Aspen Technology, Inc., and David " Wood" Woodruff v. Hank W. Harrity

Opinion issued March 15, 2012

In The

Court of

Appeals

For The

First District

of Texas

————————————

NO. 01-11-00925-CV

———————————

Aspen Technology, Inc and David “Woody” Woodruff , Appellants

V.

Hank W.

Harrity , Appellee

On Appeal from the 125th District Court

Harris County, Texas

Trial Court Case No. 2011-39376

MEMORANDUM OPINION

Appellants, Aspen Technology, Inc. and

David Woodruff, appeal from the trial court’s denial of their motion to abate

the trial and compel arbitration. In one

issue, Aspen Technology and Woodruff argue that the trial court erred in

denying their motion.

We reverse and remand.

Background

Hank Harrity , appellee, began

working for Aspen Technology in July 2001.

As of July 1, 2008, he held the title of Senior Sales Account

Manager. Effective that date, Harrity and Aspen Technology entered into a contract

entitled “FY09 Sales Incentive Compensation Plan.”

As the title suggests, the contract concerned the

compensation Harrity would receive for license and

service deals made on behalf of Aspen Technology. In addition, the contract had an arbitration

provision. The provisions of the

contract relevant to this appeal are the “Administration” provision in the

“Basic Terms” section of the contract, the “‘Windfall’ Circumstances” provision

in the “Plan Terms and Conditions” section of the contract, and the arbitration

provision itself.

The administration provision provides:

The Senior Vice President of Worldwide Sales and Business

Development (“SVP–WW Sales”) or [the Vice President of Worldwide Sales

Operations (“VP–Ops”)] may modify this Plan [defined as the FY09 Sales

Incentive Compensation Plan] from time to time or at any time. The SVP–WW Sales or his designee shall have

final and binding authority to interpret or administer the Plan, and may make

any necessary interpretation or review at any time, including after the

Effective Period of the Plan. No

modifications to Territory, quotas or any other element of the Plan shall take

effect unless and until approved by the VP–Ops.

Likewise, any additional or modified terms of conditions between the

Plan Participant and the Company [defined as Harrity’s

employing Aspen Technology entity] shall not apply unless approved in writing

signed by the VP–Ops and the Plan Participant [defined as Harrity ].

The windfall provision provides, in relevant part, “The

Company has the right to review and alter a Plan Participant’s Total Quota or

any component thereof at any time for any reason, including . . .

any other reason relating to the commercial success of the Company.”

The arbitration provision provides:

If a Plan Participant is a resident of the United States,

then any legal action brought in support of any claim pursuant to this Plan

shall be exclusively settled by arbitration in the City of Boston,

Massachusetts in accordance with the commercial arbitration rules of the

American Arbitration Association in a three-arbitrator panel, with all

arbitrator fees and expenses shared equally between the Company and the Plan

Participant.

Harrity resigned in October 2010

and filed suit against Aspen Technology and Woodruff—Aspen Technology’s Senior

Vice President of Regional Sales & Services for Americas—on June 30,

2011. In the suit, Harrity

alleges that Aspen Technology paid him less than the full amount of the

commissions owed and brought a number of claims related to this issue.

Aspen Technology and Woodruff filed an answer and then

filed a motion to abate the trial court proceedings and compel

arbitration. Following a hearing, the

trial court denied the motion. This

appeal followed.

Standard of Review

We review an order denying a motion to compel arbitration

under the Federal Arbitration Act [1]

(“FAA”) for an abuse of discretion. Cleveland Constr., Inc. v. Levco Constr., Inc. , No. 01-11-00530-CV, 2012 WL

246497, at *6 (Tex. App.—Houston [1st Dist.] Jan. 26,

2012, no pet.) ( slip op.). “Thus, in reviewing an order denying a motion

to compel arbitration under the FAA, we give deference to the trial court’s

determinations that are supported by evidence and we review de novo its legal

conclusions.” Id. Whether a contract is

valid and enforceable is a question of law and, accordingly, is reviewed de

novo. In re Labatt Food Serv., L.P. , 279

S.W.3d 640, 643 (Tex. 2009). “A

trial court that refuses to compel arbitration under a valid and enforceable

arbitration agreement has clearly abused its discretion.” In re Odyssey Healthcare, Inc. , 310 S.W.3d 419, 422 (Tex. 2010).

Analysis

A party attempting to compel arbitration must first

establish that the dispute in question falls within the scope of a valid

arbitration provision. J.M. Davidson, Inc. v.

Webster , 128 S.W.3d 223, 227 (Tex. 2003). If the trial court finds a valid agreement,

the burden shifts to the party opposing arbitration to raise an affirmative

defense to enforcing arbitration. Id.

Although there is a strong presumption favoring arbitration, this

presumption arises only after the party seeking to compel arbitration proves

that a valid agreement exists. Id.

Harrity presented to the trial

court two reasons why he should not be required to arbitrate his claims. First, he argued the arbitration provision is

invalid. Second, he argued that,

regardless of whether the arbitration provision is enforceable, it does not

apply to his tort claims against Woodruff.

A.

Validity of Arbitration Provision

There is no dispute that there is an agreement between the

parties, that the agreement contains an arbitration provision,

and that the arbitration provision is broad enough to cover at least some of Harrity’s claims, including all of Harrity’s

claims against Aspen Technology.

Instead, Harrity disputes whether the

agreement is valid. Harrity

argues the agreement is not valid because it is illusory.

In determining whether an agreement to arbitrate is valid

and enforceable under the FAA, we apply state-law principles governing the

formation of contracts. In re Palm Harbor Homes, Inc. ,

195 S.W.3d 672, 676 (Tex. 2006).

“Arbitration agreements, like other contracts, must be supported by

consideration.” Id. If a party can

unilaterally avoid the agreement to arbitrate, it is illusory and unenforceable. Id. at 677 .

Harrity argues the arbitration

provision is illusory due to language in the administration provision. At issue is how two sentences in the

provision relate to each other. The

first sentence in the provision states, “The Senior Vice President of Worldwide

Sales and Business Development (‘SVP–WW Sales’) or VP–Ops may modify this Plan

from time to time or at any time.” The

last sentence in the provision states, “Likewise, any additional or modified

terms of conditions between the Plan Participant and the Company shall not

apply unless approved in writing signed by the VP–Ops and” Harrity .

The parties dispute how these sentences relate to each

other. Harrity

argues that the first sentence controls the last sentence with the result that

the SVP–WW Sales and the VP–Ops have unilateral authority to modify any portion

of the contract at any time, while Harrity can only

modify it with company approval. Aspen

Technology and Woodruff argue that the last sentence controls the first

sentence, with the result that the SVP–WW Sales and the VP–Ops are the only

agents for Aspen Technology that have authority to modify the contract but all

modifications must be agreed on by both the company and Harrity .

Because the parties offer conflicting interpretations of

the contract, we must determine whether the contract is ambiguous. See Webster ,

128 S.W.3d at 229 .

We begin by determining “whether it is possible to enforce the contract

as written, without resort to parol evidence.” Id. We review the entire contract, giving effect

to all the provisions so that none will be rendered meaningless. Id. We will avoid, whenever possible and proper,

a construction which is unreasonable, inequitable, and oppressive. Frost

Nat’l Bank v. L & F Distribs ., Ltd. , 165

S.W.3d 310, 312 (Tex. 2005). A contract

is unambiguous if it can be given a definite or certain legal meaning. Webster ,

128 S.W.3d at 229 .

If the contract is subject to two or more reasonable interpretations,

however, the contract is ambiguous, creating a fact issue on the parties’

intent. Id.

As an initial matter, we note that the trial court

specifically determined that Aspen Technology had a unilateral ability to

modify the contract. It did not clarify

whether this determination is based on an unambiguous interpretation of the

contract or on a factual determination of the parties’ intent following a determination

of ambiguity. Because we hold that the

contract is not ambiguous and did not give Aspen Technology unilateral

authority to modify the contract, either interpretation of the trial court’s

determination results in error.

A substantially similar contract was held to not be

ambiguous or illusory by the Fourteenth Court of Appeals. Aspen Tech., Inc. v. Shasha , 253 S.W.3d

857 (Tex. App.—Houston [14th Dist.] 2008, no pet.). The contract in Shasha was Aspen Technology’s

fiscal year 2006 contract. Id. at 859 . Under the 2006 contract, “the SVP Sales will

be responsible for the periodic review of the plan and may make revisions from

time to time.” Id. at 862 . The contract also provided, that “[a] ny additional terms or conditions, or verbal or written agreements

between [ Shasha ] and [Aspen] will not apply unless

explicitly agreed to and approved in a signed writing by both the SVP Sales and

[ Shasha ].” Id. at 863 (bracketed language in

original).

In that case, Shasha argued that

the contract was illusory because it allowed the SVP Sales to modify the

contract from time to time. Id. at 862 . The court disagreed, holding that the

provision requiring a signed agreement between the parties on any additional

terms or conditions controlled and prevented Aspen Technology from having

unilateral authority to modify the contract.

See id. at

863 .

We hold that the similar language in the 2009 agreement

has the same effect. Aspen Technology’s

proffered interpretation of the contract at issue—the SVP–WW Sales and the VP–Ops

are the only agents for Aspen Technology that have authority to modify the

contract but all modifications must be agreed on by both the company and Harrity —is a valid interpretation that gives effect to both

sentences. See Webster , 128 S.W.3d at 229

(requiring courts to review entire contract, giving effect to all provisions so

that none will be rendered meaningless).

Harrity’s proffered interpretation of the

contract—the SVP–WW Sales and the VP–Ops have unilateral authority to modify

any portion of the contract at any time, while Harrity

can only modify it with company approval—would result in an unreasonable,

inequitable, and oppressive interpretation of the contract. See Frost

Nat’l Bank , 165 S.W.3d at 312 (requiring courts to avoid, whenever possible

and proper, construction which is unreasonable, inequitable, and

oppressive). In fact, Harrity asks us to adopt his interpretation of the contract

specifically to have the arbitration provision rendered illusory based on that

provision’s application. Because there

is another, more reasonable interpretation of the contract, we cannot accept

his interpretation of the contract. See id.

Harrity also argued before the

trial court that the windfall provision renders the entire contract

illusory. The windfall provision gives

Aspen Technology the right to modify an employee’s quota “or any component

thereof at any time for any reason, including . . .

any other reason relating to the commercial success of the Company.” Harrity argues that

this and other similar provisions in the contract rendered the entire contract

illusory and unenforceable. Because this

argument applied to the contract as a whole and not the arbitration provision

specifically, however, it could not have been a basis for the trial court’s denial

of the motion to compel arbitration.

The Texas Supreme Court has recognized that there are two

types of challenges to an arbitration provision: “(1) a specific challenge to

the validity of the arbitration agreement or clause, and (2) a broader

challenge to the entire contract, either on a ground that directly affects the

entire agreement, or on the ground that one of the contract’s provisions is

illegal and renders the whole contract invalid.” In re Labatt , 279 S.W.3d at 647–48. While a court may consider the merits of the

first type of challenge, the second type of challenge can only be considered by

the arbitrator. Id. at 648. Because Harrity’s

argument concerning the windfall provision and other similar provisions concern

whether the contract as a whole is illusory rather than whether the arbitration

provision specifically is illusory, it could not have been a basis for the

trial court’s denial of the motion to compel arbitration.

We hold that the arbitration provision is not illusory.

B.

Applicability of Harrity’s

tort claims against Woodruff.

Harrity argues that, because he

did not sign an arbitration agreement with Woodruff, his tort claims against

Woodruff are not subject to a valid arbitration provision. All of Harrity’s

claims against Woodruff, though, relate to the commission Harrity

argues he is owed under the contract.

The arbitration provision in question requires arbitration

for “any legal action brought in support of any claim pursuant to this

Plan.” When contracting parties agree to

arbitrate all disputes under or with respect to a contract, “they generally

intend to include disputes about their agents’ actions because, as a general

rule, the actions of a corporate agent on behalf of the corporation are deemed

the corporation’s acts.” In re Vesta Ins. Grp .,

Inc. , 192 S.W.3d 759, 762 (Tex. 2006).

Parties to an arbitration agreement may not avoid arbitration “through

artful pleading, such as by naming individual agents of the party to the arbitration

clause and suing them in their individual capacity.” In re Merrill

Lynch Trust Co. FSB , 235 S.W.3d 185, 188 (Tex.

2007).

Harrity did not bring any claim

against Woodruff only. Instead, all of

the tort claims identify both Aspen Technology and Woodruff as liable

parties. Harrity’s

negligent misrepresentation claim asserts both defendants supplied him with

“false information for the guidance of [ Harrity ] in

his business decisions and transactions.”

Harrity’s fraud claim concerns alleged false

promises and representations for compensation in his work. His breach of fiduciary duty concerns the

defendants allegedly compelling Harrity “to trust and

rely upon his superiors and co-workers.”

Harrity does not allege any facts in his claim

for intentional infliction of emotional distress. Instead, he only tracks the legal language

for the elements. Accordingly, there is

no suggestion that any action taken by Woodruff to form the basis of this claim

was done in Woodruff’s individual capacity.

Harrity’s negligence claim concerns a duty to

pay the commission he alleges is owed.

Finally, Harrity’s “securing the execution of

a document by deception” claim concerns the execution of the contract in

question.

Each of these claims relate to the contract in question. Furthermore, none of these actions identify

any action taken by Woodruff in his individual capacity as opposed to his

capacity as an agent for Aspen Technology.

We hold that the arbitration provision applies to these claims.

We affirm Aspen Technology’s sole issue.

Conclusion

We reverse the order of the trial court and remand for

entry of an order staying the trial court proceedings and compelling

arbitration.

Laura

Carter Higley

Justice

Panel

consists of Chief Justice Radack and Justices Higley and Brown.

[1] The arbitration provision in dispute

does not state whether it is governed by the FAA, Texas General Arbitration Act

(“TGAA”), or some other legal authority.

Aspen Technology asserts that the provision is governed by the FAA, and Harrity does not challenge this. Because the outcome of this appeal would be

the same under the FAA and the TGAA, we will cite to the FAA. See Cleveland Constr., Inc. v. Levco Constr.,

Inc. , No. 01-11-00530-CV, 2012 WL 246497, at *6 (Tex. App.—Houston [1st

Dist.] Jan. 26, 2012, no pet.) ( slip op.) (holding interlocutory appeals under FAA and TGAA

reviewed for abuse of discretion); Tex. Cityview Care Ctr., L.P. v. Fryer , 227 S.W.3d 345, 351

(Tex. App.—Fort Worth 2007, pet. dism’d ) (holding

courts generally apply ordinary state law principles of contract formation in

determination of whether arbitration agreement is valid under FAA or TGAA); see also In re D. Wilson Constr. Co. ,

196 S.W.3d 774, 780 (Tex. 2006) (holding FAA preempts TGAA if TGAA imposes

enforceability requirement not found in FAA).