How Much Discovery is Too Much, Resulting in Waiver?

WHAT AMOUNT OF PRE-ARBITRATION DISCOVERY ENTAILS WAIVER OF THE RIGHT TO ENFORCE ARBITRATION AGREEMENT? In a recent mandamus proceeding the El Paso Court of Appeals did not answer that question directly, but pointed to the fact that a motion to compel arbitration had been filed and denied prior to the discovery being served. Invoking the Supreme Court's "totality of the circumstances" mantra, the Court finds that the right to arbitrate was not waived, and compels arbitration. Nobody knows what the totality of the circumstances means, other than providing for the consideration of "everything" as opposed to a defined list of factors, but it seems safe to conclude that objecting to litigation -- and moving for arbitration -- as soon as possible, and getting an adverse ruling prior to sending out discovery requests and noticing depositions, is the prudent thing to do in order to minimize the possibility of a waiver finding. In Re ReadyOne Industries, Inc. and Amalia Lopez (Tex.App.- El Paso, Aug. 8, 2009) In granting the mandamus petition in this case, opinion author Chief Justice David Wellington Chew goes the extra mile to be polite to trial judge, merely "requesting" the trial court to vacate the order denying arbitration. Others are typically are more blunt and "direct" the trial judge to comply upon a finding of abuse of discretion. As a matter of professional courtesy, courts of appeals typically do not actually issue mandamus writs in Texas, but afford the judge below an opportunity to comply before one is prepared. They typically do, thus mooting the writ. The waiver section of the opinion, which also contains other holdings of jurisprudential interest, including an analysis of the novel issue of how a corporate reorganization & name change affects an existing arb agreement, follows below: WAIVER A party waives the right to arbitrate by substantially invoking the judicial process to the other party's detriment or prejudice. In re Fleetwood Homes of Tex., L.P., 257 S.W.3d 692, 694 (Tex. 2008) (orig. proceeding). Waiver is a legal question for the court based on the totality of the circumstances, and asks whether a party has substantially invoked the judicial process to an opponent's detriment, the latter term meaning inherent unfairness caused by "a party's attempt to have it both ways by switching between litigation and arbitration to its own advantage." See id. (quoting Perry Homes v. Cull, 258 S.W.3d 580, 597 (Tex. 2008)). Waiver must be decided on a case-by-case basis, and courts should look to the totality of the circumstances involved. We consider factors such as when the movant knew of the arbitration clause, how much discovery has been conducted, who initiated it, whether it related to the merits rather than arbitrability or standing, how much of it would be useful in arbitration, and whether the movant sought judgment on the merits. Perry Homes, 258 S.W.3d at 591-92.

The Real Party in Interest argues that the litigation process has been substantially invoked, because both sides have completed extensive discovery, which goes to the merits of the case. The Relators made a request for disclosure, eight interrogatories, fifteen requests for production, and conducted two depositions. The request for disclosure, eight interrogatories, and fifteen requests for production were made on March 14, and 18, 2008. Relators filed their motion to compel arbitration on October 1, 2007, but the trial court did not rule on the motion until March 10, 2008. On April 30, 2008, Relators filed a motion to reconsider compelling arbitration, which was denied.

The discovery was conducted after the motion to compel arbitration was denied. We do not find that this conduct acts as a waiver. From the beginning of this litigation the Relators have attempted to invoke the arbitration agreement. In their first pleading, the Relators expressed that the arbitration agreement precludes state court litigation. Relators have not filed any affirmative claims for relief nor sought any judgments on the merits. They proffered two witnesses for deposition explicitly stating that the deposition was subject to an upcoming motion to reconsider the denial of the motion to compel arbitration. However, there is no record of the content of those depositions. The Real Party argues that all medical records have been exchanged, but this is not represented in the Relators' Record. The only medical document in the record is an Accident Investigation Report, which indicates that the Real Party is experiencing pain in her left shoulder. Critical to this type of litigation would be the diagnoses of her condition by a medical doctor and some testimony that her condition could be caused by her workplace duties.

Based on the totality of the circumstances, the discovery conducted in this case does not amount to substantially invoking the litigation process. The Texas Supreme Court has found that eighteen interrogatories and one set of nineteen requests for production did not waive the right to compel arbitration. In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998). The Texas Supreme Court has also found that taking four depositions does not waive the right to arbitrate. In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006). In Vesta Ins. Group, the Court found "the record does not show whether these requests were limited or extensive, whether they sought information for affirmative claims or defensive ones, or even whether they addressed the merits or merely the arbitration issue." Id. The same is true in this case. The content of the depositions is not available for this Court to review, nor was it available for the trial court to review in the Real Party in Interest's response in opposition to Defendant's motion to reconsider compelling arbitration. Most importantly, the Relators did not try to hide their desire to arbitrate this claim. In fact they tried twice to compel arbitration, once before any discovery had been completed.

Crucial to the Perry outcome was the fact that the party seeking to arbitrate waited until fourteen months after the case was filed to assert the right to do so.

14 months after filing suit and shortly before the December 2001 trial setting, the Culls changed their minds and requested arbitration. They justified their change of heart on the basis that they wanted to avoid the delays of an appeal. But their change unquestionably delayed adjudication of the merits; instead of a trial beginning in a few days or weeks, the plenary arbitration hearing did not begin until late September of 2002-almost ten months after the Culls abandoned their trial setting. Moreover, to the extent arbitration reduces delay, it does so by severely limiting both pretrial discovery and post-trial review. Having enjoyed the benefits of extensive discovery for 14 months, the Culls could not decide only then that they were in a hurry.

Perry Homes, 258 S.W.3d at 596-97. The court was clear to point out that while they found that the Culls had substantially invoked the judicial process that was only one part of a totality of the circumstances review. Id. at 596.

Thus, we should also look at the conduct of the parties. Id. In this case it is clear that the Relators desired to arbitrate the claim pursuant to an enforceable arbitration agreement from the early stages of the litigation. If the Supreme Court in Perry could have hung its hat solely on the amount of discovery that had been completed, it would not have continued to review how the Culls originally objected to arbitration, and then fourteen months later argued they were entitled to arbitrate.

We resolve any doubts that we have regarding waiver in favor of arbitration. Nw. Constr. Co. v. Oak Partners, L.P., 248 S.W.3d 837, 847 (Tex.App.-Fort Worth 2008, pet. denied). Considering the above in addition to the totality of the circumstances, we disagree that Relators waived their right to compel arbitration, because they have not substantially invoked the judicial process.

We also find that the Real Party has not shown that she will be prejudiced by arbitration. Fleetwood Homes of Tex., L.P., 257 S.W.3d at 694. Contrary to the assertions of the Real Party, the litigation process will not have to start over if the parties arbitrate this case. There is no evidence that the discovery already obtained could not be used at arbitration. Absent a showing that some evidence discovered would not be attainable in arbitration, no prejudice has occurred. In re Bruce Terminix Co., 988 S.W.2d at 704.

LINKS TO FULL TEXT OF OPINION AND CASE DETAILS:

In Re ReadyOne Industries, Inc, [opinion in pdf on court's website] No. 08-08-00221-CV (Tex.App.- El Paso, Aug. 19, 2009) (arbitration mandamus granted, arbitration of workplace injury claim, no waiver of right to arbitrate) MOTION OR WRIT GRANTED: Opinion by Chief Justice Chew Before Chief Justice Chew, Justice McClure, The Honorable Gomez 08-08-00221-CV In Re: ReadyOne Industries, Inc. and Amalia Lopez [opinion in html] RELATED SEARCH TERMS: Discovery in civil litigation and arbitration | pre-arbitration discovery | timeliness of motion to compel arbitration | substantial invocation of the litigation process | waiver of contractual right to arbitrate, enforce arbitration clause| Perry Homes v. Cull progeny| arbitration in the employment context | arbitration of workplace personal injury claims|

Trial Judge-Arbitrator Ping-Pong, followed by $200 Appeal

A recent case from Houston provides an interesting illustration of Court-Arbitrator Dynamics: Consumer dispute gets arbitrated and consumer wins. Trial judge sends case back to arbitrator for segregation of attorney's fees. Arbitrator apparently is none too pleased and shaves off no more than $190 of a fee award of $24,837.00, which was almost twice of the actual damages awarded on the underlying claim. Trial judge then confirms the modified award. Then comes another round in the appellate court over the $190 modification. Appeal from confirmation order, seeking reinstatement of the original award, fails because the grounds are not viable under the FAA. So says a panel of the 14th CoA in its opinion. Clearly, there must have been more at stake (at least from the plaintiff's/plaintiff's attorney's perspective) than just the $190. But the authoring justice on the appellate panel fails to acknowledge that possibility and writes in a footnote: "It is noteworthy that, for reasons not apparent from the record, LeFoumba, in an ill-advised attempt to recover an extra $190.00 beyond that awarded under the trial court's judgment, has spent multiples of that amount in additional fees and appellate costs. We note that the cost merely to prepare the clerk's record was $699.00, an amount more than three and one-half times the figure representing the difference between the original and modified arbitration awards." But an appellant would be entitled to recover the costs for the appeal if he prevailed. One-dollar nominal awards in Section 1983 actions, power struggle, vindication of one's position, and opportunity to set precedent come to mind as possible alternative motivational elements. Even if it is true that it all boils down to money, similar cases down the line may be affected in which more is at stake than a mere two hundred bucks. That alone may make an appeal worthwhile. Whatever the motives - and the wisdom of this appeal in dollar terms - the opinion is worth reading, along with others that address the grounds for vacature under the FAA in the wake of important recent decisions by the U.S. Supreme Court and the Fifth Circuit on that subject. Lefoumba v. Legend Classic Homes, Ltd (Tex.App.- Houston [14th Dist.] Sep. 17, 2009) (challenge to confirmation of amended arbitration award under FAA that slightly reduced attorney's fees rejected) AFFIRMED: Opinion by Justice Sullivan Before Justices Seymore, Brown and Sullivan 14-08-00243-CV Claude Lefoumba v. Legend Classic Homes, Ltd and Legend Home Corp. Appeal from County Civil Court at Law No 2 of Harris County (Houston) Trial Court Judge: Jacqueline Lucci-Smith M E M O R A N D U M O P I N I O N Appellant, Claude LeFoumba, prevailed in arbitration against the appellees, Legend Classic Homes, Ltd. and Legend Home Corp. (collectively, “Legend"). Legend successfully challenged LeFoumba's failure to segregate his attorney's fees, resulting in a modified arbitration award that reduced his recovery by only $190.00. Nevertheless, LeFoumba brought this appeal to challenge the trial court's confirmation of the slightly reduced award. Because LeFoumba's appellate complaints do not fit within any of the exclusive grounds available to challenge a federal arbitration award, we affirm the judgment.[1] Background LeFoumba agreed to purchase a home from Legend pursuant to an earnest-money contract containing an arbitration clause expressly governed by the Federal Arbitration Act.[2] After the deal fell through, LeFoumba sued Legend for breach of contract, fraud, and violations of the Texas Deceptive Trade Practices Act. The case was referred to arbitration, where the arbitrator found in LeFoumba's favor on the breach-of-contract claim but denied recovery for fraud or DTPA violations. Accordingly, on September 12, 2007, the arbitrator awarded LeFoumba $12,981.00 in actual damages and $24,837.00 for attorney's fees. However, the trial court vacated the award over LeFoumba's objection, and referred the matter back to the arbitrator because of LeFoumba's failure to segregate his attorney's fees between the contract claims, on which he prevailed, and the other, non-successful causes of action. On February 22, 2008, the arbitrator issued a modified award reducing LeFoumba's attorney's fees by $190.00, to $24,647.00. In response, LeFoumba filed two motions, one asking the trial court to confirm the modified award, and the other requesting that the court vacate the modified award and reinstate the original September 2007 award. The trial court confirmed the modified award. LeFoumba has now appealed the trial court's refusal to vacate the modified award, arguing (1) the modified award was procured by “undue means," (2) the arbitrator exceeded her authority, and (3) the modified award “violates law and public policy."[3] All of these arguments are premised upon his claim that Legend's objection to the failure to segregate attorney's fees was untimely and therefore should have been disregarded by the trial court and arbitrator. Analysis The arbitration agreement expressly recites that “arbitration shall be governed by the U.S. Arbitration Act, 9 U.S.C. § § 1-16, to the exclusion of any provisions of state law that are inconsistent with the federal act."[4] We review a trial court's confirmation of an arbitration award under the Federal Arbitration Act (the “FAA") de novo. Tanox, Inc. v. Akin, Gump, Strauss, Hauer & Feld, L.L.P., 105 S.W.3d 244, 250 (Tex. App.-Houston [14th Dist.] 2003, pet. denied). All reasonable presumptions must be indulged in favor of the award, and none against it. CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). We treat an arbitration award the same as a judgment by the court of last resort and may not substitute our judgment for the arbitrator's merely because we might have reached a different decision. See id. at 238-39; Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.-Dallas 2004, pet. denied). Instead, because judicial review of an arbitration award adds expense and delay, thereby diminishing the benefits of arbitration as an efficient, economical system to resolve disputes, our review of the arbitration award must be “extraordinarily narrow." See CVN Group, Inc., 95 S.W.3d at 238; Tanox, 105 S.W.3d at 250. In fact, under this standard that governs our review, we may not vacate an award even if the arbitrator committed a mistake of fact or law. See Crossmark, Inc., 124 S.W.3d at 429 (citing Anzilotti v. Gene D. Liggin, Inc., 899 S.W.2d 264, 266 (Tex. App.-Houston [14th Dist.] 1995, no writ)). The FAA itself clearly defines the only circumstances under which an arbitration award may be vacated or modified. See 9 U.S.C.A. § § 10(a), 11; Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 353 (5th Cir. 2009) (citing Hall St. Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396, 1403 (2008)). The grounds for vacatur are limited to the following claims: (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 9 U.S.C.A. § 10(a). Thus, we must overrule LeFoumba's complaint that the modified arbitration award violates public policy, because that argument is not viable under section 10(a) of the FAA. See id.; Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc., ___ S.W.3d ___, No. 05-08-00739-CV, 2009 WL 2596120, at *5 n.3 (Tex. App.-Dallas Aug. 25, 2009, no pet. h.) (recognizing that, under Citigroup and Hall Street, public-policy ground for vacating FAA award does not exist). Accordingly, we turn our attention to LeFoumba's two remaining arguments that (1) the modified award was procured through “undue means," and (2) the arbitrator exceeded her authority. See 9 U.S.C.A. § 10(a) (1), (4). Both arguments arise from LeFoumba's claim that the arbitrator erred by requiring segregation of attorney's fees on the basis of Legend's untimely, and therefore waived, objection to the lack of segregation.[5] However, a mere mistake of law is insufficient to vacate an arbitration award on the basis of “undue means." See Jamison & Harris v. Nat'l Loan Investors, 939 S.W.2d 735, 737 (Tex. App.-Houston [14th Dist.] 1997, writ denied); Crossmark, 124 S.W.3d at 429. Instead, a party who seeks to vacate an award allegedly procured by “undue means" must show immoral, illegal, or bad-faith conduct. In re Arbitration Between Trans Chem. Ltd. and China Nat'l Mach. Imp. & Exp. Corp., 978 F. Supp. 266, 304 (S.D. Tex. 1997) (citing A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1403-04 (9th Cir. 1992)). LeFoumba has produced no proof of any such conduct by the arbitrator. Similarly, an arbitrator does not exceed her authority by committing a mistake of law, but instead by deciding a matter not properly before her. See Pheng Invs., Inc. v. Rodriguez, 196 S.W.3d 322, 329 (Tex. App.-Fort Worth 2006, no pet.); Barsness v. Scott, 126 S.W.3d 232, 241 (Tex. App.-San Antonio 2003, pet. denied). Thus, the appropriate inquiry is not whether the arbitrator decided an issue correctly, but instead whether she had the authority to decide the issue at all. See Saqer v. Ghanem, No. 09-07-519-CV, 2008 WL 5263359, at *5-6 (Tex. App.-Beaumont Dec. 18, 2008, no pet.) (mem. op.). Here, LeFoumba does not contend the arbitrator lacked the authority to decide upon the appropriate amount of attorney's fees to compensate him for Legend's alleged breach of contract. Therefore, LeFoumba has not established his entitlement to a vacatur under section 10(a) of the FAA, the exclusive means by which a party may overturn a federal arbitration award. See Citigroup, 562 F.3d at 353. Accordingly, we overrule appellant's remaining two issues. CONCLUSION Finding no merit in the issues presented, we affirm the trial court's judgment.[6] /s/ Kent C. Sullivan Justice Panel consists of Justices Seymore, Brown, and Sullivan. [footnotes omitted]

Chief Justice Eyes Role in ADR after Stepping Down from the Bench

Linda B. Thomas, Chief Justice of the Dallas Court of Appeals, whose resignation from that post was announced yesterday, will continue teaching law at Southern Methodist University and plans to be involved in arbitration and mediation, according to the news advisory posted on the Fifth Court of Appeals' website. "I plan to offer my assistance to help people move toward resolution in a way that allows them to control their own destinies," Justice Thomas is quoted as saying upon announcing her forthcoming retirement, which will be effective Oct. 31, 2009. "I particularly want to help families with children so that they can avoid the litigation process." See copy of press release on Chief Justice Thomas' retirement. It is not uncommon for judges in Texas to become arbitrators and mediators after retirement from the bench or defeat in election, which is a partisan affair in Texas. Some continue to serve as visiting judges in trial courts. Former appellate justices also serve on appellate panels by assignment and write opinions. Vacancies on district and appellate courts are filled by gubernatorial appointment until a replacement can be chosen through the electoral process. Justice Thomas' retirement thus creates another opportunity for Governor Rick Perry to pick a Republican successor, following Justice Brister's recent resignation from the Texas Supreme Court. Appointees usually benefit from incumbency status when they embark upon the campaign trail and prepare to face the voters in primary and general elections.

Was the right to arbitate waived? - Hardly

Dallas Court of Appeals has no trouble applying the "totality of the circumstances" test in concluding that arbitration was not waived where the motion to compel was filed almost instantly, along with other steps taken to avoid litigation, such as a plea in abatement, and an answer conditioned on resolution of the arbitration issue. Per Group, LP v. Dava Oncology, LP, No. 05-08-01582-CV (Tex.App.- Dallas Aug 19, 2009) FROM THE OPINION: C. Did appellants waive their right to arbitration? Appellees contend that appellants waived their right tocompel arbitration by substantially invoking the judicial process and byrequesting a stay of litigation pending arbitration of PER Group'sclaims against Dr. Jain. We disagree. 1. Substantial invocation of judicial process Whether a party has waived its right to arbitrate is a questionof law that we review de novo based on the “totality of thecircumstances.” Perry Homes v. Cull, 258 S.W.3d 580, 591 (Tex. 2008), cert. denied, 129 S. Ct. 952 (2009); Trammell, 246 S.W.3d at 820. Public policy favors arbitration and there is a strong presumption againstfinding that a party has waived its right to arbitration. Perry Homes,258 S.W.3d at 589-90. As a result, the burden to prove waiver is a heavyone. Id.; EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89 (Tex. 1996) (percuriam). Any doubts regarding waiver are resolved in favor ofarbitration. In re Bruce Terminex Co., 988 S.W.2d 702, 705 (Tex. 1998)(orig. proceeding) (per curiam). Factors we consider under the totality-of-the-circumstancestest include whether the movant was the plaintiff or the defendant, how long the movant waited before seeking arbitration, how much pretrial activity related to the merits rather than arbitrability or jurisdiction, how much time and expense has been incurred in litigation,whether the movant sought or opposed arbitration earlier in the case,whether the movant filed affirmative claims or dispositive motions,whether discovery would be useful in arbitration, and whether the movantsought judgment on the merits. Perry Homes, 258 S.W.3d at 591-92; In reVesta Ins. Group, Inc., 192 S.W.3d at 763. Appellants/movants are the defendants below. They filed a demand for arbitration four days after appellees filed their lawsuit. And they filed a motion to compel arbitration and stay proceedings pending arbitration before their answer was due. When they filed their answer,they filed a plea in abatement and conditional answer subject to their motion to compel arbitration. And they did not assert affirmative defenses or counterclaims, but, instead, reserved their right to do so. The hearings in the trial court related to the arbitrability of the claims, not the claims' merits. And the record does not contain any indication that the parties engaged in pretrial discovery, other than asingle reference to a motion to quash a deposition filed by movants. Based on the totality of the circumstances, we conclude thatappellants did not substantially invoke the trial process and, therefore, did not waive their right to arbitrate appellees' claims. [...] Conclusion We sustain appellants' issues. We reverse the trial court'sorder denying appellants' motion to compel arbitration, vacate the trial court's order enjoining appellants from arbitrating appellees' claims,and remand to the trial court for further proceedings. We dismiss the petition for writ of mandamus. ELIZABETHLANG-MIERS JUSTICE

Motion to Compel Arbitration: Standard of Review

When will a motion to compel arbitartion succeed? What is the standard of review on appeal if the trial court denied a motion to compel arbitration? POINT OF LAW: Standard of Review for Motion to Compel Arbitration [A] party attempting to compel arbitration must establish that the parties agreed to arbitrate and that the dispute falls within the scope of the arbitration agreement. See Tex. Civ. Prac.& Rem. Code Ann. § 171.021(a); J.M. Davidson, Inc., 128 S.W.3d at 227. If the party opposing arbitration denies the existence of an agreementto arbitrate, the question is determined by the court as a matter oflaw. Tex. Civ. Prac. & Rem. Code Ann. § 171.021(b); J.M. Davidson, Inc.,128 S.W.3d at 227. We review the trial court's legal determinations denovo and its factual determinations under a “no evidence” standard.Trammel v. Galaxy Ranch School, L.P. (In re Trammel), 246 S.W.3d 815,820 (Tex. App.-Dallas 2008, no pet.). In reviewing the trial court'sfactual determinations, we must credit favorable evidence if areasonable fact-finder could and disregard contrary evidence unless areasonable fact-finder could not. Id. (citing Kroger Tex. Ltd. v.Suberu, 216 S.W.3d 788, 793 (Tex. 2006) and City of Keller v. Wilson,168 S.W.3d 802, 807 (Tex. 2005)). However, when the facts relevant tothe arbitration issue are not disputed, we are presented only withissues of law and we review the trial court's order de novo. Trammell,246 S.W.3d at 820. When parties agree to arbitrate and the agreementencompasses the claims asserted, the trial court must compel arbitrationand stay litigation pending arbitration. See Tex. Civ. Prac. & Rem. CodeAnn. § 171.021(b); Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 305 (Tex.2006). SOURCE: Per Group, LP v. Dava Oncology, LP, No. 05-08-01582-CV (Tex.App.- Dallas Aug 19, 2009)

Are the FAA and TAA mutually exclusive?

FAA and TAA are not necessarily incompatible and mutually exclusive, as stated by the Dallas Court of Appeals in a recent opinion (see excerpt below); even when the parties' contractual relationship involves interstate commerce. Nor does the FAA necessarily preempt the Texas Arbitration Act when both apply. Preemption only comes into play when there is a conflict between state and federal act:

The Consulting Agreement does not state whether the Federal Act or the Texas Act applies to this suit. The Federal Act generally governs arbitration provisions in contracts involving interstate commerce. See 9 U.S.C. § 2 (2009); see also In re Morgan Stanley & Co., Inc., No. 07-0665, 2009 WL 1901635, at *1 (Tex. Jul. 3, 2009). “Interstate commerce” includes all contracts “relating to” interstate commerce. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 754 (Tex. 2001) (orig. proceeding).

Appellees argue that the Consulting Agreement does not evidence a transaction involving interstate commerce. We disagree. The Consulting Agreement was executed by a Texas resident (Dr. Jain), a Delaware corporation (Medical Media Holdings), and a Delaware limited partnership (PER Group); notice under the contract was to be given to Dr. Jain in Texas and to PER Group and Medical Media Holdings in Rhode Island; and arbitration was required to take place in Chicago, Illinois. Additionally, the record establishes that PER Group and Dr. Jain provided services pursuant to the Consulting Agreement to “clients throughout the United States” and contemplated “holding meetings on both a nationwide and worldwide scope.” We conclude that the Consulting Agreement involves interstate commerce. See In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125, 127 (Tex. 1999) (orig. proceeding) (per curiam).

The Federal Act, however, does not preempt the Texas Act simply because the contract involves interstate commerce. In re D. Wilson Constr. Co., 196 S.W.3d 774, 778-79 (Tex. 2006) (orig. proceeding). The Consulting Agreement states that it “is governed by, and will be enforced under and construed in accordance with, the internal laws of the State of Texas . . . .” The Texas Supreme Court has interpreted similar language as invoking both federal and state law. Id. And when both acts apply, the Federal Act will preempt the Texas Act only if the Texas Act is inconsistent with the Federal Act or affects the enforceability of the contract. Id. Because the parties do not assert that the Texas Act or state law would subvert the enforcement of the Consulting Agreement, we conclude that we have jurisdiction under both laws. And, because the Federal Act does not preempt the Texas Act, we will apply the Texas Act to our analysis.

SOURCE: Opinion of the Dallas Court of Appeals in Case No. 05-08-01582-CV (8/19/09)

Time to File Notice of Interlocutory Appeal Extended Under TRCP 306a(4)

When is a notice of interlocutory appeal filed more than 20 days after the day the order was signed nevertheless timely? Notice of an accelerated appeal must be filed within twenty days after the judgment or order is signed unless the time for filing the notice is extended. Tex. Rs. App. P. 26.1(b), 26.3. Appellees contend that we do not have jurisdiction over the interlocutory appeal because the notice of appeal from the trial court's order was untimely. We disagree. Appellants filed a motion with the trial court pursuant to civil procedure rule 306a arguing that they did not receive notice and did not acquire actual knowledge of the October 21, 2008 order enjoining Medical Media Holdings from arbitrating claims against Dr. Jain until December 2, 2008. See Tex. R. Civ. P. 306a(5). The trial court held a hearing and found that appellants first received notice or acquired actual knowledge of the October 21, 2008 order on December 2, 2008. See Tex. R. Civ. P. 306a(4). On December 16, 2008, appellants filed a notice of accelerated appeal from the trial court's October 21, 2008 order. As a result, although the notice was filed more than twenty days after the date the order was signed, the notice of accelerated appeal was filed within twenty days of the date that appellants first received notice or acquired actual knowledge of the October order. See id. Additionally, interlocutory appeal is the appropriate vehicle for appealing the denial of a motion to compel arbitration under the Texas Act. Tex. Civ. Prac. & Rem. Code Ann. § 171.098(a); TMI, Inc. v. Brooks, 225 S.W.3d 783, 790 (Tex. App.-Houston [14th Dist.] 2007, pet. denied). Consequently, we conclude that the notice of appeal was timely and that we have jurisdiction over the interlocutory appeal. SOURCE: Dallas Court of Appeals Case No. 05-08-01582-CV (8/19/09) THE RULE AT ISSUE: TRCP 306a provides in relevant part: 4. No Notice of Judgment. If within twenty days after the judgment or other appealable order is signed, a party adversely affected by it or his attorney has neither received the notice required by paragraph (3) of this rule nor acquired actual knowledge of the order, then with respect to that party all the periods mentioned in paragraph (1) shall begin on the date that such party or his attorney received such notice or acquired actual knowledge of the signing, whichever occurred first, but in no event shall such periods begin more than ninety days after the original judgment or other appealable order was signed. 5. Motion, Notice and Hearing. In order to establish the application of paragraph (4) of this rule, the party adversely affected is required to prove in the trial court, on sworn motion and notice, the date on which the party or his attorney first either received a notice of the judgment or acquired actual knowledge of the signing and that this date was more than twenty days after the judgment was signed. Tex. R. Civ. P. 306a (5) -(6) (which might be dubbed the late-notice-of judgment/order appellate time-table tolling rule)

Judicial Review of Independent Hearing Examiner's Decision Approved

In winding up the 2008-09 Fiscal Year last week with eleven opinions on Aug. 28, the Texas Supreme Court did not decide any arbitration disputes per se. In one public employment case, however, the High Court delved into the issue of judicial review of arbitration decisions, albeit under a different label. Authorizing Appeal of Arbitrator's Adverse Decision By Another Name At issue was the decision of an independent hearing examiner favorable to a police officer in a disciplinary proceeding. The Court, in a lengthy opinion by Justice Hecht - given additional gravitas with copious footnotes - came down on the side of permitting the city to challenge the hearing examiner's decision. Although the Court is otherwise big on enforcing arbitration and thus limiting the role of the courts, the Court's disposition hardly comes as a surprise, given that the dispute was between a city and a city employee/officer, and the arbitrator-examiner's ruling favored the latter. Says the Court: "[W]e hold that the hearing examiner exceeded his jurisdiction in summarily reversing an officer’s indefinite suspension and reinstating him with back pay and full benefits because the Act requires a hearing examiner to reach a decision based on evidence. Accordingly, we reverse the judgment of the court of appeals and remand the case to the district court for further proceedings." Over the course of several years, the Texas Supreme Court has established a pattern of siding with governmental entities in legal disputes with individuals, and has proven quite adept at devising jurisprudential theories to vindicate the interests of governmental defendants even where - as here - there is no statutory authorization for the city to even appeal from the hearing examiner's decision in the first place. Jurisdictionalization Trend Continues In conceptualizing the question of whether the examiner (arbitrator) did wrong as a matter of jurisdiction, the Court adds another precedent to the collection of new precedents that transform merits-issues into jurisdictional ones, thus providing a convenient basis for dismissal of claims for affirmative relief by plaintiffs (such as Whistleblowers or tort plaintiffs against TxDOT) for want of jurisdiction, or facilitating judicial review and reversal of a ruling unfavorable to governmental entities, such as in this case. The end - giving priority to the power and fiscal interests of government at the expense of the rights of individuals - appears to be sufficient to justify the jurisprudential innovations (at least as long as the opinion is heavily footnoted and thus better protected against charges of result-oriented judicial decisionmaking by fiat). City of Pasadena, TX v. Smith, No. 06-0948 (Tex. Aug. 28, 2009)(Hecht) (disciplinary appeal, authority of hearing examiner, police officer, UDJA and jurisdictional issues) CITY OF PASADENA, TEXAS v. RICHARD SMITH; from Harris County; 1st district (01-05-01157-CV, 263 SW3d 80, 09-14-06) The Court reverses the court of appeals' judgment and remands the case to the trial court. Justice Hecht delivered the opinion of the Court. EXCERPTS FROM THE OPINION BY HECHT: The hearing examiner in this case violated that requirement. His ruling was based entirely on the absence of the department head, a witness the City did not expect to offer. The hearing examiner did not allow evidence to be presented. Nothing in the Act permitted him to rule as he did. Smith argues that the hearing examiner could reasonably have concluded that since section 143.1015(k) requires the presence of the department head at civil service appeal proceedings in Houston, the same rule should apply in other cities. But the Act does not empower a hearing examiner to make rules. He had no authority to impose on the City a requirement that the Act makes quite clear does not apply. Moreover, even when section 143.1015(k) does apply, it does not authorize rendition of a default judgment as an automatic penalty for noncompliance.47 Smith argues that the hearing examiner can be faulted only for a simple mistake of law, but it clearly exceeds a hearing examiner’s jurisdiction to refuse to hear evidence before deciding that a police officer was improperly disciplined, contrary to the express requirement of the Act. * * * The most accurate test we can state is that a hearing examiner exceeds his jurisdiction when his acts are not authorized by the Act or are contrary to it, or when they invade the policy-setting realm protected by the nondelegation doctrine. By that test, the hearing examiner in this case exceeded his jurisdiction, and therefore the City’s appeal to the district court was authorized under section 143.057 (j). The issue remains whether it was timely perfected. Since the Act does not expressly provide for an appeal by a city — we have construed it to do so to avoid constitutional problems — it understandably does not expressly set a deadline for a city’s appeal. We have held that “[w]hen a statute lacks an express limitations period, courts look to analogous causes of action for which an express limitations period is available either by statute or by case law.”51 Here, the parties disagree as to whether a deadline for appeal is jurisdictional or in the nature of limitations, and we need not resolve that issue. In either event, the same rule applies: we look to a provision related to the right of appeal for a deadline.

Bill of Review Order Vacating Arb Confirmation Judgment Not Appealable

In a case decided last week, the Fourteenth Court of Appeals in Houston ruled that an order vacating an underlying judgment confirming an arbitration award in a bill-of-review proceeding was not appealable under the Texas General Arbitration Act provision that authorizes interlocutory appeal under some circumstances. While the challenged order vacated the confirmation of the arb award, it did not determine the issue of validity and whether the arbitration award should ultimately be confirmed. The challenge was brought by a nonparty who took the position that it was a necessary party, and should have been given an opportunity to be heard, as grounds for relief via bill of review. Nor was the challenged order final for purposes of a regular appeal. The attempted interlocutory appeal was thus dismissed for want of jurisdiction in the absence of any statutory authorization.

Rapid Settlements Ltd. v. Allstate Settlement Corp. (Tex.App.- Houston [14th Dist.] Aug. 27, 2009) (per curiam) (order confirming arbitration award set aside on petition for bill of review, interlocutory order vacating the prior confirmation judgment did not adjudicate the validity of the arbitration award, was not final, and was not appealable under any statute authorizing interlocutory review) 

MEMORANDUM OPINION

PER CURIAM.

This is an attempted appeal from an order vacating a judgment that confirmed an arbitration award. In the underlying case, appellant Rapid and appellee Ward participated in an arbitration proceeding resulting in an award in favor of Rapid. Rapid filed a petition to confirm the arbitration award, which the trial court granted. On June 9, 2005, the trial court entered a judgment confirming the arbitration award in trial court cause number 839254. Appellees Allstate Settlement Corporation and Allstate Life Insurance Company (jointly referred to as Allstate) were not parties to the arbitration agreement. After learning of the judgment confirming the arbitration award, Allstate filed a bill of review contending that it was a necessary party, had not been served with citation, and received no notice of the arbitration proceedings. Allstate asked the court to vacate the judgment. On March 28, 2008, the trial court granted the bill of review and ordered the final judgment in cause number 839254 vacated. Rapid then brought this appeal.

A bill of review that sets aside a prior judgment but does not dispose of all the issues in the case on the merits is interlocutory. Kiefer v. Touris, 197 S.W.3d 300, 302 (Tex. 2006). Generally, appeals may be taken only from final judgments. Lehmann v. Har-Con Corp., 39 S.W.3d 191, 195 (Tex. 2001). Interlocutory orders may be appealed only if permitted by statute. Bally Total Fitness Corp. v. Jackson,53 S.W.3d 352, 352 (Tex. 2001); Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992) (orig. proceeding).

The Texas General Arbitration Act makes certain orders appealable, including an order "vacating an [arbitration] award without directing a rehearing." Tex. Civ. Prac. & Rem. Code Ann. § 171.098(a)(5) (Vernon 2005). In the underlying case, the trial court confirmed the arbitration award. In the bill of review proceeding, the arbitration award was vacated, but the court's ruling was not based on the provisions in the Texas General Arbitration Act for vacating such an award. SeeTex. Civ. Prac. & Rem. Code Ann. § 171.088 (Vernon 2005). Therefore, section 171.098 does not apply to provide for an interlocutory appeal under these facts. See Rapid Settlements, Ltd. v. Allstate Life Ins. Co., No. 01-08-00381-CV, 2009 WL 1331580 (Tex. App.-Houston [1st Dist.] May 8, 2009, no. pet.) (mem. op.) (dismissing appeal from bill of review vacating arbitration award as interlocutory).

As in the similar case before our sister court of appeals, when the trial court granted Allstate's bill of review, it vacated the underlying judgment in Rapid's confirmation proceeding but did not rule on the petition for confirmation itself. The arbitration award is undisturbed. The order does not reflect that it is intended to be a final judgment. See Lehmann, 39 S.W.3d at 205 (holding that an order entered in a proceeding other than a trial on the merits may be considered final if it clearly and unequivocally states that the trial court intended the order to completely dispose of the entire case). The order appealed in this case is interlocutory and no statute makes it appealable. See Rapid Settlements, No. 01-08-00381-CV, 2009 WL 1331580 at *3.

On August 4, 2009, notification was transmitted to the parties of this court's intention to dismiss the appeal for want of jurisdiction unless appellant filed a response demonstrating grounds for continuing the appeal on or before August 17, 2009. See Tex. R. App. P. 42.3(a). No response was filed.

Accordingly, the appeal is ordered dismissed.

DISPOSITION: APPEAL DISMISSED: Per Curiam Opinion of the Fourteenth Court of Appeals Panel members: Chief Justice Adele Hedges, Justices Leslie Brock Yates and Kem Frost No. 14-08-00394-CV Full case style: Rapid Settlements LTD v. Allstate Settlement Corporation, Allstate Life Insurance Company, and Andino Ward Court below: Appeal from County Civil Court at Law No 4 of Harris County, Texas (Houston) Trial Court Judge: Hon. Roberta Anne Lloyd 

RELATED TERMS: challenging arbitration by bill of review, finality, final orders, appealable and unappealable orders relating to arbitration, interlocutory appeals, interlocutory appeal of arbitration-related orders, arbitration and interlocutory appeals.

No Interlocutory Appeal from Order Compelling Arbitration

Houston Court of Appeals finds that attempted appeal from order sending the parties to arbitration must be dismissed regardless of whether the arbitration is governed by the Texas Arbitration Act (TAA) or the Federal Arbitration Act (FAA). Neither act authorizes immediate interlocutory review of a trial court's order granting a motion to compel arbitration. Bradt v. MBNA America, N.A. (Tex. App. – Houston [14th Dist.] 2009)(per curiam) MEMORANDUM OPINION This is an attempted appeal from an order, signed November 5, 2008, compelling arbitration. We dismiss this appeal for lack of jurisdiction. By statute, a party may appeal an order denying arbitration under the Texas Arbitration Act, but the statute does not provide for an appeal of an order compelling arbitration. See Tex. Civ. Prac. & Rem. Code Ann. §171.098(a) (Vernon 2005). An interlocutory order compelling arbitration under the Federal Arbitration Act is also not appealable. See In re Poly-America, L.P., 262 S.W.3d 337, 345 (Tex. 2008)(citing to 9 U.S.C. § 16(b)(1)). Thus, whether the arbitration provision in this case implicates the Texas or Federal Arbitration Act, the order signed November 5, 2008, is not appealable. See Gathe v. Cigna Healthplan of Texas, Inc., 879 S.W.2d 360, 362 (Tex. App.- Houston [14th Dist.] 1994, writ denied). On January 21, 2009, notification was transmitted to the parties of this court's intention to dismiss the appeal for want of jurisdiction unless appellants filed a response demonstrating grounds for continuing the appeal on or before February 2, 2009. See Tex. R. App. P. 42.3(a). Appellants filed no response. Accordingly, the appeal is ordered dismissed. PER CURIAM Bradt v. MBNA America, N.A. (Tex. App. – Houston [14th Dist.] Mar. 12, 2009)(per curiam dimissal) (trial court order compelling arbitration not subject to prompt appellate review by way of interlocutory appeal) APPEAL DISMISSED: Per Curiam Before Justices Brock Yates, Guzman and Sullivan 14-08-01172-CV L.T. Bradt and Joseph Rothstein v. MBNA America, N.A. Appeal from 240th District Court of Fort Bend County Trial Court Judge: Thomas Ralph Culver RELATED LINKS: Arbitration-Related Decisions from the Houston Courts of Appeals | Does TAA or FAA apply, or do both? | Arbitration Mandamus |

Presumption of Receipt substitutes for proof of delivery of employer's policy document containing arbitration clause

An arbitration agreement does not have to be signed to become effective as conduct after receipt, such as continued employment, may be sufficient to signify acceptance. But what if there is no direct proof of delivery? In this case, the Houston court of appeals panel upholds the enforceability of the employer's dispute resolution plan including arbitration based on the presumption of receipt that was not properly rebutted by the employee. In Re Halliburton (Tex.App.- Houston [1st Dist.] Jul. 2, 2009) (orig. proceeding) FROM THE OPINION: Motion to Compel In July 2008, Halliburton moved to compel arbitration and to dismiss or stay the trial court proceedings. Halliburton argued that O’Beirne accepted the terms and conditions of the DRP twice in writing and by his continued employment with Halliburton after Halliburton mailed a copy of the DRP to its employees in 2001. Halliburton also argued that O’Beirne’s claims fall within the scope of the arbitration agreement because the DRP is broadly written to include “all legal and equitable claims” including “employee benefits or incidents of employment with the company.” Halliburton argued that O’Beirne’s claims for unpaid bonuses and benefits were squarely within the scope of the arbitration agreement. * * * [W]e begin with the most recent version of Halliburton’s DRP relevant to this case, the 2001 DRP, which Halliburton asserts it mailed to O’Beirne. Presumption of Receipt A presumption of receipt arises when a party presents evidence that a document was placed in the United States mail with the proper address and sufficient postage. Southland Life Ins. Co. v. Greenwade, 159 S.W.2d 854, 857 (Tex. 1942); Texaco, Inc. v. Phan, 137 S.W.3d 763, 767 (Tex. App.— Houston [1st Dist.] 2004, no pet.). “The matters of proper addressing, stamping, and mailing may be proved by circumstantial evidence, such as the customary mailing routine of the sender’s business.” Phan, 137 S.W.3d at 767 (citing Cooper v. Hall, 489 S.W.2d 409, 415 (Tex. Civ. App.—Amarillo 1972, writ ref’d n.r.e.)). Testimony that the notice was not received is enough to rebut this presumption, thus creating a fact issue to be resolved by the trial court. Greenwade, 159 S.W.2d at 857–58; Phan, 137 S.W.3d at 767. The presumption of receipt is overcome only when the evidence supporting the contrary inference is conclusive, or so clear, positive, and disinterested that it would be unreasonable not to consider it conclusive. Phan, 137 S.W.3d at 767–68. Here, Halliburton provided uncontroverted evidence that copies of the 2001 DRP materials were sent to O’Beirne in a properly addressed packet, with Halliburton’s return address. In addition, Halliburton provided evidence that they kept track of packets returned to Halliburton by the Post Office as undeliverable and that O’Beirne’s packet was not returned. These uncontroverted facts are circumstantial evidence that proper postage was affixed to O’Beirne’s packet, supporting the presumption of receipt. O’Beirne presented no evidence to the trial court that he did not receive the DRP materials mailed to him in 2001. His affidavit “disputes” that he received the plan materials that Halliburton asserted it provided to him in 2000 when he was hired, but it does not address the materials mailed in 2001. Rather, O’Beirne argues that Halliburton did not establish the presumption of receipt because it did not provide direct evidence of proper postage. Because this can be—and has been—proven by circumstantial evidence, we hold that Halliburton established the presumption that O’Beirne received the 2001 DRP materials. Agreement to Arbitrate The 2001 DRP provided, “Employment or continued employment after the Effective Date of this Plan constitutes consent by both the Employee and the Company to be bound by this Plan, both during the employment and after termination of employment.” The 2001 DRP defines the “effective date” as June 15, 1998, as amended as of August 15, 1999. O’Beirne does not dispute that he was employed by Halliburton after the effective date of the plan. Therefore, O’Beirne accepted the agreement by performance, i.e., his employment. Accordingly, we hold that a valid agreement to arbitrate exists between Halliburton and O’Beirne. Scope of the Agreement We next consider whether O’Beirne’s claims fall within the scope of the agreement to arbitrate. The 2001 DRP aterials state, “All Disputes not otherwise settled by the Parties shall be finally and conclusively resolved under this Plan and the Rules.” “Dispute” is defined as: “all legal and equitable claims, demands, and controversies, of whatever nature or kind, whether in contract, tort, under statute or regulation, or some other law . . . including , but not limited to, any matters with respect to . . . (2) the employment . . . of an Employee, including the terms, conditions, or termination of such employment . . . [or] (3) employee benefits or incidents of employment with the Company. . . .” O’Beirne has sued Halliburton for bonuses and other monies he claims were due to him upon his retirement from Halliburton. Because his claims deal with his employment, termination of employment, and benefits of such employment, we hold that O’Beirne’s claims are within the scope of the arbitration agreement. Conclusion Because O’Beirne’s claims are within the scope of a valid arbitration agreement, we hold that the trial court abused its discretion by denying Halliburton’s motion to compel arbitration. See In re Tenet Healthcare, Ltd., 84 S.W.3d at 765 (“A court has no discretion and must compel arbitration if the answer to both questions is affirmative.”) We conditionally grant relator’s petition for writ of mandamus, and we direct the trial court to vacate its February 9, 2009 order and grant relator’s motion to compel arbitration. We are confident the trial court will promptly comply, and our writ will issue only if it does not. We vacate the temporary stay granted in this case on March 10, 2009. In re Halliburton Co. (Tex.App.- Houston [1st Dist.] Jul. 2, 2009)(Sharp) (arbitration mandamus) (FAA: trial court should have granted motion to compel arbitration in employment dispute) GRANT PETITION FOR WRIT OF MANDAMUS: Opinion by Justice Sharp Before Chief Justice Radack, Justices Taft and Sharp 01-09-00150-CV In re Halliburton Company Appeal from 133rd District Court of Harris County Trial Court Judge: Jaclanel M. McFarland

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.

Pre-Arbitration Discovery Quashed by Texas High Court: In Re Houston Pipe Line Co., LP (Tex. 2009)

10/22 UPDATE: Supreme Court Issues Supplemental Opinion on Pre-Arbitration Discovery Finding abuse of discretion, Texas Supreme Court orders trial court judge to vacate preliminary order governing discovery in commercial dispute and rule on pending motion to compel arbitration instead. Corpus Christi Court of Appeals had found temporary orders appropriate prior to deciding whether the parties should be sent to arbitration under the circumstances of the case. In Re Houston Pipe Line Co., L.P. (Tex. July 3, 2009), No. 08-0800 (Tex. Jul. 3, 2009) (per curiam) (mandamus granted: trial judge directed to rule on motion to compel arbitration, and to vacate pre-arbitration discovery orders found to be overbroad). FROM THE PER CURIAM OPINION: At issue in this proceeding is whether the trial court abused its discretion by permitting discovery on damage calculations and other potential defendants, instead of deciding the motion to compel arbitration. For the reasons below, we conclude the trial court should not have ordered pre-arbitration discovery, but rather should have decided the motion to compel arbitration. Houston Pipe Line Company, L.P., signed an agreement to purchase gas from O’Connor & Hewitt, Ltd., based on the Houston Ship Channel Price Index. Several years later, O’Connor sued Houston Pipe Line, Energy Transfer Partners, L.P., Energy Transfer Equity, L.P., and La Grange Acquisition, L.P., for manipulating the Index downward, which caused O’Connor to receive lower payments for gas delivered pursuant to the contract. As a signatory to the contract, Houston Pipe Line sought to enforce the arbitration provision. Energy Transfer and La Grange were not parties to the agreement, but tried to compel arbitration based on a direct benefits equitable estoppel theory. See Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 305 (Tex. 2006); Sherer v. Green Tree Servicing LLC, 548 F.3d 379, 382 (5th Cir. 2008). O’Connor resisted arbitration by attacking the scope of the arbitration provision and contending that it would be impossible to identify all potential defendants and to complete damages calculations within the sixty days allotted for discovery, as set out in the arbitration provision. Rather than rule on the motion to compel, the trial court ordered discovery to aid it in deciding the motion. Specifically, the trial court ordered discovery to determine if additional defendants could equitably invoke the arbitration clause, whether O’Connor’s claims fell within the scope of the arbitration clause, and if the time limitations imposed by the clause were jurisdictional. In its order, the trial court suggested that it would be virtually impossible to conduct the necessary discovery within the sixty-day time frame allotted to the arbitrator under the agreement * * * Houston Pipe Line and Energy Transfer sought mandamus relief in the court of appeals, arguing that the trial court had abused its discretion by not ruling on the motion to compel. The court of appeals refused to issue the writ, concluding that the trial court had acted within its discretion. We disagree that the discovery ordered by the trial court was needed for it to rule on the motion to compel. When a party disputes the scope of an arbitration provision or raises a defense to the provision, the trial court, not the arbitrator, must decide the issues. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 (2006). And “[w]hen Texas courts are called on to decide if disputed claims fall within the scope of an arbitration clause under the Federal Act, Texas procedure controls that determination.” Tipps, 842 S.W.2d at 268. Pre-arbitration discovery is expressly authorized under the Texas Arbitration Act when a trial court cannot fairly and properly make its decision on the motion to compel because it lacks sufficient information regarding the scope of an arbitration provision or other issues of arbitrability. See Tex. Civ. Prac. & Rem. Code §§ 171.023(b), 171.086(a)(4),(6). This, however, is not an authorization to order discovery as to the merits of the underlying controversy. Motions to compel arbitration and any reasonably needed discovery should be resolved without delay. Tipps, 842 S.W.2d at 269. The discovery authorized by the trial court seeks to determine the identity of all potential defendants and to what extent each defendant is liable, including Houston Pipe Line. Such an inquiry is inappropriate because determinations of ultimate liability ordinarily must be answered during the arbitration proceeding, while questions regarding the scope of the arbitration clause should be decided by the trial court. See AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649 (1986). The necessity of identifying other culpable parties could, under some circumstances, be related to arbitrability. But, a party cannot avoid its agreement to arbitrate merely by alleging that there may be other potential defendants; it must link the identity of the defendants to an issue of arbitrability, such as scope, or a defense to arbitration. See 9 U.S.C. § 4; Tex. Civ. Prac. & Rem. Code §§ 171.021, 171.026; see also J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Because the discovery ordered here is overbroad and beyond the issues raised in the motion to compel, we conclude that the trial court abused its discretion by ordering this discovery rather than ruling on the legal issues raised by the motion to compel. Accordingly, without hearing oral argument, we conditionally grant the writ and direct the trial court to vacate the discovery order and to rule on the motion to compel arbitration. FROM THE CONTRARY OPINION OF THE APPEALS COURT BELOW: The trial court cannot delay ruling on a motion to compel arbitration until discovery has been completed because this would defy the purpose of arbitration and the application of a summary procedure. See e.g., In re Great W. Drilling, Ltd., 211 S.W.3d at 835. However, there is no rule mandating a strict deadline for the court to rule on a motion to compel arbitration. Moreover, as discussed previously, it is clear that the trial court can allow discovery in some circumstances pending its ruling on a motion to compel arbitration. The Texas Supreme Court in Anglin specifically stated that the trial court may "summarily decide whether to compel arbitration on the basis of affidavits, pleadings, discovery, and stipulations." See Anglin, 842 S.W.2d at 269 (emphasis added). Moreover, an evidentiary hearing is required if there are disputed material facts. See id. Furthermore, the Texas Act allows the court to issue, "in its discretion an order for a deposition for discovery, perpetuation of testimony, or evidence needed before the arbitration proceedings begin," or to grant "other relief . . . in its discretion, needed to permit the arbitration to be conducted in an orderly manner and to prevent improper interference or delay of the Arbitration." Tex. Civ. Prac. & Rem. Code Ann. § 171.086(4), (6); see Universal Computer Sys., 183 S.W.3d at 750 (contrasting trial court's authority to resolve an existing discovery dispute with authority to facilitate an arbitration). Under the present circumstances, the trial court did not abuse its discretion in allowing the instant discovery before ruling on Houston Pipe Line's motion to compel arbitration and request to stay trial court proceedings. The trial court is not deferring its ruling until the completion of discovery, but rather, in its discretion, is allowing circumscribed discovery needed to determine the merits of the motion to compel arbitration and if necessary, to permit the arbitration to be conducted in an orderly manner and to prevent improper interference or delay of the arbitration. We note that, in considering the issues herein, we do not reach the merits of the motion to compel arbitration or the arbitrability of the instant dispute. The trial court has not ruled on the merits of this matter and has expressly deferred its ruling pending the continuation of the hearing. Therefore, the merits of the arbitration motion and any contest to it are not ripe for our consideration. In re The Shredder Co., 225 S.W.3d 676, 680 f.5 (Tex. App.-El Paso 2006, orig. proceeding); In re MHI P'ship, Ltd., 7 S.W.3d at 921 f.6; Hou-Scape, Inc. v. Lloyd, 945 S.W.2d 202, 205 (Tex. App.-Houston [1st Dist.] 1997, orig. proceeding); see In re Perritt, 992 S.W.2d 444, 446 (Tex. 1999). Whether the motion to compel arbitration should be granted or denied is a matter that remains within the trial court's discretion. (6) We note that mandamus may issue if a court does not issue a ruling on a motion to compel arbitration within a reasonable period of time. See In re The Shredder Co., 225 S.W.3d at 680; see also In re Landmark Org., L.P., No. 13-04-00527-CV, 2004 Tex. App. LEXIS 9754, at *3-4 (Tex. App.-Corpus Christi Nov. 1, 2004, orig. proceeding) (per curiam) (mem. op). However, such is not the case presently before this Court. 269 SW3d 90, (Aug. 26, 2008 opinion of the Thirteenth Court of Appeals by Chief Justice Rogelio Valdez denying mandamus relief) RELATED TERMS AND CONCEPTS: Arbitration mandamus, arbitration and discovery, motion to compel arbitration, issues for and role of the court vs. role of and questions to be decided by the arbitrator, scope of the arbitration agreement, prearbitration discovery, direct benefits equitable estoppel, application of federal FAA in state court, interaction of FAA with Texas procedural law and TAA

In Re Macy's Texas, Inc. (Tex. 2009)

In this case the Texas Supreme Court held, in an opinion issued June 26, that an employee must arbitrate her claim against her employer for personal injuries sustained at work even though the acknowledgment of the arbitration agreement was not signed until after the employee's injury occurred. The court did not mention federal preemption in its short per curiam opinion. The Court did not find a discrepancy in the identification of the employer significant because the arbitration agreement referred to “your particular employer.” The employer had only offered a conclusory affidavit in an effort to establish the relationship between the different corporate entities in the case. The lower appellate court, by contrast, had denied mandamus relief for that reason. EXCERPTS FROM THE SUPREME COURT'S PER CURIAM OPINION: The Plan’s effective date predated her injury, even though her Acknowledgment did not. As it is undisputed that the Plan adopted the Federal Arbitration Act, the limitations on such post-injury agreements in the Texas Act do not apply. See Tex. Civ. Prac. & Rem. Code § 171.002(c) (prohibiting post-injury arbitration agreements unless signed by each party’s attorney). * * * [T]he Plan itself stated that “the Company” would mean “your particular employer.” This definition is certainly nonspecific, but it serves to avoid the kind of disputes about corporate divisions and affiliates that Tomsic tries to raise here. The 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. See 9 U.S.C. § 2; Seawright v. Am. Gen. Fin. Servs., Inc., 507 F.3d 967, 978 (6th Cir. 2007) (citing cases from the 2nd, 5th, 7th, and 10th Circuits). But in this case the defendant’s affidavit establishes that the Acknowledgment was signed “For the Company” by an assistant manager at the Macy’s store where Tomsic worked. Tomsic offers no explanation why she would agree with anyone other than her employer on a health-benefits plan or arbitration for on-the-job injuries. Her suit asserts failure to provide proper equipment and a safe workplace — both nondelegable duties owed by her employer. See Gen. Elec. Co. v. Moritz, 257 S.W.3d 211, 215 (Tex. 2008). As Tomsic agreed to arbitrate with her employer and purported to sue her employer, she cannot avoid arbitration by raising factual disputes about her employer’s correct legal name. Accordingly, without hearing oral argument, Tex. R. App. P. 52.8(c), we conditionally grant the petition for writ of mandamus and direct the trial court to enter an order compelling arbitration. We are confident the trial court will comply, and our writ will issue only if it does not. CASE DETAILS AND LINKS TO OPINIONS AND DOCKET SHEETS: IN RE MACY'S TEXAS, INC.; No.08-0584 (Tex. Jun. 26, 2009) (per curiam) (arbitration mandamus granted) (motion to compel arbitration should have been granted) (dispute over correct identification of employer in connection with arbitration agreement under the FAA) (conclusory affidavit as to entity name and identity) IN RE MACY'S TEXAS, INC.; from Bexar County; 4th district (04-08-00469-CV, ___ SW3d ___, [per curiam opinion of the San Antonio Court of Appeals denying mandamus relief] 07-23-08) stay order issued October 10, 2008 lifted. Pursuant to Texas Rule of Appellate Procedure 52.8(c), without hearing oral argument, the Texas Supreme Court conditionally grants the petition for writ of mandamus. Per Curiam Opinion See Electronic Briefs in IN RE MACY'S TEXAS, INC. (Tex. 2009) COMMENTARY ON THIS CASE BY OTHERS: Texas Supreme Court Rules on Arbitration of Tort Claims in Employment Contract (Disputing blog by Karl Bayer)("The Supreme Court of Texas held that a post-injury arbitration acknowledgment agreement is valid and compelled arbitration of tort claims within the context of an employment contract. . . . Because this case was decided under the Federal Arbitration Act, and not under the Texas Arbitration Act, post-injury arbitration agreements don’t have to be signed by each party’s attorneys.") ID of Party to Arbitration Pact Doesn't Matter, Texas Supremes Hold (Blawgletter® Barry Barnett)("Something bothers Blawgletter about the decision. It looks sloppy. The defect in our view didn't involve a question of an "employer's correct legal name." It instead concerned a basic failure to agree on who the contract binds. The case should have turned on whether the actual defendant also in fact employed the plaintiff. We concede that the court might have decided the mandamus under the doctrine of equitable estoppel, which allows non-signatories of arbitration agreements to enforce them. But it didn't. Sloppy.") RELATED TERMS: FAA, arbitration in the employment context, arbitration of personal injury claims against employer, post-injury waiver of right to litigate in favor of arbitration, arbitration compelled by mandamus, Texas Supreme Court Arbitration Law Decisions, conclusory affidavits