The Houston [14th] Court of Appeals has applied the Texas Supreme Court’s recent ruling in TotalEnergies E&P USA, Inc. v. MP Gulf of Mexico, LLC, 667 S.W.3d 694 (Tex. 2023) to enforce an arbitration agreement that incorporated Rule R-9 of the AAA Construction Rules, which delegates the issue of arbitrability to the arbitrator rather than the courts.
Elite Townhomes, LLC and Souhail H. Adam v. Intown Construction Group, LLC (No. 14-22-00641-CV; March 14, 2024) arose from a dispute between investor-developers and a general contractor over a residential development in Houston. The parties signed two construction contracts covering different phases of the project, both of which included arbitration provisions. When the relationship soured, the developers cancelled the agreements, allegedly leaving the contractor holding the bag for unreimbursed construction costs, a promised share of the profits from the development, and about unpaid builder fees. The contractor sued for breach of contract and asserted other causes of action. The developers answered and moved to compel arbitration. After the trial court denied the motion, the developers filed an interlocutory appeal.
In an opinion by Justice Wilson, the court of appeals reversed. Applying TotalEnergies, the court had no trouble concluding that the arbitration provisions in the two contracts incorporated by reference Rule R-9 of the AAA Construction Rules (TotalEnergies dealt with a similar rule, Rule 7(a) of the AAA Commercial Rules). “Rule R-9,” the court stated, “clearly and unmistakably delegates the determination of arbitrability issues to the arbitrator. . . . Under the unambiguous langauge of the Contracts, the parties did not agree to limit their delgation of arbitrability issues to the arbitrator only [as the contractor asserted] to certain claims or to only certain arbitrability issues.” Moreover, as concerned solely with the threshold question of arbitrability, “Rule R-9 [was] severable from the broader arbitration agreement.” As to the contractor’s arguments that the contracts involved in the dispute did not govern the properties involved in the dispute, they were beside the point because “[a]ll of these points address the alleged scope of the arbitration provisions in the Contracts, but the scope of the arbitration provisions is anissue that goes to which claims are arbitrable rather than to the delegation provision and who decides arbitrability issues.”
As you may recall, TCJL appeared as amicus curiae in TotalEnergies as an advocate for the position SCOTX ultimately took. This appeal was filed prior to the TotalEnergies ruling and, but for that ruling, would have come out differently based on then-existing 14th Court of Appeals precedent.
