in Re Valerus Compression Services, LP, Valerus Compression Services Management LLC, YPG Capital LLC, TPG v. VE, LP and TPG VI VE, LP

Writ Conditionally Granted, Appeal Dismissed, and Majority and Concurring
Memorandum Opinions filed May 7, 2015.

In The

Fourteenth Court of Appeals

NO. 14-14-00019-CV
NO. 14-14-00042-CV

IN RE VALERUS COMPRESSION SERVICES, LP, VALERUS
COMPRESSION SERVICES MANAGEMENT LLC, TPG CAPITAL LLC,
TPG V VE, LP, TPG VI VE, LP, AND SCOTT MAGZEN, Relators

VALERUS COMPRESSION SERVICES, LP, VALERUS COMPRESSION
SERVICES MANAGEMENT LLC, TPG CAPITAL LLC, TPG V VE, LP
TPG VI VE, LP, AND SCOTT MAGZEN, Appellants
V.
JAMES J. WOODCOCK, C&J INDUSTRIES, INC., DEFINED BENEFIT
TRUST, AND OTHERS SIMILARLY SITUATED, Appellees

On Appeal from the 165th District Court
Harris County, Texas
Trial Court Cause No. 2013-69580

MAJORITY MEMORANDUM OPINION
 In this consolidated petition for mandamus and interlocutory appeal,
relators/appellants contend that the trial court abused its discretion by failing to
rule on relators’/appellants’ motion to compel arbitration prior to granting a Rule
202 petition in favor of the real parties in interest/appellees. We conditionally grant
the writ of mandamus and stay the trial court’s order granting the petition for Rule
202 depositions. We dismiss the interlocutory appeal.

BACKGROUND

Valerus Compression Services, LP (the “partnership”) is a limited
partnership consisting of Valerus Compression Services Management LLC
(“Valerus”) and several limited partners. On October 2, 2013, James J. Woodcock
and C&J Industries, Inc. Defined Benefit Trust (collectively, “the Woodcock
Parties”) sent a letter to Valerus, stating that they believed Valerus was
manipulating tax allocations, assigning unwarranted phantom income, and failing
to make requisite tax distributions. The Woodcock Parties also requested certain
records to investigate these claims. Counsel for the partnership, Valerus, certain
limited partners, and others (collectively, “the Valerus Parties”)1 responded to the
letter by addressing the stated concerns and providing some of the information
requested.

The Woodcock Parties filed a Rule 202 petition, seeking to depose various
representatives of the Valerus Parties to investigate potential claims of breach of
contract, breach of fiduciary duty, minority shareholder oppression, and civil
conspiracy. In response, the Valerus Parties objected to the Rule 202 petition and
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The Valerus Parties include the partnership, Valerus, TPG Capital LLC, TPG V VE,
LP, TPG VI VE, LP, and Scott Magzen. Valerus is the general partner and TPG V VE, LP and
TPG VI VE, LP are limited partners in the partnership. TPG Capital LLC is a private equity
investment firm that owns a controlling interest of the partnership through its affiliated entities,
TPG V VE, LP and TPG VI VE, LP. Scott Magzen is a senior manager with Deloitte Tax LLP,
who joined in the petition. The Woodcock Parties are also limited partners in the partnership.

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filed a motion to compel arbitration pursuant to a dispute resolution clause in a
partnership agreement among the parties. The trial court granted the Rule 202
petition but did not expressly rule on the motion to compel arbitration. The Valerus
Parties filed this interlocutory appeal and mandamus proceeding. By order of
February 27, 2014, this court consolidated the interlocutory appeal with this
original proceeding.

ISSUES AND ANALYSIS

In their petition for writ of mandamus and interlocutory appeal, the Valerus
Parties contend that the trial court abused its discretion by granting the Rule 202
petition and by failing to grant their motion to compel arbitration.

I. Writ of Mandamus or Interlocutory Appeal

To resolve this issue, we must first determine whether mandamus or
interlocutory appeal is the appropriate mechanism to review the trial court’s order.
The Valerus Parties assert that if the trial court deferred a ruling on the motion to
compel, mandamus is the appropriate proceeding. The Valerus Parties further
contend that if the trial court impliedly denied the motion to compel, the trial
court’s order is reviewable by interlocutory appeal pursuant to section 51.016 of
the Texas Civil Practice Remedies Code. See Tex. Civ. Prac. & Rem. Code
§ 51.016.

The trial court’s order granted the Rule 202 petition but did not expressly
rule on the motion to compel arbitration. The trial court’s order only mentioned the
motion to compel as one of the motions it considered in making its ruling.
Although the trial court did not expressly state that it was postponing a ruling on
the merits of the motion to compel, it appears that the trial court deferred a ruling
on the motion to compel arbitration until after the Rule 202 depositions had been

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taken. See In re F.C. Holdings, Inc., 349 S.W.3d 811, 815 (Tex. App.—Tyler
2011, orig. proceeding) (analyzing the trial court’s order as a deferral even though
the trial court did not expressly state that it was deferring its ruling on the motion
to compel arbitration).

Mandamus lies only when there is no adequate remedy by appeal, and an
appeal lies only from final orders and those interlocutory orders that statutes make
appealable. In re MHI P’ship, Ltd., 7 S.W.3d 918, 920 (Tex. App.—Houston [1st
Dist.] 1999, orig. proceeding). Appellate courts have jurisdiction over interlocutory
orders permitted by statute. See Tex. Civ. Prac. & Rem. Code § 51.016. The
substance and function of the interlocutory order viewed in the context of the
record controls our interlocutory jurisdiction. Tex. La Fiesta Auto Sales, LLC v.
Belk, 349 S.W.3d 872, 878 (Tex. App.—Houston [14th Dist.] 2011, no pet.).

The Valerus Parties filed an interlocutory appeal pursuant to section 51.016
of the Texas Civil Practice and Remedies Code and the Federal Arbitration Act
(FAA), 9 U.S.C. Section 16, along with a mandamus proceeding. The parties’
arbitration clause states that it is subject to the FAA. The FAA allows interlocutory
appeal from an order denying an application to compel arbitration, among other
types of orders. 9 U.S.C. § 16(a)(1)(C). The FAA does not allow an interlocutory
appeal from a trial court’s deferral of a ruling on a motion to compel. See In re
F.C. Holdings, Inc., 349 S.W.3d at 815 (citing 9 U.S.C. § 16) (stating that there is
“no provision for appealing trial court’s deferral of ruling on motion to compel
arbitration under Federal Arbitration Act”). The FAA refers only to orders denying
a motion to compel arbitration and not to orders deferring a ruling on a motion to
compel arbitration. See 9 U.S.C. § 16. Thus, because such an order is not
appealable under the FAA, it is not an appealable order under section 51.016. See
ReadyOne Indus., Inc. v. Simental, 394 S.W.3d 676, 679 (Tex. App.—El Paso

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2012, no pet.) (citing Tex. Civ. Prac. & Rem. Code § 51.016) (stating that “in
matters subject to the FAA, an appeal is available only under the same
circumstances that an appeal from federal district court’s order would be
permitted”).

Several courts have considered this identical issue and have held that when a
trial court defers ruling on a motion to compel arbitration, mandamus is the
appropriate proceeding, not an interlocutory appeal. See In re F.C. Holdings, Inc.,
349 S.W.3d at 815 (“[A]ppeal is not available when a trial court defers ruling on a
motion to compel arbitration.”); see also ReadyOne Indus., Inc., 394 S.W.3d at 679
(holding that an order deferring a ruling on a motion to compel arbitration was not
appealable); In re MHI P’ship, Ltd., 7 S.W.3d at 920−21 (holding that mandamus,
not interlocutory appeal, was proper because the trial court deferred a ruling on
whether to grant the motion to compel arbitration until after discovery was
completed). We therefore hold that the trial court’s order deferring a ruling on the
motion to compel arbitration is not reviewable by interlocutory appeal.

In a similar Rule 202 petition case, this court conditionally granted
mandamus relief when a trial court granted a Rule 202 petition and deferred its
ruling on arbitrability until after the Rule 202 deposition had been taken. See In re
Bill Heard Chevrolet, Ltd., No. 14-05-00744-CV, 2005 WL 2787468, at *1 (Tex.
App.—Houston [14th Dist.] Oct. 27, 2005, orig. proceeding) (per curiam) (mem.
op.). Therefore, we hold that mandamus is the appropriate proceeding to review the
trial court’s order deferring a ruling on the motion to compel arbitration. We
dismiss the Valerus Parties’ interlocutory appeal.

II. Mandamus Relief

In their first issue, the Valerus Parties assert that they are entitled to
mandamus relief because the trial court abused its discretion by failing to compel
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arbitration pursuant to the parties’ partnership agreement and stay the Rule 202
depositions.

In order to obtain mandamus relief, the Valerus Parties must show that the
trial court committed a clear abuse of discretion and there is no adequate appellate
remedy. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135−36 (Tex. 2004)
(orig. proceeding). A clear abuse of discretion occurs when the trial court reaches a
decision so arbitrary and unreasonable as to amount to a clear and prejudicial error
of law. In re CSX Corp., 124 S.W.3d 149, 151 (Tex. 2003) (orig. proceeding) (per
curiam).

A. Abuse of Discretion

The Valerus Parties contend that the trial court abused its discretion by
failing to stay the Rule 202 depositions and compel arbitration. In support of their
contention, the Valerus Parties primarily rely on In re Bill Heard Chevrolet. See
2005 WL 2787468. In that case, the trial court deferred its ruling on the issue of
arbitrability until after the Rule 202 deposition had been taken. Id. at *1. A panel
of this court held that the trial court abused its discretion by ordering the Rule 202
deposition before ruling on the motion to compel arbitration. Id. The court
reasoned that “[t]he trial court has no discretion to delay the decision on the merits
of arbitrability until after discovery.” Id. (citing In re MHI P’ship, Ltd., 7 S.W.3d
at 923). Thus, the court stayed the rule 202 deposition, conditionally granted the
writ of mandamus, and ordered the trial court to rule on the issue of arbitrability.
Id. This case is analogous to In re Bill Heard Chevrolet because the trial court
granted the Rule 202 depositions prior to ruling on the motion to compel
arbitration.

In response, the Woodcock Parties primarily rely on Patton Boggs LLP v.
Moseley, 394 S.W.3d 565 (Tex. App.—Dallas 2011, orig. proceeding). In that
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case, the court held that the trial court had no jurisdiction to grant an interlocutory
appeal from the trial court’s order denying the motion to compel. Id. at 572 (citing
In re Sw. Sec., Inc., No. 05-99-01836-CV, 2000 WL 770117, at *2 (Tex. App.—
Dallas June 14, 2000, orig. proceeding) (mem. op.) (not designated for
publication)). The court reasoned that because the only proceeding before the trial
court was a rule 202 petition, the trial court did not have jurisdiction to grant the
motion to compel arbitration, absent an agreement between the parties that the
motion should be granted. Id.

We are bound to follow this court’s precedent holding that a trial court
abuses its discretion when it defers a decision on a motion to compel arbitration
until after a Rule 202 deposition is conducted. See Univ. of Tex. Health Science
Cent. at Houston v. Crowder, 349 S.W.3d 640, 644 (Tex. App.—Houston [14th
Dist.] 2011, no pet.) (holding that the court was bound by prior precedent despite
other Texas intermediate courts being split on the issue). Although the concurrence
raises a valid argument as to why this court should reconsider its decision in In re
Bill Heard Chevrolet, we decline to do so in this case. Therefore, we find that the
trial court abused its discretion in ordering the Rule 202 depositions before ruling
on the motion to compel arbitration. See In re Bill Heard Chevrolet, 2005 WL
2787468, at *1.

B. Adequate Appellate Remedy

The Valerus Parties assert that they have no adequate remedy by appeal
because the trial court granted the Rule 202 depositions and failed to rule on the
motion to compel arbitration.

Because there is no interlocutory appeal available from the trial court’s
deferral of ruling on the motion to compel arbitration, the Valerus Parties need not
show that they have no adequate remedy by appeal. See In re F.C. Holdings, Inc.,
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349 S.W.3d at 815 (holding that relator was not required to show it had no
adequate remedy by appeal because the trial court deferred its ruling on the motion
to compel and review by interlocutory appeal was unavailable).

CONCLUSION

We therefore stay the trial court’s order of January 7, 2014, granting the
petition for Rule 202 depositions. We conditionally grant the writ of mandamus
and order the trial court to rule on the issue of arbitrability. Only if the trial court
fails to do so will the writ issue.

/s/ Ken Wise
Justice

Panel consists of Justices McCally, Brown, and Wise (McCally, J., concurring).

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