Granite Re Inc. v. Jay Mills Contracting Inc.

GRANITE RE INC. APPELLANT v. JAY MILLS CONTRACTING INC. APPELLEE

NO. 02-14-00357-CV

COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH

April 23, 2015

FROM THE 355TH DISTRICT COURT OF HOOD COUNTY

TRIAL COURT NO. C2014036

MEMORANDUM OPINION¹ ON REHEARING

On April 10, 2015, appellant Granite Re Inc. (Granite) filed a motion for rehearing directed to our March 26, 2015 memorandum opinion and judgment. We deny the motion for rehearing but withdraw our prior opinion and judgment and substitute the following. See Tex. R. App. P. 49.3.

Granite appeals from the trial court's order denying its motion to compel arbitration. We reverse the trial court's order and remand for entry of an order compelling arbitration.

I. BACKGROUND

A. UNDERLYING AGREEMENTS

The City of Granbury (the city) hired appellee Jay Mills Contracting, Inc. (JMC) to design and build a recreational boardwalk, boat dock, and fishing dock (the project). JMC then subcontracted with North American Marine Industries (NAMI) to perform the required work. JMC and NAMI entered into a "Blanket Agreement . . . between the Contractor and the Design/Build Subcontractor" (the blanket agreement). NAMI signed the blanket agreement on June 19, 2012, and JMC signed it on June 28, 2012. The blanket agreement included an arbitration clause, which provided that "all claims, disputes and controversies arising out of or relating to this Blanket Agreement and any Work Orders issued hereunder, including claims for extra work or changed conditions to or related to the Subcontract Work, shall be decided by arbitration." The arbitration clause further stated that the "claimant" in any such arbitration proceeding could be either "the Contractor"—JMC—or the "Design/Build Subcontractor"—NAMI. Similarly, the blanket agreement provided that "[n]othing contained in this Blanket Agreement shall create a contractual relationship with, or create a cause of action in favor of, a third party which is neither the Contractor [JMC] nor Design/Build Subcontractor [NAMI]. [JMC] and [NAMI] agree that there are no third partybeneficiaries to the Blanket Agreement." The blanket agreement further provided that NAMI would furnish a performance bond "in a form satisfactory to [JMC]," if JMC required such a bond. It is uncontradicted that JMC required NAMI to furnish a performance bond.

On the same dates that JMC and NAMI signed the blanket agreement, they also signed a "Work Order to Blanket Agreement" (the work order), incorporating the terms of the blanket agreement. The work order required NAMI to "provide bonding for the project for an additional $8,730.00." On June 21, 2012—before JMC signed the blanket agreement and work order but after NAMI did so—NAMI executed a performance bond, with Granite acting as the surety, in the amount of $291,719.² The performance bond stated that the work order between JMC and NAMI was "incorporated by reference and made a part of this [performance bond] for all purposes."

B. UNDERLYING DISPUTE³

JMC alleged that by October 2012, NAMI had abandoned the project, defaulted on the blanket agreement and work order, and "clos[ed] shop." OnMarch 10, 2014, JMC sued NAMI and Granite, as NAMI's surety, for breach of contract—the blanket agreement, the work order, and the performance bond—and sought damages arising from JMC's efforts to complete the project and from JMC's settlement of the city's claims against it. JMC's breach-of-contract claim against Granite solely encompassed Granite's alleged breach of the performance bond, not any breach of the blanket agreement or the work order. At some point in 2014, NAMI filed for bankruptcy protection. After the bankruptcy court granted NAMI a discharge, JMC filed a notice of nonsuit as to its claims against NAMI, and the trial court entered a dismissal order as to those claims. See Tex. R. Civ. P. 162; Epps v. Fowler, 351 S.W.3d 862, 868 (Tex. 2011).

Granite then filed a motion to compel arbitration under the arbitration clause contained in the blanket agreement, arguing that the clause in the blanket agreement was incorporated into the performance bond through the work order. Thus, Granite argued that the performance bond incorporated the valid arbitration clause and that JMC's claims fell within the scope of the clause. Granite's argument was analogous to the children's song "There Was an Old Lady Who Swallowed a Fly": Because the work order swallowed the performance bond and the blanket agreement swallowed the work order, the blanket agreement necessarily swallowed the performance bond contained in the work order.⁴

Granite also asserted that even if the arbitration clause in the blanket agreement could not be found to have been incorporated into the performance bond such that it applied to JMC's claims against Granite, JMC's claims were subject to the arbitration clause based on direct-benefits estoppel and JMC's status as a third-party beneficiary of the performance bond. In other words, Granite argued that if the performance bond that Granite signed was not incorporated into the blanket agreement such that the performance bond did not contain an arbitration clause, Granite could enforce the clause against JMC under equitable-estoppel theories.⁵ JMC responded that the performance bond did not contain an arbitration clause and that even if the performance bond were deemed to include an arbitration clause, its indemnity claim against Granite did not fall within the clause's scope.

After holding a nonevidentiary hearing, the trial court denied Granite's motion to compel without entering findings of fact or conclusions of law. Granite filed an accelerated appeal and argues that the trial court erred by denying its motion because a valid arbitration clause existed that governed JMC's claims.See Tex. Civ. Prac. & Rem. Code Ann. § 51.016 (West 2015) (allowing interlocutory appeal from denial of motion to compel arbitration under the FAA).

In its motion to compel, Granite asserted the Federal Arbitration Act applied "because the parties have engaged in interstate commerce." See 9 U.S.C.A. § 2 (West 2009) (providing FAA governs contracts relating to interstate commerce). JMC did not object to the application of the FAA and the only argument raised in the trial court was that the FAA applied; thus, we apply the FAA. See IKON Office Solutions, Inc. v. Eifert, 2 S.W.3d 688, 696 (Tex. App.—Houston [14th Dist.] 1999, orig. proceeding & no pet.) (holding burden is on party seeking to compel arbitration to show FAA applies).

II. STANDARD OF REVIEW, BURDENS, AND PRESUMPTIONS

We review the trial court's denial of a motion to compel arbitration for an abuse of discretion but we review de novo a trial court's determination regarding whether a valid agreement to arbitrate exists. See In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig. proceeding); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003); Branch Law Firm, L.L.P. v. Osorn, 447 S.W.3d 390, 395 (Tex. App.—Houston [14th Dist.] 2014, no pet.). But because the trial court did not enter findings of fact or conclusions of law to explain its denial of the motion to compel, we must uphold the trial court's decision if there is sufficient evidence to support the denial on any legal theory raised in the trial court. Shamrock Foods Co. v. Munn & Assocs., Ltd., 392 S.W.3d 839, 844 (Tex. App.—Texarkana 2013, no pet.); In re WeeksMarine, Inc., 242 S.W.3d 849, 854 (Tex. App.—Houston [14th Dist.] 2007, orig. proceeding).

Because Granite sought to compel arbitration, it bore the burden to establish that (1) there is a valid arbitration agreement and (2) the claims raised fall within that agreement's scope. In re Kellogg, Brown & Root, Inc., 166 SW.3d 732, 737 (Tex. 2005) (orig. proceeding). The first inquiry is not subject to the FAA's general presumption in favor of arbitration and is determined by the application of state-law principles of contract. See In re Poly-Am., L.P., 262 S.W.3d 337, 347-48 (Tex. 2008) (orig. proceeding); Kellogg, 166 S.W.3d at 737-38. Under such principles, we primarily must determine the parties' intent as expressed in the terms of the contract. Chrysler Ins. Co. v. Greenspoint Dodge of Houston, Inc., 297 S.W.3d 248, 252 (Tex. 2009). If Granite met its burden to show a valid arbitration agreement, then any doubts concerning the scope of the arbitrable issues—the second inquiry—should be resolved de novo in light of the policy and presumption favoring arbitration. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927, 941 (1983); accord Ellis v. Schlimmer, 337 S.W.3d 860, 861-62 (Tex. 2011); Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898-99 (Tex. 1995) (orig. proceeding); BBVA Compass Inv. Solutions, Inc. v. Brooks, No. 02-13-00047-CV, 2015 WL 595209, at *4 (Tex. App.—Fort Worth Feb. 12, 2015, no pet. h.).

III. ENFORCEABILITY OF ARBITRATION CLAUSE

A. EXISTENCE OF VALID ARBITRATION AGREEMENT

Therefore, our first question is whether Granite showed, under Texas contract principles, that there was a valid agreement to arbitrate as between JMC and Granite. Granite posited three theories by which it could enforce the arbitration clause in the blanket agreement against JMC: (1) incorporation by reference, (2) direct-benefits estoppel, and (3) third-party beneficiary. See generally Rachal v. Reitz, 403 S.W.3d 840, 846 n.5 (Tex. 2013) (listing theories under which nonsignatories may be bound to or may enforce arbitration agreements). For the following reasons, we conclude that Granite carried its burden to show that there was a valid arbitration agreement as between JMC and Granite.

As stated above, the arbitration clause Granite seeks to enforce was contained in the blanket agreement, not the performance bond. Under the doctrine of incorporation by reference, however, where an agreement refers to a prior contract or instrument, the subsequent agreement may properly constitute part of the original contract. Cappadonna Elec....