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Oliver Street Dermatology Management, LLC v. Creger

United States District Court, W.D. Texas, Austin Division

May 30, 2018

OLIVER STREET DERMATOLOGY, LLC, D/B/A U.S. DERMATOLOGY PARTNERS, PLAINTIFF,
v.
DAN CREGER, DEFENDANT.

          MEMORANDUM OPINION AND ORDER

          LEE YEAKEL UNITED STATES DISTRICT JUDGE

         Before the court are Defendant/Counter-Plaintiff Creger's Motion to Compel Arbitration and Motion to Dismiss filed October 26, 2017 (Clerk's Doc. No. 20), Plaintiffs Response to Defendant's Motion to Compel Arbitration and Motion to Dismiss filed November 2, 2017 (Clerk's Doc. No. 22), Defendant/Counter-Plaintiff Creger's Reply to Oliver Street's Motion to Compel Response filed November 16, 2017 (Clerk's Doc. No. 24), Defendant/Counter-Plaintiff Creger's Motion for Protective order filed October 31, 2017 (Clerk's Doc. No. 21), Motion for Leave to Serve Additional Discovery on Issues of Agency, Authority and Estoppel Raised by Reply to Response to Motion to Compel and Motion for Leave to File Sur-Reply filed December 8, 2017 (Clerk's Doc. No. 31), Defendant/Counter-Plaintiff Creger's Response to Oliver Street's Motion for Leave to File Supplemental Discovery Requests filed December 15, 2017 (Clerk's Doc. No. 33), and Reply to Response to Motions for Leave to Serve Additional Discovery and Motion for Leave to File Sur-Reply filed December 18, 2017 (Clerk's Doc. No. 36).

         Having considered the motions, responses, replies, and applicable law, the court concludes that the parties' Rule 11 agreement is unenforceable because it was not filed with the court. The arbitration clause in Oliver Street Dermatology's employee handbook is also unenforceable, and Creger's motion to compel arbitration will be denied. For these reasons, Oliver Street Dermatology's motion to serve additional discovery will be denied, because further discovery on issues of agency, authority, and estoppel is unnecessary.

         I. BACKGROUND

         On April 14, 2017, Oliver Street Dermatology ("Oliver Street") filed a declaratory-judgment suit in state court to resolve a contract dispute between it and Creger. Creger's attorney informed Oliver Street on April 25, 2017, that he intended to remove the case to the United States District Court for the Western District of Texas. On May 16, 2017, the attorney told Oliver Street that he changed his mind and wished to remove the case to the Northern District of Texas.

         On May 25, 2017, the parties agreed that Oliver Street would nonsuit the state litigation and refile in the Western District of Texas. Both parties now refer to this arrangement as a Rule 11 agreement under the Texas Rules of Civil Procedure. See Tex. R. Civ. P. 11. In accordance with the agreement, Oliver Street filed this suit on June 2, 2017. Creger then filed a motion to compel arbitration on October 26, 2017, arguing that the arbitration clause in Oliver Street's employee handbook should be enforced. The relevant clause reads:

As a condition of employment, [Oliver Street] and its employees agree to submit all disputes and claims arising from an employee's tenure with [Oliver Street] to binding arbitration under the rules of the American Arbitration [Association].

         Oliver Street argues that this clause is an unenforceable illusory promise, because the employee handbook also states that Oliver Street "reserves the right to rescind, modify or deviate from these and other policies, practices and guidelines at its sole discretion . . . with or without notice." Oliver Street additionally claims that it detrimentally relied on Creger's promise to litigate in federal court. Creger responds that the agreement to litigate in federal court is unenforceable under Texas Rule of Civil Procedure 11, because the agreement was not filed with a court, as required by the rule. See Tex. R. Civ. P. 11 ("[N]o agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing, signed and filed with the papers as part of the record, or unless it be made in open court and entered of record."). Creger also claims that estoppel should apply to compel arbitration since he detrimentally relied on Oliver Street's agreement to arbitrate employment disputes.

         Neither the "Rule 11 agreement" nor the arbitration clause is enforceable. Promissory estoppel does not apply in either party's favor-a contrary decision would allow one party to renege on its own representations, thus creating injustice. The parties are will be left to litigate their dispute unimpeded by their prior arrangements.

         II. APPLICABLE LAW

         In diversity cases such as this, "substantive law ... is established by the usual principles of conflict of laws, but procedural rules are the rules of the forum." Condit Chem. & Grain Co. v. Helena Chem. Corp., 789 F.2d 1101, 1102 (5th Cir. 1986); see Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938) (state law applies except when issue is governed by federal law). The court must therefore determine whether Texas Rule of Civil Procedure 11 or a Federal Rule of Civil Procedure applies to the parties' agreement to litigate in federal court. This analysis turns on whether the Texas rule is substantive or procedural.

         Texas Rule of Civil Procedure 11 states the following:

Unless otherwise provided in these rules, no agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing, signed and filed with the papers as part of the record, or unless it be made in open court and entered of record.

Tex. R. Civ. P. 11. The Fifth Circuit has likened the rule to the parol-evidence rule. ConditChem. & Grain Co., 789 F.2d at 1102. The parol-evidence rule, though labeled a rule of evidence, is a rule of substance. Id. (citing Restatement (Second) of Conflict of Laws § 140 (Am. Law Inst. 1971); 3 Corbin, Contracts § 573 (rev'd ed. 1960); 16 American Jurisprudence, Conflict of Laws § 132 (2d ed. 2018)). Likewise, the Texas rule is substantive despite its label. Id. This court therefore looks to Texas law, not the Federal Rules of Civil ...


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