San Antonio COA Holds Arbitrator Must Decide Whether Contract is Void as a Matter of Law

Texas’s Fourth Court of Appeals in San Antonio has reversed a trial court’s order denying a financing company’s motion to compel arbitration.  In Spruce Lending, Inc. v. Garcia, No. 04-18-00797-CV (Tex. App – San Antonio, April 3, 2019), a Texas man, Garcia, entered into a financing contract with Spruce Lending in order to have solar panels installed on his home by Rodeo Solar, LLC.  The financing contract contained a broad arbitration provision that required any disputes related to the validity of the agreement be submitted to arbitration.  In addition, Garcia executed an installation contract with Rodeo Solar.

Following an allegedly problematic installation of the solar panels, Garcia filed a lawsuit against both Rodeo Solar and Spruce Lending in a Bexar County trial court.  According to Garcia’s complaint, both contracts were invalid as a matter of law because each violated federal and Texas consumer protection laws.  In response to the lawsuit, Spruce Lending filed a motion to compel arbitration based on the arbitration provision included in the parties’ financing agreement. The trial court denied Spruce Lending’s motion, and the company filed an interlocutory appeal with the Fourth Court of Appeals in San Antonio.

On appeal, the San Antonio court noted it was up to Spruce Lending to establish that a valid agreement to arbitrate existed.  In addition, the appellate court stated the claims at issue must fall within the scope of the arbitral agreement.  The court then said it would review each issue de novo.

Next, the Fourth District turned to Spruce Lending’s claims that the company “produced a valid arbitration agreement, Garcia’s challenge to the validity of the contract and financing agreement are within the arbitration agreement’s scope, and Garcia’s challenges to the contracts as a whole must go to the arbitrator.”  Based on the record, the court determined a valid arbitration agreement existed.  After that, the San Antonio court found the scope of the arbitral provision at issue was quite broad.  The court said:

Garcia’s petition alleges that any contract between himself and Spruce is void because Rodeo Solar and Spruce failed to comply with certain state and federal consumer protection and contract formation statutes. See, e.g., TEX. BUS. & COM. CODE ANN. §§ 601.052, .053, .201.

We conclude that Garcia’s allegations comprise a “dispute or argument that concerns the validity or enforceability” of the contract and financing agreement, and his challenges to the contract and financing agreement are within the scope of the arbitration agreement. See In re FirstMerit Bank, 52 S.W.3d at 754–55; Schmidt Land Servs., 432 S.W.3d at 473.

The appellate court then refused to consider Garcia’s assertion the financing and installation contracts were both void as a matter of law.  The court said:

Garcia’s challenges to the entire contract and financing agreement are questions for the arbitrator, not the trial court. See Buckeye, 546 U.S. at 446; In re Labatt Food Serv., 279 S.W.3d at 648; Forest Oil, 268 S.W.3d at 56.

Finally, Texas’s Fourth Court of Appeals in San Antonio held:

Because Garcia challenged the validity of the entire contract and financing agreement, and the arbitration provision directs “any dispute or argument that concerns the validity or enforceability of [the contract]” to the arbitrator, Garcia’s challenges are a matter for the arbitrator, and the trial court erred by denying Spruce’s motion to compel arbitration.

The appellate court then reversed and remanded the case back to the trial court.

H/T to Don Philbin for alerting Disputing to this case!

Photo by:  Mariana Proença on Unsplash