In a per curiam opinion and without hearing oral arguments, the Texas Supreme Court has reversed a divided Dallas Court of Appeals for finding a contract and arbitration clause unenforceable in face of clear contractual language to the contrary. Baby Dolls Topless Saloons, Inc., Burch Management Company, Inc., BDS Restaurant, Inc. and TNNA, inc. v. Sotero, et al. (No. 20-0782) arose from a fatal accident involving a dancer who worked at Baby Dolls. The decedent was a passenger in a vehicle driven by another dancer in the club. The decedent’s family members sued the club for wrongful death and survival damages, alleging that the club continued serving alcohol to the driver with knowledge that she was intoxicated.
The decedent and the club had a written agreement granting decedent a license to use and occupy designated parts of the club for dancing. The agreement contained an arbitration clause governed by the FAA providing that in the event of a dispute, the arbitrator would determine the threshold questions of validity and scope of the agreement. The agreement terminated on a date certain, but the license renewed automatically year-to-year unless otherwise terminated. The club moved to compel arbitration, which the trial court denied without explanation. The court of appeals affirmed, holding that the contract’s “lack of definiteness and uncertainty in the use of the terms relationship, license, and this agreement” rendered the contract ambiguous and unenforceable.
In a strongly worked per curiam opinion, SCOTX saw fit to remind the court of appeals of the most basic principles of enforceable contracts: (1) courts cannot rewrite a contract but must construe it as a whole to determine the parties’ purposes when they signed it; (2) courts should construe contracts to avoid forfeitures, which are disfavored under Texas law, and instead find terms to be sufficiently definite whenever the language is reasonably susceptible to that interpretation; and (3) when courts interpret contracts to avoid forfeiture, they may imply terms that can reasonably be implied [citing Fischer v. CTMI, L.L.C., 479 S.W.3d 231 (Tex. 2016). Applying these principles, SCOTX determined that read as a whole, the contract’s duration clause makes it clear that the decedent’s license automatically renewed until the parties said otherwise. The court of appeals’ interpretation, by contrast, unreasonably “untethered” the license from the agreement and, in effect, used one to cancel out the other. Finding that an enforceable contract clearly existed, SCOTX remanded to the trial court with instruction to grant the motion to compel arbitration.
It should be noted that SCOTX does not issue per curiam opinions without oral arguments very often. We suspect that the court of appeals hung its hat on a fairly egregious misreading of the contract in order to let the family in this tragic situation to have their day in court. And they may still get it because the question of whether the arbitration provision applies to all four of the defendants (and not just to the club) was not before the court. In any event, SCOTX does not have the bandwidth to correct everything, so when the Court does, it is noteworthy.