in Re Houston Progressive Radiology Associates, PLLC, Rodolfo L. Garcia, and Brandon C. Stroh ( 2015 )

Opinion issued August 27, 2015
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-14-00463-CV
———————————
IN RE HOUSTON PROGRESSIVE RADIOLOGY ASSOCIATES, PLLC,
RODOLFO L. GARCIA, AND BRANDON C. STROH, Relators
Original Proceeding on Petition for Writ of Mandamus
and
————————————
NO. 01-14-00467-CV
———————————
HOUSTON PROGRESSIVE RADIOLOGY ASSOCIATES, PLLC,
RODOLFO L. GARCIA, AND BRANDON C. STROH, Appellants
v.
STEPHEN B. LEE, M.D., P.A., DEAN PAUL CHAUVIN, JR., M.D., P.A.,
AND MICHAEL NGUYEN, M.D., Appellees
On Appeal from the 80th District Court
Harris County, Texas
Trial Court Case No. 2014-12279
OPINION
Two professional associations, former members of a medical practice, sued
the practice and two doctors associated with it, alleging breaches of contract,
breach of fiduciary duty, and fraud in connection with the sale of the practice.
Another doctor employed by the practice also sued for breach of his employment
agreement. The practice and defendant-doctors filed a plea in abatement and
motion to dismiss in favor of arbitration, seeking to compel arbitration based on
employment agreements signed by the two doctors who controlled the plaintiff
professional associations. The trial court denied the defendants’ plea and motion,
and they filed both an interlocutory appeal and petition for writ of mandamus. 1
We reverse the order of the trial court refusing to compel arbitration, remand the
case to the trial court for entry of an order compelling arbitration and staying the
litigation, and deny the mandamus petition as moot.
1
The underlying case is Stephen B. Lee, MD., P.A. et al v. Rodolfo L. Garcia, et al,
cause number 2014-12279, pending in the 80th District Court of Harris County,
Texas, the Hon. Larry Weiman presiding.
2
Background
Relationship of the parties
Two doctors, Rodolfo L. Garcia and Brandon C. Stroh, held ownership
interests in a radiology practice, Houston Progressive Radiology Associates,
PLLC. Each owned his respective interest through a professional association that
he controlled. Over time, additional members joined the practice, including
Stephen B. Lee, M.D., P.A., and Dean Paul Chauvin, M.D., P.A. These
professional associations were owned and controlled by Drs. Lee and Chauvin,
respectively. 2 Drs. Lee and Chauvin participated in the practice, but were
employees of their respective professional associations.
Another doctor, Michael Nguyen, joined the practice as an employee, rather
than as a member. Dr. Nguyen’s employment agreement gave HPRA discretion to
offer Nguyen the opportunity to become a member of HPRA:
[HPRA] shall have the option, in its sole discretion, of offering to [Dr.
Nguyen] the opportunity to purchase that number of Class A
Company Units of [HPRA] equal to the number held by an existing
member . . . and to become a member of [HPRA]. Such offer, if
made, will be conditioned upon [Dr. Nguyen] (and his . . . spouse, as
applicable) executing the Company Agreement of [HPRA] then in
effect . . . . [HPRA] shall notify [Dr. Nguyen] in writing at least
ninety (90) days prior to the end of the first year of employment,
whether or not it wishes to exercise such option and extend such an
offer to [Dr. Nguyen].
2
For clarity, we will refer to the individuals as Dr. Lee and Dr. Chauvin and to their
respective professional associations as Lee P.A. and Chauvin P.A.
3
HPRA never voted to extend such an offer to Dr. Nguyen, and, according to Dr.
Nguyen, HPRA did not timely notify him of its decision not to do so.
Drs. Lee and Chauvin withdraw from HPRA
In 2013, Drs. Lee and Chauvin withdrew their respective professional
associations from HPRA and became employees of HPRA. Drs. Lee and Chauvin
each executed two documents evidencing these transactions. The Membership
Interest Transfer and General Release agreements set forth the terms of Lee P.A.’s
and Chauvin P.A.’s respective sales of their ownership interests in HPRA to the
practice. The Physician Employment Agreements set forth the terms of Dr. Lee’s
and Dr. Chauvin’s employment with HPRA. All of these documents bear effective
dates of May 1, 2013, and all of them were drafted by Jackson Walker, L.L.P.,
counsel for HPRA.
Each of the Membership Interest Transfer and General Release agreements
required the signatory doctor to sign a Physician Employment Agreement and
refers to the transaction as a “transition from being a Member . . . to an employee.”
Specifically, each Membership Interest Transfer and General Release agreement
contains the following provisions:
WHEREAS, Employee [defined as the individual doctor] has
expressed a willingness to continue as an employee of [HPRA], under
terms reflected in that certain Physician Employment Contract of even
date herewith, . . .
....
4
5. Employee Retention Payments. As consideration for Employee
[defined as the individual doctor] agreeing to transition from
being a Member of [HPRA] to an Employee, and to continue
providing professional services to [HPRA] . . . 3 [HPRA] agrees
to pay Employee . . . bonus payments . . . . Other than the
amounts described in Sections 1 and 5 of this Transfer
Agreement, and any amounts negotiated by the parties pursuant
to a separate Physician Employment Contract between
Employee and [HPRA], Employee is not entitled to any further
payments from [HPRA] . . . .
....
9. Exception to Release. Notwithstanding any other provision of
this Transfer Agreement, none of the parties releases any other
party from any claims or potential claims related to:
....
f. Any breach of a separately executed Employment
Agreement.
(italics added). Each transfer agreement also referred to the possibility that HPRA
would be the target of a sale or investment, clarified that the professional
association and doctor would have no interest in such a transaction, and specified
that any such transaction “would have no effect . . . on Employee’s employment
with [HPRA] pursuant to a duly executed Employment Agreement.” Each also
vacated “the non-competition, non-solicitation or related provisions of the
Company Agreement of [HPRA] . . . as it pertains to Employee” and provided that
3
The agreement signed by Dr. Lee and Lee P.A. here includes the phrase “for at
least twenty (24) [sic] months.” The agreement signed by Dr. Chauvin and
Chauvin P.A. does not contain similar language.
5
“the provisions of the Physician Employment Agreement between the parties shall
control as to those matters.”
The Physician Employment Agreements, in turn, referred to the sales
effected by the Membership Interest Transfer and General Release agreements,
providing that HPRA would pay the doctors bonuses “[i]n addition to the Salary,
as consideration for Employee agreeing to transition from being a Member of
[HPRA] to an Employee . . . .” Each employment agreement also provides that if
it terminates for certain enumerated reasons, “any additional employee retention
payments otherwise due under this Agreement and that certain Membership
Interest Transfer and General Release, of event date herewith, will be forfeited.”
Most significantly for this appeal, the Physician Employment Agreements
signed by Drs. Lee and Chauvin contain an arbitration provision in which the
doctors agreed to submit to binding arbitration “any dispute, controversy or claim,
whether based on contract, tort, statute, discrimination, or otherwise, relating to,
arising from, or connected in any manner to this Agreement, or to the alleged
breach of this Agreement, or arising out of or relating to Employee’s employment,
termination of employment, or non-compete.”
The sale of HPRA and commencement of litigation
On May 13, 2013, HPRA executed a letter of intent with a third party,
Radiology Partners, Inc., concerning Radiology Partners’ potential acquisition of
6
HPRA. HPRA and Radiology Partners terminated that letter of intent and executed
a new letter of intent in June 2013. Radiology Partners acquired HPRA in
September 2013.
In March 2014, Lee P.A. and Dr. Nguyen sued HPRA, Dr. Garcia, and Dr.
Stroh. Lee P.A. alleged that the defendants misrepresented the health of HPRA
and the existence of a third party interested in acquiring HPRA and that these
misrepresentations constituted fraud and a breach of fiduciary duty. Dr. Nguyen
alleged that he had been promised an opportunity to become a member of HPRA
but was never given such an opportunity and that the defendants’ representations to
him breached his employment contract, breached fiduciary duties, and constituted
fraud.
The defendants filed a plea in abatement and motion to dismiss in favor of
arbitration, arguing that Lee P.A.’s claims were governed by the arbitration clause
in Dr. Lee’s Physician Employment Agreement. They also argued that Dr.
Nguyen’s claims were interrelated with Lee P.A.’s claims, and therefore the trial
court should compel Dr. Nguyen to arbitrate his claims or, in the alternative, stay
Dr. Nguyen’s claims pending resolution of the arbitration against Lee P.A.
The plaintiffs later amended their petition to add Chauvin P.A. as a plaintiff.
They also added requests for declaratory judgments as to the rights of Lee P.A. and
Chauvin P.A. under HPRA’s Company Agreement and as to Lee P.A.’s rights
7
under the May 13, 2013 letter of intent. HPRA, Dr. Garcia, and Dr. Stroh
supplemented their plea in abatement and motion to dismiss to argue that new
plaintiff Chauvin P.A. should be compelled to arbitrate its claims for the same
reasons applicable to Lee P.A.
The trial court held a hearing on the plea in abatement and motion to
dismiss, at which it heard no testimony but admitted various documents into
evidence. Although it continued the hearing, the hearing never resumed. Post-
hearing, the plaintiffs amended their petition twice more, to add Jackson Walker as
a defendant and include a “petition for writ of mandamus to examine books and
records.”
The trial court denied the plea in abatement and motion to dismiss in favor
of arbitration. HPRA, Dr. Garcia, and Dr. Stroh then filed both an interlocutory
appeal and a petition for writ of mandamus in this Court, both of which challenge
the trial court’s denial of the plea in abatement. 4 HPRA, Dr. Garcia, and Dr. Stroh
also requested emergency relief in the form of a stay of trial court proceedings
pending our review of the denial of the plea in abatement. On June 27, 2014, we
4
The trial court denied the plea in abatement and motion to dismiss before Jackson
Walker was required to appear. Thus, Jackson Walker is not a party to either the
appeal or the mandamus proceeding. It did, however, submit a brief as amicus
curiae, expressing its intent to seek to compel arbitration in the trial court. See
TEX. R. APP. P. 11.
8
stayed all proceedings in the trial court, including discovery, pending further order
of this court.5
Discussion
HPRA, Dr. Garcia, and Dr. Stroh raise one issue on appeal: whether “the
trial court abuse[d] its discretion in denying [their] Plea in Abatement and Motion
to Dismiss in Favor of Arbitration, given that (1) the parties signed a valid
agreement to arbitrate and (2) Appellees’ claims fall within the scope of the
arbitration clause?”
A. Standard of Review and Substantive Law
We have jurisdiction to review an interlocutory order denying a motion to
compel arbitration, regardless of whether we must apply the Federal Arbitration
Act, Texas Arbitration Act, or both. TEX. CIV. PRAC. & REM. CODE ANN.
§§ 51.016 (West 2015) (party seeking to compel arbitration “[i]n a matter subject
to the Federal Arbitration Act” has right to interlocutory appeal), 171.098(a)(1)
(West 2011) (party may take interlocutory appeal of order “denying an application
5
On July 22, 2014, we denied Lee P.A., Chauvin P.A., and Dr. Nguyen’s motion
for reconsideration of that order. Appellants and amicus observe that the plaintiffs
filed a “Sixth Amended Petition” on July 2, 2014, after this Court stayed all trial
court proceedings, that does not name HPRA as a defendant and that states,
“Plaintiffs assert no common law or statutory claims against HPRA.” That
document does not appear in the record, and we therefore cannot consider it.
Samara v. Samara, 52 S.W.3d 455, 456 n.1 (Tex. App.—Houston [1st Dist.] 2001,
pet. denied); Siefkas v. Siefkas, 902 S.W.2d 72, 74 (Tex. App.—El Paso 1995, no
writ). We note, however, that any pleadings filed in the trial court proceeding
without leave of this Court between the date of our order staying the case and the
date of this opinion necessarily would have violated our order.
9
to compel arbitration made under Section 171.021” of Civil Practice and Remedies
Code); see also Ellis v. Schlimmer, 337 S.W.3d 860, 862 (Tex. 2011) (citing In re
D. Wilson Constr. Co., 196 S.W.3d 774, 780 (Tex. 2006)) (“If a trial court denies a
motion to compel arbitration, appellate review may be available under both the
TAA and the FAA so long as the TAA is not preempted.”).
“We review interlocutory appeals of orders denying motions to compel
arbitration for an abuse of discretion, deferring to the trial court’s factual
determinations if they are supported by the evidence and reviewing questions of
law de novo.” Valerus Compression Servs., LP v. Austin, 417 S.W.3d 202, 207
(Tex. App.—Houston [1st Dist.] 2013, no pet.) (citing Cleveland Constr., Inc. v.
Levco Constr., Inc., 359 S.W.3d 843, 851–52 (Tex. App.—Houston [1st Dist.]
2012, pet. dism’d)).
Parties seeking 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. Valerus Compression Servs., 417 S.W.3d at 207; In
re Provine, 312 S.W.3d 824, 828–29 (Tex. App.—Houston [1st Dist.] 2009, orig.
proceeding). The existence of a valid arbitration agreement is a legal question. In
re D. Wilson Constr., 196 S.W.3d at 781; Valerus Compression Servs., 417 S.W.3d
at 208. In interpreting an agreement to arbitrate, we apply ordinary contract
10
principles. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003);
Valerus Compression Servs., 417 S.W.3d at 208.
“Once an agreement is established, a court 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.” In re D. Wilson Constr.,
196 S.W.3d at 783 (emphasis original) (internal quotation marks omitted) (quoting
Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995) (per curiam)
(orig. proceeding)). “Further, courts should resolve any doubts as to the
agreement’s scope, waiver, and other issues unrelated to its validity in favor of
arbitration.” Ellis, 337 S.W.3d at 862.
“[W]here the parties include a broad arbitration provision in an agreement
that is ‘essential’ to the overall transaction, [courts] presume that they intended the
[arbitration] clause to reach all aspects of the transaction—including those aspects
governed by other contemporaneously executed agreements that are part of the
same transaction.” Pers. Sec. & Safety Sys. Inc. v. Motorola Inc., 297 F.3d 388,
394–95 (5th Cir. 2002); see also Kirby Highland Lakes Surgery Ctr. v. Kirby, 183
S.W.3d 897, 900–01 (Tex. App.—Dallas 2006, orig. proceeding) (citing Pers.
Sec.).
11
B. Analysis
Claims of Lee P.A. and Chauvin P.A.
HPRA, Dr. Garcia, and Dr. Stroh, as the parties seeking to compel
arbitration, bore the burden to demonstrate (1) the existence of a valid and
enforceable arbitration agreement and (2) that the claims asserted against them fall
within the scope of that agreement. See Rachal v. Reitz, 403 S.W.3d 840, 843
(Tex. 2013); In re Provine, 312 S.W.3d at 828–29. They argue that the arbitration
provisions in the Physician Employment Agreements of Dr. Lee and Dr. Chauvin,
who are not parties to the suit, are enforceable against the plaintiff entities, Lee
P.A. and Chauvin P.A., respectively, and cover the claims that Lee P.A. and
Chauvin P.A. have asserted in this lawsuit.
Lee P.A. and Chauvin P.A. respond that the arbitration provisions in the
Physician Employment Agreements of Drs. Lee and Chauvin are inapplicable
because (1) Lee P.A. and Chauvin P.A. are not signatories to the Physician
Employment Agreements; (2) their claims relate not to the Physician Employment
Agreements but rather to the Company Agreement and thus fall outside the scope
of the arbitration provisions; and (3) the Membership Interest Transfer agreements
and employment agreements should not be construed together.
12
The transfer and employment agreements must be construed together
“[W]here the parties include a broad arbitration provision in an agreement
that is ‘essential’ to the overall transaction, we will presume that they intended the
clause to reach all aspects of the transaction—including those aspects governed by
other contemporaneously executed agreements that are part of the same
transaction.” Kirby Highland Lakes Surgery Ctr., 183 S.W.3d at 900–01 (quoting
Pers. Sec. & Safety Sys., 297 F.3d at 394-95). Thus, if the Membership Interest
Transfer agreements and Physician Employment Agreements were part of each
doctor’s overall transaction and the latter are essential to those transactions, then
we will presume that the arbitration provisions reach all disputes touching on the
transfer agreements.
“The general rule is that separate instruments or contracts executed at the
same time, for the same purpose, and in the course of the same transaction are to
be considered as one instrument, and are to be read and construed together.” Jones
v. Kelley, 614 S.W.2d 95, 98 (Tex. 1981); see also Harris v. Rowe, 593 S.W.2d
303, 306 (Tex. 1979) (“Separate instruments contemporaneously executed as a part
of the same transaction and relating to the same subject matter may be construed
together as a single instrument.”).
HPRA, Dr. Garcia, and Dr. Stroh urge us to apply this general rule and
construe each set of transfer and employment agreements as a single transaction.
13
Lee P.A. and Chauvin P.A. urge us to reject this application of the general rule and
treat these documents as four separate transactions because (1) they did not sign
the employment agreements, (2) neither employment agreement is essential to the
transaction consummated by the corresponding transfer agreement, and (3) the
parties’ expressed intent demonstrates that the agreements are to be construed
separately.
We agree with HPRA, Dr. Garcia, and Dr. Stroh that the transfer and
employment agreements must be construed together. Each of the employment
agreements refers to the corresponding transfer agreements, and vice versa. In
addition, each of the four agreements specifies that HPRA was to make certain
payments “[a]s consideration for Employee agreeing to transition from being a
Member of [HPRA] to an Employee, and to continue providing professional
services to [HPRA].” 6 The transitions in question were effected by the transfer
agreements. That the employment agreements refer to the corresponding transfers
and provide for payments to be made “as consideration” for them can only mean
that the employment agreements were part of the transfers. Moreover, each
transfer agreement states in its recitals that the individual doctor executing the
6
The employment agreements use this language, including the capitalized term
“Member,” although “Member” is not defined in those documents. If divorced
from the contemporaneously-executed transfer agreements, these provisions would
be meaningless. We must “strive to give meaning to each provision” of all four
contracts. Lenape Res. Corp. v. Tenn. Gas Pipeline Co., 925 S.W.2d 565, 574
(Tex. 1996).
14
agreement had agreed to enter into a separate, contemporaneous, employment
agreement. And each transfer agreement also specifies how HPRA’s Company
Agreement, the transfer agreement, and the employment agreement are to be
construed together to determine the parties’ rights and obligations. Thus, these
separate instruments were “contemporaneously executed as a part of the same
transaction” and “relat[e] to the same subject matter.” See Harris, 593 S.W.2d at
306.
Lee P.A. and Chauvin P.A. argue that they should not be bound by the
arbitration provisions because they are not parties to the Physician Employment
Agreements where they are found. It is well-settled that “instruments may be
construed together or treated as one contract even though they are not between the
same parties.” Jones, 614 S.W.2d at 98; Miles v. Martin, 321 S.W.2d 62, 66 (Tex.
1959); Estate of Todd v. Int’l Bank of Commerce, No. 01-12-00742-CV, 2013 WL
1694937, at *5 (Tex. App.—Houston [1st Dist.] Apr. 18, 2013, pet. denied) (mem.
op.). The overall transactions are described in each document as an “Employee
agreeing to transition from being a Member of [HPRA] to an Employee.” The
transfer agreements require execution of the employment agreements, and the
reverse is similarly true. Both the transfer and employment agreements are
therefore “essential” to accomplishing these transitions. See Jones, 614 S.W.2d at
98; Kirby Highland Lakes Surgery Ctr., 183 S.W.3d at 900–01. We conclude that
15
the Lee agreements must be construed together and that the Chauvin agreements
must be construed together. See Jones, 614 S.W.2d at 98; Kirby Highland Lakes
Surgery Ctr., 183 S.W.3d at 900–01.
Lee P.A. and Chauvin P.A. also argue that the employment agreements were
not “essential” to the transfer of the professional associations’ membership
interests. The transfer agreements expressly provide for the doctors becoming
employees and include consideration for those transitions. They required the
parties to enter into employment agreements of the same date as the transfer
agreements. Lee P.A. and Chauvin P.A. argue that “[t]he Membership Interest
Transfer agreement and employment agreements were separate, governed different
obligations between the parties, and could be fulfilled (or for that matter, breached)
independently of one another.” But the many terms in the transfer agreements that
refer to the parties’ obligations to enter and comply with the employment
agreements necessarily require us to refer to the latter. Similarly, the termination
provisions of the employment agreements purporting to govern payment of money
under the transfer agreements require reference to the transfer agreements. It
would be impossible to give these provisions meaning, unless the agreements are
understood together.
Finally, Lee P.A. and Chauvin P.A. argue that the “entire agreement”
provisions in the employment agreements indicate that the Physician Employment
16
Agreements must be construed separately from the transfer agreements. As
support, they rely on I.D.E.A. Corp. v. WC & R Interests, Inc., 545 F. Supp. 2d 600
(W.D. Tex. 2008) and In re Sino Swearingen Aircraft Corp., No. 05-03-01618-CV,
2004 WL 1193960 (Tex. App.—Dallas June 1, 2004, no pet.) (mem. op.).
In I.D.E.A. Corp., the federal district court for the Western District of Texas
held, “An entire agreement clause demonstrates that the parties did not intend for
an arbitration provision contained in the same agreement to apply to claims arising
under a separate agreement.” 545 F. Supp. 2d at 607. But the district court
premised its holding on the facts that the documents in that case did not
incorporate each other, did not refer to each other, and were executed months
apart. Id. at 607–08. Here, by contrast, the agreements expressly refer to each
other and were executed contemporaneously as part of a single transaction for each
doctor and his respective professional association. The holding of I.D.E.A. Corp.
is therefore distinguishable.
In re Sino Swearingen Aircraft Corp. is also distinguishable. That case
involved a narrow arbitration provision in which the parties agreed to arbitrate only
disputes “arising out of this Agreement” and defined “Agreement” to include only
one document. 2004 WL 1193960, at *2. The parties seeking to avoid arbitration
argued that the use of an “entire agreement” provision indicated that the parties’
various agreements could not be construed together. Id. The court of appeals,
17
however, did not explicitly accept or reject that argument. Instead, it held that the
claims themselves arose out of only one or the other of the agreements in question,
not both, and “[t]he parties provided for arbitration of claims arising out of the
termination of only one of the agreements.” Id. at *3. It concluded that the
arbitration clause in one agreement “does not encompass the parties’ dispute
under” other agreements. Id. By contrast, the parties to this case agreed to a broad
provision to arbitrate disputes “relating to, arising from, or connected in any
manner to this Agreement, or to the alleged breach of this Agreement, or arising
out of or relating to Employee’s employment, termination of employment, or non-
compete.”
The employment agreements cannot be construed without reference to the
transfer agreements, which they explicitly reference in both terms governing
consideration and terms governing termination. We therefore cannot say with
“positive assurance” that this broad language was not intended to cover disputes
relating to the transfer agreements executed as part of the same transactions. See
In re D. Wilson Constr., 196 S.W.3d at 783. Rather, because the Physician
Employment Agreements were “essential” to the transactions in which Lee P.A.
and Chauvin P.A. participated—the sale of their respective interests in HPRA—we
presume that the arbitration provisions therein were intended to reach the entire
transactions. See Jones, 614 S.W.2d at 98; Kirby Highland Lakes Surgery Ctr.,
18
183 S.W.3d at 900–01. Indeed, each doctor’s Physician Employment agreement
and transfer agreement were “executed at the same time, for the same purpose, and
in the course of the same transaction.” See Jones, 614 S.W.2d at 98; Miles, 321
S.W.2d at 65; Estate of Todd, 2013 WL 1694937, at *5. Consequently, they may
be “construed together or treated as one contract even though they are not between
the same parties.” See Jones, 614 S.W.2d at 98; Miles, 321 S.W.2d at 66; Estate of
Todd, 2013 WL 1694937, at *5. Accordingly, we hold that the documents must be
construed together and treated as a single contract regarding Dr. Lee and Lee P.A.
and a single contract regarding Dr. Chauvin and Chauvin P.A.7
7
We also note that Lee P.A. and Chauvin P.A. are bound to arbitrate their claims
for the additional reason that the Physician Employment Agreements and transfer
agreements incorporate each other by reference. E.g., Rachal v. Reitz, 403 S.W.3d
840, 846 n.5 (Tex. 2013) (recognizing incorporation by reference as one of “six
theories in contract and agency law that may bind nonsignatories to arbitration
agreements”); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex.
2005) (orig. proceeding) (same); Elgohary v. Herrera, 405 S.W.3d 785, 793 (Tex.
App.—Houston [1st Dist.] 2013, no pet.) (citing In re Merrill Lynch Trust Co.,
235 S.W.3d 185, 191 & n.20 (Tex. 2007); Bridas S.A.P.I.C. v. Gov’t of Turkm.,
345 F.3d 347, 356 (5th Cir. 2003)) (same). Because the agreements explicitly and
“plainly refer” to each other, each is incorporated into the other, despite the fact
that the signatories on each were different. Jones v. Pesak Bros. Constr., Inc., 416
S.W.3d 618, 626 (Tex. App.—Houston [1st Dist.] 2013, no pet.); see also City of
Houston v. Williams, 353 S.W.3d 128, 143 n.15 (Tex. 2011) (“[W]ith any contract,
incorporation by reference is possible under contract law.”); Trico Marine Servs.,
Inc. v. Stewart & Stevenson Technical Servs., Inc., 73 S.W.3d 545, 549 (Tex.
App.—Houston [1st Dist.] 2002, orig. proceeding [mand. denied]) (holding that
arbitration is proper if contract with arbitration provision is incorporated in
disputed contract by reference).
19
Drs. Garcia and Stroh can enforce the arbitration provisions
HPRA, Dr. Garcia, and Dr. Stroh argue that Drs. Garcia and Stroh can
enforce the arbitration provisions because they acted as agents of HPRA for
purposes of the claims against them. 8 We agree.
When a plaintiff’s claims against a defendant are “in substance” claims
against the defendant’s employer and the plaintiff has agreed to arbitrate claims
against the employer, the plaintiff must arbitrate the claims against the employee.
See In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 189–90 (Tex. 2007). The
claims here are “in substance” claims against HPRA. For example, each of the
professional associations alleges that all defendants failed to disclose critical
information in their respective transfer agreements. They allege that the
defendants—including Drs. Garcia and Stroh—thus committed breach of contract,
breach of fiduciary duty, fraud, and various other torts. But Drs. Garcia and Stroh
did not acquire any interest in HPRA under the transfer agreements, nor did either
of them participate in the transfer transactions in an individual capacity. Rather,
this claim can only be understood as a claim that, in their acts on behalf of HPRA,
Drs. Garcia and Stroh committed various torts and breaches of contract. “[W]hen
8
Lee P.A. and Chauvin P.A. disputed this point in their opposition to the plea in
abatement and motion to dismiss. They do not dispute it on appeal, but we must
address it nonetheless to determine whether Drs. Garcia and Stroh, neither of
whom was a party to any of the agreements at issue, can enforce the arbitration
provisions in the employment agreements.
20
an agreement between two parties clearly provides for the substance of a dispute to
be arbitrated, one cannot avoid it by simply pleading that a nonsignatory agent or
affiliate was pulling the strings.” In re Kaplan Higher Educ. Corp., 235 S.W.3d
206, 210 (Tex. 2007); see In re Merrill Lynch Trust Co., 235 S.W.3d at 188–89.
We hold that Drs. Garcia and Stroh can enforce the arbitration clauses in the
employment agreements. 9
Lee P.A.’s and Chauvin P.A.’s claims are subject to arbitration
Lee P.A. and Chauvin P.A. argue that their claims do not fall within the
scope of the employment agreements’ arbitration clauses and, further, that they
have additional claims arising under a prior agreement not subject to arbitration.
In so doing, they focus on the arbitration provisions’ references to “this
Agreement” and “Employee’s employment, termination of employment, or non-
compete.” They contend that none of their claims “touch on any employment-
related matters, thus they do not fall within the scope of the arbitration clauses at
issue.”
HPRA, Dr. Garcia, and Dr. Stroh respond by noting that the arbitration
provision language is not so narrow, encompassing all claims “relating to, arising
9
All of the allegations against defendant Jackson Walker also arise out of actions
by an agent for HPRA, specifically by the practice’s attorney. As amicus, Jackson
Walker argues that our logic therefore applies equally to it: “If the Court agrees
that the claims against the doctor defendants must be arbitrated, then the claims
against [Jackson Walker] likewise belong in arbitration.” Jackson Walker,
however, is not a party to this appeal and has not yet sought to compel arbitration
in the trial court.
21
from, or connected in any manner” to the employment agreement “or relating to
Employee’s employment, termination of employment, or non-compete.” They
argue that such a broad arbitration provision compels us to presume that the parties
intended the arbitration provision to reach all aspects of the transaction governed
by the transfer and employment agreements. See Pers. Sec. & Safety Sys., 297
F.3d at 394–95; Kirby Highland Lakes Surgery Ctr., 183 S.W.3d at 900–01. We
agree.
As we have held previously, an arbitration clause using a phrase such as
“any dispute . . . relating to, arising from, or connected in any manner to this
Agreement” is broad and “embrace[s] all disputes between the parties having a
significant relationship to the contract regardless of the label attached to the
dispute.” FD Frontier Drilling (Cyprus), Ltd. v. Didmon, 438 S.W.3d 688, 695
(Tex. App.—Houston [1st Dist.] 2014, pet. denied). “If the facts alleged ‘touch
matters,’ have a ‘significant relationship’ to, are ‘inextricably enmeshed’ with, or
are ‘factually intertwined’ with the contract containing the arbitration agreement,
the claim is arbitrable.” Id. In light of such a broad arbitration agreement, a claim
is not subject to arbitration only if “the facts alleged in support of the claim stand
alone, are completely independent of the contract, and the claim could be
maintained without reference to the contract.” Id. at 695–96.
22
Lee P.A. and Chauvin P.A.’s claims unquestionably relate to whether the
associations were fraudulently induced to enter into the transfer agreements and,
by extension, whether Drs. Lee and Chauvin were fraudulently induced to enter
into the transfer and employment agreements. Further, many of the claims in the
live petition refer to alleged representations and omissions by the defendants “on
or before May 13, 2013,” and others as late as May 14, 2013, though the transfer
and employment agreements all have effective dates of May 1, 2013. Indeed,
several of Lee P.A.’s claims turn on its allegation that it did not receive a copy of
its transfer agreement until May 14, 2013, and its theory that it therefore was still a
member of HPRA when the latter executed a letter of intent on May 13, 2013.
These claims necessarily implicate the transfer and employment agreements and
require construction of those agreements to determine the relationships between
the parties at the time of any alleged act by the defendants. We also note that Lee
P.A. and Chauvin P.A. allege in their live petition that they “relied on [the alleged]
failures to disclose” and that “Garcia and Stroh sought to squeeze Lee P.A. and
Chauvin P.A. out of HPRA by misrepresenting HPRA’s financial condition and by
misrepresenting the status of negotiations with a third-party buyer[] of HPRA.”
Lee P.A. and Chauvin P.A. argue, however, that their claims are actually
based on the Company Agreement, HPRA’s organizational document. They argue
that “these claims accrued before the employment agreements were executed by
23
the parties, and therefore are not affected by the non-retroactive arbitration clauses
contained in the subsequently executed agreements.” We disagree. On its face,
the live pleading alleges that many if not all of the misrepresentations and
omissions of which Lee P.A. and Chauvin P.A. complain occurred after May 1,
2013, the effective date of both employment agreements. Further, their claims
cannot be decided solely by reference to the Company Agreement. Indeed, some
of Lee P.A.’s claims arise explicitly from the Lee transfer agreement. Applying
the transfer and employment agreements to the claims in this case does not require
us to give them a construction allowing for retroactive application.
We cannot say with “positive assurance that [the] arbitration clause[s] [are]
not susceptible of an interpretation which would cover the dispute at issue.” See In
re D. Wilson Constr., 196 S.W.3d at 783. We therefore hold that the trial court
erred to the extent it denied arbitration on the theory that the arbitration provisions
do not cover the plaintiffs’ claims.
The defendants proved the existence of valid, enforceable arbitration
agreements and that the claims against them fall within the scope of those
agreements. Accordingly, we hold that the trial court erred in denying the plea in
abatement and motion to dismiss in favor of arbitration.
24
Claims of Dr. Nguyen
HPRA, Dr. Garcia, and Dr. Stroh ask us to hold that Dr. Nguyen must
arbitrate his claims or, in the alternative, that Dr. Nguyen’s claims must be stayed.
Lee P.A., Chauvin P.A., and Dr. Nguyen respond that Dr. Nguyen was only an
employee of HPRA and never a member, did not participate in any transaction
containing an arbitration provision, and asserts claims that are inherently different
from those asserted by Lee P.A. and Chauvin P.A. Thus, they argue that
compelling arbitration or staying Dr. Nguyen’s claims pending resolution of the
other plaintiffs’ claims would be inappropriate.
“[A]rbitration is a matter of contract and a party cannot be required to
submit to arbitration any dispute which he has not agreed so to submit.” AT&T
Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 648, 106 S. Ct. 1415,
1418 (1986) (quoting United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363
U.S. 574, 582, 80 S. Ct. 1347, 1353 (1960)). Unlike Lee P.A. and Chauvin P.A.,
Dr. Nguyen did not sign any agreement or participate in any transaction involving
an arbitration agreement. In particular, he had no involvement in the membership
transfers by which Drs. Lee and Chauvin became employees of HPRA.
Texas and federal law recognize six theories under which a court could
compel a non-signatory to arbitrate his claims. In re Merrill Lynch Trust Co., 235
S.W.3d at 191; see Bridas S.A.P.I.C. v. Gov’t of Turkm., 345 F.3d 347, 356 (5th
25
Cir. 2003); Elgohary v. Herrera, 405 S.W.3d 785, 793 (Tex. App.—Houston [1st
Dist.] 2013, no pet.). “Those theories include (1) incorporation by reference, (2)
assumption, (3) agency, (4) veil-piercing/alter ego, (5) estoppel, and (6) third-party
beneficiary.” Elgohary, 405 S.W.3d at 793 (citing Bridas, 345 F.3d at 356). None
of these theories is applicable to Dr. Nguyen’s claims, and HPRA, Dr. Garcia, and
Dr. Stroh do not argue that any of them applies. Rather, they insist that Dr.
Nguyen should be compelled to arbitrate his claims “[b]ased on the interrelated
and inseparable nature of Plaintiffs’ allegations.” That the claims are interrelated
and depend on some of the same facts, however, is not a sufficient basis for
compelling a non-signatory to arbitrate. See, e.g., Moses H. Cone Mem’l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 19–20, 103 S. Ct. 927, 939 (1983); In re
Merrill Lynch Trust Co., 235 S.W.3d at 192–93.
HPRA, Dr. Garcia, and Dr. Stroh nevertheless argue that Dr. Nguyen’s
claims must be arbitrated because Dr. Nguyen has the same counsel as and filed
this lawsuit along with Lee P.A. and Chauvin P.A. HPRA, Dr. Garcia, and Dr.
Stroh also argue that the plaintiffs’ claims all “stem from the same operative
facts—an alleged plot by Dr. Garcia, Dr. Stroh, and HPRA to obtain all
membership interests in HPRA, to the detriment of [the plaintiffs], and then to sell
those interests to another company.” Finally, HPRA, Dr. Garcia, and Dr. Stroh
contend that Lee P.A. and Chauvin P.A., as former members of HPRA, are
26
potential defendants or at least responsible third parties to Dr. Nguyen’s claims.
These contentions may be correct, but they do not mean that Dr. Nguyen’s claims
must be arbitrated.
The record does not reflect any agreement by Dr. Nguyen to arbitrate his
claims. We therefore hold that the trial court did not err by not compelling
arbitration of Dr. Nguyen’s claims. See AT&T Techs., 475 U.S. at 648, 106 S. Ct.
at 1418.
In the alternative, HPRA, Dr. Garcia, and Dr. Stroh argue that the trial court
should have stayed the litigation pending resolution of their arbitration of the
claims by Lee P.A. and Chauvin P.A. Under the TAA, “[t]he [trial] court shall
stay a proceeding that involves an issue subject to arbitration if an order for
arbitration or an application for that order is made under this subchapter.” TEX.
CIV. PRAC. & REM. CODE ANN. § 171.025(a) (West 2011). But “[t]he stay applies
only to the issue subject to arbitration if that issue is severable from the remainder
of the proceeding.” Id. § 171.025(b) (emphasis added).
A claim is properly severable if (1) the controversy involves more
than one cause of action, (2) the severed claim is one that would be
the proper subject of a lawsuit if independently asserted, and (3) the
severed claim is not so interwoven with the remaining action that they
involve the same facts and issues.
Guar. Fed. Sav. Bank v. Horseshoe Operating Co., 793 S.W.2d 652, 658 (Tex.
1990).
27
Similarly, under the FAA, claims of a non-signatory must be stayed if
“(1) the arbitrated and litigated disputes involve the same operative facts, (2) the
claims asserted in the arbitration and litigation are ‘inherently inseparable,’ and
(3) the litigation has a ‘critical impact’ on the arbitration.” In re Devon Energy
Corp., 332 S.W.3d 543, 548 (Tex. App.—Houston [1st Dist.] 2009, no pet.)
(quoting Waste Mgmt., Inc. v. Residuos Industriales Multiquim, S.A. de C.V., 372
F.3d 339, 343 (5th Cir. 2004)); see also 9 U.S.C. § 3 (providing for stay of
litigation pending arbitration).
Dr. Nguyen has pleaded that he has causes of action for “misrepresentations,
breach of contract, breach of fiduciary duty, knowing participation in a breach of
fiduciary duty, fraud, fraud in a stock transaction, violations of the Texas Securities
Act and promissory estoppel.” Underlying all of those claims are two critical
assertions: (1) Dr. Nguyen’s employment contract entitled him to an opportunity to
become a member of HPRA, and (2) by failing to extend such an offer on a timely
basis, HPRA, Dr. Garcia, and Dr. Stroh induced Dr. Nguyen to forgo potentially
lucrative business opportunities. Dr. Nguyen seeks up to $2,000,000 in actual
damages, exemplary damages, and “equitable relief against Defendants in the form
of an equitable accounting, profit disgorgement, equitable recessionary damages
and/or a constructive trust with respect to the benefits received by Defendants in
the sale of HPRA.” Dr. Nguyen’s claims and requests for relief arise from the
28
same facts and are inherently inseparable from Lee P.A. and Chauvin P.A.’s claims
regarding the sale of HPRA. 10
The litigation will also have a critical impact on the arbitration. Dr. Nguyen
asserts that he was entitled to a share of HPRA and that he only learned that he
would not be given an opportunity to join the practice in April 2013. In seeking to
prove the nature and value of the interest to which he claims he was entitled, he
will certainly want to introduce evidence of the sale of HPRA, including the sales
price, the history of negotiations, and the timing of those negotiations: the very fact
issues raised by Lee P.A. and Chauvin P.A. Indeed, his claims for “fraud in a
stock transaction [and] violations of the Texas Securities Act” make no sense
unless they refer to the sale of HPRA, given that Dr. Nguyen did not participate in
any stock or securities transactions involving the defendants. If Dr. Nguyen seeks
discovery related to the sale of HPRA or a recovery based in any way on that sale,
his litigation may “subvert the . . . defendants’ right to a meaningful arbitration
with [Lee P.A. and Chauvin P.A.] by deciding issues subject to the arbitration.” In
re Devon Energy Corp., 332 S.W.3d at 549. This risk is necessarily heightened by
the fact that the same counsel represents all plaintiffs and thus has an incentive to
pursue the broadest possible discovery and theories of the case in both the
10
We stress that we do not express any opinion on the merits of any of the claims or
defenses in this suit. Instead, we must focus on the relationship between the
claims and relief sought as pleaded.
29
arbitration and the trial court proceedings, in order to maximize the chances of
recovery in both proceedings.
“Our focus concerns the preservation of meaningful arbitration, not the
potential harm to the interests of a nonsignatory.” Id. at 550. Dr. Nguyen’s
litigation involves the same operative facts as those in the arbitration. As a result,
it threatens to jeopardize the integrity of the parallel arbitration. Under both the
FAA and TAA, HPRA, Dr. Garcia, and Dr. Stroh were entitled to a stay of the
litigation pending resolution of the claims in the arbitration. See 9 U.S.C. § 3;
TEX. R. CIV. P. 171.025(a); Guar. Fed. Sav. Bank, 793 S.W.2d at 658; In re Devon
Energy Corp., 332 S.W.3d at 550. We therefore hold that the trial court abused its
discretion in refusing to stay the litigation pending the result of the arbitration. See
In re Devon Energy Corp., 332 S.W.3d at 550.
30
Conclusion
We hold that the trial court abused its discretion by denying HPRA, Dr.
Garcia, and Dr. Stroh’s plea in abatement and motion to dismiss in favor of
arbitration. We reverse and remand the case to the trial court for entry of an order
compelling arbitration of Lee P.A.’s and Chauvin P.A.’s against HPRA, Dr.
Garcia, or Dr. Stroh and staying Dr. Nguyen’s claims pending resolution of that
arbitration. We deny the petition for writ of mandamus as moot.
Rebeca Huddle
Justice
Panel consists of Justices Jennings, Higley, and Huddle.
31