Loy v. Harter

• Decision Date: 10 February 2004
• Docket Number: No. 06-02-00154-CV.,06-02-00154-CV.
• Citation: 128 S.W.3d 397
• Parties: Michael F. LOY, Fleetwood Enterprises, Inc., and Fleetwood Retail Corporation, f/k/a HomeUSA, Inc., Appellants v. Steven HARTER, Notre Capital Ventures, II, L.L.C., and Notre Capital Ventures, III, L.L.C., Appellees.
• Court: Texas Court of Appeals

128 S.W.3d 397

Michael F. LOY, Fleetwood Enterprises, Inc., and Fleetwood Retail Corporation, f/k/a HomeUSA, Inc., Appellants v. Steven HARTER, Notre Capital Ventures, II, L.L.C., and Notre Capital Ventures, III, L.L.C., Appellees.

No. 06-02-00154-CV.

Court of Appeals of Texas, Texarkana.

Submitted February 9, 2004.

Decided February 10, 2004.

Rehearing Overruled March 2, 2004.

Solace Kirkland Southwick, Matthew L. Hoeg, Andrews & Kurth, LLP, Houston, for appellants.

William E. Junell Jr., Schwartz, Junell, Campbell & Oathout, LLP, Houston, for appellees.

Michael D. Robbins, Doyle, Restrepo, Harvin & Robbins, LLP, Houston, for 3rd party defendants Fleetwood Enterprises, Inc., & Fleetwood Retail Corp., F/K/A HomeUSA, Inc.

Before MORRISS, C.J., ROSS and CARTER, JJ.

OPINION

Opinion by Chief Justice MORRISS.

The merger hung in the balance when Michael F. Loy, then the Chief Financial Officer (C.F.O.) and a director and stockholder of HomeUSA, Inc. (HomeUSA), and Steven Harter, then a director and stockholder of that company, faced each other in the hallway during a break in negotiations concerning a proposed merger¹ of HomeUSA into Fleetwood Enterprises, Inc. (Fleetwood). The content of their discussion in that hallway is the subject of conflicting evidence, primarily concerning whether there was any agreement then made between the two men, but all parties agree the Loy-Harter meeting was followed by the successful completion of the merger. That fateful discussion, however, spawned the multi-party litigation from which these appeals by Loy and Fleetwood arise.

After the merger, Fleetwood, the surviving corporation, reassigned Loy. Loy claimed he had been constructively terminated and sued Fleetwood. That action was arbitrated, and Loy was awarded money, which he accepted in exchange for his release of Fleetwood.

Loy then sued Harter and Harter's companies, Notre Capital Ventures, II, L.L.C., and Notre Capital Ventures, III, L.L.C. (the two companies herein collectively called "Notre Capital"), claiming that, to pave the way for the merger, Harter induced Loy to waive an important provision in his personal employment contract with HomeUSA² by promising to provide Loy with part of three new public offerings (herein IPOs). Loy admitted in his pleadings that he received from Harter an interest in one IPO and that he made $124,850.00 on it, but claimed Harter had promised him interests in three IPOs. Harter agrees a hallway discussion occurred, but insists he made Loy no such promise. On all evidence disputed between Loy and Harter, the trial court, acting as fact-finder, believed Harter, not Loy.³ The trial court thus ordered that Loy take nothing. Harter, as former director of HomeUSA (now Fleetwood), also claimed that, under an indemnity contract between Harter and HomeUSA, as well as under HomeUSA's bylaws and under Texas' common law, Fleetwood, as HomeUSA's successor, must indemnify him for defense expenses—attorney's fees of about $200,000.00—incurred defending himself in the Loy lawsuit. The trial court agreed.

Fleetwood was not a party to Loy's lawsuit. Fleetwood, however, filed its own lawsuit against Loy based on Loy's original petition against Harter, in which Loy, in the course of alleging Harter had promised him interests in three IPOs, admitted receiving the interest in one IPO from Harter. In a partial summary judgment rendered in Fleetwood's suit against Loy, Loy was ordered to pay Fleetwood the money he admitted making off the one Harter IPO, based on the premise that, in making the deal, Loy breached his duties to Fleetwood's predecessor, HomeUSA.

Loy appeals, contending (A) Fleetwood's suit against him must go to arbitration as required by the arbitration clause in his employment contract; (B) res judicata bars Fleetwood's claim against him; (C) Fleetwood's summary judgment evidence did not prove any breach of fiduciary duty by Loy; (D) the summary judgment finding irreconcilably conflicts with the trial court's findings from the Fleetwood/Harter trial; and (E) Loy was denied due process in that trial.

Fleetwood appeals, contending the indemnity provision does not cover Harter's actions or the costs of defending Loy's claims.

Harter won on all counts and has not appealed.

I. Loy's Appeal

A. Arbitration

We first address Loy's contention that Fleetwood's claims against him were subject to mandatory arbitration under the terms of his employment contract and therefore should not have been addressed by the trial court. In this case, Fleetwood sought reimbursement for Loy's alleged breach of fiduciary duty to the company. The trial court denied Loy's motion asking that Fleetwood's lawsuit be arbitrated.

Arbitration of disputes is strongly favored. EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90 (Tex.1996); Prudential Sec., Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex.1995). In determining whether the claims fall within the scope of an arbitration agreement, a court must focus on the factual allegations of the complaint, rather than on the legal causes of action asserted. Marshall, 909 S.W.2d at 900. The burden is on the party opposing arbitration to show that their claims fall outside the scope of the arbitration agreement. Id. Once an agreement to arbitrate has been shown to exist, a matter not in dispute here, the party resisting arbitration bears the burden of proving that the matter in dispute is not within the scope of the arbitration agreement. Id. The policy favoring arbitration is so strong that courts should not deny arbitration "unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue." Id. at 899.

In this case, the employment contract reads, in pertinent part, as follows:

Arbitration. ... [A]ny unresolved dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, ... provided that Employee shall comply with Employer's grievance procedures in an effort to resolve such dispute or controversy before resorting to arbitration.... The arbitrators shall not have the authority to add to, detract from, or modify any provision hereof nor to award punitive damages to any injured party. The arbitrators shall have the authority to order back pay, severance compensation, vesting of options (or cash compensation in lieu of vesting of options), reimbursement of costs, including those incurred to enforce this Agreement, and interest thereon in the event the arbitrators determine that Employee was terminated without disability or good cause ... or that Employer has breached this Agreement in any material respect....

(Emphasis added.)

Loy contends that Fleetwood's allegations all necessarily "aris[e] under or in connection with" his employment agreement, because they are based on Fleetwood's position that he waived a clause of his employment contract because he was paid to do so. Fleetwood argues that its claim is based solely on breach of a fiduciary duty that existed independently of the employment contract; thus, the contract is not involved.

The precise duty Loy was alleged and found to have breached is important to a proper analysis of the scope of the arbitration provision. Unfortunately, precision on that point is lacking in the record. Only Loy's vote as a director of HomeUSA, in favor of approving the merger, or his lack of notice to HomeUSA of his alleged agreement with Harter—not his waiver of the change of control provision, which he had been personally given in his employment contract—could provide the breach of fiduciary duty, if any, to HomeUSA (now Fleetwood), as found by the trial court. The question before us, then, is whether Fleetwood's claim against Loy for "selling" his vote as a director or for failing to give the company notice, as a director, is something that "aris[es] under or in connection with" Loy's employment agreement.

In the face of an arbitration clause, the arbitration of tort claims should be evaluated under the following standard set out by Fridl v. Cook, 908 S.W.2d 507 (Tex.App.-El Paso 1995, writ dism'd w.o.j.):

[W]hether the particular tort claim is so interwoven with the contract that it could not stand alone or, on the other hand, is a tort completely independent of the contract and could be maintained without reference to the contract. Valero Energy Corp. v. Wagner & Brown, 777 S.W.2d 564, 566 (Tex.App.-El Paso 1989, writ denied).

Id. at 511. If the arbitration clause is broad, arbitration of a tort claim will be ordered unless "it can be said with positive assurance that the particular dispute is not covered." Dallas Cardiology Assocs., P.A. v. Mallick, 978 S.W.2d 209, 214 (Tex.App.-Texarkana 1998, pet. denied) (citing Kline v. O'Quinn, 874 S.W.2d 776, 782 (Tex.App.-Houston [14th Dist.] 1994, writ denied)).

There is indisputably "a strong policy preference for enforcing arbitration clauses." Capital Income Properties-LXXX v. Blackmon, 843 S.W.2d 22, 23 (Tex.1992). In Blackmon, the Texas Supreme Court granted arbitration of a set of investor tort claims against their limited partnership for actions of the partnership in its operation, including fraud, breach of fiduciary duty, negligent misrepresentation, and deceptive trade practices, because those tort claims "ar[ose] out of or in connection with or relating to" the limited partnership agreement and thus fell within the scope of the arbitration clause. Id. Note the apparent absence of any other relationship—and, of course, the absence of a dispute or cause of action arising out of that different relationship—between the parties outside of the agreement containing the arbitration clause.

In a case decided by this Court applying the Fridl test, identical arbitration provisions in two physicians' employment contracts with a professional association—to arbitrate disputes "arising over the terms and conditions of this Agreement or in any manner...