Court Opinion

ID: 5140641
Source: CourtListenerOpinion
Date Created: 2021-12-27 08:19:57.161409+00
Date Added: 2024-06-11T08:24:24.623010
License: Public Domain

Affirmed and Memorandum Opinion filed December 21, 2021.

                                      In The

                    Fourteenth Court of Appeals

                              NO. 14-20-00749-CV

   TAYLOR MORRISON OF TEXAS, INC. AND TAYLOR WOODROW
         COMMUNITIES-LEAGUE CITY, LTD., Appellants
                                        V.
   TONY D. HA AND MICHELLE HA, INDIVIDUALLY AND AS NEXT
  FRIEND OF C.M.X., MINOR CHILD 1, A.H.X., MINOR CHILD 2, AND
                H.R.X., MINOR CHILD 3, Appellees

                    On Appeal from the 212th District Court
                           Galveston County, Texas
                      Trial Court Cause No. 20-CV-0298

                  MEMORANDUM OPINION

      Appellees Tony D. Ha (“Tony”) and Michelle Ha (“Michelle”), individually
and as next friend of C.M.X., minor child 1, A.H.X., minor child 2, and H.R.X.,
minor child 3 (together, “Appellees”) sued appellants Taylor Morrison of Texas, Inc.
and Taylor Woodrow Communities-League City, Ltd. (together, “Taylor”),
asserting that the home they purchased from Taylor was defectively constructed.
Taylor filed a motion to compel arbitration of all five Appellees’ claims. The trial
court signed an October 15, 2020 order that (1) granted Taylor’s motion to compel
arbitration with respect to the claims asserted by Tony, and (2) denied the motion to
compel with respect to the claims asserted by Michelle and the three minor children.
Taylor filed an appeal and, in the alternative, a petition for writ of mandamus. For
the reasons below, we affirm the trial court’s order and deny Taylor’s alternative
petition for writ of mandamus.

                                  BACKGROUND

      Appellees filed their original petition in February 2020 and asserted claims
against Taylor for breach of implied warranties, negligent construction, fraud in a
real estate transaction, breach of contract, and quantum meruit. Appellees also
asserted claims under the Residential Construction Liability Act (“RCLA”) and the
Deceptive Trade Practices-Consumer Protection Act (“DTPA”). See Tex. Prop.
Code Ann. §§ 27.001-27.007 (the RCLA); Tex. Bus. & Com. Code Ann. §§ 17.41-
17.63 (the DTPA). Appellees alleged that their Taylor-built home suffered from
multiple construction defects causing them harm.

      Taylor filed its answer and a combined “Motion to Compel Arbitration, Plea
in Abatement, [and] Special Exceptions.” Taylor sought to compel arbitration
against all five Appellees based on the Purchase Agreement that effected the sale of
Appellees’ home. The Purchase Agreement was signed by Tony and a Taylor
representative; it was not signed by Michelle or by any of the three minor children.

      The Purchase Agreement includes an arbitration provision that states, in
relevant part:

      Any and all claims, controversies, breaches or disputes by or between
      the parties hereto, arising out of or related to this purchase agreement,
      the property, the subdivision or community of which the property is a

                                         2
      part, the sale of the property by seller, or any transaction related hereto,
      whether such dispute is based on contract, tort, statute, or equity, . . .
      shall be arbitrated pursuant to the Federal Arbitration Act and subject
      to the procedures set forth as follows[.]

In its combined motion, Taylor asserted that Tony, by signing the Purchase
Agreement,     bound      himself   to   the       Agreement’s   arbitration   provisions.
Acknowledging that Michelle and the three minor children were non-signatories
with respect to the Purchase Agreement, Taylor asserted they nonetheless were
bound to its arbitration provisions as third-party beneficiaries and through direct
benefits estoppel. Appellees filed a first amended petition in July 2020 and Taylor
filed special exceptions seeking additional allegations to determine whether
Michelle and the minor children were bound by the Purchase Agreement’s
arbitration provisions.

      The trial court held a hearing on June 23, 2020 to address Taylor’s special
exceptions and motion to compel arbitration. At the hearing, Taylor told the trial
court it was prepared to proceed with its motion to compel arbitration with respect
to Tony but needed additional time to prepare its arguments with respect to Michelle
and the three minor children. Taylor then presented its arguments on its motion to
compel and special exceptions and Appellees responded. At the conclusion of the
hearing, the trial court told the parties it would rule on the special exceptions and
“then we can come back another day and hear everything again, whatever works for
you.” The same day, the trial court signed an order granting in part and denying in
part Taylor’s special exceptions.

      Appellees filed a second amended petition in August 2020 in which Tony
alone asserted claims for breach of implied warranties, fraud in a real estate
transaction, breach of contract, quantum meruit, and violations of the DTPA.
Appellees collectively asserted claims for negligence, negligent construction, and

                                               3
for violations of the RCLA.

      The trial court signed an order on October 15, 2020, granting Taylor’s motion
to compel arbitration with respect to Tony’s claims and denying the motion to
compel with respect to the claims asserted by Michelle and the three minor children.
The trial court also abated the case in its entirety. Taylor filed an appeal and, in the
alternative, a petition for writ of mandamus.

                                      ANALYSIS

      Before we turn to these issues, we address our jurisdiction over this appeal.

I.    Jurisdiction

      To raise the issues summarized above, Taylor filed an interlocutory appeal
and, in the alternative, a petition for writ of mandamus. Interlocutory orders may be
appealed only if permitted by statute and only to the extent jurisdiction is conferred
by statute. Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992) (orig.
proceeding). We strictly construe statutes authorizing interlocutory appeals because
they are a narrow exception to the general rule that interlocutory orders are not
immediately appealable. CMH Homes v. Perez, 340 S.W.3d 444, 447 (Tex. 2011).

      In Texas, parties may expressly agree to arbitrate under the Federal
Arbitration Act (“FAA”). See In re Rubiola, 334 S.W.3d 220, 223 (Tex. 2011) (orig.
proceeding). Here, the Purchase Agreement’s arbitration provisions provide that
“[a]ny and all claims, controversies, breaches or disputes by or between the parties
hereto . . . shall be arbitrated pursuant to the Federal Arbitration Act [FAA].” The
parties do not contest that the FAA applies to these arbitration provisions.

      Section 51.016 of the Texas Civil Practice and Remedies Code (which
authorizes appeals in matters subject to the FAA) provides that a party may appeal
an interlocutory order “under the same circumstances that an appeal from a federal

                                           4
district court’s order or decision would be permitted” by the FAA. Tex. Civ. Prac.
& Rem. Code Ann. § 51.016. Under the FAA, a party may immediately appeal an
order denying a motion to compel arbitration.        See 9 U.S.C.A. § 16(a)(1)(B).
Accordingly, we have jurisdiction to consider Taylor’s interlocutory appeal from the
trial court’s order denying its motion to compel arbitration of the claims asserted by
Michelle and the three minor children. See, e.g., Berry Y&V Fabricators, LLC v.
Bambace, 604 S.W.3d 482, 485 n.2 (Tex. App.—Houston [14th Dist.] 2020, no pet.).
This jurisdiction includes Taylor’s issue regarding whether the trial court erred by
failing to hold an evidentiary hearing on its motion to compel. See, e.g., Fitness
Entm’t Ltd. v. Hurst, 527 S.W.3d 699, 703-05 (Tex. App.—El Paso 2017, pet.
denied); Tex. Health Res. v. Kruse, No. 05-13-01754-CV, 2014 WL 3408636, at *6
(Tex. App.—Dallas July 11, 2014, pet. denied) (mem. op.).

      Entitlement to a writ of mandamus, however, requires a relator to show that
the trial court abused its discretion and that the relator lacks an adequate remedy by
appeal. In re Dawson, 550 S.W.3d 625, 628 (Tex. 2018) (orig. proceeding) (per
curiam). Because we have jurisdiction over Taylor’s issues via its interlocutory
appeal, Taylor does not lack an adequate remedy by appeal. See, e.g., In re Lanier,
No. 14-19-00918-CV, 2019 WL 6317781, at *1 (Tex. App.—Houston [14th Dist.]
Nov. 26, 2019, orig. proceeding) (mem. op.) (per curiam) (denying petition for writ
of mandamus seeking relief from order denying relator’s motion to compel
arbitration pursuant to the FAA because relator had an adequate remedy by appeal).

      Therefore, we deny Taylor’s alternative petition for writ of mandamus.

II.   Denial of Motion to Compel

      Taylor’s second issue, which challenges the trial court’s denial of its motion
to compel arbitration of the claims asserted by Michelle and the three minor children,
is reviewed for an abuse of discretion. Henry v. Cash Biz, LP, 551 S.W.3d 111, 115
                                          5
(Tex. 2018). A trial court abuses its discretion when it acts in an arbitrary or
unreasonable manner or without reference to any guiding rules or principles. Branch
Law Firm L.L.P. v. Osborn, 532 S.W.3d 1, 12 (Tex. App.—Houston [14th Dist.]
2016, pet. denied). Under this standard, we defer to the trial court’s factual
determinations if they are supported by evidence and review its legal determinations
de novo. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig.
proceeding).

      A party seeking to compel arbitration under the FAA generally must establish
that (1) there is a valid agreement to arbitrate between the parties, and (2) the claims
raised fall within the scope of that agreement. In re Kellogg Brown & Root, Inc.,
166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding). Here, this dispute centers on
whether a valid arbitration agreement binds Michelle and the three minor children
despite their status as non-signatories to the Purchase Agreement. As a gateway
matter involving validity, whether an arbitration agreement binds a non-signatory
must be decided by the court rather than the arbitrator. See In re Weekley Homes,
L.P., 180 S.W.3d 127, 130 (Tex. 2005) (orig. proceeding); In re Estate of Guerrero,
465 S.W.3d 693, 700 (Tex. App.—Houston [14th Dist.] 2015, pet. denied) (en banc).
The trial court’s determination on this point is a question of law we review de novo,
applying state laws governing the validity, revocability, and enforceability of
contracts generally. See Jody James Farms, JV v. Altman Grp., Inc., 547 S.W.3d
624, 631, 633 (Tex. 2018).

      Generally, only signatories are bound by an arbitration agreement. See In re
Rubiola, 334 S.W.3d at 224; Cotton Commercial USA, Inc. v. Clear Creek Indep.
Sch. Dist., 387 S.W.3d 99, 104 (Tex. App.—Houston [14th Dist.] 2012, no pet.).
But non-signatories may nonetheless be bound to an arbitration agreement when
rules of law or equity would bind them to a contract generally. In re Labatt Food

                                           6
Serv., L.P., 279 S.W.3d at 643. According to principles of agency and contract law,
arbitration   agreements      may      bind   non-signatories    under     six   theories:
(1) incorporation    by   reference,    (2) assumption,     (3) agency,   (4) alter   ego,
(5) equitable estoppel, and (6) third-party beneficiary. Jody James Farms, JV, 547
S.W.3d at 633. “The party seeking arbitration bears the burden of establishing that
the arbitration agreement binds a non-signatory.” Telsmith, Inc. v. 37 Bldg. Prods.,
Ltd., No. 02-19-00220-CV, 2020 WL 719445, at *2 (Tex. App.—Fort Worth Feb.
13, 2020, no pet.) (mem. op.); see also Branch Law Firm, L.L.P. v. Osborn, 447
S.W.3d 390, 394 (Tex. App.—Houston [14th Dist.] 2014, no pet.).

       Here, Taylor contends that Michelle and the three minor children are bound
by the Purchase Agreement’s arbitration provisions as third-party beneficiaries and
under direct benefits estoppel. Taylor’s argument has already been rejected in a
well-reasoned analysis from our sister court of appeals. See Taylor Morrison of Tex.,
Inc. v Skufca, No. 01-19-00943-CV, 2020 WL 5823287, at *4-9 (Tex. App.—
Houston [1st Dist.] Oct. 1, 2020, pet. filed) (mem. op.). We adopt that reasoning
and reject Taylor’s arguments.

       A.     Third-Party Beneficiaries

       A third-party beneficiary may be compelled to arbitrate under an arbitration
agreement. Lennar Homes of Tex. Land & Constr., Ltd. v. Whiteley, 625 S.W.3d
569, 580 (Tex. App.—Houston [14th Dist.] 2021, pet. filed). Whether a person is a
third-party beneficiary depends solely on the contracting parties’ intent. First Bank
v. Brumitt, 519 S.W.3d 95, 102 (Tex. 2017). “[A] person seeking to establish third-
party-beneficiary status must demonstrate that the contracting parties ‘intended to
secure a benefit to that third party’ and ‘entered into the contract directly for the third
party’s benefit.’” Id. (quoting Stine v. Stewart, 80 S.W.3d 586, 589 (Tex. 2002) (per
curiam)).

                                              7
      The Texas Supreme Court has repeatedly stated that there is a presumption
against conferring third-party-beneficiary status on non-contracting parties. See S.
Tex. Water Auth. v. Lomas, 223 S.W.3d 304, 306 (Tex. 2007) (per curiam); MCI
Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 652 (Tex. 1999). To
determine whether contracting parties intended to confer a benefit to a third party,
we “look solely to the contract’s language, construed as a whole.” Brumitt, 519
S.W.3d at 102. This benefit must be more than incidental; the parties’ intent to
confer a direct benefit to the third party must be clearly and fully spelled out in the
agreement. Jody James Farms, JV, 547 S.W.3d at 635.

      Here, the Purchase Agreement does not show that the parties to the agreement
— Tony and Taylor — intended the agreement to directly benefit Michelle and the
three minor children. The Purchase Agreement does not mention Michelle and the
minor children and, on its face, appears only to benefit the seller (Taylor) and the
buyer (Tony).     See Taylor Morrison of Tex., Inc., 2020 WL 5823287, at *4
(concluding the Skufcas’ minor children were not third-party beneficiaries to the
Purchase Agreement); see also Lincoln Fin. Advisors Corp. v. Ards, No. 03-18-
00437-CV, 2019 WL 6907074, at *5 (Tex. App.—Austin Dec. 19, 2019, no pet.)
(mem. op.) (holding that a non-signatory minor child was not subject to arbitration
as a third-party beneficiary where agreements “had no express reference” that parties
to the agreements “intended the agreements to be for the direct benefit of [the
child]”); In re SSP Partners, 241 S.W.3d 162, 169 (Tex. App.—Corpus Christi 2007,
orig. proceeding [mand. denied]) (“There is no provision in the agreement stating
that Garcia, on behalf of her minor children, was agreeing to submit the children’s
claims to arbitration.”).

      At most, Michelle and the three minor children could be considered incidental
beneficiaries of the Purchase Agreement since they were residents of the home when

                                          8
their claims accrued. See Taylor Morrison of Tex., Inc., 2020 WL 5823287, at *4
(“Although the children lived in the home before the suit was filed, that would, at
most, render them incidental beneficiaries of the contract, not third-party
beneficiaries.”). But an incidental benefit does not make the showing required to
establish that a party is a third-party beneficiary of the contract at issue. See Jody
James Farms, JV, 547 S.W.3d at 635.

      On appeal, Taylor does not point to any part of the Purchase Agreement that
supports its contention that Michelle and the three minor children are bound to
arbitrate under its terms. See Tex. R. App. P. 38.1(i). Therefore, we conclude that
Michelle and the three minor children cannot be compelled to arbitrate as third-party
beneficiaries to the Purchase Agreement. See Taylor Morrison of Tex., Inc., 2020
WL 5823287, at *4-5. The trial court did not err by denying to compel arbitration
on this basis.

      B.     Direct Benefits Estoppel

      Under the doctrine of direct benefits estoppel, non-signatory plaintiffs who
seek the benefits of a contract or who seek to enforce the terms of a contract are
“estopped from simultaneously attempting to avoid the contract’s burdens, such as
the obligation to arbitrate disputes.” In re Kellogg Brown & Root, Inc., 166 S.W.3d
at 739. Therefore, when non-signatories sue based on a contract, they subject
themselves to the contract’s terms — including any arbitration agreement. G.T.
Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 527 (Tex. 2015).

      The application of this doctrine turns on the substance of the non-signatory’s
claim. See In re Weekley Homes, L.P., 180 S.W.3d at 131-32. Specifically, a non-
signatory sues “based on a contract” when he “seeks, through the claim, to derive a
direct benefit from the contract containing the arbitration provision.” In re Kellogg
Brown & Root, Inc., 166 S.W.3d at 741. “When a claim depends on the contract’s
                                          9
existence and cannot stand independently — that is, the alleged liability arises solely
from the contract or must be determined by reference to it — equity prevents a
person from avoiding the arbitration clause that was part of that agreement.” Jody
James Farms, JV, 547 S.W.3d at 637 (internal quotation omitted).

       Here, in their second amended petition, Michelle and the three minor children
asserted claims for common law negligence and negligent construction.1 These
claims are independent of the Purchase Agreement and cannot support an application
of direct benefits estoppel because “when the substance of the claim arises from
general obligations imposed by state law, including statutes, torts and other common
law duties or federal law, rather than from the contract, direct benefits estoppel does
not apply, even if the claim refers to or relates to the contract.” G.T. Leach Builders,
LLC, 458 S.W.3d at 528.

       The common law negligence claim alleges that Taylor failed to properly
construct the home, withheld knowledge of the home’s construction defects, failed
to warn Appellees of the unsafe conditions, and failed to remedy the defects.
Appellees allege that this negligent conduct constituted the proximate cause of
serious personal injuries and other damages. In their negligent construction claim,
Appellees allege that Taylor owed a duty to Appellees to exercise ordinary care and
to provide “a reasonably safe constructed home.” Appellees allege that Taylor
breached this duty by constructing a defective home and failing to address those
defects to make the home safe for Appellees.

       The substance of these claims arises from general obligations imposed by state
law — not from the Purchase Agreement. See Gator Gone Safety Pilots v. Holt, 622

       1
          Michelle and the three minor children also asserted claims pursuant to the RCLA.
However, the RCLA does not create a cause of action; rather, it limits and controls existing causes
of action for damages resulting from construction defects in residences. See Vision 20/20, Ltd. v.
Cameron Builders, Inc., 525 S.W.3d 854, 856 (Tex. App.—Houston [14th Dist.] 2017, no pet.).

                                                10
S.W.3d 524, 536 (Tex. App.—Houston [14th Dist.] 2021, no pet.) (listing the
elements for a common law negligence claim). Further, the claims do not allege that
Taylor breached any specific provision of the Purchase Agreement or that the house
was not built in accordance with the contract. Accordingly, these claims do not
support an application of direct benefits estoppel with respect to Michelle and the
three minor children. See Taylor Morrison of Tex., Inc., 2020 WL 5823287, at *6
(concluding the Skufcas’ children’s negligent construction claims were
“independent of the Purchase Agreement”).

      To support their contention that direct benefits estoppel binds Michelle and
the three minor children to the Purchase Agreement’s arbitration provisions, Taylor
points to the following statements in Appellees’ second amended petition:

      •     As part of their negligent construction claim, Appellees asserted:
            “[Taylor] had a duty to [Appellees] and others, in contract and/or under
            the common law, to exercise ordinary care and to provide a reasonably
            safe constructed home.” (emphasis added).
      •     In the “Damages” portion of their petition, Appellees asserted: (1) “[a]s
            a direct and proximate result of the common law, contractual and/or
            statutory violations made the basis of this lawsuit”; and (2) “[Taylor’s]
            acts or omissions constituted common law, contractual and/or statutory
            violations”. (emphasis added).

      These statements are insufficient to show that Michelle’s and the three minor
children’s common law negligence and negligent construction claims “depend” on
the Purchase Agreement’s existence. The first statement merely mentions the
“contract” in the alternative to the common law. Moreover, it is included as part of
Appellees’ negligent construction claim — a claim sounding in common law. This
statement alone does not indicate that Appellees’ negligent construction claim is
dependent on the Purchase Agreement’s existence.         Therefore, direct benefits
estoppel does not apply. G.T. Leach Builders, LLC, 458 S.W.3d 528.

                                        11
       Likewise, the statements in the “Damages” portion of Appellees’ petition
merely summarize the allegations made the basis of Appellees’ suit — some of
which include contractual claims asserted by Tony. These general statements do not
bind the claims asserted by Michelle and the three minor children to the Purchase
Agreement’s arbitration provisions. See Jody James Farms, JV, 547 S.W.3d at 637.

       As pleaded, the common law negligence and negligent construction claims
asserted by Michelle and the three minor children do not support an application of
direct benefits estoppel because the claims do not seek to derive a direct benefit from
the Purchase Agreement. See In re Kellogg Brown & Root, Inc., 166 S.W.3d at 741;
Taylor Morrison of Tex., Inc., 2020 WL 5823287, at *6. The trial court did not err
by denying to compel arbitration on this basis.

       We overrule Taylor’s second issue.

III.   Evidentiary Hearing and Abatement

       In its first issue, Taylor asserts the trial court erred by failing to hold an
evidentiary hearing on Taylor’s motion to compel arbitration of the claims asserted
by Michelle and the three minor children. As part of this issue, Taylor also contends
the trial court erred by refusing to lift the abatement it imposed in its order granting
in part and denying in part Taylor’s motion to compel.

       A.    Evidentiary Hearing

       Even where an arbitration agreement is governed by the FAA, Texas
procedure controls the determination of arbitrability. See Gunda Corp. v. Yazhari,
No. 14-12-00263-CV, 2013 WL 440577, at *2 n.1 (Tex. App.—Houston [14th Dist.]
Feb. 5, 2013, no pet.) (mem. op.); see also In re OneMain Fin. Grp., LLC, 627
S.W.3d 374, 377-78 (Tex. App.—El Paso 2021, no pet) (orig. proceeding).

       Section 171.021(b) of the Texas Civil Practice and Remedies Code provides

                                          12
that, “[i]f a party opposing an application [for arbitration] denies the existence of the
agreement, the court shall summarily determine that issue.” Tex. Civ. Prac. & Rem.
Code Ann. § 171.021(b). The trial court makes this summary determination based
on the parties’ affidavits, pleadings, discovery, and stipulations. Jack B. Anglin Co.,
842 S.W.2d at 269. This procedure is similar to that for a motion for summary
judgment and is subject to the same evidentiary standards. See In re Jebbia, 26
S.W.3d 753, 756-57 (Tex. App.—Houston [14th Dist.] 2000, orig. proceeding). If
there is a genuine question of material fact concerning the existence of the
agreement, the trial court may not summarily grant or deny the motion to compel
arbitration and must conduct an evidentiary hearing to resolve the disputed material
facts. See id. at 757; see also, e.g., Gunda Corp., 2013 WL 440577, at *6 (the trial
court erred by denying a motion to compel arbitration before holding an evidentiary
hearing on a disputed issue of material fact).

      The issues before us, however, did not raise a genuine issue of material fact.
As we discussed above, Taylor raised two theories to bind non-signatories Michelle
and the three minor children to the Purchase Agreement: third-party beneficiary and
direct benefits estoppel. The evidence presented was sufficient to determine these
issues as a matter of law.

      The third-party-beneficiary theory looks “solely to the contract’s language”
(Brumitt, 519 S.W.3d at 102); here, the Purchase Agreement was offered into
evidence with Taylor’s motion to compel. Direct benefits estoppel turns on the
substance of the asserted claims (In re Weekley Homes, L.P., 180 S.W.3d at 131-32).
The substance of Appellees’ second amended petition was before the trial court the
same way it is before us and is unambiguous. Therefore, the trial court was not
required to hold an evidentiary hearing on Taylor’s motion to compel arbitration on
the claims asserted by Michelle and the three minor children. See In re Jebbia, 26

                                           13
S.W.3d at 756-57.

      B.     Abatement

      Asserting the trial court erred by refusing to lift abatement of the case, Taylor
argues that this error precluded it “from any attempts to correct the other
errors/abuses of discretion raised herein.” Because we overrule Taylor’s other
challenges, we conclude that the trial court’s refusal to lift abatement of the case
does not constitute an abuse of discretion.

      We overrule Taylor’s first issue.

                                   CONCLUSION

      We affirm the trial court’s October 15, 2020 order granting in part and denying
in part Taylor’s motion to compel arbitration.

                                       /s/     Meagan Hassan
                                               Justice

Panel consists of Justices Wise, Spain, and Hassan.

                                          14