Sam Houston Electric Cooperative, Inc. v. Joe D. Berry

Court of Appeals of Texas·Decided September 28, 2017·No. 09-16-00346-CV·Published

Opinion

In The

Court of Appeals

Ninth District of Texas at Beaumont

NO. 09-16-00346-CV

SAM HOUSTON ELECTRIC COOPERATIVE, INC., ET AL Appellants V.

JOE D. BERRY, ET AL, Appellees

On Appeal from the 253rd District Court Liberty County, Texas

Trial Cause No. CV-15-10279

OPINION

In this accelerated, interlocutory appeal, Sam Houston Electric Cooperative, Inc. and several individual members of the cooperative’s management and current and former directors (collectively referred to herein as “SHEC”) challenge the trial court’s order denying their motion to compel arbitration of purported class action claims and request to stay those proceedings pending arbitration. We reverse the trial court’s order and remand the cause with instructions to enter an order compelling arbitration and staying the putative class proceedings pending arbitration.

I. Background

SHEC is a member-owned, not-for-profit electric cooperative organized under the Texas Electric Cooperative Corporation Act (“ECCA”) to provide electricity to its members in rural areas. See Tex. Util. Code Ann. § 161.001–.254 (West 2007). Formed in 1939, the cooperative’s original Articles of Incorporation (the “Articles”) provided that its directors would manage its affairs, and, as permitted by the ECCA, that its bylaws could “be altered, amended or repealed by not less than the affirmative vote of two-thirds (2/3) of all of the Board of Directors at any regular or special meeting.” See Tex. Util. Code Ann. § 161.064(a). The cooperative’s 2012 Bylaws1 restate that authority, and also provide that “[t]he business and affairs of the Cooperative shall be managed and governed by the Board, . . . [which] shall exercise all of the powers of the Cooperative except such as by Law or the Articles are conferred upon or reserved to the Members.” SHEC’s Board of Directors is comprised exclusively of qualified members elected by other members.

The record indicates that, as permitted by the ECCA and the original Articles, SHEC amended its Bylaws periodically over time. See Tex. Util. Code Ann. §

1 Unless otherwise stated, any reference to “the Bylaws” herein is to the 2012 Bylaws, the earliest version contained in the record on appeal.

161.064(b). In 2012, the Board of Directors adopted amendments to SHEC’s Bylaws to include the following arbitration agreement:

Section 2.09. Dispute Resolution. A Member may submit a claim or dispute between the Member and the Cooperative regarding the Governing Documents or Electric Service to the Board for resolution.

The Board may establish a policy establishing a procedure for submitting a claim or dispute to the Board. If the Board is unable to resolve the dispute[,] then the Cooperative and the Member shall cooperate to select one or more mediators to help resolve the dispute.

If no resolution of the dispute occurs through mediation[,] any party may demand binding arbitration as provided under the laws of the State of Texas.

Lester Berry applied for membership with the cooperative in 1991, and he maintained his membership until the time of his death in late 2015. In early 2016, Lester Berry’s son, Joe D. Berry, who was not himself a member, filed suit against the cooperative on behalf of Lester Berry’s estate and his surviving heirs.2 Berry’s suit initially asserted wrongful death and survival causes of action, alleging that Lester Berry, who was elderly, in poor health, and required an oxygen concentrator, died after the cooperative terminated electricity service to his home due to an unpaid electric bill. Berry later amended his pleadings to add the individual defendants and to assert several putative class action claims relating to SHEC’s management of its

2 For the sake of clarity in light of the shared surname, we will use “Berry” to refer to Joe D. Berry in his various capacities as a party to this suit. Any reference to Lester Berry, deceased, will be by use of his full name.

finances, such as claims that SHEC excessively compensated Directors and failed to return unused revenues to members. Citing the arbitration clause contained in its Bylaws, SHEC filed a motion to compel arbitration of the putative class claims only and to stay the proceedings as to those claims pending arbitration. After SHEC filed its motion to compel arbitration, but before the motion was decided, Berry amended his pleadings again to add Guillermo Cano, a member of the cooperative, to the suit as an additional representative of the putative class.

Berry and Cano opposed SHEC’s motion to compel, arguing that the arbitration clause was not valid and enforceable because: (1) the arbitration provision was added to the Bylaws after Lester Berry became a member and was not signed by Lester Berry; (2) the agreement is illusory because SHEC maintains a unilateral right to amend or remove the provision by amending its Bylaws; (3) the agreement is procedurally unconscionable because members of the cooperative have little or no choice of electrical service providers; and (4) the claims are not arbitrable because the agreement does not expressly permit class arbitration.

Following a non-evidentiary hearing, the trial court denied SHEC’s motion to compel arbitration and to stay the class proceedings pending arbitration. SHEC thereafter filed a motion for the court to reconsider the motion to compel arbitration and, alternatively, to stay the proceedings pending interlocutory appeal. After a

second hearing, the trial court denied SHEC’s motion to reconsider as well as its motion to stay the proceedings. SHEC timely filed this interlocutory appeal, and this Court granted SHEC’s emergency motion to stay the trial court proceedings pending this appeal. See Tex. Civ. Prac. & Rem. Code Ann. § 171.098 (West 2011); Tex. R. App. P. 29.3.

II. Standard of Review

This case is governed by the Texas Arbitration Act (the “TAA”),3 which provides that “[a] written agreement to arbitrate is valid and enforceable if the agreement is to arbitrate a controversy that: (1) exists at the time of the agreement; or (2) arises between the parties after the date of the agreement.” Tex. Civ. Prac. & Rem. Code Ann. § 171.001(a) (West 2011). A party seeking to compel arbitration under the TAA must first establish, as a threshold matter, that there exists a valid arbitration agreement and that the claims in dispute fall within the scope of that agreement. See In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005);

3 In its brief on appeal, SHEC asserts that the TAA applies. Although the Federal Arbitration Act (the “FAA”) preempts the TAA in certain cases, the burden of proof on that issue rests on the party asserting preemption. See Ellis v. Schlimmer, 337 S.W.3d 860, 862 (Tex. 2011). As no party has asserted preemption in this case, our analysis will proceed under the TAA. Nonetheless, we cite cases decided under both acts, as they share the same core substantive principles. See Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 56 n.10 (Tex. 2008) (noting similarities between FAA and the Texas General Arbitration Act, the predecessor to TAA).

J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). If the party seeking arbitration establishes the existence of a valid agreement, the burden shifts to the party resisting arbitration to raise an affirmative defense to enforcement. J.M. Davidson, Inc., 128 S.W.3d at 227.

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