Baby Dolls Topless Saloons, Inc. v. Sotero

Full title: BABY DOLLS TOPLESS SALOONS, INC., BURCH MANAGEMENT COMPANY, INC., BDS…

Court: Court of Appeals Fifth District of Texas at Dallas

Date published: Aug 21, 2020

649 S.W.3d 206 (Tex. App. 2020)

Opinion

No. 05-19-01443-CV

08-21-2020

BABY DOLLS TOPLESS SALOONS, INC., Burch Management Company, Inc., BDS Restaurant, Inc., and TTNA, Inc., Appellants v. Gilbert SOTERO, as Representative of the Estate of Stephanie Sotero Hernandez, Eduviges Chapa III as Next Friend of A.C.C., a Minor, and Ivan Hernandez, Individually and as Representative of the Estate of Stephanie Sotero Hernandez, Appellees

Brian S. Rawson, Roy McKay, Stephanie Roark, Hartline Barger LLP, Dallas, Darrell L. Barger, Hartline Barger, LLP, Houston, for Appellants. Kurt B. Arnold, Adam Lewis, J. Kyle Findley, Kala Sellers, Arnold & Itkin LLP, Houston, for Appellees.

Opinion by Justice Carlyle

Brian S. Rawson, Roy McKay, Stephanie Roark, Hartline Barger LLP, Dallas, Darrell L. Barger, Hartline Barger, LLP, Houston, for Appellants.

Kurt B. Arnold, Adam Lewis, J. Kyle Findley, Kala Sellers, Arnold & Itkin LLP, Houston, for Appellees.

Before Justices Whitehill, Osborne, and Carlyle

MEMORANDUM OPINION

Opinion by Justice Carlyle

Appellants appeal the trial court's orders denying their two separate motions to compel arbitration.¹ We affirm both orders in this memorandum opinion. See TEX. R. APP. P. 47.7.

1 The original defendants in this case included only two of the appellants, Baby Dolls Topless Saloons, Inc. and Burch Management Company, Inc. In a November 1, 2019 order, the trial court denied a motion to compel arbitration filed by those two defendants. They filed an interlocutory appeal in this court. While that appeal was pending, BDS Restaurant, Inc. and TTNA, Inc. were added as defendants and filed a substantially similar motion to compel arbitration. The trial court denied that motion on April 23, 2020, and those two defendants then filed an interlocutory appeal. At appellants’ request, this court consolidated the two interlocutory appeals on June 29, 2020.

On March 24, 2017, Stephanie Sotero Hernandez (Ms. Sotero or Licensee) signed a "License and Lease Agreement" (the contract) with Baby Dolls Saloon–Dallas (the Club or Licensor). In the contract, the Club granted Ms. Sotero a "temporary, revocable license (the ‘License ’)"² and a "non-exclusive right to use and occupy the designated portions of the Premises (the ‘Temporary Space Lease’ or the ‘Lease’)" for "the performing of live erotic dance entertainment and related activities."³ In January 2019, appellees⁴ filed this wrongful death and survival action against appellants and Mayra Naomi Salazar.⁵ The petition alleged (1) on January 4, 2019, Ms. Sotero and Ms. Salazar were working as entertainers at the Club, which was owned, operated, and managed by appellants; (2) late that evening and in the early hours of January 5, 2019, appellants served Ms. Salazar "excessive amounts of alcohol" and continued to serve her even after they were aware she was "clearly intoxicated"; (3) Ms. Sotero left the Club with Ms. Salazar and was a passenger in a car being driven by Ms. Salazar when a high-speed crash occurred on a public road; and (4) Ms. Sotero died at the crash scene. The petition asserted causes of action against appellants for negligence, gross negligence, and violation of the Texas Dram Shop Act.

2 In this opinion, all emphasis is original unless otherwise noted.

3 The contract stated, among other things:

THIS AGREEMENT REPLACES ANY PRIOR AGREEMENT BETWEEN THE PARTIES, AND SINCE THIS AGREEMENT IS THE MOST ACCURATE DESCRIPTION OF THE NATURE OF THE RELATIONSHIP OF THE PARTIES, AND REPRESENTS WHAT THE "MEETING OF THE MINDS" SHOULD HAVE BEEN WHEN THE PARTIES ESTABLISHED THEIR RELATIONSHIP, THE TERMS AND CONDITIONS HEREIN ARE DEEMED EFFECTIVE FROM THE DATE OF ANY PRIOR AGREEMENT BETWEEN THE PARTIES, SHOULD ONE EXIST.

This AGREEMENT is entered into by the "LICENSOR " and "LICENSEE " for the leasing of certain portions of the "Premises " and the grant of License related thereto as follows:

....

3. DURATION OF LICENSE AND TEMPORARY SPACE LEASE; TERMINATION OF LICENSE AND TEMPORARY SPACE LEASE

This Agreement shall be for the period commencing on the date it is signed by all parties (Agreement Commencement Date) and shall terminate on December 31 of the year of execution (unless the parties agree, in writing, to modify the term). The License shall thereafter be automatically extended for successive one year periods running from January 1 through December 31 of each year thereafter....

....

13. BUSINESS RELATIONSHIP OF PARTIES

A. "The parties acknowledge that the business relationship created between the Club and Licensee is that of (a) Licensor/Licensee and (b) landlord and tenant for the joint and non-exclusive leasing of the Premises (meaning that other entertainers are also leasing the premises at the same time), and that this relationship is a material (meaning significant) part of this Agreement .... THE PARTIES ACKNOWLEDGE THAT LICENSEE'S RIGHT TO OBTAIN AND KEEP ENTERTAINMENT FEES PURSUANT TO THIS AGREEMENT IS SPECIFICALLY CONTINGENT AND CONDITIONED UPON THE BUSINESS RELATIONSHIP OF THE PARTIES BEING THAT OF LICENSOR/LESSOR AND LICENSEE/LESSEE.

....

18. MATERIAL BREACH BY LICENSEE

Licensee materially breaches this Agreement by:

....

Claiming the business relationship with the Club as being other than that of a landlord and tenant[.]

....

22. ARBITRATION/WAIVER OF CLASS AND COLLECTIVE ACTIONS/ATTORNEY FEES AND COSTS

The parties agree that this Agreement is subject to binding arbitration pursuant to the Federal Arbitration Act (the "FAA"), and any disputes under this Agreement as well as any disputes that may have arisen at any time during the relationship between the parties, including but not limited to under any Federal or State law, will be governed and settled by an impartial independent arbitrator appointed by the American Arbitration Association (the "AAA"), Texas branch, and the determination of the arbitrator shall be final and binding (except to the extent there exist grounds for vacation of an award under applicable arbitration statutes).....

....

ARBITRATION SHALL BE THE SOLE FORUM TO DETERMINE THE VALIDITY, SCOPE AND BREATH [sic] OF THIS AGREEMENT .

....

23. MISCELLANEOUS

This Agreement constitutes the entire understanding of the parties.... This Agreement may not be modified or amended except in accordance with a writing signed by each of the parties hereto.

4 This lawsuit was originally filed by Ms. Sotero's father, Gilbert Sotero, as representative of the Estate of Stephanie Sotero Hernandez, and Eduviges Chapa III, as next friend of Ms. Sotero's minor child, A.C.C. Appellee Ivan Hernandez, who describes himself as Ms. Sotero's surviving spouse, later filed a petition in intervention, individually and as representative of the Estate of Stephanie Sotero Hernandez.

5 The record does not show Ms. Salazar has appeared in this lawsuit.

Appellants filed separate general denial answers subject to their two substantially similar motions to compel arbitration and dismiss all claims. In their motions to compel arbitration, appellants contended (1) because the claims in this lawsuit "arise out of a ‘dispute’ under the Agreement and/or during the relationship between the parties," "the plain language of the Arbitration Provisions and the law require that this dispute be resolved in arbitration," and (2) "[a]ny challenges to the Arbitration Provisions must be submitted to the arbitrator." A copy of the contract was attached to each motion.⁶

6 Appellants also filed a reply brief in support of the first motion to compel, reasserting substantially the same arguments. Attached to their reply brief was an affidavit of Steven William Craft, vice president of BDS Restaurant, Inc., which was described as "the business where Mayra Salazar and Stephanie Sotero were acting as independent contractors on January 4, 2019." That same affidavit was attached to the subsequent motion to compel. The affidavit's contents and attachments are not relevant to this opinion's analysis and conclusions.

In their responses and sur-reply to the motions to compel arbitration, appellees asserted, among other things, (1) "an employer attempting to enforce an arbitration agreement must show the agreement meets all requisite contract elements"; (2) "Defendants’ argument ignores the fact that Plaintiffs are not disputing the terms of the agreement per se, rather, Plaintiffs argue that the agreement is irrelevant to their claims and thus, they are not subject to arbitration for them"; (3) pursuant to the contract's plain language, the "Lease" portion of the contract terminated on December 31, 2017, and thus was not in effect on the date of the accident, "thereby rendering the arbitration provisions ineffective"; and (4) "in the event that [the trial court] is inclined to consider the Agreement to be valid and enforceable, (which Plaintiffs deny), the language in the agreement did not clearly and unmistakably delegate the matter of the provision's scope to the arbitrator."

At the respective hearings on the motions to compel arbitration, appellants’ counsel argued, (1) "I disagree that the agreement and the license are different"; (2) "to the extent it is different, the license, the relationship of the parties continues automatically"; (3) "[i]f the license extends, then the relationship continues to exist after the termination of the agreement"; (4) "[a]ll that matters is the language of the arbitration agreement, which says any dispute between the parties of any type while the relationship is ongoing ..., it goes to arbitration"; (5) "they've raised a meeting of the mind objection; however, those ... relate to and are making claims based on, well, this term means X or could have meant this" and thus "are not meeting of the mind objections; those are ambiguity objections"; and (6) "there's no question of the meeting of the minds because she signed the agreement and the agreement has the terms it has."

Appellees’ counsel argued, among other things, (1) "there's no valid agreement in place, period"; (2) the contract "distinguishes between the agreement and the License"; (3) "different words in the contract are, obviously, given different meanings"; and (4) under "the rules of contract law," "the intent of the parties is determined from the [contract's] plain language," which has to be capable of being "given a definite and certain legal meaning."⁷

7 During the hearing on the first motion to compel, the trial court asked the parties’ counsel for cases "making the distinction between this agreement and license or a license incorporated within an agreement and whether or not they're separate rights and responsibilities based on whether or not you're calling the terms of the agreement include [sic] license language." Both sides indicated they would look for such cases after the hearing. At the hearing's conclusion, the trial judge told the parties to promptly email her any cases found on that issue. The record contains no further communication regarding that request.

The trial court denied both motions to compel arbitration without stating the basis for its rulings.

We review a trial court's order granting or denying a motion to compel arbitration for abuse of discretion, deferring to the trial court's factual determinations if they are supported by evidence but reviewing its legal determinations de novo. In re Labatt Food Serv., L.P. , 279 S.W.3d 640, 642–43 (Tex. 2009) (orig. proceeding). A trial court abuses its discretion if it acts in an arbitrary or unreasonable manner or without reference to any guiding rules or principles. Downer v. Aquamarine Operators, Inc. , 701 S.W.2d 238, 241–42 (Tex. 1985). Where, as here, the trial court does not make specific findings of fact or conclusions of law in support of its ruling, we will uphold the ruling if it is supported by any legal theory asserted in the trial court. See, e.g., Redi-Mix, LLC v. Martinez , No. 05-17-01347-CV, 2018 WL 3569612, at *2 (Tex. App.—Dallas July 25, 2018, no pet.) (mem. op.) ; Kmart Stores of Tex., L.L.C. v. Ramirez , 510 S.W.3d 559, 565 (Tex. App.—El Paso 2016, pet. denied).

"In general, a party seeking to compel arbitration under the FAA must establish (1) the existence of a valid, enforceable arbitration agreement and (2) that the claims at issue fall within that agreement's scope." VSR Fin. Servs., Inc. v. McLendon , 409 S.W.3d 817, 827 (Tex. App.—Dallas 2013, no pet.). "The issue of the contract's validity is different from the issue whether any agreement between the alleged obligor and obligee was ever concluded." In re Morgan Stanley & Co., Inc. , 293 S.W.3d 182, 186 (Tex. 2009) (orig. proceeding) (discussing Prima Paint Corp. v. Flood & Conklin Mfg. Co. , 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) ). "[W]hen the very existence of an agreement is disputed, a court, not an arbitrator, must decide at the outset whether an agreement was reached, applying state-law principles of contract." Am. Med. Tech., Inc. v. Miller , 149 S.W.3d 265, 273 (Tex. App.—Houston [14th Dist.] 2004, no pet.) ; accord Morgan Stanley , 293 S.W.3d at 189 ; see also TEX. CIV. PRAC. & REM. CODE § 171.021 (stating that if party opposing arbitration denies existence of agreement, "the court shall summarily determine that issue"). We review de novo whether an enforceable agreement to arbitrate exists. J.M. Davidson, Inc. v. Webster , 128 S.W.3d 223, 227 (Tex. 2003).

"[A]n employer attempting to enforce an arbitration agreement must show the agreement meets all requisite contract elements." Id. at 228. To prove contract formation, a party must prove, among other elements, an offer and acceptance and a meeting of the minds on all essential elements. Lanier v. E. Found., Inc. , 401 S.W.3d 445, 459 (Tex. App.—Dallas 2013, no pet.) ; see also McCalla v. Baker's Campground, Inc. , 416 S.W.3d 416, 418 (Tex. 2013) ("A contract's material or essential terms are determined on a case-by-case basis."). "For there to be an offer which may ripen into a contract by simple acceptance, the offer must be reasonably definite in its terms and must sufficiently cover the essentials of the proposed transaction that, with an expression of assent, there will be a complete and definite agreement on all essential details." Lanier , 401 S.W.3d at 459 (citing Principal Life Ins. Co. v. Revalen Dev., LLC , 358 S.W.3d 451, 455 (Tex. App.—Dallas 2012, pet. denied) ). The term "meeting of the minds" refers to the parties’ mutual understanding and assent to the expression of their agreement. Id. ; Weynand v. Weynand , 990 S.W.2d 843, 846 (Tex. App.—Dallas 1999, pet. denied).

"Although often treated as a distinct element, meeting of the minds is a component of both offer and acceptance measured by what the parties said and did and not on their subjective state of mind." Karns v. Jalapeno Tree Holdings, L.L.C. , 459 S.W.3d 683, 692 (Tex. App.—El Paso 2015, pet. denied). To create an enforceable contract, the minds of the parties must meet with respect to the subject matter of the agreement and all its essential terms. Weynand , 990 S.W.2d at 846. "The parties must assent to the same thing, in the same sense, at the same time." Citibank (S.D.), N.A. v. Tran , No. 05-11-01423-CV, 2013 WL 3205878, at *4 (Tex. App.—Dallas June 21, 2013, pet. denied) (mem. op.) (quoting Principal Life Ins. , 358 S.W.3d at 455 ). Whether there is a meeting of the minds is generally a question of fact. Franco v. Ysleta Indep. Sch. Dist. , 346 S.W.3d 605, 608 (Tex. App.—El Paso 2009, no pet.).

In their sole issue, appellants assert the trial court "erred by denying Appellant's Motion to Compel Arbitration and Stay or Dismiss All Claims, in violation of the [FAA]." According to appellants, "In the underlying lawsuit, Claimants opposed arbitration on only three grounds, arguing: (1) the Arbitration Agreement is invalid under the FAA because it does not implicate interstate commerce; (2) Claimants’ claims are not within the scope of the arbitration agreement; and (3) the arbitration agreement is unconscionable." Appellants also contend (1) "by denying the Motion to Compel Arbitration, the trial court necessarily determined the validity and scope of the Arbitration Agreement itself and improperly superseded the express agreement of Decedent and the Club"; (2) "[t]here is no dispute about the validity and enforceability of the License and Lease Agreement, and the Arbitration Agreement therein was both procedurally and substantively fair and equitable"; and (3) "because the claims at issue relate to alleged over-service of alcohol while Decedent was entertaining at the Club under her License and Lease Agreement, there can be no dispute that Claimants’ claims arose ‘during the relationship between the parties’ and thus fall squarely within the scope of the Arbitration Agreement."

Appellees respond, among other things, that based on the contract's language, it is unreasonable to conclude the parties reached "a meeting of the minds" as to the contract's material terms or the arbitration provision. Appellees’ argument focuses on the contract terms "relationship," "license," and "this Agreement." They assert that "without any definition whatsoever, the relationship loses meaning."

In their appellate reply brief, appellants contend (1) "Appellees’ final argument no longer appears to be that their claims fall outside the scope of the arbitration agreement, but instead that an essential element of a valid contract is missing, i.e., a meeting of the minds"; (2) "Appellees waived the issue of contract formation and validity by failing to present it to the trial court"; (3) "Appellees never argued that any prima facie elements of contract formation were missing in the trial court" and "in fact, Appellees conceded the opposite"; (4) "[e]ven if it were properly before this court," appellees’ argument "goes against the plain, ordinary, and generally accepted meaning of the terms in the Arbitration Agreement"; and (5) "[i]t also goes against Decedent's own acknowledgements and representations that she had read and understood all the terms and had an opportunity to ask questions and consult with her own attorney."

In support of their contentions, appellants cite the following sentence from appellees’ response to the first motion to compel arbitration: "But here, Plaintiffs are not challenging the validity of the agreement to arbitrate, but rather whether the claims fall under the arbitration clause at all." As our supreme court stated, "The issue of the contract's validity is different from the issue whether any agreement between the alleged obligor and obligee was ever concluded." Morgan Stanley , 293 S.W.3d at 186. And, both elsewhere in their response and during the hearings on the motions to compel arbitration, appellees specifically denied the contract was valid and enforceable. We disagree with appellants’ assertions that appellees "conceded" contract formation and did not dispute the contract's validity and enforceability.

As to "waiver," while the contract formation elements of definiteness and "meeting of the minds" are not necessarily synonymous, the two concepts can intertwine. See Lucchese Boot Co. v. Rodriguez , 473 S.W.3d 373, 385–86 (Tex. App.—El Paso 2015, no pet.) (addressing party's arguments regarding meeting of minds and definiteness of terms together where party contended terms of arbitration agreement "were not definite enough to show the parties had a meeting of the minds as to all essential terms" and "thus, no contract could have ever formed because the parties must not have mutually understood the other's terms").

Here, appellees argued in the trial court that (1) under the rules of contract law, "the intent of the parties is determined from the [contract's] plain language," which must be capable of being "given a definite and certain legal meaning," and (2) the terms "Agreement" and "License"—which are pertinent to the contract's definition of the material term "relationship"—were not definite or certain. During the hearings, appellants acknowledged the materiality of the term "relationship" and the use of that term in the arbitration provision, but disputed appellees’ position regarding the meaning of those three terms. The trial court specifically focused on, and requested additional authority regarding, those arguments. Appellants also acknowledged that appellees "raised a meeting of the mind objection."

On appeal, the essence of appellees’ complained-of argument is the lack of definiteness and certainty regarding the same three terms addressed at the hearings, at least one of which is undisputedly material. On this record, we conclude appellees’ appellate argument corresponds to their argument asserted in the trial court and was not waived. See Citibank , 2013 WL 3205878, at *4 (concluding party's trial court argument that there was no "meeting of the minds" corresponded to, and thus preserved, its complaint made for first time on appeal that terms of alleged agreement "were unclear, indefinite" and "lacked sufficient clarity"); see also Adams v. Starside Custom Builders, LLC , 547 S.W.3d 890, 896 (Tex. 2018) ("Rules of error preservation should not be applied so strictly as to unduly restrain appellate courts from reaching the merits of a case."); cf. Ridge Nat. Res., L.L.C. v. Double Eagle Royalty, L.P. , 564 S.W.3d 105, 123–28 (Tex. App.—El Paso 2018, no pet.) (concluding party's "fleeting references to ambiguity" of arbitration contract did not "subsume a meeting-of-the-minds or formation argument" in trial court because party never argued "that the ambiguity dealt with material terms or that the conflicting provisions otherwise invalidated the arbitration agreement").

To the extent the dissent contends the "separability doctrine" precludes this court from deciding the meeting-of-the-minds contract formation issue before us, we disagree. Though the dissent maintains that the three types of contract formation issues described in Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 444 n.1, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006), are the only types of "contract making" issues that are to be determined by courts rather than arbitrators, Buckeye did not specifically preclude a court's determination of other such issues. In Morgan Stanley , our supreme court specifically agreed with the following: "Despite casual assumptions to the contrary, Prima Paint [388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) ] does not merely preserve for the courts challenges that are ‘restricted’ or ‘limited’ to ‘just’ the arbitration clause alone—this would be senseless; it preserves for the courts any claim at all that necessarily calls an agreement to arbitrate into question. " 293 S.W.3d at 190 (quoting Alan Scott Rau, Everything You Really Need to Know About "Separability" in Seventeen Simple Propositions , 14 AM. REV. INT'L ARB. 1, 17 (2003) ). Consistent with the separability doctrine, the "existence" of the alleged contract in this case is a matter for this court's determination. See id. ; see also RSL Funding, LLC v. Newsome , 569 S.W.3d 116, 125 (Tex. 2018) (explaining that, pursuant to Morgan Stanley , if existence of court order approving structured-settlement-transfer agreement was essential for contract formation, trial court must decide issue of court order's existence at outset before compelling arbitration); Ridge , 564 S.W.3d at 119–20 (concluding that under Prima Paint and Morgan Stanley , where party offered into evidence signed agreement containing arbitration clause, trial court "retain[ed] the authority to decide predicate issues related to [the] five elements of contract formation," including meeting of the minds); Tex. La Fiesta Auto Sales, LLC v. Belk , 349 S.W.3d 872, 880–81 (Tex. App.—Houston [14th Dist.] 2011, no pet.) (concluding that pursuant to Morgan Stanley , issue of whether arbitration clause had been revoked by subsequent agreement between parties was for trial court to determine because "[w]ithout an agreement to arbitrate, arbitration cannot be compelled"). The dissent's lengthy effort to justify its conclusion demonstrates the ongoing utility of Occam's Razor: the simplest answer is sometimes the best one. See Loan Syndications & Trading Ass'n v. S.E.C. , 818 F.3d 716, 718 (D.C. Cir. 2016).

Next, we address whether the parties’ minds met "with respect to the subject matter of the agreement and all its essential terms." See Weynand , 990 S.W.2d at 846. The contract states in separate provisions (1) "[t]his AGREEMENT is entered into by the ‘LICENSOR ’ and ‘LICENSEE ’ for the leasing of certain portions of the ‘Premises ’ and the grant of License related thereto"; (2) "the business relationship ... is that of (a) Licensor/Licensee and (b) landlord and tenant ... [and] this relationship is a material (meaning significant) part of this Agreement "; (3) "[t]his Agreement " "shall terminate" on December 31, 2017, and "[t]he License shall thereafter be automatically extended for successive one year periods" until terminated in writing or by breach or default; and (4) a "material breach" of "this Agreement " occurs if Licensee claims the business relationship "as being other than that of a landlord and tenant."

Thus, "this Agreement" and the "License" are treated separately in some instances, including for termination purposes, but are specifically combined in others. Both terms are also used elsewhere throughout the contract, with "this Agreement" appearing in the arbitration provision and nearly all other provisions. Rather than merely presenting an ambiguity that could potentially be resolved by reconciling particular conflicting provisions, this disparity precludes certainty and definiteness as to the meaning of those two terms throughout the contract, including in the arbitration provision. Most importantly, this disparity precludes certainty and definiteness regarding the definition of the undisputedly material term "relationship," which contains the term "this Agreement" and includes both "Licensor/Licensee" and "landlord and tenant" components. The material term "relationship" is used throughout the contract, again, including in the arbitration provision.⁸

8 The dissent's meeting-of-the-minds analysis focuses primarily on explaining the dissent's own interpretation of the contract's renewal provision, rather than on the contract as a whole and the undisputedly material term "relationship." "[N]o one phrase, sentence or section [of a contract] should be isolated from its setting and considered apart from the other provisions." Nassar v. Liberty Mut. Fire Ins. Co. , 508 S.W.3d 254, 258 (Tex. 2017) ; see also Royal Indem. Co. v. Marshall , 388 S.W.2d 176, 181 (Tex. 1965) (stating we may neither rewrite parties’ contract nor add to its language).

On this record, we conclude the trial court could have properly determined the parties’ minds could not have met regarding the contract's subject matter and all its essential terms such that the contract is not an enforceable agreement. See Lanier , 401 S.W.3d at 459 ; Weynand , 990 S.W.2d at 846. Consequently, the trial court did not abuse its discretion by denying the motions to compel arbitration. See J.M. Davidson , 128 S.W.3d at 228 (employer attempting to enforce arbitration agreement must show agreement meets all requisite contract elements).

We decide appellants’ sole issue against them and affirm the trial court's November 1, 2019 and April 23, 2020 orders denying appellants’ motions to compel arbitration.

Whitehill, J., dissenting DISSENTING OPINION

Dissenting Opinion by Justice Whitehill

In the trial court, the Sotero parties opposed Baby Dolls’¹ motions to compel arbitration for three reasons: (i) the Federal Arbitration Act does not apply here for lack of interstate commerce; (ii) the arbitration agreement's scope does not include their claims; and (iii) the arbitration agreement is procedurally and substantively unconscionable.

1 I refer to appellants collectively as "Baby Dolls."

On appeal, they argue for affirmance because (i) there is a lack of interstate commerce; (ii) Sotero did not effectively delegate arbitrability questions to the arbitrator; and (iii) there was no "meeting of the minds" that the arbitration agreement would cover these types of claims. The last argument repackages their trial court scope argument, which is a contract construction issue for the arbitrator to decide.

At no point have the Sotero parties asserted that the entire contract, and thus the arbitration clause as well, fails for lack of a meeting of the minds on the contract's essential terms. Yet the majority opinion makes it the sole basis for affirming the trial court's orders. Not only are the grounds that the Sotero parties urged meritless, but so is the ground that the majority opinion asserts for them.

Specifically, the majority opinion affirms the denial of Baby Dolls’ motions to compel arbitration because the underlying contract—but not the arbitration clause itself—ostensibly fails for a lack of meeting of the minds on essential terms. That conclusion presents this issue: How does the Prima Paint Corp. v. Flood & Conklin Mfg. Co. , 388 U.S. 395, 403–04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) separability doctrine apply to that contract defense where (i) the party resisting arbitration signed the contract containing the arbitration agreement and (ii) there is no suggestion that she lacked the legal or mental capacity to do so?

Because the record fails to show a viable defense to the arbitration agreement itself (e.g., that Sotero didn't sign the contract, she lacked the capacity to do so, or any other defense that might vitiate the arbitration agreement apart from the rest of her contract), her successors are bound by her arbitration agreement—including her delegation to the arbitrator the authority to decide the scope issue.

Secondarily, the majority opinion raises the prospect of a granted license existing apart from a co-existing agreement that granted the license. But by definition a license cannot exist without some agreement between the licensor and licensee regarding what right is being licensed and on what terms. Therefore, it is nonsensical to accept the idea that the parties could have been confused about the prospect of their license agreement's expiring on December 31, 2017, but Sotero's license to work on Baby Doll's premises nevertheless continued thereafter without the license agreement remaining in effect. Although the majority opinion raises and relies on this metaphysically impossible legal premise, it fails to explain how that "license sans terms" arrangement could be.

I. BACKGROUND

Sotero and Baby Dolls desired a business relationship whereby she could work as a non-employee entertainer at Baby Dolls’ venue. The two parties signed an eleven page, twenty-six section (not counting the multi-paragraph preface), single spaced contract governing their business relationship. Their contract spanned a wide range of relationship particulars concerning when she would work and what their financial arrangement would be, among many others. Another relationship particular was a seven paragraph dispute resolution section. That section is devoted almost entirely to the parties’ arbitration agreements.

The contract begins with Sotero's acknowledging that she (i) read and reviewed the agreement in its entirety; (ii) had an opportunity to consult with her chosen attorney; and (iii) understood the agreement's terms and conditions and knowingly and voluntarily agreed to abide by them. The parties also acknowledged that their contract is the most accurate description of the nature of their relationship and represents their "meeting of the minds" regarding that relationship.

The contract ends with an advisory that the document is a legal contract and the parties should not sign it unless they fully understand its terms and conditions. The contract further invites the parties to question the contract's terms and negotiate changes. Finally, it suggests that the parties should review it with an attorney or other advisors before signing it. (A copy of the License and Lease Agreement is appended to this dissent.)

In sum, Sotero knowingly, voluntarily, and with apparent full contracting capacity accepted Baby Dolls’ offer for a working relationship according to the words used in that document—whatever those words mean—and so agreed. Her agreement necessarily includes assent to the contract's embedded arbitration clause—whatever its words mean.

Nonetheless, nullifying the parties’ arbitration agreement and preventing an arbitrator from deciding whether the arbitration agreement's scope covers the present claims, the majority opinion concludes that the contract, and particularly its run of the mill automatic renewal clause, is so poorly written that as a matter of law the entire License and Lease Agreement never became a binding contract, thereby ostensibly vaporizing the parties’ arbitration agreement.

I disagree because the majority opinion ignores controlling United States Supreme Court and Texas Supreme Court precedents that mandate a different result. Specifically, because the Sotero parties do not dispute Sotero's signature or her capacity to contract, the arbitration agreement's enforceability and scope are for the arbitrator to decide.

Furthermore, in any event, the contract's duration clause can reasonably be construed to be an automatic renewal clause, thereby negating the majority opinion's rationale for concluding that the contract as a whole is terminally vague.

II. ANALYSIS

A. What is the correct analytical framework for deciding whether the contract is too uncertain to be enforced?

1. Introduction

The majority opinion posits that certain words in the contract render the entire document too uncertain and indefinite to reflect a meeting of the minds on its essential terms as a whole and, therefore, the parties’ arbitration agreement contained in that contract is also necessarily unenforceable—even if construed as a standalone agreement. But that approach ignores the separability doctrine's requirements that (i) embedded arbitration agreements are analyzed as though they are independent contracts and (ii) defenses to the remaining contract containing them are for the arbitrator to decide.

The recognized exceptions are whether the resisting party actually signed the contract at issue, her agent was authorized to sign for her, or she had the legal or mental capacity to make the contract. Were these contract signature and contracting capacity defenses involved in this case, they would be defenses to both the contract as a whole and the embedded arbitration agreement's separate existence because both agreements are contained in the same written document. That is, those signature and capacity defenses would be double duty defenses to (i) the contract as a whole and (ii) whether the parties in fact "made" a written arbitration contract that the FAA requires for its application. See 9 U.S.C. § 2. (It should be noted that arbitration agreements are often created as independent, standalone documents.)

But none of these contract making defenses are at issue here. Therefore, it is for the arbitrator to decide the issue that the majority arrogates to itself—whether there was a sufficiently definite offer and acceptance of the entire contract's essential terms that a decision maker can determine the parties’ rights and duties and enforce their contract. Even assuming it's proper to raise the argument sua sponte, the majority errs by failing to apply its enforceability analysis to the arbitration provision as a separate, standalone agreement.

2. Does the FAA apply in this case?

Yes, because the parties said so.

The Sotero parties argue that the Federal Arbitration Act ( 9 U.S.C. § 1 et seq. ) does not apply because the Sotero–Baby Dolls relationship did not involve interstate commerce. We need not address that question because the parties agreed that the FAA applies. The FAA is substantive arbitration law that the parties were free to adopt as applicable to their arbitration agreement. See, e.g., In re Rubiola , 334 S.W.3d 220, 223 (Tex. 2011) (orig. proceeding).²

2 Nonetheless, the FAA extends to the outer limits of the federal Commerce Clause. See In re FirstMerit Bank, N.A. , 52 S.W.3d 749, 754 (Tex. 2001) (orig. proceeding). Here, we would also properly conclude that the facts support applying the FAA under that standard too.

3. Statutory Background

Congress enacted the FAA in 1925 to reverse longstanding judicial hostility to arbitration agreements and place those agreements on "the same footing as other contracts." Gilmer v. Interstate/Johnson Lane Corp. , 500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). The FAA thus manifests an "emphatic federal policy in favor of arbitral dispute resolution," Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc. , 473 U.S. 614, 631, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985), and requires state or federal courts to "rigorously enforce agreements to arbitrate," Dean Witter Reynolds, Inc. v. Byrd , 470 U.S. 213, 221, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985).

Section 2 is its "primary substantive provision." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). This section "provides that written agreements to arbitrate controversies arising out of an existing contract ‘shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’ " Dean Witter Reynolds , 470 U.S. at 218, 105 S.Ct. 1238 (quoting 9 U.S.C. § 2).

4. United States Supreme Court Authorities

"A party seeking to compel arbitration under the FAA must establish that (1) there is a valid arbitration clause , and (2) the claims in dispute fall within that agreement's scope." Rubiola , 334 S.W.3d at 223 (emphasis added) (citing In re Kellogg Brown & Root, Inc. , 166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding) ). As shown below, an FAA based arbitration motion's success turns on the arbitration agreement's standalone enforceability.

a. Prima Paint

The issue in Prima Paint Corp. v. Flood & Conklin Mfg. Co. , 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) was whether the court or the arbitrator resolves a claim of fraud in the inducement of the entire contract. Based on unambiguous statutory provisions, the Supreme Court held that FAA governed arbitration agreements are severable from the contracts containing them and that fraud in the inducement defenses to the contract as a whole, instead of the arbitration agreement in particular, are for the arbitrator to decide:

That answer is to be found in § 4 of the Act, which provides a remedy to a party seeking to compel compliance with an arbitration agreement. Under § 4, with respect to a matter within the jurisdiction of the federal courts save for the existence of an arbitration clause, the federal court is instructed to order arbitration to proceed once it is satisfied that "the making of the agreement for arbitration or the failure to comply (with the arbitration agreement) is not in issue." Accordingly, if the claim is fraud in the inducement of the arbitration clause itself—an issue which goes to the ‘making’ of the agreement to arbitrate—the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally. Section 4 does not expressly relate to situations like the present in which a stay is sought of a federal action in order that arbitration may proceed. But it is inconceivable that Congress intended the rule to differ depending upon which party to the arbitration agreement first invokes the assistance of a federal court. We hold, therefore, that in passing upon a § 3 application for a stay while the parties arbitrate, a federal court may consider only issues relating to the making and performance of the agreement to arbitrate.

Id. at 403–04, 87 S.Ct. 1801 (footnotes omitted) (emphasis added).

In so holding, the Supreme Court established the bedrock principle that arbitration agreements are, with limited exceptions discussed later, treated separately from the contracts containing them. Stated differently, a single document that contains an embedded arbitration agreement is effectively two separate contracts: One is the arbitration agreement itself, and the other is the rest of the contract.

b. Moses H. Cone

Moses H. Cone Memorial Hospital v. Mercury Construction Corp. , 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) began as a petition in federal district court for an order compelling arbitration of a dispute in a pending concurrent state court proceeding. The federal district court stayed that request pending resolution of the state court matter, and the court of appeals reversed that order. The Supreme Court addressed whether the district court's order deferring to the parallel state action was proper under the FAA. Relying in part on Prima Paint , the Supreme Court held that FAA § 2 is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary. Id. at 24, 103 S.Ct. 927. The Court further held that § 2 ’s effect is to create a body of federal substantive arbitrability law applicable to any arbitration agreement covered by the statute. Id.

c. Southland Corp.

Later, in Southland Corp. v. Keating , 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984), the Supreme Court addressed whether a California statute invalidating certain arbitration agreements covered by the FAA violated the federal constitution's Supremacy Clause. Id. at 3, 104 S.Ct. 852. That case involved a franchisee–franchisor dispute. The subject statute had a provision that the California Supreme Court held barred enforcing agreements to arbitrate disputes under that statute.

Relying on Prima Paint ’s severability principle and Moses H. Cone , the United States Supreme Court reversed the California Supreme Court because the FAA is substantive federal law applicable in state courts and preempts inconsistent state law. Id. at 12, 104 S.Ct. 852 ; see also id. at 16, 104 S.Ct. 852. Stated differently, the Supreme Court rejected the view that state law can bar enforcing FAA § 2, even regarding state-law claims brought in state court. See Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 445, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) (applying Southland ).

d. Buckeye Check Cashing

Next, in Buckeye Check Cashing the Supreme Court decided whether in an FAA governed case the court or an arbitrator should consider the claim that a contract containing an arbitration provision is invalid for illegality. See id. at 442, 126 S.Ct. 1204. That is, who decides whether an arbitration clause is enforced where the resisting party asserts that the contract as a whole is illegal?

Relying on Prima Paint and Southland , the Supreme Court for three reasons held it was for the arbitrator to resolve that claim:

Prima Paint and Southland answer the question presented here by establishing three propositions. First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. Second, unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance. Third, this arbitration law applies in state as well as federal courts.... Applying them to this case, we conclude that because respondents challenge the Agreement, but not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the contract. The challenge should therefore be considered by an arbitrator, not a court.

Id. at 445–46, 126 S.Ct. 1204.

Stated differently, according to the ultimate judicial authority, in FAA governed cases contract defenses aimed at defeating the underlying contract's validity as a whole —instead of defeating the arbitration clause specifically—do not prevent enforcing the embedded arbitration agreement and must be referred to the arbitrator.

But the Supreme Court identified three contract making (not validity ) defenses, which could negate the contract as a whole, that are for the courts to decide:

The issue of the contract's validity is different from the issue whether any agreement between the alleged obligor and obligee was ever concluded. Our opinion today addresses only the former, and does not speak to the issue decided in the cases cited by respondents (and by the Florida Supreme Court), which hold that it is for courts to decide whether the alleged obligor ever signed the contract,

Chastain v. Robinson–Humphrey Co. , 957 F.2d 851 (C.A. 11 1992), whether the signor lacked authority to commit the alleged principal, Sandvik AB v. Advent Int'l Corp. , 220 F.3d 99 (C.A. 3 2000) ; Sphere Drake Ins. Ltd. v. All American Ins. Co. , 256 F.3d 587 (C.A. 7 2001), and whether the signor lacked the mental capacity to assent, Spahr v. Secco , 330 F.3d 1266 (C.A. 10 2003).

Id. at 444 n.1, 126 S.Ct. 1204.

I next turn to the Texas Supreme Court's application of these principles.

5. Freedom of Contract

To begin, as the supreme court constantly reiterates, courts " ‘are not lightly to interfere with this freedom of contract’ " because all people " ‘of full age and competent understanding shall have the utmost liberty of contracting, and ... their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by Courts of justice.’ " Chalker Energy Partners III, L.L.C. v. Le Norman Operating LLC , 595 S.W.3d 668, 673 (Tex. 2020) (quoting Wood Motor Co., Inc. v. Nebel , 150 Tex. 86, 238 S.W.2d 181, 185 (1951) ). Arbitration agreements are contracts too, and contract freedom principles apply to them as well. See RSL Funding, LLC v. Newsome , 569 S.W.3d 116, 121 (Tex. 2018).

At this dispute's heart is Sotero's and Baby Doll's freedom to contractually agree that their disputes arising during their relationship, as well as questions regarding their arbitration agreement's validity and scope, shall be resolved by binding arbitration. The majority opinion negates the parties’ freely entered into arbitration agreement not for any reason specific to that separable contract but for reasons unrelated to it.

In so doing, the majority opinion ignores the separability doctrine and, like the Sotero parties themselves, fails to articulate any defense to the arbitration clause's standalone enforceability. (The Sotero parties’ appellees’ brief omits their trial court unconscionability arguments and fails to otherwise challenge the clause's validity. Instead, they argue only that the FAA doesn't apply to the clause and that the clause doesn't delegate arbitrability decisions to the arbitrator or apply to their claims.) Indeed, the Sotero parties concede that the clause would cover other disputes concerning the Sotero–Baby Dolls relationship. See Appellees’ Brief at 4. That is, the majority opinion does not identify any lack of meeting of the minds or other defense to the arbitration agreement itself as an independent contract.

6. Texas Supreme Court Authorities

Like the federal courts, Texas generally follows a two-step standard regarding motions to compel arbitration: First, a party seeking to compel arbitration under the FAA must establish the "existence of an arbitration agreement" subject to the FAA. In re FirstMerit Bank, N.A. , 52 S.W.3d 749, 753 (Tex. 2001) (orig. proceeding). Second, once the movant establishes an agreement, the court decides whether the agreement's scope covers that dispute (unless the parties have delegated that issue to the arbitrator). Id.

a. In re FirstMerit Bank and In re RLS Legal Solutions

In FirstMerit , the plaintiffs sued several defendants alleging various common law and statutory claims, and certain defendants moved to compel arbitration. The physical existence of a signed arbitration addendum was undisputed, and it does not appear that the plaintiffs asserted forgery or lack of contracting capacity defenses to the contract. Rather, they opposed enforcing the arbitration addendum based on unconscionability, duress, fraudulent inducement, and revocation defenses to the contract as a whole.

Relying on Prima Paint , the supreme court held that "these defenses must specifically relate to the Arbitration Addendum itself, not the contract as a whole, if they are to defeat arbitration," but defenses pertaining to the underlying contract can be arbitrated. Id. at 756 ; see also In re Labatt Food Serv., L.P. , 279 S.W.3d 640, 648 (Tex. 2009) (orig. proceeding) ("[A] challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.")

In re RLS Legal Solutions, LLC , 221 S.W.3d 629 (Tex. 2007) (per curiam) (orig. proceeding), extended FirstMerit to cases where the arbitration agreement is a clause in a larger agreement. Id. at 631.

b. In re Morgan Stanley & Co., Inc.

1. Majority Opinion

In In re Morgan Stanley & Co., Inc. , 293 S.W.3d 182 (Tex. 2009) (orig. proceeding), the supreme court considered whether a court or an arbitrator should decide if a party to various brokerage agreements lacked the mental capacity to assent to those contracts.

Setting the stage for its ensuing discussion, the court acknowledged Prima Paint ’s separability doctrine and observed, "Since Prima Paint , we have dutifully followed the separability doctrine that presumptively favors arbitration." Id. at 185.

After an exhaustive analysis, the supreme court held that the resisting party's mental capacity to sign the contracts with arbitration agreements was for the court to decide, because her mental capacity (or lack thereof) went to the existence of an agreement to arbitrate:

Given the overwhelming weight of authority, it is apparent to us that the formation defenses identified in Buckeye are matters that go to the very existence of an agreement to arbitrate and, as such, are matters for the court, not the arbitrator.

Id. at 189. Those Buckeye formation defenses related to the contract's execution or the resisting party's contracting capacity. See 546 U.S. at 444 n.1, 126 S.Ct. 1204.

In reaching its conclusion, the supreme court extensively reviewed Prima Paint, Southland Corp. , Buckeye , and numerous lower court decisions from around the country. See Morgan Stanley , 293 S.W.3d at 184–90. In particular, Morgan Stanley compared and contrasted the Fifth Circuit's Primerica Life Insurance Co. v. Brown , 304 F.3d 469, 472 (5th Cir. 2002) decision, which held that mental capacity to contract was for the arbitrator to decide, with the Tenth Circuit's Spahr v. Secco , 330 F.3d 1266 (10th Cir. 2003) decision, which held that issue was for the court:

There is some disagreement about what Prima Paint requires in this situation. The Fifth Circuit in Primerica Life Insurance Co. v. Brown , 304 F.3d 469, 472 (5th Cir. 2002), has concluded that the arbitrator should decide a defense of mental incapacity because it is not a specific challenge to the arbitration clause but rather goes to the entire agreement. The Tenth Circuit reached the opposite result in Spahr v. Secco , 330 F.3d 1266 (10th Cir. 2003), concluding that the "mental incapacity defense naturally goes to both the entire contract and the specific agreement to arbitrate in the contract." Id. at 1273. Thus, under the Tenth Circuit's view, the mental incapacity defense places the "making" of the arbitration agreement at issue under Section 4 of the FAA, giving the court authority to determine whether the parties have actually agreed to arbitration. Id.

293 S.W.3d at 185 (emphasis original); see also RSL Funding , 569 S.W.3d at 124. Agreeing with the Tenth Circuit, Morgan Stanley concluded by holding that:

We agree that Prima Paint reserves to the court issues like the one here, that the signor lacked the mental capacity to assent. Accordingly, the trial court did not abuse its discretion in declining to yield the question to the arbitrator.

293 S.W.3d at 190.

Along those lines, Morgan Stanley cited a Florida opinion that succinctly phrases the distinction:

A challenge to the very existence of any agreement between the parties is thus distinguishable from a challenge to the validity of a presumptively existing, signed document.

Id. at 188 n.5 (quoting Operis Grp., Corp. v. E.I. at Doral, LLC , 973 So. 2d 485, 488 (Fla. Dist. Ct. App. 2007) ).

In sum, courts determine defenses like failure to sign, forgery, no authority to sign, or lack of contracting capacity that go to whether the parties ever actually made a contract in the first place and not whether the signed contract they lawfully made is otherwise enforceable. But (i) arbitration agreements in contracts signed by a resisting party with contracting capacity are presumptively valid; (ii) non-"making" defenses that go to the contract as a whole are always for the arbitrator to decide; and (iii) non-"making" defenses that go specifically to the separate arbitration agreement are for the court to decide (unless the parties delegated that decision to the arbitrator).

2. Justice Hecht's Dissent

Justice Hecht's dissent illustrates why different rules exist for (i) contract making defenses such as failure to sign, forgery, no agent authority, and lack of contracting capacity as contrasted with (ii) defenses like fraud in the inducement, illegality, unconscionability, duress, and other defenses that attack a lawfully made contract. Specifically, citing FAA § 4, Justice Hecht wrote that before a court can compel arbitration, "it must be satisfied that the making of the agreement for arbitration ... is not an issue." 293 S.W.3d at 192 (Hecht, J., dissenting) (internal quotation and footnote omitted). But he went on to explain the logical difficulty in permitting arbitrators to decide contract execution and contracting capacity defenses:

But what if the challenge to the contract is that it never came into being? Since "arbitration is a matter of contract", the issue must be one for the court to decide. Otherwise, an arbitrator would be put in the position of deciding whether he was authorized to decide the parties’ dispute, concluding either that he was not authorized, a logical circularity, or that he was, and raising himself by his own bootstraps. Thus, whether a person is bound by a contract he never signed is an issue for the court. So, too, would seem to be issues whether a person's signature on a contract was forged, whether a person's agent was authorized to sign, and whether an offer was withdrawn before a contract was signed.

Id. at 192–93 (Hecht, J., dissenting) (footnotes omitted).

B. Application

Here, the majority opinion's conclusion is faulty for several reasons. But before discussing those reasons, I observe that in the trial court the Sotero parties did not deny the arbitration agreement's validity and instead focused their challenge on whether their claims fit that agreement's scope:

But here, Plaintiffs are not challenging the validity of the agreement to arbitrate, but rather whether the claims fall

under the arbitration clause at all.... Plaintiffs are not disputing the terms of the agreement per se, rather, Plaintiffs argue that the agreement is irrelevant to their claims and thus, they are not subject to arbitration for them.

[CR 95].

Although their appellees’ brief is less emphatic on the point, it doesn't contest the arbitration agreement's validity either.³ Thus, even they at least implicitly recognized and applied the separability doctrine in their arguments. And their failure to assert that ground for denying the motions to compel prevents the majority opinion from relying on that ground for them. Ridge Nat. Res., L.L.C. v. Double Eagle Royalty, L.P. , 564 S.W.3d 105, 121 (Tex. App.—El Paso 2018, no pet).

3 In the trial court, the Sotero parties’ amended surreply to defendants’ reply brief argued that the arbitration agreement expired on December 31, 2017 (when they say that the Lease portion of the License and Lease Agreement expired) but the License portion of the License and Lease Agreement was automatically renewed. They did not, however, argue that the entire contract was void for lack of a meeting of the minds based on their interpretation of the contract's duration clause. They made similar arguments during oral argument in the trial court. But again, they did not argue that the entire contract was void for lack of a meeting of the minds based on the duration clause or otherwise.

1. The majority opinion ignores the separability doctrine.

Sotero signed the contract and initialed every page, including the pages containing the parties’ arbitration agreement. The Sotero parties do not argue otherwise. Nor do they suggest that she lacked legal or mental capacity to enter into either agreement. And the signed contract conclusively establishes that there was a completed offer and acceptance of both the Licensee and Lease Agreement's and the arbitration agreement's terms and conditions.

Nor does the majority opinion discuss, let alone rest on, any defense specific to the arbitration agreement itself. Specifically, the majority opinion does not assert that there is any meeting of the minds failure regarding the actual arbitration agreement's essential terms. That the parties dispute the arbitration agreement's scope doesn't mean that they didn't agree on a scope at all. Rather, it proves just the opposite.

Furthermore, the logical circuity and bootstrap problems Justice Hecht identified in his In re Morgan Stanley dissent don't pertain to a defense that the contract as a whole fails for lack of a meeting of the minds on the contract's essential terms where, as here, the resisting party signed the contract; she had the lawful capacity to do so; and there is no legal impediment to the parties having made a presumptively valid written and signed contract containing an arbitration clause. Rather, that analysis is a matter of contract construction and is the daily grist of commercial litigation, be it in the courts or arbitration.

Thus, based on the separability doctrine and these facts, the arbitration clause itself is a binding and enforceable standalone contract to which the majority opinion offers no defense, much less a viable one. (The Sotero parties’ appellees’ brief omits their unconscionability arguments, and the majority opinion ignores them too. Therefore, this dissent does not address those arguments either.) Based on the bedrock separability doctrine, the majority opinion errs by considering a non- Buckeye contract making defense to the License and Lease Agreement as a whole, which issue the law reserves to the arbitrator.

2. The majority opinion's cases don't help the majority opinion. a. Ridge Natural Resources

Ridge Natural Resources, L.L.C. v. Double Eagle Royalty, L.P. involved a contract calling for arbitration under both JAMS and AAA administration and rules. The trial court denied the defendant's motion to compel arbitration and the defendant appealed. The El Paso Court of Appeals reversed. 564 S.W.3d at 139–40.

The majority opinion's reliance on Ridge is misplaced because Ridge actually supports this dissent and contradicts the majority opinion's analytical framework. In short, Ridge holds that the defendant seeking to compel arbitration made a prima facie case that a valid arbitration agreement existed (despite the alleged ambiguity regarding the selected administrator and rules) because "the uncontested existence of the non-movant's signature on an arbitration agreement meets the evidentiary standard necessary to prove the prima facie existence of an arbitration agreement." Id. at 122. Thus, the burden shifted to the nonmovant to provide a reason why the arbitration agreement was defective. Id.

That court further explained that, notwithstanding the conflicting terms regarding the arbitration administrator and rules, the contracting parties’ signatures on the lease were strong evidence that offeree accepted the offeror's terms and that the parties therefore concluded negotiations, met minds, and agreed to be bound. Id. Accordingly, the movant made its prima facie case, and the burden shifted to the nonmovant to provide a reason why the arbitration agreement was defective. Because the nonmovant never urged the ground that the trial court should deny the motion to compel based on the ambiguity, the court of appeals could not affirm the order on that basis. Id.

In the present case, Baby Dolls is in an even better position than was Ridge. Here, like Ridge , there is no question about the legitimacy of Sotero's signature on the contract. And not only did the Sotero parties, like the Ridge nonmovants, never assert as a ground for denying the motions to compel that the arbitration agreement itself contained an irreconcilable ambiguity that would negate its effective offer and acceptance, but they affirmatively conceded the arbitration agreement's validity and argued (as relevant to this discussion) merely that the agreement's scope did not cover their disputes.

Furthermore, as explained in part II.B.3 below, the arbitration clause's meaning as an independent agreement is unambiguous and, to the extent warranted, there is a reasonable interpretation of the § 3 duration clause that the majority opinion finds confusing. Even if the parties’ sometimes interchangeable use of "agreement" and "license" created some form of ambiguity, that ambiguity would not necessarily strike the arbitration clause's death knell. Rather, for an interpretational question to become a fatal meeting of the minds failure, it must constitute an irresolvable conflict affecting an essential term. Id. at 124–25. Otherwise, the majority opinion would render every contract that is ambiguous on a material term null from its inception regardless of whether the ambiguity is resolvable, a result at odds with a millennium of common law contract law.

Because the majority opinion's perceived quandary is easily resolved by a common sense reading of the contract as a whole under the applicable rules of construction, there is no irreconcilable conflict at issue.

b. Texas La Fiesta Auto Sales, LLC v. Belk

The majority opinion's reliance on Texas La Fiesta Auto Sales, LLC v. Belk , 349 S.W.3d 872 (Tex. App.—Houston [14th Dist.] 2011, no pet.) is likewise misplaced. The issue in that case was whether a subsequent agreement revoked a prior arbitration agreement. Our sister court held that question was a contract existence issue for the courts to decide. Id. at 881. Given that revocation is a mirror image offer and acceptance issue, the result is unremarkable.

The majority opinion further errs by failing to recognize that the parties effectively delegated all other issues regarding the contract's validity, scope, and breadth to the arbitrator.

3. The majority opinion ignores the parties’ delegation of arbitrability issues to the arbitrator.

Federal and Texas law permit parties to delegate most arbitrability issues to the arbitrator, if they do so in clear and unmistakable terms. E.g., Henry Schein, Inc. v. Archer & White Sales, Inc. , ––– U.S. ––––, 139 S. Ct. 524, 527, 529–30, 202 L.Ed.2d 480 (2019) ; First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 942–43, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) ; RSL Funding , 569 S.W.3d as 121. Courts must enforce such contractual delegations of authority—even if they believe the movant's arbitrability argument is "wholly groundless." Henry Schein , 139 S. Ct. at 529.

Texas law respects and enforces contracts that delegate these types of arbitration clause challenges to the arbitrator. See In re Labatt Food Serv., L.P. , 279 S.W.3d 640, 648 (Tex. 2009) (orig. proceeding) ("[A] challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.") The obvious exceptions are questions involving the Buckeye contract making defenses of no signature, no authority, and no capacity that, if applicable, would preclude making the delegation agreement as well. See RSL Funding , 569 S.W.3d at 121, 124–25. But again, this case does not involve those issues. So the question is whether the parties clearly and unmistakably agreed to delegate validity and scope issues to the arbitrator. Having misapplied the separability doctrine, the majority opinion doesn't get to that issue.

Nonetheless, the arbitration clause provides the required delegation:

ARBITRATION SHALL BE THE SOLE FORUM TO DETERMINE THE VALIDITY, SCOPE AND BREA[D]TH OF THIS AGREEMENT.

It is hard to imagine a more clear and unmistakable agreement to delegate to the arbitrator the authority to decide issues regarding their arbitration agreement's validity and scope. Because it includes both validity and scope issues, this sentence alone delegates both issues to the arbitrator. See Dallas Food & Beverage, LLC v. Lantrip , No. 05-17-00647-CV, 2018 WL 1026188, at *2 (Tex. App.—Dallas Feb. 23, 2018, no pet.) (mem. op.) (delegation of validity alone not sufficient to also delegate scope).

Just because the parties disagree regarding that agreement's scope doesn't mean they failed to agree to a scope; it means only that they disagree as to what the scope they agreed to covers. Determining a contract's scope is a contract interpretation issue that is daily bread for courts and arbitrators alike. To conclude otherwise would invalidate the contract in virtually every contract breach case.

Thus, as they had the right to do, the parties contractually delegated to the arbitrator the authority to determine (i) the validity issue the majority opinion does decide and (ii) the scope issue the Sotero parties asked the court to decide.

Accordingly, the law requires us to reverse the trial court's orders and remand the case for the trial court to compel arbitration regarding any validity, scope, and merits issues without considering the contract interpretation issues regarding whether the parties’ non-arbitration contract terms as a whole are unenforceable for failure to reach adequate agreement. Moreover, as shown below, the majority opinion's void for vagueness conclusion misapplies Texas contract construction principles.

4. The License and Lease Agreement doesn't lack agreement on the contract's essential terms.

a. Introduction

The term "meeting of the minds" refers to the parties’ mutual understanding and assent to the expression of their agreement. Weynand v. Weynand , 990 S.W.2d 843, 846 (Tex. App.—Dallas 1999, pet. denied). To create an enforceable contract, the parties’ minds must meet with respect to the agreement's subject matter and all its essential terms. Id. They must agree to the same thing, in the same sense, at the same time. Id. Whether there was a meeting of the minds is based on an objective standard of what the parties said and did rather than their subjective state of mind. Crisp Analytical Lab, L.L.C. v. Jakalam Props., Ltd. , 422 S.W.3d 85, 89 (Tex. App.—Dallas 2014, pet. denied).

Here, the parties’ signed and detailed contract proves that they agreed to the same things, in the same sense, at the same time—their agreement is written down in great detail. And their contract's subject matter is undeniable—they wanted to memorialize the terms and conditions by which Sotero could use designated parts of Baby Dolls’ venue for her own business purposes. It is also obvious that they were trying to avoid creating an employee–employer relationship. Their business arrangement had aspects similar to a combination of a license to use, a real estate lease of undivided space, and an independent contractor relationship. Thus, the question is whether their written expression is sufficiently definite as to the essential terms of those arrangements to be enforced as a contract.

Resolving that question involves the application of contract construction principles, generally, and specific principles concerning this particular issue. The Texas Supreme Court in Fischer v. CTMI, L.L.C. , 479 S.W.3d 231 (Tex. 2016) provides substantial guidance on how to resolve the "meeting of the minds" issue.

b. General Principles

A court interpreting an arbitration agreement applies ordinary contract principles in determining the agreement's existence and reach. Rubiola , 334 S.W.3d at 224 ("Under the FAA, ordinary principles of state contract law determine whether there is a valid agreement to arbitrate."); Ascendant Anesthesia PLLC v. Abazi , 348 S.W.3d 454, 458 (Tex. App.—Dallas 2011, no pet.) ("Whether an arbitration clause imposes a duty to arbitrate is a matter of contract interpretation ...."). Thus, we must apply ordinary Texas contract principles to resolve the void for vagueness issue.

In construing a written contract, we must ascertain and give effect to the parties’ intentions as expressed in the document. Frost Nat'l Bank v. L&F Distribs., Ltd. , 165 S.W.3d 310, 311–12 (Tex. 2005) (per curiam) ; J.M. Davidson, Inc. v. Webster , 128 S.W.3d 223, 229 (Tex. 2003). In seeking to determine the parties’ intent, we construe contracts from a utilitarian standpoint, bearing in mind the particular business activity sought to be served. See Frost Nat'l Bank , 165 S.W.3d at 311.

Additionally, we consider the entire writing and attempt to harmonize and give effect to all its provisions by analyzing them with reference to the whole agreement. Id. at 312 ; Webster , 128 S.W.3d at 229. "No single provision taken alone will be given controlling effect; rather, all the provisions must be considered with reference to the whole instrument." Webster , 128 S.W.3d at 229.

c. Sufficiency of Agreement Principles

Fischer explains in detail the standards courts consider when deciding whether contract terms are sufficient to constitute an enforceable contract. To begin, an enforceable contract must address all of its essential terms with a reasonable degree of certainty. 479 S.W.3d at 237. Although it is difficult to say just what particularity or refinement of terms is essential to meet the reasonable degree of certainty requirement, "a contract must at least be sufficiently definite to confirm that both parties actually intended to be contractually bound." Id. To that end, the terms must be sufficiently definite that a court can understand the parties’ obligations and provide an adequate remedy if they are breached. Id.

However, a contract need be definite and certain only as to those terms that are material and essential to the parties’ agreement. Id. Material and essential terms are those that the parties would reasonably regard as vitally important ingredients of their bargain, which is determined on a case by case basis. Id.

Several additional Fischer principles guide our analysis:

First, we may neither rewrite the parties’ contract nor add to its language. Instead, we must construe the contract as a whole and "evaluate the overall agreement to determine what purposes the parties had in mind when they signed it." Id. at 239 (internal quotation omitted).

Second, because the law disfavors forfeitures, courts will find terms to be sufficiently definite whenever the language is reasonably susceptible to that interpretation. Id. If an instrument admits of two constructions, one that would make it valid and the other invalid, the former prevails. Id. Texas does not favor forfeitures and courts construe contracts to avoid them. Id. Thus, if the parties clearly intended to agree and a reasonably certain basis for granting a remedy exists, courts will find the contract terms definite enough to provide that remedy. Id. When the parties’ conduct shows conclusively that they intended to conclude a binding agreement, courts endeavor, if possible, to attach a sufficiently definite meaning to the bargain. Id.

Third, when construing an agreement to avoid forfeiture, courts may imply terms that can reasonably be implied. Id. "Expressions that at first appear incomplete or uncertain are often readily made clear and plain by the aid of common usage and reasonable implications of fact." Id. (quoting Bendalin v. Delgado , 406 S.W.2d 897, 900 (Tex. 1966) (quoting RESTATEMENT OF THE LAW OF CONTRACTS § 370 & cmt. c)). For example, courts often imply terms setting a reasonable time of payment—or a reasonable time during which the contract will remain effective. Id. (citing Tanenbaum Textile Co. v. Sidran , 423 S.W.2d 635, 637 (Tex. App.—Dallas 1967, writ ref'd n.r.e.) ("Where a contract is silent as to the time it is to run, or provides that it is to run for an indefinite term, ... the law will imply that a reasonable time is meant.")).

Fourth, an apparently indefinite term may be given precision by usage of trade or the parties’ course of dealings. Id. Terms may be supplied by factual implication, and in recurring situations the law often supplies a term absent a contrary agreement. Id. at 239–40.

Fifth, and finally, courts are guided by the principle that part performance under an agreement may remove uncertainty and establish that a contract is enforceable because a bargain has been formed. Id. at 240. Furthermore, the parties’ actions relying on an agreement may make a contractual remedy appropriate even though uncertainty is not removed. Id. When the parties’ actions demonstrate their intent to conclude a binding agreement, although one or more terms are left open, courts endeavor, if possible, to attach a sufficiently definite meaning to the bargain. Id. That is, the law favors finding agreements sufficiently definite for enforcement, particularly where one of the parties has performed her part of the contract. Id.

d. Application to the License and Lease Agreement

1. Analysis of the Contract's Terms

Assuming the court, instead of the arbitrator, has the authority to decide whether the contract as a whole fails for lack of a meeting of the minds on its essential terms, the majority opinion gets that issue wrong. It gets it wrong because (i) it doesn't identify what essential terms are missing; (ii) the parties sufficiently agreed on the essential terms; and (iii) the duration clause on which the majority opinion focuses is a run of the mill evergreen renewal clause capable of being given a reasonable construction.

Regarding the first two points, among other particulars, the contract defines its subject matter; agrees on the nature of the parties’ working relationship (a non-employee right for Sotero to use parts of Baby Dolls’ premises where she can perform her work); identifies services Baby Dolls will provide Sotero; specifies a work schedule; provides financial arrangements; and has numerous other terms and conditions. The parties specifically included a section addressing the contract's initial term and renewal rights. Given the parties’ detailed effort to define and document the terms and conditions governing their relationship, it would be unreasonable to conclude that they did not intend to conclude a binding contract.

The majority opinion does not identify any particular unaddressed essential term. Instead, it focuses on imperfect language in the § 3 duration clause to conclude that the entire contract was a waste of time, paper, and toner—not to mention that it ignores the nearly two years under which Sotero and Baby Dolls supposedly conducted their relationship without a meeting of the minds. All of that despite the parties’ stated intent to form a binding contract and their statement that their agreement in fact represented their "meeting of the minds" regarding their relationship.

To reach its conclusion, the majority opinion adapts the Sotero parties’ trial court argument that they were not bound by the arbitration agreement because it expired on December 31, 2017, when the agreement's lease portion expired but the license portion continued under the § 3 renewal terms.⁴ But the contract delegates to the arbitrator this scope argument regarding whether the arbitration agreement applies to the Sotero parties’ claims that arose in 2019. However, the majority opinion elevates that argument to what it conceives is a Buckeye contract making defense along the lines of the no signature, no authority, and no capacity defenses that a court must decide and that theoretically could erase the arbitration clause along with the rest of the contract. Nonsense.

4 3. DURATION OF LICENSE AND TEMPORARY SPACE LEASE: TERMINATION OF LICENSE AND TEMPORARY SPACE LEASE
This Agreement shall be for the period commencing on the date it is signed by all parties (Agreement Commencement Date) and shall terminate on December 31 of the year of execution (unless the parties agree, in writing, to modify the term). The License shall thereafter be automatically extended for successive one year periods running from January[ ]1 through December 31 of each year thereafter. Notwithstanding the foregoing, at any time after the first year of the License term, this License may be terminated (a) within thirty (30) days after the receipt of written termination notice from the Licensor to Licensee (b) the last day of the month that is ninety (90) days after the receipt of a written termination notice from Licensee to Licensor , or (c) such sooner date in accordance with paragraph 19 hereof, any such dates which shall be the "License Termination Date." Upon the License Termination Date, Licensee shall have no further right to use and occupy the Premises and the License and lease rights granted to Licensee shall terminate.

First, that premise fails for the reasons stated in parts II.B.1 and 2 above.

Second, although that clause could be better written, it is easily understood to be a typical "evergreen" renewal clause whereby the contract automatically renewed annually each January first unless either party gave a proper, written termination notice. These types of automatic renewal clauses are common clubs in a contract drafters’ golf bag. This is at least one reasonable way to construe § 3, and we must avoid the type of complete forfeiture the majority opinion produces if it is reasonably possible to do so. This automatic renewal construction is possible and reasonable. Therefore, we must adopt it. See Fischer , 479 S.W.3d at 239–40.

What is implausible is the idea that the parties intended to have no contract at all, which is the result the majority opinion produces.

It is also implausible that the parties meant that Sotero's license rights and responsibilities would continue after December 31, 2017, sans accompanying terms and conditions defining those rights and responsibilities. Yet that is the result their § 3 reading would produce. It is not possible to have a license with no accompanying terms.

So under what terms did Sotero and Baby Dolls operate from January 1, 2018, until her death? An obvious interpretation is that they understood their existing relationship to continue after that date on the same terms and conditions as before. Stated differently, their continued performance for more than a year after December 31, 2017, is strong evidence that they understood their relationship was automatically renewed under their existing contract.

Not only does this analysis negate the majority opinion's "license agreement but not license termination" argument, but it also rends the majority opinion's conclusion that the entire contract fails for lack of certainty regarding § 3's meaning.

Third, as the majority opinion observes, § 3 uses the words "Agreement" and "License" interchangeably. The majority opinion also correctly observes that the parties frequently used those words interchangeably throughout their contract. The obvious conclusion then is that the parties viewed the words to be interchangeable unless specific circumstances required a different usage. For example, it makes sense that an agreement would grant a license; whereas, it would make no sense for a license to grant a license or to grant an agreement. Likewise, it would make no sense for an agreement to grant an agreement. So those words necessarily have different meanings in the granting clause. But in other contexts using the words interchangeably doesn't necessarily matter, especially since the contract is a license agreement after all.

More specifically, the § 3 duration clause is one part of the contract where using the words interchangeably doesn't matter. It doesn't matter there because in that context it makes no sense to separate the continuing license from its accompanying terms and conditions on which it depends.

2. Compliance with the Guiding Principles

The majority opinion's analysis and conclusion do not comport with the guiding principles discussed in parts II.B.3.b and c above, but the analysis and conclusion discussed in this dissent do.

For example, this dissent's construction gives effect to the parties’ intent to have a potentially ongoing, post-2017 business relationship based on terms spelled out in their contract, including its embedded arbitration agreement. Thus, that construction gives effect to the parties’ intent when viewed from a utilitarian standpoint, bearing in mind the particular business activity sought to be served.

Likewise, this dissent harmonizes § 3's usage with the other contract provisions, without giving any single provision controlling effect, when construed in light of the entire contract and its purpose. The majority opinion doesn't do that.

Next, the dissent's analysis satisfies the specific Fischer factors because it provides a sufficiently definite meaning such that a court can understand the parties’ obligations and provide an adequate remedy if necessary. It is easy to apply a run of the mill automatic renewal clause and determine whether the parties honored its notice and termination provisions. If they didn't, a trial court has a variety of potential legal and equitable remedies available to it. This is routine stuff for trial courts and commercial arbitrators. The majority opinion, however, does not entertain the prospect that § 3 is merely an unartfully written automatic renewal clause.

Additionally, the dissent gives full meaning to the parties’ words without rewriting them, and it construes the contract as a whole and evaluates the overall agreement to implement the purposes the parties had in mind when they signed the contract—as opposed to the Sotero parties’ after the fact wishes.

Furthermore, the dissent avoids a forfeiture, while the majority opinion foists a complete one on the parties.

Moreover, courts are able to resolve perceived uncertainties regarding a contract's duration by reference to common usages. Here, this opinion recognizes that automatic renewal clauses are often used in contracts; whereas, the majority opinion ignores that fact. Similarly, as shown by our recent decision in Dallas Food & Beverage, LLC v. Lantrip , No. 05-17-00647-CV, 2018 WL 1026188 (Tex. App.—Dallas Feb. 23, 2018, no pet.) (mem. op.), these lease agreement constructs are common in this community, which fact the dissent recognizes.

Finally, the parties’ continued performance for more than a year after the 2017 initial contract term end date is powerful evidence they understood that Sotero's license and its accompanying terms continued during that post-2017 time period. Notably, there is no evidence suggesting that Sotero and Baby Dolls negotiated a different contract covering that span. Because there can be no license without at least some surrounding terms, the logical inference is that they continued their relationship under their existing contract. The majority opinion, however, gives no credence to that possibility.

C. Occam's Razor

As the majority opinion posits, it is often correct that the simplest answer is the best answer. However, a thorough and correct answer always trumps a simple and wrong answer.

III. CONCLUSION

In sum, the majority opinion ignores common sense and works to destroy the parties’ expressed intent given the business and utilitarian goals they were striving to achieve.

For all of these reasons, we should (i) treat the Sotero/Baby Dolls embedded arbitration agreement as a standalone, independent contract; (ii) construe that independent contract according to normal contract construction rules; (iii) reverse the trial court's orders denying Baby Dolls’ motions to compel arbitration; and (iv) remand the case for further proceedings consistent with this opinion. Because the majority opinion doesn't do that, I dissent.