Apache Corporation v. Bryan C. Wagner, Wagner Oil Company, Trade Exploration Corporation, and Wagner & Cochran, Inc. ( 2018 )

In the
Court of Appeals
Second Appellate District of Texas
at Fort Worth
___________________________
No. 02-18-00132-CV
No. 02-18-00135-CV
___________________________
APACHE CORPORATION, Appellant
V.
BRYAN C. WAGNER, WAGNER OIL COMPANY, TRADE EXPLORATION
CORPORATION, AND WAGNER & COCHRAN, INC., Appellees
On Appeal from the 348th District Court
Tarrant County, Texas
Trial Court No. 348-296927-17
Before Sudderth, C.J.; Meier and Gabriel, JJ.
Memorandum Opinion by Chief Justice Sudderth
MEMORANDUM OPINION
I. Introduction
In two issues in this interlocutory appeal,1 Appellant Apache Corporation
complains that the trial court erred (1) by denying its motion to compel arbitration
because the parties’ indemnity dispute falls within the scope of their arbitration
agreement and (2) by deciding Appellees Bryan C. Wagner, Wagner Oil Company
(WOC), Trade Exploration Corporation (Trade), and Wagner & Cochran, Inc.
(W&C)’s motion to stay arbitration when a mandatory venue statute required that any
arbitration challenge be decided by a court in Harris County. We reverse.
II. Background
A. The Parties
Apache is a Delaware corporation with its office located in Houston. WOC is
a Texas corporation with its office located in Fort Worth, and Wagner is WOC’s
president and CEO. From January 1999 to June 2006, WOC acted as the operating
entity for Wagner’s oil and gas assets as well as for certain oil and gas assets owned by
Trade and W&C that were purchased by WOC using funds provided by those entities.
See Tex. Civ. Prac. & Rem. Code Ann. § 15.003(b) (West 2017), § 51.016 (West
1
2015).
2
B. The Agreements
1. Purchase and Sale Agreement Between WOC and Apache
WOC purchased oil-and-gas-related assets2 from Apache pursuant to a June 4,
2001 purchase and sale agreement (PSA) that was negotiated by WOC and executed
by Wagner on WOC’s behalf in his capacity as its president. Wagner, Trade, and
W&C provided the funds for the approximately $25 million purchase in, respectively,
80%, 19%, and 1% shares.3 The PSA listed the “Effective Time” of the purchase and
sale as “April 1, 2001, at 7:00 a.m., at the location of the Assets.”
With regard to Apache’s representations and warranties in the PSA, the parties
excluded compliance with “Environmental Laws,” a defined term, and WOC
acknowledged that its sole remedy for any noncompliance by Apache with
“Environmental Laws” would be provided in Article 6 of the PSA. Article 6 defined
“Environmental Law” to mean “all laws, statutes, ordinances, rules and regulations of
any governmental authority pertaining to protection of the environment in effect as of
the Effective Time and as interpreted by court decisions or administrative orders as of
the Effective Time in the jurisdiction in which such Asset is located.” And it
2
These assets included oil and gas wells, leasehold estates created by oil and gas
leases, fixtures and improvements appurtenant to these wells and leases, fee mineral
interests, and “[a]ll oil, gas and other hydrocarbons produced from or attributable to”
the leases, as well as various licenses, records, and other items related to the sale.
WOC represented in the PSA that in buying the assets, it was not acting under
3
any specific contractual commitment to any third party, or any specific nominee
agreement with any third party, to transfer to, or to hold title on behalf of, such third
party with respect to all or any part of the assets.
3
provided for (1) WOC, as the buyer, to give Apache, as the seller, written notice of
adverse environmental conditions discovered on or before June 20, 2001, (2) waiver
of those conditions for failure to give timely notice, and (3) the remedies available to
WOC. To access these remedies, WOC had to give proper notice to Apache and
then—before closing—the parties could (1) agree on an adjustment to the purchase
price to reflect the cost to remedy the adverse environmental condition, (2) remediate
the condition at Apache’s cost, or (3) remove the damaged item from the assets being
conveyed and reduce of the purchase price by the allocated value of that item.
Article 6.3 provided that Article 6 was the
SOLE AND EXCLUSIVE REMEDY THAT [WOC] SHALL HAVE
AGAINST [APACHE] WITH RESPECT TO ANY MATTER OR
CIRCUMSTANCE OR LIABILITY RELATING TO ADVERSE
ENVIRONMENTAL CONDITIONS, ENVIRONMENTAL LAWS,
THE RELEASE OF MATERIALS INTO THE ENVIRONMENT
OR PROTECTION OF THE ENVIRONMENT OR HEALTH.
Indemnity and arbitration were continuous themes in the PSA. With regard to
inspection of the leases, for example, WOC agreed to indemnify and hold harmless
Apache and its partners, joint interest owners, subsidiaries, affiliates, and their
respective officers, directors, employees, and agents “from and against any and all
losses or causes of action arising from [WOC’s] inspection of the leases, including,
without limitation, claims for (i) property damage, (ii) personal injuries or death of
employees of [WOC], its contractors, agents, consultants and representatives,
(iii) personal injuries or death of employees of [Apache], its contractors, agents, or
4
consultants or representatives, and (iv) personal injuries or death of third parties.”
And any title defect adjustment disputes required resolution “by Arbitration pursuant
to Section 11.12.”
Assignment was also addressed in the PSA in more than one place. With
regard to the post-closing obligations as to the assets’ files and records, WOC was
obligated to retain and make available to Apache for seven calendar years after the
closing date the files and records; any assignment by WOC of the purchased assets
was made subject to this requirement. Article 11.5, “Assignment,” provided that
neither party could assign all or any portion of its rights or delegate all or any portion
of its duties under the PSA “unless it continue[d] to remain liable for the performance
of its obligations . . . and obtain[ed] the prior written consent of the other Party,
which consent [could] not be unreasonably withheld.” And Article 11.10, “Parties in
Interest,” provided that the PSA would be binding upon and inure both to WOC and
Apache “and their respective successors and assigns.”
Under Article 9.4, Apache retained some liabilities, and the PSA expressly
covered what Apache would be responsible for as compared to WOC: Except for the
retained liabilities, WOC expressly agreed to assume responsibility for and to pay,
perform, fulfill, and discharge all claims, costs, expenses, liabilities, and obligations
accruing or relating to the owning, developing, exploring, operating, and maintaining
of the assets, “whether relating to periods before or after the effective time, including,
5
without limitation, all adverse environmental conditions, whether occurring before or
after the effective time, regardless of the negligence or strict liability of [Apache].”
The parties also set forth their “express intention” that WOC was buying the
assets “as is and in their present condition and state of repair.” In doing so, WOC
released and discharged “any and all claims at law or in equity, known or unknown,
whether now existing or arising in the future, contingent or otherwise, against
[Apache] with respect to any adverse environmental conditions,” and expressly agreed
to assume the risk, set out in all capital letters,“that the assets may contain waste
materials, including naturally occurring radioactive materials, hydrocarbons, hazardous
wastes, hazardous materials or hazardous substances, and that adverse physical
conditions, including, but not limited to, the presence of unknown abandoned oil and
gas wells, water wells, sumps and pipelines may not have been revealed by [WOC’s]
investigation.”
Article 9.5, the PSA’s primary indemnity provision, provided in all capital
letters that from and after the closing date, Apache would indemnify WOC, its
officers, directors, employees, and agents within a year of the closing for all losses,
damages, claims, demands, suits, costs, expenses, liabilities, and sanctions of every
kind and character, including reasonable attorney’s fees, court costs, and costs of
investigation arising from or in connection with the retained liabilities or any breach
by Apache of the PSA. And it provided that from and after the closing date, WOC
6
SHALL DEFEND, INDEMNIFY, RELEASE AND HOLD
HARMLESS [APACHE] AGAINST ALL LOSSES, DAMAGES,
CLAIMS, DEMANDS, SUITS, COSTS, EXPENSES, LIABILITIES
AND SANCTIONS OF EVERY KIND AND CHARACTER,
INCLUDING WITHOUT LIMITATION REASONABLE
ATTORNEYS’ FEES, COURT COSTS AND COSTS OF
INVESTIGATION, WHICH ARISE FROM OR IN CONNECTION
WITH (i) ANY OF THE CLAIMS, COSTS, EXPENSES,
LIABILITIES AND OBLIGATIONS ASSUMED BY [WOC]
PURSUANT TO SECTION 9.4, OR (ii) ANY BREACH BY [WOC]
OF THIS AGREEMENT.
The PSA’s arbitration clause states,
11.12 Arbitration. Any disputes arising out of or in
connection with this Agreement or the application, implementation,
validity, breach or termination of this Agreement shall be finally and
exclusively resolved by arbitration in Houston, Texas pursuant to the
dispute resolution provisions contained in Exhibit B. Notwithstanding
the above, in the event a third party brings an action against [WOC] or
[Apache] concerning this Agreement or the Assets or transactions
contemplated herein, [WOC] and [Apache] shall not be subject to
mandatory arbitration under this section and [WOC] or [Apache] shall
each be entitled to assert their respective claims, if any, against each
other in such third party action.
Exhibit B defined “Covered Dispute” as “[a]ny and all disputes concerning or
arising out of the Agreement to which this Exhibit is attached.” It set forth that
unless the parties mutually agreed otherwise, if they were unable to resolve an
arbitrable dispute pursuant to the PSA’s dispute resolution procedures in Exhibit B,
then the claimant had fifteen days after the parties reached an impasse to serve notice
requesting that the dispute be submitted to binding arbitration “in accordance with
the terms of this Appendix and the then current American Arbitration Association
(‘AAA’) Rules for Arbitration of Commercial Disputes (‘AAA Rules’).” It also
7
provided that arbitration would be governed by the Federal Arbitration Act (FAA)
and that the arbitration hearing would be held in Houston, Texas, “at a location
designated by the arbitrator.” And it provided that the arbitrator’s decision would be
final, binding, and nonappealable with regard to “grounds of error in the application
of the law or the findings of fact.”
2. The Apache Assignment
The assignment, conveyance, and bill of sale from Apache to WOC (the
Apache Assignment), which “granted, sold, assigned, conveyed and delivered” the
property covered in the PSA, was made “pursuant to and subject to all of the terms
and conditions” of the PSA and listed the same effective date—“April 1, 2001,
7:00 A.M., local time”—as the PSA. Wagner executed the assignment on WOC’s
behalf on June 28, 2001.
3. Assignment from WOC to Wagner, Trade, and W&C
WOC, through H.E. Patterson, its senior vice president, assigned the assets to
Wagner, Trade, and W&C (the WOC Assignment) on June 29, 2001, with the same
effective date—April 1, 2001—as the PSA and Apache Assignment. Wagner signed
for himself individually and on behalf of Trade as its vice president.
Dean O. Cochran Jr. signed for W&C as its president.
The WOC assignment describes the Apache Assignment. It further states,
“This Assignment is subject to all terms, provisions and conditions contained in the
APACHE Assignment, and Assignees assume and agree to be bound by and perform
8
their proportionate parts of all obligations imposed upon [WOC] by the APACHE
Assignment.”
C. Arbitration Demand
Apache was subsequently named as a defendant in five lawsuits in Louisiana;
none of these lawsuits were brought by parties to the PSA. On November 20, 2017,
Apache filed a demand for arbitration against Appellees with AAA, seeking to
arbitrate the issue of whether Appellees owed it the $15 million that Apache had
expended in the defense of those lawsuits, related litigation, and settlement costs.
D. The Tarrant County Declaratory Judgment Action
On December 15, 2017,4 Appellees filed a declaratory judgment action in
Tarrant County, seeking declarations that, among other things, (1) Wagner, Trade, and
W&C were not parties to the PSA and, accordingly, not subject to the PSA’s
indemnity and arbitration clauses, (2) Apache was not a third-party beneficiary of the
WOC Assignment, (3) mandatory arbitration did not apply to a claim for defense and
indemnity arising from a third-party lawsuit against either Apache or WOC related to
the PSA or the assets or transactions contemplated in it, and such a claim had to be
brought in the third-party lawsuit, (4) the Louisiana lawsuits brought by third parties
4
Although Apache complains that Appellees started to participate in the
arbitration process before filing their declaratory judgment action in Tarrant County,
the record reflects that WOC objected to arbitrability and expressly refused to waive
any of its objections when it selected its arbitrator eight days before filing its Tarrant
County lawsuit. And the parties signed a rule 11 agreement in early January 2018 to
reflect that by responding to Appellees’ Tarrant County lawsuit, Apache was not
waiving any of its rights or arguments relating to arbitration, venue, or jurisdiction.
9
against Apache and WOC concerned the PSA or the assets or transactions
contemplated therein,5 and (5) Appellees had no duty to defend or indemnify Apache
or to arbitrate the dispute. Apache filed a motion to transfer the case to Harris
County and a motion to abate and compel arbitration. Appellees filed an application
to stay arbitration.
E. Arbitration
In its motion to abate and to compel arbitration, Apache argued that because
WOC had agreed that the arbitrator would decide issues of arbitrability, pursuant to
the AAA Commercial rules, which were expressly incorporated into the arbitration
agreement, the trial court was required to compel arbitration. Apache further argued
that WOC’s assignees were required to arbitrate because they had expressly assumed
the arbitration obligations in article 11.10 of the PSA and because they had agreed to
be bound by and perform all of WOC’s PSA obligations in the WOC Assignment.
Apache also contended that WOC’s assignees were required to arbitrate under
incorporation by reference and direct benefits estoppel theories.
In their response to Apache’s motion to abate and compel arbitration,
Appellees argued that the third-party-dispute exemption in the arbitration clause
5
At the hearing on Apache’s motion to transfer and Appellees’ motion to stay,
Wagner and WOC’s counsel asserted that some of the plaintiffs in the declaratory
judgment action were parties to all five of the Louisiana lawsuits but that not all of the
plaintiffs were parties to all of the lawsuits, two of which had settled, two of which
had been prevailed upon by Apache, and one of which was still pending. In response
to the trial court’s query, Wagner and WOC’s counsel stated that there were no cross-
actions in the Louisiana lawsuits between the parties to the instant case.
10
applied to their dispute and adopted and incorporated by reference the arguments in
their stay application. They also argued that because Wagner, Trade, and W&C were
nonsignatories to the PSA, the arbitration clause did not bind them.
F. Hearing
On March 22, 2018, the trial court heard Apache’s motion to transfer and
Appellees’ motion to stay the arbitration proceedings. Apache argued that the
designation of Houston in the arbitration clause as the arbitration location, plus the
provisions in civil practice and remedies code sections 171.096(a) and 15.020, meant
arbitration had to occur in Harris County and that, despite the third-party actions, the
arbitration clause applied. Apache also argued that the WOC assignment
incorporated the arbitration clause when it was made subject to the PSA’s terms and
conditions.
Trade and W&C’s counsel argued that the WOC Assignment did not contain
an arbitration clause or extend the PSA’s arbitration clause to them, that the WOC
Assignment was not sued on by any party, and that they were not parties to the PSA.
They further argued that venue was appropriate in Tarrant County because the PSA
and WOC Assignment were negotiated there and that WOC and Apache had only
agreed that certain disputes would be arbitrated, not that any dispute arising out of or
in connection with the PSA must be brought in Houston.
Wagner and WOC’s counsel argued that the arbitration should be stayed until
they could get a declaration of what the arbitration agreement meant when the express
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exception in the arbitration clause showed that the parties had never contemplated
subjecting indemnity claims relating to third-party claims to the arbitration provision.
He also argued that Apache had the burden to show that the issue of arbitrability was
up to the arbitrator and that the arbitration clause was silent on that issue.
Apache’s counsel responded that both conditions precedent in the arbitration
clause—(1) a dispute arising out of the PSA and (2) a third party’s suing Apache or
WOC related to the PSA, assets, or transactions covered thereby—had to be met
before the exception would come into play and that the broad “any disputes”
language was clear and unmistakable evidence that the parties had agreed that
threshold questions of arbitrability would be decided by the arbitrator, particularly
when the AAA Commercial rules were incorporated into the PSA through the exhibit
referenced in the arbitration clause.
G. Trial Court’s Orders
The trial court denied Apache’s motion to transfer venue, granted Appellees a
stay of arbitration, and denied Apache’s motion to abate and compel arbitration.
Apache appealed these orders. We filed the arbitration appeal in cause number 02-18-
00132-CV and the venue appeal in cause number 02-18-00135-CV.6 We subsequently
consolidated these cases.
Apache also filed a petition for writ of mandamus in cause number 02-18-
6
00137-CV, which we denied on May 17, 2018.
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In a letter ruling, the trial court elaborated that the exemption in the PSA’s
arbitration clause applied to the class of claims “referenced in th[e] second sentence”
of the clause, i.e., third-party claims, precluding mandatory arbitration of the claims at
issue. The trial court further determined that Apache had failed to establish clearly
and unmistakably that the arbitrator, rather than the court, was to decide the “gateway
matter” of whether a valid arbitration agreement existed.
III. Arbitration
We review a trial court’s denial of a motion to compel arbitration for an abuse
of discretion. Diligent Tex. Dedicated LLC v. York, No. 02-17-00416-CV, 2018 WL
4140637, at *4 (Tex. App.—Fort Worth Aug. 30, 2018, pets. filed) (mem. op.) (citing
Legoland Discovery Ctr. (Dallas), LLC v. Superior Builders, LLC, 531 S.W.3d 218, 221 (Tex.
App.—Fort Worth 2017, no pet.)). But because unambiguous contracts are construed
as a matter of law, Moayedi v. Interstate 35/Chisam Rd., L.P., 438 S.W.3d 1, 7 (Tex.
2014), we review de novo a trial court’s determination regarding whether a valid
agreement to arbitrate exists and its construction of an unambiguous arbitration
agreement. See In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig.
proceeding); In re Guggenheim Corp. Funding, LLC, 380 S.W.3d 879, 886 (Tex. App.—
Houston [14th Dist.] 2012, orig. proceeding [mand. dism’d]); see also Granite Re Inc. v.
Jay Mills Contracting Inc., No. 02-14-00357-CV, 2015 WL 1869216, at *3 (Tex. App.—
Fort Worth Apr. 23, 2015, no pet.) (mem. op. on reh’g).
13
As described by our supreme court, arbitration is a creature of contract
between consenting parties. Jody James Farms, JV v. Altman Grp., Inc., 547 S.W.3d 624,
629 (Tex. 2018). Who is bound by an arbitration agreement is normally a function of
the parties’ intent as expressed in their agreement’s terms. Id. at 633. When relying
on a contract to compel arbitration, the movant must first establish the existence of a
valid and enforceable arbitration agreement and then must establish whether the
claims at issue fall within the arbitration agreement’s scope. Id.; In re Kellogg Brown &
Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding). Doubts about scope
are resolved in favor of arbitration, but the presumption favoring arbitration
agreements arises only after the party seeking to compel arbitration proves that a valid
arbitration agreement exists. Kellogg Brown & Root, Inc., 166 S.W.3d at 737–38.
An arbitration clause is a “specialized kind of forum-selection clause,” Pinto
Tech. Ventures, L.P. v. Sheldon, 526 S.W.3d 428, 437 (Tex. 2017), and whether claims are
covered by a forum-selection clause “should be [determined] according to a common-
sense examination of the substance of the claims made.” In re Int’l Profit Assocs., Inc.,
274 S.W.3d 672, 677–78 (Tex. 2009) (orig. proceeding). To determine whether a
claim falls within the scope of the agreement, courts must focus on the factual
allegations of the complaint, rather than the legal causes of action asserted. In re
Rubiola, 334 S.W.3d 220, 225 (Tex. 2011) (orig. proceeding); see also In re Kaplan Higher
Educ. Corp., 235 S.W.3d 206, 210 (Tex. 2007) (orig. proceeding) (stating that when an
agreement between two parties clearly provides for the substance of the dispute to be
14
arbitrated, one cannot avoid it by simply pleading that a nonsignatory agent or affiliate
was pulling the strings). Because forum-selection clauses are creatures of contract, the
circumstances in which nonsignatories can be bound to one are rare. Pinto Tech.
Ventures, L.P., 526 S.W.3d at 443.
We review a contractual provision in light of the entire contract. BBVA
Compass Inv. Sols., Inc. v. Brooks, 456 S.W.3d 711, 718–19 (Tex. App.—Fort Worth
2015, no pet.). That is, as the supreme court has instructed us,
[w]e “construe contracts from a utilitarian standpoint bearing in mind
the particular business activity sought to be served,” and avoiding
unreasonable constructions when possible and proper. Reilly v. Rangers
Mgmt., Inc., 727 S.W.2d 527, 530 (Tex. 1987). To that end, we consider
the entire writing, harmonizing and giving effect to all the contract
provisions so that none will be rendered meaningless. Moayedi, 438
S.W.3d at 7. No single provision taken alone is given controlling effect;
rather, each must be considered in the context of the instrument as a
whole. Id. We also give words their plain, common, or generally
accepted meaning unless the contract shows that the parties used words
in a technical or different sense. Id.
Plains Expl. & Prod. Co. v. Torch Energy Advisors Inc., 473 S.W.3d 296, 305 (Tex. 2015).
A contract is not ambiguous if its language can be given a certain or definite
meaning. Id. But if the contract is subject to two or more reasonable interpretations
after applying the pertinent contract principles, the contract is ambiguous, creating a
fact issue regarding the parties’ intent. Id. Mere disagreement over the interpretation
of an agreement does not necessarily render the contract ambiguous. Id. Further, our
primary concern is to determine the true intent of the parties as expressed by the plain
15
language of the agreement. N. Shore Energy, L.L.C. v. Harkins, 501 S.W.3d 598, 602
(Tex. 2016).
A. Arbitration Agreement
We must determine whether Apache showed, under Texas contract law, that
there was a valid agreement to arbitrate between it and Appellees.
1. Apache–WOC Agreement to Arbitrate
In the PSA, WOC and Apache agreed to arbitrate “[a]ny disputes arising out of
or in connection with this Agreement or the application, implementation, validity,
breach or termination of this Agreement . . . pursuant to the dispute resolution
provisions contained in Exhibit B,”7 and the Apache Assignment was made subject
“to the terms and conditions” of the PSA. Accordingly, Apache showed that there
was a valid agreement to arbitrate between it and WOC.
2. WOC Assignees
Determining whether a claim involving a nonsignatory must be arbitrated is a
gateway matter for the trial court, not the arbitrator. Jody James Farms, JV, 547 S.W.3d
at 629, 630 (“Who may properly adjudicate arbitrability is critical to ascertaining the
appropriate standard of review.”).
Contract language can extend enforcement rights to nonsignatories, such as
when the arbitration agreement expressly provides that certain nonsignatories are
7
Within this agreement, Apache and WOC carved out an exception, the
applicability of which we address below.
16
considered parties to the agreement. Pinto Tech. Ventures, L.P., 526 S.W.3d at 445. But
the mere incorporation of AAA rules does not demonstrate a clear intent to arbitrate
arbitrability as to a nonsignatory; rather, compelled arbitration cannot precede a
judicial determination that an agreement to arbitrate exists in the absence of clear and
unmistakable evidence that a party agreed to arbitrate arbitrability in disputes with
nonsignatories. Jody James Farms, JV, 547 S.W.3d at 632–33.
The matter before us involves a signatory defendant trying to force
nonsignatory plaintiffs into a forum not selected by the nonsignatory plaintiffs. There
are six scenarios in which arbitration with nonsignatories may be required:
incorporation by reference, assumption, agency, alter ego, equitable estoppel, and
third-party beneficiary. Id. at 633 (referencing Kellogg Brown & Root, Inc., 166 S.W.3d at
739). Apache argues that WOC’s assignees are subject to three of these theories—
assumption, direct benefits estoppel,8 and incorporation by reference.9
8
Under “direct benefits” estoppel, a nonsignatory plaintiff seeking the benefits
of a contract is estopped from simultaneously attempting to avoid the contract’s
burdens and may be compelled to arbitrate if he seeks to enforce the terms of a
contract containing an arbitration provision, such as suing for breach of contract,
breach of warranty, or revocation of acceptance based on the contract’s written terms.
Kellogg Brown & Root, Inc., 166 S.W.3d at 739–40; see Meyer v. WMCO-GP, LLC, 211
S.W.3d 302, 307 (Tex. 2006) (“When a party’s right to recover and its damages
depend on the agreement containing the arbitration provision, the party is relying on
the agreement for its claims.”).
9
Documents incorporated into a contract by reference become a part of the
contract when they do more than merely mention it. See In re 24R, Inc., 324 S.W.3d
564, 567 (Tex. 2010) (orig. proceeding); Bob Montgomery Chevrolet, Inc. v. Dent Zone Co.,
409 S.W.3d 181, 189 (Tex. App.—Dallas 2013, no pet.). The language of the signed
17
Under the assumption scenario, an assignee may be held liable under another
party’s contract if it makes an express or implicit assumption of the contract’s
obligations. NextEra Retail of Tex., LP v. Inv’rs Warranty of Am., Inc., 418 S.W.3d 222,
227 (Tex. App.—Houston [1st Dist.] 2013, pet. denied) (stating that while an implied
assumption is disfavored, it may arise when the benefit received by the assignee is so
entwined with the burden imposed by the assignor’s contract that the assignee is
estopped from denying assumption and the assignee would otherwise be unjustly
enriched). And instruments pertaining to the same transaction may be read together
to ascertain the parties’ intent. Fort Worth ISD v. City of Fort Worth, 22 S.W.3d 831, 840
(Tex. 2000) (stating that such instruments may be read together “even if the parties
executed the instruments at different times and the instruments do not expressly refer
to each other”).10 The PSA, Apache Assignment, and WOC Assignment all pertain to
document must show that the parties intended for the other document to become a
part of the agreement. Bob Montgomery Chevrolet, Inc., 409 S.W.3d at 189–90 (“[T]he
referring language in the original document must demonstrate the parties intended to
incorporate all or part of the referenced document.”); see Gross v. WB Tex. Resort
Cmtys., L.P., No. 02-12-00411-CV, 2014 WL 7334950, at *3 (Tex. App.—Fort Worth
Dec. 23, 2014, no pet.) (mem. op.); see also In re Prudential Ins. Co. of Am., 148 S.W.3d
124, 135 (Tex. 2004) (orig. proceeding) (holding that lease’s jury waiver was
incorporated by reference into guaranty agreement, which “plainly refer[red]” to the
lease when guarantors agreed to “faithfully perform and fulfill all of [the] terms,
covenants, conditions, provisions, and agreements” of the lease if the partnership
defaulted).
10
In Fort Worth ISD, the court read two Fort Worth ordinances and
“contemporaneous, related documents” together as a valid agreement enforceable by
the local school district, notwithstanding the city’s argument that no single instrument
reflected any agreement between the city and the school district. 22 S.W.3d at 834,
18
the same ultimate transaction—the purchase, sale, and conveyance of the oil-and-gas
related assets and liabilities.
In the WOC Assignment, a separate agreement that did not involve Apache but
that bore the same effective date and conveyed the same assets governed by the PSA
and the Apache Assignment, WOC and the other Appellees agreed that their
assignment was “subject to all terms, provisions and conditions contained in the
APACHE Assignment,” and that “Assignees assume[d] and agree[d] to be bound by
and perform their proportionate parts of all obligations imposed upon Assignor by
the APACHE Assignment.” [Emphasis added.] The Apache Assignment, between
Apache and WOC, was made subject to all of the PSA’s terms and conditions. And
the PSA itself, in article 11, which governed assignment, provided that the PSA would
be binding upon and inure both to WOC and Apache “and their respective successors
and assigns.” Wagner, albeit in his corporate capacity, signed the PSA on June 4,
2001, and the Apache Assignment on June 28, 2001, giving him intimate familiarity
with these documents’ requirements before he signed the WOC Assignment in his
personal capacity on June 29, 2001.
Based on the above, we conclude that the remaining Appellees are also subject
to the PSA’s arbitration clause. Compare Rieder v. Meeker, No. 02-17-00176-CV, 2018
WL 5074703, at *16 (Tex. App.—Fort Worth Oct. 18, 2018, no pet. h.) (mem. op.)
838–40 (observing that, as a matter of law, a court may determine that multiple
documents comprise a written contract and that in “appropriate instances, courts may
construe all documents as if they were part of a single, unified instrument”).
19
(holding that forum selection clause was enforceable against nonsignatories who were
managing board members of and closely related to a signatory because they were so
closely related to the signatory that enforcement of the clause against them was
foreseeable), with Ball Up, LLC v. Strategic Partners Corp., Nos. 02-17-00197-CV, 02-17-
00198-CV, 2018 WL 3673044, at *8 (Tex. App.—Fort Worth Aug. 2, 2018, no pet.)
(mem. op.) (holding that a nonsignatory stranger to the contract with the forum
selection clause could not enforce the clause against a signatory to attain personal
jurisdiction over it in Texas). Accordingly, we do not reach Apache’s other theories.
See Tex. R. App. P. 47.1.
But our analysis does not end here. Apache also had the burden to establish
that the claims in Appellees’ declaratory judgment action fell within the scope of the
arbitration clause.
B. Arbitration Clause’s Scope
The arbitration clause at issue applies broadly to any disputes “arising out of or
in connection with [the PSA] or the application, implementation, validity, breach or
termination of the PSA,” with a carved-out exception. That exception states that
notwithstanding the breadth of the first sentence’s language,
in the event a third party brings an action against [WOC] or [Apache]
concerning this Agreement or the Assets or transactions contemplated
herein, [WOC] and [Apache] shall not be subject to mandatory
arbitration under this section and [WOC] or [Apache] shall each be
entitled to assert their respective claims, if any, against each other in such
third party action.
20
Apache argues that the carve-out only allowed Appellees to avoid arbitration if
a third party filed suit related to the assets and Appellees filed cross-claims against
Apache in the same third-party action. Apache complains that the trial court’s
interpretation rendered the phrase “in such third party action” surplusage.
Appellees respond that the carve-out’s proper construction should be
understood to mean that when the claim involves a third party and the assets, the PSA
does not require arbitration, regardless of whether the issues are litigated in the third-
party action or as a stand-alone lawsuit between Apache and Appellees.
For the exception to apply, a third party had to sue either Apache or WOC,
raising some issue connected to the PSA, the assets, or “transactions contemplated” in
the PSA. The record reflects that various third parties, in five Louisiana lawsuits, sued
Apache, and that Apache, in turn, sought arbitration with regard to its breach-of-
contract-based indemnity issues. The plain language of the last portion of the carve-
out closes with a second reference to the third-party action.11
Considering both the language of the carve-out and the rest of the PSA to
provide context for the arbitration clause, we read the carve-out as limited to cross-
claims within a third-party action. See Plains Expl. & Prod. Co., 473 S.W.3d at 305
(explaining that courts should construe contracts by giving effect to all of the
11
Appellees argue that the language of the carve-out—such third-party action—
“simply refers back to the two circumstances that define the parameters of the ‘event’
that triggers the carve-out sentence” and that the second clause is permissive. For the
reasons set forth above and below, we disagree.
21
provisions and bearing in mind the business activity sought to be served); see also
Fischer v. CTMI, L.L.C., 479 S.W.3d 231, 242 (Tex. 2016) (referencing “the
fundamental principle that courts cannot rewrite the parties’ contract or add to or
subtract from its language”); Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London,
327 S.W.3d 118, 126 (Tex. 2010) (op. on reh’g) (“Courts strive to honor the parties’
agreement and not remake their contract by reading additional provisions into it.”).
We reach this conclusion not only by applying the plain language used in the
PSA but also by taking a utilitarian view of the business activity sought to be served
here. See N. Shore Energy, L.L.C., 501 S.W.3d at 602 (“Our primary concern is to
determine the true intent of the parties as expressed by the plain language of the
agreement.”); Plains Expl. & Prod. Co., 473 S.W.3d at 305 (requiring contracts to be
construed “from a utilitarian standpoint bearing in mind the particular business
activity sought to be served”). The overriding theme of the PSA was for Apache to
walk away from all but its specific retained liabilities, handing the potentially profitable
assets to WOC in exchange for $25 million, an “as-is” sale with a sole remedy for any
noncompliance by Apache with environmental laws available only before closing so
that the parties could adjust the purchase price—“closing” here was meant as a cutoff
date for the Article 6 remedies.12 The parties agreed to a broad indemnification
The PSA was effective April 1, 2001, signed June 4, 2001, and closed June 29,
12
2001. While closing is typically when assets are transferred, here, as noted above,
“closing” had the additional significance of cutting off remedies with regard to
adverse environmental conditions related to the assets.
22
provision, and it is clear from the PSA’s plain language that Apache did not want any
liability other than that which it specifically retained, not even for any damages
sustained during WOC’s inspection of the to-be-sold-“as is” assets. The parties also
agreed to a broad, far-reaching arbitration procedure covering “[a]ny and all disputes”
except for those involving engagement in any third-party actions. See Nat’l City Mortg.
Co. v. Adams, 310 S.W.3d 139, 144 (Tex. App.—Fort Worth 2010, no pet.) (op. on
reh’g) (observing that a defining characteristic of indemnification is that it does not
apply to claims between the parties to the agreement but rather relates to liability
claims of persons not party to the agreement); see also Prudential Sec. Inc. v. Marshall, 909
S.W.2d 896, 899 (Tex. 1995) (orig. proceeding) (reciting that the policy in favor of
enforcing arbitration agreements is so compelling that courts 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” (quoting Neal
v. Hardee’s Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990))); S.P., III v. N.P., No. 02-16-
00278-CV, 2017 WL 3821887, at *6 (Tex. App.—Fort Worth Aug. 31, 2017, no pet.)
(mem. op.) (“A strong presumption favors arbitration, and courts resolve any doubts
about an agreement’s ‘scope, waiver, and other issues unrelated to its validity in favor
of 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, a court
should not deny arbitration.’” (quoting BBVA Compass Inv. Sols., 456 S.W.3d at 718
(footnote omitted))).
23
Accordingly, we conclude that the trial court abused its discretion by denying
Apache’s motion to compel arbitration and sustain Apache’s first issue. Because we
sustain Apache’s first issue, we do not reach its second issue on venue. See Tex. R.
App. P. 47.1.
IV. Conclusion
The trial court erred in its construction of the parties’ arbitration agreement.
Accordingly, we sustain Apache’s first issue, vacate the trial court’s order granting the
stay of arbitration, and remand this case to the trial court to compel arbitration
pursuant to the parties’ agreement.
/s/ Bonnie Sudderth
Bonnie Sudderth
Chief Justice
Delivered: November 29, 2018
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