Houston Appeals Court Orders Arbitration in Non-Compete Agreement Case Filed by Schlumberger

In Parker v. Schlumberger Technology Corporation, No. 01-14-01018-CV (Tex. App – Houston [1st], September 17, 2015), Schlumberger Technology Corporation (“STC”) filed a lawsuit against two individuals in the 268th District Court of Fort Bend County, Texas. In its complaint, STC accused the former owner and a key employee of a recently purchased company of violating a non-compete agreement each entered into as part of the transaction. In response to the lawsuit, the two men filed a motion to compel arbitration based on the arbitral provision included in the asset purchase contract. The arbitration agreement at issue stated:

Any controversy, dispute or claim arising under or in connection with this Agreement (including, without limitation, the existence, validity, interpretation or breach hereof and any claim based on contract, tort [or] statute) shall be resolved by a binding arbitration, to be held in Houston, Texas pursuant to the Federal Arbitration Act and in accordance with the then-prevailing Commercial Arbitration Rules of the American Arbitration Association (the “AAA”).

Next, STC argued the dispute was not subject to arbitration and instead asked the trial court to issue a temporary injunction prohibiting the two men from competing with the international company. The trial court then denied the individuals’ motion and granted STC’s request. After that, the former owner and employee filed an interlocutory appeal with Texas’ First District in Houston. Before the appeal was heard, however, the former owner settled his claims with STC. Despite this, the appellate court examined the former employee’s claims.

On appeal, the employee, Myers, argued the parties were “bound by an enforceable agreement to arbitrate,” and stated the trial court committed error when it denied his motion to compel arbitration. STC countered the worker’s claims by arguing the employee failed to provide the court with a copy of the entire agreement at issue, his case was not subject to arbitration because he was not a party to the asset purchase agreement, and the company’s claims against him fell outside of the scope of that contract.

After stating a trial court’s order denying a party’s motion to compel arbitration is reviewed for abuse of discretion, the Houston court turned to the question of whether an enforceable agreement to arbitrate existed. According to the court, any doubt must be resolved in favor of arbitration. The appellate court then dismissed STC’s claim that Myers’ motion to compel arbitration was properly denied since he failed to offer the court a copy of the full asset purchase agreement. The court said:

…STC argues that we should ignore that STC itself immediately introduced the entire APA agreement a few minutes later as part of its request for a temporary injunction and that the APA is part of our single appellate record from both orders. We decline its invitation. See Stephens v. Dolcefino, 126 S.W.3d 120, 133–34 (Tex. App.—Houston [1st Dist.] 2003, pet. denied) (noting that an appellate court considers late-filed evidence if the trial court affirmatively indicates that it accepted or considered the evidence). Here, the trial court memorialized its ruling denying the motion to compel arbitration in a signed written order more than two weeks after the initial arbitration hearing, the temporary injunction hearing, and after Parker and Myers had moved for reconsideration of the trial court’s oral ruling. In its written order, the trial court declared that it had considered “the motion, Plaintiff’s response, the argument of counsel, and all other pleadings and evidence before it . . . .” The trial court also expressly relied on the APA in the order, concluding that STC “is not bringing any claims against the Defendants under the APA.” Because the APA was unquestionably before the trial court, we consider it as well. See id. We thus turn to the merit of the parties’ arguments.

Next, the Court of Appeals examined whether the agreement applied to the non-signatory employee. The court stated an arbitration clause may not normally be invoked against a non-party to an arbitral agreement. Despite this, the Houston court held:

Because (1) STC was a signatory to the APA, (2) STC agreed to arbitrate any disputes arising “under or in connection with” that agreement, and (3) Myers’s agreement to the employment covenants in the ICN agreements and the Retention Bonus Contract was necessary to consummation of the APA, we hold that the doctrines of estoppel and incorporation by reference apply. See Meyer, 211 S.W.3d at 306–07 (applying doctrine of equitable estoppel to motion to compel arbitration by parties who were not signatories to arbitration agreement); Motorola, 297 F.3d at 394–95 (arbitration clause in one agreement that is “essential” to an “overall transaction” presumptively applies to “other contemporaneously executed agreements that are part of the same transaction”); Kirby Highland Lakes Surgery Ctr., 183 S.W.3d at 900–01 (same). Accordingly, the trial court erred in denying the motion to compel arbitration on the basis that Myers was not a signatory to the APA.

Texas’ First District then addressed the worker’s argument that the trial court committed error when it determined that STC’s claims were not related to the asset purchase agreement. The court ruled:

…Because the parties agreed to submit to arbitration “any controversy, dispute or claim arising under or in connection with” the APA, including questions as to the “existence, validity, interpretation or breach” of the agreement, and because the disputes between the parties arise out of and are connected with the APA, we hold that the APA’s arbitration clause applies to STC’s claims. We further hold that the APA unmistakably refers questions of the arbitrability of particular claims to the arbitrators. The trial court therefore erred in denying Myers’s motion to compel arbitration.

After that, the appellate court dismissed the worker’s claim that Oklahoma law, rather than Texas law, applied to the case. The court then stated the temporary injunction imposed by the trial court was unenforceable because it unreasonably prohibited the man from engaging in work “industry-wide,” across a large geographic area, and contained “no temporal restraint as to him.” The court added:

Because the trial court’s order enforces covenants not to compete without providing for a reasonable limitation as to time, we hold that the trial court erred in entering it. Because we reverse the injunction on that basis, we need not reach the remaining challenges to the injunction, including those relating to its geographic and substantive scope.

Finally, Texas’ First District Court of Appeals reversed the trial court’s order denying Myers’ motion to compel arbitration and granting STC’s application for a temporary injunction and remanded the case.

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