Gbenga Funmilayo v. Velandera Energy Partners LLC and Manish Raj ( 2023 )

AFFIRMED and Opinion Filed March 13, 2023
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-21-01015-CV
GBENGA FUNMILAYO, Appellant
V.
VELANDERA ENERGY PARTNERS LLC AND MANISH RAJ, Appellees
On Appeal from the 401st Judicial District Court
Collin County, Texas
Trial Court Cause No. 401-05307-2021
MEMORANDUM OPINION
Before Justices Molberg, Partida-Kipness, and Carlyle
Opinion by Justice Molberg
Appellant Gbenga Funmilayo appeals the trial court’s judgment confirming
an arbitration award for appellees Velandera Energy Partners LLC and Manish
Raj. Funmilayo presents five issues for our review in which he argues the trial
court erred by not vacating the arbitration award because the arbitrator exceeded
her powers by deciding issues he argues were previously determined in his favor.
We reject Funmilayo’s argument for reasons explained below, and we affirm the
trial court in this memorandum opinion. See TEX. R. APP. P. 47.4.
Background
This case concerns a dispute about the ownership of and authority to operate
Velandera Energy Partners LLC.1 Velandera adopted its operating agreement on
February 1, 2018. Under the agreement, the “business and affairs of the Company
are managed by its Managers, who are appointed and removed by the Members.”
According to the agreement, Manish Raj was the sole member, and Funmilayo was
appointed initial Manager. Among other things, the operating agreement provided:
If any controversy or claim, whether based on contract, tort, statute, or
other legal or equitable theory (including any claim of fraud,
misrepresentation, or fraudulent inducement), arising out of or related
to the corporate contract between and among the Company, its
Members, Mangers, employees, or agents, the parties agree to resolve
the Dispute as provided in [Article 14 of the agreement].
....
If not resolved by mediation, the parties shall resolve the Dispute by
arbitration pursuant to [Article 14] and the then-current rules and
supervision of the American Arbitration Association. . . . The
arbitrator’s decision and award are final and binding and may be
entered in any court having jurisdiction. The arbitrator does not have
the power to award, and no one subject to this Article may seek, an
award of, punitive, exemplary, or consequential damages, or any
damages excluded by or in excess of any damage limitations
expressed in this Agreement or any subsequent agreement between
the parties. To prevent irreparable harm, the arbitrator may grant
temporary or permanent injunctive or other equitable relief.
Issues of arbitrability are determined in accordance with the Federal
substantive and procedural laws relating to arbitration. All other
aspects of the Agreement are interpreted in accordance with, and the
arbitrator applies and is bound to follow, the substantive laws of the
State of Texas.
1
We limit our discussion of the facts of this case to those necessary to resolve the appeal.
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On June 15, 2018, Velandera and Funmilayo entered into an employment
agreement, which was to be valid for ten years, subject to termination by
Velandera for various reasons enumerated in the agreement. Raj made Schanti
Corporation a Velandera member on July 12, 2018.
On July 19, 2018, Velandera’s members—Raj and Schanti—resolved that
Funmilayo was removed as manager, though the “employment agreement with
[Funmilayo] remain[ed] unaffected by” his removal as manager, provided he was
“relieved of any duties of a Manager . . . .” The next day, Raj notified Funmilayo
that, “Manager and Members of Velandera Energy Partners have decided to
terminate your employment” due to “failure to perform duties in compliance with
the employment agreement.”
Velandera sued Funmilayo, alleging breach of fiduciary duty and seeking
declaratory and injunctive relief. The case was submitted to arbitration at
Funmilayo’s request. In its second amended complaint filed with the arbitrator,
Velandera alleged Raj was its sole member and held a 100 percent interest.
Velandera alleged, following a transaction in Louisiana, Funmilayo “acted
unilaterally and without authorization to issue a ‘Members’ Resolution’” stating,
among other things, that Raj’s membership interest was invalid, Raj’s and
Schanti’s membership interests were voided, and two other individuals were
elected and admitted as company members; and that Funmilayo issued an
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“unauthorized resolution” naming himself as manager of the “allegedly
reconstituted” company. Velandera alleged that, because Funmilayo failed to act
according to the operating agreement, Raj and Schanti voted to remove him as
manager on July 19, 2018, and served him with a letter terminating his position as
manager, and the next day served him with a letter terminating his employment
agreement. Despite this, Velandera alleged Funmilayo continued to hold himself
out as manager and member of the company. In addition to its breach of fiduciary
duty claims, Velandera added claims for business disparagement and tortious
interference with a contract. Velandera also sought declaratory relief, requesting
declarations that, among other things, Raj and Schanti were the sole members of
Velandera; Funmilayo no longer had the right to act as manager for Velandera and
was never a member of Velandera; and the employment agreement between
Velandera and Funmilayo was terminated in accordance with the terms of the
agreement and Velandera owed nothing to Funmilayo as a result of the
termination.
Funmilayo filed an amended answer and counterclaims on November 9,
2018. He alleged, among other things, that following his “purported removal” as
manager and the invalid termination of his employment contract, he informed Raj
he would continue to perform his duties for Velandera. Funmilayo alleged Raj
prevented him from acting in any capacity on behalf of the company. Among
others, Funmilayo sought a declaration that any actions taken by Raj and Schanti
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on behalf of Velandera as members or managers of the company were null and
void and that Funmilayo be recognized as manager and a member of Velandera
under the operating agreement. Funmilayo alleged breach of contract, arguing that
valid contractual relationships existed between himself and Velandera, and that
Velandera, Raj, and Schanti violated the terms of the employment agreement by,
among other things, “wrongfully terminating [his] employment without cause” and
failing to “pay all money owed to Funmilayo under the Employment Agreement.”
Funmilayo also alleged breach of fiduciary duty, quantum meruit, money had and
received, and promissory estoppel, and he sought injunctive relief.
Regarding his breach of contract claim, Funmilayo argued in post-hearing
briefing to the arbitrator that, under the terms of the employment agreement, “only
the Company could terminate Funmilayo’s employment”—Raj could not because
he “had no interest in [Velandera and] he lacked the required vote to . . . terminate
[Funmilayo’s] employment.” Funmilayo further argued his termination was
invalid because “Raj failed to follow the procedures prescribed in the Operating
Agreement as they relate to Members rights to receive notice of meetings.”
Funmilayo also argued that, to the extent Raj could terminate Funmilayo, any
termination breached his employment agreement because Velandera presented no
evidence that Funmilayo failed to perform under the agreement or committed any
fraud or willful misconduct. On his money had and received claim, Funmilayo
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argued, among other things, that Velandera failed to provide the salary owed to
Funmilayo under his employment agreement.
On January 7, 2019, the arbitrator awarded declaratory relief as follows:
“Manish Raj and Schanti Corp. are the sole members of Velandera Energy Partners
LLC”; “Gbenga Funmilayo is not and never was a member of Velandera”;
“Funmilayo no longer has the right to act as a manager of Velandera, effective July
19, 2018 at 4:30 p.m.”; “Actions taken by Funmilayo in the purported capacity of
member or manager of Velandera on or after July l9, 2018, are invalid”; “Actions
taken by Funmilayo to admit members to Velandera without the participation of
Manish Raj and Schanti Corp., including the admission of Akintunde Ademola and
Olukemi Funmilayo, are invalid”; and, “The ‘Contract Agreement between
Velandera Energy Partners LLC and Gbenga Funmilayo of Velandera
Petrophysical Consulting, LLC’ is invalid and unenforceable.” The arbitrator also
awarded injunctive relief, which included enjoining Funmilayo from acting as a
manager for Velandera and communicating with particular entities regarding
Velandera’s accounts. The arbitrator denied “[a]ll other claims submitted by
Funmilayo” and all claims not expressly granted by the award.
On Velandera’s motion, the trial court confirmed the arbitration award on
January 18, 2019, and entered a judgment nunc pro tunc on August 2, 2019, to
correct the date on the original judgment.
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On March 16, 2021, Funmilayo filed new claims with a second arbitrator.
He alleged “post-judgment breach of contract,” arguing he had maintained his
employment at Velandera because the first arbitrator denied Velandera’s request
for a declaration that the employment agreement between Velandera and
Funmilayo was terminated in accordance with the terms of the agreement and
Velandera owed nothing to Funmilayo as a result of the termination. Funmilayo
asserted Velandera “refused to allow [him] to continue to function as its Chief
Executive Officer, post-First Arbitration and post-Judgment which confirmed the
First Arbitration Award[,]” and refused to pay his salary and benefits. Funmilayo
also alleged tortious interference with a contract.
In its motion for summary judgment in response, Velandera contended,
among other things, that res judicata precluded Funmilayo’s new claims. It argued
the first arbitration denied Funmilayo’s breach of employment agreement claim,
and that the new claims were based on the same premise as the original breach
claim.
The arbitrator granted Velandera’s motion for summary judgment, finding
that Funmilayo’s claims were barred by res judicata and the operating agreement;
Velandera terminated the employment agreement in accordance with its terms and
declaratory relief was not necessary; if Funmilayo could assert a breach of contract
claim, no breach occurred; and Funmilayo’s tortious interference with contract
claim was invalid or barred.
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On September 21, 2021, Funmilayo filed a petition to vacate the second
arbitration award, making the argument that he presents now on appeal. Velandera
and Raj filed a motion to confirm the award. The trial court denied the petition to
vacate. On November 10, 2021, the trial court confirmed the arbitrator’s
September 13, 2021 award in all respects. This appeal followed.
Discussion
Funmilayo argues the trial court erred by confirming the second arbitration
award because the arbitrator exceeded her powers by deciding a claim against him
that, he argues, the first arbitrator decided in his favor. Funmilayo argues this went
beyond the second arbitrator’s powers because the operating agreement provided
that the first “arbitrator’s decision and award [were] final and binding[.]”2 He also
argues the decision went beyond the second arbitrator’s powers because—
according to the agreement—the arbitration was governed by the American
Arbitration Association’s rules of arbitration, under which the arbitrator was “not
empowered to redetermine the merits of any claim already decided.”3 Velandera
2
Funmilayo’s five issues on appeal are stated in his brief as follows: whether the first arbitrator
retained Funmilayo’s employment with Velandera; whether Funmilayo can seek remedy for breach of
contract after the first arbitration; whether Velandera and Raj relitigated the issue of the alleged
termination of the employment agreement; whether the second arbitrator exceeded her powers when she
granted Velandera and Raj’s motion for summary judgment; and whether any part of the second
arbitration is valid, and whether the trial court should have ordered a rehearing.
3
According to the record before us, commercial arbitration rule R-50, “Modification of Award,”
states, “Within 20 calendar days after the transmittal of an award, any party, upon notice to the other
parties, may request the arbitrator, through the AAA, to correct any clerical, typographical, or
computational errors in the award. The arbitrator is not empowered to redetermine the merits of any claim
already decided. The other parties shall be given 10 calendar days to respond to the request. The arbitrator
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and Raj argue, among other things, that the question of whether Funmilayo’s
employment agreement was terminated was actually litigated in the first
arbitration. They argue that the second arbitrator, in rejecting Funmilayo’s
subsequent claims relating to breach of the employment agreement based on,
among other things, res judicata, did not re-decide any matters decided in the first
arbitration and therefore did not exceed her powers. Thus, Velandera and Raj
argue, there was no statutory basis to vacate the arbitration award. We agree.
We review a trial court’s decision to confirm an arbitration award de novo,
and we review the entire record. Graham-Rutledge & Co., Inc. v. Nadia Corp.,
281 S.W.3d 683, 687 (Tex. App.—Dallas 2009, no pet.). All reasonable
presumptions are indulged to uphold an arbitrator’s decision. Ancor Holdings,
LLC v. Peterson, Goldman & Villani, Inc., 294 S.W.3d 818, 826 (Tex. App.—
Dallas 2009, no pet.). Given that “arbitration is designed as an efficient, less-
costly alternative to judicial litigation[,]” our “review of an arbitration award is
extraordinarily narrow and we vacate an arbitration award only in very unusual
circumstances.” Stage Stores, Inc. v. Gunnerson, 477 S.W.3d 848, 854 (Tex.
App.—Houston [1st Dist.] 2015, no pet.). An arbitration award has the same effect
as a judgment of a court of last resort; it is presumed valid and entitled to great
shall dispose of the request within 20 calendar days after transmittal by the AAA to the arbitrator of the
request and any response thereto.”
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deference. Cambridge Legacy Group, Inc. v. Jain, 407 S.W.3d 443, 447 (Tex.
App.—Dallas 2013, pet. denied).
Unless grounds are offered for vacating, modifying, or correcting an award
under sections 171.088 or 171.091 of the civil practice and remedies code, the
court, on application of a party, shall confirm the award. TEX. CIV. PRAC. & REM.
CODE § 171.087. On application of a party, the court shall vacate an award if,
among other things, an arbitrator exceeds her powers. Id. § 171.088(a)(3)(A).
Arbitrators derive their “power from the parties’ agreement to submit to
arbitration, and because the law favors arbitration, and arbitration agreements are
often quite broad, judicial review of an arbitration award is usually very narrow.”
City of Pasadena v. Smith, 292 S.W.3d 14, 20 (Tex. 2009).
Res judicata
Under the doctrine of res judicata, if the defendant wins a suit, “the plaintiff
is barred from bringing another action on claims actually litigated and also on
claims that could have been litigated in the original cause of action.” Jeanes v.
Henderson, 688 S.W.2d 100, 103 (Tex. 1985). Res judicata applies when there is
(1) a prior final judgment on the merits by a court of competent jurisdiction; (2)
identity of parties or those in privity with them; and (3) a second action based on
the same claims that were raised or could have been raised in the first action.
Citizens Ins. Co. of Am. v. Daccach, 217 S.W.3d 430, 449 (Tex. 2007). It is based
on policies reflecting the need to “bring all litigation to an end, prevent vexatious
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litigation, maintain stability of court decisions, promote judicial economy, and
prevent double recovery.” Barr v. Resolution Tr. Corp. ex rel. Sunbelt Fed. Sav.,
837 S.W.2d 627, 629 (Tex. 1992). Arbitration awards have preclusive effect for
res judicata purposes. Premium Plastics Supply, Inc. v. Howell, 537 S.W.3d 201,
204 (Tex. App.—Houston [1st Dist.] 2017, no pet.).
“Texas follows a transactional approach to determine whether res judicata
applies.” TRO-X, L.P. v. Eagle Oil & Gas Co., 608 S.W.3d 1, 11 (Tex. App.—
Dallas 2018), aff’d, 619 S.W.3d 699 (Tex. 2021). Under this approach, a
subsequent suit is barred if it arises out of the same subject matter as the prior suit,
and that subject matter could have been litigated in the prior suit. Citizens, 217
S.W.3d at 449. In determining what constitutes the same subject matter, we
examine “the factual basis of the claim or claims in the prior litigation[,]”
analyzing “the factual matters that make up the gist of the complaint, without
regard to the form of action.” Barr, 837 S.W.2d at 630.
Analysis
We begin with the factual basis of Funmilayo’s claims in the first arbitration.
Relating to his employment agreement, Funmilayo alleged its termination was not
valid, and that he communicated to Raj that he would continue to perform his
duties. He alleged Raj prevented him from performing any of those duties for
Velandera. Under his breach of contract cause of action, Funmilayo alleged
Velandera and Raj violated the terms of the employment agreement “by
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wrongfully terminating [his] employment” without cause, and failed to pay the
money owed him under the employment agreement. Under his money had and
received cause of action, Funmilayo alleged that Velandera and Raj “purportedly
terminated Funmilayo’s employment but such termination [was] invalid,” but that,
valid or not, Velandera wrongfully withheld his wages under the agreement.
In the second arbitration, Funmilayo again alleged breach of the employment
agreement, alleging Velandera “refused to allow [him] to continue to function as
its Chief Executive Officer” and refused to pay his salary under the agreement.
The underlying factual premises—that Funmilayo’s employment agreement
was never terminated, that any termination was wrongful, that Raj was preventing
him for performing his duties under the agreement, and that he was owed money
under the agreement—were therefore the same in each arbitration. See TRO-X,
L.P., 608 S.W.3d at 13 (considering whether the “underlying factual premises” in
the first suit “differ[ed] from the factual premises underlying the claims” in
subsequent suit in determining whether res judicata applied). The first arbitrator
rejected these claims when it denied “[a]ll other claims submitted by Funmilayo[,]”
including his breach of contract and money had and received causes of action.
Therefore, we conclude res judicata applied to Funmilayo’s claims in the second
arbitration because (1) the first arbitration award, confirmed by the trial court, was
a prior final judgment on the merits by a court of competent jurisdiction; (2) the
parties were the same in each arbitration; and (3) Funmilayo’s second arbitration
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claims were based on the same claims raised in the first arbitration or on claims
that could have been raised. See Citizens, 217 S.W.3d at 449. Accordingly, we
conclude the second arbitrator did not redetermine any matters decided in the first
arbitration and therefore did not exceed her powers under the arbitration
agreement.
In reaching this conclusion, we necessarily reject Funmilayo’s contention
that the trial court, by failing to grant Velandera and Raj’s request for declaratory
relief regarding Funmilayo’s termination under the employment agreement,
somehow “retain[ed] his employment” with Velandera. Funmilayo cites no
authority supporting this proposition. Whatever effect the denial of declaratory
relief may have, see Martin v. Martin, Martin & Richards, Inc., 989 S.W.2d 357,
359 (Tex. 1998) (deciding that a judgment dismissing “a claim for a declaration
that a contract is valid does not amount to a declaration that the contract is
invalid,” and observing that the Restatement suggests that a judgment denying
“declaratory relief without determining the matters presented” “should not
preclude subsequent claims or issues”), that effect cannot be what Funmilayo
argues it is here, given that the trial court, as discussed above, also denied
Funmilayo’s claims relating to breach of the employment agreement.
Funmilayo argues his breach of contract claim was denied because the first
arbitrator must have found the agreement was never terminated, which he argues
explains the denial of Velandera and Raj’s requested declaratory relief; in other
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words, he argues his breach of contract claim was premised on the agreement’s
termination. We cannot agree. As detailed above, Funmilayo argued the
employment agreement was breached not just because he was “wrongfully
terminat[ed,]” but also because Velandera had failed to pay him money owed
under the agreement. He made the same claim under his money had and received
cause of action. These claims applied whether or not Funmilayo had been actually
terminated, and they were denied by the first arbitrator.
Funmilayo relies on Barsness v. Scott, 126 S.W.3d 232 (Tex. App.—San
Antonio 2003, pet. denied), a case about whether an arbitration panel exceeded its
powers by modifying its original award when none of the statutory requirements
were present. The arbitrators made an original award, which stated “neither party
is the prevailing party” and “full relief has not been granted under this arbitration
award to either party.” Id. at 240. It contained no award for damages or attorney’s
fees, and stated that relief not granted was “expressly denied.” Id. Scott filed a
motion to modify the award, and in response, the arbitrators issued a modified
award declaring Scott the prevailing party and awarding him nominal damages and
attorney’s fees. Id. The court of appeals concluded the modified order granted
Scott relief he had been denied in the original award, and it could not be justified
as a clarification or modification under civil practice and remedy code
sections 171.054(a) or 171.091(a). Id. at 240–41. We do not think Barsness has
any application here, where Funmilayo submitted subsequent claims to a second
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arbitrator, who in turn denied the claims based on, among other things, res judicata.
There is no question presented in this case about clarification or modification of
the first arbitration award under section 171.054.
Funmilayo also cites Genecov Group, Inc. v. Roosth Prod. Co., 144 S.W.3d
546, 550 (Tex. App.—Tyler 2003, pet. denied), where Genecov filed suit seeking
declaratory judgment that various oil and gas leases were valid and that it was the
lawful operator of a particular gas unit, as opposed to Roosth, which was the entity
listed as operator of record with the railroad commission. The parties agreed to
submit the question of the validity of the leases to arbitration, but the “issue of who
would be the lawful operator [of the unit] was not submitted to the arbitrators.” Id.
at 548. The arbitrators determined the leases were valid, and the trial court entered
final judgment confirming the arbitration award. Id. at 549–50. Genecov later
filed a second suit seeking a declaration that it was the lawful operator of the same
gas unit referred to above, as well as other relief. Id. at 500. The trial court
entered summary judgment for Roosth, finding that Genecov’s claims were barred
under res judicata by the final judgment in the first case. Id. On appeal, Genecov
argued, among other things, that the second suit was outside the ambit of res
judicata because it was an attempt to enforce the arbitration order and the
implications of the prior judgment. Id. at 552. The court of appeals observed that,
in the first suit, “the fact of who should be the operator was not determined.” Id.
The court concluded that Genecov was seeking the same relief it sought in the first
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suit, and therefore, its claims related to the operator issue “fit squarely within the
ambit of res judicata.” Id. “[T]he same facts which led Genecov to seek a
determination of who the unit operator was in [the first suit] existed” in the second
suit. Id. at 553. We find Genecov unhelpful. Here, Funmilayo brought claims in
the second arbitration, not Velandera or Raj, after the same factual premises were
actually before and determined by the first arbitrator. Thus, to the extent Genecov
is analogous, we find Funmilayo to be in the position of Genecov, not the
defendant in that case.
Given the above, we conclude the trial court did not err by confirming the
second arbitration award because Funmilayo proved no statutory grounds for the
award to be vacated. We overrule Funmilayo’s first four issues. In his fifth issue,
Funmilayo raises a question about whether, assuming we agree with his arguments
above, any portion of the arbitration award is salvageable. But because we rejected
Funmilayo’s primary arguments, we need not reach this final issue because its
resolution is not necessary to the final disposition of the appeal. See TEX. R. APP.
P. 47.1.
Conclusion
The judgment of the trial court is affirmed.
/Ken Molberg/
KEN MOLBERG
JUSTICE
211015F.P05
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S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
GBENGA FUNMILAYO, Appellant On Appeal from the 401st Judicial
District Court, Collin County, Texas
No. 05-21-01015-CV V. Trial Court Cause No. 401-05307-
2021.
VELANDERA ENERGY Opinion delivered by Justice Molberg.
PARTNERS LLC AND MANISH Justices Partida-Kipness and Carlyle
RAJ, Appellees participating.
In accordance with this Court’s opinion of this date, the judgment of the trial
court is AFFIRMED.
It is ORDERED that appellees VELANDERA ENERGY PARTNERS LLC
AND MANISH RAJ recover their costs of this appeal from appellant GBENGA
FUNMILAYO.
Judgment entered this 13th day of March 2023.
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