NO. 07-10-0442-CV IN THE COURT OF APPEALS FOR THE SEVENTH DISTRICT OF TEXAS AT AMARILLO PANEL D MARCH 7, 2011

__________________ ___________ KURT TORSTER and GEA GROUP, AG, Appellants v. PANDA ENERGY MANAGEMENT, LP, PLC II, LLC, and PANDA ENERGY INTE RNATIONAL, INC., Appellees

__________________ ___________ FROM THE 222nd DISTRICT COURT OF DEAF SMITH COUNTY; NO. CI-08J-085; HONORABL E ROLAND SAUL, PRESIDING

__________________ ___________ Memorandum Opinion

__________________ ___________ Before QUINN, C.J., and CAMPBELL and PIRTLE, JJ. What we have here is an interlocutory appeal from an order d enying the motion of Kurt Torster and GEA Group, AG requesting that the c ause be arbitrated per the Federal Arbitration Act, i.e. 9 U.S.C. §§1-16. The dispute between the parties has travelled a rather long and winding road. Originally initiated in state court, it sojourned through federal territories via removal and bankruptcy statutes. Ultimat ely, the United States District Court for the Northern District of Texas, Amarillo Divisi on, sent it home to2 Deaf Smith County. In doing so, that c ourt thoroughly discussed the nature of the controversy and lawsuit in its order remanding the cause. See Panda Energy Mgt., L.P., et al v. GEA Group, A.G

. , et al , No. 2:08-CV-208-J (N.D. Tex. April 12, 2010) (Order Granting Plaintiffs’ Motion to Remand) . We thank the court for doing so and liberally borrow for use here ma ny of its words. But, before continuing, we inform the litigants that the trial court’s decisi on to forego arbitration is affirmed. Background Kurt Torster is a resident of Hous ton. Panda Energy Management, LP, PLC II, LLP, and Panda Energy International, Inc. (co llectively referred to as Panda Energy or Panda) sued Torster for fraud and neglig ent misrepresentation relating to representations he made during March of 2005, and before Ju ly 13, 2005, directly to Panda Energy. The latter alleged that they were investors who relied on Torster’s representations in deciding to invest millions in a proposed ethanol conversion project in Hereford, Texas, and in three or four other projec ts that Panda Energy was trying to develop. Torster was CEO of non-party Lurgi PSI, Inc. at the time the representations were made. Panda Energy alleged that his representations were made falsely and for the purpose of recklessly build ing up a list of val uable business cont racts which were “booked” (recorded on company books as profit able executed contra cts). They also alleged the existence of a fr audulent scheme where more proj ects were booked than could be timely begun or successfully comple ted by Torster or G EA, or GEA’s wholly owned subsidiary, Lurgi PSI, Inc. Panda Energy also alleged that the scheme or plan was to book as many contracts on Lurgi’s books as possible, and for Lurgi to then be3 sold off to inexperienced buyers for the immedi ate realization of pr ofit to Torster and GEA. Furthermore, at the time Torster’s r epresentations were made, GEA had existing, but undisclosed, plans to reorgani ze and divest Lurgi’s less pr ofitable lines of work, that is, the booked ethanol conversion proj ects, according to Panda. As part of the inducement to invest in and eventually execute the engineering design and construction contracts, GEA is sued a guaranty of performance for Lurgi’s performance on the Hereford plant contract. It was also said that by the time the guaranty was called upon, GEA had already sold its Europ ean and U.S. construction subsidiaries to buyers who we re not experienced in such pr ojects. GEA allegedly knew that it would have to rely entirely on the promises of the inexperienced buyers to complete the projects and ba ckstop GEA’s guarantee, but acce pted that future risk to realize immediate profits. When GEA refused to honor its guaranty, the Hereford plant was one project that suffered construction delays, cost ov erruns and other problems, was a loss to investors, and was ultimately not completed causing mill ions of dollars in losses to Panda for which losses Torster and GEA were liable. It was further alleged by Panda that, as a result of the scheme, Lurgi PSI, Inc., and its successor in interest, failed to construc t over eight ethanol plants, including the one at issue here. The fraud purportedly work ed because GEA booked a contract once it came to financial closure without regard to contingencie s that would arise in the contract’s performance. Torster was al so “handsomely rewarded with a bonus that depended only on financial closure,” that is, the projec t being booked for a paper profit upon execution of the contract, and that “failure to actually construct was of no moment to” Torster or GEA. Additionally, Torste r made the alleged misrepresentations because4 of bonuses he realized; so, he had a personal financial motive or incentive to book the executed contracts and receive hi s portion of the scheme’s reward. Panda Energy also all eged that GEA and Torster pr omoted ethanol conversion plants directly to it with assurance of G EA’s and Lurgi’s competence to engineer and build the plants and thereby induced the in vestors to form and fund a project company (PHE) that would secure additional financing to hire Lurgi. But for the fraud committed, says Panda, the latter would never have ent ered the ethanol busine ss with Lurgi. As for the matter of arbitrat ion, that topic arose from a clause in the construction contract executed between PHE and Lurgi. 1 That none of the litigants to this proceeding were signatories to the PHE/Lu rgi agreement is undis puted. Nonetheless, Torster and GEA contend that the clause encompassed the controversy before us because the dispute related to the construc tion of the Hereford ethanol plant. Authorities and Their Application Whether the trial court erred in refusi ng to order Panda, Torster, and GEA to arbitration per the Federal Ar bitration Act depends on whether it abused its discretion. Sidley, Austin, Brown, & Wood, L. L.P. v. J.A. Green Dev. Corp., 327 S.W.3d 859, 863 (Tex. App.

– Dallas 2010, no pet.) (stating that “we have not addressed the standard of review applicable to such appeals [under the Federal Arbitration Act]. However, on appeals of orders denying arbitr ation under the Texas Arbitrat ion Act (TAA), we apply a no-evidence standard to the trial court's fa ctual determinations and a de novo standard to legal determination . . . . This standar d is the same as the abuse of discretion

1 The clause read as follows: “. . . any Disput e shall be settled exclusively and finally by binding arbitration . . . .” Moreover, the term “dispute” was defined as “any dispute, controversy or claim between the Parties [to the contract] arising out of or relati ng to this Agreement, or the breach, termination or invalidity thereof . . . .”5 standard of review and we wil l apply that standard of review to interlocutory appeals under section 51.016”). Moreover, a trial court abuses it s discretion when its decision deviates from guiding rules and principles and is otherwise arbitrary, capricious and unreasonable. See Downer v. Aquama rine Operators, Inc ., 701 S.W.2d 238, 241-42 (Tex. 1985). In a nutshell, we are being asked to decide if it was wrong to forego the arbitration of claims and causes of action arising from conduct occurring prior to the execution and independent of the PHE/Lurgi contract and between parties who never signed that document. Those circumstances liken to the situation described in the very recent opinion of the Fifth Court of Appeals in Weaver & Tidwell, LLP. v. The Guar

. Co. of N. Am. USA , No. 05-10-0557-CV, 2011 Tex. App. L EXIS 1285 (Tex. App.

– Dallas, February 23, 2011, no pet. h.). There, the trial court also refused to order the parties to arbitration. Weaver and Ti dwell thought that was error because they had executed various contracts with another company, J&V, to perform audits of J&V, and those agreements contained arbitrat ion clauses. The audits were required by the Texas Department of Transportation as a condition of contracting with the department to install lighting and signal systems. Also require d by the department were performance bonds which bonds were provided by The Guarantee Co. And, in deciding to provide those bonds, The Guarantee Co. reviewed and relied upon the audits of J&V completed by Weaver & Tidwell. Needless to say, J&V defaulted on its agreements with the department, which defaults triggered The G uarantee Co.’s duty to perform. Thereafter, J&V sued Weaver & Tidwell, all eging various causes of action sounding in fraud, breached fiduciary duty, and negligence. That suit was sent to arbitration per the6 contracts between the two entities. In a separate proceeding, T he Guarantee Co. sued Weaver & Tidwell for negligent ly performing the audits it re lied on and for providing false information about J&V in those audits. Though Weaver & Tidwell asked the trial court to also forward the Guarantee Co. suit to arbitrat ion, the court did not. That decision was upheld on appeal. In ruling as it did, the reviewing court in Weaver & Tidwell considered the nature of the cause of action be ing pursued, whether The Guar antee Co. was attempting to enforce rights arising or acqui re a benefit under the Weaver /J&V auditing contract (as a subrogee or third-party beneficia ry), and whether The Guarantee Co. was a signatory to the Weaver/J&V auditing agreem ents. Because The Guarantee Co. did not sign the auditing agreements, was not seeking to obtain a benefit arising from those agreements as either a subrogee or th ird-party beneficiary, and was pursuing a tort claim as opposed to one for breach of the Weaver/J&V contracts, it was not bound by the arbitration clauses at issue, according to the court. Id . at *4-6. The same is no less true here. Panda Energy did not sign the PHE/Lurgi contract ( i.e. the accord containing the arbitration clause). Nor is it pursuing (as a subrogee, third-party beneficiary, or in any other capacity) any entitlement or right arisi ng from the contract or even prosecuting a cause of action sounding in breached contra ct. Rather, the events underlying its claim arose prior to the execut ion of the PHE/Lurgi docum ent and involved purported misrepresentations uttered and deceptions planned by Tors ter and GEA independent of that agreement. To hold under those circum stances that the independent tort claim urged by Panda Energy is somehow encom passed by an arbitration clause in an7 agreement none of the parties at bar signed would be to ignore the well-reasoned opinion and ruling of the Fifth Court in Weaver & Tidwell and the authorities cited therein. That we opt not to do. Accordingly, we 1) conclude that th e trial court did not abuse its discretion by refusing to direct the liti gants to arbitration, 2) overrule all issues of Torster and GEA, and 3) a ffirm the trial court’s order.

Brian Quinn Chief Justice