Al Rushaid v. Nat'l Oilwell Varco, Inc.

• Citation: 757 F.3d 416
• Decision Date: 02 July 2014
• Docket Number: No. 13–20159.,13–20159.
• Parties: Rasheed AL RUSHAID; Al Rushaid Petroleum Investment Corporation; Al Rushaid Parker Drilling, Limited, Plaintiffs–Appellees, v. NATIONAL OILWELL VARCO, INCORPORATED; National Oilwell Varco, L.P.; Now Oilfield Services, Incorporated; National Oilwell Varco Norway; Grant Prideco, L.P.; Grant Prideco Holdings, L.L.C.; National Oilwell Norway, A.S.; Now Oilfield Services, L.L.C., Defendants–Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

757 F.3d 416

Rasheed AL RUSHAID; Al Rushaid Petroleum Investment Corporation; Al Rushaid Parker Drilling, Limited, Plaintiffs–Appellees,

v.NATIONAL OILWELL VARCO, INCORPORATED; National Oilwell Varco, L.P.; Now Oilfield Services, Incorporated; National Oilwell Varco Norway; Grant Prideco, L.P.; Grant Prideco Holdings, L.L.C.; National Oilwell Norway, A.S.; Now Oilfield Services, L.L.C., Defendants–Appellants.

No. 13–20159.

United States Court of Appeals, Fifth Circuit.

July 2, 2014.

Gary P. Naftalis, Alan Roy Friedman, Kramer Levin Naftalis & Frankel, L.L.P., New York, NY, Larry Don Knippa, Houston, TX, Christopher G. Lyons, Lyons & Lurvey, P.A., Miami, FL, for Plaintiffs–Appellees.

Eileen F. O'Neill, Ware, Jackson, Lee & Chambers, L.L.P., Joshua A. Norris, Esq., Jones Walker LLP, Houston, TX, Gary Jude Russo, Carmen Marie Rodriguez, Esq., Jones Walker LLP, Lafayette, LA, Catherine Barrett Rice, Esq., Jones Walker LLP, New Orleans, LA, for Defendants–Appellants.

Appeal from the United States District Court for the Southern District of Texas.

Before OWEN, SOUTHWICK, and GRAVES, Circuit Judges.

PRISCILLA R. OWEN, Circuit Judge:

Defendants appeal the district court's denial of a motion to compel arbitration submitted by National Oilwell Varco Norway (NOV Norway). The district court denied the motion on two grounds, concluding: (1) there was no arbitration agreement and (2) NOV Norway waived any right to arbitration by substantially invoking the judicial process to the prejudice of plaintiffs. Because we conclude that there was an arbitration agreement and that NOV Norway cannot be held responsible for the actions of its codefendants in this case, we vacate and remand.

I

In 2011, Al Rushaid Parker Drilling, Ltd. (ARPD), Rasheed al Rushaid, and Al Rushaid Petroleum Investment Corp. (collectively, plaintiffs) filed suit in Texas state court against National Oilwell Varco, Inc.; National Oilwell Varco LP (NOV LP); NOW Oilfield Services, LLC; NOV Norway; Grant Prideco, LP; and Grant Prideco Holding, LLC (collectively, defendants). The dispute arose out of various, separate contracts between ARPD and individual defendants. These contracts were formed when ARPD would send one of the defendant entities a purchase order in response to that defendant's price quotation. Under Texas law, this was sufficient to form a contract.¹

ARPD served all of the defendants except NOV Norway by August 2011. In September of that year, defendants (with the exception of NOV Norway) removed the matter to federal court based on an arbitration clause contained in a price quotation issued by NOV LP. That clause stated that “Varco retains the right to arbitrate and any all [sic] disputes that may arise in connection with the sale of its Equipment, Product or Services.” Defendants concede that the contracts with some of the other defendants did not contain arbitration provisions.

In December 2011, the district court denied plaintiffs' motion to remand. Shortly thereafter, the parties (again with the exception of NOV Norway, which had still not been served) held a scheduling conference with the district court. Considering that plaintiffs were seeking hundreds of millions of dollars, discovery would need to be conducted on multiple continents, and the trial would involve many witnesses and extend longer than two weeks, the district court set a trial date of June 2013 and informed the parties that the date was firm. Following the conference, the parties engaged in pre-trial activities. Specifically, defendants moved for a more definite statement, sought protective orders, propounded interrogatories and requests for production, and moved to compel responses. According to the district court's findings, defendants “served over 400 separate document requests and 129 interrogatories” and “Plaintiff[s] reported producing over 130,000 pages of documents.”

On August 14, 2012, plaintiffs served NOV Norway pursuant to the Hague Convention. After service was effected, the other defendants continued to participate in litigation in the district court, including filing a motion to enforce a consent judgment. NOV Norway, however, took steps to arbitrate, sending plaintiffs a demand to arbitrate on September 7 and including in its October 12 answer an affirmative defense that “Plaintiffs are not entitled to litigate their claims because they have agreed to arbitration.” On November 19, NOV Norway moved to compel arbitration of all of the claims against all of the defendants and stay proceedings.

The premise for NOV Norway's motion was not the price quotation issued by NOV LP. Instead, it was a different price quotation, one that NOV Norway had issued to ARPD. Subsection 3.1 of NOV Norway's price quotation, titled “The ORGALIME,” provides: “Terms and conditions are based on the general conditions stated in the enclosed ORGALIME S2000.” The ORGALIME, in turn, provides that “[a]ll disputes arising out of or in connection with the contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce.”

In March 2013, the district court denied NOV Norway's motion to compel arbitration on two grounds. First it held that there was no agreement to arbitrate because the term “based on” found in subsection 3.1 of the quotation was insufficient to incorporate the ORGALIME and its arbitration provision. Second, the court held that NOV Norway waived any right to arbitrate by “substantially invok[ing] the judicial process” to the detriment of plaintiffs. Defendants appeal, claiming that the district court erred on both points. They further contend that, in addition to compelling arbitration, the district court should have stayed all proceedings pending the outcome of the arbitration on the ground of equitable estoppel. After the notice of appeal was filed, the district court stayed proceedings pending our decision. Title 9 U.S.C. section 16(a)(1)(C) provides that a party may seek interlocutory review of “an order ... denying an application ... to compel arbitration.” ²

II

It is uncontested that the dispute at issue falls within the scope of the broad arbitration provision contained in the ORGALIME.³ The parties' disagreement concerns whether the reference to the ORGALIME in NOV Norway's quotation was sufficient to incorporate the terms and conditions of the ORGALIME. This question is one of contract interpretation and “courts apply the contract law of the particular state that governs the agreement,” which the parties in this case agree is Texas.⁴ Although “there is a strong federal policy favoring arbitration, the policy does not apply to the initial determination whether there is a valid agreement to arbitrate.” ⁵

Under Texas law, “[a] written contract must be construed to give effect to the parties' intent expressed in the text as understood in light of the facts and circumstances surrounding the contract's execution.” ⁶ Courts should “give contract terms their plain and ordinary meaning unless the instrument indicates the parties intended a different meaning.” ⁷ Moreover, “courts should examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless.” ⁸

With respect to incorporation, the Supreme Court of Texas has held that “[t]he language used is not important provided the document signed ... plainly refers to another writing.” ⁹ Texas courts of appeals, however, have frequently held that a “mere reference” to another document is insufficient to incorporate that writing when the facts and circumstances surrounding the agreement do not indicate that incorporation was intended.¹⁰ One decision held that the mere mention of “General Terms and Conditions of Sale” in a contract's table of contents and as a heading was insufficient to incorporate a separate, unattached document containing the same title. ¹¹ Likewise, the statement that a district court's judgment was entered “pursuant to” a stipulation was insufficient to incorporate the terms of that stipulation when it was equally plausible that the phrase was meant as “mere decretal language confirming that the judgment was decided based upon the pleadings and evidence in the case.” ¹²

However, when the reference to the other document is clear and the circumstances indicate that the intent of the parties was incorporation, courts have held that a document may be incorporated, even in the absence of specific language of incorporation.¹³ A Texas court of appeals recently held that an instrument that referenced a separate contract six times and invited the parties to consult it incorporated that document, even though there was no language of incorporation.¹⁴

In the Terms & Conditions section of the NOV Norway price quotation, the subsection titled “The ORGALIME” provides: “Terms and conditions are based on the general conditions stated in the enclosed ORGALIME S2000.” The district court cited two rationales in holding that this provision did not incorporate the ORGALIME. First, after examining cases interpreting “based on” and “based upon,” the court concluded that the phrase does not mean “govern,” but “supported by but not actually derived from.” Second, the court noted that some of the provisions of the ORGALIME “overlap” with terms in the price quotation and that such overlapping is inconsistent with incorporation.

Defendants take issue with both rationales. They argue that the district court failed to give “based on” its plain meaning in this commercial context. Moreover, they contend that there is no “overlap”; rather, the price quotation departs from the ORGALIME where that document specifically contemplates variation. We agree.

Although multiple interpretations of “based on” might be possible in the abstract, in the contract at issue only one definition of “based on” comports with its commonly understood meaning in the context of the parties' multi-million dollar purchase...