G. T. Leach Builders, L. L. C-Residential, G. T. Leach Construction, L. P. and Gary T. Leach v. Sapphire Condominiums Association, Inc.
13-16-00293-CV
| Tex. App. | Aug 3, 2017Background
- Sapphire V.P., L.P. (the developer) contracted with G.T. Leach Builders as general contractor; the Contract contained a Texas Arbitration Act (TAA) clause covering any claim arising out of or related to the Contract and bound “partners, successors, assigns, and legal representatives.”
- Sapphire V.P. recorded a Residential Declaration creating Sapphire Condominiums and a homeowners association (Sapphire Condominiums Association, the Association); the Declaration reserved declarant rights for Sapphire V.P. during a period of declarant control.
- Hurricane Dolly damaged the project during construction; Sapphire V.P. sued insurers and later added G.T. Leach and others for construction defects; arbitration was compelled as to G.T. Leach in the Texas Supreme Court decision G.T. Leach Builders II as to Sapphire V.P.
- After declarant control ended, the Association (through its elected board) sued G.T. Leach and others alleging negligence, breach of implied warranties, DTPA claims, and other theories.
- G.T. Leach moved to compel arbitration by arguing the Contract’s clause binds successors and assigns and that the Association is a successor or assignee of Sapphire V.P.; the trial court denied the motion and denied a stay, and G.T. Leach appealed.
- The Court of Appeals affirmed, holding the Association is neither an assign nor a successor of Sapphire V.P., so the arbitration clause (to which the Association was not a signatory) is not enforceable against it.
Issues
| Issue | Plaintiff's Argument (Association) | Defendant's Argument (G.T. Leach) | Held |
|---|---|---|---|
| Whether the Association is an "assign" of Sapphire V.P. and thus bound by the Contract's arbitration clause | Association: No evidence Sapphire V.P. transferred contractual rights or obligations to the Association | G.T. Leach: The Association represents the former declarant’s interests and asserts claims (e.g., implied warranties, attorney fees) that derive from Sapphire V.P., implying assignment | Held: Not an assign; no evidence of transfer of rights/obligations, and subsequent-purchaser assignment theory (Gupta) is not controlling after later Texas precedent |
| Whether the Association is a "successor" of Sapphire V.P. and thus bound by arbitration clause | Association: It did not assume Sapphire V.P.’s corporate rights, ownership, or declarant construction rights | G.T. Leach: The Association (and owners) succeeded to Sapphire V.P.’s interest in the development and stepped into its shoes | Held: Not a successor under either narrow corporate-successor test or broader "takes the place of" test; Association never owned the project in fee simple nor assumed declarant/contract obligations |
| Whether the arbitration clause is enforceable against a non-signatory Association via ordinary contract/estoppel principles | Association: Not bound because it did not sign and did not assume rights/obligations; equitable estoppel not preserved below | G.T. Leach: Arbitration clause valid as to Sapphire V.P.; Association should be bound as successor/assign or equitably estopped | Held: Arbitration clause not enforceable against the Association; equitable estoppel not reached (not preserved) |
| Whether a stay of proceedings should be entered/extended pending arbitration appeals | Association: No arbitration entitlement, so no stay | G.T. Leach: Trial should be stayed pending arbitration or, alternatively, until appeal exhaustion | Held: Denied; because arbitration not required as to Association, statutory stay provisions do not mandate continuing stay and the appellate stay was not extended |
Key Cases Cited
- G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (Tex. 2015) (Texas Supreme Court decision enforcing arbitration between developer and contractor as to Sapphire V.P.)
- Rachal v. Reitz, 403 S.W.3d 840 (Tex. 2013) (party seeking arbitration must show existence and scope of a valid arbitration agreement)
- In re Poly-Am., L.P., 262 S.W.3d 337 (Tex. 2008) (presumption favoring arbitration arises only after a valid arbitration agreement is proven)
- In re Rubiola, 334 S.W.3d 220 (Tex. 2011) (ordinary contract principles govern who is bound by arbitration clauses)
- Great Am. Ins. Co. v. Primo, 512 S.W.3d 890 (Tex. 2017) (interpret contract terms by their plain, ordinary meaning)
- PPG Indus., Inc. v. JMB/Houston Centers Partners Ltd. P'ship, 146 S.W.3d 79 (Tex. 2004) (later case treating prior implied-assignment precedent as overruled in part)
- Amstadt v. U.S. Brass Corp., 919 S.W.2d 644 (Tex. 1996) (limits subsequent-purchaser DTPA recovery against upstream sellers)
- In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (Tex. 2005) (clarifies when presumption favoring arbitration applies)