Court Opinion

ID: 4016716
Source: CourtListenerOpinion
Date Created: 2016-07-18 07:32:28.052043+00
Date Added: 2024-06-11T14:33:55.204534
License: Public Domain

Opinion filed July 14, 2016

                                           In The

           Eleventh Court of Appeals
                                        __________

                                  No. 11-15-00014-CV
                                      __________

                 CRADDICK PARTNERS, LTD., Appellant
                                              V.
        ENERSCIENCES HOLDINGS, LLC; CHEM ROCK
      TECHNOLOGIES, LLC; RAPID DRILLING, LLC; AND
         PERMIAN BASIN VENTURES, LLC, Appellees

                       On Appeal from the 441st District Court
                              Midland County, Texas
                          Trial Court Cause No. CV-50026

                        MEMORANDUM OPINION
       Craddick Partners, Ltd. appeals from an order in which the trial court
dismissed the lawsuit filed by Craddick Partners against Appellees1 and ordered the
parties to arbitration. The dispute arose from a Sales Representative Agreement

       1
       Appellees include EnerSciences Holdings, LLC (EnerSciences); Chem Rock Technologies, LLC
(Chem Rock); Rapid Drilling, LLC (Rapid Drilling); and Permian Basin Ventures, LLC (PB Ventures).
(Sales Agreement) that was entered into by PB Ventures and Craddick Partners. We
affirm.
                                           I. Background Facts
        EnerSciences is a holding company that owns two oil and gas suppliers: Chem
Rock and Rapid Drilling. Chem Rock sells fracking chemicals, and Rapid Drilling
sells drilling fluids—both sell their products to oil and gas producers. In 2012, Tom
Craddick approached EnerSciences with an offer to sell Chem Rock and Rapid
Drilling products to his clients in the Permian Basin. EnerSciences created PB
Ventures, a wholly owned subsidiary of EnerSciences, to “serve as the marketing
and sales entity” through which Craddick Partners would sell Chem Rock and Rapid
Drilling products to Craddick Partners’ customers.
        PB Ventures and Craddick Partners signed the Sales Agreement.2 The Sales
Agreement included an arbitration clause that all disputes would be settled in binding
arbitration, excluding claims “brought by either party seeking injunctive, declarative
or preliminary relief.” EnerSciences, Chem Rock, and Rapid Drilling did not sign
the Sales Agreement. When disputes arose over the Sales Agreement, Craddick
Partners filed suit against PB Ventures as well as EnerSciences, Chem Rock, and
Rapid Drilling.
                                         II. Procedural History
        Craddick Partners asserted three tort claims against EnerSciences, Chem
Rock, and Rapid Drilling:3 (1) negligent misrepresentation, (2) general negligence,
and (3) tortious interference. Craddick Partners sought money damages for the tort

        2
         Craddick Partners and PB Ventures also signed a Restricted Unit Agreement (Unit Agreement)
with a similar arbitration clause, but that agreement is not at issue in this case.
        3
            EnerSciences, Chem Rock, and Rapid Drilling will be collectively referred to as the “EnerSciences
Parties.”

                                                       2
injuries as well as a declaration that the Sales Agreement between Craddick Partners
and PB Ventures had terminated. Craddick Partners alleged that:
      1. The EnerSciences Parties failed to “come and timely acquire
         personnel, warehouses, yards, forklifts, trucks and other equipment
         required by the industry to assist [PB Ventures] with its contract
         with [Craddick Partners].”

      2. The EnerSciences Parties “either obtained [Craddick Partners’]
         prospects without any payment being made, or have harmed
         [Craddick Partners’] prospects causing [Craddick Partners] to lose
         them.”

      3. PB Ventures refused to service the business and prospects that
         Craddick Partners brought to PB Ventures.

      4. PB Ventures failed to “timely acquire the personnel, warehouse and
         yard, forklifts, trucks and other equipment required by the industry,
         necessary to service [Craddick Partners’] prospects.”

      5. PB Ventures failed to pay Craddick Partners its monthly payments
         as agreed.
      The EnerSciences Parties and PB Ventures filed a general denial, but they
later amended their answers, asserted counterclaims, and moved to compel
arbitration. They also filed a plea to the jurisdiction and asserted that the trial court
lacked subject-matter jurisdiction over Craddick Partners’ claims because their
claims fell within the ambit of the arbitration clause in the Sales Agreement. They
also asserted in their motion to compel arbitration that Craddick Partners artfully
pleaded tort actions to avoid arbitration but that Craddick Partners’ claims arose out
of alleged contractual breaches of the Sales Agreement.

                                           3
                            III. Discussion and Analysis
      Craddick Partners asserts that the trial court erred when it granted Appellees’
motion to compel arbitration because the EnerSciences Parties were not signatories
to the Sales Agreement. Craddick Partners also argues that the trial court erred when
it dismissed Craddick Partners’ declaratory judgment action against PB Ventures
because the arbitration clause in the Sales Agreement expressly excluded claims for
declaratory relief.
      A. Issue One: Nonsignatories’ Authority to Compel Arbitration
      Craddick Partners argues in its first issue that the EnerSciences Parties, as
nonsignatories to the Sales Agreement, lacked standing to compel arbitration. As
we explain below, the EnerSciences Parties had standing to compel arbitration.
      Generally, a party must sign an arbitration agreement before being bound by
it. In re Rubiola, 334 S.W.3d 220, 224 (Tex. 2011). However, the Texas Supreme
Court has recognized that direct-benefits estoppel may permit a nonsignatory to
compel a signatory’s claims to arbitration “if liability arises solely from the contract
or must be determined by reference to it.” In re Weekley Homes, L.P., 180 S.W.3d
127, 132 (Tex. 2005). Thus, liability will arise from the contract if the signatory
plaintiff’s right to recover and its damages depend on the existence of the contract
containing the arbitration clause. Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 306
(Tex. 2006). Direct-benefits estoppel, however, still requires “a colorable claim to
the benefits; a meddlesome stranger cannot compel arbitration by merely pleading a
claim that quotes someone else’s contract.” Weekley Homes, 180 S.W.3d at 134. In
short, a party cannot “‘have it both ways’: it cannot, on the one hand, seek to hold
the non-signatory liable pursuant to duties imposed by the agreement, which
contains an arbitration provision, but, on the other hand, deny arbitration’s
applicability because the defendant is a non-signatory.” Grigson v. Creative Artists
Agency L.L.C., 210 F.3d 524, 528 (5th Cir. 2000) (quoting MS Dealer Serv. Corp. v.
                                           4
Franklin, 177 F.3d 942, 947 (11th Cir. 1999)). We analyze this issue based on the
substance of the claim—not artful pleading. Weekley Homes, 180 S.W.3d at 131–
32.
      Craddick Partners asserts that its claims against the EnerSciences Parties arose
from general obligations imposed by law—not the Sales Agreement. See In re Vesta
Ins. Grp., 192 S.W.3d 759, 761 (Tex. 2006) (noting that a nonsignatory may not
compel arbitration if liability does not arise from the underlying agreement but
instead “arises from general obligations imposed by law”). However, Craddick
Partners cites no relevant authority on this point and, instead, relies on a conclusory
statement that its pleadings “make clear that the claims against the [EnerSciences
Parties] arise from general obligations imposed by law.” We review Craddick
Partners’ negligent misrepresentation, negligence, and tortious interference claims
to determine whether its claims arise from general obligations imposed by law or
whether they arise from the Sales Agreement.
             1. Negligent Misrepresentation Claim
      Craddick Partners alleged that the EnerSciences Parties negligently
misrepresented that they would timely acquire the personnel, warehouses, yards,
forklifts, trucks, and other equipment necessary to “assist [PB Ventures] with its
contract with [Craddick Partners].”      Craddick Partners further alleged that it
justifiably relied on representations made by the EnerSciences Parties that they
would “promote and solicit sales and would do the business necessary to
accommodate and properly handle [Craddick Partners’] prospects.”             Craddick
Partners asserts that these obligations were independent of the Sales Agreement it
signed with PB Ventures.
      The EnerSciences Parties may invoke the arbitration clause of the Sales
Agreement, despite their nonsignatory status, if Craddick Partners’ claims depended
on the Sales Agreement. See Meyer, 211 S.W.3d at 306–07. The duties that
                                          5
Craddick Partners contends the EnerSciences Parties breached arose out of the Sales
Agreement. Craddick Partners’ claim not only “makes reference to or presumes the
existence” of the Sales Agreement, but also relies on it for viability. See Meyer, 211
S.W.3d at 306 (quoting Grigson, 210 F.3d at 527). Craddick Partners cites no
authority that would have obliged the EnerSciences Parties to acquire personnel,
warehouses, yards, forklifts, or trucks merely to accommodate Craddick Partners’
business prospects—let alone that would have obliged them to sell their products to
Craddick Partners’ prospects. The Sales Agreement provided that PB Ventures was
“responsible to provide, or to cause one of the other EnerSciences Subsidiaries to
provide, all personnel to [perform its obligations under the Sales Agreement]”
(emphasis added).     These obligations included establishing a warehouse and
operations yard and employing business development personnel to support Craddick
Partners in its obligations under the Sales Agreement.           We hold that the
EnerSciences Parties were entitled to invoke the arbitration clause and that Craddick
Partners was estopped, through direct-benefits estoppel, from refusing arbitration.
See id. at 305; Weekley Homes, 180 S.W.3d at 132.
             2. Negligence Claim
      Craddick Partners alleged that the EnerSciences Parties breached their duty to
“exercise reasonably prudent and ordinary care in connection with handling
[Craddick Partners’] prospects.” Any duty that the EnerSciences Parties had to
Craddick Partners that concerned service to Craddick Partners’ clients arose out of
the Sales Agreement and did not arise out of another contract or a common law
obligation. We find no evidence in the record of additional contracts between
Craddick Partners and the EnerSciences Parties. Consequently, if such a duty
existed, it arose from the Sales Agreement. Therefore, the EnerSciences Parties
were entitled to compel Craddick Partners’ general negligence claim to arbitration
through direct-benefits estoppel.      Craddick Partners cannot assert that the
                                          6
EnerSciences Parties had a duty derived from the Sales Agreement and, at the same
time, assert that the EnerSciences Parties cannot invoke the arbitration clause found
in the Sales Agreement. See Meyer, 211 S.W.3d at 306; Weekley Homes, 180
S.W.3d at 132. We hold that the trial court did not err when it granted Appellees’
motion to compel Craddick Partners to arbitrate its negligent misrepresentation and
general negligence claims. See Meyer, 211 S.W.3d at 306; Weekley Homes, 180
S.W.3d at 132; see also In re U.S. Home Corp., 236 S.W.3d 761, 765 (Tex. 2007).
             3. Tortious Interference with Contract Claim
      Craddick Partners also asserted a “tortious interference” claim. Craddick
Partners clarified at oral argument that its tortious interference claim was
interference with a contract. Tortious interference with a contract requires, in
relevant part, a valid contract “subject to interference.” Hill v. Heritage Res., Inc.,
964 S.W.2d 89, 123 (Tex. App.—El Paso 1997, pet. denied). Craddick Partners’
claim is that the EnerSciences Parties interfered with the Sales Agreement.
      “[T]he boundaries of direct-benefits estoppel are not always clear, nonparties
generally must arbitrate claims if liability arises from a contract with an arbitration
clause, but not if liability arises from general obligations imposed by law.” Vesta,
192 S.W.3d at 761. In this regard, tortious interference claims are particularly
difficult to classify.   In Vesta, the Texas Supreme Court noted that tortious
interference claims arise both from general law and the underlying contract; more
specifically, the court observed that liability for tortious interference arises from the
general law, but non-liability arises from connections with the contract. Id. at 761–
62. The court concluded that tortious interference claims between a signatory and
agents or affiliates of the other signatory arise more from the contract than general
law. Id. at 762. “Thus, if two companies sign a contract to arbitrate disputes, one
cannot avoid it by recasting a contract dispute as a tortious interference claim against
an owner, officer, agent, or affiliate of the other.” In re Kaplan Higher Educ. Corp.,
                                           7
235 S.W.3d 206, 209 (Tex. 2007) (emphasis added) (citing Vesta, 192 S.W.3d at
762–63).      However, a signatory is still not “required to arbitrate a tortious
interference claim against a complete stranger to his contract and its arbitration
clause.” Vesta, 192 S.W.3d at 763.
       The Sales Agreement clearly outlined the corporate structure of the parties as
well as their roles in the venture. The Sales Agreement specifically stated that
EnerSciences owned 100% of PB Ventures, Chem Rock, and Rapid Drilling. It
further elaborated that EnerSciences formed PB Ventures to market and sell Chem
Rock and Rapid Drilling products to Craddick Partners’ prospects. With respect to
performance, as discussed above, the Sales Agreement established the circumstances
under which the EnerSciences Parties were to perform PB Ventures’ obligations
under the Sales Agreement. In this sense, the EnerSciences Parties were not only
known affiliates of PB Ventures, but also were an integral component of the
transaction. The EnerSciences Parties were all “affiliates”4 and were not strangers
to the Sales Agreement. Under these circumstances, Craddick Partners may not
avoid arbitration by recasting its claim as tortious interference. See Kaplan, 235
S.W.3d at 209; PER Grp., L.P. v. Dava Oncology, L.P., 294 S.W.3d 378, 387 (Tex.
App.—Dallas 2009, no pet.).
       Craddick Partners’ tortious interference claim also relied on the Sales
Agreement for viability. Craddick Partners asserted that the EnerSciences Parties
took its prospect list and “tortiously interfere[ed] with [its] prospects, and tortiously
interfered with [its] prospective relations with all of [its] prospects.” Craddick
Partners concedes that it was contractually obligated under the Sales Agreement to

       4
         As noted above, PB Ventures, Chem Rock, and Rapid Drilling were all wholly owned by
EnerSciences. The Business Organizations Code defines “[a]ffiliate” as “a person who controls, is
controlled by, or is under common control with another person.” TEX. BUS. ORGS. CODE ANN. § 1.002(1)
(West Supp. 2015).

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provide its prospects to PB Ventures and complains that PB Ventures never paid for
them.
        Craddick Partners claimed that the EnerSciences Parties wrongfully utilized
Craddick Partners’ prospect list—a list that was being purchased on their behalf, as
outlined in the Sales Agreement. Nevertheless, if PB Ventures did not breach the
Sales Agreement, then there would be no claim for “tortious interference.” Craddick
Partners’ claim necessarily relies on the Sales Agreement to determine liability. The
EnerSciences Parties were also entitled to invoke the arbitration provision through
direct-benefits estoppel. See Meyer, 211 S.W.3d at 306; Parker v. Schlumberger
Tech. Corp., 475 S.W.3d 914, 924 (Tex. App.—Houston [1st Dist.] 2015, no pet.);
see also Cooper Indus., LLC v. Pepsi-Cola Metro. Bottling Co., 475 S.W.3d 436,
443 (Tex. App.—Houston [14th Dist.] 2015, no pet.). We hold that the EnerSciences
Parties had standing to compel Craddick Partners’ tortious interference claim to
arbitration. See Kaplan, 235 S.W.3d at 209; Meyer, 211 S.W.3d at 306; Vesta, 192
S.W.3d at 762–63; Cooper, 475 S.W.3d at 443; PER Grp., 294 S.W.3d at 387.
Therefore, the trial court did not err when it granted Appellees’ motion to compel
Craddick Partners to arbitrate its tortious interference claim. See Meyer, 211 S.W.3d
at 306; Vesta, 192 S.W.3d at 762–63.
        B. Issue Two: Signatory’s Authority to Compel Arbitration
        Craddick Partners argues in its remaining issue that the Sales Agreement
excluded a proper declaratory judgment action from arbitration. The main purpose
of the declaratory judgment statute is to create a speedy and effective means for the
determination of the rights of the parties when a controversy has arisen but a wrong
has not yet been committed. Etan Indus., Inc. v. Lehmann, 359 S.W.3d 620, 624
(Tex. 2011) (citing Cobb v. Harrington, 190 S.W.2d 709, 713 (Tex. 1945)); City of
Watauga v. Taylor, 752 S.W.2d 199, 205 (Tex. App.—Fort Worth 1988, no writ).
Thus, a declaratory judgment declares the rights and duties or the status of the
                                          9
parties. City of Watauga, 752 S.W.2d at 205. But “parties to an arbitration
agreement may not evade arbitration through artful pleading.” In re Merrill Lynch
Trust Co. FSB, 235 S.W.3d 185, 188 (Tex. 2007) (quoting Ivax Corp. v. B. Braun of
Am., Inc., 286 F.3d 1309, 1318 (11th Cir. 2002)); accord Vesta, 192 S.W.3d at 762–
63; Weekley Homes, 180 S.W.3d at 131–32.
      PB Ventures asserts that Craddick Partners’ declaratory judgment action
against PB Ventures was an artfully pleaded breach of contract claim. We agree.
Craddick Partners sought a declaration “that the Sales Representative Agreement . . .
terminated [and] that as a result of the termination . . . the $850,000 of monthly
payment amounts owed at the termination of this Agreement is owed to [Craddick
Partners].”   However, declaratory relief is inappropriate where the only issue
involved is a question of fact. City of Watauga, 752 S.W.2d at 205. Craddick
Partners requested relief and remedies that would have required the trial court to
make several impermissible findings of fact. For example, before the trial court
could have determined whether Craddick Partners was entitled to an $850,000
judgment under the Sales Agreement, it would have had to determine whether PB
Ventures breached the Sales Agreement. Next, the trial court would have had to
determine when PB Ventures breached the Sales Agreement and then determine the
proper amount of damages. Finally, the trial court would have had to determine if
Craddick Partners breached the Sales Agreement before the alleged breach by PB
Ventures.
      Craddick Partners asked the court to complete a trial for breach of contract
and award damages, but did so under the rubric of a declaratory judgment action.
The trial court could not make the findings requested by Craddick Partners without
exceeding the purpose of the Texas Declaratory Judgments Act. See Tex. Nat. Res.
Conservation Comm’n v. IT-Davy, 74 S.W.3d 849, 855 (Tex. 2002) (noting that
declaratory judgment actions seeking to “establish a contract’s validity, to enforce
                                         10
performance under a contract, or to impose contractual liabilities” upon a party are
suits against the party); Riley v. Ferguson, No. 01-98-00350-CV, 1999 WL 191654,
at *4 (Tex. App.—Houston [1st Dist.] Apr. 8, 1999, pet. denied) (not designated for
publication) (“[T]he determination of whether a party has breached a contract, while
affecting a party’s rights or status, is not a declaration of a right or status and,
therefore, is not the proper subject of a declaratory judgment.”); see also City of
Watauga, 752 S.W.2d at 205. We hold that the trial court did not err when it granted
Appellees’ motion to compel arbitration as to Craddick Partners’ claims against PB
Ventures. See Merrill Lynch, 235 S.W.3d at 188; IT-Davy, 74 S.W.3d at 855;
Ferguson, 1999 WL 191654, at *4; City of Watauga, 752 S.W.2d at 205.
                              IV. This Court’s Ruling
      We affirm the order of the trial court.

                                                MIKE WILLSON
                                                JUSTICE

July 14, 2016
Do not publish. See TEX. R. APP. P. 47.2(b).
Panel consists of: Wright, C.J.,
Willson, J., and Bailey, J.

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