Court Opinion

ID: 3153066
Source: CourtListenerOpinion
Date Created: 2015-11-09 08:24:52.750735+00
Date Added: 2024-06-11T07:38:36.069246
License: Public Domain

Fourth Court of Appeals
                                     San Antonio, Texas
                                             OPINION
                                        No. 04-15-00056-CV

                                  Gary HODGE and Robert Hart III,
                                           Appellants

                                           v.
                          Stephen KRAFT, Individually and as
       Stephen KRAFT, Individually and as Member on Behalf of Grupo Habanero LLC,
                                        Appellee

                     From the 224th Judicial District Court, Bexar County, Texas
                                  Trial Court No. 2014-CI-18038
                             Honorable Peter A. Sakai, Judge Presiding

Opinion by:       Karen Angelini, Justice

Sitting:          Karen Angelini, Justice
                  Rebeca C. Martinez, Justice
                  Patricia O. Alvarez, Justice

Delivered and Filed: November 4, 2015

DISMISSED FOR LACK OF JURISDICTION

           Gary Hodge and Robert Hart III appeal from the trial court’s interlocutory order denying

their Motion to Compel Appraisal and Abate Lawsuit. Because we have no jurisdiction over this

interlocutory appeal, we dismiss it for lack of jurisdiction.

                                            BACKGROUND

           In 2012, Appellee Stephen Kraft agreed to form a new company, called Grupo Habanero,

LLC (“Grupo”), with Appellants Hodge and Hart. As part of the agreement, Kraft sold his

restaurant, Habaneros, to Grupo. As part of the sale, Kraft remained an owner of Habaneros by
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receiving 100 membership shares of Grupo, which represented a 10% ownership interest. Hart and

Hodge each owned 400 units respectively, and another member, Cliff Graham, owned the final

100 units of Grupo.

       Kraft also entered into an employment agreement with Grupo. Pursuant to the employment

agreement, Grupo had the right to terminate Kraft’s employment “at any time for any reason

whatsoever or for no reason at all, in [its] sole discretion.” Under the employment agreement, if

Kraft’s employment was terminated for any reason “after the first anniversary of the Effective

Date,” Grupo could, “at its option, repurchase the Membership Interest.” However, Grupo had to

“exercise such option in writing and close such repurchase within thirty (30) days of the

termination of employment.” The employment contract further provided that the “aggregate

purchase price for the Membership Interest upon exercise of the option . . . [was] the ‘Fair Market

Value’ of the Membership Interest.” “The ‘Fair Market Value’ of the Membership Interest [was]

the price agreed to by the parties; if the parties [could not] within thirty (30) days of the exercise

of the option agree upon a Fair Market Value, the Fair Market Value [was to] be determined by a

single appraiser chosen by the parties.” “If the parties [could not] agree upon an appraiser, the

parties [had to] apply to the American Arbitration Association (the “AAA”) to appoint a single

appraiser.” “The appraiser [was to] provide a written appraisal and [] determine the Fair Market

Value of the Membership Interest without deduction for its minority position and restrictions on

transfer.” “The determination of the appraiser [was to] be final and binding upon the parties and

the closing of the sale [was to] be completed within thirty (30) days of receiving the appraiser’s

determination.”

       Further, under the employment agreement,

       notices and all other communications provided for herein [were to] be in writing
       and [were to] be deemed to have been duly given (a) when received if delivered
       personally or by courier, (b) on the date receipt [was] acknowledged if delivered by
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       certified mail, postage prepaid, return receipt requested, or (c) one day after
       transmission if sent by facsimile transmission with confirmation of transmission,
       as follows:

               If to Employee [Kraft], addressed to: 1114 Birch Hill, San Antonio, TX
       78232

               If to Company [Grupo], addressed to: 108 N. Mesquite Street, Corpus
       Christi, TX 78401

       or to such other address as either party may furnish to the other in writing in
       accordance herewith, except that notices or changes of address shall be effective
       only upon receipt.

       On November 17, 2014, Kraft, individually and as a member on behalf of Grupo, sued

Hodge and Hart for breach of contract, tortious interference with contract, and breach of fiduciary

duty. He alleged that Hodge and Hart “caused Grupo to terminate [Kraft]’s employment on June

6, 2014.” Kraft also alleged that the employment contract’s option to repurchase his shares was

not exercised within thirty days of his termination. According to Kraft’s petition, after the option

period, Hodge and Hart delivered a letter to him offering to buy his membership interest for $10.00.

Kraft alleged that when he contacted them “to reject such an obviously frivolous repurchase offer,”

Hodge and Hart “threatened [Kraft] that they would take actions to render his ownership interest

in Grupo worthless if he did not sell, even though he was under no obligation to divest his share.”

       In response to the lawsuit, Hodge and Hart filed a Motion to Compel Appraisal and Abate

Lawsuit. They contended that Kraft resigned from his position on or about June 6, 2014, and that

Grupo exercised its option to repurchase Kraft’s 100 units of membership interest on July 3, 2014,

when Hodge wrote a letter on behalf of Grupo offering to pay Kraft $10 for his membership

interest. Hodge and Hart claimed that Kraft failed to comply with the Employment Agreement

because Kraft failed “to agree to appoint an appraiser to determine the fair market value of his

membership interest or, if no agreement could be reached, allowing the AAA to appoint an

arbitrator.” Instead, according to Hodge and Hart, Kraft “completely ignored his contractual
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obligations and filed the instant lawsuit.” Hodge and Hart requested that the trial court grant their

motion and abate the lawsuit until the appraisal occurs.” In support of their motion, Hodge and

Hart attached a copy of the Company Agreement; the Employment Agreement; a letter on Grupo’s

letterhead from Hodge to Kraft dated July 3, 2014; and affidavits from Hodge, Kenneth Rourke,

and Haley Bennet.

       According to these affidavits, on July 3, 2014, Hodge prepared a letter on behalf of Grupo,

which stated that pursuant to the provisions of the employment agreement Grupo was exercising

its option to repurchase Kraft’s 100 units of membership interest in Grupo. The letter proposed a

fair market value of $10 for the 100 units and asked Kraft to sign the letter memorializing the

agreement. The letter further stated that if Grupo failed to receive the signed letter from Kraft

within thirty days, it would assume that he disagreed with the fair market value of the units and

that he intended to invoke the mechanisms under the employment agreement for determining the

fair market value of the units.

       In his affidavit, Gary Hodge affirmed that on July 3, 2014, he “personally hand-delivered

a letter to [Kraft]’s address as listed in the Employment Agreement – 1114 Birch Hill, San Antonio,

Texas 78232 – exercising Grupo Habanero, LLC’s option to repurchase [Kraft]’s 100 units of

membership interest.” The affidavit stated that Hodge “hand delivered” the letter by knocking “on

the front door at the 1114 Birch Hill address two or three times.” When “[n]o one answered the

door,” Hodge “then scotched taped the letter to the door.” In his affidavit, Kenneth Rourke, Chief

Operating Officer of Grupo, affirmed that on July 3, 2014, he accompanied Hodge to 1114 Birch

Hill and watched as Hodge knocked on the front door two or three times. When no one answered

the door, he watched Hodge scotch tape the letter to the door.

       Haley Bennet, the former Director of Finance and Accounting for Grupo, affirmed in her

affidavit that either she or Hodge “delivered the option exercise letter by email to [Kraft] on July
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3, 2014.” Bennet affirmed that she or Hodge “used an email address for [Kraft] that [they] had

used before and . . . knew to be accurate.” Bennet affirmed that she and Hodge “knew this email

was delivered to [Kraft]’s email address . . . because it did not bounce back.”

       In response to Hodge and Hart’s motion to compel appraisal, Kraft argued that Hodge and

Hart failed to timely exercise the purchase option in the employment agreement. According to

Kraft, when they realized they had not timely exercised their option, they “began to make threats

against [Kraft]’s interest.” They “engaged in oppressive conduct to freeze out [Kraft], including

denying him access to the financial records of the company to which he is entitled by law.” As

evidence in support of his response, Kraft attached the Company Agreement; the Employment

Agreement; the July 3, 2014 letter; and his own affidavit.

       In his affidavit, Kraft affirmed that he lived at 1115 Birch Hill, not 1114 Birch Hill, and

that the Employment Agreement contained “a scrivener’s error.” He stated that he “notified

Defendants of this error prior to [his] termination.” He affirmed that the letter written by Hodge

on behalf of Grupo “was not personally delivered to [him]” and that he “did not become aware of

the letter within 30 days of [his] termination.” He also affirmed that he “did not receive the letter

by facsimile transmission”; nor did he “receive the letter by U.S. certified mail, return receipt

requested within 30 days of [his termination].”

       At the hearing on the motion, no testimony was given. The trial court denied Hodge and

Hart’s motion to compel appraisal and abate lawsuit. Hodge and Hart then filed a notice of

interlocutory appeal.

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                                             DISCUSSION

          Hodge and Hart argue the trial court abused its discretion in denying their motion to compel

appraisal, arguing that the “Texas Supreme Court has enunciated a strong policy in favor of

enforcing appraisal clauses in contracts.” Kraft responds that this court lacks jurisdiction to hear

this interlocutory appeal of an order denying a motion to compel appraisal. Unless a statute

authorizes an interlocutory appeal, we generally have jurisdiction only over final judgments. CMH

Homes v. Perez, 340 S.W.3d 444, 447 (Tex. 2011). And, we strictly apply statutes granting

interlocutory appeals because they are a narrow exception to the general rule that interlocutory

orders are not immediately appealable. Id. In their notice of appeal and in their reply brief, Hodge

and Hart contend that we have jurisdiction pursuant to section 171.098 of the Texas Civil Practice

and Remedies Code.

          Section 171.098 provides, in relevant part, that a party may appeal an order “denying an

application to compel arbitration made under Section 171.021.” TEX. CIV. PRAC. & REM. CODE

ANN. § 171.098(a)(1) (West 2011). Section 171.021 states that a “court shall order the parties to

arbitrate on application of a party showing: (1) an agreement to arbitrate; and (2) the opposing

party’s refusal to arbitrate.” Id. § 171.021(a). Here, Hodge and Hart did not file a motion to compel

arbitration; they filed a motion to compel appraisal and abate the lawsuit. In their reply brief, they

recognize that their motion was not, in fact, a motion to compel arbitration, but claim that the

“appraisal provision in the employment contract is in essence an arbitration provision.” (emphasis

added).

          In support of their argument, Hodge and Hart cite Vanguard Underwriters Insurance Co.

v. Smith, 999 S.W.2d 448, 451 (Tex. App.—Amarillo 1999, no pet.), claiming that it stands for the

proposition that an appraisal contract provision, whether invoking an appraiser appointed by the

American Arbitration Association or not, “is in essence one requiring arbitration.” Vanguard
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Underwriters was not brought in the context of an interlocutory appeal, but was a mandamus

proceeding where the relator, an insurance company, sought relief from the trial court’s denial of

its motion to compel its insureds to submit to an appraisal and to abate the underlying lawsuit until

the appraisal was completed. Id. at 449. The insureds claimed the insurance contract was

unconscionable and void for fraud or duress. Id. at 451. In determining whether a writ of

mandamus should be granted, the court considered “the narrow question” of “whether the

provision of the contract requiring the [insureds] to submit to the specified appraisal procedural

[was] enforceable.” Id. The court explained that “[b]ecause the provision with which we are

concerned is, in its essence, one requiring arbitration, cases considering such clauses are instructive

to us” in deciding whether the appraisal provision in the contract was enforceable. Id. (emphasis

added). It then noted that a “party seeking arbitration must establish the existence of an arbitration

agreement and show that the claims raised fall within the scope of the agreement.” Id. And, once

a party established a claim within the arbitration agreement, a “trial court must compel arbitration

and stay its own proceedings.” Id. The court then looked at the insurance contract and concluded

that under its provisions, the insurance company was “clearly entitled to have the appraisal

procedure followed and the underlying suit abated until the completion of that procedure.” Id. The

court then conditionally granted the writ of mandamus. Id. Thus, while Vanguard looked to

arbitration cases for guidance, Vanguard does not stand for the proposition that an appraisal

provision in a contract is an arbitration provision that is subject to an interlocutory appeal pursuant

to section 171.098.

       Hodge and Hart also claim that “[a]ppointment of an arbitrator to resolve a dispute over

value is clearly authorized by the Texas Arbitration Act and the appraisal requirement of a contract

[is] now generally considered to be a form of arbitration.” They cite Lass v. State Farm Mutual

Insurance Co., No. 14-98-00488-CV, 2000 WL 1125287, at *5 (Tex. App.—Houston [14th Dist.]
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2000, pet. denied), in support of this assertion. As in Vanguard, Lass did not concern an

interlocutory appeal. See Lass, 2000 WL 1125287, at *1. Lass involved an appeal from a final

judgment. Id. Thus, Lass also does not stand for the proposition that an appraisal provision in a

contract is an arbitration provision that is subject to an interlocutory appeal pursuant to section

171.098.

       Hodge and Hart cite Lass for the proposition that an appraisal provision in a contract is

“now generally considered to be a form of arbitration.” Lass concerned an automobile accident,

which resulted in the plaintiffs suing their insurance company for underinsured benefits and for

violations of the Texas Insurance Code. Lass, 2000 WL 1125287, at *1. The insurance policy in

that case provided that if the insurance company and the insured could “not agree on the amount

of loss, either [could] demand an appraisal of the loss.” Id. at *3. “In this event, each party will

select a competent appraiser.” Id. “The two appraisers will state separately the actual cash value

and the amount of loss.” Id. “If they fail to agree, they will submit their differences to the umpire.”

Id. “A decision agreed to by any two will be binding.” Id. The policy did not address the steps to

be taken if neither appraiser could agree to an umpire. Id. Because the policy was silent on this

issue, the trial court appointed an umpire itself. The insureds appealed, arguing the trial court had

no authority to do so and “essentially wrote a new term into the insurance policy.” Id. On appeal,

the Fourteenth Court of Appeals noted that whether the appraisal provision of the contract

authorized the trial court to appoint an umpire when the appraisers could not agree to an umpire

was a question of interpretation of the contract. Id. The court of appeals, citing Vanguard, then

reasoned that “[b]ecause the provision with which we are concerned is, in its essence, one requiring

arbitration, cases considering such clauses are instructive to us in making our decision.” Lass, 2000
WL 1125287, at *3 (emphasis added). Thus, the Fourteenth Court of Appeals, like the Vanguard

court, looked to arbitration cases for guidance. The Fourteenth Court of Appeals then ended its
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discussion with the following broad language: “the appraisal requirements of an insurance policy

are now generally considered to be a form of arbitration.” Id. at *5. (emphasis added).

       The Texas Supreme Court has explained that appraisal clauses “are uniformly included in

most forms of property insurance policies” and now appear “in almost every homeowners,

automobile, and property policy in Texas.” State Farm Lloyds v. Johnson, 290 S.W.3d 886, 888

(Tex. 2009). While such provisions are now commonplace in insurance policies, the supreme court

has emphasized that the scope of appraisal is different from the scope of arbitration. In Johnson, it

quoted a supreme court case from 1888 stating the following:

       But here the [appraisal clause] does not divest the courts of jurisdiction, but only
       binds the parties to have the extent or amount of the loss determined in a particular
       way, leaving the question of liability for such loss to be determined, if necessary,
       by the courts.

Johnson, 290 S.W.3d at 889 (quoting Scottish Union & Nat’l Ins. Co. v. Clancy, 71 Tex. 5, 8 S.W.
630, 631 (1888)) (alteration in original). The supreme court then noted that it had “repeated this

distinction between damage questions for appraisers and liability questions for the courts.” Id.

(emphasis added). The supreme court explained that most appraisal clauses in insurance policies

direct the appraiser to decide the “amount of loss,” but “not to construe the policy or decide

whether the insurer should pay.” Id. at 890. The supreme court concluded that “the scope of

appraisal is damages, not liability.” Id. Thus, appraisal provisions are different from arbitration

clauses and cannot be construed to be one and the same.

       We agree with Hodge and Hart that the Texas Supreme Court has held that “appraisal is

intended to take place before suit is filed” and is “a condition precedent to suit.” Id. at 894. In

Johnson, the supreme court noted that “appraisals require no attorneys, no lawsuits, no pleadings,

no subpoenas, and no hearings.” Id. “It would be a rare case in which appraisal could not be

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completed with less time and expense than it would take to file the motions contesting it.”1

“Allowing litigation about the scope of appraisal before the appraisal takes place would mark a

dramatic change in Texas insurance practice, and surely would encourage much more of the

same.” Id. (emphasis added). Thus, the supreme court has discussed in the insurance policy context

that appraisals “should generally go forward without preemptive intervention by the courts.” Id. at

895.

         However, we can find no case in which the supreme court has held that an order denying a

motion to compel an appraisal could be the subject of a permissible interlocutory appeal pursuant

to section 171.098. Indeed, the supreme court’s decision in Johnson was an appeal from a final

judgment. See Johnson, at 888 n.2; see also Sec. Nat’l Ins. Co. v. Waloon Inv., Inc., 384 S.W.3d
901, 904 (Tex. App.—Houston [14th Dist.] 2012, no pet.) (appeal from a final order, made final

after a severance, which compelled a hotel owner to appeal in an appraisal under the terms of the

insurance policy). Another supreme court case involving the issue of whether an insurer was

entitled to enforcement of an appraisal clause arose in the context of a mandamus proceeding. 2 See

In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 412 (Tex. 2011) (orig. proceeding)

(“We have held that mandamus relief is appropriate to enforce an appraisal clause because denying

the appraisal could vitiate the insurer’s right to defend its breach of contract claim.”); see also In

re Cypress Tex. Lloyds, 419 S.W.3d 443, 445 (Tex. App.—Beaumont 2012, orig. proceeding)

(conditionally granting petition for writ of mandamus for insurer in motion to compel appraisal

context).

1
  The underlying case, which involves the valuation of a business and not the simple valuation of property damage
found in most insurance disputes, might be one of these rare cases.
2
  We note that in certain circumstances, we may treat an interlocutory appeal as a petition for writ of mandamus. See
CMH Homes, 340 S.W.3d at 452-53. However, to do so, the party seeking appellate review must specifically request
that its appeal be treated as a mandamus petition. See id. at 452. Here, Hodge and Hart have not requested us to
consider their appeal, alternatively, as a petition for writ of mandamus. Accordingly, we will not construe their appeal
as such.

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         Finally, we note that while the appraisal provision at issue in this case makes reference to

the American Arbitration Association (“AAA”), it only does so for the purpose of the AAA

appointing a single appraiser. Such language cannot be construed as the parties agreeing to submit

their dispute to arbitration and thus cannot be considered an arbitration provision. 3

                                                   CONCLUSION

         Having found no case law to support Hodge and Hart’s position that we have jurisdiction

over the trial court’s interlocutory order, we conclude that we lack jurisdiction over this appeal.

We therefore dismiss this appeal for lack of jurisdiction.

                                                           Karen Angelini, Justice

3
 We note that section 171.098 is not the only interlocutory appeal statute regarding arbitration. Section 51.016 of the
Texas Civil Practice and Remedies Act provides that “[i]n a matter subject to the Federal Arbitration Act,” a party
may appeal from an interlocutory order “under the same circumstances that an appeal from a federal district court’s
order or decision would be permitted by 9 U.S.C. § 16.” TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West 2015).
Hodge and Hart do not argue that the appraisal provision is one governed by the Federal Arbitration Act. However,
because the issue before us is one of jurisdiction, which we have a duty to look at sua sponte, we note that for the
same reasons expressed in this opinion, the appraisal provision is not an arbitration provision under the Federal
Arbitration Act. Thus, section 51.016 cannot invoke the appellate jurisdiction of this court.

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