Taylor Morrison of Texas, Inc. and Taylor Woodrow Communities-League City, Ltd. v. Matthew Glass and Madeline Glass ( 2023 )

Reversed and Rendered and Memorandum Majority and Concurring
Opinions filed March 21, 2023.
In The
Fourteenth Court of Appeals
NO. 14-21-00398-CV
TAYLOR MORRISON OF TEXAS, INC. AND TAYLOR WOODROW
COMMUNITIES—LEAGUE CITY, LTD., Appellants
V.
MATTHEW GLASS AND MADELINE GLASS, Appellees
On Appeal from the 122nd District Court
Galveston County, Texas
Trial Court Cause No. 20-CV-0857
MEMORANDUM OPINION
Appellants Taylor Morrison of Texas, Inc. and Taylor Woodrow
Communities—League City, Ltd. filed this interlocutory appeal from the trial
court’s order ordering arbitration before an arbitrator other than the Judicial
Arbitration and Mediation Services (“JAMS”).
Appellees Matthew Glass and Madeline Glass own a home built by
appellants. The Glasses sued appellants for breach of the implied warranties of
habitability and good workmanship, negligent construction, and violation of the
Residential Construction Liability Act (“RCLA”).1 Appellants filed a plea in
abatement and moved to compel arbitration under the terms of the Purchase
Agreement with the original owners, who were the predecessors-in-interest to the
Glasses. The trial court denied the motion to compel arbitration with JAMS, the
arbitration service named in the Purchase Agreement, and ordered the parties to
arbitrate their claims before an alternative arbitration service or arbitrator.
In a single issue on appeal, appellants argue that the trial court erred by
ordering the Glasses’ dispute submitted to arbitration before a service or an
arbitrator other than the one specified in the Purchase Agreement, and under terms
different from those provided in the agreement. We conclude that the trial court
abused its discretion by attempting to modify a provision of the agreement.
Accordingly, we reverse and render judgment instructing the parties to arbitrate
their claims before JAMS, as contemplated in the arbitration agreement.
I. BACKGROUND
In 2010, appellants entered into a Purchase Agreement with Thomas and
Kittee Cart. The Purchase Agreement between appellants and the Carts indicated
that the Carts were buying real property with a “residential single-family home to
be constructed thereon . . . in accordance with this Purchase Agreement.”
1
Appellants correctly argue on appeal that the RCLA itself does not create a cause of
action. See Tex. Prop. Code Ann. § 27.005 (“This chapter does not create a cause of action or
derivative liability or extend a limitations period.”); Vision 20/20, Ltd. v. Cameron Builders, Inc.,
525 S.W.3d 854, 856 (Tex. App.—Houston [14th Dist.] 2017, no pet.) (“The RCLA does not
create a cause of action but provides defenses and limitations on damages. The RCLA also sets
forth notice provisions.”) (internal citations omitted).
2
Paragraph 11 of the Purchase Agreement was titled “Dispute Resolution –
Arbitration” which states:
ANY AND ALL CLAIMS . . . BY OR BETWEEN THE PARTIES
HERETO, ARISING OUT OF OR RELATED TO THIS
PURCHASE AGREEMENT, THE PROPERTY, . . . OR ANY
TRANSACTION RELATED HERETO, WHETHER SUCH
DISPUTE IS BASED ON CONTRACT, TORT, STATUTE, OR
EQUITY, INCLUDING WITHOUT LIMITATION, ANY DISPUTE
OVER . . . ALLEGATIONS OF LATENT OR PATENT DESIGN
OR CONSTRUCTION DEFECTS . . . SHALL BE ARBITRATED
PURSUANT TO THE FEDERAL ARBITRATION ACT.
The arbitration provision also included a delegation clause, indicating that any
questions regarding the enforceability of the arbitration clause would be
determined by an arbitrator:
. . . ANY DISPUTE CONCERNING THE INTERPRETATION OR
THE ENFORCEABILITY OF THIS ARBITRATION
AGREEMENT, INCLUDING . . . ANY CHALLENGES TO THE
ENFORCEMENT OR THE VALIDITY OF . . . THIS
ARBITRATION AGREEMENT, OR THE SCOPE OF
ARBITRABLE ISSUES . . . AND ANY DEFENSE RELATING TO
THE ENFORCEMENT OF THIS ARBITRATION AGREEMENT
. . . SHALL BE DECIDED BY AN ARBITRATOR . . . AND NOT
BY A COURT OF LAW.
The Purchase Agreement also provided that JAMS would hear any disputes
between the parties:
. . . SUCH DISPUTE SHALL BE RESOLVED BY AND
PURSUANT TO THE ARBITRATION RULES AND
PROCEDURES OF THE JUDICIAL ARBITRATION AND
MEDIATION SERVICES (“JAMS”) . . . IN THE EVENT THAT
JAMS IS FOR ANY REASON UNWILLING OR UNABLE TO
SERVE AS THE ARBITRATION SERVICE, THE PARTIES
SHALL SELECT ANOTHER REPUTABLE ARBITRATON
SERVICE.
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In 2014, the Glasses bought the home from the Carts. In the Glasses’
original petition, which was filed in 2020, they asserted causes of action for breach
of implied warranties of habitability and good workmanship, negligent
construction, and violation of the RCLA against appellants arising from “design
and construction defects and related fraud that have caused excessive moisture,
humidity, significant mold growth and mycotoxins causing personal injury and
sickness as well as damage to the [Glasses’] home and numerous other properties
in their neighborhood.” The Glasses further alleged that:
[appellants] knew of excessive moisture, humidity, significant mold
and/or moisture problems that had occurred and were developing in
identical and/or similar homes and floorplans as the [Glasses’ home].
[Appellees] would not have entered into the Sales Contract [with the
Carts] and would not have closed if they had known of the other
significant problems in similarly designed houses.
According to the Glasses, after purchasing the home from the Carts, the house
“developed excessive moisture, humidity and significant mold growth and
mycotoxins resulting from multiple design and construction defects.”
Appellants moved to compel arbitration with JAMS pursuant to the Purchase
Agreement. Appellants argued that the Purchase Agreement was the source of the
Glasses’ claims. Appellants argued that the Glasses, even as non-signatories to the
Purchase Agreement, should be compelled to arbitrate under the Purchase
Agreement based on direct benefit estoppel.
In January 2021, the Glasses filed their first amended petition, which
clarified that the Glasses were filing causes of action for “common law breach of
implied warranties” and “common law negligent construction.” The Glasses
advanced two arguments as to why the trial court should deny the motion to
compel arbitration. First, they argued that they were non-signatories to the original
Purchase Agreement, and that appellants did not meet their burden to prove the
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Glasses’ claims fell into one of the recognized exceptions to the general rule that a
non-signatory cannot be compelled to arbitrate their claims. Second, the Glasses
argued that the arbitration agreement is substantively unconscionable because it:
(1) imposes an unconscionable “winner takes all” fee splitting that doesn’t exist in
law; (2) seeks to contract away the ability of the trial court to determine gateway
issues; and (3) allows appellants to dictate an arbitral forum that is inaccessible due
to prohibitive costs, by imposing unconscionable costs on the losing party.
On April 21, 2021, the trial court conducted a hearing on the motion to
compel arbitration. At the hearing, appellants argued that although the Glasses
were not signatories to the original Purchase Agreement, they should still be
compelled to arbitrate because they relied on, and sought benefits from, the
Purchase Agreement. The Glasses reasserted that they did not invoke the Purchase
Agreement in their pleadings; instead, their claims were based on common law
causes of action, without reference to—or dependence on—the Purchase
Agreement.
In June 2021, the trial court issued an order, stating in full:
Having reviewed the motions, briefings[,] and argument of
counsel in a hearing held April 21, 2021, the Court DENIES the
[Appellants’] Motion to Compel Arbitration. The Court finds that the
arbitration clause cited by [Appellants] contains unconscionable
provisions in that it purports to invalidate or waive substantive rights
and remedies authorized by statute, is prohibitively expensive and
prevents the [Glasses] the opportunity to be made whole.
The Court further finds that the arbitration provision results in
the overall costs of arbitration to be excessive compared to litigation
in this Court.
The parties are ORDERED to agree to an alternative arbitration
service or arbitrator. If the parties are unable to agree, the COURT
shall select an arbitrator from a list of three names proposed by each
party.
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Appellants filed this interlocutory appeal. See Tex. Civ. Prac. & Rem Code Ann.
§ 51.016 (permitting appeal under Federal Arbitration Act under same
circumstances as appeal from federal district court under 9 U.S.C.A.
§ 16(a)(1)(B)).
II. ANALYSIS
As a threshold matter, we first address whether we have interlocutory
appellate jurisdiction to review appellants’ appeal.
A. INTERLOCUTORY APPEALS
1. Standard of Review & Applicable Law
The Federal Arbitration Act (“FAA”) applies to the arbitration agreement
here because the parties expressly agreed to arbitrate under the FAA. See In re
Rubiola, 334 S.W.3d 220, 223 (Tex. 2011) (orig. proceeding).
Appellate courts may consider appeals from interlocutory orders when a
statute explicitly authorizes an appeal. Tex. A & M Univ. Sys. v. Koseoglu, 233
S.W.3d 835, 840 (Tex. 2007). Civil Practice and Remedies Code § 51.016, which
authorizes appeals in matters subject to the FAA, provides that a party may appeal
an interlocutory order “under the same circumstances that an appeal from a federal
district court’s order or decision would be permitted by 9 U.S.C. Section 16.” Tex.
Civ. Prac. & Rem. Code § 51.016. Under § 16 of the FAA, a party may
immediately appeal a petition to order arbitration to proceed. See 9 U.S.C.
§ 16(a)(1)(B); Tex. Civ. Prac. & Rem. Code Ann. §§ 51.016, 171.098(a)(1); see
also Taylor Morrison of Tex., Inc. v. Skufca, 650 S.W.3d 660, 672–73 (Tex.
App.—Houston [1st Dist.] 2021, no pet.); In re Helix Energy Sols. Grp., Inc., 303
S.W.3d 386, 395 n.7 (Tex. App.—Houston [14th Dist.] 2010, orig. proceeding).
When determining whether an order denies a motion to compel arbitration,
“[t]he substance and function of the order viewed in the context of the record
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controls our interlocutory jurisdiction.” Natgasoline LLC v. Refractory Constr.
Servs., Co., 566 S.W.3d 871, 880 (Tex. App.—Houston [14th Dist.] 2018, pet.
denied) (quoting McReynolds v. Elston, 222 S.W.3d 731, 738 (Tex. App.—
Houston [14th Dist.] 2007, no pet.)); see Del Valle Indep. Sch. Dist. v. Lopez, 845
S.W.2d 808, 809 (Tex. 1992) (noting that “it is the character and function of an
order that determine its classification” for determining jurisdiction over an
interlocutory order).
2. Application
The parties’ dispute focuses on the nature of the trial court’s June 2021
order. According to appellants, we have interlocutory appellate jurisdiction
because the trial court’s order is properly classified as an order denying arbitration.
Appellants argue that our court has repeatedly concluded that an order compelling
arbitration under terms other than those in the specific agreement is grounds for an
interlocutory appeal. In support of their argument, appellants cite to Natgasoline,
566 S.W.3d at 880; Tex. La Fiesta Auto Sales, LLC v. Belk, 349 S.W.3d 872, 878
(Tex. App.—Houston [14th Dist.] 2011, no pet.); and McReynolds, 222 S.W.3d at
738. However, according to the Glasses, we do not have interlocutory jurisdiction
because the trial court did not “deny” appellant’s motion to compel arbitration, but
ordered the parties to arbitration albeit with an alternative arbitrator. In support of
their position the Glasses aver that the present case is analogous to CMH Homes v.
Perez, 340 S.W.3d 444, 449 (Tex. 2011).
In CMH, both parties agreed that their contract was governed by the FAA
and that they had agreed to submit to arbitration; however, the parties could not
agree on an arbitrator. Id. at 447. After the parties declared an impasse, the trial
court issued an order titled “Order on Plaintiff’s Motion to Compel Arbitration,”
which appointed an arbitrator to preside over the dispute. Id. The Supreme Court of
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Texas concluded that interlocutory appeal was unavailable because the substance
of the trial court’s order was simply to appoint an arbitrator. Id. at 449. However,
because the appellant had requested in the alternative that its appeal be treated as a
writ of mandamus, the Supreme Court of Texas instructed the court of appeals to
consider the issue as a writ of mandamus. See id.When determining whether an order denies a motion to compel arbitration,
“[t]he substance and function of the order viewed in the context of the record
controls our interlocutory jurisdiction.” Natgasoline, 566 S.W.3d at 880 (quoting
McReynolds, 222 S.W.3d at 738). Texas cases have consistently held that both the
FAA and Texas Arbitration Act (“TAA”) permit interlocutory appellate review of
an order that denies a party’s right to arbitrate in a specific manner under a specific
contract, even if the parties are ultimately compelled to arbitrate. See Taylor
Morrison of Tex., Inc. v. Skufca, 650 S.W.3d at 675; Natgasoline, 566 S.W.3d at
876; Tex. La Fiesta, 349 S.W.3d at 878; McReynolds, 222 S.W.3d at 738. The trial
court’s order effectively denied appellants their potential contractual right to have
JAMS serve as the arbitrator. Accordingly, we conclude that we have jurisdiction
over this interlocutory appeal. See 9 U.S.C.A. § 16(a)(1)(B).2
2
Even if we were lacking subject-matter jurisdiction over the current appeal, we note that
mandamus review would remain available to appellants. See CMH Homes v. Perez, 340 S.W.3d
444, 454 (Tex. 2011) (“[M]andamus is proper to correct a clear abuse of discretion when there is
no adequate remedy by appeal, as when a party is erroneously denied its contracted-for
arbitration rights under the FAA.”); Taylor Morrison of Tex., Inc. v. Skufca, 650 S.W.3d 660,
676 (Tex. App.—Houston [1st Dist.] 2021, no pet.) (same); Tex. La Fiesta Auto Sales, LLC v.
Belk, 349 S.W.3d 872, 879 (Tex. App.—Houston [14th Dist.] 2011, no pet.) (same); Aspen
Tech., Inc. v. Shasha, 253 S.W.3d 857, 861 (Tex. App.—Houston [14th Dist.] 2008, no pet.)
(holding that, even though interlocutory appeal may appear to provide adequate relief,
mandamus relief remained available when trial court erroneously denied appellant’s request for
arbitration under the FAA as provided in a 2006 agreement between it and appellee, and instead
ordered arbitration under a 2001 agreement between the parties).
Our resolution of appellants’ issue would be the same whether determined in an appeal or
in an original proceeding seeking a writ of mandamus.
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B. MOTION TO COMPEL ARBITRATION
Having determined that we have subject-matter jurisdiction, we next address
appellants’ sole issue on appeal alleging that the trial court erred by ordering
arbitration before an arbitrator other than JAMS, as was specified in the agreement.
1. Standard of Review & Applicable Law
We review the trial court’s denial of a motion to compel arbitration under an
abuse of discretion standard. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643
(Tex. 2009) (orig. proceeding); Branch Law Firm L.L.P. v. Osborn, 532 S.W.3d 1,
12 (Tex. App.—Houston [14th Dist.] 2016, pet. denied). We defer to the trial
court’s factual determinations if they are supported by the record; we review the
trial court’s legal determinations de novo. In re Labatt Food Serv., L.P., 279
S.W.3d at 643; Branch Law Firm L.L.P., 532 S.W.3d at 12.
Because arbitration is an alternative forum, the FAA establishes boundaries
limiting judicial involvement in the process. In re Nat’l Health Ins. Co., 109
S.W.3d 552, 556 (Tex. App.—Tyler 2002, orig. proceeding). When a trial court
modifies the agreement of the parties concerning the manner in which the
arbitrator is to be appointed, it transcends those boundaries. Id.; see also 9
U.S.C.A. § 5.
2. Analysis
Appellants argue that the trial court erred by ordering the case to be
submitted to arbitration in a manner different than that specified in the Purchase
Agreement. Moreover, appellants argue that the Purchase Agreement contained a
delegation clause, which assigned the resolution of all gateway issues, such as
enforceability and the interpretation of terms, to the arbitrator instead of the trial
court. Additionally, appellants argue that the Glasses failed to produce evidence
9
that arbitration with JAMS would be prohibitively expensive.
The Glasses argue that the trial court erred in compelling them to arbitrate
their claims because appellants failed to establish the existence of an arbitration
agreement between themselves and the Glasses. More specifically, the Glasses
argue that they were not parties to the Purchase Agreement and, as non-signatories,
they cannot be bound by the arbitration agreement because they do not rely on or
seek benefits from the Purchase Agreement. But, appellees have not filed a notice
of appeal. See Tex. R. App. P. 25.1(c) (“A party who seeks to alter the trial court’s
judgment or other appealable order must file a notice of appeal.”). The Supreme
Court of Texas held that an appellee in the court of appeals who has not filed a
notice of appeal may not seek to alter the trial court’s judgment in a way that
would award the appellee more relief than the trial court granted the appellee in its
judgment. See Lubbock Cnty., Tex. v. Trammel’s Lubbock Bail Bonds, 80 S.W.3d
580, 584 (Tex. 2002); see also Frontier Logistics, L.P. v. Nat’l Prop. Holdings,
L.P., 417 S.W.3d 656, 666 (Tex. App.—Houston [14th Dist.] 2013, pet. denied).
Because appellees have not filed a notice of appeal, they may not seek to alter the
trial court’s order to award them more relief than the trial court granted in its order.
Frontier Logistics, 417 S.W.3d at 666. By asserting an issue challenging whether
they are bound by the agreement at issue, appellees improperly seek to alter the
trial court’s order to afford them more relief that the trial court granted.
Therefore, we focus our inquiry on appellants’ claim that the trial court erred
by failing to compel the parties to submit to arbitration with JAMS. As we noted
above, the trial court’s order effectively denied appellants their contractual right to
have JAMS serve as the arbitrator. The trial court did not completely deny
appellant’s motion to compel arbitration; instead, the trial court found a portion of
the arbitration agreement unconscionable and attempted to modify the agreement
10
to remedy an “unconscionable provision.” However, the trial court abused its
discretion in doing so. See In re Serv. Corp. Int’l, 355 S.W.3d 662, 663 (Tex.
2011) (orig. proceeding) (per curiam) (“[T]rial court abused its discretion by
appointing an arbitrator instead of following the agreed-upon method of selection
outlined in the contract.”); see also In re Highland Homes-Houston, LLC, No. 01-
21-00585-CV, 2022 WL 400844, at *4 (Tex. App.—Houston [1st Dist.] Feb. 10,
2022, orig. proceeding) (mem. op.) (“[W]e conclude that the Arbitration Clause . . .
identified two potential ways for an arbitrator to be selected: by an agreement
between [the parties] or by the AAA . . . . As such, we hold that the trial court
abused its discretion in appointing an [arbitrator] of its choosing . . . .”).
The primary purpose of the FAA is to require enforcement of arbitration
agreements “according to their terms.” In re Serv. Corp. Int’l, 355 S.W.3d 655,
659 (Tex. 2011) (orig. proceeding) (per curiam) (quoting Volt Info. Scis. v. Bd. of
Trs., 489 U.S. 468, 479 (1989)). Because the FAA requires the trial court to follow
the arbitrator selection method detailed in the agreement, we first determine the
method of appointment required by the agreement.
The agreement in this case provides a dispute “shall be resolved by and
pursuant to the arbitration rules and procedures of the Judicial Arbitration and
Mediation Services (“JAMS”).” The only exception to the use of JAMS as the
arbitration service is if “JAMS is for any reason unwilling or unable to serve as the
arbitration service[.]” However, there is no evidence that JAMS was “unwilling or
unable” to serve as the arbitrator. Because the agreement plainly requires
arbitration to be conducted by JAMS unless JAMS is unwilling or unable to serve,
the trial court abused its discretion by failing to order the parties to arbitrate their
claims before JAMS because that was the agreed-upon primary method of
selection as outlined in the arbitration agreement. See In re Nat’l Health Ins. Co.,
11
109 S.W.3d at 556 (trial court has no discretion to modify or contravene specified
rules set out in a contract); see also In re Serv. Corp. Intern., 355 S.W.3d at 663.
We sustain appellant’s sole issue on appeal.
V. CONCLUSION
We reverse the trial court’s order with instructions to order the parties to
arbitrate their claims before JAMS.
/s/ Margaret “Meg” Poissant
Justice
Panel consists of Justices Zimmerer, Spain, and Poissant (Spain, J., concurring).
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