in Re Olshan Foundation Repair Company of Dallas, LLC D/B/A Olshan Foundation Repair Company ( 2006 )

IN THE

TENTH COURT OF APPEALS

 

No. 10-06-00025-CV

In re Olshan Foundation Repair Company of Dallas, LLC d/b/a Olshan Foundation Repair Company

Original Proceeding

DISSENTING Opinion

      This dissenting opinion will be divided into two principal sections.  The two sections will address the problems with the majority opinion and state what I consider to be a proper analysis of the issue.

Problems With the Majority Opinion

      I will begin my analysis with the problems in, and the problems avoided by, the majority opinion.  The majority opinion, to the casual reader, would appear uncontroversial and straight­forward.  It is neither.

      The first thing the casual reader will not see, which is also a controversial part, goes to the core of our advocacy system.

      The United States legal system has two very well-recognized concepts.  The system is based upon judicial restraint. “We cannot raise points of error sua sponte.  As the Texas Supreme Court recently reiterated, our task is to consider only those issues presented by the parties.  Walling v. Metcalf, 863 S.W.2d 56, 58 (Tex. 1993).”  Madeksho v. Abraham, Watkins, Nichols & Friend, 57 S.W.3d 448, 455 (Tex. App.—Houston [14th Dist.] 2001, pet. denied).  “Historically, [the Texas Supreme Court] ha[s] used the term ‘fundamental error’ to describe situations in which an appellate court may review error that was neither raised in the trial court nor assigned on appeal.  In light of [the Supreme Court’s] strong policy considerations favoring preservation, [that Court] ha[s] called fundamental error ‘a discredited doctrine.’”  In re B.L.D., 113 S.W.3d 340, 350 (Tex. 2003), cert. denied sub nom. Dossey v. Tex. Dep’t of Protective & Reg. Servs., 541 U.S. 945 (2004) (B.L.D. quoting Cox v. Johnson, 638 S.W.2d 867, 868 (Tex. 1982) (per curiam)) (internal citations omitted); but see Pena v. State, No. PD-0966-05, 2006 Tex. Crim. App. LEXIS 832, at *8 (Tex. Crim. App. Apr. 26, 2006) (“[A]ppellate courts are free to review ‘unassigned error’—a claim that was preserved in the trial below but was not raised on appeal.”).  Generally, judges are limited to answering the question presented, and only the question presented.  Another well-recognized concept is that the lawyers, as advocates for the parties, give their clients the advice and counsel that the lawyers believe is appropriate, and work with the clients to implement a litigation strategy.  When they choose to forego a position, argument, or objection, it is forfeited or waived.  This second concept has led to the rules regarding error preservation.  See Tex. R. App. P. 33.1.

      Both of these core concepts are violated by the majority opinion.  Justice Vance has identified what he has determined is an issue, found what he believes is controlling case authority, and made his argument to the other member of the Court, Justice Vance having found one who has agreed with his argument, and they have now voted that their answer to his issue is the correct one.  I disagree.  I disagree with both the procedure and the answer.  By this procedure, he has implemented a trial/litigation strategy for a party without the party’s request, deciding an issue the parties did not ask to have answered.  I also think that the majority reached the wrong answer.

      Specifically, the issue of whether the Federal Arbitration Act was “invoked” was not raised by either party.  See Federal Arbitration Act, 9 U.S.C. §§ 1-16 (2000) (“FAA”).[1]  Thus, if that issue needed to be raised or otherwise were forfeited, it has been forfeited.  Of course, if it has to be raised, that presumes that it must be raised by a party—not a member of an appellate court as has been done in this case.

      But could it be one of those rare issues that we can raise on our own?  If it is a jurisdictional issue, it could be that it is entirely proper for this Court to raise the issue of its jurisdiction.  Krumnow v. Krumnow, 174 S.W.3d 820, 825 (Tex. App.—Waco 2005, pet. filed); see M.O. Dental Lab v. Rape, 139 S.W.3d 671, 673 (Tex. 2004).  This is where and why I must address the result and specifically the case from this Court on which the majority relies.

      In order for me to do this efficiently, the reader must understand that there is a procedural anomaly in Texas for obtaining relief from a trial court’s refusal to order a case to arbitration.  If the underlying dispute involves interstate commerce, the FAA controls the procedure.  See 9 U.S.C. §§ 1-16.  The procedure to obtain immediate review of the trial court’s refusal to order the case to arbitration under the FAA is by mandamus.  The order denying a referral to arbitration is not a final order and, under the FAA, there is no right to an interlocutory appeal.

      If the underlying dispute does not involve interstate commerce, the Texas Arbitration Act (“TAA”) controls the procedure. See Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001-171.003, 171.021-171.098 (Vernon 2005).  The procedure to obtain immediate review of the trial court’s refusal to order the case to arbitration under the TAA is by direct appeal.  Id. § 171.098(a)(1) (Vernon 2005).  Even though the order denying arbitration is not final, the TAA expressly provides the right to an interlocutory appeal.  See id.  Thus, a party cannot use a mandamus proceeding because, under the TAA, it has a remedy by direct appeal.

      The case relied upon by the majority is Neatherlin Homes.  See In re Neatherlin Homes, Inc., 160 S.W.3d 82 (Tex. App.—Waco 2004, orig. proceeding).  The concept Neatherlin Homes is cited for is:

Because Olshan admittedly (Relator’s Petition at p. 20) did not “invoke” the FAA or raise its applicability in the trial court, we deny the petition regarding Olshan’s arbitration motion.

(Majority op. at 2 (internal footnote omitted).)[2]  In Neatherlin Homes, we dismissed a mandamus proceeding, not because Neatherlin Homes did not invoke the FAA, but because Neatherlin Homes had sought relief from the trial court only under the TAA.  Because Neatherlin Homes had only sought relief under the TAA, its avenue of relief for the trial court’s failure to grant arbitration under the TAA was by way of direct appeal, not mandamus.  Neatherlin Homes at 83.  Because it had sought mandamus relief seeking to compel arbitration only under the TAA, it had, by the procedural vehicle it chose, deprived us of jurisdiction to grant any relief by mandamus.

      So, with a little spin on the holding in Neatherlin Homes, the holding is flipped from invoking-only-the-TAA-deprives-us-of-mandamus-jurisdiction to equate to the-failure-to-invoke-the-FAA-deprives-us-of-mandamus-jurisdiction. The two are not equal.

      Olshan never specifically invoked either the FAA or the TAA at trial.  It did not have to do so.  Review by direct appeal or mandamus is not relevant in the trial court.  Olshan did, however, take steps to protect itself from the very outcome brought about by the majority.  Not only did Olshan introduce evidence that the contract involved interstate commerce, an allegation and fact relevant for making the FAA applicable, Olshan took the belt-and-suspenders approach to obtain review of the order. Olshan filed both a direct appeal and a petition for writ of mandamus to obtain review of the trial court’s refusal to refer the matter to arbitration.  That is a common approach when it may be unresolved whether interstate commerce is involved, which determines whether the TAA or the FAA is applicable.  See, e.g., In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 68 (Tex. 2005) (orig. proceeding).

      We docketed the direct appeal as Olshan Foundation Repair Co. of Dallas LLC v. Seay, No. 10-06-00010-CV, 2006 Tex. App. LEXIS 2202 (Tex. App.—Waco Mar. 22, 2006, no pet.) (mem. op.).  We docketed the mandamus petition as the instant proceeding.  In the latter, this Court did not question its jurisdiction; rather, we asked for a response from the real party in interest.  See Tex. R. App. P. 52.4.  Then, after briefing in this mandamus proceeding, and after the real party in interest did not seek dismissal for want of jurisdiction of this proceeding in its brief, Olshan advised the Court that it no longer wished to pursue the direct appeal.  Olshan Found. Repair v. Seay at *1.  The direct appeal was dismissed.  Id.  That was the implementation of entirely appropriate litigation strategy by Olshan—strategy that a majority of this Court has now circumvented.

      Ultimately, disposition of this proceeding by dismissal for want of jurisdiction is only proper if the contract transaction did not involve interstate commerce and, therefore, the FAA was not applicable.  See 9 U.S.C. §§ 1-2.  The uncontroverted evidence in the record is that interstate commerce was involved.  Therefore, dismissal for want of jurisdiction is erroneous.

      The procedural problem in this disposition is that if we had notified the parties of the perceived problem, they could have briefed the issue, directed us to the relevant evidence of interstate commerce, and continued with their own litigation strategy, uninterrupted.  That is the proper procedure under Texas Rule of Appellate Procedure 38.9(b). Instead, I had to carry this burden by responding to the majority opinion.  I have previously suggested the proper procedure but was rejected.  See Gonzales v. State, Nos. 10-05-00222-CR & 10-05-00223-CR, 2006 Tex. App. LEXIS 2739, at *34-*35 (Tex. App.—Waco Apr. 5, 2006, no pet.) (Gray, C.J., dissenting).  More recently, the majority has been reversed for the failure to allow the parties to address perceived briefing deficiencies.  See Pena, 2006 Tex. Crim. App. LEXIS 832, at *7-*16.  The briefing deficiency perceived by the majority in this proceeding could have been easily overcome by expressly invoking the FAA or even invoking the FAA as an alternative to the TAA, if that were even necessary.  And after the petition is denied, if not corrected on further review by the Supreme Court, all that will be necessary to bring this back to us as a mandamus is a simple reference to the FAA in a motion to arbitrate back in the trial court, and we are all right back where we were before the majority’s interference.

      Thus, I cannot agree that Olshan’s mandamus can be denied because Olshan has not expressly referred to the FAA in the lower court when the FAA is clearly applicable and we have not given Olshan the opportunity to address the issue in briefs.  I therefore dissent from the procedure used and the result obtained by the majority.

Proper Analysis

      This brings us to the proper analysis of the issues presented in this mandamus action.

      Olshan Foundation Repair Company of Dallas performed foundation work on a house owned by Perrin.  The foundation work came with a transferable warranty.  Perrin sold the house to the Seays.  The Seays had Olshan perform work under the warranty.  The Seays sued Olshan and alleged that Olshan breached the express warranty and alleged other causes of action. Olshan filed a motion to dismiss pursuant to the Texas Residential Construction Liability Act, see Tex. Prop. Code Ann. §§ 27.001-27.007 (Vernon 2000 & Supp. 2005) (“RCLA”), and a motion to compel arbitration, see 9 U.S.C. §§ 1-16.[3]  The trial court denied both motions.  Olshan brings a petition for writ of mandamus to compel the trial court to grant the motions.  We should conditionally grant the petition in part.

      “In Texas, a person may obtain mandamus relief from a court action only if (1) the trial court clearly abused its discretion and (2) the party requesting mandamus has no adequate remedy by appeal.”  In re Living Ctrs. of Tex., Inc., 175 S.W.3d 253, 255-56 (Tex. 2005) (orig. proceeding); accord In re Prudential Ins. Co., 148 S.W.3d 124, 135-36 (Tex. 2004) (orig. proceeding); Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding); Johnson v. Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex. 1985) (orig. proceeding).

      Olshan contends that the trial court abused its discretion in denying Olshan’s motion to compel arbitration. The Seays argue that Olshan did not produce a copy of the agreement signed by Perrin, that Perrin did not knowingly agree to arbitration, and that an arbitration agreement between Olshan and Perrin would not be binding on the Seays.

      “Mandamus relief is available when a trial court erroneously denies a motion to compel arbitration under the FAA.”  In re Dillard Dep’t Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006) (orig. proceeding) (per curiam); accord In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001) (orig. proceeding).  “[A] party seeking to compel arbitration under the FAA must establish that: (1) there is a valid arbitration agreement, and (2) the claims raised fall within that agreement’s scope.”  Dillard Dep’t Stores at 515 (quoting In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding)) (alteration in Dillard Dep’t Stores). 

        “Because arbitration is contractual in nature, the FAA generally ‘does not require parties to arbitrate when they have not agreed to do so.’”  Kellogg Brown & Root, 166 S.W.3d at 738) (quoting Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478-79 (1989)).  “Federal and Texas state courts have recognized, however, that ‘[i]t does not follow . . . that under the [FAA] an obligation to arbitrate attaches only to one who has personally signed the written arbitration agreement’; instead, under certain circumstances, principles of contract law and agency may bind a non-signatory to an arbitration agreement.”  Kellogg Brown & Root at 738 (quoting Fisser v. Int’l Bank, 282 F.2d 231, 233 (2d Cir. 1960)) (alteration in Kellogg Brown & Root).  Moreover, “[a]lthough the FAA requires an arbitration agreement to be written, it does not expressly require the agreement to be signed by the parties.”  In re Big 8 Food Stores, Ltd., 166 S.W.3d 869, 876 (Tex. App.—El Paso 2005, orig. proceeding) (citing 9 U.S.C. § 3 (1999) & Valero Ref., Inc. v. M/T Lauberhorn, 813 F.2d 60, 63-64 (5th Cir. 1987)); In re Bunzl USA, Inc., 155 S.W.3d 202, 210 (Tex. App.—El Paso 2004, orig. proceeding [mand. denied]).  “Nevertheless, a party seeking to enforce a purported arbitration agreement must establish that the parties agreed to arbitrate the dispute.”  Big 8 Food Stores at 876 (citing Am. Heritage Life Ins. Co. v. Lang, 321 F.3d 533, 537 (5th Cir. 2003)); Bunzl USA at 210.

      “[A] nonparty may be compelled to arbitrate ‘if it seeks, through the claim, to derive a direct benefit from the contract containing the arbitration provisions.’”  In re Weekley Homes, L.P., 180 S.W.3d 127, 131 (Tex. 2005) (orig. proceeding) (quoting Kellogg Brown & Root, 166 S.W.3d at 741).  “[A] litigant who sues based on a contract subjects himself or herself to the contract’s terms.”  Weekley Homes  at 131 (quoting FirstMerit Bank, 52 S.W.3d at 755).

      “Absent fraud, misrepresentation, or deceit, a party is bound by the terms of the contract he signed, regardless of whether he read it or thought it had different terms.”  In re McKinney, 167 S.W.3d 833, 834 (Tex. 2005) (orig. proceeding) (per curiam). 

      The foundation-repair agreement stated, “A LIFETIME TRANSFERABLE WAR­RANTY IS ATTACHED TO, AND IS A PART OF, THIS CONTRACT . . . .”  The agreement also stated, “Notwithstanding, any provision in this agreement to the contrary, any dispute, controversy, or lawsuit between any of the parties to this agreement about any matter arising out of this agreement, shall be resolved by mandatory and binding arbitration . . . .”  Perrin testified that he signed the agreement and returned it to Olshan.  The Seays repeatedly availed themselves of the warranty.  The Seays have also sued for breach of the warranty.

      Olshan established a valid agreement containing an arbitration clause.  The Seay’s breach-of-express-warranty suit is within the scope of the arbitration clause.  In seeking to derive a benefit from the agreement’s warranty, that suit subjects the Seays to arbitration under the agreement’s arbitration clause.  The trial court clearly abused its discretion in denying Olshan’s motion to compel arbitration. 

      As to Olshan’s RCLA argument, the application of the RCLA is a matter for arbitration.   See, e.g., Home Buyers Warranty Corp. v. Ward, No. 05-97-00807-CV, 1999 Tex. App. LEXIS 7727, at *9-*11 (Tex. App.—Dallas Oct. 18, 1999, no pet.) (not designated for publication) (arbitrators decided that RCLA did not apply).  “Defenses that pertain to the entire . . . contract can be arbitrated.”  FirstMerit Bank, 52 S.W.3d at 756; accord Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-404 (1967). 

      We should conditionally grant a writ of mandamus ordering Respondent to vacate his order of November 27, 2005; and order him to render an order granting Olshan’s motion to compel arbitration and send a copy thereof to this Court within three days of the date it is signed. The writ should issue only if Respondent fails to do so within 20 days of the date of this opinion.

Conclusion

      I dissent.  I really dissent.

TOM GRAY

Chief Justice

Dissenting opinion delivered and filed June 21, 2006

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[1]  If the application or non-application of the FAA is a substantive argument, as argued by the majority, (see majority op. n.2), then it is all the more clear that the members of the majority have left their role in the judiciary and become advocates for a party, something they have improperly done before.

[2] The per-curiam majority overstates, as it is prone to do, Olshan’s admission regarding invoking the FAA.  The majority’s statement is not an accurate representation of what is in the petition.  The petition simply states that the issue was not addressed or determined by the trial court. (Pet. & Br. at 20 (“[B]ecause the application of the FAA or the TAA was never addressed or determined by Respondent, Relator did not present any such evidence of the Agreement’s effect on commerce to Respondent.”).)  At no point does Olshan admit that it did not “invoke” the FAA as stated by the majority. Indeed, I have been unable to find the term “invoke” used in Olshan’s petition, so I do not know what the majority is purporting to quote. 

[3]  The parties do not dispute that the FAA governs.