Opinion issued January 31, 2023
In The
Court of Appeals For The
First District of Texas ———————————— NO. 01-21-00209-CV ——————————— SUNBELT SECURITIES, INC., THE FISHER GROUP, CHERYL BROWN, JEANINE FISHER, AND MONIQUE MANDELL, Appellants V. DAVID MARK MANDELL AND RAY J. BLACK, PERMANENT ADMINISTRATOR OF THE ESTATE OF WILLIAM MANDELL, DECEASED, Appellees
On Appeal from Probate Court No. 1 Harris County, Texas Trial Court Case No. 473,747-402
MEMORANDUM OPINION
Appellants Sunbelt Securities, Inc. (Sunbelt), The Fisher Group, Cheryl
Brown (Brown), Jeannine Fisher (Fisher), (collectively, the Sunbelt Appellants), and
Monique Mandell (Monique) appeal the trial court’s orders denying their motions to compel arbitration and sustaining objections to an affidavit filed in support. After
this appeal had been filed but before submission, Monique and appellees David
Mandell (David) and Ray J. Black, permanent administrator of the Estate of William
Mandell, deceased (the Administrator), settled all of their pending claims against
each other.
Due to the settlement between Monique, David, and the Administrator, we
dismiss Monique’s appeal as moot. The Sunbelt Appellants’ appeal is not moot, and
we affirm the trial court’s denial of the Sunbelt Appellants’ motion to compel
arbitration.
Background
The underlying action is a probate dispute involving investment funds that
were in William Mandell’s investment account at Sunbelt. In 2011, William set up
an investment account with The Fisher Group. His brokerage account application
was purportedly signed by William, along with Fisher in her capacity as “Registered
Rep,” and Patrick Smetek in his capacity as “Office Manager/Principal.” Fisher and
her colleague, Brown, do business together under the assumed name The Fisher
Group, and are agents of Sunbelt. Smetek is the founder and Chief Compliance
Officer of Sunbelt. William’s brokerage account application does not refer to or
mention Sunbelt by name, nor does it contain an arbitration clause, but it does
contain the following language:
2 Pre-Dispute Arbitration
This account is governed by a pre-dispute arbitration clause, which appears on the last page of the Client Agreement, and you acknowledge that you have received a copy of this clause.
According to the Sunbelt Appellants, the Client Agreement or Brokerage
Account Customer Agreement that would have applied to William’s account
contained the following arbitration provision:
Resolving Disputes – Arbitration
This agreement contains a pre-dispute arbitration clause. Under this clause, which becomes binding on all parties when you sign your account application, you, we, and NFS agree as follows:
A. All parties to this agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.
B. Arbitration awards are generally final and binding; a party’s ability to have a court reverse or modify an arbitration award is very limited. C. The ability of the parties to obtain documents, witness statements, and other discovery is generally more limited in arbitration than in court proceedings.
D. The arbitrators do not have to explain the reason(s) for their award. E. The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.
F. The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court.
G. The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this agreement.
3 All controversies that may arise between me, You and NFS concerning any subject matter, issue or circumstance whatsoever (including, but not limited to, controversies concerning any account, order or transaction, or the continuation, performance, interpretation or breach of this or any other agreement between me, You and NFS whether entered into or arising before, on or after the date this account is opened) shall be determined by arbitration in accordance with the rules then prevailing of the Financial Industry Regulatory Authority (FINRA) or any United States securities self-regulatory organization or United States securities exchange of which the person, entity or entitles against whom the claim is made is a member, as I may designate. If I designate the rules of a United States self-regulatory organization or United States securities exchange and those rules fail to be applied for any reason, then I shall designate the prevailing rules of any other United States securities self-regulatory organization or United States securities exchange of which the person, entity or entities against whom the claim is made is a member. If I do not notify You in writing of my designation within five (5) days after such failure or after I receive from You a written demand for arbitration, then I authorize You and/or NFS to make such designation on my behalf. The designation of the rules of a United States self-regulatory organization or United States securities exchange is not integral to the underlying agreement to arbitrate. I understand that judgment upon any arbitration award may be entered in any court of competent jurisdiction. This Brokerage Account Customer Agreement included definitions for “us,”
“we”, and “our”—i.e., “your broker/dealer”—, and “account owner,” “you” and
“your”—i.e., “the owner(s) indicated on the account application.” It did not,
however, define “me,” “I,” or “broker/dealer.” William named Monique, his wife,
as the transfer-on-death (TOD) beneficiary for his account.
Around 2017, David, William’s son, opened his own investment account at
Sunbelt. David’s brokerage account application, like William’s, was signed by
Fisher in her capacity as “Registered Rep,” and “Smetek” in his capacity as “Office
4 Manager/Principal.” Similar to William’s, David’s account application did not
contain an arbitration clause, but included the following language: “You
acknowledge that this account is governed by a pre-dispute arbitration clause, which
appears on the last page of the Brokerage Account Customer Agreement, and that
you have read the pre-dispute arbitration clause.” According to the Sunbelt
Appellants, the Brokerage Account Customer Agreement that would have applied to
David’s account included the following arbitration provision:
This agreement contains a pre-dispute arbitration clause. Under this clause, which becomes binding on all parties when you sign your account application, You, your Broker/Dealer, and NFS agree as follows:
A. All parties to this agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.
B. Arbitration awards are generally final and binding; a party's ability to have a court reverse or modify an arbitration award is very limited. C. The ability of the parties to obtain documents, witness statements, and other discovery is generally more limited in arbitration than in court proceedings. D. The arbitrators do not have to explain the reason(s) for their award unless, in an eligible case, a joint request for an explained decision has been submitted by all parties to the panel at least 20 days prior to the first scheduled hearing date.
E. The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.
5 F. The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court.
G. The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this agreement. All controversies that may arise between me, my Broker/Dealer and NFS concerning any subject matter, issue or circumstance whatsoever (including, but not limited to, controversies concerning any account, order or transaction, National Financial Services LLC, Member NYSE, SIPC or the continuation, performance, interpretation or breach of this or any other agreement between me, my Broker/Dealer and NFS whether entered into or arising before, on or after the date this account is opened) shall be determined by arbitration in accordance with the rules then prevailing of the Financial Industry Regulatory Authority (FINRA) or any United States securities self-regulatory organization or United States securities exchange of which the person, entity or entities against whom the claim is made is a member, as I may designate. If I designate the rules of a United States self-regulatory organization or United States securities exchange and those rules fail to be applied for any reason, then I shall designate the prevailing rules of any other United States securities self-regulatory organization or United States securities exchange of which the person, entity or entities against whom the claim is made is a member. If I do not notify you in writing of my designation within five (5) days after such failure or after I receive from you a written demand for arbitration, then I authorize you and/or NFS to make such designation on my behalf. The designation of the rules of a United States self-regulatory organization or United States securities exchange is not integral to the underlying agreement to arbitrate. I understand that judgment upon any arbitration award may be entered in any court of competent jurisdiction.
This Brokerage Account Customer Agreement included definitions for “us,” “we”,
and “our”—i.e., “your broker/dealer”—, and “account owner,” “you” and “your”—
i.e., “the owner(s) indicated on the account application.” It did not, however, define
“me,” “I,” or “broker/dealer.” Neither David’s account application nor the
6 Brokerage Account Customer Agreement mentioned Sunbelt either generally or
specifically as “broker/dealer.” According to Sunbelt, David closed his account and
Sunbelt wrote off the remaining balance of $0.48 in December 2017.
According to David, he and William were estranged for a substantial part of
their lives. William murdered David’s mother in 1972 and David sued William in
1995 for alleged mismanagement of his mother’s estate. See Mandell v. Mandell,
214 S.W.3d 682, 686 (Tex. App.—Houston [14th Dist.] 2007, no pet.). David and
William repaired their relationship over the years, becoming particularly close in the
last few years of William’s life. In early January 2019, William was admitted to
Memorial Hermann, where he stayed until his death.
On January 23, 2019, Sunbelt received a fax purporting to be from William,
who was still in the hospital, requesting that Sunbelt and Fisher transfer all securities
and cash from William’s account to David’s account. At the time of the alleged
transfer request, David was not a customer of Sunbelt. Because the alleged fax raised
questions with Sunbelt’s compliance department, Sunbelt did not honor the alleged
request at that time and placed a temporary hold on William’s account. After
receiving a call from David regarding the requested transfer on January 24, Smetek
informed David that Sunbelt could not accept the fax instructions and that David
would need to obtain a court order instructing Sunbelt to transfer the funds to him.
7 On January 30, 2019, William died. Monique, the TOD beneficiary for
William’s account, produced the necessary documents and transfer request to
transfer the funds and securities in William’s account to her own personal account.
Between January 24, 2019 and March 25, 2019, David took no action to prevent
Sunbelt from honoring William’s designation of Monique as the TOD beneficiary.
Accordingly, on March 25, the assets in William’s account were transferred to
Monique’s account.
David filed the underlying suit against the Sunbelt Appellants and Monique1
in probate court on December 23, 2019. The relevant petition for purposes of this
appeal is David’s third amended petition, in which David asserted claims against the
Sunbelt Appellants for breach of fiduciary duty, conspiracy, tortious interference
with contract, negligent misrepresentation, fraud, and promissory estoppel based on,
among other things, the Sunbelt Appellants’ failure to transfer the assets in
William’s account to David upon receipt of the notarized letter. David also asserted
similar causes of action related to William’s account against Monique for
conspiracy, aiding and abetting the breach of fiduciary duty, tortious interference
with contract, conversion, and fraud, as well as other causes of action against
Monique related to other real property not associated with William’s account at issue
1 David also sued Leonard Mandell, William’s brother. Leonard is not a party to this appeal. 8 here. The permanent administrator of William’s estate, Ray J. Black, intervened
claiming the suit affected assets of William’s estate.
The Sunbelt Appellants and Monique moved to compel arbitration “to a
FINRA [Financial Industry Regulatory Authority] arbitrator in accordance with
FINRA arbitration rules” based on the arbitration agreements contained in the
Brokerage Account Customer Agreements purportedly applicable to William and
David’s accounts. In support of their motion to compel arbitration, the Sunbelt
Appellants submitted the affidavit of Smetek, along with various supporting
documents, including account statements from William’s and David’s accounts, the
account applications for William’s and David’s accounts, and the Brokerage
Account Customer Agreements for William’s and David’s accounts. David and the
Administrator opposed the motions to compel and objected to portions of Smetek’s
affidavit on the grounds of lack of personal knowledge, hearsay, speculation,
conclusory statements, and inadequate authentication.
The trial court conducted two hearings on the motions to compel arbitration
on March 8, 2021 and March 26, 2021. On April 9, 2021, the trial court signed three
orders; one order globally sustained all the objections to Smetek’s affidavit, and the
other two orders denied the Sunbelt Appellants’ and Monique’s motions to compel
9 On April 16, 2021, the Sunbelt Appellants filed a motion for clarification of
the evidentiary rulings or, in the alternative, for reconsideration of the evidentiary
rulings. After hearing the motion for reconsideration on April 26, 2021, the trial
court signed an amended order on the objections to the affidavit of Patrick Smetek.
The amended order states the specific affidavit paragraph numbers and grounds for
which the objections were sustained or overruled. This interlocutory appeal
followed.
After this Court notified the parties that the case was set for submission by
oral argument, the Sunbelt Appellants filed a letter notifying this Court that a
settlement had been reached between Monique and David and the Administrator. In
that letter, the Sunbelt Appellants stated that they were writing to inform this Court
of the settlement and to give this Court “an opportunity to take whatever action it
deems appropriate to determine whether the underlying claims in the trial court and,
as a consequence the arbitration controversy in the appellate court, have been
rendered moot by settlement.” In response, this Court requested supplemental
briefing on the settlement and whether the settlement mooted the appeals. All parties
filed supplemental briefing and confirmed that Monique and David and the
Administrator had settled their claims and, thus, Monique’s appeal was moot. The
Sunbelt Appellants and Monique also contend that the settlement moots David’s
claims against the Sunbelt Appellants, and thus, their appeal, while David and the
10 Administrator contend that his claims against the Sunbelt Appellants remain. The
Sunbelt Appellants also filed a motion to compel production of the settlement
agreement, which this Court denied.
Accordingly, before addressing the merits of the Sunbelt Appellants’ and
Monique’s appeals, we consider the threshold question of mootness.
Mootness
Appellate courts are not to decide moot controversies, a rule rooted in
constitutional prohibitions against rendering advisory opinions. See Nat’l Collegiate
Athletic Ass’n v. Jones, 1 S.W.3d 83, 86 (Tex. 1999); see also Valley Baptist Med.
Ctr. v. Gonzalez, 33 S.W.3d 821, 822 (Tex. 2000) (per curiam) (“Under article II,
section 1 of the Texas Constitution, courts have no jurisdiction to issue advisory
opinions.”). A case becomes moot if there ceases to be an actual controversy between
the parties at any stage of the litigation. Jones, 1 S.W.3d at 86; see Robinson v. Alief
I.S.D., 298 S.W.3d 321, 324 (Tex. App.—Houston [14th Dist.] 2009, pet. denied).
If a judgment can have no practical effect on an existing controversy, the case
becomes moot, and any opinion issued on the merits in the appeal would constitute
an impermissible advisory opinion. Thompson v. Ricardo, 269 S.W.3d 100, 103
(Tex. App.—Houston [14th Dist.] 2008, no pet.). A case becomes moot if, during
the appeal, either of the opposing sides of the litigation ceases to have a legally
cognizable interest in the appeal’s outcome. See Jones, 1 S.W.3d at 87.
11 A. Monique’s Appeal
In their supplemental briefing related to the settlement, Monique, David, and
the Administrator each state that there has been a settlement of their underlying
claims against each other. Despite admitting in her briefing that, due to the
settlement, her appeal was moot (and arguing that Sunbelt’s appeal was moot as
well), counsel for Monique contended at oral argument that the terms of the
settlement agreement had not been fulfilled, and that she filed a motion to enforce
the settlement agreement with the trial court within 30 days of the entry of the
February 2022 dismissal orders, and therefore, her appeal in this case is not moot.
The record before this Court does not include any motion to enforce the settlement
agreement, any order on such motion, or any other information indicating that the
settlement agreement was not complied with or that any party had revoked or
attempted to revoke their consent to settlement. Rather, the supplemental clerk’s
record filed shortly before oral argument only contains the agreed motions to dismiss
filed by Monique and David, as well as the trial court’s February 3 and 7 orders
dismissing all claims between Monique and David, with prejudice.2
2 We also note that Monique’s supplemental brief, in which she argued that “the settlement . . . mooted the controversy between David and Monique” and prayed that this Court find that “this appeal has been rendered moot in its entirety by way of the settlement agreement,” was filed approximately seven months after she contends her motion to enforce the settlement agreement was filed. Yet she makes no mention of the motion to enforce in her supplemental brief, nor did she request that a copy of the motion to enforce be included in a supplemental clerk’s record. 12 The existence of an actual controversy is essential to the exercise of appellate
jurisdiction. See, e.g., Valley Baptist Med. Ctr., 33 S.W.3d at 822. “Appellate courts
are prohibited from deciding moot controversies.” Jones, 1 S.W.3d at 86; see City
of Farmers Branch v. Ramos, 235 S.W.3d 462, 469 (Tex. App.—Dallas 2007, no
pet.) (noting that court may only decide issues presenting “a live controversy at the
time of the decision”). If a controversy ceases to exist or the parties lack a legally
cognizable interest in the outcome at any stage, the case becomes moot. See Allstate
Ins. Co. v. Hallman, 159 S.W.3d 640, 642 (Tex. 2005); Williams v. Lara, 52 S.W.3d
171, 184 (Tex. 2001) (noting that “a controversy must exist between the parties at
every stage of the legal proceedings, including the appeal”). “[C]ourts have an
obligation to take into account intervening events that may render a lawsuit moot.”
Heckman v. Williamson Cnty., 369 S.W.3d 137, 166–67 (Tex. 2012). If a proceeding
becomes moot, the court must dismiss the proceeding for want of jurisdiction. See
id. at 162.
Based on the record before us, which reflects that Monique, David, and the
Administrator have settled the underlying claims and all claims pending between
those parties, including the claims between these parties related to the Sunbelt
accounts at issue in this appeal, have been dismissed by the trial court below, we
Rather, as noted above, she argued that the settlement and dismissal of the claims between herself and David and the Administrator mooted her appeal. 13 hold that a live controversy has ceased to exist between these parties and Monique’s
appeal is moot. Accordingly, we dismiss Monique’s appeal for lack of jurisdiction.
See TEX. R. APP. P. 42.3(a); 43.2(f).
B. The Sunbelt Appellants’ Appeal
A separate issue is whether the Sunbelt Appellants’ appeal is also moot based
on the settlement between Monique, David, and the Administrator. The Sunbelt
Appellants contend that although David has not produced the settlement agreement,
his counsel stated in email communications related to the settlement that “David
disclaims any interest he has in the funds that are or have been in Monique’s
possession in Sunbelt Accounts xxx8186 (William Mandell) and xxx0104 (Monique
Mandell).” The Sunbelt Appellants argue that David received settlement
consideration far greater than the amount necessary to satisfy his claimed interest in
the accounts and that, absent allocation evidence from David, receipt by David of
any further sum in this action would result in a double recovery in violation of the
one satisfaction rule. Monique likewise contends that the entire proceeding is moot
based on the settlement because David’s claims against the Sunbelt Appellants are
based on his claimed entitlement to the funds in William’s Sunbelt account, but by
disclaiming any interest he had in the funds, David “cannot now claim that he is
entitled to them.” Thus, based on David’s “express waiver to any rights in the
14 property made the subject of David’s claims,” Monique argues that his claims
against the Sunbelt Appellants are untenable and the entire appeal is moot.
In contrast, David asserts that the only settlement was between David, the
Administrator, and Monique, and that the trial court’s orders dismissing his claims
against Monique expressly reserved his claims against the Sunbelt Appellants. David
also contends that the settlement agreement between himself and Monique could not
release the Sunbelt Appellants for their separate tortious conduct.
1. One Satisfaction Rule
“Under the one satisfaction rule, a plaintiff is entitled to only one recovery for
any damages suffered.” Sky View at Las Palmas, LLC v. Mendez, 555 S.W.3d 101,
106–07 (Tex. 2018) (quoting Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378, 390
(Tex. 2000)); see also Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 7 (Tex.
1991) (“The one satisfaction rule applies to prevent a plaintiff from obtaining more
than one recovery for the same injury.”). The Texas Supreme Court first articulated
the one-satisfaction principle in Bradshaw v. Baylor University:
It is a rule of general acceptation that an injured party is entitled to but one satisfaction for the injuries sustained by him. That rule is in no sense modified by the circumstance that more than one wrongdoer contributed to bring about his injuries. There being but one injury, there can, in justice, be but one satisfaction for that injury.
84 S.W.2d 703, 705 (1935), overruled in part by Duncan v. Cessna Aircraft Co., 665
S.W.2d 414, 432 (Tex. 1984). In Stewart Title, the Texas Supreme Court clarified
15 that the fundamental consideration in applying the one-satisfaction rule is whether
the plaintiff has suffered a single, indivisible injury—not the causes of action the
plaintiff asserts: “There can be but one recovery for one injury, and the fact that more
than one defendant may have caused the injury or that there may be more than one
theory of liability, does not modify this rule.” 822 S.W.2d at 8. Thus, the rule applies
both “when the defendants commit the same act as well as when defendants commit
technically differing acts which result in a single injury.” Id. at 7. In First Title Co.
of Waco v. Garrett, the Court explained the rule’s rationale as it applies to settlement
credits for nonsettling defendants:
[T]he plaintiff should not receive a windfall by recovering an amount in court that covers the plaintiff’s entire damages, but to which a settling defendant has already partially contributed. The plaintiff would otherwise be recovering an amount greater than the trier of fact has determined would fully compensate for the injury.
860 S.W.2d 74, 78 (Tex. 1993). A nonsettling defendant seeking a settlement credit
under the one-satisfaction rule has the burden to prove its right to such a credit. Utts
v. Short, 81 S.W.3d 822, 828 (Tex. 2002); Mobil Oil Corp. v. Ellender, 968 S.W.2d
917, 927 (Tex. 1998). In Ellender, the Court held that a nonsettling defendant meets
this burden by introducing into the record either the settlement agreement or some
other evidence of the settlement amount. 968 S.W.2d at 927; see also Utts, 81
S.W.3d at 828. “Once the nonsettling defendant demonstrates a right to a settlement
credit, the burden shifts to the plaintiff to show that certain amounts should not be
16 credited because of the settlement agreement’s allocation.” Utts, 81 S.W.3d at 828.
The plaintiff can rebut the presumption that the nonsettling defendant is entitled to
settlement credits by presenting evidence showing that the settlement proceeds are
allocated among defendants, injuries, or damages such that entering judgment on the
jury’s award would not provide for the plaintiff’s double recovery. See id. at 828–
29 (requiring nonsettling plaintiff to show that it did not benefit from settlement);
Casteel, 22 S.W.3d at 391–92 (requiring showing of allocation between joint and
separate damages); Ellender, 968 S.W.2d at 928 (requiring showing of allocation
between actual and punitive damages); First Title, 860 S.W.2d at 79 (applying one-
satisfaction rule when plaintiff did not show it settled for separate injury). A written
settlement agreement that specifically allocates damages to each cause of action will
satisfy this burden. Ellender, 968 S.W.2d at 928; see also First Title, 860 S.W.2d at
79 (examining contents of settlement agreement).
These one-satisfaction-rule cases cited by the Sunbelt Appellants, however,
involve settlement credits applied after the jury had awarded damages in favor of the
plaintiff against the nonsettling defendant. For example, in Sky View, the plaintiff
settled with three defendants before trial, one defendant after trial but before entry
of judgment, and proceeded to a jury trial against the remaining defendants. Sky
View, 555 S.W.3d at 105 & n.4. After the jury rendered its verdict, and in response
to the plaintiff’s motion for entry of judgment, the nonsettling defendants alleged
17 that the plaintiff benefited from the settlement agreement with the other defendants
based on the same injury for which the jury awarded him damages, and that allowing
the plaintiff to recover the full amount of the jury’s award would result in a double
recovery. Id. at 110. The Texas Supreme Court noted that this “is a proper time and
method to raise the one-satisfaction rule.” Id.; see also Utts, 81 S.W.3d at 830
(holding that nonsettling defendant properly raised settlement-credit issue in
response to plaintiff’s motion for judgment).
These cases do not hold that the plaintiff’s claims are moot against the non-
settling defendants because of a settlement with other defendants, but instead hold
that the plaintiff is only entitled to one recovery for the same injury. Thus, the
application of the one satisfaction rule in these cases resulted in a settlement credit
which mitigated some or all of the plaintiff’s damages against the nonsettling
defendant, not in the courts dismissing the plaintiff’s claims against the nonsettling
defendants as moot because of the settlement. The Sunbelt Appellants have not
pointed this Court to any case law where a court has applied the one-satisfaction rule
in the same procedural posture as this case, i.e., where a nonsettling defendant seeks
to apply the one satisfaction rule before an award of damages has been rendered
against the nonsettling defendant, nor have they cited to any case law applying this
rule to render an appeal moot. Whether the Sunbelt Appellants will be ultimately
entitled to a settlement credit based on David’s settlement with Monique in the event
18 a jury (or arbitrator) finds in favor of David based on his claims against them does
not make the Sunbelt Appellants’ appeal moot. See, e.g., San Saba Energy, L.P. v.
Crawford, 171 S.W.3d 323, 332 (Tex. App.—Houston [14th Dist.] 2005, no pet.)
(holding that “[t]he application of [the one satisfaction] rule does not moot any issue
in the case” because despite appellant’s execution of release and assignment of
royalty interest, even if operated to fully compensate appellant for alleged damages,
live controversy still existed in that trial court could render take-nothing judgment);
see also Christus Health & Christus Health Gulf Coast v. Kone Inc., No. 14-07-
00786-CV, 2009 WL 2496988, at *5 (Tex. App.—Houston [14th Dist.] June 25,
2009, pet. denied) (mem. op.) (application of one-satisfaction rule did not render
appeal moot).
Thus, we decline to hold that David and the Administrator’s settlement with
Monique moots David’s claims against the Sunbelt Appellants, as non-settling
defendants, based on the one satisfaction rule.
2. Disclaimer
As noted above, Monique, and the Sunbelt Appellants to some extent, also
contend that the Sunbelt Appellants’ appeal is moot because, via the settlement,
David has disclaimed any interest in or relinquished his claim to the funds from
William’s account. Thus, according to appellants, the entire proceeding is moot
19 because David’s claims against the Sunbelt Appellants are based on his claimed
entitlement to the funds in William’s account.
The parties have not submitted the settlement agreement to this Court.
Although the Sunbelt Appellants filed a motion to compel production of the
settlement agreement, that motion was filed with this Court, not with the trial court,
and did not provide this Court with any support demonstrating that an appellate court
has the authority to compel production of documents. See Mot. to Compel (citing
TEX. R. CIV. P. 192.3(g) (rule for practice in district and county courts permitting
discovery of settlement agreements); 194.2(h) (former rule for practice in district
and county courts requiring disclosure of settlement agreements in pre 1/1/2021
cases)).
Further, in Monique’s supplemental briefing and in David’s letter response
related to the settlement agreement, and again at oral argument, Monique and David
both indicated that they would provide the settlement agreement, under seal, if
ordered to do so. Again, neither party has pointed to any authority of this Court to
either seal documents or order parties to produce documents. And none of the parties
has moved this Court to abate the appeal to allow the trial court to consider whether
the settlement agreement should be (1) sealed, or (2) produced.
Without the language in the settlement agreement, we cannot determine the
effect of David’s purported “disclaimer.” See TEX. PROP. CODE § 240.002(2)
20 (defining “Disclaim” as “to refuse to accept an interest in or power over property,
including an interest or power the person is entitled to . . . by . . . other contract or
arrangement”); id. 240.002(6) (defining “Disclaimer” as “the refusal to accept an
interest in or power over property”); id. § 240.051(c) (“If an interest in property
passes because of an event not related to the death of a decedent . . . a disclaimer of
the interest . . . takes effect . . . as of the time the instrument creating the interest
became irrevocable.”). Meaning, it is not clear if David was disclaiming his interest
in the funds in William’s account as that term is used in the property code, or if he
was agreeing to relinquish any claim to those funds in the future in exchange for the
settlement. The parties do not cite to the statutes from the Property Code, nor expand
on the disclaimer argument, except to say generally that if David has disclaimed any
interest he has in the funds, “he cannot now claim that he is entitled to them.”
Without the language of the settlement agreement, we are left with the motion
to dismiss and orders from the trial court. In the agreed motion to dismiss filed in
the trial court, David stated that he “no longer desire[d] to pursue the claims he raised
in this matter against Monique,” requested that the court dismiss, with prejudice,
those claims, but “expressly d[id] not dismiss his claims against any other Defendant
in this matter.” This same language appears in the trial court’s order granting the
agreed motion to dismiss. A plaintiff may settle with one or more defendants and
still retain a cause of action as to those remaining. Henderson v. S. Farm Bureau Ins.
21 Co., 370 S.W.3d 1, 4 (Tex. App.—Texarkana 2012, pet. denied); see also
Underkofler v. Vanasek, 53 S.W.3d 343, 346 (Tex. 2001) (agreeing that defendant
was not entitled to summary judgment on basis that plaintiff’s settlement of
underlying case eliminated any claim for damages, in part, because settlement did
not include all defendants). “A tortfeasor can claim the protection of a release only
if the release refers to him by name or with such descriptive particularity that his
identity or his connection with the tortious event is not in doubt.” Atl. Lloyds Ins.
Co. v. Butler, 137 S.W.3d 199, 218 (Tex. App.—Houston [1st Dist.] 2004, pet.
denied) (quoting Duncan, 665 S.W.2d at 420).
Here, it is undisputed that the Sunbelt Appellants are not parties to the
settlement and that David expressly reserved, i.e., did not dismiss, his claims against
the Sunbelt Appellants. Based on what we have in the record before us, we cannot
conclude that David’s settlement with Monique, and any purported disclaimer of his
interest in the funds from William’s account, moots David’s claims against the
Sunbelt Appellants and, relatedly, the Sunbelt Appellants’ appeal from the trial
court’s denial of their motion to compel arbitration of those claims. Thus, we turn to
the merits of the Sunbelt Appellants’ appeal.
Motion to Compel Arbitration
In their first issue, the Sunbelt Appellants argue that the trial court erred in
denying their motion to compel arbitration because both William and David signed
22 valid agreements to arbitrate. The Sunbelt Appellants argue that the Brokerage
Account Applications signed by William and David incorporated by reference the
Brokerage Account Customer Application, which contained the applicable
arbitration clause. In response, David and the Administrator argue that there was no
valid agreement to arbitrate signed by either William or David because the
arbitration agreements do not identify the parties and, with respect to William’s
purported arbitration agreement specifically, no evidence of the Client Agreement
allegedly containing the arbitration clause was introduced into evidence.
C. Standard of Review and Applicable Legal Principles
“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); SK
Plymouth, LLC v. Simmons, 605 S.W.3d 706, 714 (Tex. App.—Houston [1st Dist.]
2020, no pet.). A trial court abuses its discretion if it acts in an arbitrary or
unreasonable manner or acts without reference to any guiding rules or principles.
Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42 (Tex. 1985). “We
defer to the trial court’s factual determinations if they are supported by evidence but
review its legal determinations de novo.” Henry, 551 S.W.3d at 115.
A party seeking to compel arbitration under the FAA must establish that (1)
there is a valid arbitration agreement and (2) the claims in dispute fall within that
agreement’s scope. In re Rubiola, 334 S.W.3d 220, 223 (Tex. 2011); Simmons, 605
23 S.W.3d at 714. Here, the parties initially dispute whether the Sunbelt Appellants met
their burden to show that there was a valid, enforceable arbitration agreement.
The trial court’s determination as to the validity of an arbitration agreement is
a legal determination that we review de novo. See Jody James Farms, JV v. Altman
Grp., Inc., 547 S.W.3d 624, 633 (Tex. 2018); J.M. Davidson, Inc. v. Webster, 128
S.W.3d 223, 227 (Tex. 2003). While there is a strong policy favoring arbitration, this
policy does not apply to the initial determination whether there is a valid arbitration
agreement. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005).
The presumption favoring arbitration arises only after the party seeking to compel
arbitration establishes a valid agreement to arbitrate because “the purpose of the
FAA [is] to make arbitration agreements as enforceable as other contracts, not more
so.” Id. at 738 (quoting Bridas S.A.P.I.C. v. Gov’t of Turkm., 345 F.3d 347, 354 n.4
(5th Cir. 2003)).
To determine whether there was a valid agreement to arbitrate, we apply
ordinary principles of state contract law. Simmons, 605 S.W.3d at 715. The elements
of a valid contract are (1) an offer, (2) an acceptance, (3) a meeting of the minds, (4)
each party’s consent to the terms, and (5) execution and delivery of the contract with
the intent that it be mutual and binding. Prime Prods., Inc. v. S.S.I. Plastics, Inc., 97
S.W.3d 631, 636 (Tex. App.—Houston [1st Dist.] 2002, pet. denied).
24 D. William’s Arbitration Agreement
With respect to William’s account, the Sunbelt Appellants argue that there
was a valid agreement to arbitrate as evidenced by William’s account application,
which incorporated by reference the “Client Agreement” containing the applicable
arbitration clause. The Sunbelt Appellants contend that the Brokerage Account
Customer Agreement, attached to Smetek’s affidavit as Attachment 14, is one and
the same as the Client Agreement referred to in William’s account application and
contains the applicable arbitration clause. Essentially, therefore, the first dispute we
must resolve is whether the unsigned Brokerage Account Customer Agreement, i.e.,
Attachment 14 to Smetek’s affidavit, was incorporated by reference into the account
agreement signed by William. We hold that it was not.
“A party cannot be required to arbitrate unless it has agreed to do so.” Trico
Marine Servs., Inc. v. Stewart & Stevenson Tech. Servs., Inc., 73 S.W.3d 545, 548
(Tex. App.—Houston [1st Dist.] 2002, no pet.) (quoting Hou–Scape, Inc. v. Lloyd,
945 S.W.2d 202, 205 (Tex. App.—Houston [1st Dist.] 1997, orig. proceeding)). The
parties’ agreement to arbitrate must be clear. Id.
The doctrine of incorporation by reference provides that “an unsigned paper
may be incorporated by reference in the paper signed[.]” Owen v. Hendricks, 433
S.W.2d 164, 166 (Tex. 1968); see also Trico Marine Servs., 73 S.W.3d at 549. “The
language used is not important provided the document signed by the defendant
25 plainly refers to another writing.” Owen, 433 S.W.2d at 166. Plainly referring to a
document requires more than merely mentioning the document. Bob Montgomery
Chevrolet, Inc. v. Dent Zone Cos., 409 S.W.3d 181, 189 (Tex. App.—Dallas 2013,
no pet.). The language in the signed document must show the parties intended for
the other document to become part of the agreement. Id. Furthermore, the
incorporated document must be referenced by name. Stewart & Stevenson, LLC v.
Galveston Party Boats, Inc., No. 01-09-00030-CV, 2009 WL 3673823, at *11 (Tex.
App.—Houston [1st Dist.] Nov. 5, 2009, no pet.) (mem. op.); Gray & Co. Realtors,
Inc. v. Atl. Hous. Found. Inc., 228 S.W.3d 431, 436 (Tex. App.—Dallas 2007, no
pet.).
As noted above, William’s account application itself did not include an
arbitration clause, but instead stated as follows:
Pre-Dispute Arbitration This account is governed by a pre-dispute arbitration clause, which appears on the last page of the Client Agreement, and you acknowledge that you have received a copy of this clause.
This provision plainly refers to a “Client Agreement” which contains the applicable
“pre-dispute arbitration clause.” The Sunbelt Appellants did not introduce any
document entitled a “Client Agreement” in support of their motion to compel.
Rather, the only document purportedly applicable to William’s account was entitled
a “Brokerage Account Customer Agreement.”
26 While the Sunbelt Appellants contend that the words “customer” and “client"
are synonymous, their interpretation ignores the case law set out above requiring a
document to “plainly refer[] to” and “reference[] by name” another document in
order for it to be incorporated by reference. See Owen, 433 S.W.2d at 166; Bob
Montgomery Chevrolet, 409 S.W.3d at 189; Stewart & Stevenson, 2009 WL
3673823, at *11; Gray & Co. Realtors, 228 S.W.3d at 436. Here, the document
referenced in the account application and the purported incorporated document do
not even have the same title. Cf. Trico Marine Servs., 73 S.W.3d at 549–50 (holding
reference in heading in proposal to “General Terms and Conditions of Sale”
followed by blank space did not “plainly refer, as a matter of law, to any separate
document” and, thus, did not incorporate by reference separate document containing
arbitration clause, even though it was entitled “General Terms & Conditions of
Sale”). While William’s account application unambiguously refers to a Client
Agreement, there is no mention of a separate Brokerage Account Customer
Agreement in that account application. Nor is there any indication in the Brokerage
Account Customer Agreement itself that it was alternatively entitled or referred to
as the Client Agreement. Accordingly, we decline to hold that this reference to a
“Client Agreement” in William’s account application plainly referred to the
27 Brokerage Account Customer Agreement attached as Attachment 14 to the Smetek
affidavit such that it was incorporated by reference.3
Because there was no Client Agreement before the trial court, and thus no
evidence of the language of the arbitration clause contained in that Client
Agreement, we hold that the trial court did not err in denying the Sunbelt Appellants’
motion to compel arbitration on the basis that there was lack of evidence of a valid
and enforceable arbitration agreement between William and the Sunbelt Appellants.
E. David’s Arbitration Agreement
With respect to David’s account, the Sunbelt Appellants likewise argue that
the Brokerage Account Customer Agreement containing the arbitration provision
was incorporated by reference into the account application. In response, David
contends that even if the Brokerage Account Customer Agreement was incorporated
3 Furthermore, we find the case relied on by the Sunbelt Appellants in support of their incorporation by reference argument to be distinguishable. See In re Raymond James & Assocs., Inc., 196 S.W.3d 311, 318–19 (Tex. App.—Houston [1st Dist.] 2006, orig. proceeding). In Raymond James, a panel of this Court considered whether a “New Account Form,” which was signed by the plaintiffs and included a statement that, by signing, the account holders agreed to abide by the terms and conditions in the Client Agreement, including an arbitration clause, effectively incorporated by reference the Client Agreement. Id. at 318. This Court held that it did: “The New Account Form, in a statement just above the Account Holders’ signature line, incorporates the Client Agreement by reference, plainly referring to the Client Agreement, which contains a binding arbitration clause.” Id. at 319. There was no dispute in Raymond James, as there is here, however, about whether the Client Agreements introduced applied to the account holders. Thus, we find Raymond James inapplicable to the question before us today, i.e., whether the reference in the account application to the “Client Agreement” plainly refers to and incorporates a separate document titled by a different name. 28 by reference into the account application, it is not a valid arbitration agreement
because it does not identify the parties.
In 2017, David sought to open his own individual investment brokerage
account by signing a “Brokerage Account Application.” The Brokerage Account
Application directs that it is to be used to “open a brokerage account with your
Broker/Dealer to be held at National Financial Services LLC.” The Brokerage
Account Application, however, does not define “Broker/Dealer,” does not otherwise
identify The Fisher Group or Sunbelt as the Broker/Dealer, and does not contain a
reference to either The Fisher Group or Sunbelt anywhere in the document. The
Brokerage Account Application is signed by Fisher, in the capacity of “Registered
Rep,” and by “Smetek,” in the capacity of “Office Manager/Principal.”
David’s Brokerage Account Application contains the following language:
“You acknowledge that this account is governed by a pre-dispute arbitration clause,
which appears on the last page of the Brokerage Account Customer Agreement, and
that you have read the pre-dispute arbitration clause.” Included in the documents
attached to Smetek’s affidavit are a “Brokerage Account Customer Agreement” that
the Sunbelt Appellants contend was incorporated by reference into David’s account
application. This Brokerage Account Customer Agreement includes the following
definitions of “Who’s Who in This Agreement”:
29 In this document, “us,” “we,” and “our” refer to your Broker/Dealer. “NFS” is National Financial Services LLC, a NYSE member, whom we have engaged to provide custody and clearing services for us.
The terms “account owner,” “you,” and “your” refer to the owner(s) indicated on the account application. The Brokerage Account Customer Agreement also includes the following language:
“All controversies that may arise between me, my Broker/Dealer and NFS
concerning any subject matter, issue or circumstance whatsoever . . . shall be
determined by arbitration[.]”
As noted above, although there is a strong presumption favoring arbitration,
that presumption arises only after the party seeking to compel arbitration proves a
valid arbitration agreement exists. Kellogg Brown & Root, Inc., 166 S.W.3d at 737;
see also Carr v. Main Carr Dev., LLC, 337 S.W.3d 489, 496 (Tex. App.—Dallas
2011, pet. denied) (“Even the exceptionally strong policy favoring arbitration cannot
justify requiring litigants to forego a judicial remedy when they have not agreed to
do so.”). The parties’ agreement to arbitrate must be clear, see Trico Marine Servs.,
73 S.W.3d at 548, including the identity of the parties who have agreed to arbitrate.
See VSR Fin. Servs., Inc. v. McLendon, 409 S.W.3d 817, 827–29 (Tex. App.—Dallas
2013, no pet.); see also McCarthy v. Azure, 22 F.3d 351, 355 (1st Cir.1994) (“The
federal policy [favoring arbitration], however, does not extend to situations in which
the identity of the parties who have agreed to arbitrate is unclear.”).
30 Neither the account application nor the Brokerage Account Customer
Agreement for David’s account reference Sunbelt or The Fisher Group by name.
The only arbitration clause appears in the Brokerage Account Customer Agreement
and provides that it applies between “You, your Broker/Dealer, and NFS.”
Furthermore, the arbitration clause purports to cover “[a]ll controversies that may
arise between me, my Broker/Dealer and NFS concerning any subject matter, issue
or circumstance whatsoever . . . .” However, “Broker/Dealer” is not defined
anywhere in the Brokerage Account Customer Agreement. Thus, even if the
Brokerage Account Customer Agreement was incorporated by reference into the
account application, it does not define or identify the specific parties with which
David is to arbitrate other than NFS and “your” or “my” “Broker/Dealer.”
Further, although the account application is signed by Fisher, it identifies her
only as “Registered Rep” not as Broker/Dealer. Similarly, although the account
application is signed by “Smetek,” his signature appears only in the capacity of
“Office Manager/Principal” not in any apparent representative capacity of Sunbelt
or as Broker/Dealer. Moreover, although the account application includes references
to “Broker/Dealer,” just like the Brokerage Account Customer Agreement, that term
is not defined anywhere in the application.
Sunbelt appears to argue that Broker/Dealer as referenced in both the account
application and the Brokerage Account Customer Agreement necessarily refers to
31 the Sunbelt Appellants, and therefore, David agreed to arbitrate his claims against
them. What is clear from the evidentiary record in this case, however, is there is no
definition in the account application or the Brokerage Account Customer Agreement
of the term “Broker/Dealer,” and neither the account application nor the Brokerage
Account Customer Agreement declare Sunbelt or any other person or entity to be
the “Broker/Dealer.”
We find this case to be analogous to VSR Financial Services, 409 S.W.3d at
827–29, where the Dallas Court of Appeals considered a similar issue. There, the
appellees sued VSR and the Chapman defendants, who provided accounting services
and investment advice, for an investment loss sustained by appellees. Id. at 821–22.
Appellees opened brokerage accounts and signed a “VSR New Account Form,”
which identified VSR by name and was signed by one of the Chapman defendants
in the capacity of a “Registered Rep.” Id. at 822. The “VSR New Account Form”
did not contain an arbitration clause. Id. The appellees also signed account
agreements, which contained an arbitration clause encompassing disputes between
the account owner and the “Introducing Firm, Clearing Agent and any Sub–Advisor
(and/or any other agent),” and incorporated by reference terms and conditions that
contained an identical arbitration provision as the account agreement. Id. The term
“Introducing Firm” was not defined in either the account agreement or the terms and
32 conditions, nor was VSR or any other entity declared to be the “Introducing Firm”
in either document. Id.
Considering whether VSR and the Chapman defendants could enforce the
arbitration provisions against the appellees, the Dallas court noted that VSR is not a
named party to the Agreements, there is no definition in the Agreements or the Terms
and Conditions of the term “Introducing Firm,” and neither the Agreements nor the
Terms and Conditions declare VSR or any other entity to be the “Introducing Firm.”
Id. at 828. The court rejected VSR’s argument that the evidence could not be
construed “in any way other than concluding that reference to the Introducing Firm
was intended to mean VSR,” explaining that “the question is not whether we believe
VSR could be the ‘Introducing Firm,’ [but rather] the trial court abused its discretion
in concluding there was no clear agreement between VSR and appellees to arbitrate.”
Id. at 828–29. The court concluded that the trial court should not have found a valid,
enforceable agreement between VSR and appellees to arbitrate, and thus, did not
abuse its discretion in denying the motions to compel arbitration. Id. at 829.
For these same reasons, we hold that the Sunbelt Appellants failed to carry
their burden to establish the existence of a valid and enforceable arbitration
agreement between them and David. Therefore, the trial court did not abuse its
discretion in denying the Sunbelt Appellants’ motion to compel arbitration based on
David’s account.
33 Because we hold that the Sunbelt Appellants failed to carry their burden to
introduce evidence of a valid and enforceable arbitration provision related to either
William or David’s accounts, we do not reach their remaining arguments in their
first issue related to whether David’s claims fall within the scope of the arbitration
provisions, or their arguments in their fourth issue related to whether the trial court
erred in denying their motion to compel arbitration based on David and the
Administrator’s defenses to enforcement. Accordingly, we overrule the Sunbelt
Appellants’ first and fourth issues.
In their second and third issues, the Sunbelt Appellants argue that the trial
court abused its discretion by sustaining various conclusory and hearsay objections
to Smetek’s affidavit submitted in support of their motion to compel arbitration.
However, the evidence the Sunbelt Appellants argue was erroneously excluded was
not necessary to resolve the dispositive argument before this court, which is the legal
question of whether a valid agreement to arbitrate existed between the Sunbelt
Appellants and David or William. As this excluded evidence was not relevant to our
legal determination that no enforceable arbitration agreement existed between the
Sunbelt Appellants and David or William, we do not need to consider whether the
affidavit in question was adequate evidence. See TEX. R. APP. P. 47.1.
We overrule the Sunbelt Appellants’ second and third issues.
34 Conclusion
Having found no valid and enforceable arbitration agreement, we affirm the
interlocutory order of the trial court denying the Sunbelt Appellants’ motion to
compel arbitration. We further dismiss Monique’s appeal as moot.
Amparo Guerra Justice Panel consists of Justices Goodman, Hightower, and Guerra.