Tenants in commercial lease dispute asserted the same counterclaims in court that they had previously dropped in arbitration, and did so when Lessors sought confirmation of the arbitration award for past-due rent. Houston Court of Appeals holds that (re)litigation of the counterclaims was barred because arb award had res judicata effect, and affirms adverse summary judgment on counterclaims. Also holds that the the res judicata preclusion issue was properly decided by the court in the confirmation proceeding, rather than having to be sent to the arbitrator. Premium Plastics Supply, Inc. v Howell [Opinion in pdf].
Opinion issued September 28, 2017
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-16-00481-CV
———————————
PREMIUM PLASTICS SUPPLY, INC., REGINALD BARHAM, AND
CAROL BARHAM, Appellants
V.
THOMAS HOWELL AND LAURA HOWELL, Appellees
On Appeal from the 189th District Court
Harris County, Texas
Trial Court Case No. 2015-59650
O P I N I O N
Opinion issued September 28, 2017
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-16-00481-CV
———————————
PREMIUM PLASTICS SUPPLY, INC., REGINALD BARHAM,
AND CAROL BARHAM, Appellants
V.
THOMAS HOWELL AND LAURA HOWELL, Appellees
On Appeal from the 189th District Court
Harris County, Texas
Trial Court Case No. 2015-59650
O P I N I O N
This case involves a trial court proceeding to confirm an arbitration award in
a commercial landlord-tenant dispute. Landlords Thomas and Laura Howell,
appellees here, filed suit in the trial court to confirm an arbitration award in their
favor against their former tenants, appellants Premium Plastics Supply, Inc. and
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Reginald and Carol Barham. After the Howells moved for summary judgment,
appellants filed counterclaims for improper lockout under the Property Code,
unauthorized access, and breach of oral agreements. The trial court granted partial
summary judgment confirming the arbitration award. The Howells subsequently
moved for summary judgment on appellants’ counterclaims, arguing that they were
barred by res judicata because they should have been raised in the now-concluded
arbitration proceeding. The trial court granted summary judgment on the
counterclaims.
Appellants appeal the trial court’s summary judgment entered on their
counterclaims.1
In their sole issue on appeal, they argue that the trial court erred by
granting summary judgment on their counterclaims because the issue of res judicata
must be decided by the arbitrator and not the trial court. We affirm.
Background
In May 2012, appellants signed a two-year lease for commercial space owned
by the Howells. The lease contained an arbitration provision, which provided that
all disputes related to it must be arbitrated:
ARBITRATION. Any controversy or claim related to this contract,
including the construction or application of this contract, will be settled
by binding arbitration under the rules of the American Arbitration
Association, and any judgment granted by the arbitrator(s) may be
enforced in any court of proper jurisdiction.
1 They do not appeal the confirmation of the arbitration award.
3
Appellants continued to occupy the space after the lease ended in May 2014.
In October 2014, the Howells sent a notice of default to appellants seeking payment
under the holdover clause of the lease, which governed payment after the lease term
lapsed. When appellants failed to pay, the Howells initiated arbitration with the
American Arbitration Association.
After initiating arbitration, the Howells changed the locks on the leased space.
In response, appellants asserted counterclaims in the arbitration for improper lockout
under the Property Code, unauthorized access, and breach of oral agreements.
However, the appellants dismissed the counterclaims before the final evidentiary
proceeding in the arbitration; in their appellants’ brief, they state that they dismissed
the claims so that they could pursue them in a trial court. In the final arbitration
award, the arbitrator awarded the Howells $33,500 in unpaid rent for the period from
November 2014 to May 2015.
The Howells filed suit in district court in Harris County, seeking a declaratory
judgment confirming the arbitration award, and subsequently filed a summary judgment
motion. After the summary-judgment motion was filed, appellants
amended their answer “to reassert the counterclaims previously raised and
withdrawn in the arbitration.” The trial court granted the Howells’ partial summary
judgment, confirming the arbitration award. The Howells then moved for summary
judgment on appellants’ counterclaims, arguing that they were barred by res judicata
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because they should have been raised in the arbitration. The trial court granted the
second summary-judgment motion and rendered a final judgment.
Discussion
In their sole issue, appellants contend that the trial court erred by granting
summary judgment on their counterclaims because the issue of res judicata must be
decided by the arbitrator and not the trial court.
A. Standard of Review
We review a trial court’s summary judgment de novo. Travelers Ins. Co. v.
Joachim, 315 S.W.3d 860, 862 (Tex. 2010). When reviewing a summary judgment,
we take as true all evidence favorable to the nonmovant, and we indulge every
reasonable inference and resolve any doubts in the nonmovant’s favor. Valence
Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005).
In a traditional summary-judgment motion, the movant has the burden to show
that no genuine issue of material fact exists and that the trial court should grant
judgment as a matter of law. TEX. R. CIV. P.166a(c); KPMG Peat Marwick v.
Harrison Cty. Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999). A genuine issue
of material fact exists if the nonmovant produces evidence that would enable
reasonable and fair-minded jurors to differ in their conclusions. See Hamilton v.
Wilson, 249 S.W.3d 425, 426 (Tex. 2008) (citing City of Keller v. Wilson, 168
S.W.3d 802, 822 (Tex. 2005)). A defendant moving for traditional summary
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judgment on an affirmative defense has the burden to conclusively prove all the
elements of the affirmative defense as a matter of law. See Henkel v. Norman, 441
S.W.3d 249, 251 (Tex. 2014) (per curiam). Once the movant meets his burden, the
burden shifts to the non-movant to raise a genuine issue of material fact precluding
summary judgment. See Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex.
1995).
B. Res Judicata
“Res judicata, or claims preclusion, prevents the relitigation of a claim or
cause of action that has been finally adjudicated, as well as related matters that, with
the use of diligence, should have been litigated in the prior suit.” Barr v. Resolution
Trust Corp., 837 S.W.2d 627, 628 (Tex. 1992); see Smith v. Brown, 51 S.W.3d 376,
379 (Tex. App.—Houston [1st Dist.] 2001, pet. denied). A counterclaim is required
to be litigated in an initial arbitration or suit when “it arises out of the transaction or
occurrence that is the subject matter of the opposing party’s claim and does not
require for its adjudication the presence of third parties of whom the court cannot
acquire jurisdiction[.]” TEX. R. CIV. P. 97(a). Res judicata promotes the finality of
judgments and thus “serves vital public interests.” Hallco Texas, Inc. v. McMullen
Cty., 221 S.W.3d 50, 58 (Tex. 2007) (quoting San Remo Hotel, L.P. v. San
Francisco, 545 U.S. 323, 345, 125 S. Ct. 2491, 2506 (2005)).
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Res judicata is an affirmative defense. See Williams v. Hous. Firemen’s Relief
& Ret. Fund, 121 S.W.3d 415, 437 n.21 (Tex. App.—Houston [1st Dist.] 2003, no
pet.). To establish their right to judgment as a matter of law on their affirmative
defense of res judicata, the Howells had to establish (1) a prior final judgment on the
merits by a court of competent jurisdiction; (2) identity of parties or those in privity
with them; and (3) a subsequent action based on the same claims as were or could
have been raised in the first action. Joachim, 315 S.W.3d at 862.
An arbitration award has preclusive effect for purposes of res judicata. See
Tanox, Inc. v. Akin, Gump, Strauss, Hauer & Feld, 105 S.W.3d 244, 270 (Tex.
App.—Houston [14th Dist.] 2003, pet. denied); see also Anzilotti v. Gene D. Liggin,
Inc., 899 S.W.2d 264, 266 (Tex. App.—Houston [14th Dist.] 1995, no writ); J.J.
Gregory Gourmet Servs., Inc. v. Antone’s Import Co., 927 S.W.2d 31, 33 (Tex.
App.—Houston [1st Dist.] 1995, no writ); City of Baytown v. C.L. Winter, Inc., 886
S.W.2d 515, 518 (Tex. App.—Houston [1st Dist.] 1994, writ denied). For example,
in Tanox, Inc. v. Akin, Gump, Strauss, Hauer & Feld, 105 S.W.3d 244 (Tex. App.—
Houston [14th Dist.] 2003, pet. denied), Tanox and its former lawyers were engaged
in a fee dispute that went to arbitration. See id. at 250. The arbitrators found in favor
of the lawyers, and the lawyers filed suit in the trial court to confirm the arbitration
award. Id. Tanox sought to vacate the arbitration award and filed counterclaims for
breach of contract and various tort claims. Id. The trial court entered summary
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judgment confirming the arbitration award and denying Tanox’s request to vacate
the award. Id. The lawyers subsequently moved for summary judgment on Tanox’s
counterclaims on the basis of res judicata, arguing that the counterclaims should
have been raised in the now-concluded arbitration proceeding. Id. The trial court
granted summary judgment on the counterclaims, and the appellate court affirmed,
holding that the claims were barred by res judicata. Id.
C. Did the Howells conclusively prove all of the elements of their res
judicata defense?
To be entitled to summary judgment, the Howells were required to
conclusively prove all the elements of their res judicata defense as a matter of law.
There is no dispute regarding the second element, because the same parties were
involved in the arbitration proceeding and the trial court proceeding. We therefore
consider the first and third elements in turn.
1. Did the Howells conclusively prove the existence of a prior final
judgment on the merits?
The Howells’ summary-judgment evidence demonstrated the existence of a
prior final judgment on the merits. Their summary-judgment evidence included a
copy of the arbitration award. An arbitration award is treated as a prior final
judgment and has preclusive effect for purposes of res judicata. See Tanox, 105
S.W.3d at 270. The Howells therefore proved the existence of a prior final judgment
on the merits. See id.
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2. Did the Howells conclusively prove appellants’ claims were or
could have been raised in the arbitration proceeding?
The Howells’ summary-judgment evidence demonstrated both that
appellants’ claims were raised in the arbitration proceeding before being voluntarily
dismissed, and that those claims could and should have been raised in the arbitration
proceeding. The summary-judgment evidence included a copy of appellants’
counterclaims filed in the arbitration, which were identical to the counterclaims
appellants asserted in the trial court after the arbitration award issued. Appellants
concede that they filed counterclaims in the arbitration identical to those they
eventually filed in the trial court, and that they voluntarily dismissed the
counterclaims in the arbitration before entry of the arbitration award.
Moreover, the Howells established that appellants’ counterclaims could and
should have been raised in the arbitration proceeding. In their summary-judgment
motion, the Howells argued that the arbitration provision applied to appellants’
counterclaims because the counterclaims related to the lease and the landlord-tenant
relationship created thereby. In the trial court and on appeal, appellants argue that
their counterclaims were not subject to the arbitration provision because they were
not about the holdover rent disagreement and arose after the initiation of arbitration.2
Thus, they argue that their counterclaims are not compulsory counterclaims that
2 Appellants do not argue that the arbitration clause is unenforceable.
9
were required to be tried in the arbitration, and that they can be tried in the trial court
instead. See TEX. R. CIV. P. 97(a) (requiring that compulsory counterclaims be
brought in initial proceeding).
Arbitration agreements are interpreted under traditional contract interpretation
principles. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). The
arbitration provision in the lease agreement, which was included in the Howells’
summary-judgment evidence, is broad and provides that any controversy or claim
relating to the lease must be settled in arbitration:
ARBITRATION. Any controversy or claim related to this contract,
including the construction or application of this contract, will be settled
by binding arbitration under the rules of the American Arbitration
Association, and any judgment granted by the arbitrator(s) may be
enforced in any court of proper jurisdiction.
See RSR Corp. v. Siegmund, 309 S.W.3d 686, 701 (Tex. App.—Dallas 2010, no pet.)
(phrase “relates to,” in particular, is recognized as very broad term with respect to
scope of arbitrable claims); Am. Realty Trust, Inc. v. JDN Real Estate–McKinney,
L.P., 74 S.W.3d 527, 531 (Tex. App.—Dallas 2002, pet. denied) (“A broad
arbitration clause, purporting to cover all claims, disputes, and other matters arising
out of or relating to the contract or its breach, creates a presumption of
arbitrability.”). Broad arbitration provisions like this one are not limited to claims
that literally arise under the contract, but rather embrace all disputes between the
parties having a significant relationship to the contract, regardless of the label
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attached to the dispute. AdvoCare GP, LLC v. Heath, No. 05-16-00409-CV, 2017
WL 56402, at *5 (Tex. App.—Dallas Jan. 5, 2017, no pet.) (mem. op.) (quoting
Pennzoil Expl. and Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1067 (5th Cir.
1998)).
Here, it is undisputed that all of appellants’ claims arise out of their landlordtenant
relationship with the Howells. That relationship was created by the lease,
which contains the arbitration provision. Accordingly, appellants’ counterclaims
were subject to the arbitration provision in the lease. See AdvoCare, 2017 WL 56402,
at *5; RSR, 309 S.W.3d at 701; Am. Realty Trust, 74 S.W.3d at 531; see also TEX.
R. CIV. P. 97(a).
For the foregoing reasons, we conclude that the Howells conclusively proved
the existence of their res judicata defense.
D. Did appellants raise a genuine issue of material fact regarding the
applicability of res judicata?
Appellants argue that they raised a fact issue regarding the applicability of res
judicata because the issue of res judicata could only be decided by the arbitrator, and
not the trial court. Appellants rely primarily on W. Dow Hamm III Corp. v.
Millennium Income Fund, LLC, 237 S.W.3d 745 (Tex. App.—Houston [1st Dist.]
2007, no pet.), to support their argument.
In Dow, the parties participated in an arbitration and obtained a final
arbitration award. Id. at 748. Later, one of the parties initiated a second arbitration.
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Id. at 749. The opposing party argued that the claims being raised in the second
arbitration were or should have been resolved in the first arbitration, and filed suit
in the trial court seeking a stay of the second arbitration based upon res judicata. Id.
at 750. The trial court stayed the second arbitration, and the party seeking arbitration
filed a petition for writ of mandamus. Id. A panel of our Court concluded that
“whether a prior arbitration proceeding is res judicata of a later one is a matter for
the arbitrator to determine,” not the trial court. Id. at 754. This is because “the res
judicata effect of a prior arbitration award is a matter of procedural arbitrability,”
not substantive arbitrability, and is therefore “not the court’s province to decide.” Id.
at 755. Accordingly, this Court held that the trial court abused its discretion by
staying the second arbitration on the basis that res judicata barred the second
arbitration, conditionally granted mandamus relief, and directed the trial court to
vacate its order staying the second arbitration. Id. at 756–57.
Appellants argue that the res judicata issue in this case is likewise one of
procedural arbitrability and therefore could only be decided by the arbitrator. But
this is not a matter of arbitrability of additional claims in arbitration after a first
arbitration. To the contrary, appellants voluntarily dismissed their counterclaims
during the arbitration proceeding. They then continued arbitration on the other
claims to a final award, and now seek to try the claims they dismissed. Therefore,
the question to be decided here is not whether the counterclaims cannot be arbitrated,
12
but rather, whether they can be relitigated and were not compulsory counterclaims.
Tanox demonstrates that, in these circumstances, the trial court has jurisdiction to
determine the issue of res judicata. See Tanox, 105 S.W.3d at 250, 270 (affirming
trial court’s determination that res judicata based on prior arbitration proceeding
barred litigation of defendant’s counterclaims). Dow is inapposite. We therefore
conclude that appellants failed to raise a fact issue regarding whether the trial court
could determine that their claims were barred by res judicata.
Because the Howells conclusively proved their res judicata defense and
appellants did not raise a fact issue about the applicability of res judicata, we hold
that the trial court did not err in granting summary judgment on appellants’
counterclaims.
We overrule appellants’ sole issue.
Conclusion
We affirm the trial court’s judgment.
Evelyn V. Keyes
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