in Re: Fulton Performance Products, Inc.

Opinion issued April 25, 2002

In The

Court of Appeals

For The

First District of Texas  

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NO. 01-01-00606-CV

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IN RE FULTON PERFORMANCE PRODUCTS, INC., Relator

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Original Proceeding on Petition for Writ of Mandamus

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O P I N I O N  

By petition for writ of mandamus, relator, Fulton Performance Products, Inc. (Fulton), challenges the trial court's April 5, 2001 order denying, in part, Fulton's motion to compel arbitration between Fulton and real party in interest, Penske Truck Leasing Company, L.L.P. (Penske).

We deny Fulton's petition for writ of mandamus.

Factual and Procedural Background

Penske rents tow dollies to its customers for them to use when towing automobiles. Some of Penske's tow dollies contained a component part known as a "Model 308 Fulton coupler," which was sold to Penske through Fulton's distributor, Dethmers Manufacturing Company (Demco). ⁽¹⁾  

In February 1997, Penske and Fulton reached a confidential settlement agreement regarding certain claims brought against Penske by its customers and third parties for losses allegedly resulting from the decoupling of tow dollies secured by Fulton couplers. As part of this agreement, Fulton provided replacement couplers and agreed to reimburse Penske for the amounts paid by Penske on claims related to the "original" couplers, totaling $135,527.98. In exchange, in a section of the settlement agreement entitled "Limited Release," Penske agreed to

[R]elease and forever discharge Fulton . . . from all claims, demands, causes of action or other rights [Penske] may have against Fulton on account of damages, costs, fees, and other expenses [Penske] may have incurred in settling the claims. This release is not intended to be a release by Penske . . . of any demands [it] may have against Fulton on account of personal injury or property damage arising out of use of an Original Coupler, other than for those Claims for which Penske has obtained a release.

In a section of the settlement agreement entitled "Indemnity," Penske also agreed to

[D]efend, indemnify and hold harmless Fulton . . . from any claim brought against Fulton . . . by Claimants arising out of Claims for which Penske has obtained a release; provided, however, that in the event a claim is brought against Fulton . . . and Fulton . . . ha[s] not been released in any document executed by that Claimant, this indemnity shall be limited to the amount Penske has been reimbursed by Fulton in exchange for that Claimant's release (it being agreed that Exhibit 1 hereto sets forth the reimbursement amount for each Claim).

The arbitration clause at issue is contained in paragraph seven of the settlement agreement and specifies that "[a]ll disputes, controversies or differences which may arise between the parties, out of, in relation to or in connection with this Agreement or for the breach thereof, which cannot be settled by the parties themselves, shall be settled by final and binding arbitration," and that "the Federal Arbitration Act shall govern the interpretation and enforcement of this paragraph 7."  

Attached to the settlement agreement as "Exhibit 1" is a list of the claims settled by Penske related to the couplers. The specific claim at issue here totaled $9,837.51 and consisted of payments to "Houston Police Dept." and "Investigative Intl." The parties agree that these payments represent the property damage claims arising from a September 27, 1994 accident involving Gary McDaniel, a former Houston Police Officer. ⁽²⁾ Next to the entry on "Exhibit 1" for the McDaniel property damage claims is a typed notation which reads, "*BI claim still open, reserve our right for reimbursement when paid." ⁽³⁾  

In December 1996, Penske had been sued by McDaniel in connection with an accident involving a Fulton coupler. In his first amended original petition, McDaniel had named Penske as a defendant, alleging negligence and product liability claims and seeking recovery of personal injury damages. In July 1998, after the underlying February 1997 settlement agreement was reached, Penske filed a third-party petition naming Fulton as a third-party defendant in the McDaniel case. Penske and other defendants, not including Fulton, subsequently settled the McDaniel lawsuit. As part of that settlement, Penske released Fulton from Penske's third-party claims.

Fulton sent a demand for arbitration to Penske in September 2000, seeking recovery of its attorney's fees and expenses incurred in the defense of the McDaniel personal injury claims, as well as recovery of the $9,837.51 Fulton had paid in settlement of the McDaniel property damage claim under the February 1997 settlement agreement. The parties agree that, at some point during the McDaniel litigation, it was discovered the coupler at issue in that lawsuit was not an "original" coupler, but a "replacement" coupler. ⁽⁴⁾  

Penske then filed a separate declaratory judgment action seeking a ruling from the trial court that the arbitration provision of the parties' settlement agreement did not apply to Fulton's claims for reimbursement of its attorney's fees and expenses incurred in the McDaniel personal injury lawsuit. In response, Fulton filed a motion to stay the declaratory judgment action and to compel arbitration under the arbitration clause of the parties' settlement agreement.  

In its April 5, 2001 order, the trial court granted Fulton's motion to compel arbitration on its claim for reimbursement of the amount Fulton paid Penske under the settlement agreement for McDaniel's property damage claim. Neither party challenges this ruling. The trial court denied Fulton's motion to compel arbitration regarding its claim for reimbursement of its attorney's and expenses incurred in the McDaniel personal injury lawsuit. It is this interlocutory ruling which Fulton challenges.

Order Denying Arbitration

In its sole issue, Fulton argues the trial court erred in denying its motion to compel arbitration on Fulton's claim for reimbursement of its attorney's fees and expenses incurred as a third-party defendant in the McDaniel personal injury lawsuit.

As noted above, the parties' February 1997 settlement agreement contains an arbitration clause which provides that its interpretation and enforcement shall be governed by the Federal Arbitration Act (FAA). Thus, assuming Fulton's claims fall within the scope of the parties' arbitration agreement, the FAA applies.  

Standard of Review

Mandamus is the proper means for reviewing an order denying arbitration under the FAA. Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943, 945 (Tex. 1996); Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992). Mandamus will issue only to correct a clear abuse of discretion or violation of a duty imposed by law when that abuse cannot be remedied by appeal. Anglin, 842 S.W.2d at 271. A trial court abuses its discretion when it fails to analyze or apply the law correctly. Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992).  

Federal and state law strongly favor arbitration. Cantella, 924 S.W.2d at 944. A presumption exists in favor of agreements to arbitrate under the FAA. Prudential Sec., Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995). Courts must resolve any doubts about an agreement to arbitrate in favor of arbitration. Cantella, 924 S.W.2d at 944; Marshall, 909 S.W.2d at 899. Once a party seeking to compel arbitration establishes that an agreement exists under the FAA and that the claims raised are within the scope of the agreement, a trial court has no discretion but to compel arbitration and stay its proceedings pending arbitration. Cantella, 924 S.W.2d at 944 (citing Shearson Lehman Bros., Inc. v. Kilgore, 871 S.W.2d 925, 928 (Tex. App.--Corpus Christi 1994, orig. proceeding)).

However, the strong federal policy of resolving doubts in favor of arbitration cannot serve to stretch a contractual clause beyond the scope intended by the parties or allow modification of the plain and unambiguous provisions of an agreement. Belmont Constructors., Inc. v. Lyondell Petrochemical Co., 896 S.W.2d 352, 356 (Tex. App.--Houston [1st Dist.] 1995, no writ). While courts may enforce arbitration agreements, a court may not order arbitration in the absence of such an agreement. Freis v. Canales, 877 S.W.2d 283, 284 (Tex. 1994); Hou-Scape, Inc. v. Lloyd, 945 S.W.2d 202, 205 (Tex. App.--Houston [1st Dist.] 1997, orig. proceeding) ("A party cannot be required to arbitrate unless it has agreed to do so.").

Arbitration is a creature of contract, and a clause requiring arbitration will be interpreted under contract principles. Belmont Constructors, 896 S.W.2d at 357. A party seeking to compel arbitration must establish its right to that remedy under the contract. Id. Contractual language will be enforced according to its plain meaning, unless such a reading would defeat the intention of the parties. Lyons v. Montgomery, Inc., 701 S.W.2d 641, 643 (Tex. 1985). The parties' agreement and intent to submit to arbitration must be unambiguous. Porter & Clements, L.L.P. v. Stone, 935 S.W.2d 217, 220 (Tex. App.--Houston [1st Dist.] 1997, orig. proceeding). Construction of an unambiguous contract is a question of law. See MCI Telecomms. Corp. v. Texas Utils. Elec. Co., 995 S.W.2d 647, 650-51 (Tex. 1999).

Scope of Arbitration Agreement

The arbitration clause in the settlement agreement is a "broad form" clause. ⁽⁵⁾ Fulton contends that, because the parties agreed to a broad form arbitration clause, Penske is required to present "the most forceful evidence of purpose" to exclude Fulton's claim from the scope of the arbitration clause. See Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W.2d 225, 230 (Tex. App.--Houston [14th Dist.] 1993, writ denied) ("In such instances, absent any express provision excluding a particular grievance from arbitration, only the most forceful evidence of purpose to exclude the claim from arbitration can prevail.").

Penske argues that, although the property damage portion of McDaniel's claim was mistakenly included in the February 1997 settlement agreement and is thus within the scope of the agreement's arbitration clause, McDaniel's personal injury claim was specifically excluded from that agreement by the notation on Exhibit 1 which reads, "*BI claim still open, reserve our right for reimbursement when paid." Penske also relies on the language in the section of the settlement agreement entitled "Limited Release" which reads, in relevant part, "This release is not intended to be a release by Penske . . . of any demands [it] may have against Fulton on account of personal injury or property damage arising out of use of an Original Coupler, other than for those Claims for which Penske has obtained a release." (Emphasis added.) Penske contends the language of the settlement agreement expressly excludes McDaniel's personal injury claim from the scope of the settlement agreement and the arbitration clause.

We agree. Exhibit 1 to the parties' settlement agreement made it clear that McDaniel's personal injury claim had not been settled and was not a claim "for which Penske ha[d] obtained a release." Thus, whether it was related to an accident involving an original coupler, as initially erroneously believed, or a replacement coupler, McDaniel's personal injury claim was expressly excluded from the terms of the settlement agreement, and therefore not within the scope of the agreement's arbitration clause.

As noted by the court in Babcock, and by this Court in Belmont Constructors, the strong federal policy for resolving doubts in favor of arbitration cannot serve to stretch a contractual clause beyond the scope intended by the parties. Babcock, 863 S.W.2d at 230; Belmont Constructors, 896 S.W.2d at 356. We must enforce the language in the parties' settlement agreement according to its plain meaning. Lyons, 701 S.W.2d at 643.

We hold the trial court did not err in denying Fulton's motion to compel arbitration as to its claim for reimbursement of attorney's fees and expenses incurred in the McDaniel personal injury lawsuit. We overrule Fulton's sole issue.

Conclusion

We deny Fulton's petition for writ of mandamus.

   Terry Jennings

Justice

Panel consists of Justices Mirabal, Hedges, and Jennings.

Do not publish. Tex. R. App. P. 47.  

1. Demco is not a party to this proceeding.

2.

McDaniel is now deceased.

3.

The parties agree that "BI" stands for "bodily injury".

4.

Penske concedes the McDaniel property damage claim was mistakenly included in the parties' settlement agreement and contends it has offered to reimburse Fulton the monies it paid Penske for this claim, but Fulton has refused the offer.

5.

See, e.g., Belmont Constructors, 896 S.W.2d at 358 n.2 (citing Beckham v. William Bayley Co., 655 F. Supp. 288, 290 (N.D. Tex. 1987)).