Phelan v. Highland Capital Mgmt., L.P. (In re Acis Capital Mgmt., L.P.)

600 B.R. 541
United States Bankruptcy Court, N.D. Texas·Decided April 16, 2019·No. CASE NO. 18-30264-SGJ-11; CASE NO. 18-30265-SGJ-11 (Jointly Administered Under Case No. 18-30264-SGJ-11); ADVERSARY NO. 18-03078-SGJ·Published

Opinion

The Reorganized Debtors have argued that it is quite clear that the last iterations of the Sub-Advisory and Shared Services Agreements intended to supersede in every way the prior versions. That includes the provisions directing arbitration. And, they argue, it does not matter when the causes of action occurred/accrued or not. What matters is that the parties agreed at some point that their disputes would not be sent to arbitration and this was the last governing document.

C. The Relevant Language in the Sub-Advisory and Shared Services Agreements Pertaining to (i) Arbitration and (ii) Superseding of Prior Agreements.

As mentioned earlier, there was an arbitration clause at Section 16(f) of the Sub-Advisory Agreement until the last March 17, 2017 version. The clause read as follows:

[I]n the event there is an unresolved legal dispute between the parties and/or any of their respective officers, directors, partners, employees, agents, affiliates or other representatives that involves legal rights or remedies arising from this Agreement, the parties agree to submit their dispute to binding arbitration under the authority of the Federal *550Arbitration Act....23

In the Shared Services Agreement, an arbitration clause appeared at Section 9.14, as follows:

Notwithstanding anything contained in this Agreement or the Annexes hereto to the contrary, in the event there is an unresolved legal dispute between the parties and/or any of their respective officers, directors, partners, employees, agents, affiliates or other representatives that involves legal rights or remedies arising from this Agreement, the parties agree to submit their dispute to binding arbitration under the authority of the Federal Arbitration Act....24

As earlier mentioned, these two agreements were later amended and restated several times. The arbitration provisions remained identical until they were completely eliminated in March 2017. The Reorganized Debtor argues that this is a short analysis: there was no longer an operative arbitration provision as of March 17, 2017.

In the March 17, 2017 version of the Shared Services Agreement, the parties agreed "that the courts of the State of Texas and the United States District Court located in the Northern District of Texas in Dallas are to have exclusive jurisdiction to settle any disputes (whether contractual or noncontractual) which may arise out of or in connection with this Agreement and that accordingly any action arising out of or in connection therewith (together referred to as 'Proceedings') may be brought in such courts."25

The same type language appeared in the March 17, 2017 version of the Sub-Advisory Agreement: "The parties unconditionally and irrevocably consent to the exclusive jurisdiction of the courts located in the State of Texas and waive any objection with respect thereto, for the purpose of any action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby."26

More generally, the March 17, 2017 versions of the agreements each provided that they "amended, restated and replaced the existing agreements in [their] entirety ."27 The March 17, 2017 agreements also each provided that they "supersede[d] all prior agreements and undertakings, both written and oral, between the parties with respect to such subject matter."28

In summary, the Reorganized Debtors argue that, under Texas common law, basic principles of contract interpretation, and the plain language of the March 17, 2017 version of the agreements, there is no agreement to arbitrate. "A contract's plain language controls."29 Because the prior versions of the agreements were "amended, restated and replaced in [their] entirety" with the March 17, 2017 agreements-which not only omit an arbitration provision, but also expressly provide for jurisdiction and venue in Texas state or federal courts-the Reorganized Debtors argue that there exists no valid agreement to arbitrate between Highland and Acis LP. The court's inquiry can and should end there. But, if the court concludes the arbitration clauses are still applicable, the Reorganized *551Debtors argue that the bankruptcy court has discretion not to compel arbitration when (a) bankruptcy core matters are involved, and (b) arbitration would conflict with the purposes of the Bankruptcy Code. Therefore, this is further reason why the Arbitration Motion should be denied.

III. Legal Analysis.

A. The Federal Arbitration Act and Arbitration Clauses Generally .

The FAA provides that arbitration agreements are always "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."30 Thus, the FAA reflects a liberal federal policy favoring arbitration, and requires arbitration agreements to be rigorously enforced according to their terms.31 The FAA "expresses a strong national policy favoring arbitration of disputes, and all doubts concerning the arbitrability of claims should be resolved in favor of arbitration."32 "There is a strong presumption in favor of arbitration and the party seeking to invalidate an arbitration agreement bears the burden of establishing its invalidity."33

When considering a motion to compel arbitration, the Fifth Circuit has held there are two threshold questions: (1) whether an arbitration agreement is valid; and (2) whether the dispute falls within the scope of the agreement.34 To evaluate the enforceability of an arbitration agreement, courts apply the contract law of the state that governs the agreement,35 whereas the scope of the agreement is a matter of federal substantive law.36

B. Is There a Valid Agreement to Arbitrate that Applies Here and is Still Enforceable?37

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Phelan v. Highland Capital Mgmt., L.P. (In re Acis Capital Mgmt., L.P.), 600 B.R. 541 (Tex. 2019).

600 B.R. 541 (Phelan v. Highland Capital Mgmt., L.P. (In re Acis Capital Mgmt., L.P.)) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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