Preview
FILED - 12/1/2022 11:36 AM
2022-DCL-04561 / 70604531
LAURA PEREZ-REYES
Cameron County District Clerk
By Brenda Ramirez Deputy Clerk
EXHIBIT 3
Caution
As of: November 28, 2022 10:13 PM Z
In re Weekley Homes, L.P.
Supreme Court of Texas
November 30, 2004, Argued ; October 28, 2005, Opinion Delivered
No. 04-0119
Reporter
180 S.W.3d 127 *; 2005 Tex. LEXIS 989 **; 49 Tex. Sup. J. 55
IN RE WEEKLEY HOMES, L.P.
Prior History: In re Weekley Homes, L.P., 176 S.W.3d 740, 2005 Tex. LEXIS 817 (Tex.,
2005)
Core Terms
arbitration, nonparty, arbitration clause, estoppel, repairs, direct benefit, trial court, bind,
arbitration agreement, compel arbitration, equitable, benefits, courts
Case Summary
Procedural Posture
The Texas Court of Appeals denied appellant home construction company's request for
mandamus relief to enforce arbitration agreements as governed by the Federal Arbitration
Act (FAA), 9 U.S.C.S. § 1 et seq., after the trial court concluded that the FAA applied to
all claims by appellee homeowner against the company. The company sought mandamus
relief.
Overview
The company moved to compel arbitration of all claims under the FAA. The trial court
refused to compel arbitration of the homeowner's daughter's claim because she did not sign
the Purchase Agreement. The supreme court noted that the daughter made no claim on the
contract, claiming only that she developed asthma from dust created by the company's
repairs of the home. A contractor performing repairs had an independent duty under Texas
tort law not to injure bystanders by its activities, or by premises conditions it left behind.
There was nothing to suggest that the daughter's claim was different from what any
bystander might assert, or what she might assert if the contractor were not the company.
The daughter could not equitably object to the arbitration clause attached to the contract
where she obtained substantial actions from the company by demanding compliance with
provisions of the contract. Once the daughter, as a non-party, deliberately sought
Page 2 of 14
substantial and direct benefits from the contract, and the company agreed to comply, equity
prevented her from avoiding the arbitration clause that was part of the agreement.
Outcome
The writ of mandamus was conditionally granted and the trial court was ordered to vacate
that part of its order denying the company's motion, and to enter a new order compelling
arbitration of the daughter's claim.
LexisNexis® Headnotes
Business & Corporate Compliance > ... > Arbitration > Federal Arbitration Act > Scope
HN1[ ] Arbitration, Federal Arbitration Act
Nonparties may be bound to an arbitration clause when the rules of law or equity would
bind them to the contract generally.
Business & Corporate Compliance > ... > Arbitration > Federal Arbitration
Act > Arbitration Agreements
Civil Procedure > ... > Writs > Common Law Writs > Mandamus
HN2[ ] Federal Arbitration Act, Arbitration Agreements
Mandamus relief is proper to enforce arbitration agreements governed by the Federal
Arbitration Act, 9 U.S.C.S. § 1 et seq.
Business & Corporate Compliance > ... > Arbitration > Federal Arbitration
Act > Arbitration Agreements
Civil Procedure > Preliminary Considerations > Federal & State
Interrelationships > Choice of Law
HN3[ ] Federal Arbitration Act, Arbitration Agreements
Under the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., absent unmistakable
evidence that the parties intended the contrary, it is the courts rather than arbitrators that
must decide "gateway matters" such as whether a valid arbitration agreement exists.
Page 3 of 14
Whether an arbitration agreement is binding on a nonparty is one of those gateway matters.
Texas courts apply Texas procedural rules in making that determination. Those rules call
for determination by summary proceedings, with the burden on the moving party to show a
valid agreement to arbitrate. It is not entirely clear what substantive law governs whether a
nonparty must arbitrate. Generally under the FAA, state law governs whether a litigant
agreed to arbitrate, and federal law governs the scope of an arbitration clause. Whether a
nonparty must arbitrate can involve aspects of either or both. Pending an answer from the
United States Supreme Court, the supreme court applies state law while endeavoring to
keep it as consistent as possible with federal law.
Business & Corporate Compliance > ... > Arbitration > Federal Arbitration
Act > Arbitration Agreements
HN4[ ] Federal Arbitration Act, Arbitration Agreements
The Federal Arbitration Act, 9 U.S.C.S. § 1 et seq., preempts any state requirements that
apply only to arbitration clauses.
Business & Corporate Compliance > ... > Arbitration > Federal Arbitration
Act > Arbitration Agreements
HN5[ ] Federal Arbitration Act, Arbitration Agreements
Texas law has long recognized that nonparties may be bound to a contract under various
legal principles. Although the supreme court has never considered these principles in the
context of arbitration, it recently noted that contract and agency law may bind a nonparty
to an arbitration agreement. Indeed, if Texas law would bind a nonparty to a contract
generally, the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq., would appear to preempt an
exception for arbitration clauses alone.
Business & Corporate Compliance > ... > Arbitration > Federal Arbitration
Act > Orders to Compel Arbitration
HN6[ ] Federal Arbitration Act, Orders to Compel Arbitration
A nonparty may be compelled to arbitrate if it seeks, through the claim, to derive a direct
benefit from the contract containing the arbitration provisions. This rule is consistent with
federal law of direct benefits estoppel.
Page 4 of 14
Business & Corporate Compliance > ... > Arbitration > Federal Arbitration
Act > Arbitration Agreements
Business & Corporate Compliance > ... > Contracts Law > Contract Conditions &
Provisions > Arbitration Clauses
HN7[ ] Federal Arbitration Act, Arbitration Agreements
Under both Texas and federal, law, whether a claim seeks a direct benefit from a contract
containing an arbitration clause turns on the substance of the claim, not artful pleading.
Claims must be brought on the contract (and arbitrated) if liability arises solely from the
contract or must be determined by reference to it. On the other hand, claims can be
brought in tort (and in court) if liability arises from general obligations imposed by law.
Business & Corporate Compliance > ... > Contracts Law > Contract Conditions &
Provisions > Arbitration Clauses
HN8[ ] Contract Conditions & Provisions, Arbitration Clauses
Nonparties face a choice when they may plead in either contract or tort, but pleading the
former invokes an arbitration clause broad enough to cover both (as most do). If they
pursue a claim on the contract, then they must pursue all claims--tort and contract--in
arbitration. Conversely, if they choose not to sue on the contract, they may pursue the tort
claims in court, but the contract claims will thereby likely be waived under the election-of-
remedies doctrine. Given these options, it is not clear at this point that nonparties will
always choose to forfeit potentially viable contract claims solely to avoid arbitration.
Business & Corporate Compliance > ... > Contracts Law > Contract Conditions &
Provisions > Arbitration Clauses
HN9[ ] Contract Conditions & Provisions, Arbitration Clauses
A nonparty may seek or obtain direct benefits from a contract by means other than a
lawsuit. In some cases, a nonparty may be compelled to arbitrate if it deliberately seeks
and obtains substantial benefits from the contract itself. The analysis here focuses on the
nonparty's conduct during the performance of the contract. Thus, for example, a firm that
uses a trade name pursuant to an agreement containing an arbitration clause cannot later
avoid arbitration by claiming to have been a nonparty. Nor can nonsignatories who
received lower insurance rates and the ability to sail under the French flag due to a contract
avoid the arbitration clause in that contract.
Page 5 of 14
Business & Corporate Compliance > ... > Contract
Formation > Consideration > Promissory Estoppel
HN10[ ] Consideration, Promissory Estoppel
The Texas Supreme Court has never addressed such an estoppel claim in the arbitration
context. But it has long recognized in other contexts the defensive theory of promissory
estoppel. When a promisor induces substantial action or forbearance by another,
promissory estoppel prevents any denial of that promise if injustice can be avoided only by
enforcement. Promissory estoppel does not create liability where none otherwise exists,
but prevents a party from insisting upon his strict legal rights when it would be unjust to
allow him to enforce them.
Estate, Gift & Trust Law > ... > Trustees > Duties & Powers > Claims Against & By
HN11[ ] Duties & Powers, Claims Against & By
Under Texas law, a suit involving a trust generally must be brought by or against the
trustee, and can be binding on the beneficiaries whether they join it or not. If a trustee's
agreement to arbitrate can be avoided by simply having the beneficiaries bring suit, the
strong state policy favoring arbitration would be effectively thwarted.
Business & Corporate Compliance > ... > Contracts Law > Contract Conditions &
Provisions > Arbitration Clauses
HN12[ ] Contract Conditions & Provisions, Arbitration Clauses
Direct-benefits estoppel requires a colorable claim to the benefits; a meddlesome stranger
cannot compel arbitration by merely pleading a claim that quotes someone else's contract.
Business & Corporate Compliance > ... > Contracts Law > Contract Conditions &
Provisions > Arbitration Clauses
Business & Corporate Compliance > ... > Contract
Formation > Consideration > Promissory Estoppel
HN13[ ] Contract Conditions & Provisions, Arbitration Clauses
Page 6 of 14
Like the equitable doctrine of promissory estoppel, the supreme court does not understand
direct-benefits estoppel to create liability for noncontracting parties that does not otherwise
exist.
Business & Corporate Compliance > ... > Contracts Law > Contract Conditions &
Provisions > Arbitration Clauses
HN14[ ] Contract Conditions & Provisions, Arbitration Clauses
When a nonparty consistently and knowingly insists that others treat it as a party, it cannot
later turn its back on the portions of the contract, such as an arbitration clause, that it finds
distasteful. A nonparty cannot both have his contract and defeat it too.
Judges: [**1] JUSTICE BRISTER delivered the opinion of the Court. JUSTICE
WILLETT did not participate in the decision.
Opinion by: BRISTER
Opinion
[*129] ON PETITION FOR WRIT OF MANDAMUS
We are asked to decide whether Weekley Homes, L.P., a party to a contract containing an
arbitration clause, can compel arbitration of a personal injury claim brought by Patricia
Von Bargen, a nonparty. We have previously compelled arbitration by nonparties to an
arbitration agreement when they brought suit "based on a contract," 1 which Von Bargen
purports to avoid here.
But as both state and federal courts have recognized, HN1[ ] nonparties may be bound to
an arbitration clause when the rules of law or equity would bind them to the contract
generally. Because we find those rules applicable here, we conditionally grant mandamus
relief.
I. Background
In the summer of 2000, Vernon [**2] Forsting contracted with Weekley for construction
of a 4,000 square foot home at a purchase price of $ 240,000. At the time, Forsting was a
seventy-eight year-old widower with an assortment of health problems. His intention in
1 In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755, 44 Tex. Sup. Ct. J. 900 (Tex. 2001).
Page 7 of 14
purchasing such a large home was to live with his daughter, Von Bargen (his only child)
and her husband and three sons.
Von Bargen and her husband negotiated directly with Weekley on many issues before and
after construction--paying a $ 1,000 deposit, selecting the floor plan, signing a letter of
intent as, "purchasers," and making custom design choices. But only Forsting executed the
various financing and closing documents on the home, including the Real Estate Purchase
Agreement that contained the following arbitration clause:
Any claim, dispute or cause of action between Purchaser and Seller …, whether
sounding in contract, tort, or otherwise, shall be resolved by binding arbitration . . . .
Such claims, disputes or causes of action include, but are not limited to, those arising
out of or relating to … the design, construction, preparation, maintenance or repair of
the Property.
Shortly after closing, Forsting transferred the home to the [**3] Forsting Family Trust, a
revocable trust established ten years earlier whose sole beneficiary was Von Bargen. At his
deposition, Forsting testified that the only reason he signed the Purchase Agreement
individually rather than as trustee was because he "forgot to put [the home] in the trust."
Forsting and Von Bargen served as the only trustees of the Trust, the purpose of which was
to transfer Forsting's property to Von Bargen after his death.
According to the plaintiffs' pleadings, numerous problems arose with the home after
completion. When the family moved out of the house briefly so Weekley could perform
some of those repairs, it was Von Bargen who requested and received reimbursement.
Indeed, Von Bargen admitted handling "almost . . . all matters related to the house, the
problems and the warranty work and even the negotiations."
Unsatisfied with the home and Weekley's efforts to repair it, Forsting, Von Bargen, and the
Trust filed suit against Weekley in December 2002. Forsting and the Trust asserted claims
for negligence, breach of contract, statutory violations, and breach of warranty. Von
Bargen sued only for personal injuries, alleging Weekley's negligent repairs caused [**4]
her to develop asthma.
Weekley moved to compel arbitration of all claims under the Federal Arbitration [*130]
Act (FAA). 2 The trial court concluded the FAA applied, and granted the motion as to all
claims by Forsting and the Trust. But the trial court refused to compel arbitration of Von
Bargen's claim because she did not sign the Purchase Agreement.
2 See 9 U.S.C. §§ 1-16.
Page 8 of 14
HN2[ ] Mandamus relief is proper to enforce arbitration agreements governed by the
FAA. 3 After the Fifth Court of Appeals denied Weekley's request for such relief, Weekley
filed a similar request in this Court.
[**5] II. Governing Law
Neither party challenges the trial court's conclusion that the FAA governs the arbitration
clause here. 4 HN3[ ] Under the FAA, absent unmistakable evidence that the parties
intended the contrary, it is the courts rather than arbitrators that must decide "gateway
matters" such as whether a valid arbitration agreement exists. 5 [**6] Whether an
arbitration agreement is binding on a nonparty is one of those gateway matters. 6
Texas courts apply Texas procedural rules in making that determination. 7 Those rules call
for determination by summary proceedings, 8 with the burden on the moving party to show
a valid agreement to arbitrate. 9
But as we recently noted, it is not entirely clear what substantive law governs whether a
nonparty must arbitrate. 10 Generally under the FAA, state law governs whether a litigant
agreed to arbitrate, 11 [**8] and federal law governs the scope of an arbitration clause. 12
Whether [*131] a nonparty must arbitrate can involve aspects of either [**7] or both.
3 In
re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 n.2, 42 Tex. Sup. Ct. J. 377 (Tex. 1999) (per curiam); EZ Pawn Corp. v. Mancias,
934 S.W.2d 87-88, 40 Tex. Sup. Ct. J. 104 (Tex. 1996) (per curiam).
4 Although Von Bargen asserts that her personal injury claim cannot be arbitrated under the Texas Arbitration Act as i t was not signed by an
attorney, see TEX. CIV. PRAC. & REM. CODE § 171.002(a)(3), (c), she does not challenge the trial court's conclusion that the FAA governs
here. HN4[ ] The FAA not only contains no such limitation, but also preempts any state requirements that apply only to arbitration clauses.
Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87, 134 L. Ed. 2d 902, 116 S. Ct. 1652 (1996).
5 Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452, 156 L. Ed. 2d 414, 123 S. Ct. 2402 (2003); PacifiCare Health Sys., Inc. v. Book, 538
U.S. 401, 407 n.2, 155 L. Ed. 2d 578, 123 S. Ct. 1531 (2003).
6 John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 546-47, 11 L. Ed. 2d 898, 84 S. Ct. 909 (1964).
7 Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 268, 36 Tex. Sup. Ct. J. 205 (Tex. 1992).
8 Id. at 269.
9 J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227, 47 Tex. Sup. Ct. J. 196 (Tex. 2003).
10 In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738-39, 48 Tex. Sup. Ct. J. 678 (Tex. 2005); see also Howsam v. Dean Witter
Reynolds, Inc., 537 U.S. 79, 87, 154 L. Ed. 2d 491, 123 S. Ct. 588 (2002) (Thomas, J., concurring) (suggesting Supreme Court sometimes
looks to federal law and sometimes law chosen by parties); Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 267 n.6 (5th Cir. 2004)
(noting that whether state or federal law of arbitrability applies "is often an uncertain question").
11 Doctor's Assocs., 517 U.S. at 686-87; First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944, 131 L. Ed. 2d 985, 115 S. Ct. 1920 (1995);
Perry v. Thomas, 482 U.S. 483, 492, n.9, 96 L. Ed. 2d 426, 107 S. Ct. 2520 (1987). Parties may also agree that state law governs their
arbitration. Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 476, 103 L. Ed. 2d 488, 109 S. Ct. 1248 (1989).
12 Moses H. Cone Mem'I Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983).
Page 9 of 14
Pending an answer from the United States Supreme Court, 13 we apply state law while
endeavoring to keep it as consistent as possible with federal law. 14
Estoppel and Nonsignatories
HN5[ ] Texas law has long recognized that nonparties may be bound to a contract under
various legal principles. 15 Although we have never considered these principles in the
context of arbitration, we recently noted that contract and agency law may bind a nonparty
to an arbitration agreement. 16 Indeed, if Texas law would bind a nonparty to a contract
generally, the FAA would appear to preempt an exception for arbitration clauses [**9]
alone. 17
[**10] In the one case in which we have compelled nonparties to arbitrate, In re
FirstMerit Bank, N.A., we stated that "a litigant who sues based on a contract subjects him
or herself to the contract's terms." 18 Because the nonparties there asserted claims identical
to the signatories' contract claims, we held all had to be arbitrated. 19
We did not describe in FirstMerit what it means to sue "based on a contract." Von Bargen
asserts a narrow interpretation that would apply only to explicit contract claims, and thus
not to hers for personal injury; Weekley argues for a broad application to any claim that
"arises from or relates to" the contract involved.
We recently adopted an approach between these two extremes, holding that HN6[ ] a
nonparty may be compelled to arbitrate "if it seeks, through the claim, to derive a direct
13 TheUnited States Supreme Court has not answered this question, though it has applied federal substantive law to bind a nonparty to labor-
union arbitration, a field in which federal law has traditionally yielded little deference to state labor-law principles. See John Wiley & Sons,
376 U.S. at 548 (citing Textile Workers Union of Am. v. Lincoln Mills, 353 U.S. 448, 456, 1 L. Ed. 2d 972, 77 S. Ct. 912 (1957)).
14 Kellogg, 166 S.W.3d at 739.
15 See,e.g., TEX. BUS. CORP. ACT art. 2.21(A)(2) (holding shareholders maybe liable for corporation's contracts under alter ego theory if
they cause corporation to perpetrate actual fraud for their direct personal benefit); Stine v. Stewart, 80 S.W.3d 586, 590, 45 Tex. Sup. Ct. J.
966 (Tex. 2002) (holding third-party beneficiary could enforce contract); Biggs v. U.S. Fire Ins. Co., 611 S.W.2d 624, 629, 24 Tex. Sup. Ct.
J. 204 (Tex. 1981) (holding agent acting within the scope of apparent authority binds the principal).
16 Kellogg, 166 S.W.3d at 738. Accordingly, it is no longer true, that "the [Texas] decisions do not even mention the possibility of additional
bases for binding non-signatories to arbitration." Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1076 (5th Cir. 2002).
17 Doctor's Assocs., 517 U.S. at 686-87; Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281, 130 L. Ed. 2d 753, 115 S. Ct. 834 (1995)
("What States may not do is decide that a contract is fair enough to enforce all its basic terms (price, service, credit), but not fair enough to
enforce its arbitration clause. The Act makes any such state policy unlawful, for that kind of policy would place arbitration clauses on an
unequal 'footing,' directly contrary to the Act's language and Congress' intent.").
18 52 S.W.3d at 755.
19 Id. at 755-56.
Page 10 of 14
benefit from the contract containing the arbitration provisions." 20 As we noted, this rule is
consistent [**11] with federal law of "direct benefits estoppel." 21
HN7[ ] Under both Texas and federal, law, whether a claim seeks a direct benefit from a
contract containing an arbitration [*132] clause turns on the substance of the claim, not
artful pleading. 22 Claims must be brought on the contract (and arbitrated) if liability arises
solely from the contract or must be determined by reference to it. 23 [**12] On the other
hand, claims can be brought in tort (and in court) if liability arises from general obligations
imposed by law. 24
We question Weekley's conclusion that this rule will inevitably drive claimants to plead
only noncontractual claims to avoid arbitration. HN8[ ] Nonparties face a choice when
they may plead in either contract or tort, but pleading the former invokes an arbitration
clause broad enough to cover both (as most do). If they pursue a claim "on the contract,"
then they must pursue all claims--tort and contract--in arbitration. 25 Conversely, if they
choose not to sue "on the contract," they may pursue the tort claims in court, [**13] but
the contract claims will thereby likely be waived under the election-of-remedies doctrine.
26 Given these options, it is not clear at this point that nonparties will always choose to
forfeit potentially viable contract claims solely to avoid arbitration.
In this case, Von Bargen purports to make [**14] no claim on the Weekley contract,
claiming only that she developed asthma from dust created by Weekley's repairs of the
home. While Weekley's duty to perform those repairs arose from the Purchase Agreement,
a contractor performing repairs has an independent duty under Texas tort law not to injure
bystanders by its activities, 27 or by premises conditions it leaves behind. 28 There is
20 Kellogg, 166 S.W.3d at 741.
21 Id.
22 Hughes
Masonry Co., Inc. v. Greater Clark County Sch. Bldg. Corp., 659 F.2d 836, 838-39 (7th Cir. 1981); Southwestern Bell Tel. Co. v.
DeLanney, 809 S.W.2d 493, 495, 34 Tex. Sup. Ct. J. 402 (Tex. 1991).
23 Int'l
Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 418 (4th Cir. 2000); DeWitt County Elec. Coop., Inc. v.
Parks, 1 S.W.3d 96, 105, 42 Tex. Sup. Ct. J. 979 (Tex. 1999); DeLanney, 809 S.W.2d at 494.
24 See,
e.g., R.J. Griffin & Co. v. Beach Club II Homeowners Ass'n, 384 F.3d 157, 163-164 (4th Cir. 2004); InterGen N.V. v. Grina, 344 F.3d
134, 145-46 (1st Cir. 2003); Westmoreland v. Sadoux, 299 F.3d 462, 467 (5th Cir. 2002); Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069,
1076-77 (5th Cir. 2002); DeLanney, 809 S.W.2d at 494; see also Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960
S.W.2d 41, 47, 41 Tex. Sup. Ct. J. 289 (Tex. 1998).
25 See,e.g., Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271, 36 Tex. Sup. Ct. J. 205 (Tex. 1992) (holding DTPA claim was factually
intertwined with contract claim and thus subject to arbitration clause).
26 Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851, 23 Tex. Sup. Ct. J. 502 (Tex. 1980) (holding election-of-remedies doctrine
prevents pursuit of inconsistent rights or remedies when result would be manifest injustice); cf. Medina v. Herrera, 927 S.W.2d 597, 598-99,
39 Tex. Sup. Ct. J. 627 (Tex. 1996) (holding election-of-remedies doctrine barred pursuit of both workers' compensation claim and suit
against employer for intentional act).
Page 11 of 14
nothing in the sparse record here to suggest Von Bargen 's claim is different from what any
bystander might assert, or what she might assert if the contractor were not Weekley.
But [**15] HN9[ ] a nonparty may seek or obtain direct benefits from a contract by
means other than a lawsuit. In some cases, a nonparty may be compelled to arbitrate if it
deliberately seeks and obtains substantial benefits from the contract itself. 29 [**16] The
analysis here focuses on the [*133] nonparty's conduct during the performance of the
contract. 30 Thus, for example, a firm that uses a trade name pursuant to an agreement
containing an arbitration clause cannot later avoid arbitration by claiming to have been a
nonparty. 31 Nor can nonsignatories who received lower insurance rates and the ability to
sail under the French flag due to a contract avoid the arbitration clause in that contract. 32
HN10[ ] This Court has never addressed such an estoppel claim in the arbitration context.
33 [**17] But we have long recognized in other contexts the defensive theory of
promissory estoppel. 34 When a promisor induces substantial action or forbearance by
another, promissory estoppel prevents any denial of that promise if injustice can be
avoided only by enforcement. 35 Promissory estoppel does not create liability where none
otherwise exists, 36 but "prevents a party from insisting upon his strict legal rights when it
would be unjust to allow him to enforce them." 37
27 SeeRedinger v. Living, Inc., 689 S.W.2d 415, 417, 28 Tex. Sup. Ct. J. 404 (Tex. 1985) (noting general contractor on a construction site in
control of the premises may be subject to direct liability for negligence arising from: (1) a premises defect, or (2) an activity or
instrumentality).
28 Strakos v. Gehring, 360 S.W.2d 787, 790, 5 Tex. Sup. Ct. J. 462 (Tex. 1962).
29 Astra Oil Co., Inc. v. Rover Navigation, Ltd., 344 F.3d 276, 281 (2d Cir. 2003) (holding affiliate of signatories could enforce arbitration
clause as opposing party treated affiliate as part of charter contract during occurrences involved); Am. Bureau of Shipping v. Tencara
Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999) (holding nonsignatories who received lower insurance rates and ability to sail under French
flag due to contract were bound by arbitration clause in it); see also Matter of VMS Ltd. P'ship Sec. Litig., 26 F.3d 50, 52 (7th Cir. 1994)
(holding wife bound by settlement agreement related to investment services contract signed only by her husband, but under which she had
accepted services as well); see also InterGen, 344 F.3d at 146 (holding equitable estoppel inapplicable as nonsignatory never sought to derive
direct benefits from contracts during their currency).
30 E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 200 n.7 (3d Cir.2001).
31 Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993).
32 Tencara Shipyard, 170 F.3d at 353.
33 See Kellogg, 166 S.W.3d at 741 n.9 (reserving question of whether to apply direct-benefits estoppel to benefits obtained from contract
rather than subsequent litigation).
34 See, e.g., 'Moore' Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 16 Tex. Sup. Ct. J. 11 (Tex.1972).
35 Trammel Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636, 40 Tex. Sup. Ct. J. 425 (Tex. 1997).
36 Hruska v. First State Bank of Deanville, 747 S.W.2d 783, 785, 31 Tex. Sup. Ct. J. 292 (Tex. 1988).
37 Wheeler v. White, 398 S.W.2d 93, 96, 9 Tex. Sup. Ct. J. 105 (Tex. 1965).
Page 12 of 14
Here, Von Bargen has not merely resided in the home. Claiming the authority of the
Purchase Agreement, she directed how Weekley should construct many of its features,
repeatedly demanded extensive repairs to "our home," 38 personally requested and received
financial reimbursement for expenses "I incurred" while those repairs were made, and
conducted settlement negotiations with Weekley (apparently never consummated) about
moving the family to a new home. Having obtained these substantial actions from Weekley
by demanding compliance with provisions of the contract, Von Bargen cannot equitably
object to the arbitration [**18] clause attached to them.
In addition to these benefits, Forsting and the Trust have sued Weekley on claims which
are explicitly based on the contract. HN11[ ] Under Texas law, a suit involving a trust
generally must be brought by or against the trustee, and can be binding on the beneficiaries
whether they join it or [*134] not. 39 Although Von Bargen did not purport to sue as either
trustee or beneficiary, she was both, and any recovery will inure to her direct benefit as the
sole beneficiary and equitable titleholder of the home. 40 [**20] As one Texas court has
noted, if a trustee's agreement to arbitrate [**19] can be avoided by simply having the
beneficiaries bring suit, "the strong state policy favoring arbitration would be effectively
thwarted." 41
While we based our decision in FirstMerit Bank on the nonparties' contract-based claims,
more was involved in that case than the format of the pleadings. HN12[ ] Direct-benefits
estoppel requires a colorable claim to the benefits; a meddlesome stranger cannot compel
arbitration by merely pleading a claim that quotes someone else's contract. The nonparties
in FirstMerit Bank were the daughter and son-in-law of the signatories, the actual
occupants of the mobile home, and (according to the briefs) the future owners to whom the
signatories planned to transfer title. It is hard to see what direct benefits they expected
from that contract that Von Bargen did not expect from this one.
38 Invarious lists submitted in the months after the sale, Von Bargen demanded repairs to sagging floors, buckling walls and windows,
cracking brick work, as well as replacing the front door, repainting the back door and the kitchen cabinets, regrouting the bathrooms and
entry way, replacing the fireplace screen, closing gaps at carpet seams, removing drainage problems in the yard, and repairing a noisy garage
door.
39 See TEX. PROP. CODE §§ 111.004(7), 115.011, 115.015; Huie v. DeShazo, 922 S.W.2d 920, 926, 39 Tex. Sup. Ct. J. 288 (Tex.
1996)(holding trusts are not legal entities); Transamerican Leasing Co. v. Three Bears, Inc., 586 S.W.2d 472, 476-77, 22 Tex. Sup. Ct. J. 516
(Tex. 1979) (holding beneficiaries were bound by judgment against trust and trustees, as some participated in trial in their capacity as
trustees, and remainder showed neither prejudice, conflict of interest, nor inadequate representation by trustees).
40 Perfect Union Lodge No. 10 v. Interfirst Bank of San Antonio, N.A., 748 S.W.2d 218, 220, 31 Tex. Sup. Ct. J. 277 (Tex. 1988) (holding
trust beneficiaries hold equitable title to trust property); cf. Javitch v. First Union Sec., Inc., 315 F.3d 619, 627 (6th Cir. 2003) (holding
arbitration agreements were binding on receiver who succeeded to interests of entities that signed them); Hays & Co. v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1153-54 (3d Cir. 1989) (holding arbitration agreements were binding on successor trustee in
bankruptcy).
41 Merrill Lynch, Pierce, Fenner & Smith v. Eddings, 838 S.W.2d 874, 879 (Tex. App.--Waco 1992, writ denied).
Page 13 of 14
HN13[ ] Like the equitable doctrine of promissory estoppel, we do not understand direct-
benefits estoppel to create liability for noncontracting parties that does not otherwise exist.
As Von Bargen and Weekley had no contract between them, estoppel alone cannot grant
either a right to [**21] sue for breach. 42 Nor do we understand the doctrine to apply when
the benefits alleged are insubstantial or indirect. But once Von Bargen deliberately sought
substantial and direct benefits from the contract, and Weekley agreed to comply, equity
prevents her from avoiding the arbitration clause that was part of that agreement.
We recognize that direct-benefits estoppel has yet to be endorsed by the United States
Supreme Court, and that its application and boundaries are not entirely clear. 43 For
example, while federal courts often state the test as whether a nonsignatory has "embraced
the contract," 44 the [*135] metaphor gives little guidance in deciding what particular
conduct embraces or merely shakes hands with it. Indeed, the equitable nature of the
doctrine may render firm standards inappropriate, requiring [**22] trial courts to exercise
some discretion based on the facts of each case. 45
[**23] But we agree with the federal courts that HN14[ ] when a nonparty consistently
46 and knowingly 47 insists that others treat it as a party, it cannot later "turn[] its back on
the portions of the contract, such as an arbitration clause, that it finds distasteful." 48 A
nonparty cannot both have his contract and defeat it too.
[**24] While Von Bargen never based her personal injury claim on the contract, her prior
exercise of other contractual rights and her equitable entitlement to other contractual
benefits prevents her from avoiding the arbitration clause here. Accordingly, the trial court
42 See
Sun Oil Co. v. Madeley, 626 S.W.2d 726, 734, 25 Tex. Sup. Ct. J. 101 (Tex. 1981) (holding estoppel based on division orders could not
permanently amend underlying lease).
43 See,
e.g., J. Douglas Uloth & J. Hamilton Rial, III, Equitable Estoppel as a Basis for Compelling Nonsignatories to Arbitrate--A Bridge
Too Far?, 21 REV. LITIG. 593 (2002).
44 See,e.g., InterGen, 344 F.3d at 145; DuPont, 269 F.3d at 200; Peltz ex rel. Peltz v. Sears, Roebuck & Co., 367 F. Supp. 2d 711, 721
(E.D.Pa. 2005); In re Universal Serv. Fund Tel. Billing Practices Litig., 300 F. Supp. 2d 1107, 1138 (D.Kan. 2003); Amkor Tech., Inc. v.
Alcatel Bus. Sys., 278 F. Supp. 2d 519, 521-22 (E.D.Pa. 2003); Cherry Creek Card & Party Shop, Inc. v. Hallmark Mktg. Corp., 176 F. Supp.
2d 1091, 1098 (D.Colo. 2001).
45 See,e.g., Bridas S.A.P.I.C. v. Turkmenistan, 345 F.3d 347, 360 (5th Cir. 2003) ("The use of equitable estoppel is within a district court's
discretion."); accord, Hill v. G.E. Power Sys., Inc., 282 F.3d 343, 348 (5th Cir. 2002); Grigson v. Creative Artists Agency, 210 F.3d 524, 528
(5th Cir. 2000).
46 See lnt'l Paper, 206 F.3d at 418 (estopping nonsignatory from denying agreement to arbitrate "when he has consistently maintained that
other provisions of the same contract should be enforced to benefit him.") (emphasis added).
47 See Bridas, 345 F.3d at 361-62 ("Direct[-]benefits estoppel applies when a nonsignatory 'knowingly exploits the agreement containing the
arbitration clause.'") (emphasis added) (citing DuPont, 269 F.3d at 199); Tencara Shipyard, 170 F.3d at 353 (requiring nonsignatories to
arbitrate pursuant to provision in contract they neither requested nor executed, as they had duty to obtain that contract and received copies of
it).
48 DuPont, 269 F.3d at 200; accord Astra Oil Co., 344 F.3d at 281.
Page 14 of 14
abused its discretion in failing to compel arbitration. We conditionally grant the writ of
mandamus and order the trial court to vacate that part of its order denying Weekley's
motion, and to enter a new order compelling arbitration of Von Bargen's claim. We are
confident the trial court will comply, and our writ will issue only if it does not.
Scott Brister
Justice
End of Document
Preview
FILED - 12/1/2022 11:36 AM 2022-DCL-04561 / 70604531 LAURA PEREZ-REYES Cameron County District Clerk By Brenda Ramirez Deputy Clerk EXHIBIT 3 Caution As of: November 28, 2022 10:13 PM Z In re Weekley Homes, L.P. Supreme Court of Texas November 30, 2004, Argued ; October 28, 2005, Opinion Delivered No. 04-0119 Reporter 180 S.W.3d 127 *; 2005 Tex. LEXIS 989 **; 49 Tex. Sup. J. 55 IN RE WEEKLEY HOMES, L.P. Prior History: In re Weekley Homes, L.P., 176 S.W.3d 740, 2005 Tex. LEXIS 817 (Tex., 2005) Core Terms arbitration, nonparty, arbitration clause, estoppel, repairs, direct benefit, trial court, bind, arbitration agreement, compel arbitration, equitable, benefits, courts Case Summary Procedural Posture The Texas Court of Appeals denied appellant home construction company's request for mandamus relief to enforce arbitration agreements as governed by the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., after the trial court concluded that the FAA applied to all claims by appellee homeowner against the company. The company sought mandamus relief. Overview The company moved to compel arbitration of all claims under the FAA. The trial court refused to compel arbitration of the homeowner's daughter's claim because she did not sign the Purchase Agreement. The supreme court noted that the daughter made no claim on the contract, claiming only that she developed asthma from dust created by the company's repairs of the home. A contractor performing repairs had an independent duty under Texas tort law not to injure bystanders by its activities, or by premises conditions it left behind. There was nothing to suggest that the daughter's claim was different from what any bystander might assert, or what she might assert if the contractor were not the company. The daughter could not equitably object to the arbitration clause attached to the contract where she obtained substantial actions from the company by demanding compliance with provisions of the contract. Once the daughter, as a non-party, deliberately sought Page 2 of 14 substantial and direct benefits from the contract, and the company agreed to comply, equity prevented her from avoiding the arbitration clause that was part of the agreement. Outcome The writ of mandamus was conditionally granted and the trial court was ordered to vacate that part of its order denying the company's motion, and to enter a new order compelling arbitration of the daughter's claim. LexisNexis® Headnotes Business & Corporate Compliance > ... > Arbitration > Federal Arbitration Act > Scope HN1[ ] Arbitration, Federal Arbitration Act Nonparties may be bound to an arbitration clause when the rules of law or equity would bind them to the contract generally. Business & Corporate Compliance > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Civil Procedure > ... > Writs > Common Law Writs > Mandamus HN2[ ] Federal Arbitration Act, Arbitration Agreements Mandamus relief is proper to enforce arbitration agreements governed by the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq. Business & Corporate Compliance > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Civil Procedure > Preliminary Considerations > Federal & State Interrelationships > Choice of Law HN3[ ] Federal Arbitration Act, Arbitration Agreements Under the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., absent unmistakable evidence that the parties intended the contrary, it is the courts rather than arbitrators that must decide "gateway matters" such as whether a valid arbitration agreement exists. Page 3 of 14 Whether an arbitration agreement is binding on a nonparty is one of those gateway matters. Texas courts apply Texas procedural rules in making that determination. Those rules call for determination by summary proceedings, with the burden on the moving party to show a valid agreement to arbitrate. It is not entirely clear what substantive law governs whether a nonparty must arbitrate. Generally under the FAA, state law governs whether a litigant agreed to arbitrate, and federal law governs the scope of an arbitration clause. Whether a nonparty must arbitrate can involve aspects of either or both. Pending an answer from the United States Supreme Court, the supreme court applies state law while endeavoring to keep it as consistent as possible with federal law. Business & Corporate Compliance > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements HN4[ ] Federal Arbitration Act, Arbitration Agreements The Federal Arbitration Act, 9 U.S.C.S. § 1 et seq., preempts any state requirements that apply only to arbitration clauses. Business & Corporate Compliance > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements HN5[ ] Federal Arbitration Act, Arbitration Agreements Texas law has long recognized that nonparties may be bound to a contract under various legal principles. Although the supreme court has never considered these principles in the context of arbitration, it recently noted that contract and agency law may bind a nonparty to an arbitration agreement. Indeed, if Texas law would bind a nonparty to a contract generally, the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq., would appear to preempt an exception for arbitration clauses alone. Business & Corporate Compliance > ... > Arbitration > Federal Arbitration Act > Orders to Compel Arbitration HN6[ ] Federal Arbitration Act, Orders to Compel Arbitration A nonparty may be compelled to arbitrate if it seeks, through the claim, to derive a direct benefit from the contract containing the arbitration provisions. This rule is consistent with federal law of direct benefits estoppel. Page 4 of 14 Business & Corporate Compliance > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Business & Corporate Compliance > ... > Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN7[ ] Federal Arbitration Act, Arbitration Agreements Under both Texas and federal, law, whether a claim seeks a direct benefit from a contract containing an arbitration clause turns on the substance of the claim, not artful pleading. Claims must be brought on the contract (and arbitrated) if liability arises solely from the contract or must be determined by reference to it. On the other hand, claims can be brought in tort (and in court) if liability arises from general obligations imposed by law. Business & Corporate Compliance > ... > Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN8[ ] Contract Conditions & Provisions, Arbitration Clauses Nonparties face a choice when they may plead in either contract or tort, but pleading the former invokes an arbitration clause broad enough to cover both (as most do). If they pursue a claim on the contract, then they must pursue all claims--tort and contract--in arbitration. Conversely, if they choose not to sue on the contract, they may pursue the tort claims in court, but the contract claims will thereby likely be waived under the election-of- remedies doctrine. Given these options, it is not clear at this point that nonparties will always choose to forfeit potentially viable contract claims solely to avoid arbitration. Business & Corporate Compliance > ... > Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN9[ ] Contract Conditions & Provisions, Arbitration Clauses A nonparty may seek or obtain direct benefits from a contract by means other than a lawsuit. In some cases, a nonparty may be compelled to arbitrate if it deliberately seeks and obtains substantial benefits from the contract itself. The analysis here focuses on the nonparty's conduct during the performance of the contract. Thus, for example, a firm that uses a trade name pursuant to an agreement containing an arbitration clause cannot later avoid arbitration by claiming to have been a nonparty. Nor can nonsignatories who received lower insurance rates and the ability to sail under the French flag due to a contract avoid the arbitration clause in that contract. Page 5 of 14 Business & Corporate Compliance > ... > Contract Formation > Consideration > Promissory Estoppel HN10[ ] Consideration, Promissory Estoppel The Texas Supreme Court has never addressed such an estoppel claim in the arbitration context. But it has long recognized in other contexts the defensive theory of promissory estoppel. When a promisor induces substantial action or forbearance by another, promissory estoppel prevents any denial of that promise if injustice can be avoided only by enforcement. Promissory estoppel does not create liability where none otherwise exists, but prevents a party from insisting upon his strict legal rights when it would be unjust to allow him to enforce them. Estate, Gift & Trust Law > ... > Trustees > Duties & Powers > Claims Against & By HN11[ ] Duties & Powers, Claims Against & By Under Texas law, a suit involving a trust generally must be brought by or against the trustee, and can be binding on the beneficiaries whether they join it or not. If a trustee's agreement to arbitrate can be avoided by simply having the beneficiaries bring suit, the strong state policy favoring arbitration would be effectively thwarted. Business & Corporate Compliance > ... > Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN12[ ] Contract Conditions & Provisions, Arbitration Clauses Direct-benefits estoppel requires a colorable claim to the benefits; a meddlesome stranger cannot compel arbitration by merely pleading a claim that quotes someone else's contract. Business & Corporate Compliance > ... > Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Business & Corporate Compliance > ... > Contract Formation > Consideration > Promissory Estoppel HN13[ ] Contract Conditions & Provisions, Arbitration Clauses Page 6 of 14 Like the equitable doctrine of promissory estoppel, the supreme court does not understand direct-benefits estoppel to create liability for noncontracting parties that does not otherwise exist. Business & Corporate Compliance > ... > Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN14[ ] Contract Conditions & Provisions, Arbitration Clauses When a nonparty consistently and knowingly insists that others treat it as a party, it cannot later turn its back on the portions of the contract, such as an arbitration clause, that it finds distasteful. A nonparty cannot both have his contract and defeat it too. Judges: [**1] JUSTICE BRISTER delivered the opinion of the Court. JUSTICE WILLETT did not participate in the decision. Opinion by: BRISTER Opinion [*129] ON PETITION FOR WRIT OF MANDAMUS We are asked to decide whether Weekley Homes, L.P., a party to a contract containing an arbitration clause, can compel arbitration of a personal injury claim brought by Patricia Von Bargen, a nonparty. We have previously compelled arbitration by nonparties to an arbitration agreement when they brought suit "based on a contract," 1 which Von Bargen purports to avoid here. But as both state and federal courts have recognized, HN1[ ] nonparties may be bound to an arbitration clause when the rules of law or equity would bind them to the contract generally. Because we find those rules applicable here, we conditionally grant mandamus relief. I. Background In the summer of 2000, Vernon [**2] Forsting contracted with Weekley for construction of a 4,000 square foot home at a purchase price of $ 240,000. At the time, Forsting was a seventy-eight year-old widower with an assortment of health problems. His intention in 1 In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755, 44 Tex. Sup. Ct. J. 900 (Tex. 2001). Page 7 of 14 purchasing such a large home was to live with his daughter, Von Bargen (his only child) and her husband and three sons. Von Bargen and her husband negotiated directly with Weekley on many issues before and after construction--paying a $ 1,000 deposit, selecting the floor plan, signing a letter of intent as, "purchasers," and making custom design choices. But only Forsting executed the various financing and closing documents on the home, including the Real Estate Purchase Agreement that contained the following arbitration clause: Any claim, dispute or cause of action between Purchaser and Seller …, whether sounding in contract, tort, or otherwise, shall be resolved by binding arbitration . . . . Such claims, disputes or causes of action include, but are not limited to, those arising out of or relating to … the design, construction, preparation, maintenance or repair of the Property. Shortly after closing, Forsting transferred the home to the [**3] Forsting Family Trust, a revocable trust established ten years earlier whose sole beneficiary was Von Bargen. At his deposition, Forsting testified that the only reason he signed the Purchase Agreement individually rather than as trustee was because he "forgot to put [the home] in the trust." Forsting and Von Bargen served as the only trustees of the Trust, the purpose of which was to transfer Forsting's property to Von Bargen after his death. According to the plaintiffs' pleadings, numerous problems arose with the home after completion. When the family moved out of the house briefly so Weekley could perform some of those repairs, it was Von Bargen who requested and received reimbursement. Indeed, Von Bargen admitted handling "almost . . . all matters related to the house, the problems and the warranty work and even the negotiations." Unsatisfied with the home and Weekley's efforts to repair it, Forsting, Von Bargen, and the Trust filed suit against Weekley in December 2002. Forsting and the Trust asserted claims for negligence, breach of contract, statutory violations, and breach of warranty. Von Bargen sued only for personal injuries, alleging Weekley's negligent repairs caused [**4] her to develop asthma. Weekley moved to compel arbitration of all claims under the Federal Arbitration [*130] Act (FAA). 2 The trial court concluded the FAA applied, and granted the motion as to all claims by Forsting and the Trust. But the trial court refused to compel arbitration of Von Bargen's claim because she did not sign the Purchase Agreement. 2 See 9 U.S.C. §§ 1-16. Page 8 of 14 HN2[ ] Mandamus relief is proper to enforce arbitration agreements governed by the FAA. 3 After the Fifth Court of Appeals denied Weekley's request for such relief, Weekley filed a similar request in this Court. [**5] II. Governing Law Neither party challenges the trial court's conclusion that the FAA governs the arbitration clause here. 4 HN3[ ] Under the FAA, absent unmistakable evidence that the parties intended the contrary, it is the courts rather than arbitrators that must decide "gateway matters" such as whether a valid arbitration agreement exists. 5 [**6] Whether an arbitration agreement is binding on a nonparty is one of those gateway matters. 6 Texas courts apply Texas procedural rules in making that determination. 7 Those rules call for determination by summary proceedings, 8 with the burden on the moving party to show a valid agreement to arbitrate. 9 But as we recently noted, it is not entirely clear what substantive law governs whether a nonparty must arbitrate. 10 Generally under the FAA, state law governs whether a litigant agreed to arbitrate, 11 [**8] and federal law governs the scope of an arbitration clause. 12 Whether [*131] a nonparty must arbitrate can involve aspects of either [**7] or both. 3 In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 n.2, 42 Tex. Sup. Ct. J. 377 (Tex. 1999) (per curiam); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87-88, 40 Tex. Sup. Ct. J. 104 (Tex. 1996) (per curiam). 4 Although Von Bargen asserts that her personal injury claim cannot be arbitrated under the Texas Arbitration Act as i t was not signed by an attorney, see TEX. CIV. PRAC. & REM. CODE § 171.002(a)(3), (c), she does not challenge the trial court's conclusion that the FAA governs here. HN4[ ] The FAA not only contains no such limitation, but also preempts any state requirements that apply only to arbitration clauses. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87, 134 L. Ed. 2d 902, 116 S. Ct. 1652 (1996). 5 Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452, 156 L. Ed. 2d 414, 123 S. Ct. 2402 (2003); PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401, 407 n.2, 155 L. Ed. 2d 578, 123 S. Ct. 1531 (2003). 6 John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 546-47, 11 L. Ed. 2d 898, 84 S. Ct. 909 (1964). 7 Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 268, 36 Tex. Sup. Ct. J. 205 (Tex. 1992). 8 Id. at 269. 9 J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227, 47 Tex. Sup. Ct. J. 196 (Tex. 2003). 10 In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738-39, 48 Tex. Sup. Ct. J. 678 (Tex. 2005); see also Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 87, 154 L. Ed. 2d 491, 123 S. Ct. 588 (2002) (Thomas, J., concurring) (suggesting Supreme Court sometimes looks to federal law and sometimes law chosen by parties); Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 267 n.6 (5th Cir. 2004) (noting that whether state or federal law of arbitrability applies "is often an uncertain question"). 11 Doctor's Assocs., 517 U.S. at 686-87; First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944, 131 L. Ed. 2d 985, 115 S. Ct. 1920 (1995); Perry v. Thomas, 482 U.S. 483, 492, n.9, 96 L. Ed. 2d 426, 107 S. Ct. 2520 (1987). Parties may also agree that state law governs their arbitration. Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 476, 103 L. Ed. 2d 488, 109 S. Ct. 1248 (1989). 12 Moses H. Cone Mem'I Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983). Page 9 of 14 Pending an answer from the United States Supreme Court, 13 we apply state law while endeavoring to keep it as consistent as possible with federal law. 14 Estoppel and Nonsignatories HN5[ ] Texas law has long recognized that nonparties may be bound to a contract under various legal principles. 15 Although we have never considered these principles in the context of arbitration, we recently noted that contract and agency law may bind a nonparty to an arbitration agreement. 16 Indeed, if Texas law would bind a nonparty to a contract generally, the FAA would appear to preempt an exception for arbitration clauses [**9] alone. 17 [**10] In the one case in which we have compelled nonparties to arbitrate, In re FirstMerit Bank, N.A., we stated that "a litigant who sues based on a contract subjects him or herself to the contract's terms." 18 Because the nonparties there asserted claims identical to the signatories' contract claims, we held all had to be arbitrated. 19 We did not describe in FirstMerit what it means to sue "based on a contract." Von Bargen asserts a narrow interpretation that would apply only to explicit contract claims, and thus not to hers for personal injury; Weekley argues for a broad application to any claim that "arises from or relates to" the contract involved. We recently adopted an approach between these two extremes, holding that HN6[ ] a nonparty may be compelled to arbitrate "if it seeks, through the claim, to derive a direct 13 TheUnited States Supreme Court has not answered this question, though it has applied federal substantive law to bind a nonparty to labor- union arbitration, a field in which federal law has traditionally yielded little deference to state labor-law principles. See John Wiley & Sons, 376 U.S. at 548 (citing Textile Workers Union of Am. v. Lincoln Mills, 353 U.S. 448, 456, 1 L. Ed. 2d 972, 77 S. Ct. 912 (1957)). 14 Kellogg, 166 S.W.3d at 739. 15 See,e.g., TEX. BUS. CORP. ACT art. 2.21(A)(2) (holding shareholders maybe liable for corporation's contracts under alter ego theory if they cause corporation to perpetrate actual fraud for their direct personal benefit); Stine v. Stewart, 80 S.W.3d 586, 590, 45 Tex. Sup. Ct. J. 966 (Tex. 2002) (holding third-party beneficiary could enforce contract); Biggs v. U.S. Fire Ins. Co., 611 S.W.2d 624, 629, 24 Tex. Sup. Ct. J. 204 (Tex. 1981) (holding agent acting within the scope of apparent authority binds the principal). 16 Kellogg, 166 S.W.3d at 738. Accordingly, it is no longer true, that "the [Texas] decisions do not even mention the possibility of additional bases for binding non-signatories to arbitration." Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1076 (5th Cir. 2002). 17 Doctor's Assocs., 517 U.S. at 686-87; Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281, 130 L. Ed. 2d 753, 115 S. Ct. 834 (1995) ("What States may not do is decide that a contract is fair enough to enforce all its basic terms (price, service, credit), but not fair enough to enforce its arbitration clause. The Act makes any such state policy unlawful, for that kind of policy would place arbitration clauses on an unequal 'footing,' directly contrary to the Act's language and Congress' intent."). 18 52 S.W.3d at 755. 19 Id. at 755-56. Page 10 of 14 benefit from the contract containing the arbitration provisions." 20 As we noted, this rule is consistent [**11] with federal law of "direct benefits estoppel." 21 HN7[ ] Under both Texas and federal, law, whether a claim seeks a direct benefit from a contract containing an arbitration [*132] clause turns on the substance of the claim, not artful pleading. 22 Claims must be brought on the contract (and arbitrated) if liability arises solely from the contract or must be determined by reference to it. 23 [**12] On the other hand, claims can be brought in tort (and in court) if liability arises from general obligations imposed by law. 24 We question Weekley's conclusion that this rule will inevitably drive claimants to plead only noncontractual claims to avoid arbitration. HN8[ ] Nonparties face a choice when they may plead in either contract or tort, but pleading the former invokes an arbitration clause broad enough to cover both (as most do). If they pursue a claim "on the contract," then they must pursue all claims--tort and contract--in arbitration. 25 Conversely, if they choose not to sue "on the contract," they may pursue the tort claims in court, [**13] but the contract claims will thereby likely be waived under the election-of-remedies doctrine. 26 Given these options, it is not clear at this point that nonparties will always choose to forfeit potentially viable contract claims solely to avoid arbitration. In this case, Von Bargen purports to make [**14] no claim on the Weekley contract, claiming only that she developed asthma from dust created by Weekley's repairs of the home. While Weekley's duty to perform those repairs arose from the Purchase Agreement, a contractor performing repairs has an independent duty under Texas tort law not to injure bystanders by its activities, 27 or by premises conditions it leaves behind. 28 There is 20 Kellogg, 166 S.W.3d at 741. 21 Id. 22 Hughes Masonry Co., Inc. v. Greater Clark County Sch. Bldg. Corp., 659 F.2d 836, 838-39 (7th Cir. 1981); Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 495, 34 Tex. Sup. Ct. J. 402 (Tex. 1991). 23 Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 418 (4th Cir. 2000); DeWitt County Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 105, 42 Tex. Sup. Ct. J. 979 (Tex. 1999); DeLanney, 809 S.W.2d at 494. 24 See, e.g., R.J. Griffin & Co. v. Beach Club II Homeowners Ass'n, 384 F.3d 157, 163-164 (4th Cir. 2004); InterGen N.V. v. Grina, 344 F.3d 134, 145-46 (1st Cir. 2003); Westmoreland v. Sadoux, 299 F.3d 462, 467 (5th Cir. 2002); Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1076-77 (5th Cir. 2002); DeLanney, 809 S.W.2d at 494; see also Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 47, 41 Tex. Sup. Ct. J. 289 (Tex. 1998). 25 See,e.g., Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271, 36 Tex. Sup. Ct. J. 205 (Tex. 1992) (holding DTPA claim was factually intertwined with contract claim and thus subject to arbitration clause). 26 Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851, 23 Tex. Sup. Ct. J. 502 (Tex. 1980) (holding election-of-remedies doctrine prevents pursuit of inconsistent rights or remedies when result would be manifest injustice); cf. Medina v. Herrera, 927 S.W.2d 597, 598-99, 39 Tex. Sup. Ct. J. 627 (Tex. 1996) (holding election-of-remedies doctrine barred pursuit of both workers' compensation claim and suit against employer for intentional act). Page 11 of 14 nothing in the sparse record here to suggest Von Bargen 's claim is different from what any bystander might assert, or what she might assert if the contractor were not Weekley. But [**15] HN9[ ] a nonparty may seek or obtain direct benefits from a contract by means other than a lawsuit. In some cases, a nonparty may be compelled to arbitrate if it deliberately seeks and obtains substantial benefits from the contract itself. 29 [**16] The analysis here focuses on the [*133] nonparty's conduct during the performance of the contract. 30 Thus, for example, a firm that uses a trade name pursuant to an agreement containing an arbitration clause cannot later avoid arbitration by claiming to have been a nonparty. 31 Nor can nonsignatories who received lower insurance rates and the ability to sail under the French flag due to a contract avoid the arbitration clause in that contract. 32 HN10[ ] This Court has never addressed such an estoppel claim in the arbitration context. 33 [**17] But we have long recognized in other contexts the defensive theory of promissory estoppel. 34 When a promisor induces substantial action or forbearance by another, promissory estoppel prevents any denial of that promise if injustice can be avoided only by enforcement. 35 Promissory estoppel does not create liability where none otherwise exists, 36 but "prevents a party from insisting upon his strict legal rights when it would be unjust to allow him to enforce them." 37 27 SeeRedinger v. Living, Inc., 689 S.W.2d 415, 417, 28 Tex. Sup. Ct. J. 404 (Tex. 1985) (noting general contractor on a construction site in control of the premises may be subject to direct liability for negligence arising from: (1) a premises defect, or (2) an activity or instrumentality). 28 Strakos v. Gehring, 360 S.W.2d 787, 790, 5 Tex. Sup. Ct. J. 462 (Tex. 1962). 29 Astra Oil Co., Inc. v. Rover Navigation, Ltd., 344 F.3d 276, 281 (2d Cir. 2003) (holding affiliate of signatories could enforce arbitration clause as opposing party treated affiliate as part of charter contract during occurrences involved); Am. Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999) (holding nonsignatories who received lower insurance rates and ability to sail under French flag due to contract were bound by arbitration clause in it); see also Matter of VMS Ltd. P'ship Sec. Litig., 26 F.3d 50, 52 (7th Cir. 1994) (holding wife bound by settlement agreement related to investment services contract signed only by her husband, but under which she had accepted services as well); see also InterGen, 344 F.3d at 146 (holding equitable estoppel inapplicable as nonsignatory never sought to derive direct benefits from contracts during their currency). 30 E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 200 n.7 (3d Cir.2001). 31 Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993). 32 Tencara Shipyard, 170 F.3d at 353. 33 See Kellogg, 166 S.W.3d at 741 n.9 (reserving question of whether to apply direct-benefits estoppel to benefits obtained from contract rather than subsequent litigation). 34 See, e.g., 'Moore' Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 16 Tex. Sup. Ct. J. 11 (Tex.1972). 35 Trammel Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636, 40 Tex. Sup. Ct. J. 425 (Tex. 1997). 36 Hruska v. First State Bank of Deanville, 747 S.W.2d 783, 785, 31 Tex. Sup. Ct. J. 292 (Tex. 1988). 37 Wheeler v. White, 398 S.W.2d 93, 96, 9 Tex. Sup. Ct. J. 105 (Tex. 1965). Page 12 of 14 Here, Von Bargen has not merely resided in the home. Claiming the authority of the Purchase Agreement, she directed how Weekley should construct many of its features, repeatedly demanded extensive repairs to "our home," 38 personally requested and received financial reimbursement for expenses "I incurred" while those repairs were made, and conducted settlement negotiations with Weekley (apparently never consummated) about moving the family to a new home. Having obtained these substantial actions from Weekley by demanding compliance with provisions of the contract, Von Bargen cannot equitably object to the arbitration [**18] clause attached to them. In addition to these benefits, Forsting and the Trust have sued Weekley on claims which are explicitly based on the contract. HN11[ ] Under Texas law, a suit involving a trust generally must be brought by or against the trustee, and can be binding on the beneficiaries whether they join it or [*134] not. 39 Although Von Bargen did not purport to sue as either trustee or beneficiary, she was both, and any recovery will inure to her direct benefit as the sole beneficiary and equitable titleholder of the home. 40 [**20] As one Texas court has noted, if a trustee's agreement to arbitrate [**19] can be avoided by simply having the beneficiaries bring suit, "the strong state policy favoring arbitration would be effectively thwarted." 41 While we based our decision in FirstMerit Bank on the nonparties' contract-based claims, more was involved in that case than the format of the pleadings. HN12[ ] Direct-benefits estoppel requires a colorable claim to the benefits; a meddlesome stranger cannot compel arbitration by merely pleading a claim that quotes someone else's contract. The nonparties in FirstMerit Bank were the daughter and son-in-law of the signatories, the actual occupants of the mobile home, and (according to the briefs) the future owners to whom the signatories planned to transfer title. It is hard to see what direct benefits they expected from that contract that Von Bargen did not expect from this one. 38 Invarious lists submitted in the months after the sale, Von Bargen demanded repairs to sagging floors, buckling walls and windows, cracking brick work, as well as replacing the front door, repainting the back door and the kitchen cabinets, regrouting the bathrooms and entry way, replacing the fireplace screen, closing gaps at carpet seams, removing drainage problems in the yard, and repairing a noisy garage door. 39 See TEX. PROP. CODE §§ 111.004(7), 115.011, 115.015; Huie v. DeShazo, 922 S.W.2d 920, 926, 39 Tex. Sup. Ct. J. 288 (Tex. 1996)(holding trusts are not legal entities); Transamerican Leasing Co. v. Three Bears, Inc., 586 S.W.2d 472, 476-77, 22 Tex. Sup. Ct. J. 516 (Tex. 1979) (holding beneficiaries were bound by judgment against trust and trustees, as some participated in trial in their capacity as trustees, and remainder showed neither prejudice, conflict of interest, nor inadequate representation by trustees). 40 Perfect Union Lodge No. 10 v. Interfirst Bank of San Antonio, N.A., 748 S.W.2d 218, 220, 31 Tex. Sup. Ct. J. 277 (Tex. 1988) (holding trust beneficiaries hold equitable title to trust property); cf. Javitch v. First Union Sec., Inc., 315 F.3d 619, 627 (6th Cir. 2003) (holding arbitration agreements were binding on receiver who succeeded to interests of entities that signed them); Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1153-54 (3d Cir. 1989) (holding arbitration agreements were binding on successor trustee in bankruptcy). 41 Merrill Lynch, Pierce, Fenner & Smith v. Eddings, 838 S.W.2d 874, 879 (Tex. App.--Waco 1992, writ denied). Page 13 of 14 HN13[ ] Like the equitable doctrine of promissory estoppel, we do not understand direct- benefits estoppel to create liability for noncontracting parties that does not otherwise exist. As Von Bargen and Weekley had no contract between them, estoppel alone cannot grant either a right to [**21] sue for breach. 42 Nor do we understand the doctrine to apply when the benefits alleged are insubstantial or indirect. But once Von Bargen deliberately sought substantial and direct benefits from the contract, and Weekley agreed to comply, equity prevents her from avoiding the arbitration clause that was part of that agreement. We recognize that direct-benefits estoppel has yet to be endorsed by the United States Supreme Court, and that its application and boundaries are not entirely clear. 43 For example, while federal courts often state the test as whether a nonsignatory has "embraced the contract," 44 the [*135] metaphor gives little guidance in deciding what particular conduct embraces or merely shakes hands with it. Indeed, the equitable nature of the doctrine may render firm standards inappropriate, requiring [**22] trial courts to exercise some discretion based on the facts of each case. 45 [**23] But we agree with the federal courts that HN14[ ] when a nonparty consistently 46 and knowingly 47 insists that others treat it as a party, it cannot later "turn[] its back on the portions of the contract, such as an arbitration clause, that it finds distasteful." 48 A nonparty cannot both have his contract and defeat it too. [**24] While Von Bargen never based her personal injury claim on the contract, her prior exercise of other contractual rights and her equitable entitlement to other contractual benefits prevents her from avoiding the arbitration clause here. Accordingly, the trial court 42 See Sun Oil Co. v. Madeley, 626 S.W.2d 726, 734, 25 Tex. Sup. Ct. J. 101 (Tex. 1981) (holding estoppel based on division orders could not permanently amend underlying lease). 43 See, e.g., J. Douglas Uloth & J. Hamilton Rial, III, Equitable Estoppel as a Basis for Compelling Nonsignatories to Arbitrate--A Bridge Too Far?, 21 REV. LITIG. 593 (2002). 44 See,e.g., InterGen, 344 F.3d at 145; DuPont, 269 F.3d at 200; Peltz ex rel. Peltz v. Sears, Roebuck & Co., 367 F. Supp. 2d 711, 721 (E.D.Pa. 2005); In re Universal Serv. Fund Tel. Billing Practices Litig., 300 F. Supp. 2d 1107, 1138 (D.Kan. 2003); Amkor Tech., Inc. v. Alcatel Bus. Sys., 278 F. Supp. 2d 519, 521-22 (E.D.Pa. 2003); Cherry Creek Card & Party Shop, Inc. v. Hallmark Mktg. Corp., 176 F. Supp. 2d 1091, 1098 (D.Colo. 2001). 45 See,e.g., Bridas S.A.P.I.C. v. Turkmenistan, 345 F.3d 347, 360 (5th Cir. 2003) ("The use of equitable estoppel is within a district court's discretion."); accord, Hill v. G.E. Power Sys., Inc., 282 F.3d 343, 348 (5th Cir. 2002); Grigson v. Creative Artists Agency, 210 F.3d 524, 528 (5th Cir. 2000). 46 See lnt'l Paper, 206 F.3d at 418 (estopping nonsignatory from denying agreement to arbitrate "when he has consistently maintained that other provisions of the same contract should be enforced to benefit him.") (emphasis added). 47 See Bridas, 345 F.3d at 361-62 ("Direct[-]benefits estoppel applies when a nonsignatory 'knowingly exploits the agreement containing the arbitration clause.'") (emphasis added) (citing DuPont, 269 F.3d at 199); Tencara Shipyard, 170 F.3d at 353 (requiring nonsignatories to arbitrate pursuant to provision in contract they neither requested nor executed, as they had duty to obtain that contract and received copies of it). 48 DuPont, 269 F.3d at 200; accord Astra Oil Co., 344 F.3d at 281. Page 14 of 14 abused its discretion in failing to compel arbitration. We conditionally grant the writ of mandamus and order the trial court to vacate that part of its order denying Weekley's motion, and to enter a new order compelling arbitration of Von Bargen's claim. We are confident the trial court will comply, and our writ will issue only if it does not. Scott Brister Justice End of Document