the Sinclair Group, LTD., H. L. Sinclair and Whitney Fox v. Henri Haggblom

In The
Court of Appeals
Ninth District of Texas at Beaumont
___________________
NO. 09-17-00248-CV
___________________
THE SINCLAIR GROUP, LTD., H.L. SINCLAIR
AND WHITNEY FOX, Appellants
V.
HENRI HAGGBLOM, Appellee
__________________________________________________________________
On Appeal from the 284th District Court
Montgomery County, Texas
Trial Cause No. 17-04-04582-CV
__________________________________________________________________
OPINION
In this interlocutory appeal, The Sinclair Group, Limited, H.L. Sinclair and
Whitney Fox (collectively, Sinclair) appeal from an order denying their joint motion
to compel arbitration of their claims, which relate to their dispute with Henri
Haggblom, an individual who was employed as the manager of The Sinclair Group,
Limited (The Sinclair Group) and the Sinclair Group Texas, LLC (the LLC). See
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Tex. Civ. Prac. & Rem. Code Ann. § 171.098(a)(1) (West 2011) (authorizing
interlocutory appeals from rulings on applications to compel arbitration subject to
the Texas Arbitration Act). The claims Sinclair asked the trial court to refer to
arbitration concerned primarily whether the appraiser who was employed by the
parties to evaluate the fair market value of Haggblom’s membership interest in The
Sinclair Group followed the method of appraisal set out in the written agreements
that he had with The Sinclair Group and the LLC. The record reflects that the written
agreements relevant to Haggblom’s employment included arbitration provisions,
which required the parties to arbitrate “[a]ny and all disputes, controversies, or
claims arising out of or relating to this Agreement, including without limitation,
claims based on contract, tort, or statute[.]”
We hold the trial court erred by denying Sinclair’s motion to compel
arbitration regarding the parties’ dispute. Accordingly, we reverse the trial court’s
order and remand the cause to the trial court, with instructions ordering the parties
to resolve through arbitration their dispute over whether the appraiser followed the
method of appraisal that is required in the parties’ written agreements, which
specifically addressed the method to be used in valuing a limited partner’s
membership interest in The Sinclair Group.
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Background
Haggblom signed a “Company Agreement” when he began employment to be
one of two managers of the LLC, which is the general partner of The Sinclair Group.
The Company Agreement includes a provision restricting the rights of a member
owning an interest in The Sinclair Group from disposing of that interest through a
method other than the one that is provided under the Company Agreement. Under
the Company Agreement, The Sinclair Group had a five-year period from the date
Haggblom signed the agreement to purchase the interest of any member with an
ownership interest in The Sinclair Group who no longer worked there. The Company
Agreement included a provision containing a formula to be used to calculate the
value of a limited partner’s interest in The Sinclair Group. The Company Agreement
required that the parties select an “accredited Business Valuator” (appraiser), and
required the appraiser to then calculate the fair market value of the limited partner’s
interest in The Sinclair Group by using a specific formula that included criteria
allowing the appraiser to consider certain matters but preventing the appraiser from
considering others. The Company Agreement includes an arbitration provision,
which provides that the parties shall arbitrate “[a]ny and all disputes, controversies,
or claims arising out of or relating to this Agreement, including without limitation,
claims based on contract, tort, or statute[.]”
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Approximately eight months after signing the Company Agreement,
Haggblom signed an “Employment Agreement” with The Sinclair Group. Under the
Employment Agreement, Haggblom acquired a “5% Partnership Interest” in The
Sinclair Group. The Employment Agreement reflects that Haggblom was being
employed to manage the business of the LLC. The Employment Agreement also has
an arbitration provision that is identical to the one in the Company Agreement.
In 2015, Sinclair terminated Haggblom’s contracts. At that time, The Sinclair
Group exercised its right to purchase Haggblom’s partnership interest in The Sinclair
Group. The record that was before the trial court when it ruled on Sinclair’s motion
to compel arbitration shows that after Haggblom was terminated, the parties retained
a consulting firm to appraise “the fair market value” of Haggblom’s five percent
limited partnership interest in The Sinclair Group, as of December 31, 2015. In April
2016, the appraiser provided the parties with a draft of his appraisal on Haggblom’s
partnership interest in The Sinclair Group, which placed a fair market value on
Haggblom’s interest at an amount exceeding $1,000,000.
In June 2016, Sinclair sent the appraiser’s consulting firm a letter complaining
the appraiser had failed to follow “the agreements of Sinclair Group and Mr.
Haggblom relative to [valuing Haggblom’s interest].” Sinclair demanded that the
consulting firm “withdraw from this engagement without issuing any further draft
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reports or opinions or any final reports or opinions.” The record does not show that
the appraiser ever finalized his April 2016 draft report or issued a final report.
In April 2017, Haggblom sued Sinclair in Montgomery County, Texas,
seeking to recover a judgment against Sinclair based on the value of his interest as
determined by the appraiser in his April 2016 draft report. In the suit, Haggblom
asked the trial court to confirm the appraiser’s determination and render a judgment
against Sinclair based on the opinion regarding the value expressed by the appraiser.
Haggblom’s petition alleges the appraiser’s opinion regarding value was final
because the Company Agreement states that the appraiser’s determination “shall be
binding upon the parties.” Haggblom also asked the trial court to declare that
Sinclair’s complaints about the appraiser’s method was not arbitrable and that the
appraiser’s “award” was final.
In May 2017, when Sinclair responded to Haggblom’s suit, it filed a motion
to compel arbitration. Additionally, Sinclair asked the trial court to stay all judicial
proceedings, pending the arbitration of its claim alleging the appraiser had not
followed the method of appraisal required by the parties’ written agreements.
Sinclair’s motion to compel arbitration alleges that the appraiser the parties selected
to appraise the value of Haggblom’s partnership interest “failed to follow the
instructions contained in the controlling agreements.” According to Sinclair, its
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dispute regarding whether the appraiser followed the correct method when he
appraised Haggblom’s partnership interest is an arbitrable claim, given the broad
scope of the arbitration agreements in the Company Agreement and the Employment
Agreement.
In early June 2017, Haggblom filed his response to Sinclair’s motion to
compel arbitration. In his response, Haggblom argued that his written agreements
with Sinclair provide “for a separate, binding mechanism by which to determine the
value of [his] interest in the Sinclair Group[,]” and he suggested the “parties intended
and agreed to except the valuation process from arbitration.”
After conducting a non-evidentiary hearing on Sinclair’s motion, the trial
court took the case under advisement. Approximately one week later, the court
denied Sinclair’s motion. The trial court did not explain in the hearing or in its order
the basis for its ruling. Subsequently, Sinclair pursued an interlocutory appeal and
seeks an order to compel the parties to arbitrate their dispute.
Standard of Review
Under Texas law, a written agreement to arbitrate is valid and enforceable if
an arbitration agreement exists and the claims a party seeks to have arbitrated are
claims that fall within the scope of parties’ arbitration agreement. Tex. Civ. Prac. &
Rem. Code Ann. §§ 171.001, 171.021 (West 2011). “To determine whether a party’s
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claims fall within an arbitration agreement’s scope, we focus on the complaint’s
factual allegations rather than the legal causes of action asserted.” In re FirstMerit
Bank, N.A., 52 S.W.3d 749, 754 (Tex. 2001) (orig. proceeding). Because the public
policy of the State strongly favors arbitration, a court should not deny a request to
order the parties to arbitrate when a valid agreement to arbitrate exists unless the
arbitration clause is not susceptible to being interpreted in a manner that would
require the parties to arbitrate their dispute. See Williams Indus., Inc. v. Earth Dev.
Sys. Corp., 110 S.W.3d 131, 137 (Tex. App.—Houston [1st Dist.] 2003, no pet.)
(applying the Texas Arbitration Act).
A party seeking to compel arbitration must show that “(1) there is a valid
arbitration agreement and (2) the claims raised fall within that agreement’s scope.”
Granite Re Inc. v. Jay Mills Contr. Inc, No. 02-14-00357-CV, 2015 Tex. App.
LEXIS 4182, *7 (Tex. App.—Fort Worth 2015, no. pet.) (mem. op.) (citing In re
Kellogg, Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding));
see also Valero Energy Corp. v. Teco Pipeline Co., 2 S.W.3d 576, 581 (Tex. App.—
Houston [14th Dist.] 1999, no pet.); Tex. Civ. Prac. & Rem. Code Ann. § 171.001(a).
Once the party moving for arbitration establishes that a valid arbitration agreement
exists, the burden of showing that the dispute is one that is not arbitrable falls on the
party opposed to referring the matter to arbitration. Prudential Sec. Inc. v. Marshall,
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909 S.W.2d 896, 900 (Tex. 1995) (orig. proceeding) (applying the Federal
Arbitration Act); McReynolds v. Elston, 222 S.W.3d 731, 740 (Tex. App.—Houston
[14th Dist.] 2007, orig. proceeding) (applying the Texas Arbitration Act). To
determine whether the dispute at issue falls within the scope of arbitration, courts
are required to focus on the facts that are alleged in the pleadings, not the legal causes
of action that have been pleaded. McReynolds, 222 S.W.3d at 740. A strong
presumption exists favoring arbitration, so courts are required to resolve doubts
regarding arbitrability in favor of referring the dispute to arbitration. Ellis v.
Schlimmer, 337 S.W.3d 860, 862 (Tex. 2011) (per curiam).
When reviewing a trial court’s decision on a motion to compel arbitration, the
ruling is reviewed under a de novo standard. Lexington Ins. Co. v. Exxon Mobil
Corp., No. 09-16-00357-CV, 2017 Tex. App. LEXIS 3819, *11 (Tex. App.—
Beaumont 2017, no pet.) (mem. op.) (citing Tex. Petrochemicals LP v. ISP Water
Mgmt. Servs. LLC, 301 S.W.3d 879, 884 (Tex. App.—Beaumont 2009, no pet.));
McReynolds, 222 S.W.3d at 740.
Is Sinclair’s Claim Arbitrable?
In the trial court, Haggblom and Sinclair agreed the arbitration agreements
they signed were valid. Given the agreement that a valid arbitration agreement
existed, the trial court was required to resolve “any doubts as to the agreement’s
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scope, waiver, and other issues unrelated to [the arbitration agreement’s validity] in
favor of arbitration.” Ellis, 337 S.W.3d at 862. And, where the disputed matter falls
within the scope of the matters the parties agreed to arbitrate, a “‘court has no
discretion but to compel arbitration and stay its own proceedings.’” Forest Oil Corp.
v. McAllen, 268 S.W.3d 51, 56 (Tex. 2008) (quoting In re FirstMerit Bank, 52
S.W.3d at 753-54) (explaining the process that is required to resolve an appeal
involving a contract governed by the Texas Arbitration Act)).
With respect to the arbitration clauses in the written agreements before the
trial court in this case, both agreements required the parties to arbitrate “[a]ny and
all disputes, controversies, or claims arising out of or relating” to the Agreements.
Broad arbitration provisions, like the arbitration provisions before us in this appeal,
required the trial court to favor ordering the dispute, which concerns whether the
appraiser followed the appraisal method in the agreements, into arbitration. See
Dewey v. Wegner, 138 S.W.3d 591, 602-603 & n.20 (Tex. App.—Houston [14th
Dist.] 2004, orig. proceeding) (citing AutoNation USA Corp. v. Leroy, 105 S.W.3d
190, 196 (Tex. App.—Houston [14th Dist.] 2003, no pet.)); see also In re Jim Walter
Homes, Inc., 207 S.W.3d 888, 895 (Tex. App.—Houston [14th Dist.] 2006, orig.
proceeding).
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In Haggblom’s case, the heart of the parties’ dispute concerns whether the
appraiser complied with the appraisal method established in the parties’ written
agreements. The written agreements specify the criteria the parties expected the
appraiser to use in appraising the value of a partner’s interest, and both Haggblom
and Sinclair, as a matter of contract law, had the right to expect the appraiser to
comply with the method the parties outlined in their agreements. Given the broad
language in the arbitration agreements, the dispute falls clearly within the scope of
the disputes the parties chose to arbitrate.
In his brief, Haggblom suggests the appraiser’s opinion was final and that it
could not be attacked for the reason Sinclair suggests. To support this argument,
Haggblom relies on a provision in the appraisal provision that states the appraiser’s
“determination of the [fair market value] . . . shall be binding upon the parties.”
While the term “binding” indicates the parties intended the process to be one that
could not be broken, that same expectation exists whenever a party enters into a legal
agreement. While the parties to contracts generally always intend their agreements
to be binding, such agreements may prove not to be binding on the parties for
numerous reasons, including when one of the parties breaches a term that is material
to the agreement.
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In this case, the “binding” nature of the appraisal process presumed that the
appraiser would follow the appraisal method imposed on the appraisal process by
the parties’ written agreements. And, this is the matter in dispute, since Sinclair
alleges that the appraiser failed to comply with the method established by the parties
in their written agreements. Importantly, the language the parties chose to use in
their arbitration agreements also contains no language that expressly excludes this
type of dispute from the express requirement that all disputes be arbitrated.
“Generally, if the facts alleged in a claim ‘touch matters’ that are covered by,
have a ‘significant relationship’ to, are ‘inextricably enmeshed’ with, or are
‘factually intertwined’ with the contract that contains the arbitration agreement, the
claims are arbitrable.” Tex. Petrochemicals LP, 301 S.W.3d at 885 (citing In re Bath
Junkie, 246 S.W.3d 356, 366 (Tex. App.—Beaumont 2008, orig. proceeding)).
While some tension exists between the “shall be binding” language that is in the
appraisal provision and the “any and all disputes” language found in the arbitration
agreements, Texas law requires that we resolve all doubts about whether a dispute
is arbitrable in favor of requiring the parties to arbitrate their dispute. See Ellis, 337
S.W.3d at 862.
Given the scope of the arbitration agreement, whether the appraiser followed
the method called for by the parties’ written agreements is a dispute that must be
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decided in arbitration. Depending on the arbitrator’s resolution of that dispute,
Sinclair might ask the arbitrator to require an appraisal that employs the method of
appraisal found in the parties’ written agreements. Should Haggblom prevail, he
might ask the arbitrator to accept the draft report. Regardless of the arbitrator’s
resolution of that dispute, the parties’ claims are arbitrable in light of the broad and
inclusive language that Sinclair and Haggblom used in the arbitration provisions
they chose to include in both their Employment and Company Agreements.
Conclusion
We conclude the trial court erred when it denied Sinclair’s motion to compel
arbitration. See Hoskins v. Hoskins, 497 S.W.3d 490, 494 (Tex. 2016) (noting that
Texas law favors arbitration); G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458
S.W.3d 502, 521 (Tex. 2015) (noting that both Texas and federal law recognize a
strong presumption favoring the arbitration of disputes). Considering the broad
scope of the language in the parties’ arbitration agreements, we conclude that the
dispute over whether the appraiser failed to follow the appraisal method established
by the parties in their written agreements is an arbitrable issue.
We reverse the trial court’s order denying Sinclair’s motion to compel
arbitration, and we remand the cause to the trial court with instructions to render an
order compelling Sinclair and Haggblom to arbitration to resolve their dispute about
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whether the appraiser failed to follow the appraisal method that the parties created
under their written agreements.
REVERSED AND REMANDED.
_________________________
HOLLIS HORTON
Justice
Submitted on December 20, 2017
Opinion Delivered April 12, 2018
Before Kreger, Horton and Johnson, JJ.
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