In a pair of per curiam opinions, the Texas Supreme Court has ruled that the minor children of parents who sued a homebuilder for construction defects may be compelled to arbitrate along with their parents based on direct-benefits estoppel.

Taylor Morrison of Texas, Inc. and Taylor Woodrow Communities League City, Ltd. v. Erin Skufca as Next Friend of KSX and KSXX, Minor Children (No. 21-0296) arose from the Skufca’s lawsuit against Taylor, alleging that construction defects caused mold contamination in their new home. The suit asserted claims for breach of implied warranties, negligent construction, fraud in a real-estate transaction, breach of contract, statutory violations, quantum meruit, and DTPA violations. Taylor moved to compel arbitration on the basis of an arbitration provision in the purchase contract for the home. The trial court denied the motion as to the children. The Houston [1st] Court of Appeals affirmed. Taylor appealed.

The second case, Taylor Morrison of Texas, Inc. and Taylor Woodrow Communities League City, Ltd. v. Michelle Ha, Individually and as Next Friend of C.M.X., Minor Child 1, A.H.X., Minor Child 2, and H.R.X., Minor Child 3 (No. 22-0331) presented virtually identical facts, though here the parent’s mother, along with the children, were nonsignatories to the purchase agreement.

The Court reversed and remanded both cases to the trial court to order the children to arbitration. The Skufca case turned on the wording of the plaintiffs’ petition, which did not distinguish between the parents’ claims and the children’s claims. The Court determined that the petition “unambiguously reflects the children are joining their parents in asserting the breach-of-contract claim and that the children therefore may be compelled to arbitrate.” The court of appeals erred in interpreting the petition as “insufficiently specific to conclude that the children are joining their parents’ breach of contract cause of action,” focusing instead on a “holistic” reading that emphasized the children’s personal injury claim for exposure to toxic mold. The court of appeals noted further that the children had no legal basis for a breach of contract claim in the first place, so the use of the term “Plaintiffs” in the petition referred merely to the parents. According to SCOTX, however, the petition clearly stated that “plaintiffs” included the children” and that their claims “‘must be determined by reference’ to the purchase agreement,” thus “satisfy[ing] direct-benefits estoppel” (citing In re Weekley Homes, 180 S.W.3d 127, 132 (Tex. 2005)). The court further observed that “direct-benefits estoppel applies when a nonsignatory seeks direct benefits from the contract outside of litigation. Because the Skufca children lived with their parents in the house at issue and sued for factually intertwined construction-defect claims, that basis for direct-benefits estoppel serves as an additional reason to compel arbitration here.”

In the Ha case, the Court went a step further to apply direct-benefits estoppel based on the fact that Mrs. Ha and the children lived together in the home and accepted the benefits of Mr. Ha’s purchase agreement. Moreover, the Court reasoned, “splitting the family’s claims between litigation and arbitration would be especially odd considering the family-home context and the unique nature of marital and parent-child relationships. The law and common sense need not be at war regarding the proposition that a family’s shared home is something that will directly benefit the entire family.” The Court added that arbitrating the claims together makes sense because parents have a legal duty to provide their children with shelter and other benefits and may thus sign arbitration agreements on their behalf. Thus, “when the family sues as an integrated unit for factually intertwined construction-defect claims,” the “nonsignatory spouse and children [who] live in a family homne purchased by the signatory spouse” may be compelled to arbitrate.

This decision make perfect sense from a judicial administration standpoint as well. If the trial court’s and court of appeals’ decisions had stood, the same case would have been tried in two tribunals twice. While SCOTX did not have to decide “whether the implied-warranty or statutory-fraud claims are also based in contract such that those claims would independently trigger direct-benefits estoppel,” it seems more likely than not that the Court would have reached the same conclusion in that case. Otherwise, it would be a simple matter to evade an arbitration agreement simply by repleading the children’s claims.

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