ACCEPTED 01-15-00640-CV FIRST COURT OF APPEALS HOUSTON, TEXAS 10/7/2015 12:18:33 AM CHRISTOPHER PRINE CLERK
Cause No. 01-15-00640-CV
FILED IN IN THE COURT OF APPEALS 1st COURT OF APPEALS FOR THE FIRST DISTRICT OF TEXAS HOUSTON, TEXAS 10/7/2015 12:18:33 AM AT HOUSTON CHRISTOPHER A. PRINE Clerk
GREYSTONE MULTI-FAMILY BUILDERS, INC., Appellant, V.
TES ELECTRIC LP, Appellee.
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC.
RICHARD B. PHILLIPS, JR. J. MICHAEL BELL State Bar No. 24032833 State Bar No. 02079200 THOMPSON & KNIGHT LLP MEGAN H. SCHMID One Arts Plaza State Bar No. 24074383 1722 Routh Street THOMPSON & KNIGHT LLP Suite 1500 333 Clay Street Dallas, Texas 75201 Suite 3300 Phone: 214-969-1700 Houston, Texas 77002 Fax: 214-969-1751 Phone: 713-654-8111 rich.phillips@tklaw.com Fax: 713-654-1871 michael.bell@tklaw.com megan.schmid@tklaw.com
COUNSEL FOR APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC.
ORAL ARGUMENT REQUESTED IDENTITY OF PARTIES AND COUNSEL DEFENDANT/APPELLANT TRIAL COUNSEL Greystone Multi-Family J. Michael Bell Builders, Inc. Megan H. Schmid THOMPSON & KNIGHT LLP 333 Clay Street Suite 3300 Houston, Texas 77002 Phone: 713-654-8111 Fax: 713-654-1871 michael.bell@tklaw.com megan.schmid@tklaw.com
APPELLATE COUNSEL Richard B. Phillips, Jr. THOMPSON & KNIGHT LLP One Arts Plaza 1722 Routh Street, Suite 1500 Dallas, Texas 75201 214-969-1700 214-969-1751 rich.phillips@tklaw.com J. Michael Bell Megan H. Schmid THOMPSON & KNIGHT LLP 333 Clay Street Suite 3300 Houston, Texas 77002 Phone: 713-654-8111 Fax: 713-654-1871 michael.bell@tklaw.com megan.schmid@tklaw.com
-i- PLAINTIFF/APPELLEE TRIAL AND APPELLATE COUNSEL TES Electric LP Ashish Mahendru Darren A. Braun MAHENDRU, P.C. 639 Heights Boulevard Houston, Texas 77007 Phone: 713-571-1519 Fax: 716-651-0776 amahendru@thelitigationgroup.com dbraun@thelitigationgroup.com
-ii- TABLE OF CONTENTS Page
Identity of Parties and Counsel . . . . . . . . . . . . . . . . . . . . . . . . i
Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Index of Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
Statement of the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
Statement Regarding Oral Argument . . . . . . . . . . . . . . . . . . . . x
Statement Regarding Record References . . . . . . . . . . . . . . . . . . x
Issue Presented . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Statement of Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Summary of the Argument . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Argument and Authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1. The subcontract contains a binding arbitration agreement. . . . . . . . . . . . . . . . . . . . . . . . . 4
A. The only reasonable construction of the subcontract is that it gives Greystone the right to decide whether a dispute will be arbitrated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
-iii- Page
(1) Only Greystone’s construction gives effect to all of the provisions in Section 10.1. . . . . . . . . . 7
(2) An arbitration provision that gives one party the sole power to decide whether a claim should be arbitrated is enforceable. . . . . . . . . . . . . . . . 11
B. TES’s other arguments about section 10.1 are unavailing. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(1) TES cannot show that the agreement is unconscionable. . . . . . . . . . . . . . . . . . . . . . . 15
(2) TES’s new ambiguity argument also fails. . . . . . . 20
2. TES’s claims are within the broad scope of the arbitration agreement. . . . . . . . . . . . . . . . . . . . . . 22
A. The arbitration provision broadly applies to all disputes, claims, or questions. . . . . . . . . . . . . 23
B. The arbitration provision applies to tort claims that arose after the subcontract was terminated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Conclusion and Prayer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Certificate of Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Certificate of Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-iv- Appendices
A — Order Denying Greystone Multi-Family Builders, Inc.’s Motion to Compel Arbitration and Motion to Stay (CR 155) . . . . . . . . . . . . . . . Tab A
B — Excerpts from Subcontract Agreement (CR 31-32, 42-43) . . . . . . . . . . . . . . . . . . . . . . Tab B
-v- INDEX OF AUTHORITIES Page CASES 950 Corbindale, L.P. v. Kotts Capital Holdings Ltd. P’ship, 316 S.W.3d 191 (Tex. App.—Houston [14th Dist.] 2010, no pet.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Anglo-Dutch Petroleum Int’l v. Greenberg Peden P.C., 352 S.W.3d 445 (Tex. 2011) . . . . . . . . . . . . . . . . . . . . . . . . 21
Aspen Tech., Inc. v. Shasha, 253 S.W.3d 857 (Tex. App.—Houston [14th Dist.] 2003, no pet.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
AutoNation USA Corp. v. Leroy, 105 S.W.3d 190 (Tex. App.—Houston [14th Dist.] 2003, no pet.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6, 22
Basic Capital Mgmt., Inc. v. Dynex Commercial, Inc., 348 S.W.3d 894 (Tex. 2011) . . . . . . . . . . . . . . . . . . . . . . . . . 8
Beckham v. William Bayley Co., 655 F. Supp. 288 (N.D. Tex. 1987) . . . . . . . . . . . . . . . . . . . . 24
Belmont Constructors, Inc. v. Lyondell Petrochemical Co., 896 S.W.2d 352 (Tex. App.—Houston [1st Dist.] 1995, no pet.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Cleveland Constr. Inc. v. Levco Constr. Inc., 359 S.W.3d 843 (Tex. App.—Houston [1st Dist.] 2012, pet. dism’d by agr.) . . . . . . . . . . . . . . . . . 6, 11, 12, 13, 29
El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802 (Tex. 2012) . . . . . . . . . . . . . . . . . . . . . . . . 21
-vi- Page
Exxon Corp. v. Emerald Oil & Gas Co., L.C., 348 S.W.3d 194 (Tex. 2011) . . . . . . . . . . . . . . . . . . . . . . . . 21
FD Frontier Drilling (Cyprus), Ltd. v. Didmon, 438 S.W.3d 688 (Tex. App.—Houston [1st Dist.] 2014, pet. denied) . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 26, 28
Guggenheim Corp. Funding LLC v. Valerus Compression Servs., LP, 465 S.W.3d 673 (Tex. App.—Houston [1st Dist.] 2015, pet. filed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Hemyari v. Stevens, 355 S.W.3d 623 (Tex. 2011) . . . . . . . . . . . . . . . . . . . . . . . . 16
Henry v. Gonzalez, 18 S.W.3d 684 (Tex. App.—San Antonio 2000, pet. dism’d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
In re FirstMerit Bank, 52 S.W.3d 749 (Tex. 2001) . . . . . . . . . . . . . . . . . . . . . . . 14, 15
In re Halliburton, 80 S.W.3d 566 (Tex. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . 15
In re Hornbeck Offshore Corp., 981 F.2d 752 (5th Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . 24
In re Kellogg Brown & Root, 80 S.W.3d 611 (Tex. App.—Houston [1st Dist.] 2002, orig. proceeding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 202 (Tex. 2007) . . . . . . . . . . . . . . . . . . . . . 26
-vii- Page
In re PolyAmerica, L.P., 262 S.W.3d 337 (Tex. 2008) . . . . . . . . . . . . . . . . . . . . . . . . 18
In re Rubiola, 334 S.W.3d 220 (Tex. 2011) . . . . . . . . . . . . . . . . . . . . . . . . . 5
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (Tex. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . 7
Kline v. O’Quinn, 874 S.W.2d 776 (Tex. App.—Houston [14th Dist.] 1994, writ denied) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Leyendecker Constr. Inc. v. Berlanga, No. 04–13–00095–CV, 2013 WL 4009752 (Tex. App.—San Antonio Aug. 7, 2013, no pet.) . . . . . . . 11, 12, 13
Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796 (Tex. App.—Dallas 2008, pet. denied) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
RSUI Indem. Co. v. The Lynd Co., 466 S.W.3d 113 (Tex. 2015) . . . . . . . . . . . . . . . . . . . . . . . . 25
Serv. Corp. Int’l v. Lopez, 162 S.W.3d 801 (Tex. App.—Corpus Christi 2005, no pet.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
The Rice Co. (Suisse), S.A. v. Precious Flowers, Ltd., 523 F.3d 528 (5th Cir. 2008) . . . . . . . . . . . . . . . . . . . . 24, 25, 27
Travelers Indemnity Co. v. Texas Municipal League Joint Self- Insurance Fund, No. 01-08-00062-CV, 2008 WL 2756874 (Tex. App.—Houston [1st Dist.] July 17, 2008, no pet.) . . . . . . . 13
-viii- STATEMENT OF THE CASE
Nature of This is a dispute between a subcontractor and a the Case: general contractor on a multi-family construction project in Houston. Plaintiff/Appellee TES Electric LP was an electrical subcontractor on the project. (CR 31.) TES sued Defendant/Appellant Greystone Multi-Family Builders, Inc. (the general contractor) asserting breach-of-contract and various tort claims allegedly arising from TES’s work under the subcontract. (CR 3-14.)
Course of Greystone moved to compel arbitration based on an Proceedings: arbitration provision in the parties’ contract. (CR 17-85.) TES opposed the motion. (CR 108-24.)
Trial Court’s Following a non-evidentiary hearing, the trial court Disposition: (125th Judicial District Court, Hon. Kyle Carter, presiding) denied the motion to compel arbitration. (CR 155 (App. Tab A).) Greystone filed a timely notice of interlocutory appeal. (CR 158-59.) Grey- stone timely requested that the trial court file findings of fact and conclusions of law (CR 156-57), but no findings or conclusions were filed.
-ix- STATEMENT REGARDING ORAL ARGUMENT Appellant Greystone Multi-Family Builders, Inc. respectfully
requests that the Court hear oral argument in this appeal because the
Court will benefit from the opportunity to question the parties’ about
their competing views of the arbitration provision.
STATEMENT REGARDING RECORD REFERENCES The appellate record in this case includes a two-volume
reporter’s record, which will be cited as “[volume] RR [page],” and a
one volume “Corrected Original Clerk’s Record” (filed on August 18,
2015), which will be cited as ”CR [page].”
-x- ISSUE PRESENTED Did the trial court err by refusing to compel arbitration of TES Electric LP’s claims?
-xi- INTRODUCTION Greystone Multi-Family Builders, Inc. contracted for the right to
decide whether any disputes arising between Greystone and TES
Electric LP would be submitted to arbitration. The arbitration
provision in the parties’ subcontract gives Greystone the right to
request arbitration of any dispute that arises. Moreover, if TES
desires to arbitrate, the provision gives Greystone the option to
consent to arbitration or require litigation. The trial court erred in
refusing to enforce the parties’ arbitration agreement. Therefore, this
Court should reverse the trial court’s order and direct the trial court
to compel arbitration and stay litigation proceedings until the
arbitration is completed.
STATEMENT OF FACTS Greystone is the general contractor for a multi-family housing
project in Houston. (CR 29.) Greystone entered into a subcontract
agreement with TES under which TES was to provide electrical
services and related materials for the project. (Id.) After TES began
work on the project, there were multiple disputes about whether TES
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 1 was properly performing under the subcontract. (CR 19.) Eventually,
Greystone terminated the subcontract and hired a new subcontractor.
(Id.) TES has alleged that the owner of the new subcontractor is a
former TES employee. (CR 7.)
TES sued Greystone,1 asserting various breach-of-contract and
tort claims, all arising from the parties’ relationship under the
subcontract, including Greystone’s decision to terminate TES and
hire a new subcontractor. (CR 7-12.) TES has asserted claims for
breach of the subcontract. (CR 7-8.) TES has also asserted claims for
fraud and violation of the Texas Civil Theft Liability Act based on
Greystone’s alleged promise to pay for certain change orders. (CR 8,
10.) TES has also sued its former employees for tortious interference,
breach of fiduciary duty, unfair competition, and theft of trade
secrets. (CR 9-11.) TES claims that Greystone conspired with the
former employees in these actions. (CR 11.) Finally, TES seeks to
foreclose on alleged materialman’s liens. (CR 12.) Greystone disputes
all of TES’s claims. (CR 15.)
1 Greystone disputes TES’s allegations, but the merits of TES’s claims are beyond the scope of this appeal.
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 2 Greystone invoked the arbitration provision in the subcontract
and moved to compel arbitration of all of TES’s claims. (CR 17-28.)
TES opposed the motion (CR 108-23), and the trial court denied it.
(CR 155 (App. Tab A).) Greystone filed a request for findings of fact
and conclusions of law, but the trial court did not file any findings or
conclusions. (CR 156-57.) Greystone filed a timely notice of
interlocutory appeal to seek review of the trial court’s refusal to
compel arbitration. (CR 158-59.) Greystone then filed a motion to stay
the trial proceedings pending this appeal, which the trial court also
denied. (CR 155).
SUMMARY OF THE ARGUMENT The trial court erred in refusing to compel arbitration (and to
stay the trial proceedings) because the parties’ agreement contains a
binding arbitration clause. The clause gives Greystone the right to
either request arbitration if TES initiates litigation or consent to a
request for arbitration made by TES. This construction of the
arbitration provision is the only one that gives meaning to all of the
provisions of the agreement. TES’s attempt to limit the provision to
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 3 cases in which TES first requests arbitration ignores an entire
sentence of the agreement.
TES’s arguments against the enforceability of the agreement are
also misplaced. TES has not (and cannot) show that the agreement is
unconscionable by pointing to an obvious typographical error in the
agreement. The Court should also reject TES’s new argument that the
agreement is ambiguous because it was not raised below and because
it is legally unsupportable.
Moreover, the arbitration provision is broad enough to
encompass all of TES’s claims. The provision requires arbitration of
“all disputes, claims or questions,” which makes it broad enough to
encompass any dispute, not just contractual disputes. Because all of
TES’s claims are related to the subcontract, they must be submitted to
arbitration.
ARGUMENT AND AUTHORITIES 1. The subcontract contains a binding arbitration agreement. There is no dispute that the Federal Arbitration Act controls
whether arbitration should be compelled here. The arbitration
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 4 provision specifically provides that it “shall be governed by the
Federal Arbitration Act.” (CR 42 (App. Tab B).) The Texas Supreme
Court has held that the FAA applies when the parties expressly agree
to arbitrate under the FAA. See In re Rubiola, 334 S.W.3d 220, 223 (Tex.
2011) (“Parties may also expressly agree to arbitrate under the FAA.”)
When the parties specifically agree to be subject to the FAA, it applies
without regard to whether the transaction involves or affects
interstate commerce. See In re Kellogg Brown & Root, 80 S.W.3d 611,
617 (Tex. App.—Houston [1st Dist.] 2002, orig. proceeding) (“[W]hen,
as here, the parties agree to arbitrate under the FAA, they are not
required to establish that the transaction at issue involves or affects
interstate commerce.”). Moreover, in the trial court, TES agreed that
the FAA applies. (CR 110-11.)
When the FAA applies, a motion to compel arbitration must be
granted if (1) the agreement is valid and (2) the claims at issue are
within the scope of the arbitration agreement. See, e.g., Aspen Tech.,
Inc. v. Shasha, 253 S.W.3d 857, 865-66 (Tex. App.—Houston [14th
Dist.] 2003, no pet.); AutoNation USA Corp. v. Leroy, 105 S.W.3d 190,
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 5 195 (Tex. App.—Houston [14th Dist.] 2003, no pet.) (“Once the party
seeking arbitration establishes that an agreement exists under the
FAA and that the claims raised are within the agreement’s scope, the
trial court has no discretion but to compel arbitration.”).
In reviewing a trial court’s decision on a motion to compel
arbitration under the FAA, this Court defers to the trial court’s
factual determinations and reviews the trial court’s legal
determinations de novo. See Cleveland Constr. Inc. v. Levco Constr. Inc.,
359 S.W.3d 843, 851-52 (Tex. App.—Houston [1st Dist.] 2012, pet.
dism’d by agr.). Because there are no fact disputes in this appeal, the
standard of review is de novo.
A. The only reasonable construction of the subcontract is that it gives Greystone the right to decide whether a dispute will be arbitrated.
Section 10.1 of the subcontract provides:
With the consent of the General Contractor, all disputes, claims or questions not resolved informally are subject to arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Associa- tion. If General Contractor requests that any particular dispute, claim or question should be arbitrated, then arbitration shall be effected as provided hereinafter, and the decision of such arbitration shall be benign [sic] on all
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 6 parties. If, however, General Contractor elects not to consent to arbitration, then either or both parties may resort to an appropriate judicial action … .
(CR 42 (App. Tab B).) The parties’ dispute here centers on the fact
that the first and third sentences of Section 10.1 provide that
Greystone can “consent” to arbitration and the second sentence
provides that Greystone can “request” arbitration. Greystone argues
that the second sentence controls here because Greystone requested
that TES’s claims be arbitrated. (CR 23.) TES relies on the first and
third sentences to argue that this is a permissive arbitration clause
and that arbitration can be compelled only if TES first requests it and
Greystone then consents. (CR 113-14.)
(1) Only Greystone’s construction gives effect to all of the provisions in Section 10.1.
The issue is which party’s construction properly gives meaning
to all of the terms of the agreement. See, e.g., J.M. Davidson, Inc. v.
Webster, 128 S.W.3d 223, 229 (Tex. 2003) (holding that in construing
an arbitration agreement a court “must 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
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 7 meaningless”); see also Guggenheim Corp. Funding LLC v. Valerus
Compression Servs., LP, 465 S.W.3d 673, 681 (Tex. App.—Houston [1st
Dist.] 2015, pet. filed). Because the construction of an unambiguous
contract2 is a question of law, the Court should determine the
meaning of Section 10.1 de novo. E.g., Basic Capital Mgmt., Inc. v.
Dynex Commercial, Inc., 348 S.W.3d 894, 900 (Tex. 2011) (“[W]hen a
contract is not ambiguous, the construction of the written instrument
is a question of law for the court.” (internal citation omitted)).
By filing the motion to compel arbitration, Greystone exercised
its right as General Contractor to request that TES’s claims be
arbitrated. (CR 42 (“If General Contractor requests that any particular
dispute, claim or question should be arbitrated, then arbitration shall
be effected as provided hereinafter.” (emphasis added)) (App. Tab B).)
Under the terms of the arbitration agreement, that request triggered a
binding obligation to arbitrate the claims. (Id.). To give effect to the
second sentence, Section 10.1 must be construed to give Greystone
2 As discussed in Section 1.(B).(2), below, despite statements that TES has made in filings in this Court, neither party argued below that the subcontract is ambiguous.
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 8 the right to compel arbitration of any claim filed by TES that falls
within the scope of the arbitration agreement.3
To avoid this result, TES argued in the trial court that the
arbitration provision should be construed to require arbitration only
if Greystone consents to a request first made by TES. (CR 116.) In
other words, TES argues that because the first and third sentences of
Section 10.1 speak to Greystone’s “consent” to arbitration, “TES must
first request arbitration” before Greystone can consent and then
proceed to arbitration. (Id.)4
Contrary to TES’s argument, the only reasonable construction of
Section 10.1 that gives effect to all of its provisions is the construction
urged by Greystone. TES’s construction disregards Greystone’s right
3 As discussed in Section 2, below, the arbitration provision is a broad agreement that covers all claims related to the subcontract. Thus, all of TES’s claims fall within the scope of the arbitration provision. 4 TES also argued that the heading for Section 10.1 (“Arbitration by General Contractor Consent”) supports TES’s construction. (CR 114.) But the subcontract specifically provides that “[t]he captions appearing throughout this Subcontract … are descriptive only and for convenience, and in no way whatsoever define, limit or describe the scope or intent of this Subcontract, or in any way effect the Subcontract.” (CR 32 (App. Tab B).) Therefore, the heading for Section 10.1 cannot change the construction of the arbitration provision.
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 9 in the second sentence to request arbitration of “any” dispute, claim,
or question. Section 10.1 is written to account for the various ways in
which formal dispute resolution might be initiated. If TES attempts to
initiate arbitration, then the first and third sentences of Section 10.1
give Greystone the right to decide whether to consent to arbitration
or to withhold consent and require litigation instead. And if TES
initiates litigation, then the second sentence of Section 10.1 gives
Greystone the right to require that the claim be arbitrated. In either
scenario, Greystone has the right to decide whether the particular
claim, dispute, or question will be decided in arbitration or in
litigation. This construction gives meaning to all three sentences in
Section 10.1.
In the trial court, TES attempted to bolster its construction of
Section 10.1 by pointing out that if a payment dispute is arbitrated,
TES has the right to suspend performance during the arbitration. (CR
116.) TES reasoned that “Greystone would not want to give TES the
unilateral right to arbitrate a payment dispute and thereby suspend
its performance in middle of its contractual performance.” (Id.)
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 10 Greystone agrees with TES that Greystone would want to have the
last word about whether a dispute will be arbitrated so that TES
cannot create a right to suspend performance just by initiating an
arbitration proceeding. But this does not make TES’s interpretation
reasonable. Greystone’s construction accounts for this feature of the
subcontract, because in Greystone’s construction, the decision to
arbitrate rests solely with Greystone, regardless of how the dispute is
initiated.
(2) An arbitration provision that gives one party the sole power to decide whether a claim should be arbitrated is enforceable.
Texas courts have enforced arbitration agreements that give one
of the parties the sole power to decide whether a claim will be
arbitrated or litigated. See Cleveland Constr. Inc. v. Levco Constr. Inc.,
359 S.W.3d 843, 853-54 (Tex. App.—Houston [1st Dist.] 2012, pet.
dism’d by agr.); Leyendecker Constr. Inc. v. Berlanga, No. 04–13–00095–
CV, 2013 WL 4009752 at *2 (Tex. App.—San Antonio Aug. 7, 2013, no
pet.). In Cleveland Construction, the arbitration provision gave one
party (the general contractor) the sole option to decide that a claim
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 11 should be arbitrated. Cleveland Constr., 359 S.W.3d at 846. This Court
found that the arbitration agreement was enforceable because the
consideration for the agreement to arbitrate at the demand of the
general contractor was found in the other promises in the
subcontract. Id. at 853-54.
The arbitration provision in Leyendecker Construction similarly
gave one party the sole option to decide that a claim should be
arbitrated. Leyendecker Constr., 2013 WL 4009752 at *2. And the court
in that case also found that the agreement was enforceable. Id.
The language in the arbitration provisions in Cleveland
Construction and Leyendecker Construction is not the same as the
language here, but the effect is the same. Just as in those cases, the
language here gives Greystone the sole option to decide whether a
claim should be arbitrated. Greystone can either consent to a request
by TES to arbitrate or request arbitration if TES initiates litigation.
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 12 Just as in Cleveland Construction and Leyendecker Construction, the
provision here should be enforced.5
To argue that the agreement is permissive rather than binding,
TES relied in the trial court on Travelers Indemnity Co. v. Texas
Municipal League Joint Self-Insurance Fund, No. 01-08-00062-CV, 2008
WL 2756874 at *3 (Tex. App.—Houston [1st Dist.] July 17, 2008, no
pet.). (CR 115.) But the arbitration provision in that case was
materially different from the provision here. In Travelers, the
provision specifically gave both parties the right to accept or reject a
request for arbitration sent by the other party. Id. at *1. Here, in
contrast, only Greystone is given the right to reject a request for
arbitration. Therefore, the arbitration provision here is not
permissive.
In sum, to give effect to all of the sentences in Section 10.1, it
must be construed to give Greystone the right to request arbitration
5 At the hearing on Greystone’s motion to compel, TES’s counsel agreed that an arbitration provision that gives one party the sole right to decide whether a dispute will be arbitrated is valid. (2 RR 12.) TES instead argued against Greystone’s construction of the provision here. (Id.) For the reasons set out in Section 1.(A).(1), TES’s argument should be rejected.
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 13 when TES initiates litigation. This construction does not negate the
other sentences, which are operative only when TES initiates
arbitration rather than litigation, and Greystone has the right to
consent. TES’s proposed construction, on the other hand, ignores
Greystone’s right to request arbitration that is provided in the second
sentence of Section 10.1. To the extent the trial court concluded that
Section 10.1 is not a binding arbitration agreement or that Greystone
does not have the right to compel arbitration when TES initiates
litigation, the trial court erred.
B. TES’s other arguments about section 10.1 are unavailing.
TES also argued below that Greystone’s construction of Section
10.1 would make the arbitration provision unconscionable. (CR 117.)
But TES did not (and cannot) carry its burden on this argument. See
In re FirstMerit Bank, 52 S.W.3d 749, 756 (Tex. 2001) (“[S]ince the law
favors arbitration, the burden of proving a defense to arbitration is on
the party opposing arbitration.”). TES has also suggested that the
arbitration agreement is ambiguous. That argument fails because it
was not raised below and because TES is simply wrong.
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 14 (1) TES cannot show that the agreement is unconscionable.
“Unconscionability includes two aspects: (1) procedural
unconscionability, which refers to the circumstances surrounding the
adoption of the arbitration provision, and (2) substantive
unconscionability, which refers to the fairness of the arbitration
provision itself.” In re Halliburton, 80 S.W.3d 566, 571 (Tex. 2002). The
party asserting unconscionability bears the burden to prove it. In re
FirstMerit Bank, 52 S.W.3d at 756.
TES argues that the arbitration agreement is unconscionable
because it provides that “the decision of such arbitration shall be
benign [sic] on all parties.” (CR 118.) To make this argument, TES
asserts that if the award must be “benign,” the arbitrator cannot
award any damages. (CR 119.) And according to TES, if the arbitrator
cannot award any damages, then the arbitration provision is
unconscionable because it strips away TES’s substantive rights. (CR
119-20.)
This argument must fail for at least four reasons. First, TES
ignores the fact that the provision states that the award must be
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 15 “benign on both parties.” Therefore, even if TES were right about the
meaning of the provision (which it is not), it would prevent an award
of damages to either party. Since it would impact both parties
equally, it is not clear how the provision would be unconscionable.
Second, TES’s construction would create an absurd result. If
arbitration actually resolves any “dispute, claim or question” it will
be impossible for the decision to be “benign on both parties.” If there
is a dispute, claim or question, and it is resolved, then one party will
prevail and the other will not. It is absurd to suggest that the parties
created an arbitration procedure and then made it worthless by
requiring that the decision be “benign on both parties.” See Hemyari v.
Stevens, 355 S.W.3d 623, 626 (Tex. 2011) (“Furthermore, under general
rules of construction we avoid strictly construing an instrument’s
language if it would lead to absurd results.”).
Third, the remainder of Article 10 makes clear that “benign” is
simply a typographical error. Section 10.4 gives the arbitrator the
power to “award to any party whose claim(s) are sustained such
sums as the arbitrator (or majority of them) shall deem proper to
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 16 compensate such party for the time and expense of the arbitration
proceeding, including any and all reasonable attorneys’ fees,
professional fees, and costs expended.” (CR 42 (App. Tab B).) This
power to award fees and costs is wholly incompatible with TES’s
suggestion that the arbitration award must be “benign.”
Moreover, Section 10.2.1 provides that the arbitration award
“shall be final, and judgment may be entered upon and in accordance
with applicable law.” (Id.) Again, this provision is incompatible with
the suggestion that the arbitration award must be “benign.” A benign
arbitration award would not provide any basis for a judgment. This
provision also indicates that the word “benign” in Section 10.1 was
likely intended to be “binding.”6
Fourth, even if the Court is not willing to look to other
provisions to determine the meaning of “benign,” it should refuse to
enforce the clause as written. As discussed above, no arbitration
6 Because TES’s concern was that the word “benign” would prevent an award in favor of TES (CR 119-20), Greystone stipulated in the trial court that the word “benign” was supposed to be “binding.” (CR 148.) Essentially, Greystone agreed that the arbitrators have the power to enter an award against Greystone.
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 17 award can be “benign” on both parties. Moreover, the instruction is
inconsistent with the rest of Article 10. Therefore, the court should
disregard the clause as unenforceable. Section 1.7 of the subcontract
provides that
Should any term … of this Subcontract, or any application thereof be held by a court of competent jurisdiction to be invalid, void, or unenforceable, all provisions, covenants or conditions of this Subcontract, and all interpretations thereof, not held invalid, void or unenforceable shall continue in full force and effect and shall in no way be affected, impaired, or invalidated thereby.
(CR 31 (App. Tab B).) Thus, this Court can disregard the
unenforceable and absurd clause requiring that the award be
“benign” and enforce the remainder of the arbitration provision. See
In re PolyAmerica, L.P., 262 S.W.3d 337, 360 (Tex. 2008) (“An illegal or
unconscionable provision of a contract may generally be severed so
long as it does not constitute the essential purpose of the
agreement.”).
Even without the clause that the award should be “benign” on all
parties, Article 10 of the subcontract is a valid arbitration provision.
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 18 As discussed above, Section 10.1 is a binding arbitration provision.
Deleting the “benign” clause would not change that meaning:
With the consent of the General Contractor, all disputes, claims or questions not resolved informally are subject to arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Associa- tion. If General Contractor requests that any particular dispute, claim or question should be arbitrated, then arbitration shall be effected as provided hereinafter [“benign” clause deleted]. If, however, General Contractor elects not to consent to arbitration, then either or both parties may resort to an appropriate judicial action … .
(CR 42 (App. Tab B).) Moreover, as discussed above, the remainder of
Article 10 provides that the arbitration decision will be “final” and
that judgment may be entered on the decision. (Id.)
Additionally, the agreement specifically provides that the
arbitration will be conducted in accordance with the Construction
Industry Arbitration Rules of the American Arbitration Association.
Those rules provide that “[p]arties to these Rules shall be deemed to
have consented that judgment upon the arbitration award may be
entered in any federal or state court having jurisdiction thereof.”
American Arbitration Association, Construction Industry Arbitration
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 19 Rule 54(c); see Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796, 807-08 (Tex.
App.—Dallas 2008, pet. denied) (looking to AAA rules adopted in
parties’ arbitration agreement to determine full scope of the
agreement). Thus, if the Court disregards the “benign” clause, the
remainder of Article 10 is still a binding arbitration provision.
(2) TES’s new ambiguity argument also fails.
In response to Greystone’s motion for a stay in this Court, TES
asserted that “TES argued that the arbitration clause was, at the very
least, patently ambiguous and therefore non-mandatory as a matter
of law. The trial court agreed … .” (Appellee TES Electric, LP’s
Response to Appellant Greystone Multi-Family Builders, Inc.’s
Motion to Stay Trial Proceedings Pending Interlocutory Appeal at 3.)
Therefore, it seems likely that TES will make a similar argument in its
response brief. This argument fails for two reasons. First, TES did not
argue ambiguity below. Second, TES cannot show that the arbitration
provision is ambiguous.
In response to Greystone’s motion to compel arbitration, TES did
not argue that the provision is ambiguous. Rather, TES argued that it
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 20 is not a binding arbitration provision. (CR 112.)7 As discussed above,
TES argued that it is instead a permissive arbitration provision. (Id.)
While TES did assert that an arbitration agreement should be
unambiguous (CR 113), it never claimed that the provision here was
ambiguous. See Exxon Corp. v. Emerald Oil & Gas Co., L.C., 348 S.W.3d
194, 214 (Tex. 2011) (“Where an ambiguity has not been raised by the
parties, the interpretation of a contract is a question of law.”)
But even if TES had raised this argument below, it would still
fail. Whether a contract is ambiguous is a question of law. E.g., Anglo-
Dutch Petroleum Int’l v. Greenberg Peden P.C., 352 S.W.3d 445, 449 (Tex.
2011). And a contract is not ambiguous if it “can be given a certain or
definite legal meaning or interpretation.” El Paso Field Servs., L.P. v.
MasTec N. Am., Inc., 389 S.W.3d 802, 806 (Tex. 2012). As discussed in
section 1.A.(1) above, the agreement can be given a definite
interpretation. TES’s suggested construction is not reasonable
because it ignores the second sentence of section 10.1. Therefore, if
7 At the hearing, TES did not argue that the clause is ambiguous. To the contrary, TES argued that that its construction was the only reasonable construction of the provision. (2 RR 14.)
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 21 the trial court refused to enforce the agreement because the court
found it was ambiguous, the trial court erred.
2. TES’s claims are within the broad scope of the arbitration agreement. Because there is a binding arbitration agreement, the trial court
erred in refusing to compel arbitration if TES’s claims fall within the
scope of the parties’ agreement. See AutoNation USA Corp. v. Leroy,
105 S.W.3d 190, 195 (Tex. App.—Houston [14th Dist.] 2003, no pet.)
(“Once the party seeking arbitration establishes that an agreement
exists under the FAA and that the claims raised are within the
agreement’s scope, the trial court has no discretion but to compel
arbitration.”). In the trial court, TES argued that the arbitration
provision is narrow and that TES’s claims do not fall within its scope.
(CR 120.) TES also argued that the arbitration provision does not
apply to claims that arose after the subcontract was terminated. To
the extent the trial court agreed with either of these arguments, the
trial court erred.
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 22 A. The arbitration provision broadly applies to all disputes, claims, or questions.
Although the language of the arbitration provision here is not
the same as other broad arbitration provisions, it does refer to
arbitration of “all disputes, claims or questions not resolved
informally.” (CR 42 (App. Tab B).) The reference to “all disputes,
claims or questions” makes this a broad arbitration provision. See FD
Frontier Drilling (Cyprus), Ltd. v. Didmon, 438 S.W.3d 688, 695 (Tex.
App.—Houston [1st Dist.] 2014, pet. denied) (“Broad arbitration
clauses…are not limited to claims that literally ‘arise under the
contract,’ but rather embrace all disputes between the parties having a
significant relationship to the contract regardless of the label attached
to the dispute.” (emphasis added)). All of TES’s claims here either
arise under or are related to the subcontract. Therefore, TES’s claims
are within the scope of the arbitration provision.
TES argues that the failure to use a “standard” broad arbitration
clause means that the provision is narrow and limited to claims that
arise under the contract. (CR 121.) This argument fails for at least
three reasons. First, the cases on which TES relies refer to “standard”
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 23 language or a variation of standard phrases. See Beckham v. William
Bayley Co., 655 F. Supp. 288, 291 (N.D. Tex. 1987). The phrase “all
disputes, claims or questions” is, at a minimum, a variation of the
standard phrase “[a]ny controversy or claim arising out of or relating
to this contract.” Id. Moreover, the use of the word “all” clearly
indicates an intent that the provision apply broadly. See In re Hornbeck
Offshore Corp., 981 F.2d 752, 755 (5th Cir. 1993) (concluding that a
provision requiring arbitration of “any dispute” between the parties
is a broad provision).
Second, the cases on which TES relies merely state that failure to
use “standard” language may indicate an intent that the clause be
limited to claims arising under the contract. See Belmont Constructors,
Inc. v. Lyondell Petrochemical Co., 896 S.W.2d 352, 358 (Tex. App.—
Houston [1st Dist.] 1995, no pet.). Moreover, in Belmont, the issue was
whether the provision was a binding arbitration agreement, not
whether it was a broad provision or a narrow one. Id.
TES also relied on the Fifth Circuit’s decision in The Rice Co.
(Suisse), S.A. v. Precious Flowers, Ltd., 523 F.3d 528, 536 (5th Cir. 2008),
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 24 for the proposition that a clause that required arbitration of “any
dispute” was not a broad arbitration provision. (CR 121.) But the
issue in The Rice Co. was not whether the clause was broad enough to
encompass certain claims, but whether it was broad enough to
encompass certain parties. The full quote from the Fifth Circuit’s
opinion is:
The New York arbitration clause is not broad, as it provides “[t]hat should any dispute arise between Owners and Charterers, the matter shall be referred to three persons at New York.”
523 F.3d at 536 (emphasis in original). The issue was whether this
provision required arbitration of a dispute between parties other than
the Owner and the Charterer. Id. Thus, The Rice Co. cannot aid TES’s
arguments.
Third, TES’s argument would replace proper contract
construction with a search for “magic words.” The question for this
Court is the meaning of the words that the parties chose to include in
the subcontract. E.g., RSUI Indem. Co. v. The Lynd Co., 466 S.W.3d 113,
118 (Tex. 2015) (“When construing a contract, our primary concern is
to ascertain the intentions of the parties as expressed in the
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 25 document. We begin our analysis with the language of the contract
because it is the best representation of what the parties mutually
intended.” (internal citations omitted)). Those words broadly require
arbitration of “all disputes, claims, or questions.” (CR 42 (App. Tab
B).) And they are similar to other arbitration provisions that have
been recognized as “broad:”
In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 202 (Tex. 2007) (finding that an arbitration clause was broad because it required arbitration of “all controversies which may arise between us”)
950 Corbindale, L.P. v. Kotts Capital Holdings Ltd. P’ship, 316 S.W.3d 191, 195 (Tex. App.—Houston [14th Dist.] 2010, no pet.) (noting that “any dispute arising between the parties” is a broad arbitration provision)
FD Frontier Drilling, 438 S.W.3d at 695 (“Generally, when an arbitration provision uses the language ‘any dispute,’ it is considered broad.”)
Serv. Corp. Int’l v. Lopez, 162 S.W.3d 801, 811 (Tex. App.— Corpus Christi 2005, no pet.) (finding that “any claim you may have against the seller shall be resolved by arbitration” is a broad arbitration provision)
Kline v. O’Quinn, 874 S.W.2d 776, 782 (Tex. App.—Houston [14th Dist.] 1994, writ denied) (holding that the phrase “a dispute that arises among the parties,” in the absence of limiting language is a broad arbitration provision)
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 26 Nothing in the language of Section 10.1 indicates an intent to
limit the disputes, claims, or questions to those “arising under” the
subcontract. To find such an intent simply because the parties did not
use “standard” language would improperly elevate form over
substance.
In fact, The Rice Co., a case on which TES relies, specifically holds
that “[s]pecific words or phrases alone may not be determinative.”
523 F.3d at 536. There is no indication in the language here to limit
the arbitration provision to certain types of claims. Id. (holding that
“words of limitations would indicate a narrower clause”).
Therefore, TES’s authorities do not support its argument that the
failure to use “standard” language automatically means that the
arbitration provision is narrow. Without limitation, Section 10.1
requires arbitration (at Greystone’s request or with Greystone’s
consent) of “all disputes, claims, or questions.”8 Because the
8 In the trial court, TES also selectively quoted from Section 10.1 to argue that it applies only to “particular dispute[s], claim[s], or question[s].” (CR 121.) But the quoted language is not a limitation on the types of disputes that must be arbitrated. Rather, it refers to Greystone’s right to chose which disputes are arbitrated. (CR 42 (App. Tab B).)
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 27 arbitration provision is broad, it encompasses all claims that relate to
the subcontract, regardless of whether they sound in contract or in
tort. See FD Frontier Drilling, 438 S.W.3d at 695 (holding that broad
arbitration clause encompassed tort claims).
Here, all of TES’s claims are related to the subcontract. None of
the claims could arise in the absence of the subcontract agreement
between Greystone and TES. See id. The fraud claims and unfair
competition claims allegedly arise from the parties’ conduct related
to the subcontract. (CR 8.) The Theft Liability Act claim is based on
the allegation that Greystone induced TES to continue to provide
services under the subcontract. (CR 11.) TES’s declaratory judgment
claim seeks a declaration about TES’s rights under the subcontract.
(CR 11.) The claims against TES’s former employees (which TES
alleges against Greystone through its conspiracy claim) are based on
the employees’ actions in connection with work on the subcontract.
(CR 9-11.) And TES’s attempt to foreclose alleged materialman’s liens
is related to performance of the subcontract. (CR 12.) Therefore, the
arbitration provision applies to all of the claims in TES’s petition.
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 28 B. The arbitration provision applies to tort claims that arose after the subcontract was terminated.
TES also argued below (without citing any authority) that the
arbitration provision did not apply to tort claims that arose after the
subcontract was terminated. (CR 122.) But Texas courts have held
that an arbitration provision in a contract survives the termination of
that contract, even if the contract does not have a savings clause. See
Cleveland Constr. 359 S.W.3d at 854 (“[A]n arbitration agreement
contained within a contract survives the termination or repudiation
of the contract as a whole.” (quoting Henry v. Gonzalez, 18 S.W.3d 684,
690 (Tex. App.—San Antonio 2000, pet. dism’d)).) Therefore, if the
arbitration provision is broad enough to encompass TES’s tort claims
(which it is), it encompasses all of the tort claims, including those that
allegedly arose after the subcontract was terminated.
CONCLUSION AND PRAYER The only reasonable reading of the arbitration provision in the
parties subcontract agreement is that Greystone has the right to
decide whether a claim should be arbitrated. If TES initiates
arbitration, Greystone must consent. If TES initiates litigation,
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 29 Greystone can request arbitration instead. TES’s arguments that there
is no enforceable, binding arbitration provision are unavailing.
Moreover, although the provision does not use typical broad
language, it is a broad arbitration provision. It expressly provides
that “all” disputes that are not resolved informally are subject to
arbitration. Thus, the clause is broad enough to encompass TES’s
claims here.
Therefore, Greystone respectfully requests that the Court reverse
the trial court’s order denying Greystone’s motion to compel
arbitration. The Court should also enter judgment that the arbitration
provision is enforceable, that TES’s claims are within the scope of the
arbitration provision, and that TES is required to arbitrate. The Court
should therefore direct the trial court to compel arbitration and to
stay the trial proceedings pending the results of the arbitration.
Greystone further requests general relief.
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 30 Respectfully submitted,
THOMPSON & KNIGHT LLP
BY: /s/ Richard B. Phillips, Jr. Richard B. Phillips, Jr. State Bar No. 24032833 rich.phillips@tklaw.com
One Arts Plaza 1722 Routh Street, Suite 1500 Dallas, Texas 75201 Phone: (214) 969-1700 Fax: (214) 969-1751
J. Michael Bell State Bar No. 02079200 michael.bell@tklaw.com Megan H. Schmid State Bar No. 24074383 megan.schmid@tklaw.com
333 Clay Street, Suite 3300 Houston, Texas 77002 Phone: 713-654-8111 Fax: 713-654-1871
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 31 CERTIFICATE OF COMPLIANCE This brief was prepared using Microsoft Word 2010 in Book Antiqua font. The font size in the text is 14-point. The font size in the footnotes is 13-point. This brief contains 5,631 words, not counting the sections excluded by TEX. R. APP. P. 9.4(i)(1).
/s/ Richard B. Phillips, Jr. Richard B. Phillips, Jr.
CERTIFICATE OF SERVICE On this 6th day of October, 2015, a true and correct copy of the foregoing brief has been served on the following counsel for Appellee by electronic service:
Ashish Mahendru Darren A. Braun Mahendru, P.C. 639 Heights Boulevard Houston, Texas 77007
BRIEF OF APPELLANT GREYSTONE MULTI-FAMILY BUILDERS, INC. — PAGE 32 TAB A 155 TAB B 31 32 42 43