In re Readyone Indus., Inc.

• Decision Date: 25 April 2013
• Docket Number: No. 08–13–00015–CV.,08–13–00015–CV.
• Citation: 400 S.W.3d 164
• Court: Texas Court of Appeals
• Parties: In re READYONE INDUSTRIES, INC., Relator.

400 S.W.3d 164

In re READYONE INDUSTRIES, INC., Relator.

No. 08–13–00015–CV.

Court of Appeals of Texas, El Paso.

April 25, 2013.

Joseph Isaac, Scherr & Legate, PLLC, El Paso, TX, for Real Parties in Interest.

Steven L. Hughes, Mounce, Green, Myers, Safi, Paxson & Galatzan, El Paso, TX, for Relator.

Bonnie Rangel, Judge, 171st District Court, El Paso, TX, for Respondent.

Before McCLURE, C. J., RIVERA, and RODRIGUEZ, JJ.

OPINION

GUADALUPE RIVERA, Justice.

In this original proceeding, Relator ReadyOne Industries, Inc. (ReadyOne), seeks a writ of mandamus against the Honorable Bonnie Rangel, presiding judge of the 171st District Court of El Paso County, Texas, to compel her to vacate her order permitting arbitration-related discovery. Because Flores failed to provide a colorable or reasonable basis for believing that discovery would materially aid him in establishing his defenses to the validity of an arbitration agreement, we conditionally grant the writ of mandamus.

FACTUAL AND PROCEDURAL BACKGROUND

After allegedly sustaining an on-the-job injury, Joel A. Flores sued ReadyOne for negligence and served ReadyOne with his requests for discovery. In its answer, ReadyOne asserted that a valid and enforceable arbitration agreement barred Flores' claims. ReadyOne moved for a protective order to abate all discovery until the trial court had an opportunity to address the issue of arbitration.

In response, Flores filed a motion to compel discovery explaining that limited discovery was needed on the existence or non-existence of a valid and enforceable arbitration agreement. Flores alleged that without such discovery he would be prejudiced. Specifically, Flores requested that ReadyOne respond to written discovery related solely to arbitration and that it produce an authorized representative for deposition on issues solely related to the purported arbitration agreement. Flores asserted that he needed to depose ReadyOne's authorized representative in order to respond to ReadyOne's motion to compel arbitration. Flores did not attach any affidavits as evidence to his motion to compel discovery.¹

Thereafter, ReadyOne moved to compel arbitration and to stay the proceedings pending arbitration. ReadyOne attached the affidavit of Lupe Madrid, the Director of Human Resources and Compliance for ReadyOne, to its motion to compel arbitration. Attached to Madrid's affidavit were several exhibits including: (1) ReadyOne/NCED's ² Mutual Agreement to Arbitrate adopted on October 1, 2005; (2) the Spanish language version of ReadyOne/NCED's Mutual Agreement to Arbitrate; (3) a document titled “Receipt and Arbitration Acknowledgment” written in Spanish and purportedly signed by Flores on February 23, 2006; (4) NCED's Employee Injury Benefit Plan effective after October 2, 2005; (5) the Spanish language version of NCED's Employee Injury Benefit Plan; (6) the English and Spanish language versions of NCED's Mutual Agreement to Arbitrate effective October 1, 2007; (7) Employee Injury Benefit Plan for injuries after October 1, 2007; and (8) the Spanish language version of the Employee Injury Benefit Plan. According to Madrid's affidavit, these exhibits are records kept in the course of ReadyOne's regularly conducted business activity, and that it is the regular practice of ReadyOne to make these records.

On May 29, 2012, at a hearing on his motion to compel discovery, Flores explained that he was seeking limited discovery on whether or not a valid arbitration agreement existed. Flores argued that he needed to depose ReadyOne's authorized representative in order to determine which arbitration agreement was at issue and to obtain discovery on his defenses of fraudulent inducement and illusory agreement.³ ReadyOne countered that Flores failed to establish facts that raised a reasonable expectation that discovery would reveal the arbitration agreement to be unenforceable. After hearing the parties' arguments, the trial court took the issue under advisement and stated that it would reconvene at a later date.

Flores subsequently moved for a continuance on ReadyOne's motion to compel arbitration, reasserting that limited discovery must be allowed to determine the existence or non-existence of a valid and enforceable arbitration agreement. On June 27, 2012, Flores filed a response to ReadyOne's motion to compel arbitration. In his response, Flores argued that the Federal Arbitration Act (FAA) did not apply to the arbitration agreement, there was no enforceableagreement under the Texas Arbitration Act (TAA), and the agreement was invalid because it was illusory. Flores also contended that the arbitration agreement was unconscionable. ReadyOne filed a reply to Flores' response on September 14, 2012.

The trial court reconvened on Flores' motion to compel discovery on September 18, 2012. At this hearing, Flores again argued that the trial court should permit limited discovery on the defense of fraudulent inducement and his contention that the arbitration agreement was illusory.

After considering the parties' arguments, and reviewing Flores' motion to compel discovery, ReadyOne's response to that motion, ReadyOne's motion to compel arbitration, and Flores' response to the motion to compel arbitration, the trial court signed an order granting Flores' motion to compel discovery on December 11, 2012. The trial court ordered a one-hour deposition of ReadyOne's authorized representative on issues pertaining to the arbitration agreement and its validity. The trial court deferred ruling on ReadyOne's motion to compel arbitration. ReadyOne then filed its Petition for Writ of Mandamus, seeking this Court's review of the trial court's order granting Flores' request for limited discovery.

MANDAMUS

Mandamus is an extraordinary remedy that will issue only if ReadyOne shows: (1) the trial court abused its discretion; and (2) it has no adequate remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex.2004). A trial court abuses its discretion if it reaches a decision that is so arbitrary and unreasonable as to amount to a clear and prejudicial error of law, or if it clearly fails to analyze or apply the law correctly. In re Cerberus Capital Mgmt., L.P., 164 S.W.3d 379, 382 (Tex.2005). Pre-arbitration discovery is permitted if the trial court lacks sufficient information regarding the scope of an arbitration provision or other issues of arbitrability. See In re Houston Pipe Line Co., 311 S.W.3d 449, 451 (Tex.2009). However, discovery must be limited to obtaining information regarding the scope of the arbitration provision or a defense to the provision. Id. Pre-arbitration discovery is not an authorization to order discovery on the merits of the underlying controversy. Id.

If the appellate court is unable to cure the trial court's discovery error then a relator has no adequate remedy by appeal. Walker v. Packer, 827 S.W.2d 833, 843 (Tex.1992). This occurs when the trial court erroneously “compels the production of patently irrelevant ... documents, such that it clearly constitutes harassment or imposes a burden on the producing party far out of proportion to any benefit that may obtain to the requesting party.” Id. In such a situation, mandamus is the proper remedy. Id.

DISCOVERY ON ARBITRATION AGREEMENT

ReadyOne contends that the trial court abused its discretion in ordering limited discovery before ruling on the merits of ReadyOne's motion to compel arbitration because Flores failed to raise a colorable basis or reason to believe that discovery was necessary or would reveal that the arbitration agreement was unenforceable. We agree.

Applicable Law

The law favors arbitration and the burden of proving a defense to arbitration is on the party opposing it. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003). A party opposing arbitration is entitled to pre-arbitration discovery on a particular defense if and only if the party shows or provides a colorable basis or reason to believe that the discovery requested is material in establishing the defense. In re ReadyOne Industries, Inc., 394 S.W.3d 680, 687 (Tex.App.-El Paso 2012, no pet. h.); In re ReadyOne Industries, Inc., 394 S.W.3d 689, 696 (Tex.App.-El Paso 2012, no pet. h.); In re ReadyOne Industries, Inc., ––– S.W.3d ––––, ––––, 2012 WL 6643692, at *5 (Tex.App.-El Paso 2012, no pet. h.).

DISCUSSION

ABUSE OF DISCRETION

Fraudulent Inducement

At both hearings on his motion to compel discovery, Flores argued that he needed additional discovery on his fraudulent-inducement defense. However, Flores failed to establish or provide a colorable basis or reason to believe that discovery would be material in establishing that the arbitration agreement was invalid and unenforceable because he was fraudulently induced to sign the arbitration agreement. First, in his motion to compel discovery, Flores did not raise the defense of fraudulent inducement and he did not submit any evidence in support of that defense. Second, while Flores argued that discovery was needed on the defense of fraudulent inducement, no evidence was presented on any fraudulent inducement elements.

Fraudulent inducement “is a particular species of fraud that arises only in the context of a contract and requires the existence of a contract as part of its proof. That is, with a fraudulent inducement claim, the elements of fraud must be established as they relate to an agreement between the parties.” Haase v. Glazner, 62 S.W.3d 795, 798–99 (Tex.2001). The elements of fraud are: (1) that a material representation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury. Aquaplex, Inc. v....