Jetall Cos. v. Sonder U.S. Inc.
| Docket Number | 01-21-00378-CV |
| Decision Date | 30 August 2022 |
| Parties | JETALL COMPANIES, INC., 1001 WL LLC, GALLERIA LOOP NOTEHOLDER LLC, GALLERIA 2425 OWNER LLC, BDFI LLC, ALI CHOUDHRI, BRAD PARKER, AND AZEEMAH ZAHEER, Appellants v. SONDER USA INC., Appellee |
| Court | Court of Appeals of Texas |
On Appeal from the 61st District Court Harris County, Texas Trial Court Case No. 2021-09675
Panel consists of Chief Justice Radack and Justices Countiss and Farris.
This dispute concerns five Houston commercial property leases. Appellee Sonder USA Inc. filed suit against four entities-Jetall Companies, Inc., 1001 WL LLC, Galleria 2425 Owner LLC, and BDFI LLC (collectively "the Landlords")[1]- and three individuals-Ali Choudhri Brad Parker, and Azeemah Zaheer (collectively, "the Individual Defendants")-and asserted claims for declaratory relief, fraud, breach of contract, conversion and civil conspiracy. The Landlords initiated arbitration proceedings and moved the trial court to compel arbitration and stay litigation of Sonder's claims. Choudhri and Parker filed motions to dismiss Sonder's claims under the Texas Citizens Participation Act ("TCPA"). See Tex. Civ. Prac. & Rem. Code §§ 27.001-.009. The trial court denied the motion to compel arbitration and the TCPA motions to dismiss. The Landlords, Choudhri, and Parker all filed notices of appeal.
In three issues, the Landlords argue that the trial court erred by denying their motion to compel arbitration because (1) the parties contractually delegated gateway issues of substantive arbitrability to the arbitrator; (2) the Landlords proved the existence of a valid agreement to arbitrate and that Sonder's claims fall within the scope of the arbitration agreement; and (3) the Landlords did not waive their right to arbitration by participating in Sonder's lawsuit.
Also in three issues, Choudhri and Parker argue that the trial court erred in denying their TCPA motions to dismiss because (1) they demonstrated that the TCPA applies to Sonder's claims against them; (2) Sonder's claims do not fall within any applicable exemption to the TCPA; and (3) Sonder did not produce prima facie evidence of its claims.
We affirm in part and reverse and remand in part.
Sonder is a hospitality company operating throughout the United States and worldwide. It enters into multiyear leases with real property owners and provides apartment-style short-term and extended stays in fully furnished units for its clients.
In 2018 and 2019, Sonder entered into various leases that are the subject of this lawsuit. Sonder and Jetall entered into a lease for 1123 Bartlett Street. Sonder and Galleria 2425 Owner LLC were parties to two leases for 2425 West Loop South. Sonder and BDFI LLC were parties to the lease for 50 Briar Hollow Lane. Finally, Sonder and 1001 WL LLC were parties to the lease for 1001 West Loop South. According to Sonder's original petition, none of the properties was "equipped to accommodate residential guests" at the time of the leases, but the Landlords and the Individual Defendants "led Sonder to believe that they could-and would-convert mid-rise office space into trendy, luxury accommodations, in keeping with Sonder's brand."
All of the leases contained the same key provisions concerning the lease term, the use of the property, and the parties' respective responsibilities under the leases. The lease between Sonder and Jetall, for example, was for a fifteen-year term and provided that the sole permitted use of the property was "[t]o operate as an apartment/hotel concept offering rental accommodations, consistent with a reputable hotel/class A apartment." Jetall, as landlord agreed to provide a "tenant improvement allowance plus plumbing rough in" or it agreed, at its option, to "'turnkey' build out the Premises" for Sonder. Jetall agreed to work with Sonder to "allocate the correct number of 1 room, 2 room and 3 room units along with required amenity space." Sonder agreed to pay a monthly "base rental" amount to Jetall, and this amount increased throughout the duration of the lease. Sonder also paid a $20,000 security deposit. Each lease that Sonder signed contained similar terms and required Sonder to pay a comparable security deposit. Parker signed the leases as "Authorized Representative" for Jetall, 1001 WL, and BDFI. Zaheer signed the lease as Galleria 2425 Owner's "Authorized Agent." Choudhri did not sign any of the leases in any capacity.
Each lease contained an identical "Mediation/Arbitration" provision stating, "In the event of any controversy or claim arising out of or relating to this agreement, or a breach thereof, the parties hereto shall first attempt to settle the dispute by the Mediation/Arbitration Agreement" attached as an exhibit to the lease. The attached "Mediation/Arbitration Agreement" set out procedures for negotiations concerning disputes under the lease. The parties agreed:
If Landlord fails, or is alleged by Tenant to have failed to perform any Landlord obligation described in the Lease, and such failure continues for thirty (30) days after Landlord's receipt of a written notice of such failure from Tenant (detailing the amounts and the grounds of such claim[)], Landlord and Tenant will engage in face-to-face negotiations in an attempt to resolve any disagreements as to Tenant's rights to offset such amounts.
If the negotiations were not successful, the parties agreed to engage in non-binding mediation. The parties agreed that "[t]o the extent such dispute has not been resolved at mediation[,] Landlord and Tenant agree to attend binding arbitration to resolve Tenant's claim or cause of action to be commenced within fourteen (14) days of an impasse being called by the mediator."
The Mediation/Arbitration Agreement then provided that if the parties did not reach a settlement "within sixty days after service of a written demand for mediation, any unresolved controversy or claim shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules, with specificity as follows . . . ." The agreement described specific procedures for arbitrating any disputes, including the number and qualifications of arbitrators, the allowed discovery, and limitations on damages awards. An identical Mediation/Arbitration Agreement was attached to each lease.
Sonder attempted to communicate with Choudhri and Parker concerning the properties throughout 2019 and into 2020, but Choudhri and Parker were not forthcoming with information concerning the progress of construction. Sonder later discovered that the Landlords did not own one of the properties and lacked clear title to another property; the Landlords and the Individual Defendants never obtained necessary permits from the City of Houston to complete construction; no construction had occurred; and only minimal demolition at one of the four properties had begun. The Landlords never delivered furnished premises to Sonder. Sonder sent default notices to the Landlords in May 2020 and terminated the leases in June 2020.
In February 2021, Sonder sued the Landlords and the Individual Defendants.[2]Sonder sought declarations concerning whether it had rescinded or validly terminated the leases "due to fraud in the inducement, material breaches, frustration of purpose, impracticability, failure of consideration, unilateral mistake of fact, and unjust enrichment."
Sonder asserted a claim against the defendants for fraudulent inducement, alleging that they affirmatively misrepresented their ownership of two properties and misrepresented their ability and intent to fulfill their lease obligations. Sonder also asserted a claim for fraud by nondisclosure, alleging that the defendants made misrepresentations "that created the distinct, false impression that they possessed unclouded title" to two properties and thus had authority to enter into the leases. The defendants also made "partial disclosures" that gave the "false impression that they had the ability to complete buildouts of the Premises." Sonder further asserted a claim for common-law fraud, alleging that the defendants made representations after execution of the leases regarding their ownership of the properties, the status of plans and permits, their ability to deliver the premises, and construction progress on the properties.
Additionally, Sonder asserted a claim for breach of contract, alleging that each of the leases stated a commencement date of either March or June 2019, but the Landlords had not delivered the premises to Sonder by June 2020, nor had they "made reasonable progress towards performance of their obligations under the Leases." Sonder further alleged that the Landlords had wrongfully retained over $100,000 in security deposits for the properties. Sonder also brought a claim for civil conspiracy based on the defendants allegedly conspiring to "mislead Sonder with respect to their true intentions with respect to the Leases." The defendants allegedly "understood and agreed that Defendants would deceive and defraud Sonder and illegally convert its security deposits."
After Sonder filed suit, the Landlords initiated separate arbitration proceedings and asserted claims against Sonder in those proceedings for breach of contract, fraud, and fraud in a real estate transaction. Jetall then moved to compel arbitration and to stay the litigation under the Texas Arbitration Act. Jetall argued that the lease Sonder signed with it contained a valid arbitration clause, and Jetall filed a claim with the American Arbitration Association ("AAA") pursuant to that clause. Defendants 1001 WL, Galleria 2425 Owner, and BDFI did not file their own motions to compel arbitration, but they...
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