in Re Kaufman and Broad Mortgage Company and San Antonio Title Company

• Court: Court of Appeals of Texas
• Decided: May 25, 2005
• Docket: 04-05-00203-CV
• Status: Published

Opinion

MEMORANDUM OPINION

No. 04-05-00203-CV

IN RE KAUFMAN AND BROAD MORTGAGE COMPANY

and San Antonio Title Company

Original Mandamus Proceeding

PER CURIAM

Sitting:            Catherine Stone, Justice

Sarah B. Duncan, Justice

Sandee Bryan Marion, Justice

Delivered and Filed:   May 25, 2005

PETITION FOR WRIT OF MANDAMUS CONDITIONALLY GRANTED          

            The real parties in interest, Froswa and Beverly Johnson, purchased a home from KB Home Lone Star, L.P. (“KB Home”). The purchase agreement contains an arbitration clause, stating the agreement to arbitrate is subject to the Federal Arbitration Act. The purchase of the home was financed through Kaufman and Broad Mortgage Company (“K&B”), and San Antonio Title Company (“the title company”) served as the title company (K&B and the title company, collectively referred to as “relators”). Relators assert KB Home, K&B, and the title company (collectively, “the defendants”) are affiliated companies. However, neither K&B nor the title company are signatories to the arbitration agreement. After the Johnsons filed suit, KB Home, K&B, and the title company moved to compel arbitration. The Johnsons responded to the motion, asserting (1) the arbitration agreement was illegal, void and unenforceable; (2) K&B and the title company are not entitled to compel arbitration because there was no evidence the defendants are affiliates; and (3) equitable estoppel does not apply because the Johnsons do not rely on the purchase agreement to assert their claims and “the factual allegations underlying each cause of action to each Defendant is different.”

            The trial court granted the motion as to KB Home, but denied the motion as to K&B and the title company. K&B and the title company filed a petition for writ of mandamus, asking this court to direct the trial court to vacate its order and enter an order compelling the Johnsons to arbitrate their claims against relators.

ANALYSIS

            A party seeking to compel arbitration must establish the existence of a valid, enforceable arbitration agreement and that the asserted claims fall within the agreement’s scope. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999) (orig. proceeding); In re Merrill Lynch Trust Co., 123 S.W.3d 549, 554 (Tex. App.—San Antonio 2003, orig. proceeding). Once the existence of an arbitration agreement has been established, a presumption attaches favoring arbitration. In re Merrill Lynch Trust Co., 123 S.W.3d at 554. The burden then shifts to the opposing party to present evidence that the agreement was procured in an unconscionable manner or induced or procured by fraud or duress; that the other party has waived its right to compel arbitration under the agreement; or that the dispute falls outside the scope of the agreement. In re Oakwood Mobile Homes, 987 S.W.2d at 573; In re Merrill Lynch Trust Co., 123 S.W.3d at 554.

            The burden of establishing the existence of a valid and enforceable arbitration agreement includes proving that the party seeking to compel arbitration was a party to the agreement or had the right to enforce the agreement to arbitrate. In re Merrill Lynch Trust Co., 123 S.W.3d at 554. A party that is not a signatory to an arbitration agreement may enforce the agreement’s provisions if the non-signatory falls into an exception, recognized under general equitable or contract law, that allows for such enforcement. Id. at 554-55. Here, the only arbitration agreement is that contained in the purchase agreement. While the Johnsons and KB Home are signatories to that agreement, relators are not. Relators assert they are entitled to compel arbitration under the purchase agreement based on the doctrine of equitable estoppel.

            Under the doctrine of equitable estoppel, a non-signatory may compel arbitration in two circumstances. Id. at 555 (citing Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 527-28 (5th Cir. 2000)). First, the doctrine applies when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting its claims against the non-signatory. Id. When each of a signatory’s claims against a non-signatory makes reference to or presumes the existence of the written agreement, the signatory’s claims arise out of and relate directly to the written agreement, and arbitration is appropriate. Id. Second, the doctrine applies when a signatory to a contract with an arbitration clause raises claims “of substantially interdependent and concerted misconduct” by both a signatory to the contract and non-signatories to the contract. Id. Whether to utilize equitable estoppel is within a court’s discretion. Id.

            Here, relators assert the Johnsons’ claims against all the defendants are interdependent because the claims arise out of the same operative facts, the Johnsons do not distinguish between the defendants in their petition, and the causes of action asserted against the defendants are the same. In response to relators’ petition, the Johnsons contend their common law fraud and non-disclosure claims are based on duties owed by and misrepresentations made by relators that are not dependant on their claims against KB Home.

            In their petition, the Johnsons alleged the defendants provided “extensive documentation showing their monthly payment, which included money to be escrowed for taxes.” The Johnsons alleged they relied to their detriment on these representations and “were induced to complete the contract for sale.” According to the Johnsons, the defendants “grossly misrepresented the amount of taxes for the property at the time of sale, . . . [and the defendants] made this gross misrepresentation with actual knowledge of its falsity at the time of sale.” The Johnsons contend the defendants’ failure to disclose the true tax obligation resulted in an insufficient escrow amount and possible foreclosure of their home.

            Based on these factual allegations, the Johnsons asserted causes of action for fraud and Deceptive Trade Practices Act violations. Under their fraud claims, the Johnsons alleged the defendants “intentionally withheld from Plaintiffs the true tax obligation of the property purchased by Plaintiffs . . . [and] . . . Defendants intentionally withheld the true tax consequences from Plaintiffs in an attempt to induce Plaintiffs into purchasing the residence.” The Johnsons alleged the “Defendants knew of the falsity of the misrepresentation when they made it to Plaintiffs during the sale and at closing.” The Johnsons also alleged the “Defendants made guarantees, promises and contentions that the home they were selling to the Plaintiffs was affordable and had a sustainable tax obligation.” Under their Deceptive Trade Practices Act claims, the Johnsons alleged the defendants “breached express and implied warranties with regard to their service and work,” and made representations regarding the tax obligation . . . that were false, misleading, or deceptive.”

            At the hearing on the motion to compel arbitration, the Johnsons’ attorney admitted, “This [lawsuit] isn’t about any defect in the construction of the home.” Counsel asserted each of the defendants owed duties to the Johnsons; however, he did not elaborate on his argument that the various causes of actions were not interrelated. In fact, counsel stated, “I don’t want to tell you that I’m not alleging a conspiratorial-type conduct among the three because I am . . . . ”

            In their pleadings, the Johnsons assert the same causes of action against all defendants and the same acts or omissions are alleged against all defendants collectively. “Where the causes of action against the non-signatory defendants are based upon the same operative facts and are inherently inseparable from the causes of action against the signatory-defendant, the signatory-plaintiff may not avoid arbitration if invoked by the non-signatory defendants.” Brown v. Anderson, 102 S.W.3d 245, 250 (Tex. App.—Beaumont 2003, pet. denied). Accordingly, the Johnsons have raised claims “of substantially interdependent and concerted misconduct.” Therefore, K&B and the title company have the right to compel arbitration under the purchase agreement.

            For these reasons, the trial court erred in denying relators’ motion to compel arbitration. Therefore, the writ is CONDITIONALLY GRANTED. Tex. R. App. P. 52.8(c). The judge of the 408th District Court is ORDERED to withdraw the February 22, 2005 Order denying relators’ First Amended Motion to Stay Plaintiffs’ Claims and to Compel Binding Arbitration. If the court does not do so within ten days of this order, we will issue the writ.