All American Excavation, Inc. v. Austin Materials, LLC

• Court: Court of Appeals of Texas
• Decided: April 13, 2016
• Docket: 04-15-00779-CV
• Status: Published

Opinion

Fourth Court of Appeals San Antonio, Texas MEMORANDUM OPINION Nos. 04-15-00779-CV; 04-15-00780-CV; 04-15-000781-CV & 04-15-00782-CV

ALL AMERICAN EXCAVATION, INC., Appellant

v. AUSTIN AUSTIN MATERIALS, LLC d/b/a Ramming Paving Company, Appellee

From the 131st Judicial District Court, Bexar County, Texas Trial Court Nos. 2015-CI-10299; 2015-CI-10743; 2015-CI-13685 & 2015-CI-11880 Honorable Antonia Arteaga, Judge Presiding

Opinion by: Sandee Bryan Marion, Chief Justice

Sitting: Sandee Bryan Marion, Chief Justice Karen Angelini, Justice Luz Elena D. Chapa, Justice

Delivered and Filed: April 13, 2016

REVERSED AND REMANDED

All American Excavation, Inc. (“AAE”) appeals the trial court’s order in each of the

underlying causes denying its motion to abate and compel arbitration. AAE contends the trial

court erred in denying its motion to compel arbitration because AAE established as a matter of law

the claims asserted against it in the underlying causes by Austin Materials, LLC d/b/a Ramming

Paving Company were within the scope of a valid arbitration agreement. AAE further contends

the trial court erred in failing to abate the underlying causes pending the arbitration. We reverse

the trial court’s orders. 04-15-00779-CV; 04-15-00780-CV; 04-15-00781-CV & 04-15-00782-CV

FACTUAL AND PROCEDURAL BACKGROUND

In 2013, AAE and Ramming Paving entered into a Subcontract Agreement containing

general provisions applicable to work to be performed by Ramming Paving for AAE. The work

was generally described as asphalt paving, seal coat and striping services. The Subcontract

Agreement stated that the owner, architect, and contract price would be determined by individual

purchase orders. The Subcontract Agreement contained a broad arbitration provision

encompassing “any dispute, controversy or claim” between the parties.

In 2015, Ramming Paving filed the underlying lawsuits against AAE claiming AAE had

failed to pay Ramming Paving for various services and materials it had provided on four

construction projects. AAE filed counter-claims asserting no amounts were due because of offsets

and back charges for defective work. In addition, AAE filed a motion to compel arbitration and

abate in each lawsuit.

On November 20, 2015, the trial court conducted a hearing on AAE’s motions. At the

hearing, AAE presented an affidavit from its President in each lawsuit. Ramming Paving

presented argument during the hearing regarding various reasons the Subcontract Agreement and

the arbitration provision contained therein were unenforceable, including lack of consideration or

mutuality and absence of specificity or detail. The trial court took the matter under advisement at

the conclusion of the hearing. After the hearing, both parties filed letter briefs further clarifying

their arguments. The trial court subsequently signed orders denying AAE’s motions, and AAE

now appeals.

VALIDITY OF AGREEMENT

“A party attempting to compel arbitration must first establish that the dispute in question

falls within the scope of a valid arbitration agreement.” J.M. Davidson, Inc. v. Webster, 128

S.W.3d 223, 227 (Tex. 2003). “If the other party resists arbitration, the trial court must determine -2- 04-15-00779-CV; 04-15-00780-CV; 04-15-00781-CV & 04-15-00782-CV

whether a valid agreement to arbitrate exists.” Id. Ordinary principles of state contract law

determine whether a valid agreement to arbitrate exists. G.T. Leach Builders, LLC v. Sapphire

V.P., LP, 458 S.W.3d 502, 524 (Tex. 2015). If the evidence establishes a valid agreement, “the

burden shifts to the party opposing arbitration to raise an affirmative defense to enforcing

arbitration.” J.M. Davidson, Inc., 128 S.W.3d at 227. “The trial court’s determination of the

arbitration agreement’s validity is a legal question subject to de novo review.” Id.

AAE contends it proved the validity of the agreement; therefore, the trial court erred in

denying its motions to compel arbitration. Ramming Paving responds the agreement is not an

enforceable contract because its terms were too indefinite and the agreement was not supported by

consideration.

A. Indefiniteness of Subcontract Agreement

Ramming Paving contends the Subcontract Agreement lacks specificity because it refers

to documents in an exhibit which is not attached, refers to a purchase order which was not

introduced into evidence, and does not specify the required retainage. AAE responds the

Subcontract Agreement is a typical master agreement containing general terms which govern the

parties’ legal relationship upon the subsequent execution and acceptance of a purchase order or

other similar request for work or services on a specific project.

Generally, “[i]n order to be legally binding, a contract must be sufficiently definite in its

terms so that a court can understand what the promisor undertook.” T.O. Stanley Boot Co. v. Bank

of El Paso, 847 S.W.2d 218, 221 (Tex. 1992). In the context of a master service agreement

between a contractor and a subcontractor, the master service agreement is not sufficiently definite

to bind either party to perform any services. Moser v. Aminoil, USA, Inc., 618 F. Supp. 774, 779

(W. Dist. La. 1985). The master service agreement “merely sets forth [the parties’] agreement to

abide by certain terms should they enter into contractual relations in the future.” Id. Once the -3- 04-15-00779-CV; 04-15-00780-CV; 04-15-00781-CV & 04-15-00782-CV

contractor requests the services of the subcontractor, however, the request provides the remaining

material terms, and “the terms of the master service agreement are incorporated automatically into

the written or verbal contract to perform the specified services.” Id.

“The law favors finding agreements sufficiently definite for enforcement,” particularly

where services have been provided under the contract for which compensation was to be paid.

America’s Favorite Chicken Co. v. Samaras, 929 S.W.2d 617, 623 (Tex. App.—San Antonio

1996, writ denied). “Where the evidence shows that the parties intended to enter into an

agreement, the courts should find the contract to be definite enough to grant a remedy provided

that there is a certain basis for determining the remedy.” Id.

In this case, the Subcontract Agreement provided the general terms that would govern any

asphalt paving, seal coat and striping services Ramming Paving provided to AAE. The remaining

material terms, including the identity of the specific project and the pricing terms, were to be

provided in a subsequent purchase order exchanged between the parties. Once AAE and Ramming

Paving agreed to the terms in a subsequent purchase order, the purchase order and the Subcontract

Agreement together would provide all material terms, thereby forming an enforceable contract.

During the hearing before the trial court, Ramming Paving referenced the Houston court’s

decision in ODL Servs., Inc. v. ConocoPhillips Co., 264 S.W.3d 399 (Tex. App.—Houston [1st

Dist.] 2008, no pet.), which it also cites in its brief. In that case, the predecessors of ODL Services,

Inc. and ConocoPhillips Co. entered into a master agreement pursuant to which ODL agreed to

provide services to Conoco. Id. at 403-05. The master agreement provided its terms would apply

on Conoco’s issuance and ODL’s acceptance of a Request for Services (“RFS”). Id. at 404. In

2006, ODL entered into an agreement to provide services to Conar Construcciones, C.A., a

Venezuelan company, which in turn had a contract with Conoco Venezuela C.A. (“CVCA”), an

affiliate of, but a separate company from, Conoco. Id. at 405. After Conar defaulted under its -4- 04-15-00779-CV; 04-15-00780-CV; 04-15-00781-CV & 04-15-00782-CV

contract, a meeting was held on December 14, 2006, regarding the project at which representatives

from ODL and CVCA were present. Id. Conflicting evidence was presented as to whether Conoco

representatives also were present. Id.

In 2007, ODL made an arbitration demand on Conoco seeking almost $7 million for goods

and services it provided on the project after the December meeting. Id. at 406-07. Conoco filed a

petition for declaratory relief seeking to prevent ODL from pursuing arbitration under the master

agreement. Id. at 407. ODL sought mandamus relief after the trial court denied its motion to

compel. Id. at 403, 408. The Houston court noted “although the parties disputed whether the

request for ODL’s services that could trigger the Master Agreement could be made in ways other

than by issuing and executing a formal RFS, they did not dispute that some kind of request by

Conoco, and acceptance by ODL, was required to make the Master Agreement apply and for its

arbitration clause to bind Conoco.” Id. at 414. Although there was conflicting evidence on

whether some type of triggering request was made, the trial judge resolved the conflicting evidence

in favor of Conoco, “finding that ODL and Conoco did not enter into an agreement on December

14, 2006 that [invoked] the Master Agreement.” Id. at 416. Instead, the trial court “found that

CVCA (not Conoco) agreed on December 14, 2006, to begin paying [ODL] directly.” Id.

“Consequently, the trial judge did not abuse her discretion in concluding that no arbitration

agreement existed between” ODL and Conoco. Id.

In the instant case, the only evidence presented with regard to the Subcontract Agreement

were the affidavits of AAE’s president in which he stated the Subcontract Agreement, which was

attached to the affidavit as an exhibit, “was the master agreement between [the parties] concerning

the work and project made the basis of the claims at issue in this lawsuit.” The same affidavit was

filed in each lawsuit. These affidavits are evidence that a request was made that triggered the

Subcontract Agreement which thereby governed the completed work Ramming Paving performed -5- 04-15-00779-CV; 04-15-00780-CV; 04-15-00781-CV & 04-15-00782-CV

on each project. Because the affidavits were evidence establishing a definite, enforceable, valid

agreement, the burden shifted to Ramming Paving. See J.M. Davidson, Inc., 128 S.W.3d at 227.

Ramming Paving presented no controverting evidence at the hearing. Therefore, the ODL Servs.,

Inc. decision is factually distinguishable.

Because the only evidence established that AAE made a request for Ramming Paving’s

services which triggered the Subcontract Agreement for the work performed by Ramming Paving,

we conclude the Subcontract Agreement coupled with the request was sufficiently definite to be

enforceable.

B. Consideration

Ramming Paving also contends the Subcontract Agreement and the arbitration provision

lacked consideration. With regard to the Subcontract Agreement, “[a] contract must be based upon

a valid consideration, in other words, mutuality of obligation.” Federal Sign v. Tex. Southern

Univ., 951 S.W.2d 401, 408 (Tex. 1997). Consideration is a bargained for exchange of promises.

Id.; Marx v. FDP, LP, 474 S.W.3d 368, 378 (Tex. App.—San Antonio 2015, pet. denied). As

previously noted, the only evidence presented at the hearing before the trial court established AAE

made a request for Ramming Paving’s services which triggered the Subcontract Agreement with

regard to the projects in question. Therefore, the evidence established Ramming Paving promised

to provide AAE with its services on the projects, and AAE agreed to pay Ramming Paving for

those services. Thus, the Subcontract Agreement was supported by sufficient consideration. See

In re AdvancePCS Health, L.P., 172 S.W.3d 603, 607 (Tex. 2005) (noting party who used the other

party’s services and network to obtain reimbursements for its services pursuant to a provider

agreement for ten years could not claim agreement was without consideration); United States ex

rel. D.R. Swindle Constr., L.P. v. Travelers Cas. & Sur., No. 7:08-CV-00174-O, 2009 WL

1904852, at *2 (N.D. Tex. July 1, 2009) (holding sufficient consideration existed to support -6- 04-15-00779-CV; 04-15-00780-CV; 04-15-00781-CV & 04-15-00782-CV

subcontract agreement where plaintiff agreed to provide labor for a project in exchange for

compensation from the defendant).

With regard to the arbitration provision, “[a]rbitration agreements, like other contracts,

must be supported by consideration.” In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 676 (Tex.

2006). “In the context of stand-alone arbitration agreements, binding promises are required on

both sides as they are the only consideration rendered to create a contract.” In re AdvancePCS

Health, L.P., 172 S.W.3d at 607; see also In re Palm Harbor Homes, Inc., 195 S.W.3d at 676

(noting “consideration may take the form of bilateral promises to arbitrate”). If “one party can

avoid its promise to arbitrate by amending the [arbitration] provision or terminating it altogether,”

however, the promise is illusory. In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010). “When

illusory promises are all that support a purported bilateral contract, there is no mutuality of

obligation, and therefore, no contract.” Id.

The rule is different, however, when the arbitration provision is part of a larger underlying

contract. See In re Palm Harbor Homes, Inc., 195 S.W.3d at 676; In re AdvancePCS Health, L.P.,

172 S.W.3d at 607. In that context, “the rest of the parties’ agreement provides the consideration.”

In re AdvancePCS Health, L.P., 172 S.W.3d at 607; see also In re Palm Harbor Homes, Inc., 195

S.W.3d at 676 (noting “when an arbitration clause is part of a larger, underlying contract, the

remainder of the contract may suffice as consideration for the arbitration clause”). In this case,

the arbitration provision is part of the larger Subcontract Agreement which provides the

consideration. See Cleveland Constr., Inc. v. Levco Constr., Inc., 359 S.W.3d 843, 853-54 (Tex.

App.—Houston [1st Dist.] 2012, pet. dism’d) (holding underlying construction contract provided

consideration for arbitration provision contained therein); United States ex rel. D.R. Swindle

Constr., L.P., 2009 WL 1904852, at *2 (holding consideration existed for arbitration provision in

-7- 04-15-00779-CV; 04-15-00780-CV; 04-15-00781-CV & 04-15-00782-CV

subcontract agreement). Therefore, we hold the arbitration provision is supported by adequate

C. Conclusion

Based on the foregoing, we hold AAE proved the existence of a valid agreement that was

supported by consideration and sufficiently definite to be enforceable. 1

UNCONSCIONABILITY

In its brief, Ramming Paving also argues the Subcontract Agreement is unenforceable for

reasons of unconscionability. Ramming Paving did not, however, present this argument to the trial

court. A party must present argument to the trial court that an arbitration provision is

unconscionable, or the argument is waived and cannot be considered for the first time on appeal.

See Winslow v. D.R. Horton America’s Builder, No. 04-12-00376-CV, 2013 WL 2368300, at *1

n.2 (Tex. App.—San Antonio May 29, 2013, no pet.); 950 Corbindale, L.P. v. Kotts Capital

Holdings Ltd. P’ship, 316 S.W.3d 191, 196 (Tex. App.—Houston [14th Dist.] 2010, no pet.).

STAY OF REMAINING PROCEEDINGS

In its second issue, AAE contends the trial court abused its discretion in failing to abate the

underlying cases pending the arbitration. Because the trial court denied AAE’s motion to compel,

it did not expressly rule on AAE’s request to abate the claims involving parties other than AAE

and Ramming Paving pending the outcome of the arbitration. We address AAE’s second issue

because it is likely to arise again on remand. See Garza v. Cantu, 431 S.W.3d 96, 107 n.7 (Tex.

App.—Houston [14th Dist.] 2013, pet. denied) (addressing issue likely to arise again on retrial in

1 Because we hold the arbitration agreement is valid, we do not address AAE’s alternative argument regarding whether Ramming Paving’s challenges to the agreement’s validity presented an issue of substantive arbitrability which the arbitrator should have decided.

-8- 04-15-00779-CV; 04-15-00780-CV; 04-15-00781-CV & 04-15-00782-CV

the interest of judicial economy); Sheshtawy v. Sheshtawy, 150 S.W.3d 772, 780 (Tex. App.—San

Antonio 2004, pet. denied) (addressing issue likely to arise on remand).

During the hearing, AAE argued Ramming Paving’s claims against the other parties in the

underlying lawsuits were derivative of the claims between AAE and Ramming Paving. For

example, if Ramming Paving did not prevail at arbitration, Ramming Paving could not recover on

any surety bonds or foreclose on any liens which are the types of claims asserted against the other

parties to the lawsuits. We agree that in order to resolve the claims against the other parties, a

determination is first required as to whether Ramming Paving is entitled to recover against AAE,

which is an issue to be resolved in the arbitration. Accordingly, the litigation against the other

parties “must be abated to ensure that an issue [to be determined by the arbitrator] is not decided

instead in collateral litigation.” In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 196 (Tex.

2007).

CONCLUSION

Because AAE proved the existence of a valid, enforceable arbitration agreement, no

defenses to the enforcement of the agreement were established, and no dispute was raised as to

whether Ramming Paving’s claims fall within its scope, the trial court erred in denying AAE’s

motions to compel. Accordingly, we reverse the trial court’s orders denying AAE’s motions to

compel arbitration and “remand [these causes] with instructions to the trial court to enter [orders]

compelling arbitration between the parties and staying all other proceedings pending the outcome

of the arbitration.” Nabors Drilling USA, LP v. Pena, 385 S.W.3d 103, 108 (Tex. App.—San

Antonio 2012, pet. denied); see also Henry v. Gonzalez, 18 S.W.3d 684, 692 (Tex. App.—San

Antonio 2000, pet. dism’d by agr.) (remanding cause with instructions to enter order compelling

arbitration and staying all other proceedings pending the outcome of the arbitration).

Sandee Bryan Marion, Chief Justice -9-