Court Opinion

ID: 4501661
Source: CourtListenerOpinion
Date Created: 2020-01-27 08:13:21.201309+00
Date Added: 2024-06-11T13:38:07.847876
License: Public Domain

Affirmed and Opinion Filed January 23, 2020

                                                  In The
                                   Court of Appeals
                            Fifth District of Texas at Dallas
                                         No. 05-18-01412-CV

                   GJ PARTNERS, LTD. AND GENE JOYCE, Appellants
                                       V.
                        CIMA CONTRACTORS, LLC, Appellee

                         On Appeal from the 366th Judicial District Court
                                      Collin County, Texas
                             Trial Court Cause No. 366-03091-2018

                                MEMORANDUM OPINION
                         Before Justices Bridges, Molberg, and Partida-Kipness
                                  Opinion by Justice Partida-Kipness
       In this interlocutory appeal, appellants GJ Partners, LTD (GJP) and Gene Joyce

(collectively, the GJ Entities) appeal from the trial court’s order denying their motion to compel

arbitration. We affirm the trial court’s order.

                                             Background

       In March 2018, storms damaged the roof on the GJ Entities’ property in College Station,

Texas. Appellee Cima Contractors, LLC (Cima) and Joyce executed an Insurance Restoration

Master Agreement (Agreement) to repair the roof. Joyce purportedly executed the Agreement on

GJP’s behalf as GJP’s president. The Agreement contains a Dispute Resolution (Arbitration)

provision that states:

        Any controversy or claim arising out of or relating to this Agreement, or the breach
        thereof, shall be settled by arbitration administered by the American Arbitration
        Association in accordance with its Commercial Arbitration Rules and judgment
        on the award rendered by the arbitrator(s) may be entered in any court having
        jurisdiction thereof.

       Cima alleges it assisted GJP in providing proof of loss to GJP’s insurance carrier. The

insurance carrier estimated the repairs at $213,579.74 and issued a check to GJP for this amount.

According to Cima, GJP was required by the Agreement to accept this amount for the repairs and

contact Cima within thirty days of receiving the payment to schedule the repairs. Cima alleges

that GJP never contacted Cima to schedule the repairs but indicated to Cima that it was considering

a different contractor for the repairs. GJP allegedly also advised Cima that Joyce did not have

authority to execute the Agreement and requested a signatory change.

                                       Procedural History

       Cima filed suit against GJP, alleging that GJP breached the Agreement when it failed to

schedule the roof repair after receiving the insurance proceeds for the repair and repudiated its

contractual obligations when it requested a signatory change because Joyce was not authorized to

execute the Agreement. Cima also sought a temporary injunction pursuant to chapter 65 of the

Texas Civil Practice & Remedies Code to enjoin GJP from spending the insurance proceeds during

the pendency of the suit. Cima filed its suit in Collin County, Texas, based on the Agreement’s

venue provision.

       GJP filed a motion to transfer venue, arguing the Agreement’s forum and venue provisions

were inapplicable because GJP was not a party to the Agreement. According to GJP, Joyce did

not have authority to execute the Agreement on GJP’s behalf. Only GJP’s general partner, GJ

Management, LLC, had such authority. In his answer, Joyce asserted he lacked mental capacity

to execute the Agreement due to treatment of a “progressive nervous system disorder” that

impaired his mental faculties.

                                               –2–
       Cima filed its first supplemental petition, adding Joyce and alleging that Joyce fraudulently

misrepresented his authority to bind GJP and seeking damages for Joyce’s breach of contract and

express warranty.

       Cima set its request for injunctive relief for hearing. In response to Cima’s notice of

hearing, GJP reiterated that it was not a party to the Agreement and had repudiated the Agreement.

According to GJP, the Agreement’s injunctive remedies, like the Agreement’s venue provision,

did not apply to GJP as a non-party to the Agreement.

       Cima filed a second supplemental petition in which it sought a temporary restraining order

preventing GJP from spending the insurance proceeds. Cima alleged that a third-party roofing

contractor had submitted a proposed scope of work to GJP, and GJP had informed the contractor

that GJP had terminated the Agreement with Cima. At the TRO hearing, GJP reiterated its position

that no contract existed between itself and Cima. The trial court entered a temporary restraining

order and set the hearing for Cima’s request for temporary injunction. The parties later signed an

agreed temporary injunction order that required GJP to preserve certain protected funds.

       GJP then withdrew its motion to transfer venue, and the GJ Entities filed a motion to

compel arbitration under the Agreement’s Arbitration provision. The GJ Entities attached a copy

of the Agreement as an exhibit to their motion to compel arbitration. This same copy was attached

to Cima’s response to GJP’s motion to transfer venue and supported by the affidavit of Cima’s

Vice President, Daniel Suster.

       Cima filed a response to the GJ Entities’ motion to compel arbitration, arguing that the GJ

Entities’ contract formation defenses preclude arbitration and were never withdrawn by those

parties. In support, Cima attached GJP’s responses to Cima’s requests for admissions and

interrogatories in which GJP repeatedly denied the existence of any agreement between itself and

Cima on the ground that Joyce did not have authority to execute the Agreement on GJP’s behalf.

                                               –3–
Cima also attached Joyce’s disclosures in which Joyce stated that he did not have capacity to

execute the Agreement.

       At the evidentiary hearing on the GJ Entities’ motion to compel arbitration, Cima offered

GJP’s discovery responses and Joyce’s disclosures into evidence. The GJ Entities did not offer

any evidence at the hearing but argued, as they do on appeal, that they implicitly withdrew their

contract formation defenses as to the Arbitration provision by withdrawing their motion to transfer

venue and filing their motion to compel arbitration. The GJ Entities maintained their defenses as

to the remainder of the Agreement. According to the GJ Entities, as long as they did not contest

the formation of the Arbitration provision, the doctrine of separability required the trial court to

submit the entire dispute to arbitration.

       Cima maintained that the GJ Entities had not withdrawn their formation defenses and

directed the trial court to numerous places in GJP’s discovery responses in which GJP denied any

contract between itself and Cima on the grounds that Joyce was not authorized to execute the

Agreement on GJP’s behalf. Likewise, Cima directed the trial court to Joyce’s disclosure that he

lacked capacity to execute the Agreement. The GJ Entities did not object to Cima’s evidence.

       After the presentation of evidence, the trial court found the discovery responses and

disclosures admitted into evidence and not subject to withdrawal.

       COURT: Sounds to me like these are judicial admissions that [GJ Entities] simply
       can’t withdraw. And if there’s an admission there’s no contract, how can you have
       an arbitration with no contract?”

       [GJ ENTITIES]: Well, Your Honor, in regards to that point, . . . if you go to page
       44 of our response, we reserve the right to amend those responses as necessary.

       COURT: Well, it’s too late. I think those are judicial admissions. They’ve been
       admitted into evidence.

       [GJ ENTITIES]: Well, it very well might be, Your Honor.

                                                –4–
The GJ Entities then argued that challenges to the validity of a contract as a whole go to arbitration,

while challenges limited to the validity of an arbitration provision are reserved for the courts, and

because they were not challenging the Arbitration provision, the court must grant the motion to

compel arbitration. The trial court denied GJ Entities’ motion to compel arbitration, and this

appeal followed. In one issue, the GJ Entities assert that the trial court abused its discretion by

denying the motion to compel arbitration.

                                        Standard of Review

       We review a trial court’s order denying a motion to compel arbitration for abuse of

discretion. See Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018), cert. denied, __ U.S. __,

139 S. Ct. 184, 202 L. Ed. 2d 40 (2018). We defer to the trial court’s factual determinations if

they are supported by evidence but review its legal determinations de novo. Id.; see also Sidley

Austin Brown & Wood, L.L.P. v. J.A. Green Dev. Corp., 327 S.W.3d 859, 863 (Tex. App.—Dallas

2010, no pet.) (in reviewing denial of motion to compel arbitration, “we apply a no-evidence

standard to the trial court’s factual determinations and a de novo standard to legal determinations”).

A trial court abuses its discretion if it acts in an arbitrary or unreasonable manner or acts without

reference to any guiding rules or principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d
238, 241–42 (Tex. 1985). There is no abuse of discretion when the court’s decision is based on

conflicting evidence, some of which reasonably supports the decision. RSR Corp. v. Siegmund,

309 S.W.3d 686, 709 (Tex. App.—Dallas 2010, no pet.).

                                              Analysis

       The GJ Entities present two reasons why the trial court should have granted their motion

to compel arbitration. First, the GJ Entities argue they had no burden to prove that a valid contract

existed between GJP and Cima because the trial court had already found a valid contract in its

temporary restraining order. Second, they maintain the separability doctrine required the parties’

                                                 –5–
claims and defenses to be resolved by the arbitrator because the GJ Entities withdrew their contract

formation defenses as to the Arbitration provision. We address each of the GJ Entities’ reasons.

       Before a court can compel arbitration, it must first determine that a valid arbitration

agreement exists between the parties. In re AdvancePCS Health L.P., 172 S.W.3d 603, 605 (Tex.

2005) (orig. proceeding); Phillips v. ACS Mun. Brokers, Inc., 888 S.W.2d 872, 875 (Tex. App.—

Dallas 1994, no writ). This gateway matter is a question of state contract law. Jody James Farms,

JV v. Altman Group, Inc., 547 S.W.3d 624, 631 (Tex. 2018); In re Morgan Stanley & Co., Inc.,

293 S.W.3d 182, 187 (Tex. 2009) (orig. proceeding); see also First Options of Chicago, Inc. v.

Kaplan, 514 U.S. 938, 944 (1995) (when deciding whether the parties agreed to arbitrate, “courts

generally . . . should apply ordinary state-law principles that govern the formation of contracts”).

       A party seeking to compel arbitration must establish that a valid arbitration agreement

exists and that the claims at issue fall within the scope of that agreement. Henry, 551 S.W.3d at

115; see also J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003) (although strong

presumption favors arbitration, “the presumption arises only after the party seeking to compel

arbitration proves that a valid arbitration agreement exists”). “Motions to compel arbitration are

ordinarily decided in summary proceedings ‘on the basis of affidavits, pleadings, discovery, and

stipulations.’” Kmart Stores of Tex., L.L.C. v. Ramirez, 510 S.W.3d 559, 565 (Tex. App.—El Paso

2016, pet. denied after merits briefing) (quoting Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266,

269 (Tex. 1992) (orig. proceeding)). However, when a party seeking to compel arbitration

provides competent, prima facie evidence of an arbitration agreement, and the party seeking to

resist arbitration contests the agreement’s existence and raises genuine issues of material fact by

presenting affidavits or other such evidence as would generally be admissible in a summary

proceeding, the trial court must forgo summary disposition and hold an evidentiary hearing. Id.

                                                –6–
When the trial court conducts such a “Tipps hearing” and thereafter makes a ruling, we review the

trial court’s findings for legal sufficiency. Id.

        In a nonjury proceeding when, as here, no findings of fact or conclusions of law are filed

or requested, we infer that the trial court made all the necessary findings to support its judgment.

Id.; see also Holt Atherton Indus. Inc. v. Heine, 835 S.W.2d 80, 83 (Tex. 1992). If the implied

findings are supported by the evidence, we must uphold the trial court’s judgment on any theory

of law applicable to the case. Kmart, 510 S.W.3d at 565; see also Worford v. Stamper, 801 S.W.2d
108, 109 (Tex. 1990).

        When reviewing the evidence for legal sufficiency, we consider the evidence in the light

most favorable to the challenged finding, crediting favorable evidence if a reasonable factfinder

could and disregarding contrary evidence unless a reasonable factfinder could not. City of Keller

v. Wilson, 168 S.W.3d 802, 807 (Tex. 2005). Evidence is legally insufficient if the record reveals:

(a) the complete absence of a vital fact; (b) the court is barred by rules of law or of evidence from

giving weight to the only evidence offered to prove a vital fact; (c) the evidence offered to prove

a vital fact is no more than a mere scintilla; or (d) the evidence establishes conclusively the

opposite of the vital fact. Id. at 810. Evidence is legally sufficient if it would enable fair-minded

people to reach the verdict under review. Id. at 827. When conducting a review of the legal

sufficiency of the evidence, we are mindful that the factfinder was the sole judge of the credibility

of the witnesses and weight to be given their testimony. Id. at 819.

        The GJ Entities argue that they had no burden to prove that a valid contract existed between

GJP and Cima because the trial court had already found a valid contract in its temporary restraining

order enjoining the GJ Entities from spending the insurance proceeds. That order stated that the

dispute was a “contractual matter” and the Agreement was a valid contract entitling Cima to

injunctive relief.

                                                    –7–
       The trial court’s interlocutory findings do not carry the weight the GJ Entities suggest. The

purpose of a temporary restraining order is to preserve the status quo for up to fourteen days until

the litigant’s application for temporary injunction can be heard. TEX. R. CIV. P. 680. The ultimate

merits of the controversy, both legal and factual, are not before the trial court. Tom James of

Dallas, Inc. v. Cobb, 109 S.W.3d 877, 884 (Tex. App.—Dallas 2003, no pet.). Consequently, a

trial court’s interlocutory findings have no bearing on the ultimate merits of the case and are not

binding on the trial court’s subsequent rulings or our review of the trial court’s exercise of

discretion. See id.; see also, e.g., Communicon, Ltd. v. Guy Brown Fire & Safety, Inc., No. 02-17-

00330-CV, 2018 WL 1414837, at *9 (Tex. App.—Fort Worth Mar. 22, 2018, no pet.) (trial court

did not abuse its discretion by denying a temporary injunction based on findings contrary to those

in the trial court’s order extending a temporary restraining order); Nw. Dodge, Inc. v. Woody, No.

01-02-00669-CV, 2003 WL 1848689, at *1 (Tex. App.—Houston [1st Dist.] Apr. 10, 2003, pet.

denied) (mem. op.) (“Although the trial court's additional findings and conclusions are in conflict

with the original findings and conclusions, the conflict must be resolved in favor of the later

findings.”). Thus, the trial court’s interlocutory findings did not alleviate the GJ Entities’ burden

to prove a valid arbitration agreement existed.

       Cima attached a copy of the Agreement, authenticated by Suster, to its response to the GJ

Entities’ motion to transfer venue. The GJ Entities offered Cima’s copy of the Agreement as an

exhibit in support of their motion to compel arbitration, thus providing prima facie evidence of the

Agreement’s formation. See Ridge Nat. Res., L.L.C. v. Double Eagle Royalty, L.P., 564 S.W.3d
105, 121 (Tex. App.—El Paso 2018, no pet.) (prima facie evidence of formation found in signed

contract offered into evidence without objection as to authenticity). The burden then shifted to

Cima to offer argument and evidence that undermined contract formation. See Kmart Stores, 510
S.W.3d at 565.

                                                  –8–
        To demonstrate a fact issue as to formation of the Agreement in its entirety, Cima’s

response to the motion to compel arbitration included copies of GJP’s discovery responses, in

which GJP denied Joyce’s authority to execute the Agreement, and Joyce’s disclosures, in which

Joyce denied capacity to do the same. See id. In light of that evidence, the trial court conducted a

Tipps hearing. See id. GJ Entities offered no evidence at the hearing.

        On the record before us, we cannot say that the GJ Entities satisfied their burden to

demonstrate that a valid arbitration agreement exists. Although the agreement attached to the GJ

Entities’ motion to compel arbitration demonstrated that the Agreement contained the Arbitration

provision, the GJ Entities’ position in the discovery responses, disclosures, and argument at the

Tipps hearing, showed that they disputed the existence of a valid contract. Therefore, the trial

court could have found that the GJ Entities failed to satisfy their burden to demonstrate a valid

arbitration agreement by merely attaching a copy of the Agreement to their motion to compel

arbitration.

        We next address the GJ Entities’ argument that they had withdrawn their contract formation

defenses as to the Arbitration provision, thus mandating arbitration under the separability doctrine.

We disagree that the GJ Entities could withdraw its defense solely as to the Arbitration provision

and that the separability doctrine applies to the GJ Entities’ claim that no contract existed.

        The GJ Entities argue that GJP’s discovery responses and Joyce’s disclosures denying the

existence of a contract were implicitly withdrawn when GJP withdrew its motion to transfer venue

and the GJ Entities filed their motion to compel arbitration. Requests for admissions are governed

by rule 198 of the Texas Rules of Civil Procedure. See TEX. R. CIV. P. 198.3. In a pending action,

a “matter admitted under this rule is conclusively established as to the party making the admission

unless the court permits the party to withdraw or amend the admission.” Id. A fact admitted in

response to a request for admission has the force of a judicial admission. Marshall v. Vise, 767

                                                 –9–
S.W.2d 699, 700 (Tex. 1989). No other evidence is necessary to establish the point at trial and a

party may not introduce testimony to controvert it. Id. A court may permit a party to withdraw or

amend an admission if the party shows good cause, and the court finds that the parties relying on

the admission will not be unduly prejudiced and the presentation of the merits will be subserved

by permitting withdrawal or amendment. TEX. R. CIV. P. 198.3.

       At the Tipps hearing, Cima offered into evidence GJP’s responses to Cima’s requests for

admissions in which GJP repeatedly denied the existence of a contract on the grounds that Joyce

lacked authority to execute the Agreement on GJP’s behalf. The GJ Entities did not object to this

evidence. The record does not reflect that the GJ Entities requested or offered to withdraw or

amend these admissions, offered good cause to withdraw or amend, or attempted to offer evidence

to controvert the admissions. See Marshall, 767 S.W.2d at 700; TEX. R. CIV. P. 198.3(a). Thus,

the trial court correctly held that GJP’s admissions denying that Joyce had authority to execute the

Agreement on GJP’s behalf were judicial admissions. See Marshall, 767 S.W.2d at 700.

       GJP’s admissions deny the existence of any contract between GJP and Cima. This

evidence calls into question the existence of the Agreement in its entirety, the determination of

which is a gateway issue reserved for the courts. See In re AdvancePCS Health L.P., 172 S.W.3d

at 605. The GJ Entities claim they withdrew their contract formation defenses as to the arbitration

provision alone, thus mandating arbitration of the Agreement as a whole under the doctrine of

separability. In support, they cite authority for the proposition that an arbitration provision is

separable from the remainder of the contract when a party contests the enforceability of contract

as a whole but does not specifically contest the arbitration provision. However, the GJ Entities

cite no authority for the proposition that a party may contest the existence of a contract while

waiving this defense and ratifying only the contract’s arbitration provision. See Bob Montgomery

Chevrolet, Inc. v. Dent Zone Companies, 409 S.W.3d 181, 195 (Tex. App.—Dallas 2013, no pet.)

                                               –10–
(“Ratification of a contract occurs when a party recognizes the validity of a contract by acting

under, performing under it, or affirmatively acknowledging it.”).

       A party may not ratify only a selected portion of an agreement. See Land Title Co. of

Dallas, Inc. v. F.M. Stigler, Inc., 609 S.W.2d 754, 757 (Tex. 1980) (“A principal may not, in

equity, ratify those parts of the transaction which are beneficial and disavow those which are

detrimental.”); Am. Med. Techs., Inc. v. Miller, 149 S.W.3d 265, 271 (Tex. App.—Houston [14th

Dist.] 2004, no pet.) (a party “cannot both accept the arbitration provision and at the same time

deny the validity of the rest of the agreement”). A party also may not ratify and subsequently seek

to avoid a contract. Miller, 149 S.W.3d at 271.

       Because GJ Entities cannot both accept the Arbitration provision as valid and enforceable

while denying the existence of the rest of the Agreement, their purported withdrawal of their

contract formation defenses as to the Arbitration provision alone is without effect and cannot show

the existence of a valid agreement to arbitrate. See Land Title Co., 609 S.W.2d at 757.

       The separability doctrine was established in Prima Paint Corp. v. Flood & Conklin Mfg.

Co., 388 U.S. 395, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967). Under this doctrine, arbitration clauses

are “separable” from the contracts in which they are contained, and defenses attacking the

enforceability of the contract are arbitrable when they are directed to the entire contract rather than

the arbitration provision specifically. Miller, 149 S.W.3d at 272–73. However, when the very

existence of the contract is disputed, a court, not an arbitrator, must decide at the outset whether

an agreement was reached. In re Morgan Stanley, 293 S.W.3d at 190 (“Prima Paint reserves to

the court issues like the one here, that the signor lacked the mental capacity to assent.”); Will-Drill

Res., Inc. v. Samson Res. Co., 352 F.3d 211, 218 (5th Cir. 2003) (“[I]t is clear that because

arbitration is a matter of contract, where a party contends that it has not signed any agreement to

                                                –11–
arbitrate, the court must first determine if there is an agreement to arbitrate before any additional

dispute can be sent to arbitration.”).

        As previously discussed, the evidence presented to the trial court raised a question of

whether a contract ever existed between GJP and Cima. This question was one for the trial court,

not an arbitrator. See In re Morgan Stanley, 293 S.W.3d at 190. The trial court has not yet

answered this gateway question.

                                            Conclusion

        Although the GJ Entities produced prima facie proof of a valid arbitration agreement, all

of the other evidence before the trial court questioned the very existence of a contract between GJP

and Cima. Contract formation is a fundamental issue for the trial court to determine. On the record

before us, the trial court could have concluded that the GJ Entities failed to satisfy their burden to

demonstrate the existence of a valid arbitration agreement. The trial court did not abuse its

discretion in denying the GJ Entities’ motion to compel arbitration. Accordingly, we affirm the

trial court’s order.

                                                       /Robbie Partida-Kipness/
                                                       ROBBIE PARTIDA-KIPNESS
                                                       JUSTICE

181412F.P05

                                                –12–
                               Court of Appeals
                        Fifth District of Texas at Dallas
                                       JUDGMENT

 GJ PARTNERS, LTD., AND GENE                         On Appeal from the 366th Judicial District
 JOYCE, Appellant                                    Court, Collin County, Texas
                                                     Trial Court Cause No. 366-03091-2018.
 No. 05-18-01412-CV          V.                      Opinion delivered by Justice Partida-
                                                     Kipness. Justices Bridges and Molberg
 CIMA CONTRACTORS, LLC, Appellee                     participating.

     In accordance with this Court’s opinion of this date, the judgment of the trial court is
AFFIRMED.

Judgment entered this 23rd day of January, 2020.

                                              –13–