Opinion
05-20-00795-CV
08-25-2022
SIMEON GREEN, Appellant v. VELOCITY INVESTMENTS, LLC, ASSIGNEE OF LENDINGCLUB CORPORATION, Appellee
On Appeal from the 192nd Judicial District Court Dallas County, Texas Trial Court Cause No. DC-19-04336
Before Justices Schenck, Osborne, and Partida-Kipness
MEMORANDUM OPINION
Partida-Kipness, Justice
Appellant Simeon Green appeals the trial court's denial of his motion to compel arbitration. We affirm.
BACKGROUND
On March 15, 2016, Green entered a contract for the extension of credit (the credit agreement) with LendingClub Corporation. The credit agreement had a sixty-month term. Green defaulted, and LendingClub charged off the account on December 29, 2016. LendingClub sold Green's account to appellee Velocity Investments, LLC (Velocity) by Bill of Sale a month later, on January 31, 2017.
On March 26, 2019, Velocity filed suit against Green, seeking to enforce the credit agreement and to recover damages for the unpaid balance. Velocity asserted the total balance due when Velocity filed suit was $36,120.80 plus interest. Velocity served initial discovery requests with its petition, including its Request for Disclosure, Request for Production, Request for Admissions, and First Set of Interrogatories. Green filed a general denial on August 12, 2019. Green did not answer Velocity's discovery requests.
The trial court set the case for a bench trial to begin on April 27, 2020. A week before the trial date, Velocity filed a motion for continuance to give the parties additional time to complete settlement negotiations. The trial court heard the motion for continuance during a 1:15 p.m. hearing on April 27, 2020. Velocity withdrew the motion during the hearing, and the court reset the case for trial to begin at 10:30 a.m. on April 29, 2020.
After the hearing on Velocity's motion for continuance, Green filed a motion to dismiss, or in the alternative, to stay the proceedings pending arbitration and to compel arbitration. The trial court heard the motion on the day of trial before the parties began presenting their cases. Velocity conceded the credit agreement included an arbitration clause but argued Green waived any right to compel arbitration by waiting to file his motion until right before trial and after the parties conferred with the court about continuing the case just two days prior. Velocity maintained it was "just far too late" for Green to move to compel arbitration and for the trial court to abate the case in favor of arbitration. The trial court agreed, stated the motion was "untimely," and denied the motion. The case was then tried to the bench.
On June 2, 2020, the trial court signed a final judgment awarding Velocity $36,000. Green timely requested findings of fact and conclusions of law on June 19, 2020. He filed a notice of past-due findings on July 17, 2020. After receiving each of those filings, the trial court "invite[d]" Green to submit proposed findings of fact and conclusions of law. Green did not file proposed findings and conclusions, and none were signed by the trial court. On August 31, 2020, Green filed a notice of appeal of the June 2, 2020 final judgment. On appeal, Green challenges only the trial court's denial of his motion to compel arbitration. Green contends the trial court erroneously refused to compel arbitration because Velocity failed to prove Green substantially invoked the judicial process and prejudiced Velocity by doing so.
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 that are supported by the evidence and reviewing legal determinations de novo. Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018); Perry Homes v. Cull, 258 S.W.3d 580, 598 (Tex. 2008); Sidley Austin Brown & Wood, LLP v. J.A. Green Dev. Corp., 327 S.W.3d 859, 863 (Tex. App.-Dallas 2010, no pet.). Whether a party waived its right to arbitrate is a question of law, which we review de novo. Henry, 551 S.W.3d at 115. 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, therefore, uphold the trial court's decision on any appropriate legal theory urged below. Bonded Builders Home Warranty Ass'n of Tex. v. Rockoff, 509 S.W.3d 523, 531-32 (Tex. App.-El Paso 2016, no pet.). Because the trial court would err if it denied a motion to compel arbitration on a ground not raised by the resisting party, we may affirm the trial court's refusal to compel arbitration only if one of the grounds presented by the resisting party is valid. APC Home Health Servs., Inc. v. Martinez, 600 S.W.3d 381, 389 (Tex. App.-El Paso 2019, no pet.).
APPLICABLE LAW
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, 258 S.W.3d at 589-90; Holmes, Woods & Diggs v. Gentry, 333 S.W.3d 650, 654 (Tex. App.-Dallas 2009, no pet.). There is a strong presumption against waiver of arbitration. Perry Homes, 258 S.W.3d at 590; see also RSL Funding, LLC v. Pippins, 499 S.W.3d 423, 430 (Tex. 2016) (per curiam) (party asserting waiver "bears a heavy burden of proof").
The substantial-invocation element requires the court to consider the totality of the circumstances. Perry Homes, 258 S.W.3d at 591. Relevant factors include:
. whether the party seeking to compel arbitration is a plaintiff or a defendant in the lawsuit;
. when the party knew of the arbitration clause;
. how long the party waited before seeking arbitration and any reasons for the 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 unavailable or useful in arbitration;
. whether the party sought judgment on the merits;
. whether the party asserted 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 or useful in arbitration;
. whether judicial activity would be duplicated in arbitration; and
. when the case was to be tried.RSL Funding, 499 S.W.3d at 430; 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. Generally, no single factor is dispositive. RSL Funding, 499 S.W.3d at 430. Although substantial invocation must be decided on a case-by-case basis, the Perry Homes court suggested the element would be satisfied if the movant conducted full discovery, filed motions going to the merits, and sought arbitration only on the eve of trial. 258 S.W.3d at 590.
The prejudice prong refers to inherent unfairness in terms of delay, expense, or damage to a party's legal position caused when a party's opponent forces it to litigate an issue and later seeks to arbitrate the same issue. Perry Homes, 258 S.W.3d at 597. The party seeking to establish waiver must show the fact of prejudice but is not required to prove its precise extent. Id. at 599. And although delay is a factor, mere delay is ordinarily not enough to show prejudice, even if the delay is substantial. G.T. Leach Builders, 458 S.W.3d at 515; Sivanandam v. Themesoft, Inc., No. 05-21-00645-CV, 2022 WL 872623, at *2-3 (Tex. App.-Dallas Mar. 24, 2022, pet. filed) (mem. op.).
THE ARBITRATION PROVISION
The credit agreement included an arbitration provision that allowed either party to elect to proceed to arbitration before the American Arbitration Association (AAA). The arbitration provision states the following in pertinent part:
20. Arbitration. RESOLUTION OF DISPUTES: I HAVE READ THIS PROVISION CAREFULLY AND UNDERSTAND THAT IT LIMITS MY RIGHTS IN THE EVENT OF A DISPUTE BETWEEN YOU AND ME, I UNDERSTAND THAT I HAVE THE RIGHT TO REJECT THIS PROVISION AS PROVIDED IN PARAGRAPH (b) BELOW.
a. Either party to this Agreement, or any subsequent holder, may, at its sole election, require that the sole and exclusive forum and remedy for resolution of a Claim be final and binding arbitration pursuant to this section 20 (the "Arbitration Provision"), unless you opt out as provided in section 20(b) below. As used in this Arbitration Provision, "Claim" shall include any past, present, or future claim, dispute, or controversy involving you (or persons claiming through or connected with you), on the one hand, and us and/or any subsequent holder (or persons claiming through or connected with us and/or the subsequent holders), on the other hand, relating to or arising out of this Agreement, any Loan Agreement and Promissory Note(s), the Site, and for the activities or relationships that involve, lead to, or result from any of the foregoing, including (except to the extent provided otherwise in the last sentence of section 20(f) below) the validity or enforceability of this Arbitration Provision, any part thereof, or the entire Agreement. Claims are subject to arbitration regardless of whether they arise from contract; tort (intentional or otherwise); a constitution, statute, common law, or
principles of equity; or otherwise, Claims include matters arising as initial claims, counter-claims, cross-claims, third-party claims, or otherwise. The scope of this Arbitration Provision is to be given the broadest possible interpretation that is enforceable.
***
c ..... The party initiating arbitration shall do so with the American
Arbitration Association (the "AAA") or Judicial Alternatives and Mediation Services ("JAMS"). The arbitration shall be conducted according to, and the location of the arbitration shall be determined in accordance with, the rules and policies of the administrator selected, except to the extent the rules conflict with this Arbitration Provision or any countervailing law. . . .
The arbitration provision also stated the parties have a right to litigate claims in court but waive that right by electing arbitration:
THE PARTIES ACKNOWLEDGE THAT THEY HAVE A RIGHT TO LITIGATE CLAIMS THROUGH A COURT BEFORE A JUDGE OR JURY, BUT WILL NOT HAVE THAT RIGHT IF ANY PARTY ELECTS ARBITRATION PURSUANT TO THIS ARBITRATION PROVISION. THE PARTIES HEREBY KNOWINGLY AND VOLUNTARILY WAIVE THEIR RIGHTS TO LITIGATE SUCH CLAIMS IN A COURT BEFORE A JUDGE OR JURY UPON ELECTION OF ARBITRATION BY ANY PARTY.
Velocity concedes the existence of the provision but maintains Green impliedly waived the right to seek arbitration by filing the motion to compel on the eve of trial.
ANALYSIS
The parties' arguments concerning arbitration were limited in the trial court. In the prayer to his motion to compel arbitration, Green moved the trial court to compel arbitration and dismiss Velocity's "complaint due to Lack of Subject Matter Jurisdiction or in the alternative, to stay proceedings pending contractual arbitration." The only arguments made by Green in the motion were his statements that the parties "are bound by the Borrower Agreement," and he "elects arbitration to settle this dispute." The remainder of the motion consisted of (1) the text of the arbitration provision; (2) the text of section two of the FAA, 9 U.S.C. § 2 (Validity, irrevocability, and enforcement of agreements to arbitrate); and (3) quotations from various federal cases concerning the "liberal federal policy favoring arbitration" and the general rule that arbitration agreements should be enforced. Green did not expand these arguments when the trial court heard the motion below. Velocity, however, told the court it opposed the motion "for a couple of reasons":
We're not disputing that there is an arbitration clause in the agreement. It's part of our business records affidavit. But with the motion being filed so soon, right before trial and right after our conference about the motion to continue, we think that it's just far too late to be able to do that.
The trial court agreed with Velocity, stated the motion was "untimely," and denied the motion.
On appeal, Green again argues the arbitration provision should have been enforced under the plain terms of the FAA and federal law favoring enforcement of arbitration provisions. He also contends he did not substantially invoke the judicial process, and Velocity "did not prove the burden of the waiver of the right to arbitrate, since they did not prove any substantial invoking of the judicial process or any detriment to its party." Velocity maintains Green implicitly waived the right to seek arbitration and granting arbitration would have unfairly prejudiced Velocity. We agree with Velocity.
I. Substantial invocation of the judicial process
We begin our inquiry by examining whether Green substantially invoked the litigation process. The substantial-invocation element of waiver may be established if a party conducts full discovery, files motions that address the merits, and seeks arbitration only on the eve of trial. 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 . . . ." Id. at 596. Green never responded to discovery, and the parties did not file substantive motions before trial. Nonetheless, we conclude the "rule of proportion" acknowledged in Perry Homes is implicated here because of the timing of Green's invocation of arbitration.
Green filed the motion to compel on the eve of trial after the case had been pending for over a year and after the trial court conducted a pretrial hearing at which it ordered trial to begin two days later. The motion was untimely under the trial court's pretrial order, which required all substantive motions be set and heard at least thirty days before trial. The motion was also untimely because Green filed the motion after the deadlines had passed to respond to Velocity's merits-discovery, including requests for admission, without Green responding to those requests, and after Velocity's withdrawal of its motion for continuance of the April 27, 2020 trial setting. Green told the court he filed the motion after "our conversation" about the motion at the pretrial hearing and because the trial court indicated the motion needed to be uploaded before trial. Although Green told the court he had done research on arbitration "originally from day one," he did not explain why he waited to file the motion to compel until the eve of trial. Green asserted a decision to invoke arbitration only after Velocity and the trial court were ready to try the case. We agree with the trial court's assessment that Green's request came too late.
Further, "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." Holmes, Woods & Diggs, 333 S.W.3d at 654. Here, the parties' settlement negotiations had recently failed. That event led Velocity to withdraw its motion for continuance of the trial and made trial imminent. When Green filed his motion to compel, he did so with trial set to begin two days later. In other words, Green filed the motion to compel only after he was faced with an imminent trial date without hope of continuance or settlement. Other courts addressing similar situations have found substantial invocation when a party does not seek arbitration until "after proceeding in litigation to an adverse result" because doing so "is the clearest form of inconsistent litigation conduct and is inevitably found to constitute substantial invocation of the litigation process resulting in waiver." Hogg v. Lynch, Chappell & Alsup, P.C., 480 S.W.3d 767, 789-90 (Tex. App.-El Paso 2015, no pet.) (first citing Haddock v. Quinn, 287 S.W.3d 158, 180 (Tex. App.-Fort Worth 2009, pet. denied) (the plaintiff had already lost its declaratory judgment lawsuit, and had suffered a take-nothing judgment, when it filed its application for arbitration) and then citing Jones v. Citibank (S.D.), N.A., 235 S.W.3d 333, 340-41 (Tex. App.-Fort Worth 2007, no pet.) ("[s]ubstantially invoking the judicial process may occur when the party seeking arbitration actively tried, but failed, to achieve a satisfactory result in litigation before turning to arbitration")).
For example, in Hogg, the party seeking arbitration participated in discovery and engaged in a discovery battle before seeking arbitration. 480 S.W.3d at 790-91. The court concluded Hogg was only willing to do so in a judicial forum "up until the point that she received an adverse ruling from the district court and was faced with the possibility of having the court impose case-crippling sanctions." Id. The Hogg court found the timing of Ms. Hogg's invocation of the arbitration clause "more consistent with a 'late game tactical decision' than a true intent to preserve the right to compel arbitration." Id. at 791. Under those circumstances, the court concluded Ms. Hogg substantially invoked the judicial process before moving for arbitration. Id.; see also Tuscan Builders, LP v. 1437 SH6 L.L.C., 438 S.W.3d 717, 722 (Tex. App.-Houston [1st Dist.] 2014, pet. denied) (the circumstances surrounding the timing of party's motion to compel were more consistent "with a late-game tactical decision than an intent to preserve the right to arbitrate").
The same analysis applies here. Green allowed all deadlines to pass, engaged in pretrial settlement negotiations, and only sought arbitration when he realized, on the eve of trial, that the case would be tried imminently. The circumstances surrounding the timing of Green's motion to compel indicate the motion was filed as a "Hail Mary" attempt to avoid going to trial. Based on the totality of the circumstances, we conclude the trial judge did not err by implicitly concluding Green substantially invoked the judicial process before seeking to compel arbitration. See Sivanandam, 2022 WL 872623, at *5-6 (totality of the circumstances supporting finding of substantial invocation); see also Hogg, 480 S.W.3d at 790-91; Tuscan Builders, LP, 438 S.W.3d at 722.
II. Prejudice
Our analysis does not end there, however, because under Texas precedent "substantially invoking the judicial process does not waive a party's arbitration rights unless the opposing party proves that it suffered prejudice as a result." In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998) (orig. proceeding). Here, Velocity could not resist arbitration on waiver grounds unless it also proved arbitration would prejudice Velocity. See id.; but see Morgan v. Sundance, Inc., 142 S.Ct. 1708, 1714, 212 L.Ed.2d 753 (2022) (applying federal procedural rules and holding "prejudice is not a condition of finding that a party, by litigating too long, waived its right to stay litigation or compel arbitration under the FAA."). We conclude Velocity met its burden to show prejudice.
Prejudice may take the form of "considerable delay, expense, and damage to [the nonmovant's] legal position." Ellman v. JC Gen. Contractors, 419 S.W.3d 516, 522 (Tex. App.-El Paso 2013, no pet.); see also Perry Homes, 258 S.W.3d at 597. Here, the delay factor includes the thirteen months Velocity spent litigating this case, the two years of Velocity's collection efforts before filing suit, and Green filing the motion to compel only two days before the new trial setting. See Ellman, 419 S.W.3d at 522 (prejudice supported by fact that parties seeking arbitration "delayed disposition by switching to arbitration when trial was imminent and arbitration was not"). Commencing arbitration on the eve of trial would have meant indefinite added delay in a case that had already lingered on the court's docket, where all discovery and pleading deadlines had passed, and the case was ready for trial. See El Paso Healthcare Sys., Ltd. v. Green, 485 S.W.3d 227, 235 (Tex. App.-El Paso 2016, pet. granted, judgm't vacated w.r.m.) (temporal proximity to trial also weighs in favor of a prejudice finding.); see also Sivanandam, 2022 WL 872623, at *6 (citing Tex. R. Jud. Admin. 6.1(a)(1) and providing that, so far as reasonably possible, non-family civil jury cases should be brought to trial within eighteen months from appearance date). If the motion to compel was granted, Green would have successfully evaded trial and obtained an opportunity through arbitration to start the litigation process again and further delay repaying the debt. We conclude the record in this case supports a finding of prejudicial delay.
Although the record includes no information concerning cost, "[a] party opposing arbitration is not always required to prove the cost of the extensive discovery in order to prove prejudice." Ellman, 419 S.W.3d at 522. Cost is only one dimension of prejudice. Where the movant deploys an arbitration agreement to tactically switch from one forum to another, the non-movant may show prejudice. Id. (prejudice found where defendant did not move to arbitrate until plaintiff already revealed trial strategy in pleadings); see also Hogg, 480 S.W.3d at 794. For example, when a party seeks to compel arbitration following an adverse event or ruling in the trial court, the non-movant may be prejudiced by a change in its legal position. Hogg, 480 S.W.3d at 791, 795. Such unfairness results when a party attempts "to have it both ways by switching between litigation and arbitration to its own advantage[.]" Perry Homes, 258 S.W.3d at 597; see Hogg, 480 S.W.3d at 790-91. As the Court explained in Perry Homes, "'a party should not be allowed purposefully and unjustifiably to manipulate the exercise of its arbitral rights simply to gain an unfair tactical advantage over the opposing party.'" 258 S.W.3d at 597 (quoting In re Tyco Int'l Ltd. Sec. Litig., 422 F.3d 41, 46 n. 5 (1st Cir.2005)). Under those circumstances, the party opposing arbitration suffers harm to its legal position. Id.; Hogg, 480 S.W.3d at 794. For example, the Hogg court found prejudice where Ms. Hogg did not move for arbitration until she lost a discovery dispute and faced the near certainty of a sanctions order. Hogg, 480 S.W.3d at 796.
This Court reached the same conclusion in two recent cases. Sivanandam, 2022 WL 872623, at *5-6; Fast v. Hauk Custom Pools, LLC, No. 05-21-00165-CV, 2022 WL 278235, at *4 (Tex. App.-Dallas Jan. 31, 2022, no pet.) (mem. op.). In Fast, this Court found prejudice where the parties did not move for arbitration until a month before trial and only after discovering they had missed their deadline to conduct discovery. 2022 WL 278235, at *4 ("Thus, the Fasts delayed disposition of the case by switching to arbitration when trial was imminent."). Based on the totality of circumstances, we concluded the trial court did not abuse its discretion in denying the motion to compel arbitration. Id. Similarly, in Sivanandam, the party did not move to compel arbitration until after he had been sanctioned for destruction of evidence and had unsuccessfully challenged that order via mandamus. 2022 WL 872623, at *5-6. This Court concluded the timing of the motion showed the non-movant suffered harm to its legal position. Id. at *6-7. Further, Sivanandam did not move for arbitration until after Themesoft had revealed its trial strategy through witness and exhibit lists filed before a previous trial setting. We concluded that further prejudiced Themesoft. Id. (citing Ellman, 419 S.W.3d at 522 (recognizing prejudice on this basis)).
The same is true here. Green and Velocity were in settlement negotiations in the weeks leading up to trial. Those negotiations led Velocity to seek a continuance of the April 27, 2020 trial date. When the trial court heard the continuance motion on April 27, 2020, Velocity withdrew the motion and the trial court set trial for April 29, 2020. Only then, when faced with an imminent trial date, did Green file his motion to compel arbitration. The timing of this filing demonstrated an inconsistent intent by Green concerning whether to proceed in the trial court or seek arbitration that harmed Velocity's legal position. See El Paso Healthcare Sys., Ltd., 485 S.W.3d at 235 ("In any event, agreeing to a continuance to facilitate a pretrial settlement, then moving to arbitrate on the eve of trial when a settlement cannot be reached, demonstrated an inconsistent intent as to whether the case would proceed in a judicial forum that prejudiced Green."); see also LaLonde v. Gosnell, 593 S.W.3d 212, 229 (Tex. 2019) ("Even assuming none of the above factors is dispositive on its own-not the extent of discovery, not the proximity to trial, not the nearly unprecedented length of delay-all point in the same direction: the Engineers intended to litigate the case on the merits despite their right not to do so. Considering the totality of the circumstances, the Engineers impliedly waived the right to seek dismissal under section 150.002.").
Moreover, by that point in the litigation, Green had failed to respond to discovery, which provided Velocity the opportunity to invoke deemed admissions and obtain judgment in its favor quickly and efficiently. Had Velocity been forced to arbitration, the discovery process would have begun again, leaving Velocity without the benefit of deemed admissions and potentially facing an expensive and lengthy discovery process with the AAA. The timing of Green's motion, thus, harmed Velocity's legal position. See Hogg, 480 S.W.3d at 796; Fast, 2022 WL 278235, at *4; Sivanandam, 2022 WL 872623, at *6-7.
In sum, the circumstances of this case provide evidence of two of the three prejudice factors: delay and damage to Velocity's legal position. Considering all of the circumstances, the trial judge did not abuse his discretion by implicitly concluding Velocity was prejudiced by Green's substantial invocation of the litigation process before moving to compel arbitration. Accordingly, we overrule Green's sole appellate issue.
CONCLUSION
Under this record, we conclude Velocity was prejudiced by Green's substantial invocation of the litigation process before moving to compel arbitration. We, therefore, conclude the trial court did not abuse its discretion by denying the motion to compel arbitration. Accordingly, we overrule Green's sole appellate issue, affirm affirm the trial court's April 29, 2020 ruling denying Green's motion to compel arbitration, and affirm the June 2, 2020 final judgment.
Schenck, J., dissenting.
JUDGMENT
In accordance with this Court's opinion of this date, the judgment of the trial court is AFFIRMED.
It is ORDERED that appellee VELOCITY INVESTMENTS, LLC, ASSIGNEE OF LENDINGCLUB CORPORATION recover its costs of this appeal from appellant SIMEON GREEN.
Judgment entered this 25th day of August 2022.
DISSENTING OPINION
DAVID J. SCHENCK, JUSTICE
The majority concludes that Appellant Green waived his right to arbitration by delay in filing his motion to compel arbitration a little over a year after he was sued and though there was minimal discovery or motion practice in the interim. I cannot agree-particularly in light of the brevity of this record-that this delay alone would be sufficient to establish the movant substantially invoked the judicial process under the controlling standard. But, even if I were to agree that Green had substantially invoked the judicial process, I cannot agree that Velocity Investments met its burden to establish it was actually prejudiced by Green's conduct. Accordingly, I dissent.
Once again, I find it necessary to write separately to emphasize the law governing arbitrations that is binding on this Court and its members, pursuant to our oaths of office to uphold both state and federal law. See Prestonwood Tradition, LP v. Jennings, Nos. 05-20-00380-CV, 05-20-00387-CV, 05-20-00388-CV, 05-20-00389-CV, 05-20-00390-CV, 2022 WL 3138799, at *9 (Tex. App.-Dallas Aug. 5, 2022, no pet. h.) (en banc) (Schenck, J., concurring).
Background
Green entered into a contract for the extension of credit with LendingClub Corporation. When Green failed to make all the contracted-for payments, his account was assigned to Velocity Investments.
On March 26, 2019, Velocity Investments filed suit against Green, seeking to enforce the credit agreement and to recover the unpaid balance. Green answered, and the trial court set the case for a bench trial in April of 2020. A week before the trial date, Velocity Investments sought a continuance on the ground that the parties were negotiating a settlement and required additional time to complete those negotiations. Velocity Investments later withdrew the motion.
Green then filed his motion to dismiss, or in the alternative, to stay the proceedings and compel arbitration. The trial court heard the motion before the commencement of trial. Velocity Investments conceded the credit agreement included an arbitration clause, but argued Green waived any right to compel arbitration by waiting to file his motion until "right before trial." The trial court agreed the motion was "untimely" and denied it. Green requested findings of fact and conclusions of law, and the trial court invited him to draft some, but Green did not draft any, and none were signed. This appeal followed.
Discussion
The Federal Arbitration Act (FAA) generally governs arbitration provisions in contracts involving interstate commerce. See Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018); see also 9 U.S.C. § 2. Under the FAA, a presumption exists favoring agreements to arbitrate. See Henry, 551 S.W.3d at 115. A party seeking to compel arbitration must establish the existence of a valid arbitration agreement and that the claims at issue fall within the scope of that agreement. See id. If the party seeking to compel arbitration meets this burden, the burden then shifts, and to avoid arbitration, the party opposing it must prove an affirmative defense to the provision's enforcement, such as waiver. See id.
As a preliminary matter, I observe that although the majority opinion quotes the arbitration provision at issue, it does not reach any conclusions regarding its applicability to Velocity Investments' claims. In the interests of judicial economy, I will simply note my conclusion that Green met his initial burden because the provision's scope is broad and because Velocity Investments asserted these claims as assignee of a party to the credit agreement. See Henry, 551 S.W.3d at 115-16 (holding arbitration clauses that include all "disputes," and not just claims, are very broad and encompass more than claims "based solely on rights originating exclusively from the contract.").
Either party to this Agreement, or any subsequent holder, may, at its sole election, require that the sole and exclusive forum and remedy for resolution of a Claim be final and binding arbitration pursuant to this section 22 (the "Arbitration Provision"), unless you opt out as provided in section 22(b) below. As used in this Arbitration Provision, "Claim" shall include any past, present, or future claim, dispute, or controversy involving you (or persons claiming through or connected with you), on the one hand, and us and/or any subsequent holder (or persons claiming through or connected with us and/or the subsequent holders), on the other hand, relating to or arising out of this Agreement, any Loan Agreement and Promissory Note(s), the Site, and/or the activities or relationships that involve, lead to, or result from any of the foregoing, including (except to the extent provided otherwise in the last sentence of section 22(f) below) the validity or enforceability of this Arbitration Provision, any part thereof, or the entire Agreement. Claims are subject to arbitration regardless of whether they arise from contract; tort (intentional or otherwise); a constitution, statute, common law, or principles of equity; or otherwise. Claims include matters arising as initial claims, counter-claims, cross-claims, third-party claims, or otherwise. The scope of this Arbitration Provision is to be given the broadest possible interpretation that is enforceable. (emphasis added).
See also Roe v. Ladymon, 318 S.W.3d 502, 511 (Tex. App.-Dallas 2010, no pet.) (citing In re Labatt Food Serv., L.P., 279 S.W.3d 640, 644 (Tex. 2009); In re Weekley Homes, L.P., 180 S.W.3d 127, 131 (Tex. 2005) (orig. proceeding) ("non-signatories to a contract containing an arbitration clause may be required to arbitrate if rules of law or equity would bind them to the contract generally"); cf. Carr v. Main Carr Dev., LLC, 337 S.W.3d 489, 498 (Tex. App.-Dallas 2011, pet. denied) (holding a non-signatory may be compelled to arbitrate if it deliberately seeks and obtains substantial benefits from contract but concluding instant non-signatory's claims not based on agreement containing arbitration provision and thus non-signatory could not be compelled to arbitrate).
Turning then to the controlling question, I would conclude Velocity Investments has not met its burden to establish waiver. See Henry, 551 S.W.3d at 115 (presumption in favor of arbitration); Perry Homes v. Cull, 258 S.W.3d 580, 589-90 (Tex. 2008) (strong presumption against waiver of arbitration); see also RSL Funding, LLC v. Pippins, 499 S.W.3d 423, 430 (Tex. 2016) (per curiam) (party asserting waiver "bears a heavy burden of proof"). Velocity Investments claims Green impliedly waived his right to arbitration by his conduct, not that he expressly waived the right. To establish that he waived his right through substantial invocation of the judicial process, Velocity Investments had the burden to prove that (1) Green (not Velocity Investments) substantially invoked the judicial process in a manner inconsistent with his claimed right to compel arbitration, and (2) Velocity Investments suffered actual prejudice as a result of the inconsistent conduct. See Henry, 551 S.W.3d at 116.
Recent U.S. Supreme Court precedent rejects any requirement of proof of prejudice as an "arbitration-specific" federal procedural rule in cases brought in federal court. Morgan v. Sundance, Inc., 142 S.Ct. 1708, 1712-14 (2022). Whether that ruling would govern in state court as a matter of procedure generally, or in cases said to be subject to state arbitration statutes, is unsettled and a matter for the Texas Supreme Court to determine in the first instance. Robinson v. Homeowners Mgmt. Enters., 590 S.W.3d 518, 528 n.46 (Tex. 2019).
I. Green did not substantially invoke the judicial process
To determine whether a party has substantially invoked the judicial process, courts consider a wide variety of factors and look to the specifics of each case. See id. The necessary conduct must go beyond merely participating in the case, including actions as substantial as actually filing the suit or seeking discovery. See id. The supreme court has declined to conclude that the right to arbitrate was waived in all but the most unequivocal of circumstances. See id.; compare Perry Homes, 258 S.W.3d at 595-96 (holding plaintiffs waived right to arbitrate by participating in extensive discovery including hundreds of requests for production and interrogatories, then requesting arbitration fourteen months after filing suit and only four days prior to scheduled trial date), with G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 512 (Tex. 2015) (holding plaintiffs did not waive arbitration by asserting counterclaims; seeking change of venue; filing motions to designate responsible third parties, for continuance, and to quash depositions; designating experts; and waiting six months to move for arbitration), In re Fleetwood Homes of Tex., L.P., 257 S.W.3d 692, 694 (Tex. 2008) (orig. proceeding) (per curiam) (holding party did not waive arbitration by noticing deposition, serving written discovery, and waiting eight months to move for arbitration), In re Bruce Terminix Co., 988 S.W.2d 702, 703-04 (Tex. 1998) (orig. proceeding) (per curiam) (holding party did not waive arbitration by sending eighteen interrogatories and nineteen requests for production and waiting six months to seek arbitration). "Mere delay" in moving to compel is generally not enough "even if it is substantial." G.T. Leach Builders, LLC, 458 S.W.3d at 515. In this case, I do not believe the delay is either "substantial" or "enough" given its nature to conclude that Green "substantially invoked" the judicial process.
Here, Velocity Investments argued Green waited to invoke his right to arbitration until eight months after his answer, which included a request Velocity Investments take nothing from its suit; after the expiration of the period of time to answer Velocity Investments' requests for discovery; and in the days before the scheduled trial date. Thus, Velocity Investments relies on Green's delay in filing his motion to compel to argue waiver.
Indeed, Green did nothing to invoke the judicial process at all, other than file an answer; he did not serve any discovery requests or file any other motions. According to statements from the Court at the bench trial, Green contested Velocity Investments' motion for continuance, but the record contains no transcript of any hearing on that motion or any other record of or basis for Green's objection to the motion. Moreover, Green did not even respond to any discovery requests, and the reporter's record is comprised of fewer than eighteen pages of hearing transcript and a reference to a business records affidavit in the clerk's record. I would not-and cannot-conclude this record constitutes "unequivocal circumstances" establishing Green waived his right to arbitrate by substantially invoking the judicial process. See Henry, 551 S.W.3d at 116. He eschewed it altogether.
The majority relies on the timeliness of Green's motion under the court's pretrial order to conclude Green "substantially invoked" the judicial process (i.e., by not participating in it) citing almost exclusively persuasive authority. Notably, the pretrial order purported to set no deadline for venue attacks at all or, more particularly, for seeking arbitration-presumably because such motions would obviate every matter that would properly be subject to the scheduling of the proceeding in the trial court. As a matter of fact, the only binding authority purportedly applicable and cited by the majority is a decision from our Court in which the parties spent three years actively litigating the case and jointly participated in "extensive discovery," the appellant had been sanctioned for destruction of evidence and unsuccessfully challenged that order via mandamus proceedings, and the appellee had already revealed its trial strategy. See Sivanandam v. Themesoft, Inc., No. 05-21-00645-CV, 2022 WL 872623, at *6 (Tex. App.-Dallas Mar. 24, 2022, pet. filed) (mem. op.). Therefore, the only binding authority relied upon by the majority is factually distinguishable from the circumstances presented here. See Perry Homes, 258 S.W.3d at 590 (questions of waiver determined by "applying totality-of-the-circumstances test on a case-by-case basis") (emphasis added).
Accordingly, I cannot join the majority's conclusion that Velocity Investments met the first part of its burden to establish waiver.
II. Velocity Investments failed to establish it suffered actual prejudice
Even if I were to agree that Green's conduct (or passivity) constituted his substantially invoking the judicial process, I could not conclude Velocity Investments established that it suffered actual prejudice as a result of his conduct. See Henry, 551 S.W.3d at 116.
"Prejudice," under binding precedent, in the context of waiver of a contractual right to arbitration means "the inherent unfairness in terms of delay, expense, or damage to a party's legal position that occurs when the party's opponent forces it to litigate an issue and later seeks to arbitrate that same issue." Pilot Travel Ctrs., LLC v. McCray, 416 S.W.3d 168, 186 (Tex. App.-Dallas 2013, no pet.) (quoting Perry Homes, 258 S.W.3d at 597). At the hearing on Green's motion, Velocity Investments' sole argument was the timing of the motion-"right before trial and right after our conference about the motion to continue." Thus, again Velocity Investments relied on Green's delay in filing his motion-here, thirteen months after the suit was filed. But, as the supreme court has held, "while delay may be a factor both in terms of whether the movant has substantially invoked the judicial process and whether the non-movant has suffered prejudice, mere delay is not ordinarily enough, even if it is substantial." G.T. Leach Builders, LLC, 458 S.W.3d at 515.
See infra n.4.
The majority concludes both delay and damage to Velocity Investments' legal position are established by the circumstances of this case. As part of the calculation of delay, the majority includes "the two years of Velocity's collection efforts before filing suit." I cannot agree with the majority's consideration of any of this period of time prior to any party approaching the court as relevant to the delay or prejudice analysis, as we have been repeatedly instructed by the supreme court, "prejudice, in this context, refers to an '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, LLC, 458 S.W.3d at 515 (quoting In re Citigroup Glob. Mkts., Inc., 258 S.W.3d 623, 625 (Tex. 2008) (orig. proceeding) (per curiam)). Nor can I agree with the majority's characterization of the case as having "already lingered on the court's docket" where suit was filed in March of 2019 and initially set for trial on April 27, 2020, and took place on April 29, 2020. Instead, the delay the majority cites as so excessive as to be prejudicial to the litigants is little more than one year after Velocity Investments filed its suit.
In fact, in light of the reality that the case took place during a global pandemic and in a year where the clearance rates for district courts were below 100 percent, indicating that backlogs were growing, I would go so far as to say this case proceeded as expeditiously as could be hoped. See Fiscal Year 2020 Annual Statistical Report for the Texas Judiciary, available at https://www.txcourts.gov/media/1451853/fy20-annual-statistical-report_final_mar10_2021.pdf (last visited Aug. 25, 2022).
One might observe that the order and judgment appealed from in this case were both signed more than two years ago. One might also observe that this appeal from an interlocutory order denying arbitration under the FAA is an accelerated appeal as our legislature expressly authorized by statute and recently recognized by the supreme court. See Tex. Civ. Prac. & Rem. Code § 51.016; In re Whataburger Rests. LLC, 645 S.W.3d 188, 190 (Tex. 2022) (orig. proceeding). Furthermore, parties are indeed entitled to resolution and justice without undue delay or denial of their constitutional rights. See Prestonwood Tradition, LP, 2022 WL 3138799, at *12 (Partida-Kipness, J., dissenting); see also Tex. Const. art. I, § 19.
The majority concludes the record establishes damage to Velocity Investments' legal position from the evidence that Green filed his motion after engaging in settlement negotiations with Velocity Investments and after Velocity Investments withdrew its own motion for continuance two days before trial. However, as the majority notes, all this evinces at most "an inconsistent intent as to whether the case would proceed in a judicial forum" by Green, and I struggle to understand how Green's intent alone prejudiced or otherwise affected Velocity Investments.
As for the two opinions from this Court that the majority cites as support, neither is germane. In Sivanandam, the record included a delay of three years that appellee had spent litigating the case, appellee's evidence of "the extensive discovery that had taken place in the case and of the fact that Sivanandam noticed more than half of the depositions taken," that appellant waited to move to compel arbitration until after being sanctioned for destruction of evidence, and appellee's attorney's assertions that it had revealed its trial strategy through its previously filed witness and exhibit lists. See Sivanandam, Inc., 2022 WL 872623, at *6. The second opinion noted a delay twice as long as the case here and the discovery included multiple sets of interrogatories and requests for production and depositions. See Fast v. Hauk Custom Pools, LLC, No. 05-21-00165-CV, 2022 WL 278235, at *4 (Tex. App.-Dallas Jan. 31, 2022, no pet.) (mem. op.).
Finally, the majority concludes granting the motion to compel arbitration after Green's "inconsistent intent" and delay would force Velocity Investments to begin the discovery process anew and without the benefit of deemed admissions and while potentially facing an expensive and lengthy discovery process with the AAA.
As support for the conclusion that Green demonstrated an inconsistent intent, the majority points to the record indicating that Velocity Investments moved for a continuance based on the parties' settlement negotiations and later withdrew that motion. From those facts, the majority infers Green delayed filing his motion until after settlement negotiations failed and his hope of continuance had vanished. Even assuming I agreed these were reasonable inferences-and I expressly do not-these facts do not establish Green's failures to achieve a satisfactory result through litigation before turning to arbitration. See Holmes, Woods & Diggs v. Gentry, 333 S.W.3d 650, 654 (Tex. App.-Dallas 2009, no pet.) (citing In re Vesta Ins. Grp., Inc., 192 S.W.3d 759, 763 (Tex. 2006) (orig. proceeding)) ("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.") (emphases added).
Of course, Green may have been permitted to withdraw those deemed admissions upon a showing of good cause and no undue prejudice. See, e.g., Stratton v. Robins, No. 05-19-00055-CV, 2020 WL 415929, at *5 (Tex. App.-Dallas Jan. 27, 2020, no pet.) (mem. op.) (citing Wheeler v. Green, 157 S.W.3d 439, 442 (Tex. 2005)).
If nothing else, the majority's conclusions raise the question of how a party would be "entitled" to default sanctions in the face of wholesale non-participation by the opponent in litigation that was governed by an arbitration clause that the party filing suit eschewed. One might analogize to a defendant who is not subject to service because of a lack of personal jurisdiction contacts with the forum electing to simply ignore the resulting proceeding and judgment. It may irritate the party who sued in the wrong forum, but the "prejudice" resulting from the suit where it is inherently subject to attack is not a cognizable loss or prejudice.
In all events, the discovery in this case was minimal, such that beginning it anew hardly supports a conclusion of prejudice. According to the record in this case, as well as Velocity Investments' brief, the only discovery propounded in this case was Velocity Investments' fourteen (14) requests for production, fifteen (15) requests for admission, five (5) interrogatories, as well as requests for disclosure pursuant to rule 194. And, as I summarized above, Green propounded no discovery of his own nor did he serve any motions on Velocity Investments before his motion to compel. Moreover, this Court has previously rejected a similar argument regarding a party's litigation efforts in court being "wasted" and instead held that a party's efforts in requesting and obtaining discovery are not prejudicial. See In re Hawthorne Townhomes, L.P., 282 S.W.3d 131, 142 (Tex. App.-Dallas 2009) (orig. proceeding) (citing Perry Homes, 258 S.W.3d at 600).
As for the potential risk of facing "an expensive and lengthy discovery process with the AAA," such a pronouncement is at odds with our previous observance that "the absence of broad discovery in arbitration is 'one of its most distinctive features.'" See Sivanandam, Inc., 2022 WL 872623, at *6 (quoting Perry Homes, 258 S.W.3d at 599) (footnote omitted)). Further, the dispute here is whether the defendant failed to make contracted-for payments on an extension of credit. I fail to see how such a dispute could produce an expensive or lengthy discovery process, whether in the trial court or in arbitration proceedings.
Therefore, I cannot agree with any of the majority's analysis supporting the conclusion that Velocity Investments established it was actually prejudiced by Green's conduct. Instead, the majority opinion appears to run counter to binding authority. See G.T. Leach Builders, LLC, 458 S.W.3d at 515 ("mere delay is not ordinarily enough, even if it is substantial").
Separate and apart from my disagreement with the majority's conclusions, I further disagree with the majority's insistence on applying an abuse-of-discretion standard of review to the trial court's decision whether to compel arbitration pursuant to an agreement to arbitrate where the U.S. Supreme Court and our own supreme court have made clear that the question of enforcement of an agreement is reviewed de novo. See Prestonwood Tradition, LP, 2022 WL 3138799, at *11 (Schenck, J., concurring) (citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 941 (1995); Jody James Farms, JV v. Altman Grp., Inc., 547 S.W.3d 624, 630 (Tex. 2018)).
Conclusion
Because I would conclude the trial court erred in failing to compel arbitration, I would further conclude the trial court erred in failing to stay further litigation of Velocity Investments' claims. See, e.g., McCray, 416 S.W.3d at 188; see also 9 U.S.C. § 3 (mandating trial court stay litigation of issues subject to arbitration). Accordingly, I would reverse the trial court's order denying Green's motion to compel arbitration and for a stay of the trial court proceedings, reverse the trial court's judgment in favor of Velocity Investments, and remand the case to the trial court for further proceedings consistent with this dissenting opinion. Because the majority does not, and because I disagree with the majority's conclusion that Velocity Investments met its burden to show waiver, I dissent.