D.R. Horton-Tex., Ltd. v. Drogseth, 02-12-00435-CV

• Decision Date: 03 July 2013
• Docket Number: NO. 02-12-00435-CV,02-12-00435-CV
• Parties: D.R. HORTON-TEXAS, LTD. APPELLANT v. ELIZABETH DROGSETH APPELLEE
• Court: Court of Appeals of Texas

D.R. HORTON-TEXAS, LTD. APPELLANT

v.ELIZABETH DROGSETH APPELLEE

NO. 02-12-00435-CV

COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH

DELIVERED: July 3, 2013

FROM THE 153RD DISTRICT COURT OF TARRANT COUNTY

MEMORANDUM OPINION¹

I. INTRODUCTION AND BACKGROUND

This is an interlocutory appeal from the trial court's order denying Appellant D.R. Horton-Texas, Ltd.'s motion to compel arbitration. D.R. Horton and Appellee Elizabeth Drogseth entered into a two-page contract of sale for real property. The contract contained an arbitration agreement. D.R. Horton conveyed the real property to Drogseth, and she later filed suit against D.R.Horton based on alleged defects in a retaining wall on the property. She alleged causes of action for negligence and breach of warranties. D.R. Horton filed a plea in abatement and original answer, requesting that the trial court abate the case and submit it to binding arbitration pursuant to the contract's arbitration clause. D.R. Horton then filed a motion to compel arbitration. After a hearing on the motion, the trial court denied it. D.R. Horton filed this interlocutory appeal, arguing in a single issue that the trial court abused its discretion by denying the motion to compel arbitration. We will reverse and remand.

II. THE LAW ON ARBITRATION AGREEMENTS AND STANDARD OF REVIEW

Procedurally, a party seeking to compel arbitration has the initial burden to establish the arbitration agreement's existence and to show that the to-be-arbitrated claims fall within the arbitration agreement's scope. In re Dillard Dep't Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006) (orig. proceeding); In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999) (orig. proceeding), abrogated in part on other grounds by In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002) (orig. proceeding), cert. denied, 537 U.S. 1112 (2003); Grand Homes 96, L.P. v. Loudermilk, 208 S.W.3d 696, 701 (Tex. App.—Fort Worth 2006, pet. denied). In determining whether a claim falls within the scope of an arbitration agreement, we focus on the factual allegations of the complaint, rather than the legal causes of action asserted. See Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271 (Tex. 1992) (orig. proceeding). Any doubts about whether claims fall within the scope of the arbitration agreement must be resolved in favor ofarbitration. Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995). If a party establishes that a valid arbitration agreement exists and that the scope of the agreement includes the claims asserted, the burden shifts to the party opposing arbitration to prove any alleged defenses to arbitration. In re AdvancePCS Health, L.P., 172 S.W.3d 603, 607 (Tex. 2005) (orig. proceeding).

We review the trial court's denial of a motion to compel arbitration for an abuse of discretion. See In re Labatt Food Svc., L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig. proceeding); Cleveland Constr., Inc. v. Levco Constr., Inc., 359 S.W.3d 843, 851-52 (Tex. App.—Houston [1st Dist.] 2012, pet. dism'd) (explaining standards of review for arbitration appeals). Under this standard, we defer to the trial court's factual determinations that are supported by the record and review legal questions de novo. Labatt Food Svc., L.P., 279 S.W.3d at 643.

III. FAILURE TO COMPEL BINDING ARBITRATION WAS ABUSE OF DISCRETION

In its sole issue, D.R. Horton argues that the trial court abused its discretion by refusing to compel arbitration because Drogseth's claims are covered by a valid arbitration agreement, because D.R. Horton did not waive its right to arbitration, and because none of Drogseth's remaining arguments in opposition to arbitration prevent enforcement of the agreement.²

A. D.R. Horton Met Initial Burden

In support of its motion to compel arbitration, D.R. Horton produced a signed copy of the contract. The contract consists of two pages, printed on the front and back of a single page. The front page contains paragraphs 1 through 11 and includes the executed signature lines for both Drogseth and D.R. Horton. Just above the executed signature lines, the contract states, "PARAGRAPHS 12 THROUGH 26 ON THE REVERSE SIDE CONSTITUTE A PART OF THIS CONTRACT." The back page contains the following arbitration provision:

13. DISPUTE RESOLUTION. If a dispute arises out of or relating to this Agreement or a breach thereof and if the dispute cannot be settled through negotiation, Buyer and Seller agree to first try in good faith to settle the dispute by mediation administered by the American Arbitration Association ("AAA") under its Commercial Mediation Rules, before resorting to arbitration, litigation, or another dispute resolution procedure. If mediation fails, any claim, controversy or dispute of any kind between Buyer and Seller, whether arising from a tort, the Contract, any breach of the Contract in any way related to this transaction, including but not limited to claims or disputes arising under the Deceptive Trade Practices Consumer Protection Act, Texas Business & Commerce Code, Section 17.41, et seq., and/or the terms of the express limited warranty referenced in paragraph 12 of the Contract, THE BUYER AND SELLER AGREE TO RESOLVE SUCH DISPUTE BY BINDING ARBITRATION UNDER THE TEXAS GENERAL ARBITRATION ACT AND THE FEDERAL ARBITRATION ACT under the direction and procedures established by the AAA "Construction Industry Arbitration Rules" except as specifically modified herein or dictated by applicable statutes including the Texas General Arbitration Act and/or the Federal Arbitration Act. If Buyer does not seek arbitration prior to initiating any legal action, Buyer agrees that Seller shall be entitled to liquidated damages inthe amount of Ten Thousand Dollars ($10,000.00). Any dispute arising from the Contract shall be submitted for determination by a board of three (3) arbitrators to be selected for each such controversy. The decision of the arbitrators shall be in writing and signed by such arbitrators, or majority of them, and shall be final and binding upon the parties. Each party shall bear the fees and expenses of counsel, witnesses, and employees of such party, and any other costs and expenses incurred for the benefit of such party. All other fees and expenses shall be divided equally between Buyer and Seller.

Paragraph 26 on the back page of the contract states that the parties "agree that the provisions of paragraphs 11, 12, 13 [the arbitration provision], 17, 18, 20, 21, 22, 23, and 24 of this Contract, and this Paragraph 26 shall survive closing and delivery of the deed to Buyer . . . ."

The arbitration agreement is broad, covering "any claim, controversy or dispute of any kind" between Drogseth and D. R. Horton, "whether arising from a tort, the Contract, [or] any breach of the Contract in any way related to this transaction." Drogseth's claims regarding alleged defects in a retaining wall on the property sold pursuant to the contract fall within the scope of the arbitration clause; they relate directly to the sale of the property. See Prudential Sec. Inc., 909 S.W.2d at 899; Jack B. Anglin Co., 842 S.W.2d at 271.

Because D.R. Horton established the existence of an arbitration agreement and that Drogseth's claims fell within the scope of that agreement, we turn to Drogseth's alleged defenses to enforceability of the arbitration agreement,which she bore the burden to prove.³ See AdvancePCS Health, L.P., 172 S.W.3d at 607.

B. Drogseth's Unconscionability Arguments Fail

Drogseth argued at trial and asserts on appeal that the arbitration agreement is unconscionable on numerous grounds. Arbitration agreements are not inherently unconscionable. Poly-Am., L.P., 262 S.W.3d 337, 348 (Tex. 2008) (orig. proceeding); Palm Harbor Homes, Inc., 195 S.W.3d at 678. Unconscionable contracts, however—whether relating to arbitration or not—are unenforceable under Texas law. Poly-Am., L.P., 262 S.W.3d at 348.

Unconscionability may be either procedural or substantive in nature. Halliburton Co., 80 S.W.3d at 571. Procedural unconscionability refers to the circumstances surrounding the adoption of the arbitration provision and relates to the making or inducement of the contract, focusing on the facts surrounding the bargaining process. Id.; TMI, Inc. v. Brooks, 225 S.W.3d 783, 792 (Tex. App.—Houston [14th Dist.] 2007, pet. denied) (op. on reh'g). Substantive unconscionability concerns the fairness of the arbitration provision itself. Halliburton Co., 80 S.W.3d at 571. A contract is substantively unconscionable if, "given the parties' general commercial background and the commercial needs of the particular trade or case, the clause involved is so one-sided that it isunconscionable under the circumstances existing when the parties made the contract." Poly-Am., L.P., 262 S.W.3d at 348 (quoting In re FirstMerit Bank, 52 S.W.3d 749, 757 (Tex. 2001) (orig. proceeding)); see also Halliburton Co., 80 S.W.3d at 571.

Whether a contract is unconscionable at the time it is formed is a question of law. Poly-Am., L.P., 262 S.W.3d at 348. Because a trial court has no discretion to determine what the law is or to apply the law incorrectly, its clear failure to properly analyze or apply the law of unconscionability constitutes an abuse of discretion. Id.

Drogseth argues that D.R. Horton did not point out to her the arbitration clause on the back of the contract, that the clause was not conspicuously printed in all capital letters, that the signature line was on the first page while the arbitration clause was on the back, and that she was only provided a copy of the front page of the contract.⁴ But courts have consistently rejected these types of arguments; Texas law presumes that a party who signs a contract has read it and knows its contents. See In re U.S. Home Corp., 236 S.W.3d 761, 764 (Tex. 2007) (orig. proceeding) (rejecting argument that arbitration clause on back of single-sheet contract was unenforceable and noting that "a party cannot avoid an arbitration clause by...