Richard Baumeister and Sanford, Baumeister & Frazier, LLP v. James Gary Reagan ( 2013 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-12-00276-CV
Richard Baumeister and Sanford, § From the 352nd District Court
Baumeister & Frazier, LLP
§ of Tarrant County (352-255054-11)
v. § February 14, 2013
James Gary Reagan § Opinion by Chief Justice Livingston
JUDGMENT
This court has considered the record on appeal in this case and holds that
there was error in the trial court’s order. We reverse the trial court’s order
denying arbitration and a stay of the underlying proceedings, and we remand the
case to the trial court to render an order in accordance with this opinion.
It is further ordered that appellee James Gary Reagan shall pay all of the
costs of this appeal, for which let execution issue.
SECOND DISTRICT COURT OF APPEALS
By_________________________________
Chief Justice Terrie Livingston
COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-12-00276-CV
RICHARD BAUMEISTER AND APPELLANTS
SANFORD, BAUMEISTER &
FRAZIER, LLP
V.
JAMES GARY REAGAN APPELLEE
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FROM THE 352ND DISTRICT COURT OF TARRANT COUNTY
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NO. 02-12-00277-CV
RICHARD BAUMEISTER AND APPELLANTS
SANFORD, BAUMEISTER &
FRAZIER, PLLC F/K/A SANFORD,
BAUMEISTER & FRAZIER, LLP
V.
FASTLANE PARTNERS, LP AND APPELLEES
DON SMITH
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FROM THE 352ND DISTRICT COURT OF TARRANT COUNTY
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MEMORANDUM OPINION1
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These two appeals from the trial court’s orders denying arbitration arise
from separate cause numbers in the same trial court and concern similar
allegations involving investments in which Richard Baumeister was involved. We
reverse and remand.
Background
Appellee James G. Reagan sued Baumeister, a certified public
accountant, and his firm, Sanford Baumeister & Frazier, PLLC (Sanford), for
negligence, gross negligence, and breach of fiduciary duty. Reagan alleged that
Baumeister informed Reagan, his client, that Reagan could invest as a partner in
Allen 75 Partners, LP, which was to own real property for investment purposes.
According to the petition, Baumeister told Reagan that the partnership which then
owned the real property was being replaced and a new limited partnership,
Allen 75, was being formed. Reagan alleged that Baumeister failed to disclose
that he was a partner in the prior partnership and, as such, was going to make a
substantial profit from the formation of Allen 75. Reagan further alleged that he
would not have invested $400,000 in Allen 75 if he had known of Baumeister’s
interest in the prior partnership.
1
See Tex. R. App. P. 47.4.
2
In a separate suit in the same trial court, Fastlane Partners, LP made
substantially similar allegations: that Baumeister represented to Fastlane that it
could invest as a new partner in Allen 75, that Baumeister failed to disclose that
he was a partner in the prior partnership that owned the property and that he was
going to make a substantial profit from the formation of Allen 75, and that
Fastlane would not have invested $180,000 in Allen 75 if it had known of
Baumeister’s interest in the prior partnership. Based on these allegations,
Fastlane brought a fraud claim against Baumeister and Sanford.
In that same suit, Don Smith and ANS Real Estate, Ltd. alleged that
Baumeister advised ANS to engage in a like-kind exchange of property rather
than sell property it owned and reinvest the proceeds of the sale elsewhere.
According to ANS, based on Baumeister’s and his firm’s representations, it
bought a half interest in a property located at 901 Houston Street; Houston Street
Partners, LP, in which Don Smith invested as a limited partner, bought the other
half interest. According to ANS and Smith, appellants failed to disclose that the
Houston Street property had appraised for less than the purchase price, and they
would not have purchased their interests in the property had they known. ANS
and Smith brought claims against appellants for negligence, fraud, and excessive
fees.
About eight months after the suits were filed, Baumeister filed a motion to
compel arbitration in both suits as to Reagan’s, Fastlane’s, and Smith’s claims
against him and Sanford. According to Baumeister, the Allen 75 and Houston
3
Street limited partnership agreements (Agreements) contain provisions requiring
arbitration of these claims. The trial court denied the motions to compel
arbitration, and both appellants timely filed these interlocutory appeals.2
Issues on Appeal
In both appeals, appellants bring two issues: (1) that the trial court erred
by refusing to compel arbitration as to Reagan’s, Fastlane’s, and Smith’s claims
and (2) that the trial court erred by refusing to abate the underlying litigation
pending arbitration.
Whether Claims Must Be Arbitrated
In their first issue, appellants contend that because of the broad language
of the arbitration clauses in the Agreements, any disputes arising from appellees’
investment in the partnerships must be arbitrated.
Applicable Law and Standard of Review
The FAA provides, in relevant part, that
[a] written provision in . . . a contract evidencing a transaction
involving commerce to settle by arbitration a controversy thereafter
arising out of such contract . . . shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for
the revocation of any contract.
2
Appellants contend that the Federal Arbitration Act (FAA) applies to this
proceeding, which appellees do not dispute. See 9 U.S.C.A. §§ 1–16 (West
2009); see also Tex. Civ. Prac. & Rem. Code Ann. § 51.016 (West Supp. 2012)
(permitting interlocutory appeal of order denying motion to compel arbitration
under the FAA).
4
9 U.S.C.A. § 2. Section 2 of the FAA has been described as reflecting both a
“liberal federal policy favoring arbitration” and the “fundamental principle that
arbitration is a matter of contract.” Aldridge v. Thrift Fin. Mktg., LLC, 376 S.W.3d
877, 881 (Tex. App.––Fort Worth 2012, no pet.) (quoting AT&T Mobility LLC v.
Concepcion, 131 S. Ct. 1740, 1745 (2011)).
Under the FAA, a party seeking to compel arbitration must satisfy a two-
pronged burden of proof in that it must first demonstrate the existence of a valid
agreement to arbitrate the dispute and then prove that the claims asserted are
within the scope of the agreement. In re Dillard Dep’t Stores, Inc., 186 S.W.3d
514, 515 (Tex. 2006) (orig. proceeding); Aldridge, 376 S.W.3d at 882. If the
party seeking arbitration carries its initial burden, the burden shifts to the opposite
party to present evidence of an affirmative defense. In re AdvancePCS Health
L.P., 172 S.W.3d 603, 607 (Tex. 2005) (orig. proceeding); Aldridge, 376 S.W.3d
at 882.
An agreement to arbitrate is a contract, the relation of the parties is
contractual, and the rights and liabilities of the parties are controlled by the law of
contracts. Aldridge, 376 S.W.3d at 882. Because arbitration is generally a
matter of contract, the FAA requires courts to honor parties’ expectations.
9 U.S.C.A. §§ 1–16; AT&T Mobility LLC, 131 S. Ct. at 1752–53; Aldridge, 376
S.W.3d at 882.
When deciding whether parties agreed to arbitrate, courts should apply
ordinary state law principles regarding the formation of contracts. First Options
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of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct. 1920, 1924 (1995); J.M.
Davidson, Inc. v. Webster, 128 S.W.3d 223, 227–28 (Tex. 2003); Aldridge, 376
S.W.3d at 882–83. In conducting such a review, a court “may not expand upon
the terms of the contract or tolerate a liberal interpretation of it by reading into it a
voluntary, consensual agreement to arbitrate when one otherwise does not
exist.” Aldridge, 376 S.W.3d at 883; In re Bates, 177 S.W.3d 419, 422 (Tex.
App.––Houston [1st Dist.] 2005, orig. proceeding).
In resolving disputes regarding interpretation of an arbitration agreement,
courts apply standard principles of contract interpretation and construction.
Aldridge, 376 S.W.3d at 883. The plain meaning of the contractual language
should be looked to in order to ascertain the intent of the parties. Id. Although
the language of the agreement must clearly indicate the intent to arbitrate, Id.;
Bates, 177 S.W.3d at 422, courts must resolve any doubts about an arbitration
agreement’s scope in favor of arbitration, In re FirstMerit Bank, N.A., 52 S.W.3d
749, 753 (Tex. 2001) (orig. proceeding).
We review a trial court’s determination regarding the validity of an
agreement to arbitrate de novo as a question of law. J.M. Davidson, 128 S.W.3d
at 227; Aldridge, 376 S.W.3d at 882.
6
Analysis
According to Baumeister’s motion to compel, arbitration of appellees’
claims is required by section 9.1 of the Agreements:
ARTICLE IX
ARBITRATION
9.1 Arbitration. Any dispute or controversy arising out of, under, in
connection with or in relation to this Agreement that has not
been or cannot be resolved under Section 9.1 shall be
exclusively resolved by arbitration by the American Arbitration
Association in Fort Worth, Texas pursuant to the commercial
arbitration rules then pertaining to the Fort Worth, Texas area.
Any such arbitration shall be conducted by a single arbitrator
with experience in commercial real estate transactions and
partnerships in Texas, who shall be an attorney currently
admitted to practice and in good standing in the State of
Texas. The arbitrator shall apply Texas law as though he/she
were bound by applicable statutes and precedents in case
law, and shall endeavor to decide the controversy as though
he/she [were] a judge in a Texas court of law. The arbitrator
shall render his/her decision in writing and shall specifically
cite the statistics and precedents applied in recognizing
his/her decision.
Alleged Ambiguity
Appellees first contend that the provision is ambiguous and circular
because it refers to itself. In other words, appellees contend that the language,
“[a]ny dispute or controversy arising out of, under, in connection with or in
relation to this Agreement that has not been or cannot be resolved under Section
9.1,” which section is the arbitration provision itself, means that any dispute that
cannot be arbitrated must be resolved by arbitration. Section 9.1 does not refer
to any method of dispute resolution other than arbitration.
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When construing a contractual provision, we do not read it in vacuum; we
review the provision in light of the entire contract. See, e.g., Clark v. Cotten
Schmidt, L.L.P., 327 S.W.3d 765, 772–73 (Tex. App.––Fort Worth 2010, no pet.).
If possible, we should avoid a construction that is unreasonable, oppressive,
inequitable, or absurd. Id. at 772; Pavecon, Inc. v. R-Com, Inc., 159 S.W.3d 219,
222 (Tex. App.––Fort Worth 2005, no pet.). Language should be given its plain
grammatical meaning unless it definitely appears that the intention of the parties
would thereby be defeated. Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527, 529
(Tex. 1987); Clark, 327 S.W.3d at 773.
We construe the provision as requiring that disputes related to the
Agreements that are not able to be resolved by the parties must, under section
9.1, the arbitration provision, be referred to arbitration. Even if the language
were circular––i.e., if disputes remain unresolved under the arbitration provision,
they must be referred to arbitration––it would nevertheless evidence a clear
intent to arbitrate unresolved disputes in lieu of any other method of dispute
resolution. Thus, we conclude and hold that section 9.1 does not fail for
ambiguity. See RSI Int’l, Inc. v. CTC Transp., Inc., 291 S.W.3d 104, 107, 109
(Tex. App.––Fort Worth 2009, no pet.) (“[F]or an ambiguity to exist when the
parties advance conflicting interpretations, both interpretations must be
reasonable.”).
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Scope of Arbitration Clause
Next, appellees contend that appellants’ claims do not fall within the scope
of the arbitration clauses in the Agreements. To determine whether a claim falls
within the scope of an arbitration clause, courts must “focus on the factual
allegations of the complaint, rather than the legal causes of action asserted.” In
re Rubiola, 334 S.W.3d 220, 225 (Tex. 2011) (orig. proceeding). We consider
whether the facts alleged are intertwined with the contract containing the
arbitration clause. Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271 (Tex. 1992)
(orig. proceeding). If the facts alleged “touch matters,” have a “significant
relationship” to, are “inextricably enmeshed” with, or are “factually intertwined”
with the contract containing the arbitration agreement, the claim is arbitrable.
Cotton Commercial USA, Inc. v. Clear Creek ISD, No. 14-12-00272-CV, 2012
WL 5395929, at *7 (Tex. App.––Houston [14th Dist.] Nov. 6, 2012, no pet.);
Pennzoil Co. v. Arnold Oil Co., 30 S.W.3d 494, 498 (Tex. App.––San Antonio
2000, orig. proceeding). But “[i]f the facts alleged in support of the claim stand
alone, are completely independent of the contract, and the claim could be
maintained without reference to the contract, the claim is not subject to
arbitration.” Cotton Commercial, 2012 WL 5395929, at *7; Pennzoil, 30 S.W.3d
at 498. Parties to arbitration agreements cannot avoid them by casting their
claims in tort, rather than in contract. See Grigson v. Creative Artists Agency
L.L.C., 210 F.3d 524, 526 (5th Cir.), cert. denied, 531 U.S. 1013 (2000).
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Here, the factual allegations are that Baumeister, as appellees’ CPA and
as an officer of Sanford, advised appellees to invest in limited partnerships in
which he had financial interests––and which would own properties in which he
had financial interests––without disclosing the extent of his financial interests,
potential profit (as to Allen 75), and soundness of the investment (as to Houston
Street).
In the two Agreements, Baumeister was listed as the registered agent for
the general partner and the person to whom legal notices for the general partner
were to be sent, and he was also listed as a limited partner. The Agreements
contained representations that each limited partner was a sophisticated investor,
that each limited partner had “been furnished with sufficient written and oral
information about the Partnership[s], and the property to be purchased to allow
him to make an informed investment decision prior to purchasing an interest in
the Partnership[s], and [had] been furnished access to any additional information
that he may require.” They also further provided that each limited partner
“agrees to hold the General Partner and the Limited Partners and their respective
successors, assigns, harmless and to indemnify them against all liabilities, costs,
and expenses incurred by them as a result of any breach of the foregoing
representations.”
Appellees contend that appellants’ tort claims are not arbitrable because
they are not “so interwoven with the contract or agreement containing the
arbitration provision that the claim cannot be maintained without reference to the
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terms of the contract or agreement.” They also contend that their claims do not
rely on the terms of the Agreements or allege that Baumeister breached the
Agreements in any way, but rather arise solely from his independent tort duties
owed as their CPA.
The presumption of arbitrability is particularly applicable when the clause is
broad as it is here; a clause is broad if it provides for arbitration of “any dispute
arising between the parties,” or “any controversy or claim arising out of or relating
to the contract thereof,” or “any controversy concerning the interpretation,
performance or application of the contract.” Cotton Commercial, 2012 WL
5395929, at *7; Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W.2d 225, 230 (Tex.
App.––Houston [14th Dist.] 1993, writ denied). When such a broad clause exists,
“absent any express provision excluding a particular grievance from arbitration,
only the most forceful evidence of purpose to exclude the claim from arbitration
can prevail.” Cotton Commercial, 2012 WL 5395929, at *7; Ascendant
Anesthesia PLLC v. Abazi, 348 S.W.3d 454, 461 (Tex. App.––Dallas 2011, no
pet.). And an “order to arbitrate the particular grievance should not be denied
unless it may be said with positive assurance that the arbitration clause is not
susceptible of an interpretation that covers the asserted dispute.” Ascendant
Anesthesia, 348 S.W.3d at 461 (quoting BDO Seidman, LLP v. J.A. Green Dev.
Corp., 327 S.W.3d 852, 857 (Tex. App.––Dallas 2010, no pet.)).
Here, appellees claims against Baumeister are not independent of the
Agreements and are “related to” them. Although appellees allege that
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Baumeister had been their CPA for many years independently of the
Agreements––and the basis of their claims is his allegedly faulty or deceptive
advice and counsel––their claims are based on his alleged advice and
nondisclosure related to the investments represented by the Agreements.
Although the matters appellees complain of took place before the Agreements
were executed, they nevertheless are intextricably enmeshed and factually
intertwined with the Agreements, the execution of which was the end result of
Baumeister’s professional services. See, e.g., Rubiola, 334 S.W.3d at 226;
Capitol Income Props.-LXXX v. Blackmon, 843 S.W.2d 22, 23 (Tex. 1992) (orig.
proceeding) (“It is also undisputed that the Plaintiffs claim that CIP breached its
fiduciary duty to them in operating and managing the partnership, in repeatedly
misrepresenting the financial health of the operation, and in fraudulently inducing
them to invest in the partnership. These claims arise out of and relate to the
limited partnership agreement.” (emphasis added)); cf. In re NEXT Fin. Group,
Inc., 271 S.W.3d 263, 267–70 (Tex. 2008) (orig. proceeding) (holding common
law Sabine Pilot claim of securities broker against his nonsignatory former
employer arbitrable because within scope of arbitration agreement between
broker and National Association of Securities Dealers, which broker agreed to
when registering with NASD). Additionally, Smith’s claim for excessive fees3
seeks to recover what he claims are excessive fees charged by Sanford to the
3
Although appellants sought to stay ANS’s claims pending arbitration, they
did not seek to arbitrate those claims.
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limited partnership to manage the Houston Street property; the general partner’s
ability to engage and pay for such services is spelled out in that Agreement.
The language of the Agreements as a whole––which do not conceal
Baumeister’s role in the partnerships––evidences an intent that the Agreements
contemplate the resolution of matters involving the limited partners’ decision to
invest in the limited partnership. In other words, appellees’ claims are that
Baumeister misused his position as their CPA to induce them to invest in limited
partnerships and if they had not invested in those limited partnerships, they
would not have been damaged; under the plain language of the arbitration
clauses, it is difficult to see how these claims are not at least “related to” the
Agreements themselves. See ConocoPhillips Co. v. Graham, No. 01-11-00503-
CV, 2012 WL 1059084, at *8–9 (Tex. App.––Houston [1st Dist.] Mar. 29, 2012,
no pet.) (mem. op.) (rejecting argument that appellees’ claims arose from
appellant’s general tort duty to them when their claims arose from their
employment, which was subject to arbitration agreement). Moreover, because
the Agreements contain indemnity provisions related to the other partners,
appellants may conceivably attempt to rely on them for potential defenses.
The cases appellees cite are not controlling. Carr involved an arbitration
agreement that was limited to disputes between the parties and involved a
signatory attempting to compel a nonsignatory plaintiff to arbitration. Carr v.
Main Carr Dev., LLC, 337 S.W.3d 489, 498 (Tex. App.––Dallas 2011, pet.
denied). Woodhaven Homes involved two contracts for the sale of property and
13
construction of a home; the arbitration provision was contained in the contract for
the home that the plaintiffs never purchased, instead buying the other home.
The contract for the home they actually bought did not contain an arbitration
provision. Woodhaven Homes, Inc. v. Alford, 143 S.W.3d 202, 204–06 (Tex.
App.––Dallas 2004, no pet.). The language of the arbitration provision in Osornia
was more limited than the language in the Agreements. Osornia v. AmeriMex
Motors & Controls, Inc., 367 S.W.3d 707, 712–13 (Tex. App.––Houston [14th
Dist.] 2012, no pet.). Fridl and Hearthshire Braeswood Plaza are similar, but they
are still factually distinguishable. In both of those cases, the plaintiffs were
alleging actions by the signatory defendants that caused the plaintiffs to become
involved in transactions separate from and outside of the contracts in which the
arbitration clauses were contained. Fridl v. Cook, 908 S.W.2d 507, 512–13 (Tex.
App.––El Paso 1995, writ dism’d w.o.j.); Hearthshire Braeswood Plaza Ltd.
P’ship v. Bill Kelly Co., 849 S.W.2d 380, 391 (Tex. App.––Houston [14th Dist.]
1993, writ denied). But here the alleged actions of appellants culminated in the
Agreements containing the arbitration clauses.
This is admittedly a close, factually unique case. But when faced with a
broad, nonexclusionary arbitration clause and a dispute that is conceivably
“related to” the Agreements at issue, we must defer on the side of arbitrability.
Although, as alleged by appellees, the manner in which the arbitration agreement
was procured is troubling, we cannot say with “positive assurance” that
appellees’ claims are not arbitrable. Accordingly, we are constrained––by the
14
plain language of the Agreements and the FAA’s favorable policy regarding
arbitration––to conclude and hold that the trial court erred by refusing to compel
arbitration of appellees’ claims.
Likewise, because appellees’ allegations against Sanford arise out of a
vicarious liability theory, and do not involve any additional or separate allegations
from the allegations against Baumeister individually, they likewise are arbitrable.4
See Rubiola, 334 S.W.3d at 224–25; Ascendant Anesthesia, 348 S.W.3d at 462
(holding claims against nonsignatory agent arbitrable because based on his
actions related to his role at signatory principal, against whom arbitrable claims
were alleged); Dennis v. College Station Hosp., L.P., 169 S.W.3d 282, 287 (Tex.
App.––Waco 2005, pet. denied) (holding claims against nonsignatory agent,
although otherwise not arbitrable, were arbitrable because factually intertwined
with arbitrable claims against signatory principal defendant); In re Prudential
Sec., Inc., 159 S.W.3d 279, 283 (Tex. App.—Houston [14th Dist.] 2005, orig.
proceeding); Brown v. Anderson, 102 S.W.3d 245, 250 (Tex. App.––Beaumont
2003, pet. denied) (“Where the causes of action against the non-signatory
defendants are based upon the same operative facts and are inherently
4
Appellees contend that Sanford has no standing to urge reversal of the
trial court’s order on appeal because it did not move for arbitration. But
Baumeister moved for arbitration of all claims, including specifically those against
Sanford; appellees did not object or specially except. Sanford’s and
Baumeister’s notice of appeal invoked our jurisdiction over all parties. See Tex.
R. App. P. 25.1(b). Accordingly, Sanford has standing to challenge the trial
court’s order in this appeal. See Ascendant Anesthesia, 348 S.W.3d at 461–62.
15
inseparable from the causes of action against the signatory-defendant, the
signatory-plaintiff may not avoid arbitration if invoked by the non-signatory
defendants.”). Moreover, the arbitration provision in the Agreements here is not
limited in scope to disputes arising solely between the parties. See In re Bath
Junkie Franchise, Inc., 246 S.W.3d 356, 364, 366 (Tex. App.––Beaumont 2008,
orig. proceeding) (holding all claims, including claims against nonsignatory
defendants, arbitrable when arbitration clause was broad––applying to “any
dispute or controversy arising out of or relating to [the Franchise Agreement]”––
and that plaintiff contended nonsignatory defendants acted with signatory
defendant in alleged wrongful acts); cf. Rubiola, 334 S.W.3d at 224–25 (involving
clause that expressly bound nonsignatory officers and agents of signatory to
contract). Accordingly, we conclude and hold that the trial court erred by refusing
to compel arbitration of the claims against Sanford as well. We sustain
appellants’ first issue.
Whether Suit Must Be Abated Pending Arbitration
In their second issue, appellants contend the trial court also erred by failing
to stay the underlying proceedings pending resolution of arbitration. Federal law
requires courts to stay litigation of claims that are subject to arbitration until
arbitration is completed. 9 U.S.C.A. § 3; In re Merrill Lynch Trust Co. FSB, 235
S.W.3d 185, 195–96 (Tex. 2007) (orig. proceeding). Even when a party has
brought arbitrable claims against one party and claims not subject to arbitration
against another party in the same lawsuit, courts should stay all litigation. See In
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re Merrill Lynch Trust Co., 235 S.W.3d at 195–96. Accordingly, because we
have determined that appellees’ claims against appellants are subject to
arbitration, we conclude and hold that the litigation must be stayed pending
arbitration. See In re Helix Energy Solutions Group, Inc., 303 S.W.3d 386, 403
(Tex. App.––Houston [14th Dist.] 2010, orig. proceeding). We sustain appellants’
second issue.
Conclusion
Having sustained both of appellants’ issues, we reverse the trial court’s
order denying arbitration and a stay of the underlying proceedings, and we
remand this cause to the trial court to render an order in accordance with this
opinion.
TERRIE LIVINGSTON
CHIEF JUSTICE
PANEL: LIVINGSTON, C.J.; MCCOY and GABRIEL, JJ.
MCCOY, J., concurs without opinion.
DELIVERED: February 14, 2013
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