ACCEPTED
01-15-00194-cv
FIRST COURT OF APPEALS
HOUSTON, TEXAS
5/18/2015 2:12:29 PM
CHRISTOPHER PRINE
CLERK
No. 01-15-00194-CV
IN THE COURT OF APPEALS
FILED IN
FOR THE FIRST JUDICIAL DISTRICT 1st COURT OF APPEALS
HOUSTON, TEXAS HOUSTON, TEXAS
5/18/2015 2:12:29 PM
CHRISTOPHER A. PRINE
Clerk
AN Luxury Imports Ltd., AN Luxury Imports GP, LLC, and
United States Warranty Corp.,
Appellants,
v.
D. Scott Southall,
Appellee.
Appeal from the 295th Judicial District Court
Harris County, Texas
APPELLEE’S BRIEF
__________________________________________________________________
Victor S. Elgohary
State Bar No. 24067587
6406 Arcadia Bend Ct
Houston, Texas 77041-6222
Phone (281) 858-0014
victor@vselgohary.com
Attorney for Appellee
IDENTIFICATION OF PARTIES AND COUNSEL
The following is a complete list of the names of all parties to the trial court’s
order and the names and addresses of all trial and appellate counsel as required
under Texas Rule of Appellate Procedure 38.1(a).
Plaintiff in the trial court (Appellee in this Court): D. Scott Southall
Defendants in the trial court (Appellants in this Court): AN Luxury Imports
Ltd d/b/a/ BMW of Dallas, AN Luxury Imports GP, LLC, and United States
Warranty Corp.
Trial and Appellate Counsel for D. Scott Southall:
Victor S. Elgohary
State Bar No. 24067587
6406 Arcadia Bend Ct
Houston, Texas 77041
(281) 858-0014
Trial and Appellate Counsel for AN Luxury Imports Ltd d/b/a BMW of
Dallas, AN Luxury Imports GP, LLC, and United States Warranty Corp.:
George A. Kurisky, Jr.
Johnson DeLuca Kurisky & Gould P.C.
1221 Lamar Street
Suite 1000
Houston, Texas 77010
(713) 652-2525
(713) 652-5130 (Telecopy)
i
IDENTIFICATION OF PARTIES AND COUNSEL ..................................................... i
ABBREVIATIONS........................................................................................................... iii
INDEX OF AUTHORITIES ........................................................................................... iv
STATEMENT OF THE CASE ....................................................................................... vi
ISSUES PRESENTED FOR REVIEW .......................................................................... vi
STATEMENT OF FACTS ............................................................................................... 1
SUMMARY OF ARGUMENT ........................................................................................ 2
STANDARD OF REVIEW............................................................................................... 3
ARGUMENTS & AUTHORITIES ................................................................................. 4
CONCLUSION .................................................................................................................. 9
ii
Abbreviations
C.R. clerk’s record filed March 12, 2014
iii
Index of Authorities
Cases
Brown v. Pac. Life Ins. Co.,
462 F.3d 384 (5th Cir. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
City of Pinehurst v. Spooner Addition Water Co.,
432 S.W.2d 515 (Tex. 1968) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Cleveland Const., Inc. v. Levco Const., Inc.,
359 S.W.3d 843 (Tex.App. – Houston [1st Dist.] 2012, pet. dism’d) . . . . . 3
Crown Cent. Petroleum Corp. v. Jennings,
727 S.W.2d 739 (Tex. App. – Houston [1st Dist.] 1987, no writ) . . . . . . . . 5
Dorsett v. Cross,
106 S.W.3d 213 (Tex. App. – Houston [1st Dist.] 2003, pet. denied) . . . . . 5
Hamden v. Ford Motor Co.,
408 F. Supp. 2d 300 (E.D. Mich. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
In re Kellogg Brown & Root, Inc.,
166 S.W.3d 732 (Tex. 2005) (orig. proceeding) . . . . . . . . . . . . . . . . . . . . . . 6
J.M. Davidson, Inc. v. Webster,
128 S.W.3d 223 (Tex. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Kelley-Coppedge, Inc. v. Highlands Ins. Co.,
980 S.W.2d 462 (Tex. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Myers v. Gulf Coast Minerals Management Corp.,
361 S.W.2d 193 (Tex. 1962) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Ogden v. Dickinson State Bank,
662 S.W.2d 330 (Tex. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
R & P Enterprises v. LaGuarta, Gavrel & Kirk, Inc.,
596 S.W.2d 517 (Tex. 1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
iv
Universal C.I.T. Credit Corp. v. Daniel,
243 S.W.2d 154 (Tex. 1951) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Statutes and Regulations
15 U.S.C. §2302(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
16 C.F.R. § 710.3(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
v
STATEMENT OF THE CASE
This is a consumer case. D. Scott Southall sued AN Luxury Imports,
Ltd., its general partner AN Luxury Imports GP, LLC and United States Warranty
Corp. alleging that it failed to honor the repair warranty when Southall’s Porsche
Cayman engine catastrophically failed shortly after his purchase. Southall’s claims
include breach of contract, breach of warranty, negligence, unfair settlement
practices under the Texas Insurance Code, fraud by nondisclosure, negligent
misrepresentation as well as violations of the Texas Deceptive Trade Practices Act
and Magnuson-Moss Warranty Act. Defendants moved that all claims be abated
and referred to arbitration. Based on the motions and evidence presented, the trial
court denied all Defendants’ requests to compel the case to arbitration.
ISSUE PRESENTED FOR REVIEW
Whether the trial court properly denied Defendants’ motion to compel
arbitration of Southall’s claims.
vi
STATEMENT OF FACTS
This is a consumer case growing out of D. Scott Southall’s
(“Southall”) purchase of a Porsche Cayman from AN Luxury Imports, Ltd.
(“BMW Dallas”). (C.R. 132). As part of that purchase, Southall also acquired a
Used Vehicle Limited Mechanical Warranty (“Warranty”). (Id., C.R. 64-67). Less
than two months after Southall’s purchase, the engine failed. (C.R. 132). Southall
made a claim under the Warranty, which BMW Dallas and United States Warranty
Corp. (“US Warranty”) denied. (C.R. 133). Southall filed suit in the trial court
claiming breach of contract, breach of warranty, negligence, unfair settlement
practices under the Texas Insurance Code, fraud by nondisclosure, negligent
misrepresentation, as well as violations of the Texas Deceptive Trade Practices Act
and Magnuson-Moss Warranty Act. (C.R. 133-39).
PROCEDURAL HISTORY
BMW Dallas answered the suit subject to its right to compel
arbitration. (C.R. 13-18). Later, BMW Dallas moved to compel arbitration and to
stay or dismiss the lawsuit. (C.R. 19-36). After Southall filed for a default
judgment against defendant U.S. Warranty, it e-mailed an answer to Southall,
however there is no answer on file with the district clerk. U.S. Warranty then
joined BMW Dallas in moving to compel arbitration and to stay or dismiss the
lawsuit. (C.R. 98-100). On October 27, 2014, the trial court conducted a hearing
1
on the motions to compel arbitration. The trial court denied Defendants’ Motion to
Compel Arbitration. (C.R. 130). Southall then amended his petition to include
claims under the Magnuson-Moss Warranty Act. (C.R. 131). Defendants then
moved for reconsideration. (C.R. 141-55). Ten days later, Defendants filed an
appeal with this court. (C.R. 171). The trial court held a second hearing on the
Motion to Compel Arbitration on April 20, 2015. The trial court denied the motion
a second time on May 7, 2015.
SUMMARY OF ARGUMENT
The trial court properly denied the motion to compel arbitration. A party
seeking to compel arbitration must establish that there is a valid arbitration
agreement. Here, the agreements give the courts sole and exclusive jurisdiction
over a dispute arising under the contract. Similarly, the Used Vehicle Limited
Mechanical Warranty contract stands alone and has no arbitration provision.
Moreover, since the Magnuson-Moss Warranty Act requires that an arbitration
provision be disclosed within a written warranty, Southall cannot be compelled to
arbitrate his warranty claims.
2
STANDARD OF REVIEW
An order denying a motion to compel arbitration under the FAA is
reviewed under an abuse of discretion standard. Cleveland Const., Inc. v. Levco
Const., Inc., 359 S.W.3d 843, 851 (Tex.App. – Houston [1st Dist.] 2012, pet.
dism’d). In reviewing an order denying a motion to compel arbitration under the
FAA, the reviewing court gives deference to the trial court’s factual determinations
that are supported by evidence and its legal conclusions are reviewed de novo. Id.
3
ARGUMENTS & AUTHORITIES
I. The Purchase Agreement signed by the parties provides for
exclusive venue and jurisdiction by the trial court, hence Southall should not be
compelled to arbitrate his claims.
Paragraph 17 of the Retail Purchase Agreement provides in part:
The sole and exclusive venue for any dispute or litigation arising
under or concerning this Agreement shall be in the courts located in
and for the county in which Dealer is located, and the parties
irrevocably consent to the jurisdiction of said courts. [emphasis
added]
(C.R. 31)
The final paragraph of the separate Arbitration Agreement provides
in part:
This Agreement is entered into contemporaneously with your Retail
Installment Sale Contract . . . . In the event of a conflict between the
terms of this Agreement and those of your Contract, then the terms
shall be construed together to the extent possible and only those
terms of this Agreement that are in direct conflict with those of the
Contract shall be disregarded. If there is an irreconcilable difference
between this Agreement and the Contract such that the two cannot be
read together and which renders enforcement of this Agreement
impossible or impractical, then the terms of the Contract shall
govern.
(C.R. 32)
In construing a written contract, the primary concern of the court is to
ascertain the true intentions of the parties as expressed in the instrument. R & P
Enterprises v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex. 1980);
4
City of Pinehurst v. Spooner Addition Water Co., 432 S.W.2d 515, 518 (Tex.
1968). To achieve this objective, courts should 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. Kelley-Coppedge, Inc. v.
Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998); Universal C.I.T. Credit
Corp. v. Daniel, 243 S.W.2d 154, 158 (Tex. 1951); Crown Cent. Petroleum Corp.
v. Jennings, 727 S.W.2d 739, 741 (Tex. App. – Houston [1st Dist.] 1987, no writ).
No single provision taken alone will be given controlling effect; rather, all the
provisions must be considered with reference to the whole instrument. Myers v.
Gulf Coast Minerals Management Corp., 361 S.W.2d 193, 196 (Tex. 1962);
Crown Cent. Petroleum Corp. v. Jennings, 727 S.W.2d at 741. In harmonizing
provisions, terms stated earlier in an agreement must be favored over subsequent
terms. Ogden v. Dickinson State Bank, 662 S.W.2d 330 (Tex. 1983); Dorsett v.
Cross, 106 S.W.3d 213, 220 (Tex. App. – Houston [1st Dist.] 2003, pet. denied).
Here, it is clear from the language in paragraph 17 that the parties to the
Retail Purchase Agreement intended to give the courts sole and exclusive
jurisdiction over a dispute. Any other interpretation places that provision in direct
conflict with the Arbitration Agreement. When there is a conflict between the two
contracts, the Arbitration Agreement specifically provides that the Retail Purchase
Agreement language prevails. Hence, the jurisdiction of the courts given in the
5
Retail Purchase Agreement prevails over the provision to arbitrate in the
Arbitration Agreement.
For these reasons, Southall should not be compelled to arbitrate his claims
under the Retail Purchase Agreement.
II. The Warranty agreement between Southall and Defendants contains
no arbitration provision; hence Southall should not be compelled to arbitrate his
warranty claim.
A party seeking to compel arbitration must establish that there is a valid
arbitration agreement between the parties. In re Kellogg Brown & Root, Inc., 166
S.W.3d 732, 737 (Tex. 2005) (orig. proceeding); J.M. Davidson, Inc. v. Webster,
128 S.W.3d 223, 227 (Tex. 2003). Ordinary principles of contract law determine
whether there is a valid agreement to arbitrate. In re Kellogg Brown & Root, Inc.,
166 S.W.3d at 738. Generally, only signatories to an arbitration agreement are
bound by its terms. Brown v. Pac. Life Ins. Co., 462 F.3d 384, 398 (5th Cir. 2006).
Here the terms of the Warranty agreement are outlined in a two page
document. (C.R. 64-65). One of the acknowledgements provides:
Purchaser acknowledges and agrees that these terms and conditions
are a complete statement of coverage and rights under this Limited
Mechanical Warranty and that Purchaser is not relying on any
writings other than this Limited Mechanical Warranty or any
representations or promises other than those made in this Limited
Mechanical Warranty.
6
(C.R. 64)
Nowhere in the Warranty agreement is there an arbitration provision, hence,
Southall should not be compelled to arbitrate his warranty claims against either
BMW Dallas or US Warranty Corp.
Even if the Warranty agreement can somehow be read together with the
Arbitration Agreement, Defendants should not be permitted to compel arbitration
of Southall’s warranty claims because the Warranty agreement itself does not
comply with the Magnuson-Moss Warranty Act.
The Magnuson-Moss Warranty Act states in part:
In order to improve the adequacy of information available
to consumers, prevent deception, and improve competition
in the marketing of consumer products, any warrantor
warranting a consumer product to a consumer by means of
a written warranty shall, to the extent required by rules of
the Commission, fully and conspicuously disclose in simple
and readily understood language the terms and conditions
of such warranty.
15 U.S.C. §2302(a)
The Federal Trade Commission rules require that certain terms be clearly
and conspicuously disclosed “in a single document in simple and readily
understood language.” 16 C.F.R. § 710.3(a). The Eleventh Circuit in Cunningham
found that the FTC's “comprehensive disclosure requirements . . . are an integral, if
not the central, feature of the Act.” Cunningham v. Fleetwood Homes of Ga., Inc.,
7
253 F.3d 611, 621 (11th Cir. 2001); see also Hamden v. Ford Motor Co., 408 F.
Supp. 2d 300 (E.D. Mich. 2004). The Cunningham court held that a warrantor
may not force a consumer into arbitration when the arbitration requirement is not
disclosed in the warranty itself. Cunningham v. Fleetwood Homes of Ga., Inc., 253
F.3d at 623. This single document requirement is significant, because it means an
arbitration clause cannot be included in another document. Instead, it must be
disclosed in the actual written warranty. That is because compelling arbitration
when such a provision is not referenced in the warranty itself presents an inherent
conflict with the Act’s purpose of providing clear and concise warranties to
consumers. Id. at 621.
Here, the Used Vehicle Limited Mechanical Warranty agreement contains
no arbitration provision as required under the Magnuson-Moss Warranty Act. (CR
64-65). Therefore, since the Defendants have not complied with the Magnuson-
Moss Warranty Act with respect to the arbitration disclosure requirement in the
Warranty agreement, this Court should affirm the trial court’s denial of
Defendants’ motion to compel arbitration.
8
CONCLUSION
This Court should affirm the trial court’s orders denying Defendants’
arbitration demands and tax costs of appeal against Defendants, jointly and
severally.
Respectfully submitted,
______________________________
VICTOR S. ELGOHARY
State Bar No. 24067587
6406 Arcadia Bend Ct
Houston, Texas 77041-6222
Phone (281) 858-0014
victor@vselgohary.com
Attorneys for Appellee, D. Scott Southall
9
CERTIFICATE OF SERVICE
I certify that a copy of Appellee’s Brief was served on AN Luxury Imports
Ltd., AN Luxury Imports GP, LLC, and United States Warranty Corp,
Appellants, through its counsel of record, George A. Kurisky, Jr., Johnson
DeLuca Kurisky & Gould P.C., 1221 Lamar Street, Suite 1000, Houston, Texas
77010 on 18 May 2015.
__________________________
VICTOR ELGOHARY
CERTIFICATE OF COMPLIANCE
Pursuant to Texas Rule of Appellate Procedure 9.4(i)(3), the undersigned
counsel, in reliance upon the word count of the computer program used to
prepare this document, certifies that this brief contains 1,407 words, excluding
the words that need not be counted under Texas Rule of Appellate Procedure
9.4(i)(1).
__________________________
VICTOR ELGOHARY
10
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
Combined Opinion