Supreme Court of Texas

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No. 20-0782

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Baby Dolls Topless Saloons, Inc., Burch Management Company, 

Inc., BDS Restaurant, Inc., and TTNA, Inc.,

Petitioners,

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,

Respondents

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On Petition for Review from the

Court of Appeals for the Fifth District of Texas

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PER CURIAM

A divided court of appeals held in this case that because the use 

of three terms in the parties’ contract—“relationship,” “license,” and 

“this agreement”—is not always perfectly clear, there was no meeting of 

the minds, and both the contract and its arbitration provision are 

unenforceable. We reverse the court of appeals’ judgment and remand 
2

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 after the two adult entertainers had left work at 

Baby Dolls Topless Saloons (the Club). Members of her family (the 

Family)1 sued the Club2 for wrongful death and survival damages, 

alleging that the Club continued serving Salazar alcohol after knowing 

she was clearly intoxicated.

Almost two years earlier, Hernandez and the Club had signed a 

12-page contract—referred to throughout the written contract as “this 

agreement”—giving Hernandez a “revocable license . . . and nonexclusive right to use and occupy the designated portions of the [Club’s

premises]” for “the performing of live erotic dance entertainment and 

related activities.” The contract contained a broad arbitration provision 

“pursuant to the Federal Arbitration Act.” In response to the Family’s 

suit, the 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 Management 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 defendants 

is not at issue in this Court.
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affirmed. ___ S.W.3d ___, 2020 WL 4915436, at *1 (Tex. App.—Dallas 

Aug. 21, 2020). The Family argued that because of the contract’s lack of 

definiteness and uncertainty in its use of the terms relationship, license, 

and this agreement, “the relationship [between Hernandez and the 

Club] loses meaning.” The court of appeals agreed. 

Under 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. 2003). 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 Morgan 

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 (2006). 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 is not subject to the FAA because Hernandez’s

relationship with the Club did not involve interstate commerce. That 

argument was 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 contract demonstrate that “the parties’ minds could not 

have met regarding the contract’s subject matter and all its essential 

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.
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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.”

The court of appeals reasoned:

“This Agreement” and “the License” 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 presenting 

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 provision.

Id. (internal punctuation 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, and 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. Id.

Applying 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 

license shall thereafter be automatically extended for successive one[-] 
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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 parties’ agreement renews in step with Hernandez’s 

license. Construing the contract as a whole supports this reasonable 

view. For instance, the contract’s duration clause makes clear that 

Hernandez’s license is to “be automatically extended” until the parties 

say otherwise. But the license cannot be untethered from the 

agreement. Indeed, the duration clause refers the parties to additional 

portions of the contract for examples of “License Termination” events. 

This reference to additional contract provisions indicates that the

agreement 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, BLACK’S LAW DICTIONARY (11th ed. 2019), 

(quoting 2 JAMES KENT, COMMENTARIES ON AMERICAN LAW 452-53 

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

contract’s additional provisions defining which acts or series of acts are 

allowed under the license, the license becomes meaningless.

The Family’s argument, and the court of appeals’ holding, that 

Hernandez and the Club never had a meeting of the minds on the 

contract 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 agreement reflected in the contract they signed.
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The Family concedes, as it must, that the contract’s arbitration 

provision clearly and unmistakably delegates threshold arbitrability 

questions to the arbitrator. The contract states, in bolded and 

capitalized font, that “[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 until 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 challenge—it is instead a challenge to the continued validity 

of the parties’ initial agreement.

* * * * *

Accordingly, without hearing oral argument, pursuant to TEX. R.

APP. P. 59.1, we reverse the court of appeals’ judgment and remand the 

case to the trial court with instruction to grant the motion to compel 

arbitration.

OPINION DELIVERED: March 18, 2022