S. Green Builders, LP v. Cleveland

558 S.W.3d 251

SOUTHERN GREEN BUILDERS, LP and Sam Seidel, Appellants

v.Jaime CLEVELAND, Appellee

NO. 14-17-00483-CV

NO. 14-17-00540-CV

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

Dissenting Opinion filed August 9, 2018

Timothy C. Ross, Lauren Scroggs, Robert A. Plessala, Houston, TX, for Appellants.

Jason Gregory Johns, Crystal Parker, Lionel M. Schooler, Harris Huguenard, Courtney Carlson, Houston, TX, for Appellee.

Panel consists of Justices Christopher, Donovan, and Jewell (Christopher, J., dissenting).

John Donovan, Justice

Appellant Southern Green Builders, a residential home builder, sued appellee Jaime Cleveland, prospective homeowner, for breach of contract. Cleveland responded with a counterclaim against SGB, and a third-party claim against SGB's principal, appellant Sam Seidel. SGB and Seidel both moved to compel arbitration, which the trial court denied.¹ In a consolidated, accelerated, interlocutory appeal, SGB and Seidel argue the trial court erred in denying arbitration. We agree.

I. Background

This is a residential construction dispute. On September 30, 2015, Seidel, on behalf of SGB, entered in to a Residential Construction Contract (the "contract") to build for Cleveland the residence at 3424 Sunset Boulevard, Houston, Harris County, Texas, at an agreed price of $1,680,340.39. The contract contained the following language regarding arbitration of disputes:

17. RESOLUTION OF DISPUTES. The Parties desire prompt, inexpensive and efficient dispute resolution procedures and therefore agree that their disputes shall be governed by the following:

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(c) Mediation-Binding Arbitration/Waiver of Jury Trial . The Owner and Builder agree that all controversies, claims (and any related settlements), or matters in question arising out of or relating to (i) this Contract, (ii) any breach or termination of this Contract, (iii) the construction of the Home and/or its repairs, (iv) any acts or omissions by the Builder (and its officers, directors or agents), and/or (v) any actual or purported representations or warranties, express or implied, relating to the Property and/or the Home (herein referred to collectively as a "Dispute") may be submitted to binding arbitration, but both parties shall also have the right to seek other legal remedies as they see fit and the law allows.

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25. ENTIRE AGREEMENT. This Contract, together with all attachments, contains the entire understanding between Builder and Owner with respect to the construction of the Home, and replaces all prior agreements or understandings, if any. BUILDER IS NOT BOUND BY ANY STATEMENT, PROMISE, CONDITION OR STIPULATION NOT SPECIFICALLY SET FORTH IN THIS CONTRACT. No representative of Builder has authority to make any oral statements that modify or change the terms and conditions of this Contract. OWNER REPRESENTS THAT OWNER HAS READ AND UNDERSTANDS THIS ENTIRE CONTRACT, INCLUDING THE AGREEMENT FOR BINDING ARBITRATION OF DISPUTES RELATED TO THIS CONTRACT (AS AMENDED). OWNER ALSO REPRESENTS THAT NO VERBAL STATEMENT, PROMISE OR CONDITION NOT SPECIFICALLY SET FORTH IN THIS CONTRACT IS BEING RELIED UPON BY OWNER. IT IS ACKNOWLEDGED THAT BUILDER IS RELYING ON THESE REPRESENTATIONS AND WOULD NOT ENTER INTO THIS CONTRACT WITHOUT THIS UNDERSTANDING.

During the construction of the residence, a dispute arose between the parties regarding payment and performance under the contract. On February 27, 2017, SGB filed a demand for arbitration of its rights as well as an original petition in the trial court, which was made subject to SGB's right to arbitrate.

In response, the Cleveland's asserted a counterclaim against SGB for fraud, Deceptive Trade Practices Act violations, negligent misrepresentation, breach of contract, breach of implied warranty, and a request for declaratory relief wherein they request the trial court to declare the arbitration language in the contract is permissive and does not compel Cleveland to arbitrate. Cleveland also added a third-party petition against appellant Sam Seidel, SGB's principal, for fraud, DTPA violations, and negligent misrepresentation.

SGB voluntarily dismissed the arbitration proceeding without prejudice and moved the trial court to compel arbitration under the contract. On May 19, 2017, the trial court held a hearing on SGB's motion to compel and, after taking it under advisement, denied the motion on June 7, 2017. Seidel also filed a motion to compel, requesting the trial court to compel arbitration of all claims under the contract. The trial court denied Seidel's motion without a hearing on July 6, 2017. SGB and Seidel timely filed their respective notices of appeal, which were consolidated by this Court.

II. Analysis

The central focus of this appeal is whether the trial court erred in denying SGB and Seidel's motions to compel arbitration. Appellants raise three issues: (1) is arbitration required when requested under this contract; (2) Does Cleveland's extrinsic evidence alter the express terms of the contract; and (3) do the parties' claims fall within the scope of the arbitration agreement?

A. Standard of review and substantive law

Section 171.098 of the Texas Civil Practice and Remedies Code permits the interlocutory appeal of an order denying a motion to compel arbitration. Tex. Civ. Prac. & Rem. Code § 171.098(a)(1). Under an abuse of discretion standard, we defer to the trial court's factual determinations if they are supported by evidence, but we review the trial court's legal determinations de novo . In re Labatt Food Servs., L.P. , 279 S.W.3d 640, 643 (Tex. 2009) (citing Brainard v. State , 12 S.W.3d 6, 30 (Tex. 1999) ; see Walker v. Packer , 827 S.W.2d 833, 839–40 (Tex. 1992) ). Whether an arbitration agreement is enforceable is subject to de novo review. See id. (citing J.M. Davidson, Inc. v. Webster , 128 S.W.3d 223, 227 (Tex. 2003) ).

"Courts cannot compel a party to arbitrate claims in the absence of an agreement to arbitrate." Kehoe v. Pollack , 526 S.W.3d 781, 791 (Tex. App.—Houston [14th Dist.] 2017, no pet.) (citing In the Estate of Guerrero , 465 S.W.3d 693, 699 (Tex. App.—Houston [14th Dist.] 2015, pet. denied) (en banc) ). A party moving to compel arbitration bears the initial burden of proving the existence of an arbitration agreement. Ellis v. Schlimmer , 337 S.W.3d 860, 862 (Tex. 2011) (citing J.M. Davidson, Inc. v. Webster , 128 S.W.3d 223, 227 (Tex. 2003) ; Tex. Civ. Prac. & Rem. Code § 171.021(a) ); see also Rachal v. Reitz , 403 S.W.3d 840, 843 (Tex. 2013) (The party moving to compel arbitration must establish the existence of a valid arbitration agreement and the existence of a dispute within the scope of that agreement.). A party moving to compel a party who did not sign the arbitration agreement to arbitrate also bears the burden of establishing that the arbitration agreement binds the nonsignatory. See Kehoe , 526 S.W.3d at 791 ; The Branch Law Firm, L.L.P. v. Osborn , 447 S.W.3d 390, 394 (Tex. App.—Houston [14th Dist.] 2014, no pet.) ; see also Labatt Food Servs. , 279 S.W.3d at 643 (when "arbitration agreement is silent about who is to determine whether particular persons are bound by the agreement, courts, rather than the arbitrator, should determine the issue").

The existence of a valid arbitration agreement is a legal question. In re D. Wilson Constr. , 196 S.W.3d 774, 781 (Tex. 2006). In interpreting an agreement to arbitrate, we apply ordinary contract principles. J.M. Davidson, Inc. , 128 S.W.3d at 227. We examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless. Id. at 229. A trial court "has no ‘discretion’ in determining what the law is or applying the law to the facts." In re D. Wilson Constr. , 196 S.W.3d at 781 (quoting Walker v. Packer , 827 S.W.2d 833, 840 (Tex.1992) (orig. proceeding) ).

Once an agreement is established, a strong presumption favoring arbitration arises, and the burden shifts to the party opposing arbitration to raise an affirmative defense to the agreement's enforcement. Ellis , 337 S.W.3d at 862. Indeed, "...a court should not deny arbitration unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue." In re D. Wilson Constr. , 196 S.W.3d at 783 (emphasis original) (internal quotation marks omitted) (quoting Prudential Sec. Inc. v. Marshall , 909 S.W.2d 896, 899 (Tex. 1995) (per curiam) (orig. proceeding) ). Further, courts should resolve any doubts as to the agreement's scope, waiver, and other issues unrelated to its validity in favor of arbitration. Id. (see In re Poly–America, L.P. , 262 S.W.3d 337, 348 (Tex. 2008) ). Here, appellants challenge the trial court's rulings on both motions to compel arbitration. We address each in turn.

B. The trial court erred by denying appellants' motions to compel

SGB and Seidel, as the parties seeking to compel arbitration,² argue that the trial court erred in denying their motions to compel because they met their burden by demonstrating (1) the existence of a valid and enforceable arbitration agreement and (2) that the claims asserted against them fall within the scope of that agreement. See Rachal , 403 S.W.3d at 843.

First, it is undisputed that the Residential Construction Contract contains an agreement to arbitrate. Section 17c lists categories of claims and provides those claims "may be submitted to binding arbitration." It also is undisputed that the claims at issue between the parties arise out of the contract.³ SGB alleges breach of contract and prompt payment claims. Cleveland alleges issues against SGB and Seidel, in his official capacity, stemming from performance of the contract. Thus, the claims fall directly within the arbitration clause. The only matter in dispute is whether the arbitration clause is enforceable.

SGB and Seidel argue that arbitration is required if requested. They maintain that the...