Holt Texas, Ltd. v. Eustacio Rubio D/B/A Delata Aggregate & Landscaping Materials

NUMBER 13-19-00206-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
HOLT TEXAS, LTD., Appellant,
v.
EUSTACIO RUBIO D/B/A DELATA AGGREGATE
& LANDSCAPING MATERIALS, Appellee.
On appeal from the 139th District Court
of Hidalgo County, Texas.
MEMORANDUM OPINION
Before Chief Justice Contreras and Justices Longoria and Hinojosa
Memorandum Opinion by Chief Justice Contreras
In this interlocutory appeal, appellant Holt Texas, Ltd. (Holt) appeals the trial
court’s denial of its motion to compel arbitration in the lawsuit brought by appellee
Eustacio Rubio d/b/a Delata Aggregate & Landscaping Materials (Rubio). By one issue,
Holt argues the trial court erred when it denied its motion to compel arbitration. Because
none of the grounds relied upon by the trial court in denying the motion are valid, we
reverse and remand for further proceedings consistent with this memorandum opinion.
I. BACKGROUND
Rubio purchased a Caterpillar tractor from Holt on September 15, 2017 for a total
price of $85,431.38. The parties executed a one-page sales agreement which contained
an arbitration provision on the back. The provision states that the “Parties” agree to submit
to arbitration “any dispute arising out of or relating to this transaction.”
The tractor experienced issues and Rubio sent it to Holt for repairs. According to
Rubio, after some initial repairs, Holt never disclosed the possibility that the engine could
catch fire, and the tractor caught fire on April 4, 2018. Rubio sought to have Holt or
Caterpillar fix or replace the tractor; however, according to Rubio, Holt and Caterpillar
refused to pay for the costs of pick up and repair.
On May 18, 2018, Rubio filed suit against Holt, Caterpillar, Inc., and Caterpillar
Financial Services Corporation asserting causes of action for breach of contract, breach
of warranty, breach of implied warranty of good and workmanlike services, negligent
misrepresentation, and fraud by omission.1 Rubio attached a copy of the parties’ sales
agreement to his petition.
On June 25, 2018, Holt filed a general denial. On July 20, 2018, Caterpillar
Financial Services Corporation filed a counterclaim against Rubio because he stopped
making payments on the loan used to finance the purchase. On October 30, 2018, Holt
filed a motion to compel arbitration under the Federal Arbitration Act (FAA) and motion to
stay. At the hearing on Holt’s motion to compel arbitration, the parties agreed to submit
1 Caterpillar, Inc. and Caterpillar Financial Services Corporation are not parties to this appeal.
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their dispute to mediation before the court considered whether to compel arbitration. The
parties subsequently failed to agree to a resolution in mediation.
After another hearing, the trial court signed an order denying Holt’s motion to
compel arbitration. This interlocutory appeal followed. See TEX. CIV. PRAC. & REM. CODE
ANN. § 51.016 (authorizing interlocutory appeal of order denying motion to compel
arbitration under the FAA).
II. DISCUSSION
A. Standard of Review
We review a trial court’s order denying a motion to compel arbitration for abuse of
discretion. Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018); see Beldon Roofing
Co. v. Sunchase IV Homeowners’ Ass’n, Inc., 494 S.W.3d 231, 238 (Tex. App.—Corpus
Christi–Edinburg 2015, no pet.). A trial court abuses its discretion when it acts arbitrarily
or unreasonably and without reference to any guiding rules or principles. Okorafor v.
Uncle Sam & Assocs., Inc., 295 S.W.3d 27, 38 (Tex. App.—Houston [1st Dist.] 2009, pet.
denied). However, we apply a de novo standard to legal conclusions because a trial court
has no discretion in determining what the law is, which law governs, or how to apply the
law. Id. Thus, whether a party waived its right to arbitration and whether an arbitration
agreement is invalid are questions of law we review de novo. See Royston, Rayzor,
Vickery & Williams, LLP v. Lopez, 467 S.W.3d 494, 499 (Tex. 2015); In re FirstMerit Bank,
52 S.W.3d 749, 756 (Tex. 2001); Okorafor, 295 S.W.3d at 38.
B. Analysis
By its sole issue, Holt argues the trial court erred when it denied its motion to
compel arbitration. The order states Holt’s motion was denied because the trial court
concluded that: (1) the arbitration agreement is not clear as to the definition of the word
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“Parties”; (2) Holt’s affidavit failed to authenticate the parties’ signatures on the sales
agreement; (3) the arbitration agreement is illusory; (4) Holt waived arbitration by seeking
affirmative relief and engaging in discovery; (5) Holt failed to list arbitration in its response
to Rubio’s requests for disclosures; (6) the arbitration agreement is unconscionable
because it contains a fee-splitting provision; and (7) the agreement is unconscionable
based on the totality of the circumstances.
1. “Parties” & Authentication of Signatures
As argued by Rubio in his response to the motion to compel, the trial court denied
Holt’s motion to compel arbitration, among other reasons, because the word “Parties” in
the sales agreement was not defined and because Holt did not authenticate the
signatures in the sales agreement. See In re Guerrero, 465 S.W.3d 693, 703–04 (Tex.
App.—Houston [14th Dist.] 2015, pet. denied) (en banc) (“The evidentiary standards for
a motion to compel arbitration are the same as for a motion for summary judgment. Under
the summary judgment standard, copies of documents must be authenticated in order to
constitute competent summary judgment evidence. A properly sworn affidavit stating that
the attached documents are true and correct copies of the original authenticates the
copies so they may be considered as summary judgment evidence.” (citations omitted)).
Holt argues that Rubio’s arguments fail because Rubio judicially admitted that the sales
agreement in question was executed by Rubio and Holt. We agree.
Assertions of fact in a party’s live pleadings that are not pleaded in the alternative
are regarded as formal judicial admissions. Holy Cross Church of God in Christ v. Wolf,
44 S.W.3d 562, 568 (Tex. 2001) (citing Hous. First Am. Sav. v. Musick, 650 S.W.2d 764,
767 (Tex. 1983)). To be a judicial admission, a statement in a pleading must be deliberate,
clear, and unequivocal. Mapco, Inc. v. Carter, 817 S.W.2d 686, 687 (Tex. 1991) (per
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curiam); see PPG Indus. v. JMP/Hous. Ctrs. Partners, 146 S.W.3d 79, 95 (Tex. 2004). A
judicial admission is conclusive against the party making it, relieves the opposing party of
the burden of proving the admitted fact, and bars the admitting party from disputing it
when it is subject to an objection. Mendoza v. Fid. & Guar. Ins. Underwriters, Inc., 606
S.W.2d 692, 694 (Tex. 1980); see Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d
887, 905 (Tex. 2000) (noting that a judicial admission “occurs when an assertion of fact
is conclusively established in live pleadings, making the introduction of other pleadings or
evidence unnecessary”); Charles Brown, L.L.P. v. Lanier Worldwide, Inc., 124 S.W.3d
883, 900 (Tex. App.—Houston [14th Dist.] 2004, no pet.).
Here, the arbitration provision in the sales agreement states that the “Parties”
agree to submit to arbitration, but the sales agreement does not define “Parties.”
However, in his live petition, Rubio states:
Mr. Rubio purchased a 2017 Caterpillar 259D tractor, hereafter referred to
as tractor, from Holt Truck Centers in Edinburg, Texas on September 15,
2017. The Sales Contract and Finance agreement is attached hereto as
Exhibit 1, hereafter referred to as contract. Within the contract, Holt
provided a 12 month warranty and 48 month powertrain warranty.
(emphasis in original). The sales contract attached as Exhibit 1 to Rubio’s petition is
identical to the one attached to Holt’s motion to compel. And the statement by Rubio in
his live petition deliberately, clearly, and unequivocally provides that Holt and Rubio were
the parties who executed the sales agreement. See Carter, 817 S.W.2d at 687. Thus,
Rubio’s arguments regarding the authentication of the signatures and the definition of
“Parties” fail because Rubio disputes judicially admitted facts. See Wolf, 44 S.W.3d at
568.
Rubio urges us to defer to the trial court’s “factual determination” that the term
“Parties” was not clear. We are not persuaded. Whether a contract is ambiguous is a
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question of law. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 226 (Tex. 2003); see
Henry, 551 S.W.3d at 115 (noting that we defer to the trial court’s factual determinations
if they are supported by evidence but review its legal determinations de novo). Here, there
was no ambiguity as to the identity of the parties to the sales agreement. 2 In any event,
even if the meaning of “Parties” were ambiguous on the face of the agreement, Rubio
judicially admitted its meaning in his pleadings.
We conclude the trial court erred when it denied the motion to compel based on its
conclusions that the word “Parties” was not defined and that Holt did not authenticate the
signatures. See Wolf, 44 S.W.3d at 568; Carter, 817 S.W.2d at 687; Okorafor, 295 S.W.3d
at 38; see also David J. Sacks, P.C. v. Haden, 266 S.W.3d 447, 451 (Tex. 2008) (per
curiam) (noting that whether a contract provision is ambiguous is determined by an
examination of the contract as a whole in light of the circumstances when the parties
entered into the contract).
2. Illusory Agreement
The trial court also denied Holt’s motion to compel arbitration on grounds that the
arbitration agreement was illusory. An illusory promise is a promise that makes the
promisor’s performance optional. Lopez, 467 S.W.3d at 505; see In re Odyssey
Healthcare, Inc., 310 S.W.3d 419, 424 (Tex. 2010) (orig. proceeding) (per curiam) (noting
that arbitration clause is illusory if a party can avoid its promise to arbitrate by amending
or terminating the provision).
2 Under the title “sales agreement,” the document states “Holt Texas Ltd” and provides the
business’s address. The sales agreement then provides the information of the “customer” and states the
customer is “Delta Aggegates [sic]” and the customer contact is “Eustacio Rubio.” At the bottom, the sales
agreement is signed by “sales manager” Andrew Burns and the “customer” listed is again “Delta Aggegates
[sic].”
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There are two types of challenges to an arbitration provision: (1) a specific
challenge to the validity of the arbitration agreement or clause; and (2) a broader
challenge to the entire contract, either on the ground that directly affects the entire
agreement, or on the ground that one of the contract’s provisions is illegal and renders
the whole contract invalid. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 647–48 (Tex.
2009) (orig. proceeding). A court may determine the first type of challenge, but a
challenge to the validity of the contract, and not specifically to the arbitration clause, must
go to the arbitrator. Id. at 648; see In re 24r, Inc., 324 S.W.3d 564, 566–68 (Tex. 2010)
(orig. proceeding) (per curiam) (concluding that arbitration agreement was not illusory);
In re FirstMerit Bank, 52 S.W.3d at 756 (noting that defenses of unconscionability, duress,
fraudulent inducement, and revocation must specifically relate to the arbitration part of a
contract and not the contract as a whole if they are to defeat arbitration, and the validity
of the arbitration provision is a separate issue from validity of the whole contract).
Here, the sales agreement provides that “Holt shall have the right, at its option, to
either repair or replace the Equipment, or terminate this Agreement, in which event the
Equipment shall be returned to Holt.” Rubio also points to section 14 of the sales
agreement, which states: “This agreement may only be modified by a written agreement
signed by Holt.” The arbitration clause at issue is included within the sales agreement. At
the trial court and on appeal, Rubio’s cites to these sections of the sales agreement and
argues that they render the arbitration clause illusory. However, these sections are
applicable to the entire sales agreement, not just the arbitration clause at issue in this
appeal. This reading is supported by the plain language of sections 1 and 14 which
provides that the “agreement” may be terminated by Holt. In other words, the termination
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sections apply to the sales agreement as a whole rather than to isolated parts such as
the arbitration clause.
Because the termination provision applies to the entire sales agreement, a
challenge based on the termination provision is a challenge to the entire contract, rather
than a separate arbitration agreement or to a specific arbitration clause. See In re Labatt,
279 S.W.3d at 647–48; see also Mission Petroleum Carries, Inc. v. Dreese, No. 13-17-
00102-CV, 2018 WL 1192773, at *2–3 (Tex. App.—Corpus Christi–Edinburg Mar. 8,
2018, no pet.) (mem. op.). Thus, the trial court abused its discretion when it addressed
this question rather than allowing an arbitrator to decide it. See In re Labatt, 279 S.W.3d
at 647–48; In re Merrill Lynch Tr. Co., 235 S.W.3d 185, 190 n.12 (Tex. 2007) (orig.
proceeding) (holding that defenses that relate to the parties’ entire contract rather than
the arbitration clause alone is a question for the arbitrators rather than the courts); see
also Dreese, 2018 WL 1192773, at *2–3.
Rubio argues that Holt invited this error because it “agreed to have the trial court
hear the arbitrability issues when it signed off on the agreed order” continuing the hearing
on Holt’s motion to compel and referring the parties to mediation. We disagree. The
doctrine of invited error applies when a party requests that a trial court make a specific
ruling and then complains about the ruling on appeal. In re Dep’t of Family & Protective
Servs., 273 S.W.3d 637, 646 (Tex. 2009) (orig. proceeding).
Here, Holt did not seek a specific ruling regarding whether the arbitration clause or
the entire agreement was illusory.3 Further, the agreed order provided that: “the parties
3 Specifically, Holt’s attorney stated: “Judge, what we’re asking the Court to do is this: We’ll agree
to—the parties will agree to go to mediation within 30 days;” and “If—if we can’t mediate the case, then the
parties, or then the Plaintiff and Holt will have an opportunity to do one more briefing on the Motion to
Compel Arbitration.”
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have until December 26, 2018 to mediate their disputes; and the Court hereby appoints
Armando Marroquin as mediator”; “should this case not settle at mediation, the parties
have until January 10, 2019, to file one additional brief in support or in opposition on Holt’s
Motion”; “the parties have until January 16, 2019 by which to file any objections to
affidavits given in support or opposition to Holt’s Motion;” and “the Court will then consider
Holt Texas, Ltd.’s Motion to Compel Arbitration and Motion to Stay by submission . . . .”
The only request Holt made to the trial court was that it allow the parties to attempt to
resolve their dispute in mediation. Accordingly, the doctrine of invited error is inapplicable.
See id.
3. Waiver
The trial court additionally concluded that Holt waived arbitration by seeking
affirmative relief and engaging in discovery. On appeal, Rubio concedes that Holt did not
waive arbitration by seeking affirmative relief and engaging in discovery. Accordingly, we
conclude that the trial court erred when it denied the motion to compel arbitration on this
ground. See Okorafor, 295 S.W.3d at 38.
4. Request for Disclosure
Next, the trial court concluded that Holt was precluded from enforcing the
arbitration agreement because Holt failed to list arbitration in its response to Rubio’s
requests for disclosures. Rubio argued that Holt failed to list the “legal theory of
arbitration” in its response to his disclosure request per Texas Rule of Civil Procedure
194.2(c). See TEX. R. CIV. P. 194.2(c) (providing that a “party may request disclosure
of . . . the legal theories and, in general, the factual bases of the responding party’s claims
or defenses”) (emphasis added). We disagree.
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Arbitration is not a legal theory; it is part of the alternative dispute resolution
process. See TEX. CIV. PRAC. & REM. CODE ANN. § 154.027(a)(“[A]rbitration is a forum in
which each party and counsel for the party present the position of the party before an
impartial third party, who renders a specific award.”); AT&T Mobility LLC v. Concepcion,
563 U.S. 333, 344–45 (2011) (“[T]he informality of arbitral proceedings is itself desirable,
reducing the cost and decreasing the speed of dispute resolution.”); LaLonde v. Gosnell,
__ S.W.3d __, __, 2019 WL 2479172, at *6 (Tex. June 14, 2019) (“Arbitration . . . cases
involve rights that do not terminate the litigation; rather, those rights—at best—change
the arena of dispute and, in doing so, may change the rules of engagement.”); Rachal v.
Reitz, 403 S.W.3d 840, 842 (Tex. 2013) (“[A]rbitration has become a mainstay of the
dispute resolution process.”); see also In re Olshan Found. Repair Co., 328 S.W.3d 883,
894 (Tex. 2010) (orig. proceeding) (noting that the purpose of arbitration is “to avoid steep
litigation expense—including the costs of longer proceedings, more complicated appeals
on the merits, discovery, investigation, fees, and expert witnesses”). Therefore, we
conclude the trial court erred when it denied the motion to compel on the ground that Holt
failed to list arbitration in response to Rubio’s request for disclosure. See TEX. CIV. PRAC.
& REM. CODE ANN. § 154.027(a); TEX. R. CIV. P. 194.2(c); Okorafor, 295 S.W.3d at 38.
5. Unconscionability
Finally, the trial court concluded in its order that the fee-splitting provision made
the arbitration agreement substantively unconscionable and the arbitration agreement
was procedurally unconscionable based on the totality of the circumstances.
Arbitration agreements may be either substantively or procedurally
unconscionable, or both. Lopez, 467 S.W.3d at 499; see In re Halliburton Co., 80 S.W.3d
566, 572 (Tex. 2002) (orig. proceeding) (“[C]ourts may consider both procedural and
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substantive unconscionability of an arbitration clause in evaluating the validity of an
arbitration provision.”). Substantive unconscionability refers to the fairness of the
arbitration provision itself, whereas procedural unconscionability refers to the
circumstances surrounding adoption of the arbitration provision. Lopez, 467 S.W.3d at
499.
“An arbitration agreement may render a contract unconscionable if ‘the existence
of large arbitration costs could preclude a litigant . . . from effectively vindicating [his or
her] right in the arbitral forum.’” In re Olshan, 328 S.W.3d at 892. Arbitration is “intended
as a lower cost, efficient alternative to litigation.” Id. at 893; see In re Poly-Am., LLP, 262
S.W.3d 337, 347 (Tex. 2008) (orig. proceeding). “Where these justifications are
vanquished by excessive arbitration costs that deter individuals from bringing valid claims,
the unconscionability doctrine may protect unfairly disadvantaged consumers.” In re
Olshan, 328 S.W.3d at 893.
When “a party seeks to invalidate an arbitration agreement on the ground that
arbitration would be prohibitively expensive, that party bears the burden of showing the
likelihood of incurring such costs.” Id. at 892. The Texas Supreme Court requires “some
evidence that a complaining party will likely incur arbitration costs in such an amount as
to deter enforcement of statutory rights in the arbitral forum.” Id. This includes presenting
evidence comparing the costs of litigation and of arbitration. See id. at 894–95; see also
AOF Servs., LLC v. Santorsola, No. 13-14-00641-CV, 2016 WL 1165829, at *4 (Tex.
App.—Corpus Christi–Edinburg Mar. 24, 2016, no pet.) (mem. op.) (concluding that party
carried burden of showing that arbitration provision was unconscionable when the party
presented evidence of arbitration costs, inability to pay for those costs, and why litigation
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was affordable). “Once met, the burden shifts to ‘the party seeking arbitration [who] must
come forward with contrary evidence.’” In re Olshan, 328 S.W.3d at 895.
Here, attached to his response to Holt’s motion, Rubio introduced into the record
an exhibit showcasing arbitration fees from the American Arbitration Association that vary
depending on the amount of the claim; an affidavit by Rubio stating he cannot afford to
pay $5,500 for arbitration; and an estimate of arbitration fees from an unknown 2017 case
showing a total cost of $5,600. For multiple reasons discussed below, Rubio failed to
meet his burden with this evidence. See In re Olshan, 328 S.W.3d at 892.
First, merely showing that other claimants have incurred arbitration costs of some
amount falls well short of specific evidence that Rubio will be charged excessive fees.
See id. (“Evidence of the ‘risk’ of possible costs of arbitration is insufficient evidence of
the prohibitive cost of the arbitration forum[; rather], both the United States Supreme
Court and [the Texas Supreme] Court require specific evidence that a party will actually
be charged excessive arbitration fees.” (internal quotations omitted)). Second, there is no
evidence that the amount or difficulty of Rubio’s claim is similar to the estimate presented.
See id. Third, even if we took this estimate as evidence of the likely arbitration charge to
Rubio, he has not provided any comparison of this charge to the expected cost of litigation
or the amount of his claim. See id. Finally, the arbitration provision here provided that:
“Each party shall bear its own costs and attorney’s fees unless the arbitrators award such
fees to a party” (emphasis added). See In re Poly-Am., 262 S.W.3d at 356 (noting that
the party opposing arbitration may not even be obligated to pay any of the costs of
arbitration because the arbitrator could modify the terms of payment).
For these reasons, we conclude Rubio did not carry his burden of showing that the
arbitration costs would be excessive and would deter him from pursuing his claim in
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arbitration. See In re Olshan, 328 S.W.3d at 894–95, 897 (“Substantive unconscionability
threatens to become the exception that swallows the rule if all that must be done to avoid
arbitration is to assume the most expensive possible scenario.”); see also US Money
Reserve, Inc. v. Romero, No. 09-18-00052-CV, 2018 WL 6542527, at *4–5 (Tex. App.—
Beaumont Dec. 13, 2018, no pet.) (mem. op.).
As to the surrounding circumstances, Rubio argues that the arbitration clause was
procedurally unconscionable because it was included on the back of the one-page sales
agreement in “small font.” Contrary to Rubio’s argument, however, the font is nearly the
same size as the font used throughout the entire sales agreement and, above the
signature blocks on the first page, the agreement provides:
ADDITIONAL TERMS AND CONDITIONS SET FORTH IN THE REVERSE
SIDE HEREOF OR ATTACHED HERETO (AS APPLICABLE)
CONSTITUTE AN IMPORTANT PART OF THIS AGREEMENT AND ARE
INCORPORATED HEREIN VERBATIM FOR ALL PURPOSES. PLEASE
REVIEW SUCH OTHER TERMS AND CONDITIONS BEFORE SIGNING
THIS AGREEMENT.
Rubio also states in his affidavit that: he was not aware of the arbitration clause until his
lawsuit was filed; Holt’s salesmen did not explain what arbitration was before he signed
the agreement; the arbitration clause was extremely difficult to understand; and he is not
an attorney and was not represented by one. But, “absent fraud, misrepresentation, or
deceit, one who signs a contract is deemed to know and understand its contents and is
bound by its terms.” Lopez, 467 S.W.3d at 500; EZ Pawn Corp. v. Mancias, 934 S.W.2d
87, 90 (Tex. 1996) (per curiam) (concluding that a party who has the opportunity to read
an arbitration agreement and signs it is charged with knowing its contents). While Rubio
asserts that Holt’s arbitration clause was “sneaky,” he has not asserted any
misrepresentation, fraud, or deceit by Holt in the execution of the arbitration agreement.
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We conclude that the surrounding circumstances did not make the arbitration
provision procedurally unconscionable. See Lopez, 467 S.W.3d at 500; Mancias, 934
S.W.2d at 90; Whataburger Rests. LLC v. Cardwell, 545 S.W.3d 73, 79–80 (Tex. App.—
El Paso 2017, no pet.) (noting that the circumstances surrounding the negotiations must
be “shocking” for procedural unconscionability). Therefore, the trial court erred when it
denied Holt’s motion to compel arbitration based on the grounds that the provision and
surrounding circumstances were unconscionable.
6. Summary
Because none of the grounds relied upon by the trial court to deny Holt’s motion
to compel arbitration were valid, we conclude the trial court abused its discretion when it
denied the motion. See McAllen, 268 S.W.3d at 56; Okorafor, 295 S.W.3d at 38. Holt’s
issue is sustained. We lift the stay on the trial court’s proceedings previously imposed in
this case.
III. CONCLUSION
We reverse the trial court’s order and remand the case for further proceedings
consistent with this memorandum opinion.
DORI CONTRERAS
Chief Justice
Delivered and filed the
12th day of March, 2020.
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