Opinion
NO. 01-15-00640-CV
06-16-2016
GREYSTONE MULTI-FAMILY BUILDERS, INC., Appellant v. TES ELECTRIC, LP, Appellee
On Appeal from the 125th District Court Harris County, Texas
Trial Court Case No. 2015-03393
MEMORANDUM OPINION
Appellant Greystone Multi-Family Builders, Inc., challenges the trial court's denial of its motion to compel arbitration in this interlocutory appeal. We reverse and remand for further proceedings.
Background
General contractor Greystone hired TES Electric, LP to provide electrical services and related materials for a multi-family housing project in Houston (the Contract). After TES began work on the project, disputes arose regarding the parties' performance of the Contract. Greystone later terminated the Contract and hired a new subcontractor which TES alleges is owned by Ken Turner, a former TES employee, and other former TES employees, including Manuel Sanchez.
Specifically, TES claims that mistakes by Greystone's architects caused it to incur substantial unanticipated expenses and that after providing verbal approval of change orders covering the additional work, Greystone refused to pay TES for the extra work. Greystone claims that there were numerous issues regarding TES's performance under the Contract stemming from TES's (1) lack of manpower, (2) poor workmanship, (3) failure to timely complete the work, (4) failure to pay its laborers and suppliers, (5) failure to communicate with Greystone, (6) billing for permits and work never obtained or supplied, (7) performing work that failed to comply with local ordinances and codes, and (8) performing work that deviated from the plans and specifications without prior approval.
After Greystone terminated the Contract, TES sued Greystone for breach of the Contract and asserted tort claims for fraud and civil theft based on Greystone's alleged promise to pay for certain change orders. TES also sued its former employees, Turner and Sanchez, for tortious interference, breach of fiduciary duty, unfair competition, and theft of trade secrets and claims that Greystone conspired with Turner and Sanchez in these actions. TES is also seeking to foreclose on alleged materialman's liens and requesting attorney's fees based on its breach of contract and civil theft claims.
TEX. CIV. PRAC. & REM. CODE ANN. § 134.003 (West 2011).
Advantis Managed Solutions, LLC dba Advantis Management Services intervened in the case asserting breach of contract and quantum meruit claims against Greystone and TES. Advantis is seeking to collect approximately $193,000 of the $391,000 that TES is attempting to recover from Greystone for labor and materials purportedly provided pursuant to the Contract.
After TES initiated litigation, Greystone invoked the Contract's arbitration provision and moved to compel arbitration of all of TES's claims. Article 10 of the Contract pertains to arbitration. The trial court denied the motion to compel. Greystone filed a timely notice of interlocutory appeal challenging the trial court's refusal to compel arbitration. This Court stayed the trial court's proceedings during the pendency of Greystone's appeal.
Motion to Compel Arbitration
In a single issue, Greystone argues that the trial court erred in denying its motion to compel arbitration because all of TES's claims against it fall within the scope of the Contract's valid and enforceable arbitration agreement.
A. Standard of Review and Substantive Law
We have jurisdiction to review an interlocutory order denying a motion to compel arbitration. TEX. CIV. PRAC. & REM. CODE ANN. §§ 51.016 (West 2015), 171.098(a)(1) (West 2011); see also Ellis v. Schlimmer, 337 S.W.3d 860, 862 (Tex. 2011) (citing In re D. Wilson Constr. Co., 196 S.W.3d 774, 780 (Tex. 2006) (noting availability of appellate review under FAA)). We review a trial court's order denying a motion to compel arbitration for an abuse of discretion, deferring to the trial court's factual determinations if they are supported by the evidence and reviewing questions of law de novo. Valerus Compression Servs., LP v. Austin, 417 S.W.3d 202, 207 (Tex. App.—Houston [1st Dist.] 2013, no pet.) (citing Cleveland Constr., Inc. v. Levco Constr., Inc., 359 S.W.3d 843, 851-52 (Tex. App.—Houston [1st Dist.] 2012, pet. dism'd)).
To compel arbitration, Greystone must establish that (1) a valid, enforceable arbitration agreement exists and (2) the claims asserted fall within the scope of that agreement. In re Provine, 312 S.W.3d 824, 828-29 (Tex. App.—Houston [1st Dist.] 2009, orig. proceeding); see also Valerus Compression Servs., 417 S.W.3d at 207-08. The parties' agreement and intent to submit to arbitration must be unambiguous. Porter & Clements, L.L.P. v. Stone, 935 S.W.2d 217, 220 (Tex. App.—Houston [1st Dist.] 1997, orig. proceeding). Although there is a strong presumption favoring arbitration, that presumption arises only after the party seeking to compel arbitration proves that a valid arbitration agreement exists. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003); Cleveland Constr., 359 S.W.3d at 852. Whether a valid arbitration agreement exists is a legal question. In re D. Wilson Constr. Co., 196 S.W.3d at 781.
B. Contract Interpretation
When deciding whether the parties agreed to arbitrate under the FAA, we apply ordinary state law principles regarding the formation of contracts. Id.; J.M. Davidson, Inc., 128 S.W.3d at 227. Our primary concern in construing a written contract is to ascertain the true intent of the parties as expressed in the instrument. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011). We examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless. Id. We begin our analysis with the contract's express language. Id. And we analyze the provisions of a contract with reference to the whole agreement. Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 345 (Tex. 2006) ("No single provision taken alone will be given controlling effect; rather, all the provisions must be considered with reference to the whole instrument." (citations omitted)).
If, after applying the pertinent contract construction rules, the contract can be given a certain or definite legal meaning or interpretation, then it is not ambiguous, and we will construe the contract as a matter of law. See J.M. Davidson, Inc., 128 S.W.3d at 229. Inartful drafting does not alone render a contractual provision ambiguous. See In re D. Wilson Const. Co., 196 S.W.3d at 781 (citing Universal C.I.T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 157 (1951)). Further, ambiguity does not exist merely because the parties assert forceful and diametrically opposing interpretations. In re D. Wilson Constr. Co., 196 S.W.3d at 781; Seagull Energy E & P, Inc., 207 S.W.3d at 345. A contract is ambiguous only if it is subject to "two or more reasonable interpretations after applying the pertinent rules of construction." In re D. Wilson Constr. Co., 196 S.W.3d at 781 (citation omitted).
C. Is there a Valid and Enforceable Arbitration Agreement?
In order to compel arbitration, Greystone must establish that a valid, enforceable arbitration agreement exists. Greystone argues that section 10.1 creates a valid and enforceable mandatory arbitration clause that unambiguously gives Greystone the sole power to decide whether a claim will be arbitrated or litigated. TES, however, argues that the clause is permissive because it does not require arbitration, it only allows the parties to arbitrate if both sides consent, and, therefore, the trial court correctly refused to compel arbitration in this case.
Section 10.1 of the Contract provides:
With the consent of [Greystone], all disputes, claims or questions not resolved informally are subject to arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association. If [Greystone] requests that any particular dispute, claim or question should be arbitrated, then arbitration shall be effected as provided hereinafter, and the decision of such arbitrator shall be benign [sic] on all parties. If, however, [Greystone] elects not to consent to arbitration, then either or both parties may resort to an appropriate judicial action . . . This arbitration agreement shall be governed by the Federal Arbitration Act. . . .
The plain language of this section provides for arbitration in two different scenarios—the first where TES requests to arbitrate certain claims and the second where Greystone requests to arbitrate. If TES requests to arbitrate, the first and third sentences are triggered which require Greystone to either then consent to arbitrate or elect not to consent to arbitration. If Greystone consents to arbitrate then the arbitration will be conducted "in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association." If, however, Greystone elects "not to consent" to arbitration, then "either or both parties may resort to an appropriate judicial action." Under the second scenario, which is set forth in the second sentence of section 10.1, Greystone may request to arbitrate "any particular dispute, claim or question." If Greystone requests to arbitrate, then the arbitration "shall" be effected in accordance with the procedures listed in the later sections of Article 10. It is undisputed that Greystone made the initial request for arbitration in this case, not TES. Therefore, the second scenario applies.
Arbitration is permissive when the agreement to arbitrate requires both parties to subsequently agree to submit the issue to arbitration with the option of rejecting arbitration. See Tex. Health Res. v. Kruse, No. 05-13-01754-CV, 2014 WL 3408636, at *3 (Tex. App.—Dallas July 11, 2014, pet. denied) (mem. op.) (citing Travelers Indem. Co. v. Tex. Mun. League Joint Self-Ins. Fund, No. 01-08-00062-CV, 2008 WL 2756874 (Tex. App.—Houston [1st Dist.] July 17, 2008, no pet.) (mem. op.)). Arbitration is mandatory when it allows either party to elect to arbitrate, without requiring permission from the other contracting party. See In re U.S. Home Corp., 236 S.W.3d 761, 765 (Tex. 2007) (holding clause that permitted either party to request arbitration and did not require permission from other to be mandatory); see also Benihana of Tokyo, LLC v. Benihana Inc., 73 F. Supp. 3d 238, 248-29 (S.D.N.Y. 2014) (stating that in case involving arbitration pursuant to FAA, mandatory arbitration clause requires arbitration if either party elects to pursue it, whereas permissive clause requires arbitration only with consent of both parties) (quotation omitted).
TES argues that in either scenario, TES must also consent in order to arbitrate, and that the parties' repeated use of the word "consent" in both the title of Article 10 and the first and third sentences of the text establishes that the parties intended arbitration to be consensual or permissive rather than mandatory. The parties' use of the term "consent" with respect to the first scenario, however, does not mean that both parties must agree to arbitration in the second scenario, which states that claims, disputes, and questions shall proceed to arbitration if Greystone requests to arbitrate such matters. The fact that the parties expressly identified Greystone's right to request arbitration in the second scenario and chose not include any such language regarding TES indicates the parties' intent to give such rights under the Contract to Greystone exclusively. See CKB & Assocs., Inc. v. Moore McCormack Petroleum, Inc., 734 S.W.2d 653, 655 (Tex. 1987) (explaining maxim of expressio unius est exclusio alterius, i.e., naming of one implies exclusion of others, and applying it to settlement agreement); see also MERRIAM-WEBSTER DICTIONARY (defining "request" as "to ask for (something) in a polite or formal way"). Thus, TES's suggested construction is not a reasonable interpretation because it adds a requirement to the second scenario that is not set forth in the contract, i.e., it requires TES to consent or agree to arbitrate any claims, disputes, or questions that Greystone has requested to arbitrate.
TES argues that section 10.1's heading ("Arbitration by General Contractor Consent") supports TES's construction. However, the parties expressly and unambiguously declared in another section of the Contract that such captions "are descriptive only and for convenience, and in no way whatsoever define, limit or describe the scope or intent of this [C]ontract."
TES argues that Greystone's construction is unreasonable because it renders the first and third sentences of section 10.1 superfluous and meaningless. On the contrary, these sentences are not superfluous or meaningless, they are inapplicable under the present circumstances because Greystone, not TES, initiated arbitration.
TES also argues that Greystone's interpretation is unreasonable because it ignores the parties' use of the word "benign" in the second sentence and asks the Court to replace it with "binding." According to TES, if arbitration is mandatory, then the clause is unconscionable and unenforceable because it requires the arbitrator to issue a "benign" award, and the issuance of such an award would deprive the parties of their substantive rights. TES argues that the Contract's language in the second half of the second sentence requiring that the "decision of such arbitrator shall be benign on all parties," means that the arbitrator is prohibited from awarding any damages or other relief.
Typographical errors "must yield to the well-established doctrine that written contracts will be construed according to the intention of the parties, notwithstanding errors and omissions, by perusing the entire document and to this end, words, names, and phrases obviously intended may be supplied." Ussery Invs. v. Canon & Carpenter, Inc., 663 S.W.2d 591, 593 (Tex. App.—Houston [1st Dist.] 1983, writ dism'd); see also Doe v. Tex. Ass'n of Sch. Bds., Inc., 283 S.W.3d 451, 461 (Tex. App.—Fort Worth 2009, pet. denied). It is apparent from the remainder of the agreement that the parties' use of the term "benign" in the second sentence is a typographical error. Specifically, the second sentence also states that if Greystone requests to arbitrate, then arbitration shall proceed as set forth by the following provisions, and section 10.4 expressly authorizes the arbitrator to award damages and "all reasonable attorney's fees, professional fees and costs expended." A clause requiring the arbitrator to issue a "benign" or harmless award would render section 10.4 superfluous. Furthermore, section 10.2.1, which states that the arbitrator's award "shall be final, and judgment may be entered upon and in accordance with applicable law," demonstrates the parties' intent for any arbitration proceeding initiated pursuant to this agreement to be binding. See Porter & Clements, L.L.P. v. Stone, 935 S.W.2d 217, 221 (Tex. App.—Houston [1st Dist.] 1997, orig. proceeding) ("Arbitration is binding only if a court may enter judgment on the award made pursuant to the arbitration.") (quoting McKee v. Home Buyers Warranty Corp. II, 45 F.3d 981, 983-85 (5th Cir. 1995)). Thus, the inclusion of the word "benign" is a typographical error, and, in accordance with the parties' intent as expressed by the remainder of the agreement, we replace that erroneous term with the word "binding." See Ussery Invs., 663 S.W.2d at 593 (stating courts may supply word or phrase "obviously intended" in place of typographical error).
TES also argues that the parties' failure to use standard mandatory-arbitration-clause language indicates that the parties did not intend arbitration to be mandatory. We do not, however, construe contracts or decide cases based on the inclusion or exclusion of "magic words." Deep Nines, Inc. v. McAfee, Inc., 246 S.W.3d 842, 846 (Tex. App.—Dallas 2008, no pet.). The fact that the parties chose to draft their own arbitration clause, rather than relying upon "standard mandatory-arbitration-clause language," does not dictate the resolution of this issue.
We interpret contracts by looking to the plain language set forth in the entire document in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless. Italian Cowboy Partners, Ltd., 341 S.W.3d at 333. After applying these principles of contract interpretation, we conclude that the applicable portion of the arbitration clause gives Greystone the exclusive right to arbitrate any particular dispute, claim or question that Greystone requests to arbitrate. Therefore, the applicable provision is mandatory in nature. See In re U.S. Home Corp., 236 S.W.3d at 765; Benihana of Tokyo, LLC, 73 F. Supp. 3d at 249. We further hold that the applicable provision, i.e., the second sentence, unambiguously sets forth a valid and enforceable, mandatory arbitration clause, and, therefore, the first prong of the test for compelling arbitration has been satisfied.
D. Are TES's claims against Greystone covered by the arbitration clause?
Having established that there is a valid and enforceable arbitration clause, we must now decide whether all of TES's claims against Greystone, i.e., the claims in dispute, fall within the scope of that provision. TES argues that only its breach of contract claim is covered by the narrow clause. Greystone, however, argues that the clause is broad enough to cover all of TES's tort and contract claims against it.
Courts distinguish "narrow" arbitration clauses that only require arbitration of disputes "arising out of" the contract from broad arbitration clauses governing disputes that "relate to" or "are connected with" the contract. Pennzoil Expl. & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1067 (5th Cir. 1998). Broad-form arbitration clauses "are not limited to claims that literally arise under the contract, but rather embrace all disputes between the parties having a significant relationship to the contract regardless of the label attached to the dispute." Id. --------
If a valid arbitration agreement exists, "courts should resolve any doubts as to the agreement's scope, waiver, and other issues unrelated to its validity in favor of arbitration." Ellis, 337 S.W.3d at 862. To be subject to arbitration, the "allegations need only be factually intertwined with arbitrable claims or otherwise touch upon the subject matter of the agreement containing the arbitration provision." In re B.P. Am. Prod. Co., 97 S.W.3d 366, 370 (Tex. App.—Houston [14th Dist.] 2003, orig. proceeding). To determine whether a claim falls within the scope of an arbitration clause, we "focus on the factual allegations of the complaint, rather than the legal causes of action asserted." FD Frontier Drilling (Cyprus), Ltd. v. Didmon, 438 S.W.3d 688, 694 (Tex. App.—Houston [1st Dist.] 2014, pet. denied) (quoting In re Rubiola, 334 S.W.3d 220, 225 (Tex. 2011) (orig. proceeding)).
TES argues that the failure to use a "standard" broad arbitration clause means that the provision is narrow and limited to claims that arise under the contract. See Belmont Constructors, Inc. v. Lyondell Petrochemical Co., 896 S.W.2d 352, 358 (Tex. App.—Houston [1st Dist.] 1995, no writ). Although the failure to use a "standard" broad arbitration clause may indicate that the contracting parties intended for a narrower clause, the decision is not dispositive of the issue.
As with any contract interpretation issue, we start with the language of the contract itself. The applicable arbitration provision states that: "If [Greystone] requests that any particular dispute, claim or question should be arbitrated, then arbitration shall be effected as provided hereinafter, and the decision of such arbitration shall be benign [sic] on all parties." The reference to "any particular dispute, claim or question" makes this a broad arbitration provision. See FD FrontierDrilling (Cyprus), Ltd., 438 S.W.3d at 695 ("Broad arbitration clauses . . . are not limited to claims that literally 'arise under the contract,' but rather embrace all disputes between the parties having a significant relationship to the contract regardless of the label attached to the dispute."). The clause does not contain any express limitations on its scope, and applies to "any particular dispute, claim or question" that Greystone requests to arbitrate.
Furthermore, all of TES's claims against Greystone either arise under the Contract or are related to the Contract. None of the claims could arise in the absence of the Contract between Greystone and TES. Specifically, TES's fraud claims and unfair competition claims against Greystone are based on Greystone's alleged promise to pay for certain change orders that TES issued pursuant to the Contract. TES's civil theft claim against Greystone is based on the allegation that Greystone induced TES to continue to provide services under the Contract and TES's declaratory judgment claim seeks a declaration about TES's rights under the Contract. TES's conspiracy claims against Greystone are based on the fact that Greystone allegedly conspired with TES's former employees, Turner and Sanchez, to tortiously interfere with the Contract, and effectively steal the project away from TES and award the electrical work on the project to Turner's and Sanchez's new company. And TES's attempt to foreclose alleged materialman's liens is related to performance of the Contract. Therefore, the arbitration provision applies to all of the claims in TES's suit against Greystone, including those that allegedly arose after the Contract was terminated. See Cleveland Constr., 359 S.W.3d at 854 ("[A]n arbitration agreement contained within a contract survives the termination or repudiation of the contract as a whole." (quoting Henry v. Gonzalez, 18 S.W.3d 684, 690 (Tex. App.—San Antonio 2000, pet. dism'd)).
E. Turner and Sanchez
TES argues that Greystone never requested the trial court to compel arbitration of TES's claims against the other defendants in this case—Turner and Sanchez—and that to the extent that Greystone is now asking this Court to compel arbitration of TES's claims against these defendants, it has waived that relief. Greystone responds that it is not attempting to compel arbitration of TES's claims against defendants Turner and Sanchez, neither of whom are signatories to the Contract. TES's claims against Turner and Sanchez do not prohibit Greystone from enforcing its contractual right to compel TES to arbitrate. See generally In re Merrill Lynch & Co., Inc., 315 S.W.3d 888, 889 (Tex. 2010) (quoting In re Merrill Lynch Trust Co., 235 S.W.3d 185, 196 (Tex. 2007)) (recognizing that there are "many circumstances in which litigation must be abated to ensure that an issue two parties have agreed to arbitrate is not decided instead in collateral litigation"). To the extent that TES's claims against Turner and Sanchez overlap with its claims against Greystone, those claims must be stayed pending the arbitration between TES and Greystone. See id. The scope of the stay, however, is not before this court. That is a matter for the trial court to address on remand.
We sustain Greystone's challenge to the trial court's denial of Greystone's motion to compel arbitration.
Conclusion
We reverse the trial court's order denying the motion to compel, we lift the stay, and we remand for further proceedings consistent with this opinion.
Russell Lloyd
Justice Panel consists of Justices Bland, Brown, and Lloyd.