author:
WILLIAM C. KOCH, JR., P.J., M.S.,
      HERSCHEL PICKENS FRANKS, P.J.,

text:
    Dorothy TUCKER v. SIERRA BUILDERS et al.
    Court of Appeals of Tennessee, at Nashville.
    Nov. 5, 2004 Session.
    April 29, 2005.
    Permission to Appeal Denied by Supreme Court Oct. 24, 2005.

      James C. Bradshaw, III. and Donna L. Reed, Nashville, Tennessee, for the appellant, All American Homes.
    Troy Lee Brooks, Mount Juliet, Tennessee, for the appellee, Dorothy Tucker.
   OPINION

WILLIAM C. KOCH, JR., P.J., M.S.,

delivered the opinion of the court,

in which FRANK G. CLEMENT, JR., J., joined. HERSCHEL PICKENS FRANKS, P.J., filed a dissenting opinion.

This appeal involves a dispute stemming from the shoddy construction of a modular house. The property owner filed suit in the Circuit Court for Wilson County against the contractor who constructed the house and the manufacturer of the house modules. The trial court granted a default judgment against the contractor and, following a bench trial, awarded the homeowner a $49,506.94 judgment against the manufacturer. The manufacturer has appealed. We have determined that the trial court erred when it held that the manufacturer engaged in unfair or deceptive trade practices in violation of the Tennessee Consumer Protection Act and that the manufacturer was vicariously liable for the negligence of the contractor.

I.

Dorothy and Ray Tucker moved to Mt. Juliet, Tennessee from St. Charles County, Missouri where they had operated a trash disposal business for twenty-five years. Sometime during the late summer of 1999, they decided to build a house in Lebanon, Tennessee for their daughter and granddaughters. They discussed the project with several contractors, but they eventually settled on Sierra Builders, a Lebanon contractor who offered modular houses manufactured by All American Homes, (“All American”) because their daughter had obtained a floor plan of an All American house that she liked. Sierra Builders was owned and operated by Craig Medlin.

Ms. Tucker was unimpressed with the modular house following her first meeting with an employee of Sierra Builders and a representative of All American at Sierra Builders’ office in Lebanon. However, during a second visit to Sierra Builders’ office several weeks later, Ms. Tucker accepted All American’s invitation to tour its factory in Springfield, Tennessee to observe how the modular houses were constructed and to examine other completed model houses on display at the factory.

Ms. Tucker toured the All American factory and was especially impressed with the completed model houses on display there. During the tour, she inquired whether she could purchase an All American house directly and arrange for her own contractor to erect it. The factory representative told Ms. Tucker that All American did not sell their houses directly to the public and that she would be required to purchase a house through one of All American’s authorized builders.

Several weeks after her factory tour, Ms. Tucker continued her conversations with Sierra Builders, the only contractor offering All American houses in the Lebanon area. On November 21, 1999, Ms. Tucker and Sierra Builders entered into an agreement to construct an All American modular house on the Tuckers’ property in Lebanon. In addition to constructing the modular house, Mr. Medlin, on behalf of Sierra Builders, agreed to construct a garage and a front porch and to install a central heating and air conditioning system. Ms. Tucker wrote Sierra Builders a $1,000 check as a deposit on the house.

Mr. Medlin and Sierra Builders then graded and prepared the site and constructed the foundation. When the site preparation and the foundation were both completed, a crew of All American employees arrived at the site and installed the four modules that created the basic structure of the house. They were solely responsible for placing the modules on the foundation, joining the modules together, and then constructing the roof on the main structure. They completed this work in two days and then left the project, leaving the completion of the house to Mr. Medlin. Sierra Builders had the sole responsibility for (1) constructing the garage, (2) constructing the front porch, (3) finishing the interior of the house, and (4) installing the central heating and air conditioning.

Ms. Tucker began having problems with Mr. Medlin and Sierra Builders shortly after All American’s crew had completed its work and left the job site. She visited the project every day and became dissatisfied because the job site was not cleaned up, the interior of the house was a “disarrayed mess,” and the remaining work was not progressing. Eventually, she complained to the All American employee who had conducted her factory tour, and he promised to discuss her concerns with Mr. Medlin. Mr. Medlin became angry when All American passed along Ms. Tucker’s complaints about the house.

The pace of construction picked up for several days after All American called Mr. Medlin into its office, but then the pace slowed down again. On March 21, 2000, Ms. Tucker called All American again and demanded that another crew be assigned to the project. She became angry when All American explained to her that she had contracted with Sierra Builders to construct the house and that All American would not assign its own workers to do the work that Sierra Builders had contracted to do. All American also advised Ms. Tucker not to pay any more money to Sierra Builders until the project was completed to her satisfaction. Notwithstanding this advice, Ms. Tucker paid Mr. Med-lin another $15,698.50 on March 22, 2000, when he threatened to walk off the job if she did not pay him. Sierra Builders worked for one or two more days and then left the job permanently.

On May 1, 2000, Ms. Tucker wrote Mr. Medlin a letter detailing the faulty and uncompleted work. Virtually every item on the list involved work that Sierra Builders, not All American, had performed. Ms. Tucker insisted that these items be corrected on or before May 15, 2000, but Mr. Medlin ignored the letter. On June 8, 2000, Ms. Tucker complained to All American that the company was not “stand[ing] behind their product” and stated that she was giving the company an “opportunity to do the right thing.”

Ms. Tucker’s daughter and her children moved into the house notwithstanding the unfinished items. By early 2001, structural problems stemming from the foundation and the poor drainage on the property were causing cracking and other problems in the house. In addition, a number of electrical problems had manifested themselves in the house, as well as. structural problems with the garage. In February 2001, Ms. Tucker filed a complaint in the Circuit Court for Wilson County against All American, Sierra Builders, and Mr. Medlin. Facing a motion by All American to dismiss her claims under Tenn. R. Civ. P. 12.02(6), Ms. Tucker filed an amended complaint in March 2002 which asserted breach of contract and Tennessee Consumer Protection Act claims against all defendants and also asserted that All American should be held vicariously liable for the defects in Sierra Builders’ and Mr. Med-lin’s performance.

Mr. Medlin and Sierra Builders participated in the early stage of the judicial proceedings but were unheard from after October 2001 when the trial court permitted the lawyer representing them to withdraw. Ms. Tucker tried without success to depose Mr. Medlin, and he was conspicuously absent at the bench trial conducted on July 31 and August 4, 2003. In a final order entered on September 22, 2003, the trial court awarded Ms. Tucker a $148,520.82 judgment against Sierra Builders and Mr. Medlin and a $49,506.94 judgment against All American. The trial court also awarded All American a $68,902.41 judgment against Sierra Builders and Mr. Medlin on its cross-claim. All American has appealed.

II.

Ms. Tucker’s Consumer Protection Claim

We turn first to the trial court’s conclusion that All American violated the Tennessee Consumer Protection Act in its dealings with Ms. Tucker. Specifically, the trial court concluded that All American violated Tenn.Code Ann. § 47-18-104(b)(2), (3), & (12) (Supp.2004) because it “took away the consumer’s right to their own contractor” and its signs and brochures identified Sierra Builders as an “authorized” builder. We have determined that a manufacturer’s decision to sell its products only through authorized builders is not an unfair or deceptive trade practice. We have also determined that Ms. Tucker failed to prove that All American’s signs, brochures, and other representations regarding its relationship with Sierra Builders created the likelihood of confusion or misunderstanding regarding the source of its products or its connection, affiliation, or association with Sierra Builders.

A.

With the enactment of the Tennessee Consumer Protection Act (“TCPA”) in 1977, Tennessee joined the growing number of states that had passed so-called “little FTC acts.” The little FTC acts were so designated because of their similarity to the provision of the Federal Trade Commission Act that outlawed unfair or deceptive trade practices. The TCPA, like the little FTC acts of many-other states, explicitly provides that it is to be interpreted and construed in accordance with interpretations of 15 U.S.CA. § 45(a)(1) by the Federal Trade Commission and the federal courts. Tenn.Code Ann. § 47-18-115; Ganzevoort v. Russell, 949 S.W.2d 298, 298 (Tenn.1997).

The TCPA was not intended to be a codification of the common law. To the contrary, one of the express purposes of the TCPA is to provide additional, supplementary state law remedies to consumers victimized by unfair or deceptive business acts or practices that were committed in Tennessee in whole or in part. Tenn.Code Ann. §§ 47-18-102(2), (4), -112. Moreover, the TCPA is explicitly remedial, and Tennessee courts are therefore required to construe it liberally to protect consumers in Tennessee and elsewhere. Tenn.Code Ann. § 47-18-115; Myint v. Allstate Ins. Co., 970 S.W.2d 920, 925 (Tenn.1998); Morris v. Mack’s Used Cars, 824 S.W.2d 538, 540 (Tenn.1992).

The scope of the TCPA is much broader than that of common-law fraud. Under the TCPA, a consumer can obtain recovery without having to meet the burden of proof that is required in common-law fraud cases, and the numerous defenses that are available to the defendant in a common-law fraud case are simply not available to the defendant in a TCPA case. See Smith v. Baldwin, 611 S.W.2d 611, 616 (Tex.1980). Misrepresentations that would not be actionable as common-law fraud may nevertheless be actionable under the provisions of the little FTC acts, including the TCPA. See, e.g., Stutman v. Chemical Bank, 95 N.Y.2d 24, 709 N.Y.S.2d 892, 731 N.E.2d 608, 611-12 (2000); Eagle Props., Ltd. v. Scharbauer, 807 S.W.2d 714, 724 (Tex.1990). Claims under the TCPA are not limited to misrepresentations that are fraudulent or willful. Smith v. Scott Lewis Chevrolet, Inc., 843 S.W.2d 9, 12-13 (Tenn.Ct.App.1992). Instead, the TCPA applies to any act or practice that is unfair or deceptive to consumers. Tenn.Code Ann. §§ 47-18-104(a), -104(b)(27).

In order to recover under the TCPA, the plaintiff must prove: (1) that the defendant engaged in an unfair or deceptive act or practice declared unlawful by the TCPA and (2) that the defendant’s conduct caused an “ascertainable loss of money or property, real, personal, or mixed, or any other article, commodity, or thing of value wherever situated....” Tenn.Code Ann. § 47-18-109(a)(l). The defendant’s conduct need not be willful or even knowing, but if it is, the TCPA permits the trial court to award treble damages. Tenn. Code Ann. § 47 — 18—109(a)(3); Concrete Spaces, Inc. v. Sender, 2 S.W.3d 901, 910 n. 13 (Tenn.1999); Holmes v. Foster Pontiac CMC, Inc., Shelby Law No. 9,1989 WL 48515, at *4 (Tenn.Ct.App. May 10, 1989), perm. app. denied, (Tenn. Oct. 2, 1989); Haverlah v. Memphis Aviation, Inc., 674 S.W.2d 297, 306 (Tenn.Ct.App.1984).

The TCPA does not define the key terms “unfair” and “deceptive.” As a result, the standards to be used in determining whether a representation is “unfair” or “deceptive” under the TCPA are legal matters to.be decided by the courts. Lavie v. Procter & Gamble Co., 105 Cal.App.4th 496, 129 Cal.Rptr.2d 486, 491 (2003); State ex rel. Stovall v. DVM Enters., Inc., 275 Kan. 243, 62 P.3d 653, 657 (2003); United Labs., Inc. v. Kuykendall, 322 N.C. 643, 370 S.E.2d 375, 389 (1988); Fisher Controls Int’l, Inc. v. Gibbons, 911 S.W.2d 135, 139 (Tex.App.1995). However, whether a specific representation in a particular case is “unfair” or “deceptive” is a question of fact. Davidson v. General Motors Corp., 57 Mass.App.Ct. 637, 786 N.E.2d 845, 851 (2003). The broad phrasing of the statute suggests that, at the very least, the terms “unfair” and “deceptive” should not be limited to a set of specific acts that can be readily catalogued in a judicial opinion or otherwise. See Pan American World Airways v. United States, 371 U.S. 296, 307-08, 83 S.Ct. 476, 483, 9 L.Ed.2d 325 (1963).

Although Tennessee courts have not had many opportunities to construe the terms “unfair” and “deceptive” under the TCPA, the Federal Trade Commission and the federal courts have developed a substantial and finely honed body of law construing these terms in the context of the FTC Act. The General Assembly has instructed us to look to the federal understanding of these terms in interpreting them in the TCPA. TenmCode Ann. § 47-18-115. Accordingly, we may look to the federal law defining these key terms to determine how they should be applied in this case.

The concept of deceptiveness is a broader, more flexible standard of actionable merchant misconduct than the traditional remedy of common-law fraud. A deceptive act or practice is one that causes or tends to cause a consumer to believe what is false or that misleads or tends to mislead a consumer as to a matter of fact. Thus, for the purposes of the TCPA and other little FTC acts, the essence of deception is misleading consumers by a merchant’s statements, silence, or actions. Jonathan Sheldon & Carolyn L. CARTER, Unfair and Deceptive Acts and Practices § 4.2.3.1, at 118-19 (5th ed.2001) [hereinafter Unfair and Deceptive Acts AND PRACTICES].

The concept of unfairness is even broader than the concept of deceptiveness, and it applies to various abusive business practices that are not necessarily deceptive. Unfair and Deceptive Acts and Practices § 4.3.3.1, at 156. In the 1994 legislation reauthorizing the Federal Trade Commission, Congress undertook to codify the Commission’s policy statement on unfairness by stating that an act or practice should not be deemed unfair “unless the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.” 15 U.S.C.A. § 45(n). Following the mandate of Tenn.Code Ann. § 47-18-115, we will use this description of unfairness to guide our interpretation of TenmCode Ann. § 47-18-104(a).

To be considered “substantial,” consumer injury must be more than trivial or speculative. Tungate v. MacLean-Stevens Studios, Inc., 714 A.2d 792, 797 (Me.1998); Legg v. Castruccio, 100 Md.App. 748, 642 A.2d 906, 917 (1994). Substantial injury usually involves monetary injury or unwarranted health and safety risks. Unfair and Deceptive Acts and PRACTICES § 4.3.2.2, at 154. Consumer injury will be considered substantial if a relatively small harm is inflicted on a large number of consumers or if a greater harm is inflicted on a relatively small number of consumers. Orkin Exterminating Co. v. FTC, 849 F.2d 1354, 1365 (11th Cir.1988).

Even if an act or practice causes or is likely to cause substantial injury, it will not be considered unfair unless the injury is not reasonably avoidable by consumers themselves. Consumers cannot reasonably avoid injury when a merchant’s sales practices unreasonably create or take advantage of an obstacle to the free exercise of consumer decision-making. Practices that unreasonably interfere with consumer decision-making include (1) withholding important information from consumers, (2) overt coercion, or (3) exercising undue influence over a highly susceptible class of consumers. UnfaiR and Deceptive Acts and PRACTICES § 4.3.2.3, at 155.

B.

We turn first to the trial court’s apparent conclusion that the marketing of All American’s products solely through authorized distributors or contractors is unfair. Specifically, the trial court concluded that this merchandising arrangement was unfair because it prevented consumers from purchasing All American’s modules and then using their own contractor to install or construct them. We have concluded that the trial court misconstrued Tenn.Code Ann. § 47-18-104(a) and that there is nothing inherently unfair about a manufacturer’s decision to restrict the sale of its products to authorized distributors.

Manufacturers are not required to sell their products directly to consumers. The law affords them substantial discretion to establish a sales and marketing system that will maximize the sale of their products. See Electronics Communications Corp. v. Toshiba Am. Consumer Prods., Inc., 129 F.3d 240, 245-46 (2d Cir. 1997) (observing that manufacturers must enjoy some freedom to determine how to distribute their products). A distributorship agreement meets modern needs in the marketing and distribution of goods on a nation-wide or regional basis. Lithuanian Commerce Corp. v. Sara Lee Hosiery, 179 F.R.D. 450, 481 (D.N.J.1998). The courts have recognized that distributorships have procompetitive benefits and that they serve legitimate business objectives. Geneva Pharmaceuticals Tech. Corp. v. Barr Labs., Inc., 201 F.Supp.2d 286, 274 (S.D.N.Y.2002), rev’d on other grounds, 386 F.3d 485 (2d Cir.2004). FRANCHISING § 3.01 (stating that distributorships enable manufacturers “to maximize the sale of one or more products”).

All American’s marketing and distribution of its modular houses is not inherently unfair. Marketing products through approved distributors rather than directly to the public is commonplace and legal. This method of distribution and sales benefits both All American and consumers because it facilitates the distribution of, and increases the availability of, All American’s products. Consumers benefit because they have a broader choice of modular home products. All American benefits because the use of authorized distributors increases its sales and profits.

All American’s decision to make its product available only through authorized contractors does not inherently create a likelihood that consumers will be placed in a position where they will be unable to avoid injury. Requiring that products be installed or erected by authorized distributors does not undermine a consumer’s ability to decide whether to purchase an All American modular house. If a consumer, like Ms. Tucker, prefers to have a house constructed by a contractor of her choice, the consumer need only decide not to purchase an All American house and enter into a contract with another contractor.

When Ms. Tucker decided to purchase an All American modular house, she knew that it could only be installed by Sierra Builders, one of All American’s authorized distributors. She was initially disinclined to purchase a modular house because she favored more conventional construction using a contractor of her own choice. However, she eventually decided to purchase a modular home because her daughter liked the floor plan and because she satisfied herself that a properly constructed modular home would fit her needs and her budget. All American’s use of authorized distributors did not impair her ability to decide whether or not to purchase a modular house manufactured by All American, to purchase another manufacturer’s modular house, or to purchase a conventionally constructed house built by a contractor of her choice. Accordingly, this record provides no factual support for concluding that All American’s decision to market its modular houses through authorized distributors was an unfair act or practice proscribed by Tenn.Code Ann. § 47-18-104(a).

C.

The trial court also determined that the conduct and statements of All American’s employees to Ms. Tucker were unfair and deceptive. The court found specifically that All American violated Tenn.Code Ann. § 47 — 18—104(b)(2), (3), and (12). We have determined that the record contains no evidence to support a conclusion that All American has committed any of these specific unfair or deceptive acts or practices.

Tenn.Code Ann. § 47-18-104(b)(2) states that “[clausing likelihood of confusion or of misunderstanding as to the source, sponsorship, approval or certification of goods or services” is an unfair or deceptive act or practice. The record contains no evidence of any act or statement by an All American employee that could have confused Ms. Tucker about the source of the modular house she purchased. It is beyond reasonable dispute that she knew that she was purchasing a modular house manufactured by All American and that she also knew that she had contracted with Sierra Builders to complete the interior of the home and to perform additional work that All American had not contracted to provide.

Tenn.Code Ann. § 4T — 18—104(b)(3) states that “[clausing likelihood of confusion or misunderstanding as to affiliation, connection or association with, or certification by, another” is an unfair or deceptive act or practice. Again, the record contains no evidence that any act or statement by All American misled Ms. Tucker about the relationship between All American and Sierra Builders. The All American employees provided truthful and accurate information to Ms. Tucker when they told her that Sierra Builders was one of its authorized contractors and that she could only purchase an All American modular house through Sierra Builders.

The record contains no evidence of any representations by All American employees regarding the quality of Sierra Builders’ work. Simply identifying Sierra Builders as an authorized contractor is not tantamount to a warranty regarding the quality of Sierra Builders’ work. As far as this record shows, the completed modular houses that Ms. Tucker inspected at All American’s factory had not been constructed by Sierra Builders, and there is no evidence that any All American employee represented to Ms. Tucker that the quality of Sierra Builders’ work would equal the quality of the construction she observed in the model houses. Providing Ms. Tucker with an opportunity to tour completed houses was simply intended to enable her to compare All American’s modular houses with more conventionally built houses.

Finally, Tenn.Code Ann. § 47-18-104(b)(12) proscribes “[r]epresenting that a consumer transaction confers or involves rights, remedies or obligations that it does not have or involve or which are prohibited by law....” While it is not entirely clear how this provision applies to this case, the trial court could possibly have decided that All American is somehow responsible for Sierra Builders’ failure to provide Ms. Tucker with the written extended warranty on All American’s product. The record does not support this finding.

All American never misrepresented the existence or terms of its extended warranty. It never denied that it had issued an extended warranty on Ms. Tucker’s modular house or that the warranty was fully enforceable. The record contains no evidence that All American played any role in Sierra Builders’ failure to deliver the warranty documents to Ms. Tucker or that Ms. Tucker ever called upon All American to honor its warranty after she discovered it. Thus, the record contains no evidence that All American ever represented to Ms. Tucker that the transaction conferred warranty rights on her that it did not, in fact, confer.

All American’s signs, brochures, and tours represented that Sierra Builders was one of its authorized contractors. These representations were true. Sierra Builders was at all relevant times an authorized All American homes contractor. However, it is not reasonable to conclude that by designating Sierra Builders as an authorized contractor, All American also warranted the quality of Sierra Builders’ work or agreed to be responsible for Sierra Builders’ performance of its contract with its customers. Accordingly, we find that All American’s truthful representations did not mislead Ms. Tucker into believing that her contract with Sierra Builders conferred rights or remedies on her that -it actually did not.

III.

All AmeRican’s ViCARious Liability for Sierra BuildeRs’ PERFORMANCE

The trial court also determined that All American was liable to Ms. Tucker under the doctrine of respondeat superior. The court determined that Sierra Builders was actually acting as All American’s agent and, therefore, that All American was ultimately responsible for Sierra Builders’ shoddy work. The evidence does not support the trial court’s conclusion that Sierra Builders was All American’s agent. In fact, the only reasonable conclusion that can be drawn from the evidence is that Sierra Builders was acting only for itself when it contracted to build Ms. Tucker’s house.

A.

The doctrine of respondeat superior permits a principal to be held liable for the negligent acts of its agents. Johnson v. LeBonheur Children’s Med. Ctr., 74 S.W.3d 388, 346 (Tenn.2002); Washington v. 822 Corp., 43 S.W.3d 491, 494 (Tenn.Ct.App.2000). To hold a principal liable for the acts of another, a plaintiff must prove (1) that the person causing the injury was the principal’s agent and (2) that the person causing the injury was acting on the principal’s business and acting within the scope of his or her employment when the injury occurred. Russell v. City of Memphis, 106 S.W.3d 655, 657 (Tenn.Ct.App.2002); Tennessee Farmers Mut. Ins. Co. v. American Mut. Liab. Ins. Co., 840 S.W.2d 933, 937 (Tenn.Ct.App.1992).

Determining whether a principal-agent relationship exists requires a careful analysis, of the facts. See Bd. of Directors of Harriman Sch. Dist. v. Southwestern Petroleum Corp., 757 S.W.2d 669, 673 (Tenn.Ct.App.1988); Knight v. Hawkins, 26 Tenn.App. 448, 457-58, 173 S.W.2d 163, 166-67 (1943). The Tennessee Supreme Court has held that the following factors should be considered when determining whether a person is an agent or an independent contractor: (1) the right to control the conduct of the work, (2) the right of termination, (3) the method of payment, (4) the freedom to select and hire helpers, (5) the furnishing of tools and equipment, (6) the self-scheduling of work hours, and (7) the freedom to render services to other entities. Beare Co. v. State, 814 S.W.2d 715, 718 (Tenn.1991).

The most indicative factor is the right to control the conduct of the work. Youngblood v. Wall, 815 S.W.2d 512, 517 (Tenn.Ct.App.1991). Control is a key element in the creation of a principal-agent relationship. Restatement (Second) of Agency § 220(1) (1958); WaeRen A. Seav-ey, Handbook of the Law of Agency § 84C (1964). However, in Tennessee, it is not the right to control the result that is determinative of the existence of an agency relationship; it is the right to control the actual conduct of the work. McDonald v. Dunn Constr. Co., 182 Tenn. 213, 220, 185 S.W.2d 517, 520 (1945); Armoneit v. Elliott Crane Serv., Inc., 65 S.W.3d 623, 629 (Tenn.Ct.App.2001).

B.

The trial court misapplied the “right to control” principle, as well as most of the other Beare Co. v. State factors in its analysis of the evidence in this case. It supported its conclusion that All American had “substantial control” over the work of Sierra Builders by pointing to several requirements in the “Builder/Manufacturer Sales Agreement,” including Sierra Builder’s obligations (1) to provide a bond, (2) to carry insurance, and (8) to comply with the terms of the sales agreement. It also relied heavily on its understanding that All American furnished Sierra Builders all of its equipment and materials and that Sierra Builders could “only be an authorized builder for All American Homes,” and (3) that All American retained the right to terminate its agreement with Sierra Builders.

The evidence simply does not support the trial court’s findings regarding the furnishing of tools and equipment or the exclusivity of All American’s contract with Sierra Builders. All American presented uncontradicted evidence that its agreement with Sierra Builders was not exclusive. All American also presented uncontradict-ed evidence that it used its own equipment and crew only to secure the modules on the foundation and to place the roof on the building. While there is also evidence that All American may have sold some materials for the construction of the porch and garage, there is no evidence that All American was involved with the construction of these structures.

None of the facts relied on by the trial court amount to the sort of control over the details or the manner in which Sierra Builders performed its work needed to establish an agency relationship between All American and Sierra Builders. This record contains absolutely no evidence (1) that All American retained the right to control the means or methods of Sierra Builders’ work, (2) that Sierra Builders was not free to render services to others, (3) that Sierra Builders was not free to select its own employees and helpers, (4) that Sierra Builders did not set its own work schedule and work hours, or (5) that Sierra Builders did not provide its own tools and equipment for the portions of the work for which it was responsible. It is also important to note that All American did not pay Sierra Builders anything for its work. To the contrary, Sierra Builders was required to pay All American for the house modules and the materials it purchased from All American.

After reviewing the evidence in this record in its entirety, we have concluded that Ms. Tucker has failed to prove that Sierra Builders was acting as All American’s agent with regard to the construction of her house. In fact, the evidence rather convincingly establishes that Sierra Builders independently contracted with Ms. Tucker and that All American was essentially a material supplier, just like the manufacturer of the central heating and air conditioning unit that was installed in Ms. Tucker’s house.

By the time this case was tried, it was evident that the real culprits, Sierra Builders and Mr. Medlin, were judgment-proof. As regrettable as this may be, it does not provide the trial court with a defensible basis for requiring All American to bear the costs of correcting Sierra Builders’ shoddy work. Under the facts of this case, the neutral legal principles of respondeat superior simply will not permit holding All American vicariously hable for Sierra Builders’ performance of its contract with Ms. Tucker.

IV.

The judgment against All American Homes is reversed, and the case is remanded to the trial court with directions to dismiss Ms. Tucker’s claims against All American, to modify All American’s judgment against Sierra Builders, and to take whatever further action is required. The costs of this appeal are taxed to Dorothy Tucker for which execution, if necessary, may issue.

HERSCHEL PICKENS FRANKS, P.J., filed a dissenting opinion.

HERSCHEL PICKENS FRANKS, P.J.,

dissenting.

The majority’s analysis of the Consumer Protection Act is just excellent, however, I respectfully disagree with the majority’s opinion that All American did not violate the Act in its representations made to this plaintiff. I agree with the majority’s detailed history of the TCPA and that it is much broader in scope than common-law fraud, that it must be construed liberally to protect consumers, and that the plaintiff must prove an “unfair” or “deceptive” act by the defendant. I also agree that “the essence of deception is misleading consumers by a merchant’s statements, silence, or actions.” I disagree with the majority’s conclusion, however, that All American did not act deceptively in its dealings with Ms. Tucker, and I believe that the majority opinion overlooks certain key facts in this regard. The majority neither accords the Trial Court the presumption of correctness in its fact finding as required by Rule 13(d), nor does it defer to the Trial Court on the issue of the credibility of the -witnesses.

The Trial Court herein found that All American had violated subsections (b)(2), (3), and (12) of Tenn. Code Ann. § 47-18-104, which deal with “causing a likelihood of confusion or misunderstanding as to the source, sponsorship, approval or certification of goods or services”; “causing a likelihood of confusion or misunderstanding as to affiliation, connection, or association with, or certification by another”; and “representing that a consumer’s transaction confers or involves rights, remedies, or obligations that it does not have or involve”. The majority opinion states that there were no misrepresentations made to plaintiff, thus All American cannot be held liable under any of the above subsections. The majority opinion represents that plaintiff knew that All American would not be responsible for the finishing of her home, and that she also had the option to pay more to have this service provided by All American but chose not to do so. The undisputed proof at trial, however, was that plaintiff was taken on a tour of the All American factory by Bob Nordaas, an All American employee (who was seemingly ever-present at Sierra’s office), and plaintiff was shown finished homes and repeatedly assured that her home would be finished in like manner and would look like the homes represented there. Many assertions were made regarding “our crews” and “our homes”, and at no point was plaintiff made aware that Sierra was a completely independent entity, or that All American was not warranting Sierra’s “finish” work. In fact, plaintiff was told that her home would be inspected by All American upon completion and they would insure that it was “perfect”.

Plaintiff testified that she was told by All American employees that her home was “turnkey” and she did not need to worry about subcontractors, because she was buying a total, complete home. Plaintiff was told that “their crews” were specially trained, and that she had to use “their crew” if she wanted to buy the house. Plaintiff was told by Mr. Groshans at the conclusion of the tour that she would never regret buying an All American home, and that if she had any problem, to give him a call and he would take care of it. Plaintiff testified that it was at this point that she became convinced to buy the home. Plaintiff testified that it was not until some months later, in her second phone conversation with Groshans after she had problems with Sierra, that Grosh-ans told her she had bought her home from Sierra, and that All American was no longer involved.

The testimony of All American’s employees bolsters plaintiffs testimony- — Mr. Richards admitted that they encouraged customers to take the factory tour because they had model homes on site that were completely finished, and “we want people to see what the finished product looks like.” Richards testified that the builder, not the end consumer, had the option of paying extra to have the All American crew do more finish work on the home, but that Medlin chose not to purchase that option. However, there was no proof that plaintiff was ever offered this option, despite the majority’s inference to the contrary. Nordaas also testified and admitted that he was there when plaintiff took her factory tour, and did not refute any of the representations plaintiff claimed were made. Thus, there was no factual dispute that All American, through its own employees, showed plaintiff the model homes that were not finished out by Sierra, and represented to plaintiff that her home would be finished out just as nicely and that it would, indeed, be “perfect”. The majority’s assertion that “there is no evidence that any All American employee represented to Ms. Tucker that the quality of Sierra Builders’ work would equal the quality of the construction she observed in the model houses” is not supported by the record. The undisputed evidence shows that All American’s employees represented exactly that.

The unrefuted proof, and the history and proper construction of the TCPA outlined in the majority opinion, compel the conclusion that All American acted deceptively in the misrepresentations that were made to plaintiff regarding the finishing out of her home. Mr. Richards admitted that consumers were encouraged to view the model homes so they could see the “finished product” — a product which All American now claims that it does not have to provide. All American seeks to sell the home in a semi-finished state and then wash its hands of the end result, all the while representing to consumers that their homes will be finished out similarly to the model homes on its factory lot, that All American will stand behind it, that All American will handle any problems, and that the home will ultimately be “perfect”. These representations, which were never denied by All American, are clearly made to induce the consumer to buy the home. It is nonsensical at best for All American to claim that “They merely supply building components and have no control over how the homes turn out,” but then admit that they encourage customers to come and tour their factory (even rewarding the customer with a $500 gift certificate toward the purchase of their home, which of course, the customer does not “purchase” from them) so that the customer can be impressed with the finished product. In this case, plaintiff testified that she would not have contracted to buy this home had it not been for the tour of the model homes and the representations made regarding the “finished product” by All American employees. After the consumer does buy the home, through the “authorized builder” which All American contracts with, then the consumer is ultimately left without recourse for these representations made by All American, who suddenly claims that the authorized builder is a separate entity and that All American is no longer involved. This practice could not be more deceptive.

The evidence also showed that the sign at the Lebanon office appears to be promoting All American Homes as distinctively as Sierra Builders, and would likely lead one to believe that the companies are affiliated, or that one sponsors another. Certainly Mr. Nordaas’ consistent presence at that office, coupled with his representations at the factory and his involvement in the execution of the contract, would have led plaintiff to believe that the companies were more closely affiliated, or even that All American was sponsoring Sierra. Mr. Groshans’ comments regarding “our crews” and how the homes are finished out would have also led plaintiff to believe that All American had control over the builders’ services and the finished product. Even Mr. Groshans’ comments regarding his ability to handle problems with the builder would have led plaintiff to believe that All American was standing behind the entire project.

Construing the TCPA liberally, as this Court is required to do, there can be no question that this admitted pattern of conduct by All American clearly causes likelihood of confusion as to the certification of the finished product as described in Tenn. Code Ann. § 4T — 18—104(b)(3). This practice further represents that the consumer has rights or remedies against All American that the consumer ultimately does not have, as described in Tenn.Code Ann. § 47-18-104(b)(12), and it causes likelihood of confusion regarding the source of the finish services as described in Tenn. Code Ann. § 4T — 18—104(b)(2). The majority opinion simply does not concur in the facts as found by the Trial Court, even though they are basically undisputed, and further fails to uphold the Trial Court’s findings regarding witness credibility, which this Court is required to do. The preponderance of the evidence supports the Trial Court’s conclusion that All American violated the TCPA based on the above statutory sections. See Tenn. R.App. P. 13(d). The Trial Court’s ruling should be affirmed.

All American sought to rely upon the written contract between plaintiff and Sierra, noting that the contract does not mention All American, and that it should control plaintiffs rights and remedies in this transaction. This argument overlooks the fact that privity of contract is not required for Consumer Protection Act claims, and that oral misrepresentations which induce a written contract may form the basis for a Consumer Protection Act claim, regardless of the language of the subsequent written contract. See Heatherly v. Merrimack Mut. Fire Ins. Co., 43 S.W.3d 911 (Tenn.Ct.App.2000); Adkinson v. Harpeth Ford-Mercury, Inc., 1991 WL 17177 (Tenn.Ct.App. Feb.15, 1991). There is simply no basis for failing to find a violation of the TCPA under the facts and circumstances of this case.

The Trial Court also based its ruling on a finding of vicarious liability/agency, which the majority concludes was incorrect. All American asserted that there was no agency relationship because the contract which it had with Sierra stated explicitly that neither party was an agent for the other. All American asserted that Sierra was an independent contractor who merely bought products from All American. All American then relied upon several cases which discuss the distinctions between an employer/employee relationship versus an independent contractor, but those are not really applicable here, since All American was clearly not Medlin’s employer in the typical sense.

What must be considered, however, is whether Sierra was an agent or apparent agent of All American, based on the facts proven. As this Court has previously recognized:

Apparent agency is essentially agency by estoppel; its creation and existence depend upon such conduct by the apparent principal as will preclude him from denying another’s agency. Generally, to prove apparent agency one must establish (1) the principal actually or negligently acquiesced in another party’s exercise of authority; (2) the third person had knowledge of the facts and a good faith belief that the apparent agent possessed such authority; and (3) the third person relied on this apparent authority to his or her detriment. England v. Select Sires, Inc., 1998 WL 313704 (Tenn.Ct.App. June 12, 1998) (citations omitted).

In England, the court discussed agency and violations of the Consumer Protection Act, and the facts are similar to the case at bar. The England plaintiffs were cattle farmers who were members of the Tennessee Artificial Breeding Association, and who utilized the services of a Mr. Liggett, who was employed by the Giles County Artificial Breeding Association (and then later worked as an independent contractor) as a technician who artificially impregnated cattle with semen purchased from the TABA. Mr. Liggett was TABA’s customer, and he in turn used the semen he purchased from TABA to artificially inseminate cows for cattle farmers, and he earned a profit on that semen as well as a fee for his services.

Mr. Liggett was provided with “breeding receipts” for his use which were printed and furnished by TABA, and which contained the name “Select Sires, Inc.”, which was a TABA trade name, and which also stated that the technician was authorized to issue the receipt as evidence of services rendered and to identify the semen used. Mr. Liggett was caught defrauding his customers, the cattle farmers, by accepting payment for higher-priced semen while inseminating their cows with a lower-priced semen.

The cattle farmers sued Liggett and TABA, and asserted, among other claims, that TABA should be held liable for Lig-gett’s conduct under the Consumer Protection Act, under agency principles. This Court found that agency principles did apply to the Consumer Protection Act, and that TABA negligently acquiesced in Lig-gett’s exercise of authority for TABA by allowing its name to be printed on the breeding receipts, by providing Liggett with promotional materials which allowed the farmers to choose the semen they wanted, and because the customers testified that they believed Liggett and TABA were “one and the same.” This Court found that the customers relied upon Lig-gett’s apparent authority to their detriment, and reversed the Trial Court’s dismissal of their CPA claims.

Similarly here, Ml American published brochures with their name and detailed information about their homes, and furnished those brochures to Sierra for use in promoting their homes. The sign at Sierra’s office boldly displayed Ml American Homes’ name and subordinated Sierra’s, and the Ml American salesman was found to be at that office every time plaintiff visited. More importantly, as mentioned in detail above, the All American salesman encouraged plaintiff to visit the factory, to tour completed homes there, and represented to plaintiff that her home would be similarly finished out. Plaintiff was allowed to select items while at the factory, and to incorporate that into the home she contracted for — she even completed the contract with the Ml American salesman present. As plaintiff testified, she had no reason to think that All American and Sierra were two separate entities, and she did in fact believe that Ml American would stand behind her project until it was completed to her satisfaction, as that is what she was told by Mr. Groshan. Thus, it would appear that the Trial Court properly relied upon agency principles in holding All American liable for plaintiffs CPA claims.

CONCLUSION

The Trial Court properly found All American to be liable to plaintiff under the Consumer Protection Act, and the court’s judgment should be affirmed,

      . For an additional fee, All American offered an option of having its own crews complete the interior of the house. Ms. Tucker did not purchase this option when she purchased her house from Sierra Builders. Accordingly, Sierra Builders, not All American, was contractually responsible for finishing the interior of the house and the other work on the project.

      . The trial court determined that Ms. Tucker’s damages amounted to $49,506.94. This amount included work valued at $22,276.00 that had not yet been performed, $2,832.50 to reimburse Ms. Tucker for the time she had worked on the house herself, and $20,000.00 in attorney’s fees. The trial court then trebled that amount to arrive at $148,520.82. The manner in which the trial court assessed the damages in this case has not been challenged on appeal. Accordingly, this opinion should not be construed as approving awarding damages for work that had not been performed, for a plaintiff's own labor, or for trebling the amount of attorney's fees awarded as damages.

      . The trial court did not treble the damages against All American.

      . In addition to awarding All American a $49,506.94 judgment on its cross-claim, it also awarded All American an additional $19,395.47 for its attorney’s fees in this litigation. The award of attorney’s fees is consistent with the hold harmless provisions of the Builder/Manufacturer Sales Agreement entered into between All American and Sierra Builders in April 1999.

      . Act of May 19, 1977, ch. 438, 1977 Tenn. Pub. Acts 1107, codified at Tenn.Code Ann. § 47-18-101 -116 (2001 & Supp.2004).

      . That provision, 15 U.S.C.A. § 45(a)(1) (1977), provides as follows: "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.” While many states’ little FTC acts prohibited both unfair methods of competition and unfair or deceptive acts or practices, the statutes of other states, including Tennessee’s, prohibit only the second category of conduct — unfair or deceptive acts or practices. Sherwood v. Microsoft Corp., No. M2000-01850-COA-R9-CV, 2003 WL 21780975, at *32 (Tenn.Ct.App. July 31, 2003) perm. app. denied (Tenn. Aug. 2, 2004). Cf. Tenn.Code Ann. § 47-18-104(a).

        . Lien v. Couch, 993 S.W.2d 53, 57 (Tenn.Ct.App.1998); see also Boule v. Hutton, 328 F.3d 84, 94 (2d Cir.2003); Streber v. Hunter, 221 F.3d 701, 735 (5th Cir.2000); Meyer v. Dygert, 156 F.Supp.2d 1081, 1086 (D.Minn.2001); Chandler v. American Gen. Fin., Inc., 329 Ill.App.3d 729, 263 Ill.Dec. 300, 768 N.E.2d 60, 65 (2002); Elder v. Fischer, 129 Ohio App.3d 209, 717 N.E.2d 730, 734 (1998).

      . In addition to the two general prohibitions against unfair or deceptive acts or practices, the TCPA currently proscribes thirty-two other specific unfair or deceptive acts or practices. Tenn.Code Ann. § 47-18-104(b).

      . The Act limits private actions to "individual” claims. Accordingly, class actions cannot be maintained under the TCPA. Tenn.Code Ann. § 47-18-109(a)(l).

      . "Deceptive” connotes conduct that is apt or tends to deceive. 4 The Oxford English Dictionary 328 (2d ed.1989). The verb "deceive” means "to cause to believe what it false; to mislead as to a matter of fact, lead into error, impose upon, delude, 'take in.’ ” 4 The Oxford English Dictionary 324.

      . Not all states use the Commission’s current unfairness criteria to guide their interpretation of their own little FTC act. It is currently used in Connecticut, Maine, Maryland, Ohio, and Washington. While other states may have decided to use other criteria, we have determined that Tenn.Code Ann. § 47-18-115 requires us to use the criteria currently used by the Commission.

      . A distributorship is a business arrangement under which a manufacturer authorizes another business to sell its products exclusively or in conjunction with other products. 1 Gladys Glickman et al.. Franchising § 2.01 (Matthew Bender 2005) [hereinafter Franchising], A manufacturer may also give a distributor the exclusive right to sell products within a specified area. Rocky Mountain Rhino Lining, Inc. v. Rhino Linings USA, Inc., 37 P.3d 458, 462 (Colo.Ct.App.2001), rev’d on other grounds, 62 P.3d 142 (Colo.2003); Franchising §§ 2.01, 2.03[3].

      . Even during their testimony at trial, All American employees acknowledged that Ms. Tucker’s warranty would cover several of her complaints and that All American was ready and willing to honor its commitment to correct these problems.

      . The majority simply reaches conclusionary assessments of the evidence.

      . Plaintiff testified that the sign on the Lebanon office said: "All American Homes, Sierra Builders”.


source: Caselaw Access Project

author: Justice BRISTER

license: Public Domain

text:
    In re WEEKLEY HOMES, L.P.
    No. 04-0119.
    Supreme Court of Texas.
    Argued Nov. 30, 2004.
    Decided Oct. 28, 2005.

      Raul A. Gonzalez, Susan Kidwell, Locke Liddell & Sapp, LLP, Austin, and N. Terry Adams, Beirne Maynard & Parsons, L:L.P., Houston, for relator.
    James Craig Orr Jr. and Spencer P. Browne, Heygood Orr & Reyes, L.L.P., Irving, for real party in interest.
   Justice BRISTER

delivered the opinion of the Court.

We are asked to decide whether Week-ley Homes, L.P., a party to a contract containing an arbitration clause, can compel arbitration of a personal injury claim brought by Patricia Von Bargen, a nonparty. We have previously compelled arbitration by nonparties to an arbitration agreement when they brought suit “based on a contract,” which Von Bargen purports to avoid here.

But as both state and federal courts have recognized, nonparties may be bound to an arbitration clause when the rules of law or equity would bind them to the contract generally. Because we find those rules applicable here, we conditionally grant mandamus relief.

I. Background

In the summer of 2000, Vernon Forsting contracted with Weekley for construction of a 4,000 square foot home at a purchase price of $240,000. At the time, Forsting was a seventy-eight year-old widower with an assortment of health problems. His intention in purchasing such a large home was to live with his daughter, Von Bargen (his only child) and her husband and three sons.

Von Bargen and her husband negotiated directly with Weekley on many issues before and after construction — paying a $1,000 deposit, selecting the floor plan, signing a letter of intent as “purchasers,” and making custom design choices.

But only Forsting executed the various financing and closing documénts on the home, including the Real Estate Purchase Agreement that contained the following arbitration clause:

Any claim, dispute or cause of action between Purchaser and Seller ..., whether sounding in contract, tort, or otherwise, shall be resolved by binding arbitration.... Such claims, disputes or causes of action include, but are not limited to, those arising out of or relating to ... the design, construction, preparation, maintenance or repair of the Property.

Shortly after closing, Forsting transferred the home to the Forsting Family Trust, a revocable trust established ten years earlier whose sole beneficiary was Von Bargen. At his deposition, Forsting testified that the only reason he signed the Purchase Agreement individually rather than as trustee was because he “forgot to put [the home] in the trust.” Forsting and Von Bargen served as the only trustees of the Trust, the purpose of which was to transfer Forsting’s property to Von Bar-gen after his death.

According to the plaintiffs’ pleadings, numerous problems arose with the home after completion. When the family moved out of the house briefly so Weekley could perform some of those repairs, it was Von Bargen who requested and received reimbursement. Indeed, Von Bargen admitted handling “almost ... all matters related to the house, the problems and the warranty work and even the negotiations.”

Unsatisfied with the home and Week-ley’s efforts to repair it, Forsting, Von Bargen, and the Trust filed suit against Weekley in December 2002. Forsting and the Trust asserted claims for negligence, breach of contract, statutory violations, and breach of warranty. Von Bargen sued only for personal injuries, alleging Week-ley’s negligent repairs caused her to develop asthma.

Weekley moved to compel arbitration of all claims under the Federal Arbitration Act (FAA). The trial court concluded the FAA applied, and granted the motion as to all claims by Forsting and the Trust. But the trial court refused to compel arbitration of Von Bargen’s claim because she did not sign the Purchase Agreement.

Mandamus relief is proper to enforce arbitration agreements governed by the FAA. After the Fifth Court of Appeals denied Weekley’s request for such relief, Weekley filed a similar request in this Court.

II. Governing Law

Neither party challenges the trial court’s conclusion that the FAA governs the arbitration clause here. Under the FAA, absent unmistakable evidence that the parties intended the contrary, it is the courts rather than arbitrators that must decide “gateway matters” such as whether a valid arbitration agreement exists. Whether an arbitration agreement is binding on a nonparty is one of those gateway matters.

Texas courts apply Texas procedural rules in making that determination. Those rules call for determination by summary proceedings, with the burden on the moving party to show a valid agreement to arbitrate.

But as we recently noted, it is not entirely clear what substantive law governs whether a nonparty must arbitrate. Generally under the FAA, state law governs whether a litigant agreed to arbitrate, and federal law governs the scope of an arbitration clause. Whether a nonparty must arbitrate can involve aspects of either or both. Pending an answer from the United States Supreme Court, we apply state law while endeavoring to keep it as consistent as possible with federal law.

III. Estoppel and Nonsignatories

Texas law has long recognized that non-parties may be bound to a contract under various legal principles. Although we have never considered these principles in the context of arbitration, we recently noted that contract and agency law may bind a nonparty to an arbitration agreement. Indeed, if Texas law would bind a nonparty to a contract generally, the FAA would appear to preempt an exception for arbitration clauses alone.

In the one case in which we have compelled nonparties to arbitrate, In re First-Merit Bank, N.A., 52 S.W.3d 749 (Tex.2001) we stated that “a litigant who sues based on a contract subjects him or herself to the contract’s terms.” Because the nonparties there asserted claims identical to the signatories’ contract claims, we held all had to be arbitrated.

We did not describe in FirstMerit what it means to sue “based on a contract.” Von Bargen asserts a narrow interpretation that would apply only to explicit contract claims, and thus not to hers for personal injury; Weekley argues for a broad application to any claim that “arises from or relates to” the contract involved.

We recently adopted an approach between these two extremes, holding that a nonparty may be compelled to arbitrate “if it seeks, through the claim, to derive a direct benefit from the contract containing the arbitration provisions.” As we noted, this rule is consistent with federal law of “direct benefits estoppel.”

Under both Texas and federal law, whether a claim seeks a direct benefit from a contract containing an arbitration clause turns on the substance of the claim, not artful pleading. Claims must be brought on the contract (and arbitrated) if liability arises solely from the contract or must be determined by reference to it. On the other hand, claims can be brought in tort (and in court) if liability arises from general obligations imposed by law.

We question Weekley’s conclusion that this rule will inevitably drive claimants to plead only noncontractual claims to avoid arbitration. Nonparties face a choice when they may plead in either contract or tort, but pleading the former invokes an arbitration clause broad enough to cover both (as most do). If they pursue a claim “on the contract,” then they must pursue all claims — tort and contract — in arbitration. Conversely, if they choose not to sue “on the contract,” they may pursue the tort claims in court, but the contract claims will thereby likely be waived under the election-of-remedies doctrine. Given these options, it is not clear at this point that nonparties will always choose to forfeit potentially viable contract claims solely to avoid arbitration.

In this case, Von Bargen purports to make no claim on the Weekley contract, claiming only that she developed asthma from dust created by Weekley’s repairs of the home. While Weekley’s duty to perform those repairs arose from the Purchase Agreement, a contractor performing repairs has an independent duty under Texas tort law not to injure bystanders by its activities, or by premises conditions it leaves behind. There is nothing in the sparse record here to suggest Von Bargen’s claim is different from what any bystander might assert, or what she might assert if the contractor were not Weekley.

But a nonparty may seek or obtain direct benefits from a contract by means other than a lawsuit. In some cases, a nonparty may be compelled to arbitrate if it deliberately seeks and obtains substantial benefits from the contract itself. The analysis here focuses on the nonparty’s conduct during the performance of the contract. Thus, for example, a firm that uses a trade name pursuant to an agreement containing an arbitration clause cannot later avoid arbitration by claiming to have been a nonparty. Nor can nonsignatories who received lower insurance rates and the ability to sail under the French flag due to a contract avoid the arbitration clause in that contract.

This Court has never addressed such an estoppel claim in the arbitration context. But we have long recognized in other contexts the defensive theory of promissory estoppel. When a promisor induces substantial action or forbearance by another, promissory estoppel prevents any denial of that promise if injustice can be avoided only by enforcement. Promissory estoppel does not create liability where none otherwise exists, but “prevents a party from insisting upon his strict legal rights when it would be unjust to allow him to enforce them.”

Here, Von Bargen has not merely resided in the home. Claiming the authority of the Purchase Agreement, she directed how Weekley should construct many of its features, repeatedly demanded extensive repairs to “our home,” personally requested and received financial reimbursement for expenses “I incurred” while those repairs were made, and conducted settlement negotiations with Weekley (apparently never consummated) about moving the family to a new home. Having obtained these substantial actions from Weekley by demanding compliance with provisions of the contract, Von Bargen cannot equitably object to the arbitration clause attached to them.

In addition to these benefits, Forsting and the Trust have sued Weekley on claims which are explicitly based on the contract. Under Texas law, a suit involving a trust generally must be brought by or against the trustee, and can be binding on the beneficiaries whether they join it or not. Although Von Bargen did not purport to sue as either trustee or beneficiary, she was both, and any recovery will inure to her direct benefit as the sole beneficiary and equitable titleholder of the home. As one Texas court has noted, if a trustee’s agreement to arbitrate can be avoided by simply having the beneficiaries bring suit, “the strong state policy favoring arbitration would be effectively thwarted.”

While we based our decision in FirstMerit Bank on the nonparties’ contract-based claims, more was involved in that case than the format of the pleadings. Direct-benefits estoppel requires a color-able claim to the benefits; a meddlesome stranger cannot compel arbitration by merely pleading a claim that quotes someone else’s contract. The nonparties in FirstMerit Bank were the daughter and son-in-law of the signatories, the actual occupants of the mobile home, and (according to the briefs) the future owners to whom the signatories planned to transfer title. It is hard to see what direct benefits they expected from that contract that Von Bargen did not expect from this one.

Like the equitable doctrine of promissory estoppel, we do not understand direct-benefits estoppel to create liability for noncontracting parties that does not otherwise exist. As Von Bargen and Weekley had no contract between them, estoppel alone cannot grant either a right to sue for breach. Nor do we understand the doctrine to apply when the benefits alleged are insubstantial or indirect. But once Von Bargen deliberately sought substantial and direct benefits from the contract, and Weekley agreed to comply, equity prevents her from avoiding the arbitration clause that was part of that agreement.

We recognize that direct-benefits estop-pel has yet to be endorsed by the United States Supreme Court, and that its application and boundaries are not entirely clear. For example, while federal courts often state the test as whether a nonsigna-tory has “embraced the contract,” the metaphor gives little guidance in deciding what particular conduct embraces or merely shakes hands with it. Indeed, the equitable nature of the doctrine may render firm standards inappropriate, requiring trial courts to exercise some discretion based on the facts of each case.

But we agree with the federal courts that when a nonparty consistently and knowingly insists that others treat it as a party, it cannot later “turn[ ] its back on the portions of the contract, such as an arbitration clause, that it finds distasteful.” A nonparty cannot both have his contract and defeat it too.

While Von Bargen never based her personal injury claim on the contract, her prior exercise of other contractual rights and her equitable entitlement to other contractual benefits prevents her from avoiding the arbitration clause here. Accordingly, the trial court abused its discretion in fading to compel arbitration. We conditionally grant the writ of mandamus and order the trial court to vacate that part of its order denying Weekley’s motion, and to enter a new order compelling arbitration of Von Bargen’s claim. We are confident the trial court will comply, and our writ will issue only if it does not.

Justice WILLETT did not participate in the decision.

      . In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755 (Tex.2001).

      . See 9 U.S.C. §§ 1-16.

      . In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 n.2 (Tex.1999) (per curiam); EZ Pawn Corp. v. Mandas, 934 S.W.2d 87-88 (Tex.1996) (per curiam).

      . Although Von Bargen asserts that her personal injury claim cannot be arbitrated under the Texas Arbitration Act as it was not signed by an attorney, see Tex Civ. Prac. & Rem. Code § 171.002(a)(3), (c), she does not challenge the trial court’s conclusion that the FAA governs here. The FAA not only contains no such limitation, but also preempts any state requirements that apply only to arbitration clauses. Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996).

      . Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003); PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401, 407, 123 S.Ct. 1531, 155 L.Ed.2d 578 n.2 (2003).

      . John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 546-47, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964).

      . Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 268 (Tex.1992).

      . Id. at 269.

      . J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003).

      . In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738-39 (Tex.2005); see also Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 87, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (Thomas, J., concurring) (suggesting Supreme Court sometimes looks to federal law and sometimes law chosen by parties); Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 267 n.6 (5th Cir. 2004) (noting that whether state or federal law of arbitrability applies "is often an uncertain question”).

      . Doctor’s Assocs., 517 U.S. at 686-87, 116 S.Ct. 1652; First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995); Perry v. Thomas, 482 U.S. 483, 492, 107 S.Ct. 2520, 96 L.Ed.2d 426, n.9 (1987). Parties may also agree that state law governs their arbitration. Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 476, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989).

      . Moses H. Cone Mem’l Hasp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).

      . The United State Supreme Court has not answered this question, though it has applied federal substantive law to bind a nonparty to labor-union arbitration, a field in which federal law has traditionally yielded little deference to state labor-law principles. See John Wiley & Sons, 376 U.S. at 548, 84 S.Ct. 909 (citing Textile Workers Union of Am. v. Lincoln Mills, 353 U.S. 448, 456, 77 S.Ct. 912, 1 L.Ed.2d 972 (1957)).

      . Kellogg, 166 S.W.3d at 739.

      . See, e.g., Tex. Bus. Corp. Act art. 2.21(A)(2) (holding shareholders may be liable for corporation’s contracts under alter ego theory if they cause corporation to perpetrate actual fraud for their direct personal benefit); Stine v. Stewart, 80 S.W.3d 586, 590 (Tex.2002) (holding third-party beneficiary could enforce contract); Biggs v. U.S. Fire Ins. Co., 611 S.W.2d 624, 629 (Tex.1981) (holding agent acting within the scope of apparent authority binds the principal).

      . Kellogg, 166 S.W.3d at 738. Accordingly, it is no longer true that "the [Texas] decisions do not even mention the possibility of additional bases for binding non-signatories to arbitration.” Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1076 (5th Cir. 2002).

      . Doctor’s Assocs., 517 U.S. at 686-87, 116 S.Ct. 1652; Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) ("What States may not do is decide that a contract is fair enough to enforce all its basic terms (price, service, credit), but not fair enough to enforce its arbitration clause. The Act makes any such state policy unlawful, for that kind of policy would place arbitration clauses on an unequal ‘footing,’ directly contrary to the Act’s language and Congress’ intent.”).

      . 52 S.W.3d at 755.

      . Id. at 755-56.

      . Kellogg, 166 S.W.3d at 741.

      . Id.

      . Hughes Masonry Co., Inc. v. Greater Clark County Sch. Bldg. Corp., 659 F.2d 836, 838-39 (7th Cir. 1981); Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 495 (Tex.1991).

      . Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 418 (4th Cir. 2000); DeWitt County Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 105 (Tex.1999); DeLanney, 809 S.W.2d at 494.

      . See, e.g., R.J. Griffin & Co. v. Beach Club II Homeowners Ass’n, 384 F.3d 157, 163-164 (4th Cir. 2004); InterGen N.V. v. Grina, 344 F.3d 134, 145-46 (1st Cir. 2003); Westmoreland v. Sadoux, 299 F.3d 462, 467 (5th Cir. 2002); Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1076-77 (5th Cir. 2002); DeLanney, 809 S.W.2d at 494; see also Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex.1998).

      . See, e.g., Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271 (Tex.1992) (holding DTPA claim was factually intertwined with contract claim and thus subject to arbitration clause).

      . Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851 (Tex.1980) (holding election-of-remedies doctrine prevents pursuit of inconsistent rights or remedies when result would be manifest injustice); cf. Medina v. Herrera, 927 S.W.2d 597, 598-99 (Tex.1996) (holding election-of-remedies doctrine barred pursuit of both workers' compensation claim and suit against employer for intentional act).

      . See Redinger v. Living, Inc., 689 S.W.2d 415, 417 (Tex.1985) (noting general contractor on a construction site in control of the premises may be subject to direct liability for negligence arising from: (1) a premises defect, or (2) an activity or instrumentality).

      . Strakos v. Gehring, 360 S.W.2d 787, 790 (Tex.1962).

      . Astra Oil Co., Inc. v. Rover Navigation, Ltd., 344 F.3d 276, 281 (2d Cir. 2003) (holding affiliate of signatories could enforce arbitration clause as opposing party treated affiliate as part of charter contract during occurrence involved); Am. Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999) (holding nonsignatories who received lower insurance rates and ability to sail under French flag due to contract were bound by arbitration clause in it); see also Matter of VMS Ltd. P’ship Sec. Litig., 26 F.3d 50, 52 (7th Cir. 1994) (holding wife bound by settlement agreement related to investment services contract signed only by her husband, but under which she had accepted services as well); see also InterGen, 344 F.3d at 146 (holding equitable estoppel inapplicable as nonsignatory never sought to derive direct benefits from contracts during their currency).

      . E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 200 n.7 (3d Cir. 2001).

      . Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993).

      . Tencara Shipyard, 170 F.3d at 353.

      . See Kellogg, 166 S.W.3d at 741 n.9 (reserving question of whether to apply direct-benefits estoppel to benefits obtained from contract rather than subsequent litigation).

      . See, e.g., ‘Moore’ Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934 (Tex.1972).

      . Trammell Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636 (Tex.1997).

      . Hruska v. First State Bank of Deanville, 747 S.W.2d 783, 785 (Tex.1988).

      . Wheeler v. White, 398 S.W.2d 93, 96 (Tex.1965).

      . In various lists submitted in the months after the sale, Von Bargen demanded repairs to sagging floors, buckling walls and windows, cracking brick work, as well as replacing the front door, repainting the back door and the kitchen cabinets, regrouting the bathrooms and entry way, replacing the fireplace screen, closing gaps at carpet seams, removing drainage problems in the yard, and a noisy garage door.

      . See Tex. Prop. Code §§ 111.004(7), 115.011, 115.015; Huie v. DeShazo, 922 S.W.2d 920, 926 (Tex.1996)(holding trusts are not legal entities); Transamerican Leasing Co. v. Three Bears, Inc., 586 S.W.2d 472, 476-77 (Tex.1979) (holding beneficiaries were bound by judgment against trust and trustees, as some participated in trial in their capacity as trustees, and remainder showed neither prejudice, conflict of interest, nor inadequate representation by trustees).

      . Perfect Union Lodge No. 10 v. Interfirst Bank of San Antonio, N.A., 748 S.W.2d 218, 220 (Tex.1988) (holding trust beneficiaries hold equitable title to trust property); cf. Javitch v. First Union Sec., Inc., 315 F.3d 619, 627 (6th Cir. 2003) (holding arbitration agreements were binding on receiver who succeeded to interests of entities that signed them); Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1153-54 (3d Cir. 1989) (holding arbitration agreements were binding on successor trustee in bankruptcy).

      . Merrill Lynch, Pierce, Fenner & Smith v. Eddings, 838 S.W.2d 874, 879 (Tex.App.Waco 1992, writ denied).

      . See Sun Oil Co. v. Madeley, 626 S.W.2d 726, 734 (Tex.1981) (holding estoppel based on division orders could not permanently amend underlying lease).

      . See e.g., J. Douglas Uloth & J. Hamilton Rial, III, Equitable Estoppel as a Basis for Compelling Nonsignatories to Arbitrate — A Bride Too Far?, 21 Rev. Litig. 593 (2002).

      . See, e.g. InterGen, 344 F.3d at 145; DuPont, 269 F.3d at 200; Peltz ex rel. Peltz v. Sears, Roebuck & Co., 367 F.Supp.2d 711, 721 (E.D.Pa. 2005); In re Universal Serv. Fund Tel. Billing Practices Litig., 300 F.Supp.2d 1107, 1138 (D.Kan. 2003); Amkor Tech., Inc. v. Alcatel Bus. Sys., 278 F.Supp.2d 519, 521-22 (E.D.Pa. 2003); Cherry Creek Card & Party Shop, Inc. v. Hallmark Mktg. Corp., 176 F.Supp.2d 1091, 1098 (D.Colo.2001).

      . See, e.g., Bridas S.A.P.I.C. v. Turkmenistan, 345 F.3d 347, 360 (5th Cir. 2003) ("The use of equitable estoppel is within a district court’s discretion.”); accord, Hill v. G.E. Power Sys., Inc., 282 F.3d 343, 348 (5th Cir. 2002); Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 528 (5th Cir. 2000).

      . See Int’l Paper, 206 F.3d at 418 (estopping nonsignatoiy from denying agreement to arbitrate "when he has consistently maintained that other provisions of the same contract should be enforced to benefit him.”) (emphasis added).

      . See Bridas, 345 F.3d at 361-62 (“Direct[-]benefits estoppel applies when a nonsig-natory ‘knowingly exploits the agreement containing the arbitration clause.' ”) (emphasis added) (citing DuPont, 269 F.3d at 199); Ten-cara Shipyard, 170 F.3d at 353 (requiring nonsignatories to arbitrate pursuant to provision in contract they neither requested nor executed, as they had duty to obtain that contract and received copies of it).

      . DuPont, 269 F.3d at 200; accord Astra Oil Co., 344 F.3d at 281.


author: KELLER, P.J.,

text:
    Ex parte Rickie Lynn CROW, Applicant.
    No. AP-75176.
    Court of Criminal Appeals of Texas.
    Nov. 23, 2005.

      Gary A. Udashen & Charles Patrick Reynolds, Dallas, for Appellant.
    Christina O’Neal, Asst. D.A., Dallas, Matthew Paul, State’s Attorney, Austin, for the State.
   OPINION

KELLER, P.J.,

delivered the opinion of the unanimous Court.

The question in this case is whether an applicant must show prejudice to establish entitlement to an out-of-time petition for discretionary review (PDR) due to counsel’s failure to follow the requirements of Ex parte Wilson. We hold that a limited showing of prejudice is required. Finding that applicant has made this limited showing, we grant relief.

I. BACKGROUND

Applicant was charged with the offense of aggravated robbery. He pled “not guilty” and was subsequently convicted. He appealed. Represented by counsel on appeal, applicant challenged the legal and factual sufficiency of the evidence and alleged Batson error. The court of appeals affirmed the trial court’s judgment .on April 4, 2008, but appellate counsel failed to inform applicant of the court of appeals’s decision. As a consequence, applicant did not become aware of the . court of appeals’s decision until after the time for filing a petition for discretionary review had expired.

In a pro se application for writ of habeas corpus, filed with the trial court on April 13, 2004, applicant contended that he discovered the court of appeals’s opinion after his own inquiry, that he was deprived of his right to file a PDR, and that, had one been filed, there was a significant chance his conviction would have been reversed. Applicant did not explain in his application why he believed a PDR would have had merit.

We filed and set this case to determine whether Hernandez v. State, applying the prejudice prong of Strickland to the punishment phase of noncapital cases, had any impact on the rule announced in Wilson. Briefing was requested and applicant was appointed counsel for that purpose. Habeas counsel argued that a showing of prejudice was not required and, in the alternative, that the Batson claim had merit. In its brief, the State claimed that a showing of prejudice was required and that applicant failed to show prejudice because all of his claims on appeal were without merit.

II. ANALYSIS

Hernandez suggests that a prejudice component is always part of an ineffective assistance claim because the government is not responsible for deficient attorney performance and should not be held accountable absent some real harm. But we must also address the present case in light of another, much more recent decision, Johnson v. State. Johnson likewise held that all attorney errors should be viewed through the prism of the Strickland framework, except in conflict of interest cases and where the defendant is denied the right to counsel altogether.

But Johnson recognized that Supreme Court precedent treats certain attorney errors a little differently under Strickland’s prejudice prong than is ordinarily the case. For attorney errors that involve a deprivation amounting to a structural defect, the prejudice inquiry is more limited. These errors are rare, but include deficient conduct that results in the deprivation of an entire judicial proceeding, such as an appeal. When a defendant’s right to an entire judicial proceeding has been denied, the defendant is “required to show a reasonable probability that, absent counsel’s errors, a particular proceeding would have occurred, but he [is] not required to show that the proceeding would have resulted in a favorable outcome.” Or put another way, to meet the limited showing of prejudice in this context, “counsel’s deficient performance must actually cause the forfeiture of the proceeding in question.” As part of showing that the counsel’s conduct actually caused the forfeiture of the proceeding, the defendant must demonstrate that he would have availed himself of the proceeding in question.

Although there is no right to discretionary review, an appellant ordinarily has a right to file a PDR in an attempt to persuade us to exercise our discretion. Losing the right to file a PDR constitutes the deprivation of that entire proceeding.

The question then becomes whether counsel’s conduct caused the deprivation. In the PDR context, satisfying that showing entails: (1) demonstrating that the appellant was entitled to be in the appellate process, and (2) absent counsel’s conduct, the appellant would have timely filed a PDR. When the appellant has no right to appeal, he can hardly be in position to complain about the denial of a PDR. In that circumstance, there should have been no occasion to file a PDR because appeal itself was unauthorized. So, where appeal is barred by Article 42.12, § 5(b), Rule 25.2(a)(2), Manuel v. State, or some similar provision or doctrine, or where the defendant waived appeal, the attorney’s failure to comply with Wilson does not cause the defendant to be deprived of consideration of his PDR. Likewise, when an appellant would not have filed a PDR anyway, even if he had been notified in compliance with Wilson, then the attorney’s action cannot be said to have caused the deprivation.

Applicant’s case involved a prosecution on the primary offense, in a single proceeding, that resulted in conviction after a plea of not guilty. No statute, rule, or caselaw doctrine appears to prohibit appeal, no waiver of appeal is apparent, and the court of appeals addressed applicant’s appeal on the merits. Consequently, we conclude that applicant was entitled to be in the appellate process. With regard to whether applicant would have filed a PDR, he filed his application less than a year after the court of appeals’s opinion became final, he has alleged that he was deprived of the right to file a PDR and that he believes a PDR would have had a significant chance of success, and of course, he is currently asking for an out-of-time PDR. And there is no controverting evidence suggesting that he would not have filed a PDR. Under the circumstances present here, applicant’s allegations are sufficient to prove that he would have filed a PDR if he had been properly informed in accordance with Wilson’s dictates.

Applicant is granted leave to file an out-of-time petition for discretionary review. Should applicant desire to seek discretionary review, he must take affirmative steps to see that his petition is filed in the Court of Appeals within thirty days after the issuance of the mandate of this Court in this cause.

      . 956 S.W.2d 25 (Tex.Crim.App.1997).

      . Batson v. Kentucky, 476 U.S. 79, 106 S.Ct. 1712, 90 L.Ed.2d 69 (1986).

      . 988 S.W.2d 770 (Tex.Crim.App.1999).

      . 466 U.S. 668, 104 S.Ct. 2052, 80 L.Ed.2d 674 (1984).

      . Hernandez, supra.

      . 988 S.W.2d at 772.

      . 169 S.W.3d 223 (Tex.Crim.App.2005).

      . Id. at 231-232.

      . Id.

      . Id. at 231.

      . Id.

        . Id.

      . Id. at 232 (quoting from Roe v. Flores-Ortega, 528 U.S. 470, 484, 120 S.Ct. 1029, 145 L.Ed.2d 985 (2000); internal quotations omitted, brackets omitted from inserted material).

      . Id.

      . Tex.Code Crim. Proc., Art. 42.12, § 5(b)(deferred adjudication defendant cannot appeal trial court's decision to adjudicate guilt).

      . Tex.R.App. P. 25.2(a)(2)(plea bargaining defendant who gets benefit of the bargain can appeal only those matters raised by written motion, filed, and ruled upon before trial or where trial court gives permission to appeal).

      . 994 S.W.2d 658 (Tex.Crim.App.1999)(de-fendant cannot attack original plea in appeal from revocation of deferred or regular probation).