Watts Regulator Co. v. Texas Farmers Insurance Company as Subrogee of Kadrey Semo ( 2016 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-16-00025-CV
WATTS REGULATOR CO. APPELLANT
V.
TEXAS FARMERS INSURANCE APPELLEE
COMPANY AS SUBROGEE OF
DAVID MARTINEZ
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FROM THE 352ND DISTRICT COURT OF TARRANT COUNTY
TRIAL COURT NO. 352-277555-15
AND
NO. 02-16-00039-CV
WATTS REGULATOR CO. APPELLANT
V.
TEXAS FARMERS INSURANCE APPELLEE
COMPANY AS SUBROGEE OF
KADREY SEMO
------------
FROM THE 342ND DISTRICT COURT OF TARRANT COUNTY
TRIAL COURT NO. 342-277833-15
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OPINION
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In a single issue in these consolidated accelerated interlocutory appeals,1
appellant Watts Regulator Co. argues that it has a right to compel appellee
Texas Farmers Insurance Company, as subrogee of David Martinez and Kadrey
Semo, to arbitration. We affirm.
Before the accrual of the subrogation claims in this case, both parties were
members of a voluntary arbitration forum called Arbitration Forums, Inc. (AF). As
members of AF, the parties did not sign a contract with each other, but, rather,
separately and independently of one another, signed a two-page preprinted form
prepared and furnished by AF,2 which, according to its literature, “administrates
voluntary alternative dispute resolution services for signatory companies.” By
signing the agreement, both parties became signatories to AF, and as voluntary
signatories, agreed to arbitrate claims with AF.
The AF agreement also gave AF the power to draft rules and regulations to
govern the procedures for filing cases and participating in hearings.3 Because
1
See Tex. Civ. Prac. & Rem. Code Ann. § 51.016 (West 2015), § 171.098
(West 2011); Tex. R. App. P. 28.1.
2
AF’s slogan, as denoted on the form, is “Industry created. Membership
driven.”
3
Through AF under the rules in effect at the time these subrogation claims
arose, submitted claims would generally be resolved with limited discovery,
2
membership in AF is voluntary, either party could withdraw from AF at any time
by giving written notice to AF of its intent to withdraw, and withdrawal would
become effective 60 days after written notification, “except as to cases then
pending before arbitration panels.”
On July 29, 2014, pursuant to the agreement’s terms, Farmers sent a
written notice to AF that it and its various entities were withdrawing from the
agreement, which, under AF’s terms, made Farmers’s withdrawal effective 60
days later.
Approximately six months later, Farmers sued Watts on the two
subrogation claims at issue here4 based on its allegations that products
manufactured by Watts caused property damage of $9,758.04 to Martinez (for
damages that occurred to Martinez’s property on April 23, 2013) and $14,966.14
to Semo (for damages that occurred to Semo’s property on May 8, 2013). Watts
then sought to compel arbitration of both claims through AF. In both cases, the
trial courts denied Watts’s motion to compel arbitration.
The pertinent provisions of the arbitration agreement are as follows:
By signing this Agreement, the company accepts and binds itself to
the following:
followed by a hearing by one arbitrator unless a party requested a three-person
panel and paid the three-person panel fee.
Farmers brought suit as to Martinez’s claim on March 26, 2015, and as to
4
Semo’s claim on April 10, 2015.
3
Article First
Compulsory Provisions
Signatory companies must forego litigation and submit any
personal, commercial, or self-insured property subrogation claims
to Arbitration Forums, Inc. (hereinafter referred to as AF).
Article Second
Exclusions
No company shall be required, without its written consent, to
arbitrate any claim or suit if:
(a) it is not a signatory company nor has given written consent;
. . . .[5]
Article Fourth
Non-Compulsory Provisions
The parties may, with written consent, submit a claim:
(a) that exceeds this forum’s monetary limit, or
(b) where a non-signatory wants to participate.
Once a company gives written consent, all Articles and Rules of
this forum are applicable, and the company may not revoke its
consent.
Article Fifth
AF’s Function and Authority
AF, representing the signatory companies, is authorized to:
(a) make appropriate Rules and Regulations for the presentation
and determination of controversies under this Agreement;
5
The remaining items (b)–(h) in Article Second pertain to types of claims,
policy terms, denial of coverage, claims instituted before the agreement is
signed, accidents in federal or international waters, and settlement under an
insurance policy. Article Third sets out rules pertinent to the arbitrator’s
decisions, including confidentiality, but they otherwise have no bearing on our
interpretation of the agreement.
4
(b) determine the location, and the means by which, arbitration
cases are heard;
(c) determine qualification criteria and provide for the selection and
appointment of arbitrators;
(d) establish fees;
(e) invite other insurance carriers, noninsurers, or self-insureds to
participate in this arbitration program, and compel the
withdrawal of any signatory for failure to conform to the
Agreement or the Rules issued thereunder.
The signatories, directors, officers, staff, agents and AF
employees, as well as the arbitrators, are not liable to and will
be held harmless by any party (ies) for any negligence, act, or
omission concerning the processing, administration, or hearing
of any arbitration conducted under this Agreement.
Article Sixth
Withdrawals
Any signatory company may withdraw from this Agreement by notice
in writing to AF. Such withdrawal will become effective sixty (60)
days after receipt of such notice except as to cases then pending
before arbitration panels. The effective date of withdrawal as to
such pending cases shall be upon final compliance with the finding
of the arbitration panel on those cases. [Underlined emphases
added.]
The form contains a space for “Group/Company” name, asks the signatory to
indicate whether it is an insurer or is self-insured, and provides space for listing
“companies[’] signatory” if a member is “signing for a group.”
The dispute between the parties here hinges on whether the trial courts
below properly construed the AF agreement in light of Farmers’s decision to
withdraw from the agreement and its subsequent decision to sue Watts on the
subrogated claims. Specifically, the question is whether claims that accrued prior
to Farmers’s decision to withdraw are nevertheless subject to arbitration through
5
AF even though they were not pending cases before an arbitration panel at any
time during Farmers’s association with AF.
Watts argues that “claims,” as used in the first article of the agreement,
means that any claims that accrued while Farmers was still a signatory must be
arbitrated.6 Farmers counters that the plain and specific language of the sixth
article—that withdrawal is effective 60 days after notice “except as to cases then
pending before arbitration panels”—means that if the claim was not pending
before an arbitration panel at the time of the withdrawal plus 60 days, then it
cannot later be compelled into arbitration pursuant to the AF agreement.
We review a trial court’s denial of a motion to compel arbitration for an
abuse of discretion. BBVA Compass Invs. Solutions, Inc. v. Brooks, 456 S.W.3d
711, 717 (Tex. App.—Fort Worth 2015, no pet.). A party seeking to compel
arbitration must show that the claims at issue (1) are subject to a valid arbitration
agreement and (2) fall within the scope of that agreement. Id. Because
unambiguous contracts are construed as a matter of law, Moayedi v. Interstate
35/Chisam Rd., L.P., 438 S.W.3d 1, 7 (Tex. 2014), we review de novo a trial
court’s construction of an unambiguous arbitration agreement. See In re Labatt
Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig. proceeding); In re
6
Or, as worded by the trial judge in the Semo case and agreed to by
Watts’s counsel, “So [Watts’s] position is essentially that once . . . a subrogation
claim accrues, that the agreement can never be terminated as to that [claim].”
The trial court then observed that such an interpretation would render the
language about pending cases “pretty much worthless.”
6
Guggenheim Corp. Funding, LLC, 380 S.W.3d 879, 886 (Tex. App.—Houston
[14th Dist.] 2012, orig. proceeding [mand. dism’d]).
Watts relies on Brooks to support its argument that Farmers’s claims must
be arbitrated. In Brooks, the dispute between the parties involved allegations
that the bank improperly transferred funds from an individual retirement account
(IRA) into someone else’s account and then closed the IRA account. 456
S.W.3d at 715. The bank argued that the brokerage agreement between the
parties required arbitration and that the agreement was broad enough to
encompass all controversies between the parties concerning the agreement’s
performance, while the owner of the IRA argued that the arbitration clause’s
scope did not encompass tortious conduct and that the parties’ contractual
relationship ended when the bank closed the account.7 Id. at 716–17.
7
The arbitration clause in that case provided, in all capital letters:
(e) . . . You agree that, except as provided below, all controversies
which may arise between you and Compass, its affiliates, officers,
directors, employees, representatives, and agents concerning the
construction, performance or breach of this agreement, agreements
related hereto, or any transaction involving securities and/or your
securities account, whether entered into prior to, or subsequent to
the date hereof, shall be resolved by arbitration in accordance with
the Code of Arbitration Procedure of the National Association of
Securities Dealers (“CAPNASD”) or, if the CAPNASD is unavailable
for any reason, the rules of procedure of the American Arbitration
Association.
Brooks, 456 S.W.3d at 716–17 (emphases added).
7
We noted the following general rules regarding arbitration and contract
construction in Brooks:
 An agreement to arbitrate contained within a contract survives the termination
or repudiation of that contract as a whole.
 A strong presumption favors arbitration and we are to resolve any doubts
about an agreement’s scope, waiver, and other issues unrelated to its validity
in favor of arbitration.
 Unless it can be said with positive assurance that an arbitration clause is not
susceptible of an interpretation that would cover the dispute at issue, a court
should not deny arbitration.
 Whether a claim falls within the scope of an arbitration agreement involves the
trial court’s legal interpretation of the agreement and is subject to de novo
review, i.e., reviewed with no deference to the trial court’s decision.
 Courts examine the language in an arbitration agreement in context and give
the language its plain grammatical meaning, and when construing a
contractual provision, the provision is reviewed in light of the entire contract.
See id. at 718–19. We clarified in Granite Re Inc. v. Jay Mills Contracting Inc.
that when determining whether there is a valid arbitration agreement between the
parties, the FAA’s general presumption in favor of arbitration does not apply. No.
02-14-00357-CV, 2015 WL 1869216, at *3 (Tex. App.—Fort Worth Apr. 23, 2015,
no pet.) (mem. op. on reh’g). We make that determination by applying state law
contract principles, and under such principles, we primarily must determine the
parties’ intent as expressed in the contract’s terms. Id. Arbitration cannot be
ordered in the absence of an agreement to arbitrate. Villa De Leon Condos.,
LLC v. Stewart, No. 02-14-00271-CV, 2015 WL 729462, at *3 (Tex. App.—Fort
8
Worth Feb. 19, 2015, no pet.) (mem. op.) (citing Freis v. Canales, 877 S.W.2d
283, 284 (Tex. 1994) (orig. proceeding)).
We concluded in Brooks that the claims were subject to arbitration based
on the purpose of the agreement between the parties and because their claims
were both the direct and collateral results of the bank’s alleged breach of their
agreement. 456 S.W.3d at 719–20. We concluded in Granite Re that there was
a valid agreement to arbitrate between a contractor and a subcontrator’s surety
based on the doctrine of incorporation by reference.8 2015 WL 1869216, at *1–2,
*4. And we concluded in Stewart that the purchasers had agreed to and were
bound by the arbitration agreement as evidenced by their agreement to the First
Addendum of a condominium sales contract. 2015 WL 729462, at *4.
In contrast, here, the arbitration agreement at issue was not between
Watts and Farmers as parties to a contract or parties to an overall transaction
that incorporated an arbitration clause by reference. Cf. Stewart, 2015 WL
729462, at *4; Granite Re, 2015 WL 1869216, at *1–2, *4; Brooks, 456 S.W.3d at
719–20. Instead, each party here unilaterally signed a form provided by the
arbitration forum itself, and the claims at issue were unrelated to the breach of
8
Granite, the subcontractor’s surety, sought to enforce the arbitration
clause against the contractor; the arbitration clause was in a blanket agreement
between the contractor and the subcontractor, which was incorporated into a
performance bond through a work order. 2015 WL 1869216, at *1–2, *4.
9
any agreement between the parties.9 The arbitration agreement form expressly
states that no company shall be required to arbitrate any claim or suit if it is not a
signatory company unless it has given written consent. The only provision
requiring irrevocability of consent pertains to when a claim has been submitted
that exceeds the forum’s monetary limit or involves a nonsignatory and requires
written consent to the arbitration of that claim.
The first article requires that “signatory” companies submit their claims to
AF. The second article provides that no company shall be required to arbitrate
any claim or suit without its written consent if it is not a “signatory” company. The
fourth article states that irrevocability depends on written consent to submit a
9
Instead, Watts was at best a third-party beneficiary to Farmers’s unilateral
agreement to arbitrate in AF’s forum. Cf. In re Odyssey Healthcare, Inc., 310
S.W.3d 419, 421 (Tex.) (orig. proceeding) (reviewing validity of arbitration
agreement between employer and employee), cert. denied, 562 U.S. 895 (2010);
In re Halliburton Co., 80 S.W.3d 566, 567–68 (Tex. 2002) (orig. proceeding)
(same), cert. denied, 537 U.S. 1112 (2003). To the extent Watts relies on the
Federal Arbitration Act (FAA) to support its argument that Farmers could not
revoke the arbitration agreement as to claims that accrued while it was a
signatory, the FAA states that
A written provision in any maritime transaction or a contract
evidencing a transaction involving commerce to settle by arbitration
a controversy thereafter arising out of such contract or transaction,
or the refusal to perform the whole or any part thereof, or an
agreement in writing to submit to arbitration an existing controversy
arising out of such a contract, transaction, or refusal, shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at
law or in equity for the revocation of any contract.
9 U.S.C.A. § 2 (West 2009) (emphases added). As set out above, Watts and
Farmers did not have a contract with each other. Therefore, this provision does
not support forcing Farmers into arbitration.
10
claim that involves a nonsignatory’s participation. And the sixth article’s
withdrawal terms allow “[a]ny signatory company” to withdraw if it provides notice
in writing, with the withdrawal becoming effective sixty days later “except as to
cases then pending before arbitration panels.”
From the above and with regard to these two subrogation claims, we
cannot conclude that Watts had any vested right to arbitration or ability to enforce
compulsory arbitration against Farmers sixty days after Farmers withdrew from
AF. Instead, under the terms as written, when Farmers gave AF its written notice
that it was withdrawing from AF, it became a “nonsignatory” company sixty days
later as to all cases—and, by inference, all claims that were not yet cases10—that
10
In the law’s natural order, some claims become cases and some do not.
See Tex. R. Civ. P. 47 (“Claims for Relief”), 202 (“Depositions Before Suit or to
Investigate Claims”). And notwithstanding Watts’s allegations of gamesmanship,
we cannot rewrite AF’s form to accommodate Watts’s desire to force Farmers
into arbitration. See generally Tex. Civ. Prac. & Rem. Code Ann. § 154.002
(West 2011) (explaining that alternative dispute resolution procedures are
voluntary settlement procedures); Aldridge v. Thrift Fin. Mktg., LLC, 376 S.W.3d
877, 883 (Tex. App.—Fort Worth 2012, no pet.) (“In conducting our review, we
‘may not expand upon the terms of the contract or tolerate a liberal interpretation
of it by reading into it a voluntary, consensual agreement to arbitrate when one
otherwise does not exist.’” (quoting In re Bates, 177 S.W.3d 419, 422 (Tex.
App.—Houston [1st Dist.] 2005, orig. proceeding)). Compare Claim, Black’s Law
Dictionary (10th ed. 2014) (defining “claim” as a statement of something yet to be
proved, the assertion of an existing right, an interest or remedy recognized at
law, or “[a] demand for money, property, or a legal remedy to which one asserts
a right; esp., the part of a complaint in a civil action specifying what relief the
plaintiff asks for”), with Case, Black’s Law Dictionary (defining “case” as “[a] civil
or criminal proceeding, action, suit, or controversy at law or in equity ”; a criminal investigation; an individual suspect or convict in
relation to any aspect of the criminal-justice system; or an argument, an instance,
occurrence, or situation).
11
were not already then-pending before an arbitration panel.11 At the time Farmers
brought its claims against Watts, it was no longer a signatory. See Aldridge, 376
S.W.3d at 883 (“[W]e agree with Thrift that the repeated use of the terms
‘Member,’ ‘Disputing Member,’ and ‘Responding Member’ demonstrates that the
agreement to arbitrate is an agreement solely regarding resolution of disputes
between ‘Members’ of Thrift.”). The AF arbitration agreement form’s plain
language addresses which cases—not claims—were still subject to arbitration
upon a signatory’s withdrawal. Because they were not “cases then pending
before arbitration panels,” these two subrogation actions did not fall within the
post-withdrawal cases that would remain subject to arbitration.
Given the context, the timeline, and the plain-language reading of the
arbitration agreement form, we cannot say that the trial courts in these cases
abused their discretion by denying Watts’s motions to compel arbitration.
We also note that contrary to Watts’s argument that the contract is illusory
if Farmers could withdraw whenever it wanted, both parties here—Farmers and
Watts—had the power to withdraw pursuant to the sixth article. Cf. Odyssey, 310
S.W.3d at 424 (holding that limitations on employer’s right to amend or terminate
arbitration agreement with employee did not render agreement illusory);
Halliburton, 80 S.W.3d at 569–70 (same).
11
To support its argument that a pending claim is subject to compulsory
arbitration at the time that it arose, Watts refers us to the AF Rules. But the rules
in the record that Watts refers us to pertain to rules that became effective on
January 1, 2015 and were then updated on November 10, 2015, not the rules
that were in effect at the time the claims accrued or when Farmers withdrew.
The rules that were effective October 1, 2012, which are also in the record, do
not purport to interpret when claims accrue for mandatory arbitration purposes.
12
Therefore, we overrule Watts’s sole issue and affirm the trial courts’ orders
denying Watts’s motions to compel arbitration.
/s/ Bonnie Sudderth
BONNIE SUDDERTH
JUSTICE
PANEL: WALKER, MEIER, and SUDDERTH, JJ.
DELIVERED: June 30, 2016
13