Gary Zars d/b/a Gary's Pool & Patio Store v. Jeremy and Brandi BrownlowAppeal from County Court at Law No 1 of Hays County (memorandum opinion )
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In The
Court of Appeals
Seventh District of Texas at Amarillo
No. 07-07-00303-CV
GARY ZARS D/B/A GARY'S POOL & PATIO STORE, APPELLANT
V.
JEREMY AND BRANDI BROWNLOW, APPELLEES
On Appeal from the County Court at Law No. 1
Hays County, Texas
Trial Court No. 8877-C, Honorable Howard Warner, Presiding
June 28, 2013
MEMORANDUM OPINION
Before QUINN, C.J., and CAMPBELL and PIRTLE, JJ.
Appellees Jeremy Brownlow and Brandi Brownlow sued appellant Gary Zars
d/b/a Gary’s Pool and Patio Store for damages allegedly arising from the installation of
a residential swimming pool and patio. After denying Zars’ motion to compel arbitration
the trial court entered a “death-penalty” sanction against Zars in the form of a default
judgment. We will reverse the judgment and remand the case with instructions to the
trial court to refer the case to arbitration and abate further case proceedings during the
pendency of arbitration.
Background
In their petition, the Brownlows allege during May 2004 they reached an
agreement with Zars for the installation of a home swimming pool and construction of a
patio. Zars installed a pool at the Brownlows’ home, but they contend the work was not
performed according to the agreement and Zars’ representations. They accordingly
brought suit against Zars in March 2005 alleging breach of contract, negligence,
violations of the Deceptive Trade Practices Act, and fraud.
Zars answered and moved to compel arbitration based on a clause in a
document entitled “swimming pool agreement.” The trial court denied Zars’ motion.
The subsequent pretrial period was punctuated by discovery disputes. Twice the
trial court issued monetary sanctions against Zars. Then, on a motion for death-penalty
sanctions, the trial court rendered judgment by default in favor of the Brownlows.
Zars filed a notice of appeal in June 2007. On a suggestion of Zars’ bankruptcy
filed in September 2007 we suspended the case.1
In August 2012, Zars’ case in
bankruptcy was dismissed without a discharge. Later that month we reinstated this
appeal.
Analysis
In his second issue, Zars complains the trial court erred by not referring the case
to arbitration.
1
See Tex. R. App. P. 8.2. (effect of bankruptcy).
2
On May 10, 2004, Zars’ employee and both the Brownlows signed the swimming
pool agreement. The document identifies the Brownlows by name and address and
refers to them as “owner.”
The following section is headed “swimming pool
specifications.” As completed it names the type (“FiberGlass Pools of Texas”), color
and size of the pool. It lists other specifications and identifies by name various options
and equipment with which the pool was to be equipped. Other entries merely refer to
undescribed “plans,” such as those reading “equipment run per plan” and “electric per
plan.” The space for “special job instructions” contains an entry reading “possible rock
excavation 300.00 (sic) move on 150.00 hr after.” The section ends with a statement of
the total price and payment terms.
The next section of the agreement, headed “assignment of responsibility,” lists
eleven separate project tasks, and allocates the tasks between “Gary’s” and the
“owner.” The tasks include “delivery, job supervision, excavation, sand, crane, set &
level, set equipment, plumbing lines, complete backfill, electrical connections, [and] fill &
start up.”
As completed, this agreement allocated all the listed tasks to Gary’s.
Immediately following the list of tasks is the statement, “See attached general conditions
for details.”
The agreement also contains a section entitled “Notes,” in which the cost of the
project is itemized. Its hand-written entries read: “Deposit 100% refundable contingent
on financing before O.S.I.[2]
Pool Price $17,495.00 Decking $2000.00 Baby Lock
$2500.00 Total Pool Budget $21.995 (sic) Deposit Check #4547 Financing-”. Printed
2
The abbreviation “O.S.I.” appears twice in the hand-written entries on the
agreement, but is not defined.
3
across the bottom of the page is the statement, “You may cancel this transaction at any
time prior to midnight of the third business day after the date of this transaction. I have
received the notice of cancellation form. I have also received a copy of the general
conditions.” Immediately following, beneath the heading “accepted by owner” appear
the signatures of the Brownlows. To the right is the signature of Zars’ employee.
The “General Conditions” are printed on the reverse of the one-page swimming
pool agreement, and consist of eighteen numbered paragraphs. As an example of the
conditions, the first paragraph provides that “work called for in this agreement shall be
performed in a good and workmanlike manner and shall carry Gary’s guarantee against
defects in material and workmanship for one year from delivery.” Other paragraphs
elaborate on the responsibilities of the parties. As another example, one paragraph
states, “Owner is responsible for any permits required.”
Another reads, “Pool
equipment shall be located within twenty feet . . . of pool.” The paragraph numbered
seventeen is the arbitration clause:
Any controversy or claim arising out of or relating to this contract or breach
thereof or any claim whatsoever with Gary’s including claims under the
DTPA shall be settled by Arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and Judgment
on the award rendered by the Arbitrator may be entered in any Court
having jurisdiction thereof. Any Arbitration between the parties shall be in
Bexar County, Texas.
In affidavits filed with their response to Zars’ motion to compel arbitration, the
Brownlows each aver that an employee of Zars filled in the blanks on the swimming
pool agreement and asked them to sign. They were not told of any terms on the
reverse side of the document.
4
Texas procedure controls a trial court’s determination of whether disputed claims
fall within the scope of an arbitration clause. Jack B. Anglin Co. v. Tipps, 842 S.W.2d
266, 268 (Tex. 1992). Under our state’s procedures, a trial court may decide a motion
to compel arbitration based on summary judgment-type proof.
Id. at 269.
If the
arbitrability determination cannot be made as a matter of law, “the trial court must
conduct an evidentiary hearing to determine the disputed material facts.” Id.
We review a trial court’s ruling on a motion to compel arbitration under an abuse
of discretion standard. Jack B. Anglin Co., 842 S.W.2d at 271; Teel v. Beldon Roofing
& Remodeling Co., 281 S.W.3d 446, 448 (Tex.App.--San Antonio 2007, pet. denied);
Cleveland Constr., Inc. v. Levco Constr., Inc., 359 S.W.3d 843, 851 (Tex.App.--Houston
[1st Dist.] 2012, pet. dism’d). A trial court abuses its discretion when it acts arbitrarily or
unreasonably and without reference to any guiding rules or principles.
Downer v.
Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42 (Tex. 1985). Review under this
standard requires deference to the factual determinations of the trial court while legal
determinations are reviewed de novo. In re Labatt Food Serv., 279 S.W.3d 640, 643
(Tex.2009) (orig. proceeding).
A party seeking to compel arbitration must establish the existence of a valid
arbitration clause and that the disputed claims fall within the scope of the agreement. In
re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding)
(under Federal Arbitration Act). If a party establishes a valid arbitration agreement
whose scope includes the claims asserted, the burden shifts to the party opposing
arbitration to prove its defenses to arbitration. In re AdvancePCS Health L.P., 172
S.W.3d 603, 607 (Tex. 2005) (orig. proceeding) (per curiam).
5
The Brownlows argue the swimming pool agreement is not a contract because it
fails to state with sufficient clarity the terms of any agreement among the parties and “is
merely corroborating evidence of the existence of an oral contract, made on May 1,
2004 for a pool and patio.” They focus on the sufficiency of the offer and point to a
claimed absence of mutuality in the terms of the document.
A valid contract requires an offer, acceptance, and consideration.
Burges v.
Mosley, 304 S.W.3d 623, 629 (Tex.App.--Tyler 2010, no pet.). The terms of a legally
binding contract must be of such definiteness that a court can understand the obligation
the promisor undertook. T. O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218,
221 (Tex. 1992). For a contract to be judicially enforceable, the parties must agree on
the material terms of the contract. Id. “Whether a term forms an essential element of a
contract depends primarily upon the intent of the parties. . . . The question is whether
the parties regard the term as a vitally important ingredient of their bargain.” Domingo
v. Mitchell, 257 S.W.3d 34, 40-41 (Tex.App.--Amarillo 2008, pet. denied) (citations
omitted). On acceptance, an offer results in a binding contract but if an offer is so
indefinite that a court is unable to interpret its meaning and fix the liability of the parties
its acceptance does not create an enforceable agreement. Baldwin v. New, 736 S.W.2d
148, 152 (Tex.App.--Dallas 1987, writ denied). An enforceable contract requires the
parties mutually agree to the subject matter of the contract and all its essential terms.
Weynand v. Weynand, 990 S.W.2d 843, 846 (Tex.App.--Dallas 1999, pet. denied).
Generally, a party manifests assent by signing an agreement. Rachal v. Reitz, No. 110708, 2013 Tex. Lexis 348, at *12-13 (Tex. May 3, 2013) (citing Mid-Continent Cas. Co.
v. Global Enercom Mgmt., Inc., 323 S.W.3d 151, 157 (Tex. 2010)).
6
As we have noted, the swimming pool agreement identifies the parties, describes
the swimming pool to be installed along with equipment and accessories, assigns
responsibility for the installation and related tasks, itemizes the project cost along with a
grand total, specifies payment terms, conditions the Brownlows’ obligation on obtaining
financing “before O.S.I.,” and expressly signifies the Brownlows’ acceptance by their
signatures. Zars’ employee signed it also. Notwithstanding the Brownlows’ complaints
that the document is a pre-printed form with hand-written entries and contains only three
complete sentences, we find the substance of the document sufficiently definite and
expressive of the intention of the parties.
Moreover, even were we to say the swimming pool agreement fails to legally
memorialize an agreement for the installation of a swimming pool, the arbitration clause
remains.
Parties may create a valid stand-alone arbitration agreement.
In re
AdvancePCS Health L.P., 172 S.W.3d at 607. A mutual agreement to arbitrate claims
provides sufficient consideration for an arbitration agreement. In re U.S. Home Corp.,
236 S.W.3d 761, 764 (Tex. 2007) (orig. proceeding) (per curiam). The parties here
expressly agreed that all claims arising out of or relating to the agreement for installation
of a swimming pool would be submitted to arbitration. This agreement bound both the
Brownlows and Zars to arbitrate any disputes within the scope of the arbitration
agreement. For this reason also, we find a valid arbitration clause existed among the
parties.
In determining whether a claim is within the scope of an arbitration agreement, a
court focuses on the factual allegations of the complainant rather than the legal cause of
action asserted. Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 900 (Tex.1995)
7
(orig. proceeding) (per curiam). “If the facts alleged touch matters, have a significant
relationship to, are inextricably enmeshed with, or are factually intertwined with the
contract containing the arbitration agreement, the claim is arbitrable.”
Cotton
Commercial USA, Inc. v. Clear Creek ISD, 387 S.W.3d 99, 108 (Tex.App.--Houston
[14th Dist.] 2012, no pet.) (internal quotation marks omitted) (citing Pennzoil Co. v.
Arnold Oil Co., 30 S.W.3d 494, 498 (Tex.App.--San Antonio 2000, orig. proceeding)).
But “[i]f the facts alleged in support of the claim stand alone, are completely
independent of the contract, and the claim could be maintained without reference to the
contract, the claim is not subject to arbitration.” Cotton Commercial, 387 S.W.3d at 108
(citing Pennzoil, 30 S.W.3d at 498). A court resolves doubts concerning the scope of an
arbitration agreement in favor of arbitration. In re FirstMerit Bank, 52 S.W.3d 749, 753,
(Tex. 2001) (orig. proceeding). A motion to compel arbitration should not be denied
“unless it can be said with positive assurance that an arbitration clause is not
susceptible of an interpretation which would cover the dispute at issue.”
Hardee's Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990).
Neal v.
Broad language in an
arbitration clause, such as “in connection with or relating to,” embraces all disputes
between the parties having a significant relationship to the contract regardless of the
label attached to the dispute. Pennzoil Exploration & Prod. Co. v. Ramco Energy, 139
F.3d 1061, 1067 (5th Cir. 1998).
Through detailed factual allegations, the Brownlow’s petition alleges Zars failed
to install a swimming pool and patio according to written and oral representations.
Included are complaints of substandard workmanship and installation of inferior goods.
The allegations of fact concern conduct arising out of or relating to the parties’
8
agreement for installation of a swimming pool and patio. We find the conduct alleged
comes within the scope of their arbitration agreement.
If a party seeking arbitration satisfies its initial burden of proving the existence of
an agreement to arbitrate, then a strong presumption favoring arbitration arises, and the
burden shifts to the party opposing arbitration to prove any affirmative defense to the
agreement. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Thus it
was for the Brownlows to present something more than a scintilla of evidence on each
element of any affirmative defense they possessed. The Brownlows argue that Zars
through his employee fraudulently induced them into the swimming pool project “by,
among other things, obscuring the existence of the arbitration clause.” According to the
affidavits of the Brownlows, Zars’ employee asked them to sign the swimming pool
agreement without mentioning or showing them the reverse side.
This does not amount to evidence raising an issue of material fact. By signing
the swimming pool agreement, the Brownlows acknowledged receipt of the general
conditions. Condition seventeen is the arbitration agreement. And there is no evidence
that anyone prevented them from reading both sides of the swimming pool agreement
they signed. A court presumes a party who has an opportunity to read an arbitration
agreement and signs it, knows its contents. EZ Pawn Corp. v. Mancias, 934 S.W.2d 87,
90 (Tex. 1996) (orig. proceeding) (per curiam). As is true of any clause in a contract, an
arbitration clause cannot be avoided merely because a party does not read it. In re U.S.
Home Corp., 236 S.W.3d 761, 764 (Tex. 2007) (orig. proceeding) (per curiam). The
conduct alleged here does not constitute fraud. Id.
9
Finding Zars established a valid arbitration clause and the Brownlows did not
demonstrate an issue of fact on their fraudulent inducement defense, we sustain Zars’
second issue.
Denial of his motion to compel arbitration had the effect of depriving Zars of the
benefits of the arbitration clause for which he contracted, and of defeating the purpose
of providing the alternative to litigation. See Jack B. Anglin Co., 842 S.W.2d at 272
(finding remedy for such error by appeal inadequate and mandamus available).
In that
sense, the trial court’s error in denying referral to arbitration may be said to have
“probably caused the rendition of an improper judgment,” requiring reversal. See Tex.
R. App. P. 44.1(a) (standard for reversible error). If additional reason for reversing the
judgment is required, however, we find it in Zars’ first issue, by which he contends the
death-penalty sanction assessed by the court was excessive.
In February 2007, the Brownlows filed a pleading entitled “Plaintiffs’ Request for
Judgment.”
Therein they alleged a history of discovery abuse and contumacious
conduct by Zars. Although not stated expressly, it appears the Brownlows sought a
death-penalty sanction against Zars in the form of a default judgment. See Tex. R. Civ.
P. 215.2(b)(5).
The March 2007 hearing on the Brownlows’ motion for judgment was brief.
Counsel for the Brownlows presented by argument a chronological history of Zars’
asserted discovery abuses.
This began with failure to respond to a request for
disclosure and request for production in May 2005.
An unspecified sanction was
entered and the requested documents produced. The Brownlows served a second
10
request for production of documents during November 2005. Zars made no response.
At an October 2006 hearing, the trial court ordered Zars to produce the requested
documents by November 30. It also imposed a $1,600 monetary sanction. Zars neither
paid the sanction nor produced any documents.
Neither side offered evidence at the hearing, although in his argument counsel
for the Brownlows referenced affidavits attached to the motion for judgment. Counsel
for Zars objected to the affidavits as containing hearsay, conclusory statements, and
unqualified expert opinions. The court overruled the objections. At the conclusion of
the hearing, the court rendered judgment on the Brownlows’ motion. The same day it
signed a judgment awarding the Brownlows actual damages of $37,000 and attorney’s
fees of $15,000.
A sanction must be just. Tex. R. Civ. P. 215.2(b). The justness of a sanction is
measured by two standards:
“First, a direct relationship must exist between the
offensive conduct and the sanction imposed.” TransAmerican Natural Gas Corp. v.
Powell, 811 S.W.2d 913, 917 (Tex. 1991).
“Second, just sanctions must not be
excessive. The punishment should fit the crime.” Id.
For failure to comply with a discovery request or order, civil rule 215.2(b)(5)
offers a trial court sanctions of last resort, commonly known as death-penalty sanctions.
Paradigm Oil, Inc. v. Retamco Operating, Inc., 372 S.W.3d 177, 179 (Tex. 2012). The
available remedies include striking all or a portion of pleadings, dismissing the action
with or without prejudice, or rendering a default judgment against the disobedient party.
Tex. R. Civ. P. 215(b)(5). The merits of a party’s claims may not be adjudicated through
11
discovery sanctions unless the party’s hindrance of the discovery process justifies a
presumption that his claims or defenses lack merit. TransAmerican, 811 S.W.2d at 918.
The presumption may appropriately arise if a party refuses to produce material evidence
despite the imposition of lesser sanctions. Id. “Sanctions which are so severe as to
preclude presentation of the merits of the case should not be assessed absent a party’s
flagrant bad faith or counsel’s callous disregard for the responsibilities of discovery
under the rules.” Id.
The unusual nature of this case leads us to conclude death-penalty sanctions
were excessive. We have already found the trial court erred in not referring the case to
arbitration as Zars requested.
The discovery dispute that followed turned on Zars’
refusal to answer written discovery requests. Discovery such as authorized by our rules
of civil procedure is not available under the rules of the American Arbitration
Association, the dispute resolution service to which the parties expressly agreed to
submit their disputes.
See American Arbitration Association Construction Industry
Arbitration Rules (providing at Rule F-9, “There shall be no discovery, except as
provided [through the exchange of information procedure of Rule F-8] or as ordered by
the arbitrator in exceptional cases”).3
While Zars’ persistent noncompliance with discovery orders may have justified a
lesser sanction, a matter on which we express no opinion, we must conclude the trial
court abused its discretion by imposing a sanction that precluded presentation of the
3
See www.adr.org/aaa/faces/aoe/cre/construction
12
merits of the case when it should previously have referred the case to arbitration.
Accordingly, we sustain Zars’ first issue.
By his third issue, Zars asserts the damages awarded by the trial court are not
supported by the evidence, and by his fourth issue he contends the trial court should not
have considered the affidavits of the Brownlows and their attorney. 4
We find
consideration of those issues unnecessary to the disposition of the appeal. Tex. R.
App. P. 47.1.
Conclusion
We reverse the judgment of the trial court and remand the case with instructions
to refer the case to arbitration and abate the case during the pendency of arbitration.
James T. Campbell
Justice
4
With regard to the third and fourth issues, we note, however, that the trial court
did not strike Zars’ answer. It is unclear whether, under the analysis in Paradigm Oil,
372 S.W.3d at 184, the hearing on the Brownlows’ motion for judgment would be
considered under the standard for a no-answer or a post-answer default judgment.
13
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