High Valley Homes, Inc. v. Douglas Fudge and Carolyn Fudge ( 2003 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-01-00726-CV
High Valley Homes, Inc., Appellant
v.
Douglas Fudge and Carolyn Fudge, Appellees
FROM THE DISTRICT COURT OF COMAL COUNTY, 274TH JUDICIAL DISTRICT
NO. C98-593-C, HONORABLE GARY STEEL, JUDGE PRESIDING
MEMORANDUM OPINION
This is an appeal from a judgment confirming an arbitration award in a lawsuit brought by
appellees Douglas and Carolyn Fudge against their home builder, appellant High Valley Homes, Inc., and
others, arising from the allegedly defective site preparation and foundation construction for the Fudges=s new
home. The arbitrator found in favor of the Fudges. High Valley appeals but does not challenge the merits
of the arbitrator=s award; rather it complains that the trial court erred in ordering binding arbitration because
(1) High Valley requested only mediation and (2) High Valley=s plea in abatement rendered the subsequent
order compelling arbitration void. We will affirm the judgment of the trial court.
FACTUAL BACKGROUND
Douglas and Carolyn Fudge entered into a residential construction contract whereby High
Valley was to construct their new home according to plans and specifications drawn by an architect. As the
site preparation and foundation work were being completed, the Fudges became concerned about the
quality of the work. When the architect confirmed their suspicions, the Fudges demanded that High Valley
stop its work. The Fudges eventually terminated the contract. High Valley subsequently filed a mechanic=s
lien against the Fudges=s property.
The Fudges filed suit for declaratory relief seeking to invalidate the mechanic=s lien and
claiming damages under the Texas Deceptive Trade Practices and Consumer Protection Act (ADTPA@),1
attorney=s fees and costs. See Tex. Bus. & Com. Code Ann. '' 17.46-.50 (West 2002 & Supp. 2003).
High Valley filed a ADefendant=s Original Answer, Plea in Abatement and Counterclaim.@ In its plea, High
Valley alleged that the lawsuit was governed by the Residential Construction Liability Act (ARCLA@), and
that the Fudges failed to give written notice of their claims as required by that act. See Tex. Prop. Code
Ann. ' 27.004 (West 2000). High Valley asserted that abatement is mandatory under section 27.004
beginning eleven days after the plea was filed and lasting until sixty days after proper notice is served. See '
27.004(d), (e). High Valley also brought a counterclaim to recover on its mechanic=s lien.
1
Because this case implicates several statutes, we will abbreviate them and refer to each by the first
letters of its common name.
2
High Valley subsequently filed a motion for mediation in which it alleged that the contract
made the basis of the lawsuit contained Aa mediation clause in paragraph 24@ and that the Fudges had
Afailed and refused to agree to mediate this matter.@ A hearing was had on High Valley=s motion. High
Valley admits, however, that those proceedings were not recorded. The docket sheet reflects that the
parties were ordered to binding arbitration. The trial court some months later signed an Order to Compel
Arbitration in which it found that the construction contract Aprovides for binding arbitration, not mediation.@
It ordered the parties to binding arbitration on all claims and abated the lawsuit until an award was issued by
an arbitrator.
The parties= claims were submitted to arbitration in January 2000. An Award of Arbitrator
was signed on May 23 finding in favor of the Fudges in all material respects. A supplemental award was
issued on August 17, reiterating the invalidity of the mechanic=s lien. The arbitrator found that the foundation
of the house Awas not built in a good and workmanlike manner, nor was it built in accordance with the Plans
in all respects. The deviations were substantial.@ The arbitrator concluded that the Fudges were Alegally
justified in terminating@ the contract because High Valley breached the contract and breached the warranty
of building in a good and workmanlike manner. Those breaches were found to be violations of the DTPA.
High Valley was also found to have failed to cure its defective work and Afailed to make any reasonable
offer of settlement in accordance with Section 27.004 et seq., Texas Property Code.@ As a result, the
arbitrator concluded that the statutory restrictions on damages provided by chapter 27 were not available to
High Valley. The mechanic=s lien was found to have no Aforce or effect@ and High Valley was ordered to
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indemnify the Fudges for defending against any mechanic=s liens filed by its subcontractors or materialmen.
High Valley was ordered to pay $19,212.14 as consequential and statutory damages, $15,975.18 for
attorney=s fees, plus costs and interest. The Fudges were ordered to pay one half of the arbiter=s fees of
$7,035.00.
The Fudges filed a motion to enter the award of the arbitrator. High Valley sought to vacate
or modify the award. On October 11, 2001, the trial court signed a judgment affirming the award of
arbitrator. High Valley appeals.
DISCUSSION
High Valley brings two complaints on appeal. First, it contends that the court erred in
ordering arbitration in this case because it requested mediation as the RCLA allows, not binding arbitration.
Second, High Valley argues that its plea in abatement operated under the RCLA to automatically abate the
proceedings, and, therefore, the arbitration order issued during the period of abatement was void. With
regard to the first issue, determining whether mediation or arbitration was appropriate in this case requires
that we construe the residential construction contract in question. We review de novo questions involving
contract construction. Valero Energy Corp. v. Teco Pipeline Co., 2 S.W.3d 576, 590 (Tex.
App.CHouston [14th Dist.] 1999, no pet.); Nationwide of Bryan, Inc. v. Dyer, 969 S.W.2d 518, 520
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(Tex. App.CAustin 1998, no pet.). As to the second issue, we review issues regarding pleas in abatement
for abuse of discretion. See Dolenz v. Continental Nat=l Bank, 620 S.W.2d 572, 757 (Tex. 1981).2
Arbitration By Any Other Name
2
A court abuses its discretion when it acts without reference to any guiding legal principles or rules.
See Domizio v. Progressive County Mut. Ins. Co., 54 S.W.3d 867, 876 (Tex. App.CAustin 2001, no
pet.).
5
This case results from confusion over the meaning of the terms Amediation@3 and
Aarbitration.@4 High Valley argues that the RCLA should control this case. The RCLA authorizes, but does
not require, mediation in applicable cases. High Valley argues that the Fudges=s claims come within the
purview of the RCLA5 and, because the RCLA only provides for mediation, 6 the trial court was without
authority to order arbitration. High Valley=s argument presumes that the RCLA displaces all other law.
Under High Valley=s theory, neither common law or other statutorily-based arbitration could apply to the
Fudges=s claims in the face of the RCLA=s application. Although we agree that the RCLA authorizes only
standard nonbinding mediation, we reject the proposition that the RCLA displaces otherwise binding
3
AMediation@ is commonly defined as a Amethod of nonbinding dispute resolution involving a
neutral third party who tries to help the disputing parties reach a mutually agreeable solution.@ Black=s Law
Dictionary 797 (7th ed. 2000).
4
The term Aarbitration@ is usually defined as a Amethod of dispute resolution involving one or more
neutral third parties who are usually agreed to by the disputing parties and whose decision is binding.@ Id. at
79.
5
The RCLA applies to Aany action to recover damages resulting from a construction defect, except
a claim for personal injury, survival, or wrongful death or for damage to goods.@ Tex. Prop. Code Ann. '
27.002(a)(1) (West 2000). The Fudges have not disputed that the RCLA applies to their claims.
6
Section 27.0041 allows a litigant, within ninety days after a suit is filed, to request that any RCLA
claims in excess of $7,500 be submitted to mediation; it requires that on timely motion of either party, the
court Ashall order the parties to mediate the dispute.@ Tex. Prop. Code Ann. ' 27.0041(b). It also
provides that A[s]ection 154.023, Civil Practices and Remedies Code, . . . appl[ies] to a mediation under
this section@ to the extent those provisions are not inconsistent. Id. ' 27.0041(e). Section 154.023 of the
Civil Practices and Remedies Code (ACPRC@) specifies that a Amediator may not impose his own judgment
on the issues for that of the parties.@ Tex. Civ. Prac. & Rem. Code Ann. ' 154.023(b) (West Supp.
2003). By incorporating this section of the CPRC, the legislature made it clear that the mediation ordered
under the RCLA was to be ordinary, nonbinding mediation.
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agreements entered into by the parties. Had the legislature intended the mediation provided for in the
RCLA to preempt private contracts and other statutory ADR schemes, it could have plainly said so.7 We
hold that the RCLA does not preclude parties to a residential construction contract from agreeing to another
form of alternative dispute resolution (AADR@).
Arbitration Analysis
Determining whether a claim is subject to binding arbitration requires a two-step analysis;
the first issue is whether an agreement exists requiring binding arbitration. In re Sun Communications,
Inc., 86 S.W.3d 313, 317 (Tex. App.CAustin 2002, orig. proceeding) (per curiam); Nationwide of
Bryan, Inc., 969 S.W.2d at 520. If an arbitration agreement exists, the second issue is whether it covers
the dispute in question. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001). Any doubts
about whether a claim is covered by an arbitration agreement are resolved in favor of arbitration because of
the state and federal policies favoring arbitration. Id. (citing Mitsubishi Motors Corp. v. Soler Chrysler-
Plymouth, Inc., 473 U.S. 614, 626 (1985); Prudential Sec., Inc. v. Marshall, 909 S.W.2d 896, 899
(Tex. 1995)); see also Sun Communications, Inc., 86 S.W.3d at 317-18. If a court concludes that an
7
Moreover, we fail to see why the general alternative dispute resolution (AADR@) statute would not
also apply in this case. That statute authorizes courts to order a number of other forms of ADR, such as
mini-trials, moderated settlement conferences, summary jury trials, and nonbinding or binding arbitration.
See id. '' 154.002-.027 (West 1997 & Supp. 2003).
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arbitration agreement covers a claim and no defense to the agreement is shown, then a court has no
discretion but to compel arbitration and stay its own proceedings. In re FirstMerit Bank, 52 S.W.3d at
753-54; Sun Communications, Inc., 86 S.W.3d at 317.
While the presumption favoring arbitration applies to determining whether a claim comes
within the scope of an arbitration agreement, that presumption does not apply to the threshold issue of
whether the parties agreed to binding arbitration. See In re ACG Cotton Mktg., L.L.C., 985 S.W.2d 632,
634 n.1 (Tex. App.CAmarillo 1999, no pet.) (A[A]rbitration is a matter of contract, and one cannot be
forced to arbitrate unless he agreed to do so[;] . . . the court cannot utilize public policy to manufacture an
agreement and thereby deprive a litigant of its right to judicial resolution.@); Belmont Constrs, Inc. v.
Lyondell Petrochemical Co., 896 S.W.2d 352, 356 (Tex. App.CHouston [1st Dist.] 1995, consolidated
orig. proceeding and appeal) (holding that Apolicy of resolving doubts in favor of arbitration cannot serve to
stretch a contractual clause beyond the scope intended by the parties or allow modification of the plain and
unambiguous provisions of an agreement.@ and citing Babcock & Wilcox Co. v. PMAC. Ltd., 863 S.W.2d
255, 230 (Tex. App.CHouston [14th Dist.] 1993, no writ)). Without an agreement to arbitrate, courts
cannot compel parties to binding arbitration. Freis v. Canales, 877 S.W.2d 283, 284 (Tex. 1994).
The Parties= Contract
This case revolves around the first prong of the arbitration test: whether an arbitration
agreement exists. The parties do not dispute that the Fudges=s claims come within the scope of the parties=
agreement. The only question is whether that agreement requires binding arbitration.
8
Although High Valley argues that its AMotion For Mediation@ requested mediation under the
RCLA, its motion plainly states that Athe agreement made the subject of this suit and attached to Plaintiff=s
Original Petition contains a mediation clause in paragraph 24. Plaintiff [sic] [The Fudges] although
advised and requested to mediate this matter pursuant to the contract has failed and refused to agree to
mediate this matter.@ (Emphasis added.) High Valley=s motion clearly sought to invoke paragraph 24.
The parties= contract in this case misuses the term Amediation,@ when the obvious intent of
the parties expressed throughout the agreement was to submit any claims to binding arbitration. The
disputed portion of the construction contract in question is paragraph 24, which states:
Mediation. All controversies arising out of this Project and this Agreement shall be
resolved through mandatory, binding mediation, which shall be in
accordance with the rules of the American Mediation Association existing
at the time the request for mediation is filed. The mediator shall be
empowered to decide the controversy and issue a binding award, even
if one or more parties declines, neglects or refuses to participate in the
mediation. The mediator shall have the authority to award reasonable
attorneys fees.
(Emphasis added.) The question in this case is whether paragraph 24 provided for ordinary mediation or
binding arbitration.
Contract Construction
High Valley argues that paragraph 24 requires mediation, not arbitration. In its brief, High
Valley states that the Aclause is, perhaps, ambiguous,@ but that Aneither party took a position of record@ that
9
it was an arbitration clause and A[n]either party invoked the Texas Arbitration Act and requested the trial
court to determine the existence of an arbitration agreement.@ See Tex. Civ. Prac. & Rem. Code Ann. '
171.021(b) (West Supp. 2003). Because High Valley did not bring forth the evidentiary record from the
October 1 hearing, we will presume that the record supports the trial court=s order. See Otis Elevator Co.
v. Parmelee, 850 S.W.2d 179, 181 (Tex. 1993); Hanna v. Meurer, 769 S.W.2d 680, 681 (Tex.
App.CAustin 1989, orig. proceeding).
We apply general common law principles governing the formation and construction of
contracts to determine whether there is an agreement to arbitrate. Trico Marine Servs., Inc. v. Stewart &
Stevenson Technical Servs., Inc., 73 S.W.3d 545, 548 (Tex. App.CHouston [1st Dist.] 2002, pet.
denied); Belmont Constrs, Inc., 896 S.W.2d at 357; see also First Options of Chicago v. Kaplan, 514
U.S. 938, 944 (1995); Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1073-74 (5th Cir. 2002).
There is no particular form or language required for a valid arbitration agreement, but it must
reflect the parties= intent to submit their dispute to arbitrators and to be bound by that decision. Porter &
Clements, L.L.P. v. Stone, 935 S.W.2d 217, 220 (Tex. App.CHouston [1st Dist.] 1996, orig.
proceeding); Manes v. Dallas Baptist Coll., 638 S.W.2d 143, 145 (Tex. App.CDallas 1982, writ ref=d
n.r.e.). The parties must have expressed their agreement to arbitrate in clear terms. Trico Marine Servs.,
Inc., 73 S.W.3d at 548; Porter & Clements, 935 S.W.2d at 220. The language of an unambiguous
agreement8 will be enforced according to its plain meaning unless such a reading would defeat the intentions
8
If a contract is worded so that it can be given a definite or certain legal meaning, then it is
10
of the parties. Valero Energy Corp., 2 S.W.3d at 590; D. Wilson Constr. Co. v. Cris Equip. Co., 988
S.W.2d 388, 394 (Tex. App.CCorpus Christi 1999, no pet.).
Although paragraph 24 uses the term Amediation,@ reading it as a whole, we hold that it
manifests an agreement to submit disputes to binding arbitration. First, the term Amediation@ is qualified by
the terms Amandatory@ and Abinding.@ These terms have specific, unambiguous meanings. The
interpretation of paragraph 24 urged by High Valley requires us to ignore significant portions of the language
in that provision.9 Second, the provision plainly states that the Amediator shall be empowered to decide the
controversy and issue a binding award.@ This language could not be more plain. It clearly describes
arbitration instead of nonbinding ADR. The only reasonable interpretation of paragraph 24 is that it is an
agreement to arbitrate. We hold that the trial court correctly construed paragraph 24 as requiring binding
arbitration, rather than mediation. The trial court enforced the provision according to its plain language.
unambiguous. Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998). It is
only when a contract is susceptible of more than one reasonable but conflicting interpretation that it is
considered ambiguous. See id.9
An important rule of construction is that the parties intend every part of a contract and a court
should not strike any portion, but should give effect to every part, unless there is an irreconcilable conflict
therein. Ogden v. Dickinson State Bank, 662 S.W.2d 330, 332 (Tex. 1983); In re Hoover, Bax &
Slovacek, L.L.P., 6 S.W.3d 646, 651 (Tex. App.CEl Paso 1999, orig. proceeding).
11
Furthermore, we hold that High Valley waived its complaint. During the proceedings before
the arbitrator, High Valley failed to make any objection to the arbitration proceeding, or otherwise indicate
that its participation was subject to objection. A litigant cannot remain silent to see if the arbitration
proceeding renders favorable results and then object only if the results are unfavorable.10 High Valley=s first
issue is overruled.
Plea in Abatement
In its original answer, High Valley urged a plea in abatement alleging that the Fudges failed
to provide written notice of their claims as required by section 27.004 of the RCLA. Although the record
contains pre-suit correspondence from the Fudges that appears to satisfy section 27.004, we will accept as
true, for purposes of this discussion, High Valley=s contention that the requisite notice was not given. The
pertinent portions of the RCLA, sections 27.004(d) and (e), provide:
(d) The court shall abate a suit governed by this chapter if . . . the court, after a hearing,
finds that the contractor is entitled to an abatement because the claimant failed to
provide the notice or failed to give the contractor a reasonable opportunity to inspect
the property as required by Subsection (a). A suit is automatically abated without the
10
The right to object to arbitration is generally considered waived when a party participates in the
election of arbitrators without protest or fails to otherwise indicate that its participation is subject to an
objection. See Prudential Sec., Inc. v. Banales, 860 S.W.2d 594, 598 n.3 (Tex. App.CCorpus Christi
1993, orig. proceeding) (citing Bergquist Co. v. Sunroc Corp., 777 F. Supp. 1236, 1251 (E.D. Penn.
1991)); see also Fortune, Alsweet & Eldridge, Inc. v. Daniel, 724 F.2d 1355, 1357 (9th Cir. 1983)
(A[W]e have long recognized the rule that a party may not submit a claim to arbitration and then challenge
the authority of the arbitrator to act after receiving an unfavorable result.@).
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order of the court beginning on the 11th day after the date a plea in abatement is filed
if the plea in abatement:
(1) is verified and alleges that the person against whom the suit is pending did not
receive the written notice or was not given a reasonable opportunity to inspect
the property as required by Subsection (a); and
(2) is not controverted by an affidavit filed by the claimant before the 11th day after
the date on which the plea in abatement is filed.
(e) An abatement under Subsection (d) continues until the 60th day after the date that
written notice is served in compliance with Subsection (a).
Tex. Prop. Code Ann. ' 27.004(d), (e).
Section 27.004(d)(1) requires that the plea in abatement have verified allegations of lack of
notice in order to trigger the automatic abatement. High Valley=s plea did not contain a verification.
Attached to High Valley=s pleading was a verification sworn to and signed by Howard Durham averring that
Ahe is the duly authorized agent for High Valley Homes, Inc., Defendant . . . ; that he has read the above
Defendant=s Original Answer; and that the allegations contained therein are within his personal knowledge
and are true and correct.@ Nothing in the verification attested to the facts contained in the plea in abatement
and no affidavit was filed in support of abatement.
The movant bears the burden of proof on a plea in abatement. Bernal v. Garrison, 818
S.W.2d 79, 82 (Tex. App.CCorpus Christi 1991, writ denied). Without evidence establishing the requisite
facts, a court errs in granting a plea in abatement. Upchurch v. San Jose, 5 S.W.3d 274, 277 (Tex.
App.CAmarillo 1999, no pet.); Bernal, 818 S.W.2d at 82. In addition, failure to verify the facts alleged in
a plea in abatement effectively waives the plea. See Neeley v. Intercity Mgmt. Corp., 732 S.W.2d 644,
13
648 (Tex. App.CCorpus Christi 1987, no writ). We hold that High Valley=s plea in abatement was
insufficient under section 27.004(d)(1) to trigger automatic abatement.
Moreover, High Valley failed to obtain a hearing on the issue of notice and failed to object to
the court proceeding to other matters in the case before resolving the notice issue. In fact, it was High
Valley that subsequently filed and pursued its mediation motion without any indication to the court that it
considered the proceedings abated. Nothing in the record reflects that High Valley ever called the notice
issue to the trial court=s attention. See K.C. Roofing Co. v. Abundis, 940 S.W.2d 375, 378 (Tex.
App.CSan Antonio 1997, writ denied). We hold that High Valley waived its plea in abatement by failing to
bring its complaint about lack of notice to the court=s attention. High Valley=s second issue is overruled.
CONCLUSION
For the reasons set forth above, we affirm the judgment of the trial court approving the
arbitrator=s award.
Mack Kidd, Justice
Before Justices Kidd, B. A. Smith and Yeakel
Affirmed
Filed: April 17, 2003
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