Gary Hodge and Robert Hart III v. Stephen Kraft Ind. and as Member on Behalf of Grupo Habanero LLC

Opinion

ACCEPTED 04-15-00056-CV FOURTH COURT OF APPEALS SAN ANTONIO, TEXAS 6/3/2015 3:57:49 PM KEITH HOTTLE CLERK

No. 04-15-00056-CV th IN THE 4 DISTRICT COURT OF APPEALS SAN ANTONIO, TEXAS FILED IN 4th COURT OF APPEALS SAN ANTONIO, TEXAS GARY HODGE AND 6/3/2015 3:57:49 PM ROBERT HART III, KEITH E. HOTTLE Appellants, Clerk v.

STEPHEN KRAFT INDIVIDUALLY AND AS MEMBER ON BEHALF OF GRUPO HABANERO, LLC, Appellees. __________________

On appeal from the 225th District Court of Bexar County, Texas

__________________

REPLY BRIEF OF APPELLANTS __________________

Respectfully submitted,

Roderick J. Regan Attorney for Appellants BRANSCOMB | PC 711 Navarro St., Suite 500 San Antonio, TX 78205 Phone: (210) 598-5400 Fax: (210) 598-5405 SBN: 16733040

APPELLANTS REQUEST ORAL ARGUMENT

i TABLE OF CONTENTS

TABLE OF CONTENTS……………………………………………….…… ii

INDEX OF AUTHORITIES ……………………………………………….. iii

REFERENCE CITATION GUIDE ………………………………………… iv

ISSUES PRESENTED AND REPLY POINTS……………………………...iv

REPLY ARGUMENT ………………………………………………………. 2

REPLY POINT I TO ISSUES I AND II: Denial of an appraisal clause that requires arbitration is reviewable under the Texas Arbitration Act………………………………………………...2

REPLY POINT II TO ISSUES III AND IV: Appellees’ have failed to provide the only evidence that would support their argument against strict compliance with the notice provision, i.e. their own written notice of change of address ……...5

REPLY POINT III TO ISSUE IV: No waiver of legal arguments. ……...6

PRAYER ……………………………………………………………………..7

ii INDEX OF AUTHORITIES Cases:

Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996)……………...3

Crown Constr. Co. v. Huddleston, 961 S.W.2d 552 (Tex. App.—San Antonio 1997)………………………………………………………………………………..3

Ellis v. Schlimmer, 337 S.W.3d 860, 862 (Tex. 2011)……………………………..2

In re Certain Underwriters at Lloyds, 2011 WL 4837869, at * 4 (Tex. App.— Waco 2011, no pet.)………………………………………………………………..4

In re Trammell, 246 S.W.3d 815, 820 (Tex. App.—Dallas 2008, no pet.)………...4

In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999).

Lass v. State Farm Mut. Auto Ins. Co., 2000 WL 1125287, at * 5 (Tex. App.— Houston [14th Dist.] 2000, rev. denied)……………………………………………3

Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995)………………2

Quick v. City of Austin, 7 S.W.3d 109, 116 (Tex. 1998)…………………………...2

Tex. Petrochemicals LP v. ISP Water Mgmt. Servs. LLC, 301 S.W.3d 879, 884 (Tex. App.—Beaumont 2009, no pet.)……………………………………………..2

Vanguard Underwriters Ins. Co. v. Smith, 999 S.W.2d 448 (Tex. App.—Amarillo 1999)………………………………………………………………………………..3

Woodward v. Liberty Mut. Ins. Co., 2010 WL 1186323 (N.D. Tex. 2010) ............ 10

iii REFERENCE CITATION GUIDE

The Parties:

In lieu of using the full names of the parties, this Brief may refer to the parties as follows:

Gary Hodge “Hodge” or “Appellant”

Robert Hart III “Hart” or “Appellant”

Gary Hodge and Robert Hart III “Appellants”

Stephen Kraft “Kraft” or “Appellee”

Stephen Kraft Individually “Appellees” And as member on behalf of Grupo Habanero, LLC

ISSUES PRESENTED and REPLY POINTS

ISSUE I Whether the trial court has abused its discretion in denying Appellants’ Motion to Compel Appraisal based on the argument that a condition precedent to initiating appraisal by appraiser appointed by the American Arbitration Association has not been met.

ISSUE II Whether Appellees’ receipt of timely notice of option election to repurchase membership interest satisfying the alleged condition precedent to initiating appraisal was established as a matter of law.

REPLY POINT I TO ISSUES I AND II: Denial of an appraisal clause that requires arbitration is reviewable under the Texas Arbitration Act.

iv ISSUE III Whether strict compliance with the alleged condition precedent to compelling appraisal was excused.

A. Due to original impossibility B. Due to mutual mistake C. Due to Appellee’s false representation and/or concealment of a material fact

ISSUE IV Whether Appellees are estopped from asserting a right to receive timely notice of Appellants’ exercise of their option to repurchase stock due to Appellees’ false representation and/or concealment making any exercise of notice under the strict contract provisions impossible.

REPLY POINT II TO ISSUES III AND IV: Appellees’ have failed to provide the only evidence that would support their argument against strict compliance with the notice provision, i.e. their own written notice of change of address.

REPLY POINT III TO ISSUE IV: No waiver of legal argument

v No. 04-15-00056-CV th IN THE 4 DISTRICT COURT OF APPEALS SAN ANTONIO, TEXAS

GARY HODGE AND ROBERT HART III, Appellants, v.

STEPHEN KRAFT INDIVIDUALLY AND AS MEMBER ON BEHALF OF GRUPO HABANERO, LLC, Appellees. __________________

On appeal from the 225th District Court of Bexar County, Texas

__________________

REPLY BRIEF OF APPELLANTS __________________

TO THE HONORABLE COURT OF APPEALS:

Appellants Gary Hodge and Robert Hart III (“Appellants”), submit this

Reply Brief. Appellants respectfully show:

1 REPLY ARGUMENT

POINT I Denial of an appraisal clause that in essence requires arbitration is reviewable under the Texas Arbitration Act. 1

The appraisal provision in the Employment Contract is in essence an

arbitration provision. The scope of arbitration is broad. A strong presumption

favors arbitration, and courts resolve any doubts about an agreement’s scope,

waiver, and other issues unrelated to its validity in favor of arbitration. Ellis v.

Schlimmer, 337 S.W.3d 860, 862 (Tex. 2011) (per curiam). Unless it can be said

with positive assurance than an arbitration clause is not susceptible to an

interpretation which would cover the dispute at issue, a court should not deny

arbitration. Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995).

Whether a claim falls within the scope of an arbitration agreement includes the trial

court’s legal interpretation of the agreement and is subject to de novo review. Tex.

Petrochemicals LP v. ISP Water Mgmt. Servs. LLC, 301 S.W.3d 879, 884 (Tex.

App.—Beaumont 2009, no pet.). When reviewed de novo, appellate courts give

absolutely no deference to the trial court’s decision.” Quick v. City of Austin, 7

1 In reply to Appellee’s Issues I and II.

2 S.W.3d 109, 116 (Tex. 1998).2

An appraisal contract provision, whether invoking an appraiser appointed by

the American Arbitration Association or not, “is in essence one requiring

arbitration.” Vanguard Underwriters Ins. Co. v. Smith, 999 S.W.2d 448, 451 (Tex.

App.—Amarillo 1999). A party seeking arbitration must establish the existence of

an arbitration agreement, and show, that claims raised fall within the scope of the

agreement. Id. (citing Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex.

1996)). Once the party establishes a claim within the arbitration agreement, the

trial court must compel arbitration and stay its own proceedings. Id. (citing In re

Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999). Appointment of

an arbitrator to resolve a dispute over value is clearly authorized by the Texas

Arbitration Act and the appraisal requirement of a contract “are now generally

considered to be a form of arbitration.” Lass v. State Farm Mut. Auto Ins. Co.,

2000 WL 1125287, at * 5 (Tex. App.—Houston [14th Dist.] 2000, rev. denied).

Appellees’ citation of Crown Constr. Co. vs. Huddleston, 961 S.W.2d 552

(Tex.App.—San Antonio 1997, no pet.) is misplaced. While Crown addresses the

requirements of personal delivery, it does so in a context where the address in the

2 Thus, Appellees’ “implied finding” argument in its Issue II is moot because the decision is reviewed de novo. Regardless, no evidence of such an “implied finding” can be found in the record, nor did Appellees attempt to cite from the record in support of its argument.

3 option agreement was correct. Crown cannot be said to stand for Appellees’

notion that personal delivery remains required where the address is wrong.

Appellees’ claim the address is wrong due to a “scrivener’s error’ but they in fact

provide no evidence whatsoever that the address in the Employment Agreement

was not what they provided for in their written approval of the Employment

Agreement. Appellees’ notion of a “scrivener’s error” is merely nothing but self-

serving surmise.

Appellees did not and cannot provide any authority supporting their

argument against appellate jurisdiction to review the trial court’s order denying

Appellants’ Motion to Compel Appraisal under the Texas Civil Practice and

Remedies Code § 171.098. To the contrary, appraisal clauses “can provide a less

expensive, more efficient alternative to litigation,” analogous to arbitration

provisions and trial courts “have no discretion to ignore a valid appraisal clause

entirely.” In re Certain Underwriters at Lloyds, 2011 WL 4837869, at * 4 (Tex.

App.—Waco 2011, no pet.) (citations omitted). Whether a claim is subject to

arbitration turns on its substance; and, parties cannot evade an arbitration clause

through artful pleading. In re Trammell, 246 S.W.3d 815, 820 (Tex. App.—Dallas

2008, no pet.). The existence of claims unrelated to the arbitrated appraisal does

not remove this case from the Court’s jurisdiction because these claims are subject

4 to a finding that the membership interest in question has value and is owned by Mr.

Kraft. Appellants assert that they have validly executed the option to repurchase

the membership interest and, as such, the only dispute is the value, if the

membership interest maintains any value at all. 3 Therefore, Appellants’ Motion to

Compel Appraisal must be granted, as in essence an arbitration of value, to

determine, as a threshold issue, if Appellee’s can maintain any cause of action in

the trial court. To deny the request is an abuse of discretion and contrary to strong

policy favoring the efficient adjudication of disputes.

POINT II Appellees’ have failed to provide the only evidence that would support their argument against strict compliance with the notice provision, i.e. written notice of change of address, choosing instead to rely on unsupported factual representations. 4

Appellees have failed to show, both to the trial court and now this court, the

only dispositive fact: their written notice changing the address in the Employment

Agreement. Appellees instead argue, contrary to their own demands of strict

compliance, that Appellant should not have strictly complied with Appellees’

address in the Employment Agreement. Appellees instead call for a departure

3 In the event the membership interest has nominal value (as asserted by Appellants), Appellees’ entire case fundamentally lacks jurisdiction in the trial court. 4 Reply to Appellees’ Issues III and IV.

5 from strict compliance in regards to the place notice was to be delivered, because

they concede that their address barred Appellants from strictly complying.

Appellee contends that “a scrivener’s” error imposed a legal burden upon

Appellants to conjure up a different address than the one Appellee specified for

himself in the Employment Agreement. Yet Appellees do not cite any legal

authority for this. But for Appellee’s approval of a wrong address in the

Employment Contract, and his failure to designate an alternative correct address in

writing, the parties would be arbitrating the value of the membership interest and

transferring ownership—ending the dispute. Appellee should not now be heard to

require strict compliance with the language in the Employment Agreement option

as to the timing and manner of notice delivery, but yet call upon the court to excuse

strict compliance in regards to the place of delivery, and require delivery of notice

to an address not provided for in writing by Appellee.

POINT III No waiver of legal arguments. 5

Appellees’ failure to provide evidence of written notice of change of

address, combined with Appellee’s admission that his incorrect address in the

Employment Agreement precluded Appellants’ personal delivery of the notice, are

dispositive of this appeal. Appellants’ timely delivery of notice to the address

5 Further reply to Appellees’ Issue IV.

6 specified by Appellee was all that was required to perfect exercise of the option.

PRAYER

WHEREFORE, Appellants respectfully request that this Court reverse the

trial court’s order denying Appellants’ Motion to Compel Appraisal, remand the

matter for entry of order granting Appellants’ Motion to Compel Appraisal and

grant such other and further relief to which Appellants may show itself to be justly

entitled.

Respectfully submitted,

Roderick J. Regan Attorney for Appellants BRANSCOMB | PC 711 Navarro St., Suite 500 San Antonio, TX 78205 Phone: (210) 598-5400 Fax: (210) 598-5405 SBN: 16733040

7 CERTIFICATE OF COMPLIANCE

I certify that this document was produced on a computer using Microsoft Word 2010 and contains 2,130 words, as determined by the computer software’s word-count function, excluding the sections of the document listed in Texas Rule of Appellate Procedure 9.4(i)(1).

Roderick J. Regan

CERTIFICATE OF SERVICE

I hereby certify that on this 3rd day of June 2015, a true and correct copy of the foregoing Appellant’s Reply Brief has been forwarded to the counsel below via certified mail, return receipt requested and email pursuant to the Texas Rules of Civil Procedure and the Texas Rules of Appellate Procedure.

Richard W. Espey Matthew Soliday Espey & Associates, PC 13750 San Pedro Avenue, Suite 730 San Antonio, TX 78232 Fax: (210) 404-0336 Attorneys for Appellees

Roderick J. Regan