Appeal Reversed, Rendered and Remanded and Opinion Filed October 25, 2024
In The Court of Appeals Fifth District of Texas at Dallas
No. 05-22-01021-CV
CAPROCQ CORE REAL ESTATE FUND, LP AND CAPROCQ CORE REAL ESTATE FUND II, LP, APPELLANTS V. ESSA K. ALLEY REVOCABLE TRUST NO. 2, APPELLEE
On Appeal from the County Court at Law No. 5 Dallas County, Texas Hon. Juan Renteria Trial Court Cause No. CC-21-05539-E
MEMORANDUM OPINION
Before Justices Garcia, Goldstein and Miskel Opinion by Justice Emily Miskel
In three issues, appellants Caprocq Core Real Estate Fund, LP and Caprocq
Core Real Estate Fund II, LP (the LPs) appeal the trial court’s order granting
summary judgment in favor of limited partner and appellee Essa K. Alley Revocable
Trust No. 2 (Alley), arguing that the trial court erred by (1) impliedly denying the
LPs’ motions to compel arbitration, (2) granting summary judgment to Alley on its
1 claim for production of additional limited partnership documents, and (3) awarding
attorney fees to Alley.
Based on the record presented, we hold that the trial court erred in granting
Alley’s motion for summary judgment and impliedly denying the LPs’ motions to
compel arbitration. We reverse and vacate the trial court’s summary judgment order
dated August 29, 2022, including its award of attorney fees. We also reverse the
trial court’s implied order denying the LPs’ motions to compel arbitration and render
an order granting these motions and staying the case pending arbitration. We remand
this case to the trial court for further proceedings consistent with this opinion and
judgment.
I. Background The LPs are Arkansas limited partnerships formed for acquiring, developing,
managing, leasing, and operating commercial real-estate projects. Both limited
partnership agreements are governed by Arkansas and federal law.
By their express terms, the limited partnership agreements can be amended by
the vote of partners collectively owning 80% and 67%, respectively, of the capital
interests of all partners. Each partnership agreement was amended in
September 2021 to include identical arbitration provisions broadly providing that
any disputes pertaining to the partnerships or in connection with their operations be
resolved by binding arbitration. Each amendment provides that all disputes
2 submitted to arbitration shall be resolved in accordance with the Federal Arbitration
Act (FAA), and arbitration shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (AAA).
The record indicates that Alley was apparently displeased with its tax liability
deriving from the sale of a property held by one of the LPs. In August 2020, Alley
raised concerns about the partnerships’ business activities and requested
information. Beginning in November 2020, the LPs produced several document
binders, hosted Alley representatives for inspection and copying of records over
multiple days in the LPs’ Arkansas offices, conducted meetings, and prepared
supplemental responses. Alley continued to make successive demands for
production of additional documents and information. The record reflects that the
LPs performed over 100 hours of work in responding to Alley’s inquiries.
After Alley continued to demand additional documentation, the LPs’ counsel
wrote to Alley in October 2021 and stated that further requests would need to comply
with the Arkansas statute governing a limited partner’s access to partnership
information. The LPs demanded reimbursement for the $3,554.40 in costs incurred
preparing information for Alley. In the letter, counsel also offered to accept service
of an arbitration demand if Alley elected to initiate legal action. Alley responded in
November 2021, reiterating its concerns and demanding more information and
documents.
3 In December 2021, Alley sued the LPs in a Dallas County Court at Law
requesting that the trial court compel the LPs to produce additional documents and
also award attorney fees to Alley. Alley argued that the LPs had refused to produce
all requested documents to which Alley is entitled, thus preventing it from
investigating its concerns about possible affiliated-party transactions by the general
partner in violation of the limited partnership agreements.
In February 2022, each LP timely moved to compel arbitration (attaching
affidavit evidence) and answered, subject to its arbitration request. The LPs had not
set a hearing on their motions to compel when Alley moved for summary judgment
in May 2022. Alley’s summary judgment motion was set to be heard on August 5.
The LPs attempted to set their motions to compel arbitration for the same August 5
hearing but were unable to secure a setting before September. The LPs filed an
opposed motion to reset the summary judgment hearing so that both sides’ motions
could be heard on the same date.
In their joint summary judgment response, the LPs re-urged their motions to
compel arbitration, contending that the trial court was required to stay the litigation
and compel arbitration. The LPs also argued that summary judgment would not be
proper because a material fact issue existed about whether Alley has complied with
Arkansas law regarding its document requests. The LPs submitted affidavit
4 evidence in support of their summary judgment response. The LPs also requested
that the trial court first rule on the pending arbitration motions.
Counsel for the LPs renewed the request for scheduling relief at the August 5
summary judgment hearing:
As opposing counsel noted we do have Motions to Compel Arbitration on file. We believe that those Motions to Compel Arbitration are dispositive of this issue. And so it’s our request that you defer ruling on this Motion for Summary Judgment until you’ve heard those Motions to Compel, which are set for hearing on September 15th. At that hearing, the parties also argued the pending motions to compel arbitration.
The trial court directed Alley to file any response by August 8 so that the trial court
could determine the applicability of the arbitration clause. On the same day of the
hearing, Alley filed a response without evidence, primarily asserting the arguments
it had raised during the hearing—that the arbitration provisions are illusory and
procedurally unconscionable and that they were added by amendment after the LPs
received notice of Alley’s claim and without providing Alley with notice or an
opportunity to vote. On August 29, the trial court signed an order granting Alley’s
dispositive motion for summary judgment, ordering production of additional
documents, and awarding Alley attorney fees. The order makes no mention of the
LPs’ motions to compel arbitration. The LPs brought this appeal.
5 II. The Trial Court Impliedly Denied the LPs’ Motions to Compel Arbitration, and Error Was Preserved As a threshold matter, Alley asserts that the LPs did not preserve error because
(1) the LPs failed to obtain a hearing or ruling on the motions to compel by failing
to set them for a hearing, and (2) they failed to file a motion for new trial. The LPs
argue that the trial court heard their motions at the summary judgment hearing and
impliedly denied their motions by granting Alley’s motion for summary judgment.
We agree with the LPs and conclude that any error relating to their motions to
compel arbitration was preserved.
As a prerequisite to presenting a complaint for appellate review, the record
must show that the complaint was made to the trial court by timely request,
objection, or motion, and that the trial court either ruled (expressly or implicitly) or
refused to rule on the request. See TEX. R. APP. P. 33.1(a).
In this case, it is clear from the record and transcript of the summary judgment
hearing that the LPs asked the trial court to delay ruling on the summary judgment
motion until after hearing the LPs’ motions to compel arbitration (or to hear the
motions concurrently). It is also clear that the trial judge heard arguments from the
parties on the motions to compel arbitration at the summary judgment hearing. The
trial judge stated at the hearing that he would examine the motions to compel
arbitration “to see if it may or may not apply.” The trial judge provided Alley with
an opportunity to file a response to the motions to compel arbitration after the
6 hearing, and Alley promptly filed a response that day. The trial court then granted
Alley’s summary judgment motion. Although, the order does not refer to the LPs’
motions to compel arbitration, it states that the court granted the motion for summary
judgment “after reviewing all things on file herein, and hearing the arguments of
counsel.”
Accordingly, we conclude that the trial court impliedly denied the LPs
motions to compel arbitration when it granted Alley’s dispositive motion for
summary judgment. See TEX. R. APP. P. 33.1(a)(2)(A); Wilson N. Jones Mem’l
Hosp. v. Ammons, 266 S.W.3d 51, 58-59 (Tex. App.—Dallas 2008, pet. denied) (“A
ruling is implicit if it is unexpressed, but capable of being understood from
something else.”). A ruling thus was obtained, and a motion for new trial was not
required to preserve error. See TEX. R. APP. P. 33.1; TEX. R. CIV. P. 324. We
conclude that the LPs preserved any error relating to their motions to compel.
III. The Trial Court Erred When it Impliedly Denied the LPs’ Motions to Compel Arbitration In their first issue, the LPs argue that the trial court erred in impliedly denying
their motions to compel arbitration because Alley’s claims are covered by valid and
binding arbitration provisions. Alley responds that the arbitration provisions are
invalid and unenforceable. Alley further argues that the arbitration agreements are
inapplicable because the conduct giving rise to Alley’s claim occurred prior to the
adoption of the arbitration provisions.
7 A. Standard of Review We review a denial of a motion to compel arbitration for an abuse of
discretion, reviewing questions of law de novo and factual determinations under a
no-evidence standard of review which defers to the trial court’s factual
determinations that are supported by evidence. See Conn Appliances, Inc. v. Jones,
No. 05-20-00149-CV, 2020 WL 6304990, at *2 (Tex. App.—Dallas Oct. 28, 2020,
no pet.) (mem. op.); see also Sidley Austin Brown & Wood, L.L.P. v. J.A. Green Dev.
Corp., 327 S.W.3d 859, 862–63 (Tex. App.—Dallas 2010, no pet.).
Whether a valid arbitration agreement exists is a question of law that we
review de novo. Lennar Homes of Tex. Land & Constr., Ltd. v. Whiteley,
672 S.W.3d 367, 376 (Tex. 2023). Also, whether an arbitration agreement is
enforceable is subject to de novo review. In re Labatt Food Serv., L.P., 279 S.W.3d
640, 643 (Tex. 2009) (orig. proceeding).
B. Applicable Law As explained in this section, we apply substantive federal arbitration law
under the FAA and Texas procedural law. See Jack B. Anglin Co. v. Tipps,
842 S.W.2d 266, 272 (Tex. 1992) (orig. proceeding). We also apply Arkansas
contract law. See First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
1. Existence and Validity of Arbitration Agreements “The primary purpose of the [FAA] is to require the courts to compel
arbitration when the parties have so provided in their contract . . . .” Jack B. Anglin,
8 842 S.W.2d at 271. Under the substantive federal law set forth in § 2 of the FAA,
written arbitration agreements shall be “valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revocation of any contract.”
9 U.S.C.A. § 2; Arthur Anderson LLP v. Carlisle, 556 U.S. 624, 629-30 (2009). A
party seeking to compel arbitration under the FAA must establish the existence of a
valid arbitration agreement and the existence of a dispute within the scope of the
agreement. Lennar Homes, 672 S.W.3d at 376; Bigge Crane & Rigging Co. v.
Entergy Ark., Inc., 457 S.W.3d 265, 268 (Ark. 2015). Any doubts concerning an
arbitration clause’s scope are resolved in favor of arbitration. See First Options,
514 U.S. at 945. Federal, Arkansas, and Texas law strongly favor arbitration. See
In re Rubiola, 334 S.W.3d 220, 225 (Tex. 2011) (orig. proceeding) (regarding
federal and Texas law); BHC Pinnacle Point Hosp., LLC v. Nelson,
594 S.W.3d 62, 70 (Ark. 2020) (regarding Arkansas law).
If the party seeking to compel arbitration establishes that a valid contract
exists that covers the claims in dispute, then the burden shifts to the party opposing
arbitration to raise an affirmative defense to enforcing the agreement. Tantrum
Street, LLC v. Carson, No. 05-16-01096-CV, 2017 WL 3275901, at *3 (Tex.
App.—Dallas Jul. 25, 2017, no pet.) (mem. op.); see also In re AdvancePCS Health,
L.P., 172 S.W.3d 603, 607 (Tex. 2005) (orig. proceeding) (per curiam). “Once the
party moving for arbitration has offered prima facie evidence of an arbitration
9 agreement’s existence, the burden shifts to the party contesting the existence of an
arbitration agreement to provide arguments and evidence as to why the arbitration
agreement has a formation defect so as to create a triable issue that would defeat
summary disposition.” Ridge Nat. Res., L.L.C. v. Double Eagle Royalty, L.P., 564
S.W.3d 105, 118 (Tex. App.—El Paso 2018, no pet.).
Parties may delegate threshold arbitrability questions to the arbitrator if the
parties’ agreement does so by clear and unmistakable evidence. Henry Schein, Inc.
v. Archer and White Sales, Inc., 586 U.S. 63, 69 (2019). However, before referring
a dispute to an arbitrator, the court determines whether a valid arbitration agreement
exists. Id.
When deciding whether the parties agreed to arbitrate a certain matter
(including arbitrability), courts should apply ordinary state-law principles that
govern the formation of contracts. See First Options, 514 U.S. at 944. Under the
FAA, an agreement to arbitrate is valid if it meets the requirements of the general
contract law of the applicable state. In re AdvancePCS Health, 172 S.W.3d at 606;
GGNSC Holdings, LLC v. Lamb, 487 S.W.3d 348, 353 (Ark. 2016). Under Arkansas
law, the essential elements for an enforceable arbitration agreement are
(1) competent parties, (2) subject matter, (3) legal consideration, (4) mutual
agreement, and (5) mutual obligation. GGNSC Holdings, 487 S.W.3d at 353. Alley
10 only disputes the elements of mutual agreement and mutual obligation as discussed
herein.
2. Motions to Compel Arbitration Should be Decided Summarily Proceedings to compel arbitration are to be conducted as summary
proceedings to protect the advantages of arbitration because “the main benefits of
arbitration lie in expedited and less expensive disposition of a dispute, and the
legislature has mandated that a motion to compel arbitration be decided summarily.”
Jack B. Anglin, 842 S.W.2d at 269; see also CIV. PRAC. § 171.021(b). Texas
procedural law applies to this determination. Jack B. Anglin, 842 S.W.2d. at 272.
Texas’s General Arbitration Act (the TAA) also applies to the extent it does not
thwart the purposes and objectives of the FAA. See TEX. CIV. PRAC. & REM. CODE
Ch. 171; Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 98 (Tex. 2011); In re D.
Wilson Constr. Co., 196 S.W.3d 774, 779–80 (Tex. 2006).
The trial court may summarily decide whether to compel arbitration on the
basis of affidavits, pleadings, discovery, and stipulations. Jack B. Anglin,
842 S.W.2d at 269. However, if the material facts necessary to determine the issue
are controverted by an opposing affidavit or otherwise admissible evidence, the trial
court must conduct an evidentiary hearing to determine the disputed material facts.
Id.; see also CIV. PRAC. §§ 171.021(b), .023(b).
11 The FAA requires a trial court to stay a suit involving issues referable to
arbitration under a written arbitration agreement. 9 U.S.C. § 3; Moses H. Cone
Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26 n. 34 (1983). The TAA
further requires that a trial court “shall stay a proceeding that involves an issue
subject to arbitration if an order for arbitration or an application for that order is
made under this subchapter.” TEX. CIV. PRAC. & REM. CODE ANN. § 171.025(a)
(emphasis added). By not staying proceedings pending its ruling on a motion to
compel arbitration, a court clearly abuses its discretion. In re Pediatrix Med. Servcs.,
Inc., No. 05-05-00986-CV, 2005 WL 1776039, at *1 (Tex. App.—Dallas July 28,
2005, orig. proceeding) (mem. op.).
Before arbitration proceedings begin, the TAA also authorizes courts to issue
certain types of orders in support of arbitration but does not permit orders ruling on
the merits of the case. See CIV. PRAC. § 171.086(a) (listing non-merits orders that
court may render before arbitration proceedings begin); Tantrum Street, LLC,, 2017
WL 3275901, at *9 (Under 171.086(a), “the trial court clearly abused its discretion
by ruling on [the] summary judgment motion while [the] motion to compel
arbitration was pending . . . .”).
C. The LPs Established Valid Arbitration Agreements The LPs argue that the arbitration provisions in the partnership agreements
are valid and enforceable against Alley, and that the trial court erred to the extent it
12 impliedly determined that the arbitration provisions were invalid or unenforceable.
Alley does not dispute the validity of the original partnership agreements, which also
form the basis of its underlying affirmative claim to compel production of
partnership documents for its review. Instead, Alley responds that it disputes the
validity and enforceability of the arbitration provisions contained in the subsequent
amendments to the partnership agreements, which state in part:
Arbitration. The Partners agree to take all reasonable steps to resolve disputes between them without resorting to arbitration. However, upon the demand of any party, any Dispute (as such term is defined herein) shall be resolved by binding arbitration in accordance with the terms of this Section. A “Dispute” shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to this Agreement, any action against the General Partner or any other Partner or in connection with the operation of the Partnership, including any derivative action.
We must first determine whether a valid arbitration agreement exists.1 See
Henry Schein, 586 U.S. at 69 (citing 9 U.S.C. § 2). The LPs had the burden under
the FAA to establish the existence of a valid arbitration agreement. See Lennar
Homes, 672 S.W.3d at 376. The LPs supported their motions to compel arbitration
with sworn affidavits of the chief executive officer of the general partner of each LP,
1 A court may determine a specific challenge to the validity of an arbitration agreement or clause within a contract, although a challenge to the validity of the contract as a whole (and not specifically the arbitration clause) must go to the arbitrator. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445–46 (2006). Alley disputes only the arbitration provisions contained within the partnership agreement amendments and has not challenged the validity of the other provisions of the amendments relating to confidentiality of partnership information or the validity of the original partnership agreements.
13 attesting to the attached partnership agreements and amendments. The affidavits
declare that partners representing more than 80% (in the case of one LP) and 67%
(in the case of the other LP) of the capital interest of all partners amended the
respective partnership agreements to include provisions relating to arbitration of
disputes as well as confidentiality of information concerning the partnerships. These
percentage interests met the approval requirements for amendments set forth in the
respective partnership agreements. Alley’s response includes no evidence
controverting these declarations or establishing a disputed material fact. We must
accept as true the clear, direct, and positive evidence of an undisputed affidavit, even
of a party’s agent. Jack B. Anglin, 842 S.W.2d at 270. We conclude that the LPs
established the existence of valid arbitration agreements.
D. Alley Failed to Meet its Burden to Show that the Arbitration Agreements are Invalid or Unenforceable Once the LPs established the existence of valid arbitration agreements, the
burden shifted to Alley to prove a formation defect or affirmative defense. See
AdvancePCS, 172 S.W.3d at 607; Tantrum Street, 2017 WL 3275901 at *3; Ridge,
564 S.W.3d at 118. Alley alleged that the arbitration provisions in the amended
partnership agreements are invalid or unenforceable, asserting the following
arguments:
There was no “meeting of the minds” with respect to the arbitration provisions because they were added without Alley’s knowledge or consent;
14 The arbitration provisions are illusory because the LPs can unilaterally amend the partnership agreements; and
The arbitration provisions are procedurally unconscionable because they were added in response to notice of Alley’s claim.
Based on the record, we can decide each of Alley’s arguments against the arbitration
agreements as a matter of law.
1. A Meeting of the Minds Occurred In its first argument responding to the LPs’ appeal, Alley challenges the
validity of the arbitration provision by asserting that no meeting of the minds
occurred. Alley asserts that it did not receive notice of a partnership meeting and
did not receive notice that it had a right to vote or that its rights might be impaired.
Alley further contends that it did not consent to waive its constitutional right to a
jury trial.
The same rules of construction apply to arbitration agreements as apply to
agreements in general. Bank of the Ozarks, Inc. v. Walker, 434 S.W.3d 357, 360
(Ark. 2014). Mutual agreement is an essential element of an enforceable arbitration
agreement. Id. In determining whether a valid contract was entered into between
parties, there must be a meeting of the minds as to the terms of the contract, using
objective indicators. Id.
Alley does not dispute that a meeting of the minds occurred with respect to
the original partnership agreements. Alley does not cite any Arkansas law involving
15 the amendment of partnership agreements to add arbitration provisions; however, in
upholding amendments to add forum selection clauses, other courts have reiterated
that amendments to partnership agreements adopted in accordance with the
provisions of the partnership agreement are binding on all partners. See, e.g., In re
Plains All Am. Derivative Litig., No. H-15-3632, 2016 WL 6634929, at *4
(S.D. Tex. Nov. 8, 2016) (mem. op. and order) (due to the amendment procedures
in the partnership agreement, the unitholder-plaintiffs were on notice that defendants
could amend the agreement unilaterally at any time); Dominium Austin Partners,
L.L.C. v. Emerson, 248 F.3d 720, 726 (8th Cir. 2001) (because the limited partners
agreed to the majority vote procedure by which the partnership agreements were
subsequently amended to identify a forum state for arbitration hearings, they could
not later argue that they did not consent to be bound by the amendments).
Alley does not challenge the original partnership agreements, and it provided
no evidence to controvert the LPs’ evidence that the amendments were validly
adopted under the terms of those original partnership agreements. Alley has not
shown that there are any disputed material facts regarding a meeting of the minds.
The amendment provisions of the original partnership agreement executed by Alley
put Alley on notice that, due to the supermajority vote requirements, Alley could be
bound by amendments to the partnership agreement even if it did not agree with the
amendments.
16 We conclude that a meeting of the minds occurred with respect to the original
partnership agreements and therefore the amendments adopted thereunder
containing the arbitration provisions are binding. To hold otherwise would violate
the principle that arbitration agreements are a matter of contract and must be placed
on equal footing with all other contracts and enforced in accordance with their terms.
See AT&T Mobility LLC v. Concepcion, 563 U.S 333, 339 (2011); Jorja Trading,
Inc. v. Willis, 598 S.W.3d 1, 3 (Ark. 2020).
Alley’s allegation that it did not consent to waive its right to a jury trial is
inapposite—a valid agreement to arbitrate necessarily includes an agreement for the
resolution of disputes by an arbitrator rather than a jury. See Bernhardt v.
Polygraphic Co. of America, 350 U.S 198, 203 (1956) (“Arbitration carries no right
to trial by jury that is guaranteed both by the Seventh Amendment and by [the state’s]
Constitution.”).
Accordingly, we conclude as a matter of law that Alley failed to carry its
burden to show that no agreement to arbitrate was formed because there was no
meeting of the minds.
2. The Arbitration Provisions are Not Illusory In its second argument responding to the LPs’ appeal, Alley asserts that the
arbitration provisions are illusory and thus unenforceable because the provisions
could be amended to waive Alley’s rights without notice or opportunity to vote.
17 A valid arbitration agreement requires mutual obligation. See Jorja Trading,
598 S.W.3d at 5. “Mutuality of obligations means an obligation must rest on each
party to do or permit to be done something in consideration of the act or promise of
the other; thus, neither party is bound unless both are bound.” Id. A contract that
provides one party the option not to perform his promise would not be binding on
the other. Id. An arbitration provision may be illusory, for example, where one
party is limited to arbitration while the other retains the sole right to pursue legal or
equitable remedies. See Richard Harp Homes, Inc. v. Van Wyk, 262 S.W.3d 189,
192-93 (Ark. App. 2007). However, courts “cannot require that every provision in
an arbitration agreement be bilateral without violating the FAA because doing so
would hold arbitration agreements to a more stringent analysis than other contracts.”
Jorja Trading, 598 S.W.3d at 6.
The Arkansas Supreme Court has emphasized that, while Arkansas contract
law is employed to decide whether an arbitration agreement is valid, under the FAA
“our review is limited to the extent that it applies to contracts generally, and not
arbitration agreements selectively.” Jorja Trading, 598 S.W.3d at 5 (citing Kindred
Nursing Ctrs. Ltd. P'ship v. Clark, 581 U.S. 246, 251 (2017)). A court cannot
invalidate an arbitration agreement based on legal rules that apply only to arbitration
agreements. Jorja Trading, 598 S.W.3d at 6 (citing DIRECTV, Inc. v. Imburgia et
al., 577 U.S. 47, 57 (2015)). This FAA principle would be violated if we determine
18 that these arbitration provisions, adopted under the terms of the underlying
partnership agreements, are not valid because they relate to arbitration when other
non-arbitration amendments adopted under the same procedures would be valid.
In this case, the arbitration provisions apply equally to all parties. The
arbitration provisions cannot be amended or terminated unilaterally by the LPs—
that would require the approval of partners owning the requisite supermajority of
capital interests under the partnership agreements. As previously discussed,
amendments to partnership agreements may be duly adopted in accordance with the
terms of the partnership agreement to which the limited partner initially agreed.
See Dominium Austin Partners, 248 F.3d at 726 (concluding that partner who did
not vote in favor of amendment of partnership agreement to include forum selection
clause within arbitration provision was bound by amendments that passed by
majority vote requirements in underlying partnership agreement).
In addition, the “Miscellaneous” provision of the amendments states that, to
the maximum extent practicable, the parties, arbitrators, and AAA shall take all
action required to conclude any arbitration proceedings within 180 days of the filing
of the dispute with the AAA. The same provision provides that “[t]his arbitration
provision shall survive termination, amendment or expiration of the [partnership
agreement] or any relationship between the Parties.” This language further limits
the LPs from being able to unilaterally terminate a pending arbitration proceeding.
19 Alley presented no evidence disputing the LPs’ evidence or creating a fact
issue that the agreements are illusory or that the LPs have the ability to unilaterally
terminate the arbitration provisions. Alley cites no Arkansas contract law supporting
its position, and Alley’s cited Texas cases primarily involve employer-employee or
similar relationships in which one party can unilaterally terminate the arbitration
agreement. See, e.g., In re Halliburton Co., 80 S.W.3d 566, 568 (Tex. 2002) (orig.
proceeding) (discussing notice and acceptance requirements for employer asserting
unilateral changes to at-will employment contract with employee by adding dispute
resolution program).
Accordingly, we conclude as a matter of law that Alley failed to carry its
burden to show that no agreement to arbitrate was formed because the arbitration
provisions were illusory.
3. The Arbitration Provisions Are Not Unconscionable We also consider Alley’s challenge to the LPs’ motions to compel on
procedural unconscionability grounds. In the trial court, Alley argued that
enforcement of the arbitration provisions would be procedurally unconscionable
because the amendments were added in response to notice of Alley’s claim, and
Alley had no notice of the waiver of its rights and no ability to vote, participate, or
bargain in the transaction.
20 The Arkansas Supreme Court has recognized that “unconscionability” is not
precisely defined in the law but has described an unconscionable contract as one that
“no man in his senses and not under delusion would make on the one hand, and . . .
no honest and fair man would accept on the other.” GGNSC Holdings,
487 S.W.3d at 356. To be unconscionable, a contract “must oppress one party and
actuate the sharp practices of the other.” LegalZoom.com. v. McIllwain, 429 S.W.3d
261, 264 (Ark. 2013). The Arkansas Supreme Court also has acknowledged the
difference between “procedural unconscionability” and “substantive
unconscionability.” GGNSC Holdings, 487 S.W.3d at 357. Procedural
unconscionability encompasses contracts where there is an absence of meaningful
choice on the part of one of the parties together with contract terms that are
unreasonably favorable to the other party. Id. at 357. Substantive unconscionability
relates to the terms of the contract and whether they are harsh, one-sided, or
oppressive. Dooley v. Dillard’s, Inc., No. 2:20-CV-2086, 2020 WL 3578023, at *3
(W.D. Ark. July 1, 2020). In assessing whether a particular contractual provision is
unconscionable, the Arkansas Supreme Court reviews the totality of the
circumstances surrounding the negotiation and execution of the contract, including
whether there is a gross inequality of bargaining power between the parties and
21 whether the aggrieved party was made aware of and comprehended the provision in
question.2 See GGNSC Holdings, 487 S.W.3d at 357.
In the trial court, Alley had the burden of proving its affirmative defense to
the enforceability of the arbitration provisions. See id. Alley objected to the
arbitration provisions on grounds of procedural unconscionability and not
substantive unconscionability. Alley argues that the arbitration provisions were
added after it began requesting documents in August 2020. Alley does not clearly
state when it gave notice of its “claim.” It is undisputed, however, that the arbitration
provisions were added by amendment in September 2021 after Ally’s initial
document requests but prior to any initiation of legal action in a court and prior to
the exchange by the parties of the October 2021 and November 2021 letters
regarding additional document demands by Alley that form the claim in Alley’s legal
action.
Alley further argues that it was provided “no notice of the partnership
meeting, no notice that its rights could be waived, and no opportunity to vote.”
However, Alley did not attach any affidavits or other evidence in its response to the
motion to compel in the trial court to support these arguments or controvert the LPs’
2 Some federal courts applying Arkansas law require the party opposing arbitration to show both procedural and substantive unconscionability. See e.g. Dooley, 2020 WL 3578023, at *3; Jarrett v. Panasonic Corp. of N. Am., 8 F.Supp. 3d 1074, 1082 (E.D. Ark. 2013). We need not address this issue given that Alley has not provided evidence of procedural unconscionability.
22 evidence. Alley thus failed to demonstrate a disputed material fact issue requiring
an evidentiary hearing. See Jack B. Anglin, 842 S.W.2d at 269.
As discussed above, Alley agreed to the amendment procedures in the
underlying partnership agreements, which did not require a unanimous vote. Alley’s
limited bargaining power derives from its relatively small capital interest in the
partnership and thus its limited voting power to reject certain amendments—a
circumstance it assented to when it signed the original partnership agreements
containing the amendment provisions. Alley consented to be bound by amendments
approved by the requisite supermajority vote, whether or not it voted for the
amendments. See In re Plains All Am. Derivative Litig., 2016 WL 6634929, at *4;
Dominium Austin Partners, 248 F.3d at 726.
After reviewing the totality of the circumstances in the record relating to the
addition of the arbitration provisions, we conclude as a matter of law that Alley did
not meet its burden in the trial court to establish an unconscionability defense to the
validity and enforceability of the arbitration agreements.
4. Alley Did Not Prove a Defense to the Validity or Enforceability of the Arbitration Agreements In the trial court, the LPs provided evidence that the arbitration agreements in
the partnership agreement amendments were valid. Alley did not provide in the trial
court any affidavits or other admissible evidence creating a disputed issue of material
fact. See Jack B. Anglin, 842 S.W.2d at 269. Accordingly, we may resolve the LPs’
23 motions to compel summarily. See id. We conclude that the LPs met their burden
to establish valid arbitration provisions, and, as a matter of law, Alley did not prove
a defense to the arbitration agreements.
E. Arbitrator Determines Scope of Arbitration Provisions The LPs argue that the scope of the arbitration provisions cover Alley’s claim
for production of additional documents by the partnership based on the broad
definition of “Dispute” in the provisions. Alley asserts that, even if the arbitration
provisions are valid, arbitration cannot be compelled in this case because the conduct
giving rise to its claim occurred under the original partnership agreement, prior to
the amendments that added the arbitration provisions.
Although the LPs point out that the arbitration provisions apply to disputes
“now existing or hereafter arising” in connection with the partnership agreements,
this question of scope should be deferred to the arbitrator under the arbitration
provisions in this case. The arbitration provisions provide that arbitration “shall be
conducted in accordance with the AAA Commercial Arbitration Rules.”3 Both the
Arkansas Supreme Court and the Texas Supreme Court have concluded that an
agreement to arbitrate disputes in accordance with AAA rules clearly and
3 Rule 7(a) provides that the arbitrator “shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim, without any need to refer such matters first to a court.” See AM. ARB. ASS’N, Commercial Arbitration Rules and Mediation Procedures (2022), https://adr.org/sites/default/files/CommercialRules_Web_1.pdf. Total Energies was decided based on the preceding version of these rules, which did not include the emphasized language.
24 unmistakably demonstrated the parties’ intent to delegate arbitrability issues to the
arbitrator. See HPD, LLC v. TETRA Techs., Inc., 424 S.W.3d 304, 311–12
(Ark. 2012); Total Energies E&P USA, Inc. v. MP Gulf of Mex., LLC,
667 S.W.3d 694, 708, 712 (Tex. 2023).
In the present case, we discern no provisions limiting this “clear and
unmistakable” delegation of arbitrability of the scope of the provisions to the
arbitrator. Accordingly, given our determination that the arbitration provisions are
enforceable, we defer this question of scope to the arbitrator.
F. The LPs’ First Issue is Sustained The LPs established the existence of agreements to arbitrate. Alley failed to
prove a formation defect or affirmative defense to the agreements. We decide in
favor of the LPs on their first issue and conclude that the trial court erred by not
enforcing the arbitration provisions in the partnership agreements on which Alley
based its claims for partnership records. Because our determination of issue one
resolves this appeal, we need not further address the LPs’ second and third issues.
IV. Conclusion We conclude that the trial court erred in impliedly denying the LPs’ motions
to compel arbitration and granting Alley’s dispositive motion for summary
judgment. Accordingly, we reverse and vacate the trial court’s summary judgment
order dated August 29, 2022, including its award of attorney fees. We also reverse
25 the trial court’s implied order denying the LPs’ motions to compel arbitration and
render an order granting these motions and staying the case pending arbitration. We
remand this case to the trial court for further proceedings consistent with this opinion
and judgment.
In addition, we award the LPs their costs of this appeal and direct the Dallas
County Clerk to immediately release to the LPs all supersedeas deposits and
arrangements made in connection with this appeal.4
/Emily Miskel/ 221021f.p05 EMILY A. MISKEL JUSTICE
4 Our review of the parties’ agreements reveals cost- and fee-shifting provisions. We make no ruling or adjudication as to the enforceability, applicability, and effect of these provisions relative to this appeal or our disposition of the issues presented for review.
26 Court of Appeals Fifth District of Texas at Dallas JUDGMENT
CAPROCQ CORE REAL ESTATE On Appeal from the County Court at FUND, LP, AND CAPROCQ CORE Law No. 5, Dallas County, Texas REAL ESTATE FUND II, LP, Trial Court Cause No. CC-21-05539- Appellants E. Opinion delivered by Justice Miskel. No. 05-22-01021-CV V. Justices Goldstein and Garcia participating. ESSA K. ALLEY REVOCABLE TRUST NO. 2, Appellee
In accordance with this Court’s opinion of this date:
We REVERSE and VACATE the trial court’s summary-judgment order dated August 29, 2022, including its award of attorney fees.
We REVERSE the trial court’s implied order denying the motions to compel arbitration of appellants CAPROCQ CORE REAL ESTATE FUND, LP, AND CAPROCQ CORE REAL ESTATE FUND II, LP and RENDER an order granting these motions and staying the case pending arbitration.
We REMAND this case to the trial court for further proceedings consistent with this opinion and judgment.
We DIRECT the Dallas County Clerk to immediately release to appellants CAPROCQ CORE REAL ESTATE FUND, LP, AND CAPROCQ CORE REAL ESTATE FUND II, LP all supersedeas deposits and arrangements made in connection with this appeal.
27 It is ORDERED that appellants CAPROCQ CORE REAL ESTATE FUND, LP, AND CAPROCQ CORE REAL ESTATE FUND II, LP recover their costs of this appeal from appellee ESSA K. ALLEY REVOCABLE TRUST NO. 2.
Judgment entered this 25th day of October, 2024.