Court Opinion

ID: 9899621
Source: CourtListenerOpinion
Date Created: 2023-11-17 08:13:31.612859+00
Date Added: 2024-06-11T09:20:42.896504
License: Public Domain

In The

                          Court of Appeals

               Ninth District of Texas at Beaumont

                         __________________

                         NO. 09-21-00354-CV
                         __________________

  LENNAR HOMES OF TEXAS LAND AND CONSTRUCTION,
     LTD. AND LENNAR HOMES OF TEXAS SALES AND
     MARKETING, LTD., SUCCESSORS BY MERGER TO
  CALATLANTIC HOMES OF TEXAS, INC., SUCCESSOR BY
    MERGER TO RH OF TEXAS LIMITED PARTNERSHIP,
                      Appellants

                                  V.

  BENJAMIN COCKERHAM AND KIMBERLY COCKERHAM,
                            Appellees
__________________________________________________________________

            On Appeal from the 457th District Court
                  Montgomery County, Texas
                 Trial Cause No. 21-06-07674-CV
__________________________________________________________________

                    MEMORANDUM OPINION

     In this interlocutory appeal, the question is whether the appellees,

non-signatories to an arbitration agreement, may be compelled to

arbitrate their claims against a home’s builder when they sued the

builder claiming the      builder breached implied       warranties of
                                   1
workmanship and habitability based on its negligence acts in building

the home. Because the homeowners bought the home from individuals

who purchased the home from the builder, they didn’t sign the

agreements that contain the arbitration provisions. So as the plaintiffs

in the suit, they are subsequent purchasers of the home and not the

individuals who originally bought the home from the entity that built it.

     Without specifying a reason for its ruling, the trial court denied the

motion to enforce the arbitration agreement. The defendants in the suit,

two successor partnerships who answered for the builder and claimed to

have acquired the builder by merger, filed this appeal.

     When the defendant’s alleged liability is based on a contract that

contains an arbitration clause, Texas law prevents a non-signatory

plaintiff to the contract from avoiding an “arbitration clause that was

part of that contract.” 1 We conclude that under the doctrine of direct-

benefits estoppel, the agreement to arbitrate in the contract executed by

the builder and the couple that originally purchased the home is valid

and enforceable against the second couple. We also conclude that all

     1Lennar Homes of Tex. Land & Constr., Ltd. v. Whiteley, 672 S.W.3d

367, 377 (Tex. 2023) (cleaned up).
                                     2
claims the plaintiffs filed against the builder fall within the scope of the

contract’s arbitration clause.

     Consequently, we hold the trial court erred in denying the

defendants’ motion to compel arbitration. The trial court’s order denying

the motion to compel arbitration is reversed, and the cause is remanded

to the trial court for further proceedings consistent with the opinion.

                                 Background

     In May 2016, Ray and Kimberly Wideman signed a purchase-and-

sale agreement (the contract) with CalAtlantic to build a home in the

Woodforest Subdivision in Montgomery County, Texas. The contract

included an arbitration clause, which applied to the sale. The arbitration

agreement in the contract provides:

     This transaction involves interstate commerce and any
     dispute (whether contract, warranty, tort, statutory or
     otherwise) . . . shall first be submitted to mediation and, if not
     settled during mediation, shall thereafter be submitted to
     binding arbitration as provided by the Federal Arbitration Act
     (9 U.S.C. §§ 1 et seq.), and not by or in a court of law. All
     decisions respecting the arbitrability of any dispute shall be
     decided by the arbitrator.

     The contract on the home included a “Limited Warranty.” In it,

CalAtlantic purported to disclaim all implied warranties. The disclaimer

language in the Limited Warranty states:
                                     3
     Except as specifically set forth in this Agreement, You agree
     that the only express warranties that we give to You relating
     to the property and/or improvements are contained in the
     Your New Home Insured Limited Warranty, which is
     incorporated herein by reference for all purposes.

     To the extent permitted by law Your New Home Insured
     Limited Warranty supersedes all implied warranties. You
     agree and understand that by signing this Agreement You are
     waiving any claim or cause of action under any theory of
     implied warranty, including the theory of implied warranty of
     good and workmanlike construction, and that such implied
     warranty is expressly replaced by the terms of the Your New
     Home Insured Limited Warranty. 2

     Under the Limited Warranty, the Widemans received a ten-year,

transferrable warranty on their new home. The Limited Warranty

includes performance standards that applied to the home’s construction.

Even so, the performance standards contain exceptions excluding several

types of damages from coverage under the home’s Limited Warranty. The

excluded items included damages caused by the homeowner, cosmetic

defects, and water damage. The Limited Warranty also disclaimed

damages caused “by a condition not resulting in actual physical damage

to the Home,” including “uninhabitability or health risk due to the

presence or consequences of such things as . . . mold[.]”

     2Capitalization removed.

                                    4
     The contract included a disclosure addressing “Indoor Air Quality.”

As to indoor air, CalAtlantic’s agreement with the Widemans’ states:

     Residential construction methods cannot keep out all indoor
     air contaminants. Contaminants such as pollen, dust mites,
     mold and other organics are a normal part of a residential
     home’s indoor air environment. Maintaining indoor air
     quality after Settlement is Your responsibility and requires
     regular cleaning, maintenance and timely repair of the Home.
     If excessive moisture is present in Your Home, You should
     immediately remove the moisture and repair the source of the
     moisture. We will not be responsible for damage to Your Home
     from failure to adequately and timely clean, maintain and
     repair Your Home. You agree that Your sole remedy for
     damages caused by mold, other fungi or other indoor air
     contaminants shall be the remedy set forth in the warranty
     documents provided to You.

     In October 2018, the Widemans sold Benjamin and Kimberly

Cockerham their home. Nearly three years later, in June 2021, the

Cockerhams sued CalAtlantic, alleging there were construction defects

in the home, which had “caused significant mold growth in Plaintiffs’

home.” The Cockerhams alleged the defects caused “extreme and

inappropriate humidity and moisture levels to develop in the Home’s

interior,” which resulted in “water damage and the development of

elevated mold levels.” According to their petition, when CalAtlantic sold

the home, it violated the DTPA, breached the implied warranties of

habitability and workmanship, and had been negligent in the
                                   5
construction methods it used in building the home. The theory in the

Cockerham’s petition is that the construction methods CalAtlantic used

in building the home created the conditions that allowed mold to grow in

the home.

     In response to the suit, Lennar Homes of Texas Land and

Construction, Ltd. and Lennar Homes of Texas Sales and Marketing, Ltd.

answered. In their answer, Lennar Homes Land and Construction and

Lennar Homes of Texas Sales and Marketing alleged they were the

“successors by merger to CalAtlantic Homes of Texas Inc., [the] successor

by merger to RH of Texas limited partnership.” For convenience, we will

refer to the appellants collectively as “Lennar.” 3

     Lennar attached two exhibits to support its motion to compel

arbitration: (1) a copy of the purchase-and-sale agreement, which we are

calling the contract, and (2) a copy of CalAtlantic’s “New Home Warranty

Program Insured Limited Warranty.” Both the contract and the Limited

     3Even though the     appellate record doesn’t include evidence that
establishes the Lennar partnerships are the entities that “merged” with
CalAtlantic, as Lennar’s answer alleges, the Cockerhams have never
contested that claim either in the trial court or on appeal. For purposes
of the appeal, we accept the claim that the two Lennar partnership
entities are the successors “by merger” as an undisputed fact for purposes
of this appeal. See Tex. R. App. P. 38.1(g).
                                     6
Warranty contain arbitration clauses. Under the arbitration agreements

in both exhibits, the Widemans agreed that the rules of the Federal

Arbitration Act would apply to the arbitration of any disputes if a dispute

arose under either the contract or the Limited Warranty.

     The Cockerhams don’t dispute that the arbitration clauses in the

contract and Limited Warranty are enforceable against the Widemans

had the Widemans been the plaintiffs who sued CalAtlantic or Lennar.

For its part, Lennar recognizes that the Cockerhams didn’t sign the

contract or the Limited Warranty that it seeks to enforce. That said, in

the trial court Lennar argued the arbitration agreements in the contract

and Limited Warranty are enforceable against the Cockerhams under

the doctrine of direct-benefits estoppel because the Cockerhams had sued

to enforce benefits based on the Widemans’ purchase of the home.

According to the argument Lennar made in its motion to compel, the

Cockerhams could not on one hand seek to enforce terms of the contract

or Limited Warranty without on the other hand accepting the terms of

the entire agreement, which included the clauses that required the

arbitration of the claims at issue in the dispute.

                                    7
     The Cockerhams presented the trial court with three arguments in

response to Lennar’s motion. First, they argued that since they didn’t buy

the home from CalAtlantic but bought it from the Widemans, the doctrine

of direct-benefits estoppel didn’t apply to their claims. Second, they

argued that Lennar’s theory that they had received a direct benefit by

suing CalAtlantic to enforce the implied warranties that arise in the sale

of a new home is a theory that has been repeatedly rejected by Texas

courts. Third, the Cockerhams claimed the doctrine of direct-benefits

estoppel didn’t apply because their claims existed independently and did

not depend on the terms of CalAtlantic’s contract with the Widemans.

     The trial court denied Lennar’s motion to compel but did not specify

the reason for its ruling. In response to the trial court’s ruling, Lennar

filed an interlocutory appeal. 4 On appeal, Lennar filed a brief raising one

issue. It argues the trial court “erred by denying Appellants’ Plea in

Abatement and Motion to Compel Arbitration.”

     4See  Tex. Civ. Prac. & Rem. Code Ann. § 51.016 (authorizing
appeals from interlocutory orders denying arbitration under the FAA).
                                   8
                                 Analysis

       A party seeking to compel arbitration must establish: (1) the

existence of a valid, enforceable arbitration agreement, and (2) the

disputed claims fall within the agreement’s scope. 5 Here, Lennar argues

the arbitration agreement in the contract is enforceable and encompasses

the Cockerhams’ claims. The Cockerhams disagree. They argue that the

agreements to arbitrate in the contract and Limited Warranty are

unenforceable because they weren’t parties to the contract with

CalAtlantic, so they didn’t sign the contract containing the arbitration

agreements that CalAtlantic’s successor Lennar asked the trial court to

enforce. 6

      Whether an arbitration agreement is enforceable is reviewed de

novo as a question of law. 7 Generally, courts will require the parties to a

valid and enforceable arbitration agreement to submit the dispute to

arbitration. 8 Yet under some circumstances, even a non-party to an

      5See Wagner v. Apache Corp., 627 S.W.3d 277, 284 (Tex. 2021).
      6The    Cockerhams don’t dispute that the PSA contains a valid
arbitration agreement that, if enforceable against them, would
encompass their claims.
       7In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005).
       8In re Kellogg, Brown & Root, Inc., 166 S.W.3d 732, 738 (Tex. 2005)

(orig. proceeding).
                                     9
arbitration agreement may be compelled to arbitrate a claim when the

non-party has filed a claim against another that is covered by an

agreement to arbitrate. 9

     Courts have identified “six scenarios in which arbitration with non-

signatories may be required: (1) incorporation by reference, (2)

assumption, (3) agency, (4) alter ego, (5) equitable estoppel, and (6) third-

party beneficiary.” 10 In the trial court, Lennar relied on equitable

estoppel. Boiled down, Lennar argued that the Cockerhams shouldn’t be

permitted to sue CalAtlantic and benefit from the warranties CalAtlantic

created in building the home without accepting the other obligations—

specifically the arbitration requirements—that are found in those

agreements too.

     In Lennar’s motion to compel, it argued that the doctrine of direct-

benefits estoppel precluded the Cockerhams from avoiding arbitration

because their claims against CalAtlantic relied on CalAtlantic’s contract

with the Widemans. When the doctrine of direct-benefits estoppel

applies, “a non-signatory plaintiff seeking the benefits of a contract is

     9Id.
     10Jody James Farms, JV v. Altman Grp., Inc., 547 S.W.3d 624, 633

(Tex. 2018).
                                     10
estopped from simultaneously attempting to avoid the contract’s

burdens, such as the obligation to arbitrate disputes.” 11

      To determine “whether a claim seeks a direct benefit from a

contract containing an arbitration clause[,]” we examine the “substance

of the claim,” and we look past a party’s “artful pleading.” 12 “While the

boundaries of direct-benefits estoppel are not always clear, nonparties

generally must arbitrate claims if liability arises from a contract with an

arbitration clause, but not if liability arises from general obligations

imposed by law.” 13 In other words, “the claim must depend on the

existence of the contract. . . and be unable to stand independently without

the contract.” 14

      While this appeal was pending, the Supreme Court of Texas decided

Lennar Homes of Texas Land & Construction, Ltd. v. Whiteley, 672

S.W.3d 367, 372-73 (Tex. 2023). In our opinion, Whiteley is dispositive of

the issue that Lennar has raised in this appeal. The facts in Whiteley are

like the appeal before us in at least four respects. First, Whiteley involved

      11See In re Kellogg, Brown & Root, Inc., 166 S.W.3d at 739.
      12In re Weekley Homes, 180 S.W.3d at 131-32.
      13In re Vesta Ins. Grp., Inc., 192 S.W.3d 759, 761 (Tex. 2006).
      14G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502,

527-28 (Tex. 2015) (cleaned up).
                                     11
a plaintiff who sued a homebuilder alleging that defects in the

construction of a home by its builder were responsible for creating the

conditions that allowed mold to grow in the home. Second, the plaintiff

in Whiteley was a subsequent purchaser of the home, not the home’s

original purchaser. Third, in Whiteley, the plaintiff sued the builder for

negligent construction and breaching the implied warranties of

habitability and good workmanship. 15 Fourth, even though the

arbitration clauses in Whiteley and the case before us are not exactly the

same, they are also very broad. 16 Even though the plaintiff in Whiteley

did not sign the agreements containing the arbitration provisions since

she was a subsequent purchaser of the home, the Supreme Court of Texas

held that the doctrine of direct-benefits estoppel applied to her suit, and

it required the plaintiff to arbitrate her claims. 17

     In explaining why direct-benefits estoppel applied to the plaintiff’s

claims in Whiteley, the Supreme Court of Texas also rejected the same

arguments the Cockerhams relied on in the trial court. For example, the

Cockerhams argued that when building the home, CalAtlantic breached

     15Whiteley, 672 S.W.3d at 373-74.
     16Id. at 372-73.
     17Id. at 377-80.

                                     12
the implied warranties workmanship and habitability. And like the

subsequent purchaser in Whiteley, the Cockerhams alleged that

CalAtlantic was negligent when it built the Widemans’ home. The

Cockerhams just like the appellee in Whiteley argued that the implied

warranties that exist are common law and apply to a builder of a new

home and don’t rely on and exist independently from the contract

between the builder and the purchaser of a new home.

     Yet the Whiteley Court rejected all these arguments, explaining

that “a warranty which the law implies from the existence of a written

contract is as much a part of the writing as the express terms of the

contract.” 18 The Court also said that even though “such warranties are

imposed by operation of law, the obligation still arises from the contract

and becomes part of the contract.” 19 Thus, the Supreme Court of Texas

reasoned, that it follows the warranties arising when contracts are signed

by buyers and sellers of homes at common law are “implicit in the

contract between the builder/vendor and original purchaser and are

automatically assigned to the subsequent purchaser.” 20

     18Id. at 377.
     19Id.
     20Id. at 378. (emphasis in original) (cleaned up).

                                   13
     Given the manner in which implied warranties arise under the law,

the Whiteley Court explained that there are at least three reasons why

implied warranty claims don’t exist independently from the original sales

agreement between the builder and a home’s subsequent purchaser.21

First, the Court observed that the implied warranty of workmanship (like

other implied warranties) moves with a home “by operation of law, from

purchaser to purchaser,” so downstream purchasers of a home “cannot

obtain a greater warranty than that given to the original purchaser.”22

     Second, the Whiteley Court noted that because the implied

warranty of workmanship serves as a gap-filler claim, courts must look

to the contract involved in the builder’s sale of the home to determine the

extent to which the implied warranty of workmanship may have been

superseded. 23 So if the sales contracts includes an “express warranty”

that “specifically describes the manner, performance, or quality of the

[seller’s] services,” there may be no gaps that are required to be filled by

the implied warranty of workmanship. 24 For that reason, the Whiteley

     21Id. at 378.
     22Id.
     23Id.
     24Id. (cleaned up).

                                    14
Court said, a court must refer to the original contract of sale on the home

to determine the extent to which the implied warranty of workmanship

exists. 25

      Third, the Whiteley Court noted that resolving a claim for breaching

the implied warranty of habitability requires that a court and factfinder

look to the builder’s contract with the original purchaser to determine the

extent to which the builder disclosed defects existed in the home.26

Simply put, the implied warranty of habitability requires an examination

of the builder’s prior disclosure of defects since the implied warranty of

habitability doesn’t “include defects, even substantial ones, that are

known by or expressly disclosed to the buyer.” 27

      We conclude the holding in Whiteley—that direct-benefits-estoppel

applies to arbitration provisions in a builder’s contract when a

subsequent homeowner sues the builder alleging the builder breached

the implied warranties of workmanship and habitability in constructing

the home—applies to the Cockerham’s claims. Under the evidence

presented to the trial court, we conclude the Cockerhams’ implied

      25Id.
      26Id. at 379.
      27Id. (cleaned up).

                                    15
warranty claims against CalAtlantic and its successor Lennar cannot

stand independently from the contract and Limited Warranty executed

in 2016 when the home was originally sold.

     Besides the implied warranty claims, which we have discussed, the

Cockerhams petition includes Deceptive Trade Practices Act and

negligence claims against CalAtlantic and its successor Lennar. Under

Texas law, when “the relied-upon arbitration clause is broad enough to

cover both tort and contract claims, if the plaintiff pursues one claim on

the contract, then the plaintiff must pursue all claims—tort and

contract—in arbitration.” 28

     The arbitration clause in the purchase-and-sale agreement between

CalAtlantic and the Widemans is broad. We have already held that it

applies to the Cockerham’s breach of warranty claims. The express terms

of the arbitration agreement require the parties to the arbitration

agreement to arbitrate “any dispute (whether contract, warranty, tort,

statutory or otherwise)[.]” We conclude the arbitration provisions are

sufficiently broad to require the Cockerhams’ arbitrate these claims too.

     28Id. at 377.

                                   16
                               Conclusion

     As a matter of law, we conclude the arbitration clause is broad

enough to cover all claims the Cockerhams filed against CalAtlantic and

its successor, Lennar. We sustain Lennar’s sole issue. We reverse the

trial court’s order denying Lennar’s motion to compel arbitration and

remand the case to the trial court for further proceedings consistent with

this opinion.

     REVERSED AND REMANDED.

                                                   HOLLIS HORTON
                                                      Justice

Submitted on March 6, 2023
Opinion Delivered November 16, 2023

Before Golemon, C.J., Horton and Johnson, JJ.

                                   17