In re Credit Suisse First Boston Mortgage Capital LLC
(Tex.App- Houston [14th Dist.] Dec. 18, 2008)(Hedges)(arbitration mandamus denied) (arbitration,
nonsignatories, jury waiver, nonsignatories, agency theory, choice of law preemption, forum preemption)
[W]e hold that the trial court did not abuse its discretion by declining to extend the jury
waiver on the basis of allegations alone. Because the right to a jury trial implicates
constitutional guarantees, we will not lightly infer or extend a contractual jury waiver
absent proof that the parties intended it to include claims against nonsignatories.
MOTION OR WRIT DENIED: Opinion by Chief Justice Hedges
Before Chief Justice Hedges, Justices Hudson and Boyce
14-08-00819-CV In Re: Credit Suisse First Boston Mortgage Capital, L.L.C. and Credit Suisse First Boston,
L.L.C.--Appeal from 165th District Court of Harris County
Trial Court Judge: Elizabeth Ray
d
O P I N I O N
On June 17, 2008, we declined to issue mandamus relief compelling the respondent[1] to extend a
contractual jury waiver to a nonsignatory. Relators now urge us to extend the jury waiver to the
nonsignatory on the basis of agency principles, an argument not before us in the earlier mandamus
proceeding. We hold that a valid contractual jury waiver may be invoked by the agents of a signatory party.
However, we decline to extend a jury waiver to a nonsignatory that is merely alleged to be the signatory's
agent. Therefore, we deny the petition for writ of mandamus.
BACKGROUND
Relators consist of Credit Suisse First Boston Mortgage Capital, L.L.C. ("Mortgage Capital") and Credit
Suisse First Boston, L.L.C. ("CSFB"). Both relators have been sued for fraud by the real party in interest,
1001 McKinney Ltd. (the "Developer"), a real-estate development partnership that planned to renovate a
Houston office building. Developer and Mortgage Capital, but not CSFB, signed a Loan Agreement in which
Developer was to receive a loan in excess of $39 million to fund the renovation. After the Loan Agreement
was signed, however, a redesign of the renovation project forced Developer to seek additional financing.
Allegedly, two CSFB employees fraudulently promised Developer that Mortgage Capital would lend an
additional $6.75 million on the same terms as the original loan. Developer alleges that the CSFB employees
were authorized to act on behalf of Mortgage Capital, and further claims that CSFB's promise "effectively
committed" Mortgage Capital to the new loan. "fter relators declined to loan additional money, Developer
sued CSFB and Mortgage Capital for common-law fraud.[2]
Relators moved to quash Developer's jury demand, citing a clause in the Loan Agreement in which the
parties to the contract waived their right to submit disputes to a jury. Developer responded that, although
Mortgage Capital signed the Loan Agreement, CSFB did not; therefore, Developer contended, its claims
against CSFB are not subject to the jury-waiver clause. The trial court agreed with Developer and quashed
the jury demand as to contract-signatory Mortgage Capital, but not as to nonsignatory CSFB. The court
ruled that a single trial will take place, in which Developer's fraud claims against CSFB may be tried to a jury,
but its claims against Mortgage Capital will be submitted to the bench. We denied relators' subsequent
mandamus petition. See In re Credit Suisse First Boston Mortgage Capital, 257 S.W.3d 486 (Tex. App.-
Houston [14th Dist.] 2008, orig. proceeding). However, we declined to consider one of relators' arguments
which was premised on the application of agency principles, because relators had not raised that contention
in the trial court. See id. at 493.
Relators then presented their agency argument to the trial court in a motion for reconsideration, which was
denied. This second mandamus proceeding followed. Relators contend that, because Developer has
alleged an agency relationship between CSFB and Mortgage Capital, the trial court abused its discretion by
refusing to enforce the jury waiver as to Developer's fraud claims against CSFB.
STANDARD OF REVIEW
Mandamus relief is available when the relator establishes a clear abuse of discretion for which there is no
adequate appellate remedy. See In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135 (Tex. 2004) (orig.
proceeding). A trial court clearly abuses its discretion if it reaches a decision so arbitrary and unreasonable
as to constitute a clear and prejudicial error of law. Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992)
(orig. proceeding). With respect to the resolution of fact issues, we will not substitute our judgment for the
trial court's. See id. Therefore, the relator must establish the trial court reasonably could have reached
only one decision. See id. at 840. On the other hand, a trial court has no discretion in determining what the
law is or applying the law to the facts; therefore, a clear failure by the trial court to analyze or apply the law
correctly constitutes an abuse of discretion, even in an unsettled area of law. See id.; Huie v. DeShazo, 922
S.W.2d 920, 927-28 (Tex. 1996) (orig. proceeding).
Whether a party has contractually waived its right to a jury trial is a question of law that we review de novo.
See Prudential Ins. Co., 148 S.W.3d at 135; In re Wells Fargo Bank Minn. N.A., 115 S.W.3d 600, 605 (Tex.
App.- Houston [14th Dist.] 2003, orig. proceeding [mand. denied]).
EXTENSION THROUGH AGENCY PRINCIPLES
We are asked to decide, as a matter of first impression, whether a valid contractual jury waiver applies to
nonsignatories seeking to invoke the waiver as agents of the signatory corporation. We conclude that a
valid waiver provision may be invoked by a nonsignatory agent when it acts on behalf of the signatory
corporation.
In 2007, the Texas Supreme Court adopted a similar rule in the context of arbitration provisions. In re
Kaplan Higher Educ. Corp., 235 S.W.3d 206, 209 (Tex. 2007) (orig. proceeding). Kaplan involved a
fraudulent-inducement lawsuit brought by forty-five students against a college, its corporate parent, its
president, and its admissions director. See id. at 208. The students' enrollment agreement, which was
signed by the students, the college, and the president, required the arbitration of any disputes arising
therefrom. See id. However, the corporate parent and the admissions director were not signatories to the
agreement. See id. After the defendants pressed for arbitration, the students - hoping to avoid arbitration-
dismissed their claims against the two signatories, leaving only their claims against the two nonsignatories.
See id. Nevertheless, the Supreme Court permitted the two nonsignatories to invoke the arbitration
agreement, as agents of the signatories. See id. at 209. The court reasoned that most contract claims
against a corporation could be recast as fraudulent-inducement or tortious-interference claims against the
agents or employees who took part in negotiating the contract. See id. However, it would be impractical to
require all of the corporation's agents to sign, or be listed in, every contract executed by the corporation.
See id. To prevent parties (e.g., the students) from avoiding unfavorable clauses (e.g., mandatory
arbitration) by suing only the other party's agents, the Supreme Court held that "the agents of a signatory
may sometimes invoke an arbitration clause even if they themselves are nonsignatories and a claimant is
not suing on the contract." Id. However, the rule applies only to agents acting on behalf of the signatory
corporation:
We emphasize again today that arbitration clauses do not automatically cover all corporate agents or
affiliates. Like other contracts, arbitration agreements "are enforced according to their terms and according
to the intentions of the parties." Thus, for example, owners may not be able to invoke a subsidiary's
arbitration clause when they act on their own behalf rather than for their subsidiary. But when an agreement
between two parties clearly provides for the substance of a dispute to be arbitrated, one cannot avoid it by
simply pleading that a nonsignatory agent or affiliate was pulling the strings.
Id. at 210 (citations omitted).
Relators urge us to analogize jury waiver provisions to arbitration clauses, thereby extending the Kaplan
holding to the case before us. That a rule may be applied in arbitration clauses, however, does not
necessarily render it appropriate for jury waivers. See Credit Suisse, 257 S.W.3d at 491B92. Arbitration
agreements and jury waivers are subject to opposite presumptions:
Unlike arbitration agreements, which are strongly favored under Texas law, the right to a jury trial is so
strongly favored that contractual jury waivers are strictly construed and will not be lightly inferred or
extended. Before a jury waiver will be enforced, such waiver must be found to be a voluntary, knowing, and
intelligent act that was done with sufficient awareness of the relevant circumstances and likely
consequences.
Id. at 490 (citations omitted). A handful of federal courts have extended a jury waiver to a nonsignatory
through agency principles, but they based their reasoning on principles unrelated to relators' proposed
analogy between arbitration clauses and jury waivers. See Tracinda Corp. v. DaimlerChrysler AG, 502 F.3d
212, 224B25 (3d Cir. 2007); Mowbray v. Zumot, 536 F. Supp. 2d 617, 623 (D. Md. 2008). Those courts
explained that, because a corporation can act only through its agents and employees, by definition, one who
agrees to a jury-waiver clause knows - and intendsCthat the clause naturally must extend to the
corporation's nonsignatory agents, too. See Tracinda, 502 F.3d at 223B25; see also In re Merrill Lynch
Trust Co. FSB, 235 S.W.3d 185, 189 (Tex. 2007) (orig. proceeding) ("[C]ontracting parties [that] agree to
arbitrate all disputes 'under or with respect to' a contract . . . generally intend to include disputes about their
agents' actions because '[a]s a general rule, the actions of a corporate agent on behalf of the corporation
are deemed the corporation's acts.'"). Thus, extension-through-agency does not run afoul of the
requirement that jury waivers be knowingly and voluntarily made. See Brady v. United States, 397 U.S. 742,
748 (1970), quoted in Prudential Ins. Co., 148 S.W.3d at 132.
Accordingly, we hold that, when a valid contractual jury waiver applies to a signatory corporation, the waiver
also extends to nonsignatories that seek to invoke the waiver as agents of the corporation. See Tracinda,
502 F.3d at 225; Kaplan, 235 S.W.3d at 209.
ALLEGATIONS OF AGENCY
Despite Developer's prodding, relators have not elucidated the legal relationship between CSFB and
Mortgage Capital, which relators describe simply as "affiliates." See Credit Suisse, 257 S.W.3d at 493 n.7.
Despite the absence of a stipulation or proof establishing an agency relationship, relators contend CSFB
may invoke the jury waiver simply because Developer alleges that CSFB acted as the agent of signatory
Mortgage Capital. Developer responds that it has not alleged an agency relationship between CSFB and
Mortgage Capital.
In deciding whether Developer has alleged an agency relationship between CSFB and Mortgage Capital, we
subject its pleadings to a de novo review. See, e.g., In re C.S., 264 S.W.3d 864, 873 n.6 (Tex. App.- Waco
2008, no pet.) (employing de novo review to decide whether pleadings state cognizable cause of action);
Boales v. Brighton Builders, Inc., 29 S.W.3d 159, 163 (Tex. App.- Houston [14th Dist.] 2000, pet. denied)
(reviewing pleadings de novo to address dismissal upon special exceptions); see also Turner v. Zellers, 232
S.W.3d 414, 418 (Tex. App.- Dallas 2007, no pet.) (“[T]he trial court is in no better position than the
appellate court to determine the application of the law to the . . . pleadings.").
Developer's allegations, which we summarize below, are contained in its Fourth Amended Original Petition
and its disclosure responses. See Tex. R. Civ. P. 194.2(c) (requiring a party to state its legal theories and
the general factual basis for its contentions). Developer has alleged that CSFB originated commercial
mortgage loans and used Mortgage Capital as the funding entity for those loans. Accordingly, the
negotiations for the building renovation loan were handled by CSFB, through its authorized employees. In
negotiating the terms of the loan to be funded by Mortgage Capital, these CSFB employees were
“authorized to act on behalf of" Mortgage Capital. Following the building redesign, Developer negotiated
with CSFB's employees regarding additional financing on the same terms as the original loan, and the
“agreement of CSFB LLC to make the promised new loan effectively committed CSFB Mortgage Capital to
make the promised loan[.]"
We conclude that Developer has asserted an agency relationship between CSFB and Mortgage Capital. An
“agent" is one who is authorized to transact business, or manage some affair, for the principal entity. See
Coleman v. Klockner & Co. AG, 180 S.W.3d 577, 588 (Tex. App.- Houston [14th Dist.] 2005, no pet.).
Developer has alleged that CSFB, by and through its employees, was authorized to negotiate the terms
under which the signatory, Mortgage Capital, was to loan money.
Developer contends that its pleadings do not set forth an agency relationship between CSFB and Mortgage
Capital but, rather, between these corporate entities and the two CSFB employees charged with negotiating
the financing deals. However, we see no appreciable distinction between these two scenarios. Developer
admits that its fraud claims against both relators stem from the same factual allegations: "The agents in this
case are the two employees who uttered the fraudulent statements, and they acted on behalf of
corporations that are held vicariously liable for their torts." It is well-settled that corporations can act only
through its agents and employees. See GTE Sw., Inc. v. Bruce, 998 S.W.2d 605, 618 (Tex. 1999);
Hammerly Oaks, Inc. v. Edwards, 958 S.W.2d 387, 391 (Tex. 1997). Thus, the actions taken by certain
agents of a corporation sometimes may be deemed to be the acts of the corporation itself. See GTE Sw.,
Inc., 998 S.W.2d at 618; First United Bank v. Panhandle Packing & Gasket, Inc., 190 S.W.3d 10, 15 (Tex.
App.- Amarillo 2005, no pet.) ("[W]hat a principal does through an agent, he does himself."). In addition,
many business-related torts may be brought against either the corporation or its employees. See Merrill
Lynch, 235 S.W.3d at 188. Not surprisingly, then, the law is replete with examples of corporations that act
as agents for others. See id. at 194 n.40 (citing nonsignatory business entities acting as agents for
signatory corporations); see also Tractebel Energy Mktg., Inc. v. E.I. DuPont de Nemours & Co., 118 S.W.3d
60, 72 (Tex. App.- Houston [14th Dist.] 2003, pet. denied) ("[C]learly, a parent corporation could agree to
serve for some purposes as an agent of one of its lowly subsidiaries."). Many cases recognize that, in acting
as another's agent, the corporation must of necessity have acted through individual employees, as CSFB is
alleged to have done here. See, e.g., Merrill Lynch, 235 S.W.3d at 188-89. If the corporation truly acts as
another's agent, however, the mere recasting of its acts as those of its employees does not change the
corporation's status as agent. Therefore, we hold a plaintiff may not avoid a valid jury waiver simply by
suing the nonsignatory corporation vicariously for the acts of its agent employee, if the employee as agent
could invoke the waiver clause as an agent of the contract signatory. See Merrill Lynch, 235 S.W.3d at
188B89 ("If a plaintiff's choice between suing the corporation or suing the employees determines whether an
arbitration agreement is binding, then such agreements have been rendered illusory on one side.").
In any event, Developer asserted a direct theory of agency between the two corporations themselves: "The
agreement of CSFB LLC to make the promised loan effectively committed CSFB Mortgage Capital to make
the promised loan, if necessary." This allegation presupposes CSFB's actual or apparent authority, as an
agent, to bind the alleged principal, Mortgage Capital. See Ames v. Great S. Bank, 672 S.W.2d 447, 450
(Tex. 1984); Grace Cmty. Church v. Gonzales, 853 S.W.2d 678, 680 (Tex. App.- Houston [14th Dist.] 1993,
no writ).
We conclude that Developer has alleged that CSFB, the nonsignatory corporation, acted as the agent of the
signatory, Mortgage Capital.[3]
ALLEGATIONS ARE NOT ENOUGH
However, we further hold that a nonsignatory may not invoke a jury waiver merely because it is alleged to be
an agent of the signatory. We have found no controlling authority for relators' proposition that a
nonsignatory may invoke a contractual jury waiver under such circumstances. Neither Kaplan nor Prizker v.
Merrill Lynch, Pierce, Fenner and Smith, Inc., 7 F.3d 1110 (3d Cir. 1993), provides clear support for relators'
contention. In Kaplan, the Texas Supreme Court parenthetically discussed the plaintiff's pleadings but also
noted that the "undisputed facts" demonstrated an agency relationship. See Kaplan, 235 S.W.3d at 210.
Thus, Kaplan cannot be read as holding that allegations alone warrant extension of a jury-waiver clause to
contract nonsignatories. See id. In Pritzker, the plaintiff's allegations were not the sole basis for the court's
holding in that some sort of corporate agency was demonstrated by evidence in the record. See Prizker, 7 F.
3d at 1122. Thus, neither Kaplan nor Prizker presents with a fact pattern like that involved in this case, in
which a plaintiff's agency allegations are unaccompanied by any supporting evidence.[4]
Federal courts extending arbitration provisions to nonsignatories have relied on evidence demonstrating an
agency relationship with the contract signatory. See, e.g., Astra Oil Co. v. Rover Navigation, Ltd., 344 F.3d
276, 280 (2d Cir. 2003); Smith/Enron Cogeneration Ltd. P'ship, Inc. v. Smith Cogeneration Int'l, Inc., 198 F.
3d 88, 97 (2d Cir. 1999), cert. denied, 531 U.S. 815 (2000). At least one of those courts has tackled a
similar, but not identical, scenario in which a nonsignatory attempted to invoke an arbitration clause solely
on the basis of the plaintiff's alter-ego allegations. See McCarthy v. Azure, 22 F.3d 351 (1st Cir. 1994). The
court rejected the argument and offered the following observation:
We note that, although plaintiff has alleged that appellant is the alter ego of [the signatory], appellant has
never admitted the truth of the allegation. While not necessary to our decision, we are impelled to remark
the obvious: it would be strange if an equitable doctrine could be construed to allow a party, on one hand,
to resist the characterization that he is a corporation's alter ego, and, on the second hand, to allow him
simultaneously to use that characterization as a device to sidetrack the characterizer's suit.
Id. at 363 n.17 (emphasis added). Similarly, we conclude that one who does not admit to being the
signatory's agent, like CSFB, may not claim the trappings accompanying that designation, particularly when
another's constitutional right to a jury trial is intertwined.
Before a contractual jury waiver will be enforced, it must be shown to have been a voluntary and knowing act
"done with sufficient awareness of the relevant circumstances and likely consequences." Brady, 397 U.S. at
748, quoted in Prudential Ins. Co., 148 S.W.3d at 132. Where agency is undisputed, we may infer the
parties' intent that their jury waiver include the acts of their agents and employees. See Merrill Lynch, 235 S.
W.3d at 189; Tracinda, 502 F.3d at 224, 225. However, a plaintiff's mere allegations of agency, by
themselves, do not raise such an inference.
Because Texas law does not presume that an agency relationship exists, the party alleging agency has the
burden to prove it. See IRA Res., Inc. v. Griego, 221 S.W.3d 592, 597 (Tex. 2007). An enforceable contract
requires a "meeting of the minds" between both parties. Advantage Physical Therapy, Inc. v. Cruse, 165 S.
W.3d 21, 24 (Tex. App.- Houston [14th Dist.] 2005, no pet.). Absent proof of CSFB's agency relationship
with Mortgage Capital, we cannot assume that the parties intended to include CSFB in their contractual jury
waiver.
Therefore, we hold that the trial court did not abuse its discretion by declining to extend the jury waiver on
the basis of allegations alone. Because the right to a jury trial implicates constitutional guarantees, we will
not lightly infer or extend a contractual jury waiver absent proof that the parties intended it to include claims
against nonsignatories. See Credit Suisse, 257 S.W.3d at 490.
CONCLUSION
Accordingly, we deny the petition for writ of mandamus.
/s/ Adele Hedges
Chief Justice
Petition Denied and Opinion filed, December 11, 2008.
Panel consists of Chief Justice Hedges, Justice Boyce, and Senior Justice Hudson.*
[1] Respondent is the Honorable Elizabeth Ray, presiding judge of the 165th Judicial District Court of Harris
County.
[2] Developer also sued relators for statutory fraud, civil conspiracy, negligent misrepresentation, breach of
contract, and promissory estoppel. However, its common-law fraud claim was the only legal theory that
survived summary judgment and the subsequent appeal. See 1001 McKinney Ltd. v. Credit Suisse First
Boston Mortgage Capital, 192 S.W.3d 20, 24, 30 (Tex. App.- Houston [14th Dist.] 2005, pet. denied).
[3] Developer further argues that it has not sufficiently alleged an agency relationship because it has not
averred Mortgage Capital's right to control CSFB's actions. However, a petition can be sufficient if a claim
reasonably may be inferred from what is specifically stated. See Bank One, Tex., N.A. v. Stewart, 967 S.W.
2d 419, 430 (Tex. App.- Houston [14th Dist.] 1998, pet. denied). Thus, a petition is not necessarily defective
even if the plaintiff has not specifically alleged one of the elements of a claim. See SmithKline Beecham
Corp. v. Doe, 903 S.W.2d 347, 354 (Tex. 1995).
[4] Tracinda is not helpful on this point, either. Therein the district court made a factual finding that the
nonsignatory acted as the signatory's agent, and Tracinda did not challenge that finding on appeal. See
Tracinda, 502 F.3d at 222. We have no such factual finding by the trial court.
*Senior Justice J. Harvey Hudson sitting by assignment.