Henry v. Gonzalez

• Decision Date: 26 January 2000
• Docket Number: No. 04-99-00478-C,N,04-99-00478-C
• Citation: 18 S.W.3d 684
• Parties: (Tex.App.-San Antonio 2000) Thomas HENRY and Michael HEARN, Appellants v. Hector GONZALEZ, Appellee IN RE Thomas HENRY and Michael HEARN. o. 04-99-00479-CV
• Court: Texas Court of Appeals

Page 684

18 S.W.3d 684 (Tex.App.-San Antonio 2000)

Thomas HENRY and Michael HEARN, Appellants v. Hector GONZALEZ, Appellee

IN RE Thomas HENRY and Michael HEARN.

No. 04-99-00478-CV, No. 04-99-00479-CV

Court of Appeals, Fourth District of Texas

January 26, 2000

Rehearing Overruled May 19, 2000

Interlocutory appeal from the 79th Judicial District Court, Brooks County, Texas Trial Court No. 98-11-08738-CV Honorable Terry Canales, Judge Presiding [Copyrighted Material Omitted] Sitting: Phil Hardberger, Chief Justice Sarah B. Duncan, Justice Karen Angelini, Justice

Opinion

Karen Angelini, Justice

Appellants/Relators, Thomas Henry and Michael Hearn, seek relief from the trial court's denial of their motion to compel arbitration and grant of appellee's motion for summary judgment. Henry and Hearn have filed an interlocutory appeal pursuant to the Texas Arbitration Act and a petition for writ of mandamus pursuant to the Federal Arbitration Act. The two proceedings have been consolidated.

We conclude the Texas Arbitration Act applies; therefore, we deny Henry and Hearn's petition for writ of mandamus. We reverse and remand the trial court's denial of Henry and Hearn's motion to compel arbitration and grant of appellee's motion for summary judgment because we conclude the trial court abused his discretion by holding the termination of the attorney/client contract invalidated the internal arbitration agreement.

Factual and Procedural Background

Hector and Noela Gonzalez wished to pursue a medical malpractice action in Falfurrias, Texas, and in March 1997 hired Thomas Henry and Michael Hearn to represent them. Hector Gonzalez executed a contract manifesting this relationship with Henry and Hearn. On December 17, 1997, prior to filing an original petition in the case and approximately two weeks before expiration of the statute of limitations, Henry sent a letter to the Gonzalezes stating the attorneys' intent to terminate the attorney/client contract. The Gonzalezes immediately contacted another attorney, Raul Garcia, who wrote a letter to Henry encouraging him to continue on the case through filing the original petition. Henry subsequently filed a petition in Corpus Christi, a place of improper venue, against the defendants in the medical malpractice case. Henry did not notify the Gonzalezes or Garcia that he filed the petition, nor did he return the case file to them. Although he signed the petition as the attorney of record, Henry titled it as a "pro se" petition. Henry did not serve the defendants, and the statute of limitations expired without a proper suit being filed.

The Gonzalezes subsequently filed suit against Henry and Hearn alleging causes of action for legal malpractice, breach of fiduciary duty, and violations of the Deceptive Trade Practices Act. The Gonzalezes also sought a declaratory judgment that the arbitration clause in the attorney/client contract was unenforceable and void as a matter of public policy. Henry and Hearn filed a motion to compel arbitration against Hector Gonzalez, contending the attorney/client contract mandated such disposition.¹ The Gonzalezes filed a motion for summary judgment on their declaratory action contending the suit fell outside the original contract, and any arbitration clause was ambiguous. The trial court entered an order granting the Gonzalezes' motion for summary judgment, holding that "no mandatory referral for binding arbitration has been shown by the applicable contract relied upon by the defense to be authorized." It is from this order that Henry and Hearn seek relief by filing a petition for writ of mandamus under the Federal Arbitration Act (FAA) and an interlocutory appeal under the Texas Arbitration Act (TAA). Both the mandamus and the interlocutory appeal address the same issue: the propriety of the trial court's denial of their motion to compel arbitration and the trial court's grant of the Gonzalezes' motion for summary judgment.

Because the Gonzalezes' motion for summary judgment on their request for declaratory relief addressed the same issue as Henry and Hearn's motion to compel arbitration, these two motions compete and complicate the procedural posture of this case. The trial court's order addressing these two competing motions further complicates its posture on appeal. The trial court's order is titled, "ORDER ON PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT ON DECLARATORY JUDGMENT ACTION/DEFENDANTS' CLAIM OF MANDATORY ARBITRATION." However, in the body of the order the trial court only granted the motion for summary judgment, without specifically denying the motion to compel arbitration. Because the trial court's action effectively denied Henry and Hearn's motion to compel arbitration and because the title of the order implied an intent to address both motions jointly, we may assume Henry and Hearn's motion to compel arbitration was denied.

Although the grant of the Gonzalezes' motion for summary judgment and the denial of Henry and Hearn's motion to compel arbitration had the same effect, this court's review of these types of motions and the parties' burden of proof for each is different and requires different analysis. We will begin with the review of the trial court's action on Henry and Hearn's motion to compel arbitration, as this review most clearly addresses the true substance of all the disputed issues. We will then address the merits of the trial court's grant of the Gonzalezes' motion for summary judgment, which will obviously follow our decision on the trial court's denial of the competing motion to compel arbitration.

Discussion

Before we proceed on the merits of the dispute, this court must first determine whether state or federal arbitration laws govern this dispute. See Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 271-72 (Tex. 1992); see also Pepe Int'l Dev. Co. v. Pub Brewing Co., 915 S.W.2d 925, 932 (Tex. App.-Houston [1st Dist.] 1996, no writ).² The parties attempted to resolve this issue in the attorney/client contract. Provision 10 of the attorney/client contract provides that the "Agreement shall be construed under and in accordance with the laws of the State of Texas, . . . and regarding anything covered by this Agreement shall be governed by the laws of the State of Texas." Provision 11, however, provides that all disputes "shall be resolved by binding arbitration pursuant to the Federal Arbitration Act in accordance with the commercial Arbitration Rules then in effect with the American Arbitration Association. . . . This arbitration provision shall be enforceable . . . pursuant to the substantive federal laws established by the Federal Arbitration Act." Contradictory to Provision 11, the contract contains a clause which appears in all capital letters immediately above the signature lines which states: "THIS CONTRACT IS SUBJECT TO ARBITRATION UNDER THE TEXAS GENERAL ARBITRATION STATUTE." Therefore, the contract itself is internally inconsistent as to whether the FAA or the TAA governs.

In interpreting the contract, we examine the entire agreement in an effort to harmonize and give effect to all provisions of the contract so that none will be meaningless. Bush v. Brunswick Corp., 783 S.W.2d 724, 728 (Tex. App.-Fort Worth 1989, writ denied). If provisions in the contract appear to conflict, they should be harmonized, if possible, to reflect the intentions of the parties. Ogden v. Dickinson State Bank, 662 S.W.2d 330, 332 (Tex.1983); Bush, 783 S.W.2d at 728. Therefore, we cannot strike down any portion of the contract unless there is an irreconcilable conflict. Ogden, 662 S.W.2d at 332.

Provision 11 is in irreconcilable conflict with the other relevant portions of the contract. While Provision 11 states that the FAA shall govern any arbitration, we cannot harmonize this provision, and therefore, construe this conflict as drafting error. Additionally, we avoid application of the FAA because performance of the contract does not relate to interstate commerce, and the FAA is implicated in transactions relating to interstate commerce. See Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996); Anglin, 842 S.W.2d at 269-70. We strike down Provision 11 and conclude that this dispute is governed by the TAA because: (1) Provision 10 provides that "anything covered" in the contract shall be governed by Texas law, (2) the prominent bold type states that any arbitration will be governed by the TAA, and (3) all parties involved in the suit are Texas residents, the contract was signed in Texas, the contract was to be performed in Texas, only, and the dispute does not relate in any way to interstate commerce. Because we conclude that this dispute is governed by the TAA, we deny appellants' petition for writ of mandamus filed pursuant to the FAA. We now proceed to the merits of the interlocutory appeal.

Standards of Review and Burdens of Proof

a) Motion to Compel Arbitration

In determining whether to compel arbitration, the trial court must decide the following: (1) whether a valid, enforceable arbitration agreement exists, and (2) if so, whether the claims asserted fall within the scope of that agreement. Dallas Cardiology Assoc., P.A. v. Mallick, 978 S.W.2d 209, 212 (Tex. App.- Texarkana 1998, writ denied). If the answers to both prongs are affirmative, the trial court has no discretion but to compel arbitration and stay its proceedings pending arbitration. Id. The party seeking arbitration has the initial burden to establish his right to the remedy under the first prong; that is, to establish that a valid arbitration agreement exists. Id. Once the existence of an arbitration agreement has been established, a presumption attaches favoring arbitration. Id. At this point, the burden shifts to the opposing party to establish some ground for the revocation of the arbitration agreement. Such grounds include fraud, waiver, unconscionability, or that the dispute falls outside the scope of the agreement. Id. Under the...