In The
Court of Appeals
Ninth District of Texas at Beaumont
____________________
NO. 09-17-00071-CV
____________________
WATERSTONE ON LAKE CONROE, INC. AND STEVE BOWEN,
Appellants
V.
DEE WILLIAMS AND ANDY WILLIAMS, Appellees
__________________________________________________________________
On Appeal from the 284th District Court
Montgomery County, Texas
Trial Cause No. 16-09-10736-CV
__________________________________________________________________
MEMORANDUM OPINION
Waterstone on Lake Conroe, Inc. (“Waterstone”) and Steve Bowen appeal
from the trial court’s order denying a motion to compel arbitration in a suit brought
by Dee and Andy Williams (“the Williamses”). The Williamses’ suit includes claims
arising from a new home construction agreement they entered into with Virgin
Homes, Inc. (“Virgin”). In its order denying arbitration, the trial court found that
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Waterstone and Bowen are not entitled to arbitration because they are not signatories
on the contract containing the arbitration provision.
In issue one, Waterstone and Bowen complain that the trial court erred by
denying the motion to compel because the scope of the arbitration agreement
includes all claims arising from or relating to the Williamses’ and Virgin’s contract;
any breach of that contract; the construction of the home; and any acts or omissions
by Virgin or by Virgin’s officers, directors, or agents. Waterstone and Bowen
contend that because the arbitration agreement includes claims against officers and
agents of Virgin, agents and officers need not be signatories to compel arbitration.
In issue two, Waterstone and Bowen argue that estoppel principles require
arbitration because the Williamses’ claims against Waterstone and Bowen are
intertwined with the purchase agreement containing the arbitration agreement, and
because the Williamses’ allegations involve substantially interdependent and
concerted misconduct by the signatory and nonsignatories.
Because Waterstone and Bowen are non-signatories who may compel
arbitration and because the Williamses’ factual allegations against Waterstone and
Bowen are factually intertwined with the purchase agreement that contains the
arbitration provision, we conclude the trial court erred by denying Waterstone’s and
Bowen’s motion to compel. Accordingly, we reverse the trial court’s order denying
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arbitration and remand to the trial court with instructions to enter an order granting
Waterstone’s and Bowen’s motion to compel.
Background
In September 2012, the Williamses entered into a purchase agreement with
Virgin for the construction of a new home. The Williamses and Bowen, the President
of Virgin, signed the purchase agreement. The purchase agreement contains a
binding arbitration agreement that states:
The parties agree that all controversies, claims or matters in
question arising out of or relating to (i) this Contract, (ii) any breach or
termination of this Contract, (iii) the construction of the Home, (iv) any
acts or omissions by Virgin Homes, Inc. (and its officers, directors, or
agents), and/or (v) any actual or purported representations or
warranties, express or implied, relating to the Property and/or the Home
(herein referred to collectively as a “Dispute”) shall be subject to
binding arbitration.
The arbitration agreement states that it “shall be governed by Texas law and the
U.S. Arbitration Act . . . , to the exclusion of any provisions of State Law that are
inconsistent with the application of the Federal Act.” The arbitration agreement
further provides that the award of the arbitrator “shall be rendered in accordance
with [F]AA rules then in effect.”
Attached to the purchase agreement is an exhibit that lists the standard
allowances for the construction, and included in the list is a boat dock with an
allowance of $38,100, which includes a boat slip, two jet ski lifts, deck housing, a
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water line to the dock, a separate electrical box at the rear of the house, and electric
lines to the dock area. Also included is a standard allowance of $4,400 for the
construction of a sidewalk from the rear of the home to the boat dock area.
The Williamses filed suit against Waterstone, Bowen, Virgin, and Butch’s
Lake Conroe Bulkhead (“Butch’s”) for property damages resulting from deficiencies
in the construction and repair of the bulkhead/retaining wall built in the Williamses’
backyard by or at the direction of one or more of either Bowen, Waterstone, Virgin,
or Butch’s. The Williamses’ suit includes claims arising from the purchase
agreement they entered into with Virgin. The signatories of the purchase agreement
are the Williamses and Bowen, as President of Virgin. The Williamses sued the
defendants for breach of the warranty of good and workmanlike performance,
violations of the Deceptive Trade Practice Act, in accordance with Chapter 27 of the
Texas Property Code, and for common law negligence. While the Williamses
maintained that because there is no mention of the bulkhead/retaining wall in the
purchase agreement, it is not subject to the purchase agreement, they sued Virgin for
breach of contract in the alternative. The Williamses sued Waterstone for negligent
misrepresentation, and sued Bowen for being vicariously liable for the acts and
omissions of Virgin and Waterstone because Bowen has ownership and control of
both corporations.
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Virgin, Waterstone, and Bowen filed a joint motion to compel arbitration,
arguing that although Bowen and Waterstone are nonsignatories to the arbitration
agreement, the Williamses are required to arbitrate with all three defendants because
Bowen is an officer of Virgin and Waterstone is Virgin’s agent. In their response to
the defendants’ motion to compel, the Williamses argued that the bulkhead/retaining
wall is not part of the purchase agreement and thus not subject to arbitration.
The trial court conducted a hearing on the motion to compel. During the
hearing, counsel for the Williamses argued that the Williamses’ claims do not fall
under the purchase agreement and thus are not subject to the arbitration provision.
Plaintiffs’ counsel explained that he had been unable to determine who performed
the work on the retention walls. Plaintiffs’ counsel also noted that the purchase
agreement contained an exhibit that listed the standard allowances, and the exhibit
counsel referenced lists fence, backyard sod, and a backyard sprinkler system as
items that are not considered to be part of the purchase agreement. According to
plaintiffs’ counsel, although the retaining wall is not in the list of excluded items, it
is similar to the items excluded.
Counsel for the defendants argued that the Williamses’ lawsuit alleged that
Virgin, Waterstone, and Bowen made errors while building a retention wall in the
back of the Williamses’ property, and that the Williamses’ claims fall within the
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scope of the arbitration agreement contained in the contract. Defense counsel argued
that the arbitration agreement extends to Virgin’s officers, directors, or agents, and
that the Williamses sued all of the defendants together based on the actions of Virgin
in constructing the home and the retaining walls. Defense counsel further argued that
“[b]ut for that contract[,] these retaining walls would not have been built[,]” and all
of the duties that the Williamses complain about arise by virtue of the contract
because they concern the acts or omissions relating to the work performed. Defense
counsel argued that because all of the parties are being sued on theories relating to
and arising under the contract, the claims fall within the scope of the arbitration
agreement, and the trial court should order all the parties to arbitrate.
After hearing the parties’ arguments, the trial court granted Virgin’s motion
to compel arbitration. The trial court found that the arbitration agreement is binding
on the Williamses and Virgin because they are parties to the agreement. The trial
court denied Waterstone’s and Bowen’s motion to compel because they are not
signatories on the contract containing the arbitration agreement. The trial court stated
that it was “not persuaded to expand the scope of the arbitration agreement to include
any parties to the lawsuit that are not also parties to the contract and have not agreed
to the arbitration in writing, as required by statute.” The trial court denied
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Waterstone’s and Bowen’s request for findings of fact and conclusions of law.
Waterstone and Bowen timely filed this interlocutory appeal.
Standard of Review and Applicable Law
This is an appeal pursuant to section 51.016 of the Texas Civil Practice and
Remedies Code, which authorizes interlocutory appeals of matters subject to the
Federal Arbitration Act (FAA). See Tex. Civ. Prac. & Rem. Code Ann. § 51.016
(West 2015); see also 9 U.S.C.A. § 16(a)(1)(C). A party attempting to compel
arbitration under the FAA must establish that there is a valid arbitration agreement
and show that the claims raised fall within the scope of that agreement. In re Rubiola,
334 S.W.3d 220, 223 (Tex. 2011) (orig. proceeding). There is a presumption
favoring agreements to arbitrate under the FAA, but the presumption only arises
after the party seeking to compel arbitration proves that a valid arbitration agreement
exists. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737-38 (Tex. 2005) (orig.
proceeding). If the party seeking to compel arbitration proves that a valid arbitration
agreement exists, the burden shifts to the party opposing arbitration to raise an
affirmative defense to enforcement of the agreement. J.M. Davidson, Inc. v. Webster,
128 S.W.3d 223, 227 (Tex. 2003).
We review a trial court’s denial of a motion to compel arbitration for an abuse
of discretion. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig.
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proceeding). The trial court’s determination of the arbitration agreement’s validity
is a question of law which we review de novo. In re D. Wilson Constr. Co., 196
S.W.3d 774, 781 (Tex. 2006) (orig. proceeding); J.M. Davidson, Inc., 128 S.W.3d
at 227. In determining the validity of the arbitration agreement under the FAA, we
generally apply state-law principles governing the formation of contracts. In re Palm
Harbor Homes, Inc., 195 S.W.3d 672, 676 (Tex. 2006) (orig. proceeding). We may
not expand upon the terms of the contract or tolerate a liberal interpretation of the
contract by reading into it a voluntary agreement to arbitrate when one does not exist.
Aldridge v. Thrift Fin. Mktg, LLC, 376 S.W.3d 877, 883 (Tex. App.—Fort Worth
2012, no pet.). The plain meaning of the contractual language must clearly indicate
the intent to arbitrate. Id.
“Whether a non-signatory can compel arbitration pursuant to an arbitration
clause questions the existence of a valid arbitration clause between specific parties
and is therefore a gateway matter for the court to decide.” Rubiola, 334 S.W.3d at
224. Although the FAA generally does not require parties to arbitrate when they
have not agreed to do so, both federal and Texas courts have recognized that under
certain circumstances, principles of contract law and agency may bind a non-
signatory to an arbitration agreement. Kellogg Brown & Root, Inc., 166 S.W.3d at
738. Although arbitration agreements apply to non-signatories only in rare
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circumstances, the question of who is bound by an arbitration agreement is
ultimately a function of the intent of the parties, as expressed in the terms of the
agreement. Rubiola, 334 S.W.3d at 224. Courts have recognized six theories for
binding a non-signatory to an arbitration agreement: incorporation by reference,
assumption, agency, veil-piercing/alter ego, estoppel, and third-party beneficiary.
Bridas S.A.P.I.C v. Gov’t of Turkmenistan, 345 F.3d 347, 356 (5th Cir. 2003)
Once the party seeking to compel arbitration establishes that a valid agreement
exists, the trial court must then determine whether the arbitration agreement covers
the claims at issue. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001)
(orig. proceeding). The determination of whether the arbitration agreement imposes
a duty to arbitrate the claims in a particular dispute is a matter of contract
interpretation. Jabri v. Qaddura, 108 S.W.3d 404, 410 (Tex. App.—Fort Worth
2003, no pet.). “If a written contract is so worded that it can be given a certain or
definite legal meaning or interpretation, then it is not ambiguous and the court will
construe the contract as a matter of law. Id. at 411. The court’s primary concern in
construing the contract is to ascertain the true intentions of the parties as expressed
in the contract. J.M. Davidson, Inc., 128 S.W.3d at 229.
In determining whether the trial court abused its discretion by denying
Waterstone’s and Bowen’s motion to compel, we review the trial court’s
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interpretation of the parties’ arbitration agreement de novo. See Jabri, 108 S.W.3d
at 410-11. Applying contract construction principles, we must review the entire
arbitration agreement to determine whether it is so worded that it can be given a
definite legal interpretation. See id. at 412. When a dispute involving an arbitration
agreement is brought to court for a resolution, the trial court must determine whether
the parties agreed to submit a particular issue to arbitration. IHS Acquisition No. 171,
Inc. v. Beatty-Ortiz, 387 S.W.3d 799, 807 (Tex. App.—El Paso 2012, no pet.) (citing
United Steelworkers of Am. v. Am. Mfg. Co., 363 U.S. 564 (1960)). Any doubts
concerning the scope of arbitrable issues should be resolved in favor of arbitration.
AT&T Techs., Inc. v. Commc’ns Workers of America, 475 U.S. 643, 650 (1986);
Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996).
The arbitration agreement provides that the “parties agree that all
controversies, claims[,] or matters in question arising out of or relating to . . . any
acts or omissions by Virgin Homes, Inc. (and its officers, directors, or agents) . . .
shall be subject to binding arbitration.” The record shows that Virgin is a signatory
of the arbitration agreement and that Bowen signed the arbitration agreement as
President of Virgin. The record clearly shows that Bowen is an officer of Virgin, and
thus, a non-signatory party to the arbitration agreement under the terms of the
agreement. See Rubiola, 334 S.W.3d at 224-25; see also Bridas S.A.P.I.C, 345 F.3d
10
at 356 (noting that ordinary principles of contract and agency law may be called
upon to bind a non-signatory to an agreement). Because the arbitration agreement
expressly provides that officers are non-signatories that are considered parties to the
agreement, we conclude that Bowen may compel arbitration under the agreement.
See Rubiola, 334 S.W.3d at 224-25.
The record further shows that Bowen is the President of Waterstone and that
Waterstone is the developer of the subdivision in which Virgin constructed the
Williamses’ home. Waterstone also developed the man-made canals in the
subdivision. In their petition, the Williamses asserted that it is undetermined whether
Virgin or Waterstone directed, authorized, or supervised the construction of the
bulkhead/retaining wall. The Williamses’ suit is for property damages resulting from
deficiencies in the construction and repair of the bulkhead/retaining wall. The
Williamses asserted that the defendants and their subcontractors, agents, employees,
and representatives for which the defendants are liable had a duty to exercise proper
care in the construction of the bulkhead/retaining wall. The Williamses further
asserted that Bowen is vicariously liable for the acts and omissions of Virgin and
Waterstone because the corporations were organized and operated as a mere tool or
business conduit of Bowen, the alter ego. According to the Williamses, there was
such a unity of Virgin, Waterstone, and Bowen that the separateness had ceased and
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the defendants and the defendants’ agents or officers are liable via respondeat
superior.
In its motion to compel, Waterstone asserted that under the Williamses’
agency theory, the Williamses are obligated to arbitrate their claims, and further
asserted that the Williamses are equitably estopped from refusing to arbitrate with
Waterstone because the Williamses sued Waterstone based on their mistaken belief
that Waterstone had some role in constructing the improvements on the Williamses’
property while acting as an agent of Virgin. Waterstone contends that equitable
estoppel permits it to compel arbitration because the sole source of any duties owed
to the Williamses is derived from the contract and because the issues between the
parties are intertwined with the purchase agreement containing the arbitration
provision.
Equitable estoppel allows a non-signatory to compel arbitration when the
signatory to a written agreement containing an arbitration clause must rely on the
terms of the written agreement in asserting its claims against the non-signatory.
Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 527 (5th Cir. 2000) (citing
MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999)). The Fifth
Circuit explained that a signatory to an arbitration agreement “cannot, on the one
hand, seek to hold the non-signatory liable pursuant to duties imposed by the
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agreement, which contains an arbitration provision, but, on the other hand, deny
arbitration’s applicability because the defendant is a non-signatory.” Grigson, 210
F.3d at 528. We review a trial court’s decision not to apply equitable estoppel for an
abuse of discretion. Grigson, 210 F.3d at 528. To constitute an abuse of discretion,
the trial court’s decision must be either premised on an application of the law or an
assessment of the evidence that is clearly erroneous. Id.
To determine whether the Williamses’ claims against Waterstone are so
intertwined with and dependent upon the purchase agreement that the arbitration
agreement shall be given effect, we compare the operative facts for purposes of the
motion to compel arbitration with the purchase agreement. See id. at 528-29. The
purchase agreement provided that Virgin was to construct a single-family residence
in substantial compliance with plans prepared by Virgin in accordance with the
Standard Design Features and the Standard Allowances as indicated in the exhibits
attached to the agreement. The attached exhibit that lists the standard allowances for
the construction includes a boat dock with an allowance of $38,100, which includes
a boat slip, boat lift, two jet ski lifts, deck housing, a water line to the dock, a separate
electrical box at the rear of the house, and electric lines to the dock area. Also
included is a standard allowance of $4400 for the construction of a sidewalk from
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the rear of the home to the boat dock. The only items specifically excluded from the
purchase agreement were the fence, backyard sod, and backyard sprinkler system.
The purchase agreement also references a Limited Warranty provided by the
builder and states that Virgin’s liability under the contract for the construction of the
home is confined to the statutory warranties and the building and performance
standards in the Texas Property Code, as well as the performance standards and
remedies provided in the Limited Warranty. The Limited Warranty specifically
excludes improvements not part of the home itself, including, but not limited to,
boundary and/or retaining walls and bulkheads.
In their petition, the Williamses assert that it is undetermined whether Virgin
or Waterstone directed, authorized, or supervised the construction of the
bulkhead/retaining wall. The Williamses further assert that there was such a unity
between Virgin and Waterstone that the separateness had ceased. In their response
to the motion to compel, the Williamses assert that they have independent claims
against Waterstone, but also assert that they have been unable to determine whether
Waterstone played any role in the construction or the failure of the
bulkhead/retaining wall. While the Williamses also requested discovery to determine
who actually performed the work, such an inquiry to identify potential defendants
and determine each defendant’s liability is inappropriate because determinations of
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ultimate liability ordinarily must be answered during the arbitration proceeding. See
In re Houston Pipe Line Co., 311 S.W.3d 449, 451 (Tex. 2009) (orig. proceeding).
The arbitration agreement contained in the contract provides that “all
controversies, claims or matters in question arising out of or relating to” the contract,
the construction of the home, and/or any acts or omissions by Virgin and its agents
shall be subject to binding arbitration. We hold that the Williamses’ claims against
Waterstone are so intertwined with and dependent upon the purchase agreement and
the Williamses’ claims against Virgin, that it would be impractical to resolve the
Williamses’ claims against Virgin without simultaneously resolving the claims
against Waterstone. See generally Grigson, 210 F.3d at 528-29. We conclude that
equitable estoppel entitles Waterstone to compel arbitration, and that the trial court
abused its discretion by determining that Waterstone was not entitled to arbitration
because it is a non-signatory. See id. at 528.
Having concluded that Waterstone and Bowen are non-signatories who may
compel arbitration, we must also address the question of whether the Williamses’
claims fall within the scope of the arbitration agreement. See Rubiola, 334 S.W.3d
at 225. At the hearing on the motion to compel, the Williamses asserted that their
claims do not fall under the purchase agreement and thus are not subject to the
arbitration provision, because the retaining wall is not specifically mentioned in the
15
purchase agreement and because it is similar to the items specifically excluded from
the agreement as referenced in the standard allowances exhibit. Waterstone and
Bowen argued that but for the contract, the retaining walls would not have been built,
and further argued that all of the duties that the Williamses complain about arise by
virtue of the contract.
In determining whether the Williamses’ claims fall within the scope of the
arbitration agreement, we examine the complaint’s factual allegations rather than the
legal causes of action asserted. See FirstMerit Bank, N.A., 52 S.W.3d at 754. If
liability arises solely from the contract or must be determined by reference to it, then
the claims must be submitted to arbitration. In re Weekley Homes, L.P., 180 S.W.3d
127, 132 (Tex. 2005) (orig. proceeding). “A claim is not subject to arbitration only
if the facts alleged in support of the claim are completely independent of the contract
and the claim could be maintained without reference to the contract.” Glassell
Producing Co. v. Jared Res., Ltd., 422 S.W.3d 68, 77 (Tex. App.—Texarkana 2014,
no pet.).
The arbitration agreement provides that the “parties agree that all
controversies, claims[,] or matters in question arising out of or relating to . . . this
Contract, . . . the construction of the Home, . . . any acts or omissions by Virgin
Homes, Inc. (and its officers, directors, or agents), and/or . . . any actual or purported
16
representations or warranties, express or implied, relating to the Property and/or the
Home . . . shall be subject to binding arbitration.” Because the arbitration agreement
uses the terms “related to” to define the scope, we interpret the agreement broadly.
See id. at 78. We note that in addition to asserting claims for breach of the warranty
of good and workmanlike performance, violations of the Deceptive Trade Practices
Act, and common law negligence, the Williamses sued Waterstone for negligent
misrepresentation and claimed that Bowen is vicariously liable for the acts and
omissions of Virgin and Waterstone.
The Williamses brought suit against the defendants for property damage
resulting from alleged deficiencies in the construction and repair of the
bulkhead/retaining wall. The Williamses assert that the retaining wall is not part of
the purchase agreement because it is not specifically mentioned and because it is
similar in nature to the items that are specifically excluded from the purchase
agreement. However, the facts alleged in support of the Williamses’ claims are not
completely independent of the purchase agreement. See id. at 77. The purchase
agreement includes the construction of the home, as well as other improvements that
include a boat dock and a sidewalk from the rear of the home to the boat dock.
Although the purchase agreement does not specifically mention or exclude the
bulkhead/retaining wall, the Limited Warranty that is referenced in the purchase
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agreement specifically excludes boundary and/or retaining walls and bulkheads. The
Limited Warranty also provides that the retaining wall and bulkhead are
improvements that are not part of the home itself.
We conclude that the Williamses’ allegations concerning the construction of
the bulkhead/retaining wall arise out of or relate to the purchase agreement. We
further conclude that because the Williamses’ factual allegations against Waterstone
and Bowen are factually intertwined with the purchase agreement, the claims fall
within the scope of the arbitration agreement. See id. Having concluded that
Waterstone and Bowen are non-signatories who may compel arbitration and that the
Williamses’ claims fall within the scope of the arbitration agreement, we further
conclude that the trial court abused its discretion by denying Waterstone’s and
Bowen’s motion to compel arbitration. See In re Labatt Food Serv., L.P., 279
S.W.3d at 643. We sustain issues one and two. We reverse the trial court’s order
denying Waterstone’s and Bowen’s motion to compel and remand this case to the
trial court with instructions to enter an order granting Waterstone’s and Bowen’s
motion to compel arbitration and to stay the proceeding pending the results of
arbitration.
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REVERSED AND REMANDED.
______________________________
STEVE McKEITHEN
Chief Justice
Submitted on May 24, 2017
Opinion Delivered August 3, 2017
Before McKeithen, C.J., Kreger and Johnson, JJ.
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Waterstone on Lake Conroe, Inc. and Steve Bowen v. Dee Williams and Andy Williams
Combined Opinion