Case Information
*1 IN THE SUPREME COURT OF TEXAS
════════════
N O . 13-0497
════════════ G.T. L EACH B UILDERS , LLC, ET AL .,
P ETITIONERS ,
v.
S APPHIRE V.P., LP,
R ESPONDENT ═══════════════════════════════════════
O N P ETITION FOR R EVIEW FROM THE
C OURT OF A PPEALS FOR THE T HIRTEENTH D ISTRICT OF T EXAS ═══════════════════════════════════════ Argued November 5, 2014
J USTICE B OYD delivered the opinion of the Court.
Texas law encourages parties to resolve disputes through arbitration, [1] but it will not force them to arbitrate unless they have agreed to that alternative. [2] If they have, or if they are equitably estopped from denying their assent to such an agreement, courts must honor the agreement by referring the disputes to arbitration unless the party demanding arbitration has waived that right by substantially participating in the litigation. We apply these principles in this case to determine whether a property developer must arbitrate its claims against several defendants involved in a construction project. The trial court denied all of the defendants’ motions to compel arbitration, *2 and the court of appeals affirmed. We hold that (1) the developer agreed to arbitrate its claims against the general contractor and the general contractor did not waive its right to demand arbitration; (2) the developer’s argument that a contractual deadline bars the general contractor’s demand for arbitration is itself a claim that must be arbitrated; (3) the developer did not agree in the general contract to arbitrate its claims against the other defendants; (4) the developer is not equitably estopped from denying any such agreement; and (5) the subcontracts do not contain an enforceable arbitration agreement. In short, we hold that the developer must arbitrate its claims against the general contractor but not its claims against the other defendants.
I.
Background In July 2008, Hurricane Dolly caused extensive damage to a luxury condominium project that Sapphire V.P., L.P. was in the process of developing on South Padre Island. Sapphire filed suit against Adams Insurance Services, Inc., Arthur J. Gallagher Risk Management, and Tracy Williams (collectively, the Insurance Brokers), asserting claims for negligence and breach of contract. Sapphire alleged that, eight days before the hurricane hit, the Insurance Brokers allowed a builder’s risk insurance policy to expire and be replaced by a permanent insurance policy even though construction of the project was not yet complete. Sapphire sought to recover millions of dollars for water damage, increased construction costs, delay costs, lost revenue, and other losses that the builder’s risk policy allegedly covered or should have covered but the permanent policy did not.
More than two-and-a-half years after the hurricane struck, the Insurance Brokers designated several others as responsible third parties: (1) the project’s general contractor, G.T. Leach Builders, L.L.C.; (2) two of G.T. Leach’s subcontractors, Power Design, Inc. and Atlas *3 Comfort Systems USA, LLC [3] (collectively, the Subcontractors); and (3) an engineering contractor, CHP & Associates Consulting Engineers, Inc., and its employee Mark Janneck (collectively, the Engineers). [4] Sapphire, in turn, promptly amended its petition to name these parties as defendants, alleging that their negligence and contractual breaches resulted in construction defects that caused the condominium project to sustain the water damage that resulted in the uncovered losses. Although Sapphire asserted these claims within the four-year statute of limitations applicable to claims for breach of contract, the two-year statute of limitations on negligеnce claims had already expired. At that time, however, Texas law allowed a claimant to assert claims against a party designated as a responsible third party even though the statute of limitations barred the claim. [5]
After pursuing pretrial motions and participating in discovery, G.T. Leach—the general contractor—moved to compel arbitration and stay the litigation, relying on an arbitration agreement contained in its general contract with Sapphire. The Insurance Brokers, Subcontractors, and Engineers (collectively, the Other Defendants) subsequently filed similar motions, also relying on the arbitration agreement in the general contract, even though they never signed that contract. The Subcontractors relied, in addition, on language in their subcontracts with G.T. Leach, even though Sapphire never signed the subcontracts. The trial court denied all of the motions without *4 explaining its reasons. The defendants pursued an interlocutory appeal, the court of appeals affirmed, [6] and we granted the defendants’ petitions for review. [7]
II.
G.T. Leach We first consider whether G.T. Leach can compel arbitration. In the general contract, G.T. Leach and Sapphire agreed that “[a]ny Claim arising out of or related to the Contract . . . shall . . . be subject to agreed private arbitration” and “shall be decided by binding arbitration.” [8] Sapphire concedes that this is a valid arbitration agreement and that it applies to Sapphire’s claims against G.T. Leach, but contends that G.T. Leach expressly and impliedly waived its right to demand arbitration. Alternatively, Sapphire argues that G.T. Leach failed to demand arbitration prior to a deadline that the contract expressly imposes. The court of appeals agreed with Sapphire’s second argument and did not reach its first. We conclude that (1) G.T. Leach did not waive its arbitration *5 rights, and (2) the issue of whether the contractual deadline bars G.T. Leach’s demand for arbitration is one that the arbitrators—not the courts—must decide. Because the waiver argument challenges G.T. Leach’s ability to rely on the arbitration agreement at all, we address it first. A. Waiver of Right to Arbitration
Sapphire asserts that G.T. Leach has waived its right to enforce their arbitration agreement.
Waiver—the “intentional relinquishment of a known right”—can occur either expressly, through
a clear repudiation of the right, or impliedly, through conduct inconsistent with a claim to the right.
Perry Homes
,
1. Express Waiver
Sapphire first argues that G.T. Leach expressly waived its arbitration rights by seeking a
continuance and agreeing to a new trial date. Specifically, Sapphire notes that G.T. Leach filed
(jointly with the other defendants) a motion for continuance stating that “there is insufficient time
for the parties to prepare this case with the current trial setting” and discovery “cannot be
*6
completed prior to the current trial setting.” When the parties agreed to postpone the trial setting,
G.T. Leach then signed a Rule 11 agreement in which all parties agreed to a scheduling order and
a new trial date. We do not agree that the statements contained in these documents expressly
relinquish and repudiate a right to arbitration. As we explained when addressing nearly identical
statements in
In re Fleetwood Homes of Texas, L.P.
, “[n]othing in [these statements] expressly
waives arbitration or revokes [an] arbitration demand.”
2. Implied Waiver
A party asserting implied waiver as a defense to arbitration has the burden to prove that
(1) the other party has “substantially invoked the judicial process,” which is conduct inconsistent
with a claimed right to compel arbitration, and (2) the inconsistent conduct has caused it to suffer
detriment or prejudice.
Perry Homes
,
a. Litigation Conduct Whether a party has substantially invoked the judicial process depends on the totality of the circumstances. Perry Homes , 258 S.W.3d at 589–90. Courts consider a “wide variety” of factors, including:
how long the party moving to compel arbitration waited to do so; thе reasons for the movant’s delay;
whether and when the movant knew of the arbitration agreement during the period of delay;
how much discovery the movant conducted before moving to compel arbitration, and whether that discovery related to the merits;
whether the movant requested the court to dispose of claims on the merits; whether the movant asserted affirmative claims for relief in court; the extent of the movant’s engagement in pretrial matters related to the merits (as opposed to matters related to arbitrability or jurisdiction); the amount of time and expense the parties have committed to the litigation; whether the discovery conducted would be unavailable or useful in arbitration; whether activity in court would be duplicated in arbitration; when the case was to be tried.
Perry Homes
,
Sapphire first initiated this lawsuit against the Insurance Brokers in 2009. In the summer
of 2010, it filed a separate lawsuit in Harris County, Texas, against the architects who designed
the condominium project, seeking to recover essentially the same damages arising from Hurricane
Dolly. Six months later, Sapphire added G.T. Leach to the Harris County lawsuit, and four months
after that, Sapphire named G.T. Leach as a defendant in this lawsuit. G.T. Leach moved to compel
arbitration the following November. Sapphire asserts that G.T. Leach’s actions in this case
between May 2011 and November 2012 amount to waiver of any right it has to arbitrate Sapphire’s
claims. Sapphire contends that G.T. Leach waived its arbitration rights through its actions between
May 2011 and November 2012, primarily by filing counterclaims, filing motions for relief, and
participating in pretrial discovery. “Merely taking part in litigation,” however, “is not enоugh.”
In
*8
re D. Wilson Constr. Co.
, 196 S.W.3d 774, 783 (Tex. 2006) (citations omitted). Rather, that
conduct must demonstrate that the party “has substantially invoked the judicial process to [its]
opponent’s detriment.”
Id
. (citing
In re Vesta Ins. Grp., Inc.
,
In considering the relevant factors, we note first that G.T. Leach did not elect to resolve its
disputes with Sapphire in court; rather, it is in this lawsuit because Sapphire sued it.
See Perry
Homes
,
Instead, G.T. Leach first and primarily sought to transfer venue of this case to Harris
County, or alternatively to abate this case while the Harris County case was resolved. Rather than
*9
driving up litigation costs—another factor courts consider for waiver—G.T. Leach endeavоred to
create efficiency by defending Sapphire’s claims in a single venue.
Perry Homes
, 258 S.W.3d at
591. We have rejected arguments relying on venue challenges to establish waiver because such
challenges do not relate to the merits of the case.
See Richmont Holdings
, __ S.W.3d at __ (also
noting that under rules of procedure, “objections to improper venue must be made at the outset of
the case”);
In re Serv. Corp. Int’l
,
In addition to its venue challenge, G.T. Leach filed motions to designate responsible third
parties, for continuance, and to quash depositions. These motions, however, were defensive, rather
than offensive, in nature. A party’s litigation conduct aimed at defending itself and minimizing its
litigation expenses, rather than at taking advantage of the judicial forum, does not amount to
substantial invocation of the judicial process.
See Richmont Holdings
, __ S.W.3d at __;
see also
Keytrade USA, Inc. v. Ain Temouchent M/V
,
Finally, G.T. Leach participated in pretrial discovery, but it did so because Sapphire
engaged it in discovery. Sapphire complains that because the parties agreed to conduct discovery
jointly for both cases, all discovery propounded by any party was available to all parties, such that
G.T. Leach has received copies of documents produced by other parties and transcripts of
*10
depositions taken by other parties. Sapphire asserts that G.T. Leach acted inconsistently with its
right to arbitrate both when it responded to discovery requests and when it resisted discovery by
seeking to quash a deposition notice. Responding to discovery and simply being named in the
lawsuit while discovery is ongoing do not amount to waiver. To the contrary, we have declined to
find waiver even when the movant itself propounded written discovery.
See, e.g.
,
Fleetwood
Homes
,
The only discovery that G.T. Leach actually propounded was a form request for disclosure that G.T. Leach included in its answer in the case. See T EX . R. C IV . P. 194.1 (providing required form for requests for disclosure). Such requests seek basic information about a lawsuit: who are the parties and witnesses, what are the theories, and how much is at stake? A defendant needs this information to make intelligent decisions about how to defend the suit, and as we have stated, a party may protect its existing litigation rights from forfeiture without waiving its right to arbitration. We have declined to find waiver of the right to arbitrate in other cases where the movant made a request for disclosure. See Richmont Holdings , __ S.W.3d at __; Vesta Ins. , 192 S.W.3d at 763.
G.T. Leach also designated experts and responsible third parties, but these actions were also defensive in nature and necessary to preserve G.T. Leach’s rights. If G.T. Leach had failed to timely designate experts, it would have forfeited the right to present expert witnesses if the suits went to trial. See T EX . R. C IV . P. 193.6(a). Likewise, G.T. Leach had to designate responsible third parties by the deadline imposed in the scheduling order. G.T. Leach did not create the need to *11 timely designate experts and responsible third parties by agreeing to a scheduling order: the rules of civil procedure impose a default deadline for expert designations when the court has not set one, and the Civil Practice and Remedies Code imposes a deadline for designating responsible third parties. T EX . R. C IV . P. 195.2; T EX . C IV . P RAC . & R EM . C ODE § 33.004(a).
While we agree that G.T. Leach could have been more prompt in seeking arbitration, most
of the delay of which Sapphire complains occurred either during the eighteen months before
Sapphire added G.T. Leach to this case or during the four-plus months during which G.T. Leach
sought to transfer venue.
See
T EX . R. C IV . P. 86 (governing order of pleadings for motion to transfer
venue). The delay between the trial court’s denial of the motion to transfer venue and G.T. Leach’s
motion to compel arbitration was between two and three months. We conclude that three months
is not a substantial delay relative to the timeline of this case as a whole.
Cf. Fleetwood Homes
, 257
S.W.3d at 694 (no waiver despite eight-month delay);
Vesta Ins.,
Considering the totality of the circumstances, we hold that G.T. Leach has not substantially
invoked the litigation process in contravention of its contractual right to arbitration.
See Perry
Homes
,
b. Prejudice
Nor has Sapphire proven that it suffered unfair prejudice as a result of G.T. Leach’s
litigation conduct. Detriment or prejudice, in this context, refers to an “inherent unfairness caused
by a ‘party’s attempt to have it both ways by switching between litigation and arbitration to its
own advantage.’”
In re Citigroup Global Mkts., Inc.
, 258 S.W.3d 623, 625 (Tex. 2008) (per
curiam) (quoting
Perry Homes
,
G.T. Leach may have had access to more information as a result of this litigation than if Sapphire’s dispute with G.T. Leach had originated in arbitration. But Sapphire, not G.T. Leach, chose to initiate this suit in the courts rather than arbitration, and G.T. Leach did not serve a single request for production, interrogatory, or deposition noticе in the case. Sapphire’s contention (discussed below) that it has been prejudiced by the delay because the contractual deadline for *13 initiating arbitration expired before G.T. Leach moved to compel arbitration is unavailing because that deadline expired before Sapphire even named G.T. Leach a party to this suit.
In summary, although we agree that G.T. Leach could have demanded waiver more promptly than it did, we hold that the totality of the circumstances do not establish that G.T. Leach substantially invoked the judicial process to the extent required to demonstrate a waiver of its right to arbitration, and its participation in the litigation has not caused Sapphire the kind of prejudice necessary to clear the “high hurdle” of waiver. We thus conclude that G.T. Leach has not impliedly waived its right to demand arbitration in this case.
B. Contractual Deadline
We now turn to Sapphire’s contention that a contractual deadline bars G.T. Leach’s arbitration demand. The deadline at issue provides that any
demand for arbitration shall be made within . . . a reasonable time after the Claim has arisen, and in no event shall it be made after the date when institution of legal or equitable proceedings based on such Claim would be barred by the applicable statute of limitations as determined pursuant to Section 13.7.
The court of appeals agreed with Sapphire that this deadline bars G.T. Leach’s demand for arbitration because the statute of limitations had run on Sapphire’s claims by the time G.T. Leach made its demand. G.T. Leach argues that the court should not have addressed the contractual *14 deadline at all, because Sapphire’s cоntention that the deadline bars G.T. Leach’s arbitration demand is itself an issue that Sapphire agreed to resolve through arbitration. In other words, G.T. Leach argues that only the arbitrators—and not the courts—can decide whether the contractual deadline bars G.T. Leach’s demand for arbitration. In response, Sapphire asserts that G.T. Leach waived this argument by failing to raise it in the trial court or the court of appeals. We conclude that G.T. Leach did not waive the argument, and we agree that the courts must defer to the arbitrators to determine the meaning and effect of the contractual deadline.
1. Waiver
Sapphire contends that G.T. Leach waived its argument that only the arbitrators can decide
Sapphire’s contractual-deadline defense because G.T. Leach failed to raise the argument in the
trial court or in the court of appeals. In support, Sapphire relies on our well-established error-
preservation rules, which preclude a party from seeking appellate review of an issue that the party
did not properly raise in the trial court.
See
T EX . R. A PP . P. 33.1(a)(1) (“As a prerequisite to
presenting a complaint for appellate review, the record must show that . . . the complaint was made
to the trial court . . . .”);
see also In re B.L.D.
,
In the trial court, Sapphire argued only that G.T. Leach waived its right to arbitration by participating in the litigation. The only time Sapphire referred to the contractual deadline in the trial court was to support its waiver-by-litigation defense and, in particular, its contention that G.T. Leach’s participation in the litigation was prejudicial to Sapphire. [11] Sapphire never asserted in the trial court that the contractual deadline independently bars G.T. Leach’s arbitration demand. G.T. Leach thus had no reason to argue in the trial court that the arbitrators, rather than the court, must resolve that assertion. On this point, there was no error for G.T. Leach to preserve in the trial court.
Sapphire first relied on the contractual deadline as an independent bar to G.T. Leach’s
arbitration demand in its appellee’s brief in the court of appeals, and the error that G.T. Leach now
complains of (i.e., that the court of appeals should not have decided that issue) first arose from the
court of appeals’ judgment. Although G.T. Leach could have made this argument in its reply brief
or in a motion for rehearing in the court of appeals,
[12]
our rules do not require petitioners to have
*16
made in the court of appeals all arguments that are responsive to arguments that a respondent raised
for the first time in that court.
See Key Operating & Equip., Inc. v. Hegar
,
Our decision in
Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London
illustrates this point.
Here, when Sapphire argued for the first time in the court of appeals that the contractual
deadline is an independent bar to G.T. Leach’s arbitration demand, G.T. Leach neither conceded
nor disputed that the court of appeals could decide that issue, and instead argued only that the bar
did not apply. After the court of appeals held, for the first time in this case, that the bar applied and
precluded arbitration regardless of whether G.T. Leach waived any right to arbitration, G.T. Leach
asserted in its petition for review in this Court both that the court could not decide that issue and,
if it could, the bar does not apply. Because the error of which G.T. Leach complains did not
originate in the trial court and first arose from the court of appeals’ judgment, G.T. Leach did not
waive its complaint by raising it for the first time in its petition for review in this Court.
*18
That is not to say that we
must
address and resolve an argument that the petitioner failed to
raise in the court of appeals whenever the asserted error arose from that court’s judgment. In the
exercise of its discretionary jurisdiction, a court may elect to address the issue, or not.
See, e.g.
,
United States v. Williams
,
2. Arbitrability of the Deadline
We now turn to the question of who should decide whether the contractual deadline bars
G.T. Leach’s demand for arbitration in this case. Ultimately, this is a question of the parties’ intent
as expressed in their written agreement. When parties have contractually agreed to arbitrate their
future disputes, the courts’ obligation to honor and enforce that agreement requires that they refer
those disputes to arbitration. The Texas Arbitration Act (TAA) thus provides that courts “
shall
order the parties to arbitrate on application of a party showing: (1) an agreement to arbitrate; and
*19
(2) the opposing party’s refusal to arbitrate.” T EX . C IV . P RAC . & R EM . C ODE § 171.021(a)
(emphasis added);
In re FirstMerit Bank, N.A.
,
The courts’ role, then, is first to decide whether the parties made a valid and presently
enforceable agreement to arbitrate. T EX . C IV . P RAC . & R EM . C ODE § 171.021(b) (“If a party
opposing an application [for arbitration] denies the existence of the agreement, the court shall
summarily determine that issue.”). If they did, then the court must decide whether the present
disputes fall within the scope of that agreement.
See id.
;
In re Hous. Pipe Line Co.
, 311 S.W.3d
449, 451 (Tex. 2009);
J.M. Davidson, Inc. v. Webster
,
We have also recognized that the question of whether a party has waived its right to arbitration through its litigation conduct is a question of arbitrability for the courts to decide. Perry Homes , 258 S.W.3d at 588. We concluded that this is a question of arbitrability, rather than a question to be arbitrated, because (1) “[c]ontracting parties would expect the court to decide *20 whether one party’s conduct before the court waived the right to arbitrate,” (2) it is a “gateway” matter regarding “whether the parties have submitted a particular dispute to arbitration,” and (3) “courts decide defenses relating solely to the arbitration clause.” Id . at 588–89. In essence, the question of whether a party has waived its right to arbitration by its conduct in litigation is just another way of asking the first question of arbitrability: whether there is a presently enforceable arbitration agreement. If a party’s conduct in litigation equates to a waiver of its rights under the arbitration agreement, there is no presently enforceable agreement to arbitrate.
In this regard, the United States Supreme Court has recognized a distinction between
questions of “substantive arbitrability”—which courts decide—and “procedural arbitrability”—
which courts must refer to the arbitrators to decide.
See BG Group, PLC v. Republic of Arg.
, 134
S. Ct. 1198, 1206–07 (2014);
Howsam v. Dean Witter Reynolds, Inc.
,
The Supreme Court reiterated this distinction in BG Group , further clarifying the difference between substantive arbitrability questions addressing the existence, enforceability, and scope of an agreement to arbitrate (which courts decide), and procedural arbitrability questions addressing the construction and application of limits on that agreement (which only arbitrators can decide):
On the one hand, courts presume that the parties intend courts, not arbitrators, to decide what we have called disputes about “arbitrability.” These include questions such as “whether the parties are bound by a given arbitration clause,” or “whether an arbitration clause in a concededly binding contract applies to a particular type of controversy.”
On the other hand, courts presume that the parties intend arbitrators, not courts, to decide disputes about the meaning and application of particular procedural preconditions for the use of arbitration. These procedural matters include claims of “waiver, delay, or a like defense to arbitrability.” And they include the satisfaction of “prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate.”
We applied these distinctions when we decided in
Perry Homes
that waiver by litigation
conduct presents a question of substantive arbitrability that courts must decide. 258 S.W.3d at
588–89. We held that, although
Howsam
referenced “waiver” and “delay” as “procedural matters”
for arbitrators to decide, it did not mean that the issue of waiver
by litigation conduct
was one for
arbitrators, rather than courts.
Id.
Instead, we held that courts should defer to arbitrators to resolve
the issue of waiver when “waiver concerns limitations periods or waiver of particular claims or
defenses,” but courts should decide issues of waiver by litigation conduct.
Id.
at 588. We stated
that “parties generally intend arbitrators to decide matters that ‘grow out of the dispute and bear
on its final disposition,’” such as “waiver of a substantive claim or delay beyond a limitations
deadline.”
Id.
at 589. Our explanation in
Perry Homes
is consistent with our prior recognition that,
*22
once the party seeking arbitration proves the existence of an enforceable agreement to arbitrate,
Texas and federal law recognize a strong presumption “in favor of arbitration such that myriad
doubts—as to waiver, scope, and other issues not relating to enforceability—must be resolved in
favor of arbitration.”
Poly-Am.
,
In this case, the contractual deadline in the general contract falls squarely within the
category of “matters that ‘grow out of the dispute and bear on [the arbitrators’] final disposition”
of the claims.
See Perry Homes
,
Stated another way, the parties’ dispute over the meaning and effect of the contractual
deadline does not touch upon the issue of whether an enforceable agreement to arbitrate Sapphire’s
*23
claims exists. Neither party disputes that such an agreement does exist. Instead, they dispute
whether, in light of the contractual deadline, the existing, enforceable agreement limits G.T.
Leach’s rights under the agreement itself. Sapphire’s contention that it does and G.T. Leach’s
contention that it does not are themselves “Claim[s] arising out of or related to the Contract,”
which the parties expressly agreed to arbitrate.
See In re Wood
,
We do not hold that disputes over a contractual deadline in an arbitration agreement will
always present questions of procedural arbitrability that arbitrators must decide. If a party
contends, for example, that a contractual deadline renders the agreement to arbitrate
unconscionable or that the deadline operates to limit the scope of the claims the parties agreed to
arbitrate, those contentions might raise issues of substantive arbitrability for the courts to decide.
Cf. Quilloin v. Tenet HealthSystem Phila., Inc.
,
In summary, with respect to Sapphire’s claims against G.T. Leach, we hold that G.T. Leach did not expressly or impliedly waive its right to arbitration, and the courts must defer to the arbitrators to decide whether and how the contractual deadline affects that right. We therefore reverse the court of appeals’ judgment with respect to the trial court’s denial of G.T. Leach’s motion to compel arbitration.
*25 III.
The Other Defendants
We now turn to the arbitrability of Sapphire’s claims against the Other Defendants, which
include (1) the Insurance Brokers and Engineers, who each allegedly contracted directly with
Sapphire in agreements that undisputedly did not include an enforceable arbitration agreement,
and (2) the Subcontractors, who contracted directly with G.T. Leach in agreements that allegedly
did include enforceable arbitration agreements. The Other Defendants contend that Sapphire
agreed to arbitrate its claims against them in the general contract and the subcontracts, and
alternatively, that Sapphire is equitably estopped from denying its assent to the arbitration
agreements in those contracts. Although the Other Defendants did not sign the general contract
and Sapphire did not sign the subcontracts, we have recognized that “sometimes a person who is
not a party to the agreement can compel arbitration with one who is, and vice versa.”
Meyer v.
WMCO-GP, LLC
,
A. Arbitration Under the General Contract
We begin with the Other Defendants’ reliance on the general contract as support for their arbitration demands. We conclude that Sapphire did not agree in the general contract to arbitrate its claims against the Other Defendants and is not equitably estopped from refusing to do so.
1. No Agreement to Arbitrate
As we have explained, a party seeking to compel arbitration must establish that a valid
arbitration agreement exists and that the claims at issue fall within the scope of that agreement. T EX . C IV . P RAC . & R EM . C ODE § 171.021(a);
FirstMerit Bank
, 52 S.W.3d at 753. Sapphire
*26
concedes that the general contract contains a valid arbitration agreement, but contends that the
Other Defendants cannot enforce that agreement because they are not signatories or parties to the
general contract.
See In re Rubiola
,
With regard to the Other Defendants and the general contract, the question in this case, as
in
Rubiola
, “is not whether a non-signatory may be compelled to arbitrate but rather whether a
non-signatory may compel arbitration.” 334 S.W.3d at 224. As a general rule, “an arbitration
clause cannot be invoked by a non-party to the arbitration contract.”
Grigson v. Creative Artists
Agency, L.L.C.
,
*27
This contention raises questions about “the existence of a valid arbitration clause between
specific parties and is therefore a gateway matter for the court to decide.”
Id
. at 224. Ultimately,
the question requires us to determine “the intent of the parties, as expressed in the terms of the
agreement,” so we apply “ordinary principles of state contract law [to] determine whether there is
a valid agreement to arbitrate.”
Id
. (quoting
Bridas S.A.P.I.C. v. Gov’t of Turkm.
,
a. The “Scope” of Arbitration First, the Other Defendants contend that Sapphire’s claims against them fall within the scope of the general contract’s arbitration agreement because the scope includes “[a]ny Claim arising out of or related to the Contract,” and Sapphire expressly agreed that the arbitration could include parties other than G.T. Leach. Specifically, the Other Defendants rely on a provision of the general contract in which Sapphire and G.T. Leach agreed that “[a]ny arbitration may include, by consolidation or joinder or any other mаnner, parties other than the Owner, Contractor, a Subcontractor, a separate contractor . . . and other persons substantially involved in a common question of fact or law whose presence is required if complete relief is to be accorded in arbitration.”
The Other Defendants argue that, through this “joinder provision,” Sapphire agreed that
the scope of the arbitration would include Sapphire’s claims against the Other Defendants because
those claims “arise out of or relate to” the general contract, those claims and Sapphire’s claims
*28
against G.T. Leach involve common questions of law or fact, and the Other Defendants’ presence
is “required” for complete relief to be accorded in the arbitration. We conclude that the Other
Defendants’ reliance on the scope of the agreement between Sapphire and G.T. Leach to establish
the existence and enforceability of an agreement between Sapphire and the Other Defendants is
misplaced. As we have explained, a party seeking to compel arbitration must establish
both
(1) the
existence of a valid enforceable agreement to arbitrate and (2) that the claims at issue fall within
the scope of that agreement. T EX . C IV . P RAC . & R EM . C ODE § 171.021(a);
FirstMerit Bank
, 52
S.W.3d at 753. The Other Defendants’ argument that Sapphire agreed that they, as non-signatories,
could enforce the arbitration agreement addresses the first issue, not the second. Although
Sapphire’s claims may fall within the scope of the agreement, the scope of the arbitration clause
“does not answer whether [Sapphire] must arbitrate” with the Other Defendants.
Kellogg Brown
& Root
,
b. The Joinder Provisions The Other Defendants contend that the joinder provision itself constitutes Sapphire’s agreement that they could enforce the general contract’s arbitration agreement. Specifically, they contend that, through the joinder provision, Sapphire agreed to allow non-parties to “require” arbitration if their presence is “required” for complete relief to be afforded in the arbitration. The Subcontractors, in particular, note that Sapphire and G.T. Leach specifically revised the AIA form to add a reference to “a Subcontractor” as a party whose presence would be expected in the arbitration. Because Sapphire seeks to recover the same damages from each of the defendants and to hold all of the defendants jointly and severally liable for those damages, they assert, the arbitration can only provide “complete relief” if all of them are parties to it. We do not agree.
To begin with, the joinder provision states that an arbitration “
may
include” other parties,
and we find no basis on which to conclude that the parties intended the word “may” to be
mandatory rather than permissive in this context.
Cf. Iliff v. Iliff
,
The provision thus permits the parties to the general contract to consent to the joinder of
additional parties in the arbitration, but it does not require them to do so. Ultimately, the Other
Defendants concede as much by repeatedly acknowledging throughout their briefs that the joinder
provision “allows inclusion or joinder,” “allow[s] them to be joined” so that they “could
participate” in the arbitration, and “permits all parties to arbitrate” together. Nevertheless, they
contend that, because this clause is ambiguоus as to whether it is mandatory or permissive, we
must construe it as mandatory in support of the law’s presumption in favor of arbitration. This
presumption, however, requires that doubt “as to waiver, scope, and
other issues not relating to
enforceability
—must be resolved in favor of arbitration.”
Poly-Am.
,
The Other Defendants contend that, at a minimum, the joinder provision gives G.T. Leach a contractual right to join others whose presence is “necessary to completely resolve the dispute,” even if it does not give those other parties the right to join themselves. In light of the provision’s permissive language and references to the necessity of each party’s “consent,” as we have just discussed, we disagree. Moreover, even if the contract gave G.T. Leach such a right, G.T. Leach has not requested that relief in this Court. G.T. Leach asks this Court to “order the claims brought by Sapphire against [G.T. Leach] to arbitration,” without reference to the claims brought by Sapphire against the Other Defendants.
c. The Definition of “Contractor” The Engineers and Insurance Brokers point out that the general contract states that it is an agreement between “the Owner” and “the Contractor,” and that Sapphire and G.T. Leach each signed the agrеement in those respective capacities. They note, however, that the contract provides that the term “Contractor” includes any contractor who executes a separate agreement with the owner. Since Sapphire is suing them for breach of separate agreements directly between each of them and Sapphire, they contend that they are each a “Contractor” under the general contract and thus entitled to enforce its arbitration agreement. The contract, however, expressly provides that the “Contract Documents shall not be construed to create a contractual relationship of any kind . . . between [Sapphire] and a Subcontractor . . . or [] between any persons or entities other than [Sapphire] and [G.T. Leach].”
In summary, we find no language in the general contract that gives the Other Defendants rights to enforce the general contract’s arbitration clause against Sapphire. We thus conclude that Sapphire did not agree in the general contract to arbitrate its claims against the Other Defendants. *32 2. No Equitable Estoppel
As an alternative to the argument that Sapphire expressly agreed that they can enforce the general contract’s arbitration provisions, the Other Defendants argue that Sapphire is equitably estopped from denying its assent to such an agreement. We do not agree.
We have recognized that, under principles of equitable estoppel, “a litigant who sues based
on a contract subjects him or herself to the contract’s terms . . . , including the Arbitration
Addendum.”
FirstMerit Bank
,
It is not enough, however, that the party’s claim “relates to” the contract that contains the
arbitration agreement.
Kellogg Brown & Root
,
The Other Contractors contend that Sapphire’s claims against them seek a “direct benefit” under the general contract, even though they are not parties to that contract, because the claims “arise from and must be determined by reference to” the general contract. More specifically, they assert that the work that they performed was necessary only because of the general contract, and without the general contract they would have had no duties of their own to perform. Sapphire’s claims thus “relate to and arise out of” the general contract, they contend, because they are claims for work performed “pursuant to” the general contract. The Subcontractors also note that the general contract required G.T. Leach to “include terms in the subcontracts . . . binding its subcontractors . . . to the applicable terms of this agreement.”
Sapphire is not suing the Other Defendants, however, for breach of obligations under the general contract. Rather, Sapphire alleges in its petition that the Other Defendants each breached duties that they each “contractually agreed” to perform, and failed to perform them as a reasonable professional would have performed them. We agree that Sapphire is not seeking direct benefits *34 under the general contract. We read Sapphire’s allegations to refer to separate agreements in which the Engineers agreed with Sapphire to provide engineering services, the Insurance Brokers agreed with Sapphire to provide insurance services, and the Subcontractors agreed with G.T. Leach to provide construction-related services.
The record and briefs in this case reflect that Sapphire contends that the Engineеrs and Insurance Brokers contracted directly with Sapphire and are what the general contract refers to as a “separate contractor” rather than a “subcontractor.” Thus, although Sapphire’s breach of contract claims against the Engineers may “relate to” the general contract, they “arise out of” and directly seek the benefits of a separate alleged agreement between Sapphire and the Engineers. Similarly, Sapphire alleges that the Insurance Brokers “contracted with Sapphire to procure adequate insurance to protect Sapphire while the Sapphire condominiums were being built” and “breached that agreement thereby damaging Sapphire.” These claims depend on an alleged insurance- procurement agreement between Sapphire and the Insurance Brokers, not the general contract between Sapphire and G.T. Leach.
And finally, Sapphire asserts that the Subcontractors breached obligations they accepted in
their subcontracts with G.T. Leach, not in the general contract to which Sapphire was a party.
While these claims may bear some relationship to the general contract, the fact that the claims
would not have arisen but for the existence of the general contract is not enough to establish
equitable estoppel.
See Kellogg Brown & Root
,
In addition, the Other Defendants argue that, even if Sapphire is not suing them for breach
of the general contract, it is seeking to hold them jointly and severally liable for the damages that
Sapphire alleges G.T. Leach’s breach of that contract caused. Specifically, the Insurance Brokers
contend that, “if Sapphire seeks to hold the Insurance Defendants liable for damages arising from
G.T. Leach’s alleged breach of the [general contract], then Sapphire must necessarily rely on the
existence of the [general contract].”
[23]
But contrary to the Insurance Brokers’ argument, Sapphire’s
pleadings do not assert that the Insurance Brokers are jointly and severally liable for the damages
allegedly resulting from G.T. Leach’s breach of contract,
[24]
and the parties have not identified any
*36
doctrine that would permit Sapphire to hold them jointly and severally liable under the facts of this
case. “Texas law permits joint and several liability for most actions based in tort, as long as ‘the
percentage of responsibility attributed to the defendant with respect to a cause of action is greater
than 50 percent.’”
Sharyland Water Supply Corp. v. City of Alton
,
Finally, the Other Defendants argue that Sapphire is equitably estopped from refusing to
arbitrate its tort claims against them because those claims assert only negligent performance of
contractual duties, and thus seek only damages resulting from the breach of contractual duties
rather than duties imposed by law. Under these circumstances, they contend, the allegedly
negligent breaches can “only be characterized as a breach of contract,” and the claims thus “sound
in contract, not tort.” This argument raises a complex legal doctrine: the “economic loss” rule,
sometimes referred to in this context as the law of “contorts.”
See, e.g.
,
Sw. Bell Tel. Co. v.
DeLanney
,
B. Arbitration Under the Subcontracts
Finally, we turn to the Subcontractors’ arguments that Sapphire agreed through the
subcontracts to arbitrate its claims against the Subcontractors, or alternatively, that Sapphire is
equitably estopped from denying its assent to the arbitration agreement in the subcontracts. While
we note that Sapphire is not a signatory to the subcontracts, its claims that the Subcontractors
“contractually agreed” to perform their services and are liable to Sapphire for having breached
those agreements at least appear to be “based on” аnd “directly seek benefits” under the
subcontracts, and thus Sapphire may be equitably estopped to deny obligations under the
subcontracts.
See FirstMerit Bank
,
The Subcontractors provided their respective services pursuant to essentially identical subcontracts that they entered into with G.T. Leach. Both of these subcontracts contain three sections that pertain to the arbitration of disputes between the parties. First, section 11.1 states the parties’ agreement to arbitrate disputes:
All claims, disputes and other matters in question arising out of, or relating to, this Subcontract or the breach thereof shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association unless the parties mutually agree otherwise.
Section 11.3 then states that, if G.T. Leach “enter[s] into arbitration with [Sapphire] or others regarding matters relating to this Subcontract, Subcontractor will agree, if requested by [G.T. *38 Leach] to consolidation of this arbitration with [G.T. Leach’s] arbitration with [Sapphire],” and in that case the Subcontractors “shall be bound by the result of the arbitration with [Sapphire] to the same degree as [G.T. Leach].” Finally, however, section 12.13 states that the parties do not agree to mandatory arbitration:
Notwithstanding any provision to the contrary contained in the Contract Documents, Subcontractor expressly agrees that this Subcontract does not contain a provision for the mandatory arbitration of disputes, nor does it incorporate by reference such a provision if such is contained in the [general] contract between [G.T. Leach] and [Sapphire].
The court of appeals held that the disclaimer in this section 12.13 “nullif[ies]” the arbitration agreement in section 11.1, and Sapphire relies on that holding here.
The Subcontractors contend that section 12.13’s disclaimer does not nullify the agreement
in section 11.1 because (1) the agreement appears earlier within the contract, and “terms stated
earlier in an agreement must be favored over subsequent terms” in that same agreement,
Coker v.
Coker
,
We conclude that there is no way to give full effect to both provisions, and that one must necessarily “nullify” the other at least to some extent. If we give effect to the agreement to arbitrate in section 11.1, for example, then we must necessarily conclude that the agreement does “contain a provision for the mandatory arbitration of disputes,” and thus nullify section 12.13’s disclaimer. The Subcontractors argue that we can give effect to both by construing the disclaimer to mean that arbitration is “mandatory” unless all parties mutually agree not to arbitrate, in which case *39 arbitration would not be mandatory. But parties can always mutually agree not to do what they previously agreed to do, and in any event, section 11.1 already provides that the parties can “mutually agree” not to arbitrate.
Generally, we must give the subcontracts their plain meaning and enforce them without
rendering either provision entirely superfluous.
Cf. El Paso Field Servs., L.P. v. MasTec N. Am.,
Inc.
,
But section 12.13 explicitly states that the Subcontract does not require mandatory
arbitration “[n]otwithstanding any provision to the contrary” in any of the contract documents.
Cf.
In re Lee
,
We therefore affirm the court of appeals with respect to the trial court’s denial of the Insurance Brokers’, Engineers’, and Subcontractors’ motions to compel arbitration.
IV.
Conclusion We affirm in part and reverse in part. We affirm the portion of the court of appeals’ judgment affirming the trial court’s denial of the Engineers’, Insurance Brokers’, and Subcontractors’ motions to compel arbitration of Sapphire’s claims against them, and we reverse the portion of the court of appeals’ judgment affirming the trial court’s denial of G.T. Leach’s motion to compel arbitration of Sapphire’s claims against it. We remand this case to the trial court for further proceedings consistent with this opinion.
_____________________ Jeffrey S. Boyd
Justice
Opinion delivered: March 20, 2015.
Notes
[1] “It is the policy of this state to encourage the peaceable resolution of disputes . . . through voluntary settlement procedures,” including binding and nonbinding arbitration. T EX . C IV . P RAC . & R EM . C ODE §§ 154.002, 154.027.
[2] “A court shall order the parties to arbitrate on application of a party showing . . . an agreement to arbitrate;” otherwise, “the court shall deny the application.” Id . § 171.021(a)(1), (b).
[3] Atlas Comfort is now known as Comfort Systems USA—South Central.
[4] Sapphire initially filed two separate lawsuits, one against the Insurance Brokers and another against the architects who designed the project. The architects first named G.T. Leach, the Subcontractors, and the Engineers as resрonsible third parties, and Sapphire amended its pleadings to name them as defendants in that suit. When the Insurance Brokers learned of these developments in that suit, they named G.T. Leach, the Subcontractors, and the Engineers as responsible third parties in this suit. The architects later settled and resolved all claims asserted by and against them.
[5] See Act of May 4, 1995, 74th Leg., R.S., ch. 136, § 1, sec. 33.004(e), 1995 Tex. Gen. Laws 971, 973, amended by Act of June 2, 2003, 78th Leg., R.S., ch. 204, § 4.04, sec. 33.004(e), 2003 Tex. Gen. Laws 847, 856, repealed by Act of May 24, 2011, 82d Leg., R.S., ch. 203, § 5.02, sec. 33.004(e), 2011 Tex. Gen. Laws 757, 759.
[6] ___ S.W.3d ___.
[7] Although we generally lack jurisdiction over interlocutory appeals,
see
T EX . G OV ’ T C ODE § 22.225(b)(3),
we have jurisdiction to review a court of appeals’ interlocutory judgment when its holding creates an inconsistency
with prior precedent “that should be clarified to remove unnecessary uncertainty in the law and unfairness to litigants.”
Id
. § 22.225(c), (e);
see also Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C.
,
[8] The general contract utilized a “Standard Form of Agreement Between Owner and Contractor” (Form A111- 1997) and a form of “General Conditions of the Contract for Construction” (Form A201-1997), both published by the American Institute of Architects. Sapphire and G.T. Leach substantially revised these forms, however, by striking and adding language throughout the contract to reflect their specific agreements. As revised, the arbitration section addresses numerous details including the process for selecting the arbitrator(s), the rules governing the arbitration, the location and timing of the arbitration, rights to discovery, finality and appeals from the arbitration award, and the duty to continue performing under the contract while the arbitration is pending. As discussed further below, one section addresses the consolidation and joinder of other parties within the arbitration proceeding.
[9] By the time Sapphire named G.T. Leach as a defendant—and thus by the time G.T. Leach filed its motion to compel arbitration—the two-year statute of limitations applicable to Sapphire’s negligence claims had already run, but the four-year statute applicable to Sapphire’s breach-of-contract claims had not. The court of appeals did not mention this distinction, but instead stated broadly that “[t]he parties do not dispute that the applicable statute of limitations had expired when G.T. Leach sought arbitration.” ___ S.W.3d at ___ n.6; see also id . at ___ (stating that “G.T. Leach does not contest that the statute of limitations for Sapphire’s claims had expired when it filed its motion to compel arbitration.”). These statements were incorrect. Although the parties did agree that the two-year statute on Sapphire’s negligence claims had expired, they also agreed that the four-year statute on Sapphire’s breach-of-contract claims had not. Since we conclude that the arbitrators must resolve Sapphire’s contractual-deadline arguments, however, we need not consider the court of appeals’ error on this point, and we leave it to the arbitrators to resolve all issues related to the construction and application of the contractual deadline in this case.
[10] Sapphire cites to
Parks v. Developers Surety & Indemnity Co.
,
[11] Specifically, Sapphire argued: “The most prejudicial aspect of allowing arbitration this late in the game is that the Statute of Limitations has already run on all of Plaintiff’s negligence claims against all Defendants. This effect is so prejudicial that the express language of the contract prohibits arbitration in this situation.”
[12] Although G.T. Leach did not specifically argue in the court of appeals that the arbitrators must decide the
contractual-deadline issue, it did more broadly assert that “there is no legitimate issue as to the arbitrability of all of
the issues between Sapphire and GTL,” and “[b]ecause all of Sapphire’s claims against [G.T. Leach] are clearly
arbitrable under a valid and enforceable arbitration provision, the only potentially viable argument Sapphire presents
against enforcement is waiver.” Because “disposing of appeals for harmless procedural defects is disfavored,” and
“[a]ppellate briefs are to be construed reasonably, yet liberally, so that the right to appellate review is not lost by
waiver,”
Perry v. Cohen
,
[13] We appear to have once held to the contrary in
In re K.A.F
.,
[14] The general contract provides for arbitration under the TAA, and each of the defendants sought to compel
arbitration under that Act. While the Federal Arbitration Act (FAA) might also apply, no party argues that the FAA
preempts the TAA on any issue in this case, or that the TAA and FAA materially differ on any such issue. We therefore
presume that the TAA governs, but we may find guidance in court decisions addressing both acts.
Cf. Elis v.
Schlimmer
,
[15] In deciding these questions of arbitrability, courts apply the common principles of general contract law to
determine the parties’ intent.
In re Poly-Am., L.P.
,
[16] The Court in
Poly-America
referenced a “strong federal presumption” in favor of arbitration because the
contracts in that case provided for arbitration under the FAA.
Poly-Am.
,
[17] The general contract defines a “Claim” as a demand or assertion by one of the parties seeking, as a matter оf right, adjustment or interpretation of Contract terms, payment of money, extension of time or other relief with respect to the terms of the Contract. The term “Claim” also includes other disputes and matters in question between [Sapphire] and [G.T. Leach] arising out of or relating to the Contract.
[18]
See, e.g.
,
United Steel Workers of Am., AFL-CIO-CLC v. Saint Gobain Ceramics & Plastics, Inc.
, 505 F.3d
417, 418 (6th Cir. 2007) (holding that application of contractual time limit was issue for arbitrators rather than courts);
Marie v. Allied Home Mortg. Corp.
,
[19] The agreement at issue in
Rubiola
gave the “parties” the right to demand arbitration and defined “parties”
to include not only “each and all persons and entities signing this agreement,” but also all “individual partners,
affiliates, officers, directors, employees, agents, and/or representatives of any party to such documents, and . . . any
other owner and holder of this agreement.”
Rubiola
,
[20] In addition, a supplemental provision of the general contract states that “[n]o person or entity shall be deemed to be a third party beneficiary of any provisions of the Contract, nor shall any provisions thereof be interpreted to create a right of action or otherwise permit anyone not a signatory party to the Contract to maintain an action for personal injury or property damage.” While the Other Defendants contend that this provision was in an unsigned supplement to the general contract and, in any event, does not expressly prohibit demands for arbitration, they concede that the contract expressly incorporates these provisions as part of the “Contract Documents.” In any event, this provision reflects Sapphire’s intent that other parties not have rights under the general contract more clearly than any provision on which the Other Defendants rely reflects an intent that they have such rights. Even ignoring this provision, the lack of any provision by which Sapphire agrees to allow the Other Defendants to compel arbitration of Sapphire’s claims against them defeats their attempts to do so.
[21] Even if “direct benefits” estoppel does not apply based on the claims in the lawsuit, we have recognized
that “a nonparty may seek or obtain direct benefits from a contract by means other than a lawsuit” and that application
of the doctrine may be based on “conduct during the performance of the contract” rather than conduct during the
lawsuit.
See Weekley Homes
,
[22] The Other Defendants point out that Sapphire’s experts filed reports in the trial court in which they relied in part on the general contract’s specification and notes to establish the standards for the Other Defendants’ contractual performance. These reports, however, do not suggest that the general contract imposed the duty to meet these specifications. Instead, it appears that Sapphire contends that the Other Defendants’ separate contractual agreements included promises to comply with these specifications.
[23] Alternatively, the Insurance Brokers argue that
if Sapphire seeks to hold [them] jointly and severally liablе for damages with respect to Sapphire’s
tort claims against [G.T. Leach], then Sapphire must necessarily rely on allegations of
interdependent and concerted misconduct between those parties. Either way, Sapphire satisfies one
or both bases for imposing equitable estoppel under this Court’s decision in
Meyer
and thus must
be compelled to arbitrate its claims against the Insurance Defendants.
But we declined to adopt the “concerted misconduct” theory of equitable estoppel in
In re Merrill Lynch Trust Co.
FSB
,
[24] In fact, Sapphire’s fourth amended petition does not reference “joint and several liability” at all. The Other Defendants quote Sapphire’s counsel as having orally argued to the trial court that the defendants are jointly and severally liable for all damages, but we must look to the pleadings to determine the nature of Sapphire’s claims.
[25]
Cf. S. Union Co. v. City of Edinburg
,