Reversed and Remanded and Memorandum Opinion filed November 23 ,

2021
.

In The



## Fourteenth Court of Appeals

NO. 14

- 20

- 00520

- CV
TAYLOR MORRISON OF TEXAS, INC. AND TAYLOR WOODROW

COMMUNITIES

- LEAGUE CITY, LTD. , Appellant s V. ADAM KLEIN AND JAQUELINE KL E I N , Appellee s
On Appeal from the 122nd District Court Galveston County, Texas Trial Court Cause No. 20

- CV

- 0530

NO. 14

- 20

- 00532

- CV
TAYLOR MORRISON OF TEXAS, INC. AND TAYLOR WOODROW

COMMUNITIES

- LEAGUE CITY, LTD. , Appellant s V.
CAMERON D. LAIRD , Appell e e2 On Appeal from the 122nd District Court Galveston County, Texas Trial Court Cause No
. 20

- CV

- 05 11

M E M O R A N D U M O P I N I O N
In these consolidated interlocut ory appe als , appellants Taylor Morrison of Texas, Inc. and Taylor Woodrow Com munities

- League City, Ltd

. ( to gether,

“ Taylor ” ) challenge the trial court ’ s orders denyin g their motions to comp el arbitration. For the reasons below, we reverse the trial court ’ s orders

. B ACKGROUND In January 201 5, appel lee Cameron D. Laird pu r chased from Ta ylo r a home in Leag u e Ci ty. In connect ion with the sale, Laird and Taylor executed a P urchase A greement. Appellees Adam and Jacqueline Klein ( together with Laird ,

“ A ppellees ” ) also purchased a League City home from Taylor in November 2016 and signed a simil ar Purchase Agre e ment

. These Purchase Agreement s cont ained identical arbitration provisions

. In two separate law suits filed in April 2020, Appellees asser t e d claims against Taylor a lleging that construction defects in thei r homes cause d sign ifican t mold growth. T aylor file d a motion to compel arbitration in each case , asserting that the parties were bound by the Purchase Agreement s ’ arbitra tion provisi ons

. In relevant part, these arbitration agreements state : 11) Dispute Re solution

– A rbitration: Any a nd all claim s, c o ntro versies, breaches or di sputes by or betwee n the parties hereto, arising out of or related to this purchase agreement, the property, the subdivi sion or community of which the property is a part, the sale of the propert y by seller, or an y trans a c tion re l ated hereto, whether such dispute is b ased on contract, tort, statute, or equity,

. . . shall be arbitrated pur suant to the Fe deral Arbitration Act3

and subject to the procedures set forth as follows:

a. This arbit ration agre e ment shall be dee med to be a self

- e xec uting 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 t o the enforcement or the v alidity of t he agreement , or this arbitration agreement , or the scope of arbitra ble issues under this arbitration agreement, and any defense relating to the enforcement of this arbitration agreement, including with out limitat i on , waiver, estop pel, or laches, s hall 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 an d pursuant t o th e arbi t ration rules and procedu res of [t h e] Ameri can Arbitratio n Association in effect at the time the request for arbitration is submitted. In the event the American Arbitratio n Association is for any reason unwilling or unable to serve as the arbitr ation serv i ce, then the part ies sha ll select another reputable arbitration service. App elle es filed identical responses to the motions to compel

. Requesting that the motio ns b e denied, Appellees asserted that the arbitration agre ement s were unconsci onable and that c ertain of their c laims w ere outsi d e the ag reements ’ scope. On July 23, 2020, the trial court s igned an order in each of th e Appellees ’

cases stating : Having reviewed the motions, briefings and argument of counsel in a hearing held June 24, 2020, the C o urt D ENIES the De fendant ’ s Motion to Compe l Arbitration. The Court finds that the arbitration clause cited by Defendants contains provisions that are vague, ambiguous, in conf

lict with each other and unconscionable in that it purports to invalidate or wa i ve substantive ri ghts an d remedie s authori zed by statute. The C o urt further finds that the arbitrat ion provision results in the overall costs of arbitration to be excessive comp ared to litigation in this Court.4

The parties are ORDERED to agree to an alte r native arbitratio n servi ce or arb i trator. If the parties are unable to agree, the COURT shall select an arbitrator from a list of three names proposed by each party. Taylor fi led a notice of interlocutory appeal in each of the cases. See 9 U.S.C.A

. § 1 6(a)(1)(C) ; Tex. Civ. Pr ac. & Rem

. Code An n. § 51.01 6. Because t hese appeals address the same arbitration agreements and raise the same issues , we consider them together. 1

A NALY S IS In its sole issue on appeal, Tay lor argues the trial court erred by denyi n g its motions to compel arbitrati o n becaus e the arbitration agreement s at issue contain a delegation clause delegat ing to the arbitrator gateway questions o f arbit rability

. I. Standard of Review
We review t he denial of a motion to compel arbitration for an a b use of di scretion

. Berr

y Y&V Fab r icators, LLC v. Bambace , 604 S.W.3d 482, 485 (Tex. A pp.

— Houston [14th Dist.] 2020, no pet.). When a n appeal from such an order turns on a legal determination, however, we apply a de novo standard of revie w. Forest Oil C o rp. v. Mc

Allen , 2 68 S.W. 3d 51, 55 & n.9 (T ex. 2008).
II. Governing Law The parties do not dispute that the arbitration agreements at issue are governed by the Fede ral Arbitration Act ( “ FAA ” ). See 9 U.S.C. A. §§ 1

- 16. In general, a party seeking to compel ar b i tration under the FAA must e stabl i sh (1) t he existence of a valid, enforceable arbitratio n agreement and (2) th at 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 r e Rubiola , 334 S. W.3d

1 The partie s also filed ide ntical appellants ’ and appellees ’ briefs in both cases

.5

220, 2 23 (T e x. 2011) (ori g. proceeding) (addressin g the movant ’ s bu rden under the FAA)

. If the movant establishes that an arbitration agree ment exists, the burden then shifts to the party opposing arbitration to establish a defense t o the arbitration agreement. Ber r

y Y&V Fa bricators, LLC , 604 S.W.3d at 485

- 86 ; Garg v. P ham , 485 S.W.3d 91, 102 (Tex. App.

— Ho uston [14th Dist.] 2015, no pet.). A party may defend against the enforceability of the arbitration agreement only on grounds th a t exist at law or in equity for t h e revoca tion of a contract. Berry Y&V Fabricators, LLC , 604 S.W.3d at 486 (citin g 9 U.S.C. A. § 2). The Texas Supreme Court has delineated three distinct ways to challenge the validity of an arbitration clause: (1) cha l lenging the valid ity of the co ntr a ct as a wh ole; (2) challenging the validity of the arbitr ation provision specifically; and (3) challenging whether an agreemen t exists at all. RSL Funding, LLC v. Newsome , 569 S.W.3d 116, 124 (Tex. 2018); In r e Morgan St a nley & Co. , 293 S .W.3d 182, 18 7 ( T ex. 2009 ) (orig. proceeding). The arbitrator decides the first type of challenge as a matter of law. See Buckeye Che ck Cashing, Inc. v. Carde gna , 546 U.S. 440, 446 (2006); RSL Funding, LLC , 569 S.W.3d at 124. The

secon d type of challeng e generally must be resol ved by the court. See Rent

- A

- Ctr., W., Inc. v. Jacks on , 561 U.S. 63, 70 (2010); Prima Paint Corp. v. Flood & Conklin M fg. Co. , 388 U.S. 395, 402

- 04 (1967); Longoria v. C KR P rop. Mgmt., LLC , 577 S.W.3d 263, 267 (T e x. App.

— Houston [ 14th Dist.] 2018 , pet. de nied). But parties have the right to cont ract as they see fit and m ay 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 Fun ding, L LC , 569 S

. W.3d at 121. These clauses are enforced when the d elegation is clear and unmistak able

. 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 4 87

- 88;6

Tra figura Pte. L td. v. C

N A Metals Ltd. , 526 S .W.3d 612 , 616 (Tex. App.

— Housto n [14th Dist.] 2017, no pet.). T he court may not intervene i n ev aluati ng delegated issues “ unless the party opposing arbitration challenges th e delegation clause spe cifi c ally on legal or public policy gr o unds. ” Berry Y&V Fabricators, LLC , 604 S .W.3d at 487 (citing Rent

- A

- Ctr., W., Inc. , 561 U.S. at 72; RSL Funding, LLC , 569 S.W.3d at 121 ) ; see also Henry Schein, Inc . v. Archer & White Sales, Inc. , 139 S. Ct. 524, 529 (20 1 9) ( “ When the par ties ’ c ontract d e legates the arbitrability question to an arbitrator, a court may n ot override the contract

. . . [and] possesses no power to decide the arbit rability issue. ” ).
III. Ap plication
In the t rial court and on appeal, Appellees ar g ued that the arbi tration
agreemen t s are un conscionable and une nforceable because (1) they de prive Appellees of certain remedies afforded to them under Texas law; (2) they are

one
- sided in favor of Taylor; and (3) the c osts required to be paid by Appellees are excessive com pared t o othe r a r b itratio n services. Appellees also contend that s ome of their claims are outside of the arbitration agreement s ’ scope . In response, Taylor asserts that the arbitration agreement s delegate to th e arbitrator issues like
t h ese regarding the agreem ent s ’ enf o rceabili ty and scope. We agree w ith Taylor. An arbi t ration agreement is interpreted under contract principles and the la nguage contained therein is enforced according to its plain mea ning. See Branch Law Firm L.L.P. v

. Osborn , 532 S.W. 3d 1, 1 2 (Tex. A p p.

— Houst on [14th Dist.] 2016, pet. denied); Aldridge v. Thrift Fin. Mktg. , LLC , 376 S.W.3d 877, 883 (Te x. App.

— Fort Worth 2012, no pet.). As set forth above, the parties ’ arbitration agreement s include a broad delegation clause:

c. This arbi t ration agreemen t shall b e deemed to be a self

- e xecuting arbitration agreement. Any dispute concerning the interpretation7

or the enforceability of this arbitration agreement , including without limitation, its revocability or voidability f or any cause, any challe nges to t h e enforc ement or the v alidity of the agreement , or this arbitration agreement , or the scope of the arbitra ble issues under this arbitration agreement, and any defense relating to the enforcement of this arbitration agreem e nt, including wit h out li mitation , waiver, estoppel, or laches, shall be decided by an arbitrator in accordance with this arbitration agreement and not by a court of law. Plainly read, t his c lause delegates to the arbitrator any questions regarding (1) th e interpretation a nd enfo r ceab ilit y of the arbitration agreement; (2) its re vocability or voidability for any cause; (3) any challenges to its enforcement or validity; (4) the scope of arbitrable issues; and (5) any defense s relating to the enforcement of t he arbitration ag reement

. The u nconscio nability defenses Appellees raise challenge the enforceability and validity of the arbitration agreement s

. But u nder the plain terms of the delegation clause , the resolution of these issues was clearly and unmist a kably de legated t o the ar

b it rator

. See, e .g. , Berry Y&V Fabricators, LLC , 604 S.W.3d at 485 , 487 ( th e ar

bitration agreeme nt delegated to arbitrator “ any question or dispute concerning whether any Claims are subject to arbitration ” ; this clause included the

a p pellee ’ s public p olicy c h allenge t o th e arbitration agreement); see also Darling Homes of Tex., LLC v. Khoury , No. 01

- 20

- 00395

- CV , 2021 WL 1918772, at * 8 (Tex. App.

— Houston [1s t Dist

. ] May 13, 2021, no pet. h.) (mem. op.) ( the arbitration agreement delegated t o the arbitrator “ [a]ny disput e c o ncerning the interpretation o r the enforceability of this arbitration agreement” ; this clause included the appellee s ’ substantive unconscionability challenges) ; Hawdi v. Mutammara , No. 01

- 18

- 00024

- CV , 2 019 WL 34185 06, at * 1, * 4 (Tex. App.

— Houston [1st Dis t .] July 30, 2019, no pet.) (mem. op.) ( the arbitration agreement delegated to the arbitrator “ any dispute or controversy regarding the validity,8

interpretation, or enforceability of this agreement ” ; this clause included the

a p pellant ’ s substan tive arbitrab ili t y gateway questions)

. Li kewise, the arbitration agreement s also delegate to the arbitrator any dispute regarding “ the scope of the arbitra ble issues under this arbitration agreement ”

. Therefore , Appellees ’ challenge reg a rding whether so m e of their cl aim s fall outside the agreement s ’ scope also is reserved for the arbitrator ’ s determination. See, e.g., Dow Roofing Sys., LLC v. Great Comm ’ n Baptist Church , No. 02

- 16

- 00395

- CV , 2017 WL 3298264, at *7 (Tex. App.

— F o rt Wo rth A u g. 3, 2017, pet. denied) ( mem. op

. ) (arbitration agreement delegated to the arbitrator questions regarding the arbitration provision ’ s scope). Moreover, the parties ’ arbitration agreement s specifically incorporate the American Arbitration Association ( “ A A A ” ) rules. 2 The AAA rules em p owe r the arbitrator to decide issues of arbit rability, including the va lidity or enforceability of the arbitration agreement. See A m. Arbitration Ass ’ n, Commercia l Arbitration Rules & Medi ation Procedures, R

- 7(a) (amended an d effective Oct. 1 , 2013) ( “ The

ar b itrator shall have the power to rule on his or her own jurisdiction, including an y object ions with respect to the existence, scope , or validity of the arbitration agreement or to the arbitra bility of any claim or counterc l aim

. ” ) , available at https://a dr. o rg/sites/default/files/CommercialRules_Web.pdf

.

“ This court has held that when a broad arbitration agreement exists between the parties, and when that agreement incorp orates arbitration rules specifically
emp owering the arbitrator to dec ide issues o f ar b i trability, then the incorporation of those rules constitutes clear and unmistak able evidence of the parties ’ intent to

2 T his provision states that, “ [i]n the event that a di spute arises between the parties, such d ispu te shall be resolved b y and p u rsuant to the ar bitration rules and procedures of [the] American Arbi tration Association in effect at the time the request for arbitration is submitted. ”9

delegate arbitra bility to the arbitrator. ” Berry Y&V Fabricators, LLC , 604 S.W.3d at 487 (citing Tra

f igura Pte. Ltd. , 526 S.W.3d at 616

- 18 )

. This conclusion also has been reached by several of our sister courts of appeals as well as the F i fth Circuit and other federal appellate courts. See MP Gulf of M ex ., LLC v. Tot a l E&P USA, Inc. , No. 12

- 20

- 00180

- CV, 2020 WL 7 392768, at *3 (Tex. App.

— T y ler Dec. 16, 2020, pet. filed) (mem. op.) (collectin g ca ses).
Accor dingly, in light of the arbitration agreement s ’ delegation clause and incorporati o n o f the AAA rule s, the challeng e s Appellees raise with respect to the agreement s ’ enforceability a nd s cope only may be determined by the arbitrator. See Berry Y&V Fabricators, LLC , 604 S.W.3d at 485 , 487

. As we sta ted above , court s may not intervene i n ev aluati ng delega ted issues unle s s the party opposing arbitration specifically challenges th e deleg ation clause

. See id

. at 487 . Here, Appellees ’ brief raises the following argument that may be construed as a challenge to the delegation clause:
In scr u ti nizing the [arbitration agreement], which [Taylor] exclusively drafted, it directly contradicts FAA rules and as such it is unenforceable. The paragraph essentially states that an arbitrator , (who would have to be selec t ed and compensate d), would have t he right to determine if any or all claims should be arbitrated. This is unconscionable as the abili ty o r op tics of an unbiased, third

- party , compensated , arbitrator , to determine that a case or claims within a
case are a b le to be arbitrat ed is circular i n its logic and indefensible. In essence, this portion of Appellees ’ brief appears to contend that an arbitrat or is unqualified to determine issues of arbitrability

. Appellees did not cite any case law

or o ther authority t o support this co n tention

. C ase la w supports the opposite conclusion . As we recently stated, “ [ t]he United S tates Supreme Court has been very clear that arbitrators are c omp etent to decide any legal or factual issues the parties commit to their determin a ti on,10

including t hreshold issues of a rbitra bility such as whe ther an enforceable arbitratio n agreement exists. ” Id . at 4 8 6 (citing Re nt

- A

- Ctr. , W ., Inc. , 561 U.S. at 69

- 70; 14 Penn Plaza L L C v. Pyett , 556 U.S. 247, 268

- 69 (2009); and RSL Funding, LLC , 56 9 S .W.3d at 121 ). Th erefore, Ap pe ll ee s ’ challenge does not fore close enforcement of the delegation clause. We sustain Taylor ’ s sole issue on appeal and conclude the trial court erred by denying Taylor ’ s motions to compel arbitration

. C ONCLUSION
Becau s e the parties del egated to the ar bi tr ator all questions regarding the arbitration agreement s ’ enforceability and scope, Appellees ’ cha llenges must be d eci ded by the arbitrator. Therefore, w e reverse the trial court ’ s July 23, 2020 orders

.

/s/ Me a gan Ha ss a n Justice

Pa n el consi s t s of Justice s W ise, Spain, and Hassa n

.