Tilson Home Corporation v. Jorge L. Zepeda and Lisa M. Zepeda

Reversed and Remanded and Memorandum Opinion filed November 8, 2016.

In The

Fourteenth Court of Appeals

NO. 14-16-00075-CV

TILSON HOME CORPORATION, Appellant

V.

JORGE L. ZEPEDA AND LISA M. ZEPEDA, Appellees

On Appeal from the 23rd District Court
Brazoria County, Texas
Trial Court Cause No. 83570-CV

MEMORANDUM OPINION

This appeal arises from an order denying a motion to compel arbitration
filed by Tilson Home Corporation. For the reasons set forth below, we reverse the
trial court’s order denying Tilson’s motion to compel arbitration and remand the
case to the trial court for entry of an order compelling arbitration and staying the
litigation pending the outcome of the arbitration.
 I. BACKGROUND

Appellees, Jorge and Lisa Zepeda, hired Tilson to build a home on their
property. The contract contained an arbitration provision. The home was built but
encroached upon adjoining property. Tilson purchased the adjoining property so
the home is currently sited on property owned by both appellees and Tilson.
Subsequently, appellees declined to proceed with the contract. On October 5, 2015,
Tilson filed suit and, in the same filing, moved to compel arbitration. Appellees
moved to dismiss Tilson’s suit for lack of jurisdiction on December 29, 2015, and
on January 8, 2016, filed an objection and response to Tilson’s motion to compel.
Appellees argued Tilson’s suit to enforce the arbitration agreement was untimely
because the arbitration agreement provides, in pertinent part:

ANY DISPUTE OR CLAIM WHICH ARISE FROM OR RELATES
TO THIS AGREEMENT, THE WORK AND/OR THE HOME WILL
BE BARRED UNLESS THE CLAIM IS FILED WITH THE
AMERICAN ARBITRATION ASSOCATION (“AAA”) BY
OWNER OR CONTRACTOR WITHIN TWO (2) YEARS AND
ONE (1) DAY FROM THE DATE THE CAUSE OF ACTION
ACCRUES.

Tilson did not claim that it filed a claim with the AAA within the contractual
deadline. On January 11, 2016, a hearing was held prior to the time noticed by
Tilson and Tilson did not appear. The trial court denied Tilson’s motion and in its
order states:

IT IS THEREFORE ORDERED that the Plaintiff’s pleadings
establish that this Court no longer has jurisdiction over the party’s
[sic] based on mootness. The Court further finds that the suit was filed
more than two (2) years and one (1) day after the cause of action arose
and therefore the Court has no authority to order the parties to
arbitration.

From that order, Tilson brings this interlocutory appeal. See Tex. Civ. Prac. &

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Rem. Code Ann. § 51.016 (West 2015).

II. ANALYSIS

Because it would be dispositive, we first address appellees’ argument that
Tilson lacks standing to compel arbitration because it pursued court-ordered
arbitration without first pursuing arbitration by other means. We are aware of no
authority, and appellees cite none, either barring the contemporaneous filing of a
motion to compel arbitration and an original petition or finding that a plaintiff who
does so lacks standing to compel arbitration. See Valdez v. Texas Taco Cabana,
L.P., A-14-CA-389-SS, 2014 WL 2980270, at *1 (W.D. Tex. July 1, 2014)
(quoting Fonseca v. USG Ins. Servs., 467 F. App’x 260, 261 (5th Cir. 2012)
(unpublished) (wherein the court suggested plaintiff should have filed suit within
the statute of limitations and then sought a stay pending arbitration to guarantee
suit was brought within the limitations period). See also Brown v. Potter Concrete
Residential, Ltd., 05-13-00585-CV, 2014 WL 2993809, at *1 (Tex. App.—Dallas
June 30, 2014, pet. denied) (noting plaintiffs filed original petition and motion to
compel arbitration). Accordingly, we reject appellees’ argument.

Tilson’s first issue contends the trial court erred by denying its motion to
compel arbitration because it conclusively established (1) a valid arbitration
agreement governed by the Federal Arbitration Act (“FAA”), and (2) that its
claims against appellees are within the scope of the arbitration agreement.
Appellees concede the existence of a valid arbitration agreement governed by the
FAA. They assert, however, that because Tilson filed for arbitration after the
contractual deadline had passed, its claims are not within the scope of the
arbitration agreement. Appellees argue the contractual deadline is part of the scope
of arbitration.

This court has previously held that prerequisites to the obligation to
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arbitrate, such as time limits, are questions for the arbitrator, not the trial court. In
re Global Constr. Co., 166 S.W.3d 795, 798 (Tex. App.—Houston [14th Dist.]
2005, orig. proceeding) (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S.
79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002)). Issues involving procedural
impediments to arbitration — generally any issue requiring the adjudicator to
decide if a party has satisfied the prerequisites to compelling arbitration — involve
procedural arbitrability. Id. “Procedural arbitrability is the province of the
arbitrator.” Global Constr. Co., 166 S.W.3d at 798. See also G.T. Leach Builders,
458 S.W.3d 502, 520 (Tex. 2015).

The Texas Supreme Court has recently agreed that whether or not a
contractual deadline bars a party’s demand for arbitration is a question of
procedural arbitrability. G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458
S.W.3d at 519–23. Appellees rely upon the allowance in G.T. Leach Builders that a
contention “the deadline operates to limit the scope of the claims the parties agreed
to arbitrate” might raise issues of substantive arbitrability for the court to decide.
458 S.W.3d at 522. For this proposition, the court compared Quilloin v. Tenet
HealthSystem Phila., Inc., 673 F.3d 221, 234 (3d Cir. 2012) (considering argument
that time limit in arbitration agreement was substantively unconscionable), and
Kristian v. Comcast Corp., 446 F.3d 25, 43–44 (1st Cir. 2006) (holding that
arbitrator should decide whether contract’s one-year limitations provision
conflicted with Clayton Act’s four-year statute of limitations for antitrust claims).
As there has been no claim in this case that the time limit is unconscionable,
Quilloin is clearly distinguishable. Appellees argue the passage of two years and a
day bars all claims, thus it operates as a limitations provision, making this case
more akin to Kristian.

We do not disagree that whether a particular claim or dispute is within the

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scope of the agreement is a matter of substantive arbitrability. ODL Servs., Inc. v.
ConocoPhillips Co., 264 S.W.3d 399, 413 (Tex. App.—Houston [1st Dist.] 2008,
no pet.). However, appellees do not contend the contractual deadline operates to
limit the scope of the arbitration agreement, but that it bars all of Tilson’s claims.
The arbitration agreement in this case, as in G.T. Leach, provides claims will be
“barred.” In G.T. Leach, the opposing party argued “G.T. Leach failed to demand
arbitration prior to a deadline that the contract expressly imposes.” Appellees argue
in this case that Tilson failed to demand arbitration, by filing a claim with the
AAA, prior to the contractual deadline. We see no meaningful distinction between
the case at bar and G.T. Leach.1

The existence of a valid arbitration agreement has not been contested.
Whether Tilson’s failure to demand arbitration prior to the contractual deadline
bars its claim is a question of procedural, not substantive, arbitrability. Thus the
trial court had no discretion but to compel arbitration of the dispute, leaving the
parties to present the matter of the delay in requesting arbitration to the arbitrator.
See Global Constr. Co., 166 S.W.3d at 799. Tilson’s first issue is sustained.

Tilson’s second issue contends the trial court erred by conducting an ex
parte hearing on Tilson’s motion to compel arbitration and appellee’s motion to
dismiss for lack of jurisdiction, without notice to Tilson. Our disposition of
Tilson’s first issue makes it unnecessary to address this contention.

Tilson’s third issue argues the trial court erred by concluding it lacked
jurisdiction because the suit was untimely and thus became moot, leaving the court
no authority to order the parties to arbitration. We agree that this conclusion was
error. See Global Constr. Co., 166 S.W.3d at 799 (granting petition for writ of
1
Because we do not rely solely upon G.T. Leach, but also upon our own precedent in Global
Constr. Co., 166 S.W.3d at 798, we find it unnecessary to consider appellees’ argument that the holding
in G.T. Leach is dictum and therefore not binding on or of any precedential value to the instant case.

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mandamus and directing the trial court to order claims to arbitration). Issue three is
sustained. An argument that a prerequisite to arbitration has not been met goes to
the merits, not to the court’s jurisdiction.2

For these reasons, we reverse the trial court’s order and remand the case to
the trial court for entry of an order compelling arbitration and staying the litigation
pending the outcome of the arbitration. See Amir v. Int’l Bank of Commerce, 419
S.W.3d 687, 693–94 (Tex. App.—Houston [1st Dist.] 2013, no pet.).

/s/ John Donovan
Justice

Panel consists of Justices Christopher, Busby and Donovan.

2
See Dubai Petroleum Co. v. Kazi, 12 S.W.3d 71, 76–77 (Tex. 2000) (“The right of a plaintiff to
maintain a suit, while frequently treated as going to the question of jurisdiction, has been said to go in
reality to the right of the plaintiff to relief rather than to the jurisdiction of the court to afford it.”); Yasuda
Fire & Marine Ins. Co. of Am. v. Criaco, 225 S.W.3d 894, 898 (Tex. App.—Houston [14th Dist.] 2007,
no pet.) (“Although lawyers and courts occasionally state informally that an entity has no ‘standing’ to
enforce a contract ... such an entity’s inability to sue goes to the merits and does not deprive courts of
jurisdiction.”).

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