Opinion ID: 2833715
Heading Depth: 1
Heading Rank: 3

Heading: Ambiguity of the Arbitration Agreements

Text: Trane and the third-party defendants next argue that the trial court wrongly deemed the arbitration agreements ambiguous and abused its discretion in denying their motions to compel arbitration. We decide the merits under our mandamus jurisdiction. [5] Mandamus is proper to correct a clear abuse of discretion when there is no adequate remedy by appeal, Walker v. Packer , 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding), as when a party is erroneously denied its contracted-for arbitration rights under the FAA, Jack B. Anglin Co. , 842 S.W.2d at 272–73. Also, a trial court “has no ‘discretion’ in determining what the law is or applying the law to the facts.” Walker , 827 S.W.2d at 840. In evaluating a motion to compel arbitration, a court must determine first whether a valid arbitration agreement exists, and then whether the agreement encompasses the claims raised. In re Oakwood Mobile Homes, Inc. , 987 S.W.2d 571, 573 (Tex. 1999) (per curiam). When deciding whether the parties agreed to arbitrate under the FAA, courts should apply ordinary state law principles regarding the formation of contracts. First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 944 (1995); J.M. Davidson, Inc. v. Webster , 128 S.W.3d 223, 227–28 (Tex. 2003). In a letter ruling, the trial court found “the contract in question ambiguous”; however, the record does not indicate whether the trial court was uncertain as to the agreements’ existence or merely their scope. We address these two issues in turn.
Whether a valid arbitration agreement exists is a legal question subject to de novo review. J.M. Davidson, Inc. , 128 S.W.3d at 227. Whether contractual ambiguity exists is likewise a question of law. See Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd. , 940 S.W.2d 587, 589 (Tex. 1996). Inartful drafting does not alone render a contractual provision ambiguous. See Universal C.I.T. Credit Corp. v. Daniel , 243 S.W.2d 154, 157 (Tex. 1951). A contract is ambiguous only if it is subject to “two or more reasonable interpretations after applying the pertinent rules of construction.” Columbia Gas Transmission Corp. , 940 S.W.2d at 589. Ambiguity does not exist merely because the parties assert forceful and diametrically opposing interpretations. Id. BISD contends that the contracts with Wilson and Stotler (1) contain no arbitration language at all, or (2) contain ambiguous language. The trial court’s three-sentence letter ruling is silent on the first point, while the court of appeals, “[a]ssuming without determining that the contracts contain arbitration language,” concluded that “the supplementary conditions create ambiguity.” __ S.W.3d at __, 2005 WL 310777, at . We disagree with BISD that its contracts with Wilson and Stotler contained no arbitration language. The contracts validly and expressly incorporate by reference the expansive arbitration language of subparagraph 4.5.1 of A201. Innumerable contracts are consummated every day in Texas that incorporate other documents by reference. A contractual term is not rendered invalid merely because it exists in a document incorporated by reference, Owen v. Hendricks , 433 S.W.2d 164, 166 (Tex. 1968), and we agree with the courts of appeals that arbitration-related language is no exception to this rule. See, e.g., Teal Constr. Co./Hillside Villas Ltd. v. Darren Casey Interests, Inc. , 46 S.W.3d 417, 420 (Tex. App.—Austin 2001, pet. denied) (holding that an unsigned arbitration agreement contained in a document incorporated by reference into the signed contract constitutes an enforceable arbitration agreement); D. Wilson Constr. Co. v. McAllen Indep. Sch. Dist. , 848 S.W.2d 226, 230 (Tex. App.—Corpus Christi 1992, writ dism’d w.o.j.) (rejecting the argument that an arbitration agreement incorporated by reference is invalid or unenforceable). Accordingly, we reject BISD’s argument that these provisions were not validly incorporated into the contracts with Wilson and Stotler. We likewise reject BISD’s argument, and the trial court’s holding, that the arbitration agreements are ambiguous. Subparagraph 4.5.1 of A201 states: ”Any controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association . . . .” The Supplementary Conditions “[a]dd new Clause 4.5.1.1” to the arbitration provision: ”Except as otherwise provided in this Contract, any dispute concerning a question of fact arising under this contract, which is not disposed of by agreement shall be decided by [BISD] . . . . The decision of [BISD] shall be final and conclusive unless” it is timely appealed to the Superintendent and then to the BISD Board of Trustees, “whose decision shall be final and conclusive.” The caption of clause 4.5.1.1 in the Supplementary Conditions evinces the parties’ intent to “[a]dd new Clause 4.5.1.1 to subparagraph 4.5.1.” Clause 4.5.1.1 is added to subparagraph 4.5.1, and the clause’s numerical designation places it beneath subparagraph 4.5.1. In addition, clause 4.5.1.1 begins with the caveat, “[e]xcept as otherwise provided in this Contract.” Subparagraph 4.5.1 does provide otherwise in certain cases. If the parties intended for clause 4.5.1.1 to supplant subparagraph 4.5.1, they could have easily drafted language to accomplish exactly that. [6] Further, clause 4.5.1.1 does not mention the additional arbitration procedures set forth in subparagraphs 4.5.2–4.5.7. If clause 4.5.1.1 negates subparagraph 4.5.1, as BISD contends, then subparagraphs 4.5.2–4.5.7 are meaningless. The placement, caption, and caveat of clause 4.5.1.1, as well as the language of subparagraphs 4.5.2–4.5.7, indicate that the clause is subordinate to subparagraph 4.5.1 if subparagraph 4.5.1 applies in a given situation. BISD argues that such a construction would render clause 4.5.1.1 meaningless. We disagree. By its terms, clause 4.5.1.1 applies to “any dispute concerning a question of fact arising under this contract,” while subparagraph 4.5.1 applies to “[a]ny controversy or Claim arising out of or relating to the Contract, or the breach thereof . . . .” (emphasis added). While the scope of clause 4.5.1.1 is narrower than the scope of subparagraph 4.5.1, certain situations would fall solely under the factual dispute clause. For example, the construction contracts could have called for solid brass doorknobs throughout the schools. BISD could have argued that the doorknobs Wilson and Stotler used were brass-plated instead of solid brass. Whether the doorknobs are solid brass or brass-plated would be a factual dispute subject to clause 4.5.1.1. We hold that the arbitration agreements and clause 4.5.1.1 can be reconciled; the arbitration agreements are not susceptible to more than one reasonable interpretation and are therefore not ambiguous. Columbia Gas Transmission Corp. , 940 S.W.2d at 589.
We next consider whether there is ambiguity concerning the agreements’ scope. The strong presumption favoring arbitration generally requires that we resolve doubts as to the scope of the agreements in favor of coverage. In re Kellogg, Brown & Root, Inc. , 166 S.W.3d 732, 737 (Tex. 2005); In re FirstMerit Bank , 52 S.W.3d 749, 753 (Tex. 2001); Cantella & Co. v. Goodwin , 924 S.W.2d 943, 944 (Tex. 1996) (per curiam) (orig. proceeding). Once an agreement is established, “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.’” Prudential Sec. Inc. v. Marshall , 909 S.W.2d 896, 899 (Tex. 1995) (per curiam) (orig. proceeding) (emphasis in original) (quoting Neal v. Hardee’s Food Sys., Inc. , 918 F.2d 34, 37 (5th Cir. 1990)). Here, BISD claims there are construction defects throughout the two schools. This dispute is a “controversy or Claim arising out of or related to the Contract” to build the schools and thus falls squarely within the scope of the arbitration agreements. We find no ambiguity in either the validity or the scope of these arbitration agreements. Trane and the third-party defendants have proven the existence of valid arbitration agreements that cover the present dispute. In re Oakwood Mobile Homes, Inc. , 987 S.W.2d at 573. The trial court abused its discretion by denying the motions to compel arbitration after finding “the contract in question ambiguous.”
Finally, BISD argues that Trane and Stotler waived any right to arbitrate. In a personal injury suit filed by students and teachers in a separate court, Trane, Stotler, and Mac’s Insulation, Inc. filed cross-actions against BISD, seeking indemnity in that case. Trane also filed the present suit against BISD to obtain injunctive relief to preserve evidence in that personal injury case. There is a strong presumption against waiver under the FAA. In re Vesta Ins. Group, Inc. , __ S.W.3d __, __, 2006 WL 662335, at  (Tex. 2006) (per curiam). “Merely taking part in litigation is not enough unless a party ‘has substantially invoked the judicial process to its opponent’s detriment.’” Id . (quoting In re Serv. Corp. Int’l , 85 S.W.3d 171, 174 (Tex. 2002)). In In re Vesta Ins. Group, Inc. , we held that the relators, who litigated in the trial court for two years, did not substantially invoke the judicial process to their opponent’s detriment because the relators engaged in minimal discovery, and the real party in interest failed to demonstrate sufficient prejudice to overcome the strong presumption against waiver. Id . at __, 2006 WL 662335, at . Likewise, BISD has failed to demonstrate how the cross-actions for indemnity in the separate personal injury suit or Trane’s pursuit of injunctive relief related to that case have worked to BISD’s detriment. We hold that the actions of Trane, Stotler, and Mac’s Insulation, Inc. do not constitute waiver of their right to arbitrate.