The Beaumont Texas Court of Appeals answers the question whether a clause that delegated “arbitrability” and “scope of agreement” determinations to the arbitrator also encompassed a delegation whether there has been a waiver of arbitration by litigation.
The Court reviewed key points of law:
De Novo Review: Whether a party waives its right to arbitration is a question of law that the Court of Appeals reviews de novo.
Presumption for Courts: Arbitration waiver by litigation in court is presumptively for the courts to decide. To delegate it to an arbitrator, parties must use clear and express language.
Legal Constraints: Even if such language exists, courts may consider external legal constraints when determining waiver of arbitration by litigation.
Criteria: When viewing litigation waiver, courts review the totality of the circumstances and decide this issue on a case-by-case basis. The factors include:
1. How long the party moving to compel arbitration waited to do so
2. The reason for the delay
3. Whether and when the movant knew of the arbitration agreement during the delay
4. How much discovery was conducted before moving to compel arbitration and whether discovery related to the merits
5. Whether the movant requested disposition on the merits
6. Whether the movant asserted affirmative claims for relief in trial court
7. The extent of the movant’s engagement in pretrial matters concerning the merits versus arbitrability or jurisdiction
8. The amount of time and expense that parties committed to litigation
9. Whether the discovery conduct would be unavailable or useful in arbitration
10. Whether activity would be duplicated in arbitration, and
11. When the case was to be tried.
In this case the Court found waiver noting the “combined force” of 1) Defendant’s unexplained delay of four years, 2) the length of delay (four years) compared with the number of months to trial, 3) the presumption that Defendant knew its contract forms contained an arbitration provision and was aware of the provision from the outset, 4) that Defendant propounded multiple sets of merits-based discovery, 5) that Defendant deposed key witnesses, and 6) that Defendant only sought to compel arbitration after the trial court adversely ruled against it on a Motion to Compel and required it to produce documents significant to Plaintiffs claims.
In addition, the Court noted the United States Supreme Court has held a federal court cannot condition a waiver of the right to arbitrate on a showing of prejudice citing Morgan v Sundance, Inc., 596 U.S. 411, 417 (2022). Although the Texas Supreme Court has not addressed this prejudice issue since Morgan, the court found it unnecessary to reach this issue since the record established substantial prejudice.
Fidelity Auto Group, LLC d/b/a Baytown Nissan v Hargroder, No. 09-23-00098-CV, 2024 WL 1098244 (March 14, 2024).
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