What happens to additional parties in the same lawsuit that are not required to arbitrate when others are sent to arbitration?

Fort Worth Court of Appeals says when arbitration stay kicks in, it also affects other parties in the lawsuit that are not required to submit to arbitration, i.e. the entire action is stayed. The appellate panel opinion does not discuss whether a motion to sever the portion of the case not subject to arbitration would be appropriate.  

Whether Suit Must Be Abated Pending Arbitration

In their second issue, appellants contend the trial court also erred by failing to stay the underlying proceedings pending resolution of arbitration. Federal law requires courts to stay litigation of claims that are subject to arbitration until arbitration is completed. 9 U.S.C.A. § 3; In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 195-96 (Tex. 2007) (orig. proceeding). Even when a party has brought arbitrable claims against one party and claims not subject to arbitration against another party in the same lawsuit, courts should stay all litigation. See In re Merrill Lynch Trust Co., 235 S.W.3d at 195-96. Accordingly, because we have determined that appellees' claims against appellants are subject to arbitration, we conclude and hold that the litigation must be stayed pending arbitration. See In re Helix Energy Solutions Group, Inc., 303 S.W.3d 386, 403 (Tex. App.-Houston [14th Dist.] 2010, orig. proceeding). We sustain appellants' second issue.

SOURCE: FORT WORTH COURT OF APPEALS - No. 02-12-00276-CV – 2/14/2013

Arbitration of Wrongful Termination Claim Ordered: In Re Polymerica, LLC (Tex. Oct. 23, 2009)

TEXAS SUPREME COURT GRANTS EMPLOYER'S PETITION FOR MANDAMUS TO REQUIRE EMPLOYEE TO ARBITRATE HER WRONGFUL TERMINATION CLAIM In Re Polymerica, L.L.C., (Tex. Oct. 23, 2009) (orig. proceeding) Former employee required to arbitrate wrongful termination claim under arbitration agreement signed in connection with operating agreement of her employer with staffing company even though claim accrued after the operating agreement between the two companies had been terminated and the company against whom the wrongful discharge claims was asserted had not signed the dispute resolution plan containing the provision for binding arbitration. The court of appeals below had held that only claims accruing while operating agreement was in force were subject to mandatory arbitration.

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In re Polymerica, LLC d/b/a Global Enterprises, Inc.

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PER CURIAM

Polymerica, L.L.C. d/b/a Global Enterprises, Inc. (“Global”) seeks a writ of mandamus ordering the trial court to grant its motion to compel arbitration. Global, an El Paso-based manufacturer of plastics, hired Angelica Soltero in 1998. In 2002, Global contracted with dmDickason Staff Leasing Company (“Dickason”) to manage Global’s human resources department. Soltero signed a Dispute Resolution Plan, which “appl[ies] to any disputes between dmDickason/Global Enterprises and any applicant for employment, employee or former employee, including legal claims such as discrimination, wrongful discharge or harassment.” The Plan includes a four-step process for resolving disputes, the fourth of which requires binding arbitration under the Federal Arbitration Act. The Plan notes that it is “a condition of employment and of continued employment” and that “employment or continued employment after the effective date of this Plan constitutes consent by the Employee to be bound by this Plan.”

Subsequently, Global distributed an employee handbook and required Soltero and all other employees to acknowledge its receipt. The acknowledgment recites that the handbook “takes precedence over, supercedes, and revokes any previous memo, bulletin, policy or procedure issued prior to [July 6, 2003], by Global Enterprises on any subject discussed in the Handbook.” The handbook includes a section on arbitration, which provides, in pertinent part:

All disputes between you and dmDickason/Global shall be resolved exclusively through arbitration under the Federal Arbitration Act. All employees are required to sign a Dispute Resolution Plan Agreement, as a condition of employment, during their new employee orientation on the first day of employment.

dmDickason/Global’s Dispute Resolution Plan and Arbitration Agreement is intended to provide a method for solving problems that is fair, prompt and effective.

. .

Your decision to accept employment with Global, or to continue your current employment after the effective date of the Dispute Resolution Plan, will mean that you have agreed to, and are bound by the Plan. All disputes between you and dmDickason, and/or you and Global shall be resolved exclusively through arbitration under the Federal Arbitration Act, the American Arbitration Association’s National Rules for the Resolution of Employment Disputes, and dmDickason’s dispute resolution plan that is given to all employees during their initial employment orientation with dmDickason.

On December 31, 2005, Global ended its operating agreement with Dickason and resumed full management of its human resources department. Five days later, Global terminated Soltero.

Soltero sued Global under chapter 21 of the Texas Labor Code alleging wrongful termination based on her national origin as well as retaliation for reporting alleged sexual harassment. The trial court denied Global’s motion to compel arbitration. Global sought mandamus relief, which the court of appeals granted in part. 271 S.W.3d 442. The court of appeals held that Soltero’s claims arising before Global and Dickason ended their relationship must be arbitrated, but that those arising after Global and Dickason’s operating agreement ended should not. Id. at 449. Soltero then nonsuited any claim arising before January 1, 2006 and alleged that, because her termination occurred after the Global/Dickason agreement ended, none of her claims were subject to arbitration. The trial court agreed, concluding that “all of [Soltero’s] claims in this suit arise from the wrongful termination occurring after the operating agreement between Global and Dickason ended.” The trial court lifted the previously ordered stay and placed the case on the trial docket. Global asks us to order the trial court to compel arbitration as to all of Soltero’s claims and to stay the proceedings pending arbitration.

Soltero concedes that she signed the Dispute Resolution Plan and the 2003 Handbook, but she argues that the Handbook’s statement revoking prior versions nullifies the Dispute Resolution Plan. That Handbook provision, however, does not cover contracts like the Plan’s arbitration agreement. We also note that the Handbook and the Dispute Resolution Plan were intended to work in tandem. 227 S.W.3d at 448 (“We fail to see how the handbook nullifies the arbitration agreements; rather, it appears to reference them.”); see also J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). If the 2003 Handbook’s discussion of arbitration eliminated the Dispute Resolution Plan, the Handbook’s discussion of—and multiple references to—the Plan would be meaningless. See Davidson, 128 S.W.3d at 229.

Soltero also asserts that the Dispute Resolution Plan is illusory because the 2003 Handbook could be modified at any time. See id. at 230 n.2 (noting that “most courts . . . have held that, if a party retains the unilateral, unrestricted right to terminate the arbitration agreement, it is illusory”). But the Dispute Resolution Plan has its own termination provision, which requires notice to employees and applies prospectively only. Because Global cannot “avoid its promise to arbitrate by amending the provision or terminating it altogether,” In re Halliburton Co., 80 S.W.3d 566, 570 (Tex. 2002), the Dispute Resolution Plan is not illusory.

Next, Soltero contends that because only Dickason, not Global, was a party to the Dispute Resolution Plan, Global may not enforce the Plan’s terms. Global counters that even though it did not sign the Plan, it can enforce Dickason’s agreement with Soltero under the equitable theory of direct-benefits estoppel. We need not address direct-benefits estoppel, however, because both Global and Soltero were parties to the Plan. The Plan notes that it “will apply to any disputes between dmDickason/Global Enterprises and any applicant for employment, employee or former employee.” It also defines “covered dispute” as including any claim, demand, or controversy “between Employee and dmDickason and/or Global Enterprises.” Although the Plan is signed only by Soltero and Dickason, we have never held that the employer must sign the arbitration agreement before it may insist on arbitrating a dispute with its employee. “[N]either the FAA nor Texas law requires that arbitration clauses be signed, so long as they are written and agreed to by the parties.” In re AdvancePCS Health, L.P., 172 S.W.3d 603, 606 n.5 (Tex. 2005) (noting, however, that Texas Arbitration Act requires signatures for contracts of less than $50,000 or personal injury claims); see also In re Macy’s Tex., Inc., 291 S.W.3d 418, 418 (Tex. 2009) (per curiam) (observing that “[t]he FAA contains no requirements for the form or specificity of arbitration agreements except that they be in writing; it does not even require that they be signed”); Halliburton, 80 S.W.3d at 569 (holding arbitration clause was accepted by continued employment). And while the Plan provides that it covers disputes involving former employees of the “company,” defined as “dmDickason Staff Leasing Company, Inc. together with its subsidiaries, parent companies, affiliates, officers, directors, employees, agents, representatives, shareholders and assigns,” it also states that it applies to “any disputes between dmDickason/Global Enterprises and any . . . former employee.” See In re D. Wilson Construction Co., 196 S.W.3d 774, 782 (Tex. 2006) (observing that “we resolve doubts as to the scope of the agreements in favor of coverage”); In re FirstMerit Bank, 52 S.W.3d 749, 753 (noting that “courts must resolve any doubts about an arbitration agreement’s scope in favor of arbitration”).

The court of appeals held that Global could not enforce the arbitration agreements “for those claims arising from the alleged wrongful termination occurring after the operating agreement between Global and Dickason ended.” 271 S.W.3d at 449.

The court relied on In re Neutral Posture, Inc., 135 S.W.3d 725, 730 (Tex. App.—Houston [1st Dist.] 2003, no pet.), to explain why claims post-dating the operating agreement must be tried rather than arbitrated, but we find Neutral Posture to be distinguishable. The arbitration agreement there included a condition stating that the parties must resolve disputes via arbitration only during a set five-year period, and the claim at issue was filed after the expiration of that period. Id. There is no such time limitation in the Dispute Resolution Plan, nor is there a condition that the Global and Dickason relationship must be in existence for either to enforce the Plan. Soltero’s agreement to arbitrate survives the dissolution of that relationship, and the Dispute Resolution Plan explicitly covers former employees like Soltero.

The court of appeals also noted that Global’s former human resources manager, Valerie Scott, “was unaware of any arbitration agreement after the termination of Global’s relationship with Dickason,” and “[s]he agreed that from January 2006 until July 2007, when Global created a new arbitration agreement, there was no arbitration agreement in effect.” 271 S.W.3d at 446-47. But Scott’s testimony is ambiguous on this point. She testified that she “never even thought about [whether the 2002 agreement]” was still in effect after the relationship between Global and Dickason ended. When asked whether Global employees were covered by an arbitration agreement in 2006, she answered that “[t]here was not an arbitration agreement that we — that was created by Global Enterprises” and that she was unaware of any other arbitration agreement that might have applied to Global’s employees. Even if Scott had testified that no arbitration agreement was in effect, her statements could not alter the effect of the unambiguous agreement. See In re Dillard’s Dep’t Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006) (noting that “[t]he objective intent as expressed in the agreement controls the construction of an unambiguous contract, not a party’s after-the-fact conduct”); Davidson, 128 S.W.3d at 229 (“In construing this agreement, we first determine whether it is possible to enforce the contract as written, without resort to parol evidence.”).

Soltero’s promise to arbitrate includes her claims against Global. Mandamus relief is appropriate when a party is forced to trial despite an enforceable agreement to arbitrate. In re McAllen Med. Ctr., Inc., 275 S.W.3d 458, 462 (Tex. 2008).

Accordingly, without hearing oral argument, TEX. R. APP. P. 52.8(c), we conditionally grant Global’s petition for writ of mandamus and direct the trial court to compel arbitration as to all of Soltero’s claims and stay the proceedings pending arbitration. We are confident the trial court will comply, and our writ will issue only if it does not.

Opinion Delivered: October 23, 2009

In Re Polymerica, LLC, No. 08-1064 (Tex. Oct. 23, 2009)(per curiam) (arbitration mandamus granted in employment dispute) (terminated employee required to arbitrate wrongful termination claim against her employer even though arb agreement was with staffing company whose relationship with employer had been terminated prior to employee's claim) IN RE POLYMERICA, LLC D/B/A GLOBAL ENTERPRISES, INC.; from El Paso County; 8th district (08-08-00070-CV, 271 SW3d 442, 11-25-08) stay order of February 24, 2009 lifted Pursuant to Texas Rule of Appellate Procedure 52.8(c), without hearing oral argument, the Court conditionally grants the petition for writ of mandamus. Per Curiam Opinion View Electronic Briefs in IN RE POLYAMERICA, LLC D/B/A GLOBAL ENTERPRISES, INC. OTHER BLOG ENTRIES ON IN RE POLYMERICA, LLC (Tex. Sup. Ct. 2009): Supreme Court of Texas Compels Arbitration of Discrimination and Retaliation Claims By Russell Cawyer (Texas Employment Law Update) Texas Supreme Court Compels Arbitration of Employment Discrimination Claims By Victoria VanBuren (Disputing)

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.

Legal Incapacity as a Defense to Arbitration: In Re Morgan Stanley & Co, Inc. (Tex. 2009)

In re Morgan Stanley & Co, Inc. (Tex. 2009) LACK OF CAPACITY AS A DEFENSE TO A MOTION TO COMPEL ARBITRATION Does the issue of a customer's incompetence to contract (and thus to assent to arbitration as part of an account agreement with a financial institution) go to the court or to the arbitrator? Texas Supreme Court, in majority opinion by Justice David Medina, says legal capacity to enter an arbitration agreement is a gateway issue for the court to decide, rather than for arbitrators. One justice of 8 sitting in the case – Nathan Hecht - dissented, likening the legal incapacity claim to fraudulent inducement as a theory to avoid an existing contract, and arguing that a contract executed by a person without legal capacity may nevertheless be ratified and is merely voidable, not void, under state law. Two other justices authored concurring opinions. Justice Don Willett reads the FAA as clearly assigning judges the role to determine whether an agreement to arbitrate was validly formed in the first place. Justice Scott Brister, however, disputed that the issue was that simple, and wrote separately to suggest that the defendant invoke direct benefits estoppel to enforce the arbitration agreement regardless of whether the customer was mentally competent when she signed the account agreement containing the arbitration clause. Equitable estoppel would prevent the plaintiff (suing through her guardian) from attacking the validity of the arbitration clause because all of her claims against the financial institution derive from the underlying contract, of which the arbitration clause was a part. LINKS TO OPINIONS AND CASE DETAILS: In re Morgan Stanley & Co, Inc., No. 07-0665 (Tex. Jul. 3, 2009)(Medina) (arbitration vs. litigation: legal capacity of party to arbitration agreement, does the court or the arbitrator determine the issue?) IN RE MORGAN STANLEY & CO. INC., SUCCESSOR TO MORGAN STANLEY DW, INC.; from Dallas County; 5th district (05-07-00590-CV, ___ SW3d ___, 07-17-07 Opinion by the Dallas CoA) The petition for writ of mandamus is denied. Justice Medina delivered the opinion of the Court, in which Chief Justice Jefferson, Justice Wainwright, Justice Green, Justice Johnson, and Justice Willett joined. Justice Brister delivered a concurring opinion. Justice Willett delivered a concurring opinion. Justice Hecht delivered a dissenting opinion. (Justice O'Neill did not participate). BLOG COMMENT BY OTHERS ON 2009 TEXAS SUPREME COURT DECISION IN RE MORGAN STANLEY: Capacity to contract is issue for the courts, not arbitrators (Reverse & Render Blog); Texas Supreme Court Holds that the Court, not the Arbitrator Should Decide the Issue of Capacity to Contract (Disputing); Comment by Prof. Alan Scott Rau, University of Texas at Austin School of Law, posted on Disputing RELATED TERMS: incompetence, lack of capacity to contract, mental, legal incapacity defense, incapacitated party, void and voidable contracts, void ab initio, validity of assent, meeting of the minds, lack of authority to bind principal, contract formation vs contract validity defense, cancellation rescission remedy, direct benefits equitable estoppel as basis for enforcing arbitration agreement against nonsignatory, questions/issues for the court and issues for the arbitrator to decide, respective roles of judges and arbitrators, gateway or threshold issues.

In re Kaplan (Tex. 2007)

In re Kaplan Higher Educ. Corp., No. 06-0072 (Tex. Aug. 24, 2007)(per curiam)(arbitration mandamus)(students compelled to arbitrate fraudulent inducement claim against vocational school; may not avoid arbitration clause by suing school's agents) In re Kaplan Higher Education Corporation and Leticia Ventura, Relators ═══════════════════════════════════════════════ On Petition for Writ of Mandamus ═══════════════════════════════════════════════ A vocational college and 45 of its students agreed to arbitrate any dispute “arising from or relating to” their enrollment agreement. Claiming they were fraudulently induced to sign up, the students nevertheless seek to avoid arbitration by pursuing their claims only against two nonsignatories. The parties agree the Federal Arbitration Act applies. See 9 U.S.C. § 1 et. seq. The trial court refused to compel arbitration, and the Thirteenth Court of Appeals denied mandamus relief. We conditionally grant it. See In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) (“Mandamus relief is proper to enforce arbitration agreements governed by the FAA.”). The students enrolled in an electrician’s program at the San Antonio College of Medical and Dental Assistants – McAllen Branch (“the College”), a wholly-owned subsidiary of Kaplan Higher Education Corporation. They allege they were fraudulently induced to enroll by assurances that upon graduation they would be eligible for licenses as journeymen or master electricians. Each student signed an enrollment agreement detailing tuition, rules, and graduation requirements, and requiring them to arbitrate “[a]ny controversy or claim arising out of, or relating to, this Agreement.”[1] Initially, the plaintiffs filed suit against Kaplan, the College, Frank Jennings (the College’s president) and Leticia Ventura (the College’s admissions director). When the defendants moved for arbitration, the plaintiffs dropped their claims against the College and Jennings (both signatories to the agreements) as well as all claims of joint venture or enterprise, leaving only claims against Kaplan and Ventura (both nonsignatories). Although alleged in various forms,[2] the substance of the students’ claim was fraudulent inducement, as they seek refunds of tuition and other costs they would not have incurred had they not been induced to sign up. See Weekley, 180 S.W.3d at 131–32 (stating that arbitrability “turns on the substance of the claim, not artful pleading”); Haase v. Glazner, 62 S.W.3d 795, 797– 800 (Tex. 2001) (distinguishing fraudulent inducement from other fraud claims as it “presupposes that a party has been induced to enter a contract”). We have held that such claims fall within an agreement to arbitrate all disputes “involving” an underlying contract. See In re J.D. Edwards World Solutions Co., 87 S.W.3d 546, 550–51 (Tex. 2002). Clearly, the students’ complaints arise out of and relate to their enrollment agreements. We disagree with Kaplan that the students are suing on those agreements. “Claims must be brought on the contract (and arbitrated) if liability arises solely from the contract . . . . [C]laims can be brought in tort (and in court) if liability arises from general obligations imposed by law.” Weekley, 180 S.W.3d at 132. Claims of fraudulent inducement arise from general obligations imposed by law, not the underlying contract. Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 304 (Tex. 2006) (“The duty not to fraudulently procure a contract arises from the general obligations of law rather than the contract itself, and may be asserted in tort even if the only damages are economic.”); Formosa Plastics Corp. USA v. Presidio Eng’rs and Contractors, Inc., 960 S.W.2d 41, 46 (Tex. 1998) (“[I]t is well established that the legal duty not to fraudulently procure a contract is separate and independent from the duties established by the contract itself.”). Nevertheless, the agents of a signatory may sometimes invoke an arbitration clause even if they themselves are nonsignatories and a claimant is not suing on the contract. Thus, if two companies sign a contract to arbitrate disputes, one cannot avoid it by recasting a contract dispute as a tortious interference claim against an owner, officer, agent, or affiliate of the other. In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 762–63 (Tex. 2006) (per curiam). “Every contract claim against a corporation could be recast as a tortious interference claim against its agents,” and it is impractical to require every corporate agent to sign or be listed in every contract. Id. at 762. As a contracting party generally cannot avoid unfavorable clauses by suing the other party’s agents, this rule is necessary “‘to place arbitration agreements on equal footing with other contracts’.” Id. (quoting E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 293 (2002)). For the same reasons, the same rule must apply when a party to an arbitration contract seeks to avoid it by pleading a contract dispute as fraudulent inducement by an officer, agent, or affiliate of the other. Here too, almost every contract claim against a corporation could be recast as a fraudulent inducement claim against the agents or employees who took part in the negotiations preceding it. If such arbitration clauses are enforceable only if every officer, employee, agent, or affiliate signs or is listed in the contract, they would be more easily avoided than other contract clauses. Further, the students’ agreements with the College require arbitration here because the College will be liable for the judgment if their suit is successful. The Texas Education Code requires vocational schools to provide full refunds if enrollment was procured by representations “by the owner or representatives of the school.” Tex. Educ. Code § 132.061(a)(2); see also Minyard Food Stores, Inc. v. Goodman, 80 S.W.3d 573, 577 (Tex. 2002) (stating that employers are generally liable for employees’ torts committed in course, scope, and furtherance of employer’s business). The enrollment agreements specifically provided for tuition refunds in the event enrollment was induced by misrepresentation. If the College’s liability for such refunds (about $10,000 for each student) can be decided in court by suing its agents, then the arbitration contract has been effectively abrogated. The students argue that Ventura and the other admissions officers to whom they spoke were not employees of the College but of Kaplan. But the undisputed facts (and the students’ own pleadings) show that regardless of who paid them, they were acting as agents of the College when they advertised, recruited, and procured contracts on its behalf, and that the College itself will have to answer for any misrepresentations they made in doing so. The students also assert that Kaplan cannot seek arbitration because of “unclean hands” in its dealings with them. But this defense pertains to the enrollment agreement in general rather than the arbitration clause in particular, and thus must be arbitrated. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449 (2006) (“We reaffirm today that . . . a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.”); In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001). We emphasize again today that arbitration clauses do not automatically cover all corporate agents or affiliates. See In re Merrill Lynch Trust Co., __ S.W.3d __ , __ (Tex. 2007); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006) (per curiam). Like other contracts, arbitration agreements “are enforced according to their terms and according to the intentions of the parties.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947 (1995) (internal citation omitted). Thus, for example, owners may not be able to invoke a subsidiary’s arbitration clause when they act on their own behalf rather than for their subsidiary. See, e.g., Westmoreland v. Sadoux, 299 F.3d 462, 466 (5th Cir. 2002). But when an agreement between two parties clearly provides for the substance of a dispute to be arbitrated, one cannot avoid it by simply pleading that a nonsignatory agent or affiliate was pulling the strings. Accordingly, without hearing oral argument, see Tex. R. App. P. 52.8(c), we conditionally grant the writ of mandamus and direct the trial court to order that the students’ claims proceed to arbitration. Our writ will not issue unless the trial court fails to do so. OPINION DELIVERED: August 24, 2007 [1] Each enrollment agreement contained the following arbitration provision: ACKNOWLEDGEMENT OF OBLIGATION: . . . Any controversy or claim arising out of, or relating to, this Agreement, or breach thereof, no matter how pleaded or styled, shall be settled by arbitration in accordance with the Commercial Rules of Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction. [2] The students’ pleadings alleged negligence, negligence per se based on alleged violations of the Texas Education and Texas Administrative Codes, violations of the Texas Deceptive Trade Practices Act, and negligent misrepresentation.

In re H&R Block (Tex. 2007)

In Re H&R Block, No. 04-0061 (Tex. Aug. 24, 2007)(per curiam)(investments, arbitration mandamus granted, company's name change irrelevant to validity and enforceability of arbitration agreement) In re H&R Block Financial Advisors, Inc. and Robert Bullock, Relators ══════════════════════ On Petition for Writ of Mandamus ══════════════════════ PER CURIAM After losing a substantial investment in the Enron debacle, two investors sued their investment advisor and his firm. Although they had signed contracts with the firm containing broad arbitration clauses, they sought to avoid them on grounds that (1) the firm had changed its name, and (2) the employee did not sign the contracts in his personal capacity. Because all the other terms of the parties’ contracts could not be avoided on these grounds, neither could the arbitration clauses. Accordingly, we conditionally grant mandamus relief. See In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) (“Mandamus relief is proper to enforce arbitration agreements governed by the FAA.”). In 1992 and again in 1996, Robert and Gilda Bonds entered into investment account agreements with Olde Discount Corporation. Both contracts contained arbitration clauses covering “any and all controversies or claims arising out of the relationship established by this agreement or any corresponding agreement to arbitration.” Robert Bullock, an Olde employee, signed both on Olde’s behalf. When Olde changed its name in 2000 to H&R Block Financial Advisors, Inc., Bullock continued to advise the Bonds, and recommended investments in Enron Corporation. In 2001, H&R Block sent the Bonds an Addendum to their account agreements that changed some terms but did not mention arbitration. In October 2002, the Bonds sued H&R Block and Bullock alleging negligence, gross negligence, fraud, breach of fiduciary duty, and violations of the Texas Securities Act and the Texas Deceptive Trade Practices Act. The Bonds sought recovery of their entire $119,031.92 investment in Enron. H&R Block and Bullock moved to stay proceedings pursuant to the Federal Arbitration Act.[1] The trial court denied the motion, and the court of appeals denied mandamus relief. __ S.W.3d __ (Tex. App.–Corpus Christi 2003). The Bonds concede signing an arbitration agreement with Olde, but argue that H&R Block and Bullock are nonsignatories who cannot invoke it. But H&R Block established that it was the same company as Olde, now operating under a different name. H&R Block tendered affidavits and a Certificate of Amendment showing that Olde amended its Articles of Incorporation in July 2000 to change its name to H&R Block. Under ordinary legal principles, a contracting party that has merely changed its name is still a contracting party. See, e.g., Coulson v. Lake LBJ Mun. Util. Dist., 781 S.W.2d 594, 595 (Tex. 1989); Texas Co. v. Lee, 157 S.W.2d 628, 630 (Tex. 1941). Accordingly, the company’s change of name does not prevent it from invoking its own arbitration agreements. See 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). Nor can the Bonds skirt arbitration with Bullock when the substance of the suit is against both him and his employer. Bullock had no duty to provide investment advice to the Bonds but for their contract with Olde/H&R Block, and the damages the Bonds seek is the investment they made through that contract. As Bullock’s liability arises from and must be determined by reference to the parties’ contract rather than general obligations imposed by law, the suit is subject to the contract’s arbitration provisions. In re Weekley Homes, L.P., 180 S.W.3d 127, 131–32 (Tex. 2005); see also In re Vesta Ins. Group, Inc. 192 S.W.3d 759, 762 (Tex. 2006) (“When contracting parties agree to arbitrate all disputes ‘under or with respect to’ a contract (as they did here), they generally intend to include disputes about their agents’ actions . . . .”). The Bonds claim the 2001 Addendum (which contained no arbitration clause) overrides the earlier account agreements (which did). But the Addendum’s first two sentences expressly incorporate all nonconflicting terms of the earlier agreements: The following are changes and/or additions to your Investor Account Agreement that you may have signed previously. . . . [W]here conflict exists, this addendum shall control and be binding on you. As the Addendum was silent regarding arbitration, it did not conflict with the existing arbitration provisions and thus left them intact. Finally, the Bonds assert the trial court properly refused to compel arbitration because the evidence regarding Olde’s name change was not produced promptly in response to discovery requests. But even if exclusion were a proper discovery sanction (a question we do not reach), the trial court did not exclude it here; to the contrary, the court gave the Bonds extra time to respond to the evidence before ruling on the motion. By the time the trial court made that ruling three months later, the Bonds had filed nothing contradicting Olde’s change of name evidence. Once this undisputed evidence was tendered, the court was not at liberty to ignore it. Accordingly, without hearing oral argument, see Tex. R. App. P. 52.8(c), we conditionally grant the writ of mandamus and direct the trial court to order that the Bonds’ claims proceed to arbitration. Our writ will not issue unless the trial court fails to do so. OPINION DELIVERED: August 24, 2007 [1] The defendants also moved to compel arbitration under the Texas Arbitration Act and filed an interlocutory appeal related thereto. We do not address that claim as the court of appeals determined that the FAA applies and neither party contests that determination.