Morgan v. Bronze Queen Mgmt. Co.

• Decision Date: 27 February 2014
• Docket Number: No. 14–13–00535–CV.,14–13–00535–CV.
• Citation: 474 S.W.3d 701
• Parties: Scott D. MORGAN, Appellant v. BRONZE QUEEN MANAGEMENT COMPANY, LLC, Appellee.
• Court: Texas Court of Appeals

474 S.W.3d 701

Scott D. MORGAN, Appellant

v.BRONZE QUEEN MANAGEMENT COMPANY, LLC, Appellee.

No. 14–13–00535–CV.

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

Feb. 27, 2014.

Rehearing Overruled April 13, 2014.

Ryan Rosser Cordell Hicks, Peter Brian Schneider, Houston, for Appellant.

Jeremy Jason Gaston, Donald John Neese, Houston, for Appellee.

Panel consists of Justices BOYCE, CHRISTOPHER, and BROWN.

OPINION

TRACY CHRISTOPHER, Justice.

This is an interlocutory appeal from the denial of a motion to compel arbitration. In a single issue, appellant Scott D. Morgan (Morgan) asserts that the trial court erred in refusing to compel arbitration of the underlying dispute for three reasons: (1) the claim was previously submitted to arbitration, but withdrawn; (2) appellee, Bronze Queen Management Company, LLC (Bronze Queen), has waived the right to challenge arbitrability; and (3) the agreement between the parties requires arbitration of the claim. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Morgan financed numerous real estate development projects with Amegy Bank over several years. In 2007, in connection with one of these real estate developments, MRI Playa Vista, LP executed a promissory note payable to Amegy, and Morgan guaranteed the note.¹

Morgan and Amegy executed a modification of the guaranty in May 2010, with an effective date of October 2009. The Modification specified that disputes related to the note or the Modification would be determined by arbitration in accordance with a second agreement, The Arbitration Agreement and Jury and Class Action Waiver. The Modification states:

EXCEPT AS EXPRESSLY EXCLUDED THEREIN, ALL CLAIMS, DISPUTES AND OTHER MATTERS IN QUESTION BETWEEN THE PARTIES TO THIS NOTE ARISING OUT OF OR RELATING TO THE NOTE AND/OR THIS MODIFICATION OR ANY OF THE LOAN DOCUMENTS

OR ANY OTHER INSTRUMENTS EXECUTED IN CONNECTION WITH THE NOTE OR THIS MODIFICATION SHALL BE DECIDED BY ARBITRATION IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN THE ARBITRATION AGREEMENT, JURY AND CLASS ACTION WAIVER BY BORROWER, GUARANTOR AND LENDER.

As relevant here, The Arbitration Agreement and Jury and Class Action Waiver (the Agreement), contains two main sections. The first is a section entitled "JURY TRIAL WAIVER; CLASS ACTION WAIVER," in which the parties waive their rights to a jury trial and to bring a class action. In the second section entitled "ARBITRATION," the Agreement grants the parties the right to compel arbitration if a court holds the jury trial waiver to be invalid. It further specifies that certain issues are not subject to arbitration, such as the "validity, enforceability, meaning or scope of this arbitration provision." Specifically, the limited arbitration agreement provides (with emphasis supplied):

JURY TRIAL WAIVER; CLASS ACTION WAIVER. As permitted by applicable law each party waives their respective rights to a trial before a jury in connection with any Dispute (hereinafter defined) and Disputes shall be resolved by a judge sitting without a jury. If a court determines that this provision is not enforceable for any reason and at any time prior to trial of the Dispute, but not later than 30 days after entry of the order determining this provision is unenforceable, any party shall be entitled to move the court for an order compelling arbitration and staying or dismissing such litigation pending arbitration ("Arbitration Order"). If permitted by applicable law, each party also waives the right to litigate in court or an arbitration proceeding any Dispute as a class action, either as a member of a class or as a representative, or to act as a private attorney general.

ARBITRATION. If a claim, dispute or controversy arises between the parties hereto with respect to the Loan, this Agreement, related agreements or any other agreement or business relationship between any of the parties hereto whether or not related to the subject matter of this Agreement (individually and collectively called a "Dispute"), and only if a jury trial waiver is not permitted by applicable law or ruling by a court, any of the parties hereto may require that the Dispute be resolved by binding arbitration before a single arbitrator at the request of any party. By agreeing to arbitrate a Dispute each party gives up any right that party may have to a jury trial as well as other rights that party would have in court that are not available or are more limited in arbitration such as the rights to discovery and to appeal.

In August 2010, Amegy sued Morgan for breach of his guaranty of another promissory note unrelated to this dispute. The parties agreed to arbitrate that dispute. Morgan filed a Demand for Arbitration with JAMS and a Statement of Claim, in which he alleged multiple claims against Amegy.

In March 2011, Amegy added affirmative claims to the arbitration, alleging guaranty claims against Morgan relating to several loans, including the Playa guaranty at issue here. On September 2, 2011, Amegy sold the Playa note and guaranty to appellee Bronze Queen. On September 13, 2011, Amegy amended its arbitration pleadings to nonsuit the Playa claims at issue in this proceeding.

At arbitration on October 24, 2011, the arbitrator resolved the remaining claims and issued an award in January 2012. The district court confirmed the award and signed a final judgment on January 17, 2013.

On February 11, 2013, Bronze Queen sued Morgan for breach of the Playa guaranty. Morgan moved to compel arbitration, which the trial court denied, and this appeal followed.

GOVERNING LAW AND STANDARD OF REVIEW

Arbitration cannot be ordered in the absence of an agreement to arbitrate. See Freis v. Canales, 877 S.W.2d 283, 284 (Tex.1994). Thus, despite strong presumptions that favor arbitration, a valid agreement to arbitrate is a settled, threshold requirement to compel arbitration. See In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737–38 (Tex.2005) (orig. proceeding). Courts apply state contract law in determining whether there is a valid agreement to arbitrate. See In re Rubiola, 334 S.W.3d 220, 224 (Tex.2011) (orig. proceeding).

Texas procedure controls the determination of arbitrability of this dispute. See Jack B. Anglin Co., Inc., v. Tipps, 842 S.W.2d 266, 268–69 (Tex.1992). Under Texas law, the trial court conducts a summary proceeding to make the gateway determination of that issue. See In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex.2005) (orig. proceeding).

When reviewing a denial of a motion to compel arbitration, if the court's factual findings are in dispute, we review the court's denial of the motion to compel under a legal sufficiency or "no evidence" standard of review. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003). We defer to the trial court's factual determinations that are supported by evidence, but we review the trial court's legal determinations de novo. In re Labatt Food Service, L.P., 279 S.W.3d 640, 643 (Tex.2009) (orig. proceeding).

ANALYSIS

Morgan argues that the trial court erred in denying his motion to compel arbitration because an agreement to arbitrate the Playa claims exists for three reasons: (1) Amegy and Morgan formed a binding arbitration agreement by submitting the Playa guaranty claim to arbitration; (2) Amegy waived the arbitrability issue because it submitted the Playa guaranty claim to arbitration and pursued it for months; and (3) Amegy and Morgan agreed to arbitrate the Playa Guaranty in the Modification agreement. Morgan also asserts that Bronze Queen is bound by Amegy's agreements and conduct.

1. There was no agreement to arbitrate by submitting and then withdrawing a pleading in arbitration.

Morgan contends that Amegy agreed to arbitrate this dispute because it affirmatively asked the arbitrator to decide the Playa guaranty claim when it amended its arbitration pleadings to include that claim. Bronze Queen responds that inclusion of the Playa claim in a pleading does not constitute an agreement to arbitrate.

Morgan asserts he accepted Amegy's offer to arbitrate the Playa guaranty claim when he continued to participate in the arbitration, he "engaged on the merits," and made no objection to Amegy's amended pleading bringing the claim into the arbitration. Morgan asserts he therefore accepted by conduct and acquiescence.

Morgan cites cases where the courts have found an agreement to arbitrate but none contain the same facts as present here—a pleading in arbitration that was nonsuited before any trial before the arbitrators. See Massey v. Galvan, 822 S.W.2d 309, 315 (Tex.App.-Houston [14th Dist.] 1992, writ denied) (holding offer to arbitrate was accepted and contract to arbitrate was ratified by performance where claim was submitted to the arbitrator and a ruling obtained); Kamakazi Music Corp. v. Robbins Music Corp., 684 F.2d 228, 231 (2d Cir.1982) (claim was litigated through final resolution and party did not attempt to rescind arbitration demand until after the arbitrator issued an award).

Morgan also cites cases where the parties both agreed in writing to submit a claim to the arbitrators. See Piggly Wiggly Operators' Warehouse, Inc. v. Piggly Wiggly Operators' Warehouse Indep. Truck Drivers Union, Local No. 1, 611 F.2d 580, 584 (5th Cir.1980) (recognizing that in addition to entering into a written submission agreement, parties may ask the arbiter to decide a specific written grievance, which becomes the submission agreement); InterSecurities, Inc. v. Bernard, No. 07–720–C, 2009 WL 4716028, at *3 (M.D.La. Dec. 9, 2009) (the parties each executed a "Uniform Submission Agreement," agreeing to submit the controversy to arbitration).

While Bronze Queen recognizes that an offer to arbitrate may be accepted by performance, it argues that the principle is inapplicable here because there is no evidence of performance. Bronze Queen denies that Morgan accepted any offer to arbitrate expressly or by performance. Bronze Queen argues that the offer to arbitrate the Playa claim was revoked before Morgan accepted...