Tejas Tubular Products, Inc. v. Maximo Palacios ( 2021 )

Opinion issued November 18, 2021.
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-21-00136-CV
———————————
TEJAS TUBULAR PRODUCTS, INC., Appellant
V.
MAXIMO PALACIOS, Appellee
On Appeal from the 151st District Court
Harris County, Texas
Trial Court Case No. 2020-76668
MEMORANDUM OPINION
Appellant Tejas Tubular Products, Inc. (“Tejas Tubular”) appeals the trial
court’s order denying its motion to compel arbitration of Appellee Maximo
Palacios’ (“Palacios”) negligence claim. In its sole issue, Tejas Tubular contends
the trial court erred in denying its motion. We reverse and remand.
Background
Palacios sued Tejas Tubular, a non-subscribing employer, for negligence
stemming from an alleged hand injury he claims he sustained while cleaning a
piece of machinery in the course and scope of his employment. Palacios sought
recovery of actual damages, past and future lost wages, medical expenses, damages
for pain and suffering, mental anguish, and impairment, punitive damages, and
attorney’s fees.
Tejas Tubular filed an “Original Answer Subject to Arbitration Rights.” It
then moved to compel arbitration under the Federal Arbitration Act (“FAA”),
asserting Palacios entered into an arbitration agreement with Tejas Tubular and his
negligence claim was subject to arbitration. Tejas Tubular attached to its motion
the business records affidavit of its records custodian, Dimitra Goode, which
included authenticated copies of (1) an “Acknowledgement of Receipt and Notice
of Mutual Agreement to Arbitrate, Summary Plan Description, and Other
Nonsubscriber Documents” signed by Palacios on November 30, 2017, and (2) the
“Mutual Agreement to Arbitrate.”
Palacios filed a response to the motion to compel arbitration, claiming the
Mutual Agreement to Arbitrate (“Arbitration Agreement”) explicitly excludes
workers’ compensation claims from its scope of coverage and his negligence claim
against Tejas Tubular, a non-subscribing employer, qualifies as a workers’
2
compensation claim. He thus argued that arbitration could not be compelled
because his claim fell outside the scope of the Arbitration Agreement. Tejas
Tubular replied asserting Section 6(c) of the Arbitration Agreement delegates the
determination of the scope and arbitrability of any claim to the arbitrator. Tejas
Tubular further argued Palacios’ negligence claim falls within the scope of the
Arbitration Agreement.
The trial court denied Tejas Tubular’s motion to compel arbitration and
Tejas Tubular appealed.1
Standard of Review
We review interlocutory appeals of orders denying motions to compel
arbitration for an abuse of discretion. Valerus Compression Servs., LP v. Austin,
417 S.W.3d 202, 207 (Tex. App.—Houston [1st Dist.] 2013, no pet.). We defer to
the trial court’s factual determinations if they are supported by the evidence and
review questions of law de novo. Id. We will reverse the trial court’s ruling only
when “it acts in an arbitrary or unreasonable manner, without reference to any
guiding rules or principles.” In re Nitla S.A. de C.V., 92 S.W.3d 419, 422 (Tex.
2002, orig. proceeding) (per curiam).
1
We have jurisdiction over the court’s interlocutory order. The Federal Arbitration
Act (“FAA”) permits an interlocutory appeal from an order denying a motion to
compel arbitration. See 9 U.S.C. § 16; see also TEX. CIV. PRAC. & REM. CODE
§ 51.016 (providing for appeal of interlocutory order denying motion to compel
arbitration under FAA).
3
Applicable Law
A party seeking to compel arbitration must establish that (1) a valid,
enforceable arbitration agreement exists and (2) the claims asserted fall within the
scope of that agreement. Valerus Compression Servs., 417 S.W.3d at 207; In re
Provine, 312 S.W.3d 824, 828 (Tex. App.—Houston [1st Dist.] 2009, orig.
proceeding). The existence of a valid arbitration agreement is a legal question. In
re D. Wilson Constr. Co., 196 S.W.3d 774, 781 (Tex. 2006). In interpreting an
agreement to arbitrate, we apply ordinary contract principles. J.M. Davidson, Inc.
v. Webster, 128 S.W.3d 223, 227 (Tex. 2003); In re Houston Progressive
Radiology Assocs., PLLC, 474 S.W.3d 435, 443 (Tex. App.—Houston [1st Dist.]
2015, no pet.).
When, as here, a party asserts a right to arbitration under the FAA, we
determine whether a dispute is subject to arbitration under federal law. See
Prudential Secs. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995). Under the
FAA, any doubts concerning the scope of arbitrable issues should be resolved in
favor of arbitration. See id. (citing Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24–25 (1983)). The policy in favor of enforcing
arbitration agreements is so compelling that a court should compel 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.”
4
Prudential Secs. Inc., 909 S.W.2d at 899 (emphasis in original) (citing Neal v.
Hardee’s Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990)).
Arbitration Agreement
Tejas Tubular established the existence of an arbitration agreement, and
Palacios does not challenge enforceability of the agreement. Thus, the question
before us is whether Palacios’ claim is arbitrable and who determines this
threshold issue of arbitrability. The parties’ Arbitration Agreement includes the
following relevant provisions:
6. Scope of Arbitration Agreement
a. Claims Covered by this Agreement
This Agreement is mutual, covering all claims that Company or
Claimant may have, including but not limited to, claims for
negligence, gross negligence, and all claims for personal injuries,
physical impairment, disfigurement, pain and suffering, mental
anguish, wrongful death, survival actions, loss of consortium and/or
services, medical and hospital expenses, expenses of transportation for
medical treatment, expenses of drugs and medical appliances,
emotional distress, exemplary or punitive damages and any other loss,
detriment or claim of whatever kind and character.
b. Claims Not Covered by This Agreement
This agreement does not apply to:
....
(ii) Workers’ Compensation Benefits under the Texas Workers’
Compensation Act or any other similar state or federal law;
....
5
Nothing in this Agreement precludes the parties from agreeing
to resolve claims that are otherwise not covered by this Agreement the
same as if they were Covered Claims.
c. Arbitrability of Particular Dispute
Any question as to the arbitrability of any particular claim shall be
arbitrated pursuant to the procedures set forth in this Agreement.
Analysis
Tejas Tubular contends the trial court erred by denying its motion to compel
arbitration. It argues that, as a threshold matter, arbitration is mandated because
Section 6(c) of the Arbitration Agreement delegates arbitrability determinations to
the arbitrator. Thus, an arbitrator and not the trial court should determine whether
Palacios’ negligence claim is subject to arbitration and whether the exception
under 6(b) of the Arbitration Agreement applies. Beyond this threshold error,
Tejas Tubular argues arbitration is mandated because Palacios’ claim falls within
the scope of the Arbitration Agreement. In response, Palacios argues the trial court
properly denied the motion to compel arbitration because his claim falls outside the
scope of the Arbitration Agreement and its delegation provision. He asserts
Section 6(b) of the Arbitration Agreement excludes workers’ compensation claims
from its coverage and his negligence claim qualifies as a workers’ compensation
claim.
“Whether parties have agreed to arbitrate is a gateway matter ordinarily
committed to the trial court . . . .” Jody James Farms, JV v. Altman Group, Inc.,
6
547 S.W.3d 624, 631 (Tex. 2018) (citing In re Rubiola, 334 S.W.3d 220, 224 (Tex.
2011)). “Parties can, however, agree to have the arbitrator determine gateway
issues such as arbitrability of claims.” See RSL Funding, LLC v. Newsome, 569
S.W.3d 116, 121 (Tex. 2018); see also Myrtle Consulting Grp., LLC v. Resulting
Partners, Inc., No. 01-20-00095-CV, 2021 WL 2231248, at *8 (Tex. App.—
Houston [1st Dist.] June 3, 2021, no pet.) (mem. op.). We enforce clauses
delegating arbitrability when there is “clear and unmistakable” evidence
establishing the parties’ intent to delegate the matter to the arbitrator. Henry
Schein, Inc. v. Archer & White Sales, Inc., –– U.S. —, 139 S. Ct. 524, 527, 531
(2019) (holding FAA “allows parties to agree by contract that an arbitrator, rather
than a court, will resolve threshold arbitrability questions”); RSL Funding, 569
S.W.3d at 120 (“Arbitration clauses that assign gateway questions such as the
arbitrability of the dispute are an established feature of arbitration law.”) (citing
Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68–69 (2010)). The “unmistakable
clarity standard” serves the principle that “‘a party can be forced to arbitrate only
those issues it specifically has agreed to submit to arbitration’ and protects
unwilling parties from compelled arbitration of matters they reasonably expected a
judge, not an arbitrator, would decide.” Jody James Farms, 547 S.W.3d at 631
(quoting First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943 (1995)). To
determine whether an agreement provides “clear and unmistakable evidence” of
7
delegation, we consider “the specific language of the Arbitration Agreement.”
Burlington Res. Oil & Gas Co., LP v. San Juan Basin Royalty Trust, 249 S.W.3d
34, 41 (Tex. App.— Houston [1st Dist.] 2007, pet. denied) (citing Kaplan, 514
U.S. at 944).
Tejas Tubular contends Section 6(c) of the Arbitration Agreement
constitutes a clear and unmistakable expression of the parties’ intent to have the
arbitrator decide arbitrability. Section 6(c) states: “Any question as to the
arbitrability of any particular claim shall be arbitrated pursuant to the procedures
set forth in this Agreement.” Tejas Tubular argues that because the parties’
enforceable Arbitration Agreement clearly and unmistakably delegates arbitrability
to the arbitrator, the trial court was required to compel arbitration to permit the
arbitrator to decide this gateway arbitrability issue.
Palacios argues the delegation provision in Section 6(c) does not apply to his
claim because the terms of the Arbitration Agreement exclude his specific claim
from arbitration. He points to Section 6(b) of the Arbitration Agreement which
states “[t]his agreement does not apply to . . . Workers’ Compensation Benefits
under the Texas Workers’ Compensation Act or any other similar state or federal
law[.]” In support of his argument, Palacios relies on the Fifth Circuit’s decision
in Archer & White Sales Co., Inc. v. Henry Schein, Inc., 935 F.3d 274 (5th Cir.
2019).
8
In Archer, the plaintiff sued the defendants for alleged violations of federal
and Texas antitrust law and sought money damages and injunctive relief. See id. at
277. The parties’ contract included the following arbitration clause:
Disputes. This Agreement shall be governed by the laws of the State
of North Carolina. Any dispute arising under or related to this
Agreement (except for actions seeking injunctive relief and disputes
related to trademarks, trade secrets, or other intellectual property of
Pelton & Crane), shall be resolved by binding arbitration in
accordance with the arbitration rules of the American Arbitration
Association [ (AAA) ]. . . .”
Id. The defendants invoked the FAA and moved to compel arbitration. See id. at
278–79. The plaintiff opposed the motion, arguing its complaint sought injunctive
relief and the arbitration clause explicitly excluded actions seeking such relief from
arbitration. See id. at 278. After the magistrate judge granted the motion, the
district court vacated the order concluding the action fell within the arbitration
clause’s express exclusion of actions seeking injunctive relief. See id. Relying on
a then-established narrow exception, the Fifth Circuit affirmed, holding the
threshold arbitrability question should be decided by the district court. See id. The
United States Supreme Court vacated the lower court’s judgment, eliminated the
relied-upon exception, and remanded the case for the Fifth Circuit to determine
whether clear and unmistakable evidence existed of the parties’ intent to delegate
the issue of arbitrability to the arbitrator. See Henry Schein, Inc. v. Archer & White
Sales, Inc., 139 S. Ct. 524, 531 (2019).
9
The Court held that “[w]hen the parties’ contract delegates the arbitrability
question to an arbitrator, a court may not override the contract.” Id. at 529. “In
those circumstances, a court possesses no power to decide the arbitrability issue . .
. even if the court thinks that the [arbitrability claim] is wholly groundless.” Id.On remand, the Fifth Circuit noted that while it was undisputed the parties’
agreement incorporated the AAA rules delegating the threshold arbitrability
inquiry to the arbitrator for at least some category of cases, the parties disputed the
relationship of the carve-out clause—exempting actions seeking injunctive relief
from arbitration—and the incorporation of the AAA rules. See Archer, 935 F.3d at
280. The Fifth Circuit concluded
[T]he placement of the ‘carve-out’ here is dispositive. We cannot re-
write the words of the contract. The most natural reading of the
arbitration clause at issue here states that any dispute, except actions
seeking injunctive relief, shall be resolved in arbitration in accordance
with the AAA rules. The plain language incorporates the AAA
rules—and therefore delegates arbitrability—for all disputes except
those under the cave-out. Given that carve-out, we cannot say that the
Dealer Agreement evinces a “clear and unmistakable” intent to
delegate arbitrability.
Id. at 281–82 (emphasis in original).
Palacios argues that, just as in Archer, the terms of the Arbitration
Agreement exclude his negligence claim from arbitration, and thus the delegation
10
provision in Section 6(c) is inapplicable.2 Archer is inapposite. Unlike the case
before us, the agreement in Archer did not have an express delegation provision
but instead incorporated AAA rules granting the arbitrator the power to determine
his or her own jurisdiction, including questions related to the existence, scope, or
validity of an arbitration agreement and the arbitrability of any claim. See id. at
279–80. The Fifth Circuit concluded that “[t]he parties could have unambiguously
delegated [the arbitrability] question, but they did not, and we are not empowered
to re-write their agreement.” Id. at 282. Here, by contrast, the specific language of
the delegation provision and its placement under Section 6 of the Arbitration
Agreement, entitled “Scope of Agreement,” reflect the parties’ clear and
unmistakable intent that the arbitrator determine as a threshold matter the
“arbitrability of any particular claim.” See RSUI Indem. Co. v. The Lynd Co., 466
S.W.3d 113, 118 (Tex. 2015) (“No one phrase, sentence, or section [of a contract]
should be isolated from its setting and considered apart from the other
provisions.”) (quoting Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 134 (Tex.
1994)); Burlington Res. Oil & Gas, 249 S.W.3d at 41 (stating courts consider
2
Palacios argues his negligence claim for damages is a claim for “Worker’s
Compensation Benefits under the Texas Worker’s Compensation Act” excluded
from the scope of the Arbitration Agreement. Tejas Tubular disputes this
contention arguing Palacios’ claim is not a statutory claim, but rather a
common-law negligence claim subject to arbitration.
11
specific language of arbitration agreement in determining whether agreement
provides “clear and unmistakable evidence” of delegation).
We further note that Palacios’ contractual interpretation is not supported by
the express terms of the Arbitration Agreement. Holding the delegation provision
in Section 6(c) applies solely to Section 6(a), as Palacios suggests, would require
us to rewrite the parties’ agreement, which we cannot do. See Archer, 935 F.3d at
282. Section 6 of the Arbitration Agreement identifies two categories of claims:
(1) “Claims Covered by this Agreement,” under Section 6(a) and (2) “Claims Not
Covered by this Agreement,” under Section 6(b). In Section 6(b), the parties
expressly refer to the claims in Section 6(a) as the “Covered Claims.” The
delegation provision in Section 6(c), however, is not limited to “Covered Claims.”
Instead, it provides that “[a]ny question as to the arbitrability of any particular
claim shall be arbitrated pursuant to the procedures set forth in this Agreement.”
(Emphasis added). The parties thus agreed to a broad delegation clause and they
are bound by their agreement. See Jody James Farms, 547 S.W.3d at 631
(“Arbitration is a matter of contract, and that which the parties agree must be
arbitrated shall be arbitrated.”).
Because the parties clearly and unmistakably delegated questions about “the
arbitrability of any particular claim” to the arbitrator, the trial court abused its
12
discretion by removing that issue from the arbitrator and denying Tejas Tubular’s
motion to compel arbitration.
We sustain Tejas Tubular’s issue.3
Conclusion
We reverse the trial court’s order and remand the case to the trial court with
instructions that it compel the parties to arbitration.
Veronica Rivas-Molloy
Justice
Panel consists of Chief Justice Radack and Justices Rivas-Molloy and Guerra.
3
Given our disposition of this threshold issue, we do not address Tejas Tubular’s
argument that arbitration is mandated because Palacios’ claim falls within the
scope of the arbitration agreement.
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