Lennar Homes of Tex. Land & Constr., Ltd. v. Whiteley

672 S.W.3d 367

LENNAR HOMES OF TEXAS LAND AND CONSTRUCTION, LTD. and Lennar Homes of Texas Sales and Marketing, Ltd., Petitioners,

v.Kara WHITELEY, Respondent

No. 21-0783

Supreme Court of Texas.

Argued January 31, 2023

OPINION DELIVERED: May 12, 2023

Margaret E. Bryant, Timothy F. Lee, Rachel Anne Ekery, Houston, Nicholas B. Bacarisse, Wallace B. Jefferson, Austin, J. Don Jackson, for Petitioner.

Kurt Kuhn, Austin, Carl J. Wilkerson, Arlington, Lisa B. Hobbs, Austin, for Amici Curiae Taylor Woodrow Communities - League City, Ltd., Taylor Morrison of Texas, Inc.

Patrick D. Sullivan, Dylan B. Russell, Houston, for Amicus Curiae Legend Classic Homes, Ltd.

Amy Lynn Nilsen, Stephen Eric Irving, Earnest W. Wotring, Houston, David Funderburk, Diane S. Davis, Bryan, for Respondent Big Texas Air Conditioning, Inc.

Warren Wise, Greg C. Wilkins, Beaumont, Christopher Alan Mckinney, for Respondent Xalt Holding, LLC f/k/a DPIS Engineering, LL.

Dax O. Faubus, Houston, for Respondent Whiteley, Kara.

Manuel (Ned) Munoz, Jr., Dylan B. Russell, Houston, for Amicus Curiae Texas Association of Builders.

Justice Busby delivered the opinion of the Court.

This interlocutory appeal concerns whether a subsequent purchaser of a home is required to arbitrate her claims against the builder for alleged construction defects. The trial court granted the builder's motion to compel arbitration, and the builder joined two subcontractors in the arbitration, asserting that they owed it defense and indemnity obligations. After the arbitrator issued an award in favor of the builder, the builder and purchaser filed cross-motions to confirm and to vacate the award, disputing whether the subsequent purchaser was bound by arbitration clauses in the builder's purchase-and-sale agreement with the original purchaser and in its deed to that purchaser. The trial court vacated the award against the subsequent purchaser, and it made no ruling regarding whether to vacate the award against the subcontractors, who were not yet before the court. The court of appeals affirmed.

With respect to the subsequent purchaser, we hold that she was bound by the arbitration clause in the purchase-and-sale agreement under the doctrine of direct-benefits estoppel. As to the subcontractors, we agree with the court of appeals that the trial court did not vacate the award against them. They later intervened in the trial court, and our record contains no ruling on any motion to confirm or vacate the arbitration award with respect to the subcontractors. Accordingly, we reverse in part, render judgment confirming the award against the purchaser, and remand to the trial court for further proceedings.

BACKGROUND

In May 2014, Cody Isaacson signed an agreement with petitioner Lennar¹ to purchase a house it was building in the Enclave at Bay Colony subdivision in Galveston, Texas, as well as the underlying property. Among other matters, the Purchase and Sale Agreement (PSA) addressed how title to the property would be conveyed, the recording of the deed and what additional terms or documents were required therein, and Lennar's right to notice and approval of any transfer or assignment of Isaacson's rights under the PSA.

The PSA also incorporated by reference the terms of Lennar's warranty booklet (the Limited Warranty), stated that Lennar was making only those express limited warranties set forth in the Limited Warranty, and disavowed any other warranties or representations, including any warranties of workmanship, merchantability, habitability, or suitability and fitness. In addition, the PSA contained multiple disclosures regarding the home, including an Indoor Environmental Quality Disclosure concerning the likelihood of mold growth in the home.

The PSA included two arbitration clauses. First, Isaacson and Lennar generally agreed to arbitrate any disputes in accordance with the American Arbitration Association's Home Construction Mediation Procedures (the AAA rules), and the PSA defined disputes as follows:

"Disputes" (whether contract, warranty, tort, statutory, or otherwise), shall include, but are not limited to, any and all controversies, disputes or claims (1) arising under, or related to, this Agreement, the Property, the Community or any dealings between Buyer and Seller; (2) arising by virtue of any representations, promises or warranties alleged to have been made by Seller or Seller's representative; (3) relating to the personal injury or property damage alleged to have been sustained by Buyer, Buyer's children or other occupants of the Property, or in the Community; or (4) issues of formation, validity or enforceability of this section.

The general arbitration clause further provided that Isaacson had executed the agreement on behalf of his children and other occupants of the home with the intent that all such parties would likewise be bound. Second, the PSA included a clause specific to warranty disputes, which provided that "[a]ny disputes, claims or controversies relating to any items, problems, defects or difficulties covered by the Limited Warranty shall be resolved pursuant to the dispute settlement provisions covered by the Limited Warranty."

In its Limited Warranty booklet,² Lennar agreed to provide three types of express warranties for specific components of the home. First, Lennar provided a workmanship protection warranty that components of the home listed in the Workmanship Standards section of the booklet would perform in accordance with those standards for one year from the property's closing date. Second, Lennar provided a systems protection warranty that components of the home listed in the Systems Standards section of the booklet would perform in accordance with those standards for two years. Third, Lennar provided a warranty that structural components of the home listed in the booklet's Structural Standards section would perform in accordance with that section's standards for ten years. Like the PSA, the Limited Warranty provided for arbitration of disputes—defined using substantially similar language to the PSA—in accordance with the AAA rules.

On May 16, 2014, Lennar executed and recorded a Special Warranty Deed conveying title to the home and underlying property to Isaacson. The deed provided that the conveyance was made subject to "[a]ny and all restrictions, encumbrances, easements, covenants, conditions, outstanding mineral interests held by third parties, and reservations" for the property that had been recorded in the County Clerk's office. The deed also provided that it was subject to an arbitration provision attached to the deed as Exhibit A.

The attached arbitration provision contained language substantially similar to the provisions in the PSA and the Limited Warranty. That provision defines disputes as follows:

"Disputes" (whether contract, warranty, tort, statutory or otherwise) shall include, but are not limited to, any and all controversies, disputes or claims (1) arising under, or related to, this Deed, the underlying purchase agreement for the sale and conveyance of the Property, the Property, the community in which the Property is located, or any dealings between Grantee and Grantor; (2) arising by virtue of any representations, promises or warranties alleged to have been made by Grantor or Grantor's representative; and (3) relating to personal injury or property damage alleged to have been sustained by Grantee, Grantee's children or other occupants of the Property, or in the community in which the Property is located.

The attachment further provides that Exhibit A "shall run with the land and be binding upon the successors and assigns of" Isaacson.

On July 31, 2015, Isaacson sold the property to respondent Kara Whiteley, conveying title via a General Warranty Deed that Isaacson executed and recorded in the county records. Shortly after purchasing the home, Whiteley "noticed a serious mold problem" and ultimately sued Lennar on March 1, 2017, after providing notice and participating in settlement negotiations pursuant to the Residential Construction Liability Act.³ Asserting claims for negligent construction and breach of the implied warranties of habitability and good workmanship, Whiteley alleged that the home's heating, ventilation, and cooling (HVAC) system had deficiencies that were contributing to the mold problem by creating excessive, long term, and unacceptable moisture levels.

With respect to her claims for negligent construction and breach of the implied warranty of good workmanship, Whiteley alleged that Lennar had breached its duty to exercise ordinary care in its construction of the home and failed to construct the home in the same manner as would a generally proficient builder engaged in similar work and performing under similar circumstances. With respect to her habitability claim, Whiteley alleged that "[t]he mold itself, as well as the construction defects which caused the mold, are latent defects that rendered the Home unsafe, unsanitary, or otherwise unfit for living therein." Whiteley sought actual damages, including (1) repair costs for the construction defects, (2) replacement or repair costs for goods damaged inside the home, (3) engineering and consulting fees, (4) temporary housing expenses for the duration of any repairs, and (5) attorney's fees.

Lennar filed an application to stay proceedings pending arbitration, relying on the arbitration agreements in the PSA and Limited Warranty. Whiteley opposed Lennar's request for arbitration, arguing that she was not a party to and did not sign any of the relied-upon arbitration agreements and therefore was not bound to arbitrate under them. In reply, Lennar argued that (1) Whiteley was bound to arbitrate either as a successor in interest to Isaacson, under the doctrine of direct-benefits estoppel, or because she assumed Isaacson's obligations under the PSA; and (2) the trial court should refer such questions of arbitrability to the arbitrator because each of the relevant arbitration...