Gary Allen Nordling and the Residential Group, Inc. D/B/A Palais Builders v. Mike Haake and Dianna Haake

Motion to Withdraw Granted; Dismissed in Part, Affirmed in Part, and
Memorandum Opinion filed January 4, 2022.

In The

Fourteenth Court of Appeals

NO. 14-20-00300-CV

GARY ALLEN NORDLING AND THE RESIDENTIAL GROUP, INC.
D/B/A PALAIS BUILDERS, Appellants
V.

MIKE HAAKE AND DIANNA HAAKE, Appellees

On Appeal from the 352nd District Court
Tarrant County, Texas
Trial Court Cause No. 352-308569-19

MEMORANDUM OPINION

In this interlocutory appeal, appellants ask this court to reverse the trial
court’s order denying their motion to compel arbitration. The arbitration clause at
issue requires the parties to mediate their claims before proceeding to arbitration.
There is no question of fact that appellants did not seek to mediate the present
claims before requesting arbitration. Accordingly, we conclude the trial court did
not err in denying the motion to compel arbitration.
 On October 20, 2021, counsel for appellant The Residential Group, Inc.,
d/b/a Palais Builders filed a motion to withdraw. On November 16, 2021, we
ordered that if Palais Builders did not retain new counsel and file a motion to
substitute by December 16, 2021, we would dismiss Palais Builders’ appeal.1
Because Palais Builders has not filed a motion to substitute counsel, we grant
counsel’s motion to withdraw as to Palais Builders and dismiss Palais Builders’
appeal.2 As to appellant Gary Allen Nordling, we affirm the order.

Background

In February 2017, Mike and Dianna Haake hired Palais Builders to construct
a home for the Haakes. The Haakes and Palais Builders signed a residential
construction contract, which provided in relevant part:

ALTERNATIVE DISPUTE RESOLUTION - It is the policy of the
State of Texas to encourage the peaceable resolution of disputes
through alternative dispute resolution procedures.
Mediation-Binding Arbitration: The parties agree that any
dispute or claim arising under, or relating to, this Contract, any
amendments thereto, the Property, Improvements, or any
dealings between the Owner and Builder or their representatives
shall first be submitted to mediation and, if not settled during
mediation, shall thereafter be submitted to binding arbitration as
provided by the Federal Arbitration Act (9 U.S.C. §§ 1 et seq.) or,
if applicable, by similar state statute, and not by or in a court of
law.
In July 2018, Mike signed a deed of trust conveying the property in trust to
secure payment of a $190,000 promissory note payable to Gary Nordling, Palais
1
Except for the performance of ministerial tasks, corporations may appear and be
represented only by a licensed attorney. Kunstoplast of Am., Inc. v. Formosa Plastics Corp.,
U.S.A., 937 S.W.2d 455, 456 (Tex. 1996) (per curiam); see also Dell Dev. Corp. v. Best Indus.
Uniform Supply Co., 743 S.W.2d 302, 303 (Tex. App.—Houston [14th Dist.] 1987, writ denied).
2
In our November 16, 2021 order, we denied the motion to withdraw as to Palais
Builders. We now reconsider that ruling and grant the motion to withdraw.

2
Builders’ president. Nordling characterizes this as an attempt to secure financing
for the construction project. The Haakes present a competing narrative.
According to the Haakes, after they sold their previous house and moved into the
newly constructed house, appellants submitted payment demands for additional
sums over the agreed budget. To avoid foreclosure of the new house, Mike signed
the promissory note payable to Nordling.

After Mike allegedly defaulted on the note, Nordling and Palais Builders
sued the Haakes for defaulting on the promissory note. The Haakes asserted
counterclaims for breach of the construction contract by Palais Builders and
violations of the Texas Deceptive Trade Practices-Consumer Protection Act by
both Palais Builders and Nordling. The Haakes also sought a declaration to quiet
title.

The Haakes moved for partial summary judgment, arguing that appellants
had signed a release of all claims or debts relating to the construction project, thus
precluding appellants’ suit. While the Haakes’ summary judgment motion was
pending, appellants filed a motion to compel arbitration, invoking the arbitration
clause in the construction contract and seeking arbitration of all claims between the
parties. The Haakes responded, arguing that appellants had waived the arbitration
provision by substantially invoking the judicial process. The Haakes also pointed
out that appellants had failed to satisfy a precondition to arbitration by not first
submitting the dispute to mediation.

The trial court granted the Haakes’ motion for partial summary judgment,
dismissed appellants’ claims against the Haakes, and denied appellants’ motion to
compel arbitration. Appellants filed this interlocutory appeal of the February 28,

3
2020 order denying the motion to compel arbitration.3 Because we dismiss Palais
Builders’ appeal, we address only Nordling’s arguments.

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)
(orig. proceeding) (citing In re Labatt Food Serv., L.P., 279 S.W.3d 640, 642-43
(Tex. 2009) (orig. proceeding)). We defer to the trial court’s factual
determinations if they are supported by evidence but review its legal
determinations de novo. Id. Whether the claims in dispute fall within the scope of
a valid arbitration agreement is a question of law, which we also review de novo.
Id.

Analysis

In two issues, Nordling argues that the trial court erred in denying the
motion to compel arbitration because (1) the claims are within the scope of the
arbitration agreement and (2) Nordling did not waive his contractual right to
arbitration.

Arbitration “is a matter of contract and a party cannot be required to submit
to arbitration any dispute which he has not agreed so to submit.” Seven Hills
Commercial, LLC v. Mirabal Custom Homes, Inc., 442 S.W.3d 706, 714 (Tex.
App.—Dallas 2014, pet. denied). A party seeking to compel arbitration has the
initial burden to establish that a valid arbitration agreement exists and that the
claims at issue fall within the scope of that agreement. Venture Cotton Coop. v.
Freeman, 435 S.W.3d 222, 227 (Tex. 2014).

3
See Tex. Civ. Prac. & Rem. Code § 51.016 (providing for appeal of interlocutory order
denying motion to compel arbitration under the Federal Arbitration Act).

4
 “Questions about whether prerequisites to arbitration have been fulfilled
generally are left to the arbitrator to resolve.” Seven Hills, 442 S.W.3d at 722.
“However, there is a narrow exception to this rule: if clearly established proof
shows that a strictly procedural requirement has not been met and that procedural
requirement precludes arbitration, a court can deny a motion to compel arbitration
on this ground.” Id. “The exception may apply and a court may determine
procedural arbitrability questions when the issues are factually undisputed.” Id.

Here, the arbitration clause states that “any dispute or claim arising under, or
relating to, this Contract, any amendments thereto, the Property, Improvements, or
any dealings between the Owner and Builder or their representatives shall first be
submitted to mediation and, if not settled during mediation, shall thereafter be
submitted to binding arbitration.” (Emphasis added.) Neither side has suggested
the clause is ambiguous, and we conclude that the arbitration clause
unambiguously provides for arbitration only of claims that cannot first be resolved
through mediation.

In their motion to compel arbitration, appellants neither alleged nor
presented any proof that the Haakes’ claims had been submitted to, but not
resolved by, mediation. In fact, the Haakes expressly raised the lack of mediation
in their response to appellants’ motion to compel and attached an affidavit from
Mike, who testified that “[a]t no point in time has Palais Builders or Gary Nordling
ever requested mediation.” Appellants did not dispute the Haakes’ contention.
The Haakes again raised the lack of mediation in their appellate brief, and
Nordling has not responded on this point.

Presuming without deciding that the Haakes are bound by the arbitration
provision in question, we conclude that the trial court did not abuse its discretion in
denying the motion to compel arbitration. On this record, Nordling has not proven

5
that the Haakes’ claims fall within the scope of the arbitration agreement—i.e.,
disputes that have been submitted to, but not resolved by, mediation. In re Igloo
Prod. Corp., 238 S.W.3d 574, 581 (Tex. App.—Houston [14th Dist.] 2007, orig.
proceeding) (concluding that trial court did not abuse its discretion in denying
motion to compel arbitration when claims had not first been submitted to
mediation, as required by arbitration provision); see also Southwinds Express
Constr., LLC v. D.H. Griffin of Tex., Inc., 513 S.W.3d 66, 78 (Tex. App.—Houston
[14th Dist.] 2016, no pet.) (trial court decides as a matter of law the gateway issue
of whether arbitration can be compelled in light of a condition precedent when
there is no factual dispute about whether the condition precedent has been
satisfied); Amir v. Int’l Bank of Commerce, 419 S.W.3d 687 (Tex. App.—Houston
[1st Dist.] 2013, no pet.) (same). Stated differently, Nordling has not shown that
the arbitration clause he seeks to invoke has been triggered. In re Pisces Foods,
L.L.C., 228 S.W.3d 349, 354 (Tex. App.—Austin 2007, orig. proceeding) (because
“Relator has failed to comply with the terms of its contract . . . setting up
preconditions for arbitration . . . the arbitration clause has not been triggered”).

We note that even when the agreement requires the parties to mediate before
arbitration, some courts—including this court and the Second Court of Appeals,
which transferred this case4—have held that a party who proceeds first to litigation
waives the right to mediation and cannot assert the mediation provision as a
condition precedent to arbitration. See Rodriguez v. Tex. Leaguer Brewing Co.
L.L.C., 586 S.W.3d 423, 430 (Tex. App.—Houston [14th Dist.] 2019, pet. denied)
(compelling party to arbitration, even though condition precedent of mediation had
not been fulfilled, because party filed suit without first seeking mediation pursuant

4
The Supreme Court of Texas ordered the Second Court of Appeals to transfer this case
to our court. See Tex. Gov’t Code § 73.001. We are unaware of any conflict between the
precedent of the transferring court and that of this court. See Tex. R. App. P. 41.3.

6
to the agreement); Nw. Constr. Co. v. Oak Partners, L.P., 248 S.W.3d 837, 852
(Tex. App.—Fort Worth 2008, pet. denied) (same). Here, the Haakes did not file
suit first; appellants did. Thus, the Haakes did not waive the right to insist on
compliance with the mediation provision as a condition precedent to arbitration.
Accordingly, Rodriguez and Northwest Construction do not compel a contrary
disposition.

For these reasons, we overrule Nordling’s first issue and do not reach his
second issue as moot.

Conclusion

The trial court did not abuse its discretion in denying the motion to compel
arbitration because Nordling failed to establish that the claims sought to be
arbitrated fell within the scope of the arbitration agreement. We affirm the trial
court’s order as to Nordling.

/s/ Kevin Jewell
Justice

Panel consists of Justices Jewell, Spain, and Wilson.

7