gray-wireline-service-inc-v-larry-r-cavanna-david-gray-steve-d-gray ( 2011 )

IN THE
TENTH COURT OF APPEALS
No. 10-11-00058-CV
GRAY WIRELINE SERVICE, INC.,
Appellant
v.
LARRY R. CAVANNA, DAVID GRAY,
STEVE D. GRAY, KENNETH M. NESTER,
SR., ISMAEL ALVAREZ, EXTREME
WIRELINE TRUCKS & EQUIPMENT, LLC,
ANDREW E. HUGHES, BRUCE R. BARNETT,
AND CGN LEASING, LLC,
Appellees
From the 335th District Court
Burleson County, Texas
Trial Court No. 26,239
OPINION
This is an interlocutory appeal from three orders that (1) reformed several
employment agreements, (2) compelled arbitration in part and denied a stay of the
balance of the litigation involving third parties during the pendency of the arbitration,
and (3) granted a temporary injunction. See TEX. CIV. PRAC. & REMEDIES CODE ANN. §
51.016 (West 2008). Gray Wireline Service, Inc. complains that the trial court erred by
reforming the employment agreements rather than sending those issues to be
determined by the arbitrator in contravention of the employment agreement and by
refusing to stay the pending litigation in the trial court. GWSI further complains that
the trial court erred by granting a temporary injunction in favor of Steve Gray and CGN
Leasing. Because we find that the trial court erred by reforming the employment
agreements but should have sent that issue to arbitration, and erred by denying the
motion to stay the litigation, we reverse the judgments of the trial court and remand to
that court for further proceedings. Additionally, because we find that the temporary
injunction did not comply with the Rules of Civil Procedure, we reverse the order
granting the temporary injunction and order that it be dissolved.
Background
Steve Gray formed GWSI, a cased-hole wireline company, which operated
primarily in Texas. In 2006, the shareholders of GWSI agreed to sell a portion of their
shares to Centre Partners, Inc. and by doing so Centre Partners, Inc. gained control of
GWSI. The new owners entered into employment agreements with Larry Cavanna,
David Gray, Steve Gray, and Kenneth M. Nester, Sr.1 which each contained a non-
compete clause that terminated at various times depending on the reasons for the
individual’s departure, but was generally two years in duration. Each of the four
1 David Gray and Steve Gray are both defendants in the trial court proceedings. On appeal, the issue
relating to Steve Gray and CGI Leasing, LLC involves only the temporary injunction. The other issues
relating to the reformation, the arbitration, and the stay of proceedings involves David Gray but not Steve
Gray. Therefore, in this opinion we will refer to Steve Gray by his full name. References to “Gray” refer
to David Gray only.
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departed from GWSI at various times, with Nester being the last to leave, terminating
his employment on August 15, 2009.
GWSI originally filed suit in mid-October of 2009 against Larry Cavanna, David
Gray, Steve Gray, Kenneth M. Nester, Sr., Ismael Alvarez, Extreme Wireline Trucks &
Equipment, LLC, Andrew E. Hughes, Bruce R. Barnett, and CGN Leasing, LLC seeking
a temporary restraining order and asserting various causes of action based on violations
of the employment agreement, including tortious interference, breach of fiduciary duty,
breach of contract, civil conspiracy, unjust enrichment, unfair competition, violation of
Penal Code Chapter 33, conversion, and trespass against the various defendants. The
trial court issued a temporary restraining order, which was subsequently extended by
agreement of the parties so that they could conduct limited expedited discovery.
Shortly after the issuance of the temporary restraining order, Steve Gray and CGN
Leasing, LLC filed a demand for arbitration in accordance with Steve Gray’s
employment agreement, and included a cause of action for a declaratory judgment in
the arbitration demand. GWSI ultimately withdrew its request for a temporary
injunction the day before the scheduled hearing. Cavanna, David Gray, and Nester
then filed a “Motion to Reform and Alternate Motion for Determination” seeking
reformation of the non-compete clause pursuant to Section 15.51(c) of the Business and
Commerce Code or alternatively a determination that they were in full compliance with
the employment agreements. GWSI subsequently filed its own demand for arbitration
as to Steve Gray, Cavanna, David Gray, and Nester with the American Arbitration
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Association as well as a motion to stay the litigation pending the arbitration with the
trial court.
After a hearing on the motions, the trial court denied the motion to compel
arbitration relating to the motion to reform and by separate order granted the motion to
reform and reformed the employment agreements of Cavanna, David Gray, and Nester.
The trial court then granted the motion to compel arbitration but denied the motion to
stay the trial court’s proceedings pending the arbitration as to all of the defendants
except for Cavanna, David Gray, Nester, Steve Gray, and CGN Leasing. The trial court
did stay the pending litigation against them until the completion of the arbitration.
The Non-Compete Agreements
Each of the employment agreements contained the following language which
Cavanna, Gray, and Nester sought to modify in the motion to reform:
Geographic Limitation. The geographic limitation for the Non-Compete
Obligations is any state, province (or substantially equivalent designation
of a geographic area within a foreign country), or Outer Continental Shelf
region (A) in which the Company provided its products, services, or
activities during the twenty-four (24) months prior to the date of
termination of Executive’s employment with the Company, (B) in which
the Company had plans to provide or contemplated providing its
products, services, or activities during the twenty-four (24) months prior
to the date of termination of Executive’s employment, or (C) in which a
customer or client of the Company, with whom Executive had or made
contact or had access to information and/or files about during Executive’s
employment with the Company or within the twelve (12) months prior to
the date of termination of Executive’s employment with the Company, is
located.
Acknowledgments. Executive acknowledges and agrees that:
…
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(g) the restricted period set forth is a material term of this Agreement and
that the Company is entitled to Executive’s compliance with these terms
during that full period. Therefore, Executive agrees that the restricted
period will be tolled during any period of non-compliance by Executive.
If the Company must seek injunctive relief or judicial intervention to
enforce this Agreement, the restricted time period set forth herein does
not commence until Executive is judged by a court of competent
jurisdiction to be in full compliance with this Agreement; ….
The trial court reformed the first paragraph to include the language “as
evidenced by existing memoranda, minutes, or other correspondence (including,
without limitation, internal or external presentations)” in paragraph (B) of the
geographic restriction section. The trial court also reformed the tolling paragraph to
delete the last sentence and to add the following: “If the Company must seek injunctive
relief or judicial intervention to enforce this Agreement, the restricted time period set
forth herein does not commence until a court of competent jurisdiction deems it should
commence.”
Arbitration
In evaluating a motion to compel arbitration, a court must first determine
whether a valid arbitration agreement exists, and then whether the agreement
encompasses the claims raised. Am. Std. v. Brownsville Indep. Sch. Dist. (In re D. Wilson
Constr. Co.), 196 S.W.3d 774, 781 (Tex. 2006); see In re Dillard Dep't Stores, Inc., 186 S.W.3d
514, 515 (Tex. 2006) (per curiam); LDF Constr., Inc. v. Bryan, 324 S.W.3d 137 (Tex. App.—
Waco 2010, no pet.). Whether a valid arbitration agreement exists is a legal question
subject to de novo review. Id. Although the Texas Supreme Court has repeatedly
expressed a strong presumption favoring arbitration, the presumption arises only after
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the party seeking to compel arbitration proves that a valid arbitration agreement exists.
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Courts must resolve any
doubts about an arbitration agreement’s scope in favor of arbitration. In re FirstMerit
Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001).
Arbitration agreements are interpreted under traditional contract principles. J.M.
Davidson, 128 S.W.3d at 227. If the trial court finds a valid agreement, the burden shifts
to the party opposing arbitration to raise an affirmative defense to enforcing arbitration.
Id. Absent a defense to enforcing the arbitration agreement, the trial court has no
discretion but to compel arbitration and stay its own proceedings. In re J.D. Edwards
World Solutions Co., 87 S.W.3d 546, 549 (Tex. 2002) (per curiam).
To determine whether an arbitration agreement covers a party’s claims, a court
must focus on the complaint’s factual allegations, not the legal causes of action asserted.
FirstMerit Bank, 52 S.W.3d at 754. See also Energy Transfer Fuel, LP v. Estate of Souter, No.
10-09-00361-CV, 2010 Tex. App. LEXIS 2975 at *6-7 (Tex. App.—Waco Apr. 21, 2010, no
pet.) (mem. op.). We are to construe arbitration clauses broadly, and when a contract
contains an arbitration clause, there is a presumption of arbitrability. See AT&T Tech.,
Inc. v. Communications Workers of Am., 475 U.S. 643, 650, 106 S. Ct. 1415, 1419, 89 L. Ed. 2d
648 (1986). Any doubts as to arbitrability are to be resolved in favor of coverage.
FirstMerit Bank, 52 S.W.3d at 754. Likewise, we resolve any doubts about the scope of
the arbitration agreement in favor of coverage. Id. In fact, the policy in favor of
enforcing arbitration agreements is so compelling that a court should not deny
arbitration unless it can be said with positive assurance that an arbitration clause is not
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susceptible of an interpretation covering the dispute at issue. Prudential Sec., Inc. v.
Marshall, 909 S.W.2d 896, 899 (Tex. 1995).
Generally, if the facts alleged “touch matters” that are covered by, have a
“significant relationship” to, are “inextricably enmeshed” with, or are “factually
intertwined” with the contract that contains the arbitration agreement, the claims are
arbitrable. Pennzoil Co. v. Arnold Oil Co., 30 S.W.3d 494, 498 (Tex. App.—San Antonio
2000, orig. proceeding). In other words, to come within the scope of the arbitration
provision, a party’s allegations need only be factually intertwined with arbitrable claims
or otherwise touch upon the subject matter of the agreement containing the arbitration
provision. See Prudential, 909 S.W.2d at 900; Jack B. Anglin Co., 842 S.W.2d at 271.
The Arbitration Clause
The arbitration clause at issue in each of the employment agreements states:
Arbitration. Any dispute or controversy between the Company and
Executive, arising out of or relating to this Agreement, the breach of this
Agreement, or otherwise, shall be settled by arbitration in Wilmington,
Delaware administered by the American Arbitration Association in
accordance with its Commercial Rules then in effect and judgment on the
award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The arbitrator shall have the authority to award any
remedy or relief that a court of competent jurisdiction could order or
grant, including, without limitation, the issuance of an injunction.
However, either party may, without inconsistency with this arbitration
provision, apply to any court having jurisdiction over such dispute or
controversy and seek interim provisional, injunctive or other equitable
relief until the arbitration award is rendered or the controversy is
otherwise resolved. Except as necessary in court proceedings to enforce
this arbitration provision or an award rendered hereunder, or to obtain
interim relief, neither a party nor an arbitrator may disclose the existence,
content or results of any arbitration hereunder without the prior written
consent of the company and Executive. Each party shall bear its or his
own costs and expenses in any arbitration hereunder and one-half of the
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arbitrator’s fees and costs; provided, however, that the arbitrator shall
have the discretion to award the prevailing party reimbursement of its or
his reasonable attorney’s fees and costs.
No party is contending that the arbitration agreement is not valid or that
arbitration should not be ordered. Rather, it is which claims to be determined by the
arbitrator that are at issue, specifically, the motion to reform. Therefore, the burden is
on Cavanna, Gray, and Nester to establish that the motion to reform the non-compete
agreements is not within the scope of the arbitration agreement. See J.M. Davidson, 128
S.W.3d at 227.
GWSI complains that the reformation of the non-compete agreements by the trial
court was not allowed within the limited categories of relief allowed by the arbitration
clause, but that the issue of reformation should be determined by the arbitrator because
reformation pursuant to Business and Commerce Code section 15.51(c) is an issue to be
determined at a final hearing on the merits. Because of this, GWSI contends that
pursuant to the arbitration clause, the trial court could not permanently and finally
reform the agreements prior to a determination on the merits at a final hearing, which
should have been before the arbitrator.
Cavanna, Gray, and Nester responded by contending both in the trial court and
to this Court that the trial court’s reformation of the employment agreements was
allowed pursuant to the arbitration clause because it constitutes “other equitable relief”
as allowed in the arbitration clause. Their position is that the term “interim” does not
apply to the entire phrase “interim provisional, injunctive or other equitable relief.” We
disagree. The arbitration clause clearly contemplates that only temporary relief may be
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sought in the trial court. In order for Cavanna, Gray, and Nester’s interpretation to be
correct, the phrase immediately following “interim provisional, injunctive or other
equitable relief” which states “until the arbitration award is rendered or the controversy
is otherwise resolved” would have to be ignored entirely. Any equitable relief to be
granted by the trial court would have to be interim in nature only, and thus that relief
would seemingly be subsumed in or otherwise resolved at the final hearing on the
merits. The trial court’s reformation of the non-compete agreements can only be
construed as a permanent reformation, which was not within the exception to the
arbitration clause in the employment agreements.
Additionally, we agree that reformation pursuant to section 15.51(c) of the
Business and Commerce Code is a remedy to be granted at a final hearing, whether on
the merits or by summary judgment, not as interim relief. See EMS USA, Inc. v. Shari,
309 S.W.3d 653, 657 (Tex. App.—Houston [14th Dist.] 2010, no pet.); Cardinal Health
Staffing Network, Inc. v. Bowen, 106 S.W.3d 230, 238-39 (Tex. App.—Houston [1st Dist.]
2003, no pet.). See also, e.g., Lockhart v. McCurley, No. 10-09-000240-CV, 2010 Tex. App.
LEXIS 1909 at *5 (Tex. App.—Waco March 10, 2010, no pet.) (mem. op.); Tom James of
Dallas, Inc. v. Cobb, 109 S.W.3d 877, 885 (Tex. App.—Dallas 2003, no pet.); W.R. Grace &
Co.-Conn. v. Henson, No. 13-06-00668-CV, 2007 Tex. App. LEXIS 6771 at *11-12 (Tex.
App.—Corpus Christi 2007, no pet.) (mem. op.).
Other Provisions in the Agreement
Having determined that the trial court’s reformation of the non-compete
agreements did not fit within the exceptions to the arbitration agreement, we must
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determine whether the reformation is an issue to be determined by the arbitrator or the
trial court. Cavanna, Gray, and Nester contend that there are two provisions outside of
the arbitration provisions in the employment agreements which establish that the trial
court was the proper forum for the issue of the reformation of the non-compete
agreements rather than to be determined through arbitration. The first is the reference
to “a court of competent jurisdiction” within the tolling provision. The second is
contained in the next paragraph, paragraph (h) in the acknowledgment section which
states:
(h) the covenants contained in Paragraphs 8 through 12 are reasonable
with respect to their duration, geographic area and scope. If, at the time of
enforcement of this Paragraph 11, a court holds that the restrictions stated
herein are unreasonable under the circumstances then existing, the parties
hereto agree that the maximum period, scope or geographic area legally
permissible under such circumstances will be substituted for the period,
scope or area stated herein.
Cavanna, Gray, and Nester argue that these provisions establish a clear intent
between the parties that even if the exception stated in the arbitration agreement itself
does not allow for the reformation of the agreement pursuant to the Business and
Commerce Code as “other equitable relief,” the reformation dispute should be resolved
only by the trial court because of the use of the term “court” rather than “arbitrator” or
“arbitral forum” in these additional paragraphs.
The motion to reform asked the trial court to determine that the restrictions
contained within the non-compete agreements were not reasonable either in scope or
duration or alternatively, for the trial court to determine that they had fully complied
with the non-compete agreements. When we consider the factual allegations contained
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within the motion to reform, we find that these claims necessarily “touch matters” that
are covered by, have a “significant relationship” to, are “inextricably enmeshed” with,
or are “factually intertwined” with the contract that contains the arbitration agreement.
See Pennzoil Co. v. Arnold Oil Co., 30 S.W.3d 494, 498 (Tex. App.—San Antonio 2000, orig.
proceeding). Thus, we find that Cavanna, Gray, and Nester have not established an
affirmative or other defense to the arbitration clause sufficient to overcome the
presumption in favor of arbitration, and therefore the trial court erred in ruling on the
motion to reform. We sustain issue one. Because of our holding sustaining the first
issue, we do not reach the second issue relating to the arbitrators determining
arbitrability.
Stay of Proceedings
In its third issue, GWSI complains that the trial court erred by denying its motion
to stay the proceedings entirely pending the outcome of the arbitration. The trial court
granted the motion to stay relating to Steve Gray, Cavanna, David Gray, Nester, and
CGN Leasing but denied the motion as it relates to the other defendants.
Federal law requires courts to stay litigation of claims that are subject to
arbitration until arbitration is completed. 9 U.S.C.A. § 3 (West 2009); In re Merrill Lynch
Trust Co. FSB, 235 S.W.3d 185, 195-96 (Tex. 2007) (orig. proceeding). Even when a party
has brought arbitrable claims against one party and claims not subject to arbitration
against another party in the same lawsuit, courts should stay all litigation if the
collateral litigation addresses the same issues as arbitration which threatens to render
the arbitration moot. See In re Merrill Lynch Trust Co. FSB, 235 S.W.3d at 195-96.
Grey Wireline v. Cavanna Page 11
None of the non-signatories have filed briefs in this Court. However, our review
of the claims indicates that the central issue to all is the purported violation of the non-
compete agreements. Therefore, the litigation should be stayed pending the outcome of
the arbitration and the trial court erred to order otherwise. We sustain issue three.
TEMPORARY INJUNCTION
GWSI indicated in its notice of appeal that it was appealing the trial court’s order
granting a temporary injunction against it and in favor of Steve Gray and CGN Leasing.
Steve Gray and CGN Leasing contend that any complaint regarding the temporary
injunction has been waived because no issue was raised complaining of the trial court’s
entry of the temporary injunction. GWSI, in its reply brief, acknowledged the failure to
raise the issue but argues that the injunction order is void on its face; therefore, the issue
is not waived by the failure to complain about the injunction order in the original
appellant’s brief.
Rule 683 of the Rules of Civil Procedure sets forth part of the requirements for a
temporary injunction. See TEX. R. CIV. P. 683. Rule 683 requires that “[e]very order
granting a temporary injunction shall include an order setting the cause for trial on the
merits with respect to the ultimate relief sought.” TEX. R. CIV. P. 683. The order of
temporary injunction does not include an order setting the cause for trial on the merits
as required by Rule 683. Id.; see also EOG Res., Inc. v. Gutierrez, 75 S.W.3d 50, 52 (Tex.
App.—San Antonio 2002, no pet.) (reason for requiring injunction order to include trial
date is to prevent temporary injunction from effectively becoming permanent without
trial). The requirements of Rule 683 are mandatory and must be strictly followed.
Grey Wireline v. Cavanna Page 12
Qwest Commc'ns. Corp. v. AT & T Corp., 24 S.W.3d 334, 337 (Tex. 2000) (per curiam);
InterFirst Bank San Felipe, N.A. v. Paz Constr. Co., 715 S.W.2d 640, 641 (Tex. 1986) (per
curiam).
When a temporary injunction order does not meet the mandatory requirements
of Rule 683, it must be declared void and dissolved, regardless of whether the defect
was raised or briefed on appeal. InterFirst, 715 S.W.2d at 641 (temporary injunction that
does not set cause for trial on merits is void and must be dissolved); Bay Fin. Sav. Bank,
FSB v. Brown, 142 S.W.3d 586, 591 (Tex. App.—Texarkana 2004, no pet.) (although error
not raised on appeal, temporary injunction void because it did not include order setting
cause for trial on merits); EOG Res., 75 S.W.3d at 53 (same). A void order has no force or
effect and confers no right; it is a nullity. See In re Garza, 126 S.W.3d 268, 273 (Tex.
App.—San Antonio 2003, orig. proceeding).
Because the temporary injunction order does not set the cause for trial on the
merits, it is void. We reverse the trial court’s temporary injunction order and order that
it be dissolved. InterFirst, 715 S.W.2d at 641 (Tex. 1986).
Conclusion
We find that the trial court erred by reforming the employment agreements and
not determining that the issue of reformation should be determined by the arbitrators.
We further find that the trial court erred by denying the motion to stay the litigation as
to the non-signatories to the employment agreements until the completion of the
arbitration. We order that the temporary injunction is void and order the trial court to
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dissolve it. We reverse and remand to the trial court for further proceedings. The stay
of the trial court proceedings issued by this Court on March 11, 2011 is hereby lifted.
TOM GRAY
Chief Justice
Before Chief Justice Gray,
Justice Davis, and
Justice Scoggins
Reversed and remanded
Opinion delivered and filed October 12, 2011
[CV06]
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