Thwarted demand to arbitrate employment dispute did not extend the statute of limitations for lawsuit

    

Time employee’s claim against former employer spent in arbitration (which did not go forward because of employer’s refusal to pay the required fees) not added to limitations period under equitable tolling theory. Fifth Circuit affirms district court’s summary judgment based on four-year statute of limitations in opinion that is not precedent, but nevertheless instructive.

Fonseca v. USG Insurance Services, Inc. No 11-11063 (5^th Cir., Apr. 13, 2012) (per curiam)

 

From July 2001 until August 2006, Plaintiff-Appellant Victoria Fonseca worked for USG Insurance Services, Inc. ("USG") as the branch manager of USG's Arlington, Texas branch. Throughout Fonseca's employment, Gerald W. Horton served as USG's President. In November 2005, Horton offered Fonseca the opportunity to enter into a deferred compensation agreement ("DCA"). Subsequently, on August 29, 2006, USG fired Fonseca. Shortly thereafter, on September 8, 2006, Fonseca learned that USG did not intend to pay her under the DCA because USG had never received a signed acceptance.

 

On May 7, [2006], Fonseca filed an arbitration demand with the American Arbitration Association ("AAA"). On July 16, 2006, the AAA declined to serve as a arbitrator because USG failed to pay the required arbitration fees for this type of dispute. Fonseca then filed a suit on October 13, 2010 in Texas state court alleging fraud and breach of contract against Defendant-Appellees USG and Universal Specialty Underwriters, Inc. (collectively "the Defendants"). Defendants removed to district court on the basis of diversity. On summary judgment, the district court held that Fonseca's suit was time-barred based on Texas's four-year statute of limitations for these claims. Tex. Civ. Prac. & Rem. Code § 16.004 (fraud); id. at § 16.051 (breach of contract).

   
We review a district court's decision refusing to exercise its equitable tolling powers for abuse of discretion. Granger v. Aaron's, Inc., 636 F.3d 708, 712 (5th Cir. 2011). The doctrine of equitable tolling "preserves a plaintiff's claim when strict application of the statue of limitations would be inequitable." United States v. Patterson, 211 F.3d 927, 930 (5th Cir. 2000). It principally applies when the "plaintiff is actively misled by the defendant . . . or is prevented in some extraordinary way from exerting his rights." Id. Fonseca admits that under Texas's four-year statute of limitations, her claims expired on September 8, 2010 but contends that the statute of limitations should have been tolled during the period that the AAA considered her arbitration demand.
  

We have previously stated, albeit in dicta, that a "demand for arbitration does not toll the statute of limitations." United States ex rel. Portland Const. Co. v. Weiss Pollution Control Corp., 532 F.2d 1009, 1013 (5th Cir. 1976). In Portland Construction, we held that a claimant who demanded arbitration is not required to wait until the outcome of the arbitration to file a lawsuit. Id. In this case, Fonseca could have (and should have) filed her suit within the statute of limitations and, thereafter, sought a stay of the action pending arbitration. See id. Such a course would have guaranteed that the lawsuit was brought within the limitations period without waiving any right to arbitration which may have existed. Moreover, Fonseca has shown no evidence that she was misled by defendants or that she was prevented from pursuing her cause in any way. In fact, the record reveals that Fonseca had ample time both before and after the AAA's refusal to arbitrate her case in which to file her lawsuit, yet she took none of the steps "recognized as important by the statute before the end of the limitations period." Granger, 636 F.3d at 712. Therefore, in light of our decision in Portland Construction and the facts of this case, we cannot say that the district court abused its discretion when it declined to equitably toll the statute of limitations.

 

AFFIRMED.

  
[*] Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

"Gross mistake" challenge to arbitration award under TAA rejected in appeal from confirmation order

A few years ago the U.S. Supreme Court held that the statutory grounds provided in sections 10 and 11 of the Federal Arbitration Act (FAA) for vacating, modifying, or correcting an arbitration award are the exclusive grounds for vacature of an arbitration award. Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 584, 128 S. Ct. 1396, 1403 (2008). The Texas Supreme Court, by contrast, has yet to decide whether common law grounds for attacking an arbitration award under the Texas Arbitration Act (TAA) are viable. See E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 270 n.7 (Tex. 2010) ("We express no opinion on this issue [of whether an arbitration under the TAA can be set aside on common law grounds.]." In a case decided last week, the First Court of Appeals in Houston entertained a challenge on the basis of “gross mistake”, and rejected it on the merits. The appellate panel, which upon rehearing had shrunk from three to two, also rejected other common-law grounds for vacature in an opinion written by Chief Justice Radack. Justice Elsa Alcala, a member of the original panel, was no longer on the Houston Court to revisit the issues on motion for re-hearing due to her elevation to the Texas Court of Criminal Appeals by gubernatorial appointment.  

Ouzenne v. Haynes,  No. 01-10-00112-CV (Tex.App.- Houston [1^st Dist] April 12, 2012)(substituted opinion following motion for rehearing, which was denied)

MEMORANDUM OPINION

SHERRY RADACK, Chief Justice.

We deny appellant's motion for rehearing; however, we withdraw this Court's opinion of May 12, 2001, and issue this opinion in its stead. Our judgment of May 12, 2011 remains unchanged.

This is an appeal from an order confirming an arbitration award in favor of appellee, Carnell Haynes, on his claims against appellant, Paul Ouzenne, arising out of a construction contract. In seven issues on appeal, Ouzenne contends the trial court erred in confirming the award because the arbitrator (1) made a "gross mistake," (2) exceeded his powers, and (3) violated public policy and the law. We affirm.

BACKGROUND

According to his petition, Haynes approached Ouzenne about the possibility of Ouzenne building a four-plex apartment structure on Haynes's property. In December 2006, Haynes and Ouzenne signed a construction contract for the proposed four-plex. Unable to obtain financing for the project himself, Haynes alleged that Ouzenne told him that he would obtain the financing for Haynes. Thereafter, Haynes alleged that Ouzenne had him sign a contract of sale for the property from Haynes to Ouzenne. Haynes did so because he believed that it was necessary to obtain financing for the building project, but he did not realize that he would be transferring title to the property to Ouzenne. Thereafter, Ouzenne gave Haynes notice that he intended to evict Haynes from the property.

In response, Haynes sued Ouzenne in 2007, asserting common-law fraud, statutory fraud, breach of fiduciary duty, promissory estoppel, and violations of the Texas Deceptive Trade Practices Act. Ouzenne filed a motion to compel arbitration, which the trial court granted.

After an arbitration before C. Johnson at the Dispute Resolution Center of Harris County, the arbitrator issued an award in Haynes's favor for $136,410.60, plus pre and post-judgment interest. Haynes moved to enter judgment based on the arbitrator's award, and Ouzenne moved to vacate the arbitrator's award. On December 15, 2009, the trial court granted Haynes's motion, denied Ouzenne's motion, and entered a judgment confirming the arbitrator's award. After the trial court denied Ouzenne's motion for new trial, this appeal followed.

CONFIRMATION OF ARBITRATION

Standard of Review

Review of a trial court's decision as to vacatur or confirmation of an arbitration award is de novo and an appellate court reviews the entire record. In re Chestnut Energy Partners, Inc., 300 S.W.3d 386, 397 (Tex. App.-Dallas 2009, pet. denied); see also Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 567-68 (Tex. App.-Dallas 2008, no pet.) (discussing standard of review for confirmation of award). Because Texas law favors arbitration, however, our review is "extremely narrow." See Hisaw & Assocs. Gen. Contractors, Inc. v. Cornerstone Concrete Sys., Inc., 115 S.W.3d 16, 18 (Tex. App.-Fort Worth 2003, pet. denied); IPCO-G. & C. Joint Venture v. A.B. Chance Co., 65 S.W.3d 252, 256 (Tex. App.-Houston [1st Dist.] 2001, pet. denied). An arbitration award has the same effect as a judgment of a court of last resort; accordingly, all reasonable presumptions are indulged in favor of the award and the award is conclusive on the parties as to all matters of fact and law. CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). Review of an arbitration award is so limited that even a mistake of fact or law by the arbitrator in the application of substantive law is not a proper ground for vacating an award. Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.-Dallas 2004, pet. denied). Here, the parties agree that the Texas Arbitration Act governs their case. See TEX. CIV. PRAC. & REM. CODE ANN. §§ 171.001-.098 (Vernon 2001).

Gross Mistake

In issues one, two, four, and seven, appellant contends the trial court erred in failing to vacate the arbitration award because the arbitrator committed a "gross mistake"[1] by (1) entering an award that relied on tax appraisals for determining fair market value (issues one and two), (2) failing to consider evidence that Haynes was aware and fully intended to sell his property to Ouzenne (issue four), and (3) failing to properly apply the parol evidence rule (issue seven).

Gross mistake is a Texas state common law standard that has been used to attack arbitration awards. Callahan & Assocs. v. Orangefield Indep. Sch. Dist., 92 S.W.3d 841, 844 (Tex. 2002). A "gross mistake" is a mistake by the arbitrator that implies bad faith or failure to exercise honest judgment. Anzilotti v. Gene D. Liggin, Inc., 899 S.W.2d 264, 266 (Tex. App.-Houston [14th Dist.] 1995, no writ) (quoting Carpenter v. N. River Ins. Co., 436 S.W.2d 549, 551 (Tex. App.-Houston [14th Dist.] 1968, writ ref'd n.r.e.)). Ouzenne argues that relying on the tax rolls to determine value was a gross mistake because tax rolls are no evidence of actual value. In support, Ouzenne relies on Housing Auth. of Dallas v. Brown, 256 S.W.2d 656, 659 (Tex. Civ. App.-Dallas 1953, no writ), which held that error, if any, in refusing to admit evidence of tax value was harmless because "tax rolls do not reflect actual value," but an "approximate percentage of actual value." Id. Brown, however, does not state that the value as reflected on the tax rolls is of no probative value.

Ouzenne also relies on In re Marriage of Scott, 117, S.W.3d 580, 585 (Tex. App.-Amarillo 2003, no pet.), which we also find distinguishable. In Scott, the wife in a divorce case presented evidence that the marital home was valued at $35,610. Id. at 583. She reached this value by relying on the tax appraisal from Hutchison County Appraisal District. Id. at 585. The court of appeals held this evidence of value was factually insufficient because the tax appraisal was over three years old on the date of trial and two experts, including the wife's own expert, valued the property at much more. Id. Scott, however, does not stand for the proposition that tax appraisals are no evidence, i.e., legally insufficient evidence, of fair market value.[2]

Thus, we conclude that the arbitrator's reliance on tax rolls to determine value does not rise to a level that implies the bad faith or failure to exercise honest judgment required to show gross mistake.

Ouzenne also argues that the arbitrator committed gross mistake by disregarding testimony indicating that Haynes knew that he was selling the property to Ouzenne. However, contentions that an arbitrator disregarded even uncontroverted testimony may show a mistake of fact or law, but do not rise to the level of gross mistake. See Graham-Rutledge & Co. v. Nadia Corp., 281 S.W.3d 683, 689 (Tex. App.-Dallas 2009, no pet.). Furthermore, as fact-finder, the arbitrator could judge the credibility of the witnesses and choose who to believe or disbelieve. See Xtria L.L.C. v. Intern. Ins. Alliance, Inc., 286 S.W.3d 583, 597 (Tex. App.-Texarkana 2009, pet. denied).

Thus, we conclude that the arbitrator's decision to believe Haynes's evidence over Ouzenne's, even if erroneous, does not rise to a level that implies the bad faith or failure to exercise honest judgment required to show gross mistake.

Finally, Ouzenne contends that the arbitrator committed a "gross mistake" by failing to properly apply the parol evidence rule. The arbitrator's evidentiary ruling, even if erroneous, does not rise to a level that implies the bad faith or failure to exercise honest judgment required to show gross mistake. See Anzilotti., 899 S.W.2d at 266 (holding that mistake of law is insufficient to set aside arbitration award).

To the extent that points of error one, two, four, and seven claim that the arbitrator failed to give an honest consideration resulting in a gross mistake, they are overruled.

Exceeds Powers

In issue three, Ouzenne contends the arbitrator exceeded his powers, which is a statutory ground for vacating an arbitration award under section 171.088(a)(3)(A) of the Civil Practices and Remedies Code. TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(3)(A). The authority of arbitrators is derived from the arbitration agreement and is limited to a decision of the matters submitted therein either expressly or by necessary implication. Gulf Oil Corp. v. Guidry, 160 Tex. 139, 327 S.W.2d 406, 408 (1959); see also Allstyle Coil Co., L.P., v. Carreon, 295 S.W.3d 42, 44 (Tex. App.-Houston [1st Dist.] 2009, no pet.) (stating scope of authority depends on the agreement). Arbitrators exceed their powers when they decide matters not properly before them. Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc., 294 S.W.3d 818, 829 (Tex. App.-Dallas 2009, no pet.); Barsness v. Scott, 126 S.W.3d 232, 241 (Tex. App.-San Antonio 2003, pet. denied).

Ouzenne argues that the arbitrator exceeded his powers because the arbitration agreement requires that all disputes "be resolved by binding arbitration in accordance with the rules of the American Arbitration Association ["AAA"]," and the arbitrator was not selected in accordance with those rules. Instead, Ouzenne complains that the "parties were ordered to binding arbitration at the Harris County Dispute Resolution Center," which "unilaterally selected the Arbitrator, without providing a selection process."

However, the record shows that Ouzenne did not object to the method of appointing the arbitrator until after the arbitration was completed. In fact, Ouzenne did not complain about the method for appointing the arbitrator until he filed his motion for new trial after the trial court confirmed the award.

The AAA rules upon which Ouzenne rely provide that a party must object to the jurisdiction of the arbitrator in a timely manner. See Thomas Petroleum, Inc. v. Morris, No. 01-09-01065-CV, 2011 WL 742651, at *3, (Tex. App.-Houston [1st Dist.] Mar. 3, 2011, no pet.) (citing EMPLOYMENT ARBITRATION RULES AND MEDIATION PROCEDURES, Rule 6(c) (formerly known as NATIONAL RULES FOR RESOLUTION OF EMPLOYMENT DISPUTES)). The same is true under Texas common law. Id. (citing L.H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 352-53 (Tex. 1977) (holding that, when both parties participate in arbitration proceedings, neither unequivocally withdraws its consent to arbitrate, and arbitration proceedings result in award, award is valid and enforceable)).

Thus, Ouzenne's right to complain about the method by which the arbitrator was selected is waived. See Slaughter v. Crisman & Nesbit, 152 S.W. 205, 207-08 (Tex. Civ. App-San Antonio 1912, no writ) (holding that when party to arbitration appeared and offered testimony before and after appointment of third arbitrator, he waived any irregularity in procedure occurring before the appointment of third arbitrator as required by agreement).

Because Ouzenne participated in the arbitration without complaining about the method by which the arbitrator was selected until after the arbitration was concluded and a judgment thereon was confirmed, the trial court did not err by concluding that the arbitrator did not exceed his authority by deciding matters not properly before him.

We overrule issue three.

Violates Public Policy and the Law

In issues five and six, Ouzenne contends the trial court erred in failing to vacate the arbitration award because it "violates public policy and the law." Specifically, Ouzenne complains that (1) the arbitration award did not specify a "laundry list" DTPA violation, and (2) was not based on a good or service as defined by the DTPA.

Ouzenne's claim, however, is not that the award should be vacated because it is unlawful,[3] but that the trial court committed an error of law. And, although Ouzenne claims that the award violates public policy, he cites no way in which the award violates "carefully articulated, fundamental policy." CVN Group, 95 S.W.3d at 239.

"[A]lleged errors in the application of substantive law by the arbitrators during the proceedings in arbitration are not reviewable by the court on a motion to vacate an award." Jamison & Harris v. Nat'l Loan Investors, 939 S.W.2d 735, 737 (Tex. App.-Houston [14 Dist.] 1997, writ denied). A mistake of fact or law is insufficient to set aside an arbitration award. Anzilotti, 899 S.W.2d at 266.

We overrule issues five and six.

CONCLUSION

We affirm the judgment of the trial court.[4]

For footnotes, click below:

El Paso Court of Appeals sustains challenge to stand-alone arbitration requirement on the ground that did not impose mutual obligations on employer and at-will employee

  
Stand-alone arbitration agreements require binding promises from both sides as they are the only consideration rendered to create a contract. Because there was no valid arbitration agreement, the trial court erred in compelling arbitration. Judgment reversed. 
    

Daniel Mendivil v. Zanios Foods, Inc. (Tex. App. – El Paso,Jan. 11, 2012, n. pet h.)

  

OPINION BY CHIEF JUSTICE ANN CRAWFORD McCLURE

  

Daniel Mendivil appeals the trial court's order compelling arbitration, complaining that the arbitration provision was invalid, illusory, and unconscionable. For the reasons that follow, we reverse and remand.

   

FACTUAL SUMMARY

 
Mendivil was employed as a delivery-truck driver for Zanios Foods, Inc. in El Paso, Texas, and made deliveries both within El Paso and outside of Texas. Upon commencement of his employment, Mendivil was the sole signatory of an Arbitration Policy Statement (APS) prepared by Zanios, which states:

In consideration of Zanios Foods, Inc.'s offer to employ or to continue to employ me and my agreement to accept employment or continued employment under the terms set forth in this Arbitration Policy Statement, I acknowledge that my employment at Zanios is "at will", meaning I can be terminated or quit my employment at any time for any or no reason and I further agree that any controversy, claim, or dispute against Zanios Foods, Inc. ("Zanios") arising out of or relating to my employment with Zanios or the termination of my employment with Zanios . . . shall be resolved exclusively by final and binding arbitration. . . .

Arbitration shall be the sole and exclusive remedy for any such controversy, claim, or dispute against Zanios. I acknowledge that I am knowingly and voluntarily waiving the right to purse [sic] any such controversy, claim, or dispute against Zanios in any court or administrative forum and instead will pursue them through arbitration.

I understand that if I decide to submit any dispute to arbitration in accordance with this Arbitration Policy Statement, I must submit a written request for arbitration to Zanios's President within one (1) month from the date of the incident in question, and I must respond within ten (10) calendar days to each communication regarding the selection of an arbitrator, the scheduling of an arbitration hearing, or any other matters related to the arbitration proceeding. If Zanios does not receive a written request for arbitration from me within one (1) month, or if I do not respond to any communication about the arbitration proceeding within ten (10) calendar days, I understand and acknowledge that I will have knowingly and voluntarily waived my right to arbitration on the incident in question[.] The arbitration shall be held in Albuquerque, New Mexico. The parties shall each pay one-half of the cost of the arbitrator and each party shall otherwise pay its own costs and attorneys' fees.

If this Arbitration Policy Statement shall for any reason be declared unenforceable, I knowingly and voluntarily waive the right to a trial by jury in any action or judicial proceeding which would otherwise have been subject to arbitration.

 
By signing below, I acknowledge that I have read this Arbitration Policy Statement, understand its contents, and voluntarily agree to abide by its terms.
 
After Mendivil suffered an injury in the course of his employment, Zanios terminated his employment, allegedly for a reason unrelated to the injury. Mendivil filed suit against Zanios under Chapter 451 of the Texas Labor Code, which prohibits the discharge of or discrimination against an employee who files a workers' compensation claim in good faith or hires a lawyer to represent the employee in a claim. TEX. LAB. CODE ANN. § 451.001 (West 2006).
 
In a motion to compel arbitration, Zanios alleged that Mendivil's signature on the APS represented his understanding that the offer of employment was conditioned upon a promise to arbitrate his claims. Mendivil countered that no valid arbitration agreement existed because the APS lacked proper consideration and mutual language requiring Zanios to arbitrate, to be bound by arbitration, or to perform any mutual promise. Mendivil maintained that the APS was illusory because it contained no provisions by which Mendivil could either enforce the arbitration agreement against Zanios or require Zanios to arbitrate because Zanios had not promised anything. Mendivil likewise declared the APS unconscionable in part because the provisions required that he arbitrate his claims in Albuquerque, New Mexico, give notice of his intent to arbitrate within thirty days of any incident or waive arbitration, respond to all letters from Zanios within ten days or risk waiving his opportunity to arbitrate, and pay one-half of any arbitration fees.
 
In response, Zanios argued that no case law requires an employer's reciprocal, mirrored promise to arbitrate any claims it might have against an employee in exchange for the employee's promise to arbitrate, and contended that an employer need only provide "some" consideration to render an arbitration agreement enforceable. According to Zanios, it had provided sufficient consideration to form a valid arbitration agreement with Mendivil by agreeing: (1) to binding arbitration; (2) to be bound by the result; (3) to arbitrate in a particular venue; (4) to have arbitration conducted under particular rules; (5) to pay for one-half of the arbitration fee; (6) to pay its own attorney's fees and costs; and (7) to forego recovery of its attorney's fees. Zanios informed the trial court that it would agree to conduct arbitration in El Paso and pay the entirety of arbitration costs up to $10,000.
 
Without expressly finding the APS to be a valid agreement, the trial court granted the motion to compel, ordered that the parties arbitrate in El Paso, and directed that Zanios pay all arbitration fees up to $10,000, after which Mendivil and Zanios would each pay one-half of the arbitration fees in excess of $10,000.

WAS THERE AN AGREEMENT TO ARBITRATE?

In Issues One and Five Mendivil generally challenges the order compelling arbitration as written and as modified by the trial court. In Issue Four, he contends the APS was unconscionable. In Issues Two and Three, he complains that the APS is illusory and invalid for lack of mutual consideration. We review de novo a trial court's determination regarding the validity of an agreement to arbitrate. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003).
 
Applicable Law
 
It is undisputed that the Federal Arbitration Act (FAA), which typically governs arbitration provisions in contracts involving interstate commerce, applies here. See 9 U.S.C.A. §§ 1-16 (West 2009); In re Rubiola, 334 S.W.3d 220, 223 (Tex. 2011). To compel arbitration under the FAA, a party must establish that there is a valid arbitration agreement and that the claims fall within the scope of the agreement. In re Dillard Dep't Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006). While a strong presumption favoring arbitration exists, "the presumption arises only after the party seeking to compel arbitration proves that a valid arbitration agreement exists." J.M. Davidson, Inc., 128 S.W.3d at 227.
 
When determining the validity of arbitration agreements that are subject to the FAA, we apply state-law principles that govern the formation of contracts. In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 676 (Tex. 2006). When deciding whether a party has met its burden to establish a valid agreement to arbitrate, we do not resolve doubts or indulge a presumption in favor of arbitration. J.M. Davidson, Inc., 128 S.W.3d at 227. Rather, the party attempting to compel arbitration must show that the arbitration agreement meets all requisite contract requirements. Id. at 228. If the trial court determines that a valid agreement exists, the burden shifts to the party opposing arbitration to raise an affirmative defense to enforcement of the arbitration agreement. Id. at 227-28. Nonetheless, although a court may enforce agreements to arbitrate disputes, a court cannot order arbitration in the absence of such an agreement. Freis v. Canales, 877 S.W.2d 283, 284 (Tex. 1994), citing United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1352-53, 4 L.Ed.2d 1409 (1960); see 9 U.S.C. § 2.
  
Contract Elements
  
The elements required for the formation of a valid and binding contract include: (1) an offer; (2) acceptance in strict compliance with the terms of the offer; (3) a meeting of the minds; (4) each party's consent to the term; and (5) execution and delivery of the contract with the intent that it be mutual and binding. Cessna Aircraft Co. v. Aircraft Network, L.L.C., 213 S.W.3d 455, 465 (Tex.App.-Dallas 2006, pet. denied). An agreement to arbitrate, like other contracts, must also be supported by consideration. In re Palm Harbor Homes, Inc., 195 S.W.3d at 676; In re AdvancePCS Health L.P., 172 S.W.3d 603, 607 (Tex. 2005) (per curiam).
  
Mutual Promises and Consideration
  
Mutual, reciprocal promises which bind both parties may constitute consideration for a contract. Texas Custom Pools, Inc. v. Clayton, 293 S.W.3d 299, 309 (Tex.App.-El Paso 2009, no pet.). Arbitration clauses generally do not require mutuality of obligation so long as adequate consideration supports the underlying contract. In re Lyon Financial Services, Inc., 257 S.W.3d 228, 233 (Tex. 2008), citing In re FirstMerit Bank, N.A., 52 S.W.3d 749, 757 (Tex. 2001). Thus, when an agreement to arbitrate is part of a larger underlying contract, the remainder of the contract may constitute sufficient consideration for the arbitration provision. In re Palm Harbor Homes, Inc., 195 S.W.3d at 676; In re AdvancePCS, 172 S.W.3d at 607.
 
However, stand-alone arbitration agreements require binding promises from both sides as they are the only consideration rendered to create a contract. In re AdvancePCS, 172 S.W.3d at 607; see also In re 24R, Inc., 324 S.W.3d 564, 566 (Tex. 2010) (mutual promises to submit a dispute to arbitration are sufficient consideration to support an arbitration agreement); Vanegas v. American Energy Services, 302 S.W.3d 299, 302 (Tex. 2009) ("`A bilateral contract is one in which there are mutual promises between two parties to the contract, each party being both a promisor and a promisee.'"), citing Hutchings v. Slemons, 141 Tex. 448, 174 S.W.2d 487, 489 (1943).
 
In In re Halliburton Co., an employer provided notice to its employee that it was adopting a new dispute resolution program, by which both the employer and all employees were required to submit all employment disputes to binding arbitration and waived all rights each may have to a trial by jury for employment-related matters. In re Halliburton, Co., 80 S.W.3d 566, 568-69 (Tex. 2002). The employer informed its employees if an employee accepted or continued employment after January 1, 1998, the employee agreed to resolve all legal claims against the employer through the new program rather than in the courts. In re Halliburton, Co., 80 S.W.3d at 569. The Texas Supreme Court determined that the new dispute resolution program was not dependent upon the employee's continuing employment but rather that the employee accepted the terms of the new program as a matter of law by continuing employment beyond January 1, 1998. In re Halliburton, Co., 80 S.W.3d at 569. Because both the employer and the employee mutually promised to submit all employment disputes to arbitration, thus binding both parties to the terms of the new dispute resolution program, the Texas Supreme Court found that the new dispute resolution agreement between the employer and the at-will employee was supported by sufficient consideration and was not illusory. In re Halliburton, Co., 80 S.W.3d at 566, 569-70.
 
Thus, employers and their at-will employees are not precluded from forming other contracts between themselves, "so long as neither party relies on continued employment as consideration for the contract." J.M. Davidson, Inc., 128 S.W.3d at 228; In re Polymerica, L.L.C, 296 S.W.3d 74, 76 (Tex. 2009) (where employer could not avoid its promise to arbitrate by amending a termination provision or terminating it altogether, the dispute resolution plan was not illusory). When mutual promises to submit employment disputes to arbitration bind both parties to their promises to arbitrate, sufficient consideration exists to support an arbitration agreement between the employer and the at-will employee. In re Halliburton, Co., 80 S.W.3d at 569-70; see also J.M. Davidson, Inc., 128 S.W.3d at 228.
 
Illusory Promises
 
A promise which does not bind the promisor, as when the promisor retains the option to discontinue performance, is illusory. In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010), citing Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 849 (Tex. 2009); see also J.M. Davidson, Inc., 128 S.W.3d at 228; Light v. Centel Cellular Co., 883 S.W.2d 642, 645 (Tex. 1994) (employer's promises were illusory because they were dependent upon at-will employee's period of continued employment; thus, employer could avoid performance by terminating at-will employee's employment while the employee was bound to her promise whether or not she remained employed); compare In re Halliburton, Co., 80 S.W.3d at 569-70 (because mutual promises to submit employment disputes to arbitration bound both parties to their promises to arbitrate, sufficient consideration existed to support the arbitration agreement between the employer and the at-will employee). An agreement to arbitrate may be illusory if a party can unilaterally avoid the agreement to arbitrate. In re Palm Harbor Homes, Inc., 195 S.W.3d at 677; J.M. Davidson, Inc., 128 S.W.3d at 228-30; In re Halliburton Co., 80 S.W.3d at 569-70. Consequently, when a purported bilateral contract is supported only by illusory promises, there is no contract. In re 24R, Inc., 324 S.W.3d at 567, citing Vanegas v. American Energy Services, 302 S.W.3d 299, 302 (Tex. 2009), quoting Light, 883 S.W.2d at 644-45.
 
Analysis
 
The stand-alone APS requires binding promises from both Zanios and Mendivil as such promises are the only consideration provided for the formation of the contract. In re AdvancePCS, 172 S.W.3d at 607; see also In re 24R, Inc., 324 S.W.3d at 566-67. But Zanios never expressly agreed to arbitrate its disputes with Mendivil nor to be bound by the result of such arbitration. Clearly, the language of the purported contract does not apply to any claims that Zanios may assert against Mendivil. Indeed, other than Zanios' recital of consideration, there are only two other recitals that are not wholly burdensome to Mendivil alone: (1) the statement identifying the arbitration venue; and (2) the allocation of arbitration costs as well as attorney's fees and costs.
 

While the benefits to Zanios are clear, those to Mendivil are not. Zanios did not agree to waive a trial by jury and did not agree to resolve any controversy, claim, or dispute that it may have against Mendivil by final and binding arbitration. We are unable to discern from the APS that Zanios has made a mutual, binding promise to Mendivil. When a promise does not bind a promisor, the promise is illusory. In re 24R, Inc., 324 S.W.3d at 564, 567. Had Mendivil sought to compel Zanios to arbitrate under the terms of the APS, he would be unsuccessful as no provision therein binds Zanios to perform such obligation or to be bound by the arbitration result. Consequently, because the APS lacks binding promises from each party as required for the formation of a contract, it lacks the requisite consideration and is illusory. In re AdvancePCS, 172 S.W.3d at 607; see also In re 24R, Inc., 324 S.W.3d at 566-67.

 
Zanios failed to prove the existence of a valid arbitration agreement in the trial court. Because there was no valid arbitration agreement, the trial court erred in compelling arbitration. In re Dillard Dep't Stores, Inc., 186 S.W.3d at 515. We sustain Issues Two and Three. Our resolution of these issues renders it unnecessary for us to consider Issues One, Four, and Five.
 
We reverse and remand for further proceedings.
 
CASE INFO: EL PASO COURT OF APPEALS –No. 08-10-00359-CV – Opinion released 1/14/11

REVERSED AND REMANDED: Opinion by Chief Justice Mcclure [ PDF ]
(Before Chew, Chief Justice Mcclure, Justice Antcliff)

08-10-00359-CV

Daniel Mendivil v. Zanios Foods, Inc.--Appeal from County Court at Law No 5 of El Paso County

No Orders Compelling Arbitration in Rule 202 Proceeding (unless agreed by the parties)

Rule 202 petition does not confer jurisdiction on trial court to enter order compelling arbitration over objection of the other party, Dallas Court of Appeal says in case in which it also awards mandamus relief against the trial court's order permitting Rule 202 discovery (presuit discovery to investigate claim, here female attorney's sex discrimination claim against law firm in which she was partner on equal pay issue).


Patton Boggs, LLP v. Kate Moseley (Tex.App.- Dallas, Dec. 29, 2011)
   
EXCERPT FROM OPINION BY JUSTICE ROBERT M. FILLMORE
  
Appellant Patton Boggs filed this interlocutory appeal challenging the trial court's denial of its motion to compel arbitration. See Tex. Civ. Prac. & Rem. Code Ann. § 51.016 (West Supp. 2011) (appeal or writ of error to the court of appeals from the judgment or interlocutory order of a district court in a matter subject to Federal Arbitration Act); Tex. Civ. Prac. & Rem. Code Ann. § 171.098(a)(1) (West 2011) (party may appeal an order denying an pplication to compel arbitration under section 171.021); see Tex. Civ. Prac. & Rem. Code Ann. § 171.021(a) (West 2011) (court shall order parties to arbitration on application of a party showing an agreement to arbitrate and the opposing party's refusal to arbitrate). See Footnote 7 In its sole issue on appeal, Patton Boggs contends the trial court erred by denying Patton Boggs's motion to compel arbitration and to stay the rule 202 proceedings.
  
Moseley responds that the trial court lacked jurisdiction over Patton Boggs's motion to compel arbitration filed in the rule 202 proceeding. We agree. Because the only proceeding before the trial court was a rule 202 petition, the trial court had no jurisdiction to grant a motion to compel arbitration absent an agreement between the parties that the motion should be granted. See In re Southwest Sec., Inc., No. 05-99-01836-CV, 2000 WL 770117, at *2 (Tex. App.-Dallas, June 14, 2000, orig. proceeding.) (not designated for publication). The trial court lacked jurisdiction to compel arbitration in the rule 202 proceeding. Accordingly, we dismiss this interlocutory appeal for lack of jurisdiction. Tex. R. App. P. 42.3(a).
 
Conclusion
  
We conditionally grant the petition for writ of mandamus and order the trial court to vacate the portions of its August 15, 2011 order that grant Moseley's rule 202 request to take depositions and that grant in part Moseley's request for production of documents. A writ will issue only in the event the trial court fails to vacate the portions of its August 15, 2011 order that grant Moseley's rule 202 request to take depositions and that grant in part Moseley's request for production of documents in conjunction with those depositions.
We dismiss this interlocutory appeal for lack of jurisdiction.

SOURCE: DALLAS COURT OF APPEALS - 05-11-01097-CV  - 12/29/11

Sup. Ct. SCI Arbitration case decided: In Re Services Corporation International (Tex. 2011)(orig. proceeding)

       
In Re Service Corporation International (SCI) (Tex. 2011)
    
PER CURIAM OPINION OF THE TEXAS SUPREME COURT
 
This mandamus proceeding arises from an arbitration agreement governed by the Federal
Arbitration Act (FAA). The parties entered into a contract for interment rights and services. The
contract obligated the parties to arbitrate this dispute over the care and maintenance of the cemetery.
 
The arbitration agreement provides that an arbitrator would either be selected by mutual agreement
of the parties or appointed by the American Arbitration Association (AAA). The parties failed to
agree to an arbitrator and the trial court appointed an arbitrator without allowing a reasonable
opportunity to procure an appointment by AAA. We conclude that the trial court abused its
discretion and conditionally grant the petition for writ of mandamus.

SERVICE CORPORATION INTERNATIONAL
OFFICE TOWER IN HOUSTON

Relators Service Corporation International and SCI Texas Funeral Services, Inc. (jointly
SCI) entered into a written contract with Gabriel and Yolanda Serna for two burial plots in the
Magic Valley Memorial Gardens after the death of their son. The contract contained an arbitration
clause to be utilized for dispute resolution. Under the arbitration clause, the parties would choose
an arbitrator by mutual agreement. If the parties were unable to agree on an arbitrator, the AAA
would select the arbitrator upon application of one or both of the parties.
  
The Sernas filed a suit against SCI on March 19, 2009, alleging, among other things, that SCI
had misrepresented the cemetery as a licensed endowment-care facility and failed to properly
maintain the cemetery. In its original answer, SCI asserted that the dispute was bound for
arbitration. The parties were unable to agree on an arbitrator for several months. When the parties
eventually reached an agreement on an arbitrator on October 14, 2009, he was disqualified because
he represented employees of SCI in an unrelated case. On October 27, the Sernas asked the trial
court to appoint an arbitrator, arguing that SCI had waived its right to seek an appointment by the
AAA. On November 10, the trial court appointed former district judge Abel C. Limas to arbitrate
the case after concluding that the parties were unable to agree on an arbitrator and SCI had waived
the right to seek an AAA appointment. SCI filed a motion for rehearing arguing that the contractual
provision required that the AAA appoint the arbitrator, and that the Sernas were responsible for
initiating proceedings with the AAA. The trial court denied the motion for rehearing on December
15. SCI unsuccessfully sought a writ of mandamus from the court of appeals. In this Court, SCI
requests that we direct the trial court to vacate its order naming Limas as arbitrator.
  
Mandamus relief is appropriate when the trial court has abused its discretion and there is no
adequate remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004)
(citations omitted). When a trial court errs in determining the law or in applying the law to the facts,
it has abused its discretion. Id. at 135 (citations omitted). No adequate remedy by appeal exists
when a trial court erroneously appoints an arbitrator pursuant to section 5 of the Federal Arbitration
 

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Act because the FAA does not provide for review of the trial court’s actions in state court.1 See 9
U.S.C. § 5; In re La. Pac. Corp., 972 S.W.2d 63, 65 (Tex. 1998) (per curiam). Because the terms
of the contract require the parties to apply to the AAA to appoint an arbitrator upon their failure to
agree to an arbitrator, we conditionally issue a writ of mandamus.
 
The parties agree that this case is governed by the FAA, 9 U.S.C. §§ 1–16. Section 5 of the
FAA provides:
 

If in the agreement provision be made for a method of naming or appointing an
arbitrator or arbitrators or an umpire, such method shall be followed; but if no
method be provided therein, or if a method be provided and any party thereto shall
fail to avail himself of such method, or if for any other reason there shall be a lapse
in the naming of an arbitrator or arbitrators or umpire, or in filling a vacancy, then
upon the application of either party to the controversy the court shall designate and
appoint an arbitrator or arbitrators or umpire, as the case may require, who shall act
under the said agreement with the same force and effect as if he or they had been
specifically named therein . . . .

 
9 U.S.C. § 5 (emphasis added). The primary purpose of the FAA is to require enforcement of
arbitration agreements “according to their terms.” Volt Info. Scis. v. Bd. of Trs., 489 U.S. 468, 479
(1989). Before the trial court can intervene and appoint an arbitrator, section 5 requires that parties
follow the previously agreed method of arbitrator selection. CMH Homes v. Perez, 340 S.W.3d 444,
449 (Tex. 2011). Because the FAA requires the trial court to follow the arbitrator selection method
detailed in the contract, we first determine the method of appointment required by the contract.
 

Footnote 1 This case was filed prior to the 2009 addition of section 51.016 to the Texas Civil Practice and Remedies Code expanding state court interlocutory review of certain FAA arbitration matters. See CMH Homes v. Perez, 340 S.W.3d 444 (Tex. 2011) (discussing the appellate remedies available to parties in arbitration proceedings following the 2009 amendment).
 

-3-

 
The contract signed by SCI and the Sernas outlined the following method of appointing an
arbitrator:
 

[T]he arbitrator shall be selected by mutual agreement of the parties. If the parties fail
to or are unable to agree on the selection of an appropriate arbitrator, the AAA shall
select the arbitrator pursuant to its rules and procedures upon the application of one
or both parties.

 
The agreement provides only two ways that the parties may select an arbitrator: (1) mutual
agreement, or (2) if the parties cannot agree, the AAA selects an arbitrator. When the parties failed
to agree on an arbitrator, the contract required petitioning the AAA to appoint an arbitrator. Because
the contract plainly requires the AAA to appoint an arbitrator when mutual agreement fails, the trial
court abused its discretion by appointing an arbitrator unless an exception under section 5 applies.
 
The parties contracted to this method of appointing an arbitrator. The trial court is permitted
to appoint an arbitrator under section 5 of the FAA only if one or both of the parties “fail[s] to avail”
itself of the agreed-upon arbitrator selection method, or there is a “lapse” in the selection of an
arbitrator. 9 U.S.C. § 5. The section 5 substitution process triggered by the “fail to avail” and
“lapse” language of the FAA should be invoked by the trial court when there is some “mechanical
breakdown in the arbitrator selection process” or “one of the parties refuses to comply, thereby
delaying arbitration indefinitely.” In re La. Pac. Corp., 972 S.W.2d at 64–65 (Tex. 1998) (citing
In re Salomon Inc., 68 F.3d 554, 560 (2d Cir. 1995) (interpreting “lapse” and “fail to avail” in
section 5 of the FAA)). The Sernas argue that SCI has forfeited its right to involve the AAA in the
arbitrator selection process because of a lapse due to the time that had passed, the failure of SCI to
 

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apply to the AAA, and a mechanical breakdown in the method of selecting an arbitrator. We do not
agree.
  
The Sernas contend that a time lapse in applying to the AAA triggered the trial court’s
authority to appoint an arbitrator under section 5 of the FAA. It is important to remember that the
FAA disfavors waiver and similar forfeitures of arbitration rights, and there is a strong presumption
against them. Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983)
(observing that, under the FAA, any doubts concerning “an allegation of waiver, delay or a like
defense to arbitrability” should be “resolved in favor of arbitration”); Prudential Secs. Inc. v.
Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (noting the presumption, under both federal and state
law, against waiver of a contractual right to arbitration). We have observed that “one of the central
purposes of the FAA has been to allow the parties to select their own arbitration panel if they choose
to do so.” In re La. Pac. Corp., 972 S.W.2d at 65. However, section 5 tempers the principle that
parties are free to make – and enforce – their arbitration agreements as they see fit, with the
countervailing grant of authority to a district court to intercede and “spur the arbitral process
forward” when the parties reach a stalemate in naming an arbitrator. Pac. Reins. Mgmt. Corp. v.
Ohio Reins. Corp., 814 F.2d 1324, 1329 (9th Cir. 1987).
 
In Pacific Reinsurance, a district judge appointed an umpire, notwithstanding the parties’
arbitration agreement, under circumstances in which the litigants had “tried and failed” to name an
umpire. Id. at 1329. Finally, after “five months of impasse,” the trial court appointed an umpire on
motion of one of the parties. Id. The Court affirmed the appointment on failure-to-avail and lapse
grounds, holding that section 5 may properly be invoked when the parties’ “impasse” had lasted for
 

-5-

 
five months. Id. The Court explained that while parties should be afforded every reasonable
opportunity “to comply with their agreement,” section 5 may be invoked by a trial court to appoint
an arbitrator where the arbitration process “stagnate[s] into endless bickering over the selection
process.” Id.
 
This is not such a case. The contract provides consensual methods for appointment of an
arbitrator, and the court must allow the parties sufficient time to utilize the contractual method
before intervening to appoint an arbitrator. An unreasonable delay in such an appointment,
sufficient to constitute a lapse or failure to avail, should be measured from the point when mutual
agreement failed. See id.; cf. In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 409
(Tex. 2011) (holding, in the context of the right to an appraisal under an insurance contract, that an
unreasonable delay sufficient to invoke waiver must be measured from the point of impasse – the
point at which the parties become aware of the futility of further negotiations). Seven months
elapsed from SCI’s motion to compel arbitration in April 2009 to the time the trial court appointed
an arbitrator in November. The Sernas argue the seven-month period establishes a deadlock or
impasse between the parties justifying the trial court’s intervention. On the contrary, that sevenmonth
period includes the time the parties worked to reach a mutual agreement and did agree on an
arbitrator, only to have him recused on conflict-of-interest grounds. The arbitration clause
contemplated efforts to reach such an agreement. The applicable delay is the time after an impasse
or deadlock is reached. See Pac. Reins., 814 F.2d at 1329.
 
An impasse, if any, occurred after the agreed arbitrator was disqualified. Acting on the Sernas’ motion, filed less than two weeks after the agreed arbitrator was disqualified, the trial court
 

-6-

 
appointed an arbitrator, notwithstanding the contract. This appointment occurred just one month
after the parties had been in apparent agreement on an arbitrator. Thus, the disagreement of the
parties as to the selection of the arbitrator was at most one month old. We are unable to locate any
instance in which a federal court held that a delay in appointing an arbitrator as short as one month
constituted a lapse under section 5. In the instances in which courts have found a lapse, the periods
between the impasse and the appointment of an arbitrator are significantly longer than one month.
See e.g., Pac. Reins. Mgt. Corp., 814 F.2d at 1328 (concluding that a five-month “impasse” between
the parties resulted in both a “lapse” and “fail[ure] to utilize” the agreed-to umpire-selection
method); Trustmark Ins. Co. v. Clarendon Nat’l Ins. Co., No. 09 C 6169, 2010 U.S. Dist. LEXIS
8078, at *14 (N.D. Ill. Feb. 1, 2010) (holding that a four-month delay, measured from the time the
defendants sent a list of potential umpires to the plaintiffs with no response to the time the
defendants asked the trial court to appoint an umpire, constituted a lapse). As a matter of law, a one month interval following an impasse, by itself, cannot reasonably be construed as a lapse in
appointing an arbitrator. The parties had reached an agreement previously; both their contract and
section 5 entitled them to a reasonable opportunity to do so again.
 
Arguing a failure-to-avail point, the Sernas assert that it was clear that neither party intended
to apply to the AAA and, further, SCI’s position was that it did not have the obligation to petition
the AAA for appointment of an arbitrator. Again relying on the seven-month period from the filing
of SCI’s motion to compel through the time the trial court appointed an arbitrator, the Sernas
contend that a stalemate had been reached. Reiterating, the period of time during which the parties
are in discussions or negotiations toward mutual selection of an arbitrator does not count as delay
 

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after an impasse. See generally In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d at
408–09. As a matter of law, we conclude that under section 5 a one-month halt in negotiations
between the parties does not in itself constitute a failure to avail by SCI of its contractual right to
have the AAA select the arbitrator, irrespective of whether one or both parties had the contractual
burden to pursue AAA appointment.
 
The Sernas also argue that an ambiguity in the contract resulted in a mechanical breakdown
in the selection of an arbitrator. The contract states that “in the absence of [applicable state laws
governing arbitration], the arbitration proceedings shall be conducted in accordance with the
applicable rules of the [AAA]; provided, however, that the foregoing reference to the AAA rules
shall not be deemed to require any filing with that organization . . . .” The Sernas argue that these
provisions are contradictory and ambiguous and should be construed against the contract drafter,
SCI. When interpreting a contract, our primary concern is to ascertain and give effect to the intent
of the parties as expressed in the contract. Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207
S.W.3d 342, 345 (Tex. 2006) (citations omitted). “To discern this intent, we ‘examine and consider
the entire writing in an effort to harmonize and give effect to all the provisions of the contract so
that none will be rendered meaningless. No single provision taken alone will be given controlling
effect; rather, all the provisions must be considered with reference to the whole instrument.’”Id.
(citations omitted).
 
The provisions that the Sernas argue are ambiguous simply define the rules applicable to
arbitration proceedings and do not conflict with other portions of the arbitration agreement. Because
the contract allows for the appointment of an arbitrator without the involvement of the AAA, the
 

-8-

 
contract provides that, although the parties may use AAA rules to govern their dispute, no filing with
the AAA is required when the parties mutually agree. However, if the parties cannot agree, then
either party may apply to have an arbitrator appointed through the AAA’s procedures. We conclude
that the contract is not ambiguous on this point. If the parties cannot agree on an arbitrator, the
contract requires that they use AAA to appoint the arbitrator.
 
Accordingly, without hearing oral argument, we conditionally grant mandamus relief to SCI
and direct the trial court to vacate its prior order appointing an arbitrator and allow the parties a
reasonable opportunity to select an arbitrator pursuant to their agreement. TEX. R. APP. P. 59.1,
52.8(c). We are confident the trial court will comply, and the writ will issue only if it fails to do so.
 
OPINION DELIVERED: December 16, 2011
 

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FULL STYLE AND CASE DETAILS
 
IN RE SERVICE CORPORATION INTERNATIONAL AND SCI TEXAS FUNERAL SERVICES, INC. D/B/A MAGIC VALLEY MEMORIAL GARDENS; from Hidalgo County; 13th district (13-09-00681-CV, ___ SW3d ___, 02-17-10) stay order issued March 12, 2010, lifted
Pursuant to Texas Rule of Appellate Procedure 52.8(c), without hearing oral argument, the Court conditionally grants the writ of mandamus.
Per Curiam Opinion
 
Click below to read the opinion of the Corpus Christi Court of Appeals:
IN RE SERVICE CORPORATION INTERNATIONAL, Tex: Court of Appeals, 13th Dist. 2010

Americo Life, Inc. v. Robert L. Myer, No. 10-0734 (Tex. 2011)

Americo Life, Inc. v. Myer, No. 10-0734 (Tex. Dec. 16, 2011)

PER CURIAM OPINION OF THE TEXAS SUPREME COURT
   
This case concerns an arbitration provision that allows each party to appoint one arbitrator to a panel, subject to certain requirements. At issue is whether Americo Life, Inc. waived its objection to the removal of the arbitrator it selected. The underlying dispute concerned the financing mechanism for Americo’s purchase of several insurance companies from Robert Myer. FN1 Pursuant to the financing agreement, Americo and Myer submitted their dispute to arbitration under American Arbitration Association (AAA) rules. The arbitrators found in favor of Myer, and Americo filed a

FN 1: Petitioners Americo Life, Inc., Americo Financial Life and Annuity Insurance Company, Great Southern Life Insurance Company, the Ohio State Life Insurance Company, and National Farmers’ Union Life Insurance Company are referred to as Americo. Respondents Robert L. Myer and Strider Marketing Group, Inc. are referred to as Myer.

motion to vacate the award. The trial court granted the motion. It held that Americo was entitled to any arbitrator that met the requirements set forth in the financing agreement and that the arbitrator removed by the AAA met those requirements. The court of appeals reversed, holding that Americo had waived these arguments by not presenting them to the AAA. Because the record demonstrates otherwise, we reverse the court of appeals’ judgment and remand the case to the court of appeals for further proceedings.

The parties entered into a financing agreement for Americo’s purchase of several insurance
companies from Myer. This agreement provides that any disputes “shall be referred to three
arbitrators.” It further provides that “Americo shall appoint one arbitrator and Myer shall appoint
one arbitrator and such two arbitrators to select the third.” The financing agreement provides that
each arbitrator “shall be a knowledgeable, independent businessperson or professional.”
However, the contract also provides that, subject to exceptions not at issue here, the
proceedings “shall be conducted in accordance with the commercial arbitration rules of the
American Arbitration Association.” At the time the parties entered into the financing agreement,
the AAA rules provided that its “rules and any amendment of them shall apply in the form in effect
at the time the administrative filing requirements are met for a demand for arbitration or submission
agreement received by the AAA.” At the time of the demand for arbitration between the parties, the
AAA rules provided that “[a]ny arbitrator shall be impartial and independent . . . and shall be subject
to disqualification for (i) partiality or lack of independence . . . .”

Here, Myer argued to the AAA that Americo’s selected arbitrator, Ernest Figari, Jr., was not
impartial and therefore should be removed. Americo responded that Figari was, in fact, impartial.

-- Page 2 end --

The parties dispute whether Americo additionally responded that its selected arbitrator need only
meet the “independent” and “knowledgeable” requirements from the financing agreement.
The AAA agreed with Myer and removed Figari from the arbitration panel. Americo
asserted a standing objection to the continuation of the arbitration without Figari. Americo also
stated that it would proceed to arbitrate without waiving its objection and without waiver of the right
to appeal any decision based on the removal of Figari. Americo subsequently selected another
arbitrator.

The arbitration panel rendered a unanimous decision awarding Myer declaratory relief,
breach of contract damages of $9.29 million, $15.8 million in damages for wrongfully withheld
payments under the financing agreement, and $1.29 million in attorney’s fees and costs. Myer filed
a petition to confirm the award in the district court and Americo filed a motion to vacate or modify
the award. Americo argued that, inter alia, the award was not made by arbitrators selected under
the financing agreement’s requirements and was therefore void.2 The court granted Americo’s
motion to vacate and found that the AAA failed to follow the arbitration selection method contained
in the financing agreement, that the AAA had no authority to strike Figari, and that the award was
void because it was issued by an improperly appointed panel.

The court of appeals reversed. It held that:

After arbitration, appellees argued to the trial court the award should be
vacated under section five of the Federal Arbitration Act because the award was not
made by arbitrators who were appointed under the method provided in the

 
FN 2: Americo’s motion to vacate or modify the award was pursuant to section five of the Federal Arbitration Act (FAA), which provides: “If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed . . . .” 9 U.S.C. § 5.
    
-- Page 3 end --
 

[financing] agreement. In their brief in support of their motion to vacate the
arbitration award, appellees further explained their argument to mean the [financing]
agreement did not require the party-appointed arbitrators to be “independent and
impartial. Nor does the Agreement allow the AAA to disqualify a party’s appointed
arbitrator for partiality, bias, or any other basis.” They continued to argue that
because their right to select an arbitrator was governed by the standards in the
[financing] agreement, the impartiality standard set out in the AAA rules was
inapplicable. Essentially, appellees argued to the trial court they had a right to a
non-neutral arbitrator. This, however, is not the argument they raised to the AAA
in response to appellants’ objection to Figari.

315 S.W.3d 72, 75 (Tex. App.—Dallas 2009, pet. filed) (emphasis in original) (footnote omitted).

We have held that “appellate courts should reach the merits of an appeal whenever
reasonably possible.” Perry v. Cohen, 272 S.W.3d 585, 587 (Tex. 2008) (citing Verburgt v. Dorner,
959 S.W.2d 615, 616 (Tex. 1997)). Here, the record demonstrates that Americo argued to both the
AAA and the district court that it was entitled to any arbitrator who met the requirements set forth
in the financing agreement, regardless of the AAA’s requirements.

In response to Myer’s objection to Figari, Americo argued to the AAA that Figari was
neutral. However, Americo also asserted:

Finally, an argument can be made that the AAA rules do not govern the
selection of and qualifications for arbitrators in this proceeding. . . . The Agreement
states that “[e]ach arbitrator shall be a knowledgeable, independent businessperson
or professional.” . . .

As long as Mr. Figari is “a knowledgeable, independent businessperson or
professional,” he is an acceptable designee for the arbitration panel hearing this
matter, irrespective of the AAA rules. . . . Here, the parties’ arbitration agreement
plainly provides the method for selecting arbitrators for the three-person panel and
establishes the qualifications for serving on the panel. . . . Mr. Figari possesses the
requisite qualifications and the fact that he has served previously and is now serving
as a member of a panel considering a dispute between some of these same parties
does not change that fact. There has been—and can be—no allegation that Mr.
Figari has been anything but knowledgeable and independent in his performance on
the panels in Myer I and Myer II.

-- Page 4 end --

Furthermore, Americo wrote the AAA again after the AAA removed Figari but before the
arbitration, stating:

[T]he AAA Commercial Arbitration Rules do not govern the selection of and
qualifications for arbitrators to hear disputes between Americo and Myer. . . . The
Agreement states that “[e]ach arbitrator shall be a knowledgeable, independent
businessperson or professional.” . . .

Mr. Figari is “a knowledgeable, independent businessperson or professional”.
Therefore, he is a proper designee for the Panel to hear this matter.

In addition, Americo’s letter to the AAA cited Brook v. Peak International, Ltd., which discusses
the vacation of arbitration awards by arbitrators not appointed under the method provided by a
contract and the preservation of such a complaint by presenting it during arbitration. 294 F.3d 668,
673 (5th Cir. 2002). Americo reiterated this argument in the district court, stating that “the Award
must be vacated under FAA § 5 and applicable law, because the Award was not made by arbitrators
who were appointed under the method provided in the Agreement.”

The court of appeals is correct that Americo did not expressly state that arbitrators were not
required to be neutral. 315 S.W.3d at 75–76. However, Americo argued that the AAA requirements
did not apply, that the only applicable requirements were that they be knowledgeable and
independent businesspersons or professionals, and that Figari met these qualifications. Americo
properly preserved this argument. Therefore, without hearing oral argument, TEX. R.APP. P. 59.1,
we reverse the court of appeals’ judgment and remand the case to the court of appeals for further
proceedings consistent with this opinion.

OPINION DELIVERED: December 16, 2011

-- Page 5 end --

CASE DETAILS:
AMERICO LIFE, INC., AMERICO FINANCIAL LIFE AND ANNUITY INSURANCE COMPANY, GREAT SOUTHERN LIFE INSURANCE COMPANY, THE OHIO STATE LIFE INSURANCE COMPANY, AND NATIONAL FARMERS' UNION LIFE INSURANCE COMPANY v. ROBERT L. MYER AND STRIDER MARKETING GROUP, INC.; from Dallas County; 5th district (05-08-01053-CV, 315 SW3d 72, 10-22-09)

Pursuant to Texas Rule of Appellate Procedure 59.1, after granting the petition for review and without hearing oral argument, the Court reverses the court of appeals' judgment and remands the case to that court.

Per Curiam Opinion

Click below to read the Dallas Court of Appeal's Opinion: 315 S.W.3d 72 (2009)

Texas Supreme Court again addresses arbitration issues, hands down three arb-related decisions in one day

 
Among the opinions released by the Texas Supreme Court in almost a dozen cases decided today, Friday December 16, 2011, no less than three deal with arbitration, and all three relate in one way or another to the selection of arbitrators. Here is the list, with opinion excerpts:        
   
In re Service Corporation International, (Tex. 2011)
  
No. 10-0158 (Tex. Dec. 16, 2011)(appointment of arbitrator based on agreement on method, rather than selection by the trial court judge) (mandamus relief granted)
    
Norma Sandoval and her sister, Nora Martinez, jointly filed suit against Service Corporation International (SCI) alleging fraud, deceptive trade practices, and other tort claims arising from their respective interment rights and services contracts for family burial plots at Mont Meta Memorial Park.1 The parties agree the dispute was required to be arbitrated pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-16.
 
SCI asserts that the trial court’s appointment of an arbitrator interfered with the contractual rights of the parties and was not authorized by the Federal Arbitration Act. Without reaching the parties’ arguments as to which party or parties have the burden of approaching the AAA to appoint an arbitrator, we agree with SCI that the trial court’s appointment was an abuse of discretion from which there is no adequate remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004). In a related case also decided today, In re Service Corp. International & SCI Tex. Funeral Services, Inc. d/b/a Magic Valley Memorial Gardens, we analyzed an identical arbitration provision. __ S.W.3d __ (Tex. 2011). Following the rationale in Magic Valley Memorial Gardens, we conclude the trial court abused its discretion by appointing an arbitrator instead of following the agreed-upon method of selection outlined in the contract. As a matter of law, the two month delay in the selection of an arbitrator in this case, by itself, does not establish a lapse or failure of the parties to avail themselves of the contractual selection method. See 9 U.S.C. § 5; Magic Valley Memorial Gardens, __ S.W.3d __ (Tex. 2011). Accordingly, without hearing oral argument, we conditionally grant SCI’s petition for writ of mandamus and direct the trial court to vacate its prior order appointing David Calvillo as arbitrator. TEX. R.APP. P. 59.1, 52.8(c). We are confident the trial court will comply, and the writ will issue only if it fails to do so.
 
OPINION DELIVERED: December 16, 2011

Pursuant to Texas Rule of Appellate Procedure 52.8(c), without hearing oral argument, the Court conditionally grants the writ of mandamus.
Per Curiam Opinion
Links to pdf version of opinion and to Electronic Briefs in this case can be found on the Texas Supreme Court's web site

Full case style and lower-court info: IN RE SERVICE CORPORATION INTERNATIONAL AND SCI TEXAS FUNERAL SERVICES, INC., JOINTLY D/B/A MONT META MEMORIAL GARDENS; from Cameron County; 13th district (13-10-00026-CV, ___ SW3d ___, 02-23-10)

 
In Re SCI, (Tex. 2011)
   
No. 10-0155 (Tex. Dec. 16, 2011)(arbitration, procedure to select arbitrator)(mandamus relief granted)

This mandamus proceeding arises from an arbitration agreement governed by the Federal Arbitration Act (FAA). The parties entered into a contract for interment rights and services. The contract obligated the parties to arbitrate this dispute over the care and maintenance of the cemetery.
 
The arbitration agreement provides that an arbitrator would either be selected by mutual agreement of the parties or appointed by the American Arbitration Association (AAA). The parties failed to agree to an arbitrator and the trial court appointed an arbitrator without allowing a reasonable opportunity to procure an appointment by AAA. We conclude that the trial court abused its discretion and conditionally grant the petition for writ of mandamus.
 
We conclude that the contract is not ambiguous on this point. If the parties cannot agree on an arbitrator, the contract requires that they use AAA to appoint the arbitrator.
 
Full case style and lower-court info: IN RE SERVICE CORPORATION INTERNATIONAL AND SCI TEXAS FUNERAL SERVICES, INC. D/B/A MAGIC VALLEY MEMORIAL GARDENS; from Hidalgo County; 13th district (13-09-00681-CV, ___ SW3d ___, 02-17-10) stay order issued March 12, 2010, lifted
 Pursuant to Texas Rule of Appellate Procedure 52.8(c), without hearing oral argument, the Court conditionally grants the writ of mandamus.
Per Curiam Opinion
Links to pdf version of opinion and to Electronic Briefs in this case can be found on the Texas Supreme Court's web site

 
Americo Life, Inc. v. Myer, (Tex. 2011)
  
No. 10-0734 (Tex. Dec. 16, 2011)(selection of arbitrators on panel, issue of neutrality of chosen arbitrator)
 
This case concerns an arbitration provision that allows each party to appoint one arbitrator to a panel, subject to certain requirements. At issue is whether Americo Life, Inc. waived its objection to the removal of the arbitrator it selected. The underlying dispute concerned the financing mechanism for Americo’s purchase of several insurance companies from Robert Myer.1 Pursuant to the financing agreement, Americo and Myer submitted their dispute to arbitration under American Arbitration Association (AAA) rules. The arbitrators found in favor of Myer, and Americo filed a motion to vacate the award. The trial court granted the motion. It held that Americo was entitled to any arbitrator that met the requirements set forth in the financing agreement and that the arbitrator removed by the AAA met those requirements. The court of appeals reversed, holding that Americo had waived these arguments by not presenting them to the AAA. Because the record demonstrates otherwise, we reverse the court of appeals’ judgment and remand the case to the court of appeals for further proceedings.
  
The court of appeals is correct that Americo did not expressly state that arbitrators were not required to be neutral. 315 S.W.3d at 75–76. However, Americo argued that the AAA requirements did not apply, that the only applicable requirements were that they be knowledgeable and independent businesspersons or professionals, and that Figari met these qualifications. Americo properly preserved this argument. Therefore, without hearing oral argument, TEX. R.APP. P. 59.1, we reverse the court of appeals’ judgment and remand the case to the court of appeals for further proceedings consistent with this opinion.
 
OPINION DELIVERED: December 16, 2011
  
Full case style and lower-court info: AMERICO LIFE, INC., AMERICO FINANCIAL LIFE AND ANNUITY INSURANCE COMPANY, GREAT SOUTHERN LIFE INSURANCE COMPANY, THE OHIO STATE LIFE INSURANCE COMPANY, AND NATIONAL FARMERS' UNION LIFE INSURANCE COMPANY v. ROBERT L. MYER AND STRIDER MARKETING GROUP, INC.; from Dallas County; 5th district (05-08-01053-CV, 315 SW3d 72, 10-22-09)
Pursuant to Texas Rule of Appellate Procedure 59.1, after granting the petition for review and without hearing oral argument, the Court reverses the court of appeals' judgment and remands the case to that court.
Per Curiam Opinion
Links to pdf version of opinion and to Electronic Briefs in this case can be found on the Texas Supreme Court's web site

Interpretation of disputed provision of MSA in divorce case left to discretion of mediator, given the parties agreement to that effect

  
Houston Court of appeals reverses trial court for deciding dispute over a specific provision of a mediated stettlement agreement in a divorce case based on parties' agreement to have the mediator decide such dispute and - in effect - act as arbitrator. Court would ordinarily have role in construction of mediated settlement agreement (MSA) as a contract, but not where - as here - the parties put the mediator in charge of arbitrating subsequent disagreements.

Entry of Judgment on the Mediated Settlement Agreement
 
Texas public policy encourages the peaceable resolution of disputes, particularly those involving the parent-child relationship, and the early settlement of pending litigation through voluntary settlement procedures. Tex. Civ. Prac. & Rem. Code Ann. § 154.002 (West 2011).
  
The Family Code furthers this policy by providing alternative dispute resolution procedures through which parties may settle a suit for dissolution of a marriage. See, e.g., Tex. Fam. Code Ann. §§ 6.601-.604 (West 2006). One such procedure is mediation. See id. § 6.602.
  
A mediated settlement agreement is binding under section 6.602 of the Family Code if the agreement:
 
(1) provides, in a prominently displayed statement that is in boldfaced type or capital letters or underlined, that the agreement is not subject to revocation;

(2) is signed by each party to the agreement; and

(3) is signed by the party’s attorney, if any, who is present at the time the agreement is signed.

Id. § 6.602(b).

Settlement agreements complying with section 6.602 are immediately enforceable, not subject to repudiation by a party, and, with certain limited exceptions, binding on the trial court without approval or determination of whether the agreement’s terms are just and right. See In re Joyner, 196 S.W.3d 883, 889 (Tex. App.—Texarkana 2006, orig. proceeding); Cayan v. Cayan, 38 S.W.3d 161, 164-66 (Tex. App.—Houston [14th Dist.] 2000, pet. denied); see also Spiegel v. KLRU Endowment Fund, 228 S.W.3d 237, 242 (Tex. App.—Austin 2007, pet. denied) (noting that when MSA meets section 6.602’s requirements, “it must be enforced in the absence of allegations that the agreement calls for the performance of an illegal act or that it was ‘procured by fraud, duress, coercion, or other dishonest means.’”) (quoting Boyd v. Boyd, 67 S.W.3d 398, 403 (Tex. App.—Fort Worth 2002, no pet.). “After all, the purpose of mediation is to let parties settle their property as they see fit, keeping those matters out of the courtroom.” Joyner, 196 S.W.3d at 889. A trial court has no authority to enter a judgment that varies from the terms of a mediated settlement agreement. Cf. Garcia-Udall v. Udall, 141 S.W.3d 323, 332 (Tex. App.—Dallas 2004, no pet.) (concluding that trial court abused its discretion under Tex. Fam. Code Ann. § 153.0071 (West 2002) by entering judgment not conforming with MSA in suit affecting parent-child relationship).
 
Neither WIFE nor HUSBAND disputes that the MSA here meets the requirements of section 6.602. Likewise, they do not dispute that the MSA is enforceable; there is no allegation that the agreement requires the performance of an illegal act or was procured by fraud, duress, or coercion. Rather, the parties’ only dispute is with respect to the meaning of that part of the MSA dividing HUSBAND’s “future retirement disbursements” equally and whether future distributions from HUSBAND’s ESOP are included within its scope.
  
Ordinarily, if the terms of the MSA could be given a certain or definite meaning, we would construe the agreement as a matter of law to determine whether WIFE’s or HUSBAND’s construction is correct. See Garcia-Udall, 141 S.W.3d at 328. But, this case presents a unique circumstance in that the parties agreed in the MSA to submit “(a) all drafting disputes[,] (b) all issues regarding the interpretation of [the MSA,] and (c) all issues regarding the intent of the parties as reflected in the [MSA]” to the mediator and to make his decision on these matters binding. Thus, by their agreement, WIFE and HUSBAND removed the resolution of their dispute from the province of the courts and assigned that responsibility to the mediator. Absent some allegation that the MSA requires an illegal act or was procured by fraud, duress, coercion, or other dishonesty, the trial court was obligated to enforce their agreement. See id. at 332; Spiegel, 228 S.W.3d at 242.
  
We reject HUSBAND’s contention that the mediator’s “flip-flopping” somehow nullifies his decision regarding the parties’ intended division of HUSBAND’s “future retirement disbursements.” HUSBAND has offered no reason why a mediator should not have the same discretion afforded trial courts to reconsider a ruling. See generally Fruehauf Corp. v. Carrillo, 848 S.W.2d 83, 84 (Tex. 1993) (noting that trial court has power to set aside interlocutory orders at any time before a final judgment is entered). The record we have of the parties’ dispute before the mediator is limited, consisting only of the MSA, counsels’ representations at the hearing on the entry of judgment, and the three letters issued by the mediator. We will not speculate about the reasons for the mediator’s reconsideration of his initial determination nor the arguments presented to him by the parties. We note only that the mediator acknowledged the parties’ continuing dispute and professed an understanding of their “concerns and the practical effect that certain language may or may not have” in his third letter. We conclude that letter, being the last of the mediator’s communications, constitutes the final expression of his decision with respect to the division of HUSBAND’s “future retirement benefits.”
  
Moore v. Moore, No. 01-11-00163-CV (Tex.App.- Houston [1st Dist.] Dec. 8, 2011)
 
Click below to read the opinion (names of parties replaced by designations HUSBAND and WIFE)

Schlumberger Technology Corporation v. Baker Hughes Inc. - Appeals Court rules in complex arbitration-within-arbitration dispute

First Court of Appeals in Houston hands down lengthy opinion in interlocutory appeal of complex dispute over who should hear and resolve subsidiary issue in a pending arbitration proceeding. Parties filed duelling motions to compel arbitration. Finding it has interlocutory jurisdiction over the appeal, the higher court reverses the trial court's decision, holding that in this case the parties agreed to have the issue of arbitrability/arbitral forum decided by arbitration -- rather than the trial court deciding it as a gateway issue, which would ordinarily be the rule.    

Schlumberger Technology Corporation v. Baker Hughes Inc.,
No. 01-11-00562-CV (Tex.App. - Houston [1st Dist.] Oct. 13, 2011, no pet. h.)

 

Opinion issued October 13, 2011

In The

Court of Appeals

For The

First District of Texas

————————————

NO. 01-11-00562-CV

———————————

SCHLUMBERGER TECHNOLOGY CORPORATION, Appellant

V.

BAKER HUGHES INCORPORATED, Appellee

On Appeal from the 270th District Court

Harris County, Texas

Trial Court Case No. 2011-25539

O P I N I O N

Schlumberger Technology Corporation and Baker Hughes Incorporated are in the midst of an arbitration proceeding to resolve patent disputes. A disagreement has arisen about whether the presiding panel of arbitrators has jurisdiction to determine a discrete subissue raised by Baker Hughes in the proceeding. Schlumberger contends that the subissue should be resolved by the same panel, but Baker Hughes argues that the issue is governed by a prior settlement agreement between the parties and must be resolved by the mediator who facilitated that agreement.

Baker Hughes initiated court proceedings, and both parties filed motions to compel arbitration in accordance with their respective positions. The trial court granted Baker Hughes’s requested relief and denied Schlumberger’s motion. Schlumberger now appeals from the trial court’s interlocutory order that denied its motion to compel arbitration.

We conclude that we have jurisdiction over this interlocutory appeal. We further conclude that the parties agreed to let the arbitrators resolve their disagreement about the proper arbitral forum for their dispute and that the trial court should have compelled arbitration of that issue. Accordingly, we reverse the trial court’s order denying Schlumberger’s motion, and we remand for further proceedings consistent with this opinion.

Background

Schlumberger and Baker Hughes are competitors in the business of developing, manufacturing, and marketing tools for use in the oil and gas industry. Both own or control patents related to such tools. At various times, disputes have arisen about each party’s alleged infringement of the other’s patents. One of these disputes involved reciprocal claims relating to sensor tools used to gather information and fluid samples from oil and gas wells. Baker Hughes claimed that Schlumberger’s tool infringed a certain patent, and Schlumberger alleged that Baker Hughes’s tool infringed certain of its patents. The parties mediated this dispute, and in October 2004 they executed a settlement agreement. The parties granted each other reciprocal licenses to the patents at issue in that dispute, and they released and discharged each other from "any and all claims, demands or suits, known or unknown, fixed or contingent, liquidated or unliquidated whether or not asserted in the above case, as of this date, arising from or related to the events and transactions which are subject matter to this case." The 2004 settlement agreement also contained the following dispute resolution provision:

If a dispute arises with regard to the interpretation and/or performance of this agreement or any of its provisions, the parties agree to attempt to resolve same by phone conference with the Mediator who facilitated this settlement. If the parties cannot resolve their differences by telephone conference, then each agrees to schedule a day of mediation with the Mediator within thirty (30) days to resolve the disputes and to share the costs of the same equally. If a party refuses to mediate, then the parties agree to submit the issue to binding arbitration before the Mediator in this matter and the party bringing the arbitration shall be entitled to recover attorney’s fees or costs in such arbitration.

After the 2004 settlement agreement was finalized, additional disputes arose between the parties concerning their intellectual property. To facilitate efficient resolution of these disputes, in 2009 the parties entered into two additional agreements: the Patent Dispute Resolution Agreement and the Patent Dispute Procedure Agreement. The Resolution Agreement provided that its purpose was to address and resolve then-current disputes and to provide a process for addressing future disputes about the infringement and validity of each party’s patents. That agreement defined "Current Disputes" as "those Disputes for which assertions have been made prior to the signing of this Agreement," and it expressly referenced an attached exhibit that listed the Current Disputes. The Resolution Agreement also defined "Dispute" as:

. . . any dispute between the Parties arising out of or relating to or in connection with a claim of 1) infringement or the damages arising therefrom, or 2) the invalidity or unenforceability of either Party’s Patents. "Dispute" shall also include disputes relating to the interpretation, construction, alleged breach of this Agreement, the Procedure Agreement, a license agreement or covenant not to sue relating to a Patent or Patents, or amounts paid under such a license agreement or covenant not to sue. Disputes arising under existing licenses or covenants not to sue shall be treated in accordance with Section 3.2, below.

Schlumberger and Baker Hughes agreed that "any Current Disputes or future Disputes . . . shall be solely resolved as set forth in the Procedure Agreement."

Section 3 of the Resolution Agreement carved out an exception for disputes arising from any preexisting patent or license agreement that contained its own dispute resolution procedures. By that provision the parties agreed:

3. TREATMENT OF EXISTING AND FUTURE PATENT AGREEMENTS

3.1 Existing, unexpired patent agreements and licenses between the Parties will remain in effect and this Agreement and the Procedure Agreement shall have no impact on their terms, including negotiated royalty rates, royalty base, or restrictions on field of use.
3.2 Unless a dispute resolution process is set forth in an existing or future patent agreement or license, breaches of those agreements shall be subject to resolution in accordance with the terms of this Agreement.
Consistent with this provision, a merger clause provided that the Resolution Agreement constituted the parties’ "entire agreement . . . with respect to the same subject matter hereof" and superseded "all other agreements, whether written or oral except as provided by Section 3.1 . . . ."

If direct negotiations should fail to resolve a dispute encompassed by the Resolution Agreement, the Procedure Agreement specifies resolution by arbitration before a panel of American Arbitration Association arbitrators, pursuant to AAA rules. Pursuant to the Resolution and Procedure Agreements, the parties began arbitration before a panel of three AAA arbitrators to resolve a dispute as to whether a module of Baker Hughes’s sensor tool infringes Schlumberger’s patents. The parties agree that this dispute, which they reference as the "four-patent dispute," was one of the Current Disputes expressly identified in the Resolution Agreement. During the course of that proceeding, Schlumberger submitted a report from its damages expert. Baker Hughes contends that Schlumberger’s expert did not confine his analysis to the module and patents at issue in the four-patent dispute but instead included damages relating to the entire sensor tool. Baker Hughes argues that Schlumberger’s damages model includes damages arising from alleged infringement of the patents that were licensed to Baker Hughes in the 2004 settlement agreement. Baker Hughes also contends that this damages claim was itself a breach of the 2004 settlement agreement.

Baker Hughes raised affirmative defenses of license and release in the four-patent dispute, and it invoked the dispute resolution provisions of the 2004 settlement agreement, contending that the new dispute about the scope of the releases under that agreement must be arbitrated before that agreement’s mediator. Schlumberger took the position that this dispute about the proper arbitral forum was encapsulated within an expressly designated Current Dispute, governed by the Resolution and Procedure Agreements, and thereby should be determined within the ongoing AAA arbitration. In light of the parties’ disagreement about the proper arbitral forum, the mediator informed the parties that she would not proceed with the dispute resolution process absent an order from the district court or agreement of the parties. Baker Hughes then filed an application to compel arbitration of the license and release issue before the mediator and a petition for declaratory judgment.

Meanwhile, the parties presented their arguments to the AAA panel by letter, and that panel responded with an "Interim Ruling on Defenses." The Interim Ruling summarized the dispute as encompassing two issues: (1) "who has jurisdiction to decide particular substantive issues" and (2) "the substantive issues, namely whether the affirmative defenses of license or release . . . were raised in a timely manner or were waived." The panel concluded, based on the Resolution Agreement, the Procedure Agreement, and the AAA rules applicable to the arbitration, that it had jurisdiction to determine its own jurisdiction and "sole jurisdiction" to resolve the "substantive" issue of whether Baker Hughes’s affirmative defenses were waived. However, acknowledging that Baker Hughes had filed a motion to compel arbitration in the district court, and expressly invoking "the interest of judicial economy," the AAA panel temporarily stayed its own consideration of the "substantive" waiver issue to allow the district court time to consider the motion to compel arbitration under the 2004 settlement agreement. A few days later, Schlumberger filed in the district court its own Motion to Compel Arbitration and to Stay Proceedings, seeking an order staying proceedings in the district court and "compelling" Baker Hughes "to litigate its claims and defenses solely in the ongoing [AAA] arbitration."

After considering the parties’ competing motions, the district court granted Baker Hughes’s application to compel arbitration. In the same order, the court denied Schlumberger’s motion and ordered the parties to arbitrate the disputes relating to the 2004 settlement agreement before its mediator. Schlumberger then filed this interlocutory appeal from the trial court’s order denying its motion.

Analysis

I. Jurisdiction

Baker Hughes has moved to dismiss this appeal for lack of jurisdiction, so that is the threshold issue for our consideration. See CMH Homes v. Perez, 340 S.W.3d 444, 447 (Tex. 2011). "Unless a statute authorizes an interlocutory appeal, appellate courts generally only have jurisdiction over final judgments." Id.; see also Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992). "We strictly apply statutes granting interlocutory appeals because they are a narrow exception to the general rule that interlocutory orders are not immediately appealable." CMH Homes, 340 S.W.3d at 447; see also Bally Total Fitness Corp. v. Jackson, 53 S.W.3d 352, 355 (Tex. 2001). Both parties invoke authorities applying the Federal Arbitration Act and the Texas Arbitration Act, and neither party suggests that one applies to the exclusion of the other, or that the result depends upon which law applies. Accordingly, we focus our analysis on the application of the TAA’s interlocutory appeal provisions, which provide that a party may appeal an interlocutory order that denies an application to compel arbitration made under Section 171.021. TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1) (West 2011).

A. Schlumberger’s motion

Baker Hughes argues that the trial court’s order does not fit within the narrow statutory categories for which an interlocutory appeal is permitted. It first argues that Schlumberger’s motion in the trial court was not truly an "application to compel arbitration" in the sense contemplated by the statute. See id. §§ 171.021, 171.098(a)(1). A primary contention supporting this argument is that the relief requested by Schlumberger merely would result in the parties continuing their ongoing arbitration proceeding. Thus Baker Hughes argues that the motion did not ask the trial court to compel a new arbitration but instead called upon the trial court to interfere with the arbitrators’ administration of an ongoing proceeding. Baker Hughes also argues that Schlumberger’s motion did not qualify as an application to compel arbitration because Schlumberger could not satisfy the threshold requirement of a refusal to arbitrate. See id. § 171.021(a)(2). In response, Schlumberger contends that its motion was a proper application to compel arbitration and the trial court’s denial of it is appealable under the plain language of the statute.

Section 171.098(a)(1) requires, as a predicate to our interlocutory appellate jurisdiction under that provision, the filing of "an application to compel arbitration made under Section 171.021" and an order denying that application. 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. See id. We do not agree with Baker Hughes, however, that a searching examination of the merits of Schlumberger’s motion is the appropriate method to determine whether it qualifies as "an application to compel arbitration" contemplated by Section 171.098(a)(1). Instead, it is the substance and function of the application viewed in the context of the record that controls our interlocutory jurisdiction. Cf. Walker Sand, Inc. v. Baytown Asphalt Materials, Ltd., 95 S.W.3d 511, 515 (Tex. App.—Houston [1st Dist.] 2002, no pet.) (analyzing substance and function of order purportedly giving rise to interlocutory appellate jurisdiction under Section 171.098(a)(1)). Accordingly, we will consider Schlumberger’s motion in the context of the record to determine whether the denial of the application is subject to interlocutory review.

Schlumberger filed a document in the trial court entitled "Defendant’s Motion to Compel Arbitration and to Stay Proceedings." In this motion, Schlumberger alleged the existence of an agreement to arbitrate arising from the Resolution and Procedure Agreements. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(a)(1). Schlumberger further alleged that the AAA panel was empowered to determine and already had determined that the scope of that proceeding included Baker Hughes’s release and license defense. Finally, Schlumberger alleged that rather than arbitrating this issue before the AAA panel, Baker Hughes filed suit to compel arbitration under the 2004 settlement agreement. Thus, Schlumberger clearly informed the trial court that in the context of an ongoing arbitration, the parties had a discrete disagreement about the appropriate venue in which a particular subissue was to be arbitrated and both parties relied on separate arbitration agreements to support their positions.

1. Jurisdictional effect of pending arbitration proceeding

Baker Hughes contends that this could not be a motion to compel arbitration in the sense contemplated by the statute because the parties were already in engaged in an ongoing arbitration. Although we are obliged to construe the jurisdictional statute narrowly, see, e.g., CMH Homes, 340 S.W.3d at 447, the text of the statute does not provide any basis for Baker Hughes’s proposed distinction between a request to initiate a new arbitration proceeding and a request to require arbitration of a subsidiary issue when its arbitrability has been disputed. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1). The sole authority relied upon by Baker Hughes for this proposition lends no support. In Dealer Computer Services, Inc. v. Red Hill Ford, Inc., No. 05-10-00983-CV, 2010 WL 3566124, at *1 (Tex. App.—Dallas Sept. 15, 2010, no pet.) (mem. op.), the trial court had issued a restraining order staying arbitration proceedings after Red Hill Ford alleged that the arbitration panel had engaged in misconduct. See 2010 WL 3566124, at *1. Two months after the restraining order expired, the final arbitration hearing had not yet been rescheduled "due to pending motions and other issues," and Dealer Computer moved to compel a return to the pending arbitration. Id. The court of appeals held that it lacked jurisdiction because there was no allegation that Red Hill Ford failed, neglected, or refused to arbitrate under a written agreement. Id. Unlike an attempt to stay proceedings based on alleged arbitrator misconduct, Schlumberger’s allegation that Baker Hughes sought to compel a separate arbitration rather than submitting its defenses to the AAA panel is functionally equivalent to an allegation that Baker Hughes failed, neglected, or refused to arbitrate the disputed issue.

Baker Hughes also contends that "interlocutory appeal is not available to challenge orders in cases where arbitration was originally compelled." But there is nothing in the appellate record to show that the AAA arbitration was "originally compelled." Indeed, the parties’ briefing in this Court suggests that the AAA arbitration was instituted by agreement of the parties. Moreover, the authority relied upon by Baker Hughes in this regard, HEB Grocery Co., L.P. v. Kirksey, No. 14-10-00217-CV, 2010 WL 1790878 (Tex. App.—Houston [14th Dist.] May 6, 2010, no pet.) (mem. op.) (per curiam), is not applicable to this dispute because the jurisdictional defect in that case was that no statutory provision authorized an interlocutory appeal from an order granting recusal of one arbitrator and substituting another. See 2010 WL 1790878, at *2.

2. Jurisdictional effect of the merits of Schlumberger’s motion

Baker Hughes also argues that this court lacks jurisdiction because Schlumberger cannot show that Baker Hughes refused to arbitrate, which must be shown to compel arbitration under Section 171.021(a). This argument conflates the characterization of Schlumberger’s motion as an "application to compel arbitration" with its ultimate merits. Put another way, under Baker Hughes’s interpretation of Section 171.098(a)(1), we would only have appellate jurisdiction when a trial court incorrectly denied an application to compel arbitration made under Section 171.021. Again acknowledging that we narrowly construe all statutes establishing our interlocutory appellate jurisdiction, see, e.g., CMH Homes, 340 S.W.3d at 447, no practical limitation of our review is achieved if we review the merits of the underlying motion in order to determine whether we have jurisdiction over the denial of it.

Instead, we consider the nature of the motion in the context of the record. Cf. Walker Sand, 95 S.W.3d at 515. Viewed in that light, it is apparent that while Baker Hughes did not flatly refuse to arbitrate the dispute in any arbitral forum (it was willing to arbitrate the dispute before the mediator of the 2004 settlement agreement), by initiating these proceedings and by withholding its consent to arbitrating in accordance with what Schlumberger contends in its motion is the controlling agreement, Baker Hughes resisted arbitration of the particular dispute at issue before the AAA panel. Reserving judgment on the ultimate merits of the motion for purposes of our jurisdictional inquiry, we conclude that the motion is an application to compel arbitration on the grounds that Baker Hughes is actively resisting arbitration under the terms of what Schlumberger alleges is the controlling arbitration agreement.

3. Jurisdictional effect of the relief sought by Schlumberger’s motion

Finally, Baker Hughes argues that rather than constituting an application to compel arbitration, Schlumberger’s motion is merely a response to Baker Hughes’s motion, particularly because the relief sought by Schlumberger allegedly was no different from what would have resulted if the trial court had denied Baker Hughes’s motion. This argument fails because Schlumberger, in its motion, sought affirmative relief beyond the mere denial of Baker Hughes’s motion. Schlumberger argued that the AAA panel has the sole power to decide the proper arbitral venue for the merits of Baker Hughes’s defenses, and it also argued that the AAA panel had actually decided that question in favor of its own jurisdiction. Schlumberger thus sought an order from the trial court ordering Baker Hughes "to litigate its claims and defenses solely in the ongoing [AAA] arbitration." The mere denial of Baker Hughes’s motion would not necessarily mean that the AAA panel would decide these disputed issues against Baker Hughes (unless the AAA panel had already decided them in its Interim Ruling, which the parties dispute and Baker Hughes has denied). Accordingly, Baker Hughes would remain free to argue to the AAA panel that a separate arbitration is required on its defenses. Schlumberger’s motion asked for something more than the mere denial of the Baker Hughes motion; it sought an affirmative order from the trial court deciding the underlying arbitrability question in its favor.

* * *

Viewing the motion in the context of the record, we conclude that the substance and function of Schlumberger’s motion was to allege the existence of an agreement to arbitrate that applied to the parties’ dispute—i.e. the Resolution Agreement—and that Baker Hughes refused to arbitrate in accordance with that agreement. Cf. Walker Sand, 95 S.W.3d at 515. We therefore hold that Schlumberger’s motion qualified as "an application to compel arbitration made under Section 171.021" for the purposes of our interlocutory jurisdiction under Section 171.098(a)(1).

B. Trial court’s order

We next consider whether the trial court’s order qualifies as an "order denying" such an application. Under the plain language of the TAA, it is the denial of "an application to compel arbitration"—not the denial of arbitration in the general sense—that gives rise to the right to an interlocutory appeal. TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1). "[I]t is the substance and function of the order viewed in the context of the record that controls our interlocutory jurisdiction," not Baker Hughes’s characterization of the order. Walker Sand, 95 S.W.3d at 515; see also Texas La Fiesta Auto Sales, LLC v. Belk, No. 14-10-01146-CV, 2011 WL 4090381, at *4 (Tex. App.—Houston [14th Dist.] Sept. 15, 2011, no. pet. h.); McReynolds v. Elston, 222 S.W.3d 731, 738 (Tex. App.—Houston [14th Dist.] 2007, no pet.).

The trial court evidently understood Schlumberger’s motion to be a motion to compel arbitration. In a single order, the court stated that it had considered both Baker Hughes’s "Application to Compel Arbitration And Petition for Declaratory Judgment" and Schlumberger’s "Motion to Compel Arbitration and Stay Proceedings." In its order, the court expressly granted "Baker Hughes’s application," denied "Schlumberger’s motion," and ordered the parties "to arbitrate the disputes relating to the 2004 Settlement Agreement" before the mediator. Thus, at least on its face, the order purports and appears to be one "denying an application to compel arbitration." See TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1).

The substance and function of the order support the trial court’s express characterization. Baker Hughes sought to enforce its alleged contractual right to arbitration that arose under the 2004 settlement agreement. Likewise, Schlumberger sought to enforce its alleged contractual right to arbitration that arose under the Resolution and Procedure Agreements. The parties’ dispute about the appropriate arbitral forum indicates that the difference between the two alternatives is significant, including different methods of arbitration and different arbitrators. The trial court considered two related arbitration agreements, granted a motion seeking to compel arbitration under one of them, and denied a motion seeking to compel arbitration under the other. As in McReynolds, Schlumberger did not simply seek to substitute one arbitrator for another; it sought to enforce an express contractual right. See McReynolds, 222 S.W.3d at 738. Baker Hughes attempts to distinguish the holding that interlocutory jurisdiction existed in McReynolds because, although it involved competing arbitration agreements, the appellant in that case sought to initiate a new and separate arbitration proceeding, unlike Schlumberger, which is seeking to continue in an ongoing arbitration. We acknowledge that distinction between the two fact patterns, but it does not alter our analysis. Although the trial court ordered an arbitration under the 2004 settlement agreement to proceed, it specifically denied Schlumberger’s claimed contractual right to arbitration under the Resolution and Procedure Agreements, which Schlumberger sought to enforce through its own motion to compel arbitration.

Based on the trial court’s characterization of Schlumberger’s motion as one to compel arbitration, its express denial of that motion, and the resulting denial of Schlumberger’s asserted contractual right to arbitration, we conclude that the trial court’s order was an order denying an application to compel arbitration. See McReynolds, 222 S.W.3d at 738–39. This order is not insulated from appellate review conferred by statute simply because it also grants a competing motion to compel arbitration. Cf. E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 270 (Tex. 2010) (holding that judgment denying confirmation of arbitral award was appealable even though order also vacated award and directed rehearing). Accordingly we hold that we have jurisdiction over this interlocutory appeal, and we deny Baker Hughes’s motion to dismiss.

II. Application to compel arbitration

We now consider the merits of Schlumberger’s appeal from the denial of its application to compel arbitration. Generally speaking, we review the trial court’s denial of a motion to compel arbitration for abuse of discretion. See Okorafor v. Uncle Sam & Assocs., Inc., 295 S.W.3d 27, 38 (Tex. App.—Houston [1st Dist.] 2009, pet. denied); see also W. Wendall Hall et al., Hall’s Standards of Review in Texas, 42 St. Mary’s L.J. 1, 78 (2010) (citing Jack B. Anglin Co., 842 S.W.2d at 271). However, "[w]hen an appeal from a denial of a motion to compel arbitration turns on a legal determination . . . we apply a de novo standard." Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 55 n.9 (Tex. 2008).

Schlumberger argues that the AAA panel had the authority to determine its own jurisdiction, the panel determined that it had jurisdiction to decide the merits of Baker Hughes’s defenses based on the 2004 settlement agreement, and the trial court should have deferred to that ruling. Baker Hughes responds that there is no reason to reach these questions because it never refused to arbitrate. On the merits, Baker Hughes contends as a matter of contract interpretation that the 2004 settlement agreement rather than the Resolution Agreement controls the dispute resolution procedure. It argues, therefore, that the Resolution Agreement is inapplicable, and the dispute was appropriately resolved by the district court because the 2004 agreement does not reserve arbitrability disputes for the arbitrator.

A. ReFusal to arbitrate

First, we confront the contention that Schlumberger was not entitled to relief on the theory that Baker Hughes’s willingness to arbitrate in its preferred arbitral forum means that it has not refused to arbitrate. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(a)(2). Baker Hughes reasons that it has agreed to arbitrate, and it is simply following proper arbitration procedure to assert its rights under the parties’ contracts.

The sole authority relied upon by Baker Hughes for this position is Jacobs v. USA Track & Field, 374 F.3d 85 (2d Cir. 2004), a case decided under the Federal Arbitration Act, 9 U.S.C. § 4. The parties in Jacobs both agreed to arbitrate their dispute before the AAA, but they disagreed about the rules to govern the arbitration, including the procedure for selecting arbitrators. See Jacobs, 374 F.3d at 86. Both of the alternative sets of procedures provided that the arbitrators had the power to decide which rules applied. See id. The AAA considered submissions from both parties and ruled against Jacobs, who then filed a motion to compel arbitration under her preferred rules. The trial court dismissed the case for want of jurisdiction, and the Second Circuit affirmed on the basis that the respondents had not refused to arbitrate, which is a prerequisite to compelling arbitration under Section 4 of the FAA. See id. In so holding, the court specifically noted that, unlike Baker Hughes in this case, "respondents have not commenced litigation against petitioner." Id. at 89. The case that the Jacobs court identified as controlling the result, Downing v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 725 F.2d 192 (2d Cir. 1984), went further and identified the commencement of litigation as a "default" of an arbitration agreement giving rise to the right to seek relief under Section 4. See Downing, 725 F.2d at 195; see also Jones v. Gen. Motors Corp., 640 F. Supp. 2d 1124, 1145 (D. Ariz. 2009) ("the very commencing of litigation can itself be interpreted as a refusal to arbitrate").

We find the reasoning of Downing and its progeny to be persuasive and equally applicable to the similar language in the TAA requiring that a party refuse to arbitrate as a predicate to an order compelling arbitration. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(a)(2). As applied to this case, the parties were already involved in an ongoing arbitration pursuant to the Resolution Agreement. As discussed in greater detail below, the parties clearly and unmistakably agreed to submit disputes about the interpretation of the Resolution Agreement to the arbitration panel. In the course of that proceeding, Baker Hughes asserted that its license or release defenses must be arbitrated in another forum; Schlumberger disagreed. Baker Hughes’s initiation of this court proceeding to compel a separate arbitration before a separate arbitrator pursuant to different rules constitutes an effective refusal to arbitrate pursuant to the Resolution Agreement because Baker Hughes sought to circumvent a resolution of this arbitrability dispute by the AAA panel despite agreeing in the Resolution Agreement to submit such disputes to the AAA panel. We therefore conclude, as a matter of law as applied to the undisputed procedural facts, that Baker Hughes refused to arbitrate under the Resolution Agreement and Schlumberger properly invoked Section 171.021 to compel arbitration under that agreement.

B. Arbitrability of dispute over proper arbitral forum

Turning to the merits of the motion denied by the trial court, we begin by considering Schlumberger’s contention that the AAA panel had authority under the Resolution Agreement to determine its own jurisdiction. This is an essential element of Schlumberger’s motion to compel because otherwise there is no enforceable "agreement to arbitrate." Id. § 171.021(a)(1). This determination depends on an interpretation of the parties’ contracts, which we review de novo. See In re Dillard Dep’t Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Unless the parties clearly and unmistakably agree to submit threshold questions of arbitrability to arbitration, these issues are to be resolved by courts. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S. Ct. 1920, 1923 (1995); In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005); Burlington Res. Oil & Gas Co. v. San Juan Basin Royalty Trust, 249 S.W.3d 34, 39–40 (Tex. App.—Houston [1st Dist.] 2007 pet. denied). However, the express incorporation of rules that empower the arbitrator to determine arbitrability—such as the AAA Commercial Arbitration Rules—has been held to be clear and unmistakable evidence of the parties’ intent to allow the arbitrator to decide such issues. See, e.g., Burlington Res. Oil & Gas Co., 249 S.W.3d at 40–41; Haddock v. Quinn, 287 S.W.3d 158, 172 (Tex. App.—Fort Worth 2009, pet. denied).

The pending four-patent dispute is governed by the Resolution Agreement, which provides that "any Current Disputes or future Disputes . . . shall be solely resolved as set forth in the Procedure Agreement." The parties agree that the underlying four-patent dispute is a Current Dispute under the Resolution Agreement. Other "Disputes" to be "solely resolved as set forth in the Resolution Agreement" include "disputes relating to the interpretation, construction, alleged breach of this [Resolution] Agreement, [and] the Procedure Agreement," but as noted above and argued by Baker Hughes, "[d]isputes arising under existing licenses . . . shall be treated in accordance with Section 3.2," which excepts any existing or future patent agreement or license with its own dispute resolution process.

It is therefore apparent that Schlumberger and Baker Hughes have identified two separate "Disputes." One dispute is a disagreement of contract interpretation about whether the merits of Baker Hughes’s license or release defense should be decided under the Resolution and Procedure Agreements by the AAA panel or under the 2004 settlement agreement’s dispute resolution procedure by the mediator who facilitated that agreement. A separate dispute concerns the choice of forum to decide the answer to the contract interpretation dispute.

This latter dispute about the appropriate forum arose in the context of an ongoing arbitration governed by the Resolution Agreement. As reflected by the parties’ arguments as described above, the answer depends on an interpretation of the Resolution Agreement. Although Baker Hughes has a colorable argument that the merits of the contract interpretation dispute require a separate proceeding under the 2004 settlement agreement, that argument itself depends on an interpretation of the Resolution Agreement. And the parties agreed that "disputes relating to the interpretation" and "construction" of the Resolution Agreement are themselves "Disputes," which are to be "solely resolved as set forth in the Procedure Agreement."

The Procedure Agreement requires arbitration to be conducted "pursuant to administration by the AAA" under the AAA Commercial Arbitration Rules. Under Rule 7(a) of the Commercial Arbitration Rules, the "arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement." COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION, Rule 7(a) (2009). The parties thus incorporated the AAA Commercial Arbitration Rules into the Resolution and Procedure Agreements. Under Rule 7(a) of the Commercial Arbitration Rules, the AAA panel had authority to interpret the Resolution Agreement and thereby determine the scope of the four-patent arbitration. The AAA panel’s authority extends to determining whether Baker Hughes’s license and release defense relates to a claim of infringement or the damages arising therefrom such that it is to be resolved by the AAA panel as part of the pending four-patent arbitration, as contemplated by the Resolution Agreement’s definition of "dispute." Or, the panel could determine the license and release defense implicates a breach of an existing agreement, as contemplated by the carve-out provision in section 3 of the Resolution Agreement, thus triggering the dispute resolution provision of the 2004 settlement agreement. There are no provisions in the Resolution or Procedure Agreements that negate the arbitrators’ power under AAA Rule 7(a) to determine the arbitrability of a defense raised in arbitration. Thus, we conclude that this issue of contract interpretation was a question for the AAA panel, not the trial court and not this court. See Green Tree Fin. Corp. v. Bazzle, 539 U.S 444, 452–53, 123 S. Ct. 2402, 2407 (2003) (holding that interpretation of arbitration contract was question for arbitrators).

In its motion to compel arbitration, Schlumberger asserted that the merits of Baker Hughes’s defense was within the scope of the AAA arbitration and that the parties had agreed to let the AAA panel determine issues of arbitrability. Because the AAA panel had authority to determine the question of contract interpretation, the trial court should have granted this aspect of Schlumberger’s motion so that the dispute could be resolved by the AAA panel, as the parties agreed in the Resolution Agreement. See id. at 452–53, 123 S. Ct. at 2407.

C. Determination by AAA panel

Finally, we address the ultimate relief requested by Schlumberger, an order that these proceedings be stayed and that Baker Hughes be required to litigate the merits of its license and release defense before the AAA panel. To the extent Schlumberger argues it is entitled to this relief on the merits of its arguments about the interpretation of the various arbitration agreements, Schlumberger’s arguments are appropriately addressed to the AAA panel, as explained above. To the extent Schlumberger contends that the AAA panel has already resolved the question in favor of its own jurisdiction, we conclude that the appellate record provided to us is inconclusive as to whether that was the intended effect of the AAA panel’s Interim Ruling. If Schlumberger’s contention in this regard is a correct representation of the AAA panel’s intended ruling, then it can be implemented by the panel. If, on the other hand, the AAA has reserved and not yet resolved the question, the parties should direct their arguments to that panel. In deference to the parties’ agreement to submit the question to the arbitrators, we express no opinion on the proper legal conclusion.

Conclusion

We deny Baker Hughes’s motion to dismiss this appeal. We reverse the trial court’s interlocutory order denying Schlumberger’s motion in its entirety, and we remand the case to the trial court with an instruction to grant Schlumberger’s motion to compel in part by ordering the parties to arbitrate before the AAA panel the contract interpretation question of whether the AAA panel has jurisdiction over the merits of Baker Hughes’s license and release defense.

Michael Massengale

Justice

Panel consists of Justices Jennings, Keyes, and Massengale.

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Schlumberger Technology Corporation v. Baker Hughes Inc., No. 01-11-00562-CV (Tex.App. - Houston [1st Dist.] Oct. 13, 2011, no pet. h.) (Appeal from 270th District Court of Harris County)