in Re: Kebret I. Mohamed

In The

Court of Appeals

For The

First District of Texas

____________

NO. 01-02-00347-CV

____________

KEBRET I. MOHAMED, Appellant

V.

AUTO NATION USA CORP.; AUTO NATION, USA; AUTO NATION,

INC.; AUTO NATION, INC. F/K/A MERCEDES BENZ OF

HOUSTON-GREENWAY; HOUSTON AUTO IMPORTS GREENWAY,

LTD. D/B/A MERCEDES BENZ OF HOUSTON-GREENWAY, Appellees (1)

On Appeal from the 270th District Court

Harris County, Texas

Trial Court Cause No. 2001-60221

* * *

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NO. 01-02-00519 -CV

____________

IN RE KEBRET I. MOHAMED

Original Proceeding on Petition for Writ of Mandamus

O P I N I O N

By interlocutory appeal and mandamus, appellant/relator, Kebret I. Mohamed,

challenges an order granting the motion to compel arbitration and abate proceedings

of appellees/real parties in interest, Auto Nation USA Corp., Auto Nation, USA, Auto

Nation, Inc., Auto Nation, Inc. f/k/a Mercedes Benz of Houston-Greenway, and

Houston Auto Imports Greenway, Ltd. d/b/a Mercedes Benz of Houston-Greenway

(collectively, "the Auto Nation parties"). We determine (1) whether we have

jurisdiction over the mandamus proceeding or the interlocutory appeal and (2)

whether the trial court abused its discretion in implicitly ruling that the non-signatory

Auto Nation parties could enforce the arbitration agreement . We dismiss the

interlocutory appeal for want of jurisdiction and conditionally grant the petition for

writ of mandamus.

Background

In May 1999, Park Place-South hired Mohamed, a United States citizen born

and raised in Ethiopia, as a valet for its car-sales business. Mohamed alleges that,

shortly after he was hired, his co-workers began severely harassing him because of

his race and national origin. Mohamed alleges the harassment continued until he was

constructively discharged.

Mohamed signed an alternative dispute resolution agreement ("the arbitration

agreement") with Park Place-South in June 1999. (2) It appears that, some time before

Mohamed quit, but after he signed the arbitration agreement, one of the Auto Nation

parties purchased Park Place-South. In November 2001, Mohamed sued the Auto

Nation parties and two of his supervisors for race discrimination; intentional

infliction of emotional distress; and negligent hiring, supervision, and retention. In

January 2002, the Auto Nation parties moved to compel arbitration and to dismiss or

stay trial-court proceedings. Mohamed contested the agreement's validity and

enforceability. (3) Both parties submitted summary evidence along with their arbitration

pleadings. After a non-evidentiary hearing, the trial court granted the motion to

compel arbitration and abated the cause.

Interlocutory Appeal (4)

Mohamed indicates in his brief that he filed both an interlocutory appeal and

a mandamus proceeding because the trial court's order did not state whether it was

rendered under the Texas General Arbitration Act ("TAA") (5) or the Federal

Arbitration Act ("FAA"). (6) Mohamed originally argued, however, that jurisdiction lay

over the interlocutory appeal because the order compelling arbitration could have

been rendered only under the TAA, which he claims authorizes this appeal. The Auto

Nation parties moved to dismiss the appeal and for sanctions, arguing no jurisdiction

lay over an appeal from an order compelling arbitration under the TAA. During oral

argument, Mohamed conceded that his only remedy is mandamus.

We agree with the parties that no interlocutory appeal lies from an order

granting a motion to compel arbitration under the TAA. (7) See Tex. Civ. Prac. &

Rem. Code Ann. § 171.098 (a)(1), (2) (Vernon Supp. 2002) (allowing interlocutory

appeal of orders, among others, that deny application to compel arbitration or that

grant application to stay arbitration); Tex. Civ. Prac. & Rem. Code Ann. §

51.014 (a) (Vernon Supp. 2002) (omitting orders granting application to compel

arbitration among orders appealable interlocutorily); Glazer's Wholesale Distribs.,

Inc. v. Heineken USA, Inc. , No. 05-99-01685-CV, slip op. at 8 (Tex. App.--Dallas

June 29, 2001, pet. granted) (consolidated orig. proceeding & interlocutory appeal;

designated for publication); In re Godt , 28 S.W.3d 732, 738 (Tex. App.--Corpus

Christi 2000, orig. proceeding); Materials Evolution Dev. USA, Inc. v. Jablonowski ,

949 S.W.2d 31, 33 (Tex. App.--San Antonio 1997, no writ); Lipshy Motorcars, Inc.

v. Sovereign Assocs., Inc. , 944 S.W.2d 68, 69-70 (Tex. App.--Dallas 1997, no writ);

Elm Creek Villas Homeowner Ass'n, Inc. v. Beldon Roofing & Remodeling Co. , 940

S.W.2d 150, 153-54 (Tex. App.--San Antonio 1996, no writ); Gathe v. Cigna

Healthplan of Texas, Inc ., 879 S.W.2d 360, 362 (Tex. App.--Houston [14th Dist.]

1994, writ denied).

Only mandamus lies over an order granting a motion to compel arbitration

under the TAA. See Glazer's Wholesale Distribs. , No. 05-99-01685-CV, slip op. at

8 -9 (considering mandamus proceeding over same because party compelled to

arbitrate without allegedly having agreed to do so had no adequate remedy by

appeal); In re Godt , 28 S.W.3d at 738 (same); cf. Freis v. Canales , 877 S.W.2d 283,

284 (Tex. 1994) (in considering whether mandamus lay from order compelling

arbitration under FAA, stating, "[A] party who is compelled to arbitrate without

having agreed to do so will have lost its right to have the dispute resolved by

litigation. Accordingly, such a party has no adequate remedy by appeal.").

Therefore, we need not reach that part of Mohamed's issue one concerning whether

the TAA or the FAA controls: whichever act applies, mandamus lies, not an appeal.

See In re Am. Homestar, Inc. , 50 S.W.3d 480, 483 (Tex. 2001) (mandamus lay over

order compelling arbitration under FAA); Jack B. Anglin Co. v. Tipps , 842 S.W.2d

266, 272-73 (Tex. 1992) (mandamus lay over order denying arbitration under FAA);

Glazer's Wholesale Distribs. , No. 05-99-01685-CV, slip op. at 8 -9 (dismissing appeal

from order compelling arbitration under TAA, but considering mandamus proceeding

over same).

Accordingly, we grant the Auto Nation parties' motion to dismiss Mohamed's

interlocutory appeal. However, we deny their request for frivolous-appeal sanctions

against Mohamed because (1) although their own arbitration motion argued the FAA

applied, that motion alternatively argued the arbitration agreement was enforceable

under the TAA; (2) the trial court's order did not specify which act applied; and (3)

as discussed in footnote seven above, the Texas Supreme Court's opinion in Jack B.

Anglin Co. v. Tipps (8) contained dictum suggesting that an appeal might lie. See Trico

Marine Servs., Inc. v. Stewart & Stevenson Technical Servs. , 73 S.W.3d 545, 548

(Tex. App.--Houston [1st Dist.] 2002, no pet.) (combined appeal & orig. proceeding)

(denying motion for sanctions, accompanying motion to dismiss appeal of order

compelling arbitration under TAA, for similar reasons).

Mandamus (9)

A. Standard of Review and Law of Arbitration

We review the trial court's order for abuse of discretion. Anglin , 842 S.W.2d

at 271 ; Trico Marine Servs. , 73 S.W.3d at 548 . A trial court abuses its discretion

when it errs in determining what the law is or in applying the law to the facts. In re

Bruce Terminix Co. , 988 S.W.2d 702, 703 (Tex. 1998); Trico Marine Servs. , 73

S.W.3d at 548 .

"'A party cannot be required to arbitrate unless it has agreed to do so.'" Trico

Marine Servs. , 73 S.W.3d at 548 (quoting Hou-Scape, Inc. v. Lloyd , 945 S.W.2d 202,

205 (Tex. App.--Houston [1st Dist.] 1997, orig. proceeding)); see also Tex. Civ.

Prac. & Rem. Code Ann. § 171.021 (a) (Vernon Supp. 2002) (requiring judge to

order arbitration upon finding agreement to arbitrate). "The parties' agreement to

arbitrate must be clear. In this determination, Texas contract law applies." Trico

Marine Servs. , 73 S.W.3d at 548 (citations omitted). "Construction of an

unambiguous contract is a question of law." Id. (citing MCI Telecommunications

Corp. v. Texas Utilities Elec. Co. , 995 S.W.2d 647, 650 (Tex. 1999)).

A party seeking to compel arbitration has the initial burden to establish the

arbitration agreement's existence and show that the claims asserted fall within the

agreement's scope. In re Kellogg Brown & Root , 80 S.W.3d 611, 615 (Tex.

App.--Houston [1st Dist.] 2002, orig. proceeding); see Tex. Civ. Prac. & Rem.

Code Ann. § 171.021 (a) (Vernon Supp. 2002). Whether an enforceable agreement

to arbitrate exists is a legal question entitled to de novo review. In re Kellogg Brown

& Root , 80 S.W.3d at 615 . If the party seeking arbitration carries its initial burden,

the burden then shifts to the party resisting arbitration to present evidence on its

defenses to the arbitration agreement. See In re Oakwood Mobile Homes, Inc. , 987

S.W.2d 571, 573 (Tex. 1999); see also Tex. Civ. Prac. & Rem. Code Ann. §

171.021 (b) (Vernon Supp. 2002).

B. Non-Signatories' Right to Enforce the Arbitration Agreement (10)

Under issue one, Mohamed argues the Auto Nation parties could not enforce

the arbitration agreement because they were not signatories to the agreement and did

not prove they were in privity with a signatory. (11)

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. See Pepe Int'l Dev. Co. v. Pub Brewing Co. , 915 S.W.2d 925, 931

(Tex. App.--Houston [1st Dist.] 1996, no writ) (combined appeal & orig.

proceeding); Texas Private Employment Ass'n v. Lyn-Jay Int'l, Inc. , 888 S.W.2d 529,

531, 532 (Tex. App.--Houston [1st Dist.] 1994, no writ) (op. & op. on reh'g)

(holding association itself was not party to arbitration agreement, set out in

association's by-laws, that required association's members to arbitration disputes

among themselves). The burden of showing one's status as a party or one's right to

enforce, as with the overall burden of establishing the arbitration agreement's

existence, is generally evidentiary. See In re Oakwood Mobile Homes , 987 S.W.2d

at 573 ("A party seeking to compel arbitration must establish the existence of an

arbitration agreement . . . Here, Oakwood met its burden of presenting evidence of an

arbitration agreement that governs the dispute between the parties.") (emphasis

added; citations omitted); Anglin , 842 S.W.2d at 269 ("[T]he trial court may

summarily decide whether to compel arbitration on the basis of affidavits, pleadings,

discovery, and stipulations."); In re Koch Indus., Inc. , 49 S.W.3d 439, 444 (Tex.

App.--San Antonio 2001, orig. proceeding) ("The party seeking arbitration has the

initial burden to present evidence of an arbitration agreement.") (emphasis added).

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. Pepe Int'l Dev. Co. , 915 S.W.2d at 931 .

Therefore, an entity that was not a party to the arbitration agreement may not

enforce the agreement's provisions unless that non-signatory entity falls into an

exception, recognized under general equitable or contract law, that would allow such

enforcement. See Grigson v. Creative Artists Agency, L.L.C. , 210 F.3d 524, 526-28

(5th Cir. 2000) ; cf. Lyn-Jay Int'l , 888 S.W.2d at 531, 532 ; Pepe Int'l Dev. Co. , 915

S.W.2d at 930-31 . One such exception is that, as with any contract, an assignee, such

as a successor-in-interest, can be bound to the terms of an arbitration agreement

signed by its assignor, such as a predecessor-in-interest, depending on the

assignment's terms. See Capitan Enters., Inc. v. Jackson , 903 S.W.2d 772, 775 (Tex.

App.--El Paso 1994, writ denied) (generally, party assuming contractual liability is

liable to same extent as party from which it assumed contract); cf. In re Koch Indus. ,

49 S.W.3d at 447 (holding non-signatory defendant companies affiliated with

signatory defendant company could enforce arbitration agreement against signatory

plaintiff when same operative facts were involved) .

It is undisputed that none of the Auto Nation parties is a signatory to the

arbitration agreement or falls under the agreement's definition of parties. Instead, the

Auto Nation parties' unverified motion to compel alleged that one of the Auto Nation

parties purchased, and thus was corporate successor-in-interest to, Mohamed's former

employer, Park Place-South, which actually signed the agreement. Similarly, at oral

argument in this Court, the Auto Nation parties asserted that they had assumed all of

Park Place-South's contractual obligations as part of the purchase. However, and

despite Mohamed's disputing their right to enforce the agreement at the hearing

below, the Auto Nation parties never met their burden of presenting evidence

supporting their corporate-successor assertion or revealing the terms of any

contractual assignments pursuant to that purchase. (12) See Pepe Int'l Dev. Co. , 915

S.W.2d at 931 (non-signatory's burden); In re Koch Indus. , 49 S.W.3d at 444

(evidence required).

The Auto Nation parties respond that they may nonetheless enforce the

arbitration agreement because they fall under two further exceptions--both based on

equitable estoppel--to the rule that a non-signatory cannot enforce an arbitration

agreement. We disagree with each of the Auto Nation parties' contentions.

First, the Auto Nation parties invoke the equitable exception that a non-signatory defendant may enforce an arbitration clause contained in a contract that

contains other terms on which the signatory plaintiff must rely to prosecute its claims.

See, e.g. , McMillan v. Computer Translation Sys. & Support , 66 S.W.3d 477, 482

(Tex. App.--Dallas 2001, no writ) (combined appeal & orig. proceeding). The

reason for this rule is that a plaintiff cannot seek to hold a non-signatory liable for

duties imposed under a contract, which contains an arbitration clause, while

simultaneously avoiding the arbitration clause on the ground that the defendant is a

non-signatory. See Grigson , 210 F.3d at 528 . Mohamed, however, does not have to

rely on the terms of his own unwritten employment contract, or even on those of the

written arbitration agreement, to assert claims for race discrimination, intentional

infliction of emotional distress, or negligent hiring, supervision, and retention.

Therefore, this equitable exception does not apply. Contrary to the Auto Nation

parties' claim, the logic of this exception simply does not extend to employment-related claims that do not rely on the employment contract's terms.

Second, the Auto Nation parties rely on the equitable exception that, when a

plaintiff that is a signatory to an arbitration agreement sues both signatory and non-signatory defendants based on substantially interdependent and concerted misconduct

by all defendants, the non-signatory defendants may enforce the arbitration agreement

against the plaintiff. See McMillan , 66 S.W.3d at 482 . The Auto Nation parties base

their argument on the fact that (1) Mohamed also sued Sullivan and Havard, (2) these

men were employees of Park Place-South, a signatory to the arbitration agreement

through the agreement's definition of "Employer," and (3) the arbitration agreement

defined "Employer" to include employees of Park Place-South, such as Sullivan and

Havard. The Auto Nation parties argue that because Mohamed sued both signatories

(Sullivan and Havard) and non-signatories (the Auto Nation parties) for interrelated

misconduct, the Auto Nation parties may enforce the arbitration agreement against

Mohamed.

The Auto Nation parties' argument overlooks that Sullivan and Havard had

neither been served nor had appeared in the suit before the trial judge's ruling. (13)

Generally speaking, a trial court has no personal jurisdiction over defendants that

have not yet been served, appeared, or otherwise waived service, and they are thus not

yet parties to the suit. See Tex. R. Civ. P.124 (generally, no judgment against

defendant unless defendant is served, appears, or waives service); Dodd v. Twin City

Fire Ins. Co. , 545 S.W.2d 766, 770 (Tex. 1977); Dyer v. Wall , 645 S.W.2d 317, 318-19 (Tex. App.--Corpus Christi 1982, no writ); cf. Wilson v. Dunn , 800 S.W.2d 833,

836-37 (Tex. 1990).

Relying on Texas and federal law, the Auto Nation parties respond that a

plaintiff cannot dismiss a signatory defendant simply to prevent a non-signatory

defendant from enforcing an arbitration agreement under this particular equitable

estoppel theory. See Grigson , 210 F.3d at 528 ; McMillan , 66 S.W.3d at 482 .

Grigson is distinguishable because the dismissal of the signatory defendants in that

case was part of a scheme, clearly designed to bypass an arbitration agreement's

effect, that joined them and the formerly adverse plaintiff as joint plaintiffs in a new

suit against the non-signatory defendants. See id. at 526, 528, 530 . Equity would not

allow such scheming to avoid arbitration. See id. at 528 . Moreover, the non-signatory defendants had obviously answered. See id., passim . The record here, in

contrast, shows only that Sullivan and Havard had not yet answered or been served,

not that they were served, only to be dismissed later pursuant to a scheme akin to that

in Grigson . McMillan , on which the Auto Nation parties also rely, is distinguishable

for similar reasons. See id. , 66 S.W.3d at 479, 481, 483 (holding non-signatory

defendants, who were sued separately from signatory defendants on same claims,

could enforce arbitration agreement under this equitable exception; further, non-signatory defendants were undisputedly agents or servants of signatory defendants). (14)

We hold the Auto Nation parties did not carry their initial burden of showing

an arbitration agreement that they could enforce. Accordingly, we hold the trial court

abused its discretion in granting their motion to compel arbitration. We sustain this

portion of issue one.

Because of our resolution of this portion of issue one, we need not reach

Mohamed's remaining issues, which concerned (1) whether adequate consideration

supported the arbitration agreement, (2) whether Mohamed carried his burden of

showing the arbitration agreement was unconscionable or that the Civil Practice and

Remedies Code barred the agreement's enforcement, and (3) whether the trial court

erred in not holding an evidentiary hearing. (15)

Conclusion

We conditionally grant the petition for writ of mandamus, which will issue only

if the trial court does not vacate its March 18, 2002 order granting the Auto Nation

parties' motion to compel arbitration and abating the lawsuit pending arbitration.

We deny the Auto Nation parties' motion for sanctions in the mandamus

proceeding.

Tim Taft

Justice

Panel consists of Justices Taft, Alcala, and Price. (16)

Publish. Tex. R. App. P. 47.4.

1. Appellant/relator Kebret I. Mohamed also sued Michael Sullivan and Ken

Havard. However, Mohamed claims, without dispute, that neither Sullivan nor

Havard had been served or had answered as of the date of the challenged order,

and the appellate record, which shows that "[s]ervice is currently in progress"

for these individuals and does not contain any filings by them, does not

contradict Mohamed's claim.

See Tex. R. App. P. 38.1(f). Accordingly, we do

not consider either Sullivan or Havard to be parties to the interlocutory appeal

or the mandamus proceeding.

2. The arbitration agreement was between Mohamed and "Employer," which was

defined as (1) Park Place Motorcars, Park Place Lexus, Park Place Bodywerks,

Park Place Porsche/Audi, or any Park Place Company and (2) any of those

companies' parent company, subsidiary company, affiliate company, directors,

officers, employees, or agents. It is undisputed that Mohamed's employer at

the time of the arbitration agreement, Park Place-South, fell under the

definition of "Employer."

3. Mohamed does not dispute that, if the arbitration agreement is valid and

enforceable by the Auto Nation parties, his claims are the type that fall within

the agreement's scope.

4. Our cause no. 01-02-00347-CV.

5.

See Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001 -.098 (Vernon Supp.

2002).

6.

See 9 U.S.C. §§ 1-16 (2001).

7. We note that dictum in the Texas Supreme Court's opinion in

Jack B. Anglin

Co. v. Tipps implies that appellate jurisdiction might lie over an order granting

a motion to compel arbitration under the TAA. See id. , 842 S.W.2d 266, 271-72 (Tex. 1992) (stating in dictum that the FAA and TAA "permit . . . appeal

from an interlocutory order granting or denying a request to compel

arbitration"). Anglin 's quoted statement is dictum: the order under review

denied arbitration, and the Court held the FAA applied and mandamus lay. See

id. at 270, 272 . We agree with our sister courts of appeals, for this reason and

for the additional reasons they discuss, that the dictum in Anglin does not

control and thus that no interlocutory appeal lies from an order granting a

motion to compel arbitration under the TAA. See Glazer's Wholesale

Distribs., Inc. v. Heineken USA, Inc. , No. 05-99-01685-CV, slip op. at 8 (Tex.

App.--Dallas June 29, 2001, pet. granted) (consolidated orig. proceeding &

interlocutory appeal; designated for publication) (declining to follow the

Anglin dictum); Lipshy Motorcars, Inc. v. Sovereign Assocs., Inc. , 944 S.W.2d

68, 69-70 (Tex. App.--Dallas 1997, no writ) (same ); Elm Creek Villas

Homeowner Ass'n, Inc. v. Beldon Roofing & Remodeling Co. , 940 S.W.2d 150,

153-54 (Tex. App.--San Antonio 1996, no writ) (same); Gathe v. Cigna

Healthplan of Texas, Inc ., 879 S.W.2d 360, 362 (Tex.App.--Houston [14th

Dist.] 1994, writ denied) (same); see also Trico Marine Servs., Inc. v. Stewart

& Stevenson Technical Servs. , 73 S.W.3d 545, 548 (Tex. App.--Houston [1st

Dist.] 2002, no writ) (combined appeal & orig. proceeding) (though not

reaching the issue, noting the dictum in Anglin and listing courts that have

declined to follow that dictum).

8. 842 S.W.2d at 271-72 .

9. Our cause no. 01-02-00519-CV.

10. The parties' briefs also label this challenge as a "standing" issue. However, as

discussed below, the issue is evidentiary, not one of standing.

11. The Auto Nation parties claim that Mohamed did not preserve this challenge

because it was not raised in writing below. However, Mohamed raised the

challenge at the hearing on the motion to compel and thus preserved it.

See

Tex. R. App. P. 33.1(a).

12. We also note that the arbitration agreement defined "Employer," one of the

signatory parties, as a "parent company, subsidiary company, [or] affiliate

company" of any of the companies listed in the definition of "Employer." The

Auto Nation parties did not present evidence that they fit into one of these

categories, either.

13. As stated before, Mohamed asserts this fact in his brief without dispute, and

the record does not contradict Mohamed's claim.

See Tex. R. App. P. 38.1(f).

14. We distinguish the remaining federal cases on which the Auto Nation parties

rely because their records showed an agency, alter-ego, or sister-corporation

relationship, between the signatory and non-signatory defendants, that allowed

the non-signatories to enforce the arbitration clause under general contract

principles.

See Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc. , 7 F.3d

1110, 1121-22 (3rd Cir. 1993); Arnold v. Arnold Corp.-Printed

Communications for Bus. , 920 F.2d 1269, 1281-82 (6th Cir. 1990); Letizia v.

Prudential Bache Sec., Inc. , 802 F.2d 1185 , 1187-88 (9th Cir. 1986). Here, the

Auto Nation parties' summary evidence did not show these relationships.

Moreover, in each of these federal cases, the non-signatories were obviously

parties that had been served or had answered because they were actively

participating in the lawsuits. See id., passim .

15. We note that the Auto Nation parties did not claim below and do not claim here

that they were entitled to an evidentiary hearing to show they could enforce the

arbitration agreement despite being non-signatories. In any event, showing

their right to enforce the agreement was their initial burden, to be carried by

presenting summary evidence.

See In re Oakwood Mobile Homes, Inc. , 987

S.W.2d 571, 573 (Tex. 1999); Anglin , 842 S.W.2d at 269 .

16. The Honorable Frank C. Price, former Justice, Court of Appeals, First District

of Texas at Houston, participating by assignment.