Court Opinion

ID: 9943724
Source: CourtListenerOpinion
Date Created: 2024-02-25 15:09:35.797415+00
Date Added: 2024-06-11T13:47:54.650562
License: Public Domain

Supreme Court of Texas
                             ══════════
                              No. 23-0390
                             ══════════

  Natin Paul, WC 1st and Trinity, LP, WC 1st and Trinity GP,
 LLC, WC 3rd and Congress, LP, and WC 3rd and Congress GP,
                            LLC,
                               Petitioners,

                                     v.

            The Roy F. & Joann Cole Mitte Foundation,
                               Respondent

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

      JUSTICE BUSBY, joined by Chief Justice Hecht and Justice Devine,
dissenting from the denial of the motion for rehearing.

      This Court has been asked to hear both an appeal and an original
proceeding 1 arising out of an investment dispute between petitioners—
Natin Paul and several business entities that he controls—and a
nonprofit   organization,    the   Roy       F.   and   Joann   Cole   Mitte
Foundation. Today, the Court denies a motion for rehearing in the
appeal, which presents a significant question of arbitration law: can an

      1 See No. 23-0253, In re Natin Paul.
arbitrator decide that a person who did not sign the arbitration
agreement is nevertheless required to arbitrate claims brought against
him, or must a court first decide whether the arbitrator has any
authority over the nonsignatory? Because we have concluded that this
issue is for courts to decide, and that conclusion affects the contempt
order that is the subject of the original proceeding, I respectfully dissent.
       This appeal challenges a trial court judgment confirming an
arbitrator’s joint award of damages against the entities and Paul as
their alter ego, the court’s supplemental order appointing a receiver to
liquidate the entities, and the court’s post-judgment injunction
preventing the dissipation of Paul’s assets. The original proceeding
challenges the court’s order of criminal contempt against Paul for
violating the injunction. But if Paul is correct that the arbitrator had
no authority to decide whether he was bound to arbitrate as the alter
ego of a signatory, then the trial court erred by confirming the
arbitration award against him, which was the basis for all of the trial
court’s subsequent orders—including the injunction it held Paul in
contempt for violating. Our cases show that Paul is correct.
       Whether a party has given up the “right to a court’s decision about
the merits of its dispute” in favor of private arbitration is a “matter of
contract”: “a party can be forced to arbitrate only those issues it
specifically has agreed to submit to arbitration.” First Options of Chi.,
Inc. v. Kaplan, 514 U.S. 938, 942-43, 945 (1995). Thus, arbitrators
“derive their authority to resolve disputes” from the parties’ advance
agreement. AT&T Techs. v. Commc’ns Workers of Am., 475 U.S. 643,

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648-49 (1986); see also BG Grp. PLC v. Republic of Arg., 572 U.S. 25, 34
(2014).
      As the Supreme Court of the United States has recognized,
“‘traditional principles’ of state law allow a contract to be enforced by or
against nonparties to the contract through ‘assumption, piercing the
corporate veil, alter ego, incorporation by reference, third-party
beneficiary theories, waiver and estoppel.’” Arthur Anderson LLP v.
Carlisle, 556 U.S. 624, 631 (2009) (quoting 21 Richard A. Lord, Williston
on Contracts § 57:19, p. 183 (4th ed. 2001)). But whether an arbitration
agreement’s terms may be enforced by or against a nonsignatory goes to
“the existence of a valid and enforceable arbitration agreement,” Jody
James Farms, JV v. Altman Grp., Inc., 547 S.W.3d 624, 633 (Tex. 2018),
which is a question of arbitrability for the court to decide. See Granite
Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 297 (2010) (“[T]he court
must resolve any issue that calls into question the formation or
applicability of the specific arbitration clause that a party seeks to have
the court enforce.” (emphases added)); Robinson v. Home Owners Mgmt.
Enters., 590 S.W.3d 518, 531 (Tex. 2019) (“[W]hether a nonsignatory is
bound to an arbitration agreement is a gateway matter for judicial
determination.”); Jody James Farms, 547 S.W.3d at 631-33.
      Here, an arbitration proceeding between the Foundation and the
business entities was ongoing, and the Foundation sought and received
the arbitrator’s permission to add Paul as a defendant in his personal
capacity based on an alter ego theory.          Although Paul executed
arbitration agreements on behalf of the business entities, he did not sign
any agreement with the Foundation in his personal capacity. And as

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just explained, we have held that whether a nonsignatory is bound to
arbitrate as an alter ego is a gateway question of arbitrability for the
trial court—not the arbitrator—to determine. See id. That principle
alone demonstrates that the trial court erred by confirming the
arbitration award against Paul without deciding the alter ego question
de novo. See Jody James Farms, 547 S.W.3d at 633, 640 (determining
post-arbitration that party resisting arbitration could not “be compelled
to arbitrate under agency, third-party beneficiary, or estoppel theories”
and vacating arbitration award). 2
       The court of appeals attempted to avoid this result by holding that
Paul “submitted the issue [of arbitrability] to the arbitrator” when he
“filed a motion for summary judgment in the arbitration asserting that
the arbitrator lacked jurisdiction over Paul” as an alter ego. 2023 WL
1806101, at *11 (Tex. App.—Austin 2023). Not so. As the Supreme
Court has held, and this Court recently reiterated, “[m]erely arguing the
arbitrability issue to an arbitrator does not indicate a clear willingness
to arbitrate that issue.” Robinson, 590 S.W.3d at 535 (quoting First
Options of Chi., 514 U.S. at 946).
       The Foundation offers another response: Paul did not merely
object to the arbitrator deciding the issue whether Paul was bound to
arbitrate as an alter ego, he alternatively (and subject to his objection)

       2 See also Lennar Homes of Tex. Land & Constr., Ltd. v. Whitely, 672

S.W.3d 367, 379 (Tex. 2023) (rendering judgment confirming arbitration award
after concluding nonsignatory plaintiff was bound to arbitrate under doctrine
of direct-benefits estoppel); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732,
741 (Tex. 2005) (rejecting reliance on direct-benefits estoppel and holding court
abused its discretion by compelling nonsignatory plaintiff to arbitrate
quantum meruit claim).

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asked the arbitrator to decide that threshold issue in his favor. But this
response is likewise inconsistent with our precedent. Such a defensive
request does not waive a prior challenge to the arbitrator deciding the
issue. Cf. RSL Funding, LLC v. Pippins, 499 S.W.3d 423, 430–31 (Tex.
2016) (holding that “asserting defensive claims [in court]—even if such
claims seek affirmative relief—does not waive [the right to compel]
arbitration”).    Furthermore, a nonsignatory who has objected
unsuccessfully to the arbitrator’s authority to decide whether he is
required to arbitrate may respect the arbitrator’s ruling requiring
arbitration and defend himself on the merits as best he can. He is not
required to go down without a fight to avoid waiving his right to argue
to a trial court that any resulting arbitration award against him should
be vacated because the arbitrator was not authorized to decide the alter
ego question in the first place. Cf. Bonsmara Natural Beef Co. v. Hart
of Texas Cattle Feeders, LLC, 603 S.W.3d 385, 391-92 (Tex. 2020)
(recognizing that party who defends itself in effort to win arbitration on
other grounds can challenge interlocutory order compelling arbitration
on appeal from final judgment confirming arbitration award).
      Under these recent cases from our Court, the arbitration award
against nonsignatory Paul—which forms the basis of the trial court’s
post-judgment injunction and ultimately its contempt finding—cannot
stand without additional proceedings in the trial court to decide the
arbitrability issue: whether Paul is the alter ego of a signatory. For that
reason, I respectfully dissent from the Court’s denial of the motion for
rehearing.

                                    5
                                   J. Brett Busby
                                   Justice

OPINION FILED: February 23, 2024

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