Court Opinion

ID: 9396353
Source: CourtListenerOpinion
Date Created: 2023-05-22 07:09:25.215207+00
Date Added: 2024-06-11T17:19:16.396645
License: Public Domain

In the
                     Court of Appeals
             Second Appellate District of Texas
                      at Fort Worth
                   ___________________________
                        No. 02-22-00077-CV
                   ___________________________

RICHARD W. MONCRIEF AND MARSHALL M. SEARCY, INDIVIDUALLY AND
IN THEIR RESPECTIVE CAPACITIES AS SUCCESSOR GENERAL PARTNERS OF
   MONCRIEF FAMILY PARTNERSHIP, L.P. AND TRUSTEES OF THE W.A.
     MONCRIEF, JR. MANAGEMENT TRUST, AND ON BEHALF OF THE
             MANAGEMENT TRUST AND MFP, Appellants

                                  V.

TOM OIL MONCRIEF, GLORIA MARIE MONCRIEF, AND GARY R. ALLEN,
                         Appellees

                On Appeal from the 96th District Court
                       Tarrant County, Texas
                   Trial Court No. 096-320546-20

                 Dissenting Opinion by Justice Birdwell
                             DISSENTING OPINION

      Because the trial court—not an arbitrator—should decide the issue of capacity

to enter a contract containing an arbitration clause, see In re Morgan Stanley & Co., 293

S.W.3d 182, 183 (Tex. 2009) (orig. proceeding), I dissent.

      Appellants Dick and Marshall, identified as Partners under the Fifth

Amendment of the MFP Agreement, argue in the first of their three issues1 that the

trial court abused its discretion by signing a temporary injunction that kept them from

proceeding to arbitration when Appellees Tom, Gloria, and Gary, identified as

Partners under the Fourth Amendment of the MFP Agreement, did not challenge the

arbitration clause’s validity, the arbitration clause is enforceable and binding, and the

arbitration clause covers their dispute. Appellants identify the dispute’s merits as

“whether the Fifth Amendment is invalid because Tex lacked mental capacity, or was

unduly influenced, to sign it.”

      Appellees state that the evidence confirms that no agreement to arbitrate exists

as to Dick and Marshall because evidence “suggests the alleged Fifth Amendment to

the MFP Partnership Agreement, upon which Dick[ ] and Marshall relied to invoke

      1
        Appellants also challenge the sufficiency of the evidence to support the
temporary injunction and argue that the trial court abused its discretion by failing to
grant their motion to compel arbitration and stay litigation.

                                           2
arbitration in the name of MFP, is void ab initio because Tex was incapacitated or was

acting as a result of undue influence when he signed it.”2

       The Fourth Amendment and Fifth Amendment each expressly ratify and

affirm the terms and provisions of the 2010 MFP Agreement, which contains the

arbitration clause. The arbitration clause states, in pertinent part,

       If at any time during the existence of the Partnership, any question,
       disagreement, difference or controversy shall arise between the Partners
       concerning the Partnership, or its affairs, transactions, business or
       accounts, or the meaning or interpretation of this Agreement, or the
       rights, duties or obligations of the Partners, then any Partner may cause
       such question, disagreement, difference or controversy to be submitted
       to and determined by arbitration, in accordance with the rules then in
       effect of the American Arbitration Association. . . . [Emphases added.]

The 2010 MFP Agreement defines “Partners” as “the General Partners and the

Limited Partners, and such other Persons who become Partners in accordance with

the terms of this Agreement.” It defines “Agreement” as “[t]his Amended and

Restated Limited Partnership Agreement, as the same may be amended, or further

amended and restated, from time to time.”

       The Agreement and its subsequent amendments identify the Partners. See N.

Shore Energy, L.L.C. v. Harkins, 501 S.W.3d 598, 602 (Tex. 2016) (explaining contract

       2
        However, Appellees principally couch the issue as whether the trial court or
arbitrator should decide the enforceability of the arbitration clause by Appellants as
non-signatories to the MFP Agreement. See Jody James Farms, JV v. Altman Grp, Inc.,
547 S.W.3d 624, 629 (Tex. 2018) (“Determining whether a claim involving a non-
signatory must be arbitrated is a gateway matter for the trial court, not the arbitrator,
which means the determination is reviewed de novo rather than with the deference
that must be accorded to arbitrators.”).

                                             3
construction to determine “the true intent of the parties as expressed by the plain

language of the agreement”). Each amendment ratifies and affirms the 2010 MFP

Agreement as modified.

       The supreme court has already determined that a court, not an arbitrator,

should decide whether a party lacks the mental capacity to assent to a contract

containing an arbitration clause. Morgan Stanley, 293 S.W.3d at 183. In Morgan Stanley,

in 1999, Helen Taylor transferred several of her securities accounts to Morgan Stanley,

and each account agreement contained an arbitration clause; she was also diagnosed

with dementia that year. Id. In 2004, a guardian of the estate was appointed for Taylor,

and the guardian sued—among others—Morgan Stanley, alleging breach of fiduciary

duty, unsuitability of investments, and related claims. Id. at 183–84. Morgan Stanley

moved to compel arbitration, and Taylor’s guardian resisted on the basis that Taylor

had lacked the mental capacity to contract when she signed the account agreements

containing arbitration clauses. Id. at 184. The trial court refused to compel arbitration,

and—on petition for writ of mandamus—the intermediate appellate court also

declined to do so. Id.

       On subsequent petition for writ of mandamus, the supreme court noted that it

had previously recognized that the presumption favoring arbitration arises only after

the party seeking to compel arbitration proves that a valid arbitration agreement

exists. Id. at 185 (citing J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003)).

The court observed that the United States Supreme Court had also drawn a

                                             4
distinction between the issues of contract validity and contract formation. Id. at 186

(citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 n.1, 126 S. Ct. 1204,

1208 n.1 (2006)). In Buckeye, the Supreme Court addressed the distinction, stating,

      The issue of the contract’s validity is different from the issue of whether
      any agreement between the alleged obligor and obligee was ever
      concluded. Our opinion today addresses only the former, and does not
      speak to . . . whether the alleged obligor ever signed the contract,
      whether the signor lacked authority to commit the alleged principal, and
      whether the signor lacked the mental capacity to assent.

546 U.S. at 444 n.1, 126 S. Ct. at 1208 n.1 (citations omitted).

      Based on this language, our supreme court concluded that the Supreme Court

had “thus excluded from its analysis several contract-formation-defense issues,”

including that the signor lacked the mental capacity to assent. Morgan Stanley, 293

S.W.3d at 186. This is because when the issue of mental capacity is raised, the

contract’s very existence is at issue; accordingly, it is an issue for the court—not an

arbitrator—to decide. Id. at 187, 189; 3 see RSL Funding, LLC v. Newsome, 569 S.W.3d

       3
        The supreme court noted that the Fifth Circuit had reached the opposite
conclusion—that an arbitrator should decide a mental-incapacity defense because it is
not a specific challenge to the arbitration clause but rather goes to the entire
agreement. Morgan Stanley, 293 S.W.3d at 185 (citing Primerica Life Ins. Co. v. Brown, 304
F.3d 469, 472 (5th Cir. 2002)). But it observed that the Primerica decision had “been
roundly criticized” as well as contradicted by the same court in Will-Drill Resources, Inc.
v. Samson Resources. Co., 352 F.3d 211, 219 (5th Cir. 2003). Morgan Stanley, 293 S.W.3d at
189. In Will-Drill, the Fifth Circuit noted that if the very existence of an agreement is
challenged, ordering arbitration “could result in an arbitrator deciding that no
agreement was ever formed,” resulting in the arbitrator’s never having had authority
to decide the issue. 352 F.3d at 219. Thus, the Fifth Circuit concluded “that where a
party attacks the very existence of an agreement, as opposed to its continued validity
or enforcement, the courts must first resolve that dispute.” Id. Our supreme court

                                            5
116, 124 (Tex. 2018) (“Prima Paint[4] does not encompass contract-formation

challenges. Contract formation defenses—such as . . . whether the signor had capacity

to assent—are thus threshold issues to be decided by the court.” (citations omitted));

Leland Pennington, Inc. v. Bulls, No. 02-20-00282-CV, 2021 WL 832690, at *3 (Tex.

App.—Fort Worth Mar. 4, 2021, no pet.) (mem. op.) (noting that “whether an

arbitration agreement exists is a threshold matter to be determined by the trial court”);

Doskocil Mfg. Co. v. Nguyen, No. 02-16-00382-CV, 2017 WL 2806322, at *4 (Tex.

App.—Fort Worth June 29, 2017, no pet.) (mem. op.) (stating that one of the three

ways to challenge an arbitration provision is “by challenging the contract’s formation

[]such as by a claim that . . . the signor lacked mental capacity[]” and that this

challenge is decided by the court); see also Ridge Nat. Res., L.L.C. v. Double Eagle Royalty,

L.P., 564 S.W.3d 105, 117 (Tex. App.—El Paso 2018, no pet.) (noting that a party

seeking to compel arbitration must first establish the existence of a valid arbitration

opted not to follow Primerica, holding that the Fifth Circuit in that case had misapplied
the separability analysis set out in Prima Paint Corp. v. Flood & Conklin Manufactoring Co.,
388 U.S. 395, 402–04, 87 S. Ct. 1801, 1805–06 (1967). Morgan Stanley, 293 S.W.3d at
189–90.

       In Prima Paint, the Supreme Court held that if the claim is fraud in the
       4

inducement of the arbitration clause—an issue that goes to the making of the
agreement to arbitrate—then the court may adjudicate it. 388 U.S. at 403–04, 87 S. Ct.
at 1806. If the claim is fraud in the inducement of the contract generally, however,
then the question goes to the arbitrator. Id. at 404, 87 S. Ct. at 1806.

                                             6
agreement, a burden that is evidentiary, and a contract-formation question that is

reviewed de novo). 5

       Both the Federal Arbitration Act and the Texas Arbitration Act require the

existence of an agreement to arbitrate to be proven to the court before the court must

compel arbitration. RSL Funding, 569 S.W.3d at 124 (citing 9 U.S.C.A. § 4; Tex. Civ.

Prac. & Rem. Code Ann. § 171.021(b)); see In re Palm Harbor Homes, Inc., 195 S.W.3d

672, 676 (Tex. 2006) (orig. proceeding) (“In determining validity of agreements to

arbitrate which are subject to the FAA, we generally apply state-law principles

governing the formation of contracts.”); see also Wagner v. Apache Corp., 627 S.W.3d

277, 284 (Tex. 2021) (explaining that the presumption in favor of arbitration arises

after the party seeking to compel arbitration proves that a valid arbitration agreement

exists); Aerotek, Inc. v. Boyd, 624 S.W.3d 199, 204 (Tex. 2021) (“To compel arbitration,

a party must prove that a valid arbitration agreement exists.”).

       Whether a valid agreement to arbitrate exists is a question of law subject to de

novo review. See Baby Dolls Topless Saloons, Inc. v. Sotero, 642 S.W.3d 583, 586 (Tex.

2022) (acknowledging that challenges claiming that a contract “never came into

       5
        The Ridge court conceptualized the arbitration analysis as a three-step inquiry:
(1) Did a contract form?, (2) If a contract formed, do the arbitration covenants
delegate contract-validity issues to the arbitrator?, and (3) If the arbitration clause
delegates contract-validity questions to the arbitrator, is the party resisting arbitration
leveling complaints about the validity of the arbitration clause specifically, or the
validity of the “container” contract (i.e., the contract containing the arbitration clause)
as a whole? 564 S.W.3d at 119–20. For purposes of our analysis, the parties are still on
the first step regarding Tex’s capacity and whether a contract was formed under the
MFP Agreement as modified by the Fifth Amendment.

                                            7
being” are decided by the court); see also Brand FX, LLC v. Rhine, 458 S.W.3d 195, 203

(Tex. App.—Fort Worth 2015, no pet.); see generally Transcor Astra Grp. S.A. v. Petrobras

Am. Inc., 650 S.W.3d 462, 480 (Tex. 2022) (“Because the parties here dispute whether

their arbitration agreement continued to exist after the 2012 settlement agreement, we

agree with the trial court and court of appeals that courts must decide that issue.”).

      Appellants argue that Morgan Stanley does not apply because Appellees do not

contend that Tex lacked mental capacity when he signed the MFP Agreement in 2010.

They refer us to Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018). Henry

involved an arbitration provision in short-term loan contracts but did not question the

parties’ capacity to enter the contracts. Id. at 113–19. To the contrary, the parties in

that case argued about whether the claims fell within the arbitration agreement’s

scope, id. at 115–16, and whether the lender had impliedly waived its right to

arbitration by becoming the complainant in a number of bad-check criminal

prosecutions, id. at 116–19. The court acknowledged that a party seeking to compel

arbitration must first establish the existence of a valid arbitration agreement. Id. at

115. That party must also establish that the claims at issue fall within the agreement’s

scope before the burden shifts to the party opposing arbitration to prove an

affirmative defense to the provision’s enforcement. Id. Here, unlike in Henry, the first

part of the analysis—the existence of a valid arbitration agreement—is outcome

determinative.

                                            8
       Appellants nonetheless argue that the arbitration clause is binding on both

Appellants and Appellees “because they all claim to be Successor General Partners (or

a Substituted Limited Partner) of MFP, and the Dispute is within the scope of the

Arbitration Clause,” that “[t]he parties’ conflicting positions comprise the merits of

the Dispute,” and that the MFP Agreement “makes the Arbitration Clause binding on

any party claiming to be a General or Limited Partner of MFP.” [Emphasis added.]

And the majority has accepted the argument that, because the 2010 Agreement’s

arbitration provision is undisputedly a term of both the Fourth and the Fifth

Amendments, regardless which amendment controls, the “parties” to the

“unamended” arbitration clause are subject to its requirements. But amending the

“parties” to the 2010 Agreement amends the application of the arbitration clause. If

the Fifth Amendment is invalid because Tex lacked capacity, then the “parties” to the

Fifth Amendment are not “parties” to the 2010 arbitration clause because arbitration

is to be between the parties to the Agreement. Changing the parties to the Agreement

changes the parties to whom the arbitration provision applies, and the parties to the

Fourth Amendment and the Fifth Amendment are mutually exclusive except for the

one common party named in both. Stated differently, the parties identified by the

Fifth Amendment cannot, as a matter of law, become parties to the 2010 arbitration

clause unless and until their validity as parties is established, which requires an

adjudication of Tex’s capacity. 6

       Further, Tex’s capacity is the subject of litigation in the probate courts, see In re
       6

                                            9
      Tex’s capacity is a threshold issue for the trial court to determine because if

Tex lacked capacity to enter the Fifth Amendment, then the Fourth Amendment

remains in effect as the last formed agreement. Because the majority concludes

otherwise, I dissent and would reach Appellants’ remaining two issues.

                                                    /s/ Wade Birdwell
                                                    Wade Birdwell
                                                    Justice

Delivered: May 18, 2023

Estate of Moncrief, Nos. 02-23-00021-CV, 02-23-00058-CV (probate court cause
number 2021-PR004259-2-B), and no one has argued that his testamentary capacity is
meaningfully different from his capacity to contract during the same time frame.

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