Auto Nation USA, Inc. v. Kebret I. Mohamed

In The

Court of Appeals

For The

First District of Texas

____________

NO. 01-03-00388-CV

____________

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, Appellants

V.

KEBRET I. MOHAMED, Appellee

On Appeal from the 270th District Court

Harris County, Texas

Trial Court Cause No. 2001-60221

MEMORANDUM OPINION

By interlocutory appeal and petition for writ of mandamus, appellants,

AutoNation USA Corp., AutoNation, USA, AutoNation, Inc., AutoNation, Inc. f/k/a

Mercedes Benz of Houston–Greenway, and Houston Auto Imports Greenway, Ltd.

d/b/a Mercedes Benz of Houston–Greenway (the AutoNation parties), challenge the

trial court’s order denying the AutoNation parties’ second motion to compel

arbitration. We determine whether we have jurisdiction over the interlocutory appeal

and, once we have jurisdiction, in four issues, the AutoNation parties contend as

follows: (1) the doctrines of collateral estoppel and issue preclusion do not bar the

AutoNation parties from seeking a second order compelling arbitration; (2) this

Court’s ruling in Mohamed-I does not operate as law of the case; (3) the AutoNation

parties proved that they are a successor-in-interest to the arbitration agreement; and

(4) the trial court erred in denying the AutoNation parties’ second motion to compel

arbitration. We affirm the judgment of the trial court.

Background

Kebret I. Mohamed, appellee, is a United States citizen, who was born and

raised in Ethiopia. In May 1999, the Mercedes Benz Greenway dealership hired

Mohamed 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 his employer, Park Place, in June 1999. 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, fell

under the definition of “Employer.” Some time before Mohamed quit, but after he

signed the arbitration agreement, the AutoNation parties purchased Park Place.

In November 2001, Mohamed sued the AutoNation parties and two of his

supervisors for race discrimination; intentional infliction of emotional distress; and

negligent hiring, supervision, and retention. In January 2002, the AutoNation parties

moved to compel arbitration. Mohamed contested the arbitration agreement’s validity

and enforceability. Both parties submitted summary evidence along with their

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

AutoNation parties’ motion to compel arbitration and abated the cause.

Mohamed filed a petition for writ of mandamus and an interlocutory appeal in

this Court. On October 31, 2002, this Court dismissed the interlocutory appeal and

conditionally granted the petition for writ of mandamus, instructing the trial court to

vacate its order compelling arbitration. Mohamed v. AutoNation USA Corp ., 89

S.W.3d 830, 832-33 (Tex. App.—Houston [1st Dist.] 2002, no pet.) (hereinafter

referred to as “ Mohamed-I ”). On November 21, 2002, the trial court vacated its order

compelling arbitration. A few months later, on February 3, 2003, the AutoNation

parties filed a second motion to compel arbitration, which the trial court denied. The

AutoNation parties now file this interlocutory appeal and petition for writ of

mandamus.

Interlocutory Appeal or Mandamus

The trial court did not expressly determine whether the Texas General

Arbitration Act (TAA) or the Federal Arbitration Act (FAA) applied. See Tex. Civ.

Prac. & Rem. Code Ann. §§ 171.001-.098 (Vernon 2003); 9 U.S.C. §§ 1-16 (2001).

The method of review depends on which act applies. Mandamus is appropriate to

review an order denying arbitration when the FAA applies to the arbitration

agreement. See In re Valero Energy Corp. , 968 S.W.2d 916, 916-17 (Tex. 1998); Jack

B. Anglin Co. v. Tipps , 842 S.W.2d 266, 272-73 (Tex. 1992). Interlocutory appeal is

appropriate to review an order denying arbitration when the TAA applies. See Tex.

Civ. Prac. & Rem. Code Ann . § 171.098(a)(1), (2) (Vernon Supp. 2004). The

AutoNation parties stated that they filed both an interlocutory appeal and a mandamus

proceeding “out of an abundance of caution.”

The arbitration agreement in this case specifically refers to the TAA; it does not

mention the FAA. Section 10.1 of the arbitration agreement states, “Any proceeding

pursuant to the ADR Procedure shall be an arbitration proceeding subject to the Texas

General Arbitration Act.” Additionally, section 12.3 of the arbitration agreement

makes the following reference to the TAA:

Applicability of Arbitration Statute . The arbitration proceeding

shall be deemed an arbitration proceeding subject to the Texas General

Arbitration Act. If this ADR Procedure is in conflict with any mandatory

requirements of the Texas General Arbitration Act, the statute shall

govern. The Arbitrator shall have all powers granted to arbitrators under

the Texas General Arbitration Act.

Given the arbitration agreement’s express adoption of the TAA, we hold that this

agreement falls under the TAA. See In re Kellogg Brown & Root , 80 S.W.3d 611, 617

(Tex. App.—Houston [1st Dist.] 2002, orig. proceeding). Interlocutory appeal is, thus,

the appropriate method to review the order denying arbitration. See Tex. Civ. Prac.

& Rem. Code Ann . § 171.098(a)(1), (2).

Standard of Review

In an appeal from an interlocutory order denying a motion to compel

arbitration, the applicable standard of review is that of “no evidence.” Pepe Int’l Dev.

Co. v. Pub Brewing Co. , 915 S.W.2d 925, 929 (Tex. App.—Houston [1st Dist.] 1996,

no writ) (combined appeal & orig. proceeding). Under the “no evidence” standard, the

appellate court considers only the evidence and inferences tending to support the

finding under attack and disregards all evidence and inferences to the contrary. Id .

We must affirm the trial court’s order if any legal theory supports it when, as in this

case, there are no findings of fact or conclusions of law. See id . When a party attacks

the legal sufficiency of an adverse finding on an issue on which it has the burden of

proof, the party must demonstrate on appeal “that the evidence establishes, as a matter

of law, all vital facts in support of the issue.” Dow Chem. Co. v. Francis , 46 S.W.3d

237, 241 (Tex. 2001); accord Burlington N. R.R. Co. v. Akpan , 943 S.W.2d 48, 50

(Tex. App.—Fort Worth 1996, no writ) (holding same in interlocutory appeal from

arbitration ruling). Such a matter-of-law challenge requires us first to examine the

record for evidence that supports the finding, while ignoring all evidence to the

contrary. Francis , 46 S.W.3d at 241 ; Akpan , 943 S.W.2d at 50 . Only if there is no

evidence to support the finding will we then examine the entire record to determine

if the contrary proposition is established as a matter of law. Francis , 46 S.W.3d at

241 ; Akpan , 943 S.W.2d at 50 . We will sustain the matter-of-law challenge only if

the contrary proposition is conclusively established. Francis , 46 S.W.3d at 241 ;

Akpan , 943 S.W.2d at 50 .

Successor-In-Interest

In point of error three, the AutoNation parties contend that they proved that they

are successors-in-interest to the arbitration agreement. Therefore, the trial court erred

in denying their second motion to compel arbitration of this action.

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

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

(Tex. App.—Houston [1st Dist.] 2002, orig. proceeding); see also Tex. Civ. Prac. &

Rem. Code Ann. § 171.021(a) (Vernon 2003) (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 . Construction of an unambiguous contract is a question of law. Id.

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

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

agreement’s scope.

In re Kellogg Brown & Root , 80 S.W.3d at 615 ; see Tex. Civ.

Prac. & Rem. Code Ann. § 171.021(a) (Vernon 2003). 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. 2004).

Here, the AutoNation parties contend that the trial court erred in its implicit

conclusion that they did not carry their burden of showing that they had the right to

enforce the arbitration agreement. We disagree.

The party seeking to compel arbitration must prove that it was a party to the

arbitration agreement or had the right to enforce the agreement, notwithstanding.

Mohamed I , 89 S.W.3d at 836 . “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.” Id .

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. 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 .

Id . (Emphasis added.)

It is undisputed that the AutoNation parties were not signatories to the

arbitration agreement and that they were not expressly named as parties to the

agreement. Instead, the AutoNation parties allege in their Second verified Motion to

Compel that, pursuant to the terms of an asset purchase agreement executed in 1999,

they were assigned all rights to Mohamed’s arbitration agreements as the corporate

“successors-in-interest” to Mohamed’s former employer, who had signed the

arbitration agreement. At the hearing on the motion to compel arbitration, the

AutoNation parties did not produce these asset-purchase agreements for the court to

review.

Nevertheless, in support of this assertion, the AutoNation parties provided

the trial court with an authenticated “acknowledgment” of the assignment executed

after this lawsuit was filed and an affidavit from Gorden Devens, Vice President-Corporate Law for AutoNation, as evidence that the language of the asset purchase

agreement assigned all employment arbitration agreements to them. This evidence is

insufficient as a matter of law to meet the AutoNation parties burden of conclusively

establishing that they are assignees of Mohamed’s arbitration agreement and are

legally entitled to enforce it against him.

Only where the terms of a contract are first determined to be ambiguous may the

court consider the parties’ interpretation of a contract and admit extraneous evidence

to determine the true meaning of the instrument. Kelley-Coppedge, Inc. v. Highlands

Ins. Co. , 980 S.W.2d 462, 464 (Tex. 1998); Transcon. Gas Pipeline Corp. v. Texaco,

Inc. , 35 S.W.3d 658, 666 (Tex. App.—Houston [1st Dist.] 2000, pet. denied). Parol

testimony is inadmissible to establish the contents of an alleged assignment because

the written assignment itself, and not the parol evidence, is the best evidence of the

contents of the assignment. See Standifer v. Bond Hardware Co. , 94 S.W. 144 , 145

(Tex. Civ. App. 1906, no writ).

In this case, because there was no finding that the terms of the asset-purchase

agreements were, in fact, ambiguous, the defendants cannot rely on any extraneous

evidence to support their interpretation of the agreements to compel arbitration. Furthermore, the affidavit testimony of Gorden Devens about the terms of the

purchase agreement is inadmissible because it is not the best evidence of the contents

of the assignment.

Id . In the absence of the purchase agreements that the AutoNation

parties allege created their assignment rights, the trial court correctly held that the

AutoNation parties had not met their burden of establishing that they were assignees

of Mohamed’s arbitration agreement with his previous employers.

Furthermore, the AutoNation parties do not present any authority, nor have we

found any, for the proposition that an “acknowledgment” of a prior agreement

executed after this lawsuit is dispositive of the trial court’s legal interpretation of the

language of the prior agreement. Contrary to the AutoNation parties’ assertions, any

inferences that could be drawn from the affidavits and the acknowledgment cannot be

used to meet their burden in this case because we may only make those inferences that

support the trial court’s implied rulings. See Tex. R. App. P . 33.1.

Accordingly, the trial court did not err in finding that the AutoNation parties

cannot enforce Mohamed’s employment arbitration agreement and in denying the

motion to compel arbitration.

Accordingly, we hold that the AutoNation parties did not carry their initial

burden of showing that each party seeking to compel arbitration was entitled to

enforce the arbitration agreement.

Having found that the AutoNation parties did not

carry their initial burden, we do not address Mohamed’s issues relating to issue

preclusion and unconscionability.

Because we have found that the trial court did not err in denying the AutoNation

parties’ second motion to compel, we need not reach the remaining issues.

Conclusion

We affirm the trial court’s order denying the AutoNation parties’ motion to

compel arbitration.

George C. Hanks, Jr.

Justice

Panel consists of Justices Nuchia, Hanks, and Higley.