in Re Excalibur E & P, L.L.C. FTW Mineral Development Trust Lanny R. Freeman And Daniel L. Hawkins ( 1999 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

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NO. 03-98-00701-CV

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In re Excalibur E & P, L.L.C.; FTW Mineral Development Trust;

Lanny R. Freeman; and Daniel L. Hawkins, Relators

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ORIGINAL PROCEEDING FROM TRAVIS COUNTY

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In this mandamus proceeding, relators Excalibur E & P, L.L.C., FTW Mineral Development Trust, Lanny R. Freeman, and Daniel L. Hawkins (hereinafter collectively referred to as "Excalibur and others") seek relief from an order denying their motion to compel arbitration, sever, and stay proceedings. We hold that the trial court did not abuse its discretion by denying the motion to compel.

Background

From March to September 1996, Petroleum Development Corporation ("PEDCO"), Excalibur E & P, L.L.C. ("Excalibur"), and FTW Mineral Development Trust ("FTW") entered into three agreements for PEDCO to purchase certain oil and gas leasehold interests in South Texas from Excalibur and FTW. ⁽¹⁾ These agreements, referred to as the "Purchase Agreements," contained the following arbitration clause:

ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS CONTRACT, OR THE BREACH THEREOF, SHALL BE SETTLED BY ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION, AND JUDGEMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF.

The Purchase Agreements also contained the following choice-of-law provision:

THIS AGREEMENT SHALL BE CONSTRUCTED [sic] IN ACCORDANCE WITH AND GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF TEXAS. THIS CONTRACT SHALL BE DEEMED TO HAVE BEEN EXECUTED IN AUSTIN, TEXAS, AND IN THE EVENT OF ANY DISPUTE BY EITHER PARTY VENUE HEREUNDER SHALL BE IN TRAVIS COUNTY, TEXAS.

The parties agreed to restructure their relationship in September 1996. Under this new "Agency Agreement," PEDCO agreed to advance funds to Excalibur to purchase oil and gas interests as PEDCO's agent. In return for its services, Excalibur received a $10,000 monthly fee. The Agency Agreement was not written and did not contemplate any agreement to arbitrate disputes.

In August 1997, PEDCO agreed to pay Excalibur and others $240,000 in return for the assignment to PEDCO of all leases purchased. Then on January 23, 1998, a meeting was called to officially terminate the relationship among the parties. Soon after that meeting, Excalibur and others notified PEDCO, Pedeco, Inc., and Warren Resources, Inc. (hereinafter collectively referred to as "PEDCO and others") that they intended to exercise their rights of reverter under the Purchase Agreements. In response, PEDCO and others filed suit against Excalibur and others in Travis County, Texas on May 18, 1998. ⁽²⁾ In July 1998, Excalibur and others filed their original counterclaim and third-party claims.

On November 2, 1998, following some discovery and a Rule 11 agreement, Excalibur and others filed a Motion to Compel Arbitration, Sever and Stay Proceedings under the Federal Arbitration Act ("FAA"). A hearing was held, after which the trial court denied the motion. Excalibur and others subsequently filed a petition for writ of mandamus in this Court seeking to vacate the trial court's order denying their motion to compel arbitration, sever and stay the proceedings.

Discussion

Mandamus will issue only if a court has clearly abused its discretion and the aggrieved party has no adequate remedy by appeal. Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992). Excalibur and others assert that the Purchase Agreements contain arbitration clauses that are valid and enforceable under the FAA. Therefore, they contend, mandamus is the appropriate remedy. See Stewart Title Guar. Co. v. Mack, 945 S.W.2d 330, 333 (Tex. App.--Houston [1st Dist.] 1997, writ dism'd w.o.j.). Excalibur and others did not file an interlocutory appeal because they do not assert that the arbitration agreements fall under the Texas General Arbitration Act ("TGAA"). See Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992) ("[L]itigants who allege entitlement to arbitration under the Federal Act, and in the alternative, under the Texas Act, are burdened with the need to pursue parallel proceedings--an interlocutory appeal of the trial court's denial under the Texas Act, and a writ of mandamus from the denial under the Federal Act.").

PEDCO and others present three arguments in support of their claim that the FAA does not apply. First, they argue that because the Purchase Agreements contain a Texas choice-of-law provision, the TGAA applies, rather than the FAA. Thus, they assert, the only remedy available to Excalibur and others is an interlocutory appeal. Second, they argue that Excalibur and others failed to carry their evidentiary burden to show that the Purchase Agreements involve interstate commerce. Third, they argue that even if the arbitration clauses are valid under the FAA, Excalibur and others waived their right to arbitrate by making substantial use of the judicial process.

Assuming, without deciding, that Excalibur and others could invoke the FAA to seek arbitration for procedural purposes notwithstanding the choice-of-law provision, they still must show that the underlying transaction involves interstate commerce. "The Federal Act thus applies to all suits in state and federal court when the dispute concerns a 'contract evidencing a transaction involving commerce.'" Anglin, 842 S.W.2d at 269-70 (quoting Perry v. Thomas, 482 U.S. 483, 489 (1987)). This Court has concluded that "commerce" under the FAA must be broadly construed. BWI Cos., Inc. v. Beck, 910 S.W.2d 620, 622 (Tex. App.--Austin 1995, orig. proceeding) (citing Lost Creek Mun. Util. Dist. v. Travis Indus. Painters, 827 S.W.2d 103, 105 (Tex. App.--Austin 1992, writ denied)). Thus, if the transaction at issue relates to interstate commerce, the FAA is implicated. See id. However, a party seeking to compel arbitration must present sufficient evidence to establish its right to arbitrate under the FAA. See Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996); see also Stewart Title, 945 S.W.2d at 333. The trial court may summarily, that is with less than a full evidentiary hearing, decide whether to compel arbitration, and consider only affidavits, pleadings, discovery, and stipulations. Anglin, 842 S.W.2d at 269.

Excalibur and others, however, submitted no summary evidence demonstrating that the Purchase Agreements involve interstate commerce to the trial court other than the pleadings, which list certain out-of-state parties, and the Purchase Agreements themselves, which merely include signatures from two out-of-state parties. Such evidence is insufficient to show that the Purchase Agreements involve interstate commerce. Excalibur and others have failed to prove that the FAA applies. Having determined that the evidence is insufficient to show interstate commerce, we need not address PEDCO and others' remaining arguments. Accordingly, we hold that the trial court did not abuse its discretion in denying the motion to compel arbitration, sever and stay proceedings.

Conclusion

Excalibur and others' petition for writ of mandamus is denied. PEDCO and others' motion for sanctions is overruled.

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J. Woodfin Jones, Justice

Before Justices Jones, B. A. Smith and Yeakel

Mandamus Denied

Filed: April 15, 1999

Do Not Publish

1. The parties subsequently entered into two additional agreements in April and August 1997.

2. Norman Swanton and James C. Johnson, Jr. subsequently intervened in July 1998.

l arbitration, sever and stay the proceedings.

Discussion

Mandamus will issue only if a court has clearly abused its discretion and the aggrieved party has no adequate remedy by appeal. Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992). Excalibur and others assert that the Purchase Agreements contain arbitration clauses that are valid and enforceable under the FAA. Therefore, they contend, mandamus is the appropriate remedy. See Stewart Title Guar. Co. v. Mack, 945 S.W.2d 330, 333