Court Opinion

ID: 6325019
Source: CourtListenerOpinion
Date Created: 2022-03-21 07:14:21.40274+00
Date Added: 2024-06-11T09:21:57.402150
License: Public Domain

Supreme Court of Texas
                           ══════════
                            No. 20-0782
                           ══════════

Baby Dolls Topless Saloons, Inc., Burch Management Company,
         Inc., BDS Restaurant, Inc., and TTNA, Inc.,
                             Petitioners,

                                  v.

Gilbert Sotero, as the Representative of the Estate of Stephanie
Sotero Hernandez, Eduviges Chapa III as Next Friend of A.C.C.,
       a Minor, and Ivan Hernandez, Individually and as
 Representative of the Estate of Stephanie Sotero Hernandez,
                           Deceased,
                            Respondents

   ═══════════════════════════════════════
              On Petition for Review from the
       Court of Appeals for the Fifth District of Texas
   ═══════════════════════════════════════

                           PER CURIAM

      A divided court of appeals held in this case that because the use
of three terms in the parties’ contract—“relationship,” “license,” and
“this agreement”—is not always perfectly clear, there was no meeting of
the minds, and both the contract and its arbitration provision are
unenforceable. We reverse the court of appeals’ judgment and remand
the case to the trial court with instruction to grant the motion to compel
arbitration.
      Stephanie Sotero Hernandez was tragically killed in a high-speed
crash while riding in a car driven by Mayra Naomi Salazar in the early
morning hours shortly after the two adult entertainers had left work at
Baby Dolls Topless Saloons (the Club). Members of her family (the
Family) 1 sued the Club 2 for wrongful death and survival damages,
alleging that the Club continued serving Salazar alcohol after knowing
she was clearly intoxicated.
      Almost two years earlier, Hernandez and the Club had signed a
12-page contract—referred to throughout the written contract as “this
agreement”—giving Hernandez a “revocable license . . . and non-
exclusive right to use and occupy the designated portions of the [Club’s
premises]” for “the performing of live erotic dance entertainment and
related activities.” The contract contained a broad arbitration provision
“pursuant to the Federal Arbitration Act.” In response to the Family’s
suit, the Club moved to compel arbitration. 3 The trial court denied the
motion in a brief order without explanation. A divided court of appeals

      1  Plaintiffs, respondents here, are Hernandez’s father, for himself
and as representative of Hernandez’s estate, and the father of her minor
child, for himself and the child.
      2 Defendants, petitioners here, are Baby Dolls Topless Saloons,
Inc.; Burch Management Co., Inc.; BDS Restaurant, Inc.; and TTNA,
Inc. We refer to them collectively as the Club. The Family also sued
Salazar, but the record does not reflect whether she ever made an
appearance.
      3 Whether the arbitration provision applies to all four defendants
is not at issue in this Court.

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affirmed. ___ S.W.3d ___, 2020 WL 4915436, at *1 (Tex. App.—Dallas
Aug. 21, 2020). The Family argued that because of the contract’s lack of
definiteness and uncertainty in its use of the terms relationship, license,
and this agreement, “the relationship [between Hernandez and the
Club] loses meaning.” The court of appeals agreed.
      Under the Federal Arbitration Act (FAA), 4 a party seeking to
compel arbitration must establish the existence of a valid arbitration
agreement and the existence of a dispute within the scope of the
agreement. E.g., In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571,
573 (Tex. 1999). If one party resists arbitration, the trial court must
determine whether a valid agreement to arbitrate exists, which is a
question of law subject to de novo review. J.M. Davidson, Inc. v. Webster,
128 S.W.3d 223, 227 (Tex. 2003). A party can challenge (1) the validity
of the contract as a whole, (2) the validity of the arbitration provision
specifically, and (3) whether an agreement exists at all. RSL Funding,
LLC v. Newsome, 569 S.W.3d 116, 124 (Tex. 2018) (citing In re Morgan
Stanley & Co., 293 S.W.3d 182, 187 (Tex. 2009)).
      As a matter of substantive federal arbitration law, an arbitration
provision is severable from the remainder of the contract—the
separability doctrine. Buckeye Check Cashing, Inc. v. Cardegna, 546
U.S. 440, 445 (2006). For that reason, a challenge to the larger contract’s
validity—the first type above—is determined by the arbitrator. See id.

      4 The Family argued in the trial court and court of appeals that
the arbitration provision is not subject to the FAA because Hernandez’s
relationship with the Club did not involve interstate commerce. That
argument was not addressed by the court of appeals opinion, nor was it
briefed here, and we need not consider it.

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at 445-46.     The second type of challenge—to the validity of the
arbitration provision specifically—is for the court to decide unless
clearly and unmistakably delegated to the arbitrator. See Robinson v.
Home Owners Mgmt. Enters., 590 S.W.3d 518, 525 (Tex. 2019).
Challenges of the third type—that the contract “never came into
being” 5—are decided by the court. RSL Funding, 569 S.W.3d at 124.
The parties agree.
      The Family argues, 6 and the court of appeals agreed, that four
provisions in the contract demonstrate that “the parties’ minds could not
have met regarding the contract’s subject matter and all its essential
terms such that the contract is not an enforceable agreement.” See 2020
WL 4915436, at *6.
1.    “This AGREEMENT is entered into by the LICENSOR
      and LICENSEE for the leasing of certain portions of the
      Premises and the grant of License related thereto . . . .”
2.    “[T]he business relationship created between the Club and
      the Licensee is that of (a) Licensor/Licensee and (b)
      landlord and tenant . . . and . . . this relationship is a
      material . . . part of this Agreement.”
3.    “This Agreement . . . shall terminate on December 31
      [2017] . . . . The License shall thereafter be automatically
      extended for successive one year periods running from
      January 1 though December 31 of each year thereafter.”

      5   In re Morgan Stanley, 293 S.W.3d at 192 (Hecht, J., dissenting).
      6  The Club contends that the Family has not preserved its
argument that the contract was unenforceable because it was not raised
in the trial court. The court of appeals held that the Family had not
waived its argument. 2020 WL 4915436, at *5. We assume without
deciding that the Family has preserved the argument.

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4.    “Licensee materially breaches this Agreement
      by . . . [c]laiming the business relationship with the Club
      as being other than that of a landlord and tenant.”
The court of appeals reasoned:
      “This Agreement” and “the License” are treated separately
      in some instances, including for termination purposes, but
      are specifically combined in others. Both terms are also
      used elsewhere throughout the contract, with “this
      Agreement” appearing in the arbitration provision and
      nearly all other provisions. Rather than merely presenting
      an ambiguity that could potentially be resolved by
      reconciling particular conflicting provisions, this disparity
      precludes certainty and definiteness as to the meaning of
      those two terms throughout the contract, including in the
      arbitration provision.
Id. (internal punctuation omitted).
      We set out guiding principles for determining whether contract
terms are sufficient to constitute an enforceable contract in Fischer v.
CTMI, L.L.C., 479 S.W.3d 231 (Tex. 2016). First, courts cannot rewrite
the parties’ contract but must construe it as a whole to determine the
parties’ purposes when they signed it. Id. at 239. Second, courts should
construe contracts to avoid forfeitures, which are disfavored under
Texas law, and instead find terms to be sufficiently definite whenever
the language is reasonably susceptible to such an interpretation. Id.
And third, when courts construe agreements to avoid forfeiture, they
may imply terms that can be reasonably implied. Id.
      Applying these principles, we focus specifically, as the court of
appeals did, on the third contract provision referenced above—that the
parties’ “[a]greement shall terminate on [December 31, 2017]” and “[t]he
license shall thereafter be automatically extended for successive one[-]

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year periods[.]”   2020 WL 4915436, at *6 (internal punctuation,
capitalization, and emphasis omitted).    This provision—referred to by
the Club and the court of appeals’ dissent as the contract’s duration
clause—can be read as an (albeit unartfully drafted) automatic renewal
clause whereby the parties’ agreement renews in step with Hernandez’s
license. Construing the contract as a whole supports this reasonable
view. For instance, the contract’s duration clause makes clear that
Hernandez’s license is to “be automatically extended” until the parties
say otherwise.     But the license cannot be untethered from the
agreement. Indeed, the duration clause refers the parties to additional
portions of the contract for examples of “License Termination” events.
This reference to additional contract provisions indicates that the
agreement itself contains the terms describing and governing the
license. A license-but-no-agreement reading would be unreasonable and
fail to comport with a license’s very nature—“an authority to do a
particular act, or series of acts, upon another’s land, without possessing
any estate therein.” License, BLACK’S LAW DICTIONARY (11th ed. 2019),
(quoting 2 JAMES KENT, COMMENTARIES          ON   AMERICAN LAW 452-53
(George Comstock ed., 11th ed. 1866)).      Without the benefit of the
contract’s additional provisions defining which acts or series of acts are
allowed under the license, the license becomes meaningless.
      The Family’s argument, and the court of appeals’ holding, that
Hernandez and the Club never had a meeting of the minds on the
contract blinks the reality that they operated under it for almost two
years, week after week, before Hernandez’s tragic death. We hold that
the parties formed the agreement reflected in the contract they signed.

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      The Family concedes, as it must, that the contract’s arbitration
provision clearly and unmistakably delegates threshold arbitrability
questions to the arbitrator.         The contract states, in bolded and
capitalized font, that “[a]rbitration shall be the sole forum to determine
the validity, scope and brea[d]th of this Agreement.”       The Family’s
argument regarding the scope of the provision is for the arbitrator to
resolve. We “must . . . compel arbitration so the arbitrator may decide
gateway issues the parties have agreed to arbitrate.” RSL Funding, 569
S.W.3d at 121 (citing Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 61
(Tex. 2008)).
      Finally, the Family argues in the alternative that even if “a valid
contract existed until December 31, 2017, no contract existed after that
date” because it had expired according to its own terms. This question,
too, is for the arbitrator. The Family’s alternative argument necessarily
assumes that a contract formed, and it does not challenge the arbitration
agreement’s validity. Therefore, the separability doctrine reserves to
the arbitrator a question of this nature, for expiration is not a contract
formation challenge—it is instead a challenge to the continued validity
of the parties’ initial agreement.
                     *       *         *     *     *
      Accordingly, without hearing oral argument, pursuant to TEX. R.
APP. P. 59.1, we reverse the court of appeals’ judgment and remand the
case to the trial court with instruction to grant the motion to compel
arbitration.

OPINION DELIVERED: March 18, 2022

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