Provision Interactive Technologies, Inc., a California Corporation v. Betacorp Management, Inc., a Nevada Corporation ndba Dimensions Network, Inc., No. 03-06-00692-CV (Tex. App.- Feb. 28, 2008)(Opinion by Justice Henson )(order confirming arbitration award affirmed, agreement to arbitrate under TAA found, no FAA preemption) (Before Justices Patterson, Puryear and Henson)
Appeal from 53rd District Court of Travis County
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 53RD JUDICIAL DISTRICT
NO. D-1-GN-04-003092, HONORABLE MARGARET A. COOPER, JUDGE PRESIDING
M E M O R A N D U M O P I N I O N
Appellant Provision Interactive Technologies, Inc. ("Provision") appeals from a final judgment entered on an arbitration award pursuant to the Texas General Arbitration Act (the "TAA"). See Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001-.098 (West 2005). Provision filed an application to vacate the award on the ground that the parties had no agreement to arbitrate under the TAA.
The trial court denied Provision's application and entered judgment on the award against Provision in favor of BetaCorp Management, Inc. ("BetaCorp"). Provision appeals, arguing that the parties did not agree to binding arbitration and that the arbitration agreement is fatally ambiguous. Because we hold that the arbitration clause in the contract between Provision and BetaCorp constitutes an unambiguous agreement to arbitrate under the TAA, we affirm the trial court's judgment.
BACKGROUND
The subject of the arbitration leading to this appeal is a dispute between Provision and BetaCorp regarding an original equipment manufacturer agreement (the "OEM agreement") for the purchase of 3D aerial-imaging kiosk platforms and other services related to the equipment.
Section 27 of the OEM agreement states:
§ 27 Arbitration
The contracting Parties shall attempt to settle the questions at dispute, if any, through direct negotiations. If the direct negotiations remain unsuccessful, prior to the commencement of filing any legal actions against the other, the Parties stipulate to employ Arbitration organized under the statutes or the Courts of the States in which the complaining party is domiciled, California for PITI and Texas for BMI. Venue shall be in the county where the complaining party is domiciled.
At some point after the OEM agreement was signed, BetaCorp sent Provision a notice of material breach, alleging that Provision had revealed proprietary information. BetaCorp and Provision subsequently attempted to settle the dispute through direct negotiations in Texas. When these negotiations proved unsuccessful, Provision requested arbitration in California. BetaCorp did not respond to Provision's request for arbitration, but instead filed an application for arbitration in Travis County, Texas under the TAA. Over Provision's objection, the Travis County trial court entered an order appointing an arbitrator over the dispute.
The parties proceeded to arbitration in Texas under the TAA. On February 15, 2006, the arbitrator signed an arbitration award that awarded BetaCorp $472,500 against Provision, plus attorneys' fees. The arbitration award expressly acknowledged Provision's objections to the arbitration.
Provision filed an application in the trial court to vacate the award on the ground that there was no agreement to arbitrate under the TAA. See id. § 171.088(a)(4). The trial court denied Provision's application, confirmed the award, and entered judgment on the award in the amount of $592,312.19 against Provision. See id. §§ 171.088(c), .092. Provision subsequently filed a motion for new trial, which was denied by the trial court, and this appeal followed.
Provision argues on appeal that the trial court erred in entering judgment on the arbitration award under the TAA because (1) federal law, rather than the TAA, should have been applied in enforcing the arbitration provision, (2) the arbitration provision is fatally ambiguous, and (3) even if state law does apply, the parties did not enter into a valid "agreement to arbitrate" under the TAA that shows the parties intended to be bound by arbitration.
STANDARD OF REVIEW
A trial court's determination of the validity of an arbitration agreement is a legal question subject to de novo review. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). While Texas courts recognize a strong presumption favoring arbitration, that presumption does not apply to the initial determination of whether a valid arbitration agreement exists. Id. Arbitration agreements are interpreted under traditional contract principles. Id.
The issue of whether contractual ambiguity exists is a question of law that we review de novo. In re D. Wilson Constr. Co., 196 S.W.3d 774, 781 (Tex. 2006). A contract is not ambiguous "merely because the parties assert forceful and diametrically opposed interpretations," but only if it is subject to two or more reasonable interpretations. Id.
DISCUSSION
Governing Statute
As a threshold matter, Provision argues that this dispute should be governed by the Federal Arbitration Act (the "FAA"), 9 U.S.C.A. §§ 1-16 (West 1999 & Supp. 2006), rather than the TAA. The FAA applies to arbitration provisions in "any contract affecting commerce, as far as the Commerce Clause of the United States Constitution will reach." In re L&L Kempwood Assocs., L.P., 9 S.W.3d 125, 127 (Tex. 1999).
The present case involves a contract between BetaCorp, a Nevada corporation with its principal place of business in Texas, and Provision, a California corporation with its principal place of business in California, for the purchase of 3D aerial-imaging kiosk platforms to be used in Texas and Oklahoma. The FAA has been applied to contracts containing far fewer connections to interstate commerce. See, e.g., In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex. 2005) (holding FAA applied to Texas medical malpractice case brought by Texans against Texans in Texas state court for torts committed in Texas because Medicare had paid for some of plaintiff's medical expenses); Kempwood, 9 S.W.3d at 127 (holding FAA applied to contract for work to be done on apartments located in Texas by Texas business for Georgia owners); Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 270 n.6 (Tex. 1992) (holding that where Michigan corporation contracted to build dam for a Texas city, the contract "clearly establishes interstate activity"). The contract between Provision and BetaCorp clearly falls within the meaning of interstate commerce and the FAA is applicable to the arbitration provision.
In drafting an arbitration provision, parties are free to specify which statute shall apply to arbitration proceedings. Volt Info. Sci., Inc. v. Board of Tr. of Leland Stanford Jr. Univ., 489 U.S. 468, 472 (1989). However, if the parties do not explicitly state which statute applies, the courts must look to the contract between the parties, applying the FAA if the contract involves interstate commerce. See Kempwood, 9 S.W.3d at 127-28.
In the present case, the OEM agreement states that the parties "stipulate to employ Arbitration organized under the statutes or the Courts of the States in which the complaining party is domiciled." The Texas Supreme Court has held that where a contract does not specifically reference the FAA or the TAA, language generically referring to the law of a particular place invokes both federal and state law. See Wilson, 196 S.W.3d at 778-79 (holding that where contract stated that it shall be "governed by the law of the place where the Project is located," both TAA and FAA applied); Kempwood, 9 S.W.3d at 127-28 (interpreting "the law of the place where the Project is located" to include both TAA and FAA, stating that Houston, where project was located, "is subject to federal law as well as Texas law. The choice-of-law provision did not specifically exclude the application of federal law, and absent such an exclusion we decline to read the choice-of-law clause as having such an effect."). Furthermore, the FAA is considered "part of the substantive law of Texas." Capital Income Properties-LXXX v. Blackmon, 843 S.W.2d 22, 23 (Tex. 1992). As a result, we hold that the parties' arbitration provision invoking "the statutes or the Court of the State[]" of Texas necessarily includes both the FAA and the TAA.
The FAA and the TAA, however, are not mutually exclusive. See Wilson, 196 S.W.3d at 780 ("The mere fact that a contract affects interstate commerce, thus triggering the FAA, does not preclude enforcement under the TAA as well."); W. Dow Hamm III Corp. v. Millennium Income Fund, L.L.C., 237 S.W.3d 745, 751 (Tex. App.--Houston 2007, orig. proceeding) ("Even when the FAA applies to an arbitration agreement, however, the parties may invoke the TAA to enforce the agreement, as long as nothing in the TAA would thwart the FAA's policies or goals in the particular context.").
The FAA preempts the TAA only if the following four factors are present: (1) the agreement is in writing, (2) it involves interstate commerce, (3) it can withstand scrutiny under traditional contract defenses, and (4) state law affects the enforceability of the agreement. Nexion, 173 S.W.3d at 69. It is undisputed that the OEM agreement is in writing, and as discussed above, it clearly involves interstate commerce. Furthermore, neither party has asserted any traditional contract defense against enforcement of the arbitration agreement. Therefore, the only factor at issue in our determination of whether the FAA preempts the TAA in this case is whether Texas law affects the enforceability of the arbitration agreement.
In order to satisfy the fourth factor necessary for preemption, Texas law must refuse to enforce an arbitration agreement that the FAA would enforce, either because (1) the TAA has expressly exempted the agreement from coverage or (2) the TAA has imposed an enforceability requirement not found in the FAA. Wilson, 196 S.W.3d at 780. Where parties have asserted nothing in the TAA that would subvert enforcement of the agreement at issue, the FAA does not preempt the TAA. Id. In the present case, the parties do not argue that the TAA expressly exempts the agreement at issue from coverage, nor do they argue that the TAA imposes an enforceability requirement not found in the FAA. (1) In fact, the converse is true, as Provision argues that section 9 of the FAA requires the parties to expressly agree that judgment shall be entered on an award before such judgment may be entered, while the TAA does not impose such a requirement. (2)
The FAA preempts only those state laws that undermine the goals and policies of the FAA. Volt, 489 U.S. at 477-78. The FAA was initially designed "to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219-220 (1985). "The primary purpose of the Federal Act is to require the courts to compel arbitration when the parties have so provided in their contract, despite any state legislative attempts to limit the enforceability of arbitration agreements." Anglin, 842 S.W.2d at 271. In light of this purpose, the FAA preempts only those state laws that prevent the enforcement of arbitration agreements, without affecting state laws that foster the federal policy favoring arbitration. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57-58 (1995); see also Wachovia Sec., LLC v. Emery, 186 S.W.3d 107, 111 (Tex. App.--Houston [1st Dist.] 2005, orig. proceeding) ("The FAA displaces state law only to the extent the state law conflicts with the FAA's purpose of enforcing the parties' contractual obligation to arbitrate.").
Because the TAA does not prohibit the enforceability of the arbitration agreement between Provision and BetaCorp, and because it promotes, rather than undermines, the goals and policies of the FAA, the FAA does not preempt the TAA in this case. (3) As a result, it was not improper for BetaCorp to file its application for arbitration under the TAA or for arbitration proceedings to be conducted under the TAA, and we will apply the TAA in addressing Provision's remaining arguments on appeal.
Ambiguity
Provision argues that the arbitration provision is ambiguous because it does not specify a governing statute, meaning arbitration could conceivably be conducted under the TAA, the FAA, or the Texas Alternative Dispute Resolution Act (the "Texas ADR Act"), Tex. Civ. Prac. & Rem. Code Ann. §§ 154.001-.073 (West 2005).
Arbitration provisions that fail to specify a particular statute to govern arbitration are not considered fatally ambiguous by Texas courts. See Wilson, 196 S.W.3d at 778-79 (interpreting arbitration agreement to invoke both federal and state law when "contracts in question reference neither the FAA nor TAA," but merely invoke law of place where project is located); Henry v. Gonzalez, 18 S.W.3d 684, 688 (Tex. App.--San Antonio 2000, pet. dism'd by agr.) (applying interstate-commerce analysis to determine that TAA applies to arbitration provision, despite fact that contract was internally inconsistent in naming both TAA and FAA as governing statute); In re Education Mgmt. Corp., Inc., 14 S.W.3d 418, 422 (Tex. App.--Houston [14th Dist.] 2000, orig. proceeding) (holding that where agreement is silent as to application of FAA or TAA, question of whether transaction involves interstate commerce is issue of fact). We have already resolved the interaction between the TAA and the FAA in relation to the OEM agreement. Furthermore, the Texas ADR Act is clearly inapplicable, as it applies solely to cases in which a court has referred a pending dispute to alternative dispute resolution, which is not the case here. See Tex. Civ. Prac. & Rem. Code Ann. § 154.021; Porter & Clements, L.L.P. v. Stone, 935 S.W.2d 217, 220 (Tex. App.--Houston [1st Dist.] 1996, orig. proceeding). As a result, we hold that the arbitration agreement's failure to specify a governing statute does not render the agreement ambiguous.
Provision also argues that the arbitration agreement is ambiguous because it requires that arbitration take place under the law of the state in which "the complaining party is domiciled," and does not provide which law will apply in the event that there is more than one complaining party. Provision asserts that both Provision and BetaCorp are complaining parties, emphasizing the fact that Provision requested arbitration in California prior to BetaCorp filing an arbitration application in Texas. However, the record reflects that Provision requested California arbitration only in response to the letter from BetaCorp dated July 29, 2004, which served as a notice of material breach of the contract. In light of the circumstances, it would appear from the notice of material breach that BetaCorp was in fact the "complaining party," as contemplated by the arbitration agreement. While Provision asserts that there are now two complaining parties, a more accurate representation of the facts is that BetaCorp is the complaining party, while Provision merely sought arbitration in California in order to resolve BetaCorp's complaints. This view of the contract is consistent with the trial court's order on BetaCorp's application, which states that BetaCorp "is a 'complaining party' for purposes of the arbitration clause in the OEM agreement . . . by virtue of the letter dated July 29, 2004 from James D. Jameson, for [BetaCorp], to Samuel J. Tata, for [Provision]."
Furthermore, we must give effect to the objective intention of the parties as expressed or as is apparent in the writing, recognizing that a reasonable interpretation of an agreement is preferred to one that is unreasonable. Westwind Exploration, Inc. v. Homestate Sav. Ass'n, 696 S.W.2d 378, 382 (Tex. 1985). The arbitration provision can reasonably be interpreted to mean that in a dispute regarding the OEM agreement, arbitration is governed by the law of the state where the initial complaining party is domiciled. To hold otherwise would lead to the unreasonable result that the parties agreed to an arbitration provision in which a non-complaining party could assert a counter-complaint and file for arbitration in the state of its domicile, causing competing applications to be filed in two different states. A contract is ambiguous only if it is subject to two or more reasonable interpretations after applying the pertinent rules of construction. Wilson, 196 S.W.3d at 781. Because there is only one reasonable interpretation of the arbitration provision's "complaining party" language, we hold that the provision is unambiguous.
Agreement to Arbitrate
Provision argues that the arbitration provision does not constitute an "agreement to arbitrate" under the TAA because it does not expressly state that arbitration will be binding, and it dictates that arbitration will take place "prior to the commencement of filing any legal actions," which, Provision argues, necessarily contemplates non-binding arbitration.
The TAA allows a court to vacate an arbitration award if (1) there was no "agreement to arbitrate," (2) the issue was not adversely determined in a proceeding to compel arbitration under subchapter B of the TAA, and (3) the party asking the court to vacate the award did not participate in arbitration without objection. Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(4).
BetaCorp, in its application for arbitration, expressly disclaimed any request for relief under subchapter B of the TAA, instead seeking orders from the court under subchapters C and D. Furthermore, Provision consistently objected to arbitration proceedings, expressly reserving all rights to contest any binding arbitration award entered in Texas in its filings in the arbitration. As a result, our determination of whether the arbitration award should be vacated turns solely on whether there was an "agreement to arbitrate."
Provision argues that the parties did not agree to binding arbitration so, as a result, there was no valid agreement to arbitrate under the TAA because the TAA contemplates only binding arbitration.
We agree with Provision's view that the TAA contemplates only binding arbitration, as the TAA makes no provision for nonbinding arbitration. See In re Daniel S. Cartwright, 104 S.W.3d 706, 711 (Tex. App.--Houston [1st Dist.] 2003, orig. proceeding) ("The TAA necessarily contemplates that the arbitration award be binding, and it makes no provision for a nonbinding arbitration procedure."); Porter, 935 S.W.2d at 221-22 ("[B]y its very nature, arbitration under the Texas Arbitration Act is a mechanism by which the parties to a contract reach a binding resolution to their differences.").
However, we disagree with Provision's contention that the parties did not agree to binding arbitration. The mere omission of the term "binding" from an arbitration agreement does not automatically transform it into a nonbinding arbitration agreement. Porter, 935 S.W.2d at 222. In Porter, the court held that arbitration under the TAA is necessarily binding, even where there is no express agreement that arbitration will be binding. Id. In reaching its conclusion, the court in Porter relied on McKee v. Home Buyers Warranty Corp. II, 45 F.3d 981 (5th Cir. 1995), a Fifth Circuit case applying Louisiana arbitration law. See Porter, 935 S.W.2d at 221.
The facts of McKee are similar to the facts of the present case. The contract at issue in McKee stated that arbitration "shall precede any litigation attempted by either party." 45 F.3d at 983. This language is similar to the OEM agreement, which required arbitration "prior to the commencement of filing any legal actions." Based on this language, one of the parties argued that arbitration was merely a condition precedent to litigation, and therefore that the contract called for nonbinding arbitration. Id. The court rejected this view, concluding that under Louisiana law, arbitration is by definition a binding procedure because, like the TAA, "the Louisiana law simply makes no provision for non-binding arbitration." Id. Therefore, if the parties agreed to a nonbinding procedure, they did not agree to arbitration. Id. The court stated that in order to find the condition-precedent language to be ambiguous, it would have to determine that the parties did not really agree to arbitrate, even though the contract explicitly calls for arbitration. Id. "Such a stretch is plainly contrary to the federal and state policies favoring arbitrability." Id.
Arbitration under the TAA is by definition a binding procedure. Porter, 935 S.W.2d at 221-22. Like the court in McKee, we are reluctant to hold that BetaCorp and Provision agreed to a nonbinding procedure, because to do so would lead us to the conclusion that the parties did not agree to arbitrate, despite the fact that the contract explicitly calls for arbitration. (4) As a result, we hold that the parties agreed to binding arbitration.
CONCLUSION
While the FAA is applicable to the parties' arbitration agreement, it does not preempt the TAA in this case. We hold that the arbitration agreement constitutes an unambiguous agreement to arbitrate, and provides for binding arbitration under the TAA. As a result, we affirm the trial court's judgment.
__________________________________________
Diane Henson, Justice
Before Justices Patterson, Puryear and Henson
Affirmed
Filed: February 28, 2008
1. An example of an enforceability requirement imposed by state law that is not found in the FAA is the TAA's requirement that arbitration agreements in personal injury cases must include the signature of each party's counsel. See Tex. Civ. Prac. & Rem. Code Ann. § 171.002(c)(2) (West 2005). This requirement has led to federal preemption of the TAA when it interferes with enforceability of an arbitration agreement. See In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex. 2005).
2. Section 9 of the FAA reads, in relevant part:
If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title.
9 U.S.C.A. § 9 (West 1999).
3. Due to our holding, it is not necessary for us to determine whether the trial court could have entered judgment on the arbitration award if the FAA had preempted the TAA. Similarly, we express no opinion regarding whether the FAA is applicable to non-binding arbitration agreements.
4. The fact that the arbitration provision states that arbitration must occur "prior to the commencement of filing any legal actions" is not inconsistent with a mutual agreement to binding arbitration because subsequent legal action is required in order to enforce arbitration awards under the TAA; such awards are not self-executing. In order to enforce an arbitration award, the party seeking enforcement must apply to the trial court for confirmation of the award. See Tex. Civ. Prac. & Rem. Code Ann. § 171.087 (West 2005). Upon confirmation, the trial court shall enter an enforceable judgment or decree on the award. Id. § 171.092.
Showing posts with label arbitration cases. Show all posts
Showing posts with label arbitration cases. Show all posts
Friday, March 7, 2008
Sunday, August 26, 2007
Austin court of appeals affirms denial of motion to compel arbitration - agreement to arbitrate not shown
Appellate panel also holds that trial court's ruling on motion to reconsider denial of motion to compel arbitration is not subject to interlocutory appeal. Aggrieved party must appeal arbitration denial itself within 20-day time-frame allowed for accelerated appeals. Case involved both attempted interlocutory appeal of order denying arbitration under the TAA and mandamus petition predicated on applicability of FAA.
AXA Financial, Inc.; AXA Advisors, L.L.C.; AXA Equitable Life Insurance Co., f/k/a Equitable Life Assurance Society of The United States and John Lefferts v. C. Daniel Roberts as Chapter 7 Trustee of the Bankruptcy Estate of L. Kent Abney, No. 03-07-00079-CV (Tex.App.- Austin, Aug 23, 2007)(Opinion by Justice Patterson)(arbitration in employment context, securities dealers)(Before Justices Patterson, Pemberton and Waldrop)
Appeal from 345th District Court of Travis County
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT
NO. D-1-GN-06-003736, HONORABLE STEPHEN YELENOSKY, JUDGE PRESIDING
M E M O R A N D U M O P I N I O N BY JUSTICE JAN PATTERSON
In this combined original proceeding and accelerated interlocutory appeal, AXA Financial, Inc., AXA Advisors, L.L.C., AXA Equitable Life Insurance Co., f/k/a Equitable Life Assurance Society of the United States, and John Lefferts (collectively "relators") bring a petition for writ of mandamus and an interlocutory appeal complaining of the trial court's order denying arbitration. We previously consolidated the two proceedings, (1) and now dismiss the interlocutory appeal for lack of jurisdiction and deny the writ of mandamus.
FACTUAL AND PROCEDURAL BACKGROUND
C. Daniel Roberts, as Chapter 7 Trustee of the Bankruptcy Estate of L. Kent Abney, filed suit against relators in 2006, alleging breach of contract, fraud, breach of fiduciary duty, and constructive fraud stemming from Abney's association and employment relationship with relators. (2)
In his pleadings, Abney alleges (1) that he served in various roles for the AXA entities from the mid-1990s to 2002, including as a "registered representative/agent selling financial products," manager, and "National Liaison to Professional Advisors," and (2) that Lefferts also worked for the AXA entities and with Abney from the mid-1990s to 2002, including allegedly sharing compensation with Abney due to "Abney's position and work." Abney's pleadings allege that he relinquished his role as manager in 2000 based upon representations by Lefferts and others that he would be offered a headquarters liaison position, and that relators wrongfully terminated his "Associate Agency Manager" contract after not following through on their commitment to Abney on the liaison position in 2002.
In response, relators in their answers raised the defense that Abney's claims were subject to binding arbitration. Thereafter, relators filed a motion to compel arbitration before the National Association of Securities Dealers ("NASD") and to stay the court proceedings pending the completion of arbitration. In their motion to compel, relators alleged that Abney executed a Uniform Application for Securities Industry Registration or Transfer ("Form U-4") (3) in approximately 1987. They further alleged that the Form U-4 contained a pre-dispute arbitration clause that incorporated by reference the arbitration provisions of the NASD Code, and that the Form U-4 and the NASD Code require arbitration of Abney's asserted claims.
Relators, however, did not include the 1987 executed Form U-4 as evidence in support of their motion. Relators attached as evidence an amended Form U-4 that Abney signed in May 2005, along with a NASD Rule 3080 Acknowledgment form and a 2005 letter from AXA Equitable Life Insurance Company to Abney. (4) The 2005 Form U-4 shows that Abney's firm was AXA Advisors, LLC. The NASD Rule 3080 Acknowledgment form includes the following language:
The NASD Form U-4 contains a pre-dispute arbitration clause. You should read that clause now. Before signing the Form U-4, you should understand the following: (1) You are agreeing to arbitrate any dispute, claim or controversy that may arise between you and your firm, or a customer, or any other person, that is required to be arbitrated under the rules of the self-regulatory organizations with which you are registering.
Abney, however, executed both the 2005 U-4 Form and the Rule 3080 Acknowledgment form subject to an attachment in which he expressly refused to consent to pre-dispute arbitration and reserved his right to file suit in a court of law.
Prior to a hearing on the motion to compel, the parties entered into a Rule 11 Agreement that Abney would not seek a continuance of the hearing in exchange for relators limiting their evidence to the evidence attached to their motion to compel. The parties further agreed that if relators located a 1987 Form U-4 signed by Abney, that they would produce it prior to the hearing, and Abney reserved the right to seek a continuance and additional discovery at that point.
At a hearing on relators' motion to compel, neither party presented any evidence or requested an evidentiary hearing. After the hearing, the trial court denied the motion with prejudice, finding that relators had failed to carry their burden to establish a valid agreement to arbitrate the disputed claims between the parties:
After considering Defendants' Motion to Compel Arbitration and Stay Proceedings, the response, the pleadings, the evidence, and the arguments of counsel, if any, the Court finds that Defendants have failed to sustain their burden of proving the existence of a valid agreement to arbitrate the claims asserted in this dispute. Consequently, the Court finds Defendants' Motion to Compel Arbitration and Stay Proceedings to be without merit and DENIES the motion with prejudice.
Relators then filed a motion to reconsider, attaching additional evidence in support of their motion to compel. As additional evidence, relators provided an affidavit from a custodian of records, Form U-4s that Abney allegedly signed in 1989, 1994, and 2003, and a NASD Rule 3080 Acknowledgment form that Abney allegedly signed in 2003. The 2003 Form U-4 states that it is a "U4-Amendment." The affidavit from a custodian of records of "AXA Financial/AXA Equitable Life Insurance Company" states that the Form U-4s and the Rule 3080 acknowledgment were kept in the ordinary course of business and that Equitable Life Assurance Society of the U.S. was a predecessor company to "AXA Financial/AXA Equitable Life Insurance Company."
The Form U-4s, similar to the 2005 Form U-4, contain language that Abney "agree[s] to arbitrate any dispute, claim or controversy that may arise between [Abney] and [his] firm, . . . or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organization with which [he] register[s]." On the Form U-4s, Abney indicated that he was registering with NASD. The identified firm is "Equitable Life Assurance Society of the U.S." on the 1989 and 1994 Form U-4s, and the identified firm is "AXA Advisors, LLC" on the 2003 Form U-4.
Abney did not file a response to the motion to reconsider. The trial court considered the motion by submission and denied it. Relators' interlocutory appeal under the Texas Arbitration Act ("TAA") (5) and their petition for writ of mandamus under the Federal Arbitration Act ("FAA") (6) followed.
ANALYSIS
When a trial court denies a motion to compel based on the TAA, the motion is reviewed by interlocutory appeal. Tex. Civ. Prac. & Rem. Code Ann. § 171.098 (West 2005). When the trial court denies a motion to compel based on the FAA, the motion is reviewed by mandamus. Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992) (orig. proceeding). Because relators seek to compel arbitration under the TAA by interlocutory appeal and under the FAA by mandamus, we have consolidated the two proceedings and are rendering a decision disposing of both simultaneously. (7)
Interlocutory appeal under the TAA
Turning first to relators' interlocutory appeal under the TAA, the interlocutory appeal of the denial of a motion to compel arbitration is accelerated. Tex. Civ. Prac. & Rem. Code Ann. § 171.098; Tex. R. App. P. 28.1. To timely perfect an accelerated appeal, the notice of appeal must be filed within twenty days after the order or judgment. Tex. R. App. P. 26.1(b); In re K.A.F., 160 S.W.3d 923, 927 (Tex. 2005).
Citing no authority, relators contend that their notice of appeal was timely because their appeal is from the trial court's denial of the motion to reconsider and their notice was filed within 20 days of that order, and the motion to reconsider was independently appealable. They contend that, by attaching additional evidence to the motion to reconsider, they started a new timetable for perfecting the accelerated appeal from the trial court's denial of their motion to compel arbitration. We disagree.
Interlocutory orders may be appealed only if permitted by statute and only to the extent jurisdiction is conferred by statute. Jack B. Anglin, 842 S.W.2d at 272. The applicable provision of the TAA permitting interlocutory appeals from the denial of a motion to compel arbitration refers only to orders "denying an application to compel arbitration" and not to motions to reconsider the denial. Tex. Civ. Prac. & Rem. Code Ann. § 171.098.
Relators' motion to reconsider was not independently appealable under the TAA so as to start a new timetable for perfecting the accelerated appeal. See id. (Subsection 171.098(b) specifies that "The appeal shall be taken in the manner and to the same extent as an appeal from an order or judgment in a civil action."); Tex. R. App. P. 28.1; In re K.A.F., 160 S.W.3d at 926-27 (motion for new trial does not extend time to perfect accelerated appeal); Digges v. Knowledge Alliance, Inc., 176 S.W.3d 463, 464 (Tex. App.--Houston [1st Dist.] 2004, no pet.) (motion to reconsider order granting special appearance not "independently appealable"; court lacked jurisdiction over accelerated interlocutory appeal for failure to timely file notice of appeal); Denton County v. Huther, 43 S.W.3d 665, 667 (Tex. App.--Fort Worth 2001, no pet.) (order denying motion to reconsider and renewed plea to the jurisdiction not a distinct appealable interlocutory order with separate timetable for appeal).
Because relators failed to file their notice within the time prescribed from the order denying the motion to compel and because they only appealed the motion to reconsider, this Court lacks jurisdiction to consider the appeal. We, therefore, dismiss relators' interlocutory appeal under the TAA for lack of jurisdiction and consider relators' petition for mandamus under the FAA.
Mandamus under the FAA
Relators contend that the trial court abused its discretion by denying their motion to compel arbitration and their motion for reconsideration under the FAA. We disagree.
1. Standard of Review
Mandamus will lie only to correct a clear abuse of discretion. Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992) (orig. proceeding). Mandamus is appropriate to correct a clear abuse of discretion when there is no adequate remedy by appeal. In re D. Wilson Construction Co., 196 S.W.3d 774, 780-81 (Tex. 2006). There is no adequate remedy by appeal when a trial court improperly denies a motion to compel arbitration under the FAA, and mandamus is the proper means for reviewing an order denying arbitration under the FAA. Id.
To be entitled to compel arbitration under the FAA, relators had the initial burden to establish (i) the existence of a valid arbitration agreement between the parties and (ii) that the claims Abney asserted against them fell within the scope of that agreement. See In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005); In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 572-73 (Tex. 1999). "Generally under the FAA, state law governs whether a litigant agreed to arbitrate, and federal law governs the scope of an arbitration clause." In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005). When the movant has proven there is an arbitration agreement between the parties, a presumption arises that all disputed issues between the parties must be arbitrated. Kellogg, 166 S.W.3d at 737; In re Jebbia, 26 S.W.3d 753, 757 (Tex. App.--Houston [14th Dist.] 2000, orig. proceeding).
2. The Procedure to be Followed on a Motion to Compel Arbitration
A motion to compel arbitration is similar to a motion for partial summary judgment, subject to the same evidentiary standards. In re Jebbia, 26 S.W.3d at 756-57. No presumption of arbitrability arises until the court has found there is an enforceable arbitration agreement. Id.
To compel arbitration on a summary motion, a trial court must first determine as a matter of law that the parties have agreed to arbitrate. Id. (citing Jack B. Anglin, 842 S.W.2d at 269). This burden of establishing the existence of the arbitration agreement is generally evidentiary. See In re Oakwood Mobile Homes, 987 S.W.2d at 573 (establishing the existence of the agreement, "Here, Oakwood met its burden of presenting evidence of an arbitration agreement that governs the dispute between the parties.") (emphasis added; citations omitted); In re Koch Indus., Inc., 49 S.W.3d 439, 444 (Tex. App.--San Antonio 2001, orig. proceeding) ("The party seeking arbitration has the initial burden to present evidence of an arbitration agreement.").
Because a benefit of arbitration may lie in the expedited and less expensive disposition of a dispute, a trial court may summarily decide whether to compel arbitration on the basis of affidavits, pleadings, discovery, and stipulations. Jack B. Anglin, 842 S.W.2d at 269. I
n arriving at this procedure, the Texas Supreme Court drew from established summary judgment procedure. Id.; In re Jebbia, 26 S.W.3d at 756-57. But, if the party alleging an arbitration agreement cannot prove an agreement exists and that it requires arbitration of the issues in dispute as a matter of law on the basis of affidavits, pleadings, discovery, and stipulations, "it must seek an evidentiary hearing to compel arbitration." In re Jebbia, 26 S.W.3d at 758; see also Jack B. Anglin, 842 S.W.2d at 269; In re Bunzl USA, Inc., 155 S.W.3d 202, 208 (Tex. App.--El Paso 2004, orig. proceeding).
The initial burden of the party seeking to compel arbitration--to establish the arbitration agreement's existence--includes proving the entity seeking to enforce the arbitration agreement was a party to it or had the right to enforce the agreement notwithstanding. Mohamed v. Auto Nation USA Corp., 89 S.W.3d 830, 836-38 (Tex. App.--Houston [1st Dist.] 2002, no pet.) (successor employer did not meet initial burden of showing an arbitration agreement that it could enforce as non-signatory); Pepe Int'l Dev. Co. v. Pub Brewing Co., 915 S.W.2d 925, 931
(Tex. App.--Houston [1st Dist.] 1996, no writ) (combined appeal and orig. proceeding) (certain defendants were not parties to contracts and could not compel arbitration under the terms of the contracts).
If that summary proof intrinsically raises issues about the enforceability, scope or existence of the agreement, the movant's summary proof should include any evidence that resolves those issues without creating an issue of material fact. In re Jebbia, 26 S.W.3d at 757. To resist summary arbitration, the non-movant need only raise an issue of material fact as to the party's entitlement to arbitration. Id.
3. Establishing the Existence of an Arbitration Agreement
Public policy favors the submission of disputes to arbitration, but arbitration is a creature of contract, and a clause requiring arbitration will be interpreted under contract principles. In re Big 8 Food Stores, Ltd., 166 S.W.3d 869, 876 (Tex. App.--El Paso 2005, orig. proceeding); Mohamed, 89 S.W.3d at 835; Belmont Constructors, Inc. v. Lyondell Petrochemical Co., 896 S.W.2d 352, 357 (Tex. App.--Houston [1st Dist.] 1995, no writ).
A party seeking to compel arbitration must establish its right to that remedy under the contract. A clause requiring arbitration will be enforced according to its plain meaning unless this would defeat the intention of the parties. The parties' agreement and intent to submit to arbitration must be unambiguous. In re Big 8 Food Stores, 166 S.W.3d at 875; Porter & Clements, L.L.P. v. Stone, 935 S.W.2d 217, 220 (Tex. App.--Houston [1st Dist.] 1996, orig. proceeding). When we are called upon to decide whether the parties have agreed to arbitrate, we do not resolve doubts or indulge a presumption in favor of arbitration. In re Jebbia, 26 S.W.3d at 757; see also American Heritage Life Ins. Co. v. Lang, 321 F.3d 533, 537-38 (5th Cir. 2003). Instead, we apply standard contract principles to determine whether a valid arbitration agreement exists. Lang, 321 F.3d at 538; see also Ysleta Indep. Sch. Dist. v. Godinez, 998 S.W.2d 700, 702 (Tex. App.--El Paso 1999, no pet.); In re Big 8 Food Stores, 166 S.W.3d at 876.
The existence of a valid agreement is determined by the substantive contract law of Texas. Tenet Healthcare, Ltd. v. Cooper, 960 S.W.2d 386, 388 (Tex. App.--Houston [14th Dist.] 1998, writ dism'd w.o.j.). For there to be an arbitration agreement under Texas contract law, there must be: (1) an offer; (2) an acceptance in compliance with the terms of the offer; (3) a meeting of the minds; (4) each party's consent to the terms; and (5) execution of the contract with the intent that it be mutual and binding. McCulley Fine Arts Gallery, Inc. v. "X" Partners, 860 S.W.2d 473, 477 (Tex. App.--El Paso 1993, no writ).
The issue then is whether relators sustained their burden to show that Abney contractually agreed to arbitrate the claims that he has asserted against each of them under the Form U-4s or other documents that were before the trial court. See Oakwood Mobile Homes, 987 S.W.2d at 573. We conclude that relators did not sustain their burden of proving the existence of a valid agreement to arbitrate the claims asserted in this dispute with the evidence they presented with either their motion to compel arbitration or their motion to reconsider.
4. Motion to Compel Arbitration
In support of their motion to compel arbitration, relators attached documents to their motion, all of which were signed in 2005 after the dispute occurred--a Form U-4 executed by Abney, a NASD Rule 3080 Acknowledgment form, and a letter from AXA Equitable Life Insurance Company to Abney. The motion was unverified and no affidavit was attached to the motion--only documents were attached.
The documents do not support compelling Abney to arbitrate the claims in his lawsuit. The forms were executed after the relevant time period asserted in Abney's pleadings and, on the forms, Abney expressly refused to arbitrate claims. AXA's letter to Abney was also from 2005.
In sum, relators failed to produce any evidence of an agreement to arbitrate the dispute between the parties. The only alleged agreement before the court was a Form U-4 in which Abney specifically refused to arbitrate his claims. Reviewing the submitted evidence in light of Abney's pleaded claims, we cannot say that the trial court abused its discretion in denying the motion to compel arbitration.
5. Motion to Reconsider
Relators attached additional evidence to their motion to reconsider--Form U-4s allegedly signed by Abney in 1989, 1994, and 2003, a NASD Rule 3080 Acknowledgment form allegedly signed by Abney in 2003, and the custodial affidavit, but relators did not raise any new ground for compelling arbitration in the motion. They sought reconsideration based upon the additional evidence that was "not previously available." Relators contend on appeal, the evidence was properly before the court, citing Texas Rule of Civil Procedure 270 and In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 68-69 (Tex. 2005), and that the additional evidence requires the court to compel arbitration.
Texas Civil Procedure Rule 270 provides that a trial court may allow additional evidence to be offered at any time when it clearly appears to be necessary to the administration of justice. Tex. R. Civ. P. 270. A trial court's decision whether to reopen the evidence for the purpose of admitting new evidence is reviewed under the abuse of discretion standard. Naguib v. Naguib, 137 S.W.3d 367, 372-73 (Tex. App.--Dallas 2004, pet. denied). In determining whether to permit additional evidence, one factor that a trial court may consider under rule 270 is the moving party's due diligence in obtaining the evidence. Id. at 372. Relators' explanation for not attaching the additional evidence to their initial motion to compel was that it was "previously unavailable." This explanation fails to demonstrate due diligence in obtaining the documents.
Relators also contend that evidence attached to their motion to reconsider was properly before the court based upon In re Nexion. In In re Nexion, the initial motion to compel was sought under the TAA, and the motion to reconsider was sought under the FAA relying on evidence that supported a finding that "interstate commerce" was involved. 173 S.W.3d at 68-69. The court granted the writ and ordered arbitration on the new ground asserted in the motion to reconsider. Id. Relators, in contrast, did not urge a new ground in their motion to reconsider. In re Nexion does not address a movant's procedural requirements for the admission of new evidence when no new ground is asserted in a motion to reconsider and leave to file additional evidence was not sought or granted.
The trial court, unlike in In re Nexion, also had before it a Rule 11 Agreement between the parties. The parties agreed:
[Abney] agree[s] to forego discovery before the arbitration hearing with [relators'] agreement that [relators] will not rely on any evidence at the hearing other than what is attached to [relators'] Motion to Compel Arbitration. This is only about evidence and does not affect arguing the law. [Relators] did mention there is one possible exception: if [relators] do find a 1987 U-4 signed by Mr. Abney, [relators] will produce it prior to the hearing, can rely upon it and [Abney] reserves the right at that point to ask for continuance and some discovery.
There is no showing in the record that the Rule 11 Agreement between the parties was modified prior to filing the new evidence with the motion to reconsider. Under the Rule 11 Agreement, the relators bound themselves to the state of the evidentiary record as it was on the date of the hearing on the motion to compel. That record was not sufficient to compel arbitration. Without an agreed modification of the Rule 11 Agreement, relators were not free to alter the evidentiary record with new evidence. In light of the Rule 11 Agreement between the parties, we cannot say that the trial court abused its discretion in denying the motion to reconsider.
On the record properly before the trial court as of the date of the hearing on relators' motion to compel, the trial court reasonably concluded that relators did not establish the existence of an agreement to arbitrate the claims in dispute as a matter of law. Therefore, the court did not abuse its discretion by refusing to compel arbitration.
CONCLUSION
Having found relators' notice of appeal untimely under the TAA and not proper, we dismiss the interlocutory appeal for lack of jurisdiction. We further deny the writ of mandamus under the FAA. We conclude that the trial court did not abuse its discretion in denying the motion to compel arbitration and stay the proceedings and in denying the motion to reconsider.
__________________________________________
Jan P. Patterson, Justice
Before Justices Patterson, Pemberton and Waldrop
Dismissed for Want of Jurisdiction
Filed: August 23, 2007
1. See In re AXA Financial, Inc., 03-07-00078-CV (Tex. App.--Austin March 29, 2007) (mem. op.).
2. Abney declared bankruptcy in 2004, resulting in his claims being brought by the Chapter 7 bankruptcy trustee, C. Daniel Roberts.
3. A Form U-4 is an agreement between self-regulatory organizations, including NASD and an applicant. In re Prudential Ins. Co., 133 F.3d 225, 230 (3d Cir. 1998). The form was adopted in an effort to regulate the securities industry. Id. Texas courts have found the Form U-4 to be a contract that involves interstate commerce and its arbitration clause enforceable under the FAA. In re Merrill Lynch, Pierce, Fenner & Smith, Inc., 195 S.W.3d 807, 813 (Tex. App.--Dallas 2006, no pet.); Wachovia Securities, LLC v. Emery, 186 S.W.3d 107, 112 (Tex. App.--Houston [1st Dist.] 2005, orig. proceeding).
4. The letter from AXA Equitable Life Insurance Company addressed Abney's refusal to agree to pre-dispute arbitration. The letter advised him that he was bound by the rules of NASD when he signed the U-4 application in 1987, including a consent to arbitrate any matters that arose between Abney and his "firm." Abney objected to the letter as hearsay. There is no written ruling on the objection in the clerk's record and there is no reporter's record of the hearing.
5. Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001-.098 (West 2005).
6. 9 U.S.C.A. §§ 1-16 (West 1999).
7. The FAA does not preempt the TAA unless the TAA would refuse to enforce an arbitration agreement that the FAA would enforce so that both acts may apply in a given case.
In re D. Wilson Construction Co., 196 S.W.3d 774, 779-80 (Tex. 2006). The Texas Supreme Court has reasoned that when a court of appeals is confronted with an interlocutory appeal and a mandamus proceeding seeking to compel arbitration that the better course of ction is to consolidate the two proceedings and render a decision that disposes of both simultaneously. In re Valero Energy Corp., 968 S.W.2d 916, 916-17 (Tex. 1998).
AXA Financial, Inc.; AXA Advisors, L.L.C.; AXA Equitable Life Insurance Co., f/k/a Equitable Life Assurance Society of The United States and John Lefferts v. C. Daniel Roberts as Chapter 7 Trustee of the Bankruptcy Estate of L. Kent Abney, No. 03-07-00079-CV (Tex.App.- Austin, Aug 23, 2007)(Opinion by Justice Patterson)(arbitration in employment context, securities dealers)(Before Justices Patterson, Pemberton and Waldrop)
Appeal from 345th District Court of Travis County
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT
NO. D-1-GN-06-003736, HONORABLE STEPHEN YELENOSKY, JUDGE PRESIDING
M E M O R A N D U M O P I N I O N BY JUSTICE JAN PATTERSON
In this combined original proceeding and accelerated interlocutory appeal, AXA Financial, Inc., AXA Advisors, L.L.C., AXA Equitable Life Insurance Co., f/k/a Equitable Life Assurance Society of the United States, and John Lefferts (collectively "relators") bring a petition for writ of mandamus and an interlocutory appeal complaining of the trial court's order denying arbitration. We previously consolidated the two proceedings, (1) and now dismiss the interlocutory appeal for lack of jurisdiction and deny the writ of mandamus.
FACTUAL AND PROCEDURAL BACKGROUND
C. Daniel Roberts, as Chapter 7 Trustee of the Bankruptcy Estate of L. Kent Abney, filed suit against relators in 2006, alleging breach of contract, fraud, breach of fiduciary duty, and constructive fraud stemming from Abney's association and employment relationship with relators. (2)
In his pleadings, Abney alleges (1) that he served in various roles for the AXA entities from the mid-1990s to 2002, including as a "registered representative/agent selling financial products," manager, and "National Liaison to Professional Advisors," and (2) that Lefferts also worked for the AXA entities and with Abney from the mid-1990s to 2002, including allegedly sharing compensation with Abney due to "Abney's position and work." Abney's pleadings allege that he relinquished his role as manager in 2000 based upon representations by Lefferts and others that he would be offered a headquarters liaison position, and that relators wrongfully terminated his "Associate Agency Manager" contract after not following through on their commitment to Abney on the liaison position in 2002.
In response, relators in their answers raised the defense that Abney's claims were subject to binding arbitration. Thereafter, relators filed a motion to compel arbitration before the National Association of Securities Dealers ("NASD") and to stay the court proceedings pending the completion of arbitration. In their motion to compel, relators alleged that Abney executed a Uniform Application for Securities Industry Registration or Transfer ("Form U-4") (3) in approximately 1987. They further alleged that the Form U-4 contained a pre-dispute arbitration clause that incorporated by reference the arbitration provisions of the NASD Code, and that the Form U-4 and the NASD Code require arbitration of Abney's asserted claims.
Relators, however, did not include the 1987 executed Form U-4 as evidence in support of their motion. Relators attached as evidence an amended Form U-4 that Abney signed in May 2005, along with a NASD Rule 3080 Acknowledgment form and a 2005 letter from AXA Equitable Life Insurance Company to Abney. (4) The 2005 Form U-4 shows that Abney's firm was AXA Advisors, LLC. The NASD Rule 3080 Acknowledgment form includes the following language:
The NASD Form U-4 contains a pre-dispute arbitration clause. You should read that clause now. Before signing the Form U-4, you should understand the following: (1) You are agreeing to arbitrate any dispute, claim or controversy that may arise between you and your firm, or a customer, or any other person, that is required to be arbitrated under the rules of the self-regulatory organizations with which you are registering.
Abney, however, executed both the 2005 U-4 Form and the Rule 3080 Acknowledgment form subject to an attachment in which he expressly refused to consent to pre-dispute arbitration and reserved his right to file suit in a court of law.
Prior to a hearing on the motion to compel, the parties entered into a Rule 11 Agreement that Abney would not seek a continuance of the hearing in exchange for relators limiting their evidence to the evidence attached to their motion to compel. The parties further agreed that if relators located a 1987 Form U-4 signed by Abney, that they would produce it prior to the hearing, and Abney reserved the right to seek a continuance and additional discovery at that point.
At a hearing on relators' motion to compel, neither party presented any evidence or requested an evidentiary hearing. After the hearing, the trial court denied the motion with prejudice, finding that relators had failed to carry their burden to establish a valid agreement to arbitrate the disputed claims between the parties:
After considering Defendants' Motion to Compel Arbitration and Stay Proceedings, the response, the pleadings, the evidence, and the arguments of counsel, if any, the Court finds that Defendants have failed to sustain their burden of proving the existence of a valid agreement to arbitrate the claims asserted in this dispute. Consequently, the Court finds Defendants' Motion to Compel Arbitration and Stay Proceedings to be without merit and DENIES the motion with prejudice.
Relators then filed a motion to reconsider, attaching additional evidence in support of their motion to compel. As additional evidence, relators provided an affidavit from a custodian of records, Form U-4s that Abney allegedly signed in 1989, 1994, and 2003, and a NASD Rule 3080 Acknowledgment form that Abney allegedly signed in 2003. The 2003 Form U-4 states that it is a "U4-Amendment." The affidavit from a custodian of records of "AXA Financial/AXA Equitable Life Insurance Company" states that the Form U-4s and the Rule 3080 acknowledgment were kept in the ordinary course of business and that Equitable Life Assurance Society of the U.S. was a predecessor company to "AXA Financial/AXA Equitable Life Insurance Company."
The Form U-4s, similar to the 2005 Form U-4, contain language that Abney "agree[s] to arbitrate any dispute, claim or controversy that may arise between [Abney] and [his] firm, . . . or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organization with which [he] register[s]." On the Form U-4s, Abney indicated that he was registering with NASD. The identified firm is "Equitable Life Assurance Society of the U.S." on the 1989 and 1994 Form U-4s, and the identified firm is "AXA Advisors, LLC" on the 2003 Form U-4.
Abney did not file a response to the motion to reconsider. The trial court considered the motion by submission and denied it. Relators' interlocutory appeal under the Texas Arbitration Act ("TAA") (5) and their petition for writ of mandamus under the Federal Arbitration Act ("FAA") (6) followed.
ANALYSIS
When a trial court denies a motion to compel based on the TAA, the motion is reviewed by interlocutory appeal. Tex. Civ. Prac. & Rem. Code Ann. § 171.098 (West 2005). When the trial court denies a motion to compel based on the FAA, the motion is reviewed by mandamus. Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992) (orig. proceeding). Because relators seek to compel arbitration under the TAA by interlocutory appeal and under the FAA by mandamus, we have consolidated the two proceedings and are rendering a decision disposing of both simultaneously. (7)
Interlocutory appeal under the TAA
Turning first to relators' interlocutory appeal under the TAA, the interlocutory appeal of the denial of a motion to compel arbitration is accelerated. Tex. Civ. Prac. & Rem. Code Ann. § 171.098; Tex. R. App. P. 28.1. To timely perfect an accelerated appeal, the notice of appeal must be filed within twenty days after the order or judgment. Tex. R. App. P. 26.1(b); In re K.A.F., 160 S.W.3d 923, 927 (Tex. 2005).
Citing no authority, relators contend that their notice of appeal was timely because their appeal is from the trial court's denial of the motion to reconsider and their notice was filed within 20 days of that order, and the motion to reconsider was independently appealable. They contend that, by attaching additional evidence to the motion to reconsider, they started a new timetable for perfecting the accelerated appeal from the trial court's denial of their motion to compel arbitration. We disagree.
Interlocutory orders may be appealed only if permitted by statute and only to the extent jurisdiction is conferred by statute. Jack B. Anglin, 842 S.W.2d at 272. The applicable provision of the TAA permitting interlocutory appeals from the denial of a motion to compel arbitration refers only to orders "denying an application to compel arbitration" and not to motions to reconsider the denial. Tex. Civ. Prac. & Rem. Code Ann. § 171.098.
Relators' motion to reconsider was not independently appealable under the TAA so as to start a new timetable for perfecting the accelerated appeal. See id. (Subsection 171.098(b) specifies that "The appeal shall be taken in the manner and to the same extent as an appeal from an order or judgment in a civil action."); Tex. R. App. P. 28.1; In re K.A.F., 160 S.W.3d at 926-27 (motion for new trial does not extend time to perfect accelerated appeal); Digges v. Knowledge Alliance, Inc., 176 S.W.3d 463, 464 (Tex. App.--Houston [1st Dist.] 2004, no pet.) (motion to reconsider order granting special appearance not "independently appealable"; court lacked jurisdiction over accelerated interlocutory appeal for failure to timely file notice of appeal); Denton County v. Huther, 43 S.W.3d 665, 667 (Tex. App.--Fort Worth 2001, no pet.) (order denying motion to reconsider and renewed plea to the jurisdiction not a distinct appealable interlocutory order with separate timetable for appeal).
Because relators failed to file their notice within the time prescribed from the order denying the motion to compel and because they only appealed the motion to reconsider, this Court lacks jurisdiction to consider the appeal. We, therefore, dismiss relators' interlocutory appeal under the TAA for lack of jurisdiction and consider relators' petition for mandamus under the FAA.
Mandamus under the FAA
Relators contend that the trial court abused its discretion by denying their motion to compel arbitration and their motion for reconsideration under the FAA. We disagree.
1. Standard of Review
Mandamus will lie only to correct a clear abuse of discretion. Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992) (orig. proceeding). Mandamus is appropriate to correct a clear abuse of discretion when there is no adequate remedy by appeal. In re D. Wilson Construction Co., 196 S.W.3d 774, 780-81 (Tex. 2006). There is no adequate remedy by appeal when a trial court improperly denies a motion to compel arbitration under the FAA, and mandamus is the proper means for reviewing an order denying arbitration under the FAA. Id.
To be entitled to compel arbitration under the FAA, relators had the initial burden to establish (i) the existence of a valid arbitration agreement between the parties and (ii) that the claims Abney asserted against them fell within the scope of that agreement. See In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005); In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 572-73 (Tex. 1999). "Generally under the FAA, state law governs whether a litigant agreed to arbitrate, and federal law governs the scope of an arbitration clause." In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005). When the movant has proven there is an arbitration agreement between the parties, a presumption arises that all disputed issues between the parties must be arbitrated. Kellogg, 166 S.W.3d at 737; In re Jebbia, 26 S.W.3d 753, 757 (Tex. App.--Houston [14th Dist.] 2000, orig. proceeding).
2. The Procedure to be Followed on a Motion to Compel Arbitration
A motion to compel arbitration is similar to a motion for partial summary judgment, subject to the same evidentiary standards. In re Jebbia, 26 S.W.3d at 756-57. No presumption of arbitrability arises until the court has found there is an enforceable arbitration agreement. Id.
To compel arbitration on a summary motion, a trial court must first determine as a matter of law that the parties have agreed to arbitrate. Id. (citing Jack B. Anglin, 842 S.W.2d at 269). This burden of establishing the existence of the arbitration agreement is generally evidentiary. See In re Oakwood Mobile Homes, 987 S.W.2d at 573 (establishing the existence of the agreement, "Here, Oakwood met its burden of presenting evidence of an arbitration agreement that governs the dispute between the parties.") (emphasis added; citations omitted); In re Koch Indus., Inc., 49 S.W.3d 439, 444 (Tex. App.--San Antonio 2001, orig. proceeding) ("The party seeking arbitration has the initial burden to present evidence of an arbitration agreement.").
Because a benefit of arbitration may lie in the expedited and less expensive disposition of a dispute, a trial court may summarily decide whether to compel arbitration on the basis of affidavits, pleadings, discovery, and stipulations. Jack B. Anglin, 842 S.W.2d at 269. I
n arriving at this procedure, the Texas Supreme Court drew from established summary judgment procedure. Id.; In re Jebbia, 26 S.W.3d at 756-57. But, if the party alleging an arbitration agreement cannot prove an agreement exists and that it requires arbitration of the issues in dispute as a matter of law on the basis of affidavits, pleadings, discovery, and stipulations, "it must seek an evidentiary hearing to compel arbitration." In re Jebbia, 26 S.W.3d at 758; see also Jack B. Anglin, 842 S.W.2d at 269; In re Bunzl USA, Inc., 155 S.W.3d 202, 208 (Tex. App.--El Paso 2004, orig. proceeding).
The initial burden of the party seeking to compel arbitration--to establish the arbitration agreement's existence--includes proving the entity seeking to enforce the arbitration agreement was a party to it or had the right to enforce the agreement notwithstanding. Mohamed v. Auto Nation USA Corp., 89 S.W.3d 830, 836-38 (Tex. App.--Houston [1st Dist.] 2002, no pet.) (successor employer did not meet initial burden of showing an arbitration agreement that it could enforce as non-signatory); Pepe Int'l Dev. Co. v. Pub Brewing Co., 915 S.W.2d 925, 931
(Tex. App.--Houston [1st Dist.] 1996, no writ) (combined appeal and orig. proceeding) (certain defendants were not parties to contracts and could not compel arbitration under the terms of the contracts).
If that summary proof intrinsically raises issues about the enforceability, scope or existence of the agreement, the movant's summary proof should include any evidence that resolves those issues without creating an issue of material fact. In re Jebbia, 26 S.W.3d at 757. To resist summary arbitration, the non-movant need only raise an issue of material fact as to the party's entitlement to arbitration. Id.
3. Establishing the Existence of an Arbitration Agreement
Public policy favors the submission of disputes to arbitration, but arbitration is a creature of contract, and a clause requiring arbitration will be interpreted under contract principles. In re Big 8 Food Stores, Ltd., 166 S.W.3d 869, 876 (Tex. App.--El Paso 2005, orig. proceeding); Mohamed, 89 S.W.3d at 835; Belmont Constructors, Inc. v. Lyondell Petrochemical Co., 896 S.W.2d 352, 357 (Tex. App.--Houston [1st Dist.] 1995, no writ).
A party seeking to compel arbitration must establish its right to that remedy under the contract. A clause requiring arbitration will be enforced according to its plain meaning unless this would defeat the intention of the parties. The parties' agreement and intent to submit to arbitration must be unambiguous. In re Big 8 Food Stores, 166 S.W.3d at 875; Porter & Clements, L.L.P. v. Stone, 935 S.W.2d 217, 220 (Tex. App.--Houston [1st Dist.] 1996, orig. proceeding). When we are called upon to decide whether the parties have agreed to arbitrate, we do not resolve doubts or indulge a presumption in favor of arbitration. In re Jebbia, 26 S.W.3d at 757; see also American Heritage Life Ins. Co. v. Lang, 321 F.3d 533, 537-38 (5th Cir. 2003). Instead, we apply standard contract principles to determine whether a valid arbitration agreement exists. Lang, 321 F.3d at 538; see also Ysleta Indep. Sch. Dist. v. Godinez, 998 S.W.2d 700, 702 (Tex. App.--El Paso 1999, no pet.); In re Big 8 Food Stores, 166 S.W.3d at 876.
The existence of a valid agreement is determined by the substantive contract law of Texas. Tenet Healthcare, Ltd. v. Cooper, 960 S.W.2d 386, 388 (Tex. App.--Houston [14th Dist.] 1998, writ dism'd w.o.j.). For there to be an arbitration agreement under Texas contract law, there must be: (1) an offer; (2) an acceptance in compliance with the terms of the offer; (3) a meeting of the minds; (4) each party's consent to the terms; and (5) execution of the contract with the intent that it be mutual and binding. McCulley Fine Arts Gallery, Inc. v. "X" Partners, 860 S.W.2d 473, 477 (Tex. App.--El Paso 1993, no writ).
The issue then is whether relators sustained their burden to show that Abney contractually agreed to arbitrate the claims that he has asserted against each of them under the Form U-4s or other documents that were before the trial court. See Oakwood Mobile Homes, 987 S.W.2d at 573. We conclude that relators did not sustain their burden of proving the existence of a valid agreement to arbitrate the claims asserted in this dispute with the evidence they presented with either their motion to compel arbitration or their motion to reconsider.
4. Motion to Compel Arbitration
In support of their motion to compel arbitration, relators attached documents to their motion, all of which were signed in 2005 after the dispute occurred--a Form U-4 executed by Abney, a NASD Rule 3080 Acknowledgment form, and a letter from AXA Equitable Life Insurance Company to Abney. The motion was unverified and no affidavit was attached to the motion--only documents were attached.
The documents do not support compelling Abney to arbitrate the claims in his lawsuit. The forms were executed after the relevant time period asserted in Abney's pleadings and, on the forms, Abney expressly refused to arbitrate claims. AXA's letter to Abney was also from 2005.
In sum, relators failed to produce any evidence of an agreement to arbitrate the dispute between the parties. The only alleged agreement before the court was a Form U-4 in which Abney specifically refused to arbitrate his claims. Reviewing the submitted evidence in light of Abney's pleaded claims, we cannot say that the trial court abused its discretion in denying the motion to compel arbitration.
5. Motion to Reconsider
Relators attached additional evidence to their motion to reconsider--Form U-4s allegedly signed by Abney in 1989, 1994, and 2003, a NASD Rule 3080 Acknowledgment form allegedly signed by Abney in 2003, and the custodial affidavit, but relators did not raise any new ground for compelling arbitration in the motion. They sought reconsideration based upon the additional evidence that was "not previously available." Relators contend on appeal, the evidence was properly before the court, citing Texas Rule of Civil Procedure 270 and In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 68-69 (Tex. 2005), and that the additional evidence requires the court to compel arbitration.
Texas Civil Procedure Rule 270 provides that a trial court may allow additional evidence to be offered at any time when it clearly appears to be necessary to the administration of justice. Tex. R. Civ. P. 270. A trial court's decision whether to reopen the evidence for the purpose of admitting new evidence is reviewed under the abuse of discretion standard. Naguib v. Naguib, 137 S.W.3d 367, 372-73 (Tex. App.--Dallas 2004, pet. denied). In determining whether to permit additional evidence, one factor that a trial court may consider under rule 270 is the moving party's due diligence in obtaining the evidence. Id. at 372. Relators' explanation for not attaching the additional evidence to their initial motion to compel was that it was "previously unavailable." This explanation fails to demonstrate due diligence in obtaining the documents.
Relators also contend that evidence attached to their motion to reconsider was properly before the court based upon In re Nexion. In In re Nexion, the initial motion to compel was sought under the TAA, and the motion to reconsider was sought under the FAA relying on evidence that supported a finding that "interstate commerce" was involved. 173 S.W.3d at 68-69. The court granted the writ and ordered arbitration on the new ground asserted in the motion to reconsider. Id. Relators, in contrast, did not urge a new ground in their motion to reconsider. In re Nexion does not address a movant's procedural requirements for the admission of new evidence when no new ground is asserted in a motion to reconsider and leave to file additional evidence was not sought or granted.
The trial court, unlike in In re Nexion, also had before it a Rule 11 Agreement between the parties. The parties agreed:
[Abney] agree[s] to forego discovery before the arbitration hearing with [relators'] agreement that [relators] will not rely on any evidence at the hearing other than what is attached to [relators'] Motion to Compel Arbitration. This is only about evidence and does not affect arguing the law. [Relators] did mention there is one possible exception: if [relators] do find a 1987 U-4 signed by Mr. Abney, [relators] will produce it prior to the hearing, can rely upon it and [Abney] reserves the right at that point to ask for continuance and some discovery.
There is no showing in the record that the Rule 11 Agreement between the parties was modified prior to filing the new evidence with the motion to reconsider. Under the Rule 11 Agreement, the relators bound themselves to the state of the evidentiary record as it was on the date of the hearing on the motion to compel. That record was not sufficient to compel arbitration. Without an agreed modification of the Rule 11 Agreement, relators were not free to alter the evidentiary record with new evidence. In light of the Rule 11 Agreement between the parties, we cannot say that the trial court abused its discretion in denying the motion to reconsider.
On the record properly before the trial court as of the date of the hearing on relators' motion to compel, the trial court reasonably concluded that relators did not establish the existence of an agreement to arbitrate the claims in dispute as a matter of law. Therefore, the court did not abuse its discretion by refusing to compel arbitration.
CONCLUSION
Having found relators' notice of appeal untimely under the TAA and not proper, we dismiss the interlocutory appeal for lack of jurisdiction. We further deny the writ of mandamus under the FAA. We conclude that the trial court did not abuse its discretion in denying the motion to compel arbitration and stay the proceedings and in denying the motion to reconsider.
__________________________________________
Jan P. Patterson, Justice
Before Justices Patterson, Pemberton and Waldrop
Dismissed for Want of Jurisdiction
Filed: August 23, 2007
1. See In re AXA Financial, Inc., 03-07-00078-CV (Tex. App.--Austin March 29, 2007) (mem. op.).
2. Abney declared bankruptcy in 2004, resulting in his claims being brought by the Chapter 7 bankruptcy trustee, C. Daniel Roberts.
3. A Form U-4 is an agreement between self-regulatory organizations, including NASD and an applicant. In re Prudential Ins. Co., 133 F.3d 225, 230 (3d Cir. 1998). The form was adopted in an effort to regulate the securities industry. Id. Texas courts have found the Form U-4 to be a contract that involves interstate commerce and its arbitration clause enforceable under the FAA. In re Merrill Lynch, Pierce, Fenner & Smith, Inc., 195 S.W.3d 807, 813 (Tex. App.--Dallas 2006, no pet.); Wachovia Securities, LLC v. Emery, 186 S.W.3d 107, 112 (Tex. App.--Houston [1st Dist.] 2005, orig. proceeding).
4. The letter from AXA Equitable Life Insurance Company addressed Abney's refusal to agree to pre-dispute arbitration. The letter advised him that he was bound by the rules of NASD when he signed the U-4 application in 1987, including a consent to arbitrate any matters that arose between Abney and his "firm." Abney objected to the letter as hearsay. There is no written ruling on the objection in the clerk's record and there is no reporter's record of the hearing.
5. Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001-.098 (West 2005).
6. 9 U.S.C.A. §§ 1-16 (West 1999).
7. The FAA does not preempt the TAA unless the TAA would refuse to enforce an arbitration agreement that the FAA would enforce so that both acts may apply in a given case.
In re D. Wilson Construction Co., 196 S.W.3d 774, 779-80 (Tex. 2006). The Texas Supreme Court has reasoned that when a court of appeals is confronted with an interlocutory appeal and a mandamus proceeding seeking to compel arbitration that the better course of ction is to consolidate the two proceedings and render a decision that disposes of both simultaneously. In re Valero Energy Corp., 968 S.W.2d 916, 916-17 (Tex. 1998).
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