Is the Validity of an Arbitration Agreement Affected by Corporate Reorganization and Name Change?

DOES CORPORATE REORGANIZATION (change of corporate name and charter) RENDER EXISTING ARBITRATION AGREEMENTS WITH EMPLOYEES UNENFORCEABLE UNLESS RENEWED? The Eight Court of Appeals of Texas in El Paso recently examined the proposition as a matter of first impression and concluded that an existing arbitration agreement governing claims of injury in the workplace was not affected by the employer's name & charter change as the changes merely involved "rebranding" rather than termination of a corporation and creation of a new one. Therefore, it was not necessary for a new arbitration agreement to be entered between the employee and the successor corporation, which also retained the same filing number with the Texas Secretary of State. From the Opinion: In the present case the Real Party makes the novel argument that because NCED is now ReadyOne and because ReadyOne (formerly NCED) has amended and restated its certificate of formation, the Agreement in not enforceable. The crux of this argument is that when a business entity substantially changes its character, and the changes fall short of ending or making a new corporate existence, prior obligations with contracting parties are void or nullified, because the new party was not a signatory to prior obligations. For this to be true, it must be shown that ReadyOne is not merely rebranded but is a new entity under Texas law. Texas has already tackled the impact of a name change on an arbitration agreement. The H&R Block court found "[u]nder ordinary legal principles, a contracting party that has merely changed its name is still a contracting party." In re H & R Block Financial Advisors, Inc., 235 S.W.3d 177, 178 (Tex. 2007) (citing, e.g., Coulson v. Lake LBJ Mun. Util. Dist., 781 S.W.2d 594, 595 (Tex. 1989); Texas Co. v. Lee, 138 Tex. 167, 157 S.W.2d 628, 630 (1941)). "Accordingly, the company's change of name does not prevent it from invoking its own arbitration agreements." Id.; see also Contec Corp. v. Remote Solution, Co., 398 F.3d 205, 207 (2d Cir. 2005); Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 757 (11th Cir. 1993). It is clear that in Texas a corporate name change does not affect the contractual obligations of parties existing prior to the name change, so a business entity with a new name may invoke an arbitration agreement that was signed by the same company prior to the name change. No clear authority exists on what impact a restated corporate purpose or other amendments to the certificate of formation has on contractual obligations in existence at the time of the changes. In Contec the Second Circuit Court of Appeals found that even when there had been corporate name and form changes, the surviving entity should be permitted to enforce the agreement. Contec Corp., 398 F.3d at 210. The rationale of H&R Block and Contec thus suggests that name changes do not eliminate contractual obligation in place before these changes. NCED restated and made amendments to its certificate of formation. Amendments and restatements do not create a new entity. When the term amendment and restate are given their plain meanings, the terms do not mean to "create a new." This is evidenced by two items in the Secretary of State's communications with ReadyOne and NCED. First, the Secretary of State now refers to ReadyOne as formerly: NATIONAL CENTER FOR EMPLOYMENT OF THE DISABLED. Second, in ReadyOne's certificate of filing, the filing number is 112382901; identical to NCED's certificate of filing. By referring to ReadyOne as formerly NCED and by keeping the file numbers the same, the Secretary of State is putting the public on notice that the two entities are the same under Texas law. The Texas Business Organizations Code (BOC) also supports the finding that ReadyOne is merely a rebranded NCED. First, under the BOC a corporation has a perpetual existence unless otherwise stated in the certificate of formation. Tex.Bus.Org.Code Ann. § 3.005(a)(4) (Vernon Supp. 2008). Changing a corporate name or form does not end this perpetual existence. Specifically, to terminate a corporate existence, the business entity must conduct a windup. Tex.Bus.Org.Code Ann. § 11.052. During this windup the entity must discharge its property to satisfy its obligations. Id. Most importantly, after the windup is complete, the entity must file a certificate of termination. Tex.Bus.Org.Code Ann. § 11.101. So, the corporate entity does not cease to exist until the termination is filed. Tex.Bus.Org.Code Ann. § 11.102. Based on the evidence before this Court, NCED still exists, but now it has a new operating name and restated purpose. Neither the Real Party nor Relators were able to find law indicating that a series of amendments or restaments of corporate purpose makes an entity a new company and thus relieving underlying contractual obligations. A corporation in Texas is permitted to freely restate or amend its certificate of formation. Tex.Bus.Org.Code Ann. §§ 3.056, 3.057. Absent in the Texas BOC is a provision which supports the Real Party's argument. Because no law supports the Real Party's argument that ReadyOne is nothing more than a rebranded NCED, and because NCED is still in existence in the eyes of Texas, this Court finds that the arbitration can be invoked by ReadyOne (formerly NCED). In Re ReadyOne, No. 08-08-00221-CV (Tex.App.- El Paso, Aug. 19, 2009) (mandamus compelling arbitration granted, arbitration of workplace injury claim, no waiver of right to arbitrate) Disposition of Petition for Writ of Mandamus: GRANTED Opinion by Chief Justice David Wellington Chew Other judges participating in deciding case: Justice McClure, The Honorable Gomez Appellate cause no and link to docket: 08-08-00221-CV Case style in the Court of Appeals: In Re: ReadyOne Industries, Inc. and Amalia Lopez From the Recitation of Facts in the Opinion: On February 23, 2005, Torres signed an arbitration agreement (Agreement) with her employer, the National Center for Employment of the Disabled (NCED). This Agreement requires that both Torres and her employer arbitrate "[a]ny injury suffered by Claimant while in the Course and Scope of Claimant's employment with Company, including but not limited to, claims for negligence, gross negligence, and all claims for personal injuries . . . ." In NCED's Restated Certificate of Formation with New Amendments, it simultaneously adopted the Texas Business Organizations Code and changed its name to ReadyOne Industries, Inc. (formerly National Center for Employment of the Disabled). Along with this name change, ReadyOne Industries, Inc. (ReadyOne) also amended Articles 1-7 and added Articles 8-9 to its certificate of formation. Specifically, the following changes were made: (i) change the filing entity's name; (ii) update the registered agent and office; (iii) update the provisions regarding the board of directors; (iv) provide that the filing entity has no members; (v) restate the filing entity's purposes; (vi) restate the method of asset distribution upon the dissolution of the filing entity; (vii) restate the prohibitions on certain activities; (viii) provide for limitation of the liability of the directors and officers of the filing entity under certain circumstances; (ix) eliminate the express period of duration of the filing entity; and (x) eliminate the name and address of the organizer.

Meyer v. WMCO-GP, 211 S.W.3d 302 (Tex. 2006)

Meyer v. WMCO-GP, No. 04-0252 (Tex. Dec. 22, 2006)(Hecht)(arbitration with nonparties) Alton J. Meyer, Meyer Acquisition Corp., and Ford Motor Company, Petitioners, v. WMCO-GP, LLC and Bullock Motor Company, Respondents ═══════════════════════════════ On Petition for Review from the Court of Appeals for the Ninth District of Texas ═══════════════════════════════ Justice Hecht delivered the opinion of the Court, in which Chief Justice Jefferson, Justice Wainwright, Justice Brister, Justice Medina, Justice Green, Justice Johnson, and Justice Willett joined. Justice O’Neill filed a dissenting opinion. A person who has agreed to arbitrate disputes with one party may in some cases be required to arbitrate related disputes with others.[1] This is such a case. A motor vehicle manufacturer exercised its right of first refusal to acquire its dealer’s business and transferred the right to its assignee, preempting the dealer’s agreement to sell the business to another. The jilted buyer sued the manufacturer and its assignee for interfering with the proposed contract of sale. Although the defendants had no contract with the jilted buyer, they demanded arbitration based on the buyer’s agreement to arbitrate disputes with the dealer. The trial court refused to compel arbitration, and a divided court of appeals affirmed.[2] We reverse. Ford Motor Co.’s agreement with its dealer, Bullock Motor Co., gave Ford an assignable right of first refusal to acquire Bullock’s business should Bullock want to sell to another. The dealership agreement provided that Ford could “discuss the terms of [any proposed sale] with any potential Assignee, as long as such information is treated confidentially.” Bullock contracted to sell the dealership to WMCO-GP, LLC. Their purchase and sale agreement (“PSA”) acknowledged Ford’s right of first refusal and, if Ford exercised that right, allowed Bullock to terminate the agreement. Ford exercised its right and assigned it to Alton J. Meyer and Meyer Acquisition Corp. (collectively “Meyer”), and Bullock accordingly sold its business to Meyer. WMCO sued Bullock, Meyer, and Ford. WMCO sought a declaration that Ford’s right of first refusal was void because, in violation of the dealership agreement, assignee Meyer had disclosed WMCO’s confidential information to third parties. WMCO also claimed damages against Meyer for tortious interference with the PSA and against Meyer and Ford for conspiring to violate the Texas Motor Vehicle Commission Code.[3] WMCO asserted that although Bullock had breached the PSA, it was joined only as a necessary party because it would have performed the PSA but for Ford’s exercise of its right of first refusal. Meyer and Ford moved to compel arbitration based on WMCO’s agreement to the following provision in the PSA, to which they, of course, were not parties themselves: Any controversy between the parties to this Agreement involving the construction or application of any of the terms, covenants, or conditions of this Agreement, shall . . . be submitted to binding arbitration, and such arbitration shall comply with and be governed by the provisions of the Texas General Arbitration Act . . . . Meyer and Ford argued that because WMCO had made this agreement with Bullock, WMCO was equitably estopped from refusing to arbitrate with them. Bullock did not join in the motions. Although the dealership agreement between Bullock and Ford also provided for arbitration and was raised in the trial court, Meyer and Ford conceded, for purposes of this appeal, that the dealership agreement would not apply to WMCO.[4] Nor do they rely on the Federal Arbitration Act;[5] they assert only the Texas General Arbitration Act.[6] The trial court denied the motion, and a divided court of appeals affirmed.[7] We granted Meyer’s and Ford’s petitions for review.[8] As a rule, arbitration of a claim cannot be compelled unless it falls within the scope of a valid arbitration agreement.[9] But sometimes a person who is not a party to the agreement can compel arbitration with one who is,[10] and vice versa.[11] 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.[12] The court of appeals came to this same conclusion based largely on Grigson v. Creative Artists Agency, L.L.C., in which the United States Court of Appeals for the Fifth Circuit quoted the Eleventh Circuit’s decision in MS Dealer Service Corp. v. Franklin, stating: Existing case law demonstrates that equitable estoppel allows a nonsignatory to compel arbitration in two different circumstances. First, equitable estoppel applies when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting its claims against the nonsignatory. When each of a signatory’s claims against a nonsignatory makes reference to or presumes the existence of the written agreement, the signatory’s claims arise out of and relate directly to the written agreement, and arbitration is appropriate. Second, application of equitable estoppel is warranted when the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract. Otherwise the arbitration proceedings between the two signatories would be rendered meaningless and the federal policy in favor of arbitration effectively thwarted.[13] Grigson, like the present case, was a suit by a signatory to an arbitration agreement against a non-signatory.[14] In essence, the Fifth Circuit explained, 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.[15] Having derived from Grigson a substantially correct statement of Texas law, the court of appeals misapplied it to this case. First, the court concluded that WMCO could not be required to arbitrate claims other than those described in the arbitration provision of the PSA — “controvers[ies] between the parties to this Agreement involving the construction or application of any of the terms, covenants, or conditions of this Agreement”.[16] WMCO’s claims were against non-parties Meyer and Ford and did not, the court determined, involve the construction or application of the PSA.[17] Had the PSA broadly required arbitration of “all disputes” in just so many words instead of describing particular claims and parties, the court reasoned, equitable estoppel would apply.[18] We agree that an arbitration provision may limit the application of equitable estoppel. For example, if Bullock and WMCO, the parties to the PSA, had agreed to arbitrate only very specific disputes that might arise between the two of them — whether specific vehicles were included in inventory, for example — and nothing else, one could hardly argue that WMCO would be equitably estopped from drawing the same line for disputes with non-parties. Equitable estoppel cannot give non-parties a greater right to arbitration than the parties themselves have. But the text of the arbitration provision here is not so restrictive. The phrase “between the parties,” without more, suggests only that Bullock and WMCO meant to ensure that the agreement applied to disputes between them, not that they intended to preclude the application of equitable estoppel. A similar provision in MS Dealer, expressly naming the car seller and buyer, did not prevent that court from applying equitable estoppel to compel arbitration of tort claims against a non-signatory service corporation.[19] And while “all disputes” might be broader than disputes “involving the construction or application of any of the terms, covenants, or conditions” of the PSA, the latter category easily includes WMCO’s claims, which all construe or apply the condition of the PSA that Bullock could terminate if Ford exercised its right of first refusal. The arbitration provision does not exclude WMCO’s claims. The court of appeals gave a second reason for not applying equitable estoppel: WMCO’s claims against Meyer and Ford did not rely on the terms of the PSA but merely “touch[ed] upon” or “related to” it.[20] But this does not defeat the application of equitable estoppel. WMCO’s claim against Bullock for breach of the PSA relies squarely on the PSA. WMCO’s other claims against Meyer and Ford also all depend on the existence of the PSA. If Bullock properly terminated the PSA, based on Ford’s exercise of its right of first refusal, then there would be no claim for tortious interference, no need to decide whether Ford validly exercised the right of first refusal, and no need to decide whether Meyer and Ford conspired to violate statutes protecting dealers from certain actions by manufacturers. WMCO concedes that if the PSA was preempted by Ford’s exercise of its right of first refusal, then WMCO has no rights against Meyer and Ford for the court to declare, there was no contract to interfere with, and Meyer and Ford could not have violated state law. WMCO further concedes that its damages cannot be calculated without reference to the PSA. When a party’s right to recover and its damages depend on the agreement containing the arbitration provision, the party is relying on the agreement for its claims.[21] Finally, the court concluded that WMCO’s claims against Meyer and Ford were not intertwined with claims against Bullock.[22] This is simply wrong. WMCO’s claims against Meyer and Ford are not only intertwined with its claims against Bullock, they have the same tap root: WMCO’s assertion that Ford lost its right of first refusal. If WMCO is correct in this assertion it is clearly entitled to the declaration it seeks. Moreover, only if WMCO is correct could Bullock have improperly terminated the PSA and breached it; and thus only if WMCO is correct could the PSA still remain in effect, despite Bullock’s termination of it, such that Meyer could have tortiously interfered with it or WMCO have any basis for its state law claims. WMCO stresses that it has made Bullock a nominal party only and that Bullock is willing to sell to whoever is entitled to buy. But the interdependence of WMCO’s claims against Bullock, Meyer, and Ford is not removed by Bullock’s complacency. WMCO is trying to have it both ways: it is asserting rights that it would not have but for the PSA, but refusing to honor its agreement to arbitrate disputes over those rights.[23] WMCO also argues that the trial court had discretion not to apply equitable estoppel, even if it could be applied in the same circumstances. We disagree. “A trial court has no ‘discretion’ in determining what the law is or applying the law to the facts.”[24] The trial court should have granted Meyer’s and Ford’s motions to compel arbitration. Accordingly, we reverse the judgment of the court of appeals and remand the case to the trial court for further proceedings consistent with this opinion. Nathan L. Hecht Justice Opinion delivered: December 22, 2006 ---------- Opinion below: Meyer v. WMCO GP, LLC., 126 S.W.3rd 313 (Tex. App. Beaumont 2004) ---------- [1] In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 762 (Tex. 2006) (per curiam) (holding that a party to an arbitration agreement must arbitrate tortious interference claims against the other party’s agents and affiliates). [2] 126 S.W.3d 313, 320 (Tex. App.—Beaumont 2004). [3] Specifically, WMCO alleged that Meyer and Ford had conspired to violate what was then Tex. Rev. Civ. Stat. Ann. art. 4413(36), § 5.02(b)(8), now codified as Tex. Occ. Code § 2301.458, which makes it unlawful for a motor vehicle manufacturer to fail to give effect to or attempt to prevent the sale or transfer of a dealer, dealership or franchise except in certain circumstances, and art. 4413(36), § 5.02(b)(3), (5), now codified as Tex. Occ. Code § 2301.453, .455, which makes it unlawful, notwithstanding the terms of any franchise agreement, for a manufacturer to terminate a franchise unless certain statutory requirements are met. [4] 126 S.W.3d at 319. [5] See 9 U.S.C. §§ 1-16. [6] See Tex. Civ. Prac. & Rem. Code §§ 171.001-.098. [7] 126 S.W.3d at 315, 320 (McKeithen, C.J.; Gaultney, J., dissenting); see Tex. Civ. Prac. & Rem. Code § 171.098(a)(1) (“A party may appeal a judgment or decree entered under this chapter or an order . . . denying an application to compel arbitration . . . .”). [8] 48 Tex. Sup. Ct. J. 384 (Feb 11, 2005). Because there was a dissent in the court of appeals, we have jurisdiction over this interlocutory appeal. See Tex. Gov’t Code § 22.225(b)(3) (disallowing a petition for review in an interlocutory appeal), and (c) (except when, e.g., there was an appealable trial court judgment and “the justices of the courts of appeals disagree[d] on a question of law material to the decision”). [9] Tex. Civ. Prac. & Rem. Code § 171.021(a)(1) (“A court shall order the parties to arbitrate on application of a party showing . . . an agreement to arbitrate . . . .”); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003) (“A party attempting to compel arbitration must first establish that the dispute in question falls within the scope of a valid arbitration agreement.”) (citing In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999) (per curiam) (stating the same rule under the Federal Arbitration Act)). [10] In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 761-762 (Tex. 2006) (per curiam). [11] In re Weekley Homes, L.P., 180 S.W.3d 127, 131-135 (Tex. 2005); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738 (Tex. 2005); In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755-756 (Tex. 2001). [12] In re Vesta Ins. Group, 192 S.W.3d at 761-762; In re Kellogg Brown & Root, 166 S.W.3d at 741; see In re Weekley Homes, 180 S.W.3d at 131; In re FirstMerit, 52 S.W.3d at 755-756. [13] 210 F.3d 524, 527 (5th Cir.), cert. denied, 531 U.S. 1013 (2000) (quoting MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999) (internal citations and quotation marks omitted)) (added emphasis omitted), discussed at 126 S.W.3d at 316-318. [14] 210 F.3d at 526. [15] Id. at 528 (citing MS Dealer, 177 F.3d at 947). [16] 126 S.W.3d at 319. [17] Id. at 319-320. [18] See id. at 319. [19] MS Dealer, 177 F.3d at 944 (“[The] arbitration clause[] provid[es] that ‘buyer hereby acknowledges and agrees that all disputes and controversies of every kind and nature between buyer and Jim Burke Motors, Inc. arising out of or in connection with the purchase of this vehicle will be resolved by arbitration . . . .’”) (emphasis added). [20] 126 S.W.3d at 319. [21] See In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 762 (Tex. 2006) (per curiam) (holding that tortious interference claims by one signatory to an arbitration agreement against agents or affiliates of the other signatory arise more from the contract than general law and are thus subject to arbitration). [22] 126 S.W.3d at 320. [23] Cf. Grigson, 210 F.3d at 527-528 (stating that equitable estoppel is “much more readily applicable” when claims both directly rely on the agreement containing the arbitration provision and are also intertwined with claims against a party to the agreement). [24] Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992).

In re Weekley Homes, L.P., 180 S.W.3d 127 (Tex. 2005)

In re Weekley Homes, L.P.No. 04-0119 (Tex. Oct. 28, 2005)(Brister) On Petition for Writ of Mandamus Justice Brister delivered the opinion of the Court. Justice Willett did not participate in the decision. We are asked to decide whether Weekley Homes, L.P., a party to a contract containing an arbitration clause, can compel arbitration of a personal injury claim brought by Patricia Von Bargen, a nonparty. We have previously compelled arbitration by nonparties to an arbitration agreement when they brought suit “based on a contract,” In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755 (Tex. 2001), which Von Bargen purports to avoid here. But as both state and federal courts have recognized, nonparties may be bound to an arbitration clause when the rules of law or equity would bind them to the contract generally. Because we find those rules applicable here, we conditionally grant mandamus relief. I. Background In the summer of 2000, Vernon Forsting contracted with Weekley for construction of a 4,000 square foot home at a purchase price of $240,000. At the time, Forsting was a seventy-eight year-old widower with an assortment of health problems. His intention in purchasing such a large home was to live with his daughter, Von Bargen (his only child) and her husband and three sons. Von Bargen and her husband negotiated directly with Weekley on many issues before and after construction—paying a $1,000 deposit, selecting the floor plan, signing a letter of intent as “purchasers,” and making custom design choices. But only Forsting executed the various financing and closing documents on the home, including the Real Estate Purchase Agreement that contained the following arbitration clause: Any claim, dispute or cause of action between Purchaser and Seller . . . , whether sounding in contract, tort, or otherwise, shall be resolved by binding arbitration . . . . Such claims, disputes or causes of action include, but are not limited to, those arising out of or relating to . . . the design, construction, preparation, maintenance or repair of the Property. Shortly after closing, Forsting transferred the home to the Forsting Family Trust, a revocable trust established ten years earlier whose sole beneficiary was Von Bargen. At his deposition, Forsting testified that the only reason he signed the Purchase Agreement individually rather than as trustee was because he “forgot to put [the home] in the trust.” Forsting and Von Bargen served as the only trustees of the Trust, the purpose of which was to transfer Forsting’s property to Von Bargen after his death. According to the plaintiffs’ pleadings, numerous problems arose with the home after completion. When the family moved out of the house briefly so Weekley could perform some of those repairs, it was Von Bargen who requested and received reimbursement. Indeed, Von Bargen admitted handling “almost . . . all matters related to the house, the problems and the warranty work and even the negotiations.” Unsatisfied with the home and Weekley’s efforts to repair it, Forsting, Von Bargen, and the Trust filed suit against Weekley in December 2002. Forsting and the Trust asserted claims for negligence, breach of contract, statutory violations, and breach of warranty. Von Bargen sued only for personal injuries, alleging Weekley’s negligent repairs caused her to develop asthma. Weekley moved to compel arbitration of all claims under the Federal Arbitration Act (FAA). See 9 U.S.C. §§ 1-16. The trial court concluded the FAA applied, and granted the motion as to all claims by Forsting and the Trust. But the trial court refused to compel arbitration of Von Bargen’s claim because she did not sign the Purchase Agreement. Mandamus relief is proper to enforce arbitration agreements governed by the FAA. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 n.2 (Tex. 1999) (per curiam); EZ Pawn Corp. v.Mancias, 934 S.W.2d 87-88 (Tex. 1996) (per curiam). After the Fifth Court of Appeals denied Weekley’s request for such relief, Weekley filed a similar request in this Court. II. Governing Law Neither party challenges the trial court’s conclusion that the FAA governs the arbitration clause here. Although Von Bargen asserts that her personal injury claim cannot be arbitrated under the Texas ArbitrationAct as it was not signed by an attorney, see Tex. Civ. Prac. & Rem. Code § 171.002(a)(3), (c), she does not challengethe trial court’s conclusion that the FAA governs here. The FAA not only contains no such limitation, but also preemptsany state requirements that apply only to arbitration clauses. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87(1996). 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. Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003); PacifiCare Health Sys., Inc. v. Book, 538 U.S.401, 407 n.2 (2003). Whether an arbitration agreement is binding on a nonparty is one of those gateway matters. John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 546-47 (1964). Texas courts apply Texas procedural rules in making that determination. Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 268 (Tex. 1992).Those rules call for determination by summary proceedings, Id. at 269 with the burden on the moving party to show a valid agreement to arbitrate. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). But as we recently noted, it is not entirely clear what substantive law governs whether a nonparty must arbitrate. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738-39 (Tex. 2005); see also Howsam v. Dean WitterReynolds, Inc., 537 U.S. 79, 87 (2002) (Thomas, J., concurring) (suggesting Supreme Court sometimes looks to federallaw and sometimes law chosen by parties); Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 267 n.6 (5th Cir. 2004)(noting that whether state or federal law of arbitrability applies “is often an uncertain question”). Generally under the FAA, state law governs whether a litigant agreed to arbitrate, Doctor's Assocs., 517 U.S. at 686-87; First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995); Perryv. Thomas, 482 U.S. 483, 492, n.9 (1987). Parties may also agree that state law governs their arbitration. Volt Info. Scis.,Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 476 (1989) and federal law governs the scope of an arbitration clause. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). Whether a nonparty must arbitrate can involve aspects of either or both. Pending an answer from the United States Supreme Court, The United States Supreme Court has not answered this question, though it has applied federal substantivelaw to bind a nonparty to labor-union arbitration, a field in which federal law has traditionally yielded little deferenceto state labor-law principles. See John Wiley & Sons, 376 U.S. at 548 (citing Textile Workers Union of Am. v. LincolnMills, 353 U.S. 448, 456 (1957)) We apply state law while endeavoring to keep it as consistent as possible with federal law. Kellogg, 166 S.W.3d at 739. III. Estoppel and NonsignatoriesTexas law has long recognized that nonparties may be bound to a contract under various legal principles. See, e.g., Tex. Bus. Corp. Act art. 2.21(A)(2) (holding shareholders may be liable for corporation’s contractsunder alter ego theory if they cause corporation to perpetrate actual fraud for their direct personal benefit); Stine v.Stewart, 80 S.W.3d 586, 590 (Tex. 2002) (holding third-party beneficiary could enforce contract); Biggs v. U.S. FireIns. Co., 611 S.W.2d 624, 629 (Tex. 1981) (holding agent acting within the scope of apparent authority binds the principal). Although we have never considered these principles in the context of arbitration, we recently noted that contract and agency law may bind a nonparty to an arbitration agreement. Kellogg, 166 S.W.3d at 738. Accordingly, it is no longer true that “the [Texas] decisions do not even mentionthe possibility of additional bases for binding non-signatories to arbitration.” Fleetwood Enters., Inc. v. Gaskamp, 280F.3d 1069, 1076 (5th Cir. 2002). Indeed, if Texas law would bind a nonparty to a contract generally, the FAA would appear to preempt an exception for arbitration clauses alone. Doctor's Assocs., 517 U.S. at 686-87; Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281 (1995)(“What States may not do is decide that a contract is fair enough to enforce all its basic terms (price, service, credit), butnot fair enough to enforce its arbitration clause. The Act makes any such state policy unlawful, for that kind of policywould place arbitration clauses on an unequal ‘footing,’ directly contrary to the Act’s language and Congress’ intent.”). In the one case in which we have compelled nonparties to arbitrate, In re FirstMerit Bank, N.A., we stated that “a litigant who sues based on a contract subjects him or herself to the contract's terms.” 52 S.W.3d at 755. Because the nonparties there asserted claims identical to the signatories’ contract claims, we held all had to be arbitrated. Id. at 755-56. We did not describe in FirstMerit what it means to sue “based on a contract.” Von Bargen asserts a narrow interpretation that would apply only to explicit contract claims, and thus not to hers for personal injury; Weekley argues for a broad application to any claim that “arises from or relates to” the contract involved. We recently adopted an approach between these two extremes, holding that a nonparty may be compelled to arbitrate “if it seeks, through the claim, to derive a direct benefit from the contract containing the arbitration provisions.” Kellogg, 166 S.W.3d at 741. As we noted, this rule is consistent with federal law of “direct benefits estoppel.” Id. Under both Texas and federal law, whether a claim seeks a direct benefit from a contract containing an arbitration clause turns on the substance of the claim, not artful pleading. Hughes Masonry Co., Inc. v. Greater Clark County Sch. Bldg. Corp., 659 F.2d 836, 838-39 (7th Cir. 1981);Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 495 (Tex. 1991). Claims must be brought on the contract (and arbitrated) if liability arises solely from the contract or must be determined by reference to it. Int’l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 418 (4th Cir. 2000); DeWittCounty Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 105 (Tex. 1999); DeLanney, 809 S.W.2d at 494. On the other hand, claims can be brought in tort (and in court) if liability arises from general obligations imposed by law. See, e.g., R.J. Griffin & Co. v. Beach Club II Homeowners Ass’n, 384 F.3d 157, 163-164 (4th Cir. 2004); InterGen N.V. v. Grina, 344 F.3d 134, 145-46 (1st Cir. 2003); Westmoreland v. Sadoux, 299 F.3d 462, 467 (5th Cir.2002); Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1076-77 (5th Cir. 2002); DeLanney, 809 S.W.2d at 494;see also Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998). We question Weekley’s conclusion that this rule will inevitably drive claimants to plead only noncontractual claims to avoid arbitration. Nonparties face a choice when they may plead in either contract or tort, but pleading the former invokes an arbitration clause broad enough to cover both (as most do). If they pursue a claim “on the contract,” then they must pursue all claims—tort and contract—in arbitration. See, e.g., Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271 (Tex. 1992) (holding DTPA claim was factuallyintertwined with contract claim and thus subject to arbitration clause). Conversely, if they choose not to sue “on the contract,” they may pursue the tort claims in court, but the contract claims will thereby likely be waived under the election-of-remedies doctrine. Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851 (Tex. 1980) (holding election-of-remedies doctrineprevents pursuit of inconsistent rights or remedies when result would be manifest injustice); cf. Medina v. Herrera, 927S.W.2d 597, 598-99 (Tex. 1996) (holding election-of-remedies doctrine barred pursuit of both workers’ compensationclaim and suit against employer for intentional act). Given these options, it is not clear at this point that nonparties will always choose to forfeit potentially viable contract claims solely to avoid arbitration. In this case, Von Bargen purports to make no claim on the Weekley contract, claiming only that she developed asthma from dust created by Weekley’s repairs of the home. While Weekley’s duty to perform those repairs arose from the Purchase Agreement, a contractor performing repairs has an independent duty under Texas tort law not to injure bystanders by its activities, if( bInlineFloats). See Redinger v. Living, Inc., 689 S.W.2d 415, 417 (Tex. 1985) (noting general contractor on a constructionsite in control of the premises may be subject to direct liability for negligence arising from: (1) a premises defect, or (2)an activity or instrumentality) or by premises conditions it leaves behind. Strakos v. Gehring, 360 S.W.2d 787, 790 (Tex. 1962). There is nothing in the sparse record here to suggest Von Bargen ’s claim is different from what any bystander might assert, or what she might assert if the contractor were not Weekley. But a nonparty may seek or obtain direct benefits from a contract by means other than a lawsuit. In some cases, a nonparty may be compelled to arbitrate if it deliberately seeks and obtains substantial benefits from the contract itself. Astra Oil Co., Inc. v. Rover Navigation, Ltd., 344 F.3d 276, 281 (2d Cir. 2003) (holding affiliate ofsignatories could enforce arbitration clause as opposing party treated affiliate as part of charter contract duringoccurrences involved); Am. Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999) (holding nonsignatories who received lower insurance rates and ability to sail under French flag due to contract were bound byarbitration clause in it); see also Matter of VMS Ltd. P’ship Sec. Litig., 26 F.3d 50, 52 (7th Cir. 1994) (holding wifebound by settlement agreement related to investment services contract signed only by her husband, but under which shehad accepted services as well); see also InterGen, 344 F.3d at 146 (holding equitable estoppel inapplicable asnonsignatory never sought to derive direct benefits from contracts during their currency). The analysis here focuses on the nonparty’s conduct during the performance of the contract. E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 200n.7 (3d Cir.2001). Thus, for example, a firm that uses a trade name pursuant to an agreement containing an arbitration clause cannot later avoid arbitration by claiming to have been a nonparty. Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993). Nor can nonsignatories who received lower insurance rates and the ability to sail under the French flag due to a contract avoid the arbitration clause in that contract. Tencara Shipyard, 170 F.3d at 353. This Court has never addressed such an estoppel claim in the arbitration context. See Kellogg, 166 S.W.3d at 741 n.9 (reserving question of whether to apply direct-benefits estoppel tobenefits obtained from contract rather than subsequent litigation).But we have long recognized in other contexts the defensive theory of promissory estoppel. See, e.g., ‘Moore’ Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934 (Tex.1972). 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. Trammell Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636 (Tex. 1997). Promissory estoppel does not create liability where none otherwise exists, Hruska v. First State Bank of Deanville, 747 S.W.2d 783, 785 (Tex. 1988), but “prevents a party from insisting upon his strict legal rights when it would be unjust to allow him to enforce them.” Wheeler v. White, 398 S.W.2d 93, 96 (Tex. 1965). Here, Von Bargen has not merely resided in the home. Claiming the authority of the Purchase Agreement, she directed how Weekley should construct many of its features, repeatedly demanded extensive repairs to “our home,” In various lists submitted in the months after the sale, Von Bargen demanded repairs to sagging floors,buckling walls and windows, cracking brick work, as well as replacing the front door, repainting the back door and thekitchen cabinets, regrouting the bathrooms and entry way, replacing the fireplace screen, closing gaps at carpet seams,removing drainage problems in the yard, and repairing a noisy garage door. personally requested and received financial reimbursement for expenses “I incurred” while those repairs were made, and conducted settlement negotiations with Weekley (apparently never consummated) about moving the family to a new home. Having obtained these substantial actions from Weekley by demanding compliance with provisions of the contract, Von Bargen cannot equitably object to the arbitration clause attached to them. In addition to these benefits, Forsting and the Trust have sued Weekley on claims which are explicitly based on the contract. Under Texas law, a suit involving a trust generally must be brought by or against the trustee, and can be binding on the beneficiaries whether they join it or not. See Tex. Prop. Code §§ 111.004(7), 115.011, 115.015; Huie v. DeShazo, 922 S.W.2d 920, 926 (Tex.1996)(holding trusts are not legal entities); Transamerican Leasing Co. v. Three Bears, Inc., 586 S.W.2d 472, 476-77(Tex. 1979) (holding beneficiaries were bound by judgment against trust and trustees, as some participated in trial in theircapacity as trustees, and remainder showed neither prejudice, conflict of interest, nor inadequate representation bytrustees). Although Von Bargen did not purport to sue as either trustee or beneficiary, she was both, and any recovery will inure to her direct benefit as the sole beneficiary and equitable titleholder of the home. Perfect Union Lodge No. 10 v. Interfirst Bank of San Antonio, N.A., 748 S.W.2d 218, 220 (Tex. 1988)(holding trust beneficiaries hold equitable title to trust property); cf. Javitch v. First Union Sec., Inc., 315 F.3d 619, 627(6th Cir. 2003) (holding arbitration agreements were binding on receiver who succeeded to interests of entities thatsigned them); Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1153-54 (3d Cir. 1989)(holding arbitration agreements were binding on successor trustee in bankruptcy). As one Texas court has noted, if a trustee’s agreement to arbitrate can be avoided by simply having the beneficiaries bring suit, “the strong state policy favoring arbitration would be effectively thwarted.” Merrill Lynch, Pierce, Fenner & Smith v. Eddings, 838 S.W.2d 874, 879 (Tex. App.—Waco 1992, writdenied). While we based our decision in FirstMerit Bank on the nonparties’ contract-based claims, more was involved in that case than the format of the pleadings. Direct-benefits estoppel requires a colorable claim to the benefits; a meddlesome stranger cannot compel arbitration by merely pleading a claim that quotes someone else’s contract. The nonparties in FirstMerit Bank were the daughter and son-in-law of the signatories, the actual occupants of the mobile home, and (according to the briefs) the future owners to whom the signatories planned to transfer title. It is hard to see what direct benefits they expected from that contract that Von Bargen did not expect from this one. Like the equitable doctrine of promissory estoppel, we do not understand direct-benefits estoppel to create liability for noncontracting parties that does not otherwise exist. As Von Bargen and Weekley had no contract between them, estoppel alone cannot grant either a right to sue for breach. See Sun Oil Co. v. Madeley, 626 S.W.2d 726, 734 (Tex. 1981) (holding estoppel based on division orderscould not permanently amend underlying lease). Nor do we understand the doctrine to apply when the benefits alleged are insubstantial or indirect. But once Von Bargen deliberately sought substantial and direct benefits from the contract, and Weekley agreed to comply, equity prevents her from avoiding the arbitration clause that was part of that agreement. We recognize that direct-benefits estoppel has yet to be endorsed by the United States Supreme Court, and that its application and boundaries are not entirely clear. See, e.g., J. Douglas Uloth & J. Hamilton Rial, III, Equitable Estoppel as a Basis for CompellingNonsignatories to Arbitrate—A Bridge Too Far?, 21 Rev. Litig. 593 (2002). For example, while federal courts often state the test as whether a nonsignatory has “embraced the contract,” See, e.g., InterGen, 344 F.3d at 145; DuPont, 269 F.3d at 200; Peltz ex rel. Peltz v. Sears, Roebuck & Co.,367 F.Supp.2d 711, 721 (E.D.Pa. 2005); In re Universal Serv. Fund Tel. Billing Practices Litig., 300 F.Supp.2d 1107,1138 (D.Kan. 2003); Amkor Tech., Inc. v. Alcatel Bus. Sys., 278 F.Supp.2d 519, 521-22 (E.D.Pa. 2003); Cherry CreekCard & Party Shop, Inc. v. Hallmark Mktg. Corp., 176 F.Supp.2d 1091, 1098 (D.Colo. 2001), the metaphor gives little guidance in deciding what particular conduct embraces or merely shakes hands with it. Indeed, the equitable nature of the doctrine may render firm standards inappropriate, requiring trial courts to exercise some discretion based on the facts of each case. See, e.g., Bridas S.A.P.I.C. v. Turkmenistan, 345 F.3d 347, 360 (5th Cir. 2003) (“The use of equitableestoppel is within a district court's discretion.”); accord, Hill v. G.E. Power Sys., Inc., 282 F.3d 343, 348 (5th Cir. 2002);Grigson v. Creative Artists Agency, 210 F.3d 524, 528 (5th Cir. 2000). But we agree with the federal courts that when a nonparty consistently See Int’l Paper, 206 F.3d at 418 (estopping nonsignatory from denying agreement to arbitrate “when he hasconsistently maintained that other provisions of the same contract should be enforced to benefit him.”) (emphasis added) and knowingly. See Bridas, 345 F.3d at 361-62 (“Direct[-]benefits estoppel applies when a nonsignatory ‘knowingly exploitsthe agreement containing the arbitration clause.’”) (emphasis added) (citing DuPont, 269 F.3d at 199); TencaraShipyard, 170 F.3d at 353 (requiring nonsignatories to arbitrate pursuant to provision in contract they neither requestednor executed, as they had duty to obtain that contract and received copies of it) 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.” DuPont, 269 F.3d at 200; accord Astra Oil Co., 344 F.3d at 281. A nonparty cannot both have his contract and defeat it too. While Von Bargen never based her personal injury claim on the contract, her prior exercise of other contractual rights and her equitable entitlement to other contractual benefits prevents her from avoiding the arbitration clause here. Accordingly, the trial court abused its discretion in failing to compel arbitration. We conditionally grant the writ of mandamus and order the trial court to vacate that part of its order denying Weekley’s motion, and to enter a new order compelling arbitration of Von Bargen ’s claim. We are confident the trial court will comply, and our writ will issue only if it does not. ________________________________________ Scott Brister Justice OPINION DELIVERED: October 28, 2005