Baker Huges Inteq v. Lotus, L.L.C.

                                                            COURT OF APPEALS

                                                    EIGHTH DISTRICT OF TEXAS

                                                               EL PASO, TEXAS

BAKER HUGHES INTEQ,                                  )

                                                                              )               No.  08-02-00079-CV

Appellant,                          )

                                                                              )                    Appeal from the

v.                                                                           )

                                                                              )     109th District Court

LOTUS, L.L.C.,                                                    )

                                                                              )     of Andrews County, Texas

Appellee.                           )

                                                                              )                    (TC# 15,749)

                                                                              )

O P I N I O N

This is an interlocutory appeal by Appellant Baker Hughes Inteq, which seeks to compel arbitration against Appellee Lotus, L.L.C.  Appellant brings three issues:  (1) An arbitration agreement existed between Appellant and Appellee; (2) the arbitration agreement need not have been signed by both the Appellee and its attorney; and (3) Appellant did not waive its right to compel arbitration by signing a subsequent agreement. We affirm.

SUMMARY OF THE EVIDENCE

Dan Snow, the Vice-President of Operations for Appellee, called Appellant to obtain an estimate for drilling a horizontal well in Andrews County.  Appellant submitted a cost estimate, which contained an arbitration clause.  The estimate was never signed, and as denoted on the estimate, Appellee objected to parts of the estimate with the result that verbal changes were made to the proposal subsequently.  Appellee verbally authorized Appellant to drill the well, and Appellant submitted to Appellee an invoice containing an arbitration clause afterwards, which noted on top that it contained an arbitration clause.  Appellee=s employee, Jim Akin, initialed the invoice.  Appellee made no objections to the arbitration clauses in either the estimate or the invoice. 

After the well was dug, Appellee discovered wrong coordinates had been used.  In a letter written by Appellee=s attorney and signed by both parties, Appellant and Appellee agreed that they would settle the ancillary expenses for $195,000 and Appellant would dig a new well with the correct coordinates.  The parties also entered into a letter agreement that formalized the agreement, which contained a merger clause and also specifically stated none of Appellant=s liability and defenses were waived against Appellee.  The letter agreement did not incorporate the terms of the first drilling agreement nor did it reference the arbitration clause.

On May 23, 2001, Appellee filed suit to recover damages occurring from the incorrectly drilled well.  Appellant sought to compel arbitration, and the trial court denied the motion. 

DISCUSSION

In determining whether to compel arbitration, the court must decide two issues:  (1) whether a valid, enforceable arbitration agreement exists; and (2) if so, whether the claims asserted fall within the scope of the agreement.  Dallas Cardiology Assocs., P.A. v. Mallick, 978 S.W.2d 209, 212 (Tex.App.‑-Texarkana 1998, pet. denied); Nationwide of Bryan, Inc. v. Dyer, 969 S.W.2d 518, 520 (Tex.App.‑-Austin 1998, no pet.).  The court has no discretion but to compel arbitration if the answer to both questions is affirmative.  Dallas Cardiology Assocs., P.A., 978 S.W.2d at 212; Merrill Lynch, Pierce, Fenner & Smith v. Eddings, 838 S.W.2d 874, 878 (Tex.App.‑-Waco 1992, writ denied).  Whether the parties have agreed to arbitrate is a question of fact to be summarily determined by the trial court.  Tex.Civ.Prac.&Rem.Code Ann. ' 171.021(b)(Vernon Supp. 2002); see also Weber v. Hall, 929 S.W.2d 138, 141 (Tex.App.‑-Houston [14th Dist.] 1996, orig. proceeding).

Appellate courts use a Ano evidence@ standard for review of factual questions.  Fridl v. Cook, 908 S.W.2d 507, 511 (Tex.App.‑-El Paso 1995, writ dism=d w.o.j.). In a no evidence point, we consider only the evidence that supports the finding, while disregarding the evidence to the contrary.  Hearthshire Braeswood Plaza Ltd. Partnership v. Bill Kelly Co., 849 S.W.2d 380, 384 (Tex.App.-‑Houston [14th Dist.] 1993, writ denied).  If there is any evidence of probative force to support the finding, the point must be overruled and the finding upheld.  Id. 

Legal conclusions, on the other hand, are subject to de novo review.  Fridl, 908 S.W.2d at 511; see also Certain Underwriters at Lloyd=s of London v. Celebrity, Inc., 950 S.W.2d 375, 377 (Tex.App.‑-Tyler 1996), writ dism=d w.o.j., 988 S.W.2d 731 (Tex. 1998)(per curiam).  De novo review is appropriate when the legal interpretation of the arbitration clause, and no fact issue, is before the court.  Nationwide of Bryan, Inc., 969 S.W.2d at 520; Certain Underwriters at Lloyd=s of London, 950 S.W.2d at 377; Texas Private Employment Ass=n v. Lyn‑Jay Int=l, Inc., 888 S.W.2d 529, 531 (Tex.App.-‑Houston [1st Dist.] 1994, no writ).

Generally, an arbitration agreement must be written and concern a controversy that either exists at or subsequent to the date of the agreement.  Tex.Civ.Prac.&Rem.Code Ann. ' 171.001(a) (Vernon Supp. 2002).  Section 171.002 of the Texas Civil Practices and Remedies Code states that an arbitration agreement must be written and signed by both parties and their attorneys if the agreement involves individuals for services and for which services the consideration furnished by the individual is not more than $50,000.  Tex.Civ.Prac.&Rem.Code Ann. ' 171.002(a)(2), (b).

As discussed below, a written arbitration agreement was originally a part of the contract to drill the horizontal well.  The parties however dispute whether (1) it had to be signed by the parties and their attorneys and (2) the letter agreement superceded the original agreement containing the arbitration clause.  The parties involved in this dispute are both corporations; thus, Section 171.002 is inapplicable and the signatures of the attorneys and the parties were not necessary to validate the arbitration agreement.^[1]  Therefore, we sustain Appellant=s first two issues.  However, we must still decide whether the merger clause of the letter agreement superceded the arbitration agreement.

The primary concern of a court in construing a written contract is to ascertain the true intent of the parties as expressed in the instrument.  Nat=l Union Fire Ins. Co. of Pittsburgh, PA v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995).  If a written contract is so worded that it can be given a definite or certain legal meaning, then it is not ambiguous.  Id.; Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983).  Parol evidence is not admissible for the purpose of creating an ambiguity.  CBI Indus., Inc., 907 S.W.2d at 520; Universal C.I.T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 157 (1951). If, however, the language of a policy or contract is subject to two or more reasonable interpretations, it is said to be ambiguous.  CBI Indus., Inc., 907 S.W.2d at 520; see Glover v. Nat=l Ins. Underwriters, 545 S.W.2d 755, 761 (Tex. 1977).  Whether a contract is ambiguous is a question of law for the court to decide by looking at the contract as a whole in light of the circumstances present at the time the contract was executed.  CBI Indus., Inc., 907 S.W.2d at 520; Coker, 650 S.W.2d at 394.  Only where a contract is first determined to be ambiguous may the courts consider the parties= interpretation and admit extraneous evidence to determine the true meaning of the instrument.  CBI Indus., Inc., 907 S.W.2d at 520. An ambiguity in a contract may be either Apatent@ or Alatent.@ Id.  A patent ambiguity is evident on the face of the contract.  Id.  If a contract which is unambiguous on its face is applied to the underlying subject matter of the contract and an ambiguity appears by reason of some collateral matter, the ambiguity is latent.  Sidelnik v. Am. States Ins. Co., 914 S.W.2d 689, 691 (Tex.App.‑‑Austin 1996, writ denied).

Appellant and Appellee formed a contract for the drilling of a horizontal well when Appellant submitted an estimate and Appellee authorized the drilling.  See generally, Tex. Ass=n of Counties County Gov=t Risk Mgmt. Pool v. Matagorda County, 52 S.W.3d 128, 139 (Tex. 2000)(holding an implied-in-fact contract was formed when an insured accepts the benefit, or the performance, of an insurer).  Since the performance was unsatisfactory, the parties modified the original contract in a signed letter and formalized it in a letter agreement, which contained a merger clause stating:

This Agreement contains the entire agreement between the Parties hereto with respect to the transaction contemplated hereby and supercedes and amends all prior understandings, arrangements and agreements with respect to the subject matter hereof.  No modification hereof shall be effective unless in writing and signed by the Party against which it is sought to be enforced.  The Parties may, by written agreement, make any modification or amendment of this Agreement, but no such modification or amendment will be effective unless signed by all of the Parties.

Neither the letter nor the letter agreement contain or reference an arbitration agreement, although both specifically refer to the invoices and the first drilling agreement.  Appellant argues however that it reserved the right to arbitration through Paragraph 3, which states that Appellant does not waive any defenses or claims otherwise available to them in the event of future litigation arising out of the claims for damages by Appellee by entering into the agreement.

The letter agreement supercedes the first drilling agreement.  Within the letter agreement and the signed letter, there is no specific reference to the first drilling agreement and its arbitration clause, and we can find no intent by the parties to clearly agree to have their dispute submitted to arbitration. See Teal Const. Co./Hillside Villas Ltd. v. Darren Casey Interests, Inc., 46 S.W.3d 417 (Tex.App.--Austin 2001, pet. denied); Porter & Clements, L.L.P. v. Stone, 935 S.W.2d 217 (Tex.App.--Houston [1st Dist.] 1996, no writ); compare, e.g., Transwestern Pipeline Co. v. Horizon Oil & Gas Co., 809 S.W.2d 589, 591-92 (Tex.App.--Dallas 1991, writ dism=d w.o.j.)(AThe [later settlement] agreement states that the underlying contracts= terms will remain in force unless expressly modified . . . .@). Because the letter agreement superceded the first drilling agreement and does not reference the specific incorporation of it into the agreement, no enforceable arbitration clause exists. We overrule Appellant=s third issue.  

The judgment of the trial court is affirmed. 

August 29, 2002

DAVID WELLINGTON CHEW, Justice

Before Panel No. 2

Barajas, C.J., McClure, and Chew, JJ.

(Do Not Publish)

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^[1] Appellee cites numerous cases for the premise that the term Aindividual@ may include a corporation.  All cases involved at least one individual in the purest sense, not a representative of a corporation.