WEAVER AND TIDWELL v. THE GUARANTEE COMPANY OF NORTH AMERICA USA (2011)

MEMORANDUM OPINION

Opinion By Justice Bridges

Appellant Weaver and Tidwell, L.L.P. (“Weaver”) appeals from the trial court's denial of its motion to compel arbitration and verified pleas in abatement.   In two issues, Weaver argues the trial court erred in denying its motion to compel arbitration (1) where appellee Guarantee Company of North America USA (“Guarantee”), as J & V's subrogee, stands in the same shoes and is subject to the same defenses and contractual obligations as J & V and (2) where Weaver's alleged liability to Guarantee cannot be determined without reference to the J & V contracts and where Guarantee is a third-party beneficiary to the J & V contracts.   We affirm.

Background

J & V is a construction company that bids on complex lighting and signal installation systems, including systems for the Texas Department of Transportation (“TxDOT”).   In order to do business with TxDOT, J & V was required to have a yearly audit.   Weaver was the accounting firm that prepared audits on behalf of J & V for the years 2005 and 2006.   The audits provided were rendered under the terms and conditions of the written contracts executed by and between J & V and Weaver (“Engagement Letters”).   The Engagement Letters included arbitration clauses.

In addition to the audits, TxDOT required performance bonds before any project was started.   Guarantee was the bonding company that issued performance bonds on behalf of J & V. Guarantee relied upon the Weaver audits in deciding to issue payment and performance bonds to TxDOT on behalf of J & V.

Eventually, J & V defaulted on its TxDOT contracts.   As a result, Guarantee was forced to take over and complete some of the TxDOT jobs under its various performance bonds.

In September of 2008, J & V filed suit (“J & V Lawsuit”) against Weaver,¹ alleging (1) breach of fiduciary duty, (2) fraud, and (3) accounting negligence.   Weaver moved to compel arbitration in the J & V Lawsuit based upon the arbitration clauses in the Engagement Letters.   The trial court granted Weaver's motion and ordered the parties to arbitration.

In August of 2009, Guarantee filed suit (“Guarantee Lawsuit”) against Weaver, alleging accounting negligence.   Again, Weaver moved to compel arbitration in the Guarantee Lawsuit based upon the arbitration clauses in the Engagement Letters.   In the alternative, Weaver sought to abate the Guarantee Lawsuit, pending arbitration of the J & V Lawsuit.   The trial court;  however, denied Weaver's motion.   This appeal ensued.

Analysis

An interlocutory appeal of an order denying a motion to compel arbitration in matters subject to the Federal Arbitration Act is reviewed under the abuse of discretion standard of review.   See Sidley Austin Brown & Wood, LLP v. J.A. Green Development Corp., 327 S.W.3d 859, 863 (Tex.App.-Dallas 2010, no pet.).   Weaver argues the trial court erred in denying its motion to compel arbitration (1) where Guarantee, as J & V's subrogee, stands in the same shoes and is subject to the same defenses and contractual obligations as J & V and (2) where Weaver's alleged liability to Guarantee cannot be determined without reference to the J & V contracts and where Guarantee is a third-party beneficiary to the J & V contracts.   We consider Weaver's two issues together.

There are two types of subrogation.   See Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236 S.W.3d 765, 774 (Tex.2007).   Contractual subrogation is created by an agreement or contract that grants the right to pursue reimbursement from a third party in exchange for payment of a loss, while equitable subrogation does not depend on a contract, but arises in every instance in which one person, not acting voluntarily, has paid a debt for which another was primarily liable and which in equity should have been paid by the latter.   See id.;  Ysasaga v. Nationwide Mut. Ins. Co., 279 S.W.3d 858, 865 (Tex.App.-Dallas 2009, pet. denied).

In its brief, Weaver likens the situation before us to a contractual insurance subrogation case, arguing that Guarantee, as J & V's subrogee, stands in the same shoes as J & V with respect to any claims against Weaver.   See Fox v. Kroeger, 35 S.W.2d 679, 681 (Tex.1931) (stating that a subrogee “stands in the shoes” of his subrogor).   Weaver extends his argument, stating that “because Guarantee stands in the shoes of J & V, and because a valid and enforceable arbitration agreement exists between J & V and Weaver, Guarantee must arbitrate any and all claims it has against Weaver.”   We disagree.

Guarantee does not assert a contractual claim.   Instead, in its original petition, Guarantee makes the following relevant allegations under its heading, “Accounting Negligence”:

15. Weaver failed to conduct its audits under recognized accounting standards.   As a result, Weaver provided false information for the guidance of [Guarantee] in making a decision to bond the projects of J & V. Weaver failed to exercise reasonable care or prudence that a competent Certified Public Accountant would have used in preparing its audits of J & V, including the 2005 and 2006 audits.

16. [Guarantee] justifiably relied upon Weaver's false financial audits in issuing the performance bonds to its detriment causing injury and damages in excess of the jurisdiction of this court for which this suit is brought.

Under these allegations, Guarantee does not bring a contractual subrogation claim against Weaver pursuant to the Engagement Letters.

In addition, Guarantee does not bring a third-party beneficiary claim against Weaver pursuant to the Engagement Letters.   To establish intended third-party beneficiary status under a contract, one must prove that the contracting parties (i.e. Weaver and J & V) had the intent to create a third-party beneficiary and that the intent is clearly and fully spelled out in the terms of the contract.   See Economy Forms Corp. v. Williams Bros. Constr.   Co.,754 S.W.2d 451, 456 (Tex.App.-Houston [14 th Dist.] 1988, no writ).   The Engagement Letters do not establish Guarantee as a third-party beneficiary, let alone even mention Guarantee in the text of the agreements.

Further, Guarantee is not a signatory to the Engagement Letters and does not seek a benefit under the Engagement Letters.   Guarantee, therefore, should not be bound by the arbitration provision in the Engagement Letters.   See In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 741 (Tex.2005) (stating a “non-signatory should be compelled to arbitrate a claim only if it seeks, through the claim, to derive a direct benefit from the contract containing the arbitration provision”).

Guarantee brings an independent tort claim, not a claim based on the Engagement Letters.   Consequently, we overrule Weaver's two issues.   See id.;  Sidley, 327 S.W.3d at 863.

We affirm the judgment of the trial court.

100557F.P05

FOOTNOTES

FN1. Merle L. “Butch” Abbott, Vice President of J & V, was also a defendant in the J & V Lawsuit.   He is not a party to the lawsuit before us..  FN1. Merle L. “Butch” Abbott, Vice President of J & V, was also a defendant in the J & V Lawsuit.   He is not a party to the lawsuit before us.

DAVID L. BRIDGES JUSTICE