Aetna Life Insurance Company, Aetna Health, Inc., and Robert J. Garza v. Weslaco Independent School District

NUMBER 13-11-00532-CV

COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

CORPUS CHRISTI - EDINBURG

AETNA LIFE INSURANCE COMPANY, AETNA
HEALTH, INC., AND ROBERT J. GARZA, Appellants,

v.

WESLACO INDEPENDENT SCHOOL DISTRICT, Appellee.

On appeal from the 398th District Court
of Hidalgo County, Texas.

MEMORANDUM OPINION
Before Chief Justice Valdez and Justices Rodriguez and Garza
Memorandum Opinion by Justice Rodriguez
Appellants Aetna Life Insurance Company, Aetna Health, Inc. (collectively Aetna),

and Robert J. Garza challenge the trial court's denial of their motion to compel arbitration

in appellee Weslaco Independent School District's (WISD) lawsuit against appellants.

Aetna argues that the trial court abused its discretion in denying its motion to compel
because: WISD is bound by the arbitration provision of the contract on which its suit is

based; WISD cannot avoid arbitration by attacking the contract as a whole as only the

arbitrator can adjudicate WISD's contract defenses; alternatively, the trial court was not

allowed to consider WISD's defenses as they were not properly raised; and regardless,

WISD failed to establish its defenses as a matter of law. Garza joins in the foregoing

arguments by Aetna regarding the general validity and enforceability of the agreement

and argues separately that the arbitration clause was also enforceable as to him as a

non-signatory of the contract between WISD and Aetna. We reverse and remand.

I. Background

In 2007, WISD contracted with Aetna to administer WISD's self-funded and

self-billed benefits plan for the 2007-2008 school year. Garza is an insurance agent who

acted as a broker for Aetna and WISD in their contract negotiations and serviced the

insurance policy during the contract period. Garza was paid a commission for his

services.

The contract between Aetna and WISD was signed by Dr. Richard Rivera, WISD's

superintendent, in March 20081 and provided that Aetna would be compensated by a

value-based-pricing system, wherein it would retain as its fee 9.7% of the difference

between the billed charges and the negotiated rate. Under the contract, Aetna invoiced

WISD for the fee, and WISD paid the invoices. The contract also contained an

arbitration clause, which provided that "[a]ny controversy or claim arising out of or relating

to this Agreement or the breach, termination, or validity thereof . . . shall be settled by

1
Although not signed until March 2008, the agreement between the parties was effective for the
entire 2007-2008 school year.
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binding arbitration." Finally, the contract contained an integration clause, which provided

that "[t]his Services Agreement (including incorporated attachments) constitutes the

complete and exclusive contract between the parties and supersedes any and all prior or

contemporaneous oral or written communications or proposals not expressly included

herein."

In February 2010, WISD sued Aetna for breach of contract, breach of fiduciary

duty, breach of the duties of good faith and fair dealing, fraud, negligent

misrepresentation, and violation of the Texas Theft Liability Act. The underlying premise

of all of WISD's claims against Aetna—both the contract and tort claims—was that the

agreement signed by Superintendent Rivera differed in material terms from the "best and

final" offer negotiated by Aetna and accepted and authorized by the WISD Board of

Trustees at a May 2007 school board meeting. WISD specifically pled that "the [written

contract] executed by Aetna and WISD for the 2007-2008 plan year constituted an

enforceable agreement." But nowhere in its petition did WISD challenge the validity of

the arbitration clause.

WISD also sued Garza for fraud, negligent misrepresentation, tortious interference

with a contractual relationship, and violation of the Texas Theft Liability Act. The

underlying premise of all of WISD's claims against Garza was that Aetna invoiced WISD,

under the written contract, for the commissions Aetna paid to Garza; WISD claimed that it

never agreed to pay any commissions to Garza and that the contract did not authorize

Aetna to invoice WISD for those commissions. In its negligence cause of action against

Garza, WISD also claimed that Garza failed to perform his duty to WISD of monitoring the

insurance plan, including billing history and payments under the contract, and this failure
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proximately caused injury to WISD.

Appellants moved to compel arbitration under the contract. WISD responded to

the motion to compel on the day of the hearing on the motion. WISD argued in its

response that because the Board "never agreed to the fees listed in the fee schedule" of

the written contract, the contract, "and the arbitration clause therein, [are] void and

unenforceable because the school district cannot be bound by an agreement that the

school district board of trustees has not approved." WISD also argued in its response

that the contract, "as well as the arbitration clause within it, are unenforceable as a matter

of law" because "the fees cited in the fee schedule were different than those approved" by

the Board and there was, therefore, no meeting of minds and, alternatively, the written

contract "constituted a modification to the original agreement."

At the hearing on the motion to compel, WISD argued that Superintendent Rivera

was only authorized to sign an agreement that contained fee provisions approved by the

Board at its May 14, 2007 meeting. In support of its arguments, WISD introduced the

agenda and minutes for the May 14 Board meeting and the testimony of Board member

Ivan Perez, who testified that the Board authorized an $8 per employee per month fee,

not a value-based fee system. In his testimony, Perez also stated that: the Board

discovered the value-based fee schedule during the 2007-2008 school year; WISD

continued the contract for the 2008-2009 school year; WISD never attempted to rescind

the contract during that time; and Dr. Rivera was never admonished for signing an

unauthorized agreement. Perez provided no testimony regarding the Board's approval

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or lack of approval of the arbitration clause.2 The trial court then denied Aetna's motion

to compel arbitration, and this accelerated appeal followed.

II. Aetna's Notice of Appeal

We note as a threshold matter that WISD devotes a considerable amount of its

brief to a contention that this Court lacks jurisdiction because Aetna's notice of appeal

was untimely. The order denying arbitration was entered on July 21, 2011. Using that

date, the rules provide that Aetna had until August 10, 2011 to file its notice of appeal.

See TEX. R. APP. P. 26.1(b). Aetna's notice was not filed until August 11, 2011. Aetna

filed a motion for extension of time to file its notice of appeal on August 15, 2011. See

TEX. R. APP. P. 26.3. We granted that motion. At oral argument, WISD moved that we

reconsider the granting of Aetna's motion to extend time, arguing that Aetna's motion did

not comply with rule 10.5 in that it provided an inadequate reason for the late filing. See

TEX. R. APP. P. 10.5(b) (providing that a motion to extend time to file a notice of appeal

must state, in relevant part, "the facts relied on to reasonably explain the need for an

2
With regard to the arbitration clause, specifically, Perez's only testimony was as follows:
[Counsel for Garza]: You said and I wrote it down that the superintendent
brought to the Board concerns about the cost for the
program.
Did the superintendent, Dr. Rivera, ever come to the
Board with the concern that in this written contract that
had been in force for two years that there was an
arbitration provision?
....
[Perez]: Did he ever come to the Board and tell the Board that –
[Counsel for Garza]: Yeah, did the superintendent who had been in charge of
administering the day-to-day affairs of the District ever
come to the Board and say, hey, you guys, they've stuck
an arbitration provision in this contract. It didn't happen,
did it?
[Perez]: No.
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extension"). We find WISD's arguments concerning Aetna's motion for extension

unconvincing.

In determining whether an appellant's motion for extension of time complies with

rules 26.3 and 10.5, we apply a liberal standard; "[a]ny conduct short of deliberate or

intentional noncompliance qualifies as inadvertence, mistake, or mischance." Garcia v.

Kastner Farms, Inc., 774 S.W.2d 668, 670 (Tex. 1989); see also Hone v. Hanafin, 104

S.W.3d 884, 887 (Tex. 2003). Thus, the proper focus is whether the appellant

deliberately or intentionally failed to comply—in other words, whether the circumstances

show the party made "a decision to ignore" the deadline for filing its notice of appeal.

Calce v. Dorado Exploration, Inc., 309 S.W.3d 719, 731-32 (Tex. App.—Dallas 2010, no

pet.) Here, Aetna's motion for extension of time included the affidavit of its counsel, in

which counsel averred as follows:

3. Aetna's counsel did not find out about the [order denying the
motion to compel] entered on July 21, 2011 . . . until August 11, 2011. On
August 11, 2011, at approximately 2:00 p.m., we learned from [WISD]'s
counsel that a docket control conference had been set for 2:30 p.m. that
day, and that the Court had ruled on pending motions and had signed an
Order on July 21, 2011. Before that time, Aetna's counsel had not
received any notice from the court, and neither knew nor had notice of the
court's Order.

4. Assuming the Order was signed on July 21, 2011, Aetna's notice
of accelerated appeal would have been due August 10, 2011. Aetna filed
its notice of accelerated appeal on August 11, 2011, however, the same day
it found out about the order.

The record substantiates counsel's averments. The facsimile time-stamp

indicates that Aetna filed its notice of appeal at approximately 4:45 p.m. on August 11,

2011, only two hours after it learned from WISD's counsel of the trial court's order.

These are not circumstances showing that Aetna made a deliberate and intentional
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decision to ignore the appellate deadlines. Rather, Aetna's prompt filing of their notice of

appeal within hours of first learning of the trial court's order shows diligence. This is not a

case, as WISD contends, where Aetna made no effort to provide an explanation. The

affidavit provided by Aetna's counsel demonstrates circumstances of inadvertence,

mistake, or mischance such that an extension of time was appropriate.

In light of the foregoing, we cannot agree with WISD that we lack jurisdiction over

Aetna's accelerated appeal. The explanation provided in the motion for extension of

time was adequate. We deny WISD's motion to reconsider our granting of Aetna's

motion for extension of time and conclude that Aetna has properly invoked our

jurisdiction.

III. The Motion to Compel

Appellants argue that the trial court abused its discretion in denying their motion to

compel arbitration. We agree.

A. Standard of Review & Applicable Law

In general, we review a trial court's denial of a motion to compel arbitration under

an abuse of discretion standard. In re Labatt Food Serv., 279 S.W.3d 640, 642-43 (Tex.

2009). A trial court abuses its discretion when it acts arbitrarily or unreasonably and

without reference to any guiding rules or principles. Downer v. Aquamarine Operators,

Inc., 701 S.W.2d 238, 241-42 (Tex. 1985). Under this abuse of discretion standard, we

defer to the trial court on factual determinations, but review legal issues de novo. In re

Labatt Food Serv., 279 S.W.3d at 642-43.

"In evaluating a motion to compel arbitration, a court must determine first whether

a valid arbitration agreement exists, and then whether the agreement encompasses the
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claims raised." In re D. Wilson Constr. Co., 196 S.W.3d 774, 781 (Tex. 2006); see also

In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005). The party moving to

compel arbitration bears the burden to show a valid agreement to arbitrate. J.M.

Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Once a party establishes

the existence of an arbitration agreement and that the claim falls within the scope of the

arbitration agreement, though, the trial court must compel arbitration and stay its own

proceedings, unless the party opposing arbitration proves a defense precluding

enforcement. In re C & H News Co., 133 S.W.3d 642, 645 (Tex. App.—Corpus Christi

2003, orig. proceeding). Here, WISD has never disputed the scope of the arbitration

clause at issue; the defenses it advanced before the trial court and now on appeal are

relevant only to the first prong of the determination, whether a valid arbitration agreement

exists. And whether a valid arbitration agreement exists is a legal question that we

review de novo. In re D. Wilson Constr. Co., 196 S.W.3d at 781; J.M. Davidson, Inc.,

128 S.W.3d at 227.

An arbitration provision is severable from the remainder of the contract for

purposes of determining its validity. Buckeye Check Cashing, Inc. v. Cardegna, 546

U.S. 440, 445 (2006).

Challenges to the validity of arbitration agreements "upon such grounds as
exist at law or in equity for the revocation of any contract" can be divided
into two types. One type challenges specifically the validity of the
agreement to arbitrate. The other challenges the contract as a whole,
either on a ground that directly affects the entire agreement (e.g., the
agreement was fraudulently induced), or on the ground that the illegality of
one of the contract's provisions renders the whole contract invalid.

Id. at 444 (internal citations omitted). Arbitration agreements "may be invalidated by

'generally applicable contract defenses, such as fraud, duress, or unconscionability.'"
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Rent-A-Center, West, Inc. v. Jackson, 130 S.Ct. 2772, 2776 (2010) (quotation omitted).

But "unless the challenge is to the arbitration clause itself, the issue of the contract's

validity is considered by the arbitrator in the first instance." Buckeye Check Cashing,

546 U.S. at 445-46. "[A] party's challenge to another provision of the contract, or to the

contract as a whole, does not prevent a court from enforcing a specific agreement to

arbitrate." Rent-A-Center, 130 S.Ct. at 2778; see In re Olshan Found. Repair Co., 328

S.W.3d 883, 898 (Tex. 2010) ("[W]hen the parties have contracted for arbitration of their

disputes, a trial court 'may consider only issues relating to the making and performance of

the agreement to arbitrate.'" (quotation omitted)).

B. Aetna's Motion to Compel

The motion to compel in this case was based on the arbitration clause in Aetna's

written contract with WISD. Because each of WISD's causes of action arose from the

contractual relationship between it and Aetna, the scope of the arbitration clause covered

every cause of action brought by WISD in its suit against Aetna—WISD does not dispute

the scope of the clause. The only disputed issue before the trial court and before us now

on appeal is whether appellants met their burden to prove a valid agreement to arbitrate.

We believe they met this burden.

The evidence before the trial court included the written contract with Aetna signed

by WISD Superintendent Rivera, whom Board member Perez testified was authorized to

sign contracts on WISD's behalf. WISD pled in its petition that the written contract

"constituted an enforceable agreement." The General Conditions Addendum to this

written contract contained the arbitration clause, which plainly provided for the arbitration

of all disputes arising out of the contract. The contract also contained an integration
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clause on its first page, stating that the written contract "constitutes the complete and

exclusive agreement between the parties and supersedes" any prior oral agreements or

understandings. Finally, the testimony of Board member Perez at the hearing on the

motion to compel indicated that the Board at least tacitly approved of the arbitration

clause: he testified that, although other provisions, i.e., the fee schedule, were

eventually discovered to be problematic, the arbitration clause was never brought to the

Board's attention or otherwise questioned. This evidence all supports a conclusion that

the arbitration clause relied upon by appellants in their motion to compel was valid.

The only evidence negating the validity of the contract related to the validity of the

contract, as a whole, not to the arbitration clause, specifically, and the trial court was

therefore not permitted to consider it in making its determination on the validity of the

arbitration clause. See In re Olshan Found. Repair Co., 328 S.W.3d at 898. In both its

response to the motion to compel and now on appeal, WISD makes the following

arguments concerning the validity and enforceability of its written contract with Aetna.

First, citing the Texas Education Code and various cases interpreting its requirements,

WISD argues that because the Board never approved the fee schedule contained in the

written contract, Superintendent Rivera had no authority to sign that contract. See TEX.

EDUC. CODE ANN. § 11.151 (West 2006) (identifying the general duties of the school

board), § 11.1511 (identifying specific duties of the school board, including entering

contractual relationships and delegating contractual authority to the superintendent), §

11.201 (identifying the duties of the superintendent) (West Supp. 2011); Davis v.

Duncanville Indep. Sch. Dist., 701 S.W.2d 15, 17 (Tex. App.—Dallas 1985, writ dism'd)

("The legislature has granted to the Board of Trustees of the District the exclusive power
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to manage and govern the schools within its jurisdiction. It is a well-established rule in

Texas that where the legislature has committed a matter to a political subdivision of the

state, that subdivision may act only as a body corporate at a properly called meeting.

This general rule applies to governing bodies of school districts." (citations omitted));

Toyah Indep. Sch. Dist. v. Pecos-Barstow Indep. Sch. Dist., 466 S.W.2d 377, 380 (Tex.

Civ. App.—San Antonio 1971, no writ) (same). WISD also argues generally that there

was no meeting of the minds on the fee schedule and that the written contract signed by

Superintendent Rivera constituted a modification to the original agreement between the

parties. Each of these arguments is a challenge to formation and subsequent

performance and enforcement of the contract, as a whole, not the arbitration clause,

specifically.3 See Rent-A-Center, 130 S.Ct. at 2778; Buckeye Check Cashing, 546 U.S.

at 445-46. The trial court was not permitted to consider the foregoing arguments in

making its determination on the validity of the arbitration clause because the only relevant

arguments in that regard would have been those related to the making of the agreement

to arbitrate, specifically. See In re Olshan Found. Repair Co., LLC, 328 S.W.3d at 898.

In sum, we conclude that appellants met their burden to prove the existence of a

valid agreement to arbitrate, and WISD's arguments to the contrary were relevant only to

the validity of the contract as a whole, issues that are reserved for the arbitrator to resolve.
3
On appeal, WISD also argues that the written contract was void and unenforceable because the
earlier terms accepted by the Board did not contain an arbitration provision. But to the extent we can
construe this argument as a direct challenge to the validity of the arbitration agreement, WISD makes it for
the first time on appeal. Neither in its written response to Aetna's motion to compel nor at the hearing on
Aetna's motion did WISD specifically challenge the validity of the arbitration clause. WISD's only
substantive challenge to the arbitration clause is made for the first time in its appellate brief, wherein it
argues that the Board never approved the arbitration clause and Superintendent Rivera thus had no
authority to sign a contract containing an arbitration clause. This argument differs markedly from the
arguments made before the trial court, which were plainly challenges to the validity of the contract as a
whole, not the arbitration clause, specifically. We may not address for the first time on appeal an argument
never made to the trial court. See TEX. R. APP. P. 33.1.
11
See id.; J.M. Davidson, Inc., 128 S.W.3d at 227; see also Buckeye Check Cashing, 546

U.S. at 445-46. In light of this, the trial court did not follow guiding rules and principles

and therefore abused its discretion in denying the motion to compel. Appellants' issues

regarding the validity and enforceability of the arbitration clause are sustained.4

C. Applicability of Arbitration Clause to Garza

Garza argues by a separate issue that the trial court erred in denying the motion to

compel as to him, specifically, because he was entitled to invoke the arbitration clause as

a non-signatory to the contract between Aetna and WISD. Again, we agree.

Under the doctrine of equitable estoppel, a non-signatory to an agreement may be

bound by an arbitration clause when the signatory plaintiff must rely on the agreement in

asserting claims against the non-signatory. In re Merrill Lynch Co. FSB, 123 S.W.3d

549, 555 (Tex. App.—San Antonio 2003, orig. proceeding) (citing Grigson v. Creative

Artists Agency, LLC, 210 F.3d 524, 527-28 (5th Cir. 2000)); see also Lette v. Brooke

Corp., No. 13-02-00527-CV, 2004 WL 1797578, at *5 (Tex. App.—Corpus Christi Aug.

12, 2004, pet. denied) (mem. op.). "When each of a signatory's claims against a

non-signatory makes reference to or presumes the existence of the written agreement,

the signatory's claims arise out of and relate directly to the written agreement, and

arbitration is appropriate." In re Merrill Lynch, 123 S.W.3d at 555 (citation omitted).

Garza was not a signatory to the contract between Aetna and WISD. But in each

of WISD's claims against Garza—fraud, negligent misrepresentation, tortious

interference, and violation of the Texas Theft Liability Act—WISD relied on its contract

4
Having sustained Aetna's issue for the reason that the evidence proved a valid agreement to
arbitrate and that WISD failed to specifically challenge the validity of the agreement to arbitrate, we need
not address the remainder of Aetna's arguments. See TEX. R. APP. P. 47.1.
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with Aetna. Each claim against Garza was based either: on the theory that Aetna

improperly invoiced WISD, under the contract's billing arrangements, for the commissions

Aetna owed Garza; or on the theory that Garza had a duty to WISD to monitor the

contract's implementation within WISD. In short, each of WISD's claims against Garza

made reference to and presumed the existence of the written agreement between WISD

and Aetna, and arbitration of those claims was appropriate. See id. We therefore

conclude that the trial court abused its discretion in failing to enforce the arbitration clause

with respect to WISD's claims against Garza. We sustain Garza's separate appellate

issue regarding the specific applicability to him of the arbitration clause in the contract

between Aetna and WISD.

IV. Conclusion

We reverse the order of the trial court denying appellants' motion to compel and

remand for proceedings consistent with this opinion.

NELDA V. RODRIGUEZ
Justice

Delivered and filed the
31st day of May, 2012.

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