Very few things are more Texan than cattle and the cowboys who care for them. Texas history is full of disputes between cattle owners and those that harmed their cattle. In a battle between cattle owners and those who were hired to feed and care for them, the Supreme Court of Texas was asked to decide whether a party forfeited its right to challenge a ruling denying arbitration by opting to not pursue an interlocutory appeal of that ruling and challenging the denial after a jury verdict. Bonsmara Nat. Beef Co., LLC v. Hart of Tex. Cattle Feeders, LLC., ___ S.W.3d ____, 2020 Tex. LEXIS 617 (Tex., June 26, 2020).
Bonsmara owned and imported the first full-blooded Bonsmara cattle from Africa intending to sell the beef at a premium price as “natural.” To finish and sell the beef, Bonsmara contracted with Hart of Texas Cattle Feeders to feed, provide vitamins, minerals, and medicine for the cattle at Hart of Texas’ feed lot. The parties stipulated that disputes would be settled through arbitration and was signed by Bonsmara, Chapman (a Bonsmara guarantor), and Hart of Texas. After shipping 12,500 cattle, the relationship broke down, Bonsmara and Chapman sued Hart of Texas and its three non-signatory owners alleging breach of contract, negligent feeding and care of the cattle. Bonsmara Nat. Beef Co., LLC v. Hart of Tex. Cattle Feeders, LLC., ___ S.W.3d ____, 2020 Tex. LEXIS 617, *6 (Tex., June 26, 2020).
Hart of Texas moved to dismiss and compel arbitration, but the trial court denied the motion because the arbitration clause referenced the Texas Cattle Feeders Association (“TCFA”) arbitration rules and TCFA rules allow only TCFA members to arbitrate. Hart of Texas, Bonsmara, and Chapman were not members of TCFA, and the court held that the designated forum (i.e. TCFA arbitration) was therefore unavailable. Although entitled to, Hart of Texas did not timely challenge the denial through interlocutory appeal, and the court of appeals denied their mandamus petition to compel arbitration. A jury trial went forward on the merits and Hart of Texas and its three non-signatory owners were found jointly and severally liable for damages. From the judgment, Hart of Texas appealed.
The court of appeals heard the case and reversed stating that the arbitration agreement did not require TCFA to arbitrate only that TCFA rules be used. The court of appeals also held that Hart of Texas’ three non-signatory owners could compel arbitration to disputes related to the agreement. Bonsmara then appealed to the Supreme Court of Texas. Bonsmara Nat. Beef Co., LLC v. Hart of Tex. Cattle Feeders, LLC., ___ S.W.3d ____, 2020 Tex. LEXIS 617, *8-9 (Tex., June 26, 2020). Bonsmara argued that by failing to timely file the interlocutory appeal, Hart of Texas lost its right to challenge the denial of its motion to compel arbitration. Bonsmara also argued that the non-signatory owners of Hart of Texas could not compel arbitration because they were not a party to the contract.
The Supreme Court of Texas, in a 6-3 decision, affirmed the court of appeals decision and rejected Bonsmara’ s use-it-or-lose-it approach to interlocutory appeals. The Supreme Court of Texas held that interlocutory appeal statutes do not alter the principle that orders merge into and may be challenged on appeal from a final judgment and acknowledges that cost and other factors may play a part in a decision to not seek an interlocutory appeal. The Supreme Court also noted that the interlocutory appeal statute at Texas Civil Practice and Remedies Code Section 51.014(a)(9) uses the language “may appeal” which creates discretionary authority or power and not a mandate. Bonsmara Nat. Beef Co., LLC v. Hart of Tex. Cattle Feeders, LLC., ___ S.W.3d ____, 2020 Tex. LEXIS 617 *12-13 (Tex., June 26, 2020).
Regarding non-signatories compelling arbitration, the Supreme Court of Texas said that the language of the arbitration clause did not foreclose the application of direct-benefits estoppel. Texas law has long allowed that non parties may be bound to a contract under various principles and a person who has agreed to arbitrate disputes with one party may sometimes be required to arbitrate related disputes with others. Bonsmara Nat. Beef Co., LLC v. Hart of Tex. Cattle Feeders, LLC., ___ S.W.3d ____, 2020 Tex. LEXIS 617 (Tex., June 26, 2020), citing, In re Weekly Homes, L.P., 180 S.W.3d 127, 131 (Tex. 2005) and Meyer v. WMCO-GP, 211 S.W.3d 302 (Tex. 2006). Because the arbitration clause did not limit estoppel, it was much more like the clause in Meyer which also did not preclude the use of estoppel to require arbitration with non-signatories. Bonsmara Nat. Beef Co., LLC v. Hart of Tex. Cattle Feeders, LLC., ___ S.W.3d ____, 2020 Tex. LEXIS 617 *33 (Tex., June 26, 2020).
Bonsmara elicited exceptionally strong language from the dissent not seen often on the Supreme Court of Texas. The opinion is a must read on enforceability of arbitration agreements, the use and timing of interlocutory appeals, and the ability to compel non-signatories to arbitrate. The dissent in Bonsmara centers on the fact that the Bonsmara opinion gives parties a second bite of the apple, endorses gamesmanship, and goes against the principle goals of arbitration to promote “efficiency by acting as a cost and time-savings mechanism, while safeguarding valuable and finite judicial resources.” Bonsmara Nat. Beef Co., LLC v. Hart of Tex. Cattle Feeders, LLC., ___ S.W.3d ____, 2020 Tex. LEXIS 617 *34-35 (Tex., June 26, 2020).
While this case seems to resolve this issue, the dissent on the Supreme Court of Texas, including the Chief Justice, will, in my opinion, seize on the next opportunity to limit Bonsmara. The opinions in this blog are solely the author’s and any comments, suggestions, or replies should be sent to firstname.lastname@example.org.