The opinion
Opinion issued December 12, 2013
In The
Court of Appeals
For The
First District of Texas
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NO. 01-13-00553-CV
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RAMI AMIR AND RON ALIEZER, Appellants
V.
INTERNATIONAL BANK OF COMMERCE, Appellee
On Appeal from the 189th District Court
Harris County, Texas
Trial Court Case No. 2012-59086
OPINION
Appellants, Rami Amir and Ron Aliezer, filed a plea in abatement and
motion to compel arbitration in a suit brought by appellee, International Bank of
Commerce (IBC). Amir and Aliezer filed a motion to compel arbitration but
explained to the trial court they would not pay their portion of the arbitration filing
fee. The trial court refused to compel arbitration, and Amir and Aliezer brought
this appeal. In one issue, they argue the trial court abused its discretion by denying
their motion to compel arbitration.
We reverse and remand.
Background
Amir and Aliezer were guarantors on two construction loan agreements with
IBC. In May and June 2012, IBC foreclosed on the properties governed by the
loans. In October 2012, IBC filed suit against Amir and Aliezer to recover the
deficiencies remaining on the notes after the foreclosures.
After answering, Amir and Aliezer filed a plea in abatement and motion to
compel arbitration, relying on the arbitration clauses in the notes, deeds of trust,
and guarantees. For purposes of our analysis, the notes, deeds of trust, and
guarantees have substantially the same arbitration provisions. The arbitration
provision in the guarantees provides that the arbitration provision is governed by
the Federal Arbitration Act and that the parties agree to submit to arbitration
through the American Arbitration Association. The arbitration provision further
provides as follows:
(c) Arbitratable disputes include any and all controversies and
claims between the parties of whatever type or manner,
including without limitation, any claim arising out of or relating
to this agreement. . . .
...
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(h) The parties agree that any action regarding any controversy
between the parties shall either be brought by arbitration, as
described herein, or by judicial proceeding, but shall not be
pursued simultaneously in different or alternative forms. A
timely written notice of intent to arbitrate pursuant to this
agreement stays and/or abates any and all action in a trial court,
save and except a hearing on a motion to compel arbitration
and/or the entry of an order compelling arbitration and staying
and/or abating the litigation pending the filing of the final
award of the arbitrators. . . .
(i) Any aggrieved party shall serve a written notice of intent to
arbitrate to any and all opposing parties within 360 days after
dispute has arisen. . . .
...
(l) . . . Each of the parties shall pay an equal share of the
arbitration costs, fees, expenses, and of the arbitrator’s fees,
costs and expenses.
...
(q) The arbitrators, or a majority of them, shall award attorney’s
fees and costs to the prevailing party pursuant to the terms of
this agreement.
IBC responded to the motion to compel, arguing it was not opposed to
arbitration but that Amir and Aliezer had not met the conditions precedent to
arbitration because (1) they had not provided IBC with a notice of intent to
arbitrate and (2) they had not submitted their portion of the filing fee necessary to
initiate arbitration. An order from the trial court on June 7, 2013, states that, at the
earlier hearing,
[t]he Court expressly informed counsel for Defendants [Amir and
Aliezer] . . . that once Defendants presented evidence that they had
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either paid their portion of the required filing fees, or obtained a
waiver from the American Arbitration Association of their portion of
the required filing fees, the Court would abate this matter in favor of
arbitration. However, Defendants’ counsel has informed the Court
that Defendants will not pay their respective portion of the filing fees
required by the American Arbitration Association, and as of the date
of this Order, Defendants have not provided this Court with any
evidence that they have sought a waiver of their portion of the filing
fees.
The trial court agreed with IBC that Amir and Aliezer’s paying their portion
of the filing fee was a condition precedent for the enforceability of the arbitration
clauses. Accordingly, the trial court denied the motion to compel arbitration.
Standard of Review
Generally, we review a trial court’s decision to grant or deny a motion to
compel arbitration under an abuse of discretion standard. Enter. Field Servs., LLC
v. TOC-Rocky Mountain, Inc., 405 S.W.3d 767, 773 (Tex. App.—Houston [1st
Dist.] 2013, pet. denied). Under this standard, we defer to a trial court’s factual
determinations if they are supported by evidence, but we review a trial court’s
legal determinations de novo. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643
(Tex. 2009). Whether a valid arbitration agreement exists and whether the
arbitration agreement is ambiguous are questions of law that we review de novo.
In re D. Wilson Constr. Co., 196 S.W.3d 774, 781 (Tex. 2006).
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Analysis
A party seeking to compel arbitration must establish (1) the existence of a
valid, enforceable arbitration agreement and (2) that the claims at issue fall within
that agreement’s scope. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737
(Tex. 2005). If the movant establishes that an arbitration agreement governs the
dispute, the burden shifts to the party opposing arbitration to establish a defense to
the arbitration agreement. In re Provine, 312 S.W.3d 824, 829 (Tex. App.—
Houston [1st Dist.] 2009, orig. prodeeding) (citing In re Oakwood Mobile Homes,
Inc., 987 S.W.2d 571, 573 (Tex. 1999)). Once the arbitration movant establishes a
valid arbitration agreement that encompasses the claims at issue, a trial court has
no discretion to deny the motion to compel arbitration unless the opposing party
proves a defense to arbitration. Id. (citing In re FirstMerit Bank, N.A., 52 S.W.3d
749, 753–54 (Tex. 2001)).
Because state and federal policies favor arbitration, courts must resolve any
doubts about an arbitration agreement’s scope in favor of arbitration. In re
FirstMerit Bank, 52 S.W.3d at 753. To be subject to arbitration, the “allegations
need only be factually intertwined with arbitrable claims or otherwise touch upon
the subject matter of the agreement containing the arbitration provision.” In re
B.P. America Prod. Co., 97 S.W.3d 366, 371 (Tex. App.—Houston [14th Dist.]
2003, orig. proceeding).
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The parties do not dispute that IBC’s claims are subject to multiple valid and
enforceable arbitration agreements. Instead, the dispute concerns whether all of
the conditions precedent to invoking the arbitration agreements have been satisfied.
IBC argues that providing a notice of intent to arbitrate and each party paying their
respective portion of the fee to initiate arbitration are conditions precedent to the
right to invoke the arbitration agreements.
“A condition precedent may be either a condition to the formation of a
contract or to an obligation to perform an existing agreement.” Hohenberg Bros.
Co. v. George E. Gibbons & Co., 537 S.W.2d 1, 3 (Tex. 1976); see also Gulf
Liquids New River Project, LLC v. Gulsby Eng’g, Inc., 356 S.W.3d 54, 64 (Tex.
App.—Houston [1st Dist.] 2011, no pet.). Conditions precedent to an obligation to
perform are acts or events that occur after the execution of a contract and that must
occur either before there is a right to immediate performance or before there is a
breach of a contractual duty. Hohenberg Bros., 537 S.W.2d at 3; Gulf Liquids, 356
S.W.3d at 64. No particular words are required to create a condition precedent, but
terms such as “if,” “provided that,” “on condition that,” or some other phrase that
conditions performance, “usually connote an intent for a condition rather than a
promise.” Hohenberg Bros., 537 S.W.2d at 3; see also Gulf Liquids, 356 S.W.3d
at 64.
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When no such limiting language is used, whether a contractual provision is a
condition precedent or instead a promise is determined from a review of the
contract as a whole and from the intent of the parties. Hohenberg Bros., 537
S.W.2d at 3; Gulf Liquids, 356 S.W.3d at 64. “However, where the intent of the
parties is doubtful or where a condition would impose an absurd or impossible
result then the agreement will be interpreted as creating a covenant rather than a
condition.” Hohenberg Bros., 537 S.W.2d at 3. “Because of their harshness and
operation, conditions precedent are disfavored.” Gulf Liquids, 356 S.W.3d at 64.
When a contract does not clearly provide that a provision is a condition precedent,
we will interpret the provision as creating a promise, not a condition. Id. at 65.
Typically, questions of whether prerequisites to arbitration have been
fulfilled are left to the arbitrators to resolve. In re Pisces Foods, L.L.C., 228
S.W.3d 349, 352 (Tex. App.—Austin 2007, orig. proceeding) (citing John Wiley &
Sons, Inc. v. Livingston, 376 U.S. 543, 557, 84 S. Ct. 909, 918 (1964)). If,
however, there is clearly established proof that a strictly procedural requirement
has not been met and that procedural requirement precludes arbitration, a court can
deny a motion to compel arbitration on this ground. See id. at 352–53 (citing Gen.
Warehousemen & Helpers Union Local 767 v. Albertson’s Distribution, Inc., 331
F.3d 485, 488 (5th Cir. 2003)). This is a narrow exception. Id. at 352. As an
example, a trial court cannot compel arbitration when the provision requires the
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parties to mediate before arbitration. Id. at 353 (citing Kemiron Atl., Inc. v.
Aguakem Int’l, Inc., 290 F.3d 1287, 1290 (11th Cir. 2002)). To do so would
frustrate the parties’ original intent clearly expressed in the agreement. Id.
Here, the arbitration agreements provide that, if one party files suit outside
of arbitration, the other parties can invoke their right to arbitration by providing
“timely written notice of intent to arbitrate.” To be timely, “[a]ny aggrieved party
shall serve a written notice of intent to arbitrate to any and all opposing parties
within 360 days after dispute has arisen.” IBC does not claim any notice it
received was untimely. Instead, it argues it has not received any notice.
IBC acknowledges that Amir and Aliezer filed a motion to compel
arbitration and served IBC with the motion. The record also reflects that the
parties repeatedly discussed—orally and in writing—the plan to arbitrate,
including IBC’s counsel’s drafting a proposed agreed order compelling arbitration.
IBC argues it still has not received a “written notice of intent to arbitrate,” relying
on Grand Tex. Homes, Inc. v. Hill, 02-07-00352-CV, 2008 WL 2168147 (Tex.
App.—Fort Worth May 22, 2008, no pet.) (mem. op.). IBC argues that the Fort
Worth Court of Appeals held in Hill that a motion to compel cannot constitute
notice of intent to arbitrate. Hill has no such holding.
The arbitration agreement in Hill required a demand for arbitration to be
served on the opposing parties and the American Arbitration Association within
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100 days of receiving notice of a dispute. Id. at *1–*2. The defendant relied on its
motion to compel arbitration as proof that it demanded arbitration. Id. at *5. The
court held that the defendant had failed to serve the motion within 100 days and
that it had failed to file the motion with the American Arbitration Association as
required by the agreement. Id. Nowhere did the court suggest that the motion
could not otherwise constitute a proper notice or demand for arbitration.
We hold IBC had sufficient notice of Amir and Aliezer’s intent to arbitrate
to satisfy this condition precedent for the application of the arbitration agreement.
IBC also argues that each party’s payment of its respective portion of the
initial arbitration filing fee is another condition precedent to the enforcement of the
arbitration agreement. It claims that Amir and Aliezer have failed to satisfy all of
the conditions precedent because they have refused to pay any portion of the
arbitration filing fee. Amir and Aliezer assert that paying the arbitration filing fee
is not a condition precedent to the enforcement of the arbitration agreement.
The arbitration agreements require the parties to arbitrate “any and all
controversies and claims between the parties of whatever type or manner,
including without limitation, any claim arising out of or relating to this
agreement.” They allow the parties to file suit in court, but that right ends when
one of the parties serves a notice of intent to arbitrate to the other parties. IBC
correctly points out that the arbitration agreements require “[e]ach of the parties
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[to] pay an equal share of the arbitration costs, fees, expenses, and of the
arbitrator’s fees, costs and expenses.” But the agreements do not clearly establish
that any of these shared costs is a condition precedent to invoking the right to
arbitrate. To the contrary, the agreements indicate that at least some of the costs
are intended to be part of the final arbitrators’ award.
The arbitration agreements do not clearly provide that payment of any costs
is a condition precedent to invoking the right to arbitrate. Accordingly, at best, this
is a matter to be resolved by the arbitrators, not the trial court. See In re Pisces
Foods, 228 S.W.3d at 352–53 (holding trial court can deny motion to compel
arbitration only when there is clearly established proof of strictly procedural
prerequisite).
IBC argues that, by insisting on arbitration while simultaneously refusing to
contribute to pay the arbitration filing fee, Amir and Aliezer will be able to avoid
resolution of the dispute. We find no support for this argument. The arbitration
agreements provide that “any claim arising out of or relating to this agreement” is
subject to arbitration. IBC has presented no argument and no proof for why it
cannot pay the arbitration filing fee in full itself and then seek in arbitration an
award for the portion of the filing fees it alleges Amir and Aliezer owe. Absent
proof of impossibility, unconscionability, or some other substantive defense to
arbitration, IBC has failed to meet its burden of establishing that the arbitration
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argreement cannot be enforced. See In re Provine, 312 S.W.3d at 829 (holding,
after moving party establishes claims in suit are subject to valid arbitration
agreement, burden shifts to party opposing motion to compel to establish defense
to enforcement of arbitration agreement).
We sustain Amir and Aliezer’s sole issue.
Conclusion
We reverse the trial court’s order denying Amir and Aliezer’s motion to
compel arbitration and remand for rendition of an order granting the motion to stay
or abate the case and compel arbitration.
Laura Carter Higley
Justice
Panel consists of Justices Keyes, Higley, and Massengale.
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