Fort Worth COA Rules Church Must Arbitrate Claims Against Roofing Materials Manufacturer

Texas’s Second District Court of Appeals in Fort Worth has overturned a trial court’s order denying a company’s motion to compel arbitration. In Dow Roofing Systems LLC v. Great Commission Baptist Church, et al., No. 02-16-00395-CV (August 3, 2017), a new church was built in Tarrant County, Texas in 2006.  Prior to installing the church’s roof, the roofing contractor, Chamberlain, entered into an arbitration agreement with a roofing materials manufacturer authorizing the roofer to use the company’s roofing membrane product.  In addition, the parent company of the roofing materials manufacturer provided the church with a limited warranty that included an agreement to arbitrate.  A representative for the church signed the warranty.  Dow later purchased the roofing materials manufacturer from its parent company.

Not long after the church’s roof was installed, it began to leak.  The church apparently requested repairs under the warranty not less than five times.  Each time, Dow stated the roofing membrane was in acceptable condition.  After the church’s repeated attempts to secure repairs under the warranty failed, the church submitted a claim to its insurance company.  Unfortunately, the insurer denied the church’s claim over what the insurance company claimed were poorly manufactured roofing materials.

Next, the church filed a lawsuit against the roofing contractor and Dow.  In response to the lawsuit, Chamberlain filed several cross-claims against Dow.  Dow then filed a motion to compel both disputes to arbitration based on the two agreements that were entered into by the previous owner of the roofing materials company.  Since neither party chose to reply to Dow’s motions to compel arbitration, the trial court granted both motions.

About one year later, the church sought to set aside the district court’s order granting Dow’s motion.  The trial court granted the church’s request.

The Church then filed a response to Dow Roofing’s motion to compel arbitration. In its response, the Church asserted that Dow Roofing had recently declared the warranty to be “null and void,” and as a result, the warranty never came into existence—and, thus, neither did the arbitration provision. The Church further argued that: (1) the Limited Warranty was illusory; (2) the Church’s claims arose before execution of the Limited Warranty, and the arbitration provision thus had no application; and (3) the arbitration provision was unconscionable.

The district court denied Dow’s amended motion to compel arbitration and the roofing materials manufacturer filed an appeal with Texas’s Second District Court of Appeals.

On appeal, the Fort Worth court first ruled the trial court abused its discretion when it denied Dow’s motion to compel arbitration with regard to Chamberlain.  The court said:

In summary, because the parties agreed to the arbitration provision, the arbitrator must decide the scope of that provision, and the arbitrator must address Chamberlin’s unconscionability defense. Accordingly, the trial court abused its discretion by denying the motion to compel arbitration of Chamberlin’s 9 claims. We sustain Dow Roofing’s first issue. Accordingly, we do not address Dow Roofing’s remaining arguments under this issue. See Tex. R. App. P. 47.1.

After that, the Fort Worth appellate court turned to Dow’s motion to compel arbitration with regard to the church.  The court dismissed the church’s claim that no contract containing an arbitration agreement existed because “Dow Roofing nullified the Limited Warranty.”  According to the court:

Because the Church’s defense challenges the continuing validity of the Limited Warranty but does not challenge the requirements for formation of a contract, it is the arbitrator that must decide the consequences of Dow Roofing’s decision to declare the Limited Warranty “null and void.” See Morgan Stanley, 293 S.W.3d at 185.

The Court of Appeals next addressed the church’s claim the limited warranty was illusory.  The court stated:

We determine that the Limited Warranty is not illusory simply because Dow Roofing could terminate it. Dow Roofing did not have an unrestricted right to cancel the Limited Warranty to avoid performance. To the contrary, the Limited Warranty specified limited grounds upon which Dow Roofing could, in its discretion, cancel it. Further, the parties do not dispute that Dow Roofing made repairs to the roof when requested under the Limited Warranty. See Cherokee Commc’ns, Inc. v. Skinny’s, Inc., 893 S.W.2d 313, 316 (Tex. App.—Eastland 1994, writ denied) (“A contract which provides for its termination at the option of one or either of the parties will be enforced if not contrary to equity and good conscience” and citing established rule that a party’s performance may constitute consideration even if the contract was void when made for lack of mutuality). We therefore reject the Church’s argument that the cancellation provision in the Limited Warranty rendered it illusory.

The court then said it would not evaluate the church’s claim that the arbitration provision at issue was “both procedurally and substantively unconscionable.” According to the court, because “the parties delegated arbitrability to the arbitrator, we do not decide the Church’s unconscionability argument.”

The Fort Worth court also held:

Because Dow Roofing established the existence of a valid arbitration provision, the Church failed to establish a defense to arbitration, and the arbitrator must decide the scope of the arbitration provision and whether the arbitration provision is unconscionable, we are compelled to hold, despite our strong concerns about Dow Roofing’s action in canceling the Limited Warranty, that the trial court abused its discretion by denying Dow Roofing’s motion to compel arbitration. Accordingly, we sustain Dow Roofing’s second issue.

Finally, Texas’s Second District Court of Appeals in Fort Worth ruled the trial court abused its discretion when it denied Dow’s motion to compel arbitration with regard to both Chamberlain and the church before remanding the case with instructions to compel the two disputes to arbitration.

Photo credit: XoMEoX via Foter.com / CC BY