Opinion
No. 05-15-01199-CV
07-14-2016
DAVID J. SWEARINGEN, Appellant v. WILLIAM L. SWEARINGEN II, Appellee
On Appeal from the 429th Judicial District Court Collin County, Texas
Trial Court Cause No. 429-00454-2014
MEMORANDUM OPINION
Before Justices Bridges, Francis, and Myers
Opinion by Justice Myers
In this accelerated, interlocutory appeal, David J. Swearingen appeals the trial court's order granting William L. Swearingen II's motion to stay arbitration. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(2) (West 2011). In his sole issue on appeal, David contends the trial court erred by staying the arbitration and enjoining David from making William a party to an ongoing arbitration proceeding. We affirm the trial court's judgment.
In his briefs, and other documents, David styles the case "In re David J. Swearingen," and he refers to himself as "relator" and to William as "real party in interest." However, David refers to the case as an "appeal" in his briefing and other documents. This Court previously determined this proceeding is an appeal under section 171.098(a)(2) of the Texas Civil Practice and Remedies Code. Accordingly, despite David's use of the nomenclature for original proceedings, this case is as an appeal and not an original proceeding.
BACKGROUND
David and William are brothers who owned Swearingen Financial Group. In 2007, the brothers sold the business to United Capital Financial Advisers, Inc. ("UCFA"). David alleged that in 2012, UCFA made payments to William. David demanded William share those payments with him, but William refused. In 2014, David brought suit against William for breach of their agreement to divide equally the amounts received from UCFA, fraud in the inducement for David's efforts to create and build the business with William, as well as other causes of action. David later amended his petition, adding UCFA as a defendant and alleging William and UCFA conspired to defraud David from his share of the business.
UCFA filed a motion to compel arbitration and stay the lawsuit, citing the arbitration provision in the contract for the sale of the business. The trial court granted the motion and ordered David's suit against UCFA stayed pending arbitration. David brought the arbitration proceeding against UCFA in California pursuant to the contract's arbitration provision. David later amended the arbitration complaint to add William as a defendant with UCFA in the arbitration proceeding. William filed a motion in the trial court asking the court to stay David's arbitration proceeding against William and enjoin David from further attempts to force William to participate in the arbitration proceeding. William alleged in the motion that there was no agreement to arbitrate disputes between David and him and that David had waived the right to invoke arbitration against William because David had litigated the claims for over a year before invoking the arbitration remedy. The trial court granted William's motion, ordered the arbitration proceeding of David's claims against William stayed, and enjoined David "from taking any further efforts to include William L. Swearingen II in any arbitration."
PROCEEDING TO STAY ARBITRATION
Section 171.023(a) provides, "A court may stay an arbitration commenced or threatened on application and a showing that there is not an agreement to arbitrate." CIV. PRAC. § 171.023(a) (West 2011). William asserted in his motion for stay of arbitration that there was no arbitration agreement for disputes between him and David.
"[A]rbitration is a creature of contract: when an entity seeks to compel arbitration, it must first establish its right to that contract remedy." Mohamed v. Auto Nation USA Corp., 89 S.W.3d 830, 836 (Tex. App.—Houston [1st Dist.] 2002, no pet.). To determine the existence of a valid arbitration agreement for the resolution of disputes between parties, the trial court applies state contract law. In re Poly-America, L.P., 262 S.W.3d 337, 348 (Tex. 2008) (orig. proceeding).
When construing a written contract, our primary concern is to ascertain the true intentions of the parties as expressed in the instrument. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). We consider the entire writing and attempt to harmonize and give effect to all the provisions of the contract by analyzing the provisions with reference to the whole agreement. Frost Nat'l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 312 (Tex. 2005) (per curiam); J.M. Davidson, 128 S.W.3d at 229. The court should consider that the "intent of the parties must be taken from the agreement itself, not from the parties' present interpretation, and the agreement must be enforced as it is written." Parts Indus. Corp. v. A.V.A. Servs., Inc., 104 S.W.3d 671, 678 (Tex. App.—Corpus Christi 2003, no pet.). This is often referred to as the "Four Corners Rule," which means that the intention of the parties is to be ascertained from the instrument as a whole and not from isolated parts thereof. See, e.g., Stine v. Stewart, 80 S.W.3d 586, 589 (Tex. 2002) (per curiam); Concord Oil Co. v. Pennzoil Exploration & Prod. Co., 966 S.W.2d 451, 454 (Tex. 1998).
The contract for the sale of the business was printed on UCFA's stationery. The contract defined the words "we," "us," and "our" as referring to UCFA and "you" and "your" as referring to David and William individually and collectively and also to their firm, Swearingen Financial Group. The arbitration provision in the contract stated,
(c) Agreement to Arbitrate. Except as specifically provided elsewhere in this Agreement, in the event of any dispute, claim, question, or disagreement arising
out of or relating to the Agreement or the breach thereof, you and UCFA agree that upon notice by either party to the other (the "Arbitration Notice"), such dispute, claim, question, or disagreement shall be finally settled by binding arbitration in accordance with the provisions of the Commercial Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association ("AAA"). The Arbitration Notice must contain a detailed statement of the claim(s), including a description of the factual contentions which support such claim(s). You and we will, by joint agreement, select a single arbitrator, but if we do not agree on the selection of an arbitrator within twenty (20) days after the date that the Arbitration Notice was received by the non-sending party, then selection shall be made in accordance with the Arbitration Rules. The arbitration will be held in Orange County, California, or at such other place as may be selected by mutual agreement. The parties agree that any claims that are submitted to arbitration which seek, in the aggregate, damages or payment of $75,000 or less will be resolved through the application of the AAA's Expedited Procedures for commercial cases. Judgment on the award of the arbitrator may be entered in any court having jurisdiction over the party against which enforcement of the award is being sought.
David asserts this arbitration provision requires arbitration of any disputes related to the contract that arise among any of the three participants in the contract, including disputes between David and William. William asserts the arbitration provision applies only to disputes with David or William or both of them on one side and UCFA on the other side but that the arbitration provision does not apply to disputes between David and William.
We agree with William's interpretation of the arbitration provision. Although the arbitration provision does not expressly state that it applies only to disputes involving David or William or both of them on one side and UCFA on the other side, the terms of the arbitration provision make clear that was the parties' intent.
The arbitration provision states, "in the event of any dispute . . . arising out of or relating to the Agreement . . . , you and UCFA agree that upon notice by either party to the other . . . , such dispute . . . shall be finally settled by binding arbitration . . . ." The phrase "either party" refers back to "you and UCFA." The contract defines "you" as meaning David or William or both of them collectively. Therefore, "either party" means David or William, individually or collectively, as one party and UCFA as the other party. Thus, the arbitration provision requires arbitration of any dispute arising out of or relating to the sales contract when notice is given by David and/or William to UCFA or by UCFA to David and/or William. This interpretation of the arbitration provision is consistent with the structure of the rest of the contract, which concerns David and William on one side and UCFA on the other.
The arbitration provision also states, "You and we will, by joint agreement, select a single arbitrator." The sales contract defines "we" as meaning UCFA. Therefore, the arbitrator is chosen by mutual agreement between David and/or William ("You") on one side and UCFA ("we") on the other side. These terms demonstrate that the arbitration provision was intended to apply to disputes only between David and/or William on one side and UCFA on the other. If the arbitration provision applied to disputes between David and William, then the brother seeking arbitration would have to give notice to UCFA and permit UCFA to participate in the selection of the mediator, which would be nonsensical.
We conclude the arbitration provision does not apply to disputes between David and William. Accordingly, we need not address David's argument that the trial court erred by determining William proved David waived the arbitration provision by litigating his claim.
David also asserts that the arbitrator, and not the trial court, should have made the determination whether the arbitration provision applied to disputes between him and William. The arbitration provision in the agreement for the sale of the business incorporated the Commercial Arbitration Rules of the American Arbitration Association (AAA). Rule 7(a) provides, "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 or to the arbitrability of any claim or counterclaim." David asserts the statement in the arbitration provision that the arbitration would be in accordance with the provisions of the AAA's rules meant that the gateway questions of whether the agreement applied to disputes between him and William must be decided by the arbitrator and not by the trial court.
Rule 7 provides, in its entirety:
R-7. Jurisdiction
(a) 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 or to the arbitrability of any claim or counterclaim.
(b) The arbitrator shall have the power to determine the existence or validity of a contract of which an arbitration clause forms a part. Such an arbitration clause shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitrator that the contract is null and void shall not for that reason alone render invalid the arbitration clause.
(c) A party must object to the jurisdiction of the arbitrator or to the arbitrability of a claim or counterclaim no later than the filing of the answering statement to the claim or counterclaim that gives rise to the objection. The arbitrator may rule on such objections as a preliminary matter or as part of the final award.
Questions of substantive arbitrability, which concern the existence, enforceability and scope of an agreement to arbitrate, are usually decided by the trial court. G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 520-21 (Tex. 2015). However, if the parties clearly and unmistakably provide that the arbitrator is to decide the questions of substantive arbitrability, then the trial court must permit the arbitrator to decide those issues. McGehee v. Bowman, 339 S.W.3d 820, 825-26 (Tex. App.—Dallas 2011, no pet.). The parties' agreement to a broad arbitration clause that expressly incorporates rules empowering the arbitrator to decide substantive arbitrability may provide clear and unmistakable evidence of the parties' intent to delegate the issues of substantive arbitrability to the arbitrator. See Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224, 230 (Tex. App.—Dallas 2010, pet. denied).
Courts have held that the incorporation of Rule 7(a) constitutes a clear and unmistakable agreement that the arbitrator would decide its jurisdiction and the arbitrability of any claim or counterclaim concerning disputes between parties who had agreed to arbitrate claims between them. See Schlumberger Tech. Corp. v. Baker Hughes Inc., 355 S.W.3d 791, 802-03 (Tex. App.—Houston [1st Dist.] 2011, no pet.). However, in this situation, where the parties did not agree to arbitrate any disputes between themselves, we conclude the incorporation of AAA's Rule 7 into an agreement that the parties will arbitrate disputes with a third party is not clear and unmistakable evidence that the parties intended to delegate the issues of substantive arbitrability to the arbitrator for disputes between parties that did not agree to arbitration between themselves.
This situation is similar to those where a party to a dispute does not sign an arbitration agreement. In Roe v. Ladymon, 318 S.W.3d 502 (Tex. App.—Dallas 2010, no pet.), the parties to a construction contract with an arbitration provision were Roe and Metro LLP. Ladymon signed the contract as Metro's partner but did not sign in his individual capacity. Id. at 507. The arbitration agreement incorporated the AAA's Construction Industry Arbitration Rules, which included Rule R-8, a provision similar to Rule 7 of the Commercial Arbitration Rules. Id. at 507, 517. Roe was dissatisfied with Metro's construction services and demanded arbitration against both Metro and Ladymon. Id. at 508. Ladymon objected to arbitration, asserting the arbitration provision did not apply to him because he did not sign an agreement to arbitrate in his individual capacity. Id. Roe argued that Rule R-8 required that the question of whether Ladymon was subject to the arbitration provision be submitted to the arbitrator. Id. at 517. This Court concluded we could not "say that Ladymon clearly and unmistakably agreed to submit gateway issues to an arbitrator simply because Roe and Metro LLP agreed to arbitrate in accordance with rules selected by the AAA." Id. Likewise, in this circumstance, the fact that David and William agreed to arbitrate their disputes with UCFA in accordance with the AAA's rules, but did not agree to arbitration of disputes between themselves, is not clear and unmistakable evidence that they agreed to submit gateway issues concerning disputes between themselves to an arbitrator. Therefore, the trial court did not err by making the gateway determinations itself instead of submitting them to the arbitrator.
We conclude the trial court did not err by granting David's motion to stay the arbitration under section 171.023(a) and enjoin David from making William a party to David's arbitration proceeding with UCFA. We overrule David's issue on appeal.
CONCLUSION
We affirm the trial court's judgment.
/Lana Myers/
LANA MYERS
JUSTICE 151199F.P05
JUDGMENT
On Appeal from the 429th Judicial District Court, Collin County, Texas
Trial Court Cause No. 429-00454-2014.
Opinion delivered by Justice Myers. Justices Bridges and Francis participating.
In accordance with this Court's opinion of this date, the judgment of the trial court is AFFIRMED.
It is ORDERED that appellee WILLIAM L. SWEARINGEN II recover his costs of this appeal from appellant DAVID J. SWEARINGEN. Judgment entered this 14th day of July, 2016.
American Arbitration Association, Commercial Arbitration Rules and Mediation Procedures, R-7, p.13 (Rules amended and effective October 1, 2013), https://www.adr.org/aaa/ShowProperty?nodeId=/UCM/ADRSTG_004103&revision=latestreleased.