G.T. Leach Builders, LLC v. Sapphire V.P., LP

• Decision Date: 20 March 2015
• Docket Number: NO. 13–0497,13–0497
• Citation: 458 S.W.3d 502
• Parties: G.T. Leach Builders, LLC, et al., Petitioners, v. Sapphire V.P., LP, Respondent
• Court: Texas Supreme Court

458 S.W.3d 502

G.T. Leach Builders, LLC, et al., Petitioners

v.Sapphire V.P., LP, Respondent

NO. 13–0497

Supreme Court of Texas.

Argued November 5, 2014

Opinion delivered: March 20, 2015.

Calvin Burgess, John B. Wallace, Timothy Leo Nebel, Hartline Dacus Barger Dreyer LLP, Houston, for Petitioner ZCA Residential, LLC.

Charles Clayton Conrad, Edward S. Hubbard, Coats, Rose, Yale, Ryman & Lee, PC, Gilberto Hinojosa, Law Offices of Gilberto Hinojosa & Associates, P.C., Brownsville, Lawrence J. West, Stephen Douglas Pritchett Jr., Johnson, Trent, West & Taylor, L.L.P., Houston, for Petitioner G.T. Leach Builders, L.L.C.

Aaron Tilley, Cozen O'Connor, Dallas, Joseph A. Ziemianski, Stephen Bender Edmundson, Cozen O'Connor, Houston, for Petitioner CHP and Associates, Consulting Engineers, Inc.

Brian Christopher Lopez, Engvall & Lopez, L.L.P., Jennifer Bruch Hogan, Richard P. Hogan Jr., Hogan & Hogan, Houston, for Petitioner Comfort Systems USA–South Central.

Andrew T. McKinney IV, Daniel W. Burrows, Litchfield Cavo, LLP, Houston, for Petitioner Power Design, Inc.

Ethan Dennis Carlyle, James M. Cleary Jr., Martin Disiere Jefferson & Wisdom LLP, Houston, for Petitioner Adams Insurance Service, Inc.

Jeremy J. Gaston, Walter J. Cicack, Hawash, Meade, Gaston, Neese & Cicack LLP, Houston, for Petitioner Arthur J. Gallagher Risk Management Services, Inc.

Frank Costilla, Law Offices of Frank Costilla, L.P., Brownsville, Jonathan Daniel Simon, Simon Law Firm, Richard D. Daly, Daly & Black, P.C., Houston, Melissa Waden Wray, Daly & Black, P.C., Waco, for Respondent Sapphire VP, LP.

Opinion

Justice Boyd delivered the opinion of the Court.

Texas law encourages parties to resolve disputes through arbitration,¹ but it will not force them to arbitrate unless they have agreed to that alternative.² If they have, or if they are equitably estopped from denying their assent to such an agreement, courts must honor the agreement by referring the disputes to arbitration unless the party demanding arbitration has waived that right by substantially participating in the litigation. We apply these principles in this case to determine whether a property developer must arbitrate its claims against several defendants involved in a construction project. The trial court denied all of the defendants' motions to compel arbitration, and the court of appeals affirmed. We hold that (1) the developer agreed to arbitrate its claims against the general contractor and the general contractor did not waive its right to demand arbitration; (2) the developer's argument that a contractual deadline bars the general contractor's demand for arbitration is itself a claim that must be arbitrated; (3) the developer did not agree in the general contract to arbitrate its claims against the other defendants; (4) the developer is not equitably estopped from denying any such agreement; and (5) the subcontracts do not contain an enforceable arbitration agreement. In short, we hold that the developer must arbitrate its claims against the general contractor but not its claims against the other defendants.

I.Background

In July 2008, Hurricane Dolly caused extensive damage to a luxury condominium project that Sapphire V.P., L.P. was in the process of developing on South Padre Island. Sapphire filed suit against Adams Insurance Services, Inc., Arthur J. Gallagher Risk Management, and Tracy Williams (collectively, the Insurance Brokers), asserting claims for negligence and breach of contract. Sapphire alleged that, eight days before the hurricane hit, the Insurance Brokers allowed a builder's risk insurance policy to expire and be replaced by a permanent insurance policy even though construction of the project was not yet complete. Sapphire sought to recover millions of dollars for water damage, increased construction costs, delay costs, lost revenue, and other losses that the builder's risk policy allegedly covered or should have covered but the permanent policy did not.

More than two-and-a-half years after the hurricane struck, the Insurance Brokers designated several others as responsible third parties: (1) the project's general contractor, G.T. Leach Builders, L.L.C.; (2) two of G.T. Leach's subcontractors, Power Design, Inc. and Atlas Comfort Systems USA, LLC³ (collectively, the Subcontractors); and (3) an engineering contractor, CHP & Associates Consulting Engineers, Inc., and its employee Mark Janneck (collectively, the Engineers).⁴ Sapphire, in turn, promptly amended its petition to name these parties as defendants, alleging that their negligence and contractual breaches resulted in construction defects that caused the condominium project to sustain the water damage that resulted in the uncovered losses. Although Sapphire asserted these claims within the four-year statute of limitations applicable to claims for breach of contract, the two-year statute of limitations on negligence claims had already expired. At that time, however, Texas law allowed a claimant to assert claims against a party designated as a responsible third party even though the statute of limitations barred the claim.⁵

After pursuing pretrial motions and participating in discovery, G.T. Leach—the general contractor—moved to compel arbitration and stay the litigation, relying on an arbitration agreement contained in its general contract with Sapphire. The Insurance Brokers, Subcontractors, and Engineers (collectively, the Other Defendants) subsequently filed similar motions, also relying on the arbitration agreement in the general contract, even though they never signed that contract. The Subcontractors relied, in addition, on language in their subcontracts with G.T. Leach, even though Sapphire never signed the subcontracts. The trial court denied all of the motions without explaining its reasons. The defendants pursued an interlocutory appeal, the court of appeals affirmed,⁶ and we granted the defendants' petitions for review.⁷

II.G.T. Leach

We first consider whether G.T. Leach can compel arbitration. In the general contract, G.T. Leach and Sapphire agreed that “[a]ny Claim arising out of or related to the Contract ... shall ... be subject to agreed private arbitration” and “shall be decided by binding arbitration.”⁸ Sapphire concedes that this is a valid arbitration agreement and that it applies to Sapphire's claims against G.T. Leach, but contends that G.T. Leach expressly and impliedly waived its right to demand arbitration. Alternatively, Sapphire argues that G.T. Leach failed to demand arbitration prior to a deadline that the contract expressly imposes. The court of appeals agreed with Sapphire's second argument and did not reach its first. We conclude that (1) G.T. Leach did not waive its arbitration rights, and (2) the issue of whether the contractual deadline bars G.T. Leach's demand for arbitration is one that the arbitrators—not the courts—must decide. Because the waiver argument challenges G.T. Leach's ability to rely on the arbitration agreement at all, we address it first.

A. Waiver of Right to Arbitration

Sapphire asserts that G.T. Leach has waived its right to enforce their arbitration agreement. Waiver—the “intentional relinquishment of a known right”—can occur either expressly, through a clear repudiation of the right, or impliedly, through conduct inconsistent with a claim to the right. Perry Homes, 258 S.W.3d at 590–91, 594 ; Moayedi v. Interstate 35/Chisam Rd., L.P., 438 S.W.3d 1, 6 (Tex.2014). Sapphire argues that G.T. Leach both expressly and impliedly waived its right to compel arbitration in this case. The trial court agreed and denied G.T. Leach's motion to compel arbitration, but the court of appeals did not reach the issue. Both parties have fully briefed the issue and urge us to decide it here. When, as here, the relevant facts are undisputed, whether a party waived its right to arbitrate is a question of law. Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d 542, 545 (Tex.2014) (per curiam); Perry Homes, 258 S.W.3d at 598 & n.102. At the parties' mutual request, we reach the issue here to avoid unnecessary delay. See, e.g., Placencio v. Allied Indus. Int'l, Inc., 724 S.W.2d 20, 22 (Tex.1987) (reaching, rather than remanding, issue of law not reached by court of appeals “[t]o avoid unnecessary delay”). Based on the undisputed facts, we conclude that G.T. Leach has not waived its right to arbitration.

1. Express Waiver

Sapphire first argues that G.T. Leach expressly waived its arbitration rights by seeking a continuance and agreeing to a new trial date. Specifically, Sapphire notes that G.T. Leach filed (jointly with the other defendants) a motion for continuance stating that “there is insufficient time for the parties to prepare this case with the current trial setting” and discovery “cannot be completed prior to the current trial setting.” When the parties agreed to postpone the trial setting, G.T. Leach then signed a Rule 11 agreement in which all parties agreed to a scheduling order and a new trial date. We do not agree that the statements contained in these documents expressly relinquish and repudiate a right to arbitration. As we explained when addressing nearly identical statements in In re Fleetwood Homes of Texas, L.P., “[n]othing in [these statements] expressly waives arbitration or revokes [an] arbitration demand.” 257 S.W.3d 692, 694 (Tex.2008) ; see also In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex.2007) (per curiam) (holding that filing of motion to set aside default judgment and set new trial date does not expressly waive arbitration rights). Although the acts of requesting and then agreeing to a new trial date could be inconsistent with an intent to exercise the right to arbitrate, they do not constitute an express waiver of that right.

2. Implied Waiver

A party asserting implied waiver as a defense to arbitration has the burden to prove that (1) the other party has “substantially invoked the judicial process,” which is conduct inconsistent with a claimed right to compel...