Texas Business Court Decision – Tuesday, November 10, 2026

No. 26-BC11B-0116   Keith Chapman, etc. v. Nicholas Flores, et al.  (Eleventh Division, Judge Dorfman) 2026 Tex. Bus. 79  26-bc11b-0116-chapman-v-flores-2026-tex-bus-79.pdf

Arbitration.

Background:

Chapman and Flores each own 50% of Kyomera Ventures (Ventures). Chapman sued Flores and Kyomera Management, LLC (KM) asserting Business Court jurisdiction under Tex. Gov’t Code Sec. 25.004(b). He asserted direct claims for breach of fiduciary duty, breach of contract, and fraud. He also asserted derivative  claims on Ventures’ behalf for breach of fiduciary duty and conversion. The claims arise out of alleged breaches of Ventures’ LLC Agreement. Paragraph 17 of that agreement requires the two members to mediate “any matter” on which they cannot agree and then submit it binding arbitration under American Arbitration Association (AAA) rules. The parties mediated the matters at issue without success. Defendants moved to compel arbitration and to abate the suit. Chapman did not dispute that Paragraph 17 is a valid arbitration agreement, asserting, instead, that his claims fall outside its scope, that KM is a non-signatory and cannot assert it, and that nothing binds Ventures to arbitrate the claims asserted on its behalf.

Issues:

1. Whether Ventures, the nominal plaintiff in the derivative claims, is bound by the LLC Agreement’s arbitration provision.
2. Whether the court or the arbitrator decides the scope of the arbitration among Chapman, Flores, and Ventures.
3. Whether the court may compel arbitration of Chapman’s conversion claim against KM, a non-signatory, under either agency or direct-benefits estoppel theories.
4. Whether the remaining litigation should be stayed pending arbitration.

Discussion:

Ventures and delegation of scope. The court holds the LLC Agreement, including the arbitration clause, binds Ventures. Under Tex. Gov’t Code Sec. 101.052(f), a company agreement is enforceable by or against the LLC whether or not the company signed it. By agreeing the arbitrate under AAA rules, Chapman and Flores also clearly and unmistakably delegated questions of arbitrability to the arbitrator. AAA Rule R-7(a) gives the arbitrator the power to rule on the arbitrability of any claim. See TotalEnergies E&P USA, Inc. v. MP Gulf of Mexico, LLC, 667 S.W. 694 (Tex. 2023), and Drusch v. Borchers, 2026 WL 2914872, at *6 (Tex. App. – 15th Dist. Sept. 29, 2026, no pet.)

Non-signatory KM. Delegation does not settle who is bound to arbitrate. The court, not the arbitrator, decides whether an agreement to arbitrate exists with non-signatory. Jody James Farms, JV v. Altman Group, Inc. 547 S.W. 3d 621 (Tex. 2018). No arbitration agreement exists between Chapman and KM or between KM and Ventures. Defendants therefore had to satisfy one of the “six scenarios” in Jody James Farm, id. at 633, for compelling non-signatories to arbitrate – they rely on two: (1) agency -the record contained no persuasive evidence that KM acted solely as Flores’ agent. The petition indicates that at least two other investors became Flores’ co-owners in KM; and (2) direct-benefits estoppel – the conversion claim arises out of the LLC agreement and could not be pursued without it. But the doctrine typically binds non-signatories who seek the contract’s benefits while attempting to avoid its arbitration burden. Here, the non-signatory is KM, which seeks no benefits under the agreement. Chapman signed no agreement with KM. The Texas Supreme Court has also declined to compel arbitration at a non-signatory’s request where the claims allege concerted misconduct or are substantially interdependent” with arbitrable claims . In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 191-95 Tex. 2007).

Stay. The court could not compel arbitration of the conversion claim against KM, so that claim must be stayed pending the arbitrator’s resolution of the remaining claims against the LLC Agreement’s parties, including both the scope of the arbitration and the merits. Under the Federal Arbitration Act, arbitration generally proceeds first where it  is likely to resolve issues material to the lawsuit. Merril Lynch, 235 S.W.3d at 194; Drusch, 2026 WL 2914872, at *9.

Disposition. The motion is granted in part. All claims in the Original Petition are compelled to arbitration except the conversion claim against KM. The entire action, including proceedings, deadlines, and discovery is abated and stayed pending completion of the arbitration.