Court Opinion

ID: 9394337
Source: CourtListenerOpinion
Date Created: 2023-05-13 17:09:52.881876+00
Date Added: 2024-06-11T17:18:58.910395
License: Public Domain

NUMBER 13-22-00168-CV

                     COURT OF APPEALS

             THIRTEENTH DISTRICT OF TEXAS

               CORPUS CHRISTI – EDINBURG

PRAVATI CAPITAL III FUNDING,
LP AND ALEXANDER CHUCRI,                               Appellants,

                               v.

LAW OFFICES OF PHILLIPPE AND
ASSOCIATES, PC, A TEXAS
PROFESSIONAL CORPORATION
AND CHRISTOPHER L. PHILLIPPE,                            Appellees.

          On appeal from the County Court at Law No. 1
                  of Cameron County, Texas.

                  MEMORANDUM OPINION

    Before Chief Justice Contreras and Justices Silva and Peña
              Memorandum Opinion by Justice Silva
        Appellants, Pravati Capital III Funding, LP 1 (Pravati) and Alexander Chucri, appeal

the trial court’s denial of their motion to compel arbitration. By a single issue, appellants

argue that the trial court erred by denying their motion to compel because their contract

with appellees, Law Offices of Phillippe and Associates, P.C. (Law Firm) and Christopher

L. Phillippe, “contains an unequivocal, enforceable, and mandatory arbitration clause.”

We reverse and render.

                                         I.       BACKGROUND

        Pravati and the Law Firm entered into a legal funding contract and security

agreement (Contract) whereby Pravati would provide working capital to the Law Firm.

The Law Firm provided Pravati with a security interest in the future proceeds from various

cases that it was working on. The Contract included a choice of law provision, which

designated Arizona law as the law under which it would be “governed, interpreted[,] and

enforced.” The Contract additionally contained an arbitration provision that required all

disputes “arising out of[] or otherwise relating to” the Contract to “be finally, conclusively[,]

and exclusively settled by binding arbitration in the State of Arizona in accordance with

the arbitration rules . . . of the American Arbitration Association (AAA).” Attached to the

Contract as “Schedule E” was a separate guaranty agreement whereby Phillippe agreed

to personally guarantee the Law Firm’s obligations under the contract. The guaranty

agreement also included an Arizona choice of law provision, but it did not include an

arbitration clause. The Contract incorporated each schedule attached to it by reference,

        1  Although named in appellees’ petition as “Pravati Capital III Funding, LP,” Pravati notes that its
correct name is “Pravati Credit Fund III LP.” However, there is no verified plea in the record before us
indicating that there is a defect in the parties. See TEX. R. CIV. P. 93(4).

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designating the attachments as part of the Contract.

       Alleging a variety of breaches of the Contract and guaranty agreement, Pravati

commenced arbitration against appellees in Arizona. Appellees did not participate in the

final arbitration hearing, and the arbitrator ultimately awarded Pravati $105,792.83 plus

costs and attorneys’ fees. Almost two years later, appellees filed an original petition in

Texas against appellants, alleging Texas Deceptive Trade Practices Act violations and

common law fraud. Appellants filed an original answer, plea to the jurisdiction, and motion

to compel arbitration, the latter two of which the trial court denied. Appellants specifically

appeal the trial court’s denial of its motion to compel arbitration. See 9 U.S.C.

§ 16(a)(1)(C) (“An appeal may be taken from . . . an order . . . denying an application

under [§] 206 of this title to compel arbitration . . . .”); TEX. CIV. PRAC. & REM. CODE ANN.

§ 51.016 (“In a matter subject to the Federal Arbitration Act [(FAA)]. . . , a person may

take an appeal . . . from the judgment or interlocutory order of a district court, county court

at law, or county court under the same circumstances that an appeal from a federal district

court’s order or decision would be permitted by 9 U.S.C. [§] 16.”).

                                  II.     APPLICABLE LAW

       A choice-of-law provision dictates the substantive law that applies to a dispute;

however, as the forum state, we apply Texas law to procedural questions. HealthTronics,

Inc. v. Lisa Laser USA, Inc., 382 S.W.3d 567, 577 (Tex. App.—Austin 2012, no pet.)

(citing In re Lisa Laser USA, Inc., 310 S.W.3d 880, 883 n.2 (Tex. 2010) (orig. proceeding)

(per curiam)). “Procedural questions include matters such as preservation of error, the

admissibility of evidence, and standards of review.” Id. (first citing Arkoma Basin Explor.

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Co. v. FMF Assocs. 1990–A, Ltd., 249 S.W.3d 380, 387–90 (Tex. 2008); and then citing

Ill. Tool Works, Inc. v. Harris, 194 S.W.3d 529, 532 (Tex. App.—Houston [14th Dist.] 2006,

no pet.)).

       The FAA “preempts state law and governs all written arbitration agreements

involving interstate commerce.” Hamblen v. Hatch, 398 P.3d 99, 104 (Ariz. 2017) (cleaned

up). Under the FAA, if the parties entered into a written arbitration agreement, a trial court

shall stay any pending case upon the motion of either party and compel the parties to

arbitrate. 9 U.S.C. §§ 3, 206. “The FAA establishes ‘a liberal federal policy favoring

arbitration agreements’ and requires courts to enforce these agreements ‘unless the

FAA’s mandate has been overridden by a contrary congressional command.’” United

Behav. Health v. Maricopa Integrated Health Sys., 377 P.3d 315, 319 (Ariz. 2016)

(quoting CompuCredit Corp. v. Greenwood, 565 U.S. 95, 98 (2012)). “[A]ny doubts

concerning the scope of arbitrable issues should be resolved in favor of arbitration . . . .”

Sec. Alarm Fin. Enters., L.P. v. Fuller, 398 P.3d 578, 583 (Ariz. Ct. App. 2017) (quoting

Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983)). To

escape an arbitration clause under the FAA, a party must specifically challenge the

arbitration clause itself, not the contract as a whole. Hamblen, 398 P.3d at 103 (citing

Rent-A-Ctr., West, Inc. v. Jackson, 561 U.S. 63, 70 (2010)). However, “in determining

whether the parties agreed to arbitrate a certain matter, courts apply the contract law of

the particular state that governs the agreement.” Wash. Mut. Fin. Group, LLC v. Bailey,

364 F.3d 260, 264 (5th Cir. 2004); see In re Kellogg Brown & Root, Inc., 166 S.W.3d 732,

739 (Tex. 2005) (orig. proceeding) (applying state law to determine whether a non-

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signatory was bound to an arbitration agreement under the FAA).

      “Arizona treats guaranty agreements as contracts separate from their related

instruments.” Monroe v. Ariz. Acreage LLC, 443 P.3d 954, 961 (Ariz. Ct. App. 2019) (citing

Flori Corp. v. Fitzgerald, 810 P.2d 599, 600 (Ariz. Ct. App. 1990)). However, a separate

agreement may incorporate the terms of another agreement by reference. Weatherguard

Roofing Co. v. D.R. Ward Const. Co., 152 P.3d 1227, 1229 (Ariz. Ct. App. 2007). To do

so, “[t]he reference must be clear and unequivocal and must be called to the attention of

the other party, he must consent thereto, and the terms of the incorporated document

must be known or easily available to the contract parties.” Id. (quoting United Cal. Bank

v. Prudential Ins. Co. of Am., 681 P.2d 390, 420 (Ariz. Ct. App. 1983)). However, the

contract does not necessarily need to specifically state that another contract is

incorporated by reference if the referenced context is clear. See id. (citing United Cal.,

681 P.2d at 420); see also Lexon Ins. v. Valley Springs Estates, LLC, No. 1 CA-CV 16-

0096, 2017 WL 2982278, at *3 (Ariz. Ct. App. July 13, 2017) (mem. op.) (“Physical

attachment of the document is not necessary.”); Shanks v. Meritage Homes of Ariz., Inc.,

No. 1 CA-CV 09-0137, 2010 WL 286791, at *4 (Ariz. Ct. App. Jan. 26, 2010) (mem. op.)

(“[T]o incorporate another document by reference, no particular language is required.”).

                              III.   STANDARD OF REVIEW

      “We review the denial of a motion to compel arbitration under the [FAA] for an

abuse of discretion.” U.S. Lawns, Inc. v. Castillo, 347 S.W.3d 844, 846 (Tex. App.—

Corpus Christi–Edinburg 2011, pet. denied) (first citing Sidley Austin Brown & Wood, LLP

v. J.A. Green Dev. Corp., 327 S.W.3d 859, 862–63 (Tex. App.—Dallas 2010, no pet.);

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and then citing In re D. Wilson Constr. Co., 196 S.W.3d 774, 780 (Tex. 2006) (orig.

proceeding)); see In re Lisa Laser USA, Inc., 310 S.W.3d at 883 n.2 (“The law of the

forum state applies to procedural questions.”). “A trial court abuses its discretion when it

acts arbitrarily or unreasonably and without reference to any guiding rules or principles.”

Castillo, 347 S.W.3d 846 (citing Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238,

241–42 (Tex. 1985)). “As a threshold matter, a party seeking to compel arbitration must

establish the existence of a valid arbitration agreement and the existence of a dispute

within the scope of the agreement.” Rachal v. Reitz, 403 S.W.3d 840, 843 (Tex. 2013).

Whether an arbitration agreement is enforceable is a question we review de novo. Id.

                                     IV.     ANALYSIS

       Appellants contend that the trial court erred by denying their motion to compel

arbitration because the Contract contained a mandatory arbitration provision to which

both the Law Firm and Phillippe were bound. In response, appellees only assert that

Phillippe was not a party to the Contract and thus not bound by its arbitration clause.

Appellants, in turn, argue that Phillippe is bound to the Contract’s arbitration clause

because he was a party to the guaranty agreement, which was incorporated into the

Contract as a schedule.

       First, we agree with appellants that the Law Firm is bound by the arbitration clause.

The Law Firm does not dispute that it is a party to the Contract or that its claims “arise

between or among [the parties] in connection with, arising out of, or otherwise relating to

[the Contract].” Further, the Law Firm does not attack the validity of the arbitration clause

itself. See Hamblen, 398 P.3d at 103. As such, appellants established the existence of a

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valid arbitration agreement and the existence of a dispute that falls within the scope of

the agreement. See Rachal, 403 S.W.3d at 843. Thus, the trial court abused its discretion

by denying appellants’ motion to compel arbitration as it relates to the Law Firm. See 9

U.S.C. § 206; Rachal, 403 S.W.3d at 843; United Behav. Health, 377 P.3d at 319.

       As to Phillippe, although the guaranty agreement itself does not expressly

incorporate the terms of the Contract by reference, it is clear from the context that it was

made a part of the Contract. See Weatherguard Roofing, 152 P.3d at 1229. First, the

Contract specifically incorporated each schedule into it, including the guaranty

agreement. See id.; see also Schutt Law Firm PLC v. Subrok, LLC, No. 1 CA-CV 20-

0099, 2021 WL 709769, at *3 (Ariz. Ct. App. Feb. 23, 2021) (mem. op.) (permitting

incorporation by reference where “the document’s signature page, . . . clearly and

unequivocally states that a separate document . . . supplements the terms of the

contract”). Further, both documents were executed at the same time, by the same

persons, and for the same purpose. See Pearll v. Williams, 704 P.2d 1348, 1351 (Ariz.

Ct. App. 1985) (“[S]ubstantially contemporaneous instruments will be read together to

determine the nature of the transaction between the parties.”); see also Shanks, 2010 WL

286791, at *4 (same). Importantly, the guaranty agreement “clearly and unequivocally”

references the Contract and was attached to it. See Weatherguard Roofing, 152 P.3d at

1229. We conclude that the guaranty agreement incorporated by reference the terms of

the Contract, thus binding Phillippe to the arbitration clause. See id.; see also Lexon Ins.

Co., 2017 WL 2982278, at *3 (concluding schedule of rates referenced by but not

attached to primary contract was incorporated by reference).

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       For the same reasons we conclude the Law Firm’s claims fall under the Contract’s

arbitration provision, Phillippe’s claims do as well. See 9 U.S.C. § 206; Rachal, 403

S.W.3d at 843; United Behav. Health, 377 P.3d at 319. The trial court abused its discretion

by denying appellants’ motion to compel arbitration. See Castillo, 347 S.W.3d at 846.

Appellants’ sole issue is sustained.

                                   V.     CONCLUSION

       We reverse the trial court’s judgment and render an order compelling the parties

to arbitrate their claims.

                                                              CLARISSA SILVA
                                                              Justice

Delivered and filed on the
11th day of May, 2023.

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