Court Opinion

ID: 3110845
Source: CourtListenerOpinion
Date Created: 2015-10-16 06:48:41.48978+00
Date Added: 2024-06-11T12:46:53.776650
License: Public Domain

COURT OF APPEALS
                         SECOND DISTRICT OF TEXAS
                              FORT WORTH

                             NO. 02-11-00492-CV

ANTHONY ALDRIDGE                                                    APPELLANT

                                       V.

THRIFT FINANCIAL MARKETING,                                          APPELLEE
LLC

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         FROM THE 67TH DISTRICT COURT OF TARRANT COUNTY

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                                   OPINION
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                                I. Introduction

      Appellant Anthony Aldridge appeals from the trial court’s denial of his

motion to compel arbitration in a suit brought against him and others by Appellee

Thrift Financial Marketing, LLC (Thrift), a Delaware Limited Liability Company.

Aldridge, a former “Member” of Thrift, contends that, pursuant to an arbitration

agreement contained in the formation agreement creating Thrift, he may compel

arbitration of the claims asserted against him by Thrift because those claims
arise from acts he allegedly undertook while still a Member of Thrift. Because

the Agreement excludes former Members from the class of persons entitled to

compel arbitration, we affirm the trial court’s order.

                                  II. Background

      Aldridge and Sue Harvison formed Thrift in 2008 when they entered into

the Limited Liability Company Agreement of Thrift Financial Marketing, LLC

(Company Agreement). From Thrift’s inception through September 30, 2011,

Harvison and Aldridge, who executed the Company Agreement as the “initial

Members of the Company,” were also Thrift’s only two Managers as well as its

only two Members.

      The Company Agreement, which contains the operative provisions for

management, membership rights, and other matters pertaining to the governance

and operation of Thrift, also contains an arbitration agreement that states in

relevant part as follows:

             (b) In the event of the existence of a dispute or disagreement
      arising out of, or relating to, the formation, interpretation,
      performance or breach of any Transaction Documents or any
      amendment or other modification thereto, any Member or Members
      (each a “Disputing Member”) may submit its basis for such dispute
      or disagreement in writing to the other Member or Members and
      such other Member or Members (the “Responding Members”)
      shall respond in writing to such written notice within 14 days after
      receiving the written notice. . . .

              (c) If any dispute shall not have been resolved through the use
      of the procedures specified in paragraph (b) within 30 days after the
      initial written submission of the issue by a Disputing Member to the
      Responding Members, then the dispute shall, unless the Disputing
      Member and Responding Members otherwise agree, be submitted to

                                      2
      and settled by arbitration in accordance with the Commercial
      Arbitration Rules of the American Arbitration Association, now in
      effect, except to the extent modified herein. . . . [Emphasis added.]

      The Company Agreement expressly defines “Member” as follows:

            “Member” means any Person executing this Agreement as of
      the date of this Agreement as a Member or hereafter admitted to the
      Company as a member as provided in this Agreement, but such
      term “excludes any Person who has ceased to be a Member.”
      [Emphasis added.]

      As alleged in the parties’ pleadings and set forth in affidavits, Harvison and

Aldridge formed Thrift to handle leads provided to it by Cendera Funding, Inc.

(Cendera), a lending company for residential mortgage loans. Thrift’s business

plan contemplated the use of a call center owned and operated by Thrift, to refine

and solicit such leads for Cendera from raw data provided to Thrift by Cendera.

According to Thrift, its call center operations allowed it to identify the most

promising prospective customers seeking mortgage loans on single-family

residences, who would then be referred to Cendera loan officers.           Effective

September 30, 2008, shortly after Thrift had been formed, Thrift and Cendera

entered into a marketing service agreement that provided for Thrift to handle the

leads and payment by Cendera for Thrift’s services and for Cendera to recruit

and train loan officers to be employed by Cendera but located at Thrift’s offices.

When Thrift received the leads, Thrift personnel would call the potential borrower

and invite that person to speak to one of Cendera’s loan officers. If the lead

matured into a loan, Cendera paid Thrift.

                                    3
      Aldridge, a licensed mortgage banker, became employed as a loan officer

for Cendera and recruited other loan officers to be employed by Cendera and to

work from Thrift’s offices.    According to Aldridge, Thrift was aware of and

consented to Aldridge’s employment with Cendera, and Cendera was aware of

and consented to Aldridge’s relationship with Thrift.

      Thrift contends that, by late spring of 2011, profits derived from Cendera’s

branch office at Thrift’s offices had increased dramatically; Thrift contends that

Brian Collins1 proposed a joint venture with Thrift that promised greater profits

and that Thrift and Cendera equally shared profits pursuant to that joint venture

from early Summer 2011 through September 30, 2011. Aldridge contends that

changes to the agreement were necessary to bring it into compliance with new

laws and regulations and that Thrift and Cendera “could not reach a resolution”

about necessary changes “after much effort and discussion.” Aldridge resigned

as a member and manager of Thrift effective September 30, 2011, and

relinquished all membership interest in Thrift. Aldridge’s letter of resignation,

addressed to Harvison, also referenced a “dissolution” of the marketing services

agreement between Thrift and Cendera, to which Harvison responded on the

same date with a vigorous objection that Aldridge had no authority to dissolve the

agreement between Thrift and Cendera.

      1
       Brian Collins is identified in documents contained in the clerk’s record as
the President and CEO of Cendera.

                                     4
      On October 6, 2011, Thrift filed this lawsuit against Aldridge, Cendera, and

Collins,2 asserting against Aldridge various claims for debt, liability under the

Texas Theft Liability Act, and breaches of fiduciary duty and seeking damages,

forfeiture of profits, and establishment of a constructive trust. Aldridge filed a

motion to compel arbitration, and Thrift filed a response. The trial court denied

Aldridge’s motion to compel arbitration after a hearing, and this interlocutory

appeal followed.3

                                 III. Discussion

      Aldridge raises three issues. He argues generally in his first issue that the

trial court erred when it refused to compel arbitration. He contends in his second

issue that Thrift may be compelled to arbitrate pursuant to the arbitration

provision in the Company Agreement even though Thrift itself is a nonsignatory

to that agreement, and he asserts in his third issue that, although he is no longer

a Member of Thrift, he may nevertheless compel arbitration pursuant to the

Company Agreement because Thrift’s claims arise from conduct that allegedly

occurred while he was still a Member. We address Aldridge’s third issue first.

      2
      Thrift alleges that Collins knowingly participated in Aldridge’s and
Cendera’s breaches of fiduciary duty against Thrift.
      3
        Cendera and Collins filed a motion adopting Aldridge’s motion to compel
arbitration but have not appealed the trial court’s denial of their motion.

                                    5
A. Applicable Law

      The parties agree that the Federal Arbitration Act (FAA) applies to this

proceeding. See 9 U.S.C.A. §§ 1–16 (West 2009). Section 51.016 of the Texas

Civil Practice and Remedies Code permits the interlocutory appeal of an order

denying a motion to compel arbitration under the FAA. Tex. Civ. Prac. & Rem.

Code Ann. § 51.016 (West Supp. 2012).

      The FAA provides, in relevant part:

             A written provision in . . . a contract evidencing a transaction
      involving commerce to settle by arbitration a controversy thereafter
      arising out of such contract . . . shall be valid, irrevocable, and
      enforceable, save upon such grounds as exist at law or in equity for
      the revocation of any contract.

9 U.S.C. § 2. “The FAA reflects the fundamental principle that arbitration is a

matter of contract.” Rent–A–Center, W., Inc. v. Jackson, 130 S. Ct. 2772, 2776

(2010). Section 2 of the FAA has been described as reflecting both a “liberal

federal policy favoring arbitration” and the “fundamental principle that arbitration

is a matter of contract.” AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740,

1745 (2011) (citing Rent–A–Center, 130 S. Ct. at 2776; Moses H. Cone Mem’l

Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 941 (1983)).

“The FAA thereby places arbitration agreements on an equal footing with other

contracts, and requires courts to enforce them according to their terms.” Rent–

A–Center, 130 S. Ct. at 2776 (citing Buckeye Check Cashing, Inc. v. Cardegna,

546 U.S. 440, 443, 126 S. Ct. 1204, 1207 (2006), and Volt Info. Scis., Inc. v. Bd.

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of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S. Ct. 1248, 1255

(1989)).

      The Company Agreement contains a choice-of-law provision that states

that it is to be “governed by and construed in accordance with the laws of the

State of Delaware, without giving effect to any choice of law principles.” Although

Thrift cites a few Delaware cases in its brief, it also asserts that “Delaware and

Texas law regarding arbitration do not conflict” and that “Delaware and Texas law

on contract construction principles are essentially identical and do not conflict.”

Aldridge relies on Federal and Texas case law, and he does not point to any

conflict between Texas and Delaware law. “As there appears to be no conflict of

laws, ‘there can be no harm in applying Texas law.’” In re AdvancePCS Health

L.P., 172 S.W.3d 603, 606 (Tex. 2005) (orig. proceeding) (per curiam) (quoting

Compaq Computer Corp. v. Lapray, 135 S.W.3d 657, 672 (Tex. 2004)); see also

In re J.D. Edwards World Solutions Co., 87 S.W.3d 546, 550 (Tex. 2002) (orig.

proceeding) (per curiam). We thus apply Texas law.

      A trial court’s determination regarding the validity of an agreement to

arbitrate is a question of law which we review de novo. 4 J.M. Davidson, Inc. v.

      4
       “Under the FAA, absent unmistakable evidence that the parties intended
the contrary, it is the courts rather than arbitrators that must decide ‘gateway
matters’ such as whether a valid arbitration agreement exists.” In re Weekley
Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) (orig. proceeding) (citing Green
Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452, 123 S. Ct. 2402, 2407 (2003), and
PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401, 407 n.2, 123 S. Ct. 1531,
1536 n.2 (2003)).

                                    7
Webster, 128 S.W.3d 223, 227 (Tex. 2003); see GM Oil Props., Inc. v. Wade,

No. 01-08-00757-CV, 2012 WL 246041, at *5 (Tex. App.―Houston [1st Dist.]

Jan. 26, 2012, no pet.) (mem. op.) (recognizing whether an enforceable

arbitration agreement exists is a question of law for court to review de novo);

Schlumberger Tech. Corp. v. Baker Hughes Inc., 355 S.W.3d 791, 800 (Tex.

App.―Houston [1st Dist.] 2011, no pet.) (“When an appeal from a denial of a

motion to compel arbitration turns on a legal determination . . . we apply a de

novo standard.”) (citing Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 55 n.9 (Tex.

2008)).

      Under the FAA, a party seeking to compel arbitration must satisfy a two-

pronged burden of proof in that it must first demonstrate the existence of a valid

agreement to arbitrate the dispute and then prove that the claims asserted are

within the scope of the agreement. In re Dillard Dep’t Stores, Inc., 186 S.W.3d
514, 515 (Tex. 2006) (orig. proceeding) (per curiam); AdvancePCS Health L.P.,
172 S.W.3d at 605. If the party seeking arbitration carries its initial burden, the

burden shifts to the opposite party to present evidence of an affirmative defense.

AdvancePCS Health L.P., 172 S.W.3d at 607.

      An agreement to arbitrate is a contract, the relation of the parties is

contractual, and the rights and liabilities of the parties are controlled by the law of

contracts. See AT&T Mobility LLC, 131 S. Ct. at 1748–49, 1752–53 (arbitration

is a creature of contract; a person can be compelled to arbitrate a dispute only if,

to the extent that, and in the manner which, he has agreed to do so). Since

                                      8
arbitration is generally a matter of contract, the FAA requires courts to honor

parties’ expectations. 9 U.S.C.A. § 1 et seq.; AT&T Mobility LLC, 131 S. Ct. at

1752–53; In re Bunzl USA, Inc., 155 S.W.3d 202, 209 (Tex. App.―El Paso 2004,

orig. proceeding) (“[A] party cannot be compelled to arbitrate a dispute unless he

has agreed to do so.”).

      When deciding whether parties agreed to arbitrate, courts should apply

ordinary state law principles regarding the formation of contracts. First Options

of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct. 1920, 1924 (1995); J.M.

Davidson, 128 S.W.3d at 227–28; see Weekley Homes, L.P., 180 S.W.3d at 130

(“Generally under the FAA, state law governs whether a litigant agreed to

arbitrate.”). In conducting our review, we “may not expand upon the terms of the

contract or tolerate a liberal interpretation of it by reading into it a voluntary,

consensual agreement to arbitrate when one otherwise does not exist.” In re

Bates, 177 S.W.3d 419, 422 (Tex. App.—Houston [1st Dist.] 2005, orig.

proceeding). “Although an arbitration agreement does not have to assume any

particular form, the language of the agreement must clearly indicate the intent to

arbitrate.” Id. Additionally, in resolving disputes regarding interpretation of an

arbitration agreement, we apply standard principles of contract interpretation and

construction.   Peacock v. Wave Tec Pools, Inc., 107 S.W.3d 631, 636 (Tex.

App.―Waco 2003, no pet.). The plain meaning of the contractual language

should be looked to in order to ascertain the intent of the parties. Id.

                                     9
B. Application

      Aldridge contends that he has a right under the Company Agreement to

compel arbitration of Thrift’s claims against him, contrary to Thrift’s argument in

the trial court that, because he is no longer a member of Thrift, he can no longer

compel arbitration. Aldridge acknowledges that he voluntarily relinquished his

position and resigned as a Member of Thrift before Thrift filed this lawsuit and

before he filed his motion to compel arbitration.          But he argues that his

resignation does not prevent him from compelling arbitration of Thrift’s claims

now because there is no dispute that Thrift’s claims are based on acts that

allegedly occurred while Aldridge was a Member and Manager of Thrift. Aldridge

characterizes Thrift’s argument as “nothing more than the Company Agreement

is written in the present tense” and argues that nothing in the Company

Agreement “prohibits or divests” a former Member from seeking arbitration of

disputes arising from or relating to acts taken by that individual while he was a

Member.

      The agreement to arbitrate provides that “any Member or Members (each

a ‘Disputing Member’) may submit its basis for such dispute or disagreement in

writing to the other Member or Members” and that if the dispute or disagreement

is not resolved “within 30 days after the initial written submission of the issue by a

Disputing Member to the Responding Members, then the dispute shall, unless

the Disputing Member and Responding Members otherwise agree, be submitted

to and settled by arbitration.” [Emphasis added.] Although that provision is, as

                                      10
Aldridge points out, written in the present tense, we agree with Thrift that the

repeated use of the terms “Member,” “Disputing Member,” and “Responding

Member” demonstrates that the agreement to arbitrate is an agreement solely

regarding resolution of disputes between “Members” of Thrift.        Moreover, we

disagree with Aldridge’s contention that nothing in the Company Agreement

prevents or divests a former Member from seeking arbitration.

      To the contrary, and regardless of whether the alleged conduct occurred or

the dispute arose while a person was a Member, the definition of the term

“Member” set forth in the Company Agreement expressly “excludes any Person

who has ceased to be a Member.”           [Emphasis added.]      That definition is

contained in a list of defined terms in a preceding section of the contract that

provides that “[w]hen used in this [Company] Agreement, the following terms

shall have the respective meanings assigned to them . . . .”

      When contracting parties have set forth their own definitions of terms they

employ, courts are not at liberty to disregard such definitions and substitute other

meanings. AMS Constr. Co. v. K.H.K. Scaffolding Houston, Inc., 357 S.W.3d 30,

41 (Tex. App.―Houston [1st Dist.] 2011, pet. dism’d); Healthcare Cable Sys.,

Inc. v. Good Shepherd Hosp., Inc., 180 S.W.3d 787, 791 (Tex. App.—Tyler 2005,

no pet.); Alexander v. Cooper, 843 S.W.2d 644, 646–47 (Tex. App.―Corpus

Christi 1992, no writ); Hart v. Traders & Gen. Ins. Co., 487 S.W.2d 415, 417–18

(Tex. Civ. App.―Fort Worth 1972, writ ref’d n.r.e.).       Reading the arbitration

provision together with the Company Agreement’s definition of “Member,” the

                                     11
Company Agreement is specific that a person who has ceased to be a Member is

not a “Member.” Thus, only an existing Member of Thrift may invoke the informal

resolution and resulting arbitration provisions against another current Member.

See Dillard Dep’t Stores, 186 S.W.3d at 515 (stating that the “objective intent as

expressed in the agreement controls the construction of an unambiguous

contract”); Bates, 177 S.W.3d at 422 (stating that “the language of the

[arbitration] agreement must clearly indicate the intent to arbitrate”).

      Aldridge does not directly address the exclusion of former Members from

the definition of “Member” in the Company Agreement. His response is that he

may nevertheless compel arbitration because “an arbitration agreement

contained within a contract survives the termination or repudiation of the contract

as a whole” and that his alleged acts occurred while he was still a Member of

Thrift. Aldridge supports his argument by citing several cases. See Ambulance

Billings Sys., Inc. v. Gemini Ambulance Servs., Inc., 103 S.W.3d 507, 512–14

(Tex. App.—San Antonio 2003, no pet.); In re Koch Indus., Inc., 49 S.W.3d 439,

445 (Tex. App.—San Antonio 2001, orig. proceeding); Henry v. Gonzalez, 18
S.W.3d 684, 690 (Tex. App.—San Antonio 2000, pet. dism’d by agr.); Dallas

Cardiology Assocs., P.A. v. Mallick, 978 S.W.2d 209, 213 (Tex. App.—Texarkana

1998, pet. denied); Pepe Int’l Dev. Co. v. Pub Brewing Co., 915 S.W.2d 925, 932

(Tex. App.—Houston [1st Dist.] 1996, no writ); Miller v. Puritan Fashions Corp.,

516 S.W.2d 234, 238 (Tex. Civ. App.—Waco 1974, writ ref’d n.r.e.).

                                      12
      Those cases are distinguishable for at least two reasons. First, the issue

in those cases involved whether an abandonment, repudiation, or termination of

the contract containing an arbitration provision rendered the arbitration provision

unenforceable. See Ambulance Billings Sys., Inc., 103 S.W.3d at 510, 512–14

(involving whether settlement agreement of contract dispute rendered arbitration

agreement no longer in effect); Koch Indus., Inc., 49 S.W.3d at 444–45 (opposing

parties contended arbitration provision was unenforceable because easement

had been abandoned); Henry, 18 S.W.3d at 690 (involving issue of whether

termination of attorney-client contract also terminated arbitration clause); Dallas

Cardiology, 978 S.W.2d at 213 (finding any potential breach of contract did not

render arbitration clause unenforceable); Pepe Int’l, 915 S.W.2d at 932 (holding

cancellation of underlying contracts did not invalidate arbitration clauses).5

      Secondly, none of those cases involved provisions like that in the

Company Agreement that expressly excludes a former Member from the

definition of “Member[s]” who are entitled to invoke the arbitration provision.

Even though an arbitration provision survives termination of the contract

containing it, see Henry, 18 S.W.3d at 690, this case is unique because the

      5
        Moreover, the termination, repudiation, abandonment, and breach issues
involved in those cases dealt with the merits of the respective parties’ claims and
defenses (as opposed to termination of the arbitration clause itself), and those
were held to be issues for an arbitrator rather than the court. See Ambulance
Billings Sys., Inc., 103 S.W.3d at 512–14; Koch Indus., Inc., 49 S.W.3d at 445;
Henry, 18 S.W.3d at 690; Dallas Cardiology, 978 S.W.2d at 213; Pepe Int’l, 915
S.W.2d at 932; Miller, 516 S.W.2d at 238.

                                     13
express language of the arbitration provision limits its application to disputes or

disagreements between “Members” and because the Company Agreement

expressly defines “Member” to exclude any person “who has ceased to be a

Member.” Considering the enforceability of the arbitration provision alone, see

Koch Indus., Inc., 49 S.W.3d at 445, Aldridge has not met his burden of

presenting a valid agreement to arbitrate between himself and Thrift because the

express language of the Company Agreement excludes former Members from

those entitled to compel arbitration and because Aldridge voluntarily resigned as

a Member of Thrift.        See AdvancePCS Health L.P., 172 S.W.3d at 607

(discussing shifting burdens under FAA); see also AT&T Mobility LLC, 131 S. Ct.

at 1752–53 (stating that the FAA requires courts to honor the parties’

expectations); Dillard Dep’t Stores, 186 S.W.3d at 515 (stating that the parties’

intent as shown by the unambiguous agreement controls); Bates, 177 S.W.3d at

422 (stating that reviewing courts may not read an agreement to arbitrate into a

contract “when one otherwise does not exist” and that the contract must clearly

indicate the intent to arbitrate).

      We hold that the trial court did not err by denying Aldridge’s motion to

compel arbitration because Aldridge does not have the contractual right under

the Company Agreement to compel arbitration of Thrift’s claims against him. We

therefore overrule Aldridge’s third issue.

                                     14
C. Aldridge’s Remaining Issues

      Aldridge contends in his second issue that Thrift may be compelled to

arbitrate its claims even though it did not separately sign the Company

Agreement. Within his second issue, Aldridge argues that Thrift’s claims in this

lawsuit are subject to arbitration because Thrift is bound by the Company

Agreement; because Thrift artfully pleaded claims actually belonging to Harvison,

the only remaining Member of Thrift, in an attempt to avoid arbitration; because

direct benefits estoppel requires arbitration of Thrift’s claims; and because Thrift’s

claims fall within the scope of the arbitration provision.

      Those remaining arguments, however, each assume that Aldridge has the

contractual right under the Company Agreement to compel arbitration. Because

we have held above that Aldridge does not have a right to compel arbitration

given the express contractual language and his voluntary resignation as a

Member, that issue is dispositive of the appeal, and it is unnecessary for us to

reach Aldridge’s first or second issue. See Tex. R. App. P. 47.1 (“The court of

appeals must hand down a written opinion that . . . addresses every issue raised

and necessary to final disposition of the appeal.”).

                                      15
                                IV. Conclusion

      Having overruled Aldridge’s third issue, and finding it unnecessary to reach

his general first issue or his second issue, we affirm the trial court’s order

denying Aldridge’s motion to compel arbitration.

                                                   ANNE GARDNER
                                                   JUSTICE

PANEL: LIVINGSTON, C.J.; GARDNER and GABRIEL, JJ.

DELIVERED: August 2, 2012

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