in Re Guggenheim Corporate Funding, LLC, Orpheus Holdings LLC, Stellar Funding Ltd., and Orpheus Funding LLC , 2012 Tex. App. LEXIS 7712 ( 2012 )

Petition for Writ of Mandamus Conditionally Granted and Opinion filed September
11, 2012.
In The
Fourteenth Court of Appeals
___________________
NO. 14-12-00329-CV
___________________
IN RE GUGGENHEIM CORPORATE FUNDING, LLC, ORPHEUS HOLDINGS
LLC, STELLAR FUNDING LTD., and ORPHEUS FUNDING LLC, Relators
ORIGINAL PROCEEDING
WRIT OF MANDAMUS
234th District Court
Harris County, Texas
Trial Court Cause No. 2011-36283
OPINION
Relators, Guggenheim Corporation Funding, LLC, Orpheus Holdings LLC, Stellar
Funding Ltd., and Orpheus Funding LLC (referred to collectively as Guggenheim unless
otherwise stated), filed a petition for writ of mandamus in this court. See Tex. Gov’t Code
§22.221; see also Tex. R. App. P. 52. In the petition, Guggenheim asks this court to compel
the Honorable Reece Rondon, presiding judge of the 234th District Court of Harris County,
to vacate his order signed March 19, 2012, denying Guggenheim’s motion to enforce jury
waiver agreements, and direct him to grant the motion. At issue in this proceeding is the
scope of the jury waiver agreements. We conditionally grant the writ.
BACKGROUND OF THE UNDERLYING DISPUTE
The real party-in-interest, Valerus Compression Services, LP (Valerus), sued
Guggenheim to obtain rescission of 2009 amendments to three warrants1 issued in 2006 in
connection with a $165 million loan. Valerus asserts that the 2009 amendments were
procured by mistake and/or fraud. The loan, referred to as a credit facility, was arranged by
Guggenheim, who served as the administrative agent for the lenders. The terms of the
credit facility are set out in a Credit Agreement between Valerus, Guggenheim, and various
lenders dated August 10, 2006. In connection with the Credit Agreement, Valerus (1)
agreed to pay certain fees to Guggenheim as set out in a Fee Letter, and (2) issued a warrant
to Guggenheim for the purchase of units of Valerus’s partnership interest. The Original
Warrant agreement assigned Guggenheim the right to obtain an equity interest in Valerus
by purchasing 954,292 Class B units for $.01 per unit at any time before August 10, 2011.
The parties agree that the mutual intent in the Original Warrant was to: (1) grant to
Guggenheim the right to purchase partnership units representing 3.5% of Valerus’s equity
as of August 10, 2006, the date of the warrant’s issuance; and (2) grant limited, customary
anti-dilution protection for non-cash share transactions, although Guggenheim’s 3.5%
would be diluted if Valerus sold new equity after the issuance of the warrant.
In 2007, Valerus paid off the loan under the Credit Agreement. Even though the
loan was repaid, the rights and obligations under the unexercised Original Warrant
remained. In 2008, the Original Warrant was canceled at Guggenheim’s request and
reissued as three separate warrants, dividing the option to purchase shares of Valerus
among the three Guggenheim affiliates named as relators in this proceeding. The 2008
warrants are referred to by the parties as the Interim Warrants.
In February of 2009, in connection with a proposed new financing agreement that
was ultimately not consummated, Valerus and Guggenheim began negotiations about
1
Valerus describes a warrant as a derivative security that gives the holder the right to purchase
securities from the issuer at a specific price within a certain time frame.
2
amending the Interim Warrants. During these negotiations, Valerus was represented by its
former general counsel, Dawn Born Cunningham, as well as by capable outside counsel,
King & Spalding. According to Valerus, these negotiations included discussions about
purported ambiguities in the anti-dilution language of the Original Warrant that had been
carried forward in the Interim Warrants.
To facilitate this anticipated refinancing, Valerus issued three amended warrants in
April of 2009, referred to as the Amended Warrants, which gave Guggenheim’s affiliates
the right to acquire 3.5% of Valerus’s outstanding equity “calculated at the time of
exercise”—not, as with the previous warrants, a fixed number of shares representing 3.5%
of Valerus’s equity as of August 10, 2006. (emphasis supplied). As with the previous
warrants, the Amended Warrants provided that they could be exercised on or before
August 10, 2011.
Valerus subsequently entered into a recapitalization agreement with TPG Capital,
L.P. This transaction diluted the ownership percentage of Valerus’s existing limited
partners through the issuance of over 100,000,000 new shares to TPG. As a result of the
recapitalization transaction, Valerus states that its existing limited partners’ ownership in
the company decreased from 100% to 18.10%. Because Guggenheim was entitled under
the Amended Warrants to receive 3.5% of the outstanding units at the time of exercise, the
TPG transaction substantially increased the number of units Guggenheim had the right to
acquire upon exercise of the warrants by August 2011.
Valerus contends that when it realized the Amended Warrants had actually changed
the parties’ intent with respect to the number of shares Guggenheim would be entitled to
purchase upon exercise of the Amended Warrants, it engaged in a series of discussions
with Guggenheim in an attempt to resolve the dispute. Guggenheim ultimately refused to
rescind the Amended Warrants. Valerus claims that Guggenheim’s Managing Director,
Tim Murray, acknowledged that Guggenheim had taken windfall from Valerus, referring
3
to the Amended Warrants as “pennies from heaven,” and stating that it was like
Guggenheim “won the lottery.”
Valerus then filed suit and demanded a jury, claiming it was deceived when it
agreed to the Amended Warrants. Valerus asserts that its general counsel had not been
involved in the original transaction and was unfamiliar with the negotiations surrounding
the Original Warrant. She was also in the midst of recovery from cancer surgery and
undergoing extensive testing during the time that Valerus and Guggenheim negotiated the
issuance of the Amended Warrants. According to Valerus, Guggenheim took advantage of
its counsel’s unfamiliarity with the transaction and her preoccupation with her serious
medical condition and induced Cunningham to agree to material modifications of the
warrants. Valerus concedes, however, that its Chief Financial Officer told Cunningham in
2009 that he understood the original anti-dilution provision to provide that Guggenheim’s
3.5% interest was intended to be calculated at the time the Original Warrant was exercised.
Valerus asserts that he was mistaken; either he did not remember correctly or he did not
understand the transaction. Valerus asserts that Guggenheim’s counsel knowingly
misrepresented that the Amended Warrants embodied the intent of the Original Warrant.
Accordingly, Valerus seeks rescission of the Amended Warrants.
In July of 2011, Valerus sought a temporary injunction to prevent exercise of the
Amended Warrants. After a hearing, the trial court denied the application and allowed
Guggenheim to exercise the Amended Warrants. Guggenheim then moved to strike
Valerus’s jury demand, the trial court denied its request after a hearing, and Guggenheim
filed this proceeding.
4
THE JURY WAIVERS
There are two jury waivers at issue in this proceeding. First, the original Credit
Agreement executed in 2006 contains a conspicuous jury waiver. 2 See In re General
Electric, 203 S.W.3d 314, 316 (Tex. 2006) (per curiam) (finding a jury waiver was
conspicuous where it was set apart from the rest of the text and printed in bold with all
capital letters). The Credit Agreement’s jury waiver applies to “any legal action or
proceeding relating to this agreement or any other Loan Document . . . .” Loan Documents
are broadly defined in the agreement to include, in addition to the credit agreement, notes,
security documents, and fee letter, “each other agreement or document executed by a Loan
Party and delivered to the Administrative Agent or any Lender.” 3 The definition also
expressly includes any amendments to the documents.
The Fee Letter, which was executed at the same time as the Original Warrant and
incorporated it by reference, also contains a conspicuous jury waiver. See In re 24R, Inc.,
324 S.W.3d 564, 567 (Tex. 2010) (stating that documents incorporated into a contract by
reference become part of that contract). The Fee Letter’s irrevocable jury waiver applies to
any action “arising out of or relating to this Fee Letter or the transactions contemplated
hereby or the actions of the parties hereto in the negotiation, performance or enforcement
hereof.” Any uncertainty about whether the Original Warrant is included in the broad
2
Section 10.15 of the Credit Agreement is entitled “WAIVERS OF JURY TRIAL” and states as
follows:
10.15 WAIVERS OF JURY TRIAL. THE BORROWER [Valerus], THE
ADMINISTRATIVE AGENT [Guggenheim], AND THE LENDERS HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
3
“Loan Documents” are defined in the agreement as:
“Loan Documents”: this Agreement, the Security Documents, the Notes, the Fee Letter
dated the date hereof between the Borrower and the Administrative Agent, each other
agreement or document executed by a Loan Party and delivered to the Administrative
Agent or any Lender in connection with or pursuant to any of the foregoing, and any
amendment, restatement, extension, waiver or modification of any of the foregoing.
5
definition of Loan Documents as an “other agreement” is clarified in the Fee Letter, which
expressly states that the Original Warrant is a Loan Document.
MANDAMUS STANDARD
Mandamus is an extraordinary remedy that will issue only if (1) the trial court
clearly abused its discretion and (2) the party requesting mandamus relief has no adequate
remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex. 2004).
A trial court has no discretion in determining what the law is or applying the law to the
facts. Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992).
A party seeking relief from the refusal to enforce a valid contractual jury waiver has
no adequate remedy at law and is entitled to mandamus relief to correct a clear abuse of
discretion by the trial court. Prudential, 148 S.W.3d at 135-40; see also In re Frank Motor
Co., 361 S.W.3d 628, 632 (Tex. 2012) (granting mandamus to enforce jury waiver in
employment contract); In re Key Equip. Fin., Inc., 371 S.W.3d 296, 303 (Tex.
App.—Houston [1st Dist.] 2012, orig. proceeding) (granting mandamus to enforce jury
waiver in commercial lease).
THE ISSUES
Guggenheim raises two issues in its petition, asserting that the trial court clearly
abused its discretion in (1) refusing to enforce two conspicuous, irrevocable and broad jury
waiver provisions contained in separate agreements by erroneously concluding that
Valerus’s claims are outside their scope; and (2) failing to give the expansive phrases
“arising out of” and “relating to” in the jury waiver provisions their proper meaning.
Guggenheim argues that the relevant loan documents contain two conspicuous jury
waiver provisions. The waivers are “irrevocable,” extremely broad, and apply to all matters
“relating to” “any” Loan Document. Any uncertainty about whether the Original Warrant
is included in the broad definition of Loan Documents as an “other agreement” is clarified
in the Fee Letter, which expressly states that the Original Warrant is a Loan Document. The
6
jury waivers apply to any amendments or modifications of “any” Loan Document. In
addition, because Valerus relies on the intent behind the Original Warrant in alleging its
fraud claims, Guggenheim asserts that this suit is related to the Original Warrant and within
the scope of the jury waivers in the 2006 financing documents.
Valerus does not argue that the jury waivers are unenforceable; instead, Valerus
disputes that its lawsuit is covered by either waiver. Valerus contends that its suit is based
on the execution of the Amended Warrants, which are new agreements, not “Loan
Documents” covered by the 2006 agreements and subject to the jury waiver provisions
therein. Valerus asserts that its fraud claims are not within the scope of the 2006 jury
waiver provisions because it did not knowingly and voluntarily waive its right to a jury trial
for the subsequent fraud in the issuance of the Amended Warrants.
Therefore, to determine whether the trial court abused its discretion in refusing to
enforce the jury waiver agreements, we must determine whether this dispute falls within
the scope of the jury waiver provisions. See generally In re Lisa Laser USA, Inc., 310
S.W.3d 880, 884 (Tex. 2010) (orig. proceeding) (per curiam) (granting mandamus to
enforce contractual forum selection clause where clause was within the scope of the claims
at issue because they arose out of the contract). In resolving this question, we will address
Guggenheim’s issues together.
DISCUSSION AND ANALYSIS
A party may agree to waive its constitutional right to a jury trial. In re Prudential
Ins. Co. of Am., 148 S.W.3d 124, 132 (Tex. 2004). A contractual jury waiver does not
violate public policy and is enforceable as long as the waiver is voluntary, knowing, and
made with full awareness of the legal consequences. Id.
In Bank of America, the Texas Supreme Court held that Prudential does not impose
a presumption against jury waivers, and therefore, the burden is not placed on the party
seeking enforcement to prove that the opposing party knowingly and voluntarily agreed to
7
waive its constitutional right to a jury trial. In re Bank of Am., N.A., 278 S.W.3d 342, 343
(Tex. 2009).4 The court recited two bases for its ruling. First, a presumption against a jury
waiver would incorrectly place the initial burden on the party seeking to enforce the
waiver. Id. A conspicuous waiver is prima facie evidence that the party knowingly and
voluntarily waived its constitutional right to a jury trial. In re General Elec. Capital Corp.,
203 S.W.3d 314, 316 (Tex. 2006) (per curiam). Second, a presumption against a jury
waiver would create an “unnecessary distinction” between arbitration and jury waiver
clauses, when the court has expressed that Texas “jurisprudence should be the same for all
similar dispute resolution agreements.” Bank of Am., 278 S.W.3d at 343-44 (citing
Prudential, 148 S.W.3d at 134) (holding that the court of appeals’ analysis erred by
distinguishing jury waivers from arbitration clauses).
An allegation of fraud in the execution of the waiver provision itself may shift the
burden to prove the jury waiver was executed knowingly and voluntarily. Bank of Am., 278
S.W.3d at 345. The Texas Supreme Court rejected the argument that a jury waiver should
not be enforced when it is part of an agreement that is alleged to have been fraudulently
induced, however. See Prudential, 148 S.W.3d at 134. In Prudential, the court noted that
the party opposing the contractual jury waiver provision did not “claim that they were
tricked into agreeing” to the waiver, although they did claim that they were fraudulently
induced to execute the contract when the enforcing party concealed facts that would have
dissolved the entire contract. Id.
Any provision relating to the resolution of future disputes, included as part of
a larger agreement, would rarely be enforced if the provision could be
avoided by a general allegation of fraud directed at the entire agreement. The
purpose of such provisions—to control resolution of future disputes—would
4
Valerus cites a 2008 decision from this court refusing to enforce a contractual jury waiver against
a non-signatory, stating that jury waivers “are strictly construed and will not be lightly inferred or
extended.” See In re Credit Suisse First Boston Mortg. Capital, L.L.C., 257 S.W.3d 486, 490 (Tex.
App.—Houston [14th Dist.] 2008, pet. denied). The Texas Supreme Court has since made it clear that jury
waivers are not disfavored and they should be enforced just as other dispute resolution agreements. Bank of
Am., 278 S.W.3d at 344.
8
be almost entirely defeated if the assertion of fraud common to such disputes
were enough to bar enforcement. The United States Supreme Court has
explained that arbitration and forum-selection clauses should be enforced,
even if they are part of an agreement alleged to have been fraudulently
induced, as long as the specific clauses were not themselves the product of
fraud or coercion. . . . [T]he rule should be the same for all similar dispute
resolution agreements.
Id. at 134-35 (citations omitted).
Valerus contends that the Texas Supreme Court has addressed only the
enforceability of jury waivers, and the court’s pronouncements do not affect Valerus’s
contention that the scope of a jury waiver should be narrowly construed. We disagree.
Other dispute resolution clauses are not construed narrowly, and the court has explained
that jury waivers are no more restrictive of a party’s rights than these other clauses. For
example, the Texas Supreme Court recognized that “[a]rbitration removes the case from
the court system almost altogether, and is every bit as much of a surrender of the right to a
jury trial as a contractual jury waiver.” See In re Frank Kent Motor Co., 361 S.W.3d 628,
632 (Tex. 2012) (orig. proceeding) (applying arbitration decisions and rejecting claim that
employee’s coercion to sign a jury waiver in employment contract invalidated the waiver);
see also Prudential, 148 S.W.3d at 132 (observing that party who agrees to arbitrate waives
both right to jury trial and right to appeal).5 This court has similarly recognized that a jury
waiver is actually less restrictive that an arbitration clause. See In re Wells Fargo Bank
Min., N.A., 115 S.W.3d 600, 607 (Tex. App.—Houston [14th Dist.] 2003, orig.
proceeding). “Although parties agreeing to arbitrate waive considerably more than just the
right to a jury trial, arbitration is strongly favored under Texas law.” Id. In deciding a
then-issue of first impression, we compelled enforcement of a contractual jury waiver in
loan documents, finding no adequate remedy by appeal for the loss of relator’s
5
An agreement to arbitrate is in effect a specialized kind of forum section clause. See In re AIU Ins.
Co., 148 S.W.3d 109, 115 n.28 (Tex. 2004) (applying arbitration case in rejecting claim that forum
selection was waived).
9
bargained-for right to a “less costly and more expeditious resolution than a jury trial.” Id. at
611.
A forum selection clause also typically has a far more devastating impact on a
plaintiff than a jury waiver clause by causing a plaintiff to litigate out-of-state and lose
certain Texas procedural safeguards. Yet, enforcement of forum selection clauses is
“mandatory” unless the opposing party clearly shows that enforcement would be
unreasonable or unjust, or that the clause is invalid for reasons such as fraud or
overreaching. In re Auto. Collection Tech., Inc., 156 S.W.3d 557, 558 (Tex. 2004).
Based on these authorities, we conclude that both the enforcement and scope of jury
waivers should be determined in the same manner as other dispute resolution agreements,
and we will look to decisions addressing those agreements in deciding whether the jury
waivers apply in this case. Our sister court has already held that in light of the strong public
policy favoring freedom of contract, contractual jury waivers deserve no more scrutiny
than agreements to waive the judicial forum entirely and arbitrate any future dispute. In re
Key Equip. Fin., Inc.,371 S.W.3d at 301; see also Nafta Traders, Inc. v. Quinn, 339 S.W.3d
84, 95 (Tex. 2011) (“As a fundamental matter, Texas law recognizes and protects a broad
freedom of contract.”). In Key, the First Court of Appeals granted mandamus relief to
enforce a contractual jury waiver in a commercial lease, even though the waiver was not
conspicuous, holding that the relator established the waiver was voluntarily executed. Key,
371 S.W.3d at 303.
We reject Valerus’s contention that the trial court’s determination of the scope of
the jury waivers actually encompasses the resolution of a factual dispute. A trial court’s
determination of an arbitration agreement’s validity is a legal question subject to de novo
review. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Similarly, a
determination of the scope of an unambiguous arbitration clause is a matter of contract
interpretation and a question of law for the trial court. See Osornia v. AmeriMex Motor &
Controls, Inc., 367 S.W.3d 707, 710-11 (Tex. App.–Houston [14th Dist.] 2012, no pet.);
10
McReynolds v. Elston, 222 S.W.3d 731, 740 (Tex. App.—Houston [14th Dist.] 2007, no
pet.) (reviewing scope of a contract’s arbitration clause under de novo standard).
Therefore, a determination of the scope of the jury waiver in this case is a question of law.
Arbitration agreements are interpreted under traditional contract principles. Jenkens
& Gilchrist v. Riggs, 87 S.W.3d 198, 201 (Tex. App.—Dallas 2002, no pet.). Contract
terms will be given their plain, ordinary, and generally accepted meaning, unless the
instrument shows the parties used them in a technical or different sense. Dynegy
Midstream Servs. L.P. v. Apache Corp., 294 S.W.3d 164, 168 (Tex. 2009).
In construing a written contract, the primary concern of the court is to ascertain the
true intentions of the parties as expressed in the instrument. J.M. Davidson, 128 S.W.3d at
229. In the arbitration context, we must give effect to the parties’ intent, whether enforcing
an agreement to arbitrate or construing an arbitration clause. Nafta Traders, 339 S.W.3d at
90. To determine whether a party’s claims fall within the scope of an arbitration agreement,
we focus on the factual allegations, rather than the legal causes of action, asserted in the
petition. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 754 (Tex. 2001). Following
arbitration jurisprudence, we apply a common-sense examination of the underlying claim
and the forum-selection clause to determine if the claim comes within the scope of the
clause. In re Lisa Laser USA, Inc., 310 S.W.3d 880, 884 (Tex. 2010) (orig. proceeding)
(per curiam). The Texas Supreme Court has determined that a party may not attempt to
avoid an arbitration or forum selection clause through artful pleading. See In re Int’l Profit
Assocs. I, 274 S.W.3d 672, 677 (Tex. 2009) (orig. proceeding) (citing In re Weekley
Homes, L.P., 180 S.W.3d 127, 131–32 (Tex.2005) (construing scope of arbitration clause).
Guggenheim first argues that any claims that relate to the Original Warrant fall
within the scope of the jury waiver in the Credit Agreement. Guggenheim argues that
because the waiver contains the broad language that the parties “waive trial by jury in any
legal action or proceeding relating to this agreement or any other loan document,”
including “any amendment” or “modification” of such a document, any dispute concerning
11
the 2009 Amended Warrants is covered. (emphasis supplied). Guggenheim also points out
that the Fee Letter states that the Original Warrant is a Loan Document. The parties agree
that the Credit Agreement and the Fee Letter should be construed together. See In re Laibe
Corp., 307 S.W.3d 314, 317 (Tex. 2010). Therefore, Guggenheim asserts that the jury
waiver applies to claims related to the Amended Warrants. We agree.
Courts interpret the phrases “relates to,” “relating to,” and “arising out of or relating
to” broadly in forum selection clauses. See, e.g., also Diamond Offshore (Bermuda), Ltd. v.
Haaksman, 355 S.W.3d 842, 848 (Tex. App.—Houston [14th Dist.] 2011, pet. denied)
(enforcing “relating to” forum selection clause and holding that such clauses are broadly
construed); RSR Corp. v. Siegmund, 309 S.W.3d 686, 701 (Tex. App.—Dallas 2010, no
pet.) (enforcing forum selection clause applying to “arising out of or relating to” the
agreement); Deep Water Slender Wells, Ltd. v. Shell Int’l Exploration & Prod., Inc., 234
S.W.3d 679, 688-92 (Tex. App.—Houston [14th Dist.] 2007, pet. denied) (affirming
dismissal of tort claims under “arising out of or relating to” forum selection clause that
extended to claims related to subsequent contract).
Arbitration agreements containing phrases such as “relating to” are also interpreted
broadly. See, e.g., In re Bank One, N.A., 216 S.W.3d 825. 826-27 (Tex. 2007) (resolving
doubt as to scope of arbitration agreement covering disputes “arising from or relating in
any way to this Agreement” in favor of coverage); 950 Corbindale, L.P. v. Kotts Capital
Holdings Ltd. P’ship, 316 S.W.3d 191, 196-97 (Tex. App.—Houston [14th Dist.] 2010, no
pet.) (holding that broad arbitration provision defining “disputes” as “any dispute under or
related to the partnership agreement or any document executed pursuant to the partnership
agreement or any of the transactions contemplated by the partnership agreement shall be
subject to arbitration” applied to all claims); TMI Inc. v. Brooks, 225 S.W.3d 783, 791 n.7
(Tex. App.—Houston [14th Dist.] 2007, orig. proceeding) (holding that phrase “arising out
of and/or related to” in arbitration agreement is “broad form in nature, evidencing the
parties’ intent to be inclusive rather than exclusive”).
12
A jury waiver provision containing similar “related to” language has also been
construed broadly. See In re Frost Nat. Bank, N.A., 324 S.W.3d 320, 321 (Tex.
App.—Dallas 2010, orig. proceeding). The Dallas Court of Appeals was faced with a jury
waiver provision in a loan document that applied to claims that “arise out of, are connected
to or are related to” the agreement or its subject matter. Id. The trial court refused to
enforce the jury waiver, and the Dallas Court of Appeals granted the defendant’s petition
for writ of mandamus requiring its enforcement. Id. The court applied the “related to”
provision broadly, holding that the jury waiver applied to the “subject matter” of the
agreement, which included the underlying loans. Id. In reaching its decision, the court
reasoned that jury waiver provisions are another type of forum selection clause. Id.
Valerus asserts that Guggenheim had repeatedly argued in the injunction hearing
that the 2009 Amended Warrants are a “stand alone” new transaction, separate and apart
from the 2006 transactions. Valerus argues that principles of equitable estoppel should
prevent Guggenheim from now taking an inconsistent position that the jury waiver
provisions in the earlier 2006 agreements apply to this 2009 “stand alone” new agreement.
See In re Dep’t of Family & Protective Servs., 273 S.W.3d 637, 646 (Tex. 2009) (party
estopped from taking position clearly adverse to position it unequivocally took at trial).
Guggenheim responds that there is no contradiction between its position that the
2009 Amended Warrants reflect a different bargain, made under different economic
circumstances, that stands apart from the one reached in 2006, and Guggenheim’s position
that Valerus’s claims in the underlying suit relate to the Original Warrant and are covered
by the jury waivers. Guggenheim’s position is not a “deliberate, clear, and unequivocal”
statement clearly adverse to its prior arguments. See Tittizer v. Union Gas Corp., 171
S.W.3d 857, 862 (Tex. 2005).
Moreover, we note that the Amended Warrants expressly state the following:
“Pursuant to a Credit Agreement, dated as of August 10, 2006, . . . and for value received,
this Warrant is hereby issued by the Company to the Holder.” (emphasis supplied). Thus,
13
even though the 2009 Amended Warrants may have been the result of new negotiations,
they were issued “pursuant to” the 2006 loan and are subject to the jury waivers relating to
that loan.
Valerus’s factual allegations confirm that this dispute falls within the scope of the
jury waivers. Although Valerus asserts that its claims concern the Amended Warrants, a
review of its pleadings reveals that its claims also relate to the intent of the parties in
executing the Original Warrant. In its Second Amended Petition, Valerus alleges that the
Amended Warrants materially changed the Interim Warrants, rather than the Original
Warrant as it had first claimed. This “artful pleading” does not change the fact that the
Interim Warrants were simply a re-issue of the Original Warrant dividing the option right
among three Guggenheim affiliates. The heart of Valerus’s claim is that it was deceived or
mistaken about the negotiations, intent, and terms of the Original Warrant, and that it
mistakenly believed that the Amended Warrant was simply a “ministerial” act
“clarifying”—rather than substantively changing—the intent of the Original Warrant as
reflected in the Interim Warrants. For example, Valerus alleged:
There is no current dispute between the parties that their intent had been that
the Original Warrant grant to Guggenheim shares representing 3.5% of
Valerus on the date the Original Warrant was issued, not at the time the
warrant was later exercised. The parties also intended that the Original
Warrant include provisions granting limited, customary anti-dilution for
non-cash share transactions; however, they also agreed that if Valerus sold
new equity after the issuance of the warrant to Guggenheim, then
Guggenheim’s 3.5% would be diluted.
* * *
While it is now undisputed that the mutual intent had been to grant 3.5% of
the company as of August 2006 with no dilution protection for issuances of
shares to equity investors, that is not what Ms. Cunningham was told in
2009.
* * *
14
With only her CFO’s mistaken understanding of the parties’ mutual intent
and the ambiguous wording of the Interim Warrants, Ms. Cunningham
reached out to the Guggenheim lawyer who had been involved in the 2006
negotiations to confirm and clarify the parties’ original intent with respect to
the calculation of the number of shares to be issued and the antidilution
protection.
* * *
When she gave her erroneous understanding that the 3.5% was to be
calculated at the time of exercise, the Guggenheim lawyer did not correct
her. Instead, knowing that he was taking advantage of an organization that
was completely mistaken about the rights and obligations under the Interim
Warrants, the Guggenheim lawyer actually encouraged Ms. Cunningham in
her erroneous belief.
We apply a common sense examination of the underlying claims and the dispute
resolution clause to determine if the claim comes within the scope of the clause. See Lisa
Laser, 310 S.W.3d at 884. Given that Valerus’s lawsuit relates to its alleged
misunderstanding regarding the intent of the Original Warrant and Interim Warrants at the
time it negotiated the Amended Warrants, we reject Valerus’s contention that its claims
relate only to the Amended Warrants and not to the Original Warrant. The rights and
obligations under the Amended Warrant have their genesis in the Original Warrant as part
of the 2006 loan transaction. Because Valerus’s claims relate to the Original Warrant, they
are subject to the jury waivers.
Finally, regardless of whether the jury waivers are construed broadly or strictly,
they apply here because their scope is neither ambiguous nor doubtful. Rather, this dispute
falls within the plain language of the jury waivers because it directly “relate[s] to” an
“amendment” or “modification” to the Original Warrant, which the Fee Letter expressly
defines as a “Loan Document.” More specifically, we conclude that a common sense
reading of both jury waivers demonstrates that they apply to the underlying suit because:
The jury waiver provision in the Credit Agreement applies to any dispute
“RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT.”
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The definition of “Loan Documents” in the Credit Agreement includes
“other documents.”
The definition of “Loan Documents” in the Credit Agreement also includes
“any amendment, restatement, extension, waiver or modification of any of
the foregoing.”
The Interim Warrants and Amended Warrants “modified” or “amended” the
Original Warrant. Therefore, all of the warrants are “Loan Documents”
subject to the jury waiver.
The Amended Warrants also state that they are issued “pursuant to the Credit
Agreement.” Valerus’s claims challenging the Amended Warrants thus
relate to the original Credit Agreement and its jury waiver.
In addition, the Fee Letter is a Loan Document.
The Fee Letter memorialized the consideration for Guggenheim’s role in
Valerus’s 2006 financing transaction.
The jury waiver in the Fee Letter applies to any action “arising out of or
relating to” it or “the transactions contemplated” or actions in the
“negotiation, performance or enforcement” of the Fee Letter.
The Fee Letter incorporates the Original Warrant by reference and states the
Original Warrant is a Loan Document. The Original Warrant is therefore part
of the Fee Letter and is a Loan Document.
Modifications and Amendments of the Loan Documents were contemplated
in the 2006 transaction.
The Amended Warrants modified the Original Warrant, which is
incorporated in and part of the Fee Letter. Therefore, the Amended Warrants
are related to the Fee Letter.
Claims seeking rescission of the Amended Warrants thus also arise out of
and are related to the Fee Letter and its jury waiver.
For these reasons, the jury waiver provisions apply to Valerus’s claims challenging
the Amended Warrants. Therefore, we conclude that the trial court abused its discretion in
refusing to enforce the jury waiver agreements in this case, and sustain Guggenheim’s
issues.
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CONCLUSION
We hold that the jury waiver provisions in the 2006 Credit Agreement and Fee
Letter apply to the underlying suit. Therefore, we conditionally grant Guggenheim’s
petition for writ of mandamus and direct the respondent to enforce the parties’ jury waiver
agreements. The writ issue only if the respondent fails to do so.
PER CURIAM
Panel consists of Chief Justice Hedges and Justices Brown and Busby.
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