Waterstone on Lake Conroe, Inc. and Steve Bowen v. Dee Williams and Andy Williams, 09-17-00071-CV

Background

In Sept. 2012 the Williamses signed a purchase agreement with Virgin Homes, Inc. (Virgin) for a new home; the agreement (signed by the Williamses and Bowen as President of Virgin) contains a broad arbitration clause covering disputes "arising out of or relating to" the contract, construction of the home, and "any acts or omissions by Virgin Homes, Inc. (and its officers, directors, or agents)."
The purchase agreement includes exhibits listing standard allowances (e.g., boat dock, sidewalk) and references a Limited Warranty that expressly excludes boundary/retaining walls and bulkheads from the home warranty.
The Williamses sued Virgin, Waterstone on Lake Conroe, Inc. (developer), Bowen (officer), and others for property damage from alleged defects in a backyard bulkhead/retaining wall, asserting breach of warranty, DTPA violations, negligence, negligent misrepresentation, and vicarious/alter-ego theories. Plaintiffs alleged uncertainty whether Virgin or Waterstone directed the bulkhead work.
Virgin, Waterstone, and Bowen moved to compel arbitration. The trial court compelled arbitration as to Virgin (a signatory) but denied Waterstone’s and Bowen’s motion because they were non-signatories and had not signed the arbitration agreement.
On interlocutory appeal under FAA/Texas law, the court addressed whether (1) Bowen and Waterstone, as non-signatories, could compel arbitration under the contract’s language (which expressly referenced officers/agents) or under equitable estoppel/other doctrines, and (2) the Williamses’ claims fall within the arbitration clause’s scope.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Bowen (an officer) can compel arbitration as a non-signatory when the contract covers acts/omissions by Virgin’s officers	Bowen is not a party to the arbitration agreement; plaintiffs need not arbitrate with nonsignatories	Arbitration clause expressly extends to Virgin’s officers, so Bowen—President of Virgin—may compel arbitration	Court: Bowen may compel arbitration because the clause expressly covers officers
Whether Waterstone (non-signatory developer) can compel arbitration	Williamses: claims against Waterstone are independent and the bulkhead is excluded from the purchase agreement/warranty so not arbitrable	Waterstone: claims are intertwined with the purchase agreement/Virgin’s work; equitable estoppel binds nonsignatory to arbitrate	Court: Waterstone may compel arbitration via equitable estoppel because plaintiffs’ claims are factually intertwined with the contract
Whether the Williamses’ claims (bulkhead/retaining wall) fall within the arbitration clause’s scope	Williamses: bulkhead is not in the contract and is similar to excluded items; claims independent of the contract	Defendants: but-for the contract the walls would not have been built; duties arise from the contract; clause is broad ("arising out of or relating to")	Court: Claims arise out of/relate to the contract and construction; scope is broad — claims are arbitrable
Whether trial court abused discretion by denying nonsignatories' motion to compel arbitration	Williamses: trial court properly refused to expand arbitration to non-signatories	Defendants: trial court erred; legal doctrines (contract language + estoppel/agency) permit nonsignatories to compel arbitration	Court: Trial court abused its discretion; reversed and remanded with instruction to compel arbitration and stay proceedings

Key Cases Cited

In re Rubiola, 334 S.W.3d 220 (Tex. 2011) (gateway question whether nonsignatory can be bound; contract/agency principles may bind nonsignatory)
In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (Tex. 2005) (FAA presumption and when nonsignatory may be bound under contract/agency principles)
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (Tex. 2003) (burden shifting once valid arbitration agreement established)
Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th Cir. 2000) (equitable estoppel permits nonsignatory to compel arbitration when signatory’s claims rely on terms of agreement)
Bridas S.A.P.I.C. v. Gov't of Turkmenistan, 345 F.3d 347 (5th Cir. 2003) (six theories recognized for binding nonsignatory: incorporation, assumption, agency, veil-piercing/alter ego, estoppel, third-party beneficiary)
In re FirstMerit Bank, N.A., 52 S.W.3d 749 (Tex. 2001) (determine arbitrability by comparing complaint facts to arbitration clause)
In re Weekley Homes, L.P., 180 S.W.3d 127 (Tex. 2005) (liability that arises solely from contract must be arbitrated)
In re Labatt Food Serv., L.P., 279 S.W.3d 640 (Tex. 2009) (standard of review: abuse of discretion for denial of motion to compel arbitration)
In re Houston Pipe Line Co., 311 S.W.3d 449 (Tex. 2009) (issues of ultimate liability ordinarily resolved in arbitration once arbitrability shown)