Court Opinion

ID: 9387199
Source: CourtListenerOpinion
Date Created: 2023-04-16 14:06:10.7773+00
Date Added: 2024-06-11T17:18:12.101278
License: Public Domain

Supreme Court of Texas
                               ══════════
                                No. 21‑0028
                               ══════════

                         TotalEnergies E&P USA, Inc.,
                                  Petitioner,

                                      v.

                           MP Gulf of Mexico, LLC,
                                 Respondent

   ═══════════════════════════════════════
               On Petition for Review from the
      Court of Appeals for the Twelfth District of Texas
   ═══════════════════════════════════════

      JUSTICE BLAND, concurring.

      I agree with the Court that the parties unequivocally committed
questions about the scope of arbitrability to the arbitral forum, even in
the first instance. I therefore join the Court’s opinion. The dissent
concludes, in contrast, that a court must decide whether this dispute
falls within certain threshold conditions for arbitration.1 Because this
dispute meets those conditions, and the party seeking to compel
arbitration raised this issue as an alternative ground for affirming the

      1   Post at 4–5.
court of appeals’ judgment, the petitioner has failed to demonstrate
error. Either way, the judgment must be affirmed.
                                    I
      The parties dispute liability for costs incurred in operating their
shared energy assets. Respondent MP Gulf of Mexico, LLC alleges that
Petitioner TotalEnergies E&P USA, Inc. is liable for a share of expenses
associated with a “Common System” of “floating production, storage and
offloading” vessels under the parties’ Cost Sharing and System
Operating Agreements. Total responds that MP Gulf must allocate the
disputed expenses to itself.
      After mediation proved unsuccessful, Total sued MP Gulf for
declaratory judgment and demanded arbitration with the International
Institute for Conflict Prevention and Resolution, invoking the Cost
Sharing Agreement. MP Gulf filed a competing claim with the American
Arbitration Association, invoking the System Operating Agreement.
Days later, Total moved the trial court to stay the AAA arbitration,
arguing that the Cost Sharing Agreement does not require AAA
arbitration. In response, MP Gulf moved to compel arbitration, arguing
that it claims damages under the System Operating Agreement and
further that Total previously conceded that it must arbitrate disputes
arising under the System Operating Agreement under the AAA.
      The trial court stayed the AAA arbitration and denied MP Gulf’s
motion to compel. MP Gulf appealed under Texas Civil Practice and
Remedies Code Sections 51.016 and 171.098. The court of appeals
reversed, holding that the parties had delegated arbitrability, including
the question of which agreement controls the dispute, to the

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arbitrators.2 The court of appeals further observed that the System
Operating Agreement’s arbitration clause was “much broader” than
Total suggested.3
                                     II
      A reviewing court must first consider which arbitration provision
governs this case. The parties contest the application of the arbitration
provision found in Article 16.16 of their System Operating Agreement.
Article 16.16 provides that “[a]ny dispute between the Parties”
concerning the System Operating Agreement “shall be resolved under
the mediation and binding arbitration procedures of this Article 16.16”:

      16.16 Dispute Resolution Procedure. Any dispute
      between the Parties concerning this Agreement (other than
      Claims by a third party under which a Party hereto is
      claiming indemnity, and such third party Claim is in
      litigation) shall be resolved under the mediation and
      binding arbitration procedures of this Article 16.16. The
      Parties will first attempt in good faith to resolve all
      disputes by negotiations between management level
      persons who have authority to settle the controversy. If any
      Party believes further negotiations are futile, such Party
      may initiate the mediation process by so notifying the other
      Parties to the dispute (“Disputing Parties”) in writing. The
      Disputing Parties shall then attempt in good faith to
      resolve the dispute by mediation in Houston, Texas, in
      accordance with the Commercial Rules of the American
      Arbitration Association (“AAA”), as such procedure may be
      modified by agreement of the Disputing Parties. The
      Disputing Parties shall share the costs of mediation
      services equally and shall each have present at the
      mediation at least one individual who has authority to

      2   647 S.W.3d 96, 102–03 & n.4 (Tex. App.—Tyler 2020).
      3   Id. at 101.

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      settle the dispute. If the dispute has not been resolved
      pursuant to mediation within sixty (60) days after
      initiating the mediation process, the dispute shall be
      resolved through binding arbitration, as follows:

             16.16.1 Selection of Arbitrators: If any dispute or
      controversy arises between the Parties out of this
      Agreement, the alleged breach thereof, or any tort in
      connection therewith, or out of the refusal to perform the
      whole or any part thereof, and the Parties are unable to
      agree with respect to the matter or matters in dispute or
      controversy, the same shall be submitted to arbitration
      before a panel of three (3) arbitrators in accordance with
      the rules of the AAA and the provisions in this Article
      16.16. The panel of arbitrators shall be chosen as set forth
      in Article 16.16.1 (a) if the dispute or controversy only
      involves two Parties. If the dispute or controversy involves
      more than two Parties, then the panel of arbitrators shall
      be chosen as set forth in Article 16.16.1 (a) if the Parties
      can unanimously agree to group themselves into one group
      of claimants and one group of respondents. If the dispute
      or controversy involves more than two Parties and the
      Parties cannot unanimously agree to group themselves into
      one group of claimants and one group of respondents, then
      the panel of arbitrators shall be chosen as set forth in
      Article 16.16.1 (b). The arbitrators selected to act
      hereunder shall be qualified by education, experience, and
      training to pass upon the particular matter or matters in
      dispute.

      Total argues that Article 16.16 does not apply because the parties’
dispute is confined to the Cost Sharing Agreement and does not
implicate the System Operating Agreement. Total contends that Article
16.16 is limited to disputes arising exclusively out of the System
Operating Agreement. “Agreement” is defined as “this System
Operating Agreement, together with its Exhibits.” The Cost Sharing

                                   4
Agreement is not an exhibit to the System Operating Agreement. Total
argues that this dispute does not fall within Article 16.16 because the
relief it seeks is confined to an interpretation of the parties’ Cost Sharing
Agreement and none other.
      MP Gulf responds that the System Operating Agreement governs
the Common System expense allocations between the parties and the
recovery of those disputed costs. The Cost Sharing Agreement explicitly
provides as much, as it incorporates the System Operating Agreement
as “a part hereof for all purposes.” MP Gulf characterizes Total’s
declaratory judgment claim as “artful pleading” designed to avoid MP
Gulf’s efforts to collect under the System Operating Agreement.4 The
sweeping        language   of   the   System   Operating   Agreement    and
Article 16.16 includes the parties’ dispute and requires arbitration, it
argues, including the arbitrator’s determination of arbitrability.
      “Whether the claims in dispute fall within the scope of a valid
arbitration agreement” is a question of law we review de novo.5 “A party
seeking to compel arbitration must establish the existence of a valid
arbitration agreement and that the claims at issue fall within the scope
of that agreement.”6 If the proponent succeeds, the burden then shifts to

      4 See In re Merrill Lynch Tr. Co. FSB, 235 S.W.3d 185, 190 (Tex. 2007)
(holding that “arbitrability turns on the substance of a claim, not artful
pleading”).
      5   Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018).
      6   Id.

                                        5
the party resisting arbitration to prove an affirmative defense that
precludes arbitration.7
      Total neither seeks to prove an affirmative defense nor disputes
the validity of the System Operating Agreement or its arbitration
provision. Instead, Total resists the argument that the arbitration
provision encompasses this dispute. Reading the two agreements
together, as we must, Total fails to demonstrate that the claims alleged
in this case fall outside the scope of Article 16.16.
      The Cost Sharing Agreement provides that all “[o]peration of the
Common System”—for which MP Gulf seeks payment—“will be
conducted pursuant to the provisions . . . of the System Operating
Agreement attached hereto and made a part hereof for all purposes.”8
The System Operating Agreement in turn provides that all expenses and
allocations from operation of the Common System “will be as provided
in the Cost Sharing Agreement.” Total admits that the System
Operating Agreement is an exhibit to the Cost Sharing Agreement and
each agreement expressly incorporates the other. The System Operating
Agreement provides that all charges and accounting for expenditures of
the Common System will be calculated under an exhibit to the System
Operating Agreement, not the Cost Sharing Agreement.
      Under ordinary contract-interpretation principles, a document
incorporated by reference and attached as an exhibit is part of the
agreement.9 “[I]nstruments pertaining to the same transaction may be

      7   Id.
      8   (Emphasis added).
      9   See In re Bank One, N.A., 216 S.W.3d 825, 826 (Tex. 2007).

                                       6
read together to ascertain the parties’ intent, even if the parties
executed the instruments at different times,” and “courts may construe
all the documents as if they were part of a single, unified instrument.”10
With respect to an arbitration agreement, “it does not matter which
document” contains the agreement to arbitrate if the dispute is
encompassed by the arbitration provision.11
       Total’s attempt to silo the Cost Sharing Agreement from the
System Operating Agreement lacks record support and legal merit. It
conflicts with the mutual incorporation of the two agreements and the
express contractual language directing that they be construed together.
The System Operating Agreement provides that “[a]ny dispute between
the Parties concerning this Agreement . . . shall be resolved under the
mediation and binding arbitration procedures of this Article 16.16.” 12
The provision governing the selection of arbitrators similarly provides
that, if “any dispute or controversy arises between the parties out of this
Agreement”13 or the alleged breach thereof, “the same shall be submitted

       10Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840
(Tex. 2000) (footnote omitted); see also Pers. Sec. & Safety Sys. Inc. v. Motorola
Inc., 297 F.3d 388, 393 (5th Cir. 2002) (“[S]eparate agreements executed
contemporaneously by the same parties, for the same purposes, and as part of
the same transaction, are to be construed together.” (quoting Neal v. Hardee’s
Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990))).
       11   In re AdvancePCS Health L.P., 172 S.W.3d 603, 606 (Tex. 2005).
       12 (Emphasis added). The broad language does not support Total’s
attempt to isolate this dispute from the System Operating Agreement by
artfully pleading that only the Cost Sharing Agreement is at issue or its
contention that principles of dominant jurisdiction except the dispute from the
agreement’s arbitration provision because it filed suit first.
       13   (Emphasis added).

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to arbitration.” This dispute over reimbursement of costs associated
with operating the Common System both “concerns” the System
Operating Agreement, which establishes that system, and arises “out of
this [System Operating] Agreement.” Total’s narrow construction is not
borne out by the broad language the parties chose. The court of appeals
correctly noted that “the arbitration provision is much broader than
Total claims.”14 Accordingly, the System Operating Agreement and its
Article 16.16 govern.
                                   III
      Turning to the System Operating Agreement’s requirements, the
Court summarizes the three questions presented: (1) which party bears
disputed common-system expenses; (2) whether the allocation dispute
must be resolved in arbitration or in court; and (3) who decides
arbitrability.15 In this case, however, the answer to the third question is
mainly an academic exercise.
      The answer to the third question would be paramount and
determinative if the court of appeals had declined to compel arbitration;
instead, the court of appeals properly compelled it.16 Once the dispute
reaches arbitration, Article 16.16 plainly requires application of the
AAA rules, which, as the Court ably explains, require the arbitrator to
decide arbitrability questions.17 The parties remain free to raise their
disagreements concerning arbitrability in the arbitral forum. The

      14   647 S.W.3d at 101.
      15   Ante at 9.
      16   647 S.W.3d at 103.
      17   Ante at 29.

                                    8
arbitrator’s decisions will conclusively govern the matter unless and
until a court adjudges that the arbitrator exceeded the scope of the
arbitrator’s power, as in any other case under the Federal Arbitration
Act.18
         In Henry Schein, Inc. v. Archer & White Sales, Inc.,19 the United
States Supreme Court examined whether federal courts could, under the
Federal Arbitration Act, “short‑circuit the process and decide the
arbitrability question themselves if the argument that the arbitration
agreement applies to the particular dispute is ‘wholly groundless.’”20
The Court concluded that the Act does not contain a “wholly groundless”
exception empowering a court to decline to send the case to arbitration
despite the parties’ agreement to arbitrate questions of arbitrability.21
In this case, in contrast, the court of appeals dutifully applied
Article 16.16 and sent the case to arbitration.22 In short, this Court could
affirm the court of appeals on the alternative ground that the parties’
agreement requires arbitration. Even accepting the dissent’s view that

          See Tex. Civ. Prac. & Rem. Code § 171.088 (providing the conditions
         18

for vacating an arbitration award); Henry Schein, Inc. v. Archer & White Sales,
Inc., 139 S. Ct. 524, 530 (2019) (describing the Federal Arbitration Act’s
provision for “back‑end judicial review of an arbitrator’s decision if an
arbitrator has ‘exceeded’ his or her ‘powers’” (quoting 9 U.S.C. § 10(a)(4))).
         19   139 S. Ct. 524.
         20   Id. at 527–28.
         21   Id. at 529.
         See 647 S.W.3d at 101. The dissent concedes that the arbitrator
         22

resolves questions of arbitrability once any antecedent condition in the
agreement is met. Post at 4–5.

                                      9
the agreement is equivocal about who decides the antecedent
conditions,23 those conditions unequivocally are met.
                                  *      *      *
      Both the Court and the dissent correctly observe that it is the
parties’ agreement in each case that resolves the arbitrability
question.24 The Court holds that the parties delegated the question of
arbitrability to the arbitrator, which effectively sends the case to AAA
arbitration for consideration by the arbitral forum.25 The dissent would
require a court to resolve a threshold question of whether certain
antecedent conditions for arbitration are met.26 Because the agreements
require arbitration of this dispute either way and the court of appeals
properly compelled it, the Court and the dissent’s alternative paths lead
to the same destination. Compelling arbitration is the correct outcome.
I join the Court’s opinion, observing that the court of appeals’ judgment
also may be affirmed on the basis that any threshold consideration has
been met.

                                              Jane N. Bland
                                              Justice

OPINION FILED: April 14, 2023

      23   See post at 4.
      24   Ante at 41 n.29; post at 3.
      25   Ante at 47.
      26   Post at 4–5.

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