Reinsurance & Arbitration Focus

In this cattle-feeding dispute, cattle owner Bonsmara Natural Beef Co. and its principal George Chapman brought an action against feed yard owner Hart of Texas Cattle Feeders LLC, alleging claims including breach of contract, negligence, and fraud. Chapman also sought a declaratory judgment discharging him from liability as a guarantor for the cattle finishing contract. The trial court denied Hart's motion to compel arbitration and, after a jury trial, entered judgment in favor of Bonsmara and Chapman. Hart appealed, and the court of appeals reversed and remanded.

On petition for review, the Supreme Court of Texas, in a 6-3 decision, affirmed the court of appeals' judgment overturning the trial court's denial of Hart's post-judgment motion to compel arbitration, holding that a party does not forfeit its right to challenge a ruling on an appeal from a final judgment simply by opting not to pursue an interlocutory appeal of that ruling.

The Supreme Court addressed two issues:

1. Whether Hart's failure to appeal the interlocutory order denying its motion to compel arbitration deprived the appellate court of jurisdiction to overturn that order on appeal from a final judgment; and
2. If the order was appealable, whether the court of appeals erred in ordering arbitration.

As to the first issue, the majority found that the court of appeals had jurisdiction to consider the trial court's denial of Hart's motion to compel arbitration because interlocutory appeal statutes do not alter the principle that orders merge into - and may be challenged on appeal from - a final judgment. The majority relied on the legislature's use of the permissive term "may" in the interlocutory appeal statute and the fact that the statute did not provide a noncompliance penalty or indicate consequences of not appealing the arbitration decision immediately to support its opinion. The majority noted that the decision to appeal a court's denial of arbitration is one that must be weighed and decided by the parties and their counsel based on the case's facts.

As to the second issue, the majority held that the court of appeals did not err in ordering arbitration, finding that the arbitration agreement was enforceable because Bonsmara had not shown that the arbitrator determined that the arbitral forum was unavailable and that the arbitration clause's language did not foreclose the application of direct-benefits estoppel to require arbitration with non-signatories.

Accordingly, the majority affirmed the judgment of the court of appeals.

The dissenters felt that the majority's decision ran counter to common sense and basic notions of fairness - that by allowing litigants to see the outcome of a trial before appealing a denial of a motion to compel arbitration, the majority endorses a dispute resolution process that will result in "double the cost and double the time."

Bonsmara Natural Beef Co. v. Hart of Texas Cattle Feeders, LLC, No. 19-0263 (Tex. June 26, 2020).