Bonsmara Natural Beef Co. v. Hart of Tex. Cattle Feeders, LLC

• Decision Date: 26 June 2020
• Docket Number: No. 19-0263,19-0263
• Citation: 603 S.W.3d 385
• Parties: BONSMARA NATURAL BEEF COMPANY, LLC and George Chapman, Individually, Petitioners, v. HART OF TEXAS CATTLE FEEDERS, LLC, James Michael Hayes, Individually, Lynn Landrum, Individually, and Henry O. Pickett II, Individually, Respondents
• Court: Texas Supreme Court

603 S.W.3d 385

BONSMARA NATURAL BEEF COMPANY, LLC and George Chapman, Individually, Petitioners,

v.HART OF TEXAS CATTLE FEEDERS, LLC, James Michael Hayes, Individually, Lynn Landrum, Individually, and Henry O. Pickett II, Individually, Respondents

No. 19-0263

Supreme Court of Texas.

Argued January 28, 2020

OPINION DELIVERED: June 26, 2020

David L. LeBas, James Jared Melton, Michael S. Duncan, Naman, Howell, Smith, & Lee, PLLC, Austin, for Petitioners.

Robert Riverson Bell, Mullin Hoard & Brown, L.L.P., Vincent E. Nowak, Attorney at Law, Amarillo, for Respondents.

Justice Busby delivered the opinion of the Court, in which Justice Guzman, Justice Lehrmann, Justice Boyd, Justice Blacklock, and Justice Bland joined.

In this cattle-feeding dispute, the parties ask us to wrangle issues regarding the effect of forgoing an interlocutory appeal and the availability of their chosen forum for arbitration. "[T]he general rule, with a few mostly statutory exceptions, is that an appeal may be taken only from a final judgment." Lehmann v. Har-Con Corp. , 39 S.W.3d 191, 195 (Tex. 2001). The statutory exceptions generally provide that a person "may appeal from" certain types of interlocutory orders, including an order denying a motion to compel arbitration. Does this language mean that if the losing party chooses not to take an interlocutory appeal from such an order, it forfeits the ability to challenge that order on appeal from a final judgment?

According to the cattle owner, the mere availability of an interlocutory appeal demonstrates that the losing party must appeal the order within twenty days of its issuance. Because the cattle feeder failed to appeal the order denying its motion to compel arbitration within that period, the owner contends the appellate court lacked jurisdiction to overturn the trial court's denial post-judgment.

This argument is incorrect: our rule has long been that "a party against whom an interlocutory [order] has been rendered will have his right of appeal when ... the same is merged in a final judgment disposing of the whole case." Teer v. Duddlesten , 664 S.W.2d 702, 704 (Tex. 1984). Even when a party actually pursues interlocutory review of an arbitration order by mandamus and relief is denied without comment on the merits, we have held that "the court of appeals has jurisdiction to review the order ... [on] appeal" from a final judgment. Chambers v. O'Quinn , 242 S.W.3d 30, 32 (Tex. 2007) (per curiam). As we explained in Hernandez v. Ebrom , nothing in the permissive language or context of our interlocutory appeal statutes changes this rule. 289 S.W.3d 316, 318–19 (Tex. 2009). We therefore hold that a party does not forfeit its right to challenge a ruling on appeal from a final judgment simply by opting not to pursue an interlocutory appeal of that ruling.

In opposing this holding, our dissenting colleagues invoke various policy considerations. Those considerations animate distinct legal doctrines that have nothing to do with the interlocutory appeal statute, such as mootness, estoppel, and waiver by conduct. Driving home this very point, the dissent includes a lengthy discussion of waiving the right to arbitration by substantially invoking the litigation process. But the cattle owner has never asserted this type of waiver in any court, including ours. And not even the dissent maintains that waiver by litigation conduct is a doctrine that impacts the jurisdiction of our courts of appeals or illuminates what the words of the interlocutory appeal statute mean. The doctrine therefore has no place in our analysis of the cattle owner's issue.

On the merits, the cattle owner contends that the trial court properly denied the feeder's motion to compel arbitration, as the arbitrator is unavailable per its own rules and the parties' agreement does not permit arbitration with the cattle feeder's non-signatory owners. We disagree. First, the parties' designated forum has indicated its availability to arbitrate this dispute, and we defer to its opinion on this issue of procedural arbitrability. See Howsam v. Dean Witter Reynolds, Inc. , 537 U.S. 79, 85, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002). Second, the parties' arbitration agreement does not preclude the use of direct-benefits estoppel to compel arbitration of the cattle owner's claims against the feeder's non-signatory owners. Meyer v. WMCO-GP, LLC , 211 S.W.3d 302, 304 (Tex. 2006). We therefore affirm the court of appeals' judgment compelling arbitration.

BACKGROUND

This case concerns a custom cattle-feeding agreement between Bonsmara Natural Beef Co., LLC and Hart of Texas Cattle Feeders, LLC. In 1997, Bonsmara and its president, George Chapman, imported the first full-blooded Bonsmara cattle from Africa to the United States. Livestock research revealed that Bonsmara beef was lean, tender, and flavorful, and that its retail product yield was greater than that of some other breeds. To obtain a premium price for this beef, Bonsmara endeavored to market the beef as "natural." It developed a protocol to ensure its cattle entered feed yards in conditions qualifying them as natural.

To finish and sell its natural beef, Bonsmara contracted with Castro County Feeders—now Hart of Texas Cattle Feeders.¹ The agreement required Hart to supply feed, vitamins, minerals, and medicine for the cattle at Hart's feed yard facilities and stipulated that disputes would be resolved through arbitration:

Any dispute or controversy arising under, out of, or in connection with or in relation to this cattle feeding agreement and any amendment thereof, or the breach thereof, may, at the sole option and discretion of [Hart], be determined and settled by arbitration to be held in Amarillo, Texas, in accordance with the rules then applicable under the arbitration program of the Texas Cattle Feeders Association. If the controversy is decided by arbitration, any award rendered therein shall be final and binding on each of the parties hereto, and judgment may be entered thereon in the State Court of the State of Texas for the County of Potter.

The agreement was governed by Texas law and signed by Hart and Bonsmara, with Chapman as Bonsmara's guarantor.

Between 2010 and 2014, Bonsmara shipped over 12,500 cattle to Hart for finishing and sale. In 2015, the parties' relationship broke down. According to Bonsmara, cattle placed in Hart's care performed poorly, suffering higher than usual death rates and requiring antibiotic or similar medical treatment after becoming ill. Treated cattle no longer qualify as natural and cannot fetch a premium price. Bonsmara thus claimed it incurred "severe monetary losses."

Seeking to recover these losses, as well as exemplary damages and fees, Bonsmara and Chapman sued Hart and its owners James Michael Hayes, Lynn Landrum, and Henry O. Pickett II (collectively, the Hart defendants). Against Hart, Bonsmara and Chapman alleged breach of contract and negligent feeding and care. Against all Hart defendants, they alleged fraud, negligent hiring or supervision, civil conspiracy, and unjust enrichment. Against the owners, they alleged various tort claims and sought to hold Hayes, Landrum, and Pickett personally responsible for Hart's conduct. Chapman also sought a declaratory judgment discharging him from liability as Bonsmara's guarantor.

The Hart defendants moved to dismiss the suit and compel arbitration, arguing that all of these claims were subject to the agreement's arbitration clause. In response, Bonsmara and Chapman contended that the arbitration agreement was unenforceable because it required arbitration in accordance with the rules of the Texas Cattle Feeders Association (TCFA) arbitration program, which allowed only TCFA members to arbitrate. Although Hart owners Landrum and Pickett were TCFA members, none of the agreement's signatories—Bonsmara, Chapman, and Hart—were members. Thus, according to Bonsmara and Chapman, the agreement's designated forum was unavailable.² The trial court denied the Hart defendants' motion to compel arbitration.

The Hart defendants did not challenge this ruling through an interlocutory appeal. Instead, after the deadline to file an interlocutory appeal had passed, they filed a mandamus petition asking the court of appeals to order the trial court to compel arbitration. The court of appeals denied relief, explaining that the Hart defendants could have pursued an interlocutory appeal—and therefore had an adequate remedy—but failed to do so. In re Hart of Tex. Cattle Feeders, LLC , No. 07-16-00194-CV, 2016 WL 3180436, at *1–2 (Tex. App.—Amarillo June 2, 2016, no pet.).

After a jury trial on the merits, the trial court rendered judgment that the Hart defendants were jointly and severally liable to Bonsmara and Chapman for $366,445.70. The judgment also awarded Bonsmara and Chapman $227,272.25 for attorneys' fees incurred through trial plus additional contingent attorneys' fees in the event of an appeal. The Hart defendants appealed.

In the court of appeals, the Hart defendants argued that the trial court erred when it denied their motion to compel arbitration. 583 S.W.3d 705, 707 (Tex. App.—Amarillo 2019). The parties did not dispute the existence of the arbitration agreement between Bonsmara, Chapman, and Hart. Id. at 711. Rather, the Hart defendants asked the court to decide (1) whether the agreement was enforceable given TCFA's membership requirement; and (2) whether Hart owners Hayes, Landrum, and Pickett—as non-signatories—could compel Bonsmara and Chapman to arbitrate disputes related to the agreement. Id. at 712 & n.3. The court answered yes to both issues. Id. at 713.

As to the first issue, the court concluded the agreement was enforceable because it required arbitration in accordance with TCFA's rules, not that TCFA conduct the arbitration. Id. at 712 n.3. As to the second issue, the court held that Hayes, Landrum, and Pickett could compel Bonsmara and Chapman to arbitrate under the doctrine of direct-benefits estoppel. Id. at 712....