Court Opinion

ID: 9661618
Source: CourtListenerOpinion
Date Created: 2023-08-23 22:44:48.250519+00
Date Added: 2024-06-11T18:14:31.243890
License: Public Domain

*901HOLLIS HORTON, Justice,
dissenting.
In this case, the majority holds that a trial court abused its discretion in denying the defendants’ request to stay discovery. The defendants were signatories to an arbitration agreement, as were some of the plaintiffs. However, the plaintiff against whom the defendants sought to stay discovery was not a party to the arbitration agreement. Because I disagree with the majority that the defendants carried their burden to demonstrate the trial judge abused her discretion in denying their request for a stay of discovery against a non-signatory to the arbitration clause, I dissent.
This case arises from a business dispute between doctors. Three doctors, Dr. Rez-ik Saqer, Dr. Hazem El-Zufari, and Dr. Harlan Borcherding, filed suit against Dr. Fadi Ghanem and Dr. Hussamaddin Al-Khadour seeking a temporary injunction, permanent injunction, and damages. The trial court entered a temporary restraining order. Drs. Ghanem and Al-Khadour appeared, sought to dissolve the temporary restraining order, and requested a stay of further proceedings. In their motion to stay, Dr. Ghanem and Dr. Al-Khadour asserted that “[t]his matter is subject to arbitration.” Attached to their motion is a letter agreement containing an arbitration clause signed by Drs. Saqer, El-Zufari, Ghanem, and Al-Khadour. Dr. Borcherd-ing (the non-signatory) did not sign the arbitration agreement, and Dr. Ghanem and Dr. Al-Khadour agree that Dr. Bor-cherding is not a party to the arbitration agreement.
The trial judge ordered the claims asserted by Dr. Saqer and Dr. El-Zufari to arbitration and stayed all further judicial proceedings between them and Drs. Gha-nem and Al-Khadour. The trial judge did not order Dr. Borcherding’s claims to arbitration. On May 15, 2006, the trial court refused to stay discovery, and granted Dr. Borcherding’s motion to compel the depositions of four witnesses, including those of Dr. Ghanem and Dr. Al-Khadour. The court also set a temporary injunction hearing for June 16, 2006. Dr. Ghanem and Dr. Al-Khadour subsequently filed a writ of mandamus asserting that we should vacate the trial court’s May 15 order because Dr. Borcherding’s causes of action “are subject to arbitration.” Since the temporary restraining order expired May 15, 2006, any issue regarding that portion of the trial court’s order appears moot. The trial court’s order also denied the defendants’ request to stay Dr. Borcherding’s discovery and ordered four witnesses to be deposed. The defendants assert that the trial court abused its discretion in allowing Dr. Borcherding to go forward with discovery.
The majority concludes that Drs. Gha-nem and Al-Khadour, signatories to an arbitration agreement, are entitled to a stay of discovery in a lawsuit brought against them by Dr. Borcherding, a non-signatory to the arbitration agreement. As support for its position that litigation by non-signatories can be stayed pending the outcome of arbitration, the majority relies primarily on three Fifth Circuit cases: (1) Harvey v. Joyce, 199 F.3d 790 (5th Cir.2000); (2) Subway Equipment Leasing Corp. v. Forte, 169 F.3d 324 (5th Cir.1999); and (3) Waste Management, Inc. v. Residuos Industriales Multiquim, S.A. de C.V., 372 F.3d 339 (5th Cir.2004). In my view, the majority’s reliance on these cases is misplaced. In each of these cases, the parties seeking discovery stays were non-signatories to the arbitration agreements. Thus, none of these cases involved weighing the rights of parties that did not either by contract or by their actions in some way waive their right to file a lawsuit to resolve their disputes. *902Therefore, these three cases are not authority for the proposition that a court must act to prohibit discovery being sought by a person who was not a party to the arbitration agreement.
The first step in evaluating a motion to compel arbitration is to determine whether the parties agreed to arbitrate. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 3353-54, 87 L.Ed.2d 444 (1985). Even under the Federal Arbitration Act (“FAA”), which the majority applies here, the federal policies that favor arbitration are “to make arbitration agreements as enforceable as other contracts, but not more so.” Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n. 12, 87 S.Ct. 1801, 1806, 18 L.Ed.2d 1270 (1967). With respect to Dr. Borcherding, there is no dispute that he did not agree to arbitrate his claims against the defendants.
I recognize that some courts, applying Texas law in limited circumstances, have held that non-signatories were bound by the contract’s arbitration clause. For example, when a non-signatory sues on the contract, courts have enforced all of the contract’s terms, including its arbitration provision. In re FirstMerit Bank, 52 S.W.3d 749, 755-5 (Tex.2001) (finding that non-signatories who sued based on a contract subjected themselves to the contract’s arbitration clause where the non-signatories’ claims were identical to those asserted by the signatories). Further, the Texas Supreme Court recently recognized that “nonparties may be bound to an arbitration clause when the rules of law or equity would bind them to the contract generally.” In re Weekley Homes, L.P., 180 S.W.3d 127, 129 (Tex.2005). In Week-ley, the Texas Supreme Court relied upon the nonparty’s obtaining a direct benefit from the contract, namely, repairs to a home. Id. at 133. But, the Supreme Court also noted that it did not “understand the doctrine [of direct benefits estop-pel] to apply when the benefits alleged are insubstantial or indirect.” Id. at 134. In In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (Tex.2005), the Texas Supreme Court declined to apply the doctrine of direct benefits estoppel to require that a non-signatory arbitrate its claim. 166 S.W.3d at 734. The Court stated:
We conclude that, under “direct benefits estoppel,” although a non-signatory’s claim may relate to a contract containing an arbitration provision, that relationship does not, in itself, bind the non-signatory to the arbitration provision. Instead, a non-signatory should be compelled to arbitrate a claim only if it seeks, through the claim, to derive a direct benefit from the contract containing the arbitration provision.
Id. at 741. The Texas Supreme Court also recently held that non-signatories are bound by arbitration agreements when the non-signatory’s case is premised on a claim that he is a third-party beneficiary of the contract. See In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 676 (Tex.2006).
Applying Texas law in Fleetwood Enterprises, Inc. v. Gaskamp, 280 F.3d 1069, 1077 (5th Cir.2002), the Fifth Circuit did not enforce an arbitration provision against non-signatories who had not embraced the contract. The Fifth Circuit held that children who asserted tort claims for personal injuries were not bound by an arbitration clause contained in a sales contract executed by their parents. Gaskamp, 280 F.3d at 1077. The Fifth Circuit declined to bind the non-signatory minors to a contract containing an arbitration provision when they were not parties to the contract, or were not third-party beneficiaries of the contract, and were not suing on the basis of the contract. Id. In Gaskamp, the Fifth Circuit reversed the district *903court’s order staying the children’s lawsuits. Id. at 1078.
In this case, defendants asked the trial judge to stay Dr. Borcherding’s discovery efforts, and so the court was not faced with a decision regarding whether his claims should be sent to arbitration. The defendants asked the trial court to make the decision on the pleadings and the unsworn documents attached to their motion for stay.
The majority apparently concludes that Dr. Borcherding’s claims are identical to those of the signatories to the arbitration agreement. I disagree. Although it is true that the causes of action asserted by Dr. Borcherding are the same as those asserted by the other doctors who signed the arbitration agreement, the Plaintiffs’ Original Petition is insufficiently specific to conclude that the claims (as distinguished from the causes of action) are the same. We are given little in the pleadings to detail Dr. Borcherding’s claims. However, it is apparent from the Plaintiffs’ Original Petition that Dr. Borcherding is not a present or former partner of the doctor groups involved in the litigation or a party to the letter agreement that contains the arbitration clause at issue. For example, all the plaintiffs sued each of the defendants for conversion, breach of oral and implied contracts, and tortious interference with business relations, but the Plaintiffs’ Original Petition does not describe whether Dr. Borcherding’s allegations are separate or part and parcel of the other doctors’ claims. In addition, all of the plaintiffs generally claim that the defendants solicited the plaintiffs’ patients and used the plaintiffs’ confidential patient information to their detriment. From the pleadings, we cannot determine, with reference to Dr. Borcherding, whether his breach of contract claims are identical, or different, from those of the other doctors who were signatories to the arbitration agreement. We also cannot tell if the contract under which Dr. Borcherding sues the defendants is the same, or different from the contracts under which the other plaintiffs sue. We cannot tell if the patients that defendants allegedly solicited were patients of both Dr. Borcherding and the other plaintiff doctors, or not, or whether Dr. Borcherding is relying on the terms of a contract between the defendants and the other plaintiff doctors, or an oral contract that exists between him and the defendant doctors. All we know is that there were allegedly oral and written contracts involved in these disputes.
The evidence before the trial court at the hearing on the defendants’ motion contained no depositions and no evidence that described Dr. Borcherding’s employment arrangement with the other doctors involved in this dispute. The unsworn evidence attached to the defendants’ motion to stay consists of: (1) the Letter Agreement, to which Dr. Borcherding is not a party but which contains the arbitration clause, that apparently was intended to resolve the disputes between Dr. Saqer, Dr. El-Zufari, Dr. Ghanem and Dr. Al-Khadour; (2) the Temporary Restraining Order dated April 17, 2006; (8) Board Minutes of a meeting of a partnership entity, Integra Medical Clinics, LLP (“In-tegra”); the meeting occurred on February 23, 2006, but the minutes do not mention Dr. Borcherding; and (4) resolutions and amendments to the Integra partnership agreement, which are dated March 2, 2006 and signed by Dr. Al-Khadour, Dr. El-Zufari, Dr. Ghanem, and Dr. Saqer, but which do not mention Dr. Borcherding; (5) copies of various e-mails and correspondence, which do not mention Dr. Borcherd-ing; (6) an e-mail response to the arbitration demand that includes a demand to return a laptop in use by Dr. Borcherding; and (7) an e-mail dated April 13, 2006, that *904offers Dr. Borcherding’s attorney the opportunity to pick up the personal files of Dr. Borcherding.
Thus, although the petition asserts that the defendants breached oral and written contracts, we cannot ascertain from the pleadings before the trial court or the evidence before the trial court in Dr. Bor-cherding’s case whether the terms of the written contracts allegedly breached were the same, or different, from the contracts allegedly breached with the other doctors. Dr. Borcherding does not appear to be named as a party or as an intended third-party in the Letter Agreement, which is the only written contract before us.
Regarding the defendants’ motion, the trial court evidently conducted a non-evi-dentiary hearing, at which it heard argument, but no transcript of the hearing is before us on appeal. It seems likely to me that the trial judge might have asked the parties to explain how Dr. Borcherding’s case related to that of the other doctors, if at all. If an explanation to such a question was before the trial court, it is not before us.
In my opinion, the party that seeks to stay discovery should be required to prove that the non-signatory litigant is bound to the arbitration agreement. The evidence before the trial court was insufficient to allow the court to reach the conclusion that Dr. Borcherding was bound to the arbitration agreement. Moreover, the defendants’ evidence is insufficient to require a stay on the record before the trial court even if the test that applies when non-parties seek a stay against a party to an arbitration agreement also applies equally when a signatory to an arbitration agreement seeks a stay against a non-signatory. See White v. KPMG, LLP, 180 Fed.Appx. 498, 499-500 (5th Cir.2006) (holding that a non-party seeking a stay against a party to the arbitration must show that a failure to grant a discovery stay destroys the signatories’ right to a meaningful arbitration). The majority fails to point to any evidence supporting a conclusion that meets this test, and in fact only says that an attempt to determine the defendants’ liability “could, at the very least, adversely affect Relators’ right to arbitrate, and certainly to meaningfully arbitrate.” I am left to wonder, “Why?” Also, the fact that it could affect the signatories’ right to meaningfully arbitrate is not the test. The defendants had to show that failing to stay discovery destroyed their right, a test they fail to meet.
I would hold that the signatory parties to the arbitration agreement failed to meet their burden to show that Dr. Borcherd-ing’s lawsuit should be stayed pending the outcome of the arbitration. Because Dr. Borcherding was not a party to the arbitration clause, and because arbitration provisions are generally not applicable to non-signatories absent a few exceptions not shown to be applicable here, I would hold that the trial judge did not clearly abuse her considerable discretion in making an incidental discovery ruling. Further, with respect to staying claims of non-signatories, I would hold that the court has the discretion to permit some discovery to aid its determination of whether the claims are, or are not, sufficiently identical to the claims f the arbitrating parties to aid the court in determining whether allowing discovery in situations involving parallel litigation and arbitration proceedings deprives the arbitrating parties of meaningful arbitration. Because the trial court did not abuse its discretion, we should deny the defendants’ petition.