Court Opinion

ID: 4691457
Source: CourtListenerOpinion
Date Created: 2021-05-31 07:22:07.520306+00
Date Added: 2024-06-11T08:05:08.514576
License: Public Domain

Affirmed and Memorandum Opinion filed May 27, 2021

                                      In The

                     Fourteenth Court of Appeals

                               NO. 14-19-00483-CV

 WISCH AUTO GROUP, INC., D/B/A BAYWAY CHEVROLET, Appellant

                                         V.
     JEFFREY MCCARTHY AND MELISSA MCCARTHY, Appellees

                    On Appeal from the 23rd District Court
                           Brazoria County, Texas
                      Trial Court Cause No. 101505-CV

                          MEMORANDUM OPINION

      In this interlocutory appeal, appellant Wisch Auto Group, Inc. d/b/a Bayway
Chevrolet (“Bayway”) challenges the trial court’s order denying its motion to
compel arbitration and stay litigation. In five issues, Bayway argues that the trial
court erred by failing to grant its motion to compel arbitration and stay litigation.
We affirm.
                                 I. BACKGROUND
      In January 2019, appellees Jeffrey McCarthy and Melissa McCarthy
(“appellees”) contacted Bayway concerning a Facebook advertisement posted by
Bayway for the sale of a 2014 Chevrolet Tahoe. Because the Tahoe was no longer
available, they purchased a 2010 Jeep Wrangler instead. On January 11, 2019,
Jeffrey McCarthy gave Bayway his most recent paystub, his most recent bank
statement, and a letter from the Department of Veterans Affairs showing his
disability compensation. Bayway used this information to prepare a credit
application for the purchase of the Wrangler. On the same day, Bayway and the
appellees also entered into a Retail Installment Sales Contract (“RISC”) for the
purchase of the Wrangler.
      On January 15, 2019, appellees contacted Bayway and agreed to trade in their
2017 Nissan Sentra as part of the transaction to purchase a 2018 Chevrolet Silverado
from Bayway. The appellees did not fill out a new credit application to purchase the
Silverado; instead, Bayway used the January 11, 2019 credit application generated
by appellees to purchase the Wrangler.
      On January 17, 2019, the appellees went to Bayway’s dealership to drop off
their newly purchased Wrangler for repairs. At that time, the appellees and Bayway
executed a RISC for the purchase of the Silverado for $41,024. Appellees and
Bayway also executed a Conditional Delivery Agreement (“CDA”) at the same time.
Bayway and Appellees agreed to a $12,100 credit for the Sentra toward the Silverado
purchase. In addition, the RISC stipulated that Bayway would pay off the remaining
$17,918 that appellees owed to Santander Consumer USA, Inc. (“Santander”) for
the Sentra.
      When the RISC for the Silverado was executed, Bayway informed appellees
that it would be assigning its interest in the RISC to GM Financial (“GM”). On the
same day that the CDA and RISC were executed, GM conditionally granted approval
                                         2
on the credit application for the Silverado. On February 15, 2019, Bayway notified
appellees that GM had rejected appellees’ credit application for the Silverado.
Appellees offered to make their first monthly payment to Bayway for the Silverado,
but Bayway insisted that appellees return the Silverado and pick up their Sentra from
Bayway’s lot. Santander contacted appellees later that day to inform them that
Bayway had not paid off the Sentra.
      According to telephone transcripts, Bayway called appellees and threatened
to report the Silverado as stolen if appellees did not return it to the dealership.
Appellees assert Bayway accused Jeffrey McCarthy of fraud and harassed and
threatened him by saying he would be sent to jail. Despite requesting Bayway to stop
calling them, appellees claim that they had to set their phones to airplane mode to
avoid the “nonstop” calls from Bayway. Additionally, according to appellees,
Bayway admitted to setting off the appellees’ car alarm every morning at 3:00 a.m.,
stating, “See you at 3 in the morning.”
      On March 1, 2019, the Pearland Police Department contacted appellees.
Appellees were advised that Bayway had filed a police report, alleging that appellees
had stolen the vehicle from Bayway. Officer Dennis Gassen of the Pearland Police
Department testified as follows:
      [Q]: And what did you subsequently learn about this?

      [A]: I learned that there was—I learned that the police report—what
           I learned from her is they purchased not one but two vehicles. I
           also learned that they did have a Retail Installment Agreement,
           which the terms were agreed to as far as the purchase amount,
           the percentage rate. She provided me copies of all those
           documents that you have as exhibits.

      [Q]: Okay. So, did the dealership inform you that there had been a
           Retail Installment Sales Contract signed on this?

      [A]: No, sir.
                                          3
      [Q]: So, they just led you to believe that there was no final contract
           with Mr. McCarthy and that he had stolen the vehicle?

      [A]: Yes, sir.

      On March 4, 2019, Santander informed appellees that Bayway had already
reported appellees’ Sentra as “abandoned.” Based on this information, Santander
repossessed the vehicle at a $1,000 cost to appellees. Santander further notified
appellees that it was planning to sell their Sentra on March 18, 2019.
      On March 5, 2019, appellees filed their original petition against Bayway,
alleging multiple causes of actions, including fraud, violations of the Texas
Deceptive Trade and Practices Act (Tex. Bus. & Comm Code section 17.41, et seq),
(“DTPA”) failure to pay off their trade-in vehicle, violations of the Texas Debt
Collection Act, and intentional infliction of emotional distress. Appellees
additionally sought a temporary restraining order to prevent Bayway from
repossessing the Silverado and for violation of the Texas Debt Collection Act. The
trial court granted a temporary restraining order preventing repossession of the
Silverado.
      On March 12, 2019, the temporary restraining order was served on Bayway
while Bayway was meeting with Officer Gassen concerning the police report
alleging that appellees had stolen the Silverado. Officer Gassen testified that he was
present when the restraining order was served and that Bayway acknowledged
receiving the restraining order. According to Officer Gassen, despite having just
been served with the restraining order, Bayway handed him a set of keys and asked
him to repossess the Silverado on its behalf.
      On March 25, 2019, a hearing was held on appellees’ application for
temporary injunction, in which appellees requested the trial court extend the
restraining order for the duration of the lawsuit. After hearing testimony from Jeffrey
                                          4
McCarthy and Officer Gassen, the trial court granted the extension, prohibited
Bayway from attempting to repossess the Silverado, and ordered appellees to begin
making monthly car payments into the registry of the court.
      On April 1, 2019, Bayway filed an answer and counterclaims subject to
arbitration, asserting a general denial, affirmative defenses, and counterclaims for
breach of contract of the CDA, common law fraud, and “groundless” causes of action
under the TDPA. Bayway also filed an emergency motion to dissolve the temporary
injunction. On April 8, 2019, the trial court denied Bayway’s emergency motion.
      On April 3, 2019, Bayway filed a motion to compel arbitration and stay
litigation. On June 3, 2019, the trial court held a hearing on Bayway’s motion to
compel arbitration and stay proceedings, ultimately denying said motion. This
appeal ensued.
                                    II. ANALYSIS
      Bayway presents five issues on appeal: Bayway argues generally that the trial
court erred by failing to grant its motion to compel arbitration and stay litigation.
More specifically, in Bayway’s first and second issues, Bayway argues that it
established an enforceable arbitration agreement between Bayway and appellees. In
its third, fourth, and fifth issues, Bayway asserts that appellees failed to meet their
burden on their defenses of fraud, procedural unconscionability, and waiver.
A.    STANDARD OF REVIEW AND APPLICABLE LAW
       We review the denial of a motion to compel arbitration for an abuse of
discretion. See Henry v. Cash Biz, L.P., 551 S.W.3d 111, 115 (Tex.), cert. denied, –
–– U.S. ––––, 139 S. Ct. 184, 202 L. Ed. 2d 40 (2018); In re Labatt Food Serv., L.P.,
279 S.W.3d 640, 642–43 (Tex. 2009) (orig. proceeding); Weekley Homes, L.P. v.
Rao, 336 S.W.3d 413, 418 (Tex. App.—Dallas 2011, pet. denied); see also Accord
Bus. Funding, LLC v. Ellis, No. 14-19-00279-CV, 2021 WL 1745472, at *1, ___
S.W.3d ___, ___ (Tex. App.—Houston [14th Dist.] May 4, 2021, no pet. h.). A trial
                                          5
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, 279 S.W.3d at 643). 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)).
      “Neither federal law nor Texas jurisprudence recognize a presumption in
favor of arbitration when determining initially whether a valid arbitration agreement
in fact exists.” J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003); In
re W. Dairy Transp., L.L.C., 574 S.W.3d 537, 546 (Tex. App.—El Paso 2019, no
pet.); S. Green Builders, LP v. Cleveland, 558 S.W.3d 251, 255 (Tex. App.—
Houston [14th Dist.] 2018, no pet.). Arbitration cannot be ordered in the absence of
an agreement to arbitrate, and thus, despite strong presumptions favoring arbitration,
the existence of a valid agreement to arbitrate is a settled, threshold requirement in
compelling arbitration. See Morgan v. Bronze Queen Mgmt. Co., 474 S.W.3d 701,
705 (Tex. App.—Houston [14th Dist.] 2014, no pet.). “To compel arbitration, a party
must: (1) establish the existence of a valid arbitration agreement; and (2) show that
the claims asserted are within the scope of the agreement.” In re W. Dairy Transp.,
L.L.C., 574 S.W.3d 537, 545 (Tex. App.—El Paso 2019, no pet.). 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).
The party resisting arbitration must raise an issue of material fact regarding a
necessary element the movant was required to prove, or present some evidence
                                          6
supporting every element of a defensive claim that there is no enforceable agreement
to arbitrate. See In re Jebbia, 26 S.W.3d 753, 757 (Tex. App.—Houston [14th Dist.]
2000, orig. proceeding).
      Because the trial court did not state a basis for its ruling in the order denying
the motion to compel arbitration, we must uphold the trial court’s ruling on any legal
theory supported by the evidence. See In re Estate of Guerrero, 465 S.W.3d 693,
701 (Tex. App.—Houston [14th Dist.] 2015, pet. denied).
B.    EXISTENCE OF AN ENFORCEABLE AGREEMENT
      Bayway, as the movant, bore the burden of establishing a valid arbitration
agreement binding appellees. See Henry, 551 S.W.3d at 115. Accordingly, the first
analytical step requires the party moving to compel arbitration is to “show the
agreement meets all requisite contract elements.” J.M. Davidson, 128 S.W.3d at 228.
      The elements needed to form a valid and binding contract are (1) an offer; (2)
acceptance in strict compliance with the offer’s terms; (3) a meeting of the minds;
(4)   consent   by   both    parties;   (5)   execution    and   delivery;   and   (6)
consideration. Advantage Physical Therapy, Inc. v. Cruse, 165 S.W.3d 21, 24 (Tex.
App.—Houston [14th Dist.] 2005, no pet.).
      Bayway asserts that a valid arbitration agreement, subject to the Federal
Arbitration Act, exists between it and appellees. See 9 U.S.C.A. § 1 et seq. The RISC
that appellees signed contains the following provisions:
      Agreement to Arbitrate: By signing below, [appellees] agree that
      pursuant to the Arbitration Provision on page 5 of this contract,
      [appellees] or [Bayway] may elect to resolve any dispute by neutral,
      binding arbitration and not by a court action. See the Arbitration
      Provision for additional information concerning the agreement to
      arbitrate.
The Arbitration Provision on page five states:

                                          7
      EITHER [APPELLEES] OR [BAYWAY] MAY CHOOSE TO
      HAVE ANY DISPUTE BETWEEN US DECIDED BY
      ARBITRATION AND NOT IN COURT OR BY JURY TRIAL.

      ...

      Any claim or dispute, whether in contract, tort, statute or otherwise
      (including the interpretation and scope of this Arbitration Provision,
      and the arbitrability of the claim or dispute), between [appellees] and
      [Bayway] or our employees, agents, successors or assigns, which arises
      out of relates to [appellees’] credit application, purchase or condition
      of [the Silverado], this contract or any resulting transaction or
      relationship (including any such relationship with third parties who do
      not sign this contract) shall, at [appellees’] or [Bayway’s] election, be
      resolved by neutral, binding arbitration and not by a court action. . . .

      Any arbitration under this Arbitration Provision shall be governed by
      the Federal Arbitration Act (9 U.S.C. § 1 et. seq.) and not by any state
      law concerning arbitration. . . .

      Neither [appellees] or [Bayway] waive the right to arbitrate by using
      self-help remedies, such as repossession, or by filing an action to
      recover the vehicle, to recover a deficiency balance, or for individual
      injunctive relief. . . .

      This Arbitration Provision shall survive any termination, payoff or
      transfer of this contract.

      F9Appellees argue that Bayway has failed to establish the existence of a valid
and enforceable agreement. We agree.
      1.    THE RISC IS NOT A VALID AND ENFORCEABLE AGREEMENT
      In the present case, the arbitration provision is contained within the RISC.
Therefore, to enforce the arbitration provision, it was Bayway’s burden to establish
that the RISC is a valid and enforceable agreement. See Henry, 551 S.W.3d at 115.
However, Bayway performed actions in contravention of the RISC.

                                         8
      First, Bayway had appellees sign and execute both the CDA and the RISC on
the same day. The first enumerated paragraph of the CDA states: “This [CDA] shall
be void upon the execution of a [RISC] for the sale of the vehicle subject to this
[CDA] or the expiration of the 15 day period, whichever occurs first.” However,
under both the Finance Code and the terms of the CDA, the CDA is automatically
void upon execution of a RISC. See Tex. Fin. Code § 348.013(c)(2). Appellees
argued below that this serves as evidence that Bayway sought to “avail itself of the
best of both worlds—holding Appellees to the final terms of the RISC, while at the
same time having the option to declare the transaction void under the CDA—in
complete disregard of the RISC, paragraph 1 of the CDA, and Texas law.”
      Second, Bayway failed to pay off appellees’ trade-in vehicle per the RISC
agreement. Instead of paying off the vehicle, Bayway informed Santander that
appellees had abandoned the vehicle. When appellees contacted Bayway, Bayway
admitted that it was not paying off the trade-in:
      Hey bud. This is Tyler. Just my recommendation but I would just bring
      the truck back if I was you. They’re going to get it back one way or the
      other and in the end, its [sic] just going to cost you and in the meantime
      your Nissan isn’t getting paid. You’re only making things more
      difficult for yourself.
      Third, Officer Gassen testified that he was led by Bayway to believe that
appellees had stolen the Silverado. It was not until Officer Gassen contacted
appellees that he learned that a RISC had been signed by the parties. This serves as
further evidence that Bayway attempted to enforce the CDA while completely
ignoring the existence of the RISC.
      Lastly, Bayway filed a counterclaim based on the appellees’ alleged breach of
the CDA. In Bayway’s emergency motion to dissolve the temporary injunction,
Bayway argued that appellees had violated the terms of the CDA, and thus, Bayway
was entitled to repossess the Silverado. However, as stated above, the CDA and

                                          9
RISC cannot coexist under Texas law. See Tex. Fin. Code § 348.013(c)(2). If the
RISC is valid and enforceable, the CDA is void. Thus, filing a counterclaim based
on the CDA constitutes additional evidence that Bayway denies the validity of the
RISC.
        We find the present case to be comparable to Am. Med. Techs., Inc. v. Miller,
149 S.W.3d 265, 271 (Tex. App.—Houston [14th Dist.] 2004, no pet.). In Miller, an
employer sought to enforce an arbitration provision included in an employment
agreement. See id. However, the employer simultaneously attempted to deny the
validity of the remainder of the agreement. We held that the employer “cannot both
accept the arbitration provision and at the same time deny the validity of the rest of
the agreement.” Id. We ultimately concluded that the employer failed to meet its
burden to establish a valid arbitration agreement, stating: “although [the employer]
sought to meet its burden to prove the existence of a valid arbitration agreement by
attaching a copy of the alleged employment agreement containing the arbitration
provision, all other evidence before the trial court questioned the very existence of
an agreement between the parties.” Id. at 274. Likewise, in the present case, Bayway
has attached the RISC that contains the arbitration provision it seeks to enforce as
evidence of an enforceable arbitration agreement. However, all other evidence
before the trial court appears to deny the existence and validity of the RISC. See id.
Bayway ignored the existence of the RISC, failed to satisfy the terms of the RISC,
failed to inform the police of the RISC’s existence, sought to repossess the Silverado,
and filed a counterclaim based on the CDA, even though the CDA could only be
enforced if the RISC had not been executed. Yet Bayway relies on the RISC in its
attempt to compel arbitration. Bayway cannot both accept the arbitration provision
and simultaneously seek to deny the validity of the rest of the agreement. See id.
        Given the record before it, the trial court could have concluded that Bayway
failed to satisfy its burden to demonstrate the existence of a valid arbitration
                                          10
agreement. See id. We overrule Bayway’s first and second issues. Because we
overrule Bayway’s first and second issues, we need not address Bayway’s third,
fourth, and fifth issues concerning whether appellees met their burden of proof on
their defenses. See Tex. R. App. P. 47.1. Therefore, the trial court did not err in
denying Bayway’s motion to compel arbitration and stay litigation. See Henry, 551
S.W.3d at 115.
                                   III. CONCLUSION
      We affirm the trial court’s order denying Bayway’s motion to compel
arbitration and stay litigation.

                                       /s/    Margaret “Meg” Poissant
                                              Justice

Panel consists of Justices Bourliot, Hassan, and Poissant.

                                         11