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Date: 08-25-2017

Case Style:

G. T. Leach Builders, L. L. C-Residential, G. T. Leach Construction, L. P. and Gary T. Leach v. Sapphire Condominiums Association, Inc.

Case Number: 13-16-00293-CV

Judge: Nora L. Longoria

Court: Texas Court of Appeals, Thirteenth District on appeal from the 138th District Court of Cameron County

Plaintiff's Attorney: Edward S. Hubbard, Charles Clayton Conrad and Chris E. Ryman

Defendant's Attorney: Roger Townsend and R. Christopher Rhody

Description: Appellants G.T. Leach Builders, L.L.C.—Residential (G.T. Leach Builders), G.T.
Leach Construction, L.P., and Gary T. Leach (collectively, G.T. Leach), appeal an order
denying their motion to compel arbitration of appellee Sapphire Condominiums
Association, Inc.’s lawsuit. We affirm.
Sapphire V.P., L.P. (Sapphire V.P.) was a limited partnership in the business of
developing a luxury condominium complex on South Padre Island called Sapphire
Condominiums. At the beginning of this project, Sapphire V.P. executed a general
construction contract (Contract) with appellant G.T. Leach Builders to act as its general
contractor. The Contract contained a clause in which the parties agreed to submit to
binding arbitration “[a]ny [c]laim arising out of or related to the Contract.” The arbitration
proceeding would be subject to the provisions of the Texas Arbitration Act (“TAA”).
G.T. Leach Builders and Sapphire V.P. agreed in section 13.2.1 of the Contract
that they bound “themselves, their partners, successors, assigns[,] and legal
representatives to the other party hereto and to [the] partners, successors, assigns[,] and
legal representatives of such other party . . . in respect to covenants, agreements[,] and
obligations in the Contract Documents.”
A. Creation of the Condominium
Sapphire V.P. legally formed Sapphire Condominiums in November 2005 by
recording a Residential Declaration (Declaration) in the official records of Cameron
County. See TEX. PROP. CODE ANN. § 82.051(a) (West, Westlaw through 2017 R.S.)
(setting out the requirement of a declaration to create a condominium under the Uniform
Condominium Act). The Declaration recited that Sapphire V.P., as the “Residential
1 This Court issued a memorandum opinion and judgment in this case on August 3, 2017. G.T.
Leach timely filed a motion for rehearing. In the exercise of our plenary power, we now withdraw our opinion
and judgment and substitute the following corrected memorandum opinion and judgment in their place.
G.T. Leach’s motion for rehearing is denied.
Declarant,” owned the entire complex in fee simple but now subdivided it into fee-simple
estates. Each estate was composed of an individual residence and an undivided interest
in the common elements. Sapphire V.P. continued to own each estate as the “Residence
Owner” under the Declaration until selling the estate to a new owner. Sapphire V.P.
retained several rights as the Residential Declarant related to finishing construction of the
complex that we explain in detail below.
The Declaration further recited that Sapphire V.P. created a residence association,
the Sapphire Condominiums Association (Association), as a Texas nonprofit corporation.
The Association was composed of the owners of each individual estate and would be
responsible for various tasks related to operating, preserving, and maintaining the
condominium complex. Section 82.102 of the Uniform Condominium Act also conferred
various powers on the Association unless inconsistent with the Declaration. See
generally id. § 82.102(a) (West, Westlaw through 2017 R.S.) (setting out the powers of a
condominium unit owners’ association).
Under the terms of the Declaration, Sapphire V.P. exercised a period of “residential
declarant control” over Sapphire Condominiums beginning on the date the Declaration
was filed and ending either three years after the date the first deed to an estate was
recorded or 120 days after the deeds to 75% of the residences had been recorded,
whichever date came earlier. During this period, Sapphire V.P. possessed the right under
the Declaration to appoint the Association’s board of directors.
B. Damage from Hurricane Dolly
While construction was still ongoing, Hurricane Dolly caused extensive damage to
Sapphire Condominiums. Sapphire V.P. filed suit against its insurance brokers alleging
they allowed its builder’s risk policy to expire several days before the storm and be
replaced by a permanent policy. Sapphire V.P. sought to recover millions of dollars in
damages from the storm that were allegedly uncovered by the permanent policy but would
have been covered under the builder’s risk policy. G.T. Leach Builders, L.L.C. v.
Sapphire, VP, LP, 456 S.W.3d 570, 574 (Tex. App.—Corpus Christi 2013) aff'd in part,
rev'd in part, 458 S.W.3d 502 (Tex. 2015) (G.T. Leach Builders I).
Sapphire V.P. later added as defendants appellant G.T. Leach Builders, two of its
subcontractors, an engineering contractor, and one of the engineering contractor’s
employees. Id. Sapphire V.P. alleged that these defendants’ negligence and contractual
breaches resulted in construction defects which caused the complex to sustain water
damage from the storm leading to the uncovered losses. Id. G.T. Leach Builders filed a
motion to compel arbitration under the arbitration clause in the Contract. The other
defendants filed similar motions even though none of them were signatories to the
Contract. Id. at 575. The trial court denied all of the defendants’ motions to compel.
The defendants appealed to this Court. Sapphire V.P. did not dispute an
enforceable agreement to arbitrate existed but raised the affirmative defenses of statute
of limitations and waiver. Id. at 577. This Court agreed that the statute of limitations
barred arbitration and did not reach the waiver issue. Id. at 578–79. This Court rejected
the arguments of the non-signatory defendants that the Contract gave them the right to
compel arbitration or that Sapphire V.P. was equitably estopped from denying arbitration.
Id. at 580–85. The Texas Supreme Court reversed in part, rejecting both of Sapphire
V.P.’s affirmative defenses, and ordered it to arbitrate its claims against G.T. Leach
Builders. G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 511–23 (Tex.
2015) (G.T. Leach Builders II). The Court affirmed the denial of the other defendants’
motions to compel arbitration. Id. at 523–32.
C. The Association’s Lawsuit
After the end of Sapphire V.P.’s period of declarant control, the individual
residence owners gained the right under the Declaration to elect the Association’s board
of directors. The Association, acting through an elected board of directors, filed suit in
August 2015 against appellants G.T. Leach, Sapphire V.P.,2 and multiple other
defendants involved with developing and constructing Sapphire Condominiums. The
Association alleged claims against Sapphire V.P. and G.T. Leach for negligence,
negligence per se, breach of implied warranties, breach of fiduciary duty, negligent
misrepresentation, and various violations of the Texas Deceptive Trade Practices Act
G.T. Leach filed a motion seeking to compel the Association to arbitrate pursuant
to the arbitration clause in the Contract.3 G.T. Leach acknowledged the Association did
not sign the Contract but pointed out that the Contract bound the “partners, successors,
assigns[,] and legal representatives” of either party “in respect to covenants,
agreements[,] and obligations contained in the Contract Documents.” In its motion, G.T.
Leach contended that the Association qualified as either an assignee or successor of
2 The record reflects that the Texas Secretary of State ordered Sapphire V.P.’s corporate charter
forfeited pursuant to the Tax Code on August 1, 2014, and there is no indication that it has been reinstated.
See TEX. TAX CODE ANN. §§ 171.302, 171.309 (West, Westlaw through 2017 R.S.).
3 Appellants G.T. Leach Construction and Gary T. Leach are not signatories to the Contract. “As
a general rule, an arbitration clause cannot be invoked by a non-party to the arbitration contract.” G.T.
Leach Builders II, 458 S.W.3d at 524 (internal quotation marks omitted). A non-signatory must establish
that they have a valid legal right to enforce an arbitration agreement even though they are not a party. Id.
The Association nevertheless treats all three defendants as a party to the Contract with the right to invoke
the arbitration clause. For purposes of this opinion, we do the same.
Sapphire V.P. The Association responded that it was neither an assignee nor a successor
and that its claims against G.T. Leach do not arise from or relate to the Contract.
The trial court denied G.T. Leach’s motion to compel without explaining its
reasons. G.T. Leach subsequently filed a combined motion seeking a stay of trial
proceedings pending appeal and a protective order relieving it from the obligation to
respond to discovery. The trial court also denied that motion. G.T. Leach timely brought
this interlocutory appeal. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1) (West,
Westlaw through 2017 R.S.) (permitting an interlocutory appeal of a judgment or decree
denying an application to compel arbitration under the TAA). This Court stayed all trial
court proceedings pending resolution of this appeal of the denial of G.T. Leach’s motion.
G.T. Leach argues in two issues that: (1) G.T. Leach met its burden under the
TAA to compel the Association to arbitration and (2) the trial court abused its discretion
in refusing to stay all trial proceedings pending appeal.
We review a court’s decision on a motion to compel arbitration for an abuse of
discretion. Beldon Roofing Co. v. Sunchase IV Homeowners’ Ass’n, Inc., 494 S.W.3d
231, 238 (Tex. App.—Corpus Christi 2015, no pet.). Under this standard, we review
questions of law de novo but factual determinations under a no-evidence standard of
review. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig. proceeding).
Under the TAA, a court must compel arbitration on application of a party showing
an agreement to arbitrate and the refusal of the other party to arbitrate. TEX. CIV. PRAC.
& REM. CODE ANN. § 171.021(a) (West, Westlaw through 2017 R.S.). As a threshold
matter, the party seeking to compel arbitration must establish both (1) the existence of a
valid arbitration agreement; and (2) a dispute within the scope of the agreement. Rachal
v. Reitz, 403 S.W.3d 840, 843 (Tex. 2013). Once a court finds an enforceable arbitration
agreement, a “strong presumption” favoring arbitration arises “such that myriad doubts—
as to waiver, scope, and other issues not relating to enforceability—must be resolved in
favor of arbitration.”4 In re Poly-Am., L.P., 262 S.W.3d 337, 348 (Tex. 2008) (orig.
Courts determine whether an enforceable agreement to arbitrate exists by applying
“ordinary principles of state contract law.” G.T. Leach Builders II, 458 S.W.3d at 524.
Generally, “parties must sign arbitration agreements before being bound by them.” Id.
(quoting In re Rubiola, 334 S.W.3d 220, 224 (Tex. 2011) (orig. proceeding)). But the
question of who is actually bound by an arbitration agreement is essentially “a function of
the intent of the parties, as expressed in the terms of the agreement.” In re Rubiola, 334
S.W.3d at 224 (quoting Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347, 355
(5th Cir. 2003)). We make this determination by interpreting the agreement as a whole
in accord with the plain and ordinary meaning of the language the parties chose to use in
the document. Great Am. Ins. Co. v. Primo, 512 S.W.3d 890, 892 (Tex. 2017). “And we
assign terms their ordinary and generally accepted meaning unless the contract directs
otherwise.” Id. at 893. Whether an agreement to arbitrate is enforceable is a question of
law that we review de novo. Rachal, 403 S.W.3d at 843.
4 G.T. Leach asserts in its brief that we should apply a presumption favoring arbitration in
determining whether an agreement to arbitrate exists. We reject this argument because the Texas
Supreme Court has been clear that the presumption favoring arbitration “arises only after the party seeking
to compel arbitration proves that a valid arbitration agreement exists.” In re Kellogg Brown & Root, Inc.,
166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding) (quoting J.M. Davidson, Inc. v. Webster, 128 S.W.3d
223, 227 (Tex. 2003)); see In re Poly-Am., L.P., 262 S.W.3d 337, 348 (Tex. 2008) (orig. proceeding).
G.T. Leach asserts in its first issue that the trial court wrongfully concluded that no
enforceable agreement existed between G.T. Leach and the Association because the
Association is the “successor” or the “assign” of Sapphire V.P. G.T. Leach contends that
the Association’s status resolves this case because the Texas Supreme Court decided in
G.T. Leach Builders II that the arbitration clause is valid and enforceable between G.T.
Leach Builders and Sapphire V.P. The Association does not contest that it would be
bound by the Contract if it qualifies as an “assign” or “successor” of Sapphire V.P. but
contends that it does not qualify as either.
The Contract states that G.T. Leach Builders and Sapphire V.P. intended to bind
their “assigns” and “successors” to the Contract’s “covenants, agreements[,] and
obligations.” The natural meaning of this language is that an entity which qualifies as
either an assign or a successor is bound to the entire Contract, including the arbitration
clause. See Primo, 512 S.W.3d at 892. After considering the ordinary meaning of both
terms, we agree that the Association does not qualify as an assign or successor of
Sapphire V.P.
A. “Assign”
We begin with the dictionary definition of the word. See Epps v. Fowler, 351
S.W.3d 862, 866 (Tex. 2011). Webster’s defines an “assignee,” the alternative form of
“assign,” as a “person to whom a right or property is legally transferred.” Assignee,
MERRIAM WEBSTER’S COLLEGIATE DICTIONARY (10th ed. 1996). Black’s Law Dictionary
defines the term as “[s]omeone to whom property rights or powers are transferred by
another.” Assignee, BLACK’S LAW DICTIONARY (10th ed. 2014). The Contract appears to
use the term in the same way. Another sentence, for example, allows Sapphire V.P. to
“assign” the Contract to a lender providing funding for the project and provides for the
lender—who would be the “assign” under the previous clause—to assume Sapphire
V.P.’s rights and obligations.
Applying this definition, we conclude there is no evidence of a transfer to the
Association of Sapphire V.P.’s rights and obligations under the Contract. “An assignment
is construed to have been made when the owner of a right manifests its intention to
transfer the right to an assignee.” Weaver & Tidwell, L.L.P. v. Guarantee Co. of N. Am.
USA, 427 S.W.3d 559, 570 (Tex. App.—Dallas 2014, pet. denied). G.T. Leach asserts
that the Association qualifies as an assignee because Sapphire V.P. owned all of the
residences during construction of Sapphire Condominiums and so “was the Association”
during that time. Therefore, any rights or remedies the Association could bring on behalf
of its members must come by assignment from Sapphire V.P. As evidence, G.T. Leach
points to the Association’s claims for breach of implied warranties and for attorneys’ fees.
According to G.T. Leach, the Association cannot bring either claim unless Sapphire V.P.
assigned some of its rights under the Contract. We disagree.
G.T. Leach first contends that the Association’s claim for breach of implied
warranties under the DTPA relates to warranties G.T. Leach allegedly made to Sapphire
V.P. regarding the status of the residences. Under Gupta v. Ritter Homes, Inc., a claim
for breach of those warranties is “automatically assigned” to the subsequent purchasers.
646 S.W.2d 168, 169 (Tex. 1983). G.T. Leach argues that a DTPA claim therefore
belongs to the subsequent purchasers here: the individual estate owners, which are
represented by the Association. We disagree because the Texas Supreme Court later
overruled Gupta. In Amstadt v. U.S. Brass Corp., the Court held that DTPA laundry-list
and unconscionability claims could not be brought by subsequent purchasers against
upstream entities whose deceptive conduct was not part of the plaintiff’s consumer
transaction. 919 S.W.2d 644, 649 (Tex. 1996). Amstadt did not involve implied warranty
claims, but the Court later extended it to such claims, recognizing that Amstadt “appears
to overrule Gupta v. Ritter Homes, Inc., in which we held an implied warranty asserted
under the DTPA could be brought by a subsequent purchaser.” PPG Indus., Inc. v.
JMB/Houston Centers Partners Ltd. P'ship, 146 S.W.3d 79, 86 n. 27 (Tex. 2004). Under
PPG Industries, any implied warranties by G.T. Leach to Sapphire L.P. were not
automatically assigned to the Association.
G.T. Leach’s argument regarding the Association’s claim for attorneys’ fees under
section 38.001 of the Texas Civil Practice and Remedies Code is also unpersuasive.
Section 38.001 allows a party to recover reasonable attorneys’ fees for several types of
claims, including for “an oral or written contract.” TEX. CIV. PRAC. & REM. CODE ANN.
§ 38.001(8) (West, Westlaw through 2017 R.S.). G.T. Leach asserts that this claim
means that the Association must be in privity with G.T. Leach on the Contract. The
Association’s claim for attorneys’ fees might be an indication that its claims are on a
contract of some sort, but G.T. Leach does not explain how the Association’s claim for
attorneys’ fees demonstrates that Sapphire V.P. transferred any of its rights or obligations
under the Contract to the Association. On this record, the Association’s claim for
attorneys’ fees under section 38.001 is not evidence of an assignment of Sapphire L.P.’s
rights under the Contract.
G.T. Leach has not presented any evidence that Sapphire V.P. transferred any of
its rights or obligations under the Contract to the Association. We conclude as a result
that the Association does not qualify as an “assign” of Sapphire V.P.
B. “Successor”
Black’s Law Dictionary defines a successor as “[s]omeone who succeeds to the
office, rights, responsibilities or place of another; one who replaces or follows a
predecessor.” Successor, BLACK’S LAW DICTIONARY (10th ed. 2014).5 As applied to a
corporation, a successor refers more narrowly to “[a] corporation that, through
amalgamation, consolidation, or other assumption of interests, is vested with the rights
and duties of an earlier corporation.” Id.; see Rogers v. RREF II CB Acquisitions, LLC,
No. 13-15-00321-CV, ___ S.W.3d ___, ___, 2016 WL 6804451, at *11 n.4 (Tex. App.—
Corpus Christi Nov. 17, 2016, no pet.) (citing essentially the same definition). G.T. Leach
asks us to adopt a more expansive definition of the term as “one who takes the place
which another has left, and sustains the like part or character.” Enchanted Estates Cmty.
Ass’n, Inc. v. Timberlake Imp. Dist., 832 S.W.2d 800, 802 (Tex. App.—Houston [1st Dist.]
1992, no writ). The Association responds that we should apply the more narrow definition
as applied to corporations. Neither party addresses which definition of a successor is
supported by the Contract’s text. We need not settle on a definitive interpretation because
we conclude the Association is not a successor to Sapphire V.P. under either of the
definitions advanced by the parties.
Regarding the Association’s definition, there is no evidence that it succeeded
Sapphire V.P. through amalgamation, consolidation, or another assumption of corporate
5 Webster’s defines a successor simply as “one that follows,” especially “one who succeeds to a
throne, title, estate, or office.” Successor, MERRIAM WEBSTER’S COLLEGIATE DICTIONARY (10th ed. 1996).
interests. To the contrary, Sapphire V.P. continued to exist until the forfeiture of its charter
on August 1, 2014. G.T. Leach has not shown any evidence that the Association
assumed any of Sapphire V.P’s rights or interests following its forfeiture.
We reach the same result if we adopt G.T. Leach’s wider definition of a successor
as “one who takes the place which another has left, and sustains the like part or
character.” See id. G.T. Leach argues that the Association became Sapphire V.P’s
successor because the owners of the individual residences and the Association itself
collectively represent Sapphire V.P.’s entire interest in Sapphire Condominiums. It
argues that in this way, the Association stepped into the shoes of Sapphire V.P. as both
the “Residence Owner” and “Residential Declarant” under the Declaration. The
Association replies that it did not succeed to Sapphire V.P.’s role under the Contract and
does not own the complex in the same way as Sapphire V.P. We agree with the
Sapphire V.P. had two roles under the Declaration: the “Residence Owner” of
each estate and the “Residential Declarant.” Even after Sapphire V.P. sold enough
residences that it ceded control of the Association’s board of directors, Sapphire V.P.
retained authority as the Residential Declarant to finish construction of Sapphire
Condominiums. The Declaration reserved for Sapphire V.P. the rights to “complete the
Improvements shown on the Residential Map,” “to conduct any activity or operations on
or in connection with the Residential Condominium that Residential Declarant determines
to be necessary or advisable in connection with the completion of the development of the
Residential Condominium,” and several other rights related to construction. In contrast,
nothing in the Declaration or the Uniform Condominium Act gives the Association the right
to finish construction. More importantly, nothing in the Contract provides that the
Association would take over Sapphire V.P.’s rights and obligations under the Contract.
G.T. Leach contends that the Association is nevertheless the “successor” to
Sapphire V.P. because it represents all of Sapphire V.P.’s interest in Sapphire
Condominiums. We do not agree because the Association does not own Sapphire
Condominiums in the same way as Sapphire V.P. The Association has authority to
manage the complex and to represent two or more of the owners in litigation on matters
affecting the condominium, but that authority is not the same as ownership. Ownership
of the estates and the attendant obligations remain with the individual owners. The
Association does not own Sapphire Condominiums in fee simple and has not taken on
any of the obligations associated with ownership. G.T. Leach disagrees, arguing that the
Association succeeded to Sapphire V.P.’s ownership through section 2.1(c) of the
Declaration, which states that upon filing of the Declaration
and acceptance of a deed to a Residence, any and all obligations (including
the obligations to pay Assessments as provided in the Master Declaration),
liabilities, limitations, rights, waivers, benefits or burdens that are vested or
that may in the future become vested in or upon the Residential Declarant
in relation to the Residence, pursuant to the Master Declaration are hereby
assumed . . .
In its brief, G.T. Leach follows the above section with an ellipsis and the phrase “by the
residence owners and the Association” within the block quote. But the part of section
2.1(c) immediately after “assumed” in the block quote above reads:
by such Residence Owners and Residential Declarant, with respect to
Residences retained by Residential Declarant, until Residential Declarant
sells such Residences to other Residence Owners, and shall automatically
be the obligations (including the obligations to pay Assessments as defined
in the Master Declaration), liabilities, limitations, rights, waivers, benefits or
burdens of the Residence Owners (including Residential Declarant, as
applicable) . . . .
The plain meaning of this wording vests the “liabilities, limitations, rights, waivers, benefits
or burdens” regarding an individual residence in the owner rather than the Association.
Assuming that G.T. Leach is correct that section 2.1(c) necessarily transferred Sapphire
V.P.’s rights and obligations under the Contract to the Residence Owners, the Association
did not acquire any of those rights and obligations.
Whether it is Sapphire V.P.’s role under the Contract or its role as the residential
declarant, the Association may have taken some of Sapphire V.P.’s place in the complex,
but it has not maintained the same part or character. See Augusta Court Co-Owners’
Ass’n v. Levin, Roth & Kasner, 971 S.W.2d 119, 126 (Tex. App.—Houston [14th Dist.]
1998, pet. denied) (holding that a residents’ association was not a “successor” under the
same expansive definition “because it never owned the entire development and never
assumed any of the obligations associated with such ownership”). We conclude the
Association does not qualify as a successor of Sapphire V.P.
C. Direct Benefits Estoppel
G.T. Leach asserts in a footnote that the Association is equitably estopped from
denying arbitration because the Association seeks a direct benefit from the Contract
through its claim for breach of implied warranties. We disagree.
The Texas Supreme Court has recognized that, under principles of equitable
estoppel, a litigant who sues based on a contract subjects himself to the contract’s terms,
including any arbitration agreement. G.T. Leach Builders II, 458 S.W.3d at 527. This
equitable principle applies when a litigant seeks “direct benefits” under a contract that
contains an arbitration agreement. Id. Whether a claim seeks a direct benefit from a
contract “turns on the substance of the claim, not artful pleading.” In re Weekley Homes,
L.P., 180 S.W.3d 127, 131–32 (Tex. 2005) (orig. proceeding). It is not enough that the
claim simply relates to the contract; the claim must “depend on the existence” of the
contract and be “unable to stand independently” of it. G.T. Leach Builders II, 458 S.W.3d
at 527–28. Put another way, the alleged liability must “arise[ ] solely from the contract or
must be determined by reference to it.” Id. at 528 (quoting In re Weekley Homes, 180
S.W.3d at 132).
The Association alleged in its petition that G.T. Leach breached implied warranties
that it made “to the Association and/or its members.” G.T. Leach contends that these
warranties were made to Sapphire V.P. and automatically assigned to the Association’s
members as Sapphire V.P. sold off the individual residences. Therefore, according to
G.T. Leach, the Association’s claim cannot stand independently of the Contract. We
disagree because, as we explained in Part III.A of this opinion, the Texas Supreme Court
has held that such claims are not automatically assigned to subsequent purchasers. See
PPG Indus., 146 S.W.3d at 86 n. 27 (recognizing that the contrary holding in Gupta, 646
S.W.2d at 169, had been overruled). We also held that Sapphire V.P. did not assign any
of its rights under the Contract to the Association. G.T. Leach’s liability on these implied
warranties, if any, does not depend on any portion of the Contract and can stand
independently of it. We conclude that direct benefits estoppel does not bind the
Association to arbitration.6
6 In its motion for rehearing, G.T. Leach further asserts that direct benefits estoppel binds the
Association to arbitrate because its members are the future owners to whom Sapphire V.P. planned to
transfer title to the residences. By this argument, G.T. Leach raises the version of direct benefits estoppel
where, rather than suing on the contract containing an arbitration clause, a party is bound “if it deliberately
seeks and obtains substantial benefits from the contract itself.” See In re Weekley Homes, L.P., 180 S.W.3d
127, 132 (Tex. 2005) (orig. proceeding). The analysis in such a case “focuses on the nonparty's conduct
during the performance of the contract.” Id. at 132–33.
G.T. Leach reasons that the Texas Supreme Court required the residents of the mobile home in In
re FirstMerit Bank to arbitrate because they were “the future owners to whom the signatories planned to
D. Summary
Under the facts of this case, we conclude that the trial court did not abuse its
discretion when it concluded that the Association is not an “assign” or a “successor” of
Sapphire V.P. and that the Association is not equitably estopped from denying the
arbitration clause. As a result, we hold that the arbitration clause is not enforceable
against the Association. We do not consider the scope of the arbitration clause because
our holding makes it unnecessary. See Rachal, 403 S.W.3d at 843; see also TEX. R. APP.
P. 47.1. We overrule G.T. Leach’s first issue.
G.T. Leach asserts in its second issue that the trial court should have granted its
application for a stay because all claims against it should have been ordered to arbitration.
See TEX. CIV. PRAC. & REM. CODE ANN. §§ 171.021(c) (requiring an order compelling
arbitration to “include a stay of any proceeding subject to Section 171.025”); 171.025
(requiring a court to stay any “proceeding that involves an issue subject to arbitration if
an order for arbitration or an application for that order is made”) (West, Westlaw through
2017 R.S.).
transfer title,” and that the same analysis should be applicable to the Association’s members. See id. at
134 (discussing In re FirstMerit Bank, N.A., 52 S.W.3d 749, 752 (Tex. 2001) (orig. proceeding)). But the
Texas Supreme Court based its decision in In re FirstMerit Bank on the fact that the couple who resided in
the mobile home fully joined the claims filed by the purchasers even though the couple were not signatories
to the Contract themselves. See In re FirstMerit Bank, 52 S.W.3d at 755–56. In In re Weekly Homes, the
Court explained that its holding in In re FirstMerit Bank did not depend solely “on the format of the pleadings”
but also on the evidence that the home had been purchased for the couple by the signatories with a plan
to eventually transfer title to them. 180 S.W.3d at 134. In other words, direct benefits estoppel also
“requires a colorable claim to the benefits” of the contract containing the arbitration clause. Id. G.T. Leach
has not explained how the Association or its members had a colorable claim to the benefits of the Contract
while it was being performed by G.T. Leach and Sapphire V.P. Furthermore, the record does not reflect
that any member of the Association sought or received a direct benefit under the Contract during that time.
We reject G.T. Leach’s argument on rehearing.
We do not address this issue to the extent that it asks us to instruct the trial court
to impose a stay during arbitration because we have already held that arbitration was not
required. See TEX. R. APP. P. 47.1. In the alternative, G.T. Leach requests “an extension
of the stay required under [s]ection 171.025,” or of the stay imposed by this Court, until
G.T. Leach exhausts it right to appeal to the Texas Supreme Court. We reject both
requests. The plain language of section 171.025 addresses a stay once an order for
arbitration or an application for such an order has been made. TEX. CIV. PRAC. & REM.
CODE ANN. § 171.025. G.T. Leach does not explain how the language of section 171.025
includes a stay after the court denies a stay for arbitration, and we decline to interpret
section 171.025 in this way without additional briefing. See id. Furthermore, we deny
G.T. Leach’s request to extend the stay we imposed at the beginning of this appeal. We
overrule G.T. Leach’s second issue.

Outcome: We affirm the trial court’s order denying G.T. Leach’s motion to compel arbitration.
We lift the stay imposed by our order of June 23, 2016.

Plaintiff's Experts:

Defendant's Experts:


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