Southwinds Express Construction, LLC v. D.H. Griffin of Texas, Inc.
513 S.W.3d 66
Tex. App.2016Background
- Griffin contracted as demolition subcontractor; Southwinds was hired to haul concrete, brick, and later C&D (construction & demolition) debris after an oral modification setting C&D at $9/yd and a revised (unexecuted) written subcontract.
- The original written Subcontractor Agreement (signed) contained a broad arbitration clause and a dispute-resolution paragraph requiring mediation unless Griffin in its sole discretion deemed mediation useless and escalated to binding arbitration.
- A dispute arose alleging Southwinds ceased work and failed to pay landfill fees, leaving Griffin to pay $67,000 in landfill arrearages and hire third parties; Griffin sought arbitration in March 2014.
- Arbitrator held the oral agreement modified the subcontract, brought C&D claims within the arbitration clause, found Southwinds breached, and awarded damages, fees, and costs to Griffin.
- Trial court confirmed the award; Southwinds moved to vacate arguing (1) arbitration clause did not cover C&D claims, (2) mediation was a condition precedent that did not occur, and (3) the award reflected manifest disregard/gross mistake. The court affirmed the confirmation on appeal.
Issues
| Issue | Griffin's Argument | Southwinds' Argument | Held |
|---|---|---|---|
| Arbitrability of C&D claims | Oral agreement modified the subcontract so C&D claims fall within the written arbitration clause | Oral agreement was a separate contract; claims arising from it are not covered by the subcontract arbitration clause | Court (de novo) held C&D claims were factually intertwined with and within the scope of the broad arbitration clause, so arbitrable |
| Who decides arbitrability | AAA rules and the parties’ agreement delegate arbitrability to the arbitrator | Threshold challenge to existence/scope of arbitration (separate oral agreement) means court must decide arbitrability | Court held that when existence of an agreement is challenged (claims arise from separate agreement), the trial court decides arbitrability; here court independently determined arbitrability and affirmed arbitrability of C&D claims |
| Mediation as condition precedent | Arbitration provision allowed Griffin to skip mediation; thus mediation was not a condition precedent | Griffin’s unilateral opt-out rendered clause illusory or mediation must be performed before arbitration; no mediation occurred | Court held Griffin’s unilateral right to bypass mediation did not make the arbitration clause illusory; mediation was not a condition precedent to Griffin’s ability to arbitrate |
| Manifest disregard / gross mistake | Award should be vacated for manifest disregard and gross legal error in covering non-arbitrable claims | Manifest disregard and gross mistake are not statutory grounds for vacatur; arbitration award should be confirmed absent statutory grounds | Court held neither manifest disregard nor gross mistake are grounds under the Texas Arbitration Act or FAA; because statutory vacatur grounds were not met, confirmation was proper |
Key Cases Cited
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (distinguishes procedural vs. substantive arbitrability; procedural matters presumptively for arbitrator)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (parties must clearly and unmistakably delegate arbitrability to arbitrator)
- In re Morgan Stanley & Co., 293 S.W.3d 182 (Tex. 2009) (where existence of agreement is challenged, courts decide threshold issue)
- Hoskins v. Hoskins, 497 S.W.3d 490 (Tex. 2016) (Texas Arbitration Act requires confirmation unless statutory vacatur grounds are shown)
- Valero Energy Corp. v. Teco Pipeline Co., 2 S.W.3d 576 (Tex. App.-Houston [14th Dist.] 1999) (court determines if claims arise out of separate agreement and thus outside prior arbitration clause)
- John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964) (arbitrator generally decides grievance-procedure completion; historical precedent on procedural matters)
- In re Bath Junkie Franchise, Inc., 246 S.W.3d 356 (Tex. App.-Beaumont 2008) (claims arising from subsequent agreement may fall within original arbitration clause if factually intertwined)