No. 05-10-00570-CV - 5th Court of Appeals

Transcription

No. 05-10-00570-CV
IN THE COURT OF APPEALS
FOR THE FIFTH DISTRICT OF TEXAS AT DALLAS
WEEKLEY HOMES, L.P. d/b/a DAVID WEEKLEY HOMES, WEEKLEY HOMES BUSINESS TRUST, DAVID WEEKLEY AND RANDY BRADEN,
Appellants,
v.
LEN RAO,
Appellee.
BRIEF OF APPELLANTS WEEKLEY HOMES, L.P. d/b/a DAVID WEEKLEY HOMES, WEEKLEY HOMES BUSINESS TRUST, DAVID WEEKLEY AND RANDY BRADEN
Cause No. CC-10-01067-B on Appeal from the
County Court at Law #2, Dallas County, Texas
Honorable King Fifer
David F. Johnson State Bar No. 24002357 Thomas E. Reddin State Bar No. 16660950
WINSTEAD PC
Joel Reese
State Bar No. 00788258
Marcus D. Brown
777 Main Street, Suite 1100
Fort Worth, Texas 76102 5400 Renaissance Tower
Telephone No.: (817) 420.8200
1201 Elm Street
Dallas, Texas 75270
Fax No.: (817) 420-8201
Telephone No.: (214) 745-5650
Fax No.: (214) 745-5390
ATTORNEYS FOR APPELLANTS WEEKLEY HOMES, L.P. d/b/a DAVID WEEKLEY HOMES, WEEKLEY HOMES BUSINESS TRUST, DAVID WEEKLEY
AND RANDY BRADEN
ORAL ARGUMENT IS REQUESTED
STATEMENT ON ORAL ARGUMENT
Pursuant to Texas Rule of Appellate Procedure 39, Appellants request that this
Court grant oral argument. Appellants would show that oral argument will help to clarify
the record and law. This is an appeal from district court's denial of a motion to compel
arbitration filed by multiple defendants. Oral argument will assist the Court and will
clarify the legal and factual basis, or lack thereof, for the trial court's order. Accordingly,
Appellants request that this Court grant oral argument.
i
IDENTITY OF PARTIES AND COUNSEL
Appellants certify that the following is a complete list of parties, attorneys, and
any other person who has any interest in the outcome of this lawsuit:
PARTIES:
PLAINTIFFS/APPELLANTS:
TRIAL AND APPELLATE COUNSEL:
Weekley Homes, L.P. d/b/a David Weekley
Homes ("Weekley Homes")
Thomas E. Reddin
Joel Reese
Marcus D. Brown
WINSTEAD PC
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Telephone No.: (214) 745-5650
Fax No.: (214) 745-5390
Weekley Homes Business Trust (the
"Affiliated Trust")
David Weekley And Randy Braden (the
"Weekley Representatives")
All Appellants are collectively referred to
as the "Weekley Parties."
APPELLATE COUNSEL (LEAD):
David F. Johnson
WINSTEAD PC
Fort Worth, Texas 76102
Telephone No.: (817) 420-8223
Fax No.: (817) 420-8201
DEFENDANT/APPELLEE:
TRIAL AND APPELLATE COUNSEL:
Len Rao ("Plaintiff' or "Appellee")
Evan Lane Shaw
Law Offices of Van Shaw
2723 Fairmount Street
Dallas, Texas 75201
Telephone No.: (214) 754-7110
Fax No.: (214) 754-7115
TABLE OF CONTENTS
STATEMENT ON ORAL ARGUMENT IDENTITY OF PARTIES AND COUNSEL ii
TABLE OF CONTENTS iii
TABLE OF AUTHORITIES STATEMENT OF THE CASE ISSUE PRESENTED FOR REVIEW
1
JURISDICTION 1
INTRODUCTION
3
STATEMENT OF FACTS 4
SUMMARY OF THE ARGUMENT 7
ARGUMENT AND AUTHORITY 9
I.
II.
Standard Of Review Is De Novo and Federal and State Law Strongly
Favors Arbitration. Rao Entered Into A Valid, Enforceable Agreement to Arbitrate By Having
Notice Of The Arbitration Policy And By Continuing Employment. A.
B.
C.
D.
III.
9
11
Texas Supreme Court Enforces Arbitration Agreements
Communicated to Employees Where The Employees Continue To
Work. 12
Courts of Appeals Similarly Hold That Arbitration Agreements Are
Not Illusory Because An Employer Can Amend The Agreement
With Notice. 15
The Arbitration Policy Is Enforceable Because After Receiving
Notice Of the Policy, Rao Accepted Same By Continuing To Work 16
The Arbitration Policy Is Not Illusory Because It Is Not Subject To
The Modification Language, And Even If It Was, Weekley Had To
Give Notice Of Any Modifications. 17
Rao's Claims Fall Within the Scope of the Arbitration Agreement iii
19
A.
Rao's Compensation Claims Fall Within The Scope Of The Broad
Arbitration Policy 22
Rao's Defamation Claims Fall Within the Scope Of The Broad
Arbitration Policy 24
IV. Rao Must Arbitrate His Claims Against The Affiliated Trust And The
Weekley Representatives. 25
B.
A.
B.
C.
V.
The Affiliated Trust and the Weekley Representatives Can Enforce
The Arbitration Agreement Because They Were Agents/Transaction
Participants Of Weekley Homes 25
The Affiliated Trust And The Weekley Representatives Can Enforce
The Arbitration Agreement Due To Direct-Benefits Estoppel 30
The Weekley Representatives And Affiliated Trust Should Be Able
To Enforce The Arbitration Agreement Due To Concerted
Misconduct Estoppel 32
In The Unlikely Event That Some Claims Remain In State Court, Those
Claims Should Be Stayed Pending The Resolution Of The Arbitration 36
CONCLUSION AND PRAYER 37
CERTIFICATE OF SERVICE AND FILING 40
APPENDIX 41
iv
TABLE OF AUTHORITIES
Page(s)
CASES
Accelerated Christian Educ., Inc. v. Oracle Corp.,
925 S.W.2d 66 (Tex. App.—Dallas 1996, no writ), overruled in part on other
grounds by In re Tyco Electric Power Systems, Inc., No. 05-04-01808-CV,
2005 Tex. App. LEXIS 819, 2005 WL 237232 (Tex. App.—Dallas Feb. 2,
2005, orig. proceeding) 29
Arnold v. Arnold Corp.,
920 F.2d 1269 (6th Cir. 1990) 29
Aspen Tech., Inc. v. Shasha,
253 S.W.3d 857 (Tex. App.—Houston [14th Dist.] 2008, no pet.) 15
ASW Allstate Painting & Constr. Co. v. Lexington Ins. Co.,
188 F.3d 307 (5th Cir. Tex. 1999) 33
AT&T Tech., Inc. v. Commc's Workers of Am.,
475 U.S. 643 (1986) 19
BNP Paribas v. Virgo Commodities Corp. (In re BNP Paribas),
Nos. 13-07-353-CV, 13-07-358-CV, 2008 Tex. App. LEXIS 3888 (Tex.
App.—Corpus Christi May 29, 2008, orig. proceeding) 34
Brown v. Anderson,
102 S.W.3d 245 (Tex. App.—Beaumont 2003, pet. denied) 32
Cantella & Co. v. Goodwin,
924 S.W.2d 943 (Tex. 1996) 10
Clinton v. Janger,
583 F. Supp. 284 (N.D. Ill. 1984) 27
Commerce Park at DFW Freeport v. Mardian Constr. Co.,
729 F.2d 334 (5th Cir. 1984) 19
Deep Water Slender Wells, Ltd. v. Shell Int'l Exploration & Prod. Inc.,
234 S.W.3d 679 (Tex. App.—Houston [14th Dist.] 2007, pet. denied) 32, 33
D.R. Horton, Inc. v. Brooks,
207 S.W.3d 862 (Tex. App.—Houston [14th Dist.] 2006, orig. proceeding) 14, 18
EZ Pawn Corp. v. Mancias,
934 S.W.2d 87 (Tex. 1996) 10
Gilmer v. Interstate/Johnson Controls,
500 U.S. 20 (1991) 10
Grigson v. Creative Artists Agency, L.L.C.,
210 F.3d 524 (5th Cir. 2000) 32
In re Adhi-Lakshmi Corp.,
138 S.W.3d 559 (Tex. App.—Beaumont 2004, orig. proceeding) 16
In re AIU,
148 S.W.3d 109 (Tex. 2004) 27
In re Alamo Lumber Co.,
23 S.W.3d 577 (Tex. App.—San Antonio 2000, orig. proceeding) 17
In re Choice Homes, Inc.,
174 S.W.3d 408 (Tex. App.—Houston [14th Dist.] 2005, orig. proceeding) In re Citigroup Global Mkts., Inc.,
202 S.W.3d 477 (Tex. App.—Dallas 2006,110 pet.) 21, 24
33
In re D. Wilson Constr. Co.,
196 S.W.3d 774 (Tex. 2006) 2
In re Dallas Peterbilt, Ltd.,
196 S.W.3d 161 (Tex. 2006) 13, 18,23,24
In re Dillard Dept. Stores, Inc.,
186 S.W.3d 514 (Tex. 2006) 12, 13, 24
In re Dillard, Inc.,
198 S.W.3d 778 (Tex. 2006) 12
In re FirstMerit Bank NA,
52 S.W.3d 749 (Tex. 2001) 19, 30
In re Halliburton Co.,
80 S.W. 3d 566 (Tex. 2002) 11, 12, 18
In re James E. Bashaw & Co.,
305 S.W.3d 44 (Tex. App.—Houston [1st Dist.] 2009, orig. proceeding) vi
31
In re Jebbia,
26 S.W.3d 753 (Tex. App.—Houston [14th Dist.] 2000, orig. proceeding) In re Jim Walter Homes, Inc.,
207 S.W.3d 888 (Tex. App.—Houston [14th Dist.] 2006, orig. proceeding) In re Kaplan Higher Educ. Corp.,
235 S.W.3d 206 (Tex. 2007) 17
20, 33
26
In re Kellogg Brown & Root,
80 S.W.3d 611 (Tex. App.—Houston [1st Dist.] 2002, orig. proceeding) 1
In re Kellogg Brown & Root, Inc.,
166 S.W.3d 732 (Tex. 2005) 9, 25
In re Labatt Food Serv., L.P.,
279 S.W.3d 640 (Tex. 2009) 9
In re Lyon Fin. Servs., Inc.,
257 S.W.3d 228 (Tex. 2008) 16
In re Merrill Lynch & Co., Inc.,
No. 09-0161, 2010 Tex. LEXIS 471 (Tex. June 25, 2010) 36
In re Merrill Lynch Trust Co. FSB,
235 S.W.3d 185 (Tex. 2007) 25
In re Polymerica LLC,
296 S.W.3d 74 (Tex. 2009) 13, 17
In re Prudential Ins. Co. of Am.,
148 S.W.3d 124 (Tex. 2004) 27
In re Raymond James & Assocs., Inc.,
196 S.W.3d 311 (Tex. App.—Houston [1st Dist.] 2006, no pet.) 33
In re U.S. Home Corp.,
236 S.W.3d 761 (Tex. 2007) 26, 27, 30
In re Vesta Ins. Group, Inc.,
192 S.W.3d 759 (Tex. 2006) 25, 30
In re Weekley Homes, L.P.,
180 S.W.3d 127 (Tex. 2005) 30
vii
In re Wilmer Cutler Pickering Hale & Dorr LLP,
No. 05-08-01395-CV, 2008 Tex. App. LEXIS 9692 (Tex. App.—Dallas,
December 31, 2008, orig. proceeding) 34
J.M. Davidson, Inc. v. Webster,
128 S.W.3d 223 (Tex. 2003) 10
Jack B. Anglin Co., v. Tipps,
842 S.W.2d 266 (Tex. 1992) 10
Kline v. O'Quinn,
874 S.W.2d 776 (Tex. App.—Houston [14th Dist.] 1994, pet. denied) 19
Madden v. Ellspermann,
813 S.W.2d 51 (Mo. App. W.D. 1991) 29
Manetti-Farrow, Inc. v. Gucci Am., Inc.,
858 F.2d 509 (9th Cir. 1988) 27
May v Higbee Co.,
372 F.3d 757 (5th Cir. 2004) 2
McMillan v. Computer Translation Sys. & Support, Inc.,
66 S.W.3d 477 (Tex. App.—Dallas 2001, orig. proceeding) 25, 30, 32
Merrill Lynch Trust Co. FSB v. Alaniz,
159 S.W.3d 162 (Tex. App.—Corpus Christi 2004, orig. proceeding) 25
Metro. Prop. v. Bridewell,
933 S.W.2d 358 (Tex. App.—Waco 1996, no writ) 19
Meyer v. WMCO-GP, LLC,
211 S.W.3d 302 (Tex. 2006) 10,33, 35
Mohamed v. Auto Nation USA Corp.,
MS Dealer Service Corp. v. Franklin,
177 F.3d 942 (11th Cir. 1999) 29
Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc.,
138 F.3d 160 (5th Cir. 1998) 20
Pennzoil Exploration & Prod. Co. v. Ramco Energy Ltd.,
139 F.3d 1061 (5th Cir. 1998) 20
viii
Phoenix Network Techs. (Europe) Ltd. v. Neon Sys., Inc.,
Porter & Clements, L.L.P. v. Stone,
Prudential Sec. Inc. v. Marshall,
909 S.W.2d 896 (Tex. 1995) 10, 19
Robbins & Myers, Inc. v. J.M. Humber Corp.,
No. 05-01-00139-CV, 2002 Tex. App. LEXIS 1977, 2002 WL 418206 (Tex.
App.—Dallas March 19, 2002, no pet.) 29
Shearson/Am. Express, Inc. v. McMahon,
482 U.S. 220 (1987) 10
Stafford v. Allstate Life Ins. Co.,
175 S.W.3d 537 (Tex. App.—Texarkana 2005, no pet.) 20
Subway Equip. Leading Corp. v. Forte,
169 F.3d. 324 (5th Cir. 1999) 32
Tex. Source Group., Inc. v. CCH, Inc.,
967 F.Supp. 234 (S.D. Tex. 1997) 27
Travelers Indem. Co. of Rhode Island v. Starkey,
157 S.W.3d 899 (Tex. App.—Dallas 2005, pet. denied) 20
Webb v. Investacorp., Inc.,
89 F.3d 252 (5th Cir. 1996) 19
STATUTES
9 U.S.C. § 16 2
TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a) (Vernon 2005) 2
TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 2, 3
OTHER AUTHORITIES
RESTATEMENT (THIRD) OF AGENCY § 7.07(2) (2006) 28
STATEMENT OF THE CASE
Nature of the case:
This case involves Rao, a sophisticated and well-compensated
executive, entering into a broad arbitration agreement with his
employer, and then when disputes arose, Rao ignored that
agreement and filed suit in court. The trial court erred in
denying the Weekley Parties' motion to compel arbitration.
Course of proceedings: Rao filed this suit on February 16, 2010 in the County Court at
Law Number Two of Dallas, County, Texas, the Honorable
King Fifer presiding (C.R. at 8). The Weekley Parties
answered and filed a motion to compel arbitration (C.R. at 14,
18). Rao filed a response to the motion to compel arbitration
(C.R. at 92). The trial court conducted a hearing on the motion
on April 30, 2010 (R.R. at 1).
Trial court's
The trial court denied the motion to compel arbitration on May
disposition of the case: 4, 2010 (C.R. at 152). The Weekley Parties timely filed their
notice of appeal on May 12, 2010 (C.R. at 3). The Weekley
Parties also requested that the trial court enter findings of fact
and conclusions of law (C.R. at 153). Rao requested that the
trial court not enter any findings or conclusions (Supp. C.R. at
). To date, the trial court has not entered any findings or
conclusions, and in fact, bristled at the request (C.R. at 159).
ISSUE PRESENTED FOR REVIEW
Texas and Federal courts strongly favor arbitration and liberally enforce such
agreements. The evidence in this case proved that the Weekley Homes and Rao entered
into a broad arbitration agreement concerning Rao's employment, separation from
employment, and any other dispute that arose after separation. Rao filed suit alleging
claims for alleged defamation and the refusal to pay certain monetary benefits derived
from his employment with Weekley Homes. The trial court erred in denying the
Weekley Parties' motion to compel arbitration because the uncontradicted evidence
proved 1) the existence of a valid arbitration agreement, 2) that Rao's claims fell within
the scope of that broad agreement, and 3) that all of the Weekley Parties could enforce
the agreement because Weekley Homes was a party to the agreement and because the
Affiliated Trust and the Weekley Representatives were agents/transaction participants
with Weekley Homes and because of direct-benefits and concerted-misconduct estoppel.
JURISDICTION
The Parties' arbitration agreement expressly provides that it will be governed by
the Federal Arbitration Act ("FAA") (C.R. at 33-34). Where parties agree to arbitrate
under the FAA, they are not required to prove that the transaction involved or affected
interstate commerce. See In re Kellogg Brown & Root, 80 S.W.3d 611, 617 (Tex. App.—
Houston [1st Dist.] 2002, orig. proceeding). Therefore, the Weekley Parties challenge
the trial court's denial of arbitration under the FAA.
1
Historically, when a dispute was governed by the FAA, a court of appeals
reviewed the trial court's denial of a motion to compel arbitration by mandamus. See In
re D. Wilson Constr. Co., 196 S.W.3d 774, 779 (Tex. 2006). However, appellate courts
had interlocutory appellate jurisdiction when a trial court denied an application to compel
arbitration under section 171.021 of the Texas General Arbitration Act ("TAA"). See
TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a) (Vernon 2005). If both the FAA and
the TAA applied, then an appellate court possessed concurrent interlocutory appellate
jurisdiction and mandamus jurisdiction. See In re D. Wilson Constr. Co., 196 S.W.3d at
779-80. This would commonly require a party challenging a denial of a motion to
compel arbitration to file both an appeal and a mandamus petition and then file a motion
to consolidate the two proceedings.
The Texas Legislature recently enacted Texas Civil Practice and Remedies Code
section 51.016 that provides that courts of appeals have jurisdiction over an appeal from a
denial of a motion to compel arbitration under the FAA, thereby eliminating the need to
file a concurrent mandamus action:
In a matter subject to the Federal Arbitration Act (9 U.S.C. Section 1 et
seq.), a person may take an appeal or writ of error to the court of appeals
from the judgment or interlocutory order of a district court, county court at
law, or county court under the same circumstances that an appeal from a
federal district court's order or decision would be permitted by 9 U.S.C.
Section 16.
TEX. CIV. PRAC. & REM. CODE ANN.
§ 51.016. 9 U.S.C. Section 16 allows a party to
appeal a district court's order denying a motion to compel arbitration. See May v Higbee
Co., 372 F.3d 757 (5th Cir. 2004). Texas Civil Practice and Remedies Code Section
2
51.016 is effective for any case filed on or after September 1, 2009, and it is effective for
any case currently pending on September 1, 2009 where the appeal is brought after
September 1, 2009. As Rao filed suit in February of 2010, under section 51.016, this
Court has jurisdiction to review the trial court's decision to deny the Weekley Parties'
motion to compel arbitration under the FAA.
INTRODUCTION
Weekley Homes terminated the employment of Rao, a former division president of
Weekley Homes, because Rao had an undisclosed, competing, for-profit real estate
business on the side for which he improperly used the resources of Weekley Homes.
This violated conflicts-of-interest policy of Weekley Homes and justified an immediate
termination for cause. Weekley Homes incurred substantial damages from Rao's
conduct; and, so, in accordance with the provisions of written agreement between Rao
and the Affiliated Trust, who owns ninety-nine percent of Weekley Homes, Weekley
Homes offset its damages against compensation that would otherwise have been due to
Rao, resulting from his participation in the deferred compensation and stock ownership
plans.
Rao filed suit alleging various claims arising generally from two complaints: 1)
the Affiliated Trust's offset of damages against compensation that would otherwise have
been due to Rao, resulting from his participation in the afore-mentioned employment
plans; and 2) and the Weekley Representatives' alleged defamatory statements about him.
In doing so, Rao ignored a binding, broad arbitration agreement. Rao asserted these
claims equally against Weekley Homes, the Affiliated Trust, and the Weekley
3
Representatives. But Rao is precluded from litigating his claims in court because, in
connection with his employment, he agreed to arbitrate "any claim, controversy, or other
dispute relating to [his] employment, separation from the company, or following
separation from the company." Because there is no fact question regarding the existence
of this binding agreement or the fact that Rao's claims fall within the scope of the broad
arbitration agreement, the trial court erred in denying the Weekley Parties' motion to
compel arbitration.
STATEMENT OF FACTS
Weekley Homes employed Rao as a division president (R.R. at 4). Weekley
Homes and its employees entered into a dispute resolution policy ("Arbitration Policy")
that provided that the following would be resolved by arbitration "any claim, controversy
or other dispute relating to your employment, separation from the company, or following
separation from the company":
Any claim, controversy or other dispute relating to your employment,
separation from the company, or following separation from the company,
shall be resolved by arbitration, in lieu of jury trial or any other legal
proceeding, pursuant to the Federal Arbitration Act (Title 9, United States
Code), and in accordance with this Dispute Resolution Policy. The
arbitration will be conducted by a single arbitrator, who will be selected in
accordance with the applicable rules of the AAA. The arbitration will be
administered by the AAA regional office closest to your workplace. In the
event that the AAA does not accept administration of the claim, or is
unavailable, the arbitration proceeding will be administered by another
nationally recognized arbitration services provider designated by David
Weekley Homes.
(C.R. at 33-34). Weekley Homes provided the Arbitration Policy to all employees,
including Rao, on-line in electronic format in connection with its Team Member
4
Handbook (the "Handbook") (C.R. at 32, 67-68). The Handbook contained a description
of the arbitration agreement and also contained a link to the complete Arbitration Policy
(Id.). On May 1, 2007, Rao acknowledged receipt of the Handbook and all policies and
procedures therein, including the Arbitration Policy, and confirmed "that you understand
and agree to abide by the policies and procedures stated in the Team Member Handbook
in connection with your employment at David Weekley Homes . . ."
(Id. at 32, 75). Rao
admits that he received the Handbook that referenced and summarized the Arbitration
Policy (C.R. at 100). After his receipt, acknowledgement, and acceptance of the
Handbook, Rao never indicated or communicated to Weekley Homes that he would not
agree to abide by the policies contained therein (including the Arbitration Policy) and
continued to work for Weekley Homes until his termination in April of 2009
(Id. at 32).
As an employee of Weekley Homes, Rao entered into a Deferred Bonus Plan
Participation Agreement (C.R. at 76). Only a "select group of management" of Weekley
Homes was eligible to participate in this program
(Id. at 78). Employees of Weekley
Homes who participated in the Deferred Bonus Plan were eligible to purchase shares of
stock in Weekley Homes Business Trust
(Id. at 76). Rao entered into and accepted the
terms of the Deferred Bonus Plan on January 1, 2000, which itself contained an
arbitration agreement (Id. at 76, 90).
On or about January 1, 2005, Weekley Homes accelerated the vesting of the funds
accrued under the Deferred Bonus Plan and applied those funds, with Rao's consent,
toward the purchase of 27,339 shares in the Affiliated Trust (C.R. at 76-77). The
Affiliated Trust is the limited partner entity that owns ninety-nine percent of Weekley
5
Homes. The Affiliated Trust is merely the owner of Weekley Homes and is not a totally
separate entity.
Rao's participation in the Affiliated Trust was solely due to, dependent upon, and
was tied to his employment with Weekley Homes. He was only eligible to participate in
the Affiliated Trust due to his employment and management position with Weekley
Homes (Id.). In making this investment, Rao represented and warranted that he had
access to information due to his employment position with Weekley Homes and that he
had the opportunity to ask questions about the financial position of Weekley Homes
(C.R. at 105). In connection with this transaction, Rao executed a buy sell agreement
whereby he agreed that if his full-time employment with Weekley Homes should ever
end that, at the Affiliated Trust's discretion, Rao would sell his stock back to the
Affiliated Trust (C.R. 113-14). Furthermore, in connection with this transaction, Rao
executed a promissory note that listed his termination of employment with Weekley
Homes as an event of default (C.R. at 125).
In 2009, Weekley Homes terminated Rao's employment after it discovered that
Rao had a for-profit real estate venture on the side and was using the employees and
resources of Weekley Homes in that venture (R.R. at 4). Thereafter, Weekley Homes
sent Rao a letter regarding the redemption of his stock in the Affiliated Trust, and stated
that the offsetting damages from his real estate venture exceeded the book value of his
shares and that Weekley Homes had elected to offset those damages against the net value
of the shares (R.R. at 5).
6
On February 16, 2010, despite the unambiguous Arbitration Policy, Rao filed this
lawsuit against the Weekley Parties in court (C.R. at 8). In his petition, Rao asserted that
Weekley Homes and the Affiliated Trust refused to pay him for his stock and that they
have wrongfully obtained possession of the property in the Affiliated Trust that belongs
to Rao (CR. at 9). These allegations made no differentiation between Weekley Homes
and the Affiliated Trust (Id.). Rao asserted breach of contract, promissory
estoppel/reliance, conversion, money had and received, breach of fiduciary duty, breach
of trust agreement, accounting, and constructive trust claims against Weekley Homes and
the Affiliated Trust (C.R. at 9-11). Rao also asserted an aiding and abetting breach of
fiduciary duty claim against the Weekley Representatives (Id.).
Rao also alleges that the Weekley Representatives "during the course and scope of
employment" with Weekley Homes and on behalf of Weekley Homes "made false,
discrediting and slanderous statements regarding" Rao (C.R. at 9). Based on these
allegations, Rao asserted claims for libel, slander, and defamation as against Weekley
Homes and the Weekley Representatives (C.R. at 11-12).
The Weekley Parties filed an answer and a motion to abate and compel arbitration
(C.R. at 14, 18). Rao filed a response (C.R. at 92). The trial court heard the motion to
compel arbitration on April 30, 2010, and thereafter denied the motion on May 4, 2010
(C.R. at 152). The Weekley Parties appeal this decision.
SUMMARY OF THE ARGUMENT
The trial court erred in refusing to send Rao's claims to arbitration as the Parties
had agreed. Rao and Weekley Homes agreed to arbitrate all disputes that related to Rao's
7
employment, his separation from Weekley Homes, or any other dispute that arose after
separation. The Arbitration Policy was a binding agreement because there were mutual
promises to arbitrate, the Policy was communicated to Rao, Rao acknowledged receiving
it, and Rao accepted it by continuing to work for Weekley Homes.
Notwithstanding the Arbitration Policy, Rao sued Weekley Homes for allegedly
not paying him a benefit when he separated from Weekley Homes. This claim falls
within the unambiguous, broad language of the Arbitration Policy. Rao also sued
Weekley Homes for allegedly defamatory comments made about Rao's services as an
employee (that he misused the resources of Weekley Homes for his own benefit). These
allegedly defamatory comments were also related to his employment and separation from
Weekley Homes and fell within the unambiguous, broad language of the Arbitration
Policy. Accordingly, the trial court erred in refusing to compel arbitration as between
Rao and Weekley Homes on all of Rao's claims in this suit.
Even though nonsignatories, the Affiliated Trust and the Weekley Representatives
could also enforce the Arbitration Policy. The Texas Supreme Court has acknowledged
that nonsignatories can enforce an arbitration agreement under various theories, including
agency and direct benefits estoppel. As the evidence and Rao's own pleadings prove, the
Affiliated Trust and the Weekley Representatives were agents and transaction
participants with Weekley Homes and they can therefore enforce the Arbitration Policy to
the same extent as Weekley Homes.
Moreover, Rao is estopped via direct-benefits estoppel from asserting that the
Affiliated Trust and the Weekley Representatives cannot invoke the Arbitration Policy
8
because all of his claims rely on, reference, and require his position as an employee,
which necessarily bound him to the Arbitration Policy. Finally, Rao is estopped via the
concerted-misconduct estoppel theory from asserting that the Affiliated Trust and the
Weekley Representatives cannot invoke the Arbitration Policy because all of his claims
allege intermingled, concerted misconduct by all of the Weekley Parties (who are all
closely aligned and affiliated).
Based on the uncontradicted documentary evidence and the allegations in this
case, this Court should reverse the trial court's order denying the Weekley Parties' motion
to compel arbitration and should render and grant the same. Further, in the alternative, in
the unlikely event that this Court determines that any claims or parties should remain
outside of arbitration, this Court should order the trial court to stay all proceedings on
those remaining claims or parties until the arbitrable claims are disposed in arbitration.
ARGUMENT AND AUTHORITY
I.
Standard Of Review Is De Novo and Federal and State Law Strongly Favors
Arbitration.
Arbitration is a contractual proceeding by which the parties, in order to obtain a
speedy and inexpensive final disposition of disputed matters, consent to submit the
controversy to arbitrators for determination. See Porter & Clements, L.L.P. v. Stone, 935
S.W.2d 217, 221 (Tex. App.—Houston [1st Dist.] 1996, no pet.). Whether an arbitration
agreement is enforceable is subject to de novo review. See In re Labatt Food Serv., L.P.,
279 S.W.3d 640, 643 (Tex. 2009). Whether a nonsignatory can enforce an arbitration
9
agreement is also reviewed de novo. See Meyer v. WMCO-GP, LLC, 211 S.W.3d 302
(Tex. 2006).
A party seeking to compel arbitration under the FAA must establish that there is a
valid arbitration agreement and that the claims fall within that agreement's scope. See In
re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005); J.M. Davidson, Inc. v.
Webster, 128 S.W.3d 223, 227 (Tex. 2003). Federal and state law strongly favors
arbitration. See Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996). Under the
FAA, any doubt as to whether a plaintiffs claims fall within the scope of the arbitration
agreement must be resolved in favor of arbitration. See id. Once an agreement is
established, "a court should not deny arbitration 'unless it can be said with positive
assurance that an arbitration clause is not susceptible of an interpretation which would
cover the dispute at issue.' Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex.
1995). The FAA establishes a strong federal policy favoring arbitration and "requires
that courts vigorously enforce arbitration agreements." Shearson/Am. Express, Inc. v.
McMahon, 482 U.S. 220, 226 (1987). The FAA manifests a "liberal federal policy
favoring arbitration agreements." Gilmer v. Interstate/Johnson Controls, 500 U.S. 20, 25
(1991).
Texas courts also recognize a strong presumption favoring arbitration. See EZ
Pawn Corp. v. Mancias, 934 S.W.2d 87, 90 91 (Tex. 1996). The presumption in favor of
arbitration is so strong in Texas that courts are to resolve any doubts in favor of
arbitration. See, e.g., Cantella, 924 S.W.2d at 944; Jack B. Anglin Co., v. Tipps, 842
10
S.W.2d 266, 268-69 (Tex. 1992). The burden of overcoming the presumption in favor of
arbitration is on the party that opposes arbitration. See Prudential, 909 S.W.2d at 900.
II.
Rao Entered Into A Valid, Enforceable Agreement to Arbitrate By Having
Notice Of The Arbitration Policy And By Continuing Employment.
The Arbitration Policy is valid and enforceable. Because Weekley Homes
communicated the Arbitration Policy to its employees via the Handbook, there are
several issues that arise. The Arbitration Policy is valid even though: (1) Rao was an atwill employee; (2) neither Rao or Weekley Homes actually signed a hard copy of the
Arbitration Policy; (3) the Handbook contained a summary of the Arbitration Policy; and
(4) the Handbook states that Weekley Homes reserves the right to amend the Handbook
upon notice to employees.
By having notice of the Arbitration Policy and continuing to work for Weekley
Homes, Rao accepted the Arbitration Policy. In Texas, an employer may enforce an
arbitration agreement entered into during an at-will employment relationship if the
employer establishes that the employee received notice of its arbitration policy and
accepted it. See In re Halliburton Co., 80 S.W. 3d 566, 568 (Tex. 2002). Notice is
effective if it communicates to the employee definite changes in the employment terms.
See id. If the employee receives notice and continues working with knowledge of the
modified employment terms, the employee accepts them as a matter of law. See id.
11
A. Texas Supreme Court Enforces Arbitration Agreements
Communicated to Employees Where The Employees Continue To
Work.
In Halliburton, the employer notified employees of a new alternative dispute
resolution program that required both the employer and the employees to submit all
employment-related disputes to binding arbitration. Id. at 568. The terms included the
employer's right to modify or discontinue the program, but also required the employer to
give its employees notice of changes and stated that any amendments would apply only
prospectively. See id. at 569-70. The Texas Supreme Court upheld the arbitration
agreement between the employer and its employee. See id. at 570. The Court concluded
that the employee's at-will employment status did not render the agreement illusory
because Halliburton did not rely on continued employment as consideration for the
agreement. Instead, mutual promises to submit all employment disputes to arbitration
constituted sufficient consideration because both parties were bound to the promises to
arbitrate. See id. at 569.
The employer's right to modify or terminate the policy did not allow the employer
to avoid its promise to arbitrate because it was limited. See id. at 569-70. First, the
policy stated that any changes only applied prospectively to unknown claims And
second, if the employer terminated the policy, such termination required notice and
applied to both the employer's and the employee's rights. Therefore, the employer could
not avoid its promise to arbitrate by amending or terminating the dispute resolution
program. See id. The agreement was not illusory. See id.
12
In In re Dillard, Inc., an employee attended a meeting where she received an
arbitration agreement and was asked to sign an acknowledgment form. 198 S.W.3d 778
(Tex. 2006). The employee refused to sign the acknowledgment form, but continued to
work for two more years. See id. The Texas Supreme Court held that she accepted the
arbitration agreement as a condition of her continued employment by receiving notice of
the new term of employment and continuing to work. See id. The Court also dealt with
an argument that the arbitration agreement was not enforceable because the employer
could amend it at any time. However, the Court found that the employer's documents did
not reserve the right to terminate the arbitration agreement without notice.
The employee also argued that her at-will status made the arbitration clause
illusory. The Court disagreed:
[A]n arbitration agreement is not illusory, despite being formed in an atwill employment relationship, if the promises to arbitrate do not depend on
continued employment. Dillard's arbitration materials supply no basis for
construing the agreement as contingent on continued employment. To the
contrary, the Program and Rules clearly indicate that the primary purpose
of the agreement is to resolve claims that arise in connection with the
employee's separation. Thus, Garcia's at-will status, standing alone, does
not render the arbitration agreement illusory.
Id. at 782. Finally, the Court held that the fact that the employer subsequently modified
the arbitration clause did not make it illusory: "An employer may adopt a new policy or
amend an existing one at any time, and the changes will not affect employees who do not
receive notice of the changes and accept them." Id. The arbitration agreement applied.
In In re Dallas Peterbilt, Ltd., the employer instituted a dispute resolution program
that contained an arbitration agreement. 196 S.W.3d 161 (Tex. 2006). Though the
13
employee contended that he never received a summary of the arbitration agreement, the
evidence contained an acknowledgment form that showed that he did receive it. The
employee also testified that he never received the actual plan and argued that only receipt
of the actual plan could suffice as notice. The Texas Supreme Court disagreed and held
that the summary provided sufficient notice of the arbitration agreement, and that the
employee had accepted it by his continued employment. See id.
More recently, in In re Polymerica LLC, an employer contracted with a third party
to manage the employer's human resources department. 296 S.W.3d 74 (Tex. 2009). The
employee signed a dispute resolution plan that contained an arbitration clause. This plan
was signed by the management company and the employee, but stated that it applied to
all disputes between the employee and management company/employer. Later, the
employer terminated its relationship with the management company, and five days after
that, it terminated the employee. The employee sued the employer for discrimination,
and the employer moved to arbitrate the dispute.
The Texas Supreme Court granted the employer's petition for writ of mandamus
and compelled arbitration for all disputes. The Court held that the arbitration provision
was not illusory because the employer had to give notice of changes or modifications. Id.
Moreover, the Court held that the employer was a party to the agreement because the
agreement expressly stated that it applied to all disputes between the employee and the
management company/employer. Finally, the Court held that the dispute resolution plan
covered the employee's claims against the employer despite the fact that the employer did
not sign the agreement. The Court noted that it had never held that an employer must
14
sign an arbitration agreement before insisting on arbitrating an employment dispute. The
Court held that there were narrow statutory exceptions where the parties had to sign the
arbitration agreement, but those did not apply in this case.
B. Courts of Appeals Similarly Hold That Arbitration Agreements Are
Not Illusory Because An Employer Can Amend The Agreement With
Notice.
Courts of appeals agree that an arbitration agreement is not illusory where, as here,
the employer agrees to provide notice of changes. In D.R. Horton, Inc. v. Brooks, the
court of appeals enforced an arbitration agreement against an employee's claims finding
that the employer's promise to arbitrate was not illusory. 207 S.W.3d 862 (Tex. App.—
Houston [14th Dist.] 2006, orig. proceeding). The employee argued that the arbitration
agreement was not enforceable because the handbook provided that the employer
"reserves the right to revise, supplement, or rescind any policies or portion of the
handbook from time to time as it deems appropriate, in its sole and absolute discretion."
Id. at 868. The court of appeals disagreed holding that the arbitration agreement was
contained in the acknowledgement form that evidenced receipt of the handbook and was
not controlled by the complained-of language in the handbook. Id. Moreover, even if the
arbitration agreement could be read to be a policy in the handbook subject to the
complained-of language, the court held that the handbook "provides that any change in its
Handbook policies or information will be communicated through 'official notices.'
Because any changes or amendments must be communicated through notice, the promise
to arbitrate is not illusory." Id. at 869. The court therefore held that the employer did not
reserve "the right to unilaterally amend or rescind the arbitration agreement." Id.
15
Similarly, in Aspen Tech., Inc. v. Shasha, the court of appeals enforced an
arbitration agreement and found it was not illusory. 253 S.W.3d 857 (Tex. App.—
Houston [14th Dist.] 2008, no pet.). The employee argued that the employer retained a
unilateral, unrestricted right to terminate the arbitration provision based on the following
language in that agreement:
The incentive compensation plan administrator (Vice President of
Worldwide Sales Operations) is responsible for the interpretation of the
plan. If the meaning or interpretation of the plan wording requires
clarification after consideration of all the facts, the Senior Vice President,
Worldwide Sales and Business Development (SVP Sales) or his/her
designee(s), if any[,] will issue a written ruling, which will be final. In
addition, the SVP Sales will be responsible for the periodic review of the
plan and may make revisions from time to time.
Id. The court of appeals held that "presuming that the [employer] may review the 2006
Agreement and make revisions from time to time, this is not equivalent to stating that the
SVP Sales has a unilateral, unrestricted right to terminate the arbitration provision in the
2006 Agreement." Id. Because the employer "did not retain a unilateral, unrestricted
right to modify or terminate the arbitration provision," it was not illusory. Id. See also
In re Adhi-Lakshmi Corp., 138 S.W.3d 559 (Tex. App.—Beaumont 2004, orig.
proceeding).
C.
The Arbitration Policy Is Enforceable Because After Receiving Notice
Of the Policy, Rao Accepted Same By Continuing To Work.
Weekley Homes offered the arbitration agreement to Rao when it provided him
with an electronic copy of the Handbook and a summary and a direct link to the
Arbitration Policy (C.R. at 32). Rao accepted the terms of the Arbitration Policy by
acknowledging its receipt and agreeing to abide by its terms (C.R. at 75). Indeed, in the
16
trial court, Rao admitted receiving the Arbitration Policy even if he averred that he did
not think it meant what it said (C.R. 100). Like any other contract clause, a party cannot
avoid an arbitration clause by simply failing to read it.'
Rao's acknowledgement and continued work for Weekley Homes demonstrates
that he and Weekley Homes had a "meeting of the minds," that both parties consented to
the terms of the Arbitration Policy, and that it was executed and delivered with the intent
that it be mutual and binding. Moreover, any failure by Rao or Weekley Homes to
actually sign a hard copy of the Arbitration Policy does not invalidate it. See In re
Polymerica LLC, 296 S.W.3d at 821.
D. The Arbitration Policy Is Not Illusory Because It Is Not Subject To The
Modification Language, And Even If It Was, Weekley Had To Give
Notice Of Any Modifications.
The remaining issue is whether consideration exists to enforce the Arbitration
Policy. There are mutual promises to arbitrate: the broad arbitration agreement applies to
both Rao and Weekley because both parties were required to arbitrate "any claim,
controversy or other dispute relating to your employment, separation from the company,
or following separation from the company." (C.R. at 33). Mutual promises by an
employer and employee foregoing the right to litigate are sufficient consideration to
1 See In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 206 (Tex. 2007). See also In
re Lyon Financial Services, Inc., 257 S.W.3d 228, 231-32 (Tex. 2008) ("parties to a
contract have an obligation to protect themselves by reading what they sign and, absent a
showing of fraud, cannot excuse themselves from the consequences of failing to meet that
obligation.").
17
support an arbitration agreement. 2 In fact, Weekley Homes has lived up to its end of the
bargain by filing its claims based on Rao's improper side-business against him in a AAA
arbitration proceeding.
At the hearing, Rao's counsel referred to page six of the Handbook that describes
the purpose of the Handbook, states that it is not a contract of employment, and that it
may be modified (C.R. at 42). But like the D.R. Horton case above, this language only
affects the Handbook and does not affect the Arbitration Policy, which is a separate
agreement that does not contain this right to modify language (C.R. 33-36). D.R. Horton,
207 S.W.3d at 868. This is confirmed by the fact that the Policy is four pages long (Id.).
The Handbook references multiple policies and procedures within it and spends
approximately one page summarizing the Arbitration Policy (C.R. at 67-68). See In re
Dallas Peterbilt, Ltd., 196 S.W.3d at 161 (employee's receipt of summary of arbitration
agreement and continued employment evidenced binding agreement to arbitrate).
Therefore, the Arbitration Policy is a separate agreement that does not contain the
modification language and is by itself fully valid and enforceable because Weekley
Homes and its employees are equally subject to its terms.
Even if the modification language that is contained in the Handbook applied to the
Arbitration Policy, that language does not make the Parties' promise to arbitrate illusory.
2 See In re Alamo Lumber Co., 23 S.W.3d 577, 579, 581 (Tex. App.—San Antonio 2000,
orig. proceeding) ("Since the parties surrendered their rights to trial by jury, these mutual
promises supply valid consideration"); In re Jebbia, 26 S.W.3d 753, 758 (Tex. App.—
Houston [14th Dist.] 2000, orig. proceeding) (recognizing that mutual promises to give
up the right to litigate can constitute consideration supporting an agreement to arbitrate).
18
The Handbook states: "These policies may not be orally modified and only the President
of the Company or his appointed representative may approve changes to this handbook.
If changes are approved, you will receive notification that additional supplements
detailing the new policies have been added." (C.R. 42). This language simply provides
that Weekley can amend or supplement the Handbook, but that it must give notification
before such is effective. This language is similar to the language in the Texas Supreme
Court's Halliburton case in that it requires notice of any changes. Moreover, like D.R.
Horton and Aspen Technology, where the courts of appeals found that there was valid
consideration, the language does not retain a unilateral, unrestricted right to modify or
terminate the Arbitration Policy, and it is not illusory. Therefore, the Arbitration Policy
is enforceable and supported by adequate consideration.
III. Rao's Claims Fall Within the Scope of the Arbitration Agreement.
All of Rao's claims fall within the scope of the broad Arbitration Policy. To
determine whether claims fall within the scope of a arbitration agreement, a court must
focus on the factual allegations rather than the legal claims asserted. Prudential Sec. Inc.
v. Marshall, 909 S.W.2d 896, 900 (Tex. 1995). When considering an arbitration
agreement, a court must give "due regard" to the federal policy favoring arbitration. See
Webb v. Investacorp., Inc., 89 F.3d 252, 258 (5th Cir. 1996). A court should construe an
arbitration clauses broadly, and when a contract contains an arbitration clause, there is a
presumption of arbitrability. See AT&T Tech., Inc. v. Commc's Workers of Am., 475 U.S.
643, 650 (1986).
19
Any doubts as to arbitrability are to be resolved in favor of coverage. See In re
FirstMerit Bank 1V.A, 52 S.W.3d 749, 754 (Tex. 2001). Likewise, a court should resolve
any doubts about the scope of the arbitration agreement in favor of coverage. Id. The
courts should not deny arbitration "unless it can be said with positive assurance that an
arbitration clause is not susceptible of an interpretation which would cover the dispute at
issue . .
"3
Legal questions of contract interpretation regarding the scope of an
arbitration agreement are reviewed as a matter of law. See Kline v. O'Quinn, 874 S.W.2d
776, 782 (Tex. App.—Houston [14th Dist.] 1994, pet. denied).
Moreover, the Arbitration Policy is very broadly worded: it mandates arbitration
for "any claim, controversy, or other dispute" "relating to" "Rao's employment, separation
from his employment, or following such separation" (C.R. 33-34). Courts have
determined that broad form language is to be honored and enforced to encompass all
disputes between the parties that concern or touch the matters covered by the agreement.4
Additionally, broad "relating to" language has been construed to be broad enough to
extend not only to claims that literally arise under the contract, but to all disputes arising
3 Commerce Park at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 338 (5th Cir.
1984) (internal citation omitted); Metropolitan Property v. Bridewell, 933 S.W.2d 358,
361 (Tex. App.—Waco 1996, no writ) (internal citations omitted).
4
See Pennzoil Exploration & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1065 (5th
Cir. 1998); In re Jim Walter Homes, Inc., 207 S.W.3d 888, 896 (Tex. App.—Houston
[14th Dist.] 2006, orig. proceeding) (in context of arbitration clause, Court recognized
that the use of language "any" dispute "arising out of or related to" as broad language that
expressly includes tort and other claims).
20
out of the parties' relationship. See Nauru Phosphate Royalties, Inc. v. Drago Daic
Interests, Inc., 138 F.3d 160, 164-65 (5th Cir. 1998).
Rao agreed to arbitrate the precise types of claims he now attempts to litigate. The
Arbitration Policy mandates arbitration for "any claim, controversy, or other dispute
relating to" Rao's "employment, separation from the Company, or following such
separation" (C.R. 33-34) (emphasis added). "Or" is a conjunction that "introduces an
alternative." 5 Each of the clauses defining the scope of the arbitration agreement is
independent of the others due to the conjunction "or." Therefore, this is a very broad
arbitration provision that included within its scope any claim or dispute 1) related to
Rao's employment, 2) related to his separation from Weekley Homes, or 3) related to any
dispute that followed his leaving Weekley Homes (Id.).
Additionally, the Policy expressly sets out the very few claims that are exempt
from arbitration: worker's compensation claims, administrative procedures required for
unemployment compensation claims, employment benefit claims for which
administrative procedures are provided by an ERISA plan, claims by Weekley Homes for
injunctive relief, and claims not arbitrable under applicable law (C.R. at 34). As none of
those exceptions apply in this case, and considering the very broad "relating to" language
5
pg. 279 (1992). See also Stafford v. Allstate Life
Ins. Co., 175 S.W.3d 537 (Tex. App.—Texarkana 2005, no pet.) (in interpreting or
construing a contract, language used by the parties should be given its plain, grammatical
meaning unless it definitely appears that the intention of the parties would be defeated);
Travelers Indem. Co. of Rhode Island v. Starkey, 157 S.W.3d 899 (Tex. App.—Dallas
2005, pet. denied) (as a general rule, words and phrases used in a contract will be
accorded their plain, ordinary, and generally accepted meaning).
THE NEW WEBSTER'S DICTIONARY,
21
in the Arbitration Policy, all of Rao's claims fall squarely within the scope of the
Arbitration Policy.
A.
Rao's Compensation Claims Fall Within The Scope Of The Broad
Arbitration Policy.
Rao seeks damages for property and/or payment of monetary amounts he claims
he is owed for the sale of stock (C.R. 9). This dispute arose after his termination and falls
within the "any claim, controversy or other dispute . . . following separation from the
company" that Rao contracted to arbitrate (C.R. 33, 67-68). As the broad scope of the
agreement includes Rao's compensation claim, this Court should reverse the trial court's
order on this basis alone. See In re Choice Homes, Inc., 174 S.W.3d 408 (Tex. App.—
Houston [14th Dist.] 2005, orig. proceeding).
Moreover, the failure to pay stock benefits also "related to" Rao's employment and
separation with Weekley Homes because his participation in the plan that he claims
entitles him to a payment is solely for employees of Weekley Homes. To be eligible to
participate in the Affiliated Trust, Rao had to be an employee and manager of Weekley
Homes (C.R. 76-77). Thus, but for his employment relationship with Weekley Homes,
Rao would never have been a participant in the Affiliated Trust and never would have
had his stock compensation claims in this case.
Further, all of the documents evidencing the Affiliated Trust and Rao's
participation in it show the interrelationship and necessity of Rao's employment status
with Weekley Homes. Rao's participation in the Affiliated Trust was solely due to,
dependent upon, and was tied to his employment with Weekley Homes. In making this
22
investment, Rao represented and warranted that he had access to information due to his
employment position with Weekley Homes and that he had the opportunity to ask
questions about the financial position of Weekley Homes (C.R. at 105). In connection
with this transaction, Rao executed a buy sell agreement whereby he agreed that if his
full-time employment with Weekley Homes should ever end that, at the Affiliated Trust's
discretion, Rao would sell his stock back to the Affiliated Trust (C.R. 113-14).
Furthermore, in connection with this transaction, Rao executed a promissory note that
listed his termination from Weekley Homes as an event of default (C.R. at 125).
Finally, Weekley Homes and the Affiliated Trust did not pay any money to Rao
for his stock due to an offset that Weekley Homes had regarding its claims against Rao
for using its resources to benefit Rao's competing, for-profit real estate business (R.R. at
4; C.R. 15). Rao's actions constituted a reason for termination under the Handbook. The
Handbook has an express section on conflicts of interest: "The Company expects all
Team Members to conduct themselves ethically as a matter of course and to avoid any
situation in which personal interests are in conflict with those of the Company." (C.R. at
58). The Handbook warned: "Prompt disclosure of any situation involving a potential
conflict of interest is necessary to avoid or limit possible disciplinary action or financial
consequences." (Id.). Further, the Handbook warned: "Termination may result without
prior warning if . . . you violate the Conflict of Interest policy." (C.R. at 54). Despite
these warnings, Rao did engage in prohibited activities that constituted a conflict of
interest, and due to that conduct Weekley Homes terminated his employment and his
compensation for stock was eliminated due to the offsets of Weekley Homes (R.R. at 4).
23
Therefore, Rao's employment relationship was essential in every step of his claims for
stock compensation, and those claims constitute "any claim, controversy, or other
dispute" "relating to" Rao's "employment" or his "separation from his employment"
(C.R. 33-34).
B.
Rao's Defamation Claims Fall Within the Scope Of The Broad
Arbitration Policy.
Rao's defamation claims also fall within the broad scope of the Arbitration Policy.
These claims "follow[ed] separation from" Weekley Homes and also "relate to" his
"employment" and "separation" with Weekley Homes and are within the broad scope of
the arbitration clause. Rao's defamation claims relate to his employment with Weekley
Homes because he specifically contends that Weekley Homes made defamatory
statements regarding his improper use of company resources and employees while he was
employed with Weekley Homes (C.R. at 9).
In similar circumstances, courts have found that an employee's defamation claims
fall within the scope of a broad arbitration clause. For example, in In re Dallas Peterbilt,
the Texas Supreme Court found that an employee's defamation claim fell within the
scope of an arbitration agreement:
In order to compel arbitration, Peterbilt must also show that the claims
raised fall within the scope of the agreement. Harris sued Peterbilt for race
discrimination, retaliation, tortious interference, defamation, and intentional
infliction of emotional distress. The Summary provides that the agreement
covers claims for tort, discrimination, wrongful termination, and violation
of law. The Mutual Agreement to Arbitrate Claims confirms that those
claims are covered. We hold that the claims covered under the agreement
include all claims that Harris brought against Peterbilt. We conclude that a
valid arbitration agreement exists and that Harris's claims fall within the
scope of the agreement.
24
196 S.W.3d at 163 (internal citations omitted). See also In re Dillard Dept. Stores, Inc.,
186 S.W.3d 514 (Tex. 2006) (defamation claims fell within scope of broad arbitration
clause in employment context); In re Choice Homes, Inc., 174 S.W.3d at 408 (same).
The Arbitration Policy in this case is much broader than the one in Dallas Peterbilt, and
the same result should apply. Because Rao's claims fall within the broad Arbitration
Policy, this Court should require arbitration of those claims.
IV. Rao Must Arbitrate His Claims Against The Affiliated Trust And The
Weekley Representatives.
The Affiliated Trust and the Weekley Representatives can also enforce the
arbitration agreement even though they are not signatories because of agency/transaction
participant, direct benefits estoppel, and concerted misconduct estoppel.
A. The Affiliated Trust and the Weekley Representatives Can Enforce
The Arbitration Agreement Because They Were Agents/Transaction
Participants Of Weekley Homes.
Both the Affiliated Trust and Weekley Representatives can enforce the Arbitration
Policy because they were agents of Weekley Homes. The Texas Supreme Court held that
"under certain circumstances, principles of . . . agency may bind a non-signatory to an
arbitration agreement." In re Kellog Brown & Root, Inc., 166 S.W.3d 732, 738 (Tex.
2005). The Court later stated that "[w]hen contracting parties agree to arbitrate all
disputes 'under or with respect to' a contract, they generally intend to include disputes
about their agents' actions . . . ." In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 762 (Tex.
2006). Otherwise stated, when the principal is bound by a valid arbitration agreement,
"its agents, employees, and representatives are covered by that agreement." Merrill
25
Lynch Trust Co. FSB v. Alaniz, 159 S.W.3d 162, 168 (Tex. App.—Corpus Christi 2004,
orig. proceeding); McMillan v. Computer Translation Sys. & Support, Inc., 66 S.W.3d
477, 481 (Tex. App.—Dallas 2001, orig. proceeding).
For example, the Texas Supreme Court found that an agent of a signatory, sued in
that capacity, may enforce an arbitration agreement. In In re Merrill Lynch Trust Co.
FSB, investors agreed to arbitrate any disputes with their investment company. 235
S.W.3d 185 (Tex. 2007). A life insurance agent who worked for the investment company
received a commission. See id. The investors sued the agent and other entities, but not
the investment company. See id. The defendants moved to compel arbitration, which the
trial court denied, and the court of appeals denied mandamus relief.
The Texas Supreme Court held that the claims against the agent had to go to
arbitration because the agent acted on behalf of the investment company and the
substance of the suit was against the agent's conduct in the course and scope of his
employment. See id. at 188-89. "Parties to an arbitration agreement may not evade
arbitration through artful pleading, such as by naming individual agents of the party to
the arbitration clause and suing them in their individual capacity." Id. at 188. "As there
is no question [agent] was acting in the course and scope of his employment, if he is
liable for the torts alleged against him, then [investment company] is too." Id. See also
In re U.S. Home Corp., 236 S.W.3d 761 (Tex. 2007) (non-signatory representatives of
company could enforce arbitration agreement).
Additionally, in In re Kaplan Higher Education Corporation, the Texas Supreme
Court held that an affiliated company could enforce an arbitration agreement where it
26
was acting on behalf of a signatory. 235 S.W.3d 206 (Tex. 2007). In Kaplan, students
filed suit against an affiliate of their college alleging that the affiliate made fraudulent
misrepresentations about the benefits of their degree. Id. at 208. Even though the
students were not suing in tort and not based on the agreement containing the arbitration
clause, the Texas Supreme Court held that the non-signatory affiliate could enforce the
arbitration agreement. Id. at 210. The Court stated:
[T]he agents of a signatory may sometimes invoke an arbitration clause
even if they themselves are nonsignatories and a claimant is not suing on
the contract. Thus, if two companies sign a contract to arbitrate disputes,
one cannot avoid it by recasting a contract dispute as a tortious interference
claim against an owner, officer, agent, or affiliate of the other. "Every
contract claim against a corporation could be recast as a tortious
interference claim against its agents," and it is impractical to require every
corporate agent to signor be listed in every contract. As a contracting party
generally cannot avoid unfavorable clauses by suing the other party's
agents, this rule is necessary "'to place arbitration agreements on equal
footing with other contracts'."
For the same reasons, the same rule must apply when a party to an
arbitration contract seeks to avoid it by pleading a contract dispute as
fraudulent inducement by an officer, agent, or affiliate of the other. Here
too, almost every contract claim against a corporation could be recast as a
fraudulent inducement claim against the agents or employees who took part
in the negotiations preceding it. If such arbitration clauses are enforceable
only if every officer, employee, agent, or affiliate signs or is listed in the
contract, they would be more easily avoided than other contract clauses.
Id. at 209 (internal citations omitted). The Court allowed the non-signatory affiliate to
enforce the arbitration agreement because "when an agreement between two parties
clearly provides for the substance of a dispute to be arbitrated, one cannot avoid it by
simply pleading that a nonsignatory agent or affiliate was pulling the strings." Id. at 210.
27
Regarding the compensation claims, the Affiliated Trust was an agent of Weekley
Homes regarding the administration of a stock ownership plan (C.R. at 76). 6 The
Affiliated Trust is the limited partner entity that owns ninety-nine percent of Weekley
Homes. The Affiliated Trust is merely the owner of Weekley Homes and is not a totally
separate entity. In order to own stock, an employee and manager, if asked, could
participate in a plan to purchase stock that was held by the Affiliated Trust (Id.). All
decisions regarding the invitation to participate and payment upon termination were made
by Weekley Homes as David Weekley was the chairman for Weekley Homes and
chairman of the board of trustees for the Affiliated Trust (C.R. at 31). In fact, Rao
alleges that the Weekley Representatives were 1) employees of Weekley Homes (C.R. at
9) and that they made the decision to allegedly breach the trust agreement and not pay
Rao (thereby allegedly constituting aiding and abetting breach of fiduciary duty) (C.R. at
11-12).
The uncontradicted facts and Rao's own allegations confirms that the Affiliated
Trust and the Weekley Representatives were agents of Weekley Homes and were sued
6 Clinton v. Janger, 583 F. Supp. 284, 290 (N.D. Ill. 1984) (related entity could enforce
forum-selection clause under transaction participant theory). "A range of transaction
participants, parties and non-parties, should benefit from and be subject to forum
selection clauses." Tex. Source Group., Inc. v. CCH, Inc., 967 F.Supp. 234, 237 (S.D.
Tex. 1997). A non-signatory is a "transaction participant" where it has a close connection
to the contractual relationship at issue. See id.; Manetti-Farrow, Inc. v. Gucci Am., Inc.,
858 F.2d 509, 514 (9th Cir. 1988). The Texas Supreme Court has readily cited to
arbitration cases in determining the enforceability of forum-selection clauses, and the
precedent for each should be generally interchangeable. See In re AIU, 148 S.W.3d 109,
115 (Tex. 2004); In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 134-35 (Tex. 2004).
28
for conduct that they committed in the course and scope of their duties for Weekley
Homes. "An employee acts within the scope of employment when... engaging in a course
of conduct subject to the employer's control."
RESTATEMENT (THIRD) OF AGENCY §
7.07(2) (2006). If an employee commits a tort "while acting within a course of conduct
subject to the employer's control, the employee's conduct is within the scope of
employment unless the employee was engaged in an independent course of conduct not
intended to further any purpose of the employer." Id. at cmt. Therefore, the trial court
erred in not allowing the Affiliated Trust and the Weekley Representatives from
enforcing the Arbitration Policy. To hold otherwise, would allow an employee to
circumvent his arbitration agreement with his employer by allowing the employee to
simply sue the owner of the company directly. As recognized by the Texas Supreme
Court, agency principles preclude such gamesmanship.
Regarding the defamation claims, Rao alleges that the Weekley Representatives'
conduct was done within the "course and scope of employment with [Weekley Homes]"
and "on behalf of [Weekley Homes]." (C.R. 9). The Weekley Representatives were
Rao's superiors and were obligated to report on Rao's misfeasance. Due to the clear
agency relationship, as acknowledged by Rao's pleadings, the Weekley Representatives
should be entitled to the benefit of the Arbitration Policy.?
7
This Court has held that a "transaction participant" can enforce a forum-selection clause
even if the participant was not actually a party to the contract. Accelerated Christian
Educ., Inc. v. Oracle Corp., 925 S.W.2d 66, 75 (Tex. App.—Dallas 1996, no writ),
overruled in part on other grounds by In re Tyco Electric Power Systems, Inc., No. 0504-01808-CV, 2005 Tex. App. LEXIS 819, 2005 WL 237232 (Tex. App.—Dallas Feb. 2,
29
Rao raised claims against the Affiliated Trust and Weekley Representatives for
tortious conduct committed in the course and scope of their duties with Weekley Homes,
and has asserted the same claims against Weekley Homes due to their relationship with
Weekley Homes. The trial court should have required Rao to arbitrate his claims against
the Affiliated Trust and Weekley Representatives due to their agency/transaction
participant relationship.
B.
The Affiliated Trust And The Weekley Representatives Can Enforce
The Arbitration Agreement Due To Direct-Benefits Estoppel.
The Affiliated Trust and the Weekley Representatives can enforce the arbitration
agreement because of direct-benefits estoppel. The Texas Supreme Court has repeatedly
used the direct-benefits estoppel theory to allow non-signatory defendants to enforce an
arbitration clause. 8 Direct-benefits estoppel provides that a plaintiff cannot rely on the
terms of a contract to support a claim and at the same time deny the enforcement of an
2005, orig. proceeding); Robbins & Myers, Inc. v. J.M. Humber Corp., No. 05-01-00139CV, 2002 Tex. App. LEXIS 1977, 2002 WL 418206 (Tex. App.—Dallas March 19,
2002, no pet.) (not designated for publication).. See Also MS Dealer Service Corp. v.
Franklin, 177 F.3d 942, 945 (11th Cir. 1999) (non-signatory may compel arbitration
where agency relationship between signatory and non-signatory is sufficiently close to
avoid evisceration of arbitration agreement); Arnold v. Arnold Corp., 920 F.2d 1269,
1281-82 (6th Cir. 1990) (non-signatory defendant, as agent of signatory defendant, may
compel arbitration; allowing plaintiffs to avoid arbitration by naming non-signatory
"officers, directors and agents" would nullify the rule requiring arbitration); Madden v.
Ellspermann, 813 S.W.2d 51, 54 (Mo. App. W.D. 1991) (employee's suit against
employer and office manager subject to arbitration under arbitration agreement between
employer and employee where non-signatory manager was agent of employer).
8
See, e.g., In re U.S. Home Corp., 236 S.W.3d 761 (Tex. 2007); Meyer v. WMCO-GP,
LLC, 211 S.W.3d 302 (Tex. 2006); In re Vesta Ins. Group Inc., 192 S.W.3d 759, 761
(Tex. 2006); In re Weekley Homes, L.P., 180 S.W.3d 127, 131-32 (Tex. 2005); In re
FirstMerit Bank, NA., 52 S.W.3d 749 (Tex. 2001).
30
arbitration clause that is contained in the very same contract. See In re David Weekley
Homes, L.P., 180 S.W.3d at 127. The test is "when each of a signatory's claims against a
nonsignatory makes reference to or presumes the existence of the written agreement, the
signatory's claims arise out of and relate directly to the written agreement, and
[enforcement of the arbitration clause] is appropriate."9
Here, Rao's claims "make reference to" or "presume the existence of the
employment relationship between him and Weekley Homes, and he is estopped from
avoiding the arbitration agreement in that employment relationship. Before Rao could
even participate in the stock program, which was administered by the Affiliated Trust, he
had to be an employee and a manager of Weekley Homes (C.R. at 76). Rao could not be
an employee or manager of Weekley Homes unless he agreed to the policies in the
Handbook and the Arbitration Policy (C.R. at 32-33). For Rao to have any claim for
compensation for stock, he had to have an employment relationship with Weekley
Homes. Accordingly, Rao's claims "make reference to" or "presume the existence of his
employment relationship with Weekley Homes. Moreover, it would be unfair and
inequitable to allow Rao the benefit of having a highly compensated job with Weekley
Homes, which gave him the ability to invest in stock, but then allow him to ignore the
arbitration agreement that was necessary before he could be an employee and investor in
9
Meyer, 211 S.W.3d at 305-06. See also McMillan v. Computer Translation Sys. &
Support, Inc., 66 S.W.3d 477, 483 (Tex. App.—Dallas 2001, no pet.) ("[Plaintiff] did not
articulate a cause of action without reference to the terms of the settlement agreement.
Accordingly, [plaintiff] relied on the settlement agreement to assert its claims.").
31
stock. This is just the type of case where courts use direct-benefits estoppel to allow a
non-signatory to enforce an arbitration agreement. See In re James E. Bashaw & Co.,
305 S.W.3d 44 (Tex. App.—Houston [1st Dist.] 2009, orig. proceeding) (finding that
direct benefits estoppel applied where "determination of JEBCO's liability on Kovacs'
claims for breach of the terms of the Compensation Letter must necessarily 'be
determined by reference to' the agreements setting out the working relationships among
JEBCO, Bashaw, and LPL."). This Court should correct the trial court's error in refusing
to allow the Affiliated Trust and the Weekley Representatives to enforce the arbitration
agreement.
C. The Weekley Representatives And Affiliated Trust Should Be Able To
Enforce The Arbitration Agreement Due To Concerted Misconduct
Estoppel.
The Affiliated Trust and the Weekley Representatives should be able to enforce
the Arbitration Policy, which selected the FAA as the governing law, because of
concerted-misconduct estoppel. Under the FAA, the Fifth Circuit held that where a
signatory plaintiff to an enforceable arbitration agreement brings claims against nonsignatories who are closely affiliated with the signatory defendant arising from
substantially interdependent and concerted misconduct, the signatory plaintiff is equitably
estopped from refusing to arbitrate his claims against all defendants. 1 ° Texas courts
initially adopted this view in enforcing arbitration agreements.11
1° See Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 527 (5th Cir. 2000)
(holding that a defendant who is a non-signatory to an arbitration agreement can compel a
signatory-plaintiff to arbitrate its claims). See also Subway Equip. Leading Corp. v.
32
Indeed, the Texas Supreme Court cited the concerted-misconduct theory with
approval and endorsed its use in Meyer v. WMCO-GP, LLC, 211 S.W.3d 302 (Tex.
2006). In Meyer, Ford Motor Company exercised its right of first refusal to acquire the
business of its dealer Bullock Motor Company, provided in its dealership agreement, and
assigned the right to Meyer, preempting Bullock's right to sell to WMCO-GP. Id.
WMCO sued Meyer, Ford, and Bullock. Even though they had no contracts with
WMCO, Ford and Meyer demanded arbitration and based that claim on a clause in
WMCO's purchase agreement. Id. They argued that because of this clause, WMCO was
estopped from refusing to arbitrate. The trial court refused arbitration, and the court of
appeals affirmed. The Texas Supreme Court reversed and held that estoppel allows a
nonsignatory to a contract containing an arbitration clause to compel arbitration "when
the signatory . . . must rely on the terms of the written agreement in asserting its claims
against the nonsignatory . . . [that is] [w]hen each of a signatory's claims against a
nonsignatory makes reference to or presumes the existence of the written agreement," as
well as when the signatory "raises allegations of substantially interdependent and
Forte, 169 F.3d. 324 (5th Cir. 1999) (arbitration provisions are also binding upon nonsignatories who are affiliates of a signatory party where claims against affiliate relate to
contract containing arbitration provision).
11 Deep Water Slender Wells, Ltd. v. Shell Intl Exploration & Prod. Inc., 234 S.W.3d
679, 687-88 (Tex. App.—Houston [14th Dist.] 2007, pet. denied); Phoenix Network
Techs. (Europe) Ltd. v. Neon Sys., Inc., 177 S.W.3d 605, 622 (Tex. App.—Houston [1st
Dist.] 2005, no pet.); Brown v. Anderson, 102 S.W.3d 245, 250 (Tex. App.—Beaumont
2003, pet. denied); Mohamed v. Auto Nation USA Corp., 89 S.W.3d 830, 837 (Tex.
App.—Houston [1st Dist.] 2002, no pet.); McMillan v. Computer Translation Sys., 66
S.W.3d 477, 482 (Tex. App.—Dallas 2001, no pet.).
33
concerted misconduct by both the nonsignatory and one or more of the signatories to the
contract." Id. Because WMCO's claims relied squarely on or depended on the existence
of the agreement, and its claims were intertwined with its claims against Bullock (a
signatory), the Court found that the claims should go to arbitration. See id. Therefore,
one basis of the Court's decision was that the plaintiff asserted a concerted misconduct
between the signatory and the non-signatory defendant.
The Texas Supreme Court subsequently issued a "somewhat tentative" holding (in
a 5 to 4 decision) 12 that estoppel could not be "based solely" on concerted misconduct
allegations. See In re Merrill Lynch, 235 S.W.3d at 185. The concern the Court had
regarded an unaffiliated stranger to a signatory defendant being able to invoke an
arbitration clause due to pleadings of concerted misconduct. Of course that concern is
12 Four dissenting justices would have supported the application of a concerted
misconduct estoppel theory. Since In re Merrill Lynch, two of the Justices (Brister and
O'Neill) from the majority have left the Court. Justice Guzman, a new justice who was
formerly on the Houston Fourteenth Court of Appeals, has previously supported the
application of the theory. See Deep Water Slender Wells, Ltd. v. Shell Intl Exploration &
Prod. Inc., 234 S.W.3d 679, 687-88 (Tex. App.—Houston [14th Dist.] 2007, pet. denied).
There is no public record of how Justice Lehrmann would view such a theory.
Accordingly, considering the strong interests in keeping Texas FAA arbitration law the
same as Federal FAA law and the different composition of the Court, there is serious
doubt as to whether the Court would come to the same conclusion if confronted with the
issue today. Courts should honor the parties' agreement to be bound by the application of
the FAA. See In re Raymond James & Assocs., Inc., 196 S.W.3d 311, 321 (Tex. App.—
Houston [1st Dist.] 2006, no pet.); In re Jim Walter Homes, Inc., 207 S.W.3d 888, 896
(Tex. App.—Houston [14th Dist.] 2006, orig. proceeding); In re Citigroup Global Mkts.,
Inc., 202 S.W.3d 477, 480-81 (Tex. App.—Dallas 2006, no pet.). See also ASW Allstate
Painting & Constr. Co. v. Lexington Ins. Co., 188 F.3d 307 (5th Cir. Tex. 1999) (parties
can chose state arbitration law via a choice-of-law clause). Therefore, Texas should
follow Fifth Circuit precedent (i.e., Grigson's concerted misconduct estoppel) on the
application of the FAA.
34
nonexistent in this case where all of the Weekley Parties are affiliates, agents, and
completely aligned.
Moreover, in Merrill Lynch, the Court did not discuss, reverse, or distinguish
Meyer, and it left open the question of to what extent a concerted-misconduct theory
should be weighed into the mix when direct-benefits estoppel is also alleged. See id. The
Meyer opinion would hold that concerted misconduct estoppel is a basis to allow a
nonsignatory defendant to compel arbitration where the nonsignatory and the signatory
defendant are affiliates, agents, or otherwise completely aligned. Even after Merrill
Lynch, some Texas Courts still hold that the concerted-misconduct estoppel theory can
apply to allow a nonsignatory to enforce an arbitration clause.13
Here, the claims against the non-signatories are intimately founded upon, and
intertwined with, the underlying alleged contract obligations. Indeed, Rao specifically
combines his allegations against the Affiliated Trust and the Weekley Representatives
with those against Weekley Homes. The factual bases of Rao's claims against the
Affiliated Trust and the Weekley Representatives are precisely the same as the factual
bases for his contract claims against Weekley Homes. It would be unjust to allow Rao to
pursue his claims against these non-signatory defendants in court when they are
13
See, e.g., In re Wilmer Cutler Pickering Hale & Dorr LLP, No. 05-08-01395-CV, 2008
Tex. App. LEXIS 9692 (Tex. App.—Dallas, December 31, 2008, orig. proceeding) (in
forum selection clause case, stating that concerted misconduct theory could allow
nonsignatory to enforce clause but refused to do so due to lack of concerted misconduct
allegations); BNP Paribas v. Virgo Commodities Corp. (In re BNP Paribas), Nos. 13-07353-CV, 13-07-358-CV, 2008 Tex. App. LEXIS 3888 (Tex. App.—Corpus Christi May
29, 2008, orig. proceeding).
35
interdependent and concerted misconduct and where that is paired with
agency/transaction participant and direct-benefits estoppel theories. Accordingly, the
Affiliated Trust and the Weekley Representatives are entitled to the benefit of the
Arbitration Policy.
V.
In The Unlikely Event That Some Claims Remain In State Court, Those Claims Should Be Stayed Pending The Resolution Of The Arbitration.
Even in the unlikely event that some claims remain in court, the trial court should
be ordered to stay those claims pending resolution of the arbitrable claims. In In re
Merrill Lynch, the Texas Supreme Court held that some claims had to go to arbitration
but other claims could stay in court. 235 S.W.3d at 185. The Court held that the trial
court should stay proceedings on the nonarbitrable claims pending the outcome of the
arbitrable claims:
Both the Federal and Texas Arbitration Acts require courts to stay litigation
of issues that are subject to arbitration. Without such a stay, arbitration
would no longer be the "rapid, inexpensive alternative to traditional
litigation" it was intended to be, so long as one could find a trial judge
willing to let the litigation proceed for awhile. The Federal Arbitration Act
was passed precisely to overcome such judicial hostility. Thus, when an
issue is pending in both arbitration and litigation, the Federal Arbitration
Act generally requires the arbitration to go forward first; arbitration "should
be given priority to the extent it is likely to resolve issues material to this
lawsuit." This has been the practice in all the federal courts. .. .
In this case, if the alleged misrepresentations and omissions by Medina
must be arbitrated, that proceeding must be given priority so that it is not
rendered moot by deciding the same issues in court. After the arbitration is
completed, the plaintiffs' claims against ML Trust and ML Life can then be
litigated (to the extent they survive) without infringing the arbitration
agreement. In the interim, a stay of litigation ensures that the Alanizes do
not "both have [their] contract and defeat it too."
Id.
36
The Texas Supreme Court has recently written on this issue again and held that a
trial court should stay claims pending arbitration. See In re Merrill Lynch & Co., Inc.,
No. 09-0161, 2010 Tex. LEXIS 471 (Tex. June 25, 2010). The two subsidiaries of a
company sued Merrills Lynch with virtually identical claims over alleged statements
concerning the riskiness of investments. The investment agreements for each subsidiary
did not contain arbitration clauses, but one subsidiary had executed another agreement
with Merrill Lynch that did contain an arbitration clause with a carve out for a class
claim. The trial court stayed the subsidiary's claim that had the side arbitration
agreement "until a class certification decision was rendered in the class action" or until
the subsidiary opted out of the class. But the trial court did not stay the litigation by the
subsidiary with no arbitration agreement. The Texas Supreme Court granted mandamus
relief to order the trial court to stay the non-signatories' claims because: "the parallel
litigation threatened to undermine or moot the arbitration, thereby negating the parties'
agreement and bargained-for arbitration rights." Id.
Similarly here, all of the claims against Weekley Homes, the Affiliated Trust, and
the Weekley Representatives are the same. If some of the claims against some of the
Weekley Parties do not go to arbitration, the trial court must stay the proceedings on the
nonarbitrable claims pending the outcome of the arbitrable claims.
CONCLUSION AND PRAYER
Rao, an experienced, sophisticated, and well-compensated executive, voluntarily
continued employment with Weekley Homes after receiving notice of a broad arbitration
agreement that applied to any dispute related to his employment, his separation from
37
Weekley Homes, and any other dispute that arose after his separation. After being
terminated for using Weekly Homes's resources for his own private, for-profit, real estate
business, and despite his agreement to arbitrate all disputes, Rao filed suit in state court
and fought the Weekley Parties' attempt to compel arbitration. This Court should hold
Rao to his bargain, and reverse the trial court's denial of the Weekley Parties' motion to
compel arbitration.
A review of the record, pleadings, and evidence demonstrates that the trial court
erred in denying the Weekley Parties' motion to compel arbitration. Accordingly, the
Weekley Parties request that this Court sustain their issues, reverse the trial court's order,
and render that the motion to compel arbitration should be granted in all respects. In the
alternative, if this Court finds that there are some arbitrable and some nonarbitrable
claims, the trial court should be ordered to stay the nonarbitrable claims pending
resolution of the arbitrable claims. Finally, the Weekley Parties request this Court to
award them their costs of this appeal and any other relief to which they are entitled in
either law or equity.
Respectfully submitted,
WINSTEAD PC
By:
David F. Johnson
WINSTEAD PC
Fort Worth, Texas 76102
38
Telephone No.: (817) 420-8200
Fax No.: (817) 420-8201
Thomas E. Reddin
Joel Reese
Marcus D. Brown
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Telephone No.: (214) 745-5650
Fax No.: (214) 745-5390
ATTORNEYS FOR APPELLANTS
WEEKLEY HOMES, L.P. d/b/a DAVID
WEEKLEY HOMES, WEEKLEY HOMES
BUSINESS TRUST, DAVID WEEKLEY
AND RANDY BRADEN
39
CERTIFICATE OF SERVICE AND FILING
The undersigned certifies that on this 6th day of July, 2010, the above document
was filed with the Court by hand delivery and served via certified first class mail on all
parties or their attorneys of record listed below pursuant to the Texas Rules of Appellate
Procedure.
Evan Lane Shaw
2723 Fairmount Street
Dallas, Texas 75201
Telephone No.: (214) 754-7110
Fax No.: (214) 754-7115
40
APPENDIX
TAB I.
Order Denying Motion To Compel Arbitration
county court i law 2
Fax:2146537643
May 7 2010 03:26pm P002/002
POSTED
CAUSE NO. CC-10-01067-B
IN THE COUNTY COURT
LEN RAO
czt
virk
4=0
V_
AT LAW NUMBER 2
WEEKLEY HOMES, L.P. d/b/a DAVID
WEEKLEY HOMES, WEEKLEY HOMES
BUSINESS TRUST, DAVID WEEKLEY and
RANDY BRADEN
DALLAS COUNTY, TEXAS
ORDER ON DEFENDANTS' PLEA IN
ABATEMENT AND MOTION TO COMPEL ARBITRATION
Caine on to be heard on the 30 m day of April, 2010, Defendants' Plea in Abatement and
Motion to Compel Arbitration, and the Court, after review of pleadings on file and hearing the
argument of counsel, is of the opinion same should be DENIED.
IT IS THEREFORE ORDERED, ADJUDGED, AND DECREED Defendants' Plea in
Abatement and Motion to Compel Arbitration is DENIED in its entirety.
IT IS SO ORDERED.
Signed this i
t
day of 44941, 2010.
Upon Entry, Please Return to:
2723 Fairmount
Dallas, Texas 75201
214/754-7110
Order — Page Solo
o.defplea.abattm2carb

No. 05-10-00570-CV - 5th Court of Appeals

Transcription

Similar documents

Graphical Methods for Describing Data 6` 57

Get the Cure: Remedies in Labor Arbitration

Front Matter - Arbitration International

SHOULD I DITCH THE ARBITRATOR AND WAIVE THE JURY?

Keeping Your Litigation Costs Down By Arbitrating

Gisela Knuts