject to arbitration, "the question `who has the primary power to decide arbitrability' turns upon what the parties agreed about that matter."[44] A determination that the parties agreed to arbitrate arbitrability must be supported by evidence showing that the parties "clearly and unmistakably" intended to do so.[45] In such cases, so long as "the assertion of arbitrability" is not "wholly groundless,"[46] meaning that there is a "plausible argument[] that the dispute was covered by the [arbitration] agreement," the question of arbitration is to be resolved in arbitration.[47] In Petrofac, this court held that by incorporating the American Arbitration Association Rules—which state that arbitrators have power to rule on questions of arbitrability—into their arbitration agreement, the parties had clearly and unmistakably agreed to arbitrate arbitrability.[48] A number of our sister circuits share this view.[49]</span></span></div>
<blockquote class="tr_bq" style="position: relative;">
<span style="background-color: white;"><span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[44]" name="[44]">[44]</a> <a href="https://scholar.google.com/scholar_case?case=12476666232531729476&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; outline: none;"><i>Petrofac, Inc. v. DynMcDermott Petroleum Operations Co.,</i> 687 F.3d 671, 675 (5th Cir. 2012)</a> (quoting <a href="https://scholar.google.com/scholar_case?case=2717778595314053137&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018"><i>First Options of Chi., Inc. v. Kaplan,</i> 514 U.S. 938, 943 (1995)</a> (internal citations omitted)); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=12575451657150943380&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018"><i>Crawford Prof'l Drugs, Inc. v. CVS Caremark Corp.,</i> 748 F.3d 249, 262 (5th Cir. 2014)</a>.</span><span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[45]" name="[45]">[45]</a> <a href="https://scholar.google.com/scholar_case?case=12476666232531729476&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018"><i>Petrofac,</i> 687 F.3d at 675</a> (quoting <a href="https://scholar.google.com/scholar_case?case=14976295791739728313&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018"><i>AT&T Techs., Inc. v. Commc'ns Workers of Am.,</i> 475 U.S. 643, 649 (1986)</a>).</span><span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[46]" name="[46]">[46]</a> <a href="https://scholar.google.com/scholar_case?case=14193754879905079316&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018"><i>Douglas v. Regions Bank,</i> 757 F.3d 460, 463 (5th Cir. 2014)</a> (quoting <a href="https://scholar.google.com/scholar_case?case=10882209637677156420&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018"><i>Agere Sys., Inc. v. Samsung Elecs. Co.,</i> 560 F.3d 337 (5th Cir. 2009)</a>); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=3010773090287163941&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018"><i>Qualcomm Inc. v. Nokia Corp.,</i> 466 F.3d 1366, 1371 (Fed. Cir. 2006)</a>.</span><span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[47]" name="[47]">[47]</a> <a href="https://scholar.google.com/scholar_case?case=14193754879905079316&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018"><i>Douglas,</i> 757 F.3d at 463</a>.</span><span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[48]" name="[48]">[48]</a> <i>Petrofac,</i> 68 F.3d at 675.</span><span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[49]" name="[49]">[49]</a> <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=1867875407331715073&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018"><i>Fallo v. High-Tech Inst.,</i> 559 F.3d 874, 878 (8th Cir. 2009)</a>; <a href="https://scholar.google.com/scholar_case?case=3010773090287163941&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018"><i>Qualcomm,</i> 466 F.3d at 1372-73</a>; <a href="https://scholar.google.com/scholar_case?case=238486843754226613&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018"><i>Terminix Int'l Co., LP v. Palmer Ranch Ltd. P'ship,</i> 432 F.3d 1327, 1332-33 (11th Cir. 2005)</a>; <a href="https://scholar.google.com/scholar_case?case=11201561156260516656&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018"><i>Contec Corp. v. Remote Sol. Co.,</i> 398 F.3d 205, 208 (2d Cir. 2005)</a>; <a href="https://scholar.google.com/scholar_case?case=11724640660313097366&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018"><i>Apollo Comput., Inc. v. Berg,</i> 886 F.2d 469, 473 (1st Cir. 1989)</a>.</span></span></blockquote>
<div style="color: #222222; font-size: 14px; position: relative;">
<span style="background-color: white;"><span style="font-family: inherit;">The House Parties contend that, as unsophisticated parties, they could not have assented to delegate arbitrability simply by agreeing to be bound by the JAMS arbitration rules. The House Parties did not raise this argument before the district court despite extensive argument from the Green Tree Parties that the JAMS rules gave the arbitrator power to determine arbitrability. Instead, the House Parties argued that because the arbitration agreement was unconscionable and invalid since it had not been properly executed, the delegation provision was invalid by extension. The House Parties do not renew these arguments on appeal, relying only on their new arguments that they could not have assented to delegation by the incorporation of a set of arbitration rules. This court generally does not consider arguments raised for the first time on appeal unless the party shows "extraordinary circumstances"—that "the issue . . . is a pure question of law and a miscarriage of justice would result from our failure to consider it."[50] </span></span></div>
<blockquote class="tr_bq" style="position: relative;">
<span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[50]" name="[50]" style="color: #660099;">[50]</a> <a href="https://scholar.google.com/scholar_case?case=6432327912500914265&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>AG Acceptance Corp. v. Veigel,</i> 564 F.3d 695, 700 (5th Cir. 2009)</a> (quoting <a href="https://scholar.google.com/scholar_case?case=9073273881850413155&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>N. Alamo Water Supply Corp. v. City of San Juan,</i> 90 F.3d 910, 916 (5th Cir. 1996)</a>).</span><span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[51]" name="[51]" style="color: #660099;">[51]</a> 9 U.S.C § 2.</span></blockquote>
<div style="background-color: white; color: #222222; font-size: 14px; position: relative;">
<span style="font-family: inherit;">That standard is not met here. By failing to bring their "assent" theory before the district court, the House Parties forfeited it for purposes of appeal.</span></div>
<div style="background-color: white; color: #222222; font-size: 14px; position: relative;">
<span style="font-family: inherit;"><br /></span></div>
<div style="background-color: white; position: relative;">
<div style="color: #222222; font-size: 14px;">
<span style="font-family: inherit;">The House Parties also argue that the district court erred by considering the JAMS rules effective in 2014, rather than the year the arbitration agreement was signed. The House Parties forfeited this argument as well by failing to raise it before the district court. Even though the Green Tree Parties specifically referenced the 2014 version of the JAMS rules in their memorandum brief in support of their motion to compel arbitration, the House Parties did not object to that version of the rules in the proceedings below. The district court did not err in ruling that the parties' express incorporation of the JAMS rules provides clear evidence that they agreed that the arbitrator would decide arbitrability.</span></div>
<span style="font-family: inherit;"><br /></span>
<span style="color: #222222; font-family: inherit;"><span style="font-size: 14px;">Finally, the House Parties argue that the district court failed to consider their allegations that the Green Tree Parties obtained the arbitration agreement by fraud. Pursuant to 9 U.S.C § 2, arbitration agreements are valid and enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract."[51] Because arbitration agreements are severable as a matter of federal arbitration law, parties seeking to avoid arbitration under § 2 must challenge the validity of the arbitration agreement specifically, rather the contract as a whole.[52] If the party challenges the "precise agreement to arbitrate at issue, the federal court must consider the challenge" before ordering compliance with a delegation provision.[53] Even in cases "where the alleged fraud that induced the whole contract equally induced the agreement to arbitrate which was part of that contract," the Supreme Court "nonetheless require[s] the . . . challenge to be directed specifically to the agreement to arbitrate" as a prerequisite to judicial intervention.[54]</span></span></div>
<blockquote class="tr_bq" style="position: relative;">
<span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[51]" name="[51]" style="color: #660099;">[51]</a> 9 U.S.C § 2.</span><span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[52]" name="[52]" style="color: #660099;">[52]</a> <a href="https://scholar.google.com/scholar_case?case=10589677176860191748&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Rent-A-Ctr., W., Inc. v. Jackson,</i> 561 U.S. 63, 70 (2010)</a> (citing <a href="https://scholar.google.com/scholar_case?case=16108030830731717705&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Buckeye Check Cashing, Inc. v. Cardegna,</i>546 U.S. 440, 444-46 (2006)</a>).</span><span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[53]" name="[53]" style="color: #660099;">[53]</a> <i>Id.</i> at 71.</span><span style="font-size: x-small;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[54]" name="[54]" style="color: #660099;">[54]</a> <i>Id.</i></span></blockquote>
<div style="background-color: white; color: #222222; font-size: 14px; position: relative;">
<span style="font-family: inherit;">The House Parties' fraud allegations are not specific to the arbitration agreement. In their pleadings, the House Parties argued generally that the Green Tree Parties "wrongfully obtain[ed] the [House Parties'] signatures on contracts, promissory notes, deeds of trusts, insurance payment plans, and completion certificates" and that "[a]ll the signatures of [House] on the aforementioned documents were generally procured under duress, with deceit, and/or through coercion, trickery, and/or other wrongful conduct." These blanket allegations of fraud fall well short of the specificity that <i>Rent-A-Center</i>requires. The district court correctly referred the question of fraud to the arbitrator.</span></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; font-family: arial, sans-serif; position: relative; text-align: center;">
<b><span style="color: red;">FULL TEXT OF OPINION IN GREEN TREE V. HOUSE BELOW</span></b></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
GREEN TREE SERVICING, L.L.C.; WALTER INVESTMENT MANAGEMENT CORPORATION; BEST INSURORS, INCORPORATED; MID STATE CAPITAL, L.L.C.; MID STATE TRUST II; MID STATE TRUST III; MID STATE TRUST IV; MID STATE TRUST V; MID STATE TRUST VI; MID STATE TRUST VII; MID STATE TRUST VIII; MID STATE TRUST IX; MID STATE TRUST X; MID STATE TRUST XI; WILMINGTON TRUST COMPANY; MID-STATE CAPITAL CORPORATION 2004-1 TRUST; MID-STATE CAPITAL CORPORATION 2005-1 TRUST; MID-STATE CAPITAL CORPORATION 2006-1 TRUST; MID-STATE CAPITAL TRUST 2010-1, Plaintiffs-Appellees,<br />v.<br />HENRY HOUSE; LINDA MURRELL, Defendants-Appellants.</h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<a href="https://scholar.google.com/scholar?scidkt=9798393129836596014&as_sdt=2&hl=en" style="color: #660099;">No. 17-60164.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<div style="position: relative;">
<b>United States Court of Appeals, Fifth Circuit.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
Filed: May 14, 2018.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Peter Emmanuel Ferraro, for Defendant-Appellant.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Jeffery P. Reynolds, for Defendant-Appellant.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Adam Stone, for Plaintiff-Appellee.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Kaytie Michelle Pickett, for Plaintiff-Appellee.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Andrew Scott Harris, for Plaintiff-Appellee.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Mitchell Dee Thomas, for Defendant-Appellant.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Appeal from the United States District Court for the Southern District of Mississippi.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Before: OWEN, SOUTHWICK, and WILLETT, Circuit Judges.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
PRISCILLA R. OWEN, Circuit Judge.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Henry House, Linda Murrell (the House Parties), and other plaintiffs sued Green Tree Servicing and various other entities (the Green Tree Parties) in a related action.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[1]" name="r[1]" style="color: #660099;">[1]</a></sup> The Green Tree Parties initiated the present suit in federal district court seeking to compel arbitration of claims asserted by the House Parties. The district court granted the motion to compel, holding that (1) all of the Green Tree Parties had standing to compel arbitration even though some were not signatories to the arbitration agreement; and (2) the parties had agreed to delegate questions regarding arbitrability to the arbitrator. We affirm.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
I</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Henry House purchased a house and surrounding real property from Jim Walter Homes, Inc. and Mid-State Trust IV in 1998. To obtain financing from the sellers, House pledged the real property as collateral. The parties memorialized the transaction by executing a sales contract, promissory note, and deed of trust. The sales contract expressly incorporated four exhibits, including an Arbitration Agreement. The Arbitration Agreement provided:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
The parties agree that, at the election of either party, any controversy or claim arising out of or relating to this contract, or the breach thereof, whether asserted as in tort or contract, or as a federal or state statutory claim, arising before, during or after performance of this contract, shall be settled by binding arbitration in accordance with the Comprehensive Arbitration Rules and Procedures administered by J·A·M·S/Endispute, and judgment upon the award rendered by the arbitrator may be entered in any Court having jurisdiction thereof. The parties agree and understand that they choose arbitration instead of litigation to resolve disputes.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In 2016, the House Parties and other plaintiffs commenced a lawsuit— <i>Green Tree Servicing, L.L.C. v. Billy Brown</i>—in Mississippi state court (<i>Brown</i>). The suit alleged that Jim Walter Homes and some of the Green Tree Parties induced House to sign the sales contract by promising to construct a house in accordance with manufacturer specifications, house plans, and building codes, but that those defendants actually delivered a dwelling that was "substandard, incomplete, defective, and dangerous." Based on these allegations, House and the other plaintiffs brought claims that included civil conspiracy, breach of contract, negligence, false statements/fraud, and deceit.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The complaint in <i>Brown</i> alleged that Jim Walter Homes "sold, assigned, or conveyed" the sales contract and related documents "to Walter Mortgage Company, LLC, then to Walter Investment Management Corp. or one of the Mid State Trust Entities, and ultimately to Wilmington Trust Co., Green Tree [Servicing], and their predecessors, who in turn attempted to sell, assign, or convey said instruments" to the other defendants. This "lending engine," the <i>Brown</i> complaint alleged, facilitated the "home built on your lot" scheme in which the Green Tree Parties and Jim Walter Homes acted as conspirators and joint venturers to originate, pool, and securitize mortgages like House's. According to the complaint, "[w]ithout a willingness of [these parties] to purchase such ill-gotten paper, there would be no market or incentive to perpetuate this wrongful scheme." The complaint in <i>Brown</i> asserted that each of the Green Tree Parties "aided and abetted each other in each and every act . . . that is the subject of this action" and that each was "liable jointly and severally for the unlawful, deceptive, deceitful and misleading acts and/or omissions of each and every one" of its co-parties. The Green Tree Parties removed <i>Brown</i> to federal district court.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
While the <i>Brown</i> case was pending, the Green Tree Parties filed the present suit and sought to compel arbitration of the House Parties' claims against the Green Tree Parties. The district court granted the motion to compel arbitration, ruling that even though Green Tree Servicing (Green Tree) and the Walter Investment Management Corporation (WIMC) were not signatories to the arbitration agreement, they had standing to enforce it under Mississippi law's intertwined claims test. The court held that, by incorporating the JAMS rules, the parties agreed to delegate questions as to arbitrability to the arbitrator. The district court referenced the version of the JAMS Comprehensive Arbitration Rules and Procedures, effective as of 2014, which provide:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Jurisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement under which Arbitration is sought, and who are proper Parties to the Arbitration, shall be submitted to and ruled on by the Arbitrator. The Arbitrator has the authority to determine jurisdiction and arbitrability issues as a preliminary matter.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[2]" name="r[2]" style="color: #660099;">[2]</a></sup></blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Based on this clause, the district court also held that the House Parties' claims that the sales contract was procedurally and substantively unconscionable must be decided by the arbitrator. The district court remanded the <i>Brown</i> case to state court due to lack of diversity jurisdiction.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On appeal, the House Parties contend that (1) under Mississippi law, the intertwined claims test does not apply to Green Tree and WIMC, which did not exist at the time the arbitration agreement was signed; (2) they did not assent to delegate arbitrability and that, in any event, the district court relied on the wrong version of the JAMS rules; and (3) the district court failed to address claims in their pleadings regarding fraud in the inducement.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
II</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We first address our jurisdiction. There are three issues: (1) did the district court's "Final Judgment" administratively close the case, (2) in light of this court's precedent,<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[3]" name="r[3]" style="color: #660099;">[3]</a></sup> how does the fact that the district court had another case pending before it that involved many of the parties in the present case and similar issues affect the finality of the "Final Judgment" compelling arbitration, and (3) was the notice of appeal premature, and if so, was it nevertheless effective.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
This court has jurisdiction over "a final decision with respect to an arbitration that is subject to this title."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[4]" name="r[4]" style="color: #660099;">[4]</a></sup> A decision is final if it "ends the litigation on the merits and leaves nothing more for the court to do but execute the judgment."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[5]" name="r[5]" style="color: #660099;">[5]</a></sup> An order compelling arbitration is typically appealable because "once the court compel[s] arbitration, there [is] nothing more for it to do but execute the judgment."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[6]" name="r[6]" style="color: #660099;">[6]</a></sup> However, when a district court stays or administratively closes a case pending arbitration, the order is not appealable because the "substantive claims have not been dismissed by any district court."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[7]" name="r[7]" style="color: #660099;">[7]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The district court entered upon the record a document captioned "Final Judgment," which provides in its entirety:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
In accordance with the Opinion and Order of the Court by which Plaintiffs' Motion to Compel Arbitration was granted, this case is hereby dismissed with prejudice. Any party may move to re-open this case if further judicial intervention is necessary to enforce the rulings of this Court, or to enforce the rulings of the arbitrators.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
SO ORDERED this the 6th day of February, 2017.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Green Tree Parties argue that because the district court permitted any party to move to re-open the case, the judgment was not final for purposes of appeal.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The district court labeled its decision "Final Judgment" and dismissed the case with prejudice. Although the order recited that either party may move to re-open the case after or during arbitration, this is simply a recognition of rights that the parties may have upon the conclusion of arbitration. As the Supreme Court has recognized, "[t]he FAA does permit parties to arbitration agreements to bring a separate proceeding in a district court to enter judgment on an arbitration award once it is made (or to vacate or modify it), but the existence of that remedy does not vitiate the finality of the District Court's resolution of the claims in the instant proceeding."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[8]" name="r[8]" style="color: #660099;">[8]</a></sup> The federal district court's order in the present case does nothing more than state the law, and its recognition that post-arbitration proceedings may be initiated is not tantamount to a statement that the court retains jurisdiction of the suit or that it has only administratively closed the case. Our court concluded in <a href="https://scholar.google.com/scholar_case?case=3726841194696613381&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Green Tree Servicing, L.L.C. v. Charles</i></a> that an order virtually identical to the "Final Judgment" in the present case would be a final, appealable order if the court were only examining that order.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[9]" name="r[9]" style="color: #660099;">[9]</a></sup> Accordingly, the statement in the "Final Judgment" that the parties may return to federal court during or after the arbitration does not affect the finality of the order compelling arbitration.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
An unpublished order in <i>Green Tree Servicing, L.L.C. v. Keyes</i> does not purport to reach a contrary conclusion.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[10]" name="r[10]" style="color: #660099;">[10]</a></sup> It considered a district court's order granting arbitration that also stated that the parties could return to district court during or after arbitration.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[11]" name="r[11]" style="color: #660099;">[11]</a></sup> This court's order in <i>Keyes</i> concluded that appellate jurisdiction was lacking.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[12]" name="r[12]" style="color: #660099;">[12]</a></sup> However, our order reflects that the quorum was under the impression that the district court, after ordering arbitration, had "stayed the remainder of the case, and directed the clerk to administratively close the case."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[13]" name="r[13]" style="color: #660099;">[13]</a></sup> The order held that the judgment was not final because "[b]y entering a stay and allowing for reactivation of the case, the district court demonstrated that it was postponing, not terminating, the proceedings."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[14]" name="r[14]" style="color: #660099;">[14]</a></sup> Regardless of how the district court's order in <i>Keyes</i> is properly interpreted, the district court in this case did not stay or administratively close the Green Tree Parties' case.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Other issues regarding our jurisdiction remain, however. We must consider other aspects of this court's decision in <i>Charles.</i><sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[15]" name="r[15]" style="color: #660099;">[15]</a></sup> In <i>Charles,</i> as in the present case, another case "involving the same parties and essentially the same dispute" remained pending before the same federal district court when the order compelling arbitration was entered.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[16]" name="r[16]" style="color: #660099;">[16]</a></sup> But unlike the present case, the district court in <i>Charles</i> had stayed further proceedings in the related case, and the related case remained pending in the federal district court when we considered the appeal of the order compelling arbitration.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[17]" name="r[17]" style="color: #660099;">[17]</a></sup> We held in <i>Charles</i> that the order compelling arbitration was not a final, appealable order and that we therefore lacked jurisdiction.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[18]" name="r[18]" style="color: #660099;">[18]</a></sup> We cited and followed <a href="https://scholar.google.com/scholar_case?case=3920854735977156828&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>CitiFinancial Corp. v. Harrison</i></a><i>,</i>in which our court held that when two proceedings with common parties and issues were pending in the same United States District Court, although before two different federal district court judges, and the two judges had respected one another's orders regarding arbitration and a stay, we were obliged to look at the orders from both courts to resolve whether a final, appealable order had been entered.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[19]" name="r[19]" style="color: #660099;">[19]</a></sup> We concluded in <i>Harrison</i> that there was no final order.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[20]" name="r[20]" style="color: #660099;">[20]</a></sup> This court reasoned, "[f]unctionally, this case sits in a posture no different than had both orders been issued by a single district court judge."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[21]" name="r[21]" style="color: #660099;">[21]</a></sup>Because, in one of the courts, the matter had been "administratively dismissed," which we deemed to be the same as "administratively close[d]" pending arbitration, and the substantive claims of the plaintiffs had not been dismissed, there was no final judgment.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[22]" name="r[22]" style="color: #660099;">[22]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The <i>Brown</i> suit, involving some of the same parties and arbitration issue as the present case, remained pending before Judge Barbour when the "Final Judgment" at issue here was entered. Judge Barbour had stayed further proceedings in the <i>Brown</i> suit. Although the <i>Brown</i> suit was a separate action that had not been consolidated with the present suit, our decisions in <i>Charles</i> and <i>Harrison</i> compel the conclusion that the "Final Judgment" was not a final, appealable order when it was entered. However, Judge Barbour subsequently remanded the <i>Brown</i> case to state court.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The remand of the <i>Brown</i> suit places this case in a materially different procedural posture than <i>Charles</i> and <i>Harrison.</i> The remand of the <i>Brown</i> suit left nothing pending before Judge Barbour in either <i>Brown</i> or the present case, so the "Final Judgment" became final and appealable.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[23]" name="r[23]" style="color: #660099;">[23]</a></sup> The remand to state court disposed of all remaining issues and parties in the two related actions. The federal district court had ordered arbitration, "the federal action did not contain any substantive claims," and "there was nothing more for it to do."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[24]" name="r[24]" style="color: #660099;">[24]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The fact that Judge Barbour also stayed the state-court litigation pending arbitration when he remanded the <i>Brown</i> case to state court does not render the "Final Judgment" non-appealable. The stay of the state-court action was to protect the effectiveness of the federal district court's judgment compelling arbitration.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[25]" name="r[25]" style="color: #660099;">[25]</a></sup> A stay by a federal district court of parallel state-court proceedings pending arbitration does not render the federal court's order compelling arbitration non-final or non-appealable.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[26]" name="r[26]" style="color: #660099;">[26]</a></sup> In the present case, when the remand occurred, nothing remained pending in the federal district court, and the "Final Judgment" became final.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The third jurisdictional issue is whether the notice of appeal in this case is effective. The House Parties filed a notice of appeal on March 8, 2017, after entry of the "Final Judgment," which occurred on February 6, 2017. The "Final Judgment" did not become a final, appealable order until the federal district court remanded the <i>Brown</i> suit on March 15, 2017. Accordingly, the notice of appeal was prematurely filed. We must determine whether that notice is effective, and we conclude that it was.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Our court confronted a similar situation in <i>Boudreaux v. Swift Transportation Co., Inc.</i><sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[27]" name="r[27]" style="color: #660099;">[27]</a></sup>The district court granted one party's motion for summary judgment, but another party's summary judgment motion remained pending when the notice of appeal was filed.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[28]" name="r[28]" style="color: #660099;">[28]</a></sup>The district court granted the pending motion one day after the notice of appeal was filed.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[29]" name="r[29]" style="color: #660099;">[29]</a></sup> We discussed the Supreme Court's decision in <i>FirsTier Mortgage Co. v. Investors Mortgage Ins. Co.,</i><sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[30]" name="r[30]" style="color: #660099;">[30]</a></sup> and held that the prematurely filed notice of appeal was effective because the order from which the appeal was taken "would have been appealable if immediately followed by the entry of judgment pursuant to Federal Rule of Civil Procedure 54(b)."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[31]" name="r[31]" style="color: #660099;">[31]</a></sup> The district court's February 6 "Final Judgment" would have been appealable had it been followed immediately by certification under FRCP 54(b).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
An opinion of the District of Columbia Circuit Court of Appeals, authored by then-Judge John Roberts, also analyzes when a prematurely filed notice of appeal is effective,<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[32]" name="r[32]" style="color: #660099;">[32]</a></sup>and we commend that opinion to those who wish to plumb the issue more deeply. It similarly concluded that because the district court's order would have been appealable had the court issued a certification under F.R.C.P 54(b), the order was appealable.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[33]" name="r[33]" style="color: #660099;">[33]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In the present case, we conclude that the premature notice of appeal was effective.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[34]" name="r[34]" style="color: #660099;">[34]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
III</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The House Parties contend that Green Tree and WIMC cannot enforce the arbitration agreement because the latter corporate entities are not signatories, and do not come within Mississippi's intertwined claims test because they did not exist at the time the sales agreement was signed. Mississippi law establishes that, as a general rule, a party may not enforce an arbitration provision to which it is not a signatory.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[35]" name="r[35]" style="color: #660099;">[35]</a></sup> One exception to this rule is the intertwined claims test.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[36]" name="r[36]" style="color: #660099;">[36]</a></sup> It permits a non-signatory to compel arbitration when a litigant makes "allegations of substantially interdependent and concerted misconduct" between a non-signatory and a signatory that have a close legal relationship.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[37]" name="r[37]" style="color: #660099;">[37]</a></sup> For example, in <i>Sawyers,</i> the Supreme Court of Mississippi applied the intertwined claims test to a car-buyer's claims against a car dealership and the underwriter of a GAP insurance policy sold by the dealership.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[38]" name="r[38]" style="color: #660099;">[38]</a></sup> Even though the underwriter was not a party to the arbitration agreement between the dealer and the buyer, the court allowed it to compel arbitration.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[39]" name="r[39]" style="color: #660099;">[39]</a></sup> The dealer and underwriter had a close legal relationship, the court held, because the underwriter acted on the dealer's behalf by administering the insurance policy and supervising payment of the claim.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[40]" name="r[40]" style="color: #660099;">[40]</a></sup>Because the buyer based its claims against the underwriter on its contract with the dealership, she "[could not] deny [the underwriter] the benefit of the arbitration agreement which was an integral part of the transaction at issue."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[41]" name="r[41]" style="color: #660099;">[41]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The House Parties' allegations support application of the intertwined claims test to permit Green Tree and WIMC to compel arbitration as non-signatories. First, based on the allegations in the complaint, both entities had a close legal relationship with a signatory to the arbitration agreement. The House Parties allege that Green Tree, the current servicing agent of the mortgage, or its predecessor, financed the home at a high interest rate and worked with Jim Walter Homes as the "`business end' of a lending engine" scheme that also involved WIMC and the other Green Tree Parties. These allegations support the conclusion that Green Tree has a close relationship with a signatory because it serviced the mortgage created in the initial transaction between House and Jim Walter Homes.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
With respect to WIMC, Green Tree's parent company, the House Parties allege that "without the assistance and cooperation of [WIMC] . . . th[e] fraudulent scheme could not have been possible." The complaint also alleges that "Jim Walter Homes . . . transformed itself into publicly traded, billion dollar entities such as Walter Energy, Inc. and [WIMC]." The complaint alleges that both Green Tree and WIMC were joint venturers and co-conspirators with Jim Walter Homes, the entity that signed the sales contract and other documents. It further alleges that Jim Walter Homes "sold, assigned, or conveyed the contracts, promissory notes, and deeds of trust made the subject of this civil action generally to Walter Mortgage Company, LLC, [now Green Tree] then to WIMC" or other entities. As an alleged assignee/conveyee, co-conspirator, and joint venturer that was integral to perpetuating the harms described in the complaint, WIMC has a close legal relationship with Jim Walter Homes, a signatory.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The complaint alleges that Green Tree and WIMC engaged in "substantially interdependent and concerted misconduct" with Jim Walter Homes. Not only does the complaint assert that Green Tree and WIMC acted as co-conspirators and joint venturers in a scheme to originate and securitize sub-prime loans, it also claims that these entities aided and abetted and are "liable jointly and severally for the unlawful, deceptive, deceitful and misleading acts and/or omissions of each and everyone one" of the other named defendants. Accordingly, Green Tree and WIMC have standing to enforce the arbitration agreement.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The House Parties contend that because Green Tree and WIMC did not exist at the time the sales contract was executed, they are ineligible for the intertwined claims test. The intertwined claims test is not a doctrine of imputed assent, such that any non-signatory must have existed when the agreement was signed so that House could have anticipated that the entity could later compel arbitration. Rather, the test governs the application of the doctrine of equitable estoppel.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[42]" name="r[42]" style="color: #660099;">[42]</a></sup> Mississippi courts apply the intertwined claims test to estop parties from making claims against non-signatories based on a contract, then seeking to avoid an arbitration provision that "was an integral part of the transaction at issue."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[43]" name="r[43]" style="color: #660099;">[43]</a></sup> In this case, the House Parties allege that Green Tree and WIMC have a close legal relationship with Jim Walter Homes, a signatory to the sales contract, and the House Parties invoked that contract to allege that Green Tree and WIMC engaged in substantially interdependent misconduct with Jim Walter Homes. That Green Tree and WIMC were formed after the sales contract was signed is irrelevant.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
IV</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The House Parties also challenge the district court's determination that the parties agreed to delegate the "gateway" question of arbitrability to the arbitrator. Like the broader question of whether a dispute is subject to arbitration, "the question `who has the primary power to decide arbitrability' turns upon what the parties agreed about <i>that</i>matter."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[44]" name="r[44]" style="color: #660099;">[44]</a></sup> A determination that the parties agreed to arbitrate arbitrability must be supported by evidence showing that the parties "clearly and unmistakably" intended to do so.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[45]" name="r[45]" style="color: #660099;">[45]</a></sup> In such cases, so long as "the assertion of arbitrability" is not "wholly groundless,"<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[46]" name="r[46]" style="color: #660099;">[46]</a></sup> meaning that there is a "plausible argument[] that the dispute was covered by the [arbitration] agreement," the question of arbitration is to be resolved in arbitration.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[47]" name="r[47]" style="color: #660099;">[47]</a></sup> In <i>Petrofac,</i> this court held that by incorporating the American Arbitration Association Rules—which state that arbitrators have power to rule on questions of arbitrability—into their arbitration agreement, the parties had clearly and unmistakably agreed to arbitrate arbitrability.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[48]" name="r[48]" style="color: #660099;">[48]</a></sup> A number of our sister circuits share this view.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[49]" name="r[49]" style="color: #660099;">[49]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The House Parties contend that, as unsophisticated parties, they could not have assented to delegate arbitrability simply by agreeing to be bound by the JAMS arbitration rules. The House Parties did not raise this argument before the district court despite extensive argument from the Green Tree Parties that the JAMS rules gave the arbitrator power to determine arbitrability. Instead, the House Parties argued that because the arbitration agreement was unconscionable and invalid since it had not been properly executed, the delegation provision was invalid by extension. The House Parties do not renew these arguments on appeal, relying only on their new arguments that they could not have assented to delegation by the incorporation of a set of arbitration rules. This court generally does not consider arguments raised for the first time on appeal unless the party shows "extraordinary circumstances"—that "the issue . . . is a pure question of law and a miscarriage of justice would result from our failure to consider it."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[50]" name="r[50]" style="color: #660099;">[50]</a></sup> That standard is not met here. By failing to bring their "assent" theory before the district court, the House Parties forfeited it for purposes of appeal.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The House Parties also argue that the district court erred by considering the JAMS rules effective in 2014, rather than the year the arbitration agreement was signed. The House Parties forfeited this argument as well by failing to raise it before the district court. Even though the Green Tree Parties specifically referenced the 2014 version of the JAMS rules in their memorandum brief in support of their motion to compel arbitration, the House Parties did not object to that version of the rules in the proceedings below. The district court did not err in ruling that the parties' express incorporation of the JAMS rules provides clear evidence that they agreed that the arbitrator would decide arbitrability.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
V</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Finally, the House Parties argue that the district court failed to consider their allegations that the Green Tree Parties obtained the arbitration agreement by fraud. Pursuant to 9 U.S.C § 2, arbitration agreements are valid and enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[51]" name="r[51]" style="color: #660099;">[51]</a></sup> Because arbitration agreements are severable as a matter of federal arbitration law, parties seeking to avoid arbitration under § 2 must challenge the validity of the arbitration agreement specifically, rather the contract as a whole.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[52]" name="r[52]" style="color: #660099;">[52]</a></sup> If the party challenges the "precise agreement to arbitrate at issue, the federal court must consider the challenge" before ordering compliance with a delegation provision.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[53]" name="r[53]" style="color: #660099;">[53]</a></sup> Even in cases "where the alleged fraud that induced the whole contract equally induced the agreement to arbitrate which was part of that contract," the Supreme Court "nonetheless require[s] the . . . challenge to be directed specifically to the agreement to arbitrate" as a prerequisite to judicial intervention.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#[54]" name="r[54]" style="color: #660099;">[54]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The House Parties' fraud allegations are not specific to the arbitration agreement. In their pleadings, the House Parties argued generally that the Green Tree Parties "wrongfully obtain[ed] the [House Parties'] signatures on contracts, promissory notes, deeds of trusts, insurance payment plans, and completion certificates" and that "[a]ll the signatures of [House] on the aforementioned documents were generally procured under duress, with deceit, and/or through coercion, trickery, and/or other wrongful conduct." These blanket allegations of fraud fall well short of the specificity that <i>Rent-A-Center</i>requires. The district court correctly referred the question of fraud to the arbitrator.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We AFFIRM the judgment of the district court.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[1]" name="[1]" style="color: #660099;">[1]</a> <i>Green Tree Servicing, L.L.C. v. Billy Brown,</i> No. 17-60105.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[2]" name="[2]" style="color: #660099;">[2]</a> Rule 11(b), JAMS Comprehensive Arbitration Rules & Procedures (2014).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[3]" name="[3]" style="color: #660099;">[3]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=3726841194696613381&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Green Tree Servicing, L.L.C. v. Charles,</i> 872 F.3d 637 (5th Cir. 2017)</a>; <a href="https://scholar.google.com/scholar_case?case=3920854735977156828&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>CitiFinancial Corp. v. Harrison,</i> 453 F.3d 245 (5th Cir. 2006)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[4]" name="[4]" style="color: #660099;">[4]</a> 9 U.S.C. § 16(a)(3).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[5]" name="[5]" style="color: #660099;">[5]</a> <a href="https://scholar.google.com/scholar_case?case=4494474812085373519&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Green Tree Fin. Corp.-Ala. v. Randolph,</i> 531 U.S. 79, 86 (2000)</a> (citations omitted).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[6]" name="[6]" style="color: #660099;">[6]</a> <a href="https://scholar.google.com/scholar_case?case=3920854735977156828&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Harrison,</i> 453 F.3d at 249</a> (citations omitted).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[7]" name="[7]" style="color: #660099;">[7]</a> <i>Id.</i> at 251.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[8]" name="[8]" style="color: #660099;">[8]</a> <a href="https://scholar.google.com/scholar_case?case=4494474812085373519&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Randolph,</i> 531 U.S. at 86</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[9]" name="[9]" style="color: #660099;">[9]</a> <a href="https://scholar.google.com/scholar_case?case=3726841194696613381&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;">872 F.3d 637, 639 (5th Cir. 2017)</a>; <i>id.</i> at 638 (reflecting that the district court granted the motion to compel arbitration and that the order also "stated that `each party may move to re-open this case if further judicial intervention is necessary to enforce the rulings of this Court, or to enforce the rulings of the arbitrators'").</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[10]" name="[10]" style="color: #660099;">[10]</a> No. 17-60107 (5th Cir. May 31, 2017) (quorum opinion).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[11]" name="[11]" style="color: #660099;">[11]</a> <i>Id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[12]" name="[12]" style="color: #660099;">[12]</a> <i>Id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[13]" name="[13]" style="color: #660099;">[13]</a> <i>Id.</i>; <i>see also id.</i> ("[I]n addition to compelling arbitration, the district court stayed the rest of the case and ordered it administratively closed.").</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[14]" name="[14]" style="color: #660099;">[14]</a> <i>Id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[15]" name="[15]" style="color: #660099;">[15]</a> <a href="https://scholar.google.com/scholar_case?case=3726841194696613381&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Green Tree Servicing, L.L.C. v. Charles,</i> 872 F.3d 637 (5th Cir. 2017)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[16]" name="[16]" style="color: #660099;">[16]</a> <i>Id.</i> at 638-39.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[17]" name="[17]" style="color: #660099;">[17]</a> <i>Id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[18]" name="[18]" style="color: #660099;">[18]</a> <i>Id.</i> at 639-40.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[19]" name="[19]" style="color: #660099;">[19]</a> <a href="https://scholar.google.com/scholar_case?case=3920854735977156828&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;">453 F.3d 245, 249-52 (5th Cir. 2006)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[20]" name="[20]" style="color: #660099;">[20]</a> <i>Id.</i> at 251.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[21]" name="[21]" style="color: #660099;">[21]</a> <i>Id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[22]" name="[22]" style="color: #660099;">[22]</a> <i>Id.</i> at 251-52.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[23]" name="[23]" style="color: #660099;">[23]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=8425065483034750666&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>American Heritage Life Ins. Co. v. Orr,</i> 294 F.3d 702, 705 (5th Cir. 2002)</a> ("[A]s a matter of law, the district court order compelling arbitration, which also stays the underlying state court proceedings and closes the case in federal court, is an immediately appealable, final decision under the ambit of 9 U.S.C. § 16(a)(3) of the FAA.").</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[24]" name="[24]" style="color: #660099;">[24]</a> <a href="https://scholar.google.com/scholar_case?case=3920854735977156828&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Harrison,</i> 453 F.3d at 249</a> (citations omitted).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[25]" name="[25]" style="color: #660099;">[25]</a> <i>See generally Aptim Corp. v. McCall,</i> 888 F.3d 129 (5th Cir. 2018).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[26]" name="[26]" style="color: #660099;">[26]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=8425065483034750666&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>American Heritage Life Ins. Co.,</i> 294 F.3d at 708</a> ("We hold that where a district court with nothing before it but whether to compel arbitration and stay state court proceedings issues an order compelling arbitration, staying the underlying state court proceedings, and closing the case, thereby effectively ending the entire matter on its merits and leaving nothing more for the district court to do but execute the judgment, appellate jurisdiction lies, as the decision is `final' within the contemplation of § 16(a)(3) of the FAA.").</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[27]" name="[27]" style="color: #660099;">[27]</a> 402 F.3d 536 (5th Cir. 2005).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[28]" name="[28]" style="color: #660099;">[28]</a> <i>Id.</i> at 539 and n.1.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[29]" name="[29]" style="color: #660099;">[29]</a> <i>Id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[30]" name="[30]" style="color: #660099;">[30]</a> 498 U.S. 269 (1991).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[31]" name="[31]" style="color: #660099;">[31]</a> <a href="https://scholar.google.com/scholar_case?case=16567925217056362990&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Boudreaux,</i> 402 F.3d at 539 n.1</a> (quoting <a href="https://scholar.google.com/scholar_case?case=8387590770813442893&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Barrett v. Atl. Richfield Co.,</i> 95 F.3d 375, 379 (5th Cir. 1996)</a>).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[32]" name="[32]" style="color: #660099;">[32]</a> <a href="https://scholar.google.com/scholar_case?case=14117830784530301271&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Outlaw v. Airtech Air Conditioning & Heating, Inc.,</i> 412 F.3d 156, 161 (D.C. Cir. 2005)</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=1768212540565554682&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>United States v. Cooper,</i> 135 F.3d 960, 963 (5th Cir. 1998)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[33]" name="[33]" style="color: #660099;">[33]</a> <a href="https://scholar.google.com/scholar_case?case=14117830784530301271&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Outlaw,</i> 412 F.3d at 161-63</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[34]" name="[34]" style="color: #660099;">[34]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=16567925217056362990&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Boudreaux,</i> 402 F.3d at 539</a> (quoting <a href="https://scholar.google.com/scholar_case?case=8387590770813442893&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Barrett,</i> 95 F.3d at 379</a>); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=3232720441260549006&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Swope v. Columbian Chems. Co.,</i> 281 F.3d 185, 192 (5th Cir. 2002)</a>; <a href="https://scholar.google.com/scholar_case?case=5669421724831450764&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>In re Seiscom Delta, Inc.,</i> 857 F.2d 279, 283 (5th Cir. 1988)</a>; <a href="https://scholar.google.com/scholar_case?case=14117830784530301271&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Outlaw,</i> 412 F.3d at 161</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[35]" name="[35]" style="color: #660099;">[35]</a> <a href="https://scholar.google.com/scholar_case?case=15968322411078362908&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Sawyers v. Herrin-Gear Chevrolet Co., Inc.,</i> 26 So. 3d 1026, 1038 (Miss. 2010)</a> (citing <a href="https://scholar.google.com/scholar_case?case=1041513782864093783&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Qualcomm, Inc. v. American Wireless License Grp., LLC,</i> 980 So. 2d 261, 269 (Miss. 2007)</a>).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[36]" name="[36]" style="color: #660099;">[36]</a> <i>Id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[37]" name="[37]" style="color: #660099;">[37]</a> <i>Id.</i> (quoting <a href="https://scholar.google.com/scholar_case?case=12094167507319675408&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>B.C. Rogers Poultry, Inc. v. Wedgeworth,</i> 911 So. 2d 483, 491-92 (Miss. 2005)</a>).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[38]" name="[38]" style="color: #660099;">[38]</a> <i>Id.</i> at 1028-30.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[39]" name="[39]" style="color: #660099;">[39]</a> <i>Id.</i> at 1038-39.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[40]" name="[40]" style="color: #660099;">[40]</a> <i>Id.</i> at 1038.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[41]" name="[41]" style="color: #660099;">[41]</a> <i>Id.</i> at 1039.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[42]" name="[42]" style="color: #660099;">[42]</a> <i>Id.</i> at 1038-39.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[43]" name="[43]" style="color: #660099;">[43]</a> <i>Id.</i>; <i>see </i><a href="https://scholar.google.com/scholar_case?case=12094167507319675408&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>B.C. Rogers Poultry, Inc. v. Wedgeworth,</i> 911 So. 2d 483, 491 (Miss. 2005)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[44]" name="[44]" style="color: #660099;">[44]</a> <a href="https://scholar.google.com/scholar_case?case=12476666232531729476&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="background: rgb(241, 241, 241); color: #d14836; outline: none;"><i>Petrofac, Inc. v. DynMcDermott Petroleum Operations Co.,</i> 687 F.3d 671, 675 (5th Cir. 2012)</a> (quoting <a href="https://scholar.google.com/scholar_case?case=2717778595314053137&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>First Options of Chi., Inc. v. Kaplan,</i> 514 U.S. 938, 943 (1995)</a> (internal citations omitted)); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=12575451657150943380&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Crawford Prof'l Drugs, Inc. v. CVS Caremark Corp.,</i> 748 F.3d 249, 262 (5th Cir. 2014)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[45]" name="[45]" style="color: #660099;">[45]</a> <a href="https://scholar.google.com/scholar_case?case=12476666232531729476&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Petrofac,</i> 687 F.3d at 675</a> (quoting <a href="https://scholar.google.com/scholar_case?case=14976295791739728313&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>AT&T Techs., Inc. v. Commc'ns Workers of Am.,</i> 475 U.S. 643, 649 (1986)</a>).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[46]" name="[46]" style="color: #660099;">[46]</a> <a href="https://scholar.google.com/scholar_case?case=14193754879905079316&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Douglas v. Regions Bank,</i> 757 F.3d 460, 463 (5th Cir. 2014)</a> (quoting <a href="https://scholar.google.com/scholar_case?case=10882209637677156420&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Agere Sys., Inc. v. Samsung Elecs. Co.,</i> 560 F.3d 337 (5th Cir. 2009)</a>); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=3010773090287163941&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Qualcomm Inc. v. Nokia Corp.,</i> 466 F.3d 1366, 1371 (Fed. Cir. 2006)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[47]" name="[47]" style="color: #660099;">[47]</a> <a href="https://scholar.google.com/scholar_case?case=14193754879905079316&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Douglas,</i> 757 F.3d at 463</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[48]" name="[48]" style="color: #660099;">[48]</a> <i>Petrofac,</i> 68 F.3d at 675.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[49]" name="[49]" style="color: #660099;">[49]</a> <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=1867875407331715073&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Fallo v. High-Tech Inst.,</i> 559 F.3d 874, 878 (8th Cir. 2009)</a>; <a href="https://scholar.google.com/scholar_case?case=3010773090287163941&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Qualcomm,</i> 466 F.3d at 1372-73</a>; <a href="https://scholar.google.com/scholar_case?case=238486843754226613&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Terminix Int'l Co., LP v. Palmer Ranch Ltd. P'ship,</i> 432 F.3d 1327, 1332-33 (11th Cir. 2005)</a>; <a href="https://scholar.google.com/scholar_case?case=11201561156260516656&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Contec Corp. v. Remote Sol. Co.,</i> 398 F.3d 205, 208 (2d Cir. 2005)</a>; <a href="https://scholar.google.com/scholar_case?case=11724640660313097366&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Apollo Comput., Inc. v. Berg,</i> 886 F.2d 469, 473 (1st Cir. 1989)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[50]" name="[50]" style="color: #660099;">[50]</a> <a href="https://scholar.google.com/scholar_case?case=6432327912500914265&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>AG Acceptance Corp. v. Veigel,</i> 564 F.3d 695, 700 (5th Cir. 2009)</a> (quoting <a href="https://scholar.google.com/scholar_case?case=9073273881850413155&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>N. Alamo Water Supply Corp. v. City of San Juan,</i> 90 F.3d 910, 916 (5th Cir. 1996)</a>).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[51]" name="[51]" style="color: #660099;">[51]</a> 9 U.S.C § 2.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[52]" name="[52]" style="color: #660099;">[52]</a> <a href="https://scholar.google.com/scholar_case?case=10589677176860191748&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Rent-A-Ctr., W., Inc. v. Jackson,</i> 561 U.S. 63, 70 (2010)</a> (citing <a href="https://scholar.google.com/scholar_case?case=16108030830731717705&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018" style="color: #660099;"><i>Buckeye Check Cashing, Inc. v. Cardegna,</i>546 U.S. 440, 444-46 (2006)</a>).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[53]" name="[53]" style="color: #660099;">[53]</a> <i>Id.</i> at 71.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<small style="font-size: 11px;"></small></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=12103194450285641191&q=greentree+v+house&hl=en&as_sdt=6,44&as_ylo=2018#r[54]" name="[54]" style="color: #660099; text-decoration: underline;">[54]</a> <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-72708772949038407922018-06-26T08:59:00.000-07:002018-07-01T13:22:58.828-07:00Dallas Court of Appeals says grant of new trial cannot be conditioned on waiver of contractual right to arbitrate claim after case is revived - In re CGI Construction, Inc. (Tex.App.- Dallas 2018) <div style="text-align: center;">
<a href="http://www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=c1fc49ca-d4ef-4fca-aa0e-234d749578c6&coa=coa05&DT=Opinion&MediaID=a89e1db2-bc2a-4af8-854b-e91b441a2dd9">In re CGI Construction, Inc.</a>, No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=05-18-00320-CV&coa=coa05">05-18-00320-CV</a> (Tex.App. - Dallas, Jun. 18, 2018) (orig. proc.) (granting mandamus relief and directing trial court to issue a written order reforming the order setting aside the default judgment by removing the condition requiring waiver of arbitration rights.) </div>
<div style="text-align: center;">
<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://4.bp.blogspot.com/-YWyX4WMdMEY/WzJhC1Z_YgI/AAAAAAAAIOA/ljk_xTp9HGwD-MJ_qu2wGpuHaKHoG3LkACLcBGAs/s1600/05-18-00320-CV%2BMandamus%2BOrder%2Bto%2BTC%2BJudge%2Bto%2BDelete%2BWaiver%2Bof%2BArbitration%2BRequirement%2Bfor%2BOrder%2BSetting%2BAside%2BDefault%2BJudgment.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="In re CGI Construction, Inc., No. 05-18-00320-CV (Tex.App. - Dallas, Jun. 18, 2018) (orig. proc.) " border="0" data-original-height="875" data-original-width="833" height="400" src="https://4.bp.blogspot.com/-YWyX4WMdMEY/WzJhC1Z_YgI/AAAAAAAAIOA/ljk_xTp9HGwD-MJ_qu2wGpuHaKHoG3LkACLcBGAs/s400/05-18-00320-CV%2BMandamus%2BOrder%2Bto%2BTC%2BJudge%2Bto%2BDelete%2BWaiver%2Bof%2BArbitration%2BRequirement%2Bfor%2BOrder%2BSetting%2BAside%2BDefault%2BJudgment.JPG" title="In re CGI Construction, Inc., No. 05-18-00320-CV (Tex.App. - Dallas, Jun. 18, 2018) (orig. proc.) " width="380" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><a href="http://no.%2005-18-00320-cv./">Mandamus Granted in No. 05-18-00320-CV</a></td></tr>
</tbody></table>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
IN RE CGI CONSTRUCTION, INC., Relator.</h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<a href="https://scholar.google.com/scholar?scidkt=3221040817928090400&as_sdt=2&hl=en" style="color: #660099;">No. 05-18-00320-CV.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<div style="position: relative;">
<b>Court of Appeals of Texas, Fifth District, Dallas.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
Opinion Filed June 18, 2018.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<br /></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Elizabeth Patricia Ardanowski, for VV Services LP d/b/a Pivot Building Services, Real party in interest.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Peter T. Martin, David R. Weiner, Brent M. Rosenthal, for CGI Construction, Inc., Relator.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Original Proceeding from the 95th Judicial District Court, Dallas County, Texas, Trial Court Cause No. DC-17-16221-D.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
CONDITIONALLY GRANT.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Before Justices Lang-Miers, Fillmore, and Stoddart.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
MEMORANDUM OPINION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Opinion by Justice ROBERT M. FILLMORE.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<span style="background-color: white;">In this original proceeding, we must decide </span><span style="background-color: yellow;">whether a trial court may set aside a default judgment on the condition that the defaulting party waive its right to seek contractually-agreed arbitration</span><span style="background-color: white;">. We conclude such a condition is improper as a matter of law and conditionally grant a writ of mandamus to remove the condition from the order setting aside the default judgment.</span></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Background</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The underlying proceeding is a contract dispute between a subcontractor and general contractor relating to two construction projects. The trial court signed a no-answer default judgment against relator CGI Construction, Inc. (CGI), CGI timely moved to set aside the default judgment, and the trial court granted the motion to set aside. </div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
However, the trial court placed two conditions on its order. </div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
First, it required CGI to pay real party in interest VV Services LP d/b/a Pivot Building Services (Pivot) $4,795 in fees and costs incurred to obtain the default judgment. </div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Second, it required CGI to waive its right to seek arbitration in the proceeding. </div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
CGI does not agree to waive its arbitration rights and seeks a writ directing the trial court to vacate that condition from the order setting aside the default judgment. CGI has paid the fees and costs ordered and does not challenge that condition. At our request, Pivot filed a response to the petition.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Mandamus Standard</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
To establish a right to mandamus relief, CGI must establish that the trial court clearly abused its discretion and CGI lacks an adequate remedy on appeal. <a href="https://scholar.google.com/scholar_case?case=6207522956368226204&q=craddock&hl=en&as_sdt=4,44&as_ylo=2018" style="color: #660099;"><i>In re Prudential Ins. Co. of Am.,</i> 148 S.W.3d 124, 135-36 (Tex. 2004)</a> (orig. proceeding). A trial court clearly abuses its discretion if it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law, or if it clearly fails to correctly analyze or apply the law. <a href="https://scholar.google.com/scholar_case?case=5049479872117280771&q=craddock&hl=en&as_sdt=4,44&as_ylo=2018" style="color: #660099;"><i>In re Cerberus Capital Mgmt., L.P.,</i> 164 S.W.3d 379, 382 (Tex. 2005)</a> (orig. proceeding) (per curiam). To determine if a party has an adequate remedy by appeal, the appellate court evaluates whether "any benefits to mandamus review are outweighed by the detriments." <a href="https://scholar.google.com/scholar_case?case=6207522956368226204&q=craddock&hl=en&as_sdt=4,44&as_ylo=2018" style="color: #660099;"><i>In re Prudential Ins. Co. of Am.,</i> 148 S.W.3d at 136</a>. Further, an appeal is not an adequate remedy when a party stands to lose a substantial right. <a href="https://scholar.google.com/scholar_case?case=1890178492646002387&q=craddock&hl=en&as_sdt=4,44&as_ylo=2018" style="color: #660099;"><i>Walker v. Packer,</i> 827 S.W.2d 833, 842 (Tex. 1992)</a> (orig. proceeding).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Applicable Law</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
To have a default judgment set aside, a party must satisfy the three elements of <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=15328966074815780243&q=craddock&hl=en&as_sdt=4,44&as_ylo=2018" style="border-bottom: 1px dotted rgb(102, 0, 153); color: #660099; text-decoration-line: none;"><i>Craddock v. Sunshine Bus Lines, Inc.,</i> 133 S.W.2d 124 (Tex. 1939)</a>. Under <i>Craddock,</i> a defendant must: (1) demonstrate that its failure to answer before judgment was not intentional, or the result of conscious indifference, but was due to mistake or accident; (2) set up a meritorious defense in its motion to set aside; and (3) file the motion at a time when granting it will occasion no delay or otherwise work an injury to the plaintiff. <i>Id.</i>at 126.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Trial courts are permitted to grant new trials conditioned upon the payment of attorney's fees, expenses for witnesses, travel expenses, and other costs incurred in obtaining the default judgment. <a href="https://scholar.google.com/scholar_case?case=8709606205318895431&q=craddock&hl=en&as_sdt=4,44&as_ylo=2018" style="color: #660099;"><i>Equitable Gen. Ins. Co. of Tex. v. Yates,</i> 684 S.W.2d 669, 671 (Tex. 1984)</a> (citing <a href="https://scholar.google.com/scholar_case?case=17096628089090006925&q=craddock&hl=en&as_sdt=4,44&as_ylo=2018" style="color: #660099;"><i>United Beef Producers, Inc. v. Lookingbill,</i> 532 S.W.2d 958, 959 (Tex. 1976)</a>). Such conditional grants of new trial in default judgment cases are governed by the equitable consideration of not causing any injury to the party obtaining the original judgment. <a href="https://scholar.google.com/scholar_case?case=8709606205318895431&q=craddock&hl=en&as_sdt=4,44&as_ylo=2018" style="color: #660099;"><i>Yates,</i> 684 S.W.2d at 671</a> (citing <i>Craddock</i>).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Arbitration of disputes is strongly favored under both federal and Texas law. <i>Henry v. Cash Biz, LP,</i> No. 16-0854, 2018 WL 1022838, at *3 (Tex. Feb. 23, 2018); <a href="https://scholar.google.com/scholar_case?case=475541471625694972&q=craddock&hl=en&as_sdt=4,44&as_ylo=2018" style="color: #660099;"><i>Prudential Sec. Inc. v. Marshall,</i> 909 S.W.2d 896, 898 (Tex. 1995) (per curiam)</a>; <a href="https://scholar.google.com/scholar_case?case=7857021863784504649&q=craddock&hl=en&as_sdt=4,44&as_ylo=2018" style="color: #660099;"><i>Cambridge Legacy Grp., Inc. v. Jain,</i> 407 S.W.3d 443, 447 (Tex. App.-Dallas 2013, pet. denied)</a>. "Because public policy favors resolving disputes through arbitration, the law imposes a strong presumption against the waiver of contractual arbitration rights." <a href="https://scholar.google.com/scholar_case?case=4996016088850793267&q=craddock&hl=en&as_sdt=4,44&as_ylo=2018" style="color: #660099;"><i>Pilot Travel Centers, LLC v. McCray,</i> 416 S.W.3d 168, 182 (Tex. App.-Dallas 2013, no pet.)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Discussion</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
CGI argues this Court should grant mandamus relief because the trial court committed a clear abuse of discretion in requiring CGI to waive its contractual right to arbitration as a condition to setting aside a default judgment. Pivot has cited no authority, and we have found none, permitting a court to condition the setting aside of a default judgment on waiver of contractual arbitration rights. In light of the reluctance of courts to impair the sanctity of contracts or vested rights, <a href="https://scholar.google.com/scholar_case?case=14089149638331931809&q=craddock&hl=en&as_sdt=4,44&as_ylo=2018" style="color: #660099;"><i>Royston, Rayzor, Vickery, & Williams, LLP v. Lopez,</i> 467 S.W.3d 494, 503-04 (Tex. 2015),</a> and the public policy favoring arbitration, <i>Henry,</i> 2018 WL 1022838, at *3, we conclude the trial court may not condition the granting of a new trial and motion to set aside default judgment on waiver of contractual arbitration rights. The trial court, therefore, abused its discretion by conditioning its order on CGI's waiver of its contractual arbitration rights. </div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
CGI lacks an adequate remedy on appeal because arbitration is a substantial right that will be lost if the order remains in place until after trial. <i>See </i><a href="https://scholar.google.com/scholar_case?case=9045645654181765964&q=craddock&hl=en&as_sdt=4,44&as_ylo=2018" style="color: #660099;"><i>In re M.W.M., Jr.,</i> 523 S.W.3d 203, 206 (Tex. App.-Dallas 2017, orig. proceeding)</a> (appeal is an inadequate remedy when a trial court denies a party its contracted-for arbitration rights); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=15606924870195869647&q=craddock&hl=en&as_sdt=4,44&as_ylo=2018" style="color: #660099;"><i>Austin Commercial Contractors, L.P. v. Carter & Burgess, Inc.,</i> 347 S.W.3d 897, 901 (Tex. App.-Dallas 2011, pet. denied)</a> (same).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Pivot argues that the condition was proper because the trial court determined that CGI had not met the third <i>Craddock</i> element, i.e., that a new trial would cause neither delay nor undue prejudice. Pivot contends that allowing CGI to move to compel arbitration will cause delay, added costs, and injury to Pivot, and those costs will multiply if Pivot must participate in arbitration. The trial judge echoed Pivot's concerns and expressed his own concern regarding the costs of arbitration. The trial judge opined that "the additional delay and cost imposed at this point would just be astronomical. I mean, the Court's own experience in AAA arbitration is — well, it gets plum horrifying sometimes." Pivot maintains that those statements constitute a finding that CGI did not meet the third <i>Craddock</i> element. We disagree. The trial judge made no explicit findings on any of the <i>Craddock</i> elements. Further, the trial judge set aside the default judgment. Had the trial judge decided CGI had not met the third <i>Craddock</i> element, he would have denied the motion to set aside the default judgment.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
However, to the extent the trial judge's statement could be construed as a finding that CGI did not meet the third <i>Craddock</i> element, the record shows the finding was an abuse of discretion. </div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The purpose of the third element of the <i>Craddock</i> test is to protect a plaintiff against undue delay or injury that would result in a disadvantage when presenting the merits of its case at a new trial, such as the loss of a witness or other critical evidence. <i>Culinaire of Fla., Inc. v. FelCor/CSS Holdings, LP,</i> No. 05-14-00832-CV, 2015 WL 3769580, at *4 (Tex. App.-Dallas June 17, 2015, pet. denied) (mem. op.). "Once a defendant has alleged that granting a new trial will not injure the plaintiff, the burden of going forward with proof of injury shifts to the plaintiff." <i>Id.</i> Here, CGI asserted that granting a new trial would not delay or otherwise injure Pivot because CGI offered to go to arbitration immediately and to reimburse Pivot's reasonable expenses incurred in obtaining the default judgment. The burden was thereby shifted to Pivot to disprove this assertion. <i>See id.</i> In its response to the motion to set aside default judgment, Pivot complained that it has unpaid invoices and further delays will increase those costs. Pivot also argued "on information and belief" that CGI "may be close to filing for bankruptcy" and delay in the underlying proceeding may impact recoverability of unpaid invoices in a bankruptcy. Finally, Pivot complained that arbitration is expensive:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Moreover, arbitration proceedings are far more costly in costs, filing fees, and paying for an arbitrator's time than are the costs already incurred in filing fees, service fees, and costs already incurred by Plaintiff in this Court. This is just MORE damage and injury that will be incurred by Plaintiff through granting of Defendant's motion, that Defendant ignores in its motion.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Pivot did not allege a specific injury, such as the loss of witnesses or valuable evidence, and presented no evidence of an alleged injury. Accordingly, Pivot did not prove harm or injury sufficient to preclude the granting of a new trial. <i>See, e.g., id.</i> (being required to incur legal costs is not sufficient to show undue delay and injury such that a default judgment should not be set aside).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<span style="background-color: white; color: #222222;">For these reasons,</span><span style="background-color: yellow;"> we conclude the trial court abused its discretion by conditioning the order on CGI waiving its contractual arbitration rights and that CGI has no adequate remedy on appeal. </span><span style="background-color: white; color: #222222;">Accordingly, we conditionally grant the writ of mandamus. </span></div>
<div style="font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<span style="background-color: white; color: #222222;"><br /></span></div>
<div style="font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<span style="background-color: white; color: #222222;">We direct the trial court to, within twenty-one (21) days of the date of this opinion, issue a written order reforming the order setting aside the default judgment by removing the condition requiring waiver of arbitration rights. We are confident the trial court will comply, but a writ will issue if the trial court fails to comply.</span></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://4.bp.blogspot.com/-sA6UC9j3obM/WzJgeBIhSsI/AAAAAAAAIN4/ObaxhNJF0p0hVexJ7Ha1l7kwZxwP05oIQCLcBGAs/s1600/VV%2BServices%2BLP%2Bdba%2BPivot%2BBuilding%2BServices%2Bv%2BCGI%2BConstruction%252C%2BInc.%2B-%2BReformed%2BTrial%2BCourt%2BOrder%2B%2528post%2BCOA%2Bmandamus%2529.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="828" data-original-width="838" height="632" src="https://4.bp.blogspot.com/-sA6UC9j3obM/WzJgeBIhSsI/AAAAAAAAIN4/ObaxhNJF0p0hVexJ7Ha1l7kwZxwP05oIQCLcBGAs/s640/VV%2BServices%2BLP%2Bdba%2BPivot%2BBuilding%2BServices%2Bv%2BCGI%2BConstruction%252C%2BInc.%2B-%2BReformed%2BTrial%2BCourt%2BOrder%2B%2528post%2BCOA%2Bmandamus%2529.JPG" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Trial Court's Reformed Order post-mandamus </td></tr>
</tbody></table>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-54137682232967311772018-06-18T19:06:00.001-07:002018-06-19T16:01:48.413-07:00Rare Bird of a SCOTX Decision: Arbitration Results Undone - No agreement to arbitrate - Jody James Farms, JV v. The Altman Group, Inc. (Tex. May 11, 2018) (Op. by Guzman) <div style="text-align: center;">
<a href="http://www.search.txcourts.gov/Case.aspx?cn=17-0062&coa=cossup">Jody James Farms, JV v. The Altman Group, Inc.</a>, <a href="http://www.search.txcourts.gov/Case.aspx?cn=17-0062&coa=cossup">No. 17-0062</a> (Tex. May 11, 2018) </div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: justify;">
<i><span style="color: #0b5394;">Parties may not be compelled to arbitrate unless they have agreed to arbitrate or are bound by principles of agency or contract law to do so. Jody James and the Agency did not agree to Jody James be compelled to arbitrate under agency, third-party-beneficiary, or estoppel theories. </span></i><br />
<i><span style="color: #0b5394;"><br /></span></i>
<i><span style="color: #0b5394;">In the absence of an agreement to arbitrate arbitrability, the court must decide the issue in the first instance, because it involves a gateway issue, regardless of whether arbitrability would otherwise go to the arbitrator based on incorporation of AAA rules into the agreement of parties that have agreed to submit disputes between them to arbitration in the AAA forum. This scenario does not apply to nonsignatories. At least not in this case. </span></i></div>
<div style="text-align: justify;">
<i><span style="color: #0b5394;"><br /></span></i></div>
<div style="text-align: justify;">
<i><span style="color: #0b5394;">The Texas Supreme Court therefore reverses the court of appeals’ judgment, vacates the arbitration award, and remands to the trial court for further proceedings.</span></i></div>
<div style="text-align: center;">
<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://4.bp.blogspot.com/-WH61cqVz4xU/WvX9a1HAouI/AAAAAAAAH3s/sIksDTzt7FoYXA_XpVBNShhs_mGb1rB2ACLcBGAs/s1600/Tex%2B2018-05-11%2BJody%2BJames%2BFarms%2BJV%2Bv%2BThe%2BAltman%2BGroup%2B%2528Tex%2B2018%2529%2B%2528arbitration%2Bcase%2529.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="914" data-original-width="915" height="398" src="https://4.bp.blogspot.com/-WH61cqVz4xU/WvX9a1HAouI/AAAAAAAAH3s/sIksDTzt7FoYXA_XpVBNShhs_mGb1rB2ACLcBGAs/s400/Tex%2B2018-05-11%2BJody%2BJames%2BFarms%2BJV%2Bv%2BThe%2BAltman%2BGroup%2B%2528Tex%2B2018%2529%2B%2528arbitration%2Bcase%2529.JPG" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Texas Supreme Court Opinion </td></tr>
</tbody></table>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
IN THE SUPREME COURT OF TEXAS</div>
<div style="text-align: center;">
══════════</div>
<div style="text-align: center;">
No. 17-0062</div>
<div style="text-align: center;">
══════════</div>
<div style="text-align: center;">
JODY JAMES FARMS, JV, PETITIONER</div>
<div style="text-align: center;">
V.</div>
<div style="text-align: center;">
THE ALTMAN GROUP, INC. AND LAURIE DIAZ, RESPONDENTS</div>
<div style="text-align: center;">
══════════════════════════════════════════</div>
<div style="text-align: center;">
ON PETITION FOR REVIEW FROM THE</div>
<div style="text-align: center;">
COURT OF APPEALS FOR THE SEVENTH DISTRICT OF TEXAS</div>
<div style="text-align: center;">
══════════════════════════════════════════</div>
<div style="text-align: center;">
Argued March 20, 2018</div>
<div style="text-align: center;">
<br /></div>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
JODY JAMES FARMS, JV, Petitioner,<br />v.<br />THE ALTMAN GROUP, INC. AND LAURIE DIAZ, Respondents.</h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<a href="https://scholar.google.com/scholar?scidkt=6374545701858632536&as_sdt=2&hl=en" style="color: #660099;">No. 17-0062.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<div style="position: relative;">
<b>Supreme Court of Texas.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
Argued March 20, 2018.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
Opinion delivered: May 11, 2018.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Anna M.W. McKim, J. Paul Manning, for The Altman Group, Inc. and Laurie Diaz, Respondents.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Jody D. Jenkins, for Jody James Farms, JV, Petitioner.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On Petition for Review from the Court of Appeals for the Seventh District of Texas.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
JUSTICE GUZMAN delivered the opinion of the Court.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
JUSTICE JOHNSON did not participate in the decision.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
EVA M. GUZMAN, Justice.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Arbitration is a creature of contract between consenting parties.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[1]" name="r[1]" style="color: #660099;">[1]</a></sup> Nevertheless, as may be required by principles of contract law and agency,<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[2]" name="r[2]" style="color: #660099;">[2]</a></sup> a person who has agreed to arbitrate disputes with one party may be required to arbitrate related disputes with non-parties.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[3]" name="r[3]" style="color: #660099;">[3]</a></sup> This, however, is not one of those cases.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Determining whether a claim involving a non-signatory must be arbitrated is a gateway matter for the trial court, not the arbitrator, which means the determination is reviewed de novo rather than with the deference that must be accorded to arbitrators. Applying the appropriate standard of review, we hold the lower courts erroneously required a signatory to arbitrate its non-contractual claims against non-signatories. We therefore vacate the arbitrator's take-nothing award and remand the case to the trial court for further proceedings.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
I. Background</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Jody James Farms, JV purchased a Crop Revenue Coverage Insurance Policy from Rain & Hail, LLC, through the Altman Group, an independent insurance agency. The insurance policy, which was reinsured by the Federal Crop Insurance Corporation (FCIC) under the authority of the Federal Crop Insurance Act,<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[4]" name="r[4]" style="color: #660099;">[4]</a></sup> contains an arbitration clause in section 20(a):</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
If you and we fail to agree on any determination made by us except those specified in section 20(d), the disagreement may be resolved through mediation in accordance with section 20(g). If resolution cannot be reached through mediation, or you and we do not agree to mediation, the disagreement must be resolved through arbitration in accordance with the rules of the American Arbitration Association (AAA), except as provided in sections 20(c) and (f), and unless rules are established by FCIC for this purpose. Any mediator or arbitrator with a familial, financial or other business relationship to you or us, or our agent or loss adjuster, is disqualified from hearing the dispute.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[5]" name="r[5]" style="color: #660099;">[5]</a></sup></blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The policy defines "us" and "we" as referring to the insurer (Rain & Hail) and "you" as referring to the named insured (Jody James). Neither the Altman Group nor any of its employees is expressly named in the policy, and neither the Altman Group nor any of its employees signed the agreement.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
This dispute follows Rain & Hail's denial of coverage for a grain sorghum crop loss Jody James suffered. Though Jody James claims it promptly called an Altman Group agent, Laurie Diaz, to report the loss, Rain & Hail denied the claim on several bases, including that Jody James "failed to provide a timely notice of damage which has resulted in [Rain & Hail's] inability to make necessary and required loss determinations for indemnity under your . . . policy."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Jody James disagreed with Rain & Hail's coverage determination, so the parties arbitrated the dispute as required by the insurance policy. Jody James lost. The arbitrator agreed with Rain & Hail that Jody James did not "timely present[] notice of its claim in accordance with the provisions of the crop insurance policy" and, further, "did not state a presentable loss" because crops from performing and non-performing farm units were commingled.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Based on the adverse arbitration ruling, Jody James sued the Altman Group and Diaz (collectively, the Agency) for breach of fiduciary duty and deceptive-trade practices.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[6]" name="r[6]" style="color: #660099;">[6]</a></sup>Jody James asserts the Agency's failure to timely submit the crop-loss claim resulted in denial of coverage and a $68,000 pecuniary loss. </div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Jody James seeks damages equal to the amount of the loss, plus attorney's fees and interest.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Agency moved to compel arbitration under the insurance policy, which Jody James opposed and the trial court granted. Following an unsuccessful motion for reconsideration, the case proceeded to arbitration where Jody James continued to assert its right to proceed in court against the Agency, a non-signatory to the arbitration agreement. The arbitrator resolved that issue and the merits of the dispute in the Agency's favor, issuing a take-nothing arbitration award.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Agency asked the trial court to confirm and enforce the arbitrator's award, while Jody James moved to vacate it, again asserting that no valid arbitration agreement exists between the parties. The trial court's final judgment confirmed the award, denied Jody James's motion, and denied the Agency's request for attorney's fees. Applying a deferential standard of review to the arbitrator's determinations, the court of appeals affirmed.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[7]" name="r[7]" style="color: #660099;">[7]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We granted Jody James's petition for review, which challenges the arbitrator's authority to determine whether a non-signatory can compel a signatory to arbitrate.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
II. Discussion</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Jody James and the Agency disagree about (1) whether the Agency is liable for Jody James's loss; (2) whether they agreed to arbitrate the merits of that issue; and (3) whether the trial court or the arbitrator should decide whether they agreed to arbitrate the merits. The third matter— who answers the question of arbitrability—is the primary focus of this appeal. </div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Jody James asserts that the trial court must determine, as a threshold matter, whether an arbitration agreement exists between it and the Agency. The Agency argues it makes no difference who actually holds the power to determine arbitrability, because both the trial court and the arbitrator concluded Jody James must arbitrate.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We disagree with the Agency. Who may properly adjudicate arbitrability is critical to ascertaining the appropriate standard of review. A trial court's arbitrability determinations are reviewed de novo,<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[8]" name="r[8]" style="color: #660099;">[8]</a></sup> while an arbitrator's determinations are entitled to deference.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[9]" name="r[9]" style="color: #660099;">[9]</a></sup>Under the Federal Arbitration Act, an arbitration award must be confirmed except in extremely limited circumstances, such as corruption, fraud, undue means, evident partiality, and lack of authority.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[10]" name="r[10]" style="color: #660099;">[10]</a></sup> The answer to the third question is thus significant and ultimately dispositive of this appeal, because it controls the standard of review we apply in evaluating the arbitrator's authority.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
A. Standard of Review</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Whether parties have agreed to arbitrate is a gateway matter ordinarily committed to the trial court<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[11]" name="r[11]" style="color: #660099;">[11]</a></sup> and controlled by state law governing "the validity, revocability, and enforceability of contracts generally."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[12]" name="r[12]" style="color: #660099;">[12]</a></sup> Parties can, however, agree to arbitrate arbitrability. Arbitration is a matter of contract, and that which the parties agree must be arbitrated shall be arbitrated.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[13]" name="r[13]" style="color: #660099;">[13]</a></sup> A presumption favors adjudication of arbitrability by the courts absent clear and unmistakable evidence of the parties' intent to submit that matter to arbitration.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[14]" name="r[14]" style="color: #660099;">[14]</a></sup> The unmistakable clarity standard follows "the principle that a party can be forced to arbitrate only those issues it specifically has agreed to submit to arbitration" and protects unwilling parties from compelled arbitration of matters they reasonably expected a judge, not an arbitrator, would decide.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[15]" name="r[15]" style="color: #660099;">[15]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The court of appeals held that an arbitration agreement incorporating the American Arbitration Association (AAA) rules evinces clear and unmistakable intent to arbitrate arbitrability because the AAA rules declare that an "arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence . . . of the arbitration agreement or to the arbitrability of any claim or counterclaim."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[16]" name="r[16]" style="color: #660099;">[16]</a></sup>Jody James and Rain & Hail's arbitration agreement expressly incorporates the AAA rules, so the court of appeals applied a "narrow and deferential review" to the arbitrator's determination that Jody James's claims against the Agency were arbitrable.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[17]" name="r[17]" style="color: #660099;">[17]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
While such deference may be the consequence of incorporating the AAA rules in disputes between signatories to an arbitration agreement,<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[18]" name="r[18]" style="color: #660099;">[18]</a></sup> which we need not decide, the analysis is necessarily different when a dispute arises between a party to the arbitration agreement and a non-signatory. As to that matter, Texas courts differ about whether an arbitration agreement's mere incorporation of the AAA rules shows clear intent to arbitrate arbitrability.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[19]" name="r[19]" style="color: #660099;">[19]</a></sup> We hold it does not. Even when the party resisting arbitration is a signatory to an arbitration agreement, questions related to the existence of an arbitration agreement with a non-signatory are for the court, not the arbitrator.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The involvement of a non-signatory is an important distinction because a party cannot be forced to arbitrate absent a binding agreement to do so.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[20]" name="r[20]" style="color: #660099;">[20]</a></sup> The question is not whether Jody James agreed to arbitrate with someone, but whether a binding arbitration agreement exists between Jody James and the Agency. What might seem like a chicken-and-egg problem is resolved by application of the presumption favoring a judicial determination.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[21]" name="r[21]" style="color: #660099;">[21]</a></sup> A contract that is silent on a matter cannot speak to that matter with unmistakable clarity, so an agreement silent about arbitrating claims against non-signatories does not unmistakably mandate arbitration of arbitrability in such cases.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[22]" name="r[22]" style="color: #660099;">[22]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
To the extent Jody James and Rain & Hail's agreement expressed any intent to arbitrate arbitrability, it did so only with respect to one another. Jody James's agreement with Rain & Hail requires disagreements to "be resolved through arbitration in accordance with the rules of the [AAA]" only "[i]f [Jody James] and [Rain & Hail] fail to agree on any determination made by [Rain & Hail]." The insurance policy directly incorporates the AAA rules only for these disputes, not for disputes between Jody James and unspecified third parties. The contract also does not "expressly provide[] that certain non-signatories are considered parties" or otherwise expressly extend the contract's benefits to third parties.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[23]" name="r[23]" style="color: #660099;">[23]</a></sup> And no agreement between Jody James and the Agency incorporates the AAA rules as to disputes between them.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[24]" name="r[24]" style="color: #660099;">[24]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Given the absence of clear and unmistakable evidence that Jody James agreed to arbitrate arbitrability in disputes with non-signatories, compelled arbitration cannot precede a judicial determination that an agreement to arbitrate exists. The trial court was therefore charged with determining whether a valid agreement to arbitrate exists between Jody James and the Agency before any issue may be referred to arbitration. We review the resolution of that question de novo, because arbitrators lack authority to resolve a dispute absent a valid arbitration agreement.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[25]" name="r[25]" style="color: #660099;">[25]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
B. Analysis</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Who is bound by an arbitration agreement is normally a function of the parties' intent, as expressed in the agreement's terms.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[26]" name="r[26]" style="color: #660099;">[26]</a></sup> Courts have also articulated six scenarios in which arbitration with non-signatories may be required: (1) incorporation by reference, (2) assumption, (3) agency, (4) alter ego, (5) equitable estoppel, and (6) third-party beneficiary.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[27]" name="r[27]" style="color: #660099;">[27]</a></sup> The Agency argues the insurance policy's language mandates arbitration here and, alternatively, that agency, third-party-beneficiary, and estoppel theories preclude Jody James from avoiding arbitration even though the Agency is a non-signatory.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
1. The Insurance Policy</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
When relying on a contract to compel arbitration, the moving party must first establish the existence of a valid and enforceable arbitration agreement.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[28]" name="r[28]" style="color: #660099;">[28]</a></sup> Second, the claims at issue must fall within the arbitration agreement's scope.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[29]" name="r[29]" style="color: #660099;">[29]</a></sup> Whether a non-signatory may enforce an arbitration agreement's terms is a question within the first element.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[30]" name="r[30]" style="color: #660099;">[30]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Section 20(a) of the crop insurance policy requires a "disagreement to be resolved through arbitration." "[D]isagreement" occurs when "[Jody James] and [Rain & Hail] fail to agree on any determination made by [Rain & Hail]." The arbitration agreement's text does not reference any other disagreement, such as disagreements between Jody James and another person or entity.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
This litigation centers on the Agency's alleged failure to inform Rain & Hail of Jody James's insurance claim in a timely manner, which is not a disagreement between Rain & Hail and Jody James. This suit does not arise from a disagreement between Rain & Hail and Jody James; indeed, the claims against the Agency actually embrace and depend on Rain & Hail's determination that the claim was late. Section 20(a) thus does not require Jody James to arbitrate this dispute with the Agency.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Agency, however, cites the first sentence in subsection 20(a)(1) as supporting a much broader application of the policy's arbitration agreement. Subsection 20(a)(1) is a subpart of section 20(a), in which the general arbitration agreement resides. Subsection 20(a)(1) reads as follows:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
All disputes involving determinations made by us, except those specified in subsection 20(d), are subject to mediation or arbitration. However, if the dispute in any way involves a policy or procedure interpretation, regarding whether a specific policy provision or procedure is applicable to the situation, how it is applicable, or the meaning of any policy provision or procedure, either you or we must obtain an interpretation from FCIC in accordance with 7 CFR part 400, subpart X or such other procedures as established by FCIC.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Reading the words of subsection 20(a)(1)'s first sentence "in the context in which they are used,"<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[31]" name="r[31]" style="color: #660099;">[31]</a></sup> we first observe that it is structurally constrained to the scope of arbitration in Section 20(a), to which it is appended. Second, the first sentence must be considered in light of subsection (a)(1)'s remainder, which is devoted to restricting the scope of arbitration in a specific manner. Construed in context, subsection (a)(1) is thus a limiter, not an expander. This reading accords with the interpretive canon that "[m]aterial within an indented subpart relates only to that subpart."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[32]" name="r[32]" style="color: #660099;">[32]</a></sup> The context of the entire contract confirms the same; when referring to arbitration elsewhere, the insurance policy consistently treats arbitration as pertaining to Rain & Hail and Jody James without expressing any broader application.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Subsection 20(a)(1) is not itself an arbitration agreement; instead, it only describes how far the agreement reaches. The parties must arbitrate "[a]ll disputes" within the arbitration agreement except pure "policy or procedure interpretation[s],"<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[33]" name="r[33]" style="color: #660099;">[33]</a></sup> but those disputes only fall within the scope of the agreement if there is a valid arbitration agreement in the first instance.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<span style="background-color: yellow;">A valid arbitration agreement exists for disagreements between Jody James and Rain & Hail, but the insurance policy cannot be reasonably read to encompass disagreements between the signatories and other parties</span><span style="background-color: white;">. </span><br />
<span style="background-color: white;"><br /></span>
<span style="background-color: white;">Accordingly, we turn to alternative theories for compelling arbitration.</span></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
2. Agency</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
"[A] contracting party generally cannot avoid unfavorable clauses by suing the other party's agents."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[34]" name="r[34]" style="color: #660099;">[34]</a></sup> Thus, an agent of a signatory may sometimes invoke an arbitration clause against another signatory.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[35]" name="r[35]" style="color: #660099;">[35]</a></sup> To establish an agency relationship, a non-signatory must show it was subject to the principal signatory's control and authorized to act as its agent.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[36]" name="r[36]" style="color: #660099;">[36]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The record does not support the conclusion that Rain & Hail had control over the Agency's actions in relaying a claim from Jody James to Rain & Hail. The Agency points to the insurance contract's references to the "insurance agent," but mere references do not create an agency relationship; the touchstone is control.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[37]" name="r[37]" style="color: #660099;">[37]</a></sup> Because Rain & Hail did not exercise control over the Agency, arbitration cannot be compelled on that basis.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
3. Third-Party-Beneficiary Status</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Like other contracts, arbitration agreements may also be enforced by third-party beneficiaries, so long as "the parties to the contract intended to secure a benefit to that third party and entered into the contract directly for the third party's benefit."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[38]" name="r[38]" style="color: #660099;">[38]</a></sup> The benefit must be more than incidental, and the contracting parties' intent to "confer a direct benefit to a third party must be clearly and fully spelled out or enforcement by the third party must be denied."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[39]" name="r[39]" style="color: #660099;">[39]</a></sup> Whether "the third party intended or expected to benefit from the contract" is irrelevant, because "only the `intention of the contracting parties in this respect is of controlling importance.'"<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[40]" name="r[40]" style="color: #660099;">[40]</a></sup> As a matter of interpretation, a mere description of the contract's intended use cannot—on its own—confer third-party-beneficiary status.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[41]" name="r[41]" style="color: #660099;">[41]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The contract between Jody James and Rain & Hail does not facially benefit the Agency, but the Agency gleans an intended benefit by reading the contract in the context of the Federal Crop Insurance Act, which sets out guidelines for the FCIC's administration of the Act.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[42]" name="r[42]" style="color: #660099;">[42]</a></sup> The FCIC's board must "encourage the sale of Federal crop insurance through licensed private insurance agents . . ., in which case the agent . . . shall be reasonably compensated from premiums paid by the insured for such sales and renewals recognizing the function of the agent . . . to provide continuing services while the insurance is in effect."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[43]" name="r[43]" style="color: #660099;">[43]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
But as the Agency concedes, the statute's language is nothing more than a statement of intent. A statement of intent is not enough, and no other language in the statute or the contract provides direct benefits to the Agency. The insurer might pay the Agency for continuing service throughout the life of the insurance policy, but the agreement between Jody James and Rain & Hail makes no provision for making any such payments nor even identifies any amount owed to the Agency. The Federal Crop Insurance Act intends general beneficence for insurance agents, but nothing more.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The circumstances here are comparable to <i>South Texas Water Authority v. Lomas,</i><sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[44]" name="r[44]" style="color: #660099;">[44]</a></sup> in which we held that the City of Kingsville's citizens were not third-party beneficiaries to a water-supply contract between Kingsville and the South Texas Water Authority.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[45]" name="r[45]" style="color: #660099;">[45]</a></sup> The water authority's enabling legislation stated its purpose was to act "for the benefit of the people of this state,"<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[46]" name="r[46]" style="color: #660099;">[46]</a></sup> and the water-supply contract at issue specified that the water's intended use was for municipal and industrial customers.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[47]" name="r[47]" style="color: #660099;">[47]</a></sup> The contract did not, however, identify any of the specific citizens claiming third-party beneficiary status, and we held the citizens were not third-party beneficiaries because "general beneficence does not create third-party rights."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[48]" name="r[48]" style="color: #660099;">[48]</a></sup> The same is true here. The contract between Jody James and Rain & Hail does not express an intent to make the insurance agency a direct beneficiary. Any benefit to the Agency is, at best, indirect and incidental.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
4. Estoppel</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We have recognized equitable estoppel as a basis for compelling arbitration, and the Agency contends, as its principal argument, that Jody James is estopped from resisting arbitration of its claims. Our arbitration-estoppel jurisprudence is rooted in a theory of promissory estoppel: "When a promisor induces substantial action or forbearance by another, promissory estoppel prevents any denial of that promise if injustice can be avoided only by enforcement."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[49]" name="r[49]" style="color: #660099;">[49]</a></sup> Estoppel in the arbitration context is based on principles of contract and agency and does not create a requirement to arbitrate where none existed before.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[50]" name="r[50]" style="color: #660099;">[50]</a></sup> Estoppel simply "`prevents a party from insisting upon his strict legal rights when it would be unjust to allow him to enforce them.'"<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[51]" name="r[51]" style="color: #660099;">[51]</a></sup> In that spirit, we have recognized and applied the doctrine of direct-benefits estoppel,<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[52]" name="r[52]" style="color: #660099;">[52]</a></sup> which the Agency asserts requires arbitration in this case. The Agency also urges that an "alternative estoppel theory" applies, notwithstanding our past reluctance to adopt novel formulations of estoppel to compel arbitration.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[53]" name="r[53]" style="color: #660099;">[53]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
a. Direct-Benefits Estoppel</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Direct-benefits estoppel applies to parties who seek "to derive a direct benefit" from a contract with an arbitration agreement.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[54]" name="r[54]" style="color: #660099;">[54]</a></sup> This estoppel theory precludes a plaintiff from seeking to hold the non-signatory liable based on the terms of an agreement that contains an arbitration provision while simultaneously asserting the provision lacks force because the defendant is a non-signatory.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[55]" name="r[55]" style="color: #660099;">[55]</a></sup> Simply put, a person "cannot both have his contract and defeat it too."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[56]" name="r[56]" style="color: #660099;">[56]</a></sup> When a claim depends on the contract's existence and cannot stand independently—that is, the alleged liability "arises solely from the contract or must be determined by reference to it"<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[57]" name="r[57]" style="color: #660099;">[57]</a></sup>—equity prevents a person from avoiding the arbitration clause that was part of that agreement.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[58]" name="r[58]" style="color: #660099;">[58]</a></sup> But "when the substance of the claim arises from general obligations imposed by state law, including statutes, torts and other common law duties, or federal law," direct-benefits estoppel is not implicated even if the claim refers to or relates to the contract or would not have arisen "but for" the contract's existence.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[59]" name="r[59]" style="color: #660099;">[59]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In the archetypal direct-benefits case, the party opposing arbitration seeks to enforce the terms of an agreement with an arbitration clause. In <i>Rachal v. Reitz,</i><sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[60]" name="r[60]" style="color: #660099;">[60]</a></sup> for instance, we held a trust beneficiary's suit to remove the trustee was arbitrable even though the beneficiary did not sign the trust agreement.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[61]" name="r[61]" style="color: #660099;">[61]</a></sup> Though the complainant could not allege a contract claim, the lawsuit was nevertheless premised on the trustee's alleged violation of the trust's terms.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[62]" name="r[62]" style="color: #660099;">[62]</a></sup> The trustee sought to compel arbitration based on the trust's arbitration provision, and we agreed arbitration was required.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[63]" name="r[63]" style="color: #660099;">[63]</a></sup> By pressing a lawsuit that was necessarily based on the trust's terms and validity, the beneficiary was barred by direct-benefits estoppel from avoiding the trust's arbitration provision.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[64]" name="r[64]" style="color: #660099;">[64]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In comparison, we held in <i>G.T. Leach Builders v. Sapphire V.P.</i><sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[65]" name="r[65]" style="color: #660099;">[65]</a></sup> that a mere relationship between the signatory's claims and the contract containing an arbitration provision was not enough to compel a signatory to arbitrate claims against third parties under a direct-benefits estoppel theory.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[66]" name="r[66]" style="color: #660099;">[66]</a></sup> The signatory, Sapphire V.P., was the developer of a hurricane-damaged condominium project. Sapphire sued several insurance brokers, alleging they allowed an insurance policy to expire shortly before the hurricane. Sapphire also sued the project's general contractor and engineers for negligent construction.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[67]" name="r[67]" style="color: #660099;">[67]</a></sup> Each party had a separate contract with Sapphire, but only the general contract had an arbitration provision.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[68]" name="r[68]" style="color: #660099;">[68]</a></sup><br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Sapphire was obligated to arbitrate its claims against the general contractor based on its agreement to do so in the general contract,<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[69]" name="r[69]" style="color: #660099;">[69]</a></sup> and the insurance brokers and engineers argued they were similarly entitled to arbitrate Sapphire's claims against them under a direct-benefits estoppel theory.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[70]" name="r[70]" style="color: #660099;">[70]</a></sup> Sapphire's allegations against the engineers and insurance brokers, however, relied on duties under their separate contracts for engineering and insurance services, respectively.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[71]" name="r[71]" style="color: #660099;">[71]</a></sup> Even though Sapphire's claims against the engineers and insurance brokers might not have existed but for the general contract to construct the condominium project, those claims relied on duties independent from it.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[72]" name="r[72]" style="color: #660099;">[72]</a></sup> Because the claims did not depend on the general contract, direct-benefits estoppel did not apply.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[73]" name="r[73]" style="color: #660099;">[73]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br />
Like Sapphire's allegations against the engineers and insurance brokers, Jody James's claims are independent of the insurance policy. Jody James might seek a measure of loss that equates to the amount of a contract loss, but direct-benefits estoppel does not apply simply because "the claim <i>refers</i> to . . . the contract."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[74]" name="r[74]" style="color: #660099;">[74]</a></sup> Instead, liability "`must be determined by reference to it.'"<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[75]" name="r[75]" style="color: #660099;">[75]</a></sup> Rather than relying on the insurance policy, Jody James's complaint premises the Agency's liability on tort and DTPA duties that are general, non-contract obligations.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br />
To establish a fiduciary relationship, Jody James must prove a relationship between the parties involving "a high degree of trust and confidence . . . prior to, and apart from" the insurance contract.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[76]" name="r[76]" style="color: #660099;">[76]</a></sup> A fiduciary duty generally "arises from the relationship of the parties and <i>not</i> from the contract."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[77]" name="r[77]" style="color: #660099;">[77]</a></sup> Likewise, DTPA claims are created by statute,<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[78]" name="r[78]" style="color: #660099;">[78]</a></sup>and "a DTPA claim for misrepresentation is considered separate and distinct from any breach of contract."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[79]" name="r[79]" style="color: #660099;">[79]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br />
This is not a case of mere artful pleading.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[80]" name="r[80]" style="color: #660099;">[80]</a></sup> The insurance policy does not impose any duties or obligations on the Agency. At most, by permitting Jody James to report claims through an insurance agent, the policy may assume that an Agency has a pre-existing duty to follow through in filing an insurance claim. But without contractually mandated duties, Jody James would be unable to maintain a contract claim against the Agency under the insurance policy even if it were inclined to do so. Instead of enforcing expectations created by contract, any liability is necessarily extra-contractual. Accordingly, direct-benefits estoppel has not been shown here.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
b. "Alternative Estoppel Theory"</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Agency also relies on the Second Circuit Court of Appeals' "alternative estoppel theory,"<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[81]" name="r[81]" style="color: #660099;">[81]</a></sup> also referred to as an "intertwined-claims" theory, to support compelled arbitration.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[82]" name="r[82]" style="color: #660099;">[82]</a></sup> Under this estoppel theory, non-signatories can successfully compel arbitration when (1) they have a "close relationship" with a signatory to a contract with an arbitration agreement and (2) the claims are "intimately founded in and intertwined with the underlying contract obligations."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[83]" name="r[83]" style="color: #660099;">[83]</a></sup> In <i>In re Merrill Lynch Trust Co.,</i> we acknowledged the existence of this theory without deciding its validity in Texas.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[84]" name="r[84]" style="color: #660099;">[84]</a></sup> Since then, the Fifth Circuit Court of Appeals has predicted we would adopt this estoppel formulation.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[85]" name="r[85]" style="color: #660099;">[85]</a></sup> We need not consider the viability of such a theory in this case, because even if we were to embrace it, the Agency has not shown its applicability.<br />
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Second Circuit carefully limited the alternative estoppel theory's application, explaining its precedent does not "mean that whenever a relationship of any kind may be found among the parties to a dispute and their dispute deals with the subject matter of an arbitration contract made by one of them, that party will be estopped from refusing to arbitrate."<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[86]" name="r[86]" style="color: #660099;">[86]</a></sup> Rather, "the obligation to arbitrate depends on consent"; alternative estoppel requires not only a dispute intertwined with the contract but also a relationship between the parties that developed in a manner that makes it "unfair" <i>not</i> to compel arbitration.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[87]" name="r[87]" style="color: #660099;">[87]</a></sup><br />
<br /></div>
<div style="color: #222222; font-family: arial, sans-serif; font-size: 14px; position: relative;">
<span style="background-color: white;">In defining any form of arbitration estoppel, we are guided by similar concerns. Like the Second Circuit, we focus on the principle that </span><span style="background-color: yellow;">arbitration is "a matter of consent, not coercion</span><span style="background-color: white;">."</span><sup style="background-color: white;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[88]" name="r[88]" style="color: #660099;">[88]</a></sup><span style="background-color: white;"> This is why, when defining the contours of direct-benefits estoppel, we have insisted </span><span style="background-color: yellow;">the doctrine cannot "create liability for noncontracting parties that does not otherwise exist</span><span style="background-color: white;">."</span><sup style="background-color: white;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[89]" name="r[89]" style="color: #660099;">[89]</a></sup><span style="background-color: white;"> More recently, we rejected the even looser concerted-misconduct estoppel theory, because the FAA is only meant "to make arbitration agreements `as enforceable as other contracts, but not more so.'"</span><sup style="background-color: white;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[90]" name="r[90]" style="color: #660099;">[90]</a></sup><span style="background-color: white;"> </span><span style="background-color: yellow;">Any arbitration doctrine forcing an unwilling party into arbitration must thus have some basis in fairness and consent</span><span style="background-color: white;">.</span><br />
<div style="background-color: white;">
<br /></div>
</div>
<div style="color: #222222; font-family: arial, sans-serif; font-size: 14px; position: relative;">
<div style="background-color: white;">
Regardless of how intertwined Jody James's claims are with the insurance policy, which is a matter of debate, the relationship between the Agency and Rain & Hail is not close enough to imply any consent by Jody James to arbitrate this lawsuit. Concerns for consent and fairness mandate a particularly close relationship to invoke alternative estoppel.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[91]" name="r[91]" style="color: #660099;">[91]</a></sup> The Second Circuit's alternative-estoppel cases compelling arbitration typically involve some corporate affiliation between a signatory and non-signatory,<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[92]" name="r[92]" style="color: #660099;">[92]</a></sup> not just a working relationship. </div>
<div style="background-color: white;">
<br /></div>
<span style="background-color: white;">In contrast, the Agency's relationship to Rain & Hail is no closer than that of any other independent broker or salesman. The Agency, Jody James, and Rain & Hail may have an entangled business relationship with respect to the crop-insurance transaction, but no evidence, nor even allegations, show them to be anything other than independent and distinct entities. A reasonable consumer would not anticipate being forced to litigate complaints against an independent insurance agent in the same manner they agreed to litigate disputes with the insurer. </span><span style="background-color: yellow;">To compel arbitration based on this alternative-estoppel theory, the relationship must be closer than merely independent participants in a business transaction</span><span style="background-color: white;">.</span></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
III. Conclusion</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
No party may be compelled to arbitrate unless they have agreed to arbitrate or are bound by principles of agency or contract law to do so. Jody James and the Agency did not agree to arbitrate any matter—not the question of arbitrability and not the merits of this dispute. Nor may Jody James be compelled to arbitrate under agency, third-party-beneficiary, or estoppel theories. We therefore reverse the court of appeals' judgment, vacate the arbitration award, and remand to the trial court for further proceedings.<br />
<br /></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[1]" name="[1]" style="color: #660099;">[1]</a> <a href="https://scholar.google.com/scholar_case?case=16072421083614314186&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ.,</i> 489 U.S. 468, 479 (1989)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[2]" name="[2]" style="color: #660099;">[2]</a> <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=1645960464688258299&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Kellogg Brown & Root, Inc.,</i> 166 S.W.3d 732, 738 (Tex. 2005)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[3]" name="[3]" style="color: #660099;">[3]</a> <a href="https://scholar.google.com/scholar_case?case=3791257414876675395&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Meyer v. WMCO-GP, LLC,</i> 211 S.W.3d 302, 304 (Tex. 2006)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[4]" name="[4]" style="color: #660099;">[4]</a> <i>See</i> 7 U.S.C. § 1508(h).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[5]" name="[5]" style="color: #660099;">[5]</a> Section 20(c) establishes the binding nature of arbitration, subject to judicial review. Section 20(d) governs certain disagreements involving the FCIC. And section 20(f) explains how to resolve conflicts between the contract and other laws.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[6]" name="[6]" style="color: #660099;">[6]</a> <i>See</i> TEX. BUS. & COMM. CODE §§ 17.41-.506.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[7]" name="[7]" style="color: #660099;">[7]</a> 506 S.W.3d 595, 600 (2016).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[8]" name="[8]" style="color: #660099;">[8]</a> <a href="https://scholar.google.com/scholar_case?case=11064332715902942515&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Labatt Food Serv., L.P.,</i> 279 S.W.3d 640, 643 (Tex. 2009)</a>; <a href="https://scholar.google.com/scholar_case?case=12596166907904856385&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>J.M. Davidson, Inc. v. Webster,</i> 128 S.W.3d 223, 227 (Tex. 2003)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[9]" name="[9]" style="color: #660099;">[9]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=2717778595314053137&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>First Options of Chi., Inc. v. Kaplan,</i> 514 U.S. 938, 943 (1995)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[10]" name="[10]" style="color: #660099;">[10]</a> 9 U.S.C. § 10.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[11]" name="[11]" style="color: #660099;">[11]</a> <a href="https://scholar.google.com/scholar_case?case=7799522967503682695&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Rubiola,</i> 334 S.W.3d 220, 224 (Tex. 2011)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[12]" name="[12]" style="color: #660099;">[12]</a> <a href="https://scholar.google.com/scholar_case?case=6642036380278910703&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Arthur Andersen LLP v. Carlisle,</i> 556 U.S. 624, 631 (2009)</a> (quoting <a href="https://scholar.google.com/scholar_case?case=16036439799989063938&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Perry v. Thomas,</i> 482 U.S. 483, 493 n.9 (1987)</a>).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[13]" name="[13]" style="color: #660099;">[13]</a> <a href="https://scholar.google.com/scholar_case?case=2717778595314053137&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>First Options,</i> 514 U.S. at 943</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[14]" name="[14]" style="color: #660099;">[14]</a> <i>Id.</i> at 944; <i>see</i> 9 U.S.C. § 4 (the court shall order the parties to arbitration "upon being satisfied that the making of the agreement for arbitration . . . is not in issue").</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[15]" name="[15]" style="color: #660099;">[15]</a> <a href="https://scholar.google.com/scholar_case?case=2717778595314053137&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>First Options,</i> 514 U.S. at 945</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[16]" name="[16]" style="color: #660099;">[16]</a> 506 S.W.3d 595, 599 (2016) (citing <a href="https://scholar.google.com/scholar_case?case=16490540920023921333&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Chesapeake Appalachia, LLC v. Scout Petrol., LLC,</i> 809 F.3d 746, 763 (3d Cir. 2016)</a>; <a href="https://scholar.google.com/scholar_case?case=4951357784511502252&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Oracle Am., Inc. v. Myriad Grp., A.G.,</i> 724 F.3d 1069, 1074 (9th Cir. 2013)</a>; <a href="https://scholar.google.com/scholar_case?case=12476666232531729476&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Petrofac, Inc. v. DynMcDermott Petrol. Ops. Co.,</i> 687 F.3d 671, 675 (5th Cir. 2012)</a>; <a href="https://scholar.google.com/scholar_case?case=1867875407331715073&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Fallo v. High-Tech Inst.,</i> 559 F.3d 874, 878 (8th Cir. 2009)</a>; <a href="https://scholar.google.com/scholar_case?case=3010773090287163941&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Qualcomm Inc. v. Nokia Corp.,</i> 466 F.3d 1366, 1372-73 (Fed. Cir. 2006)</a>; <a href="https://scholar.google.com/scholar_case?case=238486843754226613&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Terminix Int'l Co. v. Palmer Ranch Ltd. P'ship,</i> 432 F.3d 1327, 1332-33 (11th Cir. 2005)</a>; <a href="https://scholar.google.com/scholar_case?case=11201561156260516656&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Contec Corp. v. Remote Sol. Co.,</i> 398 F.3d 205, 208 (2d Cir. 2005)</a>); <i>see also</i> AM. ARBITRATION ASS'N COMMERCIAL ARBITRATION RULES R-7(a), (b) (2017). Amendments to the AAA rules since this dispute arose are not germane to its disposition. Accordingly, we cite the current rules for convenience.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[17]" name="[17]" style="color: #660099;">[17]</a> 506 S.W.3d at 599-600.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[18]" name="[18]" style="color: #660099;">[18]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=4951357784511502252&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Oracle,</i> 724 F.3d at 1071</a> (addressing an arbitration clause in a license agreement signed by both parties in the dispute); <a href="https://scholar.google.com/scholar_case?case=12476666232531729476&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Petrofac,</i> 687 F.3d at 675</a> ("[T]he parties expressly incorporated into their arbitration agreement the AAA rules."); <a href="https://scholar.google.com/scholar_case?case=1867875407331715073&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Fallo,</i> 559 F.3d at 876</a> (reviewing an arbitration agreement between plaintiff students and defendant school); <a href="https://scholar.google.com/scholar_case?case=3010773090287163941&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Qualcomm,</i> 466 F.3d at 1368, 1372-73</a> (reviewing an agreement between appellant and appellees); <a href="https://scholar.google.com/scholar_case?case=238486843754226613&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Terminix,</i> 432 F.3d at 1332-33</a> (same); <i>c.f. </i><a href="https://scholar.google.com/scholar_case?case=11201561156260516656&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Contec,</i> 398 F.3d at 207</a> (reviewing an arbitration clause in Agreement signed by predecessor corporations of the plaintiff and defendant).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[19]" name="[19]" style="color: #660099;">[19]</a> <i>Compare Jody James Farms,</i> 506 S.W.3d at 599-600 (finding clear and unmistakable evidence), <i>and Rent-A-Ctr. Tex., L.P. v. Bell,</i> No. 09-16-00085-CV, 2016 WL 4499093, at *4 (Tex. App.-Beaumont Aug. 25, 2016, no pet.) (mem. op.) (finding clear and unmistakable evidence "to delegate gateway issues of arbitrability to the arbitrator, including the arbitrability of David's claim even though he is a non-signatory"), <i>with </i><a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=16654488680522685237&q=farms+altman+group&hl=en&as_sdt=4,44" style="border-bottom: 1px dotted rgb(102, 0, 153); color: #660099; text-decoration-line: none;"><i>Leshin v. Oliva,</i> No. 04-14-00657-CV, 2015 WL 4554333, at *6 (Tex. App.-San Antonio July 29, 2015, no pet.)</a> (mem. op.) (finding no clear and unmistakable evidence to arbitrate arbitrability in dispute involving a non-signatory), <i>and </i><a href="https://scholar.google.com/scholar_case?case=18022464385792558527&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Elgohary v. Herrera,</i> 405 S.W.3d 785, 791-92 (Tex. App.-Houston [1st Dist.] 2013, no pet.)</a> (same), <i>and </i><a href="https://scholar.google.com/scholar_case?case=4646246210129861841&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Roe v. Ladymon,</i> 318 S.W.3d 502, 517 (Tex. App.-Dallas 2010, no pet.)</a> (same).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[20]" name="[20]" style="color: #660099;">[20]</a> <a href="https://scholar.google.com/scholar_case?case=17230164566438366346&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>United Steelworkers v. Warrior & Gulf Nav. Co.,</i> 363 U.S. 574, 582 (1960)</a> ("[A]rbitration 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.").</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[21]" name="[21]" style="color: #660099;">[21]</a> If an arbitrator must determine whether a valid arbitration agreement exists as to the parties before it, a conundrum arises: "[A]n arbitrator would be put in the position of deciding whether he was authorized to decide the parties' dispute, concluding either that he was not authorized, a logical circularity, or that he was, and raising himself by his own bootstraps." <a href="https://scholar.google.com/scholar_case?case=6242146634711280171&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Morgan Stanley & Co., Inc.,</i> 293 S.W.3d 182, 193 (Tex. 2009) (Hecht, J., dissenting)</a>. The presumption favoring a judicial determination, outlined in <i>First Options,</i> resolves this conundrum. By requiring clear and unmistakable evidence before an arbitrator may decide the question of arbitrability, the arbitrator is empowered by something more than "his own bootstraps."</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[22]" name="[22]" style="color: #660099;">[22]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=2717778595314053137&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>First Options of Chi., Inc. v. Kaplan,</i> 514 U.S. 938, 944 (1995)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[23]" name="[23]" style="color: #660099;">[23]</a> <a href="https://scholar.google.com/scholar_case?case=7799522967503682695&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Rubiola,</i> 334 S.W.3d 220, 225 (Tex. 2011)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[24]" name="[24]" style="color: #660099;">[24]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=4042411396100670313&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Petrobras Am., Inc. v. Vicinay Cadenas, S.A.,</i> 921 F. Supp. 2d 685, 693 (S.D. Tex. 2013)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[25]" name="[25]" style="color: #660099;">[25]</a> 9 U.S.C. § 10 (explaining that courts may vacate arbitration awards "where the arbitrators exceeded their powers"); <a href="https://scholar.google.com/scholar_case?case=7084067900530012192&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp.,</i> 559 U.S. 662, 682 (2010)</a> ("[A]n arbitrator derives his or her powers from the parties' agreement.").</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[26]" name="[26]" style="color: #660099;">[26]</a> <a href="https://scholar.google.com/scholar_case?case=7799522967503682695&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Rubiola,</i> 334 S.W.3d at 224</a> (quoting <a href="https://scholar.google.com/scholar_case?case=549706081203317635&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Bridas S.A.P.I.C. v. Gov't of Turkmenistan,</i> 345 F.3d 347, 355, 358 (5th Cir. 2003)</a>).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[27]" name="[27]" style="color: #660099;">[27]</a> <a href="https://scholar.google.com/scholar_case?case=1645960464688258299&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Kellogg Brown & Root, Inc.,</i> 166 S.W.3d 732, 739 (Tex. 2005)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[28]" name="[28]" style="color: #660099;">[28]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=7525206418111218344&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach Builders, LLC v. Sapphire V.P., LP,</i> 458 S.W.3d 502, 525 (Tex. 2015)</a>; <a href="https://scholar.google.com/scholar_case?case=4933480583271488482&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re FirstMerit Bank, N.A.,</i> 52 S.W.3d 749, 753 (Tex. 2001)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[29]" name="[29]" style="color: #660099;">[29]</a> <a href="https://scholar.google.com/scholar_case?case=4933480583271488482&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>FirstMerit Bank,</i> 52 S.W.3d at 753</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[30]" name="[30]" style="color: #660099;">[30]</a> <a href="https://scholar.google.com/scholar_case?case=7525206418111218344&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach Builders,</i> 458 S.W.3d at 525</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[31]" name="[31]" style="color: #660099;">[31]</a> <i>URI, Inc. v. Kleberg Cty.,</i> ___ S.W.3d ___, 2018 WL 1440148, at *7 (Tex. 2018).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[32]" name="[32]" style="color: #660099;">[32]</a> ANTONIN SCALIA & BRYAN A. GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 156 (2012).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[33]" name="[33]" style="color: #660099;">[33]</a> The parties do not argue the FCIC must interpret any policy or procedure, and we agree FCIC review is not implicated by the issues in this case. 7 C.F.R. part 400, subpart X, which the insurance contract cites as the authority for FCIC interpretations, clarifies the applicability of the FCIC's interpretative powers and duties. The parties may obtain "a final agency determination of the interpretation of any provision of the [Federal Crop Insurance] Act or the regulations promulgated thereunder." 7 C.F.R. § 400.765(a). Furthermore, the "FCIC will not interpret any specific factual situation or case, such as actions of any participant under the terms of a policy or any reinsurance agreement." <i>Id.</i> § 400.768(a). This case calls for an interpretation of the insurance contract as it applies to the "specific. . . case" between Jody James and the Agency; accordingly, the FCIC-interpretation clause is inapplicable.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[34]" name="[34]" style="color: #660099;">[34]</a> <a href="https://scholar.google.com/scholar_case?case=16257017527336075227&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Kaplan Higher Educ. Corp.,</i> 235 S.W.3d 206, 209 (Tex. 2007)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[35]" name="[35]" style="color: #660099;">[35]</a> <i>See id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[36]" name="[36]" style="color: #660099;">[36]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=13065010867036163371&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Cmty. Health Sys. Prof'l Servs. Corp. v. Hansen,</i> 525 S.W.3d 671, 697 (Tex. 2017)</a> ("To establish an agency relationship, one must show a manifestation of consent by the purported agent to act on the principal's behalf and subject to the principal's control, together with a manifestation of consent by the purported principal authorizing his agent to act."); <a href="https://scholar.google.com/scholar_case?case=7598357183174956895&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Exxon Mobil Corp. v. Rincones,</i> 520 S.W.3d 572, 589 (Tex. 2017)</a> ("Authority to act on the principal's behalf and control are the two essential elements of agency.").</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[37]" name="[37]" style="color: #660099;">[37]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=7598357183174956895&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Exxon Mobil Corp.,</i> 520 S.W.3d at 589</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[38]" name="[38]" style="color: #660099;">[38]</a> <a href="https://scholar.google.com/scholar_case?case=3962737168091901312&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Palm Harbor Homes, Inc.,</i> 195 S.W.3d 672, 677 (Tex. 2006)</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=5722179355708670039&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re NEXT Fin. Grp., Inc.,</i> 271 S.W.3d 263, 267 (Tex. 2008)</a> (ruling that securities brokerage firm could compel arbitration based on arbitration agreement in application for securities industry registration signed by plaintiff employee because the brokerage firm was "a clearly intended third-party beneficiary").</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[39]" name="[39]" style="color: #660099;">[39]</a> <a href="https://scholar.google.com/scholar_case?case=13520616197277421526&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>MCI Telecomms. Corp. v. Tex. Utils. Elec. Co.,</i> 995 S.W.2d 647, 651 (Tex. 1999)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[40]" name="[40]" style="color: #660099;">[40]</a> <a href="https://scholar.google.com/scholar_case?case=4311091374087881391&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>First Bank v. Brumitt,</i> 519 S.W.3d 95, 102 (Tex. 2017)</a> (quoting <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=15994346857481120170&q=farms+altman+group&hl=en&as_sdt=4,44" style="border-bottom: 1px dotted rgb(102, 0, 153); color: #660099; text-decoration-line: none;"><i>Banker v. Breaux,</i> 128 S.W.2d 23, 24 (Tex. 1939)</a>).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[41]" name="[41]" style="color: #660099;">[41]</a> <a href="https://scholar.google.com/scholar_case?case=17642496327635852153&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>S. Tex. Water Auth. v. Lomas,</i> 223 S.W.3d 304, 306-07 (Tex. 2007)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[42]" name="[42]" style="color: #660099;">[42]</a> <i>See</i> 7 U.S.C. § 1507(c).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[43]" name="[43]" style="color: #660099;">[43]</a> <i>Id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[44]" name="[44]" style="color: #660099;">[44]</a> 223 S.W.3d 304 (Tex. 2007).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[45]" name="[45]" style="color: #660099;">[45]</a> <i>Id.</i> at 306.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[46]" name="[46]" style="color: #660099;">[46]</a> <i>Id.</i> at 307.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[47]" name="[47]" style="color: #660099;">[47]</a> <i>Id.</i> at 306.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[48]" name="[48]" style="color: #660099;">[48]</a> <i>Id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[49]" name="[49]" style="color: #660099;">[49]</a> <a href="https://scholar.google.com/scholar_case?case=8492161456979173776&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Weekley Homes, L.P.,</i> 180 S.W.3d 127, 133 (Tex. 2005)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[50]" name="[50]" style="color: #660099;">[50]</a> <a href="https://scholar.google.com/scholar_case?case=1645960464688258299&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Kellogg Brown & Root, Inc.,</i> 166 S.W.3d 732, 738 (Tex. 2005)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[51]" name="[51]" style="color: #660099;">[51]</a> <a href="https://scholar.google.com/scholar_case?case=8492161456979173776&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Weekley Homes,</i> 180 S.W.3d at 133</a> (quoting <a href="https://scholar.google.com/scholar_case?case=12110976080532343396&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Wheeler v. White,</i> 398 S.W.2d 93, 96 (Tex. 1965)</a>).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[52]" name="[52]" style="color: #660099;">[52]</a> <i>Id.</i> at 131, 134 (citing <a href="https://scholar.google.com/scholar_case?case=1645960464688258299&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Kellogg Brown & Root,</i> 166 S.W.3d at 741</a>).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[53]" name="[53]" style="color: #660099;">[53]</a> <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=14238257683202276384&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Merrill Lynch Trust Co. FSB,</i> 235 S.W.3d 185, 191-95 (Tex. 2007)</a> (declining to recognize "concerted-misconduct estoppel"); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=7525206418111218344&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach Builders, LLC v. Sapphire V.P., LP,</i> 458 S.W.3d 502, 529 (Tex. 2015)</a> ("[T]he fact that the claims would not have arisen but for the existence of the general contract is not enough to establish equitable estoppel.").</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[54]" name="[54]" style="color: #660099;">[54]</a> <a href="https://scholar.google.com/scholar_case?case=7525206418111218344&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach Builders,</i> 458 S.W.3d at 527</a> (internal quotation marks omitted).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[55]" name="[55]" style="color: #660099;">[55]</a> <i>Id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[56]" name="[56]" style="color: #660099;">[56]</a> <a href="https://scholar.google.com/scholar_case?case=8492161456979173776&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Weekley Homes,</i> 180 S.W.3d at 135</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[57]" name="[57]" style="color: #660099;">[57]</a> <i>Id.</i> at 132.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[58]" name="[58]" style="color: #660099;">[58]</a> <a href="https://scholar.google.com/scholar_case?case=7525206418111218344&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>G.T. Leach Builders,</i> 458 S.W.3d at 527-28</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[59]" name="[59]" style="color: #660099;">[59]</a> <i>Id.</i> at 528.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[60]" name="[60]" style="color: #660099;">[60]</a> 403 S.W.3d 840 (Tex. 2013).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[61]" name="[61]" style="color: #660099;">[61]</a> <i>Id.</i> at 842, 847-48.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[62]" name="[62]" style="color: #660099;">[62]</a> <i>Id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[63]" name="[63]" style="color: #660099;">[63]</a> <i>Id.</i> at 842.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[64]" name="[64]" style="color: #660099;">[64]</a> <i>Id.</i> at 847.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[65]" name="[65]" style="color: #660099;">[65]</a> 458 S.W.3d 502 (Tex. 2015).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[66]" name="[66]" style="color: #660099;">[66]</a> <i>Id.</i> at 527-30.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[67]" name="[67]" style="color: #660099;">[67]</a> <i>Id.</i> at 509-10.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[68]" name="[68]" style="color: #660099;">[68]</a> <i>Id.</i> at 510, 523.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[69]" name="[69]" style="color: #660099;">[69]</a> <i>Id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[70]" name="[70]" style="color: #660099;">[70]</a> <i>Id.</i> at 527, 529.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[71]" name="[71]" style="color: #660099;">[71]</a> <i>Id.</i> at 528-29.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[72]" name="[72]" style="color: #660099;">[72]</a> <i>See id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[73]" name="[73]" style="color: #660099;">[73]</a> <i>Id.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[74]" name="[74]" style="color: #660099;">[74]</a> <i>Id.</i> at 528 (emphasis added).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[75]" name="[75]" style="color: #660099;">[75]</a> <i>Id.</i> (quoting <a href="https://scholar.google.com/scholar_case?case=8492161456979173776&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Weekley Homes L.P.,</i> 180 S.W.3d 127, 132 (Tex. 2005)</a>).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[76]" name="[76]" style="color: #660099;">[76]</a> <a href="https://scholar.google.com/scholar_case?case=5984971112902484454&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Schlumberger Tech. Corp. v. Swanson,</i> 959 S.W.2d 171, 176-77 (Tex. 1997)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[77]" name="[77]" style="color: #660099;">[77]</a> <a href="https://scholar.google.com/scholar_case?case=3140747529179043678&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Manges v. Guerra,</i> 673 S.W.2d 180, 183 (Tex. 1984)</a> (emphasis added).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[78]" name="[78]" style="color: #660099;">[78]</a> <i>See</i> TEX. BUS. & COMM. CODE § 17.43 ("The remedies provided in this subchapter are in addition to any other procedures or remedies provided for in any other law.").</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[79]" name="[79]" style="color: #660099;">[79]</a> <a href="https://scholar.google.com/scholar_case?case=2475598622643507507&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Jack B. Anglin Co., Inc. v. Tipps,</i> 842 S.W.2d 266, 270-71 (Tex. 1992)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[80]" name="[80]" style="color: #660099;">[80]</a> <i>Cf. </i><a href="https://scholar.google.com/scholar_case?case=8492161456979173776&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Weekley Homes,</i> 180 S.W.3d at 131-32</a> ("[W]hether a claim seeks a direct benefit from a contract containing an arbitration clause turns on the substance of the claim, not artful pleading.").</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[81]" name="[81]" style="color: #660099;">[81]</a> <a href="https://scholar.google.com/scholar_case?case=11783117848632649238&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Merrill Lynch Inv. Mgrs. v. Optibase, Ltd.,</i> 337 F.3d 125, 131 (2d Cir. 2003)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[82]" name="[82]" style="color: #660099;">[82]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=14238257683202276384&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Merrill Lynch Trust Co. FSB,</i> 235 S.W.3d 185, 193 (Tex. 2007)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[83]" name="[83]" style="color: #660099;">[83]</a> <a href="https://scholar.google.com/scholar_case?case=6342721464011608738&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Thomas-CSF, S.A. v. Am. Arbitration Ass'n,</i> 64 F.3d 773, 779 (2d Cir. 1995)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[84]" name="[84]" style="color: #660099;">[84]</a> <i>See</i> <a href="https://scholar.google.com/scholar_case?case=14238257683202276384&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;">235 S.W.3d at 193</a> (using the theory as an example of how other federal circuit courts treat estoppel).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[85]" name="[85]" style="color: #660099;">[85]</a> <a href="https://scholar.google.com/scholar_case?case=6214081287985086130&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Hays v. HCA Holdings, Inc.,</i> 838 F.3d 605, 612 (5th Cir. 2016)</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=5706604566501900836&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Cotton Comm'l USA, Inc. v. Clear Creek Indep. Sch. Dist.,</i> 387 S.W.3d 99, 105 (Tex. App.-Houston [14th Dist.] 2012, no pet.)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[86]" name="[86]" style="color: #660099;">[86]</a> <a href="https://scholar.google.com/scholar_case?case=15235671348184883320&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Sokol Holdings, Inc. v. BMB Munai, Inc.,</i> 542 F.3d 354, 359 (2d Cir. 2008)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[87]" name="[87]" style="color: #660099;">[87]</a> <i>Id.</i> at 358, 361.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[88]" name="[88]" style="color: #660099;">[88]</a> <a href="https://scholar.google.com/scholar_case?case=14238257683202276384&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Merrill Lynch Trust,</i> 235 S.W.3d at 192</a> (quoting <a href="https://scholar.google.com/scholar_case?case=16072421083614314186&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ.,</i> 489 U.S. 468, 479 (1989)</a>).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[89]" name="[89]" style="color: #660099;">[89]</a> <a href="https://scholar.google.com/scholar_case?case=8492161456979173776&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Weekley Homes, L.P.,</i> 180 S.W.3d 127, 134 (Tex. 2005)</a>.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[90]" name="[90]" style="color: #660099;">[90]</a> <a href="https://scholar.google.com/scholar_case?case=14238257683202276384&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Merrill Lynch Trust,</i> 235 S.W.3d at 192</a> (quoting <a href="https://scholar.google.com/scholar_case?case=6832110396972740690&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Prima Paint Corp. v. Flood & Conklin Mfg. Co.,</i> 388 U.S. 395, 404 n.12 (1967)</a>).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[91]" name="[91]" style="color: #660099;">[91]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=15235671348184883320&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Sokol Holdings,</i> 542 F.3d at 361</a> ("In each case, the promise to arbitrate by <i>x,</i> the entity opposing arbitration, was reasonably seen on the basis of the relationships among the parties as extending not only to <i>y,</i>its contractual counterparty, but also to <i>y1</i>, an entity that was, or would predictably become, with <i>x</i>'s knowledge and consent, affiliated or associated with <i>y</i> in such a manner as to make it unfair to allow <i>x</i> to avoid its commitment to arbitrate on the ground that <i>y1</i> was not the very entity with which <i>x</i> had a contract.").</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=5310101653322631129&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[92]" name="[92]" style="color: #660099; text-decoration: underline;">[92]</a> <i>See id.</i> at 359-61 (surveying cases).<br />
<br />
<div style="text-align: center;">
<span style="color: #cc0000; font-size: large;"><b>OPINION OF THE COA BELOW</b></span></div>
<br />
<div class="" id="gs_ab" style="-webkit-tap-highlight-color: rgba(204, 204, 204, 0.5); background-color: white; border-bottom-color: rgb(229, 229, 229); border-bottom-style: solid; border-image: initial; border-left-color: initial; border-left-style: initial; border-right-color: initial; border-right-style: initial; border-top-color: initial; border-top-style: initial; border-width: 0px 0px 1px; color: #222222; display: flex; font-family: Arial, sans-serif; font-size: 13px; height: 41px; margin: 0px; padding: 0px; position: relative; white-space: nowrap; z-index: 1000;">
<div id="gs_ab_btns" style="border: 0px; display: inline-block; flex: 0 0 auto; height: 41px; margin: 0px 4px 0px 0px; padding: 0px; position: relative; vertical-align: top;">
</div>
</div>
<div id="gs_bdy" style="-webkit-tap-highlight-color: rgba(204, 204, 204, 0.5); background-color: #f9f9f9; border: 0px; color: #222222; display: table; font-family: Arial, sans-serif; font-size: 13px; margin: 0px; padding: 0px; table-layout: fixed; width: 926.4px;">
<div id="gs_bdy_ccl" role="main" style="border: 0px; display: table-cell; margin: 0px; padding: 0px 16px; vertical-align: top;">
<div id="gs_reference_w" style="border: 0px; margin: 0px; padding: 0px;">
</div>
<div id="gs_opinion_ccl" style="border: 0px; margin: 0px; padding: 16px 0px;">
<div id="gs_opinion_wrapper" style="background-color: white; border: 1px solid rgb(229, 229, 229); margin: 0px auto; max-width: 550px; padding: 13px 65px;">
<div id="gs_opinion" style="border: 0px; font-size: 14px; line-height: 1.5; margin: 0px; padding: 0px; position: relative;">
<center>
<b>506 S.W.3d 595 (2016)</b></center>
<center>
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
JODY JAMES FARMS, JV, Appellant<br />v.<br />THE ALTMAN GROUP, INC. and Laurie Diaz, Appellees.</h3>
</center>
<center>
<a href="https://scholar.google.com/scholar?scidkt=1485646265141607927&as_sdt=2&hl=en" style="color: #660099;">No. 07-15-00060-CV.</a></center>
<center>
<div style="position: relative;">
<b>Court of Appeals of Texas, Amarillo.</b></div>
</center>
<center>
October 17, 2016.</center>
<center>
Rehearing Overruled December 13, 2016.</center>
<div style="position: relative;">
On Appeal from the 110th District Court Floyd County, Texas Trial Court No. 10,422, Honorable William P. Smith, Presiding.</div>
<div style="position: relative;">
Anna McKim, J. Paul Manning, for The Altman Group, Inc.</div>
<div style="position: relative;">
J. Paul Manning, for Diaz, Laurie.</div>
<div style="position: relative;">
Jody D. Jenkins, for Jody James Farms, JV.</div>
<div style="position: relative;">
Before QUINN, C.J., and CAMPBELL and PIRTLE, JJ.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
OPINION</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
James T. Campbell, Justice.</div>
<div style="position: relative;">
Appellant Jody James Farms, JV ("JJF") appeals the trial court's order confirming <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#p596" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration-line: none;">596</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#p596" id="p596" style="color: #aaaaaa; font-size: 13px; text-decoration-line: none;">*596</a>an arbitration award in favor of appellees The Altman Group, Inc. and Laurie Diaz ("Altman and Diaz" or "appellees"). We will affirm the court's order.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
Background</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
In 2010, JJF purchased a Crop Revenue Coverage Insurance Policy from Rain & Hail, L.L.C. JJF purchased the insurance through The Altman Group, an insurance agency. Diaz is a registered insurance agent employed by The Altman Group.</div>
<div style="position: relative;">
The policy was one issued for the 2010 crop year under the authority of section 508(h) of the Federal Crop Insurance Act,<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[1]" name="r[1]" style="color: #660099;">[1]</a></sup> and reinsured by the Federal Crop Insurance Corporation (FCIC).<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[2]" name="r[2]" style="color: #660099;">[2]</a></sup> The policy contains, within its "basic provisions," a section 20, entitled "Mediation, Arbitration, Appeal, Reconsideration, and Administrative and Judicial Review." Section 20 is lengthy, and provides for resolution, by various means, of various categories of disputes. Some disputes are narrowly described, such as that given in section 20(d) for reconsideration of determinations made by the insurer or FCIC regarding whether the insured has "used a good farming practice...." Others, like the provision the parties in this case discuss, are described in broad terms.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[3]" name="r[3]" style="color: #660099;">[3]</a></sup> Section 20(a) of the policy reads in part:</div>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
If [the insured] and [the insurer] fail to agree on any determination made by [the insurer] except those specified in Section 20(d), the disagreement may be resolved through mediation in accordance with Section 20(g). If resolution cannot be reached through mediation, or [the insured] and [the insurer] do not agree to mediation, the disagreement must be resolved through arbitration in accordance with the rules of the American Arbitration Association....<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[4]" name="r[4]" style="color: #660099;">[4]</a></sup></blockquote>
<div style="position: relative;">
Subsection 20(a)(1) reads in part:</div>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
All disputes involving determinations made by [the insurer], except those specified in section 20(d), are subject to mediation or arbitration.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[5]" name="r[5]" style="color: #660099;">[5]</a></sup></blockquote>
<div style="position: relative;">
In November of 2010, JJF incurred a loss on an insured grain sorghum crop. According to JJF, it notified Diaz of the loss in a telephone conversation. The claim was not formally submitted to Rain & Hail until some time later. Rain & Hail eventually <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#p597" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration-line: none;">597</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#p597" id="p597" style="color: #aaaaaa; font-size: 13px; text-decoration-line: none;">*597</a> denied the claim, in part because it was not timely submitted.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[6]" name="r[6]" style="color: #660099;">[6]</a></sup></div>
<div style="position: relative;">
After Rain & Hail denied JJF's claim, their disagreement over its determination was arbitrated under the policy. The arbitrator upheld Rain & Hail's denial of the claim.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[7]" name="r[7]" style="color: #660099;">[7]</a></sup></div>
<div style="position: relative;">
Thereafter, JJF filed suit against Altman and Diaz asserting they breached a fiduciary duty and violated the Texas Deceptive Trade Practices Act when they failed to submit the claim in a timely fashion. Altman and Diaz sought an order compelling arbitration under the Federal Arbitration Act<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[8]" name="r[8]" style="color: #660099;">[8]</a></sup> and, over JJF's objection, the trial court compelled arbitration of its causes of action. The arbitrator found in favor of Altman and Diaz and the trial court entered an order confirming and enforcing that finding, thus ordering that JJF take nothing. From that order, JJF now appeals.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
Analysis</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
An arbitration award under the FAA must be confirmed unless it is vacated, modified or corrected as prescribed in sections 10 and 11 of the FAA. 9 U.S.C. §§ 9-11; <a href="https://scholar.google.com/scholar_case?case=1171931473148464325&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Hall St. Assocs., L.L.C. v. Mattel, Inc.,</i> 552 U.S. 576, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008)</a>; <a href="https://scholar.google.com/scholar_case?case=15770623839951125422&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Nafta Traders, Inc. v. Quinn,</i> 339 S.W.3d 84, 90 (Tex. 2011)</a>. One of the grounds on which an award may be vacated is that the arbitrator exceeded the arbitrator's powers. 9 U.S.C. § 10(a)(4). A party moving to vacate an award has the burden of proof. <a href="https://scholar.google.com/scholar_case?case=4772398600281313629&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Lummus Global Amazonas, S.A. v. Aguaytia Energy Del Peru, S.R. Ltda.,</i> 256 F.Supp.2d 594, 604 (S.D. Tex. 2002)</a>; <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=17185809151214370159&q=farms+altman+group&hl=en&as_sdt=4,44" style="border-bottom: 1px dotted rgb(102, 0, 153); color: #660099; text-decoration-line: none;"><i>Petrobras Am., Inc. v. Astra Oil Trading NV,</i> No. 01-11-00073-CV, 2012 WL 1068311 at *16, 2012 Tex. App. LEXIS 2458 at *46 (Tex. App.-Houston [1st Dist.] March 29, 2012, no pet.)</a> (mem. op.).</div>
<div style="position: relative;">
JJF contends on appeal the trial court erred by enforcing the arbitrator's award because the arbitrator exceeded his authority. It argues there was no agreement to arbitrate between JJF and Altman and Diaz; and in any event its claims are outside the scope of the policy's arbitration agreement. <i>See </i><a href="https://scholar.google.com/scholar_case?case=7799522967503682695&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Rubiola,</i> 334 S.W.3d 220, 223 (Tex. 2011)</a>(orig. proceeding) (party seeking to compel arbitration under FAA must establish there is a valid arbitration clause and claims in dispute fall within that agreement's scope) (<i>citing </i><a href="https://scholar.google.com/scholar_case?case=1645960464688258299&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Kellogg Brown & Root, Inc.,</i> 166 S.W.3d 732, 737 (Tex. 2005)</a>).<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[9]" name="r[9]" style="color: #660099;">[9]</a></sup></div>
<div style="position: relative;">
<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#p598" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration-line: none;">598</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#p598" id="p598" style="color: #aaaaaa; font-size: 13px; text-decoration-line: none;">*598</a> In cases in which a party resists arbitration, "it matters whether the party resisting arbitration is a signatory or not." <a href="https://scholar.google.com/scholar_case?case=11783117848632649238&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Merrill Lynch Investment Mgrs. v. Optibase, Ltd.,</i> 337 F.3d 125, 131 (2nd Cir. 2003)</a>; <i>see </i><a href="https://scholar.google.com/scholar_case?case=4646246210129861841&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Roe v. Ladymon,</i> 318 S.W.3d 502, 515 (Tex. App.-Dallas 2010, no pet.)</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=5085454771210261691&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>DK Joint Venture 1 v. Weyand,</i> 649 F.3d 310, 316-17 (5th Cir. 2011)</a>; <a href="https://scholar.google.com/scholar_case?case=18022464385792558527&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Elgohary v. Herrera,</i> 405 S.W.3d 785, 791 (Tex. App.-Houston [1st Dist.] 2013, no pet.)</a>. Here JJF, the party resisting arbitration, was a party to the policy containing the broad requirement that "[a]ll disputes involving determinations made by [Rain & Hail]," with an exception not relevant here, were subject to arbitration. Altman and Diaz, though not parties to the policy, sought to enforce JJF's agreement to arbitrate.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[10]" name="r[10]" style="color: #660099;">[10]</a></sup></div>
<div style="position: relative;">
After the trial court referred JJF's claims against Altman and Diaz to arbitration, JJF filed with the arbitrator a motion to dismiss the arbitration. Among other contentions, the motion argued the claims were not arbitrable because appellees were not parties to the policy, and because JJF's claims against them were entirely separate from its claim against Rain & Hail under the policy and in fact did not even arise until JJF's claim against Rain & Hail was finally resolved against JJF. The arbitrator denied JJF's motion to dismiss by written order.</div>
<div style="position: relative;">
In the trial court, JJF's response to appellees' petition to confirm the arbitration award also addressed the arbitrator's authority, noting that under American Arbitration Association rules, "it is the arbitrator's responsibility to `rule on his ... jurisdiction, including any objections with respect to the existence ... of the arbitration agreement or to the arbitrability of any claim.'"<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[11]" name="r[11]" style="color: #660099;">[11]</a></sup></div>
<div style="position: relative;">
"Under the FAA, absent unmistakable evidence that the parties intended the contrary, it is the courts rather than arbitrators that must decide `gateway matters' such as whether a valid arbitration agreement exists." <a href="https://scholar.google.com/scholar_case?case=8492161456979173776&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Weekley Homes, L.P.,</i> 180 S.W.3d 127 (Tex. 2005)</a> (orig. proceeding). We review the issue in the manner set out in <a href="https://scholar.google.com/scholar_case?case=2717778595314053137&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>First Options. First Options of Chicago, Inc. v. Kaplan,</i> 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed. 2d 985 (1995)</a> ("Just as the arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that dispute ..., so the question `who has the primary power to decide arbitrability' turns upon what the parties agreed about <i>that</i> matter") (internal citation omitted; italics in original); <i>see </i><a href="https://scholar.google.com/scholar_case?case=8492161456979173776&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Weekley Homes,</i> 180 S.W.3d at 130-31</a>(determining whether nonparty must arbitrate, Texas courts "apply state law while endeavoring to keep it as consistent as possible with federal law"). In this instance, the contract is one promulgated by the FCIC pursuant to its statutory authorization. <i>See</i> 7 U.S.C. § 1508(h) (providing <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#p599" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration-line: none;">599</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#p599" id="p599" style="color: #aaaaaa; font-size: 13px; text-decoration-line: none;">*599</a> for review and approval of policies by FCIC).</div>
<div style="position: relative;">
Federal courts are largely in agreement that incorporation of the AAA rules containing language like that JJF quoted to the trial court constitutes clear and unmistakable evidence that the parties to the arbitration agreement "agreed to arbitrate arbitrability." <i>See </i><a href="https://scholar.google.com/scholar_case?case=4951357784511502252&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Oracle Am., Inc. v. Myriad Group, A.G.,</i> 724 F.3d 1069, 1074 (9th Cir. 2013)</a>("virtually every circuit to have considered the issue" has so held); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=16490540920023921333&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Chesapeake Appalachia, LLC v. Scout Petr., LLC,</i> 809 F.3d 746 (3rd Cir. 2016)</a> (quoting "virtually every circuit" language); <a href="https://scholar.google.com/scholar_case?case=12476666232531729476&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Petrofac, Inc. v. DynMcDermott Petr. Ops. Co.,</i> 687 F.3d 671, 675 (5th Cir. 2012)</a> (agreeing with "most of our sister circuits that the express adoption of [AAA] rules presents clear and unmistakable evidence that the parties agreed to arbitrate arbitrability"); <a href="https://scholar.google.com/scholar_case?case=1867875407331715073&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Fallo v. High-Tech Inst.,</i> 559 F.3d 874, 878 (8th Cir. 2009)</a>; <a href="https://scholar.google.com/scholar_case?case=3010773090287163941&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Qualcomm Inc. v. Nokia Corp.,</i> 466 F.3d 1366, 1372-73 (Fed. Cir. 2006)</a>; <a href="https://scholar.google.com/scholar_case?case=238486843754226613&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Terminix Int'l Co., L.P. v. Palmer Ranch Ltd. P'ship,</i> 432 F.3d 1327, 1332-33 (11th Cir. 2005)</a>; <a href="https://scholar.google.com/scholar_case?case=11201561156260516656&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Contec Corp. v. Remote Solution Co.,</i> 398 F.3d 205, 208 (2nd Cir. 2005)</a>.</div>
<div style="position: relative;">
In <a href="https://scholar.google.com/scholar_case?case=9752877837845683641&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Haddock v. Quinn,</i> 287 S.W.3d 158, 172 (Tex. App.-Fort Worth 2009, orig. proceeding),</a><sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[12]" name="r[12]" style="color: #660099;">[12]</a></sup> the court recognized the "majority view," consistent with the holdings of the federal circuit courts, but found that a "general reference" to the AAA rules in the arbitration agreement did not clearly and unmistakably indicate the parties' intent to submit issues of arbitrability to the arbitrator in that case. <i>See also </i><a href="https://scholar.google.com/scholar_case?case=12626670180521574730&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Burlington Res. Oil & Gas Co. L.P. v. San Juan Basin Royalty Trust,</i> 249 S.W.3d 34, 40 (Tex. App.-Houston [1st Dist.] 2007, pet. denied)</a> (also finding agreement's reference to AAA rules did not provide clear and unmistakable evidence of intention to submit arbitrability issues to arbitrator).</div>
<div style="position: relative;">
We find <i>Haddock</i> distinguishable from our present case. The arbitrability issue there concerned the waiver of the right to arbitration through inconsistent litigation conduct, <a href="https://scholar.google.com/scholar_case?case=9752877837845683641&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;">287 S.W.3d at 170,</a> and the court appropriately relied primarily on waiver cases. <i>Id.</i> at 173-74. And the court noted that rule 7(a) of the AAA rules, on which the party urging arbitration relied, did not exist at the time the arbitration agreement was added to the parties' contract. <i>Id.</i> at 175. Similarly, the court in <i>Burlington Resources</i> found the agreement there limited arbitration to specifically identified audit disputes, and did not contain "a clear and unmistakable indication that the parties authorized an arbitrator to decide the arbitrability of claims or amounts not specifically identified" in the agreement, notwithstanding its reference to the AAA rules. <a href="https://scholar.google.com/scholar_case?case=12626670180521574730&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;">249 S.W.3d at 41</a>.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[13]" name="r[13]" style="color: #660099;">[13]</a></sup></div>
<div style="position: relative;">
We will apply the majority view to this federal crop insurance policy,<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[14]" name="r[14]" style="color: #660099;">[14]</a></sup> and thus <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#p600" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration-line: none;">600</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#p600" id="p600" style="color: #aaaaaa; font-size: 13px; text-decoration-line: none;">*600</a> find its incorporation of the AAA rules<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[15]" name="r[15]" style="color: #660099;">[15]</a></sup> constitutes clear and unmistakable evidence the parties to the policy intended the arbitrator to decide whether JJF's agreement to arbitrate is binding on it as against its effort to litigate its claims against Altman and Diaz in court. <a href="https://scholar.google.com/scholar_case?case=12476666232531729476&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Petrofac,</i> 687 F.3d at 675</a>; <a href="https://scholar.google.com/scholar_case?case=8492161456979173776&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>In re Weekley Homes,</i> 180 S.W.3d at 130-31</a>.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#[16]" name="r[16]" style="color: #660099;">[16]</a></sup> In its motion to dismiss the arbitration, JJF contended both that it had no agreement to arbitrate with Altman and Diaz, and that its claims against them were outside the scope of the policy's arbitration agreement. As noted, the arbitrator denied JJF's motion by written order.</div>
<div style="position: relative;">
JJF's brief on appeal contends the arbitrator exceeded his authority "by entering an award where no agreement to arbitrate existed and the scope of the arbitration agreement did not cover the disputes." JJF gives no other reason for its assertion the arbitrator exceeded his authority. Because we conclude JJF agreed in the policy that an arbitrator would have authority to determine the question of arbitrability, the arbitrator did not exceed his authority by resolving the question contrary to JJF's position. And, under the narrow and deferential review standard applied to arbitration awards, JJF's arguments give us no basis to conclude the arbitrator acted outside his powers in his resolution of the merits of the issues presented to him, whether issues of arbitrability or those relating to appellees' asserted liability to JJF. <i>See </i><a href="https://scholar.google.com/scholar_case?case=11773295016191333121&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Forsythe Int'l, S.A. v. Gibbs Oil Co.,</i> 915 F.2d 1017, 1020 (5th Cir. 1990)</a>; <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=17185809151214370159&q=farms+altman+group&hl=en&as_sdt=4,44" style="border-bottom: 1px dotted rgb(102, 0, 153); color: #660099; text-decoration-line: none;"><i>Petrobras,</i> 2012 WL 1068311 at *11-12,</a> *16, 2012 Tex. App. LEXIS 2458 at *30-31, *46 (standard of review of awards under FAA). The trial court did not err by affirming the arbitration award over JJF's contrary argument.</div>
<div style="position: relative;">
For the reasons discussed, we overrule JJF's appellate issue and affirm the trial court's judgment.</div>
<small style="font-size: 11px;"></small><br />
<div style="position: relative;">
<small style="font-size: 11px;"><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[1]" name="[1]" style="color: #660099;">[1]</a> 7 U.S.C. § 1508(h); <i>see generally </i><a href="https://scholar.google.com/scholar_case?case=2210703051693491592&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Olsen v. United States,</i> 546 F.Supp.2d 1122 (E.D. Wash. 2008),</a> <i>aff'd,</i> 334 Fed.Appx. 834 (9th Cir. 2009); <i>Greenwood v. Rural Cmty. Ins. Servs.,</i> No. 2:02CV00047, 2005 U.S. Dist. LEXIS 29331 (E.D. Mo. Nov. 22, 2005); 7 C.F.R. § 457.2 (2004). <i>See </i><a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=18411621775550180845&q=farms+altman+group&hl=en&as_sdt=4,44" style="border-bottom: 1px dotted rgb(102, 0, 153); color: #660099; text-decoration-line: none;"><i>Wiley v. Glickman,</i> No. A3-99-32, 1999 WL 33283312, 1999 U.S. Dist. LEXIS 20278 (D. N.D. Sept. 3, 1999)</a> (reciting history of crop revenue coverage policies).</small></div>
<small style="font-size: 11px;">
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[2]" name="[2]" style="color: #660099;">[2]</a> The FCIC is managed by the United States Department of Agriculture's Risk Management Agency. <i>See</i> 7 U.S.C. § 6933 (creating USDA's Office of Risk Management).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[3]" name="[3]" style="color: #660099;">[3]</a> The policy's section 20 is much like, though not identical to, the section 20 (for reinsured policies) contained in the policy form set out in 7 C.F.R. § 457.8.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[4]" name="[4]" style="color: #660099;">[4]</a> Section 20(g) describes the requirements and procedures for mediation.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[5]" name="[5]" style="color: #660099;">[5]</a> Subsection 20(a)(1) continues with language requiring, however, that if a dispute "in any way involves a policy or procedure interpretation, regarding whether a specific policy provision or procedure is applicable to the situation, how it is applicable, or the meaning of any policy provision or procedure," parties must obtain "an interpretation from FCIC in accordance with 7 C.F.R. part 400, subpart X or such other procedure as established by FCIC." The FCIC interpretation procedure was not initiated in this case. JJF's brief cites the provision in its argument that the policy's arbitration provisions are not suited to its claims against Altman and Diaz, but the parties do not otherwise discuss its potential application.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[6]" name="[6]" style="color: #660099;">[6]</a> JJF's brief contends Rain & Hail denied JJF's claim because it determined the claim was untimely submitted. The statement is true, but not complete. Rain & Hail's letter explaining its denial of the claim detailed three reasons. It cited JJF's failure to submit a timely notice of loss, but it said also JJF's manner of storing the harvested grain sorghum precluded adjustment of the loss. The letter quoted from FCIC's loss adjustment manual and concluded, "Based on the claim adjustment procedures spelled out above, your grain sorghum claim must be denied because without our measurements of the farm-stored production, you do not have the required verifiable records for the stored grain." The letter also stated Rain & Hail's belief that JJF "intentionally misrepresented" the planting dates of its grain sorghum crop. Citing the policy's "concealment, misrepresentation or fraud" provisions, Rain & Hail declared the policy coverage for grain sorghum for the 2010 crop year to be void.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[7]" name="[7]" style="color: #660099;">[7]</a> The arbitration award recited the arbitrator's agreement with Rain & Hail on the claim notice issue and on its contention that JJF's commingling of stored grain precluded a "presentable loss."</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[8]" name="[8]" style="color: #660099;">[8]</a> <i>See</i> 9 U.S.C. § 1 <i>et seq.</i></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[9]" name="[9]" style="color: #660099;">[9]</a> By its over-arching sole appellate issue, JJF questions "whether a non-party to an arbitration agreement can compel arbitration of claims that are not within the scope of the arbitration agreement." JJF's argument encompasses both the existence of an arbitration agreement between these parties and the scope of the policy's arbitration provision.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[10]" name="[10]" style="color: #660099;">[10]</a> "A person who has agreed to arbitrate disputes with one party may in some cases be required to arbitrate related disputes with others." <a href="https://scholar.google.com/scholar_case?case=3791257414876675395&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Meyer v. WMCO-GP, LLC,</i> 211 S.W.3d 302, 304 (Tex. 2006)</a></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[11]" name="[11]" style="color: #660099;">[11]</a> JJF's response to appellees' motion to confirm the award also constituted its motion to vacate the award. JJF cited rule R-7 of the AAA's Commercial Arbitration Rules (2010), <i>available at</i> https://www.adr.org. JJF also quoted from rule R-8 of the same rules, stating in its response, "The arbitrator has the power `to determine the existence or validity of a contract of which an arbitration clause forms a part.'" Commercial Arbitration Rules (2010), <i>available at</i> https://www.adr.org. JJF went on to argue the merits of its contention its claims against Altman and Diaz were not arbitrable.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[12]" name="[12]" style="color: #660099;">[12]</a> In its opinion, the court addressed a consolidated interlocutory appeal and mandamus proceeding.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[13]" name="[13]" style="color: #660099;">[13]</a> The courts in <a href="https://scholar.google.com/scholar_case?case=9752877837845683641&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Haddock,</i> 287 S.W.3d at 174-75,</a> and <a href="https://scholar.google.com/scholar_case?case=12626670180521574730&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>Burlington Resources,</i> 249 S.W.3d at 41,</a> also considered language in each arbitration agreement stating that its terms controlled over any inconsistent provision of the AAA rules as indicating the parties did not clearly and unmistakably agree to allow the arbitrator to determine questions of arbitrability. Similar language is present in section 20(f) of JJF's crop insurance policy, but we do not consider its presence determinative of the parties' intention regarding arbitrability.</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[14]" name="[14]" style="color: #660099;">[14]</a> Among the policy's basic provisions also is its section 36, entitled "Applicability of State and Local Statutes." That section provides:</div>
<div style="position: relative;">
If the provisions of this policy conflict with statutes of the State or locality in which this policy is issued, the policy provisions will prevail. State and local laws and regulations in conflict with federal statutes, this policy, and the applicable regulations do not apply to this policy.</div>
<div style="position: relative;">
</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[15]" name="[15]" style="color: #660099;">[15]</a> <i>See</i> Risk Management Agency Final Agency Determination FAD-126, Nov. 2, 2010, <i>available</i> at http://www.rma.usda.gov/regs/533/2010.html. (2008 crop year; generally addressing application of AAA rules incorporated by reference into policy).</div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=15361660290055146970&q=farms+altman+group&hl=en&scisbd=2&as_sdt=4,44#r[16]" name="[16]" style="color: #660099;">[16]</a> We do not suggest that JJF's act of filing its motion to dismiss with the arbitrator and thus obtaining the arbitrator's ruling was itself an indication of its willingness to arbitrate the question. <i>See </i><a href="https://scholar.google.com/scholar_case?case=2717778595314053137&q=farms+altman+group&hl=en&as_sdt=4,44" style="color: #660099;"><i>First Options v. Kaplan,</i>514 U.S. 938, 946, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)</a>.</div>
</small></div>
</div>
</div>
</div>
</div>
<br />
<br /></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-58848807523229874562018-04-27T06:09:00.000-07:002018-05-02T10:54:06.962-07:00Out the Courthouse Door and Off to Arbitration You Go, Dasher -- By Yourself! - Edwards v Doordash Inc. (5th Cir 2018) <div class="tr_bq">
<div style="text-align: center;">
<b><span style="color: #cc0000;">GIG ECONOMY WORKER VS. MOBILE-APP FOOD DELIVERY ARRANGER </span></b></div>
<div style="text-align: center;">
<br /></div>
U.S. Fifth Circuit Court of Appeals affirms dismissal of FLSA class action based on written agreement between company and food delivery drivers (Dashers) that designates them as independent contractors and contains arbitrability delegation clause within the arbitration agreement. <a href="http://www.ca5.uscourts.gov/opinions/pub/17/17-20082-CV0.pdf">Dewey Edwards v Doordash</a>, Inc. (5th Cir Apr. 25, 2018) (affirming district court's order to compel arbitration and dismissing case without reaching arbitrability and class certification issues based on arbitrability delegation clause. Challenge to arbitrability to be decided by arbitrator, based on the arb agreement's incorporation of AAA rules). </div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-0DftbtDScDU/WuMbehsLrQI/AAAAAAAAHR4/_9s0pE1Q0_IqMtdOv0eNCDrfz-0LHqMLACLcBGAs/s1600/2018-04-25%2BDewey%2BEdward%2Bv%2BDoordash%2B%25285th%2BCir%2B2018%2529.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="633" data-original-width="644" height="392" src="https://4.bp.blogspot.com/-0DftbtDScDU/WuMbehsLrQI/AAAAAAAAHR4/_9s0pE1Q0_IqMtdOv0eNCDrfz-0LHqMLACLcBGAs/s400/2018-04-25%2BDewey%2BEdward%2Bv%2BDoordash%2B%25285th%2BCir%2B2018%2529.JPG" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both;">
Edwards filed suit against DoorDash in the United States District Court for the Southern District of Texas, alleging Fair Labor Standards Act (“FLSA”) violations. He also moved for conditional certification of a class of similarly situated individuals nationwide on the same day.</div>
<div class="separator" style="clear: both;">
<br /></div>
<div class="separator" style="clear: both;">
In response, DoorDash filed both an emergency motion to stay the conditional certification and a motion to compel individual arbitration and dismiss the suit. The magistrate judge who was referred the case partially granted DoorDash’s motion, stating the arbitration issue would be considered first and the certification issue later. Edwards objected, but his objection was overruled. </div>
<div class="separator" style="clear: both;">
<br /></div>
<div class="separator" style="clear: both;">
After an evidentiary hearing and supplemental briefing, the magistrate
judge issued a report and recommendation that the motion to dismiss should
be granted and Edwards should be compelled to arbitrate his claims. The
district court agreed and the Fifth Circuit affirmed.</div>
<div class="separator" style="clear: both;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<b><span style="color: #0b5394;">EXCERPT FROM FIFTH CIRCUIT OPINION</span></b></div>
<div class="separator" style="clear: both; text-align: center;">
<b><span style="color: #0b5394;">IN EDWARDS V. DOORDASH</span><span style="color: #990000;"> </span></b></div>
<div class="separator" style="clear: both; text-align: center;">
<b><span style="color: #990000;"><br /></span></b></div>
<div class="separator" style="clear: both; text-align: center;">
<b><span style="color: #0b5394;">(<a href="http://www.ca5.uscourts.gov/opinions/pub/17/17-20082-CV0.pdf">full text of opinion in pdf</a>)</span></b></div>
<blockquote class="tr_bq" style="clear: both;">
A court makes two determinations when deciding a motion to enforce an
arbitration agreement. Klein v. Nabors Drilling USA L.P., 710 F.3d 234, 236
(5th Cir. 2013). First, the court asks whether there is a valid agreement to
arbitrate and, second, whether the current dispute falls within the scope of a
valid agreement. Id. If the party seeking arbitration argues that there is a
delegation clause, the court performs the first step — “an analysis of contract
formation” — “[b]ut the only question, after finding that there is in fact a valid
agreement, is whether the purported delegation clause is in fact a delegation
clause.” Kubala v. Supreme Prod. Servs., Inc., 830 F.3d 199, 202 (5th Cir.
2016). “If there is a delegation clause, the motion to compel arbitration should
be granted in almost all cases.” Id.
In deciding whether the agreement to arbitrate exists, federal courts do
not consider general challenges to the validity of the entire contract. Buckeye
Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449 (2006). An arbitration
agreement is severable from the underlying contract under Section Two of the
Federal Arbitration Act. Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 70
(2010). As a result, a “party’s challenge . . . to the contract as a whole . . . does
not prevent a court from enforcing a specific agreement to arbitrate.” Id. </blockquote>
<blockquote class="tr_bq" style="clear: both;">
Following Buckeye and Rent-A-Center, we must distinguish arguments
regarding the validity of the arbitration agreement from arguments regarding
the validity of a contract as a whole. Lefoldt ex rel. Natchez Reg’l Med. Ctr.
Liquidation Tr. v. Horne, L.L.P., 853 F.3d 804, 814 (5th Cir. 2017), as revised
(Apr. 12, 2017). Once the court determines there is a valid arbitration
agreement, any remaining arguments that target the validity of the contract
as a whole are questions for the arbitrator. Id. at 815. Importantly, arguments
attacking an agreement’s validity are to be distinguished from arguments that
a contract was never formed. Id. at 810. We are permitted to consider
arguments about contract formation. Id. </blockquote>
<blockquote class="tr_bq" style="clear: both;">
A comparable rule was applied by the Supreme Court when one party
sought to enforce a delegation clause while the other argued the arbitration
agreement as a whole was invalid. Rent-A-Center, 561 U.S. at 72. The Court
acknowledged that unlike Buckeye, “the underlying contract [was] itself an
arbitration agreement.” Id. That distinction was irrelevant. Id. The Court
held that the delegation clause could be severed from the arbitration
agreement that contained it in the same way that an arbitration provision
could be severed from the larger agreement that contained it. Id. As a result,
unless the party “challenged the delegation provision specifically,” the Court
“must treat it as valid . . . and must enforce it . . . , leaving any challenge to the
validity of the Agreement as a whole [i.e, the arbitration agreement] for the
arbitrator.” Id.
In summary, we first look to see if an agreement to arbitrate was formed,
then determine if it contains a delegation clause. If there is an agreement to
arbitrate with a delegation clause, and absent a challenge to the delegation
clause itself, we will consider that clause to be valid and compel arbitration.
Challenges to the arbitration agreement as a whole are to be heard by the
arbitrator. Arguments that an agreement to arbitrate was never formed,<br />
though, are to be heard by the court even where a delegation clause exists. See
Kubala, 830 F.3d at 202. Since Kubala, we have reiterated that the first step
of the test is limited to contract formation.</blockquote>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-Og5Bfr8f6gw/Wun49GKfTqI/AAAAAAAAHXA/ywgNRGgRRxkrGUwWWHigy42sjCN0VbCTACLcBGAs/s1600/Red-Light-Courthouse-as-background.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="651" data-original-width="735" height="353" src="https://1.bp.blogspot.com/-Og5Bfr8f6gw/Wun49GKfTqI/AAAAAAAAHXA/ywgNRGgRRxkrGUwWWHigy42sjCN0VbCTACLcBGAs/s400/Red-Light-Courthouse-as-background.JPG" width="400" /></a></div>
<div style="text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<b><span style="color: #0b5394;">ARBITRABILITY TO BE DECIDED BY THE ARBITRATOR, </span></b></div>
<div class="separator" style="clear: both; text-align: center;">
<b><span style="color: #0b5394;">BASED ON INCORPORATION OF AAA RULES </span></b></div>
<blockquote style="clear: both;">
Edwards also argues that the agreement is unconscionable.
Unconscionability is not a contract formation issue under California law. A
California intermediate court held that an argument that an entire agreement
is unconscionable is a “contention [that] must be presented to the arbitrator.”
Higgins v. Superior Court, 45 Cal. Rptr. 3d 293, 301 (Cal. Ct. App. 2006), as
modified (July 10, 2006). If the question of an underlying agreement’s validity
is for the arbitrator, we can infer that California courts consider the question
to relate to the contract’s validity but not its formation. Because Edwards’s
unconscionability arguments do not relate to whether an agreement to
arbitrate was formed, we do not consider them during the first step of the
Kubala analysis.
We now turn to step two of the Kubula framework: the question of
whether there is an enforceable delegation clause. DoorDash identifies a
delegation clause through the incorporation of the American Arbitration
Association (“AAA”) rules in the arbitration agreement. </blockquote>
<blockquote style="clear: both;">
Edwards concedes the
arbitration provision incorporates a delegation clause.
Under Rule 7 of the AAA rules, “[t]he 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 or to the arbitrability of any claim or counterclaim.” We have previously held “that express
incorporation of the same AAA Rules constitutes clear and unmistakable
evidence that the parties agreed to arbitrate arbitrability.” Crawford Prof’l
Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249, 262–63 (5th Cir. 2014)
(citing Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671,
675 (5th Cir. 2012)). </blockquote>
<blockquote style="clear: both;">
Here, the ICA contained an agreement to arbitrate, which, through
incorporation of the AAA rules, contained an agreement to delegate issues of
arbitrability to the arbitrator. </blockquote>
<blockquote style="clear: both;">
Because DoorDash sought to compel arbitration
on the basis of that delegation clause, we must treat it as valid absent any
specific challenge to the delegation clause by Edwards. Edwards’s
unconscionability arguments target the ICA as a whole and the arbitration
agreement, but he fails to challenge the delegation clause. Therefore, we treat
the delegation clause as valid. Edwards’s remaining arguments regarding the
validity of the arbitration agreement or the ICA as a whole should be addressed
by the arbitrator. </blockquote>
<blockquote style="clear: both;">
AFFIRMED. </blockquote>
<div class="separator" style="clear: both; text-align: center;">
<b><span style="color: #cc0000;">FULL TEXT OF FIFTH CIRCUIT OPINION BELOW</span></b></div>
<div class="separator" style="clear: both; text-align: center;">
(GOOGLE SCHOLAR VERSION) </div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
DEWEY EDWARDS, Individually and On Behalf of All Others Similarly Situated, Plaintiff-Appellant,<br />v.<br />DOORDASH, INCORPORATED, Defendant-Appellee.</h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<a href="https://scholar.google.com/scholar?scidkt=14114853685553608310&as_sdt=2&hl=en" style="color: #660099;">No. 17-20082.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<div style="position: relative;">
<b>United States Court of Appeals, Fifth Circuit.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
Filed: April 25, 2018.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Kerry E. Notestine, for Defendant-Appellee.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Robert Francois Friedman, for Defendant-Appellee.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Allison C. Williams, for Defendant-Appellee.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Alfonso Kennard, Jr., for Plaintiff-Appellant.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Appeal from the United States District Court for the Southern District of Texas.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Before: WIENER, ELROD, and SOUTHWICK, Circuit Judges.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
LESLIE H. SOUTHWICK, Circuit Judge.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
DoorDash is a California company that provides food-delivery service by using independent contractors it calls Dashers.<br />
<br />
A Dasher named Dewey Edwards brought suit against the company and sought conditional class certification. The district court, concluding there was an arbitration agreement with a valid delegation clause, granted DoorDash's motion to compel arbitration and dismissed Edwards's claims without addressing the class certification motion.<br />
<br />
We AFFIRM.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
FACTUAL AND PROCEDURAL BACKGROUND</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
DoorDash customers in over two hundred cities can use a mobile application to order food from certain restaurants. A Dasher will deliver the order to the customer. DoorDash requires Dashers to sign an Independent Contractor Agreement ("ICA"). The ICA that Edwards signed contains this arbitration clause:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Contractor and Company agree that final and binding arbitration will be the exclusive means of resolving any disputes between Contractor and Company. Any such disputes shall be resolved by pursuant [sic] to the commercial rules of the American Arbitration Association (AAA) and such arbitration shall be held in Palo Alto, California. Judgment on any award rendered by the arbitrator may be entered in any court having jurisdiction over the award. Contractor and Company agree to bring any disputes in arbitration on an individual basis only and not as a class or other collective action basis. Accordingly, there will be no right or authority for any dispute to be brought, heard or arbitrated as a class or other collective action. This class and collective action waiver shall not be severable from this Agreement in any case in which the dispute is filed as such a class or collective action and a civil court of competent jurisdiction finds that this waiver is unenforceable. In such instance, the class or collective action must be litigated in a civil court of competent jurisdiction.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Edwards's ICA also includes this choice-of-law provision: "This Agreement shall be governed by and construed in accordance with the laws of the State of California without reference to the conflict-of-laws principles thereunder."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Edwards filed suit against DoorDash in the United States District Court for the Southern District of Texas, alleging Fair Labor Standards Act ("FLSA") violations. He also moved for conditional certification of a class of similarly situated individuals nationwide on the same day. In response, DoorDash filed both an emergency motion to stay the conditional certification and a motion to compel individual arbitration and dismiss the suit. The magistrate judge who was referred the case partially granted DoorDash's motion, stating the arbitration issue would be considered first and the certification issue later. Edwards objected, but his objection was overruled.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
After an evidentiary hearing and supplemental briefing, the magistrate judge issued a report and recommendation that the motion to dismiss should be granted and Edwards should be compelled to arbitrate his claims. The district court agreed. Edwards timely appealed.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
DISCUSSION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On appeal, Edwards has two primary contentions. First, he argues the district court erred in deciding the arbitrability question before class certification. Second, he argues the district court erred in enforcing the arbitration agreement. Before addressing each argument, we consider our jurisdiction.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>I. Whether this court has appellate jurisdiction</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Edwards categorized his appeal as interlocutory even though the suit was dismissed in order for arbitration to proceed. Interlocutory appeals of orders compelling arbitration are prohibited. 9 U.S.C. § 16(b). What is permitted, though, is an appeal of a final decision regarding arbitration. <i>Id.</i> § 16(a)(3). A final decision is one that "ends the litigation on the merits and leaves nothing more for the court to do but execute the judgment." <a href="https://scholar.google.com/scholar_case?case=3726841194696613381&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Green Tree Servicing, L.L.C. v. Charles,</i> 872 F.3d 637, 639 (5th Cir. 2017)</a> (quoting <a href="https://scholar.google.com/scholar_case?case=4494474812085373519&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Green Tree Fin. Corp.-Ala. v. Randolph,</i> 531 U.S. 79, 86 (2000)</a>).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Here, the decision is final as to Edwards. All that remained for his claim was for the court to enter a final judgment. Although there were three other plaintiffs whose claims had not yet been dismissed, the final judgment rule applies to Edwards. We have exercised jurisdiction over an appeal when the order appealed from disposed of all of the appellants' claims, even though it did not resolve yet another plaintiff's claims. <a href="https://scholar.google.com/scholar_case?case=8387590770813442893&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Barrett v. Atl. Richfield Co.,</i> 95 F.3d 375, 379 (5th Cir. 1996)</a>. This is not an interlocutory appeal as Edwards argues, and instead this court has jurisdiction under Section 16(a)(3).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>II. Whether the district court erred in compelling arbitration before considering the class certification</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Edwards insists the district court erred in ruling on DoorDash's motion to dismiss and compel arbitration before it ruled on Edwards's motion to certify a class. The magistrate judge concluded that arbitrability was a threshold question and therefore ruled on that without considering the motion for conditional certification. DoorDash characterizes the decision as one relating to docket management and urges this court to review for an abuse of discretion. <i>See </i><a href="https://scholar.google.com/scholar_case?case=350751850704470415&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Woodson v. Surgitek, Inc.,</i> 57 F.3d 1406, 1417 (5th Cir. 1995)</a>. Edwards, on the other hand, urges us to review the decision <i>de novo.</i> Because we would affirm under either standard, we need not discuss the proper standard of review.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The magistrate judge relied on a recent opinion to support the decision to rule on arbitrability without ruling on the conditional class certification. <i>See </i><a href="https://scholar.google.com/scholar_case?case=16247988941880760622&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Reyna v. Int'l Bank of Commerce,</i> 839 F.3d 373, 376 (5th Cir. 2016)</a>. There we held that arbitrability claims should be resolved at the outset, even before considering conditional class certification. <i>See id.</i> We rejected the plaintiff's contention that "[i]n collective action suits brought under the FLSA, courts rule on first-stage conditional certification and notice <i>before</i>ruling on the validity and enforceability of any purported arbitration agreement." <i>Id.</i> We distinguished <i>Reyna</i> from other cases in which district courts had certified a collective action before determining the arbitrability of the claims. <i>Id.</i> Those cases involved numerous factual distinctions, including the presence of additional opt-in plaintiffs. <i>Id.</i> at 376-77. <i>Reyna</i> was different because it involved "a defendant who promptly moved to compel the sole plaintiff to arbitrate his claim, pursuant to an arbitration agreement that undisputedly exist[ed]." <i>Id.</i> at 377.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The rationale for the holding in <i>Reyna,</i> though, was not limited to these factual differences. We also stated that arbitrability is a threshold question, as a contrary holding "would present a justiciability issue: a court could conditionally certify a collective action solely on the basis of a claim that the plaintiff was bound to arbitrate and was therefore barred from bringing it in court in the first place." <i>Id.</i> The court also stated that determining whether claims had to be arbitrated "prior to conditional certification more closely aligns with the `national policy favoring arbitration' embodied by the FAA." <i>Id.</i> at 378 (quoting <a href="https://scholar.google.com/scholar_case?case=17088816341526709934&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>AT&T Mobility LLC v. Concepcion,</i> 563 U.S. 333, 346 (2011)</a>).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Edwards's arguments against applying <i>Reyna</i> are limited to identifying factual differences. He says that his case has more than one named plaintiff, that no four-step grievance procedure exists, and that the validity of the arbitration agreement is disputed. What Edwards fails to do, however, is explain why those differences compel a different result. As in <i>Reyna,</i> we agree that "whether the named plaintiffs must arbitrate their claims should be decided well before the nationwide notification issue is reached." <i>Id.</i> at 377 (quoting <a href="https://scholar.google.com/scholar_case?case=3289450580233047901&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Cater v. Countrywide Credit Indus., Inc.,</i> 189 F. Supp. 2d 606, 618 (N.D. Tex. 2002)</a>). We continue to hold that arbitrability is a "threshold question" to be determined "at the outset," a holding consistent with the "national policy favoring arbitration." <i>Id.</i> at 377-78 (citations omitted).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
<i>III. Whether the district court erred in enforcing the arbitration agreement</i></h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Edwards also argues that the district court erred in concluding that there is a valid arbitration agreement with a delegation clause — which is a written agreement sending disputes about arbitrability to an arbitrator — and, accordingly, finding that the FLSA claims were questions for the arbitrator. Edwards's central argument is that the arbitration agreement, as well as the ICA that contains it, are unenforceable. Specifically, Edwards argues the arbitration agreement is unconscionable; the class waiver contained within it is unenforceable; and the ICA containing the arbitration agreement is illusory and lacked consideration. DoorDash argues that once we conclude there is a delegation clause, our proper inquiry ends and the order granting the motion to compel arbitration and dismiss should be affirmed. We review that argument <i>de novo. </i><a href="https://scholar.google.com/scholar_case?case=12335505223388158596&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Banc One Acceptance Corp. v. Hill,</i> 367 F.3d 426, 428 (5th Cir. 2004)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<a name='more'></a><br />
<br />
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
A court makes two determinations when deciding a motion to enforce an arbitration agreement. <a href="https://scholar.google.com/scholar_case?case=12542208380020345202&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Klein v. Nabors Drilling USA L.P.,</i> 710 F.3d 234, 236 (5th Cir. 2013)</a>. First, the court asks whether there is a valid agreement to arbitrate and, second, whether the current dispute falls within the scope of a valid agreement. <i>Id.</i> If the party seeking arbitration argues that there is a delegation clause, the court performs the first step — "an analysis of contract formation" — "[b]ut the only question, after finding that there is in fact a valid agreement, is whether the purported delegation clause is in fact a delegation clause." <a href="https://scholar.google.com/scholar_case?case=6389344111851431477&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Kubala v. Supreme Prod. Servs., Inc.,</i> 830 F.3d 199, 202 (5th Cir. 2016)</a>. "If there is a delegation clause, the motion to compel arbitration should be granted in almost all cases." <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In deciding whether the agreement to arbitrate exists, federal courts do not consider general challenges to the validity of the entire contract. <a href="https://scholar.google.com/scholar_case?case=16108030830731717705&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Buckeye Check Cashing, Inc. v. Cardegna,</i> 546 U.S. 440, 449 (2006)</a>. An arbitration agreement is severable from the underlying contract under Section Two of the Federal Arbitration Act. <a href="https://scholar.google.com/scholar_case?case=10589677176860191748&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Rent-A-Center, W., Inc. v. Jackson,</i> 561 U.S. 63, 70 (2010)</a>. As a result, a "party's challenge . . . to the contract as a whole . . . does not prevent a court from enforcing a specific agreement to arbitrate." <i>Id.</i> Following <i>Buckeye</i> and <i>Rent-A-Center,</i> we must distinguish arguments regarding the validity of the arbitration agreement from arguments regarding the validity of a contract as a whole. <a href="https://scholar.google.com/scholar_case?case=6879853562216236651&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Lefoldt ex rel. Natchez Reg'l Med. Ctr. Liquidation Tr. v. Horne, L.L.P.,</i> 853 F.3d 804, 814 (5th Cir. 2017),</a> <i>as revised</i> (Apr. 12, 2017). Once the court determines there is a valid arbitration agreement, any remaining arguments that target the validity of the contract as a whole are questions for the arbitrator. <i>Id.</i> at 815. Importantly, arguments attacking an agreement's validity are to be distinguished from arguments that a contract was never formed. <i>Id.</i> at 810. We are permitted to consider arguments about contract formation. <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
A comparable rule was applied by the Supreme Court when one party sought to enforce a delegation clause while the other argued the arbitration agreement as a whole was invalid. <a href="https://scholar.google.com/scholar_case?case=10589677176860191748&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Rent-A-Center,</i> 561 U.S. at 72</a>. The Court acknowledged that unlike <i>Buckeye,</i>"the underlying contract [was] itself an arbitration agreement." <i>Id.</i> That distinction was irrelevant. <i>Id.</i> The Court held that the delegation clause could be severed from the arbitration agreement that contained it in the same way that an arbitration provision could be severed from the larger agreement that contained it. <i>Id.</i> As a result, unless the party "challenged the delegation provision specifically," the Court "must treat it as valid . . . and must enforce it . . ., leaving any challenge to the validity of the Agreement as a whole [<i>i.e,</i> the arbitration agreement] for the arbitrator." <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In summary, we first look to see if an agreement to arbitrate was formed, then determine if it contains a delegation clause. If there is an agreement to arbitrate with a delegation clause, and absent a challenge to the delegation clause itself, we will consider that clause to be valid and compel arbitration. Challenges to the arbitration agreement as a whole are to be heard by the arbitrator. Arguments that an agreement to arbitrate was never formed, though, are to be heard by the court even where a delegation clause exists. <i>See </i><a href="https://scholar.google.com/scholar_case?case=6389344111851431477&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Kubala,</i> 830 F.3d at 202</a>. Since <i>Kubala,</i> we have reiterated that the first step of the test is limited to contract formation.<sup><a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=8512861728691201576&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44#[1]" name="r[1]" style="color: #660099;">[1]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Edwards challenges the formation of the ICA and then the validity of the arbitration agreement and ICA as a whole. Following <i>Kubala,</i> we look first to whether there is an agreement to arbitrate and second to whether that agreement contains a valid delegation clause. <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We use state law to evaluate the underlying agreement. <i>See </i><a href="https://scholar.google.com/scholar_case?case=12335505223388158596&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Banc One Acceptance,</i> 367 F.3d at 430</a>. Here, the agreement between the plaintiffs and DoorDash included a choice-of-law provision specifying California law. Because the validity of that provision has not been called into question, we apply California law. <i>See </i><a href="https://scholar.google.com/scholar_case?case=13974010232575641990&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Overstreet v. Contigroup Cos., Inc.,</i> 462 F.3d 409, 411 (5th Cir. 2006)</a> ("[A]t least for the purposes of our analysis, the validity of the Georgia choice of law provision applicable to the parties' contract has not been called into question. Therefore, we see no reason to disregard the parties' agreement to apply Georgia law to their contract.").</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Edwards argues that the contract is illusory because DoorDash never signed the agreement, never delivered it, and retained the ability to unilaterally modify it. We will address each contention.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
First, it is certainly true that DoorDash never signed the contract. The district court concluded, though, that the arbitration agreement did not have to be signed by DoorDash to be enforceable. "[A]n arbitration agreement can be specifically enforced against the signing party regardless of whether the party seeking enforcement has also signed, provided that the party seeking enforcement has performed or offered to do so." <a href="https://scholar.google.com/scholar_case?case=12648390247260525937&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Serafin v. Balco Props. Ltd., LLC,</i> 185 Cal. Rptr. 3d 151, 159 (Cal. Ct. App. 2015)</a>(quoting CAL. CIV. CODE § 3388). Here, as in <i>Serafin,</i> Edwards has not disputed that DoorDash performed its obligations under the ICA. <i>See id.</i> DoorDash's failure to sign did not prevent the formation of a contract.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Next, Edwards alleges that he never received his own personal copy of the contract, so it was never "delivered" to him. As a result, he argues that a contract was never formed. The district court found this argument without merit as Edwards cited no authority in support of it. On appeal, Edwards cites authority requiring mutual assent and acceptance, but he does not provide authority that requires both parties to retain a copy of the agreement. DoorDash argues that when Edwards signed and returned the contract, it was "delivered." "Where an agreement is retained by either party with the consent of the other, it must be considered as delivered, if both understand that it has been executed and is in operation." <i>Giambroni v. Jurgensen</i> (<i>In re Estate of Klauenberg</i>), 108 Cal. Rptr. 669, 671 (Cal. Ct. App. 1973). This argument also is without merit.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Edwards also contends that DoorDash retained the power to modify the arbitration agreement unilaterally. California courts have "concluded a binding arbitration agreement exists even though the employer retains the right to modify its personnel policies." <a href="https://scholar.google.com/scholar_case?case=12648390247260525937&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Serafin,</i> 185 Cal. Rptr. 3d at 158</a>. "Because California law prevents a party from exercising a discretionary power, such as the power to modify, in bad faith or in a way that deprives the other party of the benefits of the agreement, [a party's] right to modify its `policies or practices at any time' does not render the arbitration agreement illusory." <i>Id.</i> at 158-59.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Edwards concedes that the ICA "can only be modified in an express written agreement by Contractor and an authorized officer of Company." Nonetheless, Edwards contends DoorDash has unilaterally modified the agreement because the company has made legal arguments that conflict with the ICA and because a new version of the ICA was implemented after the litigation began. Although Edwards cites <a href="https://scholar.google.com/scholar_case?case=14946058681416468389&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Totten v. Kellogg Brown & Root, LLC,</i> 152 F. Supp. 3d 1243, 1253 (C.D. Cal. 2016),</a> that case was specifically addressing instances in which the employer was attempting to modify the arbitration agreement as applied to claims already in existence. That is not the case here. Because "[t]he arbitration clause is supported by mutual promises to arbitrate," we reject this argument.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Edwards also argues that the agreement is unconscionable. Unconscionability is not a contract formation issue under California law. A California intermediate court held that an argument that an entire agreement is unconscionable is a "contention [that] must be presented to the arbitrator." <a href="https://scholar.google.com/scholar_case?case=13653061503369698169&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Higgins v. Superior Court,</i> 45 Cal. Rptr. 3d 293, 301 (Cal. Ct. App. 2006),</a> <i>as modified</i> (July 10, 2006). If the question of an underlying agreement's validity is for the arbitrator, we can infer that California courts consider the question to relate to the contract's validity but not its formation. Because Edwards's unconscionability arguments do not relate to whether an agreement to arbitrate was formed, we do not consider them during the first step of the <i>Kubala</i> analysis.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We now turn to step two of the <i>Kubula</i> framework: the question of whether there is an enforceable delegation clause. DoorDash identifies a delegation clause through the incorporation of the American Arbitration Association ("AAA") rules in the arbitration agreement. Edwards concedes the arbitration provision incorporates a delegation clause.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Under Rule 7 of the AAA rules, "[t]he 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 or to the arbitrability of any claim or counterclaim." We have previously held "that express incorporation of the same AAA Rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability." <a href="https://scholar.google.com/scholar_case?case=12575451657150943380&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Crawford Prof'l Drugs, Inc. v. CVS Caremark Corp.,</i> 748 F.3d 249, 262-63 (5th Cir. 2014)</a> (citing <a href="https://scholar.google.com/scholar_case?case=12476666232531729476&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099;"><i>Petrofac, Inc. v. DynMcDermott Petroleum Operations Co.,</i> 687 F.3d 671, 675 (5th Cir. 2012)</a>).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Here, the ICA contained an agreement to arbitrate, which, through incorporation of the AAA rules, contained an agreement to delegate issues of arbitrability to the arbitrator. Because DoorDash sought to compel arbitration on the basis of that delegation clause, we must treat it as valid absent any specific challenge to the delegation clause by Edwards. Edwards's unconscionability arguments target the ICA as a whole and the arbitration agreement, but he fails to challenge the delegation clause. Therefore, we treat the delegation clause as valid. Edwards's remaining arguments regarding the validity of the arbitration agreement or the ICA as a whole should be addressed by the arbitrator.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
AFFIRMED.</div>
<div class="separator" style="clear: both; text-align: center;">
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 11px; text-align: start;"></small></div>
<div style="position: relative;">
<a class="gsl_hash" href="https://scholar.google.com/scholar_case?case=8512861728691201576&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44#r[1]" name="[1]" style="color: #660099; text-decoration: underline;">[1]</a> <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=11888958891697621507&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099; text-decoration: underline;"><i>Archer & White Sales, Inc. v. Henry Schein, Inc.,</i> 878 F.3d 488, 492-93 (5th Cir. 2017)</a>; <a href="https://scholar.google.com/scholar_case?case=8243722106916497601&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099; text-decoration: underline;"><i>IQ Prods. Co. v. WD-40 Co.,</i> 871 F.3d 344, 348-49 (5th Cir. 2017)</a>; <a href="https://scholar.google.com/scholar_case?case=4164996826818441548&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099; text-decoration: underline;"><i>Brittania-U Nigeria, Ltd. v. Chevron USA, Inc.,</i> 866 F.3d 709, 713-14 (5th Cir. 2017)</a>. This limit was not articulated in <a href="https://scholar.google.com/scholar_case?case=16247988941880760622&q=Dewey+Edwards+v+Doordash+(5th+Cir+2018)&hl=en&as_sdt=6,44" style="color: #660099; text-decoration: underline;"><i>Reyna,</i> 839 F.3d at 378-79,</a> but there, the first step — whether an agreement to arbitrate was formed — was undisputed.</div>
<br />MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-9792643479221600902017-09-28T06:43:00.002-07:002017-09-28T08:14:48.350-07:00Res judicata based on arbitration award <i>Premium Plastics Supply, Inc, Reginald Barham and Carol Barham v. Thomas Howell and Laura Howell, </i>No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=01-16-00481-CV">01-16-00481-CV</a> (Tex.App. – Houston [1st Dist.] Sep. 28, 2017, no pet. h.)<br />
<br />
Tenants in commercial lease dispute asserted the same counterclaims in court that they had previously dropped in arbitration, and did so when Lessors sought confirmation of the arbitration award for past-due rent. Houston Court of Appeals holds that (re)litigation of the counterclaims was barred because arb award had res judicata effect, and affirms adverse summary judgment on counterclaims. Also holds that the the res judicata preclusion issue was properly decided by the court in the confirmation proceeding, rather than having to be sent to the arbitrator. <a href="http://www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=56ec005f-8d43-4801-b276-95faa19f6444&MediaID=ae56fa66-a6c0-4709-a7f3-e263bb47714a&coa=%22%20+%20this.CurrentWebState.CurrentCourt%20+%20@%22&DT=Opinion">Premium Plastics Supply, Inc. v Howell</a> [Opinion in pdf].<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://2.bp.blogspot.com/-AAkZc0D04_4/Wcz5HdvD-cI/AAAAAAAAEXg/jmA-yZrnV7wKGUAdmqwZD6Q8ypyxEstxACLcBGAs/s1600/01-16-00481-CV%2BRes%2Bjudicata%2Bbased%2Bon%2Barb%2Baward.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="666" data-original-width="757" height="351" src="https://2.bp.blogspot.com/-AAkZc0D04_4/Wcz5HdvD-cI/AAAAAAAAEXg/jmA-yZrnV7wKGUAdmqwZD6Q8ypyxEstxACLcBGAs/s400/01-16-00481-CV%2BRes%2Bjudicata%2Bbased%2Bon%2Barb%2Baward.JPG" width="400" /></a></div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
Opinion issued September 28, 2017
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-16-00481-CV
——————————— </div>
<div style="text-align: center;">
PREMIUM PLASTICS SUPPLY, INC., REGINALD BARHAM, AND
CAROL BARHAM, Appellants
V.
THOMAS HOWELL AND LAURA HOWELL, Appellees </div>
<div style="text-align: center;">
On Appeal from the 189th District Court
Harris County, Texas
Trial Court Case No. 2015-59650 </div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
O P I N I O N </div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
Opinion issued September 28, 2017</div>
<div style="text-align: center;">
In The</div>
<div style="text-align: center;">
Court of Appeals</div>
<div style="text-align: center;">
For The</div>
<div style="text-align: center;">
First District of Texas</div>
<div style="text-align: center;">
————————————</div>
<div style="text-align: center;">
NO. 01-16-00481-CV</div>
<div style="text-align: center;">
———————————</div>
<div style="text-align: center;">
PREMIUM PLASTICS SUPPLY, INC., REGINALD BARHAM, </div>
<div style="text-align: center;">
AND CAROL BARHAM, Appellants</div>
<div style="text-align: center;">
V.</div>
<div style="text-align: center;">
THOMAS HOWELL AND LAURA HOWELL, Appellees</div>
<div style="text-align: center;">
On Appeal from the 189th District Court</div>
<div style="text-align: center;">
Harris County, Texas</div>
<div style="text-align: center;">
Trial Court Case No. 2015-59650</div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
O P I N I O N</div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: left;">
This case involves a trial court proceeding to confirm an arbitration award in</div>
<div style="text-align: left;">
a commercial landlord-tenant dispute. Landlords Thomas and Laura Howell,</div>
<div style="text-align: left;">
appellees here, filed suit in the trial court to confirm an arbitration award in their</div>
<div style="text-align: left;">
favor against their former tenants, appellants Premium Plastics Supply, Inc. and</div>
<div style="text-align: center;">
2</div>
<div style="text-align: left;">
Reginald and Carol Barham. After the Howells moved for summary judgment,</div>
<div style="text-align: left;">
appellants filed counterclaims for improper lockout under the Property Code,</div>
<div style="text-align: left;">
unauthorized access, and breach of oral agreements. The trial court granted partial</div>
<div style="text-align: left;">
summary judgment confirming the arbitration award. The Howells subsequently</div>
<div style="text-align: left;">
moved for summary judgment on appellants’ counterclaims, arguing that they were</div>
<div style="text-align: left;">
barred by res judicata because they should have been raised in the now-concluded</div>
<div style="text-align: left;">
arbitration proceeding. The trial court granted summary judgment on the</div>
<div style="text-align: left;">
counterclaims.</div>
<div style="text-align: left;">
Appellants appeal the trial court’s summary judgment entered on their</div>
<div style="text-align: left;">
counterclaims.1</div>
<div style="text-align: left;">
In their sole issue on appeal, they argue that the trial court erred by</div>
<div style="text-align: left;">
granting summary judgment on their counterclaims because the issue of res judicata</div>
<div style="text-align: left;">
must be decided by the arbitrator and not the trial court. We affirm.<br />
<br /></div>
<div style="text-align: left;">
Background<br />
<br /></div>
<div style="text-align: left;">
In May 2012, appellants signed a two-year lease for commercial space owned</div>
<div style="text-align: left;">
by the Howells. The lease contained an arbitration provision, which provided that</div>
<div style="text-align: left;">
all disputes related to it must be arbitrated:</div>
<div style="text-align: left;">
<br /></div>
<blockquote class="tr_bq" style="text-align: left;">
ARBITRATION. Any controversy or claim related to this contract,<br />
including the construction or application of this contract, will be settled<br />
by binding arbitration under the rules of the American Arbitration<br />
Association, and any judgment granted by the arbitrator(s) may be<br />
enforced in any court of proper jurisdiction.</blockquote>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
1 They do not appeal the confirmation of the arbitration award.</div>
<div style="text-align: center;">
3</div>
<div style="text-align: left;">
Appellants continued to occupy the space after the lease ended in May 2014.</div>
<div style="text-align: left;">
In October 2014, the Howells sent a notice of default to appellants seeking payment</div>
<div style="text-align: left;">
under the holdover clause of the lease, which governed payment after the lease term</div>
<div style="text-align: left;">
lapsed. When appellants failed to pay, the Howells initiated arbitration with the</div>
<div style="text-align: left;">
American Arbitration Association.</div>
<div style="text-align: left;">
After initiating arbitration, the Howells changed the locks on the leased space.</div>
<div style="text-align: left;">
In response, appellants asserted counterclaims in the arbitration for improper lockout</div>
<div style="text-align: left;">
under the Property Code, unauthorized access, and breach of oral agreements.</div>
<div style="text-align: left;">
However, the appellants dismissed the counterclaims before the final evidentiary</div>
<div style="text-align: left;">
proceeding in the arbitration; in their appellants’ brief, they state that they dismissed</div>
<div style="text-align: left;">
the claims so that they could pursue them in a trial court. In the final arbitration</div>
<div style="text-align: left;">
award, the arbitrator awarded the Howells $33,500 in unpaid rent for the period from</div>
<div style="text-align: left;">
November 2014 to May 2015.</div>
<div style="text-align: left;">
The Howells filed suit in district court in Harris County, seeking a declaratory</div>
<div style="text-align: left;">
judgment confirming the arbitration award, and subsequently filed a summary judgment</div>
<div style="text-align: left;">
motion. After the summary-judgment motion was filed, appellants</div>
<div style="text-align: left;">
amended their answer “to reassert the counterclaims previously raised and</div>
<div style="text-align: left;">
withdrawn in the arbitration.” The trial court granted the Howells’ partial summary</div>
<div style="text-align: left;">
judgment, confirming the arbitration award. The Howells then moved for summary</div>
<div style="text-align: left;">
judgment on appellants’ counterclaims, arguing that they were barred by res judicata </div>
<div style="text-align: center;">
4</div>
<div style="text-align: left;">
because they should have been raised in the arbitration. The trial court granted the</div>
<div style="text-align: left;">
second summary-judgment motion and rendered a final judgment.</div>
<div style="text-align: left;">
Discussion</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
In their sole issue, appellants contend that the trial court erred by granting</div>
<div style="text-align: left;">
summary judgment on their counterclaims because the issue of res judicata must be</div>
<div style="text-align: left;">
decided by the arbitrator and not the trial court.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
A. Standard of Review</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
We review a trial court’s summary judgment de novo. Travelers Ins. Co. v.</div>
<div style="text-align: left;">
Joachim, 315 S.W.3d 860, 862 (Tex. 2010). When reviewing a summary judgment,</div>
<div style="text-align: left;">
we take as true all evidence favorable to the nonmovant, and we indulge every</div>
<div style="text-align: left;">
reasonable inference and resolve any doubts in the nonmovant’s favor. Valence</div>
<div style="text-align: left;">
Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005).</div>
<div style="text-align: left;">
In a traditional summary-judgment motion, the movant has the burden to show</div>
<div style="text-align: left;">
that no genuine issue of material fact exists and that the trial court should grant</div>
<div style="text-align: left;">
judgment as a matter of law. TEX. R. CIV. P.166a(c); KPMG Peat Marwick v.</div>
<div style="text-align: left;">
Harrison Cty. Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999). A genuine issue</div>
<div style="text-align: left;">
of material fact exists if the nonmovant produces evidence that would enable</div>
<div style="text-align: left;">
reasonable and fair-minded jurors to differ in their conclusions. See Hamilton v.</div>
<div style="text-align: left;">
Wilson, 249 S.W.3d 425, 426 (Tex. 2008) (citing City of Keller v. Wilson, 168</div>
<div style="text-align: left;">
S.W.3d 802, 822 (Tex. 2005)). A defendant moving for traditional summary </div>
<div style="text-align: center;">
5</div>
<div style="text-align: left;">
judgment on an affirmative defense has the burden to conclusively prove all the</div>
<div style="text-align: left;">
elements of the affirmative defense as a matter of law. See Henkel v. Norman, 441</div>
<div style="text-align: left;">
S.W.3d 249, 251 (Tex. 2014) (per curiam). Once the movant meets his burden, the</div>
<div style="text-align: left;">
burden shifts to the non-movant to raise a genuine issue of material fact precluding</div>
<div style="text-align: left;">
summary judgment. See Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex.</div>
<div style="text-align: left;">
1995).</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
B. Res Judicata</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
“Res judicata, or claims preclusion, prevents the relitigation of a claim or</div>
<div style="text-align: left;">
cause of action that has been finally adjudicated, as well as related matters that, with</div>
<div style="text-align: left;">
the use of diligence, should have been litigated in the prior suit.” Barr v. Resolution</div>
<div style="text-align: left;">
Trust Corp., 837 S.W.2d 627, 628 (Tex. 1992); see Smith v. Brown, 51 S.W.3d 376,</div>
<div style="text-align: left;">
379 (Tex. App.—Houston [1st Dist.] 2001, pet. denied). A counterclaim is required</div>
<div style="text-align: left;">
to be litigated in an initial arbitration or suit when “it arises out of the transaction or</div>
<div style="text-align: left;">
occurrence that is the subject matter of the opposing party’s claim and does not</div>
<div style="text-align: left;">
require for its adjudication the presence of third parties of whom the court cannot</div>
<div style="text-align: left;">
acquire jurisdiction[.]” TEX. R. CIV. P. 97(a). Res judicata promotes the finality of</div>
<div style="text-align: left;">
judgments and thus “serves vital public interests.” Hallco Texas, Inc. v. McMullen</div>
<div style="text-align: left;">
Cty., 221 S.W.3d 50, 58 (Tex. 2007) (quoting San Remo Hotel, L.P. v. San</div>
<div style="text-align: left;">
Francisco, 545 U.S. 323, 345, 125 S. Ct. 2491, 2506 (2005)).</div>
<div style="text-align: center;">
6</div>
<div style="text-align: left;">
Res judicata is an affirmative defense. See Williams v. Hous. Firemen’s Relief</div>
<div style="text-align: left;">
& Ret. Fund, 121 S.W.3d 415, 437 n.21 (Tex. App.—Houston [1st Dist.] 2003, no</div>
<div style="text-align: left;">
pet.). To establish their right to judgment as a matter of law on their affirmative</div>
<div style="text-align: left;">
defense of res judicata, the Howells had to establish (1) a prior final judgment on the</div>
<div style="text-align: left;">
merits by a court of competent jurisdiction; (2) identity of parties or those in privity</div>
<div style="text-align: left;">
with them; and (3) a subsequent action based on the same claims as were or could</div>
<div style="text-align: left;">
have been raised in the first action. Joachim, 315 S.W.3d at 862.</div>
<div style="text-align: left;">
An arbitration award has preclusive effect for purposes of res judicata. See</div>
<div style="text-align: left;">
Tanox, Inc. v. Akin, Gump, Strauss, Hauer & Feld, 105 S.W.3d 244, 270 (Tex.</div>
<div style="text-align: left;">
App.—Houston [14th Dist.] 2003, pet. denied); see also Anzilotti v. Gene D. Liggin,</div>
<div style="text-align: left;">
Inc., 899 S.W.2d 264, 266 (Tex. App.—Houston [14th Dist.] 1995, no writ); J.J.</div>
<div style="text-align: left;">
Gregory Gourmet Servs., Inc. v. Antone’s Import Co., 927 S.W.2d 31, 33 (Tex.</div>
<div style="text-align: left;">
App.—Houston [1st Dist.] 1995, no writ); City of Baytown v. C.L. Winter, Inc., 886</div>
<div style="text-align: left;">
S.W.2d 515, 518 (Tex. App.—Houston [1st Dist.] 1994, writ denied). For example,</div>
<div style="text-align: left;">
in Tanox, Inc. v. Akin, Gump, Strauss, Hauer & Feld, 105 S.W.3d 244 (Tex. App.—</div>
<div style="text-align: left;">
Houston [14th Dist.] 2003, pet. denied), Tanox and its former lawyers were engaged</div>
<div style="text-align: left;">
in a fee dispute that went to arbitration. See id. at 250. The arbitrators found in favor</div>
<div style="text-align: left;">
of the lawyers, and the lawyers filed suit in the trial court to confirm the arbitration</div>
<div style="text-align: left;">
award. Id. Tanox sought to vacate the arbitration award and filed counterclaims for</div>
<div style="text-align: left;">
breach of contract and various tort claims. Id. The trial court entered summary </div>
<div style="text-align: center;">
7</div>
<div style="text-align: left;">
judgment confirming the arbitration award and denying Tanox’s request to vacate</div>
<div style="text-align: left;">
the award. Id. The lawyers subsequently moved for summary judgment on Tanox’s</div>
<div style="text-align: left;">
counterclaims on the basis of res judicata, arguing that the counterclaims should</div>
<div style="text-align: left;">
have been raised in the now-concluded arbitration proceeding. Id. The trial court</div>
<div style="text-align: left;">
granted summary judgment on the counterclaims, and the appellate court affirmed,</div>
<div style="text-align: left;">
holding that the claims were barred by res judicata. Id.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
C. Did the Howells conclusively prove all of the elements of their res</div>
<div style="text-align: left;">
judicata defense?</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
To be entitled to summary judgment, the Howells were required to</div>
<div style="text-align: left;">
conclusively prove all the elements of their res judicata defense as a matter of law.</div>
<div style="text-align: left;">
There is no dispute regarding the second element, because the same parties were</div>
<div style="text-align: left;">
involved in the arbitration proceeding and the trial court proceeding. We therefore</div>
<div style="text-align: left;">
consider the first and third elements in turn.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
1. Did the Howells conclusively prove the existence of a prior final</div>
<div style="text-align: left;">
judgment on the merits?</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
The Howells’ summary-judgment evidence demonstrated the existence of a</div>
<div style="text-align: left;">
prior final judgment on the merits. Their summary-judgment evidence included a</div>
<div style="text-align: left;">
copy of the arbitration award. An arbitration award is treated as a prior final</div>
<div style="text-align: left;">
judgment and has preclusive effect for purposes of res judicata. See Tanox, 105</div>
<div style="text-align: left;">
S.W.3d at 270. The Howells therefore proved the existence of a prior final judgment</div>
<div style="text-align: left;">
on the merits. See id.</div>
<div style="text-align: center;">
8</div>
<div style="text-align: left;">
2. Did the Howells conclusively prove appellants’ claims were or</div>
<div style="text-align: left;">
could have been raised in the arbitration proceeding?</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
The Howells’ summary-judgment evidence demonstrated both that</div>
<div style="text-align: left;">
appellants’ claims were raised in the arbitration proceeding before being voluntarily</div>
<div style="text-align: left;">
dismissed, and that those claims could and should have been raised in the arbitration</div>
<div style="text-align: left;">
proceeding. The summary-judgment evidence included a copy of appellants’</div>
<div style="text-align: left;">
counterclaims filed in the arbitration, which were identical to the counterclaims</div>
<div style="text-align: left;">
appellants asserted in the trial court after the arbitration award issued. Appellants</div>
<div style="text-align: left;">
concede that they filed counterclaims in the arbitration identical to those they</div>
<div style="text-align: left;">
eventually filed in the trial court, and that they voluntarily dismissed the</div>
<div style="text-align: left;">
counterclaims in the arbitration before entry of the arbitration award.</div>
<div style="text-align: left;">
Moreover, the Howells established that appellants’ counterclaims could and</div>
<div style="text-align: left;">
should have been raised in the arbitration proceeding. In their summary-judgment</div>
<div style="text-align: left;">
motion, the Howells argued that the arbitration provision applied to appellants’</div>
<div style="text-align: left;">
counterclaims because the counterclaims related to the lease and the landlord-tenant</div>
<div style="text-align: left;">
relationship created thereby. In the trial court and on appeal, appellants argue that</div>
<div style="text-align: left;">
their counterclaims were not subject to the arbitration provision because they were</div>
<div style="text-align: left;">
not about the holdover rent disagreement and arose after the initiation of arbitration.2</div>
<div style="text-align: left;">
Thus, they argue that their counterclaims are not compulsory counterclaims that</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
2 Appellants do not argue that the arbitration clause is unenforceable.</div>
<div style="text-align: center;">
9</div>
<div style="text-align: left;">
were required to be tried in the arbitration, and that they can be tried in the trial court</div>
<div style="text-align: left;">
instead. See TEX. R. CIV. P. 97(a) (requiring that compulsory counterclaims be</div>
<div style="text-align: left;">
brought in initial proceeding).</div>
<div style="text-align: left;">
Arbitration agreements are interpreted under traditional contract interpretation</div>
<div style="text-align: left;">
principles. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). The</div>
<div style="text-align: left;">
arbitration provision in the lease agreement, which was included in the Howells’</div>
<div style="text-align: left;">
summary-judgment evidence, is broad and provides that any controversy or claim</div>
<div style="text-align: left;">
relating to the lease must be settled in arbitration:</div>
<div style="text-align: left;">
ARBITRATION. Any controversy or claim related to this contract,</div>
<div style="text-align: left;">
including the construction or application of this contract, will be settled</div>
<div style="text-align: left;">
by binding arbitration under the rules of the American Arbitration</div>
<div style="text-align: left;">
Association, and any judgment granted by the arbitrator(s) may be</div>
<div style="text-align: left;">
enforced in any court of proper jurisdiction.</div>
<div style="text-align: left;">
See RSR Corp. v. Siegmund, 309 S.W.3d 686, 701 (Tex. App.—Dallas 2010, no pet.)</div>
<div style="text-align: left;">
(phrase “relates to,” in particular, is recognized as very broad term with respect to</div>
<div style="text-align: left;">
scope of arbitrable claims); Am. Realty Trust, Inc. v. JDN Real Estate–McKinney,</div>
<div style="text-align: left;">
L.P., 74 S.W.3d 527, 531 (Tex. App.—Dallas 2002, pet. denied) (“A broad</div>
<div style="text-align: left;">
arbitration clause, purporting to cover all claims, disputes, and other matters arising</div>
<div style="text-align: left;">
out of or relating to the contract or its breach, creates a presumption of</div>
<div style="text-align: left;">
arbitrability.”). Broad arbitration provisions like this one are not limited to claims</div>
<div style="text-align: left;">
that literally arise under the contract, but rather embrace all disputes between the</div>
<div style="text-align: left;">
parties having a significant relationship to the contract, regardless of the label </div>
<div style="text-align: center;">
10</div>
<div style="text-align: left;">
attached to the dispute. AdvoCare GP, LLC v. Heath, No. 05-16-00409-CV, 2017</div>
<div style="text-align: left;">
WL 56402, at *5 (Tex. App.—Dallas Jan. 5, 2017, no pet.) (mem. op.) (quoting</div>
<div style="text-align: left;">
Pennzoil Expl. and Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1067 (5th Cir.</div>
<div style="text-align: left;">
1998)).</div>
<div style="text-align: left;">
Here, it is undisputed that all of appellants’ claims arise out of their landlordtenant</div>
<div style="text-align: left;">
relationship with the Howells. That relationship was created by the lease,</div>
<div style="text-align: left;">
which contains the arbitration provision. Accordingly, appellants’ counterclaims</div>
<div style="text-align: left;">
were subject to the arbitration provision in the lease. See AdvoCare, 2017 WL 56402,</div>
<div style="text-align: left;">
at *5; RSR, 309 S.W.3d at 701; Am. Realty Trust, 74 S.W.3d at 531; see also TEX.</div>
<div style="text-align: left;">
R. CIV. P. 97(a).</div>
<div style="text-align: left;">
For the foregoing reasons, we conclude that the Howells conclusively proved</div>
<div style="text-align: left;">
the existence of their res judicata defense.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
D. Did appellants raise a genuine issue of material fact regarding the</div>
<div style="text-align: left;">
applicability of res judicata?</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Appellants argue that they raised a fact issue regarding the applicability of res</div>
<div style="text-align: left;">
judicata because the issue of res judicata could only be decided by the arbitrator, and</div>
<div style="text-align: left;">
not the trial court. Appellants rely primarily on W. Dow Hamm III Corp. v.</div>
<div style="text-align: left;">
Millennium Income Fund, LLC, 237 S.W.3d 745 (Tex. App.—Houston [1st Dist.]</div>
<div style="text-align: left;">
2007, no pet.), to support their argument.</div>
<div style="text-align: left;">
In Dow, the parties participated in an arbitration and obtained a final</div>
<div style="text-align: left;">
arbitration award. Id. at 748. Later, one of the parties initiated a second arbitration. </div>
<div style="text-align: center;">
11</div>
<div style="text-align: left;">
Id. at 749. The opposing party argued that the claims being raised in the second</div>
<div style="text-align: left;">
arbitration were or should have been resolved in the first arbitration, and filed suit</div>
<div style="text-align: left;">
in the trial court seeking a stay of the second arbitration based upon res judicata. Id.</div>
<div style="text-align: left;">
at 750. The trial court stayed the second arbitration, and the party seeking arbitration</div>
<div style="text-align: left;">
filed a petition for writ of mandamus. Id. A panel of our Court concluded that</div>
<div style="text-align: left;">
“whether a prior arbitration proceeding is res judicata of a later one is a matter for</div>
<div style="text-align: left;">
the arbitrator to determine,” not the trial court. Id. at 754. This is because “the res</div>
<div style="text-align: left;">
judicata effect of a prior arbitration award is a matter of procedural arbitrability,”</div>
<div style="text-align: left;">
not substantive arbitrability, and is therefore “not the court’s province to decide.” Id.</div>
<div style="text-align: left;">
at 755. Accordingly, this Court held that the trial court abused its discretion by</div>
<div style="text-align: left;">
staying the second arbitration on the basis that res judicata barred the second</div>
<div style="text-align: left;">
arbitration, conditionally granted mandamus relief, and directed the trial court to</div>
<div style="text-align: left;">
vacate its order staying the second arbitration. Id. at 756–57.</div>
<div style="text-align: left;">
Appellants argue that the res judicata issue in this case is likewise one of</div>
<div style="text-align: left;">
procedural arbitrability and therefore could only be decided by the arbitrator. But</div>
<div style="text-align: left;">
this is not a matter of arbitrability of additional claims in arbitration after a first</div>
<div style="text-align: left;">
arbitration. To the contrary, appellants voluntarily dismissed their counterclaims</div>
<div style="text-align: left;">
during the arbitration proceeding. They then continued arbitration on the other</div>
<div style="text-align: left;">
claims to a final award, and now seek to try the claims they dismissed. Therefore,</div>
<div style="text-align: left;">
the question to be decided here is not whether the counterclaims cannot be arbitrated, </div>
<div style="text-align: center;">
12</div>
<div style="text-align: justify;">
but rather, whether they can be relitigated and were not compulsory counterclaims.</div>
<div style="text-align: justify;">
Tanox demonstrates that, in these circumstances, the trial court has jurisdiction to</div>
<div style="text-align: justify;">
determine the issue of res judicata. See Tanox, 105 S.W.3d at 250, 270 (affirming</div>
<div style="text-align: justify;">
trial court’s determination that res judicata based on prior arbitration proceeding</div>
<div style="text-align: justify;">
barred litigation of defendant’s counterclaims). Dow is inapposite. We therefore</div>
<div style="text-align: justify;">
conclude that appellants failed to raise a fact issue regarding whether the trial court</div>
<div style="text-align: justify;">
could determine that their claims were barred by res judicata.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Because the Howells conclusively proved their res judicata defense and</div>
<div style="text-align: justify;">
appellants did not raise a fact issue about the applicability of res judicata, we hold</div>
<div style="text-align: justify;">
that the trial court did not err in granting summary judgment on appellants’</div>
<div style="text-align: justify;">
counterclaims.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
We overrule appellants’ sole issue.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Conclusion</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
We affirm the trial court’s judgment.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Evelyn V. Keyes</div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-25254496106312361912017-09-07T10:18:00.001-07:002017-09-07T10:18:21.495-07:00Broad Arbitration Clause sweeps up related disputes even if not strictly based on contract <div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div style="text-align: justify;">
An arbitration clause that covers any dispute arising out of or relating to the parties' contract is expansive in scope and encompasses any controversy between the parties that touches on, has a significant relationship to, is inextricably enmeshed with, or is factually intertwined with the contract regardless of any label applied to the controversy. <i>See Houston Progressive</i>, 474 S.W.3d at 447-48; <i>FD Frontier</i>, 438 S.W.3d at 695; <i>Hou-Scape, Inc. v. Lloyd</i>, 945 S.W.2d 202, 205-06 (Tex. App.-Houston [1st Dist.] 1997, orig. proceeding) (per curiam). </div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Its reach therefore is not limited to claims that literally arise under the contract's terms. <i>E.g.</i>, <i>Hou-Scape</i>, 945 S.W.2d at 206 (claims for deceptive trade practices, fraudulent inducement, negligence, defamation, and tortious interference with business relations all held to be within scope of broad arbitration clause).</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<u>SOURCE</u>: HOUSTON COURT OF APPEALS - Nos. <a href="http://www.search.txcourts.gov/Case.aspx?cn=01-16-00780-CV&coa=coa01">01-16-00780-CV</a> (mandamus case) <a href="http://www.search.txcourts.gov/Case.aspx?cn=01-16-00783-CV&coa=coa01">01-16-00783-CV</a> (interlocutory appeal) - 5/9/2017 styled IN RE CRS INDUSTRIES, INC</div>
<div style="text-align: justify;">
<br /></div>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
IN RE CRS INDUSTRIES, INC.<br />CRS INDUSTRIES, INC., Appellant,<br />v. MACDONALD SYSTEMS, INC., Appellee.</h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<a href="https://scholar.google.com/scholar?scidkt=12124154114018937109+1829290944197990289&as_sdt=2&hl=en" style="color: #660099;">Nos. 01-16-00780-CV, 01-16-00783-CV.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<div style="position: relative;">
<b>Court of Appeals of Texas, First District, Houston.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
Opinion issued May 9, 2017.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<br /></center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Original Proceeding on Petition for Writ of Mandamus.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On Appeal from the 152nd District Court Harris County, Texas, Trial Court Case No. 2016-41521.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Panel consists of Chief Justice Radack and Justices Brown and Lloyd.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
MEMORANDUM OPINION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
HARVEY BROWN, Justice.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
CRS Industries, Inc. filed this interlocutory appeal and a petition for writ of mandamus, both of which assert that the trial court abused its discretion by denying CRS's motion to compel arbitration. We agree and reverse the order denying the motion, remand to the trial court so that it can enter an order compelling arbitration and staying this suit, and dismiss CRS's petition for writ of mandamus as moot.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Background</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
CRS manufactures air purification systems. It contractually agreed to allow MacDonald Systems, Inc. to market and sell its commercial products within a designated territory. The two subsequently became embroiled in a dispute about the sale of a residential product, and MacDonald filed this suit.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
MacDonald alleged that it designed a new air filtration system that incorporated one of CRS's products and had identified a customer for this new product, DuPure Water Filters. MacDonald further alleged that the parties agreed to compensate it for the new design by allowing it to purchase the new product from CRS and sell it to DuPure at a profit of $300 per unit. Instead, CRS fired MacDonald as its product representative, and CRS and DuPure refused to pay MacDonald for the new design. MacDonald alleged that CRS is selling or has sold the new design to a company that bought DuPure. It alleged three causes of action—promissory estoppel, quantum meruit, and breach of contract—by which it sought recovery of the $300-per-unit profit it allegedly was promised.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
CRS moved to compel arbitration of MacDonald's claims and to stay the suit pending that arbitration based on a clause in their contract requiring arbitration of all claims, disputes, and other matters arising out of or relating to the contract. MacDonald responded that the arbitration clause was inapplicable because the parties' dispute concerned a residential product rather than the commercial ones that were the subject of their contract. It did not, however, otherwise dispute the validity of the contract or its arbitration clause.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The trial court denied CRS's motion to compel arbitration without making any fact findings or stating its reasons. By way of interlocutory appeal and a petition for writ of mandamus, CRS urges that the trial court abused its discretion.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Jurisdiction</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
CRS is a Florida company whose principal office is in that state, and MacDonald is a Texas company whose principal office is in this state. As they are located in different states, their contract's arbitration clause involves interstate commerce and is subject to the Federal Arbitration Act. 9 U.S.C. § 2; <a href="https://scholar.google.com/scholar_case?case=532439222687268145&hl=en&as_sdt=6,44" style="color: #660099;"><i>Rapid Settlements v. Green,</i> 294 S.W.3d 701, 705 (Tex. App.-Houston [1st Dist.] 2009, no pet.)</a>. The Act's applicability, in turn, gives this court jurisdiction to hear CRS's appeal from the trial court's order denying its motion to compel arbitration. <i>See</i> TEX. CIV. PRAC. & REM. CODE § 51.016; <i>see also</i> 9 U.S.C. § 16(a)(1)(B).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Motion to Compel Arbitration</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
CRS posits that MacDonald's claims in this suit relate to their contract and therefore are subject to the contract's arbitration clause. On this basis, CRS contends that the trial court erred by denying its motion to compel arbitration.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On interlocutory appeal, we review a trial court's denial of a motion to compel arbitration for an abuse of discretion. <a href="https://scholar.google.com/scholar_case?case=9313345679283806257&hl=en&as_sdt=6,44" style="color: #660099;"><i>Houston Progressive Radiology Assocs. v. Lee,</i> 474 S.W.3d 435, 442 (Tex. App.-Houston [1st Dist.] 2015, no pet.)</a>. We defer to the trial court's factual determinations, if any, so long as they are supported by the evidence, but we review questions of law de novo. <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<i><br /></i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
A party who moves to compel arbitration must show the existence of a valid, enforceable arbitration agreement and that the agreement's scope encompasses the lawsuit's claims. <a href="https://scholar.google.com/scholar_case?case=7799522967503682695&hl=en&as_sdt=6,44" style="color: #660099;"><i>In re Rubiola,</i> 334 S.W.3d 220, 223 (Tex. 2011)</a>; <a href="https://scholar.google.com/scholar_case?case=9313345679283806257&hl=en&as_sdt=6,44" style="color: #660099;"><i>Houston Progressive,</i> 474 S.W.3d at 442</a>. Whether a valid agreement exists is a legal question, which turns on the application of ordinary contract principles. <a href="https://scholar.google.com/scholar_case?case=15103022756110949795&hl=en&as_sdt=6,44" style="color: #660099;"><i>Valerus Compression Servs. v. Austin,</i> 417 S.W.3d 202, 208 (Tex. App.-Houston [1st Dist.] 2013, no pet.)</a>. In determining whether claims are within the agreement's scope, courts focus on the factual allegations of the petition rather than the causes of action alleged. <a href="https://scholar.google.com/scholar_case?case=7799522967503682695&hl=en&as_sdt=6,44" style="color: #660099;"><i>In re Rubiola,</i> 334 S.W.3d at 225</a>; <a href="https://scholar.google.com/scholar_case?case=14084134948276219567&hl=en&as_sdt=6,44" style="color: #660099;"><i>FD Frontier Drilling (Cyprus) v. Didmon,</i> 438 S.W.3d 688, 695 (Tex. App.-Houston [1st Dist.] 2014, pet. denied)</a>. Allegations that touch on the subject of the contract containing the arbitration clause or that are factually intertwined with claims subject to that clause generally are within the clause's scope. <a href="https://scholar.google.com/scholar_case?case=8343145279216293415&hl=en&as_sdt=6,44" style="color: #660099;"><i>In re Dillard Dep't Stores,</i> 186 S.W.3d 514, 516 (Tex. 2006) (per curiam)</a>; <a href="https://scholar.google.com/scholar_case?case=15103022756110949795&hl=en&as_sdt=6,44" style="color: #660099;"><i>Valerus,</i> 417 S.W.3d at 208</a>. Courts must resolve any doubts about the agreement's scope in favor of arbitration. <a href="https://scholar.google.com/scholar_case?case=7799522967503682695&hl=en&as_sdt=6,44" style="color: #660099;"><i>In re Rubiola,</i> 334 S.W.3d at 225</a>; <a href="https://scholar.google.com/scholar_case?case=15103022756110949795&hl=en&as_sdt=6,44" style="color: #660099;"><i>Valerus,</i> 417 S.W.3d at 208</a>. If the movant shows that a valid arbitration agreement encompasses the lawsuit's claims, and the opposing party has not proven a defense to enforcement of the agreement, the trial court has no discretion but to compel arbitration and stay the suit. <a href="https://scholar.google.com/scholar_case?case=214533500628192847&hl=en&as_sdt=6,44" style="color: #660099;"><i>Richmont Holdings v. Superior Recharge Sys.,</i> 392 S.W.3d 633, 635 (Tex. 2013) (per curiam)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
MacDonald did not dispute the validity of the contract or its arbitration clause in the trial court. Nor has it filed an appellate brief or a response to CRS's petition for mandamus relief. Accordingly, the arbitration clause's validity is undisputed.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The dispositive issue, therefore, is whether MacDonald's claims are within the scope of the contract's arbitration clause. We hold that they are.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The contract specified the products that MacDonald was entitled to market and sell, commercial ones. It disallowed MacDonald from marketing or soliciting orders for any other products unless mutually agreed upon in writing. It provided that CRS retained sole and exclusive ownership of all product designs and modifications and that technical information or plans used or prepared by MacDonald remained the sole property of CRS. It included a merger clause, which provided that the contract was the entire agreement and superseded and replaced any other understandings or agreements. It also provided that its terms could only be amended or modified by an agreement in writing signed by representatives of the parties.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In addition, the contract had an arbitration clause. Setting aside an inapplicable exception, this clause specified that all claims, disputes, and matters arising out of or relating to the contract or its breach must be arbitrated. An arbitration clause that covers any dispute arising out of or relating to the parties' contract is expansive in scope and encompasses any controversy between the parties that touches on, has a significant relationship to, is inextricably enmeshed with, or is factually intertwined with the contract regardless of any label applied to the controversy. <i>See </i><a href="https://scholar.google.com/scholar_case?case=9313345679283806257&hl=en&as_sdt=6,44" style="color: #660099;"><i>Houston Progressive,</i> 474 S.W.3d at 447-48</a>; <a href="https://scholar.google.com/scholar_case?case=14084134948276219567&hl=en&as_sdt=6,44" style="color: #660099;"><i>FD Frontier,</i> 438 S.W.3d at 695</a>; <a href="https://scholar.google.com/scholar_case?case=12648735995857810717&hl=en&as_sdt=6,44" style="color: #660099;"><i>Hou-Scape, Inc. v. Lloyd,</i> 945 S.W.2d 202, 205-06 (Tex. App.-Houston [1st Dist.] 1997, orig. proceeding) (per curiam)</a>. Its reach therefore is not limited to claims that literally arise under the contract's terms. <i>E.g., </i><a href="https://scholar.google.com/scholar_case?case=12648735995857810717&hl=en&as_sdt=6,44" style="color: #660099;"><i>Hou-Scape,</i> 945 S.W.2d at 206</a> (claims for deceptive trade practices, fraudulent inducement, negligence, defamation, and tortious interference with business relations all held to be within scope of broad arbitration clause).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Focusing on MacDonald's factual allegations, its claims are within the expansive scope of the arbitration clause. MacDonald acknowledged that it sold CRS's products under contract. It alleged that it made an additional agreement with CRS to sell a new design that incorporated an existing CRS product. It sued to recover the profit it contended it should have received from the sales of this new design.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
When CRS moved to compel arbitration of these claims, MacDonald contended that its claims were outside of the arbitration clause's scope because the contract only concerned commercial products and the parties' dispute concerned a residential product. In part, MacDonald relied on a letter predating the parties' contract in which CRS authorized MacDonald to sell residential products. This purported distinction between commercial and residential products, however, merely confirms that MacDonald's claims are factually intertwined with and relate to the parties' contract. That contract postdated the letter in question by several months, contained a merger clause, and expressly forbade MacDonald from selling or soliciting orders for products other than those specified in the contract, which was limited to commercial products. Whatever rights MacDonald may have with respect to the newly designed residential product are therefore inextricably enmeshed with the contract and subject to its mandatory arbitration clause.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In sum, we hold that the evidence shows the existence of a valid, enforceable arbitration agreement between CRS and MacDonald and that the agreement encompasses MacDonald's claims in this suit. Given that MacDonald has not proven a defense to the enforcement of the agreement, the trial court had no discretion but to compel arbitration of MacDonald's claims and stay this suit. <a href="https://scholar.google.com/scholar_case?case=214533500628192847&hl=en&as_sdt=6,44" style="color: #660099;"><i>Richmont Holdings,</i> 392 S.W.3d at 635</a>. Accordingly, we reverse the trial court's ordering denying CRS's motion to compel arbitration and remand for entry of an order compelling arbitration and staying the suit pending arbitration of MacDonald's claims.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Petition for Writ of Mandamus</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Because MacDonald's claims are subject to arbitration by means of CRS's interlocutory appeal, we need not address CRS's related petition for writ of mandamus. <i>See </i><a href="https://scholar.google.com/scholar_case?case=14089149638331931809&hl=en&as_sdt=6,44" style="color: #660099;"><i>Royston, Rayzor, Vickery & Williams, LLP v. Lopez,</i> 467 S.W.3d 494, 499 (Tex. 2015)</a>. Thus, we dismiss CRS's petition as moot. <i>See </i><a href="https://scholar.google.com/scholar_case?case=9313345679283806257&hl=en&as_sdt=6,44" style="color: #660099;"><i>Houston Progressive,</i> 474 S.W.3d at 439, 451</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Conclusion</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We conclude that the trial court abused its discretion by denying CRS's motion to compel arbitration. We therefore reverse the trial court's order denying the motion, remand this cause to the trial court so that it can enter an order compelling arbitration and staying this suit pending arbitration, and dismiss CRS's related petition for writ of mandamus as moot. </div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<br /></div>
<br /></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-19824352324243022242017-09-01T06:49:00.001-07:002017-09-01T07:07:56.303-07:00Valentine v Interactive Brokers, LLC - Arbitrators refused to consider evidence correcting misrepresentation regarding bankruptcy filing; award vacated and vacature affirmed on appeal <center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
JESSICA PARKER VALENTINE AND BRYAN L. PARKER, Appellants,<br />v.<br />INTERACTIVE BROKERS LLC, Appellee.</h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<a href="https://scholar.google.com/scholar?scidkt=17226022993441868985&as_sdt=2&hl=en" style="color: #660099;">No. 01-15-00943-CV.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
<div style="position: relative;">
<b>Court of Appeals of Texas, First District, Houston.</b></div>
<div style="position: relative;">
<b><br /></b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
Opinion issued August 22, 2017.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px;">
</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On Appeal from the 189th District Court, Harris County, Texas, Trial Court Case No. 2015-24829.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Panel consists of Chief Justice Radack and Justices Jennings and Bland.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
MEMORANDUM OPINION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
TERRY JENNINGS, Justice. </div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Appellants, Jessica Parker Valentine and Bryan L. Parker (the "Parkers"), challenge the trial court's order granting the motion of appellee, Interactive Brokers LLC ("IB"), to vacate an arbitration award. In two issues, the Parkers contend that the trial court erred in vacating the award.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We affirm.<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-07oPJDpT-Do/WalpGULsVxI/AAAAAAAAD_A/FBrRIzT8Wgkta2lt4qpvZTcS_-8Qnzl4gCLcBGAs/s1600/01-15-00943-CV%2BJessica%2BParker%2BValentine%2Bv%2BInteractive%2BBrokers%2BLLC%2B-%2BAug%2B22%252C%2B2017%2B1stCOA%2BOpinion.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="666" data-original-width="661" height="400" src="https://4.bp.blogspot.com/-07oPJDpT-Do/WalpGULsVxI/AAAAAAAAD_A/FBrRIzT8Wgkta2lt4qpvZTcS_-8Qnzl4gCLcBGAs/s400/01-15-00943-CV%2BJessica%2BParker%2BValentine%2Bv%2BInteractive%2BBrokers%2BLLC%2B-%2BAug%2B22%252C%2B2017%2B1stCOA%2BOpinion.JPG" width="396" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
Link to Court of Appeals Docket here ---> <a href="http://www.search.txcourts.gov/Case.aspx?cn=01-15-00943-CV&coa=coa01">01-15-00943-CV</a></div>
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Background</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In their Second Amended Statement of Claim, the Parkers, pursuant to the rules of the Financial Industry National Regulatory Authority ("FINRA"),<sup><a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#[1]" name="r[1]" style="color: #660099;">[1]</a></sup> initiated arbitration proceedings against IB. The Parkers alleged that they are the sole beneficiaries of the Richard Parker Family Trust (the "trust"), created under the will of their father, Richard Joseph Parker, who is deceased, and intended for their "education, care, support, and maintenance" until they reached the age of 35. Their father named a family friend, Robert W. Dillard, as trustee and placed the following limits on his discretion:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
[A] trustee of any trust created in this will shall at all times exercise the judgment and care under the circumstances then prevailing which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation but to the permanent disposition of their funds considering the probable income therefrom as well as the probable safety of their capital.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In October 2010, Dillard opened at IB, a direct-access, online brokerage firm, a brokerage account titled "Richard Parker Family Trust, Robert Dillard, Trustee." And he deposited $800,000 of the trust's funds into the account. Dillard, on behalf of the trust, signed various agreements with IB and then began engaging in margin trading and other high-risk investments with the trust's funds. By early 2013, when the Parkers discovered the IB account, it had lost $725,779 of its initial $800,000 value.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Parkers sued Dillard in a separate suit in a Travis County Probate Court, alleging that he had breached his fiduciary duty to them. They also brought the instant suit, alleging that IB had aided and abetted Dillard's breach of fiduciary duty by "offering, approving, and recommending unsuitable trading . . . during the maintenance of the account." They alleged that IB was "aware of Dillard's fiduciary duty as trustee, the scope of his duty, and his breach of that duty."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Parkers further alleged that IB owed them, as trust beneficiaries, a duty of fair dealing, which it breached by violating certain FINRA rules.<sup><a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#[2]" name="r[2]" style="color: #660099;">[2]</a></sup> Specifically, IB failed to use "reasonable diligence" in the opening and maintenance of their trust account; know the "essential facts" concerning the trust, as its customer; "have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities [was] suitable for [its] customer," the trust; and establish, maintain, and enforce written procedures and policies relating to the supervision of the "activities of its registered persons and the business in which the firm engages." And IB had a non-delegable duty to supervise, detect, and prevent violations of its own internal policies and FINRA rules, and to prevent harm to public investors like the Parkers, as "owners" of the trust account.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Parkers asserted that IB's acts and omissions, involving an extreme degree of risk, were grossly negligent, IB had actual awareness of the risk involved, but proceeded with conscious indifference, and IB had violated the Texas Securities Act.<sup><a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#[3]" name="r[3]" style="color: #660099;">[3]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Parkers claimed that IB's breaches of duty had caused them a loss of $725,779 and IB had profited $44,807 in commissions, fees, and interest. The Parkers sought restitution of the lost value to the trust, damages based on gains of a suitable portfolio over the same period, and attorney's fees.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In its answer, IB asserted that it was not liable to the Parkers as it did not make recommendations or have any involvement in the trading decisions that Dillard made on behalf of the trust. And IB did not have any discretionary trading authority over the trust's account. IB noted that it, as a direct-access, online brokerage firm, does not provide investment or trading advice. Rather, trades are entered by a customer on a personal computer and transmitted over the internet to IB for execution on various exchanges and market centers. And "[a]ll trading in an IB account is self-directed by the customer." As IB tells its customers on its website and in various agreements and disclosures provided to them at the time of account opening, IB does not recommend or solicit orders, nor does it provide financial, investment, or trading advice, guidance, or recommendations of any kind to its customers.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Further, Dillard, on behalf of the trust, in October 2010, opened an online trading account at IB. In the account application, Dillard listed himself as the trustee and the Parkers as the adult beneficiaries of the trust. He represented that he was a sophisticated investor and the trust had an aggressive, growth-oriented strategy, employing the most aggressive options available: "speculation," "growth" and "trading." Dillard also represented that the trust wanted the ability to trade stocks, options, and commodity futures on margin. And IB fully complied with the applicable FINRA obligations and Texas trust law in allowing Dillard to open the account.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In its Customer Agreement,<sup><a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#[4]" name="r[4]" style="color: #660099;">[4]</a></sup> IB required Dillard to certify that he was the duly appointed trustee and had full authority to act on behalf of the trust in opening the account and engaging in any transactions within the account. And IB required and received documentary proof of Dillard's status as trustee.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
IB also required Dillard, on behalf of the trust, to execute a Power of Attorney Agreement, in which he agreed that he would manage the trust's account and IB would not provide any investment advice or</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
INVESTIGATE OR JUDGE THE COMPETENCE OR INTEGRITY OF THE ADVISOR OR MONITOR THE ACTIONS OF THE ADVISOR. IB WILL NOT REVIEW THE ADVISOR'S RECOMMENDATIONS OR JUDGE THE SUITABILITY OF ANY TRADING OR INVESTMENT RECOMMENDATION OR DECISION OF ADVISOR OR CUSTOMER.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
. . . .</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
IB DOES NOT PROVIDE ADVISORY SERVICES TO IB CUSTOMERS AND WILL NOT PROVIDE INVESTMENT OR TRADING OR TAX ADVICE REGARDING THE ACCOUNT.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
IB did not make any recommendations or participate in Dillard's investment decisions and was under no duty to supervise his decisions. As a non-discretionary broker, its only legal and contractual role in regard to the trust's account was to hold its assets and to execute the online orders for securities trades that the trust, through Dillard, sent to IB. And it was not aware of any breaches of fiduciary duty by Dillard.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
IB further asserted that Dillard, shortly after funding the account, began a trading strategy that consisted of buying and selling mining company stocks and oil and mineral futures. Initially, this trading strategy yielded significant gains. For example, between October 2010 and February 2011, the trust realized total profits of $473,724. Subsequently, however, the trust suffered significant losses that eliminated its initial gains and resulted in an overall loss of $725,779.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On July 11, 2013, the Parkers sent IB a letter informing it that Dillard had resigned as trustee and they had been appointed as co-trustees. Two weeks later, the Parkers brought the instant suit on behalf of the trust, alleging that IB was responsible for Dillard's trading losses.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In early March 2015, an arbitration hearing was held. On the last day of the four-day hearing, after the close of evidence, counsel for the Parkers informed the arbitration panel that Dillard was filing for bankruptcy and their separate suit against him would be stayed:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
[Counsel for the Parkers]: . . . There's one additional fact, and since it came out in the direct and cross of my clients—we rested our case. But yesterday, we learned that [Dillard] informed the probate court that he is filing bankruptcy, which will apply a stay to that suit, so. I know that's not evidence, but since it came up in testimony.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
[Counsel for IB]: It didn't come up in testimony. This is now adding to the record. . . .</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
[Chairman Whittaker]: Well, it's not evidence. It's just, I hate to say, a fact.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
[Counsel for IB]: It's— It's—well, I think you hit the nail on the head, Mr. Chairman. It's— we don't know if it's a fact.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
[Chairman Whittaker]: Okay. Now, it's—it's something we've heard, but it is not capital R record evidence. So we'll give it whatever effect it might have. I'm not sure how that affects what we're doing here today, whether Mr. Dillard is in bankruptcy or not. I don't see how that affects the decision here.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Subsequently, during closing, counsel for the Parkers argued as follows:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
I would like to point something out on the account opening documents. . . . Who's the customer here that [IB] is supposed to know? Well, it's the trust. So they were willing to take the trust's net worth when they took into account what investment objectives they were going to allow. So they're willing to say that it was worth multimillion dollars. Not Mr. Dillard, remember. <i>Mr. Dillard, he just declared bankruptcy.</i> They didn't even ask him. Regardless of whether he declared bankruptcy, they didn't even ask him how much he was worth.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
(Emphasis added.) Chairman Whittaker then commented: "I'm sorry to hear you are not going to trial next week, although probably I shouldn't use the word `sorry,' but that's disappointing."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Days after the hearing, IB learned from Dillard's counsel that Dillard had not in fact filed for bankruptcy but had instead agreed to settle the Parkers' suit against him. On March 16, 2015, IB submitted a post-hearing letter to the FINRA case administrator to notify the arbitration panel that Dillard had not in fact filed for bankruptcy, as counsel for the Parkers had asserted at the close of the hearing. In its letter, IB stated:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
[O]n the last day of the final hearing in the above-referenced arbitration Claimants' counsel represented that Claimants' Trustee had declared bankruptcy that morning. IB was unable to verify this representation at the time given that we were at the final hearing and were hearing this for the first time.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Since returning from the arbitration, IB has reviewed the public records of bankruptcy filings over the past week and has not seen any indication that Claimants' Trustee had in fact declared bankruptcy. Moreover, IB checked the Travis County Probate Court's online records today and found that Claimants' lawsuit against Mr. Dillard is still listed as active. A screenshot of the Travis County Probate Court online status page for Claimants' case against Mr. Dillard is attached as Exhibit 1.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
While this issue has no bearing on IB's position that it cannot be held liable to Claimants for any amount, we still believe it is important to make sure the record is correct in this regard given the representation by Claimants' counsel on the last day of the hearing.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
IB attached to its letter a printout from the Travis County Probate Court's website, demonstrating that the Parkers' case against Dillard was still active. On March 17, 2015, the FINRA administrator responded that the Panel "ha[d] determined that [it] will not entertain any post-submission filed by the parties." On March 18, 2015, the Parkers finalized their settlement with Dillard.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On April 27, 2015, the arbitration panel issued an award, ordering that the Parkers recover from IB damages in the amount of $725,779 and attorney's fees of $483,853. The award further states:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
OTHER ISSUES CONSIDERED AND DECIDED</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
. . . .</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
At the hearing, [the Parkers'] counsel alleged that [Dillard], who [the Parkers] were suing in Texas State Court, had declared bankruptcy the previous day and that the case was stayed pending bankruptcy.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
On or about March 16, 2015, [IB] filed a post-hearing submission.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
On or about March 17, 2015, the Panel determined it would not consider any post-hearing submissions.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The chairman of the arbitration panel, Whittaker, dissented to the award as follows, in pertinent part:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Because this Award is unsupported by the law or the facts of the case I must dissent.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
. . . .</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
I am also seriously concerned that improper means were used to sway my fellow panelists. Specifically, near the close of the Final Hearing in this matter, and in an apparent attempt to evoke sympathy, [the Parkers] announced that they had just learned that [Dillard] had "declared bankruptcy the previous day" and that the State Court case, which was due to be called for trial the week following the Final Hearing in this arbitration, "was stayed pending bankruptcy." This announcement of [Dillard's] bankruptcy filing influenced the panel and prejudiced [IB].</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Parkers then filed a motion to confirm the arbitration award, asserting that they were entitled to judgment. IB filed a cross-motion to vacate, or, alternatively to modify the award. To its motion, IB attached the affidavit of its general counsel, John J. Nielands; its correspondence with the FINRA case administrator; and its post-hearing letter to the arbitration panel and printout from the Travis County Probate Court's website.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
IB, in its motion to vacate, asserted that on the morning of March 6, 2015, the last day of the arbitration hearing, the Parkers announced to the arbitrators that Dillard had informed the Travis County Probate Court that he "is filing for bankruptcy, which will apply a stay to that suit." And they "chose to drop this surprising, last-minute bombshell" just moments before the closing arguments, leaving IB with no opportunity to confirm or refute the assertion. IB argued that "[b]y asserting (incorrectly, as it turn[ed] out) that [Dillard] was filing for bankruptcy, [the Parkers'] counsel apparently intended to signal to the arbitration panel that if [it] did not find IB liable for [their] losses, [they] may go uncompensated because their Probate Court case against Dillard would be stayed and any recovery in [his] bankruptcy would be unlikely." IB further argued that it was entitled to vacatur of the award because the arbitration panel's "refusal to allow IB to correct the record and to prove that the bankruptcy assertion was false gravely prejudiced IB and deprived [it] of a fundamentally fair arbitration."<sup><a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#[5]" name="r[5]" style="color: #660099;">[5]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
IB also argued that vacatur was required because the arbitration panel "exceeded its authority" by "re-wr[iting] the terms of the Customer Agreement and the Power of Attorney Agreement, imposing obligations on IB that not only do not exist, but also are expressly disclaimed in the written agreements." Further, the panel exceeded its authority by manifestly disregarding IB's affirmative defense under the Texas Trust Code.<sup><a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#[6]" name="r[6]" style="color: #660099;">[6]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Alternatively, IB moved to modify the arbitration award on the ground that the Parkers had sought recovery from IB, in the arbitration, and from Dillard, in the probate court, for "the same or largely similar damages." IB asserted that "[o]n the very day that [the Parkers'] counsel announced [Dillard's] bankruptcy prior to the conclusion of the arbitration hearing, [the Parkers had] reached a settlement with [Dillard]" and the award "confers a windfall" on the Parkers. IB requested that the award to the Parkers be reduced by the amount that they had recovered against Dillard in the settlement to prevent an "improper double recovery." IB further sought to correct a miscalculation in the award of attorneys' fees to the Parkers.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The trial court held separate hearings on the motion to confirm and the motion to vacate. At the hearing on the motion to confirm, counsel for the Parkers directed the trial court to Chairman Whittaker's remarks in his dissent to the arbitration award and said, "I would like to make clear a few things." After some discussion, counsel explained as follows:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Anyway, back to the record and back to the insinuation that I said something inaccurate. Thursday . . . [m]y opponent in the Probate Court e-mails me, but not only me, he e-mails the probate court coordinator, because we are set for trial the following Monday. And he says, "Counsel, I wanted everyone to know after we were unsuccessful settling at the mediation last Saturday night, [Dillard] met this week with a bankruptcy attorney . . . and that [he] is going to file a Chapter 7 petition on behalf of [Dillard] prior to next week's trial setting. My associate . . . said, "Thanks for the heads-up. Do you know when you actually plan to file? We obviously have to continue preparing for trial until then." And [the] return e-mail [from Dillard's counsel] said "Definitely before Monday morning."</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
. . . .</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
With regard to what I said in closing argument, I qualified it. . . . I followed it up when I said, what he quoted, "regardless whether he declared bankruptcy."</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Parkers argued that although the arbitration award, under "Other Issues Considered and Decided," states that Dillard had filed for bankruptcy, the issue was immaterial because it was just another issue that the arbitrators "resolved." The following discussion then took place:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
[Counsel for IB]: . . . [I]f this really was immaterial, why did counsel say [to the arbitration panel], Mr. Dillard declared bankruptcy, which was not true. Clearly the implication behind this was to convey to the panel that if the panel's thinking that the [Parkers] are going to get anything from Mr. Dillard, that's wrong. In fact, that very afternoon, they settled. It was clearly a misimpression created that [IB] tried—</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
THE COURT: Let me just stop right there. Is that true? The day you told the panel that he declared bankruptcy, y'all did a settlement with Dillard?</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
[Counsel for the Parkers]: Yes, it is, Your Honor.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
. . . .</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
THE COURT: . . . . Did you tell the arbitration—did you ever straighten this misunderstanding out?</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
[Counsel for the Parkers]: Your Honor, based upon—</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
THE COURT: Yes or no. Did you ever straighten out the statement that he had filed bankruptcy; telling them that he had not, in fact, and you had made a settlement. Did you of clear that up?</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
. . . .</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
[Counsel for the Parkers]: The way you phrased that, no, Your Honor.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
. . . .</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
THE COURT: I'm going to turn this award over, if you haven't figured it out. So you can either work it out or I'm going to let you start over again. I just don't—I don't think you can make a misrepresentation to the Court and not clear it up yourself. It's not the other side—even though the other side did try to let them know, evidently they wouldn't take it, you have an obligation to the Court to correct factual misrepresentations. And not only was it a misrepresentation, but you didn't give them complete information; not only had he not filed bankrupt[cy], you had collected [a settlement] from him. I don't care how you apply it to attorney's fees or whatever. . . . From my perspective, you are just going to have to start over again. . . .</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
At a subsequent hearing on the motion to vacate, IB argued that it was entitled to vacatur of the arbitration award because the panel had refused to consider its post-hearing submission, establishing that Dillard had not filed for bankruptcy, and documentation from the Travis County Probate Court, establishing that the Parkers' case against him was still active. IB asserted that it had tried to correct a "misrepresentation" that counsel for the Parkers had made to the arbitration panel and "was not allowed to," which "led to a fundamentally unfair award." And "[t]here's only one remedy under the TAA and FAA for what happened here, vacating the award, period."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The trial court explained that "it wasn't so much the action of the arbitrators" that it found troubling, but</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
that a statement was made in final argument that, oh, by the way, the other defendant is going to file bankruptcy, suggesting that if you don't stick the one that's here, we're not going to get anything; and that to me was a—I mean, wasn't focused on what the arbitrators did. I was focused on what I felt was a misrepresentation to the Panel.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The trial court noted that "there's another provision" in the FAA, under which it could "overturn an award that's procured by fraud" or other undue means.<sup><a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#[7]" name="r[7]" style="color: #660099;">[7]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Parkers asserted that IB did not move for vacatur on the ground that the award was procured by "fraud and undue means." Rather, it had sought vacatur on the ground that the arbitrators were guilty of misconduct in refusing to hear evidence pertinent and material to the controversy.<sup><a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#[8]" name="r[8]" style="color: #660099;">[8]</a></sup> The Parkers further argued that IB's request for an offset against the settlement was untimely because IB did not raise it in the arbitration.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The trial court explained as follows:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Well, if the general statute is cited and I find that some sort of problem crept in to the—in to the proceedings, I'm inclined—you know, I'm supposed to do the right thing[.] [A]nd as I explained to everybody last time, it strikes me that in this situation the right thing is, comes to me, I'm inclined to vacate it because I just—I have a—that's what my justice bone tells me to do.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The trial court then, without stating the basis of its decision, issued a written order granting IB's motion to vacate, and denying the Parkers' motion to confirm, the arbitration award.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Standard of Review</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We review a trial court's decision to vacate or confirm an arbitration award de novo based on a review of the entire record. <a href="https://scholar.google.com/scholar_case?case=6254370569971031390&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Port Arthur Steam Energy LP v. Oxbow Calcining LLC,</i> 416 S.W.3d 708, 713 (Tex. App.-Houston [1st Dist.] 2013, pet. denied)</a>. An arbitration award is presumed valid and is entitled to great deference. <a href="https://scholar.google.com/scholar_case?case=15827065613057483986&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Royce Homes, L.P. v. Bates,</i> 315 S.W.3d 77, 85 (Tex. App.-Houston [1st Dist.] 2010, no pet.)</a>. An arbitration award has the same effect as a judgment of a court of last resort, and a reviewing court may not substitute its judgment for that of the arbitrator merely because it would have reached a different result. <a href="https://scholar.google.com/scholar_case?case=15211553366869435584&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>CVN Grp., Inc. v. Delgado,</i> 95 S.W.3d 234, 238 (Tex. 2002)</a>; <a href="https://scholar.google.com/scholar_case?case=7302037607971272741&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>J.J. Gregory Gourmet Servs., Inc. v. Antone's Imp. Co.,</i> 927 S.W.2d 31, 33 (Tex. App.-Houston [1st Dist.] 1995, no writ)</a>. Every reasonable presumption must be indulged to uphold an arbitrator's decision, and none is indulged against it. <a href="https://scholar.google.com/scholar_case?case=4136319058671222252&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>City of Baytown v. C.L. Winter, Inc.,</i> 886 S.W.2d 515, 518 (Tex. App.-Houston [1st Dist.] 1994, writ denied)</a>. Judicial scrutiny of these awards focuses on the integrity of the arbitration process, not on the propriety of the result. <a href="https://scholar.google.com/scholar_case?case=13441572273965453284&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Women's Reg'l Healthcare, P.A. v. FemPartners of N. Tex., Inc.,</i> 175 S.W.3d 365, 367-68 (Tex. App.-Houston [1st Dist.] 2005, no pet.)</a>; <a href="https://scholar.google.com/scholar_case?case=6009365635986550126&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Jamison & Harris v. Nat'l Loan Inv'rs,</i> 939 S.W.2d 735, 737 (Tex. App.-Houston [14th Dist.] 1997, writ denied)</a> (alleged errors in application of substantive law by arbitrators during arbitration proceedings not reviewable on motion to vacate award).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Because judicial review "adds expense and delay, thereby diminishing the benefits of arbitration as an efficient, economical system for resolving disputes," review of an arbitration award is "extraordinarily narrow." <a href="https://scholar.google.com/scholar_case?case=8470545058703785460&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>E. Tex. Salt Water Disposal Co. v. Werline,</i>307 S.W.3d 267, 271 (Tex. 2010)</a>; <a href="https://scholar.google.com/scholar_case?case=15211553366869435584&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Delgado,</i> 95 S.W.3d at 238</a>; <a href="https://scholar.google.com/scholar_case?case=4399731662072001210&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>IPCO-G.&C. Joint Venture v. A.B. Chance Co.,</i> 65 S.W.3d 252, 255-56 (Tex. App.-Houston [1st Dist.] 2001, pet. denied)</a>. Review is limited such that a trial court may not vacate an arbitration award even if it is based upon a mistake of fact or law. <a href="https://scholar.google.com/scholar_case?case=3093940420485454667&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Universal Comput. Sys., Inc. v. Dealer Sols., L.L.C.,</i> 183 S.W.3d 741, 752 (Tex. App.-Houston [1st Dist.] 2005, pet. denied)</a>; <a href="https://scholar.google.com/scholar_case?case=7302037607971272741&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>J.J. Gregory,</i> 927 S.W.2d at 33</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The parties agree that the Federal Arbitration Act (the "FAA") governs this case. Under the FAA, an arbitration award must be confirmed, unless it is vacated, modified, or corrected on certain limited grounds. <i>See</i> 9 U.S.C. § 9-11; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=7318181682572048974&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Oxford Health Plans LLC v. Sutter,</i> 133 S. Ct. 2064, 2068 (2013)</a> ("Under the FAA, courts may vacate an arbitrator's decision only in very unusual circumstances." (internal quotations omitted)). The Supreme Court has held that the "statutory grounds provided in sections 10 and 11 of the FAA for vacating, modifying, or correcting an arbitration award are the exclusive grounds for vacating an arbitration award." <a href="https://scholar.google.com/scholar_case?case=15827065613057483986&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Bates,</i> 315 S.W.3d at 86</a> (citing <a href="https://scholar.google.com/scholar_case?case=1171931473148464325&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Hall St. Assocs., L.L.C. v. Mattel, Inc.,</i> 552 U.S. 576, 584, 128 S. Ct. 1396, 1403 (2008)</a>). Section 10(a) authorizes a court to vacate an arbitration award if:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(1) the award was procured by corruption, fraud, or undue means;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(2) there was evident partiality or corruption in the arbitrators, or either of them;</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(3) the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
(4) the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
9 U.S.C. § 10(a). A party seeking to vacate an arbitration award bears the burden of presenting a complete record that establishes grounds for vacating the award. <a href="https://scholar.google.com/scholar_case?case=16849202425355435361&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Statewide Remodeling, Inc. v. Williams,</i> 244 S.W.3d 564, 568 (Tex. App.-Dallas 2008, no pet.)</a>. Complaints must have been preserved as if the award were a court judgment on appeal. <a href="https://scholar.google.com/scholar_case?case=15770623839951125422&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Nafta Traders, Inc. v. Quinn,</i> 339 S.W.3d 84, 101 (Tex. 2011)</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Arbitration Award</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In their second issue, the Parkers argue that the trial court erred in vacating the arbitration award on the ground that the arbitrators were "guilty of misconduct . . . in refusing to hear evidence pertinent and material to the controversy" because the evidence is a "two-page, post hearing submission by counsel on an issue that the parties and arbitrators agreed was irrelevant" and "the panel followed the governing arbitral rules of procedure when it received the submission but declined to include it in the record as evidence."<sup><a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#[9]" name="r[9]" style="color: #660099;">[9]</a></sup> <i>See</i> 9 U.S.C. § 10(a)(3).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Section 10(a)(3) provides, in pertinent part, that an arbitration award may be vacated "where the arbitrators were guilty of misconduct . . . in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced." <i>See id.</i> "To constitute misconduct requiring vacatur of an award, an error in the arbitrator's determination must be one that is not simply an error of law, but which so affects the rights of a party that it may be said that he was deprived of a fair hearing."<sup><a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#[10]" name="r[10]" style="color: #660099;">[10]</a></sup> <a href="https://scholar.google.com/scholar_case?case=11918154653686794810&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Rainier DSC 1,</i> <i>L.L.C. v. Rainier Capital Mgmt., L.P.,</i> 828 F.3d 362, 364 (5th Cir. 2016)</a>; <i>Petrobas Am., Inc. v. Astra Oil Trading NV,</i> No. 01-11-00073-CV, 2012 WL 1068311, at *12 (Tex. App.-Houston [1st Dist] Mar. 29, 2012, no pet.) (mem. op.).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Arbitrators have "broad discretion to make evidentiary decisions" and are not bound by the formal rules of procedure and evidence. <a href="https://scholar.google.com/scholar_case?case=13263076463715384295&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Int'l Chem. Workers Union v. Columbian Chems. Co.,</i> 331 F.3d 491, 497 (5th Cir. 2003)</a>; <i>see also Petrobras Am., Inc.,</i> 2012 WL 1068311, at *13; FINRA Rule 10323, 2015 WL 6873720 (arbitrators not bound by rules governing admissibility of evidence). And an arbitrator "is not bound to hear all of the evidence tendered by the parties as long as he gives each of the parties an adequate opportunity to present their evidence and arguments." <a href="https://scholar.google.com/scholar_case?case=6136997363719332776&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Babcock & Wilcox Co. v. PMAC, Ltd.,</i> 863 S.W.2d 225, 234 (Tex. App.-Houston [14th Dist.] 1993, writ denied)</a>; <i>see also Petrobas Am., Inc.,</i> 2012 WL 1068311, at *13 (fundamental fairness requires each party have adequate opportunity to present its evidence and arguments).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In its motion to vacate the arbitration award, IB argued that it was deprived of a fair hearing because the arbitration panel refused to consider its post-hearing submission regarding the assertion of the Parkers' counsel that Dillard had filed for bankruptcy. The Parkers first argue that the arbitration panel did not err because "FINRA's arbitration rules forbade post-hearing submissions."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Although FINRA rules provide that a panel "will decide when the record is closed" and "[o]nce the record is closed, no further submissions will be accepted from any party," the rules also provide that "in cases in which a hearing is held, the panel will generally close the record at the end of the last hearing session, unless the panel requests, or agrees to accept, additional submissions from any party." <i>See</i> FINRA Rule 12608(a), (c), 2015 WL 6873805 ("Closing the Record"). Further, "[t]he panel may reopen the record on its own initiative or upon motion of any party at any time before the award is rendered, unless prohibited by applicable law." <i>Id.</i> Rule 12609, 2015 WL 6873806 ("Reopening the Record").</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Parkers next argue that the arbitration panel did not err in refusing to consider IB's post-hearing submission because Dillard's bankruptcy status was not "pertinent and material." <i>See</i> 9 U.S.C. § 10(a)(3). A fact or proposition of law is "pertinent" if it "relat[es] to or involv[es] the particular issue at hand." <i>Pertinent,</i> BLACK'S LAW DICTIONARY (10th ed. 2014). It is "material" if it is of such a nature that it would affect a tribunal's decision-making process. <i>See Material,</i> BLACK'S LAW DICTIONARY (10th ed. 2014).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The record shows that the Parkers' counsel, on the last day of the arbitration hearing, just before closing arguments, announced to the arbitration panel that Dillard had informed the Travis County Probate Court that he "is filing for bankruptcy, which will apply a stay to that suit." After IB objected, the chairman of the panel stated that although counsel's statement about Dillard's bankruptcy was "not capital R record evidence," it was "a fact" and the panel "will give it whatever effect it might have." Thus, the panel, although acknowledging that counsel's assertion about Dillard's bankruptcy was "not evidence" in the case, and noting that it was "not certain" what effect it would have, indicated that it <i>did</i> plan to consider it in rendering its award.<sup><a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#[11]" name="r[11]" style="color: #660099;">[11]</a></sup> <i>See</i> FINRA Rule 10323, 2015 WL 6873720 (FINRA arbitrators not bound by rules governing admissibility of evidence); <a href="https://scholar.google.com/scholar_case?case=13263076463715384295&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Int'l Chem. Workers Union,</i> 331 F.3d at 497</a> (arbitrators have "broad discretion to make evidentiary decisions"). The panel did not, as the Parkers assert, "rule" that the statement was "irrelevant." And later, during closing arguments, counsel for the Parkers asserted that Dillard had "just declared bankruptcy." Chairman Whittaker then commented: "I'm sorry to hear you are not going to trial next week, although probably I shouldn't use the word `sorry,' but that's disappointing."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In his affidavit attached to IB's motion to vacate, IB's counsel, Nielands, testified that after the close of the arbitration hearing, he learned from Dillard's attorney that Dillard had not in fact declared bankruptcy, but had reached a settlement agreement with the Parkers. The Parkers' case against Dillard in the probate court was still active, pending final approval of the settlement. And Neilands confirmed with the Travis County Probate Court that the case was still active and had not been stayed.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
On March 16, 2015, IB filed a post-hearing submission, informing the panel that Dillard had not declared bankruptcy. To its letter, IB attached a printout of the Travis County Probate Court's website. The next day, the administrator informed IB that the panel "ha[d] determined that [it] will not entertain any post-hearing submission." The day after, the Parkers finalized their settlement with Dillard. And it is undisputed that the Parkers' counsel did not thereafter correct his earlier assertions to the panel that Dillard had filed for for bankruptcy.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
One month later, the arbitration panel issued an award against IB and in favor of the Parkers for the entire amount that Dillard had lost while trading through IB, $725,779. And the panel, in its award, expressly stated that it did "consider[] and decide[]" the issue of Dillard's bankruptcy:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
OTHER ISSUES CONSIDERED AND DECIDED</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
. . . .</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; margin: 1em 0px; padding: 0px 40px; position: relative;">
At the hearing, [the Parkers'] counsel alleged that [Dillard], who [the Parkers] were suing in Texas State Court, had declared bankruptcy the previous day and that the case was stayed pending bankruptcy.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The panel further expressly stated that it did not consider IB's post-hearing submission about Dillard's bankruptcy. Rather, the panel had "determined that it would not consider any post-hearing submissions."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Once the panel decided at the hearing that it would consider the assertion of the Parkers' counsel that Dillard had filed for bankruptcy, IB's evidence that Dillard had not in fact filed for bankruptcy became pertinent and material, and IB was entitled to be heard on the issue. <i>See</i> 9 U.S.C. § 10(a)(3); <a href="https://scholar.google.com/scholar_case?case=11918154653686794810&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Rainier DSC 1, L.L.C.,</i> 828 F.3d at 364</a>; <i>see also</i>FINRA Rule 12609, 2015 WL 6873806 (panel may reopen record on its own initiative or upon motion of any party at any time before award rendered).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Fundamental fairness requires that each party have an adequate opportunity to present its evidence and its arguments. <a href="https://scholar.google.com/scholar_case?case=6136997363719332776&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Babcock & Wilcox Co.,</i> 863 S.W.2d at 234</a>; <i>see also Petrobas Am., Inc.,</i> 2012 WL 1068311, at *13. "The arbitrator must then determine the truth respecting material matters in controversy, as he believes it to be, based upon a full and fair consideration of the entire evidence and after he has accorded each witness and each piece of documentary evidence, the weight, if any, to which he honestly believes it to be entitled." <a href="https://scholar.google.com/scholar_case?case=9172981383743013140&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Hoteles Condado Beach, La Concha & Convention Ctr. v. Union De Tronquistas Local 901,</i> 763 F.2d 34, 39 (1st Cir. 1985)</a>. Because the panel, in its award, expressly stated that it determined that it would not consider IB's post-hearing submission, we do not presume, as the Parkers' posit, that the panel considered IB's submission.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
In <i>Gulf Coast Industrial Workers Union v. Exxon Co., USA,</i> the United States Court of Appeals for the Fifth Circuit affirmed a trial court's vacatur of an arbitration award on the ground that the arbitrator had refused to hear evidence. 70 F.3d 847, 848 (5th Cir. 1995). There, after a narcotics-detection dog alerted on an employee's car and the narcotics agent found marijuana inside the car, the employer ordered the employee to submit to drug testing. <i>Id.</i> at 848. After the employee refused, the employer terminated his employment. <i>Id.</i> at 849. The employee's union then submitted to arbitration the issue of whether the employer had just cause for the termination. <i>Id.</i> At the arbitration hearing, the agent testified concerning the marijuana found inside the car. <i>Id.</i> The employer then attempted to introduce testimony to establish the Substance Analysis Report ("SAR"), which confirmed the agent's testimony, as a business record. <i>Id.</i> The arbitrator, however, informed the employer that the SAR did not need to be established because it was already in evidence. <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<i><br /></i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Subsequently, the arbitrator ruled that the employer did not have reasonable cause to order the employee to submit to drug testing, and he ordered that the employee be reinstated with back pay because the employer did not prove that the substance found in the employee's car was marijuana. <i>Id.</i> The arbitrator stated that the SAR did not establish that the substance found in the employee's car was marijuana because it constituted hearsay and "did not even have the status of a business record." <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
The Fifth Circuit noted that, in reviewing a district court's vacatur of an arbitration award, "we posit the same question addressed by the district court: whether the arbitration proceedings were fundamentally unfair." <i>Id.</i> at 850. There, not only had the arbitrator refused to consider the SAR, but he used the failure to present it as a predicate for ignoring the test results. <i>Id.</i> The court held that "[s]uch misconduct falls squarely within the scope of Section 10, and is grounds for vacatur." <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<i><br /></i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Here, the arbitration panel, in its award, expressly stated that it considered the assertion that Dillard had filed for bankruptcy—a fact that was interjected into the arbitration proceedings by the Parkers' counsel and not cured, even after the Parkers finalized their settlement with Dillard. The panel then, after refusing to consider IB's evidence to rebut the assertion of the Parkers' counsel about Dillard's bankruptcy, "considered and decided" the issue of Dillard's bankruptcy in awarding the Parkers damages against IB in the entire amount of Dillard's losses at IB. <i>See id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<i><br /></i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We conclude that IB has shown that it did not receive a full and fair hearing as a result of the panel's denial of its request to present evidence about the assertion of the Parkers' counsel that Dillard had filed for bankruptcy. Thus, we hold that IB has established that it is entitled to vacatur of the arbitration award. <i>See</i> 9 U.S.C. 10(a)(3).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Accordingly, we further hold that the trial court did not err in vacating the arbitration award.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We overrule the Parkers' second issue.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
Having held that the trial court did not err in vacating the arbitration award on the ground that the arbitration panel refused to hear evidence pertinent and material to the controversy, we do not reach the Parkers' first issue, in which they argue that the trial court erred in vacating the arbitration award on the ground of "corruption, fraud, or undue means."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
Conclusion</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
We affirm the order of the trial court.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; position: relative;">
<br /></div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#r[1]" name="[1]" style="color: #660099;">[1]</a> The IB Customer Agreement, discussed below, required that the parties submit their disputes to arbitration, "in accordance with the rules then prevailing of any one of the following: (a) The American Arbitration Association; (b) The Financial Industry Regulatory Authority; or (c) any other exchange of which IB is a member, as the true claimant-in-interest may elect." In 2007, the New York Stock Exchange ("NYSE") and the National Association of Securities Dealers ("NASD") were consolidated, and the NYSE transferred its member regulatory services to the NASD, which then changed its name to the Financial Industry Regulatory Authority ("FINRA"). <i>See </i><a href="https://scholar.google.com/scholar_case?case=9305736083649711689&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fin. Indus. Regulatory Auth., Inc. v. Fiero,</i> 882 N.E.2d 879,</a> 880 n.* (N.Y. 2008); <a href="https://scholar.google.com/scholar_case?case=2849278979628215786&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>In re H&R Block Fin. Advisors, Inc.,</i> 262 S.W.3d 896, 900 (Tex. App.-Houston [14th Dist.] 2008, no pet.)</a>.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#r[2]" name="[2]" style="color: #660099;">[2]</a> <i>See</i> FINRA Rule 2090 ("Know Your Customer"), Rule 2111 ("Suitability"), Rule 3110 ("Supervision"), <i>available at</i> https://www.finra.org/arbitration-and-mediation/code-arbitration-procedure.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#r[3]" name="[3]" style="color: #660099;">[3]</a> <i>See</i> TEX. REV. CIV. STAT. ANN. art. 581-33(A)(2) (Vernon 2010) (person who offers or sells security by means of untrue statement of material fact or omission is liable to person buying security).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#r[4]" name="[4]" style="color: #660099;">[4]</a> The Parkers brought their claims under the arbitration provision contained in the Customer Agreement, which provides, in pertinent part, as follows:</div>
<div style="position: relative;">
Customer agrees that any controversy, dispute, claim, or grievance between IB, any IB affiliate or any of their shareholders, officers, directors employees, associates, or agents, on the one hand, and Customer . . . arising out of, or relating to, this Agreement, or any account(s) established hereunder in which securities may be traded; any transactions therein; any transactions between IB and Customer; any provision of the Customer Agreement or any other agreement between IB and Customer; or any breach of such transactions or agreements, shall be resolved by arbitration, in accordance with the rules then prevailing of any one of the following: (a) The American Arbitration Association; (b) The Financial Industry Regulatory Authority; or (c) any other exchange of which IB is a member, as the true claimant-in-interest may elect. . . . The award of the arbitrators, or a majority of them, shall be final, and judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction.</div>
<div style="position: relative;">
</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#r[5]" name="[5]" style="color: #660099;">[5]</a> <i>See</i> 9 U.S.C. § 10(a)(3), (4); TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(3)(A), (C) (Vernon 2011).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#r[6]" name="[6]" style="color: #660099;">[6]</a> <i>See</i> TEX. PROP. CODE ANN. § 114.081(a) (Vernon 2014) ("A person who deals with a trustee in good faith and for fair value actually received by the trust is not liable to the trustee or the beneficiaries of the trust if the trustee has exceeded [his] authority in dealing with the person."); <i>Id.</i> § 114.081(b) ("A person other than a beneficiary is not required to inquire into the extent of the trustee's powers or the propriety of the exercise of those powers if the person: (1) deals with the trustee in good faith; and (2) obtains . . . a certification of trust. . . .").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#r[7]" name="[7]" style="color: #660099;">[7]</a> <i>See</i> 9 U.S.C. § 10(a)(1).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#r[8]" name="[8]" style="color: #660099;">[8]</a> <i>See</i> 9 U.S.C. § 10(a)(3).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#r[9]" name="[9]" style="color: #660099;">[9]</a> The Parkers assert that the trial court, as discussed above, actually vacated the arbitration award on the ground that it was procured by "fraud, corruption, or undue means," and not on the ground that the arbitration panel "refus[ed] to hear evidence pertinent and material to the controversy." <i>See</i> 9 U.S.C. § 10(a)(1) (procured by undue means), (a)(3) (refusal to hear evidence). The record shows, however, that trial court did not, in its written order vacating the arbitration award, state a basis for its ruling. A trial court's comments during a hearing do not constitute written findings and conclusions. <a href="https://scholar.google.com/scholar_case?case=279838465580687941&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>In re Doe,</i> 78 S.W.3d 338, 340 (Tex. 2002)</a>; <a href="https://scholar.google.com/scholar_case?case=6413435004839535282&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Larry F. Smith, Inc. v. The Weber Co.,</i> 110 S.W.3d 611, 615 (Tex. App.-Dallas 2003, pet. denied)</a>.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#r[10]" name="[10]" style="color: #660099;">[10]</a> The Parkers assert that a "clear and convincing" standard applies to IB's challenge to the arbitration award on the basis of a refusal to hear evidence. A party alleging that an arbitration award was procured through "corruption, fraud, or undue means" must demonstrate that the improper behavior was established by clear and convincing evidence. <i>See</i> 9 U.S.C. § 10(a)(1); <i>Petrobras Am., Inc. v. Astra Oil Trading NV,</i> No. 01-11-00073-CV, 2012 WL 1068311, at *18 (Tex. App.-Houston [1st Dist.] Mar. 29, 2012, no pet.) (mem. op.); <a href="https://scholar.google.com/scholar_case?case=14607716891634214056&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Las Palmas Med. Ctr. v. Moore,</i> 349 S.W.3d 57, 67 (Tex. App.-El Paso 2010, pet. denied)</a>; <a href="https://scholar.google.com/scholar_case?case=14246208265380977343&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Henry v. Halliburton Energy Servs., Inc.,</i>100 S.W.3d 505, 510 (Tex. App.-Dallas 2003, pet. denied)</a>.</div>
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 11px;"></small><br />
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?q=01-15-00943-CV&hl=en&as_sdt=4,44&case=13942464199889764053&scilh=0#r[11]" name="[11]" style="color: #660099; text-decoration: underline;">[11]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=10802384977820634311&q=01-15-00943-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099; text-decoration: underline;"><i>U.S. Gov't v. Marks,</i> 949 S.W.2d 320, 326-27 (Tex. 1997)</a> ("While it is true that an attorney's unsworn statements are not evidence, it is not true . . . that they have no special significance. . . . Reliance on counsel's statements is justified by Rule 3.03 of the Texas Disciplinary Rules of Professional Conduct, which forbids a lawyer from making a false statement of material fact to a tribunal. . . ." (citing TEX. DISCIPLINARY R. PROF'L CONDUCT 3.03, reprinted in TEX. GOV'T CODE ANN., tit. 2, subtit. G app. A (Vernon 2013) (TEX. STATE BAR R. art. X, § 9)).</div>
<div style="position: relative;">
<br /></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-58760602175673796832016-02-11T07:34:00.000-08:002016-02-11T07:57:00.112-08:00Rueda v Holland: Arb award must be signed by arbitrator to be valid <div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: center;">
<i>Juan A. Rueda vs Randall W. Holland</i>, No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=01-14-00919-CV&coa=coa01">01-14-00919-CV</a> (Tex.App. - Houston, Feb 2, 2016)<br />
<br />
<div style="text-align: justify;">
<i><span style="color: #0b5394; font-size: large;">Arbitrator</span></i><span style="text-align: center;"><span style="color: #0b5394; font-size: large;"><i> (former presiding judge of the 11th District Court in Houston)</i></span></span><i><span style="color: #0b5394; font-size: large;"> issued two rulings, but the first one was not signed because arbitrator changed case outcome based on intervening change of the applicable law by a Texas Supreme Court decision. Which one stands? The signed award, says Houston Court of Appeals, and affirms trial court's confirmation of that award. </span></i></div>
<br />
Opinion issued February 2, 2016</div>
<div style="text-align: center;">
<br />
In The</div>
<div style="text-align: center;">
Court of Appeals</div>
<div style="text-align: center;">
For The</div>
<div style="text-align: center;">
First District of Texas</div>
<div style="text-align: center;">
————————————</div>
<div style="text-align: center;">
NO. <a href="http://www.search.txcourts.gov/Case.aspx?cn=01-14-00919-CV&coa=coa01">01-14-00919-CV</a></div>
<div style="text-align: center;">
———————————</div>
<div style="text-align: center;">
JUAN A. RUEDA, Appellant</div>
<div style="text-align: center;">
V.</div>
<div style="text-align: center;">
RANDALL W. HOLLAND, Appellee<br />
<br /></div>
<div style="text-align: center;">
On Appeal from the 11th District Court</div>
<div style="text-align: center;">
Harris County, Texas</div>
<div style="text-align: center;">
Trial Court Case No. 2012-41959<br />
<br />
<br />
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
Panel consists of Chief Justice Radack and Justices Massengale and Brown.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative; text-align: center;">
MEMORANDUM OPINION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
SHERRY RADACK, Chief Justice.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
Appellant, Juan A. Rueda appeals the trial court's confirmation of an arbitration award rendered in favor of appellee, Randall W. Holland. In one issue on appeal, Rueda argues that the trial court erred in confirming the arbitration award because it was the second decision of the arbitrator and therefore should have been vacated. <span style="line-height: 16.8px;">We affirm.</span></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative; text-align: start;">
Background</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
This dispute arises out of Enviro-Grow Nursery, a business in which Rueda owned a 49% interest and Holland owned a 51% interest. After Rueda sued Holland for minority shareholder oppression, Holland relied on the parties' 1995 shareholder's agreement that contained an arbitration agreement to compel arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). The trial court ordered the parties to arbitration, appointed Judge Mark Davidson to arbitrate, and stayed the proceedings pending the outcome of the arbitration.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
Judge Davidson conducted an arbitration trial on May 7 and June 5, 2014. The arbitration concluded on June 16, and Judge Davidson said he would rule by June 26. After discovering that the Supreme Court of Texas issued an opinion in <a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Ritchie v. Rupe</i></a>on June 24, 2014 that eliminated the common law cause of action for shareholder oppression,<sup><a href="https://scholar.google.com/scholar_case?q=01-14-00919-CV&hl=en&as_sdt=4,44&case=8313080592429814257&scilh=0#[1]" name="r[1]" style="color: #660099;">[1]</a></sup> Holland filed an emergency memorandum with Judge Davidson informing him of the <i>Ritchie</i> opinion. On June 25, Judge Davidson reopened the arbitration and asked for additional briefing in light of <i>Ritchie.</i><sup><a href="https://scholar.google.com/scholar_case?q=01-14-00919-CV&hl=en&as_sdt=4,44&case=8313080592429814257&scilh=0#[2]" name="r[2]" style="color: #660099;">[2]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
On July 9, 2014, Elizabeth Kidd, the Director of ADR Services, e-mailed the parties informing them that the Award was attached to her e-mail, and that Judge Davidson "has also asked me to forward his original ruling which was drafted prior to the <a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Ri[t]chie v. Rupe</i></a> decision and which was supplanted by the final award." Attached to her e-mail was Judge Davidson's signed, final award in favor of Holland, and Judge Davidson's unsigned decision that ruled in favor of Rueda. </div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
On July 10, 2014, Rueda apparently filed a "Motion Asking the Arbitrator to Disregard and Withdraw his Subsequent Ruling Because the Arbitrator Was Not `Empowered' to Enter a Subsequent Ruling Pursuant to AAA Commercial Rule R-46."<sup><a href="https://scholar.google.com/scholar_case?q=01-14-00919-CV&hl=en&as_sdt=4,44&case=8313080592429814257&scilh=0#[3]" name="r[3]" style="color: #660099;">[3]</a></sup> In an e-mail to the parties, Judge Davidson denied Rueda's motion, stating, "The motion to Disregard and withdraw the Arbitrator's Award is denied. The transmittal of a draft of a preliminary opinion that was never adopted, signed or sent to all counsel is not a binding ruling. Claimant's motion is without merit, and is respectfully denied."</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
Holland then moved to confirm the arbitration award in the trial court on October 7, 2014. On the same day, Rueda filed in the trial court a Motion to Vacate the Second Arbitration Decision and Award and to Enter Judgment on the First Arbitration Decision. In his motion, Rueda argued that Rule 50 of the AAA states that the arbitrator is not empowered to re-determine the merits of any claim already decided and that because Judge Davison had initially ruled in his favor, Judge Davidson had no power to issue his subsequent decision.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
The trial court held a hearing on Rueda's motion to enter the award. At the hearing, Rueda again relied on Rule 50 of the AAA and section 171.088 of the Texas Civil Practice and Remedies Code<sup><a href="https://scholar.google.com/scholar_case?q=01-14-00919-CV&hl=en&as_sdt=4,44&case=8313080592429814257&scilh=0#[4]" name="r[4]" style="color: #660099;">[4]</a></sup> to argue that the arbitrator could only issue one decision. The trial court, after reviewing Rule 46 of the AAA, stated that it "is pretty clear: Shall be in writing and signed by the majority of the arbitrators." After admitting various exhibits, the trial court stated,</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; margin: 1em 0px; padding: 0px 40px; position: relative; text-align: start;">
Until I sign it and it gets entered, it is not effective unless there is some announcement on the record or something else that makes it a final judgment. It is not—the rule is pretty specific, it has to be signed, and that was not signed. I think, therefore— it is unbelievably bad luck. I think—it is a technical issue. I think without that signature it wasn't a final award.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
On the same day, the trial court signed an order entering judgment in accordance with the Final Award of the Arbitrator signed by Judge Davidson on July 9, 2014. Rueda then timely filed his notice of appeal.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative; text-align: start;">
Review of Arbitration Award</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
In his sole issue on appeal, Rueda argues that the trial court should have vacated Judge Davidson's award because he exceeded his powers by changing his unsigned decision in Rueda's favor to a subsequently signed award that ruled against Rueda.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
We review de novo a trial court's confirmation of an arbitration award. <a href="https://scholar.google.com/scholar_case?case=15827065613057483986&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Royce Homes, L.P. v. Bates,</i> 315 S.W.3d 77, 85 (Tex. App.-Houston [1st Dist.] 2010, no pet.)</a>. However, review of an arbitration award is extraordinarily narrow. <i>Id.</i> at 85-86. Arbitration is favored as a means of dispute resolution; therefore, courts indulge every reasonable presumption to uphold an award, and none against it. <i>Id.</i> at 85; <a href="https://scholar.google.com/scholar_case?case=14483058226037184923&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Kosty v. S. Shore Harbour Cmty. Ass'n, Inc.,</i> 226 S.W.3d 459, 462 (Tex. App.-Houston [1st Dist.] 2006, pet. denied)</a>. An arbitration award is presumed valid and entitled to great deference.<a href="https://scholar.google.com/scholar_case?case=15827065613057483986&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Royce Homes,</i> 315 S.W.3d at 85</a>. A reviewing court "may not substitute [its] judgment merely because [it] would have reached a different decision." <i>Id.</i> at 85; <i>see </i><a href="https://scholar.google.com/scholar_case?case=14483058226037184923&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Kosty,</i> 226 S.W.3d at 463</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
Rueda's argument is based on his belief that the Commercial Rules of the AAA do not mandate that the arbitrator's decision must be signed by the arbitrator to be the decision of the arbitrator. We disagree. Both the Texas Arbitration Act ("TAA") and the Commercial Rules of the AAA explicitly require the arbitrator to sign a final award.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
The TAA provides the signature and delivery requirement in section 171.053:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; margin: 1em 0px; padding: 0px 40px; position: relative; text-align: start;">
(a) The arbitrators' award must be in writing and signed by each arbitrator joining in the award.</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; margin: 1em 0px; padding: 0px 40px; position: relative; text-align: start;">
(b) The arbitrators shall deliver a copy of the award to each party personally, by registered or certified mail, or as provided in the agreement.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
TEX. CIV. PRAC. & REM. CODE ANN. 171.053(a)(b) (West 2011).</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; margin: 1em 0px; padding: 0px 40px; position: relative; text-align: start;">
Likewise, Rule 46 of the AAA, entitled "Form of Award," states,</blockquote>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; margin: 1em 0px; padding: 0px 40px; position: relative; text-align: start;">
(a) Any award shall be in writing and signed by a majority of the arbitrators. It shall be executed in the form and manner required by law.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
American Commercial Arbitration Rules R-46 (2013).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
Rule 49 of the AAA provides notice and delivery requirements:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; margin: 1em 0px; padding: 0px 40px; position: relative; text-align: start;">
Parties shall accept as notice and delivery of the award the placing of the award or a true copy thereof in the mail addressed to the parties or their representatives at their last known addresses, personal or electronic service of the award, or filing of the award in any other manner that is permitted by law.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
American Commercial Arbitration Rules R-49 (2013).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
Despite section 171.053 and Rules 46 and 49, which require the arbitrator's signature and delivery of the award, Rueda relies on the last sentence of Rule 50 of the AAA, entitled, "Modification of Award," which provides, in relevant part,</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; margin: 1em 0px; padding: 0px 40px; position: relative; text-align: start;">
Within 20 calendar days after the transmittal of an award, any party, upon notice to the other parties, may request the arbitrator, through the AAA, to correct any clerical, typographical, or computational errors in the award. The arbitrator is not empowered to redetermine the merits of any claim already decided.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
American Commercial Arbitration Rules R-50 (2013).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
Rueda argues that because the unsigned opinion of Judge Davidson was his first decision, he could not re-determine the merits in a subsequently signed decision. We disagree. The record reflects that after Judge Davidson was made aware of the <i>Ritchie </i>decision, and before signing and delivering any award, he opted to reopen the arbitration and requested briefing on the ramifications of the <i>Ritchie</i> opinion. Neither party objected to the reopening of the arbitration.<sup><a href="https://scholar.google.com/scholar_case?q=01-14-00919-CV&hl=en&as_sdt=4,44&case=8313080592429814257&scilh=0#[5]" name="r[5]" style="color: #660099;">[5]</a></sup> Under these facts, the unsigned award is not the arbitrator's final award. The only final award is the arbitrator's signed award, which was delivered to the parties, and which the trial court subsequently confirmed. <i>See</i> TEX. CIV. PRAC. & REM. CODE ANN. § 171.053.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
We overrule Rueda's sole issue on appeal.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative; text-align: start;">
Conclusion</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
We affirm the trial court's judgment.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 16.8px; position: relative; text-align: start;">
<br /></div>
<div style="position: relative; text-align: left;">
<a href="https://scholar.google.com/scholar_case?q=01-14-00919-CV&hl=en&as_sdt=4,44&case=8313080592429814257&scilh=0#r[1]" name="[1]" style="color: #660099;">[1]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Ritchie v. Rupe,</i> 443 S.W.3d 856 (Tex. 2014)</a>.</div>
<div style="position: relative; text-align: left;">
<a href="https://scholar.google.com/scholar_case?q=01-14-00919-CV&hl=en&as_sdt=4,44&case=8313080592429814257&scilh=0#r[2]" name="[2]" style="color: #660099;">[2]</a> Rule 40 of the AAA allows the trial court to reopen the hearing:</div>
<div style="position: relative; text-align: left;">
The hearing may be reopened on the arbitrator's initiative, or by the direction of the arbitrator upon application of a party, at any time before the award is made. If reopening the hearing would prevent the making of the award within the specific time agreed to by the parties in the arbitration agreement, the matter may not be reopened unless the parties agree to an extension of time. When no specific date is fixed by agreement of the parties, the arbitrator shall have 30 calendar days from the closing of the reopened hearing within which to make an award (14 calendar days if the case is governed by the Expedited Procedures).</div>
<div style="position: relative; text-align: left;">
American Commercial Arbitration Rules R-40 (2013).</div>
<div style="position: relative;">
</div>
<div style="position: relative; text-align: left;">
<a href="https://scholar.google.com/scholar_case?q=01-14-00919-CV&hl=en&as_sdt=4,44&case=8313080592429814257&scilh=0#r[3]" name="[3]" style="color: #660099;">[3]</a> This motion is not in the appellate record.</div>
<div style="position: relative; text-align: left;">
<a href="https://scholar.google.com/scholar_case?q=01-14-00919-CV&hl=en&as_sdt=4,44&case=8313080592429814257&scilh=0#r[4]" name="[4]" style="color: #660099;">[4]</a> Section 171.088 of the Texas Arbitration Act provides that a court shall vacate an award if the arbitrators exceed their powers. <i>See</i> TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(3)(A) (West 2011).</div>
<small style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 11px; text-align: start;"></small><br />
<div style="position: relative; text-align: left;">
<a href="https://scholar.google.com/scholar_case?q=01-14-00919-CV&hl=en&as_sdt=4,44&case=8313080592429814257&scilh=0#r[5]" name="[5]" style="color: #660099; text-decoration: underline;">[5]</a> Rule 41 of the AAA provides that "Any party who proceeds with the arbitration after knowledge that any provision or requirement of these rules has not been complied with and who fails to state an objection in writing shall be deemed to have waived the right to object." American Commercial Arbitration Rules R-41 (2013).</div>
<br />
<b><span style="color: #3d85c6;">THE SUPREME COURT OPINION THAT </span></b><br />
<b><span style="color: #3d85c6;">PRECIPITATED THE REVERSAL OF FORTUNES </span></b><br />
<b><span style="color: #3d85c6;">IN THE ARBITRATION</span><span style="color: #cc0000;"> </span></b><br />
<br />
<div id="gs_gb" role="navigation" style="-webkit-tap-highlight-color: rgba(204, 204, 204, 0.498039); backface-visibility: hidden; background: rgb(45, 45, 45); border: 0px; color: #222222; font-family: Arial, sans-serif; font-size: 13px; height: 30px; line-height: 16px; margin: 0px; padding: 0px; position: relative; text-align: start; z-index: 950;">
<div id="gs_gb_lt" style="border: 0px; left: 6px; margin: 0px; padding: 0px; position: absolute; top: 0px; white-space: nowrap;">
<a href="https://www.google.com/search?q=01-14-00919-CV&hl=en&authuser=0" style="color: #bbbbbb; cursor: pointer; display: inline-block; font-weight: bold; height: 29px; line-height: 27px; padding: 2px 10px 0px; text-decoration: none; vertical-align: top;">Web</a><a href="https://www.google.com/search?tbm=isch&q=01-14-00919-CV&hl=en&authuser=0" style="color: #bbbbbb; cursor: pointer; display: inline-block; font-weight: bold; height: 29px; line-height: 27px; padding: 2px 10px 0px; text-decoration: none; vertical-align: top;">Images</a><a href="https://www.google.com/intl/en/options/" style="color: #bbbbbb; cursor: pointer; display: inline-block; font-weight: bold; height: 29px; line-height: 27px; padding: 2px 10px 0px; text-decoration: none; vertical-align: top;">More…</a></div>
</div>
<div id="gs_leaf_hdr" role="banner" style="-webkit-tap-highlight-color: rgba(204, 204, 204, 0.498039); background-color: white; border: 0px; clear: both; color: #222222; font-family: Arial, sans-serif; font-size: 13px; height: 57px; line-height: 12.896px; margin: 0px; padding: 0px; position: relative; text-align: start; white-space: nowrap; z-index: 900;">
<h2 id="gs_leaf_hdr_title" style="border: 0px; color: black; font-size: 20px; font-weight: normal; height: 29px; line-height: 29px; margin: 0px 205px 0px 15px; overflow: hidden; padding: 13px 0px 0px; text-overflow: ellipsis;">
Ritchie v. Rupe, 443 SW 3d 856 (Tex. 2014)</h2>
</div>
<div id="gs_reference_w" style="-webkit-tap-highlight-color: rgba(204, 204, 204, 0.498039); background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; font-size: 13px; line-height: 12.896px; margin: 0px; padding: 0px; text-align: start;">
<div class=" gs_vis" id="gs_reference" style="background: rgb(245, 245, 245); border-radius: 2px; border: 1px solid rgb(229, 229, 229); font-weight: bold; height: 29px; left: 24px; line-height: 29px; margin: 0px; max-width: 600px; overflow: hidden; padding: 0px 8px; position: fixed; text-overflow: ellipsis; top: 0px; white-space: nowrap; z-index: 600;">
Ritchie v. Rupe, 443 SW 3d 856 - Tex: Supreme Court 2014</div>
</div>
<div id="gs_leaf_bdy" role="main" style="-webkit-tap-highlight-color: rgba(204, 204, 204, 0.498039); background: rgb(235, 235, 235); border: 0px; clear: both; color: #222222; font-family: Arial, sans-serif; font-size: 13px; line-height: 12.896px; margin: 0px; padding: 20px 0px; position: relative; text-align: start; z-index: 500;">
<div id="gs_opinion_wrapper" style="background: white; border: 1px solid rgb(202, 202, 202); margin: 0px auto; max-width: 550px; padding: 13px 65px;">
<div id="gs_opinion" style="border: 0px; font-size: 14px; line-height: 1.5; margin: 0px; padding: 0px; position: relative;">
<center>
<b>443 S.W.3d 856 (2014)</b></center>
<center>
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
Lee C. RITCHIE, et al., Petitioners,<br />v.<br />Ann Caldwell RUPE, As Trustee for the Dallas Gordon Rupe, III 1995 Family Trust, Respondent.</h3>
</center>
<center>
<a href="https://scholar.google.com/scholar?scidkt=4864603568630749041&as_sdt=2&hl=en" style="color: #660099;">No. 11-0447.</a></center>
<center>
<div style="position: relative;">
<b>Supreme Court of Texas.</b></div>
</center>
<center>
Argued February 26, 2013.</center>
<center>
Decided June 20, 2014.</center>
<center>
Rehearing Denied October 24, 2014.</center>
<div style="position: relative;">
<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p859" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">859</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p859" id="p859" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*859</a> Eric Thomas Stahl, Law Offices of Frank L. Branson, P.C., Dallas, TX, for Amicus Curiae Cruz, M.D., Erwin.</div>
<div style="position: relative;">
<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p860" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">860</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p860" id="p860" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*860</a> John Richard Fahy, Whitaker Chalk Swindle & Schwartz PLLC, Fort Worth, Rex S. Whitaker, Baird, Crews, Schiller & Whitaker, P.C., Temple, Wayne Martin Whitaker, Whitaker Chalk Swindle & Schwartz PLLC, Fort Worth, TX, for Amicus Curiae Fahy, John R. Wayne Whitaker and Rex Whitaker.</div>
<div style="position: relative;">
Carol Bavousett Mattick, Attorney at Law, San Antonio, TX, for Amicus Curiae Mattick, Carol Bavousett.</div>
<div style="position: relative;">
Elizabeth Stone Miller, Attorney and Professor of Law, Waco, TX, for Amicus Curiae Miller, Elizabeth S.</div>
<div style="position: relative;">
Marc I. Steinberg, SMU Dedman School of Law, Dallas, TX, for Amicus Curiae Steinberg, Marc Robert A. Ragazzo, Alan R. Bromberg, Joseph K. Leahy, Bruce A. McGovern, Gary S. Rosin, and David Simon Sokolow.</div>
<div style="position: relative;">
Peter M. Kelly, Kelly, Durham & Pittard, L.L.P., Houston, TX, for Amicus Curiae Texas Trial Lawyers Association.</div>
<div style="position: relative;">
Amy Elaine Davis, Katherine Khristine Elrich, Hermes Sargent Bates LLP, Hilaree A. Casada, Cowles & Thompson, P.C., Robert B. Gilbreath, Hawkins Parnell, Thackston & Young LLP, Dallas, TX, for Petitioner.</div>
<div style="position: relative;">
Brett David Kutnick, Hankinson LLP, Charla G. Aldous, Aldous Law Firm, Jeffrey S. Levinger, Levinger PC, Steven E. Aldous, Forshey & Prostok LLP, Dallas, TX, for Respondent.</div>
<div style="position: relative;">
<br /></div>
<div style="position: relative;">
Justice BOYD delivered the opinion of the Court, in which Chief Justice HECHT, Justice GREEN, Justice JOHNSON, Justice LEHRMANN, and Justice DEVINE joined.</div>
<div style="position: relative;">
<br /></div>
<div style="position: relative;">
In this case, a minority shareholder in a closely held corporation alleged that the corporation's other shareholders, who were also on the board of directors, engaged in "oppressive" actions and breached fiduciary duties by, among other things, refusing to buy her shares for fair value or meet with prospective outside buyers. The directors essentially admit to this conduct but insist that they were simply doing what was best for the corporation. For the most part, the jury sided with the minority shareholder, and the trial court ordered the corporation to buy out her shares for $7.3 million. The court of appeals agreed that the directors' refusal to meet with prospective purchasers was "oppressive" and upheld the buy-out order. We hold that this conduct was not "oppressive" under the statute on which the minority shareholder relies, and in any event, the statute does not authorize courts to order a corporation to buy out a minority shareholder's interests. Moving beyond the statutory claims, we decline to recognize or create a Texas common-law cause of action for "minority shareholder oppression." We thus reverse the court of appeals' judgment. Because the court of appeals upheld the judgment based on the oppression claim and did not reach the breach-of-fiduciary-duty claim, we remand the case to the court of appeals.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
I.</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
Background </h2>
<div>
<a name='more'></a><br /></div>
<div style="position: relative;">
</div>
<div style="position: relative;">
Rupe Investment Corporation (RIC) is a Texas closely held corporation.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[1]" name="r[1]" style="color: #660099;">[1]</a></sup> Before this dispute arose, RIC's board of directors had four members: Paula Dennard, who chaired the board; Dallas Gordon Rupe, III (Buddy), who was Dennard's brother; Lee Ritchie, who served as president of RIC; and Dennis Lutes, an attorney whose clients included RIC, Dennard, <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p861" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">861</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p861" id="p861" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*861</a> and her family. Paula Dennard and Buddy Rupe were the descendants of RIC's founder, and Ritchie is the descendant of one of its early owners. Three different family trusts collectively owned approximately 72% of RIC's voting stock.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[2]" name="r[2]" style="color: #660099;">[2]</a></sup> Dennard, Ritchie, and Lutes served as trustees of those trusts and thus collectively controlled a majority of RIC's voting power. Ritchie and his family also owned an additional 10% of the shares directly, increasing the combined voting power to 82%. Buddy owned the remaining 18% directly. There was no shareholders' agreement.</div>
<div style="position: relative;">
Ann Rupe joined the family when she married Buddy in 1983. Rupe was Buddy's second wife, and their marriage and the birth of their son, Guy, took place after the death of Dennard and Buddy's father, Gordon. Gordon's will created Gordon's Trust, which named Gordon's wife, his children (Dennard and Buddy), and Dennard's three children as beneficiaries. Buddy and Rupe wanted their son to be added as a beneficiary of Gordon's Trust, but Dennard and her children refused, and this created some friction between Rupe and Dennard. According to Rupe, Dennard treated Rupe "as an outsider" from the very beginning, and told her that she would "never get any money in this family." With Buddy's encouragement, Rupe began considering a lawsuit to reform Gordon's Trust to add Guy as a beneficiary.</div>
<div style="position: relative;">
Buddy died in 2002. His 18% interest in RIC had been placed in a trust for the benefit of Rupe and their son (Buddy's Trust), naming Rupe as trustee.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[3]" name="r[3]" style="color: #660099;">[3]</a></sup> In Rupe's view, Dennard, Ritchie, and Lutes immediately became "hostile" towards her and feared that she would sue to reform Gordon's Trust. At one point, Ritchie, with Dennard's and Lutes's approval, offered to appoint Rupe to replace Buddy on RIC's board of directors, but only if she would agree not to file suit against Gordon's Trust. Rupe declined, and instead asked Ritchie if RIC would be interested in buying out her shares. Ritchie replied that RIC could not at that time because one of RIC's subsidiaries, Hutton Communications, was going through a financial crisis. Soon thereafter, Rupe's attorney sent a letter to Lutes, requesting the opportunity to review and copy RIC's corporate documents<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[4]" name="r[4]" style="color: #660099;">[4]</a></sup> and directing the Rupe and Ritchie family members not to communicate directly with Rupe regarding RIC or any other business matters.</div>
<div style="position: relative;">
On behalf of RIC, Lutes later offered to redeem Rupe's shares for $1 million. With this offer, he told Rupe that "any further discussions regarding a possible stock redemption would be pointless until the Hutton Communications situation is finally resolved," <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p862" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">862</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p862" id="p862" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*862</a>and he encouraged Rupe not to redeem the shares until they "ultimately" increased in value. Rupe's attorney declined the redemption offer. Because RIC's sales exceeded $150 million and it had assets in excess of $50 million, he considered it "absurd" and an attempt "to take advantage of [Rupe]."</div>
<div style="position: relative;">
Rupe subsequently terminated her relationship with her attorney and personally requested a new redemption offer from Ritchie. Ritchie reiterated that he did not recommend selling her shares at that time, but he agreed to raise the issue at an upcoming board meeting. After the board meeting, Ritchie made a new offer of $1,760,947, which he said was based on a formula that RIC had previously used to value RIC's shares and, in any event, was "the highest cash offer that RIC directors believed they could make without jeopardizing the company and its other shareholders." Rupe declined the offer and decided to try to sell her shares to an outside party. She hired a new attorney and a broker, George Stasen, to market her shares. At Rupe's request, Dennard and Ritchie met with Stasen in March 2005. The meeting did not go well. Stasen, who described the meeting as "hostile," informed Dennard and Ritchie that he felt RIC's financial performance was "very, very unsatisfactory" and accused them of mismanagement. Stasen admitted at trial, however, that he had only a limited understanding of the company at the time. Nevertheless, throughout late 2005, Ritchie and Lutes worked with Stasen and Rupe's latest attorney to draft confidentiality agreements to allow Stasen to disclose some of RIC's confidential business information to Rupe's prospective outside purchasers.</div>
<div style="position: relative;">
In January 2006, Rupe sent a note to Ritchie, asking for dates when he could meet with prospective purchasers. After conferring with Lutes and an outside attorney with expertise in securities law, Ritchie sent a reply to Rupe declining to participate in such meetings. Ritchie stated that, because RIC would not be a party to the sale of her shares to an outside buyer, "it would be inappropriate for me or any other officer or director of [RIC] to meet with your prospects or otherwise participate in any activities relating to your proposed sale of stock." Stasen prepared marketing materials and provided them to potential buyers, but he did not succeed in selling the stock because, in his opinion, "everybody wanted to be able to meet Lee Ritchie and talk to the executives... as part of their due diligence." Although he determined that the book value of Rupe's stock was $3.9 million, he discounted that to $3.4 million because of the directors' refusal to meet with prospective buyers. In his view, however, it would be "incredibly difficult" to market Rupe's shares without such meetings, and the likelihood of selling the shares was "zero."</div>
<div style="position: relative;">
In July 2006, Rupe filed this suit against Dennard, Ritchie, Lutes, and RIC,<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[5]" name="r[5]" style="color: #660099;">[5]</a></sup> alleging that they engaged in "oppressive" conduct and breached fiduciary duties to her. Rupe requested an accounting and valuation and an order requiring RIC to purchase her shares at fair market value or, alternatively, appointing a receiver to liquidate RIC. The jury found in Rupe's favor on essentially all of her claims and found that the fair value of Rupe's stock was $7.3 million. The trial court rendered judgment on the jury's verdict, concluding that Dennard, Ritchie, Lutes, and RIC had "engaged in oppressive conduct to the rights <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p863" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">863</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p863" id="p863" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*863</a> of [Buddy's Trust] that is likely to continue in the future," that "the most equitable remedy" for this oppression was to require RIC to redeem Rupe's shares, and that this remedy was "less drastic" than liquidating the company or appointing a receiver. Based on these conclusions and the jury's findings, the trial court ordered RIC to purchase Rupe's shares for $7.3 million. Dennard, Ritchie, Lutes, and RIC appealed.</div>
<div style="position: relative;">
The court of appeals held that their refusal to meet with Rupe's prospective purchasers constituted oppressive conduct as a matter of law. Having reached that conclusion, it did not consider whether other actions by Dennard, Ritchie, and Lutes were oppressive, as Rupe had alleged. The court upheld the trial court's order requiring RIC to purchase Rupe's shares, but concluded that the trial court had erred by instructing the jury not to discount the shares' value to account for their lack of marketability and control. 339 S.W.3d 275, 301-02 (Tex.App.-Dallas 2011). The court thus affirmed the finding of oppressive conduct but reversed as to the $7.3 million purchase price, and remanded the case to the trial court for a new determination of the shares' fair value. Dennard, Ritchie, and Lutes petitioned this Court for review, which we granted.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
II.</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
Oppressive Actions Under the Receivership Statute</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
We begin by determining the meaning of "oppressive" as the Legislature used that word in the Texas receivership statute. This statute, former article 7.05 of the Texas Business Corporations Act, and its successor, section 11.404 of the Texas Business Organizations Code, authorize Texas courts to appoint a receiver to rehabilitate a domestic corporation under certain circumstances.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[6]" name="r[6]" style="color: #660099;">[6]</a></sup> <i>See</i> TEX. BUS. ORGS. CODE § 11.404. Although Rupe sought appointment of a receiver to liquidate RIC rather than rehabilitate it,<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[7]" name="r[7]" style="color: #660099;">[7]</a></sup> only sought that remedy as an alternative to other remedies, did not obtain that relief in the judgment, and does not request that relief on appeal, she relies on this statute as authority for the trial court's judgment ordering RIC to buy out her shares.</div>
<div style="position: relative;">
Former article 7.05 authorizes courts to appoint a rehabilitative receiver when it is "necessary" to do so "to conserve the assets and business of the corporation and to avoid damage to parties at interest," but only if "all other requirements of law are complied with" and "all other remedies available either at law or in equity, including <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p864" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">864</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p864" id="p864" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*864</a>the appointment of a receiver for specific assets of the corporation, are determined by the court to be inadequate." Former art. 7.05(A); <i>see also</i> TEX. BUS. ORGS.CODE § 11.404(b). In addition, when the party seeking a receivership is a shareholder of the corporation, the party must also establish:</div>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
(a) that the corporation is insolvent or in imminent danger of insolvency; or</blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
(b) that the directors are deadlocked in the management of the corporate affairs and the shareholders are unable to break the deadlock, and that irreparable injury to the corporation is being suffered or is threatened by reason thereof; or</blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
(c) <i>that the acts of the directors or those in control of the corporation are illegal, oppressive or fraudulent;</i> or</blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
(d) that the corporate assets are being misapplied or wasted; or</blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
(e) that the shareholders are deadlocked in voting power, and have failed, for a period which includes at least two consecutive annual meeting dates, to elect successors to directors whose terms have expired or would have expired upon the election and qualification of their successors.</blockquote>
<div style="position: relative;">
Former art. 7.05(A)(1) (emphasis added); <i>see also</i> TEX. BUS. ORGS.CODE § 11.404(a)(1). Rupe relies on subpart (c), and asserts that Dennard's, Ritchie's, and Lutes's actions were "oppressive." Thus, we must determine what the Legislature meant when it used the term "oppressive" in this statute, whether the refusal to meet with Rupe's potential buyers fits within that meaning, and what remedies the statute provides for such actions.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
A. Cases Construing "Oppressive"</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
This Court has not previously construed former article 7.05 or current section 11.404. Initially, Texas courts of appeals construed the statute quite narrowly. In <a href="https://scholar.google.com/scholar_case?case=2996463283649985506&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Texarkana College Bowl, Inc. v. Phillips</i></a><i>,</i> the court reversed a trial court order appointing a receiver based on oppressive actions, holding that a "stockholder's dissatisfaction with corporate management is not by [former] Article 7.05 made grounds for a receivership," and the shareholder was not entitled to a receivership based on acts that were "not inconsistent with the honest exercise of business judgment and discretion by the board of directors."<a href="https://scholar.google.com/scholar_case?case=2996463283649985506&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;">408 S.W.2d 537, 539 (Tex.Civ.App.-Texarkana 1966, no writ)</a>. The court thus incorporated the concept of the "business judgment rule" into its analysis of whether actions were oppressive under the statute. <i>See id.; see also </i><a href="https://scholar.google.com/scholar_case?case=6348615703083401056&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>In re Schmitz,</i> 285 S.W.3d 451, 457, 457 n. 33 (Tex.2009)</a> (addressing the "business judgment that Texas law requires a board of directors to exercise").</div>
<div style="position: relative;">
Twenty-two years later, another court of appeals affirmed a trial court's denial of a petition for appointment of a receiver, holding that, in light of the statute's requirement that "`all other remedies available either at law or in equity' are inadequate," the trial court "properly required an emergency on which to base the relief sought." <a href="https://scholar.google.com/scholar_case?case=2626361424830337155&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Balias v. Balias,</i> 748 S.W.2d 253, 257 (Tex.App.-Houston [14th Dist.] 1988, writ denied)</a>. Both<i>Phillips</i> and <i>Balias</i> involved closely held corporations like RIC, but neither court held that such corporations were entitled to any special treatment under the receivership statute, which does not distinguish between closely held and other types of corporations.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[8]" name="r[8]" style="color: #660099;">[8]</a></sup> <i>See id.; </i><a href="https://scholar.google.com/scholar_case?case=2996463283649985506&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Phillips,</i> 408 S.W.2d at 539</a>.</div>
<div style="position: relative;">
<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p865" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">865</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p865" id="p865" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*865</a> That same year, another court of appeals became the first Texas appellate court to affirm a judgment based on the statute's oppressive-actions provision. <a href="https://scholar.google.com/scholar_case?case=8525518333477071858&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Davis v. Sheerin,</i>754 S.W.2d 375 (Tex. App.-Houston [1st Dist.] 1988, writ denied)</a>. In <i>Davis,</i> which has since become the seminal Texas opinion on the issue, a 45% owner of a closely held corporation, Sheerin, sued the company's president and 55% owner, Davis, alleging that Davis engaged in oppressive conduct and breached fiduciary duties owed to Sheerin and the company. <i>Id.</i> at 377. The jury agreed with Sheerin, and the trial court appointed a rehabilitative receiver and ordered Davis to buy out Sheerin's interest. <i>Id.</i> at 378. Although the court of appeals acknowledged that the statute does not expressly authorize a buy-out order and that no Texas court had previously forced a shareholder buyout in the absence of a buy-out agreement, <i>id.</i> at 378-79, it concluded that "Texas courts, under their general equity power, may decree a [buyout] in an appropriate case where less harsh remedies are inadequate to protect the rights of the parties." <i>Id.</i> at 380.</div>
<div style="position: relative;">
When determining what constitutes "oppressive" action under the statute, the <i>Davis</i>court concluded that "[c]ourts take an especially broad view of the application of oppressive conduct to a closely-held corporation, where oppression may more easily be found," <i>id.</i> at 381, and then recited two standards for oppression:</div>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• a New York court's definition of oppression as occurring "when the majority's conduct substantially defeats the expectations that objectively viewed were both reasonable under the circumstances and were central to the minority shareholder's decision to join the venture," and</blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• an Oregon court's collection of oppression definitions, which included "`burdensome, harsh and wrongful conduct,' `a lack of probity and fair dealing in the affairs of a company to the prejudice of some of its members,' or `a visible departure from the standards of fair dealing, and a violation of fair play on which every shareholder who entrusts his money to a company is entitled to rely.'"</blockquote>
<div style="position: relative;">
<i>Id.</i> at 381-82. These two standards—generally referred to as the "reasonable expectations" test and the "fair dealing" test—have since echoed throughout Texas oppressive-actions cases.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[9]" name="r[9]" style="color: #660099;">[9]</a></sup></div>
<div style="position: relative;">
In the present case, the trial court used the fair dealing test to define "oppressive" for the jury. On appeal, the court of appeals concluded that the directors' refusal to meet with Rupe's potential purchasers was oppressive under both tests: it substantially defeated Rupe's reasonable expectations and constituted a "visible departure from the standards of fair dealing and a violation of fair play on which each shareholder is entitled to rely." 339 S.W.3d at 297. In addition, the court rejected the application of the business judgment rule, reasoning that the rule applies only in derivative suits and only to protect<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p866" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">866</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p866" id="p866" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*866</a> directors from individual liability. <i>Id.</i> at 295-96. The court thus affirmed the trial court's finding that Dennard, Ritchie, and Lutes had engaged in oppressive conduct. <i>Id.</i>at 309.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
B. The Meaning of "Oppressive" Under the Receivership Statute</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
The construction of former article 7.05, like any other statute, is a question of law for the courts, and we review the court of appeal's determination of this question de novo.<a href="https://scholar.google.com/scholar_case?case=6472899419307714541&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Atmos Energy Corp. v. Cities of Allen,</i> 353 S.W.3d 156, 160 (Tex. 2011)</a>. "Our task is to effectuate the Legislature's expressed intent," <a href="https://scholar.google.com/scholar_case?case=15927436665807509498&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>In re Allen,</i> 366 S.W.3d 696, 703 (Tex.2012)</a>; it is not to impose our personal policy choices or "to second-guess the policy choices that inform our statutes or to weigh the effectiveness of their results." <a href="https://scholar.google.com/scholar_case?case=15603459610493724576&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Iliff v. Iliff,</i>339 S.W.3d 74, 79 (Tex.2011)</a> (quoting <a href="https://scholar.google.com/scholar_case?case=9635672166958356488&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>McIntyre v. Ramirez,</i> 109 S.W.3d 741, 748 (Tex.2003)</a>). We focus on the words of the statute, because "[l]egislative intent is best revealed in legislative language." <a href="https://scholar.google.com/scholar_case?case=7736772159791453532&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>In re Office of Att'y Gen.,</i> 422 S.W.3d 623, 629 (Tex.2013)</a>.</div>
<div style="position: relative;">
We begin by noting that the Legislature has never defined the term "oppressive" in the Business Corporations Act or the Business Organizations Code. And although it has used the terms "oppress," "oppressive," or "oppression" in a handful of other Texas statutes, they do not include a definition either.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[10]" name="r[10]" style="color: #660099;">[10]</a></sup> In the absence of a statutory definition, we give words their common meaning. <a href="https://scholar.google.com/scholar_case?case=2942199957108088201&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>City of Dall. v. Abbott,</i> 304 S.W.3d 380, 393 (Tex.2010)</a>. Dictionary definitions of "oppression" include "[t]he act or an instance of unjustly exercising authority or power," "[c]oercion to enter into an illegal contract," and— reflective of case law addressing claims like Rupe's claim in this case—"[u]nfair treatment of minority shareholders (esp. in a close corporation) by the directors or those in control of the corporation." BLACK'S LAW DICTIONARY 1203 (9th ed.2009). As these definitions and the Legislature's other uses of the term demonstrate, "oppressive" is a broad term that can mean different things in different contexts. Under the other statutes, a government regulation, a subpoena, the amount of bail, the use of military or official authority, a franchise agreement, and a debt collector's actions can all be "oppressive."<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[11]" name="r[11]" style="color: #660099;">[11]</a></sup> Generally, these statutes indicate that "oppressive" actions involve an abuse of power that harms the rights or interests of another person or persons and disserves the<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p867" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">867</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p867" id="p867" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*867</a> purpose for which the power is authorized. But the test for determining whether something is oppressive will necessarily vary from one context to the next, and thus the term has multiple meanings, depending on the circumstances.</div>
<div style="position: relative;">
"[W]hen an undefined [statutory] term has multiple common meanings, the definition most consistent within the context of the statute's scheme applies." <i>State v. $1,760.00 in U.S. Currency,</i> 406 S.W.3d 177, 180-81 (Tex.2013) (per curiam). To determine the meaning of "oppressive" in the receivership statute, our text-based approach to statutory construction requires us to study the language of the specific provision at issue, within the context of the statute as a whole, endeavoring to give effect to every word, clause, and sentence. <a href="https://scholar.google.com/scholar_case?case=7736772159791453532&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>In re Office of Att'y Gen.,</i> 422 S.W.3d at 629</a>; <a href="https://scholar.google.com/scholar_case?case=18414545730463853485&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fitzgerald v. Advanced Spine Fixation Sys.,</i> 996 S.W.2d 864, 866 (Tex.1999)</a>. We therefore examine not only the language of the oppression provision but also the language and context of the entire receivership statute, including the other specific grounds on which it authorizes a receivership and the general requirements that apply to all of the specific grounds.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
1. General Requirements for Receivership</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
The term "oppressive" in former article 7.05 occurs within a statute that authorizes courts to appoint a receiver to take over a corporation's governance, displacing those who are otherwise legally empowered to manage the corporation. Within this context, two aspects of this receivership statute are particularly relevant. First, both former article 7.05 and current section 11.404 are not limited to closely held corporations. <i>See</i> former art. 7.05; TEX. BUS. ORGS.CODE § 11.404. The Legislature has adopted a single standard for rehabilitative receivership based on oppressive actions that applies to all corporations (and, under the current statute, any "domestic entity") without regard to the number of its shareholders or the marketability of its shares. <i>See id.</i> Nothing in the language suggests that this statute provides a special right or remedy unique to minority shareholders in closely held corporations. <i>See id.</i> We must thus construe the statute in a manner that is meaningful and workable not only for the peculiarities of minority shareholders in a closely held corporation, but also for shareholders and owners of other business entities.</div>
<div style="position: relative;">
Second, the statute places significant restrictions on the availability of a receivership: (1) the receivership must be "necessary ... to conserve the assets and business of the corporation and to avoid damage to parties at interest," (2) "all other requirements of law [must be] complied with," and (3) "all other remedies available either at law or in equity" must be "inadequate." Former art. 7.05(A) (emphasis added); <i>see also</i> TEX. BUS. ORGS. CODE § 11.404(b). These requirements demonstrate the Legislature's intent that receivership—which replaces the managers the shareholders chose with the courts' chosen managers—is a "harsh" remedy that is not readily available. <i>See </i><a href="https://scholar.google.com/scholar_case?case=2626361424830337155&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Balias,</i> 748 S.W.2d at 257</a>. In fact, by requiring termination of the receivership immediately after the condition that necessitated the receiver is remedied, the Legislature has expressed its intent that receivership be a temporary fix for exigent circumstances. <i>See</i> former art. 7.05(B); <i>see also</i> TEX. BUS. ORGS.CODE § 11.404(c). We thus agree with the <i>Balias</i>court that, to qualify as the type of "oppressive" actions that justify a rehabilitative receivership, the complained-of actions must create exigent circumstances for the corporation. <i>See </i><a href="https://scholar.google.com/scholar_case?case=2626361424830337155&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Balias,</i> 748 S.W.2d at 257</a>.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p868" style="color: #aaaaaa; font-size: 13px; font-weight: normal; left: -55px; position: absolute; text-decoration: none;">868</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p868" id="p868" style="color: #aaaaaa; font-size: 13px; font-weight: normal; text-decoration: none;">*868</a> 2. Other Grounds for Receivership</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
In addition to the statute's three general requirements, a shareholder who seeks a rehabilitative receivership under former article 7.05 must also prove at least one of five specific grounds, one of which is the "illegal, oppressive or fraudulent" actions provision on which Rupe relies. <i>See</i> former art. 7.05(A)(1)(c); <i>see also</i> TEX. BUS. ORGS.CODE § 11.404(a)(1)(C). The other four specific grounds are (1) the corporation is insolvent or in imminent danger of becoming insolvent; (2) an unbreakable deadlock among the corporation's managers is causing or threatening irreparable injury to the corporation; (3) a deadlock among the shareholders prevents the election of the corporation's management; or (4) the corporation's assets are being misapplied or wasted. Former art. 7.05(A)(1)(a), (b), (d), (e); <i>see also</i> TEX. BUS. ORGS.CODE § 11.404(a)(1)(A), (B), (D), (E). These are all situations that pose a serious threat to the well-being of the corporation. We must construe "illegal, oppressive, or fraudulent" actions, when alleged as a ground for receivership, in a manner consistent with these types of situations. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=16709835701772481122&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>R.R. Comm'n of Tex. v. Tex. Citizens for a Safe Future & Clean Water,</i> 336 S.W.3d 619, 629 (Tex.2011)</a> (construing "public interest" to reference only public interest in natural resources, not public interest in traffic safety, when other considerations identified in statute exclusively concerned matters relating to oil and gas).</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
2. "Illegal, Oppressive, or Fraudulent" Actions</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
Finally, we consider the statute's specific provision, which requires a finding that the "directors or those in control of the corporation" engaged in "illegal, oppressive, or fraudulent" actions. This requirement provides two more essential pieces of guidance. First, receivership under this provision must be based on the actions of the corporation's "directors or those in control of the corporation." <i>See</i> former art. 7.05(A)(1)(c); <i>see also</i>TEX. BUS. ORGS.CODE § 11.404(a)(1)(C) ("governing persons").<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[12]" name="r[12]" style="color: #660099;">[12]</a></sup> Directors, or those acting as directors, owe a fiduciary duty to the corporation in their directorial actions, and this duty "includes the dedication of [their] uncorrupted business judgment for the sole benefit of the corporation." <a href="https://scholar.google.com/scholar_case?case=1309613343942585921&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Int'l Bankers Life Ins. Co. v. Holloway,</i> 368 S.W.2d 567, 577 (Tex.1963)</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=444296581158582167&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Gearhart Indus., Inc. v. Smith Intern., Inc.,</i> 741 F.2d 707, 723-24 (5th Cir.1984)</a> (describing corporate director's fiduciary duties of obedience, loyalty, and due care). Since the statute permits a receivership only for the "oppressive" actions of those who are duty-bound to act according to their "uncorrupted business judgment for the sole benefit of the corporation," the meaning of "oppressive" must accommodate<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p869" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">869</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p869" id="p869" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*869</a> the exercise of that business judgment. In other words, because a director is duty-bound to exercise business judgment for the sole benefit of the corporation, and not for the benefit of individual shareholders, we cannot construe the term "oppressive" in a manner that ignores that duty. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=1309613343942585921&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Holloway,</i> 368 S.W.2d at 577-78</a> (describing corporate officers' and directors' duty to maximize corporate returns and value of corporation's shares); <a href="https://scholar.google.com/scholar_case?case=17071709434496856594&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Hughes v. Hous. Nw. Med. Ctr., Inc.,</i> 680 S.W.2d 838, 843 (Tex.App.-Houston [1st Dist.] 1984, writ ref'd n.r.e</a>.) (observing that corporate officers and directors owe corporation and its collective shareholders "a duty to act only in their best interest"). We therefore reject the court of appeals' conclusion that the business judgment rule "has no application in this case." 339 S.W.3d at 296. Instead, we agree with the <i>Texarkana College Bowl</i> court's conclusion that conduct is oppressive only if it is "inconsistent with the honest exercise of business judgment and discretion by the board of directors."<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[13]" name="r[13]" style="color: #660099;">[13]</a></sup> <a href="https://scholar.google.com/scholar_case?case=2996463283649985506&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Texarkana Coll. Bowl,</i> 408 S.W.2d at 539</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=2444962852387667814&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Willis,</i> 997 S.W.2d at 802-03</a>.</div>
<div style="position: relative;">
Second, the Legislature grouped together three categories of conduct in this provision of the statute—actions that are "illegal," actions that are "fraudulent," and actions that are "oppressive." <i>See</i> former art. 7.05(A)(1)(c); <i>see also</i> TEX. BUS. ORGS. CODE § 11.404(a)(1)(C). It is a "familiar principle of statutory construction that words grouped in a list should be given related meaning," <a href="https://scholar.google.com/scholar_case?case=619051010931781014&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Riverside Nat'l Bank v. Lewis,</i> 603 S.W.2d 169, 174 n. 2 (Tex.1980),</a> and similarly that "the meaning of particular words in a statute may be ascertained by reference to other words associated with them in the same statute."<a href="https://scholar.google.com/scholar_case?case=17226599747779013973&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>City of San Antonio v. City of Boerne,</i> 111 S.W.3d 22, 29 (Tex.2003)</a>. Thus, the meaning that the Legislature contemplated for the term "oppressive" must be consistent with, though not identical to, the meanings intended for the accompanying terms "illegal" and "fraudulent."</div>
<div style="position: relative;">
Illegal and fraudulent actions in corporate management share considerable similarities and in some circumstances overlap—fraud generally is itself "illegal," and may subject the actor to criminal liability. <i>See, e.g.,</i> TEX. PENAL CODE, ch. 32 (fraud), ch. 35 (insurance fraud), ch. 37 (perjury and other falsification). Fraudulent and illegal actions in this context pose a danger to the corporation itself. Fraudulent or illegal actions by a corporation's directors may result in disregard of the corporate form, <i>see, e.g.,</i> TEX. BUS. ORGS.CODE § 21.223(b); may vitiate the corporation's contractual interests, <i>see</i><a href="https://scholar.google.com/scholar_case?case=5984971112902484454&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Schlumberger Tech. Corp. v. Swanson,</i> 959 S.W.2d 171, 179 (Tex.1997)</a>; and may even result in an involuntary judicial termination of the corporation, <i>see</i> TEX. BUS. ORGS.CODE § 11.301(a)(2), (5). We must construe the third of these terms—"oppressive"—in a <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p870" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">870</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p870" id="p870" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*870</a> manner consistent with the severity of these concepts.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
4. The Meaning of "Oppressive"</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
Considering the language and context of the statute, we have identified at least three characteristics of "actions" that the statute refers to as "oppressive": (1) the actions justify the harsh, temporary remedy of a rehabilitative receivership; (2) the actions are severe and create exigent circumstances; and (3) the actions are inconsistent with the directors' duty to exercise their honest business judgment for the benefit of the corporation. The term's common meaning and its usage in other statutes add a fourth characteristic: the actions involve an unjust exercise or abuse of power that harms the rights or interests of persons subject to the actor's authority and disserves the purpose for which the power is authorized.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[14]" name="r[14]" style="color: #660099;">[14]</a></sup> Actions that uniformly affect all shareholders typically will not satisfy this aspect of the term's meaning because, collectively, the shareholders of a business are not at the mercy of the business's directors.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[15]" name="r[15]" style="color: #660099;">[15]</a></sup></div>
<div style="position: relative;">
In light of these considerations, we conclude that neither the "fair dealing" test nor the "reasonable expectations" test sufficiently captures the Legislature's intended meaning of "oppressive" actions in former article 7.05.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[16]" name="r[16]" style="color: #660099;">[16]</a></sup> As to the "fair dealing" test, we agree that a "lack of probity and fair dealing" and "a visible departure from the standards of fair dealing and [a] violation of fair play" may be aspects of actions that are "oppressive," and we agree that the actions must be "burdensome, harsh and wrongful." And as to the "reasonable expectations" test, we agree that oppressive actions will defeat the reasonable expectations that were central to the shareholder's decision to join the venture. But in light of the language and context of the statute and the term's common meaning and other uses, we cannot accept a definition that would find oppression on either of <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p871" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">871</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p871" id="p871" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*871</a> these bases alone, and we disapprove of the court of appeals decisions that have.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[17]" name="r[17]" style="color: #660099;">[17]</a></sup></div>
<div style="position: relative;">
Considering all of the indicators of the Legislature's intent, we conclude that a corporation's directors or managers engage in "oppressive" actions under former article 7.05 and section 11.404 when they abuse their authority over the corporation with the intent to harm the interests of one or more of the shareholders, in a manner that does not comport with the honest exercise of their business judgment, and by doing so create a serious risk of harm to the corporation.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
5. Application to Rupe</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
Applying the Legislature's intended meaning, we conclude that the refusal by Dennard, Ritchie, and Lutes to meet with Rupe's potential buyers does not constitute an "oppressive" action for which Rupe may obtain relief under former article 7.05. Dennard, Ritchie, and Lutes had no contractual, statutory, or other duty to meet with prospective buyers. Rupe does not dispute that they sought and received the advice of an outside attorney who had expertise in securities law before making that decision, and they declined to participate in the meetings because doing so would increase the risk of suit against RIC and its directors in the event of a dissatisfied purchaser.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[18]" name="r[18]" style="color: #660099;">[18]</a></sup> Moreover, the evidence does not support a finding that they abused their authority with the intent to harm Rupe's interests in RIC, or that their decision created a serious risk of harm to RIC. In the absence of such evidence, we conclude that their refusal to meet with prospective buyers was not "oppressive" as that term is used in the receivership statute.</div>
<div style="position: relative;">
Undoubtedly, the directors' refusal to meet with prospective purchasers placed Rupe in a difficult situation that prevented her from selling her shares as quickly as she wanted and for their full value. But difficulty in—and sometimes even the impossibility of—selling one's shares is a characteristic intrinsic to ownership of a closely held corporation, the shares of which are not publicly traded. Shareholders of closely held corporations may address and resolve such difficulties by entering into shareholder agreements that contain buy-sell, first refusal, or redemption provisions that reflect their mutual expectations and agreements. In the absence of such agreements, however, former article 7.05 authorizes the appointment of a receiver only for specific conduct—in this case, allegedly oppressive actions—and the conduct relied on by the court of appeals here does not meet that standard.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[19]" name="r[19]" style="color: #660099;">[19]</a></sup></div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p872" style="color: #aaaaaa; font-size: 13px; font-weight: normal; left: -55px; position: absolute; text-decoration: none;">872</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p872" id="p872" style="color: #aaaaaa; font-size: 13px; font-weight: normal; text-decoration: none;">*872</a> C. Statutory Remedy</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
Although the court of appeals relied exclusively on the directors' decision not to meet with potential buyers of Rupe's shares, Rupe asserted that other actions by Dennard, Ritchie, and Lutes also constituted "oppressive" conduct under former article 7.05. We need not consider whether any or all of these other actions were oppressive, however, because we hold that, even if they were, the statute does not authorize the buy-out remedy that Rupe sought and obtained, and Rupe did not request the rehabilitative-receivership remedy that the statute does authorize.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[20]" name="r[20]" style="color: #660099;">[20]</a></sup></div>
<div style="position: relative;">
Former article 7.05 creates a single cause of action with a single remedy: an action for appointment of a rehabilitative receiver. <i>See</i> former art. 7.05; <i>see also</i> TEX. BUS. ORGS.CODE § 11.404. It identifies:</div>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• to whom the cause of action is available: shareholders and creditors;<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[21]" name="r[21]" style="color: #660099;">[21]</a></sup></blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• the remedy available: "[a] receiver may be appointed for the assets and business of a corporation."<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[22]" name="r[22]" style="color: #660099;">[22]</a></sup></blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• the grounds on which each type of claimant may seek the remedy;<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[23]" name="r[23]" style="color: #660099;">[23]</a></sup> and the requirements a claimant must satisfy to obtain the remedy:</blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• the appointment of a receiver must be necessary "to conserve the assets and business of the corporation and to avoid damage to parties at interest,"</blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• "all other requirements of law are complied with," and</blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• "all other remedies available either at law or in equity ... are determined by the court to be inadequate."<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[24]" name="r[24]" style="color: #660099;">[24]</a></sup></blockquote>
<div style="position: relative;">
The court of appeals relied on the statute's third requirement—a finding that all other remedies available at law or in equity are inadequate—to hold that the statute authorizes not only the appointment of a receiver but also any other appropriate equitable relief. 339 S.W.3d at 286. We disagree. Subsection (A) of former article 7.05, like subsection (b) of current section 11.404, identifies the inadequacy of other legal and equitable remedies as a prerequisite to the appointment of a receiver. <i>See</i> former art. 7.05(A); TEX. BUS. ORGS.CODE § 11.404(b). This provision is a restriction on the availability of receivership, not an expansion of the remedies that the statute authorizes.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[25]" name="r[25]" style="color: #660099;">[25]</a></sup> It is consistent with the extraordinary <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p873" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">873</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p873" id="p873" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*873</a> nature of receivership and is a common prerequisite for other extraordinary forms of relief. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=6207522956368226204&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>In re Prudential Ins. Co. of Am.,</i> 148 S.W.3d 124, 136 (Tex.2004)</a> (mandamus is extraordinary writ available only when remedy by appeal is inadequate); <a href="https://scholar.google.com/scholar_case?case=16550706050613004929&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Butnaru v. Ford Motor Co.,</i> 84 S.W.3d 198, 210 (Tex.2002)</a> (to obtain injunction under court's equitable powers, party must prove inadequacy of all remedies available at law).</div>
<div style="position: relative;">
Unlike the statute, which authorizes only a receivership, common-law causes of action, particularly those that invoke a court's equitable powers, often support a variety of remedies, and the same may be true of other statutes that authorize receivership. <i>See, e.g.,</i> TEX. BUS. & COM.CODE § 24.008(a)(3) (authorizing appointment of a receiver among types of equitable relief available for fraudulent transfer). Additionally, as discussed later in this opinion, the kinds of actions that support a shareholder action for receivership under the "oppressive" prong of the statute are the kinds of conduct that also may support other causes of action, such as fraud or breach-of-fiduciary-duties to the corporation. <i>See</i> former art. 7.05(A); TEX. BUS. ORGS.CODE § 11.404(a). Finally, the statute <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p874" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">874</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p874" id="p874" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*874</a> itself contemplates other, less harsh, relief that may be available under other provisions of the statute, such as the appointment of a receiver only over specific corporate assets rather than a receivership over the whole corporation. <i>See</i> former art. 7.05(A); TEX. BUS. ORGS.CODE § 11.404(b)(3).</div>
<div style="position: relative;">
The statute thus recognizes that in many circumstances relief other than appointment of a receiver may be available, and it requires courts to consider such relief before appointing a rehabilitative receiver. <i>See</i> former art. 7.05(A); TEX. BUS. ORGS.CODE § 11.404(b)(3). If lesser remedies<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[26]" name="r[26]" style="color: #660099;">[26]</a></sup> are available under either the common law or other statutory provisions, and those remedies are adequate, the Court cannot appoint a rehabilitative receiver. <i>See id.</i> Here, for example, the jury found in Rupe's favor on her breach-of-fiduciary-duty claim.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[27]" name="r[27]" style="color: #660099;">[27]</a></sup> Before <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p875" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">875</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p875" id="p875" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*875</a> granting a receivership under the statute, the trial court was required to determine whether Rupe was entitled to remedies for breach of fiduciary duty based on the jury verdict and if so, whether those remedies were adequate; it did neither.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[28]" name="r[28]" style="color: #660099;">[28]</a></sup> But the statute does not create a cause of action for unspecified lesser remedies that are not otherwise available under the law; the only cause of action the statute creates is for receivership. We cannot turn the statute's "all other ... remedies" language on its head—treating it as expanding rather than restricting the relief the statute provides—and we need not do so to give the language meaning. Instead, the statute provides only the remedy it identifies— rehabilitative receivership—and it restricts the availability of that relief to circumstances where the trial court has determined that "all other available legal and equitable remedies ... are inadequate."<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[29]" name="r[29]" style="color: #660099;">[29]</a></sup><a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p876" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">876</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p876" id="p876" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*876</a> Former art. 7.05(A); <i>see also</i> TEX. BUS. ORGS.CODE § 11.404(b).</div>
<div style="position: relative;">
In affirming the trial court's buy-out order, the court of appeals relied on this Court's decision in <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Patton v. Nicholas,</i> 154 Tex. 385, 279 S.W.2d 848 (1955)</a>. But <i>Patton</i>involved neither a claim for oppression nor a court-ordered buyout of stock. <i>Id.</i> at 849-59. Rather, this Court held in <i>Patton</i> that the receivership statute in effect at the time, former article 2293,<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[30]" name="r[30]" style="color: #660099;">[30]</a></sup> did not displace Texas courts' power to appoint a receiver as an equitable remedy for existing causes of action (there, a breach of the corporate trust) in "extreme" circumstances. <i>Id.</i> at 856-57.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[31]" name="r[31]" style="color: #660099;">[31]</a></sup> Former article 2293, like former article 7.05 and current section 11.404, expressly preserved the availability of receivership as an equitable remedy for a cause of action that invokes the courts' equitable powers. <i>See</i>former art. 2293, para. 4; former art. 7.05(A)(3); TEX. BUS. ORGS.CODE § 11.404(a)(3). Our recognition in <i>Patton</i> that the statutory action for receivership did not displace Texas courts' historical power to grant receivership as an equitable remedy under a common-law cause of action does not support the court's construction of former article 7.05 to provide a different statutory remedy, a buyout, without regard to any common-law cause of action.</div>
<div style="position: relative;">
The court of appeals also relied on <i>Davis</i> to support the availability of a buy-out order under the statute. 339 S.W.3d at 286-87 (citing <a href="https://scholar.google.com/scholar_case?case=8525518333477071858&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Davis,</i> 754 S.W.2d at 378-80</a>). <i>Davis</i>likewise relied on <i>Patton.</i> Both courts' reliance on <i>Patton</i> is misplaced, and we reject the holding in <i>Davis</i> that former article 7.05 authorizes Texas courts to invoke their "general equity power" to award a buyout of stock as a remedy for oppressive actions under the statute (rather than under a common-law cause of action for which equitable remedies are otherwise available). <i>Cf. </i><a href="https://scholar.google.com/scholar_case?case=8525518333477071858&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Davis,</i> 754 S.W.2d at 379</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=14415180030680709429&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>ARGO Data Res. Corp. v. Shagrithaya,</i> 380 S.W.3d 249, 265 (Tex.App.-Dallas 2012, pet. filed)</a> ("The statute authorizes the court to fashion an equitable remedy if the actions of those in control of a corporation are illegal, oppressive, or fraudulent."). Although the Legislature has made a broad range of equitable remedies available for violations of other statutory causes of action, <i>see, e.g.,</i> TEX. <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p877" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">877</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p877" id="p877" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*877</a> BUS. & COM.CODE § 24.008(a)(3), it has not done so here. The Legislature provided a single remedy for oppressive actions under former article 7.05: appointment of a rehabilitative receiver.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[32]" name="r[32]" style="color: #660099;">[32]</a></sup></div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
D. Conclusion on Statutory Oppressive Actions</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
We hold that the decision by Ritchie, Dennard, and Lutes not to meet with Rupe's prospective buyers does not constitute "oppressive" action under former article 7.05, and the court of appeals erred in concluding otherwise. We also hold that appointment of a rehabilitative receiver is the only remedy that former article 7.05 authorizes for oppressive actions. Because the trial court's judgment does not appoint a receiver, we need not consider the other conduct that Rupe alleged was "oppressive."</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
III.</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
A Common-law Cause of Action for Shareholder Oppression?</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
This Court has never recognized a common-law cause of action for "minority shareholder oppression." Although the courts of appeals' opinions in this case and in<i>Davis</i> both addressed only actions for oppressive actions under the receivership statute, other parties and Texas courts have relied on these opinions to recognize a common-law claim for "shareholder oppression" not based on any statutory authority.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[33]" name="r[33]" style="color: #660099;">[33]</a></sup> When asked in oral argument to identify the source of the directors' alleged duty in this case, Rupe's attorney asserted only that the duty "flows from the statute" and "derives from the word oppression in the statute." But because Rupe's pleadings and briefs also assert a common-law claim for shareholder oppression, we must <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p878" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">878</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p878" id="p878" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*878</a> decide whether to recognize such a common-law cause of action under Texas law.</div>
<div style="position: relative;">
When deciding whether to recognize "a new cause of action and the accompanying expansion of duty," this Court "perform[s] something akin to a cost-benefit analysis to assure that this expansion of liability is justified." <a href="https://scholar.google.com/scholar_case?case=13580576374315523710&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Roberts v. Williamson,</i> 111 S.W.3d 113, 118 (Tex. 2003)</a>. The analysis is complex, requiring consideration of a number of non-dispositive factors including, but not limited to:</div>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• the foreseeability, likelihood, and magnitude of the risk of injury,</blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• the existence and adequacy of other protections against the risk,</blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• the magnitude of the burden of guarding against the injury and the consequences of placing that burden on the persons in question, and</blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• the consequences of imposing the new duty, including</blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• whether Texas's public policies are served or disserved</blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• whether the new duty may upset legislative balancing-of-interests, and</blockquote>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
• the extent to which the new duty provides clear standards of conduct so as to deter undesirable conduct without impeding desirable conduct or unduly restricting freedoms.</blockquote>
<div style="position: relative;">
<i>See </i><a href="https://scholar.google.com/scholar_case?case=12444371162582339745&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Nabors Drilling, U.S.A., Inc. v. Escoto,</i> 288 S.W.3d 401, 410 (Tex.2009)</a>; <a href="https://scholar.google.com/scholar_case?case=880439261860509790&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Humble Sand & Gravel, Inc. v. Gomez,</i> 146 S.W.3d 170, 193 (Tex.2004)</a>; <a href="https://scholar.google.com/scholar_case?case=9923072212590039566&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Thapar v. Zezulka,</i> 994 S.W.2d 635, 639-40 (Tex. 1999)</a>; <a href="https://scholar.google.com/scholar_case?case=11666188866472546515&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Bird v. W.C.W.,</i> 868 S.W.2d 767, 769 (Tex.1994)</a>; <a href="https://scholar.google.com/scholar_case?case=5356750779091571608&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Graff v. Beard,</i> 858 S.W.2d 918, 920-21 (Tex.1993)</a>. Carefully considering these factors within the context of this case, we decline to recognize a new common-law cause of action for "minority shareholder oppression" in closely held corporations.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
A. Foreseeability, Likelihood, and Magnitude of Potential Injury</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
By definition, a "closely held" corporation<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[34]" name="r[34]" style="color: #660099;">[34]</a></sup> is owned by a small number of shareholders whose shares are not publicly traded.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[35]" name="r[35]" style="color: #660099;">[35]</a></sup> Often, these shareholders enjoy personal relationships as friends or family members in addition to their business relationship.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[36]" name="r[36]" style="color: #660099;">[36]</a></sup>Sometimes, they enter into shareholder agreements to define things like their respective management and voting powers, the apportionment of losses and profits, the payment of dividends, and their rights to buy or sell their shares from or to each other, the corporation, or an outside party. Occasionally, things don't work out as planned: shareholders die, businesses struggle, relationships change, and disputes arise. When, as in this case, there is no shareholders' agreement, <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p879" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">879</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p879" id="p879" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*879</a> minority shareholders who lack both contractual rights and voting power may have no control over how those disputes are resolved. As a group of law school professors appearing as amicus curiae<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[37]" name="r[37]" style="color: #660099;">[37]</a></sup> in this case observed, minority shareholders in closely held corporations have "no statutory right to exit the venture and receive a return of capital" like partners in a partnership do, and "usually have no ability to sell their shares" like shareholders in a publicly held corporation do; thus, if they fail to contract for shareholder rights, they will be "uniquely subject to potential abuse by a majority or controlling shareholder or group." Unhappy with the situation and unable to change it, they are often unable to extract themselves from the business relationship, at least without financial loss.</div>
<div style="position: relative;">
Those in control of a closely held corporation may use various "squeeze-out" or "freeze-out" tactics to deprive minority shareholders of benefits, to misappropriate those benefits for themselves, or to induce minority shareholders to relinquish their ownership for less than it is otherwise worth. The types of conduct most commonly associated with such tactics include (1) denial of access to corporate books and records, (2) withholding payment of, or declining to declare, dividends, (3) termination of a minority shareholder's employment, (4) misapplication of corporate funds and diversion of corporate opportunities for personal purposes, and (5) manipulation of stock values.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[38]" name="r[38]" style="color: #660099;">[38]</a></sup></div>
<div style="position: relative;">
Our review of the case law and other authorities also convinces us that it is both foreseeable and likely that some directors and majority shareholders of closely held corporations will engage in such actions with a meaningful degree of frequency and that minority shareholders typically will suffer some injury as a result. Although the injury is usually merely economic in nature, it can be quite substantial from the minority shareholder's perspective, as it often completely undermines their sole or primary motivation for engaging with the business.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[39]" name="r[39]" style="color: #660099;">[39]</a></sup> We thus conclude that the foreseeability, likelihood, and magnitude of harm sustained by minority shareholders due to the abuse of power by those in control of a closely held corporation is significant, and Texas law should ensure that remedies exist to appropriately address such harm when the underlying actions are wrongful.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
B. Existence and Adequacy of Other Protections</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
Our conclusion that the risks require a remedy does not end our analysis. <i>See, e.g.,</i><a href="https://scholar.google.com/scholar_case?case=12444371162582339745&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Nabors Drilling,</i> 288 S.W.3d at 411</a> (observing that the mere foreseeability of an injury is not sufficient to justify the creation of a new duty). We must next consider the adequacy of remedies that already exist. This is particularly true when we are addressing corporations and the relationships among those who participate in them, which we have consistently recognized are largely matters governed by statute and contract. <i>See</i><a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=10093147915894258317&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Empire</i> </a><a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p880" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">880</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p880" id="p880" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*880</a><a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=10093147915894258317&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"> <i>Mills v. Alston Grocery Co.,</i> 15 S.W. 505 (Tex.App.1891, no writ)</a> ("A corporation is the creature of a statute immediately creating it, or authorizing proceedings for its organization."); <a href="https://scholar.google.com/scholar_case?case=12499599602065434001&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Calvert v. Capital Sw. Corp.,</i> 441 S.W.2d 247, 255 (Tex.Civ.App.-Austin 1969, writ ref'd n.r.e</a>.) ("[T]he charter of a corporation creates contractual relations between the corporation and its shareholders, not between the shareholders themselves."). In addition to statutory and contractual protections, we will also consider other common-law remedies that currently exist to protect against the kinds of conduct that might otherwise justify a new common-law remedy.</div>
<div style="position: relative;">
As we consider existing statutory remedies, we are mindful of the principle that, when the Legislature has enacted a comprehensive statutory scheme, we will refrain from imposing additional claims or procedures that may upset the Legislature's careful balance of policies and interests. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=2577732262878957213&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Liberty Mut. Ins. Co. v. Adcock,</i> 412 S.W.3d 492, 493 (Tex.2013)</a> (noting that the Texas Workers' Compensation Act "is a comprehensive statutory scheme, and therefore precludes the application of claims and procedures not contained within the Act.").<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[40]" name="r[40]" style="color: #660099;">[40]</a></sup> We thus begin in in this case by noting that the Business Organizations Code permits corporations to declare themselves to be "close corporations," which allows them to take advantage of two subchapters of the Code dedicated to the special needs of such corporations and exempts them from many of the rules that govern other types of corporations. <i>See</i> TEX. BUS. ORGS.CODE §§ 21.701-.732 (subchapter O, Close Corporations), 21.751-.763 (subchapter P, Judicial Proceedings Relating to Close Corporations). In addition to the judicial proceedings that other corporate shareholders can bring, shareholders in close corporations are authorized to institute proceedings to enforce a close corporation provision, appoint a provisional director, or appoint a custodian. <i>Id.</i> § 21.752. In such proceedings, courts must enforce close corporation provisions regardless of whether there is an adequate remedy at law and may enforce them by injunction, specific performance, damages, appointment of provisional director or custodian, appointment of a receiver for specific corporate assets, appointment of a rehabilitative receiver, or appointment of a liquidating receiver, among other things. <i>Id.</i> § 21.756. And the Legislature has afforded businesses that elect to operate as close corporations even greater contractual liberty. <i>See generally</i>TEX. BUS. ORGS. CODE §§ 1.001 <i>et seq.; id.</i> § 21.701-.732. Although RIC's founders and shareholders did not declare RIC a close corporation and take advantage of this unique statutory scheme, we must note that they could have done so, and by doing so could have provided themselves with remedies to resolve the current dispute.</div>
<div style="position: relative;">
Even when a closely held corporation does not elect to operate as a "close corporation," the Legislature has enacted special rules to allow its shareholders to more easily bring a derivative suit on behalf of <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p881" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">881</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p881" id="p881" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*881</a> the corporation.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[41]" name="r[41]" style="color: #660099;">[41]</a></sup> TEX. BUS. ORGS.CODE § 21.563. Shareholders in a closely held corporation, for example, can bring a derivative action without having to prove that they "fairly and adequately represents the interests of" the corporation, <i>id.</i> § 21.552(2), without having to make a "demand" upon the corporation, as in other derivative actions, and without fear of a stay or dismissal based on actions of other corporate actors in response to a demand. <i>See id.</i> §§ 21.563(b), 21.553-55, 21.558-59. And when justice requires, the court may treat a derivative action on behalf of a closely held corporation "as a direct action brought by the shareholder for the shareholder's own benefit," and award any recovery directly to that shareholder.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[42]" name="r[42]" style="color: #660099;">[42]</a></sup> <i>See id.</i> § 21.563(c).</div>
<div style="position: relative;">
Of course, shareholders may also prevent and resolve common disputes by entering into a shareholders' agreement to govern their respective rights and obligations. Importantly, the Legislature has granted corporate founders and owners broad freedom to dictate for themselves the rights, duties, and procedures that govern their relationship with each other and with the corporation. <i>See, e.g., id.</i> §§ 21.052-.059, 21.101-.110, 21.210, 21.401.408. Again, we note that although RIC's owners did not enter into a shareholders' agreement, they certainly could have done so, and by doing so could have avoided the current dispute.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[43]" name="r[43]" style="color: #660099;">[43]</a></sup></div>
<div style="position: relative;">
<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p882" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">882</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p882" id="p882" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*882</a> And as a final preliminary matter, we note that various common-law causes of action already exist to address misconduct by corporate directors and officers. Relying on the same actions that support their oppression claims, Texas minority shareholders have also asserted causes of action for: (1) an accounting, (2) breach of fiduciary duty, (3) breach of contract, (4) fraud and constructive fraud, (5) conversion, (6) fraudulent transfer, (7) conspiracy, (8) unjust enrichment, and (9) quantum meruit. <i>See, e.g.,</i><a href="https://scholar.google.com/scholar_case?case=14497568670782333649&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Boehringer,</i> 404 S.W.3d at 24</a>; <a href="https://scholar.google.com/scholar_case?case=14415180030680709429&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Shagrithaya,</i> 380 S.W.3d at 262</a>; <a href="https://scholar.google.com/scholar_case?case=12732720246974989371&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Allen v. Devon Energy Holdings, L.L.C.,</i> 367 S.W.3d 355, 365 (Tex.App.-Houston [1st Dist.] 2012, judgm't set aside by agr.)</a>; <a href="https://scholar.google.com/scholar_case?case=1420290571234359817&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Strebel v. Wimberly,</i> 371 S.W.3d 267, 274 (Tex.App.-Houston [1st Dist.] 2012, pet. filed)</a>; <a href="https://scholar.google.com/scholar_case?case=8415263919845488529&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Adams v. StaxxRing, Inc.,</i> 344 S.W.3d 641, 643 (Tex.App.-Dallas 2011, pet. denied)</a>; <a href="https://scholar.google.com/scholar_case?case=6386755104031922069&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Redmon,</i> 202 S.W.3d at 231</a>; <a href="https://scholar.google.com/scholar_case?case=9892914834131474390&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>DeWoody v. Rippley,</i> 951 S.W.2d 935, 944 (Tex.App.-Fort Worth 1997, no writ)</a>; <a href="https://scholar.google.com/scholar_case?case=8525518333477071858&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Davis,</i> 754 S.W.2d at 377</a>.</div>
<div style="position: relative;">
Having noted the extensive statutory, contractual, and common-law protections that already exist under Texas law, we now consider the adequacy of those protections to address the kinds of conduct commonly cited as justifying the creation of liability for "shareholder oppression."</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
1. Denial of Access to Corporate Books and Records</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
A common complaint of those alleging shareholder oppression is the denial of access to the corporation's books and records. Our Legislature has expressly protected a corporate shareholder's right to examine corporate records, provided penalties for a violation of those rights, and identified applicable defenses in an action to enforce those rights. <i>See</i> TEX. BUS. ORGS.CODE §§ 21.218 (examination of records), 21.219 (annual and interim statements of corporation), 21.220 (penalty for failure to prepare voting list), 21.222 (penalty for refusal to permit examination), 21.354 (inspection of voting list), 21.372 (shareholder meeting list). These statutory rights and remedies adequately protect a minority shareholder's access to corporate records, and we need not create a new commonlaw cause of action to supplement that protection.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[44]" name="r[44]" style="color: #660099;">[44]</a></sup></div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
2. Withholding or Refusing to Declare Dividends</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
A second common complaint by those alleging shareholder oppression relates to the corporation's declaration of dividends, including the failure to declare dividends, the failure to declare higher dividends, and the withholding of dividend payments after a dividend has been declared.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[45]" name="r[45]" style="color: #660099;">[45]</a></sup> With regard to the latter situation, we note that shareholders already have a right to receive payment of a declared dividend in accordance with the terms of the shares and the corporation's certificate of formation, and they can enforce that right as a debt against the corporation. <i>See, e.g.,</i> <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p883" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">883</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p883" id="p883" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*883</a> <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=15182956603623817009&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Cavitt v. Amsler,</i> 242 S.W. 246, 247 (Tex. Civ.App.-Austin 1922, writ dism'd)</a> ("[W]hen a dividend is declared, it becomes a debt owing by the corporation to the stockholders."). Our review of the cases gives us no reason to doubt the adequacy of this remedy to address that particular situation.</div>
<div style="position: relative;">
With regard to the failure to declare dividends and the failure to declare higher dividends, Texas statutes generally do not dictate when directors must declare dividends or how much the dividends must be.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[46]" name="r[46]" style="color: #660099;">[46]</a></sup> Instead, those decisions fall within the discretion of a corporation's directors (or those acting as directors). <i>See</i> TEX. BUS. ORGS.CODE §§ 21.302-.303, 21.310-.313; <i>see also id.</i> §§ 21.714, 21.726-.727. The directors must make those decisions in compliance with the formal fiduciary duties that they, as officers or directors, owe to the corporation, and thus to the shareholders collectively. <i>See, e.g.,</i><a href="https://scholar.google.com/scholar_case?case=1309613343942585921&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Holloway,</i> 368 S.W.2d at 576-77</a> (as fiduciaries, corporate directors are "under obligation not to usurp corporate opportunities for personal gain," and must dedicate "uncorrupted business judgment for the sole benefit of the corporation"). When directors breach their fiduciary duties by improperly withholding or failing to declare dividends, one or more shareholders can sue the directors for breach of those duties on behalf of the corporation through a derivative action. <i>See</i> TEX. BUS. ORGS.CODE §§ 21.551-.563.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[47]" name="r[47]" style="color: #660099;">[47]</a></sup></div>
<div style="position: relative;">
This Court first addressed this kind of a claim in the context of a closely held corporation nearly sixty years ago in <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Patton.</i> 279 S.W.2d at 849-53</a>. Although there seems to be some confusion in the courts of appeals, <i>Patton</i> was not a "shareholder oppression" case.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[48]" name="r[48]" style="color: #660099;">[48]</a></sup> It was a suit in which a corporation's two minority shareholders alleged that Patton—the corporation's majority shareholder, president, and controlling board member—committed fraud and breached his duties to the corporation.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[49]" name="r[49]" style="color: #660099;">[49]</a></sup> <i>See id.</i> at 849. The jury found that Patton had mismanaged the corporation and withheld dividends for the improper purposes of preventing the minority shareholders from sharing in the corporation's profits and depreciating the value of the corporation's <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p884" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">884</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p884" id="p884" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*884</a> stock. <i>Id.</i> The trial court appointed a receiver to liquidate the corporation. <i>Id.</i></div>
<div style="position: relative;">
We rejected the minority shareholders' mismanagement claims, but we recognized that the finding that Patton had used "his control of the board for the malicious purpose of ... preventing dividends and otherwise lowering the value ... of the stock of the [minority shareholders], is something else." <i>Id.</i> at 853. We equated this finding with a "breach of trust for which the courts will afford a remedy," <i>id.</i> at 854, and the cases on which we relied indicate that we treated that claim as being brought by the shareholders on behalf of the corporation. <i>See id.</i> (citing <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=4133129706625137540&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Becker v. Dirs. of Gulf City St. Ry. & Real-Estate Co.,</i>80 Tex. 475, 15 S.W. 1094 (1891)</a>; <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=11444303630822384670&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Cates v. Sparkman,</i> 73 Tex. 619, 11 S.W. 846 (1889)</a>). We determined that the appropriate remedy in that circumstance was an injunction order compelling payment of the dividends. <i>Id.</i> at 859, 279 S.W.2d 848.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[50]" name="r[50]" style="color: #660099;">[50]</a></sup></div>
<div style="position: relative;">
Patton demonstrates that when a corporate director violates the duty to act solely for the benefit of the corporation and refuses to declare dividends for some other, improper purpose, the director breaches fiduciary duties to the corporation, and the minority shareholders are entitled to relief, either directly to the corporation or through a derivative action.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[51]" name="r[51]" style="color: #660099;">[51]</a></sup> <i>See </i><a href="https://scholar.google.com/scholar_case?case=18147152910353870315&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Landon v. S & H Mktg. Group, Inc.,</i> 82 S.W.3d 666, 677 (Tex.App.-Eastland 2002, no pet.)</a> (upholding breach-of-fiduciary-duty claim against officer-director who improperly authorized $40,000 bonus payment to himself). If, on the other hand, the director's decision not to declare dividends is made for the benefit of the corporation, in compliance with the duties of care and loyalty, no relief is warranted. In that instance, a director generally will have fulfilled the duties by acting in the best interest of the corporation, even if there was an incidental injury to one or more individual shareholders. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=11708320726430686243&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Rowe v. Rowe,</i> 887 S.W.2d 191, 198 (Tex.App.-Fort Worth 1994, writ denied)</a> (holding that shareholder could not prevail on breach-of-fiduciary-duty claim against other shareholder because alleged mishandling of funds did not result in any injury to the corporation).</div>
<div style="position: relative;">
In sum, a remedy exists for dividend decisions made in violation of a director's duties to the corporation and its shareholders collectively, but no remedy exists for decisions that comply with those duties, even if they result in incidental harm to a minority shareholder's individual interests. But even when a corporate <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p885" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">885</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p885" id="p885" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*885</a> controller's dividend decision itself does not give rise to a remedy, that is not typically the end of the inquiry. Allegations that directors or controlling shareholders are manipulating dividends to "oppress" minority shareholders typically arise when the accused not only withhold dividends but also use some method to distribute the corporation's profits exclusively to themselves—frequently, by inflating their own salaries. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=14497568670782333649&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Boehringer,</i> 404 S.W.3d at 31-32</a> (addressing failure to pay dividends coupled with increase in controlling shareholder-director's salary).<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[52]" name="r[52]" style="color: #660099;">[52]</a></sup> As discussed below, when corporate controllers misappropriate corporate funds for their own use or pay themselves excessive salaries out of corporate coffers, they do so in violation of their fiduciary duty to the corporation, and the law affords a remedy for that misconduct.</div>
<div style="position: relative;">
We therefore conclude that the existing duties and remedies applicable to corporate dividend declarations and payments offer adequate protections for minority shareholders under most circumstances.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[53]" name="r[53]" style="color: #660099;">[53]</a></sup> This case does not present any extreme or unusual circumstances that would justify the imposition of additional duties and remedies.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
3. Termination of Employment</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
A third common complaint of those alleging minority shareholder oppression relates to the termination of the minority shareholder's employment with the corporation. A minority shareholder's loss of employment with a closely held corporation can be particularly harmful because a job and its salary are often the sole means by which shareholders receive a return on their investment in the corporation. We must be particularly careful in considering this complaint, however, because Texas is steadfastly an at-will employment state. "For well over a century, the general rule in this State, as in most American jurisdictions, has been that absent a specific agreement to the <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p886" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">886</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p886" id="p886" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*886</a> contrary, employment may be terminated by the employer or the employee at will, for good cause, bad cause, or no cause at all." <a href="https://scholar.google.com/scholar_case?case=2801058638339171260&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Montgomery Cnty. Hosp. Dist. v. Brown,</i> 965 S.W.2d 501, 502 (Tex.1998)</a>. We need not address the policy reasons for our commitment to at-will employment in detail here, but we note that we have consistently recognized that it benefits both employees, by allowing them to change employers freely as they deem best, and employers, by allowing them to make employment decision as they deem best, without second-guessing by courts and juries. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=13042147423014970865&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Marsh USA Inc. v. Cook,</i> 354 S.W.3d 764, 776 (Tex.2011)</a> ("A person's right to use his own labor in any lawful employment is ... one of the first and highest of civil rights.") (quoting <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=15540654221523590556&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Int'l Printing Pressmen & Assistants' Union of N. Am. v. Smith,</i> 145 Tex. 399, 198 S.W.2d 729, 740 (1947)</a>); <a href="https://scholar.google.com/scholar_case?case=9420506363001398687&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Chevron Corp. v. Redmon,</i> 745 S.W.2d 314, 318 (Tex.1987)</a> ("Employers should have the right and the freedom to make their employment decisions without interference unless they discriminate against some protected group which might otherwise be unfairly denied employment.").</div>
<div style="position: relative;">
Although at-will employment is the default, employers and employees have the freedom to contract for a different employment relationship. <i>See</i> TEX. BUS. ORGS. CODE § 2.101(5). In fact, the Business Organizations Code expressly permits corporate shareholders to memorialize the terms of employment for a director, officer, or other employee in a shareholders' agreement. <i>Id.</i> §§ 21.101(a)(4), 21.714(b)(9). In the absence of such a contract, however, we may not presume that the company and its shareholders elected to forgo their at-will employment rights, for to do so would violate this State's strong policy in favor of at-will employment. <i>Cf. </i><a href="https://scholar.google.com/scholar_case?case=14054414414330380196&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Tex. Farm Bureau Mut. Ins. Cos. v. Sears,</i> 84 S.W.3d 604, 608 (Tex.2002)</a> ("At-will employment is an important and longstanding doctrine in Texas, and we have been reluctant to impose new common-law duties that would alter or conflict with the at-will relationship." (citations omitted)).</div>
<div style="position: relative;">
There may be situations in which, despite the absence of an employment agreement, termination of a key employee is improper, for no legitimate business purpose, intended to benefit the directors or individual shareholders at the expense of the minority shareholder, and harmful to the corporation. Though the ultimate determination will depend on the facts of a given case, such a decision could violate the directors' fiduciary duties to exercise their "uncorrupted business judgment for the sole benefit of the corporation" and to refrain from "usurp[ing] corporate opportunities for personal gain."<a href="https://scholar.google.com/scholar_case?case=1309613343942585921&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Holloway,</i> 368 S.W.2d at 577</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=444296581158582167&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Gearhart Indus.,</i> 741 F.2d at 723-24</a>. As we have already discussed, a shareholder may enforce these duties through a derivative action,<i>see</i> TEX. BUS. ORGS.CODE §§ 21.551-.563, and the Legislature's special rules would apply if the matter involved a closely held corporation. <i>Id.</i> §§ 21.563(b), 21.751-.763. We also note that such actions could potentially be "oppressive" under section 11.404, and thus justify the appointment of a rehabilitative receiver. <i>See</i> TEX. BUS. ORGS. CODE § 11.404(a)(1)(C); <i>see also</i> former art. 7.05(A)(1)(c). For employment terminations that fall short of these extreme circumstances, however, our commitment to the principles of at-will employment compels us to conclude that the opportunity to contract for any desired employment assurances is sufficient.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
4. Misapplication of Corporate Funds and Diversion of Corporate Opportunities</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p887" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">887</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p887" id="p887" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*887</a> A fourth common complaint of minority shareholders involves the misapplication of corporate funds and diversion of corporate opportunities. As to this complaint, we need only note that the duty of loyalty that officers and directors owe to the corporation specifically prohibits them from misapplying corporate assets for their personal gain or wrongfully diverting corporate opportunities to themselves. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=1309613343942585921&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Holloway,</i> 368 S.W.2d at 576</a> ("A corporate fiduciary is under obligation not to usurp corporate opportunities for personal gain, and equity will hold him accountable to the corporation for his profits if he does so."); <a href="https://scholar.google.com/scholar_case?case=2333594735777447438&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Dunagan v. Bushey,</i> 152 Tex. 630, 636, 263 S.W.2d 148, 152 (1953)</a> ("The directors of a corporation stand in a fiduciary relationship to the corporation and its stockholders, and they are without authority to act as such in a matter in which a director's interest is adverse to that of the corporation. The directors are not permitted to appropriate the property of the corporation to their benefit, nor should they permit others to do so."); <i>see also</i> TEX. BUS. ORGS.CODE § 7.001(c)(1), (3). Like most of the actions we have already discussed, these types of actions may be redressed through a derivative action, or through a direct action brought by the corporation, for breach of fiduciary duty.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[54]" name="r[54]" style="color: #660099;">[54]</a></sup> <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=1309613343942585921&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Holloway,</i> 368 S.W.2d at 576</a>; <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=4133129706625137540&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Becker,</i> 15 S.W. at 1095-97</a> (permitting shareholders to bring suit on behalf of company for corporate directors' alleged misapplication of corporate funds); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=3373804657716150484&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Wingate v. Hajdik,</i> 795 S.W.2d 717, 719 (Tex.1990)</a> (holding that sole shareholder could recover on behalf of company, but not in individual capacity, for former shareholder and officer's misappropriation of corporate assets). And in limited circumstances, as we have discussed, the shareholder may sue directly for a rehabilitative receivership. <i>See</i> former art. 7.05(A)(1); TEX. BUS. ORGS. CODE § 11.404(a)(1).</div>
<div style="position: relative;">
Because the potential harm here is to the corporation and the shareholders collectively, this misconduct does not weigh in favor of recognizing an additional common-law remedy for individual shareholders.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
5. Manipulation of Stock Values</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
The final common minority shareholder complaint that we will address involves the directors' manipulation of the value of the corporation's stock. Although not alleged here, there may be circumstances in which the controlling shareholders or directors of a closely held corporation seek to artificially deflate the shares' value, perhaps to allow the company or its shareholders to purchase a minority shareholder's shares for less than their true market value, or to hinder a minority shareholder's sale of shares to third parties. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Patton,</i> 279 S.W.2d at 849-53</a>. As a rule, however, claims based on such conduct belong to the corporation, rather than the individual shareholder. <i>See</i><a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=7651370902574572236&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Mass. v. Davis,</i> 140 Tex. 398, 407, 168 S.W.2d 216, 221 (1942)</a>. As we explained over 70 years ago:</div>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
Generally, the individual stockholders have no separate and independent right of action for injuries suffered by the corporation which merely result in the depreciation of the value of their stock. This rule is based on the principle that where such an injury occurs each shareholder suffers relatively in proportion to <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p888" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">888</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p888" id="p888" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*888</a> the number of shares he owns, and each will be made whole if the corporation obtains restitution or compensation from the wrongdoer. Such action must be brought by the corporation, not alone to avoid a multiplicity of suits by the various stockholders and to bar a subsequent suit by the corporation, but in order that the damages so recovered may be available for the payment of the corporation's creditors, and for proportional distribution to the stockholders as dividends, or for such other purposes as the directors may lawfully determine.</blockquote>
<div style="position: relative;">
<i>Id.</i><sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[55]" name="r[55]" style="color: #660099;">[55]</a></sup></div>
<div style="position: relative;">
As with the other conduct we have addressed, the directors' fiduciary duties to the corporation provide protection for minority shareholders affected by such conduct when the conduct harms them in their capacity as shareholders. Though we recognize that the directors may endeavor in such conduct to harm the interests of one or more individual minority shareholders without harming the corporation (i.e., without giving rise to damages recoverable in a derivative suit), for the reasons discussed below, we cannot adopt a common-law rule that requires directors to act in the best interests of each individual shareholder at the expense of the corporation.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[56]" name="r[56]" style="color: #660099;">[56]</a></sup></div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
6. Summary of Existence and Adequacy of Other Protections</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
The Legislature has already dictated what rights of access a shareholder has to corporate books and records, and no party alleges that the Legislature's statutory scheme is inadequate to protect shareholders in closely held corporations from improper denial of access to corporate records. <i>See, e.g., D'Unger,</i> 207 S.W.3d at 331; <i>O'Bryant,</i>18 S.W.3d at 216; <i>Austin,</i> 967 S.W.2d at 401. The four remaining categories of conduct identified as frequent causes of shareholder oppression—withholding or refusing to declare dividends, termination of employment, misapplication of corporate funds or misappropriation of corporate opportunities, and manipulation of corporate share values—all relate to business decisions that fall under the authority of a corporation's offices and directors. As such, they are subject to an officer or director's fiduciary duties to the corporation. We conclude that these legal duties are sufficient to protect the legitimate interests of a minority shareholder by protecting the well-being of the corporation.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[57]" name="r[57]" style="color: #660099;">[57]</a></sup>Absent a contractual or other <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p889" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">889</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p889" id="p889" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*889</a> legal obligation,<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[58]" name="r[58]" style="color: #660099;">[58]</a></sup> the officer or director has no duty to conduct the corporation's business in a manner that suits an individual shareholder's interests when those interests are not aligned with the interests of the corporation and the corporation's shareholders collectively.</div>
<div style="position: relative;">
We recognize that our conclusion leaves a "gap" in the protection that the law affords to individual minority shareholders, and we acknowledge that we could fill the gap by imposing a common-law duty on directors in closely held corporations not to take oppressive actions against an individual shareholder even if doing so is in the best interest of the corporation. To determine whether imposing such a duty is advisable, however, we must consider the public policies at play, the consequences of imposing the duty, the duty's social utility, and whether the duty would conflict with existing law or upset the Legislature's careful balancing of competing interests in governing business relationships.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
C. Consequences of Proposed Duty</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
"Tort law ... cannot remedy every wrong." <a href="https://scholar.google.com/scholar_case?case=13580576374315523710&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Roberts v. Williamson,</i> 111 S.W.3d 113, 118 (Tex.2003)</a>. "The fundamental purposes of our tort system are to deter wrongful conduct, shift losses to responsible parties, and fairly compensate deserving victims." <i>Id.</i> We do not believe that the creation of a common-law claim for minority shareholder oppression would fulfill these purposes, nor is the creation of such a claim necessary to do so.</div>
<div style="position: relative;">
We begin by considering the type of actions that would qualify as "oppressive" under a common-law cause of action. In deciding whether to recognize a new common-law cause of action, we must consider whether the new duty would provide clear standards that would deter the undesirable conduct without deterring desirable conduct or unduly restricting freedoms. <i>See </i><a href="https://scholar.google.com/scholar_case?case=12444371162582339745&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Nabors Drilling,</i> 288 S.W.3d at 410</a>; <a href="https://scholar.google.com/scholar_case?case=880439261860509790&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Gomez,</i> 146 S.W.3d at 193</a>. As our discussion of the Legislature's undefined usage of the term "oppressive" has revealed, the term falls far short of providing any clear standards. Adopting the Legislature's intended meaning of "oppressive" as the same meaning for a common-law claim would merely duplicate the statutory cause of action while permitting remedies that the Legislature has chosen not to permit. Yet adopting a meaning of "oppressive" that differs from the Legislature's would only create more confusion and foster both uncertainty and unnecessary litigation. <i>See </i><a href="https://scholar.google.com/scholar_case?case=13580576374315523710&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Roberts,</i> 111 S.W.3d at 118-19</a> (observing that proposed duty would "foster uncertainty" as well as disparity in recovery among similarly situated parties).<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[59]" name="r[59]" style="color: #660099;">[59]</a></sup></div>
<div style="position: relative;">
Even the most developed common-law standards for "oppression"—the "reasonable expectations" and "fair dealing" tests—have been heavily criticized for <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p890" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">890</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p890" id="p890" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*890</a> their lack of clarity and predictability.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[60]" name="r[60]" style="color: #660099;">[60]</a></sup> The "reasonable expectations" test may be less amorphous than a case-by-case analysis of whether actions are "fair," but application becomes increasingly difficult when the complaining shareholder obtained his or her shares by gift or inheritance, as was the case here and as is a common occurrence in closely held businesses.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[61]" name="r[61]" style="color: #660099;">[61]</a></sup></div>
<div style="position: relative;">
Ultimately, because the standard is so vague and subject to so many different meanings in different circumstances, we conclude that creating new and independent legal remedies for "oppressive" actions is simply bad jurisprudence. Although we do not foreclose the possibility that a proper case might justify our recognition of a new common-law cause of action to address a "gap" in protection for minority shareholders, any such theory of liability will need to be based on a standard that is far more concrete than the meaning of "oppressive."</div>
<div style="position: relative;">
In addition, even if we were to utilize the Legislature's intended meaning of the term "oppressive," our consideration of the competing interests and consequences convinces us to decline to expand a claim for shareholder oppression to provide relief beyond appointment of a rehabilitative receiver. In this context, we must consider not only the interests of the minority shareholder, but also the potential consequences to the corporation itself, the officers and directors on whom the duty is imposed, the other shareholders of the corporation, and business relationships in general. <i>See, e.g.,</i><a href="https://scholar.google.com/scholar_case?case=4458791927101758903&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Strickland v. Medlen,</i> 397 S.W.3d 184, 185 (Tex.2013)</a> (listing a myriad of unintentional consequences that might attend liability for compensating emotional damages arising from the loss of a pet). Imposing on directors and officers a common-law duty not to act "oppressively" against individual shareholders is the equivalent of, or at least closely akin to, imposing on directors and officers a fiduciary duty to individual shareholders. We have not previously recognized a formal fiduciary duty to individual shareholders, and we believe that better judgment counsels against doing so.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[62]" name="r[62]" style="color: #660099;">[62]</a></sup></div>
<div style="position: relative;">
<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p891" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">891</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p891" id="p891" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*891</a> Finally, we consider public policies regarding the role of the judiciary in government and in society. As we previously noted, we have consistently recognized that corporate relationships are largely matters governed by statute and contract. More than a century ago, this Court expressed our reluctance to allow courts to "control or interfere in the management of the corporate or internal affairs of an incorporated company." <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=11444303630822384670&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Cates,</i> 11 S.W. at 848-49</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=11186477474926062750&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Kroese v. Gen. Steel Castings Corp.,</i> 179 F.2d 760, 763 (3d Cir.1950)</a> ("Courts are rightly reluctant to interfere with the management of a business concern by the individuals who have been selected by its owners to manage it."); <a href="https://scholar.google.com/scholar_case?case=5288112630076541028&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Salgo v. Matthews,</i> 497 S.W.2d 620, 625 (Tex.Civ.App.-Dallas 1973, writ ref'd n.r.e</a>.) (discussing the dangers of court intervention in ongoing stockholder disputes). We are equally reluctant to permit courts to interfere with the freely negotiated terms of a private contract, or to insert into such a contract rights or obligations that the parties could have bargained for but did not. <i>See </i><a href="https://scholar.google.com/scholar_case?case=11789411505431337157&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Tenneco Inc. v. Enter. Prods. Co.,</i> 925 S.W.2d 640, 646 (Tex.1996)</a>. The Legislature has by statute provided a remedy for "oppressive" actions that is limited yet sufficient, and shareholders in closely held corporations may further define their respective rights and obligations through shareholder agreements.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
D. Conclusion on Common-law Action for Oppression</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
The Legislature has crafted a statutory scheme governing domestic corporations. The statutes are detailed and extensive, reflecting legislative policy judgments about when the government should step in to impose rights and obligations on the parties and when the parties should be free to dictate their own rights and obligations vis-à-vis each other and the business. This Court has the prerogative to superimpose a common-law cause of action upon this statutory framework—though not to alter or contravene the statutory framework—but we exercise that power sparingly, careful not to upset the Legislative balance of policies, and only when warranted by a genuine need. <i>See, e.g., D'Unger,</i>207 S.W.3d at 331; <i>O'Bryant,</i> 18 S.W.3d at 216; <i>Austin,</i> 967 S.W.2d at 401; <i>see also</i><a href="https://scholar.google.com/scholar_case?case=6562509226737462975&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Twyman,</i> 855 S.W.2d at 630 (Hecht, J., joined by Enoch, J., concurring in part and dissenting in part)</a> ("This Court, as steward of the common law, possesses the power to recognize new causes of action, but the mere existence of that power cannot justify its exercise. There must be well-considered, even compelling grounds for changing the law so significantly. Where, as here, no such grounds are given, the decision is more an exercise of will than of reason."). We find no such necessity here, and therefore decline to recognize a common-law cause of action for "shareholder oppression."</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
IV.</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
Breach of Informal Fiduciary Duties</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
Finally, we address Rupe's contention that we may affirm the trial court's buy-out order based on the jury's finding in her favor on her breach-of-fiduciary-duty claim. Rupe's fiduciary duty claim is not based on the formal fiduciary duties that officers and directors owe to the corporation by virtue of their management position. <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p892" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">892</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p892" id="p892" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*892</a> Rather, Rupe alleged, and the jury found, that an informal fiduciary relationship existed between her and Dennard, Ritchie, and Lutes.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[63]" name="r[63]" style="color: #660099;">[63]</a></sup> In the court of appeals, Dennard, Ritchie, and Lutes challenged whether such a relationship existed and whether Dennard, Ritchie, and Lutes breached any fiduciary duties if they did exist. They also argued that a court-ordered buyout is not available as a remedy for Rupe's breach-of-fiduciary-duty claim. Because the court of appeals based its decision solely on the finding of oppressive conduct, we remand this case to the court of appeals so that it may resolve Dennard, Ritchie, and Lutes's challenges to Rupe's breach-of-fiduciary-duty claim. The court of appeals previously found that the evidence does not support the jury's valuation of Rupe's shares. Thus, if the court of appeals concludes that Rupe may recover on her breach-of-fiduciary-duty claim, and that the buyout order is available as a remedy, it will need to remand the case to the trial court for a redetermination of the value of Rupe's shares and whether the buyout is equitable in light of the newly determined value and the impact that a buyout at that price will have on RIC and its other shareholders.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
V.</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
Conclusion</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
For the reasons expressed, we reverse the court of appeals' judgment and remand the case to that court for further proceedings consistent with this opinion.</div>
<div style="position: relative;">
Justice GUZMAN filed a dissenting opinion, in which Justice WILLETT and Justice BROWN joined.</div>
<div style="position: relative;">
Justice GUZMAN, joined by joined by Justice WILLETT and Justice BROWN, dissenting.</div>
<div style="position: relative;">
Thirty-seven states, including Texas, have statutes allowing a court to appoint some form of receiver over a closely held corporation for shareholder oppression. Today, Texas becomes the first of these jurisdictions with a statute that unequivocally prefers lesser remedies to effectively preclude those remedies—despite overwhelming authority observing that, to the contrary, many if not all jurisdictions allow these lesser remedies.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[64]" name="r[64]" style="color: #660099;">[1]</a></sup>But even jurisdictions with statutes that are silent on lesser remedies have interpreted their statutes to impliedly allow them. This departure from the plain language of the statute negates protections the law and Texas courts of appeals have long afforded to minority shareholders.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[65]" name="r[65]" style="color: #660099;">[2]</a></sup></div>
<div style="position: relative;">
Historically, legislatures have recognized that minority shareholders are particularly vulnerable to abuse by majority shareholders and are thus entitled to significant protections. Without protection, shareholder oppression can significantly devalue or destroy the minority shareholder's investment.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[66]" name="r[66]" style="color: #660099;">[3]</a></sup> As one colloquial anecdote <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p893" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">893</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p893" id="p893" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*893</a>declares, "`[t]here are 51 shares ... that are worth $250,000. There are 49 shares that are not worth a ____'"<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[67]" name="r[67]" style="color: #660099;">[4]</a></sup> Over half a century ago, when Texas enacted its shareholder oppression statute, we warned that "[a] minority stock interest is far from `change left on the counter.'"<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[68]" name="r[68]" style="color: #660099;">[5]</a></sup> Ignoring our prescient observation, the Court today largely relegates minority stock interests to the "change left on the counter" we feared they might become. This radical departure from settled precedents and expectations is primarily the result of the Court effectively rewriting the statute to abolish the lesser remedies the statute prefers as well as the Court's strict definition of oppression that will render any recovery highly unlikely. The Court today defines oppression as a decision that harms the corporation and was not determined in the honest exercise of business judgment. But typical acts of minority shareholder oppression (refusing to pay dividends, paying majority shareholders outside the dividend process, and making fire-sale buyout offers) usually operate to benefit the corporation and hardly ever harm it.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[69]" name="r[69]" style="color: #660099;">[6]</a></sup> The ultimate effect of this holding is to negate the very foundations of protection the legislatures and U.S. courts have long afforded to minority shareholders in closely held corporations.</div>
<div style="position: relative;">
Here, the minority shareholder prevailed on her oppression and fiduciary duty claims at trial by presenting legally sufficient evidence that the majority shareholders and corporation made bargain offers to buyout her stock, warned her that it would be the only purchaser of her stock, withheld corporate information from her, refused to meet with prospective purchasers of her shares, and paid personal expenses of a majority shareholder with corporate funds. Indeed, the chairman of the corporation's board of directors admitted at trial that refusing to meet with prospective purchasers was oppressive. Because the Court extinguishes meaningful protections for minority shareholders and renders a take nothing judgment on a valid shareholder oppression claim, I respectfully dissent.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
I. Background</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
The structure of closely held corporations situates minority shareholders in positions uniquely vulnerable to abuse. <a href="https://scholar.google.com/scholar_case?case=8724556511632989825&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Hollis v. Hill,</i> 232 F.3d 460, 467 (5th Cir.2000)</a>. Typically, a board of directors elected by a majority of the voting interest of the shareholders oversees the corporation, which operates through officers that report to the board. TEX. BUS. ORGS. CODE §§ 3.103(b), 21.401(a). Generally, these minority shareholders have no right to participate in the management of the corporation, and the directors often elect themselves as officers of the corporation. As an amicus brief submitted by several professors and faculty of Texas law <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p894" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">894</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p894" id="p894" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*894</a> schools<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[70]" name="r[70]" style="color: #660099;">[7]</a></sup> demonstrates, the majority shareholders have the power to freeze out the minority shareholders by denying them employment and failing to pay dividends.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[71]" name="r[71]" style="color: #660099;">[8]</a></sup> The majority shareholders can magnify the economic impact of the freeze out scheme by using corporate funds to personally benefit themselves and denying the minority shareholders access to corporate information—conduct commonly referred to as a "freeze out."<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[72]" name="r[72]" style="color: #660099;">[9]</a></sup> And the majority shareholders can ultimately offer to redeem the minority shareholder's stock at a bargain price<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[73]" name="r[73]" style="color: #660099;">[10]</a></sup>—often referred to as a "squeeze out."</div>
<div style="position: relative;">
Unlike minority shareholders in partnerships or public corporations, minority shareholders in closely held corporations are uniquely subject to this oppressive conduct because of their inability to freely exit the venture. In a partnership, a minority shareholder has a statutory right to withdraw from the partnership and receive either her share of the proceeds if the remaining partners terminate the partnership or a fair value buyout of her shares if the remaining partners continue the partnership. TEX. BUS. ORGS. CODE §§ 152.501(b)(1), 152.601(1). Likewise, dissatisfied minority shareholders in a publicly held corporation may sell their shares on the open market. But there is no statutory right for a minority shareholder to exit the corporation and receive a return of her investment. And frequently, the only buyers for minority shares of a closely held corporation are the remaining shareholders—who might be engaging in the oppressive conduct from which they could ultimately profit.</div>
<div style="position: relative;">
Ideally, minority shareholders would reach buy-sell or shareholder agreements with the majority shareholders before purchasing minority shares. When disputes arise, shareholders could readily turn to their agreements as the basis for their rights without needing to resort to the law to determine the duties owed. But as one commentator has observed, "[f]rom a relational standpoint, people enter closely-held businesses in the same manner as they enter marriage: optimistically and ill-prepared."<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[74]" name="r[74]" style="color: #660099;">[11]</a></sup> This case exposes the heightened vulnerability to oppression minority shareholders face: the minority shareholder inherited her shares from her husband, who acquired his shares as a member of a family owned business that foresaw no need for shareholder agreements.</div>
<div style="position: relative;">
Giving due consideration to the plight of minority shareholders, thirty-one states have statutes that permit even the harsh remedy of allowing courts to appoint a receiver to liquidate a corporation based on shareholder oppression.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[75]" name="r[75]" style="color: #660099;">[12]</a></sup> Another four <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p895" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">895</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p895" id="p895" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*895</a> states allow liquidation for "persistent unfairness" or "unfairly prejudicial" conduct.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[76]" name="r[76]" style="color: #660099;">[13]</a></sup> One state has broader language for when dissolution is appropriate.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[77]" name="r[77]" style="color: #660099;">[14]</a></sup> Thus, thirty-six states in all appear to allow liquidation for oppressive or similar conduct.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[78]" name="r[78]" style="color: #660099;">[15]</a></sup> <i>See also</i> DOUGLAS K. MOLL & ROBERT A. RAGAZZO, THE LAW OF CLOSELY HELD CORPORATIONS Fig. 7.1 (2012); Robert B. Thompson, <i>The Shareholder's Cause of Action for Oppression,</i> 48 BUS. LAW. 699, 709 n. 70 (1993).</div>
<div style="position: relative;">
Here, Ann married into the Rupe family. Her husband's sister, Paula Dennard, informed Rupe that she would "never get any money in this family." Rupe and her husband, Buddy, wanted to add their son as a beneficiary to the family trust that owned 47% of Rupe Investment Corporation (RIC),<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[79]" name="r[79]" style="color: #660099;">[16]</a></sup> but Dennard and her children refused. When Buddy passed away, Rupe acquired (together with her son)<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[80]" name="r[80]" style="color: #660099;">[17]</a></sup> an 18% interest in RIC.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[81]" name="r[81]" style="color: #660099;">[18]</a></sup> Rupe claims that Dennard and her colleagues Lee Ritchie (a descendant of one of RIC's early owners) and Dennis Lutes (an attorney for RIC and Dennard's family) feared she would sue to reform the trust and add her and Buddy's son as a beneficiary. Dennard serves as chair of RIC's board of directors, and with her children controls over 70% of RIC's voting stock. Ritchie serves as RIC's president, is on the board, and together with his family owns just under 10% of RIC's voting stock. And Lutes serves as vice-president and secretary of RIC and is on the board. Together, Dennard and her children, Ritchie and his family, and Lutes control approximately 79% of RIC's voting shares and three of the board's four positions. The trial court found that Dennard, Ritchie, and Lutes voted the same for every shareholder vote for the entire time relevant to this lawsuit. Before his death, Buddy was RIC's fourth director. RIC's sales were approximately $152 million by 2007.</div>
<div style="position: relative;">
<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p896" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">896</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p896" id="p896" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*896</a> After Buddy's death, Ritchie offered to appoint Rupe to RIC's board if she would agree to not sue another stockholder of RIC, which included the trust. Rupe accepted. Subsequently, when her home was facing foreclosure and she encountered a tax problem, Rupe asked if RIC would purchase her shares. Ritchie responded that RIC would prefer to delay any offer to purchase her shares because one of its subsidiaries was attempting to obtain new financing.</div>
<div style="position: relative;">
Lutes later offered to redeem Rupe's shares for $1 million. Rupe replied that the $1 million buyout offer was "absurd" and was designed to take advantage of her. Dennard, Ritchie, and Lutes then elected Dennard's daughter Gretchen to take Buddy's seat on the board.</div>
<div style="position: relative;">
Ritchie later offered for RIC to purchase Rupe's shares for approximately $1.7 million (or $5,987 per share) to be paid over a seven-year period. In making the offer, Ritchie warned that RIC would be the only purchaser of her stock. Ritchie admitted at trial this value was calculated using the book value of RIC's shareholder equity, and Ritchie and Lutes both conceded that book value was not necessarily representative of market value.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[82]" name="r[82]" style="color: #660099;">[19]</a></sup> RIC's calculation also deducted 50% of the book value of one of its major subsidiaries,<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[83]" name="r[83]" style="color: #660099;">[20]</a></sup> and further reduced the value of Rupe's stock by 46.3%.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[84]" name="r[84]" style="color: #660099;">[21]</a></sup> Ritchie separately informed Dennard that based on the same date he valued Rupe's shares at $5,987 per share, Dennard's shares possessed a book value of $7,032 per share for gift tax purposes. And these offers to purchase Rupe's shares were markedly lower than the per-share prices RIC paid to previous minority shareholders.</div>
<div style="position: relative;">
Unsatisfied with the offer, Rupe retained investment banker George Stasen to market her stock to third parties. When they met, Dennard, several of her children, and Ritchie greeted Stasen in "a very hostile fashion," and Ritchie refused Stasen's request to meet with any potential third-party buyers. They required Rupe and any potential buyer to execute confidentiality agreements that were not subject to negotiation and that granted RIC sole discretion to approve or disapprove disclosure of requested information.</div>
<div style="position: relative;">
According to Stasen, potential buyers laughed at him because they could not be expected to "make a decision on an investment from this limited information without meeting the executives" of a closely held corporation like RIC. Stasen explained that "[t]here was no way I could ever sell anything ... [b]ecause there wasn't enough information in the package and everybody wanted to be able to meet Lee Ritchie and talk to the executives of the companies." Importantly Dennard admitted at trial that she disagreed with Ritchie's refusal to meet with potential third-party buyers, she would want to meet with the president of a closely held corporation before investing, Stasen's request of Ritchie was reasonable, and refusing such a request would be "oppressive to a minority shareholder."</div>
<div style="position: relative;">
Rupe sued Dennard, Ritchie, Lutes, and RIC, claiming shareholder oppression and breach of fiduciary duty. Rupe sought a court-ordered buyout of her shares or, alternatively, the appointment of a receiver <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p897" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">897</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p897" id="p897" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*897</a> to liquidate RIC. Among other things, the jury found after an eight-day trial that: (1) Dennard, Ritchie, Lutes, and RIC engaged in oppressive conduct; (2) RIC failed to allow Rupe to inspect and copy relevant books and records; (3) Dennard paid personal expenses from RIC's corporate funds; (4) Dennard, Ritchie, and Lutes offered Rupe a position on the board if she would agree to not sue a shareholder of RIC; (5) Dennard, Ritchie, and Lutes engaged in oppressive conduct in their redemption offers and treatment of Rupe with regard to inspection and copying of corporate records; (6) Dennard, Ritchie, and Lutes breached their fiduciary duties to Rupe; and (7) the fair value of Rupe's shares was $7.3 million.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[85]" name="r[85]" style="color: #660099;">[22]</a></sup> The trial court entered judgment in favor of Rupe and ordered Dennard, Ritchie, and Lutes to cause RIC to redeem Rupe's shares for $7.3 million. The court of appeals agreed that the conduct amounted to shareholder oppression and a stock buyout was the most appropriate remedy but remanded for a redetermination of the stock's value in light of the lack of marketability and control. 339 S.W.3d 275, 299, 302.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
II. Discussion</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
The Court today holds that because the shareholder oppression statute only expressly addresses the remedy of receivership, no other remedy for oppression is available. And because the remedy of receivership is comparably harsh, the Court imposes a stringent definition of oppression by incorporating the business judgment rule. The Court's logic in applying the business judgment rule in this context would presumably also apply to minority shareholder claims for breach of fiduciary duty. But the Court's initial holding that receivership is the only remedy for oppression is flawed—which necessarily affects the soundness of the Court's remaining holdings.</div>
<div style="position: relative;">
The shareholder oppression statute <i>not only</i> addresses but also <i>prefers</i> lesser legal and equitable remedies than receivership—it does not extinguish them. Because courts may impose lesser remedies, the long-standing definition of oppression that has existed at common law in Texas and a host of other jurisdictions (to which the Legislature has acquiesced) should apply. Further, the business judgment rule is fundamentally incongruent with the concept of minority shareholder oppression because that oppression (such as buying minority shares for a bargain price) typically benefits the corporation. And the oppression statute contemplates use of lesser remedies in situations where oppression exists but does not harm the corporation—further indicating the business judgment rule should not apply. Neither does the business judgment rule have a place in minority shareholder claims for breach of fiduciary duty. I address each point in turn.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
A. Remedy</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
At the heart of this case is the pre-codified version of the Texas oppression statute, former article 7.05. That provision requires a shareholder seeking a rehabilitative receivership to establish that the directors' acts are "illegal, oppressive, or fraudulent." Act of Mar. 30, 1955, 54th Leg., R.S., ch. 64, art. 7.05(A)(1), 1955 Tex. Gen. Laws 239, 290-91, <i>amended by</i> Act of May 3, 1961, 57th Leg., R.S., ch. 169, 1, 1961 Tex. Gen. Laws 319, 319 (hereinafter "former art. 7.05"). Additionally, a court may only appoint a receiver: (1) when the <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p898" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">898</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p898" id="p898" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*898</a> court deems it necessary "to conserve the assets and business of the corporation and to avoid damage to parties at interest," and (2) if "all other requirements of law are complied with" and "all other remedies available either at law or in equity, including the appointment of a receiver for specific assets of the corporation, are determined by the court to be inadequate." Former art. 7.05. In short, a court may appoint a receiver when: (1) the directors engage in oppressive conduct; (2) such conduct harms the corporation; and (3) lesser legal and equitable remedies will not suffice.</div>
<div style="position: relative;">
But the plain language of the oppression statute <i>prefers</i> other remedies—it does not extinguish them. Former article 7.05 provides for receivership only if "all other remedies available either at law or in equity... are determined by the court to be inadequate." Former art. 7.05. If no other remedies are available under the statute or common law, as the Court holds, the oppression statute would have no need to express a preference for their use. Such a holding violates our fundamental canon of construction to not render any statutory language meaningless. <i>See </i><a href="https://scholar.google.com/scholar_case?case=9011485443275750789&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Columbia Med. Ctr. of Las Colinas, Inc. v. Hogue,</i> 271 S.W.3d 238, 256 (Tex.2008)</a> ("The Court must not interpret the statute in a manner that renders any part of the statute meaningless or superfluous."). And in doing so, the Court defeats the very purpose of the Legislature's carefully chosen words.</div>
<div style="position: relative;">
Other jurisdictions with similar oppression statutes have uniformly interpreted them as allowing other lesser remedies. The Texas oppression statute has its roots in the Illinois Business Corporation Act of 1933,<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[86]" name="r[86]" style="color: #660099;">[23]</a></sup> which formed the basis for the Model Business Corporation Act.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[87]" name="r[87]" style="color: #660099;">[24]</a></sup> Courts in states with oppression statutes similar to ours have discussed eight legal and equitable remedies less drastic than a rehabilitative receivership: (1) appointment of a fiscal agent to periodically report to the court; (2) retention of jurisdiction by the court; (3) an accounting of allegedly misappropriated funds; (4) an injunction for oppressive conduct (such as reducing excessive salaries or bonuses); (5) ordering a dividend; (6) ordering a buyout; (7) permitting minority shareholders to purchase additional stock; and (8) awarding damages caused by oppressive conduct. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=17528087572598940390&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Baker v. Commercial Body Builders, Inc.,</i> 264 Or. 614, 507 P.2d 387, 395-96 (1973)</a>; <a href="https://scholar.google.com/scholar_case?case=15196584298940100630&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fix v. Fix Material Co., Inc.,</i> 538 S.W.2d 351, 357 n. 3 (Mo.Ct.App. 1976)</a>. Ironically, the courts that have recognized these remedies attribute the creation of two of them (continuing the exercise of jurisdiction and ordering a dividend) to this very Court-even though the Court extinguishes them today. <i>See </i><a href="https://scholar.google.com/scholar_case?case=17528087572598940390&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Baker,</i>507 P.2d at 395-96</a> (citing <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Patton v. Nicholas,</i> 154 Tex. 385, 279 S.W.2d 848 (1955)</a>);<a href="https://scholar.google.com/scholar_case?case=15196584298940100630&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fix,</i> 538 S.W.2d at 357 n. 3</a> (same).</div>
<div style="position: relative;">
Several courts with statutes similar to ours have specifically addressed the propriety of a buyout as a remedy for oppression.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[88]" name="r[88]" style="color: #660099;">[25]</a></sup> Unsurprisingly, the seminal Texas <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p899" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">899</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p899" id="p899" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*899</a> case on the issue has likewise agreed with this authority in recognizing the availability of a buyout under our oppression statute that expresses a preference for the use of lesser legal and equitable remedies. <a href="https://scholar.google.com/scholar_case?case=8525518333477071858&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Davis v. Sheerin,</i> 754 S.W.2d 375, 380 (Tex.App.-Houston [1st Dist.] 1988, writ denied)</a> ("Texas courts, under their general equity power, may decree a [buyout] in an appropriate case...."). Texas courts of appeals have agreed.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[89]" name="r[89]" style="color: #660099;">[26]</a></sup>And several courts in other jurisdictions whose oppression statutes address no remedy other than dissolution have found buyouts to be appropriate remedies for oppression.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[90]" name="r[90]" style="color: #660099;">[27]</a></sup></div>
<div style="position: relative;">
Importantly, I am aware of no state that has interpreted their shareholder oppression statute as foreclosing all remedies except receivership, as the Court does today. Indeed, other state supreme courts have cited this Court's precedent for the proposition that "[m]ost states have adopted the view that a dissolution statute does not provide the exclusive remedy for injured shareholders and that the courts have equitable powers to fashion appropriate remedies where the majority shareholders have breached their fiduciary duty to the minority by engaging in oppressive conduct."<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[91]" name="r[91]" style="color: #660099;">[28]</a></sup></div>
<div style="position: relative;">
Commentators are in accord with the host of jurisdictions that recognize courts retain the authority to implement lesser legal and equitable remedies for shareholder oppression. As one commentator has observed, because most oppression statutes are based on the Model Business Corporation Act, "alternative relief, particularly buy-outs of minority shareholders, is available in most, if not all, jurisdictions."<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[92]" name="r[92]" style="color: #660099;">[29]</a></sup> And leading scholars on shareholder oppression have observed that buyouts "are the most common remedy for dissension within a close corporation."<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[93]" name="r[93]" style="color: #660099;">[30]</a></sup> <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p900" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">900</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p900" id="p900" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*900</a> But ignoring the plain language of the statute and the great weight of authority against its holding, today Texas becomes the first jurisdiction to hold that an oppression statute abolishes the remedies it expressly prefers.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
B. Definition of Oppression</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
The Court's first misinterpretation of the statute (that there is but one remedy) results in a second: that oppression must have an unduly restrictive definition. The Court observes that receivership is a harsh or drastic remedy, designed for situations that pose a serious threat to the corporation and its shareholders.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[94]" name="r[94]" style="color: #660099;">[31]</a></sup> 443 S.W.3d at 903; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=2626361424830337155&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Balias v. Balias,</i> 748 S.W.2d 253, 257 (Tex.App.-Houston [14th Dist.] 1988, writ denied)</a>. The Court has taken a position commentators previously warned against: "the view of dissolution as a `drastic' remedy generally works to the disadvantage of minority shareholders."<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[95]" name="r[95]" style="color: #660099;">[32]</a></sup> Because the Court concludes that receivership is the only remedy under the oppression statute and that it is drastic or harsh, it adopts a novel and strict definition of oppression:</div>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
when [directors or managers] abuse their authority over the corporation with the intent to harm the interests of one or more of the shareholders, in a manner that does not comport with the honest exercise of their business judgment, and by doing so create a serious risk of harm to the corporation.</blockquote>
<div style="position: relative;">
443 S.W.3d at 871. The business judgment rule shields directors and managers from liability for rational decisions made for the benefit of the corporation.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[96]" name="r[96]" style="color: #660099;">[33]</a></sup> If there is no harm to the corporation, the director or manager has not violated the business judgment rule (and might not have violated the rule even if there is harm to the corporation if the decision was made in the honest exercise of business judgment). Thus, the Court's definition of oppression will only allow recovery if a director or manager fails to honestly exercise her business judgment and harms a minority shareholder as well as the corporation itself.</div>
<div style="position: relative;">
The Texas oppression statute and the court of appeals cases construing it did not develop in a vacuum. The developing body of law in Texas and beyond indicates why the Court's restrictive definition of oppression is unwarranted. Like many other states, Texas's statute was similar to <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p901" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">901</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p901" id="p901" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*901</a> the Model Act.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[97]" name="r[97]" style="color: #660099;">[34]</a></sup> As discussed above, the overwhelming majority of courts have construed their oppression statutes to allow for remedies other than receivership. <i>See supra</i> Part II.A. As commentators have observed, "less drastic remedies [than dissolution] may be justified by less oppressive conduct than that required to dissolve a corporation."<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[98]" name="r[98]" style="color: #660099;">[35]</a></sup> Accordingly, courts have "almost uniformly taken a broad approach to defining oppressive conduct, and where alternatives to dissolution do not exist by statute, have upheld the general equitable power of the courts to fashion such alternatives. The pattern appears firmly established"—except as of today in Texas.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[99]" name="r[99]" style="color: #660099;">[36]</a></sup></div>
<div style="position: relative;">
New York has primarily shaped the definitions of oppression in the United States.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[100]" name="r[100]" style="color: #660099;">[37]</a></sup> The first New York court to squarely address the issue observed that "[w]hether the controlling shareholders discharged petitioner for cause or in their good business judgment is irrelevant;" rather, what was relevant was the minority shareholder's "reasonable expectations." <a href="https://scholar.google.com/scholar_case?case=7874616668002379946&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>In re Topper,</i> 107 Misc.2d 25, 433 N.Y.S.2d 359, 362 (N.Y.Sup.Ct.1980)</a>. The reasonable expectations test for oppression has been further refined as "when the majority's conduct substantially defeats the expectations that objectively viewed were both reasonable under the circumstances and were central to the minority shareholder's decision to join the venture." <a href="https://scholar.google.com/scholar_case?case=8525518333477071858&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Davis,</i> 754 S.W.2d at 381</a> (citing<a href="https://scholar.google.com/scholar_case?case=16611735921177751989&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>In re Wiedy's Furniture Clearance Ctr. Co.,</i> 108 A.D.2d 81, 487 N.Y.S.2d 901, 903 (N.Y.App.Div.1985)</a>). High courts in Alaska, Iowa, Maryland, Montana, New Jersey, New Mexico, North Carolina, North Dakota, Rhode Island, and Washington have followed New York's lead in adopting the reasonable expectations test.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[101]" name="r[101]" style="color: #660099;">[38]</a></sup> And this test is firmly established in Texas jurisprudence, with the Amarillo, Corpus Christi, Dallas, El Paso, Fort Worth, Houston (1st <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p902" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">902</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p902" id="p902" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*902</a> and 14th Districts), San Antonio, Texarkana, and Tyler courts of appeals having applied the test in shareholder oppression cases.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[102]" name="r[102]" style="color: #660099;">[39]</a></sup></div>
<div style="position: relative;">
But the reasonable expectations test can be a poor fit when the minority shareholder, such as the one here, inherited her shares (perhaps indicating she had no investment expectations at all).<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[103]" name="r[103]" style="color: #660099;">[40]</a></sup> Due to such circumstances, New York courts developed a test for finding oppression if the conduct of the majority becomes "burdensome, harsh and wrongful." <a href="https://scholar.google.com/scholar_case?case=13074127656788114210&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Gimpel v. Bolstein,</i> 125 Misc.2d 45, 477 N.Y.S.2d 1014, 1020 (N.Y.Sup.Ct.1984)</a>. High courts in Maine, Mississippi, Oregon, Rhode Island, and Washington have followed this test,<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[104]" name="r[104]" style="color: #660099;">[41]</a></sup> as have the courts of appeals in Texas.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[105]" name="r[105]" style="color: #660099;">[42]</a></sup></div>
<div style="position: relative;">
Because of the panoply of legal and equitable remedies Texas and other courts have recognized for oppression, these two definitions of oppression are firmly established in Texas and national jurisprudence and allow courts the flexibility to craft remedies for the varying types of oppression.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[106]" name="r[106]" style="color: #660099;">[43]</a></sup> There is no valid basis to overturn this mountain of jurisprudence, leave Texas out of step with other jurisdictions whose statutes are similar to ours, and chill investment in closely held corporations.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p903" style="color: #aaaaaa; font-size: 13px; font-weight: normal; left: -55px; position: absolute; text-decoration: none;">903</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p903" id="p903" style="color: #aaaaaa; font-size: 13px; font-weight: normal; text-decoration: none;">*903</a> C. The Business Judgment Rule</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
In addition to crafting a restrictive definition of oppression, the Court embeds in its definition the business judgment rule, shielding majority shareholders and directors from liability for decisions that do not harm the corporation or that were made in the honest exercise of business judgment. But the business judgment rule is fundamentally at odds with the lesser shareholder oppression remedies the oppression statute expressly prefers. The Court's inclusion of the rule in the definition of oppression negates the very protection the oppression statute afforded until today.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[107]" name="r[107]" style="color: #660099;">[44]</a></sup></div>
<div style="position: relative;">
When crafting the reasonable expectations test for shareholder oppression, the New York court observed that "[w]hether the controlling shareholders discharged petitioner for cause or in their good business judgment is irrelevant." <a href="https://scholar.google.com/scholar_case?case=7874616668002379946&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Topper,</i> 433 N.Y.S.2d at 362</a>. A number of other courts have likewise rejected the business judgment rule in minority shareholder oppression cases.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[108]" name="r[108]" style="color: #660099;">[45]</a></sup></div>
<div style="position: relative;">
Commentators have agreed that the business judgment rule should not apply in shareholder oppression cases. As one leading commentator has explained:</div>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
[T]he shareholder oppression doctrine recognizes that decisions about such matters by a majority-controlled board can be part of a minority shareholder freeze-out. The oppression doctrine, therefore, is implicitly premised upon the notion that close corporation employment, management, and dividend decisions require more than a mere surface inquiry into the majority's conduct. Indeed, the fact that courts applying the oppression doctrine are subjecting the majority's actions to "reasonable expectations" or "burdensome, harsh, and wrongful conduct" standards suggests that courts are requiring majority shareholders to do more than merely articulate a rational business purpose for their decisions.</blockquote>
<div style="position: relative;">
Douglas K. Moll, <i>Shareholder Oppression in Texas Close Corporations: Majority Rule Isn't What It Used To Be,</i> 1 HOUS. BUS. & TAX. L.J. 12, 20 (2001) (citations omitted);<i>see also</i> F. Hodge O'Neal, <i>Close Corporations: Existing Legislation and Recommended Reform,</i> 33 BUS. LAW. 873, 884 (1978) (criticizing the business judgment rule as a conceptual barrier to judicial relief for aggrieved minority shareholders).</div>
<div style="position: relative;">
The typical example of minority shareholder oppression culminates when directors offer to buy a minority shareholder's shares at a fraction of their true value. Such an offer will seemingly always be in the corporation's best interest. For example, the directors here offered at most $1.7 million for shares the jury valued at trial at $7.3 million. If this value were the fair <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p904" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">904</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p904" id="p904" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*904</a> market value,<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[109]" name="r[109]" style="color: #660099;">[46]</a></sup> the shareholder oppression could benefit the corporation by $5.6 million if the minority shareholder accepted. Likewise, refusing to pay dividends to shareholders strengthens the corporation's cash reserves, paying a director's personal expenses from corporate funds keeps the director satisfied and in continued service of the corporation, and refusing to meet with prospective purchasers prevents statements that might possibly be the basis for a securities fraud suit. Each such act that potentially oppresses a minority shareholder can benefit the corporation and be justified under the business judgment rule. But after today, the business judgment rule will allow essentially all minority shareholder oppression that does not harm the corporation (and even some liability that does harm the corporation if the directors or majority shareholders made an honest business decision).</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
D. Common-Law Cause of Action</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
The Court also determines "the foreseeability, likelihood, and magnitude of harm sustained by minority shareholders due to the abuse of power by those in control of a closely held corporation is significant, and Texas law should ensure that remedies exist to appropriately address such harm when the underlying actions are wrongful." 443 S.W.3d at 879. But the Court concludes that the common-law standard for minority shareholder oppression is too vague<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[110]" name="r[110]" style="color: #660099;">[47]</a></sup> and existing remedies provide adequate protection, thereby obviating the need for a common-law cause of action.</div>
<div style="position: relative;">
Tellingly, the Court acknowledges that its interpretation of the oppression statute and failure to impose a common-law remedy for oppression "leaves a `gap' in the protection that the law affords to individual minority shareholders" when the harm to the minority shareholders does not harm the corporation.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[111]" name="r[111]" style="color: #660099;">[48]</a></sup> 443 S.W.3d at 889. Until today, that gap has not existed because Texas courts have interpreted the oppression statute to allow lesser remedies for oppression that harms minority shareholders but not the corporation.</div>
<div style="position: relative;">
<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p905" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">905</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p905" id="p905" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*905</a> No other existing remedy the Court discusses adequately protects minority shareholders from such oppression. The remedy that comes closest to affording some relief to the oppressed minority shareholder is a common-law claim for breach of fiduciary duty. But the Court's logic expressly and impliedly negates such a claim. Expressly, the Court observes that we recognized this cause of action in <i>Patton</i> and treated it as a derivative action. 443 S.W.3d at 884. But a shareholder only has standing to bring a derivative action if she fairly and adequately represents the interests of the corporation.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[112]" name="r[112]" style="color: #660099;">[49]</a></sup> TEX. BUS. ORGS. CODE § 21.552(2). Thus, a derivative action would only lie in this context when the oppression of the minority shareholder harms the corporation itself. The Court espouses this principle by observing that "actions that are `oppressive' under the statute ordinarily will not give rise to derivative suits." 443 S.W.3d at 895 n. 15. But in <i>Patton,</i> we recognized that the majority shareholder's misconduct did not harm the corporation itself but nonetheless allowed the minority shareholder's claim for breach of fiduciary duty. <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;">279 S.W.2d at 853</a> ("[W]e find no evidence ... that [the corporation] was damaged."). Thus, if the Court is correct today and minority shareholders may only bring fiduciary duty claims for the benefit of the corporation,<i>Patton</i> is wrong.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[113]" name="r[113]" style="color: #660099;">[50]</a></sup> But, <i>Patton</i> is not wrong; it correctly allowed a minority shareholder claim for breach of fiduciary duty even when there was no harm to the corporation.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[114]" name="r[114]" style="color: #660099;">[51]</a></sup><a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;">279 S.W.2d at 853</a>. <i>Patton</i> did not require a derivative claim.</div>
<div style="position: relative;">
The Court's logic also impliedly restricts fiduciary duty claims. As addressed below, the Court's conclusion that the business judgment rule should apply to statutory shareholder oppression claims would seem to apply with equal force to fiduciary duty claims. <i>See infra</i> Part II.E. But the rule is fundamentally at odds with the remedy of the fiduciary duty claim, just as it is at odds with shareholder oppression claims. <i>See supra</i> Part II.C. In short, the Court acknowledges that its unduly restrictive interpretation of the oppression statute leaves minority shareholders unprotected from conduct that will harm them but not the corporation. It is precisely the Court's restrictive view of the statute that creates the gap in protection and requires a common-law cause of action.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
E. Breach of Fiduciary Duty</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
Shareholder oppression was not the only cause of action in this proceeding. Rupe also sued for breach of fiduciary duty.</div>
<div style="position: relative;">
<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p906" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">906</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p906" id="p906" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*906</a> Like shareholder oppression, breach of fiduciary duty is a doctrine that protects minority shareholders from abuse and oppression. As one leading commentator has observed:</div>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
The development of the statutory cause of action and the enhanced fiduciary duty reflect the same underlying concerns for the position of minority shareholders, particularly in close corporations after harmony no longer reigns. Because of the similarities between the two remedial schemes ... it makes sense to think of them as two manifestations of a minority shareholder's cause of action for oppression [or] as two sides of the same coin....</blockquote>
<div style="position: relative;">
Douglas K. Moll, <i>Shareholder Oppression & Dividend Policy in the Close Corporation,</i> 60 WASH. & LEE L.REV. 841, 852 (2003) (quotation marks and citations omitted). The fiduciary concept for close corporations arose in the 1970s, when the Massachusetts high court recognized that "stockholders in the close corporation owe one another substantially the same fiduciary duty in the operation of the enterprise that partners owe to one another." <a href="https://scholar.google.com/scholar_case?case=10488013111081435481&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Donahue v. Rodd Electrotype Co.,</i> 367 Mass. 578, 328 N.E.2d 505, 515 (1975)</a>.</div>
<div style="position: relative;">
As the Fifth Circuit has observed, this "recognition of special rules of fiduciary duty applicable to close corporations has gained widespread acceptance." <a href="https://scholar.google.com/scholar_case?case=8724556511632989825&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Hollis,</i> 232 F.3d at 468</a>. High courts in Indiana, Maryland, Minnesota, New York, Ohio, Utah, and West Virginia have recognized that majority shareholders can owe fiduciary duties to minority shareholders.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[115]" name="r[115]" style="color: #660099;">[52]</a></sup></div>
<div style="position: relative;">
We expressly avoided the issue in <i>Willis v. Donnelly</i> because the record there could not support the existence of a fiduciary duty. <a href="https://scholar.google.com/scholar_case?case=9889719598212632740&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;">199 S.W.3d 262, 276-77 (Tex.2006)</a>. But we did recognize the existence of a fiduciary duty in <i>Patton,</i> where we held that "[u]ndoubtedly the malicious suppression of dividends is a wrong akin to breach of trust, for which the courts will afford a remedy." <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;">279 S.W.2d at 854</a>. In light of <i>Patton</i> and the mainstream approach in American jurisprudence, Texas courts of appeals have determined on a case-by-case basis whether majority shareholders owe an informal fiduciary duty to minority shareholders of closely held corporations.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[116]" name="r[116]" style="color: #660099;">[53]</a></sup> A key factor weighing in favor of a fiduciary duty is the extent to which the majority shareholders dominate control over a closely held corporation. <a href="https://scholar.google.com/scholar_case?case=6386755104031922069&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Redmon v. Griffith,</i> 202 S.W.3d 225, 237 (Tex.App.-Tyler 2006, pet. denied)</a>.</div>
<div style="position: relative;">
Finally, the business judgment rule should not apply to these fiduciary duty claims. When we recognized a claim for breach of fiduciary duty in <i>Patton,</i> the majority shareholder was harming the minority <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p907" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">907</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p907" id="p907" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*907</a> shareholders but not the corporation itself, and we compelled a dividend to be paid to the minority shareholders. <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;">279 S.W.2d at 853, 857</a>. Had the business judgment rule applied, we could not have compelled a dividend because there was no harm to the corporation.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
F. Application</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
1. Oppression</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
Rupe prevailed at trial on her shareholder oppression and fiduciary duty claims, and the trial court compelled a $7.3 million buyout. The court of appeals held there was sufficient evidence of shareholder oppression (and therefore did not reach the fiduciary duty issues), but the $7.3 million buyout failed to account for the minority shares' lack of marketability and control. 339 S.W.3d at 302. The jury charge defined oppression as:</div>
<blockquote style="margin: 1em 0px; padding: 0px 40px; position: relative;">
burdensome, harsh and wrongful conduct, a lack of probity and fair dealing in the affairs of the company to the prejudice of some of its members, or a visible departure from the standards of fair dealing, and a violation of fair play on which every shareholder who entrusts her money to a company is entitled to rely.</blockquote>
<div style="position: relative;">
As previously addressed, this definition is more appropriate here than the reasonable expectations definition because Rupe inherited her shares and thus had no expectations when making a decision to invest.</div>
<div style="position: relative;">
The jury found that Dennard, Ritchie, Lutes, and RIC all engaged in oppressive conduct. The jury also affirmatively answered special submissions that: (1) Dennard paid personal expenses from RIC corporate funds; (2) Dennard, Ritchie, and Lutes offered Rupe a position on the board in exchange for her agreement not to sue a shareholder of RIC; (3) Dennard, Ritchie, and Lutes's buyout offers were oppressive; (4) Dennard, Ritchie, and Lutes's failure to permit Rupe to examine and copy corporate information was oppressive; (5) Dennard, Ritchie, and Lutes owed Rupe a fiduciary duty; (6) Dennard, Ritchie, and Lutes breached their fiduciary duty; and (7) the fair value of Rupe's shares was $7.3 million, not discounted for lack of marketability or control. The trial court entered judgment that compelled a buyout of Rupe's shares for $7.3 million.</div>
<div style="position: relative;">
Before assessing whether sufficient evidence supports the verdict, one must assess whether the submission was proper. In addition to submitting abroad-form question on oppression,<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[117]" name="r[117]" style="color: #660099;">[54]</a></sup> the trial court asked the jury to resolve disputed facts. This submission was proper. If equitable remedies still exist (and the statute specifies they should), the trial court must know what conduct constitutes oppression in order to fashion the least harsh remedy requested to rectify that oppression. For example, if a majority shareholder either refused to pay dividends or issued a bargain buyout offer and the jury simply answered "yes" to the broad-form question, the trial court sitting in equity would not know whether to compel a dividend or a buyout. Because the oppression statute expressly prefers equitable remedies, I believe the trial court's submission of special issues to the jury here was appropriate.</div>
<div style="position: relative;">
Having determined the trial court's submission was proper, I also believe there is legally sufficient evidence supporting the findings of oppression. Because Rupe inherited her shares, oppression is defined as burdensome, harsh, or wrongful conduct.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[118]" name="r[118]" style="color: #660099;">[55]</a></sup> <a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p908" style="color: #aaaaaa; font-size: 13px; left: -55px; position: absolute; text-decoration: none;">908</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p908" id="p908" style="color: #aaaaaa; font-size: 13px; text-decoration: none;">*908</a> There is evidence of the following conduct the jury found to be oppressive: (1) making inferior offers of $1 million and $1.7 million; (2) warning Rupe that RIC would be the only purchaser of her stock; (3) refusing to meet with prospective purchasers of Rupe's shares; and (4) Dennard paying personal expenses from corporate funds.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[119]" name="r[119]" style="color: #660099;">[56]</a></sup> Regarding the offers to purchase, Ritchie testified he thought Rupe was not entitled to a "fair offer." And the $1.7 million valuation reflected discounts beyond those applied to previous redemptions of minority shares. Regarding the refusal to meet with prospective purchasers, Dennard admitted: (1) she disagreed with Ritchie's refusal to meet with prospective purchasers; (2) she would want to meet with the president of a closely held corporation before investing; (3) the request for Ritchie to meet with prospective purchasers was reasonable; and (4) such a refusal would be "oppressive to a minority shareholder." Lutes also agreed that it would be reasonable for Rupe to expect that RIC would help her sell her stock "[t]o the extent possible," and that "[i]t would have been possible" for Ritchie to have met with potential purchasers. Accordingly, there is some evidence to support the jury's findings of oppression.</div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
2. Remedy</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
Having concluded there is legally sufficient evidence of oppression, the question becomes what remedy is appropriate. Rupe primarily requested a buyout and alternatively requested dissolution if the buyout was inadequate. Dissolution is undoubtedly harsher than a buyout. <i>See</i> Robert A. Ragazzo, <i>Toward a Delaware Common Law of Closely Held Corporations,</i> 77 WASH. U.L.Q. 1099, 1119 (1999) ("[The buyout] is less harsh than dissolution and often gives both parties what they want most."). But the statute does not allow for dissolution based on oppression. Former art. 7.05. Thus, there is no need to compare the harshness of a buyout to a remedy Rupe never requested.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[120]" name="r[120]" style="color: #660099;">[57]</a></sup></div>
<div style="position: relative;">
Because I agree with the court of appeals that it was error for the trial court to instruct the jury to not discount the value of Rupe's stock for its lack of marketability or minority status, I would affirm its judgment remanding for a redetermination of the amount of the buyout. 339 S.W.3d at 302. Under Rule of Appellate Procedure 44.1(b), a new trial may be ordered on a separable part of a proceeding, but a separate trial on unliquidated damages is improper if liability is contested. TEX.R.APP. P. 44.1(b). Here, the amount of the buyout is an equitable remedy rather than a measure of unliquidated damages, and a retrial on the amount of the buyout alone is separable without unfairness to the parties.<sup><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#[121]" name="r[121]" style="color: #660099;">[58]</a></sup></div>
<div style="position: relative;">
</div>
<h2 style="border: 0px; margin: 1em 0px; padding: 0px; position: relative;">
<a class="gsl_pagenum" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p909" style="color: #aaaaaa; font-size: 13px; font-weight: normal; left: -55px; position: absolute; text-decoration: none;">909</a><a class="gsl_pagenum2" href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#p909" id="p909" style="color: #aaaaaa; font-size: 13px; font-weight: normal; text-decoration: none;">*909</a> III. Conclusion</h2>
<div style="position: relative;">
</div>
<div style="position: relative;">
In sum, I cannot agree that a proper construction of the shareholder oppression statute is that the statute extinguishes the very remedies it expressly prefers. Uniformly, courts in Texas and beyond have held that less harsh remedies at law and equity are available, such as a court-ordered buyout. Under the time-honored definitions of oppression, there is some evidence that the majority shareholders here engaged in burdensome, harsh, and wrongful conduct by (1) making inferior buyout offers; (2) warning Rupe that RIC would be the only purchaser of her stock; (3) withholding corporate information; (4) refusing to meet with prospective purchasers of Rupe's shares; and (5) paying Dennard's personal expenses with corporate funds. RIC's chairman even admitted that refusing to meet with prospective purchasers was oppressive. But because the valuation of Rupe's shares failed to account for their lack of marketability or control, I would affirm the judgment of the court of appeals, which remanded to the trial court for a redetermination of the amount of the buyout. Because the Court renders judgment that Rupe take nothing on her valid shareholder oppression claim, I respectfully dissent.</div>
<small style="font-size: 11px;"></small><br />
<div style="position: relative;">
<small style="font-size: 11px;"><a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[1]" name="[1]" style="color: #660099;">[1]</a> A corporation is "closely held" if it has fewer than thirty-five shareholders and its stock is not publicly traded. <i>See</i> TEX. BUS. ORGS.CODE § 21.563.</small></div>
<small style="font-size: 11px;">
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[2]" name="[2]" style="color: #660099;">[2]</a> Since the filing of this suit, one of the trusts, known as Ruby's Trust, has been terminated and its shares distributed amongst Dennard's three children and her step-sister, Robin Rupe.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[3]" name="[3]" style="color: #660099;">[3]</a> Rupe brought this lawsuit in her capacity as trustee for Buddy's Trust, the actual owner of the 18% voting shares in RIC. We will generally refer to Rupe and to "Rupe's shares," however, meaning Rupe in her trustee capacity and the shares owned by Buddy's Trust.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[4]" name="[4]" style="color: #660099;">[4]</a> Either personally or through her various attorneys, Rupe requested RIC documents on several occasions. The record indicates that RIC repeatedly provided some documents or access in response to these requests. Nevertheless, in correspondence and at trial, Rupe's attorneys contended that RIC was not as forthcoming with its corporate books and records as their fiduciary duties and the Texas Business Organizations Code require. The jury agreed, but the court of appeals determined that the evidence was legally insufficient to support this finding, and Rupe has not challenged that holding in this Court. <i>See</i> 339 S.W.3d 275, 304-05. We therefore omit these details, and our judgment preserves the court of appeals' unchallenged holding on this issue.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[5]" name="[5]" style="color: #660099;">[5]</a> Rupe originally sued Dennard, Ritchie, and Lutes in their individual capacities, but later added them in their capacities as RIC directors and as trustees of the trusts that owned RIC's shares.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[6]" name="[6]" style="color: #660099;">[6]</a> <i>See</i> Act of Mar. 30, 1955, 54th Leg., R.S., ch. 64, art. 7.05, 1955 Tex. Gen. Laws 239, 290-91, <i>amended by</i> Act of May 3, 1961, 57th Leg., R.S., ch. 169, 1, 1961 Tex. Gen. Laws, 319, 319 (formerly TEX. BUS. CORP. ACT art. 7.05), <i>expired Jan. 1, 2010,</i> Act of May 13, 2003, 78th Leg., R.S., ch. 182, § 2, 2003 Tex. Gen. Laws 267 (current version at TEX. BUS. ORGS. CODE § 11.404) [herein, former article 7.05]. The Business Corporations Act, now expired, was in large part recodified in the Texas Business Organizations Code. <i>See</i> Act of May 13, 2003, 82nd Leg., R.S., ch. 182, § 1, 2003 Tex. Gen. Laws 267. Although section 11.404 governs current actions for rehabilitative receivership, former article 7.05 was the governing statute when the trial court rendered its judgment in this case. <i>See</i> TEX. BUS. ORGS.CODE § 402.001-.005. The language of the two statutes is not identical, but for purposes of this case their differences are not material.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[7]" name="[7]" style="color: #660099;">[7]</a> Former article 7.05 and current Section 11.404 only authorize the appointment of a receiver to rehabilitate a corporation. Under other circumstances, different sections of the statutes authorize courts to appoint a receiver to liquidate a corporation's property and business. <i>See</i> TEX. BUS. ORGS.CODE §§ 11.402, 11.405; former TEX. BUS. CORP. ACT art. 7.06.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[8]" name="[8]" style="color: #660099;">[8]</a> Closely held corporations have unique attributes that may justify different protections under the law. We discuss these considerations in Section III, <i>infra,</i> in our analysis of whether to recognize a common-law cause of action for oppression. We do not discuss them here because former article 7.05 and section 11.404 apply equally to all corporate forms, whether closely held or publicly traded, without distinction.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[9]" name="[9]" style="color: #660099;">[9]</a> <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=12501370737437277451&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Kohannim v. Katoli,</i> 440 S.W.3d 798, 811-13 (Tex.App.-El Paso 2013, pet. denied)</a>; <a href="https://scholar.google.com/scholar_case?case=14497568670782333649&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Boehringer v. Konkel,</i> 404 S.W.3d 18, 24 (Tex.App.-Houston [1st Dist.] 2013, no pet.)</a>; <a href="https://scholar.google.com/scholar_case?case=6386755104031922069&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Redmon v. Griffith,</i> 202 S.W.3d 225, 234 (Tex.App.-Tyler 2006, pet. denied)</a>; <a href="https://scholar.google.com/scholar_case?case=2506167961306002844&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Cotten v. Weatherford Bancshares, Inc.,</i> 187 S.W.3d 687, 699-701 (Tex.App.-Fort Worth 2006, pet. denied)</a>; <a href="https://scholar.google.com/scholar_case?case=6546532883699997449&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Pinnacle Data Servs., Inc. v. Gillen,</i> 104 S.W.3d 188, 196 (Tex.App.-Texarkana 2003, no pet.)</a>; <a href="https://scholar.google.com/scholar_case?case=2444962852387667814&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Willis v. Bydalek,</i> 997 S.W.2d 798, 801 (Tex.App.-Houston [1st Dist.] 1999, pet. denied)</a>.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[10]" name="[10]" style="color: #660099;">[10]</a> <i>See, e.g.,</i> TEX. BUS & COM.CODE § 2.614 (providing that payment in the manner required by a government regulation is sufficient to discharge a buyer's obligation "unless the regulation is discriminatory, oppressive or predatory."); <i>Id.</i> § 2A.404 (same for lease payments); TEX. CIV. PRAC. & REM.CODE § 22.024(2) (court may compel journalist to testify if, <i>inter alia,</i> "the subpoena is not overbroad, unreasonable, or oppressive"); TEX. CODE OF CRIM. PROC. art. 38.11 Sec. 5(b)(1) (subpoena may not be "overbroad, unreasonable, or oppressive"); <i>Id.</i> art. 17.15 ("The power to require bail is not to be so used as to make it an instrument of oppression."); TEX. FIN.CODE § 392.302(1) (listing conduct by which a debt collector "may not oppress, harass, or abuse a person"); TEX. GOV'T CODE § 432.138 (prohibiting military officers from "cruelty toward, or oppression or maltreatment of, any person subject to his order"); <i>Id.</i> § 665.052(4) (public officers may be removed for "oppression in office"); TEX. OCC.CODE § 2301.455 (auto dealer's franchise agreement may be terminated considering, <i>inter alia,</i> "oppression, adhesion, and the parties' relative bargaining power"); TEX. PENAL CODE § 1.02 (objective of Penal Code is to prevent "arbitrary or oppressive treatment of persons suspected, accused, or convicted"); <i>Id.</i> § 39.03 (defining "official oppression" as "intentionally" inflicting various harm on others).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[11]" name="[11]" style="color: #660099;">[11]</a> <i>See</i> authorities cited <i>supra</i> note 10.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[12]" name="[12]" style="color: #660099;">[12]</a> Ordinarily, a corporation must be managed by a board of directors. TEX. BUS. ORGS. CODE § 21.401(a). The Business Organizations Code allows certain exceptions, including when the shareholders' agreement or the governing documents of a "close corporation" provide for the elimination of the board of directors in favor or one or more corporate managers. <i>Id.</i> §§ 21.101(a)(2), 21.713(2). Under these circumstances, corporations may be managed directly by shareholders. <i>See id.</i> §§ 21.101(a)(2), 21.714(b)(1), (2). Thus, former article 7.05 and current section 11.404 authorize receivership based on the conduct of a corporation's directors (when the corporation is managed by a board of directors) or of its shareholders (when the corporation is managed by its shareholders). <i>See</i> former art. 7.05(A)(1)(c); TEX. BUS. ORGS.CODE § 11.404(a)(1)(C). In either instance, however, the persons or entities managing the corporation act in the capacity of directors and are treated as directors under the Code. TEX. BUS. ORGS.CODE §§ 21.106(a)-(b), 21.725.726(a); <i>see also id.</i> § 21.727 (managing shareholders subject to liability imposed on directors for management-related conduct required by law).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[13]" name="[13]" style="color: #660099;">[13]</a> The dissent states that "the business judgment rule is fundamentally at odds with shareholder oppression remedies." <i>Post</i> at 903. But our task is not to construe the receivership statute in a manner that is consistent with "shareholder oppression remedies," a phrase that cannot be found in any prior Texas opinion. Our task is to construe the statute in a manner that is consistent with statutory language enacted by the Legislature. The business judgment rule is entirely consistent with the language of the statute, which authorizes relief only if necessary "to conserve the property and business of the domestic entity and avoid damage to interested parties," and it is entirely consistent with the surrounding grounds for relief under the statute, which focus on insolvency, deadlock in the management of the business, and misuse of business property—i.e., conduct that threatens the interests of the business. <i>See</i> former art. 7.05(A)(1)(a), (b), (d), (e); TEX. BUS. ORGS.CODE § 11.404(a)(1)(A), (B), (D), (E).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[14]" name="[14]" style="color: #660099;">[14]</a> <i>See</i> authorities cited <i>supra</i> note 10; <i>see also</i> TEX. CONST. art. XV, § 8 (providing for removal of judges for oppression in office); TEX. PENAL CODE § 39.03 (oppression by a public official); <a href="https://scholar.google.com/scholar_case?case=15770623839951125422&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Nafta Traders, Inc. v. Quinn,</i> 339 S.W.3d 84, 103 (Tex.2011) (Jefferson, C.J., joined by JJ. Wainwright and Lehrmann, concurring)</a>(observing duty of courts and legislature to protect litigants from "crippling burdens oppressive discovery imposes"); <a href="https://scholar.google.com/scholar_case?case=15119914529022385872&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>State v. Coca Cola Bottling Co. of Sw.,</i> 697 S.W.2d 677, 679 (Tex.App.-San Antonio 1985, writ ref'd n.r.e</a>.) (observing that state antitrust statutes are designed to "suppress trusts, secure the benefits arising from competition in trade, prevent monopolies, and protect the people from the possible tyranny and oppression of combined wealth") (citing <i>Monopolies, Etc.</i> 54 Am.Jur.2d § 452 (1971)).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[15]" name="[15]" style="color: #660099;">[15]</a> Thus, actions that are "oppressive" under the statute ordinarily will not give rise to derivative suits. In other words, shareholders may not use a claim under the oppression provision of the receivership statute as an end-run around the Legislature's detailed rules and procedures for derivative actions.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[16]" name="[16]" style="color: #660099;">[16]</a> The dissent contends that the "Legislature has acquiesced" in "the long-standing definition of oppression that has existed at the common-law in Texas and a host of other jurisdictions," <i>post</i> at 897, the development of which it attributes primarily to New York courts, <i>post</i> at 897. With respect to the first contention, we note that this Court has consistently refused to rely on "legislative acquiescence" as a doctrine of statutory construction when it runs contrary to the plain language of the statute. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=13570183579724547513&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Pretzer v. Motor Vehicle Bd.,</i> 138 S.W.3d 908, 914-15 (Tex.2004)</a> (rejecting argument based on legislative acquiescence because "neither legislative ratification nor judicial deference to an administrative interpretation can work a contradiction of plain statutory language."). With respect to the second, we have discussed above the meaningful differences between New York's statute relating to oppressive conduct, which applies only to closely held corporations, and Texas's statute, which applies to all domestic business entities.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[17]" name="[17]" style="color: #660099;">[17]</a> <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=12501370737437277451&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Kohannim v. Katoli,</i> 440 S.W.3d at 811-13</a>; <a href="https://scholar.google.com/scholar_case?case=14497568670782333649&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Boehringer,</i> 404 S.W.3d at 24</a>; <a href="https://scholar.google.com/scholar_case?case=6386755104031922069&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Redmon,</i> 202 S.W.3d at 234</a>; <a href="https://scholar.google.com/scholar_case?case=2506167961306002844&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Cotten,</i> 187 S.W.3d at 699-701</a>; <a href="https://scholar.google.com/scholar_case?case=6546532883699997449&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Pinnacle Data,</i> 104 S.W.3d at 196</a>; <a href="https://scholar.google.com/scholar_case?case=2444962852387667814&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Willis,</i> 997 S.W.2d at 801</a>;<a href="https://scholar.google.com/scholar_case?case=8525518333477071858&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Davis,</i> 754 S.W.2d at 382</a>.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[18]" name="[18]" style="color: #660099;">[18]</a> As several amici noted in their briefs to this Court, by providing information to Rupe's prospective purchasers the directors would have placed RIC and themselves at risk of liability for making misleading "statements" under state and federal securities laws. <i>See</i> TEX.REV.CIV. STAT. art. 581-33(A) (imposing liability for misrepresentation or omissions of material facts by one who offers or sells a security); 17 C.F.R. § 240.10b-5 (imposing similar liability under federal law).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[19]" name="[19]" style="color: #660099;">[19]</a> Because this is the first time this Court has addressed the meaning of the term "oppressive" in the receivership statute, we would ordinarily consider remanding the case for a new trial under the new legal standard that we have announced. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=15587989656901619500&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Natural Gas Pipeline Co. of Am. v. Justiss,</i> 397 S.W.3d 150, 162 (Tex.2013)</a> (remanding case in the interest of justice for new trial under newly announced legal standard). In light of our next holding that the statute does not authorize courts to grant the relief that Rupe obtained, however, we need not consider that option here.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[20]" name="[20]" style="color: #660099;">[20]</a> Rupe requested appointment of a receiver as an alternative remedy in the trial court. But she only sought a liquidating receiver, not a rehabilitative receiver. A liquidating receiver is available under former article 7.06, but not 7.05. <i>See </i><a href="https://scholar.google.com/scholar_case?case=5148981902965719640&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Mueller v. Beamalloy, Inc.,</i> 994 S.W.2d 855, 860-61 (Tex.App.-Houston [1st Dist.] 1999, no pet.)</a> (distinguishing rehabilitative receivership of article 7.05 from liquidating receivership of article 7.06). Oppressive actions are not a ground for appointment of a liquidating receiver under 7.06, and Rupe did not submit the elements necessary for a liquidating receiver to the jury.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[21]" name="[21]" style="color: #660099;">[21]</a> Former art. 7.05(A)(1), (2) (shareholder or creditor); <i>see</i> TEX. BUS. ORGS.CODE § 11.404(a)(1), (2).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[22]" name="[22]" style="color: #660099;">[22]</a> Former art. 7.05(A); <i>see</i> TEX. BUS. ORGS. CODE § 11.404(b)(1)-(3).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[23]" name="[23]" style="color: #660099;">[23]</a> Former art. 7.05(A)(1)(a)-(e) (grounds for shareholder), (A)(2)(a)-(b) (grounds for creditor); <i>see</i> TEX. BUS. ORGS.CODE § 11.404(a)(1)(A)-(E), (2)(A)-(B).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[24]" name="[24]" style="color: #660099;">[24]</a> Former art. 7.05(A); <i>see</i> TEX. BUS. ORGS. CODE § 11.404(b)(1)-(3).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[25]" name="[25]" style="color: #660099;">[25]</a> The dissent reaches a contrary conclusion based, in part, on broad assertions about the holdings of courts in other jurisdictions, and suggests that our holdings in this case contradict the holdings of most other states. <i>See, e.g., ante</i> at 868. But we must construe the Texas statute, and it differs from the statutes in those other states. In particular, the dissent points to the Model Business Corporation Act, which it asserts served as the basis of the Texas receivership statute, and the Illinois statute, which it asserts served as the basis of the model act. But a comparison of the language of the Texas statute to the language of the model act and the Illinois statute only confirms our construction of the Texas statute, rather than the dissent's.</div>
<div style="position: relative;">
The model act, for example, does not allow for appointment of a rehabilitative receiver based on oppressive actions. <i>See</i> Model Business Corporation Act § 7.48. In fact, it does not provide for <i>any</i> consideration of an individual shareholder's interests in determining whether to appoint a receiver. <i>Id.</i> § 7.48(a) (authorizing appointment of a custodian or receiver only when a shareholder establishes that the corporation's "directors are deadlocked" and "irreparable injury to the corporation is threatened or being suffered" or that "the directors or those in control of the corporation are acting fraudulently and irreparable injury to the corporation is threatened or being suffered"). Instead, under the model act, oppressive actions will only support a claim for dissolution of the corporation, and only if it is a closely held corporation. <i>See id.</i> § 14.30(a)(2)(ii), (b). <i>Compare</i> TEX. BUS. & COM.CODE § 11.404, <i>with</i> Model Business Corporation Act § 14.30(a)(2)(ii), (b); <i>post</i> at 895 (stating that "36 states in all appear to allow liquidation for oppressive or similar conduct"). We thus construe the Texas statute in a manner that is consistent with the less severe but more generally available remedy it authorizes for oppressive actions.</div>
<div style="position: relative;">
More importantly, the model act, unlike the Texas statute, <i>expressly authorizes</i> a buy-out option as an alternative to dissolution based on oppressive actions, but only if the corporation or one or more of its shareholders elects that option. Model Business Corporation Act § 14.34(a). Because the model act expressly authorizes a buyout, we cannot rely on it to find such a remedy in the Texas statute, which does not. And even if we could, it would provide no basis to hold that courts may order a buyout against the wishes of the corporation and its remaining shareholders.</div>
<div style="position: relative;">
Like the model act, but unlike the Texas statute, the Illinois statute creating a remedy for oppressive actions is limited to shareholders in corporations that are not publicly traded. <i>Compare</i> 805 ILL. COMP. STAT. 5/12.55 (shareholder remedies in public corporations), <i>with</i> 805 ILL. COMP. STAT. 5/12.56 (shareholder remedies in non-public corporations). And unlike the Texas statute, the Illinois statute <i>expressly authorizes</i> a broad array of remedies, including the removal of an officer or director, the appointment of a custodian, the payment of dividends, the award of damages, and "[t]he purchase by the corporation or one or more other shareholders of all, but not less than all, of the shares of the petitioning shareholder." <i>Id.</i> § 5/12.56(b). Thus, the Illinois legislature did exactly what the Texas legislature chose not to do: it expressly authorized, by statute, additional remedies beyond appointment of a receiver, including judicially mandated buyouts. <i>See</i>805 ILL. COMP. STAT. 5/12.55(b)(11). We cannot rely on another state's statute, which expressly authorizes certain remedies, as a basis for construing our statute, which does not expressly authorize those remedies, as if it does. To the contrary, the Illinois statute demonstrates how the Texas legislature could have statutorily authorized alternative remedies, but it did not.</div>
<div style="position: relative;">
</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[26]" name="[26]" style="color: #660099;">[26]</a> The dissent's focus on the availability of "lesser remedies" assumes, without analysis, that the trial court's buy-out order is a "lesser remedy" than appointment of a rehabilitative receiver. But that contention is disputed in this case. Dennard, Rupe, and Lutes have argued that the trial court's buy-out order was an "unduly harsh `remedy' that will force RIC to sell and/or leverage corporate assets to scrape together over $7.3 million for [Ritchie's] stock," which would bring RIC "to its knees" and place it "at risk of bankruptcy." 339 S.W.3d at 298 (not analyzing this argument under the "lesser remedies" language in the statute).</div>
<div style="position: relative;">
Commentators also have recognized that court-ordered buyouts can threaten the financial security of closely held entities, even pushing them into bankruptcy or dissolution. <i>See, e.g.,</i> Lydia Rogers, <i>The Bankruptcy Implications of A Court-Ordered Buyout for Shareholder Oppression: Is It A Remedy at All?,</i> 64 BAYLOR L. REV. 594, 604 (2012) ("The reality is that a court-ordered buyout judgment could force closely held corporations to declare bankruptcy. Buyout judgments, even after discounts, can easily exceed one million dollars. Such an amount is not likely to be readily available to a closely held corporation, and after a judgment, it would be unlikely that the corporation would be able to obtain outside financing to pay the debt."); Edward B. Rock & Michael L. Wachter, <i>Waiting for the Omelet to Set: Match-Specific Assets and Minority Oppression in Close Corporations,</i> 24 J. CORP. L. 913, 920 (1999) (noting that, particularly in the context of close corporations, readily available "dissolution or buyout increase the risk of bankruptcy, thereby reducing the creditworthiness of the company"); 1 F. Hodge O'Neal & Robert B. Thompson, O'NEAL & THOMPSON'S OPPRESSION OF MINORITY SHAREHOLDERS & LLC MEMBERS § 1:4, at 1-7 n. 2 (rev.2d ed. 2005) ("In discussing a minority shareholder suit which eventually led to the bankruptcy of the corporation, a Pennsylvania attorney noted: `No responsible bank would extend credit to a close[] corporation embroiled in a shareholder controversy. Without credit, most such corporations simply die.'" (quoting Letter to author, June 15, 1981)).</div>
<div style="position: relative;">
</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[27]" name="[27]" style="color: #660099;">[27]</a> The dissent states, "The Court's logic in applying the business judgment rule in this context would presumably also apply to minority shareholder claims for breach of fiduciary duty." <i>Post</i> at 897. We see no basis for such an assumption and note that Texas law recognizes different kinds of fiduciary duties owed under different circumstances. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=13024931949205544818&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Meyer v. Cathey,</i> 167 S.W.3d 327, 330-31 (Tex.2005)</a> (discussing formal and informal fiduciary duties). The fiduciary duty alleged in this case is an informal fiduciary duty between Rupe and Dennard, Ritche, and Lutes. Informal fiduciary duties "arise from `a moral, social, domestic, or purely personal relationship of trust and confidence.'" <i>Id.</i> at 331 (quoting <a href="https://scholar.google.com/scholar_case?case=6978888095106925680&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Associated Indem. Corp. v. CAT Contracting, Inc.,</i> 964 S.W.2d 276, 287 (Tex. 1998)</a>). Informal fiduciary duties are not owed in business transactions unless the special relationship of trust and confidence existed prior to, and apart from, the transaction(s) at issue in the case. <i>Id.</i> (quoting <a href="https://scholar.google.com/scholar_case?case=6978888095106925680&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Associated Indem.,</i> 964 S.W.2d at 288</a>). This Court has never applied the business judgment rule to informal fiduciary duties before; no party argues that we should do so in this case; and because such duties arise separate and apart from business relationships, we see no reason to assume that the rule would apply.</div>
<div style="position: relative;">
With regard to formal fiduciary duties, this Court has never recognized a formal fiduciary duty between majority and minority shareholders in a closely-held corporation, <i>see </i><a href="https://scholar.google.com/scholar_case?case=9889719598212632740&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Willis v. Donnelly,</i> 199 S.W.3d 262, 276-77 (Tex. 2006),</a> and no party has asked us to do so here. This Court has recognized a fiduciary duty owed by corporate officers and directors to the corporation, which prohibits officer and directors from usurping corporate opportunities for personal gain and requires them to exercise their "uncorrupted business judgment for the sole benefit of the corporation." <a href="https://scholar.google.com/scholar_case?case=1309613343942585921&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Int'l Bankers Life Ins. v. Holloway,</i> 368 S.W.2d 567, 576-77 (Tex.1963)</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=6386755104031922069&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Redmon,</i> 202 S.W.3d at 233</a> (noting that officers' and directors' formal fiduciary duty is owed to the corporation and its shareholders collectively, not to individual shareholder interests); <a href="https://scholar.google.com/scholar_case?case=14929734695465472769&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Somers ex rel. EGL, Inc. v. Crane,</i> 295 S.W.3d 5, 11 (Tex.App.-Houston [1st Dist.] 2009, no pet.)</a> (same); <a href="https://scholar.google.com/scholar_case?case=13272738103301304255&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Lindley v. McKnight,</i> 349 S.W.3d 113, 124 (Tex.App.-Fort Worth 2011, no pet.)</a> (same); <a href="https://scholar.google.com/scholar_case?case=1263955204808204845&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Hoggett v. Brown,</i> 971 S.W.2d 472, 488 (Tex.App.-Houston [14th Dist.] 1997, pet. denied)</a> (same). No party in this case has asked us to alter the nature of that duty.</div>
<div style="position: relative;">
</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[28]" name="[28]" style="color: #660099;">[28]</a> The dissent contends that in this opinion we "abolish," "foreclose," and "extinguish" the lesser remedies preferred by the statute. <i>Post</i> at 893, 890, 897. But we have not abolished or even limited the remedies available under the common law or other statutes for the kinds of conduct that give rise to rehabilitative receivership actions, whether under the oppressive-actions prong or other prongs. As we discuss in some detail in Part III of this opinion, the actions that give rise to oppressive-action receivership claims typically also give rise to common-law claims as well, opening the door to a wide array of legal and equitable remedies not available under the receivership statute alone. Those remedies, whether lesser or greater, are not displaced by the rehabilitative receivership statute, which merely adds another potential remedy available in extraordinary circumstances when lesser remedies are inadequate. This very case underscores this point, demonstrating that lesser remedies may remain available as an alternative to receivership in Texas law. We have remanded this case to the court of appeals to consider whether Rupe is entitled to the buyout ordered by the trial court based on her successful breach-of-fiduciary-duty claim. If Rupe prevails on remand, she may obtain the very remedy the dissent says we have abolished.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[29]" name="[29]" style="color: #660099;">[29]</a> The dissent contends that we have "effectively rewritt[en] the statute" and rendered the limiting language in subsection (b) of the statute "meaningless" by failing to construe it as impliedly creating new, independent statutory authority to award a broad array of equitable remedies, including a court-ordered stock buyout, and that this "defeats the very purpose of the Legislature's carefully chosen words." <i>Post</i> at 898. But the "carefully chosen words" of subsection (b) are limiting, rather than expansive, in nature: a "court may appoint a receiver under Subsection (a) <i>only if:</i> ... the court determines that all other available legal remedies and equitable remedies, including the appointment of a receiver for specific property of the domestic entity under Section 11.404(a), are inadequate." TEX. BUS. & COM.CODE § 11.404(b)(3) (emphasis added). We give those words their plain meaning—limiting the authority of a trial court to grant a rehabilitative receiver under subsection (a) <i>only if</i> certain requirements are met. <i>See id.</i> This serves the legislative purpose expressed in the statute, which is to preclude the appointment of a receiver if other lesser remedies available under the common law or other statutes (expressly including section 11.404) are adequate.</div>
<div style="position: relative;">
Importantly, the dissent's attacks underscore the flaws in its own proposed construction of the statute. It asks this Court to ignore the words of the statute, which authorize courts to "appoint a receiver ... only if... all other<i>available</i> legal and equitable remedies ... are inadequate," <i>id.</i> § 11.404(b)(3), and instead rewrite the statute to authorize courts to "appoint a receiver or grant any other legal or equitable remedy of any kind, whether otherwise available or not."</div>
<div style="position: relative;">
</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[30]" name="[30]" style="color: #660099;">[30]</a> <i>See</i> Act of April 2, 1887, 20th Leg., R.S., ch. 131, § 1, 1887 Tex. Gen. Laws 119, 119-22, <i>amended by</i>Act of March 19, 1889, 21st Leg., R.S., ch. 59, § 1, 1889 Tex. Gen. Laws 55, 55-58 (former TEX.REV.CIV. STAT. art. 2293), <i>repealed by</i> Act of May 17, 1985, 69th Leg., R.S. ch. 959, § 9(1), 1985 Tex. Gen. Laws [herein, "former article 2293"].</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[31]" name="[31]" style="color: #660099;">[31]</a> The cases upon which the Court relied in <i>Patton</i> to recognize that the "malicious suppression of dividends" was a wrong in the nature of a breach of fiduciary duty indicate that the Court viewed the wrong as a breach of the formal fiduciary duty owed by corporate officers and directors to the corporation. <i>See</i><a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Patton,</i> 279 S.W.2d at 854</a> (citing <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=4133129706625137540&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Becker v. Dirs. of Gulf City St. Ry. & Real-Estate Co.,</i> 80 Tex. 475, 15 S.W. 1094 (1891)</a> and <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=11444303630822384670&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Cates v. Sparkman,</i> 73 Tex. 619, 11 S.W. 846 (1889)</a>); <i>see also </i><a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=4133129706625137540&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Becker,</i> 15 S.W. at 1095-97</a> (reversing dismissal of suit for receivership brought by shareholders on behalf of company, alleging company's controllers formed competitor business, fraudulently transferred company's assets to competitor owned by controllers, then consolidated company into competitor); <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=11444303630822384670&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Cates,</i> 11 S.W. at 848-50</a> (affirming dismissal of shareholder's claim against company's controller for devaluation of shares brought by shareholder individually because right of action belonged to corporation).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[32]" name="[32]" style="color: #660099;">[32]</a> We need not decide in this case whether a trial court could properly appoint a rehabilitative receiver and authorize or order the receiver to implement a buyout of a shareholder's interests. Under section 11.406, a receiver has "the powers and duties that are stated in the order appointing the receiver" (as that order may be amended over time), and "the powers and duties provided by other laws applicable to receivers." TEX. BUS. ORGS. CODE § 11.406(a)(4), (5). The primary "other laws" applicable to receivers subject their power "to the control of the court" and to actions "authorized by the court," TEX. BUS. & COM.CODE § 64.031, and provides that "the rules of equity govern all matters relating to the appointment, powers, duties, and liabilities of a receiver and to the powers of a court regarding a receiver." <i>Id.</i> § 64.004. Thus, "[a] receiver has only that authority conferred by the Court's order appointing him," but, "[t]he order itself must comply with the statute authorizing such appointment." <a href="https://scholar.google.com/scholar_case?case=9257387285754643569&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Ex parte Hodges,</i> 625 S.W.2d 304, 306 (Tex.1981)</a> (because statute did not authorize court to empower receiver to supplement or issue court orders, party's failure to comply with receiver's order could not be basis for contempt). Section 11.404 authorizes the courts to appoint a rehabilitative receiver "to conserve the property and business of the domestic entity and avoid damage to interested parties." TEX. BUS. ORGS.CODE § 11.404(b)(1). An order authorizing or requiring a receiver to buy out a shareholder's interests would be authorized and proper under the statute only if the buyout would both "avoid damage to [an] interested part[y]" and "conserve the property and business of the domestic entity." If the buyout would help the shareholder but hurt the corporation, an order authorizing the receiver to effectuate the buyout would likely not comply with the statute authorizing the appointment. We need not resolve this question here, however, because Rupe did not seek or obtain an order authorizing a rehabilitative receiver to cause RIC to purchase her shares. In fact, Rupe did not seek a rehabilitative receiver at all.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[33]" name="[33]" style="color: #660099;">[33]</a> <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=604438263127250229&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Cardiac Perfusion Servs., Inc. v. Hughes,</i> 380 S.W.3d 198, 202 (Tex.App.-Dallas 2012, pet. filed)</a>; <a href="https://scholar.google.com/scholar_case?case=14497568670782333649&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Boehringer,</i> 404 S.W.3d at 32-33</a>; <a href="https://scholar.google.com/scholar_case?case=6386755104031922069&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Redmon,</i> 202 S.W.3d at 225, 233</a>; <a href="https://scholar.google.com/scholar_case?case=2506167961306002844&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Cotten,</i> 187 S.W.3d at 699-701</a>;<a href="https://scholar.google.com/scholar_case?case=13606770528422309632&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Gonzalez,</i> 181 S.W.3d at 392 n. 5</a>; <a href="https://scholar.google.com/scholar_case?case=6546532883699997449&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Pinnacle Data Servs.,</i> 104 S.W.3d at 192</a>; <a href="https://scholar.google.com/scholar_case?case=2444962852387667814&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Willis,</i> 997 S.W.2d at 803</a>.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[34]" name="[34]" style="color: #660099;">[34]</a> The Texas Business Organizations Code distinguishes between "closely held corporations" and "close corporations." The Code defines a "closely held corporation" as a corporation that is privately owned (i.e., not publicly traded) by fewer than 35 shareholders. <i>See</i> TEX. BUS. ORGS.CODE § 21.563(a); <i>see also id.</i> § 101.463 (closely held LLCs). By contrast, the Code allows all corporations to elect to operate as a "close corporation" by so providing in the appropriate corporate documents. <i>See id.</i> §§ 21.563(a), 21.701, 21.705.707.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[35]" name="[35]" style="color: #660099;">[35]</a> <i>See, e.g.,</i> Douglas K. Moll, <i>Majority Rule Isn't What It Used to Be: Shareholder Oppression in Texas Close Corporations,</i> 63 TEX. B.J. 434, 436 (2000) [hereafter, "Moll, <i>Majority Rule</i>"] ("A close corporation is a business organization typified by a small number of stockholders, the absence of a market for the corporation's stock, and substantial shareholder participation in the management of the corporation.").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[36]" name="[36]" style="color: #660099;">[36]</a> <i>See id.</i> ("[C]lose corporation investors are often linked by family or other personal relationships that result in a familiarity between the participants.").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[37]" name="[37]" style="color: #660099;">[37]</a> Robert A. Ragazzo, Marc I. Steinberg, Alan R. Bromberg, Joseph K. Leahy, Bruce A. McGovern, Gary S. Rosin, and David Simon Sokolow.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[38]" name="[38]" style="color: #660099;">[38]</a> <i>See, e.g.,</i> Moll, <i>Majority Rule,</i> at 436 (listing common "freeze-out" or "squeeze-out" tactics); Rogers,<i>supra</i> note 27, at 599-600 (listing conduct typical in oppression cases).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[39]" name="[39]" style="color: #660099;">[39]</a> <i>See, e.g.,</i> Douglas K. Moll, <i>Reasonable Expectations v. Implied-in-Fact Contracts: Is the Shareholder Oppression Doctrine Needed?,</i> 42 B.C. L.REV. 989, 1067 (2001) (observing that when dividends are not paid, "a minority shareholder who is discharged from employment and removed from the board of directors is effectively denied any return on his or her investment").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[40]" name="[40]" style="color: #660099;">[40]</a> <i>See also </i><a href="https://scholar.google.com/scholar_case?case=880439261860509790&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Humble Sand & Gravel, Inc. v. Gomez,</i> 146 S.W.3d 170, 193-94 (Tex.2004)</a> ("The existence of a comprehensive regulatory scheme to protect against harm weighs against imposing a common law duty to accomplish the same result if the scheme affords significant protections."); <a href="https://scholar.google.com/scholar_case?case=14543997683224541352&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Mission Petroleum Carriers, Inc. v. Solomon,</i> 106 S.W.3d 705, 715-16 (Tex.2003)</a> (declining to impose a new common-law duty on employers who conduct in-house drug testing because "the DOT's comprehensive statutory and regulatory scheme, coupled with the authority granted to the [Medical Review Officer], affords significant protection to employees who are the subject of random drug tests.").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[41]" name="[41]" style="color: #660099;">[41]</a> <i>See supra</i> note 34.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[42]" name="[42]" style="color: #660099;">[42]</a> The court may also award the recovery "to the corporation if necessary to protect the interests of creditors or other shareholders of the corporation." TEX. BUS. ORGS.CODE § 21.563(c).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[43]" name="[43]" style="color: #660099;">[43]</a> The dissent concedes that shareholder and buy-sell agreements are a more "ideal[]" means for deciding shareholder disputes. <i>Post</i> at 894. But it contends that people enter closely held businesses "ill-prepared" and implies that the law should step in to pick up the slack. We cannot accept this premise. Courts generally endeavor to afford citizens broad freedoms in their choices about how to manage their own business endeavors. There are numerous well-established justifications for this approach, not the least of which is that courts are simply ill-suited to the task of second-guessing business decisions made by business people who typically have a more long-term perspective, access to more extensive information, greater experience in the industry, if not in business practices generally, and more interest in the outcome. <i>See, e.g.,</i> Eric A. Posner, <i>A Theory of Contract Law Under Conditions of Radical Judicial Error,</i> 94 Nw. U.L.Rev. 749, 758 (2000) ("[C]ourts have trouble understanding the simplest of business relationships. This is not surprising. Judges must be generalists, but they usually have narrow backgrounds in a particular field of the law.").</div>
<div style="position: relative;">
Nor can we assume that the absence of applicable contractual provisions indicates ill-preparedness on the part of business owners. Owners may reasonably choose flexibility over predictability. Minority shareholders may reasonably choose to create mechanisms that would allow them to impede the will of the majority or demand a buyout because they do not want other minority owners to have the same ability to interfere with the operation of the business or to threaten the financial health of the business with an ill-timed demand for buyout.</div>
<div style="position: relative;">
Finally, even if we accepted the dissent's premise, the buy-out remedy the dissent favors (whether granted under an expansive reading of the receivership statute or the creation of a new common-law cause of action) has not been limited to circumstances where there is no shareholder or buy-sell agreement. In <i>Cardiac Perfusion Services,</i> for example, the court of appeals affirmed a buyout of minority shares in direct contravention of the terms of the parties' buy-out agreement. <a href="https://scholar.google.com/scholar_case?case=604438263127250229&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;">380 S.W.3d at 204-05</a>. In Illinois, where the statute on which the dissent relies expressly authorizes a buyout in non-public corporations based on oppressive actions, the courts likewise have applied the statute to force buyouts at prices calculated under the statute rather than the parties express agreement and to force buyouts with terms that are contrary to the parties' express terms for exiting the business. <i>See, e.g., Gingrich v. Midkiff,</i> 2014 IL App (5th) 120332-U, 2014 WL 316547 (affirming judgment in case where court calculated buyout price under statute rather than valuation formula in shareholder agreement and where court declined to impose shareholder agreement's non-compete limitation on withdrawing or expelled shareholders).</div>
<div style="position: relative;">
</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[44]" name="[44]" style="color: #660099;">[44]</a> The dissent accuses Ritchie, Dennard, and Lutes of withholding corporate records from Rupe, but the court of appeals held that there was no evidence of such actions and Rupe did not appeal that holding.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[45]" name="[45]" style="color: #660099;">[45]</a> The declaration of dividends for some but not all classes of stock could also form the basis for such a complaint, but we have not seen this kind of claim in Texas cases. When a Texas corporation has more than one class of shares, the corporation's certificate of formation must specify the preferences, limitations, and relative rights of the shares. TEX. BUS. ORGS.CODE § 3.007(b)(4).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[46]" name="[46]" style="color: #660099;">[46]</a> The Legislature has, however, placed limits on corporate dividends, distributions, and redemptions, primarily to protect the corporation's creditors. TEX. BUS. ORGS.CODE §§ 21.301-.318 (Subchapter G).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[47]" name="[47]" style="color: #660099;">[47]</a> A corporation may not limit its directors' liability for bad faith breaches of their duties to the corporation, breaches of their duty of loyalty, or transactions from which the directors receive an improper benefit. TEX. BUS. ORGS.CODE § 7.001(b), (c).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[48]" name="[48]" style="color: #660099;">[48]</a> The <i>Patton</i> opinion uses the word "oppression" only once, when describing the kind of future conduct that a rehabilitative receivership may be designed to prevent, in the context of a New Jersey case involving fraud claims by one corporate director against two other corporate directors. <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Patton,</i> 279 S.W.2d at 857</a>(citing <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=8818243296514458815&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Laurel Springs Land Co. v. Fougeray,</i> 50 N.J. Eq. 756, 26 A. 886, 887 (1893)</a>).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[49]" name="[49]" style="color: #660099;">[49]</a> In <i>Patton,</i> we used the phrase "breach of trust," <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;">279 S.W.2d at 854,</a> rather than "breach of fiduciary duty," which has since become the more common phrase outside of trustee actions. The courts have used the two phrases interchangeably. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=11762762278812344165&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Phillips v. Phillips,</i> 820 S.W.2d 785, 792 (Tex.1991) (Gonzalez, J., dissenting)</a> ("Courts impose damages on parties who violate a fiduciary duty in order to punish the party's breach of trust."); <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=5301519623742184257&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Paddock v. Siemoneit,</i> 147 Tex. 571, 218 S.W.2d 428, 432 (1949)</a> ("Acts which might well be considered breaches of trust as to other fiduciaries have not always been so regarded in cases of corporate officers or directors."); <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=743453724964519527&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Kaufman & Runge v. B. Alexander & Bro.,</i> 53 Tex. 562, 568 (1880)</a> (finding no claim "involving any bad faith or breach of trust on the part of the agents in appropriating as their own that which, by reason of their fiduciary relation, they were bound to hold in trust for their principals.").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[50]" name="[50]" style="color: #660099;">[50]</a> The trial court had awarded a liquidating receivership, and we rejected that remedy as too severe. <i>Id.</i> at 859. We noted that although the statutes in effect at the time provided only for dissolution and liquidation, the Legislature had recently passed the not-yet-effective Business Corporation Act, which favored rehabilitative receivership over liquidation when the business was solvent. <i>Id.</i> at 854. Citing precedents in which we "seem[ed] to recognize a minority right to receivership in cases of <i>gross or fraudulent mismanagement,</i>although without particular reference to whether liquidation or something else is to follow," we concluded that, in the "more extreme" cases, Texas courts could, under their general equity power, appoint a receiver "for the less drastic purpose of `rehabilitation'" as remedy for the majority shareholder's breach of fiduciary duty, rather than appointing a liquidating receiver under the statute. <i>Id.</i> at 857 (emphasis added). As discussed above, this holding related to Texas courts' power to grant different types of receiverships as equitable remedies for existing causes of action—in <i>Patton,</i> breach of fiduciary duty—and not whether the receivership statutes created new statutory remedies other than receivership. <i>See id.</i></div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[51]" name="[51]" style="color: #660099;">[51]</a> <i>Patton</i> is thus contrary to the dissent's assertion that majority shareholders can simply refuse to declare dividends for their own personal benefit rather than in the best interest of the corporation. <i>See ante</i> at 883.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[52]" name="[52]" style="color: #660099;">[52]</a> Shareholders can utilize a shareholders' agreement to set the terms of an officer's or director's salary and employment, thus preventing the officers and directors from making those decisions for themselves. <i>See</i>TEX. BUS. ORGS.CODE §§ 21.101(a)(4), 21.714(b)(9).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[53]" name="[53]" style="color: #660099;">[53]</a> The dissent contends that "typical acts of minority oppression (refusing to pay dividends, paying majority shareholders outside the dividend process, and making fire-sale buyout offers) usually operate to benefit the corporation and hardly ever harm it." <i>Post</i> at 893. But the dissent offers no support for this broad proposition, and we do not agree that this is a valid assumption. The dissent confuses the corporation's interests with the individual interests of its majority shareholders. But a corporate officer or director's duty is to the corporation and its shareholders collectively, not any individual shareholder or subgroup of shareholders, even if that subgroup represents a majority of the ownership. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=6386755104031922069&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Redmon,</i> 202 S.W.3d at 233</a>; <a href="https://scholar.google.com/scholar_case?case=14929734695465472769&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Somers,</i> 295 S.W.3d at 11</a>; <a href="https://scholar.google.com/scholar_case?case=13272738103301304255&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Lindley,</i> 349 S.W.3d at 124</a>; <a href="https://scholar.google.com/scholar_case?case=1263955204808204845&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Hoggett,</i> 971 S.W.2d at 488</a>. We do not determine the best interest of the corporation by examining only the interest of its majority shareholder(s). <i>See </i><a href="https://scholar.google.com/scholar_case?case=8748381280314200441&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Holloway v. Skinner,</i> 898 S.W.2d 793, 797 (Tex.1995)</a> (holding that corporate officer and majority shareholder could be held liable for acting "in a manner that served his interests at the expense of the other shareholders" because his interests and the corporation's were not necessarily aligned). Refusal to pay dividends, paying majority shareholders outside the dividend process, and making fire-sale buyout offers certainly can harm the corporation, for instance, by lowering the value of its stock. As <i>Patton</i> itself demonstrates, the very conduct the dissent claims does not harm the corporation in fact can give rise (and has given rise in the past) to a breach-of-fiduciary-duty claim against the corporate controller who engaged in such conduct to benefit himself at the expense of the corporation. <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;">279 S.W.2d at 853</a> (holding majority shareholder liable when he used "his control of the board for the malicious purpose of ... preventing dividends and otherwise lowering the value ... of the stock of the [minority shareholders]").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[54]" name="[54]" style="color: #660099;">[54]</a> The dissent's contention that this Court should recognize a common-law duty between majority and minority shareholders, rather than between corporate controllers and the corporation, for this kind of conduct is contrary to well-established Texas law. <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=6982193025485451292&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Murphy v. Campbell,</i> 964 S.W.2d 265, 268 (Tex.1997)</a>(citing <a href="https://scholar.google.com/scholar_case?case=3373804657716150484&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Wingate v. Hajdik,</i> 795 S.W.2d 717, 719 (Tex.1990)</a> for the proposition that "one corporate stockholder cannot recover damages from another for misappropriation of corporate assets").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[55]" name="[55]" style="color: #660099;">[55]</a> An exception to this rule may apply when the conduct in question breaches a specific duty owed by the actor to the individual shareholder, such as when the conduct gives rise to a breach of contract claim. <i>See</i><a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=7651370902574572236&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Davis,</i> 168 S.W.2d at 221</a>; <a href="https://scholar.google.com/scholar_case?case=3373804657716150484&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Wingate v. Hajdik,</i> 795 S.W.2d at 719</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=16593658975511057560&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Miga v. Jensen,</i> 96 S.W.3d 207 (Tex.2002)</a> (action by one shareholder against another for breach of contract for option to purchase stock).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[56]" name="[56]" style="color: #660099;">[56]</a> Of course, if the controlling directors or shareholders act fraudulently to manipulate the shares' value, additional common-law and statutory remedies may apply. <i>See, e.g.,</i> TEX. REV.CIV. STAT. art. 581 (Texas Securities Act); TEX. BUS. & COM.CODE § 27.01 (fraud in real estate and stock transactions); <a href="https://scholar.google.com/scholar_case?case=12732720246974989371&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Allen v. Devon Energy Holdings, L.L.C.,</i> 367 S.W.3d 355, 369 (Tex.App.-Houston [1st Dist.] 2012, judgm't set aside by agr.)</a> (addressing fraud claims relating to closely held company's purchase of minority shareholders' shares).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[57]" name="[57]" style="color: #660099;">[57]</a> The dissent asserts that our "inclusion of [the business judgment rule] in the definition of oppression negates the very protection the oppression statute afforded until today." <i>Post</i> at 903. We note that what the dissent calls "the oppression statute," the Legislature refers to as a rehabilitative receivership statute, only one prong of which includes oppression as one of three types of conduct addressed in that prong. <i>See</i>former art. 7.05; TEX. BUS. & COM.CODE § 11.404 (titled "appointment of receiver to rehabilitate domestic entity" and located in the "receivership" subchapter of the Code); <i>id.</i> § 11.404(a)(1)(C) (authorizing receivership for "illegal, oppressive, or fraudulent" actions by the governing persons of a domestic entity).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[58]" name="[58]" style="color: #660099;">[58]</a> We have recognized that in some circumstances a special relationship of trust may arise between parties prior to and independent from the parties' business relationship, which can give rise to informal fiduciary duties. <i>See </i><a href="https://scholar.google.com/scholar_case?case=5984971112902484454&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Schlumberger Tech. Corp. v. Swanson,</i> 959 S.W.2d 171, 176-77 (Tex.1997)</a>.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[59]" name="[59]" style="color: #660099;">[59]</a> <i>See also </i><a href="https://scholar.google.com/scholar_case?case=5356750779091571608&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Graff,</i> 858 S.W.2d at 921</a> (addressing difficulties arising from imposing a duty without a clear standard of how the duty is satisfied); <a href="https://scholar.google.com/scholar_case?case=6562509226737462975&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Twyman v. Twyman,</i> 855 S.W.2d 619, 629 (Tex.1993) (Hecht, J., concurring and dissenting)</a> ("The wrongful conduct for which the common law offers redress by an award of damages should be defined by standards sufficiently objective and particular to allow a reasonable assessment of the likelihood that certain behavior may be found to be culpable, and to adjudicate liability with some consistency in the various cases that arise.").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[60]" name="[60]" style="color: #660099;">[60]</a> <i>See, e.g.,</i> Timothy J. Storm, <i>Remedies for Oppression of Non-Controlling Shareholders in Illinois Closely-Held Corporations: An Idea Whose Time Has Gone,</i> 33 LOY. U. CHI. L.J. 379, 383-84, 435 (2002) (observing that "[a]lthough entire treatises have been written on the subject of minority shareholder oppression, a precise definition remains elusive," that "much of the relevant case law defines oppression more by what it is not, than by what it is," and that "[e]ven proponents of a view of oppression that recognizes the non-controlling shareholder's reasonable expectations admit that these are often `just vague and half-articulated understandings.'") (quoting F. Hodge O'Neal, <i>Close Corporations: Existing Legislation and Recommended Reform,</i> 33 BUS. LAW. 873, 886 (1978)); Sandra K. Miller, <i>How Should U.K. and U.S. Minority Shareholder Remedies for Unfairly Prejudicial or Oppressive Conduct Be Reformed?,</i> 36 AM. BUS. L.J. 579, 617 (1999) ("A vague reasonable expectations approach raises concerns for practitioners because in any particular case it is difficult to predict how a court will rule. It is difficult to counsel a minority owner who may be reluctant to proceed with litigation in the face of an uncertain result. It also is difficult to counsel the majority shareholder as to what conduct is acceptable, particularly after a shareholder dispute develops.").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[61]" name="[61]" style="color: #660099;">[61]</a> <i>See, e.g.,</i> Hunter J. Brownlee, <i>The Shareholders' Agreement: A Contractual Alternative to Oppression As A Ground for Dissolution,</i> 24 STETSON L.REV. 267, 286 (1994) (noting that "reasonable expectations" is a vague standard and subject to greater obscurity when some shareholders received their shares by inheritance or gift).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[62]" name="[62]" style="color: #660099;">[62]</a> <i>See, e.g.,</i> Mark J. Loewenstein & William K.S. Wang, <i>The Corporation as Insider Trader,</i> 30 DEL. J. CORP. L. 45, 52 (2005) ("The very idea that a corporation has a fiduciary duty to individual shareholders is troubling. The corporation can act only through its board of directors, officers, employees, and other agents. These actors are obligated to act in the best interests of the corporation, which may not coincide with the best interests of an individual shareholder transacting business with the corporation. There is no reason to impose a fiduciary obligation on these actors to act in the best interests of an individual shareholder when that shareholder proposes a course of conduct not in the best interests of the corporation.").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[63]" name="[63]" style="color: #660099;">[63]</a> As noted above, an informal fiduciary duty may arise from "a moral, social, domestic or purely personal relationship of trust and confidence," and its existence is generally a question of fact for the jury. <i>See</i><a href="https://scholar.google.com/scholar_case?case=13024931949205544818&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Cathey,</i> 167 S.W.3d at 330-31</a> (quoting <a href="https://scholar.google.com/scholar_case?case=6978888095106925680&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Associated Indem. Corp.,</i> 964 S.W.2d at 287</a>).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[64]" name="[64]" style="color: #660099;">[1]</a> <i>See infra</i> Part II.A.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[65]" name="[65]" style="color: #660099;">[2]</a> <i>See infra</i> Part II.A.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[66]" name="[66]" style="color: #660099;">[3]</a> The investment of minority shareholders in closely held corporations is crucial because of the key role closely held corporations play in the American economy. According to Forbes, America's 224 largest privately held companies alone accounted for $1.61 trillion in revenue and over 4.5 million jobs in 2013. Andrea Murphy & Scott DeCarlo, <i>America's Largest Private Companies 2013,</i> FORBES (Dec. 18, 2013), http://www.forbes.com/sites/andreamurphy/2013/12/18/americas-largest-private-companies-2013/. Closely held corporations are a significant category of private companies, which include such organizations as partnerships and sole proprietorships.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[67]" name="[67]" style="color: #660099;">[4]</a> Charles W. Murdock, <i>The Evolution of Effective Remedies for Minority Shareholders and Its Impact Upon Valuation of Minority Shares,</i> 65 NOTRE DAME L.REV. 425, 425 (1990) (quoting <a href="https://scholar.google.com/scholar_case?case=2475749792937775741&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Humphrys v. Winous Co.,</i>165 Ohio St. 45, 133 N.E.2d 780, 783 (1956)</a>).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[68]" name="[68]" style="color: #660099;">[5]</a> <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Patton v. Nicholas,</i> 154 Tex. 385, 279 S.W.2d 848, 854 (1955)</a>.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[69]" name="[69]" style="color: #660099;">[6]</a> <i>See, e.g.,</i> Amicus Letter of Robert A. Ragazzo, Marc. I. Steinberg, Alan R. Bromberg, Joseph K. Leahy, Bruce A. McGovern, Gary S. Rosin, & David Simon Sokolow at 4-5, <i>Ritchie v. Rupe,</i> No. 11-0447, Supreme Court of Texas, Jan. 15, 2013; <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Patton,</i> 279 S.W.2d at 853</a> (finding no evidence of damage to a corporation when majority shareholder refused to pay dividends to minority shareholder).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[70]" name="[70]" style="color: #660099;">[7]</a> Ragazzo, <i>supra</i> note 6.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[71]" name="[71]" style="color: #660099;">[8]</a> <i>Id.</i> at 4-5.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[72]" name="[72]" style="color: #660099;">[9]</a> <i>Id.</i></div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[73]" name="[73]" style="color: #660099;">[10]</a> <i>Id.</i> at 5.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[74]" name="[74]" style="color: #660099;">[11]</a> Murdock, <i>supra</i> note 4, at 426; <i>see also</i> Douglas K. Moll, <i>Minority Oppression & the Limited Liability Company: Learning (or Not) from Close Corporation History,</i> 40 WAKE FOREST L.REV. 883, 912 (2005) ("Because close corporation owners are frequently linked by family or other personal relationships, there is often an initial atmosphere of mutual trust that diminishes the sense that contractual protection is needed. Commentators have also argued that close corporation owners are often unsophisticated in business and legal matters such that the need for contractual protection is rarely recognized." (internal citations omitted)).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[75]" name="[75]" style="color: #660099;">[12]</a> ALA.CODE § 10-2A-1430; ARK.CODE § 4-27-1430; COLO.REV.STAT. § 7-114-301; CONN. GEN. STAT. § 33-896; GA.CODE § 14-2-940; IDAHO CODE § 30-1-1430; 805 ILL. COMP. STAT. 5/12.55; IOWA CODE § 490.1430; MD.CODE, CORPS. & ASS'NS § 3-413; MICH. COMP. LAWS § 450.1489; MISS.CODE § 79-4-14.30; MO. ANN. STAT. § 351.494; MONT.CODE § 35-1-938; NEB.REV.STAT. § 21-2985; N.H.REV.STAT. § 293-A:14.30; N.J. STAT. § 14A:12-7; N.M. STAT. § 53-16-16; N.Y. BUS. CORP. LAW § 1104-a; OR.REV.STAT. § 60.661; 15 PA. STAT. § 1981; R.I. GEN. LAWS § 7-1.2-1314; S.C.CODE § 33-14-300; S.D. CODIFIED LAWS § 47-1A-1430; TENN.CODE § 48-24-301; UTAH CODE § 16-10a-1430; VT. STAT. tit. 11A, § 14.30; VA.CODE § 13.1-747; WASH. REV.CODE § 23B.14.300; W. VA.CODE § 31D-14-1430; WIS. STAT. § 180.1430; WYO. STAT. § 17-16-1430.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[76]" name="[76]" style="color: #660099;">[13]</a> ALASKA STAT. § 10.06.628; CAL. CORP.CODE § 1800; MINN.STAT. § 302A.751; N.D. CENT. CODE § 10-19.1-115.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[77]" name="[77]" style="color: #660099;">[14]</a> <i>See</i> N.C. GEN.STAT. § 55-14-30(2)(ii) (authorizing liquidation if "reasonably necessary for the protection of the rights or interests of the complaining shareholder").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[78]" name="[78]" style="color: #660099;">[15]</a> Several states also impose special fiduciary duties on majority shareholders in closely held corporations.<i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=1121037338469033250&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Barth v. Barth,</i> 659 N.E.2d 559, 561 n. 6 (Ind.1995)</a>; <a href="https://scholar.google.com/scholar_case?case=16215967370904058643&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Crosby v. Beam,</i> 47 Ohio St.3d 105, 548 N.E.2d 217, 221 (1989)</a>; <a href="https://scholar.google.com/scholar_case?case=16552794519790211988&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Wilkes v. Springside Nursing Home, Inc.,</i> 370 Mass. 842, 353 N.E.2d 657, 663 (1976)</a>. Fiduciary duty protections are discussed in Part II.E, <i>infra.</i></div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[79]" name="[79]" style="color: #660099;">[16]</a> The father of Buddy Rupe and Paula Dennard established the family trust to benefit his wife, his two children (Buddy and Dennard), and Dennard's three children. At the time, Buddy had one adopted child. The father did not wish to leave voting shares to an adopted child and believed Buddy to be incapable of having children. Accordingly, the family trust provided that Buddy's inheritance of RIC dividends would revert to Dennard and her three children on Buddy's death.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[80]" name="[80]" style="color: #660099;">[17]</a> Almost all of RIC's voting shares were owned by trusts, including the 18% of the voting shares attributable to Rupe and her son. For ease of reference, this opinion will refer to the beneficial interest owners of the trust when possible.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[81]" name="[81]" style="color: #660099;">[18]</a> In accordance with the terms of the family trust, <i>see supra</i> note 16, Buddy's RIC dividends of $50,000 per year from his shares in the family trust reverted to Dennard and her children.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[82]" name="[82]" style="color: #660099;">[19]</a> For example, RIC listed an office building for sale for $1.8 million but established its book value at $124,000 due to depreciation.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[83]" name="[83]" style="color: #660099;">[20]</a> RIC subsidiary Hutton Communications was in a financial crisis, but Hutton's chief financial officer testified that its turnaround began before the date on which RIC assessed the book value of Rupe's shares.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[84]" name="[84]" style="color: #660099;">[21]</a> RIC used this particular discount when buying back certain stock in previous years.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[85]" name="[85]" style="color: #660099;">[22]</a> RIC's $1.7 million offer was calculated utilizing a valuation date of June 30, 2003. The jury assessed the value of Rupe's shares as of June 30, 2006. The court of appeals affirmed the jury's valuation date, which is not at issue in this appeal.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[86]" name="[86]" style="color: #660099;">[23]</a> <a href="https://scholar.google.com/scholar_case?case=17283530797828675940&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Cent. Standard Life Ins. Co. v. Davis,</i> 10 Ill.2d 566, 141 N.E.2d 45, 49 (1957)</a> ("The concept of oppressive conduct as a ground for dissolution of a corporation in equity appears for the first time in the 1933 act.").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[87]" name="[87]" style="color: #660099;">[24]</a> Murdock, <i>supra</i> note 4, at 455.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[88]" name="[88]" style="color: #660099;">[25]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=17419979767422051089&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Balvik v. Sylvester,</i> 411 N.W.2d 383, 389 (N.D.1987)</a>; <a href="https://scholar.google.com/scholar_case?case=15880381244081287529&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Delaney v. Georgia-Pacific Corp.,</i> 278 Or. 305, 564 P.2d 277, 288 (1977)</a> ("[T]his is an appropriate cause for relief in the form of a requirement that [the majority shareholder] purchase plaintiffs' stock at a fair price."). Oregon has since amended its statute to expressly allow buyouts and other remedies, noting that the listed remedies "shall not be exclusive of other legal and equitable remedies that the court may impose." OR.REV.STAT. § 60.952(2)-(3).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[89]" name="[89]" style="color: #660099;">[26]</a> <i>See, e.g., </i><a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=4101012998932681272&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Christians v. Stafford,</i> No. 14-99-00038-CV, 2000 WL 1591000, at *2 (Tex. App.-Houston [14th Dist.] Oct. 26, 2000, no pet.)</a> (mem.op.) ("[A] court may order an equitable `buy-out' of a party's minority shares for oppressive acts of the majority when the party sues both individually in his own right and as a shareholder on behalf of the corporation."); <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=2829374705201530245&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Advance Marine, Inc. v. Kelley,</i> No. 01-90-00645-CV, 1991 WL 114463, at *2 (Tex.App.-Houston [1st Dist.] June 27, 1991, no writ)</a> (mem.op.) ("Courts have power to order the equitable remedy of a buy-out by the majority shareholders according to the facts of the particular case."); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=2626361424830337155&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Balias v. Balias, Inc.,</i> 748 S.W.2d 253, 256-57 (Tex. App.-Houston [14th Dist.] 1988, writ denied)</a> (affirming trial court's denial of appointment of a receiver where shareholder failed to demonstrate that other remedies would have been inadequate).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[90]" name="[90]" style="color: #660099;">[27]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=1138086732241625314&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Maddox v. Norman,</i> 206 Mont. 1, 669 P.2d 230, 237 (1983)</a> ("[A] court sitting in equity is empowered to determine the questions involved in a case and do complete justice. This includes the power to fashion an equitable result." (citations and quotation marks omitted)); <a href="https://scholar.google.com/scholar_case?case=15480153353054740947&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Alaska Plastics, Inc. v. Coppock,</i> 621 P.2d 270, 274-75 (Alaska 1980)</a>; <a href="https://scholar.google.com/scholar_case?case=16691287164534931448&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>McCauley v. Tom McCauley & Son, Inc.,</i> 104 N.M. 523, 724 P.2d 232, 243 (N.M.Ct.App. 1986)</a>; <a href="https://scholar.google.com/scholar_case?case=18107051108126439431&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Sauer v. Moffitt,</i> 363 N.W.2d 269, 274-75 (Iowa Ct.App.1984)</a>.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[91]" name="[91]" style="color: #660099;">[28]</a> <a href="https://scholar.google.com/scholar_case?case=11235362966363262771&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Masinter v. WEBCO Co.,</i> 164 W.Va. 241, 262 S.E.2d 433, 439-40 (1980)</a> (citing <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Patton,</i> 279 S.W.2d at 853</a>); <i>see also </i><a href="https://scholar.google.com/scholar_case?case=2152003894365402703&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Rowen v. Le Mars Mut. Ins. Co. of Iowa,</i> 282 N.W.2d 639, 656 (Iowa 1979)</a> ("Wherever a situation exists which is contrary to the principles of equity and which can be redressed within the scope of judicial action, a court of equity will devise a remedy to meet the situation, though no similar relief has been given before." (quotation marks omitted) (citing <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Patton,</i> 279 S.W.2d at 857</a>)).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[92]" name="[92]" style="color: #660099;">[29]</a> Murdock, <i>supra</i> note 4, at 464.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[93]" name="[93]" style="color: #660099;">[30]</a> Douglas K. Moll, <i>Shareholder Oppression and "Fair Value": Of Discounts, Dates, and Dastardly Deeds in the Close Corporation,</i> 54 DUKE L.J. 293, 309 n. 56 (2004) (quoting 1 F. HODGE O'NEAL & ROBERT B. THOMPSON, O'NEAL'S CLOSE CORPORATIONS § 1. 16, at 1-97 (3d ed.2002)); <i>see also id.</i> at 308-09 ("The most common remedy for oppression ... is a buyout of the oppressed investor's stockholdings. A buyout is advantageous because it provides a mechanism for an oppressed shareholder to extricate his investment from a venture without having to dissolve the corporation. The majority shareholder continues to operate the close corporation and to participate in the company's successes and failures, while the minority shareholder recovers the value of his invested capital and removes himself from the company's affairs."); Murdock, <i>supra</i> note 4, at 470 ("The most common form of alternative remedy is the buy-out of the minority shareholder.").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[94]" name="[94]" style="color: #660099;">[31]</a> The remedy of receivership is harsh or drastic when compared to other remedies such as compelling dividends or a buyout because it replaces the shareholders' chosen managers with court-chosen managers. 443 S.W.3d at 903; <a href="https://scholar.google.com/scholar_case?case=2626361424830337155&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Balias,</i> 748 S.W.2d at 257</a>. But this does not mean that even a receivership for dissolution will cause the corporation to cease to be a going concern. The majority shareholders may well purchase the corporation from the receiver, essentially buying out the minority shareholder.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[95]" name="[95]" style="color: #660099;">[32]</a> Murdock, <i>supra</i> note 4, at 426.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[96]" name="[96]" style="color: #660099;">[33]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=2996463283649985506&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Texarkana Coll. Bowl, Inc. v. Phillips,</i> 408 S.W.2d 537, 539-40 (Tex.Civ.App.-Texarkana 1966, no writ)</a> (holding that a shareholder was not entitled to a remedy for oppression because the directors' decisions were "not inconsistent with the honest exercise of business judgment and discretion").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[97]" name="[97]" style="color: #660099;">[34]</a> The Court believes the Model Act compels its conclusion here because the Act expressly provides a buyout as a remedy. 443 S.W.3d at 898 n. 25. But the Model Act only changed in 1984 to expressly provide a buyout. <i>Compare</i> MODEL BUS. CORP. ACT § 14.34 (1984) (establishing procedure for buyout in lieu of dissolution) <i>with</i> MODEL BUS. CORP. ACT § 97 (1971) (allowing court to liquidate corporation due to oppressive conduct without specifying other remedies) <i>and</i> MODEL BUS. CORP. ACT § 90 (1960) (same). Presciently, the Texas Legislature added in 1955 the flexibility the Model Act did not have until recently by expressly allowing lesser legal and equitable remedies. Former art. 7.05. The Texas Act should not have to expressly enumerate lesser legal and equitable remedies to give the plain statutory language its intended effect.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[98]" name="[98]" style="color: #660099;">[35]</a> Murdock, <i>supra</i> note 4, at 459.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[99]" name="[99]" style="color: #660099;">[36]</a> <i>Id.</i> at 470 (citations omitted); <i>compare favorably </i><a href="https://scholar.google.com/scholar_case?case=16691287164534931448&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>McCauley,</i> 724 P.2d at 236</a> ("The absence of a rigidly defined standard for determining what constitutes oppressive behavior enables courts to determine, on a case-by-case basis, whether the acts complained of serve to frustrate the legitimate expectations of minority shareholders, or whether the acts are of such severity as to warrant the requested relief.").</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[100]" name="[100]" style="color: #660099;">[37]</a> Murdock, <i>supra</i> note 4, at 465.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[101]" name="[101]" style="color: #660099;">[38]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=215337678756309587&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Baur v. Baur Farms, Inc.,</i> 832 N.W.2d 663, 674 (Iowa 2013)</a>; <a href="https://scholar.google.com/scholar_case?case=5356717363536766645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Boland v. Boland,</i> 423 Md. 296, 31 A.3d 529, 542 (2011)</a>; <a href="https://scholar.google.com/scholar_case?case=12806084380129977615&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Scott v. Trans-Sys., Inc.,</i> 148 Wash.2d 701, 64 P.3d 1, 6 (2003)</a>; <a href="https://scholar.google.com/scholar_case?case=10542866674937087632&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Hendrick v. Hendrick,</i>755 A.2d 784, 791 (R.I.2000)</a>; <a href="https://scholar.google.com/scholar_case?case=15994972078970508854&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Brenner v. Berkowitz,</i> 134 N.J. 488, 634 A.2d 1019, 1028-29 (1993)</a>; <a href="https://scholar.google.com/scholar_case?case=17419979767422051089&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Balvik,</i>411 N.W.2d at 387 (N.D.1987)</a>; <a href="https://scholar.google.com/scholar_case?case=16691287164534931448&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>McCauley,</i> 724 P.2d at 237-38 (N.M.App.1986)</a>; <a href="https://scholar.google.com/scholar_case?case=6939762472656611849&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Stefano v. Coppock,</i> 705 P.2d 443, 446 n. 3 (Alaska 1985)</a>; <a href="https://scholar.google.com/scholar_case?case=3107926041214080467&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Meiselman v. Meiselman,</i> 309 N.C. 279, 307 S.E.2d 551, 563 (1983)</a>; <a href="https://scholar.google.com/scholar_case?case=808965605367307196&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fox v. 7L Bar Ranch Co.,</i> 198 Mont. 201, 645 P.2d 929, 933 (1982)</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=1320678169072118833&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Adler v. Tauberg,</i> 881 A.2d 1267, 1269 (Pa.Super.Ct.2005)</a>; <a href="https://scholar.google.com/scholar_case?case=2907864741055654897&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Ford v. Ford,</i> 878 A.2d 894, 904 (Pa.Super.Ct.2005)</a>; <i>Morrow v. Prestonwold, Inc.,</i>No. CV000445844S, 2002 WL 652369, at *4 (Conn.Super.Ct. Mar. 22, 2002).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[102]" name="[102]" style="color: #660099;">[39]</a> <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=12501370737437277451&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Kohannim v. Katoli,</i> 440 S.W.3d 798, 811 (Tex.App.-El Paso 2013, pet. denied)</a>; <a href="https://scholar.google.com/scholar_case?case=14497568670782333649&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Boehringer v. Konkel,</i> 404 S.W.3d 18, 25 (Tex. App.-Houston [1st Dist.] 2013, no pet.)</a>; <a href="https://scholar.google.com/scholar_case?case=14415180030680709429&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Argo Data Res. Corp. v. Shagrithaya,</i> 380 S.W.3d 249, 265 (Tex.App.-Dallas 2012, pet. filed)</a>; <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=10862792194068110022&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>In re Trockman,</i> No. 07-11-0364-CV, 2012 WL 554999, at *2 (Tex.App.-Amarillo Feb. 21, 2012, no pet.)</a> (mem.op.); <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=16644606363344371669&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Guerra v. Guerra,</i> No. 04-10-00271-CV, 2011 WL 3715051, at *6 (Tex.App.-San Antonio Aug. 24, 2011, no pet.)</a> (mem.op.); <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=9718910896498209248&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Gibney v. Culver,</i> No. 13-06-112-CV, 2008 WL 1822767, at *16-17 (Tex. App.-Corpus Christi Apr. 24, 2008, pet. denied)</a> (mem.op.); <a href="https://scholar.google.com/scholar_case?case=6386755104031922069&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Redmon v. Griffith,</i> 202 S.W.3d 225, 234 (Tex.App.-Tyler 2006, pet. denied)</a>; <a href="https://scholar.google.com/scholar_case?case=2506167961306002844&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Cotten v. Weatherford Bancshares, Inc.,</i> 187 S.W.3d 687, 699-700 (Tex.App.-Fort Worth 2006, pet. denied)</a>; <a href="https://scholar.google.com/scholar_case?case=13606770528422309632&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Gonzalez v. Greyhound Lines Inc.,</i> 181 S.W.3d 386, 392 n. 5 (Tex.App.-El Paso 2005, pet. denied)</a>; <a href="https://scholar.google.com/scholar_case?case=9460145010298544643&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Willis v. Donnelly,</i>118 S.W.3d 10, 32 n. 12 (Tex.App.-Houston [14th Dist.] 2003)</a> <i>aff'd in part and rev'd in part on other grounds,</i> <a href="https://scholar.google.com/scholar_case?case=9889719598212632740&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;">199 S.W.3d 262 (Tex.2006)</a>; <a href="https://scholar.google.com/scholar_case?case=6546532883699997449&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Pinnacle Data Servs., Inc. v. Gillen,</i> 104 S.W.3d 188, 196 (Tex.App.-Texarkana 2003, no pet.)</a>.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[103]" name="[103]" style="color: #660099;">[40]</a> <i>See</i> Ragazzo, <i>supra</i> note 6, at 10.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[104]" name="[104]" style="color: #660099;">[41]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=7800291376530485247&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Napp v. Parks Camp, Ltd.,</i> 932 A.2d 531, 538 (Me.2007)</a>; <a href="https://scholar.google.com/scholar_case?case=12806084380129977615&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Scott,</i> 64 P.3d at 6 (Wash.2003)</a>;<a href="https://scholar.google.com/scholar_case?case=10542866674937087632&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Hendrick,</i> 755 A.2d at 791 (R.I. 2000)</a>; <a href="https://scholar.google.com/scholar_case?case=13351339838551450666&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Kisner v. Coffey,</i> 418 So.2d 58, 61 (Miss. 1982)</a>; <a href="https://scholar.google.com/scholar_case?case=17528087572598940390&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Baker,</i> 507 P.2d at 393 (Or. 1973)</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=2078782486635425718&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Edenbaum v. Schwarcz-Osztreicherne,</i> 165 Md.App. 233, 885 A.2d 365, 378 (2005)</a>; <a href="https://scholar.google.com/scholar_case?case=8803179937526446266&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Colt v. Mt. Princeton Trout Club, Inc.,</i> 78 P.3d 1115, 1118 (Colo.App.2003)</a>; <i>Morrow,</i> 2002 WL 652369, at *5; <a href="https://scholar.google.com/scholar_case?case=12113306856108454058&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Jorgensen v. Water Works, Inc.,</i> 218 Wis.2d 761, 582 N.W.2d 98, 107 (Wisc.Ct.App.1998)</a>;<a href="https://scholar.google.com/scholar_case?case=9009954432561649747&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Whale Art Co. v. Docter,</i> 743 S.W.2d 511, 514 (Mo.Ct. App.1987)</a>.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[105]" name="[105]" style="color: #660099;">[42]</a> <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=12501370737437277451&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Kohannim,</i> 440 S.W.3d at 811</a>; <a href="https://scholar.google.com/scholar_case?case=14497568670782333649&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Boehringer,</i> 404 S.W.3d at 25</a>; <a href="https://scholar.google.com/scholar_case?case=14415180030680709429&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Shagrithaya,</i> 380 S.W.3d at 265</a>; <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=10862792194068110022&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Trockman,</i> 2012 WL 554999, at *2</a>; <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=16644606363344371669&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Guerra,</i> 2011 WL 3715051, at *6</a>; <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=9718910896498209248&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Gibney,</i> 2008 WL 1822767, at *16-17</a>; <a href="https://scholar.google.com/scholar_case?case=13606770528422309632&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Gonzalez,</i> 181 S.W.3d at 392 n. 5</a>; <a href="https://scholar.google.com/scholar_case?case=9460145010298544643&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Willis,</i> 118 S.W.3d at 32 n. 12</a>; <a href="https://scholar.google.com/scholar_case?case=6546532883699997449&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Gillen,</i> 104 S.W.3d at 196</a>; <i>Devji v. Keller,</i> No. 03-99-00436-CV, 2000 WL 1862819, at *7 (Tex.App.-Austin Dec. 21, 2000, no pet.) (mem.op.);<a href="https://scholar.google.com/scholar_case?case=8525518333477071858&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Davis,</i> 754 S.W.2d at 382</a>.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[106]" name="[106]" style="color: #660099;">[43]</a> The Court holds that the Legislature cannot acquiesce to decisions that run contrary to a statute's plain language and that longstanding Texas court definitions of oppression are thus invalid. 443 S.W.3d at 895 n. 16. The first proposition is unquestionably true, but the Court's application is incorrect. If, as the Court holds, the statutory definition of oppression should be more restrictive than the common-law definition because the statute applies to more than just closely held corporations, then the common-law claim for oppression should fill the "gap" in protection the Court admittedly leaves with its decision.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[107]" name="[107]" style="color: #660099;">[44]</a> The Court responds that the business judgment rule is congruent with the portion of the oppression statute, noting that it is "to conserve the property and business of the domestic entity and avoid damage to interested parties." 443 S.W.3d at 895 n. 13. This assessment is misguided for three reasons. First, minority shareholders whose investments are being diminished would seem to qualify as "interested parties." Second, the Court is reading one provision of the statute ("conserve the property and business of the domestic entity") to render two others meaningless ("interested parties" and "all other legal and equitable remedies"). Third, this distortion of the statute leaves a gap in protection under the common law.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[108]" name="[108]" style="color: #660099;">[45]</a> <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=1533362885292554009&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Grato v. Grato,</i> 272 N.J.Super. 140, 639 A.2d 390, 396 (N.J.Super.Ct.App.Div.1994)</a>; <a href="https://scholar.google.com/scholar_case?case=808965605367307196&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fox,</i> 645 P.2d at 934-35 (Mont. 1982)</a>; <a href="https://scholar.google.com/scholar_case?case=1564401056254369853&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Smith v. Atl. Props., Inc.,</i> 12 Mass.App.Ct. 201, 422 N.E.2d 798, 801, 804 (1981)</a>; <a href="https://scholar.google.com/scholar_case?case=17952462454548813217&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Exadaktilos v. Cinnaminson Realty Co.,</i> 167 N.J.Super. 141, 400 A.2d 554, 561 (N.J.Super.Ct. Law Div.1979)</a>.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[109]" name="[109]" style="color: #660099;">[46]</a> As explained below, I agree with the court of appeals that the jury's valuation of the minority shareholder's stock at $7.3 million failed to account for the stock's lack of marketability or control. Thus, the fair market value would be somewhat less than $7.3 million.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[110]" name="[110]" style="color: #660099;">[47]</a> One basis for the Court's conclusion is its belief that the common-law reasonable expectations test is difficult to apply when a minority shareholder inherited her shares. 443 S.W.3d at 902. But this is precisely why courts in Texas and a host of other jurisdictions apply the test for burdensome, harsh, and wrongful conduct when addressing inherited shares. <i>See supra</i> Part II.B.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[111]" name="[111]" style="color: #660099;">[48]</a> The Court takes solace in the fact that majority shareholders that harm minority shareholders might also be harming the corporation, thus allowing a rehabilitative receiver under the oppression statute or a breach of fiduciary duty claim if the facts support it. 443 S.W.3d at 906 n. 53. The Court specifically opines that "[r]efusal to pay dividends, paying majority shareholders outside the dividend process, and making fire-sale buyout offers certainly can harm the corporation, for instance, by lowering the value of its stock." <i>Id.</i> But such observation reflects a misunderstanding of closely held corporations. For example, refusing to pay dividends to any shareholder yields additional cash reserves. One buying a majority interest in the company would obviously pay more for a company with more cash, which they could extract with the powers associated with their majority interest. One buying a minority interest would not necessarily pay more if they have no legal recourse to compel the majority shareholder to pay a dividend to the minority shareholder (and they have no such recourse after today). Such an example is not difficult to find. It occurred the last time we addressed this issue. In <i>Patton,</i> the majority shareholder refused to pay dividends to the minority shareholders, and we held that such conduct did not harm the corporation. <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;">279 S.W.2d at 853</a>.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[112]" name="[112]" style="color: #660099;">[49]</a> The Court observes that shareholders in closely held corporations that elect to be close corporations do not have to fairly and adequately represent the interests of the corporation. 443 S.W.3d at 905; TEX. BUS. ORGS.CODE § 21.552. But this offers no remedy for minority shareholders in corporations like RIC that have not elected close corporation status.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[113]" name="[113]" style="color: #660099;">[50]</a> The Court also notes that the Business Organizations Code allows courts to treat a closely held corporation's shareholder claim as direct rather than derivative. 443 S.W.3d at 880; TEX. BUS. ORGS.CODE § 21.563(c). But because the Court interprets the oppression statute to only allow a remedy if the corporation itself is harmed, treating derivative actions as direct actions offers no meaningful protection to the oppressed minority shareholder.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[114]" name="[114]" style="color: #660099;">[51]</a> The Court mischaracterizes <i>Patton</i> as standing for the proposition that an improper refusal to declare dividends entitled minority shareholders to relief "either directly to the corporation or through a derivative action." 443 S.W.3d at 884. But we found no harm to the corporation in <i>Patton</i> and required the majority shareholder to declare reasonable dividends for up to five years. <a href="https://scholar.google.com/scholar_case?case=1982557113642100645&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;">279 S.W.2d at 857-58</a>. We required declaring dividends to benefit the shareholders (which had been harmed) rather than the corporation (which had not been harmed by withholding dividends).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[115]" name="[115]" style="color: #660099;">[52]</a> <i>See </i><a href="https://scholar.google.com/scholar_case?case=7773407463233146420&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Centro Empresarial Cempresa S.A. v. Am. Movil, S.A.B. de C.V.,</i> 17 N.Y.3d 269, 929 N.Y.S.2d 3, 952 N.E.2d 995, 1001 (2011)</a>; <a href="https://scholar.google.com/scholar_case?case=356375138919696298&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>U.S. Bank N.A. v. Cold Spring Granite Co.,</i> 802 N.W.2d 363, 381 (Minn.2011)</a>;<a href="https://scholar.google.com/scholar_case?case=3288024537900787413&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>McLaughlin v. Schenk,</i> 220 P.3d 146, 155 (Utah 2009)</a>; <a href="https://scholar.google.com/scholar_case?case=1121037338469033250&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Barth,</i> 659 N.E.2d at 561 n. 6 (Ind.1995)</a>; <a href="https://scholar.google.com/scholar_case?case=16215967370904058643&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Crosby,</i>548 N.E.2d at 221 (Ohio 1989)</a>; <a href="https://scholar.google.com/scholar_case?case=16265352637344790236&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Toner v. Balt. Envelope Co.,</i> 304 Md. 256, 498 A.2d 642, 648 (1985)</a>;<a href="https://scholar.google.com/scholar_case?case=11235362966363262771&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Masinter,</i> 262 S.E.2d at 438 (W.Va.1980)</a>; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=11548717759145242456&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>D & J Tire, Inc. v. Hercules Tire & Rubber Co.,</i> 598 F.3d 200, 206 (5th Cir.2010)</a> (applying Connecticut law); <a href="https://scholar.google.com/scholar_case?case=17293797533762311893&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fiederlein v. Boutselis,</i> 952 N.E.2d 847, 860 (Ind.Ct.App.2011)</a>; <a href="https://scholar.google.com/scholar_case?case=6608385339162517036&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Walta v. Gallegos Law Firm, P.C.,</i> 131 N.M. 544, 40 P.3d 449, 456-57 (N.M.Ct.App.2001)</a>;<a href="https://scholar.google.com/scholar_case?case=1447899013645957541&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Lazenby v. Godwin,</i> 40 N.C.App. 487, 253 S.E.2d 489, 492 (1979)</a>.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[116]" name="[116]" style="color: #660099;">[53]</a> <i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=6386755104031922069&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Redmon,</i> 202 S.W.3d at 237</a>; <a href="https://scholar.google.com/scholar_case?case=9460145010298544643&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Willis,</i> 118 S.W.3d at 31</a>; <a href="https://scholar.google.com/scholar_case?case=2947691088387075704&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Pabich v. Kellar,</i> 71 S.W.3d 500, 504-05 (Tex.App.-Fort Worth 2002, pet. denied)</a>; <a href="https://scholar.google.com/scholar_case?case=1263955204808204845&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Hoggett v. Brown,</i> 971 S.W.2d 472, 487-88 (Tex.App.-Houston [14th Dist.] 1997, pet. denied)</a>; <a href="https://scholar.google.com/scholar_case?case=8843894739629280797&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fisher v. Yates,</i> 953 S.W.2d 370, 378-79 (Tex.App.-Texarkana 1997, pet. denied)</a>; <a href="https://scholar.google.com/scholar_case?case=12051025399452871440&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Gaither v. Moody,</i> 528 S.W.2d 875, 877</a> (Tex.Civ.App.-Houston [14th Dist.] 1975, writ ref'd n.r.e.).</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[117]" name="[117]" style="color: #660099;">[54]</a> Specifically, the jury was asked: "Do you find that the Defendants engaged in oppressive conduct to the rights of [Rupe] as a shareholder in Rupe Investment Corporation?"</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[118]" name="[118]" style="color: #660099;">[55]</a> <i>See supra</i> notes 40-42 and accompanying text.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[119]" name="[119]" style="color: #660099;">[56]</a> Despite never having been an RIC employee, Dennard receives health insurance from RIC, receives $2,500 per month, and receives secretarial assistance at home on a weekly basis to balance her personal checkbook and pay her bills. No minority shareholder receives similar benefits.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[120]" name="[120]" style="color: #660099;">[57]</a> The Court observes that the court of appeals did not analyze whether a buyout is less harsh than a rehabilitative receiver. 443 S.W.3d at 908. But Rupe never requested a rehabilitative receiver. And the court of appeals actually assessed the alleged harshness of the buyout and determined the trial court did not abuse its discretion in light of RIC's $152 million net sales and $55 million in assets. 339 S.W.3d at 298-99. It would seem premature for the court of appeals to fully assess the comparative harshness of a buyout when it remanded for a recalculation of that amount.</div>
<div style="position: relative;">
<a href="https://scholar.google.com/scholar_case?case=6880716916198538956&q=01-14-00919-CV&hl=en&as_sdt=4,44&scilh=0#r[121]" name="[121]" style="color: #660099;">[58]</a> Rupe's alternative basis of relying on the fiduciary duty claim would not affect that remand for a retrial. Assuming a buyout is the appropriate remedy for the breach of fiduciary duty here, the buyout calculation still failed to account for the shares' lack of marketability or control.</div>
</small></div>
</div>
</div>
<br />
<br />
<br />
<br />
<br /></div>
</div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-23331928720464436922015-10-08T09:18:00.000-07:002018-03-22T11:34:22.243-07:00What is a “reasoned award” in arbitration - Houston Court of Appeal panel splits three ways on issue of first impression in review of arbitral award<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div style="text-align: center;">
<i><b><span style="color: #e06666; font-size: large;">Stages Stores, Inc. v Gunnerson,</span></b></i> </div>
<div style="text-align: center;">
No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=01-13-00708-CV&coa=coa01">01-13-00708-CV</a> (Tex.App.- Houston [1st Dist.] Oct. 8, 2015)(op on reh'g)</div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-mDp-yMWz94c/VhaQ7Kd2leI/AAAAAAAADVM/g0dhDb8J8lQ/s1600/01-13-00708-CV%2BStages%2BStores%2BInc%2Bv%2BJon%2BGunnerson%2B-%2BAppeal%2Bover%2Breasoned%2Baward%2Bin%2Barbitration%2Bof%2Bemployment%2Bdispute.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="01-13-00708-CV Stages Stores Inc v Gunnerson - appellate disagreement on reasoned award in arbitration" border="0" height="362" src="https://1.bp.blogspot.com/-mDp-yMWz94c/VhaQ7Kd2leI/AAAAAAAADVM/g0dhDb8J8lQ/s400/01-13-00708-CV%2BStages%2BStores%2BInc%2Bv%2BJon%2BGunnerson%2B-%2BAppeal%2Bover%2Breasoned%2Baward%2Bin%2Barbitration%2Bof%2Bemployment%2Bdispute.JPG" title="01-13-00708-CV Stages Stores Inc v Gunnerson - appellate disagreement on reasoned award in arbitration" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><a href="http://www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=6cec8a2a-521a-4aa8-bf4f-bed104a0d2d4&MediaID=60712968-e15d-4d5e-860a-be69fe9d5525&coa=%22%20+%20this.CurrentWebState.CurrentCourt%20+%20@%22&DT=Opinion">Court's Opinion in Stages Stores, Inc. v, Gunnerson</a></td></tr>
</tbody></table>
<br />
<i><span style="color: #0b5394; font-size: large;">A Houston Court of Appeals panel, on motion for rehearing, today handed down three opinions in appeal and cross-appeal of trial court's ruling on competing motion to confirm and set aside an arbitration award in an employment dispute. </span></i><br />
<i><span style="color: #0b5394; font-size: large;"><br /></span></i>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-IpAPVJOapZg/VhaPmxFH7OI/AAAAAAAADVE/CqW6UkNw9rg/s1600/01-13-00708-CV%2BStages%2BStores%2BInc%2Bv%2BGunnerson%2B-%2Bappellate%2Bdisagreement%2Bon%2Breasoned%2Baward%2Bin%2Barbitration.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="71" src="https://3.bp.blogspot.com/-IpAPVJOapZg/VhaPmxFH7OI/AAAAAAAADVE/CqW6UkNw9rg/s400/01-13-00708-CV%2BStages%2BStores%2BInc%2Bv%2BGunnerson%2B-%2Bappellate%2Bdisagreement%2Bon%2Breasoned%2Baward%2Bin%2Barbitration.JPG" width="400" /></a></div>
<i><span style="color: #0b5394; font-size: large;"><br /></span></i>
<i><span style="color: #0b5394; font-size: large;">The authors of majority opinion, concurrence, </span></i><i><span style="color: #0b5394; font-size: large;">and dissent disagree on meaning of "reasoned award" in dispute over whether arbitrator properly performed responsibility of resolving the case. The majority decides to reverse confirmation of the arbitral award and remand the case to the court below with instructions to the trial court to send the case back to the arbitrator to further address one particular issue raised by the defense. </span></i><br />
<i><span style="color: #0b5394; font-size: large;"> </span></i><br />
<i><span style="color: #0b5394; font-size: large;">Justice Keyes wrote a vigorous dissent, arguing that the majority's approach, by heightening judicial review of arbitral decisionmaking and increasing the scrutiny of awards, thwarts the very rationale of arbitration, which is supposed to result in less costly, less formal, and more expeditious resolution of disputes. This case has already been dealt with in arbitration, in the trial court, in the court of appeals, and no end is yet in sight. Since the FAA is involved, it might even make it all the way to the U.S. Supreme Court. </span></i><br />
<div style="text-align: center;">
<b><span style="color: #cc0000; font-size: large;"><br /></span></b></div>
<div style="text-align: center;">
<b><span style="color: #cc0000; font-size: large;">DISSENTING OPINION </span></b></div>
<br />
<div style="text-align: center;">
Opinion issued October 8, 2015</div>
<div style="text-align: center;">
In The</div>
<div style="text-align: center;">
Court of Appeals</div>
<div style="text-align: center;">
For The</div>
<div style="text-align: center;">
First District of Texas</div>
<div style="text-align: center;">
————————————</div>
<div style="text-align: center;">
NO. 01-13-00708-CV</div>
<div style="text-align: center;">
———————————</div>
<div style="text-align: center;">
STAGE STORES, INC., Appellant</div>
<div style="text-align: center;">
V.</div>
<div style="text-align: center;">
JON GUNNERSON, Appellee</div>
<div style="text-align: center;">
On Appeal from the 61st District Court</div>
<div style="text-align: center;">
Harris County, Texas</div>
<div style="text-align: center;">
Trial Court Case No. 2013-21878</div>
<div style="text-align: center;">
DISSENTING OPINION</div>
<div style="text-align: center;">
<br /></div>
I respectfully dissent. This case construes, as a matter of first impression in<br />
Texas state court, the standards for a “reasoned award” in arbitrations brought<br />
under the Federal Arbitration Act (FAA). See 9 U.S.C. §§ 1–16.<br />
<br />
I believe the majority’s decision to<br />
reverse and remand this case is contrary to the controlling federal authority that the<br />
lead opinion relies upon and purports to follow. I believe the award is sufficient to<br />
satisfy the standards of a reasoned award under the FAA and that it is a mistake to<br />
send this case back to the arbitrator to address her rejection of one of appellant<br />
Stage Stores, Inc.’s defenses in making her award. Both the lead opinion and the<br />
concurrence mistake an argument, which need not be addressed in a reasoned<br />
award, and an issue, which must be disposed of in a reasoned award—as was done<br />
here. In my view, affirmance of the arbitration award is the natural result of the<br />
argument from federal authority relied upon in the lead opinion and the natural<br />
holding under controlling federal authority. It is the disposition that is incorrect.<br />
I would affirm the trial court’s confirmation of the arbitration award.<br />
<br />
Background<br />
<br />
Following an arbitration of an employment dispute between Stage Stores<br />
and former employee, appellee Jon Gunnerson, the arbitrator issued a reasoned<br />
award disposing of Gunnerson’s claim that Stage Store’s wrongfully refused to pay<br />
benefits due to him based on his “good reason” for terminating his employment<br />
contract. The lead opinion sets out the four specific rulings made by the arbitrator:<br />
(1) that a valid contract existed between the parties; (2) that Stage’s<br />
“actions in restructuring the organization and removing [Gunnerson]<br />
from a direct reporting relationship to the CEO diminished<br />
[Gunnerson’s] status, thereby allowing [Gunnerson] to terminate his<br />
position for good reason pursuant to paragraph 4 of the Agreement”;<br />
(3) that Gunnerson was entitled to recover attorneys’ fees; and (4) that<br />
<br />
Gunnerson “failed to meet his burden of proof regarding the present<br />
value of future stock options.” Slip Op. at 5.<br />
<br />
Stage Stores applied to vacate this arbitration award, essentially arguing that,<br />
in failing to specifically address each of its defenses to Gunnerson’s claim, the<br />
arbitrator exceeded her powers or so imperfectly executed them that a mutual,<br />
final, and definite award upon the subject matter submitted was not made. See Slip<br />
Op. at 7 (citing 9 U.S.C. § 10(a)(4)). The trial court denied Stage’s application<br />
seeking to vacate the arbitration award and granted Gunnerson’s application to<br />
confirm the award.<br />
<br />
Discussion<br />
<br />
Stage Stores complains that the arbitrator failed to mention one of its<br />
defenses in the award, namely that the contract at issue required notice of the<br />
grounds supporting good reason and an opportunity to cure before Gunnerson’s<br />
contract could be terminated. It contends that, under the doctrine of functus officio,<br />
which declares that arbitral judgments must be complete, it is entitled to a new<br />
arbitral proceeding. The panel concludes that it “cannot fill in this gap for the<br />
arbitrator,” but that it “can, however, have the trial court remand it to the arbitrator<br />
to decide an issue which was raised but not completely adjudicated by the original<br />
award.” Slip Op. at 28–29 (emphasis added).<br />
<br />
I would hold that the parties raised no issue that the arbitrator did not<br />
completely decide. Only a defense was not mentioned, and that defense was<br />
necessarily rejected by the disposition of the encompassing issue. The arbitrator<br />
did dispose of the issue raised by Stage Stores. She stated in the arbitration award<br />
that Gunnerson was “allow[ed] to terminate his position for good reason pursuant<br />
to paragraph 4 of the Agreement,” and she set out that Gunnerson was entitled to<br />
receive his attorney’s fees but that he failed to meet his burden of proof regarding<br />
the present value of stock purchases. The issue of whether he was allowed to<br />
terminate his position has been completely decided, and there is no basis for<br />
returning this case to the arbitrator.<br />
<br />
Stage Stores’ real complaint is that the arbitrator did not specifically address<br />
an argument—not the issue requiring resolution. And this assertion is insufficient<br />
to establish that that arbitrator “exceeded [her] powers, or so imperfectly executed<br />
them that a mutual, final, and definite award upon the subject matter submitted was<br />
not made,” as required to vacate the award here. See 9 U.S.C. § 10(a)(4). By<br />
deciding the actual issue submitted—i.e., that Stage Stores’ “actions in<br />
restructuring the organization and removing [Gunnerson] from a direct reporting<br />
relationship to the CEO diminished [Gunnerson’s] status, allow[ed] [him] to<br />
terminate his position for good reason pursuant to paragraph 4 of the<br />
Agreement”—the arbitrator necessarily decided Stage Stores’ defenses challenging<br />
<br />
Gunnerson’s showing of good cause for termination. Nothing can be added to the<br />
award to make it complete by sending it back to the arbitrator to hear a defense she<br />
has already heard and rejected—as the lead opinion acknowledges.<br />
Remand in this case is, in my view, directly contrary to the spirit and<br />
purpose of the FAA, the federal case law construing reasoned arbitral awards, and<br />
the functus officio doctrine the lead opinion seeks to apply. None of the law cited<br />
in the lead opinion supports returning a case to the arbitrator to address each<br />
argument made by the parties. Rather, all of the cases cited in the opinion hold to<br />
the contrary. In my view, Stage Stores’ argument is identical to the type of<br />
challenge to a reasoned award in federal arbitration that controlling federal<br />
opinions have consistently found to be without merit. I disagree, therefore, that<br />
remand is supported by the law controlling reasoned awards subject to the FAA.<br />
The functus officio doctrine is the “rule that bars an arbitrator from revisiting<br />
the merits of an award once the award has been issued.” Brown v. Witco Corp.,<br />
340 F.3d 209, 218 (5th Cir. 2003) (cited in lead opinion, Slip Op. at 10–11). The<br />
exceptions are limited. An arbitrator can (1) correct a mistake which is apparent on<br />
the face of his award; (2) decide an issue which has been submitted but which has<br />
not been completely adjudicated by the original award; or (3) clarify or construe an<br />
arbitration award that seems complete but proves to be ambiguous in its scope and<br />
implementation. Id. at 219. In Brown, the Fifth Circuit added that, “in the absence<br />
of any contractual provision or formal arbitration rule expressly to the contrary,”<br />
an arbitrator “may exercise his power to clarify the terms of an award when he is<br />
asked to do so by parties mutually and without any party’s objection within a<br />
reasonable period of time.” Id. None of these circumstances applies here. The<br />
reasoned award requested by the parties and made by the arbitrator presents no<br />
mistake on its face, decides each issue submitted, and contains no ambiguity that<br />
prevents its being readily implemented. Therefore, the circumstances requiring<br />
remand to the arbitrator under exceptions to the functus officio doctrine as<br />
enunciated in Brown do not exist.<br />
<br />
The Eleventh Circuit in Cat Charter, LLC v. Schurtenberger—a case<br />
likewise relied upon in the lead opinion—described the requirements of a reasoned<br />
award. It stated, “Logically, the varying forms of awards may be considered along<br />
a ‘spectrum of increasingly reasoned awards,’ with a ‘standard award’ requiring<br />
the least explanation and ‘findings of fact and conclusions of law’ requiring the<br />
most,” so that “a ‘reasoned award is something short of findings and conclusions<br />
but more than a simple result.’” 646 F.3d 836, 844 (11th Cir. 2011) (quoting<br />
Sarofim v. Trust Co. of the W., 440 F.3d 213, 215 n.1 (5th Cir. 2006)); see also<br />
Rain CII Carbon, LLC v. ConocoPhillips Co., 674 F.3d 469, 473 (5th Cir. 2012)<br />
(accord). Thus, the Cat Charter court concluded, “Strictly speaking, then, a<br />
listing or mention of expressions or statements offered as a justification of an act—<br />
the ‘act’ here being, of course, the decision of the [arbitration] Panel.” 646 F.3d at<br />
844 (emphasis in original.)<br />
<br />
In Cat Carter, the appellate court refused to return the case to the arbitrator<br />
in response to the defendants’ complaint that the award’s statement that the<br />
plaintiffs had proved their claims “by the greater weight of the evidence” added no<br />
explanatory value to the award “on what is most certainly a ‘bare’ or ‘standard’<br />
award.” Id. The court held, to the contrary, that the arbitrators’ statement in the<br />
award was “greater than what is required in a ‘standard award,’ and that is all we<br />
need decide.’” Id. at 845. It pointed out that if the parties had wanted a greater<br />
explanation they could have requested findings of fact and conclusions of law, but<br />
they did not. Id. The Cat Charter court concluded:<br />
<br />
We decline to narrowly interpret what constitutes a reasoned award to<br />
overturn an otherwise apparently seamless proceeding. The parties<br />
received precisely what they bargained for—a speedy, fair resolution<br />
of a discrete controversy by an impartial panel of arbitrators skilled in<br />
the relevant areas of the law. To vacate the Award and remand for an<br />
entirely new proceeding would insufficiently respect the value of<br />
arbitration and inject the courts further into the arbitration process<br />
than Congress has mandated.<br />
Id. at 846.<br />
<br />
The Fifth Circuit cited this conclusion approvingly in Rain CII Carbon,<br />
which is also relied upon by the lead opinion. 674 F.3d at 473–74. In both Rain CII<br />
Carbon and Cat Charter, the federal circuit court construed federal arbitration law<br />
and found an award that minimally addressed the issues sufficient to withstand a<br />
party’s request for vacatur. See Rain CII Carbon, 674 F.3d at 474 (holding<br />
sufficient for reasoned award “the arbitrator’s statement that, based upon all of the<br />
evidence, he found that the initial price formula should remain in effect” after<br />
delineating in previous paragraph “that Conoco had failed to show that the initial<br />
formula failed to yield market price, a contention that the arbitrator obviously<br />
accepted”); Cat Charter, 646 F.3d at 840–41, 845 (holding sufficient reasoned<br />
award that declared that claimants had proven their Deceptive and Unfair Trade<br />
Practices and breach of contract claim “by the greater weight of the evidence,” that<br />
held that claimants were substantially prevailing parties and respondents were not,<br />
awarded claimants their attorney’s fees, ordered respondents to “jointly and<br />
severally pay” claimants specified damages, fees, costs, and interest, and granted<br />
plaintiffs lien on boat).<br />
<br />
The Sixth Circuit, like the Cat Charter court, refused to overturn the award<br />
and to return the case to the arbitrator for clarification, finding that the arbitrator<br />
“minimally satisfied the explanation requirement stated in the arbitration<br />
agreement” by stating, with respect to each of the plaintiff’s three claims that the<br />
plaintiff “has not met his burden of proof.” Green v. Ameritech Corp., 200 F.3d<br />
967, 971, 977–78 (6th Cir. 2000).<br />
<br />
By contrast to these cases holding that the requirements for a reasoned<br />
award were satisfied, the Fifth Circuit declined jurisdiction over the trial court’s<br />
order sending a case back to the arbitrators under the functus officio doctrine to<br />
complete the task assigned them in a case where the award issued by the arbitral<br />
panel was “patently ambiguous.” Murchison Capital Partners v. Nuance<br />
Commc’ns, Inc., 760 F.3d 418, 423 (5th Cir. 2014) (stating, where trial court<br />
returned case to arbitrators to determine whether part of determination made in<br />
award was related only to benefit-of-the-bargain damages request of party or also<br />
to out-of-pocket losses, that “declining jurisdiction over the district court’s order<br />
and permitting the arbitration panel to clarify its award is necessary given our<br />
deferential standard of review of arbitration awards”).<br />
<br />
Here, there is no assertion of ambiguity, nor could there be. The arbitrator<br />
clearly and expressly found “good reason pursuant to paragraph 4 of the<br />
Agreement” for Gunnerson to terminate his position due to Stage Stores’ “actions<br />
in restructuring the organization and removing him from a direct reporting<br />
relationship to the CEO,” and awarded him his attorney’s fees. There is nothing to<br />
clarify with respect to Stage Stores’ defense of notice and opportunity to cure and<br />
nothing to add: the arbitrator rejected Stage Stores’ defense as grounds preventing<br />
Gunnerson from terminating the contract, and it deemed him a prevailing party<br />
entitled to attorneys’ fees. There is thus no basis for applying the exception to the<br />
functus officio doctrine for lack of complete adjudication. The award completely<br />
disposes of the termination issue.<br />
<br />
In my view, it is clear that the arbitrator did enough in this case and that<br />
there are no grounds for sending it back to the arbitrator under the ambiguity or<br />
lack of clarity exceptions to the functus officio doctrine. The reasoned award at<br />
issue is at least as comprehensive and detailed as the arbitral awards at issue in<br />
Rain CII Carbon, Cat Charter, and Green. None of those cases sent a completely<br />
decided arbitration award addressing every submitted issue back to the arbitrator<br />
for a second attempt at arbitration, and none required that every argument or<br />
defensive theory—as opposed to every issue—be disposed of. Indeed, one must<br />
seriously question—as the federal courts that decided these federal arbitration law<br />
cases did—what purpose is served by remand other than to introduce into<br />
arbitration the same lengthy and costly court procedures that the parties sought to<br />
avoid by agreeing to arbitration. And, worse, in this case, either the arbitrator will<br />
reach a completely different result on the same facts or the arbitrator will reach the<br />
same results, resulting in duplicative litigation. In neither case will the losing party<br />
have recourse to the courts to second-guess the arbitrator’s second-time-around<br />
decision, unless the state trial judge or appellate panel decides that the law was not<br />
sufficiently explained to satisfy its own independent standards of review and sends<br />
it back for the arbitrator to try yet again to satisfy the state courts on the federal<br />
legal issues of sufficiency of the reasoned award.<br />
<br />
The Eleventh Circuit set out in Cat Charter exactly why a reviewing court<br />
should not require the detailed findings and conclusions of law the majority<br />
imposes on the arbitrator in this case when the parties have merely requested a<br />
reasoned award. The court stated:<br />
<br />
Our conclusion today holds consistent with the general review<br />
principles embodied in the FAA. The Supreme Court has read §§ 9-11<br />
of the FAA as substantiating a national policy favoring arbitration<br />
with just the limited review needed to maintain<br />
arbitration’s essential virtue of resolving disputes<br />
straightaway. Any other reading opens the door to the<br />
full-bore legal and evidentiary appeals that can render<br />
informal arbitration merely a prelude to a more<br />
cumbersome and time-consuming judicial review<br />
process, and bring arbitration theory to grief in the postarbitration<br />
process.<br />
<br />
Cat Charter, 646 F.3d at 845 (quoting Hall Street Assocs., LLC v. Mattel, Inc., 552<br />
U.S. 576, 588, 128 S. Ct. 1396, 1405 (2008) (citations and internal quotation marks<br />
omitted)).<br />
<br />
To send this case back to the arbitrator is, to me, to pervert the ends of<br />
federal arbitration as stated by the United States Supreme Court in Hall Street v.<br />
Mattel, and as recognized by the Eleventh Circuit in Cat Charter, and to impose on<br />
arbitrations subject to the FAA heightened state court standards of review of<br />
reasoned arbitration awards that are clearly improper under, and superseded by,<br />
controlling federal law. I, therefore, cannot join either the lead opinion or the<br />
judgment of the majority. Much less can I join the concurrence, which would<br />
require even more of the arbitrator for every reasoned award.<br />
<br />
Conclusion<br />
<br />
I would affirm the arbitration award.<br />
<br />
Evelyn V. Keyes<br />
Justice<br />
<br />
Panel consists of Justices Keyes, Higley, and Brown.<br />
Justice Brown, joining the majority and concurring.<br />
Justice Keyes, dissenting.<br />
<br />
<br /></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-24805411849820877562015-10-07T20:27:00.000-07:002015-10-08T16:59:38.562-07:00Consumer Financial Protection Bureau wants to prevent financial services companies from using arbitration agreement to shield themselves from class actions <div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-E9n1rQg3-WU/VhXjsKTy47I/AAAAAAAADUY/UheLhkKGM4w/s1600/2015-10-07-CFPB-Proposal-to-ban-arbitration-clauses-that-allow-companies-to-avoid-accountabilty-to-customers.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="400" src="http://3.bp.blogspot.com/-E9n1rQg3-WU/VhXjsKTy47I/AAAAAAAADUY/UheLhkKGM4w/s400/2015-10-07-CFPB-Proposal-to-ban-arbitration-clauses-that-allow-companies-to-avoid-accountabilty-to-customers.JPG" width="351" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">The benefits of the proposals would include:</span></div>
<ul style="background-color: white; color: #444444; font-family: Arial, Helvetica, sans-serif; font-size: 13px; font-stretch: normal; line-height: 1.5; margin: 0px 0px 20px 1em; padding: 0px 0px 0px 1em;">
<li style="color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; line-height: 19.88px; margin: 0px 0px 3px; text-align: left;"><b style="line-height: 19.88px;">A day in court for consumers: </b><span style="line-height: 19.88px;">The proposals under consideration would give consumers their day in court to hold companies accountable for wrongdoing.<b style="line-height: 19.88px;"></b>Often the harm to an individual consumer may be too small to make it practical to pursue litigation, even where the overall harm to consumers is significant. Previous CFPB survey results reported that only around 2 percent of consumers surveyed would consult an attorney to pursue an individual lawsuit as a means of resolving a small-dollar dispute. In cases involving small injuries of anything less than a few thousand dollars, it can be difficult for a consumer to find a lawyer to handle their case. Congress and the courts developed class litigation procedures in part to address concerns like these. With group lawsuits, consumers have opportunities to obtain relief they otherwise might not get.</span></li>
<li style="color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; line-height: 19.88px; margin: 0px 0px 3px; text-align: left;"><b style="line-height: 19.88px;">Deterrent effect:</b><span style="line-height: 19.88px;"> The proposals under consideration would incentivize companies to comply with the law to avoid lawsuits. Arbitration clauses enable companies to avoid being held accountable for their conduct; that makes companies more likely to engage in conduct that could violate consumer protection laws or their contracts with customers. When companies can be called to account for their misconduct, public attention on the cases can affect or influence their individual business practices and the business practices of other companies more broadly.</span></li>
<li style="color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; line-height: 19.88px; margin: 0px 0px 3px; text-align: left;"><b style="line-height: 19.88px;">Increased transparency:</b><span style="line-height: 19.88px;"> The proposals under consideration would make the individual arbitration process more transparent by requiring companies that use arbitration clauses to submit the claims filed and awards issued in arbitration to the CFPB. This would enable the CFPB to better understand and monitor arbitration cases. The proposal under consideration to publish the claims filed and awards issued on the CFPB’s website would further increase transparency.</span></li>
</ul>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">In addition to consulting with small business representatives, the Bureau will continue to seek input from the public, consumer groups, industry, and other stakeholders before continuing with the process of a rulemaking. When the Bureau issues proposed regulations, the public is invited to submit written comments which will be carefully considered before final regulations are issued.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="font-size: x-small;"><span style="line-height: 19.88px;"><strong style="line-height: 19.88px;">An outline of the proposals under consideration is available at:</strong><a href="http://links.govdelivery.com/track?type=click&enid=ZWFzPTEmbWFpbGluZ2lkPTIwMTUxMDA2LjQ5OTM3OTUxJm1lc3NhZ2VpZD1NREItUFJELUJVTC0yMDE1MTAwNi40OTkzNzk1MSZkYXRhYmFzZWlkPTEwMDEmc2VyaWFsPTE3MjAwNzU3JmVtYWlsaWQ9d29sZmdhbmdfZGVtaW5vQGhvdG1haWwuY29tJnVzZXJpZD13b2xmZ2FuZ19kZW1pbm9AaG90bWFpbC5jb20mZmw9JmV4dHJhPU11bHRpdmFyaWF0ZUlkPSYmJg==&&&100&&&http://www.consumerfinance.gov/f/201510_cfpb_small-business-review-panel-packet-explaining-the-proposal-under-consideration.pdf" style="color: #1d5782; cursor: pointer; font-weight: inherit; line-height: 19.88px;" target="_blank"><strong style="line-height: 19.88px;">http://www.consumerfinance.gov/f/201510_cfpb_small-business-review-panel-packet-explaining-the-proposal-under-consideration.pdf</strong></a></span><span style="line-height: 19.88px;"><span style="line-height: 19.88px;"></span></span></span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;"><span style="font-size: x-small;"><strong style="line-height: 19.88px;">A list of questions on which the Bureau will seek input from the small business representatives providing feedback to the Small Business Review Panel will be available on Wednesday at:</strong><a href="http://links.govdelivery.com/track?type=click&enid=ZWFzPTEmbWFpbGluZ2lkPTIwMTUxMDA2LjQ5OTM3OTUxJm1lc3NhZ2VpZD1NREItUFJELUJVTC0yMDE1MTAwNi40OTkzNzk1MSZkYXRhYmFzZWlkPTEwMDEmc2VyaWFsPTE3MjAwNzU3JmVtYWlsaWQ9d29sZmdhbmdfZGVtaW5vQGhvdG1haWwuY29tJnVzZXJpZD13b2xmZ2FuZ19kZW1pbm9AaG90bWFpbC5jb20mZmw9JmV4dHJhPU11bHRpdmFyaWF0ZUlkPSYmJg==&&&101&&&http://www.consumerfinance.gov/f/201510_cfpb_small-business-representatives-providing-feedback-to-the-small-business-review-panel.pdf" style="color: #1d5782; cursor: pointer; font-weight: inherit; line-height: 19.88px;" target="_blank"><strong style="line-height: 19.88px;">http://www.consumerfinance.gov/f/201510_cfpb_small-business-representatives-providing-feedback-to-the-small-business-review-panel.pdf</strong></a></span></span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="font-size: x-small;"><span style="line-height: 19.88px;"><strong style="line-height: 19.88px;">The March 2015 report on arbitration is available at:</strong><a href="http://links.govdelivery.com/track?type=click&enid=ZWFzPTEmbWFpbGluZ2lkPTIwMTUxMDA2LjQ5OTM3OTUxJm1lc3NhZ2VpZD1NREItUFJELUJVTC0yMDE1MTAwNi40OTkzNzk1MSZkYXRhYmFzZWlkPTEwMDEmc2VyaWFsPTE3MjAwNzU3JmVtYWlsaWQ9d29sZmdhbmdfZGVtaW5vQGhvdG1haWwuY29tJnVzZXJpZD13b2xmZ2FuZ19kZW1pbm9AaG90bWFpbC5jb20mZmw9JmV4dHJhPU11bHRpdmFyaWF0ZUlkPSYmJg==&&&102&&&http://www.consumerfinance.gov/reports/arbitration-study-report-to-congress-2015/" style="color: #1d5782; cursor: pointer; font-weight: inherit; line-height: 19.88px;" target="_blank"><strong style="line-height: 19.88px;">http://www.consumerfinance.gov/reports/arbitration-study-report-to-congress-2015/</strong></a></span><span style="line-height: 19.88px;"></span></span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="font-size: x-small;"><span style="line-height: 19.88px;"><strong style="line-height: 19.88px;">A factsheet summarizing the Small Business Review Panel process can be found at: </strong></span><span style="line-height: 19.88px;"><a href="http://links.govdelivery.com/track?type=click&enid=ZWFzPTEmbWFpbGluZ2lkPTIwMTUxMDA2LjQ5OTM3OTUxJm1lc3NhZ2VpZD1NREItUFJELUJVTC0yMDE1MTAwNi40OTkzNzk1MSZkYXRhYmFzZWlkPTEwMDEmc2VyaWFsPTE3MjAwNzU3JmVtYWlsaWQ9d29sZmdhbmdfZGVtaW5vQGhvdG1haWwuY29tJnVzZXJpZD13b2xmZ2FuZ19kZW1pbm9AaG90bWFpbC5jb20mZmw9JmV4dHJhPU11bHRpdmFyaWF0ZUlkPSYmJg==&&&103&&&http://www.consumerfinance.gov/f/201510_cfpb_fact-sheet-small-business-review-panel-process.pdf" style="color: #1d5782; cursor: pointer; font-weight: inherit; line-height: 19.88px;" target="_blank"><span style="line-height: 19.88px;"><strong style="line-height: 19.88px;">http://www.consumerfinance.gov/f/201510_cfpb_fact-sheet-small-business-review-panel-process.pdf</strong></span></a></span></span></div>
<div style="text-align: center;">
<br /></div>
<div align="center" class="ecxgd_p" style="background-color: white; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em; text-align: center;">
<span style="color: #cc0000;"><strong style="line-height: 19.88px;">Prepared Remarks of Richard Cordray</strong><strong style="line-height: 19.88px;">Director, Consumer Financial Protection Bureau</strong></span></div>
<div align="center" class="ecxgd_p" style="background-color: white; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em; text-align: center;">
<strong style="line-height: 19.88px;"><span style="color: #cc0000;">Field Hearing on Arbitration</span></strong></div>
<div align="center" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em; text-align: center;">
<strong style="line-height: 19.88px;">Denver, Colo.</strong><strong style="line-height: 19.88px;">October 7, 2015</strong></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">Thank you all for joining us in Denver today. We are here to talk about something important that is often buried deeply in the fine print of many contracts for consumer financial products and services, such as credit cards and bank accounts. It is called an arbitration clause, or more precisely, a mandatory pre-dispute arbitration clause. If you do not know what an arbitration clause is, you are just like the vast majority of American consumers.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
Companies use this clause, in particular, to block class action lawsuits. They thus provide themselves with a free pass from being held accountable by their customers. That free pass is secured by making sure their customers cannot group together to seek relief for wrongdoing. Many violations of consumer financial law involve relatively small amounts of money for the individual victim. Group claims often are the only effective way consumers can pursue meaningful relief for harms that can add up to large amounts of money for financial providers. At the Consumer Financial Protection Bureau, we estimate that this free pass affects tens of millions of consumers.<span style="line-height: 19.88px;"></span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
To understand this issue more plainly, we can look at a hypothetical example based on real-world consumer experiences. Maria and Kate (their names are fictitious) are customers at two different banks, and both are beginning to rack up unexpected overdraft fees on their checking accounts. It turns out that their banks are processing transactions in unexpected ways that increase the number of overdraft fees and without ever clearly explaining what they are doing. These practices cost Maria and Kate at most a few hundred dollars each. But they have earned the banks hundreds of millions of dollars across many customers.<span style="line-height: 19.88px;"><span style="line-height: 19.88px;"></span></span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">After consulting lawyers, Maria and Kate are told that similar practices have been found to be illegal at another bank, but it would not make economic sense to sue just to recover the small amount each of them has been overcharged. Maria and Kate could call their banks and demand a refund, but there is no guarantee they would get their money back. Even if they managed to do so, the same practices would continue to affect others. So Maria and Kate each agree to sue their banks, not just on behalf of themselves, but on behalf of all the other consumers who were victimized in the same way.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">Maria succeeds in bringing a group claim and obtaining a settlement with her bank on behalf of two million customers. As a group, the customers are eligible to receive upwards of a $100 million refund for the fees they were wrongfully charged, and their bank agrees to change its practices so these harms cannot continue. By contrast, Kate’s lawsuit is dismissed. So far as we know, Kate gets nothing for herself and the other customers of the bank are left without relief, despite the fact that her bank engaged in similar practices and used similar disclosures. The difference is that Kate’s bank had an arbitration clause that gave it a free pass from her efforts to pursue relief by blocking her group claims.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">By simply invoking the magic words of the arbitration clause, Kate’s bank could avoid being held to account for its actions. The only option for customers at Kate’s bank was to bring their own individual arbitration cases for such relatively small amounts that it would be impractical to pursue them. In addition, the results of any such arbitration cases would never be revealed to the general public.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">The dramatically different experiences of these two consumers illustrate how companies have been able to use this little-known clause to rig the game against their customers. Group lawsuits can result in substantial relief for many consumers and create the leverage to bring about much-needed changes in business practices. But by inserting the free pass into their consumer financial contracts, companies can sidestep the legal system, avoid big refunds, and continue to pursue profitable practices that may violate the law and harm consumers on a large scale.</span></div>
<div align="center" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em; text-align: center;">
<span style="line-height: 19.88px;">***</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">Let me take a step back and give you a little background on how we got here. At its most basic level, arbitration is a way to resolve disagreements outside of the federal and state court systems. Originally, arbitration was primarily used for disputes between businesses; it was rarely used in disagreements between businesses and consumers. But in the last 20 years or so, companies started including arbitration clauses in their consumer contracts requiring any disputes or disagreements be resolved through private arbitration. And to make doubly sure that they could escape accountability, many companies specifically blocked group claims even in arbitration, thus forcing consumers to go through the process by themselves in isolation, or forgo it altogether.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">Some companies offer their customers the chance to opt out of an arbitration clause. But very few customers, if any, ever exercise that option, which is unsurprising given that the majority of consumers do not even know that the arbitration clause exists. Group lawsuits depend on a group. The few consumers who opt out of arbitration find that very few others are still available to join their lawsuits. It is simply impossible to have an effective group claim where the vast majority of consumers have all lost their right to have their day in court.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">Even before the Consumer Bureau was created, Congress had started to take a more active role in dealing specifically with the problems of forced arbitration. In the last decade, Congress had begun to distinguish between mandatory pre-dispute arbitration, which is typically imposed on consumers in the contractual boilerplate, and arbitration that both parties can freely decide to undertake after a dispute has already arisen between them. In 2007, Congress passed the Military Lending Act, which prohibited mandatory pre-dispute arbitration clauses in connection with certain loans made to servicemembers. Three years later, in the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress went further and banned such clauses from most residential mortgage contracts.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">In the Dodd-Frank Act, Congress also put in place a further measure that brings us to where we are today. In a two-step process, the law empowers the Bureau to address the same concerns that Congress had already highlighted around mandatory pre-dispute arbitration clauses. First, Congress required the Bureau to conduct a study and issue a report on the use of arbitration clauses in connection with consumer financial products or services. Once that initial work was completed, Congress gave the Bureau the broad authority to consider whether to issue regulations that it deemed to be in the public interest, for the protection of consumers, and consistent with the results of its study.</span></div>
<div align="center" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em; text-align: center;">
<span style="line-height: 19.88px;">***</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">We published that study and issued our report to Congress earlier this year. In the months since, even our critics have acknowledged that the multi-year study, which runs to 728 pages and analyzes extensive data, was the most rigorous and comprehensive study of consumer finance arbitration ever undertaken. In the study, we found that arbitration clauses are pervasive, but the vast majority of consumers do not even know they exist. We also found that tens of millions of consumers are covered by arbitration clauses in several consumer finance markets. Large banks, in particular, commonly include these clauses in their standard agreements for credit cards and checking accounts. We also found that many payday lenders put such clauses in their contracts. And our study shows that more than three-quarters of the consumers we surveyed in the credit card market did not know whether they were subject to an arbitration clause in their contract.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">The Bureau’s study specifically concluded that group lawsuits can be an effective way to provide relief to consumers when they are allowed to proceed. Indeed, by examining five years of data, we found that group lawsuits delivered, on average, about $220 million in payments to 6.8 million consumers per year in consumer financial services cases. But we also saw that in many instances, as in Kate’s situation, group claims are thwarted by companies that invoke their arbitration clauses to cut off such relief. For example, in cases where credit card companies with an arbitration clause in their contracts were sued in a class action, the companies invoked the clause to block the lawsuit almost two-thirds of the time.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">One point of special interest to us was the claim, frequently made by companies that tout the benefits of arbitration, that these clauses enable them to lower the cost of consumer financial services for consumers. Our study was able to examine this claim closely by comparing large credit card companies that did and did not have arbitration clauses in their contracts, including some companies that previously had such clauses but had stopped using them in the wake of adverse litigation. Our analysis did not find evidence that credit card companies either increased prices or reduced access to credit when they eliminated their arbitration clauses.</span></div>
<div align="center" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em; text-align: center;">
<span style="line-height: 19.88px;">***</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">A</span><span style="line-height: 19.88px;">fter carefully considering the findings of our landmark study, the Bureau has decided to launch a rulemaking process to protect consumers. The proposal under consideration would prohibit companies from blocking group lawsuits through the use of arbitration clauses in their contracts. This would apply generally to the consumer financial products and services that the Bureau oversees, including credit cards, checking and deposit accounts, certain auto loans, small-dollar or payday loans, private student loans, and some other products and services as well.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">One approach we might have taken would be a complete ban on all pre-dispute arbitration agreements for consumer financial products and services. Our proposal would not do that. Companies could still have an arbitration clause, but they would have to say explicitly that it does not apply to cases brought on behalf of a class unless and until the class certification is denied by the court or the class claims are dismissed in court. This means we are not proposing at this time to limit the use of arbitration clauses as they apply to individual cases.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">This approach is consistent with the conclusions reached in our study. It is also consistent with rules that the Financial Industry Regulatory Authority has applied to broker-dealers for years, with the approval of the Securities and Exchange Commission. While at one time certain individual arbitration systems were problematic for consumers in terms of procedures and results, we found that companies today generally cannot bring cases against consumers in arbitration. We also found that companies rarely use their arbitration clauses to block consumers from suing them in individual cases. In addition, we found that only a small number of consumers bring individual arbitrations.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">Although we are not proposing to prohibit the use of pre-dispute arbitration clauses, we will continue to monitor the effects of such clauses on the resolution of individual disputes. To enable us to do so, our proposals would require companies to send to the Bureau all filings made by or against them in consumer financial arbitration disputes and any decisions that stem from those filings. By developing comprehensive data on these matters, over time we will be able to refine our evaluation of how such proceedings may affect consumer protection, if at all.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">In order to create more transparency and spur broader thinking by researchers and other interested parties, we are considering publishing this information for all to see, so the public can analyze it as they see fit. Depending on what the data reveals, down the road these issues could be subject to further consideration by the Bureau and by other policymakers.</span></div>
<div align="center" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em; text-align: center;">
<span style="line-height: 19.88px;">***</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">So the essence of the proposals we have under consideration is that they would get rid of this free pass that prevents consumers from holding their financial providers directly accountable for the harm they cause when they violate the law. Doing so would produce three general benefits.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">First, consumers would have the opportunity to get their day in court. This is a core American principle. Under the U.S. Constitution, each one of us is entitled to seek justice through due process of law. This right is reinforced in many state constitutions, which recognize the right to an effective remedy to redress injuries we may sustain to our person or our property. This is an important element of personal liberty, that people should have the ability to protect themselves by acting to vindicate their rights. Nobody should have to rely on the government first deciding to pursue an enforcement action in order to get their money back and hold others accountable. But as we have already noted, it is simply not worth it for consumers to undertake the burden and cost of bringing an individual case just to challenge small fees and charges.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">As noted U.S. Court of Appeals Judge Richard Posner has convincingly observed, “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.” That is, in fact, a primary reason why procedures allowing for group lawsuits have been widely adopted in virtually all of our federal and state courts in the last century. </span><span style="line-height: 19.88px;">By joining together to pursue their claims as a group, all of the affected consumers would be able to seek and, when appropriate, obtain meaningful relief that as a practical matter they could not get on their own.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">Second, another important benefit of the proposals we are considering is that they would deter wrongdoing on a broader scale. One way this is often expressed is by describing group lawsuits as being brought by “private attorneys general” as a means of vindicating public rights and as an aid to other methods of law enforcement. Although many consumer financial violations impose only small costs on each individual consumer, taken as a whole these unlawful practices can yield millions or even billions of dollars in revenue for financial providers. </span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">Arbitration clauses that bar group lawsuits protect these ill-gotten gains by enabling companies to avoid being held accountable for their misdeeds. Thus, companies are likely to take less care to ensure that their conduct complies with the law than they would have taken if they did not have a free pass from group lawsuits. Indeed, some companies may even feel emboldened that they can safely engage in conduct that could violate consumer protection laws or even their own contracts with customers. The potential to be held accountable in a group lawsuit changes this dynamic. </span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">When a group lawsuit leads to a court order conferring relief on tens of thousands of consumers who were victimized by suspect practices, the likely result is to create a safer market for current and future customers of that company, as well as the other companies in the same market. That is true because a substantial monetary award can lead a company to rethink its practices by reassessing its bottom line. It is also true because such actions may result in specific measures that force companies to change the way they do business. And the public spotlight on these cases can influence business practices at other companies that become aware of the need to make similar changes to avoid facing the ire of their customers and the risks of similar lawsuits.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">Third, by requiring companies to provide the Bureau with arbitration filings and written awards, which might be made public, the proposals we are considering would bring the arbitration of individual disputes into the sunlight of public scrutiny. This would provide a safeguard against arbitration proceedings that are unfair or otherwise harmful to consumers. Furthermore, both the Bureau and the public would be able to monitor and assess the pros and cons of how arbitration clauses affect resolutions for individuals who do not pursue group claims. This will improve our understanding and enable policymaking that is better informed and more precise. In the end, that will be better for consumers, for responsible businesses, and for the economy as a whole.</span></div>
<div align="center" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em; text-align: center;">
<span style="line-height: 19.88px;">***</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">One way to think about the effect of enforced pre-dispute arbitration clauses is to recall what Sherlock Holmes described as “the curious incident of the dog in the night-time.” In the famous detective story, everyone except Holmes misses the fact that the dog did nothing during the night, including not barking at all, which yields the important clue that the intruder likely was recognized. What the story illustrates is that it is often hard to grasp the significance of something that does not happen and thus can easily go unnoticed.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">The same point can also be applied to arbitration. What we learned in the course of our study is that very few consumers of financial products and services are seeking relief individually, either through the arbitration process or in court. Moreover, there are also an unknown number of cases that are never filed because of the mere presence of an arbitration clause. And millions of other consumers who may not even realize that their rights are being violated might have obtained relief if group lawsuits were permissible. Like the dog that did not bark in the night, the silent fact of all this missing relief for consumers can be hard to notice, but it is nevertheless a vital piece of the story.</span></div>
<div align="left" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em;">
<span style="line-height: 19.88px;">The central idea of the proposals we are considering is to restore to consumers the rights that most do not even know had been taken away from them. Companies should not be able to place themselves above the law and evade public accountability by inserting the magic word “arbitration” in a document and dictating the favorable consequences. Consumers should be able to join together to assert and vindicate their established legal rights. Under the approach we are considering, companies would not be able to tip the scales in their favor by writing their own free pass to the detriment of consumers. Everyone benefits from a market where companies are held accountable for their actions. Thank you.</span></div>
<div align="center" class="ecxgd_p" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-stretch: normal; line-height: 1.5; margin-bottom: 1.35em; text-align: center;">
<span style="line-height: 19.88px;">###</span> </div>
<h3 align="left" style="background-color: white; color: #323232; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; font-weight: normal; line-height: 19.88px; margin: 0px 0px 5px; padding: 0px;">
<i style="line-height: 19.88px;"><span style="background: inherit; line-height: 1.5;">The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit </span><a href="http://links.govdelivery.com/track?type=click&enid=ZWFzPTEmbWFpbGluZ2lkPTIwMTUxMDA2LjQ5OTM3OTExJm1lc3NhZ2VpZD1NREItUFJELUJVTC0yMDE1MTAwNi40OTkzNzkxMSZkYXRhYmFzZWlkPTEwMDEmc2VyaWFsPTE3MjAwNzU2JmVtYWlsaWQ9d29sZmdhbmdfZGVtaW5vQGhvdG1haWwuY29tJnVzZXJpZD13b2xmZ2FuZ19kZW1pbm9AaG90bWFpbC5jb20mZmw9JmV4dHJhPU11bHRpdmFyaWF0ZUlkPSYmJg==&&&100&&&http://www.consumerfinance.gov" style="color: #1d5782; cursor: pointer; line-height: 1.5; text-decoration: none;" target="_blank">consumerfinance.gov</a><span style="background: inherit; line-height: 1.5;">. </span></i></h3>
<div>
<i style="line-height: 19.88px;"><span style="background: inherit; line-height: 1.5;"><br /></span></i></div>
<div>
<i style="line-height: 19.88px;"><span style="background: inherit; line-height: 1.5;"><br /></span></i></div>
<div>
<i style="line-height: 19.88px;"><span style="background: inherit; line-height: 1.5;"><br /></span></i></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-43430768549402146652015-10-01T13:42:00.002-07:002016-02-11T07:59:26.253-08:00Lawsuit stalls after engine failure: Porsche purchaser must arbitrate his warranty claim, Houston Court of Appeals rules <div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: center;">
<i><b><span style="font-size: large;"><br /></span></b></i></div>
<div style="text-align: center;">
<i><b><span style="font-size: large;"><span style="color: #cc0000;">AN Luxury Imports Ltd dba BMW of Dallas, Inc. v Southall,</span> </span></b></i></div>
<div style="text-align: center;">
No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=01-15-00194-CV&coa=coa01">01-15-00194-CV</a> (Tex.App.- Houston [1st Dist.] Oct. 1, 2015)<br />
<br /></div>
<div style="text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-_Ac3IrAI47Y/Vg2Y-_iF5OI/AAAAAAAADR8/LmJx4ErRXvk/s1600/BMW%2Bv%2BSOUTHALL%2B-%2BHouston%2BCourt%2Bof%2BAppeals%2BOpinion%2Bre%2Barbitrability%2Bof%2Bwarranty%2Bclaim%2B-%2BPage%2B1.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="358" src="https://1.bp.blogspot.com/-_Ac3IrAI47Y/Vg2Y-_iF5OI/AAAAAAAADR8/LmJx4ErRXvk/s400/BMW%2Bv%2BSOUTHALL%2B-%2BHouston%2BCourt%2Bof%2BAppeals%2BOpinion%2Bre%2Barbitrability%2Bof%2Bwarranty%2Bclaim%2B-%2BPage%2B1.JPG" width="400" /></a></div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
Opinion issued October 1, 2015<br />
<br /></div>
<div style="text-align: center;">
In The</div>
<div style="text-align: center;">
Court of Appeals</div>
<div style="text-align: center;">
For The</div>
<div style="text-align: center;">
First District of Texas</div>
<div style="text-align: center;">
————————————</div>
<div style="text-align: center;">
NO. 01-15-00194-CV</div>
<div style="text-align: center;">
———————————</div>
<div style="text-align: center;">
AN LUXURY IMPORTS LTD., D/B/A BMW OF DALLAS, INC., AN</div>
<div style="text-align: center;">
LUXURY IMPORTS GP, LLC, AND UNITED STATES WARRANTY</div>
<div style="text-align: center;">
CORP., Appellants</div>
<div style="text-align: center;">
V.</div>
<div style="text-align: center;">
D. SCOTT SOUTHALL, Appellee</div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
On Appeal from the 295th District Court</div>
<div style="text-align: center;">
Harris County, Texas</div>
<div style="text-align: center;">
Trial Court Case No. 2014-33551</div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
<b><span style="color: #cc0000;">MEMORANDUM OPINION</span></b></div>
<div style="text-align: center;">
<br /></div>
In this appeal we determine whether the trial court erred in denying a car<br />
dealer’s motion to compel arbitration in this suit for breach of warranty against the<br />
dealer and its warranty administrator. AN Luxury Imports, Ltd. d/b/a BMW of<br />
2<br />
Dallas (BMW Dallas), AN Luxury Imports GP, LLC, and United States Warranty<br />
Corp. (U.S. Warranty) (collectively, “the sellers”) appeal the denial of their motion<br />
to compel arbitration against D. Scott Southall, BMW Dallas’s customer. The<br />
sellers contend that the trial court erred in denying the motion because the parties’<br />
dispute is subject to an enforceable arbitration agreement. We conclude that the<br />
trial court erred by denying the motion to compel arbitration and therefore reverse.<br />
<br />
<b><span style="color: #990000;">Background</span></b><br />
<br />
In December 2013, Southall purchased a Porsche Cayman from BMW<br />
Dallas. In connection with the purchase, Southall and BMW Dallas executed a<br />
retail purchase agreement, an arbitration agreement, and a used vehicle limited<br />
mechanical warranty. The parties signed these agreements contemporaneously<br />
with each other. The arbitration agreement provides:<br />
[Southall] and [BMW Dallas] agree that arbitration will be the sole method<br />
of resolving any claim, dispute, or controversy . . . that either Party has<br />
arising from Customer[]/Dealership Dealings. Such [c]laims include . . . (2)<br />
[c]laims relating to any . . . warranties . . . and (5) [c]laims arising out of or<br />
relating to . . . this [a]greement and/or any and all documents executed,<br />
presented or negotiated during Customer[]/Dealership Dealings, or any<br />
resulting transaction, service, or relationship, including that with the<br />
Dealership, or any relationship with third parties who do not sign this<br />
[a]greement that arises out of the Customer[]/Dealership Dealings.<br />
The purchase agreement incorporates the arbitration agreement by reference:<br />
“If [the purchaser] ha[s] executed an Arbitration Agreement in conjunction with<br />
this Agreement such Arbitration Agreement shall be incorporated herein by<br />
3<br />
reference and made a part of this Agreement.” The arbitration agreement provides<br />
that if there is any conflict between the purchase agreement and the arbitration<br />
agreement, the purchase agreement governs.<br />
The purchase agreement also contains a forum selection clause. It provides<br />
that the “sole and exclusive venue for any dispute or litigation arising under or<br />
concerning this [purchase agreement] shall be in the courts located in and for the<br />
county in which [BMW Dallas] is located, and the parties irrevocably consent to<br />
the jurisdiction of said court. Any and all arbitration proceedings shall also take<br />
place in the county where the dealer is located, unless agreed otherwise by the<br />
parties.”<br />
BMW Dallas issued the warranty and “appointed United States Warranty<br />
Corporation as the authorized Administrator for th[e] . . . Warranty.” The warranty<br />
does not refer to the arbitration agreement or the purchase agreement.<br />
The Porsche engine failed within two months of the sale. Southall filed a<br />
claim with U.S. Warranty for the damage. U.S. Warranty denied the claim,<br />
determining that Southall had caused the damage by driving the Porsche during<br />
“racing or other competition.” Southall’s mechanic disagrees; he concluded that<br />
the Porsche already had exceeded its maximum allowable RPM before Southall<br />
bought it.<br />
4<br />
Southall sued for breach of contract, breach of warranty, negligence, unfair<br />
settlement practices under the Texas Insurance Code, fraud by nondisclosure,<br />
negligent misrepresentation, violations of the Texas Deceptive Trade Practices Act,<br />
and the federal Magnuson-Moss Warranty Act. The sellers moved to compel<br />
arbitration; the trial court denied the motion.<br />
<br />
<b><span style="color: #990000;">Discussion</span></b><br />
<b><span style="color: #990000;"><br /></span></b>
<b><span style="color: #990000;">Standard of Review</span></b><br />
<br />
The arbitration agreement states that the Federal Arbitration Act governs its<br />
enforcement. This appeal thus arises under section 51.016 of the Texas Civil<br />
Practice and Remedies Code, which permits an interlocutory appeal from an order<br />
denying a motion to compel arbitration under the Federal Arbitration Act (FAA).<br />
See TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West 2015). We review an<br />
order denying a motion to compel arbitration for an abuse of discretion, deferring<br />
to the trial court’s factual determinations if they are supported by the evidence and<br />
reviewing questions of law de novo. Cleveland Constr., Inc. v. Levco Constr., Inc.,<br />
359 S.W.3d 843, 851–52 (Tex. App.—Houston [1st Dist.] 2012, pet. dism’d).<br />
Applicable Law<br />
A party moving to compel arbitration must establish (1) the existence of a<br />
valid, enforceable arbitration agreement and (2) that the claims asserted fall within<br />
the scope of that agreement. In re Provine, 312 S.W.3d 824, 828–29 (Tex. App.—<br />
5<br />
Houston [1st Dist.] 2009, no pet). “Once the trial court concludes that the<br />
arbitration agreement encompasses the claims . . . the trial court has no discretion<br />
but to compel arbitration and stay its own proceedings.” In re FirstMerit Bank,<br />
N.A., 52 S.W.3d 749, 753–54 (Tex. 2001).<br />
Once a party seeking arbitration carries its initial burden to prove the<br />
existence of a valid agreement to arbitrate, then a strong presumption favoring<br />
arbitration arises. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737–38<br />
(Tex. 2005); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003);<br />
Speedemissions, Inc. v. Bear Gate, L.P., 404 S.W.3d 34, 41 (Tex. App.—Houston<br />
[1st Dist.] 2013, no pet.). “[C]ourts should resolve any doubts as to the<br />
agreement’s scope, waiver, and other issues unrelated to its validity in favor of<br />
arbitration.” Ellis v. Schlimmer, 337 S.W.3d 860, 862 (Tex. 2011). An order to<br />
arbitrate should not be denied unless it can be said with positive assurance that the<br />
arbitration clause does not cover the dispute. United Steelworkers v. Warrior &<br />
Gulf Navigation Co., 363 U.S. 574, 582–83, 80 S. Ct. 1347, 1353 (1960); HouScape,<br />
Inc. v. Lloyd, 945 S.W.2d 202, 205 (Tex. App.—Houston [1st Dist.] 1997,<br />
orig. proceeding) (per curiam).<br />
To determine whether the parties formed an agreement to arbitrate, we apply<br />
ordinary state-law principles governing contracts. In re Palm Harbor Homes, Inc.,<br />
195 S.W.3d 672, 676 (Tex. 2006) (orig. proceeding); J.M. Davidson, Inc., 128<br />
6<br />
S.W.3d at 227–28; accord JP Morgan Chase & Co. v. Conegie, 492 F.3d 596, 598<br />
(5th Cir. 2007). The elements of a valid contract are: (1) an offer, (2) an<br />
acceptance, (3) a meeting of the minds, (4) each party’s consent to the terms, and<br />
(5) execution and delivery of the contract with the intent that it be mutual and<br />
binding. Prime Prods., Inc. v. S.S.I. Plastics, Inc., 97 S.W.3d 631, 636 (Tex.<br />
App.—Houston [1st Dist.] 2002, pet. denied). Our primary concern in construing a<br />
written contract is to ascertain the true intent of the parties as expressed in the<br />
instrument. Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342,<br />
345 (Tex. 2006). Contract terms will be given their plain, ordinary, and generally<br />
accepted meanings, unless the contract indicates a technical or different sense.<br />
Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005).<br />
Instruments pertaining to the same transaction may be read together to<br />
ascertain the parties’ intent. Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22<br />
S.W.3d 831, 840 (Tex. 2000). In appropriate instances, courts may construe all the<br />
documents as if they were part of a single, unified instrument. Id. at 840; Courage<br />
Co., L.L.C. v. Chemshare Corp., 93 S.W.3d 323, 333 (Tex. App.—Houston [14th<br />
Dist.] 2002, no pet.).<br />
<br />
<b><span style="color: #990000;">Analysis</span></b><br />
<br />
The sellers contend that they have produced a valid arbitration agreement<br />
and that Southall’s claims fall within its scope. Southall responds that the<br />
7<br />
arbitration agreement does not require arbitration because it conflicts with<br />
provisions of the purchase agreement, which controls in the event of a conflict.<br />
Southall further responds that the warranty does not contain an arbitration<br />
provision and thus his warranty claim is not subject to arbitration.<br />
I. Validity of the Arbitration Agreement<br />
The arbitration agreement provides that it applies to claims arising from a<br />
purchase of a vehicle from BMW Dallas. Southall and BMW Dallas signed the<br />
arbitration and purchase agreements at the same time, and the agreements reference<br />
one another. Southall and BMW Dallas’s contemporaneous execution of the<br />
agreements is evidence of their intent to read the agreements together. See Palm<br />
Harbor Homes, 195 S.W.3d at 676; Prime Prods., 97 S.W.3d at 636. Accordingly,<br />
we read them as a “single, unified instrument.” See Fort Worth Indep. Sch. Dist.,<br />
22 S.W.3d at 840. Because the purchase and arbitration agreements reference one<br />
another, and the purchase agreement expressly incorporates the arbitration<br />
agreement, the sellers have met their burden to demonstrate a valid, enforceable<br />
arbitration agreement in connection with Southall’s purchase. See Palm Harbor<br />
Homes, 195 S.W.3d at 676; Fort Worth Indep. Sch. Dist., 22 S.W.3d at 840; In re<br />
Provine, 312 S.W.3d at 828–29; Prime Prods., 97 S.W.3d at 636.<br />
Southall relies on the forum selection clause to contend that the purchase<br />
agreement contravenes the arbitration agreement. That clause places venue in the<br />
8<br />
county in which BMW Dallas is located should litigation arise. But the clause<br />
further provides that “[a]ny and all arbitration proceedings shall also take place in<br />
the county where [BMW Dallas] is located.” The purchase agreement expressly<br />
contemplates arbitration as a means of dispute resolution; the venue provision does<br />
not conflict with the arbitration agreement.<br />
We hold that the arbitration agreement is valid and enforceable.<br />
II. Scope of the Arbitration Agreement<br />
The sellers next contend that the trial court should have compelled<br />
arbitration because Southall’s claims fall within the scope of the arbitration<br />
agreement. In Speedemissions, Inc. v. Bear Gate, L.P., this court examined a<br />
securities purchase agreement, which contained an arbitration agreement, and lease<br />
agreements, which did not. We held that the trial court properly denied a motion to<br />
compel arbitration in a dispute about the lease agreement. 404 S.W.3d 34, 37, 42,<br />
44 (Tex. App.—Houston [1st Dist.] 2013, no pet.). This court reasoned that<br />
different parties executed the two agreements, and each agreement had a “distinct<br />
and separate purpose.” Id. at 43. There were no provisions in the lease agreements<br />
relating their performance to the securities purchase agreement, and neither<br />
agreement referenced the other. Id. at 44, 46.<br />
In contrast, in Enterprise Field Services, LLC v. TOC-Rocky Mountain, Inc.,<br />
we held that a party’s counterclaims regarding an ancillary agreement fell within<br />
9<br />
an arbitration provision. 405 S.W.3d 767, 773–74 (Tex. App.—Houston [1st Dist.]<br />
2013, pet. denied). In one agreement, the parties agreed to arbitrate “dispute[s]<br />
related to [] interpretation or performance.” Id. at 773. Although the<br />
counterclaims were based on a different agreement, they required interpretation of<br />
the agreement containing the arbitration clause. Id. Because the two agreements<br />
were intertwined, we held that the trial court erred in concluding that the claims did<br />
not fall within the scope of the arbitration agreement. Id. at 774.<br />
This case is more analogous to Enterprise Field Services. BMW Dallas<br />
issued the warranty and appointed U.S. Warranty as the authorized administrator.<br />
The warranty, purchase agreement, and arbitration agreement were executed by the<br />
same parties, contemporaneously and as part of the same transaction. The<br />
arbitration agreement applies to “any claim, dispute, or controversy” that arises out<br />
of the “Customer[]/Dealership Dealings.” Customer/dealership dealings include<br />
the process of “purchasing or leasing a vehicle[].” “Claims” is broadly defined to<br />
include claims relating to warranties, and those relating to “any and all documents<br />
executed, presented or negotiated during Customer[]/Dealership Dealings, or any<br />
resulting transaction, service, or relationship, including that with the Dealership, or<br />
any relationship with third parties who do not sign this Agreement that arises out<br />
of the Customer[]/Dealership Dealings.” Because the arbitration agreement<br />
applies to claims arising out of the purchase, and the agreement expressly covers<br />
10<br />
all other contemporaneously signed agreements and warranty claims, we hold that<br />
Southall’s claims against the sellers fall within its scope. See Enterprise Field<br />
Servs., 405 S.W.3d at 774. Although the warranty does not contain a separate<br />
arbitration provision, its execution in conjunction with the other agreements<br />
connotes a “single, unified instrument.” See Fort Worth Indep. Sch. Dist., 22<br />
S.W.3d at 840. Accordingly, we hold that Southall’s claims arising from the<br />
purchase of the vehicle and the warranty, including the transaction with U.S.<br />
Warranty, fall within the scope of the arbitration agreement.<br />
Southall further responds that the arbitration agreement does not govern his<br />
claims under the Magnuson-Moss Warranty Act. Under the Act, all warranties<br />
must “fully and conspicuously disclose in simple and readily understood language<br />
the terms and conditions of such warranty,” including “[a] brief, general<br />
description of the legal remedies available to the consumer.” 15 U.S.C.<br />
§ 2302(a)(9) (2013). The warranty contains an integration clause stating that the<br />
warranty is a “complete statement of coverage and rights” and does not incorporate<br />
the arbitration agreement by reference. Southall cites Cunningham v. Fleetwood<br />
Homes of Georgia as support for his contention that the warranty itself must<br />
contain the arbitration provision. Cunningham v. Fleetwood Homes of Ga., 253<br />
F.3d 611 (11th Cir. 2001).<br />
11<br />
The Act allows informal dispute settlement procedures only if they are<br />
clearly expressed in the warranty. See 15 U.S.C. § 2302(a)(8). The Eleventh<br />
Circuit held in Cunningham that “informal dispute settlement procedures” included<br />
binding arbitration. See 253 F.3d at 623 (citing 15 U.S.C. § 2302(a)(8)). In that<br />
case, the purchasers of a mobile home executed a stand-alone arbitration<br />
agreement as part of the sale and received a separate manufacturer’s warranty. 253<br />
F.3d at 613. The court held that the Act required the manufacturer to disclose<br />
informal dispute settlement procedures, including binding arbitration, in a single<br />
document. Id. at 623–24.<br />
In a subsequent case, however, the Eleventh Circuit retreated from<br />
Cunningham, observing that the Cunningham court improperly had conflated<br />
binding arbitration with informal dispute settlement procedures, and neither the<br />
statutory language nor its legislative history supported such an interpretation.<br />
Davis v. S. Energy Homes, Inc., 305 F.3d 1268, 1276 (11th Cir. 2002). The Fifth<br />
Circuit’s opinion in Walton v. Rose Mobile Homes LLC supports this latter<br />
conclusion. 298 F.3d 470 (5th Cir. 2002). Like the Eleventh Circuit in Davis, the<br />
Fifth Circuit in Walton concluded that the two procedures are distinct, observing<br />
that informal dispute settlement procedures happen before suit is filed while<br />
binding arbitration happens as a substitute for filing suit. Walton, 298 F.3d 470,<br />
475–76 (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.<br />
12<br />
614, 628 (1985)). Following Walton and Davis, we similarly hold that nothing in<br />
the Act precludes enforcement of a stand-alone arbitration agreement signed in<br />
connection with an express warranty.<br />
<br />
<b><span style="color: #990000;">Conclusion</span></b><br />
<br />
Because an enforceable arbitration agreement governs the claims against the<br />
sellers, we reverse the order of the trial court and remand the case for further<br />
proceedings consistent with this opinion.<br />
<br />
Jane Bland<br />
Justice<br />
<br />
Panel consists of Chief Justice Radack and Justices Bland and Huddle.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-lhgaIL-ZaFI/Vg2aOKwFIeI/AAAAAAAADSI/rttu6tciCDM/s1600/AN%2BLUXURY%2BIMPORTS%2BLTD%2BDBA%2BBMW%2BOF%2BDALLAS%2BINC%2BVS%2BD%2BSCOTT%2BSOUTHALL%2B-%2BAppellate%2BJudgment%2Breversing%2Btrial%2Bcourt%2Bre%2Barbitration%2Bof%2Bwarranty%2Bclaim.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="363" src="https://2.bp.blogspot.com/-lhgaIL-ZaFI/Vg2aOKwFIeI/AAAAAAAADSI/rttu6tciCDM/s400/AN%2BLUXURY%2BIMPORTS%2BLTD%2BDBA%2BBMW%2BOF%2BDALLAS%2BINC%2BVS%2BD%2BSCOTT%2BSOUTHALL%2B-%2BAppellate%2BJudgment%2Breversing%2Btrial%2Bcourt%2Bre%2Barbitration%2Bof%2Bwarranty%2Bclaim.JPG" width="400" /></a></div>
<div style="text-align: center;">
<br /></div>
<br />
<br /></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-80317161809180642582015-06-27T14:50:00.000-07:002015-07-07T13:56:23.049-07:00Lopsided Attorney-Client Arbitration Agreements: What if client counterclaims under the civil barratry statute? - Comment on Royston v Lopez (Tex. 2015) <span style="font-size: x-small;">ROYSTON, RAYZOR, VICKERY, & WILLIAMS, LLP v. FRANCISCO "FRANK" LOPEZ, No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=13-1026&coa=cossup">13-1026</a></span><span style="font-size: x-small;"> (Tex. 2015) </span><br />
<br />
<b><span style="color: #cc0000; font-size: large;">Mandatory Lawfirm-Client Arbitration except for Fee Claims Against the Client: What if the client counterclaims under the civil barratry statute? </span></b><br />
<br />
In <i>Royston, Rayzor, Vickery, & Williams LLP v Fancisco "Frank" Lopez</i>, the Texas Supreme Court last Friday blessed a one-sided attorney-client retainer contract that would allow the lawfirm to force the client into arbitration on all manner of claims or complaints that the client may have against the law firm, but exempts the law firm from having to arbitrate a claim against the client for nonpayment of litigation expenses. In short, an attorney or lawfirm can avoid being sued by the client through an arbitration clause in the attorney-client agreement that covers all possible future disputes with one exception: it preserves the firm's right to sue the client to recover its costs (and by extension, its fees), which is the only plausible claim that the law firm could have against a client.<br />
<br />
The firm might, of course, be sued, but it would be entitled to have the dispute diverted into a private arbitral forum by filing a motion to compel, relying on the legal services contract signed by the client. The Supreme Court did not find this objectionable, <a href="http://www.txcourts.gov/media/1008512/131026c.pdf">and reversed</a> the Thirteenth Court of Appeals, which had found that the specific agreement before the Court was so one-sided that it was unconscionable under the circumstances existing when the parties made the contract. <i>See <a href="https://scholar.google.com/scholar_case?case=16859269475823951344">Royston, Rayzor, Vickery & Williams, L.L.P. v. Lopez</a></i>, 443 S.W.3d 196 (Tex. App.-Corpus Christi 2013, pet. filed) (orig. proceeding).<br />
<br />
Justice Eva Guzman agreed on this disposition, but wrote a separate <a href="http://www.txcourts.gov/media/1008512/131026c.pdf">concurring opinion</a> addressing the implications for the ethical responsibilities of attorneys in their dealings with prospective clients. <br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-zWPSyZbPJko/VY8QluqUvxI/AAAAAAAADFg/3Z4Qv-7tdMM/s1600/Royston%2Bv%2BLopez%2B%2528Tex.%2B2015%2529%2B-%2BA%2Bla%2Bcarte%2Battorney-client%2Barbitration%2Bagreement.JPG" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="276" src="http://1.bp.blogspot.com/-zWPSyZbPJko/VY8QluqUvxI/AAAAAAAADFg/3Z4Qv-7tdMM/s320/Royston%2Bv%2BLopez%2B%2528Tex.%2B2015%2529%2B-%2BA%2Bla%2Bcarte%2Battorney-client%2Barbitration%2Bagreement.JPG" width="320" /></a></div>
<b><span style="color: #cc0000;">ATTORNEY-CLIENT ARBITRATION</span></b><br />
<b><span style="color: #cc0000;"><i>A LA CARTE </i></span></b><br />
<br />
While the Supreme Court may have given a present to the legal profession by holding that such one-sided arbitration agreements are neither unconscionable nor against public policy -- <i>which will no doubt be appreciated by Texas lawyers</i> -- the ruling may also have opened up a can of worms, and may yet spur more appellate litigation over arbitration in the attorney-client context (and claim-splitting).<br />
<br />
What if the client refuses to pay, the law firm sues for its fees, and the client responds that the fee claim is unenforceable because the contract was procured in violation of the barratry statute? This would not merely be an affirmative defense against the breach-of-contract claim as to the lawyer's or lawfirm's fees, but a counter-claim for damages, i.e. a claim by the client against the lawyer that is subject to arbitration. After all, the client may now recover statutory damages of $10,000.00, not just fee forfeiture.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-A3fH5RsQWPk/VY8RieQezTI/AAAAAAAADFo/4P-qHL3RNpI/s1600/Texas%2BGovernment%2BCode%2BSection%2B82.0651%2BCivil%2BLiability%2Bfor%2BProhibited%2BBarratry.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="Texas Government Code Section 82.0651 Civil Cause of Action for Barratry" border="0" height="183" src="http://2.bp.blogspot.com/-A3fH5RsQWPk/VY8RieQezTI/AAAAAAAADFo/4P-qHL3RNpI/s400/Texas%2BGovernment%2BCode%2BSection%2B82.0651%2BCivil%2BLiability%2Bfor%2BProhibited%2BBarratry.JPG" title="Texas Gov't Code Section 82.0651 Civil Liability for Prohibited Barratry" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Texas Government Code Section 82.0651 Civil Liability for Prohibited Barratry </td></tr>
</tbody></table>
<br />
Surely, a claim under Texas Government Code Section 82.0651 qualifies as a statutory cause of action for affirmative relief.<br />
<br />
In a dispute implicating the civil barratry statute, then, the trial court would have to address the merits of the voidness claim as an affirmative defense to the legal service provider's fee claim that is exempted from arbitration under the attorney-client contract, but the arbitrator would have to decide the merits of the civil barratry claim that rests on the same facts because the client had agreed to to arbitrate all claims. What if court and arbitrator disagree in their respective determinations of whether barratry occurred? What if one holds that the contract was procured by barratry and is void, and the other one reaches the opposite conclusion?<br />
<br />
Additionally, there is the matter of timing. Assuming the dispute between the lawfirm and the client is split into two parallel proceedings -- one in court, the other one the arbitral forum -- does it matter which one rules first on the voidness issue? Is that then <i>res judicata</i> with respect to the other? Or is it only <i>res judicata </i>(with immediate stalling effect on the parallel proceeding) if the arbitrator rules first, because there will be no appeal from an arbitratal award (except, when, in narrow circumstances, there are grounds to set aside the arbitration award)?<br />
<br />
It would seem that the dominant jurisdiction doctrine cannot furnish an answer - and would not provide a basis for abatement - because the two fora do not have co-extensive authority under an arbitration agreement that makes some claims arbitrable but not others, - at least not in a scenario where both types of claims are present in the same dispute and are contemporaneously pursued, in the respective fora, but involve a common core of case-determinative facts. <br />
<br />
Additionally, there may be disagreement on whether the statutory challenge to the attorney-client agreement under the civil barratry law is a challenge to the contract as a whole, including the arbitration provision that is part and parcel thereof, and what the arbitrator's role would be if the lawfirm argued that the barratry statute is unconstitutional (as a defense to the client's barratry claim pursued in the arbitral forum). Would the Attorney General have to be given an opportunity to defend the statute in the arbitral forum, and if so, would the arbitrator have the power to pass on constitutionality, even if the effect were to be limited to the case at hand? Would that be reviewable by a court, given that it involves a question of the validity to state law? Does an arbitrator exceed his or her power when passing on the merits of the constitutional argument?<br />
<br />
The latter scenario is not implausible. A client might respond to a lawsuit for unpaid fees and litigate it in court without raising an issue about arbitration, and promptly file an arbitration claim against the lawfirm invoking the barratry statute. Assuming that the arbitrator does not have jurisdiction to declare a statute void, the law firm would have to defend that civil barratry claim on the merits, and would be deprived of the unconstitutionality defense. Or arguably so.<br />
<br />
If an attorney or law firm has procured clients through marketing efforts that run afoul of the barratry statute, it would be in its interest to have the issued resolved in a private forum, and not create a public record, but does that advance the state's public policy? Is it fair to attorneys who lose business because of such unfair competition?<br />
<br />
Which is merely part and parcel of the larger public policy question. Is it desirable, as a matter of public policy governing the practice of law, to remove barratry claims, legal malpractice claims and other claims of wrongful conduct brought against attorneys from the court system and divert them into private arbitration? The Supreme Court's ruling in <i>Royston v Lopez </i> sends a message encouraging Texas lawyers and lawfirms to do just that.<br />
<br />
There is a discernible trend afoot in the Texas Supreme Court of shrinking the role of the court system and reducing the availability of judicial remedies in the public adjudicatory forum provided for dispute resolution in the system of government.<br />
<br />
In a similar vein, albeit based on different reasoning, the Supreme Court recently also approved the removal of claims against nursing homes (and, by extension, all medical malpractice claims) from the court system by blessing arbitration agreements in admission contracts even if they are not compliant with Texas law. <i>See <a href="https://scholar.google.com/scholar_case?case=17225655864440051708">The Fredericksburg Care Company L.P. v Juanita Perez et al</a></i>. No. 13-0573.(Tex. Mar. 6, 2015). The Supreme Court denied the plaintiffs' motion for rehearing in that case, and in the companion cases, on the same day it handed down its decision in the attorney-client arbitration case.<br />
<br />
<div style="text-align: center;">
<b><span style="color: #cc0000;">MOTIONS FOR REHEARING OF THE FOLLOWING CAUSES DENIED</span></b></div>
<div style="text-align: center;">
[June 26, 2015 Texas Supreme Court Order List]</div>
<br />
13-0573<br />
THE FREDERICKSBURG CARE COMPANY, L.P. v. JUANITA PEREZ, VIRGINIA GARCIA, PAUL ZAPATA, AND SYLVIA SANCHEZ, INDIVIDUALLY AND AS ALL HEIRS OF ELISA ZAPATA, DECEASED; from Bexar County; 4th Court of Appeals District (04-13-00111-CV,<br />
<a href="https://scholar.google.com/scholar_case?case=16859269475823951344">406 SW3d 31</a>3, 06-26-13)<br />
<br />
13-0576<br />
THE WILLIAMSBURG CARE COMPANY, L.P. v. JESUSA ACOSTA, ET AL.; from Bexar County; 4th Court of Appeals District (04-13-00110-CV, 406 SW3d 711, 06-26-13)<br />
<br />
13-0577<br />
THE FREDERICKSBURG CARE COMPANY, L.P. v. BRENDA LIRA, AS REPRESENTATIVE OF THE ESTATE OF GUADALUPE QUESADA, DECEASED; from Bexar County; 4th Court of Appeals District (04-13-00112-CV, 407 SW3d 810, 06-26-13)<br />
<br />
<div style="text-align: center;">
<b><span style="color: #cc0000;">ATTORNEY-FEE ARBITRATION CASE INFO</span></b></div>
<div style="text-align: center;">
<b><span style="color: #cc0000;">(CONSOLIDATED INTERLOCUTORY APPEAL AND MANDAMUS PROCEEDING) </span></b></div>
<br />
No. 13-1026<br />
ROYSTON, RAYZOR, VICKERY, & WILLIAMS, LLP v. FRANCISCO "FRANK" LOPEZ; from Nueces County; 13th Court of Appeals District (13-11-00757-CV, <a href="https://scholar.google.com/scholar_case?case=16859269475823951344">443 SW3d 196</a>, 06-27-13)<br />
The Court reverses the court of appeals' judgment and remands the case to the trial court.<br />
- consolidated with -<br />
No. 14-0109<br />
IN RE ROYSTON, RAYZOR, VICKERY, & WILLIAMS, LLP; from Nueces County; 13th Court of Appeals District (13-11-00757-CV; 13-12-00023-CV, 443 SW3d 196, 06-27-13)<br />
The Court denies the petition for writ of mandamus.<br />
Justice Johnson delivered the opinion of the Court.<br />
Justice Guzman delivered a concurring opinion, in which Justice Lehrmann and Justice Devine joined.<br />
<br />
<br />
<div style="text-align: center;">
<b><span style="color: #351c75;">ROYSTON, RAYZOR, VICKERY, & WILLIAMS, LLP, Petitioner,</span></b></div>
<div style="text-align: center;">
<b><span style="color: #351c75;">v.</span></b></div>
<div style="text-align: center;">
<b><span style="color: #351c75;">FRANCISCO "FRANK" LOPEZ, Respondent.</span></b></div>
<div style="text-align: center;">
<b><span style="color: #351c75;">IN RE ROYSTON, RAYZOR, VICKERY, & WILLIAMS, LLP, RELATOR.</span></b></div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
No. 13-1026, Consolidated with No. 14-0109</div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
Supreme Court of Texas.</div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
Argued March 26, 2015.</div>
<div style="text-align: center;">
Opinion delivered: June 26, 2015.</div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
JUSTICE JOHNSON delivered the opinion of the Court.</div>
<br />
JUSTICE GUZMAN filed a concurring opinion, in which JUSTICE LEHRMANN and JUSTICE DEVINE joined.<br />
<br />
PHIL JOHNSON, Justice.<br />
<br />
This interlocutory appeal involves the enforceability of an arbitration provision in an attorney-client employment contract. The provision specifies that the client and firm will arbitrate disputes that arise between them, except for claims made by the firm for recovery of its fees and expenses. After the underlying matter was settled, the client sued the firm. The trial court denied the firm's motion to order the dispute to arbitration. On interlocutory appeal, the court of appeals affirmed on the basis that the arbitration provision is substantively unconscionable and unenforceable.<br />
<br />
We conclude that the client did not prove that either the arbitration provision is substantively unconscionable or any other defense to the arbitration provision. Accordingly, the judgment of the court of appeals is reversed and the cause is remanded to the trial court.<br />
<br />
<b><span style="color: #0b5394;">I. Background</span></b><br />
<br />
Francisco Lopez hired Royston, Rayzor, Vickery, & Williams, LLP to represent him in a suit for divorce from his alleged common-law wife who won $11 million in the lottery. The two-page employment contract between Lopez and Royston, Rayzor contained the following arbitration provision:<br />
<br />
While we would hope that no dispute would ever arise out of our representation or this Employment Contract, you and the firm agree that any disputes arising out of or connected with this agreement (including, but not limited to the services performed by any attorney under this agreement) shall be submitted to binding arbitration in Nueces County, Texas, in accordance with appropriate statutes of the State of Texas and the Commercial Arbitration Rules of the American Arbitration Association (except, however, that this does not apply to any claims made by the firm for the recovery of its fees and expenses).<br />
Royston, Rayzor then filed suit for divorce on Lopez's behalf, the trial court ordered the parties in the divorce suit to mediation, and they settled. Lopez later sued Royston, Rayzor, claiming the firm induced him to accept an inadequate settlement. The firm moved to compel arbitration under both the Texas Arbitration Act (Arbitration Act), and common law. See TEX. CIV. PRAC. & REM. CODE §§ 171.001-.098; see also L.H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 351 (Tex. 1977) (noting that arbitration in Texas can be pursuant to statute or common law). The trial court held a hearing on the firm's motion and denied it. The only evidence introduced at the hearing was the employment contract.<br />
<br />
Royston, Rayzor filed both an interlocutory appeal challenging the denial under the Arbitration Act, and an original proceeding seeking mandamus relief under common law. Royston, Rayzor, Vickery & Williams, L.L.P. v. Lopez, 443 S.W.3d 196 (Tex. App.-Corpus Christi 2013). The court of appeals affirmed the trial court's refusal to order arbitration under the Arbitration Act and denied mandamus relief. Id. at 209. The appeals court noted that Lopez did not challenge the existence of the arbitration provision or whether he agreed to it as part of his contract with Royston, Rayzor. Id. at 202. The court concluded that Lopez's claims were within the scope of the arbitration agreement and then moved on to Lopez's "several affirmative defenses to arbitration." Id. at 202-03. It first considered his assertion that the arbitration provision is substantively unconscionable because it viewed that issue as determinative. Id. at 203.<br />
<br />
As an initial part of its analysis, the appeals court considered whether Lopez was required to show that the arbitration provision was both procedurally and substantively unconscionable. Id. at 203-04. It concluded that he needed to show only one or the other. Id. at 204. The court then concluded that the provision was so one-sided it was substantively unconscionable and unenforceable. Id. at 206.<br />
<br />
In cause number 13-1026, Royston, Rayzor seeks relief from the court of appeals' judgment denying its interlocutory appeal, and in cause number 14-0109, it seeks mandamus relief directing the trial court to order arbitration. In 13-1026, the firm challenges the two determinations on which the court of appeals affirmed the trial court's order. It also urges that we consider Lopez's remaining defenses to arbitration even though the court of appeals did not reach them, hold that they are also invalid, reverse the court of appeals' judgment, and remand to the trial court with instructions that it order the case to arbitration.<br />
<br />
Lopez responds by urging that we affirm the lower courts' decisions for several reasons: (1) the court of appeals correctly determined that an arbitration provision need not be both procedurally and substantively unconscionable to be unenforceable, and this provision is substantively unconscionable because it is excessively one-sided; (2) the arbitration provision was entered into in the context of Lopez's agreeing to become a client of the law firm, and given that context it violates public policy; (3) Lopez's status as a prospective client shifted the burden of proof to Royston, Rayzor to establish it met its ethical obligation to explain the effects of the arbitration provision to him and Royston, Rayzor did not do so; and (4) the arbitration provision is illusory because it allows Royston, Rayzor to avoid arbitration as to its fee disputes while requiring Lopez to arbitrate all his disputes.<br />
<br />
<span style="color: #0b5394;"><b>II. Standard of Review</b></span><br />
<br />
Arbitration agreements can be enforced under either statutory provisions or the common law. L.H. Lacy Co., 559 S.W.2d at 351. Under provisions of the Arbitration Act, a trial court's ruling on a motion to compel arbitration may be challenged by interlocutory appeal. TEX. CIV. PRAC. & REM. CODE § 171.098. Under common law standards, the trial court's ruling on such a motion may be challenged by means of an original proceeding seeking mandamus relief. See L.H. Lacy Co., 559 S.W.2d at 351. The ultimate issue of whether an arbitration agreement is against public policy or unconscionable is a question of law for the court. See In re Poly-Am., L.P., 262 S.W.3d 337, 349 (Tex. 2008); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). When public policy or unconscionability is the basis for denying a motion to compel arbitration and there are no factual disputes, the standard of review on appeal is de novo. See J.M. Davidson, 128 S.W.3d at 229.<br />
<br />
<b><span style="color: #0b5394;">III. Analysis</span></b><br />
<br />
We first address the unconscionability issue which was the basis for the court of appeals' decision. Because we reverse on that issue and resolve the appeal by means of Royston, Rayzor's interlocutory appeal under the Arbitration Act, we do not address the firm's petition for writ of mandamus. See Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992) (explaining that mandamus is a discretionary remedy that issues only to correct a clear abuse of discretion where no other adequate remedy by law exists). However, in the interest of judicial economy we also consider Royston, Rayzor's other potentially dispositive issues instead of remanding them to the court of appeals. See Rusk State Hosp. v. Black, 392 S.W.3d 88, 97 (Tex. 2012).<br />
<br />
<b><span style="color: #0b5394;">A. Unconscionability</span></b><br />
<br />
Arbitration agreements may be either substantively or procedurally unconscionable, or both. See In re Halliburton Co., 80 S.W.3d 566, 572 (Tex. 2002) ("[C]ourts may consider both procedural and substantive unconscionability of an arbitration clause in evaluating the validity of an arbitration provision."). "Substantive unconscionability refers to the fairness of the arbitration provision itself, whereas procedural unconscionability refers to the circumstances surrounding adoption of the arbitration provision." In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 677 (Tex. 2006). Arbitration is strongly favored. J.M. Davidson, 128 S.W.3d at 227. So, once it is established that a valid arbitration agreement exists and that the claims in question are within the scope of the agreement, a presumption arises in favor of arbitrating those claims and the party opposing arbitration has the burden to prove a defense to arbitration. Id. The same principles apply to arbitration agreements between attorneys and clients. See In re Pham, 314 S.W.3d 520, 526-28 (Tex. App.-Houston [14th Dist.] 2010, orig. proceeding [mand. denied]); Henry v. Gonzalez, 18 S.W.3d 684, 691 (Tex. App.-San Antonio 2000, pet. dism'd).<br />
<br />
As noted previously, the court of appeals agreed with Lopez's argument that the agreement was substantively unconscionable. 443 S.W.3d at 209. In responding to the dissent, the court summarized and restated its conclusions as to unconscionability. Id. First, it reiterated that "arbitration clauses in attorney-client employment contracts are not presumptively unconscionable." Id. We agree with that statement. See TEX. CIV. PRAC. & REM. CODE § 171.001 (providing that a written arbitration agreement is valid and enforceable and may be revoked only upon a ground that exists in law or equity for revocation of a contract). The prospective attorney-client relationship adds an overlay to attorney-client employment contracts, see Hoover Slovacek, L.L.P. v. Walton, 206 S.W.3d 557, 560-61 (Tex. 2006), but that overlay does not alter the basic principle that arbitration clauses in agreements are enforceable absent proof of a defense. Nor does it negate the principle that absent fraud, misrepresentation, or deceit, one who signs a contract is deemed to know and understand its contents and is bound by its terms. In re Bank One, N.A., 216 S.W.3d 825, 826 (Tex. 2007); In re McKinney, 167 S.W.3d 833, 835 (Tex. 2005) (holding that absent fraud, misrepresentation, or deceit, parties are bound by terms of the contract they signed, regardless of whether they read it or thought it had different terms); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90 (Tex. 1996) (holding that a party who has the opportunity to read an arbitration agreement and signs it is charged with knowing its contents).<br />
<br />
Next, the court of appeals stated that Lopez did not have an evidentiary burden with respect to his contention that the arbitration provision was unconscionable. 443 S.W.3d at 209. We disagree. As our previous opinions have made clear, however, parties asserting defenses to arbitration clauses have the burden to prove the defenses—including unconscionability:<br />
<br />
[U]nder Texas law, as with any other contract, agreements to arbitrate are valid unless grounds exist at law or in equity for revocation of the agreement. The burden of proving such a ground—such as fraud, unconscionability or voidness under public policy—falls on the party opposing the contract.<br />
In re Poly-Am., 262 S.W.3d at 348 (internal citations omitted). In any event, Lopez relied on evidence—albeit a limited amount. Royston, Rayzor introduced the employment contract in support of its motion to compel arbitration. As we note more fully below, although Lopez did not offer any other evidence, he specifically relied on the language of the arbitration provision and the contract to support his defenses.<br />
<br />
Third, the appeals court specified three reasons on which it based its "one-sidedness" conclusion: (1) the contract gave Royston, Rayzor the right to withdraw as counsel at any time for any reason; (2) the arbitration provision facially favored Royston, Rayzor by giving it the right to litigate claims for its fees and expenses while compelling Lopez to arbitrate all his disputes; and (3) the contract provided that regardless of the outcome of the claims in the underlying divorce action, Lopez would be solely responsible for all costs and expenses of that suit. 443 S.W.3d at 209. We address those reasons in turn, beginning with the first and third because they are based on provisions in the contract as opposed to provisions in the arbitration provision.<br />
<br />
As the court of appeals noted, the attorney-client contract gave Royston, Rayzor the right to withdraw from representing Lopez at any time, for any reason, and it also required Lopez to pay costs and expenses of the divorce suit regardless of its outcome. But regardless of whether either or both of those provisions are so one-sided that the contract is unenforceable, a question we do not decide, they relate to the contract as a whole. And challenges relating to an entire contract will not invalidate an arbitration provision in the contract; rather, challenges to an arbitration provision in a contract must be directed specifically to that provision. See In re Labatt Food Serv., L.P., 279 S.W.3d 640, 647-48 (Tex. 2009); In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001) (noting that the defenses of unconscionability, duress, fraudulent inducement, and revocation must specifically relate to the arbitration portion of a contract, not the contract as a whole, if they are to defeat arbitration).<br />
<br />
Which leaves the second reason the court of appeals gave for its conclusion that the arbitration provision was so one-sided as to be unconscionable: the provision favored Royston, Rayzor by excepting from the provision the claims it made for fees and expenses while compelling Lopez to arbitrate all his disputes. But, as the court of appeals pointed out earlier in its opinion, an arbitration agreement is not so one-sided as to be unconscionable just because certain claims are excepted from those to be arbitrated. 443 S.W.3d at 205-06. That is, an arbitration agreement that requires arbitration of one party's claims but does not require arbitration of the other party's claims is not so one-sided as to be unconscionable. See In re FirstMerit Bank, 52 S.W.3d at 757-58.<br />
<br />
In support of the court of appeals' decision, Lopez argues that the language of the arbitration provision itself is evidence of its unconscionability. We disagree. In analyzing the provision for unconscionability, we begin with the rule that, as a party to the written agreement, Lopez is presumed to have knowledge of and understand its contents. In re Bank One, 216 S.W.3d at 826; In re McKinney, 167 S.W.3d at 835. Lopez's unconscionability claim is essentially that the provision is oppressive and grossly one-sided because it requires him to arbitrate all his claims against Royston, Rayzor, while allowing the firm to choose whether to litigate or arbitrate the only claim it realistically would have against him. However, Lopez misstates what the provision provides. The provision does no more than specify that claims of both parties arising from Royston, Rayzor's representation of Lopez must be resolved by arbitration, except for one category which is excluded from the provision. And as to claims in that category—any claims made by the firm for the recovery of its fees and expenses—the firm does not have a unilateral choice about arbitrating them. Rather, they are excluded from the arbitration provision and absent another agreement by which Lopez and the firm agree to arbitrate them, they are not subject to arbitration at the behest of either Lopez or the firm. The provision equally binds both parties to arbitrate claims within its scope and ensures that the same rules will apply to both parties: Texas statutes and rules of the American Arbitration Association. And as noted above, providing that one or more specified disputes are excepted from an arbitration agreement simply does not make the agreement so one-sided as to be unconscionable. See In re FirstMerit Bank, 52 S.W.3d at 757.<br />
<br />
Additionally, Lopez does not focus on whether the arbitration provision deprives him of a substantive right, but even if he seriously contended that it did, it does not. A substantive right is generally understood to be "[a] right that can be protected or enforced by law; a right of substance rather than form." BLACK'S LAW DICTIONARY 1349 (8th ed. 2004). The provision does not unduly burden Lopez's substantive rights merely because it requires some, but not all, claims between the parties to be arbitrated. Final and binding resolution of a dispute by arbitration is an accepted and adequate alternative to its resolution by a judge or jury.<br />
<br />
And lastly, although Lopez counters Royston, Rayzor's contention that he offered no evidence of unconscionability, in part, by arguing that he did not need to present evidence because he was prevailing in the hearing on Royston, Rayzor's motion to compel arbitration, the record does not substantiate that position. The hearing transcript shows that after introducing the employment contract, Royston, Rayzor's counsel repeatedly argued that Lopez had the burden to prove a defense in order to avoid arbitration, and that he had not submitted any evidence to do so. The trial court questioned attorneys for both parties about the lack of evidence concerning whether Royston, Rayzor advised Lopez regarding the advantages and disadvantages of arbitration. Lopez's counsel did not intimate that evidence other than the contract existed or could be presented, and specified that Lopez was choosing to rely only on the language of the employment agreement and arbitration provision:<br />
<br />
[W]e did present evidence. The evidence is their contract . . . . We choose to rely on the language of their contract . . . . Our position [is] the language in their contract itself with regard to [the] arbitration provision specifically does not put [Lopez] on notice of that and so we are relying on that evidence, . . . then I believe the burden shifts back to them to have to disprove that.<br />
In sum, although the provision was one-sided in the sense that it excepted any fee claims by Royston, Razor from its scope, excepting that one type of dispute does not make the agreement so grossly one-sided so as to be unconscionable. See In re FirstMerit Bank, 52 S.W.3d at 757. The fact that Lopez was a prospective client of the firm until he entered into the employment contract does not change the principle.<br />
<br />
We agree with Royston, Rayzor that Lopez did not prove the arbitration provision is substantively unconscionable. But if he had, then we agree with the court of appeals that it would be unenforceable regardless of whether it is procedurally unconscionable. An arbitration agreement is unenforceable if it is procedurally unconscionable, substantively unconscionable, or both. See In re Halliburton Co., 80 S.W.3d at 572.<br />
<br />
We next consider Lopez's assertion that the arbitration provision is unenforceable because it violates public policy.<br />
<br />
<b><span style="color: #0b5394;">B. Public Policy</span></b><br />
<br />
Attorney-client arbitration agreements are the subject of ongoing debate. See Jean Fleming Powers, Ethical Implications of Attorneys Requiring Clients to Submit Malpractice Claims to ADR, 38 S. TEX. L. REV. 625 (1997); Robert J. Kraemer, Attorney-Client Conundrum: The Use of Arbitration Agreements for Legal Malpractice in Texas, 33 ST. MARY'S L.J. 909 (2002). The debate arises because of two competing policies: the policy of holding attorneys to the highest level of ethical conduct and the policy of encouraging and enforcing arbitration agreements. See Hoover Slovacek, 206 S.W.3d at 560-61 (noting that lawyers are held to the highest ethical standards); J.M. Davidson, 128 S.W.3d at 227 (discussing the strong presumption in favor of arbitration agreements).<br />
<br />
In Hoover Slovacek, the court of appeals held that a fee provision in an attorney-client agreement was so one-sided as to be unconscionable. 206 S.W.3d at 560. We agreed that the fee provision was unconscionable and unenforceable, but because it violated public policy. Id. at 563. Lopez asserts that considerations similar to those we applied in Hoover Slovacek apply here and make the arbitration provision unenforceable. In support of that argument he references several cases for the proposition that an attorney-client agreement is unenforceable as against public policy if it violates a Disciplinary Rule.[1] Lopez also relies on Opinion 586 of the Professional Ethics Committee in support of his argument, focusing on the following language:<br />
<br />
The [Professional Ethics] Committee is of the opinion that [Rule 1.03(b)] applies when a lawyer asks a prospective client to agree to binding arbitration in an engagement agreement. In order to meet the requirements of Rule 1.03(b), the lawyer should explain the significant advantages and disadvantages of binding arbitration to the extent the lawyer reasonably believes is necessary for an informed decision by the client.<br />
Tex. Comm. on Prof'l Ethics, Op. 586, 72 TEX. B.J. 128 (2009). In essence, Lopez argues that the standard in Disciplinary Rule 1.03(b), providing that "[a] lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation," applies to prospective clients. He also argues that Royston, Rayzor had the burden to show that the explanations were made.<br />
<br />
Royston, Rayzor maintains that the Disciplinary Rules and Professional Ethics Committee opinions are advisory and do not impose legal duties. The firm further argues that even if the rule and opinion apply in whole or part so it had a duty to explain something to Lopez, it was Lopez who had the burden to prove that the explanations were not made. We agree with the firm.<br />
<br />
The Disciplinary Rules are not binding as to substantive law regarding attorneys, although they inform that law. In re Meador, 968 S.W.2d 346, 350 (Tex. 1998). Opinions of the Professional Ethics Committee carry less weight than do the Disciplinary Rules as to legal obligations of attorneys, but they are nevertheless advisory as to those obligations. See Tex. Comm. on Prof'l Ethics, Op. 586, 72 TEX. B.J. 128, 129 (2009) ("It is beyond the authority of this Committee to address questions of substantive law relating to the validity of arbitration clauses in agreements between lawyers and their clients."). Without addressing or diminishing to any degree the ethical obligations of attorneys, we are mindful that the parties to an agreement determine its terms, and courts must respect those terms as "sacred," absent compelling reasons to do otherwise. See Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 95-96 (Tex. 2011) ("As a fundamental matter, Texas law recognizes and protects a broad freedom of contract. We have repeatedly said that `if there is one thing which more than another public policy requires it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by Courts of justice.'") (internal citations omitted).<br />
<br />
It is by now axiomatic that legislative enactments generally establish public policy. See, e.g., id.; Tex. Commerce Bank, N.A. v. Grizzle, 96 S.W.3d 240, 250 (Tex. 2002). We have explained that:<br />
<br />
Courts must exercise judicial restraint in deciding whether to hold arm's-length contracts void on public policy grounds: Public policy, some courts have said, is a term of vague and uncertain meaning, which it pertains to the law-making power to define, and courts are apt to encroach upon the domain of that branch of the government if they characterize a transaction as invalid because it is contrary to public policy, unless the transaction contravenes some positive statute or some well-established rule of law.<br />
Lawrence v. CDB Servs., Inc., 44 S.W.3d 544, 553 (Tex. 2001), superseded by statute, Tex. Lab. Code § 406.033(e), as recognized in Austin v. Kroger Tex., L.P., ___ S.W.3d ___, ___ n. 18 (Tex. 2015) (formatting altered and internal citation omitted). And as relates to arbitration, the Legislature has clearly and directly indicated its intent that arbitration agreements be treated the same as other contracts. See TEX. CIV. PRAC. & REM. CODE § 171.001. The principle is borne out by Cobb v. Stern, Miller & Higdon, the case Lopez first references to support his position. 305 S.W.3d at 41. There an attorney's contingent fee agreement was obtained by solicitation of a Louisiana resident in violation of Disciplinary Rules 5.03 and 7.03. Id. at 42-43. In holding that the contingent fee contract was voidable, the court of appeals relied on Texas Government Code § 82.065(b), which provided that "[a] contingent fee contract for legal services is voidable by the client if it is procured as a result of conduct violating the laws of this state or the Disciplinary Rules of the State Bar of Texas regarding barratry by attorneys or other persons." Id. at 42 (quoting Act of June 14, 1989, 71st Leg., R.S., ch. 866, § 3, sec. 82.065, 1989 Tex. Gen. Laws 3855, 3857 (amended 2011, 2013) (current version at TEX. GOV'T CODE § 82.065(b))) (emphasis added).<br />
<br />
It is true that public policy is not solely established through legislative enactments and may be informed by the Disciplinary Rules. But where the Legislature has addressed a matter, as it has addressed the enforceability of arbitration provisions, we are constrained to defer to that expression of policy. See Liberty Mut. Ins. Co. v. Adcock, 412 S.W.3d 492, 499 (Tex. 2013). Accordingly, we decline to impose, as a matter of public policy, a legal requirement that attorneys explain to prospective clients, either orally or in writing, arbitration provisions in attorney-client employment agreements. Prospective clients who enter such contracts are legally protected to the same extent as other contracting parties from, for example, fraud, misrepresentation, or deceit in the contracting process. See TEX. CIV. PRAC. & REM. CODE § 171.001. But prospective clients who sign attorney-client employment contracts containing arbitration provisions are deemed to know and understand the contracts' content and are bound by their terms on the same basis as are other contracting parties. See, e.g., In re McKinney, 167 S.W.3d at 835; EZ Pawn, 934 S.W.2d at 90.<br />
<br />
Noting again that our decision is not intended to diminish or address any applicable ethical obligations of Royston, Rayzor, but rather is intended to address legal obligations between the parties, we conclude that the arbitration provision is not unenforceable on the basis that it violates public policy.<br />
<br />
<b><span style="color: #0b5394;">C. Illusory</span></b><br />
<br />
Last, we address Lopez's claim that the arbitration provision is illusory because it binds Lopez to arbitrate all his claims against Royston, Rayzor, while excluding the only possible claim the firm might ever realistically make against him. Royston, Rayzor responds that Lopez's position completely misses the mark as to what comprises an illusory agreement. The firm urges that Lopez's illusory defense fails because consideration exists for the provision and Royston, Rayzor cannot avoid its promise to arbitrate all claims within the scope of the arbitration provision by, for example, unilaterally amending or terminating the provision. We agree with Royston, Rayzor.<br />
<br />
Promises are illusory and unenforceable if they lack bargained-for consideration because they fail to bind the promisor. See In re 24R, Inc., 324 S.W.3d 564, 566-67 (Tex. 2010). According to the Restatement (Second) of Contracts:<br />
<br />
Words of promise which by their terms make performance entirely optional with the "promisor" do not constitute a promise. . . . [Because while] there might theoretically be a bargain to pay for the utterance of the words, . . . in practice it is performance which is bargained for. Where the apparent assurance of performance is illusory, it is not consideration for a return promise.<br />
RESTATEMENT (SECOND) OF CONTRACTS § 77 cmt. a (1981) (internal citations omitted). The same applies in the arbitration agreement context. An arbitration agreement is illusory if it binds one party to arbitrate, while allowing the other to choose whether to arbitrate. And an arbitration provision that is part of a larger underlying contract may be supported by the consideration supporting the underlying contract. In re AdvancePCS Health, L.P., 172 S.W.3d 603, 607 (Tex. 2005) ("[W]hen an arbitration clause is part of an underlying contract, the rest of the parties' agreement provides the consideration."). But such an arbitration provision remains illusory if the contract permits one party to legitimately avoid its promise to arbitrate, such as by unilaterally amending or terminating the arbitration provision and completely escaping arbitration. See In re 24R, 324 S.W.3d at 567; J.M. Davidson, 128 S.W.3d at 236. But the fact that the scope of an arbitration provision binds parties to arbitrate only certain disagreements does not make it illusory. See In re FirstMerit Bank, 52 S.W.3d at 757. Additionally, the mere fact that an arbitration clause is one-sided does not make it illusory. For instance, in In re AdvancePCS Health, L.P., we held that an arbitration agreement was not illusory despite the fact that the clause was one-sided because it allowed AdvancePCS to unilaterally modify the clause with 30-days' notice. 172 S.W.3d at 607-08. We determined that the clause obligated AdvancePCS to arbitrate claims falling within the 30-day window even if it modified the clause. Id.<br />
<br />
The provision here binds both Royston, Rayzor and Lopez as to their claims other than those specifically excluded. It does not allow either party to unilaterally escape or modify the obligation to arbitrate covered claims. The mutually binding promises to arbitrate all disputes except the firm's claims for fees and expenses, as well as the underlying contract, provide sufficient consideration for the arbitration provision. Even as to the excluded claims, Royston, Rayzor cannot choose whether to arbitrate or litigate. As we explained above, those claims have to be litigated unless the firm and Lopez enter a new agreement to arbitrate them. Accordingly, the arbitration provision is not illusory.<br />
<br />
<b><span style="color: #0b5394;">IV. Conclusion</span></b><br />
<br />
Lopez did not prove a defense to arbitration. We reverse the judgment of the court of appeals in cause number 13-1026 and remand that cause to the trial court for further proceedings consistent with this opinion. The petition for writ of mandamus in cause number 14-0109 is denied.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://4.bp.blogspot.com/-xpTRVN30JVs/VZw7kTVbtvI/AAAAAAAADGc/FWT5XdCal3A/s1600/Tex%2B2015%2BAttorney-Client%2Barbitration%2Bagreements%2Bnot%2Bunconscionable.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="ROYSTON, RAYZOR, VICKERY, & WILLIAMS, LLP v. Lopez (Texas Supreme Court 2015)" border="0" height="367" src="http://4.bp.blogspot.com/-xpTRVN30JVs/VZw7kTVbtvI/AAAAAAAADGc/FWT5XdCal3A/s400/Tex%2B2015%2BAttorney-Client%2Barbitration%2Bagreements%2Bnot%2Bunconscionable.JPG" title="ROYSTON, RAYZOR, VICKERY, & WILLIAMS, LLP v. LOPEZ (Tex. 2015) (lawfirm-client arbitration agreement enforceable)" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">ROYSTON, RAYZOR, VICKERY, & WILLIAMS, LLP v. LOPEZ <br />(Texas Supreme Court 2015)</td></tr>
</tbody></table>
<span style="color: #cc0000;"><br /></span>
<b><span style="color: #cc0000;">JUSTICE EVA GUZMAN, joined by JUSTICE DEBRA LEHRMANN and JUSTICE JOHN DEVINE, concurring.</span></b><br />
<br />
We have long observed that attorneys have an ethical obligation to "explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation."[1] Today the Court decides whether the failure to timely and adequately explain the consequences of a mandatory arbitration provision in a legal services contract renders the arbitration agreement unenforceable. I agree with the Court that it does not and therefore fully join the Court's opinion. Moreover, I agree that Mr. Lopez failed to establish a defense to arbitration. I write separately, however, to emphasize the need for rules more specifically delineating the means and methods by which attorneys can discharge their ethical responsibilities in this context.<br />
<br />
As written, the Disciplinary Rules do not speak directly to arbitration agreements; however, attorneys are under a general obligation to provide enough information about a matter so that the client can make informed decisions regarding the representation.[2] But this begs the questions: how much, to whom, in what form, does it depend on the relative sophistication of the parties, and if so, to what extent? The Court touches on best practices in this regard but, wisely, does not attempt to rewrite the rules governing lawyers' ethical obligations through judicial decree. Such reforms are more aptly suited to our rulemaking process, which invites the input of the bench and bar. This process will ensure we more thoroughly vet the applicable standards and will ultimately yield more predictability, uniformity, and certainty.<br />
<br />
As a court, we are constitutionally and statutorily charged with promoting and enforcing ethical behavior by attorneys.[3] This is a solemn duty the Court has guarded for decades. As we have consistently recognized, the fiduciary nature of the attorney-client relationship imposes heightened duties and obligations on attorneys:<br />
<br />
"In Texas, we hold attorneys to the highest standards of ethical conduct in their dealings with their clients. The duty is highest when the attorney contracts with his or her client or otherwise takes a position adverse to his or her client's interests. As Justice Cardozo observed, `[a fiduciary] is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.'"[4]<br />
Attorneys must therefore demean themselves "`with inveterate honesty and loyalty, always keeping the client's best interest in mind.'"[5]<br />
<br />
Arbitration agreements between attorneys and their clients are not inherently unethical.[6] Indeed, public policy strongly favors arbitration, and the benefits of arbitration are well recognized.[7] However, the use of arbitration agreements in legal services contracts raises special concerns, which may vary in nature or degree depending on the client's sophistication.<br />
<br />
Vulnerable or unsophisticated clients are less likely to fully appreciate the implications of an arbitration agreement, understand the arbitration process and its procedures, or seek independent counsel regarding the costs and benefits of arbitration.[8] Certainly, an attorney has an ethical responsibility to fully and fairly discuss an arbitration agreement with a client, but the Disciplinary Rules lack clear guidance for discharging that responsibility. The potential for abuse at the earliest stages of the attorney-client relationship is a genuine concern.[9] Guidance is essential, but rather than articulating best-practices standards by judicial fiat, the rulemaking process provides a better forum for achieving clarity and precision.<br />
<br />
With these additional thoughts, I join the Court's opinion.<br />
<br />
[1] Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 205 (Tex. 2002); Cobb v. Stern, Miller & Higdon, 305 S.W.3d 36, 41 (Tex. App.-Houston [1st Dist.] 2009, no pet.); Cruse v. O'Quinn, 273 S.W.3d 766, 771-76 (Tex. App.-Houston [14th Dist.] 2008, pet. denied); Pickelner v. Adler, 229 S.W.3d 516, 530 (Tex. App.-Houston [1st Dist.] 2007, pet. denied); Lemond v. Jamail, 763 S.W.2d 910, 914 (Tex. App.-Houston [1st Dist.] 1988, writ denied); Quintero v. Jim Walter Homes, Inc., 709 S.W.2d 225, 229-30 (Tex. App.-Corpus Christi 1985, writ ref'd n.r.e.); Fleming v. Campbell, 537 S.W.2d 118, 119 (Tex. Civ. App.-Houston [14th Dist.] 1976, writ ref'd n.r.e.).<br />
<br />
<span style="font-size: x-small;">[1] TEX. DISCIPLINARY RULES PROF'L CONDUCT R. 1.03(b), reprinted in TEX. GOV'T CODE, tit. 2, subtit. G, App. A (Tex. State Bar R. art. X, § 9).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">[2] Id.; cf. id. R. 1.08(a) (prohibiting lawyer from entering into a business transaction with a client unless (1) the transaction and terms "are fair and reasonable to the client and are fully disclosed in a manner which can be reasonably understood by the client"; (2) the client has a reasonable opportunity to seek independent counsel; and (3) the client consents in writing).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">[3] See TEX. CONST. art. V, § 31; TEX. GOV'T CODE §§ 81.024, .071-.072; see also TEX. RULES DISCIPLINARY P. preamble, reprinted in TEX. GOV'T CODE, tit. 2, subtit. G, App. A-1 ("The Supreme Court of Texas has the constitutional and statutory responsibility within the State for the lawyer discipline and disability system, and has inherent power to maintain appropriate standards of professional conduct . . . .").</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">[4] Hoover Slovacek LLP v. Walton, 206 S.W.3d 557, 560-61 (Tex. 2006) (quoting Lopez v. Muñoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 866-67 (Tex. 2000) (Gonzales, J., concurring and dissenting)) (alteration in original).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">[5] Id. at 561.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">[6] See TEX. COMM. ON PROF'L ETHICS, Op. 586, 72 Tex. B.J. 128 (2008) (binding arbitration provision is permissible in engagement agreement if the terms would not be unfair to a typical client, the client is aware of the significant advantages and disadvantages of arbitration, and the arbitration provision does not limit liability for malpractice); ABA COMM. ON ETHICS & PROF'L RESPONSIBILITY, Formal Op. 02-425 (2002) (holding similarly); see also RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 54 cmt. b (acknowledging that arbitration agreements between lawyers and clients are permissible if "the client receives proper notice of the scope and effect of the agreement" and such agreements are enforceable in the relevant jurisdiction).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">[7] See Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 268 (Tex. 1992) (noting that arbitration agreements have been sanctioned in Texas since 1845); see also Steven Quiring, Attorney-Client Arbitration: A Search for Appropriate Guidelines for Pre-Dispute Agreements, 80 TEX. L. REV. 1213, 1217 (2002) (discussing advantages and disadvantages of arbitration).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">[8] See Lopez, 22 S.W.3d at 867 (Gonzales, J., concurring and dissenting) ("A lawyer and client's negotiations are often imbalanced in favor of the lawyer because of information inequalities and the client's customary reliance on the lawyer's legal advice."); Jean Fleming Powers, Ethical Implications of Attorneys Requiring Clients to Submit Malpractice Claims to ADR, 38 S. TEX. L. REV. 625, 648 (1997).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">[9] See, e.g., In re Pham, 314 S.W.3d 520, 528-29 (Tex. App.-Houston [14th Dist.] 2010, orig. proceeding) (Seymore, J., dissenting); Henry v. Gonzalez, 18 S.W.3d 684, 692-93 (Tex. App.-San Antonio 2000, pet. dism'd) (Hardberger, C.J., dissenting); cf. Lopez, 22 S.W.3d at 867 (Gonzales, J., concurring and dissenting) ("[A] lawyer should fully explain to the client the meaning and impact of any contract between them.").</span><br />
<span style="color: #cc0000;"><b><br /></b></span>
<span style="color: #cc0000;"><b>OPINION OF THE COURT OF APPEALS BELOW (REVERSED)</b></span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;"><br /></span>
<div style="text-align: center;">
<span style="font-size: x-small;">443 S.W.3d 196 (2013)</span></div>
<div style="text-align: center;">
<span style="font-size: x-small;">ROYSTON, RAYZOR, VICKERY & WILLIAMS, L.L.P., Appellant,</span></div>
<div style="text-align: center;">
<span style="font-size: x-small;">v.</span></div>
<div style="text-align: center;">
<span style="font-size: x-small;">Francisco "Frank" LOPEZ, Appellee.</span></div>
<div style="text-align: center;">
<span style="font-size: x-small;">In re Royston, Rayzor, Vickery & Williams, LLP.</span></div>
<div style="text-align: center;">
<span style="font-size: x-small;"><br /></span></div>
<div style="text-align: center;">
<span style="font-size: x-small;">Nos. 13-11-00757-CV, 13-12-00023-CV.</span></div>
<div style="text-align: center;">
<span style="font-size: x-small;">Court of Appeals of Texas, Corpus Christi-Edinburg.</span></div>
<div style="text-align: center;">
<span style="font-size: x-small;"><br /></span></div>
<div style="text-align: center;">
<span style="font-size: x-small;">June 27, 2013.</span></div>
<div style="text-align: center;">
<span style="font-size: x-small;">Rehearing Overruled November 8, 2013. </span></div>
<div style="text-align: center;">
<span style="font-size: x-small;"><br /></span></div>
<span style="font-size: x-small;">Brandy M. Wingate, McAllen, Michael S. Lee, Corpus Christi, Sarah Pierce Cowen, McAllen, for Appellant.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Rene Rodriguez, Corpus Christi, Ross A. Sears II, Houston, for Appellee.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Before Chief Justice VALDEZ and Justices BENAVIDES and PERKES.</span><br />
<div style="text-align: center;">
<span style="font-size: x-small;"><br /></span></div>
<div style="text-align: center;">
<span style="font-size: x-small;">OPINION</span></div>
<div style="text-align: center;">
<span style="font-size: x-small;"><br /></span></div>
<div style="text-align: center;">
<span style="font-size: x-small;">Opinion by Justice BENAVIDES.</span></div>
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Royston, Rayzor, Vickery, & Williams, LLP ("Royston"), seeks to set aside an order denying its motion to compel arbitration by appeal in appellate cause number 13-11-00757-CV and by petition for writ of mandamus in appellate cause number 13-12-00023-CV. We affirm the order of the trial court in the appeal and we deny the petition for writ of mandamus.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">I. BACKGROUND</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Francisco "Frank" Lopez retained Royston to represent him regarding a common law marriage and divorce and to pursue claims against Lopez's alleged common law wife after she won $11 million playing the lottery. The "Employment Contract" between Lopez and Royston gave Royston a twenty percent contingency fee in any gross recovery before expenses, provided that Lopez was responsible for all costs and expenses regardless of outcome, and gave Royston the right to withdraw as counsel at any time for any reason. The agreement contained the following arbitration provision:</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">While we would hope that no dispute would ever arise out of our representation or this Employment Contract, you and the firm agree that any disputes arising out of or connected with this agreement (including, but not limited to the services performed by any attorney under this agreement) shall be submitted to binding arbitration in Nueces County, Texas, in accordance with appropriate statutes of the State of Texas and the Commercial Arbitration Rules of the American Arbitration Association (except, however, that this does not apply to any claims made by the firm for the recovery of its fees and expenses).</span><br />
<span style="font-size: x-small;">Royston filed suit on behalf of Lopez against his common-law wife; however, the suit was settled after court-ordered mediation. Lopez thereafter brought suit against Royston for malpractice, gross negligence, fraud, breach of contract, and negligent misrepresentation. Lopez asserted that Royston "provided alcoholic beverages" to him at the mediation, told him the settlement was in his best interests, and encouraged him to take a "meager" settlement, even though there was ample evidence that the parties had a common law marriage and an electronic message from Lopez's ex-wife showed that she had agreed "to a much larger settlement amount." Lopez asserted Royston "failed to zealously assert and prove" that he had damage claims that entitled him to either fifty percent of the lottery winnings as community property due to the then-existing common law marriage, or in the alternative, the "$3,200,000.00 he was entitled to pursuant to the text message from his ex-wife."</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Royston moved to compel arbitration under the Texas Arbitration Act ("TAA") and, by supplemental motion, for arbitration under the common law. See TEX. CIV. PRAC. & REM.CODE ANN. § 171.001-.098 (West 2011). Lopez responded to the motion to compel and supplemental motion raising numerous affirmative defenses to arbitration. After a hearing where the trial court considered the motions to compel and the responses thereto, which were supported only by the Employment Contract, 200*200 the trial court denied Royston's motion to compel arbitration.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">This appeal and original proceeding ensued. By orders previously issued in these cases, the Court consolidated these two matters and ordered the underlying litigation to be stayed pending further order of this Court, or until the cases are finally decided. See TEX.R.APP. P. 29.5(b), 52.10(b). The matter has been fully briefed by both parties, and the matter has been submitted to the Court at oral argument.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">By five issues, which we have summarized and restated, Royston contends that: (1) the trial court abused its discretion in denying the motion to compel arbitration; (2) a legal malpractice claim should not be considered to be a personal injury claim, and therefore subject to statutory requirements for arbitration agreements under the TAA;[1] (3) the trial court abused its discretion in denying arbitration if its decision was based on an advisory ethics opinion requiring that lawyers provide clients with information relative to litigation and arbitration before entering an arbitration agreement; (4) the arbitration agreement was not illusory; and (5) the arbitration agreement was not unconscionable.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">II. MANDAMUS</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Mandamus is an "extraordinary" remedy. In re Sw. Bell Tel. Co., L.P., 235 S.W.3d 619, 623 (Tex.2007) (orig. proceeding); see In re Team Rocket, L.P., 256 S.W.3d 257, 259 (Tex.2008) (orig. proceeding). To obtain mandamus relief, the relator must show that the trial court clearly abused its discretion and that the relator has no adequate remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex.2004) (orig. proceeding); see In re McAllen Med. Ctr., Inc., 275 S.W.3d 458, 462 (Tex.2008) (orig. proceeding). A trial court abuses its discretion if it reaches a decision so arbitrary and unreasonable as to constitute a clear and prejudicial error of law, or if it clearly fails to correctly analyze or apply the law. In re Cerberus Capital Mgmt., L.P., 164 S.W.3d 379, 382 (Tex.2005) (orig. proceeding) (per curiam); Walker v. Packer, 827 S.W.2d 833, 839 (Tex.1992) (orig. proceeding). To satisfy the clear abuse of discretion standard, the relator must show that the trial court could "reasonably have reached only one decision." Liberty Nat'l Fire Ins. Co. v. Akin, 927 S.W.2d 627, 630 (Tex.1996) (quoting Walker, 827 S.W.2d at 840).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Arbitration clauses may be enforced under Texas common law. In re Swift Transp. Co., 311 S.W.3d 484, 491 (Tex.App.-El Paso 2009, orig. proceeding); In re Green Tree Servicing LLC, 275 S.W.3d 592, 599 (Tex.App.-Texarkana 2008, orig. proceeding); see L.H. Lacy Co. 201*201 v. City of Lubbock, 559 S.W.2d 348, 351-52 (Tex.1977) (common law arbitration and statutory arbitration are "cumulative" and part of a "dual system"); Carpenter v. N. River Ins. Co., 436 S.W.2d 549, 553 (Tex. Civ.App.-Houston [14th Dist.] 1969, writ ref'd n.r.e.) ("In the many other states having arbitration statutes similar to our 1965 statute, it is almost uniformly held that the statutory remedy is cumulative and that the common law remedy remains available to those who choose to use it."). Mandamus is the appropriate procedure by which we may review the trial court's ruling on a motion to compel arbitration under the common law. See In re Swift Transp. Co., 311 S.W.3d at 491; In re Paris Packaging, 136 S.W.3d 723, 727 & n. 7 (Tex.App.-Texarkana 2004, orig. proceeding).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">III. APPEAL</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Under the TAA, a party may appeal an interlocutory order that denies an application to compel arbitration made under Section 171.021. See TEX. CIV. PRAC. & REM.CODE ANN. § 171.098(a)(1) (West 2011). When reviewing an order denying arbitration under the TAA, we apply a de novo standard to legal determinations and a no evidence standard to factual determinations. PER Group, L.P. v. Dava Oncology, L.P., 294 S.W.3d 378, 384 (Tex.App.-Dallas 2009, no pet.); Trammell v. Galaxy Ranch Sch., L.P. (In re Trammell), 246 S.W.3d 815, 820 (Tex.App.-Dallas 2008, no pet.); TMI, Inc. v. Brooks, 225 S.W.3d 783, 791 (Tex.App.-Houston [14th Dist.] 2007, pet. denied). In reviewing the trial court's factual determinations, we must credit favorable evidence if a reasonable fact finder could and disregard contrary evidence unless a reasonable fact finder could not. PER Group, L.P., 294 S.W.3d at 384; Trammell, 246 S.W.3d at 820 (citing Kroger Tex. Ltd. v. Suberu, 216 S.W.3d 788, 793 (Tex.2006); City of Keller v. Wilson, 168 S.W.3d 802, 807 (Tex.2005)); TMI, Inc., 225 S.W.3d at 791. However, when the facts relevant to the arbitration issue are not disputed, we are presented only with issues of law and we review the trial court's order de novo. PER Group, L.P., 294 S.W.3d at 384; Trammell, 246 S.W.3d at 820.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">A party attempting to compel arbitration must first establish that the dispute in question falls within the scope of a valid arbitration agreement. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003); TMI, Inc., 225 S.W.3d at 791; Cappadonna Elec. Mgmt. v. Cameron County, 180 S.W.3d 364, 370 (Tex.App.-Corpus Christi 2005, orig. proceeding). A court may not order arbitration in the absence of such an agreement. Cappadonna, 180 S.W.3d at 370 (citing Freis v. Canales, 877 S.W.2d 283, 284 (Tex.1994)). The parties' agreement to arbitrate must be clear. Mohamed v. Auto Nation USA Corp., 89 S.W.3d 830, 835 (Tex.App.-Houston [1st Dist.] 2002, no pet.) (combined appeal & orig. proceeding). If the party opposing arbitration denies the existence of an agreement to arbitrate, that issue is determined summarily by the court as a matter of law. TEX. CIV. PRAC. & REM.CODE ANN. § 171.021(b); J.M. Davidson, Inc., 128 S.W.3d at 227. If the movant establishes that an arbitration agreement governs the dispute, the burden then shifts to the party opposing arbitration to establish a defense to the arbitration agreement. McReynolds v. Elston, 222 S.W.3d 731, 739 (Tex.App.-Houston [14th Dist.] 2007, no pet.).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Courts may not order parties to arbitrate unless they have agreed to do so. See Freis, 877 S.W.2d at 284 ("While courts may enforce agreements to arbitrate disputes, arbitration cannot be ordered in the absence of such an agreement."); 202*202 Belmont Constructors, Inc. v. Lyondell Petrochemical Co., 896 S.W.2d 352, 356-57 (Tex.App.-Houston [1st Dist.] 1995, no writ) (combined appeal & orig. proceeding). Therefore, despite strong presumptions that favor arbitration, a valid agreement to arbitrate is a settled, threshold requirement to obtaining relief. See In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737-38 (Tex.2005) (orig. proceeding); J.M. Davidson, Inc., 128 S.W.3d at 227.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Ordinary contract principles are applied to the determination of whether there is a valid agreement to arbitrate. J.M. Davidson, Inc., 128 S.W.3d at 227; see In re Bunzl U.S.A., Inc., 155 S.W.3d 202, 209 (Tex.App.-El Paso 2004, orig. proceeding). In determining the scope of the arbitration agreement, we focus on the petition's factual allegations rather than the legal causes of action asserted. See In re FirstMerit Bank, N.A., 52 S.W.3d 749, 754 (Tex.2001) (orig. proceeding) (decided under Federal Arbitration Act); PER Group, L.P., 294 S.W.3d at 386 (decided under TAA). Courts resolve any doubts about an arbitration agreement's scope in favor of arbitration. TMI, Inc., 225 S.W.3d at 791 (applying TAA). When parties agree to arbitrate and the agreement encompasses the claims asserted, the trial court must compel arbitration and stay litigation pending arbitration. See TEX. CIV. PRAC. & REM.CODE ANN. § 171.021(b); Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 305 (Tex.2006); PER Group, L.P., 294 S.W.3d at 384.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Texas law embraces arbitration. The Texas Supreme Court has recognized arbitration as a potentially efficient, cost-effective, and speedy means of resolving disputes. See In re Olshan Found. Repair Co., 328 S.W.3d 883, 893 (Tex.2010) (orig. proceeding) ("we also recognize that arbitration is intended as a lower cost, efficient alternative to litigation"); In re Poly-America, L.P., 262 S.W.3d 337, 347 (Tex. 2008) (orig. proceeding) ("arbitration is intended to provide a lower-cost, expedited means to resolve disputes"); Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 268 & n. 3, 269 (Tex.1992) ("the main benefits of arbitration lie in expedited and less expensive disposition of a dispute").</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">IV. ANALYSIS</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Lopez does not dispute the existence of the Employment Contract or otherwise dispute that he signed the agreement. In reviewing the text of the agreement and considering that the parties signed it, we conclude that appellant has established an agreement to arbitrate. See In re Kellogg Brown & Root, Inc., 166 S.W.3d at 737. We further conclude that the claims at issue in this lawsuit fall within the scope of the agreement. See In re First Tex. Homes, Inc., 120 S.W.3d 868, 870 (Tex.2003) (orig. proceeding) (per curiam) (examining the scope of an arbitration agreement that applied to "all disputes between [the parties] ... arising out of this Agreement or other action performed ... by [a party to the agreement]"); see also Emerald Tex. Inc. v. Peel, 920 S.W.2d 398, 403 (Tex.App.-Houston [1st Dist.] 1996, no writ) ("If ... the [arbitration] clause is broad, arbitration should not be denied unless it can be said with positive assurance that the particular dispute is not covered."). The agreement requires arbitration of "any disputes arising out of or connected with this agreement (including, but not limited to the services performed by any attorney under this agreement)," and this provision squarely encompasses the malpractice claims raised against Royston.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Having concluded that the arbitration agreement was valid and the claims at issue were within the scope of the arbitration 203*203 agreement, we turn our consideration to appellee's defenses to the arbitration agreement. See J.M. Davidson, Inc., 128 S.W.3d at 227 (stating that if the trial court finds a valid agreement, the burden shifts to the party opposing arbitration to raise an affirmative defense to enforcing arbitration); In re H.E. Butt Grocery Co., 17 S.W.3d 360, 367 (Tex.App.-Houston [14th Dist.] 2000, orig. proceeding); City of Alamo v. Garcia, 878 S.W.2d 664, 665 (Tex.App.-Corpus Christi 1994, no writ). Lopez raised several affirmative defenses to arbitration. Specifically, Lopez asserts, inter alia, that the arbitration agreement is substantively unconscionable. We address this issue first because we conclude that it is determinative of this proceeding.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Arbitration agreements are not inherently unconscionable. In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 678 (Tex.2006) (orig. proceeding). "Unconscionable contracts, however, whether relating to arbitration or not, are unenforceable under Texas law." In re Poly-America, L.P., 262 S.W.3d at 348-49. The TAA specifically acknowledges this defense and provides that a court may not enforce an arbitration agreement "if the court finds the agreement was unconscionable at the time the agreement was made." TEX. CIV. PRAC. & REM.CODE ANN. § 171.022 (West 2005); see In re Palm Harbor Homes, Inc., 195 S.W.3d at 677; In re Weeks Marine, Inc., 242 S.W.3d 849, 860-61 (Tex.App.-Houston [14th Dist.] 2007, orig. proceeding).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">According to the Texas Supreme Court, "[u]nconscionability is to be determined in light of a variety of factors, which aim to prevent oppression and unfair surprise; in general, a contract will be found unconscionable if it is grossly one sided." See In re Palm Harbor Homes, Inc., 195 S.W.3d at 677 (citing DAN B. DOBBS, 2 LAW OF REMEDIES 703, 706 (2d ed. 1993); RESTATEMENT (SECOND) OF CONTRACTS § 208, cmt. a (1979)). Unconscionability is not subject to precise doctrinal definition and is instead determined in light of a variety of factors. In re Poly-America, L.P., 262 S.W.3d at 348-49. The determination regarding whether a contract or term is unconscionable is made in the light of its setting, purpose, and effect. Id. Relevant factors include weaknesses in the contracting process, fraud, and other invalidating causes, and the policy overlaps with rules which render particular bargains or terms unenforceable on grounds of public policy. Palm Harbor Homes, Inc., 195 S.W.3d at 677 (citing RESTATEMENT (SECOND) OF CONTRACTS § 208, cmt. a (1979)). In considering an arbitration clause, allegations of unconscionability "must specifically relate to the [arbitration clause] itself, not the contract as a whole, if [unconscionability is] to defeat arbitration." In re FirstMerit Bank, N.A., 52 S.W.3d at 756.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">The party asserting unconscionability bears the burden of proof. In re Turner Bros. Trucking Co., 8 S.W.3d 370, 376-77 (Tex.App.-Texarkana 1999, orig. proceeding). Whether a contract is contrary to public policy or unconscionable at the time it is formed is a question of law. In re Poly-America, L.P., 262 S.W.3d at 348-49; Hoover Slovacek LLP v. Walton, 206 S.W.3d 557, 562 (Tex.2006). Because a trial court has no discretion to determine what the law is or apply the law incorrectly, its clear failure to properly analyze or apply the law of unconscionability constitutes an abuse of discretion. In re Poly-America, L.P., 262 S.W.3d at 349; Walker, 827 S.W.2d at 840; In re Green Tree Servicing LLC, 275 S.W.3d at 602-03.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Unconscionability may be either procedural or substantive in nature. See In re Palm Harbor Homes, Inc., 195 204*204 S.W.3d at 678. Generally speaking, procedural unconscionability refers to the circumstances surrounding the adoption of the arbitration provision, and substantive unconscionability concerns the fairness of the arbitration provision itself. Id.; In re Halliburton Co., 80 S.W.3d 566, 571 (Tex. 2002) (orig. proceeding). More specifically, procedural unconscionability relates to the making or inducement of the contract, focusing on the facts surrounding the bargaining process. TMI, Inc., 225 S.W.3d at 792; see Labidi v. Sydow, 287 S.W.3d 922, 927 (Tex.App.-Houston [14th Dist.] 2009, no pet.) (stating that the success or failure of an argument regarding procedural unconscionability is dependent upon the existence of facts which allegedly illustrate unconscionability). The test for substantive unconscionability is whether, "given the parties' general commercial background and the commercial needs of the particular trade or case, the clause involved is so one sided that it is unconscionable under the circumstances existing when the parties made the contract." In re FirstMerit Bank, 52 S.W.3d at 757; see In re Palm Harbor Homes, Inc., 195 S.W.3d at 678. The principles of unconscionability do not negate a bargain because one party to the agreement may have been in a less advantageous bargaining position, but are instead applied to prevent unfair surprise or oppression. In re Palm Harbor Homes, Inc., 195 S.W.3d at 679; In re FirstMerit Bank, 52 S.W.3d at 757.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">As an initial matter, we note that Royston contends Lopez must show both procedural and substantive unconscionability, and, because he did not contend that the agreement was procedurally unconscionable, his argument must fail. We disagree. The Texas Supreme Court has expressly held that "courts may consider both procedural and substantive unconscionability of an arbitration clause in evaluating the validity of an arbitration provision." In re Halliburton Co., 80 S.W.3d at 572. The two types of unconscionability are distinct. See In re FirstMerit Bank, N.A., 52 S.W.3d at 756.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Agreements to arbitrate disputes between attorneys and clients are generally enforceable under Texas law; there is nothing per se unconscionable about an agreement to arbitrate such disputes and, in fact, Texas law has historically condoned agreements to resolve such disputes by arbitration. Cf. In re Poly-America, L.P., 262 S.W.3d 337, 348 (Tex. 2008) (discussing arbitration agreements between employers and employees); see, e.g., In re Pham (Pham v. Letney), 314 S.W.3d 520, 526 (Tex.App.-Houston [14th Dist.] 2010, no pet.) (combined appeal & orig. proceeding); Chambers v. O'Quinn, 305 S.W.3d 141, 149 (Tex.App.-Houston [1st Dist.] 2009, pet. denied); Labidi, 287 S.W.3d at 929; In re Hartigan, 107 S.W.3d 684, 692 (Tex.App.-San Antonio 2003, orig. proceeding); Henry v. Gonzalez, 18 S.W.3d 684, 688-89 (Tex.App.-San Antonio 2000, pet. dism'd); Porter & Clements, L.L.P. v. Stone, 935 S.W.2d 217, 219-22 (Tex.App.-Houston [1st Dist.] 1996, no writ). The Houston Courts of Appeals have issued several opinions regarding attorney-client arbitration agreements and have taken a strong position in favor of such agreements. Pham, 314 S.W.3d at 526; Chambers, 305 S.W.3d at 149; Labidi, 287 S.W.3d at 927-28. Under this line of opinions, a fiduciary relationship between attorney and client does not exist before the client signs the employment contract containing the arbitration agreement, and therefore attorneys are not required to fully explain all implications of the arbitration clause. See, e.g., Pham, 205*205 314 S.W.3d at 526.[2] Further, courts should defer to the Legislature with regard to the imposition of any conditions on arbitration provisions between attorney and client. See id. at 528; Chambers, 305 S.W.3d at 149. We note that cases upholding attorney-client arbitration proceedings have engendered passionate and articulate dissenting opinions:</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Notwithstanding the application of settled contract law and public policy favoring alternate dispute resolution, many respected jurists and lawyers oppose arbitration because it is not cost effective, disgorges unwary consumers of the right to a jury trial, and eliminates appellate review for errors of law. I remain a proponent of arbitration. However, when the legislature and rule-making authority in the legal profession fail to protect consumers of legal services, I believe the courts have an obligation to act because public perception of the legal profession's ability to self-police is not favorable.</span><br />
<span style="font-size: x-small;">Pham, 314 S.W.3d at 528-29 (Seymore, J., dissenting); see also Henry, 18 S.W.3d at 692 (Hardberger, C.J., dissenting).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">In the instant case, Lopez contends that the arbitration agreement is unconscionable because it requires him to arbitrate all of his claims but allows Royston to litigate its claims regarding costs and expenses. The agreement provides that the parties are required to arbitrate "any disputes arising out of or connected with this agreement (including, but not limited to the services performed by any attorney under this agreement), except, however, that this does not apply to any claims made by the firm for the recovery of its fees and expenses." Royston concedes that "it is true that it is unlikely that Royston would ever have a claim against Lopez that was not a claim for fees."</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">The Texas Supreme Court has specifically addressed the concept of unconscionability where the terms of the arbitration agreement allow one party to litigate but force the other party to arbitrate:</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">The de los Santoses also argue that the agreement's terms are unconscionable because they force the weaker party to arbitrate their claims, while permitting the stronger party to litigate their claims. They point us to decisions in other jurisdictions that have found this type of clause to be unconscionable. Most federal courts, however, have rejected similar challenges on the grounds that an arbitration clause does not require mutuality of obligation, so long as the underlying contract is supported by adequate consideration. In any event, the basic test for unconscionability is 206*206 whether, given the parties' general commercial background and the commercial needs of the particular trade or case, the clause involved is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract. The principle is one of preventing oppression and unfair surprise and not of disturbing allocation of risks because of superior bargaining power. Here, the Arbitration Addendum allows the bank to seek judicial relief to enforce its security agreement, recover the buyers' monetary loan obligation, and foreclose. Given the weight of federal precedent and the routine nature of mobile home financing agreements, we find that the Arbitration Addendum in this case, by excepting claims essentially protecting the bank's security interest, is not unconscionable. We also recognize that the plaintiffs are free to pursue their unconscionability defense in the arbitral forum.</span><br />
<span style="font-size: x-small;">In re FirstMerit Bank, N.A., 52 S.W.3d at 757 (internal citations and footnotes omitted). see also In re Poly-America, L.P., 262 S.W.3d at 348; In re Halliburton Co., 80 S.W.3d at 571.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Applying the basic test for unconscionability to the instant case, and examining the relevant factors, we conclude that the specific agreement before the Court is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract. Significantly, neither In re FirstMerit Bank nor In re Poly-America involved the construction of a one-sided arbitration clause in the context of the creation of an attorney-client relationship. We further note that none of the cases proffered by the parties regarding the enforceability of arbitration clauses in attorney-client contracts concerned a clause allowing the attorneys to litigate but prohibiting their clients from doing so. Given the relationship between attorney and client, the relative expertise of lawyers in understanding the differences between arbitration and litigation and the relative costs thereof as compared to their clients, we find, under the specific facts of this case, that the arbitration agreement, by specifically excepting claims protecting Royston's fees and costs, is unconscionable. The terms of the arbitration provision are very unusual and, on their face, distinctly favor Royston over its relatively unsophisticated client, Lopez. See Sidley Austin Brown & Wood, LLP v. J.A. Green Dev. Corp., 327 S.W.3d 859, 865 (Tex.App.-Dallas 2010, no pet.). The arbitration agreement is not a "bilateral agreement to arbitrate" and is most definitely one-sided and oppressive. See In re Poly-America, 262 S.W.3d at 348-49; Labidi, 287 S.W.3d 922.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">In reaching this conclusion, we note that Royston contends that the trial court abused its discretion in denying arbitration if its decision was based on an advisory ethics opinion requiring that lawyers provide clients with information relative to litigation and arbitration before entering an arbitration agreement. The opinion rendered by the Texas Ethics Commission suggests that it would be permissible under the Texas Disciplinary Rules of Professional Conduct to include an arbitration clause in an attorney-client contract only if the client was made aware of the advantages and disadvantages of arbitration and had sufficient information to make an informed decision as to whether to include the clause:</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">In order for the client's agreement for arbitration to be effective, the Committee believes that the client must receive sufficient information about the differences between litigation and arbitration to permit the client to make an informed decision about whether to agree to binding 207*207 arbitration. While most of the duties owing from the lawyer-client relationship attach only after the creation of the lawyer-client relationship, some duties may attach before a lawyer-client relationship is established. See paragraph 12 of the Preamble to the Texas Disciplinary Rules of Professional Conduct. Rule 1.03(b) provides that "[a] lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation." The Committee is of the opinion that this Rule applies when a lawyer asks a prospective client to agree to binding arbitration in an engagement agreement. In order to meet the requirements of Rule 1.03(b), the lawyer should explain the significant advantages and disadvantages of binding arbitration to the extent the lawyer reasonably believes is necessary for an informed decision by the client. The scope of the explanation will depend on the sophistication, education and experience of the client. In the case of a highly sophisticated client such as a large business entity that frequently employs outside lawyers, no explanation at all may be necessary. In situations involving clients who are individuals or small businesses, the lawyer should normally advise the client of the following possible advantages and disadvantages of arbitration as compared to a judicial resolution of disputes: (1) the cost and time savings frequently found in arbitration, (2) the waiver of significant rights, such as the right to a jury trial, (3) the possible reduced level of discovery, (4) the relaxed application of the rules of evidence, and (5) the loss of the right to a judicial appeal because arbitration decisions can be challenged only on very limited grounds. The lawyer should also consider the desirability of advising the client of the following additional matters, which may be important to some clients: (1) the privacy of the arbitration process compared to a public trial; (2) the method for selecting arbitrators; and (3) the obligation, if any, of the client to pay some or all of the fees and costs of arbitration, if those expenses could be substantial. Although the disclosure should vary from client to client, depending on the particular circumstances, the overriding concem is that the lawyer should provide information necessary for the client to make an informed decision.</span><br />
<span style="font-size: x-small;">. . . .</span><br />
<span style="font-size: x-small;">It is permissible under the Texas Disciplinary Rules of Professional Conduct to include in an engagement agreement with a client a provision, the terms of which would not be unfair to a typical client willing to agree to arbitration, requiring the binding arbitration of fee disputes and malpractice claims provided that (1) the client is aware of the significant advantages and disadvantages of arbitration and has sufficient information to permit the client to make an informed decision about whether to agree to the arbitration provision, and (2) the arbitration provision does not limit the lawyer's liability for malpractice.</span><br />
<span style="font-size: x-small;">See OP. TEX. ETHICS COMM'N No. 586 (2008). In the proceedings below, Lopez contended that this opinion supports the notion that for an arbitration clause in an attorney-client contract to be considered valid, an attorney must make sure that the client is fully informed regarding the clause's implications. However, as correctly noted by both the Ethics Commission and Royston, ethics opinions are concerned with matters of attorney discipline and are advisory rather than binding. Id. ("It is beyond the authority of this Committee to address questions of substantive law relating 208*208 to the validity of arbitration clauses in agreements between lawyers and their clients."); see Sidley Austin Brown & Wood, LLP, 327 S.W.3d at 866; Pham, 314 S.W.3d at 527-28; Labidi, 287 S.W.3d at 929. Accordingly, the trial court would have abused its discretion if it found the arbitration provision was unconscionable on this basis alone. We nevertheless conclude that the preceding ethics opinion, the disciplinary rules, and the public policy considerations surrounding the attorney-client relationship are some of the factors that can be considered when determining whether or not a contract is unconscionable. See In re Palm Harbor Homes, Inc., 195 S.W.3d at 677; see, e.g., Cruse v. O'Quinn, 273 S.W.3d 766, 775 (Tex.App.-Houston [14th Dist] 2008, pet. denied) (stating that the disciplinary rules do not give rise to private causes of action; however, a court may deem these rules to be an expression of public policy). In this regard, we agree with the recent analysis of Texas Supreme Court authority on the attorney-client relationship as expressed by the Dallas Court of Appeals:</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">When interpreting and enforcing an attorney-client agreement, the Texas Supreme Court has admonished us to be mindful of the ethical considerations overlaying the contractual relationship between an attorney and client. Hoover Slovacek LLP v. Walton, 206 S.W.3d 557, 560 (Tex.2006). An attorney has a special responsibility to maintain the highest standards of conduct and fair dealing when contracting with a client or otherwise taking a position adverse to the client's interests. Id. To place the burden of clarifying attorney-client agreements on the attorney is justified, not only by the attorney's greater knowledge and experience with respect to such agreements, but also by the trust the client has placed in the attorney. Levine v. Bayne, Snell & Krause, Ltd., 40 S.W.3d 92, 95 (Tex.2001). According to the Restatement of the Law Governing Lawyers, contracts between an attorney and client should first be construed from the standpoint of a reasonable person in the client's circumstances. See RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 18 cmt. h. The lawyer thus bears the burden of ensuring that the contract states any terms diverging from a reasonable client's expectations. Id. Although much of the case law illustrating this construction principle addresses disputes over fee terms, the principle is applied to other terms as well. Id.</span><br />
<span style="font-size: x-small;">Falk & Fish, L.L.P., v. Pinkston's Lawnmower & Equip., Inc., 317 S.W.3d 523, 528-29 (Tex.App.-Dallas 2010, no pet.); see also Rawhide Mesa-Partners, Ltd. v. Brown McCarroll, L.L.P., 344 S.W.3d 56, 60 (Tex.App.-Eastland 2011, no pet.) ("A fiduciary duty is the highest duty recognized by law."); Perez v. Kirk & Carrigan, 822 S.W.2d 261, 265 (Tex.App.-Corpus Christi 1991, writ denied) ("[T]he relationship between attorney and client has been described as one of uberrima fides, which means, `most abundant good faith,' requiring absolute and perfect candor, openness and honesty, and the absence of any concealment or deception."); Chien v. Chen, 759 S.W.2d 484, 495 n. 6 (Tex.App.-Austin 1988, no writ) (observing that the attorney client relationship is a fiduciary relationship where the law demands of one party an unusually high standard of ethical or moral conduct with reference to another).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">V. RESPONSE TO DISSENT</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">We have fully reviewed and carefully considered the dissenting opinion in this case. As an initial matter, we note that we do not disagree with the dissent as to the controlling law regarding unconscionability generally or its specific application in the 209*209 context of attorney-client arbitration clauses. See, e.g., In re FirstMerit Bank, N.A., 52 S.W.3d at 757. The dissent posits, however, that Lopez's arguments can be restated as "the fact that the arbitration agreement arose between a lawyer and prospective client makes the contract unconscionable at the outset." The dissent further contends that "a fiduciary relationship may arise prior to the creation of an attorney-client relationship," but Lopez failed to carry his burden to prove that the arbitration clause was unconscionable because he failed to present evidence regarding unconscionability and "evidence regarding the discussions or negotiations to show what occurred in this case." In short, the dissent misinterprets the majority opinion to hold that the agreement was unconscionable despite the lack of evidence to show or establish a fiduciary relationship between Lopez and Royston.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">The dissent's interpretation of the majority opinion is incorrect. First, as noted previously, arbitration clauses in attorney-client employment contracts are not presumptively unconscionable. See Pham, 314 S.W.3d at 526 (rejecting the "notion that arbitration provisions in attorney-client contracts are inherently unconscionable without additional restrictions."). Second, and more fundamentally, the majority's opinion is not premised on a fiduciary relationship, if any, between a prospective client and lawyer. See, e.g., id. at 526-27 (discussing the potential for a "special, fiduciary, or attorney-client relationship to arise prior to entering a formal agreement"). Rather, under the majority's analysis, the arbitration clause at issue in this case is so one-sided that it is unconscionable as a matter of law given the circumstances existing when the parties made the contract, that is, the inception of an attorney-client relationship, when the contract gave Royston the right to withdraw as counsel at any time for any reason, exclusively favored Royston with the right to litigate "any claims made by the firm for the recovery of its fees and expenses," compelled Lopez to arbitrate all of his disputes with Royston, including any malpractice claims, and provided that Lopez was responsible for all costs and expenses regardless of the outcome of the dispute for which Royston was retained. Third, Lopez had no evidentiary burden with respect to his contention that the arbitration agreement is substantively unconscionable as a matter of law. See Hoover, 206 S.W.3d at 562; Sec. Serv. Fed. Credit Union v. Sanders, 264 S.W.3d 292, 298 (Tex.App.-San Antonio 2008, no pet.).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Based on the foregoing, we respectfully disagree with the dissent's analysis of this case.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">VI. CONCLUSION</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">The Court, having examined and fully considered the matters in these causes, is of the opinion that the trial court's order denying Royston's motion to compel arbitration should be affirmed. Accordingly, we lift the stay that was previously imposed in these matters and we affirm the order of the trial court. Having affirmed the order in the appeal, we need not further address the identical issues raised by mandamus, and we deny the requested relief in the original proceeding. Any pending motions are dismissed as moot.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Dissenting Opinion by Justice GREGORY T. PERKES.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">DISSENTING OPINION</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Dissenting Opinion by Justice PERKES.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">The majority opines that the arbitration agreement between Royston, Rayzor, Vickery, & Williams, P.C. ("Royston Rayzor") and Francisco Lopez is unconscionable. I dissent because I do not believe 210*210 that Lopez met his affirmative burden to show that the agreement was unconscionable. Further, because the record also shows Lopez failed to meet his burden to establish the applicability of any other affirmative defense to arbitration, I would reverse and remand the case to the trial court for entry of an order compelling arbitration.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Lopez claimed only substantive unconscionability. His argument is based upon a clause that required him to arbitrate all claims against Royston Rayzor, but Royston Rayzor's fee claims were excluded from the arbitration agreement. The unconscionability of a contract is a question of law for the court. Ski River Dev., Inc. v. McCalla, 167 S.W.3d 121, 136 (Tex.App.-Waco 2005, pet. denied). The party asserting unconscionability has the burden of proving both procedural and substantive unconscionability. Id. The grounds for substantive unconscionability must be so shocking or gross as to compel a court to intercede. LeBlanc v. Lange, 365 S.W.3d 70, 88 (Tex.App.-Houston [1st Dist.] 2011, no pet.). The principle involved is "one of preventing oppression and unfair surprise and not of disturbing allocation of risks because of superior bargaining power." In re FirstMerit Bank, N.A., 52 S.W.3d 749, 757 (Tex.2001). The mere exclusion of claims by only one party is not the kind of shocking unfairness required to invalidate an arbitration clause. Id. at 758; In re Peoples Choice Home Loan, Inc., 225 S.W.3d 35, 46 (Tex.App.-El Paso 2005, orig. proceeding) (finding arbitration clause was not substantively unconscionable even though certain of lender's judicial remedies were exempt from the scope of the clause).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Lopez presented absolutely no unconscionability evidence at the hearing. He did not testify, submit an affidavit, or present any other evidence to the trial court. Rather, he is arguing that the fact the arbitration agreement arose between a lawyer and prospective client makes the contract unconscionable, at the outset. A fiduciary relationship may arise prior to the creation of an attorney-client relationship. But, Lopez did not put on any evidence regarding the discussions or negotiations to show what occurred here. See In re Pham, 314 S.W.3d 520, 527 (Tex.App.-Houston [14th Dist.] 2010, orig. proceeding).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">I would hold that Lopez failed to carry his burden to prove his defense of unconscionability, and that the trial court should have granted the relief sought by Royston Rayzor. See In re FirstMerit Bank, N.A., 52 S.W.3d at 753-54 ("Once the trial court concludes that the arbitration agreement encompasses the claims, and that the party opposing arbitration has failed to prove its defenses, the trial court has no discretion but to compel arbitration and stay its own proceedings"); Citigroup Global Mkts. v. Brown, 261 S.W.3d 394, 400-01 (Tex. App.-Houston [14th Dist.] 2008, no pet.) (explaining the burden of proof in presenting a defense to arbitration).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Lopez also pleaded three other affirmative defenses to arbitration: (1) the arbitration clause is precluded by application of the Texas Ethics Committee's Advisory Opinion No. 586; (2) the arbitration agreement is illusory; and (3) his malpractice claim against Royston Rayzor is a personal-injury claim that is not subject to arbitration unless the arbitration agreement complies with Texas Civil Practice and Remedies Code section 171.002.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">As recognized by the majority, Opinion No. 586 is advisory and is not legal authority on whether an arbitration agreement between an attorney and client is enforceable, as a matter of law. See In re Pham, 314 S.W.3d at 528; Labidi v. Sydow, 287 S.W.3d 922, 927 (Tex.App.-Houston [14th 211*211 Dist.] 2009, no pet.). In the case of In re Pham, the Fourteenth Court of Appeals summarized its concern with using Opinion No. 586 to assess arbitration clauses in attorney-client agreements as follows:</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">We concluded in Labidi that Opinion No. 586 did not impose any restrictions on attorney-client arbitration clauses because (1) such opinions are advisory at best, (2) the commission expressly declined in the opinion to opine on the substantive law concerning arbitration clause enforceability, and (3) substantive law does not include any such restrictions... [W]e decline to impose a requirement that attorneys must in all cases fully inform prospective clients regarding the implications of an arbitration clause in an attorney-client contract. This argument is best preserved for the legislature.</span><br />
<span style="font-size: x-small;">314 S.W.3d at 528. Any persuasive value of Opinion No. 586 in setting forth how an arbitration agreement between an attorney and client should be approached in a given case is nullified when, as here, there is no evidence in the record as to the client's sophistication, education, and experience and how the parties reached the arbitration agreement. See OP. TEX. ETHICS COMM'N No. 586 (2008) ("The scope of the explanation will depend on the sophistication, education and experience of the client....").</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Lopez's argument that the arbitration agreement is unenforceable because it is illusory also fails. As a matter of law, the arbitration agreement before the Court is not illusory — both parties were bound to arbitrate and neither party could unilaterally alter the scope or applicability of the arbitration agreement. Compare In re Halliburton Co., 80 S.W.3d 566, 570 (Tex. 2002) ("Halliburton cannot avoid its promise to arbitrate by amending the provision or terminating it altogether. Accordingly, the provision is not illusory.") with In re C & H News Co., 133 S.W.3d 642, 647 (Tex. App.-Corpus Christi 2003, no pet.) (concluding arbitration agreement was illusory because employer could "unilaterally amend the types of claims subject to arbitration").</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Finally, I would hold Lopez's legal malpractice claim against Royston Rayzor is not a personal-injury claim under the plain language of Texas Civil Practice and Remedies Code section 171.002 and thus the requirements of that section are inapplicable to bar arbitration in this case. See TEX. CIV. PRAC. & REM.CODE ANN. § 171.002(a)(3),(c) (West 2011); see also In re Pham, 314 S.W.3d at 525 ("legal malpractice claims do not constitute personal injury claims for purposes of section 171.002"); Taylor v. Wilson, 180 S.W.3d 627, 632 (Tex.App.-Houston [14th Dist.] 2005, pet. denied) (Frost, J., concurring) (demonstrating that a legal malpractice claim is not a claim for personal injury). I recognize this holding would conflict with this Court's precedent that holds a legal-malpractice claim is a personal-injury suit for purposes of section 171.002. See In re Godt, 28 S.W.3d 732, 738-39 (Tex.App.-Corpus Christi 2000, orig. proceeding) (holding a legal malpractice suit arising from a lawyer's handling of a personal-injury claim is a personal-injury claim for purposes of section 171.002); see also Bennett v. Leas, No. 13-06-469-CV, 2008 WL 2525403, at *7 (Tex.App.-Corpus Christi June 26, 2008, pet. abated) (holding legal malpractice claim arising from lawyer's handling of grievance matters is a personal-injury claim for purposes of section 171.002). However, if this panel were to address this issue by majority opinion, I would request that this Court consider this case en banc for the purpose of overruling In re Godt and Bennett as incorrectly decided. See Bennett, 2008 WL 2525403, at *8 (Vela, J., dissenting) ("... I would overrule 212*212 our precedent and hold that a legal malpractice claim is not a claim for personal injury.").</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">Because Lopez did not meet his burden to establish his affirmative defenses to arbitration, I would reverse and remand with an instruction to the trial court to grant Royston Rayzor's motion to compel arbitration. See TEX.R.APP. P. 43.2(d); Sidley Austin Brown & Wood, LLP v. J.A. Green Dev. Corp., 327 S.W.3d 859, 862 (Tex.App.-Dallas 2010, no pet.).</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;">[1] There is a split of authority among the Texas courts of appeals regarding whether legal malpractice claims constitute personal injury claims for purposes of section 171.002. See TEX. CIV. PRAC. & REM.CODE ANN. § 171.002 (West 2011) (excluding claims for personal injury from arbitration under the TAA unless each party to the claim, on the advice of counsel, agrees in writing to arbitrate and the agreement is signed by each party and each party's attorney). Several courts have held that legal malpractice claims do not constitute personal injury claims for purposes of section 171.002. See Chambers v. O'Quinn, 305 S.W.3d 141, 148 (Tex.App.-Houston [1st Dist.] 2009, pet. denied.); Taylor v. Wilson, 180 S.W.3d 627, 630-31 (Tex.App.-Houston [14th Dist.] 2005, pet. denied); Miller v. Brewer, 118 S.W.3d 896, 899 (Tex.App.-Amarillo 2003, no pet.); In re Hartigan, 107 S.W.3d 684, 690-91 (Tex. App.-San Antonio 2003, pet. denied). This Court has held to the contrary. In re Godt, 28 S.W.3d 732, 738-39 (Tex.App.-Corpus Christi 2000, no pet.). Our analysis of the instant case is governed by other issues, and accordingly, we need not address this matter herein. See TEX.R.APP. P. 47.1, 47.4.</span><br />
<span style="font-size: x-small;"><br /></span>
<span style="font-size: x-small;"></span><br />
<span style="font-size: x-small;">[2] These Texas cases stand in contrast to cases from other jurisdictions which reach the opposite conclusion regarding balancing public policies favoring arbitration and those policies which underlie the attorney-client relationship. See, e.g., Hodges v. Reasonover, 103 So.3d 1069, 1071 (La.2012) ("[W]e hold there is no per se rule against arbitration clauses in attorney-client retainer agreements, provided the clause is fair and reasonable to the client. However, the attorneys' fiduciary obligation to the client encompasses ethical duties of loyalty and candor, which in turn require attorneys to fully disclose the scope and the terms of the arbitration clause. An attorney must clearly explain the precise types of disputes the arbitration clause is meant to cover and must set forth, in plain language, those legal rights the parties will give up by agreeing to arbitration. In this case, the defendants did not make the necessary disclosures, thus, the arbitration clause is unenforceable."); Averill v. Cox, 145 N.H. 328, 338, 761 A.2d 1083 (2000) (superseded by statute on other grounds) (holding that an attorney seeking to enforce an arbitration clause in a fee agreement entered into after the commencement of the attorney-client relationship has the burden of proving that it is fair and reasonable and that the client had full knowledge of the facts and of his legal rights with relation thereto).</span><br />
<br />MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-45466073760182647892015-04-28T12:29:00.001-07:002015-05-23T15:24:33.109-07:00Timeliness of arbitration demand for the arbitrator to decide, not the court, Texas Supreme Court says<br />
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="font-family: inherit; font-size: large;"><span style="color: #0b5394;"><i>In <u>G.T. Leach Builders LLC v Sapphire V.P.,
LP</u>, No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=13-0497&coa=cossup">13-0497</a> </i></span><i style="color: #0b5394;">(Tex. 2015), a complex construction-project-related dispute involving multiple parties and
multiple contracts, the Texas Supreme Court recently addressed a number of
important arbitration-related issues. Most notably, it reversed the intermediate court of
appeals on the matter of whether the court or the arbitrator gets to decide
whether the arbitration demand was timely asserted. </i></span><br />
<span style="font-family: inherit; font-size: large;"><i style="color: #0b5394;"><br /></i></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><img alt="G.T. Leach Builders, LLC v. Sapphire V.P., LP, No. 13-0497, 2015 WL 1288373 (Tex., Mar. 20, 2015)" border="0" height="308" src="http://1.bp.blogspot.com/-jX1imbWnSEQ/VT_tKMgdb_I/AAAAAAAACv0/Afy75zmQE8s/s320/Tex%2B13-0497%2BGT%2BLeach%2BBuilders%2BLLC%2Bv%2BSapphire%2BVP%2BLP%2B(Tex.%2B2015)%2BTexas%2BSurpeme%2BCourt%2BOpinion%2Bon%2BArbitrability.JPG" style="margin-left: auto; margin-right: auto;" title="G.T. Leach Builders, LLC v. Sapphire V.P., LP, No. 13-0497, 2015 WL 1288373 (Texas Supreme Court Opinion), Mar. 20, 2015)" width="320" /></td></tr>
<tr><td class="tr-caption" style="text-align: center;">G.T. Leach Builders, LLC v. Sapphire V.P., LP, No. 13-0497 (Tex. 2015)</td></tr>
</tbody></table>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-jX1imbWnSEQ/VT_tKMgdb_I/AAAAAAAACv0/Afy75zmQE8s/s1600/Tex%2B13-0497%2BGT%2BLeach%2BBuilders%2BLLC%2Bv%2BSapphire%2BVP%2BLP%2B(Tex.%2B2015)%2BTexas%2BSurpeme%2BCourt%2BOpinion%2Bon%2BArbitrability.JPG" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><span style="font-family: inherit; font-size: large;"></span></a></div>
<div style="text-align: center;">
<div style="text-align: left;">
<i style="color: #0b5394; text-align: justify;"><span style="font-family: inherit; font-size: large;">The Supreme Court, in an opinion by Jeff
Boyd, concluded that the question is not a gateway issue of arbitrability and therefore goes to the arbitrator. This seems logically unsatisfactory,
because the matter of whether a litigant has waived the right to compel
arbitration by litigation conduct is and remains a matter for the court. The
failure to meet the deadline to invoke or initiate arbitration is likewise a
matter of conduct (omission). So why should the former be a matter of
arbitrability properly passed on by the Court, but the latter a matter to be arbitrated (rather than a threshold
matter of whether an arbitration referral is (still) appropriate, or has been
forfeited by undue delay? </span></i></div>
</div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: #0b5394; font-family: inherit; font-size: large;"><i> </i></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: #0b5394; font-family: inherit; font-size: large;"><i>Moreover, a contractual provision
setting a deadline will generally be more amenable to quick and efficient application and enforcement
because it is likely unambiguous and the relevant facts are measured in days or
months. Delay in quantifiable. No need for fact-intensive inquiry encompassing multiple dimensions of conduct, not to mention consideration of the
amorphous “totality of the circumstances” to resolve whether the deadline has
be missed. Resolution by the court would thus also conserve judicial and
private resources. <o:p></o:p></i></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: #0b5394; font-family: inherit; font-size: large;"><i><br /></i></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: #0b5394; font-family: inherit; font-size: large;"><i>Thirdly, if a party’s litigation conduct
may arguably transform a “presently enforceable right to arbitrate” into its
opposite, how does a failure to meet the deadline for arbitration not render
the “presently enforceable right to arbitrate” into something that was presently
enforceable before the deadline, but not after? Why should the court not resolve both types of scenarios involving the potential loss of the otherwise available right to compel arbitration in case pending before it? <o:p></o:p></i></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: #0b5394; font-family: inherit; font-size: large;"><i><br /></i></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: #0b5394; font-family: inherit; font-size: large;"><i>Finally, under the Supreme Court’s
ruling, the case must be sent to arbitration for the arbitrator to determine
that the case cannot be arbitrated because the right to arbitrate was lost by
missing the deadline. But in reaching that conclusion, the arbitrator would in
fact be arbitrating an issue that touches on the very basis of the arbitrator’s
authority to act, i.e. did the party that sought arbitration still have a right
to do so, and was it appropriate for the arbitrator to make any decision at
all? There would appear to be an inherent contradiction of a arbitrator deciding that arbitration should not be taking place because the right to arbitrate no longer existed when the arbitration was compelled. <o:p></o:p></i></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: #0b5394; font-family: inherit; font-size: large;"><i><br /></i></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: #0b5394; font-family: inherit; font-size: large;"><i>The scenario might be analogized with
the proposition that a court always has jurisdiction to determine whether it
has jurisdiction. But limitations issues are not jurisdictional. And an arbitrator
never has plenary jurisdiction because arbitration is always a creature of
contract. Therefore, the jurisdiction analogy fails. </i></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: #0b5394; font-family: inherit; font-size: large;"><i><br /></i></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: #0b5394; font-family: inherit; font-size: large;"><i>Moreover, what happens if
the arbitrator issues an “award” finding that relief is barred because the
deadline to commence arbitration has been missed? Is it that binding on the court?
Does it have res judicata effect? Or can the dispute then be resolved in court,
assuming the claim itself is not time-barred, even though the resolution of
that claim by arbitration was time-barred as determined by the arbitrator in
the award? And even if the cause of action was time-barred, would the court then still have authority to so rule on the merits?</i></span><br />
<span style="font-family: inherit; font-size: large;"><span style="color: #0b5394;"><i><br /></i></span>
<span style="color: #0b5394;"><i>What if either party moves for confirmation of the arbitrator's award to transform it into a judgment? What if arbitrator entered a zero (take-nothing) award, rather than a time-bar finding equivalent to a trial court's dismissal reciting the basis for dismissal in the order, or the equivalent to a dismissal order accompanied by findings of facts and conclusions of law doing so. What if the arbitrator issues an "award" that awards no relief but does not state a reason (i.e. does not say that relief was denied because the deadline to commence arbitration had been missed, the applicable statute of limitations had expired, or any other reason)? Would that still leave ground to argue that the court should decide the controversy in a later proceeding because the arbitrator was in no position to determine whether any relief should be granted on the merits? What would be the effect of an arbitrator's finding of absence of arbitrability in a case in which arbitration was compelled? Does that reverse the order to compel, and the judicial findings upon which it rests? <o:p></o:p></i></span></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: #0b5394; font-family: inherit; font-size: large;"><i><br /></i></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="color: #0b5394; font-family: inherit; font-size: large;"><i>All these concerns could be addressed,
and the logical inconsistencies could be eliminated -- at least in case where the controversy originates in court -- had the Supreme Court held
that timelines under the arbitration deadline is a gateway matter,
specifically, a matter of whether the arbitration agreement is ‘presently’
enforceable. This is the same question that is implicated in the court’s role
of determining whether the party seeking arbitration has waived the right to do
so by its litigation conduct, thereby rendering the arbitration agreement <u>not</u> or <u>no longer</u> "presently enforceable". <o:p></o:p></i></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="font-family: inherit; font-size: large;"><span style="color: #0b5394;"><i><br /></i></span>
<span style="color: #0b5394;"><i>The Thirteenth Court of Appeals' resolution of this issue is logically and jurisprudentially much more persuasive, and would also serve the goal of efficiency by avoiding litigation of time-bar issues in two different fora: court and arbitral forum, not to mention trips to appellate courts. The court below should have been affirmed.</i></span></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<i style="font-size: x-large;"><span style="color: #0b5394;"><span style="font-family: inherit;"> </span> </span></i><span style="font-size: large;"> </span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;">
<span style="font-size: large;"> </span></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<b><span style="color: #cc0000; font-family: Arial, Helvetica, sans-serif; font-size: large;">G.T. LEACH
BUILDERS, LLC, ET AL., Petitioners,<o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<b><span style="color: #cc0000; font-family: Arial, Helvetica, sans-serif; font-size: large;">v.<o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<b><span style="color: #cc0000; font-family: Arial, Helvetica, sans-serif; font-size: large;">SAPPHIRE
V.P., LP, Respondent.</span></b><span style="font-size: 12pt;"><o:p></o:p></span></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<br /></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<span style="font-size: 12.0pt;">No.
13-0497.<o:p></o:p></span></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<span style="font-size: 12.0pt;">Supreme
Court of Texas.<o:p></o:p></span></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<br /></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<span style="font-size: 12.0pt;">Argued
November 5, 2014.<o:p></o:p></span></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<span style="font-size: 12.0pt;">Opinion
delivered: March 20, 2015. <o:p></o:p></span><br />
<span style="font-size: 12.0pt;"><br /></span></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<span style="font-size: 12.0pt;">JUSTICE
JEFFREY S. BOYD, delivered the opinion of the Court.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Texas law encourages parties to resolve
disputes through arbitration,[1] but it will not force them to arbitrate unless
they have agreed to that alternative.[2] If they have, or if they are equitably
estopped from denying their assent to such an agreement, courts must honor the
agreement by referring the disputes to arbitration unless the party demanding
arbitration has waived that right by substantially participating in the
litigation. We apply these principles in this case to determine whether a
property developer must arbitrate its claims against several defendants
involved in a construction project. The trial court denied all of the
defendants' motions to compel arbitration, and the court of appeals affirmed.
We hold that (1) the developer agreed to arbitrate its claims against the
general contractor and the general contractor did not waive its right to demand
arbitration; (2) the developer's argument that a contractual deadline bars the
general contractor's demand for arbitration is itself a claim that must be
arbitrated; (3) the developer did not agree in the general contract to
arbitrate its claims against the other defendants; (4) the developer is not
equitably estopped from denying any such agreement; and (5) the subcontracts do
not contain an enforceable arbitration agreement. In short, we hold that the
developer must arbitrate its claims against the general contractor but not its
claims against the other defendants.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>I.<o:p></o:p></b></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<b><br /></b></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>Background</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">In July 2008, Hurricane Dolly caused
extensive damage to a luxury condominium project that Sapphire V.P., L.P. was
in the process of developing on South Padre Island. Sapphire filed suit against
Adams Insurance Services, Inc., Arthur J. Gallagher Risk Management, and Tracy
Williams (collectively, the Insurance Brokers), asserting claims for negligence
and breach of contract. Sapphire alleged that, eight days before the hurricane
hit, the Insurance Brokers allowed a builder's risk insurance policy to expire and
be replaced by a permanent insurance policy even though construction of the
project was not yet complete. Sapphire sought to recover millions of dollars
for water damage, increased construction costs, delay costs, lost revenue, and
other losses that the builder's risk policy allegedly covered or should have
covered but the permanent policy did not.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br />
<br />
<a name='more'></a><br />
<br />
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">More than two-and-a-half years after the
hurricane struck, the Insurance Brokers designated several others as
responsible third parties: (1) the project's general contractor, G.T. Leach
Builders, L.L.C.; (2) two of G.T. Leach's subcontractors, Power Design, Inc.
and Atlas Comfort Systems USA, LLC[3] (collectively, the Subcontractors); and
(3) an engineering contractor, CHP & Associates Consulting Engineers, Inc.,
and its employee Mark Janneck (collectively, the Engineers).[4] Sapphire, in
turn, promptly amended its petition to name these parties as defendants,
alleging that their negligence and contractual breaches resulted in
construction defects that caused the condominium project to sustain the water
damage that resulted in the uncovered losses. Although Sapphire asserted these
claims within the four-year statute of limitations applicable to claims for
breach of contract, the two-year statute of limitations on negligence claims
had already expired. At that time, however, Texas law allowed a claimant to
assert claims against a party designated as a responsible third party even
though the statute of limitations barred the claim.[5]<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">After pursuing pretrial motions and
participating in discovery, G.T. Leach—the general contractor—moved to compel
arbitration and stay the litigation, relying on an arbitration agreement
contained in its general contract with Sapphire. The Insurance Brokers,
Subcontractors, and Engineers (collectively, the Other Defendants) subsequently
filed similar motions, also relying on the arbitration agreement in the general
contract, even though they never signed that contract. The Subcontractors
relied, in addition, on language in their subcontracts with G.T. Leach, even
though Sapphire never signed the subcontracts. The trial court denied all of
the motions without explaining its reasons. The defendants pursued an
interlocutory appeal, the court of appeals affirmed,[6] and we granted the defendants'
petitions for review.[7]<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>II.<o:p></o:p></b></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<b><br /></b></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>G.T. Leach</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">We first consider whether G.T. Leach can
compel arbitration. In the general contract, G.T. Leach and Sapphire agreed
that "[a]ny Claim arising out of or related to the Contract . . . shall .
. . be subject to agreed private arbitration" and "shall be decided
by binding arbitration."[8] Sapphire concedes that this is a valid
arbitration agreement and that it applies to Sapphire's claims against G.T.
Leach, but contends that G.T. Leach expressly and impliedly waived its right to
demand arbitration. Alternatively, Sapphire argues that G.T. Leach failed to
demand arbitration prior to a deadline that the contract expressly imposes. The
court of appeals agreed with Sapphire's second argument and did not reach its first.
We conclude that (1) G.T. Leach did not waive its arbitration rights, and (2)
the issue of whether the contractual deadline bars G.T. Leach's demand for
arbitration is one that the arbitrators—not the courts—must decide. Because the
waiver argument challenges G.T. Leach's ability to rely on the arbitration
agreement at all, we address it first.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>A. Waiver of Right to Arbitration</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Sapphire asserts that G.T. Leach has
waived its right to enforce their arbitration agreement. Waiver—the
"intentional relinquishment of a known right"—can occur either
expressly, through a clear repudiation of the right, or impliedly, through
conduct inconsistent with a claim to the right. Perry Homes, 258 S.W.3d at
590-91, 594; Moayedi v. Interstate 35/Chisam Rd., L.P., 438 S.W.3d 1, 6 (Tex.
2014). Sapphire argues that G.T. Leach both expressly and impliedly waived its
right to compel arbitration in this case. The trial court agreed and denied
G.T. Leach's motion to compel arbitration, but the court of appeals did not
reach the issue. Both parties have fully briefed the issue and urge us to
decide it here. When, as here, the relevant facts are undisputed, whether a
party waived its right to arbitrate is a question of law. Kennedy Hodges,
L.L.P. v. Gobellan, 433 S.W.3d 542, 545 (Tex. 2014) (per curiam); Perry Homes,
258 S.W.3d at 598 & n.102. At the parties' mutual request, we reach the
issue here to avoid unnecessary delay. See, e.g., Placencio v. Allied Indus.
Int'l, Inc., 724 S.W.2d 20, 22 (Tex. 1987) (reaching, rather than remanding,
issue of law not reached by court of appeals "[t]o avoid unnecessary
delay"). Based on the undisputed facts, we conclude that G.T. Leach has
not waived its right to arbitration.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>1. Express Waiver</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Sapphire first argues that G.T. Leach
expressly waived its arbitration rights by seeking a continuance and agreeing
to a new trial date. Specifically, Sapphire notes that G.T. Leach filed
(jointly with the other defendants) a motion for continuance stating that
"there is insufficient time for the parties to prepare this case with the
current trial setting" and discovery "cannot be completed prior to
the current trial setting." When the parties agreed to postpone the trial
setting, G.T. Leach then signed a Rule 11 agreement in which all parties agreed
to a scheduling order and a new trial date. We do not agree that the statements
contained in these documents expressly relinquish and repudiate a right to
arbitration. As we explained when addressing nearly identical statements in In
re Fleetwood Homes of Texas, L.P., "[n]othing in [these statements]
expressly waives arbitration or revokes [an] arbitration demand." 257
S.W.3d 692, 694 (Tex. 2008); see also In re Bank One, N.A., 216 S.W.3d 825, 827
(Tex. 2007) (per curiam) (holding that filing of motion to set aside default
judgment and set new trial date does not expressly waive arbitration rights).
Although the acts of requesting and then agreeing to a new trial date could be
inconsistent with an intent to exercise the right to arbitrate, they do not
constitute an express waiver of that right.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>2. Implied Waiver</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">A party asserting implied waiver as a
defense to arbitration has the burden to prove that (1) the other party has
"substantially invoked the judicial process," which is conduct
inconsistent with a claimed right to compel arbitration, and (2) the
inconsistent conduct has caused it to suffer detriment or prejudice. Perry
Homes, 258 S.W.3d at 593-94; see also Gobellan, 433 S.W.3d at 545. Because the
law favors and encourages arbitration, "this hurdle is a high one."
Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C., ___ S.W.3d ___, ___
(Tex. 2014) (per curiam) (quoting Perry Homes, 258 S.W.3d at 589-90). We
conclude that Sapphire has not cleared the hurdle in this case.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>a. Litigation Conduct</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Whether a party has substantially
invoked the judicial process depends on the totality of the circumstances.
Perry Homes, 258 S.W.3d at 589-90. Courts consider a "wide variety"
of factors, including:<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">• how long the party moving to compel
arbitration waited to do so;<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">• the reasons for the movant's delay;<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">• whether and when the movant knew of
the arbitration agreement during the period of delay;<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">• how much discovery the movant
conducted before moving to compel arbitration, and whether that discovery
related to the merits;<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">• whether the movant requested the court
to dispose of claims on the merits;<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">• whether the movant asserted
affirmative claims for relief in court;<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">• the extent of the movant's engagement
in pretrial matters related to the merits (as opposed to matters related to
arbitrability or jurisdiction);<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">• the amount of time and expense the
parties have committed to the litigation;<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">• whether the discovery conducted would
be unavailable or useful in arbitration;<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">• whether activity in court would be
duplicated in arbitration;<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">• when the case was to be tried.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Perry Homes, 258 S.W.3d at 590-91.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Sapphire first initiated this lawsuit
against the Insurance Brokers in 2009. In the summer of 2010, it filed a
separate lawsuit in Harris County, Texas, against the architects who designed
the condominium project, seeking to recover essentially the same damages
arising from Hurricane Dolly. Six months later, Sapphire added G.T. Leach to
the Harris County lawsuit, and four months after that, Sapphire named G.T.
Leach as a defendant in this lawsuit. G.T. Leach moved to compel arbitration
the following November. Sapphire asserts that G.T. Leach's actions in this case
between May 2011 and November 2012 amount to waiver of any right it has to
arbitrate Sapphire's claims. Sapphire contends that G.T. Leach waived its
arbitration rights through its actions between May 2011 and November 2012,
primarily by filing counterclaims, filing motions for relief, and participating
in pretrial discovery. "Merely taking part in litigation," however,
"is not enough." In re D. Wilson Constr. Co., 196 S.W.3d 774, 783
(Tex. 2006) (citations omitted). Rather, that conduct must demonstrate that the
party "has substantially invoked the judicial process to [its] opponent's
detriment." Id. (citing In re Vesta Ins. Grp., Inc., 192 S.W.3d 759, 762
(Tex. 2006) (per curiam)).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">In considering the relevant factors, we
note first that G.T. Leach did not elect to resolve its disputes with Sapphire
in court; rather, it is in this lawsuit because Sapphire sued it. See Perry
Homes, 258 S.W.3d at 591 (noting that one factor is whether party seeking
arbitration was plaintiff who chose to file suit or defendant responding to
suit filed against it). Although G.T. Leach asserted a counterclaim against
Sapphire in the Harris County suit, it did not assert counterclaims seeking
affirmative relief in this lawsuit. The counterclaim G.T. Leach filed in Harris
County was defensive in nature, and our rules required G.T. Leach to file it or
risk losing it altogether. See TEX. R. CIV. P. 97(a) (defining compulsory
counterclaims). We have held that "[m]erely filing suit does not waive
arbitration," Richmont Holdings, ___ S.W.3d at ___, and we have declined
to find waiver of the right to arbitrate when a movant filed cross-actions in
litigation, see D. Wilson Constr., 196 S.W.3d at 783. Moreover, G.T. Leach
never sought disposition of its Harris County counterclaim on the merits;
instead it merely took the action necessary to preserve that claim once
Sapphire initiated a lawsuit arising out of the same subject matter. Nor did
G.T. Leach ever seek summary judgment or dismissal of Sapphire's claims on the
merits. See Richmont Holdings, ___ S.W.3d at ___ (observing that whether movant
sought "disposition on the merits" is key factor in deciding waiver);
see also Perry Homes, 258 S.W.3d at 592 (observing that "whether the
movant sought judgment on the merits" is a factor).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Instead, G.T. Leach first and primarily
sought to transfer venue of this case to Harris County, or alternatively to
abate this case while the Harris County case was resolved. Rather than driving
up litigation costs—another factor courts consider for waiver—G.T. Leach
endeavored to create efficiency by defending Sapphire's claims in a single
venue. Perry Homes, 258 S.W.3d at 591. We have rejected arguments relying on
venue challenges to establish waiver because such challenges do not relate to
the merits of the case. See Richmont Holdings, ___ S.W.3d at ___ (also noting
that under rules of procedure, "objections to improper venue must be made
at the outset of the case"); In re Serv. Corp. Int'l, 85 S.W.3d 171, 175
(Tex. 2002) (holding that parties did not waive right to arbitrate by seeking
to move litigation from state to federal court); In re ADM Investor Servs.,
Inc., 304 S.W.3d 371, 374 (Tex. 2010) (applying Perry Homes test in context of
forum-selection clauses and holding that motion to transfer venue did not waive
contractual right).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">In addition to its venue challenge, G.T.
Leach filed motions to designate responsible third parties, for continuance,
and to quash depositions. These motions, however, were defensive, rather than
offensive, in nature. A party's litigation conduct aimed at defending itself
and minimizing its litigation expenses, rather than at taking advantage of the
judicial forum, does not amount to substantial invocation of the judicial
process. See Richmont Holdings, ___ S.W.3d at ___; see also Keytrade USA, Inc.
v. Ain Temouchent M/V, 404 F.3d 891, 897 (5th Cir. 2005) (declining to find
waiver where movant sought summary judgment "from a defensive
posture"); Rodriguez v. Transnave Inc., 8 F.3d 284, 288 (5th Cir. 1993)
(declining to find waiver where movant voluntarily appeared in suit and sought
removal because it was "purely defensive action to preserve its right of
removal and to avoid any possibility of a default judgment").<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Finally, G.T. Leach participated in
pretrial discovery, but it did so because Sapphire engaged it in discovery.
Sapphire complains that because the parties agreed to conduct discovery jointly
for both cases, all discovery propounded by any party was available to all
parties, such that G.T. Leach has received copies of documents produced by
other parties and transcripts of depositions taken by other parties. Sapphire
asserts that G.T. Leach acted inconsistently with its right to arbitrate both
when it responded to discovery requests and when it resisted discovery by
seeking to quash a deposition notice. Responding to discovery and simply being
named in the lawsuit while discovery is ongoing do not amount to waiver. To the
contrary, we have declined to find waiver even when the movant itself
propounded written discovery. See, e.g., Fleetwood Homes, 257 S.W.3d at 694; In
re Bruce Terminix, Co., 988 S.W.2d 702, 703-04 (Tex. 1998); EZ Pawn Corp. v.
Mancias, 934 S.W.2d 87, 88-89 (Tex. 1996). Nor does G.T. Leach's motion to
quash, in which it objected to the time and place of a deposition notice served
on it by Sapphire, amount to an affirmative invocation of the judicial forum.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">The only discovery that G.T. Leach
actually propounded was a form request for disclosure that G.T. Leach included
in its answer in the case. See TEX. R. CIV. P. 194.1 (providing required form
for requests for disclosure). Such requests seek basic information about a
lawsuit: who are the parties and witnesses, what are the theories, and how much
is at stake? A defendant needs this information to make intelligent decisions
about how to defend the suit, and as we have stated, a party may protect its
existing litigation rights from forfeiture without waiving its right to
arbitration. We have declined to find waiver of the right to arbitrate in other
cases where the movant made a request for disclosure. See Richmont Holdings,
___ S.W.3d at ___; Vesta Ins., 192 S.W.3d at 763.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">G.T. Leach also designated experts and
responsible third parties, but these actions were also defensive in nature and
necessary to preserve G.T. Leach's rights. If G.T. Leach had failed to timely
designate experts, it would have forfeited the right to present expert
witnesses if the suits went to trial. See TEX. R. CIV. P. 193.6(a). Likewise,
G.T. Leach had to designate responsible third parties by the deadline imposed
in the scheduling order. G.T. Leach did not create the need to timely designate
experts and responsible third parties by agreeing to a scheduling order: the
rules of civil procedure impose a default deadline for expert designations when
the court has not set one, and the Civil Practice and Remedies Code imposes a
deadline for designating responsible third parties. TEX. R. CIV. P. 195.2; TEX.
CIV. PRAC. & REM. CODE § 33.004(a).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">While we agree that G.T. Leach could
have been more prompt in seeking arbitration, most of the delay of which
Sapphire complains occurred either during the eighteen months before Sapphire
added G.T. Leach to this case or during the four-plus months during which G.T.
Leach sought to transfer venue. See TEX. R. CIV. P. 86 (governing order of
pleadings for motion to transfer venue). The delay between the trial court's
denial of the motion to transfer venue and G.T. Leach's motion to compel
arbitration was between two and three months. We conclude that three months is
not a substantial delay relative to the timeline of this case as a whole. Cf.
Fleetwood Homes, 257 S.W.3d at 694 (no waiver despite eight-month delay); Vesta
Ins., 192 S.W.3d at 763 (no waiver despite two-year delay).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Considering the totality of the
circumstances, we hold that G.T. Leach has not substantially invoked the
litigation process in contravention of its contractual right to arbitration.
See Perry Homes, 258 S.W.3d at 589-90 (adopting totality-of-the-circumstances
test). As in several cases involving similar or greater participation in
litigation than occurred here, we decline to find waiver under these
circumstances. See Richmont Holdings, ___ S.W.3d at ___ (holding that movant
did not waive arbitration rights by initiating lawsuit, invoking
forum-selection clause, moving to transfer venue, propounding request for
disclosure, and waiting nineteen months after being sued to move for
arbitration); Fleetwood Homes, 257 S.W.3d at 694 (holding that movant did not
waive arbitration rights by noticing deposition, serving written discovery, and
waiting eight months to move for arbitration); Bruce Terminix, 988 S.W.2d at
703-04 (holding that movant did not waive arbitration rights by propounding requests
for production and interrogatories and waiting six months to seek arbitration);
Mancias, 934 S.W.2d at 88-89 (holding that movant did not waive arbitration
rights by propounding written discovery, noticing deposition, agreeing to reset
trial date, and waiting nearly a year to move for arbitration).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>b. Prejudice</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Nor has Sapphire proven that it suffered
unfair prejudice as a result of G.T. Leach's litigation conduct. Detriment or
prejudice, in this context, refers to an "inherent unfairness caused by a
`party's attempt to have it both ways by switching between litigation and
arbitration to its own advantage.'" In re Citigroup Global Mkts., Inc.,
258 S.W.3d 623, 625 (Tex. 2008) (per curiam) (quoting Perry Homes, 258 S.W.3d
at 597). Prejudice may result when a party seeking arbitration first sought to
use the judicial process to gain access to information that would not have been
available in arbitration, but propounding discovery will not, in and of itself,
result in waiver of a right to compel arbitration. Bruce Terminix, 988 S.W.2d
at 704. Similarly, while delay may be a factor both in terms of whether the
movant has substantially invoked the judicial process and whether the nonmovant
has suffered prejudice, mere delay is not ordinarily enough, even if it is
substantial. Richmont Holdings, ___ S.W.3d at ___; see also Fleetwood Homes,
257 S.W.3d at 694 (eight-month delay); Vesta Ins., 192 S.W.3d at 763 (two-year
delay). "Waiver can be implied from a party's unequivocal conduct, but not
by inaction." ADM Investor, 304 S.W.3d at 374 (citing Perry Homes, 258
S.W.3d at 593).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">G.T. Leach may have had access to more
information as a result of this litigation than if Sapphire's dispute with G.T.
Leach had originated in arbitration. But Sapphire, not G.T. Leach, chose to
initiate this suit in the courts rather than arbitration, and G.T. Leach did
not serve a single request for production, interrogatory, or deposition notice
in the case. Sapphire's contention (discussed below) that it has been
prejudiced by the delay because the contractual deadline for initiating
arbitration expired before G.T. Leach moved to compel arbitration is unavailing
because that deadline expired before Sapphire even named G.T. Leach a party to
this suit.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">In summary, although we agree that G.T.
Leach could have demanded waiver more promptly than it did, we hold that the
totality of the circumstances do not establish that G.T. Leach substantially
invoked the judicial process to the extent required to demonstrate a waiver of
its right to arbitration, and its participation in the litigation has not
caused Sapphire the kind of prejudice necessary to clear the "high
hurdle" of waiver. We thus conclude that G.T. Leach has not impliedly
waived its right to demand arbitration in this case.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>B. Contractual Deadline</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">We now turn to Sapphire's contention
that a contractual deadline bars G.T. Leach's arbitration demand. The deadline
at issue provides that any<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">demand for arbitration shall be made
within . . . a reasonable time after the Claim has arisen, and in no event
shall it be made after the date when institution of legal or equitable
proceedings based on such Claim would be barred by the applicable statute of
limitations as determined pursuant to Section 13.7.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><br /></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">The court of appeals agreed with
Sapphire that this deadline bars G.T. Leach's demand for arbitration because
the statute of limitations had run on Sapphire's claims by the time G.T. Leach
made its demand.[9] G.T. Leach argues that the court should not have addressed
the contractual deadline at all, because Sapphire's contention that the
deadline bars G.T. Leach's arbitration demand is itself an issue that Sapphire
agreed to resolve through arbitration. In other words, G.T. Leach argues that
only the arbitrators—and not the courts—can decide whether the contractual
deadline bars G.T. Leach's demand for arbitration. In response, Sapphire
asserts that G.T. Leach waived this argument by failing to raise it in the
trial court or the court of appeals. We conclude that G.T. Leach did not waive
the argument, and we agree that the courts must defer to the arbitrators to
determine the meaning and effect of the contractual deadline.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>1. Waiver</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Sapphire contends that G.T. Leach waived
its argument that only the arbitrators can decide Sapphire's contractual-deadline
defense because G.T. Leach failed to raise the argument in the trial court or
in the court of appeals. In support, Sapphire relies on our well-established
error-preservation rules, which preclude a party from seeking appellate review
of an issue that the party did not properly raise in the trial court. See TEX.
R. APP. P. 33.1(a)(1) ("As a prerequisite to presenting a complaint for
appellate review, the record must show that . . . the complaint was made to the
trial court. . . ."); see also In re B.L.D., 113 S.W.3d 340, 350 (Tex.
2003) (listing cases for proposition that "error [must be] preserved in
the trial court").[10] These rules do not apply here, however, because
Sapphire first raised its contractual-deadline defense in the court of appeals,
not in the trial court. Under our rules, an issue presented in a petition for
review to this Court must have "been preserved for appellate review in the
trial court and assigned as error in the court of appeals," but only
"[i]f the matter complained of originated in the trial court." TEX.
R. APP. P. 53.2(f).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">In the trial court, Sapphire argued only
that G.T. Leach waived its right to arbitration by participating in the
litigation. The only time Sapphire referred to the contractual deadline in the
trial court was to support its waiver-by-litigation defense and, in particular,
its contention that G.T. Leach's participation in the litigation was
prejudicial to Sapphire.[11] Sapphire never asserted in the trial court that
the contractual deadline independently bars G.T. Leach's arbitration demand.
G.T. Leach thus had no reason to argue in the trial court that the arbitrators,
rather than the court, must resolve that assertion. On this point, there was no
error for G.T. Leach to preserve in the trial court.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Sapphire first relied on the contractual
deadline as an independent bar to G.T. Leach's arbitration demand in its
appellee's brief in the court of appeals, and the error that G.T. Leach now
complains of (i.e., that the court of appeals should not have decided that
issue) first arose from the court of appeals' judgment. Although G.T. Leach
could have made this argument in its reply brief or in a motion for rehearing
in the court of appeals,[12] our rules do not require petitioners to have made
in the court of appeals all arguments that are responsive to arguments that a
respondent raised for the first time in that court. See Key Operating &
Equip., Inc. v. Hegar, 435 S.W.3d 794, 797 (Tex. 2014) ("An issue raised
in this Court must have been assigned as error in the court of appeals if it
originated in the trial court.") (emphasis added). Instead, we have held
that when the petitioner's argument or complaint first arises "from the
court of appeals' judgment," it "may be raised either in a motion for
rehearing in the court of appeals or in a petition for review in this
Court." Bunton v. Bentley, 153 S.W.3d 50, 53 (Tex. 2004) (holding that
petitioner's "complaint that the exemplary damages were unconstitutionally
excessive arose from the court of appeals' judgment and may therefore be raised
in this Court for the first time") (citing Larsen v. FDIC/Manager Fund,
835 S.W.2d 66, 74 n.12 (Tex. 1992)).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Our decision in Gilbert Texas
Construction, L.P. v. Underwriters at Lloyd's London illustrates this point.
327 S.W.3d 118, 125 (Tex. 2010). In that case, Gilbert sued Underwriters for
breach of contract after Underwriters denied coverage of Gilbert's insurance
claim. On cross-motions for summary judgment, the trial court agreed with
Gilbert, and having won on the issue of coverage, Gilbert had no obligation to
preserve any error in the trial court's judgment. Id. Underwriters appealed,
however, and argued in the court of appeals that an exclusion to the policy's
coverage applied. In that court, Gilbert did not dispute that the exclusion
applied, but instead argued that an exception to the exclusion also applied,
thus resulting in coverage. The court of appeals reversed and rendered judgment
for Underwriters, finding that the exclusion applied and the exception did not.
Id. In its petition for review in this Court, Gilbert argued both that the
exclusion did not apply and, if it did, the exception to the exclusion applied
as well. Pet. for Review at ix, Gilbert Tex. Constr., 327 S.W.3d 118 (No.
08-0246), 2008 WL 2195918, at *6, *12. Underwriters then asserted that Gilbert
had waived its argument that the exclusion did not apply by failing to raise it
in the court of appeals, but we disagreed. Gilbert Tex. Constr., 327 S.W.3d at
125. "While ordinarily a party waives a complaint not raised in the court
of appeals," we explained, "a complaint arising from the court of
appeals' judgment may be raised either in a motion for rehearing in that court
or in a petition for review in this Court." Id. (citing TEX. R. APP. P.
53.2(f); Bunton, 153 S.W.3d at 53).[13]<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Here, when Sapphire argued for the first
time in the court of appeals that the contractual deadline is an independent
bar to G.T. Leach's arbitration demand, G.T. Leach neither conceded nor
disputed that the court of appeals could decide that issue, and instead argued
only that the bar did not apply. </span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><br /></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">After the court of appeals held, for the first
time in this case, that the bar applied and precluded arbitration regardless of
whether G.T. Leach waived any right to arbitration, G.T. Leach asserted in its
petition for review in this Court both that the court could not decide that
issue and, if it could, the bar does not apply. Because the error of which G.T.
Leach complains did not originate in the trial court and first arose from the
court of appeals' judgment, G.T. Leach did not waive its complaint by raising
it for the first time in its petition for review in this Court.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">That is not to say that we must address
and resolve an argument that the petitioner failed to raise in the court of
appeals whenever the asserted error arose from that court's judgment. In the
exercise of its discretionary jurisdiction, a court may elect to address the
issue, or not. See, e.g., United States v. Williams, 504 U.S. 36, 41, 44-45
(1992) (finding it "a permissible exercise of our discretion" to
address an issue that was not "pressed or passed upon" in the
appellate court in the case presently before the Court). The decision involves
"[i]mportant prudential considerations," such as the need to conserve
judicial resources, whether allowing lower courts to first consider and rule on
the issue will "further the goal of accuracy in judicial
decision-making," and our duty to "promote fairness among
litigants." In re B.L.D., 113 S.W.3d at 350. We conclude that G.T. Leach
did not waive its right to argue that the arbitrators, rather than the courts,
must decide the effect of the contractual-deadline issues, and we elect to
exercise our discretionary jurisdiction to resolve that argument now.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>2. Arbitrability of the Deadline</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">We now turn to the question of who
should decide whether the contractual deadline bars G.T. Leach's demand for
arbitration in this case. Ultimately, this is a question of the parties' intent
as expressed in their written agreement. When parties have contractually agreed
to arbitrate their future disputes, the courts' obligation to honor and enforce
that agreement requires that they refer those disputes to arbitration. The
Texas Arbitration Act (TAA)[14] thus provides that courts "shall order the
parties to arbitrate on application of a party showing: (1) an agreement to
arbitrate; and (2) the opposing party's refusal to arbitrate." TEX. CIV.
PRAC. & REM. CODE § 171.021(a) (emphasis added); In re FirstMerit Bank,
N.A., 52 S.W.3d 749, 753-54 (Tex. 2001) ("Once the trial court concludes
that the arbitration agreement encompasses the claims, and that the party
opposing arbitration has failed to prove its defenses, the trial court has no
discretion but to compel arbitration and stay its own proceedings.")<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">The courts' role, then, is first to
decide whether the parties made a valid and presently enforceable agreement to
arbitrate. TEX. CIV. PRAC. & REM. CODE § 171.021(b) ("If a party
opposing an application [for arbitration] denies the existence of the
agreement, the court shall summarily determine that issue."). If they did,
then the court must decide whether the present disputes fall within the scope
of that agreement. See id.; In re Hous. Pipe Line Co., 311 S.W.3d 449, 451
(Tex. 2009); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003).
These questions that courts must resolve are sometimes referred to as questions
of "arbitrability." See, e.g., Hous. Pipe Line, 311 S.W.3d at 451-52;
Perry Homes, 258 S.W.3d at 587-92.[15] If, by answering these questions, the
court determines that the present disputes are in fact arbitrable under the
parties' agreement, the court must complete its role by ordering the parties to
arbitration and leaving it to the arbitrators to resolve those disputes. See
TEX. CIV. PRAC. & REM. CODE § 171.021; Venture Cotton Co-op. v. Freeman,
435 S.W.3d 222, 232 (Tex. 2014).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">We have also recognized that the
question of whether a party has waived its right to arbitration through its
litigation conduct is a question of arbitrability for the courts to decide.
Perry Homes, 258 S.W.3d at 588. We concluded that this is a question of
arbitrability, rather than a question to be arbitrated, because (1)
"[c]ontracting parties would expect the court to decide whether one
party's conduct before the court waived the right to arbitrate," (2) it is
a "gateway" matter regarding "whether the parties have submitted
a particular dispute to arbitration," and (3) "courts decide defenses
relating solely to the arbitration clause." Id. at 588-89. In essence, the
question of whether a party has waived its right to arbitration by its conduct
in litigation is just another way of asking the first question of
arbitrability: whether there is a presently enforceable arbitration agreement.
If a party's conduct in litigation equates to a waiver of its rights under the
arbitration agreement, there is no presently enforceable agreement to
arbitrate.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">In this regard, the United States
Supreme Court has recognized a distinction between questions of
"substantive arbitrability"—which courts decide—and "procedural
arbitrability"— which courts must refer to the arbitrators to decide. See
BG Group, PLC v. Republic of Arg., 134 S. Ct. 1198, 1206-07 (2014); Howsam v.
Dean Witter Reynolds, Inc., 537 U.S. 79, 81 (2002). In Howsam, a brokerage firm
argued that its client could not initiate an arbitration because the client
failed to do so within a six-year deadline that the parties had contractually
adopted as part of their arbitration agreement. 537 U.S. at 81. The Court held
that this was not a question of arbitrability for the courts to decide. Id. at
83. Although the Court acknowledged that, "[l]inguistically speaking, one
might call any potentially dispositive gateway question a `question of
arbitrability,'" it explained that "the phrase `question of
arbitrability' has a far more limited scope" and does not encompass
"`procedural' questions which grow out of the dispute and bear on its
final disposition" or "allegation[s] of waiver, delay, or a like
defense." Id. at 84 (citation omitted). Quoting the Revised Uniform
Arbitration Act of 2000, the Court explained that, "in the absence of an
agreement to the contrary, issues of substantive arbitrability . . . are for a
court to decide and issues of procedural arbitrability, i.e., whether prerequisites
such as time limits, notice, laches, estoppel, and other conditions precedent
to an obligation to arbitrate have been met, are for the arbitrators to
decide." Id. at 81 (emphasis and citation omitted, ellipsis in Howsam).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">The Supreme Court reiterated this distinction
in BG Group, further clarifying the difference between substantive
arbitrability questions addressing the existence, enforceability, and scope of
an agreement to arbitrate (which courts decide), and procedural arbitrability
questions addressing the construction and application of limits on that
agreement (which only arbitrators can decide):<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">On the one hand, courts presume that the
parties intend courts, not arbitrators, to decide what we have called disputes
about "arbitrability." These include questions such as "whether
the parties are bound by a given arbitration clause," or "whether an
arbitration clause in a concededly binding contract applies to a particular
type of controversy."<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><br /></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">On the other hand, courts presume that
the parties intend arbitrators, not courts, to decide disputes about the
meaning and application of particular procedural preconditions for the use of
arbitration. These procedural matters include claims of "waiver, delay, or
a like defense to arbitrability." And they include the satisfaction of
"prerequisites such as time limits, notice, laches, estoppel, and other
conditions precedent to an obligation to arbitrate."<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">134 S. Ct. at 1206-07 (citations
omitted).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">We applied these distinctions when we
decided in Perry Homes that waiver by litigation conduct presents a question of
substantive arbitrability that courts must decide. 258 S.W.3d at 588-89. We
held that, although Howsam referenced "waiver" and "delay"
as "procedural matters" for arbitrators to decide, it did not mean
that the issue of waiver by litigation conduct was one for arbitrators, rather
than courts. Id. Instead, we held that courts should defer to arbitrators to
resolve the issue of waiver when "waiver concerns limitations periods or
waiver of particular claims or defenses," but courts should decide issues
of waiver by litigation conduct. Id. at 588. We stated that "parties
generally intend arbitrators to decide matters that `grow out of the dispute
and bear on its final disposition,'" such as "waiver of a substantive
claim or delay beyond a limitations deadline." Id. at 589. Our explanation
in Perry Homes is consistent with our prior recognition that, once the party
seeking arbitration proves the existence of an enforceable agreement to
arbitrate, Texas and federal law recognize a strong presumption "in favor
of arbitration such that myriad doubts—as to waiver, scope, and other issues
not relating to enforceability—must be resolved in favor of arbitration."
Poly-Am., 262 S.W.3d at 348.[16]<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">In this case, the contractual deadline
in the general contract falls squarely within the category of "matters
that `grow out of the dispute and bear on [the arbitrators'] final
disposition" of the claims. See Perry Homes, 258 S.W.3d at 588. The
deadline does not determine the present existence, enforceability, or scope of
the agreement to arbitrate the parties' disputes, but instead imposes a
procedural limit on the parties' rights under that agreement. It bears on the
arbitrators' final disposition of Sapphire's claims—specifically, whether the
arbitrators can award Sapphire a remedy on its negligence claims in light of
Sapphire's more than two-year delay in asserting them. More pointedly, it
involves an alleged "delay beyond a limitations deadline." Perry
Homes, 258 S.W.3d at 589; see also id. at 588 (noting that "federal courts
. . . consistently [defer to arbitrators] when waiver concerns limitations
periods"). We explained in Perry Homes that, absent express contractual
agreement to the contrary, issues of this nature must be resolved by
arbitrators rather than courts. See id. at 588-89; see also BG Grp., 134 S. Ct.
at 1207 (observing that "satisfaction of `prerequisites such as time
limits'" are questions of procedural arbitrability for the arbitrator to
decide).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Stated another way, the parties' dispute
over the meaning and effect of the contractual deadline does not touch upon the
issue of whether an enforceable agreement to arbitrate Sapphire's claims
exists. Neither party disputes that such an agreement does exist. Instead, they
dispute whether, in light of the contractual deadline, the existing,
enforceable agreement limits G.T. Leach's rights under the agreement itself.
Sapphire's contention that it does and G.T. Leach's contention that it does not
are themselves "Claim[s] arising out of or related to the Contract,"
which the parties expressly agreed to arbitrate.[17] See In re Wood, 140 S.W.3d
367, 369 (Tex. 2004) (holding that dispute over whether contract prohibited
class arbitration was a contract construction issue, which was a "dispute
arising out of" the contract that the parties had committed to the
arbitrator) (citing Green Tree Fin. Co. v. Bazzle, 539 U.S. 444 (2003), for the
proposition that whether contract prohibited class arbitration was a
"dispute about what the arbitration contract [meant,]" which was
"a dispute `relating to this contract'" that the parties had agreed
"an arbitrator, not a judge, would answer").<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">We do not hold that disputes over a
contractual deadline in an arbitration agreement will always present questions
of procedural arbitrability that arbitrators must decide. If a party contends,
for example, that a contractual deadline renders the agreement to arbitrate
unconscionable or that the deadline operates to limit the scope of the claims
the parties agreed to arbitrate, those contentions might raise issues of
substantive arbitrability for the courts to decide. Cf. Quilloin v. Tenet
HealthSystem Phila., Inc., 673 F.3d 221, 234 (3d Cir. 2012) (considering
argument that time limit in arbitration agreement was substantively
unconscionable); but see Kristian v. Comcast Corp., 446 F.3d 25, 43-44 (1st
Cir. 2006) (holding that arbitrator should decide whether contract's one-year
limitations provision conflicted with Clayton Act's four-year statute of limitations
for antitrust claims). But Sapphire asserts no such contentions in this case.
Instead, it concedes the existence of an enforceable arbitration agreement that
applies to its claims against G.T. Leach, and argues only that the terms of
that agreement limit G.T. Leach's rights under the agreement itself. Consistent
with the decisions of numerous federal courts,[18] we conclude that Sapphire's
argument presents questions of procedural arbitrability that only the
arbitrators can decide, and the court of appeals thus erred by deciding the
issue.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="color: #cc0000; font-size: large;">In summary, with respect to Sapphire's
claims against G.T. Leach, we hold that G.T. Leach did not expressly or
impliedly waive its right to arbitration, and the courts must defer to the
arbitrators to decide whether and how the contractual deadline affects that
right. We therefore reverse the court of appeals' judgment with respect to the
trial court's denial of G.T. Leach's motion to compel arbitration.</span><span style="font-size: 12pt;"><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<b><br /></b></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>III.<o:p></o:p></b></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<b><br /></b></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>The Other Defendants</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">We now turn to the arbitrability of
Sapphire's claims against the Other Defendants, which include (1) the Insurance
Brokers and Engineers, who each allegedly contracted directly with Sapphire in
agreements that undisputedly did not include an enforceable arbitration
agreement, and (2) the Subcontractors, who contracted directly with G.T. Leach
in agreements that allegedly did include enforceable arbitration agreements.
The Other Defendants contend that Sapphire agreed to arbitrate its claims
against them in the general contract and the subcontracts, and alternatively,
that Sapphire is equitably estopped from denying its assent to the arbitration
agreements in those contracts. Although the Other Defendants did not sign the
general contract and Sapphire did not sign the subcontracts, we have recognized
that "sometimes a person who is not a party to the agreement can compel
arbitration with one who is, and vice versa." Meyer v. WMCO-GP, LLC, 211
S.W.3d 302, 305 (Tex. 2006). More specifically, "nonparties may be bound
to an arbitration clause when the rules of law or equity would bind them to the
contract generally." In re Weekley Homes, L.P., 180 S.W.3d 127, 129 (Tex.
2005). We conclude here, however, that neither law nor equity requires Sapphire
to arbitrate these claims.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>A. Arbitration Under the General
Contract</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">We begin with the Other Defendants'
reliance on the general contract as support for their arbitration demands. We
conclude that Sapphire did not agree in the general contract to arbitrate its
claims against the Other Defendants and is not equitably estopped from refusing
to do so.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>1. No Agreement to Arbitrate</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">As we have explained, a party seeking to
compel arbitration must establish that a valid arbitration agreement exists and
that the claims at issue fall within the scope of that agreement. TEX. CIV.
PRAC. & REM. CODE § 171.021(a); FirstMerit Bank, 52 S.W.3d at 753. Sapphire
concedes that the general contract contains a valid arbitration agreement, but
contends that the Other Defendants cannot enforce that agreement because they
are not signatories or parties to the general contract. See In re Rubiola, 334
S.W.3d 220, 224 (Tex. 2011) (holding that, generally, "parties must sign
arbitration agreements before being bound by them"). We have recognized,
however, that in some circumstances a non-signatory can be bound to, or permitted
to enforce, an arbitration agreement. See, e.g., In re Kellogg Brown &
Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005) (listing "(1) incorporation by
reference; (2) assumption; (3) agency; (4) alter ego; (5) equitable estoppel,
and (6) third-party beneficiary").<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">With regard to the Other Defendants and
the general contract, the question in this case, as in Rubiola, "is not
whether a non-signatory may be compelled to arbitrate but rather whether a
non-signatory may compel arbitration." 334 S.W.3d at 224. As a general
rule, "an arbitration clause cannot be invoked by a non-party to the
arbitration contract." Grigson v. Creative Artists Agency, L.L.C., 210
F.3d 524, 532 (5th Cir. 2000). "[The] policy favoring arbitration is
strong, but it alone cannot authorize a non-party to invoke arbitration."
Id. Thus, the Other Defendants must establish that they have a valid legal
right to enforce the general contract's arbitration agreement even though they
are not parties to that contract. The Other Defendants contend that Sapphire
agreed in the general contract that the Other Defendants could enforce its
arbitration provisions. See Rubiola, 334 S.W.3d at 222 (holding that
"parties to an arbitration agreement may grant non-signatories the right
to compel arbitration").[19]<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">This contention raises questions about
"the existence of a valid arbitration clause between specific parties and
is therefore a gateway matter for the court to decide." Id. at 224.
Ultimately, the question requires us to determine "the intent of the parties,
as expressed in the terms of the agreement," so we apply "ordinary
principles of state contract law [to] determine whether there is a valid
agreement to arbitrate." Id. (quoting Bridas S.A.P.I.C. v. Gov't of
Turkm., 345 F.3d 347, 355, 358 (5th Cir.2003)); see also Kellogg Brown &
Root, 166 S.W.3d at 738 (holding that, "[u]nder the FAA, ordinary
principles of state contract law determine whether there is a valid agreement
to arbitrate"). The Other Defendants argue that several provisions of the
contract demonstrate Sapphire's intent to allow them to require arbitration,
but we find none of them persuasive.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">a. The "Scope" of Arbitration<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">First, the Other Defendants contend that
Sapphire's claims against them fall within the scope of the general contract's
arbitration agreement because the scope includes "[a]ny Claim arising out
of or related to the Contract," and Sapphire expressly agreed that the
arbitration could include parties other than G.T. Leach. Specifically, the
Other Defendants rely on a provision of the general contract in which Sapphire
and G.T. Leach agreed that "[a]ny arbitration may include, by
consolidation or joinder or any other manner, parties other than the Owner,
Contractor, a Subcontractor, a separate contractor . . . and other persons
substantially involved in a common question of fact or law whose presence is
required if complete relief is to be accorded in arbitration."<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">The Other Defendants argue that, through
this "joinder provision," Sapphire agreed that the scope of the arbitration
would include Sapphire's claims against the Other Defendants because those
claims "arise out of or relate to" the general contract, those claims
and Sapphire's claims against G.T. Leach involve common questions of law or
fact, and the Other Defendants' presence is "required" for complete
relief to be accorded in the arbitration. We conclude that the Other
Defendants' reliance on the scope of the agreement between Sapphire and G.T.
Leach to establish the existence and enforceability of an agreement between
Sapphire and the Other Defendants is misplaced. As we have explained, a party
seeking to compel arbitration must establish both (1) the existence of a valid
enforceable agreement to arbitrate and (2) that the claims at issue fall within
the scope of that agreement. TEX. CIV. PRAC. & REM. CODE § 171.021(a);
FirstMerit Bank, 52 S.W.3d at 753. The Other Defendants' argument that Sapphire
agreed that they, as non-signatories, could enforce the arbitration agreement
addresses the first issue, not the second. Although Sapphire's claims may fall
within the scope of the agreement, the scope of the arbitration clause
"does not answer whether [Sapphire] must arbitrate" with the Other
Defendants. Kellogg Brown & Root, 166 S.W.3d at 739-40.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<b><br /></b></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>b. The Joinder Provisions<o:p></o:p></b></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">The Other Defendants contend that the
joinder provision itself constitutes Sapphire's agreement that they could
enforce the general contract's arbitration agreement. Specifically, they
contend that, through the joinder provision, Sapphire agreed to allow
non-parties to "require" arbitration if their presence is
"required" for complete relief to be afforded in the arbitration. The
Subcontractors, in particular, note that Sapphire and G.T. Leach specifically
revised the AIA form to add a reference to "a Subcontractor" as a
party whose presence would be expected in the arbitration. Because Sapphire
seeks to recover the same damages from each of the defendants and to hold all
of the defendants jointly and severally liable for those damages, they assert,
the arbitration can only provide "complete relief" if all of them are
parties to it. We do not agree.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">To begin with, the joinder provision
states that an arbitration "may include" other parties, and we find
no basis on which to conclude that the parties intended the word
"may" to be mandatory rather than permissive in this context. Cf.
Iliff v. Iliff, 339 S.W.3d 74, 81 (Tex. 2011) (stating that the word
"may" is "permissive" and "imports the exercise of
discretion"); Dall. Cnty. Cmty. Coll. Dist. v. Bolton, 185 S.W.3d 868, 874
(Tex. 2005) ("The words `may' and `shall' mean different things, and . . .
[t]he context in this case does not require an interpretation of the permissive
word `may' to mean something other than its plain meaning."); Wichita
Cnty., Tex. v. Hart, 917 S.W.2d 779, 782 (Tex. 1996) ("The Legislature's
use of the permissive term `may' in the Whistleblower Act's venue provision, in
light of its contemporaneous reorganization of the venue statute, strongly
suggests that the Act's venue provision is permissive."). The original AIA
form provided that "[n]o arbitration shall include, . . . parties other
than the Owner, Contractor, a separate Contractor, . . . and other persons
substantially involved in a common question of fact or law whose presence is
required if complete relief is to be accorded in arbitration." In its
original form, the provision thus prohibited joinder of any but the listed
parties (at least, absent written consent of all the parties), but it did not
require joinder of the listed parties. Sapphire and G.T. Leach revised this
provision to state that "Any [instead of "No"] arbitration may
[instead of "shall"] include parties other than" the listed
parties, and added "Subcontractors" to the list. The effect of their
revisions was to remove the prohibition against including parties "other
than" those listed. Because they changed "shall" to
"may," they did not require the joinder of unlisted parties, but
neither did they require the joinder of the listed parties. In fact, they
retained a sentence from the original form providing that a party's
"[c]onsent to arbitration involving an additional person or entity . . .
shall not constitute consent to arbitration of a claim not described therein or
with a person or entity not named or described therein."<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">The provision thus permits the parties
to the general contract to consent to the joinder of additional parties in the
arbitration, but it does not require them to do so. Ultimately, the Other
Defendants concede as much by repeatedly acknowledging throughout their briefs
that the joinder provision "allows inclusion or joinder," "allow[s]
them to be joined" so that they "could participate" in the
arbitration, and "permits all parties to arbitrate" together.
Nevertheless, they contend that, because this clause is ambiguous as to whether
it is mandatory or permissive, we must construe it as mandatory in support of
the law's presumption in favor of arbitration. This presumption, however,
requires that doubt "as to waiver, scope, and other issues not relating to
enforceability—must be resolved in favor of arbitration." Poly-Am., 262
S.W.3d at 348 (emphasis added). And, in any event, we do not find the language
here to be ambiguous. The fact that the provision refers to other parties as
those whose presence "is required" to accord complete relief does not
make their joinder "required"; rather, it allows for their joinder,
but only if their joinder is "required" to provide complete relief.
We conclude that the joinder provision does not give the Other Defendants, who
are not parties to the general contract, a legal right to require Sapphire to
arbitrate with them.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">The Other Defendants contend that, at a
minimum, the joinder provision gives G.T. Leach a contractual right to join
others whose presence is "necessary to completely resolve the
dispute," even if it does not give those other parties the right to join
themselves. In light of the provision's permissive language and references to
the necessity of each party's "consent," as we have just discussed,
we disagree. Moreover, even if the contract gave G.T. Leach such a right, G.T.
Leach has not requested that relief in this Court. G.T. Leach asks this Court
to "order the claims brought by Sapphire against [G.T. Leach] to
arbitration," without reference to the claims brought by Sapphire against
the Other Defendants.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>c. The Definition of
"Contractor"</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">The Engineers and Insurance Brokers
point out that the general contract states that it is an agreement between
"the Owner" and "the Contractor," and that Sapphire and
G.T. Leach each signed the agreement in those respective capacities. They note,
however, that the contract provides that the term "Contractor"
includes any contractor who executes a separate agreement with the owner. Since
Sapphire is suing them for breach of separate agreements directly between each
of them and Sapphire, they contend that they are each a "Contractor"
under the general contract and thus entitled to enforce its arbitration
agreement. The contract, however, expressly provides that the "Contract
Documents shall not be construed to create a contractual relationship of any
kind . . . between [Sapphire] and a Subcontractor . . . or [] between any
persons or entities other than [Sapphire] and [G.T. Leach]."[20]<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">In summary, we find no language in the
general contract that gives the Other Defendants rights to enforce the general
contract's arbitration clause against Sapphire. We thus conclude that Sapphire
did not agree in the general contract to arbitrate its claims against the Other
Defendants.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>2. No Equitable Estoppel</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">As an alternative to the argument that
Sapphire expressly agreed that they can enforce the general contract's
arbitration provisions, the Other Defendants argue that Sapphire is equitably
estopped from denying its assent to such an agreement. We do not agree.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">We have recognized that, under
principles of equitable estoppel, "a litigant who sues based on a contract
subjects him or herself to the contract's terms . . ., including the
Arbitration Addendum." FirstMerit Bank, 52 S.W.3d at 755-56; see Meyer,
211 S.W.3d at 305 (listing cases so holding). This is because the claimant
cannot "have it both ways"; it cannot, "on the one hand, seek to
hold the non-signatory liable pursuant to duties imposed by the agreement,
which contains an arbitration provision, but, on the other hand, deny
arbitration's applicability because the defendant is a non-signatory."
Meyer, 211 S.W.3d at 306. This equitable principle applies when a claimant
seeks "direct benefits" under the contract that contains the
arbitration agreement. Kellogg Brown & Root, 166 S.W.3d at 739. "Whether
a claim seeks a direct benefit from a contract containing an arbitration clause
turns on the substance of the claim, not artful pleading." Weekley Homes,
180 S.W.3d at 131-32.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">It is not enough, however, that the
party's claim "relates to" the contract that contains the arbitration
agreement. Kellogg Brown & Root, 166 S.W.3d at 741. Instead, the party must
seek "to derive a direct benefit"—that is, a benefit that "stems
directly"—from that contract. Id.; In re Morgan Stanley & Co., 293
S.W.3d 182, 184 (Tex. 2009). The claim must "depend on the existence"
of the contract, Meyer, 211 S.W.3d at 307, and be unable to "stand
independently" without the contract, Kellogg Brown & Root, 166 S.W.3d
at 739-40. The alleged liability must "arise[] solely from the contract or
must be determined by reference to it." Weekley Homes, 180 S.W.3d at 132.
But "when the substance of the claim arises from general obligations
imposed by state law, including statutes, torts and other common law duties, or
federal law," rather than from the contract, "direct benefits"
estoppel does not apply, even if the claim refers to or relates to the
contract.[21] Morgan Stanley, 293 S.W.3d at 184 n.2; see also Kellogg Brown
& Root, 166 S.W.3d at 740-41 (holding that subcontractor's quantum meruit
claim against contractor did not justify direct benefits estoppel to compel
arbitration under contract between contractor and owner).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">The Other Contractors contend that
Sapphire's claims against them seek a "direct benefit" under the
general contract, even though they are not parties to that contract, because
the claims "arise from and must be determined by reference to" the
general contract. More specifically, they assert that the work that they
performed was necessary only because of the general contract, and without the
general contract they would have had no duties of their own to perform.
Sapphire's claims thus "relate to and arise out of" the general
contract, they contend, because they are claims for work performed
"pursuant to" the general contract. The Subcontractors also note that
the general contract required G.T. Leach to "include terms in the
subcontracts . . . binding its subcontractors . . . to the applicable terms of
this agreement."<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Sapphire is not suing the Other
Defendants, however, for breach of obligations under the general contract.
Rather, Sapphire alleges in its petition that the Other Defendants each
breached duties that they each "contractually agreed" to perform, and
failed to perform them as a reasonable professional would have performed them.
We agree that Sapphire is not seeking direct benefits under the general
contract. We read Sapphire's allegations to refer to separate agreements in
which the Engineers agreed with Sapphire to provide engineering services, the
Insurance Brokers agreed with Sapphire to provide insurance services, and the
Subcontractors agreed with G.T. Leach to provide construction-related
services.[22]<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">The record and briefs in this case
reflect that Sapphire contends that the Engineers and Insurance Brokers
contracted directly with Sapphire and are what the general contract refers to
as a "separate contractor" rather than a "subcontractor."
Thus, although Sapphire's breach of contract claims against the Engineers may
"relate to" the general contract, they "arise out of" and
directly seek the benefits of a separate alleged agreement between Sapphire and
the Engineers. Similarly, Sapphire alleges that the Insurance Brokers
"contracted with Sapphire to procure adequate insurance to protect
Sapphire while the Sapphire condominiums were being built" and
"breached that agreement thereby damaging Sapphire." These claims
depend on an alleged insurance-procurement agreement between Sapphire and the
Insurance Brokers, not the general contract between Sapphire and G.T. Leach.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">And finally, Sapphire asserts that the
Subcontractors breached obligations they accepted in their subcontracts with
G.T. Leach, not in the general contract to which Sapphire was a party. While
these claims may bear some relationship to the general contract, the fact that the
claims would not have arisen but for the existence of the general contract is
not enough to establish equitable estoppel. See Kellogg Brown & Root, 166
S.W.3d at 739-40. Sapphire's contract claims against the Other Defendants do
not, on their face, seek a "direct benefit" under the general
contract; rather, the record at this stage indicates that they seek direct
benefits under other alleged contracts. Under these circumstances, we cannot
conclude that the "direct benefits" theory of equitable estoppel authorizes
the Other Defendants to rely on the arbitration provision in Sapphire's general
contract with G.T. Leach. See Morgan Stanley, 293 S.W.3d at 184; Weekley Homes,
180 S.W.3d at 133; Kellogg Brown & Root, 166 S.W.3d at 739-40.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">In addition, the Other Defendants argue
that, even if Sapphire is not suing them for breach of the general contract, it
is seeking to hold them jointly and severally liable for the damages that
Sapphire alleges G.T. Leach's breach of that contract caused. Specifically, the
Insurance Brokers contend that, "if Sapphire seeks to hold the Insurance
Defendants liable for damages arising from G.T. Leach's alleged breach of the
[general contract], then Sapphire must necessarily rely on the existence of the
[general contract]."[23] But contrary to the Insurance Brokers' argument,
Sapphire's pleadings do not assert that the Insurance Brokers are jointly and
severally liable for the damages allegedly resulting from G.T. Leach's breach
of contract,[24] and the parties have not identified any doctrine that would
permit Sapphire to hold them jointly and severally liable under the facts of
this case.[25] "Texas law permits joint and several liability for most
actions based in tort, as long as `the percentage of responsibility attributed
to the defendant with respect to a cause of action is greater than 50
percent.'" Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407,
424 (Tex. 2011) (quoting TEX. CIV. PRAC. & REM. CODE § 33.013(b)(1)). But
the Insurance Brokers' "direct benefits" estoppel argument is
premised on Sapphire seeking to hold them jointly and severally liable for G.T.
Leach's breach of contract, not its torts.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Finally, the Other Defendants argue that
Sapphire is equitably estopped from refusing to arbitrate its tort claims
against them because those claims assert only negligent performance of
contractual duties, and thus seek only damages resulting from the breach of
contractual duties rather than duties imposed by law. Under these
circumstances, they contend, the allegedly negligent breaches can "only be
characterized as a breach of contract," and the claims thus "sound in
contract, not tort." This argument raises a complex legal doctrine: the
"economic loss" rule, sometimes referred to in this context as the
law of "contorts." See, e.g., Sw. Bell Tel. Co. v. DeLanney, 809
S.W.2d 493, 494-95 (Tex. 1991); id. at 495 (Gonzales, J., concurring). We need
not address this doctrine here, however, because even if Sapphire's tort claims
sound in contract, they do no arise solely out of or otherwise seek direct
benefits under the general contract. See Kellogg Brown & Root, 166 S.W.3d
at 740-41. While they have some relationship to the general contract, the mere
fact that the claims would not have arisen but for that contract is not enough
to establish equitable estoppel. See id. at 739-40. We therefore hold that
equitable estoppel does not apply to enable the Other Defendants to compel
Sapphire to arbitrate its tort claims against them under the general contract.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>B. Arbitration Under the Subcontracts</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Finally, we turn to the Subcontractors'
arguments that Sapphire agreed through the subcontracts to arbitrate its claims
against the Subcontractors, or alternatively, that Sapphire is equitably
estopped from denying its assent to the arbitration agreement in the
subcontracts. While we note that Sapphire is not a signatory to the
subcontracts, its claims that the Subcontractors "contractually
agreed" to perform their services and are liable to Sapphire for having
breached those agreements at least appear to be "based on" and
"directly seek benefits" under the subcontracts, and thus Sapphire
may be equitably estopped to deny obligations under the subcontracts. See
FirstMerit Bank, 52 S.W.3d at 755-56. We need not decide that issue, however,
because we conclude that, even if the subcontracts are binding on Sapphire,
they do not require the parties to arbitrate these claims.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">The Subcontractors provided their
respective services pursuant to essentially identical subcontracts that they
entered into with G.T. Leach. Both of these subcontracts contain three sections
that pertain to the arbitration of disputes between the parties. First, section
11.1 states the parties' agreement to arbitrate disputes:<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">All claims, disputes and other matters
in question arising out of, or relating to, this Subcontract or the breach
thereof shall be decided by arbitration in accordance with the Construction
Industry Arbitration Rules of the American Arbitration Association unless the
parties mutually agree otherwise.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Section 11.3 then states that, if G.T.
Leach "enter[s] into arbitration with [Sapphire] or others regarding
matters relating to this Subcontract, Subcontractor will agree, if requested by
[G.T. Leach] to consolidation of this arbitration with [G.T. Leach's]
arbitration with [Sapphire]," and in that case the Subcontractors
"shall be bound by the result of the arbitration with [Sapphire] to the
same degree as [G.T. Leach]." Finally, however, section 12.13 states that
the parties do not agree to mandatory arbitration:<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Notwithstanding any provision to the
contrary contained in the Contract Documents, Subcontractor expressly agrees
that this Subcontract does not contain a provision for the mandatory
arbitration of disputes, nor does it incorporate by reference such a provision
if such is contained in the [general] contract between [G.T. Leach] and
[Sapphire].<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">The court of appeals held that the
disclaimer in this section 12.13 "nullif[ies]" the arbitration
agreement in section 11.1, and Sapphire relies on that holding here.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">The Subcontractors contend that section
12.13's disclaimer does not nullify the agreement in section 11.1 because (1)
the agreement appears earlier within the contract, and "terms stated
earlier in an agreement must be favored over subsequent terms" in that
same agreement, Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983); (2) the
agreement is more specific than the disclaimer, and specific provisions control
over general provisions, see Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132,
133-34 (Tex. 1994); (3) we must consider and give effect to all of the
provisions with reference to the whole instrument, Myers v. Gulf Coast Minerals
Mgmt. Corp., 361 S.W.2d 193, 196 (Tex. 1962); and (4) we must construe the
provisions together if we can, rather than allow one to cancel the other, In re
U.S. Home Corp., 236 S.W.3d 761, 765 (Tex. 2007).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">We conclude that there is no way to give
full effect to both provisions, and that one must necessarily
"nullify" the other at least to some extent. If we give effect to the
agreement to arbitrate in section 11.1, for example, then we must necessarily
conclude that the agreement does "contain a provision for the mandatory
arbitration of disputes," and thus nullify section 12.13's disclaimer. The
Subcontractors argue that we can give effect to both by construing the
disclaimer to mean that arbitration is "mandatory" unless all parties
mutually agree not to arbitrate, in which case arbitration would not be
mandatory. But parties can always mutually agree not to do what they previously
agreed to do, and in any event, section 11.1 already provides that the parties
can "mutually agree" not to arbitrate.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Generally, we must give the subcontracts
their plain meaning and enforce them without rendering either provision
entirely superfluous. Cf. El Paso Field Servs., L.P. v. MasTec N. Am., Inc.,
389 S.W.3d 802, 808 (Tex. 2012) (prohibiting such a result); see also Moayedi,
438 S.W.3d at 7; Mercer v. Hardy, 444 S.W.2d 593, 595 (Tex. 1969). But we
cannot do that when the plain meaning of one provision unambiguously requires
that we not enforce another. See Tex. Lottery Comm'n v. First State Bank of
DeQueen, 325 S.W.3d 628, 637 (Tex. 2010). There is a direct conflict between
section 11.1's provision that all disputes "shall be decided by
arbitration" and section 12.13's provision that "this Subcontract
does not contain a provision for the mandatory arbitration of disputes."
And if that were all that the two provisions provided, an ambiguity might exist
that requires us to rely on canons of construction to determine the parties'
intent.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">But section 12.13 explicitly states that
the Subcontract does not require mandatory arbitration "[n]otwithstanding
any provision to the contrary" in any of the contract documents. Cf. In re
Lee, 411 S.W.3d 445, 454 (Tex. 2013) ("The use of the word
`notwithstanding' indicates that the Legislature intended section 153.0071 to
be controlling."). Like the statute at issue in DeQueen, which expressly
provided that any conflicting "rule of law, statute, or regulation . . .
is ineffective," the language of section 12.13 "specifically
provide[s] the means for resolving conflicts" by providing that, in the
event of any conflict, section 12.13 prevails. DeQueen, 325 S.W.3d at 632, 637.
There is thus no ambiguity, and we need not rely on canons of construction like
the rules that earlier or more specific provisions prevail. Id. Although these
canons provide useful tools for resolving conflicting provisions, there is no
conflict to resolve here because the plain language of section 12.13 resolves
the conflict. Id. at 638. We therefore conclude that, even if Sapphire is
equitably estopped from denying its assent to the agreements contained in the
subcontracts, those agreements do not include a valid, enforceable agreement to
arbitrate its claims against the Subcontractors. The court of appeals,
therefore, did not err in affirming the trial court's denial of the
Subcontractors' motions to compel arbitration.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">We therefore affirm the court of appeals
with respect to the trial court's denial of the Insurance Brokers', Engineers',
and Subcontractors' motions to compel arbitration.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>IV.<o:p></o:p></b></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<b><br /></b></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;"><b>Conclusion</b><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">We affirm in part and reverse in part.
We affirm the portion of the court of appeals' judgment affirming the trial
court's denial of the Engineers', Insurance Brokers', and Subcontractors'
motions to compel arbitration of Sapphire's claims against them, and we reverse
the portion of the court of appeals' judgment affirming the trial court's
denial of G.T. Leach's motion to compel arbitration of Sapphire's claims
against it. We remand this case to the trial court for further proceedings
consistent with this opinion.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[1] "It is the policy of this state
to encourage the peaceable resolution of disputes . . . through voluntary
settlement procedures," including binding and nonbinding arbitration. TEX.
CIV. PRAC. & REM. CODE §§ 154.002, 154.027.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[2] "A court shall order the
parties to arbitrate on application of a party showing . . . an agreement to
arbitrate;" otherwise, "the court shall deny the application."
Id. § 171.021(a)(1), (b).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[3] Atlas Comfort is now known as
Comfort Systems USA—South Central.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[4] Sapphire initially filed two
separate lawsuits, one against the Insurance Brokers and another against the
architects who designed the project. The architects first named G.T. Leach, the
Subcontractors, and the Engineers as responsible third parties, and Sapphire
amended its pleadings to name them as defendants in that suit. When the
Insurance Brokers learned of these developments in that suit, they named G.T.
Leach, the Subcontractors, and the Engineers as responsible third parties in
this suit. The architects later settled and resolved all claims asserted by and
against them.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[5] See Act of May 4, 1995, 74th Leg.,
R.S., ch. 136, § 1, sec. 33.004(e), 1995 Tex. Gen. Laws 971, 973, amended by
Act of June 2, 2003, 78th Leg., R.S., ch. 204, § 4.04, sec. 33.004(e), 2003
Tex. Gen. Laws 847, 856, repealed by Act of May 24, 2011, 82d Leg., R.S., ch.
203, § 5.02, sec. 33.004(e), 2011 Tex. Gen. Laws 757, 759.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[6] ___ S.W.3d ___.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[7] Although we generally lack
jurisdiction over interlocutory appeals, see TEX. GOV'T CODE § 22.225(b)(3), we
have jurisdiction to review a court of appeals' interlocutory judgment when its
holding creates an inconsistency with prior precedent "that should be
clarified to remove unnecessary uncertainty in the law and unfairness to litigants."
Id. § 22.225(c), (e); see also Richmont Holdings, Inc. v. Superior Recharge
Sys., L.L.C., 392 S.W.3d 633, 635 n.3 (Tex. 2013) (per curiam) ("We have
jurisdiction to hear an appeal from an interlocutory order denying arbitration
when the court of appeals' decision conflicts with prior precedent."). In
this case, the court of appeals' holding creates such an inconsistency with our
decision in Perry Homes v. Cull, 258 S.W.3d 580, 587-92 (Tex. 2008), and with
the court of appeals' decision in In re Global Constr. Co., 166 S.W.3d 795,
798-99 (Tex. App.-Houston [14th Dist.] 2005, no pet.), regarding the issue of
whether courts or arbitrators should decide whether a contractual deadline bars
a demand for arbitration. The inconsistency on this issue gives us jurisdiction,
which permits us to address and resolve all of the issues that all of the
parties raise in this case. See, e.g., Brown v. Todd, 53 S.W.3d 297, 301 (Tex.
2001) ("As we have repeatedly recognized, if our jurisdiction is properly
invoked on one issue, we acquire jurisdiction of the entire case.").<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[8] The general contract utilized a
"Standard Form of Agreement Between Owner and Contractor" (Form
A111-1997) and a form of "General Conditions of the Contract for
Construction" (Form A201-1997), both published by the American Institute
of Architects. Sapphire and G.T. Leach substantially revised these forms,
however, by striking and adding language throughout the contract to reflect
their specific agreements. As revised, the arbitration section addresses numerous
details including the process for selecting the arbitrator(s), the rules
governing the arbitration, the location and timing of the arbitration, rights
to discovery, finality and appeals from the arbitration award, and the duty to
continue performing under the contract while the arbitration is pending. As
discussed further below, one section addresses the consolidation and joinder of
other parties within the arbitration proceeding.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[9] By the time Sapphire named G.T.
Leach as a defendant—and thus by the time G.T. Leach filed its motion to compel
arbitration—the two-year statute of limitations applicable to Sapphire's
negligence claims had already run, but the four-year statute applicable to
Sapphire's breach-of-contract claims had not. The court of appeals did not
mention this distinction, but instead stated broadly that "[t]he parties
do not dispute that the applicable statute of limitations had expired when G.T.
Leach sought arbitration." ___ S.W.3d at ___ n.6; see also id. at ___
(stating that "G.T. Leach does not contest that the statute of limitations
for Sapphire's claims had expired when it filed its motion to compel
arbitration."). These statements were incorrect. Although the parties did
agree that the two-year statute on Sapphire's negligence claims had expired,
they also agreed that the four-year statute on Sapphire's breach-of-contract
claims had not. Since we conclude that the arbitrators must resolve Sapphire's
contractual-deadline arguments, however, we need not consider the court of appeals'
error on this point, and we leave it to the arbitrators to resolve all issues
related to the construction and application of the contractual deadline in this
case.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[10] Sapphire cites to Parks v.
Developers Surety & Indemnity Co., 302 S.W.3d 920, 924 (Tex. App.-Dallas
2010, no pet.) (refusing to consider unconscionability as a defense to contract
claim because the defendant failed to plead and assert it in the trial court),
and Posey v. Southwestern Bell Yellow Pages, Inc., 878 S.W.2d 275, 281 (Tex. App.-Corpus
Christi 1994, no writ) ("Because the Poseys failed to assert in the court
below that the limitation of liability clause was void, unconscionable or
unenforceable, we may not reverse that portion of the summary judgment on
appeal.").<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[11] Specifically, Sapphire argued:
"The most prejudicial aspect of allowing arbitration this late in the game
is that the Statute of Limitations has already run on all of Plaintiff's
negligence claims against all Defendants. This effect is so prejudicial that the
express language of the contract prohibits arbitration in this situation."<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[12] Although G.T. Leach did not
specifically argue in the court of appeals that the arbitrators must decide the
contractual-deadline issue, it did more broadly assert that "there is no
legitimate issue as to the arbitrability of all of the issues between Sapphire
and GTL," and "[b]ecause all of Sapphire's claims against [G.T.
Leach] are clearly arbitrable under a valid and enforceable arbitration
provision, the only potentially viable argument Sapphire presents against
enforcement is waiver." Because "disposing of appeals for harmless
procedural defects is disfavored," and "[a]ppellate briefs are to be
construed reasonably, yet liberally, so that the right to appellate review is
not lost by waiver," Perry v. Cohen, 272 S.W.3d 585, 587 (Tex. 2008) (per
curiam), G.T. Leach's broad assertions were arguably sufficient to encompass
all supporting arguments, including the argument that Sapphire's claim that the
contractual deadline bars G.T. Leach's arbitration demand was "clearly
arbitrable." See, e.g., Plexchem Int'l, Inc. v. Harris Cnty. Appraisal
Dist., 922 S.W.2d 930, 930-31 (Tex. 1996) (holding that the assertion in the
court of appeals that "[t]he trial court erred by granting . . . summary
judgment" was "sufficient to preserve error and to allow argument as
to all possible grounds upon which summary judgment should have been
denied"); see also TEX. R. APP. P. 38.1(f) ("The statement of an
issue or point [in an appellate brief] will be treated as covering every
subsidiary question that is fairly included."). We need not decide that
issue, however, since we conclude that G.T. Leach did not waive its argument
even if it failed to raise it in the court of appeals.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[13] We appear to have once held to the
contrary in In re K.A.F., 160 S.W.3d 923 (Tex. 2005), in which we stated that,
although petitioner's "constitutional complaints relate to her appeal and
therefore could not have been asserted in the trial court, she was required to
raise them in the court of appeals in order to preserve error." Id. at 928
(holding that petitioner "waived these arguments by failing to raise them
in the court of appeals"). In support of these statements, however, we
cited two cases in which we had addressed only the well-established rule that a
party must preserve error by asserting its complaints in the trial court. Id.
at 928 (citing In re B.L.D., 113 S.W.3d at 350-51 (citing cases for the
proposition that objections and errors "must be preserved in the trial court");
Tex. Dep't of Protective & Regulatory Servs. v. Sherry, 46 S.W.3d 857, 861
(Tex. 2001) (refusing to consider constitutional arguments that petitioner did
not assert in the trial court). We cited no rule or authority in K.A.F. to
support the proposition that a petitioner waives an argument by failing to
raise it in the court of appeals when the petitioner's complaint first arises
from that court's judgment. Consistent with our holdings in Bunton and Gilbert,
as well as our holding today, our statement in K.A.F. should be read to mean
that we may treat such an argument as waived, as we did in that case, but we
are not required to do so.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[14] The general contract provides for
arbitration under the TAA, and each of the defendants sought to compel
arbitration under that Act. While the Federal Arbitration Act (FAA) might also
apply, no party argues that the FAA preempts the TAA on any issue in this case,
or that the TAA and FAA materially differ on any such issue. We therefore
presume that the TAA governs, but we may find guidance in court decisions
addressing both acts. Cf. Elis v. Schlimmer, 337 S.W.3d 860, 862 (Tex. 2011)
(observing that FAA preempts TAA "only when it or other state law would
not allow enforcement of an arbitration agreement that the FAA would
enforce" and that party seeking to avoid application of TAA has burden of
raising that issue).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[15] In deciding these questions of arbitrability,
courts apply the common principles of general contract law to determine the
parties' intent. In re Poly-Am., L.P., 262 S.W.3d 337, 348 (Tex. 2008).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[16] The Court in Poly-America
referenced a "strong federal presumption" in favor of arbitration
because the contracts in that case provided for arbitration under the FAA.
Poly-Am., 262 S.W.3d at 348. But the Court has observed in other cases that
Texas law also strongly favors arbitration of disputes and recognizes a
presumption in favor of arbitrability. See, e.g., Prudential Secs. Inc. v.
Marshall, 909 S.W.2d 896, 898-99 (Tex. 1995).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[17] The general contract defines a
"Claim" as<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">a demand or assertion by one of the
parties seeking, as a matter of right, adjustment or interpretation of Contract
terms, payment of money, extension of time or other relief with respect to the
terms of the Contract. The term "Claim" also includes other disputes
and matters in question between [Sapphire] and [G.T. Leach] arising out of or
relating to the Contract.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[18] See, e.g., United Steel Workers of
Am., AFL-CIO-CLC v. Saint Gobain Ceramics & Plastics, Inc., 505 F.3d 417,
418 (6th Cir. 2007) (holding that application of contractual time limit was
issue for arbitrators rather than courts); Marie v. Allied Home Mortg. Corp.,
402 F.3d 1, 11 (1st Cir. 2005) (holding that trial court erred in interpreting
and applying contractual requirement that "[a]rbitration under this
section must be initiated within sixty days" of event giving rise to the
claim because that issue was for arbitrators to decide); Shearson Lehman
Hutton, Inc. v. Wagoner, 944 F.2d 114, 120-21 (2d Cir. 1991) ("Although
Conticommodity [Services Inc. v. Philipp & Lion, 613 F.2d 1222, 1224-25 (2d
Cir. 1980)] involved a one-year time limitation set forth in the arbitration
agreement itself, we stated emphatically that any limitations defense—whether
stemming from the arbitration agreement, arbitration association rule, or state
statute—is an issue to be addressed by the arbitrators."); Nursing Home &
Hosp. Union No. 434 AFL-CIO-LDIU by Mackson v. Sky Vue Terrace, Inc., 759 F.2d
1094, 1097 (3d Cir. 1985) (rejecting argument that grievances were "not
subject to the arbitration process because [the other party] did not comply
with the specific time limits for filing grievances under the agreement"
and stating that "[e]ven assuming [that] argument has merit, the law is
clear that matters of procedural arbitrability, such as time limits, are to be
left for the arbitrator once the court determines that the parties have agreed
in the contract to submit the subject-matter of the dispute to
arbitration"); see also McNamara v. Yellow Transp., Inc., 570 F.3d 950,
957 (8th Cir. 2009) (adopting reasoning of Marie in context of a party's
argument that it was harmed by other party's delay in seeking arbitration
because by that time party would be contractually barred from initiating
arbitration, but directing trial court to retain jurisdiction on remand so that
party opposing arbitration would not be left without a forum); Glass v. Kidder
Peabody & Co., 114 F.3d 446, 455 (4th Cir. 1997) ("Defenses of laches,
mere delay, statute of limitations, and untimeliness constitute a broad
category of waiver defenses that may be raised to defeat compelled arbitration.
Laches, like its companion defenses, however, is a matter of `procedural
arbitrability' solely for the arbitrators' decision and not for the
court.").<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[19] The agreement at issue in Rubiola
gave the "parties" the right to demand arbitration and defined
"parties" to include not only "each and all persons and entities
signing this agreement," but also all "individual partners,
affiliates, officers, directors, employees, agents, and/or representatives of
any party to such documents, and . . . any other owner and holder of this agreement."
Rubiola, 334 S.W.3d at 222-23. We agreed that it thus "expressly provides
that certain non-signatories are to be parties to the agreement." Id. at
224.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[20] In addition, a supplemental
provision of the general contract states that "[n]o person or entity shall
be deemed to be a third party beneficiary of any provisions of the Contract,
nor shall any provisions thereof be interpreted to create a right of action or
otherwise permit anyone not a signatory party to the Contract to maintain an
action for personal injury or property damage." While the Other Defendants
contend that this provision was in an unsigned supplement to the general
contract and, in any event, does not expressly prohibit demands for
arbitration, they concede that the contract expressly incorporates these
provisions as part of the "Contract Documents." In any event, this
provision reflects Sapphire's intent that other parties not have rights under
the general contract more clearly than any provision on which the Other Defendants
rely reflects an intent that they have such rights. Even ignoring this
provision, the lack of any provision by which Sapphire agrees to allow the
Other Defendants to compel arbitration of Sapphire's claims against them
defeats their attempts to do so.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[21] Even if "direct benefits"
estoppel does not apply based on the claims in the lawsuit, we have recognized
that "a nonparty may seek or obtain direct benefits from a contract by
means other than a lawsuit" and that application of the doctrine may be
based on "conduct during the performance of the contract" rather than
conduct during the lawsuit. See Weekley Homes, 180 S.W.3d at 132-33, 135
(holding that "when a nonparty consistently and knowingly insists that
others treat it as a party, it cannot later `turn[] its back on the portions of
the contract, such as an arbitration clause, that it finds distasteful'")
(citations omitted). The parties do not advance this theory here.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[22] The Other Defendants point out that
Sapphire's experts filed reports in the trial court in which they relied in
part on the general contract's specification and notes to establish the
standards for the Other Defendants' contractual performance. These reports,
however, do not suggest that the general contract imposed the duty to meet these
specifications. Instead, it appears that Sapphire contends that the Other
Defendants' separate contractual agreements included promises to comply with
these specifications.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[23] Alternatively, the Insurance
Brokers argue that<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">if Sapphire seeks to hold [them] jointly
and severally liable for damages with respect to Sapphire's tort claims against
[G.T. Leach], then Sapphire must necessarily rely on allegations of
interdependent and concerted misconduct between those parties. Either way,
Sapphire satisfies one or both bases for imposing equitable estoppel under this
Court's decision in Meyer and thus must be compelled to arbitrate its claims
against the Insurance Defendants.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">But we declined to adopt the
"concerted misconduct" theory of equitable estoppel in In re Merrill
Lynch Trust Co. FSB, 235 S.W.3d 185, 191-92 (Tex. 2007). The Insurance Brokers
do not address Merrill Lynch or raise any argument that this case is
distinguishable in any manner material to our analysis of the "concerted
misconduct" theory in that case. We therefore decline to reconsider that
decision here.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[24] In fact, Sapphire's fourth amended
petition does not reference "joint and several liability" at all. The
Other Defendants quote Sapphire's counsel as having orally argued to the trial
court that the defendants are jointly and severally liable for all damages, but
we must look to the pleadings to determine the nature of Sapphire's claims.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">[25] Cf. S. Union Co. v. City of
Edinburg, 129 S.W.3d 74, 87 (Tex. 2003) (noting that Texas law has recognized
specific legal theories under which corporate structure can be disregarded to
hold corporate actors jointly and severally liable for corporation's
contractual obligations); TEX. BUS. ORGS. CODE § 152.304(a) (imposing joint and
several liability on partners for "all" partnership obligations);
TEX. GOV'T CODE § 60.152(b)(1) (authorizing contractual assumption of joint and
several liability in certain government contracts); TEX. LAB. CODE § 407A.056
(requiring contractual assumption of joint and several liability for group and
employer under certain group self-insurance agreements); TEX. NAT. RES. CODE §
161.323 (imposing joint and several liability on "veteran purchaser"
and subsequent assignees of veteran with respect to certain land contracts
under some circumstances). <o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div style="text-align: center;">
<b><span style="color: #cc0000; font-size: large;">THE COURT OF APPEALS' OPINION</span></b></div>
<br />
<div style="text-align: center;">
<i>GT Leach Builders v. Sapphire VP, LP</i> (Tex.App. - Corpus Christi, 2013, pet. filed)</div>
<b><span style="font-size: large;"><br /></span></b>
<br />
<div style="text-align: center;">
<b>G.T. LEACH BUILDERS, L. L.C., ET AL., Appellants,</b></div>
<div style="text-align: center;">
<b>v.</b></div>
<div style="text-align: center;">
<b>SAPPHIRE VP, LP, Appellee.</b></div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
No. 13-11-00793-CV.</div>
<div style="text-align: center;">
Court of Appeals of Texas, Thirteenth District, Corpus Christi, Edinburg.</div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
Delivered and filed May 23, 2013.</div>
<div style="text-align: center;">
Before Chief Justice Valdez and Justices Benavides and Perkes.</div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
MEMORANDUM OPINION</div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
Memorandum Opinion by Chief Justice VALDEZ.</div>
<br />
This is an interlocutory appeal challenging the trial court's denial of appellants' motions to compel arbitration. Appellee, Sapphire, V.P., L.P. sued appellants for breach of contract and negligence for damage to its condominium complex caused by Hurricane Dolly. The appellants include: (1) the architectural firm that designed the condominium complex, ZCA Residential, LLC ("ZCA")[1]; (2) the general contractor, G.T. Leach Builders, LLC ("GTL"); (3) the subcontractors, CHP & Associates, Consulting Engineers, Inc. ("CHP"), Comfort Systems USA-South Central f/k/a Atlas Comfort Systems USA, LLC ("Atlas"), and Power Design, Inc. ("PDI"); and (4) the insurance providers for the condominium complex, Arthur J. Gallagher Risk Management Services, Inc., Tracy Williams, and Adams Insurance Services, Inc., (collectively the "Insurance Appellants"). We affirm.<br />
<br />
<b>I. BACKGROUND</b><br />
<br />
In July 2008, during construction of a condominium complex Sapphire owned, Hurricane Dolly hit South Padre Island, Texas causing damage to the complex. In November 2009, Sapphire filed its original petition in Cameron County against the "Insurance Appellants" for negligence and breach of contract seeking $3.5 million for water damage and $6 million for "soft costs."[2] Sapphire claimed that the Insurance Appellants had failed to procure insurance to adequately compensate Sapphire for any damage caused during the construction of the complex. According to Sapphire, the builder's risk policy that would have covered all of the damages, including soft costs, was allowed to expire before the hurricane hit, even though the construction of the complex had not been completed.[3]<br />
<br />
In July 2010, Sapphire filed its original petition against ZCA in Harris County, Texas, seeking damages for negligence and breach of contract in designing the condominium complex. Sapphire alleged that ZCA's negligence related to the design of the project that led to the water damage, and Sapphire sought $26.3 million in damages and $6 million for other expenses, delay costs, and lost sales revenue. ZCA designated GTL, CHP, PDI, and Atlas (collectively the "Construction Appellants") as responsible third parties.<br />
<br />
On March 28, 2011, the trial court granted the Insurance Appellants' motion to designate the Construction Appellants as responsible third parties in the Cameron County lawsuit. Accordingly, Sapphire amended its Cameron County pleadings on April 11, 2011 to include the Construction Appellants as defendants. Sapphire alleged that the Construction Appellants were negligent in their respective duties because the louvers, mechanical/electrical rooms, and other areas in the upper floors of the condominium complex were not designed and constructed properly which resulted in water entering and damaging the building during the hurricane. Sapphire also sued the Construction Appellants for breach of contract claiming that the Construction Appellants had "agreed that all of their services would be of the standard and quality that prevails among reputable [professionals] engaged in similar practices in the State of Texas on projects similar to the Sapphire project" and had failed to do so. policy needed to be extended to September 2008 because construction was behind schedule. They also point to evidence that Leach allegedly incorrectly informed Sapphire that the Builder's Risk policy could not be extended. According to Williams and Gallagher, the evidence shows that Leach did not extend the policy because he believed that it was too expensive. However, these arguments are not relevant to our discussion of whether the trial court erred in denying appellants' motions to compel arbitration.<br />
<br />
In May 2011, all appellants filed motions to transfer venue and then filed motions to abate. The trial court denied the appellants' motions to transfer venue and abate.<br />
<br />
The parties do not challenge the trial court's rulings on these motions.<br />
<br />
On August 11, 2011, the Construction Appellants filed a joint motion for continuance requesting a new trial date of May 7, 2012 and entry of a new docket control order subject to their motions to transfer venue in Cameron County.[4] On August 31, 2011, the Cameron County trial court granted the Construction Appellants' motion for continuance and set a trial date of April 2, 2012.<br />
<br />
On October 13, 2011, all of the parties signed an agreed discovery control plan/scheduling order, agreeing to deadlines for designation of responsible third parties, joinder of new parties, designation of expert witnesses, discovery, dispositive motions and pleas, summary judgment motions, alternative dispute resolution, and amendments to pleadings. The parties also agreed to a pretrial conference or docket call on February 15, 2012 and to the previously set trial date of April 2, 2012.<br />
<br />
On November 3, 2011, Adams filed a motion for summary judgment on the basis that Sapphire could not show that there was privity of contract with Adams because its contract for insurance was with GTL; therefore, Adams argued it owed no duty to an additional insured, such as Sapphire. Adams further argued that the evidence conclusively established that it did not enter into an oral or written contract with Sapphire to procure insurance for the project. The trial court granted the summary judgment in favor of Adams with regards to Sapphire's claim for breach of contract but denied it with regards to Sapphire's negligence claim.[5]<br />
<br />
GTL then served Sapphire with a written demand to arbitrate the issues raised in the lawsuit and filed its motion to compel arbitration and to stay the litigation pursuant to the Texas Arbitration Act (the "TAA") in Cameron County. GTL relied on a provision in its contract with Sapphire (the "General Contract") it claimed required arbitration of Sapphire's claims. All other appellants filed similar motions to compel arbitration and/or join GTL's motion to compel arbitration.<br />
<br />
Sapphire challenged the motions to compel arbitration on two grounds: (1) only GTL had a contractual arbitration provision, so the other defendants had no right to compel arbitration; and (2) GTL's conduct of agreeing by Rule 11 to go to trial, together with the totality of the conduct of all of the parties in the case, constituted waiver of GTL's right to compel arbitration. Sapphire argued that it did not have a written contract with any of the appellants, except for GTL, and that its contract with GTL "specifically provide[d] that there are no third party beneficiaries and that non-signatories to the contract [could not] claim any rights under its terms, including the right to arbitrate." Sapphire also argued that GTL could not demand arbitration because a clause in the General Contract prohibited the parties from demanding arbitration after the statute of limitations had expired.[6] After a hearing on December 7, 2011, the trial court denied the appellants' motions to compel arbitration. The trial court did not state its basis for denying arbitration. This interlocutory appeal followed.<br />
<b><br /></b>
<b>II. STANDARD OF REVIEW</b><br />
<br />
We apply an abuse of discretion standard to the trial court's denial of appellants' motions to compel arbitration. Okorafor v. Uncle Sam & Assocs., Inc., 295 S.W.3d 27, 38 (Tex. App.-Houston [1st Dist.] 2009, pet. denied). A trial court abuses its discretion when it acts arbitrarily or unreasonably and without reference to any guiding rules or principles. Id.<br />
<br />
When the trial court's ruling under review depends on the resolution of underlying facts, we must defer to the trial court on its resolution of those facts and any credibility determinations that may have affected those resolutions. Id. Furthermore, we may not substitute our judgment for the trial court on those matters. Id. However, we must apply a de novo standard of review to the trial court's legal conclusions because a trial court has no discretion in determining what the law is, which law governs, or how to apply the law. Id.<br />
<br />
<b>III. APPLICABLE LAW</b><br />
<br />
Whether a valid arbitration agreement exists is a question of law and is therefore reviewed de novo. In re C & H News Co., 133 S.W.3d 642, 645 (Tex. App.-Corpus Christi 2003, orig. proceeding); Tenet Healthcare Ltd. v. Cooper, 960 S.W.2d 386, 388 (Tex. App.-Houston [14th Dist.] 1998, pet. dism'd w.o.j.). The party seeking arbitration has the initial burden to prove, and the trial court must initially decide whether there is a valid arbitration agreement and if so, whether the claims fall within the scope of the arbitration agreement. In re Kellogg Brown & Root, 80 S.W.3d 611, 615 (Tex. App.-Houston [1st Dist.] 2002, orig. proceeding); Mohamed v. Auto Nation USA Corp., 89 S.W.3d 830, 836 (Tex. App.-Houston [1st Dist.] 2002, no pet.) (combined appeal & orig. proceeding) ("The burden of showing one's status as a party or one's right to enforce, as with the overall burden of establishing the arbitration agreement's existence, is generally evidentiary."); In re Koch Indus., Inc., 49 S.W.3d 439, 444 (Tex. App.-San Antonio 2001, orig. proceeding) ("The party seeking arbitration has the initial burden to present evidence of an arbitration agreement."). The initial burden of establishing the existence of a valid arbitration agreement includes proving that the entity seeking to enforce the arbitration agreement was a party to it or had the right to enforce the agreement notwithstanding. Mohamed, 89 S.W.3d at 836 (citing Pepe Int'l Dev. Co. v. Pub Brewing Co., 915 S.W.2d 925, 931 (Tex. App.-Houston [1st Dist.] 1996, no writ) (combined appeal & orig. proceeding); Tex. Private Employment Ass'n v. Lyn-Jay Int'l, Inc., 888 S.W.2d 529, 531, 532 (Tex. App.-Houston [1st Dist.] 1994, no writ) (op. & op. on reh'g) (holding association itself was not party to arbitration agreement, set out in association's by-laws, that required association's members to arbitrate disputes among themselves)). If a valid arbitration agreement exists, the burden then shifts to the party resisting arbitration to show that the party seeking arbitration has waived its right to compel arbitration. Williams Indus., Inc. v. Earth Dev. Sys. Corp., 110 S.W.3d 131, 137 (Tex. App.-Houston [1st Dist.] 2003, no pet.) (citing Mohamed, 89 S.W.3d at 835).<br />
<br />
There is a strong presumption favoring arbitration; however that presumption does not apply to the initial determination of whether a valid arbitration agreement exists. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Arbitration agreements are interpreted under traditional contract principles. Id.<br />
<br />
An obligation to arbitrate not only attaches to one who has personally signed the written arbitration agreement but may also bind a non-signatory under principles of contract law and agency. Id. at 738. Generally, however, parties must sign arbitration agreements before being bound by them. In re Rubiola, 334 S.W.3d 220, 223 (Tex. 2011) (orig. proceeding); see Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 528 (5th Cir. 2000) (noting that "arbitration is a matter of contract and cannot, in general, be required for a matter involving an arbitration agreement non-signatory").<br />
<br />
<b>III. GTL</b><br />
<br />
By their first issue, appellants argue that the trial court erred in denying their motions to compel arbitration because there was a valid arbitration agreement in the General Contract. Sapphire acknowledges that it had a valid arbitration agreement with GTL in the General Contract; however, it argues that GTL has waived its right to compel arbitration for several reasons.<br />
<br />
<b>A. Arbitration Agreement</b><br />
<br />
Pursuant to section 4.6.1 of the General Contract, Sapphire and GTL agreed that "[a]ny Claim arising [o]ut of or related to the [General Contract] . . . shall . . . be subject to agreed private arbitration." It is undisputed and we agree that this is a valid arbitration agreement and that Sapphire's claims against GTL fall within the scope of this agreement. Therefore, the trial court could have only denied GTL's motion to compel arbitration on another basis.<br />
<br />
Although we have concluded that GTL had a valid arbitration agreement with Sapphire, and the claims at issue were within the scope of the arbitration agreement, we may not yet sustain its sole issue because we have not yet considered Sapphire's defenses to the arbitration agreement. See J.M. Davidson, Inc., 128 S.W.3d at 227 (stating that if the trial court finds a valid agreement, the burden shifts to the party opposing arbitration to raise an affirmative defense to enforcing arbitration); In re H.E. Butt Grocery Co., 17 S.W.3d 360, 367 (Tex. App.-Houston [14th Dist.] 2000, orig. proceeding); City of Alamo v. Garcia, 878 S.W.2d 664, 665 (Tex. App.-Corpus Christi 1994, no writ). Accordingly, we will discuss whether any of Sapphire's defenses applied. See In re C & H News Co., 133 S.W.3d at 645 (providing that once the trial court determines that a valid arbitration agreement exists and the claims fall within the agreement's scope, the party opposing arbitration has the burden of presenting evidence that prevents enforcement of the arbitration agreement).<br />
<br />
<b>B. Running of the Statute of Limitations</b><br />
<br />
Sapphire asserts that the trial court may have denied GTL's motion to compel arbitration because section 4.6.4 of the General Contract prohibited the parties from seeking arbitration if the statute of limitations for the claims made had expired. Sapphire states that in this case, the statute of limitations had expired when GTL filed its motion to compel arbitration. GTL does not contest that the statute of limitations for Sapphire's claims had expired when it filed its motion to compel arbitration. GTL instead contends that the parties did not intend for the statute of limitations to bar its demand for arbitration.[7]<br />
<br />
Section 4.6.4 of the General Contract states: A demand for arbitration shall be made within the time limits specified in Section 4.4.6 and 4.6.1 as applicable, and in other cases within a reasonable time after the Claim has arisen, and in no event shall it be made after the date when institution of legal or equitable proceedings based on such Claim would be barred by the applicable statute of limitations as determined pursuant to Section 13.7.<br />
<br />
Section 4.4.6 had been crossed out by the parties. Section 4.6.1 states that any claims made pursuant to the General Contract shall be subject to arbitration after recommendation by the architect or 30 days after submission of the Claim to the architect (emphasis added).<br />
<br />
Section 13.7 is entitled, "Commencement of Statutory Limitation Period." Section 13.7.1 set out three possible scenarios—before substantial completion, between substantial completion and final certificate for payment, and after final certificate for payment—and the date the statute of limitations begins to run in those scenarios. Thus, we agree with Sapphire that section 13.7 provided a method of determining the commencement of the limitations periods, depending on when the Contractor's act or omission occurred during the building of the condominiums.<br />
<br />
However, as Sapphire points out, section 13.7 was crossed out and thus deleted from the General Contract. Section 13.7 was not replaced. GTL argues that because of this deletion, the contract no longer prohibits arbitration of claims when the statute of limitations has expired. Sapphire responds that the parties' intent to prohibit the compulsion of arbitration after the statute of limitations had run is evident because they did not delete section 4.6.4 of the contract. Moreover, Sapphire notes that none of the parties dispute that Sapphire's negligence claim accrued when Hurricane Dolly hit the Island in July 2008 or that the statute of limitations had run when appellants filed their motions to compel arbitration.<br />
<br />
It appears from our reading of section 4.6.4 that the parties did not want to allow a demand for arbitration to occur outside the applicable statute of limitations period. Although the parties deleted section 13.7, the parties did not delete section 4.6.4, and it must be given some meaning. See J.M. Davidson, Inc., 128 S.W.3d at 229 ("In construing a written contract, the primary concern of the court is to ascertain the true intentions of the parties as expressed in the instrument. To achieve this objective, we must 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."). Therefore, because the parties deleted section 13.7, it is clear the reference in section 4.6.4 to that section no longer applies. See Frost Nat'l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 311-12 (Tex. 2005) ("In construing a contract, we must ascertain and give effect to the parties' intentions as expressed in the document[,]" and "[w]e consider the entire writing and attempt to harmonize and give effect to all the provisions of the contract by analyzing the provisions with reference to the whole agreement."); In re Bayer Materialscience, L.L.C., 265 S.W.3d 452, 454-56 (Tex. App.-Houston [1st Dist.] 2007) (orig. proceeding) ("Arbitration is a creature of contract, and parties seeking to compel arbitration must rely upon an agreement to arbitrate. If such an agreement exists, then the law favors enforcing it. But the law favoring arbitration does not go so far as to create an obligation to arbitrate where none exists. Thus, arbitration agreements are `as enforceable as other contracts, but not more so.'") (internal citations omitted).<br />
<br />
Thus, harmonizing and giving effect to all of the provisions of the General Contract, we interpret section 4.6.4 to say, "in no event shall [a demand for arbitration] be made after the date when institution of legal or equitable proceedings based on such Claim would be barred by the applicable statute of limitations." Therefore, we conclude that pursuant to section 4.6.4 of the General Contract, any party wishing to compel arbitration must have done so before the statute of limitations expired. Here, the parties do not dispute that when GTL filed its motion to compel arbitration, the statute of limitations had expired.<br />
<br />
In the alternative, GTL states that pursuant to former section 33.004 of the Texas Practice and Remedies Code, Sapphire filed suit against it after the statutory limitations period had expired; therefore, it was impossible for GTL to have filed its motion to compel arbitration before the statute of limitations had run. Former section 33.004 of the civil practice and remedies code allowed a plaintiff to join a designated responsible third party, "even though joinder would otherwise be barred by limitations."[8] In this case, the Insurance Appellants designated GTL as a responsible third-party, and in response, Sapphire, pursuant to section 33.004, amended its pleadings and joined GTL as a defendant after the statute of limitation had expired.<br />
<br />
There is nothing in the General Contract showing that when the parties signed it they contemplated allowing an exception to section 4.6.4 on the basis that a party has been joined in a suit after the statute of limitations had expired. If the parties had so intended, they would have included a provision in the General Contract making such an exception. J.M. Davidson, Inc., 128 S.W.3d at 227. GTL responds that the intent of the parties was to allow for a reasonable time to demand arbitration, which is shown by the parties' deletion of section 13.7 of the General Contract. Therefore, GTL argues the demand for arbitration was not dependent on any statute of limitations periods. However, GTL cites nothing in the General Contract, and we find nothing supporting such an interpretation of the General Contract.[9] Accordingly, GTL was not excused from demanding arbitration before the applicable statute of limitations expired. We conclude that the trial court did not abuse its discretion by denying GTL's motion to compel arbitration. We overrule GTL's sole issue on appeal.<br />
<br />
<b>IV. THE NON-SIGNATORY APPELLANTS</b><br />
<br />
By their first, second, and third issues, CHP, Atlas, PDI, and the Insurance Appellants (collectively the "Non-Signatory Appellants") argue that they can compel arbitration based on a variety of theories as set out below.[10] Sapphire responds that no appellant other than GTL can claim a right to compel arbitration pursuant to the General Contract and there is no other basis for the Non-Signatory Appellants to compel arbitration.<br />
<br />
<b>A. Right to Compel Arbitration under the General Contract</b><br />
<br />
By their first issue, CHP, PDI, and the Insurance Appellants first argue that although they are non-signatories to the General Contract, they are entitled to compel arbitration because section 4.6.1 states:<br />
<br />
Any Claim arising [out] of or related to the Contract, except those waived as provided for in Section 4.3.10, 9.10.5, shall, after recommendation by the Architect or 30 days after submission of the Claim to the Architect, be subject to agreed private arbitration. Prior to arbitration, the parties shall endeavor to resolve disputes by the process provided for in Section 4.5.<br />
CHP argues that the work it performed as a subcontractor arises out of and relates to Sapphire's contract with GTL. PDI also asserts that once Sapphire conceded that there was a valid arbitration agreement with GTL, the burden shifted to Sapphire to show that it waived arbitration. However, section 1.1.2 of the General Contract contradicts such a conclusion. It states:<br />
<br />
The [General] Contract Documents form the Contract for Construction.<br />
<br />
The [General] Contract represents the entire and integrated agreement between [Sapphire and GTL] and supersedes prior negotiations, representations or agreements, either written or oral. The [General] Contract may be amended or modified only by a Modification. The [General] Contract shall not be construed to create a contractual relationship of any kind (1) between the Architect and [GTL], (2) between [Sapphire] and a Subcontractor or Sub-subcontractor, (3) between [Sapphire] and Architect or (4) between any persons or entities other than [Sapphire and GTL]. The Architect shall be entitled to performance and enforcement of obligations under the [General] Contract intended to facilitate performance of the Architect's duties.<br />
(Emphasis added). This language clearly indicates that GTL and Sapphire agreed that the General Contract could not be construed as providing any contractual relationship between Sapphire and the subcontractors, such as Atlas, PDI, and CHP. Furthermore, this language also clearly indicates that the General Contract was not to be construed as creating a contractual relationship between any other parties other than GTL and Sapphire. Therefore, we disagree with appellants that Sapphire agreed to entitle non-signatories to the General Contract the right to compel arbitration.<br />
<br />
Moreover, as non-signatories to the General Contract, the Non-Signatory Appellants had the initial burden of showing that each of them had a valid arbitration agreement with Sapphire, and they could not prevail merely by showing that a valid arbitration agreement existed between GTL and Sapphire. See Mohamed, 89 S.W.3d at 836; see also TEX. CIV. PRAC. & REM. CODE ANN. § 171.001 (setting out that a written agreement to arbitrate is valid and enforceable if the agreement is to arbitrate a controversy that arises between the parties to the agreement). As such, the Non-Signatory Appellants had to show that an accepted theory applies to this case allowing them to enforce the arbitration agreement in the General Contract. See Cappadonna Elec. Mgmt. v. Cameron County, 180 S.W.3d 364, 371 (Tex. App.-Corpus Christi 2005, no pet.). Therefore, to the extent that the Non-Signatory Appellants' argument relies on a theory that they could compel Sapphire to go to arbitration merely because Sapphire had a valid arbitration agreement with GTL, we conclude that argument is without merit.<br />
<br />
The Insurance Appellants and CHP also argue that section 4.6.6 of the General Contract requires joinder of the Non-Signatory Appellants in the arbitration proceeding.<br />
<br />
Section 4.6.6 of the General Contract states:<br />
<br />
Limitation on Consolidation or Joinder. NoAn arbitration arising or out of or relating to the Contract shall may include, by consolidation or joinder or in any other manner, the Architect, the Architect's employees or consultants, except by written consent containing specific reference to the Agreement and signed by the Architect, Owner, Contractor and any other person or entity sought to be joined. No consultants. Any arbitration shall may include, by consolidation or joinder or in any other manner, parties other than the Owner, Contractor Contractor, a Subcontractor, a separate contractor as described in Article 6 and other persons substantially involved in a common question of fact or law whose presence is required of complete relief is to be accorded in arbitration. No person or entity other than the Owner, Contractor, or Subcontractor, or a separate contractor as described in Article 6 shall be included as an original third party or additional third party to an arbitration whose interest or responsibility is insubstantial. Consent to arbitration involving an additional person or entity shall not constitute consent to arbitration of a Claim not described therein or with a person or entity not named or described therein. The foregoing agreement to arbitrate and other agreements to arbitrate with an additional person or entity duly consented by parties to the Agreement shall be specifically enforceable under applicable law in any court having jurisdiction thereof.<br />
(Emphasis and deletions in orginal).<br />
<br />
We disagree that section 4.6.6 requires joinder of non-signatory third-parties. This section of the General Contract merely allows for the consolidation or the joinder of third-parties in the arbitration proceeding. It does not give non-signatories a right to compel arbitration. Accordingly, the trial court properly concluded that the Non-Signatory Appellants could not compel arbitration based on section 4.6.6 of the General Contract. We overrule appellants' first issue to the extent they argue that the General Contract gave non-signatories a right to compel Sapphire to go to arbitration.<br />
<br />
<b>B. Incorporation by Reference</b><br />
<br />
Next, by their second issue, PDI and Atlas claim that their subcontracts were incorporated into the General Contract. PDI and Atlas further argue that the General Contract incorporated their subcontracts.<br />
<br />
"Under the doctrine of incorporation by reference, where one contract refers to another contract or instrument, the second document may properly constitute part of the original contract." Cappadonna Elec. Mgmt., 180 S.W.3d at 371 (citing City of Port Isabel v. Shiba, 976 S.W.2d 856, 858 (Tex. App.-Corpus Christi 1998, pet. denied)). Questions of contract interpretation are often raised in relation to disputes concerning the doctrine of incorporation by reference. Id. The primary concern of the appellate court in construing the subcontractors' rights and duties under their subcontracts is to ascertain and give effect to the intentions of the parties as expressed in the subcontract. See Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998). "To ascertain the true intentions of the parties to the subcontract, we examine the entire agreement in an effort to harmonize and give effect to all of the provisions of the contract so that none will be rendered meaningless." Cappadonna Elec. Mgmt., 180 S.W.3d at 371.<br />
<br />
First, Atlas claims that the general terms of the General Contract, specifically section 5.3.1, provides that each subcontractor is bound by the contract. 5.3.1 states:<br />
<br />
By appropriate agreement, written where legally required for validity, the Contractor shall require each Subcontractor, to the extent of the Work to be performed by the Subcontractor, to be bound to the Contractor by terms of the Contract Documents, and to assume toward the Contractor all the obligations and responsibilities, including the responsibility for the safety of the Subcontractor's Work, which the Contractor, by these Documents, assumes toward the Owner and Architect. Each subcontract agreement shall preserve and protect the rights of the Owner and Architect under the Contract Documents with respect to the Work to be performed by the Subcontractor so that subcontracting thereof will not prejudice such rights, and shall allow to the Subcontractor, unless specifically provided otherwise in the subcontract agreement, the benefit of all rights, remedies, and redress against the Contractor that the Contractor, by the Contract Documents, has against the Owner . . . The Contractor shall make available to each proposed Subcontractor, prior to the execution of the Subcontract agreement, copies of the Contract Documents to which the Subcontractor will be bound. . . .<br />
(Emphasis added).<br />
<br />
We disagree with Atlas's interpretation of this clause. This clause relates to GTL's relationship with the subcontractors and requires that the subcontractors assume the "obligations and responsibilities, including the responsibility for the safety of the Subcontractor's Work" that GTL is bound to provide under the General Contract to Sapphire. This clause imposes a requirement that each subcontract will preserve and protect the rights of Sapphire and the architect under the General Contract. This clause shows that the intent of Sapphire and GTL was to ensure that Sapphire's rights will not be prejudiced under the subcontracts. The clause also gives the subcontractors the benefit of all rights, remedies, and redress against GTL that GTL had against Sapphire under the General Contract. (Emphasis added). It does not, however, provide that the subcontractors have the benefits of all rights, remedies, and redress against Sapphire that GTL has under the General Contract. (Emphasis added). Moreover, this clause does not mention arbitration and there is nothing in it showing Sapphire's intent was to agree to arbitrate its claims against the subcontractors. We conclude that section 5.3.1 of the General Contract does not bind Sapphire to arbitration with the subcontractors.<br />
<br />
Next, Atlas argues that the General Contract incorporated by reference its subcontract and the subcontract has a valid arbitration clause; therefore, it has a right to compel arbitration with Sapphire. According to Atlas, incorporation of a subcontract into the prime contract is the industry norm. Atlas points to section 11.2 of its subcontract with GTL, which states:<br />
<br />
Should GTL enter into arbitration with [Sapphire] or others regarding matters relating to this Subcontract, Subcontractor will agree, if requested by GTL to consolidation of this arbitration with GTL's arbitration with [Sapphire], but in any event, Subcontractor shall be bound by the result of the arbitration with [Sapphire] to the same degree as GTL.<br />
This provision provides that Atlas must agree to consolidation of arbitration if requested by GTL in the event that GTL enters arbitration with Sapphire and that Atlas is bound by the results of any arbitration between GTL and Sapphire. However, there is nothing in this clause that binds Sapphire to arbitration with the subcontractors. So, even assuming without deciding that the General Contract incorporated the subcontract, section 11.2 does not show that Sapphire's intent was to arbitrate its claims against the subcontractors.<br />
<br />
Finally, Atlas argues that the intent of Sapphire and GTL was to incorporate the General Contract into its subcontract with GTL. Therefore, Atlas claims that the subcontractors were bound by section 4.6.1 of the General Contract requiring arbitration of any claim arising out of or related to the contract. However, section 12.13 of Atlas's subcontract with GTL states: "Notwithstanding any provision to the contrary contained in the Contract Documents, Subcontractor expressly agrees that this Subcontract does not contain a provision for the mandatory arbitration of disputes, nor does it incorporate by reference such provision if such is contained in the [General Contract]." This clause in the subcontract expressly rejects incorporation of the arbitration clause of the General Contract. It further provides that the parties have not agreed to mandatory arbitration in the subcontract; thus foreclosing any of Atlas's arguments that a valid arbitration agreement existed between it and GTL. Thus, even assuming that the subcontract was incorporated into the General Contract or vice versa, this clause negates the incorporation of any arbitration provisions in the Contract Documents and states that the subcontractor has expressly agreed that there are no provisions in the subcontract requiring mandatory arbitration of disputes.<br />
<br />
PDI also argues its subcontract with GTL required the parties to arbitrate any disputes. However, PDI does not explain how the General Contract incorporated the subcontract. See TEX. R. APP. P. 38.1(i). Accordingly, we are unable to conclude that under the doctrine of incorporation by reference, PDI can compel Sapphire to arbitration.<br />
<br />
We conclude that Sapphire was not bound to arbitration with Atlas and PDI based on the theory of incorporation by reference. Thus, the trial court properly rejected that theory as a ground for allowing the Non-Signatory Appellants to compel arbitration.<br />
<br />
We overrule appellants' second issue.<br />
<br />
<b>C. Equitable Estoppel</b><br />
<br />
By their third issue, Williams and Gallagher also argue that their motion to compel arbitration should be granted because the doctrine of equitable estoppel allows "a non-signatory-to-an-arbitration-agreement-defendant [to] compel arbitration against a signatory-plaintiff." Williams and Gallagher rely on the arbitration clause contained in the General Contract. Williams and Gallagher cite a case from United States Court of Appeals for the Fifth Circuit, Grigson v. Creative Artists Agency, quoted by the Texas Supreme Court in Meyer v. WMCO-GP LLC, explaining, that "the claimant cannot `have it both ways': it cannot, on the one hand, seek to hold the non-signatory liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny arbitration's applicability because the defendant is a non-signatory." 211 S.W.3d 302, 306 (citing Grigson, 210 F.3d at 528).<br />
<br />
Equitable estoppel allows a non-signatory to compel arbitration if the nature of the underlying claims requires the signatory to rely on the terms of the written agreement containing the arbitration provision in asserting its claims against the non-signatory. In re Hartigan, 107 S.W.3d 684, 691 (Tex. App.-San Antonio 2003, orig. proceeding [mand. denied]). In Neatherlin Homes, Inc. v. Love, we stated that "[u]nder certain circumstances, a party to an arbitration agreement may be compelled to arbitrate claims with a nonparty if the controversy arises from a contract containing an arbitration clause." Neatherlin Homes, Inc. v. Love, Nos. 13-06-328-CV & 13-06-411-CV, 2007 Tex. App. LEXIS 1788, at *27 (Tex. App.-Corpus Christi Mar. 8, 2007, orig. proceeding) (mem. op) (citing Meyer v. WMCO-GP LLC, 211 S.W.3d 302, 306-07 (Tex. 2006); In re Palm Harbor Homes, Inc., 195 S.W.3d at 678; see In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 760 (Tex. 2006) (per curiam); In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005); In re Kellogg Brown & Root, Inc., 166 S.W.3d at 738-39; see also Merrill Lynch Trust Co. FSB, 159 S.W.3d at 168 ("A party that is not a signatory to an arbitration agreement may enforce it if the party falls into a recognized exception under general equitable or contract law that would allow such enforcement.")). We cited Meyer v. WMCO-GP LLC, which states, "sometimes a person who is not a party to the agreement can compel arbitration with one who is, and vice versa. We have held that a person who seeks by his claim `to derive a direct benefit from the contract containing the arbitration provision' may be equitably estopped from refusing arbitration." 211 S.W.3d at 305.<br />
<br />
Sapphire's claims against the Insurance Appellants are clearly not based on the General Contract. In the General Contract, GTL agreed to build the condominium complex. Sapphire does not contend that the Insurance Appellants breached the General Contract by not properly constructing the complex. Instead, Sapphire claims that the Insurance Appellants failed to procure the appropriate type of insurance.[11] This claim is not related to the construction of the complex. Accordingly, we overrule the Insurance Appellants' third issue to the extent that they argue that the theory of equitable estoppel applies in this case.<br />
<br />
By its third issue, Atlas also relies on the theory of equitable estoppel. Atlas argues that Sapphire is seeking the benefits of the subcontract and relying on it expressly; therefore, Sapphire cannot deny the applicability of the arbitration agreement contained in the subcontract. The subcontract on which Atlas relies is between GTL and Atlas.<br />
<br />
The flaw in this argument is that the subcontract does not contain a valid arbitration agreement. We acknowledge that section 11.1 of the subcontract states, "All claims, disputes and other matters in question arising out of, or relating to, this Subcontract or the breach thereof shall be decided in arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association unless the parties mutually agree otherwise." However, as stated above, section 12.13 of Atlas's subcontract with GTL also states: "Notwithstanding any provision to the contrary contained in the Contract Documents, Subcontractor expressly agrees that this Subcontract does not contain a provision for the mandatory arbitration of disputes, nor does it incorporate by reference such provision if such is contained in the [General Contract]." (Emphasis added). Atlas does not explain how the language contained in section 12.13 does not apply; thus, nullifying section 11.1's arbitration clause. See TEX. R. APP. P. 38.1(i). Therefore, we are unable to conclude that the trial court should have determined that the subcontract between Atlas and GTL contained a valid arbitration agreement.[12] We overrule appellants' third issue.<br />
<br />
<b>V. CONCLUSION</b><br />
<br />
We conclude that the trial court did not abuse its discretion when it denied the appellants' motions to compel arbitration. Therefore, we affirm the trial court's denial of appellants' motions to compel arbitration.<br />
<br />
[1] ZCA has not filed a brief in this appeal and has indicated that it has settled with Sapphire. However, ZCA has also informed this Court that it cannot produce settlement papers due to Sapphire's pending bankruptcy action.<br />
<br />
[2] According to the Insurance Appellants, Sapphire recovered approximately $23 million in insurance proceeds due to the damages.<br />
<br />
[3] Williams and Gallagher argue in their brief that it was Gary Leach, the owner and employee of GTL, who decided to allow the Builder's Risk policy to expire and transition to a permanent insurance policy eight days before Hurricane Dolly hit the Island on July 23, 2008. According to Williams and Gallagher, the Builder's Risk policy provided coverage for certain soft costs that Sapphire is attempting to recover from them. Williams and Gallagher also point out that there is evidence that the Builder's Risk<br />
<br />
[4] The trial court had previously set a trial date of November 7, 2011.<br />
<br />
[5] Gallagher filed motions for summary judgment on no evidence and traditional grounds, which the trial court denied. These motions were filed prior to joinder of the Construction Appellants.<br />
<br />
[6] The parties do not dispute that the applicable statute of limitations had expired when GTL sought arbitration.<br />
<br />
[7] GTL also claims that Sapphire has waived this argument by not making it in the trial court. In its response to all of the motions to compel arbitration, Sapphire did make its statute of limitations argument. Therefore, Sapphire has not waived this argument, and the trial court may have determined that GTL waived arbitration based on section 4.6.4.<br />
<br />
[8] This section was repealed by the legislature and the legislature has restricted a defendants' future ability to designate responsible third parties after the applicable statute of limitations period has run.<br />
<br />
[9] We recognize that the parties entered into a valid arbitration agreement pursuant to section 4.6.6; however, parties to a contract are free to determine the terms that they are bound by and our only duty is to ascertain and give effect to the parties' intent as expressed by the document. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). As stated above, we construe section 4.6.4 as limiting the parties' ability to demand arbitration once the applicable statute of limitations has expired. Moreover, there is nothing in the contract itself indicating that the parties' intended for there to be any exceptions including that the parties be allowed a reasonable time after the claim has arisen to seek arbitration. See Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986) (providing that we must determine the parties' intentions as expressed within the four corners of the instrument).<br />
<br />
[10] We have renumbered the Non-Signatory Appellants' issues for purposes of this appeal.<br />
<br />
[11] Sapphire claimed in its petition that the Insurance Appellants had contracted with Sapphire to procure adequate insurance to protect Sapphire while the Sapphire condominiums were being built and that the Insurance Appellants breached that agreement. Sapphire does not claim that the Insurance Appellants breached the General Contract in any way.<br />
<br />
[12] We note that the subcontract between GTL and PDI contained the exact same provisions. Thus, to the extent PDI intended to make a similar argument, we conclude it is without merit. <br />
<br />
<br />
<br />MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-90348896199423901652015-03-13T12:04:00.000-07:002015-05-02T08:47:04.455-07:00Texas Supreme Court Denies Motion for Rehearing in case in which it found no waiver of right to arbitrate by litigation conduct and reversed Fort Worth Court of Appeals<br />
<div style="text-align: center;">
<b><span style="color: #990000; font-size: large;"><i>Richmont Holdings, Inc. v. Superior Recharge System, L.L.C.</i> No. 13-0907 (Tex. 2014) </span></b></div>
<br />
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<i><span style="color: #0b5394; font-size: large;">The Texas Supreme Court today
(3/13/2015) denied a motion for rehearing by parties seeking to avoid
arbitration in <u>Richmont Holdings, Inc. v. Superior Recharge System</u>. In that
case, decided in a per curiam opinion last December, the Supremes again took a
strong position in favor of arbitration with respect to litigation conduct sufficient
to amount to a waiver of the right to compel arbitration. Concluding that the
movants for arbitration had not substantially invoked the judicial process, the
Court did not even reach the second prong of the <u>Perry Homes v Cull</u> test:
prejudice to the party opposing arbitration. It reversed the Fort Worth Court of Appeals, which had found otherwise. </span><o:p></o:p></i></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-33QJJ0CSV0Y/VQM0hL0Ol_I/AAAAAAAAClI/WrtPCv2OXEU/s1600/2015-03-13%2BRehearing%2BDenied%2Bin%2BRichmont%2BHoldings%2C%2BInc.%2Bv.%2BSuperior%2BRecharge%2BSystem%2C%2BL.L.C.%2BNo.%2B13-0907%2B(Tex.%2B2014).JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="Richmont Holdings, Inc. v. Superior Recharge System, L.L.C. No. 13-0907 (Tex. 2014) " border="0" src="http://4.bp.blogspot.com/-33QJJ0CSV0Y/VQM0hL0Ol_I/AAAAAAAAClI/WrtPCv2OXEU/s1600/2015-03-13%2BRehearing%2BDenied%2Bin%2BRichmont%2BHoldings%2C%2BInc.%2Bv.%2BSuperior%2BRecharge%2BSystem%2C%2BL.L.C.%2BNo.%2B13-0907%2B(Tex.%2B2014).JPG" height="236" title="Richmont Holdings, Inc. v. Superior Recharge System, L.L.C. No. 13-0907 (Tex. 2014) " width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<b><span style="color: #c00000;">RICHMONT HOLDINGS, INC., NUKOTE HOLDING, INC., NUKOTE
INTERNATIONAL, INC., INKBRARY, L.L.C., SUPERIOR ACQUISITIONS L.L.C., JOHN P.
ROCHON, SR., JOHN P. ROCHON, JR., KELLY KITTRELL, RUSSELL MACK, C & R
SERVICES, INC. AND KENNETH R. SCHLAG, Petitioners,<o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<b><span style="color: #c00000;">v.<o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<b><span style="color: #c00000;">SUPERIOR RECHARGE SYSTEMS, L.L.C., AND JON BLAKE,
Respondents.<o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<br /></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
No. 13-0907.<o:p></o:p><br />
<br /></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
Supreme Court of Texas.<o:p></o:p></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<br /></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
Opinion issued: December 19, 2014.<o:p></o:p></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<br /></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
PER CURIAM.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
In holding that petitioner waived arbitration by substantially invoking
the judicial process, the court of appeals, ___ S.W.3d ___ (Tex. App.-Fort
Worth 2013), misapplied our decision in <i>Perry
Homes v. Cull</i>, 258 S.W.3d 580 (Tex. 2008). Accordingly, we reverse the
court of appeals' judgment and remand the case to the trial court. TEX. GOV'T
CODE § 22.225(b)(3), (c).<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
"We have said on many occasions that a party waives an arbitration
clause by substantially invoking the judicial process to the other party's detriment
or prejudice," but "[d]ue to the strong presumption against waiver of
arbitration, this hurdle is a high one." <i>Perry Homes</i>, 258 S.W.3d at 589-90 (footnotes omitted). We have
often determined that arbitration was not waived.[1]<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://3.bp.blogspot.com/-tfmjsXmV1vw/VQM4RR4i9gI/AAAAAAAAClU/ghA3hidXbCI/s1600/Texas%2BSupreme%2BCourt%2B2014%2B-%2B'We%2Bhave%2Boften%2Bdetermined%2Bthat%2Barbitration%2Bwas%2Bnot%2Bwaived'.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt=""We have often determined that arbitration was not waived." Footnote 1 Collecting prior no-waiver decisions" border="0" src="http://3.bp.blogspot.com/-tfmjsXmV1vw/VQM4RR4i9gI/AAAAAAAAClU/ghA3hidXbCI/s1600/Texas%2BSupreme%2BCourt%2B2014%2B-%2B'We%2Bhave%2Boften%2Bdetermined%2Bthat%2Barbitration%2Bwas%2Bnot%2Bwaived'.JPG" height="231" title="Footnote collecting cases in which Texas Supreme Court found that right to arbitrate was not waived" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Footnote 1 in <i>Richmont Holdings, Inc. v. Superior Recharge System, L.L.C</i>. <br />
No. 13-0907 (Tex. 2014) (collecting no-waiver cases) </td></tr>
</tbody></table>
<br />
Whether a party has substantially
invoked the judicial process depends on the totality of the circumstances; key
factors include the reason for delay in moving to enforce arbitration, the
amount of discovery conducted by the movant, and whether the movant sought
disposition on the merits. <i>Perry Homes</i>,
258 S.W.3d at 590-93.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
Richmont Holdings, Inc., through an affiliate, bought the assets of
Superior Recharge Systems, L.L.C. The parties' Asset Purchase Agreement
contained an arbitration provision. Superior Recharge's part-owner, Jon Blake,
agreed to continue as general manager of the business for two years. The
employment contract contained a covenant not to compete but not an arbitration
clause. After six months, Blake's employment was terminated, allegedly for
cause.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
Superior Recharge and Blake (collectively "Blake") sued
Richmont and several of its affiliates and principals (collectively
"Richmont") in Denton County for fraud, breach of contract, a
declaration that the covenant not to compete was unenforceable, and an injunction.
Richmont sued Blake individually in Dallas County to enforce the covenant not
to compete, invoking a forum selection clause in that agreement, and moved to
transfer venue of the Denton County suit to Dallas County or Collin County. The
Dallas County suit was abated, and the motion to transfer was never decided.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
In the Denton County suit, Richmont does not appear to have sought
discovery other than a request for disclosure. <i>See</i> TEX. R. CIV. P. 194.1 and
194.2. Richmont failed to respond to Blake's discovery requests and was
sanctioned $5,000. No trial date appears to have been set. Nineteen months
after being sued, Richmont moved to compel arbitration, asserting that Blake's
claims arose out of the Asset Purchase Agreement and were therefore subject to arbitration.
Blake did not dispute that assertion but argued that Richmont had waived
arbitration by engaging in litigation. The trial court denied the motion to
compel.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
The court of appeals affirmed, but not on waiver, the only ground Blake
raised. Rather, it held that Blake's claims were not covered by the arbitration
agreement. 392 S.W.3d 174, 182-83 (Tex. App.-Fort Worth 2011) (mem. op.). On
Richmont's petition for review in this Court, Blake conceded that the court of
appeals had erred. Accordingly, we reversed, stating:<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
The court of appeals' conclusion that the arbitration provision in the
asset purchase agreement has no application to Blake's lawsuit is contrary to
the parties' contentions and has no support in the record. Moreover, the
court's failure to recognize the arbitration agreement here is contrary to our
precedent, which mandates enforcement of such an agreement absent proof of a
defense. 392 S.W.3d 633, 635 (Tex. 2013) (per curiam). <o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
On remand, the court of appeals held that Richmont had waived
arbitration by suing Blake in Dallas County, moving to transfer venue of the
Denton County suit, failing to respond to discovery requests, and delaying in
moving to compel arbitration. ___ S.W.3d ___, ___ (Tex. App.-Fort Worth 2013).<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
Merely filing suit does not waive arbitration, even when the movant, as
in this case, files a second, separate suit in another county based in part on
a contract at issue in the first action. <i>See
In re D. Wilson Constr. Co</i>., 196 S.W.3d 774, 783 (Tex. 2006). Nor, we
think, does moving to transfer venue. The motion does not address the merits of
the case. Moreover, objections to improper venue must be made at the outset of
the case. TEX. R. CIV. P. 86. Richmont engaged in only minimal discovery. For
the most part, it refused to respond to Blake's discovery requests. Richmont
argues that it delayed in moving to compel arbitration because, while it
drafted the Asset Purchase Agreement and knew full well of the arbitration
clause, it was very slow in recognizing that the clause could apply to Blake's
claims. We think this explanation implausible; certainly, it does not justify
the delay. But mere delay in moving to compel arbitration is not enough for
waiver. <i>In re Fleetwood Homes of Tex.,
L.P</i>., 257 S.W.3d 692, 694 (Tex. 2008) (per curiam) (eight-month delay); <i>In re Vesta Ins. Group, Inc.,</i> 192 S.W.3d
759, 763 (Tex. 2006) (per curiam) (two-year delay); see also Prudential Sec.
Inc. v. Marshall, 909 S.W.2d 896, 898-99 (Tex. 1995) (per curiam) ("A
party does not waive a right to arbitration merely by delay; instead, the party
urging waiver must establish that any delay resulted in prejudice."). The
circumstances here, considered as a whole, do not approach a substantial
invocation of the judicial process.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
Having reached this conclusion, we need not consider whether Blake was
prejudiced by the delay. Accordingly, we grant the petition for review and,
without hearing oral argument, reverse the court of appeals' judgment and
remand the case to the trial court. TEX. R. APP. P. 59.1.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
[1] <i>See Kennedy Hodges, L.L.P. v. Gobellan</i>, 433 S.W.3d 542, 544-45
(Tex. 2014) (per curiam) (law firm did not waive right to arbitrate a fee
dispute with former clients by litigating with a former associate); <i>In re
Fleetwood Homes of Tex., L.P.</i>, 257 S.W.3d 692, 694 (Tex. 2008) (per curiam)
(defendant did not waive by "failing to pursue its arbitration demand for
eight months while discussing a trial setting and allowing limited
discovery"); <i>In re Citigroup Global Mkts., Inc.,</i> 258 S.W.3d 623, 625-26 (Tex.
2008) (per curiam) (defendant did not waive arbitration by removing case to
federal court and acceding to remand seven months later before demanding
arbitration); <i>In re Bank One, N.A.</i>, 216 S.W.3d 825, 827 (Tex. 2007) (per
curiam) (defendant did not waive arbitration by moving to set aside a default
judgment, requesting a new trial, and waiting eight months to move to compel
arbitration); <i>In re D. Wilson Constr. Co.</i>, 196 S.W.3d 774, 783 (Tex. 2006)
(contractors did not waive arbitration by suing to preserve evidence and
cross-claiming for indemnity in a separate suit, absent a showing that their
actions detrimentally affected the defendant); <i>In re Vesta Ins. Group, Inc.</i>,
192 S.W.3d 759, 763 (Tex. 2006) (per curiam) (defendants did not waive
arbitration by litigating for two years, especially when the plaintiff
initiated more discovery requests than he received); <i>In re Serv. Corp. Int'l</i>,
85 S.W.3d 171, 174-75 (Tex. 2002) (per curiam) (defendants did not waive
arbitration by supporting plaintiffs' inclusion in a federal class action whose
members were not subject to arbitration, and moving, inter alia, to dismiss in
that action); <i>In re Bruce Terminix Co.</i>, 988 S.W.2d 702, 704 (Tex. 1998) (per
curiam) (defendant did not waive arbitration by its delay and discovery requests,
when the responses were insufficient to show prejudice); <i>EZ Pawn Corp. v.
Mancias</i>, 934 S.W.2d 87, 89-90 (Tex. 1996) (per curiam) (in the absence of a
showing of prejudice, defendants did not waive arbitration by, e.g., requesting
discovery and waiting ten months to ask for arbitration); <i>Prudential Sec. Inc.
v. Marshall,</i> 909 S.W.2d 896, 898-99 (Tex. 1995) (per curiam) (defendants did
not waive arbitration by moving to strike an intervention, seeking and
resisting discovery, and failing to timely seek mandamus review).<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br />
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<b><span style="color: #cc0000;">OPINION OF THE COURT BELOW</span></b></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<b><span style="color: #cc0000;">(REVERSED)</span></b></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
RICHMONT HOLDINGS, INC. v. SUPERIOR RECHARGE SYSTEMS, LLC, Tex: Court
of Appeals, 2nd Dist. 2013<o:p></o:p></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
RICHMONT HOLDINGS, INC., NUKOTE HOLDING, INC., NUKOTE INTERNATIONAL,
INC., INKBRARY, LLC, SUPERIOR ACQUISITIONS LLC, JOHN P. ROCHON, SR., JOHN P.
ROCHON, JR., KELLY KITTRELL, RUSSELL MACK, C & R SERVICES, INC., AND
KENNETH R. SCHLAG, Appellants,<o:p></o:p></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
v.<o:p></o:p></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
SUPERIOR RECHARGE SYSTEMS, L.L.C. AND JON BLAKE, Appellees.<o:p></o:p></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
<br /></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
No. 02-10-00161-CV.<o:p></o:p></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
Court of Appeals of Texas, Second District, Fort Worth.<o:p></o:p></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
<br /></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
Delivered: August 22, 2013.<o:p></o:p></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
PANEL: LIVINGSTON, C.J.; DAUPHINOT and McCOY, JJ.<o:p></o:p></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
<br /></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
LIVINGSTON, C.J., concurs without opinion.<o:p></o:p></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
<br /></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
MEMORANDUM OPINION ON REMAND[1]<o:p></o:p></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
<br /></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<div style="text-align: center;">
LEE ANN DAUPHINOT, Justice.<o:p></o:p></div>
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
In this case on remand from the Supreme Court of Texas, Appellants
Richmont Holdings, Inc.; Nukote Holding, Inc.; Nukote International, Inc.;
Inkbrary, LLC; Superior Acquisitions LLC; John P. Rochon, Sr.; John P. Rochon,
Jr.; Kelly Kittrell; Russell Mack; C & R Services, Inc.; and Kenneth R.
Schlag (collectively the Richmont parties) appeal from the trial court's order
denying their motion to compel arbitration of the claims brought against them
by Appellees Jon Blake and Superior Recharge Systems, L.L.C. (collectively the
Blake parties). In their sole issue on appeal, the Richmont parties argue that
the Blake parties failed to demonstrate a waiver of the arbitration provision.
Because we hold that the Richmont parties substantially invoked the judicial process
to the prejudice of the Blake parties, we affirm.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<b>Background<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
The Blake parties file this lawsuit<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
In June 2008, the Blake parties filed suit in Denton County against
Richmont Holdings, Inc.; Nukote Holding, Inc.; Nukote International, Inc.;
Inkbrary, LLC; Superior Acquisitions LLC; John P. Rochon, Sr.; John P. Rochon,
Jr.; Kelly Kittrell; and Russell Mack. The Blake parties sought a declaratory
judgment that a covenant not to compete—signed by Jon Blake in an employment
agreement related to a transaction involving the sale of Superior Recharge to
Superior Acquisitions—was unenforceable. Blake also sought injunctive relief.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
The Richmont parties moved to transfer venue to Collin County. In an
amended motion, they sought to transfer venue to Dallas County based upon a
venue provision in Jon Blake's employment agreement. They argued alternatively
that Collin County was the proper county for the suit. When the Blake parties
added C & R Services and Kenneth Schlag as defendants, those defendants
filed their own motion to transfer venue to Dallas, or, alternatively, Collin
County.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
On October 20, 2008, Superior Acquisition sued Jon Blake in Dallas
County for breach of contract, breach of fiduciary duty, and civil theft. The
suit was based on "Blake's failure to perform his duties under the terms
of his employment contract, and his misappropriation of company funds."
The Dallas County trial court abated that case.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
The Richmont parties file a motion for continuance<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
The Blake parties filed a motion seeking to compel discovery and
requesting discovery sanctions. The motion was set for a hearing on December
21, 2009. The Richmont parties filed a motion for continuance on December 18,
2009. The Richmont parties' attorney stated that he had suffered a medical
emergency, had been ordered not to walk or put pressure on his foot, and was
under the influence of "strong pain medication." No order on the
motion appears in the record, but on January 6, 2010, the trial court signed an
order noting that it had conducted the hearing on December 21. The order
instructed the Richmont parties to respond without objection to each of the
Blake parties' discovery requests and to deliver any documents sought by the
Blake parties in discovery to their counsel by March 21, 2010. The trial court
also ordered the Richmont parties to pay $5,550.50 in sanctions by that date.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
The Blake parties file a motion to consolidate<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
In January 2010, the Blake parties filed a motion to consolidate their
suit with one that had been filed by Toner Solutions Corporation in Denton
County against Richmont Holdings; Inkbrary; Rochon, Sr.; Rochon, Jr.; Kittrell;
Schlag; and others not involved in this suit. The motion asserted that Richmont
Holdings was the parent company of all the entities involved in both suits and
that both actions evolved out of Richmont Holdings' actions "to perpetrate
a scheme to monopolize the market for remanufacture and sale of . . . printer
cartilages [sic]."<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
The Richmont parties move to compel arbitration and to stay discovery<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
On January 27, 2010, the Richmont parties filed a motion to compel
arbitration. They alleged that the suit arose out of the purchase of Superior
Recharge's assets and that the asset purchase agreement contained a clause
mandating arbitration of any dispute regarding the agreement. On March 15,
2010, they filed a motion asking the trial court to stay discovery until after
the trial court had ruled on their motion to compel arbitration.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
On March 19, 2010, in an original proceeding filed by the Richmont
parties, this court stayed the trial court's January 6, 2010 order compelling
discovery and stayed all other proceedings in the trial court in the same cause
until further notice except for any proceedings relating to the hearing of or
ruling upon the motion to compel arbitration. On the same date, the Blake
parties filed a response to the motion to compel arbitration asserting that the
Richmont parties had waived arbitration.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
The trial court held a hearing on the motion to compel arbitration,
and, on May 18, signed an order denying the motion to compel arbitration. The
Richmont parties appealed. This court held that the Blake parties' pleadings
dealt with the employment and non-compete agreement, which did not contain an
arbitration provision.[2] On review, the Supreme Court of Texas held that the
parties did have a valid arbitration agreement and remanded the case back to
this court to consider the Richmont parties' waiver defense.[3]<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<b>Standard of Review</b><o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
When reviewing a denial of a motion to compel arbitration, if the
court's factual findings are in dispute, we review the court's denial of the
motion to compel under a legal sufficiency or "no evidence" standard
of review.[4] We defer to the trial court's factual determinations that are
supported by evidence, but we review the trial court's legal determinations de
novo.[5] Whether a party has waived an arbitration clause is a question of law
for the court to decide based on the totality of the circumstances.[6]<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<b>Applicable Law: Waiver of Arbitration</b><o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
Once a party seeking to compel arbitration has established the
existence of an enforceable arbitration agreement and that the dispute falls
within its scope, the burden shifts to the party opposing arbitration to raise
an affirmative defense to the agreement's enforcement, such as waiver.[7] A
party's waiver of the right to compel arbitration may be express, or it may be
implied from a party's unequivocal conduct.[8] Whether express or implied, the
waiver must be intentional.[9] A party impliedly waives an arbitration clause
when the party (1) substantially invokes the judicial process (2) to the other
party's detriment or prejudice.[10] The Supreme Court of Texas has held that
parties who "conduct full discovery, file motions going to the merits, and
seek arbitration only on the eve of trial" waive any right to enforce a
contractual arbitration provision.[11] Whether actions that do not rise to that
level of participation in the judicial process constitute waiver is decided on
a case-by-case basis.[12]<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
To determine whether a party has impliedly waived arbitration, courts
should look to the totality of the circumstances. In conducting this analysis,
the Supreme Court of Texas has considered factors such as:<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• when the movant knew of the arbitration clause;<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• how much discovery has been conducted;<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• who initiated it;<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• whether it related to the merits rather than arbitrability or
standing;<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• how much of it would be useful in arbitration; and<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• whether the movant sought judgment on the merits[13]<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
Prejudice in the context of waiver of arbitration agreements refers to
"inherent unfairness in terms of delay, expense, or damage to a party's
legal position that occurs when the party's opponent forces it to litigate an
issue and later seeks to arbitrate that same issue."[14] That is, "a
party should not be allowed purposefully and unjustifiably to manipulate the
exercise of its arbitral rights simply to gain an unfair tactical advantage
over the opposing party."[15]<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
This court has held that three factors are particularly relevant in
assessing prejudice. First, the court should consider the time and expense
incurred due to the moving party's participation in judicial proceedings.[16]
Second, the court should consider the failure to assert the right to
arbitration. A demand for arbitration puts the other party on notice that
arbitration is forthcoming and gives that party the opportunity to avoid
compromising its position with regard to arbitrable and nonarbitrable
claims.[17] Third, if discovery has been conducted, the court should consider
whether that discovery related only to a party's nonarbitrable claims or all of
the party's claims, including the arbitrable claims. Pretrial discovery
activity relating to a party's arbitrable claims can result in prejudice from a
party's use of judicial processes to gain access to information that would not
have been discoverable in arbitration.[18] Providing discovery and getting
discovery do not necessarily have the same prejudicial effect; "a party
who requests lots of discovery is not prejudiced by getting it and taking it to
arbitration in the same way that a party who produces lots of discovery outside
the stricter discovery limits in arbitration."[19]<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
Analysis<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<b>Substantial Invocation of the Judicial Process</b><o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
The Blake parties asserted the following acts of the Richmont parties
to demonstrate that those parties waived their right to demand arbitration.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• The Richmont parties had filed suit in Dallas County on claims that
involved the same transaction as the one which the Blake parties based their
claims against them;<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• The Richmont parties had not produced any documents in response to
the Blake parties' requests for production;<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• A hearing on Blake's motion for sanctions had originally been set for
September 2009 but was rescheduled for a date in October;<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• The Richmont parties counsel asked to reschedule the hearing due to
illness, and the hearing was rescheduled for November 13, 2009;<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• The attorney for the Richmont parties rescheduled due to illness a
meeting at which the attorneys for both sides were to review discovery requests
and to which the Richmont parties' attorney was supposed to bring production
documents;<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• Counsel for the parties met on November 9, 2009, and counsel for the
Richmont parties agreed to withdraw most of his objections to the Blake
parties' discovery requests and to execute a Rule 11 agreement to submit
discovery, and, in return, the Blake parties' counsel agreed to cancel the
hearing on the motion for sanctions;<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• The Richmont parties' attorney did not sign the Rule 11 agreement,
however, and therefore the Blake parties reset the motion for sanctions hearing
for December 21;<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• The Richmont parties' filed a motion for continuance on December 18
due to illness, but the trial court held the hearing and entered the order
compelling discovery and granting sanctions against the Richmont parties; and<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• The Richmont parties drafted the arbitration clause and were
therefore aware of it from the onset of the litigation. <o:p></o:p><br />
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
To show that they had been prejudiced by the Richmont parties' failure
to invoke their right to arbitration, the Blake parties pointed to the
following:<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• The Richmont parties tendered a request for disclosure, and
responding to the request took the Blake parties four hours;<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• The Blake parties incurred in excess of $50,000 in attorney's fees;
although the Blake parties did not segregate all of the fees to show which fees
were due to the Richmont parties' invocation of the judicial process and which
were self-inflicted,[20] they did allege that at least $5,000 of the fees were
incurred in defending the Dallas litigation; and<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
• The Richmont parties sought to delay discovery, forcing the Blake
parties to file motions, attend hearings, and seek sanctions to obtain the
discovery.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
The Richmont parties filed a response stating, among other things, that
the Dallas County suit "dealt with employment issues, such as civil theft,
which is not a part of this lawsuit," and that the suit did not involve
all of the same parties. They asserted that they had not conducted discovery
related to the merits and therefore had not gained any information that they
would not have been entitled to in arbitration, and the Blake parties would not
be prejudiced by arbitration. They also stated that they moved for arbitration
after the Blake parties amended their petition to add additional claims and
parties and broadened the depth and scope of the lawsuit and then moved to
consolidate the suit with a completely different case with different parties
and claims and concerning a different contract.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
The Richmont parties also asserted that the Blake parties contributed
to the delay because at the October 2, 2008 hearing on the motion to transfer
venue, the trial court stated that it would reset the hearing so that the Blake
parties could replead, but the Blake parties did not replead until June 18,
2009. They stated that the Blake parties took over two and a half months to
file a response to the motion to compel arbitration and another month and half
to file its supplemental brief on the response.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
The Blake parties demonstrated that the Richmont parties' delay in
demanding arbitration led them to incur attorney's fees in making discovery
requests, filing motions to compel discovery, and setting hearings on the
motions, and attending hearings. We hold that the Blake parties met their
burden to demonstrate that they suffered prejudice by the Richmont parties'
substantial invocation of the judicial process.[21]<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
Schlag and C & R Services argue in the alternative that even if the
other Richmont parties waived arbitration, they did not. They assert that they
were not brought into the lawsuit until August 7, 2009 and did not file their
motion to transfer venue until August 28, 2009. But most of the allegations
made against the other Richmont parties applied equally to Schlag and C & R
Services. They also filed a motion to transfer venue, and they also resisted
participating in discovery, thereby forcing the Blake parties to file motions
and set hearings and incur attorney's fees. Accordingly, we overrule the
Richmont parties' issue.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
Conclusion<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
Having overruled the Richmont parties' sole issue, we affirm the trial
court's order denying the motion to compel arbitration. S.W.2d 746, 748 (Tex.
Civ. App.-Houston [14th Dist.] 1979, no writ) (holding that the appellee's long
delay in demanding arbitration, in conjunction with the use of pre-trial
discovery not available in arbitration, manifested an intent on the part of the
appellee to waive its right to arbitration).<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[1] See Tex. R. App. P. 47.4.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[2] Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C., 392
S.W.3d 174, 183 (Tex. App.-Fort Worth 2011).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[3] Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C., 392
S.W.3d 633, 633-34 (Tex. 2013).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[4] J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 233 (Tex. 2003).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[5] Rachal v. Reitz, No. 11-0708, 2013 WL 1859249, at *2 (Tex. May 3,
2013); In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[6] Perry Homes v. Cull, 258 S.W.3d 580, 601 (Tex. 2008); In re
Citigroup Global Mkts., Inc., 258 S.W.3d 623, 625 (Tex. 2008) (orig.
proceeding).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[7] Ellis v. Schlimmer, 337 S.W.3d 860, 862 (Tex. 2011); In re
Fleetwood Homes of Tex., L.P., 257 S.W.3d 692, 695 (Tex. 2008) (orig.
proceeding) (directing the trial court to compel arbitration when the party
resisting arbitration failed to show waiver).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[8] Perry Homes, 258 S.W.3d at 593.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[9] In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex. 2007) (orig.
proceeding).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[10] Perry Homes, 258 S.W.3d at 589-90.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[11] In re Citigroup Global Mkts., 258 S.W.3d at 625 (quoting In re
Vesta Ins. Group, Inc., 192 S.W.3d 759, 764 (Tex. 2006) (orig. proceeding)).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[12] Perry Homes, 258 S.W.3d at 591.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[13] Id. at 591-92.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[14] Id. at 597 (quoting Republic Ins. Co. v. PAICO Receivables, LLC,
383 F.3d 341, 346 (5th Cir. 2004)).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[15] Id. (quoting In re Tyco Int'l Ltd. Sec. Litig., 422 F.3d 41, 46
n.5 (1st Cir. 2005)).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[16] Haddock v. Quinn, 287 S.W.3d 158, 181 (Tex. App.-Fort Worth 2009,
pet. denied).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[17] Id.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[18] In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998) (orig.
proceeding); Haddock, 287 S.W.3d at 181.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[19] Perry Homes, 258 S.W.3d at 600 (emphasis omitted).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[20] See In re Vesta Ins. Group, 192 S.W.3d at 763 (stating that the
opposing party's high costs and attorney's fees did not show prejudice because
the pre-trial costs were "largely self-inflicted" from his sending
discovery requests and amending his petition).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">[21] CropMark Direct, LLC v. Urbanczyk, 377 S.W.3d 761, 764-66 (Tex.
App.-Amarillo 2012, pet. denied) (holding that CropMark had waived its right to
arbitration when it requested a jury trial, delayed seeking arbitration,
participated in discovery that went to the merits rather than to assist in the
determination of whether the claims were subject to arbitration, and used
discovery mechanisms not available through the arbitration process); Spain v.
Houston Oilers, Inc., 593<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
</div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<br />
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-3548628666344980252015-03-06T12:53:00.000-08:002015-05-02T08:53:03.270-07:00FAA preemption & MFA reverse preemption: Is CPRC §74.451, which requires attorney signature and waiver warning in arbitration agreement with health care provider, preempted by the Federal Arbitration Act? -- Texas Supreme Court answers: The Fredericksburg Care Company LP v Perez (Tex Mar. 6, 2015)<b><span style="color: #cc0000; font-size: large;"><br /></span></b>
<b><span style="color: #cc0000; font-size: large;">ARBITRABILITY OF HEALTH CARE LIABILITY CLAIMS IN TEXAS: FAA PREEMPTION AND MFA REVERSE PREEMPTION IN THE MED-MAL CONTEXT </span></b><br />
<br />
<i><span style="color: #0b5394; font-size: large;">In an opinion released today, the Texas Supreme Court holds that the federal law that accords states the right to regulate the business of insurance (McCarran-Ferguson Act) does not furnish an exception to the general principle that the FAA (Federal Arbitration Act) preempts the TAA (Texas Arbitration Act) and other state arbitration laws when the two conflict, where the conflict between the federal and state arbitration laws involved the latter’s attorney-signature and conspicuous-waiver-language requirement for an arbitration agreement between a health care provider and a patient. The FAA has no comparable requirement. </span></i><br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-GGFl-aZxIlk/VPs8qDWc_-I/AAAAAAAACcA/Uh-ftJ8O-KM/s1600/THE%2BFREDERICKSBURG%2BCARE%2BCOMPANY%2C%2BL.P.%2Bcase%2Bon%2Bnursing%2Bhome%2Barbitration%2Bcase%2B-%2B%2BTexas%2BSupreme%2BCourt%2BOral%2BArgument%2Bscreen%2Bshot.JPG" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" src="http://2.bp.blogspot.com/-GGFl-aZxIlk/VPs8qDWc_-I/AAAAAAAACcA/Uh-ftJ8O-KM/s1600/THE%2BFREDERICKSBURG%2BCARE%2BCOMPANY%2C%2BL.P.%2Bcase%2Bon%2Bnursing%2Bhome%2Barbitration%2Bcase%2B-%2B%2BTexas%2BSupreme%2BCourt%2BOral%2BArgument%2Bscreen%2Bshot.JPG" height="118" width="200" /></a></div>
THE FREDERICKSBURG CARE COMPANY, L.P. v. JUANITA PEREZ, VIRGINIA GARCIA, PAUL ZAPATA, AND SYLVIA SANCHEZ, INDIVIDUALLY AND AS ALL HEIRS OF ELISA ZAPATA, DECEASED, No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=13-0573&coa=cossup">13-0573</a> (Tex. March 6, 2015); from Bexar County; 4th Court of Appeals District (<a href="http://www.search.txcourts.gov/Case.aspx?cn=04-13-00111-CV&coa=coa04">04-13-00110-CV</a>, 406 S.W.3d 711, 06-26-13).<br />
<span style="color: #0b5394;"><br /></span>
<span style="color: #0b5394;"><i></i>
<i>The Texas high court for civil matters concludes that the Texas law at issue (Section 74.451 of the Texas Civil Practice and Remedies Code), does not squarely fall within the scope of a state law enacted to regulate the business of insurance. The Court accordingly also concludes that the trial court should have compelled arbitration, rather than denying the motion to compel arbitration based on noncompliance with Section 74.451, which – based on the Supreme Court’s resolution of the interlocutory appeal – is preempted by the FAA and could therefore not be invoked to good effect by the party resisting arbitration to keep the dispute in court. </i></span><br />
<span style="color: #0b5394;"><i><br /></i>
</span><br />
<div>
<i><span style="color: #0b5394;">Unsurprisingly, in light of the extensive history of disputes over arbitration ultimately resolved by the Texas Supreme Court, its decision in this case vindicates the health care provider's preference for arbitration over litigation. </span></i><br />
<i><span style="color: #0b5394;"><br /></span></i>
<span style="color: #0b5394;"><b><u>The bottom line</u>: </b><i>The wrongful death plaintiffs cannot get a jury trial even though the arbitration agreement upon which the defendant relies to remove the case from court to arbitration was defective and unenforceable under Texas law. What's interesting here is that the interests of the health care provider, a nursing home in this case, are being vindicated based on federal law (the Federal Arbitration Act, which has less exacting requirements for agreements to arbitrate, and does not even require a signature), rather than home-made tort reform laws. Indeed, the Texas law at issue in this case provides greater protection for the patients and their families against loss of the constitutional right to trial by jury than federal law. </i></span><br />
<i><span style="color: #0b5394;"><br /></span></i>
<i><span style="color: #0b5394;">The plaintiff's attorney argued -- unsuccessfully - that the required warnings against waiver of jury trial by agreeing to arbitrate and the requirement for the signature of an attorney for the patient on the arbitration agreement were an integral part of tort </span></i><i><span style="color: #0b5394;">reform, and were a means to protect patients in exchange for the protections providers of health care received from the Texas Legislature through tort reform. The nexus to insurance (to bring the issue within the MFA's exception to federal preemption) was, in the plaintiffs' view, the express intent and purpose of tort reform to curb costs of and consequences of med-mal litigation and bring down malpractice insurance rates. </span></i><br />
<span style="color: #0b5394;"><i><br /></i></span>
<span style="color: #0b5394;"><i>The section providing for conspicuous warning language in arbitration agreements with health care providers is actually located within </i><b><a href="http://www.statutes.legis.state.tx.us/Docs/CP/htm/CP.74.htm">Chapter 74 of the Civil Practice and Remedies Code</a>,</b><i> which is titled "</i><b>Medical Liability</b><i>" and forms part of </i><b>TITLE 4. LIABILITY IN TORT</b><i>, rather than having been embedded in the </i><b>General Arbitration Act</b>. (<a href="http://www.statutes.legis.state.tx.us/Docs/CP/htm/CP.171.htm"><b>Chapter 171</b></a>)(TAA or TGAA, short for Texas General Arbitration Act). </span><br />
<span style="color: #0b5394;"><i> </i></span><br />
<span style="color: #0b5394;"><i>But that did not help plaintiff's counsel's efforts to preserve his clients' right to a jury trial either, as the justices focused narrowly on regulation of the business of insurance as involving the relationship between policyholder and insurer, rather than patient and health care provider, insured or otherwise, or the insurance dimension of the health care sector generally that figures so prominently in tort reform. By finding that Section 74.451 didn't involve regulation of the business of insurance, the Court neutralized the reverse-preemption effect of the MFA that would otherwise have saved the Texas-specific requirements for arbitration agreements in the medical services context. </i></span><br />
<span style="color: #0b5394;"><i><br /></i></span>
<br />
<div style="text-align: center;">
<i><span style="color: #3d85c6;"> </span></i><b style="font-size: 12.8000001907349px;"><span style="color: #990000;">PICS FROM ORAL ARGUMENT</span></b><i><span style="color: #3d85c6;"> </span></i></div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-6P8YOSQKKp4/VPsB_qD11mI/AAAAAAAACbU/sdFfPh08c58/s1600/THE%2BFREDERICKSBURG%2BCARE%2BCOMPANY%2C%2BL.P.%2Bv%2BPEREZ%2B(arbitration%2Bof%2Bhealth%2Bcare%2Bliability%2Bclaims)%2B-%2B%2BJustice%2BHecht%2B%2Bwith%2Bcase%2Bsummary%2Bslide.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="http://2.bp.blogspot.com/-6P8YOSQKKp4/VPsB_qD11mI/AAAAAAAACbU/sdFfPh08c58/s1600/THE%2BFREDERICKSBURG%2BCARE%2BCOMPANY%2C%2BL.P.%2Bv%2BPEREZ%2B(arbitration%2Bof%2Bhealth%2Bcare%2Bliability%2Bclaims)%2B-%2B%2BJustice%2BHecht%2B%2Bwith%2Bcase%2Bsummary%2Bslide.JPG" height="286" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Chief Justice Hecht calling the case for <a href="http://texassupremecourt.mediasite.com/mediasite/Play/39dd3c0d53bd4b77982882613d7279d91d">oral argument</a> </td></tr>
</tbody></table>
<div class="separator" style="clear: both; text-align: center;">
</div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://4.bp.blogspot.com/-VpczUdOOIQc/VPsCpVa4i8I/AAAAAAAACbc/Zd44nFWLfbY/s1600/THE%2BFREDERICKSBURG%2BCARE%2BCOMPANY%2C%2BL.P.%2B-%2Boral%2Bargument%2B%2B-%2BJustice%2BGreen%2Blistening%2Bto%2BRespondent's%2BOral%2BArgument.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="Justice Green at oral argument in health care liability arbitration case (video capture)" border="0" src="http://4.bp.blogspot.com/-VpczUdOOIQc/VPsCpVa4i8I/AAAAAAAACbc/Zd44nFWLfbY/s1600/THE%2BFREDERICKSBURG%2BCARE%2BCOMPANY%2C%2BL.P.%2B-%2Boral%2Bargument%2B%2B-%2BJustice%2BGreen%2Blistening%2Bto%2BRespondent's%2BOral%2BArgument.JPG" height="232" title="Justice Green at oral argument in health care liability arbitration case " width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Justice Green listening skeptically to the arguments of the plaintiffs' lawyer; <br />
he later wrote the opinion in favor of the nursing home, and arbitration</td></tr>
</tbody></table>
</div>
<div style="text-align: center;">
<b><span style="color: #cc0000;">THE STATUTORY PROVISION GOVERNING ARBITRATION AGREEMENTS </span></b></div>
<div style="text-align: center;">
<b><span style="color: #cc0000;">IN MEDICAL CONTRACTS </span></b></div>
<div style="text-align: left;">
<div>
<br /></div>
<div>
<i><b><span style="color: #0b5394;">Citation</span></b></i>: TEX. CIV. PRAC. & REM. CODE §74.451 (“Section 74.451”) (prohibiting healthcare providers from entering into agreements with patients to arbitrate health care liability claims unless the agreement contains the appropriate notice in 10-point boldface type and requires that the agreement be signed by an attorney). </div>
</div>
<div style="text-align: center;">
<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td><a href="http://1.bp.blogspot.com/-guE_Fhv1R4A/VPoPF0EvhPI/AAAAAAAACag/weNnZlrBGsU/s1600/CPRC%2B74.451%2BArbitration%2BAgreements%2Bin%2BHealth%2BCare%2BContext.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="http://1.bp.blogspot.com/-guE_Fhv1R4A/VPoPF0EvhPI/AAAAAAAACag/weNnZlrBGsU/s1600/CPRC%2B74.451%2BArbitration%2BAgreements%2Bin%2BHealth%2BCare%2BContext.JPG" height="170" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="font-size: 12.8000001907349px;">The Texas law at issue requires warning language regarding waiver of rights and attorney signature <br />
for arbitration agreements between patient and health care provider to be valid and enforceable.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-TyIs3Jh9iIw/VPsNpjfZE6I/AAAAAAAACbs/rlwDvLymmuY/s1600/THE%2BFREDERICKSBURG%2BCARE%2BCOMPANY%2C%2BL.P.%2Bcase%2Bon%2Bnursing%2Bhome%2Barbitration%2Bcase%2B-%2B%2BTexas%2BSupreme%2BCourt%2BOral%2BArgument%2Bscreen%2Bshot.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="Justice Green wrote the opinion sending the med-mal plaintiffs to arbitration" border="0" src="http://4.bp.blogspot.com/-TyIs3Jh9iIw/VPsNpjfZE6I/AAAAAAAACbs/rlwDvLymmuY/s1600/THE%2BFREDERICKSBURG%2BCARE%2BCOMPANY%2C%2BL.P.%2Bcase%2Bon%2Bnursing%2Bhome%2Barbitration%2Bcase%2B-%2B%2BTexas%2BSupreme%2BCourt%2BOral%2BArgument%2Bscreen%2Bshot.JPG" height="237" title="Justice Green wrote the opinion sending the med-mal plaintiffs to arbitration" width="400" /></a></div>
<br /></td></tr>
</tbody></table>
<div style="text-align: center;">
<b><span style="color: #cc0000;">THE OPINION REVERSING THE SAN ANTONIO COURT OF APPEALS</span></b><br />
<b><span style="color: #cc0000;">WAS AUTHORED BY JUSTICE GREEN </span></b><br />
<b style="font-size: 12.8000001907349px;"><span style="color: #e06666;"><br /></span></b>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-L13pQtzUj8Y/VPoY-q2TubI/AAAAAAAACaw/BC8vfYuAV2s/s1600/THE%2BWILLIAMSBURG%2BCARE%2BCOMPANY%2C%2BL.P.%2Bv.%2BPerez%2B-%2BArbitration%2BAgreement%2Bin%2BHealth%2BCare%2BContext%2B-%2BFAA%2BPreemption.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="THE FREDERICKSBURG CARE COMPANY, L.P. v. Perez ; from Bexar County; 4th Court of Appeals District (04-13-00111-CV, 406 SW3d 313, 06-26-13)" border="0" src="http://1.bp.blogspot.com/-L13pQtzUj8Y/VPoY-q2TubI/AAAAAAAACaw/BC8vfYuAV2s/s1600/THE%2BWILLIAMSBURG%2BCARE%2BCOMPANY%2C%2BL.P.%2Bv.%2BPerez%2B-%2BArbitration%2BAgreement%2Bin%2BHealth%2BCare%2BContext%2B-%2BFAA%2BPreemption.JPG" height="195" title="THE FREDERICKSBURG CARE COMPANY, L.P. v. Perez ; from Bexar County; 4th Court of Appeals District (04-13-00111-CV, 406 SW3d 313, 06-26-13)" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">First two pages of Tex. Sup. Ct. Opinion (click image to enlarge)<br />
Link to full opinion <a href="http://www.txcourts.gov/media/885314/130573.pdf">here</a>.</td></tr>
</tbody></table>
<br />
<b><span style="color: #cc0000;">THE TEXAS SUPREME COURT'S CONCLUSION</span></b></div>
<div style="text-align: center;">
<br /></div>
Section 74.451 of the Texas Civil Practice and Remedies Code was not a law enacted by the<br />
Texas Legislature for the purpose of regulating the business of insurance. It simply applies to<br />
agreements to arbitrate health care liability claims between patients and health care providers.<br />
Accordingly, the MFA does not exempt section 74.451 from preemption by the FAA, and the trial<br />
court should have granted Fredericksburg’s motion to compel arbitration. We reverse the court of<br />
appeals’ judgment and remand this case to the trial court to proceed in a manner consistent with this opinion.<br />
<i><br /></i>
<br />
<div style="text-align: center;">
<b><i>The Fredericksburg Care Company LP v. Perez</i> No. 13-0573 (Tex. Mar. 6, 2015)</b><br />
<br />
<div class="separator" style="clear: both;">
<b style="color: #cc0000;">THE COMPANION CASES IN THE SUPREME COURT</b></div>
<div class="separator" style="clear: both;">
<b style="color: #cc0000;">(resolved with per curiam opinions issued the same day) </b></div>
<div style="text-align: start;">
<br /></div>
<div style="text-align: start;">
<div style="text-align: left;">
THE WILLIAMSBURG CARE COMPANY, L.P. v. JESUSA ACOSTA et al, No. 13-0576; from Bexar County; 4th Court of Appeals District (04-13-00110-CV, 406 SW3d 711, 06-26-13); stay order issued August 9, 2013, lifted</div>
</div>
<div style="text-align: start;">
<div style="text-align: left;">
<br /></div>
</div>
<div style="text-align: start;">
<div style="text-align: left;">
THE FREDERICKSBURG CARE COMPANY, L.P. v. BRENDA LIRA, AS REPRESENTATIVE OF THE ESTATE OF GUADALUPE QUESADA, DECEASED; 13-0577, from Bexar County; 4th Court of Appeals District (04-13-00112-CV, 407 SW3d 810, 06-26-13) stay order issued August 9, 2013, lifted.</div>
</div>
<div style="text-align: start;">
<div style="text-align: left;">
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 the trial court.</div>
</div>
</div>
<br />
<div style="text-align: center;">
<b><span style="color: #cc0000;">TEXAS SUPREME COURT PER CURIM OPINION IN COMPANION CASE</span></b></div>
<br />
<div align="center" style="margin-bottom: .0001pt; margin: 0in; text-align: center;">
<span style="font-size: 13.5pt;">IN THE SUPREME COURT OF TEXAS<o:p></o:p></span></div>
<div align="center" style="margin: 0in 0in 0.0001pt; text-align: center;">
<span style="font-size: 13.5pt;">------------<o:p></o:p></span></div>
<div align="center" style="margin: 0in 0in 0.0001pt; text-align: center;">
<span style="font-size: 13.5pt;">NO. 13-0576<o:p></o:p></span></div>
<div align="center" style="margin: 0in 0in 0.0001pt; text-align: center;">
<span style="font-size: 13.5pt;">------------<o:p></o:p></span></div>
<div align="center" style="margin: 0in 0in 0.0001pt; text-align: center;">
<span style="font-size: 13.5pt;"><b>THE WILLIAMSBURG CARE COMPANY, L.P.,
PETITIONER,<o:p></o:p></b></span></div>
<div align="center" style="margin: 0in 0in 0.0001pt; text-align: center;">
<span style="font-size: 13.5pt;"><b>v.<o:p></o:p></b></span></div>
<div align="center" style="margin: 0in 0in 0.0001pt; text-align: center;">
<span style="font-size: 13.5pt;"><b>JESUSA ACOSTA, ET AL., RESPONDENTS</b><o:p></o:p></span></div>
<div align="center" style="margin: 0in 0in 0.0001pt; text-align: center;">
<span style="font-size: 13.5pt;">----------------------------------------------------<o:p></o:p></span></div>
<div align="center" style="margin: 0in 0in 0.0001pt; text-align: center;">
<span style="font-size: 13.5pt;">ON PETITION FOR REVIEW FROM THE<o:p></o:p></span></div>
<div align="center" style="margin: 0in 0in 0.0001pt; text-align: center;">
<span style="font-size: 13.5pt;">COURT OF APPEALS FOR THE FOURTH DISTRICT
OF TEXAS<o:p></o:p></span></div>
<br />
<div align="center" style="margin: 0in 0in 0.0001pt; text-align: center;">
<span style="font-size: 13.5pt;">----------------------------------------------------</span></div>
<div style="text-align: center;">
PER CURIAM</div>
<div style="text-align: center;">
<br /></div>
The outcome of this case is controlled by our opinion in <i>Fredericksburg Care Co. v. Perez</i>,<br />
__ S.W.3d. __ (Tex. 2015). Both cases, along with a third case styled <i>Fredericksburg Care Co. v.</i><br />
<i>Lira</i>, __ S.W.3d. __ (Tex. 2015) (per curiam), involve the question of whether a federal law, the<br />
McCarran-Ferguson Act (MFA), 15 U.S.C. §§ 1011–1015, exempts Texas Civil Practice and<br />
Remedies Code section 74.451 from being preempted by the Federal Arbitration Act, 9 U.S.C.<br />
§§ 1–16.<br />
<br />
The court of appeals consolidated this case with Perez and Lira for oral argument, and<br />
issued identical opinions (except for changing the identities of the parties) holding that the MFA<br />
exemption from preemption applied to section 74.451. 406 S.W.3d 711, 723 (Tex. App.—San<br />
Antonio 2013). We hold today in Perez that section 74.451 was not a law enacted for the purpose<br />
of regulating the business of insurance and thus does not qualify for the MFA exemption from<br />
preemption. <i>Perez</i>, __ S.W.3d at __. The trial court should have granted the motion to compel<br />
arbitration. <i>Id</i>.<br />
<br />
Accordingly, we grant the petition for review in this case, and without hearing oral argument,<br />
TEX. R. APP. P. 59.1, we reverse the court of appeals’ judgment and remand this case to the trial<br />
court to proceed in a manner consistent with our opinion in Perez, __ S.W.3d __.<br />
<br />
OPINION DELIVERED: March 6, 2015<br />
<br />
<div style="text-align: center;">
<span style="color: #cc0000;"><b>THE ISSUE</b><b> BEFORE THE SUPREME COURT </b></span></div>
<div style="text-align: center;">
<b><span style="color: #cc0000;">ATTRACTED TWO AMICUS CURIAE BRIEFS</span></b></div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-6dnX6eO8YFw/VPol4kTJi5I/AAAAAAAACbA/wafPglWZovE/s1600/Tex%2B13-0573%2BSnip%2Bfrom%2BDocket%2BSheet%2Blisting%2Bamicus%2Bcuriae%2Bbriefs%2Balong%2Bwith%2Bparty%2Bbriefs.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="Image of Docket Sheet in The Fredericksburg Care Company LP v Perez No. 13-0573 (Texas Supreme Court case on arbitration of med-mal claims)" border="0" src="http://2.bp.blogspot.com/-6dnX6eO8YFw/VPol4kTJi5I/AAAAAAAACbA/wafPglWZovE/s1600/Tex%2B13-0573%2BSnip%2Bfrom%2BDocket%2BSheet%2Blisting%2Bamicus%2Bcuriae%2Bbriefs%2Balong%2Bwith%2Bparty%2Bbriefs.JPG" height="338" title="The Fredericksburg Care Company LP v Perez No. 13-0573 (Tex. Mar. 6, 2015)" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Docket Sheet: The Fredericksburg Care Company LP v Perez No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=13-0573&coa=cossup">13-0573</a> </td></tr>
</tbody></table>
<div style="text-align: center;">
<b><span style="color: #cc0000;"><br /></span></b>
<b><span style="color: #cc0000;">TEXT OF THE TEXAS STATUTE FOUND PREEMPTED BY THE FAA</span></b></div>
<br />
<b>SUBCHAPTER J. ARBITRATION AGREEMENTS [<i style="color: red;">warning language shown in red color</i>]</b><br />
<br />
<b>Sec. 74.451. ARBITRATION AGREEMENTS. </b><br />
<br />
(a) No physician, professional association of physicians, or other health care provider shall request or require a patient or prospective patient to execute an agreement to arbitrate a health care liability claim unless the form of agreement delivered to the patient contains a written notice in 10-point boldface type clearly and conspicuously stating:<br />
<b><span style="color: red;">UNDER TEXAS LAW, THIS AGREEMENT IS INVALID AND OF NO LEGAL EFFECT UNLESS IT IS ALSO SIGNED BY AN ATTORNEY OF YOUR OWN CHOOSING. THIS AGREEMENT CONTAINS A WAIVER OF IMPORTANT LEGAL RIGHTS, INCLUDING YOUR RIGHT TO A JURY. YOU SHOULD NOT SIGN THIS AGREEMENT WITHOUT FIRST CONSULTING WITH AN ATTORNEY.</span></b><br />
(b) A violation of this section by a physician or professional association of physicians constitutes a violation of Subtitle B, Title 3, Occupations Code, and shall be subject to the enforcement provisions and sanctions contained in that subtitle.<br />
(c) A violation of this section by a health care provider other than a physician shall constitute a false, misleading, or deceptive act or practice in the conduct of trade or commerce within the meaning of Section 17.46 of the Deceptive Trade Practices-Consumer Protection Act (Subchapter E, Chapter 17, Business & Commerce Code), and shall be subject to an enforcement action by the consumer protection division under that act and subject to the penalties and remedies contained in Section 17.47, Business & Commerce Code, notwithstanding Section 74.004 or any other law.<br />
(d) Notwithstanding any other provision of this section, a person who is found to be in violation of this section for the first time shall be subject only to injunctive relief or other appropriate order requiring the person to cease and desist from such violation, and not to any other penalty or sanction.<br />
<br />
Added by Acts 2003, 78th Leg., ch. 204, Sec. 10.01, eff. Sept. 1, 2003.<br />
<br />
<div style="text-align: center;">
<b><span style="color: #cc0000;">THE CASES IN THE SAN ANTONIO COURT OF APPEALS</span></b> </div>
<div style="text-align: center;">
<br /></div>
<i><span style="color: #0b5394;">The opinion of the court below was written by Justice <b>Rebeca C. Martinez</b>, who was elected to the Fourth Court of Appeals in 2012. Also on the panel were <b>Chief Justice Stone</b>, a fellow Democrat who has since returned to private practice, and <b>Karen Angelini</b>, a Republican first appointed to the Fourth Court of Appeals in 1997 and a former president of the San Antonio Bar Association. </span></i><br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://4.bp.blogspot.com/-ZbxCnwifWes/VPs-j354obI/AAAAAAAACcI/oWy2u7_ta1c/s1600/Fredericksburg%2BCare%2BCo.%2BL.P.%2Bv.%2BPerez%2C%2B406%2BS.W.3d%2B313%2B(Tex.%2BApp.%E2%80%94San%2BAntonio%2B2013%2C%2Bpet.%2Bgranted)(reversed%2Bby%2BTexas%2BSupreme%2BCourt%2Bin%2B2015).JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="http://4.bp.blogspot.com/-ZbxCnwifWes/VPs-j354obI/AAAAAAAACcI/oWy2u7_ta1c/s1600/Fredericksburg%2BCare%2BCo.%2BL.P.%2Bv.%2BPerez%2C%2B406%2BS.W.3d%2B313%2B(Tex.%2BApp.%E2%80%94San%2BAntonio%2B2013%2C%2Bpet.%2Bgranted)(reversed%2Bby%2BTexas%2BSupreme%2BCourt%2Bin%2B2015).JPG" height="186" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Click hyperlinked case style below to see opinion on Google Scholar </td></tr>
</tbody></table>
<i><span style="color: #0b5394;">Three cases involving the same issue were decided by the Fourth Court of Appeals on June 26, 2013. </span></i><a href="https://scholar.google.com/scholar_case?case=12929229852318901893&q=Fredericksburg+Care+Co.+L.P.+v.+Perez&hl=en&as_sdt=4,44">Fredericksburg Care Co. L.P. v. Perez</a>, 406 S.W.3d 313 (Tex. App.—San Antonio 2013); <a href="https://scholar.google.com/scholar_case?case=3413648945044263523&q=Fredericksburg+Care+Co.+L.P.+v.+Perez&hl=en&as_sdt=4,44">Williamsburg Care Co. L.P. v. Acosta</a>, 406 S.W.3d 711 (Tex.App.—San Antonio 2013); and <a href="https://scholar.google.com/scholar_case?case=17312897174203989643&q=Fredericksburg+Care+Co.+L.P.+v.+Perez&hl=en&as_sdt=4,44">Fredericksburg Care Co. L.P. v. Lira</a>, 407 S.W.3d 810 (Tex. App.—San Antonio 2013).<br />
<br />
<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: right; margin-left: 1em; text-align: right;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-XZ_FLD0dUNg/TkoPm0zrFYI/AAAAAAAAAlU/6paSnX9p8UA/s1600/IMG_2791.JPG" imageanchor="1" style="clear: right; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" src="http://1.bp.blogspot.com/-XZ_FLD0dUNg/TkoPm0zrFYI/AAAAAAAAAlU/6paSnX9p8UA/s1600/IMG_2791.JPG" height="200" width="155" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">San Antonio CoA<br />
(Justice Center) </td></tr>
</tbody></table>
<i><span style="color: #0b5394;"><br /></span></i>
<i><span style="color: #0b5394;">Justice Angelini subsequently issued an <a href="https://scholar.google.com/scholar_case?case=3352651420266724607&q=04-13-00822-CV&hl=en&as_sdt=4,44">abatement order</a> in a fourth case, pending the Supreme Court's resolution of the preemption/reverse-preemption issue. See </span>WILLIAMSBURG CARE COMPANY L.P. d/b/a Princeton Place Rehabilitation and Healthcare, Appellant v. Sylvia SOTO, Individually and as Representative of the Estate of Narcisa Dimas, Deceased, Ruby Buentello, Individually and as Representative of the Estate of Manuel Riojas Munoz, Deceased, and Adela Barboza, Individually, Appellees. No. 04-13-00822-CV (Tex.App. - San Antonio, Mar. 4, 2014)<span style="color: #0b5394;">.</span></i><br />
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
<br /></div>
<br />
<br />
<div style="text-align: center;">
<b><span style="color: #cc0000;">THE TEXARKANA COURT OF APPEALS “PREEMPTED” THE SUPREME COURT, THOUGH NOT WITH PRECEDENT-SETTING EFFECT FOR ALL OF TEXAS</span></b></div>
<br />
<i><span style="color: #0b5394;">While the Texas Supreme Court was still mulling over the issue of FAA preemption and MFA reverse preemption, the Sixth Court of Appeals in Texarkana did so likewise, in a factually similar case. Although it was asked to abate that pending appeal, pending the Supreme Court’s forthcoming resolution of the matter (as the Fourth Court of Appeals had done in subsequent appeal involving the same issue), the Sixth CoA overruled the emergency motion for a stay, and beat the Supreme Court in handing down a decision on the merits on the last day of 2014. </span></i><br />
<i><span style="color: #0b5394;"><br /></span></i>
<i><span style="color: #0b5394;">See </span>Villas of Mount Pleasant LLC v King, </i>No. <a href="http://www.search.txcourts.gov/Case.aspx?cn=06-14-00045-CV&coa=coa06">06-14-00045-CV</a> (Tex.App. - Texarkana Dec. 31, 2014)<span style="color: #0b5394;">(text of opinion by Justice Jack Carter pasted below) </span><br />
<span style="color: #0b5394;"><i> </i></span>
<span style="color: #0b5394;"><i> No petition for review was filed. Nor would it have been ready to be resolved within less than three month, together with the multiple petitions for review from the San Antonio Court of Appeals, which had been pending much longer. </i></span><br />
<span style="color: #0b5394;"><i> </i></span><br />
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px;">
<h3 id="gsl_case_name" style="border: 0px; margin: 1em 0px; padding: 0px;">
THE VILLAS OF MOUNT PLEASANT, LLC, D/B/A GREENHILL VILLAS, F/D/B/A VILLAS OF MOUNT PLEASANT, MT. PLEASANT OPERATORS, LLC, AND LLOYD DOUGLAS, Appellants,<br />v.<br />KYLE KING, INDIVIDUALLY, AS ADMINISTRATOR OF THE ESTATE OF MARILOU WHATLEY KING, DECEASED, AND ON BEHALF OF THE WRONGFUL DEATH BENEFICIARIES OF MARILOU WHATLEY KING, Appellee.</h3>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px;">
<a href="https://scholar.google.com/scholar?scidkt=1532469156522893644&as_sdt=2&hl=en" style="color: #660099;">No. 06-14-00045-CV.</a></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px;">
<div style="position: relative;">
<b>Court of Appeals of Texas, Sixth District, Texarkana.</b></div>
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px;">
Submitted: September 24, 2014.</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px;">
Decided: December 31, 2014. </center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px;">
<br /></center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px;">
</center>
<center style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px;">
</center>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
Before Morriss, C.J., Carter and Moseley, JJ.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
OPINION</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
Opinion by Justice JACK CARTER.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
Kyle King admitted his mother, Marilou Whatley King (Whatley), to The Villas of Mount Pleasant, LLC, d/b/a Greenhill Villas (the Villas) nursing facility in Mount Pleasant, Texas. Acting as Whatley's agent, King signed an admission agreement containing an arbitration clause that purported to require the parties to arbitrate any controversy arising from the services provided by the Villas to Whatley. Whatley died, and King sued the Villas alleging that her death was caused by its failure to render proper nursing home care and to protect his mother from abuse. Under Section 74.451 of the Texas Civil Practice and Remedies Code, the arbitration agreement, to be enforceable, must contain a conspicuously placed, written notice stating that the agreement is invalid<i>unless</i> it is also signed by an attorney chosen by and representing the patient. TEX. CIVIL PRAC. & REM. CODE ANN. § 74.451 (West 2011). The agreement signed by King on Whatley's behalf contained no such notice, and it was not signed by an attorney acting on Whatley's behalf. The trial court found that the arbitration agreement was not enforceable.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
The first issue we must resolve is whether the Federal Arbitration Act (the FAA) preempts Section 74.451, thereby rendering it inapplicable to this case. If the FAA does preempt Section 74.451, then we must decide whether the McCarran-Ferguson Act (the MFA) reverse preempts the FAA, thereby negating the FAA's preemptive effect and restoring Section 74.451's applicability to Whatley's agreement with the Villas.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
I. Texas Law on Arbitration Agreements Between Patients and Health Care Providers</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
Section 74.451 of the Texas Civil Practice and Remedies Code prohibits health care providers from requiring or even requesting that a patient execute an agreement to arbitrate a health care liability claim unless such agreement includes a clear, conspicuous, written notice printed in ten-point, boldface type and stating,</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; margin: 1em 0px; padding: 0px 40px; position: relative;">
UNDER TEXAS LAW, THIS AGREEMENT IS INVALID AND OF NO LEGAL EFFECT UNLESS IT IS ALSO SIGNED BY AN ATTORNEY OF YOUR OWN CHOOSING. THIS AGREEMENT CONTAINS A WAIVER OF IMPORTANT LEGAL RIGHTS, INCLUDING YOUR RIGHT TO A JURY. YOU SHOULD NOT SIGN THIS AGREEMENT WITHOUT FIRST CONSULTING WITH AN ATTORNEY.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
TEX. CIV. PRAC. & REM. CODE ANN. § 74.451(a). No such provision was included in the agreement at issue in this case.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
II. Preemption of Texas Law by the FAA</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
The Villas contends that the FAA preempts Section 74.451 and that, consequently, the FAA governs the enforceability of the arbitration agreement signed by King on Whatley's behalf. The United States Supreme Court has held that the FAA "extends to any contract affecting commerce, as far as the Commerce Clause of the United States Constitution will reach." <a href="https://scholar.google.com/scholar_case?case=1771344762164246153&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>In re L & L Kempwood Assocs.,</i> 9 S.W.3d 125, 127 (Tex. 1999)</a>(citing <a href="https://scholar.google.com/scholar_case?case=7323591547773321813&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Allied-Bruce Terminix Co. v. Dobson,</i> 513 U.S. 265, 268 (1995)</a>). Stated differently, if an arbitration agreement relates to a transaction involving interstate commerce, then the FAA preempts state law and governs the enforceability of that arbitration agreement. If, on the other hand, the arbitration agreement does not relate to a transaction involving interstate commerce, then state law governs enforceability. The Texas Supreme Court has held that the payment of federal Medicare or Medicaid funds to a Texas health care provider as reimbursement for health care services involves interstate commerce to a sufficient degree to render the transaction between the Texas health care provider and its patient a transaction affecting commerce. <a href="https://scholar.google.com/scholar_case?case=5187383634464855738&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>In re Nexion Health at Humble, Inc.,</i> 173 S.W.3d 67, 69 (Tex. 2005)</a>. Consequently, an arbitration agreement between a Texas health care provider and its patient under the above scenario relates to a transaction affecting interstate commerce, and the enforceability of that arbitration agreement is governed by the FAA. <i>Id.</i> Here, the Villas participates in the Medicare and Medicaid programs and is obligated to meet certain minimum health and safety standards established by the Department of Health and Human Services. Further, Whatley received monthly Medicare benefits that were used to partially defray the expenses arising from her stay at the Villas. Following the precedent of the Texas Supreme Court and under the facts and circumstances of this case, we hold that the FAA preempts Section 74.451 of the Texas Civil Practice and Remedies Code. <i>See id.</i>The remaining question, then, is whether the reverse preemption mechanism contained in the MFA applies under the facts and circumstances of this case.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
III. The MFA and Reverse Preemption</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
The MFA states, in pertinent part, "No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance . . . unless such Act specifically relates to the business of insurance." 15 U.S.C. § 1012(b). "The McCarran-Ferguson Act (MFA) provides an exception to . . . preemption if the conflicting state law was enacted `for the purpose of regulating the business of insurance.'" <a href="https://scholar.google.com/scholar_case?case=12929229852318901893&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fredericksburg Care Co., L.P. v. Perez,</i> 406 S.W.3d 313, 318 (Tex. App.-San Antonio 2013, pet. granted)</a> (quoting 15 U.S.C. § 1012(b)). Three conditions must be satisfied to invoke the MFA's preemption exception: (1) the federal statute at issue—here, the FAA—must not "specifically relate[] to the business of insurance," (2) the state statute at issue—here Section 74.451 of the Texas Civil Practice and Remedies Code—must have been "enacted . . . for the purpose of regulating the business of insurance," and (3) application of the federal statute must "invalidate, impair, or supersede" the state statute. 15 U.S.C. § 1012(b); <a href="https://scholar.google.com/scholar_case?case=12929229852318901893&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Perez,</i> 406 S.W.3d at 318</a> (citing <a href="https://scholar.google.com/scholar_case?case=18195143229343197681&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>United States Dep't of Treasury v. Fabe,</i> 508 U.S. 491, 500-01 (1993)</a>; <a href="https://scholar.google.com/scholar_case?case=16870113439390495122&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Munich Am. Reinsurance Co. v. Crawford,</i> 141 F.3d 585, 590 (5th Cir. 1998)</a>). The first and third conditions are unquestionably met in the case; the issue we must decide is whether Section 74.451 was enacted for the purpose of regulating the business of insurance.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
The San Antonio Court of Appeals recently addressed this issue in <i>Perez,</i> where several former patients sued a nursing home alleging negligence and gross negligence. After carefully analyzing the issues related to reverse preemption and the MFA, the San Antonio Court found that "section 74.451 is a law `enacted for the purpose of regulating the business of insurance' within the meaning of the first clause of section 1012(b) of the MFA and is, thus, exempted from preemption by the FAA."<a href="https://scholar.google.com/scholar_case?case=12929229852318901893&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Perez,</i> 406 S.W.3d at 325-26</a> (quoting 15 U.S.C. § 1012(b)).<sup><a href="https://scholar.google.com/scholar_case?q=06-14-00045-CV&hl=en&as_sdt=4,44&case=18440454841925916241&scilh=0#[1]" name="r[1]" style="color: #660099;">[1]</a></sup> In reaching this decision, the San Antonio Court relied heavily on <a href="https://scholar.google.com/scholar_case?case=13516688362916341930&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>In re Kepka,</i> 178 S.W.3d 279 (Tex. App.-Houston [1st Dist.] 2005, orig. proceeding),</a> <i>overruled in part on other grounds by</i><i>Labatt Food Serv., L.P.,</i> 279 S.W.3d 640 (Tex. 2009).<sup><a href="https://scholar.google.com/scholar_case?q=06-14-00045-CV&hl=en&as_sdt=4,44&case=18440454841925916241&scilh=0#[2]" name="r[2]" style="color: #660099;">[2]</a></sup> <i>Kepka</i> was the first case to address the interplay of Section 74.451, the FAA, and the MFA, albeit in the context of Section 74.451's predecessor, Article 4590i, Section 15.01 of the Texas Medical Liability Insurance Improvement Act.<sup><a href="https://scholar.google.com/scholar_case?q=06-14-00045-CV&hl=en&as_sdt=4,44&case=18440454841925916241&scilh=0#[3]" name="r[3]" style="color: #660099;">[3]</a></sup></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
In analyzing Article 4590i, the <i>Kepka</i> court took note of the findings and purposes underlying its enactment and found,</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; margin: 1em 0px; padding: 0px 40px; position: relative;">
It is clear . . . that the purpose of the <i>entire statute</i> — even those substantive provisions that do not expressly mention insurance — was to decrease the costs of health-care liability claims through modifications of the insurance, tort, and medical-practice systems, in order to make insurance reasonably affordable so that health-care providers could have protection against potential liability and so that citizens could have more affordable and accessible health care.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<a href="https://scholar.google.com/scholar_case?case=13516688362916341930&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Kepka,</i> 178 S.W.3d at 291</a>. The <i>Kepka</i> court concluded that Article 4590i, including Section 15.01, was enacted to regulate the business of insurance. <i>Id.</i> at 289. Consequently, the <i>Kepka</i> court held that the MFA's exception was triggered, reversing the FAA's preemptive effect on Texas' arbitration notice requirements. <i>Id.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
</div>
<h2 style="background-color: white; border: 0px; color: #222222; font-family: Arial, sans-serif; margin: 1em 0px; padding: 0px; position: relative;">
A. Review of Entire Statutory Scheme or Individual Parts?</h2>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
The Villas criticizes the reasoning of <i>Kepka</i> and <i>Perez,</i> labeling it an "all or nothing approach." Indeed, the <i>Kepka</i> and <i>Perez</i> opinions considered the purpose of the TMLA—or its predecessor in <i>Kepka</i>—in its entirety and found that the purpose behind the legislation, as a whole, was to address issues of medical malpractice and the perception that professional liability insurance was either too expensive or entirely unavailable. The Villas contends that the better approach is to analyze Section 74.451, which limits the creation of arbitration agreements between health care providers and patients, in isolation.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
The TMLA was unquestionably enacted as a part of the tort reform movement in Texas, and it was clearly intended to affect liability insurance rates paid by health care providers. However, it is also true that the particular subsection with which we are confronted does not specifically address the business of insurance; rather, Section 74.451 is a significant encumbrance on the rights of certain parties—health care providers and their patients—to enter into arbitration agreements. In fact, it is reasonable to conclude that Section 74.451 favors litigation—generally thought to increase insurance premiums—over arbitration. The conundrum, obviously, is determining whether we should look specifically at Section 74.451 or to the larger body of legislation of which it is a subpart in determining whether the statute was enacted for the purpose of regulating the business of insurance.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
In <a href="https://scholar.google.com/scholar_case?case=177407890455668874&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Labor Life Insurance Co. v. Pireno,</i> 458 U.S. 119 (1982),</a> a chiropractor sued an insurance company alleging that the company was using a peer review committee to examine whether his treatment was reasonable and necessary. The allegation was that the peer review system violated the Sherman Act and was a conspiracy to eliminate competitive pricing. <i>Id.</i> The issue confronting the <i>Pireno</i> court was whether the MFA exempted the practice of using peer review committees from antitrust scrutiny. If the MFA's exception was to apply, then the peer review practice would have to be deemed a part of the "business of insurance." The United States Supreme Court found that the use of peer review committees was not part of the business of insurance and that the MFA's exception did not apply. <i>Pireno</i> discussed three criteria, first applied in <a href="https://scholar.google.com/scholar_case?case=7349986088039375108&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Group Life & Health Insurance Co. v. Royal Drug Co.,</i> 440 U.S. 205, 211-12 (1979),</a> relevant in determining whether a particular practice by an insurance company is part of the business of insurance: "(1) the practice has the effect of transferring or spreading a policyholder's risk, (2) the practice is an integral part of the policy relationship between the insurer and the insured; and (3) the practice is limited to entities within the insurance industry." <a href="https://scholar.google.com/scholar_case?case=177407890455668874&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Pireno,</i> 458 U.S. at 129</a> (citing <a href="https://scholar.google.com/scholar_case?case=7349986088039375108&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Royal Drug Co.,</i> 440 U.S. 205, 211-12 (1979)</a>).</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
In <a href="https://scholar.google.com/scholar_case?case=18195143229343197681&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>United States Department of Treasury v. Fabe,</i> 508 U.S. 491 (1993),</a> an insurance company in Ohio was declared insolvent. A liquidator was appointed, and the United States filed claims in excess of $10,700,000.00. Under federal law, the United States' claims were entitled to first priority, but under an Ohio statute, the insurance company's policyholders were given first priority over the United States. The liquidator argued that the Ohio law was an act regulating the business of insurance and that the MFA's exception applied, meaning Ohio law governed the issue of priorities. <i>Id.</i> at 497. The United States Department of the Treasury argued that the liquidation of an insolvent insurance company was not part of the business of insurance and that, as a result, the MFA had no effect on the Sherman Act's preemption of Ohio state law.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
The United States Supreme Court applied the <i>Pireno</i> test to the facts of <i>Fabe</i> and concluded,</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; margin: 1em 0px; padding: 0px 40px; position: relative;">
There can be no doubt that the actual performance of an insurance contract falls within the "business of insurance," as we understood that phrase in <i>Pireno</i> and <i>Royal Drug.</i> To hold otherwise would be mere formalism. The Court's statement in <i>Pireno</i> that the "transfer of risk from insured to insurer is effected by means of the contract between the parties . . . and . . . is complete at the time that the contract is entered" presumes that the insurance contract in fact will be enforced. Without performance of the terms of the insurance policy, there is no risk transfer at all. Moreover, performance of an insurance contract also satisfies the remaining prongs of the <i>Pireno</i> test: It is central to the policy relationship between insurer and insured and is confined entirely to entities within the insurance industry. The Ohio priority statute is designed to carry out the enforcement of insurance contracts by ensuring the payment of policyholders' claims despite the insurance company's intervening bankruptcy. Because it is integrally related to the performance of insurance contracts after bankruptcy, Ohio's law is one "enacted by any State for the purpose of regulating the business of insurance."</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<a href="https://scholar.google.com/scholar_case?case=18195143229343197681&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fabe,</i> 508 U.S. at 503-04</a> (quoting <a href="https://scholar.google.com/scholar_case?case=177407890455668874&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Pireno,</i> 458 U.S. at 130</a>; 15 U.S.C. § 1012(b)). However, the <i>Fabe</i> court limited its finding on the applicability of the MFA to the Ohio priority statute's regulation of policyholders when it stated, "The Ohio statute is enacted `for the purpose of regulating the business of insurance' to the extent that it serves to ensure that, if possible, policyholders ultimately will receive payment on their claims." <i>Id.</i>at 506. The court drew a sharp distinction between the interests of policyholders, on the one hand, and those of general creditors who were not policyholders, on the other. The Court stated, "To the extent that it is designated to further the interests of other creditors, however, it is not a law enacted for the purpose of regulating the business of insurance." <i>Id.</i> at 508. It is this language from <i>Fabe</i> concerning the interests of non-policyholder creditors that we find critical to the case at hand.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
According to the Villas, <i>Fabe</i> requires that we analyze individual sections or subsections that are clearly part of a larger statutory framework in a vacuum. In other words, the Villas posits that, under <i>Fabe,</i> we must examine Section 74.451 in isolation, without reference to or consideration of the legislative intent behind the TMLA, the larger statutory framework of which Section 74.451 is a part. The Villas points to <i>Fabe</i>'s limited holding—"to the extent [the Ohio statute at issue] . . . regulates policyholders, [it] is a law enacted for the purpose of regulating the business of insurance." <i>Id.</i> at 508. However, "[t]o the extent [the statute] is designed to further the interests of other creditors . . . it is not a law enacted for the purpose of regulating the business of insurance." <i>Id.</i> By analogy, the Villas argues that, even if the overall purpose of the TMLA was to affect policyholders and rates, the purpose of this particular statute had no effect on the business of insurance.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
In support of its narrow interpretation of <i>Fabe,</i> the Villas directs us to footnote eight, where the majority answered some of the dissent's criticisms:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; margin: 1em 0px; padding: 0px 40px; position: relative;">
The dissent assails our holding at both ends, contending that it at once goes too far and not quite far enough. On the one hand, the dissent suggests that our holding is too "broad" in the sense that "any law which redounds to the benefit of policyholders is, <i>ipso facto,</i> a law enacted to regulate the business of insurance." Post, at 511. But this is precisely the argument we reject in the text, as evidenced by the narrowness of our actual holding. Uncomfortable with our distinction between the priority given to policyholders and the priority afforded other creditors, the dissent complains, on the other hand, that this is evidence of a "serious flaw." Post, at 517. But the dissent itself concedes that a state statute regulating the liquidation of insolvent insurance companies need not be treated as a package which stands or falls in its entirety. Post, at 518. Given this concession, it is the dissent's insistence upon an all-or-nothing approach to this particular statute that is flawed. The dissent adduces no support for its assertion that we must deal with the various priority provisions of the Ohio law as if they were all designed to further a single end. That was not the approach taken by this Court in <i>National Securities,</i><sup><a href="https://scholar.google.com/scholar_case?q=06-14-00045-CV&hl=en&as_sdt=4,44&case=18440454841925916241&scilh=0#[4]" name="r[4]" style="color: #660099;">[4]</a></sup> which carefully parsed a state statute with dual goals and held that it regulated the business of insurance only to the extent that it protected policyholders.<i>Supra,</i> at 502. And the dissent misinterprets our pronouncement on the clash of priorities as a "compromise holding," Post, at 517, forgetting that the severability of the various priority provisions is a question of state law.<sup><a href="https://scholar.google.com/scholar_case?q=06-14-00045-CV&hl=en&as_sdt=4,44&case=18440454841925916241&scilh=0#[5]" name="r[5]" style="color: #660099;">[5]</a></sup></blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<a href="https://scholar.google.com/scholar_case?case=18195143229343197681&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fabe,</i> 508 U.S. at 509, n.8</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
In holding that the result in <i>Fabe</i> was based on the dual goals of the Ohio statute,<i>Perez</i> rejected the argument that <i>Fabe</i> mandates a particularized parsing approach in determining whether a particular statute is governed by the MFA:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; margin: 1em 0px; padding: 0px 40px; position: relative;">
[Appellant nursing facility] cites to <i>Fabe</i> as support for this "parsing" type of statutory construction. However, <i>Fabe</i> clarified in a footnote that the basis for its "parsing" analysis of the Ohio statute was the statute's dual goals in giving priority to policyholders as well as other creditors. <a href="https://scholar.google.com/scholar_case?case=18195143229343197681&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fabe,</i> 508 U.S. at 508, 509 n.8</a>. Section 74.451 has no such dual goal.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<a href="https://scholar.google.com/scholar_case?case=12929229852318901893&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Perez,</i> 406 S.W.3d at 325</a>. We reject this reading of <i>Fabe. Fabe</i> teaches that the entirety of a statute need not be treated in such a way as to overlook the particularized goals of discrete statutory provisions. Here, for example, the overarching goal of the TMLA is undoubtedly to reduce medical malpractice liability insurance premiums. It is apparent, however, that not every section of the Act explicitly advances that goal. Indeed, the particularized goal of Section 74.451—ensuring that patients are explicitly notified of their rights before signing an arbitration agreement—has nothing to do with regulating the business of insurance. Taking our guidance from <i>Fabe,</i> we do not believe the entirety of the TMLA must be treated as advancing a single, unitary purpose. Other cases have taken this approach. For example, the Austin Court of Appeals in <a href="https://scholar.google.com/scholar_case?case=9233500133870882386&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Everest Reinsurance Co. v. Howard,</i> 950 S.W.2d 800 (Tex. App.-Austin 1997, writ denied),</a> relied on <i>Fabe</i> in holding that the now repealed Article 21.28, Section 4(h) of the Texas Insurance Code was "not a law enacted `for the purpose of regulating insurance. . . ." <i>Id.</i> at 803; <i>see</i> Act of June 1, 1987, 70th Leg., R.S., ch. 1073, § 33, sec. 4(h), 1987 Tex. Gen. Laws 3610, 3649, <i>repealed by</i> Act of May 24, 2005, 79th Leg., R.S., ch. 727, § 18(a)(6), 2005 Tex. Gen. Laws 1752, 2187. Under Section 4(h), the filing of a delinquency proceeding against an insurer or a receiver in a Texas receivership court made that specific court the exclusive venue for all actions or proceedings filed thereafter relating to that insurer or receiver. Act of June 1, 1987, 70th Leg., R.S., ch. 1073, § 33, sec. 4(h), 1987 Tex. Gen. Laws 3610, 3649 (repealed 2005). In <i>Howard,</i> a delinquency proceeding was filed against an insolvent reinsurance company (Company 1), and a receiver was appointed to conduct Company 1's affairs. The receiver filed a complaint against another reinsurance company (Company 2) for monies allegedly due to Company 1. Company 2 removed the case to federal court, and the receiver fought removal by arguing that Section 4(h) was enacted for the purpose of regulating the business of insurance and that, consequently, under the MFA, Section 4(h) was excepted from preemption by the federal removal statute. In rejecting this argument, the Austin Court stated,</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; margin: 1em 0px; padding: 0px 40px; position: relative;">
The exclusive venue provision of section 4(h) does not affect the relationship between insurance companies and their policyholders; it merely designates a forum in which disputes concerning insolvent insurers can be heard. The substantive rights and responsibilities of insurers and their policyholders can be protected in either state or federal court. Accordingly, because section 4(h) of the Receivership Statute is not a law enacted "for the purpose of regulating insurance," the McCarran-Ferguson Act does not apply and cannot preempt the federal removal statute.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<i>Id.</i> at 803; <i>see also </i><a href="https://scholar.google.com/scholar_case?case=5083179302733121093&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Langdeau v. United States,</i> 363 S.W.2d 327 (Tex. Civ. App.-Austin 1962, no writ)</a> (holding that provision of Texas Insurance Code did not regulate business of insurance but established priority for class of creditors of insurance company). While the Insurance Code, when considered collectively and in broad, general terms, was obviously intended to regulate the business of insurance, the Austin Court of Appeals twice looked beyond the collective intent to the actual intent and effect of specific subsections of the Insurance Code to determine that those specific subsections were not enacted for the purpose of regulating insurance. We agree with the approach and reasoning employed by our sister court in Austin.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
In <i>Fabe,</i> the statute in question was a part of the Ohio Insurance Code. In determining whether the MFA's exception was triggered, the Supreme Court specifically examined the priority of claims statute, not the entirety of the Ohio Insurance Code. In analyzing that particular statute, the Supreme Court noted the differing goals for different sections of the same statute; one section was designed for the regulation of the business of insurance, and another section was not.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
In the face of a "medical malpractice insurance crisis," the Legislature broadened the scope of Article 4590i and recodified it as Chapter 74 of the Texas Civil Practice and Remedies Code. <a href="https://scholar.google.com/scholar_case?case=4330641502643533978&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Tex. West Oaks Hosp., LP v. Williams,</i> 371 S.W.3d 171, 176-77 (Tex. 2012)</a> (citing Act of June 2, 2003, 78th Leg., R.S., ch. 204, § 10.11(a)(5), 2003 Tex. Gen. Laws 847, 884). Even so, Section 74.451 does not specifically address the regulation of the business of insurance. This section has nothing to do with the relationship between insurers and insureds and is not integral to that relationship. <i>Cf.</i><a href="https://scholar.google.com/scholar_case?case=18195143229343197681&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fabe,</i> 508 U.S. at 504</a>. Laws which would fall within the MFA's ambit include those</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; margin: 1em 0px; padding: 0px 40px; position: relative;">
enacted "for the purpose of regulating the business of insurance" . . . [which] possess the "end, intention, or aim" of adjusting, managing, or controlling the business of insurance. BLACK'S LAW DICTIONARY 1236, 1286 (6th ed. 1990). This category necessarily encompasses more than just the "business of insurance." . . . [W]e believe that the actual performance of an insurance contract is an essential part of the "business of insurance." Because the Ohio statute is "aimed at protecting or regulating" the performance of an insurance contract, <i>National Securities,</i>393 U.S. at 460, it follows that it is a law "enacted for the purpose of regulating the business of insurance," within the meaning of the first clause of § 2(b).</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<a href="https://scholar.google.com/scholar_case?case=18195143229343197681&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fabe,</i> 508 U.S. at 505</a>. Section 74.451 does not fit the definition adopted in <i>Fabe.</i></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
Finally, even if Section 74.451 has a tangential effect on insurance contracts, any such indirect effect is insufficient to trigger the MFA's preemption exception. The United States Supreme Court's rejection of this argument in <i>Fabe</i> is instructive:</div>
<blockquote style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; margin: 1em 0px; padding: 0px 40px; position: relative;">
Of course, every preference accorded to the creditors of an insolvent insurer ultimately may redound to the benefit of policyholders by enhancing the reliability of the insurance company. This argument, however, goes too far: "But in that sense, every business decision made by an insurance company has some impact on its reliability . . . and its status as a reliable insurer." <a href="https://scholar.google.com/scholar_case?case=7349986088039375108&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Royal Drug,</i> 440 U.S. at 216-17</a>. <i>Royal Drug</i>rejected the notion that such indirect effects are sufficient for a state law to avoid pre-emption under the McCarran-Ferguson Act. <i>Id.</i> at 217.</blockquote>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<a href="https://scholar.google.com/scholar_case?case=18195143229343197681&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Fabe,</i> 508 U.S. at 508-09</a>.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
<br /></div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; font-size: 14px; line-height: 19.0909080505371px; position: relative;">
In light of the foregoing, we reverse the trial court's judgment and remand this case for further proceedings consistent with this opinion.</div>
<div style="background-color: white; color: #222222; font-family: Arial, sans-serif; line-height: 19.0909080505371px; position: relative;">
<span style="font-size: x-small;"><br /></span></div>
<div style="position: relative;">
<span style="font-size: x-small;"><a href="https://scholar.google.com/scholar_case?q=06-14-00045-CV&hl=en&as_sdt=4,44&case=18440454841925916241&scilh=0#r[1]" name="[1]" style="color: #660099;">[1]</a> San Antonio applied the same reasoning to reach the same result in two additional opinions issued the same day as <a href="https://scholar.google.com/scholar_case?case=17312897174203989643&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Perez: Fredricksburg Care Co., L.P. v. Lira,</i> 407 S.W.3d 810 (Tex. App.-San Antonio 2013, pet. filed),</a> and<a href="https://scholar.google.com/scholar_case?case=3413648945044263523&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>Williamsburg Care Co., L.P. v. Acosta,</i> 406 S.W.3d 711 (Tex. App.-San Antonio 2013, pet. filed)</a>.</span><br />
<span style="font-size: x-small;"><br /></span></div>
<div style="position: relative;">
<span style="font-size: x-small;"><a href="https://scholar.google.com/scholar_case?q=06-14-00045-CV&hl=en&as_sdt=4,44&case=18440454841925916241&scilh=0#r[2]" name="[2]" style="color: #660099;">[2]</a> The Dallas Court of Appeals applied the reasoning of <i>Kepka</i> in reaching the same result in <a href="https://scholar.google.com/scholar_case?case=1550300588000105021&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>In re Sthran,</i> 327 S.W.3d 839 (Tex. App.-Dallas 2010, orig. proceeding),</a> as did the Federal District Court for the Eastern District of Texas in <a class="gsl_co_link" href="https://scholar.google.com/scholar_case?about=13573868613000615963&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="border-bottom-color: rgb(102, 0, 153); border-bottom-style: dotted; border-bottom-width: 1px; color: #660099; text-decoration: none;"><i>Patterson v. Nexion Health, Inc.,</i> No. 2-06-CV-443, 2007 WL 2021326 (E.D. Tex. July 9, 2007)</a>.</span><br />
<span style="font-size: x-small;"><br /></span></div>
<div style="position: relative;">
<span style="font-size: x-small;"><a href="https://scholar.google.com/scholar_case?q=06-14-00045-CV&hl=en&as_sdt=4,44&case=18440454841925916241&scilh=0#r[3]" name="[3]" style="color: #660099;">[3]</a> <i>See</i> Act of May 25, 1993, 73d Leg., R.S., ch. 625, § 4, 1993 Tex. Gen. Laws 2347, 2349-50, repealed by Act of June 2, 2003, 78th Leg., R.S., ch. 204, § 10.09, 2003 Tex. Gen. Laws 847, 884.</span><br />
<span style="font-size: x-small;"><br /></span></div>
<div style="position: relative;">
<span style="font-size: x-small;"><a href="https://scholar.google.com/scholar_case?q=06-14-00045-CV&hl=en&as_sdt=4,44&case=18440454841925916241&scilh=0#r[4]" name="[4]" style="color: #660099;">[4]</a> <a href="https://scholar.google.com/scholar_case?case=5172014589059103071&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099;"><i>SEC v. Nat'l Secs., Inc.,</i> 393 U.S. 453 (1969)</a>. Two Arizona insurance companies had merged with approval of the Arizona Director of Insurance as required by state law; the SEC sued to rescind the merger for alleged material misrepresentations, and the insurance companies invoked the MFA in arguing that federal securities law did not apply because the relevant Arizona law concerned the business of insurance. The United States Supreme Court found that the MFA's preemption exception did not apply. In the words of the Court, "[The] core of the `business of insurance'" under the MFA is "[t]he relationship between insurer and insured, the type of policy which could be issued, its reliability, interpretation, and enforcement." <i>Id.</i> at 460. Without elaborating, the Court also recognized that, "[u]ndoubtedly, other activities of insurance companies relate so closely to their status as reliable insurers that they too must be placed in the same class." <i>Id.</i> Finally, the Court stated that, "whatever the exact scope of the statutory term, it is clear where the focus was—it was on the relationship between the insurance company and the policyholder." <i>Id.</i></span></div>
<span style="font-size: x-small;"><small style="background-color: white; color: #222222; font-family: Arial, sans-serif;"></small></span><br />
<div style="position: relative;">
<span style="font-size: x-small;"><a href="https://scholar.google.com/scholar_case?q=06-14-00045-CV&hl=en&as_sdt=4,44&case=18440454841925916241&scilh=0#r[5]" name="[5]" style="color: #660099; text-decoration: underline;">[5]</a> In a concurring opinion, Chief Justice Roberts explicitly recognized the precedential value of footnotes by stating that "footnotes are part of an opinion, too." <a href="https://scholar.google.com/scholar_case?case=7583524719000119169&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099; text-decoration: underline;"><i>United States v. Denedo,</i> 556 U.S. 904, 921(2009)</a>. The precedential value of footnotes has been implicitly recognized in dissenting opinions based solely on footnotes.<i>See, e.g., </i><a href="https://scholar.google.com/scholar_case?case=11732159662802506254&q=06-14-00045-CV&hl=en&as_sdt=4,44&scilh=0" style="color: #660099; text-decoration: underline;"><i>Fry v. Pliler,</i> 551 U.S. 112 (2007)</a> (Breyer, J., joining the majority except as to footnote 1 and Part II-B); William A. Ramsey, <i>Taking Note of Footnotes: The Precedential Value of Footnotes in Judicial Opinions,</i> RES GESTAE, Sept. 2010, at 10.</span></div>
<span style="color: #0b5394; font-size: x-small;"><i><br /></i></span>
<span style="color: #0b5394; font-size: x-small;"><i><br /></i></span>
<br />
<div style="text-align: center;">
<br /></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-66909597207055248182014-10-22T13:46:00.000-07:002015-03-03T15:00:10.922-08:00Can an order compelling arbitration be challenged by immediate appeal? <i><span style="color: #0b5394; font-size: large;"><br /></span></i>
<br />
<div style="text-align: justify;">
<span style="color: #0b5394; font-size: large;"><i>No immediate appellate review of trial court order sending parties to arbitration either under the FAA or the TAA. <a href="http://tex-app-justices.blogspot.com/2015/03/what-is-interlocutory-appeal.html">Interlocutory appeal</a> not authorized under such circumstances (as opposed to an order denying a motion to compel arbitration). Bashaw v Republic State Mortgage Co, No 01-14-00427-CV (Tex.App.- Houston [1st Dist.] Sep. 4, 2014) </i></span></div>
<b><br /></b>
<br />
<div style="text-align: center;">
<b><span style="color: #990000;">FRANCIS BASHAW</span></b></div>
<div style="text-align: center;">
<b><span style="color: #990000;">v.</span></b></div>
<div style="text-align: center;">
<b><span style="color: #990000;">REPUBLIC STATE MORTGAGE CO</span></b></div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
No. 01-14-00427-CV</div>
<div style="text-align: center;">
Opinion issued September 4, 2014.</div>
<div style="text-align: center;">
<a href="http://tex-app-justices.blogspot.com/p/1stcoa.html">Court of Appeals of Texas, First District, Houston</a> </div>
<div style="text-align: center;">
Panel consists of Chief Justice Radack and Justices Jennings and Keyes.<br />
<br /></div>
<div style="text-align: center;">
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-lY87mM3RTWA/VIn0Qtm1IiI/AAAAAAAACIY/xDGsTexgt0k/s1600/Old%2B1910%2BCourthouse%2Bframed%2Bby%2Bgreen%2Bfoliage%2B-%2Bview%2Bacross%2BFannin%2Bangled%2Bup%2B2014-07-18%2Bpic.JPG" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="http://2.bp.blogspot.com/-lY87mM3RTWA/VIn0Qtm1IiI/AAAAAAAACIY/xDGsTexgt0k/s1600/Old%2B1910%2BCourthouse%2Bframed%2Bby%2Bgreen%2Bfoliage%2B-%2Bview%2Bacross%2BFannin%2Bangled%2Bup%2B2014-07-18%2Bpic.JPG" height="236" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">First Court of Appeals (Old Harris County Courthouse) </td></tr>
</tbody></table>
<b><span style="color: #990000;">PER CURIAM MEMORANDUM OPINION</span></b></div>
<div style="text-align: center;">
<br /></div>
Appellant, Francis Bashaw, attempts to appeal from the trial court's April 25, 2014 order staying this case and granting Republic State Mortgage Co.'s motion to compel arbitration. Appellee, Republic State Mortgage Co., has filed a "Motion to Dismiss for Lack of Jurisdiction Pursuant to Rule 42.3(a)." We grant the motion and dismiss this appeal.<br />
<br />
Bashaw entered into a "Branch Agreement" with Republic State Mortgage in 2006. On September 22, 2011, Bashaw filed suit against Republic State Mortgage, alleging breach of fiduciary duty, fraud by nondisclosure, and defalcation. On October 25, 2011, Republic State Mortgage filed a motion to dismiss or, in the alternative, to stay and compel arbitration. On September 21, 2012, the trial court granted the motion to stay, referred the case to arbitration, and stayed the case for six months. On June 11, 2013, Republic State Mortgage filed an amended motion to stay and to compel arbitration. The trial court granted the amended motion on April 25, 2014, again staying the case for six months and referring the claims to arbitration. On May 14, 2014, Bashaw filed a notice of appeal from the trial court's April 25, 2014 order.<br />
<br />
On July 9, 2014, Republic State Mortage filed a motion to dismiss this appeal for lack of jurisdiction. In the motion, Republic State Mortgage argues that the trial court's April 25, 2014 order is a non-appealable interlocutory order, and that we therefore have no jurisdiction over this appeal. Bashaw has not responded to the motion.<br />
<br />
"Whether under the Texas Arbitration Act or the Federal Arbitration Act, there is no interlocutory appeal over an order granting a motion to compel arbitration. As a result, we have no jurisdiction over this appeal and must dismiss it." Koontz v. Citibank (South Dakota), N.A., No. 01-05-01140-CV, 2007 WL 1299674, at *1 (Tex. App.-Houston [1st Dist.] May 3, 2007, no pet.) (mem. op., internal citations omitted); <i>see In re Gulf Exploration, LLC</i>, 289 S.W.3d 836, 839-41 (Tex. 2009) (<i>quoting Perry Homes v. Cull</i>,258 S.W.3d 580, 586 n.13 (Tex. 2008)); <i>Ortiz v. Junell Law Firm</i>, No. 14-11-00805-CV, 2011 WL 5554620, at *1 (Tex. App.-Houston [14th Dist.] Nov. 15, 2011, pet. denied) (mem. op.).<br />
<br />
Accordingly, we grant Republic State Mortgage's motion to dismiss and dismiss this appeal for want of jurisdiction. <i>See</i> TEX. R. APP. P. 42.3(a). We dismiss any other pending motions as moot.<br />
<br />
<div style="text-align: center;">
---------</div>
<br />
<div style="text-align: center;">
<b><span style="color: #0b5394;">STATUTORY BASIS FOR INTERLOCUTORY APPEAL </span></b><br />
<b><span style="color: #0b5394;">FROM ORDER DENYING ARBITRATION</span><span style="color: #990000;"> </span></b></div>
<br />
In 2009, the Texas Legislature amended the Texas Arbitration Act to permit interlocutory appeals of orders denying motions to compel arbitration pursuant to the FAA. <i>See </i>Tex. Civ. Prac. & Rem. Code § 51.016 (West, Westlaw through 2013 3d C.S.); <i>see also CMH Homes v. Perez</i>, 340 S.W.3d 444, 448 (Tex. 2011) (construing section 51.016). If a matter is subject to the FAA, section 51.016 of the Texas Civil Practice and Remedies Code authorizes 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 § 51.016. <br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-X0nTiRPs-Gk/VPY6_v0G1HI/AAAAAAAACZI/Qk6ZS52Qk6E/s1600/CPRC%2Bsection%2Bauthorizing%2Binterlocutory%2Bappeal%2Bof%2Bdenial%2Bof%2Bmotion%2Bto%2Bcompel%2Barbitration%2Bunder%2Bthe%2BFAA.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://1.bp.blogspot.com/-X0nTiRPs-Gk/VPY6_v0G1HI/AAAAAAAACZI/Qk6ZS52Qk6E/s1600/CPRC%2Bsection%2Bauthorizing%2Binterlocutory%2Bappeal%2Bof%2Bdenial%2Bof%2Bmotion%2Bto%2Bcompel%2Barbitration%2Bunder%2Bthe%2BFAA.JPG" height="60" width="400" /></a></div>
<div style="text-align: center;">
<br /></div>
<br />
<br />
<br />
<br />MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0tag:blogger.com,1999:blog-5947456760390711098.post-73966592518692339192013-10-10T13:29:00.003-07:002015-03-03T14:57:45.082-08:00Lack of Consideration argument with respect to arbitration agreement<br />
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<i><span style="color: #0b5394; font-size: large;">The mutual surrender of the right to trial by jury that is necessarily part of an agreement to arbitrate disputes suffices as consideration under contract law. </span></i><span style="font-size: small;"><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: 12.0pt;">Regarding any lack-of-consideration
argument, it is well-settled in Texas that "[a] mutual agreement to
arbitrate claims provides sufficient consideration for an arbitration
agreement." <i>Sun Fab Indus.
Contracting Inc. v. Lujan</i>, 361 S.W.3d 147, 152 (Tex. App.-El Paso 2011, no
pet.) (<i>citing In re U.S. Home Corp.</i>,
236 S.W.3d 761, 764 (Tex. 2007) (orig. proceeding) (per curiam)); <i>see In re Tenet Healthcare, Ltd.,</i> 84
S.W.3d 760, 767 (Tex. App.-Houston [1st Dist.] 2002, orig. proceeding) (holding
arbitration agreement was supported by consideration where "the parties'
agreement created mutual promises by both to forego their right to a jury
trial"); <i>In re Alamo Lumber Co</i>.,
23 S.W.3d 577, 579-80 (Tex. App.-San Antonio 2000, orig. proceeding)
("Since the parties surrendered their rights to trial by jury, these
mutual promises supply valid consideration."). <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;"><br /></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-size: x-small;">SOURCE: <a href="http://tex-app-justices.blogspot.com/p/13thcoa.html">CORPUS CHRISTI COURT OF APPEALS</a>
- Nos. 13-12-00564-CV AND 13-12-00620-C
- 6/27/2013 </span><span style="font-size: 12pt;"><o:p></o:p></span><br />
<span style="font-size: 12.0pt;"><br /></span>
<span style="font-size: 12.0pt;"><br /></span></div>
MOTPhttp://www.blogger.com/profile/15883011307129083993noreply@blogger.com0