Taylor Morrison of Tex., Inc. v. Klein

On Appeal from the 122nd District Court Galveston County, Texas Trial Court Cause Nos. 20-CV-0530, 20-CV-0511

Panel consists of Justices Wise, Spain, and Hassan.

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MEMORANDUM OPINION

MEAGAN HASSAN, JUSTICE

In these consolidated interlocutory appeals, appellants Taylor Morrison of Texas, Inc. and Taylor Woodrow Communities-League City, Ltd. (together, "Taylor") challenge the trial court's orders denying their motions to compel arbitration. For the reasons below, we reverse the trial court's orders.

Background

In January 2015, appellee Cameron D. Laird purchased from Taylor a home in League City. In connection with the sale, Laird and Taylor executed a Purchase Agreement. Appellees Adam and Jacqueline Klein (together with Laird, "Appellees") also purchased a League City home from Taylor in November 2016 and signed a similar Purchase Agreement. These Purchase Agreements contained identical arbitration provisions.

In two separate lawsuits filed in April 2020, Appellees asserted claims against Taylor alleging that construction defects in their homes caused significant mold growth. Taylor filed a motion to compel arbitration in each case, asserting that the parties were bound by the Purchase Agreements' arbitration provisions. In relevant part, these arbitration agreements state:

11) Dispute Resolution - Arbitration

Any and all claims, controversies, breaches or disputes by or between the parties hereto, arising out of or related to this purchase agreement, the property, the subdivision or community of which the property is a part, the sale of the property by seller, or any transaction related hereto whether such dispute is based on contract, tort, statute, or equity, . . . shall be arbitrated pursuant to the Federal Arbitration Act

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and subject to the procedures set forth as follows

a. This arbitration agreement shall be deemed to be a self-executing arbitration agreement. Any dispute concerning the interpretation or the enforceability of this arbitration agreement, including without limitation, its revocability or voidability for any cause, any challenges to the enforcement or the validity of the agreement, or this arbitration agreement, or the scope of arbitrable issues under this arbitration agreement, and any defense relating to the enforcement of this arbitration agreement, including without limitation, waiver, estoppel, or laches, shall be decided by an arbitrator in accordance with this arbitration agreement and not by a court of law

b. In the event that a dispute arises between the parties, such dispute shall be resolved by and pursuant to the arbitration rules and procedures of [the] American Arbitration Association in effect at the time the request for arbitration is submitted. In the event the American Arbitration Association is for any reason unwilling or unable to serve as the arbitration service, then the parties shall select another reputable arbitration service.

Appellees filed identical responses to the motions to compel. Requesting that the motions be denied, Appellees asserted that the arbitration agreements were unconscionable and that certain of their claims were outside the agreements' scope.

On July 23, 2020, the trial court signed an order in each of the Appellees' cases stating:

Having reviewed the motions, briefings and argument of counsel in a hearing held June 24, 2020, the Court DENIES the Defendant's Motion to Compel Arbitration. The Court finds that the arbitration clause cited by Defendants contains provisions that are vague, ambiguous, in conflict with each other and unconscionable in that it purports to invalidate or waive substantive rights and remedies authorized by statute.

The Court further finds that the arbitration provision results in the overall costs of arbitration to be excessive compared to litigation in this Court.

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The parties are ORDERED to agree to an alternative arbitration service or arbitrator. If the parties are unable to agree, the COURT shall select an arbitrator from a list of three names proposed by each party.

Taylor filed a notice of interlocutory appeal in each of the cases. See 9 U.S.C.A. § 16(a)(1)(C); Tex. Civ. Prac. &Rem. Code Ann. § 51.016. Because these appeals address the same arbitration agreements and raise the same issues, we consider them together.^[1]

Analysis

In its sole issue on appeal, Taylor argues the trial court erred by denying its motions to compel arbitration because the arbitration agreements at issue contain a delegation clause delegating to the arbitrator gateway questions of arbitrability.

I. Standard of Review

We review the denial of a motion to compel arbitration for an abuse of discretion. Berry Y&V Fabricators, LLC v. Bambace, 604 S.W.3d 482, 485 (Tex. App.-Houston [14th Dist.] 2020, no pet.). When an appeal from such an order turns on a legal determination, however, we apply a de novo standard of review. Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 55 &n.9 (Tex. 2008).

II. Governing Law

The parties do not dispute that the arbitration agreements at issue are governed by the Federal Arbitration Act ("FAA"). See 9 U.S.C.A. §§ 1-16. In general, a party seeking to compel arbitration under the FAA must establish (1) the existence of a valid, enforceable arbitration agreement and (2) that the claims asserted fall within the scope of that agreement. Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222, 227 (Tex. 2014); see also In re Rubiola, 334 S.W.3d 220, 223 (Tex. 2011)

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(orig. proceeding) (addressing the movant's burden under the FAA). If the movant establishes that an arbitration agreement exists, the burden then shifts to the party opposing arbitration to establish a defense to the arbitration agreement. Berry Y&V Fabricators, LLC, 604 S.W.3d at 485-86; Garg v. Pham, 485 S.W.3d 91, 102 (Tex. App.-Houston [14th Dist.] 2015, no pet.). A party may defend against the enforceability of the arbitration agreement only on grounds that exist at law or in equity for the revocation of a contract. Berry Y&V Fabricators, LLC, 604 S.W.3d at 486 (citing 9 U.S.C.A. § 2).

The Texas Supreme Court has delineated three distinct ways to challenge the validity of an arbitration clause: (1) challenging the validity of the contract as a whole; (2) challenging the validity of the arbitration provision specifically; and (3) challenging whether an agreement exists at all. RSL Funding, LLC v. Newsome, 569 S.W.3d 116, 124 (Tex. 2018); In re Morgan Stanley &Co., 293 S.W.3d 182, 187 (Tex. 2009) (orig. proceeding). The arbitrator decides the first type of challenge as a matter of law. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 446 (2006); RSL Funding, LLC, 569 S.W.3d at 124. The second type of challenge generally must be resolved by the court. See Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 70 (2010); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402-04 (1967); Longoria v. CKR Prop. Mgmt., LLC, 577 S.W.3d 263, 267 (Tex. App.-Houston [14th Dist.] 2018, pet. denied).

But parties have the right to contract as they see fit and may delegate to the arbitrator questions concerning the validity or enforceability of an arbitration agreement. See Rent-A-Ctr., W., Inc., 561 U.S. at 69; RSL Funding, LLC, 569 S.W.3d at 121. These clauses are enforced when the delegation is clear and unmistakable. See Rent-A-Ctr., W., Inc., 561 U.S. at 69; RSL Funding, LLC, 569 S.W.3d at 121; see, e.g., Berry Y&V Fabricators, LLC, 604 S.W.3d at 487-88;

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