Court Opinion

ID: 4367857
Source: CourtListenerOpinion
Date Created: 2019-02-14 15:37:02.481392+00
Date Added: 2024-06-11T14:48:20.123368
License: Public Domain

NUMBER 13-17-00492-CV

                           COURT OF APPEALS

                 THIRTEENTH DISTRICT OF TEXAS

                   CORPUS CHRISTI – EDINBURG

STORM WATER SOLUTIONS, LLC,                                               Appellant,

                                          v.

LIVE OAK RAIL PARTNERS, LLC,                                              Appellee.

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

                       MEMORANDUM OPINION
 Before Chief Justice Contreras and Justices Longoria and Hinojosa
             Memorandum Opinion by Justice Longoria

      Mark Bomar sued appellee Live Oak Rail Partners, LLC (“Live Oak”), alleging that

discharge of excess storm water and silt from Live Oak’s development caused damage

to his land. Live Oak then brought third-party claims against three entities, including

appellant Storm Water Solutions, LLC (“Storm Water”). Storm Water argues on appeal
that the trial court erred by denying its motion to compel arbitration. We reverse and

remand.

                                        I. BACKGROUND

      In 2013, Live Oak, in partnership with Howard Energy Partners (“Howard Energy”),

constructed a railroad hub (“the Hub”). Bomar owns the land adjacent to the Hub. In his

suit, he complains that sediment and water runoff from the construction site of the HUB

has flowed onto his property on multiple occasions since 2014. Based on his complaints,

the Texas Commission on Environmental Quality (“TCEQ”) issued a water field citation

on March 10, 2015 to Live Oak for outstanding violations related to the Hub’s storm water

pollution prevention plan. On June 30, 2015, Storm Water was retained to respond to the

water field citation. An agreement was signed by Storm Water’s representative Justin

Cox and Howard Energy Partners’ representative Larry Walker. The agreement states

that Storm Water is to provide consultative and field services related to the discharge of

storm water from the Hub. The agreement also contained the following clauses:

      Disputes: The parties will attempt to resolve any disputes arising out of or
      relating to this Proposal or the resulting Agreement and/or the Work by a)
      direct discussions between the parties, followed by b) mediation. If disputes
      remain unresolved after mediation, they will be resolved by arbitration, with
      the award of the arbitrator(s) binding pursuant to Texas Civil Practices and
      remedies Code Ch. 171. Mediation and/or arbitration will be conducted by
      the American Arbitration Association (“AAA”) under their Construction and
      Industry Rules in effect at the time that the dispute is first submitted to the
      AAA.

      ...

      No Third Party Beneficiary: Notwithstanding any provision of the
      Agreement, no other person or entity besides [Storm Water] and [Howard
      Energy], whether or not mentioned in this Agreement or in the Work, is
      intended to be or will be considered to be a third party beneficiary of or
      entitled to assert any rights under this Agreement.

                                            2
       Storm Water provided consulting services from the date of the agreement until

November 24, 2015. The record indicates that most of Storm Water’s work during this

time was directed, supervised, and/or requested by Live Oak. Representatives from

Storm Water met with representatives from Live Oak during site inspections and made

compliance recommendations to Live Oak and its contractor, Q-Haul, Inc. Storm Water

also stayed in frequent touch with Seay and Simpson about the status of the project. On

several occasions, Live Oak representatives made service demands of Storm Water

pursuant to the agreement, such as asking Storm Water to perform additional site

inspections and seeking additional recommendations after heavy rains caused sediment

issues at the Hub. Storm Water also submitted paperwork to the TCEQ on behalf of Live

Oak documenting compliance with the prescribed actions. On September 16, 2015, the

TCEQ issued a letter indicating that it had received adequate compliance documentation

to resolve alleged violations at the Hub.

       Bomar asserted claims against Live Oak for trespass, negligence, nuisance, and

violations of the Texas Water Code, alleging that Live Oak “failed to construct a

structurally sound detention pond and install suitable silt fencing, as well as, the creation

of other suitable barriers to prevent the flow of storm waters onto [Bomar’s] land.” Live

Oak in turn filed a claim against Storm Water for contribution. When Live Oak brought its

third-party claims against Storm Water, Storm Water moved to compel arbitration under

the agreement. Although the agreement was executed by Howard Energy, which is Live

Oak’s parent company, Storm Water contended that Live Oak is bound by the terms of

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the arbitration agreement under the doctrine of direct-benefits equitable estoppel. 1 The

trial court denied Storm Water’s motion to compel arbitration. This appeal followed.

                                    II. MOTION TO COMPEL ARBITRATION

        Storm Water argues on appeal that the trial court abused its discretion by denying

its motion to compel arbitration. More specifically, Storm Water argues that Live Oak was

bound to arbitrate because: (1) Live Oak is equitably estopped from refusing to arbitrate

because it has sought and received the direct benefits of the agreement; and (2) its claims

fall within the scope of a valid arbitration agreement.

A. Standard of Review

        We review the denial of a motion to compel arbitration for an abuse of discretion.

Weekley Homes, L.P. v. Rao, 336 S.W.3d 413, 418 (Tex. App.—Dallas 2011, pet.

denied). A trial court abuses its discretion when it acts without reference to any guiding

rules or principles. Worford v. Stamper, 801 S.W.2d 108, 109 (Tex. 1990). Under this

standard, we defer “to the trial court’s factual determinations if they are supported by

evidence, but we review the trial court’s legal determinations de novo.” Weekley, 336

S.W.3d at 418 (citing In re Labatt Food Svc., L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig.

proceeding)). Specifically, “[w]hether an arbitration agreement is enforceable is subject

to de novo review.” Id. But “[a] trial court that refuses to compel arbitration under a valid

and enforceable arbitration agreement has clearly abused its discretion.” In re 24R, Inc.,

324 S.W.3d 564, 566 (Tex. 2010) (orig. proceeding) (citing In re Halliburton Co., 80

S.W.3d 566, 573 (Tex. 2002)).

        1 Howard Energy is listed as the “Governing Organization” in Live Oak’s application for registration
as a foreign limited liability company. In addition, Howard Energy’s CEO, President, and CFO are all on
Live Oak’s Board of Directors.
                                                     4
B. Applicable Law

        Generally, federal and state policies strongly favor arbitration. See Dean Witter

Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985); Cantella & Co. v. Goodwin, 924 S.W.2d

943, 944 (Tex. 1996); see also TEX. CIV. PRAC. & REM. CODE ANN. § 171.001 et seq. (West,

Westlaw through 2017 1st C.S.). For a court to compel arbitration under the Texas

Arbitration Act (“TAA”), the moving party must establish:                    (1) a valid agreement to

arbitrate, and (2) that the claims fall within the scope of that agreement. Rachal v. Reitz,

403 S.W.3d 840, 843 (Tex. 2013). 2 Ordinary principles of state law determine whether

there is a valid agreement to arbitrate. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732,

738 (Tex. 2005) (orig. proceeding).              A written agreement to arbitrate is valid and

enforceable if the agreement is to arbitrate a controversy that (1) exists at the time of the

agreement, or (2) arises between the parties after the date of the agreement. TEX. CIV.

PRAC. & REM. CODE ANN. § 171.001.

        Normally, only parties to an arbitration agreement can be compelled to arbitrate.

Id. at 739. However, the Texas Supreme Court has recognized “six theories, arising out

of common principles of contract and agency law, that may bind non-signatories to

arbitration agreements: (1) incorporation by reference; (2) assumption; (3) agency; (4)

alter ego; (5) equitable estoppel, and (6) third-party beneficiary.” Bridas S.A.P.I.C. v.

Gov’t of Turkmenistan, 345 F.3d 347, 362 (5th Cir. 2003) (applying Texas law); see In re

Kellogg, Brown & Root, Inc., 166 S.W.3d at 738.

        2 It is undisputed that the TAA governs the arbitration clause in this case, as opposed to the Federal
Arbitration Act.
                                                      5
       Under the doctrine of direct-benefits equitable estoppel, a non-signatory has

assented to be bound by the arbitration agreement if the non-signatory seeks or obtains

direct benefits from the contract containing the arbitration clause. See In re SSP Partners,

241 S.W.3d 162, 170 (Tex. App.—Corpus Christi 2007, orig. proceeding). Texas courts

have recognized two ways in which a non-signatory can seek a direct benefit from the

contract containing the arbitration clause: “(1) bring claims in a lawsuit that seek direct

benefits from a contract containing an arbitration clause, or (2) deliberately seek and

obtain substantial benefits from the contract itself outside of litigation.” Id. (emphasis

added); see Meyer v. WMCO-GP, LLC, 211 S.W.3d 302 (Tex. 2006) (applying the

equitable estoppel standard to an arbitration agreement governed by the TAA); In re

Weekley Homes, 180 S.W.3d at 132. Even though the equitable estoppel and third-party

beneficiary theories are similar, there is a subtle difference: “Under third-party beneficiary

theory, a court must look to the intentions of the parties at the time the contract was

executed. Under the equitable estoppel theory, a court looks to the parties’ conduct after

the contract was executed.” Bridas, 345 F.3d at 362 (emphasis added). Thus, it is the

general rule that if a non-signatory’s claims can stand independently of the underlying

contract, then arbitration should not be compelled. See Kellogg Brown & Root, Inc., 166

S.W.3d at 739. But there are situations in which “a tort claim by a non-signatory to an

arbitration agreement arising from general duties and obligations under the law (rather

than a contract) is nonetheless subject to arbitration through the theory of direct-benefits

estoppel.” Rocha v. Marks Transp., Inc., 512 S.W.3d 529, 538 (Tex. App.—Houston [1st

Dist.] 2016, no pet.) (citing In re Weekley Homes, 180 S.W.3d at 133).

                                              6
       Although courts sometimes hesitate to compel arbitration against a non-signatory

to an arbitration agreement, courts are less hesitant to do so when the non-signatory is

the one to initiate the suit. See Bridas, 345 F.3d at 363; see also In re Weekley Homes,

180 S.W.3d at 134 (observing that the “strong state policy favoring arbitration would be

effectively thwarted” if non-signatories could avoid arbitration by initiating the suit

themselves); In re Kellogg, Brown & Root, Inc., 166 S.W.3d at 739.

C. Discussion

       Storm Water argues that Live Oak has sought and received substantial benefits

from the contract and therefore is equitably estopped from avoiding the arbitration clause.

Live Oak asserts that it is not bound by the agreement because it did not sign the

agreement. Additionally, Live Oak also argues that it is not bound to arbitrate because

its claims merely “relate to” the agreement; they do not seek to “enforce” the agreement.

See G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 527–28 (Tex. 2015).

We will first determine whether there is an enforceable, valid agreement to arbitrate that

is binding to Live Oak as a non-signatory; if we find there is a valid agreement, the next

step is to determine if the claims fall within the scope of said agreement. See Rachal,

403 S.W.3d at 843.

       1. Valid Agreement to Arbitrate

       As Live Oak points out, a defendant’s contribution claim is derivative of the

plaintiff’s right to recover against the joint defendant against whom contribution is sought.

See Shoemake v. Fogel, Ltd., 926 S.W.2d 933, 935 (Tex. 1992); Prairie View A & M Univ.

v. Brooks, 180 S.W.3d 694, 702 (Tex. App.—Houston [14th Dist.] 2005, no pet.). In other

words, Live Oak argues that its contribution claim concerns the duty that Storm Water

                                             7
owes Bomar for his underlying claims of negligence and trespass, not the agreement with

Storm Water. Thus, Live Oak asserts its contribution claim against Storm Water is

“independent” of the agreement. See In re Kellogg, Brown & Root, Inc., 166 S.W.3d at

738.   Live Oak goes so far as to argue that equitable estoppel does not apply in

contribution cases; however, this Court has previously held that arbitration can be

compelled even in cases concerning contribution claims. See Hudson Ins. Co. v. Bruce

Gamble Farms, No. 13-15-00098-CV, 2015 WL 6758654, at *6 (Tex. App.—Corpus

Christi Nov. 5, 2015, no pet.) (mem. op.).

       More importantly, Live Oak’s arguments largely focus on whether or not it is

seeking benefits from the contract directly through the lawsuit; this approach fails to

address Storm Water’s major contention that Live Oak received substantial benefits from

the contract “outside of litigation.” In re SSP Partners, 241 S.W.3d at 170 (emphasis

added). We find that Live Oak’s arguments and underlying fact pattern are analogous to

those presented in In re Weekley Homes, 180 S.W.3d at 134. The Weekley Homes case

involved a purchase agreement for the construction of a home. The purchase agreement

was executed between Weekley Homes, the homebuilder, and Vernon Forsting, who was

the father of the plaintiff, Von Bargen. The lawsuit brought by Bargen against Weekley

Homes alleged personal injury damages related to construction defects within the home.

Weekley Homes moved to compel arbitration against the plaintiff under the real estate

purchase agreement. Bargen argued that she was not bound by the purchase agreement

because she did not sign the agreement, her father did. Bargen also asserted that she

was not suing under the contract; rather, she insisted that her claim arose out of the

independent duties imposed on Weekley under Texas tort law.          Nonetheless, the

                                             8
Supreme Court of Texas ruled that Bargen was equitably estopped from avoiding the

purchase agreement’s arbitration requirement. See id. at 133.

      In making that determination, the court noted that Bargen was the actual occupant

of the home and sought direct benefits from the purchase agreement. For example, she

negotiated directly with Weekley on construction issues, selected the floor plan, signed a

letter of intent as a purchaser, made custom design choices for the home, and directly

demanded repairs from Weekley Homes when she first noticed the construction issues.

See id. She was the one to pay the deposit on the home. The court even acknowledged

that nothing in the record suggests “Bargen’s claim is different from what any bystander

might assert.” See id. at 132. However, the court ultimately concluded:

      when a nonparty consistently and knowingly insists that others treat it as a
      party, it cannot later turn[ ] its back on the portions of the contract, such as
      an arbitration clause, that it finds distasteful. A nonparty cannot both have
      his contract and defeat it too. . . . While Von Bargen never based her
      personal injury claim on the contract, her prior exercise of other contractual
      rights and her equitable entitlement to other contractual benefits prevents
      her from avoiding the arbitration clause here.

See id. at 135 (internal citations and quotations omitted). Therefore, Bargen was bound

by the arbitration because she sought for and received substantial benefits under the

agreement, even though the agreement was signed by her parent. See id.

      Likewise, in the present case, we conclude that Live Oak is bound by the

agreement even though it was signed by Live Oak’s parent (company). Howard Energy

may have signed the agreement, but Live Oak received substantial benefits under the

agreement. Live Oak requested services and inspections and recommendations from

Storm Water. Live Oak paid Storm Water for its services under the agreement. Live Oak

supervised and directed Storm Water’s performance of the agreement at the work site.

                                             9
Thus, like Bargen, even though Live Oak’s contribution claim may rest in tort law and

even if Live Oak never based its claim directly upon the agreement, we find that Live

Oak’s prior exercise of other contractual rights outside of litigation prevents it from

avoiding arbitration. See id.; In re SSP Partners, 241 S.W.3d at 170; see also Rocha,

512 S.W.3d at 538.

       We also find Live Oak’s argument that compelling arbitration would run contrary to

the parties’ intention to be unpersuasive. It is true that the agreement clearly contains a

“No Third Party Beneficiary” clause. However, we disagree with Live Oak’s contention

that this clause prevents Storm Water from compelling arbitration based on equitable

estoppel. As noted previously, third-party beneficiary theories and equitable estoppel

theories, although similar, are distinct and independent grounds which may bind a non-

signatory to an arbitration agreement. See Arthur Andersen LLP v. Carlisle, 556 U.S.

624, 630 (2009); Sabine Syngas, Ltd. v. Port of Port Arthur Nav. Dist. of Jefferson Cty.,

Tex., No. 09-09-00331-CV, 2011 WL 192756, at *4 (Tex. App.—Beaumont Jan. 13, 2011,

no pet.) (mem. op.) (holding that a third-party beneficiary clause, which explicitly stated

the parties’ intention for there to be no third-party beneficiaries, “does not negate

appellee[’s] right to compel arbitration based on equitable estoppel”). The clause about

third party beneficiaries informs us of Storm Water’s and Howard Energy’s intention at

the time the contract was executed; however, “[u]nder the equitable estoppel theory, a

court looks to the parties’ conduct after the contract was executed.” Bridas, 345 F.3d at

362.

       2. Scope of the Agreement

                                            10
       Finding that there was a valid arbitration agreement applicable to Live Oak as a

non-signatory, we must determine whether the present claims fall within the scope of the

arbitration agreement. See Rachal, 403 S.W.3d at 843; In re Kellogg, Brown & Root, Inc.,

166 S.W.3d at 738. We first note that Live Oak does not really dispute that its claims fall

within the scope of the agreement; rather, Live Oak focuses its brief on contending that

there is no valid arbitration agreement in the first place. See Rachal, 403 S.W.3d at 843.

       But we also note that the arbitration agreement in this case is extremely broad in

scope. The contract uses broad language providing that “any dispute out of or related to

this Proposal, or the resulting Agreement, and/or the Work” will be arbitrated. This

language suggests that the parties intended all claims between the parties, both

contractual and extra-contractual, to be subject to arbitration. See Prima Paint Corp., v.

Flood & Conklin Mfg. Co., 388 U.S. 395, 397–98, (1967) (observing that an arbitration

clause requiring “[an]y controversy or claim arising out of or relating to this Agreement” to

be arbitrated was “broad” and had an expansive reach); see also Nauru Phosphate

Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d 160, 164–65 (5th Cir. 1998) (holding

that when parties agree to arbitrate any “dispute . . . arising out of or in connection with

or relating to this Agreement,” the parties intended the clause to “reach all aspects of the

relationship”). Other courts have compelled arbitration of tort claims if the arbitration

clause’s scope was broad enough to include tort claims. See Meyer, 211 S.W.3d at 307.

The language in the agreement suggests that Storm Water and Howard Energy

contemplated that all types of claims would be arbitrated because the contracts did not

place any limitations on what kinds of disputes would be arbitrated. See id. Therefore,

Live Oak’s claims fall within the scope of the arbitration agreement.

                                             11
       3. Summary

       We conclude that Live Oak is bound under the arbitration agreement, even as a

non-signatory, under the direct-benefits equitable estoppel theory and that Live Oak’s

claims fall within the broad scope of the valid, enforceable arbitration agreement. The

trial court erred by failing to compel arbitration. We sustain Storm Water’s sole issue. 3

                                              III. CONCLUSION

       We reverse the trial court’s order refusing to compel arbitration and remand for

entry of an order compelling the parties to arbitrate.

                                                                       NORA L. LONGORIA
                                                                       Justice

Delivered and filed the
14th day of February, 2019.

       3    Storm Water has admitted that its other issue concerning discovery deadlines has become moot
in light of the trial court’s stay of the proceedings below.
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