Valero Energy v. Teco Pipeline

• Decision Date: 26 August 1999
• Citation: 2 S.W.3d 576
• Parties: <!--2 S.W.3d 576 (Tex.App.-Houston 1999) VALERO ENERGY CORP., ET AL., Appellants v. TECO PIPELINE CO., Appellee NO. 14-96-01234-CV In The Fourteenth Court of Appeals
• Court: Texas Court of Appeals

Page 576

2 S.W.3d 576 (Tex.App.-Houston[14th Dist.] 1999)

VALERO ENERGY CORP., ET AL., Appellants v TECO PIPELINE CO., Appellee

NO. 14-96-01234-CV

In The Fourteenth Court of Appeals

August 26, 1999.

Rehearing Overruled Oct. 7, 1999

On Appeal from the 215th District Court

Harris County, Texas

Trial Court Cause No. 96-20628

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Panel consists of Chief Justice Murphy and Justices Anderson and Edelman.

O P I N I O N

John S. Anderson, Justice

This is an interlocutory appeal of an order denying a motion to stay proceedings and compel arbitration. See TEX. CIV. PRAC. & REM. CODE ANN. 171.098(a) (Vernon Supp. 1999).¹ Teco Pipeline has sued Valero Energy Corp., 24 related companies, and two officers and directors, Stan L. McLelland and William L. Greehey (collectively "Valero").² Valero filed a motion to stay proceedings and compel arbitration. In response, Teco filed a motion to stay arbitration. The trial court granted Teco's motion, while denying Valero's motion. In two points of error, Valero asserts the trial court erred in denying its motion to stay proceedings and compel arbitration and granting Teco's motion to stay arbitration. We reverse and remand.

Background

From 1969 to 1985, Valero was the sole operator and owner of the TransTexas Pipeline System, which delivered gas from Waha, Texas to New Braunfels, Texas. Through a merger with a network of pipelines, the TransTexas Pipeline was also able to deliver gas to the Texas Gulf Coast. InterNorth, Inc. owned an interstate pipeline connecting West Texas to northern states.

On November 6, 1994, Valero and Northern Natural Gas Company, a division of InterNorth, signed a letter of intent to form a joint venture for the purpose of purchasing, transporting, and marketing natural gas. This agreement was formalized on February 1, 1985, when Valero and Northern Intrastate Pipeline Company entered into a partnership agreement, forming the Nor-Val Gas Company ("Nor-Val"). On February 28, 1985, Valero entered into a Purchase Agreement with InterNorth and Northern Texas Intrastate Pipeline Company ("NorTex"), a wholly owned subsidiary of InterNorth, for the purpose of transporting natural gas via the TranTexas Pipeline. Under the Purchase Agreement, Valero sold a one-half undivided interest in the TransTexas Pipeline to NorTex and 125,000 shares of Valero stock to InterNorth.

As exhibits to the Purchase Agreement, Valero entered into three additional agreements with InterNorth and NorTex. The first agreement was the Operating Agreement, which created a joint venture for the purpose of providing for the operation, management, and maintenance of the TransTexas Pipeline. Valero Transmission Company ("VTC") was appointed operator. The second agreement was the Ownership Agreement, which set forth a mutual understanding between the parties with regard to the rights of each party in the joint ownership of the TransTexas Pipeline. The third agreement was the Transportation Agreement, which allowed InterNorth to transport gas from New Braunfels to Houston on other portions of Valero's integrated pipeline system.

Two months later, InterNorth merged with Houston Natural Gas ("HNG") to form Enron, Inc. At that time, HNG was a primary Valero competitor, owning a 50% interest in the only other pipeline delivering gas from West Texas to the Texas Gulf Coast. Seeking to block the merger, Valero filed suit against InterNorth and NorTex in the United States District Court for the Western District of Texas, San Antonio Division. Valero asserted that the merger violated NorTex's fiduciary duties under the Ownership Agreement.

On May 28, 1985, the parties entered into a Settlement Agreement ("1985 Settlement Agreement"). Under the 1985 Settlement Agreement: (1) Nor-Val was to be dissolved, (2) NorTex agreed to sell its one-half interest to an acceptable purchaser, (3) Valero retained the right to disapprove of any pipeline purchaser tendered by NorTex, and (4) Valero reaffirmed its right of first refusal to repurchase the pipeline as set forth in the Ownership Agreement.

In addition to filing suit in federal court, Valero also had lodged a complaint with the Federal Trade Commission ("FTC") regarding the proposed InterNorth/HNG merger. The FTC, finding antitrust implications, drew up a Consent Decree, which provided that in order for the merger to proceed, InterNorth had to divest itself of its interest in the TransTexas Pipeline.

In 1987, in an effort to reorganize and refinance its internal operations, Valero assigned its interest in the TransTexas Pipeline to a related entity. Enron threatened to block the assignment by exercising its right of first refusal under the Ownership Agreement. On March 24, 1987, the parties executed the TransTexas Settlement Agreement, which eliminated Valero's veto rights over any pipeline purchaser tendered by NorTex, but allowed Valero to continue with its reorganization.

On July 15 1987, Enron and Teco entered into an agreement for the sale of NorTex, which included its interest in the TransTexas Pipeline. Valero opposed the sale to Teco and, exercising its right of first refusal, proposed to purchase the NorTex stock, thereby obtaining complete ownership of the pipeline. Enron submitted both proposed sales to the FTC for approval. The FTC approved the sale to Teco and disapproved the sale to Valero.

Believing that the FTC did not have the authority to disapprove of the sale to Valero in view of its right of first refusal, Valero sued Enron, NorTex, and Teco in state court, for breach of contract. Valero also sought and received a temporary injunction blocking the conveyance of the pipeline to Teco. The case was removed to the United States District Court. After a trial on the merits, judgment was entered in favor of Enron, NorTex, and Teco and the temporary injunction was dissolved. The United States Fifth Circuit Court of Appeals affirmed the judgment. See West Tex. Transmission, L.P. v. Enron Corp., 907 F.2d 1554 (5th Cir. 1990). On December 12, 1988, Enron closed on the sale to Teco. Purchasing NorTex's interest in the pipeline, Teco became a successor in interest to NorTex's partnership rights and succeeded to all of the contractual agreements between NorTex and Valero.

On April 24, 1996, Teco filed the underlying suit, asserting causes of action for breach of fiduciary duty, fraud, tortious interference, and professional malpractice. Valero counterclaimed for breach of contract of the Operating Agreement, breach of fiduciary duty, and fraud. Asserting that Teco's claims are based on the Operating Agreement, Valero moved to stay the litigation and compel arbitration pursuant to the Texas General Arbitration Act ("TGAA"), Chapter 171 of the Texas Civil Practice & Remedies Code, and the arbitration clause found in the Operating Agreement:

3.01 General. Any dispute arising with respect to any matter within the scope of the Operating Agreement shall be resolved by arbitration pursuant to this Article C, which is intended to provide the exclusive means for resolving all such disputes. . . .

Teco moved to stay arbitration on several grounds: (1) the TGAA applies only to disputes between nonprofit entities, (2) its claims arise out of a partnership separate and independent of the joint venture established in the Operating Agreement, (3) the arbitration clause has been revoked, (4) the Operating Agreement specifically excludes from arbitration claims regarding the transporting of third party natural gas, (5) the scope of the arbitration clause is too narrow to include its claims, (6) the Valero defendants, who are not signatories to the Operating Agreement, may not enforce the arbitration clause, (7) Valero has waived its right to enforce the arbitration clause by its previous litigation, and (8) Valero has failed to satisfy any conditions precedent to arbitration. After a hearing, the trial court denied Valero's motion to stay litigation and compel arbitration and granted Teco's motion to stay arbitration.

Standard of Review

In determining whether to compel arbitration, the court must decide two issues: (1) whether a valid, enforceable arbitration agreement exists, and (2) if so, whether the claims asserted fall within the scope of the agreement. See Dallas Cardiology Assocs., P.A. v. Mallick, 978 S.W.2d 209, 212 (Tex. App.-Texarkana 1998, pet. denied); Nationwide of Bryan, Inc. v. Dyer, 969 S.W.2d 518, 520 (Tex. App.-Austin 1998, no pet.). The court has no discretion but to compel arbitration if the answer to both questions is affirmative. See Dallas Cardiology Assocs., P.A., 978 S.W.2d at 212; Merrill Lynch, Pierce, Fenner & Smith v. Eddings, 838 S.W.2d 874, 878 (Tex. App.-Waco 1992, writ denied).

Whether the parties have agreed to arbitrate is a question of fact to be summarily determined by the trial court. See TEX. CIV. PRAC. & REM. CODE ANN. 171.021(b) (Vernon Supp. 1999); see also Weber v. Hall, 929 S.W.2d 138, 141 (Tex. App.-Houston [14th Dist.] 1996, orig. proceeding). Appellate courts use a "no evidence" standard for review of factual questions. See Fridl v. Cook, 908 S.W.2d 507, 511 (Tex. App.-El Paso 1995, writ dism'd w.o.j.). In a no evidence point, we consider only the evidence that supports the finding, while disregarding the evidence to the contrary. Hearthshire Braeswood Plaza Ltd. Partnership v. Bill Kelly Co., 849 S.W.2d 380, 384 (Tex. App.-Houston [14th Dist.] 1993, writ denied). If there is any evidence of probative force to support the finding, the point must be overruled and the finding upheld. See id.

Legal conclusions, on the other hand, are subject to de novo review. See Fridl, 908 S.W.2d at 511; see also Certain Underwriters at Lloyds of London v. Celebrity, Inc., 950 S.W.2d 375, 377 (Tex. App.-Tyler 1996), writ dism'd w.o.j., 988 S.W.2d 731 (Tex. 1998) (per curiam). De novo review is appropriate when the legal interpretation of the arbitration...