AN Luxury Imports, Ltd. D/B/A BMW of Dallas, Inc., AN Luxury Imports GP, LLC, and United States Warranty Corp. v. D. Scott Southall

Opinion issued October 1, 2015

In The

Court of Appeals
For The

First District of Texas
————————————
NO. 01-15-00194-CV
———————————
AN LUXURY IMPORTS LTD., D/B/A BMW OF DALLAS, INC., AN
LUXURY IMPORTS GP, LLC, AND UNITED STATES WARRANTY
CORP., Appellants
V.
D. SCOTT SOUTHALL, Appellee

On Appeal from the 295th District Court
Harris County, Texas
Trial Court Case No. 2014-33551

MEMORANDUM OPINION

In this appeal we determine whether the trial court erred in denying a car

dealer’s motion to compel arbitration in this suit for breach of warranty against the

dealer and its warranty administrator. AN Luxury Imports, Ltd. d/b/a BMW of
Dallas (BMW Dallas), AN Luxury Imports GP, LLC, and United States Warranty

Corp. (U.S. Warranty) (collectively, “the sellers”) appeal the denial of their motion

to compel arbitration against D. Scott Southall, BMW Dallas’s customer. The

sellers contend that the trial court erred in denying the motion because the parties’

dispute is subject to an enforceable arbitration agreement. We conclude that the

trial court erred by denying the motion to compel arbitration and therefore reverse.

Background

In December 2013, Southall purchased a Porsche Cayman from BMW

Dallas. In connection with the purchase, Southall and BMW Dallas executed a

retail purchase agreement, an arbitration agreement, and a used vehicle limited

mechanical warranty. The parties signed these agreements contemporaneously

with each other. The arbitration agreement provides:

[Southall] and [BMW Dallas] agree that arbitration will be the sole method
of resolving any claim, dispute, or controversy . . . that either Party has
arising from Customer[]/Dealership Dealings. Such [c]laims include . . . (2)
[c]laims relating to any . . . warranties . . . and (5) [c]laims arising out of or
relating to . . . this [a]greement and/or any and all documents executed,
presented or negotiated during Customer[]/Dealership Dealings, or any
resulting transaction, service, or relationship, including that with the
Dealership, or any relationship with third parties who do not sign this
[a]greement that arises out of the Customer[]/Dealership Dealings.

The purchase agreement incorporates the arbitration agreement by reference:

“If [the purchaser] ha[s] executed an Arbitration Agreement in conjunction with

this Agreement such Arbitration Agreement shall be incorporated herein by

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reference and made a part of this Agreement.” The arbitration agreement provides

that if there is any conflict between the purchase agreement and the arbitration

agreement, the purchase agreement governs.

The purchase agreement also contains a forum selection clause. It provides

that the “sole and exclusive venue for any dispute or litigation arising under or

concerning this [purchase agreement] shall be in the courts located in and for the

county in which [BMW Dallas] is located, and the parties irrevocably consent to

the jurisdiction of said court. Any and all arbitration proceedings shall also take

place in the county where the dealer is located, unless agreed otherwise by the

parties.”

BMW Dallas issued the warranty and “appointed United States Warranty

Corporation as the authorized Administrator for th[e] . . . Warranty.” The warranty

does not refer to the arbitration agreement or the purchase agreement.

The Porsche engine failed within two months of the sale. Southall filed a

claim with U.S. Warranty for the damage. U.S. Warranty denied the claim,

determining that Southall had caused the damage by driving the Porsche during

“racing or other competition.” Southall’s mechanic disagrees; he concluded that

the Porsche already had exceeded its maximum allowable RPM before Southall

bought it.

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 Southall sued for breach of contract, breach of warranty, negligence, unfair

settlement practices under the Texas Insurance Code, fraud by nondisclosure,

negligent misrepresentation, violations of the Texas Deceptive Trade Practices Act,

and the federal Magnuson-Moss Warranty Act. The sellers moved to compel

arbitration; the trial court denied the motion.

Discussion

Standard of Review

The arbitration agreement states that the Federal Arbitration Act governs its

enforcement. This appeal thus arises under section 51.016 of the Texas Civil

Practice and Remedies Code, which permits an interlocutory appeal from an order

denying a motion to compel arbitration under the Federal Arbitration Act (FAA).

See TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West 2015). We review an

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. Cleveland Constr., Inc. v. Levco Constr., Inc.,

359 S.W.3d 843, 851–52 (Tex. App.—Houston [1st Dist.] 2012, pet. dism’d).

Applicable Law

A party moving to compel arbitration must establish (1) the existence of a

valid, enforceable arbitration agreement and (2) that the claims asserted fall within

the scope of that agreement. In re Provine, 312 S.W.3d 824, 828–29 (Tex. App.—

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Houston [1st Dist.] 2009, no pet). “Once the trial court concludes that the

arbitration agreement encompasses the claims . . . the trial court has no discretion

but to compel arbitration and stay its own proceedings.” In re FirstMerit Bank,

N.A., 52 S.W.3d 749, 753–54 (Tex. 2001).

Once a party seeking arbitration carries its initial burden to prove the

existence of a valid agreement to arbitrate, then a strong presumption favoring

arbitration arises. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737–38

(Tex. 2005); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003);

Speedemissions, Inc. v. Bear Gate, L.P., 404 S.W.3d 34, 41 (Tex. App.—Houston

[1st Dist.] 2013, no pet.). “[C]ourts should resolve any doubts as to the

agreement’s scope, waiver, and other issues unrelated to its validity in favor of

arbitration.” Ellis v. Schlimmer, 337 S.W.3d 860, 862 (Tex. 2011). An order to

arbitrate should not be denied unless it can be said with positive assurance that the

arbitration clause does not cover the dispute. United Steelworkers v. Warrior &

Gulf Navigation Co., 363 U.S. 574, 582–83, 80 S. Ct. 1347, 1353 (1960); Hou-

Scape, Inc. v. Lloyd, 945 S.W.2d 202, 205 (Tex. App.—Houston [1st Dist.] 1997,

orig. proceeding) (per curiam).

To determine whether the parties formed an agreement to arbitrate, we apply

ordinary state-law principles governing contracts. In re Palm Harbor Homes, Inc.,

195 S.W.3d 672, 676 (Tex. 2006) (orig. proceeding); J.M. Davidson, Inc., 128

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S.W.3d at 227–28; accord JP Morgan Chase & Co. v. Conegie, 492 F.3d 596, 598

(5th Cir. 2007). The elements of a valid contract are: (1) an offer, (2) an

acceptance, (3) a meeting of the minds, (4) each party’s consent to the terms, and

(5) execution and delivery of the contract with the intent that it be mutual and

binding. Prime Prods., Inc. v. S.S.I. Plastics, Inc., 97 S.W.3d 631, 636 (Tex.

App.—Houston [1st Dist.] 2002, pet. denied). Our primary concern in construing a

written contract is to ascertain the true intent of the parties as expressed in the

instrument. Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342,

345 (Tex. 2006). Contract terms will be given their plain, ordinary, and generally

accepted meanings, unless the contract indicates a technical or different sense.

Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005).

Instruments pertaining to the same transaction may be read together to

ascertain the parties’ intent. Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22

S.W.3d 831, 840 (Tex. 2000). In appropriate instances, courts may construe all the

documents as if they were part of a single, unified instrument. Id. at 840; Courage

Co., L.L.C. v. Chemshare Corp., 93 S.W.3d 323, 333 (Tex. App.—Houston [14th

Dist.] 2002, no pet.).

Analysis

The sellers contend that they have produced a valid arbitration agreement

and that Southall’s claims fall within its scope. Southall responds that the

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arbitration agreement does not require arbitration because it conflicts with

provisions of the purchase agreement, which controls in the event of a conflict.

Southall further responds that the warranty does not contain an arbitration

provision and thus his warranty claim is not subject to arbitration.

I. Validity of the Arbitration Agreement

The arbitration agreement provides that it applies to claims arising from a

purchase of a vehicle from BMW Dallas. Southall and BMW Dallas signed the

arbitration and purchase agreements at the same time, and the agreements reference

one another. Southall and BMW Dallas’s contemporaneous execution of the

agreements is evidence of their intent to read the agreements together. See Palm

Harbor Homes, 195 S.W.3d at 676; Prime Prods., 97 S.W.3d at 636. Accordingly,

we read them as a “single, unified instrument.” See Fort Worth Indep. Sch. Dist.,

22 S.W.3d at 840. Because the purchase and arbitration agreements reference one

another, and the purchase agreement expressly incorporates the arbitration

agreement, the sellers have met their burden to demonstrate a valid, enforceable

arbitration agreement in connection with Southall’s purchase. See Palm Harbor

Homes, 195 S.W.3d at 676; Fort Worth Indep. Sch. Dist., 22 S.W.3d at 840; In re

Provine, 312 S.W.3d at 828–29; Prime Prods., 97 S.W.3d at 636.

Southall relies on the forum selection clause to contend that the purchase

agreement contravenes the arbitration agreement. That clause places venue in the

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county in which BMW Dallas is located should litigation arise. But the clause

further provides that “[a]ny and all arbitration proceedings shall also take place in

the county where [BMW Dallas] is located.” The purchase agreement expressly

contemplates arbitration as a means of dispute resolution; the venue provision does

not conflict with the arbitration agreement.

We hold that the arbitration agreement is valid and enforceable.

II. Scope of the Arbitration Agreement

The sellers next contend that the trial court should have compelled

arbitration because Southall’s claims fall within the scope of the arbitration

agreement. In Speedemissions, Inc. v. Bear Gate, L.P., this court examined a

securities purchase agreement, which contained an arbitration agreement, and lease

agreements, which did not. We held that the trial court properly denied a motion to

compel arbitration in a dispute about the lease agreement. 404 S.W.3d 34, 37, 42,

44 (Tex. App.—Houston [1st Dist.] 2013, no pet.). This court reasoned that

different parties executed the two agreements, and each agreement had a “distinct

and separate purpose.” Id. at 43. There were no provisions in the lease agreements

relating their performance to the securities purchase agreement, and neither

agreement referenced the other. Id. at 44, 46.

In contrast, in Enterprise Field Services, LLC v. TOC-Rocky Mountain, Inc.,

we held that a party’s counterclaims regarding an ancillary agreement fell within

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an arbitration provision. 405 S.W.3d 767, 773–74 (Tex. App.—Houston [1st Dist.]

2013, pet. denied). In one agreement, the parties agreed to arbitrate “dispute[s]

related to [] interpretation or performance.” Id. at 773. Although the

counterclaims were based on a different agreement, they required interpretation of

the agreement containing the arbitration clause. Id. Because the two agreements

were intertwined, we held that the trial court erred in concluding that the claims did

not fall within the scope of the arbitration agreement. Id. at 774.

This case is more analogous to Enterprise Field Services. BMW Dallas

issued the warranty and appointed U.S. Warranty as the authorized administrator.

The warranty, purchase agreement, and arbitration agreement were executed by the

same parties, contemporaneously and as part of the same transaction. The

arbitration agreement applies to “any claim, dispute, or controversy” that arises out

of the “Customer[]/Dealership Dealings.” Customer/dealership dealings include

the process of “purchasing or leasing a vehicle[].” “Claims” is broadly defined to

include claims relating to warranties, and those relating to “any and all documents

executed, presented or negotiated during Customer[]/Dealership Dealings, or any

resulting transaction, service, or relationship, including that with the Dealership, or

any relationship with third parties who do not sign this Agreement that arises out

of the Customer[]/Dealership Dealings.” Because the arbitration agreement

applies to claims arising out of the purchase, and the agreement expressly covers

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all other contemporaneously signed agreements and warranty claims, we hold that

Southall’s claims against the sellers fall within its scope. See Enterprise Field

Servs., 405 S.W.3d at 774. Although the warranty does not contain a separate

arbitration provision, its execution in conjunction with the other agreements

connotes a “single, unified instrument.” See Fort Worth Indep. Sch. Dist., 22

S.W.3d at 840. Accordingly, we hold that Southall’s claims arising from the

purchase of the vehicle and the warranty, including the transaction with U.S.

Warranty, fall within the scope of the arbitration agreement.

Southall further responds that the arbitration agreement does not govern his

claims under the Magnuson-Moss Warranty Act. Under the Act, all warranties

must “fully and conspicuously disclose in simple and readily understood language

the terms and conditions of such warranty,” including “[a] brief, general

description of the legal remedies available to the consumer.” 15 U.S.C.

§ 2302(a)(9) (2013). The warranty contains an integration clause stating that the

warranty is a “complete statement of coverage and rights” and does not incorporate

the arbitration agreement by reference. Southall cites Cunningham v. Fleetwood

Homes of Georgia as support for his contention that the warranty itself must

contain the arbitration provision. Cunningham v. Fleetwood Homes of Ga., 253

F.3d 611 (11th Cir. 2001).

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 The Act allows informal dispute settlement procedures only if they are

clearly expressed in the warranty. See 15 U.S.C. § 2302(a)(8). The Eleventh

Circuit held in Cunningham that “informal dispute settlement procedures” included

binding arbitration. See 253 F.3d at 623 (citing 15 U.S.C. § 2302(a)(8)). In that

case, the purchasers of a mobile home executed a stand-alone arbitration

agreement as part of the sale and received a separate manufacturer’s warranty. 253

F.3d at 613. The court held that the Act required the manufacturer to disclose

informal dispute settlement procedures, including binding arbitration, in a single

document. Id. at 623–24.

In a subsequent case, however, the Eleventh Circuit retreated from

Cunningham, observing that the Cunningham court improperly had conflated

binding arbitration with informal dispute settlement procedures, and neither the

statutory language nor its legislative history supported such an interpretation.

Davis v. S. Energy Homes, Inc., 305 F.3d 1268, 1276 (11th Cir. 2002). The Fifth

Circuit’s opinion in Walton v. Rose Mobile Homes LLC supports this latter

conclusion. 298 F.3d 470 (5th Cir. 2002). Like the Eleventh Circuit in Davis, the

Fifth Circuit in Walton concluded that the two procedures are distinct, observing

that informal dispute settlement procedures happen before suit is filed while

binding arbitration happens as a substitute for filing suit. Walton, 298 F.3d 470,

475–76 (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.

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614, 628 (1985)). Following Walton and Davis, we similarly hold that nothing in

the Act precludes enforcement of a stand-alone arbitration agreement signed in

connection with an express warranty.

Conclusion

Because an enforceable arbitration agreement governs the claims against the

sellers, we reverse the order of the trial court and remand the case for further

proceedings consistent with this opinion.

Jane Bland
Justice

Panel consists of Chief Justice Radack and Justices Bland and Huddle.

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