Caveat Emptor - Buyer of A Business Assets Should Get An Assignment of Arbitration Agreements

Is the lesson to be learned from Autonation USA Corp. v. Green (Tx. App. - Houston [1st Dist] 4/8/04). In an employment dispute, the employee preferred not to arbitrate. The employer did. The question, as it always is --- was there an agreement to arbitrate? Not an agreement signed by Autonation, which was the purchaser of the assets of Green's former employer, and a party with whom Green had agreed to arbitrate. All was not lost however, quoting from another case involving Autonation, the Court noted that the rule is:

An entity that was not a party to the arbitration agreement may not enforce the agreement's provisions unless that non-signatory entity falls into an exception, recognized under general equitable or contract law, that would allow such enforcement. One such exception is that, as with any contract, an assignee, such as a successor-in-interest, can be bound to the terms of an arbitration agreement signed by its assignor, such as a predecessor-in-interest, depending on the assignment's terms.

The problem was, this was an asset sale, and the arbitration agreements were not mentioned as assets, nor was there a separate assignment. The defendant's post-litigation attempt, "provid[ing] the trial court with affidavits and an authenticated acknowledgment; executed after this lawsuit was filed, as evidence that Green's former employer and the AutoNation parties interpreted the language of the asset-purchase agreements as assigning all employment arbitration agreements to [AutoNation]," was clever, but not successful. No ambiguity in the agreements, no reliance on extraneous evidence was proper.



Another potential drafting lesson was the court's willingness to find this case governed by the TAA, not the FAA, because the former was specified in the agreement in question. Although of no significance in this case except as to which method of review, mandamus or appeal, was appropriate, the FAA is generally preferable, and should have been available at the time of the drafting of the agreement. But for real problems look what can happen under Texas archaic rule which requires you to seek mandamus if it is under the FAA and interim appeal under the TAA. In Mony Securities Corp. (Tx. App - Corpus Christi 4/1/04) neither act was specified and Mony both appealed and sought mandamus. Without ruling whether it was under the FAA or TAA, the court refused to grant mandamus and then dismissed the appeal for want of jurisdiction without, as the dissent noted, ever ruling on the merits. One would have hoped that it was merely an April Fool's joke, but apparently not.