Did 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)

DOES MAY REALLY MEAN MUST ?

Southern Green Builders, LP and Sam Seidel v. Jaime Cleveland  No. 14-17-00483-CV 

and No. 14-17-00540-CV. (Tex.App.- Houston [14th Dist.] Aug. 9, 2018)
Dissent by Justice Tracy Christopher

Negotiable Boilerplate Contract (Builder's Email) 

"shall" replaced with "may" but 2 of 3 justices now say it means "must"
arbitrate  

Final wording of ADR paragraph in the signed contract 

THE GIST OF THE DISSENT BY JUSTICE CHRISTOPHER 

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."

"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). 

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.

SOUTHERN GREEN BUILDERS, LP AND SAM SEIDEL, Appellants,
v.
JAIME CLEVELAND, Appellee.

Nos. 14-17-00483-CV, 14-17-00540-CV.

Court of Appeals of Texas, Fourteenth District, Houston.

Majority Opinion and Dissenting Opinion filed August 9, 2018.

Timothy C. Ross, Lauren Scroggs, for Southern Green Builders, LP, Appellant.

Crystal Parker, Jason Gregory Johns, Harris Huguenard, Lionel M. Schooler, for Jaime Cleveland, Appellee.

Jason Gregory Johns, Harris Huguenard, Lionel M. Schooler, Courtney Carlson, for Jennifer Cleveland, Appellee.

On Appeal from the 215th District Court, Harris County, Texas, Trial Court Cause No. 2017-13499.

Reversed and Remanded.

Panel consists of Justices Christopher, Donovan, and Jewell (Christopher, J., dissenting).

MAJORITY OPINION

JOHN DONOVAN, Justice.

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.^[1] In a consolidated, accelerated, interlocutory appeal, SGB and Seidel argue the trial court erred in denying arbitration. We agree.

I. Background

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:

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:

***

(c) Mediation-Binding Arbitration/Waiver of Jury Trial. 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.

***

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.

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.

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.

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.

II. Analysis

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?

A. Standard of review and substantive law

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 de novo. In re Labatt Food Servs., L.P., 279S.W.3d 640, 643 (Tex. 2009) (citing Brainard v. State, 12 S.W.3d 6, 30 (Tex. 1999); see Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992)). Whether an arbitration agreement is enforceable is subject to de novo review. See id. (citing J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003)).

"Courts cannot compel a party to arbitrate claims in the absence of an agreement to arbitrate." Kehoe v. Pollack, 526 S.W.3d 781, 791 (Tex. App.-Houston [14th Dist.] 2017, no pet.) (citing In the Estate of Guerrero, 465 S.W.3d 693, 699 (Tex. App.-Houston [14th Dist.] 2015, pet. denied) (en banc)). A party moving to compel arbitration bears the initial burden of proving the existence of an arbitration agreement. Ellis v. Schlimmer, 337 S.W.3d 860, 862 (Tex. 2011) (citing J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003); Tex. Civ. Prac. & Rem. Code § 171.021(a)); see also Rachal v. Reitz, 403 S.W.3d 840, 843 (Tex. 2013) (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. See Kehoe, 526 S.W.3d at 791; The Branch Law Firm, L.L.P. v. Osborn, 447 S.W.3d 390, 394 (Tex. App.-Houston [14th Dist.] 2014, no pet.); see also Labatt Food Servs., 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").

The existence of a valid arbitration agreement is a legal question. In re D. Wilson Constr., 196 S.W.3d 774, 781 (Tex. 2006). In interpreting an agreement to arbitrate, we apply ordinary contract principles. J.M. Davidson, Inc., 128 S.W.3d at 227. 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. Id. at 229. A trial court "has no `discretion' in determining what the law is or applying the law to the facts." In re D. Wilson Constr., 196 S.W.3d at 781(quoting Walker v. Packer, 827 S.W.2d 833, 840 (Tex.1992) (orig. proceeding)).

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. Ellis, 337 S.W.3d at 862. Indeed, ". . . a court should not deny arbitration unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue." In re D. Wilson Constr., 196 S.W.3d at 783(emphasis original) (internal quotation marks omitted) (quoting Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995) (per curiam) (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. Id. (see In re Poly-America, L.P., 262 S.W.3d 337, 348 (Tex. 2008)). Here, appellants challenge the trial court's rulings on both motions to compel arbitration. We address each in turn.

B. The trial court erred by denying appellants' motions to compel

SGB and Seidel, as the parties seeking to compel arbitration,^[2] 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. See Rachal, 403 S.W.3d at 843.

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.^[3] 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.

SGB and Seidel argue that arbitration is required if requested. They maintain that the arbitration provision in Section 17(c)—i.e., 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. In re U.S. Home Corp., 236 S.W.3d 761 (Tex. 2007) (per curiam)("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:

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).

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.

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 U.S. Home Corp., is inapposite because it involved two agreements, one of which contained a mandatory arbitration clause. Cleveland distinguishes U.S. Home Corp. 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.e., "binding" versus "non-binding") for a means of resolving existing disputes," and is considered after the question of arbitrability is resolved.

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.^[4] Hence, as interpreted by this court's precedent, this clause constitutes a binding promise to arbitrate if either party requested it. See Feldman/Matz Interests, LLP v. Settlement Capital Corp., 140 S.W.3d 879, 888 (Tex. App.-Houston [14th Dist.] 2004, no pet) ("may" submit language is mandatory for arbitration). In Feldman/Matz Interests, LLP, the court explained its interpretation of the "may" submit clause as follows:

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. See, e.g., Deaton Truck Line, Inc., v. Local Union 612, 314 F.2d 418 (5th Cir. 1962); Austin v. Owens-Brockway Glass Container, Inc., 78 F.3d 875, 879 (4th Cir.), cert. denied, 519 U.S. 980, 117 S. Ct. 432, 136 L.Ed.2d 330 (1996); Ceres Marine Terminals, Inc. v. Int'l Longshoremen's Ass'n, Local 1969, 683 F.2d 242, 246-47 (7th Cir. 1982); Local 771, I.A.T.S.E., AFL-CIO v. RKO Gen., Inc., 546 F.2d 1107, 1116 (2d Cir. 1977); Bonnot v. Cong. of Indep. Unions Local No. 4, 331 F.2d 355, 359 (8th Cir. 1964). 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.

Id.; see In re U.S. Home Corp., 236 S.W.3d at 765 (holding clause that permitted either party to request arbitration and did not require permission from other to be mandatory); see also Hanover Ins. Co. v. Kiva Lodge Condo. Owners' Ass'n, Inc.,221 So. 3d 446, 453-54 (Ala. 2016) ("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."

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. Lewis v. Adams,979 S.W.2d 831, 836 (Tex. App.-Houston [14th Dist.] 1998, no pet.) (citations omitted). The parol evidence rule provides that the terms of a written contract cannot be contradicted by evidence of an earlier, inconsistent agreement.^[5] Id.

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. Smith v. Smith, 794 S.W.2d 823, 827 (Tex. App.-Dallas 1990, no pet.). 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. Weinacht v. Phillips Coal Co.,673 S.W.2d 677, 679 (Tex. App.-Dallas 1984, no writ). 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.

Cleveland attempts to avoid preclusion of his extrinsic evidence (i.e., prior redlined draft) by arguing the Texas Supreme Court's recent decision in First Bank v. Brumitt permits the trial court to consider the circumstances surrounding the formation to discern the meaning of an unambiguous contract. See 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 Brummit. Cleveland's suggested construction adds a requirement that is not set forth in the contract, i.e., it requires Cleveland to consent or agree to arbitrate any claims, disputes, or questions that SGB and Seidel have requested to arbitrate. Brumitt 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." Id. 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." Id. The trial court in this case could not rely on extrinsic evidence to create an intent that the contract itself does not express. Id.

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. See Feldman/Matz Interests, LLP, 140 S.W.3d at 888. Accordingly, we sustain SGB's and Seidel's issues.

III. Conclusion

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.

[1] 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.

[2] 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). See In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 189-90 (Tex. 2007) ("Because the plaintiffs' claims against Medina are in substance claims against Merrill Lynch, they must abide by their agreement to arbitrate those claims."); In re Hous. Progressive Radiology Assocs., PLLC, 474 S.W.3d 435, 447 (Tex. App.-Houston [1st Dist.] 2015, no pet.). 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.

[3] 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, infra, we disagree with Cleveland's interpretation of the arbitration clause and its enforceability. And, as stated, infra 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.

[4] The cases relied upon by Cleveland expressly require the parties to commit to arbitration and allow one party to reject such a request. See Tex. Health Res. v. Kruse, 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); Travelers Indem. Co. v. Tex. Mun. League Joint Self-Ins. Fund,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."

[5] 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. See Gonzalez v. United Broth. Of Carpenters and Joiners of Am., Local 551, 93 S.W.3d 208, 211 (Tex. App.-Houston [14th Dist.] 2002, no pet.) (setting forth exceptions to parol evidence rule when extrinsic evidence may be shown to be admissible).

DISSENTING OPINION 

TRACY CHRISTOPHER, Justice.

Because I believe that the arbitration clause is not mandatory, I respectfully dissent.

1. The Negotiations

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."

This is what Cleveland did to the arbitration clause—he struck through most of the provision and added the underlined words:

(c) Mediation-Binding Arbitration/Waiver of Jury Trial. 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.

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.

Southern Green agreed to the changes.

2. Under Texas Supreme Court case law, we can consider deletions.

In Houston Exploration Co. v Wellington Underwriting Agencies, LTD, 352 S.W.3d 462 (Tex. 2011), 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. Id. at 470-71 (citing Gibson v. Turner, 294 S.W.2d 781 (Tex. 1956) and Houston Pipe Line Co. v. Dwyer, 374 S.W.2d 662 (Tex. 1964)).

And the Supreme Court has also considered deletions from a form contract in determining the scope of an arbitration contract. See G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 526 (Tex. 2015). This rule of construction is not limited to where a party contends a contract is ambiguous. Id.

3. Generally, "may" is permissive, and "shall" is mandatory.

Under both the ordinary meaning of words and case law, may is permissive while shall is mandatory. See 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"); Dallas Cnty. Cmty. Coll. Dist. v. Bolton, 185 S.W.3d 868, 873-74 (Tex. 2005) ("may" grants permission to); Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 493 (Tex. 2001)("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. See Tex. Gov't Code 311.016.

4. Contracts should not be interpreted to render a part of the contract meaningless.

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." See Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983); see also FPL Energy, LLC v. TXU Portfolio Mgmt. Co., 426 S.W.3d 59, 69 (Tex. 2014) (interpreting a contract, as a matter of law, to avoid rendering a provision of the contract meaningless).

5. Using these rules, the agreement does not mandate arbitration.

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 may arbitrate and also provides that the parties shall 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.

6. Neither U.S. Home Corp. nor Feldman/Matzcompels a different result.

In In re U.S. Home Corp., 236 S.W.3d 761 (Tex. 2007) (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 . . . ." Id. 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.

Similarly, the contract language in Feldman/Matz is quite different from the contract language in this case. See Feldman/Matz Interests, L.L.P. v. Settlement Capital Corp., 140 S.W.3d 879, 888 (Tex. App.-Houston [14th Dist.] 2004, no pet.). The contract provided in pertinent part:

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.

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.

"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).

7. Conclusion

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.

CASE CITE AND LINKS:

Southern Green Builders, LP v. Cleveland, 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).

Texas Appeals Court Upholds Builder's Arbitration Clause. By Matthew Guarnaccia. Law360 (August 9, 2018).
ARBITRATION: Beware the Term “May”. Comment By Jack E. Urquhart August 12, 2018
([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.")
Also see: Amicus Curiae letter in Southern Green Builders LP v. Cleveland (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 parol evidence rule does not apply).

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

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

  

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

  

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

  

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

 

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

  

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

 

STANDARD OF REVIEW

 

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

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

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

 

State contract law governs arbitration agreements.

The Federal Arbitration Act (FAA)

The FAA provides, in relevant part:

 

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

   

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

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

Texas Law — Formation of Contracts

   

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

  

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

  

Mutual Promises and Consideration

  

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

  

Illusory Promises

  

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

  

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

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

Houston appeals court vacates arbitration award worth more than $6 million

First Court of Appeals, in an opinion authored by Justice Terry Jennings, holds that arbitor exceeded his authority by entering an award on a matter not submitted to him, and not part of the parties' arbitration agreement. Reverses trial court's confirmation of award. Burlington Resources Oil & Gas Company LP v. San Juan Basin Royalty Trust, No. (Tex.App.- Houston [1st Dist.] Aug. 16, 2007)(Opinion by Justice Jennings)(arbitration award set aside)(Before Justices Nuchia, Jennings and Higley) Appeal from 281st District Court of Harris County (Judge David J. Bernal) OPINION Appellant, Burlington Resources Oil & Gas Company LP ("Burlington"), challenges the trial court's judgment rendered in favor of appellee, San Juan Basin Royalty Trust (the "Trust"), confirming a portion of an arbitration award in favor of the Trust and ordering that the Trust recover from Burlington damages in the amount of $6,019,370, plus interest, for a total disputed award of $6,243,990. In its first issue, Burlington contends that the parties did not agree, by clear and unmistakable language, to submit questions regarding the scope of arbitrable issues to the arbitrator. In its second issue, Burlington contends that "construing the scope of the arbitration agreement de novo," the parties' dispute is not within the scope of the arbitration agreement. We reverse and render in part and remand in part. Factual and Procedural Background Burlington (1) owns and operates several oil and gas properties in New Mexico. The Trust holds a net overriding royalty interest in those properties and, pursuant to the terms of a "Conveyance," is entitled to receive a 75% interest in the net proceeds from those properties. (2) Burlington is required by the Conveyance to issue quarterly accounting statements to the Trust, and the Trust has 180 days to except to those statements. In October 2004, in order to resolve a number of specific existing "audit disputes," the parties entered into an "Agreement Dealing with the Resolution of Existing Audit Disputes" (the "Arbitration Agreement"). However, the parties ultimately disagreed regarding the abitrability of one of the Trust's claims ruled upon by the arbitrator. After the arbitrator ruled in favor of the Trust on this claim, Burlington filed its application to vacate, modify, or correct the arbitration award. The parties' dispute relevant to this appeal originates from Burlington's entry into a settlement agreement in 1990 with the Gas Company of New Mexico ("GCNM") to resolve litigation involving properties covered by the Conveyance (the "GCNM settlement agreement"). Pursuant to the terms of the GCNM settlement agreement, Burlington received $54.5 million in settlement payments. At that time, Burlington allocated $6.7 million of those proceeds to take-or-pay claims, $21 million to past-pricing claims, and $26.8 million to future-pricing claims. In accordance with the terms of the Conveyance, in calculating the amount of the GCNM settlement proceeds owed to the Trust for its net overriding royalty interest, Burlington did not include the $6.7 million allocated to the take-or-pay claims. As the Trust notes, however, the Trust also was not burdened with a charge for any royalty payments due to other royalty owners on that portion of the GCNM settlement. At that time, the Trust did not challenge Burlington's allocation of the GCNM settlement proceeds or Burlington's exclusion of the $6.7 million portion of the settlement in calculating the amounts owed to the Trust. In 2001, Burlington entered into a settlement agreement with the Minerals Management Service of the United States Department of Interior ("MMS") and the Jicarilla Apache Indian Nation ("Jicarilla"), other royalty interest holders in properties covered by the Conveyance (the "MMS/Jicarilla settlement"). Burlington, MMS, and Jicarilla entered into the MMS/Jicarilla settlement in order to resolve MMS's and Jicarilla's complaints regarding the amount of royalty payments due and owing to them from the proceeds of the GCNM settlement. The Trust asserts that as part of its MMS/Jicarilla settlement, Burlington agreed to pay MMS and Jicarilla royalties on the $6.7 million portion of the GCNM settlement that had been originally allocated to "non-royalty-bearing take-or-pay claims." Burlington disputes the Trust's claim and asserts, to the contrary, that MMS and Jicarilla expressly acknowledged that they were not entitled to royalty payments on the $6.7 million portion of the GCNM settlement. Although the parties disagree as to the whether MMS and Jicarilla received royalty payments on the $6.7 million portion of the GCNM settlement, the Trust asserts that, following the MMS/Jicarilla settlement, Burlington erroneously charged the Trust with its 75% share of the MMS/Jicarilla settlement payment by deducting this charge from the amount of proceeds due to the Trust for its net overriding royalty interest on the properties. The Trust complained that the charge assessed against it by Burlington had been calculated based on the full amount of the MMS/Jicarilla settlement, including the $6.7 million originally allocated to take-or-pay claims. The parties entered into the Arbitration Agreement to settle this "audit dispute" and a number of other existing audit disputes, many of which are not relevant to this appeal. The Arbitration Agreement, our focus in resolving the parties' dispute, states, in relevant part, 3. Exhibit "C" attached hereto identifies audit exceptions that the parties have identified for submission to binding arbitration pursuant to the procedures set forth hereafter. . . . [T]he exceptions identified in Exhibit "C" constitute the only items that will be subjected to arbitration. 4. Arbitration Agreement The existing audit disputes described on attached Exhibit "C," . . . shall be finally settled by arbitration pursuant to the provisions hereof. This agreement to arbitrate applies only to the audit disputes identified on Exhibit "C" . . . all of which shall be collectively referred to as the "Audit Disputes." (a) The Audit Disputes shall be heard and determined by one Arbitrator. . . . . (b) The proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, unless otherwise specified herein. . . . In the event of a conflict between such Commercial Arbitration Rules and this Agreement, this Agreement shall control. (Emphasis added). Exhibit C, attached to the Arbitration Agreement, lists a number of audit disputes, and, as Burlington emphasizes, includes a column entitled "Arbitrate Amount," which details specific amounts at issue for each of the identified audit disputes. On the first page of Exhibit C, the sum total "arbitrate amount" for all of the audit disputes listed in Exhibit C, including many of which that are not relevant to the underlying award or this appeal, is identified as $1,528,223. In fact, among the numerous audit disputes identified on Exhibit C, only two specific disputes are relevant to this appeal, and the total "arbitrate amount" for these two disputes is identified as $374,978. The parties identified the first dispute as "Gross Proceeds under stated due to excess royalties charged from MMS/Jicarilla settlement," and the total arbitrate amount for that dispute is identified as $342,477. The parties labeled their second dispute as "Interest Overcharged on MMS/Jicarilla Settlement," and the total arbitrate amount for that dispute is identified as $32,501. There is no mention of the GCNM settlement or any audit issues specifically relating to the GCNM settlement anywhere in the Arbitration Agreement or Exhibit C. At the conclusion of the arbitration, the arbitrator entered an arbitration award in favor of the Trust, including an award of over $6 million on the two relevant audit disputes for the Trust's "75% share of additional gross proceeds resulting from the reallocation of $6.7 million [of the 1990 GCNM settlement] to past pricing." In its award, the arbitrator conceded that Burlington had objected to consideration of the Trust's claim for its share of the $6.7 million in reallocated proceeds. However, the arbitrator determined that it had jurisdiction to decide its "own jurisdiction" pursuant to the terms of the Arbitration Agreement, which provided that the arbitration would be conducted "in accordance with the Commercial Arbitration Rules of the American Arbitration Association unless otherwise specificed." The arbitrator then cited in his opinion Rule 7(a) of the Commercial Rules, which provides, "The Arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the Arbitration Agreement." Commercial Rules of the American Arbitration Association, Rule 7(a). After determining that it had the power to decide arbitrability, the arbitrator concluded that "the Trust's claim to its proportionate share of the $6.7 million proceeds [from the 1990 GCNM settlement] is within the scope of the Arbitration Agreement." The arbitrator contended that Exhibit C identified "an exception related to the MMS/Jicarilla settlement" and that the Trust's claim arose from Burlington's charging the Trust for additional royalty payments Burlington made to Jicarilla and MMS to settle their claims even though Burlington had not shared the $6.7 million portion on which the additional royalty payments had been calculated. Based on this, the arbitrator stated, From the testimony and documents attached to the Arbitration Agreement, it is clear that the dispute between the parties over the MMS/Jicarilla [settlement] flows directly from Burlington's charge of royalty on the $6.7 million initially attributed to take-or-pay. The arbitrator further concluded that there was a "nexus between the royalty charge and the excluded $6.7 million" and that "an adjustment to gross proceeds to include the Trust's proportionate share of the $6.7 million on which it has been charged royalty is an arbitrable claim." After determining the scope of its jurisdiction, the arbitrator stated that "[b]y making this reallocation, Burlington characterized the entire $54.5 million GCNM settlement proceeds (including the $6.7 million Burlington originally allocated to take-or-pay) as past pricing in which the Trust is entitled to share." Thus, the arbitrator ruled that the Trust was entitled to a 75% share of additional gross proceeds from the reallocation of the $6.7 million to past-pricing claims. Following arbitration, Burlington filed an application to vacate or modify the arbitration award. See 9 U.S.C. §§ 10, 11; see also Tex. Civ. Prac. & Rem. Code Ann. §§ 171.088(a)(3)(A), 171.091(a)(2) (Vernon 2005). In its application, Burlington asserted that, in awarding the Trust $6,243,990 on its claim for a portion of the allegedly reallocated proceeds from the 1990 GCNM settlement (referred to in the arbitration award as "MMS/Jicarilla--Case A"), the arbitrator rendered an award on a matter not submitted to him and thereby exceeded his powers. Burlington asserted that this portion of the arbitration award should be modified, corrected, or vacated. Burlington also asserted a claim for breach of the Arbitration Agreement on the ground that the Trust's attempt to assert a claim for a portion of the GCNM settlement, i.e., its newly crafted MMS/Jicarilla--Case A, violated the agreement and caused it to incur substantial unnecessary expenses in defending the arbitration and pursuing relief in the trial court. The Trust filed a counterclaim for confirmation of the arbitration award. The trial court rendered judgment in favor of the Trust, denying Burlington's application and granting the Trust's application to confirm the arbitration award. The trial court denied all other requested relief, including Burlington's claim for breach of the Arbitration Agreement. Arbitrability In its first issue, Burlington argues that the parties did not agree, by clear and unmistakable language, to submit questions regarding the scope of arbitrable issues to the arbitrator because the Arbitration Agreement itself "carefully limited the scope of arbitration to identified audit disputes" and "withheld from the arbitrator [the] power to decide any additional questions, including the question of arbitrability." The Trust counters that the parties' incorporation of the American Arbitration Association ("AAA") rules clearly and unmistakably granted the arbitrator the power to determine Burlington's objection to the scope of the arbitration. In First Options of Chicago, Inc. v. Kaplan, the United States Supreme Court stated that "[w]hen deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally [] should apply ordinary state-law principles that govern the formation of contracts," with the qualification that, "when courts decide whether a party has agreed that arbitrators should decide arbitrability," courts "should not assume that the parties agreed to arbitrate arbitrability unless there is 'clea[r] and unmistakabl[e]' evidence that they did so." 514 U.S. 938, 944, 115 S. Ct. 1920, 1924 (1995) (citations omitted). The Supreme Court noted that "the law treats silence or ambiguity about the question 'who (primarily) should decide arbitrability' differently from the way it treats silence or ambiguity about the question 'whether a particular merits-related dispute is arbitrable because it is within the scope of a valid arbitration agreement'" so as to not "force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide." Id., 514 U.S. at 944-45, 115 S. Ct. at 1924-25; see also Gen. Motors Corp. v. Pamela Equities Corp., 146 F.3d 242, 249 (5th Cir. 1998) ("[W]hen a party to a dispute contends that he and the other disputant agreed to submit . . . the question of whether that arbitrator had authority to arbitrate their dispute, that party must bear the burden of demonstrating clearly and unmistakably that the parties agreed to have the arbitrator decide that threshold question of arbitrability."); In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) ("[A]bsent unmistakable evidence that the parties intended the contrary, it is the courts rather than the arbitrators that must decide 'gateway matters' such as whether a valid arbitration agreement exists. Whether an arbitration agreement is binding on a nonparty is one of those gateway matters."); In re Ford Motor Co., 220 S.W.3d 21, 23 (Tex. App.--San Antonio 2006, no pet.) (same). Paragraphs 3 and 4 of the Arbitration Agreement expressly state that the audit exceptions identified in Exhibit C "constitute the only items that will be subjected to arbitration" and that the Arbitration Agreement "applies only to the audit disputes identified on Exhibit C." Here, there is no clear and unmistakable statement in the Arbitration Agreement that matters of arbitrability will be submitted to an arbitrator. In fact, Burlington and the Trust purposefully drafted an Arbitration Agreement of very narrow scope. Although, as the Trust emphasizes, the Arbitration Agreement generally provides that the proceeding "shall be conducted in accordance with the Commercial Arbitration Rules of the [AAA], unless otherwise specified herein," the Arbitration Agreement further provides that the terms of the Arbitration Agreement control in the event of any conflict with the rules. We conclude that there is no conflict because the parties, in their Arbitration Agreement, unambiguously detailed the specific subjects and amounts subject to arbitration, and arbitrability was not one of those matters. Even if we were to conclude, based, in part, on the authority cited below, that some ambiguity was created by the parties' reference to the AAA rules, the parties simply did not clearly and unmistakably submit the issue of arbitrability to arbitration. We recognize that Rule 7(a) of the Commercial Arbitration Rules of the AAA grants an arbitrator "the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the Arbitration Agreement." Commercial Rules of the American Arbitration Association, Rule 7(a). We further recognize that, "[a]lthough the United States Court of Appeals for the Fifth Circuit has not addressed the effect of a reference to AAA Rules contained in an arbitration clause," (3) other courts have generally concluded that an arbitration agreement's incorporation of rules empowering an arbitrator to decide arbitrability clearly and unmistakably evidences the parties' intent to allow the arbitrator to decide issues of arbitrability. See, e.g., Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1372-73 (Fed. Cir. 2006) (concluding that agreement's incorporation of AAA rules clearly and unmistakably showed parties' intent to delegate issue of determining arbitrability to arbitrator); Terminix Int'l Co., LP v. Palmer Ranch Ltd. P'ship, 432 F.3d 1327, 1332-33 (11th Cir. 2005) (holding that by incorporating AAA Rules into arbitration agreement, parties clearly and unmistakably agreed that arbitrator should decide whether arbitration clause was valid); Contec Corp. v. Remote Solution, Co., 398 F.3d 205, 208 (2d Cir. 2005) ("[W]hen . . . parties explicitly incorporate rules that empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties' intent to delegate such issues to an arbitrator."); Citifinancial, Inc. v. Newton, 359 F. Supp. 2d 545, 549-52 (S.D. Miss. 2005) (holding that by agreeing to be bound by procedural rules of AAA, including rule giving arbitrator power to rule on his or her own jurisdiction, defendant agreed to arbitrate questions of jurisdiction before arbitrator); Sleeper Farms v. Agway, Inc., 211 F. Supp. 2d 197, 200 (D. Me. 2002) (holding arbitration clause stating that arbitration shall proceed according to rules of AAA provides clear and unmistakable delegation of scope-determining authority to arbitrator). We are also mindful that, in certain circumstances, the incorporation of AAA rules may constitute clear and unmistakable evidence of an intent to allow an arbitrator to decide issues of arbitrability. However, we conclude, based on the express terms of the Arbitration Agreement before us, that the agreement's mere reference to the AAA's rules does not provide clear and unmistakable evidence of the parties' delegation of issues of arbitrabilty to an arbitrator. In determining whether an agreement provides clear and unmistakable language of such delegation, we consider the specific language of the Arbitration Agreement. See Kaplan, 514 U.S. at 944, 115 S. Ct. at 1924 ("When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally [] should apply ordinary state-law principles that govern the formation of contracts."). We also apply general principles of Texas contract law governing the formation of contracts. See In re Dillard Dep't Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006) (stating that ordinary principles of "[c]ontract law determine[] the validity of arbitration agreements," a "trial court's determination of an arbitration agreement's validity is a legal question," and "[t]he objective intent as expressed in the agreement controls the construction of an unambiguous contract"). Here, the Arbitration Agreement restricted the arbitrator's reach only to specifically identified "audit disputes," and for specific amounts. There is not a clear and unmistakable indication that the parties authorized an arbitrator to decide the arbitrability of claims or amounts not specifically identified in the Arbitration Agreement. Moreover, the agreement provided that to the extent there was any conflict between the parties' agreement and the AAA rules, any such conflict would be resolved in favor of the agreement. Although not directly on point, we note that the San Antonio Court of Appeals has recently concluded that an arbitration agreement providing for any dispute to be settled "in accordance with the rules and procedures of the AAA" did not contain unmistakable evidence that the parties intended for an arbitrator to decide whether nonparties were bound by the arbitration agreement. In re Ford Motor Co., 220 S.W.3d at 23-24. In so holding, the court highlighted "the established Texas law [of] placing the initial burden of proving the existence of a valid arbitration agreement and claims within the scope of that agreement on the party seeking to compel arbitration." Id. We also find the opinion of the United States Court of Appeals for the Second Circuit in Katz v. Feinberg helpful to our analysis. See 290 F.3d 95 (2d Cir. 2002). In Katz, the court found that the parties did not agree to arbitrate questions of arbitrability. Id. at 96-97. The Katz court recognized that a "broadly worded arbitration clause committing resolution of all disputes to arbitration" would satisfy the clear and unmistakable standard. Id. at 97. However, the court could not conclude that "where a single agreement contains both a broadly worded arbitration clause and a specific clause assigning a certain decision to an independent accountant, that the parties intention to arbitrate questions of arbitrability under the broad clause remains clear." Id. Similarly, in James & Jackson, LLC v. Willie Gary, LLC, the Delaware Supreme Court court recognized the "majority view" that an arbitration agreement's reference to AAA rules might provide clear and unmistakable evidence of the parties' intent to have an arbitrator determine arbitrability. 906 A.2d 76, 78, 80 (Del. 2006). However, the court stated that the majority view did not "mandate that arbitrators decide arbitrability in all cases where an arbitration clause incorporates the AAA rules." Id. at 80. Rather, the court stated, the majority view "applies in those cases where the arbitration clause generally provides for arbitration of all disputes and also incorporates a set of arbitration rules that empower arbitrators to decide arbitrability." Id. The court noted that although the arbitration agreement before it required arbitration of "any controversy arising out of or related to [the agreement]," it also expressly authorized the non-breaching parties to obtain some limited types of relief in the courts. Id. at 81. Thus, the court concluded, "despite the broad language" at the outset of the arbitration agreement and the reference in the agreement to the AAA rules, that "[s]ince this arbitration clause does not generally refer all controversies to arbitration, the federal majority rule does not apply, and something other than the incorporation of the AAA rules would be needed to establish that the parties intended to submit arbitrability questions to an arbitrator." Id. We recognize that the arbitration agreements in both Katz and James & Jackson, LLC are quite different than the Arbitration Agreement before us. For example, the Arbitration Agreement here does not contain any provisions assigning decision-making authority on the specifically identified existing audit disputes to anyone other than the arbitrator. However, both Katz and James & Jackson, LLC illustrate the application of the principle that a court must carefully consider the language of the specific arbitration agreement before it in determining whether the parties have clearly and unmistakably ceded authority to decide matters of abitrabilty to an arbitrator. See id.; Katz, 290 F.3d at 97. A court should not blindly apply the majority view regarding the effect of mere reference to AAA rules and ignore the "clear and unmistakable standard" set forth by the Supreme Court in Kaplan. See Kaplan, 514 U.S. at 944, 115 S. Ct. at 1924. Accordingly, we hold that Burlington and the Trust did not agree in the Arbitration Agreement, by clear and unmistakable language, to submit questions regarding the scope of arbitrable issues to the arbitrator. See id., 514 U.S. at 942-44, 115 S. Ct. at 1923-25. We sustain Burlington's first issue. Scope of Arbitration Agreement In its second issue, Burlington argues that "construing the scope of the arbitration agreement de novo," the Trust's claim for its "75% share of additional gross proceeds resulting from the reallocation of $6.7 million to past pricing" is not within the scope of the Arbitration Agreement. (4) Burlington asserts that the audit disputes identified in Exhibit C to the Arbitration Agreement confirm that (1) the parties agreed to arbitrate only the Trust's complaint that its "gross proceeds were understated due to excess royalties" charged against it based on the full value of the GCNM settlement and (2) the Trust's claim for a 75% share of the $6.7 million portion of the allegedly reallocated GCNM settlement proceeds was never contemplated by the parties to be an arbitrable claim. Rather, Burlington complains that the Trust asserted this new claim only after the commencement of arbitration. Burlington notes that the expressly stated subject matter of the first audit dispute was that Burlington, "in adjusting gross proceeds to reflect the MMS/Jicarilla settlement[,] . . . improperly deducted royalties paid supposedly on account of the $6.7 million in take-or-pay claims not covered by the Conveyance." In fact, the dispute to be arbitrated arose from the Trust's allegation that the MMS/Jicarilla settlement was based upon the full amount of the GCNM settlement, including the $6.7 million take-or-pay portion, that 12.3% of the MMS/Jicarilla settlement, or approximately $500,000, was allocable to production in which the Trust had no interest, and that the Trust should not have been charged for 75% of those payments. Moreover, the Trust's complaint about the second audit dispute simply concerned its claim for interest on the amount at issue in the first audit dispute. In spite of these specifically identified and narrowly limited audit disputes, the arbitrator ruled on a claim by the Trust that its "gross proceeds were understated, not due to the deduction or charge of royalties paid to MMS and the Jicarilla tribe, but, instead, due to the exclusion of $6.7 million of receipts under gas purchase contracts in the GCNM settlement that [Burlington] has attributed to take-or-pay obligations." Yet, as Burlington highlights, there is absolutely no mention of the GCNM settlement in Exhibit C, nor is there any suggestion that the Trust would be seeking to recover in arbitration approximately $6 million based on its theory that Burlington had reallocated funds from its 1990 settlement. Burlington argues that "the sheer numbers involved" in the Trust's newly asserted claim preclude it "from being shoehorned into the 'excess royalties' concept" identified in Exhibit C. The Trust, on the other hand, asserts that the audit disputes describe its complaint that Burlington had charged it with excess royalties relating to Burlington's reallocation of the $6.7 million in take-or-pay claims without sharing those proceeds with the Trust. The Trust notes that, despite the specific arbitrate amounts, Exhibit C states that "[a]ll amounts stated are subject to change." The Trust asserts that this language justifies the arbitration award of over $6 million, even though the relevant "arbitrate amount" for the two audit disputes was $374,978. The Trust, as additional support for its claim for a 75% share of the full value of the GCNM settlement, cites a November 1, 2002 letter from it to Burlington stating, The Trust was not paid any royalties on the take-or-pay settlement [of 6.7 million]. The Trust did not pursue a claim for royalties on that amount, and does not now want to be assessed any portion of the current settlement which is attributable to royalties which should have been paid to the MMS or Jicarillas on the take-or-pay portion because the Trust did not share in the economic benefits attributable to the take-or-pay settlement in 1990. If the "major portion" settlement took into account the take-or-pay claim, the amount allocated to the Trust should be reduced . . . If instead the 1990 settlement was "reallocated" such that more or all of the amount received by Burlington's successor [sic] was treated as "past pricing" or "contract buyout," then the Trust is entitled to 75% net overriding royalty interest on the 6.7 [million] no longer allocable to take-or-pay. Based on this letter, the Trust asserts that it "made clear" throughout its dispute "its complaint that Burlington improperly had charged the Trust with royalty on settlement proceeds without sharing those proceeds with the Trust" and "the alternative remedies that it was seeking . . . [to] either eliminate the charge to the Trust of the royalties on the proceeds or give the Trust its share of the proceeds." The Supreme Court stated in Kaplan that if "the parties did not agree to submit the arbitrability question itself to arbitration, then the court should decide that question just as it would decide any other question that the parties did not submit to arbitration, namely, independently." Kaplan, 514 U.S. at 943, 115 S. Ct. at 1923-24. The Federal Arbitration Act provides that a court may vacate an arbitration award "where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made" and may modify or correct an arbitration award "[w]here the arbitrators have awarded upon a matter not submitted to them." 9 U.S.C. §§ 10, 11; see also Tex. Civ. Prac. & Rem. Code Ann. §§ 171.088(a)(3)(A) (providing that court shall vacate award if arbitrators exceed their powers), 171.091(a)(2) (providing that court shall modify or correct award if "the arbitrators have made an award with respect to a matter not submitted to them and the award may be corrected without affecting the merits of the decision made with respect to the issues that were submitted"). In reviewing the arbitrator's decision independently, we recognize the strong presumption under the Federal Arbitration Act of favoring arbitration. See In re D. Wilson Constr. Co., 196 S.W.3d 774, 782-83 (Tex. 2006). Furthermore, we note that any doubt as to whether a party's claim falls within the scope of an arbitration agreement must be resolved in favor of arbitration. Id. Also, a court should not deny arbitration unless it can be said with positive assurance that an arbitration clause is not susceptible to an interpretation that would cover the dispute at issue. Id.; see also In re Dillard Dept. Stores, Inc., 186 S.W.3d at 516. Of course, "the policy that favors resolving doubts in favor of arbitration cannot serve to stretch a contractual clause beyond the scope intended by the parties or authorize an arbiter to disregard or modify the plain and unambiguous provisions of the agreement." Smith v. Transp. Workers Union of Am., AFL-CIO Air Transp. Local 556, 374 F.3d 372, 375 (5th Cir. 2004) (citations omitted); see also Belmont Constructors, Inc. v. Lyondell Petrochemical Co., 896 S.W.2d 352, 356 (Tex. App.--Houston [1st Dist.] 1995, no writ) (stating that "federal policy of resolving doubts in favor of arbitration" cannot stretch contractual clause beyond scope intended or allow modification of plain and unambiguous provisions). With these principles in mind, and reviewing the arbitrator's decision independently, we conclude that the relevant audit disputes describing the Trust's complaint about its understated gross proceeds due to Burlington's charge of excess royalties from the MMS/Jicarilla settlement is not susceptible to an interpretation for an alternative claim by the Trust for a 75% interest in the allegedly reallocated proceeds of $6.7 million portion of the 1990 GCNM settlement. We can say, with positive assurance, that by making a claim for reallocated proceeds from the 1990 GCNM settlement, the Trust was making a separate and new claim rather than a claim covered by the "audit disputes" contemplated by the parties in the Arbitration Agreement. The inescapable fact is that the Arbitration Agreement provided specific "arbitrate amounts" for each of the identified audit disputes, and the amount ultimately awarded by the arbitrator on the Trust's newly asserted claim greatly exceeded, beyond any amount that could have reasonably been contemplated by the parties, the amounts identified in the Arbitration Agreement. As the Trust points out, the Arbitration Agreement did provide that the arbitrate amounts were "subject to change"; however, the inclusion of this language cannot justify the assertion of a wholly separate claim. Again, the 1990 GCNM settlement is not mentioned in the Arbitration Agreement. Allowing the Trust to assert a claim for over $6 million shortly after executing an agreement identifying the arbitration amounts for the relevant audit disputes to be approximately $375,000 stretches the Arbitration Agreement beyond its breaking point. Had the parties intended to arbitrate the Trust's claim for reallocated proceeds from the 1990 GCNM settlement, the parties could have included a reference to this settlement in the Arbitration Agreement and stated the appropriate arbitrate amount. The Trust contends, in post-submission briefing, that "the parties were not required to include in Exhibit C all sub-issues entailed within that general description of the dispute and the alternative remedies to which the Trust might be entitled, depending on facts that were solely within the control of Burlington and which became known to the Trust only following discovery undertaken in the course of arbitration proceedings." First, one cannot reasonably conclude that a claim for over $6 million for allegedly reallocated proceeds from the 1990 GCNM settlement qualifies as a "sub-issue" of a specific "audit dispute" over understated gross proceeds in the amount of $374,978. Second, the Trust's admission that it did not learn of the underlying facts supporting its newly asserted claim until after the commencement of arbitration establishes that such a claim was not one of the "existing" audit disputes between the parties to be resolved by the Arbitration Agreement. Finally, we cannot, as suggested by the Trust, rely on its November 2002 letter as "clearly" putting Burlington "on notice of the Trust's position" that it was always seeking alternative remedies. Rather, the unambiguous provisions of the Arbitration Agreement, setting forth detailed descriptions of the relevant audit disputes and the associated arbitrate amounts, control our inquiry. See In re Dillard Dept. Stores, Inc.,186 S.W.3d at 515 (stating that "[t]he objective intent as expressed in the agreement controls the construction of an unambiguous contract"). In sum, the Arbitration Agreement cannot reasonably be interpreted as authorizing the Trust's claim for its 75% share of the full value of the 1990 GCNM settlement proceeds. Accordingly, we hold that the Trust's claim was "clearly beyond the agreed scope of the arbitration," the arbitrator exceeded his powers in ruling on the Trust's claim, and the arbitrator entered an award on a matter not properly submitted to him. We further hold that the trial court erred in confirming the arbitration award. We sustain Burlington's second issue. Conclusion We reverse the portion of the trial court's judgment confirming the portion of the arbitration award awarding the Trust $6,243,990 (labeled in the arbitration award as "MMS/Jicarilla-Case A"), vacate that portion of the arbitration award, and modify the award to reflect that this award has been vacated. We render a take-nothing judgment in Burlington's favor on the Trust's claim giving rise to the arbitration award of $6,243,990. We also reverse the portion of the trial court's judgment denying Burlington's claim for breach of the Arbitration Agreement, and we remand for further proceedings consistent with this opinion. Terry Jennings Justice Panel consists of Justices Nuchia, Jennings, and Higley. 1. To avoid confusion, we make no distinction between Burlington and its predecessor, Southland Royalty Company ("Southland"). 2. The Trust explains that "[t]he overriding royalty interest is a 'net' interest, in the sense that Burlington, in calculating the payments to which the Trust is entitled, includes certain revenues (including proceeds from the sale of production from the properties) and certain expenses incurred in the operation of the properties (including royalties on production paid to royalty owners holding royalty interests in the properties)." 3. Citifinancial, Inc. v. Newton, 359 F. Supp. 2d 545, 551 (S.D. Miss. 2005). 4. Having held that the Arbitration Agreement does not clearly and unmistakably evidence the parties' intent to delegate the issue of determining arbitrability to the arbitrator, we need not consider Burlington's alternative contention in its second issue that even if the arbitrator is afforded "considerable leeway" in construing the scope of the arbitration agreement, the parties' dispute is "clearly beyond the agreed scope of the arbitration." See Kaplan, 514 U.S. at 943, 115 S. Ct. at 1923-24.