Court Opinion

ID: 3219591
Source: CourtListenerOpinion
Date Created: 2016-07-04 07:39:17.088084+00
Date Added: 2024-06-11T07:39:39.063296
License: Public Domain

COURT OF APPEALS
                 SECOND DISTRICT OF TEXAS
                      FORT WORTH

                      NO. 02-16-00025-CV

WATTS REGULATOR CO.                             APPELLANT

                               V.

TEXAS FARMERS INSURANCE                          APPELLEE
COMPANY AS SUBROGEE OF
DAVID MARTINEZ

                           ------------

     FROM THE 352ND DISTRICT COURT OF TARRANT COUNTY
                TRIAL COURT NO. 352-277555-15

                             AND

                      NO. 02-16-00039-CV

WATTS REGULATOR CO.                             APPELLANT

                               V.

TEXAS FARMERS INSURANCE                          APPELLEE
COMPANY AS SUBROGEE OF
KADREY SEMO

                           ------------

     FROM THE 342ND DISTRICT COURT OF TARRANT COUNTY
                TRIAL COURT NO. 342-277833-15
                                      ----------

                                    OPINION

                                      ----------

      In a single issue in these consolidated accelerated interlocutory appeals,1

appellant Watts Regulator Co. argues that it has a right to compel appellee

Texas Farmers Insurance Company, as subrogee of David Martinez and Kadrey

Semo, to arbitration. We affirm.

      Before the accrual of the subrogation claims in this case, both parties were

members of a voluntary arbitration forum called Arbitration Forums, Inc. (AF). As

members of AF, the parties did not sign a contract with each other, but, rather,

separately and independently of one another, signed a two-page preprinted form

prepared and furnished by AF,2 which, according to its literature, “administrates

voluntary alternative dispute resolution services for signatory companies.” By

signing the agreement, both parties became signatories to AF, and as voluntary

signatories, agreed to arbitrate claims with AF.

      The AF agreement also gave AF the power to draft rules and regulations to

govern the procedures for filing cases and participating in hearings.3 Because

      1
      See Tex. Civ. Prac. & Rem. Code Ann. § 51.016 (West 2015), § 171.098
(West 2011); Tex. R. App. P. 28.1.
      2
       AF’s slogan, as denoted on the form, is “Industry created. Membership
driven.”
      3
       Through AF under the rules in effect at the time these subrogation claims
arose, submitted claims would generally be resolved with limited discovery,
                                          2
membership in AF is voluntary, either party could withdraw from AF at any time

by giving written notice to AF of its intent to withdraw, and withdrawal would

become effective 60 days after written notification, “except as to cases then

pending before arbitration panels.”

      On July 29, 2014, pursuant to the agreement’s terms, Farmers sent a

written notice to AF that it and its various entities were withdrawing from the

agreement, which, under AF’s terms, made Farmers’s withdrawal effective 60

days later.

      Approximately six months later, Farmers sued Watts on the two

subrogation claims at issue here4 based on its allegations that products

manufactured by Watts caused property damage of $9,758.04 to Martinez (for

damages that occurred to Martinez’s property on April 23, 2013) and $14,966.14

to Semo (for damages that occurred to Semo’s property on May 8, 2013). Watts

then sought to compel arbitration of both claims through AF. In both cases, the

trial courts denied Watts’s motion to compel arbitration.

      The pertinent provisions of the arbitration agreement are as follows:

      By signing this Agreement, the company accepts and binds itself to
      the following:

followed by a hearing by one arbitrator unless a party requested a three-person
panel and paid the three-person panel fee.

      Farmers brought suit as to Martinez’s claim on March 26, 2015, and as to
      4

Semo’s claim on April 10, 2015.

                                         3
      Article First
      Compulsory Provisions

      Signatory companies must forego litigation and submit any
      personal, commercial, or self-insured property subrogation claims
      to Arbitration Forums, Inc. (hereinafter referred to as AF).

      Article Second
      Exclusions

      No company shall be required, without its written consent, to
      arbitrate any claim or suit if:

      (a) it is not a signatory company nor has given written consent;

      . . . .[5]

      Article Fourth
      Non-Compulsory Provisions
      The parties may, with written consent, submit a claim:

      (a) that exceeds this forum’s monetary limit, or
      (b) where a non-signatory wants to participate.

      Once a company gives written consent, all Articles and Rules of
      this forum are applicable, and the company may not revoke its
      consent.

      Article Fifth
      AF’s Function and Authority

      AF, representing the signatory companies, is authorized to:

      (a) make appropriate Rules and Regulations for the presentation
          and determination of controversies under this Agreement;

      5
        The remaining items (b)–(h) in Article Second pertain to types of claims,
policy terms, denial of coverage, claims instituted before the agreement is
signed, accidents in federal or international waters, and settlement under an
insurance policy. Article Third sets out rules pertinent to the arbitrator’s
decisions, including confidentiality, but they otherwise have no bearing on our
interpretation of the agreement.

                                        4
      (b) determine the location, and the means by which, arbitration
          cases are heard;
      (c) determine qualification criteria and provide for the selection and
          appointment of arbitrators;
      (d) establish fees;
      (e) invite other insurance carriers, noninsurers, or self-insureds to
          participate in this arbitration program, and compel the
          withdrawal of any signatory for failure to conform to the
          Agreement or the Rules issued thereunder.

      The signatories, directors, officers, staff, agents and AF
      employees, as well as the arbitrators, are not liable to and will
      be held harmless by any party (ies) for any negligence, act, or
      omission concerning the processing, administration, or hearing
      of any arbitration conducted under this Agreement.

      Article Sixth
      Withdrawals

      Any signatory company may withdraw from this Agreement by notice
      in writing to AF. Such withdrawal will become effective sixty (60)
      days after receipt of such notice except as to cases then pending
      before arbitration panels. The effective date of withdrawal as to
      such pending cases shall be upon final compliance with the finding
      of the arbitration panel on those cases. [Underlined emphases
      added.]

The form contains a space for “Group/Company” name, asks the signatory to

indicate whether it is an insurer or is self-insured, and provides space for listing

“companies[’] signatory” if a member is “signing for a group.”

      The dispute between the parties here hinges on whether the trial courts

below properly construed the AF agreement in light of Farmers’s decision to

withdraw from the agreement and its subsequent decision to sue Watts on the

subrogated claims. Specifically, the question is whether claims that accrued prior

to Farmers’s decision to withdraw are nevertheless subject to arbitration through

                                         5
AF even though they were not pending cases before an arbitration panel at any

time during Farmers’s association with AF.

      Watts argues that “claims,” as used in the first article of the agreement,

means that any claims that accrued while Farmers was still a signatory must be

arbitrated.6 Farmers counters that the plain and specific language of the sixth

article—that withdrawal is effective 60 days after notice “except as to cases then

pending before arbitration panels”—means that if the claim was not pending

before an arbitration panel at the time of the withdrawal plus 60 days, then it

cannot later be compelled into arbitration pursuant to the AF agreement.

      We review a trial court’s denial of a motion to compel arbitration for an

abuse of discretion. BBVA Compass Invs. Solutions, Inc. v. Brooks, 456 S.W.3d
711, 717 (Tex. App.—Fort Worth 2015, no pet.). A party seeking to compel

arbitration must show that the claims at issue (1) are subject to a valid arbitration

agreement and (2) fall within the scope of that agreement.            Id.   Because

unambiguous contracts are construed as a matter of law, Moayedi v. Interstate

35/Chisam Rd., L.P., 438 S.W.3d 1, 7 (Tex. 2014), we review de novo a trial

court’s construction of an unambiguous arbitration agreement. See In re Labatt

Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig. proceeding); In re

      6
       Or, as worded by the trial judge in the Semo case and agreed to by
Watts’s counsel, “So [Watts’s] position is essentially that once . . . a subrogation
claim accrues, that the agreement can never be terminated as to that [claim].”
The trial court then observed that such an interpretation would render the
language about pending cases “pretty much worthless.”

                                         6
Guggenheim Corp. Funding, LLC, 380 S.W.3d 879, 886 (Tex. App.—Houston

[14th Dist.] 2012, orig. proceeding [mand. dism’d]).

      Watts relies on Brooks to support its argument that Farmers’s claims must

be arbitrated. In Brooks, the dispute between the parties involved allegations

that the bank improperly transferred funds from an individual retirement account

(IRA) into someone else’s account and then closed the IRA account. 456
S.W.3d at 715. The bank argued that the brokerage agreement between the

parties required arbitration and that the agreement was broad enough to

encompass all controversies between the parties concerning the agreement’s

performance, while the owner of the IRA argued that the arbitration clause’s

scope did not encompass tortious conduct and that the parties’ contractual

relationship ended when the bank closed the account.7 Id. at 716–17.

      7
       The arbitration clause in that case provided, in all capital letters:

      (e) . . . You agree that, except as provided below, all controversies
      which may arise between you and Compass, its affiliates, officers,
      directors, employees, representatives, and agents concerning the
      construction, performance or breach of this agreement, agreements
      related hereto, or any transaction involving securities and/or your
      securities account, whether entered into prior to, or subsequent to
      the date hereof, shall be resolved by arbitration in accordance with
      the Code of Arbitration Procedure of the National Association of
      Securities Dealers (“CAPNASD”) or, if the CAPNASD is unavailable
      for any reason, the rules of procedure of the American Arbitration
      Association.

Brooks, 456 S.W.3d at 716–17 (emphases added).

                                          7
      We noted the following general rules regarding arbitration and contract

construction in Brooks:

 An agreement to arbitrate contained within a contract survives the termination
  or repudiation of that contract as a whole.

 A strong presumption favors arbitration and we are to resolve any doubts
  about an agreement’s scope, waiver, and other issues unrelated to its validity
  in favor of arbitration.

 Unless it can be said with positive assurance that an arbitration clause is not
  susceptible of an interpretation that would cover the dispute at issue, a court
  should not deny arbitration.

 Whether a claim falls within the scope of an arbitration agreement involves the
  trial court’s legal interpretation of the agreement and is subject to de novo
  review, i.e., reviewed with no deference to the trial court’s decision.

 Courts examine the language in an arbitration agreement in context and give
  the language its plain grammatical meaning, and when construing a
  contractual provision, the provision is reviewed in light of the entire contract.

See id. at 718–19. We clarified in Granite Re Inc. v. Jay Mills Contracting Inc.

that when determining whether there is a valid arbitration agreement between the

parties, the FAA’s general presumption in favor of arbitration does not apply. No.

02-14-00357-CV, 2015 WL 1869216, at *3 (Tex. App.—Fort Worth Apr. 23, 2015,

no pet.) (mem. op. on reh’g). We make that determination by applying state law

contract principles, and under such principles, we primarily must determine the

parties’ intent as expressed in the contract’s terms. Id. Arbitration cannot be

ordered in the absence of an agreement to arbitrate. Villa De Leon Condos.,

LLC v. Stewart, No. 02-14-00271-CV, 2015 WL 729462, at *3 (Tex. App.—Fort

                                        8
Worth Feb. 19, 2015, no pet.) (mem. op.) (citing Freis v. Canales, 877 S.W.2d
283, 284 (Tex. 1994) (orig. proceeding)).

      We concluded in Brooks that the claims were subject to arbitration based

on the purpose of the agreement between the parties and because their claims

were both the direct and collateral results of the bank’s alleged breach of their

agreement. 456 S.W.3d at 719–20. We concluded in Granite Re that there was

a valid agreement to arbitrate between a contractor and a subcontrator’s surety

based on the doctrine of incorporation by reference.8 2015 WL 1869216, at *1–2,

*4. And we concluded in Stewart that the purchasers had agreed to and were

bound by the arbitration agreement as evidenced by their agreement to the First

Addendum of a condominium sales contract. 2015 WL 729462, at *4.

      In contrast, here, the arbitration agreement at issue was not between

Watts and Farmers as parties to a contract or parties to an overall transaction

that incorporated an arbitration clause by reference. Cf. Stewart, 2015 WL
729462, at *4; Granite Re, 2015 WL 1869216, at *1–2, *4; Brooks, 456 S.W.3d at

719–20. Instead, each party here unilaterally signed a form provided by the

arbitration forum itself, and the claims at issue were unrelated to the breach of

      8
       Granite, the subcontractor’s surety, sought to enforce the arbitration
clause against the contractor; the arbitration clause was in a blanket agreement
between the contractor and the subcontractor, which was incorporated into a
performance bond through a work order. 2015 WL 1869216, at *1–2, *4.

                                        9
any agreement between the parties.9 The arbitration agreement form expressly

states that no company shall be required to arbitrate any claim or suit if it is not a

signatory company unless it has given written consent.           The only provision

requiring irrevocability of consent pertains to when a claim has been submitted

that exceeds the forum’s monetary limit or involves a nonsignatory and requires

written consent to the arbitration of that claim.

      The first article requires that “signatory” companies submit their claims to

AF. The second article provides that no company shall be required to arbitrate

any claim or suit without its written consent if it is not a “signatory” company. The

fourth article states that irrevocability depends on written consent to submit a

      9
       Instead, Watts was at best a third-party beneficiary to Farmers’s unilateral
agreement to arbitrate in AF’s forum. Cf. In re Odyssey Healthcare, Inc., 310
S.W.3d 419, 421 (Tex.) (orig. proceeding) (reviewing validity of arbitration
agreement between employer and employee), cert. denied, 562 U.S. 895 (2010);
In re Halliburton Co., 80 S.W.3d 566, 567–68 (Tex. 2002) (orig. proceeding)
(same), cert. denied, 537 U.S. 1112 (2003). To the extent Watts relies on the
Federal Arbitration Act (FAA) to support its argument that Farmers could not
revoke the arbitration agreement as to claims that accrued while it was a
signatory, the FAA states that

      A written provision in any maritime transaction or a contract
      evidencing a transaction involving commerce to settle by arbitration
      a controversy thereafter arising out of such contract or transaction,
      or the refusal to perform the whole or any part thereof, or an
      agreement in writing to submit to arbitration an existing controversy
      arising out of such a contract, transaction, or refusal, shall be valid,
      irrevocable, and enforceable, save upon such grounds as exist at
      law or in equity for the revocation of any contract.

9 U.S.C.A. § 2 (West 2009) (emphases added). As set out above, Watts and
Farmers did not have a contract with each other. Therefore, this provision does
not support forcing Farmers into arbitration.

                                          10
claim that involves a nonsignatory’s participation.         And the sixth article’s

withdrawal terms allow “[a]ny signatory company” to withdraw if it provides notice

in writing, with the withdrawal becoming effective sixty days later “except as to

cases then pending before arbitration panels.”

      From the above and with regard to these two subrogation claims, we

cannot conclude that Watts had any vested right to arbitration or ability to enforce

compulsory arbitration against Farmers sixty days after Farmers withdrew from

AF. Instead, under the terms as written, when Farmers gave AF its written notice

that it was withdrawing from AF, it became a “nonsignatory” company sixty days

later as to all cases—and, by inference, all claims that were not yet cases10—that

      10
          In the law’s natural order, some claims become cases and some do not.
See Tex. R. Civ. P. 47 (“Claims for Relief”), 202 (“Depositions Before Suit or to
Investigate Claims”). And notwithstanding Watts’s allegations of gamesmanship,
we cannot rewrite AF’s form to accommodate Watts’s desire to force Farmers
into arbitration. See generally Tex. Civ. Prac. & Rem. Code Ann. § 154.002
(West 2011) (explaining that alternative dispute resolution procedures are
voluntary settlement procedures); Aldridge v. Thrift Fin. Mktg., LLC, 376 S.W.3d
877, 883 (Tex. App.—Fort Worth 2012, no pet.) (“In conducting our review, we
‘may not expand upon the terms of the contract or tolerate a liberal interpretation
of it by reading into it a voluntary, consensual agreement to arbitrate when one
otherwise does not exist.’” (quoting In re Bates, 177 S.W.3d 419, 422 (Tex.
App.—Houston [1st Dist.] 2005, orig. proceeding)). Compare Claim, Black’s Law
Dictionary (10th ed. 2014) (defining “claim” as a statement of something yet to be
proved, the assertion of an existing right, an interest or remedy recognized at
law, or “[a] demand for money, property, or a legal remedy to which one asserts
a right; esp., the part of a complaint in a civil action specifying what relief the
plaintiff asks for”), with Case, Black’s Law Dictionary (defining “case” as “[a] civil
or criminal proceeding, action, suit, or controversy at law or in equity ”; a criminal investigation; an individual suspect or convict in
relation to any aspect of the criminal-justice system; or an argument, an instance,
occurrence, or situation).

                                         11
were not already then-pending before an arbitration panel.11 At the time Farmers

brought its claims against Watts, it was no longer a signatory. See Aldridge, 376
S.W.3d at 883 (“[W]e agree with Thrift that the repeated use of the terms

‘Member,’ ‘Disputing Member,’ and ‘Responding Member’ demonstrates that the

agreement to arbitrate is an agreement solely regarding resolution of disputes

between ‘Members’ of Thrift.”).      The AF arbitration agreement form’s plain

language addresses which cases—not claims—were still subject to arbitration

upon a signatory’s withdrawal.     Because they were not “cases then pending

before arbitration panels,” these two subrogation actions did not fall within the

post-withdrawal cases that would remain subject to arbitration.

      Given the context, the timeline, and the plain-language reading of the

arbitration agreement form, we cannot say that the trial courts in these cases

abused their discretion by denying Watts’s motions to compel arbitration.

       We also note that contrary to Watts’s argument that the contract is illusory
if Farmers could withdraw whenever it wanted, both parties here—Farmers and
Watts—had the power to withdraw pursuant to the sixth article. Cf. Odyssey, 310
S.W.3d at 424 (holding that limitations on employer’s right to amend or terminate
arbitration agreement with employee did not render agreement illusory);
Halliburton, 80 S.W.3d at 569–70 (same).
      11
         To support its argument that a pending claim is subject to compulsory
arbitration at the time that it arose, Watts refers us to the AF Rules. But the rules
in the record that Watts refers us to pertain to rules that became effective on
January 1, 2015 and were then updated on November 10, 2015, not the rules
that were in effect at the time the claims accrued or when Farmers withdrew.
The rules that were effective October 1, 2012, which are also in the record, do
not purport to interpret when claims accrue for mandatory arbitration purposes.

                                         12
Therefore, we overrule Watts’s sole issue and affirm the trial courts’ orders

denying Watts’s motions to compel arbitration.

                                                 /s/ Bonnie Sudderth
                                                 BONNIE SUDDERTH
                                                 JUSTICE

PANEL: WALKER, MEIER, and SUDDERTH, JJ.

DELIVERED: June 30, 2016

                                       13