Summary
recognizing whether an enforceable arbitration agreement exists is a question of law for court to review de novo
Summary of this case from Aldridge v. Thrift Financial Marketing, LLCOpinion
NO. 01-08-00757-CV
01-26-2012
GM OIL PROPERTIES, INC., GARY MOORES, AND BILL O. WOOD, Appellants v. SHERIDAN WADE, Appellee
On Appeal from the 133rd District Court
Harris County, Texas
Trial Court Case No. 2006-53389
MEMORANDUM OPINION
In this interlocutory appeal, Bill O. Wood, challenges the trial court's August 4, 2010 order denying his motion to compel arbitration between himself and Sheridan Wade. The order expressly applies only to Wade's claims against Wood in Wood's individual capacity. Wood raises two issues in which he contends that Wade is required to arbitrate these claims pursuant to a provision found in the corporate bylaws of GM Oil Properties, Inc., a company of which Wood is a corporate officer, and Wade is a former shareholder.
The initial interlocutory order denying arbitration was appealed by Bill O. Wood, GM Oil Properties, Inc., and Gary Moores. As explained infra, that order has been modified by the August 4, 2010 order that is currently the subject of this interlocutory appeal. See TEX. R. APP. P. 27.3. ("After an order or judgment in a civil case has been appealed, if the trial court modifies the order or judgment, or if the trial court vacates the order or judgment and replaces it with another appealable order or judgment, the appellate court must treat the appeal as from the subsequent order or judgment and may treat actions relating to the appeal of the first order or judgment as relating to the appeal of the subsequent order or judgment."). The current order applies only to Wood, individually.
We affirm the trial court's order denying Wood's motion to compel arbitration.
Background
A. Sheridan Wade's Claims against Bill Wood, Individually
Sheridan Wade sued Bill O. Wood in his individual capacity for acts and omissions related to an alleged business partnership between Wade and Wood pertaining to a business venture involving GM Oil. Among Wade's causes of action against Wood in his individual capacity are claims for breach of contract and for breach of fiduciary duty. Wade alleges that Wood breached two contracts that he had entered into with her in the context of their business partnership and that he breached his fiduciary duty to Wade as her business partner.
With respect to her claims against Wood in his individual capacity, Wade makes the following allegations:
These allegations are found in Wade's seventh amended petition, which was the live pleading at the time the trial court denied Wood's motion to compel arbitration, the subject of this appeal.
• In early 2005, Wade formed a business partnership with Scott Davis, and they agreed "to a diverse business plan including real estate investments, financial services, and oil and gas investments."
• Wade and Davis met John Preston and Bill Wood with whom they "agreed to all join together to collectively as partners pursue . . . business opportunities."
• Wood represented to Wade, Davis, and Preston that "he was well versed in oil and gas and knew of a potential investment in Oklahoma—the 'GM Oil deal.'"
• Wood stated that he needed Wade's and Davis's "services and expertise to find potential investors, and he offered to work with them in obtaining the property for the benefit of his partnership with [Wade], Davis, and Preston."
• Wade and her three partners "agreed the first project of the partnership would for the purposes of obtaining the Oklahoma property (the GM Oil deal) and they would divide the partnerships' ownership interest as follows: [Wade] would own 10%, Davis 30%, Preston 30% and []Wood 30%."
• Wade was "convinced by Wood's assurances that the GM Oil deal would be extremely financially rewarding for her and all involved."
• Wade and Davis told "Wood that a private placement memorandum would have to be prepared, along with a detailed analysis of the project."
• Wade gathered "all pertinent information and assimilated the same into an organized and detailed format," "evaluated and studied the potential of the GM Oil deal, and prepared summaries of the data." Wade and Davis also worked to generate interest by investors "in the deal."
• Wade and Davis asked Wade's father to assist in obtaining a loan for the project.
• Wade, Davis, Preston and [] Wood offered Wade's father "4% of the venture and [sic] [GM Oil] company as compensation for locating the financing."
• Wade's father arranged "for a loan in the amount of $75,000 to provide the necessary capital to produce the [placement] memorandum."
• Investing much time and effort, Wade and Davis "sought out and met with numerous potential sources of significant financing needed to complete the [GM Oil] deal."
• Wood "consistently reassured his partners and told them their efforts would be rewarded" with "the ownership interests promised." Wade, however, was offered "employment as the Secretary of the corporate entity (GM Oil) with a salaried position in the company's offices."
• Closing on the GM Oil financing was set for August 25, 2005.
• Before the closing, "Wood met with [Wade], Davis and Preston in Texas and suddenly represented that the only way the closing could take place would be if it appeared that [] Wood held all the stock of the partners (excepting the 4% broker fee)" in "Steadfast Eastern Oklahoma LLC," the company the four partners had established for the purpose of acquiring GM Oil.
• Wood requested that each partner sign his or her interest in Steadfast Eastern Oklahoma LLC "over to him for purposes of the closing only."
• "Wood, in turn, promised that immediately after closing he would return the other parties' ownership interests by conveying to [Wade], Davis, and Preston each 10% of his ownership of GM Oil, or 10% of his purported 96% equaling a 9.6% ownership in the shares of GM Oil."
• Each partner transferred his or her shares in Steadfast Eastern Oklahoma to Wood with each retaining one percent interest in the company.
• Wood, Davis, Preston, and Wade signed a Stockholders' Agreement evidencing the agreement regarding the transfer of the Steadfast Eastern Oklahoma stock to Wood and reflecting Wood's agreement to tender a portion of his stock interest in GM Oil to his three partners.
• "After the closing, GM Oil issued 10,000 shares of GM Oil stock [to Wade] based on the 1% of ownership that was excluded from the agreement with Wood."
• Wade was "forced to sell these 1% shares back to the company after a few months because of the delay in actually receiving her promised job in Oklahoma."
• Wade received "value for the sale of those shares, and she is making no complaint about the issuance or repurchase of the 10,000 shares of GM Oil in this lawsuit."
• "Although Wood kept up the assurances and representations to [Wade] in Houston for a short period following the final closing, he has failed and refused to convey back the shares as he promised . . . ."
Wade sued Wood in his individual capacity for breach of contract, fraud, conversion, breach of fiduciary duty, and conspiracy. With regard to these claims, Wade asserts that Wood breached his oral partnership agreement with her by failing to transfer 10 percent ownership of GM Oil to her. Wade also claims that Wood breached the written Shareholder's Agreement by failing to transfer 10 percent of his GM Oil stock to her. Wade further asserts that Wood knowingly made false statements to her to induce her assistance in acquiring financing and investment funds for GM Oil, which she did. Finally, Wade asserts that Wood had a fiduciary duty to her as her business partner and that his conduct constituted a breach of that duty.
In addition to suing Wood in his individual capacity, Wade sued Wood as a representative of GM Oil and as a representative of its founder and corporate officer, Gary Moores. Wade also directly sued GM Oil and Moores for fraud and conspiracy. Wade contends that GM Oil and Moores "aided and abetted" Wood in much of the conduct for which Wade seeks to hold Wood liable.
B. Wood's Arbitration Claim
Wood answered the suit, asserting, inter alia, that Wade's claims were subject to an arbitration agreement. Wood also denied that he had entered into a partnership agreement with Wade or that he had promised that Wade would receive a 10 percent ownership interest in GM Oil. Moores, an Oklahoma resident, and GM Oil, an Oklahoma corporation, each filed a special appearance contesting personal jurisdiction.
Asserting that Wade's claims against them were subject to an arbitration agreement found in GM Oil's bylaws, GM Oil, Moores, and Wood initiated an arbitration proceeding in Oklahoma before the American Arbitration Association. In response, Wade requested and obtained a temporary restraining order in the instant suit, prohibiting GM Oil, Moores, and Wood from proceeding with the Oklahoma arbitration.
Wade amended her petition to include a request for a judicial declaration that her claims are not subject to arbitration. Wade also filed a motion for partial summary judgment regarding the arbitration issue.
Wood filed a motion to compel arbitration in the trial court, relying on the following provisions in GM Oil's bylaws:
Section 12. Miscellaneous.
12.01. Resolutions of Controversies and Claims. In the event of any controversy of claim, whether based on contract, tort, statute, or other legal of equitable theory (including any claim of fraud, misrepresentation, or fraudulent inducement) between or among the parties and relating to the Corporation ("Dispute"), the parties agree as follows:
. . . .(b) Arbitration.
If not resolved by mediation, the parties shall resolve the Dispute by arbitration pursuant to this Section and the then current rules and supervision of the American Arbitration Association. . . .
. . . .
(e) Covered Parties. The duties to mediate and arbitrate shall extend to any Director, officer, employee, Shareholder, principal agent, trustee in bankruptcy or otherwise, affiliate, subsidiary, third-party beneficiary, or guarantor of a party making or defending a claim that would otherwise be subject to this Section. . . .
Wood asserted that Wade's claims against him fell within the scope of the arbitration provision in the bylaws. Specifically, Wood averred that (1) Wade's claims "relat[ed] to the Corporation"; that is, they related to GM Oil, and (2) Wood was a "covered party" because she had been a shareholder in GM Oil "from approximately August 31, 2005 through November 16, 2005," during which time the bylaws were in effect.
GM Oil and Moores did not join in the motion to compel arbitration. Their special appearances remained pending before the trial court.
The trial court conducted a hearing on Wood's motion to compel arbitration on October 8, 2007. The parties, including Wade's counsel, made clear to the trial court that the only issue to be decided was whether Wood could compel arbitration. No determination would be made with respect to arbitration and Wade's claims against GM Oil and Moores because the special appearances were still pending.
Ten months later, on August 7, 2008, the trial court signed an order denying Wood's motion to compel arbitration. Wood, GM Oil, and Moores filed this interlocutory appeal regarding the trial court's order denying the motion to compel arbitration.
Wood, GM Oil, and Moores filed a motion requesting that we abate the appeal to allow the trial court to clarify ambiguous language found in the order. A reading of the order showed that it was unclear whether the trial court had intended to deny only Wood's right to compel arbitration of Wade's claims or whether the order was intended also to preclude GM Oil and Moores from compelling arbitration. In this respect the order provided, "[T]his Court has determined that [Wade's] claims in this action against the Defendants are not subject to a valid and enforceable arbitration agreement and do not fall within the scope of such arbitration agreement . . . ." (Emphasis added.)
We abated this appeal and ordered the trial court to clarify, modify, or reconsider the order. In our abatement order, we pointed out that it was "unclear from the order whether the order was intended to apply only to [Wade's] claims against Wood or whether it was intended to apply to [] Wade's claims against all three defendants."
On October 12, 2009, the trial court signed its "Order of Clarification and Reconsideration." The order provided "that this Court's order of August 7, 2008 intended to apply to Plaintiff Wade's claims against all three Defendants: Bill O. Wood, GM Oil Properties, Inc. and Gary Moores." The order also stated,
"[T]his Court has determined that Plaintiff Sheridan Wade's claims in this action against Defendants Bill O. Wood, GM Oil Properties, Inc. and Gary Moores are not subject to a valid and enforceable arbitration agreement and do not fall within the scope of such arbitration agreement and hereby REAFFIRMS the denial of Defendant Wood's Motion to Compel Arbitration."
Wood, Moores, and GM Oil filed a petition for writ of mandamus in this Court, asserting that the trial court erred when it "adjudicated their arbitration defenses" before ruling on GM Oil's and Moores's special appearances. See In re GM Oil Props., Inc., No. 10-00001-CV, 2010 WL 2653279, *2 (Tex. App.— Houston [1st Dist.] July 1, 2010, orig. proceeding.). We agreed and held that the trial court had abused its discretion when it determined that Wade's claims against GM Oil and Moores were not subject to arbitration before it determined whether it had personal jurisdiction over those defendants. Id. at *3. We ordered the trial court either (1) to vacate its October 12, 2009 Order of Clarification and Reconsideration or (2) to modify the order to limit its application to Wade's claims against Wood and to delete the order's language stating that Wade's claims against GM Oil and Moores are not subject to, or within the scope of, a valid arbitration clause. Id.
We also abated this appeal and ordered that it be reinstated on the filing of a supplemental clerk's record containing (1) the trial court's modified order denying Wood's motion to compel arbitration or, (2) in the event that the trial court vacated the October 12, 2009 order, an order replacing that order and denying arbitration. See id. at *4.
We reinstated the appeal after receiving a supplemental clerk's record containing an order from the trial court denying Wood's motion to compel arbitration. The order, signed August 4, 2010, expressly states that the trial court's original order denying the arbitration request applied only to Wade's claims against Wood individually. The order also provides,
[H]aving considered the pertinent materials submitted by the parties, including Defendant Bill Wood's Motion to Compel Arbitration and Plaintiff Sheridan Wade's Motion for Partial Summary Judgment on the Issue or Arbitration, this Court has determined that Plaintiff Sheridan Wade's claims in this action against defendant Bill O. Wood is not subject to a valid and enforceable arbitration agreement and does not fall within the scope of such arbitration agreement . . . .
Wood challenges the trial court's denial of his motion to compel arbitration in this interlocutory appeal, raising two issues.
We have jurisdiction over Wood's interlocutory appeal of the trial court's August 4, 2010 order denying his motion to compel arbitration. Wood sought to compel arbitration under the Federal Arbitration Act, 9 U.S.C. §§ 1-16 (2008) ("FAA"), and the Texas General Arbitration Act, Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001-.098 (Vernon 2011) ("TAA"). An appeal can be taken from either an interlocutory order denying a motion to compel arbitration under the FAA, see TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (Vernon Supp. 2011), or an order denying a motion to compel arbitration under the TAA, TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1).
The FAA generally governs arbitration provisions in contracts involving interstate commerce. See 9 U.S.C. § 2; see also In re L & L Kempwood Assocs., L.P., 95. W.3d 125, 127 (Tex. 1999). Parties may also expressly agree to arbitrate under the FAA. The arbitration provision in GM Oil's bylaws indicates, "Federal substantive and procedural laws relating to arbitration shall govern issues of arbitrability," thus implicating the Federal Arbitration Act. See In re Kellogg Brown & Root, 80 S.W.3d 611, 617 (Tex. App.—Houston [1st Dist.] 2002, orig. proceeding) (concluding that parties are not required to establish that transaction at issue involves or affects interstate commerce when parties agree to arbitrate under FAA). In any event, the TAA and the FAA may both apply to an agreement, absent the parties' choice of one or the other. L & L Kempwood Assocs., L.P., 9 S.W.3d at 127128. The FAA may preempt the TAA in certain cases. See In re D. Wilson Constr. Co., 196 S.W.3d 774, 780 (Tex. 2006); see also Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 9798 (Tex. 2011). No distinct preemption argument is made here. A party asserting that the FAA preempts the TAA bears the burden of proof on that issue. See Ellis v. Schlimmer, 337 S.W.3d 860, 862 (Tex. 2011). The FAA preempts the TAA only when the TAA or other state law would not allow enforcement of an arbitration agreement that the FAA would enforce. Id. (citing D. Wilson Constr. Co., 196 S.W.3d at 77980). Otherwise, appellate review may be available under both the TAA and the FAA so long as the TAA is not preempted. Id. (citing D. Wilson Constr. Co., 196 S.W.3d at 780). Here, it is not apparent or argued that the TAA or other state law would not allow enforcement of the arbitration clause in GM Oil's bylaws.
Standard of Review
As a general proposition, we review a trial court's denial of a motion to compel arbitration under an abuse-of-discretion standard. See Schlumberger Tech. Corp. v. Baker Hughes Inc., No. 01-11-00562-CV, 2011 WL 4925996, at *8 (Tex. App.—Houston [1st Dist.] Oct. 13, 2011, no pet. h.); Okorafor v. Uncle Sam & Assocs., Inc., 295 S.W.3d 27, 38 (Tex. App.—Houston [1st Dist.] 2009, pet. denied). Nevertheless, whether an arbitration clause imposes a duty to arbitrate is a matter of contract interpretation and, as such, is a question of law for this Court to review de novo. See BDO Seidman, L.L.P. v. J.A. Green Dev. Corp., 327 S.W.3d 852, 854 (Tex. App.—Dallas 2010, no pet.) (citing Tex. Petrochemicals, L.P. v. ISP Water Mgmt. Servs., L.L.C., 301 S.W.3d 879, 884 (Tex. App.— Beaumont 2009, no pet.)); see also Schlumberger Tech. Corp., 2011 WL 4925996, at *8 (citing Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 55 n.9 (Tex. 2008) ("When an appeal from a denial of a motion to compel arbitration turns on a legal determination . . . we apply a de novo standard."). Significant to this appeal, we recognize that whether an enforceable agreement to arbitrate exists is a legal question subject to de novo review. Bates v. MTH Homes-Tex., L.P., 177 S.W.3d 419, 422 (Tex. App.—Houston [1st Dist.] 2005, no pet.).
Analysis
A. Agreement to Arbitrate Wade's Claims Against Wood, Individually
Wood contends that Wade is subject to the arbitration provision in GM Oil's bylaws requiring, inter alia, a shareholder to arbitrate any dispute relating to the corporation, including torts and breach of contract claims, between a shareholder and a corporate officer. Wood points out that Wade was a shareholder of GM Oil from August 31, 2005 until November 16, 2005 and that Wood has been, at all relevant times, a corporate officer of GM Oil. Wood also asserts that Wade's claims against him individually relate to the corporation, GM Oil, within the meaning of the arbitration provision.
In response, Wade points out that the trial court's August 4, 2010 order expressly indicates that the trial court denied Wood's arbitration request only as it relates to her claims against Wood in his individual capacity. Wade asserts that her claims against Wood individually do not comprise a dispute between a shareholder and a corporate officer and are not covered by the arbitration provision in the bylaws. In this regard, Wade directs us to the following:
• As indicated in the factual allegations underlying her claims, Wade does not bring this suit in her capacity as a former GM Oil shareholder.
• Wade's claims against Wood individually are not asserted against him in his role as a corporate officer.
• Wade's claims arise from her partnership relationship with Wood; it does not arise from her former shareholder relationship with GM Oil or its officers.
• Wade sues for breach of an oral partnership agreement with Wood in which she claims he promised her 10 percent ownership in GM Oil and for breach of the Stockholder's Agreement in which Wood, signing in his individual capacity, agreed to transfer 10 percent of his personal interest in GM Oil to Wade. She does not base her claims on a breach of GM Oil's bylaws or on a right asserted thereunder.
The respective position of each party raises the following question: Did the parties enter into an agreement to arbitrate Wade's claims against Wood brought by Wade in her individual capacity against Wood in his individual capacity? In evaluating a motion to compel arbitration, a court must determine first whether a valid arbitration agreement exists, and then whether the agreement encompasses the claims raised. See In re D. Wilson Constr. Co., 196 S.W.3d 774, 781 (Tex. 2006); In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999). It is a foundational principle that a party cannot be compelled to arbitrate a dispute when the party has not agreed to do so.Rachal v. Reitz, 347 S.W.3d 305, 308 (Tex. App.—Dallas 2011, pet. filed); Bates, 177 S.W.3d at 422; Trico MarineServs., Inc. v. Stewart & Stevenson Technical Servs., 73 S.W.3d 545, 548 (Tex. App.—Houston [1st Dist.] 2002, no pet.). Whether an entity or person is a party to the arbitration agreement is included within the broader issue of whether the parties agreed to arbitrate. See Smith/Enron Cogeneration Ltd. P'ship, Inc. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 95 (2d Cir. 1999).
Under both the TAA and the FAA, 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. Kellogg Brown & Root, 80 S.W.3d at 615.
The Supreme Court of Texas has repeatedly expressed a strong presumption favoring arbitration; however, the presumption arises only after the party seeking to compel arbitration proves that a valid arbitration agreement exists. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). In other words, the presumption favoring arbitration does not go so far as to create an obligation to arbitrate where none exists. See Volt Info. Scis ., Inc. v. Bd. of Trs., 489 U.S. 468, 479, 109 S. Ct. 1248, 1256 (1989) (stating "arbitration under the [FAA] is a matter of consent, not coercion"); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738 (Tex. 2005) ("Because arbitration is contractual in nature, the FAA generally does not require parties to arbitrate when they have not agreed to do so."). "Although arbitration is encouraged, it is a contractual matter and, in the absence of an agreement to arbitrate, a party cannot be forced to forfeit the constitutional protections of the judicial system and submit its dispute to arbitration." Jenkens & Gilchrist v. Riggs, 87 S.W.3d 198, 201 (Tex. App.—Dallas 2002, no pet.). Thus, unless a party has agreed to arbitrate, arbitration should not be compelled. See Freis v. Canales, 877 S.W.2d 283, 284 (Tex. 1994) (orig. proceeding).
To support his position that Wade agreed to arbitrate her claims against him individually, Wood relies on the general corporate law precept that bylaws constitute a contract between a corporation and its shareholders. See, e.g., Overland Auto. Co. v. Cleveland, 250 S.W. 453, 455 (Tex. Civ. App.—Dallas 1923, writ dism'd w.o.j.) ("The stockholders and the corporation between themselves must abide by the articles of association and the by-laws."); Ainsworth v. Sw. Drug Corp., 95 F.2d 172, 173 (5th Cir. 1938) ("[T]he charter and by-laws of a corporation constitute a contract between the company and its shareholders."). Wood asserts that Wade is bound by the arbitration provision in the bylaws because she accepted the GM Oil stock in August 2005, thus becoming a stockholder, and then profited from the sale of the stock in November 2005.
When deciding whether the parties agreed to arbitrate, courts should apply ordinary state law principles regarding the formation of contracts.First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct. 1920, 1924 (1995); J.M. Davidson, 128 S.W.3d at 227-28. In conducting our review, "This Court may not expand upon the terms of the contract or tolerate a liberal interpretation of it by reading into it a voluntary, consensual agreement to arbitrate when one otherwise does not exist." Bates, 177 S.W.3d at 422. "Although an arbitration agreement does not have to assume any particular form, the language of the agreement must clearly indicate the intent to arbitrate." Id.
Courts also apply the rules governing contract interpretation when construing corporate bylaws. In re Aguilar, 344 S.W.3d 41, 49 (Tex. App.—El Paso 2011, orig. proceeding).
With these principles in mind, we turn to the arbitration provisions in GM Oil's bylaws to determine whether Wade agreed to arbitrate her personal claims against Wood in his individual capacity. Who is actually bound by an arbitration agreement is a function of the intent of the parties, as expressed in the terms of the agreement. Bridas S.A.P.I.C. v. Gov't of Turkmenistan, 345 F.3d 347, 355 (5th Cir. 2003). Here, the arbitration clause states, in relevant part, that any dispute "between or among the parties and relating to the Corporation" shall be resolved by arbitration. A subsection of the arbitration clause, entitled "Covered Parties," states that the duty to arbitrate extends "to any Director, officer, employee, Shareholder, principal agent, trustee in bankruptcy or otherwise, affiliate, subsidiary, third-party beneficiary, or guarantor of a party making or defending a claim that would otherwise be subject to this Section."
The issue of whether Wade, in her capacity as GM Oil shareholder, adequately assented to the arbitration agreement found in the bylaws is not directly raised or briefed by the parties in this interlocutory appeal. As mentioned, Wood asserts that Wade, by virtue of her shareholder status, is subject to the arbitration provisions in the bylaws. In any event, as discussed infra, whether Wade agreed, as a shareholder, to arbitrate disputes relating to the corporation is not outcome determinative in this interlocutory appeal. Thus, we do not determine the issue of whether a shareholder can be held to an arbitration provision found in corporate bylaws simply by virtue of his or her shareholder status. We note that the Third Circuit Court of Appeals has held, as a matter of first impression under Pennsylvania law, that a shareholder of a law firm could not be compelled to arbitrate claims against the firm pursuant to the firm's corporate bylaws to which she did not explicitly assent. Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 163 (3d Cir. 2009).
As an aside, GM Oil's bylaws require that a dispute must first be mediated before it may be arbitrated.
When she filed suit, Wade was not a shareholder of GM Oil, and therefore was not among the "Covered Parties" at that time. Arguably, when construed broadly, Wade's claims against Wood individually, "relate" to GM Oil. Nonetheless, the arbitration clause by its own terms, only binds, as relevant to this case, corporate officers and shareholders regarding disputes "between or among" them. In other words, the clause applies to a dispute only when each party involved is either enforcing a right or being subject to an obligation arising from his or her status as a corporate officer or a shareholder. The arbitration clause does not purport to bind a former shareholder when, as here, she is suing in her individual capacity on claims not derivative of or arising from her shareholder status. Cf. Blaustein v. Huete, 434 Fed. Appx. 304, 306 (5th Cir. 2010) (holding that defendant law firm could not compel the plaintiff to arbitrate his individual claims, under an arbitration agreement with the firm's corporate client, when the plaintiff had signed the arbitration agreement as a representative of the client corporation, not in his individual capacity).
Although we note that Wade was not a shareholder at the time she filed suit, we do not suggest by this observation, that had she been a shareholder at the time she filed suit, her claims against Wood, individually, would have been covered by the arbitration clause. Nor do we suggest that a former shareholder can never sue a corporation or its officers. A survey of case authority reveals cases in which former shareholders have sued corporations or corporate officers. See, e.g., Koch v. Koch Indus., Inc., 203 F.3d 1202, 1209-10 (10th Cir. 2000) (involving suit by former shareholders against corporation and its officers and directors, alleging claims of securities fraud, common law fraud, breach of fiduciary duty, and breach of express warranty arising out of buyout of shareholders' interests); Dowling v. Narragansett Capital Corp., 735 F. Supp. 1105, 1110-12 (D.R.I. 1990) (involving suit by former shareholders against company's officers, directors, controlling shareholders, and investment banking firm, alleging violations of Securities Exchange Act of 1934 and Investment Company Act, fraud, and negligent misrepresentation in connection with sale of company's assets). We point to the fact that Wade was not a shareholder at the time that she filed suit because it serves to illustrate that she is not suing on any right or remedy she gained by virtue of her shareholder status.
We conclude that Wade did not agree to arbitrate the claims she asserts against Wood, individually. Accordingly, we hold that Wade's claims against Wood, individually, are not subject to the arbitration provision found in GM Oil's bylaws.
In this interlocutory appeal, the trial court's order pertains only to Wade's claims against Wood, individually, and determines those claims are not subject to arbitration. Our decision is limited to the subject matter of that order. Thus, we express no opinion regarding whether Wade's claims against Wood in his representative capacity, her claims against GM Oil, or her claims against Moores are subject to the arbitration provision.
Alternative Theories to Compel Arbitration
According to principles of contract and agency law, arbitration agreements may bind non-parties to the agreement under any of six theories: (1) incorporation by reference; (2) assumption; (3) agency; (4) alter ego; (5) equitable estoppel, and (6) third party beneficiary. See Kellogg Brown & Root, Inc., 166 S.W.3d at 739.
In his principal brief, Wood intimates that even if he is not a party in his individual capacity to the arbitration agreement, he may nonetheless enforce the arbitration provision as "a third party beneficiary of the bylaws' arbitration clause," "under general agency principles," and "under principles of [concerted misconduct] equitable estoppel." However, Wood's argument supporting each of these theories presumes that Wade is a party to the arbitration agreement in her individual capacity. Wood does not address how these alternative principles bind Wade to the agreement when, as discussed supra, the claims involved in this interlocutory appeal are brought by Wade in her individual capacity as a non-party to the arbitration agreement. With regard to these alternative theories, Wood makes no substantive argument showing that Wade, as a non-party, may be bound under principles of agency and equity. Thus, Wood's alternative theories offered to show why he, in his capacity as a non-party to the agreement, may compel arbitration do not serve to show how Wade, in the context of this case, is bound by the arbitration provisions in the bylaws.
In footnote 120 of his brief, Wood asserts that Wade is obligated to arbitrate under the doctrine of direct benefits estoppel. See Kellogg Brown & Root, Inc., 166 S.W.3d at 741 (concluding that under direct benefits estoppel, a second-tier subcontractor suing a general contractor is bound by an arbitration provision in the contract between the general contractor and the first-tier subcontractor only when he "seeks, through the claim, to derive a direct benefit from the contract" containing the provision); In re Weekley Homes, L.P., 180 S.W.3d 127, 132-33 (Tex. 2005) (holding that, under direct benefits estoppel, a nonsignatory to a contract containing an arbitration provision may be bound by the provision if the nonsignatory sought or obtained direct benefits from the contract during its performance). In short, this doctrine applies to bind a party to an arbitration clause found in a contract to which the party is not a signatory, but from which he or she seeks or has sought a direct benefit. Wood asserts that Wade obtained a benefit under GM Oil's bylaws when she sold her GM Oil stock for a profit. Generally, bylaws are "the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its shareholders or members and its directors and officers with relation to each other and among themselves in their relation to the corporation." 8 William Meade Fletcher, FLETCHER CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS § 4166; see also Little Canada Charity Bingo Hall Ass'n v. Movers Warehouse, Inc., 498 N.W.2d 22, 24 (Minn. Ct. App. 1993) (stating that "the purpose of a bylaw is to establish rules for the internal government of the corporation"). Wood does not explain how Wade's profit from her stock sale was a direct "benefit" of GM Oil's bylaws. The doctrine of direct benefits estoppel does not apply if the claimed benefit is "indirect." Weekley Homes, 180 S.W.3d at 134. Nor does it apply if the claim merely "relates" to the contract. Kellogg Brown & Root, 166 S.W.3d at 741. Here, Wood does not specify under which bylaw provisions Wade directly benefited nor did he provide a copy of the bylaws, besides the arbitration and general definitional provisions. Wood has not shown that Wade is obligated to arbitrate her claims against him individually under the doctrine of direct benefits estoppel.
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We overrule Wood's two issues on appeal.
Conclusion
We hold that the trial court did not abuse its discretion in denying Wood's motion to compel arbitration with respect to Wade's claims against Wood, individually. We affirm the trial court's August 4, 2010 order denying Wood's motion to compel arbitration.
Laura Carter Higley
Justice
Panel consists of Justices Keyes, Higley, and Massengale.