CRS Industries, Inc. v. MacDonald Systems. Inc. ( 2017 )

Opinion issued May 9, 2017
In The
Court of Appeals
For The
First District of Texas
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NO. 01-16-00780-CV
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IN RE CRS INDUSTRIES, INC.
Original Proceeding on Petition for Writ of Mandamus
and
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NO. 01-16-00783-CV
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CRS INDUSTRIES, INC., Appellant
V.
MACDONALD SYSTEMS, INC., Appellee
On Appeal from the 152nd District Court
Harris County, Texas
Trial Court Case No. 2016-41521
MEMORANDUM OPINION
CRS Industries, Inc. filed this interlocutory appeal and a petition for writ of
mandamus, both of which assert that the trial court abused its discretion by denying
CRS’s motion to compel arbitration. We agree and reverse the order denying the
motion, remand to the trial court so that it can enter an order compelling arbitration
and staying this suit, and dismiss CRS’s petition for writ of mandamus as moot.
Background
CRS manufactures air purification systems. It contractually agreed to allow
MacDonald Systems, Inc. to market and sell its commercial products within a
designated territory. The two subsequently became embroiled in a dispute about the
sale of a residential product, and MacDonald filed this suit.
MacDonald alleged that it designed a new air filtration system that
incorporated one of CRS’s products and had identified a customer for this new
product, DuPure Water Filters. MacDonald further alleged that the parties agreed to
compensate it for the new design by allowing it to purchase the new product from
CRS and sell it to DuPure at a profit of $300 per unit. Instead, CRS fired MacDonald
as its product representative, and CRS and DuPure refused to pay MacDonald for
the new design. MacDonald alleged that CRS is selling or has sold the new design
to a company that bought DuPure. It alleged three causes of action—promissory
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estoppel, quantum meruit, and breach of contract—by which it sought recovery of
the $300-per-unit profit it allegedly was promised.
CRS moved to compel arbitration of MacDonald’s claims and to stay the suit
pending that arbitration based on a clause in their contract requiring arbitration of all
claims, disputes, and other matters arising out of or relating to the contract.
MacDonald responded that the arbitration clause was inapplicable because the
parties’ dispute concerned a residential product rather than the commercial ones that
were the subject of their contract. It did not, however, otherwise dispute the validity
of the contract or its arbitration clause.
The trial court denied CRS’s motion to compel arbitration without making
any fact findings or stating its reasons. By way of interlocutory appeal and a petition
for writ of mandamus, CRS urges that the trial court abused its discretion.
Jurisdiction
CRS is a Florida company whose principal office is in that state, and
MacDonald is a Texas company whose principal office is in this state. As they are
located in different states, their contract’s arbitration clause involves interstate
commerce and is subject to the Federal Arbitration Act. 9 U.S.C. § 2; Rapid
Settlements v. Green, 294 S.W.3d 701, 705 (Tex. App.—Houston [1st Dist.] 2009,
no pet.). The Act’s applicability, in turn, gives this court jurisdiction to hear CRS’s
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appeal from the trial court’s order denying its motion to compel arbitration. See TEX.
CIV. PRAC. & REM. CODE § 51.016; see also 9 U.S.C. § 16(a)(1)(B).
Motion to Compel Arbitration
CRS posits that MacDonald’s claims in this suit relate to their contract and
therefore are subject to the contract’s arbitration clause. On this basis, CRS contends
that the trial court erred by denying its motion to compel arbitration.
On interlocutory appeal, we review a trial court’s denial of a motion to compel
arbitration for an abuse of discretion. Houston Progressive Radiology Assocs. v. Lee,
474 S.W.3d 435, 442 (Tex. App.—Houston [1st Dist.] 2015, no pet.). We defer to
the trial court’s factual determinations, if any, so long as they are supported by the
evidence, but we review questions of law de novo. Id.
A party who moves to compel arbitration must show the existence of a valid,
enforceable arbitration agreement and that the agreement’s scope encompasses the
lawsuit’s claims. In re Rubiola, 334 S.W.3d 220, 223 (Tex. 2011); Houston
Progressive, 474 S.W.3d at 442. Whether a valid agreement exists is a legal
question, which turns on the application of ordinary contract principles. Valerus
Compression Servs. v. Austin, 417 S.W.3d 202, 208 (Tex. App.—Houston [1st Dist.]
2013, no pet.). In determining whether claims are within the agreement’s scope,
courts focus on the factual allegations of the petition rather than the causes of action
alleged. In re Rubiola, 334 S.W.3d at 225; FD Frontier Drilling (Cyprus) v. Didmon,
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438 S.W.3d 688, 695 (Tex. App.—Houston [1st Dist.] 2014, pet. denied).
Allegations that touch on the subject of the contract containing the arbitration clause
or that are factually intertwined with claims subject to that clause generally are
within the clause’s scope. In re Dillard Dep’t Stores, 186 S.W.3d 514, 516 (Tex.
2006) (per curiam); Valerus, 417 S.W.3d at 208. Courts must resolve any doubts
about the agreement’s scope in favor of arbitration. In re Rubiola, 334 S.W.3d at
225; Valerus, 417 S.W.3d at 208. If the movant shows that a valid arbitration
agreement encompasses the lawsuit’s claims, and the opposing party has not proven
a defense to enforcement of the agreement, the trial court has no discretion but to
compel arbitration and stay the suit. Richmont Holdings v. Superior Recharge Sys.,
392 S.W.3d 633, 635 (Tex. 2013) (per curiam).
MacDonald did not dispute the validity of the contract or its arbitration clause
in the trial court. Nor has it filed an appellate brief or a response to CRS’s petition
for mandamus relief. Accordingly, the arbitration clause’s validity is undisputed.
The dispositive issue, therefore, is whether MacDonald’s claims are within
the scope of the contract’s arbitration clause. We hold that they are.
The contract specified the products that MacDonald was entitled to market
and sell, commercial ones. It disallowed MacDonald from marketing or soliciting
orders for any other products unless mutually agreed upon in writing. It provided
that CRS retained sole and exclusive ownership of all product designs and
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modifications and that technical information or plans used or prepared by
MacDonald remained the sole property of CRS. It included a merger clause, which
provided that the contract was the entire agreement and superseded and replaced any
other understandings or agreements. It also provided that its terms could only be
amended or modified by an agreement in writing signed by representatives of the
parties.
In addition, the contract had an arbitration clause. Setting aside an
inapplicable exception, this clause specified that all claims, disputes, and matters
arising out of or relating to the contract or its breach must be arbitrated. An
arbitration clause that covers any dispute arising out of or relating to the parties’
contract is expansive in scope and encompasses any controversy between the parties
that touches on, has a significant relationship to, is inextricably enmeshed with, or
is factually intertwined with the contract regardless of any label applied to the
controversy. See Houston Progressive, 474 S.W.3d at 447–48; FD Frontier, 438
S.W.3d at 695; Hou-Scape, Inc. v. Lloyd, 945 S.W.2d 202, 205–06 (Tex. App.—
Houston [1st Dist.] 1997, orig. proceeding) (per curiam). Its reach therefore is not
limited to claims that literally arise under the contract’s terms. E.g., Hou-Scape, 945
S.W.2d at 206 (claims for deceptive trade practices, fraudulent inducement,
negligence, defamation, and tortious interference with business relations all held to
be within scope of broad arbitration clause).
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Focusing on MacDonald’s factual allegations, its claims are within the
expansive scope of the arbitration clause. MacDonald acknowledged that it sold
CRS’s products under contract. It alleged that it made an additional agreement with
CRS to sell a new design that incorporated an existing CRS product. It sued to
recover the profit it contended it should have received from the sales of this new
design.
When CRS moved to compel arbitration of these claims, MacDonald
contended that its claims were outside of the arbitration clause’s scope because the
contract only concerned commercial products and the parties’ dispute concerned a
residential product. In part, MacDonald relied on a letter predating the parties’
contract in which CRS authorized MacDonald to sell residential products. This
purported distinction between commercial and residential products, however,
merely confirms that MacDonald’s claims are factually intertwined with and relate
to the parties’ contract. That contract postdated the letter in question by several
months, contained a merger clause, and expressly forbade MacDonald from selling
or soliciting orders for products other than those specified in the contract, which was
limited to commercial products. Whatever rights MacDonald may have with respect
to the newly designed residential product are therefore inextricably enmeshed with
the contract and subject to its mandatory arbitration clause.
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In sum, we hold that the evidence shows the existence of a valid, enforceable
arbitration agreement between CRS and MacDonald and that the agreement
encompasses MacDonald’s claims in this suit. Given that MacDonald has not proven
a defense to the enforcement of the agreement, the trial court had no discretion but
to compel arbitration of MacDonald’s claims and stay this suit. Richmont Holdings,
392 S.W.3d at 635. Accordingly, we reverse the trial court’s ordering denying CRS’s
motion to compel arbitration and remand for entry of an order compelling arbitration
and staying the suit pending arbitration of MacDonald’s claims.
Petition for Writ of Mandamus
Because MacDonald’s claims are subject to arbitration by means of CRS’s
interlocutory appeal, we need not address CRS’s related petition for writ of
mandamus. See Royston, Rayzor, Vickery & Williams, LLP v. Lopez, 467 S.W.3d
494, 499 (Tex. 2015). Thus, we dismiss CRS’s petition as moot. See Houston
Progressive, 474 S.W.3d at 439, 451.
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Conclusion
We conclude that the trial court abused its discretion by denying CRS’s
motion to compel arbitration. We therefore reverse the trial court’s order denying
the motion, remand this cause to the trial court so that it can enter an order
compelling arbitration and staying this suit pending arbitration, and dismiss CRS’s
related petition for writ of mandamus as moot.
Harvey Brown
Justice
Panel consists of Chief Justice Radack and Justices Brown and Lloyd.
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