Anthony Aldridge v. Thrift Financial Marketing, LLC ( 2012 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-11-00492-CV
ANTHONY ALDRIDGE APPELLANT
V.
THRIFT FINANCIAL MARKETING, APPELLEE
LLC
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FROM THE 67TH DISTRICT COURT OF TARRANT COUNTY
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OPINION
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I. Introduction
Appellant Anthony Aldridge appeals from the trial court’s denial of his
motion to compel arbitration in a suit brought against him and others by Appellee
Thrift Financial Marketing, LLC (Thrift), a Delaware Limited Liability Company.
Aldridge, a former “Member” of Thrift, contends that, pursuant to an arbitration
agreement contained in the formation agreement creating Thrift, he may compel
arbitration of the claims asserted against him by Thrift because those claims
arise from acts he allegedly undertook while still a Member of Thrift. Because
the Agreement excludes former Members from the class of persons entitled to
compel arbitration, we affirm the trial court’s order.
II. Background
Aldridge and Sue Harvison formed Thrift in 2008 when they entered into
the Limited Liability Company Agreement of Thrift Financial Marketing, LLC
(Company Agreement). From Thrift’s inception through September 30, 2011,
Harvison and Aldridge, who executed the Company Agreement as the “initial
Members of the Company,” were also Thrift’s only two Managers as well as its
only two Members.
The Company Agreement, which contains the operative provisions for
management, membership rights, and other matters pertaining to the governance
and operation of Thrift, also contains an arbitration agreement that states in
relevant part as follows:
(b) In the event of the existence of a dispute or disagreement
arising out of, or relating to, the formation, interpretation,
performance or breach of any Transaction Documents or any
amendment or other modification thereto, any Member or Members
(each a “Disputing Member”) may submit its basis for such dispute
or disagreement in writing to the other Member or Members and
such other Member or Members (the “Responding Members”)
shall respond in writing to such written notice within 14 days after
receiving the written notice. . . .
(c) If any dispute shall not have been resolved through the use
of the procedures specified in paragraph (b) within 30 days after the
initial written submission of the issue by a Disputing Member to the
Responding Members, then the dispute shall, unless the Disputing
Member and Responding Members otherwise agree, be submitted to
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and settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, now in
effect, except to the extent modified herein. . . . [Emphasis added.]
The Company Agreement expressly defines “Member” as follows:
“Member” means any Person executing this Agreement as of
the date of this Agreement as a Member or hereafter admitted to the
Company as a member as provided in this Agreement, but such
term “excludes any Person who has ceased to be a Member.”
[Emphasis added.]
As alleged in the parties’ pleadings and set forth in affidavits, Harvison and
Aldridge formed Thrift to handle leads provided to it by Cendera Funding, Inc.
(Cendera), a lending company for residential mortgage loans. Thrift’s business
plan contemplated the use of a call center owned and operated by Thrift, to refine
and solicit such leads for Cendera from raw data provided to Thrift by Cendera.
According to Thrift, its call center operations allowed it to identify the most
promising prospective customers seeking mortgage loans on single-family
residences, who would then be referred to Cendera loan officers. Effective
September 30, 2008, shortly after Thrift had been formed, Thrift and Cendera
entered into a marketing service agreement that provided for Thrift to handle the
leads and payment by Cendera for Thrift’s services and for Cendera to recruit
and train loan officers to be employed by Cendera but located at Thrift’s offices.
When Thrift received the leads, Thrift personnel would call the potential borrower
and invite that person to speak to one of Cendera’s loan officers. If the lead
matured into a loan, Cendera paid Thrift.
3
Aldridge, a licensed mortgage banker, became employed as a loan officer
for Cendera and recruited other loan officers to be employed by Cendera and to
work from Thrift’s offices. According to Aldridge, Thrift was aware of and
consented to Aldridge’s employment with Cendera, and Cendera was aware of
and consented to Aldridge’s relationship with Thrift.
Thrift contends that, by late spring of 2011, profits derived from Cendera’s
branch office at Thrift’s offices had increased dramatically; Thrift contends that
Brian Collins1 proposed a joint venture with Thrift that promised greater profits
and that Thrift and Cendera equally shared profits pursuant to that joint venture
from early Summer 2011 through September 30, 2011. Aldridge contends that
changes to the agreement were necessary to bring it into compliance with new
laws and regulations and that Thrift and Cendera “could not reach a resolution”
about necessary changes “after much effort and discussion.” Aldridge resigned
as a member and manager of Thrift effective September 30, 2011, and
relinquished all membership interest in Thrift. Aldridge’s letter of resignation,
addressed to Harvison, also referenced a “dissolution” of the marketing services
agreement between Thrift and Cendera, to which Harvison responded on the
same date with a vigorous objection that Aldridge had no authority to dissolve the
agreement between Thrift and Cendera.
1
Brian Collins is identified in documents contained in the clerk’s record as
the President and CEO of Cendera.
4
On October 6, 2011, Thrift filed this lawsuit against Aldridge, Cendera, and
Collins,2 asserting against Aldridge various claims for debt, liability under the
Texas Theft Liability Act, and breaches of fiduciary duty and seeking damages,
forfeiture of profits, and establishment of a constructive trust. Aldridge filed a
motion to compel arbitration, and Thrift filed a response. The trial court denied
Aldridge’s motion to compel arbitration after a hearing, and this interlocutory
appeal followed.3
III. Discussion
Aldridge raises three issues. He argues generally in his first issue that the
trial court erred when it refused to compel arbitration. He contends in his second
issue that Thrift may be compelled to arbitrate pursuant to the arbitration
provision in the Company Agreement even though Thrift itself is a nonsignatory
to that agreement, and he asserts in his third issue that, although he is no longer
a Member of Thrift, he may nevertheless compel arbitration pursuant to the
Company Agreement because Thrift’s claims arise from conduct that allegedly
occurred while he was still a Member. We address Aldridge’s third issue first.
2
Thrift alleges that Collins knowingly participated in Aldridge’s and
Cendera’s breaches of fiduciary duty against Thrift.
3
Cendera and Collins filed a motion adopting Aldridge’s motion to compel
arbitration but have not appealed the trial court’s denial of their motion.
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A. Applicable Law
The parties agree that the Federal Arbitration Act (FAA) applies to this
proceeding. See 9 U.S.C.A. §§ 1–16 (West 2009). Section 51.016 of the Texas
Civil Practice and Remedies Code permits the interlocutory appeal of an order
denying a motion to compel arbitration under the FAA. Tex. Civ. Prac. & Rem.
Code Ann. § 51.016 (West Supp. 2012).
The FAA provides, in relevant part:
A written provision in . . . a contract evidencing a transaction
involving commerce to settle by arbitration a controversy thereafter
arising out of such contract . . . shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for
the revocation of any contract.
9 U.S.C. § 2. “The FAA reflects the fundamental principle that arbitration is a
matter of contract.” Rent–A–Center, W., Inc. v. Jackson, 130 S. Ct. 2772, 2776
(2010). Section 2 of the FAA has been described as reflecting both a “liberal
federal policy favoring arbitration” and the “fundamental principle that arbitration
is a matter of contract.” AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740,
1745 (2011) (citing Rent–A–Center, 130 S. Ct. at 2776; Moses H. Cone Mem’l
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 941 (1983)).
“The FAA thereby places arbitration agreements on an equal footing with other
contracts, and requires courts to enforce them according to their terms.” Rent–
A–Center, 130 S. Ct. at 2776 (citing Buckeye Check Cashing, Inc. v. Cardegna,
546 U.S. 440, 443, 126 S. Ct. 1204, 1207 (2006), and Volt Info. Scis., Inc. v. Bd.
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of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S. Ct. 1248, 1255
(1989)).
The Company Agreement contains a choice-of-law provision that states
that it is to be “governed by and construed in accordance with the laws of the
State of Delaware, without giving effect to any choice of law principles.” Although
Thrift cites a few Delaware cases in its brief, it also asserts that “Delaware and
Texas law regarding arbitration do not conflict” and that “Delaware and Texas law
on contract construction principles are essentially identical and do not conflict.”
Aldridge relies on Federal and Texas case law, and he does not point to any
conflict between Texas and Delaware law. “As there appears to be no conflict of
laws, ‘there can be no harm in applying Texas law.’” In re AdvancePCS Health
L.P., 172 S.W.3d 603, 606 (Tex. 2005) (orig. proceeding) (per curiam) (quoting
Compaq Computer Corp. v. Lapray, 135 S.W.3d 657, 672 (Tex. 2004)); see also
In re J.D. Edwards World Solutions Co., 87 S.W.3d 546, 550 (Tex. 2002) (orig.
proceeding) (per curiam). We thus apply Texas law.
A trial court’s determination regarding the validity of an agreement to
arbitrate is a question of law which we review de novo. 4 J.M. Davidson, Inc. v.
4
“Under the FAA, absent unmistakable evidence that the parties intended
the contrary, it is the courts rather than arbitrators that must decide ‘gateway
matters’ such as whether a valid arbitration agreement exists.” In re Weekley
Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) (orig. proceeding) (citing Green
Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452, 123 S. Ct. 2402, 2407 (2003), and
PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401, 407 n.2, 123 S. Ct. 1531,
1536 n.2 (2003)).
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Webster, 128 S.W.3d 223, 227 (Tex. 2003); see GM Oil Props., Inc. v. Wade,
No. 01-08-00757-CV, 2012 WL 246041, at *5 (Tex. App.―Houston [1st Dist.]
Jan. 26, 2012, no pet.) (mem. op.) (recognizing whether an enforceable
arbitration agreement exists is a question of law for court to review de novo);
Schlumberger Tech. Corp. v. Baker Hughes Inc., 355 S.W.3d 791, 800 (Tex.
App.―Houston [1st Dist.] 2011, no pet.) (“When an appeal from a denial of a
motion to compel arbitration turns on a legal determination . . . we apply a de
novo standard.”) (citing Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 55 n.9 (Tex.
2008)).
Under the FAA, a party seeking to compel arbitration must satisfy a two-
pronged burden of proof in that it must first demonstrate the existence of a valid
agreement to arbitrate the dispute and then prove that the claims asserted are
within the scope of the agreement. In re Dillard Dep’t Stores, Inc., 186 S.W.3d
514, 515 (Tex. 2006) (orig. proceeding) (per curiam); AdvancePCS Health L.P.,
172 S.W.3d at 605. If the party seeking arbitration carries its initial burden, the
burden shifts to the opposite party to present evidence of an affirmative defense.
AdvancePCS Health L.P., 172 S.W.3d at 607.
An agreement to arbitrate is a contract, the relation of the parties is
contractual, and the rights and liabilities of the parties are controlled by the law of
contracts. See AT&T Mobility LLC, 131 S. Ct. at 1748–49, 1752–53 (arbitration
is a creature of contract; a person can be compelled to arbitrate a dispute only if,
to the extent that, and in the manner which, he has agreed to do so). Since
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arbitration is generally a matter of contract, the FAA requires courts to honor
parties’ expectations. 9 U.S.C.A. § 1 et seq.; AT&T Mobility LLC, 131 S. Ct. at
1752–53; In re Bunzl USA, Inc., 155 S.W.3d 202, 209 (Tex. App.―El Paso 2004,
orig. proceeding) (“[A] party cannot be compelled to arbitrate a dispute unless he
has agreed to do so.”).
When deciding whether parties agreed to arbitrate, courts should apply
ordinary state law principles regarding the formation of contracts. First Options
of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct. 1920, 1924 (1995); J.M.
Davidson, 128 S.W.3d at 227–28; see Weekley Homes, L.P., 180 S.W.3d at 130
(“Generally under the FAA, state law governs whether a litigant agreed to
arbitrate.”). In conducting our review, we “may not expand upon the terms of the
contract or tolerate a liberal interpretation of it by reading into it a voluntary,
consensual agreement to arbitrate when one otherwise does not exist.” In re
Bates, 177 S.W.3d 419, 422 (Tex. App.—Houston [1st Dist.] 2005, orig.
proceeding). “Although an arbitration agreement does not have to assume any
particular form, the language of the agreement must clearly indicate the intent to
arbitrate.” Id. Additionally, in resolving disputes regarding interpretation of an
arbitration agreement, we apply standard principles of contract interpretation and
construction. Peacock v. Wave Tec Pools, Inc., 107 S.W.3d 631, 636 (Tex.
App.―Waco 2003, no pet.). The plain meaning of the contractual language
should be looked to in order to ascertain the intent of the parties. Id.
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B. Application
Aldridge contends that he has a right under the Company Agreement to
compel arbitration of Thrift’s claims against him, contrary to Thrift’s argument in
the trial court that, because he is no longer a member of Thrift, he can no longer
compel arbitration. Aldridge acknowledges that he voluntarily relinquished his
position and resigned as a Member of Thrift before Thrift filed this lawsuit and
before he filed his motion to compel arbitration. But he argues that his
resignation does not prevent him from compelling arbitration of Thrift’s claims
now because there is no dispute that Thrift’s claims are based on acts that
allegedly occurred while Aldridge was a Member and Manager of Thrift. Aldridge
characterizes Thrift’s argument as “nothing more than the Company Agreement
is written in the present tense” and argues that nothing in the Company
Agreement “prohibits or divests” a former Member from seeking arbitration of
disputes arising from or relating to acts taken by that individual while he was a
Member.
The agreement to arbitrate provides that “any Member or Members (each
a ‘Disputing Member’) may submit its basis for such dispute or disagreement in
writing to the other Member or Members” and that if the dispute or disagreement
is not resolved “within 30 days after the initial written submission of the issue by a
Disputing Member to the Responding Members, then the dispute shall, unless
the Disputing Member and Responding Members otherwise agree, be submitted
to and settled by arbitration.” [Emphasis added.] Although that provision is, as
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Aldridge points out, written in the present tense, we agree with Thrift that the
repeated use of the terms “Member,” “Disputing Member,” and “Responding
Member” demonstrates that the agreement to arbitrate is an agreement solely
regarding resolution of disputes between “Members” of Thrift. Moreover, we
disagree with Aldridge’s contention that nothing in the Company Agreement
prevents or divests a former Member from seeking arbitration.
To the contrary, and regardless of whether the alleged conduct occurred or
the dispute arose while a person was a Member, the definition of the term
“Member” set forth in the Company Agreement expressly “excludes any Person
who has ceased to be a Member.” [Emphasis added.] That definition is
contained in a list of defined terms in a preceding section of the contract that
provides that “[w]hen used in this [Company] Agreement, the following terms
shall have the respective meanings assigned to them . . . .”
When contracting parties have set forth their own definitions of terms they
employ, courts are not at liberty to disregard such definitions and substitute other
meanings. AMS Constr. Co. v. K.H.K. Scaffolding Houston, Inc., 357 S.W.3d 30,
41 (Tex. App.―Houston [1st Dist.] 2011, pet. dism’d); Healthcare Cable Sys.,
Inc. v. Good Shepherd Hosp., Inc., 180 S.W.3d 787, 791 (Tex. App.—Tyler 2005,
no pet.); Alexander v. Cooper, 843 S.W.2d 644, 646–47 (Tex. App.―Corpus
Christi 1992, no writ); Hart v. Traders & Gen. Ins. Co., 487 S.W.2d 415, 417–18
(Tex. Civ. App.―Fort Worth 1972, writ ref’d n.r.e.). Reading the arbitration
provision together with the Company Agreement’s definition of “Member,” the
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Company Agreement is specific that a person who has ceased to be a Member is
not a “Member.” Thus, only an existing Member of Thrift may invoke the informal
resolution and resulting arbitration provisions against another current Member.
See Dillard Dep’t Stores, 186 S.W.3d at 515 (stating that the “objective intent as
expressed in the agreement controls the construction of an unambiguous
contract”); Bates, 177 S.W.3d at 422 (stating that “the language of the
[arbitration] agreement must clearly indicate the intent to arbitrate”).
Aldridge does not directly address the exclusion of former Members from
the definition of “Member” in the Company Agreement. His response is that he
may nevertheless compel arbitration because “an arbitration agreement
contained within a contract survives the termination or repudiation of the contract
as a whole” and that his alleged acts occurred while he was still a Member of
Thrift. Aldridge supports his argument by citing several cases. See Ambulance
Billings Sys., Inc. v. Gemini Ambulance Servs., Inc., 103 S.W.3d 507, 512–14
(Tex. App.—San Antonio 2003, no pet.); In re Koch Indus., Inc., 49 S.W.3d 439,
445 (Tex. App.—San Antonio 2001, orig. proceeding); Henry v. Gonzalez, 18
S.W.3d 684, 690 (Tex. App.—San Antonio 2000, pet. dism’d by agr.); Dallas
Cardiology Assocs., P.A. v. Mallick, 978 S.W.2d 209, 213 (Tex. App.—Texarkana
1998, pet. denied); Pepe Int’l Dev. Co. v. Pub Brewing Co., 915 S.W.2d 925, 932
(Tex. App.—Houston [1st Dist.] 1996, no writ); Miller v. Puritan Fashions Corp.,
516 S.W.2d 234, 238 (Tex. Civ. App.—Waco 1974, writ ref’d n.r.e.).
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Those cases are distinguishable for at least two reasons. First, the issue
in those cases involved whether an abandonment, repudiation, or termination of
the contract containing an arbitration provision rendered the arbitration provision
unenforceable. See Ambulance Billings Sys., Inc., 103 S.W.3d at 510, 512–14
(involving whether settlement agreement of contract dispute rendered arbitration
agreement no longer in effect); Koch Indus., Inc., 49 S.W.3d at 444–45 (opposing
parties contended arbitration provision was unenforceable because easement
had been abandoned); Henry, 18 S.W.3d at 690 (involving issue of whether
termination of attorney-client contract also terminated arbitration clause); Dallas
Cardiology, 978 S.W.2d at 213 (finding any potential breach of contract did not
render arbitration clause unenforceable); Pepe Int’l, 915 S.W.2d at 932 (holding
cancellation of underlying contracts did not invalidate arbitration clauses).5
Secondly, none of those cases involved provisions like that in the
Company Agreement that expressly excludes a former Member from the
definition of “Member[s]” who are entitled to invoke the arbitration provision.
Even though an arbitration provision survives termination of the contract
containing it, see Henry, 18 S.W.3d at 690, this case is unique because the
5
Moreover, the termination, repudiation, abandonment, and breach issues
involved in those cases dealt with the merits of the respective parties’ claims and
defenses (as opposed to termination of the arbitration clause itself), and those
were held to be issues for an arbitrator rather than the court. See Ambulance
Billings Sys., Inc., 103 S.W.3d at 512–14; Koch Indus., Inc., 49 S.W.3d at 445;
Henry, 18 S.W.3d at 690; Dallas Cardiology, 978 S.W.2d at 213; Pepe Int’l, 915
S.W.2d at 932; Miller, 516 S.W.2d at 238.
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express language of the arbitration provision limits its application to disputes or
disagreements between “Members” and because the Company Agreement
expressly defines “Member” to exclude any person “who has ceased to be a
Member.” Considering the enforceability of the arbitration provision alone, see
Koch Indus., Inc., 49 S.W.3d at 445, Aldridge has not met his burden of
presenting a valid agreement to arbitrate between himself and Thrift because the
express language of the Company Agreement excludes former Members from
those entitled to compel arbitration and because Aldridge voluntarily resigned as
a Member of Thrift. See AdvancePCS Health L.P., 172 S.W.3d at 607
(discussing shifting burdens under FAA); see also AT&T Mobility LLC, 131 S. Ct.
at 1752–53 (stating that the FAA requires courts to honor the parties’
expectations); Dillard Dep’t Stores, 186 S.W.3d at 515 (stating that the parties’
intent as shown by the unambiguous agreement controls); Bates, 177 S.W.3d at
422 (stating that reviewing courts may not read an agreement to arbitrate into a
contract “when one otherwise does not exist” and that the contract must clearly
indicate the intent to arbitrate).
We hold that the trial court did not err by denying Aldridge’s motion to
compel arbitration because Aldridge does not have the contractual right under
the Company Agreement to compel arbitration of Thrift’s claims against him. We
therefore overrule Aldridge’s third issue.
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C. Aldridge’s Remaining Issues
Aldridge contends in his second issue that Thrift may be compelled to
arbitrate its claims even though it did not separately sign the Company
Agreement. Within his second issue, Aldridge argues that Thrift’s claims in this
lawsuit are subject to arbitration because Thrift is bound by the Company
Agreement; because Thrift artfully pleaded claims actually belonging to Harvison,
the only remaining Member of Thrift, in an attempt to avoid arbitration; because
direct benefits estoppel requires arbitration of Thrift’s claims; and because Thrift’s
claims fall within the scope of the arbitration provision.
Those remaining arguments, however, each assume that Aldridge has the
contractual right under the Company Agreement to compel arbitration. Because
we have held above that Aldridge does not have a right to compel arbitration
given the express contractual language and his voluntary resignation as a
Member, that issue is dispositive of the appeal, and it is unnecessary for us to
reach Aldridge’s first or second issue. See Tex. R. App. P. 47.1 (“The court of
appeals must hand down a written opinion that . . . addresses every issue raised
and necessary to final disposition of the appeal.”).
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IV. Conclusion
Having overruled Aldridge’s third issue, and finding it unnecessary to reach
his general first issue or his second issue, we affirm the trial court’s order
denying Aldridge’s motion to compel arbitration.
ANNE GARDNER
JUSTICE
PANEL: LIVINGSTON, C.J.; GARDNER and GABRIEL, JJ.
DELIVERED: August 2, 2012
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