Opinion
01-22-00829-CV
01-11-2024
TAYLOR MORRISON OF TEXAS, INC. AND TAYLOR WOODROW COMMUNITIES-LEAGUE CITY, LTD., Appellants v. JAMES MASON AND MERRY MASON, Appellees
On Appeal from the 405th District Court Galveston County, Texas Trial Court Case No. 22-CV-0077
Panel consists of Kelly, Hightower, and Guerra, Justices.
MEMORANDUM OPINION
Richard Hightower, Justice
Taylor Morrison, a homebuilder, brings this interlocutory appeal of the trial court's order denying Taylor Morrison's plea in abatement and motion to compel arbitration in the underlying suit filed by James and Merry Mason alleging construction defects in their home. The Masons purchased the home from the original homeowners, who had signed a purchase agreement for the home with Taylor Morrison several years earlier. The purchase agreement contained an arbitration clause. Taylor Morrison asserts that the Masons, although non-signatories to the purchase agreement, are bound to arbitrate their claims pursuant to the arbitration clause under the doctrine of direct-benefits estoppel. See Lennar Homes of Tex. Land &Constr., Ltd. v. Whiteley, 672 S.W.3d 367, 376-379 (Tex. 2023) (describing direct-benefits estoppel and its applicability to bind non-signatory homeowner to arbitrate her claims against homebuilder based on arbitration clause in purchase agreement signed by original homeowner); see also Taylor Morrison of Tex., Inc. v. Kohlmeyer, 672 S.W.3d 422, 426 (Tex. 2023) (applying Whiteley and holding that subsequent homeowners were bound by arbitration clause in original purchase agreement).
We refer to Taylor Morrison of Texas, Inc. and Taylor Woodrow Communities-League City, Ltd. together as Taylor Morrison.
Based on the supreme court's holdings in Whiteley and Kohlmeyer, we agree that the doctrine of direct-benefits estoppel requires the Masons to arbitrate their claims pursuant to the arbitration clause in the original purchase agreement. Accordingly, we reverse the trial court's order denying Taylor Morrison's motion to compel arbitration and the accompanying plea in abatement and remand the case to the trial court for further proceedings.
We note that, in addition to the Masons, BFS Group, LLC has filed an appellee's brief, and another party-Arnulfo Rodriguez Roofing Co. Inc. (ARR)-has filed a notice stating that it does not intend to file an appellee's brief. However, neither BFS Group nor ARR is an "appellee" in this interlocutory appeal. Rule of Appellate Procedure 3.1(c) defines an appellee as "a party adverse to an appellant." TEX. R. App. P. 3.1(c). The record reflects that Taylor Morrison filed a third-party petition against Big Tex Air Conditioning, Inc., which in turn brought ARR and BFS Group into the suit. In its reply brief, Taylor Morrison correctly points out that its motion to compel arbitration sought to compel the Masons to arbitrate their claims but did not seek to compel any other party to attend arbitration. As a result, the order denying the motion denied no relief sought against BFS Group or ARR. In addition, Taylor Morrison raises no appellate issues against BFS Group or ARR. Accordingly, neither party is an "appellee" in the context of this interlocutory appeal, and we do not consider the arguments presented by BFS Group in its brief. See Showbiz Multimedia, LLC v. Mountain States Mortg. Ctrs., Inc., 303 S.W.3d 769, 771 n.3 (Tex. App.-Houston [1st Dist.] 2009, no pet.) ("An appellee . . . must be a party to the trial court's final judgment and must be someone against whom the appellant raises issues or points of error in the appellant's brief."); DHI Holdings, LP v. Legacy Mortg. Asset Tr. 2018-RPLS2, No. 14-19-00987-CV, 2021 WL 4957023, at *3 (Tex. App.-Houston [14th Dist.] Oct. 26, 2021, pet. denied) (mem. op.) (holding that party identified in briefing as "an appellee" was not "an appellee" because appellant did not argue for any relief against that party on appeal).
Background
In 2013, James and Sandra Spencer entered into a purchase agreement with Taylor Morrison for a house to be built in League City, Texas. The purchase agreement incorporated by reference an attached a one-year limited warranty-titled Taylor Morrison Limited Home Warranty (the Limited Warranty)-which described various "Quality Standards" by which Taylor Morrison would construct the home. These included standards for the interior concrete and foundation, framing, roof, exterior siding and trim, cementitious finish, plumbing, and retaining walls.
The Limited Warranty also contained exclusions from coverage, including exclusions for homeowner damage, cosmetic defects, modifications by the homeowner, consequential damages, untimely reporting, water damage, and natural catastrophes, occurrences, and accidents. For instance, the exclusion for natural catastrophes, occurrences, and accidents excluded from coverage "[d]amages, loss or injury caused by . . . [the] presence of mold." The exclusion for untimely reporting excluded from coverage "[d]efects which are not reported in writing to Seller within the Limited Warranty Term."
Besides incorporating the terms of the Limited Warranty, section 10 of the purchase agreement included the following express disclaimer:
Seller expressly disclaims, and buyer hereby waives, any warranties, express or implied, other than the Limited Warranty, including, without limitation, any warranties of merchantability, habitability, quality of construction, or fitness for a particular purpose, with respect to the property .... Buyer acknowledges that other than this Limited Warranty, Seller is making no other representations, promises, or warranties of any kind, including, without limitation, any express or implied warranties of merchantability, habitability, quality of construction, or fitness for a particular purpose, with respect to the property ....(Capitalization removed.)
The purchase agreement also contained the following arbitration clause:
Any and all claims, controversies, breaches or disputes by or between the parties hereto, arising out of or related to this purchase agreement [or] the property . . . whether such dispute is based on contract, tort, statute, or equity, including without limitation, any dispute over . . . (f) allegations of latent or patent design or construction defects . . . (g) the property, including without limitation, the planning, surveying, design, engineering, grading, specifications, construction or other development of the property . . . (h) deceptive trade practices or (i) any other matter arising out of or related to the interpretation of any term or provision of this purchase agreement, or any defense going to the formation or validity of the agreement, or any provision of this purchase agreement . . . shall be arbitrated pursuant to the Federal Arbitration Act and subject to [certain specified] procedures....
In 2017, the Spencers-the original homeowners-sold the home to the Masons. On January 18, 2022, the Masons filed suit against Taylor Morrison. They alleged that, since they purchased it, the home had "developed a severe, pervasive mold infestation." The Masons claimed that the mold was "caused by construction defects relating to [Taylor Morrison's] design and construction of the Home, which has led to water intrusion and extreme and inappropriate humidity and moisture levels to develop in the Home's interior." The Masons asserted that Taylor Morrison (1) breached the implied warranty of habitability because "[t]he mold itself, as well as the construction defects that caused the mold, are latent defects that rendered the Home unsafe, unsanitary, or otherwise unfit for living therein," and (2) that it breached the implied warranty of good workmanship because it failed to "construct the Home in the same manner as would a generally proficient builder engaged in similar work and performing under similar circumstances." The Masons also asserted a claim for negligent construction, alleging that Taylor Morrison breached its duty to exercise ordinary care in the construction of the home, and a claim for violations of the Deceptive Trade Practices Act (DTPA).
On February 14, 2022, Taylor Morrison filed its "Original Answer, Including Motion to Compel Arbitration, Plea in Abatement &Special Exceptions." Taylor Morrison recognized that the Masons were not parties to the original purchase agreement but nonetheless argued that they must arbitrate their claims pursuant to the purchase agreement's arbitration clause because the doctrine of direct-benefits estoppel applied to their claims. Taylor Morrison asserted in its plea in abatement that the trial court was required to stay the proceedings pending the completion of arbitration.
Following a hearing, the trial court signed an order denying Taylor Morrison's motion to compel arbitration and its plea in abatement. This interlocutory appeal followed. See TEX. CIV. PRAC. & REM. CODE § 51.016 (authorizing appeal of order “under the same circumstances that an appeal from a federal district court's order or decision would be permitted” by Federal Arbitration Act (FAA)); 9 U.S.C. § 16(a)(1)(A), (B) (providing that appeal may be taken (1) from order refusing to stay action pending completion of arbitration and (2) from order denying a motion to compel arbitration).
The order also denied Taylor Morrison's special exceptions.
The arbitration clause in the purchase agreement provides that it is governed by the FAA, and the parties do not dispute that the FAA applies. See 9 U.S.C. §§ 1-16.
Discussion
Taylor Morrison raises two appellate issues in which it contends that the trial court abused its discretion in denying its motion to compel arbitration and in denying its plea in abatement, that is, in denying its request for the trial court to stay proceedings pending completion of arbitration.
A. Standard of Review
"We review a trial court's order denying a motion to compel arbitration for abuse of discretion." Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018). The abuse-of-discretion standard also applies to a review of the trial court's denial of a request to stay proceedings pending arbitration. See Vets Securing Am., Inc. v. Smith, 632 S.W.3d 272, 279 (Tex. App.-Corpus Christi-Edinburg 2021, pet. denied). A trial court abuses its discretion if it acts in an arbitrary or unreasonable manner or acts without reference to any guiding rules or principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985). "We defer to the trial court's factual determinations if they are supported by evidence but review its legal determinations de novo." Henry, 551 S.W.3d at 115. A trial court has no discretion in determining what the law is, which law governs, or how to apply the law. Okorafor v. Uncle Sam & Assocs., Inc., 295 S.W.3d 27, 38 (Tex. App.-Houston [1st Dist.] 2009, pet. denied).
B. Motion to Compel Arbitration
A party seeking to compel arbitration under the FAA must establish (1) the existence of a valid arbitration agreement and (2) the existence of a dispute within the scope of the agreement. Baby Dolls Topless Saloons, Inc. v. Sotero, 642 S.W.3d 583, 585-86 (Tex. 2022). In the trial court and on appeal, the parties dispute whether the arbitration clause in the purchase agreement signed by the original homeowners is binding on the Masons, non-signatories to the agreement.
Generally, it is the courts, rather than the arbitrators, that decide the "gateway matter" of "[w]hether an arbitration agreement is binding on a nonparty." In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) (orig. proceeding). We review this gateway matter de novo. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003).
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." Jody James Farms, JV v. Altman Grp., Inc., 547 S.W.3d 624, 633 (Tex. 2018). In its motion to compel, Taylor Morrison argued that the doctrine of direct-benefits estoppel precluded the Masons from avoiding arbitration because their claims against Taylor Morrison relied on the original purchase agreement. When the doctrine of direct-benefits estoppel applies, "a non-signatory plaintiff seeking the benefits of a contract is estopped from simultaneously attempting to avoid the contract's burdens, such as the obligation to arbitrate disputes." In re Kellogg, Brown &Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005) (orig. proceeding).
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." In re Weekley Homes, 180 S.W.3d at 131-32. "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." In re Vesta Ins. Grp., Inc., 192 S.W.3d 759, 761 (Tex. 2006) (orig. proceeding). When "the alleged liability arises from the contract or must be determined by reference to it . . .[,] equity prevents [a non-signatory plaintiff] from avoiding [an] arbitration clause that was part of that [contract]." Jody James Farms, 547 S.W.3d at 637. Further, when the arbitration clause is broad enough to cover both tort and contract claims, the plaintiff must pursue both types of claims in arbitration if the plaintiff pursues a contractual claim. See In re Weekley Homes, 180 S.W.3d at 132.
While this appeal was pending, the Supreme Court of Texas addressed in Whiteley the application of direct-benefits estoppel to compel a subsequent purchaser of a home to arbitrate her claims against the homebuilder, even though she was a non-signatory to the original contract containing the arbitration provision. See Whiteley, 672 S.W.3d at 377-79. There, like here, the plaintiff sued the homebuilder, alleging that the builder's defective construction of her home was responsible for creating conditions that allowed mold growth in the home. Id. at 373. The plaintiff sued the builder for negligent construction and for breach of the implied warranties of habitability and good workmanship. Id. at 374.
Ultimately, the Whiteley court held that direct-benefits estoppel applied to the plaintiff's suit, requiring her to arbitrate her claims pursuant to an arbitration clause in the contract between the builder and the original homeowner. See id. at 377-79. In its analysis, the supreme court determined that the plaintiff's implied warranty claims required reference to the contract. Id. at 378-79. The court explained that, because any claim based on the implied warranty of good workmanship "must survive supplantation by an express warranty in the original purchase contract, [the builder's] liability for breach is not 'independent of [its] contractual undertaking.'" Id. at 378 (quoting Chapman Custom Homes, Inc. v. Dallas Plumbing Co., 445 S.W.3d 716, 718 (Tex. 2014)). Similarly, any claim based on the implied warranty of habitability would depend on the content of the purchase agreement's disclosures. Id. at 379.
Rejecting the plaintiff's position that any implied warranties were not part of the contract because they "derive from the common law," the supreme court stated 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." Id. at 377 (quoting Certain-Teed Prods. Corp. v. Bell, 422 S.W.2d 719, 721 (Tex. 1968)). "Although such warranties are 'imposed by operation of law, the obligation still arises from the contract and becomes part of the contract. Absent a contract, the warranty would not arise.'" Id. at 377-78 (quoting Nghiem v. Sajib, 567 S.W.3d 718, 725 (Tex. 2019)).
Shortly after deciding Whiteley, the Supreme Court of Texas decided Kohlmeyer, which, like here, was a suit brought against Taylor Morrison by subsequent home purchasers asserting claims for violations of the DTPA, negligent construction, and breaches of the implied warranties of habitability and good workmanship relating to a mold infestation. Kohlmeyer, 672 S.W.3d at 424. There, Taylor Morrison also sought to compel arbitration based on an arbitration clause in the purchase agreement signed by the original homeowner. Id. The supreme court noted that, "in addition to general and specific disclaimers, the original purchase agreement contained disclosures that could affect the implied warranty of habitability and performance standards that could affect the implied warranty of good workmanship." Id. at 426. Relying on Whiteley, the Kohlmeyer court held that "the Kohlmeyers were bound to arbitrate according to the original purchase agreement under the doctrine of direct-benefits estoppel." Id.
Here, as in Whiteley and Kohlmeyer, the original purchase agreement contained (1) disclaimers and disclosures that could affect the implied warranty of habitability and (2) performance standards that could affect the implied warranty of good workmanship. Thus, the Masons' claims for breach of implied warranties of good workmanship and habitability do not stand independently of the purchase agreement but "must be determined by reference" to it. See Whiteley, 672 S.W.3d at 378-79. Based on the supreme court's decisions in Whiteley and in Kohlmeyer, we conclude that, under the doctrine of direct-benefits estoppel, the Masons are bound to arbitrate their implied warranty claims according to the original purchase agreement. See Kohlmeyer, 672 S.W.3d at 426; Whiteley, 672 S.W.3d at 379-80.
After the supreme court issued its opinions in Whiteley and Kohlmeyer, we asked the parties to provide supplemental briefing regarding how those opinions affect this appeal. In their supplemental brief, the Masons "concede that the Texas Supreme Court's decision in Whiteley v. Lennar requires disposal of this matter in [Taylor Morrison's] favor."
The Masons are also bound to arbitrate their negligence and DTPA claims. When a plaintiff pursues a claim on the contract, and "the relied-upon arbitration clause is broad enough to cover both tort and contract claims, . . . then the plaintiff must pursue all claims-tort and contract-in arbitration." Whiteley, 672 S.W.3d at 377. As discussed, the Masons implied warranty claims are dependent on the purchase agreement. All of the Mason's claims, including their negligence and DTPA claims, are subject to arbitration because they all relate to defects in the construction or design of the home, and thus fall within the arbitration clause's scope, which "broadly covers any claims or disputes related to the agreement or the property, including any disputes over the property's design or construction defects." See Kohlmeyer, 672 S.W.3d at 426; see Whiteley, 672 S.W.3d at 377. Because the Masons are bound to arbitrate pursuant to the purchase agreement under the doctrine of direct-benefits estoppel and all of their claims fall within the scope of the arbitration provision, we hold that the trial court abused its discretion in denying Taylor Morrison's motion to compel arbitration. See Kohlmeyer, 672 S.W.3d at 426; Whiteley, 672 S.W.3d at 379-80.
We sustain Taylor Morrison's first issue.
C. Plea in Abatement
Taylor Morrison's second issue challenges the trial court's denial of its plea in abatement, which requested the trial court to stay its proceedings pending completion of arbitration. Taylor Morrison correctly points out that section 3 of the FAA provides that, when a court is satisfied that an issue involved in a suit is properly referable to arbitration, that court "shall on application of one of the parties stay the trial of the action until such arbitration has been had." 9 U.S.C. § 3; see RSL Funding, LLC v. Pippins, 499 S.W.3d 423, 429 (Tex. 2016) ("The FAA generally requires courts to stay lawsuits involving arbitrable issues if a party with the right to arbitration seeks a stay pending arbitration of those issues."); In re Bruce Terminix Co., 988 S.W.2d 702, 704 n.2 (Tex. 1998) (orig. proceeding) (recognizing that FAA stay provision applies to federal and state courts). Thus, we agree with Taylor Morrison that, because the Mason's claims are subject to arbitration, the trial court abused its discretion by denying the plea in abatement. See 9 U.S.C. § 3.
We sustain Taylor Morrison's second issue.
Conclusion
We reverse the trial court's order denying Taylor Morrison's motion to compel arbitration and its plea of abatement. We remand the case to the trial court for further proceedings.
The portion of the order denying Taylor Morrison's special exceptions remains intact.