NCP Finance Limited Partnership and NM Capital, Inc. v. Humberto Escatiola

• Court: Court of Appeals of Texas
• Decided: April 27, 2011
• Docket: 04-10-00644-CV
• Status: Published

Opinion

OPINION No. 04-10-00644-CV

NCP FINANCE LIMITED PARTNERSHIP and NMCapital, Inc., Appellants

v.

Humberto ESCATIOLA, Appellee

From the 150th Judicial District Court, Bexar County, Texas Trial Court No. 2009-CI-19255 Honorable Antonia Arteaga, Judge Presiding

Opinion by: Sandee Bryan Marion, Justice

Sitting: Sandee Bryan Marion, Justice Rebecca Simmons, Justice Steven C. Hilbig, Justice

Delivered and Filed: April 27, 2011

REVERSED AND REMANDED

In this accelerated appeal, appellants, NCP Finance Limited Partnership and NMCapital,

Inc. (collectively “NCP”), appeal from the trial court’s order on their motion to compel

individual arbitration and stay litigation pending arbitration. We reverse and remand.

BACKGROUND

ACE Credit Service, LLC (“ACE”) is a registered Texas credit services organization, and

NMCapital is an out-of-state lender and a general partner of NCP Finance Limited Partnership, a 04-10-00644-CV

Texas limited partnership. On February 16, 2008, appellee, Humberto Escatiola, obtained a loan

from NCP through credit services provided by ACE. On that same date, Escatiola, ACE, and

NCP signed a credit services agreement, a loan agreement, a promissory note, and an arbitration

agreement. The arbitration agreement states:

[U]pon the election of either [Escatiola], [ACE] . . . , or [NCP] . . . , any legal dispute between [Escatiola], on the one hand, and ACE and/or [NCP], on the other hand, will be resolved by binding arbitration. . . . (1) NO PARTY MAY PARTICIPATE IN A CLASS ACTION IN COURT OR IN CLASS-WIDE ARBITRATION . . . ; (2) NO PARTY MAY ACT AS A PRIVATE ATTORNEY GENERAL IN COURT OR IN AN ARBITRATION; (3) CLAIMS BROUGHT BY OR AGAINST [ESCATIOLA] MAY NOT BE JOINED OR CONSOLIDATED WITH CLAIMS BROUGHT BY OR AGAINST ANY OTHER PERSON; AND (4) THE ARBITRATOR SHALL HAVE NO AUTHORITY TO CONDUCT A CLASS-WIDE ARBITRATION, PRIVATE ATTORNEY GENERAL ARBITRATION OR MULTIPLE-PARTY ARBITRATION.

The arbitration agreement commits any “claim,” which it defines as “any legal dispute between

[Escatiola], on the one hand, and ACE and/or [NCP], on the other hand,” to the arbitrator.

However, the arbitration agreement also states: “[A]ny dispute about the validity, effect or

enforceability of the prohibitions against class proceedings, private attorney general proceedings

and/or multiple-party proceedings . . . shall be resolved by a court and not by an arbitrator or

arbitration administrator” (emphasis added). Escatiola refinanced the loan three times over the

next two months, and he signed identical arbitration agreements on each occasion.

On behalf of a purported class, Escatiola sued ACE and NCP for usury, violation of the

Texas Deceptive Trade Practices Act, and violation of the Texas Credit Services Organization

Act. NCP filed a motion in the trial court to compel individual arbitration, to strike Escatiola’s

request for class action certification, and to stay the litigation pending completion of arbitration.

The trial court’s order on the motion reads, in part: “IT IS . . . ORDERED THAT [NCP’s]

Motion as to individual arbitration is denied and that the case shall proceed in arbitration and

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[Escatiola] may seek class certification therein.” The trial court stayed the litigation and

appointed an arbitrator.

On appeal, NCP argues the trial court was required to grant the motion as to individual

arbitration because (a) the parties’ arbitration agreement specifically prohibits class arbitration,

and (b) the United States Supreme Court recently ruled in Stolt-Nielsen S.A. v. AnimalFeeds

International Corp. that class arbitration may not be compelled absent express agreement of the

parties.

DISCUSSION

Several years ago, the United States Supreme Court held that whether an arbitration

agreement forbids a class action is a question for the arbitrator, not the trial court, to decide.

Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003) (plurality opinion). In Green Tree,

Lynn and Burt Bazzle (“the Bazzles”) obtained a home improvement loan from Green Tree

Financial Corporation (“Green Tree”). Id. at 447. The Bazzles and Green Tree signed a

contract, which included this arbitration clause: “‘All disputes, claims, or controversies arising

from or relating to this contract or the relationships which result from this contract . . . shall be

resolved by binding arbitration by one arbitrator selected by [Green Tree] with consent of [the

Bazzles].’” Id. at 448 (emphasis in original). The Bazzles subsequently sued Green Tree in

South Carolina state court for violation of the South Carolina Consumer Protection Code and

asked the trial court to certify their claim as a class action. Id. at 449. The trial court certified a

class and entered an order compelling arbitration. Id. Affirming the trial court’s order, the South

Carolina Supreme Court held class arbitration was authorized because the contract was silent on

the matter. Id. at 450.

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A plurality of the United States Supreme Court vacated the South Carolina Supreme

Court’s ruling, holding that in certain limited circumstances, courts must decide “gateway”

arbitration-related matters, “such as whether the parties have a valid arbitration agreement at all

or whether a concededly binding arbitration clause applies to a certain type of controversy.” Id.

at 452. However, the Court concluded the question involved in Green Tree—whether the

parties’ contract forbade class arbitration—did not fall into that narrow exception because it

concerned neither the validity of the arbitration clause nor the clause’s applicability to the

underlying dispute. Id. According to the Court, whether the parties’ contract forbade class

arbitration was a question of what kind of arbitration the parties agreed to—a matter of contract

interpretation and arbitration procedures. Id. at 452–53. Given that “[a]rbitrators are well suited

to answer” questions of contract interpretation, and that the parties’ contract contained

“sweeping language concerning the scope of the questions committed to arbitration,” the Court

held the matter should be decided by the arbitrator, not the trial court. Id. at 453.

Expressly relying upon the United States Supreme Court’s ruling in Green Tree, the

Texas Supreme Court also held the arbitrator, not the trial court, must rule on class certification

issues. In re Wood, 140 S.W.3d 367, 368 (Tex. 2004) (per curiam). In Wood, an attorney and

three of his clients signed fee agreements providing that all disputes arising from the agreements

would be submitted to binding arbitration. Id. When the clients sued the attorney over a fee

dispute, the trial court ordered the case to arbitration and signed a second order specifically

authorizing the arbitrator to decide whether the clients could seek class certification in

arbitration. Id. The court of appeals issued a writ of mandamus directing the trial court to vacate

its second order and determine whether the parties’ agreement permitted class arbitration. Id.

However, the Texas Supreme Court concluded the decision in Green Tree was “directly on

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point” and held the court of appeals erred in directing the trial court to determine the class

certification issue. Id. at 369–70. According to the unanimous Texas Supreme Court, “when the

contracts at issue commit[] all disputes arising out of the agreement to the arbitrator,” the

arbitrator must decide class certification issues. Id. at 368.

Recently, a majority of the United States Supreme Court recognized Green Tree did not

garner a majority on the question of whether the trial court or the arbitrator must decide class

certification questions. Stolt-Nielsen, 130 S. Ct. 1758, 1772 (2010). However, the Stolt-Nielsen

majority declined to resolve this unsettled question because the parties’ agreement expressly

assigned the class certification question to the arbitration panel. Id. Instead, the Court turned to

the question the Green Tree Court did not address—the standard to be applied when determining

whether a contract permits class arbitration. Id. The Court held that “a party may not be

compelled . . . to submit to class arbitration unless there is a contractual basis for concluding that

the party agreed to do so.” Id. at 1775 (emphasis in original). Because the parties conceded

their agreement was silent on the matter of class certification, the Court found the arbitration

panel’s certification of a class “fundamentally at war with the foundational . . . principle that

arbitration is a matter of consent.” Id.

Here, the arbitration agreement expressly assigns “any dispute about the validity, effect

or enforceability of the prohibitions against class proceedings” to the trial court, not the

arbitrator. Accordingly, because the contract at issue here did not commit all disputes to the

arbitrator, but rather expressly assigned disputes involving the class action waiver provision to

the trial court, the trial court was required to rule on NCP’s motion to compel individual

arbitration.

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Turning to whether the trial court’s denial of NCP’s motion was correct in light of recent

precedent, we must conclude it was not. The clear language of the parties’ agreement expressly

forbids class certification in arbitration. Because the United States Supreme Court recently held

in Stolt-Nielson that a party cannot be compelled to submit to class arbitration absent its express

consent, the trial court erred by denying NCP’s motion to compel individual arbitration and by

permitting Escatiola to seek class certification before the arbitrator.

CONCLUSION

We reverse the trial court’s order and remand this matter to the trial court for proceedings

consistent with this opinion.

Sandee Bryan Marion, Justice

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