Opinion
No. 03-08-00559-CV
Filed: July 31, 2009.
Appealed from the District Court of Bastrop County, 335th Judicial District No. 26,611, Honorable Terry L. Flenniken, Judge Presiding.
Reversed and Remanded.
Before Justices PATTERSON, PEMBERTON and WALDROP.
Dissenting Opinion by Justice PATTERSON.
MEMORANDUM OPINION
Matl Construction Company f/k/a Stewart-Matl, Ltd. ("Matl"), and its surety, Travelers Casualty and Surety Company of America (collectively, "appellants") appeal an interlocutory district court order denying their motion to compel arbitration of claims asserted against them by Jim Connelly Masonry, Inc. ("JCM"). See Tex. Civ. Prac. Rem. Code Ann. § 171.098(a)(1) (West 2005). In three issues, appellants contend that the district court was required to compel arbitration because a valid arbitration agreement exists that encompasses JCM's claims. We agree, and will reverse the district court's order and remand for further proceedings consistent with this opinion.
Under the Texas General Arbitration Act (TAA), a party may challenge an order denying arbitration through interlocutory appeal. See Tex. Civ. Prac. Rem. Code Ann. § 171.098(a)(1) (West 2005). Under the Federal Arbitration Act (FAA), by contrast, a party can seek relief from denial of arbitration solely through mandamus. In re Poly-America, L.P., 262 S.W.3d 337, 345 (Tex. 2008) (orig. proceeding). Appellants have sought relief from the district court's order solely through this interlocutory appeal. This choice of appellate remedy presumes that the TAA governs the arbitrability of JCM's claims. See In re D. Wilson Constr. Co., 196 S.W.3d 774, 778-80 (Tex. 2006); but see Act of May 27, 2009, 81st Leg., ch. ___, § ___, R.S., 2009 Tex. Gen. Laws ___ (effective Sept. 1, 2009). The FAA and TAA are not mutually exclusive; if FAA applies, that does not necessarily mean that the TAA does not. D. Wilson Constr. Co., 196 S.W.3d at 779-80. The FAA preempts the TAA only to the extent the TAA is inconsistent with it. Id. To determine whether the TAA is contrary to the FAA in a particular case, the court considers a four-factor test: the FAA preempts the TAA only if: "(1) the agreement is in writing, (2) it involves interstate commerce, (3) it can withstand scrutiny under traditional contract defenses [under state law], and (4) state law affects the enforceability of the agreement." Id. (quoting In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex. 2005) (per curiam)). Here, no party has contended that the TAA is preempted by the FAA or is otherwise inapplicable. See id. We conclude that we have subject-matter jurisdiction over this appeal.
Matl was the general contractor for the Bastrop County Law Enforcement Center Addition Project. JCM was selected by Matl to install all masonry work on the project. Disputes arose, and JCM eventually sued Matl and Travelers, Matl's surety, on its performance bond. JCM sought recovery from Matl of $271,508.18, which it alleged to be the value of labor, equipment, and materials it had furnished on the project and for which it had not been compensated. In seeking this recovery, JCM pleaded theories of "oral contract" and quantum meruit. JCM also asserted a claim against Matl for conversion, alleging that when Matl gave notice "that it was terminating the Subcontract," it ordered JCM off the job site and "did in fact deny [JCM] entry onto the Project to remove equipment owned by Plaintiff on the Project." JCM also asserted a claim against Matl and Travelers, jointly and severally, on the performance bond.
Appellants moved to compel arbitration based on an arbitration clause contained in what they asserted was a written subcontract with JCM. An evidentiary hearing was held, after which the district court took the matter under advisement and ultimately denied appellants' motion. This appeal followed.
As the parties seeking to compel arbitration, appellants had the initial burden of establishing (1) the existence of a valid arbitration agreement; (2) that encompasses JCM's claims. See In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999); Tex. Civ. Prac. Rem. Code Ann. § 171.021 (West 2005). Whether a valid arbitration agreement exists is a function of state contract law. See J. M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003).
In their first two issues, appellants contend that the record establishes, as a matter of law, that a valid arbitration agreement exists. The material facts bearing upon this determination are undisputed. Before JCM began work on the project, Matl sent JCM a document titled "Subcontract." The Subcontract provides that, effective March 31, 2006, JCM agreed to perform masonry work on the project in "strict accordance with the Plans and Specifications, Addenda and Revisions and the Drawings and Details dated November, 2005." In exchange, it was agreed that JCM would be paid the total sum of $475,017, subject to additions and deductions permitted elsewhere in the Subcontract. The Subcontract also includes five attachments: "Subcontractor General Conditions" (Ex. A), "Subcontractor Special Conditions" (Ex. B), an "Application for Payment" form for JCM's use in requesting payment from Matl as its work was completed (Ex. C), "Jobsite Safety Requirements" (Ex. D), and Matl's sales and use tax exemption certification for the masonry (Ex. E). Paragraph 23 of the thirty-nine paragraph Subcontractor General Conditions (Ex. A) provides:
23. MEDIATION AND ARBITRATION: If a dispute arises out of or relates to this Contract, or the breach thereof, and if said dispute cannot be settled through negotiation, at the election of Stewart-Matl, the parties agree first to try in good faith to settle the dispute by mediation under the Commercial Mediation Rules of the American Arbitration Association, before resorting to arbitration, litigation or some other dispute resolution procedure as provided herein.
As the company was then known.
If mediation has proven unsuccessful in resolving the dispute, then, upon the demand of Stewart-Matl, whether made before or after the institution of any judicial proceeding, any controversy or claim whatsoever arising out of or relating to this Contract, or the breach thereof, shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitration(s) may be entered in any court having jurisdiction thereof.
The Subcontract contains two sets of signature lines, one for a representative of JCM, and the other for a representative of Matl. When Matl sent the proposed Subcontract to JCM, both sets of signature lines were left blank.
On May 1, 2006, Jim Connelly, JCM's president, signed the Subcontract on JCM's behalf — with the notation, "w/ attachment" — and returned the document to Matl. With the copy of the Subcontract JCM transmitted back to Matl, it included a one-page document on JCM letterhead (the "Attachment"), which stated:
Connelly testified, without dispute, that he had sole authority to execute contracts on JCM's behalf.
Thank you for the opportunity to work with you on the Bastrop County Law Enforcement project. Before we start, there are a few items we want to get clear:
Jim Connelly Masonry, Inc. promises:
-Firm pricing for thirty days after submission of our bid, using unit pricing.
-To honor our contract for sixty days if the starting date is delayed.
-Daily removal of debris to your on-site dumpster.
-To stick with your reasonable schedule.
-To replace or repair any deficiencies in the work within 72 hours of written notification by you or your representative.
-Prompt response to change orders and field directives submitted in writing and signed by you or your representative.
-Excellent work by skilled, enthusiastic employees and subcontractors, warranted for one year from substantial completion.
-That if unresolvable disputes should occur between us, we will go to a professional mediator with you.
Stewart-Matl promises to:
-Give our crew unrestricted access to the site so they can do their work.
-Have parking, utilities (water, electricity, porta-can), dumpster for debris disposal, storage and staging place available on-site.
-Give us two sets of plans and one spec. book.
-Have all the necessary bonds and permits for the project and a builder's risk policy.
-Clearly indicate control points and lines of layout.
-Give us change orders and field directives in writing so that everyone can be clear about what you want us to do.
-Give us 72 hours to fix any problems with the work before you go out and hire someone else to do it.
-Pay us for work we've satisfactorily completed and materials delivered no matter what. (After all, we are a business).
-Pay us for re-staging if our crew is required to leave the project due to your scheduling reasons.
-Pay us within 45 days of the scheduled invoice date, or to pay an extra 1.5% per month interest on any outstanding balance plus the cost of collection after that.
-Allow us to take all our vehicles, equipment and supplies with us when we leave.
-Show us in writing how you figured any back charges. (You can include overhead, but no more than 10%).
-Go to a mutually agreed-upon professional mediator in the county in which the job is located with us if unresolvable disputes should occur. Of course, if we all keep our promises that will never be necessary.
Some of the Attachment's terms are inconsistent with terms in the Subcontract. Below these terms is stated, "Please sign and attach to the contract," followed by signature lines for Matl and JCM. Connelly did not sign the Attachment before transmitting it to Matl.
On May 17, Daniel Matl, Matl's project manager, signed the returned Subcontract as Matl's representative. No representative of Matl signed or otherwise acknowledged the Attachment. Nor did any Matl representative communicate any disagreement with or disapproval of the Attachment to JCM before signing the Subcontract.
Through Travelers, Matl executed payment and performance bonds to guarantee payment of claimants supplying labor and materials to the project. See Tex. Gov't Code Ann. § 2253.021 (West 2008). The bonds incorporated by reference all provisions of the general construction contract between Matl and the project owner, Bastrop County.
Thereafter, JCM began work on the project. JCM purported to follow the "Plans and Specifications" required in the Subcontract and repeatedly utilized the "Application for Payment" form attached as Ex. C. to the Subcontract when requesting payment for its work. Matl made payments to JCM for its work. As work proceeded, JCM repeatedly asserted rights under what it termed its "contract," "written contract," or "subcontract" with Matl, although the rights it claimed were found both in the Subcontract and in the Attachment. JCM claimed a right to 72 hours' notice to correct any problems with its work — a right found only in its Attachment. In early March 2007, JCM's prior counsel sent two letters on its behalf to Matl, Bastrop County, and Travelers asserting claims to payments JCM alleged were owed under its "written contract" and "subcontract" with Matl for "materials and labor . . . provided to Stewart-Matl, Ltd., under the terms of the contract" in January and February 2007. Enclosed with both letters was a copy of the Subcontract and a sworn account affidavit signed by Connelly. Subsequently, on April 17, 2007, JCM — now represented by their present counsel — wrote Matl's counsel demanding payment for work performed between December 2006 and March 2007. JCM complained that the non-payment "constitutes a material breach of the subcontract between [JCM] and [Matl] pertaining to the Project." In addition, JCM asserted that Matl "has breached its subcontract with [JCM] pertaining to the Project" by, among other things, failing to provide it 72 hours' notice relating to any alleged defective work, providing field directives that were not in writing, and failing to provide it two sets of plans — terms in the Attachment. Furthermore, on July 15, 2007, JCM sent written notice to Travelers, Matl, and Bastrop County of a claim on Matl's payment bond. See Tex. Gov't Code Ann. § 2253.041 (West 2008). The notice, signed by Connelly, stated that JCM "entered into a contract with [Matl] to furnish masonry labor and materials" on the project in the total amount of $484,576.90, including approved change orders, and that a total of $216,222.27 was due and owing as of May 2007. The notice was accompanied by a "sworn statement of account" signed by Connelly that also referenced JCM's "contract" with Matl in the total amount of $484,576.90, as well as a copy of the Subcontract and a version of the Attachment that did not include the signature lines.
The letter stated that JCM was owed $88,450.72 for labor and materials it provided in January and $130,294.09 for February.
The letter referenced a figure of $135,000.
Matl has taken the position in litigation that the contract consists solely of the Subcontract and does not include JCM's Attachment. Contrary to its previous actions, JCM, responding to Matl's assertions, took the position before the district court that no contract had ever been formed. Under JCM's theory, Connelly, by signing the Subcontract "w/attachment," rejected the Subcontract as written and made a counter-offer consisting of the Subcontract as modified by the Attachment. Because Matl claimed that it had never accepted the Attachment, JCM reasoned, no contract had ever been formed. This argument apparently persuaded the district court to deny appellants' motion to compel arbitration.
As the parties' positions have been refined through appellate briefing and argument, however, there is no dispute that JCM and Matl did form a contract that governed their respective rights regarding JCM's work on the project. The terms of that contract, based on the undisputed evidence of the parties' conduct, necessarily include the Subcontract but might or might not include the modifications in JCM's attachment. To establish the existence of an enforceable contract, a party must prove (1) an offer, (2) acceptance of the offer, (3) mutual assent or "meeting of the minds" regarding the subject matter and essential terms of the contract, and (4) consideration, or mutuality of obligations. See Baylor Univ. v. Sonnichsen, 221 S.W.3d 632, 635 (Tex. 2007); Harco Energy, Inc. v. Re-Entry People, Inc., 23 S.W.3d 389, 392 (Tex.App.-Amarillo, no pet.) ( citing Federal Sign v. Texas S. Univ., 951 S.W.2d 401, 408-09 (Tex. 1997)). In determining whether the parties have formed a contract through offer, acceptance, and mutual assent to the contract terms, we rely on "the objective standard of what the parties said and how they acted, not on their subjective state of mind." Texas Disposal Sys. Landfill, Inc. v. Waste Mgt. Holdings, Inc., 219 S.W.3d 563, 589 (Tex.App.-Austin 2007, pet. denied); see Restatement (Second) of Contracts § 24 (1981) ("An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it."); Fiess v. State Farm Lloyds, 202 S.W.3d 744, 746 (Tex. 2006) ("As with any other contract, the parties' intent is governed by what they said, not by what they intended to say but did not."). The parties' conduct objectively manifested mutual assent to the subject matter and essential terms of the Subcontract — JCM would provide masonry materials and labor on the project, strictly comply with the project's "Terms and Conditions," in exchange for payment from Matl. JCM repeatedly invoked rights under the Subcontract and even utilized the Subcontract's "Application for Payment" form. Although the parties differ with regard to whether the contract incorporates the Attachment, under either view their contract includes the arbitration provision that Matl seeks to enforce. Although differing from some terms of the Subcontract, JCM's Attachment, significantly, did not seek to modify the Subcontract's arbitration provision. Consequently, even if JCM's response to the Subcontract was a "counter-offer" that was accepted through Matl's performance, the parties would have formed a contract that included the same arbitration provision contained in Matl's original offer.
Connelly, in fact, testified that he and JCM had operated under the subjective understanding that the parties had formed a written contract consisting of the Subcontract as modified by the Attachment.
Daniel Matl, who signed the Subcontract on Matl's behalf after JCM returned it, testified that he lacked authority to accept the terms of the Attachment.
We conclude that, as a matter of law, a valid arbitration agreement exists. We sustain appellants' first and second issues.
In their third issue, appellants contend that the arbitration provision encompasses JCM's claims. Once it is determined that a valid arbitration agreement exists, there is a strong presumption in favor of arbitration, and we are to resolve all doubts in favor of finding coverage. In re D. Wilson Constr. Co., 196 S.W.3d at 782-83. Here, the arbitration provision is broad: it encompasses "any controversy or claim whatsoever arising out of or relating to this Contract, or the breach thereof." JCM, in fact, does not argue that its claims fall outside this language; it suggests only that the district court never reached that issue.
Whether a claim falls within the scope of an arbitration agreement is determined by the substance of the complaint and not necessarily by the legal causes of action asserted. Dr. Kenneth Ford v. NYLCare Health Plans of Gulf Coast, Inc., 141 F.3d 243, 250 (5th Cir. 1998) (Texas law); In re First Merit Bank, 52 S.W.3d 749, 754 (Tex. 2001); American Employers' Ins. Co. v. Aiken, 942 S.W.2d 156, 159 (Tex.App.-Fort Worth 1997, no pet.). Whether a tort claim "relates to" a contract depends on whether the claim could be maintained without reference to the contract, not simply whether the complaint references the contract. Ford, 141 F.3d at 251 (citing Hearthshire Braeswood Plaza Ltd. P'ship v. Bill Kelly Co., 849 S.W.2d 380 (Tex.App.-Houston [14th Dist.] 1993, writ denied)).
JCM seeks the recovery of $271,508.18, which it alleges to be the value of labor, equipment, and materials it had furnished on the project and not been compensated for, as well as damages for conversion of its equipment and payment of the performance bond. Although JCM's pleadings of these claims do not all explicitly refer to the contract, the claims nonetheless "relate to" and cannot be maintained without reference to the parties' respective rights and duties under the contract, including JCM's rights to payment, the work required of it, and its rights to enter the job site and recover its equipment upon termination. Especially given the strong presumption in favor of arbitration, we find the terms of the arbitration agreement, which cover "any controversy or claim whatsoever arising out of or relating to this Contract," are sufficiently broad to encompass JCM's claims. See id., at 250; In re D. Wilson Constr. Co., 196 S.W.3d at 782-83; In re First Merit Bank, 52 S.W.3d at 754.
JCM further argues that, even if it is bound to the contractual arbitration provision as to Matl, it cannot be similarly bound as to Travelers because Travelers was not a party to the contract. However, if, as we have found, JCM and Matl are subject to the arbitration provision, Travelers is, likewise, subject to the provision. See In re U.S. Home Corp., 236 S.W.3d 761, 765 (Tex. 2007); Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 305-08 (Tex. 2006). JCM's claims against Matl for payment turn on Matl's duties under the contract, and the same is true of its claims against Travelers under the payment bond that secures Matl's obligations. JCM cannot, on the one hand, seek to recover from Travelers based on its contractual rights to payment while, on the other hand, deny that it is bound by the arbitration agreement contained in that contract. See Meyer, 211 S.W.3d at 305-06. Quoting the Fifth Circuit in MS Dealer Serv. Corp. v. Franklin, the supreme court in Meyer explained:
[E]quitable estoppel applies when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting its claims against the nonsignatory. When each of a signatory's claims against a nonsignatory makes reference to or presumes the existence of the written agreement, the signatory's claims arise out of and relate directly to the written agreement, and arbitration is appropriate.
Id. (quoting 210 F.3d 524, 527 (5th Cir.), cert. denied, 531 U.S. 1013 (2000)); see also In re U.S. Home Corp., 236 S.W.3d at 765 ("As the nonsignatories' liability arises from and must be determined by reference to the parties' contract rather than general obligations imposed by law, the suit is subject to the contract's arbitration provisions.") Travelers, like Matl, is subject to the terms of the arbitration provision. We conclude that appellants have established that the arbitration agreement encompasses all of JCM's claims. We sustain appellants' third issue.
Having concluded that appellants have, as a matter of law, met their burden of establishing a valid arbitration agreement, the district court was required to compel arbitration unless JCM pleaded and proved an affirmative defense to the arbitration provision. See Oakwood, 987 S.W.2d at 573. JCM did not attempt to do so. Consequently, we must reverse the district court's order denying appellants' motion to compel arbitration and remand the case to the trial court for further proceedings consistent with this opinion.
DISSENTING OPINION
The dispositive issue in this appeal turns on a fact question — whether Matl and JCM formed the subcontract that included an agreement to arbitrate (the "Subcontract"). After conducting an evidentiary hearing, the district court denied appellants' motion to compel arbitration, impliedly finding that the parties did not. See BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002) (when trial court does not make findings of fact or conclusions of law, "all facts necessary to support the judgment and supported by the evidence are implied"); Worford v. Stamper, 801 S.W.2d 108, 109 (Tex. 1990) ("The judgment must be affirmed if it can be upheld on any legal theory that finds support in the evidence."). That the parties' conduct evidenced an agreement between the parties for JCM to perform masonry work as a subcontractor on the project is distinct from the dispositive question of fact that the district court impliedly resolved — whether Matl and JCM formed the Subcontract as the agreement controlling their relationship. See T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 221-22 (Tex. 1992); Ishin Speed Sport, Inc. v. Rutherford, 933 S.W.2d 343, 348 (Tex.App.-Fort Worth 1996, no writ) (whether conduct exhibits acceptance is question of fact).
I refer to appellant Matl Construction Company f/k/a Stewart-Matl, Ltd. as "Matl"; appellant Travelers Casualty and Surety Company of America as "Travelers"; and appellee Jim Connelly Masonry, Inc., as "JCM."
Without citing authority, the majority sidesteps our standard of review of implied findings and concludes "as a matter of law" that a valid arbitration agreement exists. Because the majority fails to correctly apply the no-evidence standard of review to the district court's implied finding, I respectfully dissent. See Trammell v. Galaxy Ranch Sch., L.P. (In re Trammell), 246 S.W.3d 815, 820 (Tex.App.-Dallas 2008, no pet.) (in an interlocutory appeal from an order denying arbitration under the Texas Arbitration Act (TAA), an appellate court applies a no-evidence standard to the trial court's factual determinations and a de novo standard to legal determinations); Dewey v. Wegner, 138 S.W.3d 591, 597 (Tex.App.-Houston 2004, no pet.) (same); but see Associated Glass, Ltd. v. Eye Ten Oaks Invs., Ltd., 147 S.W.3d 507, 512 (Tex.App.-San Antonio 2004, orig. proceeding) (applying abuse of discretion standard to trial court's determination regarding the existence of an arbitration agreement under the TAA); see also City of Keller v. Wilson, 168 S.W.3d 802, 810, 827 (Tex. 2005) (no-evidence standard of review).
In contrast with our standard of review of an implied finding of fact from an order denying arbitration, the interpretation of unambiguous agreements and the determination of an arbitration agreement's validity are legal questions that we decide as a matter of law. See In re D. Wilson Construction Company, 196 S.W.3d 774, 781 (Tex. 2006) (whether written contracts between the parties contained arbitration provisions and, if so, whether the provisions were ambiguous were questions of law); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227-28, 230 (Tex. 2003) (court interpreted agreement to determine whether reciprocal promises to arbitrate were sufficient consideration to support enforcing arbitration agreement; court found clause in agreement ambiguous and remanded to trial court to determine "what the parties intended").
An appellate court will sustain a no-evidence point of error when: (1) the record discloses a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the evidence conclusively establishes the opposite of the vital fact. See City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex. 2005); see also Dow Chem. Co. v. Francis, 46 S.W.3d 237, 241 (Tex. 2001) (party with burden of proof attempting to overcome adverse finding of fact must establish issue as a matter of law; point of error should be sustained only if the contrary proposition is conclusively established).
Crediting the evidence before the district court favorable to the finding, I would conclude that the evidence supports the implied finding. See Trammell, 246 S.W.3d at 820; see also Worford, 801 S.W.2d at 109 (in determining whether some evidence supports implied finding, "it is proper to consider only the evidence most favorable to the issue and to disregard entirely that which is opposed to it or contradictory in its nature") (citation omitted).
I begin by reviewing the applicable principles of law. Courts generally apply ordinary state-law principles that govern the formation of contracts when deciding whether parties agreed to arbitrate. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227-28 (Tex. 2003); see American Med. Techs., Inc. v. Miller, 149 S.W.3d 265, 273 (Tex.App.-Houston 2004, consolidated appeal and orig. proceeding) ("[W]hen the very existence of an agreement is disputed, a court, not an arbitrator, must decide at the outset whether an agreement was reached, applying state law principles of contract."); see also Tex. Civ. Prac. Rem. Code Ann. § 171.021 (West 2005) (if party opposing an application to compel arbitration "denies the existence of the agreement, the court shall summarily determine that issue").
Under Texas contract law, parties form a binding contract when the following are present: (1) an offer; (2) an acceptance in strict compliance with the terms of the offer; (3) a meeting of the minds; (4) each party's consent to the terms; and (5) execution of the contract with the intent that it be mutual and binding. KW Constr. v. Stephens Sons Concrete Contrs. Inc., 165 S.W.3d 874, 883 (Tex.App.-Texarkana 2005, pet. denied); Buxani v. Nussbaum, 940 S.W.2d 350, 352 (Tex.App.-San Antonio 1997, no writ). The material terms of the contract must be agreed upon before a contract is binding on the parties. See T.O. Stanley Boot Co., 847 S.W.2d at 221; see also Baylor Univ. v. Sonnichsen, 221 S.W.3d 632, 635 (Tex. 2007) ("Evidence of mutual assent in written contracts generally consists of signatures of the parties and delivery with the intent to bind."). Whether or not the parties formed a contract is a fact question. See T.O. Stanley Boot Co., 847 S.W.2d at 221-22 (applying no-evidence standard of review to determination of whether parties had contract and concluding that "alleged contract failed for indefiniteness"); Harris v. Balderas, 27 S.W.3d 71, 77-79 (Tex.App.-San Antonio 2000, pet. denied) (issue whether evidence raised a fact issue regarding the existence of an oral settlement agreement and concluding that "summary judgment evidence raises a fact issue regarding whether the parties had a meeting of the minds on the claims to be settled").
Because appellants sought to compel arbitration, it was their burden to prove the parties' formation of the Subcontract. See In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999) ("A party seeking to compel arbitration must establish the existence of an arbitration agreement, and show that the claims raised fall within the scope of that agreement."); Miller, 149 S.W.3d at 270 (burden to show existence of valid arbitration agreement on party seeking to compel arbitration); In re Koch Indus., Inc., 49 S.W.3d 439, 444 (Tex.App.-San Antonio 2001, orig. proceeding) ("The party seeking arbitration has the initial burden to present evidence of an arbitration agreement."). Further, when a court is called upon to determine whether the parties have agreed to arbitrate, a court does not resolve doubts or indulge a presumption in favor of arbitration. See In re Big 8 Food Stores, Ltd., 166 S.W.3d 869, 876 (Tex.App.-El Paso 2005, orig. proceeding); In re Rolland, 96 S.W.3d 339, 345 (Tex.App.-Austin 2001, orig. proceeding) ("[N]o presumption of arbitrability arises unless the trial court finds an enforceable arbitration agreement."); In re Jebbia, 26 S.W.3d 753, 757 (Tex.App.-Houston 2000, orig. proceeding). With these principles of law in mind, I turn to a review of the evidence before the district court at the hearing on appellants' motion to compel arbitration.
Appellants contend that the burden of proof was on JCM to prove the non-existence of an agreement, citing Hearthshire Braeswood v. Bill Kelly Co., 849 S.W.2d 380, 386 (Tex.App.-Houston 1993, writ denied). But our sister court in that case was addressing the burden of proof as to defensive issues such as fraud or unconscionability to the enforcement of an arbitration agreement. See id. Once the party seeking to compel arbitration has satisfied its burden to prove that an agreement exists, the burden shifts to the party seeking to avoid arbitration to prove a defense such as fraud. See In re Koch Indus., Inc., 49 S.W.3d 439, 444 (Tex.App.-San Antonio 2001, orig. proceeding).
James Connelly, the president of JCM, and Daniel Matl, who was Matl's project manager, both testified at the evidentiary hearing on the motion to compel arbitration. Mr. Connelly testified that (i) the Subcontract was "unacceptable," he signed the Subcontract with the notation "w/attachment," and returned the Subcontract to Matl with the referenced attachment (the "JCM attachment"); (ii) he assumed that JCM had a written subcontract with Matl that included the JCM attachment when JCM proceeded with the masonry work on the project and submitted paperwork for payment, and (iii) Matl did not communicate that the JCM attachment was not acceptable. Mr. Connelly further testified that JCM's acceptance of the Subcontract was conditioned on Matl's acceptance of the terms in the JCM attachment:
Prior to JCM's discovery that Matl did not accept the JCM attachment, counsel for JCM sent letters to Matl, Travelers, and Bastrop County seeking alleged amounts due to JCM for work performed, stating in the letters that JCM had a written contract with Matl and attaching portions of the Subcontract to the letters. Mr. Connelly also executed sworn statements of account that reference the Subcontract.
Q. When you sent the subcontract back to [Matl] did you also send the [JCM attachment]?
A. Yes.
Q. Was your willingness to sign [the Subcontract] conditioned upon the acceptance of the terms in [the JCM attachment]?
A. Yes.
Q. If those were not acceptable to [Matl] would you have accepted the form of the subcontract without them?
A. No. The form of the contract is unacceptable without the attachment.
Mr. Connelly testified that the terms and provisions contained in the Subcontract were unacceptable because there were terms in the Subcontract "that seemed to favor the general contractor in a way that were unacceptable."
Mr. Connelly also testified that there was no "meeting of the minds" between Matl and JCM as to the terms of the Subcontract:
Q. . . . Based upon the position that has been taken by [Matl] in that the [JCM attachment] was not a part of the written subcontract, is it your position or the position of [JCM] that there was not a meeting of the minds in regard to the terms of the subcontract?
A. There was no meeting of the minds without the attachment. The contract was only acceptable if it included the attachment.
JCM also filed an affidavit from Mr. Connelly with its response to the motion to compel. Mr. Connelly averred similarly to his testimony at the hearing:
Because Matl is taking the position that it did not accept the JCM attachment, JCM and Matl did not agree upon material terms in the Proposed Subcontract. Since Matl did not accept the terms of the JCM attachment, the terms of the Proposed Subcontract without the terms of the JCM attachment, were not and are not acceptable to JCM. Because JCM and Matl did not agree upon material terms of the Proposed Subcontract, it is JCM's position that the Proposed Subcontract does not constitute a written contract between JCM and Matl and that a written contract between JCM and Matl that contains a binding arbitration agreement does not exist.
Mr. Matl testified that he received the signed Subcontract from JCM with the notation on the signature line "with attachment" and the JCM attachment, that he "had no authorization to sign" the Subcontract with changes, and that he did not communicate to JCM that Matl did not accept the JCM attachment before he signed the Subcontract on behalf of Matl. Mr. Matl also testified concerning his authority to agree to modifications to the Subcontract and terms in the JCM attachment that would have modified the Subcontract, including the notice provision and the right to the possession of JCM's equipment in the event of defective work:
Q. In any event, when you received [the JCM attachment] you understood that these were revisions that Mr. Connelly wanted to make to the subcontract?
A. Yes, sir.
Q. And the items on here change are what you believe to be material provisions in your subcontract that you weren't — excuse me — that you weren't willing to change; is that correct, sir?
A. I'm not so certain that there's anything necessarily in here that we're unwilling to agree to. It was just not — not an attachment or a part of our subcontract sent to him and I had no authorization to sign something that was returned contrary to the text in the transmittal telling him do not make changes to the contract.
Q. Looking at [the JCM attachment], Mr. Matl, there's some requirement in there concerning the period of time within which notice is to be given of any defective or improper work; is that correct?
A. Yes.
Q. And you on behalf of [Matl] consider the notice provision in your subcontract an important provision, do you not, sir?
A. Yes, sir.
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Q. Mr. Matl, looking again at [the JCM attachment], one of the changes Mr. Connelly was requesting on behalf of [JCM] was that they would be allowed to take all their vehicles, equipment and supplies with them when they left the project; is that correct?
A. Yes sir.
Q. And you consider that a material provision — or material change to your subcontract because your subcontract contains a provision that allows you to take over that equipment; is that correct?
A. Yes sir.
Consistent with Mr. Matl's testimony, the position of Matl and Travelers as stated in their motion to compel arbitration was that Matl never agreed to the JCM attachment: "Matl never agreed to or signed the attachment." In the motion, they argued:
JCM maintains that its acceptance of the subcontract was conditioned upon the inclusion of an attachment to the subcontract. Matl disagrees and contends that the terms of the contract under which the parties performed at the Project are limited to the subcontract agreement Matl originally forwarded to JCM. The subcontract agreement specifically lists all the documents that comprise the subcontract. The attachment JCM seeks to include is not listed. Rather than attempt to negotiate for the inclusion of the attachment, JCM included a notation next to its signature that indicated its desire to include the attachment. Matl maintains that the subcontract consists of all the documents specifically listed in the document itself.
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Despite the fact that a written contract exists in this case, JCM has chosen not to sue on that contract. Matl forwarded a subcontract agreement to JCM prior to the start of JCM's work. JCM signed that contract. In its signature line, JCM included a notation indicating that JCM was includ[ing] an attachment with its signed contract. Matl never agreed to or signed the attachment.
Stepping into the shoes of a factfinder, the majority concludes that (i) "there is no dispute that JCM and Matl did form a contract," (ii) "the terms of that contract, based on the undisputed evidence of the parties' conduct, necessarily includes the Subcontract," and (iii) "the parties' conduct objectively manifested mutual assent to the subject matter and essential terms of the Subcontract — JCM would provide masonry materials and labor on the project, strictly comply with the project's 'Terms and Conditions,' in exchange for payment from Matl" because "JCM repeatedly invoked rights under the Subcontract." The majority concludes that "even if JCM's response to the Subcontract was a 'counter-offer' that was accepted through Matl's performance,[ ] the parties would have formed a contract that included the same arbitration provision contained in Matl's original offer."
The majority states that JCM's position before the district court was "that no contract had ever been formed" and concludes that "[a]s the parties' positions have been refined through appellate briefing and argument, . . . there is no dispute that JCM and Matl did form a contract that governed their respective rights regarding JCM's work on the project." The majority mischaracterizes JCM's position. JCM pleaded that, based on Matl's position that the JCM attachment was not part of the Subcontract, there was no "agreed upon, written subcontract pertaining to the Project" between the parties and that the relationship between the parties was controlled by no contract or an oral contract. JCM's claims included suit on the bond, quantum meruit, breach of oral contract, conversion, and equitable relief to recover its equipment.
Appellants did not plead waiver or estoppel, but answered by general denial. See Tex. R. Civ. P. 94 (affirmative defenses of waiver and estoppel must be pleaded). The majority's reliance on JCM's conduct "invok[ing] rights under the Subcontract" tracks the appellants' argument of waiver and estoppel that appellants raise for the first time in their reply brief. To the extent appellants raise new issues in their reply brief, however, they have not preserved these issues for this Court's review. See Tex. R. App. P. 38.1, 38.3; Dallas Co. v. Gonzales, 183 S.W.3d 94, 104 (Tex.App.-Dallas 2006, pet. denied) (rules of appellate procedure do not allow an appellant to raise new issue in reply brief); Howell v. Texas Workers' Comp. Comm'n, 143 S.W.3d 416, 439 (Tex.App.-Austin 2004, pet. denied) (same). In their reply brief, appellants contend that JCM has "waived any right it had to say the Subcontract was unacceptable without the attachment" because JCM began work on the project without inquiring with Matl about the existence of a signed attachment and that "JCM's actions conform, without exception, to the direct benefits theory of estoppel." See In re Kellogg Brown Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005) (discussing the direct benefits theory).
The two cases cited by the majority to support its conclusions from the parties' conduct are inapposite. See Fiess v. State Farm Lloyds, 202 S.W.3d 744, 746 (Tex. 2006); Texas Disposal Sys. Landfill, Inc. v. Waste Mgt. Holdings, Inc., 219 S.W.3d 563, 589 (Tex.App.-Austin 2007, pet. denied). In Fiess, the issue was limited to the construction of an insurance policy provision. 202 S.W.3d at 746. In that context, the Texas Supreme Court stated that in construing contract provisions, the "parties' intent is governed by what they said, not by what they intended to say but did not." Id. In Texas Disposal, the appeal was from a summary judgment ruling that dismissed the appellants' claim of tortious interference with an existing contract. 219 S.W.3d at 590. This Court upheld the summary judgment, concluding that there was no evidence that a contract existed to support the tortious interference claim. Id.
In reaching its conclusions, the majority ignores its role as a reviewing court and disregards evidence favorable to the district court's implied finding. See Worford, 801 S.W.2d at 109; Trammel, 246 S.W.3d at 820. The majority disregards (i) the testimony at the evidentiary hearing that the parties did not agree to essential terms and conditions of the Subcontract, (ii) Mr. Connelly's testimony that the Subcontract without the attachment was unacceptable because it contained terms "that seemed to favor the general contractor in a way that were unacceptable," and (iii) Matl's conduct inconsistent with its assent to the terms of the JCM attachment, including its refusal to provide the required notice to JCM to replace or repair defective work and its refusal to allow JCM to take its vehicles, equipment, and supplies when JCM left the project. Crediting this evidence, the trial court could have found that JCM rejected the Subcontract and made a counteroffer that Matl did not accept. See Worford, 801 S.W.2d at 109; Trammel, 246 S.W.3d at 820.
The majority finds significant that the JCM Attachment "did not seek to modify the Subcontract's arbitration provision." The applicable clause in the Subcontract provided that, if efforts to resolve disputes through negotiation failed, Matl could elect to have the dispute mediated under the Commercial Mediation Rules of the American Arbitration Association and, in the event the mediation was unsuccessful, Matl then had the right to demand arbitration. In contrast, the JCM attachment included a promise by Matl to "[g]o to a mutually agreed-upon professional mediator in a county in which the job is located with us if unresolvable disputes should occur." The inconsistent alternative dispute resolution clauses are further support for the implied finding that Matl and JCM did not form the Subcontract as the agreement that controlled their relationship.
Based on the parties' pleaded positions and the evidence before the district court that Matl and JCM did not reach a "meeting of the minds" as to material terms of the Subcontract, I would conclude there is some evidence to support the implied finding that Matl and JCM did not form the Subcontract as the agreement that controlled their relationship. See T.O. Stanley Boot Co., 847 S.W.2d at 221 (parties must agree to material terms to form binding contract); Worford, 801 S.W.2d at 109; Trammel, 246 S.W.3d at 820. Because there is some evidence to support the implied finding, I would affirm the district court's order denying appellants' motion to compel arbitration. I, therefore, respectfully dissent.