Dallas Appeals Court Vacates Order Denying Arbitration in Marketing and Sales Case

Originally published by Beth Graham.

Texas’ Fifth District Court of Appeals has vacated a trial court’s order denying arbitration in a marketing and sales dispute. In Momentis U.S. Corp. et al. v. Perissos Holdings, Inc. et al. , No. 05-13-01085-CV, (Tex. App. – Dallas, July 30, 2014), a company (“Momentis”) that sold “energy contracts, mobile phone services, internet services, and digital television services” using third-party independent contractors (“IRs”) using a sales network was sued by a former salesperson (“Hale”) and the company he used to market the products (“Perissos”). According to Hale, the President of Momentis (“McWilliams”) unilaterally changed the terms of the parties’ sales contract, mistreated Hale, denied Hale earned compensation, and eventually terminated him.

Perissos and Hale filed a lawsuit against Momentis alleging breach of contract, fraud, negligent misrepresentation, specific violations of the Texas Deceptive Trade Practices Act, and more. In response, Momentis filed a motion to compel arbitration pursuant to a letter agreement between Hale and Momentis that referenced Momentis’s Policies and Procedures. Hale countered that the parties did not enter into an agreement to arbitrate and even if they did “any purported agreement is illusory, unconscionable, and void as against public policy.” The trial court denied Momentis’s motion to compel arbitration without explanation and Momentis filed an interlocutory appeal with the Fifth District Court of Appeals.

On Appeal, the Dallas court first stated the parties’ dispute is governed by the Federal Arbitration Act. Next, the court addressed whether the parties entered into a valid agreement to arbitrate. According to Hale, he was not bound by the terms of an application that he submitted to Momentis online. After examining the evidence provided to the trial court, the Fifth District said,

In another case involving Momentis, we have held that substantially identical evidence supported the existence of a valid agreement to arbitrate between Momentis and two IRs who signed up online. We reach the same conclusion in this case.

After that, the court discussed whether the parties’ dispute fell within the scope of the arbitration agreement. According to the appellate court,

In this case, appellees agreed to arbitrate any dispute between themselves and Momentis or its affiliates, with certain exceptions not relevant on these facts. Claims against Momentis’s “affiliates” are expressly covered by the clauses, and claims against Momentis’s president McWilliams are also covered as a matter of law. Indeed, appellees do not dispute that their claims against appellants come within the scope of the arbitration clauses that are part of the online agreement. We conclude that appellees’ claims are within the scope of its agreement to arbitrate.

Finally, the court dismissed Hale’s claim that “that any agreements to arbitrate are unenforceable because they are illusory, unconscionable, and void because they are contrary to public policy.” According to the Dallas court, such issues are for an arbitrator to decide. Since “the trial judge abused her discretion to the extent she relied on these defenses as the basis for denying appellants’ motion to compel arbitration of appellees’ claims,” Texas’ Fifth District Court of Appeals vacated the trial court’s order denying arbitration and remanded the case.

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