Court Opinion

ID: 4350142
Source: CourtListenerOpinion
Date Created: 2018-12-13 15:10:04.15172+00
Date Added: 2024-06-11T14:29:43.507583
License: Public Domain

In The

                               Court of Appeals
                   Ninth District of Texas at Beaumont
                          ____________________
                             NO. 09-18-00359-CV
                             NO. 09-18-00392-CV
                          _______________________

                    OXBOW CALCINING LLC, Appellant

                                       V.

             PORT ARTHUR STEAM ENERGY, L.P., Appellee

                   On Appeal from the 172nd District Court
                          Jefferson County, Texas
                         Trial Cause No. E-201,894

                         MEMORANDUM OPINION

      In cause number 09-18-00359-CV, Oxbow Calcining LLC (Oxbow or

Appellant) filed an interlocutory appeal of an order denying Oxbow’s motion to

compel arbitration (Order Denying Motion to Compel Arbitration) related to

Plaintiff’s Petition and Application for Post-Judgment Enforcement Orders filed by

Port Arthur Steam Energy, L.P. (PASE or Appellee). See Tex. Civ. Prac. & Rem.

Code Ann. 51.016 (West 2015). In that same cause number, Oxbow also moved for

                                        1
this Court to review the trial court’s Rule 24 Order requiring Oxbow to post a

$2,353,284 bond and an additional $8,979,720 bond if any appeal remains pending

on February 15, 2019 (Rule 24 Order). See Tex. R. App. P. 24. In cause number 09-

18-00392-CV, Oxbow filed an appeal of a post-judgment order granting turnover

relief and appointing a receiver to monitor Oxbow’s Port Arthur petroleum coke

calcining plant (Turnover Order). 1

      In cause number 09-18-00359-CV, we reverse the trial court’s Order Denying

Motion to Compel Arbitration and remand the case to the trial court for further

proceedings consistent with this opinion. We also vacate the trial court’s Rule 24

Order because considering our rulings, we conclude that no appellate security is

      1
        A “turnover” order is a statutory procedural device through which judgment
creditors may reach assets of a judgment debtor that are otherwise difficult to attach
or levy by ordinary legal process. See Tex. Civ. Prac. & Rem. Code Ann. § 31.002
(West Supp. 2018); Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 224 (Tex.
1991). Under the statute, a judgment creditor can apply to a court for an injunction
or other means to satisfy a judgment through a judgment debtor’s property, including
present or future property rights. See Tex. Civ. Prac. & Rem. Code Ann. § 31.002(a).
To obtain turnover relief, a judgment creditor must prove “the judgment debtor owns
property, including present or future rights to property, that is not exempt from
attachment, execution, or seizure for the satisfaction of liabilities.” Id. Upon finding
the requirements of section 31.002(a) are satisfied, a trial court has discretion to issue
a range of remedies, including ordering the judgment debtor to turn over nonexempt
property that is in the debtor’s possession, or is subject to the debtor’s control, to a
designated sheriff or constable for execution, and “appoint[ing] a receiver with the
authority to take possession of the nonexempt property, sell it, and pay the proceeds
to the judgment creditor to the extent required to satisfy the judgment.” See id. §
31.002(b).
                                           2
necessary. In cause number 09-18-00392-CV, we reverse the trial court’s Turnover

Order and vacate the order.

                              Background Information

      Oxbow owns and operates a petroleum coke calcining plant. Oxbow takes

petroleum coke (“petcoke”) from refineries and heats the petcoke in kilns to

manufacture calcined coke. Adjacent to Oxbow’s facility, PASE owns and operates

a waste heat recovery facility that uses heat from three of Oxbow’s four kilns to boil

water to make steam that PASE sells primarily to another refinery to generate

electricity. The waste heat from the three kilns can either be released (1) through

three “hot stacks” directly connected to kilns or (2) through three “cold stacks” after

the heat is routed through PASE’s waste heat facility and cooled. PASE generates

steam only when Oxbow releases waste heat through the cold stacks. According to

PASE, “Oxbow has the ability to manipulate its dampers to curtail or completely

shut off waste heat to PASE.”

      In February 2005, Oxbow’s predecessor in interest, Great Lakes Carbon,

LLC, and PASE entered into a Heat Energy Agreement (the HEA) to govern their

relationship with respect to PASE’s waste heat facility. Under the wording of the

HEA, PASE paid Oxbow $1.00 for the facility in 2005, and PASE does not pay

                                          3
Oxbow anything for the waste heat Oxbow delivers.2 Instead, PASE pays Oxbow a

portion of revenues from PASE’s sale of steam from the waste heat facility. The

HEA requires PASE to make a monthly “heat payment” to Oxbow equal to 30% of

the steam revenue received by PASE for the preceding month, adjusted by a

mechanism referred to by the parties as the “heat bank.” The heat bank adjusts the

amount of heat payments due to Oxbow based on Oxbow’s calcined coke production

from kilns 3, 4, and 5 and the price of natural gas. According to Oxbow, if it produces

more than the “threshold amount” of 43,675 tons of calcined coke per month, then

it accumulates a credit in the heat bank, but if it produces less than the threshold

amount, it accumulates a deficit in the heat bank. The HEA provides the following

regarding Oxbow’s right to suspend performance under the HEA:

            Notwithstanding anything otherwise set forth in this Agreement,
      [Oxbow]3 shall have the right to suspend its performance hereunder,
      including by suspending production and delivery of flue gas to PASE,
      without liability to PASE at anytime that [Oxbow]: (a) receives a notice
      of alleged violation of Law or any similar notice from any
      Governmental Authority relating to, arising out of or in connection with
      the Steam Production Upgrade, the Steam Production Facility or the
      performance of this Agreement which, if further prosecuted or pursued,
      2
        PASE argues that “PASE paid $1.00 in the HEA because it paid $38.5
million to refurbish and upgrade the steam plant assets . . . and committed to pay
30% of its steam revenues in Heat Payments to Oxbow for the full term of the HEA.”
PASE also contends that “PASE paid Oxbow approximately $34 million dollars for
waste heat through 2011.”
      3
         When quoting the HEA, we substitute “Oxbow” for “G[reat] L[akes]
C[arbon]”, as Oxbow is Great Lakes Carbon’s successor in interest.
                                         4
      may subject [Oxbow] to a material harm or detriment as reasonably
      determined by [Oxbow] and the suspension of its performance may be
      expected to mitigate the potential material harm or detriment as
      reasonably determined by [Oxbow], or (b) is named in, or otherwise
      made a party to, arising out of or in connection with the Steam
      Production Upgrade, the Steam Production Facility or the performance
      of this Agreement, the result of which might subject [Oxbow] to
      material harm or detriment as reasonably determined by [Oxbow]. . . .

By its written terms, the HEA requires both parties to operate and maintain their

respective facilities in accordance with “Prudent Operating Practice” to comply with

all applicable laws and permits and it requires Oxbow to use “Commercially

Reasonable Efforts” to maximize the production and delivery of waste heat to PASE.

      Section 14.1 of the HEA states that “[e]very dispute of any kind or nature

between the Parties arising out of or in connection with this Agreement (each a

“Dispute”) shall be resolved in accordance with this Article 14, to the extent

permitted by Law.” Under Article 14 (the HEA’s dispute resolution provisions), if a

“Dispute” arises, either party may send a notice to the other party “requesting that

the Dispute be referred to the senior management of the Parties.” Section 14.3

provides for arbitration as follows:

      (a) Any Dispute that has not been satisfactorily resolved within 30 days
      of the delivery of a notice in accordance with Section 14.2(a) shall be
      submitted by either Party to binding arbitration pursuant to the
      procedures set forth in this Article and pursuant to the Arbitration
      Rules. If, and to the extent that, the provisions of this Section 14.3 are
      inconsistent with the Arbitration Rules, the provisions of this Section

                                          5
14.3 shall control in any arbitration proceeding to the extent permitted
by Law.

(b) A copy of the submittal to arbitration pursuant to Section 14.3(a)
shall be made in writing to the other Party, and shall set forth the nature
of the Dispute, the amount involved, if any, and the remedies sought.
The submittal to arbitration shall be made within a reasonable time after
the expiration of the 30-day period set forth in Section 14.2(a).

(c) The arbitrator shall be appointed pursuant to the Arbitration Rules
provided that any such arbitrator shall be experienced generally with
the subject matter(s) of the Dispute and shall not have had an affiliation
with either Party or any Party’s Associated Parties within the seven-
year period preceding the arbitration, or have any financial interest in
the Dispute.

(d) The arbitration hearing shall be held in Houston, Texas, or such
other place as may be mutually agreed upon by the Parties, and shall
commence not later than 60 days after the date of the original demand
under Section 14.3(a), except due to unavailability of the arbitrator. The
arbitrator’s award shall be made not later than 45 days after the date of
closing of the hearing, or if oral hearings have been waived, after the
date of transmitting the final statements and proof to the arbitrator;
provided, however, that in no event shall any award be made later than
180 days after the date of the original demand for arbitration under
Section 14.3(a).

(e) In arriving at his decision, the arbitrator shall consider the pertinent
facts and circumstances and be guided by the terms and conditions of
this Agreement, and, if a solution is not found in the terms of this
Agreement, the arbitrator shall apply the governing law of this
Agreement as set forth in Section 19.13; provided, however, that the
arbitrator shall have no authority, power or right to alter, change,
amend, modify, waive, add to or delete from any of the provisions of
this Agreement, and any award rendered by the arbitrator shall be
consistent with the terms and conditions of this Agreement. Both
Parties shall have the right to present documentary evidence, witnesses
and to cross examine witnesses. The decision of the arbitrator shall be
                                      6
      final and binding upon both Parties, and judgment on the arbitration
      award may be entered in any court having jurisdiction. Except as
      otherwise provided in Section 14.3(g), arbitration in accordance with
      this Section 14.3 shall be the exclusive means of resolving Disputes that
      are not resolved by negotiation or mediation, and neither Party shall
      seek recourse to a court or other authorities to resolve a Dispute or to
      appeal for revisions to an arbitration decision.

      (f) Except as otherwise determined by the arbitrator in the exercise of
      his discretion, the fees and expenses of the arbitrator shall be shared
      equally by the Parties, and each Party shall bear its own costs and
      expenses.

      (g) Notwithstanding the other provisions of this Section 14.3, each
      Party shall have the right at any time, at its option and where legally
      available, to commence an action or proceeding in a court of competent
      jurisdiction, in order to (i) compel the other Party to arbitrate a Dispute
      as contemplated by this Section 14.3, or (ii) seek and obtain a
      restraining order or injunction, but not monetary damages, to enforce
      the confidentiality provisions set forth in Article 17.

Furthermore, section 13.6 of the HEA provides the following regarding the

limitation on Oxbow’s liability as well as the source of monetary recovery from or

against Oxbow:

      Notwithstanding anything otherwise set forth in this Agreement, (a)
      [Oxbow]’s aggregate maximum liability for monetary damages with
      respect to any and all Claims in connection with the performance or
      non-performance of this Agreement or otherwise arising out of or in
      connection with this Agreement, shall be limited to the aggregate
      amount of future Heat Payments otherwise due to [Oxbow] during the
      remainder of the term at the time of any such Claim, and (b) PASE’s
      exclusive means of monetary recovery from or against [Oxbow] with
      respect [to] any Claim whether pursuant to an arbitral award rendered
      in accordance with Article 14 or pursuant to any judgment, sanction,
      penalty, other award or otherwise, shall be to withhold amounts
                                        7
      otherwise due [Oxbow] hereunder in accordance with Article 6, with
      the understanding that [Oxbow] shall never be required to make any
      direct payment to PASE as a result of any Claim.

      According to Oxbow, it received heat payments from 2005 until 2011, but

Oxbow’s production of calcined coke fell below the threshold amount in 2009 and

its balance in the heat bank went negative in 2011 due to a decline in the market for

calcined coke, and Oxbow has not received heat payments from PASE since 2011.

Oxbow filed a Demand for Arbitration and a Statement of Claims in July 2010

asserting various claims against PASE, and PASE filed counterclaims against

Oxbow. According to PASE, disputes about the interpretation and duties under the

HEA were at issue before an arbitration panel in Houston:

      (1) the adequacy of the steam plant’s pollution control equipment; (2)
      whether Oxbow was operating its calcining plant consistent with
      “prudent operating practice” as required by the Heat Agreement; (3)
      whether Oxbow was using “commercially reasonable” efforts to deliver
      flue gas energy to PASE’s boilers; and (4) which party was responsible
      for the refurbishment and future maintenance of the cold stacks.

      In December 2011, the arbitration panel concluded in its award that, among

other things, the HEA does not impose on PASE any obligation to install pollution

control equipment in Oxbow’s portion of the Facility, Oxbow bears the risk of

installing and maintaining pollution control equipment that will ensure Oxbow’s

operation complies with Oxbow’s air permits and environmental laws, Oxbow is

responsible for the maintenance of the cold stacks once properly installed, and PASE
                                          8
is liable to Oxbow for $812,012 for PASE’s share of the initial cost of the

modification of the cold stacks to comply with HEA specifications. The arbitration

award provided, however, that this amount would offset the amount awarded to

PASE in the arbitration award. As for PASE’s claims, the arbitration panel awarded

PASE damages in the amount of $4,515,056 for lost revenue for Oxbow’s breach of

the sections of the HEA that required Oxbow to “use Commercially Reasonable

Efforts to maximize the production and delivery of Flue Gas Energy” to PASE and

to operate and maintain its facility “in accordance with Prudent Operating Practice

to comply with all applicable Laws and Permits, and within the design parameters

and limits of the applicable materials, equipment and construction.” The Panel

entered the following relief:

      [] PASE is awarded $4,515,056.00 as direct damages for the lost
      revenue caused by Oxbow’s breaches of the Heat Agreement. This
      award of damages is to be offset by $812,012.00 for the costs of
      repairing the cold stacks, and $293,262.43 for unpaid City and County
      taxes for 2008-10, all in accordance with this Award. The net amount
      awarded to PASE against Oxbow is $3,409,781.57. PASE is entitled to
      pre-and post-award of interest as provided by governing law on this net
      amount. This is not a cash award requiring Oxbow to write PASE a
      check. It shall be handled in accordance with the specific provisions of
      the Heat Agreement regarding the heat bank as an offset.

      [] Oxbow did not prevail on its largest claim[] and is therefore not a
      prevailing party. While PASE did recover on its lost heat claim, it also
      lost out on several of its other claims for relief. So[,] neither party is
      clearly the prevailing party. The Panel declines to award either party
      the costs of arbitration or attorneys’ fees incurred in this arbitration.
                                          9
      Each party is directed to bear its own costs and attorney’s fees. The
      administrative fees totaling $41,600 and the compensation and
      expenses of the panel totaling $141,577.23 shall be borne as incurred.

      [] This is a Final Award[] and is intended to be enforceable in any court
      of competent jurisdiction. All relief requested but not expressly granted
      herein is denied.

      PASE moved to confirm the award in the 151st District Court of Harris

County, and Oxbow moved to vacate the award on the ground of partiality of an

arbitrator. Port Arthur Steam Energy LP v. Oxbow Calcining LLC, 416 S.W.3d 708,

710 (Tex. App.—Houston [1st Dist.] 2013, pet. denied). The trial court denied

confirmation and granted Oxbow’s motion to vacate the arbitrator’s decision. Id. On

October 22, 2013, the First Court of Appeals reversed the trial court’s order vacating

the arbitration award and remanded to the trial court to enter judgment to confirm

the arbitration award. Id. at 715. Oxbow filed a petition for review with the Texas

Supreme Court which was denied. Oxbow Calcining LLC v. Port Arthur Steam

Energy LP, No. 14-0103, 2014 Tex. LEXIS 1072 (Tex. Oct. 24, 2014). On January

8, 2015, the District Court for the 151st Judicial District of Harris County signed a

judgment confirming the arbitration award, and the arbitration award was attached

and incorporated within the judgment. The judgment included language that it is

“enforceable in the same manner as any other judgment or decree of the Court[,]”

and “resolve[d] all claims in this case and is intended to be a final judgment.”

                                         10
      According to Oxbow, in 2010 the Environmental Protection Agency (EPA)

substantially lowered maximum concentration levels for the National Ambient Air

Quality Standards (NAAQS) for SO2, and in late 2016, as part of an EPA-driven

monitoring program, the Texas Commission on Environmental Quality (TCEQ)

began to monitor Oxbow’s and PASE’s facilities to determine the impact of the

operations on ambient air quality. According to Oxbow, Oxbow and PASE

representatives met to discuss the changes in the regulations and Oxbow explained

that the new regulations would limit Oxbow’s ability to supply waste heat to the cold

stacks that PASE uses to generate steam unless Oxbow spent large sums of money

to install pollution control equipment for PASE’s benefit. The record includes a 2017

email wherein Oxbow informed PASE that it was suspending use of the cold stacks

for kilns 3 and 4 to mitigate the risk of SO2 violations and stated that it did “not have

enough data necessary to draw any conclusions regarding the continued delivery of

[waste heat] from Kiln 5[]” but would inform PASE “[a]s soon as Oxbow is able to

make a determination regarding Kiln 5[.]” The record reflects that in April and June

2017, the TCEQ notified Oxbow that the Port Arthur SO2 monitoring station showed

exceedences of the SO2 NAAQS, and that the TCEQ agreed that all exceedences of

the SO2 NAAQS occurred while Oxbow’s plant had at least one cold stack operating.

                                           11
      PASE contends that “Oxbow makes numerous ‘factual’ statements that are

either inaccurate or misleading.” PASE specifically disputes Oxbow’s allegations

that it has the right to shut down production and delivery of waste heat under the

HEA. According to PASE, “[w]ith regard to a pollution issue, Oxbow has two

choices: address the issue or shut everything down.” PASE further contends that

“Oxbow’s pollution control duties are not subject to a Prudent Operating Practice

limitation.” Furthermore, PASE argues that “Oxbow offered no testimony to support

a position that it was ‘suspending’ performance ‘to mitigate the potential harm or

detriment’ supposedly resulting from its receipt of a ‘Notice of Alleged Violation of

Law’ or any similar notice from any Government or Authority” and Oxbow failed

to “offer any testimony of corrective action it was taking to mitigate or address any

supposed potential material harm or detriment associated with its SO2 emissions.”

      Before filing the Application for Turnover, PASE sent Oxbow a Notice of

Failure to Perform Material Obligations under the Heat Energy Agreement in which

PASE stated that “[p]ursuant to Section 14.2, PASE is hereby providing notice to

Oxbow of the occurrence/existence of a Dispute that should be referred to senior

management of Oxbow.” According to Oxbow, it responded to the notice by

designating its senior management representatives in accordance with the HEA

                                         12
arbitration provision, the parties engaged in settlement negotiations including

mediation, and the parties were unable to resolve the dispute.

      According to a letter that is dated May 7, 2018, the County Judge for Jefferson

County notified Oxbow by letter that TCEQ monitoring data showed excess SO2

NAAQS and warned Oxbow that if not corrected, such exceedences could result in

Jefferson County suing Oxbow for injunctive relief to preclude further violations.4

In June 2018, Oxbow notified PASE that it was indefinitely suspending production

of waste heat from kiln 5. Oxbow contends that since it stopped all waste heat to

PASE, Oxbow has operated solely through the hot stacks with no additional

exceedences of the SO2 NAAQS.

      On June 8, 2018, PASE filed Plaintiff’s Petition and Application for Post-

Judgment Enforcement Orders (the petition), and the suit was assigned to the 172nd

Judicial District Court. PASE sought “post-judgment relief and orders from [the

172nd District Court] including, but not limited to, injunctive orders and/or, in the

alternative, a Turnover Order, an Order Appointing a Receiver, and/or other orders

or relief under §31.002 of the Texas Civil Practice & Remedies Code against Oxbow

      4
       PASE argued in its Appellate Brief that the letter from the County Judge was
admitted improperly at the hearing held in the trial court. PASE filed a post-
submission motion alleging the letter was “orchestrate[d]” by Oxbow “to justify
discharging all of its waste heat through Oxbow’s hot stacks to avoid a TCEQ
monitor and put PASE out of business[.]”
                                       13
[], a Judgment Debtor of PASE[.]” According to its petition, PASE sought orders

“to assist PASE in collecting a Judgment entered in favor of PASE against Oxbow

in the amount of $3,409,781.57, plus pre-judgment and post-judgment interest”

resulting from the December 2011 Arbitration Award and that “PASE has not been

able to recover a single dollar from Oxbow to apply toward the satisfaction of this

Judgment.” Oxbow filed a Motion to Transfer Venue, and Subject Thereto, Its

Motion to Compel Arbitration and Original Answer.

      After a hearing, the 172nd District Court signed orders denying Oxbow’s

motions to transfer venue and compel arbitration and granting PASE’s proposed

Turnover Order. Oxbow filed a Notice of Appeal with this Court appealing the order

denying Oxbow’s Motion to Compel Arbitration and appealing the Turnover Order.

Oxbow also filed an emergency motion to stay all trial court proceedings and

discovery during the appeals. This Court issued an order granting a temporary stay

and staying the enforcement of the Turnover Order and discovery in the case until

further order of this Court. In the same order, we ordered the trial court to conduct a

hearing pursuant to Rules 24 and 24.2 of the Texas Rules of Appellate Procedure.

The trial court held a Rule 24 hearing and the trial court signed an order requiring

Oxbow to post a $2,353,284 bond and an additional $8,979,720 bond if any appeal

remains pending on February 15, 2019.

                                          14
                                       Appeals 5

       In cause number 09-18-00359-CV, Oxbow filed an accelerated interlocutory

appeal of the Order Denying Motion to Compel Arbitration. On appeal and in issue

one, Oxbow argues the trial court erred in denying Oxbow’s motion to compel

arbitration because the allegations pleaded and litigated by PASE fall within the

scope of the mandatory provision in the parties’ HEA. Oxbow also filed with this

Court a Rule 24.4 Motion to Review Amount of Appellate Security. See Tex. R.

App. P. 24.4 (authorizing an appellate court, on motion from a party, to review the

“(1) the sufficiency or excessiveness of the amount of security, . . . ; (2) the sureties

on any bond; (3) the type of security; (4) the determination whether to permit

suspension of enforcement; and (5) the trial court’s exercise of discretion under Rule

24.3(a).”). PASE filed a response to Oxbow’s Rule 24.4 Motion to Review Amount

of Appellate Security.

      In cause number 09-18-00392-CV, Oxbow appeals the Turnover Order. On

appeal, Oxbow argues the trial court erred in entering the Turnover Order appointing

a receiver to oversee Oxbow’s operations when the trial court had no jurisdiction

over the proceeding, the Turnover Statute does not authorize such unprecedented

      5
         In each party’s appellate brief, filed in both appellate cause numbers, the
parties discuss both the Order Denying the Motion to Compel Arbitration and the
Turnover Order.
                                          15
relief, the underlying Arbitration Award and Judgment expressly rejected similar

relief, and PASE waived any right to such relief in the HEA’s exclusive remedy

provision.

                                       Analysis

      In issue one, Oxbow argues the trial court erred in refusing to compel

arbitration because PASE agreed to arbitrate this dispute with Oxbow, the

allegations in PASE’s petition arise out of or in connection with the HEA, PASE’s

actions before and after filing this lawsuit confirm that this dispute is arbitrable, and

PASE failed to meet its burden to defeat arbitration. According to Oxbow, the

dispute was not litigated or decided by the 2010-2011 arbitration, but instead arose

years later once Oxbow began suspending waste heat delivery under the HEA’s

suspension provision and based on revised SO2 NAAQS and governmental demands

for Oxbow to comply with the NAAQS and its permits.

      PASE contends the trial court properly denied Oxbow’s motion to compel

arbitration because it did not apply to PASE’s Application for Turnover Order, and

the Federal Arbitration Act and the HEA do not preempt the use of the Turnover

Statute. According to PASE, it “did not assert, nor did the Turnover Order decide,

any new claims or causes of action, nor did the Order resolve any new ‘dispute’ or

award new damages[,]” and “[t]here is certainly no reason to re-arbitrate the

                                           16
collection of the Judgment from the first arbitration.” PASE further argues on appeal

that “[t]he presumption of arbitration has no applicability when PASE did not assert

a new claim or cause of action, did not seek to recover damages in the Turnover

proceeding and only sought to recover the damages awarded in the Judgment.” In

response to Oxbow’s argument that PASE’s claims in its petition were not litigated

or decided by the 2010-2011 arbitration, PASE argues that it did not assert any new

claims or causes of action against Oxbow or seek to recover any damages based on

Oxbow’s actions in 2016 or 2018, and no such claims or causes of action were

decided in the Turnover Order.

      We first address PASE’s argument that it is merely seeking the trial court’s

assistance in enforcing the 2011 Arbitration Award and is not alleging a dispute. The

judgment confirming the Arbitration Award incorporates the award and states it is

“enforceable in the same manner as any other judgment or decree of the Court[]”

and “resolves all claims in this case and is intended to be a final judgment.” Despite

this language, the Arbitration Award incorporated by the judgment stated the

damages for lost revenues awarded to PASE was not a cash award requiring Oxbow

to write a check, but “shall be handled in accordance with the specific provisions of

the Heat Agreement regarding the heat bank as an offset.” In other words, the

Arbitration Award invoked the HEA and required the HEA to continue to provide

                                         17
the parameters for the offset in the future. PASE’s Petition and Application for Post-

Judgment Enforcement alleges the following in part:

      . . . PASE was not to recover a monetary payment for damages directly
      from Oxbow, but was, instead, to recover the damages awarded in the
      Judgment by offsetting “Heat Payments” that the [arbitration] panel
      anticipated PASE would be making to Oxbow under Section 6 of the
      Heat Agreement over the next twelve or more years. Implicit in the
      Award was the assumption that from December of 2011, forward,
      Oxbow would honor its duties under the Heat Agreement to maximize
      the delivery of flue gas energy to PASE so that Heat Payments would
      be generated that PASE would offset to recover its Judgment. The
      Award also made clear that Oxbow was to meet its obligation to control
      pollution while simultaneously fulfilling its obligations to PASE under
      the Heat Agreement[.]

      ....

      [] Since the Award was decided, and particularly after the Award was
      upheld on appeal and became incorporated into the Judgment, Oxbow
      has continuously operated its calcining plant in a manner to insure that
      PASE will never receive enough flue gas energy to generate Heat
      Payments that PASE can offset to recover its Judgment. Oxbow
      accomplishes this objective by discharging waste heat through
      Oxbow’s hot stacks to circumvent PASE in a manner intended to force
      PASE out of business and keep PASE from ever recovering its
      Judgment. Oxbow has stopped delivering flue gas energy to PASE’s
      Boiler Nos. 3 and 4 completely and has been fluctuating its delivery of
      flue gas energy to Boiler No. 5 to the point that it is often barely
      operational. . . . Oxbow confirmed to PASE that the abatement of flue
      gas energy to Boiler Nos. 3 and 4 is permanent, with PASE not knowing
      if or when Oxbow will stop its delivery of flue gas energy to Boiler No.
      5 altogether. . . .

      [] Like it did when it launched its failed arbitration claims in 2011,
      Oxbow now “justifies” its actions by claiming that it is curtailing and/or
      abating the delivery of flue gas energy to PASE due to pollution
                                        18
      concerns. In reality, Oxbow’s position is based upon a thinly disguised
      pretext for a non-existent legal “obligation” to control ambient Sulphur
      Dioxide (SO2) emissions. . . . Oxbow, rather than proactively
      implement any pollution control measures (to the extent it has any
      “concern” over possible future SO2 regulations), has used the [NAAQS
      SO2] monitoring process as a pretext to shut PASE down and keep
      PASE from ever recovering its Judgment. . . .

      ....

      . . . Oxbow cannot meet its obligations under the Heat Agreement,
      including its duties of good faith and fair dealing to PASE, by refusing
      to install SO2 pollution control equipment or taking other pollution
      control measures while simultaneously stopping the delivery of flue gas
      energy to PASE and keeping PASE from recovering its Judgment under
      the guise of supposed SO2 “compliance.”

      ....

      [] As a result of Oxbow’s continued failures to comply with the Heat
      Agreement, PASE needs the aid of this Court to recover its Judgment
      pursuant to the Turnover Statute, Tex. Civ. Prac. & Rem. Code
      §31.002.

In summary, PASE’s Petition and Application for Post-Judgment Enforcement

asserts that since the Arbitration Award, Oxbow has failed to comply with the HEA

by suspending waste heat delivery to PASE. PASE further alleges that Oxbow

claims its suspension is the result of the new emissions standards. The petition also

asserts that Oxbow’s refusal to install pollution control equipment or take other

pollution control measures while stopping the delivery of waste heat constitutes a

breach of Oxbow’s duties of good faith and fair dealing under the HEA, even though

                                         19
the arbitration panel expressly denied PASE’s claim for breach of the duty of good

faith and fair dealing in the prior arbitration. We conclude that the matters asserted

in PASE’s Petition and Application for Post-Judgment Enforcement constitute a

dispute not litigated in the prior arbitration.6

      We review a trial court’s denial of a motion to compel arbitration for an abuse

of discretion. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 642-43 (Tex. 2009)

(orig. proceeding). A party attempting to compel arbitration under the FAA must

establish that there is a valid arbitration agreement and show that the claims raised

are within the scope of that agreement. In re Rubiola, 334 S.W.3d 220, 223 (Tex.

2011) (orig. proceeding). There is a presumption favoring agreements to arbitrate

under the FAA, but the presumption arises only after the party seeking to compel

      6
        We note that in an April 8, 2017 letter from the PASE Manager to an Oxbow
Vice-President with the subject line “Notice of Failure to Perform Material
Obligations under the Heat Energy Agreement[,]” admitted at the hearing on the
Turnover proceeding, the PASE Manager advised the following:
            Oxbow’s interruption and suspension of Flue Gas delivery to
      PASE and its refusal to replace the stack, are failures to perform
      material obligations under Section 13.1(b) and a breach of the duty of
      good faith and fair dealing under the Heat Energy Agreement. Pursuant
      to Section 14.2, PASE is hereby providing notice to Oxbow of the
      occurrence/existence of a Dispute that should be referred to senior
      management of Oxbow. PASE hereby designates Ted Boriack and Ray
      Deyoe as its senior management representative(s) who will meet with
      Oxbow’s senior management regarding this Dispute.

                                            20
arbitration proves that a valid arbitration agreement exists. In re Kellogg Brown &

Root, Inc., 166 S.W.3d 732, 737-38 (Tex. 2005) (orig. proceeding). If the party

seeking to compel arbitration proves that a valid arbitration agreement exists, the

burden shifts to the party opposing arbitration to raise an affirmative defense to

enforcement of the agreement. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227

(Tex. 2003).

      In the trial court, Oxbow and PASE agreed that the arbitration provision in

the HEA is valid. They disagree on whether the petition PASE filed should be

governed by the arbitration clause. Oxbow argues that the trial court abused its

discretion in determining arbitrability because the HEA states the AAA Rules apply

and AAA Rule R-7(a) says the arbitrator shall have the right to determine the

arbitrability of any claim.

      “The determination of whether the arbitration agreement imposes a duty to

arbitrate the claims in a particular dispute is a matter of contract interpretation.” See

T.W. Odom Mgmt. Servs., Ltd. v. Williford, No. 09-16-00095, 2016 Tex. App.

LEXIS 9353, at *7 (Tex. App.—Beaumont Aug. 25, 2016, no pet.) (mem. op.) (not

designated for publication). If the agreement clearly and unmistakably demonstrates

that the parties intended to confer on the arbitrator the power to determine what

disputes are arbitrable, the trial court lacks the power to decide that issue. Id. at **9-

                                           21
10 (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995)

(concluding the question of determining primary power to decide arbitrability turns

upon what the parties agreed to on the matter)). “Thus, when an arbitration

agreement clearly and unmistakably demonstrates the parties’ intent to confer on the

arbitrator the power to determine substantive arbitrability, questions regarding

gateway issues that are normally decided by the court will be submitted to the

arbitrator.” Id. at *10 (citing Kaplan, 514 U.S. at 943.).

      The arbitration clause in the HEA provides that the parties shall resolve

“[e]very dispute of any kind or nature between the Parties arising out of or in

connection with this Agreement (each a “Dispute”) . . . in accordance with Article

14 [titled “Dispute Resolution and Arbitration”], to the extent permitted by Law.”

The HEA also provides that “[a]ny Dispute that has not been satisfactorily resolved

within 30 days of the delivery of a notice in accordance with Section 14.2(a) shall

be submitted by either Party to binding arbitration pursuant to the procedures set

forth in this Article and pursuant to the Arbitration Rules.” The HEA provides that

“‘Arbitration Rules’ shall mean the commercial arbitration rules of the American

Arbitration Association.” Rule R-7(a) of the American Arbitration Association

Commercial Arbitration Rules states:

      The arbitrator shall have the power to rule on his or her own
      jurisdiction, including any objections with respect to the existence,
                                       22
      scope, or validity of the arbitration agreement or to the arbitrability of
      any claim or counterclaim. 7

      The HEA provides that each dispute of any kind or nature between PASE and

Oxbow arising out of or in connection with the HEA, if not resolved within thirty

days of the delivery of the required notice, shall be submitted by either party to

binding arbitration pursuant to the AAA Commercial Rules, which provide in Rule

R-7(a) that the arbitrator has the power to rule on his or her own jurisdiction and on

arbitrability of any claim or counterclaim. The HEA, with its broad arbitration clause

and incorporation of the AAA Commercial Rules, clearly and unmistakably shows

that PASE and Oxbow intended to delegate gateway issues, such as jurisdiction and

arbitrability, to the arbitrator. See, e.g., Trafigura Pte. Ltd. v. CNA Metals Ltd., 526

S.W.3d 612, 616-18 (Tex. App.—Houston [14th Dist.] 2017, no pet.) (finding

persuasive and applying reasoning of other Texas appellate courts and federal cases

holding that express incorporation of the AAA rules constitutes clear and

unmistakable evidence of the parties’ intent to delegate issues of arbitrability to the

arbitrator); Schlumberger Tech. Corp. v. Baker Hughes Inc., 355 S.W.3d 791,

802-03 (Tex. App.—Houston [1st Dist.] 2011, no pet.) (broad arbitration clause and

      7
         American Arbitration Association, Commercial Arbitration Rules and
Mediation Procedures, Rule R-7(a), p. 13, (Rules amended and effective October 1,
2013), https://www.adr.org/sites/default/files/CommercialRules_Web.pdf.
                                         23
incorporation of AAA Commercial Arbitration Rules by reference in the arbitration

agreement sufficient to show parties intended the arbitrator to decide arbitrability);

Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224, 229-31 (Tex. App.—Dallas

2010, pet. denied) (broad arbitration clause that explicitly incorporated AAA rules

served as clear and unmistakable evidence of parties’ intent to delegate question of

arbitrability to arbitrator); Rio Grande Xarin II, Ltd. v. Wolverine Robstown, L.P.,

Nos. 13-10-00115-CV & 13-10-00116-CV, 2010 Tex. App. LEXIS 5189, at

**20-23 (Tex. App.—Corpus Christi July 6, 2010, pet. dism’d) (mem. op.) (not

designated for publication) (arbitration clause in earnest money contract stating that

arbitration would be conducted “in accordance with the Commercial Arbitration

Rules of the American Arbitration Association[]” clearly and unmistakably showed

intent that arbitrator determine arbitrability); see also Crawford Prof’l Drugs, Inc.

v. CVS Caremark Corp., 748 F.3d 249, 262-63 (5th Cir. 2014); Petrofac, Inc. v.

DynMcDermott Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir. 2012) (“We

agree with most of our sister circuits that the express adoption of [the AAA] rules

presents clear and unmistakable evidence that the parties agreed to arbitrate

arbitrability.”) We conclude the trial court abused its discretion when it denied

Oxbow’s Motion to Compel Arbitration. Issue one is sustained.

                                         24
      In issue two, Oxbow argues the trial court erred in entering the Turnover

Order. We review orders under the turnover statute for an abuse of discretion and

will reverse the trial court only if we determine that it acted in an unreasonable or

arbitrary manner or without reference to any guiding rules and principles. See

Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 226 (Tex. 1991). In light of our

rulings in cause number 09-18-00359-CV, the trial court had no jurisdiction and

abused its discretion in entering the Turnover Order challenged in cause number 09-

18-00392-CV. Issue two is sustained.

      In cause number 09-18-00359-CV, we reverse the trial court’s order denying

Oxbow’s Motion to Compel Arbitration, and we remand the cause to the trial court

for further proceedings consistent with this opinion. Accordingly, we also vacate the

trial court’s Rule 24 Order because no appellate security is necessary. See Tex. R.

App. P. 24. In cause number 09-18-00392-CV, we reverse the trial court’s Turnover

Order and vacate the order.

      REVERSED AND REMANDED; REVERSED AND RENDERED.

                                                    _________________________
                                                       LEANNE JOHNSON
                                                             Justice

                                         25
Submitted on November 19, 2018
Opinion Delivered December 13, 2018

Before McKeithen, C.J., Kreger and Johnson, JJ.

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