A Texas state appellate court has found waiver of a party's right to arbitrate, where the party engaged in extensive discovery requests and other litigation activities during a nineteen month delay before moving to compel arbitration.

In Northwest Const. Co., Inc. v. Oak Partners, L.P., No. 2-07-293-CV, 2008 WL 623238 (Tex. Ct. App. Mar. 6, 2008), Northwest and Oak Partners entered into a construction contract. After the completed project failed inspection, Oak Partners and Northwest filed suit against each other for breach of contract and related claims.

After nineteen months of litigation-related activity, including various discovery requests, motions, and filings, Northwest moved to compel arbitration of the claims. The trial court denied the motion, holding that Northwest had waived its right to arbitrate by substantially engaging in litigation of the matter, and that engagement had prejudiced Oak Partners.

First, the Court affirmed its jurisdiction over the matter, holding that the dispute arose under the Texas General Arbitration Act (TGAA) instead of the Federal Arbitration Act (FAA). The Court found no evidence presented by Northwest at trial that would indicate the contract involved interstate commerce; without that finding, the Court held the FAA did not preempt state law.

After determining that the evidence at trial supported finding a valid agreement to arbitrate, the Court examined whether the trial court had the authority to determine whether Northwest had waived its right to arbitrate. Northwest argued that the trial court was without subject-matter jurisdiction to make a waiver determination that should more appropriately be brought before an arbitrator.

However, the Court found that the issue was not properly characterized as a dispute regarding subject matter jurisdiction, but regarding "the presumption in favor of arbitrability," and whether it "should apply to the determination of… procedural questions, such as waiver, delay or a like defense to arbitrability." Since Northwest did not raise the latter issue at trial, the Court found Northwest could not raise the issue on appeal.

Finally, the Court addressed whether Northwest had in fact waived its right to arbitrate. The Court noted that Northwest had delayed nineteen months before moving to compel arbitration, and, in that time period, had substantially invoked the litigation process by serving four sets of interrogatories, requests for production and admissions, and moving for partial summary judgment against Oak Partners.

Furthermore, the Court found Oak Partners was prejudiced by having to respond to requests for information not available within arbitration proceedings, and had incurred significant expenses in responding to Northwest's requests and other actions.

Taken together, the extensive delay before the motion to compel, the significant invocation of the litigation process during that delay, and the prejudice Oak Partners had experienced by responding and incurring expenses justified the trial court's finding that Northwest had waived its right to arbitrate.