William Clayton and Alice Clayton v. Jared Tomlinson

In The

Court of Appeals

Ninth District of Texas at Beaumont

________________

NO. 09-24-00020-CV
________________

WILLIAM CLAYTON AND ALICE CLAYTON, Appellants

V.

JARED TOMLINSON, Appellee
________________________________________________________________________

On Appeal from the 457th District Court
Montgomery County, Texas
Trial Cause No. 22-10-13238-CV
________________________________________________________________________

MEMORANDUM OPINION

The underlying litigation arose after Appellee Jared Tomlinson

(“Tomlinson”) purchased a home from Appellants William Clayton and Alice

Clayton (collectively, “the Claytons”). Tomlinson also sued the inspector and

inspection company, Redfish, LLC (“Redfish”). The Claytons sought to compel

Tomlinson to arbitrate based on his “Pre-Inspection Agreement” with Redfish and

the inspector, although they were non-signatories to that agreement. The Claytons

filed an interlocutory appeal, and in one issue, challenge the denial of their Motion

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to Compel Arbitration. See Touchstone v. Gagliano, No. 09-21-00342-CV, 2023 WL

7395409, at *1 (Tex. App.—Beaumont Nov. 9, 2023, no pet.) (mem. op.) (citation

omitted) (“The Legislature has granted appellate jurisdiction over an interlocutory

ruling denying a motion to compel arbitration.”); Wal-Mart Stores Tex., LLC v.

Peavley, No. 09-21-00403-CV, 2023 WL 1831122, at *1 n.1 (Tex. App.—Beaumont

Feb. 9, 2023, no pet.) (mem. op.) (allowing interlocutory appeal of denial to compel

arbitration). For the reasons discussed below, we affirm.

Background

In late 2020, Tomlinson entered into contractual negotiations to purchase the

real waterfront property located in Montgomery, Texas (the “Property”) from the

Claytons. In March 2021, Tomlinson hired Redfish to inspect the home before

purchase. According to Tomlinson, based on the disclosures and assurances of the

Claytons and Redfish, he signed and executed a contract to purchase the Property in

April 2021. Months later, Tomlinson became aware of what he alleges were

“significant and serious defects” to the waterfront section of the Property through a

repairman. After learning of the defects, Tomlinson sued the Claytons and Redfish.

In his petition, Tomlinson alleges that the Claytons were aware of the Property’s

defects, failed to disclose the defects, and disguised the defects during the purchase

process. Tomlinson sued Redfish alleging that had Redfish conducted a “competent

inspection” of the Property, the defects would have been revealed. Tomlinson

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brought claims against the Claytons for: Deceptive Trade Practices Act (“DTPA”)

violations; common law fraud; statutory fraud in a real estate transaction; negligent

misrepresentation; and breach of contract. Tomlinson initially brought a DTPA

claim against Redfish. He later filed his First Amended Petition asserting additional

claims against Redfish, including: common law fraud; statutory fraud in a real estate

transaction; negligent misrepresentation; and breach of contract.

After filing its Answer, Redfish filed a Motion to Compel Arbitration and

Stay/Abate Proceedings based on the terms of the Pre-Inspection Agreement signed

by Tomlinson and the Redfish Inspector that mandates arbitration to resolve any

disputes between the parties. Redfish included the Agreement as an attachment to

the Motion to Compel. Section VII of the Agreement states:

In the event a dispute arises regarding an inspection that has been
performed under this agreement, the Client agrees to notify the
Inspector in writing, within ten (10) days of the date the Client
discovers the basis for the dispute so as to give the Inspector a
reasonable opportunity to reinspect the property. Client agrees to allow
re-inspection before any corrective action is taken. Client agrees not to
disturb or repair or have repaired anything which might constitute
evidence relating to a complaint against the Inspector. Client further
agrees that the Inspector can either conduct the reinspection himself or
can employ others (at Inspector’s expense) to reinspect the property, or
both. In the event a dispute cannot be resolved by the Client and the
Inspector, the parties agree that any dispute or controversy shall be
resolved by mandatory and binding arbitration. The arbitration panel
must include at least one licensed home inspector.

Based on the dispute resolution provision and Texas law that strongly favors

enforcement of the provision, Redfish requested that the trial court abate the case
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and require Tomlinson and Redfish to commence binding arbitration to resolve any

disputes related to the pre-purchase inspection.

As a result of the Motion to Compel Arbitration and Stay/Abate Proceedings,

Tomlinson and Redfish agreed to arbitrate his claims against Redfish and stay/abate

the proceedings between Tomlinson and Redfish. They submitted an Agreed Order

evidencing that agreement, which the trial court signed on May 31, 2023.

In November 2023, the Claytons filed a No-Evidence Motion for Summary

Judgment as to all of Tomlinson’s claims. Tomlinson filed his Response to

Defendants William and Alice Clayton’s No Evidence Motion for Summary

Judgment arguing that he provided evidence on all elements of his claims against

them. Tomlinson attaches exhibits that he argues are evidence supporting his claims,

including the executed real estate contract for the Property, the Seller’s Disclosure

Notice, and inspection reports. The trial court denied the Claytons’ No-Evidence

Motion for Summary Judgment.

In December 2023, the Claytons filed a Motion for Summary Judgment on

Affirmative Defenses asserting that Tomlinson failed to timely sue them for his

DTPA claims since Tomlinson filed his suit more than two (2) years after the Seller’s

Disclosures were delivered. That same day, the Claytons counterclaimed for

attorneys’ fees contending that Tomlinson’s suit was groundless and brought in bad

faith.

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Tomlinson filed his Response to the Claytons’ Motion for Summary

Judgment on Affirmative Defenses and Motion to Strike the Claytons’ First

Amended Answer and Original Counter Claim. In his Response, Tomlinson argues

that the Claytons’ First Amended Answer and Affirmative Defenses and the

Claytons’ Original Counter Claim are untimely since the pleading deadline ended

three (3) months prior. Tomlinson further contends that the Claytons’ statute of

limitations affirmative defense is waived since it was untimely, and Tomlinson

argues that he timely filed his claims within the two-year statute of limitations, based

on the date he discovered the injury.

That same month, December 2023, the Claytons filed their Motion to Compel

Arbitration based on the dispute resolution provision in the Pre-Inspection

Agreement between Tomlinson and Redfish. The Claytons seek to have Tomlinson

arbitrate his claims against them and argue they are direct beneficiaries of the Pre-

Inspection Agreement because they are beneficiaries of the inspection Redfish

conducted. According to the Claytons, as beneficiaries of the inspection, they can

compel arbitration under the doctrine of direct benefits estoppel.

Tomlinson filed his Response to the Claytons’ Motion to Compel Arbitration

and argues that direct benefits estoppel does not apply because Tomlinson’s claims

against the Claytons are independent of the Pre-Inspection Agreement. Tomlinson

also asserts that the Claytons’ Motion to Compel must be denied because the dispute

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resolution provision in the Pre-Inspection Agreement does not expressly grant any

third parties the ability to participate in the arbitration nor is there evidence that the

Pre-Inspection Agreement contemplated or intended to include third parties like the

Claytons.

The Claytons later filed their First Amended Motion to Compel Arbitration

contending that the trial court should grant the Motion to Compel because any

potential liability of the Claytons could arise as a result of the Pre-Inspection

Agreement between Redfish and Appellee. They further argue that their potential

liability or lack thereof would be “inextricably related” to Redfish’s liability. Finally,

the Claytons argue that because Tomlinson is arbitrating with Redfish, he is not

prejudiced by the granting of the motion.

In January 2024, the trial court signed an Order Setting Hearing on Motion to

Compel Arbitration. In the Order, the trial court stated the Court’s concern with the

exclusivity provision in the Pre-Inspection Agreement that stated:

The Inspection report is to be prepared exclusively for the Client named
and is not transferable to anyone in any form. Client give[]s permission
for the Inspector to discuss report findings with real estate agents,
specialists, or repair persons for the sake of clarification. A copy of the
Inspection Report may be released to the selling Real Estate Agent.

The Court stated that the exclusivity provision showed “that the parties did not

intend for the Clayton defendants to be beneficiaries under the Pre-Inspection

Agreement.” The Order stated further that neither the Claytons’ counterclaim nor

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the Tomlinson’s claims against them are based on the provisions of the Pre-

Inspection Agreement. Nevertheless, the trial court requested that the parties appear

for a hearing on the Motion.

At the hearing, the Claytons argued that a non-signatory can compel

arbitration and that the term “any dispute” in the dispute resolution provision should

be broadly interpreted to include a dispute that includes the Claytons-Sellers. They

further argued that Tomlinson’s claims against them and Redfish are so intertwined

and interdependent that Tomlinson is not permitted to arbitrate with one party and

litigate with the other.

At the hearing’s conclusion, the trial court denied the Claytons Motion to

Compel Arbitration. This interlocutory appeal followed.

Standard of Review

“[A] party seeking to compel arbitration must establish the existence of a valid

arbitration agreement and show that the disputed claim falls within the scope of that

agreement.” Wagner v. Apache Corp., 627 S.W.3d 277, 282 (Tex. 2021) (citing In

re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005) (orig.

proceeding)). We review a trial court’s order denying a motion to compel arbitration

for an abuse of discretion. Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018).

“A trial court abuses its discretion if it acts in an arbitrary or unreasonable manner

without reference to any guiding rules or principles.” Bowie Mem’l Hosp. v. Wright,

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79 S.W.3d 48, 52 (Tex. 2002) (per curiam). In an abuse of discretion review, we

should not reverse because we might have decided the issue differently. See Downer

v. Aquamarine Operators, Inc., 701 S.W.2d 238, 242 (Tex. 1985). We defer to a trial

court’s factual findings and review the trial court’s legal determinations de novo,

including questions of contract interpretation. See Wagner, 627 S.W.3d at 283; In

re Labatt Food Serv., L.P., 279 S.W.3d 640, 642–43 (Tex. 2009); see also Barrow-

Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d 471, 479 (Tex. 2019) (“We

construe contracts under a de novo standard of review.”) (citation omitted). Whether

a valid arbitration agreement exists and whether the claims in dispute fall within the

scope of the arbitration agreement are legal questions subject to de novo review. See

Henry, 551 S.W.3d at 115; In re Labatt Food Serv., L.P., 279 S.W.3d at 643.

A party seeking to compel arbitration has the initial burden of proof to

establish that a valid arbitration agreement exists and that the claims are within the

agreement’s scope. See Wagner, 627 S.W.3d at 282; In re Rubiola, 334 S.W.3d 220,

223 (Tex. 2011) (orig. proceeding); Kellogg Brown & Root, Inc., 166 S.W.3d at 737;

J.M. Davidson v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). While there is a strong

presumption favoring arbitration, the presumption only arises after the party seeking

to compel arbitration proves that a valid arbitration agreement exists. J.M. Davidson,

128 S.W.3d at 227. Ordinary principles of state contract law determine whether a

valid agreement to arbitrate exists. Kellogg Brown & Root, 166 S.W.3d at 738. After

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the proponent of arbitration has made the required showings, the burden then shifts

to the party opposing arbitration to raise an affirmative defense to enforcing

arbitration. See Henry, 551 S.W.3d at 115; Venture Cotton Coop. v. Freeman, 435

S.W.3d 222, 227 (Tex. 2014).

Analysis

In three arguments, the Claytons challenge the trial court’s denial of their

Motion to Compel Arbitration based upon three complaints: there is a valid

arbitration agreement broad enough to cover all disputes; Tomlinson is equitably

estopped from denying the Claytons’s reliance on the arbitration clause; and the

Claytons did not waive reliance on the arbitration clause. First, the Claytons argue

that the dispute resolution provision in the Pre-Inspection Agreement is broad

enough to cover all disputes that were made jointly against the Claytons and Redfish

despite the Claytons being non-signatories to the Pre-Inspection Agreement.

According to the Claytons, Tomlinson made several claims against both them and

Redfish for DTPA, fraud, negligent misrepresentation, and breach of contract. The

Claytons contend that Tomlinson’s claims were made jointly against both parties

and that a broad reading of the provision requires that all claims, both tort and

contract, against all parties be arbitrated.

In response, Tomlinson argues that his claims against the Claytons are not

based on the Pre-Inspection Agreement between him and Redfish, and that his

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claims against the Claytons are independent and could have been pursued absent any

claims against Redfish. According to Tomlinson, the Claytons’ theory fails because

he does not allege that the Claytons breached or benefited from the Pre-Inspection

Agreement with Redfish. Tomlinson also argues that it is clear that the language in

the Pre-Inspection Agreement only intended to bind him, Redfish, and the inspector

to the Pre-Inspection Agreement’s terms based on the included exclusivity

provision.

Generally, broad arbitration provisions are those “that apply to ‘any dispute’

or ‘all disputes’ arising from any agreement.” Rebellion Energy II, LLC v. Liberty

Res. Power River Operating, LLC, No. 01-19-00413-CV, 2019 WL 5699742, at *3

(Tex. App.—Houston [1st Dist.] Nov. 5, 2019, no pet.) (mem. op.) (quoting In re

Complaint of Hornbeck Offshore (1984) Corp., 981 F.2d 752, 754 (5th Cir. 1993)).

“Who is bound by an arbitration agreement is normally a function of the parties’

intent, as expressed in the agreement’s terms.” Jody James Farms, JV v. Altman

Grp., 547 S.W.3d 624, 633 (Tex. 2018) (citing Rubiola, 334 S.W.3d at 224).

Generally, parties must sign arbitration agreements before being bound by them.

Rubiola, 334 S.W.3d at 224. “But sometimes a person who is not a party to the

agreement can compel arbitration with one who is, and vice versa.” Meyer v.

WMCO-GP, LLC, 211 S.W.3d 302, 305 (Tex. 2006) (citing In re Vesta Ins. Grp.,

192 S.W.3d 759, 761–62 (Tex. 2006) (per curiam)) (other citations omitted). When

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signatories to an arbitration agreement designate certain non-signatories as parties

to the agreement, those third parties may enforce the right to enforce the arbitration

agreement against those signatories in certain circumstances. See Rubiola, 334

S.W.3d at 222; see also Waterstone on Lake Conroe, Inc. v. Williams, No. 09-17-

00071-CV, 2017 WL 3298234, at *4 (Tex. App.—Beaumont Aug. 3, 2017, no pet.)

(mem. op.) (determining that “[b]ecause the arbitration agreement expressly

provides that officers are non-signatories that are considered parties to the

agreement,” the officer could compel arbitration under the agreement). “Whether a

non-signatory can compel arbitration pursuant to an arbitration clause questions the

existence of a valid arbitration clause between specific parties and is therefore a

gateway matter for the court to decide.” Rubiola, 334 S.W.3d at 224; Williams, 2017

WL 3298234, at *3.

We must consider the Pre-Inspection Agreement’s terms to determine the

parties’ intent regarding who should be bound by the dispute resolution provision.

See Jody James Farms, JV, 547 S.W.3d at 633. Here, the Pre-Inspection Agreement

indicates it was “entered into on March 11, 2021, between Redfish Inspection LLC

and the inspector – James Sprouse (herein after knowns as the inspector)” and “Jared

Tomlinson (herein after known as the Client).” In addition to the dispute resolution

provision, the Pre-Inspection Agreement includes an exclusivity provision that

states:

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The Inspection report is to be prepared exclusively for the Client named
and is not transferable to anyone in any form. Client give[]s permission
for the Inspector to discuss report findings with real estate agents,
specialists, or repair persons for the sake of clarification. A copy of the
Inspection Report may be released to the selling Real Estate Agent.

Based on the terms of the Pre-Inspection Agreement, it is clear that the parties

intended that only Tomlinson, Redfish, and the Redfish inspector be bound by those

terms. The dispute resolution provision states that “[i]n the event a dispute cannot

be resolved by the Client and the Inspector, the parties agree that any dispute or

controversy shall be resolved by mandatory and binding arbitration.” The dispute

resolution provision, as expressed in the Pre-Inspection Agreement’s terms, only

intended to cover disputes between Tomlinson and Redfish, including the Redfish

inspector, which were the Parties identified in the Pre-Inspection Agreement. The

Claytons are not designated as parties nor are they signatories, thus they are not

covered by any terms of the dispute resolution provision. Unlike the agreements at

issue in Rubiola and Waterstone on Lake Conroe v. Williams, the express terms of

the Pre-Inspection Agreement did not provide that any non-signatories would be

considered parties such that they could compel arbitration. See Rubiola, 334 S.W.3d

at 224; Williams, 2017 WL 3298234, at *4. Therefore, based on the terms and

express language of the Pre-Inspection Agreement, the Claytons failed to

demonstrate that it was the parties’ intent to bind any non-signatories to the terms

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and conditions of the Pre-Inspection Agreement. See Jody James Farms, JV, 547

S.W.3d at 633.

Second, the Claytons argue that the principle of equitable estoppel should

apply to bind a non-signatory to the dispute resolution provision in the Pre-

Inspection Agreement. According to the Claytons, Tomlinson’s pleadings are filed

jointly against Redfish and the Claytons, and Tomlinson’s claims against Redfish

and them are inextricably intertwined. The Claytons argue that Tomlinson should

not be permitted to arbitrate the claims against Redfish, but be required to litigate

the same claims against them.

Courts “have recognized six theories, arising out of common principles of

contract and agency law, that may bind non-signatories to arbitration agreements:

(1) incorporation by reference; (2) assumption; (3) agency; (4) alter ego; (5)

equitable estoppel; and (6) third-party beneficiary.” Kellogg Brown & Root, 166

S.W.3d at 739. It should be noted that the Claytons did not raise, nor did they bring

forth any evidence with regard to the theories (1), (2), (3) or (4) set forth above.

Under the doctrine of direct benefits estoppel, a type of equitable estoppel, courts

have “held that a non-signatory plaintiff may be compelled to arbitrate if its claims

are ‘based on a contract’ containing an agreement to arbitrate.” Id. at 740 (quoting

In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755 (Tex. 2001) (“[A] litigant who sues

based on a contract subjects him or herself to the contract’s terms.”)). However, if a

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“non-signatory’s claims can stand independently of the underlying contract, then

arbitration generally should not be compelled under this theory.” Id. at 739–40

(citations omitted).

Generally, nonparties “must arbitrate claims if liability arises from a contract

with an arbitration clause, but not if liability arises from general obligations imposed

by law.” Vesta Ins. Grp., Inc., 192 S.W.3d at 761. “[T]he claim must depend on the

existence of the contract…and be unable to stand independently without the

contract.” G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 527–28

(Tex. 2015) (quotation marks omitted). When “the alleged liability ‘arises solely

from the contract or must be determined by reference to it’ equity prevents [the non-

signatory plaintiff] from avoiding [an] arbitration clause that was part of that

[contract].” Jody James Farms, JV, 547 S.W.3d at 637 (citations omitted). To

determine whether a claim seeks a direct benefit from a contract with an arbitration

provision, courts consider the substance of the claim, not artful pleadings. See In re

Weekley Homes, L.P., 180 S.W.3d 127, 131–32 (Tex. 2005).

In this case, Tomlinson’s First Amended Petition alleges that the Claytons

delivered their “Seller’s Disclosure Notice” to him in September 2020 indicating

they were unaware of any defects, malfunctions, or areas needing repair on the

Property. Subsequently, in March 2021, Tomlinson contracted with Redfish to

inspect the Property, and the inspection report provided failed to detail any

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deficiencies. Based on the Claytons’ disclosures and the report prepared by Redfish,

Tomlinson entered into a contract to purchase the Property. Additionally,

Tomlinson’s breach of contract claim against the Claytons is based on one agreement

while his breach of contract claim against Redfish is based on a totally different and

separate agreement. Tomlinson’s breach of contract claim against the Claytons

indicates that it is based on the real estate contract Tomlinson entered with the

Claytons, more specifically referred to as the Texas Real Estate Commission

(TREC) “One To Four Family Residential Contract (Resale)”, including the

“Seller’s Disclosure Notice,” both of which do not contain any arbitration provision

or requirement. Whereas Tomlinson’s breach of contract claim against Redfish is

based on the Pre-Inspection Agreement, which is the only contract including an

arbitration provision. Tomlinson’s remaining claims against the Claytons, including

breach of DTPA, fraud, and negligent misrepresentation, are all based on his

allegations that the Claytons failed to properly disclose defects on the Property in

their Seller’s Disclosure Notice. The Claytons failed to demonstrate that

Tomlinson’s claims against them are tied to or dependent on Tomlinson’s Pre-

Inspection Agreement with Redfish to conduct a proper inspection and inform him

of any deficiencies. Therefore, the Claytons have failed to demonstrate that they are

entitled to compel arbitration with Appellee based on the direct benefits estoppel

theory. See Kellogg Brown & Root, 166 S.W.3d at 741.

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Having considered the Claytons’ arguments, we hold that Tomlinson’s claims

against them are not subject to the dispute resolution provision of the Pre-Inspection

Agreement between Tomlinson and Redfish. Accordingly, we overrule the

Claytons’ arguments complaining that the trial court abused its discretion by denying

their Motion to Compel Arbitration. We need not address the Claytons’ third

complaint regarding waiver, as it would not change the outcome of their appeal. See

Tex. R. App. P. 47.1.

Conclusion

Having considered and overruled the Claytons’ first and second issues, we

conclude the trial court did not abuse its discretion by denying their Motion to

Compel Arbitration. Accordingly, we affirm the trial court’s order denying the

Claytons’ Motion to Compel Arbitration.

AFFIRMED.

W. SCOTT GOLEMON
Chief Justice

Submitted on November 21, 2024
Opinion Delivered January 30, 2025

Before Golemon, C.J., Wright and Chambers, JJ.

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