Brown Lab Investments, LLC , Joel Katz and Andrea Katz v. Lane Moesser

Opinion issued December 14, 2023

In The

Court of Appeals
For The

First District of Texas
————————————
NO. 01-21-00668-CV
———————————
BROWN LAB INVESTMENTS, LLC, JOEL KATZ, AND ANDREA KATZ,
Appellants
V.
LANE MOESSER, Appellee

On Appeal from the 190th District Court
Harris County, Texas
Trial Court Case No. 2016-35154

MEMORANDUM OPINION

Appellants Brown Lab Investments, LLC, Joel Katz, and Andrea Katz appeal

from the trial court’s order denying their motion to vacate, and granting the motion

of appellee, Lane Moesser, to confirm an arbitration award. This is the second time

that this case comes to our Court.
 In the first appeal, we reversed the trial court’s confirmation of an arbitration

award and remanded for the trial court to conduct an independent review on an issue

of substantive arbitrability. Specifically, whether Brown Lab and the Katzes are

bound to the arbitration agreement even though they are non-signatories. Brown Lab

Investments, LLC v. Moesser, No. 01-16-00837-CV, 2018 WL 3733453 (Tex.

App.—Houston [1st Dist.] Aug. 7, 2018, no pet.) (mem. op.). The trial court’s

judgment on remand answered that issue in the affirmative.

In this second appeal, Brown Lab and the Katzes now challenge that judgment

and raise four issues. They principally argue that the trial court erred in confirming,

and not vacating, the arbitration award against them because they are non-signatories

to the arbitration agreement. They also challenge the award of damages against them

as being “inconsistent with” the terms of the agreements at issue.

We reverse and render judgment vacating the arbitration award.

Background1

In 2011, Align Strategic Partners, LLC (“Align”),2 a Delaware limited liability

company with its principal place of business in Houston, Texas, was a recruiting

1
Much of these background facts come from our previous opinion in this case. See
Brown Lab Investments, LLC v. Moesser, No. 01-16-00837-CV, 2018 WL 3733453
at *1–5(Tex. App.—Houston [1st Dist.] Aug. 7, 2018, no pet.) (mem. op.).
2
Align has filed for bankruptcy and is not a party to this appeal. Infra. n.8.

2
firm that specialized in placing finance, accounting, and information-technology

professionals in employment positions. The controlling interest in Align was held

by Brown Lab, a Delaware limited liability company with its principal place of

business in Chicago, Illinois. The controlling interest in Brown Lab was owned by

the Katzes, who were residents of the State of Utah.

Moesser, in his Amended and Restated Summary of Dispute and Request for

Relief, alleged that, in 2011, when Align was formed, Joel Katz contacted him, along

with other prospective owners, and “recruited them away from their positions at

reputable employment recruiting companies with a promise of starting a new

accountant recruiting business in which they would be part owners.” Moesser

became an employee and vice president of Align and an owner with a minority

interest.

On September 12, 2011,3 Moesser and Align executed three contracts. First,

they executed an Employment Agreement (the “Employment Agreement”). It

governed the terms of Moesser’s employment and required him to purchase a

3
There is some discrepancy in the record as to the effective date of the Operating
Agreement. Brown Lab and the Katzes submitted as a defense exhibit a copy of the
Operating Agreement listing the effective date of the agreement as August 17, 2011.
Moesser likewise submitted the same version as a plaintiff’s exhibit. Attached to
his motion to confirm the arbitration award, however, is a copy of the Operating
Agreement that lists the effective date as September 12, 2011, the same date as the
Employment Agreement and the Purchase Agreement. At the hearing, the parties
agreed that the three agreements were entered into at the same time by Moesser. On
appeal, the parties do not dispute the effective date of the Operating Agreement.

3
membership interest in Align. The Employment Agreement contains an arbitration

provision that provides:

Arbitration. Any dispute or claim arising to [sic] or in any way related
to this Agreement shall be settled by binding arbitration in Houston,
Texas, but any dispute or controversy arising out of or interpreting this
Agreement shall be settled in accordance with the laws of the State of
Illinois as if this Agreement were executed and all actions were
performed hereunder within the State of Illinois. All arbitration shall be
conducted in accordance with the rules and regulations of the American
Arbitration Association (“AAA”). . . .
Moesser and Align also executed a Membership Interest Purchase Agreement

(the “Purchase Agreement”) under which Moesser paid $63,333 for a 7.5 percent

membership interest in Align. The Purchase Agreement is attached to the

Employment Agreement as an exhibit. The Employment Agreement and the

Purchase Agreement are both signed by Moesser and by Andrea Katz in her capacity

as a representative of Brown Lab, on behalf of Align.

Moesser and Align additionally executed a Limited Liability Company

Agreement (the “Operating Agreement”). It governed the operation of Align and its

relationship with its members, including Moesser. The Operating Agreement was

also signed by the other members of Align, including Brown Lab, which held an

82.5 percent interest.4 The Operating Agreement does not contain an arbitration

4
At the time of the execution of the Operating Agreement, Align had two other
members: Brandy Hanna and La Shunda Ennett, who each owned a 5% interest in
Align.
4
provision. It does not reference the Employment Agreement or the Purchase

Agreement.

It is undisputed that Brown Lab and the Katzes did not sign any of these

agreements in their individual capacities.

Moesser later asserted that the Katzes, through their ownership of Brown Lab,

maintained control over the management of Align and the distribution of its profits

to the minority shareholders. Moesser claimed that the Katzes, through Brown Lab,

“took improper advantage of their majority status and began to siphon money away

from the business in contravention of their fiduciary duties to their minority

shareholders,” including using Align’s funds to partially finance their unrelated

businesses; to pay individuals who were not providing services to Align; and to pay

excessive travel expenses for the Katzes and excessive management fees to Andrea.

Moesser asserted that the Katzes’ conduct reduced the distribution of profits

to the minority owners to nominal sums. In November 2014, after Moesser voiced

objection to the alleged misuse of Align’s funds, Joel Katz discharged him from his

employment with Align. It is undisputed that Moesser’s employment with Align

was terminated “without cause.”

Align subsequently notified Moesser that it had chosen to exercise its

contractual right in the Purchase Agreement to repurchase his membership interest

as follows:

5
 It is Align’s view that an independent appraisal of the Purchased
Interests is not worthwhile, as the fair market value of the Purchased
Interests is substantially lower than the amount you paid for the
Purchased Interests.

By the time you receive this letter, you will have already received
a wire transfer in the amount of $63,333.00, the amount you have paid
for the Purchased Interests, representing the purchase price for the
Purchased Interests in accordance with Section 4(b) of the Purchase
Agreement. This amount is given to you in full satisfaction and
repurchase of your membership interest in Align, and effective
immediately you no longer have any rights with respect to the
Purchased Interests.

Moesser rejected Align’s repurchase. He believed that the value of his interest

was not properly derived in accordance with the terms of the Purchase Agreement.

In that regard, section 4(b) of the Purchase Agreement, “Repurchase Rights of the

Company,” states:

In the event that the Employment Agreement between [Align]
and the Subscriber [Moesser] dated September 12, 2011 . . . is
terminated, then for a period of sixty days following such termination,
[Align] shall have the option to repurchase the Purchased Interests from
the Subscriber [Moesser], as follows:
....

(b) If the Employment Agreement is terminated by [Align]
without Cause, . . . then the price [Align] must pay upon the exercise of
its option shall be the higher of . . . [the] price paid by [Moesser]for the
Purchased Units as set forth in this Agreement, or the then current
Agreed Value of the Purchased Units (as such term is defined in the
[Operating Agreement]).

6
 The Operating Agreement defines the term “Agreed Value” as “the fair

market value of an asset as of the date of valuation, which shall be determined . . .

by an independent appraiser selected by the Board of Managers.”

After Moesser disputed Align’s valuation of his interest, Align selected an

appraiser who prepared a Summary Appraisal Report (the “Report”). The appraiser

concluded that “[b]ased on the data, information, and analysis presented in this

[Report], it is our opinion that the fair market value of [Moesser’s interest in Align]

was $42,375 on a minority, non-marketable basis as of December 31, 2014.”

Moesser asserted that the Board of Managers, which he noted was controlled

by the Katzes, had chosen the appraiser, and that the Report presented a

“fundamentally flawed valuation analysis based upon entirely false and misleading

data,” provided by the Katzes, that “purport[ed] to value the entire enterprise at an

amount roughly equal to the liquidation value of two-months-worth of outstanding

receivables.”

Disputing the independence, validity, and accuracy of the report, Moesser,

pursuant to the Operating Agreement and the Delaware Limited Liability Company

Act, requested that Align provide him copies of its financial records relevant to

evaluating its “true fair market value.” Align refused. It asserted that Moesser had

already been “fully compensated” for his membership interest and was no longer a

member of Align entitled to such information.

7
 Align then sued Moesser in a Court of Chancery in Delaware. Align sought

a declaration that it validly repurchased Moesser’s ownership interest in Align, that

Moesser was no longer a member, and that it was not obligated to respond to

Moesser’s business records demands because Moesser was divested of any interest

in Align. See Align Strategic Partners LLC v. Moesser, C.A. No. 11240-VCN, 2016

WL 791261, at *1 (Del. Ch. Feb. 26, 2016).5 Align also claimed that Moesser

breached the Operating Agreement by disputing the repurchase of his interest.

Moesser filed a motion to dismiss the Delaware action on the basis that the

dispute was subject to the arbitration provision in the Employment Agreement.

The Delaware court concluded that the gravamen of Align’s suit was that it

had “extinguished Moesser’s ownership rights when it sent him the Repurchase

Notice and wired $63,333 to his bank account”—a claim that “indisputably

implicates the Purchase Agreement . . . [which] does not include an arbitration

clause.” Id. at *4. Thus, the question before the Delaware court was “whether the

Employment Agreement and Purchase Agreement have the same subject matter such

that the former’s arbitration clause justifiably covers this dispute under Illinois law.”

Id. The Delaware court concluded that they do.

It reasoned that although only the Employment Agreement contains an

arbitration clause, the Employment Agreement, Purchase Agreement, and Operating

5
Brown and the Katzes were not named parties to the suit in the Delaware court.
8
Agreement each contain provisions that address, in varying degrees, Align’s ability

to repurchase Moesser’s interest when his employment ended. See id. at *2. The

Employment Agreement provides for both Moesser’s initial purchase of “units of

membership interest” and Align’s option to repurchase those units. Id. at *1. The

Purchase Agreement, which is attached to the Employment Agreement as an exhibit,

provides a framework for Align’s repurchase of Moesser’s units.

The Delaware court further noted that the Purchase Agreement does not define

several terms critical to determining how much Moesser is owed, such as “Cause,”

“Good Reason,” and “Agreed Value.” Id. at *2. Rather, those terms are defined in

the Employment Agreement or, as is the case of the term “Agreed Value,” defined

in the Operating Agreement. Id.

The Delaware Court thus reasoned that “read in concert, the three agreements

define a process for determining how much Align ‘must pay’ Moesser for his Units

should it decide to exercise its repurchase option upon termination of Moesser’s

Employment Agreement.” Id. It then concluded that the Employment Agreement’s

broad, generic arbitration clause applied to the dispute between Align and Moesser.

As a result, the Delaware Court dismissed, in favor of arbitration, the portion

of the suit before it regarding whether Align had effectively repurchased Moesser’s

ownership interest. It also stayed, pending the results of the arbitration, the

remaining portion of the suit relating to Align’s request for a declaration regarding

9
Moesser’s business records demand “because that claim does not arise under the

Purchase Agreement or the Employment Agreement and requires a determination as

to Moesser’s membership status.” Id. at *5.

The dispute then proceeded to arbitration in Houston, Texas. Moesser

subsequently added new claims against Brown Lab and the Katzes, in their

individual capacities, for breach of contract, breach of fiduciary duty, breach of the

duty of good faith and fair dealing, fraud, conversion, and conspiracy. Moesser

asserted that Align, Brown Lab, and the Katzes “were, at all material times, the alter

egos of one another” and that the alleged acts and omissions of the defendant entities

were engaged in by their officers and agents. Moesser sought $1,000,000 in actual

damages, $3,000,000 in exemplary damages, attorney’s fees, interest, and costs.

Brown Lab and the Katzes objected to being included in the arbitration

because they are not parties to the Employment Agreement and did not otherwise

agree to arbitrate the claims made against them.

The arbitrator denied their objection and issued a Final Award against them,

jointly and severally, for $750,000 in “actual damages for all of the claims and

causes of action” that Moesser asserted in the arbitration.6 The arbitrator also ruled

that, following payment of the award, Moesser “shall no longer hold any ownership

interest in, and shall no longer be a member of,” Align.

6
The arbitrator denied Moesser’s request for exemplary damages.

10
 Moesser moved to confirm the arbitration award in the trial court below.

Align, Brown Lab, and the Katzes moved to vacate the award on the following

grounds: (1) they are not parties to any arbitration agreement with Moesser; (2) the

issue of whether non-signatories to a contract can be bound by an arbitration clause

therein constitutes a threshold matter of arbitrability for the courts, not arbitrators,

to decide; and, (3) the arbitrator “exceeded his powers” by determining the issue of

arbitrability.

The trial court granted Moesser’s motion to confirm the arbitration award and

denied the motion to vacate by Align, Brown Lab, and the Katzes. After a hearing,

the trial court signed a final judgment in accordance with its order confirming the

arbitration award. Align, Brown Lab, and the Katzes appealed that final judgment.

Shortly after the trial court signed its final judgment, Align filed a voluntary

petition for bankruptcy in the United States Bankruptcy Court for the Southern

District of Texas.7 The bankruptcy filing suspended the first appeal in this Court.

7
During the course of Align’s bankruptcy proceedings, a trustee was appointed by
the bankruptcy court to manage Align’s estate. The trustee filed an adversary
proceeding against Brown Lab and the Katzes asserting various claims, including
claims for alleged fraudulent transfers from Align to Brown Lab and the Katzes.
The trustee, Brown Lab, and the Katzes ultimately reached a settlement of the
adversary complaint.

11
See TEX. R. APP. P. 8.2. Moesser, Brown Lab, and the Katzes filed a joint motion to

sever Align’s appeal so the appeal between them could proceed—which we granted.8

In our first opinion, we reversed the trial court’s judgment confirming the

arbitration award and remanded for that court to conduct an independent review of

the issue of arbitrability. Brown Lab Investments, 2018 WL 3733453, at *11. We

concluded that Brown Lab and the Katzes, in their individual capacities, are non-

signatories to the arbitration agreement. And that the question of whether Brown

Lab and the Katzes can be bound by the arbitration agreement is a matter for the trial

court to decide, thus the arbitrator exceeded his authority by deciding that “gateway

issue.”9 Id. at *11.

On remand, Moesser filed a second motion to confirm the arbitration award.

Moesser argued that Brown Lab should be deemed a signatory of the Employment

Agreement (which contains the arbitration provision), because the Employment

Agreement, Purchase Agreement, and Operating Agreement should be construed

together as a single contract.

8
We severed Align’s appeal into separate cause number 01-16-01019-CV, styled
Align Strategic Partners, LLC v. Lane Moesser, where it remains suspended. We
also ordered that the instant appeal be restyled as Brown Lab Investments, LLC, Joel
Katz and Andrea Katz v. Lane Moesser. See TEX. R. APP. P. 8.3(b).
9
We expressly did not reach the question of whether Brown Lab and the Katzes, in
their individual capacities, might nevertheless be bound to arbitrate under principles
of contract and agency law. Brown Lab Investments, 2018 WL 3733453, at *9 n.7.

12
 Moesser also argued that, even if Brown Lab is deemed not to be a signatory

to the arbitration agreement, Brown Lab and the Katzes should nevertheless be

bound as non-signatories under a veil-piercing/alter ego theory. Brown Lab and the

Katzes responded and again moved to vacate the award.

In March 2021, the trial court conducted a multi-day evidentiary hearing on

the issue of arbitrability. Much of the evidence and testimony focused on the theory

that Brown Lab and the Katzes were the alter egos of Align. The trial court then

made the following rulings on the arbitrability of Moesser’s claims against Brown

Lab and the Katzes:

1. Moesser’s claims against Brown Lab and the Katzes are
arbitrable;
2. Based on the totality of the circumstances and an evaluation
of the evidence and testimony presented and the credibility of the
witnesses, Moesser’s Employment Agreement, the Membership
Interest Purchase Agreement, and the Align Strategic Partners LLC
Operating Agreement were contemporaneously executed as part of a
single transaction and should be construed together as one agreement;

3. Based on the totality of the circumstances and an evaluation
of the evidence and testimony presented and the credibility of the
witnesses, Brown Lab and the Katzes acted as alter egos of Align
Strategic Partners, LLC (“Align”), and

4. Based on the totality of the circumstances and an evaluation
of the evidence and testimony presented and the credibility of the
witnesses, the Katzes acted as alter egos of Brown Lab in Brown Lab’s
dealings with Align.

....

13
 5. Brown Lab and the Katzes are subject to arbitration under
Moesser’s Employment Agreement with Align under the alter ego
doctrine; and

6. Separately, and in the alternative, Brown Lab is subject to
arbitration under Moesser’s Employment Agreement with Align
because the Employment Agreement, the Membership Interest
Purchase Agreement, and the Align Operating Agreement were all
executed as part of a single, contemporaneous transaction and thus must
be construed together.10

Thereafter, the trial court confirmed the arbitration award in its entirety and

signed a new final judgment to that effect. Brown Lab and the Katzes now appeal

that final judgment.

Arbitrability

Brown Lab and the Katzes argue that the trial court erred in confirming, and

not vacating, the arbitration award for four reasons.

First, that the trial court erred in determining that Brown Lab and the Katzes

acted as alter egos of Align, and that the Katzes acted as alter egos of Brown Lab in

their dealings with Align, such that they could be bound to Align’s arbitration

agreement with Moesser.

Second, that the trial court erred in finding that the Employment Agreement,

Purchase Agreement, and Operating Agreement were part of a single transaction,

10
Moesser also argued that Brown Lab and the Katzes were subject to the arbitration
provision because each were intended third-party beneficiaries to the Employment
Agreement. The trial court did not conclude that the Katzes or Brown Lab was
bound by the arbitration provision under this theory and Moesser does not argue on
appeal that this theory applies. So, it is not before us.
14
such that they can be construed together to bind Brown Lab to the arbitration

agreement in the Employment Agreement.

Third, that the arbitrator exceeded his powers by disregarding the independent

appraisal, requiring Align to exercise its option to repurchase Moesser’s interest, and

forcing Brown Lab and the Katzes to repurchase Moesser’s interest in Align.

And fourth, that the trial court’s determination that the claims against Brown

Lab and the Katzes were arbitrable was erroneous.

The first two issues are dispositive of this appeal. See TEX R. APP. P. 47.1.

Standard of Review and Applicable Law

We review a trial court’s decision to vacate or confirm an arbitration award

de novo based on a review of the entire record. Port Arthur Steam Energy LP v.

Oxbow Calcining LLC, 416 S.W.3d 708, 713 (Tex. App.—Houston [1st Dist.] 2013,

pet. denied). When a trial court renders a final judgment confirming an arbitration

award, the court’s interlocutory orders merge into the judgment and can be

challenged on appeal of that judgment. Bonsmara Natural Beef Co., LLC v. Hart of

Texas Cattle Feeders, LLC, 603 S.W.3d 385, 390 (Tex. 2020).

Because judicial review “adds expense and delay, thereby diminishing the

benefits of arbitration as an efficient, economical system for resolving disputes,”

review of an arbitration award is “extraordinarily narrow.” CVN Group, Inc. v.

Delgado, 95 S.W.3d 234, 238 (Tex. 2002); E. Tex. Salt Water Disposal Co. v.

15
Werline, 307 S.W.3d 267, 271 (Tex. 2010). An arbitration award is presumed valid

and is entitled to great deference. Royce Homes, L.P. v. Bates, 315 S.W.3d 77, 85

(Tex. App.—Houston [1st Dist.] 2010, no pet.).

Under this standard of review, every reasonable presumption must be

indulged to uphold an arbitrator’s decision, and none is indulged against it. City of

Baytown v. C.L. Winter, Inc., 886 S.W.2d 515, 518 (Tex. App.—Houston [1st Dist.]

1994, writ denied). Judicial scrutiny of these awards focuses on the integrity of the

arbitration process, not on the propriety of the result. Women’s Reg’l Healthcare,

P.A. v. FemPartners of N. Tex., Inc., 175 S.W.3d 365, 367–68 (Tex. App.—Houston

[1st Dist.] 2005, no pet.). Accordingly, a trial court may not vacate an arbitration

award even if it is based upon a mistake of fact or law. Universal Comput. Sys., Inc.

v. Dealer Sols., L.L.C., 183 S.W.3d 741, 752 (Tex. App.—Houston [1st Dist.] 2005,

pet. denied).

An arbitration award has the same effect as a judgment of a court of last resort,

and a reviewing court may not substitute its judgment for that of the arbitrator merely

because it would have reached a different result. See CVN Grp., 95 S.W.3d at 238;

J.J. Gregory Gourmet Servs., Inc. v. Antone’s Imp. Co., 927 S.W.2d 31, 33 (Tex.

App.—Houston [1st Dist.] 1995, no writ). A party seeking to vacate an arbitration

award bears the burden of presenting a complete record that establishes grounds for

16
vacating the award. Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 568

(Tex. App.—Dallas 2008, no pet.).

An arbitration award governed by the Federal Arbitration Act (“FAA”) must

be confirmed, unless it is vacated, modified, or corrected on certain limited grounds.

See 9 U.S.C. § 9; Thomas James Assocs., Inc. v. Owens, 1 S.W.3d 315, 319–20 (Tex.

App.—Dallas 1999, no pet.). One such ground is “where the arbitrators exceeded

their powers.” 9 U.S.C. § 10(a)(4); Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d

349, 352 (5th Cir. 2009). Arbitrators exceed their powers if they decide matters not

properly before them. Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc.,

294 S.W.3d 818, 829 (Tex. App.—Dallas 2009, no pet.); Barsness v. Scott, 126

S.W.3d 232, 241 (Tex. App.—San Antonio 2003, pet. denied). For instance, an

arbitrator exceeds his or her powers by issuing an arbitration award against a party

who is not subject to arbitration. Rapid Settlements, Ltd. v. Green, 294 S.W.3d 701,

707 (Tex. App.—Houston [1st Dist.] 2009, no pet.).

“[A]rbitration is a matter of contract and a party cannot be required to submit

to arbitration any dispute which he has not agreed so to submit.” Howsam v. Dean

Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (internal quotations omitted). Whether

a person or entity is a party to an arbitration agreement, and therefore bound by any

award issued, presents a question of “arbitrability.” Id.; see also Leshin v. Oliva, No.

04-14-00657-CV, 2015 WL 4554333, at *5 (Tex. App.—San Antonio July 29, 2015,

17
no pet.) (“The question of arbitrability encompasses what claims may be submitted

to arbitration and who can be bound to an arbitration agreement.”).

Determining whether a non-signatory is bound to an arbitration agreement is

a gateway matter of substantive arbitrability for a trial court to decide, not an

arbitrator. See G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 524

(Tex. 2015). This determination is reviewed under a de novo standard. Jody James

Farms, JV v. Altman Group, Inc., 547 S.W.3d 624, 629 (Tex. 2018); see also In re

Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) (whether arbitration

agreement is binding on nonparty is “gateway matter[]” to be decided by trial court).

When the FAA11 governs an arbitration clause, Texas courts apply Texas procedural

rules and Texas substantive law on arbitration, “while endeavoring to keep it as

consistent as possible with federal law.” In re Weekley Homes, 180 S.W.3d at 131.12

11
The parties do not dispute that the FAA applies here. Although Brown Lab and the
Katzes reference the Texas Arbitration Act (“TAA”) in passing in their brief, it is
only to note that in Moesser’s first motion to confirm the arbitration award, he
sought confirmation under both the TAA and the FAA. However, they also point
out in Moesser’s second motion to confirm, he argued that the FAA should apply.
In our previous opinion, we applied the FAA. See Brown Lab Investments, 2018
WL 3733453, at *6 n.6. Having been presented with no argument that the TAA is
applicable here, we again look to the FAA.
12
We note that the Employment Agreement, which contains the arbitration clause,
states that it is governed by Illinois law. The parties do not argue that Illinois law
should apply to the issue of whether a non-signatory can be bound by an arbitration
agreement. Rather, in a passing footnote, Brown Lab and the Katzes simply note
that Illinois law governs the Employment Agreement and that the same six theories
that bind a non-signatory under Texas law apply in Illinois as well. Moesser, for
his part, makes no reference to Illinois law in his alter-ego analysis.

18
 In that regard, “[g]enerally, only signatories to an arbitration agreement are

bound by the agreement.” Elgohary v. Herrera, 405 S.W.3d 785, 789–90 (Tex.

App.—Houston [1st Dist.] 2013, no pet.) (internal quotations omitted).13 However,

Texas and federal law both recognize six theories under which a trial court may

compel a non-signatory to arbitrate. Id. at 793 (citing In re Merrill Lynch Trust Co.,

235 S.W.3d 185, 191 (Tex. 2007), and Bridas S.A.P.I.C. v. Gov’t of Turkmenistan,

345 F.3d 347, 356 (5th Cir. 2003)). They are: (1) incorporation by reference, (2)

assumption, (3) agency, (4) veil-piercing/alter ego, (5) estoppel, and (6) third-party

beneficiary. Bridas, 345 F.3d at 356. Here, the trial court relied on the fourth

theory—veil-piercing/alter ego.

Texas courts may presume that another state’s law is the same as Texas law absent
proof or argument to the contrary. Coca–Cola Co. v. Harmar Bottling Co., 218
S.W.3d 671, 685 (Tex. 2006); Cooper Indus., LLC v. Pepsi-Cola Metro. Bottling
Co., Inc., 475 S.W.3d 436, 442 n.5 (Tex. App.—Houston [14th Dist.] 2015, no pet.).
The party requesting application of a foreign law has the initial burden of showing
that the foreign law conflicts with Texas law. Cooper Indus., 475 S.W.3d at 442 n.5;
see Greenberg Traurig of New York, P.C. v. Moody, 161 S.W.3d 56, 70 (Tex.
App.—Houston [14th Dist.] 2004, no pet.). Because all parties in this case apply
Texas law and do not apply Illinois law or otherwise assert the outcome would be
different under Illinois law, we also apply Texas law to the issue of substantive
arbitrability here involving the non-signatories. Cf. Cooper Indus., LLC, 475
S.W.3d at 442 n.5.
13
See Roe v. Ladymon, 318 S.W.3d 502, 510 (Tex. App.—Dallas 2010, no pet.)
(noting “foundational principle” that arbitration is matter of contract).

19
 1. Piercing the Veil

In their first issue, Brown Lab and the Katzes argue that the trial court’s

decision to pierce the corporate veils of Align and Brown Lab was erroneous because

Moesser, who was a member of Align, cannot pierce the corporate veil of his own

company.14 Specifically, Brown Lab and the Katzes argue that Moesser’s attempt

to pierce the corporate veil of Align fails because Delaware law does not allow a

member of a limited liability company to pierce the veil of his own company.15

They contend that as a member of Align, Moesser obtained the benefits of Align’s

corporate veil and, under Delaware law, he cannot now assert that Align, the

14
Because this issue is dispositive, we do not reach their other arguments regarding
piercing of the corporate veil because they are not necessary to the final disposition
of this appeal. See TEX. R. APP. P. 47.1. In that regard, Brown Lab and the Katzes
also argued that even if Moesser could pierce the corporate veil of his own company,
any effort to do so with respect to a company in bankruptcy (Align) belongs solely
to the bankruptcy trustee—not Moesser. Additionally, they argued that even if
Moesser could overcome these substantive hurdles—the evidence does not support
the trial court’s ruling piercing both Align’s and Brown Lab’s corporate veils.
15
Because Align is a Delaware LLC, Delaware law governs the alter ego
determination. See TEX. BUS. ORGS. CODE § 1.104 (“The law of the jurisdiction that
governs an entity as determined under Sections 1.101-1.103 applies to the liability
of an owner, a member, or a managerial official of the entity in the capacity as an
owner, a member, or a managerial official for an obligation, including a debt or
other liability, of the entity for which the owner, member, or managerial official is
not otherwise liable by contract or under provisions of law other than this code.”);
Ace Am. Ins. Co. v. Huntsman Corp., 255 F.R.D. 179, 195 (S.D. Tex. 2008) (“To
the extent that state law applies to determine whether to bind a non-signatory, courts
have held that the law of the state of incorporation for the entity whose corporate
form is at issue applies to determine whether to pierce the corporate veil.”).
20
company of which he was a member, was a sham and pierce the company’s veil for

his own benefit.

“Delaware public policy disfavors disregarding the separate legal existence of

business entities.” Manichaean Capital, LLC v. Exela Techs., Inc., 251 A.3d 694,

706 (Del. Ch. 2021) (internal quotations omitted). With that said, in “exceptional

case[s],” corporate veil-piercing is necessary and appropriate. Id. Delaware courts

consider a number of factors in determining whether to disregard the corporate form

and pierce the corporate veil, including: “(1) whether the company was adequately

capitalized for the undertaking; (2) whether the company was solvent; (3) whether

corporate formalities were observed; (4) whether the dominant shareholder siphoned

company funds; and (5) whether, in general, the company simply functioned as a

facade for the dominant shareholder.” Id.; see also Doberstein v. G-P Indus., Inc.,

C.A. No. 9995-VCP, 2015 WL 6606484, at *4 (Del. Ch. Oct. 30, 2015). While these

factors are useful, any single one of them is not determinative. Manichaean Capital,

LLC, 251 A.3d at 706–07. An ultimate decision regarding veil-piercing is largely

based on some combination of these factors, in addition to “an overall element of

injustice or unfairness.” Id. (internal quotations omitted).

The doctrine of piercing the corporate veil under Delaware law thus enables

contract creditors to reach the assets of the owners of an entity if they can meet the

multi-factor test discussed above. Virtus Capital L.P. v. Eastman Chem. Co., No.

21
CV 9808-VCL, 2015 WL 580553, at *16 (Del. Ch. Feb. 11, 2015). The doctrine is

also available to tort claimants. Id. Delaware courts, however, traditionally have not

applied the doctrine of piercing the corporate veil “to address internal claims of

mismanagement or self-dealing brought by investors against the entity’s decision-

makers.” Feeley v. NHAOCG, LLC, 62 A.3d 649, 667 (Del. Ch. 2012); Virtus

Capital L.P., 2015 WL 580553, at *16. The doctrine historically has not been

applied in this context because it has been unnecessary—Delaware courts recognize

a direct cause of action for breach of fiduciary duty.

As the Feeley court explained, in the corporate context, Delaware law

provides stockholders with a right of action (either directly or derivatively) against

board members who breach their fiduciary duties of loyalty and care. Feeley, 62

A.3d at 668. Recognizing that breach of fiduciary duty is an equitable claim, courts

applying equitable principles therefore had little trouble extending liability for

breach of fiduciary duty beyond the natural persons who served as directors to

outsiders like majority stockholders who effectively controlled the corporation. Id.

Delaware corporate decisions “consistently have looked to who wields control in

substance and have imposed the risk of fiduciary liability on the actual controllers.”

Id. Delaware courts therefore recognize that those actually in control of various

types of limited liability entities, including corporations, limited partnerships, and

22
LLCs, including the human controllers of the entity fiduciary, may be held liable for

breach of fiduciary duty.16

Moesser contends that this general principal does not apply here because the

question before this Court is not whether Moesser can establish liability against

Brown Lab and the Katzes for mismanaging Align based on an alter ego theory; but,

rather, whether Moesser’s claims, irrespective of their merits, are subject to

arbitration. While it is true that the Feeley court was not considering the threshold

issue in this case, i.e., whether a non-signatory can be bound to an arbitration

agreement based on an alter ego theory—Moesser has not pointed us to any case law

demonstrating that different rules for determining whether to pierce the corporate

veil should apply in the context of binding a non-signatory to an arbitration

agreement than they do for determining ultimate liability based on an alter-ego

theory. Nor are we aware of any.

The single case that Moesser cites for his position that the alter ego theory can

be used by a member or investor in an LLC to compel a non-signatory managing

16
See, e.g., Paige Capital Mgmt. LLC v. Lerner Master Fund, LLC, C.A. No. 5502-
CS, 2011 WL 3505355, at *30 (Del. Ch. Aug. 8, 2011) (imposing fiduciary liability
on individual who was managing member of LLC that acted as general partner for
limited partnership); Kahn v. Lynch Commc’n Sys. Inc., 638 A.2d 1110, 1114–15
(Del. 1994) (holding that 43% stockholder that exercised actual control over
subsidiary could be liable for breach of fiduciary duty); see also In re USACafes,
L.P. Litigation, 600 A.2d 43 (Del. Ch. 1991) (holding individual members of
corporate general partner, who controlled general partner, owed fiduciary duties to
limited partners).
23
member of the LLC to arbitration, Legend Nat’l Gas II Hldgs., LP v. Hargis, No.

C.A. No. 7213-VCP, 2012 WL 4481303, at *6 (Del. Ch. Sept. 28, 2012), is

inapposite.

In that case, Hargis was an investor in, co-founder and Vice President of,

Legend Natural Gas, LLC, a Delaware LLC. Legend Nat’l Gas, 2012 WL 4481303,

at *1. Legend was owned by three limited partnerships, and these three limited

partnerships resulted from a 2011 restructuring of three predecessor partnerships. Id.

Hargis’s employment agreement contained an arbitration provision and was signed

by Hargis and Legend, as well as by the three predecessor partnerships as guarantees.

Id. Hargis was ultimately terminated, and the three limited partnership members of

Legend sued Hargis, seeking a declaratory judgment regarding amounts he was

owed as a result of his termination. Id. at *3. Hargis sought to compel arbitration

based on the arbitration provision contained in his employment agreement. Id. The

limited partnership members responded that they never agreed to arbitrate, because

it was the predecessor partnerships that signed the employment agreement. Id.

The Delaware court in Legend Natural Gas rejected the limited partnership

members’ argument that they were not bound by the arbitration clause in the

employment agreement, holding that they were “successors-in-interest of the

Predecessor Partnerships by virtue of the 2011 restructuring.” Id. at *6. And as a

general rule, “a successor corporation which is merely the ‘alter ego’ of the

24
predecessor is bound by the arbitration clause of an agreement made by the

predecessor.” Id. The court engaged in no further analysis of alter ego principles or

the doctrine of piercing the corporate veil.

Legend Natural Gas is inapplicable here because the Delaware court was not

presented with, and thus did not address, the question before us today, i.e., whether

a minority member can pierce the corporate veil of its own LLC to bind a non-

signatory, managing member to an arbitration agreement. Further, it is undisputed

that Align is not the predecessor-in-interest of Brown Lab or the Katzes. Finally,

Hargis was attempting to bind the limited partnership members to the arbitration

provision on the basis that they were the alter ego of the predecessor partnerships,

not Legend, the LLC of which Hargis was a member. Thus, the factual basis and

the legal basis for the Delaware court’s decision in Legend Natural Gas is different

than here.

We see no reason, and are aware of no reason under Delaware law (or Texas

law for that matter), for applying a different alter ego test in determining whether to

bind a non-signatory to an arbitration agreement than in determining liability. We

therefore conclude that the general rule under Delaware law that the doctrine of

piercing the corporate veil does not apply to internal claims brought by shareholders

or members against controlling persons or entities applies in the arbitration context.

25
 Accordingly, we hold that Moesser, as a member of Align, cannot use the alter

ego theory to bind Brown Lab and the Katzes to the arbitration provision in the

Employment Agreement. Because this is the only non-signatory theory relied upon

by the trial court to bind both Brown Lab and the Katzes to arbitration, we hold that

the trial court erred in ruling that Moesser’s claims against Brown Lab and the

Katzes are arbitrable. We therefore further hold that the arbitrator exceeded his

powers and the trial court reversibly erred in confirming, and not vacating, the

arbitration award as to Brown Lab and the Katzes. See Elgohary, 405 S.W.3d at 789

(citing Rapid Settlements, 294 S.W.3d at 707).

We sustain the first issue.

2. Single Transaction

We next consider whether Brown Lab alone was bound to arbitrate by

construing the Operating Agreement together with the Employment Agreement and

the Purchase Agreement as a single contract. The trial court ruled in its July 9, 2021

order as follows:

Separately, and in the alternative, Brown Lab is subject to arbitration
under Moesser’s Employment Agreement with Align because the
Employment Agreement, the Membership Interest Purchase
Agreement, and the Align Operating Agreement were all executed as
part of a single, contemporaneous transaction and thus must be
construed together.

Brown Lab argues that this ruling exceeds the scope of our prior remand and

therefore is not properly before us. We disagree. The parties did not argue in the

26
prior appeal about whether the Operating Agreement should be construed together

with the Employment Agreement and the Purchase Agreement in considering

arbitrability. As a result, we did not address it in our earlier opinion.17 Brown Lab

Investments, 2018 WL 3733453, at *8–9.

Consequently, in remanding for further proceedings “so that the trial court

may conduct an independent review on the issue of arbitrability,” we did not limit

the trial court’s analysis to just the six non-signatory theories above. Id. at *11; see

also In re Labatt Food Serv., L.P., 279 S.W.3d 640, 644 (Tex. 2009)

(“[N]onsignatories to an agreement subject to the FAA may be bound to an

arbitration clause when rules of law or equity would bind them to the contract

generally.”). As a result, this issue is indeed properly before us in this second appeal.

In that regard, Moesser argues that Texas courts, including this Court, have

recognized this theory as a basis for compelling non-signatories to arbitration and

concluding that “agreements executed at the same time as part of the same

transaction, even if by different parties, which refer to and incorporate terms from

each other, should be read together and can be the basis for compelling non-

signatories to arbitration.”

17
We also did not “reach whether Brown, Andrea, and Joel, as non-signatories to the
arbitration agreement, might nevertheless be bound to arbitrate under principles of
contract and agency law.” Id. at *9 n.7.

27
 In support of this argument, Moesser cites to our opinion in Houston

Progressive Radiology Associates, PLLC v. Lee, 474 S.W.3d 435 (Tex. App.—

Houston [1st Dist.] 2015, no pet.), where we held that non-signatories could be

required to arbitrate claims based on an arbitration agreement executed as part of a

single transaction.18 In that case, two professional associations, Dr. Stephen Lee,

P.A. and Dr. Dean Paul Chauvin, P.A. joined Houston Progressive Radiology

Associates (HPRA). Id. at 439. These professional associations were owned and

controlled by Drs. Lee and Chauvin, respectively, who each participated in HPRA

but were employees of their respective professional associations. Id. Eventually,

Drs. Lee and Chauvin withdrew their respective professional associations from

HPRA and became employees of HPRA. Id. at 440.

18
Brown Lab contends that Texas law should not apply to determine whether these
contracts can be construed together as a single transaction because the Employment
Agreement is governed by Illinois law and the Operating Agreement is governed by
Delaware law. It argues that under Delaware and Illinois law, contracts can only be
construed together when they are executed at the same time, as part of the same
transaction, and by the same parties. See, e.g., Fiat N. Am. LLC v. UAW Retiree
Med. Benefits Tr., No. CV 7903VCP, 2013 WL 3963684, at *8 (Del. Ch. July 30,
2013); Gallagher v. Lenart, 874 N.E.2d 43, 58 (Ill. 2007). Thus, under Delaware
and Illinois law, the Operating, Employment, and Purchase Agreements cannot be
construed together as one agreement because they are signed by different parties.
Because this argument was not raised in the trial court, we do not address it. See
TEX. R.. APP. P. 33.1; see also Kubbernus v. ECAL Partners, Ltd., 574 S.W.3d 444,
473 (Tex. App.—Houston [1st Dist.] 2018, pet. denied) (“Choice of law issues can
be waived if not properly invoked.”). But in applying Texas law to this issue, as we
must, supra n.12, we end up in the same place―holding that these agreements
cannot be construed together for the purpose of determining whether Brown Lab is
bound by the arbitration provision in the Employment Agreement that it did not
sign.

28
 To effectuate this change, Drs. Lee and Chauvin each executed two

documents: (1) a membership interest transfer and general release agreement, which

set forth the terms of Lee P.A.’s and Chauvin P.A.’s respective sales of their

ownership interests in HPRA and were signed by the professional associations and

HPRA, and (2) the physician employment agreements, which set forth the terms of

Dr. Lee’s and Dr. Chauvin’s employment with HPRA and were signed by Drs. Lee

and Chauvin and HPRA. Id. All of the documents bore the same effective date and

were drafted by counsel for HPRA. Id. Each transfer agreement required the

signatory doctor to execute an employment agreement, described the transaction as

a “transition from being a Member . . . to an employee,” and contained other

provisions explicitly referring to the respective doctor’s employment agreement. Id.

In turn, the employment agreements in Houston Progressive referred to the

respective doctor’s transfer agreement and the sales effected by those transfer

agreements, including providing that HPRA would pay the doctors bonuses “as

consideration for Employee agreeing to transition from being a Member of [HPRA]

to an Employee.” Id. at 441. Significantly, the employment agreements, signed by

Drs. Lee and Chauvin individually, contained an arbitration provision. Id. The

transfer agreements, signed by the doctors’ respective professional associations, did

not. Id.

29
 The doctors’ professional associations sued HPRA, arguing that it had

breached its fiduciary duties and that it had violated provisions of the company

agreement. Id. HPRA moved to compel arbitration against the doctors’ professional

associations, based on arbitration provision in the doctors’ employment agreements,

which the trial court denied. Id. On appeal, this Court agreed with HPRA and held

that the transfer and employment agreements must be construed together. Id. at 444.

We explained in Houston Progressive that “[w]here the parties include a

broad arbitration provision in an agreement that is ‘essential’ to the overall

transaction, [courts] presume that they intended the [arbitration] clause to reach all

aspects of the transaction—including those aspects governed by other

contemporaneously executed agreements that are part of the same transaction.” Id.

at 443 (internal quotations omitted) (citing Pers. Sec. & Safety Sys. Inc. v. Motorola

Inc., 297 F.3d 388, 394–95 (5th Cir. 2002); Kirby Highland Lakes Surgery Ctr. v.

Kirby, 183 S.W.3d 891, 900–01 (Tex. App.—Austin 2006, orig. proceeding)). We

then followed “[t]he general rule . . . that separate instruments or contracts executed

at the same time, for the same purpose, and in the course of the same transaction are

to be considered as one instrument, and are to be read and construed together.” Id.

at 443–44 (emphasis added) (internal quotations omitted).19

19
See Jones v. Kelley, 614 S.W.2d 95, 98 (Tex. 1981); see also Harris v. Rowe, 593
S.W.2d 303, 306 (Tex. 1979) (“Separate instruments contemporaneously executed
30
 We rejected the professional associations’ argument that they should not be

bound by the arbitration provisions in the employment agreement because they were

not parties to those agreements, explaining that the overall transactions were

described in each document, including the transfer documents, as an “Employee

agreeing to transition from being a Member of [HPRA] to an Employee.” Id. at 444.

We thus held in Houston Progressive that the agreements were

contemporaneously executed as part of the same transaction, related to the same

subject matter, and thus, necessarily had to be construed together because:

• They were executed on the same day,

• They each expressly referred to the other,

• They were each an “essential” part of the overall transaction, i.e., the
doctors’ transition from being members of HPRA to employees,

• The transfer agreements—the documents that did not contain the
arbitration clause—expressly required the execution of the employment
agreements—the documents containing the arbitration clause, and

• The transfer agreements specified that they were to be construed
together with the employment agreement to determine the parties’
rights and obligations.

Id. at 444–46.

This case is different. It is true that the Employment Agreement, Purchase

Agreement, and Operating Agreement were all executed on the same day, that the

as a part of the same transaction and relating to the same subject matter may be
construed together as a single instrument.” (emphasis added)).

31
Employment Agreement expressly refers to the Purchase Agreement, and that the

Purchase Agreement expressly refers to the Operating Agreement to supply the

definition of “Agreed Value.” But that is where the connections end.

Unlike the transfer agreements in Houston Progressive, a careful review of

the terms of these agreements demonstrates that they are not components of a single,

unified instrument.

For example, the parties to the Operating Agreement are identified as Align

and its members: Brown Lab (signed by Andrea Katz), Brandy Hanna, La Shunda

Ennett, and Moesser. Align is identified in the Operating Agreement as “a limited

liability company [organized] on May 24, 2011 under the laws of the State of

Delaware,” and whose purpose “is to provide professional staffing services to the

extent that such business conduct is lawful under the [Delaware Limited Liability

Company] Act.”

The Operating Agreement further describes its purpose as follows: “The

Members desire to enter into this Operating Agreement which sets forth, among

other things, the governance of the Company, the respective ownership interests of

the Members, and the relationships of the parties.”

Noticeably absent from the Operating Agreement is any mention of the

Employment Agreement or the Purchase Agreement, let alone any requirement of

execution of either agreement. And unlike the transfer agreements in Houston

32
Progressive, the Operating Agreement does not state that it is to be construed

together with the Employment Agreement or the Purchase Agreement to determine

the parties’ rights and obligations.

Our conclusion is also supported by the Delaware Court of Chancery’s

opinion in Align Strategic Partners, 2016 WL 791261, at * 4, that construes these

same agreements. The Delaware court held that the Employment Agreement and

Purchase Agreement share the same subject matter because together they establish

Moesser’s rights and obligations as an Align employee and are structurally

interconnected. Id. But, unlike those two agreements, the Operating Agreement does

not contain any language stating or implying that it was executed for the sole purpose

of establishing Moesser’s rights as an employee of Align.

Instead, as the Delaware Court of Chancery recognized, the Operating

Agreement defines Moesser’s (and other members) entitlements and duties as an

Align member. See id. Thus, while the Employment Agreement and Purchase

Agreement share the same aim—“defining Moesser’s rights and obligations as an

Align employee”—the Operating Agreement is much broader and governs the

operation of Align and its relationship with its members, including Moesser. See id.

33
 Further supporting the conclusion that the Operating Agreement is distinct

from the Employment Agreement is the inclusion of merger clauses20 in both

agreements and different governing law provisions. The Operating Agreement is

governed by Delaware law and states: “This Agreement constitutes the entire

agreement among the parties hereto and contains all the agreements among such

parties with respect to the subject matter hereof and supersedes any and all other

agreements, either oral or written, between such parties with respect to the subject

matter hereof.” The Employment Agreement, which is governed by Illinois law,

similarly states “[t]his Agreement contains the entire agreement of the parties with

respect to its subject matter. This Agreement may not be altered, amended or

modified except in writing duly executed by both of the parties.”

The existence of a merger clause in both agreements thus confirms that they

are separate and distinct from one another, and that the parties did not intend

otherwise. Because the two agreements impose distinct obligations with respect to

separate subject matters and are subject to different governing laws, we conclude

20
“A merger clause is a ‘contractual provision stating that the contract represents the
parties' complete and final agreement and supersedes all informal understandings
and oral agreements relating to the subject matter of the contract.’” Rieder v. Woods,
603 S.W.3d 86, 96 (Tex. 2020) (quoting Integration (Merger) Clause, BLACK’S
LAW DICTIONARY (11th ed. 2019)).

34
that the entire agreement clauses in both agreements reaffirms the separateness of

the two instruments.21

Accordingly, for all of these reasons, we hold that the trial court erred in ruling

that Brown Lab was subject to arbitration under Moesser’s Employment Agreement

with Align on the basis that the Employment Agreement, Purchase Agreement, and

Operating Agreement were all executed as part of a single, contemporaneous

transaction and had to be construed together. We further hold that the trial court

erred in ruling that Moesser’s claims against Brown Lab are arbitrable.

By issuing an arbitration award against Brown Lab, a party not subject to

arbitration, the arbitrator therefore exceeded his powers and the trial court reversibly

erred in confirming, and not vacating, the arbitration award as to Brown Lab. See

Elgohary, 405 S.W.3d at 789 (citing Rapid Settlements, 294 S.W.3d at 707).

We sustain the second issue.

Conclusion

Because we hold that Moesser’s claims against Brown Lab and the Katzes are

not arbitrable, and that the trial court below reversibly erred in ruling otherwise, we

21
Cf. Rieder, 603 S.W.3d at 95–98 (holding two agreements executed by different
parties, dealing with different subject matters, governed by different law, and
containing separate merger clauses were not components of single, unified
instrument and would not be construed together to apply forum-selection clause to
non-signatories).
35
reverse the trial court’s final judgment confirming the arbitration award in this case

and render judgment vacating the arbitration award in its entirety.

Terry Adams
Chief Justice

Panel consists of Chief Justice Adams and Justices Hightower and Countiss.

36