IN RE D. WILSON CONSTRUCTION COMPANY, ET AL. (Concurring)

SUPREME COURT CASES

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State: Texas

Court: Supreme Court

Docket No: 05-0326

Case Date: 06/30/2006

Judge: Don R. Willett

Preview:IN RE D. WILSON CONSTRUCTION COMPANY,
ET AL. (Concurring)
MAJORITY | CONCURRING
IN THE SUPREME COURT OF TEXAS
No. 05-0326
In re D. Wilson Construction Company, et al., Relators
On Petition for Writ of Mandamus
consolidated with
No. 05-0327
American Standard and the Trane Company, et al., Petitioners,
v.
Brownsville Independent School District, Respondent
On Petition for Review from the
Court of Appeals for the Thirteenth District of Texas
Argued February 14, 2006
Justice Willett delivered the opinion of the Court, in which Chief Justice Jefferson, Justice Hecht, Justice O Neill,
Justice Wainwright, Justice Medina, Justice Green, and Justice Johnson joined.
Justice Brister filed a concurring opinion.
In this consolidated proceeding, we decide whether the court of appeals had jurisdiction over an interlocutory appeal
under the Texas Arbitration Act and whether the parties arbitration agreements are ambiguous. We hold that the court
of appeals had jurisdiction over the interlocutory appeal and that the agreements are not ambiguous.
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I. Background
In 1993, the Brownsville Independent School District contracted with two general contractors, D. Wilson Construction
Company and Stotler Construction Company, to build two schools in Brownsville. Both contracts incorporate General
Conditions and Supplementary Conditions.
The General Conditions expressly incorporate AIA Document A201, a standard construction industry document
published by the American Institute of Architects that details the parties respective rights, responsibilities and
relationships on the project.[1] Paragraph 4.5 of A201 is titled Arbitration, and subparagraph 4.5.1, titled Controversies
and Claims Subject to Arbitration, sets forth the broad, catch-all scope of the arbitration agreement: Any controversy
or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration in accordance
with the Construction Industry Arbitration Rules of the American Arbitration Association . . .
The Supplementary Conditions state that they modify, change, delete from or add to the General Conditions. Among
other things, the Supplementary Conditions [a]dd new Clause 4.5.1.1 to the arbitration provision: Except as otherwise
provided in this Contract, any dispute concerning a question of fact arising under this contract, which is not disposed
of by agreement shall be decided by [BISD] . . .                                                                             . The decision of [BISD] shall be final and conclusive unless it is
timely appealed to the Superintendent and then to the BISD Board of Trustees, whose decision shall be final and
conclusive.
This litigation began when one of the subcontractors, American Standard and the Trane Company (Trane), sought
injunctive relief against BISD to preserve evidence in a personal injury action that students and teachers brought
against Trane in another court. BISD counterclaimed for alleged defects in the construction of the two schools and
filed third-party actions against several parties, including general contractors Wilson and Stotler, as well as
subcontractors and second-tier subcontractors. Trane and the third-party defendants filed or joined motions to compel
arbitration under the Federal Arbitration Act, 9 U.S.C. 1 16, and the Texas Arbitration Act, Tex. Civ. Prac. & Rem.
Code 171.001 .098.[2] After a hearing, the trial court issued a brief letter ruling denying arbitration, saying the Court
finds the contract in question ambiguous. Trane and the third-party defendants filed both a petition for writ of
mandamus under the FAA and an interlocutory appeal under the TAA, and the court of appeals consolidated the two
proceedings. __ S.W.3d __, __, Nos. 13-04-184-CV, 13-04-333-CV, 2005 WL 310777, at *1 (citing In re Valero
Energy Corp., 968 S.W.2d 916, 916 17 (Tex. 1998)). The court of appeals dismissed the interlocutory appeal for want
of jurisdiction, finding the TAA inapplicable since the dispute concerned a transaction involving commerce. Id. at __,
2005 WL 310777, at *2 (quoting In re MONY Sec. Corp., 83 S.W.3d 279, 282 83 (Tex. App. Corpus Christi 2002,
consolidated appeal and orig. proceeding). The court also denied the petition for writ of mandamus, holding that clause
4.5.1.1 in the Supplementary Conditions creates ambiguity. Id. at __, 2005 WL 310777, at *3. In this appeal, Trane and
the third-party defendants complain that (1) the court of appeals erred in dismissing their interlocutory appeal under the
TAA for want of jurisdiction, and (2) the trial court erred in deeming the arbitration agreements ambiguous and abused
its discretion in denying their motions to compel arbitration.
II. Jurisdiction of the Court of Appeals
Trane and the third-party defendants first argue that the court of appeals erred in dismissing their TAA-based
interlocutory appeal for want of jurisdiction. We agree.[3]
The contracts in question reference neither the FAA nor TAA, merely noting that [t]he Contracts shall be governed by
the law of the place where the Project is located. We have interpreted identical language to invoke federal and state
law. In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125, 127 28 (Tex. 1999) (per curiam) (consolidated appeal and
orig. proceeding). Trane and the third-party defendants sought relief under both statutes in the court of appeals,
bringing a petition for writ of mandamus under the FAA, see Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272 73
(Tex. 1992), and an interlocutory appeal under the TAA, Tex. Civ. Prac. & Rem. Code 171.098(a)(1).
While refusing jurisdiction under the TAA, the court of appeals recognized that it at least had jurisdiction under the
FAA to consider the mandamus petition. __ S.W.3d at __, 2005 WL 310777, at *2. We held in Jack B. Anglin Co. that
mandamus is appropriate to review a trial court s denial of a motion to compel arbitration under the FAA. 842 S.W.2d
at 272 73.
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The court of appeals determined that it lacked jurisdiction over the interlocutory appeal under the TAA because the
construction contracts involved interstate commerce, thus implicating the FAA. __ S.W.3d at __, 2005 WL 310777, at
*2; see Perry v. Thomas, 482 U.S. 483, 489 (1987) (the FAA applies when the dispute concerns a contract evidencing
interstate commerce ); 9 U.S.C. 1 ( commerce . . . means commerce among the several States ); In re L & L
Kempwood Assocs., L.P., 9 S.W.3d at 127 (noting that the FAA extends to any contract affecting commerce, as far as
the Commerce Clause of the United States Constitution will reach ).
The court of appeals is not alone in dismissing interlocutory appeals under the TAA when the FAA applies. See
Kroupa v. Casey, Nos. 01-05-00224-CV, 01-05-00376-CV, 2005 WL 3315279, at *4 (Tex. App. Houston [1st Dist.]
2005, consolidated appeal and orig. proceeding) (not designated for publication); Am. Med. Tech., Inc. v. Miller, 149
S.W.3d 265, 269 70 (Tex. App. Houston [14th Dist.] 2004, consolidated appeal and orig. proceeding); Verlander
Family Ltd. P ship v. Verlander, No. 08-02-00135-CV, 2003 WL 304098, at *3 (Tex. App. El Paso 2003, no pet.);
Pennzoil Co. v. Arnold Oil Co., 30 S.W.3d 494, 498 (Tex. App. San Antonio 2000, consolidated appeal and orig.
proceeding). Other courts have granted mandamus relief and dismissed the consolidated interlocutory appeal as moot.
See, e.g., Kirby Highland Lakes Surgery Ctr., L.L.P. v. Kirby, 183 S.W.3d 891, 895 & n.5 (Tex. App. Austin 2006,
consolidated appeal and orig. proceeding); In re MacGregor (FIN) Oy, 126 S.W.3d 176, 181, 184 (Tex. App. Houston
[1st Dist.] 2003, consolidated appeal and orig. proceeding).
We take this opportunity to clarify precisely when the FAA preempts the TAA. Many courts of appeals wrongly view
the FAA and TAA as mutually exclusive, but the United States Supreme Court and this Court have held a different
view for some time: the FAA only preempts contrary state law, not consonant state law. The United States Supreme
Court has said:
The FAA contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire
field of arbitration. But even when Congress has not completely displaced state regulation in an area, state law may
nonetheless be pre-empted to the extent that it actually conflicts with federal law that is, to the extent that it stands as
an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. The question before
us, therefore, is whether application of [state law] to stay arbitration under this contract in interstate commerce . . .
would undermine the goals and policies of the FAA.
Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 477 78 (1989) (citations omitted)
(quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)). Similarly, this Court has noted that the FAA preempts state
statutes to the extent they are inconsistent with that Act. Jack B. Anglin Co., 842 S.W.2d at 271.
Recently, in the case of In re Nexion Health at Humble, Inc., this Court articulated a four-factor test to determine
whether the TAA would thwart the goals and policies of the FAA in a particular case. 173 S.W.3d 67, 69 (Tex. 2005)
(per curiam) (construing 9 U.S.C. 2). The FAA only preempts the TAA 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. (emphasis added). In today s case, the court of appeals
ignored the fourth factor. The mere fact that a contract affects interstate commerce, thus triggering the FAA, does not
preclude enforcement under the TAA as well. For the FAA to preempt the TAA, state law must refuse to enforce an
arbitration agreement that the FAA would enforce, either because (1) the TAA has expressly exempted the agreement
from coverage, see Tex. Civ. Prac. & Rem. Code 171.002(a) (detailing various claims the TAA does not apply to ), or
(2) the TAA has imposed an enforceability requirement not found in the FAA, see In re Nexion Health at Humble,
Inc., 173 S.W.3d at 69 ( The TAA interferes with the enforceability of the arbitration agreement by adding an
additional requirement the signature of a party s counsel to arbitration agreements in personal injury cases. ). The
parties have asserted nothing in the TAA or other state law that would subvert enforcement of the agreements at issue.
Therefore, the FAA does not preempt the TAA in this case, and the court of appeals had jurisdiction under both
laws.[4]
III. Ambiguity of the Arbitration Agreements
Trane and the third-party defendants next argue that the trial court wrongly deemed the arbitration agreements
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ambiguous and abused its discretion in denying their motions to compel arbitration. We decide the merits under our
mandamus jurisdiction.[5]
Mandamus is proper to correct a clear abuse of discretion when there is no adequate remedy by appeal, Walker v.
Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding), as when a party is erroneously denied its contracted-for
arbitration rights under the FAA, Jack B. Anglin Co., 842 S.W.2d at 272 73. Also, a trial court has no discretion in
determining what the law is or applying the law to the facts. Walker, 827 S.W.2d at 840. In evaluating a motion to
compel arbitration, a court must determine first whether a valid arbitration agreement exists, and then whether the
agreement encompasses the claims raised. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999) (per
curiam). When deciding whether the parties agreed to arbitrate under the FAA, courts should apply ordinary state law
principles regarding the formation of contracts. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995);
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 28 (Tex. 2003).
In a letter ruling, the trial court found the contract in question ambiguous ; however, the record does not indicate
whether the trial court was uncertain as to the agreements existence or merely their scope. We address these two issues
in turn.
A. Ambiguity Concerning the Existence of Valid Agreements
Whether a valid arbitration agreement exists is a legal question subject to de novo review. J.M. Davidson, Inc., 128
S.W.3d at 227. Whether contractual ambiguity exists is likewise a question of law. See Columbia Gas Transmission
Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996). Inartful drafting does not alone render a contractual
provision ambiguous. See Universal C.I.T. Credit Corp. v. Daniel, 243 S.W.2d 154, 157 (Tex. 1951). A contract is
ambiguous only if it is subject to two or more reasonable interpretations after applying the pertinent rules of
construction. Columbia Gas Transmission Corp., 940 S.W.2d at 589. Ambiguity does not exist merely because the
parties assert forceful and diametrically opposing interpretations. Id.
BISD contends that the contracts with Wilson and Stotler (1) contain no arbitration language at all, or (2) contain
ambiguous language. The trial court s three-sentence letter ruling is silent on the first point, while the court of appeals,
[a]ssuming without determining that the contracts contain arbitration language, concluded that the supplementary
conditions create ambiguity. __ S.W.3d at __, 2005 WL 310777, at *3.
We disagree with BISD that its contracts with Wilson and Stotler contained no arbitration language. The contracts
validly and expressly incorporate by reference the expansive arbitration language of subparagraph 4.5.1 of A201.
Innumerable contracts are consummated every day in Texas that incorporate other documents by reference. A
contractual term is not rendered invalid merely because it exists in a document incorporated by reference, Owen v.
Hendricks, 433 S.W.2d 164, 166 (Tex. 1968), and we agree with the courts of appeals that arbitration-related language
is no exception to this rule. See, e.g., Teal Constr. Co./Hillside Villas Ltd. v. Darren Casey Interests, Inc., 46 S.W.3d
417, 420 (Tex. App. Austin 2001, pet. denied) (holding that an unsigned arbitration agreement contained in a document
incorporated by reference into the signed contract constitutes an enforceable arbitration agreement); D. Wilson Constr.
Co. v. McAllen Indep. Sch. Dist., 848 S.W.2d 226, 230 (Tex. App. Corpus Christi 1992, writ dism d w.o.j.) (rejecting
the argument that an arbitration agreement incorporated by reference is invalid or unenforceable). Accordingly, we
reject BISD s argument that these provisions were not validly incorporated into the contracts with Wilson and Stotler.
We likewise reject BISD s argument, and the trial court s holding, that the arbitration agreements are ambiguous.
Subparagraph 4.5.1 of A201 states: Any controversy or Claim arising out of or related to the Contract, or the breach
thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American
Arbitration Association . . .                                                                                                  . The Supplementary Conditions [a]dd new Clause 4.5.1.1 to the arbitration provision:
Except as otherwise provided in this Contract, any dispute concerning a question of fact arising under this contract,
which is not disposed of by agreement shall be decided by [BISD] . . .                                                         . The decision of [BISD] shall be final and
conclusive unless it is timely appealed to the Superintendent and then to the BISD Board of Trustees, whose decision
shall be final and conclusive.
The caption of clause 4.5.1.1 in the Supplementary Conditions evinces the parties intent to [a]dd new Clause 4.5.1.1 to
subparagraph 4.5.1. Clause 4.5.1.1 is added to subparagraph 4.5.1, and the clause s numerical designation places it
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beneath subparagraph 4.5.1. In addition, clause 4.5.1.1 begins with the caveat, [e]xcept as otherwise provided in this
Contract. Subparagraph 4.5.1 does provide otherwise in certain cases. If the parties intended for clause 4.5.1.1 to
supplant subparagraph 4.5.1, they could have easily drafted language to accomplish exactly that.[6] Further, clause
4.5.1.1 does not mention the additional arbitration procedures set forth in subparagraphs 4.5.2 4.5.7. If clause 4.5.1.1
negates subparagraph 4.5.1, as BISD contends, then subparagraphs 4.5.2 4.5.7 are meaningless. The placement,
caption, and caveat of clause 4.5.1.1, as well as the language of subparagraphs 4.5.2 4.5.7, indicate that the clause is
subordinate to subparagraph 4.5.1 if subparagraph 4.5.1 applies in a given situation.
BISD argues that such a construction would render clause 4.5.1.1 meaningless. We disagree. By its terms, clause
4.5.1.1 applies to any dispute concerning a question of fact arising under this contract, while subparagraph 4.5.1
applies to [a]ny controversy or Claim arising out of or relating to the Contract, or the breach thereof . . .                 . (emphasis
added). While the scope of clause 4.5.1.1 is narrower than the scope of subparagraph 4.5.1, certain situations would
fall solely under the factual dispute clause. For example, the construction contracts could have called for solid brass
doorknobs throughout the schools. BISD could have argued that the doorknobs Wilson and Stotler used were brass-
plated instead of solid brass. Whether the doorknobs are solid brass or brass-plated would be a factual dispute subject
to clause 4.5.1.1.
We hold that the arbitration agreements and clause 4.5.1.1 can be reconciled; the arbitration agreements are not
susceptible to more than one reasonable interpretation and are therefore not ambiguous. Columbia Gas Transmission
Corp., 940 S.W.2d at 589.
B. Ambiguity Concerning the Scope of the Agreements
We next consider whether there is ambiguity concerning the agreements scope. The strong presumption favoring
arbitration generally requires that we resolve doubts as to the scope of the agreements in favor of coverage. In re
Kellogg, Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005); In re FirstMerit Bank, 52 S.W.3d 749, 753 (Tex.
2001); Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996) (per curiam) (orig. proceeding). Once an
agreement is established, a court should not deny arbitration unless it can be said with positive assurance that an
arbitration clause is not susceptible of an interpretation which would cover the dispute at issue. Prudential Sec. Inc. v.
Marshall, 909 S.W.2d 896, 899 (Tex. 1995) (per curiam) (orig. proceeding) (emphasis in original) (quoting Neal v.
Hardee s Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990)).
Here, BISD claims there are construction defects throughout the two schools. This dispute is a controversy or Claim
arising out of or related to the Contract to build the schools and thus falls squarely within the scope of the arbitration
agreements.
We find no ambiguity in either the validity or the scope of these arbitration agreements. Trane and the third-party
defendants have proven the existence of valid arbitration agreements that cover the present dispute. In re Oakwood
Mobile Homes, Inc., 987 S.W.2d at 573. The trial court abused its discretion by denying the motions to compel
arbitration after finding the contract in question ambiguous.
C. Waiver
Finally, BISD argues that Trane and Stotler waived any right to arbitrate. In a personal injury suit filed by students
and teachers in a separate court, Trane, Stotler, and Mac s Insulation, Inc. filed cross-actions against BISD, seeking
indemnity in that case. Trane also filed the present suit against BISD to obtain injunctive relief to preserve evidence in
that personal injury case.
There is a strong presumption against waiver under the FAA. In re Vesta Ins. Group, Inc., __ S.W.3d __, __, 2006 WL
662335, at *2 (Tex. 2006) (per curiam). Merely taking part in litigation is not enough unless a party has substantially
invoked the judicial process to its opponent s detriment. Id. (quoting In re Serv. Corp. Int l, 85 S.W.3d 171, 174 (Tex.
2002)). In In re Vesta Ins. Group, Inc., we held that the relators, who litigated in the trial court for two years, did not
substantially invoke the judicial process to their opponent s detriment because the relators engaged in minimal
discovery, and the real party in interest failed to demonstrate sufficient prejudice to overcome the strong presumption
against waiver. Id. at __, 2006 WL 662335, at *3.
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Likewise, BISD has failed to demonstrate how the cross-actions for indemnity in the separate personal injury suit or
Trane s pursuit of injunctive relief related to that case have worked to BISD s detriment. We hold that the actions of
Trane, Stotler, and Mac s Insulation, Inc. do not constitute waiver of their right to arbitrate.
IV. Conclusion
The trial court abused its discretion by finding the contracts ambiguous and denying the motions to compel arbitration.
There is no ambiguity in either the existence or scope of these arbitration agreements. We conditionally grant the writ
of mandamus and direct the trial court to (1) vacate its order denying the motions to compel arbitration, (2) grant
Stotler s motion to compel arbitration, (3) conduct further proceedings to determine whether Wilson is entitled to
arbitration,[7] and (4) conduct further proceedings to determine whether the various nonsignatories are entitled to
arbitration. The writ will issue only if the trial court fails to comply. Insofar as we have granted full relief under our
mandamus jurisdiction, we dismiss the related interlocutory appeal as moot.
Don R. Willett
Justice
Opinion delivered: June 30, 2006
[1] Document Synopses by Series, at http://www.aia.org/docs_series. The American Institute of Architects represents
the professional interests of America s architects. The AIA: Advocacy Community, Knowledge, at
http://www.aia.org/about_default. Among other things, the AIA publishes industry standard documents for design and
construction projects. About AIA Contract Documents, at http://www.aia.org/docs_about&defPr 1. Document A201 is
frequently adopted by reference into a variety of other agreements . . . to establish a common basis for the primary and
secondary relationships on the typical construction project. Instruction Sheet for AIA Document A201, General
Conditions of the Contract for Construction 1987 Edition at 1, available at
http://www.engin.umich.edu/class/cee431/AIA/A201Inst.PDF. In the instant case, the General Conditions incorporate
the 1987 (14th) Edition of AIA Document A201, which is approved and endorsed by the Associated General
Contractors of America. AIA Document A201, General Conditions of the Contract for Construction (1987).
[2] Four third-party defendants filed independent motions to compel arbitration: Wilson, Stotler, Mijares Mora
Architects, Inc., and Zamora Engineering, Inc. Mac s Insulation, Inc. joined Stotler s motion. Trane, Victoria Air
Conditioning, Ltd., and Superheat Air Balancing Co., Inc. joined the Wilson and Stotler motions. Al Cardenas
Masonry Inc. joined Trane s motion. Sechrist-Hall Co., Wrightway Construction, Inc., and Rio Mechanical, Inc. joined
the Wilson and Trane motions. The independent motions of Mijares Mora Architects, Inc. and Zamora Engineering,
Inc. do not invoke the FAA or TAA. Wilson s motion is not in the record, and we are thus unable to determine
whether it invokes the FAA, TAA, both, or neither. All other motions invoke the FAA or both the FAA and the TAA.
The motions of all subcontractors and second-tier subcontractors also argue that the doctrine of equitable estoppel
allows nonsignatories to the Wilson and Stotler contracts to obtain the benefits of the arbitration agreements therein.
[3] This Court undeniably has jurisdiction to review the correctness of the court of appeals decision that it lacked
jurisdiction over the TAA-based interlocutory appeal. See McAllen Med. Ctr., Inc. v. Cortez, 66 S.W.3d 227, 231
(Tex. 2001) ( When a court of appeals determines that it lacks jurisdiction over an interlocutory appeal, this Court has
jurisdiction to review that decision. ).
[4] While we continue to see no benefit in requiring parties to pursue parallel proceedings that are unnecessarily
expensive and cumbersome, we remain mindful that we may not enlarge appellate jurisdiction absent legislative
mandate. Jack B. Anglin Co., 842 S.W.2d at 272. We again invite the Legislature, [i]n the interests of promoting the
policy considerations of rigorous and expedited enforcement of arbitration agreements, . . . to consider amending the
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Texas Act to permit interlocutory appeals of orders issued pursuant to the Federal Act. Id.
[5] Our analysis today proceeds under the FAA because, as a procedural matter, Trane and the third-party defendants
only assert in their Statement of Jurisdiction that this Court has jurisdiction under Cortez to decide whether the lower
court had jurisdiction. 66 S.W.3d at 231 ( When a court of appeals determines that it lacks jurisdiction over an
interlocutory appeal, this Court has jurisdiction to review that decision. ). They do not assert conflict or dissent
jurisdiction under the general interlocutory appeal statute. Tex. Gov t Code 22.225(c).
[6] A subparagraph later in the Supplementary Conditions states that it [d]elete[s] the first sentence [of subparagraph
5.2.1 of the General Conditions] and substitute[s] the following . . .                                                     . Clearly, the parties thus were free able to delete
and replace language in the General Conditions with language in the Supplementary Conditions, ands they had done so
elsewhere.
[7] Wilson s motion to compel arbitration is not in the record.
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