Lennar Homes of Texas Land and Construction, Ltd. and Lennar Homes of Texas Sales and Marketing, Ltd. v. Kara Whiteley ( 2023 )

Supreme Court of Texas
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No. 21-0783
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Lennar Homes of Texas Land and Construction, Ltd. and Lennar
Homes of Texas Sales and Marketing, Ltd.,
Petitioners,
v.
Kara Whiteley,
Respondent
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On Petition for Review from the
Court of Appeals for the Fourteenth District of Texas
═══════════════════════════════════════
Argued January 31, 2023
JUSTICE BUSBY delivered the opinion of the Court.
This interlocutory appeal concerns whether a subsequent
purchaser of a home is required to arbitrate her claims against the
builder for alleged construction defects. The trial court granted the
builder’s motion to compel arbitration, and the builder joined two
subcontractors in the arbitration, asserting that they owed it defense
and indemnity obligations. After the arbitrator issued an award in favor
of the builder, the builder and purchaser filed cross-motions to confirm
and to vacate the award, disputing whether the subsequent purchaser
was bound by arbitration clauses in the builder’s purchase-and-sale
agreement with the original purchaser and in its deed to that purchaser.
The trial court vacated the award against the subsequent purchaser,
and it made no ruling regarding whether to vacate the award against
the subcontractors, who were not yet before the court. The court of
appeals affirmed.
With respect to the subsequent purchaser, we hold that she was
bound by the arbitration clause in the purchase-and-sale agreement
under the doctrine of direct-benefits estoppel. As to the subcontractors,
we agree with the court of appeals that the trial court did not vacate the
award against them. They later intervened in the trial court, and our
record contains no ruling on any motion to confirm or vacate the
arbitration award with respect to the subcontractors. Accordingly, we
reverse in part, render judgment confirming the award against the
purchaser, and remand to the trial court for further proceedings.
BACKGROUND
In May 2014, Cody Isaacson signed an agreement with petitioner
Lennar1 to purchase a house it was building in the Enclave at Bay
Colony subdivision in Galveston, Texas, as well as the underlying
property. Among other matters, the Purchase and Sale Agreement
(PSA) addressed how title to the property would be conveyed, the
recording of the deed and what additional terms or documents were
1 We refer to the petitioners, Lennar Homes of Texas Land and
Construction, Ltd. and Lennar Homes of Texas Sales and Marketing, Ltd.,
collectively as Lennar.
2
required therein, and Lennar’s right to notice and approval of any
transfer or assignment of Isaacson’s rights under the PSA.
The PSA also incorporated by reference the terms of Lennar’s
warranty booklet (the Limited Warranty), stated that Lennar was
making only those express limited warranties set forth in the Limited
Warranty, and disavowed any other warranties or representations,
including any warranties of workmanship, merchantability,
habitability, or suitability and fitness. In addition, the PSA contained
multiple disclosures regarding the home, including an Indoor
Environmental Quality Disclosure concerning the likelihood of mold
growth in the home.
The PSA included two arbitration clauses. First, Isaacson and
Lennar generally agreed to arbitrate any disputes in accordance with
the American Arbitration Association’s Home Construction Mediation
Procedures (the AAA rules), and the PSA defined disputes as follows:
“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 Agreement, the Property, the Community
or any dealings between Buyer and Seller; (2) arising by
virtue of any representations, promises or warranties
alleged to have been made by Seller or Seller’s
representative; (3) relating to the personal injury or
property damage alleged to have been sustained by Buyer,
Buyer’s children or other occupants of the Property, or in
the Community; or (4) issues of formation, validity or
enforceability of this section.
The general arbitration clause further provided that Isaacson had
executed the agreement on behalf of his children and other occupants of
the home with the intent that all such parties would likewise be bound.
3
Second, the PSA included a clause specific to warranty disputes, which
provided that “[a]ny disputes, claims or controversies relating to any
items, problems, defects or difficulties covered by the Limited Warranty
shall be resolved pursuant to the dispute settlement provisions covered
by the Limited Warranty.”
In its Limited Warranty booklet,2 Lennar agreed to provide three
types of express warranties for specific components of the home. First,
Lennar provided a workmanship protection warranty that components
of the home listed in the Workmanship Standards section of the booklet
would perform in accordance with those standards for one year from the
property’s closing date. Second, Lennar provided a systems protection
warranty that components of the home listed in the Systems Standards
section of the booklet would perform in accordance with those standards
for two years. Third, Lennar provided a warranty that structural
components of the home listed in the booklet’s Structural Standards
section would perform in accordance with that section’s standards for
ten years. Like the PSA, the Limited Warranty provided for arbitration
of disputes—defined using substantially similar language to the PSA—
in accordance with the AAA rules.
On May 16, 2014, Lennar executed and recorded a Special
Warranty Deed conveying title to the home and underlying property to
Isaacson. The deed provided that the conveyance was made subject to
“[a]ny and all restrictions, encumbrances, easements, covenants,
conditions, outstanding mineral interests held by third parties, and
2 The parties do not dispute that the “1-2-10 Single Family Warranty”
that appears in the record is the warranty booklet referred to in the PSA.
4
reservations” for the property that had been recorded in the County
Clerk’s office. The deed also provided that it was subject to an
arbitration provision attached to the deed as Exhibit A.
The attached arbitration provision contained language
substantially similar to the provisions in the PSA and the Limited
Warranty. That provision defines disputes as follows:
“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.
The attachment further provides that Exhibit A “shall run with the land
and be binding upon the successors and assigns of” Isaacson.
On July 31, 2015, Isaacson sold the property to respondent Kara
Whiteley, conveying title via a General Warranty Deed that Isaacson
executed and recorded in the county records. Shortly after purchasing
the home, Whiteley “noticed a serious mold problem” and ultimately
sued Lennar on March 1, 2017, after providing notice and participating
in settlement negotiations pursuant to the Residential Construction
Liability Act.3 Asserting claims for negligent construction and breach of
3 See TEX. PROP. CODE § 27.004.
5
the implied warranties of habitability and good workmanship, Whiteley
alleged that the home’s heating, ventilation, and cooling (HVAC) system
had deficiencies that were contributing to the mold problem by creating
excessive, long term, and unacceptable moisture levels.
With respect to her claims for negligent construction and breach
of the implied warranty of good workmanship, Whiteley alleged that
Lennar had breached its duty to exercise ordinary care in its
construction of the home and failed to construct the home in the same
manner as would a generally proficient builder engaged in similar work
and performing under similar circumstances. With respect to her
habitability claim, Whiteley alleged that “[t]he mold itself, as well as the
construction defects which caused the mold, are latent defects that
rendered the Home unsafe, unsanitary, or otherwise unfit for living
therein.” Whiteley sought actual damages, including (1) repair costs for
the construction defects, (2) replacement or repair costs for goods
damaged inside the home, (3) engineering and consulting fees,
(4) temporary housing expenses for the duration of any repairs, and
(5) attorney’s fees.
Lennar filed an application to stay proceedings pending
arbitration, relying on the arbitration agreements in the PSA and
Limited Warranty. Whiteley opposed Lennar’s request for arbitration,
arguing that she was not a party to and did not sign any of the relied-
upon arbitration agreements and therefore was not bound to arbitrate
under them. In reply, Lennar argued that (1) Whiteley was bound to
arbitrate either as a successor in interest to Isaacson, under the doctrine
of direct-benefits estoppel, or because she assumed Isaacson’s
6
obligations under the PSA; and (2) the trial court should refer such
questions of arbitrability to the arbitrator because each of the relevant
arbitration clauses incorporates the AAA rules, which empower the
arbitrators to determine their own jurisdiction. The trial court granted
Lennar’s application for a stay and the parties proceeded to arbitration.
In arbitration, Whiteley pursued her claims for negligent
construction and implied warranties against Lennar. In addition to its
general denial, Lennar asserted a number of affirmative defenses,
including that (1) Whiteley’s claims are barred by the economic loss rule,
waiver, and release; (2) Whiteley’s negligence claim is barred because
she purchased the home “as is”; (3) Whiteley may not assert a claim for
breach of the implied warranty of good workmanship because it was
disclaimed by the original purchaser; (4) the alleged defects were not
hidden or latent; (5) Whiteley misused the HVAC system and failed to
mitigate her damages; and (6) the alleged defects are not attributable to
Lennar.
Lennar also filed counterclaims against Whiteley in the
arbitration, including claims that Whiteley breached her contractual
obligations under the PSA and Limited Warranty. Additionally, Lennar
filed a third-party complaint against its subcontractors Big Tex Air
Conditioning, Inc. f/k/a Big Tex Air Conditioning L.P. and Xalt Holding,
LLC f/k/a DPIS Engineering LLP. Big Tex designed and installed the
home’s HVAC system, and Xalt was responsible for various inspections
of the home during construction. Lennar’s third-party complaint sought
contribution and indemnity based on the subcontractors’ separate
agreements with Lennar.
7
The proceedings were conducted in accordance with the Federal
Arbitration Act (FAA), see 9 U.S.C. §§ 1-16, and the arbitrator issued his
award in December 2018. The arbitrator denied Whiteley all the relief
she sought against Lennar and awarded Lennar attorney’s fees and
costs from Whiteley, Big Tex, and Xalt.
Lennar then returned to the trial court, filing a Motion to Confirm
Arbitration Award and Motion to Join Additional Parties. Asserting
that there was no basis for contesting the award under the FAA, see id.§§ 10-11, and that the deadline for doing so had passed, Lennar argued
that the arbitrator’s Final Award must be confirmed and judgment
rendered in conformance with the award. Recognizing that Big Tex and
Xalt were not yet parties in the trial court, Lennar also asked that they
be joined as necessary parties.
Whiteley opposed Lennar’s request and filed a combined motion
that included her response to Lennar’s motion to confirm, as well as a
motion to vacate the arbitration award. Whiteley argued that her claims
against Lennar never should have been arbitrated because (1) no valid
agreement to arbitrate existed between her and Lennar, and (2) even if
the PSA applies to her, her claims fall outside the scope of the
agreement’s arbitration provision.
Lennar filed a combined reply and response to Whiteley’s motion
to vacate. In addition to arguing that Whiteley’s conduct following the
trial court’s initial stay waived any objection to arbitration,4 Lennar
4 In arguing that Whiteley waived her objection to arbitration, Lennar
relied on (1) Whiteley’s failure to object to the arbitrator’s jurisdiction during
the arbitration proceedings, and (2) various documents and pleadings she had
8
again argued that Whiteley was estopped from denying that she is
subject to the PSA’s arbitration provisions. Lennar also argued that the
recording of Exhibit A along with the Special Warranty Deed rendered
that arbitration agreement a covenant that runs with the land and binds
successive owners like Whiteley.
The trial court denied Lennar’s motion and granted Whiteley’s,
vacating the arbitration award against Whiteley. Lennar then filed this
interlocutory appeal.
The court of appeals affirmed. 625 S.W.3d 569 (Tex. App.—
Houston [14th Dist.] 2021). Rejecting each of Lennar’s theories, the
court of appeals held that (1) Exhibit A is not a covenant running with
the land because an arbitration agreement does not “touch and concern”
the land, id. at 577-78; (2) Whiteley did not assume the Special
Warranty Deed’s arbitration agreement when she purchased the home,
id. at 578-79; (3) Whiteley was not bound to arbitrate as a third-party
beneficiary of the Limited Warranty, id. at 580-81; (4) direct-benefits
estoppel does not apply to claims for breach of the implied warranty of
good workmanship or habitability, id. at 581-82; and (5) Whiteley did
not waive her objection to arbitration, id. at 582-83. The court of appeals
also affirmed the trial court’s denial of the portions of Lennar’s motion
specific to Big Tex and Xalt. Id. at 574-75. We granted Lennar’s petition
for review.
signed that state that the parties are voluntarily participating in arbitration
and that any objections to jurisdiction have been waived.
9
ANALYSIS
Lennar challenges the court of appeals’ affirmance of the trial
court’s order and raises the following issues. First, Lennar contends the
trial court erred in denying its motion to confirm the arbitration award
against Whiteley because (1) direct-benefits estoppel applied to estop
Whiteley from avoiding the PSA’s arbitration clause; (2) the arbitration
agreement attached to Isaacson’s Special Warranty Deed was a
covenant running with the land; or (3) Whiteley could be compelled to
arbitrate as a third-party beneficiary of Lennar’s “1-2-10 Single-Family
Warranty.” Alternatively, Lennar asserts the trial court should have
confirmed the arbitration award because Whiteley waived her objection
to arbitration during the parties’ arbitration proceedings. Finally,
Lennar argues the trial court erroneously refused to confirm the
arbitration award against Big Tex and Xalt. We address each issue in
turn.
I. The trial court erred in granting Whiteley’s motion to
vacate the final arbitration award.
Under the FAA, “a party seeking to compel arbitration must
establish the existence of a valid arbitration agreement and the
existence of a dispute within the scope of the agreement.” Baby Dolls
Topless Saloons, Inc. v. Sotero, 642 S.W.3d 583, 585-86 (Tex. 2022)
(footnote omitted).5 “[A]bsent unmistakable evidence that the parties
intended the contrary, it is the courts rather than arbitrators that must
The parties do not dispute that the arbitration agreements at issue
5
are governed by the FAA. See 9 U.S.C. §§ 1-16.
10
decide ‘gateway matters’ such as whether a valid arbitration agreement
exists” and “[w]hether an arbitration agreement is binding on a
nonparty.” In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005).6
These gateway matters are questions of law that we review de novo.
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003).
“Who is bound by an arbitration agreement is normally a function
of the parties’ intent, as expressed in the agreement’s terms.” Jody
James Farms, JV v. Altman Grp., 547 S.W.3d 624, 633 (Tex. 2018). “But
sometimes a person who is not a party to the agreement can compel
arbitration with one who is, and vice versa.” Meyer v. WMCO-GP, LLC,
211 S.W.3d 302, 305 (Tex. 2006) (footnotes omitted). Courts “have
recognized six theories, arising out of common principles of contract and
agency law, that may bind non-signatories to arbitration agreements:
(1) incorporation by reference; (2) assumption; (3) agency; (4) alter ego;
(5) equitable estoppel; and (6) third-party beneficiary.” In re Kellogg
Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005).
6 As we recently recognized in TotalEnergies E&P USA, Inc. v. MP Gulf
of Mexico, LLC, the incorporation of arbitral rules that empower the arbitrator
to decide questions of arbitrability generally establishes a clear and
unmistakable agreement to delegate such questions exclusively to the
arbitrator. __ S.W.3d __, 2023 WL 2939648, at *10 (Tex. Apr. 14, 2023). But
here, as in Jody James Farms, JV v. Altman Group, there is no agreement
between Lennar and Whiteley that incorporates the relevant AAA rules as to
disputes between them. See 547 S.W.3d 624, 633 (Tex. 2018). We therefore
cannot rely on the PSA’s incorporation of AAA rules without first identifying a
qualifying legal basis for compelling Whiteley—a non-signatory—to arbitrate
at least one of her claims under the PSA. See id. at 634-35 (“A valid arbitration
agreement exists for disagreements between [the signatories], but the
insurance policy cannot be reasonably read to encompass disagreements
between the signatories and other parties. Accordingly, we turn to alternative
theories for compelling arbitration.”).
11
We first consider whether Lennar has met its burden of showing
that Whiteley is bound by the PSA’s arbitration provision under the
equitable doctrine of direct-benefits estoppel. “Consistent with the
federal doctrine of ‘direct benefits estoppel,’ this Court has held that a
non-signatory plaintiff may be compelled to arbitrate if its claims are
‘based on a contract’ containing an agreement to arbitrate.” Id.; see also
In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755 (Tex. 2001) (“[A] litigant
who sues based on a contract subjects him or herself to the contract’s
terms.”).7 But because direct-benefits estoppel is limited to cases where
the non-signatory “seeks, through the claim, to derive a direct benefit
from the contract,” although “a non-signatory’s claim may relate to a
contract containing an arbitration provision, that relationship does not,
in itself, bind the non-signatory to the arbitration provision.” Kellogg
Brown & Root, 166 S.W.3d at 741.
“While the boundaries of direct-benefits estoppel are not always
clear, nonparties generally must arbitrate claims if liability arises from
a contract with an arbitration clause, but not if liability arises from
general obligations imposed by law.” In re Vesta Ins. Grp., Inc.,
192 S.W.3d 759, 761 (Tex. 2006). “[T]he claim must depend on the
existence of the contract . . . and be unable to stand independently
without the contract.” G.T. Leach Builders, LLC v. Sapphire V.P., LP,
7 We have also recognized that another way in which a non-signatory
may be estopped is “by conduct that deliberately seeks and obtains substantial
benefits from the contract itself,” such as when plaintiffs’ “occupancy of the
home indicates that they accepted the benefits of [the underlying] purchase
agreement for the home” signed by another family member. Taylor Morrison
of Tex., Inc. v. Ha, 660 S.W.3d 529, 533 (Tex. 2023).
12
458 S.W.3d 502, 527-28 (Tex. 2015) (quotation marks omitted). When
“the alleged liability arises from the contract or must be determined by
reference to it . . . [,] equity prevents [the non-signatory plaintiff] from
avoiding [an] arbitration clause that was part of that [contract].” Jody
James Farms, 547 S.W.3d at 637.
“[W]hether a claim seeks a direct benefit from a contract
containing an arbitration clause turns on the substance of the claim, not
artful pleading.” Weekley Homes, 180 S.W.3d at 131-32. But where the
relied-upon arbitration clause is broad enough to cover both tort and
contract claims, if the plaintiff pursues one “claim ‘on the contract,’ then
[the plaintiff] must pursue all claims—tort and contract—in
arbitration.” Id. at 132; see also Taylor Morrison of Tex., Inc. v. Skufca,
660 S.W.3d 525, 527-28 (Tex. 2023) (“If any one of the children’s claims
is based on the parents’ purchase agreement, then the children must
arbitrate all claims that fall under the scope of the purchase agreement’s
arbitration clause.”).8
In arguing that direct-benefits estoppel is inapplicable to her
claims, Whiteley relies primarily upon (1) this Court’s prior statements
that the right to pursue an implied warranty claim derives from the
common law, and (2) the fact that her purchase of the home was not
8 Although we have recognized that a single arbitrable claim on a
contract is sufficient to require the claimant to arbitrate any other claims that
fall within the scope of the contract’s arbitration provision, we have yet to
specifically address whether a non-signatory claimant may likewise be
required to arbitrate any related counterclaims asserted against it in the
course of compelled arbitration proceedings. We express no opinion either way
on that question or any principles potentially relevant to it because Whiteley
has not articulated any distinct grounds for refusing to confirm that portion of
the arbitrator’s award.
13
through the PSA with Lennar, but rather through a separate contract
with Isaacson. For the reasons discussed below, we conclude that
Whiteley was required to arbitrate her claims under the doctrine of
direct-benefits estoppel.
First, we reject Whiteley’s suggestion that any implied
warranties, because they derive from the common law, would not have
“become a part of or derive from the home Purchase Agreement.” To the
contrary, as we have previously noted, “a warranty which the law
implies from the existence of a written contract is as much a part of the
writing as the express terms of the contract.” Certain-Teed Prods. Corp.
v. Bell, 422 S.W.2d 719, 721 (Tex. 1968). Although such warranties are
“imposed by operation of law, the obligation still arises from the contract
and becomes part of the contract. Absent a contract, the warranty would
not arise.” Nghiem v. Sajib, 567 S.W.3d 718, 725 (Tex. 2019).9 Indeed,
in extending the warranties of good workmanship and habitability to
benefit subsequent purchasers in Gupta v. Ritter Homes, Inc., we held
that such implied warranties are “implicit in the contract between the
builder/vendor and original purchaser and [are] automatically assigned
to the subsequent purchaser.” 646 S.W.2d 168, 169 (Tex. 1983)
(emphases added).10
9 Accord Stanford Dev. Corp. v. Stanford Condo. Ass’n, 285 S.W.3d 45,
49 (Tex. App.—Houston [1st Dist.] 2009, no pet.) (“The only contracts giving
rise to any express or implied contractual duties in this case are the earnest
money contracts between [the builder] and the individual homeowners.”).
10Accord Man Engines & Components, Inc. v. Shows, 434 S.W.3d 132,
138 (Tex. 2014) (“We see no reason why the merchant’s legally imposed duty
to issue merchantable goods should automatically end when a good passes to
subsequent buyers.” (emphasis added)).
14
Second, although Whiteley is correct that “the mere fact that the
claims would not have arisen but for the [PSA] is not enough to establish
equitable estoppel,” G.T. Leach Builders, 458 S.W.3d at 530, Whiteley’s
implied warranty claims share more than a but-for relationship with the
PSA. Because “different implied warranties behave differently,”
Nghiem, 567 S.W.3d at 724, we discuss each claim in turn.11
“The implied warranty of good workmanship serves as a ‘gap-
filler’ or ‘default warranty’; it applies unless and until the parties
express a contrary intention.” Centex Homes v. Buecher, 95 S.W.3d 266,
273 (Tex. 2002). Although parties may not “disclaim this warranty
outright, an express warranty in their contract can fill the gaps covered
by the implied warranty and supersede it if the express warranty
specifically describes the manner, performance, or quality of the
services.” Gonzales v. Sw. Olshan Found. Repair Co., 400 S.W.3d 52, 59
(Tex. 2013). “Thus, the implied warranty of good workmanship attaches
to a new home sale if the parties’ agreement does not provide how the
builder or the structure is to perform.” Centex Homes, 95 S.W.3d at 273
(emphasis added). Moreover, because “implied warranties . . . move
11 Given the substantial overlap between the substance of a negligent
construction claim and a claim for breach of an implied warranty of good
workmanship, we do not separately address Whiteley’s claim for negligent
construction. See Ewing Constr. Co. v. Amerisure Ins. Co., 420 S.W.3d 30, 37
(Tex. 2014) (holding negligent construction claim was “substantively the same”
as claim for breach of implied warranty of good workmanship); Coulson v. Lake
L.B.J. Mun. Util. Dist., 734 S.W.2d 649, 651 (Tex. 1987) (noting the court was
“unable to discern any real difference” between claim that construction was
negligent and claim that construction fell below standards of workmanlike
performance); see also Weekley Homes, 180 S.W.3d at 132 (“If [a plaintiff]
pursue[s] a claim ‘on the contract,’ then [the plaintiff] must pursue all claims—
tort and contract—in arbitration.”).
15
with the used [home] by operation of law, from purchaser to purchaser,”
a downstream purchaser like Whiteley “cannot obtain a greater
warranty than that given to the original purchaser.” Man Engines &
Components, Inc. v. Shows, 434 S.W.3d 132, 140 (Tex. 2014).
Because any implied warranty of good workmanship must
survive supplantation by an express warranty in the original purchase
contract, Lennar’s liability for breach is not “independent of [its]
contractual undertaking.” Chapman Custom Homes, Inc. v. Dall.
Plumbing Co., 445 S.W.3d 716, 718 (Tex. 2014). Indeed, although
Whiteley’s response brief challenges whether the PSA sufficiently set
out the manner in which Lennar was to construct the home, even that
assertion is one that “must be determined by reference to” the PSA.
Weekley Homes, 180 S.W.3d at 132. Similarly, Whiteley’s argument that
section 23 of the PSA prohibited assignment is one that cannot be
determined without reference to the PSA.
In other words, although liability arises in part from the general
law, nonliability arises from the terms of the express warranties
described in Lennar’s “1-2-10 Single-Family Warranty,” which the PSA
incorporated by reference. Cf. Vesta Ins. Grp., 192 S.W.3d at 761-62
(“Thus, while liability for tortious interference arises from the general
law, nonliability arises from connections with the contract.”). We
therefore conclude that Whiteley’s claim for breach of the implied
warranty of good workmanship does not “stand independently” of the
PSA. Kellogg Brown & Root, 166 S.W.3d at 740.
As we have previously recognized, however, “[w]hile the parties
are free to define for themselves the quality of workmanship, there is
16
generally no substitute for habitability.” Centex Homes, 95 S.W.3d at
275. This common-law warranty requires that “at the [completion of the
purchase] there are no latent defects in the facilities that are vital to the
use of the premises for residential purposes and that these essential
facilities will remain in a condition which makes the property livable.”
Kamarath v. Bennett, 568 S.W.2d 658, 661 (Tex. 1978). The implied
warranty “only extends to defects that render the property so defective
that it is unsuitable for its intended use as a home.” Centex Homes, 95
S.W.3d at 274; see also Kamarath, 568 S.W.2d at 661 (“[T]he defect must
be of a nature which will render the premises unsafe, or unsanitary, or
otherwise unfit for living therein.”).
Unlike the implied warranty of workmanlike construction, the
warranty of habitability “focuses on the state of the completed structure”
and “can be waived only to the extent that defects are adequately
disclosed.” Centex Homes, 95 S.W.3d at 272-74. “Thus, only in unique
circumstances, such as when a purchaser buys a problem house with
express and full knowledge of the defects that affect its habitability,
should a waiver of this warranty be recognized.” Id. at 274. On the
other hand, the implied warranty “does not include defects, even
substantial ones, that are known by or expressly disclosed to the buyer.”
Id. at 275.
Here, among other potentially relevant provisions, the PSA
included (1) a general disclaimer of the warranty of habitability,12 (2) a
12Although we agree with Whiteley that Lennar’s reliance on such a
general disclaimer would be unlikely to succeed on the merits, the FAA “does
not contain a ‘wholly groundless’ exception” for referring claims to arbitration.
Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 528 (2019).
17
section of disclosures regarding the home, (3) an Indoor Environmental
Quality Disclosure concerning the likelihood of mold growth in the
home, and (4) Lennar’s “1-2-10 Single-Family Warranty.” Whether
those portions of the PSA were sufficient to negate any implied warranty
of habitability with respect to mold growth will depend on the
particulars of Lennar’s express disclosures. In sum, although its
liability for breach of the implied warranty of habitability does not
“arise[] solely from” the PSA, Lennar’s liability still “must be determined
by reference to it,” Weekley Homes, 180 S.W.3d at 132, and therefore
Whiteley’s claims do not “stand independently” of the PSA. Kellogg
Brown & Root, 166 S.W.3d at 740.
Because we conclude that Whiteley was bound to arbitrate
pursuant to the PSA under the doctrine of direct-benefits estoppel and
Whiteley did not preserve any other grounds for vacating the arbitration
award, we do not reach the parties’ remaining arguments.
II. The trial court has not yet addressed the award against
the subcontractors.
Lennar next asserts that the trial court erroneously denied its
motion to confirm the arbitration award as to subcontractors Big Tex
and Xalt. But in the court of appeals, Lennar focused its challenge
primarily on the trial court’s grant of Whiteley’s motion to vacate,
arguing that it had erroneously vacated the award against the
subcontractors as well. The court of appeals disagreed, holding that the
trial court’s vacatur did not extend to the award against the
subcontractors. 625 S.W.3d at 574. Lennar does not challenge that
holding.
18
In addition, Lennar does not challenge the denial of its motion to
join the subcontractors as parties. As a result of that ruling, the
subcontractors were not before the trial court when it denied Lennar’s
motion to confirm the award, and there is no indication they received
proper notice of the motion or had an opportunity to be heard on the
issue. Thus, like the court of appeals, “we do not construe the order as
adjudicating any issues with respect to those parties.” Id. at 575.
After this interlocutory appeal was taken, the subcontractors
intervened in the trial court proceeding, and Lennar then filed a
separate motion to confirm the award against them. No ruling on that
motion appears in the record, and we express no view on its proper
disposition.
CONCLUSION
The trial court erred in granting Whiteley’s motion to vacate and
denying Lennar’s motion to confirm. Accordingly, we reverse the court
of appeals’ judgment, render judgment confirming the award against
Whiteley, and remand to the trial court for further proceedings.
J. Brett Busby
Justice
OPINION DELIVERED: May 12, 2023
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