In re Global Financial Services, L.L.C., Ricardo Perusquia, Gerardo A. Chapa, Robert C.A. Benjamin--Appeal from County Court At Law No 1 of Webb County

MEMORANDUM OPINION
No. 04-04-00854-CV
GLOBAL FIN. SERVS., L.L.C., Ricardo Perusquia,
Gerardo A. Chapa, Robert C.A. Benjamin,
Appellant
v.
ESTATE OF JUAN ROBERTO BRITTINGHAM MCLEAN, et al.,
Appellee
From the County Court at Law No. 1, Webb County, Texas
Trial Court No. 2000-PB7-000049-L1
Honorable Alvino J. Morales, Judge Presiding
consolidated with
No. 04-05-00074-CV
IN RE GLOBAL FIN. SERVS., L.L.C., Ricardo Perusquia,
Gerardo A. Chapa, Robert C.A. Benjamin
Original Mandamus Proceeding (1)

Opinion by: Karen Angelini, Justice

 

Sitting: Catherine Stone, Justice

Karen Angelini, Justice

Sandee Bryan Marion, Justice

 

Delivered and Filed: June 20, 2007

 

PETITION FOR WRIT OF MANDAMUS DENIED; REVERSED AND REMANDED.

 

In this combined original proceeding and interlocutory appeal, Global Financial Services, L.L.C., and its managing directors, Ricardo Perusquia, Gerardo A. Chapa, and Robert C. A. Benjamin, ("Global"), appeal the trial court's order denying Global's motion for arbitration and plea in abatement. We consolidated the two proceedings and now deny the petition for writ of mandamus, reverse the trial court's order and remand the cause for further action consistent with this opinion.

Factual Background

On January 14, 1998, Juan Roberto Brittingham-McLean ( "Brittingham") died in Monterrey, Mexico. In August of 2000, Brittingham's widow, Ana Marie de la Fuente de Brittingham, ("Ms. Brittingham") filed an ancillary probate proceeding in Webb County, Texas and was appointed executrix. She subsequently sued her late husband's children and grandchildren. A year later, Brittingham's son, John R. Brittingham-Aguirre,("Aguirre"), intervened as a plaintiff in the ancillary probate proceeding. Ms. Brittingham then amended her petition to join Global, the licensed security broker that bought, sold and transferred cash and securities for Brittingham, as defendants.

In 2004, Aguirre likewise amended his Plea in Intervention to include specific allegations against Global, and sought damages of approximately $12,000,000.00, which included actual damages, as well as exemplary damages, and attorneys' fees. Specifically, Aguirre's petition alleged that after Brittingham's death and before payment of his debts, Global conspired and concocted a scheme to take Estate assets, without authority of any court and that Global had full knowledge that the assets belonged to Brittingham and that no judicial authorization existed for the transfer of said assets. Global then filed a motion to compel arbitration as a third party beneficiary to a Customer Agreement containing an arbitration clause. The agreement was between Bear Stearns Securities Corp., a clearing broker hired by Brittingham to manage one of his accounts, and Sandfern Ltd., a company owned by Brittingham. (2) The trial court denied the motion to compel without stating its reasons.

Global filed a petition for writ of mandamus and an interlocutory appeal raising the following issues:(1) the trial court erred in finding that the arbitration agreement was not before the court and was not properly authenticated; (2) the trial court erred in finding Aguirre was not a party to the arbitration agreement; and (3) the trial court erred in finding Global waived its right to arbitration.

Mandamus and Interlocutory Appeal

When a trial court denies a motion to compel arbitration based on the Federal Arbitration Act ("FAA"), the motion must be reviewed by mandamus. See Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272-73 (Tex. 1992). However, if the motion to compel arbitration is based on the Texas Arbitration Act ("TAA"), it is reviewable by interlocutory appeal. See Tex. Civ. Prac. & Rem. Code Ann. 171.098 (a)(1) (Vernon 2006). Although Global filed both a petition for writ of mandamus and an interlocutory appeal, Global asserts that because interstate commerce is involved, we should review the motion to compel arbitration through the mandamus proceeding.

However, the Texas Supreme Court has held that "[t]he mere fact that a contract affects interstate commerce, thus triggering the FAA, does not preclude enforcement under the TAA as well."In re D. Wilson Constr. Co., 196 S.W.3d 774, 780 (Tex. 2006). In fact, the court in Wilson found that when the contract in question referenced neither the FAA nor the TAA, language that "[t]he Contracts shall be governed by the law of the place where the Project is located" invoked both federal and state law. Id.(citing In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125, 127-28 (Tex. 1999) (per curiam) (consolidated appeal and orig. proceeding) (emphasis in original)). The court emphasized that "the FAA only preempts contrary state law, not consonant state law." In re D. Wilson, 196 S.W.3d at 779 (emphasis in original). Thus the court stated the issue was "whether application of [state law] to stay arbitration under this contract in interstate commerce . . . would undermine the goals and policies of the FAA." Id. The court went on to state that the FAA only preempts the TAA if: "1) the agreement is in writing; 2) it involves interstate commerce; 3) it can withstand scrutiny under traditional contract defenses [under state law]; and 4) state law affects the enforceability of the agreement." Id. (citing In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex. 2005)). If the FAA does not preempt the TAA, this court has jurisdiction under both laws. Id.

In the present case, the Customer Agreement, which is in writing, states that "[a]ll transactions shall be subject to all applicable law and the rules and regulations of all federal, state and self-regulatory agencies, including, but not limited to, the Board of Governors of the Federal Reserve System and the constitution, rules and customs of the exchange or market (and clearing house) where executed." Clearly, this language does not specifically reference either the FAA or the TAA and thus, invokes both federal and state law. See In re D. Wilson, 196 S.W.3d at 780 (citing In re L & L Kempwood Assocs., L.P., 9 S.W.3d at 127-28). Further, interstate commerce has been defined as "trade, commerce, transportation, or communication among the several States, or between any foreign country and any State, or between any State and any place or ship outside thereof." 15 U.S.C. 78c(a)(17); see Robinson v. TCI/US West Commc'ns Inc., 117 F.3d 900, 904 (5th Cir. 1997). Global's buying, selling, and transferring of cash and securities for Sandfern Ltd. amounts to interstate commerce given that Bear Stearns has its principal office in New York, Sandfern is an Irish company, the agreement appears to contemplate the performance of brokerage services across state lines, and the signatories to the agreement are residents of different states. See L & L Kempwood Assocs., L.P., 9 S.W.3d at 126-27 (finding interstate commerce when parties to contract reside in different states).

Additionally, the third prong of the four-factor test for determining if the FAA preempts the TTA appears to have been met in that the agreement can withstand scrutiny under traditional contract defenses. See In re Nexion, 173 S.W.3d at 69. However, the fourth prong, requiring that state law affect the enforceability of the agreement, does not appear to have been satisfied here. See Tex. Civ. Prac. & Rem. Code Ann. 171.002(a); cf. id. (finding that fourth prong was met where the TAA interfered with the enforceability of the arbitration agreement by adding an additional requirement not found in the FAA).

Here, as in Wilson, the parties "have asserted nothing in the TAA or other state law that would subvert enforcement of the agreement[]at issue." In re D. Wilson, 196 S.W.3d at 780. Therefore, the FAA does not preempt the TAA, and [this court] ha[s] jurisdiction under both laws." Id. This determination requires this court to address both Global's petition for writ of mandamus and its interlocutory appeal. Id.

DENIAL OF MOTION TO COMPEL ARBITRATION
Standard of Review

A trial judge's order denying arbitration is reviewed under an abuse of discretion standard. Jack B. Anglin Co., 842 S.W.2d at 272-73; In re Educ. Mgmt. Corp., 14 S.W.3d 418, 426 (Tex. App.--Houston [14th Dist.] 2000, orig. proceeding). In reviewing the trial court's order, we consider the pleadings or other evidence on file at the time the trial judge rendered his decision. See Sabine Offshore Serv., Inc. v. City of Port Arthur, 595 S.W.2d 840, 841 (Tex.1979) (review limited to evidence properly in appellate record); see also Carlton v. Trinity Universal Ins. Co., 32 S.W.3d 454, 458 (Tex. App.--Houston [14th Dist.] 2000, pet. denied) (parties cannot rely on matters outside record in making arguments to appellate court); Manges v. Martinez, 683 S.W.2d 137, 139 (Tex. App.--San Antonio 1984, no writ) (finding that because neither the motion nor the affidavit were on file in the trial court at the time the judge denied the motion, they were not properly before this court for review).

Existence and Scope of Arbitration Agreement

A party seeking to compel arbitration must establish that (1) there is a valid arbitration clause, and (2) the claims raised fall within the scope of that agreement. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding); In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999). We first determine whether a valid arbitration clause exists and if so, whether it is binding on a nonparty. See In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005). Although a valid arbitration clause is governed by federal law, whether an arbitration clause exists and upon whom it is binding are issues governed by Texas law. See id. It is well settled that "[a]rbitration is heavily favored under federal and state law and should not be denied unless it can be said with positive assurance that the arbitration clause cannot be interpreted so as to encompass the dispute in question." Kirby Highland Lakes Surgery Ctr., L.L.P. v. Kirby, 183 S.W.3d 891, 896 (Tex. App.-- Austin 2006, no pet.) (citing Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898-99 (Tex. 1995)). Doubts concerning the scope of coverage of an arbitration clause are resolved in favor of arbitration. Kirby Highland Lakes Surgery Ctr., L.L.P., 183 S.W.3d at 896; Pennzoil Exploration & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1067 (5th Cir.1998).

To determine the scope of an arbitration agreement, we first look to the terms of that agreement and then examine the factual allegations in the petition. See Kirby Highland Lakes Surgery Ctr.,L.L.P., 183 S.W.3d at 896. If the arbitration agreement covers the claims and the party opposing arbitration has failed to prove its defenses, the trial court has no discretion but to compel arbitration and stay its own proceedings. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753-54 (Tex. 2001); D.R. Horton, Inc. v. Brooks, 207 S.W.3d 862, 866-67 (Tex. App.--Houston [14th Dist.] 2006, no pet.).

Discussion

1. Was Arbitration Agreement Before the Court?

 

Global initially argues that the trial court erred in finding that the arbitration agreement was not before the court and further, was not properly authenticated.

It is undisputed that the Customer Agreement containing the arbitration clause was not attached to Global's initial motion to compel. However, at the October 12, 2004 hearing on Global's motion to compel, counsel for Global had a copy of the agreement in his hand and was arguing the motion when the trial judge inquired, "[w]ho signed that? Who signed that for those people?" Counsel for Global responded, "[t]he - - actually, this has been signed, if I may approach the bench, this has been signed by Raul Hernandez who was at the time director of Sandfern Limited. This was signed in 1996." Further, the record contains a copy of the Customer Agreement containing the arbitration clause referred to by Global's counsel, and filed marked on October 12, 2004, the day of the hearing. Additionally, a copy of this same agreement was attached to Global's Second Amended Motion to Compel, which was filed on October 22, 2004, prior to the entry of the November 9, 2004 order that denied Global's motion to compel arbitration. This order states: "[t]he Court, after considering the motion, the evidence, if any, and the arguments of counsel makes the following orders. . . IT IS ORDERED that the Global Defendants' motion to compel arbitration and plea in abatement is DENIED." Thus, it would appear that the Customer Agreement containing the arbitration clause, on file at the time the judge rendered his decision, was before the court. See Sabine Offshore Serv., Inc., 595 S.W.2d at 841; Manges, 683 S.W.2d at 139.

Aguirre maintains that even if the arbitration agreement was before the court, it was not properly authenticated. However, we find no requirement that an arbitration agreement be authenticated to be properly before the court. See e.g. In re Oakwood Mobile Homes, Inc., 987 S.W.2d at 573 (finding that movant met its burden of presenting evidence of an arbitration agreement where copy of agreement was submitted, along with an affidavit attesting only that it was voluntarily executed and negotiated at arm's length); In re Conseco Fin. Servicing Corp., 19 S.W.3d 562, 569 (Tex. App.--Waco 2000, no pet.) (finding that attaching a copy of the contract to its motion to compel sufficiently satisfied movant's burden of presenting evidence of an arbitration agreement). 2. Was Aguirre A Party To the Arbitration Agreement?

Having determined that the arbitration agreement was before the court, we next turn to whether the trial court erred in finding that the arbitration clause was not binding on Aguirre, and that Aguirre's claims did not fall within the scope of the agreement. See In re Weekley Homes, 180 S.W.3d at 130;In re Oakwood Mobile Homes, Inc., 987 S.W.2d at 573. It is undisputed that neither Global nor Aguirre signed the Customer Agreement containing the arbitration clause in question. This agreement was entered into by Bear Stearns and Sandfern. However, the Customer Agreement provided that Bear Stearns carried the account(s) as clearing agent for Sandfern's broker and that Sandfern's broker and its employees were third-party beneficiaries of this agreement. Global maintains, and Aguirre does not dispute, that Global was Sandfern's broker; as such, the terms and conditions of the agreement, including the arbitration provision, were to be applicable to all matters between or among Global and Sandfern Ltd, its estate, heirs, executors, administrators, personal representatives, successors and assigns. (3)

See Tex. R. App. P. 38.1(f).

Thus, the language of the agreement clearly binds Global, as a third party beneficiary to the agreement, and further, binds the Estate. And while Aguirre claims he cannot be bound to the arbitration agreement because he did not sign the Customer Agreement, the law is well settled that nonsignatories may be bound to an arbitration clause when the rules of law or equity would bind them to the contract generally. See In re Kellogg, Brown & Root, 166 S.W.3d at 741; In re FirstMerit Bank,N.A., 52 S.W.3d at 755. Whether a nonsignatory's claim seeks a direct benefit from a contract containing an arbitration clause turns on the substance of the claim and not how the claim is pled. See In re Weekley Homes, 180 S.W.3d at 131-32. Claims must be brought on the contract and be subject to arbitration if liability arises solely from the contract or must be determined by reference to it; however, claims can be brought in tort if liability arises from general obligations imposed by law. Id. at 132. Thus, a nonsignatory pursuing a claim "on the contract" must pursue all its claims, both tort-based and contract-based, in arbitration. Id. Further, a nonsignatory may be compelled to arbitrate if it "deliberately seeks and obtains substantial benefits from the contract itself." Id.

Aguirre's First Amended Plea in Intervention alleged that Brittingham, his father, owed Aguirre approximately $11,853,430.00 at the time of his death and further, that Brittingham died with an immense fortune of more than $100,000,000.00 which consisted of portfolio investments through brokerage houses in Texas and New York, including Global Financial Service, L.L.C. in Houston, Texas. Aguirre further alleged that Brittingham's assets were eventually consolidated at Global Financial Services, L.L.C. in Houston, Texas, whereupon Global converted all the assets belonging to the Estate for the personal use of the Monterrey Defendants. Importantly, Aguirre's Amended Plea in Intervention specifically alleged that: "[t]hereafter, the Global Defendants fraudulently concealed from the Estate's appointed representative the existence of said assets after receiving formal inquiry, and breached their fiduciary duty to the Estate as its customer." (Emphasis added.) Aguirre also alleged fraud, fraudulent transfer, tortious interference, conspiracy, theft, and negligence arising from Global's purported mishandling of the Estate's money.

Thus, it would appear that Aguirre's factual claims against Global are derived from the claims of the Estate pursuant to the Customer Agreement, which was signed by Raul Hernandez, on behalf of the Estate. Indeed, during oral arguments, counsel for Aguirre admitted that Aguirre's claims were the same as those of the Estate's and later conceded that Aguirre's claims against Global were derivative of the Estate's claims. And although Aguirre asserts that "his claims do not require reliance on the terms of the alleged written agreement containing the arbitration provision," it is clear that Aguirre's claims do require reliance upon the relationship between Sandfern and Global created by the Customer Agreement containing the arbitration provision. See In re Weekley Homes, 180 S.W.3d at131-32. Or stated differently, liability, if any, arises solely from the Customer Agreement between Global, as a third party beneficiary, and the Estate, or must be determined by reference to the Customer Agreement; therefore, Aguirre's claims must be brought on the contract and be subject to arbitration.See id.; see also In re Kellogg, Brown & Root, 166 S.W.3d at 741 (nonsignatories may be bound to an arbitration clause when the rules of law or equity would bind them to the contract generally).

Aguirre further argues that the Customer Agreement does not address the type of claims he is alleging. However, the Customer Agreement specifically provides that its terms, including the arbitration provision, shall be applicable to all matters between Global and the Estate and further that any controversies arising between Global and the Estate shall be determined by arbitration. Additionally, as Aguirre is pursuing his claims based on the relationship created by the Customer Agreement, he must pursue all his claims, both tort-based and contract-based, in arbitration. See In re Weekley Homes, 180 S.W.3d at131-32; Merrill Lynch Pierce, Fenner & Smith v. Eddings, 838 S.W.2d 874, 879 (Tex. App.-- Waco 1992, writ denied); see also Marshall, 909 S.W.2d at 898-99 (arbitration heavily favored and should not be denied unless it can be said with positive assurance that the arbitration clause cannot be interpreted so as to encompass the dispute).

Thus, a valid arbitration clause does exist, it is binding on Aguirre, and Aguirre's claims fall within the scope of the arbitration agreement. See In re Kellogg Brown & Root, 166 S.W.3d at 737; In re Oakwood Mobile Homes, 987 S.W.2d at 573.

3. Did Global waive its right to arbitrate?

Once Global established that the arbitration agreement applied to Aguirre's claims, the burden then shifted to Aguirre to prove that Global waived its right to arbitrate by substantially invoking the judicial process. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003); Brooks, 207 S.W.3d at 866.

Initially we note that there is a strong presumption against waiver pursuant to the FAA. See In re Oakwood Mobile Homes, 987 S.W.2d at 574. Whether a party has waived its contractual right to arbitrate is a question of law. See id. Waiver may be found when it is shown that a party acted inconsistently with its right to arbitrate and such actions prejudiced the other party. See In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006) (per curiam)(citing In re Serv. Corp. Int'l, 85 S.W.3d 171, 174 (Tex. 2002)). However, any doubts regarding whether a party waived its right to arbitrate should be resolved in favor of arbitration. See In re Oakwood Mobile Homes, 987 S.W.2d at 574. Thus, courts have found that delay alone generally does not establish waiver. See In re Vesta Ins. Group, 192 S.W.3d at763 (citing In re Serv. Corp. Int'l, 85 S.W.3d at 174). Moreover, even when a party has taken part in litigation or otherwise invoked the litigation process, a party's right to arbitration is not waived absent a clear showing that the opposing party has been prejudiced. See In re Vesta Ins. Group, 192 S.W.3d at 763; In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998).

Here, the record reflects that although the case was initially filed in 2000, Aguirre did not file his Amended Plea in Intervention until February of 2004. It is this pleading that Global claims constituted the first time Aguirre made any specific allegations against Global. Aguirre does not specifically dispute this assertion in his brief. (4) See Tex. R. App. P. 38.1(f). Additionally, Aguirre's Original Plea in Intervention is not a part of the record. However, the record does reflect that Global filed its Motion to Compel in June of 2004, approximately four months after Aguirre's amended plea, and that the hearing was held in October of 2004.

Nevertheless, Aguirre maintains that Global substantially invoked the judicial process by filing a motion to quash a subpoena to testify, participating in discovery, joining in removing the case to federal court, and filing a motion to dismiss in federal court. Aguirre does not state, and the record does not reflect, if these events took place after February of 2004 when Aguirre filed his Amended Plea in Intervention. (5) See Tex. R. App. P. 38.1(f). Moreover, Aguirre does not show how Global's actions prejudiced him in any way. See In re Vesta, 192 S.W.3d at 763. Indeed, although Aguirre argues Global invoked the judicial process by filing a motion to dismiss in federal court, Global maintains, and Aguirre does not dispute, that the case was remanded back to state court before the federal court ruled on this motion. See id. As Aguirre has not shown Global substantially invoked the judicial process and that he was prejudiced by Global's actions, Aguirre has not met his burden of showing Global waived its right to arbitration in the present case. See id.; In re Bruce Terminix Co., 988 S.W.2d at 704.Conclusion Because the record here shows the existence of a valid arbitration agreement that covers Aguirre's claims, and Aguirre has failed to present a clear showing that Global waived its right to arbitration, the trial court abused its discretion in not compelling arbitration. See In re FirstMerit Bank, 52 S.W.3d at 753-54.

Accordingly, we deny the petition for writ of mandamus, reverse the trial court's order denying Global's motion to compel arbitration and remand the case to the trial court for further proceedings consistent with this opinion.

Karen Angelini, Justice

1. This proceeding arises out of Cause No. 2000-PB7-000049-L1, styled Global Fin. Servs. L.L.C., Ricardo Perusquia, Gerardo A. Chapa, and Roberto C.A. Benjamin v. Estate of Juan Roberto Brittingham McLean et al., pending in the County Court at Law No. 1, Webb County, Texas, the Honorable Alvino Morales presiding.

2. In November of 1996, Brittingham's agent, Raul Hernandez, organized and incorporated Sandfern Limited under the laws of the Republic of Ireland in order to acquire, hold, and transfer shares, stocks, bonds, and other securities for Brittingham. As one of the appointed directors of Sandfern, Raul Hernandez executed the Customer Agreement with Bear Stearns in December of 1996.

3. The agreement further provided that the parties agreed "that controversies arising between [Sandfern Ltd., its estate, heirs, executors, administrators, personal representatives, successors and assigns] and Bear Stearns [or Global as a third party beneficiary] . . . shall be determined by arbitration."

4. Although Aguirre generally "objects and challenges the first full paragraph of page 7 of Appellants Statement of Facts," wherein Global makes the argument regarding the amended plea in intervention, Aguirre

goes on to address only his contention that Ms. Brittingham's claims were not compromised or settled and does

not specifically dispute that Aguirre's amended plea is the first time Aguirre made any specific allegations against Global.

5. None of these pleadings appear to be contained in the record.