Perlstein v. D. Steller 3, Ltd.

109 S.W.3d 36, 2003 WL 21088446

• Court: Court of Appeals of Texas
• Decided: July 17, 2003
• Docket: 13-02-180-CV
• Status: Published

Opinions

OPINION

Opinion by

Justice CHAVEZ (Retired).

In this interlocutory appeal, appellant, Fred Perlstein (“Perlstein”), appeals the trial court’s denial of his motion to abate and compel arbitration.²

D. Steller 3, Ltd. (“Steller”), a Texas limited partnership, purchased a general partnership interest in a limited partnership from Perlstein. At closing, the limited partnership was restructured in accordance with the agreement of the parties, and an Amended and Restated Agreement of Limited Partnership (“the Amended Agreement”) was executed. The Amended Agreement contained the terms and provisions for the operation of an apartment complex that the limited partnership owned. Included in the Amended Agreement was an arbitration agreement. Stel-ler later sued Perlstein, alleging Perlstein made false representations that induced Steller to purchase the general partnership. Perlstein moved the court to abate the suit and order Steller to arbitrate the dispute as required by the Amended Agreement. The trial court denied the motion, and this appeal followed. Because we hold that the arbitration paragraph does not apply to the dispute in question, we affirm the trial court’s order denying arbitration.

Following a letter of intent (“the Letter Agreement”) to purchase the general partnership interest, Steller and Perlstein entered into a Purchase Agreement on May 27, 2000 that set out the terms and conditions of the transaction. The Purchase Agreement contained the following remedies provision:

21. Remedies. In the event that any of the PERLSTEIN’s representations or warranties contained herein are untrue or if PERLSTEIN shall have failed to have performed any of the covenants and/or agreements contained herein which are to be performed by PERL-STEIN, BUYER may, at its option, either (a) terminate this Agreement by giving written notice of termination to PERLSTEIN and receive a full and immediate refund of any and all Earnest Money previously deposited; or (b) sue PERLSTEIN for damages suffered by BUYER; or (c) BUYER may seek to enforce specific performance of this Agreement.

Paragraph 3.2 of the Purchase Agreement provided that there would be a restructuring of the limited partnership in an Amended and Restated Partnership Agreement and that the Purchase Agreement would be incorporated into the said Amended and Restated Partnership Agreement.

The sale was closed on December 28, 2000, when Steller signed the Amended Agreement with an effective date of January 1, The Amended Agreement contained “Entire Agreement” clause that reads ⅜§⅛11<?"¾. .

17.02 Entire%Agreement. This Agreement, the Letf§* .Agreement and the Purchase Agreement- dated May 27, 2000 between PeiW.lvn and the General Partner '(Steller), represent the entire and complete agreement of the Partners with respect to the subject matter hereof, and supersede all prior understandings and agreements, both written and oral, as to the subject matter hereof by and among any of the Partners hereto.

The Amended Agreement also contained the following arbitration paragraph:

16.01 Arbitration Generally. Any controversy, claim or dispute between or among the parties directly or indirectly concerning this Agreement or the breach thereof or the subject matter hereof, including questions concerning the scope and applicability of this Article XVI, shall be finally settled by arbitration held in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”), as amended from time to time. The arbitrators shall have the right and authority to determine how their decision or determination as to each issue or matter in dispute may be implemented or enforced. Any decision or award of the arbitrators shall be final, binding and conclusive on the parties to this Agreement and there shall be no appeal therefrom other than for gross negligence or willful misconduct.

After Steller filed his fraudulent inducement lawsuit, Perlstein moved the court to abate the case and compel arbitration. Perlstein contended- that all three agreements had been merged into one final and complete agreement, thus making all disputes subject to arbitration. Even if Steller disputed the applicability of the arbitration clause, argued Peri-stein, that dispute was also subject to arbitration. Steller, on the other hand, disputes that a merger had occurred and argues that the fraudulent inducement claim was specifically reserved in the “remedies” clause contained in the Purchase Agreement.

Accordingly, we must decide whether the Amended Agreement merged all three agreements into one final agreement rendering the arbitration agreement applicable to this dispute, and if so, whether the remedies clause in the Purchase Agreement created an exception to arbitrate such a claim. We must also determine whether the dispute regarding the scope and applicability of the arbitration paragraph is itself subject to arbitration.

Historically, Texas law has favored settling disputes by arbitration. EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90 (Tex.1996). Arbitration is a creature of contract; thus, when a party seeks to compel arbitration, he must first establish his right to that remedy under contract. City of Alamo v. Garda, 878-S.W.2d 664, 665 (Tex.App.-Corpus Christi 1994, no writ). In Texas, courts favor arbitration agreements, and any doubts regarding the scope of an arbitration agreement are resolved in favor of arbitration. Koch v. Koch, 27 S.W.3d 93, 96 (Tex.App.-San Antonio 2000, no pet.). Once the existence of an arbitration agreement has been shown, the party resisting arbitration bears the burden of proving that the dispute at issue falls outside of the arbitration agreement. Prudential Sec., Inc. v. Marshall, 909 S.W.2d 896, 900 (Tex.1995). The policy favoring enforcement of arbitration provisions is so compelling that a court should not deny arbitration “unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue.” Id. at 899.

In his second issue, Perlstein argues that Steller presented no evidence that the dispute is not governed by the arbitration provisions of the Amended Agreement. We review a trial court’s determination concerning the existence of an arbitration agreement under an abuse of discretion standard. Southwest Tex. Pathology Assocs., L.L.P. v. Roosth, 27 S.W.3d 204, 207 (Tex.App.-San Antonio 2000, pet. denied); ANCO Ins. Servs. of Houston, Inc. v. Romero, 27 S.W.3d 1, 3 (Tex.App.-San Antonio 2000, pet. denied). Under this standard, we must uphold the trial court’s decision unless we conclude that the trial court could reasonably have reached only one decision. Roosth, 27 S.W.3d at 207. Where, as here, the trial court does not enter findings of facts and - conclusions of law, we must affirm the trial court’s decision if there is sufficient evidence to support it upon any legal theory asserted. Pepe Internad Dev. Co. v. Pub Brewing Co., 915 S.W.2d 925, 929 (Tex.App.-Houston [1st Dist.] 1996, no writ). Even if we would have decided the issue differently, we cannot disturb the trial court’s finding unless it is shown to be arbitrary and unreasonable. Walker v. Packer, 827 S.W.2d 833, 840 (Tex.1992). Legal conclusions, however, are reviewed de novo. Id; Pony Express Courier Corp. v. Morris, 921 S.W.2d 817, 820 (Tex.App.-San Antonio 1996, no writ). Whether an agreement imposes a duty on the parties to arbitrate a dispute is a matter of contract interpretation and a question of law for the court. Tenet Healthcare Ltd. v. Cooper, 960 S.W.2d 386, 388 (Tex.App.Houston [14th Dist.] 1998, writ dism’d w.o.j.).

The record before the trial court shows that three agreements were entered into separately over a period of time. The two agreements that concern us are the Purchase Agreement and the Amended Agreement. Each contains different “entire agreement” clauses, one an arbitration agreement, and the other a remedies clause. The dispute centers on whether the Amended Agreement merged all the agreements into on®^. rendering the arbitration clause applicable to the dispute in question. Therefore, we first look at the entire agreement clauses in the respective agreements.

Perlstein bases his merger argument on paragraph 17.02 of the Amended Agreement. Nowhere in that paragraph, however, have we been able to find the word “merged.” The Purchase Agreement, on the other hand, also contains an “Entire Agreement” paragraph. That paragraph reads as follows:

18. Entire Agreement of Parties/Interpretation. This Agreement constitutes the entire contract between the parties hereto. Any prior written or oral agreements or letters of intent shall be considered merged in this Agreement and shall be of no further force or effect. (Emphasis added).

First, we note that the agreement is described as the “entire contract between the parties hereto,” while paragraph 17.02 refers to the three agreements as representing the “entire and complete agreement of the Partners ...” (emphasis added). Separation of the transactions was necessary because the purchase of the general partnership interest was a transaction involving only two parties, Steller and Perlstein, whereas the restructuring of the limited partnership involved Steller, Perl-stein, and the other partners.

Secondly, paragraph 17.02 provides that “This Agreement, the Letter-Agreement and the Purchase Agreement ... represent the entire and complete agreement of the Partners.... ” We read this clause as meaning that the three agreements, taken together, form the complete agreement of the parties. The Letter Agreement and the Purchase Agreement were made a part of the entire and complete agreement of the partners because in those agreements, Steller was to become the general partner, and agreed to make certain improvements to the property and to the restructuring of the limited partnership that involved the remaining partners. It is apparent, however, that some separation of the agreements was intended because the parties chose to insert the word “merged” when referring to various documents in the “entire agreement” clause of the document that involved only those parties, and chose not to include the term in the other agreement that involved other partners. Had the parties wanted to merge the Letter Agreement and the Purchase Agreement with the Amended Agreement, they could have easily said so. They did not. We also read paragraph 17.02 as stating that all three agreements taken together supersede all prior understandings and agreements, not that “[t]his agreement” supersedes all prior understandings and agreements. Paragraph 17.02 also lists each of the agreements by name, referring to the Amended Agreement as “this Agreement.” The arbitration paragraph also refers only to “this Agreement” and does not mention the other two agreements.

Perlstein also relies on the “merger doctrine” in his argument that a merger of all agreements occurred when the Amended Agreement was executed. Merger, however, refers to the extinguishment of one contract by its absorption into another contract and is largely a matter of the intention of the parties. Pitman v. Lightfoot, 937 S.W.2d 496, 529 (Tex.App.-San Antonio 1996, writ denied). Whether merger has occurred, or whether an agreement is merely a non-conflicting addition to a written contract, is determined from the intent of the parties. Id. Here, the parties clearly had no intention to extinguish any of the agreements. Rather, the parties clearly expressed that all three agreements collectively formed the entire agreement of the parties. We conclude, therefore, that paragraph 17.02 of the Amended Agreement did not merge all three of the agreements.

We have reviewed Steller’s pleadings in the underlying lawsuit against Perlstein and find that the factual allegations state a cause of action solely for fraudulent inducement in the sale of the partnership interest. Normally, fraud in the inducement of an arbitration agreement is a defense to arbitration, but alleged misrepresentations in the inducement of the underlying contract relate to the contract’s valdity and can be arbitrated. In re FintMerit Bank, N.A., 52 S.W.3d 749, 755 (Tex.2001). In interpreting Colorado lav recently, the Supreme Court held thst whether a contract was induced by fraid was a dispute involving the agreement and could be arbitrable. In re J.D. Ecwards World Solutions Co., 87 S.W.3d 516, 551 (Tex.2002) (orig.proceeding).

Edwards however, involved only one contract vith an arbitration agreement that required all disputes involving the contract to be arbitrated. Id. at 548. Here, tie parties had separate, specific agreements for each segment of the transaction: (1) a letter of intent to purchase the general partnership; (2) the actual purchase of the general partnership; and (8) the Amended Agreement, which restructured the limited partnership by naming Steller as the general partner and provided for the operation of the property the limited partnership owned. Each agreement separately provided a manner in which to settle disputes: by arbitration in the Amended Agreement and through a remedies clause specifically for only one eventuality in the Purchase Agreement. Although this eventuality is not listed in the exceptions clause of the arbitration agreement, it need not be because the agreements were not merged and the remedies clause is restrictive and clearly identifies the sole issue that the parties wanted it to encompass.

Even if the agreements were merged, that would only mean they were merged or incorporated in their entirety, including the remedies clause to encompass only one type of dispute, and an arbitration clause to encompass all other disputes. In effect, the remedies clause would be an exception to arbitration. The entire agreement clause., paragraph 17.02, contains no language that would extinguish any of the agreements or supremacy provisions in the event of a ctnflict. We hold, therefore, that the parties clearly intended to exclude the fraudulent nducement claim from the arbitration agrément. Because we hold that the arbitraion agreement does not encompass the depute in question, neither does it enconas the right to arbitrate the question concerning its scope and applicability in this intanee. The duty to arbitrate scope and applicability encompasses all disputes, excep, the fraudulent inducement claims described in the Purchase Agreement.

We overrule appellant’s issues and AFFIRM the order of the trial court.

2 . The Texas Arbitration Act ("TAA") provides for interlocutory appeal of an order denying a motion to compel arbitration under the TAA. See Tex. Civ. Prac. & Rem.Code Ann. § 171.098(a)(1) (Vernon Supp.2003); Certain Underwriters at Lloyd’s of London v. Celebrity, Inc., 988 S.W.2d 731, 732 (Tex.1998). Here, appellant asserts this Court has jurisdiction to hear this interlocutory appeal under the TAA, and appellee does not challenge this Court’s jurisdiction. Moreover, the record contains no evidence that the arbitration agreement at issue implicates the Federal Arbitration Act.