Opinion
No. 04-15-00532-CV
05-25-2016
METSO MINERALS INDUSTRIES, INC., Appellant v. MAVERICK AGGREGATES, INC., Appellee
MEMORANDUM OPINION
From the 365th Judicial District Court, Maverick County, Texas
Trial Court No. 12-09-27789-MCVAJA
Honorable David A. Berchelmann Jr., Judge Presiding Opinion by: Marialyn Barnard, Justice
Dissenting Opinion by: Luz Elena D. Chapa, Justice Sitting: Marialyn Barnard, Justice Patricia O. Alvarez, Justice Luz Elena D. Chapa, Justice REVERSED, RENDERED AND REMANDED
The Honorable Amado Abascal is the presiding judge of the 365th District Court of Maverick County, Texas. However, the judgment in this case was signed by the Honorable David Berchelmann Jr., retired, sitting by assignment. --------
This is an interlocutory appeal from a trial court's order denying a motion to compel arbitration filed by appellant Metso Minerals Industries, Inc. ("Metso"). On appeal, Metso contends the trial court erred in denying its motion to compel because a valid arbitration agreement exists and Metso did not waive its right to compel arbitration. Because we hold the trial court erred in denying the motion to compel arbitration, we reverse the trial court's order denying Metso's motion to compel arbitration, render judgment granting the motion, and remand the case for further proceedings consistent with this opinion.
BACKGROUND
Metso sells mining and construction equipment, including ST358 screeners. In December 2010, Metso sold a refurbished ST358 screener to one of its authorized distributors, Crisp Industries, Inc. ("Crisp"). Crisp then authorized IPE Aggregate, LLC ("IPE") to sell the refurbished screener to Maverick Aggregates, Inc. ("Maverick"). After experiencing mechanical problems with the screener, Maverick filed suit on September 4, 2012 against Metso, Crisp, and IPE, alleging negligent misrepresentation, breach of contract, and breach of express and implied warranty claims. According to Maverick, its claims were based on a full-factory warranty contained in the description of the screener in the customer invoice it received from IPE. The warranty reads: "THIS MACHINE COMES WITH FULL FACTORY WARRANTY 1 YEAR OR 1800HRS."
In response, Metso filed an answer that included a general denial and several affirmative defenses. Over the next two years, the parties participated in written discovery. Finally, in February 2015, Metso moved to compel arbitration. In its motion to compel arbitration, Metso relied on an arbitration provision set out in a sales order confirmation between Metso and Crisp. Metso stated that although it did not have a contractual relationship with Maverick, Maverick was nevertheless bound by the terms of the sales order confirmation because Maverick sought benefits that stemmed directly from that contract. In response, Maverick argued Metso waived its right to compel arbitration because it waited more than two years to assert its right to arbitrate. Maverick also argued there was no valid, enforceable contract between itself and Metso. Following a hearing, the trial court rendered an order, denying Metso's motion to compel arbitration without identifying the basis for its ruling. Metso filed this interlocutory appeal.
ANALYSIS
On appeal, Metso contends the trial court erred in denying its motion to compel arbitration because a valid arbitration agreement exists. To support its contention, Metso argues the trial court erred in refusing to compel arbitration because: (1) the sales order confirmation between itself and Crisp contains a valid arbitration agreement, which is binding on Maverick, a non-signatory, under the doctrine of direct benefits estoppel, and (2) it did not waive its right to compel arbitration.
Standard of Review and Applicable Law
In general, we review a trial court's decision to grant or deny a motion to compel arbitration under an abuse of discretion standard. City of San Antonio v. Cortes, 468 S.W.3d 580, 583 (Tex. App.—San Antonio 2015, no pet.). Under this standard, we defer to the trial court's factual determinations if they are supported by the evidence and review its legal determinations de novo. In re Labatt Food Serv., 279 S.W.3d 640, 643 (Tex. 2009); Cortes, 468 S.W.3d at 583. "Thus, the existence and the applicability of an arbitration agreement is a question of law reviewed under a de novo standard." Cortes, 468 S.W.3d at 583.
As a threshold matter, the party moving to compel arbitration must establish the existence of a valid and enforceable arbitration agreement between the parties. TEX. CIV. PRAC. & REM. CODE § 171.021(b) (West 2011); Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 305 (Tex. 2006); In re FirstMerit Bank, 52 S.W.3d 749, 753 (Tex. 2001). Once a valid and enforceable arbitration agreement is established by the moving party, the trial court must then determine whether the claims presented fall within the scope of that agreement. FirstMerit Bank, 52 S.W.3d at 754. When making this determination, a strong presumption in favor of arbitration exists, and courts must resolve any doubts about the scope of the arbitration agreement in favor of arbitration. FirstMerit Bank, 52 S.W.3d at 754; Cortes, 468 S.W.3d at 583. These questions courts must resolve are sometimes referred to as questions of "arbitrability." G.T. Leach Builders, LLC v. Sapphire V.P., L.P., 458 S.W.3d 502, 519 (Tex. 2015). If, during the process of resolving these questions, the court concludes the disputes at issue are arbitrable under the parties' agreement, then the court must order the parties to arbitrate, leaving it to the arbitrator to resolve the underlying claims. Id.
Accordingly, to succeed on its motion to compel arbitration, Metso had to demonstrate a valid arbitration agreement existed and Maverick's claims fell within the scope of the agreement. See TEX. CIV. PRAC. & REM. CODE § 171.021(b); FirstMerit Bank, 52 S.W.3d at 754; Cortes, 468 S.W.3d at 583.
Application
As indicated above, Metso argues a valid arbitration agreement exists. According to Metso, the sales order confirmation contains a valid arbitration agreement that is binding on Maverick under the doctrine of direct benefits estoppel. Metso contends the arbitration agreement in the sales order confirmation applies to Maverick, a non-signatory, because Maverick seeks to derive a direct benefit from the sales order confirmation. Metso also argues it did not waive its right to compel arbitration and thus, a presently enforceable agreement to arbitrate exists.
Maverick, on the other hand, contends Metso waived its right to compel arbitration by its litigation conduct. Maverick also contends the arbitration agreement in the sales order confirmation is not enforceable against it because there is no evidence either it or Crisp assented. Maverick further argues that even if the arbitration agreement is enforceable, it does not apply to Maverick because Maverick does not seek to derive a direct benefit from the sales order confirmation. Thus, according to Maverick, there is no valid enforceable agreement to arbitrate between itself and Metso.
1. Waiver
Because Maverick's waiver argument challenges Metso's ability to rely on any arbitration agreement should one exist, we must address this contention first. See G.T. Leach Builders, 458 S.W.3d at 511 (addressing waiver before determining whether valid arbitration agreement exists). As indicated above, Maverick asserts Metso waived its right to enforce its arbitration agreement because Metso engaged in "extensive" discovery and requested a jury trial before filing its application to compel arbitration.
It is well settled that the question of whether a party has waived its right to arbitrate by its litigation conduct is a question of arbitrability for the courts to decide. Id. at 520 (citing Perry Homes v. Cull, 258 S.W.3d 580, 588 (Tex. 2008)). This is because it is essentially "just another way of asking the first question of arbitrability: whether there is a presently enforceable arbitration agreement." Id. at 520-22 (reiterating its decision in Perry Homes that waiver by litigation conduct is question of substantive arbitrability for courts to determine). Thus, if a party's litigation conduct is equivalent to a waiver of its rights under the arbitration agreement, there is essentially no enforceable agreement to arbitrate. Id.
The determination of whether a party waived its right to arbitrate is a question of law we review de novo. Id. at 512; Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d 542, 545 (Tex. 2014); IBS Asset Liquidations LLC v. Servicios Multiple Del Norte SA de CV, 419 S.W.3d 573, 575 (Tex. App.—San Antonio, pet. denied). The party asserting waiver as a defense to arbitration must prove (1) the other party — in this case, Metso — has "substantially invoked the judicial process" and (2) by substantially invoking the judicial process, that party has caused the opponent of arbitration to suffer detriment or prejudice. G.T. Leach Builders, 458 S.W.3d at 511-12; Perry Homes, 258 S.W.3d at 593-94; IBS Assets, 419 S.W.3d at 545. This burden has been identified as a "high" one, and any doubts regarding waiver must be resolved in favor of arbitration. G.T. Leach Builders, 458 S.W.3d at 512; Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C., 455 S.W.3d 573, 575 (Tex. 2014) (per curiam); IBS Asset, 419 S.W.3d at 545.
Therefore, to prove Metso waived its right to arbitrate, Maverick must first prove Metso substantially invoked the judicial process by its conduct. "Whether a party has substantially invoked the judicial process depends on the totality of the circumstances." G.T. Leach Builders, 458 S.W.3d at 512; Perry Homes, 258 S.W.3d at 589-90; IBS Assets, 419 S.W.3d at 545. Under a totality of the circumstances approach, courts consider the following factors:
•how long the party moving to compel arbitration waited to do so;G.T. Leach Builders, 458 S.W.3d at 512; see also Perry Homes, 258 S.W.3d at 590-91; IBS Assets, 419 S.W.3d at 577. With this in mind, the Texas Supreme Court has held the following types of conduct fell short and did not necessarily constitute waiver: sending eighteen interrogatories and nineteen requests for production; requesting an initial round of discovery, noticing a single deposition and agreeing to a trial setting; and seeking initial discovery, taking four depositions, and moving for dismissal. See Perry Homes, 258 S.W.3d at 590; see also In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006); In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90 (Tex. 1996). However, with that said, waiver must be decided on a case-by-case basis because how much litigation conduct constitutes "substantial" depends on the context. See Perry Homes, 258 S.W.3d at 590, 593; IBS Assets, 419 S.W.3d at 578. Our court has stated that when viewed in context, actions constituting waiver may include a combination of the following: filing an answer, setting up a counterclaim, pursuing discovery, and moving for a continuance. IBS Assets, 419 S.W.3d at 577 (citing Nw. Constr. Co., Inc. v. Oak Partners, L.P., 248 S.W.3d 83, 848 (Tex. App—Fort Worth 2008, pet. denied)).
•the 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; [and]
•when the case was to be tried.
To support its argument, Maverick points out that Metso engaged in "extensive" discovery by serving Maverick with several written discovery requests over the course of two years before filing its motion to compel arbitration. Metso, on the other hand, describes the discovery it served as limited, explaining it was attempting to determine the basis for Maverick's breach of contract and breach of express and implied warranty claims against it and its right to arbitrate such claims. Here, the written discovery included interrogatories, requests for admissions, requests for disclosures and requests for production. The evidence also shows part of Metso's written discovery centered on determining whether the warranty in its sale order confirmation was the basis for Maverick's claims. Furthermore, neither party took any depositions or filed pretrial motions addressing the merits of the claims. Lastly, Metso did not file its application for arbitration on the eve of trial, but instead two months before trial. When considering these factors and resolving any doubt in favor of arbitration, we conclude Maverick did not establish its burden of showing that Metso substantially invoked the judicial process. See G.T. Leach Builders, 458 S.W.3d at 512; Richmont Holdings, Inc., 455 S.W.3d at 575; IBS Asset, 419 S.W.3d at 545. Thus, we hold that under the circumstances of this case, Metso did not waive its right to arbitrate. See G.T. Leach Builders, 458 S.W.3d at 511-12; Perry Homes, 258 S.W.3d at 593-94; IBS Assets, 419 S.W.3d at 545; see also Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d at 545-46 (holding no waiver after holding movant compelling arbitration did not substantially invoke litigation process).
2. Existence of a Contract
We now turn to the question of whether a valid arbitration agreement existed. See TEX. CIV. PRAC. & REM. CODE § 171.021(b); FirstMerit Bank, 52 S.W.3d at 754; Cortes, 468 S.W.3d at 583. According to Metso, the sales order confirmation contains a valid and enforceable arbitration agreement by which Maverick is bound because Maverick sought to derive a benefit from it by enforcing it. Maverick concedes the sales order confirmation contains an arbitration agreement, but argues the arbitration agreement is unenforceable because neither it nor Crisp assented to the terms of the sales order confirmation and it did not seek to derive a benefit from it. Because Maverick's arguments relate to one another, we will address them together.
"Under the FAA [Federal Arbitration Act], ordinary principles of state contract law determine whether there is a valid agreement to arbitrate." In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737-38 (Tex. 2005); see also G.T. Leach Builders, 458 S.W.3d at 524; Specialty Select Care Ctr. of San Antonio, LLC v. Flores, No. 04-13-00888-CV, 2015 WL 5157034, at *2 (Tex. App.—San Antonio Sept. 2, 2015, no pet.). Under these principles, a party cannot be compelled to arbitrate unless he has agreed to do so. G.T. Leach Builders, 458 S.W.3d at 524; Kellogg, 166 S.W.3d at 737; Specialty Select, 2015 WL 5157034, at *2. Generally, the presence or absence of a party's signature on a contract is relevant in determining whether a party is bound by a contract. Rachal v. Reitz, 403 S.W.3d 840, 845 (Tex. 2013) ("Typically, a party manifests its assent by signing an agreement."); Tukua Invs., LLC v. Spenst, 413 S.W.3d 786, 794 (Tex. App.—El Paso 2013, pet. denied). However, if a contract is not signed by a party, then other evidence may be used to establish the nonsignatory's unconditional assent to be bound by the contract, including any arbitration provision. Tukua, 413 S.W.3d at 794.
Texas courts have recognized that unconditional assent by a nonsignatory to an arbitration provision can be established under the doctrine of direct benefits estoppel. G.T. Leach Builders, 458 S.W.3d at 527; Rachal, 403 S.W.3d at 845. Under this equitable doctrine, a nonsignatory who seeks benefits under a contract or is seeking to enforce it is estopped from attempting to avoid a contract's burdens, including an arbitration provision. G.T. Leach Builders, 458 S.W.3d at 527; Rachal, 403 S.W.3d at 845; Kellogg, 166 S.W.3d at 739. As a result, a court can compel a nonsignatory to arbitrate if that nonsignatory is seeking to enforce the terms of a contract containing an arbitration provision. G.T. Leach Builders, 458 S.W.3d at 527; Kellogg, 166 S.W.3d at 739. In fact, as is relevant here, "if a non-signatory's breach-of-warranty and breach-of-contract claims are based on certain terms of a written contract, then the non-signatory cannot avoid an arbitration provision within that contract." Kellogg, 166 S.W.3d at 739. A court will not compel a nonsignatory to arbitrate, however, if a nonsignatory's claims can stand on their own. Id. at 739-40; see also G.T. Leach Builders, 458 S.W.3d at 527.
Turning to Maverick's arguments, Maverick first argues neither it nor Crisp assented to the terms of the sales order confirmation, and therefore, there is no enforceable contract. However, Maverick's argument is misplaced because as indicated above, unconditional assent of a nonsignatory, such as itself, can be established under the doctrine of direct benefits estoppel. See Rachal, 403 S.W.3d at 845. In other words, under the doctrine of direct benefits, Maverick can be estopped from denying its assent to the sales order confirmation. See G.T. Leach Builders, 458 S.W.3d at 527. Thus, we must determine whether the doctrine applies in this case. We conclude it does.
In its live pleading, Maverick alleges Metso "failed to perform on the warranty as per the agreement with Plaintiff which constitutes a material breach of contract." However, the only warranty extended in an agreement by Metso concerning the sale of the screener is in the sales order confirmation. Maverick also alleges Metso breached express and implied warranties when Metso entered into "applicable contracts" concerning the sale of the screener. In contrast to the dissent, we read Maverick's allegations against Metso as referring to the contractual duties and warranties contained the sales order confirmation as it is the only time Metso entered into a contract and extended warranties with regard to the sale of the screener. Although the dissent states Metso did not meet its burden because it did not produce any evidence the sales order confirmation was the only contract in existence from which Maverick was seeking a direct benefit, we respectfully disagree. At the motion to compel hearing, the material evidence before the trial court consisted of the pleadings, the sales order confirmation, as well as a copy of an affidavit from a Metso employee, authenticating the sales order confirmation. See Jack B. Anglin Co., Inc. v. Tipps, 842, S.W.2d 266, 269-70 (Tex. 1992) (holding that motions to compel may be decided summarily without evidentiary hearings and uncontroverted affidavits must be accepted as true, clear, direct and positive evidence). And although Maverick argues the sales order confirmation is not evidence of its assent to arbitrate, at no point does it contest the authenticity of the affidavit or the sales order confirmation; rather, at the hearing, Maverick argued the copy of the sales order confirmation was illegible. Thus, such evidence was before the trial court to summarily consider. See id. We therefore conclude Maverick seeks direct benefits from the sales order confirmation, and therefore is estopped from denying its assent to the sales order confirmation. See id.
Maverick contends it did not have actual knowledge of the existence of the sales order confirmation, and therefore, it did not "knowingly" seek benefits from it. For support, Maverick points to Noble Drilling Servs., Inc. v. Certex USA, Inc., 620 F.3d 469, 473 (5th Cir. 2010). In that case, the 5th Circuit concluded that because Noble did not have any knowledge of the existence of purchase order agreements until after litigation began, it could not have the knowledge necessary to support the "knowingly exploited" theory of direct benefits estoppel. Id. However, Maverick fails to mention that in Noble Drilling Servs., the 5th Circuit recognized two theories under which the doctrine of direct benefits estoppel could be proven. Id. The 5th Circuit held, "A non-signatory can 'embrace' a contract containing an arbitration clause in two ways: (1) by knowingly seeking and obtaining "direct benefits" from that contract; or (2) by seeking to enforce the terms of that contract or asserting claims that must be determined by reference to that contract." Id. The court then held actual knowledge was required to prove the first theory; however, they did not hold actual knowledge was required to prove the second theory. See id.
In this case, we conclude the second theory applies because Maverick seeks to enforce contractual duties and warranties that arise out of the sales order confirmation. See id. To rebut this argument, Maverick contends its claims are not based on the terms of the sales order confirmation between Metso and Crisp, but instead are based on the warranty provision described in the customer invoice it received from IPE, which read, "THIS MACHINE COMES WITH FULL FACTORY WARRANTY 1 YEAR OR 1800HRS." However, the only contractual duties and warranties offered by Metso with respect to the sale of the screener are contained in the sales order confirmation. Thus, Maverick's breach of contract and breach of express and implied warranty claims against Metso must be determined by reference to the sales order confirmation. See G.T. Leach Builders, 458 S.W.3d at 527. We note that whether those warranties are limited and/or transferable are matters to be determined by the arbitrator as the only issue before us is whether a valid agreement to arbitrate exists. See G.T. Leach Builders, 458 S.W.3d at 519-20 (highlighting court's must leave resolution of underlying disputes to arbitrators).
With respect to Maverick's negligent misrepresentation claim, we hold any decision regarding arbitration is also referable to the sales order confirmation. This is because when a nonsignatory pursues a claim based on the contract of another, as is the case here, and the contract contains an arbitration provision, then the nonsignatory must pursue all the claims - both in contract and in tort - in arbitration. See Stanford Development Corp. v. Stanford Condominium Owners Ass'n, 285 S.W.3d 45, 49 (Tex. App.—Houston [1st Dist.] 2009, no pet.) (citing In re Weekley Homes, L.P., 180 S.W.3d 127, 132 (Tex. 2005)). Accordingly, because Maverick's claims against Metso arise out of and directly seek the benefits of the sales order confirmation, we hold Maverick is estopped from denying its assent to the sales order confirmation. See Noble Drilling Servs., 620 F.3d at 473; G.T. Leach Builders, 458 S.W.3d at 527. As a result, we hold a valid arbitration agreement exists.
3. Scope of Arbitration Agreement
We next turn to the question of whether Maverick's claims fall within the scope of the arbitration agreement. See FirstMerit Bank, 52 S.W.3d at 754. According to Maverick, the arbitration agreement "does not encompass the claims at issue" because the agreement is narrow and limited in scope.
"To determine whether a party's claims fall within an arbitration agreement's scope, we focus on the complaint's factual allegations rather than the legal causes of actions asserted." Id. Any doubt about the scope of the agreement must be resolved in favor of arbitration. Id. Turning to Maverick's factual allegations, Maverick stated it was having several mechanical problems with the screener, which made the screener inoperable. Maverick claims the defendants, including Metso, failed to repair these defects and uphold the full factory warranty associated with the screener. As a result, they brought suit for breach of contract, negligent misrepresentation, and breach of express and implied warranties.
Here, the arbitration provision reads, "All disputes arising out of or in connection with the Agreement [the sales order confirmation] shall be submitted to the International Court of Arbitration of the International Chamber of Commerce and shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with said Rules." Although Maverick contends such language is narrow and limited in scope, courts have characterized this type of language — "all disputes arising out of or in connection with the Agreement" — as broad. See, e.g., Pennzoil Expl. & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1067 (5th Cir. 1998). The use of the phrases "arising out of" and "in connection with" speaks to the broad nature of the arbitration agreement. See id. When an arbitration clause is broad, it is not limited to claims that literally arise under the contract, but instead embraces all disputes between the parties that have a significant relationship with the contract. See id. Thus, to be arbitrable, it is only necessary that Maverick's dispute "touch" matters covered by the sales order confirmation. See id. As set out above, Maverick's claims against Metso cannot be determined without reference to the warranty provision outlined in the sales order confirmation. Thus, we conclude each of Maverick's claims are connected to and arise out of the sales order confirmation because each of Maverick's claims "touch" on the contractual duties and warranties set forth therein. Accordingly, resolving all doubt in favor of arbitration, we hold each of Maverick's claims fall within the scope of the arbitration agreement. See FirstMerit Bank, 52 S.W.3d at 754.
CONCLUSION
Based on the foregoing, we hold the trial court erred in denying Metso's motion to compel arbitration because: (1) Metso did not waive its right to arbitrate by substantially invoking the judicial process; and (2) Metso demonstrated a valid arbitration agreement existed and Maverick's claims fell within the scope of the agreement. See TEX. CIV. PRAC. & REM. CODE § 171.021(b); FirstMerit Bank, 52 S.W.3d at 754; Cortes, 468 S.W.3d at 583. Accordingly, we reverse the trial court's order denying Metso's motion to compel arbitration, render judgment granting the motion, and remand this cause to the trial court for further proceedings consistent with this opinion. See TEX. CIV. PRAC. & REM. CODE § 171.025.
Marialyn Barnard, Justice