Cotton Commercial USA, Inc. v. Clear Creek Independent School District, 387 S.W.3d 99

Background

Restoration Service Agreement between Clear Creek ISD and Cotton Commercial USA, L.P. for debris removal after Hurricane Ike included a broad arbitration provision.
Contractor used Cottonwood Debris Company, LLC as a subcontractor; disputes arose over SUBCONTRACTOR’s characterization and a 20% markup.
School District alleged fraudulent invoices, improper charges, and inflated debris-removal costs, affecting FEMA reimbursements.
SUBCONTRACTOR and CONTRACTOR merged into Surviving Company; School District sued Surviving Company, not SUBCONTRACTOR, for fraud and money had and received.
Trial court denied arbitration for the School District’s claims against Surviving Company but granted arbitration for Surviving Company’s counterclaims.
Appellate court reversed in part, holding that an arbitration agreement binds the School District and Surviving Company under intertwined-claims theory and broad scope.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Existence of a valid arbitration agreement	School District argues no agreement with Subcontractor; Surviving Company bound by no arbitration.	Texas recognizes intertwined-claims binding nonsignatories to arbitration; Surviving Company is bound.	There is a valid arbitration agreement binding on the School District and Surviving Company.
Scope of the arbitration agreement	Fraud and money had and received claims are not within arbitration scope.	Claims arise from the Restoration Agreement; they are squarely within the arbitration clause.	Fraud and money had and received claims fall within the arbitration scope.
Arbitrability of nonsignatory against signatory	Nonsignatory should not compel arbitration of claims against signatory.	Intertwined-claims doctrine permits binding nonsignatories to arbitration when appropriate.	Intertwined-claims doctrine applies; Surviving Company is binding to arbitrate with the School District.
Appropriate forum given merger and pleadings	Piecemeal litigation should be avoided; allow separate forums for different parties.	Policy favors arbitration when claims are intertwined with the contract.	Arbitration is appropriate for the School District’s claims against Surviving Company; remand for proceedings consistent with arbitration.
Treatment of broad arbitration clause in Restoration Agreement	Clause may not be read to compel against a nonsignatory for conduct of SUBCONTRACTOR.	Broad clause covers any controversy arising from the Agreement or the Work performed.	Clause is broad enough to encompass the School District’s claims; they are arbitrable.

Key Cases Cited

In re Dilliard Dep’t Stores, Inc., 186 S.W.3d 514 (Tex. 2006) (legal question of existence of arbitration agreement; de novo review)
McReynolds v. Elston, 222 S.W.3d 731 (Tex. App.—Houston [14th Dist.] 2007) (arbitration questions; review standard)
Van Zanten v. Energy Transfer Partners, L.P., 320 S.W.3d 845 (Tex. App.—Houston [1st Dist.] 2010) (non-signatory may bind to arbitration; exceptions)
Meyer v. WMCO-GP, LLC, 211 S.W.3d 302 (Tex. 2006) (intertwined-claims and estoppel theory; binding nonsignatories)
In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185 (Tex. 2007) (signatory and nonsignatory theories of arbitration; estoppel concepts)
In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (Tex. 2005) (nonsignatories bound by arbitration under certain theories)
In re FirstMerit Bank, N.A., 52 S.W.3d 749 (Tex. 2001) (concerted misconduct estoppel and arbitral scope)
Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th Cir. 2000) (nonsignatory arbitration under federal law)
Prudential Sec., Inc. v. Marshall, 909 S.W.2d 896 (Tex. 1995) (presumption of arbitrability; broad clauses favored)
Hou-Scape, Inc. v. Lloyd, 945 S.W.2d 202 (Tex. App.—Houston [1st Dist.] 1997) (scope tests for arbitration)
Pennzoil Co. v. Arnold Oil Co., 30 S.W.3d 494 (Tex. App.—San Antonio 2000) (touch matters; relationship to contract determines arbitrability)
In re Labatt Food Serv., L.P., 279 S.W.3d 640 (Tex. 2009) (nonsignatories bound by contract principles; equitable estoppel)