Court Opinion

ID: 9406648
Source: CourtListenerOpinion
Date Created: 2023-07-02 14:07:34.052063+00
Date Added: 2024-06-11T17:20:32.014251
License: Public Domain

Supreme Court of Texas
                            ══════════
                             No. 21-0072
                            ══════════

       Taylor Morrison of Texas, Inc. and Taylor Woodrow
               Communities-League City, Ltd.,
                              Petitioners,

                                   v.

             Andrew Kohlmeyer and April Kohlmeyer,
                             Respondents

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

                            PER CURIAM

      A central issue in this case is whether direct-benefits estoppel
requires a subsequent homeowner to arbitrate construction claims
against the homebuilder when the original homeowner’s purchase
agreement disclaimed the existence of certain common-law warranties.
The court of appeals’ decision is inconsistent with our recent opinion in
Lennar Homes of Texas Land & Construction, Ltd. v. Whiteley, __ S.W.3d
__, 2023 WL 3398584 (Tex. May 12, 2023). Accordingly, without hearing
oral argument, we grant the petition for review, reverse the court of
appeals’ judgment, render judgment ordering arbitration of the
underlying claims, and remand this case to the trial court for further
proceedings consistent with this opinion. See TEX. R. APP. P. 59.1, 60.2.
      In 2013, Jason and Amanda Davis entered into a purchase
agreement with Taylor Morrison 1 for a house to be built in League City,
Texas. Among other provisions, the agreement provided a one-year
limited warranty for the home, as set forth in an attached document
titled Taylor Morrison Limited Home Warranty (the Limited Warranty),
which the agreement incorporated by reference. The Limited Warranty
specified various “Quality Standards” to govern Taylor Morrison’s
construction of the home, including standards pertaining to the interior
concrete and foundation, framing, roof, exterior siding and trim,
cementitious finish, plumbing, and retaining walls.
      The Limited Warranty also contained various exclusions from
coverage, including exclusions for homeowner damage, cosmetic defects,
modifications by the homeowner, consequential damages, timely
reporting, water damage, and natural catastrophes, occurrences, and
accidents.    For example, the exclusion for natural catastrophes,
occurrences, and accidents excluded from coverage “[d]amages, loss or
injury caused by . . . [the] presence of mold.” The exclusion for timely
reporting excluded from coverage “[d]efects which are not reported in
writing to Seller within the Limited Warranty Term.”
      In addition to incorporating the terms of the Limited Warranty,
section 10 of the purchase agreement included the following express
disclaimer:

      1We refer to the petitioners, Taylor Morrison of Texas, Inc. and Taylor
Woodrow Communities-League City, Ltd., collectively, as Taylor Morrison.

                                     2
      Seller expressly disclaims, and buyer hereby waives, any
      warranties, express or implied, other than the Limited
      Warranty, including, without limitation, any warranties of
      merchantability, habitability, quality of construction, or
      fitness for a particular purpose, with respect to the
      property . . . . Buyer acknowledges that other than this
      Limited Warranty, Seller is making no other
      representations, promises, or warranties of any kind,
      including, without limitation, any express or implied
      warranties of merchantability, habitability, quality of
      construction, or fitness for a particular purpose, with
      respect to the property . . . .
(capitalization removed). The purchase agreement also contained the
following separate disclaimer and waiver regarding mold conditions:
      [W]hether or not you as a homeowner experience mold
      growth in your home depends largely on how you manage
      and maintain your home. We urge you to read and follow
      the Mold Prevention Tips found in your Homeowner
      Maintenance Manual. Our responsibility as a homebuilder
      must be limited to things that we can control. As explained
      in our written limited warranty, which has been separately
      provided to you, we will repair or replace defects in our
      construction as and to the extent provided in such limited
      warranty. We will not, however, be responsible for any
      damages caused by mold, or by some other agent, that may
      be associated with defects in our construction, including,
      without limitation, property damage, personal injury, loss
      of income, emotional distress, death, loss of use, loss of
      value and adverse health effects. To the extent permitted
      by law and except as provided in the written limited
      warranty that has been separately provided to you, all
      other warranties, express or implied, including but not
      limited to any implied warranty of condition, good and
      workmanlike manner, merchantability, or fitness for a
      particular purpose, are hereby expressly disclaimed and
      negated.

                                  3
      In addition to the above disclaimers, the purchase agreement
contained a dispute resolution clause, which provided as follows:
      Any and all claims, controversies, breaches or disputes by
      or between the parties hereto, arising out of or related to
      this purchase agreement [or] the property . . . whether such
      dispute is based on contract, tort, statute, or equity,
      including without limitation, any dispute over . . .
      (f) allegations of latent or patent design or construction
      defects . . . (g) the property, including without limitation,
      the planning, surveying, design, engineering, grading,
      specifications, construction or other development of the
      property . . . (h) deceptive trade practices or (i) any other
      matter arising out of or related to the interpretation of any
      term or provision of this purchase agreement, or any
      defense going to the formation or validity of the agreement,
      or any provision of this purchase agreement . . . shall be
      arbitrated pursuant to the Federal Arbitration Act and
      subject to the procedures set forth as follows . . . .
(capitalization removed).
      In 2016, the original homeowners sold the property to four
individuals, who then resold the home later that same year to Andrew
and April Kohlmeyer. On September 17, 2018, the Kohlmeyers filed suit
against Taylor Morrison, asserting that “[t]he Home has numerous
construction and design defects that cause unacceptable levels of
moisture and water to develop in the Home’s interior – causing
substantial mold growth throughout the home.”            The Kohlmeyers
alleged that Taylor Morrison (1) breached the implied warranty of
habitability because “[t]he mold itself, as well as the construction defects
that caused the mold, are latent defects that rendered the Home unsafe,
unsanitary, or otherwise unfit for living therein,” and (2) breached the
implied warranty of good workmanship because it failed to “construct

                                     4
the Home in the same manner as would a generally proficient builder
engaged in similar work and performing under similar circumstances.”
The Kohlmeyers also asserted a claim for negligent construction,
alleging that Taylor Morrison breached its duty to exercise ordinary care
in the construction of the home, and a claim for violations of the
Deceptive Trade Practices-Consumer Protection Act.
       Taylor Morrison filed a plea in abatement and a motion to compel
arbitration. Although Taylor Morrison recognized that the Kohlmeyers
were not parties to the original purchase agreement containing the
arbitration clause, 2 Taylor Morrison argued that the Kohlmeyers were
bound to arbitrate their claims under the doctrines of direct-benefits
estoppel and implied assumption. 3 The trial court initially granted the
motion to compel arbitration but, following an Agreed Motion for
Rehearing, denied Taylor Morrison’s Amended Plea in Abatement and
Motion to Compel Arbitration in all respects.
       Taylor Morrison appealed the denial of its motion to compel
arbitration, and the court of appeals affirmed, holding that Taylor
Morrison failed to show the existence of a valid arbitration agreement
that is binding on the Kohlmeyers. 634 S.W.3d 297, 305 (Tex. App.—
Houston [1st Dist.] 2021). Relying on our decisions in JCW Electronics,

       2Cf. Baby Dolls Topless Saloons, Inc. v. Sotero, 642 S.W.3d 583, 585-86
(Tex. 2022) (“[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.”).
       3Cf. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005)
(recognizing “six theories, arising out of common principles of contract and
agency law, that may bind non-signatories to arbitration agreements,”
including “assumption” and “equitable estoppel”).

                                       5
Inc. v. Garza, 257 S.W.3d 701 (Tex. 2008), and Nghiem v. Sajib, 567
S.W.3d 718 (Tex. 2018), the court of appeals rejected Taylor Morrison’s
reliance on the doctrine of direct-benefits estoppel because “[w]hile the
question of whether Taylor Morrison validly disclaimed the implied
warranty of good workmanship may be determined by reference to the
original purchase agreement, the warranty itself does not arise solely
from the contract.” 634 S.W.3d at 309. After rejecting Taylor Morrison’s
alternative arguments about implied assumption, the court of appeals
concluded that the trial court did not abuse its discretion in denying the
motion to compel arbitration without reaching the remainder of Taylor
Morrison’s arguments regarding the scope of the relied-upon arbitration
provision. Id. at 311. 4 Taylor Morrison then filed a petition for review
in this Court on December 22, 2021.
       While Taylor Morrison’s petition was pending, the Court decided
Lennar Homes, which also involved mold-related claims for negligent
construction and breach of the implied warranties of habitability and
good workmanship brought by a subsequent purchaser against the
homebuilder. 2023 WL 3398584, at *3. In that case, we held that the
subsequent purchaser was bound by the arbitration clause in the
original purchase agreement under the doctrine of direct-benefits
estoppel. Id. at *1.
       After noting that the implied warranties of good workmanship
and habitability are as much a part of the writing as the express terms

       4 Cf. Taylor Morrison of Tex., Inc. v. Skufca, 660 S.W.3d 525, 527-28
(Tex. 2023) (“If any one of the children’s claims is based on the parents’
purchase agreement, then the children must arbitrate all claims that fall under
the scope of the purchase agreement’s arbitration clause.”).

                                      6
of the contract and are automatically assigned to subsequent
purchasers, id. at *6, we also concluded that the homebuilder’s liability
was not independent of its contractual undertaking because any implied
warranty of good workmanship must survive supplantation by an
express warranty in the original purchase contract, id. at *7; see also
MAN Engines & Components, Inc. v. Shows, 434 S.W.3d 132, 140 (Tex.
2014) (holding that a downstream purchaser “cannot obtain a greater
warranty than that given to the original purchaser”). Similarly, any
claim based on the implied warranty of habitability would depend on the
content of the purchase agreement’s disclosures. Lennar Homes, 2023
WL 3398584, at *8; see also Centex Homes v. Buecher, 95 S.W.3d 266,
275 (Tex. 2002) (holding the implied warranty of habitability “does not
include defects, even substantial ones, that are known by or expressly
disclosed to the buyer”).   Thus, whether the purchase agreement’s
disclaimers and disclosures were sufficient to negate the implied
warranty of habitability or supplant the implied warranty of good
workmanship would depend on the particulars of the purchase
agreement, and the homeowner’s claims therefore did not stand
independently of the purchase agreement. Lennar Homes, 2023 WL
3398584, at *7-8.
      Here, as in Lennar Homes, in addition to general and specific
disclaimers, the original purchase agreement contained disclosures that
could affect the implied warranty of habitability and performance
standards that could affect the implied warranty of good workmanship.
The court of appeals’ determination that direct-benefits estoppel did not
apply because “the Kohlmeyers’ claims allege liability arising from

                                   7
general obligations imposed by common-law negligence and relevant
statutes,” 634 S.W.3d at 307, is therefore directly in conflict with our
subsequent opinion in Lennar Homes. For the reasons discussed above
and at greater length in Lennar Homes, we hold that the Kohlmeyers
were bound to arbitrate according to the original purchase agreement
under the doctrine of direct-benefits estoppel.
      Although the court of appeals declined to address whether the
Kohlmeyers’ claims fall within the scope of that agreement’s arbitration
provision, see id. at 305 n.4, the provision broadly covers any claims or
disputes related to the agreement or the property, including any
disputes over the property’s design or construction defects.          The
Kohlmeyers have not advanced any argument (in any court) that the
provision is inapplicable aside from the parties’ dispute over the
applicability of direct-benefits estoppel. We therefore address the issue
in the first instance, see Jones v. Turner, 646 S.W.3d 319, 325 (Tex. 2022)
(noting that the Court may review issues not considered in the court of
appeals in the interest of judicial economy), and hold that the
Kohlmeyers’ claims—all of which relate to defects in the construction or
design of the home—fall within the scope of the arbitration provision
and are subject to arbitration.

                                    8
       Accordingly, without hearing oral argument, we grant the
petition for review, reverse the court of appeals’ judgment, render
judgment ordering arbitration of the underlying claims, and remand the
case to the trial court for further proceedings consistent with this
opinion, such as the grant of an appropriate stay. See TEX. R. APP.
P. 59.1, 60.2.

OPINION DELIVERED: June 30, 2023

                                  9