Court Opinion

ID: 4061376
Source: CourtListenerOpinion
Date Created: 2016-09-29 20:06:06.162106+00
Date Added: 2024-06-11T14:06:51.403132
License: Public Domain

ACCEPTED
                                                                                                    12-14-00258-CV
                                                                                       TWELFTH COURT OF APPEALS
                                                                                                     TYLER, TEXAS
                                                                                              10/27/2015 5:56:43 PM
                                                                                                          Pam Estes
                                                                                                             CLERK

Nathan Sommers Jacobs

                                                                                 RECEIVED IN
      October 27, 2015                                                     12th COURT OF APPEALS
                                                                                TYLER, TEXAS
                                                                           10/27/2015 5:56:43 PM
                                                                                  PAM ESTES
      Hon. Pam Estes, Clerk                           10/27/2015                       ByE-File
                                                                                    Clerk
      12th Court of Appeals
      1517 West Front Street
      Suite 354
      Tyler, Texas 75702

                Re:        Case No. 12-14-00258-CV; Danny Vines and Nancy Vines, Appellants
                           v. Ray Durrett, Appellee; In the Court of Appeals for the Twelfth
                           District of Texas at Tyler

      Dear Ms. Estes:

             We represent Appellants Danny and Nancy Vines. During oral argument on
      October 22, 2015, Justice Hoyle requested a letter brief addressing whether there is
      precedent to bind Appellee, a non-signatory, to a Federal Arbitration Act
      arbitration clause (the "Arbitration Clause") found in the limited liability company
      agreement (the "LLC Agreement") (See 9 RR, at Exhibit 6). This letter brief is
      responsive to the Court's request.

             Appellants respectfully request that a copy of this letter brief be distributed
      to the Justices serving on the panel for this matter.

                A. Direct benefits estoppel applies to Appellee

             Direct benefits estoppel requires a non-signatory to arbitrate its claims when
      the non-signatory relies on, claims benefits under, or seeks to enforce a contract
      containing an arbitration provision. Wash. Mut. Fin. Grp. v. Bailey, 364 F.3d 260,
      267 (5th Cir. 2004). Stated another way, direct benefits estoppel provides that a
      non-signatory to a contract is estopped from simultaneously attempting to seek
      benefits from the contract while attempting to avoid the contract's obligation to
      arbitrate disputes. Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005).

Attorneys and Counselors                                                     Direct: 713.892.4843
2800 Post Oak Boulevard      tel  713 .960.0303              E-Mail: ggibson@nathansommers.com
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Houston, Texas 77056          www.nathansommers.com
Hon. Pam Estes, Clerk
October 27,2015
Page 2

      In Washington Mutual, the Fifth Circuit described the rationale of estopping
a non-signatory from avoiding an arbitration clause in a contract it seeks to
enforce:

      In the arbitration context, the doctrine [of estoppel] recognizes that a
      party may be estopped from asserting that the lack of his signature on
      a written contract precludes enforcement of the contract's arbitration
      clause when he has consistently maintained that other provisions of
      the same contract should be enforced to benefit him. To allow [a
      plaintiff] to claim the benefit of the contract and simultaneously avoid
      its burdens would both disregard equity and contravene the purposes
      underlying enactment of the [Federal] Arbitration Act.
364 F.3d at 267-68.

       In our matter, the LLC Agreement contains the Arbitration Clause. Appellee
brought breach of contract and fraud claims against the Appellants. At trial,
Appellee contended that Appellants breached the contract by not selling to
Appellee what he believed he was purchasing under a letter agreement between the
parties (the "Letter Agreement") (See 9 RR, at Exhibit 1). Additionally, Appellee
contended at trial that Appellants committed fraud because the LLC Agreement
allegedly prohibited Appellants from transferring ownership in the LLC, which
was contrary to what Appellee believed he was purchasing under the Letter
Agreement. See 5 RR, at Pages 109-111, 146-147, 165, 222 and 6 RR, at Page 76.
Appellee sought to claim the benefits of the LLC Agreement.

        Appellee deliberately sought the benefits from provisions of the LLC
Agreement and Appellee relied on and referred to the LLC Agreement as evidence
at trial in support of his causes of action. See In re Weekley Homes, 180 S.W.3d
127, 130 (Tex. 2005) (claims must be arbitrated if liability must be determined by
reference to the contract). Appellee's claims are intimately founded in and
intertwined with the obligations allegedly imposed by the LLC Agreement.
Appellee put the LLC Agreement and interpretation of its provisions squarely in
issue at trial; Appellee contended that the LLC Agreement prohibited Appellants'
conduct. Appellee should be compelled to arbitrate under the doctrine of direct
benefits estoppel.
Hon. Pam Estes, Clerk
October 27,2015
Page 3

       Appellee introduced evidence of the meaning of the provisions of the LLC
Agreement and made arguments about their effects. The LLC Agreement was
integral to Appellee's claims at trial; he is bound by the arbitration agreement
contained therein because his claims against Appellants are intimately founded in
the LLC Agreement.

      B. Authority in support of Appellants

      Smith v. Kenda Capital, L.L. C.

       Smith v. Kenda Capital, LLC, 451 S.W.3d 453 (Tex. App.-Houston [14th
Dist.] 2014, no pet.) is instructive.

       The Fourteenth Court of Appeals compelled compliance with a forum
selection clause under a similar set of circumstances. "Reference to cases
addressing the applicability of arbitration clauses is appropriate when examining
whether particular claims or parties fall within a forum selection clause's reach."
!d. at 457 (citation omitted). "Arbitration cases are germane because arbitration
clauses are 'another type of forum-selection clause."' !d. (citations omitted)

      Smith, a former employee, filed suit against his employer for fraudulent
inducement. Smith had signed an agreement with the parent company of his
employer that entitled Smith to certain profit sharing certificates (the "Carry
Agreement"). Thereafter, Smith entered into a contract with the subsidiary which
provided for his employment (the "Employment Agreement"). Both agreements
contained a forum selection clause; Smith contended that the forum selection
clause in the Carry Agreement was inapplicable.

       Smith contended that misrepresentations and omissions by the former
employer gave him an erroneous belief regarding what he would be entitled to
receive under the Carry Agreement. He thought that the certificates he would
receive as part of his compensation were more valuable than they really were. !d.
at 459. Smith found that Smith's fraudulent inducement claim necessarily
referenced and presumed the existence of the Carry Agreement because the dispute
inquired into whether Smith had a right to receive the certificates under the Carry
Agreement. Smith held that Smith was bound by the forum selection clause in the
Carry Agreement because his fraud claim relied on certain terms within such
agreement.
Hon. Pam Estes, Clerk
October 27, 2015
Page 4

      Similar to our matter, Appellee must reference and presume the existence of
the LLC Agreement. Appellee used the LLC Agreement as evidence to support
whether Appellants could deliver to Appellee an ownership interest in the LLC.
Appellee sought to enforce some provisions of the LLC Agreement and also avoid
the Arbitration Clause. But, Appellee "cannot both have his contract and defeat it,
too." Weekley, 180 S.W.3d at 135.

      Antonio Leonard TNT Prods., LLC v. Goosen- Tutor Promotions, LLC

       Antonio Leonard TNT Prods., LLC v. Goosen- Tutor Promotions, LLC, 47
F. Supp. 3d 500 (S.D. Tex. 2014) stands for the proposition that plaintiff is estopped
from avoiding an arbitration provision in an agreement where that agreement is
integral evidence to plaintiffs case.

        In Antonio, plaintiff sued defendant alleging that defendant had breached an
oral agreement to co-promote certain boxing matches. Defendant had a written
agreement, to which plaintiff was not a party, which gave defendant the exclusive
right to promote the boxing matches of a certain boxer. That agreement contained
an arbitration provision. The court held that plaintiff was bound by that arbitration
provision, because his oral agreement necessarily depended on the performance of
the written agreement.

      Parker v. Schlumberger Tech. Corp.

       In Parker v. Schlumberger Tech. Corp., --S.W.3d --,No. 01-14-01018-CV,
2015 WL 5460401 (Tex. App.-Houston [1st Dist.] Sept. 17, 2015, no pet. h.), the
court held that plaintiff was bound by the arbitration clause in a purchase
agreement (the "Purchase Agreement") because that agreement required the
execution of the employment agreement (the "Employment Agreement") at issue
and on which plaintiff sued. The plaintiff purchased an oil services company
through the Purchase Agreement. That sale required certain top employees of the
oil services company to execute employment agreement with plaintiff; the
employment agreements did not contain arbitration clauses. Plaintiff sued one
such employee for breach of the Employment Agreement. The Court compelled
plaintiff to arbitrate its claims because the Purchase Agreement required the
execution of the Employment Agreement and plaintiff had relied on the Purchase
Agreement in its demand letter to the employee.
Hon. Pam Estes, Clerk
October 27,2015
Page 5

      Mever v. WMCO-GP, LLC

       Similarly, the Texas Supreme Court has compelled a party to arbitrate its
claims against a non-signatory defendant where the plaintiffs claims depended on
construction of an agreement containing an arbitration clause. In Meyer v. WMCO
GP, LLC, 211 S.W.3d 302 (Tex. 2006), the Court held that plaintiff was required
to arbitrate its claims against defendants who were not parties to the agreement that
contained the arbitration provision. The rationale was that plaintiffs claims would
be preempted by defendants' interpretation of such agreement even though the
plaintiff was not suing under such agreement

      Performance under the Letter Agreement was only required insofar as profits
flowed to Appellants through the LLC Agreement, and then, to Appellee through
the Letter Agreement. Therefore, Appellants were only required to perform under
the Letter Agreement if income flowed to them through the LLC Agreement.
Moreover, a key piece of evidence relied on by Appellee in both his breach of
contract and fraud claims is the term within the LLC Agreement which allegedly
prohibits transfer of ownership interest in the LLC. Durrett introduced evidence of
the meaning of the LLC Agreement and made arguments about its effects. The
LLC Agreement was integral to Appellee's claims. Appellee is bound by the
Arbitration Clause contained within the LLC Agreement because his claims are
intimately founded in and intertwined with the obligations allegedly imposed by
the LLC Agreement.

       There is precedent to bind Appellee to the Arbitration Clause under the
doctrine of direct benefits estoppel.

                                       Sincerely,

                                       tlb
                                       George R. Gibson
Hon. Pam Estes, Clerk
October 27, 2015
Page 6

c:

Clayton E. Dark, Jr.                 By E-Mail cekrad@yahoo.com
Law Office of Clayton E. Dark, Jr.
P. 0. Box 2207
Lufkin, Texas 75902

Curtis (Curt) W. Fenley III
Fenley & Bate, L.L.P.
P. 0. Box 450
Lufkin, Texas 75902-0450