Opinion
No. 05-15-01455-CV
06-23-2016
LAKEWAY HOMES, INC., Appellant v. H. RON WHITE AND RITA WHITE, Appellees
On Appeal from the County Court at Law No. 2 Dallas County, Texas
Trial Court Cause No. CC-14-01937-B
MEMORANDUM OPINION
Before Justices Bridges, Stoddart, and O'Neill
Opinion by Justice O'Neill
The Hon. Michael J. O'Neill, Justice, Court of Appeals. Fifth District of Texas at Dallas, Retired, sitting by assignment.
Appellant Lakeway Homes, Inc. (Lakeway) appeals the trial court's denial of its amended motion to compel arbitration. In six issues, Lakeway challenges each of the grounds on which appellees H. Ron and Rita White opposed its amended motion to compel arbitration. For the reasons discussed below, we conclude Lakeway demonstrated its right to arbitrate this dispute, and appellees did not establish an affirmative defense to arbitration. Accordingly, we reverse the trial court's order denying Lakeway's amended motion, and we remand this case to the trial court for further proceedings consistent with this opinion.
Background
Parties to this appeal entered into an agreement (the Construction Contract) for Lakeway to build a home for appellees in Cedar Hill, Texas. One element of the construction project was a stucco wall to be built on appellees' property. Appellees allege that the wall was not built "as represented, not properly constructed, not of proper quality and [] not constructed in a good and workmanlike manner." On April 23, 2014, appellees sued Lakeway and its president Brad Book, eventually urging claims for fraud, breach of contract, negligence, negligent misrepresentation, and violations of the Texas Deceptive Trade Practices Act (the DTPA).
Appellees also sued subcontractor TJS Stucco & Stone Inc. (TJS Stucco) for breach of implied warranty and negligence. TJS Stucco filed a motion for summary judgment on appellees' claims against it. The trial court granted the summary judgment motion, and TJS Stucco was dismissed from the lawsuit.
The Construction Contract contains a provision in which the parties agreed to submit any dispute between them first to mediation and, if mediation were not successful, then to binding arbitration (the Arbitration Provision). On August 12, 2015, Lakeway filed a motion to compel arbitration pursuant to the Arbitration Provision; appellees responded, opposing arbitration.
The Arbitration Provision is lengthy and detailed. We quote here the initial portion of the provision, which includes the terms relevant to our discussion:
It is the policy of the State of Texas to encourage the peaceable resolution of disputes through alternative dispute resolution procedures. The parties to this Contract specifically agree that this transaction involves interstate commerce and that any dispute (whether contract, warranty, tort, statutory or otherwise), including, but not limited to, (a) any and all controversies, disputes or claims arising under, or relating to, this Contract, and any amendments thereto, the Property, or any dealings between the Owner and Contractor, (b) any controversy, dispute or claim arising by virtue of any representations, omissions, promises or warranties alleged to have been made by Contractor or Contractors representative; and (c) any personal injury or property damage alleged to have been sustained by Owner or Contractor, its agents, employees or subcontract material suppliers on the Property or in the subdivision shall first be submitted to mediation and, if not settled during mediation, shall thereafter be submitted to binding arbitration as provided by the Federal Arbitration Act (9 U.S.C. §§1 et seq.) or, if applicable, by similar state statute, and not by or in a court of law. All decisions respecting the arbitrability of any dispute shall be decided by the arbitrator. In no event shall Buyer be initially required to pay arbitration costs and fees in excess of those that would have been incurred in filing suit in a court of law and effecting service of process. The arbitrator may award to the prevailing party, if any, as determined by the arbitrator, all or any portion of its costs and fees. "Costs and fees" may include reasonable expenses of mediation and/or arbitration, including arbitrator's fees, administrative fees, travel expenses and out-of-pocket expenses such as copying and telephone, court costs, witness fees and reasonable attorney's fees.
After a continuance for Lakeway's counsel to undergo and recover from surgery, Lakeway filed an amended motion to compel arbitration. In its amended motion, Lakeway cited the Arbitration Provision of the Construction Contract, stressed appellees' agreement to that provision, and demanded that "the disputes, claims, defenses, and controversies in this lawsuit" be submitted to arbitration in accordance with it. Lakeway went on to assert that it had not waived its right to arbitrate, either expressly or implicitly. Lakeway cited to Perry Homes v. Cull, 258 S.W.3d 580 (Tex. 2008), the supreme court's leading case on implicit waiver of the right to arbitration, and distinguished its own participation in appellees' lawsuit from that of the Culls in Perry Homes:
In this case, Defendant Lakeway has not initiated any discovery, filed or sought hearings on any dispositive motions, or opposed any other party's effort to compel arbitration. Defendant Lakeway has participated in mediation (as it was required to do under the arbitration clause). It has responded to discovery initiated by other parties. It has attended and participated in depositions initiated by other parties. It has agreed to trial settings and scheduling orders, as required by the court. It filed a counterclaim for its attorney's fees, but this was merely a reactive, defensive matter to preserve the claim and it did not seek discovery on that issue. It has attended, but did not participate in, a hearing on motion for summary judgment filed by a co-defendant. Defendant Lakeway's counsel sought and obtained continuance, but that was due to his need for surgery.Lakeway also cited to the supreme court's conclusion that a showing of prejudice is necessary to accomplish an implicit waiver, and it argued its own delay in seeking arbitration was not excessive.
Appellees filed a response to Lakeway's amended motion, raising a number of arguments against arbitration. They contended Lakeway had waived the right to arbitrate by substantially invoking the judicial process to their prejudice, and they listed twenty-five ways in which Lakeway had purportedly "fil[ed], serv[ed], respond[ed] and/or appear[ed]" in the lawsuit before raising arbitration. They argued further that appellant's amended motion should be denied based on the doctrine of merger, the non-waiver provision of the DTPA, the open courts provision of the Texas constitution, and their argument that Lakeway was not a party to the Construction Contract.
Book testified at the hearing on the amended motion, and the Construction Contract was admitted as the only exhibit. Ten days after the hearing, the trial court denied the amended motion in a written order without identifying any specific ground for its ruling.
Lakeway brings this interlocutory appeal.
Jurisdictional Challenge
At the outset, we address appellees' challenge to our jurisdiction over this appeal. The Arbitration Provision calls for disputes to be submitted to arbitration pursuant to the Federal Arbitration Act (FAA). In a matter subject to the FAA, a party may appeal an interlocutory order from a county court at law under the same circumstances that it could appeal from a federal court's order. TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West 2015). And federal law permits an appeal from an order denying an application to compel arbitration. U.S.C.A. § 16(a)(1)(C) (West 2009). However, appellees challenge whether this litigation qualifies as a matter subject to the FAA because, they contend, the Construction Contract does not evidence a transaction involving interstate commerce. See U.S.C.A. § 2 (including "commerce" requirement in identifying valid arbitration provision); U.S.C.A. § 1 (defining "commerce" to embrace interstate or international commerce).
Appellees concede the parties agreed within the Arbitration Provision that "this transaction involves interstate commerce." The parties also agreed that any dispute would be submitted first to mediation and then, if not settled, "to binding arbitration as provided by the Federal Arbitration Act." When parties expressly contract for the FAA to govern the arbitration clause in their contract, courts will uphold that choice. In re AdvancePCS Health L.P., 172 S.W.3d 603, 606 (Tex. 2005) (orig. proceeding) (per curiam). We will uphold that choice even if the contract does not, on its face, involve interstate commerce. See In re Kellogg Brown & Root, 80 S.W.3d 611, 617 (Tex. App.—Houston [1st Dist.] 2002, no pet.) (orig. proceeding) ("[W]hen, as here, the parties agree to arbitrate under the FAA, they are not required to establish that the transaction at issue involves or affects interstate commerce."); see also Roe v. Ladymon, 318 S.W.3d 502, 510 (Tex. App.—Dallas 2010, no pet.) (concluding FAA applies because parties agreed arbitration would be governed by FAA and citing In re Kellogg Brown & Root).
We conclude Lakeway has properly appealed the order denying its amended motion to compel arbitration and this Court has jurisdiction to decide the appeal.
Lakeway's Right to Arbitrate
A party moving to compel arbitration has the initial burden to establish the existence of a valid arbitration agreement and the existence of a dispute within the scope of the agreement. Rachal v. Reitz, 403 S.W.3d 840, 843 (Tex. 2013). The party seeking to avoid arbitration then bears the burden of raising an affirmative defense to enforcement of the otherwise valid arbitration provision. Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168, 177 (Tex. App.—Dallas 2013, no pet.). We review an interlocutory appeal under section 51.106 for an abuse of discretion. Sidley Austin Brown & Wood, LLP v. J.A. Green Dev. Corp., 327 S.W.3d 859, 863 (Tex. App.—Dallas 2010, no pet.). We must uphold the trial court's order denying arbitration if it is proper on any basis considered by the trial court. In re Weeks Marine, Inc., 242 S.W.3d 849, 854 (Tex. App.—Houston [14th Dist.] 2007) (orig. proceeding).
Lakeway's appellate issues challenge each of the arguments made by appellees in opposition to the amended motion. As Lakeway addresses each of appellees' arguments, it argues that—if the trial court relied upon that argument to deny the amended motion—then the court's order should be reversed. We address the issues in turn.
A Valid Enforceable Agreement to Arbitrate
In its first issue, Lakeway addresses appellees' challenge to Lakeway's showing of a valid, enforceable arbitration agreement. Their challenge is not to the validity of the Arbitration Provision itself, but rather to the status of Lakeway with regard to the Construction Contract as a whole. Appellees argue that Lakeway is not a party to the Construction Contract at all because Book, the president of Lakeway, signed the contract in his personal capacity rather than on behalf of the corporation. The Construction Contract's signature block is reproduced below:
OWNER:Appellees charge that Book's signature is insufficient to establish that he signed the Construction Contract on behalf of Lakeway because the signature block does not disclose his corporate title.
(Husband and Wife must both
execute and acknowledge
this Contract)
/s/ _________
Printed Name:
/s/ _________
Printed Name:
CONTRACTOR:
LAKE WAY HOMES. INC.
By:/s/ _________
Printed Name: BRAD BOOK
When construing a contract our primary concern is to determine the true intentions of the parties as expressed in the instrument. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). To determine the parties' intent, we must examine the entire agreement and give effect to all its provisions so that none are rendered meaningless. Id. At the outset, then, we look to the initial provisions of the Construction Contract. The full title of the Construction Contract is "New Residential Construction Contract with Builder's and Mechanic's Lien - Fixed Price (Between Landowner and Contractor)." The numbered paragraphs setting forth the actual agreement of the parties are prefaced by this language: "In consideration of the terms and conditions contained herein, and other valuable consideration, the receipt and sufficiency of which is acknowledged, Owner and Contractor agree as follows." The term "Owner" is defined to mean H. Ron White and Rita C. White; the term "Contractor" is defined to mean Lakeway Homes, Inc. Those defined terms are used throughout the Construction Contract when referring to the parties. And they are used in the signature block in precisely the same way: the Whites both print and sign their names under the heading Owner, and Lakeway Homes, Inc. "signs" under the heading Contractor, "by" its president signing his name.
Our supreme court has stated "[t]he mere fact that [the president of the company] signed the agreement without indicating his agency is no evidence that he acted individually." Latch v. Gratty, Inc., 107 S.W.3d 543, 546 (Tex. 2003). "When it is apparent from the entire agreement that an officer of a corporation signed the contract on behalf of the corporation as an agent of the corporation, it is the corporation's contract." Wright Group Architects-Planners, P.L.L.C. v. Pierce, 343 S.W.3d 196, 201 (Tex. App.—Dallas 2011, no pet.).
We note that appellees rely on Wright Group for its conclusion as to the signature of a "principal" of a non-existent company, which was not mentioned within the parties' agreement and was not identified in any way in the signature of that "principal." 343 S.W.3d at 200-01 ("Pierce signed the contract simply 'Jim Pierce.' He did not write in a corporate or company name and did not indicate that he was signing the contract in a representative capacity."). In this case, the printed signature block identified the Contractor-party as Lakeway and indicated it was being bound "By" Book.
We conclude Lakeway is indeed a party to the Construction Contract. We conclude Lakeway has established the existence of a valid arbitration provision between itself and appellees. Further, it is undisputed that appellees' claims in this lawsuit fall within the ambit of the Arbitration Provision. If the trial court concluded Lakeway had not met its initial burden to compel arbitration, see Rachal, 403 S.W.3d at 843, that was an abuse of discretion. We sustain Lakeway's first issue.
Non-Waiver Provision of the DTPA
In its second issue, Lakeway addresses appellees' argument that application of the FAA in this case triggers the non-waiver provisions of the DTPA and would be contrary to public policy. See TEX. CIV. PRAC. & REM. CODE ANN. § 17.42(a) (West 2015) ("Any waiver by a consumer of the provisions of this subchapter is contrary to public policy and is unenforceable and void."). The Texas Supreme Court has resolved this issue. It has held, and this Court has consistently repeated, that the FAA preempts state statutes to the extent they are inconsistent with it. Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 271 (Tex. 1992); In re Merrill Lynch, Pierce, Fenner & Smith Inc., 131 S.W.3d 709, 712 (Tex. App.—Dallas 2004) (orig. proceeding). Indeed, the supreme court has specifically stated that the non-waiver provision of the DTPA falls within this FAA preemption. Tipps, 842 S.W.2d at 271 ("We likewise are of the opinion that federal law preempts application of the non-waiver provision of the DTPA to prevent or restrict enforcement of this arbitration agreement.").
We conclude that enforcement of the arbitration provision in the Construction Contract is not contrary to public policy. If the trial court denied the amended motion on this ground, that was an abuse of discretion. We sustain Lakeway's second issue.
Open Courts Provision of the Texas Constitution
In its third issue, Lakeway addresses appellees' argument that enforcement of the Arbitration Provision would violate the Open Courts provision of the Texas Constitution. Our constitution states that "[a]ll courts shall be open, and every person for an injury done him, in his lands, goods, person or reputation, shall have remedy by due course of law." Tex. Const. art. I, § 13. Appellees correctly argue that this provision is a guarantee of due process. Sax v. Votteler, 648 S.W.2d 661, 664 (Tex. 1983). However, enforcing the arbitration clause in this case would not treat appellees unfairly. We have discussed that the FAA Act preempts state law that conflicts with its objectives. Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222, 227 (Tex. 2014). However, the FAA did not take away appellees' "day in court." The statute did not operate to restrict a remedy for appellees. On the contrary, appellees agreed to the remedy of arbitration rather than litigation for conflicts arising out of the Construction Contract, and we have concluded their agreement to arbitrate was valid under Texas contract law.
We conclude that enforcement of the Arbitration Provision would not implicate the Open Courts provision. If the trial court denied the amended motion on this ground, that was an abuse of discretion. We sustain Lakeway's third issue.
Merger
In its fourth issue, Lakeway addresses appellees' argument that the Arbitration Provision in the Construction Contract was extinguished by the merger doctrine. Appellees rely on Alvarado v. Bolton, 749 S.W.2d 47 (Tex. 1988) and the supreme court's articulation of the merger doctrine therein:
When a deed is delivered and accepted as performance of a contract to convey, the contract is merged in the deed. Though the terms of the deed may vary from those contained in the contract, still the deed must be looked to alone to determine the rights of the parties.Id. at 48 (quoting Baker v. Baker, 207 S.W.2d 244, 249 (Tex. Civ. App.—San Antonio 1947, writ ref'd n.r.e.)). Appellees argue the Arbitration Provision is not "in the closing documents, the deed, or otherwise," and thus cannot be enforced by Lakeway.
We agree the general rule is that a deed made in full execution of a contract of sale of land merges the provisions of the contract. Harris v. Rowe, 593 S.W.2d 303, 306 (Tex. 1979). However, a contract for the sale of land that creates rights collateral to and independent of the conveyance survives a deed that is silent in respect to the collateral or independent agreement. Id. at 307. Texas courts have held that an arbitration provision creates this kind of right independent of the sale of property; thus, an arbitration provision is not "merged out of existence" by subsequent deeds or other closing documents. Stanford Dev. Corp. v. Stanford Condo. Owners Ass'n, 285 S.W.3d 45, 52 (Tex. App.—Houston [1st Dist.] 2009, no pet.); see also In re Rio Grande Xarin II, Ltd., No. 13-10-00115-CV, 2010 WL 2697145, at *5 (Tex. App.—Corpus Christi July 6, 2010, pet. dism'd) (memo op.) (agreement containing valid arbitration provision created rights collateral to and independent of conveyance).
We conclude the Arbitration Provision was not merged into the deed or other closing documents in this case. If the trial court denied the amended motion on this ground, that was an abuse of discretion. We sustain Lakeway's fourth issue.
Implied Waiver
In its fifth issue, Lakeway addresses appellees' argument that Lakeway implicitly waived its right to compel arbitration. The supreme court has consistently held that a party can waive this right "by substantially invoking the judicial process to the other party's detriment or prejudice." Perry Homes v. Cull, 258 S.W.3d 580, 589-90 (Tex. 2008). To establish this affirmative defense, appellees had the burden to establish both prongs of the waiver: (1) substantial invocation of the judicial process, and (2) prejudice caused by that invocation. See Pilot Travel Centers, 416 S.W.3d at 177. We evaluate a defense of implied waiver on a case-by-case basis, looking to the totality of the circumstances. Perry Homes, 258 S.W.3d at 591. Although waiver can be implied from a party's conduct, the "conduct must be unequivocal." Id. at 593. Moreover, "in close cases, the 'strong presumption against waiver' should govern." Id. (citing In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex. 2006), and EZ Pawn Corp. v. Manciads, 934 S.W.2d 87, 89 (Tex. 1996)).
The supreme court emphasized in Perry Homes that waiver of arbitration requires a showing of prejudice. 258 S.W.3d at 595. In this context, the court said, prejudice relates to "inherent unfairness" in terms of delay, expense, or damage to the other party's legal position caused by "a party's attempt to have it both ways by switching between litigation and arbitration to its own advantage." Id. at 597. Whether Lakeway's conduct caused prejudice to appellees is a legal question for this Court. Id. at 598.
We begin with the first of the three Perry Homes prejudice factors, delay. It is undisputed that Lakeway did not raise the issue of arbitration until almost sixteen months after appellees filed suit. However, we see nothing in the record suggesting that appellees were attempting to move the litigation quickly toward a trial date: appellees themselves—albeit for their own reasons—point out that the parties agreed to three different scheduling orders in the sixteen months the case was pending below. And at submission of this case, counsel for appellees was unable to identify any prejudice evidenced by Lakeway's delay beyond the fact of delay itself. "Delay alone generally does not establish waiver." In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006) (orig. proceeding) (per curiam); see also Sipriano v. Reg'l Fin. Corp. of Tx., No. 05-15-00397-CV 2016 WL 2905553, at *4 (Tex. App.—Dallas May 16, 2016, no pet.) (memo op.) ("Mere delay in asserting the right to arbitration is not ordinarily enough to establish prejudice, even if it is substantial."). Certainly Texas courts have determined that delay longer than Lakeway's was not alone sufficient to waive the right to arbitrate. See, e.g., In re Vesta Ins. Group, 192 S.W.3d at 763 (motion to compel following two years of litigation).
As to the second factor in our inquiry, expense, we ask whether any expense caused by Lakeway's delay in seeking to compel arbitration caused prejudice to appellees. At the hearing on the amended motion, counsel for appellees argued that his client had incurred more than 200 hours of attorney's fees at that point in the litigation. Appellees offered no evidence to indicate how much of those fees were attributable to Lakeway's presence in the suit. Indeed, Lakeway responded to the argument below by pointing out that the most fee-intensive portion of the litigation for appellees had been the summary judgment proceedings that resulted in the dismissal of defendant TJS Stucco. Counsel for appellees conceded at submission that the record did not contain evidence of any expense that was caused by Lakeway's delay in moving to compel arbitration.
We note as a related matter that the Arbitration Provision states:
In no event shall [appellees] be initially required to pay arbitration costs and fees in excess of those that would have been incurred in filing suit in a court of law and effecting service of process. The arbitrator may award to the prevailing party, if any, as determined by the arbitrator, all or any portion of its costs and fees. "Costs and fees" may include reasonable expenses of mediation and/or arbitration, including arbitrator's fees, administrative fees, travel expenses and out-of-pocket expenses such as copying and telephone, court costs, witness fees and reasonable attorney's fees.Thus, the Arbitration Provision provides protection from additional expense to both parties. --------
Finally, we look to the third factor, whether appellees' legal position was damaged by Lakeway's delay in raising arbitration. Again, we see no evidence in the record of any harm caused to appellees' legal position, and counsel for appellees confirmed at submission that none had been offered. Appellees did argue in their amended response that Lakeway's seeking discovery on the merits of the case constituted prejudice. However, our review of the record, including appellees' own recitation of Lakeway's participation in the litigation below, does not indicate that Lakeway requested any discovery from appellees, on the merits of the case or otherwise. We do not see any manipulation of the litigation by Lakeway for its own advantage and to appellees' detriment.
Given the totality of the circumstances, we conclude appellees did not establish that they were prejudiced by Lakeway's delay in seeking to compel arbitration. In the absence of any evidence of prejudice, we need not address whether Lakeway's conduct substantially invoked the judicial process. See Sipriano, 2016 WL 2905553, at *6. If the trial court denied the amended motion on the ground of implied waiver, that was an abuse of discretion. We sustain Lakeway's fifth issue.
Defenses Not Considered by the Trial Court
In its sixth issue, Lakeway argues that if the trial court denied the amended motion based upon any claims raised by appellees' petition, but not included within the motion-to-compel record, we should reverse. We conclude Lakeway's first five issues address each argument raised by appellees in their response and argument to the trial court. Appellees have not attempted to raise any additional issues in this Court. Accordingly, Lakeway's sixth issue presents nothing for our review.
Conclusion
We have sustained each of Lakeway's issues addressing a ground raised by appellees in opposition to arbitration. We conclude the trial court abused its discretion in denying Lakeway's amended motion to compel arbitration. We reverse the trial court's order, and we remand this case for further proceedings consistent with this opinion.
/Michael J. O'Neill/
MICHAEL J. O'NEILL
JUSTICE, ASSIGNED 151455F.P05
JUDGMENT
On Appeal from the County Court at Law No. 2, Dallas County, Texas
Trial Court Cause No. CC-14-01937-B.
Opinion delivered by Justice O'Neill, Justices Bridges and Stoddart participating.
In accordance with this Court's opinion of this date, the judgment of the trial court is REVERSED and this cause is REMANDED to the trial court for further proceedings consistent with this opinion.
It is ORDERED that appellant LAKEWAY HOMES, INC. recover its costs of this appeal from appellees H. RON WHITE and RITA WHITE. Judgment entered this 23rd day of June, 2016.