                                      In The

                                Court of Appeals
                    Ninth District of Texas at Beaumont
                             ____________________

                               NO. 09-17-00071-CV
                              ____________________

     WATERSTONE ON LAKE CONROE, INC. AND STEVE BOWEN,
                        Appellants

                                         V.

          DEE WILLIAMS AND ANDY WILLIAMS, Appellees
__________________________________________________________________

                On Appeal from the 284th District Court
                      Montgomery County, Texas
                   Trial Cause No. 16-09-10736-CV
__________________________________________________________________

                          MEMORANDUM OPINION

      Waterstone on Lake Conroe, Inc. (“Waterstone”) and Steve Bowen appeal

from the trial court’s order denying a motion to compel arbitration in a suit brought

by Dee and Andy Williams (“the Williamses”). The Williamses’ suit includes claims

arising from a new home construction agreement they entered into with Virgin

Homes, Inc. (“Virgin”). In its order denying arbitration, the trial court found that




                                         1
Waterstone and Bowen are not entitled to arbitration because they are not signatories

on the contract containing the arbitration provision.

      In issue one, Waterstone and Bowen complain that the trial court erred by

denying the motion to compel because the scope of the arbitration agreement

includes all claims arising from or relating to the Williamses’ and Virgin’s contract;

any breach of that contract; the construction of the home; and any acts or omissions

by Virgin or by Virgin’s officers, directors, or agents. Waterstone and Bowen

contend that because the arbitration agreement includes claims against officers and

agents of Virgin, agents and officers need not be signatories to compel arbitration.

In issue two, Waterstone and Bowen argue that estoppel principles require

arbitration because the Williamses’ claims against Waterstone and Bowen are

intertwined with the purchase agreement containing the arbitration agreement, and

because the Williamses’ allegations involve substantially interdependent and

concerted misconduct by the signatory and nonsignatories.

      Because Waterstone and Bowen are non-signatories who may compel

arbitration and because the Williamses’ factual allegations against Waterstone and

Bowen are factually intertwined with the purchase agreement that contains the

arbitration provision, we conclude the trial court erred by denying Waterstone’s and

Bowen’s motion to compel. Accordingly, we reverse the trial court’s order denying

                                          2
arbitration and remand to the trial court with instructions to enter an order granting

Waterstone’s and Bowen’s motion to compel.

                                     Background

      In September 2012, the Williamses entered into a purchase agreement with

Virgin for the construction of a new home. The Williamses and Bowen, the President

of Virgin, signed the purchase agreement. The purchase agreement contains a

binding arbitration agreement that states:

             The parties agree that all controversies, claims or matters in
      question arising out of or relating to (i) this Contract, (ii) any breach or
      termination of this Contract, (iii) the construction of the Home, (iv) any
      acts or omissions by Virgin Homes, Inc. (and its officers, directors, or
      agents), and/or (v) any actual or purported representations or
      warranties, express or implied, relating to the Property and/or the Home
      (herein referred to collectively as a “Dispute”) shall be subject to
      binding arbitration.

The arbitration agreement states that it “shall be governed by Texas law and the

U.S. Arbitration Act . . . , to the exclusion of any provisions of State Law that are

inconsistent with the application of the Federal Act.” The arbitration agreement

further provides that the award of the arbitrator “shall be rendered in accordance

with [F]AA rules then in effect.”

      Attached to the purchase agreement is an exhibit that lists the standard

allowances for the construction, and included in the list is a boat dock with an

allowance of $38,100, which includes a boat slip, two jet ski lifts, deck housing, a
                                             3
water line to the dock, a separate electrical box at the rear of the house, and electric

lines to the dock area. Also included is a standard allowance of $4,400 for the

construction of a sidewalk from the rear of the home to the boat dock area.

      The Williamses filed suit against Waterstone, Bowen, Virgin, and Butch’s

Lake Conroe Bulkhead (“Butch’s”) for property damages resulting from deficiencies

in the construction and repair of the bulkhead/retaining wall built in the Williamses’

backyard by or at the direction of one or more of either Bowen, Waterstone, Virgin,

or Butch’s. The Williamses’ suit includes claims arising from the purchase

agreement they entered into with Virgin. The signatories of the purchase agreement

are the Williamses and Bowen, as President of Virgin. The Williamses sued the

defendants for breach of the warranty of good and workmanlike performance,

violations of the Deceptive Trade Practice Act, in accordance with Chapter 27 of the

Texas Property Code, and for common law negligence. While the Williamses

maintained that because there is no mention of the bulkhead/retaining wall in the

purchase agreement, it is not subject to the purchase agreement, they sued Virgin for

breach of contract in the alternative. The Williamses sued Waterstone for negligent

misrepresentation, and sued Bowen for being vicariously liable for the acts and

omissions of Virgin and Waterstone because Bowen has ownership and control of

both corporations.

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      Virgin, Waterstone, and Bowen filed a joint motion to compel arbitration,

arguing that although Bowen and Waterstone are nonsignatories to the arbitration

agreement, the Williamses are required to arbitrate with all three defendants because

Bowen is an officer of Virgin and Waterstone is Virgin’s agent. In their response to

the defendants’ motion to compel, the Williamses argued that the bulkhead/retaining

wall is not part of the purchase agreement and thus not subject to arbitration.

      The trial court conducted a hearing on the motion to compel. During the

hearing, counsel for the Williamses argued that the Williamses’ claims do not fall

under the purchase agreement and thus are not subject to the arbitration provision.

Plaintiffs’ counsel explained that he had been unable to determine who performed

the work on the retention walls. Plaintiffs’ counsel also noted that the purchase

agreement contained an exhibit that listed the standard allowances, and the exhibit

counsel referenced lists fence, backyard sod, and a backyard sprinkler system as

items that are not considered to be part of the purchase agreement. According to

plaintiffs’ counsel, although the retaining wall is not in the list of excluded items, it

is similar to the items excluded.

      Counsel for the defendants argued that the Williamses’ lawsuit alleged that

Virgin, Waterstone, and Bowen made errors while building a retention wall in the

back of the Williamses’ property, and that the Williamses’ claims fall within the

                                           5
scope of the arbitration agreement contained in the contract. Defense counsel argued

that the arbitration agreement extends to Virgin’s officers, directors, or agents, and

that the Williamses sued all of the defendants together based on the actions of Virgin

in constructing the home and the retaining walls. Defense counsel further argued that

“[b]ut for that contract[,] these retaining walls would not have been built[,]” and all

of the duties that the Williamses complain about arise by virtue of the contract

because they concern the acts or omissions relating to the work performed. Defense

counsel argued that because all of the parties are being sued on theories relating to

and arising under the contract, the claims fall within the scope of the arbitration

agreement, and the trial court should order all the parties to arbitrate.

      After hearing the parties’ arguments, the trial court granted Virgin’s motion

to compel arbitration. The trial court found that the arbitration agreement is binding

on the Williamses and Virgin because they are parties to the agreement. The trial

court denied Waterstone’s and Bowen’s motion to compel because they are not

signatories on the contract containing the arbitration agreement. The trial court stated

that it was “not persuaded to expand the scope of the arbitration agreement to include

any parties to the lawsuit that are not also parties to the contract and have not agreed

to the arbitration in writing, as required by statute.” The trial court denied




                                           6
Waterstone’s and Bowen’s request for findings of fact and conclusions of law.

Waterstone and Bowen timely filed this interlocutory appeal.

                      Standard of Review and Applicable Law

      This is an appeal pursuant to section 51.016 of the Texas Civil Practice and

Remedies Code, which authorizes interlocutory appeals of matters subject to the

Federal Arbitration Act (FAA). See Tex. Civ. Prac. & Rem. Code Ann. § 51.016

(West 2015); see also 9 U.S.C.A. § 16(a)(1)(C). A party attempting to compel

arbitration under the FAA must establish that there is a valid arbitration agreement

and show that the claims raised fall within the scope of that agreement. In re Rubiola,

334 S.W.3d 220, 223 (Tex. 2011) (orig. proceeding). There is a presumption

favoring agreements to arbitrate under the FAA, but the presumption only arises

after the party seeking to compel arbitration proves that a valid arbitration agreement

exists. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737-38 (Tex. 2005) (orig.

proceeding). If the party seeking to compel arbitration proves that a valid arbitration

agreement exists, the burden shifts to the party opposing arbitration to raise an

affirmative defense to enforcement of the agreement. J.M. Davidson, Inc. v. Webster,

128 S.W.3d 223, 227 (Tex. 2003).

      We review a trial court’s denial of a motion to compel arbitration for an abuse

of discretion. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig.

                                          7
proceeding). The trial court’s determination of the arbitration agreement’s validity

is a question of law which we review de novo. In re D. Wilson Constr. Co., 196

S.W.3d 774, 781 (Tex. 2006) (orig. proceeding); J.M. Davidson, Inc., 128 S.W.3d

at 227. In determining the validity of the arbitration agreement under the FAA, we

generally apply state-law principles governing the formation of contracts. In re Palm

Harbor Homes, Inc., 195 S.W.3d 672, 676 (Tex. 2006) (orig. proceeding). We may

not expand upon the terms of the contract or tolerate a liberal interpretation of the

contract by reading into it a voluntary agreement to arbitrate when one does not exist.

Aldridge v. Thrift Fin. Mktg, LLC, 376 S.W.3d 877, 883 (Tex. App.—Fort Worth

2012, no pet.). The plain meaning of the contractual language must clearly indicate

the intent to arbitrate. Id.

       “Whether a non-signatory can compel arbitration pursuant to an arbitration

clause questions the existence of a valid arbitration clause between specific parties

and is therefore a gateway matter for the court to decide.” Rubiola, 334 S.W.3d at

224. Although the FAA generally does not require parties to arbitrate when they

have not agreed to do so, both federal and Texas courts have recognized that under

certain circumstances, principles of contract law and agency may bind a non-

signatory to an arbitration agreement. Kellogg Brown & Root, Inc., 166 S.W.3d at

738. Although arbitration agreements apply to non-signatories only in rare

                                          8
circumstances, the question of who is bound by an arbitration agreement is

ultimately a function of the intent of the parties, as expressed in the terms of the

agreement. Rubiola, 334 S.W.3d at 224. Courts have recognized six theories for

binding a non-signatory to an arbitration agreement: incorporation by reference,

assumption, agency, veil-piercing/alter ego, estoppel, and third-party beneficiary.

Bridas S.A.P.I.C v. Gov’t of Turkmenistan, 345 F.3d 347, 356 (5th Cir. 2003)

      Once the party seeking to compel arbitration establishes that a valid agreement

exists, the trial court must then determine whether the arbitration agreement covers

the claims at issue. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001)

(orig. proceeding). The determination of whether the arbitration agreement imposes

a duty to arbitrate the claims in a particular dispute is a matter of contract

interpretation. Jabri v. Qaddura, 108 S.W.3d 404, 410 (Tex. App.—Fort Worth

2003, no pet.). “If a written contract is so worded that it can be given a certain or

definite legal meaning or interpretation, then it is not ambiguous and the court will

construe the contract as a matter of law. Id. at 411. The court’s primary concern in

construing the contract is to ascertain the true intentions of the parties as expressed

in the contract. J.M. Davidson, Inc., 128 S.W.3d at 229.

      In determining whether the trial court abused its discretion by denying

Waterstone’s and Bowen’s motion to compel, we review the trial court’s

                                          9
interpretation of the parties’ arbitration agreement de novo. See Jabri, 108 S.W.3d

at 410-11. Applying contract construction principles, we must review the entire

arbitration agreement to determine whether it is so worded that it can be given a

definite legal interpretation. See id. at 412. When a dispute involving an arbitration

agreement is brought to court for a resolution, the trial court must determine whether

the parties agreed to submit a particular issue to arbitration. IHS Acquisition No. 171,

Inc. v. Beatty-Ortiz, 387 S.W.3d 799, 807 (Tex. App.—El Paso 2012, no pet.) (citing

United Steelworkers of Am. v. Am. Mfg. Co., 363 U.S. 564 (1960)). Any doubts

concerning the scope of arbitrable issues should be resolved in favor of arbitration.

AT&T Techs., Inc. v. Commc’ns Workers of America, 475 U.S. 643, 650 (1986);

Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996).

      The arbitration agreement provides that the “parties agree that all

controversies, claims[,] or matters in question arising out of or relating to . . . any

acts or omissions by Virgin Homes, Inc. (and its officers, directors, or agents) . . .

shall be subject to binding arbitration.” The record shows that Virgin is a signatory

of the arbitration agreement and that Bowen signed the arbitration agreement as

President of Virgin. The record clearly shows that Bowen is an officer of Virgin, and

thus, a non-signatory party to the arbitration agreement under the terms of the

agreement. See Rubiola, 334 S.W.3d at 224-25; see also Bridas S.A.P.I.C, 345 F.3d

                                          10
at 356 (noting that ordinary principles of contract and agency law may be called

upon to bind a non-signatory to an agreement). Because the arbitration agreement

expressly provides that officers are non-signatories that are considered parties to the

agreement, we conclude that Bowen may compel arbitration under the agreement.

See Rubiola, 334 S.W.3d at 224-25.

      The record further shows that Bowen is the President of Waterstone and that

Waterstone is the developer of the subdivision in which Virgin constructed the

Williamses’ home. Waterstone also developed the man-made canals in the

subdivision. In their petition, the Williamses asserted that it is undetermined whether

Virgin or Waterstone directed, authorized, or supervised the construction of the

bulkhead/retaining wall. The Williamses’ suit is for property damages resulting from

deficiencies in the construction and repair of the bulkhead/retaining wall. The

Williamses asserted that the defendants and their subcontractors, agents, employees,

and representatives for which the defendants are liable had a duty to exercise proper

care in the construction of the bulkhead/retaining wall. The Williamses further

asserted that Bowen is vicariously liable for the acts and omissions of Virgin and

Waterstone because the corporations were organized and operated as a mere tool or

business conduit of Bowen, the alter ego. According to the Williamses, there was

such a unity of Virgin, Waterstone, and Bowen that the separateness had ceased and

                                          11
the defendants and the defendants’ agents or officers are liable via respondeat

superior.

      In its motion to compel, Waterstone asserted that under the Williamses’

agency theory, the Williamses are obligated to arbitrate their claims, and further

asserted that the Williamses are equitably estopped from refusing to arbitrate with

Waterstone because the Williamses sued Waterstone based on their mistaken belief

that Waterstone had some role in constructing the improvements on the Williamses’

property while acting as an agent of Virgin. Waterstone contends that equitable

estoppel permits it to compel arbitration because the sole source of any duties owed

to the Williamses is derived from the contract and because the issues between the

parties are intertwined with the purchase agreement containing the arbitration

provision.

      Equitable estoppel allows a non-signatory to compel arbitration when the

signatory to a written agreement containing an arbitration clause must rely on the

terms of the written agreement in asserting its claims against the non-signatory.

Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 527 (5th Cir. 2000) (citing

MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999)). The Fifth

Circuit explained that a signatory to an arbitration agreement “cannot, on the one

hand, seek to hold the non-signatory liable pursuant to duties imposed by the

                                         12
agreement, which contains an arbitration provision, but, on the other hand, deny

arbitration’s applicability because the defendant is a non-signatory.” Grigson, 210

F.3d at 528. We review a trial court’s decision not to apply equitable estoppel for an

abuse of discretion. Grigson, 210 F.3d at 528. To constitute an abuse of discretion,

the trial court’s decision must be either premised on an application of the law or an

assessment of the evidence that is clearly erroneous. Id.

       To determine whether the Williamses’ claims against Waterstone are so

intertwined with and dependent upon the purchase agreement that the arbitration

agreement shall be given effect, we compare the operative facts for purposes of the

motion to compel arbitration with the purchase agreement. See id. at 528-29. The

purchase agreement provided that Virgin was to construct a single-family residence

in substantial compliance with plans prepared by Virgin in accordance with the

Standard Design Features and the Standard Allowances as indicated in the exhibits

attached to the agreement. The attached exhibit that lists the standard allowances for

the construction includes a boat dock with an allowance of $38,100, which includes

a boat slip, boat lift, two jet ski lifts, deck housing, a water line to the dock, a separate

electrical box at the rear of the house, and electric lines to the dock area. Also

included is a standard allowance of $4400 for the construction of a sidewalk from




                                             13
the rear of the home to the boat dock. The only items specifically excluded from the

purchase agreement were the fence, backyard sod, and backyard sprinkler system.

      The purchase agreement also references a Limited Warranty provided by the

builder and states that Virgin’s liability under the contract for the construction of the

home is confined to the statutory warranties and the building and performance

standards in the Texas Property Code, as well as the performance standards and

remedies provided in the Limited Warranty. The Limited Warranty specifically

excludes improvements not part of the home itself, including, but not limited to,

boundary and/or retaining walls and bulkheads.

      In their petition, the Williamses assert that it is undetermined whether Virgin

or Waterstone directed, authorized, or supervised the construction of the

bulkhead/retaining wall. The Williamses further assert that there was such a unity

between Virgin and Waterstone that the separateness had ceased. In their response

to the motion to compel, the Williamses assert that they have independent claims

against Waterstone, but also assert that they have been unable to determine whether

Waterstone played any role in the construction or the failure of the

bulkhead/retaining wall. While the Williamses also requested discovery to determine

who actually performed the work, such an inquiry to identify potential defendants

and determine each defendant’s liability is inappropriate because determinations of

                                           14
ultimate liability ordinarily must be answered during the arbitration proceeding. See

In re Houston Pipe Line Co., 311 S.W.3d 449, 451 (Tex. 2009) (orig. proceeding).

      The arbitration agreement contained in the contract provides that “all

controversies, claims or matters in question arising out of or relating to” the contract,

the construction of the home, and/or any acts or omissions by Virgin and its agents

shall be subject to binding arbitration. We hold that the Williamses’ claims against

Waterstone are so intertwined with and dependent upon the purchase agreement and

the Williamses’ claims against Virgin, that it would be impractical to resolve the

Williamses’ claims against Virgin without simultaneously resolving the claims

against Waterstone. See generally Grigson, 210 F.3d at 528-29. We conclude that

equitable estoppel entitles Waterstone to compel arbitration, and that the trial court

abused its discretion by determining that Waterstone was not entitled to arbitration

because it is a non-signatory. See id. at 528.

      Having concluded that Waterstone and Bowen are non-signatories who may

compel arbitration, we must also address the question of whether the Williamses’

claims fall within the scope of the arbitration agreement. See Rubiola, 334 S.W.3d

at 225. At the hearing on the motion to compel, the Williamses asserted that their

claims do not fall under the purchase agreement and thus are not subject to the

arbitration provision, because the retaining wall is not specifically mentioned in the

                                           15
purchase agreement and because it is similar to the items specifically excluded from

the agreement as referenced in the standard allowances exhibit. Waterstone and

Bowen argued that but for the contract, the retaining walls would not have been built,

and further argued that all of the duties that the Williamses complain about arise by

virtue of the contract.

      In determining whether the Williamses’ claims fall within the scope of the

arbitration agreement, we examine the complaint’s factual allegations rather than the

legal causes of action asserted. See FirstMerit Bank, N.A., 52 S.W.3d at 754. If

liability arises solely from the contract or must be determined by reference to it, then

the claims must be submitted to arbitration. In re Weekley Homes, L.P., 180 S.W.3d

127, 132 (Tex. 2005) (orig. proceeding). “A claim is not subject to arbitration only

if the facts alleged in support of the claim are completely independent of the contract

and the claim could be maintained without reference to the contract.” Glassell

Producing Co. v. Jared Res., Ltd., 422 S.W.3d 68, 77 (Tex. App.—Texarkana 2014,

no pet.).

      The arbitration agreement provides that the “parties agree that all

controversies, claims[,] or matters in question arising out of or relating to . . . this

Contract, . . . the construction of the Home, . . . any acts or omissions by Virgin

Homes, Inc. (and its officers, directors, or agents), and/or . . . any actual or purported

                                           16
representations or warranties, express or implied, relating to the Property and/or the

Home . . . shall be subject to binding arbitration.” Because the arbitration agreement

uses the terms “related to” to define the scope, we interpret the agreement broadly.

See id. at 78. We note that in addition to asserting claims for breach of the warranty

of good and workmanlike performance, violations of the Deceptive Trade Practices

Act, and common law negligence, the Williamses sued Waterstone for negligent

misrepresentation and claimed that Bowen is vicariously liable for the acts and

omissions of Virgin and Waterstone.

      The Williamses brought suit against the defendants for property damage

resulting from alleged deficiencies in the construction and repair of the

bulkhead/retaining wall. The Williamses assert that the retaining wall is not part of

the purchase agreement because it is not specifically mentioned and because it is

similar in nature to the items that are specifically excluded from the purchase

agreement. However, the facts alleged in support of the Williamses’ claims are not

completely independent of the purchase agreement. See id. at 77. The purchase

agreement includes the construction of the home, as well as other improvements that

include a boat dock and a sidewalk from the rear of the home to the boat dock.

Although the purchase agreement does not specifically mention or exclude the

bulkhead/retaining wall, the Limited Warranty that is referenced in the purchase

                                         17
agreement specifically excludes boundary and/or retaining walls and bulkheads. The

Limited Warranty also provides that the retaining wall and bulkhead are

improvements that are not part of the home itself.

      We conclude that the Williamses’ allegations concerning the construction of

the bulkhead/retaining wall arise out of or relate to the purchase agreement. We

further conclude that because the Williamses’ factual allegations against Waterstone

and Bowen are factually intertwined with the purchase agreement, the claims fall

within the scope of the arbitration agreement. See id. Having concluded that

Waterstone and Bowen are non-signatories who may compel arbitration and that the

Williamses’ claims fall within the scope of the arbitration agreement, we further

conclude that the trial court abused its discretion by denying Waterstone’s and

Bowen’s motion to compel arbitration. See In re Labatt Food Serv., L.P., 279

S.W.3d at 643. We sustain issues one and two. We reverse the trial court’s order

denying Waterstone’s and Bowen’s motion to compel and remand this case to the

trial court with instructions to enter an order granting Waterstone’s and Bowen’s

motion to compel arbitration and to stay the proceeding pending the results of

arbitration.




                                         18
      REVERSED AND REMANDED.



                                            ______________________________
                                                   STEVE McKEITHEN
                                                       Chief Justice

Submitted on May 24, 2017
Opinion Delivered August 3, 2017

Before McKeithen, C.J., Kreger and Johnson, JJ.




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