Opinion
No. 04-15-00532-CV
05-25-2016
METSO MINERALS INDUSTRIES, INC., Appellant v. MAVERICK AGGREGATES, INC., Appellee
DISSENTING OPINION
From the 365th Judicial District Court, Maverick County, Texas
Trial Court No. 12-09-27789-MCVAJA
Honorable David Berchelmann, Jr., Judge Presiding Opinion by: Marialyn Barnard, Justice
Dissenting Opinion by: Luz Elena D. Chapa, Justice Sitting: Marialyn Barnard, Justice Patricia O. Alvarez, Justice Luz Elena D. Chapa, Justice
The Honorable Amado Abascal is the presiding judge of the 365th District Court of Maverick County, Texas. However, the judgment in this case was signed by the Honorable David Berchelmann Jr., retired, sitting by assignment.
I respectfully dissent. The majority "read[s] Maverick's allegations against Metso as referring to the contractual duties and warranties contained [in] the sales order confirmation as it is the only time Metso entered into a contract and extended warranties with regard to the sale of the screener." Metso produced no evidence the sales order confirmation was the "only time" it entered into a contract and extended warranties regarding the screener. And even if the sales order confirmation was the only time Metso entered a contract or extended a warranty regarding the screener, the direct benefits doctrine is inapplicable because Maverick bases its claims against Metso, not on the sales order confirmation, but on other alleged warranties. Because the trial court correctly concluded the direct benefits doctrine is inapplicable or that Metso failed to prove that the doctrine was applicable, the trial court's order must be affirmed.
I. Metso produced no evidence that the sales order confirmation was the "only time" it entered into a contract or extended a warranty on the screener.
Metso argues the trial court erred by denying its motion to compel arbitration because, although Maverick never entered into a valid arbitration agreement, the "direct benefits" doctrine applies. Metso's argument proceeds as follows: Maverick is suing Metso for breach of contract and breach of an express warranty. The sales order confirmation was the "only time" Metso entered into a contract or extended a warranty regarding the screener. Therefore, Maverick must be suing to enforce the contract or express warranty in the sales order confirmation, which contains the arbitration provision. Because Maverick is seeking a direct benefit of the sales order confirmation, Maverick must be bound by the arbitration provision.
In its motion to compel, Metso alleged the sales order confirmation was the "only time" it entered into a contract or extended a warranty regarding the screener. Metso attached a copy of the sales order confirmation to its motion and an affidavit of its employee, who swore the sales order confirmation was kept in the regular course of Metso's business activities and was a record made at or near the time of the screener's sale. The affiant does not swear, and Metso produced no other evidence, that the sales order confirmation was the "only time" Metso entered into a contract or extended a warranty regarding the screener. Metso suggests the trial court was bound to accept the unsupported allegations in its motion. Metso is correct only if Metso did not have the burden to prove the applicability of the direct benefits doctrine or, alternatively, that Maverick had the burden to disprove the applicability of the direct benefits doctrine.
"[T]he burden [is] on the moving party to show a valid agreement to arbitrate." In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) (orig. proceeding). The equitable "direct benefits" doctrine may apply in lieu of a valid agreement to arbitrate. See G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 527 (Tex. 2015); Rachal v. Reitz, 403 S.W.3d 840, 845-46 (Tex. 2013). Thus, the party relying upon the direct benefits doctrine has the burden of proof. Glassell Producing Co. v. Jared Res., Ltd., 422 S.W.3d 68, 81 (Tex. App.—Texarkana 2014, no pet.). The burden of proof does not shift merely because the movant is unable to prove the existence of a valid arbitration agreement and must instead rely on equity. See id.; see also ENGlobal U.S., Inc. v. Gatlin, 449 S.W.3d 269, 277, 282 (Tex. App.—Beaumont 2014, no pet.) (affirming trial court's order denying motion to compel arbitration because movant failed to satisfy its "burden to show that direct benefits estoppel applies to require arbitration").
The burden was on Metso, as the moving party, to show a valid agreement to arbitrate. See In re Weekley Homes, L.P., 180 S.W.3d at 130. Metso acknowledges it was unable to prove Maverick entered into a valid agreement to arbitrate, and instead relied upon the direct benefits doctrine. Therefore, Metso had the burden to prove the applicability of the direct benefits doctrine; it was not Maverick's burden to disprove. See ENGlobal U.S., Inc., 449 S.W.3d at 277; Glassell Producing Co., 422 S.W.3d at 81. In its motion to compel arbitration, Metso pled "the only contract/warranty dealing Metso had with the screener" was the sales order confirmation. "Pleadings, however, are not evidence." San Miguel v. City of Windcrest, 40 S.W.3d 104, 111 (Tex. App.—San Antonio 2000, no writ). Therefore, the trial court was not bound to accept the unsupported allegations in Metso's motion. Because Metso failed to meet its burden of proof, the trial court properly denied Metso's motion to compel.
II. Maverick is not seeking a direct benefit of the warranty in the sales order confirmation.
Even if the sales order confirmation was the only time Metso entered into a contract or extended a warranty on the screener, Maverick has not sued Metso for breaching that contract or warranty. "[W]hether a claim seeks a direct benefit from a contract containing an arbitration clause turns on the substance of the claim, not artful pleading." In re Weekley Homes, L.P., 180 S.W.3d at 131-32. "Claims must be brought on the contract (and arbitrated) if liability arises solely from the contract or must be determined by reference to it." Id. at 132 (emphasis added). "It is not enough, however, that the party's claim 'relates to' the contract that contains the arbitration agreement." G.T. Leach Builders, 458 S.W.3d at 527. The benefit must directly stem from the contract containing the arbitration clause, and the claim must depend upon the existence of the contract and "be unable to 'stand independently' without the contract." Id. at 527-28. "[T]he fact that the [plaintiff's] claims would not have arisen but for the existence of the [contract containing the arbitration agreement] is not enough to establish equitable estoppel." Id. at 529.
Whether Maverick is seeking a direct benefit of the warranty in the sales order confirmation depends upon the substance of Maverick's claims. See In re Weekley Homes, L.P., 180 S.W.3d at 131-32. We must therefore look to Maverick's pleadings to determine the nature of its claims. See G.T. Leach Builders, 458 S.W.3d at 529 n.24. In its live pleading, Maverick alleged the following in the "Facts" section:
4.1 [Maverick] purchased [the screener] from [IPE] on March 11, 2011.
4.2 [Maverick] paid a total of $297,687.00 for [the screener].
4.3 Ignacio Martinez a representative from . . . [Metso] represented to [Maverick] that the [screener] had a near new condition , but had all the manufacturer warranties for a full year or 1800 hours . . . .
4.4 Since the purchase of the [screener,] Maverick has encountered several mechanical problems [that] have rendered the [screener] inoperable.
4.5 [Maverick] had to incur repair costs of $15,579.00 to replace a hydraulic pump.(emphasis added). Based on these facts, Maverick argued in its live pleading that it had causes of action for breach of contract, negligent or fraudulent misrepresentation, breach of express warranty, and breach of implied warranties of merchantability and fitness for a particular purpose. In the "Breach of Contract" section, Maverick further alleged it "entered into a contract with [IPE] for the purchase of [the screener], which included a full factory warranty."
4.6 [Maverick] has found the need to purchase an additional screener in order to maintain his business in operation and to mitigate its losses.
4.7 On February 21, 2012 [IPE] was given notice of yet another breakdown [that] has rendered the [screener] inoperable.
These factual allegations, and not Maverick's legal contentions, form the substance of Maverick's claims against Metso. See Weekley Homes, L.P., 180 S.W.3d at 134. Maverick's pleadings do not refer to or mention the warranty contained in the sales order confirmation. Maverick alleged there was a warranty contained in an invoice from IPE to Maverick, and Ignacio Martinez, an alleged agent of Metso, represented the screener "had a near new condition" and "had all the manufacturer warranties for a full year or 1800 hours." Metso also produced no evidence that Maverick was aware of the sales order confirmation when it filed suit in September 2012 or its live pleading in June 2013. Maverick did not plead, and Metso did not prove, that Maverick is seeking a direct benefit of the warranty in the sales order confirmation.
Metso posits that Maverick must be suing to enforce the warranty in the sales order confirmation because IPE's and Martinez's representations are not sufficiently specific to support a valid breach of contract or breach of express warranty claim. This position is untenable for at least three reasons. First, Metso cites no authority that the "direct benefits" doctrine distinguishes between valid and invalid claims. According to the supreme court, the inquiry is whether the substance of the plaintiff's claims—as they are pled—seeks the benefit of a contract containing an arbitration clause, not whether those claims are valid. See G.T. Leach Builders, 458 S.W.3d at 527-29 & n.24; In re Weekley Homes, L.P., 180 S.W.3d at 131-32. Second, if Metso's position is correct, it is self-defeating because the warranty in the sales order confirmation—which purports to confirm the sale of the screener to Crisp Industries—covers only the buyer (Crisp Industries) and is not transferable. Third, Martinez's representation that the screener was in a "near new condition" is arguably an express warranty. See Chrysler-Plymouth City, Inc. v. Guerrero, 620 S.W.2d 700, 705 (Tex. Civ. App.—San Antonio 1981, no writ) (holding salesman's description of good was "top quality" and being in "perfect condition" was an express warranty); Valley Datsun v. Martinez, 578 S.W.2d 485, 490 (Tex. Civ. App.—Corpus Christi 1979, no writ) (holding salesman's description of good as being in "excellent condition" was a "statement constitut[ing] an express oral warranty").
The warranty in the sales order confirmation provides:
LIMITED WARRANTY: Except as provided herein, Metso warrants that Products will be free of defects in workmanship and material. This warranty covers the Buyer only and is not transferable. EXCEPT FOR WARRANTY OF TITLE, THIS WARRANTY IS EXPRESSLY IN LIEU OF ALL OTHER REPRESENTATIONS, WARRANTIES, GUARANTIES AND THE LIKE, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE, AND CONSTITUTES THE ONLY WARRANTY OF METSO WITH RESPSECT TO THE PRODUCTS.
The warranty in the IPE invoice and Metso's representations through Martinez form the substance of Maverick's claims. Maverick is not seeking a benefit that stems directly from the sales order confirmation, Maverick's claims are not determined by reference to the sales order confirmation, and Metso's alleged liability does not arise solely from the sales order confirmation. See In re Weekley Homes, L.P., 180 S.W.3d at 132. Although the warranty in the sales order confirmation "relates to" the same screener and is somewhat similar to one of Martinez's alleged representations and the warranty in the IPE invoice, this is insufficient to establish the applicability of the direct benefits doctrine. See G.T. Leach Builders, 458 S.W.3d at 527. Therefore, the trial court correctly concluded the direct benefits doctrine was inapplicable.
III. Maverick has disclaimed reliance on the sales order confirmation.
Even if Maverick's pleadings had alleged claims based on the sales order confirmation, the direct benefits doctrine is inapplicable because Maverick has disclaimed any reliance on the sales order confirmation. The supreme court applies the direct benefits doctrine "[c]onsistent with the federal doctrine of 'direct benefits estoppel.'" See In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 740 (Tex. 2005) (orig. proceeding). The supreme court has "remain[ed] mindful of the importance of keeping federal and state law uniform so that arbitrability does not depend on where one seeks to compel it." In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006) (per curiam) (orig. proceeding).
In Noble Drilling Services, Inc. v. Certex USA, Inc., which the majority relies upon, the Fifth Circuit held that under the doctrine of direct benefits estoppel, a plaintiff can disclaim any reliance upon a contract containing an arbitration agreement:
As plaintiff, Noble is not required to base its claims on the [contracts including an arbitration clause] and can, as it has, disclaim any reliance thereupon. Noble's claims—by its own admission—rise or fall on the pre-purchase representations and whatever duties a manufacturer and distributor have by law. We thus conclude that the theory of direct benefits estoppel is not applicable, and Noble is not obligated to arbitrate its claims.620 F.3d 469, 474-75 (5th Cir. 2010). Noble was not a party to the contracts in question, was expressly excluded from those contracts, had no knowledge of those contracts before litigation began, and expressly disclaimed reliance on those contracts. Id. at 473-75.
Similarly, Maverick was not a party to the sales order confirmation, was not covered by the express terms of the warranty in the sales order confirmation, and Metso produced no evidence that Maverick had knowledge of the limited warranty until Metso attached the sales order confirmation to its motion to compel. Maverick has also repeatedly emphasized, both in the trial court and on appeal, that its claims are not based on the warranty in the sales order confirmation. Maverick's claims—by its own admission—rise or fall on the IPE invoice, Martinez's representations, and whatever duties a manufacturer has by law. Under Noble Drilling, the theory of direct benefits estoppel is not applicable, and Maverick is not obligated to arbitrate its claims. See id.
Luz Elena D. Chapa, Justice