Texas Supreme Court interprets a binding mandatory arbitration clause against successor assignees related to the purchase and sale of property and equipment.
By Kirk M. Tracy
In the recent Texas Supreme Court (“Supreme Court”) decision in Wagner v. Apache Corp., the Supreme Court affirmed the court of appeals’ judgment regarding an indemnity clause and an arbitration clause in a land purchase agreement, related to five lawsuits seeking damages for alleged environmental contamination caused by Apache’s operation of assets prior to selling them to Wagner Oil. Also at issue was whether non-signatory assignees were bound by an agreement to arbitrate. “The trial court held that the claims fell within the exception [for claims in a third-party action] and should not be arbitrated. The court of appeals reversed, holding that the claims [brought via an arbitration demand] did not fall within the exception. The court of appeals also held that the non-signatory assignees were bound by the agreement under a theory of assumption.” The Supreme Court affirmed.
In 2001, Wagner Oil purchased several assets from Apache, including oil and gas wells, mineral leases and fee interests, and equipment used in connection with operation of the oil and gas wells. The president of Wagner Oil signed the Purchase and Sale Agreement (PSA), which included an indemnification provision, in which Wagner Oil agreed to “defend, indemnify, release and hold harmless” Apache from certain losses, damage, claims, etc., “in connection with (i) any of the claims, costs, expenses, liabilities and obligations assumed by [Wagner].” The PSA also contained an arbitration clause mandating that any dispute arising out of the PSA be arbitrated in Houston, but with a savings clause stating,
Notwithstanding the above in the event a third party brings an action against Buyer or Seller concerning this Agreement or the Assets or transactions contemplated herein, Buyer and Seller shall not be subject to mandatory arbitration under this section and Buyer or Seller shall each be entitled to assert their respective claims, if any, against each other in such third party action.
The PSA also provided it was “binding upon, and shall inure to the benefit of, the Parties hereto, and their respective successors and assigns.” At the same time, Apache assigned the assets to Wagner Oil via a separate document (the “Apache-Wagner Assignment”).
In turn, Wagner Oil assigned the assets to its president and two other corporations (“Wagner Assignees”), in different percentages (the “Wagner-Wagner Assignment”). The Wagner Oil Assignment stated it was “subject to all terms, provisions, and conditions contained in” the Apache-Wagner assignment.
“Beginning in 2010, third-party surface landowners filed five lawsuits in Louisiana against Apache, seeking damages for alleged environmental contamination caused by Apache’s operation of the assets before it sold them to Wagner Oil.” Apache filed a demand for arbitration with the American Arbitration Association (“AAA”), demanding arbitration in Harris County against Wagner Oil for indemnity and defense, including the issue of whether Wagner Oil and the Wagner Assignees owed Apache the $15 million it spent in defense of those lawsuits, related litigation, and settlement. Wagner Oil and the Wagner Assignees filed a declaratory judgment action in Tarrant County district court seeking a determination that: (1) the Wagner Assignees are not parties to the PSA and therefore not bound to the arbitration and indemnity clauses; (2) the Wagner-Wagner Assignment does not obligate the Wagner Assignees to defend or indemnify Apache; (3) Apache was not a third-party beneficiary of the Wagner-Wagner Assignment; and (4) a claim for defense and indemnity arising from a third-party lawsuit was not subject to mandatory arbitration. A venue motion was also filed.
The trial court granted the Wagner plaintiffs’ application to stay the arbitration proceedings Apache had initiated and denied the motion to transfer venue. Apache filed an interlocutory appeal. The court of appeals reversed, holding that the PSA included a valid agreement to arbitrate and that the Wagner Assignees were bound by the arbitration clause because the PSA provided it was binding on the parties to the PSA (Wagner Oil and Apache) and “their respective successors and assigns.” This holding was based on the fact that the Wagner-Wagner Assignment provided that “it was subject to all terms in the [Apache-Wagner Assignment] and that the assignees assumed and agreed to be bound by the obligations in the [Apache-Wagner Assignment].” Finally, the court of appeals held that the declaratory judgment action filed by Apache did not fall within the third-party action carve-out of the PSA (quoted above) and therefore must proceed to arbitration rather than a court action. The third-party carve-out was interpreted to be limited to cross-claims within a third-party action, supporting an “overriding theme” of the PSA that Apache was to walk away from liabilities, other than those specifically retained, and paired with a broad indemnification provision. The Supreme Court affirmed.
The Supreme Court agreed that, “if the parties wish to bring cross-claims against each other following a third-party action, they may do so in the third-party action and are not required to arbitrate,” although that does not prevent the parties choosing to arbitrate such claims. Here, Apache chose instead to seek arbitration separate from the third-party actions.
As noted, the Supreme Court also affirmed the holding that the Wagner Oil Assignees were bound by the arbitration clause in the PSA, despite being non-signatories. Analyzing applicable case law related to the Federal Arbitration Act (“FAA”), the court determined that the Wagner-Wagner Assignment contained words of assumption and agreement for the Wagner Assignees to be bound by the obligations under the PSA. “They assumed and agreed to be bound by ‘all’ obligations imposed on Wagner Oil. All obligations means all obligations.”
Further, the Supreme Court rejected other arguments that the Apache-Wagner Assignment did not contain adequate express words of assignment, which would mean Wagner Oil was not bound to the arbitration clause under the Apache-Wagner Assignment and therefore cut the chain to the Wagner Assignees. The Supreme Court’s rejection of this argument was, in large part, due to the fact Wagner Oil was a signatory to both the PSA and the Apache-Wagner Assignment, which provided that it was “subject to the terms and conditions” of the PSA. No express words of assumption were required in the Apache-Wagner Assignment to bind Wagner Oil in this scenario because it was already bound as a signatory to the PSA (i.e., Wagner Oil did not need to expressly state it was bound to its own obligations under the PSA); whereas, such express words were required to bind the Wagner Assignees and indeed were found to exist in the Wagner-Wagner Assignment.
The Supreme Court remanded the matter for the district court to order arbitration. It appears, based on the ruling, that had Apache chosen to file cross-claims against Wagner Oil in the underlying environmental litigations, rather than filing a demand for arbitration with the AAA, such cross-claims would not have been subject to the mandatory arbitration provisions of the PSA. However, Wagner Oil and the Wagner Assignees could not compel Apache to do so.
Understanding the terms of not only the most recent assignment agreement, but also any preceding contracts in a chain of transactions (here, the PSA and the Apache-Wagner Assignment), is required to understand one’s ongoing obligations as a property owner and assignee.
 Wagner v. Apache Corp., 627 S.W.3d 277, 280-81 (Tex. 2021) rehearing denied by Wagner v.
Apache Corp., 2021 Tex. LEXIS 814 (Tex., Sept. 3, 2021).
 Id. at 280.
 Id. at 281 (emphasis added).
 Id. at 281; Apache Corp. v. Wagner, 621 S.W.3d 285, 292 (Tex. App.—Forth Worth 2018).
 Wagner, 627 S.W.3d at 281.
 Id. at 282.
 Id. at 283-84.
 The closing language in the carve-out (“shall each be entitled to assert their respective claims, if any, against each other in such third party action”) limited such judicial claims to being brought only within the respective third-party actions. If a party did not file such cross-claims within a third-party action, arbitration was the only other option. Id. (“Any doubts as to the agreement’s scope and whether the carve-out applies to indemnity disputes filed outside of third-party actions should be resolved in favor of arbitration.”) (citing Rachal v. Reitz, 403 S.W.3d 840, 850 (Tex. 2013)).
 Id. at 286.
 Id. at 285-87.
 Id. at 286-87.