Houston Court of Appeals holds that trial court went beyond its limited role of determining gateway matters and strayed into arbitrators' territory by taking up issues of manner and procedure relating to the arbitration process.
OPINION BY JANE BLAND
This is an interlocutory appeal and a
companion petition for a writ of mandamus that challenge the trial court's
order designating an arbitral forum. Donna Miller, both individually and as the
executor of her deceased husband's estate, has sued her husband's former
employers, Academy, Ltd. and Academy Managing Co., L.L.C. (Academy), contending
that Academy breached its agreement, pursuant to its executive compensation
plan, to pay the estate $2.4 million if Academy underwent a change of control
within a three-year period.
Academy invoked the agreement's
arbitration provision and moved in the trial court to compel arbitration, which
it did. Then, in a motion to clarify that ruling, Miller asked the trial court
to interpret the arbitration provision as not requiring administration by the
American Arbitration Association. In its order granting Miller's motion, the
trial court declared that "the previously ordered arbitration of this
cause shall be conducted privately and without having to file and administer
the arbitration with the American Arbitration Association."
Academy seeks either appellate or
mandamus relief from the trial court's order granting Miller's motion to
clarify and supplementing its prior order compelling arbitration. We hold that
we lack jurisdiction over Academy's appeal, but we exercise our mandamus
jurisdiction to correct the trial court's error in interpreting a contract
issue that properly belongs to the arbitrators. We therefore conditionally
grant the writ.
Background
In 2007, Academy established an
executive compensation plan, named "Plan I," for certain employees,
including the decedent. Plan I contains the following arbitration provision:
Section 14. Dispute Resolution;
Governing Law
(a) The exclusive venue for any action
in respect of Section 13 of this Retention Plan shall be the state and Federal
courts located in Harris County, Texas.
(b) Except as provided in Section 14(a)
above, any controversy or claim arising out of or relating to this Retention
Plan Shall be settled by arbitration in Harris County, Texas by three
arbitrators appointed by the parties. If the parties cannot agree within 30
days on the appointment of arbitrators, one shall be appointed by the Company
and one by the applicable Participant, and the third shall be appointed by the
first two arbitrators. The arbitration shall be conducted in accordance with
the rules of the American Arbitration Association for resolution of commercial
disputes, except with respect to the selection of arbitrators, which shall be
as provided in this paragraph. Any award entered by the arbitrators shall be
final, binding and nonappealable and judgment may be entered thereon by either
party in accordance with applicable law in any court of competent jurisdiction.
This arbitration provision shall be specifically enforceable. The arbitrators
have no authority to modify any provision of this Retention Plan other than a
benefit specifically provided under or by virtue of the Retention Plan. If a
Participant substantially prevails on at least one material issue which is the
subject of such arbitration, the Company shall be responsible for all of the
fees and expenses of the American Arbitration Association and the arbitrators.
Otherwise, each party shall share the fees and expenses of the American
Arbitration Association and the arbitrators equally.
Discussion
I. Appellate Jurisdiction
Section 171.098(a)(1), the appeal
provision of the state arbitration statute, requires, as a predicate to our
interlocutory appellate jurisdiction, the filing of "an application to
compel arbitration made under Section 171.021" and an order denying that
application. TEX. CIV. PRAC. & REM. CODE ANN. § 171.098 (West 2012). To
prevail under Section 171.021, such a motion must show the existence of an
agreement to arbitrate that applies to the parties' dispute and that the
opposing party has refused to arbitrate. TEX. CIV. PRAC. & REM. CODE ANN. §
171.021(a) (West 2012). Section 51.016 allows for state court appeals in
agreements governed by the FAA. TEX. CIV. PRAC. & REM. CODE ANN. § 51.016
(West 2012). Pertinent to this case, a party may appeal (1) an order refusing
to stay litigation pending arbitration of its subject matter, (2) denial of a
petition to order arbitration, and (3) an order denying an application to compel
arbitration. Id. (incorporating grounds set forth in 9 U.S.C. § 16).
The appealed order, purporting to
clarify the parties' rights under the arbitration agreement, does not fall
within any of the types of appealable orders identified under either the state
or federal statutes. We therefore lack appellate jurisdiction over Academy's
attempted interlocutory appeal.
II. Mandamus Jurisdiction
Academy alternatively seeks mandamus
relief, complaining that the trial court abused its discretion in signing the
order, because it effectively denies Academy's right to arbitrate the
underlying dispute according to the arbitration agreement's terms. A writ of
mandamus issues to correct a clear abuse of discretion when no adequate remedy
at law exists. Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992). A trial court
has no discretion to apply the law incorrectly. Id. at 840. A party seeking
relief from the failure to enforce a valid arbitration agreement, according to
its terms, has no adequate remedy at law and is entitled to mandamus relief to
correct the trial court's error. See In re Serv. Corp. Int'l, 355 S.W.3d 655,
657 (Tex. 2011) (orig. proceeding) (holding that mandamus relief is available
from trial court's appointment of arbitrator in contravention of parties'
agreement that they would select arbitrator by mutual agreement or, if unable
to agree, seek appointment by AAA); see Aspen Tech., Inv. v. Shasha, 253 S.W.3d
857 (Tex. App.-Houston [14th Dist.] 2008, orig. proceeding) (granting relief
from trial court's order compelling arbitration under clause in parties' 2006
agreement instead of under parties' 2008 agreement, which had valid arbitration
clause that supplanted earlier one); accord BP Exploration Libya Ltd. v.
ExxonMobil Libya Ltd., 689 F.3d 481, 496-97 (5th Cir. 2012) (vacating district
court's order requiring parties to proceed to arbitration before five
arbitrators, where parties had expressly agreed to arbitrate before
three-member panel).
The parties' arbitration agreement
provides that they are to select three arbitrators by mutual agreement, or, if
they "cannot agree within 30 days on the appointment of arbitrators, one
shall be appointed by the Company and one by the applicable Participant, and
the third shall be appointed by the first two arbitrators." The parties
apparently have no quarrel over this selection method, and they can comply with
it before determining whether the arbitration is subject to formal AAA
administration.
Because no obstacle to the appointment
of the arbitrators exists, we next consider if the question decided by the
trial court—whether the arbitration agreement requires the parties to file and
administer the arbitration through the American Arbitration Association or
merely requires that the arbitrators use the rules set forth by the AAA—is for
the courts or the arbitrators to decide. In Green Tree Financial Corp. v.
Bazzle, the United States Supreme Court explained the narrow scope of the
judicial role in interpreting arbitration agreements:
In certain limited circumstances, courts
assume that the parties intended courts, not arbitrators, to decide a
particular arbitration-related matter (in the absence of "clea[r] and
unmistakabl[e]" evidence to the contrary). AT&T Technologies, Inc. v.
Communications Workers, 475 U. S. 643, 649 (1986). These limited instances
typically involve matters of a kind that "contracting parties would likely
have expected a court" to decide. Howsam v. Dean Witter Reynolds, Inc.,
537 U. S. 79, 83 (2002). They include certain gateway matters, such as whether
the parties have a valid arbitration agreement at all or whether a concededly
binding arbitration clause applies to a certain type of controversy. See
generally Howsam, supra. See also John Wiley & Sons, Inc. v. Livingston,
376 U. S. 543, 546-547 (1964) (whether an arbitration agreement survives a
corporate merger); AT&T, supra, at 651-52 (whether a labor-management
layoff controversy falls within the scope of an arbitration clause).
539 U.S. 444, 452 (2003); see also
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 82-83, 123 S. Ct. 588, 591
(2002) (holding that applicability of NASD time limit rule is matter
presumptively for arbitrator, not for judge). The question of whether the
parties agreed to formal AAA administration in this case concerns neither the
validity nor the scope of the arbitration agreement. Consequently, the issue
belongs to the arbitrators, not to the courts. See Howsam, 537 U.S. at 83; In
re D. Wilson Constr. Co., 196 S.W.3d 774, 780-81 (Tex. 2006) (orig. proceeding);
see also Austin Commercial Contractors, L.P. v. Carter & Burgess, Inc., 347
S.W.3d 897, 902 (Tex. App.-Dallas 2011, pet. denied) (holding that challenge to
Civilian Board of Contract Appeals' [CBCA] jurisdiction as arbitrator of
dispute, as well as waiver and election-of-remedies complaints, "are
matters of procedure that are for the arbitrator and not for the court,"
and conditionally granting writ of mandamus directing trial court to vacate
portion of order requiring arbitration to proceed under AAA instead of CBCA);
Am. Realty Trust, Inc. v. JDN Real Estate—McKinney, L.P., 74 S.W.3d 527, 531
(Tex. App.-Dallas 2002, pet. denied) (citing John Wiley & Sons v.
Livingston, 376 U.S. 543, 557, 84 S. Ct. 909, 918 (1964) ("[I]f a court
determines the parties have an obligation to submit the subject matter of a
dispute to arbitration, `procedural' questions concerning the dispute . . . are
left to the arbitrator.")). We hold that the trial court erred in straying
past the gateway and into the arbitrators' presumptive arena by addressing
whether the parties agreed to formal AAA administration and ordering that they
did not.
Conclusion
We dismiss Academy's appeal for lack of
jurisdiction. We conditionally grant mandamus relief to Academy and direct the
trial court to vacate its March 5, 2012 order supplementing its earlier order
compelling arbitration. We are confident the trial court will comply, and the
writ will issue only if it fails to do so.
SOURCE: HOUSTON COURT OF APPEALS - Nos. 01-12-00293-CV & 01-12-00356-CV – 2/21/2013
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