Pepe Intern. Development Co. v. Pub Brewing Co.
| Decision Date | 29 January 1996 |
| Docket Number | Nos. 01-95-00695-C,01-95-00832-CV,s. 01-95-00695-C |
| Parties | PEPE INTERNATIONAL DEVELOPMENT COMPANY, William M. Chappelle, Kevin R. Moffett and Pepe International, Inc., Appellants, v. The PUB BREWING COMPANY, Appellee. PEPE INTERNATIONAL DEVELOPMENT COMPANY; William M. Chappelle; Kevin R. Moffett; and Pepe International, Inc.; Relators v. The Honorable Carolyn GARCIA, Judge of the 151st District Court of Harris County, Respondent. (1st Dist.) |
| Court | Texas Court of Appeals |
James J. Sentner, Jr., Charles A. Hammaker, Erik G. Heymann, Houston, for appellants.
Hugh L. McKenney, Joel Lee-Eric Jesse, Houston, for appellee.
Before OLIVER-PARROTT, C.J., and MIRABAL and WILSON, JJ.
Appellants, Pepe International Development Company (PIDCO), William M. Chappelle, Kevin R. Moffett and Pepe International, Inc., appeal the order of the trial court denying appellants' motion to compel arbitration and stay of action pending arbitration pursuant to the Texas General Arbitration Act 1 (Texas Act); additionally, pursuant to the Federal Arbitration Act 2 (Federal Act), appellants challenge the order of the trial court by way of a mandamus proceeding. We consider the appeal and the mandamus proceeding together.
Appellants argue that the trial court erred in denying appellants' motion to compel arbitration and stay of action pending arbitration because there is no evidence that: (1) the contracts made the basis of the dispute did not contain valid arbitration clauses; (2) the contracts made the basis of the suit did not fall under the arbitration provisions of the contracts; (3) appellants waived their right to arbitrate; (4) appellants' cancellation of the contracts invalidated the arbitration clause of the contracts; or (5) the presence of defendants not parties to the contracts bars arbitration of disputes that arise out of the contracts.
On March 24, 1993, appellant, PIDCO, and appellee, Pub, entered into two contracts wherein it was agreed that Pub would sell goods and provide services to PIDCO related to the construction of breweries in the Republic of Kazakhstan. These contracts were signed by Moffett and Chappelle in their representative capacities as secretary and president of PIDCO, respectively. Contained within the contracts were arbitration clauses in which each party agreed to binding arbitration if any disagreement related to the contracts were to come about. 3
On July 22, 1994, PIDCO cancelled the balance of the contracts pursuant to clause 7.02 of the contracts. 4 In a letter from Robert Burnett, Vice President of Operations for PIDCO, to Ralph Eibert, Vice President of Pub, Burnett referred to statements made at a recent meeting between the parties. The letter asserts that Pub was informed that it had failed to meet several obligations under the contract and that Pub owed PIDCO approximately $500,000, which included penalties under section 7.02 of the contracts. Burnett noted it was his understanding that Pub was of the opinion that no sums were due under penalty and that Pub did not intend to complete the contracts as long as PIDCO continued to claim amounts due under section 7.02 of the contract. This position was later reiterated by Pub's counsel, Mr. Walton Bader.
Burnett concluded his letter by stating it was PIDCO's position that Pub was in material breach of the contracts and by its actions Pub anticipatorially repudiated the contract. Due to this repudiation, Burnett noted that PIDCO would cancel the remainder of the contract, pursuant to clause 7.02, for delays in delivery exceeding four months, and PIDCO would retain its right to pursue all remedies for Pub's breach of contract.
On August 15, 1994, Pub initiated this action by filing its original petition. On September 16, 1994, PIDCO made a written demand for arbitration upon Pub. On September 19, 1994, PIDCO and its codefendants filed an answer and counterclaim to Pub's original petition alleging breach of contract on the part of Pub. PIDCO filed a formal demand for arbitration with the trial court on November 10, 1994. An oral hearing was held on February 9, 1995, on the matter. On June 23, 1995, the district court entered an order denying PIDCO's demand for arbitration.
Challenging the trial court's denial of its motion to compel arbitration, appellants PIDCO, Moffett, Chappelle and Pepe International, Inc., filed this interlocutory appeal pursuant to the Texas Act along with a mandamus proceeding, pursuant to the Federal Act.
The trial court did not specify in its judgment whether state or federal arbitration laws applied to the contract in question here. Therefore, this Court must decide at the outset whether the Federal or State Act governs this dispute. The parties acknowledged within the contracts that the goods and services contracted for bear a relationship to the State of Texas and agreed to allow Texas law to govern the parties' rights and duties under the contracts. 5 Further, both parties assert in their briefs that Texas law should govern this dispute; however, appellants also argue that if federal law were to apply, appellants would still be entitled to arbitration.
The United States Supreme Court has held that when parties to a contract agree to abide by the arbitration rules of a certain state, the courts should honor that choice and give effect to the contractual rights and expectations of the parties. Volt Information Sciences, Inc. v. Board of Trustees, 489 U.S. 468, 479, 109 S.Ct. 1248, 1256, 103 L.Ed.2d 488 (1989); American Physicians Serv. Group, Inc. v. Port Lavaca Clinic Assocs., 843 S.W.2d 675, 677-78 (Tex.App.--Corpus Christi 1992, writ denied).
Based upon the terms of the parties' contracts and the relevant case law, we find that the provisions of the Texas Arbitration Act govern this dispute and deny appellants any relief by way of a mandamus.
In their first point of error, appellants argue that the trial court erred in denying appellants' motion to compel arbitration because there is no evidence that the contracts made the basis of the dispute did not contain valid arbitration clauses.
In an appeal from an interlocutory order denying a motion to compel arbitration, the applicable standard of review is that of "no evidence." Wetzel v. Sullivan, King & Sabom, P.C., 745 S.W.2d 78, 79 (Tex.App.--Houston [1st Dist.] 1988, no writ). Under the "no evidence" standard, the appellate court considers only the evidence and inferences tending to support the finding under attack and disregards all evidence and inferences to the contrary. Garza v. Alviar, 395 S.W.2d 821, 823 (Tex.1965).
In this case, the trial court did not provide this Court with findings of fact and conclusions of law; thus, we must affirm the decision of the trial court if there is sufficient evidence to support it upon any legal theory asserted. Wetzel, 745 S.W.2d at 81.
On application of a party that shows a valid agreement to arbitrate, the trial court should order the parties to proceed with arbitration unless the opposing party denies the existence of the agreement, and the trial court summarily finds for the party opposing arbitration. TEX.CIV.PRAC. & REM.CODE ANN. § 171.002 (Vernon Supp.1996). If the court finds the arbitration provision valid, it shall order arbitration. Gulf Interstate Eng'g Co. v. Pecos Pipeline & Producing Co., 680 S.W.2d 879, 881 (Tex.App.--Houston [1st Dist.] 1984, writ dism'd). Once a trial court determines that a valid agreement to arbitrate exists and that the claim raised falls within the scope of that agreement, it has no discretion but to compel arbitration and stay its proceedings pending arbitration. Prudential Securities, Inc. v. Banales, 860 S.W.2d 594, 597 (Tex.App.--Corpus Christi 1993, no writ).
The record reflects, and neither party disputes, that two contracts were entered into on March 24, 1993, which contained the above-noted arbitration clauses. Appellants argue that there is no evidence which disputes the validity of these arbitration clauses. Pub contends that though arbitration clauses are present in the contracts, it would be unconscionable to compel arbitration due to PIDCO's failure to disclose to Pub its undercapitalization at the time the contract was entered into, Moffett and Chappelle's alleged use of PIDCO as their "alter ego," the alleged transfer to another corporation of all of the benefits of the contracts involved, and PIDCO's failure to obtain proper letters of credit from the Arab American Bank.
Pub cites section 171.001 of the Texas Arbitration Act in support of its unconscionability argument. The portion of the act it relies upon provides: "a court shall refuse to enforce an agreement or contract provision to submit a controversy to arbitration if the court finds [the provision] was unconscionable at the time the agreement or contract was made." Specifically, Pub argues that because the contract itself was entered into based upon PIDCO's alleged misrepresentations, a provision contained within the contract--the agreement to arbitrate--is non-enforceable as a result of the application of section 171.001.
Pub cites no case law to support this interpretation of the Act. The Act states that the court shall not compel arbitration if it finds that the arbitration provision was unconscionable at the time the contract was entered into. Therefore, a contract containing an agreement to arbitrate disputes "arising out of and/or related to the contract" is subject to arbitration, notwithstanding a party's assertion that the contract itself is "unconscionable."
Allegations of fraud in the inducement of the underlying contract are matters for the arbitrator to decide, whereas fraud concerning the inducement of an arbitration clause in a contract must be decided by the trial court. New Process Steel Corp. v. Titan Indus. Corp., 555 F.Supp. 1018, 1022 (S.D.Tex.1983).
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