Opinion by Justice FILLMORE.
Appellant VSR Financial Services, Inc. (VSR), and appellants Chapman Hext & Co., P.C. (Chapman Hext), Gregory W. Hext (Gregory Hext), CH Wealth Management, LLC (CHWM), White Rock Advisors, LLC (White Rock Advisors),
Appellees sued VSR and the Chapman appellants as a result of an investment loss
In December 2006, McLendon sought to open an individual investment brokerage account with VSR by signing a "VSR New Account Form." The VSR New Account Form, which was tailored to "individual and joint accounts," was also signed by Charles Chapman, in the capacity of a "Registered Rep," and by an unidentified "Principal." The VSR New Account Form required that McLendon provide client profile and risk tolerance information, but does not contain the terms and conditions of any services to be provided by VSR and does not contain an arbitration provision. The record contains no agreement signed by VSR and McLendon specifying the terms and conditions upon which VSR would provide broker-dealer services to McLendon.
In connection with establishing his individual VSR investment brokerage account, McLendon also signed a form captioned "Advantage Account
In January 2007, McLendon used his individual VSR investment brokerage account to purchase notes from DBSI through the DBSI 2006 Secured Notes
In July 2007, McLendon opened an investment brokerage account with VSR in the name of Tri-State. McLendon signed on behalf of Tri-State, as its Managing Partner, a VSR New Account Form tailored to "business and trust accounts." This subsequent VSR New Account Form was also signed by Charles Chapman in the capacity of a "Registered Rep," but contained no signature of a "Principal." The VSR New Account Form required that McLendon provide client profile and risk tolerance information, but does not contain the terms and conditions of any services to be provided by VSR and does not contain an arbitration provision. The record contains no agreement signed by VSR and Tri-State specifying the terms and conditions upon which VSR would provide broker-dealer services to Tri-State.
In connection with establishing the Tri-State investment brokerage account with VSR, McLendon also signed on behalf of Tri-State the form captioned "Advantage Account
Following creation of the Tri-State investment brokerage account with VSR, the DBSI investment was transferred from McLendon's individual investment brokerage account to the Tri-State investment brokerage account. Subsequently, DBSI filed for bankruptcy protection. According to appellees, as a result of the DBSI bankruptcy proceeding, they will be unable to recover "all the monies due to them relating to the DBSI Investment and as a result have been damaged."
In their fourth amended petition, which was appellees' live pleading at the time the trial court denied appellants' motions to compel arbitration, appellees assert causes of action for breach of fiduciary duty, negligence, negligent representation, fraud, breach of contract, and civil conspiracy against the Chapman appellants. Appellees also seek disgorgement of payments made to the Chapman appellants. Appellees assert causes of action for negligence and violations of Texas securities law against VSR.
McLendon signed the McLendon Agreement in his individual capacity, and he signed the Tri-State Agreement in the capacity of Managing Partner of Tri-State. Each agreement incorporated the Terms and Conditions. Each agreement includes
The agreements also include the following arbitration provision:
The Terms and Conditions contain the same arbitration provision.
VSR and the Chapman appellants filed motions to compel arbitration of appellees' claims against them. The trial court denied the motions to compel arbitration. VSR and the Chapman appellants appealed the trial court's denial of their motions to compel arbitration.
In support of its motion to compel arbitration, VSR attached the affidavit of Charles Chapman. Appellees objected to the first sentence of paragraph 7 and to paragraph 8 of that affidavit on the bases that the statements violate the best evidence rule, omit a showing of how the witness has personal knowledge of the subject matter, constitute legal conclusions, consist of speculation, and contain conclusions to which a proper predicate has not been laid. Without stating a legal basis, the trial court sustained appellees' objections and ordered the following stricken from Charles Chapman's affidavit:
In VSR's second issue, it contends the trial court erred in sustaining appellees'
We review the trial court's decision to admit or exclude evidence for an abuse of discretion. See Interstate Northborough P'ship v. State, 66 S.W.3d 213, 220 (Tex. 2001); Collin Cnty. v. Hixon Family P'ship, 365 S.W.3d 860, 876-77 (Tex.App.-Dallas 2012, pet. denied). A trial court abuses its discretion when it acts arbitrarily or unreasonably, or without reference to any guiding rules and principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex.1985). A trial court's evidentiary ruling must be upheld if there is a legitimate basis for it. Owens-Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35, 43 (Tex.1998). For the exclusion of evidence to constitute reversible error, the complaining party must show that (1) the trial court committed error and (2) error was reasonably calculated to cause and probably did cause rendition of an improper judgment. McCraw v. Maris, 828 S.W.2d 756, 757 (Tex.1992); see also TEX.R.APP. P. 44.1(a)(1). In making the determination, we review the entire record. See Gee v. Liberty Mut. Fire Ins. Co., 765 S.W.2d 394, 396 (Tex.1989).
The trial court sustained appellees' objection and struck the portion of Charles Chapman's affidavit in which he stated that VSR "acted as the Introducing Firm for purposes of establishing McLendon's account." The McLendon Agreement and the Tri-State Agreement (the Agreements) and the Terms and Conditions all use the term "Introducing Firm" without defining it or declaring VSR or any other entity to be the "Introducing Firm." Chapman's declaration in his affidavit that VSR was the "Introducing Firm" for purposes of establishing McLendon's VSR account and the Tri-State VSR account provides no underlying information supporting his conclusion. A conclusory statement is one that does not provide the underlying facts to support the statement. Schindler v. Baumann, 272 S.W.3d 793, 796 (Tex.App.-Dallas 2008, no pet.); see also Holloway v. Dekkers, 380 S.W.3d 315, 323 (Tex.App.-Dallas 2012, no pet.) (by stating agreement was one which could be performed within one year, affiant asserted nothing more than conclusion; affidavit did not set forth facts that explained how or why agreement could be performed within one year or otherwise provide details to support affiant's conclusion; trial court reasonably could have determined statement did not contain sufficient factual detail to qualify as proper summary-judgment proof and did not abuse its discretion in sustaining objections to statement). Chapman's statement that VSR was the "Introducing Firm" is otherwise unsupported by the record and is conclusory.
The trial court sustained appellees' objection and struck the portion of Charles Chapman's affidavit in which he stated his "understanding that, pursuant to the ... account opening agreements, Mr. McLendon, individually and on behalf of his affiliated entities, agreed that any and all controversies and disputes with VSR
After reviewing the record, we cannot conclude the trial court abused its discretion in sustaining the objections to Charles Chapman's affidavit and striking the objected-to portions of that affidavit.
In its first issue, VSR contends the trial court abused its discretion by failing to compel arbitration of appellees' claims because a valid agreement to arbitrate such claims existed between appellees and VSR and between appellees and VSR's representative, Charles Chapman. Appellees contend there is no evidence VSR was a party to or had the right to enforce the arbitration provision of the Agreements.
The arbitration provision contained in each of the Agreements specifically states any arbitration under the agreement will be conducted pursuant to the Federal Arbitration Act (FAA), and the parties to this appeal do not dispute that the FAA applies to the issue of arbitrability of appellees' claims. See In re Merrill Lynch, Pierce, Fenner & Smith Inc., 131 S.W.3d 709, 712 (Tex.App.-Dallas 2004, orig. proceeding) (FAA applies to contracts "evidencing a transaction involving commerce" and sale of securities involves interstate commerce); see also In re Whitfield, 115 S.W.3d 753, 757 (Tex.App.-Beaumont 2003, orig. proceeding) (sale of securities held to involve interstate commerce). Section 51.016 of the civil practice and remedies code provides that in a matter subject to the FAA, a party may appeal from an interlocutory order of a district court "under the same circumstances that an appeal from a federal district court's order or decision would be permitted by" section 16 of the FAA. TEX. CIV. PRAC. & REM.CODE ANN. § 51.016 (West Supp.2012); see CMH Homes v. Perez, 340 S.W.3d 444, 448-49 (Tex.2011) (explaining that section 51.016 of the civil practice and remedies code provides for interlocutory appeals in FAA cases so long as "it would be permitted under the same circumstances in federal court under [9 U.S.C.] section 16"). Section 16 of the
We defer to the trial court's factual determinations if they are supported by evidence, but we review the trial court's legal determinations de novo. In re Labatt Food Service, L.P., 279 S.W.3d 640, 643 (Tex.2009) (orig. proceeding); see also J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003) (whether an agreement imposes a duty to arbitrate is question of law which is reviewed de novo); Trammell v. Galaxy Ranch Sch., L.P., 246 S.W.3d 815, 820 (Tex.App.-Dallas 2008, no pet.). "This standard is the same as the abuse of discretion standard of review and we will apply that standard to review interlocutory appeals under section 51.016." Sidley Austin Brown & Wood, LLP v. J.A. Green Dev. Corp., 327 S.W.3d 859, 863 (Tex.App.-Dallas 2010, no pet.).
In general, a party seeking to compel arbitration under the FAA must establish (1) the existence of a valid, enforceable arbitration agreement and (2) that the claims at issue fall within that agreement's scope. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding). "The initial burden of the party seeking to compel arbitration — to establish the arbitration agreement's existence — includes proving the entity seeking to enforce the arbitration agreement was a party to it or had the right to enforce the agreement notwithstanding." Mohamed v. Auto Nation USA Corp., 89 S.W.3d 830, 836 (Tex.App.-Houston [1st Dist.] 2002, orig. proceeding); see also Pepe Int'l Dev. Co. v. Pub Brewing Co., 915 S.W.2d 925, 931 (Tex. App.-Houston [1st Dist.] 1996, no writ). "An entity's burden to prove it is a signatory exists because arbitration is a creature of contract: when an entity seeks to compel arbitration, it must first establish its right to that contract remedy." Mohamed, 89 S.W.3d at 836. The party seeking to avoid arbitration then bears the burden of proving its defenses against enforcing the otherwise valid arbitration provision. In re AdvancePCS Health L.P., 172 S.W.3d 603, 607 (Tex.2005) (orig. proceeding) (per curiam).
Although there is a strong presumption favoring arbitration, that presumption arises only after the party seeking to compel arbitration proves a valid arbitration agreement exists. J.M. Davidson, Inc., 128 S.W.3d at 227; see also Carr v. Main Carr Dev., LLC, 337 S.W.3d 489, 496 (Tex.App.-Dallas 2011, pet. denied) ("Even the exceptionally strong policy favoring arbitration cannot justify requiring litigants to forego a judicial remedy when they have not agreed to do so."). We apply ordinary state contract law principles in deciding whether the parties agreed to arbitrate under the FAA. See In re D. Wilson Constr. Co., 196 S.W.3d 774, 781 (Tex.2006) (citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)); see also Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir.2002) (applying Texas law) (federal policy favoring arbitration does not apply to determination of whether there is a valid agreement to arbitrate between the parties; instead "[o]rdinary contract principles determine who is bound.") (quoting Daisy Mfg. Co., Inc. v. NCR Corp., 29 F.3d 389, 392 (8th Cir.1994)). "The parties' agreement to arbitrate must be clear. In this determination, Texas contract law applies." Trico Marine Servs., Inc. v. Stewart & Stevenson Technical Servs., 73 S.W.3d 545, 548
The only brokerage account documents in the record that reference VSR by name are the two VSR New Account Forms. The VSR New Account Forms signed by McLendon, individually and on behalf of Tri-State, and Charles Chapman as a "Registered Rep," do not contain an arbitration provision and do not incorporate by reference any other document. The Agreements, signed by McLendon, individually and on behalf of Tri-State, and the Terms and Conditions incorporated by reference into the Agreements, contain the arbitration provision at issue. The arbitration provision encompasses disputes between the account owner and the "Introducing Firm, Clearing Agent, and any Sub-Advisor (and/or any other agent)." The Agreements do not identify the party or parties with which appellees are to arbitrate claims other than in terms of the "Introducing Firm," "Clearing Agent," and "any Sub-Advisor (and/or any other agent)."
VSR contends it is the "Introducing Firm" referenced in the Agreements, signed by McLendon, individually and on behalf of Tri-State, and therefore appellees agreed to arbitrate their claims against VSR. Appellees contend VSR failed to establish either that it is the "Introducing Firm" or that a valid, enforceable arbitration agreement exists between VSR and appellees. The burden of showing a right to enforce an arbitration agreement, as with the overall burden of establishing the existence of an arbitration agreement, is generally evidentiary. See In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex.1999) (orig. proceeding). What is clear from the evidentiary record in this case is that VSR is not a named party to the Agreements, there is no definition in the Agreements or Terms and Conditions of the term "Introducing Firm," and neither the Agreements nor the Terms and Conditions declare VSR or any other entity to be the "Introducing Firm." VSR poses the question "how can the account agreements in evidence be construed in any way other than concluding that reference to the Introducing Firm
In their first issue, the Chapman appellants contend the trial court abused its discretion in denying their motion to compel arbitration because appellees' claims "arise from and through agreements containing valid arbitration agreements." The Chapman appellants assert valid arbitration provisions contained in the Agreements and Terms and Conditions agreed to by McLendon are "clearly marked and clearly stated."
In their second issue, the Chapman appellants contend the trial court abused its discretion in denying their motion to compel arbitration of appellees' claims against them as non-signatories to the arbitration agreements because appellees "rely on the terms of the written agreement which contain [sic] the arbitration agreements in asserting their claims against the non-signatories." Although the Chapman appellants are not signatories to the Agreements containing the arbitration provision, they contend that under the direct benefits estoppel doctrine, they may compel arbitration. Thus, we must determine whether appellees' claims against the Chapman appellants fall within one of the circumstances in which Texas courts recognize an arbitration agreement as binding between a signatory and a non-signatory.
The abuse of discretion standard applies to our review of the trial court's decision not to compel arbitration under the equitable doctrine of direct benefits estoppel. See In re Advance Payroll Funding, Ltd., 254 S.W.3d 710, 714 (Tex. App.-Dallas 2008, orig. proceeding) (direct-benefits estoppel does not apply and trial court did not abuse its discretion in denying motion to compel arbitration on that ground); In re James E. Bashaw & Co., 305 S.W.3d 44, 53 (Tex.App.-Houston [1st Dist.] 2009, orig. proceeding); see also In re Weekley Homes, L.P., 180 S.W.3d 127, 134-35 (Tex.2005) (orig. proceeding) (recognizing, in suit where signatory sought to compel arbitration of non-signatory's claims under direct benefits estoppel, "the equitable nature of the doctrine may render firm standards inappropriate, requiring trial courts to exercise some discretion based on the facts of each case").
Generally, only the signatories to an arbitration agreement are bound by the agreement. Van Zanten v. Energy Transfer Partners, L.P., 320 S.W.3d 845, 847 (Tex.App.-Houston [1st Dist.] 2010, no pet.); see also TEX. CIV. PRAC. & REM.CODE ANN. § 171.001(a) (West 2011) (written agreement to arbitrate is valid and enforceable if the agreement is to arbitrate a controversy that exists at the time of the agreement or arises between the parties after the date of the agreement). However, in certain limited circumstances, pursuant to an equitable estoppel theory, a defendant that is a non-signatory to an arbitration agreement can nevertheless compel arbitration against a signatory plaintiff. See Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 526-28 (5th Cir.2000). As non-signatories to the Agreements, the Chapman appellants must show that an accepted equitable estoppel theory permits them to enforce the arbitration provision in the Agreements. See id.
Further, if a party or nonparty seeks to derive a direct benefit from a contract containing an arbitration clause, he may be compelled to arbitrate under the doctrine of "direct benefits estoppel." In re Weekley Homes, 180 S.W.3d at 131 (applying doctrine to nonparty); see also Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 305 (Tex.2006) (sometimes a person who is not a party to the agreement can compel arbitration with one who is, and vice versa; a person who seeks by his claim "to derive a direct benefit from the contract containing the arbitration provision may be equitably estopped from refusing arbitration"). Claims must be brought on a contract and arbitrated if liability arises solely from the contract or must be determined by reference to it. Id.; see also Grigson, 210 F.3d at 527 ("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.") (quoting M/S Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir.1999)).
"Under both Texas and federal law, whether a claim seeks a direct benefit from a contract containing an arbitration clause turns on the substance of the claim, not artful pleading." In re Weekley Homes, 180 S.W.3d at 131-32. "When determining whether claims fall within the scope of the arbitration agreement, we look to the factual allegations, not the legal claims." Rachal, 403 S.W.3d 840, 849-50 (citing In re FirstMerit Bank, N.A., 52 S.W.3d 749, 754 (Tex.2001) (orig. proceeding)); see also Prudential Sec., Inc. v. Marshall, 909 S.W.2d 896, 900 (Tex. 1995)
"Equitable estoppel cannot give non-parties a greater right to arbitration than the parties themselves have." Meyer, 211 S.W.3d at 306. "Equitable estoppel is inapplicable ... when the benefit is merely indirect; that is, when the substance of the claim arises from general obligations imposed by state law, including statutes, torts and other common law duties, or federal law." In re Morgan Stanley & Co., Inc., 293 S.W.3d 182, 184 n. 2 (Tex.2009) (orig. proceeding) (citing In re Kellogg Brown & Root, 166 S.W.3d at 740-41). "Claims can be brought in tort (and in court) if liability arises from general obligations imposed by law." In re Weekley Homes, 180 S.W.3d at 132; see also Rachal, at 845-46 (if the claims are based on the agreement containing the arbitration agreement, they must be arbitrated, but if the claims can stand independently of the agreement, they may be litigated) (citing Kellogg Brown & Root, 166 S.W.3d at 739-40). Arbitration is not required merely because two claims arise from the same transaction. In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 191 (Tex. 2007) (orig. proceeding); Trammell, 246 S.W.3d at 820.
The question here is whether appellees' claims against the Chapman appellants must be determined by reference to the Agreements and Terms and Conditions which contain the arbitration provision, and, therefore, whether, as non-signatories to the Agreements, the Chapman appellants may compel appellees to arbitrate their claims against them. The Chapman appellants argue that appellees' claims against them rely on the Agreements, and appellees' live pleading "makes reference to or presumes the existence of" the Agreements, "because they all relate to and arise from the DBSI Investment, which came into existence through" the Agreements. The Chapman appellants also assert that appellees' reference the Agreements in alleging the Chapman appellants "caused [appellees] to sign various agreements and forms" that contained false information. According to the Chapman appellants, none of appellees' claims against them can survive without reliance upon the Agreements, and, therefore, the direct benefits theory of equitable estoppel justifies the Chapman appellants' motion to compel arbitration in this case.
Appellees assert the direct benefits theory of equitable estoppel does not apply in this case because the Chapman appellants do not come within the narrow exception fashioned by courts to prevent claimants from seeking to hold a non-signatory to the duties of a contract while at the same time escaping the arbitration provisions of that agreement. Appellees assert they are not suing Charles Chapman as an agent of VSR; instead, they are suing
In addition to seeking disgorgement of payments made to the Chapman appellants, appellees assert causes of action for breach of fiduciary duty, negligence, negligent misrepresentation, fraud, breach of contract, and civil conspiracy against them. Appellees allege the Chapman appellants provided appellees a variety of accounting and investment advice services, including functioning in the role of Chief Financial Officer for various McLendon business ventures. The Chapman appellants allegedly provided direction on how, where, and to what extent monies would be invested by various McLendon business ventures. Appellees allege the Chapman appellants advised appellees to hire VSR, failed to explain certain "forms and agreements entered into with VSR," included information on those forms that the Chapman appellants knew or should have known was false, made representations to appellees regarding the DBSI Investment, and failed to conduct proper due diligence associated with VSR and DBSI before recommending and causing appellees to make the DBSI Investment. Appellees also assert one or more of the Chapman appellants breached oral and written contracts with appellees to provide investment and tax services.
Here, appellees do not have to rely on the terms of the Agreements and Terms and Conditions, including the arbitration provision, in asserting their claims against the Chapman appellants. The Chapman appellants do not explain what, if any, "direct benefit" appellees are seeking from the Agreements containing the arbitration provision. Appellees' claims against the Chapman appellants, while referencing "forms and agreements entered into with VSR," do not seek a benefit from or to enforce provisions or obligations set forth in the "forms and agreements." Thus, appellees' claims "stand independently" of the Agreements. See In re Kellogg Brown & Root, Inc., 166 S.W.3d at 739-40; In re Merrill Lynch, Pierce, Fenner & Smith, Inc., 195 S.W.3d at 816. In this case, appellees are not seeking to enforce provisions of the Agreements, while evading arbitration with the non-signatory Chapman appellants. See In re James E. Bashaw & Co., 305 S.W.3d at 54.
We reject the Chapman appellants' assertion that the direct benefits theory of equitable estoppel requires appellees to arbitrate their claims against the Chapman appellants. We conclude the trial court did not abuse its discretion in denying the Chapman appellants' motion to compel arbitration based on the direct benefits estoppel doctrine. We resolve the Chapman appellants' second issue against them.
In their third issue, the Chapman appellants contend the trial court abused its discretion in denying their motion to compel arbitration of appellees' claims against them as non-signatories to valid arbitration agreements, because the appellees, as "signatories to the contracts containing the arbitration agreements, raise allegations of `substantially interdependent and concerted misconduct' by both the non-signatories [the Chapman appellants] and one or more of the signatories to the contract." The Chapman appellants contend that because appellees as signatories to the Agreements sued VSR, a purported signatory to the Agreements, and the Chapman appellants, non-signatories to
As with the Chapman appellants' first issue, this contention is dependent on there being a valid and enforceable arbitration agreement between appellees and VSR. As discussed above regarding VSR's first issue and the Chapman appellants' first issue, we have concluded VSR failed to establish the existence of a valid and enforceable arbitration agreement between it and appellees. Therefore, because VSR has not established it was a party to a valid and enforceable arbitration agreement, application of the equitable estoppel theory of "substantially interdependent and concerted misconduct" is not warranted here; appellees, as signatories to the Agreements, have not raised allegations of substantially interdependent and concerted misconduct by the non-signatory Chapman appellants and a signatory to the Agreements.
Further, appellees do not allege the Chapman appellants engaged in "substantially interdependent and concerted misconduct" with VSR. Appellees allege the Chapman appellants conspired together to induce appellees to make the DBSI investment. While the Chapman appellants state appellees would not have signed the Agreements and made the DBSI Investment "absent the cooperation of the Chapman [appellants] with VSR," appellees do not allege cooperation of the Chapman appellants and VSR in effecting appellees' entering into the Agreements or making the DBSI investment. Likewise, contrary to the Chapman appellants' assertion, appellees have not pleaded that the Chapman appellants "acted on VSR's behalf to cause [appellees] to complete `various agreements and forms.'"
We conclude the trial court did not abuse its discretion in denying the Chapman appellants' motion to compel arbitration based on an equitable estoppel theory of "substantially interdependent and concerted misconduct."
We affirm the trial court's order denying VSR's and the Chapman appellants' motions to compel arbitration.
