Building Homes for Heroes, Inc. and Total Lender Services v. Justin Ellis, Individually, Stephanie Ellis, Individually, and Both as Next Friend of R.E., a Minor ( 2020 )

Dismissed in Part, Reversed in Part, Remanded, and Memorandum Opinion
filed December 17, 2020.
In The
Fourteenth Court of Appeals
NO. 14-19-00203-CV
BUILDING HOMES FOR HEROES, INC. AND TOTAL LENDER
SERVICES, LLC, Appellants
V.
JUSTIN ELLIS, INDIVIDUALLY, STEPHANIE ELLIS, INDIVIDUALLY,
AND BOTH AS NEXT FRIEND OF R.E., A MINOR, Appellees
On Appeal from the 506th Judicial District Court
Waller County, Texas
Trial Court Cause No. 18-08-25073
MEMORANDUM OPINION
Appellants Building Homes for Heroes, Inc. (“BHH”) and Total Lender
Services, LLC (“TLS”) appeal the trial court’s denial of their joint motion to compel
arbitration.
BHH agreed to donate a renovated home to appellee, Sergeant Justin Ellis, a
wounded veteran, and the two signed an agreement that includes an arbitration
clause. TLS performed the renovations under a separate contract with BHH, which
also contains an arbitration clause. After Sgt. Ellis moved into the home with his
wife, Stephanie, and daughter, R.E., all three began developing various health
problems. They sued BHH, alleging claims for negligence and Texas Deceptive
Trade Practices-Consumer Protection Act violations. BHH filed a crossclaim
against TLS. BHH and TLS jointly moved to compel arbitration of all claims. The
trial court denied the motion.
In its first issue, BHH contends that the trial court erred in denying the motion
to compel in part because Sgt. Ellis’s claims against BHH fall within the scope of
the arbitration agreement between them. We agree and sustain BHH’s first issue.
Separately, both BHH and TLS complain that the trial court should have
ordered arbitration of all claims by the Ellises against TLS. However, the Ellises
did not assert any claims against TLS until after BHH and TLS moved to compel
arbitration, and neither BHH nor TLS sought to compel arbitration of any claims
other than BHH’s crossclaim against TLS. Because our appellate jurisdiction in this
case can be predicated only on the denial of an application to compel arbitration, and
because appellants did not file an application to arbitrate the Ellises’ claims against
TLS, we lack jurisdiction to consider BHH’s second issue and TLS’s only issue. We
dismiss the appeal as to those issues for want of jurisdiction.
Accordingly, we dismiss the appeal in part, reverse in part, and remand to the
trial court.
Factual Background
While an Army Ranger serving in Iraq in 2007, Sgt. Ellis suffered injuries
requiring amputation of his right leg. He later retired from the military for medical
reasons. In October 2015, BHH, a national non-profit organization with a mission
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to build or modify homes and gift them mortgage-free to veterans and their families,
selected Sgt. Ellis and his family to receive a newly renovated home in Hempstead,
Texas. In exchange, Sgt. Ellis agreed to maintain the home and devote some time
to promoting BHH and its activities.
Before Sgt. Ellis and BHH signed an agreement, BHH hired TLS to perform
the renovation work (the “BHH/TLS Contract”). BHH and TLS signed their
contract on August 4, 2016. In that contract, TLS promised to complete certain work
on the home, and BHH promised to pay $86,338.46 upon completion. The contract
does not mention the Ellises, and they did not sign it. The contract contains an
arbitration clause, providing:
Arbitration. Any controversies arising out of the terms of this
Agreement or its interpretation shall be settled in Harris County Texas
in accordance with the rules of the American Arbitration Association,
and the judgment upon award may be entered in any court having
jurisdiction thereof.
The Ellises allege that, with BHH’s consent, the family conducted a
walkthrough of the home in September 2016 while repairs were ongoing. They
expressed concern about the progress and quality of the renovations, and Sgt. Ellis
commissioned a third-party inspection. This inspection discovered numerous
defects in the home, including the presence of mold. Sgt. Ellis and Stephanie
expressed their concerns to BHH representatives. According to the Ellises, BHH
assured them that “every defect on the inspection report would be corrected.”
When the renovations were complete, BHH and Sgt. Ellis signed in October
2016 a contract to transfer the property (the “Ellis/BHH Contract”). That contract
contains an arbitration provision:
DISPUTE RESOLUTION AND ATTORNEY FEES. In the event
of a dispute between the parties respecting this Agreement, the parties
hereby agree to a waiver of a trial by jury and consent to arbitration
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with the American Arbitration Association. Except as provided in this
Agreement each party agrees that it will be responsible for its own
attorneys’ fees and costs related to this Agreement.
The Ellis/BHH Contract also contains other relevant provisions, including Sgt.
Ellis’s acknowledgement that he is acquiring the property “as is” and “with all
faults.” It contains a broad waiver provision by which Sgt. Ellis waived all
warranties and “any and all claims of liability” against BHH and, inter alia, BHH’s
subcontractors, “whether arising in tort or contract, under any other statute, warranty
or otherwise. . . .” This waiver provision provides, “[t]he only remedy of [Sgt. Ellis]
in the event of a defect in the premises is to return the premises to BHH.”
In addition to the contract’s broad waiver terms, it also contains several
disclosures, including one relating specifically to mold:
MOLD DISCLOSURE. VETERAN IS HEREBY ADVISED THAT
MOLD AND/OR MICROSCOPIC ORGANISMS MAY EXIST IN
THE HOME ON THE PREMISES, AND MAY CAUSE PHYSICAL
INJURIES, INCLUDING BUT NOT LIMITED TO ALLERGIC
AND/OR RESPIRATORY REACTIONS OR OTHER PROBLEMS,
PARTICULARLY WITH PERSONS WITH IMMUNE SYSTEM
PROBLEMS, YOUNG CHILDREN AND THE ELDERLY.
VETERAN ACKNOWLEDGES AND AGREES TO ACCEPT FULL
RESPONSIBILITY AND RISK FOR ANY MATTERS THAT MAY
RESULT, DIRECTLY OR INDIRECTLY FROM MICROSCOPIC
ORGANISMS AND/OR MOLD THAT MAY EXIST IN THE HOME
OR ON THE PREMISES AND HEREBY RELEASES AND HOLDS
HARMLESS BHH AND ITS OFFICERS, EMPLOYEES, AGENTS,
ADMINISTRATORS, ASSIGNS, OR SUCCESSORS FROM ANY
LIABILITY, RECOURSE, DAMAGE OR CLAIM (FINANCIAL OR
OTHERWISE) RESULTING THEREFROM. . . .
According to the Ellises’ pleading, all family members developed health
problems after moving into the house, and they commissioned a new inspection.
This inspection revealed that the problems identified in the earlier inspection had
been cosmetically repaired, but not remediated. The Ellises moved out, and BHH
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again assured that it would “take care of everything.” After further renovations, the
family moved back in. A few weeks later, Sgt. Ellis developed a serious problem
following a surgery in the area of his amputation, and his doctors told him he
suffered from septic shock caused by mold exposure. The doctors refused to release
him to move back into his home. The Ellises then vacated the home permanently.
Procedural History
The Ellises sued BHH, claiming injuries and damages allegedly connected to
defects in the home’s renovation under theories of negligence and Texas Deceptive
Trade Practices-Consumer Protection Act (“DTPA”) violations.1 The Ellises sought
personal injury and property damages resulting from an alleged mold infestation and
the purportedly failed or defective remediation efforts in the home. The Ellises sued
only BHH. BHH filed a third-party petition against TLS as the party that performed
the allegedly defective renovations.
BHH and TLS filed a joint “Plea in Abatement and Motion to Compel
Arbitration” (the “Motion to Compel”), seeking to arbitrate the Ellises’ claims
against BHH. They contended that Sgt. Ellis was bound to the arbitration clause in
the Ellis/BHH Contract because he signed it, and that Stephanie and R.E., as direct
beneficiaries of the contract, likewise were required to arbitrate their claims.
Additionally, BHH and TLS informed the court that they agreed to arbitrate BHH’s
third-party claims pursuant to the BHH/TLS Contract’s arbitration clause. This is
the only mention of the BHH/TLS Contract in the motion to compel.
Though the Ellises had not previously sued TLS, they amended their petition
after the Motion to Compel was filed, to add TLS as a defendant. They alleged
liability against TLS based on negligence and DTPA violations. The Ellises also
1
See Tex. Bus. & Com. Code §§ 17.41-.63.
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filed a response to the Motion to Compel. The Ellises urged the trial court to deny
the motion because: (1) the Ellises’ claims did not fall within the scope of the
arbitration agreement contained in the Ellis/BHH Contract; (2) neither Stephanie nor
R.E. were signatories to the Ellis/BHH Contract and thus could not be compelled to
arbitration; and (3) the Ellises’ claims against TLS were not subject to arbitration
because they did not sign an arbitration agreement with TLS.
Because it is important to our jurisdictional analysis below, we emphasize that
the Motion to Compel did not seek to arbitrate any claims by the Ellises against TLS,
because those claims were not yet alleged when the motion was filed. After the
Ellises first asserted claims against TLS, no party filed a motion to compel those
claims to arbitration.
Following a hearing, the trial court denied the Motion to Compel. BHH and
TLS now appeal.
Analysis
A. Standard of Review and Applicable Law
As a preliminary matter, the contracts at issue do not specify whether the
Federal Arbitration Act (“FAA”) or the Texas Arbitration Act (“TAA”) governs this
dispute, and the parties have taken no position. Because the relevant substantive
principles are the same under either act, we rely on cases applying both statutes. See
Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 56 n.10 (Tex. 2008); Southwinds
Express Constr., LLC v. D.H. Griffin of Tex., Inc., 513 S.W.3d 66, 71 n.2 (Tex.
App.—Houston [14th Dist.] 2016, no pet.).
Denial of a motion to compel arbitration generally triggers the abuse-of-
discretion standard. See In re D. Wilson Constr. Co., 196 S.W.3d 774, 780 (Tex.
2006) (orig. proceeding). Under this standard, we defer to a trial court’s factual
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determinations if they are supported by evidence, but we review a trial court’s legal
determinations de novo. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex.
2009) (orig. proceeding); see D. Wilson Constr., 196 S.W.3d at 781 (existence of
valid arbitration agreement is legal question). A trial court “has no ‘discretion’ in
determining what the law is or applying the law to the facts.” D. Wilson Constr.,
196 S.W.3d at 781. In evaluating a motion to compel arbitration, a court must
determine first whether a valid arbitration agreement exists, and then whether the
agreement encompasses the claims raised. See Rachal v. Reitz, 403 S.W.3d 840, 843
(Tex. 2013); In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999)
(per curiam). Arbitration cannot be ordered in the absence of an agreement to
arbitrate, and thus, despite strong presumptions favoring arbitration, the existence of
a valid agreement to arbitrate is a settled, threshold requirement to compel
arbitration. Morgan v. Bronze Queen Mgmt. Co., 474 S.W.3d 701, 705 (Tex. App.—
Houston [14th Dist.] 2014, no pet.).
Claims must be submitted to arbitration if “liability arises solely from the
contract or must be determined by reference to it.” In re Weekley Homes, L.P., 180
S.W.3d 127, 132 (Tex. 2005) (orig. proceeding). If the facts alleged touch matters,
have a significant relationship to, are inextricably enmeshed with, or are factually
intertwined with the contract containing the arbitration agreement, the claim is
arbitrable. Cotton Commercial USA, Inc. v. Clear Creek Indep. Sch. Dist., 387
S.W.3d 99, 108 (Tex. App.—Houston [14th Dist.] 2012, no pet.). On the other hand,
a claim is not subject to arbitration if the facts alleged in support of the claim are
completely independent of the contract and the claim could be maintained without
reference to the contract. See id.Bearing these standards in mind, we turn to BHH’s first issue.
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B. Sgt. Ellis must arbitrate his claims against BHH.
In its first issue, BHH claims the trial court erred in denying the Motion to
Compel because Sgt. Ellis’s claims fall within the broad scope of the arbitration
agreement contained in the Ellis/BHH Contract. Sgt. Ellis does not dispute that a
valid arbitration agreement exists with BHH. Rather, he contends his negligence
and DTPA claims against BHH fall outside the agreement’s scope because they
“arise[] independently of the contract.” We disagree.
The arbitration provision in the Ellis/BHH Contract requires arbitration of
“disputes” “respecting this Agreement” between BHH and Sgt. Ellis. The scope of
an arbitration clause that includes all “disputes,” and not just claims, is very broad
and encompasses more than claims “based solely on rights originating exclusively
from the contract.” Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018);
Premium Plastics Supply, Inc. v. Howell, 537 S.W.3d 201, 206 (Tex. App.—
Houston [1st Dist.] 2017, no pet.).
To determine whether a claim falls within an arbitration agreement’s scope,
we focus on the allegations of the complaint, rather than the legal causes of actions
asserted. Henry, 551 S.W.3d at 115. Here, Sgt. Ellis seeks damages resulting from
the presence of mold due to the home’s alleged faulty and improper renovations and
remediation. The subject of the Ellis/BHH Contract was to donate a renovated home
to the Ellises. Thus, Sgt. Ellis’s allegations against BHH describe a dispute
“respecting” the Ellis/BHH Contract.
Moreover, BHH’s liability must be determined by reference to the contract
because its terms may form the basis of several defensive theories, such as waiver.
The Ellis/BHH Contract discloses potential mold issues and, in it, Sgt. Ellis
“agreed[d] to accept full responsibility and risk for any matters that may result,
directly or indirectly from microscopic organisms and/or mold that may exist in the
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home or on the premises. . . .” Before he signed the contract, Sgt. Ellis was aware
that inspectors had detected mold in the house, but he alleges he thought the mold
was remediated based on BHH’s pre-contract representations. The agreement also
contains a broad waiver provision stating that Sgt. Ellis agrees to waive all
negligence or statutory claims, which necessarily includes DTPA claims. For these
reasons, BHH’s liability for any mold contamination must be determined by
reference to the agreement; or the facts alleged touch matters, have a significant
relationship to, are inextricably enmeshed with, or are factually intertwined with the
contract containing the arbitration agreement. Thus, Sgt. Ellis’s claims against BHH
must be arbitrated. See Weekley Homes, 180 S.W.3d at 132 (explaining that claims
must be arbitrated if liability “arises solely from the contract or must be determined
by reference to it”); Cotton Commercial, 387 S.W.3d at 108; cf. also TMI, Inc. v.
Brooks, 225 S.W.3d 783, 789, 791 (Tex. App.—Houston [14th Dist.] 2007, pet.
denied) (homeowners’ negligence, fraud, DTPA, nuisance, and conspiracy claims
subject to arbitration provision contained in purchase agreements they signed with
homebuilder).
In another argument, Sgt. Ellis points out that part of the waiver provision
contains an incomplete sentence, and that he did not initial the waiver despite a
specifically designated blank for him to do so. These facts render the waiver
provision “materially defective,” according to Sgt. Ellis. He urges that the parties
did not form a “valid agreement regarding toxic exposure claims.” His arguments,
however, concern the enforceability of a particular provision, rather than the validity
of the contract as a whole. Sgt. Ellis signed the contract, and he challenges neither
the agreement itself nor the arbitration provision as improperly formed or invalid.
See, e.g., RSL Funding, LLC v. Newsome, 569 S.W.3d 116, 124-25 (Tex. 2018)
(explaining that challenges to a contract’s existence or to an arbitration clause’s
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validity are “threshold issues to be decided by the court”). Thus, Sgt. Ellis’s
arguments raise matters for the arbitrator to decide, not the court. See id.Under these circumstances, we conclude that Sgt. Ellis’s claims against BHH
are subject to the Ellis/BHH Contract’s arbitration provision, and we sustain BHH’s
first issue. The trial court erred in refusing to order Sgt. Ellis to arbitrate his claims
against BHH.
On appeal, BHH does not challenge the trial court’s order with respect to
Stephanie’s or R.E.’s claims against BHH. Thus, we are not called upon to consider
whether, as non-signatories to the Ellis/BHH Contract, Stephanie or R.E. are bound
by the contract under the doctrine of direct benefits estoppel. We hold only that
BHH established a valid arbitration agreement with Sgt. Ellis and that his claims
against BHH fall within the scope of the agreement.
C. We lack jurisdiction over whether the Ellises must arbitrate their claims
against TLS.
In BHH’s second issue, and in TLS’s sole issue, they contend that the Ellises’
claims against TLS must be arbitrated based on the arbitration clause in the
BHH/TLS Contract. Acknowledging the Ellises are not signatories to that
agreement, they insist arbitration is required under the direct benefits estoppel
doctrine because the Ellises accepted the benefits of TLS’s renovation work and
lived in the house. Under this doctrine, “a non-signatory plaintiff seeking the
benefits of a contract is estopped from simultaneously attempting to avoid the
contract’s burdens, such as the obligation to arbitrate disputes.” In re Kellogg Brown
& Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005) (orig. proceeding); Cooper Indus.
LLC v. Pepsi-Cola Metro. Bottling Co., 475 S.W.3d 436, 442 (Tex. App.—Houston
[14th Dist.] 2015, no pet.).
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Even when not raised by any party, we are obliged to examine our appellate
jurisdiction independently. See Atlas Gulf-Coast, Inc. v. Stanford, 299 S.W.3d 356,
358 (Tex. App.—Houston [14th Dist.] 2009, no pet.). If we conclude we have no
jurisdiction, we must dismiss the appeal. Id. Because statutes allowing interlocutory
appeals derogate the general rule that only final judgments are appealable, we must
strictly construe such statutes. See Stary v. DeBord, 967 S.W.2d 352, 352-53 (Tex.
1998); Atlas Gulf-Coast, 299 S.W.3d at 359. We have jurisdiction to review
interlocutory orders only if a statute explicitly provides. Atlas Gulf-Coast, 299
S.W.3d at 359.
The TAA provides, in relevant part, that:
[a] party may appeal a judgment or decree entered under this chapter or an
order:
(1) denying an application to compel arbitration made under Section
171.021[.]
Tex. Civ. Prac. & Rem. Code § 171.098(a)(1).
Section 171.098(a)(1) permits an interlocutory appeal from an order denying
an application to compel arbitration. For jurisdictional purposes, and as our court
stated in Atlas Gulf-Coast, this section requires, at a minimum, that the appellant
first file an application to compel arbitration. Atlas Gulf-Coast, 299 S.W.3d at 359.
Similarly, section 51.016 allows for state court appeals in agreements governed by
the FAA. Tex. Civ. Prac. & Rem. Code § 51.016. Pertinent to this case, a party may
appeal (1) an order refusing to stay litigation pending arbitration of its subject matter,
(2) denial of a petition to order arbitration, and (3) an order denying an application
to compel arbitration. Id. (incorporating grounds set forth in 9 U.S.C. § 16).
No party filed a motion to compel the Ellises’ claims against TLS to
arbitration. We do not construe the trial court’s order as having denied an application
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to compel arbitration that was never filed. Thus, we lack interlocutory appellate
jurisdiction under either section 171.098(a)(1) or section 51.016. Academy, Ltd. v.
Miller, 405 S.W.3d 152, 154 (Tex. App.—Houston [1st Dist.] 2013, orig.
proceeding); Atlas Gulf-Coast, 299 S.W.3d at 359. There must be an order denying
a motion to compel arbitration before an interlocutory appeal is permitted, and it is
insufficient for an order to merely have the effect of denying arbitration. Ground
Force Constr., LLC v. Coastline Homes, LLC, No. 14-13-00649-CV, 2014 WL
2158160, at *2 (Tex. App.—Houston [14th Dist.] May 22, 2014, no pet.) (mem. op.).
Conclusion
The trial court abused its discretion in denying the Motion to Compel as it
relates to Sgt. Ellis’s claims against BHH. Because BHH has not challenged the
denial of the motion concerning Stephanie’s or R.E.’s claims against BHH, we leave
the court’s ruling as to those claims undisturbed. Finally, we dismiss for want of
jurisdiction TLS’s appeal and the portion of BHH’s appeal challenging the denial of
the Motion to Compel Arbitration of the Ellises’ claims against TLS. We remand to
the trial court for further proceedings consistent with this opinion.
/s/ Kevin Jewell
Justice
Panel consists of Justices Christopher, Jewell, and Zimmerer.
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