FILED

17-0062
11/21/2017 1:15 PM
tex-20884298
SUPREME COURT OF TEXAS
BLAKE A. HAWTHORNE, CLERK

Case No. 17-0062

IN THE SUPREME COURT OF TEXAS

JODY JAMES FARMS, JV,

PETITIONER,

v.

THE ALTMAN GROUP, INC. AND LAURIE DIAZ,

RESPONDENTS

On Petition for Review from the 110th District Court of Floyd County, Texas,
No. 10,422; and the Amarillo Court of Appeals, Jody James Farms, JV v. The
Altman Grp., Inc. and Laurie Diaz, 506 S.W.3d 595
(Tex. App.—Amarillo 2016, rehearing denied).

PETITIONER’S BRIEF ON THE MERITS

JODY JENKINS
State Bar No. 24029634
Jenkins, Wagnon & Young, P.C.
P.O. Box 420
Lubbock, Texas 79408-0420
Ph: 806-796-7351
Fx: 806-771-8755
jjenkins@jwylaw.com

ATTORNEYS FOR PETITIONER

 IDENTITY OF PARTIES AND COUNSEL

Judge Presiding at Trial:

The Honorable William P. Smith

Plaintiff/Appellant/Petitioner:
Jody James Farms, JV

Plaintiff/Appellant/Petitioner’s Counsel at Trial:

Jody Jenkins
Jenkins, Wagnon & Young, P.C.
P.O. Box 420
Lubbock, Texas 79408-0420

Plaintiff/Appellant/Petitioner’s Counsel on Appeal:

Jody Jenkins
Jenkins, Wagnon & Young, P.C.
P.O. Box 420
Lubbock, Texas 79408-0420

Defendants/Appellees/Respondents:
The Altman Group, Inc. and Laurie Diaz

Defendants/Appellees/Respondents Counsel at Trial:

J. Paul Manning
Anna McKim
Field, Manning, Stone, Hawthorne & Aycock, P.C.
2112 Indiana Ave.
Lubbock, TX 79410

Defendants/Appellees/Respondent’s Counsel on Appeal:

Anna McKim
J. Paul Manning
Field, Manning, Stone, Hawthorne & Aycock, P.C.
2112 Indiana Ave.
Lubbock, TX 79410

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 TABLE OF CONTENTS
Page

IDENTITY OF PARTIES AND COUNSEL ....................................................... i

TABLE OF CONTENTS ..................................................................................... ii

INDEX OF AUTHORITIES ............................................................................... iv

STATEMENT OF THE CASE ......................................................................... viii

STATEMENT OF JURISDICTION .................................................................. ix

ISSUES PRESENTED .......................................................................................... x

STATEMENT OF FACTS ................................................................................... 1

SUMMARY OF ARGUMENT ............................................................................ 3

ARGUMENT ......................................................................................................... 4

1. Can a non-signatory third-party invoke the proverbial guilt by

association doctrine and force arbitration when no agreement to do so
exists? ................................................................................. ..................... x, 4

2. Can a non-signatory third-party compel arbitration of claims that are

not within the scope of the arbitration agreement? ............................ x, 12

3. Can a non-signatory third-party enforce an arbitration agreement when

it is at most an incidental beneficiary? ................................................. x, 16

4. Can a non-signatory third-party enforce an arbitration agreement

through estoppel?.................................................................................... x, 18

5. Can a trial court enforce an arbitration award when no agreement to

arbitrate exist and no other legal basis supports the imposition of the
arbitration agreement on the resisting party? ...................................... x, 22

CONCLUSION.................................................................................................... 23

ii
PRAYER .............................................................................................................. 24

iii
 INDEX OF AUTHORITIES

U.S. Supreme Court Cases

1. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 123 S. Ct. 588, 154 L. Ed
2d 491 ....................................................................................................................... 12

2. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S. Ct. 1920, 131 L.
Ed. 2d 985 (1995) .................................................................................................... 12

3. Stolt–Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) ................. 22

Texas Cases

1. All-Tex Roofing, Inc. v. Greenwood Ins. Group, Inc., 73 S.W.3d 412 (Tex.
App.—Houston [1st Dist.] 2002, pet. denied) ........................................................ 16

2. Bosscorp, Inc. v. Donegal, Inc., 370 S.W.3d 68 (Tex. App.—Houston [14th

Dist.] 2012, no pet.) ................................................................................................ 12

3. Centex/Vestal v. Friendship W. Baptist Church, 314 S.W.3d 677 (Tex. App.—

Dallas 2010, pet. denied) ........................................................................................ 22

4. Delfingen v. Valenzuela, 407 S.W.3d 791(Tex. App—El Paso 2013, no pet.) ... 17

5. DeWitt Cnty. Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 105 (Tex. 1999) ........... 20

6. Frost Nat'l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310 (Tex. 2005) (per
curiam) .................................................................................................................... 13

7. G.T. Leach Builders, LLC v. Sapphire VP, LP, 458 S.W.3d 502 (Tex. 2015) 17, 19,

20

8. Golden Age Senior Living of El Paso, LLC v. Atwood, 486 S.W.3d 44 (Tex.
App.—El Paso 2016, no pet.) ............................................................................ 10-11

9. Gulf Oil Corp. v. Guidry, 327 S.W.2d 406 (Tex. 1959) ..................................... 22

iv
10. In re EGL Eagle Global Logistics, L.P., 89 S.W.3d 761 (Tex. App.–Houston
[1st Dist.] 2002, orig. proceeding) .......................................................................... 19

11. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (Tex. 2005).... 5-6, 8, 13, 17

12. In re Rubiola, 334 S.W.3d 220 (Tex. 2011) ..........................................6, 8, 9, 11

13. In re Weekley Homes, L.P., 180 S.W.3d 127 (Tex. 2005).............6, 7, 12, 19, 20

14. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (Tex. 2002) ..............12, 13, 17

15. Jody James Farms, J.V. v. The Altman Group., Inc. and Laurie Diaz,
Appellees, 506 S.W.3d 595 (Tex. App.—Amarillo 2016, rehearing denied). .. viii, 7

16. MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651
(Tex.1999) ............................................................................................................... 17

17. McMillan v. Computer Translation Sys. & Support, 66 S.W.3d 477 (Tex.
App.–Dallas 2001, orig. proceeding) ...................................................................... 19

18. Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84 (Tex. 2011) ............................... 22

19. Rice v. Louis A. Williams & Assocs., 86 S.W.3d 329 (Tex. App.—Texarkana
2002, pet denied) ...............................................................................................15, 16

20. Roe v. Ladymon, 318 S.W.3d 502 (Tex. App.—Dallas 2010, no pet.) ............... 6

21. South Texas Water Authority v. Lomas, 223 S.W.3d 304 (Tex. 2007) ............ 17

22. Surplus, Inc. v. Home State Cnty. Mut. Ins. Co., No. 05-95-00007-CV, 1995
Tex. App. LEXIS 3305 (Tex. App.—Dallas Dec. 21, 1995, writ denied) ............. 12

23. Trinity Universal Ins. Co. v. Burnette, 560 S.W.2d 440 (Tex. App.—Beaumont
1977) ...................................................................................................................... 20

24. United Protective Servs., Inc. v. West Village Ltd. P'ship, 180 S.W.3d 430
(Tex. App.—Dallas 2005, no pet.) .................................................................... 12-13

Cases from other Jurisdictions

1. Baldwin v. Cavett, 502 F. App’x 350 (5th Cir. 2012) ......................................... 11

v
2. Blumberg v. USAA Casualty Insurance Co., 790 So. 2d. 1061 (Fla. 2001) ....... 15

3. Chesapeake Appalachia, LLC v. Scout Petr., LLC, 809 F.3d 746 (3rd Cir.
2016)... ...................................................................................................................... 7

4. Contec Corp. v. Remote Solution Co., 398 F.3d 205 (2nd Cir. 2005) ................... 8

5. Fallo v. High-Tech Inst., 559 F.3d 874 (8th Cir. 2009)......................................... 7

6. Great Am. Assur. Co. v. Sanchuck, LLC No. 8:10-CV-2568 –T-33AEP, 2012
U.S. Dist. LEXIS 7477 at * 20 (M.D. Fla. Jan. 23, 2012) ................................14, 15

7. Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th Cir. 2000)… . 8, 19

8. Landmark Am. Ins. Co. v. Moulton Props., No. 3:05cv401/LAC, 2006 U.S. Dist.
LEXIS 73478 (N.D. Fla. July 19, 2006) ................................................................. 15

9. Marciano v. Mony Life Ins. Co., 470 F. Supp. 2d 518 (E.D. Pa. 2007) ................ 6

10. Oracle Am., Inc. v. Myriad Group, A.G., 724 F.3d 1069 (9th Cir. 2013) .......... 7

11. Petrofac, Inc. v. DynMcDermott Petr. Ops. Co., 687 F.3d 671 (5th Cir.
2012)… ...................................................................................................................... 7

12. Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366 (11th Cir. 2005) ........................ 8

13. Rio Grande Underwriters, Inc. v. Pitts Farms, Inc., 276 F.3d 683 (5th Cir.
2001) ................................................................................................................... 9, 18

14. Sherer v. Green Tree Servicing LLC, 548 F.3d 379 (5th Cir. 2008) ................... 6

15. Terminix Int’l Co., L.P. v. Palmer Ranch Ltd. P’ship, 432 F.3d 1327 (11th Cir.
2005)... ....................................................................................................................... 8

Statutes and Regulations

1. Texas Gov’t Code Annotated §22.001(a)(2) (West 2017) ...................................ix

2. Texas Gov’t Code Annotated §22.001(a)(6) (West 2017) ...................................ix

3. Tex. Bus. & Com. Code Ann. § 17.565 (West 2017) ......................................... 15

vi
4. Tex. Civ. Prac. & Rem. Code Ann. § 16.003 (West 2017) ................................ 15

5. Tex. Civ. Prac. & Rem. Code Ann. § 171.088 (West 2017) .............................. 22

6. 9 U.S.C. § 10(a)(4) (2015) .................................................................................. 22

7. 7 C.F.R. § 457.8 (2017) ......................................................................................... 9

8. 7 U.S.C. §§ 1501, et seq (2017) ............................................................................ 9

9. 7 CFR §400.91(b) (2017) .................................................................................... 14

Law Review Articles/Secondary Materials

1. Carolyn Lamm, Defining The Party – Who is a Proper Party in an International

Arbitration Before the American Arbitration Association and Other International
Institutions, 34 Geo. Wash. Int’l Rev. 711 (2003) ................................................8-9

vii
 STATEMENT OF THE CASE

Nature of the Case: Jody James Farms, JV (JJF) filed suit against its insurance
agent Laurie Diaz (Diaz) and her employer The Altman
Group, Inc. (Altman) in the 110th Judicial District Court of
Floyd County, Texas on December 10, 2012, alleging that
Altman and Diaz breached fiduciary duties owed to JJF and
violated the Texas Deceptive Trade Practices Act. The trial
court granted Altman and Diaz’s Motion to Compel
Arbitration on June 27, 2013, over the objection of JJF. JJF
participated in the arbitration and followed its result with a
motion asking the trial court to set aside the arbitration
award. Altman and Diaz filed a motion to confirm and
enforce the arbitration award which was granted and
subsequently appealed by JJF.

Trial Court: The Honorable William P. Smith of the 110th District Court
of Floyd County, Texas.

Trial Court’s The trial court granted Altman and Diaz’s Motion To
Disposition: Compel Arbitration and subsequently entered its Final
Judgment enforcing the arbitration award from the
proceeding.

Court of Appeals: Seventh Court of Appeals; Justice Campbell, joined by Chief

Justice Quinn and Justice Hancock.

Court of Appeals’ The court of appeals disregarded JJF’s appellate complaints

Disposition: and affirmed the trial court’s judgment. JJF’s Motion for
Rehearing was denied. Jody James Farms, JV v. The Altman
Grp., Inc. and Laurie Diaz, 506 S.W.3d 595 (Tex. App.—
Amarillo 2016, rehearing denied).

viii
 STATEMENT OF JURISDICTION

This Court has jurisdiction over this matter under Texas Government Code

Annotated §22.001(a)(2) (West 2017) because the Seventh Court of Appeals has

disregarded precedent from other Texas courts of appeals and this Court on a

question of law material to a decision of this case.

Further, this Court has jurisdiction over this matter under Texas Government

Code Annotated §22.001(a)(6) (West 2017) because an error of law has been

committed by the Seventh Court of Appeals of such importance to the

jurisprudence of this State that a decision by this Court is necessary to affect a

correction.

ix
 ISSUES PRESENTED

1. Can a non-signatory third-party invoke the proverbial guilt by association

doctrine and force arbitration when no agreement to do so exists?

2. Can a non-signatory third-party compel arbitration of claims that are not

within the scope of the purported arbitration agreement?

3. Can a non-signatory third-party enforce an arbitration agreement when it

is at most an incidental beneficiary?

4. Can a non-signatory third-party enforce an arbitration agreement through

estoppel?

5. Can a trial court enforce an arbitration award when no agreement to

arbitrate exist and no other legal basis supports the imposition of the

arbitration agreement on the resisting party?

x
TO THE HONORABLE SUPREME COURT OF TEXAS:

Petitioner JJF submits this Petition for Review of the decision from the

Seventh Court of Appeals at Amarillo challenging the decision allowing a non-

signatory third-party to compel arbitration of a dispute – one which would not even

be covered by the scope of the purported arbitration agreement – despite the fact

no agreement to arbitrate exists. This decision is detrimental to the jurisprudence of

this State and should be corrected.1

STATEMENT OF FACTS

Altman is an independent insurance agency who markets for Rain and Hail;

Rain and Hail is owned and controlled by ACE Property and Casualty Insurance

Company; ACE Property and Casualty Insurance Company issues crop insurance

policies which are part of the federal crop insurance program. CR Supp. 21, 56.

Altman has been JJF’s agent for crop insurance since approximately 2008. CR

Supp. 51-58. Diaz is a registered insurance agent employed by Altman where she

also serves at Altman’s Operations Manager; she was employed with Altman for

the entire time that Altman has been JJF’s agent. CR Supp. 52.

JJF purchased the Crop Revenue Coverage Insurance Policy (the Policy) at

issue from Rain and Hail via its agent Altman and Diaz to indemnify against loss

Citations to the Clerk’s Record and Supplemental Clerk’s Record will be denoted as CR
____ and CR Supp. _____.

1
on its 2010 milo crop. CR Supp. 21, 25-50. The Policy required Rain and Hail to

indemnify JJF for any loss that arose under the Policy. CR Supp. 25-50. Although

the Policy contained an arbitration clause, neither Altman nor Diaz are signatories

to the Policy. CR Supp. 25-50. In November of 2010, JJF incurred a loss on an

insured milo crop and notified Diaz by telephone of the loss. CR Supp. 23. After

receiving evidence of the loss, Diaz delayed submitting the claim giving rise to the

common law and statutory claims asserted by JJF against Altman and Diaz. CR

Supp. 56.

Eventually, Rain and Hail denied JJF’s claim alleging it, among other things,

was untimely submitted. CR Supp. 64-68. Rain and Hail explained that because the

claim was untimely filed, it was unable “to make the necessary and required loss

determinations.” CR Supp. 64. JJF, after exhausting other remedies, filed suit

against Altman and Diaz for their inaction in submitting the claim to Rain and

Hail. CR 3-6. The trial court compelled arbitration between JJF, Altman and Diaz

and later enforced the arbitration award against it. CR 27, 41.

SUMMARY OF ARGUMENT

Although courts favor arbitration, it is not the quintessential resolution to

every dispute. Litigants have enough hurdles and life changing events in their path

to resolution without the need for further complexities. Love it or hate it,

arbitration is commonplace in contract claims. Although the path to resolution can

2
be through arbitration or trial, the fork in the path still exists and the road signs

leading a dispute down the correct path are essential to the jurisprudence of this

State. Not only has the Seventh Court of Appeals obscured the road signs, it has

created a road block forcing litigants to arbitration when they never agreed to do

so. Without an enforceable arbitration agreement, a litigant should not be

compelled to forego the constitutional right to a trial by jury. Without the

assistance of this Court, litigants across this State will lose their constitutional right

to a trial by jury by merely being associated with an arbitration agreement. Guilt by

association should remain a tool for parents raising children: not the courts of this

State.

In the case at bar, the constitutional right to a trial by jury was arbitrarily

blocked by a non-existent arbitration clause. Despite existing law to the contrary,

the Seventh Court of Appeals erected an impermissible road block on the path to

resolution, effectively depriving JJF of its right to have its dispute adjudicated in

court and further weakening the strength and effect of contracts in this State. Even

if there was an agreement to arbitrate, a trial court cannot alter the terms of that

agreement to include disputes which are not within the scope of the agreement.

Without an enforceable arbitration agreement, the only basis to compel a

party to participate in arbitration proceedings requires the court, not an arbitrator,

to review evidence on the asserted equitable grounds. Moving to compel

3
arbitration should not be a go to jail card that can be handed down by luck of the

draw: because that is exactly the outcome from the case at bar, it must be corrected

by this Court.

ARGUMENT
1. Can a non-signatory third-party invoke the proverbial guilt by
association doctrine and force arbitration when no agreement to do so
exists?

Although existing law makes a distinction between parties seeking to

enforce arbitration who are signatories to an enforceable arbitration agreement and

those who are not, the Seventh Court of Appeals has changed this precedent by

issuing the opinion in this case which compelled arbitration between litigants who

had no arbitration agreement. By its ruling, the Seventh Court of Appeals has

created a new road block in the path to resolution which drastically alters a party’s

constitutional right to a trial by jury. Without clarification of the distinction

between compelling those who are signatories to arbitration agreements and those

who are not, a random arbitration clause will be the go directly to jail card played

4
when the path leading to the courthouse is viewed disfavorably by the movant.

Although arbitration is favored, it is not axiomatic and should not always result in

a litigant losing its constitutional right to a trial by jury. With a myriad of

arbitration decisions increasingly diminishing a party’s constitutional right to trial

by jury, a distinction needs to be made by this Court: no agreement – no

arbitration!

The arbitration clause in the case at bar states, in pertinent part, as follows:

If you and we fail to agree on any determination made by us except

those specified in Section 20(d), the disagreement may be resolved
through mediation in accordance with Section 20(g). If resolution
cannot be reached through mediation, or you and we do not agree to
mediation, the disagreement must be resolved through arbitration.

CR Supp. 44. The Policy expressly defines “you” and “your” as the named

insured, JJF; and “we,” “us,” and “our” as the “insurance company providing

insurance,” Rain and Hail. CR Supp. 25.

Under Texas law, it is well established that a party seeking to compel

arbitration must establish that: (1) a valid arbitration clause exists; and (2) the

claims in dispute fall within that agreement’s scope. In re Kellogg Brown & Root,

Inc., 166 S.W.3d 732, 737 (Tex. 2005). Although this Court has held that “whether

a non-signatory can compel arbitration pursuant to an arbitration clause questions

the existence of a valid arbitration clause between specific parties and is therefore a

gateway matter for the court to decide,” the law must be clarified to inform

5
litigants when such gateway matters will be taken out of the court’s hand and

delegated to an arbitrator. In re Rubiola, 334 S.W.3d 220, 224 (Tex. 2011) (citing

In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005); Sherer v. Green

Tree Servicing LLC, 548 F.3d 379, 381 (5th Cir. 2008)). Despite the Seventh Court

of Appeal’s ruling, non-signatory third-parties attempting to compel arbitration are

burdened with proving to the court, not the arbitrator, the existence of a valid

arbitration clause before the issue of the agreement’s scope can even be addressed.

Until this initial burden is met, there is no presumption in favor of arbitration. See

Kellogg Brown & Root, Inc., 166 S.W.3d at 737. As noted in Roe v. Ladymon, 318

S.W.3d 502, 511 n.6 (Tex. App.—Dallas 2010, no pet.) and explained in Marciano

v. Mony Life Ins. Co., the presumption in favor of arbitration:

“applies only to the scope of an open-ended arbitration agreement,

never to the existence of such an agreement or to the identity [sic] the

parties who might be bound by such an agreement. If A and B have an

agreement to arbitrate any dispute that arises between them, there is a

presumption that, if a dispute arises between them, the dispute is

within the scope of the agreement. However, if a dispute arises

between A and C, even if B and C are closely related, there is no

"presumption" that A has agreed to arbitrate its dispute with C.”

470 F. Supp. 2d 518, 526, n.12 (E.D. Pa. 2007).

6
 The Seventh Court of Appeals correctly stated that “under the FAA, absent

unmistakable evidence that the parties intended the contrary, it is the courts rather

than arbitrators that must decide ‘gateway matters’ such as whether a valid

arbitration agreement exists.” Jody James Farms, JV v. The Altman Grp., Inc. and

Laurie Diaz, 506 S.W.3d 595, 598 (Tex. App.—Amarillo 2016, rehearing denied)

(citing Weekley Homes, L.P., 180 S.W.3d 127). However instead of recognizing

the correct analytical framework applied by sister courts of appeals and this Court,

the Seventh Court of Appeals simply held that “incorporation of the AAA rules . . .

constitute[d] clear and unmistakable evidence that the parties to the arbitration

agreement agreed to arbitrate arbitrability” and proceeded to the second prong of

the analysis of the agreement’s scope. Jody James Farms, JV, 506 S.W.3d 595-

600. The Seventh Court of Appeals’ holding paid little attention to the critical

distinction of Altman and Diaz’s non-signatory third-party status. To wit, all of the

cases quoted by the Seventh Court of Appeals in support of its holding involved

disputes between signatory parties. Id.2 This holding frustrates the theory and spirit

2
See Oracle Am., Inc. v. Myriad Group, A.G., 724 F.3d 1069 (9th Cir. 2013)
(dispute arose between signatory parties who had entered into two separate
agreements with one another, with the sued upon agreement containing an
arbitration clause); Chesapeake Appalachia, LLC v. Scout Petr., LLC, 809 F.3d
746 (3rd Cir. 2016) (dispute arose between a signatory party and assignee of a
signatory party concerning oil and gas leases with arbitration clauses); Petrofac,
Inc. v. DynMcDermott Petr. Ops. Co., 687 F.3d 671 (5th Cir. 2012) (dispute arose
between signatory parties to a subcontract which contained an arbitration clause);
Fallo v. High-Tech Inst., 559 F.3d 874 (8th Cir. 2009) (dispute arose between
7
of Texas contract law and forces anyone with a tangential connection to an

arbitration agreement to lose its constitutional right to a trial by jury at the hands of

an arbitrator and not the trial court.

This Court has continuously held that “under the FAA, ordinary principles

of state contract law determine whether or not a valid agreement to arbitrate

exists.” Rubiola, 334 S.W.3d at 224 (Tex. 2011) (citing Kellogg Brown & Root,

Inc., 166 S.W.3d at 738). Additionally, being a creature of state contract law,

arbitration generally cannot be required for a matter involving a third-party who is

not a signatory to an arbitration agreement. Grigson v. Creative Artists Agency,

L.L.C., 210 F.3d 524, 532 (5th Cir. 2000). Courts prohibit enforcement of

arbitration clauses by non-signatories “where (1) the contract does not expressly

grant third parties the ability to participate in the arbitration; (2) the parties have

not contemplated the idea; and (3) non-signatory involvement would constitute an

invasion of the consensual nature of arbitration.” Rubiola, 334 S.W.3d at 225

(quoting Carolyn Lamm, Defining the Party – Who is a Proper Party in an

International Arbitration Before the American Arbitration Association and Other

signatory parties to enrollment agreements with arbitration clauses); Qualcomm

Inc. v. Nokia Corp., 466 F.3d 1366 (11th Cir. 2005) (dispute arose between
signatory parties to a Subscriber Unit and Infrastructure Equipment License
agreement which contained an arbitration clause); Terminix Int’l Co., L.P. v.
Palmer Ranch Ltd. P’ship, 432 F.3d 1327 (11th Cir. 2005) (dispute arose between
signatory parties to multiple service contracts, each containing arbitration clauses);
Contec Corp. v. Remote Solution Co., 398 F.3d 205 (2nd Cir. 2005) (dispute arose
between signatory parties to an agreement which contained an arbitration clause).
8
International Institutions, 34 Geo. Wash. Int’l Rev. 711, 720 (2003)). Taking each

element in turn: (1) the Crop Revenue Coverage Insurance Policy does not

expressly grant Altman and Diaz the right to participate in arbitration; (2) no

evidence was presented, nor reviewed by the trial court, that JJF and Rain and Hail

contemplated Altman and Diaz participating in arbitration; and (3) compelling

arbitration would infringe upon the consensual nature of arbitration as it is a

creature of contract and JJF never signed a contract containing an arbitration clause

with Altman or Diaz. CR Supp. 25-50.

The basic provisions of the policy at issue which contains the arbitration

clause is promulgated by the Federal Crop Insurance Act. 7 U.S.C. §§ 1501, et

seq. Although the policy at issue is a federal crop insurance policy, state law

claims against an agent are not preempted. Rio Grande Underwriters, Inc. v. Pitts

Farms, Inc., 276 F.3d 683, 687 (5th Cir. 2001) (holding that Congress did not

intend to displace state law claims against agents under the Federal Crop Insurance

Act). The current Basic Provisions are codified at 7 C.F.R. § 457.8 and the 2010

version is published as form 05-CRC-BASIC by the RMA. C.R. Supp. 25-50.

Although the policy has the occasional reference to “agent” it makes a distinction

between the agent of JJF and the agent of the insurer and never expressly indicates

that the arbitration provision is applicable to anyone other than JJF and the insurer

(Rain and Hail). CRC Insurance Policy CRC-BASIC, page 1 preamble (defining

9
you and us under the policy); cf., page 1 (definition of Application “... filed in your

agent’s office”); page 3 (definition of Delinquent debt, “… received by our

agent”). The motion to compel which was granted by the trial court simply

referenced the arbitration clause, cited a few cases on the requirement to arbitrate

with the insurance provider, and said we win. C.R. 9-17. The real issue– whether

there was an agreement to arbitrate between JJF and Altman and Diaz– has yet to

be correctly decided by a court.

A simple example exacerbates the absurdity of the guilt by association

rulings in this case which must be corrected. If Altman hypothetically sells car

insurance to JJF with no arbitration clause, can it now force arbitration against JJF

for a dispute under such automobile policy because JJF once agreed to arbitrate

disputes with Rain and Hail on a crop insurance policy? Although seemingly

absurd, that is the decision in this case that must be corrected.

In addition to this precedent, the Seventh Court of Appeals also disregarded

the opinion in Golden Age Senior Living of El Paso, LLC v. Atwood, which is

factually similar to the case at bar and instructive. Golden Age Senior Living of El

Paso, LLC v. Atwood, 486 S.W.3d 44 (Tex. App.—El Paso 2016, no pet.). In

Atwood, the appellants were not parties to the arbitration agreement under ordinary

contract principles like Altman and Diaz. Atwood, 486 S.W.3d at 47. The Atwood

contract never mentioned Golden Age Senior Living of El Paso or Sunridge at

10
Cambria by name; rather, there were only broad definitions of the parties in the

agreement that allowed for the possibility of non-signatories to the arbitration

agreement enforcing the arbitration clause. Id. at 48. Golden Age Senior Living of

El Paso and Sunridge at Cambria, as non-signatories, based their argument to

compel arbitration upon these broad definitions, citing In re Rubiola for support.

Id. See Rubiola, 334 S.W.3d at 220. However, the El Paso Court explained In re

Rubiola, holding that “the underlying principle in In re Rubiola is that non-

signatories may not rely on an arbitration agreement to compel arbitration unless

they were acting on behalf of a signatory from which they derive their arbitration

rights.” Id.; see also, Baldwin v. Cavett, 502 F. App’x 350, 353-54 (5th Cir. 2012).

Despite this precedent and the lack of an agreement to arbitrate between JJF

and Altman and Diaz, the Seventh Court of Appeals held that the arbitration clause

was enforceable and specifically, the arbitration clause’s incorporation of the AAA

Rules showed a clear intent of the parties to arbitrate. Altman and Diaz were not

parties to the agreement and this error must be corrected.

2. Can a non-signatory third-party compel arbitration of claims that

are not within the scope of the purported arbitration agreement?

Even assuming the arbitration agreement between JJF and Rain and Hail is

somehow an agreement between JJF and Altman and Diaz, the scope of the

arbitration agreement must be broad enough to include the claims asserted. Unless

11
the parties clearly and unmistakably agree to submit threshold questions of

arbitrability to the arbitrator, these issues are to be resolved by courts. See Howsam

v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S. Ct. 588, 154 L. Ed. 2d 491

(2002); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S. Ct.

1920, 131 L. Ed. 2d 985 (1995); Weekley Homes, L.P., 180 S.W.3d at 130.

Because there is not an express agreement between JJF and Altman and Diaz, this

issue was one for the trial court.

Courts cannot rewrite an arbitration agreement to bring claims within its

scope, even if those claims are intertwined with issues covered by the arbitration

agreement. See Surplus, Inc. v. Home State Cnty. Mut. Ins. Co., No. 05-95-00007-

CV, 1995 Tex. App. LEXIS 3305 at *13 (Tex. App.—Dallas Dec. 21, 1995, writ

denied). The determination of whether a claim is within the scope of the arbitration

clause is based on an interpretation of the parties’ contract, which is reviewed de

novo. Bosscorp, Inc. v. Donegal, Inc., 370 S.W.3d 68, 75-76 (Tex. App.—Houston

[14th Dist.] 2012, no pet.). Although disputes concerning the scope of an

arbitration agreement are generally resolved in favor of arbitration, Kellogg &

Root, Inc., 166 S.W.3d at 737, the court’s primary concern is to ascertain the true

intentions of the parties as expressed in the instrument. See J.M. Davidson, Inc. v.

Webster, 128 S.W.3d 223, 229, (Tex. 2002).

Courts should assume the parties intended every provision to have some

12
effect. See United Protective Servs., Inc. v. West Village Ltd. P'ship, 180 S.W.3d

430, 432 (Tex. App.—Dallas 2005, no pet.). And, only when the provisions of a

contract appear to conflict, should courts attempt to harmonize the provisions. See

Id. When necessary to harmonize, courts are required to consider the entire writing

and give effect to all the provisions of the contract by analyzing the provisions

with reference to the whole agreement. Frost Nat'l Bank v. L & F Distribs., Ltd.,

165 S.W.3d 310, 312 (Tex. 2005) (per curiam); J.M. Davidson, Inc. 128 S.W.3d at

229.

The arbitration clause in the case at bar solely covered “determinations”

made by the insurer. CR Supp. 44-45. Specifically, the arbitration clause obligated

the parties -not JJF and Altman and Diaz- to arbitrate disputes arising out of

“determinations made by us,” defining “us” as “the insurance company providing

insurance.” CR Supp. 25, 44-45. The breach of duty by JJF’s agents, Altman and

Diaz, was not a determination under the Policy and falls outside the scope of the

arbitration agreement. No provisions in the Policy even discuss the duties of

Altman and Diaz to JJF.

Further, evidence of the inapplicability of the arbitration clause to the

dispute at hand are the provisions of the arbitration agreement that cannot apply as

written. Section 20(a)(1) of the insurance contract states that if there is a “dispute

[which] in any way involves a policy or procedure interpretation. . . you or we

13
must obtain an interpretation from [the Federal Crop Insurance Corporation

“FCIC”] in accordance with 7 CFR part 400. CR Supp. 45. However, review by

the FCIC is not allowed for determinations made by private insurance contractors

such as Altman and Diaz. 7 CFR §400.91(b).

In the instant suit, JJF has alleged that Altman and Diaz breached a duty to it

by failing to report a claim. CR 4. If Section 20(a)(1) is applied, Altman and Diaz’s

alleged conduct could be subject to review by the FCIC, which, by law, cannot

review the decisions made by private insurance contractors such as Altman and

Diaz.

Another example of the error created by the application of the Rain and Hail

Arbitration Clause is that Section 20(b) requires arbitration to occur within 1 year

of the date “we denied your claim or rendered the determination with which you

disagree.” CR Supp. 44. Altman and Diaz did not deny JJF’s claims or render a

determination with which he disagreed. CR Supp. 56 (Diaz stated that, “Once the

claim is turned in, Federal crop rules says that the agent can no longer be

involved.”). The denial of coverage was made by Rain and Hail prior to this suit

being initiated. CR Supp. 60-62. It was not until this dispute with Rain and Hail

was resolved through the first arbitration that JJF’s damages could be ascertained

against Altman and Diaz. See Great Am. Assur. Co. v. Sanchuck, LLC No. 8:10-

CV-2568 –T-33AEP, 2012 U.S. Dist. LEXIS 7477 at * 20 (M.D. Fla. Jan. 23,

14
2012); Rice v. Louis A. Williams & Assocs., 86 S.W.3d 329, 337 (Tex. App.—

Texarkana 2002, pet. denied).

Negligence claims maintained by first-party insureds against insurance

agents do not ripen until the plaintiff’s interests are confronted with a specific and

concrete risk of harm. Rice, 86 S.W.3d 329, 337. See also, Great Am. Assur. Co.

v. Sanchuk, LLC, 2012 U.S. Dist. LEXIS 7477 at *20 (finding that a negligence

cause of action against an insurance agent accrues at the conclusion of a related or

underlying proceeding because a plaintiff cannot make a claim against an

insurance agent for negligence while simultaneously claiming policy coverage)

(Emphasis added); (citing Blumberg v. USAA Casualty Insurance Co., 790 So. 2d.

1061, 1065 (Fla. 2001) and Landmark Am. Ins. Co. v. Moulton Props., No.

3:05cv401/LAC, 2006 U.S. Dist. LEXIS 73478 (N.D. Fla. July 19, 2006)).

Although the issues in the case at bar do not revolve around a limitations

issue like the cases cited above, JJF had at least a two-year period in which to file

suit under Texas law for the claims in the instant suit. Tex. Bus. & Com. Code

Ann. § 17.565 (West 2015); Tex. Civ. Prac. & Rem. Code Ann. § 16.003 (West

2015). The arbitration agreement conflicts with that law. See CR Supp. 60-62

(denying JJF’s arbitration claim due in part to Diaz’s negligence in failing to timely

file JJF’s crop loss claim on April 10, 2012). See CR Supp. 64-68 (letter denying

coverage on April 26, 2011). It would be impractical for JJF to be required to file

15
suit before the determination was made on the underlying policy because there was

always a chance, no matter how remote, that the arbitrator would find for JJF.

Rice, 86 S.W.3d at 339 (citing All-Tex Roofing, Inc. v. Greenwood Ins. Group, Inc.,

73 S.W.3d 412 (Tex. App.—Houston [1st Dist.] 2002, pet. denied). In any event,

the arbitration clause had to be rewritten by the arbitrator or the court to avoid that

improper result. The Seventh Court of Appeals glossed over the importance of the

“parties” to the arbitration agreement in determining whether the scope of the

arbitration clause should be decided by the arbitrator. Allowing the Seventh Court

of Appeal’s decision to stand directly contradicts existing law and further erodes

the constitutional right to trial by jury.

3. Can a non-signatory third-party enforce an arbitration agreement

when it is at most an incidental beneficiary?

Although pertinent to the overall outcome of this matter, the arguments asserted

by Altman and Diaz about their ability to enforce the arbitration clause through

means other than the contract begs the real question of whose responsibility it is to

determine arbitrability. Appellee’s Brief, page 16; cf. Defendant’s Motion to

Compel Arbitration C.R. 15-16 (citing only principal-agent case law with no

supporting evidence). Had the trial court considered this matter, it would have

necessarily been required to make a factual determination of these issues and not

delegate those to an arbitrator. Under certain circumstances, which are not present

here, third-party beneficiaries can enforce an arbitration agreement even though

16
they are not parties to the agreement. See Kellogg & Root, Inc., 166 S.W.3d at 739;

see also G.T. Leach Builders, LLC v. Sapphire VP, LP, 458 S.W.3d 502, 523 (Tex.

2015) . However, the third-party beneficiary must be able to enforce the contract

through state contract law principles. See J.M. Davidson, Inc., 128 S.W.3d at 227;

Delfingen v. Valenzuela, 407 S.W.3d 791,797 (Tex. App.—El Paso 2013, no pet.).

To do so, the third-party beneficiary must overcome the “presumption against

conferring third-party-beneficiary status on noncontracting parties.” South Texas

Water Authority v. Lomas, 223 S.W.3d 304, 306 (Tex. 2007).

Under Texas law, incidental third-party-beneficiaries are unable to enforce

contract provisions. Id. “A third party may only enforce a contract when the

contracting parties themselves intend to secure some benefit for the third party and

entered into the contract directly for the third party's benefit.” Id. “The intent to

confer a direct benefit upon a third party ‘must be clearly and fully spelled out or

enforcement by the third party must be denied.’” Id. (quoting MCI Telecomms.

Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex.1999)).

Here, Altman and Diaz are at most incidental third-party beneficiaries. There

was no intent to confer a direct benefit upon Altman and Diaz by either JJF, Rain

and Hail or the federal government. JJF entered into the contract with Rain and

Hail only to benefit itself via insurance for a crop, and Rain and Hail sought only

to sell its insurance products. CR Supp. 21, 25-50. The fact that Altman and Diaz

17
might have received a commission for facilitating the sale does not show a “clear

and fully spelled out” intent to directly benefit Altman and Diaz. In fact, Altman

and Diaz are not mentioned by name anywhere in the Crop Revenue Coverage

Insurance Policy. See CR Supp. 25-50. And, the FCIC has indicated that the

provision of the crop insurance policy are not intended to displace state law claims

against agents. Rio Grande Underwriters, Inc. v. Pitts Farms, Inc., 276 F.3d at

687. Thus, Altman and Diaz as incidental third-party beneficiaries are unable to

enforce the arbitration provision between JJF and Rain and Hail. Regardless, the

issue of enforcement as a third-party was not a decision the trial court made and

was not addressed by the Seventh Court of Appeals resulting in the very error at

issue being compounded.

4. Can a non-signatory third-party enforce an arbitration agreement

through estoppel?

Like the third-party beneficiary theory, the issue of estoppel was not addressed

by the trial court or the Seventh Court of Appeals but instead was urged in briefing

that was presented on appeal and argued by reference to factual determinations of

the arbitrator. Appellee’s Brief, page 14; cf. Defendant’s Motion to Compel

Arbitration C.R. 15-16 (citing principal-agent case law with no supporting

evidence). The substance of JJF’s claims in the instant matter arise under Texas

common law and the Deceptive Trade Practices Act. Equitable estoppel only

allows non-signatories to compel arbitration in two circumstances: (1) when the

18
signatory to the contract containing an arbitration clause raises allegations of

substantially interdependent and concerted misconduct by both the non-signatories

and a signatory, or (2) when the nature of the underlying claims requires the

signatory to rely on the terms of the written agreement containing the arbitration

clause in asserting the signatory's claims against the non-signatories. McMillan v.

Computer Translation Sys. & Support, 66 S.W.3d 477, 482 (Tex. App.–Dallas

2001, orig. proceeding) (citing Grigson, 210 F.3d at 527); see In re EGL Eagle

Global Logistics, L.P., 89 S.W.3d 761, 764-65 (Tex. App.–Houston [1st Dist.]

2002, orig. proceeding). The first circumstance has no relevance in the case at bar

as JJF’s claims do not allege any misconduct by Rain and Hail, the insurer. C.R. 3-

6. Although a party that seeks a direct benefit under a contract which includes an

arbitration clause cannot deny that the arbitration clause applies to a non-signatory,

independent claims are not subject to this defense. G.T. Leach Builders, LLC 458

S.W.3d at 527. “Whether a claim seeks a direct benefit from a contract containing

an arbitration clause turns on the substance of the claim.” Id. (quoting In re

Weekley Homes, 180 S.W.3d at 131-32).

It is not enough, however, that the party's claim ‘relates to’ the
contract that contains the arbitration agreement. Instead, the party
must seek “to derive a direct benefit”—that is, a benefit that “stems
directly”—from that contract. The claim must “depend on the
existence” of the contract, and be unable to “stand independently”
without the contract. The alleged liability must “arise[] solely from
the contract or must be determined by reference to it.”

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G.T. Leach Builders, LLC, at 527-28. (internal citations omitted).

“[T]he fact that the claims would not have arisen but for the existence of the

. . . contract is not enough to establish equitable estoppel.” Id. at 529. “‘[W]hen the

substance of the claim arises from general obligations imposed by state law,

including statutes, torts and other common law duties, or federal law,’” rather than

from the contract, ‘direct benefits’ estoppel does not apply, even if the claim refers

to or relates to the contract.” Id. at 528 (emphasis added) (internal citations

omitted); see also Weekley Homes, 180 S.W.3d at 132; DeWitt Cnty. Elec. Coop.,

Inc. v. Parks, 1 S.W.3d 96, 105 (Tex. 1999) (“The measure of damages, standing

alone, is not always determinative of whether a tort claim can co-exist with a

breach of contract claim).

Here, the substance of JJF’s claim arises under Texas common law and the

Deceptive Trade Practices Act. “‘A local agent . . . owes his clients the greatest

possible duty. He is the one the insured looks to and relies upon. Most people do

not know what company they are insured with.’” Trinity Universal Ins. Co. v.

Burnette, 560 S.W.2d 440, 442 (Tex. App.—Beaumont 1977) (emphasis added).

The substance of JJF’s claim is the breach of this duty, which JJF has characterized

as a “fiduciary duty,” and the breach of the duty imposed by the Deceptive Trade

Practices Act. See CR 4-5.

JJF specifically claimed that Altman and Diaz “breached their fiduciary duty

20
to Plaintiff by failing to timely submit the crop loss claim to Rain and Hail, LLC.”

CR 4. Altman and Diaz’s fiduciary duty is based on their relationship and prior

dealings with JJF, where Altman and Diaz would submit JJF’s claims based on a

notification of the claim by telephone without a confirmation by writing. CR Supp.

54-55. It is the breach of this duty, upon which JJF based part of its claims. Such

duties are independent of the Policy and apply to JJF’s relationship with its

insurance agent and not to the Policy.

Because Altman and Diaz’s liability does not arise from the Policy, estoppel

does not mandate arbitration of the claims asserted by JJF. In fact, the only duties

under the Policy are referred to as “Your Duties,” which refer to the “named

insured,” and “Our Duties,” which refer to the “insurance company providing

insurance.” CR Supp. 25, 38-39. There are no duties allocated by the Policy to

Altman and Diaz as an insurance agency, and JJF has not sued for any breach of

the underlying insurance contract. In any event, this was an issue for the trial court

which was not decided and not referenced by the Seventh Court of Appeals. Again,

the decision ignores Texas Law and should be corrected.

5. Can a trial court enforce an arbitration award when no agreement to

arbitrate exist and no other legal basis supports the imposition of the
arbitration agreement on the resisting party?

Once again, although pertinent to the overall issues in this case, the initial

error of compelling arbitration, when no agreement existed nor one whose scope

21
would cover the disagreement anyway, has created additional error that must be

corrected.

Under both the Texas Arbitration Act and the Federal Arbitration Act, an

arbitrator cannot issue a decision on matters outside the scope of the arbitration

agreement. See Tex. Civ. Prac. & Rem. Code Ann. § 171.088 (West 2015); 9

U.S.C. § 10(a)(4) (2015). An arbitrator has no authority to issue a decision when

parties have not agreed to arbitrate claims because an arbitrator derives her power

from the arbitration agreement itself. Centex/Vestal v. Friendship W. Baptist

Church, 314 S.W.3d 677, 684 (Tex. App.—Dallas 2010, pet. denied) (citing Gulf

Oil Corp. v. Guidry, 327 S.W.2d 406, 408 (Tex. 1959)); Nafta Traders, Inc. v.

Quinn, 339 S.W.3d 84, 90 (Tex. 2011) (quoting Stolt–Nielsen S.A. v. AnimalFeeds

Int’l Corp., 559 U.S. 662, 682 (2010)). Both Texas law and federal law require

vacatur of an arbitration award when an arbitrator exceeds his authority. Tex. Civ.

Prac. & Rem. Code Ann. § 171.088 (West 2015); 9 U.S.C. § 10(a)(4) (2015).

Here, the trial court and the Amarillo Court of Appeals disregarded the law

and ignored JJF’s request to set aside the improper decision. The arbitrator

exceeded his authority by entering an award where no agreement to arbitrate

existed and the scope of the arbitration agreement did not cover the disputes. See

infra, Arguments § 1 and 2. Because the arbitrator exceeded his authority in

entering an award, the trial court and Seventh Court of Appeals have disregarded

22
the applicable law and a decision from this Court must be issued to correct this

error.

CONCLUSION

When a dispute is on the path to resolution, the fork in the path leading to

the courthouse and a jury of peers still exists. The road signs instructing the

litigants down the path to resolution should not be obscured by the road block of

the Seventh Court of Appeal’s decision. A previously signed arbitration agreement

should not become the “Go to Jail” card instructing litigants to go directly to

arbitration without a chance to pass “go” at the courthouse when disputes arise

with non-signature third-parties.

Had the Seventh Court of Appeals engaged in the correct analytical

framework established by sister courts of appeals and this Court when reviewing

JJF’s arguments and evidence, it would have concluded as a matter of law that

Altman and Diaz, as non-signatory third-parties, were not entitled to compel JJF to

arbitration. Instead, the Seventh Court of Appeals erroneously interpreted the

jurisprudence of this State and affirmed the trial court’s improper decision to allow

an arbitrator to decide the gateway issue of whether an arbitration agreement

existed between the parties to this dispute. If this decision stands, the constitutional

right to a trial by jury will be restricted by courts and judges, and not the citizens

and legislators of this great state.

23
 PRAYER

Wherefore, Petitioner JJF, prays that this Court:

1. GRANT its Petition for Review;

2. REVERSE the Seventh Court of Appeals’ decision affirming the trial

court’s final judgment entering a final arbitration award in favor of

Respondents;

3. GRANT all other relief to which it has shown itself justly entitled.

Respectfully Submitted,

/s/ Jody Jenkins

JODY JENKINS
State Bar No. 24029634
JENKINS, WAGNON & YOUNG,
P.C.
P.O. Box 420
Lubbock, Texas 79408-0420
Ph: (806) 796-7351
Fx: (806) 771-8755
jjenkins@jwylaw.com
ATTORNEYS FOR PETITIONER

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 CERTIFICATE OF SERVICE

This is to certify that a true and correct copy of the above and foregoing
instrument has been served upon the following via the Court’s electronic filing
system, this 21st day of November, 2017.

J. Paul Manning
Anna McKim
Field, Manning, Stone, Hawthorne & Aycock, P.C.
2112 Indiana Ave.
Lubbock, TX 79410

/s/ Jody D. Jenkins

JODY JENKINS

CERTIFICATE OF COMPLIANCE
I hereby certify that the word count in this Brief is 7,592 when all sections are
included.

/s/ Jody D. Jenkins

Jody D. Jenkins

25