In Re Ghanem

203 S.W.3d 896, 2006 Tex. App. LEXIS 8302, 2006 WL 2707437

• Court: Court of Appeals of Texas
• Decided: September 21, 2006
• Docket: 09-06-205-CV
• Status: Published

Opinions

OPINION

CHARLES KREGER, Justice.

This is an original proceeding seeking mandamus relief. Fadi Ghanem, M.D., individually and d/b/a Fadi G. Ghanem, M.D., P.A., Maternal & Family Clinic, and Hussamaddin Al-Khadour, M.D. (“Rela-tors”) petitioned this Court for relief from an order by the Honorable Kathleen Hamilton, presiding judge of the 359th District Court, Montgomery County, Texas, (“Respondent”). The order, in essence, refused to completely stay parallel litigation prosecuted by Real Party in Interest, Har-lon Borcherding, D.O., during the pen-dency of arbitration proceedings between Relators and parties aligned with Bor-cherding as plaintiffs in the parallel litigation. It is not disputed that Relators and Borcherding’s co-plaintiffs, Rezik Saqer, M.D., Hazem El-Zufari, M.D., and Integra Medical Clinics, L.L.P., f/k/a/ Integra Health Clinics, L.L.P., were ordered to arbitration by Respondent based upon a document titled “Letter Agreement.” This Letter Agreement appears to have been intended to settle a variety of business disputes which arose during the brief business partnership of the four signatory doctors, Ghanem, Al-Khadour, Saqer, and El-Zufari. The arbitration paragraph appears in the Letter Agreement in the following manner:

23. Dispute Resolution: All other issues related to any Partnership or Membership matters not covered by this Agreement (and all disputes arising under or interpretations of this Agreement) shall be resolved by binding arbitration. An arbitrator shall be chosen by agreement between counsel for Ghanem and counsel for Integra/Integrated. The arbitrator shall be paid by in an [sic] equal share by all Parties involved in the dispute. All Parties agree to waive any court action on any matter and allow all disputes to be resolved through binding arbitration. The arbitration rules shall be simple and informal and will include a written submission of all disputes to the arbitrator seven (7) days before the scheduled arbitration hearing. The hearing shall allow all Parties to express their views and present witnesses and testimony. The hearing shall be scheduled within fourteen (14) days of the submission of any dispute and a written decision shall be rendered by the arbitrator within forty-eight (48) hours of the hearing.

The record before us does not include Respondent’s order compelling arbitration and staying all further judicial proceedings in the underlying litigation involving the arbitrating parties. However, although named as a plaintiff in the underlying parallel litigation, Borcherding was not ordered to arbitrate because he was not a signatory to the Letter Agreement which contained the arbitration provision. As a result, Respondent permitted Borcherding to proceed with the parallel litigation despite several motions by Relators requesting that Borcherding be stayed from proceeding any further with the underlying litigation during the pendency of the arbitration process. Indeed, the order at issue, entered May 15, 2006, granted, inter aha, Borcherding’s motion to compel depositions of Relators Ghanem and Al-Khad-our, Relator’s billing manager, and another non-party. The order also denied a motion by Relators for protection from further discovery related to the causes of action referred to arbitration.

The record also indicates that at the time Respondent issued the order, Bor-cherding’s causes of action against Rela-tors were set out in plaintiffs original petition filed April 17, 2006. In his response to the Petition for Writ of Mandamus, Borcherding directs our attention to a copy of his “First Amended Petition,” which is apparently now on file in the parallel litigation. However, Borcherd-ing’s amended petition indicates it was filed May 22, 2006, one week after Respondent issued the order in question. As Borcherding’s amended petition was not before Respondent at the time she entered the order at issue, we will not consider it. See Perry v. Del Rio, 66 S.W.3d 239, 259 (Tex.2001); Univ. of Tex. v. Morris, 162 Tex. 60, 344 S.W.2d 426, 429 (1961).

An examination of the original petition filed by all the plaintiffs, including Bor-cherding, reveals that the petition does not specifically segregate any of Borcherding’s causes of action from those of the remaining plaintiffs. The various causes of action alleged appear to stem from the business relationship established by the four signatory doctors and the related business entities involved. Relators contend that the four signatory doctors agreed to arbitration after the filing of the plaintiffs’ original petition, and that arbitration was appropriate under either the Federal Arbitration Act¹ (“FAA”) or the Texas Arbitration Act.² Borcherding does not contest these assertions as they relate to the four signatory doctors. Relators argued to Respondent, and now argue to us, that they are entitled to a stay of the pending litigation because all of Borcherding’s causes of action are identical to those of his co-plaintiffs, Doctors Saqer and El-Zufari, whose claims were referred to arbitration.

In support of his position that continuing with his parallel litigation is proper, Borcherding relies upon certain revised claims alleged in his first amended petition and on the fact that he was not a signatory to the Letter Agreement containing the arbitration clause. As noted above, we will not consider Borcherding’s first amended petition because it was filed after Respondent issued the order from which the Relators now seek relief. From an examination of the entire record before us, it appears that Borcherding’s non-signatory status is the only basis for Respondent’s decision to permit Borcherding to fully proceed with parallel litigation involving causes of action identical to those previously referred to arbitration.

While the trial judge’s decision to compel the four signatory doctors and their respective business entities to submit to arbitration is not before us, potentially damaging consequences became apparent when the trial court subsequently permitted Borcherding to fully proceed with the underlying litigation against Relators. As a general policy, both “[fjederal and state law strongly favor arbitration.” See Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex.1996) (orig. proceeding). The United States Supreme Court has held that the Federal Arbitration Act, as a matter of law, requires that any doubt concerning the scope of arbitrable issues under a contractual arbitration provision should be resolved in favor of arbitration. See Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 , 74 L.Ed.2d 765 (1983). In the instant case, we assume without deciding that arbitration was ordered based upon the FAA. because the Act “ ‘extends to any contract affecting commerce, as far as the Commerce Clause of the United States Constitution will reach.’ ” See In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex.2005)(quoting In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125, 127 (Tex.1999)(per curiam)). Borcherding does not take issue with Relators’ contention that the business entities in question received Medicare payments. Such payments are sufficient to establish interstate commerce and the FAA’s application. Id.

In both Harvey v. Joyce, 199 F.3d 790, 796 (5th Cir.2000), and Subway Equipment Leasing Corp. v. Forte, 169 F.3d 324, 329 (5th Cir.1999), the Fifth Circuit applied the FAA’s mandatory stay provision³ to non-signatories of the arbitration agreements because the issues presented in the non-signatory/signatory litigation, if litigated, would have rendered the arbitration redundant and thwarted the federal policy favoring arbitration. In Harvey, the parties to the arbitration agreement were all shareholders in a company, CTC, the non-party to the agreement. Harvey, 199 F.3d at 792. Joyce, one of the parties to the agreement, had been named along with CTC, as a defendant. Id. The allegations in the lawsuit against CTC were based upon actions taken by Joyce on behalf of CTC. Id. at 795. As a result, the Fifth Circuit found that allowing litigation to proceed could have “a critical impact in the Joyce arbitration.” Id. Similarly, in Subway, the Fifth Circuit found that because the issues to be litigated by the non-signatories were identical to the issues to be arbitrated by the signato-ríes, allowing the litigation to proceed would harm the signatories’ rights to arbitrate. Subway, 169 F.3d at 329. As the Court noted in a more recent case reaffirming the concept, “[t]he question is not ultimately one of weighing potential harm to the interests of the non-signatory, but of determining whether proceeding with litigation will destroy the signatories’ right to a meaningful arbitration.” Waste Mgmt., Inc. v. Residuos Industriales Multiquim, S.A. de C.V., 372 F.3d 339, 343 (5th Cir.2004) (citing Adams v. Ga. Gulf Corp., 237 F.3d 538, 541 (5th Cir.2001)).

Borcherding fails to recognize that when arbitration has been ordered and a stay requested by a party to the arbitration agreement, the question of whether to stay any parallel judicial proceedings involving a non-party to the arbitration process focuses on the potential impairment of the signatory-party’s right to meaningful arbitration, as well as on the obvious impediment to both federal and state policy favoring arbitration created by redundant arbitration. See Adams, 237 F.3d at 541; Harvey, 199 F.3d at 796. The arbitration in the instant case will cover every aspect of the Letter Agreement, which was intended, inter alia, to “serve as both a settlement document and a binding resolution and/or consent action of the Members of Integrated and the Partners of Integ-ra.” This is so because the four signatory doctors agreed to binding arbitration to resolve all issues “not covered by this Agreement,” as well as “all disputes arising under or interpretations of this Agreement!.]” This would, presumably, include the employment status of Borcherding, as well as the details for compensating him for his work.⁴ Any attempt to judicially determine Relators’ liability, if any, to Bor-cherding under the causes of action pleaded in the original petition could, at the very least, adversely affect Relators’ right to arbitrate, and certainly to meaningfully arbitrate. See Harvey, 199 F.3d at 796. Additionally, the record indicates the three-factor test for invoking the section 3 mandatory stay discussed in Waste Management, Inc. has been met, viz: (1) similarity of operative facts; (2) inseparability of claims; and (3) effect of the litigation on the arbitration. See Waste Mgmt, Inc., 372 F.3d at 344-45; 9 U.S.C.A. § 3.

With regard to the FAA, the intent of the United States Congress and its public policy goal is clear, as observed by the United States Supreme Court:

Congress’s clear intent, in the Arbitration Act, [was] to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible. The Act provides two parallel devices for enforcing an arbitration agreement: a stay of litigation in any case raising a dispute referable to arbitration, 9 U.S.C. § 3, and an affirmative order to engage in arbitration, § 4. Both of these sections call for an expeditious and summary hearing, with only restricted inquiry into factual issues.

Moses H. Cone Mem’l Hosp., 460 U.S. at 22, 103 S.Ct. 927 (footnote omitted).

Mandamus relief is available only when a trial court clearly abuses its discretion and when there is no adequate remedy on appeal. In re Kuntz, 124 S.W.3d 179, 180 (Tex.2003) (orig. proceeding). With respect to factual issues, an abuse of discretion is shown when it is clear from the record that the trial court could have reasonably reached only one decision. Id. at 180. A trial court has no discretion in determining what the law is or in applying the law to the facts. Walker v. Packer, 827 S.W.2d 833, 840 (Tex.1992) (orig. proceeding). “Thus, a clear failure by the trial court to analyze or apply the law correctly will constitute an abuse of discretion ....” Id. A trial court also abuses its discretion if it acts in an arbitrary or unreasonable manner, without reference to any guiding rules or principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex.1985). Based upon the record before us, we find Respondent abused her discretion in refusing to stay all parallel judicial proceedings in the underlying litigation pending the results of the arbitration process. To permit Bor-cherding to carry on the litigation pursuant to claims identical to those involved in the arbitration process could seriously jeopardize Relators’ right to have those claims resolved by binding arbitration, as per the Letter Agreement. Failing to stay the parallel litigation after ordering arbitration, under the facts and circumstances presented, could only have the effect of “frustrating] the statutory policy of rapid and unobstructed enforcement of arbitration agreements.” Moses H. Cone Mem’l Hosp., 460 U.S. at 23, 103 S.Ct. 927. Because we find an abuse of discretion by Respondent in failing to stay the entire parallel litigation during the pendency of the arbitration process, we conditionally grant the writ of mandamus and direct the trial court to issue a stay of all further judicial proceedings, including discovery and temporary injunctive relief. The writ will issue only if the trial court fails to comply with our directive.

WRIT CONDITIONALLY GRANTED.

1 . See 9 U.S.C.A. §§ 1-16 (West 1999 & Supp. 2006).

2 . See Tex. Civ. Prac. & Rem.Code Ann. §§ 171.001-.098 (Vernon 2005).

3 . See 9 U.S.C.A. § 3 (West 1999).

4 . According to the Letter Agreement, the accounts receivable of Borcherding belonged exclusively to Integra Medical Clinics, L.L.P., f/k/a Integra Health Climes, L.L.P. "to be used by the remaining partners of Integra as they see fit.” Additionally, the Letter Agreement provides that Dr. Saqer "agrees to pay any salary due and owing to Borcherding.”