Opinion
CIVIL ACTION NO. 3:01-CV-0650-G
October 15, 2001
MEMORANDUM ORDER
Before the court is the application of the plaintiff Dustrol, Inc. ("Dustrol") for a preliminary injunction. Also before the court is the motion of the defendant Champagne-Webber, Inc. ("Champagne-Webber") to compel arbitration and to stay this case pending arbitration. For the reasons discussed below, the motion to compel arbitration is granted, and the application for injunctive relief is denied as moot.
I. BACKGROUND
In March of 1998, Champagne-Webber was awarded a highway construction contract by the State of Texas Department of Transportation ("DOT") to repair a five-mile stretch of Interstate 35W in Tarrant County, Texas (the "Prime Contract").
Defendant's Proposed Findings of Fact and Conclusions of Law ("Champagne-Webber's Findings") ¶ I; Plaintiff's Proposed Findings of Fact and Conclusions of Law ("Dustrol's Findings") ¶ 1. Champagne-Webber was the general contractor for this project. Champagne-Webber's Findings ¶ 2. Dustrol was a subcontractor retained by Champagne-Webber to perform milling work on the shoulders and traffic lanes of the roadway. Id. ¶ 3. Dustrol signed Champagne-Webber's proposed subcontract (the "Subcontract") on April 28, 1998. Dustrol's Findings U 17. The milling work in the Subcontract concerned "Item 305" work, which meant that Dustrol was to remove the surface asphalt material on the roadway. Id. ¶¶ 5-13; Champagne-Webber's Findings ¶ 9. On the shoulders of the roadway, this material was at a depth of 1/2" to 3/4". Dustrol's Findings ¶ 10.
After the Subcontract was executed, the DOT changed its instructions to Champagne-Webber concerning the milling work on the shoulders and requested that Dustrol remove material to a uniform depth of two inches below the edge of the roadway pavement. Id. ¶ 19; Champagne-Webber's Findings ¶ 10. Because the milling depth increased, the work included milling base material in addition to surface asphalt. Champagne-Webber's Findings ¶ 11. This additional milling work was identified by the DOT as "Item 105" work in its Change Order. Id. ¶ 13; Dustrol's Findings ¶ 24.
According to Champagne-Webber, this Change Order became part of the Prime Contract between DOT and Champagne-Webber and was incorporated by reference into Dustrol's Subcontract with Champagne-Webber. Champagne-Webber's Findings ¶ 14. Champagne-Webber contends the Subcontract anticipated that changes in the scope of the milling work might occur. Id. ¶ 6. In support of this claim, Champagne-Webber cites section 4 of the Subcontract. Id. That section, in part, provides:
4. CHANGES IN THE WORK: The Subcontractor may be ordered in writing ("Change Order") by the Contractor, without invalidating this Subcontract, to make changes in the Work within the general scope of this Subcontract consisting of additions, deletions or other revisions to the Work. Only the Contractor shall have the authority to execute and/or approve changes in the Work.
Subcontract, located in Appendix to Defendant's Motion to Compel Arbitration and Motion to Stay Suit ("Champagne-Webber's Appendix") at 2. Thus, Champagne-Webber maintains, the Subcontract was revised by the DOT Change Order and included the Item 105 milling work. Champagne-Webber's Findings ¶ 15.
Dustrol contends that the Subcontract pertains only to Item 305 work and that it entered into a separate oral agreement or Bid Proposal to perform the Item 105 work. Application for Injunctive Relief ("Dustrol's Application") at 6-7. Dustrol claims that under the terms of this verbal agreement, it "did not agree that the new work would be performed under the terms of the Item 305 Subcontract, or that any of the terms of the Item 305 Subcontract would be incorporated into their new agreement, or that any disputes under their verbal agreement would be submitted to arbitration." Id. at 7 (emphasis in original); see also Affidavit of Danny Simpson ("Simpson Affidavit"), located in Appendix in Support of Application for Injunctive Relief ("Dustrol's Appendix") at 6.
On May 22, 1998, Dustrol left the construction site following completion of the Item 105 milling work. Dustrol's Findings ¶ 28. Tragically, several fatal automobile accidents later occurred at the site, which resulted in six different wrongful death actions against Champagne-Webber in the courts of Tarrant County. Id. ¶ 30; Champagne-Webber's Findings ¶ 25. The wrongful death claimants alleged that the accidents were due to shoulder drop-offs that exceeded two inches in depth. Dustrol's Findings ¶ 34. Champagne-Webber impleaded Dustrol as a third-party defendant in those actions on theories of contractual indemnity, breach of contract, see id. ¶ 32, and contribution under the Texas Proportionate Responsibility Act. Defendant's Response to Application for Injunctive Relief, Including Reply to Motion to Compel Arbitration, with Supporting Brief ("Champagne-Webber's Response") at 14. Ultimately, Champagne-Webber settled with the wrongful death claimants and non-suited any claims it had against Dustrol. Dustrol's Findings ¶ 40; Champagne-Webber's Findings ¶ 26.
TEX. Civ. PRAC. REM. CODE § 33.001 et seq. (Vernon 1997).
On or about March 14, 2001, Champagne-Webber filed a "Demand for Arbitration" against Dustrol with the American Arbitration Association ("AAA") on the basis of Dustrol's alleged breach of the parties1 Subcontract. Champagne-Webber's Findings ¶ 30; Dustrol's Findings ¶ 41; Defendant's Motion to Compel Arbitration and Motion to Stay Suit with Supporting Brief ("Champagne-Webber's Motion Brief") at 2. Champagne-Webber contends it made this demand for arbitration pursuant to the terms of the parties' Subcontract. Champagne-Webber's Response at 11. Specifically, section 11 of the Subcontract contains an arbitration clause, which provides:
11. LIENS AND CLAIMS: . . . At Contractor's sole option any and all claims, disputes and other matters in question arising out of, or relating to, this Subcontract, or the breach thereof, shall be submitted to arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association. . . . The award rendered by the arbitrators shall be final, and Judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. Subcontractor expressly acknowledges and agrees that arbitration shall be at Contractor's option and waives any right to require claims disputes and other matters in question arising out of, or relating to, this Subcontract, or the breach thereof, be submitted to arbitration.
Subcontract, located in Champagne-Webber's Appendix at 2-3.
In response to Champagne-Webber's arbitration demand, Dustrol filed this case seeking to enjoin the arbitration and to obtain declaratory relief regarding the rights asserted by Champagne-Webber in the arbitration. Dustrol's Findings ¶ 43.
On April 18, 2001, Dustrol filed an application for injunctive relief. Dustrol's Application at 1. In its application, Dustol argues that its dispute with Champagne-Webber is not covered under the parties' Subcontract because the work which allegedly gave rise to the claims — the Item 105 work — was done "pursuant to an oral agreement which included no arbitration term and did not incorporate any of the provisions of the Item 305 Subcontract." Id. at 12. Dustrol also maintains that even if the arbitration clause did apply to the claims in dispute, Champagne-Webber "waived any right to invoke the arbitration clause, by asserting those same claims against Dustrol in litigation and participating extensively in that litigation . . .". Id. As a result, Dustrol concludes, this court should enjoin Champagne-Webber from requiring Dustrol to arbitrate this dispute. Id. at 13.
On April 24, 2001, Champagne-Webber filed a motion to compel arbitration and to stay this case pending arbitration pursuant to the terms of the parties' Subcontract. Champagne-Webber's Motion Brief at 1. Since that time, the AAA has issued a Scheduling Order for the arbitration proceeding and set a hearing for the matter on January 28, 2002. Dustrol's Notice of Recent Developments in the Related Arbitration Proceeding at 3 and attached Exhibit "A" (July 27, 2001 AAA letter) at 1-3.
II. ANALYSIS A. Applicable Law
In considering a motion to compel arbitration, the first step a court must take "is to determine whether the parties agreed to arbitrate that dispute." Mitsubishi Motors Corporation v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985). In general, this determination is made by "applying the federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the [Federal Arbitration] Act." Id. (quoting Moses H. Cone Memorial Hospital v. Mercury Construction Corporation, 460 U.S. 1, 24 (1983)) (internal citations omitted). Here, however, the Subcontract between Dustrol and Champagne-Webber states that the Subcontract is subject to arbitration in accordance with the Texas General Arbitration Act ("TGAA"). Champagne-Webber's Appendix at 1. Champagne-Webber contends that the parties chose to be governed by the TGAA and Texas law. Champagne-Webber's Motion Brief at 3. While Dustrol appears to dispute the applicability of the TGAA, see Dustrol's Response to Motion to Compel Arbitration and Motion to Stay Suit, and Brief in Support ("Dustrol's Response") at 11-12, it concedes that the choice-of-law issue is of no consequence because both the Federal Arbitration Act ("FAA") and the TGAA "require that there be an agreement to arbitrate, and that the dispute be within the scope of that agreement, before arbitration will be compelled." Id. at 12.At the outset, this court notes that the parties may designate Texas law to govern the scope of their agreement to arbitrate. See Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468, 479 (1989) ("Just as [the parties] may limit by contract the issues which they will arbitrate, . . . so too may they specify by contract the rules under which that arbitration will be conducted. Where, as here, the parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA . . . "); ASW Allstate Painting Construction Co., Inc. v. Lexington Insurance Company, 188 F.3d 307, 310 (5th Cir. 1999) ("Because the construction agreement contains a Texas choice-of-law provision, and Texas arbitration rules do not undermine the federal policy of the FAA, we conclude that the TGAA applies to this arbitration agreement."); Ford v. NYLCare Health Plans of the Gulf Coast, Inc., 141 F.3d 243, 249 (5th Cir. 1998) ("Examining the agreement as a whole, we are persuaded that the parties intended Texas law and the TGAA to govern the scope of the arbitration clause . . . Nothing else in the agreement suggests that the parties intended federal law or the FAA to apply."). In light of the court's examination of the Subcontract, applicable precedent, and Dustrol's concession regarding the effect of applying the TGAA, the court will assume, for the purpose of deciding Champagne-Webber's motion to compel arbitration, that the TGAA applies to this arbitration agreement. The court notes, however, that the analysis would be substantially similar were the FAA to be applied.
B. Legal Standard
In accord with federal law, Texas law favors arbitration. Ford, 141 F.3d at 250 ("Texas courts favor arbitration") (citing Monday v. Cox, 881 S.W.2d 381, 384 (Tex.App.-San Antonio 1994, writ denied)); Allstate Painting, 188 F.3d at 311; Cantella Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996) ("Federal and state law favor arbitration."); Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 268 (Tex. 1992). Thus, if the court finds that Dustrol agreed to arbitrate the type of claims in dispute, it must order arbitration. See Babcock Wilcox Company v. PMAC, Ltd., 863 S.W.2d 225, 230 (Tex.App.-Houston 1993, writ denied) ("[Arbitration should not be denied 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.") (citing Neal v. Hardee's Food Systems, Inc., 918 F.2d 34, 37 (5th Cir. 1990)).
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 56 (1995) (The FAA "declared a national policy favoring arbitration.") (quoting Southland Corporation v. Keating, 465 U.S. 1, 10 (1984)); Moses H. Cone Memorial Hospital v. Mercury Construction Corporation, 460 U.S. 1, 24-25 (1983) ("The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.").
Whether a contract's arbitration clause requires arbitration of a given dispute is a matter of contract interpretation, which is to be performed by the court. Babcock, 863 S.W.2d at 229-30; see also ATT Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649 (1986) (it is the court's duty to interpret agreement and determine whether parties intended to arbitrate). The court's interpretative function must be carried out with appropriate deference to the public policy of both the State of Texas and the federal government that favors arbitration over litigation and requires arbitration clauses to be construed generously, in favor of arbitration. See Southland Corporation v. Keating, 465 U.S. 1, 10-11 (1984); Allstate Painting, 188 F.3d at 311 ("Because Texas courts favor arbitration as a means of settling disputes between parties, the party opposing arbitration bears the burden of proving that no valid arbitration agreement exists as to the dispute."). Despite judicial deference to arbitration, a party may not be required to arbitrate a dispute that it did not agree to arbitrate, see Neal, 918 F.2d at 37, and the controversy must come within the contract's arbitration provision before the court can order arbitration. See Certain Underwriters at Lloyd's of London v. Celebrity, Inc., 950 S.W.2d 375, 377 (Tex.App.-Tyler 1996, writ dism'd w.o.j.).
Under Texas law, in order to compel arbitration, a party must establish:
§ 171.021 Proceeding to Compel Arbitration
(a) A court shall order the parties to arbitrate on application of a party showing:
(b) If a party opposing an application made under Subsection (a) denies the existence of the agreement, the court shall summarily determine that issue. The court shall order arbitration if it finds for the party that made the application. If the court does not find for that party, the court shall deny the application.
(1) the existence of a valid agreement to arbitrate; and (2) that the claims asserted by the party attempting to compel arbitration are within the scope of the arbitration agreement.Allstate Painting, 188 F.3d at 311 (citing Celebrity, Inc., 950 S.W.2d at 377). Texas law also provides that "a trial court is to proceed summarily to determine the issue of applicability of an arbitration agreement if a party contests arbitration." Allstate Painting, 188 F.3d at 311 (citing Howell Crude Oil Company v. Tana Oil Gas TEX. Civ. PRAC. REM. CODE Ann. § 171.021 (Vernon Supp. 2001).
Corporation, 860 S.W.2d 634, 639 (Tex.App.-Corpus Christi 1993, no writ)). The trial court is "required to compel arbitration if it finds that a valid agreement to arbitrate exists and that the claims asserted fall within that agreement." Allstate Painting, 188 F.3d at 311 (citing Phillips v. ACS Municipal Brokers, Inc., 888 S.W.2d 872, 875 (Tex.App.-Dallas 1994, no writ), and Prudential Securities Inc. v. Banales, 860 S.W.2d 594, 597 (Tex.App.-Corpus Christi 1993, no writ)). As indicated previously, the analysis under the TGAA, concerning a motion to compel arbitration, is substantially similar to the analysis under the FAA. See OPE International LP v. Chet Morrison Contractors, Incorporated, 258 F.3d 443, 445-46 (5th Cir. 2001).
In OPE International, the Fifth Circuit described the inquiry under the FAA as follows:
Courts conduct a two-step inquiry when deciding whether parties must submit to arbitration. . . . The first step is to decide whether the parties agreed to arbitrate their dispute. . . . This determination involves two considerations: (1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement. . . . To resolve these issues, courts generally . . . should apply ordinary state-law principles that govern the formation of contracts. . . . Once a court determines that the parties agreed to arbitrate, the court must assess whether legal constraints external to the parties' agreement foreclosed the arbitration of those claims.258 F.3d at 445-46 (internal citations and quotations omitted).
C. Scope of the Arbitration Agreement
Dustrol first attacks the arbitration provision on the grounds that the dispute in question — the Item 105 work — "does not fall within the scope of the arbitration agreement set out in the Item 305 Subcontract, and [that] there was no agreement to arbitrate any disputes arising from the Item 105 work." Dustrol's Response at 14. According to the Affidavit of Danny Simpson, Dustrol's Vice President, the parties entered into a separate oral contract for the Item 105 work. Simpson Affidavit, located in Dustrol's Appendix at 6. Therefore, Dustrol contends, there is no agreement to arbitrate Champagne-Webber's claims relating to the Item 105 work, Dustrol's Response at 13, and this court should not compel arbitration. Id. at 15.Champagne-Webber argues that Dustrol's allegation of a separate oral contract is "a sham attempt to circumvent a binding arbitration provision" and that Dustrol agreed to arbitrate this dispute. Champagne-Webber's Motion Brief at 6. In support of this claim, Champagne-Webber cites, among other evidence, the deposition testimony of Brian Hansen, Vice President of Operations for Dustrol, in which he testified that while the scope of the work Dustol provided under its Subcontract with Champagne-Webber changed, the overall terms of the parties Subcontract were not altered or rescinded. Id. at 6; Deposition of Brian Hansen, located in Champagne-Webber's Appendix at 15-16, 31-32.
In this case, the issue of arbitrability is governed by the Subcontract, which mandates arbitration of "any and all claims, disputes and other matters in question arising out of, or relating to, this Subcontract, or the breach thereof . . ." Subcontract, located in Champagne-Webber's Appendix at 2. Champagne-Webber has asserted breach of contract and indemnity claims against Dustrol relating to Dustrol's alleged breach of the Subcontract. Champagne-Webber's Response at 1-2 and n. 1.
When addressing questions of arbitrability, courts have repeatedly held that all doubts concerning the scope of an arbitration clause in a contract should be resolved in favor of arbitration. See, e.g., United Steelworkers of America v. Warrior and Gulf Navigation Company, 363 U.S. 574, 583 (1960); Pennzoil Exploration and Production Company v. Ramco Energy Limited, 139 F.3d 1061, 1067 (5th Cir. 1998); Babcock Wilson Company, 863 S.W.2d at 230. Both the Supreme Court and the Fifth Circuit have characterized arbitration clauses, similar to the one at issue here, as "broad arbitration clauses capable of expansive reach." Pennzoil Exploration, 139 F.3d at 1067 (citing Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 397-98 (1967) (labelling as "broad" a clause requiring arbitration of "[a]ny controversy or claim arising out of or relating to this Agreement"), and Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d 160, 164-65 (5th Cir.) (holding that when parties agree to an arbitration clause governing "[a]ny dispute . . . arising out of or in connection with or relating to this Agreement," they "intend the clause to reach all aspects of the relationship.") [, cert. denied, 525 U.S. 876 (1998)]). Courts have also distinguished narrow arbitration clauses (i.e., clauses that only require arbitration of disputes "arising out of" the contract) from broad arbitration clauses (i.e., clauses governing "disputes that `relate to' . . . the contract."). Pennzoil Exploration, 139 F.3d at 1067 (citing Tracer Research Corp. v. National Envtl. Svcs. Co., 42 F.3d 1292, 1295 (9th Cir. 1994) (comparing "relating to" language with "arising out of" language.) [, cert. dism'd, 515 U.S. 1187 (1995)]). In this case, the Subcontract uses not only the phrase "arising out of," but also "relating to." Consequently, there can be no doubt that this is a "broad" arbitration clause. See Pennzoil Exploration, 139 F.3d at 1067. Broad arbitration clauses "are not limited to claims that literally arise under the contract, but rather embrace all disputes between the parties having a significant relationship to the contract regardless of the label attached to the dispute." Id. (internal citations and quotations omitted).
Keeping in mind the strong policy in favor arbitration, the court finds, based on the parties' submissions, that the dispute over the Item 105 work is "related to" the Subcontract and is therefore arbitrable under the Subcontract's broad arbitration provision. See Pennzoil Exploration, 139 F.3d at 1068. Dustrol entered into a Subcontract with Champagne-Webber to remove the surface asphalt material on the roadway. Dustrol's Findings ¶¶ 5-13. Following the execution of the Subcontract, the DOT issued a Change Order requesting that Dustrol remove material to a depth of two inches on the shoulders of the roadway. Champagne-Webber's Findings ¶ 10. Champagne-Webber's breach of contract and indemnity claims stem from this additional milling work. Without question, this Item 105 work — removing base material in addition to surface asphalt — is related to the parties Subcontract because Dustrol was the milling subcontractor on the project. Therefore, the present dispute falls within the Subcontract's arbitration clause.
It is worth noting that Dustrol has not contested the validity of the arbitration clause — beyond suggesting that it is "one-sided." Dustrol's Response at 11. Rather, Dustrol has argued that the arbitration clause does not govern this dispute because the additional milling work was "undertaken pursuant to a separate oral agreement which included no arbitration term and did not incorporate the provisions of the Item 305 Subcontract." Id. As discussed previously, the court finds that the additional milling work — the Item 105 work — is related to the parties' Subcontract. Accordingly, Champagne-Webber has established that the parties agreed to arbitrate this dispute because: (1) there exists a valid agreement to arbitrate; and (2) the claims Champagne-Webber asserts are within the scope of the arbitration clause in the Subcontract. See Allstate Painting, 188 F.3d at 311.
D. Waiver
Dustrol has advanced a second argument as to why it is not subject to mandatory arbitration. Specifically, Dustrol argues that Champagne-Webber waived its rights to arbitrate by substantially invoking the litigation process to Dustrol's detriment. Dustrol's Application at 17-25; Dustrol's Response at 16-23.Champagne-Webber, of course, disputes this contention. Champagne-Webber's Motion Brief at 7-10; Champagne-Webber's Response at 13-15.
As a preliminary matter, Dustrol contends that federal law appears to govern the issue of waiver. Dustrol's Response at 16. Champagne-Webber seems to rely on both federal and Texas law in its waiver analysis. Champagne-Webber's Motion Brief at 7-10. Resolution of this issue is not necessary, however, because the standard for determining waiver is the same under both the FAA and the TGAA. See Sedillo v. Campbell, 5 S.W.3d 824, 826 (Tex.App.-Houston [14th Dist.] 1999, no wit). Thus, the court can rely on both federal and Texas law.
The Fifth Circuit, in Subway Equipment Leasing Corporation v. Forte, 169 F.3d 324 (5th Cir. 1999), summarized its jurisprudence regarding whether a party has waived its right to pursue contractual arbitration:
"Waiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party." Miller Brewing Company v. Fort Worth Distributing Co., 781 F.2d 494, 497 (5th Cir. 1986).
There is a strong presumption against waiver of arbitration. See, e.g., Lawrence v. Comprehensive Business Services Co., 833 F.2d 1159, 1164 (5th Cir. 1987) ("Waiver of arbitration is not a favored finding and there is a presumption against it."); Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25, . . . (1983) ("[A]s a matter of law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration."). Accordingly, a party alleging waiver of arbitration must carry a heavy burden. Associated Builders v. Ratcliff Constr. Co., 823 F.2d 904, 905 (5th Cir. 1987).Id. at 326.
Texas state courts are in accord with this approach. See, e.g., In re Koch Industries, Inc., 49 S.W.3d 439, 445 (Tex.App. — San Antonio 2001, appl. for mandamus filed).
In Koch Industries, the Texas Court of Appeals described the waiver analysis as follows:
Courts will not find that a party has waived a right to enforce an arbitration clause by merely taking part in litigation unless the party has substantially invoked the judicial process to the opposing party's detriment. . . . The test for determining waiver is two prong: (1) did the party seeking arbitration substantially invoke the judicial process; and (2) did the opposing party prove that it suffered prejudice as a result? . . .
A strong presumption against waiver exists. . . . The party seeking to prove waiver bears a "heavy burden of proof," and any doubts regarding waiver are resolved in favor of arbitration.In re Koch Industries, Inc., 49 S.W.3d at 445 (internal citations omitted).
With this standard in mind, Dustrol argues Champagne-Webber waived arbitration because: (1) it substantially invoked the judicial process by litigating claims it now seeks to arbitrate, and (2) Dustrol has been prejudiced by Champagne-Webber's use of state-court processes. Dustrol's Application at 17-25. The court will consider each of these arguments in turn.
Before turning to the merits of these arguments, the court notes, contrary to Dustrol's assertion, see Dustrol's Response at 19-20; Dustrol's Application at 17-18, that Dustrol bears the burden of proving Champagne-Webber's waiver of arbitration because it is the party alleging waiver. See, e.g., Walker v. J.C. Bradford Co., 938 F.2d 575, 577 (5th Cir. 1991) ("A party asserting waiver . . . bears a heavy burden of proof in its quest to show that an opponent has waived a contractual right to arbitrate."); Frye v. Paine, Webber, Jackson Curtis, Inc., 877 F.2d 396, 398 (5th Cir. 1989), cert. denied, 494 U.S. 1016 (1990).
(1) Invoking the Judicial Process
Dustrol first argues that Champagne-Webber substantially invoked the judicial process with respect to its indemnity and breach of contract claims by actively asserting those same claims against Dustrol through third-party petitions or cross claims in the six wrongful death actions in Tarrant County. Dustrol's Application at 18. In response, Champagne-Webber contends that Dustrol was joined in those cases as a responsible third party pursuant to the Texas Proportionate Responsibility Act for its "direct liability to the individual wrongful death claimants, not for its contractual liability to Champagne-Webber . . ." Champagne-Webber's Response at 14. Champagne-Webber alleges that it did not waive its right to arbitrate the breach of contract and indemnity claims because the wrongful death claimants initiated the litigation and those cases did not concern the present contractual dispute. Id.According to the Fifth Circuit, to substantially invoke the judicial process, a party "must have litigated the claim that the party now proposes to arbitrate." Subway Equipment Leasing Corporation, 169 F.3d at 329 (noting that the party "must, at the very least, engage in some overt act in court that evinces a desire to resolve the arbitrable dispute through litigation rather than arbitration."); see also Sedillo, 5 S.W.3d at 827 ("To substantially invoke the judicial process a party must make a specific and deliberate act after suit has been filed that is inconsistent with its right to arbitrate . . . Actions that raise the specter of waiver may include the applicant's engaging in some combination of filing an answer, setting up a counterclaim, pursuing extensive discovery, moving for a continuance and failing to timely request arbitration . . .") (internal citations omitted).
In this case, from approximately June to September of 1999, Champagne-Webber asserted breach of contract, indemnity and contribution claims against Dustrol in the six wrongful death actions in Tarrant County. Dustrol's Application at 18. About a year later, Champagne-Webber settled with the wrongful death claimants and non-suited any claims it had against Dustrol. Dustrol's Findings ¶ 40; Champagne-Webber's Findings ¶ 26; Dustrol's Appendix at 493-94, 496-97, 499-500, 502-03. In March of 2001, Champagne-Webber initiated arbitration proceedings against Dustrol for breach of contract and indemnification relating to Dustrol's milling work on the I-35 project. Champagne-Webber's Findings ¶ 30; Dustrol's Findings ¶ 41.
Although Champagne-Webber invoked the judicial process by previously asserting in state court proceedings some of the claims its now seeks to arbitrate, the court finds, under the circumstances of this case, that the record does not fairly support the conclusion that Champagne-Webber substantially utilized the judicial process before seeking arbitration. First, while Champagne-Webber did seek Rule 194 disclosures, see Dustrol's Response at 18, it did not propound a single interrogatory, request for production or admission nor did it take a single deposition of a Dustrol employee or representative — beyond participating in two depositions of Dustrol witnesses conducted by another party. Champagne-Webber's Motion Brief at 9; Declaration of Jeffrey J. Wolf, located in Champagne-Webber's Appendix at 8. The Fifth Circuit and other courts have allowed such actions, and even considerably more activity, without finding that a party has waived a contractual right to arbitrate. See Williams v. Cigna Financial Advisors, Inc., 56 F.3d 656, 661 (5th Cir. 1995) (movant did not substantially invoke the judicial process and waive its right to arbitration despite removing action to federal court, filing a motion to dismiss, filing a motion to stay proceedings, answering complaint, asserting a counterclaim, and exchanging Rule 26 discovery); Walker, 938 F.2d at 576-77 (movant did not invoke the judicial process to a significant extent by serving interrogatories, requesting production of documents, attending a pretrial conference, and waiting thirteen months before seeking to compel arbitration); Tenneco Resins, Inc. v. Davy International, AG, 770 F.2d 416, 420-21 (5th Cir. 1985) (movant did not waive right to arbitration by seeking a stay, filing an answer to complaint, serving interrogatories, requesting production of documents, moving for a protective order, agreeing to a joint motion for continuance, requesting an extension of the discovery period, and waiting eight months before seeking to compel arbitration); General Guaranty Insurance Company v. New Orleans General Agency, Inc., 427 F.2d 924, 927-30 (5th Cir. 1970) (no waiver when moving party, before demanding arbitration, filed answer denying liability and asserting counterclaims, attempted to implead parties, and allowed taking of two depositions); American Dairy Queen Corporation v. Tantillo, 536 F. Supp. 718, 722 (M.D. La. 1982) (no waiver when movant filed counterclaim, answered interrogatories, filed interrogatories and motion for production, and waited nine months before filing motion to stay); In re Bruce Terminix Company, 988 S.W.2d 702, 703-04 (Tex. 1998) (per curiam) (propounding interrogatories and requests for production and participating in litigation for a year and a half not sufficient to waive contractual arbitration agreement).
See TEX. R. CIV. P. 194.
In addition, courts have also held that waiver is found "only if the party seeking arbitration has actively tried and failed to achieve a satisfactory result in the litigation before turning to arbitration, such as moving for summary judgment or otherwise seeking a final judicial resolution of the dispute." In re Winter Park Construction, Inc., 30 S.W.3d 576, 579 (Tex.App.-Texarkana 2000, no writ) (citing In re Bruce Terminix Co., 988 S.W.2d at 704); see also Walker, 938 F.2d at 577-78 (movant did not invoke the judicial process to a significant degree because it "did not ask the court to make any judicial decisions, for example, by requesting summary judgment . . ."). Given that Champagne-Webber settled with the wrongful death claimants and non-suited its claims against Dustrol, the court finds Champagne-Webber did not actively try to achieve a satisfactory resolution of its claims against Dustrol in the state court litigation. Consequently, Dustrol has not satisfied its "heavy burden" to show waiver. See Subway Equipment Leasing Corporation, 169 F.3d at 326; In re Koch Industries, Inc., 49 S.W.3d at 445.
(2) Prejudice
Even had Champagne-Webber substantially invoked the judicial process, its arbitration rights would not be waived unless Dustrol proved it had suffered actual prejudice as a result. In re Bruce Terminix, 988 S.W.2d at 704; Miller Brewing Company v. Fort Worth Distributing Co., Inc., 781 F.2d 494, 498 (5th Cir. 1986). Prejudice "refers to 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." Subway Equipment Leasing Corporation, 169 F.3d at 327 (citing Doctor's Associates v. Distajo, 107 F.3d 126, 134 (2d Cir. 1997), cert. denied, 522 U.S. 948 (1997)).
Here, Dustrol contends that it has been prejudiced by Champagne-Webber's conduct in three ways. First, by Champagne-Webber's decision to sue Dustrol without invoking its purported right to arbitration. Dustrol's Application at 19. While the court is somewhat puzzled by Champagne-Webber's decision not to assert this right in the underlying wrongful death litigation, "the mere failure to assert the right of arbitration does not alone translate into a waiver of that right . . ." Frye, 877 F.2d at 399 (citing Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1161 (5th Cir. 1986)). Accordingly, this factor, standing alone, cannot support a finding of prejudice.
Of more significance is Dustrol's contention that it was prejudiced by Champagne-Webber's use of discovery procedures not available in arbitration. Dustrol's Application at 19-25. In support of this argument, Dustrol points to Champagne-Webber's requests for disclosure and its participation in the deposition of two Dustrol employees in which it questioned them about issues allegedly related to the merits of Champagne-Webber's current arbitration claims. Id. At the outset, the court is mindful that a party to arbitration "may not invoke arbitration and yet seek pre-trial discovery going to the merits. . . . [A]ny attempt to go to the merits and to retain still the right to arbitration is clearly impermissible." Miller Brewing Company, 781 F.2d at 498 (internal citation and quotation omitted). Nonetheless, the court does not find, after a thorough review of the record, that Champagne-Webber engaged in discovery that went directly to the merits of the current arbitration claims. Champagne-Webber contends, and the court agrees, that its requests for disclosure under Rule 194 pertained only to fundamental matters related to the underlying wrongful death litigation (e.g., the correct names of the parties to the lawsuit, the factual bases of the responding party's defenses, etc.). Champagne-Webber's Response at 15, n. 3. Under the circumstances of the present case, Dustrol was not prejudiced by revealing this information. See, e.g., Williams, 56 F.3d at 661 (holding that movant did not waive right to arbitration by, among other actions, exchanging discovery under Federal Rule of Civil Procedure 26). In addition, the court does not find that the deposition testimony of the two Dustrol employees, see Dustrol's Application at 21-24, would be prejudicial to Dustrol in the pending arbitration proceedings. Moreover, even if it be assumed that the testimony is directly related to Champagne-Webber's current claims, Dustrol has not explained what important and undisputed facts emerge, which prove the elements of Champagne-Webber's breach of contract and indemnity claims. See In re Nasr, 50 S.W.3d 23, 28 n. 3 (Tex.App.-Beaumont 2001, no writ) ("The fact that depositions were taken, absent proof of how this prejudiced the [nonmovant], will not be held to be a substantial invocation of the judicial process.") (citing General Guaranty, 427 F.2d at 928-30)). Finally, the taking of a deposition before demanding arbitration is not per se prejudicial. See General Guaranty, 427 F.2d at 930 (no waiver when, among other actions, moving party allowed taking of two depositions before demanding arbitration); compare Miller Brewing, 781 F.2d at 498 (movant's legal actions, including taking depositions of four of defendant's employees, amounted to prejudice).
See Miller Brewing Company, 781 F.2d at 498 (party demanding arbitration had filed a brief seeking remand to the state court, in which it asserted that as a result of four depositions already taken, "several important and undisputed facts have emerged, already proving many of the elements of the alleged conspiracy.").
Dustrol also argues it was prejudiced by the time and money it expended propounding its own discovery requests to Champagne-Webber. Dustrol's Application at 24-25; Dustrol's Response at 18-19; see also Declaration of Brian A. Mottet, located in Dustrol's Supplemental Appendix in Support of Application for Injunctive Relief, at 4 ("In litigating Champagne-Webber's third-party claims and cross-claim . . ., Dustrol was forced to incur in excess of 290 hours of combined attorney and legal-assistant time. The expense to Dustrol for these legal services was in excess of $34,360."). While these expenses appear significant, the court finds, particularly in light of the absence of any other factors, that Dustrol has not sustained the kind of prejudice necessary for the court to conclude that Champagne-Webber waived its right to arbitration.
Accordingly, the court concludes that Dustrol has not satisfied its "heavy burden" to show waiver. Subway Equipment Leasing Corporation, 169 F.3d at 326.
III. CONCLUSION
For the reasons stated above, Champagne-Webber's motion to compel arbitration and stay all proceedings in this case is GRANTED. Dustrol's application for injunctive relief is DENIED as moot. Counsel for Champagne-Webber shall notify this court in writing, no later than sixty days after the arbitration hearing is concluded, of the status of the arbitration proceedings. All proceedings in this case are STAYED pending further order of this court.