

                                                           COURT OF
APPEALS
                                                   EIGHTH DISTRICT OF
TEXAS
                                                              EL
PASO, TEXAS
 



 
 
THE INLAND SEA, INC.,
 
                                   
  Appellant,
 
v.
 
CHRISTOPHER CASTRO,
 
                                    Appellee.
  
 


 
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                  No. 08-11-00194-CV
 
                         Appeal from
 
County Court at Law
  No. 3
 
of El Paso County,
  Texas
 
(TC # 2009-5287)




 
 


 
 


 
 



                                                                  O
P I N I O N
 
            The Inland Sea, Inc. appeals from an
order denying its motion to compel arbitration. 
For the reasons that follow, we affirm.
FACTUAL SUMMARY
Christopher
Castro filed a non-subscriber negligence suit against Inland Sea and Rigoberto
Duran on December 9, 2009.  In its
answer, Inland Sea denied that it was Castro’s employer.  Castro amended his petition on January 13,
2010 and joined Movers Service Agency, Inc. (Movers) as a defendant.
Movers
filed a motion to compel arbitration on May 27, 2010.  The arbitration clause on which Movers relied
is contained in Movers’ written Occupational Injury Benefit Plan.  On the last page of a document titled
“Summary Plan Description of the Occupational Injury Benefit Plan,” Movers
notifies its employees that it does not have workers’ compensation insurance
coverage to protect them from damages due to work-related injuries but they may
have rights under Texas common law.  That
page includes an acknowledgement whereby the employee certifies that he has
been informed that Movers does not have workers’ compensation insurance and he
has read the Plan or it has been read to him. 
The acknowledgement is signed by Christopher J. Castro and is dated
March 5, 2008.  Inland Sea is not a
signatory to the Plan or the acknowledgement. 

Inland
Sea did not file a motion to arbitrate. 
Instead, it filed a motion for no-evidence and traditional summary
judgment on the ground that it was not Castro’s employer and owed him no
duty.  Inland Sea based its argument on a
Labor Service Agreement with Movers which provided that Movers is an
independent contractor of Inland Sea and Movers’ workers, staff, and employees
are not employees of Inland Sea.  In
apparent response to Inland Sea’s position that it was not Castro’s employer,
Castro amended his petition to allege that Movers was the alter ego of Inland
Sea such that Inland Sea would be liable for Castro’s injuries under the
theories of piercing the corporate veil, alter ego, principal/agent, and
master/servant.  Additionally, Castro
alleged that Inland Sea was liable through the doctrines of joint enterprise,
respondeat superior, and borrowed employee.
Inland
Sea’s motion for summary judgment was set for hearing on several occasions over
the next several months but those settings were continued at Castro’s
request.  On January 28, 2011, the trial
court conducted a hearing on Movers’ motion to compel arbitration and tentatively
granted the motion while allowing the parties to supplement the record and make
additional arguments before a final ruling. 
A few days later, Inland Sea filed an amended motion for traditional and
no-evidence summary judgment, again contending that it was not Castro’s
employer.  On February 3, 2011, Inland
Sea filed a motion to compel arbitration based on concerted misconduct estoppel.[1]  Castro filed a written response alleging
Inland Sea had waived its right to arbitration because it had substantially
invoked the judicial process.  
On
February 23, 2011, the trial court conducted another hearing on Movers’ motion
to arbitrate.  Near the end of the
hearing, the trial judge announced he would order Movers and Castro to arbitrate.  When the trial judge indicated he was ready
to address Inland Sea’s motion to compel arbitration, Inland Sea asked the
court to address its motion for summary judgment first.  The court responded,  “I don’t think you want me to hear the
summary judgment.”  Counsel advised the
court that its motion to compel arbitration was subject to the motion for
summary judgment and asked if the court was denying the motion for summary
judgment.  The trial judge clarified that
he was not denying the summary judgment motion and urged Inland Sea to present
the summary judgment issue to the arbitrator. 
At that point, Castro argued that Inland Sea had waived the right to
arbitration because it had substantially invoked the judicial process.  The court continued the hearing until March
30, 2011 to address Castro’s argument.  
On
March 30, 2011, the trial court signed an order granting Movers’ motion to
compel arbitration.  The court then addressed
Castro’s defensive argument that Inland Sea had waived its right to arbitrate.  At the conclusion of the hearing, the trial court
denied Inland Sea’s motion to compel arbitration because Inland Sea had substantially
invoked the judicial process to the detriment of Castro.  Inland Sea timely filed notice of appeal.[2]  
ALTERNATIVE GROUNDS TO
AFFIRM
            In two issues for review, Inland Sea
challenges the trial court’s order denying its motion to compel arbitration.  The first challenges the court’s finding that
Inland Sea had substantially invoked the judicial process.  The second complains that the court erred by
finding that Castro suffered prejudice. 
Castro addresses the merits of these issues, but responds that the trial
court’s ruling can be affirmed on three alternative grounds because the order
denying the motion to compel arbitration does not specify the precise basis for
the ruling:  (1) the agreement to
arbitrate is invalid; (2) Castro’s negligence claim does not fall within it;
and (3) Inland Sea does not have a right to arbitration under the concerted
misconduct estoppel doctrine.  We agree.
Standard of Review
A
party seeking to compel arbitration must (1) establish the existence of a valid
arbitration agreement; and (2) show that the claims asserted are within the
scope of the agreement.  See In re AdvancePCS Health L.P., 172 S.W.3d
603, 605 (Tex. 2005); In re Swift
Transportation Co., Inc., 311 S.W.3d 484, 488 (Tex.App.--El Paso 2009,
orig. proceeding).  Under the Federal Arbitration
Act, ordinary principles of state contract law determine whether there is a
valid agreement to arbitrate.  In re Kellogg Brown & Root, Inc.,
166 S.W.3d 732, 739 (Tex. 2005).  The
trial court’s determination of the arbitration agreement’s validity is a legal
question subject to de novo review.  J.M.
Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003); Swift Transportation, 311 S.W.3d at 488.
 Once the party seeking to compel
arbitration proves that a valid arbitration agreement exists, a presumption
attaches favoring arbitration and the burden shifts to the party resisting
arbitration to establish a defense to enforcing arbitration.  See In
re AdvancePCS, 172 S.W.3d at 607; In
re J.M. Davidson, 128 S.W.3d at 227. 

Concerted Misconduct
Estoppel
The
initial burden of establishing the existence of an arbitration agreement requires
proof that the party seeking to enforce the agreement was a signatory to the
agreement or otherwise had the right to enforce it.  Mohamed
v. Auto Nation USA Corp., 89 S.W.3d 830, 836  (Tex.App.--Houston [1st Dist.] 2002, orig.
proceeding).  As a general rule,
arbitration of a claim cannot be compelled unless it falls within the scope of
a valid arbitration agreement.  Meyer v. WMCO-GP, LLC, 211 S.W.3d 302,
304 (Tex. 2006).  A person who has agreed
to arbitrate disputes with one party may in some cases be required to arbitrate
related disputes with others.  Meyer, 211 S.W.3d at 304.  Federal courts have recognized six theories
arising out of common principles of contract and agency law that may bind
non-signatories to arbitration agreements:  (1) incorporation by reference; (2)
assumption; (3) agency; (4) alter ego; (5) equitable estoppel, and (6)
third-party beneficiary.  In re Kellogg Brown & Root, 166
S.W.3d at 739.
Inland
Sea is a non-signatory to the arbitration agreement but it sought to compel
arbitration under concerted misconduct estoppel, a type of equitable estoppel
recognized by some federal courts.  In Grigson v. Creative Artists Agency, L.L.C.,
210 F.3d 524 (5th Cir. 2000), the Fifth Circuit addressed whether a
non-signatory to an arbitration agreement could compel arbitration of a dispute
with a signatory.  The court quoted with
approval the intertwined claims test formulated by the Eleventh Circuit:
Existing case law
demonstrates that equitable estoppel allows a nonsignatory to compel
arbitration in two different circumstances. 
First, equitable estoppel applies when the signatory to a written
agreement containing an arbitration clause must rely on the terms of the
written agreement in asserting its claims against the nonsignatory.  When each of a signatory’s claims against a
nonsignatory makes reference to or presumes the existence of the written
agreement, the signatory’s claims arise out of and relate directly to the
written agreement, and arbitration is appropriate.  Second, application of equitable estoppel is
warranted when the signatory to the contract containing an arbitration clause
raises allegations of substantially interdependent and concerted misconduct by
both the nonsignatory and one or more of the signatories to the contract.  Otherwise the arbitration proceedings between
the two signatories would be rendered meaningless and the federal policy in
favor of arbitration effectively thwarted.
 
Grigson, 210 F.3d at 527, quoting MS Dealer Service Corporation v.
Franklin, 177 F.3d 942, 947 (11th Cir. 1999) (citations and quotation marks
omitted).  The Fifth Circuit explained
that a signatory to an agreement which contains an arbitration provision cannot
seek to hold the non-signatory liable pursuant to duties imposed by the agreement
but deny arbitration’s applicability because the defendant is a
non-signatory.  Grigson, 210 F.3d at 528.  
The
Texas Supreme Court has held that a person who seeks by his claim to derive a
direct benefit from the contract containing the arbitration provision may be
equitably estopped from refusing arbitration.  Meyer, 211 S.W.3d at 305, citing In re Vesta Insurance
Group, Inc., 192 S.W.3d 759, 761-62 (Tex. 2006) and In re Kellogg Brown & Root, 166 S.W.3d at 741.  It has not, however, adopted the type of
concerted misconduct estoppel relied upon by Inland Sea.  To the contrary, the Supreme Court has
refused to adopt it because it is not a recognized theory of estoppel under
Texas law and the theory is far from being well-settled in the federal
courts.  In re Merrill Lynch Trust Company FSB, 235 S.W.3d 185, 191-95 (Tex.
2007); see In re Labatt Food Service,
L.P., 279 S.W.3d 640, 644 (Tex. 2009)(citing
In re Merrill Lynch and stating in the
parenthetical that the case recognized that estoppel may bind a non-signatory
to an arbitration agreement but held that plaintiffs were not bound to
arbitration agreement under “concerted misconduct estoppel” because it was not
a recognized theory of estoppel under Texas law).  Given the Supreme Court’s express refusal to
adopt concerted misconduct estoppel, we hold that Inland Sea cannot rely on it
in this case to compel arbitration.  It
is therefore unnecessary to address Issues One and Two or the remaining
alternative grounds.  Accordingly, we
affirm the order of the trial court refusing to compel arbitration.
 
 
May 16, 2012                                      ________________________________________________
ANN CRAWFORD
McCLURE, Chief Justice
 
Before McClure, C.J., Rivera, J., and Chew, C.J. (Senior)
Chew, C.J. (Senior) sitting by assignment




[1]  In certain limited instances, a defendant who
is a non-signatory to an arbitration agreement can compel arbitration against a
signatory-plaintiff.  Grigson v. Creative Artists Agency L.L.C.,
210 F.3d 524, 526 (5th Cir. 2000).  Some
federal courts hold that equitable estoppel allows a non-signatory to compel
arbitration in two different circumstances: 
(1) when the signatory to a written agreement containing an arbitration
clause must rely on the terms of the written agreement in asserting its claims
against the non-signatory; and (2) when the signatory to the contract containing
an arbitration clause raises allegations of substantially interdependent and
concerted misconduct by both the non-signatory and one or more of the
signatories to the contract.  Grigson, 210 F.3d at 527.
 


[2]  Castro filed a notice of cross-appeal from
the order granting Movers’ motion to compel arbitration after the trial court
denied Inland Sea’s motion.  We dismissed
that appeal for want of jurisdiction.  Castro v. Movers Service Agency, Inc.,
No. 08-11-00194-CV, 2011 WL 3821119 (Tex.App.--El Paso August 29, 2011, no
pet.).  


