




02-11-492-CV





















COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
 



 
 
NO. 02-11-00492-CV
 
 



ANTHONY ALDRIDGE


 


APPELLANT




 
V.
 




THRIFT FINANCIAL MARKETING, LLC


 


APPELLEE



 
 
----------
 
FROM THE 67TH DISTRICT Court OF Tarrant
COUNTY
----------
 
OPINION
----------
          
I.  Introduction
          Appellant
Anthony Aldridge appeals from the trial court’s denial of his motion to compel
arbitration in a suit brought against him and others by Appellee Thrift
Financial Marketing, LLC (Thrift), a Delaware Limited Liability Company. Aldridge,
a former “Member” of Thrift, contends that, pursuant to an arbitration
agreement contained in the formation agreement creating Thrift, he may compel
arbitration of the claims asserted against him by Thrift because those claims
arise from acts he allegedly undertook while still a Member of Thrift.  Because
the Agreement excludes former Members from the class of persons entitled to
compel arbitration, we affirm the trial court’s order.
II. 
Background
          Aldridge
and Sue Harvison formed Thrift in 2008 when they entered into the Limited
Liability Company Agreement of Thrift Financial Marketing, LLC (Company
Agreement).  From Thrift’s inception through September 30, 2011, Harvison and
Aldridge, who executed the Company Agreement as the “initial Members of the Company,”
were also Thrift’s only two Managers as well as its only two Members.
          The
Company Agreement, which contains the operative provisions for management,
membership rights, and other matters pertaining to the governance and operation
of Thrift, also contains an arbitration agreement that states in relevant part
as follows:
(b) In the event of
the existence of a dispute or disagreement arising out of, or relating to, the
formation, interpretation, performance or breach of any Transaction Documents
or any amendment or other modification thereto, any Member or Members
(each a “Disputing Member”) may submit its basis for such dispute
or disagreement in writing to the other Member or Members and such other
Member or Members (the “Responding Members”) shall respond in
writing to such written notice within 14 days after receiving the written
notice. . . .
 
(c)
If any dispute shall not have been resolved through the use of the procedures
specified in paragraph (b) within 30 days after the initial written submission
of the issue by a Disputing Member to the Responding Members, then the dispute
shall, unless the Disputing Member and Responding Members otherwise agree, be
submitted to and settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, now in effect, except to the
extent modified herein. . . .  [Emphasis added.]
The
Company Agreement expressly defines “Member” as follows:
“Member” means any Person
executing this Agreement as of the date of this Agreement as a Member or
hereafter admitted to the Company as a member as provided in this Agreement,
but such term “excludes any Person who has ceased to be a Member.”
 [Emphasis added.]
          As
alleged in the parties’ pleadings and set forth in affidavits, Harvison and
Aldridge formed Thrift to handle leads provided to it by Cendera Funding, Inc.
(Cendera), a lending company for residential mortgage loans.  Thrift’s business
plan contemplated the use of a call center owned and operated by Thrift, to refine
and solicit such leads for Cendera from raw data provided to Thrift by Cendera. 
According to Thrift, its call center operations allowed it to identify the most
promising prospective customers seeking mortgage loans on single-family
residences, who would then be referred to Cendera loan officers.  Effective
September 30, 2008, shortly after Thrift had been formed, Thrift and Cendera
entered into a marketing service agreement that provided for Thrift to handle
the leads and payment by Cendera for Thrift’s services and for Cendera to
recruit and train loan officers to be employed by Cendera but located at
Thrift’s offices.  When Thrift received the leads, Thrift personnel would call
the potential borrower and invite that person to speak to one of Cendera’s loan
officers.  If the lead matured into a loan, Cendera paid Thrift.
          Aldridge,
a licensed mortgage banker, became employed as a loan officer for Cendera and
recruited other loan officers to be employed by Cendera and to work from
Thrift’s offices.  According to Aldridge, Thrift was aware of and consented to
Aldridge’s employment with Cendera, and Cendera was aware of and consented to
Aldridge’s relationship with Thrift.
          Thrift
contends that, by late spring of 2011, profits derived from Cendera’s branch
office at Thrift’s offices had increased dramatically; Thrift contends that
Brian Collins[1] proposed a joint venture
with Thrift that promised greater profits and that Thrift and Cendera equally
shared profits pursuant to that joint venture from early Summer 2011 through
September 30, 2011.  Aldridge contends that changes to the agreement were
necessary to bring it into compliance with new laws and regulations and that Thrift
and Cendera “could not reach a resolution” about necessary changes “after much
effort and discussion.”  Aldridge resigned as a member and manager of Thrift effective
September 30, 2011, and relinquished all membership interest in Thrift.  Aldridge’s
letter of resignation, addressed to Harvison, also referenced a “dissolution”
of the marketing services agreement between Thrift and Cendera, to which
Harvison responded on the same date with a vigorous objection that Aldridge had
no authority to dissolve the agreement between Thrift and Cendera.
          On
October 6, 2011, Thrift filed this lawsuit against Aldridge, Cendera, and Collins,[2]
asserting against Aldridge various claims for debt, liability under the Texas
Theft Liability Act, and breaches of fiduciary duty and seeking damages,
forfeiture of profits, and establishment of a constructive trust.  Aldridge
filed a motion to compel arbitration, and Thrift filed a response.  The trial
court denied Aldridge’s motion to compel arbitration after a hearing, and this
interlocutory appeal followed.[3]
III. 
Discussion
          Aldridge
raises three issues.  He argues generally in his first issue that the trial
court erred when it refused to compel arbitration.  He contends in his second
issue that Thrift may be compelled to arbitrate pursuant to the arbitration
provision in the Company Agreement even though Thrift itself is a nonsignatory
to that agreement, and he asserts in his third issue that, although he is no
longer a Member of Thrift, he may nevertheless compel arbitration pursuant to
the Company Agreement because Thrift’s claims arise from conduct that allegedly
occurred while he was still a Member.  We address Aldridge’s third issue first.
A. 
Applicable Law
          The
parties agree that the Federal Arbitration Act (FAA) applies to this
proceeding.  See 9 U.S.C.A. §§ 1–16 (West 2009).  Section 51.016 of the
Texas Civil Practice and Remedies Code permits the interlocutory appeal of an
order denying a motion to compel arbitration under the FAA.  Tex. Civ. Prac.
& Rem. Code Ann. § 51.016 (West Supp. 2012).
The
FAA provides, in relevant part:
A
written provision in . . . a contract evidencing a transaction involving
commerce to settle by arbitration a controversy thereafter arising out of such
contract . . . shall be valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract.
9
U.S.C. § 2.  “The FAA reflects the fundamental principle that arbitration is a
matter of contract.”  Rent–A–Center, W., Inc. v. Jackson, 130 S. Ct.
2772, 2776 (2010).  Section 2 of the FAA has been described as reflecting both
a “liberal federal policy favoring arbitration” and the “fundamental principle
that arbitration is a matter of contract.”  AT&T Mobility LLC v. Concepcion,
131 S. Ct. 1740, 1745 (2011) (citing Rent–A–Center, 130 S. Ct. at 2776; Moses
H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S. Ct.
927, 941 (1983)).  “The FAA thereby places arbitration agreements on an equal
footing with other contracts, and requires courts to enforce them according to
their terms.”  Rent–A–Center, 130 S. Ct. at 2776 (citing Buckeye
Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443, 126 S. Ct. 1204, 1207
(2006), and Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior
Univ., 489 U.S. 468, 478, 109 S. Ct. 1248, 1255 (1989)).
          The
Company Agreement contains a choice-of-law provision that states that it is to
be “governed by and construed in accordance with the laws of the State of
Delaware, without giving effect to any choice of law principles.”  Although
Thrift cites a few Delaware cases in its brief, it also asserts that “Delaware
and Texas law regarding arbitration do not conflict” and that “Delaware and
Texas law on contract construction principles are essentially identical and do
not conflict.”  Aldridge relies on Federal and Texas case law, and he does not
point to any conflict between Texas and Delaware law.  “As there appears to be
no conflict of laws, ‘there can be no harm in applying Texas law.’”  In re
AdvancePCS Health L.P., 172 S.W.3d 603, 606 (Tex. 2005) (orig. proceeding)
(per curiam) (quoting Compaq Computer Corp. v. Lapray, 135 S.W.3d 657,
672 (Tex. 2004)); see also In re J.D. Edwards World Solutions Co., 87
S.W.3d 546, 550 (Tex. 2002) (orig. proceeding) (per curiam).  We thus apply
Texas law.
          A
trial court’s determination regarding the validity of an agreement to arbitrate
is a question of law which we review de novo.[4]  J.M. Davidson, Inc.
v. Webster, 128 S.W.3d 223, 227 (Tex. 2003); see GM Oil Props., Inc. v.
Wade, No. 01-08-00757-CV, 2012 WL 246041, at *5 (Tex. App.―Houston
[1st Dist.] Jan. 26, 2012, no pet.) (mem. op.) (recognizing whether an
enforceable arbitration agreement exists is a question of law for court to
review de novo); Schlumberger Tech. Corp. v. Baker Hughes Inc., 355
S.W.3d 791, 800 (Tex. App.―Houston [1st Dist.] 2011, no pet.) (“When an
appeal from a denial of a motion to compel arbitration turns on a legal
determination . . . we apply a de novo standard.”) (citing Forest Oil Corp.
v. McAllen, 268 S.W.3d 51, 55 n.9 (Tex. 2008)).
          Under
the FAA, a party seeking to compel arbitration must satisfy a two-pronged
burden of proof in that it must first demonstrate the existence of a valid
agreement to arbitrate the dispute and then prove that the claims asserted are
within the scope of the agreement.  In re Dillard Dep’t Stores, Inc.,
186 S.W.3d 514, 515 (Tex. 2006) (orig. proceeding) (per curiam); AdvancePCS
Health L.P., 172 S.W.3d at 605.  If the party seeking arbitration carries
its initial burden, the burden shifts to the opposite party to present evidence
of an affirmative defense.  AdvancePCS Health L.P., 172 S.W.3d at 607.
          An
agreement to arbitrate is a contract, the relation of the parties is
contractual, and the rights and liabilities of the parties are controlled by
the law of contracts.  See AT&T Mobility LLC, 131 S. Ct. at 1748–49,
1752–53 (arbitration is a creature of contract; a person can be compelled to
arbitrate a dispute only if, to the extent that, and in the manner which, he
has agreed to do so).  Since arbitration is generally a matter of contract, the
FAA requires courts to honor parties’ expectations.  9 U.S.C.A. § 1 et
seq.; AT&T Mobility LLC, 131 S. Ct. at 1752–53; In re
Bunzl USA, Inc., 155 S.W.3d 202, 209 (Tex. App.―El Paso 2004, orig.
proceeding) (“[A] party cannot be compelled to arbitrate a dispute unless he
has agreed to do so.”).
          When
deciding whether parties agreed to arbitrate, courts should apply ordinary
state law principles regarding the formation of contracts.  First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct. 1920, 1924 (1995); J.M.
Davidson, 128 S.W.3d at 227–28; see Weekley Homes, L.P., 180
S.W.3d at 130 (“Generally under the FAA, state law governs whether a litigant
agreed to arbitrate.”).  In conducting our review, we “may not expand upon the
terms of the contract or tolerate a liberal interpretation of it by reading
into it a voluntary, consensual agreement to arbitrate when one otherwise does
not exist.”  In re Bates, 177 S.W.3d 419, 422 (Tex. App.—Houston [1st
Dist.] 2005, orig. proceeding).  “Although an arbitration agreement does not
have to assume any particular form, the language of the agreement must clearly
indicate the intent to arbitrate.”  Id.  Additionally, in resolving
disputes regarding interpretation of an arbitration agreement, we apply
standard principles of contract interpretation and construction.  Peacock v.
Wave Tec Pools, Inc., 107 S.W.3d 631, 636 (Tex. App.―Waco 2003, no
pet.). The plain meaning of the contractual language should be looked to in
order to ascertain the intent of the parties.  Id.
B. 
Application
          Aldridge
contends that he has a right under the Company Agreement to compel arbitration of
Thrift’s claims against him, contrary to Thrift’s argument in the trial court
that, because he is no longer a member of Thrift, he can no longer compel
arbitration.  Aldridge acknowledges that he voluntarily relinquished his
position and resigned as a Member of Thrift before Thrift filed this lawsuit
and before he filed his motion to compel arbitration.  But he argues that his
resignation does not prevent him from compelling arbitration of Thrift’s claims
now because there is no dispute that Thrift’s claims are based on acts that
allegedly occurred while Aldridge was a Member and Manager of Thrift.  Aldridge
characterizes Thrift’s argument as “nothing more than the Company Agreement is
written in the present tense” and argues that nothing in the Company Agreement
“prohibits or divests” a former Member from seeking arbitration of disputes
arising from or relating to acts taken by that individual while he was a
Member.
          The
agreement to arbitrate provides that “any Member or Members (each a ‘Disputing
Member’) may submit its basis for such dispute or disagreement in
writing to the other Member or Members” and that if the dispute or
disagreement is not resolved “within 30 days after the initial written submission
of the issue by a Disputing Member to the Responding Members, then the dispute
shall, unless the Disputing Member and Responding Members otherwise agree, be
submitted to and settled by arbitration.”  [Emphasis added.]  Although that
provision is, as Aldridge points out, written in the present tense, we agree
with Thrift that the repeated use of the terms “Member,” “Disputing Member,”
and “Responding Member” demonstrates that the agreement to arbitrate is an
agreement solely regarding resolution of disputes between “Members” of Thrift.  Moreover,
we disagree with Aldridge’s contention that nothing in the Company Agreement
prevents or divests a former Member from seeking arbitration.
          To
the contrary, and regardless of whether the alleged conduct occurred or the
dispute arose while a person was a Member, the definition of the term “Member”
set forth in the Company Agreement expressly “excludes any Person who has
ceased to be a Member.”  [Emphasis added.]  That definition is contained in
a list of defined terms in a preceding section of the contract that provides
that “[w]hen used in this [Company] Agreement, the following terms shall have
the respective meanings assigned to them . . . .”
          When
contracting parties have set forth their own definitions of terms they employ,
courts are not at liberty to disregard such definitions and substitute other
meanings.  AMS Constr. Co. v. K.H.K. Scaffolding Houston, Inc., 357
S.W.3d 30, 41 (Tex. App.―Houston [1st Dist.] 2011, pet. dism’d); Healthcare
Cable Sys., Inc. v. Good Shepherd Hosp., Inc., 180 S.W.3d 787, 791 (Tex.
App.—Tyler 2005, no pet.); Alexander v. Cooper, 843 S.W.2d 644, 646–47
(Tex. App.―Corpus Christi 1992, no writ); Hart v. Traders & Gen.
Ins. Co., 487 S.W.2d 415, 417–18 (Tex. Civ. App.―Fort Worth 1972,
writ ref’d n.r.e.).  Reading the arbitration provision together with the Company
Agreement’s definition of “Member,” the Company Agreement is specific that a
person who has ceased to be a Member is not a “Member.”  Thus, only an existing
Member of Thrift may invoke the informal resolution and resulting arbitration
provisions against another current Member.  See Dillard Dep’t Stores,
186 S.W.3d at 515 (stating that the “objective intent as expressed in the
agreement controls the construction of an unambiguous contract”); Bates,
177 S.W.3d at 422 (stating that “the language of the [arbitration] agreement
must clearly indicate the intent to arbitrate”).
          Aldridge
does not directly address the exclusion of former Members from the definition
of “Member” in the Company Agreement.  His response is that he may nevertheless
compel arbitration because “an arbitration agreement contained within a
contract survives the termination or repudiation of the contract as a whole” and
that his alleged acts occurred while he was still a Member of Thrift.  Aldridge
supports his argument by citing several cases.  See Ambulance Billings Sys.,
Inc. v. Gemini Ambulance Servs., Inc., 103 S.W.3d 507, 512–14 (Tex.
App.—San Antonio 2003, no pet.); In re Koch Indus., Inc., 49 S.W.3d 439,
445 (Tex. App.—San Antonio 2001, orig. proceeding); Henry v. Gonzalez,
18 S.W.3d 684, 690 (Tex. App.—San Antonio 2000, pet. dism’d by agr.); Dallas
Cardiology Assocs., P.A. v. Mallick, 978 S.W.2d 209, 213 (Tex.
App.—Texarkana 1998, pet. denied); Pepe Int’l Dev. Co. v. Pub Brewing Co.,
915 S.W.2d 925, 932 (Tex. App.—Houston [1st Dist.] 1996, no writ); Miller v.
Puritan Fashions Corp., 516 S.W.2d 234, 238 (Tex. Civ. App.—Waco 1974, writ
ref’d n.r.e.).
          Those
cases are distinguishable for at least two reasons.  First, the issue in those
cases involved whether an abandonment, repudiation, or termination of the
contract containing an arbitration provision rendered the arbitration provision
unenforceable.  See Ambulance Billings Sys., Inc., 103 S.W.3d at 510,
512–14 (involving whether settlement agreement of contract dispute rendered
arbitration agreement no longer in effect); Koch Indus., Inc., 49 S.W.3d
at 444–45 (opposing parties contended arbitration provision was unenforceable
because easement had been abandoned); Henry, 18 S.W.3d at 690 (involving
issue of whether termination of attorney-client contract also terminated
arbitration clause); Dallas Cardiology, 978 S.W.2d at 213 (finding any
potential breach of contract did not render arbitration clause unenforceable); Pepe
Int’l, 915 S.W.2d at 932 (holding cancellation of underlying contracts did
not invalidate arbitration clauses).[5]
          Secondly,
none of those cases involved provisions like that in the Company Agreement that
expressly excludes a former Member from the definition of “Member[s]” who are
entitled to invoke the arbitration provision.  Even though an arbitration
provision survives termination of the contract containing it, see Henry,
18 S.W.3d at 690, this case is unique because the express language of the
arbitration provision limits its application to disputes or disagreements
between “Members” and because the Company Agreement expressly defines “Member”
to exclude any person “who has ceased to be a Member.”  Considering the
enforceability of the arbitration provision alone, see Koch Indus., Inc.,
49 S.W.3d at 445, Aldridge has not met his burden of presenting a valid
agreement to arbitrate between himself and Thrift because the express language
of the Company Agreement excludes former Members from those entitled to compel
arbitration and because Aldridge voluntarily resigned as a Member of Thrift.  See
AdvancePCS Health L.P., 172 S.W.3d at 607 (discussing shifting burdens under
FAA); see also AT&T Mobility LLC, 131 S. Ct. at 1752–53
(stating that the FAA requires courts to honor the parties’ expectations); Dillard
Dep’t Stores, 186 S.W.3d at 515 (stating that the parties’ intent as shown
by the unambiguous agreement controls); Bates, 177 S.W.3d at 422
(stating that reviewing courts may not read an agreement to arbitrate into a
contract “when one otherwise does not exist” and that the contract must clearly
indicate the intent to arbitrate).
          We
hold that the trial court did not err by denying Aldridge’s motion to compel
arbitration because Aldridge does not have the contractual right under the
Company Agreement to compel arbitration of Thrift’s claims against him.  We
therefore overrule Aldridge’s third issue.
C. 
Aldridge’s Remaining Issues
          Aldridge
contends in his second issue that Thrift may be compelled to arbitrate its
claims even though it did not separately sign the Company Agreement.  Within
his second issue, Aldridge argues that Thrift’s claims in this lawsuit are subject
to arbitration because Thrift is bound by the Company Agreement; because Thrift
artfully pleaded claims actually belonging to Harvison, the only remaining Member
of Thrift, in an attempt to avoid arbitration; because direct benefits estoppel
requires arbitration of Thrift’s claims; and because Thrift’s claims fall
within the scope of the arbitration provision.
          Those
remaining arguments, however, each assume that Aldridge has the contractual
right under the Company Agreement to compel arbitration.  Because we have held
above that Aldridge does not have a right to compel arbitration given the
express contractual language and his voluntary resignation as a Member, that
issue is dispositive of the appeal, and it is unnecessary for us to reach
Aldridge’s first or second issue.  See Tex. R. App. P. 47.1 (“The court
of appeals must hand down a written opinion that . . . addresses every issue
raised and necessary to final disposition of the appeal.”).
IV. 
Conclusion
Having
overruled Aldridge’s third issue, and finding it unnecessary to reach his general
first issue or his second issue, we affirm the trial court’s order denying
Aldridge’s motion to compel arbitration.
 
 
ANNE GARDNER
JUSTICE
 
PANEL: 
LIVINGSTON,
C.J.; GARDNER and GABRIEL, JJ.
 
DELIVERED:  August 2, 2012




[1]Brian Collins is
identified in documents contained in the clerk’s record as the President and
CEO of Cendera.


[2]Thrift alleges that
Collins knowingly participated in Aldridge’s and Cendera’s breaches of fiduciary
duty against Thrift.


[3]Cendera and Collins filed
a motion adopting Aldridge’s motion to compel arbitration but have not appealed
the trial court’s denial of their motion.


[4]“Under the FAA, absent
unmistakable evidence that the parties intended the contrary, it is the courts
rather than arbitrators that must decide ‘gateway matters’ such as whether a
valid arbitration agreement exists.”  In re Weekley Homes, L.P., 180
S.W.3d 127, 130 (Tex. 2005) (orig. proceeding) (citing Green Tree Fin. Corp.
v. Bazzle, 539 U.S. 444, 452, 123 S. Ct. 2402, 2407 (2003), and PacifiCare
Health Sys., Inc. v. Book, 538 U.S. 401, 407 n.2, 123 S. Ct. 1531, 1536 n.2
(2003)).


[5]Moreover, the termination,
repudiation, abandonment, and breach issues involved in those cases dealt with
the merits of the respective parties’ claims and defenses (as opposed to
termination of the arbitration clause itself), and those were held to be issues
for an arbitrator rather than the court.  See Ambulance Billings
Sys., Inc., 103 S.W.3d at 512–14; Koch Indus., Inc., 49 S.W.3d at 445;
Henry, 18 S.W.3d at 690; Dallas Cardiology, 978 S.W.2d at 213; Pepe
Int’l, 915 S.W.2d at 932; Miller, 516 S.W.2d at 238.


