Texas Causes of Action & Affirmative Defenses

Texas Causes of Action & Affirmative Defenses

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Wednesday, August 3, 2011

Waiver of contractual right to arbitrate under the Supremes' wholistic Perry-Cull standard

 
What is the test for waiver of the right to arbitrate? Under Texas Supreme Court precedent, it's anything but clear, but the standard is pretty high. Courts of appeals will continue to make their own calls in light of the kitchen-sink "totality of the circumstances" standard that allows for consideration of just about any arguably relevant factor to either compel or deny arbitration. See Perry Homes vs. Cull (Tex. 2008)
  
WHEN and HOW is the RIGHT TO ARBITRATE waived?
  
“Waiver is a question of law that this Court reviews de novo.” Small v. Specialty Contractors, Inc., 310 S.W.3d 639, 644 (Tex. App.-Dallas 2010, no pet.). “[A] party waives an arbitration clause by substantially invoking the judicial process to the other party's detriment or prejudice.” Perry Homes v. Cull, 258 S.W.3d 580, 589 (Tex. 2008). “Due to the strong presumption against waiver of arbitration, this hurdle is a high one.” Id. To decide whether a party substantially invoked the judicial process, we look to the “totality of the circumstances.” Id. at 591. In reviewing the totality of the circumstances, we consider “factors such as when the movant knew of the arbitration clause; how much discovery has been conducted; who initiated it; whether it related to the merits rather than arbitrability or standing; how much of it would be useful in arbitration; and whether the movant sought judgment on the merits.” Id. at 591-92. “[W]aiver can be implied from a party's conduct, although that conduct must be unequivocal.” Id. at 593. In close cases, the “strong presumption against waiver” should govern. Id. “Even substantially invoking the judicial process does not waive a party's arbitration rights unless the opposing party proves that it suffered prejudice as a result.” Id. at 594. Prejudice is defined as “the inherent unfairness in terms of delay, expense, or damage to a party's legal position that occurs when the party's opponent forces it to litigate an issue and later seeks to arbitrate that same issue.” Id. at 597.

The court in Perry Homes deemed the following acts, standing alone, insufficient to amount to waiver: filing suit; requesting initial discovery; noticing, but not taking a deposition; and taking four depositions. Perry Homes, 258 S.W.3d at 590; see also Small, 310 S.W.3d at 645. On the other hand, the Texas Supreme Court stated in another case that the combined acts of conducting full discovery, filing motions going to the merits, and seeking arbitration “only on the eve of trial” would constitute substantially invoking the judicial process. Perry Homes, 258 S.W.3d at 590 (citing In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 764 (Tex. 2006)). Because this case does not fit squarely into the circumstances described in either of those cases, we “must review relevant factors in the context of the totality of the circumstances.” Small, 310 S.W.3d at 645 (citing Perry Homes, 258 S.W.3d at 591-92).

SOURCE: Dallas Court of Appeals - 05-11-00115-CV - 8/2/11

First, we look at “when the movant knew of the arbitration clause.” Id. at 645 n.2, 646.

Neither Ascendant nor Toussaint asserts they were unaware of the arbitration provision at any time relevant to this case. Second, we consider discovery: how much has been conducted, who initiated it, whether it related to the merits rather than arbitrability or standing, and how much of it would be useful in arbitration. Id. at 646. Ascendant filed a motion for expedited discovery in order to take Abazi's deposition, but did not actually proceed with the deposition. Further, while Ascendant sought and obtained a temporary restraining order directing Abazi to give Ascendant certain documents containing patient information, that order was submitted to the trial court by agreement of the parties. Third, we look at “whether the movant sought judgment on the merits.” Id. at 647. The record does not show Ascendant sought judgment on the merits of the case such as by motion for summary judgment before moving to compel arbitration, nor does the record reflect there was an impending trial date.

In support of her position on this issue, Abazi cites Holmes, Woods & Diggs v. Gentry, 333 S.W.3d 650 (Tex. App.-Dallas 2009, no pet.), in which this Court concluded a law firm substantially invoked the litigation process when it initiated litigation against a former client and initially agreed to arbitration, then “aggressively” pursued litigation for two years before filing a motion to compel arbitration. Discovery in that case included mutual depositions as well as two sets of interrogatories and a request for production of documents served on the former client. Id. at 655. Before seeking arbitration, the law firm obtained a default judgment against the former client, pursued execution of the judgment, and actively opposed the former client's bill of review. Id. at 653. Because the facts at hand differ substantially from those in Holmes, Woods & Diggs, we do not find that case instructive.

Next, we consider Abazi's contention that she was prejudiced by Ascendant's actions because the nature of the lawsuit filed by Ascendant required her to hire trial counsel, file an answer, and assert her counterclaims. Aside from stating she was prejudiced, Abazi does not demonstrate how the filing of suit and hiring of counsel caused her prejudice. See Perry Homes, 258 S.W.3d at 597 (defining prejudice as “the inherent unfairness in terms of delay, expense, or damage to a party's legal position that occurs when the party's opponent forces it to litigate an issue and later seeks to arbitrate that same issue”). Further, Abazi grudgingly acknowledges Ascendant's claims brought against her “arguably” included non-arbitrable claims regarding confidential information. We construe her argument to relate to one of the express exclusions in the arbitration provision, i.e. “disputes involving any employee's obligations involving . . . disclosure of information belonging to Ascendant.” The record shows such claims are indeed a part of Ascendant's original petition.

On this record, considering the relevant factors in the context of the totality of the circumstances, we cannot conclude Ascendant's acts should be deemed to have “substantially invoked the judicial process enough to overcome the presumption against waiver.” See In re Vesta Ins. Group, Inc., 192 S.W.3d at 764; see also Perry Homes, 258 S.W.3d at 589-91;Small, 310 S.W.3d at 649. Further, we have not been shown how Abazi's need to hire counsel prejudiced her. See Perry Homes, 258 S.W.3d at 593, 597.
We decide in favor of appellants on their second issue.

IV. CONCLUSION

We conclude (1) the arbitration provision at issue encompasses claims involving former, as well as current, employees of Ascendant; (2) Abazi's claims against Toussaint are subject to the arbitration provision; and (3) Ascendant did not waive its right to arbitrate the claims at issue. We decide appellants' two issues in their favor.

We reverse the trial court's order denying Ascendant's motion to compel arbitration, render judgment granting that motion, and remand this case to the trial court for further proceedings consistent with this opinion.

SOURCE: Dallas Court of Appeals - 05-11-00115-CV - 8/2/11

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