the Subsea Company v. Raquel Payan and Seven Onshore/Offshore, LLC

Reversed and Remanded and Opinion filed September 18, 2014.

In The

Fourteenth Court of Appeals

NO. 14-13-00849-CV

THE SUBSEA COMPANY, Appellant
V.
RAQUEL PAYAN AND SEVEN ONSHORE/OFFSHORE, LLC, Appellees

On Appeal from the 133rd District Court
Harris County, Texas
Trial Court Cause No. 2013-41018

OPINION

The Subsea Company appeals from the trial court’s denial of its motion to
compel arbitration with its former employee, Raquel Payan. See Tex. Civ. Prac. &
Rem. Code § 171.098(a)(1) (authorizing interlocutory appeal from order denying
motion to compel arbitration). The claims at issue concern Payan’s demand for
additional sales commissions. The parties dispute whether executing a subsequent
employment agreement containing no arbitration clause revoked the clause in an
earlier commissions agreement. The trial court held that there was no valid
agreement to arbitrate. We reverse and remand.

Background

Subsea is a manufacturer of specialty components used in offshore oil and
gas drilling and production. On June 1, 2010, Payan and Subsea executed an
agreement titled “FY10 Sales Incentive Plan” (the Incentive Plan). The stated term
of the agreement was May 24, 2010 to May 24, 2011. The Incentive Plan listed
Payan as an “Account Manager” for the company and set her base salary as well as
the structure for her commissions. The Incentive Plan included considerable detail
regarding how commissions were to be calculated, what types of sales were
included and excluded, when payments would be made, and what types of special
circumstances might arise. The Incentive Plan further set sales quotas and listed
other duties for Payan, stated she was an “at-will employee,” contained non-
compete, non-solicitation, and confidentiality provisions, and provided that any
“inventions” she might create while working for Subsea would belong to Subsea.
Additionally, the Incentive Plan contained a survivability clause, providing in part:

Provisions of this Agreement which, by their operation, are intended
to survive after termination, non-renewal or expiration of this
Agreement, shall so survive.

The Incentive Plan also contained a merger clause as follows:
This Agreement contains the entire understanding of the parties
concerning the subject matters set forth herein, and it may not be
modified in any way except in writing and signed by the Company
and by Sales Employee. This Agreement supersedes and replaces any
and all other commission and/or bonus agreements that might exist
between Company and Sales Employee.
Lastly, and of particular importance here, the Incentive Plan contained an
arbitration clause, providing in part:

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 The Parties agree that any disputes or questions arising hereunder, in
particular concerning its formation, existence, validity, effects,
interpretation, implementation, violation, resolution or annulment,
shall be finally resolved by means of arbitration in accordance with
the arbitration rules of the state of Texas . . . .
On January 27, 2012, Payan and Subsea entered a second agreement, titled
“At-Will Employment, Non-Competition, Confidential Information, Invention
Assignment, and Arbitration Agreement” (the Employment Agreement).
According to Payan, as stated in her affidavit, Subsea gave her a draft copy of the
Employment Agreement in January 2012, and requested that she review the
document and make any revisions or strike any provisions she did not agree to and
return it. Payan made several changes to the draft before signing it, including the
complete deletion of a fairly broad arbitration clause.

The Employment Agreement contained several provisions concerning the
same subjects as in the Incentive Plan, including non-compete, non-solicitation,
and confidentiality provisions, a provision that any inventions Payan might create
would belong to Subsea, and a statement that her employment was on an “at-will”
basis. Unlike the Incentive Plan, however, the Employment Agreement contained
no language specifically addressing Payan’s compensation or the structure of her
commissions. As mentioned, the draft of the Employment Agreement contained a
detailed arbitration agreement, but Payan inserted at the beginning of this
provision, paragraph 11, the following language, which appears in the final
agreement: “(To delete all of 11. Do not want to waive my rights.)” In her
affidavit, she stated that this statement indicated that paragraph 11 should be
deleted from the agreement and she did not intend “to waive my rights to have any
disputes resolved by a court.” The Employment Agreement also contained a
merger clause similar to that in the Incentive Agreement, specifically stating that it
is “the entire agreement . . . between [Subsea and Payan] relating to the subject
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matter herein.”

Payan resigned from Subsea’s employment in June 2013.1 Subsea then filed
a lawsuit against Payan, alleging that she had stolen thousands of documents from
Subsea, some of which contained confidential and proprietary information. Payan
subsequently counterclaimed for breach of contract and quantum meruit, alleging
that Subsea owed her additional unpaid commissions. Subsea then filed its motion
to compel arbitration of the counterclaims, which Payan opposed. According to
Subsea, arbitration is mandated by the arbitration clause in the Incentive Plan
because the counterclaims concern the payment of commissions, which is
governed only by that agreement. Payan insists to the contrary that when the
parties entered the Employment Agreement—after her deletion of the broad
arbitration clause in the draft—the arbitration clause in the prior agreement was
revoked as to all disputes, including those concerning commissions. The trial court
agreed with Payan and denied the motion to compel arbitration of the
counterclaims. Subsea now appeals.

Standards of Review

A party seeking to compel arbitration must establish the existence of a valid
arbitration agreement and show that the claims in dispute fall within the scope of
that agreement. In re Bank One, N.A., 216 S.W.3d 825, 826 (Tex. 2007). Because
arbitration is a creature of contract, we apply state-law principles of contract law in
determining the validity of an arbitration agreement. Branch Law Firm, L.L.P. v.
Osborn, No. 14-13-00820-CV, 2014 WL 4199206, at *4 (Tex. App.—Houston
[14th Dist.] August 26, 2014, no pet. h.). Whether a valid arbitration agreement

1
Payan apparently founded the other appellee in this appeal, Seven Onshore/Offshore,
LLC, in July 2013. This appeal does not concern any issues directly involving Seven
Onshore/Offshore.

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exists is a legal question subject to de novo review. In re D. Wilson Const. Co.,
196 S.W.3d 774, 781 (Tex. 2006).

Analysis

As mentioned, Payan asserts, and the trial court apparently agreed, that
execution of the Employment Agreement—after deletion of the arbitration clause
in the draft—means that there is no existing arbitration clause between the parties,
not even the one contained in the Incentive Plan.2 It is not before this Court, and,
thus, we do not decide, whether Payan’s deletion of the proposed arbitration clause
in the Employment Agreement effectively revoked the arbitration clause in the
Incentive Plan as to subjects expressly addressed in both agreements.
Commissions, the subject of the counterclaims, were not expressly addressed in the
Employment Agreement.

Generally, when parties enter into a second contract dealing with the same
subject matter as a prior contract without stating whether the second contract
operates as a discharge of or substitute for the first, the two contracts must be
interpreted together and the later contract prevails to the extent they are
inconsistent. N. Natural Gas Co. v. Oneok Bushton Processing, Inc., No. 14-11-
00539-CV, 2012 WL 4364652, at *9 (Tex. App.—Houston [14th Dist.] Sept. 25,
2012, no pet.) (mem. op.); The Courage Co., L.L.C. v. The Chemshare Corp., 93
S.W.3d 323, 333 (Tex. App.—Houston [14th Dist.] 2002, no pet.); 6 Corbin on
Contracts § 1293, 1296 (1962). The portion of the earlier contract not in conflict
with the later contract remains enforceable. N. Natural Gas, 2012 WL 4364652, at

2
Payan argues in her brief that there is no valid agreement between the parties to
arbitrate because (1) she struck through the proposed arbitration provision in the Employment
Agreement, (2) the parties contracted for the Employment Agreement to govern over
inconsistent terms in the Incentive Agreement, and (3) Subsea conceded that the Employment
Agreement governs the parties’ employment relationship when it sued Payan under it.

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*9; The Courage Co., 93 S.W.3d at 333.

The Employment Agreement did not specifically state that it acted as a
discharge of or substitution for the Incentive Plan. As discussed above, there are a
number of provisions found in both contracts—including the non-compete, non-
solicitation, and confidentiality provisions, and the provisions concerning
inventions. We are not asked in this appeal whether the later agreement prevails as
to these subjects. The Employment Agreement, however, contains no provisions
concerning commissions or the arbitration of disputes regarding them, so the
earlier agreement is not in conflict regarding that subject and therefore remains
enforceable.3 Under the Incentive Plan, disputes about commissions are subject to
arbitration.4 The Employment Agreement does not contain any clause conflicting
with the Incentive Plan’s requirement that disputes concerning commissions are
subject to arbitration. The Employment Agreement neither contains an arbitration
clause nor a provision revoking the arbitration clause in the Incentive Plan.5

3
Payan argues that the merger clause of the Employment Agreement provides that that
agreement (1) contains the entire agreement and understanding between the parties about
Payan’s “employment” and (2) controls over inconsistencies between it and the Incentive
Agreement, including the arbitration provision. We conclude that this reading is too broad. As
Payan acknowledges, the Employment Agreement’s merger clause stated that it was “the entire
agreement and understanding between [Subsea and Payan] relating to the subject matter herein”
(emphasis added). As explained above, neither commissions nor the arbitration of disputes over
commissions are subject matters of the Employment Agreement. The merger clause therein
therefore does not control over provisions of the Incentive Plan.
4
As set forth above, the arbitration provision in the Incentive Plan states, “The Parties
agree that any disputes or questions arising hereunder, in particular concerning its formation,
existence, validity, effects, interpretation, implementation, violation, resolution or annulment,
shall be finally resolved by means of arbitration . . . .”
5
Payan suggests that her statement in deleting the proposed arbitration clause from the
Employment Agreement—“To delete all of 11. Do not want to waive my rights.”—indicated an
intention to not arbitrate any disputes between the parties to that agreement. But, as explained,
the Employment Agreement did not address any rights having to do with payment of
commissions. Thus, even if Payan is correct that her statement evidenced such an intent, it was
limited to the subject matter of the Employment Agreement and does not control the resolution
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 Payan mentions in her brief that the Incentive Plan “expired,” although her
counterclaims refer to it as a “valid and enforceable contract.” It is undisputed
that, even though the term of the Incentive Plan was through May 24, 2011, the
parties continued to operate under it for payment of commissions even after the
execution of the Employment Agreement in January 2012. See, e.g., Elec.
Bankcard Sys., Inc. v. Retriever Indus., Inc., No. 01-01-00240-CV, 2003 WL
204717, at *6 Tex. App.—Houston [1st Dist.] Jan. 30, 2003, no pet.) (mem. op.)
(“When a contract is executed, whereby one party is to serve another for a definite
period, and the employment continues after the expiration of the period without an
express contract renewal, there is a presumption that the employment continues
under the terms of the expired contract.”); Salazar v. Coastal Corp., 928 S.W.2d
162, 166 (Tex. App.—Houston [14th Dist.] June 20, 1996, no writ) (“It is well
settled in Texas that a continuance of the employment relationship in accordance
with the terms of a written employment contract after the contract has expired by
lapse of time is a continuance of the old contract as a matter of law.”). Indeed,
Payan’s counterclaim for unpaid commissions is based, at least in part, on
enforcement of the agreement past its termination date.

To the extent that Payan challenges the validity of the arbitration provision
based on an expiration of the Incentive Agreement, we conclude that the Incentive
Plan continued in full force, at least as to the subject of commissions. We
conclude that the Incentive Plan controls the parties’ disputes over commissions
and contains an arbitration clause that was left undisturbed by the Employment
Agreement. Accordingly, Subsea has established the existence of a valid
arbitration agreement and shown that the counterclaims fall within the scope of
that agreement. See In re Bank One, 216 S.W.3d at 826. Therefore, the trial court

of disputes on payment of commissions under the Incentive Plan.

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erred in overruling Subsea’s motion to compel arbitration on Payan’s
counterclaims for unpaid commissions.

We reverse the trial court’s order denying Subsea’s motion to compel
arbitration and remand for further proceedings in accordance with this opinion.

/s/ Martha Hill Jamison
Justice

Panel consists of Justices Christopher, Jamison, and McCally.

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