MP Gulf of Mexico, LLC v. Total E&P USA, Inc.
| Decision Date | 16 December 2020 |
| Docket Number | 12-20-00180-CV |
| Citation | 647 S.W.3d 96 |
| Parties | MP GULF OF MEXICO, LLC, Appellant v. TOTAL E&P USA, INC., Appellee |
| Court | Texas Court of Appeals |
Evan Young, Austin, Travis County, for Appellant.
Wallace Jefferson, Austin, for Appellee.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
MP Gulf of Mexico, LLC (MP) appeals the denial of its motion to compel arbitration and the granting of Total E&P USA, Inc.’s (Total) motion to stay arbitration. MP presents three issues on appeal. We reverse and render.
MP and Total are parties to a series of oil and gas contracts. In 1996, Total and MP acquired working interests in offshore oil and gas leases in the Gulf of Mexico from the Department of Interior's Minerals Management Service (MMS). The parties later dedicated the group of leases to a drilling unit referred to as the "Chinook Unit." The MMS approved the Chinook Unit effective May 1, 2006. The Chinook Operating Agreement was created to govern the parties’ Chinook Unit drilling operations. A similar situation occurred between MP and Devon Energy Production to create the "Cascade Unit."1
Originally, the parties contemplated that the Chinook Unit and the Cascade Unit would develop their own production systems. However, the working interest owners later decided that it would be efficient for both units to share a common production system to process, transport, and store the hydrocarbons extracted from both units, creating the "Common System." As a result, the parties executed the Common System Operating Agreement (SOA) and the Cost Sharing Agreement (CSA) in January 2007. The SOA and CSA operate together and govern all aspects of the Common System.
In 2017, MP, as operator of the Chinook Unit, proposed to Total that a well in the Chinook Unit be re-entered. Total, within its rights under the Chinook OA, elected to not participate in the proposed operation. MP proceeded with the proposed work on the Chinook Well No. 6 and in 2019, issued joint interest billing statements to Total, assessing Common System costs of more than $41,000,000. Total took the position that MP should have billed and calculated the amounts owed via the Chinook Operating Agreement instead of the CSA and SOA. As a result, Total refused to pay the invoices.
In September 2019, MP notified Total of a dispute over its failure to pay the invoices and demanded payment. In December, the parties met in an unsuccessful attempt to resolve the dispute. On January 10, 2020, MP initiated the mediation process pursuant to the dispute resolution procedure found in the SOA. Mediation on May 11 was also unsuccessful, and MP filed its demand for arbitration against Total on May 26.
On May 15, Total filed a declaratory judgment action seeking a declaration that the CSA allocates fixed operating expenses and variable operating expenses to the Chinook Unit and that the allocation of such expenses must be done in accordance with the Chinook Operating Agreement. It also filed an arbitration in accordance with the arbitration provision in the Chinook Operating Agreement.2 On June 5, Total filed a motion to stay the arbitration initiated by MP. On June 29, MP filed a motion to compel arbitration and a response to the motion to stay. Following a hearing, the trial court denied the motion to compel and granted the motion to stay. This appeal followed.3
In its first issue, MP argues that the trial court erred in deciding the threshold issue of arbitrability. MP urges that, per the terms of the arbitration agreement, the arbitrator should determine which issues are covered under the arbitration clause.
Standard of Review and Applicable law
We review the denial of a motion to compel arbitration for abuse of discretion. See Okorafor v. Uncle Sam & Assocs., Inc. , 295 S.W.3d 27, 38 (Tex. App.—Houston [1st Dist.] 2009, pet. denied). When an appeal from such an order turns on a legal determination, we apply a de novo standard. Forest Oil Corp. v. McAllen , 268 S.W.3d 51, 55 & n.9 (Tex. 2008).
The law often applies a presumption favoring arbitration; however, on questions of delegation, this presumption is reversed. First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 944-45, 115 S. Ct. 1920, 1924, 131 L. Ed. 2d 985 (1995). As a result, a presumption favors adjudication of arbitrability by the courts absent clear and unmistakable evidence of the parties’ intent to submit that matter to arbitration. Jody James Farms, JV v. Altman Grp., Inc. , 547 S.W.3d 624, 631 (Tex. 2018).
A party moving to compel arbitration must establish (1) the existence of a valid, enforceable arbitration agreement and (2) that the claims asserted fall within the scope of that agreement. In re Rubiola , 334 S.W.3d 220, 223 (Tex. 2011) (orig. proceeding) (addressing movant's burden under the Federal Arbitration Act (FAA)); In re AdvancePCS Health L.P. , 172 S.W.3d 603, 605 (Tex. 2005) (orig. proceeding) (per curiam). Both Texas and federal law require the enforcement of valid agreements to arbitrate. 9 U.S.C. § 2 ; TEX. CIV. PRAC. & REM. CODE ANN. § 171.021 (West 2019). If the movant establishes that an arbitration agreement governs the dispute, the burden then shifts to the party opposing arbitration to establish a defense to the arbitration agreement. In re Provine , 312 S.W.3d 824, 829 (Tex. App.—Houston [1st Dist.] 2009, orig. proceeding). A party may defend against the enforceability of the agreement only on a ground that exists at law or in equity for the revocation of a contract. See 9 U.S.C. § 2 ; TEX. CIV. PRAC. & REM. CODE ANN. § 171.001(b) (West 2019).
Our state supreme court has made clear that there are three distinct ways to challenge the validity of an arbitration clause: (1) challenging the validity of the contract as a whole; (2) challenging the validity of the arbitration provision specifically; and (3) challenging whether an agreement exists at all. RSL Funding, LLC v. Newsome , 569 S.W.3d 116, 124 (Tex. 2018) ; In re Morgan Stanley & Co. , 293 S.W.3d 182, 187 (Tex. 2009) (orig. proceeding). The arbitrator decides the first type of challenge as a matter of law. Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 446, 126 S. Ct. 1204, 1209, 163 L. Ed. 2d 1038 (2006) ; RSL Funding , 569 S.W.3d at 124. The second type of challenge generally must be resolved by the court. Rent-A-Ctr., W., Inc. v. Jackson , 561 U.S. 63, 70, 130 S. Ct. 2772, 2778, 177 L. Ed. 2d 403 (2010) ; Prima Paint Corp. v. Flood & Conklin Mfg. Co. , 388 U.S. 395, 402-04, 87 S. Ct. 1801, 1805-806, 18 L. Ed. 2d 1270 (1967) ; Longoria v. CKR Prop. Mgmt., LLC , 577 S.W.3d 263, 267 (Tex. App.—Houston [14th Dist.] 2018, pet. denied). However, as parties have the right to contract as they see fit, they may delegate to the arbitrator questions concerning validity or enforceability of an arbitration agreement, and we enforce such clauses when the delegation is clear and unmistakable. Henry Schein, Inc. v. Archer & White Sales, Inc. , ––– U.S. ––––, 139 S. Ct. 524, 527, 202 L. Ed. 2d 480 (2019) ; Rent-A-Ctr. , 561 U.S. at 69-70, 130 S. Ct. at 2777-78 ; RSL Funding , 569 S.W.3d at 121 ; Longoria , 577 S.W.3d at 268 ; Dow Roofing Sys., LLC v. Great Comm'n Baptist Church , No. 02-16-00395-CV, 2017 WL 3298264, at *6-7 (Tex. App.—Fort Worth Aug. 3, 2017, pet. denied) (mem. op.) ; Firstlight Fed. Credit Union v. Loya , 478 S.W.3d 157, 164 (Tex. App.—El Paso 2015, no pet.) ; IHS Acquisition No. 171, Inc. v. Beatty-Ortiz , 387 S.W.3d 799, 807 (Tex. App.—El Paso 2012, no pet.) ; see also In re Weekley Homes, L.P. , 180 S.W.3d 127, 130 (Tex. 2005) (orig. proceeding). The United States Supreme Court has been very clear that arbitrators are competent to decide any legal or factual issues the parties commit to their determination, including threshold issues of arbitrability such as whether an enforceable arbitration agreement exists. See 14 Penn Plaza LLC v. Pyett , 556 U.S. 247, 268-69, 129 S. Ct. 1456, 1471, 173 L. Ed. 2d 398 (2009) ; RSL Funding , 569 S.W.3d at 121 ; see Rent-A-Ctr. , 561 U.S. at 69-70, 130 S. Ct. at 2777-78.
MP contends that the underlying dispute falls within the arbitration provision contained in the SOA. Total urges that the dispute arises under the CSA, which does not contain an arbitration provision. Regardless of the dispute over which document controls, MP further urges that the decision as to scope was not for the trial court to decide because the parties agreed to have the arbitrator decide issues of arbitrability. We agree.
The arbitration provision in the SOA states, in pertinent part:
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