11th Court of Appeals
Eastland, Texas
Memorandum Opinion
David H. Gililland
Appellant
Vs. No. 11-03-00175-CV B Appeal from Taylor County
Taylor Investments
Appellee
Taylor Investments[1] filed suit against David H. Gililland[2] alleging conversion, fraud, breach of fiduciary duty, and negligent misrepresentation. Gililland filed a motion to stay and compel arbitration. On June 6, 2003, the trial court entered an order denying Gililland=s motion to stay and compel arbitration. We conditionally grant Gililland=s writ of mandamus.
In 1997, Taylor Investments began discussions with Gililland about opening accounts at Merrill Lynch. Taylor Investments opened two working capital management accounts (WCMA) with Merrill Lynch, and Gililland was the financial consultant for the accounts. Taylor Investments alleges that Gililland made false representations that he would personally supervise and monitor the accounts and that the accounts would be set up so that there were no unauthorized transactions. An employee of Taylor Investments began writing checks on the accounts, which Taylor Investments alleges were unauthorized. Taylor Investments claims that the total of the unauthorized transactions is $808,791.06 and that the unauthorized transactions were the result of Gililland=s lack of care and concern, as well as the false representations he made concerning the accounts. Gililland denies making the misrepresentations alleged by Taylor Investments.
In this consolidated mandamus proceeding and interlocutory appeal, Gililland complains of the trial court=s order in which it denied his motion to stay and compel arbitration. The Texas General Arbitration Act (Texas Act)[3] and the Federal Arbitration Act (FAA)[4] provide alternative procedural vehicles for relief. In re Education Management Corporation, Inc., 14 S.W.3d 418, 425 (Tex.App. ‑ Houston [14th Dist.] 2000, orig. proceeding). If the trial court=s denial of arbitration is based on the Texas Act, the order is subject to interlocutory appeal. TEX. CIV. PRAC. & REM. CODE ANN. ' 171.098(a) (Vernon Pamph. Supp. 2004-2005). Relief from a denial of arbitration under the FAA must be pursued by mandamus. EZ Pawn Corporation v. Mancias, 934 S.W.2d 87, 91 (Tex.1996). The trial court did not specify whether it denied Gililland=s motion to compel pursuant to the Texas Act or the FAA.
Taylor Investments contends that because its cause of action is a Texas common law tort, it does not involve interstate commerce and does not invoke the FAA. Taylor Investments further contends that its cause of action against Gililland in his individual capacity arose before the parties entered into the WCMA account agreement containing the arbitration clause. Gililland argues that the transactions involve interstate commerce and, therefore, the FAA is applicable.
Taylor Investments argues that the evidence relied upon by Gililland to invoke the FAA is not properly before the trial court. Gililland filed his first affidavit on February 7, 2002, which contained the WCMA account authorization. At the hearing on Gililland=s motion to compel arbitration held on that same day, Gililland acknowledged that the business records attached to his affidavit were not timely filed. The trial court granted a continuance so that the business record would be timely. Gililland filed his second affidavit on March 7, 2003, which contained the WCMA account agreement. The affidavit states that the account agreements are true and correct copies and that the agreement is incorporated by reference in the WCMA account authorization forms which were previously filed with the court. We find that the WCMA account agreements were properly before the trial court.
The arbitration provision in question is contained in a WCMA account agreement between Taylor Investments and Merrill Lynch. The FAA applies to contracts Aevidencing a transaction involving commerce.@ 9 U.S.C. ' 2 (2004). A contract Aevidences a transaction involving commerce@ if it involves interstate commerce. Allied‑Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, 277-81 (1995); In re Merrill Lynch Trust Company FSB, 123 S.W.3d 549, 553 (Tex.App. ‑ San Antonio 2003, orig. proceeding). ACommerce@ under the FAA is broadly construed. In re Tenet Healthcare, Ltd., 84 S.W.3d 760, 765 (Tex.App. ‑ Houston [1st Dist.] 2002, orig. proceeding). The issue is not whether the parties= dispute affects interstate commerce, but whether their dispute concerns a transaction that affects interstate commerce. In re Merrill Lynch Trust Company FSB, supra. The FAA does not require a substantial effect on interstate commerce; rather, it requires only that commerce be involved or affected. In re L & L Kempwood Associates, L.P., 9 S.W.3d 125, 127 (Tex.1999) (orig. proceeding); In re Merrill Lynch Trust Company FSB, supra.
The WCMA account agreement provided for the purchase of securities. The sale of securities has been held to involve interstate commerce. In re Whitfield, 115 S.W.3d 753, 757 (Tex.App. ‑ Beaumont 2003, orig. proceeding); Thomas James Associates., Inc. v. Owens, 1 S.W.3d 315, 319 (Tex.App. - Dallas 1999, no pet=n). Therefore, the FAA is applicable, and mandamus is the appropriate remedy.
Mandamus relief is available if the trial court violates a duty imposed by law or clearly abuses its discretion, either in resolving factual issues or in determining legal issues, when there is no adequate remedy at law. Walker v. Packer, 827 S.W.2d 833, 839‑40 (Tex.1992). A trial court abuses its discretion when it does not follow guiding rules and principles and reaches an arbitrary and unreasonable decision. Walker v. Packer, supra.
A party attempting to compel arbitration must first establish that the dispute in question falls within the scope of a valid arbitration agreement. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003); In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex.1999). If the other party resists arbitration, the trial court must determine whether a valid agreement to arbitrate exists. TEX. CIV. PRAC. & REM. CODE ANN. ' 171.021 (Vernon Pamph. Supp. 2004-2005). The trial court=s determination of the arbitration agreement=s validity is a legal question subject to de novo review. J.M. Davidson, Inc. v. Webster, supra; In re Kellogg Brown & Root, 80 S.W.3d 611, 615 (Tex.App. ‑ Houston [1st Dist.] 2002, orig. proceeding). If the trial court finds a valid agreement, the burden shifts to the party opposing arbitration to raise an affirmative defense to enforcing arbitration. J.M. Davidson, Inc. v. Webster, supra.
The WCMA agreement contains a provision stating that:
[A]ll controversies that may arise between the Customer and [Merrill Lynch], including, but not limited to, those involving any transaction or the construction, performance or breach of this or any other agreement between the customer and [Merrill Lynch], whether entered into prior to, on or subsequent to the date hereof, shall be determined by arbitration.
Gililland was not a signatory to the WCMA agreement; therefore,Gililland must show that he had the right to enforce the arbitration provision contained in the WCMA agreement. In re Merrill Lynch Trust Company FSB, supra. A party that is not a signatory to an arbitration agreement may enforce the agreement if the nonsignatory party falls into an exception that would allow such enforcement. Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th Cir. 2000); In re Merrill Lynch Trust Company FSB, supra; Mohamed v. Auto Nation USA Corp., 89 S.W.3d 830 (Tex.App. - Houston [1st Dist.] 2002, orig. proceeding). Gililland contends that he may enforce the arbitration provision of the WCMA as an agent of Merrill Lynch and based upon the theory of equitable estoppel. Taylor Investments argues that the arbitration provision in theWCMA agreement is not applicable to Gililland because its cause of action is against Gililland in his individual capacity and because its cause of action was completed before it entered into the WCMA agreement with Merrill Lynch.
When the principal is bound under the terms of a valid arbitration clause, its agents, employees, and representatives are covered by that agreement. Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc, 7 F.3d 1110 (3rd Cir. 1993); In re Merrill Lynch Trust Company FSB, supra. The scope of an arbitration agreement may be extended to claims against an agent of the principal when all of the agent=s allegedly wrongful acts relate to his behavior as an agent of the principal signatory company and when those acts were within the scope of the claims covered by the arbitration provision for which the principal would be liable. In re Merrill Lynch Trust Company FSB, supra.
Gililland is an employee of Merrill Lynch. Taylor Investments argues that its claims against Gililland are an Aindependent tort@ that have nothing to do with the WCMA agreements. However, in its complaint, Taylor Investments alleges not only false representations by Gililland to obtain Taylor Investments= business but also factual allegations of mishandling the accounts established pursuant to the WCMA agreements. See In re First Merit Bank, N.A., 52 S.W.3d 749 (Tex.2001). Gililland=s allegedly wrongful acts relate to his behavior in obtaining Taylor Investments= business for Merrill Lynch and then, once the business was obtained, in managing the accounts. Taylor Investments= claims against Gililland relate to his behavior as an agent of Merrill Lynch; therefore, Gililland may enforce the arbitration provision contained in the WCMA agreement.
Having determined that Gililland established an enforceable arbitration agreement, we must now determine if the claims raised fall within the scope of that agreement. In re Oakwood Mobile Homes, Inc., supra. Texas courts favor arbitration agreements. Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 268 (Tex.1992). Accordingly, any doubts regarding the scope of an arbitration agreement are resolved in favor of arbitration. Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex.1996).
The arbitration provision covers Aall controversies@ involving the construction of the agreement and any transactions. Taylor Investments= claims concern Gililland=s actions in securing their business which led to the creation of the accounts and the WCMA agreement and Gililland=s behavior in managing the accounts. These claims fall within the scope of the agreement.
Taylor Investments complains that the arbitration agreement is not enforceable because the WCMA agreement contains a paragraph stating that Merrill Lynch and any third parties to the WCMA agreement Amake no representations, warranties or guarantees, express or implied, with respect to the WCMA Service or any services provided in accordance therewith.@ Taylor Investments contends that this provision excludes the complaints raised by Taylor Investments from coverage of the agreement. The paragraph seeks to limit Merrill Lynch=s liability, but it does not exclude any controversies that do arise from the arbitration provision.
Taylor Investments further argues that, because the entire WCMA agreement is illusory, the arbitration provision is unenforceable. The WCMA agreement contains a paragraph by which it is agreed that Merrill Lynch shall have the right to amend the WCMA agreement by modifying or rescinding its existing provisions or by providing new provisions. The provision requires that Merrill Lynch provide 30 days notice before any amendment is effective.
In construing a written contract, the primary concern of the court is to ascertain the true intentions of the parties as expressed in the instrument. J.M. Davidson, Inc. v. Webster, supra; R & P Enterprises. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex.1980). We must examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless. J.M. Davidson, Inc. v. Webster, supra at 229. No single provision taken alone will be given controlling effect; rather, all the provisions must be considered with reference to the whole instrument. J.M. Davidson, Inc. v. Webster, supra.
The paragraph containing the provision allowing Merrill Lynch to amend the agreement also provides that other ADocuments@ related to the WCMA account have been provided to Taylor Investments and that such ADocuments@ are incorporated into the WCMA agreement. The paragraph allows Merrill Lynch to amend the ADocuments.@ The paragraph provides that the ADocuments@ may be amended as provided in the language of which Taylor Investments complains. Reviewing the agreement as a whole, it does not appear that the provision is intended to allow Merrill Lynch to unilaterally amend the arbitration agreement. See J.M. Davidson, Inc. v. Webster, supra. Moreover, the next paragraph in the WCMA agreement provides that:
If any provisions of this WCMA Agreement are held to be invalid, illegal, void or unenforceable by reason of any law...all other provisions of this WCMA Agreement shall nevertheless remain in full force and effect.
We find that the paragraph that allows Merrill Lynch to amend the WCMA agreement does not render the arbitration agreement unenforceable.
Because Taylor Investments= claims fall within the scope of a valid arbitration agreement, the trial court erred in denying Gililland=s motion to compel arbitration. Therefore, we conditionally grant the petition for writ of mandamus.
We conditionally grant the writ of mandamus and direct the trial court to vacate its order denying Gililland=s motion to compel arbitration. Writ will issue only if the trial court does not comply. The interlocutory appeal is dismissed as moot.
JIM R. WRIGHT
JUSTICE
September 23, 2004
Not designated for publication. See TEX.R.APP.P. 47.2(a).
Panel consists of: Arnot, C.J., and
Wright, J., and McCall, J.
[1]Taylor Investments is a Texas general partnership composed of James D. Taylor, Bobbie Taylor, Lois L. Taylor, individually and as executor of the estate of Joe A. Taylor.
[2]Gililland is the resident manager of the Abilene, Texas office of Merrill Lynch, Pierce, Fenner & Smith.
[3]TEX.CIV. PRAC. & REM. CODE ANN. '' 171.001 et seq. (Vernon Pamph. Supp. 2004-2005).
[4]9 U.S.C. '' 1 et seq. (2004).