American Medical Technologies v. Miller

• Decision Date: 28 September 2004
• Docket Number: No. 14-03-01106-CV.,No. 14-03-01097-CV.,14-03-01097-CV.,14-03-01106-CV.
• Citation: 149 S.W.3d 265
• Parties: AMERICAN MEDICAL TECHNOLOGIES, INC., Appellant, v. John A. MILLER, Appellee. In re American Medical Technologies, Inc.
• Court: Texas Court of Appeals

149 S.W.3d 265

AMERICAN MEDICAL TECHNOLOGIES, INC., Appellant, v. John A. MILLER, Appellee In re American Medical Technologies, Inc.

No. 14-03-01097-CV.

No. 14-03-01106-CV.

Court of Appeals of Texas, Houston (14th Dist.).

September 28, 2004.

Robert L. Ketchand, and Jennifer G. Black, Houston, for relator in No. 03-01106-CV.

Bradley Roger Gammell and Kenneth Sup Soh, Houston, for respondent in No. 03-01106-CV.

Robert L. Ketchard, James J. Hansen, Houston, for appellants in No. 03-01097-CV.

Bradley Roger Gammell, Houston, for appellees in No. 03-01097-CV.

Panel consists of Justices FOWLER,

EDELMAN, and SMITH.^*

MAJORITY OPINION

WANDA McKEE FOWLER, Justice.

I. INTRODUCTION

John A. Miller sued American Medical Technologies, Inc. ("AMT") for benefits allegedly due under an employment agreement. AMT moved to compel arbitration based on the agreement while also claiming there was no valid employment agreement. The trial court denied AMT's motion. AMT filed an interlocutory appeal and a petition for mandamus, alleging in both that the trial court erred in denying AMT's motion to compel arbitration.

We are asked to resolve two questions. First, what is the proper procedural posture for this arbitration dispute — is it governed by the Federal Arbitration Act and resolved by mandamus, or is it governed by the Texas General Arbitration Act and resolved by appeal? Second, did the trial court correctly refuse to refer the case to arbitration?

We hold that the alleged employment agreement affects interstate commerce and is governed by the Federal Arbitration Act because it provides for the transfer of stock options to Miller. We also hold that the trial court correctly refused to refer the case to arbitration because AMT did not satisfy its burden to demonstrate the existence of a valid arbitration agreement, and because issues raised in the trial court questioning the validity of the employment agreement did not implicate the separability doctrine and therefore did not require referral to an arbitrator. In short, based on the evidence before it, the trial court correctly denied AMT's motion to compel arbitration. In light of these holdings, we dismiss AMT's interlocutory appeal for lack of jurisdiction and deny AMT's petition for mandamus.

II. FACTUAL AND PROCEDURAL BACKGROUND

In August of 2002, Miller and AMT allegedly entered into an employment agreement. The alleged agreement contained terms governing benefits due upon termination or resignation. It also contained a clause stating that "any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration...."

The parties dispute how Miller's employment with AMT ended. Miller alleges that he resigned. AMT alleges that Miller was terminated for cause. In any event, after Miller's employment ended, AMT's president wrote a letter to Miller stating that the employment agreement was not valid, and that Miller was therefore not entitled to the severance benefits provided by the contract. AMT's president offered alternate benefits in exchange for executing a severance agreement and release, which Miller declined to accept. Shortly after that, Miller sued AMT, seeking damages for breach of the employment agreement.

Based on an arbitration provision in the alleged employment agreement, AMT moved to stay the proceedings and compel arbitration. In support of its motion, AMT attached a copy of the alleged employment agreement between it and Miller. The trial court denied the motion and this interlocutory appeal and petition for mandamus followed.

III. ANALYSIS

As we previously noted, AMT's consolidated mandamus and appeal require us to address two issues: (1) whether the Federal Arbitration Act or the Texas General Arbitration Act governs this arbitration dispute, and therefore whether it is appropriately resolved by mandamus or appeal; and (2) whether the trial court erred in refusing to compel arbitration when AMT attached a signed copy of the alleged employment agreement to its motion to compel. We address each in turn.

A. The FAA Governs this Case

The appropriate avenue for relief for denial of arbitration under the Texas General Arbitration Act ("TGAA")¹ is an interlocutory appeal, whereas the appropriate avenue for relief for denial of arbitration under the Federal Arbitration Act ("FAA")² is a petition for mandamus. Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272 (Tex.1992). Therefore, to determine the proper procedural posture of this dispute, we must first determine whether the TGAA or the FAA applies.

The alleged employment agreement does not specifically invoke either the TGAA or the FAA. It does provide that it is to be "governed by and construed in accordance with the laws of the State of Texas," but this language does not preclude the application of federal law. See Capital Income Properties-LXXX v. Blackmon, 843 S.W.2d 22 (Tex.1992) ("The [FAA] is part of the substantive law of Texas."). For the FAA not to apply, an agreement must specifically exclude the application of federal law. In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125, 127-28 (Tex.1999).

Under the Supremacy Clause of the United States Constitution, the FAA preempts otherwise applicable state laws, including the TGAA. Jack. B. Anglin, 842 S.W.2d at 271. Federal law governs whether a party has a right to arbitrate under the FAA. Prudential Secs., Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex.1995). The FAA applies to all disputes in state or federal court arising out of a "contract evidencing a transaction involving commerce." 9 U.S.C. § 2 (1999); Jack B. Anglin, 842 S.W.2d at 269-70. A contract evidences a transaction involving commerce if the contract affects interstate commerce. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 276-77, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995); In re Merrill Lynch Trust Co. FSB, 123 S.W.3d 549, 553 (Tex.App.-San Antonio 2003, orig. proceeding); see 9 U.S.C. § 1 (defining "commerce" as "commerce among the several States ..."). We must therefore determine whether the alleged employment agreement affects interstate commerce.

Agreements that involve the sale of securities have been held to affect interstate commerce. See In re Whitfield, 115 S.W.3d 753, 757 (Tex.App.-Beaumont 2003, orig. proceeding.); Eurocapital Group, Ltd. v. Goldman Sachs & Co., 17 S.W.3d 426, 430 (Tex.App.-Houston [1st Dist.] 2000, no pet.); Thomas James Assocs. v. Owens, 1 S.W.3d 315, 319 (Tex.App.-Dallas 1999, no pet.). The alleged employment agreement provides for the transfer of stock options to Miller and implies that AMT is listed on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). We conclude that the transfer of securities as an employment benefit affects interstate commerce in the same manner as an outright sale of securities, and therefore, that the FAA, not the TGAA, applies to the arbitration provision contained in the alleged agreement. See Whitfield, 115 S.W.3d at 757; Eurocapital Group, 17 S.W.3d at 430; Thomas James, 1 S.W.3d at 319. Accordingly we dismiss AMT's interlocutory appeal for lack of jurisdiction and instead consider AMT's petition for mandamus.

B. THE TRIAL COURT CORRECTLY REFUSED TO REFER THE CASE TO ARBITRATION.

We now turn to the substance of AMT's complaint. AMT presents two reasons the trial court should have referred the case to arbitration. First, it proved a valid arbitration agreement that Miller failed to controvert. Second, even if some question remained regarding the validity of the employment agreement, the separability doctrine required that issue to be resolved by an arbitrator. We address each issue.

1. AMT did not Satisfy its Burden to Prove the Existence of a Valid Arbitration Agreement.

A trial court is compelled to order arbitration if the parties have a valid arbitration agreement. 9 U.S.C. § 4 (1999). A party moving to compel arbitration must prove (1) the existence of a valid agreement to arbitrate and (2) a dispute that falls within the scope of the agreement. See Will-Drill Res., Inc. v. Samson Res. Co., 352 F.3d 211, 214 (5th Cir.2003); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003). Here, the parties agree that their dispute falls within the scope of the agreement to arbitrate. However, they disagree whether AMT conclusively proved that a valid agreement to arbitrate ever existed.

AMT states that it met its burden of demonstrating the existence of a valid agreement to arbitrate because (a) it "attached the employment agreement, as evidence of the existence of the arbitration provision," and (b) "the arbitration provision was ratified by the Affidavit of [its president]." We will address these claims separately.

a. Merely attaching a copy of the employment agreement cannot satisfy AMT's burden to prove the existence of a valid arbitration agreement when AMT itself places the existence of a valid agreement in issue.

First, AMT claims it met its burden by attaching the alleged employment agreement to its motion to compel arbitration. However, AMT also stated in the motion that it "reserve[d] the right to assert that the employment agreement [was] not valid" and claimed that Miller was an at-will employee. In a supplement to the motion, AMT attached an affidavit of its president, which also stated that "[t]here are issues in dispute regarding the making of this contract and whether the person who signed it on behalf of [AMT] had authority to enter into this agreement."³

In response to the motion, Miller attached the letter he received from AMT. It also claimed that "the [employment agreement] was not executed by an officer with authority to execute such agreements," that the agreement was not approved by AMT's board of directors, and that the agreement was neither valid nor enforceable.⁴

On this record, we cannot say that AMT satisfied its burden to demonstrate the existence of a valid arbitration agreement....