Hearthshire Braeswood Plaza Ltd. Partnership v. Bill Kelly Co.

Decision Date04 February 1993
Docket NumberNo. B14-92-00509-CV,B14-92-00509-CV
Citation849 S.W.2d 380
PartiesHEARTHSHIRE BRAESWOOD PLAZA LIMITED PARTNERSHIP, SMP Med Center Partners Limited, and James M. Birney, Appellants, v. BILL KELLY COMPANY, Appellee. (14th Dist.)
CourtTexas Court of Appeals
OPINION

CANNON, Justice.

This is an appeal from the trial court's order denying appellants' pleas in abatement and motions to stay litigation and compel arbitration. The order of the trial court is reversed in part and affirmed in part.

The appellants in this case are: Hearthshire Braeswood Plaza Limited Partnership (Hearthshire), owner of an apartment complex known as the Gardens of Braeswood (the Gardens); James Birney (Birney), a limited partner of and agent for Hearthshire; and SMP Med Center Partners, Ltd. (SMP), a limited partnership and owner of the Braesbrook Landing Apartments (the Landing). Birney is also an agent for SMP. The appellee is Bill Kelly Company (Kelly), a sole proprietorship owned by Mr. Bill Kelly (Mr. Kelly). Mr. Kelly's company renovates apartment complexes.

In 1991, Hearthshire and Kelly entered into two contracts concerning renovation work on the Gardens, one on January 21, 1991 and one on March 28, 1991. Each contract contained an arbitration clause which provided, in pertinent part:

All claims or disputes between the Contractor and the Owner arising out or relating to the Contract, or the breach thereof, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect unless the parties mutually agree otherwise and subject to an initial presentation of the claim or dispute to the Architect as required under Paragraph 10.5. 1

Subsequently, disputes arose between the parties. Kelly claimed it fully performed under both contracts, but that Hearthshire only paid for the January contract. Hearthshire claimed the work performed by Kelly was unsatisfactory. On December 13, 1991, Hearthshire filed Demands for Arbitration with the American Arbitration Association (AAA) in order to resolve its disputes with Kelly. The demands requested arbitration under the January contract and the March contract. The cases were given two separate case numbers by the AAA. Kelly objected to arbitration claiming that it was unavailable to Hearthshire because: (1) Hearthshire did not comply with paragraph 10.5; (2) certain claims asserted by Hearthshire were not arbitrable; and (3) Hearthshire had failed to give proper notice under the Texas Deceptive Trade Practices Act. None of the reasons asserted by Kelly at that time, concerned fraud in the inducement of the contract or fraud in the inducement of the arbitration provision.

During the following two month period, the parties corresponded with the AAA concerning the arbitrability of the case. This was done at the request of the AAA. In one of the letters to the AAA, Kelly asserted that arbitration was not available to Hearthshire because the March contract had been procured through fraud. In that same letter, Kelly conceded that certain issues in the January contract were potentially arbitrable.

On January 24, 1992, Kelly filed a lawsuit seeking a declaratory judgment that arbitration was unavailable to Hearthshire, asserting the same objections it had initially made to the AAA. In the petition, Kelly also asserted claims against Hearthshire and Birney for breach of contract, foreclosure of a mechanic and materialman's lien, suit on a sworn account, quantum meruit, fraud, promissory estoppel, negligent misrepresentation, and grossly negligent misrepresentation. The basis for these last four claims was Kelly's contention that it had agreed to perform and finance the renovation work at the Gardens because Hearthshire and Birney had allegedly promised Kelly that it would receive the $4.5 million renovation project on the Landing. Kelly claimed that in reliance on this representation, it financed and completed the renovation work at the Gardens, but never received a contract to renovate the Landing.

Hearthshire and Birney filed a Plea in Abatement and Original Answer on February 28, 1992. On March 9, 1992, Kelly amended its petition to add SMP to the suit, asserting against it the same claims which had asserted against Hearthshire and Birney. On March 11, 1992, Hearthshire and Birney filed a Motion to Stay Litigation and Compel Arbitration and a brief in support of the motion. On March 27, 1992, SMP filed its Plea in Abatement, Motion to Stay Litigation and Compel Arbitration and Original Answer. On April 4, 1992, Kelly filed its response to the motions to stay litigation and compel arbitration, and filed an amended petition. In these documents, Kelly alleged that appellants had fraudulently induced Kelly to enter into the arbitration provision in the March contract. Kelly asserted that it entered into the March contract because Hearthshire and Birney represented that Project Controllers, Inc. (PCI) would initially resolve all disputes between the parties. Kelly based this assertion on the fact that while PCI was referred to in the contract as "project manager", it acted as architect for other purposes, and paragraph 10.5 stated that all disputes would be initially referred to the architect. Kelly had worked with PCI before and knew it to be qualified. Kelly alleged that this representation induced it to enter into the arbitration provision. Appellants claimed that there was no architect on the project and therefore, the mandates of paragraph 10.5 were inapplicable. As to the January contract, Kelly also claimed that it was not enforceable because Hearthshire had not signed it.

On April 7, 1992, the trial court denied appellants' motions without a hearing. On April 20, 1992, the trial court entered an order denying appellants' pleas in abatement and motions to stay litigation and compel arbitration. The court further ordered that the arbitration proceedings under the January and March contracts be stayed. The trial court did not explain the reasons for, or set out specific grounds for its ruling. Further, the trial court did not file findings of fact and conclusions of law. Appellants appeal from that order.

In their third point of error 2, appellants contend that there was no evidence or insufficient evidence to support the trial court's finding of fraud in the inducement of the contract as a whole.

In a standard appeal when the appellant raises "no evidence" and "factual insufficiency" points, the appellate court reviews the "no evidence" point first. Glover v. Texas Gen. Indem. Co., 619 S.W.2d 400, 401 (Tex.1981). If the court finds there is some evidence, it proceeds then to consider the insufficient evidence point. Id. Though appellants style this point of error and others as "no evidence" and "insufficient evidence," the proper standard of review in an appeal from an interlocutory order concerning a motion to stay litigation and compel arbitration is simply "no evidence." Wetzel v. Sullivan, King & Sabom, P.C., 745 S.W.2d 78, 79 (Tex.App.--Houston [1st Dist.] 1988, no writ); Gulf Interstate Eng'g v. Pecos Pipeline, 680 S.W.2d 879, 881 (Tex.App.--Houston [1st Dist.] 1984, writ dism'd). Therefore, we will review this point of error and the others similarly styled under the "no evidence" standard of review.

In reviewing "no evidence" or legal sufficiency points, the court considers only the evidence and inferences, when viewed in their most favorable light, that tend to support the finding under attack, and disregards all evidence and inferences to the contrary. Davis v. City of San Antonio, 752 S.W.2d 518, 522 (Tex.1988); Garza v. Alviar, 395 S.W.2d 821, 823 (Tex.1965). If there is any evidence of probative force to support the finding, the point must be overruled and the finding upheld. Sherman v. First Nat'l Bank, 760 S.W.2d 240, 242 (Tex.1988); In re King's Estate, 150 Tex. 662, 244 S.W.2d 660, 661 (1951). When, as in this case, there are no findings of fact and conclusions of law, we must affirm the judgment if there is evidence to support it upon any legal theory asserted by the prevailing party. Gulf Interstate, 680 S.W.2d at 881.

Article 224 of the Texas General Arbitration Act states, in pertinent part:

A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or equity for the revocation of any contract. A court shall refuse to enforce an agreement or contract provision to submit a controversy to arbitration if the court finds it was unconscionable at the time the agreement or contract was made.

TEX.REV.CIV.STAT.ANN. art. 224 (Vernon Supp.1992).

In its suit for declaratory judgment, Kelly maintained that arbitration was unavailable to appellants because they had fraudulently induced Kelly to enter into the contract as a whole, and that under article 224, this was sufficient to deny appellants' demands for arbitration. Kelly based this contention on its claim that appellants had allegedly represented to Kelly that it would receive the $4.5 million renovation project on the Landing if Kelly financed and completed the renovations on the Gardens. Kelly alleged that it fulfilled its end of the bargain, but that appellants did not give Kelly the Landing renovation project as promised. Kelly claimed that the representation as to the $4.5 million project induced it to enter the contract, and that this was done fraudulently.

In order to prove fraud, Kelly had to show that: (1) a material representation was made; (2) the representation was false; (3) when appellants made it they knew...

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