Lennar Homes of Texas Land and Construction, Ltd. and Lennar Homes of Texas Sales and Marketing, Ltd. v. Kara Whiteley ( 2021 )

Affirmed and Opinion filed April 29, 2021.
In The
Fourteenth Court of Appeals
NO. 14-19-00269-CV
LENNAR HOMES OF TEXAS LAND AND CONSTRUCTION, LTD. AND
LENNAR HOMES OF TEXAS SALES AND MARKETING, LTD.,
Appellants
V.
KARA WHITELEY, Appellee
On Appeal from the 56th District Court
Galveston County, Texas
Trial Court Cause No. 17-CV-0253
OPINION
Appellee Kara Whiteley sued appellants Lennar Homes of Texas Land and
Construction, Ltd. and Lennar Homes of Texas Sales and Marketing, Ltd.
(together, “Lennar”), asserting claims in connection with her home’s construction.
The trial court granted Lennar’s motion to stay proceedings pending arbitration.
After the completion of arbitration, Lennar moved to confirm the arbitration award
and Whiteley filed a motion to vacate the award. The trial court denied Lennar’s
motion and granted Whiteley’s motion. For the reasons below, we affirm.
BACKGROUND
In May 2014, Lennar sold Cody Isaacson a house in Dickinson, Texas (the
“House”). The House was conveyed to Isaacson via special warranty deed and
covered by the warranties described in Lennar’s “1-2-10 Single-Family Warranty.”
The special warranty deed and single-family warranty both contained arbitration
provisions.
Whiteley purchased the House from Isaacson on July 31, 2015. Whiteley
sued Lennar approximately two years later, asserting claims for negligent
construction and breach of implied warranties. Whiteley alleged the House had “a
serious mold problem” caused by deficiencies in the heating, ventilation, and air
conditioning system.
Lennar answered the petition and filed an “Application to Stay Proceedings
Pending Arbitration”. Responding to the application, Whiteley asserted she and
Lennar were not bound by a valid arbitration agreement. The trial court granted
Lennar’s application to stay proceedings and the parties proceeded to arbitration.
In arbitration, Whiteley pursued her claims against Lennar for negligent
construction and breach of implied warranties. Lennar filed counterclaims against
Whiteley for (1) bringing groundless claims in bad faith, and (2) filing a lawsuit in
violation of the arbitration agreement. Lennar also filed third-party petitions
against Big Tex Air Conditioning, Inc. and Xalt Holding, LLC seeking
contribution and indemnity.1 The proceedings were conducted in accordance with
the Federal Arbitration Act (“FAA”). See 9 U.S.C.A. §§ 1-16.
1
Big Tex designed and installed the air conditioning system in Whiteley’s home and Xalt
inspected multiple phases of the home’s construction.
2
The arbitrator issued his award on December 13, 2018. The arbitrator
denied Whiteley all relief sought against Lennar and awarded Lennar attorney’s
fees and costs from Whiteley, Big Tex, and Xalt.
Back in the trial court, Lennar filed a combined “Motion to Confirm
Arbitration Award and Motion to Join Additional Parties.” Lennar requested that
judgment be rendered in conformance with the award and asked that Big Tex and
Xalt be joined in the action. Whiteley responded to Lennar’s combined motion
and filed a “Motion to Vacate the Arbitration Award”, asserting she and Lennar
were not bound by a valid arbitration agreement.
On March 7, 2019, the trial court signed an order (1) denying Lennar’s
combined motion to confirm the arbitration award and motion to join additional
parties, and (2) granting Whiteley’s motion to vacate. Lennar filed a notice of
interlocutory appeal. See Tex. Civ. Prac. & Rem. Code Ann. § 171.098(a)(5).
ANALYSIS
Challenging the trial court’s order vacating the arbitration award, Lennar
raises the following issues: (1) the trial court erred by vacating the arbitration
award with respect to Big Tex and Xalt; (2) Whiteley is bound by the arbitration
agreements in Isaacson’s special warranty deed and the single-family warranty;
and (3) Whiteley agreed to arbitrate her claims during the arbitration proceeding.
We consider these issues individually.
I. The Arbitration Award Against Big Tex and Xalt
On appeal, Lennar challenges the vacatur of the arbitration award as it
applies to Big Tex and Xalt. Asserting the FAA lists the exclusive grounds for
vacating an arbitration award (see 9 U.S.C.A. § 10(a)), Lennar argues that neither
Whiteley, Big Tex, nor Xalt “have identified a valid basis for vacating the award’s
3
rulings on Lennar’s claims against Big Tex and Xalt.”
Big Tex and Xalt were not parties to the underlying proceeding when Lennar
sought to confirm (and Whiteley sought to vacate) the arbitration award. Rather,
Lennar attempted to join Big Tex and Xalt in the action through its combined
motion to confirm the arbitration award and motion to join additional parties. In its
March 7 order, the trial court denied Lennar’s combined motion and granted
Whiteley’s motion to vacate the arbitration award.
Contrary to Lennar’s argument, we do not construe the trial court’s March 7
order as vacating the arbitration award with respect to Big Tex and Xalt. In her
motion to vacate, Whiteley argued only that she and Lennar are not parties to a
valid arbitration agreement — she did not raise any arguments with respect to Big
Tex or Xalt or request any action from the trial court with respect to these parties
or the arbitration awards rendered against them. Ruling on Whiteley’s motion, the
trial court’s March 7 order states:
It is further, ORDERED that [Whiteley’s] Motion to Vacate the
Arbitration Award is hereby GRANTED. It is further, ORDERED
that the arbitration award is hereby vacated.
Although the trial court’s wording is not a model of clarity, we have been provided
no evidence tending to suggest that it intended to grant relief that had not been
requested. Therefore, because the vacatur of the arbitration award against Big Tex
and Xalt was neither sought in Whiteley’s motion nor explicitly granted by the trial
court’s March 7 order, we do not construe the order as granting this relief.
Moreover, the Texas Arbitration Act (“TAA”) provides that an application
to vacate an arbitration award shall follow the same procedure used in other civil
cases.2 See Tex. Civ. Prac. & Rem. Code Ann. § 171.093. “‘Thus, applications to
2
Even though the parties’ arbitration proceeding was governed by the FAA, procedural
4
confirm or vacate an arbitration award should be decided as other motions in civil
cases; on notice and an evidentiary hearing, if necessary.’” New Med. Horizons II,
Ltd. v. Jacobson, 317 S.W.3d 421, 427 (Tex. App.—Houston [1st Dist.] 2010, no
pet.) (quoting Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 430 (Tex. App.—Dallas
2004, pet. denied)).
Here, the record does not show Big Tex and Xalt received proper notice of
Whiteley’s motion to vacate or had an opportunity to be heard with respect to the
issues it raised. Rather, Lennar attempted to join Big Tex and Xalt in the
underlying proceeding as part of its motion to confirm the arbitration award and
the trial court denied the requested joinder. Therefore, because Big Tex and Xalt
were not parties to the underlying proceeding when the motion to vacate was
granted and did not have an opportunity to be heard on the issue, we do not
construe the order as adjudicating any issues with respect to those parties. See
Estrada v. River Oaks Bank & Trust Co., 550 S.W.2d 719, 729 (Tex. Civ. App.—
Houston [14th Dist.] 1977, writ ref’d n.r.e.) (“It is a rule of universal application
that the rights of no one shall be concluded by a judgment rendered in a suit to
which he was not a party.”).
Because Lennar’s first issue seeks to challenge relief that was not granted in
the trial court’s March 7 order, we overrule the issue.
II. The Arbitration Agreements in the Special Warranty Deed and Single-
Family Warranty
In its second issue, Lennar asserts Whiteley was required to arbitrate her
matters regarding arbitration awards in Texas courts are governed by Texas procedural rules.
See Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992); see also Broemer v. Houston
Lawyer Referral Serv., 407 S.W.3d 477, 480 n.9 (Tex. App.—Houston [14th Dist.] 2013, no
pet.) (“Texas procedural rules apply without regard to whether the Texas Arbitration Act (TAA)
or the FAA governs the issues in this appeal.”).
5
claims against Lennar pursuant to the arbitration agreements in (1) the 2014 special
warranty deed conveying the House from Lennar to Isaacson, and (2) the single-
family warranty effective on the date Isaacson closed on the House’s purchase.
Therefore, Lennar argues, the trial court erred by vacating the arbitration award
against Whiteley.
A. Standard of Review and Governing Law
The parties do not dispute that the arbitration agreements at issue are
governed by the FAA. See 9 U.S.C.A. §§ 1-16. In general, arbitration under the
FAA is required if (1) the parties have a valid agreement to arbitrate, and (2) the
claims raised fall within that agreement’s scope. See In re Kellogg Brown & Root,
Inc., 166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding).
The existence of a valid arbitration agreement between specific parties is a
gateway matter for the court to decide. Longoria v. CKR Prop. Mgmt., LLC, 577
S.W.3d 263, 267 (Tex. App.—Houston [14th Dist.] 2018, pet. denied). Under the
FAA, ordinary principles of state contract law determine whether the parties have a
valid agreement to arbitrate. In re Rubiola, 334 S.W.3d 220, 224 (Tex. 2011)
(orig. proceeding). We review de novo whether an arbitration agreement is
enforceable. Rachal v. Reitz, 403 S.W.3d 840, 843 (Tex. 2013).
As a general rule, a party must sign an arbitration agreement to be bound by
it. Branch Law Firm, L.L.P. v. Osborn, 532 S.W.3d 1, 13 (Tex. App.—Houston
[14th Dist.] 2016, pet. denied). However, the Texas Supreme Court has recognized
that a nonsignatory may be required to arbitrate according to a contractual
arbitration clause when principles of contract law or agency would generally bind a
nonsignatory to a contract. See In re Rubiola, 334 S.W.3d at 224; In re Kellogg
Brown & Root, 166 S.W.3d at 738. There are at least six theories under which a
nonsignatory to an arbitration agreement may be bound to its terms:
6
(1) incorporation by reference, (2) assumption, (3) agency, (4) veil piercing/alter
ego, (5) estoppel, and (6) third-party beneficiary. Jody James Farms, JV v. Altman
Grp., Inc., 547 S.W.3d 624, 633 (Tex. 2018).
B. The Special Warranty Deed
The 2014 special warranty deed conveying the House from Lennar to
Isaacson states in relevant part:
This conveyance, however, is made and accepted subject to:
A. Any and all restrictions, encumbrances, easements, covenants,
conditions, outstanding mineral interests held by third parties, and
reservations, if any, relating to the hereinabove described property
as the same are filed for record in the County Clerk’s Office of
Galveston County, Texas.
B. The arbitration provision referred to on Exhibit “A” attached
hereto (the “Arbitration Provision”).
(emphasis in original). In relevant part, the special warranty deed’s “Arbitration
Provision” states as follows:
Grantor and Grantee specifically agree that this transaction involves
interstate commerce and that any Dispute (as hereinafter defined)
shall first be submitted to mediation and, if not settled during
mediation, shall thereafter be submitted to binding arbitration as
provided by the Federal Arbitration Act (9 U.S.C. §§1 et seq.) and not
by or in a court of law or equity. “Disputes” (whether contract,
warranty, tort, statutory or otherwise) shall include, but are not limited
to, any and all controversies, disputes or claims (1) arising under, or
related to, this Deed, the underlying purchase agreement for the sale
and conveyance of the Property, the Property, the community in
which the Property is located, or any dealings between Grantee and
Grantor; (2) arising by virtue of any representations, promises or
warranties alleged to have been made by Grantor or Grantor’s
representative; and (3) relating to personal injury or property damage
alleged to have been sustained by Grantee, Grantee’s children or other
occupants of the Property, or in the community in which the Property
is located.
7
* * *
This Exhibit “A” shall run with the land and be binding upon the
successors and assigns of Grantee.
(emphasis in original). Relying on these provisions, Lennar raises two arguments
to support enforcing the arbitration agreement against Whiteley: (1) the arbitration
agreement is a covenant running with the land, and (2) Whiteley assumed the
arbitration agreement when she purchased the House.
1. The special warranty deed’s arbitration agreement is not a
covenant running with the land.
Under Texas law, a covenant runs with the land when (1) it touches and
concerns the land; (2) it relates to a thing in existence or specifically binds the
parties and their assigns; (3) it is intended by the original parties to run with the
land; and (4) the successor to the burden has notice. See Inwood N. Homeowners’
Ass’n, Inc. v. Harris, 736 S.W.2d 632, 635 (Tex. 1987). Expanding on the
“touches and concerns the land” requirement, the Texas Supreme Court quoted the
following definition from the Restatement of the Law of Property:
“The successors in title to land respecting the use of which the owner
has made a promise can be bound as promisors only if
(a) the performance of the promise will benefit the promisee or other
beneficiary of the promise in the physical use or enjoyment of the
land possessed by him, or
(b) the consummation of the transaction of which the promise is a part
will operate to benefit and is for the benefit of the promisor in the
physical use or enjoyment of land possessed by him,
and the burden on the land of the promisor bears a reasonable relation
to the benefit received by the person benefited.”
Blasser v. Cass, 314 S.W.2d 807, 809 (Tex. 1958) (quoting Restatement (First) of
Prop.: Servitudes § 537). As this standard indicates, a covenant running with the
land is one intertwined with and affecting the “physical use or enjoyment” of the
8
property. See id.
In keeping with this definition, Texas courts have held that covenants
running with the land are those affecting the nature, quality, or value of the subject
property. See, e.g., Inwood N. Homeowners’ Ass’n, Inc., 736 S.W.2d at 635 (a
“covenant to pay maintenance assessments for the purpose of repairing and
improving the common areas and recreational facilities” in the neighborhood was a
covenant running with the land); Westland Oil Dev. Corp. v. Gulf Oil Corp., 637
S.W.2d 903, 910-11 (Tex. 1982) (agreement to assign interests in oil and gas leases
was a covenant running with the land that “clearly affected the nature and value of
the estate conveyed”); MJR Oil & Gas 2001 LLC v. AriesOne, LP, 558 S.W.3d
692, 700-04 (Tex. App.—Texarkana 2018, no pet.) (right of first refusal in certain
oil and gas leases was a covenant running with the land); Montfort v. Trek Res.,
Inc., 198 S.W.3d 344, 355-56 (Tex. App.—Eastland 2006, no pet.) (obligation to
furnish water to grantee’s house and to grantee for purpose of watering livestock
was a covenant running with the land); and Ehler v. B.T. Suppenas Ltd., 74 S.W.3d
515, 520-21 (Tex. App.—Amarillo 2002, pet. denied) (covenant restricting alcohol
sales on servient estate met requirements for covenant running with the land).
In contrast, covenants that do not burden or restrict the use of the conveyed
property are not covenants that run with the land. For example, in Blasser, the
Texas Supreme Court held that a property owner’s covenant to pay commissions to
his real estate broker for future lease renewals was a personal covenant
unenforceable against later buyers. 314 S.W.2d at 809; see also id. (“[t]his type of
promise, being purely for the benefit of one having no interest in the land, will not
be enforced against successive owners”). More recently, the Eastland Court of
Appeals concluded that covenants to provide copies of instruments dealing with
the leasing of mineral rights were “mere notice requirements” that did not run with
9
the land. See Veterans Land Bd. v. Lesley, 281 S.W.3d 602, 621-22 (Tex. App.—
Eastland 2009), aff’d in part and rev’d on other grounds, 352 S.W.3d 479 (Tex.
2011).
Here, we conclude the arbitration agreement in the special warranty deed
does not touch and concern the land; therefore, it is not a covenant that runs with
the land. The arbitration agreement is not premised on the physical use or
enjoyment of the conveyed property — instead, the “fundamental purpose of
arbitration [is] to provide a rapid, less expensive alternative to traditional
litigation.” Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 900 (Tex. 1995)
(per curiam); see also In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998)
(orig. proceeding) (per curiam) (“the very purpose of arbitration is to avoid the
time and expense of a trial and appeal”). Avoiding the time and expense of
litigation inures to the benefit of the parties — not to the property itself.
Accordingly, the special warranty deed’s arbitration agreement is more akin to a
personal covenant rather than a covenant that touches and concerns the land. See,
e.g., Blasser, 314 S.W.2d at 809; Veterans Land Bd., 281 S.W.3d at 621-22.
Lennar cites Hayslip v. U.S. Home Corp., 276 So.3d 109 (Fla. Dist. Ct. App.
2019), to support its contention that the special warranty deed’s arbitration
agreement is a covenant running with the land. In Hayslip, a Florida intermediate
court of appeals concluded an arbitration provision in an original special warranty
deed was enforceable against subsequent purchasers as a covenant running with the
land. See id. at 114-18.3 The court’s analysis was based in part on cases
delineating the contours of covenants running with the land under Florida law. See
id. at 114. Here, however, our determination regarding whether the parties have a
3
The Hayslip court also noted that the issue was one “of first impression with potentially
wide-ranging effect” and certified the question to the Florida Supreme Court, which has accepted
jurisdiction and ordered full briefing. See id. at 118.
10
valid agreement to arbitrate is premised on principles of Texas contract and real
property law. See In re Rubiola, 334 S.W.3d at 224. Based on our analysis of
Texas case law (see supra), we conclude (1) the arbitration agreement at issue does
not constitute a covenant that runs with the land as a matter of Texas law and
(2) Hayslip does not advance a compelling argument to the contrary.
Moreover, the Texas Supreme Court has identified six theories under which
nonsignatories to an arbitration agreement may be bound by its terms. See Jody
James Farms, JV, 547 S.W.3d at 633. The Court has not identified “covenants
running with the land” as one of those theories. See id. We decline Lennar’s
invitation to expand Texas law and adopt a new principle previously unrecognized
by the Texas Supreme Court despite (1) decades of jurisprudence concerning
arbitrations and (2) well-established Texas law concerning the nature of covenants
that run with the land.
We overrule Lennar’s argument that the special warranty deed’s arbitration
agreement is a covenant that runs with the land.
2. Whiteley did not assume the special warranty deed’s
arbitration agreement when she purchased the House.
Lennar’s argument on this point rests on the following language in the 2015
general warranty deed that conveyed the House from Isaacson to Whiteley:
This conveyance is made subject to, all and singular, the restrictions,
mineral reservations, royalties, conditions, easements, and covenants,
if any, applicable to and enforceable against the above-described
property as reflected by the records of the County Clerk of the
aforesaid County.
Asserting the arbitration agreement is “a restriction, condition, and covenant in the
property records,” Lennar argues Whiteley’s general warranty deed evidences an
agreement to assume the arbitration provision.
11
When construing instruments recorded in real property records, we apply the
same rules that govern the interpretation of contracts. Marzo Club, LLC v.
Columbia Lakes Homeowners Ass’n, 325 S.W.3d 791, 798 (Tex. App.—Houston
[14th Dist.] 2010, no pet.). Our primary objective is to ascertain and give effect to
the intentions of the parties as expressed in the instrument. Id. If the instrument
can be given a certain or definite legal meaning or interpretation, it is unambiguous
and we construe it as a matter of law. Id.Here, we disagree with Lennar’s contention that the above-quoted language
constitutes an assumption of the special warranty deed’s arbitration agreement. By
its unambiguous terms, Whiteley’s general warranty deed is subject to those
covenants “applicable to and enforceable against the above-described property”.
(emphasis added). The arbitration agreement does not fall within this description
— instead, the arbitration agreement states that it is enforceable against the
“Grantee . . . [and] his or her children and other occupants of the Property.”
Accordingly, the arbitration agreement is not a covenant “applicable to and
enforceable against the above-described property.”
“Generally, a party cannot be held liable under another party’s contract
without an express or implied assumption of the obligations of that contract.”
Taylor Morrison of Tex., Inc. v. Kohlmeyer, No. 01-19-00519-CV, 2020 WL
7213480, at *8 (Tex. App.—Houston [1st Dist.] Dec. 8, 2020, no pet.) (quoting
NextEra Retail of Tex., LP v. Inv’rs Warranty of Am., Inc., 418 S.W.3d 222, 226
(Tex. App.—Houston [1st Dist.] 2013, pet denied)). The above language from
Whiteley’s general warranty deed does not expressly assume obligations under
Isaacson’s special warranty deed. Additionally, the implied assumption theory by
which non-signatories may be bound to arbitration agreements does not support
Lennar because it applies only to contracts that have been assigned from one party
12
to another. Kohlmeyer, 2020 WL 7213480, at *9. Isaacson conveyed the property
to Whiteley; the record does not show that he assigned it.
We overrule Lennar’s argument that Whiteley assumed the special warranty
deed’s arbitration agreement when she purchased the House.
C. The Single-Family Warranty
The single-family warranty was an attachment to the purchase and sale
agreement between Lennar and Isaacson. It became effective as of the date
Isaacson closed on the House and provided different warranty terms depending on
whether issues arose from the House’s workmanship, systems, or structural
components. The single-family warranty also contains an arbitration agreement.
The warranty provides that all of its rights and obligations, including the arbitration
agreement, “fully transfer to each successor owner of the Home.”
Lennar raises two arguments to support its contention that Whiteley is bound
to arbitrate under the single-family warranty: (1) Whiteley is a third-party
beneficiary of the warranty, and (2) direct benefits estoppel prevents Whiteley
from accepting benefits under the single-family warranty while refusing to
arbitrate. We consider these arguments separately.
1. Whiteley is not required to arbitrate under the third-party
beneficiary theory.
A third-party beneficiary may be compelled to arbitrate under an arbitration
agreement. See, e.g., In re NEXT Fin. Grp., Inc., 271 S.W.3d 263, 267 (Tex. 2008)
(orig. proceeding) (per curiam). A party’s status as a third-party beneficiary
depends solely on the contracting parties’ intent. First Bank v. Brumitt, 519
S.W.3d 95, 102 (Tex. 2017). “Specifically, a person seeking to establish third-
party-beneficiary status must demonstrate that the contracting parties ‘intended to
secure a benefit to that third party’ and ‘entered into the contract directly for the
13
third party’s benefit.’” Id. (quoting Stine v. Stewart, 80 S.W.3d 586, 589 (Tex.
2002) (per curiam)). The benefit must be more than incidental; the parties’ intent
to confer a direct benefit to the third party must be clearly and fully spelled out in
the agreement. Jody James Farms, JV, 547 S.W.3d at 635.
The Texas Supreme Court has stated that “there is a presumption against
conferring third-party-beneficiary status on noncontracting parties.” S. Tex. Water
Auth. v. Lomas, 223 S.W.3d 304, 306 (Tex. 2007) (per curiam). Accordingly,
“[t]he contract must include a ‘clear and unequivocal expression of the contracting
parties’ intent to directly benefit a third party,’ and any implied intent to create a
third-party beneficiary is insufficient.” First Bank, 519 S.W.3d at 103 (quoting
Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011)).
Here, the single-family warranty does not contain any language indicating
the parties to the agreement, Lennar and Isaacson, intended the agreement to
directly benefit Whiteley or entered into the agreement directly for Whiteley’s
benefit. See id. at 102. Rather, the single-family warranty provides a broad
description of its transferability:
All of your rights and obligations under the Lennar Limited Warranty
shall, unless previously released by you, or your successor[,] fully
transfer to each successor owner of the Home, including any
mortgagee in possession, for the remainder of the applicable Warranty
Term and any transfer shall in no way affect, increase or reduce the
coverage under the Lennar Limited Warranty for its unexpired term.
If you sell your Home during the Warranty Term, you agree to give
this Warranty Booklet to the successor owner, to inform the successor
owner of warranty rights, and to otherwise make it possible for the
successor owner to fulfill the successor owner’s obligations under the
terms of the Lennar Limited Warranty. If you are an owner other
than the original purchaser of the Home, you are bound by all the
terms and conditions of the Lennar Limited Warranty including,
but not limited to, claims procedures and the requirement to
submit any disputes that may arise under the Lennar Limited
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Warranty to binding arbitration.
(emphasis in original). While the provision states that the warranty’s “rights and
obligations . . . fully transfer to each successor owner of the Home,” that transfer is
effective only if the House is sold “during the Warranty Term.” If the House is
sold outside the “Warranty Term”, the successor owner is not entitled to any of the
warranty’s rights. Moreover, the provision also states that the warranty’s rights
and obligations were not guaranteed; instead, they could be released by the original
owner (Isaacson) or one of his successors.
These time-sensitive benefits that may or may not accrue to successor
owners of the House do not constitute a “clear and unequivocal expression” of
Lennar’s and Isaacson’s intent to directly benefit Whiteley as necessary to bind her
to the warranty’s arbitration agreement. See Tawes, 340 S.W.3d at 425; see also S.
Tex. Water Auth., 223 S.W.3d at 306-07 (noting that “general beneficence does not
create third-party rights,” the court held a water supply contract providing that the
appellant agreed to sell water to the city did not render the city’s residents third-
party beneficiaries of contract). Therefore, we overrule Lennar’s argument that
Whiteley is required to arbitrate under the single-family warranty as a third-party
beneficiary.
2. Direct benefits estoppel does not require Whiteley to
arbitrate.
Under direct benefits estoppel, a nonsignatory plaintiff seeking the benefits
of a contract is estopped from simultaneously attempting to avoid the contract’s
burdens, including the obligation to arbitrate. In re Kellogg Brown & Root, 166
S.W.3d at 739; see also Ali v. Smith, 554 S.W.3d 755, 760 (Tex. App.—Houston
[14th Dist.] 2018, no pet.). “When a claim depends on the contract’s existence and
cannot stand independently — that is, the alleged liability arises solely from the
15
contract or must be determined by reference to it — equity prevents a person from
avoiding the arbitration clause that was part of that agreement.” Jody James
Farms, JV, 547 S.W.3d at 637. But “when the substance of the claim arises from
general obligations imposed by state law, including statutes, torts and other
common law duties or federal law, rather than from the contract, direct benefits
estoppel does not apply, even if the claim refers to or relates to the contract.” G.T.
Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 528 (Tex. 2015).
Here, Lennar cites three examples to support its contention that Whiteley has
sought direct benefits stemming from the single-family warranty:
• In her second amended petition, Whiteley asserted a Texas
Deceptive Trade Practices claim that alleged Lennar
“[b]reach[ed] an express or implied warranty.”
• Whiteley asked Lennar to plant a tree on her property in
December 2015 and April 2016.
• In her original petition, Whiteley sought attorney’s fees under
Chapter 38 of the Civil Practice and Remedies Code, which
“authoriz[es] attorney’s fees for suits founded on contract.”
These examples are insufficient to bind Whiteley to the single-family warranty’s
arbitration provision under the theory of direct benefits estoppel.
Beginning with the first example, Whiteley’s second amended petition was
filed after the trial court granted Whiteley’s motion to vacate. Because this
allegation was not before the trial court when it ruled on the motion to vacate, it
does not support the conclusion that the trial court’s ruling was in error. See, e.g.,
Cardon Healthcare Network, Inc. v. Goldberg, No. 03-17-00474-CV, 2018 WL
1124500, at *3 (Tex. App.—Austin Mar. 2, 2018, no pet.) (mem. op.) (reviewing
the trial court’s ruling on a motion to compel arbitration in light of the allegations
in the live pleading rather than those in an earlier petition).
16
Likewise, Lennar’s second example relies on two emails attached as
evidence to its motion to compel, which was filed after the trial court granted
Whiteley’s motion to vacate. This evidence was not before the trial court when it
made the ruling subject to this interlocutory appeal and, therefore, cannot be used
to challenge the ruling on appeal. See id.Lennar’s third example relies on the following statement in Whiteley’s
original petition:
Request is made for all costs and reasonable and necessary attorney’s
fees incurred by or on behalf of [Whiteley], including all fees
necessary in the event of an appeal of this cause to the Court of
Appeals and/or the Supreme Court of Texas, as the Court deems
equitable and just, as provided by Chapter 38 of the Texas Civil
Practice and Remedies Code, Chapter 27 of the Texas Property Code,
and common law.
This request does not advance a specific claim that depends on a contract’s
existence. See Jody James Farms, JV, 547 S.W.3d at 637. Rather, it lists three
separate bases on which attorney’s fees are sought. And although section 38.001
of the Texas Civil Practice and Remedies Code provides that attorney’s fees may
be recovered for a claim based on “an oral or written contract,” this is just one of
section 38.001’s eight permissible bases for an attorney’s fees recovery. See Tex.
Civ. Prac. & Rem. Code Ann. § 38.001. Accordingly, this pleading does not show
Whiteley sought to receive direct benefits from the single-family warranty as
necessary to bind her to the warranty’s arbitration agreement under direct benefits
estoppel.
We overrule Lennar’s argument that Whiteley is bound to arbitrate under the
special warranty deed and the single-family warranty.
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III. Whiteley’s Actions in Arbitration
Finally, Lennar argues that Whiteley “agreed to arbitrate her claims in
arbitration and is bound by her decision to do so.” Lennar supports this argument
with reference to the following:
• Prior to the arbitration, Whiteley’s attorney signed an
“Agreement for Arbitration” agreeing to the designation of an
arbitrator and the rules applicable to the proceeding.
• Throughout arbitration Whiteley “continued to represent that
she was voluntarily agreeing to and participating in the
proceeding.” Specifically, Whiteley (1) agreed to all conditions
precedent to the arbitration in preliminary hearings;
(2) participated in the merits hearing without objection; and
(3) submitted two proposed arbitration awards in which she
stated that “all conditions precedent to commencing this
Hearing had been met.”
• The arbitrator’s award states that (1) “the Parties . . .
confirm[ed] that the Arbitrator had been properly appointed and
had jurisdiction to conduct this Arbitration”; (2) “[t]he Parties
have jointly and voluntarily conferred on the Arbitrator the
authority to conduct these proceedings by the Arbitration
Agreement, the Rules and the voluntary participation of the
Parties throughout these arbitration proceedings”; and (3) “no
party has objected to the jurisdiction of the Administrator or the
Arbitrator.”
Arguing that these actions show Whiteley “agreed to and voluntarily participated
in the arbitration,” Lennar contends Whiteley waived her right to subsequently
object to the proceeding.
As a predicate to arbitration under the FAA, the parties must have entered
into a valid agreement to arbitrate. See In re Kellogg Brown & Root, 166 S.W.3d
at 737; see also 9 U.S.C.A. § 9 (the court should grant an order confirming an
arbitration award “if the parties in their agreement have agreed that judgment of
the court shall be entered upon the award made pursuant to the arbitration”)
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(emphasis added); In re Estate of Guerrero, 465 S.W.3d 693, 699 (Tex. App.—
Houston [14th Dist.] 2015, pet. denied) (“a valid agreement to arbitrate is a settled,
threshold requirement to compel arbitration”).
Here, after Whiteley filed her original petition in the trial court, Lennar filed
an “Application to Stay Proceedings Pending Arbitration”. Responding to
Lennar’s application, Whiteley argued arbitration was not warranted because there
was “no arbitration agreement between the parties.” Overruling Whiteley’s
objection, the trial court granted Lennar’s application to stay proceedings. Under
the applicable law, Whiteley was not entitled to pursue an interlocutory appeal
from this ruling. See Tex. Civ. Prac. & Rem. Code Ann. § 51.016 (noting that, in a
matter subject to the FAA, interlocutory appeals are governed by 9 U.S.C. section
16); see also 9 U.S.C.A. § 16(a) (listing permissible appeals under the FAA).
Whiteley’s only option was to proceed with arbitration.
Post-arbitration, Whiteley raised the same grounds in her motion to vacate
and received a ruling in her favor. But if the trial court had instead granted
Lennar’s post-arbitration motion to confirm, Whiteley could have challenged on
appeal the trial court’s interlocutory order on Lennar’s motion to stay proceedings
pending arbitration and raised her argument regarding the validity of the arbitration
agreement. See Perry Homes v. Cull, 258 S.W.3d 580, 585-87, 601 (Tex. 2008)
(holding that appellate courts may review trial court orders compelling arbitration
on appeal from final judgment rendered upon confirmation of arbitration award
and vacating an arbitration award based on a ground raised in the motion to compel
proceedings that is not listed in Texas Civil Practice and Remedies Code section
171.088); Ctr. Rose Partners, Ltd. v. Bailey, 587 S.W.3d 514, 524 (Tex. App.—
Houston [14th Dist.] 2019, no pet.) (“when a party appeals a judgment rendered on
an arbitration award, the party is not limited to challenging the denial of any
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application to vacate, modify, or correct the award”; “[t]he appealing party also
may challenge any interlocutory order that merged into the trial court’s final
judgment”).
Therefore, regardless of what transpired in arbitration, Whiteley would have
been able to challenge on appeal the trial court’s ruling regarding whether she and
Lennar were bound by a valid arbitration agreement. See Perry Homes, 258
S.W.3d at 585-87, 601; Ctr. Rose Partners, Ltd., 587 S.W.3d at 524. We decline
to hold that, by reasserting the issue in her motion to vacate and receiving a
favorable ruling, Whiteley waived the issue for appellate review.
We overrule Lennar’s third issue.
CONCLUSION
We affirm the trial court’s March 7, 2019 order (1) denying Lennar’s
combined motion to confirm the arbitration award and motion to join additional
parties, and (2) granting Whiteley’s motion to vacate.
/s/ Meagan Hassan
Justice
Panel consists of Chief Justice Christopher and Justices Jewell and Hassan.
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