The Texas Supreme Court has sided with a Dallas car auction company in its embezzlement dispute with an auto dealership, concluding that when arbitration agreements are in place, arbitrators are generally required to resolve such disputes.
In a Sept. 1 decision, the state’s high court overruled the 10th District Court of Appeals’ finding that the “question of whether a case should be sent to arbitration is a gateway issue that courts must decide at the outset of litigation.” The high court based its reasoning on a recent 2023 Texas Supreme Court decision in TotalEnergies E&P USA Inc. v. MP Gulf of Mexico LLC.
The dispute was initially brought by Lone Star Cleburne Autoplex, which argued that two of its former employees, Robert Russell and Robert Hansen, conspired with Alliance Auto Auction of Dallas to embezzle money from Lone Star, resulting in the loss of millions of dollars. Alliance then made legal arguments to block the lawsuit in trial court and compel an arbitrator to resolve the issue.
The car auction company and the two Lone Star employees were registered with a third-party service provider called AuctionACCESS, which permitted Alliance to avail itself to arbitration provisions in the agreement. The appeals court, however, upheld the trial court’s decision to deny Alliance’s motion to require arbitration in the case.
“Accordingly, we grant Alliance’s petition for review, and, without hearing oral argument … we reverse the court of appeals’ judgment and remand the case to that court to consider Lone Star’s arguments, along with any other issues the parties raised that the court did not reach, in light of our holdings in TotalEnergies,” the high court said.
Lone Star contends that Alliance is a third-party beneficiary of the arbitration agreement – not a party. In turn, the car auction company had only an option of turning to the provisions of the arbitration agreement, the dealership alleges. It is not clear that this particular agreement delegates authority to an arbitrator, the dealership has argued.
As a result, Lone Star argues that the facts of its case are distinct from the TotalEnergies decision, according to the high court’s ruling.