Opinion
CIVIL ACTION NO. 3:02-CV-2428-P
September 30, 2003
MEMORANDUM OPINION AND ORDER
Now before the Court is Defendants Qwest Communications Corporation, Qwest Communications International, Inc. and Sam Chicol's (collectively, "Defendants" or "Qwest") Motion to Compel Arbitration and Stay Judicial Proceedings and Motion for Protective Order, filed January 24, 2003. After careful consideration of the Parties' briefing and applicable law, the Court hereby GRANTS Defendants' Motion to Compel Arbitration and Stay Judicial Proceedings and DENIES as MOOT Defendants' Motion for Protective Order.
FACTS
Plaintiff Bryan P. Coleman ("Plaintiff) began his employment at Qwest on June 1, 1999 as a Channel Sales Manager with a base salary, plus commission sales, employment package. (Compl. ¶ 8.) According to Plaintiff, from March 2000 until March 2001, Plaintiff solicited Perot Systems Corporation to enter into a service agreement with Defendants. (Compl. ¶ 9.) On March 14, 2000 Perot Systems Corporation entered into a $20 million Master Services Agreement with Defendants. (Compl. ¶ 9.)
Plaintiff contends that Defendants never paid him the commissions Plaintiff earned as a result of securing the Perot Systems Corporation deal. Plaintiff filed this lawsuit to recover the commissions he contends he is owed.
Defendants then filed this motion to compel arbitration, arguing that all of Plaintiff s causes of action, which arise out of Plaintiff s allegation that he is owed commissions as a result of his work for Qwest, are arbitrable issues subject to contractual arbitration.
DISCUSSION
A. THE FEDERAL ARBITRATION ACT.
The law governing this dispute is the Federal Arbitration Act ("FAA"). See 9 U.S.C. § 1-16 (1999). The first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate the dispute. See Harvey v. Joyce, 199 F.3d 790, 793 (5th Cir. 2000). The court is to make this determination by applying the federal substantive law of arbitrability, "applicable to any arbitration agreement within the coverage of the [FAA]." Moses H. Cone Memorial Hasp. v. Mercury Const., 460 U.S. 1, 24 (1983). In determining whether a dispute is arbitrable, the court must employ the rules of contract construction to determine the intent of the parties. See Harvey, 199 F.3d at 793.
However, "`[the FAA] establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.'" Id. (citing Moses H. Cone, 460 U.S. at 25); see Fleetwood Enterps., Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002). "A finding that the scope of the arbitration clause is vague does not automatically catapult the entire dispute into arbitration. Rather, such a finding creates a presumption in favor of arbitration." Id. "This presumption can be overcome with clear evidence that the parties did not intend the claim to be arbitrable." Id. B. DID THE PARTIES AGREE TO ARBITRATE?
As stated earlier, the first step in evaluating a motion to compel arbitration is to determine whether the parties agreed to arbitrate. See Fleetwood, 280 F.3d at 1073. This determination depends on two considerations: (1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement. Id.
1. Was There a Valid Agreement to Arbitrate?
In determining whether a valid arbitration agreement exists between the parties, "`ordinary contract principles determine who is bound.'" Id. (citation omitted).
a. Signature
Plaintiff contends that because his signature does not appear on the compensation plan documents submitted by Defendants, Defendants have not established the existence of a valid arbitration agreement, In response, Defendants argue that the fact that Plaintiff is asserting a claim for breach of contract necessarily means that Plaintiff is conceding the validity of the agreement.
As the Fifth Circuit has made clear, "a party may be bound by an agreement to arbitrate even in the absence of his signature." See Valero Refining, Inc. v. M/T Lauberhorn, 813 F.2d 60, 64 (5th Cir. 1987). "Texas courts have found non-signatories bound to arbitration agreements . . . where the non-signatory sue[s] on the contract." Fleetwood, 280 F.2d at 1074. By suing Defendants based on the terms of the compensation plans ( see discussion, infra), Plaintiff is seeking to enforce the provisions of the very same contract it argues is unenforceable for lack of signature. Thus, according to the Fifth Circuit, Plaintiff is estopped from arguing that he is not bound by the arbitration agreement for lack of signature. See D. Uloth and H. Rial, Enforcing Arbitration Against Nonsignatories, 65 Tex. B. J. 802 (2002).
Moreover, Plaintiff accepted the benefits of the compensation plan, was paid thereunder, and generally demonstrated his intention to be bound by its terms, In such circumstances, a court may impute an intent to be bound by the arbitration agreement contained therein. See Hearthshire Braeswood Plaza Ltd. Partnership v. Bill Kelly Co., 849 S.W.2d 380, 392 (Tex.App.-Houston [14th Dist] 1993, writ denied) (for an arbitration provision to be valid, it is not necessary that the agreement be signed by both parties — if one party signs, the other may accept by his acts, conduct or acquiescence in the terms of the contract); Wetzel v. Sullivan, King Sabom, P.C., 745 S.W.2d 78, 81 (Tex.App.-Houston [1st Dist.] 1988, no writ) (although the party had not signed compensation agreements containing arbitration provisions, its acceptance of the benefits of the contract ratified the contract and estopped party from denying the existence of the arbitration agreements).
b. Is the Agreement Illusory?
Plaintiff also argues that the arbitration provision contained in the compensation plans is invalid because Defendants "retained the absolute right to modify or terminate the agreement at anytime." (Pl.'s Resp. at 8.) Plaintiff relies on J.M. Davidson, Inc. v. Webster, 49 S.W.3d 507, 514 (Tex.App.-Corpus Christi 2001, pet. granted) for the proposition that an arbitration agreement is not binding when one of the parties to the agreement retains the exclusive right to modify or terminate the agreement.
In Davidson, the plaintiff-employee signed an "Alternative Dispute Resolution Policy" where the employee agreed to submit his employment disputes to arbitration. In the agreement, the employer retained the right to "unilaterally abolish or modify any personnel policy without prior notice." Id.
The court found the agreement unenforceable because the employer retained the right to "unilaterally abolish or modify any personnel policy without prior notice." Id. Because the employer could alter the terms of the arbitration provision at any time, without limitation, the court concluded that only the employee was bound to its terms, thus making the agreement illusory. Id.
In 2002, the Texas Supreme Court addressed the issue raised in Davidson in In re Halliburton Co., 80 S.W.Sd 566 (Tex. 2002). Like the Davidson case, the plaintiff-employee in Halliburton entered into a separate arbitration agreement with his employer. The agreement contained a provision allowing the employer to modify or discontinue the dispute resolution plan. The Texas Supreme Court rejected the plaintiffs argument that the agreement was illusory because the agreement contained a limitation on the employer's right to modify it. The Court noted that under the terms of the agreement, the employer could not instantaneously amend or cancel the agreement. Id.
The question for this Court to resolve is whether the arbitration provision or the compensation plan are illusory because Defendants retained the right to modify or suspend the plan at any time. Section 1.6 of the compensation plan states that "[t]he SCRB has the sole authority to modify or suspend, at any time, in whole or in part, and if suspended, may reinstate any or all of the provisions of this Plan." (Defs.' App. at 16.) Section 5.1 addresses the issue of "notice" with respect to Defendants' right to modify. Section 5.1 reads as follows: "Although it is Quest's current intention to continue the provisions outlined in the Plan, we all recognize that today's business climate demands that Quest be able to respond quickly to changing situations. Therefore, Quest reserved the right to modify, suspend, or terminate this plan at any time, with or without notice to the fullest extent permitted by law." (Defs.' App. at 26.)
In this case, these contract provisions contain limiting language that prevent Defendants from changing the provisions of the plan to the extent prohibited by law. This limiting language prevents Defendants from modifying, suspending, or terminating the contract terms, including the arbitration provision, without giving notice as required by law. Therefore, this is not an illusory agreement.
This case is also distinguishable from Davidson because this case involves a compensation plan agreement containing an arbitration provision, whereas the Davidson case involved a stand-alone arbitration agreement. Plaintiff has not provided any legal basis for analyzing the arbitration provision separately from the compensation plan as a whole. See, e.g., Tenet Healthcare, Ltd. v. Cooper, 960 S.W.2d 386, 388 (Tex.App.-Houston [14th Dist.] 1998, pet. dism'd w.o.j.) (analyzing underlying contract); In re Firstmerit Bank, N.A., 52 S.W.Sd 749, 757 (Tex. 2001) ("Most federal courts . . . have [held] . . . that an arbitration clause does not require mutuality of obligation, so long as the underlying contract is supported by adequate consideration."). Because the arbitration provision in this case is part of a larger agreement that is supported by adequate consideration, the Court finds that the agreement does not fail for lack of consideration.
2. Do Plaintiffs Claims Fall Within the Scope of the Agreement?
In determining whether a dispute falls within the scope of the arbitration agreement, "`ambiguities . . . [are] resolved in favor of arbitration.'" Fleetwood, 280 F.3d at 1073 (citation omitted). In this case, each party has proffered an interpretation of the compensation plans to further their respective objectives. Defendants argue that all of Plaintiff s claims are subject to the arbitration clauses set forth in the Qwest compensation plans to which Plaintiff is bound. Defendants contend that Plaintiffs claim for commissions forms the basis of this lawsuit and that Qwest's 2001 and 2002 compensation plans, which contain the arbitration provisions, control Plaintiffs right to his commission, if any. In response, Plaintiff contends that Plaintiff does not base his claim on the compensation plans.
Plaintiff contends that his claims for unpaid commissions are not based on Qwest's compensation plans. Plaintiff maintains that he did not refer to or attach any of the compensation plan documents to his Complaint and that his counsel was unaware of the existence of those documents until he received them from opposing counsel, after the lawsuit was filed. (Pl.'s Resp. at 3.) However, Plaintiff cites no legal authority in support of this position that he is not subject to the arbitration clause because he did not mention the compensation plans in his Complaint. ( See PL's Resp. at 3.)
Plaintiff further maintains that because the Perot Systems transaction was a $20 million transaction, it did not fall within the scope of the Qwest compensation plan. (Pl.'s Resp. at 3-4.) Plaintiff highlights certain provisions of the compensation plan that state that commissions "on orders with a total value of $10 million" or more "will be evaluated for compensation treatment outside of the compensation plan on an individual case basis." (PL's Resp. at 3-4; Defs.' App. 34, 71; see also Defs.' App. at 22, 60.) Plaintiff argues that this language causes Plaintiffs commission on this $20 million deal to fall outside the compensation plan, thereby making the compensation plan and its arbitration provision inapplicable to this transaction.
Defendants argue that even if the "large transaction" provisions do apply, this does not mean that the compensation plans do not govern Plaintiffs claims. Defendants point out that the compensation plans empower the Sales Compensation Review Board to determine compensation payouts for large transactions. (Defs.' Reply at 3.) "While the amount of the commissions on large transactions is not controlled by the commission rates set forth in the plans, it is clear that the plans govern all other details related to the payment of commissions, including those paid on large transactions." (Defs.' Reply at 3.) Defendants go on to highlight all compensation issues that are addressed by the compensation plans.
After reviewing the 2001 Sales Incentive Compensation Plan — Plan Provisions and the 2001 Sales Incentive Compensation Plan, the Court concludes that the arbitration provision governs this claim, and, even if there were doubts as to the scope of the arbitration provision, Plaintiff has not overcome the presumption of arbitrability with clear evidence that the parties did not intend the claim to be arbitrable.
Section 4.3 of the Plan Provisions states that:
The separated employee agrees that any sales compensation disputes not resolved by Sales Compensation or the SCRB [Sales Compensation Review Board] arising before or after separation from the Company, shall be arbitrated before and pursuant to the American Arbitration Association ["AAA"] utilizing the AAA's National Rules for the Resolution of Employment Disputes. The employee understands and agrees that arbitration under this paragraph is the sole and exclusive remedy available to the employee to dispute any aspect of his or her compensation payments.
(Defs.' App. at 20 (emphasis added).)
Plaintiff argues that the Perot transaction falls outside the scope of the compensation plans because the Compensation Plan Guidelines say that:
Commissions/quota attainment on orders with a total value of $10 million or greater and IRU contracts will be evaluated for compensation treatment outside of the compensation plan on an individual case basis. Contract length, margin, and the total resources involved in securing the deal will be taken into consideration. The SCRB may, at its option, create a commission structure specific to any order.
(Def.'s App. at 34.)
The Court disagrees with Plaintiff that this "Large Transaction" provision takes Plaintiffs compensation for the Perot transaction outside the scope of the compensation plans. The compensation plans cover all types of compensation issues, including how a large transaction commission is calculated. The plans empower the SCRB to determine the payout amounts for large transactions, an employee's eligibility for commission payments, the time of commission payments, and the requirement that compensation disputes be arbitrated. ( See Def.'s App. at 16, 17, 20, 22, 34). The Court finds that the fact that the compensation plans allow the SCRB to calculate the specific amount of the commissions on large transactions does not take the entire transaction outside the scope of the compensation plans. Plaintiff has failed to present clear evidence that the parties did not intend the claim to fall within the scope of the compensation plan. Thus, the Court concludes that this particular transaction falls within the scope of the commission plans and their arbitration provisions.
However, even if this transaction fell outside the scope of the commission plans, the scope of the arbitration provision itself is so broad, it encompasses the instant dispute. The compensation plans contain a very broad arbitration provision that states "any sales compensation disputes . . . shall be arbitrated . . ." (Defs.' App. at 20.) The provision does not limit the arbitrable disputes to those falling within the plan. Instead, it requires any sales compensation dispute — whether falling within or outside the plan — to be arbitrated. The instant dispute is a sales compensation dispute, and thus, according to the terms of the plan, must be arbitrated.
Accordingly, the Court GRANTS Defendants' Motion to Compel Arbitration and to Stay Proceedings, ORDERS arbitration to take place according to the terms of the Parties' agreement, and STAYS further proceedings in this Court pending resolution of the arbitration.
C. MOTION FOR PROTECTIVE ORDER.
Defendants argue that because the AAA rules do not provide authority for the discovery requests and deposition notices that have been propounded by Plaintiffs in this case, the Court should issue an order protecting Defendants from responding to said discovery. Because the proceedings in this Court are stayed pending resolution of the arbitration, the Court hereby DENIES Defendants' request as MOOT.
It is SO ORDERED.