Dallas COA Orders Custom Home Dispute to Arbitration

The Dallas Court of Appeals has held that a dispute over the construction of a custom home should be arbitrated.  In the case, In re Susan Newell Custom Home Builders, Inc., Susan Newell, Individually, and Lisa Doolitte, Relators, No. 05-13-01474-CV (Tex. App.—Dallas, Jan. 14, 2014), Lynne McGreal Tonti signed a contract with Susan Newell Custom Home Builders, Inc. (“the Company”) to build a custom house for her.  The new home contract contained an agreement to arbitrate any future disputes.

Tonti later filed a lawsuit against Susan Newell, the Company, and bookkeeper Lisa Doolittle over a number of allegedly false invoices submitted to her on behalf of the Company by Doolittle.  Although only the Company was a signatory to the contract, all three defendants sought to compel arbitration at the trial court level.  The trial court granted the Company’s motion to compel arbitration, but ordered that both Newell and Doolittle must submit to six-hour depositions over the allegedly fraudulent conduct in order to determine the arbitrability of Tonti’s claims against them.  The two nonsignatories to the contract then filed a writ of mandamus with the Fifth District Court of Appeals in Dallas.

The appeals court stated although a trial court may hold pre-arbitration discovery where “it cannot fairly and properly make its decision on the motion to compel because it lacks sufficient information regarding the scope of the arbitration provision or other issues of arbitrability,” it cannot inquire into the merits of the parties’ dispute.  Next, the court examined Newell and Doolittle’s claim that the arbitration clause should be enforced despite that neither woman signed the contract due to the law of agency.  The Dallas court relied on In re Kaplan Higher Educ. Corp., 235 S.W.3d 206,(Tex.2007) and determined that the arbitration agreement in this case applied to the two nonsignatories because “the wrongful conduct Tonti pleads does not pertain to the arbitration clause in particular, and the discovery sought goes directly to the merits of her claims.”

Finally, Texas’ Fifth District Court of Appeals held that the trial court abused its discretion and Newell and Doolittle had no adequate remedy on appeal.  As a result, the appeals court conditionally granted their request for a writ of mandamus.  The court stated that the writ of mandamus would issue only if the trial court fails to vacate its order for Newell and Doolittle’s depositions and enter an order compelling arbitration of Tonti’s claims against them on remand.