Archimedes, Inc. v. Russell

1

ARCHIMEDES, INC. D/B/A VILLAGE PLUMBING, Appellant v. LORRIE RUSSELL, Appellee

No. 01-21-00222-CV

Court of Appeals of Texas, First District

June 7, 2022

On Appeal from the 189th District Court Harris County, Texas Trial Court Case No. 2019-50948

Panel consists of Justices Kelly, Goodman, and Guerra.

MEMORANDUM OPINION

GORDON GOODMAN JUSTICE

In this interlocutory appeal, Archimedes, Inc. d/b/a Village Plumbing appeals the trial court's order denying its motion to compel arbitration. Village Plumbing contends that the trial court erred in denying its motion to compel based on waiver. We affirm.

BACKGROUND

According to appellee Lorrie Russell's petition, she hired Village Plumbing to replace the pipes under a house she owned and rented out, but the company performed substandard work that caused additional damage to the house. Russell filed suit in July 2019 when the company became nonresponsive to her requests to fix the problems it had caused. Her petition included claims for breach of contract, negligent misrepresentation, fraud, DTPA violations, and breach of warranty. Village Plumbing answered and generally denied all of Russell's claims; Village Plumbing also requested a jury trial.

The parties filed two agreed motions for continuance in part "due to general scheduling and logistical issues accompanying the COVID-19 shutdown." The trial court granted both motions, and eventually reset the case for trial on June 7, 2021. In March of that year, about three months before the scheduled trial date, Russell filed a motion to quash Village Plumbing's jury trial demand. Subsequently Village Plumbing-for the first time-filed a motion to compel arbitration. Village Plumbing filed the motion just 33 days before trial. After a hearing, the trial court denied Village Plumbing's motion, finding that Village Plumbing had waived its right to arbitration by engaging in the litigation process for an extended period of time before asserting that right. Village Plumbing then filed this interlocutory appeal.

DISCUSSION

Village Plumbing contends that the trial court erred in denying its motion to compel arbitration based on waiver and in denying its request to stay the proceedings pending arbitration.

Waiver of Arbitration Right

Village Plumbing argues there is a valid arbitration agreement between the parties and that Russell did not meet her burden to prove Village Plumbing had waived its arbitration right. Russell contends that Village Plumbing waived its right to compel arbitration by waiting nearly two years after she filed suit and until about a month before trial to assert that right. Both parties agree that their dispute is subject to a valid arbitration agreement, so we only need to determine whether Village Plumbing waived its right to arbitration.

1. Standard of review and applicable law

A party may appeal from an order denying a motion to compel arbitration. Tex. Civ. Prac. & Rem. Code § 171.098(a)(1); Valerus Compression Servs. v. Austin 417 S.W.3d 202, 207 (Tex. App.-Houston [1st Dist.] 2013, no pet.). Whether a party has waived its right to arbitrate is a question of law that we review de novo. Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018).

A party who opposes the enforcement of a valid arbitration agreement based on the defense of waiver bears the burden of proving the defense. See Royston Rayzor, Vickery, & Williams, LLP v. Lopez, 467 S.W.3d 494, 499-500 (Tex. 2015). Because the law favors arbitration, this burden is a heavy one. See G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 512 (Tex. 2015). A court thus must enforce the arbitration agreement in close cases. See Perry Homes v. Cull 258 S.W.3d 580, 593 (Tex. 2008).

A party may waive its right to arbitration expressly or impliedly. See G.T. Leach Builders, 458 S.W.3d at 511-12. When, as here, implied waiver is at issue, the party trying to establish the defense must show that:

(1) the other party has substantially invoked the judicial process in a manner inconsistent with the right to compel arbitration; and

(2) this inconsistent conduct has caused it to suffer detriment or prejudice.

Id.

The first element-substantially invoking the judicial process-turns on the totality of the circumstances. Id. at 512. Courts consider a multitude of factors, including:

(1) how long the movant waited to try to compel arbitration;

(2) any explanation that the movant may offer for delay;

(3) if and when the movant knew of the arbitration agreement during the period of delay;

(4) how much discovery the movant conducted before trying to compel arbitration and whether that discovery related to the merits;

(5) whether the movant tried to dispose of the claims on the merits;

(6) whether the movant asserted affirmative claims for relief; (7) the extent of the movant's pretrial activities relating to the merits;

(8) the amount of time and money the parties have spent in litigation;

(9) if discovery conducted would be unavailable or useful in arbitration;

(10) whether litigation activity would be duplicated in arbitration; and

(11) whether and when the case had been set for trial.

Id. In general, no single one of these factors is dispositive. RSL Funding, 499 S.W.3d at 430. Nor must all or most of these factors be present to support waiver. See Perry Homes, 258 S.W.3d at 591. The specifics of each case matter. See Henry, 551 S.W.3d at 116; Perry Homes, 258 S.W.3d at 591, 593. "Merely taking part in litigation is not enough unless a party 'has substantially invoked the judicial process to its opponent's detriment.'" In re Vesta Ins. Grp., Inc., 192 S.W.3d 759, 763 (Tex. 2006) (per curiam) (quoting In re Serv. Corp. Int'l, 85 S.W.3d 171, 174 (Tex. 2002)). But a party may not substantially invoke the litigation process and then switch to arbitration on the eve of trial. Perry Homes, 258 S.W.3d at 584. In determining implied waiver, the "precise question is not so much when waiver occurs as when a party can no longer take it back." Id. at 595.

Substantial invocation of the judicial process is not enough, though; there also must be prejudice. See id. at 593. In the context of waiver of the right to arbitrate, prejudice generally focuses on the inherent unfairness caused by a party's attempt to have it both ways by switching between litigation and arbitration to its own advantage. G.T. Leach Builders, 458 S.W.3d at 515; Perry Homes, 258 S.W.3d at 597. Considerations like delay, expense, or damage to another party's legal position are relevant to the issue of prejudice. Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d 542, 545 (Tex. 2014) (per curiam); Perry Homes, 258 S.W.3d at 597.

2. Analysis

a. Substantially invoking the judicial process

Village Plumbing argues that it did not substantially invoke the judicial process because it: (1) only conducted limited discovery; (2) did not try to resolve any claims on the merits; and (3) did not assert any affirmative claims for relief. See G.T. Leach Builders, 458 S.W.3d at 512 (factor (4), how much discovery had been conducted; factor (5), whether movant tried to dispose of claims on merits; and factor (6), whether movant asserted affirmative claims for relief). Village Plumbing argues that it never engaged in any deliberate conduct inconsistent with its right to compel arbitration.

Russell concedes the second and third points, that Village Plumbing did not file any dispositive motions or affirmative claims for relief, but she argues in response to the first point that discovery in this case has been substantial and was all but completed when Village Plumbing moved to compel arbitration.

The amount of discovery that constitutes substantial litigation conduct depends on the context of each case. See Perry Homes, 258 S.W.3d at 590, 593. Here, Russell asserts that discovery was substantial because both parties had initiated two sets of interrogatories and requests for production, responded, and supplemented those responses. She had retained experts for trial who had furnished their reports, and she had site inspections of the house conducted. Village Plumbing's deposition of Russell was scheduled for the day after the trial court's hearing on the motion. Further, all discovery that had occurred involved the merits of the case, not issues like arbitrability or jurisdiction. See G.T. Leach Builders, 458 S.W.3d at 512 (factor (4), how much discovery movant conducted and whether discovery related to merits of case). The substantial, merits-based discovery weighs in favor of substantial invocation. See Tuscan Builders, LP v. 1437 SH6 L.L.C., 438 S.W.3d 717, 722-23 (Tex. App.-Houston [1st Dist] 2014, pet. denied) (finding substantial invocation where, among other factors, movant waited to move for arbitration until written discovery was complete, experts were designated, building had been inspected, and trial was less than one month away).

Not only was discovery nearly complete, but the parties were also very close to trial when Village Plumbing moved to compel arbitration on April 27, 2021. Under the docket control order then in effect, the parties were to complete discovery by May 7 of that year, and the case was set for trial a month later on June 7. Village Plumbing's motion to compel arbitration was filed just 10 days before the end of the discovery period and 33 days before trial. See G.T. Leach Builders, 458 S.W.3d at 512 (factor (11), whether and when case had been set for trial). This factor weighs strongly in favor of substantial invocation. This case was on the "eve of trial" when Village Plumbing first asserted its right to arbitration. See Perry Homes, 258 S.W.3d at 596 (explaining rule that one cannot wait until "eve of trial" to request arbitration is not limited to evening...