Court Opinion

ID: 4287600
Source: CourtListenerOpinion
Date Created: 2018-06-25 08:17:00.345785+00
Date Added: 2024-06-11T14:37:16.434093
License: Public Domain

NUMBER 13-18-00142-CV

                           COURT OF APPEALS

                  THIRTEENTH DISTRICT OF TEXAS

                     CORPUS CHRISTI - EDINBURG

GARY ZARS HOLDING, LLC AND
GARY ZARS POOLS & PATIO, LLC,                                          Appellants,

                                          v.

DAREN WILDER AND DIANNE WILDER,                                        Appellees.

                  On appeal from the 343rd District Court
                       of Live Oak County, Texas.

                         MEMORANDUM OPINION

 Before Chief Justice Valdez and Justices Rodriguez and Benavides
            Memorandum Opinion by Justice Rodriguez

      Appellants Gary Zars Holding, LLC and Gary Zars Pools & Patio, LLC (collectively,

“Gary”) appeal the denial of their motion to compel arbitration. By one issue, Gary

asserts that appellees Daren and Dianne Wilder’s fraud defense is not a valid basis to

avoid arbitration. We reverse and remand.
                                   I.     BACKGROUND

       In 2015, the parties entered a written contract whereby Gary agreed to build an in-

ground pool for the Wilders in exchange for the total price of $37,000. In 2016, the

Wilders filed suit against Gary for breach of contract, fraudulent inducement, violation of

the DTPA, and attorney’s fees.

       Gary filed a general denial and a motion to compel arbitration. Attached to Gary’s

motion was a copy of the parties’ agreement (“the contract”). On the front, the contract

recited the specifications for the Wilders’ swimming pool, as well as various services

necessary to complete construction. The front page of the contract also stated, “The

general conditions to this agreement are on the back.”         On the back, the contract

provided a list of twenty “General Conditions,” one of which stated the following: “Any

controversy or claim arising out of or relating to this contract or breach thereof or any

claim whatsoever with Gary’s including claims under the DTPA shall be settled by an

onsite, binding Arbitration in accordance with the BBB Arbitration Rules.”

       The Wilders filed a response resisting arbitration. They asserted that Gary had

fraudulently induced them to agree to the arbitration clause, along with other grounds for

resisting arbitration which are not at issue on appeal.

       At the hearing, both parties proffered the contract to the trial court as a two-sided

document. However, the trial court heard testimony from Daren that, throughout the

process of negotiating the contract, Gary’s sales representative consistently referred him

to a one-sided document that was “blank on the back,” which Daren reviewed with his

wife Dianne. Daren testified that as the salesman walked him through the contract, he

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only discussed the terms listed on the front, and he “kept emphasizing that whatever was

on the front of this document was the contract.”           Daren explained that when the

negotiation was complete, the salesman then transcribed various specifications from the

one-sided document onto another document, but he never disclosed that this second

document had two sides. Instead, the salesman simply “put his finger on the document

above where the signature line is and told me to sign.” After Daren signed, Gary’s

salesman gave him a duplicate copy of the contract, but Daren testified that he did not

notice the terms on the back, including the arbitration clause. Instead, Daren testified

that he first became aware of the arbitration clause when Gary filed its motion to compel

arbitration. On cross-examination, however, Daren conceded that just inches above his

signature on the first page of the contract was a notice that the “general conditions to this

agreement are on the back.”

       At the conclusion of the hearing, the trial court denied Gary’s motion to compel.

Gary appeals.

                                     II.    DISCUSSION

       By its sole issue, Gary argues that it met its initial burden to establish the existence

of a valid arbitration agreement and that the Wilders’ fraud defense does not offer valid

grounds for avoiding arbitration.

A.     Standard of Review and General Applicable Law

       We review an order denying a motion to compel arbitration under an abuse of

discretion standard. In re Labatt Food Serv., LP, 279 S.W.3d 640, 642–43 (Tex. 2009)

(orig. proceeding).     Under that standard, we defer to the trial court’s factual

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determinations if they are supported by the record, but we review the trial court’s legal

determinations de novo. Id. at 643. The question of whether an arbitration agreement

is enforceable is subject to de novo review. Id.

       A party seeking to compel arbitration must establish that the dispute falls within the

scope of an existing agreement to arbitrate. Venture Cotton Co-op. v. Freeman, 435
S.W.3d 222, 227 (Tex. 2014). Upon such proof, the burden shifts to the party opposing

arbitration to raise an affirmative defense to the agreement’s enforcement. Id.

B.     Existence of a Valid Arbitration Agreement

       We first consider whether Gary met its initial burden to establish the existence of

a valid arbitration agreement. The Wilders assert that Gary failed to satisfy this burden

because while the contract was attached to Gary’s motion to compel and was offered at

the hearing, the contract was never formally admitted into evidence at the hearing. The

Wilders contend that the record is therefore devoid of evidentiary support for the existence

of an arbitration agreement.

       However, the Wilders never disputed the existence of the contract or its arbitration

clause before the trial court. Instead, the Wilders themselves offered the contract as an

exhibit at the hearing, and Daren consulted the contract extensively during his testimony.

Cf. McInnes v. Yamaha Motor Corp., USA, 673 S.W.2d 185, 188 (Tex. 1984) (holding

that a party on appeal will not be heard to complain of improper evidence offered by the

other side “when he, himself, introduced the same evidence”).

       Moreover, arbitrability proceedings are informal by default and by design, and

evidentiary formality is usually required only when a material fact is in dispute:

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      Because the main benefits of arbitration lie in expedited and less expensive
      disposition of a dispute, and the legislature has mandated that a motion to
      compel arbitration be decided summarily, we think it unlikely that the
      legislature intended the issue to be resolved following a full evidentiary
      hearing in all cases. We also envision that the hearing at which a motion
      to compel arbitration is decided would ordinarily involve application of the
      terms of the arbitration agreement to undisputed facts, amenable to proof
      by affidavit. With these considerations in mind, we hold that the trial court
      may summarily decide whether to compel arbitration on the basis of
      affidavits, pleadings, discovery, and stipulations. However, if the material
      facts necessary to determine the issue are controverted, by an opposing
      affidavit or otherwise admissible evidence, the trial court must conduct an
      evidentiary hearing to determine the disputed material facts.

In re Poly-Am., LP, 262 S.W.3d 337, 354 (Tex. 2008) (orig. proceeding) (quoting Jack B.

Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 269 (Tex. 1992) (orig. proceeding)).

      Because the Wilders never disputed the existence of the contract or its arbitration

clause, the fact that both parties proffered the contract was, for such an informal and

summary proceeding, enough to satisfy Gary’s burden.          See Venture Cotton, 435
S.W.3d at 227. We conclude that Gary carried its initial burden to show the existence of

an arbitration agreement between the parties. See id.

C.    Defense Against Enforcement of Arbitration

      Once the party seeking arbitration has satisfied its initial burden, it becomes the

burden of the party resisting arbitration to prove its defenses against enforcing an

otherwise valid arbitration provision. In re Odyssey Healthcare, Inc., 310 S.W.3d 419,

422 (Tex. 2010) (per curiam) (orig. proceeding). Generally applicable contract defenses,

such as fraud, duress, or unconscionability, may be applied to invalidate arbitration

agreements. Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996).

      However, in order to avoid arbitration, a fraudulent inducement defense must focus

specifically on the negotiation and acceptance of the arbitration provision in a contract,
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not on the contract as a whole. Shearson Lehman Bros., Inc. v. Kilgore, 871 S.W.2d
925, 928 (Tex. App.—Corpus Christi 1994, orig. proceeding); see Serv. Corp. Int’l v.

Lopez, 162 S.W.3d 801, 809 (Tex. App.—Corpus Christi 2005, no pet.). If a fraudulent-

inducement defense attacks the broader contract, then the arbitrator, not a court,

considers the matter. Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 56 n.13 (Tex. 2008).

      We have held that in order for a fraud defense to specifically relate to the arbitration

provision and allow a party to avoid arbitration, there must be specific negotiations or

representations concerning arbitration:

      Fraud is not sufficiently focused upon the arbitration agreement when a
      party merely fails to read the contract which contains an arbitration clause
      of which he is unaware. Even though that party may have been induced
      to sign the contract without reading it by someone with whom he has had
      prior agreements or oral understandings that did not include an arbitration
      agreement, if there have been no specific negotiations or representations
      concerning arbitration, any fraudulent inducement is considered to be
      directed at the signing of the contract generally and not at the arbitration
      clause within that contract.

Shearson Lehman, 871 S.W.2d at 928–29; see In re Educ. Mgmt. Corp., Inc., 14 S.W.3d
418, 426 (Tex. App.—Houston [14th Dist.] 2000, orig. proceeding) (same).

      Here, there was no evidence that the parties had any “specific negotiations or

representations concerning arbitration.” See Shearson Lehman, 871 S.W.2d at 929.

Just the opposite, Daren testified that arbitration was never discussed in any form during

negotiations. Rather, the Wilders’ complaint is that Gary’s salesman failed to disclose

the back side of the contract, which contained twenty separate “General Conditions,” only

one of which related to arbitration. Thus, the Wilders are not protesting any fraud that

relates specifically to the arbitration clause; instead, the alleged fraud relates to the

contract as a whole—or at least half of it.      See id. at 928.     Because the Wilders’
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complaint “attacks the broader contract,” the merits of the Wilders’ fraud defense must be

resolved by the arbitrator rather than the court. See Forest Oil, 268 S.W.3d at 56 n.13.

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

motion to compel. We sustain Gary’s sole issue.

                                    III.   CONCLUSION

       We reverse the trial court’s order denying Gary’s motion to compel arbitration and

remand the matter to the trial court for further proceedings consistent with this opinion.

                                                               NELDA V. RODRIGUEZ
                                                               Justice

Delivered and filed the
21st day of June, 2018.

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