In re Double S Petroleum, Ltd.--Appeal from 381st Judicial District Court of Starr County

MEMORANDUM OPINION

No. 04-05-00643-CV

IN RE DOUBLE S PETROLEUM, LTD.,

Original Mandamus Proceeding //

Opinion by: Phylis J. Speedlin, Justice

Sitting: Sarah B. Duncan, Justice

Karen Angelini, Justice

Phylis J. Speedlin, Justice

Delivered and Filed: December 14, 2005

PETITION FOR WRIT OF MANDAMUS CONDITIONALLY GRANTED

Relator Double S Petroleum, Ltd. ( Double S ), a defendant in the underlying proceeding, seeks a writ of mandamus to compel arbitration under the Federal Arbitration Act ( FAA ). We conditionally grant mandamus relief.

Background

In the underlying lawsuit, Super Circle 7 Food Stores ( Circle 7 ) sued fuel suppliers Double S and Valero Marketing and Supply Company ( Valero ) for conspiracy, fraudulent inducement, deceptive trade practices, and breach of contract. Circle 7 owns and operates convenience stores in Hidalgo and Starr Counties. In August 2001, Circle 7 contracted with Diamond Shamrock Refining and Marketing Company ( DSRMC ) for the purchase of Diamond Shamrock-branded gasoline. This contract, the dealer agreement, established the price of gasoline, the use of Diamond Shamrock marks and images, and participation in Diamond Shamrock s credit card program. The dealer agreement called for arbitration of any claim, controversy, or dispute arising out of or related to this Agreement. The dealer agreement also allowed DSRMC to assign its rights under the agreement which it did, assigning its interest to Valero. In October 2002, Valero in turn assigned its interest under the dealer agreement to Double S. The same month, Circle 7 entered into a second agreement, the supply agreement, with Double S. This second agreement established the purchase price and payment terms for fuel and the terms for use of Valero Diamond Shamrock credit cards, trademarks, and signage at Circle 7 s stations, but did not address the manner in which disputes would be resolved.

According to Circle 7, it began having trouble processing credit card receipts and incentive rebates through Double S and also began having concerns about the cost and the quality of fuel received from Double S. As a result, Circle 7 filed suit against Double S and Valero, alleging that they had wrongfully forced Circle 7 to relinquish the initial contract and enter into the supply agreement. Both Double S and Valero moved to compel arbitration under the dealer agreement s arbitration provisions. Double S argued that its right to arbitration stemmed from its status as an assignee under the dealer agreement. Alternatively, Double S argued that even as a non-signatory it would be entitled to arbitration because Circle 7 s claims against it were factually interwoven with Circle 7 s claims against Valero. Following a hearing, the trial court compelled arbitration as to Valero but refused to compel arbitration as to Double S. Although Double S urged the trial court to reconsider its ruling on two occasions, the trial court stood by its initial ruling. Double S now seeks mandamus relief from the trial court s failure to compel arbitration.

Standard of Review

Mandamus will issue only to correct a clear abuse of discretion for which the remedy by appeal is inadequate. Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992) (orig. proceeding). A trial court has no discretion in determining what the law is or in applying the law to the facts, and a clear failure to analyze or apply the law correctly will constitute an abuse of discretion. Id. at 840.

When a motion to compel arbitration under the FAA has been erroneously denied, there is no adequate remedy by appeal, and mandamus will issue. In re Merrill Lynch Trust Company FSB, 123 S.W.3d 549, 553 (Tex. App. San Antonio 2003, orig. proceeding).

Analysis

A party seeking a writ of mandamus to compel arbitration under the FAA must: (1) establish the existence of a valid agreement to arbitrate, and (2) show that the claims in dispute are within the scope of the agreement. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding). The burden of establishing the existence of a valid and enforceable arbitration agreement includes proving that the party seeking to compel arbitration had the right to enforce the agreement to arbitrate. In re Merrill Lynch, 123 S.W.3d at 554. Once a valid arbitration agreement has been established, a presumption attaches favoring arbitration. In re Hartigan, 107 S.W.3d 684, 687-88 (Tex. App. San Antonio 2003, orig. proceeding). The burden then shifts to the party resisting arbitration to present evidence that the dispute falls outside of the scope of the agreement. In re Merrill Lynch, 123 S.W.3d at 554.

Valid Agreement to Arbitrate. We begin by determining if Double S met its burden of showing a valid agreement to arbitrate. Double S moved to compel arbitration based on the arbitration provisions in the dealer agreement. Circle 7 does not challenge that Double S is an assignee under the dealer agreement, nor does it dispute that the arbitration provisions in this case are governed by the FAA. Instead, Circle 7 urges that since Double S and Valero attempted to terminate the dealer agreement, Double S should be barred from enforcing its arbitration provisions. We disagree. Generally, an arbitration agreement contained within a contract survives the termination or repudiation of the contract as a whole. Henry v. Gonzalez, 18 S.W.3d 684, 690 (Tex. App. San Antonio 2000, pet. dism d by agrmt). In addition, the dealer agreement at issue expressly states that the arbitration provisions shall survive the termination of this Agreement, and that they apply to any claims arising out of or relating to this Agreement, including any claims concerning the termination of this Agreement and occurring subsequent to the termination or expiration of this Agreement. . . . (emphasis added). By its own terms, the arbitration provisions would survive the termination or expiration of the agreement.

Circle 7 also argues that the second agreement, the supply agreement, expressly cancelled Double S s arbitration rights. Again, we disagree. The supply agreement states that it constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. (emphasis added). The supply agreement further states that it is made for the purpose of supplying branded motor fuel products according to the terms and conditions set forth below. Thus, the subject matter of the supply agreement is supplying fuel products. It doesn t address expressly or implicitly the dealer agreement or the arbitration provisions contained within that agreement. Parties who intend to modify an arbitration agreement must do so in an unequivocal manner. Transwestern Pipeline Co. v. Horizon Oil & Gas Co., 809 S.W.2d 589, 591-92 (Tex. App. Dallas 1991, writ dism d w.o.j.). Here there is no unequivocal language. Considering the instrument as a whole, we cannot say that the supply agreement expresses a clear intention by the parties to dispense with the prior agreement for arbitration. We conclude that Double S, as an assignee under the dealer agreement, met its initial burden of showing a valid agreement to arbitrate.

Scope of the Arbitration Agreement. We next determine if the claims against Double S fall within the scope of the arbitration agreement. To make this determination, we must focus on the terms of the arbitration agreement and the petition s factual allegations rather than the legal causes of action asserted. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 754 (Tex. 2001) (orig. proceeding); Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 900 (Tex. 1995) (orig. proceeding). If the facts alleged in the petition touch matters, have a significant relationship to, are inextricably enmeshed with, or are factually intertwined with the contract that is subject to the arbitration agreement, the claim is arbitrable. Pennzoil Co. v. Arnold Oil Co., 30 S.W.3d 494, 498 (Tex. App. San Antonio 2000, orig. proceeding) (citing Hou-Scape, Inv. v. Lloyd, 945 S.W.2d 202, 205-06 (Tex. App. Houston [1st Dist.] 1997, orig. proceeding)). However, if the facts alleged in support of the claim stand alone or are completely independent of the contract, or if the claim could be maintained without reference to the contract, the claim is not subject to arbitration. Id.; Fridl v. Cook, 908 S.W.2d 507, 511 (Tex. App. El Paso 1995, writ dism d w.o.j.). All claims that fall within the scope of arbitration agreements must be arbitrated, even if it results in piecemeal litigation. Helena Chem. Co. v. Wilkins, 18 S.W.3d 744, 750 (Tex. App. San Antonio 2000) (citing Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 220-21 (1985)), aff d on other grounds, 47 S.W.3d 486 (Tex. 2001).

We now examine the arbitration provisions. Paragraph 16(B) of the dealer agreement states:

Except as provided in this Agreement, DSRMC and Dealer agree that any claim, controversy or dispute arising out of or relating to this Agreement, Dealer s operation of the Station under this Agreement (and any amendments thereto) including, but not limited to, any claim by DSRMC or Dealer, or persons claiming on behalf of DSRMC or Dealer, concerning the entry into, the performance under or the termination of this Agreement, or any other agreement between DSRMC, or its affiliates, and Dealer, any claim against a past or present officer, director, employee or agent of DSRMC, including those occurring subsequent to the termination or expiration of this Agreement, that cannot be amicably settled among the parties or through mediation shall, except as specifically set forth herein, be referred to arbitration.

Generally, when an arbitration provision uses the language any dispute, it is considered broad. In the Matter of Hornbeck Offshore Corp., 981 F.2d 752, 755 (5th Cir. 1993); In re Conseco Financing Service Corp., 19 S.W.3d 562, 568 (Tex. App. Waco 2000, orig. proceeding). [A] court should not deny arbitration unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue. Marshall, 909 S.W.2d at 899 (quoting Neal v. Hardee s Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990)). Any doubts as to whether a claim falls within the scope of the agreement must be resolved in favor of arbitration. In re Kellogg Brown & Root, 166 S.W.3d at 737; Marshall, 909 S.W.2d at 899. Thus, if the arbitration provisions in the dealer agreement are susceptible to an interpretation that covers the claims at issue, we are bound to interpret them accordingly.

Turning our attention to the allegations in its petition, // we note that Circle 7 relies on the same nucleus of facts to support virtually all of its claims: (1) conspiracy and fraudulent inducement, (2) deceptive trade practices, and (3) breach of contract. With respect to its conspiracy and fraudulent inducement claims, Circle 7 alleges that Double S conspired and acted in concert with Valero to terminate the dealer agreement and to fraudulently induce Circle 7 to change suppliers. With respect to its deceptive trade practices claims, Circle 7 alleges that Valero and Double S engaged in deceptive trade practices by making a series of misrepresentations to Circle 7 to secure the supply agreement. Finally, with respect to its breach of contract claims, the petition refers to [t]he acts and omissions described in the conspiracy, fraudulent inducement, and deceptive trade practices claims, and alleges that the same facts constitute breaks of Double S s contract with Circle 7.

Even though Circle 7 presents distinct legal theories in its petition, all of its claims are factually intertwined. With one exception, all the claims presented in Circle 7 s petition arise out of or relate to the dealer agreement. // Because the claims are factually intertwined and arise out of or relate to the dealer agreement, we find that they are subject to arbitration. // See Jack B. Anglin Co., Inc., v. Tipps, 842 S.W.2d 266, 271 (Tex. 1992) (holding DTPA claims were subject to arbitration provision where they were factually intertwined with breach of contract claims); Emerald v. Peel, 920 S.W.2d 398, 403-04 (Tex. App. Houston [1st Dist.] 1996, no writ) (finding negligence, breach of warranty, and DTPA claims subject to contract s arbitration provision when the plaintiff could have alleged a contract claim under the same facts).

Because a valid arbitration agreement has been established, a presumption arises favoring arbitration, and the burden is on Circle 7 to show that the dispute falls outside of the scope of the agreement. In re Merrill Lynch, 123 S.W.3d at 554; In re Hartigan, 107 S.W.3d at 687-88. The policy in favor of enforcing arbitration agreements requires us to resolve any doubts as to whether a particular claim falls within the scope of the agreement in favor of arbitration. Marshall, 909 S.W.2d at 899.

Circle 7 s primary argument before this court is that some of its claims are expressly excluded by the terms of the arbitration agreement. Circle 7 argues that two of its contract claims that Double S failed to forward it incentive program rebates and overcharged it under the supply agreement are expressly excepted from arbitration. To support this argument, Circle 7 relies on the following language in the dealer agreement: Notwithstanding the above, the following shall not be subject to arbitration: . . . (d) For monies owed under this Agreement or related agreements.

Circle 7 urges that this provision mandates the exclusion of its breach of contract/monies owed claims from arbitration. We decline to read this particular exception so broadly. Such an interpretation would foreclose arbitration whenever a party sought monetary damages and, therefore, would be inconsistent with the agreement s expansive provisions requiring arbitration of any dispute, claim or controversy.

We instead construe this exception to apply to simple disputes when a sum certain is due from a single party, in the nature of a suit on a sworn account. Here the rebate claim is not a straight-forward dispute in which one party seeks a specific amount due. // As presented in Circle 7 s petition, the rebate claim requires Circle 7 to prove that it timely applied for the rebates, that a third-party (Valero) paid these rebate funds to Double S, and that Double S refused to pay these funds to Circle 7. Similarly, Circle 7 s pricing claim is not a clear-cut demand for a sum certain but instead is intertwined with other claims and factual allegations. We also note that Circle 7 s petition seeks monetary damages in the amount of approximately $500,000.00 but does not segregate the amount owed for the pricing claims. We reject Circle 7 s contention that its rebate and pricing claims are expressly excluded by the arbitration agreement.

Circle 7 next contends that its claim for rescission is extraordinary relief, and therefore, is non-arbitrable because the agreement states [i]f either party shall desire to seek specific performance or extraordinary relief, including but not limited to, injunctive relief . . . then any such action shall not be subject to arbitration. (emphasis added). We disagree. First, rescission is not a claim or a legal cause of action but an equitable remedy used as a substitute for monetary damages when such damages are inadequate. Scott v. Sebree, 986 S.W.2d 364, 368 (Tex. App. Austin 1999, pet. denied). In addition, we interpret this clause to refer to an action in which the exclusive remedy sought is extraordinary relief. In the present case, the primary remedy sought in Circle 7 s petition is monetary damages for claims that fall directly within the scope of the arbitration provisions. Circle 7 s alternative request for rescission does not and should not alter that fact. See Fridl, 908 S.W.2d at 514 (finding a claim was subject to arbitration when to hold otherwise would allow a party to avoid arbitration by artful pleading).

Although our reasoning is based on Double S s right to enforce the arbitration agreement as an assignee, we also recognize that the trial court abused its discretion in not ordering arbitration under the doctrine of equitable estoppel. See In re Kellogg Brown & Root, 166 S.W.3d at 739 (explaining that equitable estoppel is one of six theories under which non-signatories may be bound to arbitration agreements under federal law). Circle 7 asserts essentially the same claims against Valero and Double S based on the same conduct. Where the causes of action against the non-signatory defendants are based upon the same operative facts and are inherently inseparable from the causes of action against the signatory-defendant, the signatory-plaintiff may not avoid arbitration if invoked by the non-signatory defendants. Brown v. Anderson, 102 S.W.3d 245, 250 (Tex. App. Beaumont 2003, pet. denied).

Conclusion

Because Circle 7 s factual allegations fall within the broad scope of the arbitration agreement s terms, we hold that the trial court clearly abused its discretion in denying Double S s motion to compel arbitration. Accordingly, we conditionally grant the writ of mandamus. The writ will issue only if the trial court fails to withdraw its orders denying Double S s motion to compel arbitration and enter an order compelling arbitration within ten days.

Phylis J. Speedlin, Justice