L & L Kempwood Associates, L.P. v. Omega Builders, Inc.

• Citation: 972 S.W.2d 819
• Decision Date: 21 May 1998
• Docket Number: 13-97-901-CV,Nos. 13-97-772-C,s. 13-97-772-C
• Parties: L & L KEMPWOOD ASSOCIATES, L.P., Appellant, v. OMEGA BUILDERS, INC., Appellee. and In re L & L KEMPWOOD ASSOCIATES, L.P.
• Court: Texas Court of Appeals

Page 819

972 S.W.2d 819

L & L KEMPWOOD ASSOCIATES, L.P., Appellant, v. OMEGA BUILDERS, INC., Appellee. and In re L & L KEMPWOOD ASSOCIATES, L.P.

Nos. 13-97-772-CV, 13-97-901-CV.

Court of Appeals of Texas,

Corpus Christi.

May 21, 1998.

Rehearing Overruled July 30, 1998.

C. Henry Kollenberg, Kirby W. Cronin, Crain, Caton & James, Houston, for appellant.

Roberto Rene Garcia, Garcia & Rodriguez, McAllen, Keith C. Livesay, Stapleton, Livesay & Cowen, Pharr, Frank Sabo, McAllen, for appellee.

Before SEERDEN, C.J., and YANEZ and CHAVEZ, JJ.

OPINION AND MANDAMUS

CHAVEZ, Justice.

Appellant Omega Builders, Inc. (Omega) is a construction contractor that performed work on a project owned by appellee L & L Kempwood Associates, L. P., et al. (L & L Kempwood). The parties had signed contracts that provided for arbitration of "any controversy or claim arising out of or related to the contract, or the breach thereof." The contracts also provided that "notice of demand for arbitration shall be filed in writing with the other party to the agreement between the owner and contractor and with the American Arbitration Association...." A dispute arose concerning Omega's work and Omega filed a lawsuit in district court. L & L Kempwood filed notice of a demand for arbitration with the American Arbitration Association, but did not provide notice to Omega. Omega responded with a motion to stay arbitration, including in the motion an argument that L & L Kempwood had not satisfied the notice provision and therefore had not established their right to arbitration under the contracts. The trial court granted the motion, and L & L Kempwood appealed by way of an interlocutory appeal and a petition for writ of mandamus. Because we determine that L & L Kempwood failed to establish that they had satisfied the notice provision in the contracts and that the notice provision was a condition precedent to the arbitration agreement, we affirm the order of the trial court.

Interlocutory Appeal or Mandamus

This matter is before us both as a petition for writ of mandamus and an interlocutory appeal because the Texas Arbitration Act ¹ (TAA) provides for appellate review by interlocutory appeal, while only mandamus relief is available under the Federal Arbitration Act ² (FAA). EZ Pawn Corp. v. Mancias, 934 S.W.2d 87 (Tex.1996). The Federal Arbitration Act is applicable to any arbitration agreement "evidencing a transaction involving commerce." 9 U.S.C.A. § 2 (1987). The phrase "involving commerce" means commerce among the several states or with foreign nations. 9 U.S.C.A. § 1 (1987). Therefore we must determine whether the contract in this case evidenced a transaction involving interstate commerce.

In 1995 the United States Supreme Court issued two opinions which bear on this issue. The first, issued in January, 1995, was Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). In Allied-Bruce the Court held that the words "involving commerce" should be broadly construed to include any contract "affecting" interstate commerce. Id. at 839-40. However, four months later, in U.S. v. Lopez, 514 U.S. 549, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995), the Court held that, when a law does not concern regulating the channels of interstate commerce, the instrumentalities of interstate commerce, or persons or things in interstate commerce, then Congress has authority to regulate under the Commerce Clause only those activities that "substantially affect" interstate commerce. ³ Id. at 1629-30. The question arises, then, whether the broad "affecting commerce" test stated in Allied-Brucesurvives Lopez 's articulation of a "substantially affect" test.

The few cases our research has uncovered which address this issue have held that Lopez is not applicable to the Federal Arbitration Act, and that the "affecting commerce" test stated in Allied-Bruceremains the standard. See Arbitration Between: Trans Chem. Ltd. and China Nat'l Import and Export Corp., 978 F.Supp. 266, 300-01 (S.D.Tex.1997) (applying Allied-Brucerather than Lopezto issue of whether contract involved interstate commerce); see also Palm Harbor Homes, Inc. v. McCoy, 944 S.W.2d 716, 719-720 (Tex.App.--Fort Worth 1997, no writ) (same). However, we find the reasoning of these cases unpersuasive; rather it seems to us unmistakable that the rule stated in Lopezdoes supplant Allied-Bruce, and we are bound to apply Lopezand its "substantially affect" test.

Although the court in Trans Chem acknowledged that one of the parties had urged the application of Lopez, the court did not explain why it chose to apply Allied-Brucerather than Lopez. Trans Chem, 978 F.Supp. at 300-01. The court in Palm Harborexplained that it did not consider Lopez on point because Lopezdealt with a "criminal statute that by its terms had nothing to do with commerce" and because "the extent of Congress's power to legislate" was not an issue in Palm Harbor, whereas it was an issue in Lopez. Palm Harbor, 944 S.W.2d at 719-20. We do not agree with the Palm Harborcourt's view of Lopez and its relation to the issues presented by the FAA.

In Lopez, the United States Supreme Court noted that the statute at issue did not contain a jurisdictional element that would limit its application to situations with the requisite nexus to interstate commerce. Lopez, 115 S.Ct. at 1631. Many other federal statutes, the Court noted, do contain a provision explicitly providing that the statute only applies when interstate commerce is implicated, and the connection to interstate commerce is an element that must be established on a case-by-case basis. Id. The FAA is one such statute, where the statute only applies to a particular case upon a sufficient showing that the contract at issue involves interstate commerce. Therefore, whether "the extent of Congress's power to legislate" has been exceeded, which the Palm Harborcourt thought was not at issue, is actually an element that must be established in every case before the FAA applies. Allied-Bruceheld that, in establishing the FAA, Congress intended to extend the jurisdiction of the law to the maximum extent permitted under the Commerce Clause. Allied-Bruce, 115 S.Ct. at 840. This aspect of Allied-Bruce remains intact after Lopez. The significant modification of the Allied-Bruceanalysis that results from Lopez is that, after Lopez, the Commerce Clause permits Congress's jurisdictional to reach only as far as matters that "substantially affect" interstate commerce.

Therefore, we examine the contract in this case to see if a substantial effect on interstate commerce is present. The parties to the contract were Omega Builders, a Texas contractor, and L & L Kempwood Associates, L.P., a Georgia partnership. The contract concerned work that was to be done at an apartment complex in Houston, Texas. The project administrator was The HDH partnership, Inc., a Georgia based corporation. All of Omega's work was to be performed in Texas on fixed real property in Texas. Although L & L Kempwood and HDH are entities based in other states, there is no indication in the record that their involvement in this contract changed the localized nature of this contract or affected interstate commerce in any substantial way. We do not believe that interstate commerce is substantially affected when a party from another state hires a party in Texas to do repairs on fixed real property in Texas. The labor, the compensation for that labor, and the effects of the labor all remain in Texas. The only connection to interstate commerce is that the owner hiring the contractor is based in another state and therefore their financing of the project may have some incidental effect on commerce in the owner's home state. We do not consider such a minor and indirect effect on interstate commerce to be "substantial." Because this contract did not concern activities that substantially affect interstate commerce, the Federal Arbitration Act does not apply to this contract, and we will apply the Texas Arbitration Act. Therefore, we conclude that interlocutory appeal, rather than a petition for writ of mandamus, is the proper posture of this case before us.

The Hearing on the Motion to Stay Arbitration

Before the trial court granted Omega's motion to stay arbitration, the court conducted a hearing on the motion. Despite the proddings of L & L Kempwood's counsel and the clerk of this court, the court reporter for that hearing has not produced a reporter's record of that hearing. Ultimately L & L Kempwood filed an affidavit from its attorney who swore that no evidence was presented at the hearing, and the hearing consisted solely of arguments by counsel. L & L Kempwood then filed an unopposed motion to proceed with the appeal without the reporter's record, which this court granted. At oral argument, we instructed the parties that if they presented any evidence at the hearing or felt that any evidentiary issues had been raised at the hearing they should bring those matters to the attention of this court. Counsel for L & L Kempwood has reiterated its position that no evidence was submitted at the hearing. Omega has failed to bring any evidentiary issues to our attention.

In its appellate brief, Omega argues that, by failing to secure the reporter's record from the hearing, L & L Kempwood has failed to present an adequate record to support the appeal, and cites cases for the proposition that, where the appellant has failed to provide a complete record, it must be presumed that the absent portions of the record support the action of the trial court. See, e.g., Englander v. Kennedy, 428 S.W.2d 806, 806 (Tex.1968); Fiesta Mart, Inc. v. Hall, 886 S.W.2d 440, 442-43 (Tex.App.--Houston [1st Dist.] 1994, no writ). However, under the present rules of appellate procedure, which were not in force at the time any of the cases cited by Omega were decided, responsibility for compiling the appellate record now lies with the courts,...