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

625 S.W.3d 569

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

v.Kara WHITELEY, Appellee

NO. 14-19-00269-CV

Court of Appeals of Texas, Houston (14th Dist.).

Opinion filed April 29, 2021

Rehearing Denied August 3, 2021

Don Jackson, Timothy F. Lee, Margaret Ewing Bryant, Houston, for Appellants.

Dax O. Faubus, David W. Funderburk, Amy Lynn Nilsen, Houston, Christopher Alan McKinney, Beaumont, for Appellee.

Panel consists of Chief Justice Christopher and Justices Jewell and Hassan.

Meagan Hassan, Justice

Appellee Kara Whiteley sued appellants Lennar Homes of Texas Land and Construction, Ltd. and Lennar Homes of Texas Sales and Marketing, Ltd. (together, "Lennar"), asserting claims in connection with her home's construction. The trial court granted Lennar's motion to stay proceedings pending arbitration. After the completion of arbitration, Lennar moved to confirm the arbitration award and Whiteley filed a motion to vacate the award. The trial court denied Lennar's motion and granted Whiteley's motion. For the reasons below, we affirm.

BACKGROUND

In May 2014, Lennar sold Cody Isaacson a house in Dickinson, Texas (the "House"). The House was conveyed to Isaacson via special warranty deed and covered by the warranties described in Lennar's "1-2-10 Single-Family Warranty." The special warranty deed and single-family warranty both contained arbitration provisions.

Whiteley purchased the House from Isaacson on July 31, 2015. Whiteley sued Lennar approximately two years later, asserting claims for negligent construction and breach of implied warranties. Whiteley alleged the House had "a serious mold problem" caused by deficiencies in the heating, ventilation, and air conditioning system.

Lennar answered the petition and filed an "Application to Stay Proceedings Pending Arbitration". Responding to the application, Whiteley asserted she and Lennar were not bound by a valid arbitration agreement. The trial court granted Lennar's application to stay proceedings and the parties proceeded to arbitration.

In arbitration, Whiteley pursued her claims against Lennar for negligent construction and breach of implied warranties. Lennar filed counterclaims against Whiteley for (1) bringing groundless claims in bad faith, and (2) filing a lawsuit in violation of the arbitration agreement. Lennar also filed third-party petitions against Big Tex Air Conditioning, Inc. and Xalt Holding, LLC seeking contribution and indemnity.¹ The proceedings were conducted in accordance with the Federal Arbitration Act ("FAA"). See 9 U.S.C.A. §§ 1 - 16.

The arbitrator issued his award on December 13, 2018. The arbitrator denied Whiteley all relief sought against Lennar and awarded Lennar attorney's fees and costs from Whiteley, Big Tex, and Xalt.

Back in the trial court, Lennar filed a combined "Motion to Confirm Arbitration Award and Motion to Join Additional Parties." Lennar requested that judgment be rendered in conformance with the award and asked that Big Tex and Xalt be joined in the action. Whiteley responded to Lennar's combined motion and filed a "Motion to Vacate the Arbitration Award", asserting she and Lennar were not bound by a valid arbitration agreement.

On March 7, 2019, the trial court signed an order (1) denying Lennar's combined motion to confirm the arbitration award and motion to join additional parties, and (2) granting Whiteley's motion to vacate. Lennar filed a notice of interlocutory appeal. See Tex. Civ. Prac. & Rem. Code Ann. § 171.098(a)(5).

ANALYSIS

Challenging the trial court's order vacating the arbitration award, Lennar raises the following issues: (1) the trial court erred by vacating the arbitration award with respect to Big Tex and Xalt; (2) Whiteley is bound by the arbitration agreements in Isaacson's special warranty deed and the single-family warranty; and (3) Whiteley agreed to arbitrate her claims during the arbitration proceeding. We consider these issues individually.

I. The Arbitration Award Against Big Tex and Xalt

On appeal, Lennar challenges the vacatur of the arbitration award as it applies to Big Tex and Xalt. Asserting the FAA lists the exclusive grounds for vacating an arbitration award (see 9 U.S.C.A. § 10(a) ), Lennar argues that neither Whiteley, Big Tex, nor Xalt "have identified a valid basis for vacating the award's rulings on Lennar's claims against Big Tex and Xalt."

Big Tex and Xalt were not parties to the underlying proceeding when Lennar sought to confirm (and Whiteley sought to vacate) the arbitration award. Rather, Lennar attempted to join Big Tex and Xalt in the action through its combined motion to confirm the arbitration award and motion to join additional parties. In its March 7 order, the trial court denied Lennar's combined motion and granted Whiteley's motion to vacate the arbitration award.

Contrary to Lennar's argument, we do not construe the trial court's March 7 order as vacating the arbitration award with respect to Big Tex and Xalt. In her motion to vacate, Whiteley argued only that she and Lennar are not parties to a valid arbitration agreement — she did not raise any arguments with respect to Big Tex or Xalt or request any action from the trial court with respect to these parties or the arbitration awards rendered against them. Ruling on Whiteley's motion, the trial court's March 7 order states:

It is further, ORDERED that [Whiteley's] Motion to Vacate the Arbitration Award is hereby GRANTED. It is further, ORDERED that the arbitration award is hereby vacated.

Although the trial court's wording is not a model of clarity, we have been provided no evidence tending to suggest that it intended to grant relief that had not been requested. Therefore, because the vacatur of the arbitration award against Big Tex and Xalt was neither sought in Whiteley's motion nor explicitly granted by the trial court's March 7 order, we do not construe the order as granting this relief.

Moreover, the Texas Arbitration Act ("TAA") provides that an application to vacate an arbitration award shall follow the same procedure used in other civil cases.² See Tex. Civ. Prac. & Rem. Code Ann. § 171.093. " ‘Thus, applications to confirm or vacate an arbitration award should be decided as other motions in civil cases; on notice and an evidentiary hearing, if necessary.’ " New Med. Horizons II, Ltd. v. Jacobson , 317 S.W.3d 421, 427 (Tex. App.—Houston [1st Dist.] 2010, no pet.) (quoting Crossmark, Inc. v. Hazar , 124 S.W.3d 422, 430 (Tex. App.—Dallas 2004, pet. denied) ).

Here, the record does not show Big Tex and Xalt received proper notice of Whiteley's motion to vacate or had an opportunity to be heard with respect to the issues it raised. Rather, Lennar attempted to join Big Tex and Xalt in the underlying proceeding as part of its motion to confirm the arbitration award and the trial court denied the requested joinder. Therefore, because Big Tex and Xalt were not parties to the underlying proceeding when the motion to vacate was granted and did not have an opportunity to be heard on the issue, we do not construe the order as adjudicating any issues with respect to those parties. See Estrada v. River Oaks Bank & Trust Co. , 550 S.W.2d 719, 729 (Tex. Civ. App.—Houston [14th Dist.] 1977, writ ref'd n.r.e.) ("It is a rule of universal application that the rights of no one shall be concluded by a judgment rendered in a suit to which he was not a party.").

Because Lennar's first issue seeks to challenge relief that was not granted in the trial court's March 7 order, we overrule the issue.

II. The Arbitration Agreements in the Special Warranty Deed and Single-Family Warranty

In its second issue, Lennar asserts Whiteley was required to arbitrate her claims against Lennar pursuant to the arbitration agreements in (1) the 2014 special warranty deed conveying the House from Lennar to Isaacson, and (2) the single-family warranty effective on the date Isaacson closed on the House's purchase. Therefore, Lennar argues, the trial court erred by vacating the arbitration award against Whiteley.

A. Standard of Review and Governing Law

The parties do not dispute that the arbitration agreements at issue are governed by the FAA. See 9 U.S.C.A. §§ 1 - 16. In general, arbitration under the FAA is required if (1) the parties have a valid agreement to arbitrate, and (2) the claims raised fall within that agreement's scope. See In re Kellogg Brown & Root, Inc. , 166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding).

The existence of a valid arbitration agreement between specific parties is a gateway matter for the court to decide. Longoria v. CKR Prop. Mgmt., LLC , 577 S.W.3d 263, 267 (Tex. App.—Houston [14th Dist.] 2018, pet. denied). Under the FAA, ordinary principles of state contract law determine whether the parties have a valid agreement to arbitrate. In re Rubiola , 334 S.W.3d 220, 224 (Tex. 2011) (orig. proceeding). We review de novo whether an arbitration agreement is enforceable. Rachal v. Reitz , 403 S.W.3d 840, 843 (Tex. 2013).

As a general rule, a party must sign an arbitration agreement to be bound by it. Branch Law Firm, L.L.P. v. Osborn , 532 S.W.3d 1, 13 (Tex. App.—Houston [14th Dist.] 2016, pet. denied). However, the Texas Supreme Court has recognized that a nonsignatory may be required to arbitrate according to a contractual arbitration clause when principles of contract law or agency would generally bind a nonsignatory to a contract. See In re Rubiola , 334 S.W.3d at 224 ; In re Kellogg Brown & Root , 166 S.W.3d at 738. There are at least six theories under which a nonsignatory to an arbitration agreement may be bound to its terms: (1) incorporation by reference, (2) assumption, (3) agency, (4) veil piercing/alter ego, (5) estoppel, and (6) third-party beneficiary. Jody James Farms, JV v. Altman Grp., Inc. , 547 S.W.3d 624, 633 (Tex. 2018).

B. The Special Warranty Deed

The 2014 special warranty deed conveying the House from Lennar to Isaacson states in relevant part:

This

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