Opinion
Civil Action No. 3:02-CV-0210-P
July 3, 2002
MEMORANDUM OPINION AND ORDER
Now before the Court for consideration is Defendant's Motion to Compel Arbitration, filed March 1, 2002, and Plaintiff's Response thereto, filed March 20, 2002. After a thorough review of the Motion, the parties' briefs, and the applicable law, for the reasons set forth below, the Court DENIES Defendant's Motion to Compel Arbitration.
BACKGROUND
The Federal Home Loan Mortgage Corporation ("Freddie Mac") is a client of Defendant NRT, Inc. ("NRT"). Plaintiff Nancy Morphis ("Morphis" or "Plaintiff") alleges that she began working at Freddie Mac as an employee of NRT in May 1997. Pl.'s Complaint at 2. On January 18, 2000, Plaintiff signed an employment-at-will agreement ("Agreement") to perform services as contracted by Freddie Mac on behalf of Real Estate Services ("RES"). Def.'s Ex. A. The Agreement states in part: "Any claim or controversy that arises out of or related to this agreement, or the breach of it, will be settled by arbitration in accordance with the rules of the American Arbitration Association. Judgment upon the award rendered may be entered in any court possessing jurisdiction of arbitration awards." Id. at 5.
Plaintiff's Complaint, filed February 25, 2002, alleges employment discrimination, including violations of 42 U.S.C. § 1981 and the Texas Labor Code. Plaintiff also brings state law claims for breach of contract, intentional infliction of emotional distress, interference with contractual relations, conspiracy, slander, an other unspecified "wrongs". Pl.'s Complaint at 13. In her suit, Plaintiff named three defendants: NRT, Freddie Mac, and Joan McCall, her supervisor. Defendant NRT now moves to compel arbitration of Plaintiff's claims.
DISCUSSION
I. STANDARD OF REVIEW
The Court first acknowledges a strong partiality in favor of arbitration in both federal and state courts. Moses H. Cone Memorial Hosp. v. Mercury Constr. Co., 460 U.S. 1, 24-25 (1983). Courts in the Fifth Circuit have likewise encouraged parties to resolve their disputes in arbitration when they have indicated an intention to do so. "Courts must indulge every reasonable presumption in favor of arbitration, and all doubts as to the arbitrability of an issue must be decided in favor of arbitration." The North River Insur. Co. v. Transamerica Occidental Life Insur. Co., No. 399-CV-0682-L, 2002 WL 1315786, *4 (N.D. Tex. June 12, 2002) (Lindsay, J.) (quoting In re FirstMerit Bank, N.A. 52 S.W.3d 749, 753 (Tex. 2001)).
Courts perform a two-step inquiry to determine whether parties should be compelled to arbitrate a dispute. First, the Court must determine whether the parties agreed to arbitrate the dispute. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 626 (1985). To find that the parties agreed to arbitrate, the Court inquires whether (1) a valid agreement to arbitrate between the parties exists; (2) the claims in question fall within the scope of that agreement. Pennzoil Exploration and Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1065 (5th Cir. 1998). The party opposing arbitration bears the burden of proving that no valid agreement requiring arbitration exists. Fridl v. Cook, 908 S.W.2d 507, 511 (Tex.App.-El Paso 1995, writ dism'd w.o.j.). Once the court finds that the parties agreed to arbitrate, it must consider whether any federal statute or policy renders the claims nonarbitrable. Mitsubishi Motors, 473 U.S. 614, 626-28 (1985). If a valid agreement is found, and there are then no legal constraints external to the agreement that foreclose arbitration of such claims, arbitration is mandatory. Id.; ASW Allstate Painting Constr. Co. v. Lexington Ins. Co., 188 F.3d 307, 311 (5th Cir. 1999).
Furthermore, any dispute over the validity of an agreement to arbitrate is analyzed under the general principles of contract law. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995). "Arbitration is a matter of contract between the parties, and a court cannot compel a party to arbitrate a dispute unless the court determines the parties agreed to arbitrate the dispute in question." ATT Technologies, Inc. v. Communications Workers of Am., 475 U.S. 643, 648 (1986) (quoting Steelworkers v. Warrior Gulf Navigation Co., 363 U.S. 574, 582 (1960)).
II. WAIVER
Plaintiff's claim that NRT waived its right to compel arbitration by taking action in the court system is without merit. There is a strong presumption against waiver of arbitration. Lawrence v. Comprehensive Business Services Co., 833 F.2d 1159, 1164 (5th Cir. 1987). "[A]s a matter of law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses Cone Hosp., 460 U.S. 1 at 24-25. Thus, the party alleging waiver carries a heavy burden. Associated Builders v. Ratcliff Constr. Co., 823 F.2d 904, 905 (5th Cir. 1987).
Texas federal and state courts use the same two prong test to decide whether a party has waived his right to arbitration. Dustrol, Inc. v. Champagne-Webber, Inc., No. Civ. A. 3:01-CV- 0650-G, 2001 WL 1326477, *3 (Fish, J.) (N.D.Tex. Oct. 16, 2001.) The test asks: (1) did the party seeking arbitration substantially invoke the judicial process; and (2) did the opposing party prove that it suffered prejudice as a result? In re Koch Industries, Inc., 49 S.W.3d 439, 445 (Tex.App.-San Antonio 2001, appl. for mandamus filed).
The Court need only examine the first prong to find that Defendant NRT has not waived its right to arbitration. To waive its right to arbitration in the Fifth Circuit, a party "must have litigated the claim that the party now proposes to arbitrate." Subway Equipment Leasing Corp. v. Forte, 169 F.3d 324, 329 (5th Cir. 1999) (noting that the party "must, at the very least, engage in some overt act in court that evinces a desire to resolve the arbitrable dispute through litigation rather than arbitration."). Texas courts have similarly stringent standards, finding a party waives its right to arbitration "only if the party seeking arbitration has actively tried and failed to achieve a satisfactory result in the litigation before turning to arbitration, such as moving for summary judgment or otherwise seeking a final judicial resolution of the dispute." In re Bruce Terminix Co., 988 S.W.2d 702 at 704 (Tex. 1998).
The Fifth Circuit has allowed parties substantial interaction with the judicial system without finding that a party has waived its contractual right to arbitrate. See Williams v. Cigna Financial Advisors, Inc., 56 F.3d 656 (5th Cir. 1995) (finding no waiver and compelling arbitration where movant removed action to federal court, filed a motion to dismiss, filed a motion to stay proceedings, answered complaint, asserted a counterclaim, and exchanged Rule 26 discovery); Walker v. J.C. Bradford Co., 938 F.2d 575 at 576-77 (5th Cir. 1991) (no waiver even when movant served interrogatories, requested production of documents, attended a pretrial conference, and waited thirteen months before seeking to compel arbitration); Tenneco Resins, Inc. v. Davy Iraernational, AG, 770 F.2d 416, 420-21 (5th Cir. 1985) (No waiver where movant sought a stay, filed an answer, served interrogatories, requested production of documents, moved for a protective order, agreed to a joint motion for continuance, requested an extension of the discovery period, and waited eight months before seeking to compel arbitration). Accordingly, the Court holds that none of the defendants has waived its right to arbitration by virtue of substantial invocation of a judicial process, if defendants are found to have such a right.
III. THE AGREEMENT TO ARBITRATE
In its Motion to Compel Arbitration, Defendant NRT relies on the contract dated January 18, 2000, entitled "Salaried Employment Agreement." Def.'s Ex. A. The preamble of the Agreement states: "Agreement dated 1/17/00, between Real Estate Services (Employer) and Nancy Morphis (Employee). Employer employs Employee on the terms and conditions set forth below for performance of services as contracted by the Federal Home Loan Mortgage Corporation (Client)". Id. at 1. The Agreement is signed by Plaintiff and NRT. Id. at 6. NRT asserts in its motion that the arbitration provision of this Agreement binds the Plaintiff to arbitration. Id. at 5. The Court first examines whether or not a valid agreement exists between the parties and whether that agreement encompasses the underlying claims in this Plaintiff's lawsuit. Pennzoil, 139 F.3d at 1065.
A. Scope of the Agreement
Whenever the scope of an arbitration clause is in question, Texas and federal law favor construing the clause in favor of arbitration. "The [FAA] establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay or a like defense to arbitrability." Rojas v. TK Communications, 87 F.3d 745, 749 (5th Cir. 1996) (quoting Moses H. Cone, 460 U.S. 1, 24-25). The Fifth Circuit has categorized arbitration clauses into "broad" and "narrow" and has also identified characteristic language of broad and narrow clauses. Narrow arbitration clauses are those which only require arbitration of disputes `arising out of' the contract, whereas broad arbitration clauses govern disputes which "relate to" or "are connected with" the contract. Pennzoil, 139 F.3d at 1067. If the agreement contains a "broad" arbitration clause, an arbitrator should be permitted to decide if the dispute falls within the clause. In re Complaint of Hornbeck Offshore Corp., 981 F.2d 752, 754-755 (5th Cir. 1993) (internal citations and quotations omitted). If the agreement contains a "narrow" arbitration clause, the case should not be referred to arbitration or stayed, unless the Court determines that the dispute falls within the narrow clause. Id.
In this case, the Agreement states that "Any claim or controversy that arises out of or related to this agreement, or the breach of it, will be settled by arbitration . . ." Ex. A at 5. Both the Supreme Court and the Fifth Circuit have categorized language similar to the language in this case as broad. Pennzoil, 139 F.3d at 1067 (citing Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 397-98 (1967) (labeling as "broad" a clause requiring arbitration of "[a]ny controversy or claim arising out of or relating to this Agreement")). The Fifth Circuit explained that when parties consent to an arbitration clause that governs all disputes "arising under" or relating to" their agreement, they are expressing their intent that the arbitration clause reach all aspects of their relationship. Pennzoil, 139 F.3d at 1067; also see Trapp Chevrolet-Oldsmobile- Cadillac, Inc. v. General Motors Corp., No. Civ. A. 02-0158, 2002 WL 1163611 *3 (E.D. La. May 31, 2002) (holding "any and all claims arising under or relating to the Agreement" is a sufficiently "broad" arbitration clause to cover claims brought under a separate agreement).
Broad arbitration clauses "are not limited to claims that literally arise under the contract, but rather embrace all disputes between the parties having a significant relationship to the contract regardless of the label attached to the dispute." Pennzoil, 139 F.3d at 1067 (internal citations and quotations omitted). Moreover, this Court is guided by the Fifth Circuit Court of Appeals' holding in Neal v. Hardee, Food Systems, Inc., 918 F.2d 34 (5th Cir. 1990). In that case, the Court found that when a restaurant franchiser and franchisee included a broad arbitration clause in license agreements covering "any and all disputes," they intended the clause to reach all aspects of the parties' relationship. This is in accord with the general principle that "[a]rbitration should be required unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation" that would include the claims at issue. Trapp, 2002 WL 1163611 at *2 (quoting Pennzoil, 139 F.3d at 1067).
B. Validity of the Agreement
Establishing the validity of the employment agreement in this case is more problematic. To rebut the contract's presumed validity, Plaintiff notes that NRT is not a named party to the contract. The preamble of the contract, as quoted supra, states that the agreement is between Plaintiff and Real Estate Services, but the mark in the signature block is neither the seal of RES nor the signature of an identified agent of RES. The letters NRT appear in the Employer's signature block, but the agreement gives no indication of any relationship between NRT and RES.
By asserting that the contract is valid, NRT would presumably have the Court substitute "NRT" in the place of "Real Estate Services" as Plaintiff's named Employer in the preamble of the agreement. This Court is reluctant to substitute party names in a disputed contract. However, in accordance with the strong partiality in favor of resolving disputes related to construction of the contract in favor of arbitration, the Court notes several facts: (1) NRT's mark appears at the bottom of Plaintiff's contract in the signature block; (2) Plaintiff refers to NRT as her employer in her complaint; (3) NRT is named as a defendant in Plaintiff's lawsuit; (4) Real Estate Services is not named as a defendant; and (5) RES is not referred to in any of the pleadings aside from being named in the Preamble of the Agreement.
Despite the surrounding circumstances, Texas law does not presume agency. Suarez v. Jordan, 35 S.W.3d 268, 272 (Tex.App.-Houston 2000, no writ) (quoting Buchoz v. Klein, 143 Tex. 284(1944)). Absent actual or apparent authority, an agent cannot bind a principal. Id. at 273, quoting Currey v. Lone Star Steel Co., 676 S.W.2d 205, 209 (Tex.App.-Fort Worth, 1984, no writ). For example, a son cannot sign as agent for a father in the absence of evidence in the record to indicate that the son was acting as the authorized agent of the father. Id. In this case, the record is similarly barren of evidence to refute Plaintiff's allegation that NRT is not a party to the employment agreement between Plaintiff and RES. In fact, NRT affirmatively alleges that it "was not Plaintiff's `employer' pursuant to the Texas Labor Code." Def.'s Orig. Ans. at 2.
Defendant NRT is also unclear regarding the purpose of its motion: does it seek to compel Nancy Morphis to arbitrate with NRT, RES, or both entities? If the Court is correct in surmising that Defendant NRT wishes to compel arbitration between Plaintiff and itself the contract as it stands between Plaintiff and RES will not suffice as a basis for that motion in the absence of further evidence explaining the relationship between these two entities. "[A] party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." See AirLine Pilots Assoc. v. Miller, 523 U.S. 866 (1998).
C. External Considerations
Having found the contract unenforceable as between the parties, the Court does not reach the issue of whether any external considerations prevent enforcement of Agreement to Arbitrate.
IV. EQUITABLE ESTOPPEL
Because NRT is not a named party in the agreement between RES and Plaintiff and denies being Plaintiff's Employer, its mark in the Employer block is accorded no value. Therefore, NRT is not considered a valid signatory at this time. Nevertheless, there remains the possibility that NRT seeks to compel arbitration between Plaintiff and RES. Courts in the Fifth Circuit have allowed a nonsignatory third party beneficiary to compel arbitration against a plaintiff in two circumstances under an equitable estoppel theory as set forth in MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999) (cited in Bellizan v. Easy Money of Louisiana, Inc., et al., No. Civ. A. 00-2949, 2002 WL 1066750 at *5 (E.D. La May 29, 2002)).
First, if the Plaintiff were relying on the terms of the Agreement in asserting its claims against Defendant NRT, then Defendant NRT could compel arbitration. See generally Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 527 (5th Cir. 2000). "When each of a signatory's claims against a nonsignatory 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." Id. In this case, Plaintiff does not reference the terms of the agreement with RES in her suit against NRT. Second, NRT could compel arbitration as a nonsignatory if Plaintiff were to raise "allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract". Id. That does not appear to be the circumstance in this case either.
Defendant NRT cannot avail itself of the remedies available to a nonsignatory. Under an equitable estoppel theory, RES could compel arbitration against Plaintiff despite the fact that RES has not signed the Agreement, if Plaintiff had named RES as a defendant. NRT could compel arbitration between itself and the Plaintiff if Plaintiff were relying on the terms of the written agreement in asserting its claims against NRT. Plaintiff makes no such assertion in her complaint, and it is not clear to this court from the record or from the Agreement itself that Plaintiff's Agreement with RES bears any relation to Plaintiff's employment with NRT. The Court holds that the record does not support an application of equitable estoppel in this case.
CONCLUSION
By not addressing the defects raised by Plaintiff, NRT fails to meet its burden as movant. Despite the Court's inclination to encourage employers and employees to resolve their differences in arbitration rather than in a court of law, Defendant's Motion to Compel Arbitration is DENIED.