Specialty Select Care Center of San Antonio LLC D/B/A Casa Rio Healthcare and Rehabilitation v. Jose Flores, as Next Friend of Julie Flores ( 2015 )

Fourth Court of Appeals
San Antonio, Texas
MEMORANDUM OPINION
No. 04-13-00888-CV
SPECIALTY SELECT CARE CENTER OF SAN ANTONIO, LLC
d/b/a Casa Rio Healthcare and Rehabilitation,
Appellant
v.
Jose FLORES, as Next Friend of Julie Flores,
Appellee
From the 131st Judicial District Court, Bexar County, Texas
Trial Court No. 2013-CI-04577
Honorable Karen H. Pozza, Judge Presiding
Opinion by: Sandee Bryan Marion, Chief Justice
Sitting: Sandee Bryan Marion, Chief Justice
Marialyn Barnard, Justice
Luz Elena D. Chapa, Justice
Delivered and Filed: September 2, 2015
REVERSED AND RENDERED
This is an appeal of a trial court’s order denying a motion to compel arbitration filed by
Specialty Select Care Center of San Antonio, LLC d/b/a Casa Rio Healthcare and Rehabilitation.
After the parties’ briefs were filed, this court abated this appeal pending the Texas Supreme Court’s
decisions in three appeals from this court. See Williamsburg Care Co. L.P. v. Acosta, 406 S.W.3d
711 (Tex. App.—San Antonio 2013), rev’d, 461 S.W.3d 530 (Tex. 2015); Fredericksburg Care
Co. L.P. v. Lira, 407 S.W.3d 810 (Tex. App.—San Antonio 2013), rev’d, 461 S.W.3d 529 (Tex.
2015); Fredericksburg Care Co. L.P. v. Perez, 406 S.W.3d 313 (Tex. App.—San Antonio 2013),
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rev’d, 461 S.W.3d 513 (Tex. 2015). After the Texas Supreme Court issued its opinions in those
appeals, this appeal was reinstated.
Specialty Select contends the trial court erred in denying its motion to compel because: (1)
the arbitration agreement was not required to comply with section 74.451 of the Texas Civil
Practice and Remedies Code (“Code”); (2) a valid, binding arbitration agreement exists which is
not ambiguous or unconscionable; and (3) Specialty Select did not waive its right to compel
arbitration. Because we hold the trial court erred in denying Specialty Select’s motion to compel,
we reverse the trial court’s order denying the motion, render judgment granting the motion, and
remand this cause to the trial court for further proceedings consistent with this opinion, including
the grant of an appropriate stay. TEX. CIV. PRAC. & REM. CODE ANN. § 171.025(a) (West 2011).
BACKGROUND
In November of 2011, Julie Flores was admitted as a resident of Specialty Select’s nursing
home facility. In April of 2012, Flores’s finger was fractured.
In March of 2013, Jose Flores, who was Julie’s husband, sued as next friend of Julie,
alleging Specialty Select was negligent and grossly negligent in Flores’s medical care and
treatment. On November 5, 2013, Jose amended his petition to assert the claims as the
representative of Julie’s estate.
On November 26, 2013, Specialty Select moved to compel arbitration. On December 5,
2013, a hearing was held on the motion, and the trial court took the matter under advisement. On
December 13, 2013, the trial court signed an order denying the motion to compel.
SECTION 74.451
When the trial court held its hearing on Specialty Select’s motion to compel, this court had
held section 74.451 of the Code was a law enacted for the purpose of regulating the business of
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insurance and was exempted from preemption by the Federal Arbitration Act. 1 See Perez, 406
S.W.3d at 315; Acosta, 406 S.W.3d at 713; Lira, 407 S.W.3d at 812. Both parties extensively
focused on this court’s holding during the trial court’s hearing on the motion to compel. As
previously noted, however, the Texas Supreme Court reversed our judgments, holding section
74.451 is not a law enacted for the purpose of regulating the business of insurance and is not a
basis for a trial court to deny a motion to compel arbitration under the FAA. Perez, 461 S.W.3d
at 528; Acosta, 461 S.W.3d at 531; Lira, 461 S.W.3d at 529. Accordingly, if the trial court denied
the motion to compel on this basis, the trial court erred. Therefore, we now address the other
grounds presented to the trial court as a basis for denying the motion to compel.
ARBITRATION AGREEMENT
“[A] party seeking to compel arbitration must establish that a valid arbitration agreement
exists and that the claims at issue fall within the scope of that agreement.” 2 G.T. Leach Builders,
LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 524 (Tex. 2015). Although there is a presumption
favoring agreements to arbitrate under the FAA, “the presumption arises only after the party
seeking to compel arbitration proves that a valid arbitration agreement exists, because the purpose
of the FAA [is] to make arbitration agreements as enforceable as other contracts, not more so.” In
re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737-38 (Tex. 2005) (internal citations omitted).
“Under the FAA, ordinary principles of state contract law determine whether there is a valid
agreement to arbitrate.” Id. at 738; see also G.T. Leach Builders, LLC, 458 S.W.3d at 524.
1
The parties do not dispute that the arbitration provision in question is governed by the FAA.
2
Although Jose challenged the existence of a valid agreement to arbitrate, Jose did not challenge that the underlying
claims would be within the scope of the arbitration agreement if the agreement was valid and binding.
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A. Validity of Agreement
In response to Specialty Select’s motion to compel, Jose asserted the arbitration agreement
was not valid and enforceable because the agreement was ambiguous and unconscionable.
1. Ambiguity
In arguing the arbitration agreement was ambiguous, Jose asserted the arbitration
agreement was unenforceable because it contained a blank for the name of the resident. In its
brief, Specialty Select contends the arbitration agreement contains no ambiguity because it was
executed as part of the admissions process which required the execution of several documents.
“[A] contract can consist of more than one document.” In re Laibe Corp., 307 S.W.3d 314,
317 (Tex. 2010). “Documents pertaining to the same transaction may be read together, even if
they are executed at different times and do not reference each other, and courts may construe all
the documents as if they were part of a single, unified instrument.” Id. (internal citations omitted).
In this case, the arbitration agreement and admissions agreement were executed as part of the same
transaction, and the admissions agreement and other documents identify Julie as the resident.
Accordingly, the blank in the arbitration agreement does not render it ambiguous or unenforceable.
2. Unconscionability
In Jose’s response to Specialty Select’s motion to compel, he also asserted the arbitration
agreement was unconscionable because the applicable arbitration rules: (1) do not allow for gross
negligence damages; (2) severely limit discovery; (3) require the plaintiff to bear an unreasonable
amount of the cost; (4) arbitrarily select an arbitrator; and (5) contain an illusory promise regarding
the enforceability of the rules and procedures. Jose also asserted the arbitration agreement
contained provisions that violated the applicable arbitration rules. At the hearing on the motion to
compel, Jose’s attorney made a reference to unconscionability, but did not argue any of these
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grounds in detail. 3 In its letter reply filed after the trial court’s hearing, Specialty Select pointed
out that although Jose’s response asserted unconscionability, the response did not “cite to any
authority or evidence to support these conclusory allegations.”
In Jose’s brief, he mirrors the allegations made in his response without providing any
citations to authority other than a citation to one opinion listing the two types of unconscionability
and stating that courts can consider both types. But see TEX. R. APP. P. 38.2(a)(1), 38.1(i) (stating
appellee’s brief “must contain a clear and concise argument for the contentions made, with
appropriate citations to authorities”). Assuming Jose has not waived unconscionability as a basis
for the trial court to deny the motion to compel, we conclude Jose has not established the agreement
was unconscionable.
With regard to Jose’s contention that the applicable arbitration rules do not allow for gross
negligence damages, we note the rules state the arbitrator may award exemplary damages based
on a showing of reckless disregard for the rights of another party. This is either equivalent to a
gross negligence standard or, even perhaps, a slightly lower standard. See City of San Antonio v.
Hartman, 201 S.W.3d 667, 672 n. 19 (Tex. 2006) (defining “reckless disregard” and “conscious
indifference” to mean that a party knew the relevant facts but did not care about the result); Dillard
Dept. Stores, Inc. v. Silva, 148 S.W.3d 370, 373-74 (Tex. 2004) (defining “gross negligence” as
when an actor has an actual, subjective awareness of an extreme degree of risk but proceeds in
conscious indifference to the rights, safety, or welfare of others); Lee Lewis Const., Inc. v.
Harrison, 70 S.W.3d 778, 785 (Tex. 2001) (defining “gross negligence” as when the defendant
3
After arguing the section 74.451 objection to arbitration, Jose’s attorney stated, “And so basically, I have several
objections to the arbitration clause. First, it doesn’t apply with Chapter 74 — and CPRC 74.451. Second, Mr. Flores
did not have the authority to bind Ms. Flores to the arbitration agreement. Third, that there’s been waiver by the
substantial [invocation] of the judicial process by the defendants, because we have been litigating this case for eight
months and had several motions, motions to dismiss, discovery. Also, the contract is ambiguous and the contract is
— The terms of the arbitration agreement are unconscionable. But I think this case from San Antonio is dispositive.
I don’t feel like I need to go into all the other four arguments unless you would like me to.”
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knew about an extreme degree of risk but its acts or omissions demonstrated that it did not care);
TEX. CIV. PRAC. & REM. CODE ANN. § 74.001(a)(9) (West Supp. 2014) (defining “gross
negligence” for health care liability claims to have same meaning assigned by section 41.001 of
the Code); TEX. CIV. PRAC. & REM. CODE ANN. § 41.001(11) (West 2015) (defining “gross
negligence” to mean “an act or omission: (A) which when viewed objectively from the standpoint
of the actor at the time of its occurrence involves an extreme degree of risk considering the
probability and magnitude of the potential harm to others; and (B) of which the actor has actual,
subjective awareness of the risk involved, but nevertheless proceeds with conscious indifference
to the rights, safety, or welfare of others”). Also, with regard to Jose’s argument regarding
arbitration expenses, Jose had the burden of proving the likelihood of incurring substantial
arbitration costs and fees, and Jose did not present any such evidence. See In re FirstMerit Bank,
N.A., 52 S.W.3d 748, 756-57 (Tex. 2001). Therefore, because Jose did not satisfy his burden of
proving the agreement was unconscionable, the trial court could not have denied the motion to
compel on this basis. See In re Poly-America, L.P., 262 S.W.3d 337, 348 (Tex. 2008) (party
alleging unconscionability has burden to prove it).
B. Enforceability as to Julie’s Claims
In its brief, Specialty Select asserts three bases on which it contends Julie’s claims are
subject to the arbitration agreement: (1) actual or apparent authority; (2) third party beneficiary;
and (3) estoppel. It is undisputed that Julie did not sign the agreement. In addition, for purposes
of this opinion, we will assume Jose did not have actual or apparent authority to sign the arbitration
agreement on Julie’s behalf, resulting in her being a non-signatory to the agreement. 4
4
In his brief, Jose states, “Assuming that Mr. Flores did sign the arbitration agreement, an assumption which is not
supported by the record, Ms. Flores is still not bound.” In his response to the motion to compel Jose asserted, “Casa
Rio presents no evidence which would prove that Mr. Flores had the authority to sign the arbitration agreement on
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Equitable estoppel is one theory that may bind a non-signatory to an arbitration agreement.
In re Kellogg Brown & Root, Inc., 166 S.W.3d at 739. “Although state law determines the validity
of an arbitration agreement, courts have applied both federal and state law to determine the related,
but distinct, issue of whether non-signatory plaintiffs should be compelled to arbitrate their
claims.” Id. at 738. Pending a decision from the United States Supreme Court, the Texas Supreme
Court has held that Texas courts should apply state law “while endeavoring to keep it as consistent
as possible with federal law.” In re Weekley Homes, L.P., 180 S.W.3d 127, 131 (Tex. 2005); see
also In re Kellogg Brown & Root, Inc., 166 S.W.3d at 739.
1. Waiver
Jose contends Specialty Select is not entitled to rely on estoppel as a theory because it did
not assert the theory before the trial court. In its motion to compel, Specialty Select argued the
arbitration agreement was valid and binding as to Julie’s claims; therefore, it had no reason to
assert estoppel. In his response, however, Jose asserted the agreement was not valid and that
estoppel did not apply, contending:
Furthermore, Mr. Flores is not equitably estopped from denying his claims
are subject to arbitration because an equitable estoppel claim would only apply if
Mr. Flores attempted to derive a direct benefit from the contract containing the
arbitration clause. In re Kellogg Brown, 166 S.W.3d 732, 739 (Tex. 2005) (orig.
proceeding). Mr. Flores had no claim of his own; the claims belong to Ms. Flores’
estate. Ms. Flores’ claims arise not from contract but from tort.
At the hearing on the motion to compel, Specialty Select’s attorney did not expressly refer
to “estoppel” but did argue the following:
. . . . Finally Judge, I would like to address the authority issue. I simply think it is
disingenuous to say that Mr. Flores was able to sign these admission agreements on
behalf of his wife, but now he’s not subject to them on behalf of her estate. You
know, what’s good for the goose is good for the gander. You know, he signed the
arbitration agreement along with all the other resident admission agreements that
behalf of Ms. Flores.” The argument that Jose did not have “authority” to sign implies that Jose did sign the agreement,
and the response never expressly asserted Jose did not sign the agreement.
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said that, you know, I’m signing this on behalf of her, as her responsible party.
He’s now brought this lawsuit on behalf of her estate for her. These are not
individual claims. Because of that, there’s a corollary there and those must — the
arbitration agreement must be enforceable against that estate, Judge. It would be a
different question if he was bringing claims on his own. That’s not a question
before you, and I believe that arbitration agreement is binding because of that.
In a letter brief to the trial court filed after the hearing, Specialty Select expressly referenced
“equitable estoppel” as a theory which can bind non-signatories, citing In re Kellogg Brown &
Root, Inc., which discusses “direct benefits estoppel.” 166 S.W.3d at 739-42. The letter brief
further noted the arbitration agreement was executed in conjunction with the admissions agreement
which was “specifically for the purpose of providing [Julie] with care.” Finally, the letter brief
concluded, “The fact remains that Plaintiff, on behalf of Julie Flores, knowingly and willingly
entered into the agreement that the Estate of Julie Flores no longer wishes to honor.” Based on
the foregoing, we hold estoppel was asserted as a theory before the trial court.
2. Analysis
Direct benefits estoppel can bind a non-signatory in two ways. See In re Weekley Homes,
L.P., 180 S.W.3d at 132-33; see also ENGlobal U.S., Inc. v. Gatlin, 449 S.W.3d 269, 275 (Tex.
App.—Beaumont 2014, no pet.) (discussing two approaches). First, if the non-signatory sues to
enforce a contract containing an arbitration provision or pursues a claim on the contract, the non-
signatory will be bound to arbitrate. See In re Weekley Homes, L.P., 180 S.W.3d at 131-32. The
second way a non-signatory can be bound is if the non-signatory “deliberately seeks and obtains
substantial benefits from the contract itself.” Id. at 132. Although recognizing the application and
boundaries of this second type of estoppel “are not entirely clear,” the Texas Supreme Court has
reasoned “when a nonparty consistently and knowingly insists that others treat it as a party, it
cannot later turn its back on the portions of the contract, such as an arbitration clause, that it finds
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distasteful. A nonparty cannot both have his contract and defeat it too.” Id. at 135 (internal
citations omitted).
In this case, Julie was admitted to Specialty Select in November of 2011, and was a resident
of the facility until May of 2013. Accordingly, Julie sought and obtained substantial and direct
benefits from the admissions agreement through the services she was provided. Therefore, because
we read all of the admissions documents as if they were part of a single, unified instrument, In re
Laibe Corp., 307 S.W.3d at 317, we conclude Julie’s claims are subject to arbitration based on the
second theory of direct benefits estoppel. 5 See In re Weekley Homes, L.P., 180 S.W.3d at 132; see
also THI of South Carolina at Magnolia Manor-Inman, LLC v. Gilbert, No. 7:13-CV-2929-BHH,
2014 WL 6863550, at *4 (D. S.C. Oct. 31, 2014) (“having obtained for Ms. Gilbert the benefits of
admission and treatment at Magnolia Manor-Inman pursuant to the Admission Contract, the
defendant is estopped from denying the enforceability of the Arbitration Provision”). Because we
hold Julie’s claims are subject to arbitration under the theory of direct benefits estoppel, we do not
address whether Julie’s claims are subject to arbitration on the other two bases asserted by
Specialty Select.
WAIVER
In his response to Specialty Select’s motion to compel, Jose asserted Specialty Select
waived its right to compel arbitration by engaging in extensive discovery before filing its motion
to compel. Specialty Select contends its actions did not constitute waiver.
5
In his brief, Jose makes an argument that requiring Julie to arbitrate would violate the Medicare and Medicaid laws
that prohibit a nursing home facility from charging, soliciting, accepting, or receiving any “gift, money, donation, or
other consideration” in addition to the amount paid under the state’s Medicaid plan as a precondition of admission.
We note, however, that the arbitration agreement stated, “the execution of this Arbitration is not a precondition to the
furnishing of services to the Resident by the Facility.”
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“[A] party waives an arbitration clause by substantially invoking the judicial process to the
other party’s detriment or prejudice.” Perry Homes v. Cull, 258 S.W.3d 580, 589-90 (Tex. 2008).
When the relevant facts are undisputed, “whether a party has waived its right to arbitrate is a
question of law.” G.T. Leach Builders, LLC, 458 S.W.3d at 511. “Due to the strong presumption
against waiver, the hurdle is a high one.” Perry Homes, 258 S.W.3d at 590.
For purposes of this opinion, we will assume, without deciding, that Specialty Select
substantially invoked the judicial process and focus our attention on the second prong of the waiver
analysis which required Jose to show the judicial process was substantially invoked to his
“detriment or prejudice.” Perry Homes, 258 S.W.3d at 589-90. “Detriment or prejudice, in this
context, refers to an inherent unfairness caused by a party’s attempt to have it both ways by
switching between litigation and arbitration to its own advantage.” G.T. Leach Builders, LLC, 458
S.W.3d at 515 (internal citations omitted). “Prejudice may result when a party seeking arbitration
first sought to use the judicial process to gain access to information that would not have been
available in arbitration, but propounding discovery will not, in and of itself, result in waiver of a
right to compel arbitration.” Id. “[S]howing prejudice is generally an evidentiary burden.” IBS
Asset Liquidations LLC v. Servicios Multiples Del Norte SA de CV, 419 S.W.3d 573, 575 (Tex.
App.—San Antonio 2013, pet. denied). “Generalized complaints about delay and expense, without
evidentiary support, are insufficient to establish prejudice.” Id.
In this case, Jose did not prove Specialty Select used the judicial process to gain access to
information that would not have been available in arbitration. Although Jose’s attorney stated in
an affidavit that the discovery obtained by Specialty Select would not be allowed in arbitration,
Jose presented no evidence to support this conclusory statement. The applicable arbitration rules
give the arbitrator discretion to allow reasonable discovery, and given that only one set of
discovery was propounded by Specialty Select and Specialty Select had not taken any depositions,
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Jose did not establish that the information Specialty Select obtained in its limited discovery would
not have been available in arbitration.
In addition, the affidavit of Jose’s attorney stated, “Plaintiff has also incurred significant
attorney fees and expenses.” This generalized complaint, however, is not sufficient to establish
prejudice absent evidentiary support. 6 See id.
Because Jose did not prove he was prejudiced by Specialty Select’s delay in filing its
motion to compel arbitration, Specialty Select did not waive its right to arbitration.
CONCLUSION
Because Julie obtained substantial and direct benefits from the admissions agreement
through the services Specialty Select provided, and we read the admissions agreement and the
arbitration agreement as a unified instrument, the trial court erred in denying Specialty Select’s
motion to compel because Julie’s claims are subject to arbitration under the theory of direct
benefits estoppel. We reverse the trial court’s order, render judgment granting the motion to
compel, and remand the cause for further proceedings consistent with this opinion, including the
grant of an appropriate stay. TEX. CIV. PRAC. & REM. CODE ANN. § 171.025(a) (West 2011).
Sandee Bryan Marion, Chief Justice
6
In his brief, Jose contends Specialty Select “turned to arbitration only after litigation in the trial court was going
poorly for” it. Jose contends Specialty Select refused to mediate even after the trial court signed an order compelling
mediation, and Jose agreed to waive mediation only if the case would proceed to trial in February of 2014. Jose further
contends Jose sent “gross negligence discovery” to Specialty Select on November 26, 2013, which was the same day
Specialty Select filed the motion to compel. Jose does not provide any record cites to support these assertions or
demonstrate how the assertions establish prejudice. We note the motion to compel was filed before the December 10,
2013 deadline for mediation set forth in the trial court’s order.
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