Opinion
NUMBER 13-16-00700-CV
08-31-2017
PLAINS CAPITAL BANK, Appellant, v. BLANCA E. GONZALEZ AND JOSE S. RODRIGUEZ, Appellees.
On appeal from the 139th District Court of Hidalgo County, Texas.
MEMORANDUM OPINION
Before Justices Rodriguez, Longoria and Hinojosa
Memorandum Opinion by Justice Longoria
Appellant PlainsCapital Bank (PCB) challenges an order denying its motion to compel arbitration of its claims against appellees Blanca E. Gonzalez and Jose S. Rodriguez. We reverse and remand.
I. BACKGROUND
In May 2009, Gonzalez and Rodriguez executed separate, unsecured promissory notes, each in the amount of $250,000, payable to First National Bank. The notes contained identical clauses requiring the parties to submit certain disputes to binding arbitration:
You or I may submit to binding arbitration any dispute, claim or other matter in question between or among you and me that arises out of or relates to this Transaction (Dispute), except as otherwise indicated in this section or as you and I agree to in writing. For purposes of this section, this Transaction includes this Note and the other Loan Documents, and proposed loans or extensions of credit that relate to this Note.
. . . .[]
The arbitrator will determine whether a Dispute is arbitrable. A single arbitrator will resolve any Dispute, whether individual or joint in nature, or whether based on contract, tort, or any other matter at law or in equity. The arbitrator may consolidate any Dispute with any related disputes, claims or other matters in question not arising out of this Transaction. Any court having jurisdiction may enter a judgment or decree on the arbitrator's award. The judgment or decree will be enforced as any other judgment or decree.
. . . . The United States Arbitration Act will govern the interpretation and enforcement of this section.
The American Arbitration Association's Commercial Arbitration Rules in effect on the date of this Note, will govern the selection of the arbitrator and the arbitration process, unless otherwise agreed to in this Note or another writing.
We have omitted paragraphs discussing consent to arbitration of a dispute concerning a debt secured by real estate and the parties' rights to pursue certain remedies while an arbitration is ongoing because neither matter is relevant to the disposition of PCB's issues.
Several years later, First National Bank failed and was closed by the federal government. PCB acquired both notes as part of an agreement with the Federal Deposit Insurance Corporation to purchase or assume some of First National Bank's assets.
In October 2015, PCB filed separate lawsuits against each appellee alleging that each had defaulted. PCB sought to recover the outstanding balance on each note plus interest, costs, and attorney's fees. The trial court granted Gonzalez's unopposed motion to consolidate both cases under a single case number. Appellees jointly asserted four affirmative defenses and a counterclaim for declaratory relief that the loans were illegal and therefore invalid. Appellees also named Saul Ortega—the President of First National Bank at the time appellees signed the notes—as a third-party defendant and asserted causes of action against him for fraud and negligence.
Approximately a year later, appellees served on PCB a notice of oral deposition of PCB employee Tony Fernandez. PCB filed a motion to quash the notice and, a few days later, a motion to compel appellees to arbitration. Appellees responded that PCB had waived its right to arbitration and that appellees' counterclaims fell outside the scope of the arbitration clause. The trial court denied PCB's motion to compel without stating its reasons. This interlocutory appeal followed. By order of January 9, 2017, this Court stayed all further proceedings in the trial court.
PCB's motion did not seek to compel Ortega to arbitrate.
II. ARBITRATION
PCB asserts in two issues that the trial court erred because: (1) the parties agreed to arbitrate any disputes over the scope of the arbitration agreement; and (2) PCB did not waive its right to arbitrate as a matter of law.
A. Standard of Review and Applicable Law
We review a trial court's decision on a motion to compel arbitration for an abuse of discretion. City of San Antonio v. Cortes, 468 S.W.3d 580, 583 (Tex. App.—San Antonio 2015, pet. denied). Under this standard, we defer to the trial court's factual determinations if they are supported by the evidence but review its legal determinations de novo. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig. proceeding). The existence and scope of an arbitration agreement are legal questions subject to de novo review. Cortes, 468 S.W.3d at 583.
Both notes provide that the Federal Arbitration Act (FAA) governs "the interpretation and enforcement" of the arbitration clause. See generally 9 U.S.C.A. §§ 1-16 (West, Westlaw through P.L. 115-43). To succeed on its motion to compel under the FAA, PCB had the burden to demonstrate the existence of a valid arbitration agreement and a dispute within the scope of the agreement. In re Rublola, 334 S.W.3d 220, 223 (Tex. 2011) (orig. proceeding). Once the existence of a valid agreement to arbitrate is established, a strong federal presumption arises "such that myriad doubts—as to waiver, scope, and other issues not relating to enforceability—must be resolved in favor of arbitration." In re Poly-Am., L.P., 262 S.W.3d 337, 348 (Tex. 2008) (orig. proceeding). If the party seeking arbitration successfully establishes an agreement that encompasses the dispute, the opposing party has the burden to raise a defense to enforcing the otherwise-valid agreement. In re 24R, Inc., 324 S.W.3d 564, 566 (Tex. 2010) (orig. proceeding). But if the opposing party fails to prove a defense to arbitration, the court has no discretion but to compel arbitration and stay its own proceedings. G.T. Leach Builders, L.L.C. v. Sapphire V.P., L.P., 458 S.W.3d 502, 519 (Tex. 2015).
We do not consider whether the notes involved interstate commerce so that the FAA would apply because the arbitration clause expressly provides that the FAA governs the interpretation and enforcement of the clause. See In re Rubiola, 334 S.W.3d 220, 223 (Tex. 2011) (orig. proceeding) ("Parties may also expressly agree to arbitrate under the FAA.").
B. Scope of Arbitration Agreement
PCB argues in its first issue that the trial court erred if it concluded that the parties' dispute was outside the scope of the arbitration agreement because the parties agreed that the arbitrator would determine whether a particular claim was within the scope of the agreement. Appellees do not address PCB's argument but reiterate the argument they made to the trial court that their counterclaims are outside the scope of the clause. We agree with PCB.
Courts presume that parties intended courts to decide questions of "substantive arbitrability" such as whether a particular claim is within the scope of the arbitration agreement. Id. at 521 (citing BG Grp., PLC v. Republic of Arg., ___ U.S. ___, 134 S. Ct. 1198, 1206 (2014)). The parties may agree to delegate those questions to the arbitrator, but there must be "clea[r] and unmistakabl[e] evidence" within the contract that the parties intended for the arbitrator to decide those issues rather than the court. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (internal quotation marks omitted, alternations in the original); see In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) (orig. proceeding). Courts may not assume based on silence or ambiguity that such an agreement exists because of concern that "doing so might too often force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide." First Options, 514 U.S. at 945. We examine the text of the arbitration agreement to decide if, when construed under relevant state law, it "evidences a clear and unmistakable intention that the arbitrators will have the authority to determine the scope of arbitration." McGehee v. Bowman, 339 S.W.3d 820, 825 (Tex. App.—Dallas 2011, no pet.). The relevant state law here requires us to find the parties' agreement to delegate this question to the arbitrator in the plain meaning of the language of the notes when construed as a whole. See N. Shore Energy, L.L.C. v. Harkins, 501 S.W.3d 598, 602 (Tex. 2016) (per curiam).
The arbitration clause in both notes provides, in relevant part, that either party:
may submit to binding arbitration any dispute, claim or other matter in question between or among you and me that arises out of or relates to this Transaction (Dispute), except as otherwise indicated in this section or as you and I agree to in writing. For purposes of this section, this Transaction includes this Note and the other Loan Documents, and proposed loans or extensions of credit that relate to this Note.(Emphasis added). The plain meaning of the emphasized sentence is that the arbitrator will determine issues regarding whether a particular dispute is subject to arbitration under the arbitration clause. This interpretation is consistent with the remaining language of the same paragraph, which reflects that the parties intended to grant the arbitrator expansive powers to resolve any single or joint dispute based in contract, tort, "or any other matter at law or in equity" between them. The parties further showed they preferred an arbitrator rather than a court to decide issues between them by granting the arbitrator power to consolidate claims outside the scope of the clause. We conclude as a matter of law that the emphasized sentence is clear and unmistakable evidence that the parties intended the arbitrator to decide whether a particular claim is covered by the arbitration agreement. See McGehee, 339 S.W.3d at 825. We sustain PCB's first issue.
. . . .
The arbitrator will determine whether a Dispute is arbitrable. A single arbitrator will resolve any Dispute, whether individual or joint in nature, or whether based on contract, tort, or any other matter at law or in equity. The arbitrator may consolidate any Dispute with any related disputes, claims or other matters in question not arising out of this Transaction.
C. Waiver
PCB argues in its second issue that the court erred if it based its ruling on a conclusion that PCB impliedly waived its right to arbitrate. Appellees respond that PCB did in fact waive its right to arbitrate by substantially invoking the judicial process to the detriment of appellees before moving to compel arbitration. We agree with PCB that it did not substantially invoke the judicial process.
The question of whether a party has waived its right to arbitrate under an agreement is also an issue of substantive arbitrability that is usually for the court to decide. G.T. Leach Builders, L.L.C. v. Sapphire V.P., L.P., 458 S.W.3d 502, 520 (Tex. 2015). PCB does not contend that the delegation to the arbitrator of the decision "whether a Dispute is arbitrable" covers the question of waiver. We agree that waiver is not included because the question of whether a party waived its right to arbitration is "just another way of asking the first question of arbitrability: whether there is a presently enforceable arbitration agreement." Id. The text of the notes is at best ambiguous regarding whether the parties intended an arbitrator to decide whether a presently enforceable arbitration agreement exists. In any event, the notes do not contain the necessary clear and unmistakable evidence of such an agreement. See First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). The Court decides the issue of waiver. See G.T. Leach Builders, 458 S.W.3d at 521.
A party may impliedly waive its right to arbitrate by substantially invoking the judicial process to the other party's detriment. RSL Funding, L.L.C. v. Pippins, 499 S.W.3d 423, 430 (Tex. 2016) (per curiam); Perry Homes v. Cull, 258 S.W.3d 580, 589-90 (Tex. 2008). The party asserting waiver bears the heavy burden of proof to show that the party seeking arbitration has waived its right. RSL Funding, 499 S.W.3d at 430. Courts consider that party's allegations in light of the "strong presumption" against waiver in the FAA. In re D. Wilson Const. Co., 196 S.W.3d 774, 783 (Tex. 2006) (orig. proceeding). When the relevant facts are undisputed, the question of whether the right to arbitrate has been waived is a question of law that we review de novo. G. T. Leach Builders, 458 S.W.3d at 511.
Whether a party substantially invoked the judicial process to the other party's detriment "depends on the totality of the circumstances." Id. at 512. Courts consider a "wide variety" of factors, including:
1. How long the party moving to compel arbitration waited to do so;Id. (citing Perry Homes, 258 S.W.3d at 590-91). Generally, no factor is dispositive on its own. RSL Funding, 499 S.W.3d at 430.
2. The reasons for the delay;
3. Whether and when the movant knew of the arbitration agreement during the period of the delay;
4. The amount of discovery the movant conducted before moving to compel arbitration and whether that discovery related to the merits;
5. Whether the movant requested the court to dispose of the claims on the merits;
6. Whether the movant asserted affirmative claims for relief in court;
7. The extent of the movant's engagement in pretrial matters related to the merits;
8. The amount of time and expense the parties have committed to the litigation;
9. Whether the discovery conducted would be unavailable or useful in arbitration;
10. Whether the activity in court would be duplicated in arbitration
11. When the case was to be tried.
Considering the relevant factors, we first note that it was PCB rather than appellees who brought this dispute into court and sought affirmative relief. That PCB initiated this lawsuit is one factor for us to consider, but merely filing suit is not enough to substantially invoke the judicial process. See G.T. Leach Builders, 458 S.W.3d at 512-13, In re D. Wilson Const. Co., 196 S.W.3d at 783.
After PCB filed suit, almost sixteen months passed before PBC moved to compel arbitration. Appellees assert PCB never provided a reason for its delay, but PCB told the trial judge in a response to appellees' letter brief that PCB was aware of the arbitration provision but attempted to settle the case during that time. A sixteen-month delay is longer than that in many arbitration cases, but the Texas Supreme Court has found that even longer delays did not establish waiver. See Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C., 455 S.W.3d 573, 575-76 (Tex. 2014) (per curiam) (refusing to find waiver despite a nineteen-month delay); In re Vesta Ins. Grp., Inc., 192 S.W.3d 759, 763-64 (Tex. 2006) (orig. proceeding) (refusing to find waiver despite a two-year delay). Furthermore, engaging in settlement negotiations does not substantially invoke the judicial process and is not inconsistent with later invoking the right to arbitrate. See Cooper Indus., L.L.C. v. Pepsi-Cola Metro. Bottling Co., Inc., 475 S.W.3d 436, 451 (Tex. App.—Houston [14th Dist.] 2015, no pet.).
Regarding PCB's activities on the merits, PCB agreed to Gonzalez's motion to consolidate and filed a motion for a docket control conference. The trial court held a docket control conference but never entered a docket control order. PCB never sought judgment on the merits after filing suit or participated in pretrial matters regarding the merits. See Richmont Holdings, 455 S.W.3d at 575 (observing that one of the "key factors" in the waiver analysis is whether the movant ever sought disposition of its claims on the merits or participated in pretrial matters on the merits before moving to compel arbitration).
PCB participated in discovery, but only because appellees served requests for disclosure of the matters listed in Texas Rule of Civil Procedure 194.2. PCB answered that request but did not propound any discovery of its own. Appellees later attempted to take the oral deposition of PCB employee Tony Fernandez, and PCB moved in response to quash the deposition. Generally, "[r]esponding to discovery and simply being named in the lawsuit while discovery is ongoing do not amount to waiver." G.T. Leach Builders, 458 S.W.3d at 514. Moreover, moving to quash a deposition notice on procedural grounds such as insufficient notice and that the witness is not the designated corporate representative does not "amount to an affirmative invocation of the judicial forum." See id. (addressing a motion to quash the time and place of a deposition notice).
At the time PCB moved to compel arbitration, trial was set for almost five months later. Given the lack of dispositive motions, discovery on the merits, or other pretrial litigation activity, the trial setting was far enough away that PCB did not move for arbitration on the "eve of trial." See Perry Homes, 258 S.W.3d at 596 ("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.").
Appellees' counsel asserted in an affidavit to the trial court that he has already incurred almost $7,000 in attorneys' fees responding to PCB's suit. On appeal, appellees point to this affidavit as evidence of a substantial invocation of the judicial process. This Court usually addresses whether the opposing party incurred costs and fees due to the movant's actions and delay under the prejudice part of the waiver analysis. E.g. In re Int'l Bank of Commerce, No. 13-07-00693-CV, 2008 WL 192260, at *8 (Tex. App.—Corpus Christi Jan. 18, 2008, orig. proceeding) (mem. op.). In any event, the affidavit of appellees' counsel is not evidence because it simply asserts the amount of attorney's fees appellees have incurred to date. The affidavit does not demonstrate that appellees incurred any expense they would not have incurred anyway in arbitration. See Southwind Grp., Inc. v. Landwehr, 188 S.W.3d 730, 737 (Tex. App.—Eastland 2006, no pet.); see also In re Int'l Bank of Commerce, 2008 WL 192260, at *8 ("If the party opposing arbitration argues that it has incurred costs and fees, it must present evidence of those expenses and explain why those expenses would not have been incurred in arbitration.").
PCB initiated the lawsuit and waited sixteen months to move for arbitration, but it only responded to basic discovery and did not propound any discovery of its own. PCB filed a motion to quash a deposition notice, but only on procedural grounds. After filing suit, PCB did not participate in any pretrial proceedings on the merits, file a dispositive motion, or otherwise ask the trial court to dispose of its claims on the merits. Trial was set for five months after PCB moved to compel arbitration. Considering the totality of the circumstances of this case, we conclude that PCB did not substantially invoke the judicial process. Cf. Richmont Holdings, 455 S.W.3d at 575-76 (holding that the movant did not waive arbitration by initiating the lawsuit, invoking a forum-selection clause, moving to transfer venue, propounding requests for disclosure, and waiting nineteen months to compel arbitration); In re Vesta, 192 S.W.3d at 763-64 (holding that the movant did not waive arbitration when it served requests for disclosures, conducted four depositions, served multiple requests for production, moved for dismissal on standing grounds, and litigated for two years before moving to compel arbitration); Cooper Indus., 475 S.W.3d at 450-51 (holding that movant did not waive arbitration despite waiting twenty-eight months, serving written discovery on the merits, and receiving over 21,000 pages of documents in response).
Having concluded that PCB did not substantially invoke the judicial process, we need not consider whether appellees suffered prejudice. See Cooper Indus., 475 S.W.3d at 452; see also TEX. R. APP. P. 47.1. We sustain PCB's second issue.
III. CONCLUSION
We reverse the trial court's order and remand for entry of an order compelling the parties to arbitrate and staying the trial court's own proceedings. We lift the stay imposed by our order of January 9, 2017.
NORA L. LONGORIA
Justice Delivered and filed the 31st day of August, 2017.