Forest Oil Corp. v. McAllen, No. 06-0178 (Tex. Aug. 29, 2008)(Willett)
(arbitration agreement enforced, commercial contact, fraudulent inducement claim barred by waiver of reliance,
release of claim)
Justice Willett delivered the opinion of the Court, in which Justice Hecht, Justice O'Neill, Justice Wainwright, Justice
Brister, Justice Green, and Justice Johnson joined.
The unequivocal disclaimer of reliance in the parties’ bargained-for settlement agreement
conclusively negates as a matter of law the element of reliance needed to support McAllen’
s fraudulent-inducement claim. Because Forest Oil has demonstrated that a valid
arbitration agreement exists, an agreement that empowers the arbitrators to determine
what issues are arbitrable, we reverse the court of appeals’ judgment and remand this
case to the trial court to compel arbitration in accordance with our opinion.
FOREST OIL CORPORATION AND DANIEL B. WORDEN v. JAMES ARGYLE MCALLEN, EL RUCIO LAND AND
CATTLE COMPANY, INC., SAN JUANITO LAND PARTNERSHIP, AND MCALLEN TRUST PARTNERSHIP; from
Hidalgo County; 13th district (13-05-00419-CV, ___ SW3d ___, 12-15-05)
stay order issued November 2, 2007, lifted
The Court reverses the court of appeals' judgment and remands the case to the trial court.
Chief Justice Jefferson delivered a dissenting opinion, in which Justice Medina joined.
════════════════════════════════════════════════════════════════════════
Forest Oil Corporation v. McAllen (Tex. 2008)
════════════════════════════════════════════════════════════════════════
Argued October 16, 2007
Justice Willett delivered the opinion of the Court, in which Justice Hecht, Justice O’Neill, Justice Wainwright, Justice
Brister, Justice Green, and Justice Johnson joined.
Chief Justice Jefferson filed a dissenting opinion, in which Justice Medina joined.
This commercial contract case asks whether an unambiguous waiver-of-reliance provision precludes a fraudulent-
inducement claim as a matter of law. Here, sophisticated parties represented by counsel in an arm’s-length
transaction negotiated a settlement agreement that included clear and broad waiver-of-reliance and release-of-
claims language. Because that agreement conclusively negates reliance on representations made by either side,
any fraudulent-inducement claim, lodged here to avoid an arbitration provision, is contractually barred. We
enforce the parties’ contract as written. Thus, we reverse the court of appeals’ judgment and remand to the trial
court to compel arbitration in accordance with our opinion.
1. Factual and Procedural Background
In 1999, Forest Oil Corporation settled a long-running lawsuit over oil and gas royalties and leasehold
development with James McAllen and others with interests in the McAllen Ranch.[1] The settlement agreement
resulted from a week-long mediation and released Forest Oil from “any and all” claims “of any type or character
known or unknown” that are “in any manner relating to” the McAllen Ranch Leases and the covered lands,
whether the claims sound in contract, tort, trespass or any other theory.[2] While this sweeping release resolved
the royalty and nondevelopment disputes, the parties reserved the right to arbitrate under the Texas General
Arbitration Act (TAA) claims “for environmental liability, surface damages, personal injury, or wrongful death
occurring at any time and relating to the McAllen Ranch Leases.” The parties also incorporated into the
settlement agreement a separate surface agreement that detailed ongoing care and remediation of the surface
estate.[3]
Importantly, the settlement agreement specifically disclaimed reliance “upon any statement or any representation
of any agent of the parties” in executing the releases contained in the agreement.[4] The parties also
acknowledged they were “fully advised” by legal counsel as to both the contents and consequences of the
release.
In 2004, McAllen sued Forest Oil to recover for environmental damage caused when Forest Oil allegedly “used its
access under the leases to the surface estate to bury highly toxic mercury-contaminated” material on the McAllen
Ranch. McAllen also alleged environmental and personal injuries caused when Forest Oil moved oilfield drilling
pipe contaminated with radioactive material from the McAllen Ranch to a nearby property, the Santillana Ranch,
which housed a sanctuary for endangered rhinoceroses.[5]
Forest Oil sought to compel arbitration under the settlement agreement, but McAllen argued the arbitration
provision was induced by fraud and thus unenforceable. McAllen recounts assurances during the 1999 settlement
negotiations that no environmental pollutants or contaminants existed on the property. McAllen claims an
unidentified lawyer for one of the four defendants “assured [McAllen] that there was no problem, no issue at all
that [he] would be concerned about,” and McAllen says he signed the agreement based on that specific
representation. McAllen claims that when this assurance of “no environmental issues” was given, Forest Oil knew
all about the radioactive-contaminated pipe and the mercury-contaminated material.
After an evidentiary hearing on Forest Oil’s motion to compel arbitration, the trial court denied the motion, and the
court of appeals affirmed, applying a no-evidence standard of review because the case was “an interlocutory
appeal from an order denying a motion to compel arbitration that involves the defense of fraudulent inducement.”
[6] After examining the testimony of McAllen and a former Forest Oil employee, the court of appeals concluded
there was some evidence to support the trial court’s determination that the arbitration provision was induced by
fraud.[7]
This interlocutory appeal followed.[8] Although the court of appeals treated Forest Oil’s argument as an
evidentiary challenge, this case fundamentally poses a legal question, not a factual one: does McAllen’s
disclaimer of reliance on Forest Oil’s representations negate the fraudulent-inducement claim as a matter of law?
We review this legal question de novo.[9]
2. Enforcement of the Parties’ Arbitration Agreement Under the Texas General Arbitration Act
We first address application of the TAA, which the parties’ settlement agreement specifically invoked. Federal and
Texas law strongly favor arbitration,[10] and we uphold arbitration agreements that comport with traditional
principles of contract law.[11] While an arbitration agreement procured by fraud is unenforceable,[12] the party
opposing arbitration must show that the fraud relates to the arbitration provision specifically, not to the broader
contract in which it appears.[13] If a trial court finds that the claim falls within the scope of a valid arbitration
agreement, the “court has no discretion but to compel arbitration and stay its own proceedings.”[14]
Forest Oil challenges the trial court’s refusal to compel arbitration on three grounds: (1) the waiver-of-reliance
provision in the contract precludes as a matter of law McAllen’s ability to show the reliance element of fraudulent
inducement; (2) McAllen cannot establish justifiable reliance on oral representations that directly contradict the
terms of a signed contract; and (3) McAllen cannot establish justifiable reliance on statements made by an
adversary. Because Forest Oil’s first argument defeats McAllen’s claim, we do not reach the other two.
3. Schlumberger Controls this Relevantly Similar Case: The Parties’ Broad Disclaimer of Reliance is
Dispositive
Forest Oil contends the waiver-of-reliance provision in the settlement agreement conclusively defeats McAllen’s
fraudulent inducement claim. We agree.
We considered today’s question in Schlumberger Technology Corp. v. Swanson, holding that a disclaimer of
reliance on representations, “where the parties’ intent is clear and specific, should be effective to negate a
fraudulent inducement claim.”[15] In that case—decided eighteen months before the settlement in the instant
case and construing virtually identical disclaimer language—Schlumberger and the Swansons agreed to a
complete release of claims to settle a dispute involving an underwater diamond-mining project off the South
African coast.[16] The Swansons sold their interests in the venture to Schlumberger for roughly $1 million,[17]
and the parties signed a settlement agreement, which included this waiver-of-reliance provision:
[E]ach of us [the Swansons] expressly warrants and represents and does hereby state . . . and represent . . . that
no promise or agreement which is not herein expressed has been made to him or her in executing this release,
and that none of us is relying upon any statement or representation of any agent of the parties being released
hereby. Each of us is relying on his or her own judgment and each has been represented by Hubert Johnson as
legal counsel in this matter. The aforesaid legal counsel has read and explained to each of us the entire contents
of this Release in Full, as well as the legal consequences of this Release . . . .[18]
After learning that Schlumberger later sold the interest to DeBeers for about $4 million, the Swansons sued,
claiming Schlumberger had fraudulently induced them to accept the low-price buyout.[19] They maintained that
when Schlumberger entered into the settlement, it knew that the Swansons’ interest had a far higher value.[20]
Our decision in Schlumberger assumed that (1) the company knew during negotiations that it was misrepresenting
the value of the interest, and (2) the misrepresentations were made with the intent of inducing the Swansons to
settle.[21] Despite these assumptions, we held as a matter of law that the Swansons could not show fraudulent
inducement.[22]
McAllen argues that Schlumberger is not controlling because we restricted that holding to the record, and today’s
case involves “notable distinctions” and “material fact differences.” McAllen’s chief argument to distinguish
Schlumberger is that Schlumberger “focuses on representations that were made regarding the underlying
agreement’s core subject matter.” The dispute in Schlumberger concerned the value of the Swansons’ interest in
the sea-diamond project, and the alleged misrepresentation, as described by McAllen, “pertained to the very thing
disputed, which was resolved ‘once and for all’ in the settlement.”[23] This case is different, says McAllen,
because the litigation that led to the 1999 settlement concerned royalty underpayments and mineral
underdevelopment, issues having nothing to do with the environmental and personal-injury torts that sparked the
current litigation and were excepted from the settlement agreement. That is, while the misrepresentation in
Schlumberger “pertained to the very matter negotiated, settled, and released”—a factor that McAllen terms “the
primary basis” for the Court’s holding—the misrepresentation here did not concern known disputed matters (which
were settled and released) but potential future disputes (which were set aside and reserved). And the disclaimer
applies solely to representations about the former, not the latter. Under this banner, McAllen makes three
subsidiary arguments.
First, McAllen stresses that the parties’ settlement in Schlumberger definitively ended their valuation dispute.
McAllen points out that the settled dispute was the only dispute, meaning that the agreed-to disclaimer was
sufficiently specific to bar a later fraudulent-inducement suit alleging one side misled the other about valuation.
[24] By contrast, in this case, ending the royalty underpayment and mineral underdevelopment dispute was not
the sole purpose of the settlement agreement, McAllen argues, making the disclaimer insufficiently specific to be
applied to every representation made by Forest Oil.
McAllen identifies a valid factual distinction, but we fail to see how the disclaimer’s preclusive effect should be
different where, as here, the parties agreed to resolve litigated claims and arbitrate future ones. Although we
noted in Schlumberger that the company’s representations about the project’s value and feasibility led to “the
very dispute that the release was supposed to resolve,”[25] this language is more accurately interpreted as
emphatic language, not limiting language. Our analysis in Schlumberger rested on the paramount principle that
Texas courts should uphold contracts negotiated at arm’s length by “knowledgeable and sophisticated business
players” represented by “highly competent and able legal counsel,” a principle that applies with equal force to
contracts that reserve future claims as to contracts that settle all claims.[26] Essentially, Schlumberger holds that
when knowledgeable parties expressly discuss material issues during contract negotiations but nevertheless elect
to include waiver-of-reliance and release-of-claims provisions, the Court will generally uphold the contract. An all-
embracing disclaimer of any and all representations, as here, shows the parties’ clear intent. A “once and for all”
settlement may constitute an additional factor urging rejection of fraud-based claims, but a freely negotiated
agreement to settle present disputes and arbitrate future ones should also be enforceable. Moreover, contrary to
McAllen’s assertions, the parties’ discussions here did in fact address environmental matters. Not only were such
matters “very important” to McAllen during settlement negotiations, as he testified, the parties also negotiated the
surface agreement, which directly touches on the subject of Forest Oil’s alleged fraud: environmental
contamination on the McAllen Ranch. The surface agreement, incorporated into the settlement agreement,
required Forest Oil to remove hazardous material and remediate past and future contamination. Therefore, the
parties expressly negotiated the treatment of surface issues; environmental issues were an important aspect of
the contract. Although the settlement agreement does not preclude all future environmental disputes, it does
require arbitration of them.
Second, McAllen contends the settlement language itself compels a different result from Schlumberger. McAllen
maintains that the disclaimer he signed is limited by its terms to representations about the matters released and
settled, not to misrepresentations about matters reserved and excluded from the settlement. Here, the waiver-of-
reliance provision states: “Each of the [plaintiffs] expressly warrants and represents and does hereby state and
represent that no promise or agreement which is not herein expressed has been made to him, her, or it in
executing the releases contained in this Agreement . . . .”[27] McAllen claims the isolated phrase “in executing the
releases” limits the waiver’s application only to released claims because the phrase refers to “releases” in the
plural. Because an arbitration provision is not a release, he reasons, the parties did not waive reliance with
respect to misrepresentations concerning the matters reserved for arbitration. This argument discounts the
second half of the same sentence, which makes clear the parties intended an exhaustive waiver unconfined to
claims specifically released: “none of them is relying upon any statement or any representation of any agent of
the parties being released hereby.”[28] Contrary to McAllen’s interpretation, a natural and contextual reading,
given the repeated and all-encompassing “any” modifier, is not nearly so restrictive. It rather plainly means the
parties, “in executing the releases,” were not led astray by any representations whatsoever, even representations
about nonreleased claims since those, too, can induce someone to release other claims. The disclaimer’s words
do not say what McAllen construes them to say, that there was “no promise or agreement concerning the
released claims which is not herein expressed”; those four italicized words do not exist. Waiving reliance on
statements made in executing the release provisions encompasses both claims released and reserved because
even statements about the latter can nudge assent to settle the former. Notably, in this case, the release itself (in
a section titled “Releases” no less) specifically requires arbitration, making clear that at the time of the agreement,
the parties disclaimed reliance with respect to all decisions being made during negotiations, including the decision
to resolve future disputes regarding environmental and personal-injury claims via arbitration. It is difficult to argue
that Forest Oil’s alleged fraud in obtaining arbitration bears no relation to the release when the arbitration
requirement appears in the release. It is similarly difficult to square McAllen’s argument with this explicit language
from the settlement agreement, which incorporated the surface agreement: “disputes relating to this Agreement . .
. will be resolved by arbitration.”[29]
Third, McAllen argues that fraudulent inducement “is essentially a meeting-of-the-minds argument,” and there was
no such meeting here regarding the arbitration agreement because Forest Oil knew all along of the potential for
environmental claims while simultaneously assuring McAllen “there [were] no issues having to do with the
surface.” The parties thus had no common understanding of the facts underlying the contract, according to
McAllen. But the settlement agreement itself belies this argument. The parties agreed that they might disagree
and decided to arbitrate any environmental or personal-injury disputes that might later arise. If they were certain
such disagreements would never arise, there would have been no need to reserve future claims for arbitration.
The act of specifically carving out this discrete category of contamination claims shows that McAllen in fact placed
little trust in Forest Oil’s assurances that there were “no issues having to do with the surface” and that both
parties recognized the possibility that McAllen might pursue future claims. Moreover, there is an arbitration
provision in the environment-focused surface agreement itself, not only in the broader settlement agreement.
According to the surface agreement, “[s]urface issues which arise in connection with the Leases” must be
arbitrated. McAllen knew environmental disputes might arise and agreed to arbitrate these disputes.
It is true that Schlumberger noted a disclaimer of reliance “will not always bar a fraudulent inducement claim,”[30]
but this statement merely acknowledges that facts may exist where the disclaimer lacks “the requisite clear and
unequivocal expression of intent necessary to disclaim reliance” on the specific representations at issue.[31]
Courts must always examine the contract itself and the totality of the surrounding circumstances when determining
if a waiver-of-reliance provision is binding. We did so in Schlumberger, but since courts of appeals seem to
disagree over which Schlumberger facts were most relevant,[32] we now clarify those that guided our reasoning:
(1) the terms of the contract were negotiated, rather than boilerplate, and during negotiations the parties
specifically discussed the issue which has become the topic of the subsequent dispute; (2) the complaining party
was represented by counsel; (3) the parties dealt with each other in an arm’s-length transaction; (4) the parties
were knowledgeable in business matters; and (5) the release language was clear. These factors were each
present in Schlumberger, and they are each present in this case.
Refusing to honor a settlement agreement—an agreement highly favored by the law[33]—under these facts would
invite unfortunate consequences for everyday business transactions and the efficient settlement of disputes. After-
the-fact protests of misrepresentation are easily lodged, and parties who contractually promise not to rely on
extra-contractual statements—more than that, promise that they have in fact not relied upon such statements—
should be held to their word. Parties should not sign contracts while crossing their fingers behind their backs.
McAllen accuses Forest Oil of deceit, but Forest Oil could make the same allegation against McAllen—who by his
own admission and in writing is claiming the opposite now of what he expressly disclaimed then. It is not asking too
much that parties not rely on extra-contractual statements that they contract not to rely on (or else set forth the
relied-upon representations in the contract or except them from the disclaimer). If disclaimers of reliance cannot
ensure finality and preclude post-deal claims for fraudulent inducement, then freedom of contract, even among
the most knowledgeable parties advised by the most knowledgeable legal counsel, is grievously impaired.
We conclude the arbitration requirement is integral to the overall release and the settlement agreement’s waiver-
of-reliance language applies by its terms to the parties’ commitment to arbitrate. None of McAllen’s arguments
materially distinguishes our holding in Schlumberger: “a release that clearly expresses the parties’ intent to waive
fraudulent inducement claims, or one that disclaims reliance on representations about specific matters in dispute,
can preclude a claim of fraudulent inducement.”[34] Today’s holding should not be construed to mean that a mere
disclaimer standing alone will forgive intentional lies regardless of context. We decline to adopt a per se rule that
a disclaimer automatically precludes a fraudulent-inducement claim, but we hold today, as in Schlumberger, that
“on this record,” the disclaimer of reliance refutes the required element of reliance.
4. Scope of the Arbitration Clause
Having determined that McAllen’s fraudulent-inducement claim cannot defeat the arbitration provision in the 1999
settlement agreement, we now turn to whether McAllen’s claims fall within the scope of that arbitration provision.
[35] Generally, after finding an agreement valid, a court considers the agreement’s terms to determine which
issues are arbitrable.[36] This arbitration agreement, however, removes the “scope determination” from the court
and places it with the arbitration panel.[37] This provision, shrinking the court’s traditional role and expanding the
arbitrators’, is not challenged on legal or public policy grounds.[38] Accordingly, we have no discretion but to
direct the trial court to compel arbitration and stay McAllen’s litigation.[39]
The remaining question is what should happen to the claims brought by the nonsignatory plaintiffs who are not
parties to the arbitration requirement (or to this appeal). Forest Oil concedes the trial court cannot order the
nonsignatory plaintiffs to arbitration. Section 171.025(a) of the Civil Practice and Remedies Code provides that “[t]
he court shall stay a proceeding that involves an issue subject to arbitration if an order for arbitration or an
application for that order is made under this subchapter.” Section 171.025(b) expressly allows for the severance
of nonarbitrable issues.[40] Because the trial court is better positioned to make that determination in this instance,
we remand the severance issue to that court.
However, as noted above, McAllen and Forest Oil agreed to arbitrate disputes over what the agreement covers. In
terms of timing, the arbitrators should decide scope before the trial court decides severance. It is impractical (and
probably impossible) for the trial court to decide the severability of the nonsignatories’ claims before the
arbitration panel has decided the scope of the signatories’ claims. Accordingly, the trial court, in order to make an
informed severance decision, should defer its decision until the arbitrators decide which issues are arbitrable.
5. Conclusion
McAllen may be correct that “[t]he facts of this case are not the facts of Schlumberger”—every case involves
unique facts—but the decisive ones are assuredly close enough that Schlumberger binds this relevantly similar
case. The unequivocal disclaimer of reliance in the parties’ bargained-for settlement agreement conclusively
negates as a matter of law the element of reliance needed to support McAllen’s fraudulent-inducement claim.
Because Forest Oil has demonstrated that a valid arbitration agreement exists, an agreement that empowers the
arbitrators to determine what issues are arbitrable, we reverse the court of appeals’ judgment and remand this
case to the trial court to compel arbitration in accordance with our opinion.
_____________________________________________
Don R. Willett
Justice
OPINION DELIVERED: August 29, 2008
--------------------------------------------------------------------------------
[1] This appeal does not involve every party to the 1999 settlement agreement at issue. The defendants in the
litigation that resulted in that settlement were Forest Oil Corporation, Shell Oil Company, Conoco Incorporated,
and Fina Oil & Chemical Company, along with divisions of these entities. The plaintiffs included various business
entities, individuals, and individual trusts. These parties settled their dispute in June 1999.
Five years later, James McAllen and several others filed suit against Forest Oil, its employee (Daniel B. Worden),
and ConocoPhillips Corporation. ConocoPhillips was nonsuited, so only Forest Oil and Worden are petitioners
here. They are referred to collectively as “Forest Oil.” Four plaintiffs to the pending litigation—James McAllen, El
Rucio Land & Cattle Company, San Juanito Land Partnership, and McAllen Trust Partnership—are respondents
to this appeal and referred to collectively as “McAllen,” unless otherwise noted. These four plaintiffs admit they
are bound by the 1999 settlement agreement either as signatories or successors in interest thereto. Several
other plaintiffs are not parties to this appeal, and Forest Oil concedes the trial court lacked authority to require
these other plaintiffs to arbitrate the current dispute.
[2] The release language reads:
[The plaintiffs] generally and unconditionally RELEASE, DISCHARGE, and ACQUIT [the defendants] of and from
any and all claims and causes of action of any type or character known or unknown, which they presently have or
could assert, including but not limited to all claims and causes of action (i) in any manner relating to, arising out of
or connected with the McAllen Ranch Leases, or any of them, (ii) in any manner relating to, arising out of or
connected with the Lands covered by the McAllen Ranch Leases, or any of them, (iii) in any manner relating to,
arising out of or connected with any implied covenants pertaining to the McAllen Ranch Leases, or any of them,
including (without limitation) implied covenants or obligations with respect to drainage, development, unitization,
marketing or the administration of the McAllen Ranch Leases . . . (vi) all claims and causes of action that the
[plaintiffs] asserted or could have asserted in the Lawsuit including (without limitation) matters arising or sounding
in contract, in tort (including intentional torts, fraud, conspiracy, and negligence), in trespass, for forfeiture, or
under any other theory or doctrine, including any claim for attorneys fees, costs, and sanctions; and the [plaintiffs]
hereby declare that all such claims and causes of action have been fully compromised, satisfied, paid and
discharged; except that the [plaintiffs] reserve and except from this release only (a) their rights to receive the
consideration (monetary and otherwise) provided in this Agreement, (b) their rights to accrued but unpaid
royalties . . . , (c) any rights and claims arising under the McAllen Ranch Leases . . . after the Effective Date of
this Agreement, (d) any rights or claims they may have, if any, for environmental liability, surface damages,
personal injury, or wrongful death occurring at any time and relating to the McAllen Ranch Leases, (e) the funds
held [pursuant to this Agreement], and (f) any intentional act done in contravention of this Agreement or the
McAllen Ranch Leases between the date of execution hereof and the Effective Date. Any disputes over any of the
above items excepted and reserved from this release shall be resolved in arbitration pursuant to [this Agreement].
[3] The surface agreement required that oil companies remove nonnatural materials from the sites of abandoned
wells and “not store or dispose of any hazardous materials on the surface of the Leases.” In addition, the surface
agreement states plainly that surface issues shall be addressed by arbitration: “Surface issues which arise in
connection with the Leases shall be subject to that certain Arbitration Agreement set forth and described in the
Settlement Agreement. The specific issues addressed below shall become part of the Settlement Agreement and
shall be enforceable in accordance with the terms of such Agreement.”
[4] The waiver-of-reliance provision reads:
[1] Each party acknowledges and confirms that each has had the opportunity to consult with counsel and has
been fully advised by counsel prior to the execution of this Agreement.
[2] Each of the Plaintiffs and Intervenors expressly warrants and represents and does hereby state and represent
that no promise or agreement which is not herein expressed has been made to him, her, or it in executing the
releases contained in this Agreement, and that none of them is relying upon any statement or any representation
of any agent of the parties being released hereby. Each of the Plaintiffs and Intervenors is relying on his, her, or
its own judgment and each has been represented by his, her, or its own legal counsel in this matter. The legal
counsel for Plaintiffs have read and explained to each of the Plaintiffs the entire contents of the releases
contained in this Agreement as well as the legal consequences of the releases. . . .
[3] Defendants expressly represent and warrant and do hereby state and represent that no promise or agreement
which is not herein expressed has been made to them in executing the releases contained in this Agreement, and
that they are not relying upon any statement or representation of any of the parties being released hereby.
Defendants, and each of them are relying upon its own judgment and each has been represented by its own legal
counsel in this matter. The legal counsel for Defendants have read and explained to them the entire contents of
the releases contained in this Agreement as well as the legal consequences of the releases.
[5] The plaintiffs filed a joint petition asserting negligence, gross negligence, trespass, nuisance, strict liability,
negligence per se, misrepresentation, fraud, fraudulent concealment, and intentional battery. The facts giving rise
to these causes of action took place on two properties: the Santillana Ranch and the McAllen Ranch. We will refer
to the claims arising on the McAllen Ranch as the “McAllen Ranch claims” and claims arising on the Santillana
Ranch as the “Santillana Ranch claims.”
Forest Oil produces oil on the McAllen Ranch pursuant to the McAllen Ranch Leases; this relationship was the
basis of the original 1999 litigation that produced the now-disputed settlement agreement. The Santillana Ranch
is owned by John R. Willis Management Partnership; this entity is one of the plaintiffs to the underlying suit that
are not parties to this appeal. See supra note 1.
The Third Amended Petition claims Forest Oil buried radioactive material on the McAllen Ranch, resulting in
groundwater and soil contamination. The petition does not assert personal injuries related to the McAllen Ranch.
McAllen tried to establish a rhinoceros sanctuary on the Santillana Ranch and asked Forest Oil, which has no
lease on that ranch, to donate oilfield pipe to be used as pen enclosures. Forest Oil took pipe from the McAllen
Ranch to the Santillana Ranch, where McAllen and his employees worked on the rhinoceros pens. McAllen claims
this pipe was radioactive and has produced both environmental and personal injuries.
Forest Oil claims that because the pipe giving rise to the Santillana Ranch claims came from the McAllen Ranch,
the Santillana Ranch claims also fall within the settlement agreement’s arbitration clause, which requires
arbitration of claims “arising out of or relating to the McAllen Ranch Leases.” We do not reach this issue.
[6] ___ S.W.3d ___, ___.
[7] Id. at ___.
[8] We have jurisdiction to hear an appeal from an interlocutory order denying arbitration if the court of appeals’
decision conflicts with our precedent. See Tex. Gov’t Code §§ 22.001(a)(2), 22.225 (c); Tex. Civ. Prac. & Rem.
Code § 171.098; Certain Underwriters at Lloyd's of London v. Celebrity, Inc., 988 S.W.2d 731, 733 (Tex. 1998).
As explained below, the court of appeals’ decision conflicts with Schlumberger Technology Corp. v. Swanson, 959
S.W.2d 171 (Tex. 1997).
[9] When an appeal from a denial of a motion to compel arbitration turns on a legal determination—here, the
preclusive effect of the contract’s disclaimer—we apply a de novo standard. J.M. Davidson, Inc. v. Webster, 128 S.
W.3d 223, 227 (Tex. 2003) (“The trial court’s determination of the arbitration agreement’s validity is a legal
question subject to de novo review.”); see also In re D. Wilson Constr. Co., 196 S.W.3d 774, 781 (Tex. 2006).
[10] Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995); see also In re FirstMerit Bank, N.A., 52 S.
W.3d 749, 753 (Tex. 2001). Whether a case is governed by the Federal Arbitration Act (FAA) or the TAA, many of
the underlying substantive principles are the same; where appropriate, this opinion relies interchangeably on
cases that discuss the FAA orand TAA.
[11] In re D. Wilson Constr. Co., 196 S.W.3d at 781; Webster, 128 S.W.3d at 227.
[12] Tex. Civ. Prac. & Rem. Code § 171.001(b) ("A party may revoke the agreement only on a ground that exists
at law or in equity for the revocation of a contract."); see also Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681,
687 (1996); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738 (Tex. 2005).
[13] See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403–04 (1967). If a fraudulent-inducement
claim attacks the broader contract, then the arbitrator, not a court, considers the matter. See In re FirstMerit
Bank, N.A., 52 S.W.3d at 758. In this case, we assume that the alleged fraud went to the arbitration agreement
itself since Forest Oil does not argue otherwise. See Tex. R. App. P. 53.2(f); Ramos v. Richardson, 228 S.W.3d
671, 673 (Tex. 2007).
[14] In re FirstMerit Bank, N.A., 52 S.W.3d at 753–54; see also Tex. Civ. Prac. & Rem. Code § 171.021.
[15] 959 S.W.2d 171, 179 (Tex. 1997).
[16] Id. at 174.
[17] Id.
[18] Id. at 180. The disclaimer in today’s case is virtually the same. See supra note 4.
[19] Id. at 174.
[20] Id.
[21] Id. at 178.
[22] Id. at 181.
[23] Id. at 179–81.
[24] Id. at 180 (“The sole purpose of the release was to end the dispute about the value of this commercial project
between Schlumberger and the Swansons once and for all.”).
[25] Id. accurately interpreted as emphatic language rather than limiting language. The reasoning of the case
applies broadly to contracts generally, and we see no reason to accept McAllen’s restrictive interpretation.
[26] Id.
[27] See supra note 4.
[28] Id.
[29] See also supra note 3 (“Surface issues which arise in connection with the Leases shall be subject to that
certain Arbitration Agreement set forth and described in the Settlement Agreement.”).
[30] 959 S.W.2d at 181.
[31] Id. at 179.
[32] See, e.g., Warehouse Assocs. Corporate Ctr. II, Inc. v. Celotex Corp., 192 S.W.3d 225, 230–34 (Tex. App.—
Houston [14th Dist.] 2006, pet. filed) (limiting Schlumberger to cases in which the parties resolve a long-running
dispute that is also the topic of the alleged fraudulent representation); Coastal Bank SSB v. Chase Bank of Texas,
N.A., 135 S.W.3d 840, 844 (Tex. App.—Houston [1st Dist.] 2004, no pet.) (considering the broad language of the
waiver-of-reliance provision to be the controlling factor); IKON Office Solutions, Inc. v. Eifert, 125 S.W.3d 113,
124–28 (Tex. App.—Houston [14th Dist.] 2003, pet. denied) (applying Schlumberger in a factual situation that did
not involve a settlement agreement or a contract that terminated the parties’ relationship); John v. Marshall Health
Servs., Inc., 91 S.W.3d 446, 450 (Tex. App.—Texarkana 2002, pet. denied) (refusing to apply Schlumberger
because “[h]ere, the contract was the beginning, not the end, of the relationship between” the parties).
[33] See Transp. Ins. Co. v. Faircloth, 898 S.W.2d 269, 280 (Tex. 1995) (“Settlements are favored because they
avoid the uncertainties regarding the outcome of litigation, and the often exorbitant amounts of time and money to
prosecute or defend claims at trial.”); Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 855 (Tex. 1980)
(Campbell, J., concurring) (“Settlement agreements are highly favored in the law because they are a means of
amicably resolving doubts and preventing lawsuits.”).
[34] 959 S.W.2d at 181.
[35] The TAA allows personal-injury claims to be arbitrated when each party, on advice of counsel, has agreed to
do so in a writing signed by the parties and their attorneys. Tex. Civ. Prac. & Rem. Code § 171.002(c). All parties
to this appeal—or their predecessors in interest—and their attorneys signed the settlement agreement, which
contains the arbitration agreement, so there is no statutory prohibition to arbitrating these claims.
[36] In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001).
[37] The arbitration provision reads: “All disputes arising out of or relating to the McAllen Ranch Leases,
including, without in any way limiting the foregoing, disputes relating to this Agreement or disputes over the scope
of this arbitration clause, will be resolved by arbitration in Houston, Texas, using three neutral arbitrators.” While
this provision clearly encompasses the McAllen Ranch claims, it is not clear that it includes the Santillana Ranch
claims.
[38] In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 129–30 (Tex. 2004) (“As a rule, parties have the right to
contract as they see fit as long as their agreement does not violate the law or public policy.”); see also Fairfield
Ins. Co. v. Stephens Martin Paving, LP, 246 S.W.3d 653, 663–64 (Tex. 2008).
[39] Tex. Civ. Prac. & Rem. Code § 171.021; In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999).
[40] Tex. Civ. Prac. & Rem. Code § 171.025(b) (“The stay applies only to the issue subject to arbitration if that
issue is severable from the remainder of the proceeding.”).