Court Opinion

ID: 4167044
Source: CourtListenerOpinion
Date Created: 2017-05-09 14:20:43.885074+00
Date Added: 2024-06-11T14:25:04.733090
License: Public Domain

Opinion issued May 9, 2017

                                   In The

                             Court of Appeals
                                  For The

                       First District of Texas
                         ————————————
                             NO. 01-16-00780-CV
                        ———————————
                     IN RE CRS INDUSTRIES, INC.

          Original Proceeding on Petition for Writ of Mandamus

                                    and
                         ————————————
                             NO. 01-16-00783-CV
                        ———————————
                   CRS INDUSTRIES, INC., Appellant
                                     V.
                MACDONALD SYSTEMS, INC., Appellee

                 On Appeal from the 152nd District Court
                          Harris County, Texas
                    Trial Court Case No. 2016-41521
                          MEMORANDUM OPINION

      CRS Industries, Inc. filed this interlocutory appeal and a petition for writ of

mandamus, both of which assert that the trial court abused its discretion by denying

CRS’s motion to compel arbitration. We agree and reverse the order denying the

motion, remand to the trial court so that it can enter an order compelling arbitration

and staying this suit, and dismiss CRS’s petition for writ of mandamus as moot.

                                    Background

      CRS manufactures air purification systems. It contractually agreed to allow

MacDonald Systems, Inc. to market and sell its commercial products within a

designated territory. The two subsequently became embroiled in a dispute about the

sale of a residential product, and MacDonald filed this suit.

      MacDonald alleged that it designed a new air filtration system that

incorporated one of CRS’s products and had identified a customer for this new

product, DuPure Water Filters. MacDonald further alleged that the parties agreed to

compensate it for the new design by allowing it to purchase the new product from

CRS and sell it to DuPure at a profit of $300 per unit. Instead, CRS fired MacDonald

as its product representative, and CRS and DuPure refused to pay MacDonald for

the new design. MacDonald alleged that CRS is selling or has sold the new design

to a company that bought DuPure. It alleged three causes of action—promissory

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estoppel, quantum meruit, and breach of contract—by which it sought recovery of

the $300-per-unit profit it allegedly was promised.

      CRS moved to compel arbitration of MacDonald’s claims and to stay the suit

pending that arbitration based on a clause in their contract requiring arbitration of all

claims, disputes, and other matters arising out of or relating to the contract.

MacDonald responded that the arbitration clause was inapplicable because the

parties’ dispute concerned a residential product rather than the commercial ones that

were the subject of their contract. It did not, however, otherwise dispute the validity

of the contract or its arbitration clause.

      The trial court denied CRS’s motion to compel arbitration without making

any fact findings or stating its reasons. By way of interlocutory appeal and a petition

for writ of mandamus, CRS urges that the trial court abused its discretion.

                                      Jurisdiction

      CRS is a Florida company whose principal office is in that state, and

MacDonald is a Texas company whose principal office is in this state. As they are

located in different states, their contract’s arbitration clause involves interstate

commerce and is subject to the Federal Arbitration Act. 9 U.S.C. § 2; Rapid

Settlements v. Green, 294 S.W.3d 701, 705 (Tex. App.—Houston [1st Dist.] 2009,

no pet.). The Act’s applicability, in turn, gives this court jurisdiction to hear CRS’s

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appeal from the trial court’s order denying its motion to compel arbitration. See TEX.

CIV. PRAC. & REM. CODE § 51.016; see also 9 U.S.C. § 16(a)(1)(B).

                          Motion to Compel Arbitration

      CRS posits that MacDonald’s claims in this suit relate to their contract and

therefore are subject to the contract’s arbitration clause. On this basis, CRS contends

that the trial court erred by denying its motion to compel arbitration.

      On interlocutory appeal, we review a trial court’s denial of a motion to compel

arbitration for an abuse of discretion. Houston Progressive Radiology Assocs. v. Lee,

474 S.W.3d 435, 442 (Tex. App.—Houston [1st Dist.] 2015, no pet.). We defer to

the trial court’s factual determinations, if any, so long as they are supported by the

evidence, but we review questions of law de novo. Id.

      A party who moves to compel arbitration must show the existence of a valid,

enforceable arbitration agreement and that the agreement’s scope encompasses the

lawsuit’s claims. In re Rubiola, 334 S.W.3d 220, 223 (Tex. 2011); Houston

Progressive, 474 S.W.3d at 442. Whether a valid agreement exists is a legal

question, which turns on the application of ordinary contract principles. Valerus

Compression Servs. v. Austin, 417 S.W.3d 202, 208 (Tex. App.—Houston [1st Dist.]

2013, no pet.). In determining whether claims are within the agreement’s scope,

courts focus on the factual allegations of the petition rather than the causes of action

alleged. In re Rubiola, 334 S.W.3d at 225; FD Frontier Drilling (Cyprus) v. Didmon,

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438 S.W.3d 688, 695 (Tex. App.—Houston [1st Dist.] 2014, pet. denied).

Allegations that touch on the subject of the contract containing the arbitration clause

or that are factually intertwined with claims subject to that clause generally are

within the clause’s scope. In re Dillard Dep’t Stores, 186 S.W.3d 514, 516 (Tex.

2006) (per curiam); Valerus, 417 S.W.3d at 208. Courts must resolve any doubts

about the agreement’s scope in favor of arbitration. In re Rubiola, 334 S.W.3d at

225; Valerus, 417 S.W.3d at 208. If the movant shows that a valid arbitration

agreement encompasses the lawsuit’s claims, and the opposing party has not proven

a defense to enforcement of the agreement, the trial court has no discretion but to

compel arbitration and stay the suit. Richmont Holdings v. Superior Recharge Sys.,

392 S.W.3d 633, 635 (Tex. 2013) (per curiam).

      MacDonald did not dispute the validity of the contract or its arbitration clause

in the trial court. Nor has it filed an appellate brief or a response to CRS’s petition

for mandamus relief. Accordingly, the arbitration clause’s validity is undisputed.

      The dispositive issue, therefore, is whether MacDonald’s claims are within

the scope of the contract’s arbitration clause. We hold that they are.

      The contract specified the products that MacDonald was entitled to market

and sell, commercial ones. It disallowed MacDonald from marketing or soliciting

orders for any other products unless mutually agreed upon in writing. It provided

that CRS retained sole and exclusive ownership of all product designs and

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modifications and that technical information or plans used or prepared by

MacDonald remained the sole property of CRS. It included a merger clause, which

provided that the contract was the entire agreement and superseded and replaced any

other understandings or agreements. It also provided that its terms could only be

amended or modified by an agreement in writing signed by representatives of the

parties.

       In addition, the contract had an arbitration clause. Setting aside an

inapplicable exception, this clause specified that all claims, disputes, and matters

arising out of or relating to the contract or its breach must be arbitrated. An

arbitration clause that covers any dispute arising out of or relating to the parties’

contract is expansive in scope and encompasses any controversy between the parties

that touches on, has a significant relationship to, is inextricably enmeshed with, or

is factually intertwined with the contract regardless of any label applied to the

controversy. See Houston Progressive, 474 S.W.3d at 447–48; FD Frontier, 438
S.W.3d at 695; Hou-Scape, Inc. v. Lloyd, 945 S.W.2d 202, 205–06 (Tex. App.—

Houston [1st Dist.] 1997, orig. proceeding) (per curiam). Its reach therefore is not

limited to claims that literally arise under the contract’s terms. E.g., Hou-Scape, 945
S.W.2d at 206 (claims for deceptive trade practices, fraudulent inducement,

negligence, defamation, and tortious interference with business relations all held to

be within scope of broad arbitration clause).

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      Focusing on MacDonald’s factual allegations, its claims are within the

expansive scope of the arbitration clause. MacDonald acknowledged that it sold

CRS’s products under contract. It alleged that it made an additional agreement with

CRS to sell a new design that incorporated an existing CRS product. It sued to

recover the profit it contended it should have received from the sales of this new

design.

      When CRS moved to compel arbitration of these claims, MacDonald

contended that its claims were outside of the arbitration clause’s scope because the

contract only concerned commercial products and the parties’ dispute concerned a

residential product. In part, MacDonald relied on a letter predating the parties’

contract in which CRS authorized MacDonald to sell residential products. This

purported distinction between commercial and residential products, however,

merely confirms that MacDonald’s claims are factually intertwined with and relate

to the parties’ contract. That contract postdated the letter in question by several

months, contained a merger clause, and expressly forbade MacDonald from selling

or soliciting orders for products other than those specified in the contract, which was

limited to commercial products. Whatever rights MacDonald may have with respect

to the newly designed residential product are therefore inextricably enmeshed with

the contract and subject to its mandatory arbitration clause.

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      In sum, we hold that the evidence shows the existence of a valid, enforceable

arbitration agreement between CRS and MacDonald and that the agreement

encompasses MacDonald’s claims in this suit. Given that MacDonald has not proven

a defense to the enforcement of the agreement, the trial court had no discretion but

to compel arbitration of MacDonald’s claims and stay this suit. Richmont Holdings,
392 S.W.3d at 635. Accordingly, we reverse the trial court’s ordering denying CRS’s

motion to compel arbitration and remand for entry of an order compelling arbitration

and staying the suit pending arbitration of MacDonald’s claims.

                         Petition for Writ of Mandamus

      Because MacDonald’s claims are subject to arbitration by means of CRS’s

interlocutory appeal, we need not address CRS’s related petition for writ of

mandamus. See Royston, Rayzor, Vickery & Williams, LLP v. Lopez, 467 S.W.3d
494, 499 (Tex. 2015). Thus, we dismiss CRS’s petition as moot. See Houston

Progressive, 474 S.W.3d at 439, 451.

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                                   Conclusion

      We conclude that the trial court abused its discretion by denying CRS’s

motion to compel arbitration. We therefore reverse the trial court’s order denying

the motion, remand this cause to the trial court so that it can enter an order

compelling arbitration and staying this suit pending arbitration, and dismiss CRS’s

related petition for writ of mandamus as moot.

                                            Harvey Brown
                                            Justice

Panel consists of Chief Justice Radack and Justices Brown and Lloyd.

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