Texas Supreme Court Holds Arbitration Agreement May Grant Non-Signatories the Right to Compel Arbitration

The Supreme Court of Texas has held “parties to an arbitration agreement may grant non-signatories the right to compel arbitration.”

In In re Rubiola, No. 09-0309, (Tex., March 11, 2011), Brian and Christina Salmon agreed to purchase a home from Greg and Catherine Rubiola with J.C. Rubiola acting as listing broker for the transaction. Brothers Greg and J.C. Rubiola jointly operate a number of real estate and mortgage companies in San Antonio, including Rubiola Management, L.L.C. and Rubiola Mortgage Company. The Rubiola’s various business entities operate at the same location under the name Rubiola Mortgage and Realty. The parties’ purchase agreement was a standard Texas real estate sales contract and did not contain an arbitration clause. The Salmons obtained mortgage financing from Rubiola Mortgage Company and signed an arbitration agreement as part of the mortgage process.

Although the only signatories to the arbitration agreement were the Salmons and J.C. Rubiola, in dual capacity as real estate agent and mortgage broker representing Rubiola Mortgage Company, the agreement defined parties as,

Rubiola Mortgage Company, and each and all persons and entities signing this agreement or any other agreements between or among any of the parties as part of this transaction. “The parties” shall also include individual partners, affiliates, officers, directors, employees, agents, and/or representatives of any party to such documents, and shall include any other owner and holder of this agreement.

Several months later, the Salmons sued the Rubiolas along with other business entities involved in repairing the home. The Salmons alleged that a series of misrepresentations were made to induce them to purchase the home. They also alleged violations of the Texas Deceptive Trade Practices Act and negligent supervision of repairs made to the home. The Salmons sought to rescind the sale or collect damages. The Rubiolas moved to compel arbitration pursuant to the mortgage finance agreement. The trial court denied the Rubiolas’ motion and the court of appeals likewise refused to compel arbitration during a mandamus proceeding. The Rubiolas then sought mandamus review before the Supreme Court of Texas.

First, the Texas Supreme Court noted that, in general, only signatories to an arbitration agreement are bound by its terms. The Court continued by stating although non-signatories are typically bound by arbitration agreements only in rare circumstances, “[w]ho is actually bound by an arbitration agreement is [ultimately] a function of the intent of the parties, as expressed in the terms of the agreement.”

According to the Court, this case was different in that a non-signatory was seeking to compel arbitration against a signatory. The Court agreed with the Rubiolas that the definition of “parties” provided by the arbitration agreement was broad and both J.C. and Greg Rubiola were parties to the agreement. The Court then concluded,

Because the arbitration agreement expressly provides that certain nonsignatories are considered parties, we conclude that such parties may compel arbitration under the agreement.

Next, the Court stated the claims brought by the Salmons fell under the terms of the arbitration agreement.

The underlying arbitration agreement defines arbitrable disputes to include “any and all controversies between the parties of whatever type or manner, including without limitation, all past, present and/or future credit facilities and/or agreements involving the parties.” The Rubiola brothers were, as we have already concluded, non-signatory parties to the arbitration agreement, which broadly covers all controversies between the parties and all past, present or future agreements involving the parties. This language indicates that the arbitration agreement was not limited to the financing part of the transaction but rather extended to the real estate sales contract and the Salmons’ complaints regarding that sale.

According to the Court,

We conclude that signatories to an arbitration agreement may identify other parties in their agreement who may enforce arbitration as though they signed the agreement themselves.

The Supreme Court of Texas held the Rubiolas had the right to compel the parties’ dispute to arbitration and conditionally granted their request for mandamus relief.

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