in Re: Nationwide Credit, Inc. and Plaza Associates

NUMBER 13-08-00717-CV

COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

CORPUS CHRISTI - EDINBURG

IN RE: NATIONWIDE CREDIT, INC. AND PLAZA ASSOCIATES

On Petition for Writ of Mandamus and
Motion for Emergency Relief

MEMORANDUM OPINION
Before Chief Justice Valdez and Justices Garza and Benavides
Memorandum Opinion by Justice Garza
In this petition for writ of mandamus, relators, Nationwide Credit, Inc. (“Nationwide”)

and Plaza Associates (“Plaza”), contend that respondent, the Honorable James Klager,

presiding judge of County Court at Law Number 4 of Nueces County, Texas, abused his

discretion by ordering relators to issue class notices in connection with a lawsuit filed by

real party in interest, James Flanagan. Relators claim that the trial court erred because

their dispute with Flanagan was being determined exclusively in arbitration pursuant to a

mediation agreement. We conditionally grant the petition in part.

I. BACKGROUND

Relators are debt collectors that were hired by DirecTV to collect amounts allegedly

owed by Flanagan for satellite television services. Flanagan sued relators in 2004, alleging
violations of the Texas Debt Collection Practices Act.1 See TEX . FIN . CODE ANN . §§

392.001-.404 (Vernon 2006). On October 25, 2005, the trial court certified a class in that

case, see TEX . R. CIV. P. 42, and on July 21, 2006, the trial court rendered an order

requiring relators to distribute notices to all class members. The discovery process

subsequently revealed that the contract between Flanagan and DirecTV included an

arbitration clause.2 Relying on this clause, relators filed a motion with the trial court to

decertify the class and compel arbitration, which the trial court denied on September 18,

2006.

Relators then filed an appeal and a parallel petition for writ of mandamus with this

Court, challenging the trial court’s order denying the motion to decertify and the motion to

compel arbitration. We denied the petition and dismissed the direct appeal for want of

jurisdiction. In re Nationwide Credit, Inc., No. 13-06-521-CV, 2006 Tex. App. LEXIS 9380,

at *1-2 (Tex. App.–Corpus Christi Oct. 19, 2006, orig. proceeding) (mem. op.); Nationwide

Credit, Inc. v. Flanagan, No. 13-06-516-CV, 2006 Tex. App. LEXIS 9379, at *1-2 (Tex.

App.–Corpus Christi Oct. 19, 2006, pet. denied) (mem. op.). Relators then filed a petition

for review and sought mandamus relief in the Texas Supreme Court.

While the supreme court cases were pending, relators reached an agreement with

Flanagan in mediation on July 25, 2007. The agreement, entitled “Agreement to Arbitrate

All Controversies,” provided in relevant part as follows:

It is hereby agreed as of July 25, 2007, by and among the plaintiff
James C. Flanagan in the above entitled action and defendants, Nationwide
Credit, Inc. and Plaza Associates, by and through their respective attorneys
as follows:

....

3.01 Claimaint [Flanagan], on the one hand, and Respondents [Nationwide
and Plaza], on the other, agree that they shall submit to binding
arbitration all disputes against each other arising out of or in any way
related or connected to debt collection activities by Respondents

1
Trial court cause num ber 04-60565-4.
2
The record before this Court does not include a copy of the contract between Flanagan and DirecTV.

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 against Claimant whether violations of statutes or common law and
including claims for class arbitration.

....

8.01 At this time, the parties have not agreed on whether the case should
proceed in arbitration as a class action. To resolve that dispute, the
parties agree that the Class Certification procedures and entry of a
Class Determination Award will be conducted according to the AAA
[American Arbitration Association] Class Rules 4 and 5.

8.02 The parties have a dispute about the appropriate weight to be given
to the Trial Court’s Class Certification Order of October 2005. As a
result, the issue of that ruling’s weight and effect is left to the good
judgment of the Arbitrator.

The agreement was signed by relators’ counsel as well as Flanagan’s counsel in his

capacity as “Attorney for Plaintiff, James C. Flanagan.” In exchange for the agreement to

arbitrate, relators voluntarily dismissed their petitions before the supreme court.

Relators and Flanagan then commenced arbitration. A hearing was held before the

arbitrator to determine whether the case should proceed as a class action in arbitration.

Subsequently, on August 6, 2008, the arbitrator issued his “Class Determination Award”

which provided in relevant part:

Rule 4(a) of the [AAA] Supplementary Rules for Class Arbitrations provides
that in order to proceed as a class the following elements must be met: (1)
the class is so numerous that joinder of separate arbitrations on behalf of all
members is impracticable; (2) there are questions of law or fact common to
the class; (3) the claims or defenses of the representative parties are typical
of the claims or defenses of the class; (4) the representative parties will fairly
and adequately protect the interests of the class; (5) counsel selected to
represent the class will fairly and adequately protect the interests of the
class; and (6) each class member has entered into an agreement containing
an arbitration clause which is substantially similar to that signed by the class
representative(s) and each of the other class members.

The arbitrator then considered the first five elements, which mirror the requirements

for class certification and appointment of class counsel under Texas Rule of Civil

Procedure 42, and ruled that they were satisfied. See TEX . R. CIV. P. 42(a)(1)-(4), (g)(1)(B).

However, the arbitrator continued:

It is on [the sixth] element that [Flanagan] falls short. Out of the 20,000
potential class members, the record before the Arbitrator indicates that only
Mr. Flanagan has entered into any kind of arbitration agreement with

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 Nationwide Credit, Inc. and Plaza Associates [“Respondents”]. Moreover,
the arbitration agreement between Mr. Flanagan and Respondents is a
unique agreement negotiated by counsel for the parties as part of the
resolution of the court proceedings in this case. The only arbitration
agreement that the other potential class members entered into was
contained in the agreement between those customers and DirecTV which is
the creditor for whom Respondents were attempting to collect the debts.
Both the trial court and the Corpus Christi appellate court had denied the
Respondents’ motion to compel arbitration based upon the arbitration
agreement between DirecTV and Mr. Flanagan (and presumably all other
possible members of the class).

....

Even in the absence of the requirement of Rule 4(a)(6), the Arbitrator would
have no jurisdiction to arbitrate a dispute between consumers who had no
arbitration agreement with the Respondents. It is a fundamental tenant [sic]
of arbitration law, that the authority of an arbitrator rests upon the existence
of a written agreement of a party to submit a dispute to arbitration. [Citations
omitted.]

....

Because the requirements of Rule 4(a)(6) have not been met, I find that this
matter may not proceed as a class in arbitration.

The arbitration of Flanagan’s individual claims remained pending. Despite this,

Flanagan returned to the trial court and asked it to enforce its 2006 order compelling

relators to distribute class notices, and to sanction relators for failing to obey that order.

After a hearing, the trial court denied Flanagan’s request for sanctions but granted the

remainder of Flanagan’s request and entered an order on December 3, 2008 requiring

relators to “identify the class members from computer records,” and to mail notices to all

class members within thirty days.3 This is the order that relators challenge in the instant

petition.4 Additionally, Nationwide filed a motion for emergency relief, which we granted

on December 19, 2008, ordering all underlying proceedings in trial court cause number

04-60565-4 stayed until further order of this Court.

3
The trial court’s order also provided that relators would be responsible for the paym ent of “all costs
of m ailing the notices including the costs of addressing the envelopes to class m em bers, stuffing the
envelopes, affixing postage to the envelopes, and placing the envelopes in the custody of the U.S. Postal
Service for delivery . . . .”
4
Nationwide filed the instant petition for writ of m andam us on Decem ber 18, 2008. On March 9,
2009, Plaza filed a m otion with this Court for leave to file a joinder in Nationwide’s petition. W e granted the
m otion on March 17, 2009.

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 II. STANDARD OF REVIEW

Mandamus will issue to correct a clear abuse of discretion for which the remedy by

appeal is inadequate. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex.

2004). Under this standard, we defer to the trial court’s factual determinations if they are

supported by evidence, but we review the trial court’s legal determinations de novo.

Brainard v. State, 12 S.W.3d 6, 30 (Tex. 1999); Walker v. Packer, 827 S.W.2d 833, 839-40

(Tex. 1992). A trial court abuses its discretion when it acts in an unreasonable or arbitrary

manner, when it acts without reference to guiding rules and principles, or when it clearly

fails to analyze or apply the law correctly. See Walker, 827 S.W.2d at 840; Beaumont

Bank, N.A. v. Buller, 806 S.W.2d 223, 226 (Tex. 1991).

III. DISCUSSION

Relators contend that the trial court erred by (1) compelling them to issue class

notices and (2) failing to stay its own proceedings. They note that the mediation

agreement provided that “all disputes” between Flanagan and relators would be resolved

in arbitration, and they claim that the arbitrator’s subsequent finding that the case could not

be arbitrated as a class action meant that the claims of the class were thereby extinguished

in the trial court as well.

However, relators appear to misconstrue the arbitrator’s ruling. The arbitrator’s

“Class Determination Award” clearly stated that, while the class met the requirements for

certification under the rules applicable in courts of law, it did not meet the extra requirement

applicable in arbitration that “each class member . . . enter[ ] into an agreement containing

an arbitration clause which is substantially similar to that signed by the class

representative(s) and each of the other class members.” In other words, the arbitrator

construed the mediation agreement as being applicable solely to Flanagan’s individual

claims against relators and not to the ancillary class action.5

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It is im portant to clarify that the purported arbitration agreem ent contained in the underlying satellite
television services contract is wholly separate from the arbitration agreem ent that was considered by the
arbitrator. The form er form ed the basis of relators’ 2006 m otion to com pel arbitration which was denied by

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 We agree with the arbitrator that the class was not bound by the mediation

agreement. Flanagan’s attorney executed the agreement as “Attorney for Plaintiff, James

C. Flanagan,” and not as class counsel. The agreement was clearly only between relators

and Flanagan in his individual capacity, as can be seen in the agreement’s introductory

recital. Although references were made to the pending class dispute in paragraphs 8.01

and 8.02 of the agreement, those references merely established that (1) a dispute

remained as to whether the case should proceed in arbitration as a class action, and (2)

the arbitrator was to determine the appropriate “weight and effect” of the trial court’s class

certification order of October 25, 2005. Neither reference to the class dispute somehow

brought the class in as a party to the agreement or altered the capacity in which Flanagan

was represented.6 Moreover, by confirming the findings of the trial court as to the five

elements required to certify a class under the rules of civil procedure, see TEX . R. CIV. P.

42(a)(1)-(4), (g)(1)(B), the arbitrator implicitly approved of the trial court’s 2005 class

certification order. We conclude that the July 25, 2007 mediation agreement bound

Flanagan in his individual capacity only, and that the class litigation that arose from his

individual suit remains pending in the trial court and is not subject to arbitration under the

mediation agreement.

Relators argue that, even if only Flanagan’s individual claims are subject to

arbitration, the trial court was required to stay the class proceedings. We agree. There

is no dispute that Flanagan’s individual claims are subject to the mediation agreement and

that they must be resolved in arbitration. If a trial court finds that a claim before it falls

within the scope of a valid arbitration agreement, the court has no discretion but to compel

arbitration and stay its own proceedings. Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 56

the trial court; the latter was arrived at in m ediation while said denial was in the process of being appealed.
6
W e note that, even if the m ediation agreem ent had clearly been executed on behalf of the class by
Flanagan in his capacity as class representative, it is not clear to this Court that Flanagan would have had the
authority to bind the entire class to arbitration without securing the trial court’s perm ission. See T EX . R. C IV .
P. 42(e)(1)(A) (“The court m ust approve any settlem ent, dism issal, or com prom ise of the claim s, issues, or
defenses of a certified class.”).

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(Tex. 2008); In re C & H News Co., 133 S.W.3d 642, 645 (Tex. App.–Corpus Christi 2003,

orig. proceeding). Further, the trial court is compelled by statute to stay any proceeding

that involves “an issue subject to arbitration” if a party seeks an order to arbitrate. TEX . CIV.

PRAC . & REM . CODE ANN . § 171.025(a) (Vernon 2005) (“The court shall stay a proceeding

that involves an issue subject to arbitration if an order for arbitration or an application for

that order is made under this subchapter.”). The class action pending in the trial court

clearly “involves an issue subject to arbitration” in that the individual claims of the class

representative, Flanagan, are subject to arbitration. Accordingly, for as long as Flanagan

remains class representative and the arbitration of his individual claims is pending, the

class action must be stayed. See id.

We note further that, regardless of the outcome of Flanagan’s individual arbitration,

Flanagan will no longer be an adequate representative of the class when it is concluded,

precisely because his claims will have already been resolved in arbitration. See State

Farm Mut. Auto. Ins. Co. v. Lopez, 45 S.W.3d 182, 192 (Tex. App.–Corpus Christi 2001)

(“The requirement of adequacy of representation has two prongs: (1) it must appear that

the representatives, through their attorneys, will vigorously prosecute the class claims; and

(2) there must be an absence of antagonism or conflict between the representative’s

interest and those of the class.”), rev’d on other grounds, 156 S.W.3d 550, 556 (Tex.

2004); see also TEX . R. CIV. P. 42(a) (“One or more members of a class may sue or be

sued as representative parties on behalf of all only if . . . (4) the representative parties will

fairly and adequately protect the interests of the class.”).

For the foregoing reasons, we conclude that (1) the class action remains pending

in the trial court, but (2) the court has no discretion but to stay the class action for as long

as Flanagan remains class representative and his arbitration remains pending. We order

the trial court to so stay the underlying class action. During the pendency of the stay, the

trial court may consider a motion filed by class counsel to replace or remove Flanagan as

class representative. See TEX . R. CIV. P. 42(c)(1)(C).

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 IV. CONCLUSION

We conditionally grant relators’ petition for writ of mandamus in part and order the

trial court to stay all proceedings in trial court cause number 04-60565-4 until such time as

either (1) Flanagan is replaced or removed as class representative or (2) Flanagan’s

individual arbitration is concluded and final, whichever occurs earlier. We are confident

that the trial court will comply; the writ will issue only if it does not. Additionally, the

emergency stay imposed by this Court on December 19, 2008 is hereby lifted, and all other

relief requested in relators’ petition for writ of mandamus is denied.

DORI CONTRERAS GARZA,
Justice

Memorandum Opinion delivered and
filed this the 31st day of March, 2009.

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