Beaumont Appeals Court Holds Third Party Claims Subject to Arbitration

The Beaumont Court of Appeals has held in a memorandum opinion that a trial court properly compelled a party to arbitrate its claims against non-signatory third parties and properly entered judgment disposing of all claims where no evidence was offered against the third parties during arbitration.

In Sabine Syngas, Ltd. v. Port of Port Arthur Navigation Dist., No. 09-09-00331-CV, (Tex. App. – Beaumont, January 13, 2011), the Port of Port Arthur Navigation District of Jefferson County, Texas (“Port”) entered into an agreement to develop and operate a gas and electric generation facility with Sabine Power in its capacity as a general partner of Sabine Syngas (collectively “Sabine”). The agreement contained an arbitration clause which provided, “[a]ny claim, dispute or other matter in question arising out of or related to the Agreement or otherwise arising from the design and construction of the Project shall be subject to arbitration.”

In January 2006, the Port claimed the agreement was terminated and sued Sabine for breach. Also in 2006, the Port entered into a development agreement with the Goldman Sachs Group (“GSG”), Process Energy Solutions (“PES”) and James S. Falsetti for a gasification facility. Sabine filed a cross-claim against the Port for breach of the agreement and third party claims against GSG, PES and Falsetti for tortious interfere of the parties’ agreement.

The Port, GSG, PES and Falsetti moved for arbitration based on the arbitration provision contained in the development agreement entered into between the Port and Sabine. Sabine argued the arbitration provision did not extend to its tortious interference claims. A trial court ordered all parties to arbitration and denied Sabine’s motion to sever its claims against GSG, PES and Falsetti. One day prior to arbitration, Sabine sought mandamus relief from the Beaumont Court of Appeals. The court denied Sabine’s request because “Sabine failed to establish that an appeal would not be an adequate remedy,” and the case went to arbitration.

At arbitration, no evidence was offered with regard to Sabine’s third party claims. The arbitrator issued an award in favor of the Port, ordered Sabine to pay the Port contract damages and pay all arbitration costs and attorney’s fees. The arbitrator stated, “the award was ‘in full settlement of all claims submitted to this Arbitration’ and that ‘[a]ll claims not expressly granted herein are, hereby denied.’” The Port sought confirmation of the arbitration award and GSG, PES and Falsetti asked “the trial court to sign a take nothing judgment on Sabine’s third party claims.” Sabine opposed such a judgment by arguing that its third party claims were not arbitrated. The trial court rejected Sabine’s argument and confirmed the arbitration award. Sabine then appealed to the Ninth District of Texas Court of Appeals.

Sabine argued that the trial court erred in compelling arbitration of its third party claims because they fell “outside the scope of its arbitration agreement with the Port.” The Court of Appeals stated although only signatories to an agreement are generally bound by the agreement, “'[a] person who has agreed to arbitrate disputes with one party may in some cases be required to arbitrate related disputes with others.’ Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 304 (Tex. 2006).”

According to the Beaumont Court,

Here, Sabine’s breach of contract claims against the Port are intertwined with its tortious interference claims against PES, Falsetti, and GSG and in fact have the same tap root—the Port’s proper termination of its agreement with Sabine. If the Port properly terminated its contract with Sabine, the Port’s subsequent execution of a development agreement with PES would not have been a breach of the Port’s contract and there could be no tortious interference with a terminated contract. Sabine’s tortious interference claims are dependent on the existence and terms of its Development Agreement with the Port.

The Court of Appeals dismissed Sabine’s claims that GSG, PES and Falsetti were third party beneficiaries and as such had no right to compel arbitration,

Appellees sought to compel arbitration in the trial court based on the theory of equitable estoppel, not as third party beneficiaries of the Development Agreement. Third party beneficiary theories, as well as equitable estoppel, are each independent bases non-signatory appellees can rely on to enforce the arbitration provision. See Arthur Andersen LLP v. Carlisle, 129 S. Ct. 1896, 1902, 173 L.Ed.2d 832 (2009). We conclude this third party beneficiary disclaimer does not negate appellees right to compel arbitration based on equitable estoppel.

Sabine also argued the trial court erred when it confirmed the arbitrator’s award “because it disposed of Sabine’s tort claims without any arbitration finding or conclusion and without evidence to support the take nothing final judgment.”

According to the court,

We hold that Sabine had the burden to initiate arbitration as to its third party claims against PES, Falsetti and GSG. Since Sabine failed to initiate arbitration after the trial court ordered the arbitration to proceed, the trial court properly entered judgment disposing of all claims.

Finally, the Court of Appeals dismissed Sabine’s argument “that the trial court erred in signing the final judgment because the arbitrator did not have jurisdiction to decide its third party claims when a three-person arbitration panel was required in arbitrations involving monetary claims in excess of $250,000 and there was only one arbitrator in this case.” According to the court, the number of arbitrators was a procedural contract issue the parties were free to waive and no evidence was offered regarding whether waiver had occurred.

The Beaumont Court of Appeals held the trial court did not abuse its discretion when it compelled Sabine to arbitrate its claims against third parties GSG, PES and Falsetti. The Appeals Court also held “the trial court properly entered judgment disposing of all claims.” The Beaumont Court affirmed the judgment of the trial court.

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