# S **upreme C**  **ourt of**  **T exas** 

══════════ No. 20

- 0782

══════════
Baby Dolls Topless Saloons, Inc. , Burch Management Company, Inc. , BDS Restaurant, Inc., and TTNA, Inc., Petitioner s ,

v

. Gilbert Sotero , as the Representative of the Estate of Stephanie Sotero Hernandez, Eduviges Chapa III as Next Friend of A.C.C., a Minor , and Ivan Hernandez, Individually and as Representative of the Estate of Stephanie Sotero Hernandez, Deceased, Respondent s

═══════════ ════════════════ ══ ══════════ On Petition for Review from the Court of Appeals for the Fifth District of Texas

═══════════════════════════ ══ ══════════

PER CURIAM

A divided court of appeals held in this case that because the use of three terms in the parties’ contract

— “relationship,” “ l icense,” and

“ this a greement”

— is not always perfectly clear, there was no meeting of the minds, and both the contract and its arbitration provision are unenforceable. W e reverse the court of appeals’ judgment an d remand2 the case to the trial court with instruction to grant the motion to compel
arbitration. Stephanie Sotero Hernandez was tragically killed in a high

- speed crash while riding in a car driven by Mayra Naomi Salazar in the early morning hours shortly a fter the two adult entertainers had left work at Baby Dolls Topless Saloons (the Club). Members of her family (the Family) 1 sued the Club 2 for wrongful death and survival damages, alleging that the Club continued serving Salazar alcohol after knowing
sh e was clearly intoxicated. Almost two years earlier, Hernandez and the Club had signed a
12

- page c ontract

— referred to throughout the written contract as “this

a greement”

— giving Hernandez a “ revocable licens e

. . . and non
exclusive right to use and occupy the designated portions of the [Club’ s premises] ” for “the performing of l i ve erotic dance entertainment and
related activities

. ” The c ontract contained a broad arbitration provision “pursuant to the Federal Arbitration Act

. ” In response to t he Family’s suit, t he Club moved to compel arbitration. 3 The trial court denied the motion in a brief order without explanation. A divided court of appeals

1 Plaintiffs, respondents here, are Hernandez’s father, for himself and as representative of Hernandez’s estate, and the father of her minor child, for himself and the child.

2 Defendants, petitioners here, are Baby Dolls Topless Saloons, Inc.; Burch Manage ment Co., Inc.; BDS Restaurant, Inc.; and TTNA, Inc. We refer to them collectively as the Club. The Family also sued Salazar, but the record does not reflect whether she ever made an appearance.

3 Whether the arbitration provision applies to all four def endants is not at issue in this Court.3 affirmed.

___ S.W.3d

___ , 2020 WL 4915436 , at *1 (Tex. App.

— Dallas Aug. 21, 2020 ). The Family argued that because of the c ontract’s lack of definiteness and uncertainty in its use of the terms relationship, l icense,
and this a greement, “the relationship [between Hernandez and the Club] loses meaning.” The court of appeals agreed.
U nder the Federal Arbitration Act ( FAA ) , 4 a party seeking to compel arbitration must establish the existence of a valid arbitration agreement and the existence of a dispute within the scope of the agreement. E.g. , In re Oakwood Mobile Homes, Inc. , 987 S.W. 2d 571, 573 (Tex. 1999 ). If one party resists arbitration, the trial court must determine whether a valid agreement to arbitrate exists, which is a question of law subject to de novo review. J.M. Davidson, Inc. v. Webster , 128 S.W.3d 223, 227 (Tex. 20 03). A party can challenge (1) the validity of the contract as a whole, (2) the validity of the arbitration provision specifically, and (3) whether an agreement exists at all. RSL Funding, LLC v. Newsome , 569 S.W.3d 116, 124 (Tex. 2018) (citing In re Mor gan Stanley & Co. , 293 S.W.3d 182, 187 (Tex. 2009)). As a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract

— the separability doctrine. Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S . 440, 445 (200 6 ). For that reason, a challenge to the larger contract’s validity

— the first type above

— is determined by the arbitrator. See id.

4 The Family argued in the trial court and court of appeals that the arbitration provision i s not subject to the FAA because Hernandez ’s relationship with the Club did not involve interstate commerce. That argument w as not addressed by the court of appeals opinion , nor was it briefed here, and we need not consider it.4 at 445

- 46. The second type of challenge

— to the validity of the arbitration provision specifically

— is for the court to decide unless clearly and unmistakably delegated to the arbitrator. See Robinson v. Home Owners Mgmt. Enters. , 590 S.W.3d 518, 525 (Tex. 2019). Challenges of the third type

— that the contract “ never came into being” 5

— are decided by the court. RSL Funding , 569 S.W.3d at 124. The parties agree. The Family argues, 6 and the court of appeals agreed, that four provisions in the c ontract demonstrate that “the parties’ minds could not have met regarding the contract’s subject matter and all its essen tial terms such that the contract is not an enforceable agreement

. ” See 2020 WL 4915436, at *6.
1. “This AGREEMENT is entered into by the LICENSOR and LICENSEE for the leasing of certain portions of the Premises and the grant of License related thereto

. . . .”
2. “[T]he business relationship created between the Club and the Licensee is that of (a) Licensor/Licensee and (b) landlord and tenant

. . . and

. . . this relationship is a material

. . . part of this Agreement .”
3. “This Agreement

. . . shall terminate on December 31 [2017]

. . . . The License shall thereafter be automatically extended for successive one year periods running from January 1 though December 31 of each year thereafter.”

5 In re Morgan Stanley , 293 S.W.3d at 192 (Hecht, J., dissenting)

.

6 The Club contends that the Family has not preserved its argument that the contract was unenforceable because it was not raised in the trial court. The court of appeals held that the Family had not waived its argument. 2020 WL 4915436 , at *5. We assume without deciding that the Family has preserved the argument.5 4. “ Licensee materially breaches this Agreement by

. . . [c]laiming the business relationship with the Club as being other than that of a landlord and tenant.”
T he court of appeals reasoned :

“ This Agreement ” and “ the L icense ” are treated separately in some instances, including for termination purposes, but are specifically combined in others. Both terms are also used elsewhere throughout the contract, with “this Agreement” appearing in the arbitration provision and nearly all other provisions. Rather than merely pres enting an ambiguity that could potentially be resolved by reconciling particular conflicting provisions, this disparity precludes certainty and definiteness as to the meaning of those two terms throughout the contract, including in the arbitration provisio n. Id. (internal punctuatio n omitted ). We set out guiding principles for determining whether contract terms are sufficient to constitute an enforceable contract in Fischer v. CTMI, L

. L

. C

. , 479 S.W.3d 231 (Tex. 2016). First, courts cannot rewrite the parties’ contract but must construe it as a whole to determine the parties’ purposes when they signed it. Id. at 239. Second, courts should construe contracts to avoid forfeitures, which are disfavored under Texas law, an d instead find terms to be sufficiently definite whenever the language is reasonably susceptible to such an interpretation. Id. And third, when courts construe agreements to avoid forfeiture, they may imply terms that can be reasonably implied. I d. Appl ying these principles, we focus specifically, as the court of appeals did, on the third contract provision referenced above

— that the parties’ “ [a] greement shall terminate on [ December 31, 2017 ]” and “[t] he
l icense shall thereafter be automatically extended for successive one [

- ]6 year periods [.] ” 2020 WL 4915436, at *6 (internal punctuation, capitalization, and emphasis omitted). This provision

— referred to by
the Club and the court of appeals ’ dissent as the contract’s duration
clause

— can be read as an (albeit unartfully drafted) automatic renewal
clause whereby the part ies’ a greement renews in step with Hernandez’s
l icense

. Construing the c ontract as a whole supports this reasonable
view. For instance, t he contract’s duration clause makes clear that
H ernandez’s l icense is to “be automatically extended” until the parties say otherwise. But t he l icense cannot be untethered from the

a greement

. Indeed, th e duration clause refers the parties to additional portions of the c ontract for examples of “ L icense T ermination ” event s

. Th is reference to additional contract provisions indicates that the

a greement itself contains the terms describing and governing the
license. A license

- but

- no
- agreement reading would be unreasonable and fail to comport with a license’s very nature

— “an authority to do a particular act, or series of acts, upon another ’ s land, without possessing any estate therein.” License , B LACK ’ S L AW D ICTIONARY (11 th ed. 2019), ( quo ting 2 J AMES K ENT , C OMMENTARIES ON A MERICAN L AW 452

- 53 (George Comstock ed., 11th ed. 1866)). Without the benefit of the

c ontract’s additional provisions defin ing which acts or series of acts are
allowed under the l icense, the l icense becomes meaningless. The Family’s argument, and the court of appeal s’ holding, that Hernandez and the Club never had a meeting of the minds on the

c ontract blinks the reality that they operated under it for almost two years, week after week, before Hernandez’s tragic death. We hold that the parties formed the a greement r eflected in the c ontract they signed.7 The Family concedes, as it must, that the c ontract’s arbitration provision clearly and unmistakably delegates threshold arbitrability questions to the arbitrator. The c ontract states, in bolded and capitalized font, t hat “[a]rbitration shall be the sole forum to determine the validity, scope and brea[d]th of this Agreement.” The Family’s argument regarding the scope of the provision is for the arbitrator to
resolve. We “ must

. . . compel arbitration so the arbitrator may decide gateway issues the parties have agreed to arbitrate.” RSL Funding , 569 S.W.3d at 121 (citing Forest Oil Corp. v. McAllen , 268 S.W.3d 51, 61 (Tex. 2008)). Finally, the Family argues in the alternative that even if “a valid
contract existed unt il December 31, 2017, no contract existed after that date” because it had expired according to its own terms. This question, too, is for the arbitrator. The Family’s alternative argument necessarily assumes that a contract formed, and it does not challenge the arbitration agreement’s validity. Therefore, the separability doctrine reserves to the arbitrator a question of this nature, for expiration is not a contract formation chal lenge

— it is instead a challenge to the continued validity of the parties’ initial agreement.
* * * * * Accordingly, without hearing oral argument, pursuant to T EX

. R

. A PP

. P

. 59.1, we reverse the court of appeals’ judgme nt and remand the case to the trial court with instruction to grant the motion to compel
arbitration.

OPINION DELIVERED: March 18, 2022