Raymond G. Romero v. Frank Herrera Jr.

Opinion

Fourth Court of Appeals San Antonio, Texas OPINION

No. 04-18-00845-CV

Raymond G. ROMERO, Appellant

v.

Frank HERRERA, Jr., Appellee

From the 285th Judicial District Court, Bexar County, Texas Trial Court No. 2018CI08392 Honorable Karen H. Pozza, Judge Presiding

Opinion by: Luz Elena D. Chapa, Justice

Sitting: Sandee Bryan Marion, Chief Justice Luz Elena D. Chapa, Justice Beth Watkins, Justice

Delivered and Filed: June 12, 2019

REVERSED AND REMANDED IN PART, DISMISSED IN PART

Frank Herrera, Jr. filed the underlying suit to enjoin part of an ongoing arbitration

proceeding and sought a declaration from the trial court that one of his several contract disputes

with Raymond Romero is not arbitrable. Romero filed a motion to compel arbitration, which the

trial court denied. The trial court rendered a partial summary judgment order declaring the disputed

contract claim not arbitrable. We reverse the trial court’s order denying the motion to compel and

remand with instructions. We dismiss Romero’s appeal of the partial summary judgment order. 04-18-00845-CV

BACKGROUND

Herrera and Romero, as well as two others who are not parties to this appeal, entered into

four agreements for purposes of forming a business entity that would provide wheel and tire

manufacturing and assembly services to Toyota Motor Manufacturing Texas, Inc., located in San

Antonio, Texas. Two of the four agreements, described below, contain arbitration provisions:

 The Joint Venture Agreement (the Valiente Agreement): This contract is a joint venture agreement executed on December 15, 2004, to create Valiente International Ventures. This contract, signed by Herrera and Romero in their individual capacities, does not contain an arbitration agreement.

 Limited Partnership Agreement: This contract was executed on December 16, 2004, and formed a limited partnership, Hero Assemblers. This contract contains an arbitration agreement and was signed by Herrera and Romero in their individual capacities.

 The Company Agreement: This contract was executed on December 16, 2004, to form Hero Management to serve as Hero Assemblers’ general partner. This contract also contains an arbitration agreement and was signed by Herrera and Romero in their individual capacities.

 Non-Compete Agreement: This contract was executed on December 16, 2004, and the parties agreed not to compete in North America. This Non-Compete contract is incorporated by reference into both the Limited Partnership Agreement and the Company Agreement, but does not itself contain an arbitration agreement.

In February 2018, Romero filed claims in arbitration against Herrera for allegedly starting a

competing company in Mexico. In the arbitration proceeding, Romero alleged Herrera breached

the Non-Compete Agreement, and further alleged Herrera’s breach of the Non-Compete

Agreement breached the other three agreements.

Herrera filed a lawsuit against Romero in district court seeking a declaratory judgment,

injunctive relief, and attorney’s fees. Herrera sought numerous declarations including:

 “The Valiente Agreement does not authorize Defendant to compel the arbitration of his claims or requests for relief against Plaintiff which arise from or relate to the Valiente Agreement”;

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 The Valiente Agreement does not include any of the terms and conditions of the Company and Limited Partnership Agreements; and

 Any breach of the Company, Limited Partnership, and Non-Compete Agreements “does not constitute a breach . . . of the Valiente Agreement.”

Herrera also sought a permanent injunction to preclude Romero from arbitrating any claims related

to the Valiente Agreement and requiring dismissal of those claims.

Herrera filed a motion for summary judgment on the ground the Valiente Agreement does

not contain an arbitration provision. In addition to responding to the summary judgment motion,

Romero filed a motion to compel arbitration, arguing Herrera had agreed to submit disputes about

the scope of the arbitration agreements to arbitration, not to litigation in a trial court. The trial court

heard both motions, and signed orders denying Romero’s motion to compel arbitration and

granting Herrera’s motion for partial summary judgment. The partial summary judgment order

granted Herrera declaratory relief that Romero “cannot compel the arbitration of [his] claims

against [Herrera] regarding the interpretation or enforcement of the [joint venture] agreement.”

Romero appeals the trial court’s order denying his motion to compel arbitration and trial court’s

partial summary judgment order.

MOTION TO COMPEL

“We review a trial court’s order denying a motion to compel arbitration for abuse of

discretion.” Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018). “We defer to the trial court’s

factual determinations if they are supported by evidence but review its legal determinations de

novo.” Id. “Whether the claims in dispute fall within the scope of a valid arbitration agreement

and whether a party waived its right to arbitrate are questions of law, which are reviewed de novo.”

Id.

The framework for analyzing a motion to compel generally involves three inquiries. See

id. First, the party seeking to compel arbitration “must establish the existence of a valid arbitration

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agreement.” Id. Second, the party seeking to compel arbitration must establish “that the claims at

issue fall within the scope of that agreement.” Id. Third, if that party satisfies this burden, the trial

court must compel arbitration unless the party opposing arbitration “prove[s] an affirmative

defense to the provision’s enforcement, such as waiver.” Id.

A. Existence of a Valid Arbitration Agreement

The existence of a valid arbitration agreement “is a gateway matter,” as arbitration is “a

creature of contract between consenting parties. Jody James Farms, JV v. Altman Grp., Inc., 547

S.W.3d 624, 629 (Tex. 2018). The parties dispute whether a valid arbitration agreement exists.

However, the parties do not dispute: (1) there is no arbitration agreement in the Valiente

Agreement; and (2) arbitration agreements are contained in the Company and Limited Partnership

Agreements. Herrera implicitly posits that, to be “a valid arbitration agreement” as to the breach

of the Joint Venture Agreement claims Romero filed in arbitration, the arbitration agreement must

be contained within the four corners of the Joint Venture Agreement. Romero implicitly posits that

whether an arbitration provision applies to a dispute beyond the four corners of the contract in

which the provision appears requires construing that arbitration provision to determine the parties’

intent, which relates to the second step of whether “the claims at issue fall within the scope of that

agreement.” See Henry, 551 S.W.3d at 115.

An arbitration agreement does not “have to be included in each of the contract documents

it purports to cover.” In re AdvancePCS Health L.P., 172 S.W.3d 603, 606 (Tex. 2005, orig.

proceeding) (per curiam). Parties may therefore agree in one contract to arbitrate disputes beyond

the scope of that contract. See id. For example, parties may execute a stand-alone arbitration

agreement, which would necessarily apply to disputes beyond the four corners of the arbitration

agreement. See id.; NACE Int’l v. Johnson, No. 01-15-00529-CV, 2016 WL 4486158, at *3 (Tex.

App.—Houston [1st Dist.] Aug. 25, 2016, no pet.) (mem. op. on reh’g) (“When considering stand-

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alone arbitration agreements, mutually binding promises are required as the only consideration

rendered to create the contract.”). Parties may also enter into a contract containing an arbitration

agreement that applies to non-contractual claims. For example, parties may agree to arbitrate

personal injury claims under certain circumstances and statutory employment discrimination

claims. See TEX. CIV. PRAC. & REM. CODE § 171.002(a)(3), (c); see, e.g., Rent-A-Center, W., Inc.

v. Jackson, 561 U.S. 63, 65 (2010) (considering stand-alone arbitration agreement as it pertained

to an employment-discrimination suit). Thus, for purposes of this first inquiry, the writing in which

the parties agreed to arbitrate appears immaterial; it is sufficient the parties have a valid written

agreement to arbitrate. See Jody James Farms, 547 S.W.3d at 631. “So long as the parties agreed

to arbitrate this dispute, it does not matter which document included that agreement.” AdvancePCS

Health, 172 S.W.3d at 606. Whether a valid written arbitration agreement covers a particular

dispute requires construing the arbitration provision to determine its scope, which is the second

inquiry. See Henry, 551 S.W.3d at 115; see, e.g., Longoria v. CKR Prop. Mgmt., LLC, No. 14-18-

00100-CV, 2018 WL 6722340, at *4 (Tex. App.—Houston [14th Dist.] Dec. 21, 2018, no pet. h.)

(determining the scope of a stand-alone arbitration agreement by construing “its unambiguous

terms”); Cash Biz, LP v. Henry, 539 S.W.3d 342, 350 (Tex. App.—San Antonio 2016) (applying

arbitration provision to matter outside of the contract, noting, “While the torts alleged are based

upon independent acts outside the formation or performance of the Loan Contracts, the arbitration

provision compels a very broad definition of ‘dispute.’”), aff’d, 551 S.W.3d 111 (Tex. 2018).

The undisputed facts establish the existence of two valid arbitration agreements between

the parties. Romero and Herrera both signed the Company Agreement and the Limited Partnership

Agreement. Both agreements contain arbitration provisions. These two provisions require certain

disputes to “be resolved by binding arbitration.” Herrera emphasizes that the Joint Venture

Agreement does not contain an arbitration provision, suggesting the parties’ arbitration agreements

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do not apply to disputes about the Joint Venture Agreement because those arbitration agreements

are not contained within the Joint Venture Agreement. But the scope of an arbitration agreement

turns on its terms, not on the particular written instrument in which the arbitration agreement

appears. See AdvancePCS Health, 172 S.W.3d at 606; Longoria, 2018 WL 6722340, at *4; Cash

Biz, 539 S.W.3d at 350. Thus, for purposes of the first motion-to-compel inquiry—the existence

of a valid arbitration agreement—it is immaterial that the parties’ arbitration agreement is not

contained within the four-corners of the Joint Venture Agreement. See AdvancePCS Health, 172

S.W.3d at 606. Because the undisputed facts establish the existence of valid arbitration agreements

between the parties, Romero met his burden as to the first inquiry. We therefore turn to considering

the second inquiry: whether the scope of either of the two arbitration agreements covers an alleged

breach of the Joint Venture agreement.

B. Whether the “Claims at Issue” Fall Within the Scope of the Arbitration Agreements

The second inquiry is whether the “claims at issue” fall within the scope of either of the

two arbitration agreements. Henry, 551 S.W.3d at 115. This second inquiry is a decision ordinarily

committed to the trial court. Jody James Farms, 547 S.W.3d at 631. “Parties can, however, agree

to arbitrate arbitrability.” Id. In other words, parties can agree to entrust an arbitrator, rather than

a trial court, to fairly and correctly construe an arbitration agreement to determine what claims fall

within the agreement’s scope, and to act as the gatekeeper to determine what claims are arbitrable.

See id.; see also First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995) (“[T]he

question ‘who has the primary power to decide arbitrability’ turns upon what the parties agreed

about that matter.”). Recently, the Supreme Court of the United States reinforced this principle,

holding that when the parties have delegated arbitrability questions to the arbitrator, the arbitrator

decides whether a claim is arbitrable even when the claim is clearly outside of the scope of the

arbitration agreement. See Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 529

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(2019) (precluding courts from intervening even when a party’s assertion that a claim is arbitrable

is “wholly groundless”). However, “[a] presumption favors adjudication of arbitrability by the

courts absent clear and unmistakable evidence of the parties’ intent to submit that matter to

arbitration.” Jody James Farms, JV, 547 S.W.3d at 631.

The “claims at issue” in the underlying suit are not the claims Romero filed in arbitration;

the “claims at issue” are those Herrera has alleged in the underlying suit he filed in the trial court.

Herrera’s claims in the trial court relate to the arbitrability of the claims Romero filed in the

arbitration proceeding. Specifically, Herrera claims Romero’s “claims and requests for relief [filed

in the arbitration proceeding] with respect to the Valiente [Joint Venture] Agreement are not

subject to arbitration.” Thus, Herrera’s claims in the trial court ultimately seek the trial court’s

determination of the meaning and scope of the arbitration provisions in the Company Agreement

or the Limited Partnership Agreement. Consequently, to prevail on his motion to compel, Romero

had the burden to establish the parties’ dispute about the scope of the arbitration provisions itself

falls within the scope of the arbitration provisions in the Company Agreement and the Limited

Partnership Agreement. Simply stated, Romero had the burden to establish the parties clearly and

unmistakably intended to “agree to arbitrate arbitrability” and submit disputes about the scope of

an arbitration agreement to arbitration. See id.

Romero produced the Company Agreement and the Limited Partnership Agreements. The

arbitration provision in the Limited Partnership Agreement provides:

Any dispute regarding interpretation or enforcement of any of the Members’ rights or obligations hereunder shall first be referred to non-binding mediation for resolution, and only if the dispute is not resolved through non-binding mediation shall it be resolved by binding arbitration according to the rules of the American Arbitration Association in San Antonio, Texas.

(emphasis added). Similarly, the arbitration provision in the Company Agreement provides:

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Any dispute regarding interpretation or enforcement of any of the Partners’ rights or obligations hereunder shall first be referred to non-binding mediation for resolution, and only if the dispute is not resolved through non-binding mediation shall it be resolved by binding arbitration according to the rules of the American Arbitration Association in San Antonio, Texas.

(emphasis added). The American Arbitration Association (AAA) rules “state that ‘[t]he 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.’” Petrofac, Inc. v. DynMcDermott

Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir. 2012) (quoting AAA Rule 7(a)). “A

number of our sister courts have adopted a general rule that when a broad arbitration agreement

exists between the parties, and when that agreement incorporates arbitration rules that specifically

empower the arbitrator to decide issues of arbitrability, then the incorporation of those rules

constitutes clear and unmistakable evidence of the parties’ intent to delegate arbitrability to the

arbitrator.” Trafigura Pte. Ltd. v. CNA Metals Ltd., 526 S.W.3d 612, 616 (Tex. App.—Houston

[14th Dist.] 2017, no pet.). 1

The arbitration provisions in the Company and Limited Partnership Agreements expressly

incorporate the AAA rules. The AAA rules specifically empower the arbitrator to decide issues of

arbitrability and establish Romero and Herrera “agree[d] to arbitrate arbitrability.” See id. Romero

and Herrera thereby expressed their clear and unmistakable “intent to delegate arbitrability to the

arbitrator.” See id. In doing so, both agreed to entrust an arbitrator, not a trial court, with making

fair and correct determinations as to the meaning and scope of an arbitration agreement and

whether certain claims were arbitrable. See Jody James Farms, 547 S.W.3d at 631. Consistent with

our sister courts and the vast majority of federal courts, we hold the parties agreed to arbitrate

1 Generally, Texas courts that have addressed this issue have reached the same conclusion. Id. at 616–17 (citing Fort Worth, Amarillo, Houston [1st], Dallas, and Corpus Christi). Most federal courts have reached the same conclusion. See Petrofac, 687 F.3d at 675 (citing authorities).

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arbitrability, and thus a dispute about the scope of the arbitration agreements must be decided in

arbitration, not in the trial court. Romero has therefore satisfied his burden to establish the parties’

disputes about the meaning and scope of the arbitration provisions, themselves, fall within the

scope of the arbitration provisions.

C. Contract Defenses to Enforcement of the Arbitration Agreements

Because Romero satisfied his burden regarding the first two inquiries, the trial court was

required to compel arbitration unless Herrera “prove[d] an affirmative defense to the provision’s

enforcement, such as waiver.” See Henry, 551 S.W.3d at 115. In response to Romero’s motion to

compel, Herrera did not raise any contract defense to the enforcement of the arbitration provisions.

We note both arbitration provisions require that disputes “first be referred to non-binding

mediation for resolution,” but Herrera never alleged or proved this condition precedent was not

satisfied as to the dispute over the issue of arbitrability. See Martel v. Comte, No. 12-18-00249-

CV, 2019 WL 1273130, at *4 (Tex. App.—Tyler Mar. 20, 2019, no pet. h.) (mem. op.) (stating

breach of condition precedent goes to “enforceability of an arbitration clause if the condition

attaches to that clause”); Dall. Cardiology Assocs., P.A. v. Mallick, 978 S.W.2d 209, 212 (Tex.

App.—Texarkana 1998, pet. denied) (holding failure to mediate as a prerequisite to arbitration

relates to enforceability). Because the trial court was required to compel arbitration, we hold the

trial court abused its discretion by denying Romero’s motion to compel arbitration.

PARTIAL SUMMARY JUDGMENT ORDER

In its partial summary judgment order, the trial court granted declaratory relief in favor of

Herrera. In his notice of appeal, Romero challenges the trial court’s partial summary judgment

order. In his brief, Romero “requests that this Court permit him to appeal” the partial summary

judgment order, and states that if we “refuse to exercise jurisdiction over” his appeal of the partial

summary judgment order, he “will proceed to seek mandamus relief.”

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Romero has not “specifically request[ed] that his appeal be treated as a mandamus

petition.” See CMH Homes v. Perez, 340 S.W.3d 444, 452, 454 (Tex. 2011). He seeks only to

appeal the partial summary judgment order. However, we lack appellate jurisdiction over appeals

from such partial summary judgment orders because they are not final or otherwise appealable,

and we lack discretion to permit an appeal of the non-appealable order because Romero has not

followed the statutory procedures for pursuing a permissive appeal. See City of San Antonio v.

Tommy Harral Constr., Inc., 486 S.W.3d 77, 80 (Tex. App.—San Antonio 2016, no pet.); Gulf

Coast Asphalt Co., L.L.C. v. Lloyd, 457 S.W.3d 539, 542–43 (Tex. App.—Houston [14th Dist.]

2015, no pet.).

CONCLUSION

We reverse the trial court’s order denying Romero’s motion to compel arbitration. This

case is remanded to the trial court with instructions to render an order compelling the parties to

arbitrate the claims Herrera alleged in the underlying suit filed in the trial court, which pertain to

whether the alleged breach of the Joint Venture Agreement is a dispute that falls within the scope

of the arbitration provisions contained in the Company and Limited Partnership Agreements.

Romero’s appeal of the partial summary judgment order is dismissed for lack of jurisdiction.

Luz Elena D. Chapa, Justice

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