In re Gulf Exploration, LLC

• Decision Date: 17 April 2009
• Docket Number: No. 07-0055.,07-0055.
• Citation: 289 S.W.3d 836
• Parties: In re GULF EXPLORATION, LLC, et al., Relators.
• Court: Texas Supreme Court

289 S.W.3d 836

In re GULF EXPLORATION, LLC, et al., Relators.

No. 07-0055.

Supreme Court of Texas.

Argued January 17, 2008.

Decided April 17, 2009.

James M. Chaney, Kirk & Chaney, Oklahoma, OK, Michael T. Morgan, Bullock Scott Neisig Morgan Leeton & Strauss, Midland, for Relator.

Brad Miller, Kerr Ward McLaughlin & Miller LLP, Richard E. Booth, Lynch Chappell & Alsup, P.C., Midland, for Real Parties in Interest.

Robert B. Gilbreath, Hawkins, Parnell & Thackston, LLP, Michael L. Dinnin, Bracewell & Giuliani LLP, Dallas, for Amici Curiae.

Justice BRISTER delivered the opinion of the Court.

In In re Palacios, we held that mandamus relief was generally unavailable for orders compelling arbitration.¹ But we stopped short of saying it was never available, and noted the Fifth Circuit's suggestion (which was not actually applied) in Apache Bohai Corp. v. Texaco China that mandamus review might be available if an applicant could show "clearly and indisputably that the district court did not have the discretion to stay the proceedings pending arbitration."²

As with any "narrow" provision for appellate review, numerous disappointed litigants have claimed the Apache Bohai "exception" applies to them.³ But reviewing all arbitration orders to see if they comply with an exception "would inevitably frustrate Congress's intent to move the parties ... out of court and into arbitration as quickly and easily as possible."⁴ We granted oral argument to address more specifically when mandamus relief is available in connection with orders compelling arbitration. Finding it is unavailable here, we conditionally grant the writ.

I. Background

In this oil and gas suit, several working interest owners sued their operator, Great Western Drilling, when it drilled two successful wells for its own account nearby. They claim an opportunity to participate in those wells because Great Western had said it would protect their interests and had used confidential data they paid for.

The parties' joint operating agreements contain the following arbitration clause:

Any dispute, controversy or claim arising out of or relating to this Agreement or the breach or validity thereof ("Dispute") shall be referred to and finally settled by final and binding arbitration in Houston, Harris County, Texas.... The parties agree to use the Commercial Arbitration Rules of the American Arbitration Association and, to the maximum extent possible, the Federal Arbitration Act....

When the working interest owners demanded arbitration, Great Western filed this suit seeking a declaration that it owed the working interest owners neither arbitration nor anything on the underlying claim. The working interest owners moved to compel arbitration and stay litigation, which the trial court granted.

Great Western sought mandamus relief in the court of appeals. That court recognized mandamus review was generally unavailable after Palacios, but found Great Western had satisfied Apache Bohai by showing the trial court had "clearly and indisputably" abused its discretion by compelling arbitration, so it conditionally granted mandamus relief.⁵ The working interest owners seek relief from that order in this Court.

II. Dismiss Instead Of Stay?

In Green Tree Financial Corp. v. Randolph, the United States Supreme Court observed that the FAA "generally permits immediate appeal of orders hostile to arbitration ... but bars appeal of interlocutory orders favorable to arbitration."⁶ Yet the FAA also allows appeal from "a final decision with respect to an arbitration."⁷ Construing the two together, the Supreme Court held there can be no immediate appeal of an order compelling arbitration if it stays the underlying case, but there can be an appeal if the underlying case is dismissed.⁸

This appears to be the majority rule among the states as well. A few states have specific provisions for appealing orders compelling arbitration.⁹ But most states (including Texas) have adopted the Uniform Arbitration Act, which like the FAA authorizes immediate appeal only from orders denying arbitration.¹⁰ Nevertheless, a few Uniform Act states review all orders compelling arbitration,¹¹ and a few review none;¹² but most Uniform Act states follow Green Tree in allowing review if the order dismisses the case but not if it stays it.¹³

We too have adopted this rule: "Courts may review an order compelling arbitration if the order also dismisses the underlying litigation so it is final rather than interlocutory."¹⁴ Thus, the order compelling arbitration in Childers v. Advanced Foundation Repair was immediately reviewable because the judgment stated that it was "final, disposes of all parties and all claims in this case, is appealable, and disposes of this case in the entirety."¹⁵ This is consistent with general Texas law that an order is final and appealable only if "it actually disposes of every pending claim and party or [] it clearly and unequivocally states that it finally disposes of all claims and all parties."¹⁶

At first blush, this rule appears to leave appellate review entirely at the discretion of the trial judge: stay the case and postpone review, or dismiss the case and allow it immediately. But in state courts this discretion is usually limited. Arbitrability is often the only issue in federal court because nondiverse parties may prevent removal of the underlying case from state court;¹⁷ in such cases, even a stay order will be considered final if the federal action is effectively over.¹⁸ But in the state courts, disputes about arbitrability and the merits must usually proceed in a single court under the rules of dominant jurisdiction.¹⁹

Accordingly, a stay is generally the only appropriate order for a state court with jurisdiction of all issues. Indeed, the Texas Arbitration Act states that "[a]n order compelling arbitration must include a stay" of the underlying litigation.²⁰ During arbitration, a court order may be needed to replace an arbitrator,²¹ compel attendance of witnesses,²² or direct arbitrators to proceed promptly;²³ after arbitration, a court order is needed to confirm, modify, or vacate the arbitration award.²⁴ Consequently, dismissal would usually be inappropriate because the trial court cannot dispose of all claims and all parties until arbitration is completed.²⁵

It is in this context that one must read Apache Bohai—not as an all-purpose test for mandamus review, but as a test for reviewing whether the trial court should have dismissed rather than stayed the underlying case.²⁶ Palacios may have created some confusion on this issue, because after quoting Apache Bohai it went on to analyze whether the case was arbitrable rather than whether it should have been stayed. Accordingly, we clarify today that this "exception" applies not to the question whether an order compelling arbitration was correct, but to the question whether the case should have been dismissed rather than stayed.

Here, the trial court stayed this case pending arbitration, so there is no final judgment. Great Western does not argue otherwise, or assert that the trial court erred in staying rather than dismissing this case. Accordingly, Apache Bohai does not apply.

III. Mandamus Instead Of Interlocutory Appeal?

Even when an order is not reviewable by interlocutory appeal, that does not always preclude review by mandamus.²⁷ In 1994, we authorized general mandamus review of orders either compelling or denying arbitration under the FAA.²⁸ But in Palacios we limited such review to orders denying arbitration, so that federal and state procedures would remain consistent after Green Tree.²⁹ We left open the question whether mandamus review of orders compelling arbitration should be entirely precluded, an issue we now address.³⁰

To be entitled to mandamus, "a petitioner must show that the trial court clearly abused its discretion and that the relator has no adequate remedy by appeal."³¹ In the context of orders compelling arbitration, even if a petitioner can meet the first requirement, mandamus is generally unavailable because it can rarely meet the second.

If a trial court compels arbitration when the parties have not agreed to it, that error can unquestionably be reviewed by final appeal. In Perry Homes v. Cull, we rejected the argument that an order compelling arbitration must be reviewed before arbitration, noting that for many years this Court has reviewed such orders after arbitration in the final appeal.³² Both federal and Texas statutes provide for vacating an arbitration award by final appeal if the arbitrators exceeded their powers.³³ If appeal is an adequate remedy for an order compelling arbitration, mandamus must be denied.

There is no definitive list of when an appeal will be "adequate," as it depends on a careful balance of the case-specific benefits and detriments of delaying or interrupting a particular proceeding.³⁴ But in balancing these matters, "our place in a government of separated powers requires us to consider also the priorities of the other branches of Texas government."³⁵ Legislative acts encouraging or discouraging interlocutory review must weigh heavily in the balance of benefits and detriments.³⁶ Here, as both the federal and state arbitration acts pointedly exclude immediate review of orders compelling arbitration, any balancing must tilt strongly against mandamus review.³⁷

Of course, if an order compelling arbitration is wrong, the parties may waste time and money in arbitration. But standing alone, delay and expense generally do not render a final appeal inadequate.³⁸ That is especially true here because arbitration clauses are usually contractual and cover contractual claims. A party that prevails on a contractual claim can recover its fees and expenses,³⁹ even if they were incurred in collateral proceedings like arbitration.⁴⁰

The "adequacy" of an appeal may be a closer question when the legislature has weighed in on both sides of the balance. For example, we...