Summary
refusing to accept defendant's interpretation of contract where there was another, more reasonable interpretation
Summary of this case from Montfort Square Shopping Ctr., Ltd. v. Goodyear Tire & Rubber Co.Opinion
NO. 01-11-00925-CV
03-15-2012
ASPEN TECHNOLOGY, INC AND DAVID "WOODY" WOODRUFF, Appellants v. HANK W. HARRITY, Appellee
On Appeal from the 125th District Court
Harris County, Texas
Trial Court Case No. 2011-39376
MEMORANDUM OPINION
Appellants, Aspen Technology, Inc. and David Woodruff, appeal from the trial court's denial of their motion to abate the trial and compel arbitration. In one issue, Aspen Technology and Woodruff argue that the trial court erred in denying their motion.
We reverse and remand.
Background
Hank Harrity, appellee, began working for Aspen Technology in July 2001. As of July 1, 2008, he held the title of Senior Sales Account Manager. Effective that date, Harrity and Aspen Technology entered into a contract entitled "FY09 Sales Incentive Compensation Plan."
As the title suggests, the contract concerned the compensation Harrity would receive for license and service deals made on behalf of Aspen Technology. In addition, the contract had an arbitration provision. The provisions of the contract relevant to this appeal are the "Administration" provision in the "Basic Terms" section of the contract, the "'Windfall' Circumstances" provision in the "Plan Terms and Conditions" section of the contract, and the arbitration provision itself.
The administration provision provides:
The Senior Vice President of Worldwide Sales and Business Development ("SVP-WW Sales") or [the Vice President of Worldwide Sales Operations ("VP-Ops")] may modify this Plan [defined as the FY09 Sales Incentive Compensation Plan] from time to time or at any time. The SVP-WW Sales or his designee shall have final and binding authority to interpret or administer the Plan, and may make any necessary interpretation or review at any time, including after the Effective Period of the Plan. No modifications to Territory, quotas or any other element of the Plan shall take effect unless and until approved by the VP-Ops. Likewise, any additional
or modified terms of conditions between the Plan Participant and the Company [defined as Harrity's employing Aspen Technology entity] shall not apply unless approved in writing signed by the VP-Ops and the Plan Participant [defined as Harrity].
The windfall provision provides, in relevant part, "The Company has the right to review and alter a Plan Participant's Total Quota or any component thereof at any time for any reason, including . . . any other reason relating to the commercial success of the Company."
The arbitration provision provides:
If a Plan Participant is a resident of the United States, then any legal action brought in support of any claim pursuant to this Plan shall be exclusively settled by arbitration in the City of Boston, Massachusetts in accordance with the commercial arbitration rules of the American Arbitration Association in a three-arbitrator panel, with all arbitrator fees and expenses shared equally between the Company and the Plan Participant.
Harrity resigned in October 2010 and filed suit against Aspen Technology and Woodruff—Aspen Technology's Senior Vice President of Regional Sales & Services for Americas—on June 30, 2011. In the suit, Harrity alleges that Aspen Technology paid him less than the full amount of the commissions owed and brought a number of claims related to this issue.
Aspen Technology and Woodruff filed an answer and then filed a motion to abate the trial court proceedings and compel arbitration. Following a hearing, the trial court denied the motion. This appeal followed.
Standard of Review
We review an order denying a motion to compel arbitration under the Federal Arbitration Act ("FAA") for an abuse of discretion. Cleveland Constr., Inc. v. Levco Constr., Inc., No. 01-11-00530-CV, 2012 WL 246497, at *6 (Tex. App.—Houston [1st Dist.] Jan. 26, 2012, no pet.) (slip op.). "Thus, in reviewing an order denying a motion to compel arbitration under the FAA, we give deference to the trial court's determinations that are supported by evidence and we review de novo its legal conclusions." Id. Whether a contract is valid and enforceable is a question of law and, accordingly, is reviewed de novo. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009). "A trial court that refuses to compel arbitration under a valid and enforceable arbitration agreement has clearly abused its discretion." In re Odyssey Healthcare, Inc., 310 S.W.3d 419, 422 (Tex. 2010).
The arbitration provision in dispute does not state whether it is governed by the FAA, Texas General Arbitration Act ("TGAA"), or some other legal authority. Aspen Technology asserts that the provision is governed by the FAA, and Harrity does not challenge this. Because the outcome of this appeal would be the same under the FAA and the TGAA, we will cite to the FAA. See Cleveland Constr., Inc. v. Levco Constr., Inc., No. 01-11-00530-CV, 2012 WL 246497, at *6 (Tex. App.—Houston [1st Dist.] Jan. 26, 2012, no pet.) (slip op.) (holding interlocutory appeals under FAA and TGAA reviewed for abuse of discretion); Tex. Cityview Care Ctr., L.P. v. Fryer, 227 S.W.3d 345, 351 (Tex. App.—Fort Worth 2007, pet. dism'd) (holding courts generally apply ordinary state law principles of contract formation in determination of whether arbitration agreement is valid under FAA or TGAA); see also In re D. Wilson Constr. Co., 196 S.W.3d 774, 780 (Tex. 2006) (holding FAA preempts TGAA if TGAA imposes enforceability requirement not found in FAA).
Analysis
A party attempting to compel arbitration must first establish that the dispute in question falls within the scope of a valid arbitration provision. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). If the trial court finds a valid agreement, the burden shifts to the party opposing arbitration to raise an affirmative defense to enforcing arbitration. Id. Although there is a strong presumption favoring arbitration, this presumption arises only after the party seeking to compel arbitration proves that a valid agreement exists. Id.
Harrity presented to the trial court two reasons why he should not be required to arbitrate his claims. First, he argued the arbitration provision is invalid. Second, he argued that, regardless of whether the arbitration provision is enforceable, it does not apply to his tort claims against Woodruff.
A. Validity of Arbitration Provision
There is no dispute that there is an agreement between the parties, that the agreement contains an arbitration provision, and that the arbitration provision is broad enough to cover at least some of Harrity's claims, including all of Harrity's claims against Aspen Technology. Instead, Harrity disputes whether the agreement is valid. Harrity argues the agreement is not valid because it is illusory.
In determining whether an agreement to arbitrate is valid and enforceable under the FAA, we apply state-law principles governing the formation of contracts. In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 676 (Tex. 2006). "Arbitration agreements, like other contracts, must be supported by consideration." Id. If a party can unilaterally avoid the agreement to arbitrate, it is illusory and unenforceable. Id. at 677.
Harrity argues the arbitration provision is illusory due to language in the administration provision. At issue is how two sentences in the provision relate to each other. The first sentence in the provision states, "The Senior Vice President of Worldwide Sales and Business Development ('SVP-WW Sales') or VP-Ops may modify this Plan from time to time or at any time." The last sentence in the provision states, "Likewise, any additional or modified terms of conditions between the Plan Participant and the Company shall not apply unless approved in writing signed by the VP-Ops and" Harrity.
The parties dispute how these sentences relate to each other. Harrity argues that the first sentence controls the last sentence with the result that the SVP-WW Sales and the VP-Ops have unilateral authority to modify any portion of the contract at any time, while Harrity can only modify it with company approval. Aspen Technology and Woodruff argue that the last sentence controls the first sentence, with the result that the SVP-WW Sales and the VP-Ops are the only agents for Aspen Technology that have authority to modify the contract but all modifications must be agreed on by both the company and Harrity.
Because the parties offer conflicting interpretations of the contract, we must determine whether the contract is ambiguous. See Webster, 128 S.W.3d at 229. We begin by determining "whether it is possible to enforce the contract as written, without resort to parol evidence." Id. We review the entire contract, giving effect to all the provisions so that none will be rendered meaningless. Id. We will avoid, whenever possible and proper, a construction which is unreasonable, inequitable, and oppressive. Frost Nat'l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 312 (Tex. 2005). A contract is unambiguous if it can be given a definite or certain legal meaning. Webster, 128 S.W.3d at 229. If the contract is subject to two or more reasonable interpretations, however, the contract is ambiguous, creating a fact issue on the parties' intent. Id.
As an initial matter, we note that the trial court specifically determined that Aspen Technology had a unilateral ability to modify the contract. It did not clarify whether this determination is based on an unambiguous interpretation of the contract or on a factual determination of the parties' intent following a determination of ambiguity. Because we hold that the contract is not ambiguous and did not give Aspen Technology unilateral authority to modify the contract, either interpretation of the trial court's determination results in error.
A substantially similar contract was held to not be ambiguous or illusory by the Fourteenth Court of Appeals. Aspen Tech., Inc. v. Shasha, 253 S.W.3d 857 (Tex. App.—Houston [14th Dist.] 2008, no pet.). The contract in Shasha was Aspen Technology's fiscal year 2006 contract. Id. at 859. Under the 2006 contract, "the SVP Sales will be responsible for the periodic review of the plan and may make revisions from time to time." Id. at 862. The contract also provided, that "[a]ny additional terms or conditions, or verbal or written agreements between [Shasha] and [Aspen] will not apply unless explicitly agreed to and approved in a signed writing by both the SVP Sales and [Shasha]." Id. at 863 (bracketed language in original).
In that case, Shasha argued that the contract was illusory because it allowed the SVP Sales to modify the contract from time to time. Id. at 862. The court disagreed, holding that the provision requiring a signed agreement between the parties on any additional terms or conditions controlled and prevented Aspen Technology from having unilateral authority to modify the contract. See id. at 863.
We hold that the similar language in the 2009 agreement has the same effect. Aspen Technology's proffered interpretation of the contract at issue—the SVP-WW Sales and the VP-Ops are the only agents for Aspen Technology that have authority to modify the contract but all modifications must be agreed on by both the company and Harrity—is a valid interpretation that gives effect to both sentences. See Webster, 128 S.W.3d at 229 (requiring courts to review entire contract, giving effect to all provisions so that none will be rendered meaningless). Harrity's proffered interpretation of the contract-the SVP-WW Sales and the VP-Ops have unilateral authority to modify any portion of the contract at any time, while Harrity can only modify it with company approval—would result in an unreasonable, inequitable, and oppressive interpretation of the contract. See Frost Nat'l Bank, 165 S.W.3d at 312 (requiring courts to avoid, whenever possible and proper, construction which is unreasonable, inequitable, and oppressive). In fact, Harrity asks us to adopt his interpretation of the contract specifically to have the arbitration provision rendered illusory based on that provision's application. Because there is another, more reasonable interpretation of the contract, we cannot accept his interpretation of the contract. See id.
Harrity also argued before the trial court that the windfall provision renders the entire contract illusory. The windfall provision gives Aspen Technology the right to modify an employee's quota "or any component thereof at any time for any reason, including . . . any other reason relating to the commercial success of the Company." Harrity argues that this and other similar provisions in the contract rendered the entire contract illusory and unenforceable. Because this argument applied to the contract as a whole and not the arbitration provision specifically, however, it could not have been a basis for the trial court's denial of the motion to compel arbitration.
The Texas Supreme Court has recognized that there are two types of challenges to an arbitration provision: "(1) a specific challenge to the validity of the arbitration agreement or clause, and (2) a broader challenge to the entire contract, either on a ground that directly affects the entire agreement, or on the ground that one of the contract's provisions is illegal and renders the whole contract invalid." In re Labatt, 279 S.W.3d at 647-48. While a court may consider the merits of the first type of challenge, the second type of challenge can only be considered by the arbitrator. Id. at 648. Because Harrity's argument concerning the windfall provision and other similar provisions concern whether the contract as a whole is illusory rather than whether the arbitration provision specifically is illusory, it could not have been a basis for the trial court's denial of the motion to compel arbitration.
We hold that the arbitration provision is not illusory.
B. Applicability of Harrity's tort claims against Woodruff.
Harrity argues that, because he did not sign an arbitration agreement with Woodruff, his tort claims against Woodruff are not subject to a valid arbitration provision. All of Harrity's claims against Woodruff, though, relate to the commission Harrity argues he is owed under the contract.
The arbitration provision in question requires arbitration for "any legal action brought in support of any claim pursuant to this Plan." When contracting parties agree to arbitrate all disputes under or with respect to a contract, "they generally intend to include disputes about their agents' actions because, as a general rule, the actions of a corporate agent on behalf of the corporation are deemed the corporation's acts." In re Vesta Ins. Grp., Inc., 192 S.W.3d 759, 762 (Tex. 2006). Parties to an arbitration agreement may not avoid arbitration "through artful pleading, such as by naming individual agents of the party to the arbitration clause and suing them in their individual capacity." In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 188 (Tex. 2007).
Harrity did not bring any claim against Woodruff only. Instead, all of the tort claims identify both Aspen Technology and Woodruff as liable parties. Harrity's negligent misrepresentation claim asserts both defendants supplied him with "false information for the guidance of [Harrity] in his business decisions and transactions." Harrity's fraud claim concerns alleged false promises and representations for compensation in his work. His breach of fiduciary duty concerns the defendants allegedly compelling Harrity "to trust and rely upon his superiors and co-workers." Harrity does not allege any facts in his claim for intentional infliction of emotional distress. Instead, he only tracks the legal language for the elements. Accordingly, there is no suggestion that any action taken by Woodruff to form the basis of this claim was done in Woodruff's individual capacity. Harrity's negligence claim concerns a duty to pay the commission he alleges is owed. Finally, Harrity's "securing the execution of a document by deception" claim concerns the execution of the contract in question.
Each of these claims relate to the contract in question. Furthermore, none of these actions identify any action taken by Woodruff in his individual capacity as opposed to his capacity as an agent for Aspen Technology. We hold that the arbitration provision applies to these claims.
We affirm Aspen Technology's sole issue.
Conclusion
We reverse the order of the trial court and remand for entry of an order staying the trial court proceedings and compelling arbitration.
Laura Carter Higley
Justice
Panel consists of Chief Justice Radack and Justices Higley and Brown.