Houston COA Affirms Order Denying Arbitration Where Moving Party Failed to Establish a Valid Arbitral Agreement Existed

Texas’ Fourteenth Court of Appeals in Houston has affirmed a probate court’s order denying arbitration.  In the case, In the Estate of Rosa Elvia Guerrero, No. 14–13–00580–CV (Tex. App. – 14th, September 4, 2014), a woman, Guerrero, agreed to purchase a used sport utility vehicle from a Chevrolet dealership, Champion.   As part of the agreement, the woman signed a retail installment sales contract, a security agreement, a buyer’s order, and an arbitration agreement.  Neither the sales contract nor the security agreement contained a separate alternative dispute resolution provision and each included a merger clause stating the contract embodied the parties’ entire agreement.  The buyer’s order said any “controversy or claim arising out of or relating to this purchase agreement or the breach thereof” must be settled through binding arbitration.  Along with other provisions, the general arbitration agreement Guerrero signed stated all disputes related to any vehicle service that was provided by the dealership must be resolved through arbitral proceedings.

After the dealership allegedly installed used tires on Guerrero’s SUV, a tire apparently failed while Guerrero was driving.  As a result, Guerrero lost control of the SUV and drove into oncoming traffic.  Sadly, both Guerrero and her minor son were killed in the resulting collision.  In addition, three passengers riding in Guerrero’s automobile were injured and another motorist was tragically killed.

Nearly two years later, the estates of both Guerrero and her son filed a wrongful death, personal injury, product liability, and survival action against the tire manufacturer and a tire service business in a Harris County, Texas probate court.  Guerrero’s parents later intervened in the case and added Champion and a number of affiliated companies to the lawsuit as responsible third parties.  In response to the case, Champion filed a motion to compel arbitration and stay the litigation.  The probate court then ordered discovery on the issue of arbitration.

Nine months later, Champion sought to amend its motion and asked the probate court to compel the parties to arbitration on the survival action.  The Chevrolet dealership also requested that the court dismiss the estates’ personal injury and wrongful death claims for lack of jurisdiction.  The court refused to dismiss the requested claims and deferred judgment on Champion’s motion.  Following an additional request to supplement and amend the Chevrolet dealership’s motion to compel arbitration, the probate court issued an order denying the company’s motion.  Champion then filed an interlocutory appeal with Houston’s Fourteenth District Court of Appeals.

First, the appellate court stated although the Chevrolet dealership only claimed that the lower court committed error when it refused to compel arbitration, several sub-issues existed in the case.  According to the court, the company asserted that the parties agreed to submit the underlying action to arbitration and Champion did not waive its right to arbitration.  In addition, the company argued that each of the parties’ claims were within the scope of the agreement to arbitrate despite that many of the parties were non-signatories because the claims were “derivative of Guerrero’s rights” and each sought “to derive a benefit from the sales contract by alleging claims related to the sale and service of the vehicle.” The plaintiffs countered that the dealership failed to demonstrate a valid arbitration agreement existed, Champion did not negate each legal theory supported by the record, the arbitral agreement at issue did not purport to bind non-signatory heirs, and the merger clauses included in the contracts required the court to ignore the arbitration agreement signed by Guerrero.

Next, the Fourteenth District examined whether the Chevrolet dealership established that a valid agreement to arbitrate existed.  According to the court, Champion failed to offer sufficient evidence to meet its burden of demonstrating that the parties agreed to arbitrate their disputes.  The Court of Appeals then dismissed Champion’s claim that the plaintiffs “judicially admitted the existence of an arbitration agreement signed by Guerrero.”  The court stated,

…The elements required for a judicial admission are: (1) a statement made during the course of a judicial proceeding; (2) that is contrary to an essential fact or defense asserted by the person making the admission; (3) that is deliberate, clear, and unequivocal; (4) that, if given conclusive effect, would be consistent with public policy; and (5) that is not destructive of the opposing party’s theory of recovery. Id.; Lee v. Lee, 43 S.W.3d 636, 641–42 (Tex.App.-Fort Worth 2001, no pet.).

We conclude counsel’s statements in this case are not “deliberate, clear, and unequivocal.” These statements do not rise to the level required to constitute judicial admissions. See Horizon/CMS Healthcare Corporation v. Auld, 34 S.W.3d 887, 905 (Tex.2000) (finding no judicial admission by counsel’s statement, “First of all, Your Honor, I think it’s very important—do you have the agreement the plaintiff—the agreement that my client entered into?”).

The Houston court next held that the plaintiffs did not waive their objections “to the admissibility of the Arbitration Agreement and other contract documents.”  The appellate court said,

However, “[a] complete absence of authentication is a defect of substance that is not waived by a party failing to object and may be urged for the first time on appeal.” Blanche v. First Nationwide Mfg. Corp., 74 S.W.3d 444, 451 (Tex.App.Dallas 2002, no pet.); Mayo, No. 14–07–00491–CV, 2008 WL 4355259, at *5 (holding no objection is required to preserve error challenging unauthenticated or unsworn documents, or documents not supported by an affidavit). Objections to defects in the substance of summary judgment proof are not required to be first presented to, and ruled on by, the trial court. See Green v. Indus. Specialty Contractors, Inc., 1 S.W.3d 126, 130 (Tex.App.-Houston [1st Dist.] 1999, no pet.) (holding objection that summary judgment affidavit was conclusory was not waived even though the objecting party failed to obtain a ruling from the trial court); Ramirez v. Transcon. Ins. Co., 881 S.W.2d 818, 829 (Tex.App.-Houston [14th Dist.] 1994, writ denied) (same); see also Perkins v. Crittenden, 462 S.W.2d 565, 568 (Tex.1970) (reversing summary judgment because an unverified copy of a promissory note was offered as summary judgment evidence, even though the complaint was raised for the first time on appeal).

The court added,

The Texas Supreme Court has recognized that it has “explicitly allowed parties to deviate” from the preservation requirements in limited circumstances. See Mansions, 365 S.W.3d at 317. In Mansions, the court cited Perkins, which addressed a complaint raised for the first time on appeal and distinguished the absence of an affidavit from a defective affidavit that is subject to correction. Id. (citing Perkins, 462 S.W.2d at 568). The absence of an affidavit verifying a copy of the instrument attached as summary judgment proof amounts to no proof. See id. In this case, because Champion provided no affidavit, Perkins does not require a ruling on the objection. See id.

Because Champion failed to establish a valid agreement to arbitrate existed, Houston’s Fourteenth District Court of Appeals affirmed the lower court’s decision denying the Chevrolet dealership’s motion to compel arbitration.

In a dissenting opinion, the Chief Justice disagreed with the majority’s holding “that the failure of the movant to authenticate the attached copy of the arbitration agreement is a defect in substance rather than a defect in form,” by stating,

Under recent precedent from the Supreme Court of Texas and from this court, this flaw is a defect in form that the claimants waived by their failure to object and obtain a ruling on their objection in the trial court. Accordingly, the trial court’s order cannot properly be affirmed based on this defect.

Photo credit: a_whisper_of_unremitting_demand / Foter / CC BY