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Gray v. Ward

Court of Appeals of Texas, Fifth District, Dallas

August 9, 2019

BRYAN WARD, Appellee

          On Appeal from the 366th Judicial District Court Collin County, Texas Trial Court Cause No. 366-05277-2017

          Before Justice Whitehill, Molberg, and Reichek


          Whitehill Justices

         This case concerns the scope of a "relating to" arbitration clause in a partnership agreement where the underlying dispute is laser-focused on the parties' partnership duties. Steve Gray and Happy Accidents, Inc. (together, Accidents unless context shows otherwise) appeal the trial court's interlocutory order partially denying their motion to compel arbitration under the Federal Arbitration Act.[1] In a single issue, Accidents argues that the trial court erroneously concluded that some of Bryan Ward's claims fall outside the scope of the parties' arbitration agreement.

         The linchpin here is the correlation between the partnership buy-out dispute and Ward's claims that he was wrongfully terminated because of the dispute and defamed concerning the conditions upon which his partnership employment terminated.

         We conclude the trial court erred because Ward's claims have a significant relationship to and are inextricably enmeshed and factually intertwined with the limited partnership agreement (the LP Agreement) containing the broad arbitration clause. We thus reverse the trial court's order and render judgment that all of Ward's claims are compelled to arbitration.

         I. Background

         In 2012, Gray, Ward, and Ken Burge started Primal Health LP (the Partnership), which sells herbal and vitamin supplements online. Burge later departed, and the Partnership purchased his interest leaving Gray and Ward as the only remaining limited partners and Happy Accidents as the general partner.

         Gray is the Partnership's majority owner and Happy Accidents' CEO.

Neither Gray nor Ward have an employment agreement with Primal. But the parties signed the LP Agreement which provides in Section 13.2 that:
All disputes and claims relating to this Agreement, the rights and obligations of the parties hereto, or any claims or causes of action relating to the performance of either party that have not been settled through mediation will be settled by arbitration by the American Arbitration Association in either Boca Raton, Florida or Arizona in accordance with the Federal Arbitration Act and the Commercial Arbitration Rules of the American Arbitration Association. The costs of the arbitration proceedings will be borne by the losing party if such party is found to have been in material breach of its obligations hereunder. . . .

         At some point, Ward approached Gray and Accidents about his desire to leave the Partnership and asked Gray to buy out his interest. A dispute arose concerning the valuation of Ward's partnership interest.

         Consequently, Ward filed this suit asserting breach of contract, breach of fiduciary duty, wrongful discharge, and defamation claims. Ward's ten-page, fifty-eight paragraph, and four count petition describes in detail that Ward and Gray initiated discussions for Gray to buy out Ward's partnership interest and how Gray (i) allegedly manipulated the partnership interest appraisal process to drive down the price of Ward's interest, (ii) forced Ward to involuntarily resign, (iii) used the forced resignation "as a tactic to preclude the Partnership's obligation to repurchase Ward's interest under the Partnership Agreement . . .," (iv) refused to complete the buy-out, and (v) refused to make partnership distributions to Ward.

         Each count in Ward's petition begins by stating that, "Plaintiff [Ward] incorporates the preceding paragraphs as if fully reproduced herein." Ward's first two counts are his fiduciary breach and partnership claims. Thus, his succeeding wrongful termination and defamation counts incorporate as if fully reproduced therein all of the preceding (i) factual allegations regarding partnership agreement disputes, valuation manipulations, and forced resignations and (ii) the resulting fiduciary breach obligations.

         Accidents moved to compel arbitration according to the LP Agreement's arbitration clause. The court initially ordered that all of Ward's claims would be arbitrated. But following Ward's motion for reconsideration, the trial court ordered that Ward's breach of fiduciary duty and breach of contract claims were subject to arbitration while the wrongful discharge and defamation claims were not. This appeal followed.

         II. Analysis A. Standard of Review

         We review a trial court's ruling on a motion to compel arbitration under an abuse of discretion standard. See Henry v. Cash Biz, L.P., 551 S.W.3d 111, 115 (Tex. 2018). Under that standard, we defer to the trial court's factual determinations when they are supported by evidence, but review de novo the trial court's legal determinations. VSR Fin. Servs., Inc. v. McLendon, 409 S.W.3d 817, 827 (Tex. App.-Dallas 2013, no pet.). Whether disputed claims fall within the scope of a valid arbitration agreement is a question of law that we review de novo. Henry, 551 S.W.3d at 115.

         Generally, a party seeking to compel arbitration under the FAA must establish that (i) there is a valid agreement to arbitrate and (ii) the claims raised fall within the agreement's scope. See id.

         Although there is a strong presumption favoring arbitration, the presumption arises only after the party seeking to compel establishes the existence of a valid arbitration agreement. JM Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. See In re Serv. Corp. Int"l., 85 S.W.3d 171, 174 (Tex. 2002) (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)).

         Nonetheless, "[e]ven the exceptionally strong policy favoring arbitration cannot justify requiring litigants to forego a judicial remedy when they have not agreed to do so." Carr v. Main Carr Dev., LLC, 337 S.W.3d 489, 496 (Tex. App.-Dallas 2011, pet. denied).

         Here, the parties agree that there is a valid agreement to arbitrate, and the issue is whether Ward's claims all fall within its scope. Because the arbitration agreement's validity is undisputed, we begin with a strong ...

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