Wylie Independent School Dist. v. TMC Foundations, Inc.

• Decision Date: 21 March 1989
• Docket Number: No. 05-88-00429-CV,05-88-00429-CV
• Citation: 770 S.W.2d 19
• Parties: 53 Ed. Law Rep. 1016 WYLIE INDEPENDENT SCHOOL DISTRICT, Appellant, v. TMC FOUNDATIONS, INC., Appellee.
• Court: Texas Court of Appeals

Page 19

770 S.W.2d 19

53 Ed. Law Rep. 1016

WYLIE INDEPENDENT SCHOOL DISTRICT, Appellant, v. TMC FOUNDATIONS, INC., Appellee.

No. 05-88-00429-CV.

Court of Appeals of Texas Dallas.

March 21, 1989.

Rehearing Denied May 1, 1989.

Earl Luna, Steven M. Dow, Dallas, for appellant.

Stephen C. Rasch, Dallas, for appellee.

Before HOWELL, STEWART and THOMAS, JJ.

THOMAS, Justice.

Appellant, Wylie Independent School District (WISD), appeals from the denial of its application for temporary injunction to stay arbitration of a dispute arising under a contract between WISD and appellee, TMC Foundations, Inc. In four points of error, WISD contends that the court: (1) erred and abused its discretion in denying its application for a temporary injunction; (2) erred in concluding that TMC could obtain specific enforcement of the agreement to arbitrate; (3) erred in concluding that TMC had not waived its right to arbitration; and (4) erred in concluding that WISD would probably not prevail upon the trial in this cause. The decisive legal question is whether the executory agreement to arbitrate can be specifically enforced by TMC. If it were specifically enforceable, the denial was proper; if not, the injunction should have been granted. For the reasons stated below, we affirm the trial court's judgment.

FACTUAL BACKGROUND

WISD entered into a construction contract with TMC for additions to and the renovation of two elementary schools. When a dispute developed regarding a claim for reimbursement of certain fees previously paid, TMC filed a Demand for Arbitration relying upon section 7.9 of the agreement which provides as follows:

7.9 ARBITRATION

7.9.1. All claims, disputes and other matters in question between the Contractor and the Owner arising out of, or relating to, the Contract Documents or the breach thereof ... shall be decided by arbitration in accordance with the Construction Industry Arbitration rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise.... The foregoing agreement to arbitrate and any other agreement to arbitrate with an additional person or persons duly consented to by the parties to the Owner-Contractor Agreement shall be specifically enforceable under the prevailing arbitration law. The award rendered by the arbitrator WISD attempted to revoke the agreement to arbitrate and sought to avoid arbitration by filing an action seeking declaratory relief and a temporary injunction to stay the arbitration proceedings.

shall be final and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof.

STANDARD OF REVIEW

The standard of review applicable to an appeal from the denial of a temporary injunction is "whether the trial court abused its discretion in refusing to grant the temporary relief." Navarro Auto-Park, Inc. v. City of San Antonio, 580 S.W.2d 339, 340 (Tex.1979). Where, as here, only a question of law is presented, appellate review is limited to determining whether the trial court properly applied the law to the undisputed facts. Sonny Arnold, Inc. v. Sentry Sav. Ass'n., 615 S.W.2d 333 (Tex.Civ.App.--Amarillo 1981), aff'd, 633 S.W.2d 811 (Tex.1982).

ENFORCEMENT OF ARBITRATION AGREEMENTS

There are two modes of creating specifically enforceable agreements to arbitrate future contractual disputes. The first is by complying with the provisions of a statute authorizing the power to compel arbitration; the second is by meeting the requirements of the common law. WISD and TMC agree that the applicable statute at the time of their contract was article 224-1 of the Texas Revised Civil Statutes. ¹ Further, the parties agree that this contract does not contain the statutory notice requirement ². Because this contract does not comply with the statute and thus, is outside the scope of any statute compelling arbitration, our function is to judge the validity of the agreement "under such common law rules as may be relevant." L.H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 352 (Tex.1977).

The last time the supreme court wrote to address whether a party to an executory agreement providing for arbitration of future disputes is allowed to revoke the agreement was in the Lacy opinion in 1977. It is without question that prior to the Lacy decision, the Texas common law rule was that either party could revoke the agreement to arbitrate at any time before the arbitration proceeding resulted in an award. Further, the only penalty for such revocation consisted of damages for breach of contract. Lacy, 559 S.W.2d at 352. In Lacy, the court was not required to overturn the common law rule because the City of Lubbock failed to make its withdrawal prior to the award being made. However, the court writing through Chief Justice Greenhill, took the opportunity to strongly criticize the traditional common law rule and pointed out that it had long since been abandoned in England by case law. The court further stated that an increasing number of American jurisdictions have rejected the rationale. In explaining that this common law rule no longer fits the needs of modern society, the court stated:

The doctrine was evolved in an era when court congestion was not a major problem as it is today, and in modern times a policy encouraging agreements to arbitrate is preferable. In addition to alleviating some measure of the burden on the courts, arbitration in a commercial context is a valuable tool which provides business people, and all citizens, with greater flexibility, efficiency, and privacy. While it is unnecessary in this case to alter common law arbitration rules, the policy of refusing specific enforcement to executory arbitration agreements is not justifiable when the case fits within the common mold.

Lacy, 559 S.W.2d at 352 (emphasis added) (citation omitted). We find Chief Justice Greenhill's statements on behalf of the Texas Supreme Court to be persuasive and an indication of the direction to be taken in these matters.

In our case, the trial court based its conclusion that Texas common law allows specific enforcement of agreements to arbitrate future disputes upon Olshan Demolishing Co. v. Angleton Indep. School Dist., 684 S.W.2d 179 (Tex.App.--Houston [14th Dist.] 1984, writ ref'd n.r.e.). In Olshan, the court held that a party to an agreement to arbitrate future disputes may obtain specific enforcement of that agreement despite attempted revocation of the arbitration agreement by the other party. The Olshan case concerned a dispute arising between a contractor and a school district with Olshan suing to compel arbitration between the parties based upon their agreement to arbitrate. Seizing upon the supreme court's language in Lacy, the Fourteenth District Court of Appeals stated:

We find the reasoning of the L.H. Lacy Co. opinion to be sound. By enforcing these agreements to arbitrate, disputes will be resolved faster and more efficiently by arbitrators who have knowledge of the general conditions of the dispute. Encouraging arbitration will reduce some of the backlog in our trial courts.... We hold that a party to an agreement to arbitrate future disputes may obtain specific enforcement of that agreement despite the attempted revocation of the arbitration agreement by another to that agreement.

Olshan, 684 S.W.2d at 184.

When the school district sought a writ of error from the Texas Supreme Court, the application was refused with the notation "no reversible error." We recognize that the annotation "n.r.e." is dubious when one attempts to extract any authoritative value from it, particularly where the action of the appeals court is predicated on more than one ground. See generally Robertson & Paulsen, Rethinking the Texas Writ of Error System, 17 TEX.TECH L.REV. 1, 30-41 (1986). However, it is equally true that an "n.r.e." stamp is in every sense a decision on the merits of the appeal, and it can have great influence upon whether a court of appeals decision is later cited as authority and followed.

In the Olshan case, the issue of specific enforcement of executory agreements to arbitrate was squarely before the supreme court and thus the court had the opportunity to reject the holding of the Fourteenth District Court of Appeals. The application for writ of error and the motions for rehearing specifically asserted that: "The court of appeals erred in failing to give effect to the undisputed revocation by the school district of the executory common law agreement to arbitrate involved in the case at bar, and instead purporting to alter the common law." Under these circumstances, it would appear that the denial of the application for writ of error is an indication of the court's approval of the holding and result in Olshan.

There has only been one published case since Lacy that cites the old common law rule with approval. See Mendoza v. Canizales, 695 S.W.2d 266 (Tex.App.--San Antonio 1985, no writ). In this dispute between a boxer and his manager, the appellate court was not confronted directly with whether a party may obtain specific performance of an agreement to arbitrate. The point before the Fourth District Court of Appeals was whether the trial court had jurisdiction to enter the temporary injunction because of the arbitration clause. In deciding that the trial court did...