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Addressing a matter of first impression under Texas law, a Texas district court ruled that arbitrability of a dispute is a matter for the court to decide and is a procedural (rather than merit-based) issue that can be addressed prior to personal jurisdiction arguments.  Halliburton Energy Services, Inc. v. Ironshore Specialty Ins. Co., 2017 WL 4536089 (S.D. Tex. Oct. 5, 2017).

The dispute arose out of fracking-related damage.  Ironshore insured the operator of the gas facility at which the fracking operations were conducted.  Ironshore indemnified the facility operator for nearly $12 million, but sought reimbursement from Halliburton (the fracking operator) pursuant to a subrogation provision in the insurance policy.  Halliburton filed a declaratory judgment action seeking a ruling that Ironshore had waived its subrogation rights. Ironshore moved to stay the case pending arbitration based on an arbitration clause in the fracking agreement.  Ironshore argued that it became a party to the arbitration agreement through subrogation, and that the arbitration clause is triggered because the court would need to look to the fracking agreement in order to determine whether Ironshore had waived its right to subrogation.  Ironshore also moved to dismiss on personal jurisdiction grounds.  The court denied Ironshore’s motion to stay.

First, the court ruled that the question of whether a dispute is subject to arbitration is a “procedural, jurisdictional issue rather than a merits issue.”  Therefore, the court deemed it proper to rule on the question of arbitration before determining whether it had personal jurisdiction. 

Second, the court ruled that the applicability of the arbitration clause was a gateway issue for the court, rather than a matter for an arbitration panel.  The court reasoned that the arbitration question necessarily turned on whether Ironshore was a subrogated party to the fracking agreement, which depended on whether Ironshore had waived its subrogation rights under the insurance policy.  (If Ironshore was not subrogated to the fracking agreement, it was a non-party to that agreement and would have no right to enforce the arbitration clause).  Citing case law addressing the rights of non-signatories to enforce arbitration clauses, the court concluded that it must decide the threshold issue of subrogation waiver in order to determine whether a valid arbitration clause existed between Ironshore and Halliburton. 

Finally, on the merits of the subrogation issue, the court held that Ironshore had waived its right to subrogation and thus could not enforce the arbitration clause against Halliburton.  The court explained that although the insurance agreement expressly provided a right of subrogation, it also provided that Ironshore waives any such right “[t]o the extent required by written contract.”  Here, the fracking contract between Halliburton and the insured gas site operator specifically provided that the operator “will cause its insurer to waive subrogation against [Halliburton].”