Opinion
05-23-01149-CV
08-21-2024
DALLAS EXCAVATION SYSTEMS, INC., EDUARDO CHAVEZ, AND ANTONIO CASTREJON, Appellants v. VICTOR ALEXANDER ORELLANA, DORA ALICIA ORELLANA, DEL REY SPORTS BAR LLC, AND REY'S SPORTS BAR LLC, Appellees
On Appeal from the 192nd Judicial District Court Dallas County, Texas Trial Court Cause No. DC-22-11298
Before Justices Molberg, Nowell, and Kennedy
OPINION
KEN MOLBERG, JUSTICE
In this accelerated interlocutory appeal, appellants Dallas Excavation Systems, Inc. (DES), Eduardo Chavez, and Antonio Castrejon appeal the trial court's order denying their motion to compel arbitration. This consolidated lawsuit involves claims between appellants and appellees Victor Alexander Orellana (Victor), Dora Alicia Orellana (Dora), Del Rey Sports Bar LLC (Del Rey), and Rey's Sports Bar LLC (Rey's). As explained below, we conclude the trial court did not abuse its discretion by denying appellants' motion to compel arbitration because, based on the record and totality of circumstances before us, appellants waived their right to arbitration by substantially invoking the judicial process. Accordingly, we affirm the trial court's order.
For clarity and brevity, we refer to appellees Victor and Dora Orellana by their first names.
I. Background
DES previously employed Victor, who is Dora's son. Dora was part-owner of a restaurant (Restaurant) located in Irving, Texas.
At some point, Chavez and Castrejon approached Dora and Victor, proposing that DES invest in the Restaurant, and according to appellants, a written agreement was reached and signed on or about September 14, 2021. Around the same time as the initial proposal, Victor approached Castrejon about borrowing funds to purchase a car. Castrejon, as DES's president, authorized DES to loan amounts to Victor, which were to be repaid with deductions from Victor's DES paycheck.
On August 31, 2022, DES sued Victor on the loan, asserting a claim for money had and received and seeking to recover unpaid loan amounts totaling $25,200, along with court costs and pre- and post-judgment interest.
On September 12, 2022, DES, Chavez, and Castrejon filed a separate lawsuit against Victor, Dora, Del Rey, and Rey's, asserting claims for money had and received, seeking unpaid amounts totaling $427,122.27, along with court costs and pre- and post-judgment interest, as well as an involuntary winding up and termination of Del Rey. In their petition, appellants alleged that on or about September 14, 2021, Chavez, Castrejon, Victor, and Dora formed Del Rey to manage, fund, and operate the Restaurant and that, from September 2021 through May 2022, DES contributed more than $427,000 to Rey's operations. Appellants' petition further alleged that certain agreements were made and were reduced to a written agreement signed by Chavez, Castrejon, and Dora. Finally, appellants alleged that on or about May 22, 2022, Victor and Dora breached the "Company Agreement" by locking out appellants from the Restaurant and refusing to pay back the unpaid balance of $427,122.27 loaned by DES.
In response, Victor and Dora filed counterclaims against appellants for negligent misrepresentation, fraud, and violations of the Deceptive Trade Practices-Consumer Protection Act (DTPA).
In February 2023, Victor moved to consolidate the two lawsuits, urging "[b]oth suits involve common questions of law and fact." Over DES's objection, the trial court granted the motion and consolidated the second suit into the first on April 12, 2023. DES moved for rehearing but appeared to later withdraw the request.
The motion for rehearing was set to be heard September 21, 2023, the same day as the motion to compel arbitration that is at issue in this appeal. When the trial court asked counsel about the order in which they wished for the court to hear the motions, appellants' counsel responded, in part, by stating, "I've looked back at the petition and claims that are in the original case . . . are about the same time as the formation of the entity, so there's no real argument that I can make that the claims are not all related to the operation of the restaurant."
Also in April 2023, prior to the signing of the consolidation order, Victor filed a no-evidence motion for summary judgment on the claims DES asserted against him in the first suit. DES filed special exceptions to the motion, claiming the motion did not satisfy the requirements of Texas Rule of Civil Procedure 166a(i). The trial court granted the special exceptions and gave Victor a certain amount of time to cure the deficiencies and to comply with civil procedure rule 166a(i). Victor made no attempt to cure the deficiencies within the given time period according to the docket sheet in the record before us.
After the consolidation order was signed, DES filed an amended petition to add a claim for breach of contract and a request for attorney's fees against Victor in addition to the claims asserted in its first and by-then-consolidated lawsuit.
On June 1, 2023, the parties filed an agreed motion to continue the trial setting to October 23, 2023, which the trial court granted.
On September 5, 2023-forty-eight days before the October 23, 2023 trial setting-appellants filed a motion to compel arbitration and to stay further proceedings in the trial court pending arbitration. In that motion, appellants argued that when Victor, Dora, Chavez, and Castrejon formed Del Rey, they entered into a Company Agreement that includes a mandatory arbitration provision that states:
The Parties hereto agree that any and all disputes, claims, or controversies arising out of or relating to this Agreement that are not resolved by their mutual agreement through voluntary negotiation or mediation will be submitted to final and binding arbitration pursuant to the United States Arbitration Act, 9 U.S.C. §1 et seq.
Appellants also asserted that the scope of that arbitration provision encompasses their claims to liquidate Del Rey and for an accounting of money loaned by appellants to appellees during the operation of the Restaurant and the appellees' counterclaims alleging that appellants made misrepresentations regarding the operation of the Restaurant. Although appellants attached a copy of the Company Agreement to their motion to compel, they did not include an affidavit or sworn declaration authenticating it.
Appellees filed a response opposing appellants' motion, asserting the arbitration provision was unconscionable and that appellants had waived its enforcement by litigating the case and waiting to move to compel until within sixty days of trial. Appellants filed a reply, denying any waiver of their right to enforce the arbitration agreement and urging that even if Dora had a valid affirmative defense, Victor had not asserted any, and the claims against him and his counterclaims should be arbitrated while the remaining claims and counterclaims are stayed pending arbitration. Finally, appellants similarly argued that even if some claims or counterclaims arose out of the operation of the Restaurant and some did not, the former should be arbitrated while the remaining claims and counterclaims are stayed pending arbitration.
More particularly, appellees asserted six bases for the trial court to deny the motion to compel arbitration: (1) Dora's inability to read English, more specifically the arbitration provision, such that enforcement against her would be unconscionable; (2) appellants waived any right to arbitration by proceeding with litigation, conducting discovery, and moving to compel arbitration within sixty days of the trial setting; (3) the arbitration provision is an unenforceable contract of adhesion because appellants have superior or unequal bargaining power over Dora; (4) enforcement of the arbitration provision would be unconscionable because counsel for appellants initiated and represented Del Rey in a bankruptcy proceeding and then withdrew that action before filing suit against Del Rey; (5) appellants failed to raise the issue of arbitration in discovery or when appellees moved to consolidate the cases; (6) the counterclaims are beyond the scope of the arbitration provision because the complained-of conduct includes fraud in the formation of Del Rey and operating the Restaurant by serving food and alcohol without proper license or permit.
After conducting a hearing on appellants' motion and receiving both arguments and evidence during that hearing, the trial court denied the motion to compel arbitration in an order signed on October 19, 2023. This interlocutory appeal of the order followed.
In response to the trial court's question regarding the timing of the motion to compel, appellants' counsel stated, "[I]n getting ready for this case in the month of August, I realized that the [C]ompany [A]greement did have an arbitration provision." The same counsel had filed both lawsuits for appellants more than a year earlier, including the second lawsuit, which was based on the same agreement counsel referred to in the hearing.
Subject to their motion to compel, appellants also filed a motion to strike appellees' jury demand, urging that another provision of the Company Agreement provided that each party waived all rights to trial by jury in any action, proceeding, or counterclaim arising out of or relating to the Company Agreement. Appellees responded to the motion to strike, urging the claims and counterclaims "are beyond the scope of the [Company Agreement]" and asserting their statutory and constitutional right to a jury trial. The trial court signed an order granting the motion to strike the jury demand. That order is not at issue in this appeal.
II. Issues & Discussion
In two issues, appellants argue the trial court erred in denying their motion to compel arbitration because appellees (1) failed to establish any affirmative defense precluding enforcement of the arbitration agreement and (2) failed to establish appellants waived their right to arbitration by substantially invoking the judicial process. We begin our analysis by examining the latter issue first.
A. Standard of Review
We review the denial of a motion to compel arbitration for an abuse of discretion, deferring to the trial court on factual determinations supported by the evidence and reviewing legal determinations de novo. Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018). Whether the claims in dispute fall within the scope of a valid arbitration agreement is a question of law, which we review de novo. Id.
We also review de novo whether a party has waived the right to arbitration by substantially invoking the judicial process. See Perry Homes v. Cull, 258 S.W.3d 580, 589 (Tex. 2008) ("Under a proper abuse-of-discretion review, waiver is a question of law for the court, and we do not defer to the trial court on questions of law.") (footnotes and related citations omitted).
Because the trial court did not issue findings of fact or conclusions of law to explain its denial of the motion to compel arbitration, we must uphold the trial court's decision on any appropriate legal theory urged below. QualiZeal, Inc. v. Cigniti Techs., Inc., No. 05-22-00923-CV, 2024 WL 833439, at *4 (Tex. App.- Dallas Feb. 28, 2024, no pet.) (mem. op.); Bonded Builders Home Warranty Ass'n of Tex. v. Rockoff, 509 S.W.3d 523, 531-32 (Tex. App.-El Paso 2016, no pet.).
B. Our Assumptions Regarding the Arbitration Agreement
A trial court "may summarily decide whether to compel arbitration on the basis of affidavits, pleadings, discovery, and stipulations. However, if the material facts necessary to determine the issue are controverted, by an opposing affidavit or otherwise admissible evidence, the trial court must conduct an evidentiary hearing to determine the disputed material facts." Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 269 (Tex. 1992) (orig. proceeding); see also QualiZeal, Inc., 2024 WL 833439, at *4. When the trial court conducts such a "Tipps hearing" and thereafter makes a ruling, we review the trial court's findings for legal sufficiency. QualiZeal, Inc., 2024 WL 833439, at *4.
In this case, we assume, but do not decide, a Tipps hearing occurred and that appellants established both that a valid arbitration agreement exists and that the claims in question are within the scope of the agreement. Based on those assumptions, a presumption arises in favor of arbitrating those claims, and appellees had the burden to prove a defense to arbitration. See Royston, Rayzor, Vickery, & Williams, LLP v. Lopez, 467 S.W.3d 494, 499-500 (Tex. 2015).
We make these assumptions despite our reservations regarding whether appellants satisfied their initial burden under Tipps, as appellants' motion was not accompanied by an affidavit or sworn declaration authenticating the agreement that was attached to its motion. Moreover, although a witness in the hearing on appellants' motion authenticated the parties' signatures on a document that was shown to the witness, the document was not offered or admitted into evidence, leaving us with no way to determine whether the agreement attached to appellants' motion was the same document shown to the witness. However, because of the nature of our disposition, we need not reach that question.
C. Appellants Waived Their Right to Arbitration by Substantially Invoking the Judicial Process
In their second issue, appellants argue appellees failed to establish appellants waived their right to arbitration by substantially invoking the judicial process, a question we review de novo. See Perry Homes, 258 S.W.3d at 589; see also Sivanandam v. Themesoft, Inc., No. 05-21-00645-CV, 2022 WL 872623, at *2 (Tex. App.-Dallas Mar. 24, 2022, pet. denied) (mem. op.). There is a presumption against waiver of arbitration, but it is not irrebuttable, Perry Homes, 258 S.W.3d at 584, and "[w]aiver involves substantial invocation of the judicial process, not just judgment on the merits." Id. at 592. The FAA's "purpose is to make arbitration agreements 'as enforceable as other contracts, but not more so.'" In re Merrill Lynch Tr. Co. FSB, 235 S.W.3d 185, 192 (Tex. 2007) (orig. proceeding) (quoting Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967)); see Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 67 (2010) ("The FAA places arbitration agreements on equal footing with other contracts.").
"We defer to the trial court's factual determinations if they are supported by evidence but review its legal determinations de novo[,]" and "[w]hether a party waived its right to arbitrate is a question of law." See Sivanandam, 2022 WL 872623, at *2 (citing Henry, 551 S.W.3d at 115).
"Like any other contract right, arbitration can be waived if the parties agree instead to resolve a dispute in court." Perry Homes, 258 S.W.3d at 593. In Perry Homes, the Texas Supreme Court stated, "[A] party waives an arbitration clause by [1] substantially invoking the judicial process [2] to the other party's detriment or prejudice." Id. at 589-90. More recently, however, in a case involving an arbitration agreement governed by the Federal Arbitration Act (FAA), like this case, the United States Supreme Court concluded that an appeals court "was wrong to condition a waiver of the right to arbitrate on a showing of prejudice." Morgan v. Sundance, 596 U.S. 411, 417 (2022). While the Texas Supreme Court has not yet addressed the second Perry Homes factor since Morgan was issued, based on Morgan, we conclude a showing of prejudice is no longer required in order to establish waiver, at least in cases involving the FAA. See id.
See 9 U.S.C. §§ 1-402.
In Morgan, the Court considered a single issue-whether courts of appeals "may create arbitration-specific variants of federal procedural rules, like those concerning waiver, based on the FAA's 'policy favoring arbitration.'" Id. (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). The Court answered, "They cannot[,]" and stated the court of appeals in that case "was wrong to condition a waiver of the right to arbitrate on a showing of prejudice." Id.; see also Zurvita Holdings, Inc. v. Jarvis, No. 05-23-00661-CV, 2024 WL 1163209, at *13 n.11 (Tex. App.-Dallas Mar. 14, 2024, no pet. h.) (mem. op.) ("We recognize that recently the United States Supreme Court held that under the FAA a party no longer needs to demonstrate that invocation of the judicial process resulted in prejudice to establish waiver.") (citing Morgan, 596 U.S. at 419).
The substantial-invocation element requires the court to consider the totality of the circumstances. Perry Homes, 258 S.W.3d at 591. The analysis involves numerous, non-exclusive factors, including the following:
• whether the movant is a plaintiff or a defendant in the lawsuit;
• when the movant knew of the arbitration clause;
• how long the movant waited before seeking arbitration and any reasons for delay;
• how much discovery has been conducted, who initiated it, whether it related to the merits rather than arbitration or standing, and how much of it would be useful in arbitration;
• whether the movant sought judgment on the merits;
• whether the movant filed affirmative claims for relief in court;
• the amount of time and expense the parties have expended on litigation;
• whether the discovery conducted would be unavailable in arbitration;
• whether judicial activity would be duplicated in arbitration; and
• when the case was to be tried.Id.; see also RSL Funding LLC v. Pippins, 499 S.W.3d 423, 430 (Tex. 2016) (per curiam); G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 512 (Tex. 2015). Of course, all of these factors are rarely presented in a single case. Perry Homes, 258 S.W.3d at 591. Federal courts have found waiver based on only a few, or even a single one. Id. (citing, in part, Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir. 1995) (other citations omitted) (finding that litigants waived their right to arbitrate by removing to federal court the state-court lawsuit filed against them rather than seeking to arbitrate in the state-court action)).
In this case, in addition to actions addressed in the next paragraph, appellees argue appellants substantially invoked the litigation process and waived their right to arbitration by initially filing and later dismissing a case in which they sought judicial relief in the bankruptcy court. For the reasons that follow, we need not and do not consider the impact, if any, of such bankruptcy actions with regard to alleged waiver because, even without them, we conclude appellants met their burden of establishing the first Perry Homes factor.
Putting aside appellants' bankruptcy court activity, the record before us shows appellants-the movants for arbitration-sued appellees, not just once, but twice, seeking judgment on the merits on multiple causes of action they now claim should be sent to an arbitral forum. Their actions, however, evidence an election to litigate, not arbitrate. The record also shows they did not seek to compel arbitration until 370 days after DES filed its lawsuit against Victor, 358 days after appellants filed the second lawsuit against appellees, and 48 days before the scheduled trial date on the consolidated lawsuits. In the interim, appellants also engaged in the discovery process by sending and answering merits discovery requests, requested and appeared in court hearings, amended their petition to add additional claims, filed and responded to several motions, and filed special exceptions to a dispositive motion, which were granted. Appellants' counsel's excuse for the extreme delay-that he simply had not noticed the arbitration provision in the Company Agreement-rings hollow, given that he filed suit based squarely on the agreement a year before. Further, there is no indication that appellants have made a demand for arbitration before any arbitral forum. Given the totality of the circumstances present here, including that appellants filed the claims and were not simply respondents, the time expended in the trial court-by counsel, the judge, and court personnel-was significant, and the motion was filed on the eve of trial, we conclude appellants substantially invoked the judicial process and satisfied the first of the two Perry Homes factors.
We find this analysis persuasive:
Selection of a forum in which to resolve a legal dispute should be made at the earliest possible opportunity in order to economize on the resources, both public and private, consumed in dispute resolution. . . . Parties know how important it is to settle on a forum at the earliest possible opportunity, and the failure of either of them to move promptly for arbitration is powerful evidence that they made their election-against arbitration. Except in extraordinary circumstances not here presented, they should be bound by their election.Cabinetree of Wis., Inc., 50 F.3d at 391.
Appellants filed the first of their two later-consolidated lawsuits on August 31, 2022. They filed their motion to compel arbitration on September 5, 2023, three-hundred seventy days later, and when they filed that motion, trial was set for October 23, 2023, just forty-eight days later. Whether the movant has "sought arbitration only on the eve of trial" is part of our analysis of waiver. See Perry Homes, 258 S.W.3d at 590. The rule that one cannot wait until "the eve of trial" to request arbitration is not limited to the evening before trial; it is a rule of proportion that is implicated here. See id. at 596; see also Archimedes, Inc. v. Russell, No. 01-21-00222-CV, 2022 WL 2024851, at *3 (Tex. App.-Houston [1st Dist.] June 7, 2022, no pet.) (mem. op.) (motion filed thirty-three days before trial setting was considered to have been filed on the "eve of trial").
The dissent's analysis, which concludes otherwise, balkanizes the evidence by separately considering and dismissing the Perry Homes factors rather than considering them together as a whole, an approach inconsistent with what is required in the context of analyzing the totality of the circumstances. See Perry Homes, 258 S.W.3d at 591 ("[W]aiver must be decided on a case-by-case basis" and "courts should look to the totality of the circumstances."); United States v. Arvizu, 534 U.S. 266, 275 (2002) (in Fourth Amendment context, court of appeals' "evaluation and rejection . . . of the listed factors in isolation from each other [did] not take into account the 'totality of the circumstances,'" and constituted a "divide-and-conquer analysis" precluded by Terry); see also City of Dallas v. Siaw-Afriyie, No. 05-19-00244-CV, 2020 WL 5834335, at *11 n.13 (Tex. App.-Dallas Oct. 1, 2020, no pet.) (mem. op.) (in employment discrimination context, declining to balkanize evidence and divorce it from context of terms and conditions of employment).
See Terry v. Ohio, 392 U.S. 1, 22 (1968).
While we agree with the dissent that a "mere delay in moving to compel arbitration is not enough for waiver[,]" Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C., 455 S.W.3d 573, 576 (Tex. 2014) (per curiam), we conclude much more than a "mere delay" occurred here. We also conclude that, given the totality of circumstances in this case, appellees established that appellants waived their rights to arbitration by substantially invoking the judicial process and thus met the required showing under the first Perry Homes factor.
As to the second Perry Homes factor-prejudice to the nonmovant-we conclude that factor no longer applies, at least in cases involving arbitration agreements governed by the FAA. See Morgan, 596 U.S. at 419; see also Zurvita Holdings, Inc., 2024 WL 1163209, at *13 n.11 ("We recognize that recently the United States Supreme Court held that under the FAA a party no longer needs to demonstrate that invocation of the judicial process resulted in prejudice to establish waiver.") (citing Morgan, 596 U.S. at 419).
However, even if we assume, without deciding, that the second Perry Homes factor applies, based on the record before us, appellants established they suffered detriment or prejudice as a result of appellants' substantial invocation of the judicial process, as the record reflects an attempt by appellants to have it both ways, twice initiating litigation for their own benefit, and then later switching to arbitration to its own advantage, soon before the trial date. See Perry Homes, 258 S.W.3d at 589- 90. ("'Prejudice' has many meanings, but in the context of waiver under the FAA it relates to inherent unfairness-that is, a party's attempt to have it both ways by switching between litigation and arbitration to its own advantage.").
We conclude the trial court did not abuse its discretion by denying appellants' motion to compel arbitration because appellants waived their right to arbitration by substantially invoking the judicial process. See id. at 595-96. "Like any other contract right, arbitration can be waived if the parties agree instead to resolve a dispute in court. Such waiver can be implied from a party's conduct, although that conduct must be unequivocal." Id. at 593. Appellants' conduct here was unequivocal, at least up until the time their counsel claimed to have recently realized the Company Agreement contained an arbitration agreement, even though the same counsel filed suit on appellants' behalf based on the same Company Agreement a year earlier. We overrule appellants' second issue and need not address their first issue as a result. See Tex. R. App. P. 47.1 ("The court of appeals must hand down a written opinion that is as brief as practicable but that addresses every issue raised and necessary to final disposition of the appeal.").
III. Conclusion
We affirm the trial court's order denying appellants' motion to compel arbitration.
JUDGMENT
In accordance with this Court's opinion of this date, the trial court's order denying appellants' motion to compel arbitration is AFFIRMED.
It is ORDERED that appellee VICTOR ALEXANDER ORELLANA, DORA ALICIA ORELLANA, DEL REY SPORTS BAR LLC, AND REY'S SPORTS BAR LLC recover their costs of this appeal from appellants DALLAS EXCAVATION SYSTEMS, INC., EDUARDO CHAVEZ AND ANTONIO CASTREJON.
Judgment entered this 21st day of August, 2024.
DISSENTING OPINION
NANCY KENNEDY, JUSTICE
Because I believe appellants did not substantially invoke the judicial process and waive their right to arbitration, I dissent from the majority's judgment. I do not disagree with the majority's recitation of the facts, and I similarly agree with the majority's discussion of the standard of review and would add the following.
Both Texas policy and federal policy favor arbitration. Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018). Thus, courts "resolve any doubts about an arbitration agreement's scope in favor of arbitration." Id. (quoting In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001) (orig. proceeding)). Further, courts focus on the factual allegations and not on the legal causes of action asserted. Id. The presumption in favor of arbitration "is so compelling that a court should not deny arbitration 'unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue.'" Id. (quoting Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995) (orig. proceeding) (per curiam) (emphasis in original)).
"Motions to compel arbitration are ordinarily decided in summary proceedings 'on the basis of affidavits, pleadings, discovery, and stipulations.'" GJ Partners, LTD. v. Cima Contractors, LLC, No. 05-18-01412-CV, 2020 WL 400180, at *3 (Tex. App.-Dallas Jan. 23, 2020, pet. denied) (mem. op.) (quoting Kmart Stores of Tex., L.L.C. v. Ramirez, 510 S.W.3d 559, 565 (Tex. App.-El Paso 2016, pet. denied after merits briefing)).
A party seeking to compel arbitration must establish two things: (1) the existence of a valid arbitration agreement and (2) the disputed claim falls within the scope of that agreement. See Wagner v. Apache Corp., 627 S.W.3d 277, 284 (Tex. 2021). Although there is a strong presumption favoring arbitration, that presumption arises only after the party seeking to compel arbitration proves that a valid arbitration agreement exists. See id. Once the validity of an agreement is established, the presumption applies to determine an agreement's scope. Id.
After the party seeking to compel arbitration satisfies its initial evidentiary burden, the burden shifts to the party seeking to avoid arbitration to raise an affirmative defense to the enforcement of the otherwise valid arbitration provision. See Haddington Fund, LP v. Kidwell, No. 05-19-01202-CV, 2022 WL 100111, at *4 (Tex. App.-Dallas Jan. 11, 2022, pet. denied) (mem. op.). Generally applicable contract defenses under state law-such as fraud, duress, or unconscionability-may be applied to invalidate arbitration agreements. Id. at *5. Because of the strong policy favoring arbitration, any doubts in determining whether the defendant met its burden to prove an affirmative defense must be resolved in favor of arbitration. Id. (citing Pilot Travel Ctrs., LLC v. McCray, 416 S.W.3d 168, 177 (Tex. App.-Dallas 2013, no pet.)). In the absence of a valid defense, the trial court has no discretion- it must compel arbitration and stay its own proceedings. Id. at *4.
As for the majority's discussion of whether a Tipps hearing occurred and whether appellants established a valid arbitration provision exists, I would conclude they did as further discussed below.
I. Appellants Met Their Initial Burden to Establish a Valid Arbitration Agreement Exists and that the Claims in Question Are Within the Scope of the Agreement
As mentioned above, appellants supported their motion to compel arbitration with a copy of the Company Agreement. Admittedly, the motion did not include any affidavit or sworn declaration authenticating it. However, the Company Agreement is signed by Victor Orellana, Dora Orellana, Eduardo Chavez, and Antonio Castrejon and includes a notary's acknowledgment stating those individuals personally appeared before the notary and executed the Company Agreement. Additionally, at the hearing on the motion to compel, Castrejon testified he was one of the persons whose name appears on the Company Agreement and that he recognized the signatures of the other signatories as belonging to the others who signed the Company Agreement. Counsel for appellees cross-examined Castrejon regarding whether he spoke to Dora Orellana in Spanish and whether she speaks English. In their response filed in the trial court and their brief on appeal, appellees did not dispute the existence of the Company Agreement or the arbitration provision therein. Nor did appellees offer any evidence to cause the trial judge to question the existence or validity of the Company Agreement.
As for whether the claims fall within the scope of the arbitration provision, I would conclude they did. The arbitration provision states that "[t]he Parties hereto agree that any and all disputes, claims, or controversies arising out of or relating to this Agreement . . . will be submitted to final and binding arbitration." The Company Agreement further states that the purpose of Del Rey's is to operate a "Full-Service Restaurant." Appellants' claims include that of DES against Victor Orellano to recover unpaid loan amounts, as well as those of appellants against appellees to recover unpaid loan amounts to fund Del Rey's and the Restaurant's operations, to wind up and terminate Del Rey's, and appellees' counterclaims against appellants for misrepresentations regarding the formation and operation of Del Rey's. In their motion to consolidate the lawsuits, appellees urged financial disputes alleged in the initial lawsuit to recover unpaid loan amounts from Victor Orellano "arise from the identical transactions, events, and course of conduct as asserted" in the later lawsuit. Accordingly, I would treat the claims and counterclaims as arising out of or relating to the formation and operation of Del Rey's and the Restaurant.
To the extent the scope of the arbitration provision was disputed at the trial court, I note that the arbitration provision provided that "arbitration will be conducted in accordance with the provisions of [Judicial Arbitration and Mediation Service (JAMS)]' Comprehensive Arbitration Rules and Procedures." By this language, the parties incorporated the JAMS rules into their arbitration agreement, and thus the rules are binding, at least absent any conflict between the Company Agreement and the rules. See TotalEnergies E&P USA, Inc. v. MP Gulf of Mex., LLC, 667 S.W.3d 694, 709 (Tex. 2023) (interpreting agreement language expressly stating arbitration must be conducted "in accordance with the rules of the AAA" to mean the parties incorporated the AAA rules into their arbitration agreement) (emphasis in original). "Under the JAMS rules, the arbitrator has the authority to arbitrate '[j]urisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement under which Arbitration is sought, and who are proper Parties to the Arbitration.'" Sunnova Energy Corp. v. Spruce Lending, Inc., No. 14-19-00438-CV, 2021 WL 1881368, at *3 (Tex. App.- Houston [14th Dist.] May 11, 2021, pet. dism'd) (mem. op.) (citing JAMS Comprehensive Arbitration Rule 11(b), https://www.jamsadr.com/rules-comprehensive-arbitration/#Rule-11 (last visited Apr. 14, 2021); JAMS Streamlined Arbitration Rule 8(b), https://www.jamsadr.com/rules-streamlined-arbitration/#Rule8 (last visited Apr. 14, 2021)). Accordingly, I would conclude the parties delegated any dispute regarding scope of the arbitration provision to the arbiter.
Based on the evidence and the record before this Court, I would conclude appellants established a valid arbitration agreement exists and that the claims in question are within the scope of the agreement such that a presumption arises in favor of arbitrating those claims and that appellees had the burden to prove a defense to arbitration. See Royston, Rayzor, Vickery, & Williams, LLP v. Lopez, 467 S.W.3d 494, 499-500 (Tex. 2015).
II. Appellants Did Not Waive Their Right to Arbitration by Substantially Invoking the Judicial Process
In their second issue, appellants argue appellees failed to establish that appellants waived their right to arbitration by substantially invoking the judicial process.
In their first issue, appellants argue appellees failed to establish any affirmative defense precluding enforcement of the arbitration agreement. "[U]nder Texas law, as with any other contract, agreements to arbitrate are valid unless grounds exist at law or in equity for revocation of the agreement. The burden of proving such a ground-such as fraud, unconscionability or voidness under public policy-falls on the party opposing the contract." See Lopez, 467 S.W.3d at 500 (quoting In re Poly-Am., L.P., 262 S.W.3d 337, 348 (Tex. 2008) (orig. proceeding)). Appellees offered no evidence that established any of their defenses. See Alarcon Constr. Grp. LLC v. Santoyo, No. 05-21-00885-CV, 2022 WL 4923461, at *3 (Tex. App.-Dallas Oct. 4, 2022, no pet.) (mem. op.) (noting "party to an arms-length transaction is charged with the obligation of reading what he signs and, failing that, may not thereafter, without a showing of trickery or artifice, avoid the instrument on the ground that he did not know what he was signing" and that "[i]f a person is unable to read a contract, it is his duty to find some reliable person to read and explain it to him before he signs it.") (quoting Micocina, Ltd. v. Balderas-Villanueva, No. 05-16-01507-CV, 2017 WL 4857017, at *5, 6 (Tex. App.-Dallas Oct. 27, 2017, no pet.) (mem. op.) (quoting Thigpen v. Locke, 363 S.W.2d 247, 251 (Tex. 1962)). Accordingly, I would sustain appellants' first issue.
Whether a party waived its right to arbitrate is a question of law. Sivanandam v. Themesoft, Inc., No. 05-21-00645-CV, 2022 WL 872623, at *2 (Tex. App.- Dallas Mar. 24, 2022, pet. denied) (mem. op.) (citing Henry, 551 S.W.3d at 115). A party waives the right to compel arbitration if (1) the party substantially invokes the judicial process and (2) the opposing party suffers detriment or prejudice as a result. Perry Homes v. Cull, 258 S.W.3d 580, 589-90 (Tex. 2008) (party cannot substantially invoke litigation process and then switch to arbitration on the eve of trial); La.-Pac. Corp. v. Newport Classic Homes, L.P., No. 05-21-00303-CV, 2023 WL 3000579, at *6 (Tex. App.-Dallas Apr. 19, 2023, no pet.) (mem. op.). The judicial process is substantially invoked when the party seeking arbitration has taken specific and deliberate actions, after the filing of the suit, that are inconsistent with the right to arbitrate or has actively tried, but failed, to achieve a satisfactory result through litigation before turning to arbitration. Pilot Travel, 416 S.W.3d at 183 (citing In re Vesta Ins. Grp., Inc., 192 S.W.3d 759, 763 (Tex. 2006) (orig. proceeding) (per curiam)). There is a strong presumption against waiver of arbitration, but it is not irrebuttable. Perry Homes, 258 S.W.3d at 584.
The substantial-invocation element requires the court to consider the totality of the circumstances. Id. at 591. The analysis involves numerous factors, including the following:
• whether the movant is a plaintiff or a defendant in the lawsuit;
• when the movant knew of the arbitration clause;
• how long the movant waited before seeking arbitration and any reasons for delay;
• how much discovery has been conducted, who initiated it, whether it related to the merits rather than arbitration or standing, and how much of it would be useful in arbitration;
• whether the movant sought judgment on the merits;
• whether the movant filed affirmative claims for relief in court;
• the amount of time and expense the parties have expended on litigation;
• whether the discovery conducted would be unavailable in arbitration;
• whether judicial activity would be duplicated in arbitration; and
• when the case was to be tried.RSL Funding LLC v. Pippins, 499 S.W.3d 423, 430 (Tex. 2016) (per curiam); G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 512 (Tex. 2015); Perry Homes, 258 S.W.3d at 591. Of course, all of these factors are rarely presented in a single case. Perry Homes, 258 S.W.3d at 591. Federal courts have found waiver based on a few, or even a single one. Id. (citing Restoration Pres. Masonry, Inc. v. Grove Eur. Ltd., 325 F.3d 54, 62 (1st Cir. 2003) (finding three-year delay alone sufficient to establish waiver); Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir. 1995) (finding removal to federal court alone sufficient to establish waiver)). Although substantial invocation must be decided on a case-by-case basis, in Perry Homes, the Texas Supreme Court suggested that the element would be satisfied if the movant conducted full discovery, filed motions going to the merits, and sought arbitration on the eve of trial. Perry Homes, 258 S.W.3d at 590. A party who enjoys substantial direct benefits by gaining an advantage in the pretrial litigation process should be barred from turning around and seeking arbitration with the spoils. Id. at 593.
Here, appellees point to the following facts as establishing that appellants substantially waived the judicial process and their alleged right to arbitration:
• Prior to filing either lawsuit, appellants sought judicial relief through the bankruptcy courts, and that proceeding was dismissed on September 8, 2022.
• Appellants waited approximately one year after filing the lawsuits to assert their right to arbitration.
• Appellants filed their motion to compel within sixty days of the trial date.
• Appellants engaged in the discovery process, both sending and answering discovery requests.
• Appellants requested hearings, appeared in court, amended their petition, and filed and responded to several motions.
Regarding appellants' suit in the bankruptcy courts before filing the instant suit in state court, I note that such action has been held insufficient to constitute waiver by the supreme court. See, e.g., In re Citigroup Glob. Mkts., Inc., 258 S.W.3d 623, 626 (Tex. 2008) (orig. proceeding) (per curiam) (movant's litigation conduct limited to jurisdictional transfers to federal and multi-district-litigation courts, not merits). And, where our Court has held a movant waived his right to arbitrate after filing a petition for involuntary bankruptcy of the non-movant, that case included additional circumstances not present here, including "(1) despite knowing about his right to arbitrate, he did not invoke it until 'thirteen months of extensive and fast-paced litigation' had occurred; (2) trial had been reset twice, both times at his request or as a result of his conduct; (3) he served almost two hundred merit-based discovery requests, none of which went to issues of arbitrability, and obtained over 5,000 pages of documents in response; (4) he sought and obtained orders from the court compelling discovery and protection from discovery sent to him; (5) he obtained injunctive relief from the trial court, the order of which stated that he was likely to prevail on the merits' and sought to hold another party in contempt of that order; (6) he filed a rule 12 motion to show authority and sought mandamus relief when it was denied (relief that would have been unavailable in arbitration); and (7) paid a jury fee. Haddington Fund, LP v. Kidwell, No. 05-19-01202-CV, 2022 WL 100111, at *7 (Tex. App.-Dallas Jan. 11, 2022, pet. denied) (mem. op.) (citing Adams v. StaxxRing, Inc., 344 S.W.3d 641, 646, 650 (Tex. App.-Dallas 2011, pet. denied)).
As for appellants' engagement in the discovery process, the appellate record is silent as to how much discovery was requested, how much was produced, or what the discovery was related to. See Haddington Fund, 2022 WL 100111, at *7 (citing In re Vesta Ins. Grp., 192 S.W.3d at 763). Further, I note that after the trial court denied appellants' motion to compel, the parties filed a joint motion to continue trial: "Ample discovery still needs to occur in this case . . . ." Therefore, based on the appellate record, I would not conclude this factor weighs in favor of finding waiver. See Perry Homes, 258 S.W.3d at 590.
Appellants' conduct in requesting hearings, appearing in court, amending their petition, and filing and responding to several motions does not, on this record, constitute actions inconsistent with the right to arbitration or active-failed- attempts to achieve a satisfactory result through litigation before turning to arbitration. See Pilot Travel, 416 S.W.3d at 183 (citing In re Vesta Ins. Grp., 192 S.W.3d at 763). The requested hearings were a rehearing on appellees' motion to consolidate, a hearing on appellants' motion to compel arbitration, and a hearing on appellants' motion to strike appellees' demand for jury trial. Appellants appeared in court for a hearing on appellees' motion for summary judgment and another hearing on their motion to compel and to strike appellees' demand for jury trial. None of the requested hearings or appearances were appellants' attempt, failed or otherwise, to achieve a satisfactory result in litigation. See Southwind Grp., Inc. v. Landwehr, 188 S.W.3d 730, 736 (Tex. App.-Eastland 2006, no pet.) (holding movant did not substantially invoke judicial process by "merely" responding to non-movant's motion for summary judgment) (citing In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998) (orig. proceeding) (per curiam); see also Garg v. Pham, 485 S.W.3d 91, 111 (Tex. App.-Houston [14th Dist.] 2015, no pet.) (holding movant who "merely sought a hearing and opposed [non-movant's] motion [for summary judgment]" did not seek judgment on merits). Appellants filed an unopposed motion for continuance, but I would not conclude that such act weighs in favor of finding waiver. See Tantrum St., LLC v. Carson, No. 05-16-01096-CV, 2017 WL 3275901, at *7 (Tex. App.-Dallas July 25, 2017, no pet.) (mem. op.) (holding agreements to continue trial setting and extend discovery deadlines did not waive arbitration).
Finally, as to the delay in filing their motion to compel arbitration and doing so forty-nine days before the trial date, I would not conclude those weigh in favor of finding waiver of their right to arbitration on the record before us. Appellants filed suit on August 31, 2022, and their motion to compel arbitration on September 5, 2023, with an anticipated trial setting of October 23, 2023. To be sure, whether the movant has "sought arbitration only on the eve of trial" is part of our analysis of waiver. See La.-Pac. Corp., 2023 WL 3000579, at *7 (citing Perry Homes, 258 S.W.3d at 590). The rule that one cannot wait until "the eve of trial" to request arbitration is not limited to the evening before trial; it is a rule of proportion that is implicated here. See Perry Homes, 258 S.W.3d at 596. However, in finding waiver, courts have often interpreted "eve of trial" as far fewer than forty-nine days. See, e.g., Momentum Project Controls, LLC v. Booflies to Beefras LLC, No. 14-22-00712-CV, 2023 WL 4196584, at *5 (Tex. App.-Houston [14th Dist.] June 27, 2023, pet. denied) (mem. op.) (holding two weeks before trial to be "eve of trial"); Green v. Velocity Invs., LLC, No. 05-20-00795-CV, 2022 WL 3655232, at *4 (Tex. App.-Dallas Aug. 25, 2022, no pet.) (mem. op.) (holding motion to compel filed on "eve of trial" after trial court conducted pretrial hearing and ordered trial to begin two days later); Archimedes, Inc. v. Russell, No. 01-21-00222-CV, 2022 WL 2024851, at *3 (Tex. App.-Houston [1st Dist.] June 7, 2022, no pet.) (mem. op.) (construing motion filed thirty-three days before trial setting was done so on the "eve of trial").
As for the year-long delay, we have recently reaffirmed that "mere delay in moving to compel arbitration is not enough for waiver." See La.-Pac. Corp., 2023 WL 3000579, at *7 (quoting Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C., 455 S.W.3d 573, 576 (Tex. 2014) (per curiam)).
The majority urges that the foregoing analysis Balkanizes the evidence and fails to consider them as a whole. Our Court's precedent requires consideration of different factors and indeed that we "look to the totality of the circumstances." See Perry Homes, 258 S.W.3d at 591; see, e.g., Zurvita Holdings, Inc. v. Jarvis, No. 05-23-00661-CV, 2024 WL 1163209, at *11-13 (Tex. App.-Dallas Mar. 14, 2024, pet. filed) (mem. op.); Sivanandam v. Themesoft, Inc., No. 05-21-00645-CV, 2022 WL 872623, at *3-5 (Tex. App.-Dallas Mar. 24, 2022, pet. denied) (mem. op.); Adams, 344 S.W.3d at 649-51. Here, appellants filed two lawsuits related to the Company Agreement and waited over a year to assert their right to arbitration under the Company Agreement. But, I cannot conclude that these outweigh the other factors considered above, including the agreed-upon need for further discovery and the lack of attempts by appellants to obtain affirmative relief or judgment on the merits. Instead, I would weigh all the factors discussed above and conclude that, given the totality of the circumstances of this case and the strong presumption against waiver, appellees failed to establish appellants had waived their rights to arbitration by substantially invoking the judicial process.
I would sustain appellants' second issue.
I recognize that recently the United States Supreme Court held that under the FAA a party no longer needs to demonstrate that invocation of the judicial process resulted in prejudice to establish waiver. See Morgan v. Sundance, Inc., 596 U.S. 411, 419 (2022). Because I would conclude appellees failed to demonstrate that appellants substantially invoked the judicial process, I would not and do not consider whether appellees were prejudiced or whether a showing of prejudice is required after Morgan. See Tex. R. App. P. 47.1.
Conclusion
Because I disagree with the majority's conclusions regarding whether appellants substantially invoked the judicial process and thereby waived their right to arbitrate this dispute, I respectfully dissent from the judgment affirming the trial court's order denying appellants' motion to compel arbitration. Instead, I would reverse the order and remand the case to the trial court for entry of an order compelling arbitration and staying further proceedings pending completion of the pending arbitration.