Opinion
No. 13-02-00527-CV
Memorandum Opinion delivered and filed August 12, 2004.
On Appeal from the 357th District Court of Cameron County, Texas.
Before Justices RODRIGUEZ, CASTILLO, and WITTIG.
Retired Justice Don Wittig assigned to this Court by the Chief Justice of the Supreme Court of Texas pursuant to TEX. GOV'T CODE ANN. § 74.003 (Vernon Supp. 2004).
MEMORANDUM OPINION
This is an appeal from a judgment confirming an arbitration award. Appellants are James T. Lette and Alicia M. Lette, individually and d/b/a Lette Insurance Agency (collectively, the "Lettes"). Appellees are Brooke Corporation ("Brooke"), First Brooke Insurance and Financial Services Inc. ("First Brooke"), Austin Agency, Inc. and Bob Austin, individually (collectively, "Austin"). By four issues, the Lettes challenge the trial court's: (1) referral of the entire dispute to arbitration; (2) confirmation of the arbitration award without convening an oral hearing; (3) failure to vacate the arbitrator's award as outside the scope of the parties' agreement to arbitrate; and (4) confirmation of the arbitrator's award over non-party Lette Property Partnership (the "Partnership"). We affirm.
I. PROCEDURAL HISTORY OF APPEAL
The Lettes appealed on September 20, 2002. The record was filed and the briefing complete by March 3, 2003. We submitted the case on April 2, 2003. On April 28, 2003, the Lettes filed a notice of bankruptcy. We abated the case on May 1, 2003. It remained abated until we reinstated the case October 14, 2003 on the appellees' motion to reinstate the appeal. See TEX. R. APP. P. 8. The appeal continued.
II. BACKGROUND FACTS
The relationship between the parties started in 2000 when the Lettes entered into an agreement with Brooke, a Kansas corporation, for the purchase of most of the assets of the Lettes' insurance business. Pursuant to an "Agreement for Purchase of Agency Assets" (the "Purchase Agreement"), the purchase price was $1.2 million. The Purchase Agreement contained a five-year covenant not to compete that restricted the Lettes from selling most types of property and casualty insurance within a fifty-mile radius of each location sold to Brooke. The agreement also gave Brooke a license to use the trade name "Lette Insurance Agency" within the same geographic areas. A related transaction provided that Brooke and Austin would lease the Lettes' former office space from the Lettes' affiliated entity, the Partnership, and continue to operate the insurance business in the same location (the "Lease Agreement"). Also in a related transaction, the Lettes subleased a portion of the same office space from Brooke so they could continue to run a life and health insurance business from the location (the "Sublease Agreement").
On the dates of these transactions, Brooke was not licensed to do business or sell insurance in Texas. To satisfy Texas insurance regulations, the parties agreed to transfer certain assets directly from the Lettes to First Brooke, Brooke's Texas affiliate. Brooke assigned its rights under the Purchase Agreement and the office lease to First Brooke. First Brooke then entered into a franchise agreement with Austin, an existing insurance agency in Brownsville, Texas. Brooke retained the rights to assign any and all of the Purchase Agreement to one of its franchise agents. It did so when Austin became a Brooke franchise agent contemporaneously with the purchase of the Lettes' insurance business. The parties crafted and specifically included an arbitration agreement in the Purchase Agreement, which was added as a new paragraph 24 in an written addendum.
Austin took possession of the leased premises and assigned to Brooke the right to renew the property and casualty policies previously sold by the Lettes. The parties' relationship deteriorated. The Lettes filed suit on July 6, 2002 in the form of a declaratory judgment action, seeking a declaration regarding the construction of certain provisions of the Purchase Agreement under the Texas Insurance Code. The Lettes also asked for damages and injunctive relief. They sought to have Brooke, First Brooke, and Austin enjoined from using the Lettes' agency trade name, its insurance license, and its contractual agency appointments with carriers to renew policies or write new ones in violation of state law. The Partnership was not named as a plaintiff in the lawsuit.
In their petition, the Lettes contended that the defendants were misusing the Lettes' agency trade name for the illegal purpose of writing business with companies with which neither First Brooke nor Austin had agency appointments. Brooke and Austin counterclaimed, alleging that the Lettes were in breach of the parties' agreements and were defaming and disparaging Brooke and Austin by claiming the Lettes still owned the assets. Brooke and Austin also claimed that the Lettes were interfering with the contracts that Brooke and Austin purchased by telling the insurance markets and customers that the Lettes had not sold the business.
Brooke, First Brooke, and Austin filed a motion to compel arbitration pursuant to the arbitration agreement in the Purchase Agreement. After a failed attempt to resolve the case in mediation on August 29, 2001, the Brooke defendants filed a motion for a temporary restraining order on September 11, 2001. The parties agreed to the entry of a temporary injunction. In addition to the parties to the lawsuit as described above, the Partnership was named in the agreed temporary injunction as a party subject to its injunctions. The agreed temporary injunction stated that it was "binding upon Brooke, Austin, Lette, LLH, [the Partnership], its officers, agents, servants, employees and attorneys."
Mediation was a condition precedent to arbitration under the Purchase Agreement.
We note that the defendant parties in this litigation also were defendants in a lawsuit filed by the Partnership in Cameron county court. The defendants filed a motion to transfer and consolidate the county court suit into this lawsuit, but no transfer or consolidation order appears in the record.
The trial court set a hearing on the motion to compel arbitration for September 20, 2001. The Lettes filed a sworn response to the motion to compel, objecting to arbitration. The trial court overruled the Lettes' objections and ordered that "the above entitled and numbered cause is compelled to arbitration before the American Arbitration Association."
On June 3, 2002, the arbitrator issued a written award. The arbitrator denied all of the Lettes' claims and awarded Brooke and Austin damages on their counterclaims as follows: (1) from the Lettes, jointly and severally, to Brooke and Austin, jointly, $200,000; (2) from the Lettes and the Partnership, jointly and severally, to Brooke and Austin, jointly, $80,355.00; (3) from the Lettes and the Partnership, jointly and severally, to Brooke and Austin, $75,000.00 in attorney fees. The arbitration award also granted injunctive relief against the Lettes and the Partnership.
On June 10, 2002, Brooke filed a motion with the district court requesting that the district court confirm the award of the arbitrator. On June 21, 2002, without holding a hearing or issuing notice to the Lettes or the Partnership before doing so, the trial court signed an order confirming the arbitrator's award.
On June 26, 2002, Lette responded to the defendants' motion to confirm the arbitrator's award. They also sought to vacate the court's confirmation of the award and resulting final judgment. The trial court denied the Lettes' motion to vacate. This appeal ensued.
III. ARBITRABILITY A. Standards of Review and Burdens of Proof
Texas law long has followed a public policy, originally developed in federal jurisprudence, that strongly encourages and favors arbitration. EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90 (Tex. 1996) (orig. proceeding) (per curiam) (citing L.H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 351(Tex. 1977)). We review a trial court's determination concerning the existence of an arbitration agreement under an abuse-of-discretion standard. In re C H News Co., 133 S.W.3d 642, 645 (Tex. App.-Corpus Christi 2003, orig. proceeding); Southwest Tex. Pathology Assocs., L.L.P. v. Roosth, 27 S.W.3d 204, 207 (Tex. App.-San Antonio 2000, pet. dism'd w.o.j.); ANCO Ins. Servs. of Houston, Inc. v. Romero, 27 S.W.3d 1, 3 (Tex. App.-San Antonio 2000, pet. denied). The abuse-of-discretion standard contains both legal and factual components. Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992) (orig. proceeding). Under this standard, the Lettes must establish either: (1) the trial court reasonably could have reached only one decision concerning the existence of an arbitration agreement; or (2) the trial court failed to analyze or apply the law correctly to the facts. Id.; Roosth, 27 S.W.3d at 207. To the extent our review addresses the trial court's legal interpretation of the arbitration clause at issue — a question of law — we perform a de novo review. D. Wilson Constr. Co. v. Cris Equip. Co., 988 S.W.2d 388, 393 (Tex. App.-Corpus Christi 1999, orig. proceeding) (op. on reh'g); Leander Cut Stone Co., Inc. v. Brazos Masonry, Inc., 987 S.W.2d 638, 640 (Tex. App.-Waco 1999, no pet.). Whether an agreement imposes a duty on the parties to arbitrate a particular dispute is a matter of contract interpretation and also is a question of law. Tenet Healthcare Ltd. v. Cooper, 960 S.W.2d 386, 388 (Tex. App.-Houston [14th Dist.] 1998, writ dism'd w.o.j.).
Under federal law, a district court's finding regarding the existence of an agreement to arbitrate is reviewed like "any other district court decision finding an agreement between parties, i.e., accepting findings of fact that are not `clearly erroneous' but deciding questions of law de novo." Hardin Constr. Group, Inc. v. Strictly Painting, Inc., 945 S.W.2d 308, 312 (Tex. App.-San Antonio 1997, orig. proceeding [mand denied]) (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-48 (1995)). In the context of appellate review of arbitration orders, the factual component of the abuse-of-discretion standard applied by Texas courts is similar to the clearly erroneous standard applied by federal courts. Strictly Painting, 945 S.W.2d at 312.
The party seeking arbitration bears the initial burden of establishing that a claim falls within the scope of a valid arbitration agreement. EZ Pawn Corp., 934 S.W.2d at 91. Once the proponent of arbitration establishes that a claim falls within the arbitration agreement, the burden shifts to the party opposing arbitration to establish some ground for revocation of the arbitration agreement. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999) (orig. proceeding) (per curiam).
The Lettes' first issue contends that the trial court erred in compelling the parties to arbitrate because: (1) there was no written agreement to arbitrate between all of the parties; (2) some of the issues of law were not appropriate for arbitration; and (3) the scope of the agreement to arbitrate was limited only to the narrow issues of construction and interpretation of the Purchase Agreement. In their third issue, the Lettes contend that the trial court committed reversible error by failing to vacate and set aside the award of the arbitrator. They argue that the arbitrator's award exceeded the scope of the agreement to arbitrate between the parties. We turn to the arbitration clauses at issue.
B. The Arbitration Clauses
The Lettes and Brooke agreed to an addendum to the Purchase Agreement:
24. Arbitration. In the event that any controversy arises between the parties in the interpretation, performance or construction of this Agreement, then in that event, the parties hereto agree that they will submit their controversy to arbitration in a manner agreed to by the parties. In the event that the parties cannot agree on the manner method or place of arbitration, then in that event said controversy will be submitted to the American Arbitration Association to be resolved in accordance with the rules and regulations of that association.
Further, the Lease Agreement between Brooke and the Partnership provided for arbitration following mediation:
23. Landlord and Tenant agree that, following mediation, all unresolved issues shall be resolved by binding arbitration. Absent an agreement to use other rules, the arbitration will be controlled by the American Arbitration Association's Commercial Arbitration Rules.
The Sublease Agreement between the Lettes and Brooke contained an identical arbitration clause:
21. Arbitration. Landlord and Tenant agree that, following mediation, all unresolved issues shall be resolved by binding arbitration. Absent an agreement to use other rules, the arbitration will be controlled by the American Arbitration Association's Commercial Arbitration Rules.
C. Applicable Law 1. Agreement to Arbitrate
In determining whether these clauses compel arbitration, the trial court was required to decide two issues: (1) whether a valid, enforceable arbitration agreement exists; and (2) if so, whether the asserted claim falls within the scope of the agreement. Dallas Cardiology Assocs., P.A. v. Mallick, 978 S.W.2d 209, 212 (Tex. App.-Texarkana 1998, pet. denied); Nationwide of Bryan, Inc. v. Dyer, 969 S.W.2d 518, 520 (Tex. App.-Austin 1998, no pet.). The Lettes do not dispute that a valid arbitration agreement existed between Brooke and them. They complain that First Brooke, Austin Agency, Inc., and Austin, individually, were not parties to the agreements. The Lettes argue the trial court could not compel them to arbitrate with non-parties to the agreements.
2. Non-Parties to the Agreements to Arbitrate
Under certain circumstances, non-signatories or non-parties to an arbitration agreement may be bound to arbitrate. ANCO Ins. Servs. of Houston, Inc. v. Romero, 27 S.W.3d 1, 6 (Tex. App.-San Antonio 2000, pet. denied). Under the doctrine of equitable estoppel, a signatory can compel a non-signatory to arbitrate in two circumstances. In re Merrill Lynch Co. F.S.B., 123 S.W.3d 549, 555 (Tex. App.-San Antonio 2003, orig. proceeding). First, the doctrine can apply when the signatory to an agreement containing an arbitration clause relies on the agreement in asserting its claims against the non-signatory. Id. When the signatory's claims against a non-signatory presumes or makes reference to the existence of the agreement, the signatory's claims relate directly to and arise out of the agreement, and arbitration is appropriate. Id. Second, the doctrine of equitable estoppel applies when the signatory to a contract containing an arbitration agreement raises allegations of concerted and substantially interdependent misconduct by one or more signatories to the contract and the non-signatory. In re Koch Indus., 49 S.W.3d 439, 447 (Tex. App.-San Antonio 2001, orig. proceeding).
3. Scope of Arbitration Agreement
Because arbitration is favored in the law, a presumption of arbitrability attaches once the existence of an arbitration agreement is established. Cantella Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996) (orig. proceeding) (per curiam); Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898-99 (Tex. 1995) (orig. proceeding) (per curiam); Mallick, 978 S.W.2d at 212. Further, a broad arbitration clause that purports to cover all claims or disputes regarding the contract or its breach also creates a presumption of arbitrability. ATT Technologies, Inc. v. Communications Workers, 475 U.S. 643, 650 (1986).
The presumptions favoring arbitration require that questions about the scope of arbitrable issues 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." Collins v. Int'l Dairy Queen, Inc., 2 F. Supp.2d 1473, 1477 (M.D. Ga. 1998) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)). The strong policy favoring arbitration reflected in these presumptions applies to questions of arbitrability under the Texas General Arbitration Act as well as under the Federal Arbitration Act. See Ambulance Billings Sys., Inc., v. Gemini Ambulance Servs., Inc., 103 S.W.3d 507, 514 (Tex. App.-San Antonio 2003, no pet.) (consolidated interlocutory appeal and orig. proceeding) (applying presumption of arbitrability in interpreting broad arbitration clause under the TAA). Accordingly, "[an] order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Steeleworkers v. Warrior Gulf Navigation Co., 363 U.S. 574, 582-83 (1960); Ambulance Billings Sys., Inc., 103 S.W.3d at 514. Given the law's presumption in favor of arbitration, where a contract provides for arbitration of some issues, it may be presumed that the parties likely gave some thought to the scope of the arbitration clause. First Options, 514 U.S. at 945. In such cases, "[in] the absence of any express provision excluding a particular grievance from arbitration, we think only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail." ATT Technologies, 475 U.S. at 650 (quoting Warrior Gulf Navigation, 363 U.S. at 584-85).
See TEX. CIV. PRAC. REM. CODE ANN. §§ 171.021(a), 171.024(b) (Vernon Supp. 2004).
See 9 U.S.C. § 1-307 (2003).
Thus, presumptions in favor of arbitration affect a court's application of ordinary state law principles governing the formation of contracts when determining whether the parties agreed to arbitrate a certain matter. First Options, 514 U.S. at 944. The opponent of arbitration of a merits-based controversy must produce convincing evidence that the parties intended to exclude the controversy from the scope of the arbitration clause. Int'l Dairy Queen, 2 F. Supp.2d at 1477 (citing ATT Technologies, 475 U.S. at 650; First Options, 514 U.S. at 945); see Prudential Sec. Inc., 909 S.W.2d at 900 ("The burden was on [the parties opposing arbitration] to show that their claims fell outside the scope of the arbitration agreement.").
D. Analysis 1. Existence of an Agreement to Arbitrate
We find that Brooke met its initial burden of proving that the Lettes agreed to arbitrate. The arbitration clauses are broad. None provides any exclusions from arbitration. The Purchase Agreement provides for arbitration "in the event that any controversy arises between the parties in the interpretation, performance, or construction of this agreement. . . ." [Emphasis added.] The construction of this contract language is subject to a presumption favoring arbitration, which is created both by public policy and the agreement's "any controversy" language. ATT Technologies, 475 U.S. at 650. Further, the Lease Agreement and Sublease Agreement provide for arbitration of "all unresolved issues" following any mediation between the parties.
2. Scope of Agreement to Arbitrate Extends to Non-Signatories
The Lettes relied on the Purchase Agreement in asserting their claims against Austin and First Brooke, the non-signatories. See In re Merrill Lynch Co. F.S.B., 123 S.W.3d at 555; see also ANCO Ins. Servs. of Houston, Inc., 27 S.W.3d at 6. Further, the Lettes' claims against Austin and First Brooke relate directly to and arise out of the Purchase Agreement. In their lawsuit, the Lettes alleged, "the conduct of Defendant Brooke and its agents constitute a breach of the Agency Purchase Agreement with Plaintiffs. . . ." [Emphasis added.] Thus, the doctrine of equitable estoppel applies because the Lettes raise allegations of concerted and substantially interdependent misconduct by Brooke, Austin, and First Brooke. See In re Koch Indus., 49 S.W.3d at 447. We hold that Austin and First Brooke, although non-signatories to the Purchase Agreement, may be compelled to arbitrate through application of the doctrine of equitable estoppel. See In re Merrill Lynch Co. F.S.B., 123 S.W.3d at 555; see also In re Koch Indus., 49 S.W.3d at 447.
3. Scope of Agreement to Arbitrate Extends to "Any Controversy"
Construction of the language in the contract is subject to the presumptions in favor of arbitration created both by the broad "any controversy" language in the arbitration clause of the Purchase Agreement and public policy. ATT Technologies, 475 U.S. at 650. The Lettes specifically assert that interpretation of Texas Insurance law was outside the scope of the parties' arbitration agreement. The Lettes were required to produce convincing evidence that the parties intended to exclude interpretation of Texas insurance law from the scope of the arbitration clause. See Int'l Dairy Queen, 2 F. Supp.2d at 1477 (citing ATT Technologies, 475 U.S. at 650; First Options, 514 U.S. at 945); see also Prudential Sec. Inc., 909 S.W.2d at 900. Only forceful evidence of some purpose to exclude an issue from arbitration can prevail. Warrior Gulf Navigation, 363 U.S. at 582-83; Ambulance Billings Sys., Inc., 103 S.W.3d at 514. The Lettes did not present any such evidence. We cannot say "with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Warrior Gulf Navigation, 363 U.S. at 582-83; Ambulance Billings Sys., Inc., 103 S.W.3d at 514. We find that the Lettes did not meet their burden to present convincing evidence that the parties to the arbitration agreement intended to exclude the issue of Texas insurance law from arbitration. Id.
Accordingly, we hold that the trial court did not abuse its discretion in ordering the parties to arbitration. Nor, for the same reason, did the trial court abuse its discretion in denying the Lettes' motion to vacate the award. We overrule the Lettes' first and third issues.
IV. CONFIRMATION OF ARBITRATION AWARD WITHOUT A HEARING
The Lettes' second issue contends that the trial court committed reversible error in entering an order confirming the award in arbitration without holding a hearing. They argue that section 171.093 of the Texas Civil Practice and Remedies Code requires a hearing. See TEX. CIV. PRAC. REM. CODE ANN. § 171.093 (Vernon 1997). Section 171.093 states as follows: "The court shall hear each initial and subsequent application under this Subchapter in the manner and with the notice required by law or court rule for making and hearing a motion filed in a pending civil action in a district court." Id. The phrase "shall hear," as used in section 171.093, does not require an oral hearing or personal appearance before the Court:
[N]ot every hearing called for under every rule of civil procedure necessarily requires an oral hearing. Unless required by the express language or the context of the particular rule, the term "hearing" does not necessarily contemplate either a personal appearance before the court or an oral presentation to the court.
Martin v. Martin, Martin Richards, Inc., 989 S.W.2d 357, 359 (Tex. 1998). The "Defendants'/Counter-Plaintiffs' Motion to Confirm Arbitrator's Award and Enter Final Judgment," dated June 10, 2002, provided the Lettes with notice of appellees' intent to seek confirmation of the award. The trial court confirmed the arbitrator's award without a hearing and signed the final judgment on June 21, 2002. However, on August 16, 2002, the trial court convened an oral hearing on the Lettes' motion to vacate the arbitrator's award. We find that the trial court heard and considered the Lettes' arguments. Accordingly, any error in not holding the hearing initially is harmless. See TEX. R. APP. P. 44.1(a); see also Aguirre v. Phillips Props., 111 S.W.3d 328, 332 (Tex. App.-Corpus Christi 2003, pet. denied). We overrule the Lettes' second issue. See id.
V. JURISDICTION OVER THE PARTNERSHIP
In their fourth issue, the Lettes contend that the trial court committed reversible error in confirming the arbitrator's award in its entirety. They argue that the Partnership is not a party to this litigation. Thus, the Lettes conclude, the trial court had no jurisdiction to order a judgment against the Partnership.
A trial court must have jurisdiction over all the parties and the subject matter of the action to adjudicate the rights of the parties. Dawson-Austin v. Austin, 968 S.W.2d 319, 328 (Tex. 1998). The district court had jurisdiction over the Lettes as well as jurisdiction over First Brooke, Brooke, Austin, and Bob Austin, individually, all parties to the arbitration that resulted in the award confirmed by the trial court. The Partnership was not named as a party in this lawsuit and did not file any formal appearance. It did, however, participate in the arbitration ordered by the trial court. We also note that the Partnership is named as one of the parties enjoined by an Agreed Temporary Injunction signed by the trial court in this case. A party may subject itself to the jurisdiction of the court by appearing and seeking judgment or adjudication by the court on some question. See Investors Diversified Servs., Inc. v. Bruner, 366 S.W.2d 810, 815 (Tex.Civ.App.-Houston 1963, writ ref'd n.r.e.). "A general appearance is entered whenever a party invokes the judgment of the court on any question other than that of the court's jurisdiction." Letersky v. Letersky, 820 S.W.2d 12, 13 (Tex. App.-Eastland 1991, no writ). We conclude that the Partnership subjected itself to the jurisdiction of the court. See id. We overrule the Lettes' fourth issue.
VI. CONCLUSION
We affirm the judgment of the trial court confirming the arbitration award.