An appellate court in Texas held that where a party answers a lawsuit and asserts arbitration as an affirmative defense and later moves for summary judgment, the party has not waived its right to arbitration by substantially invoking the litigation process.

In In re H & R Block Financial Advisors, Inc., No. 14-08-00450-CV, 2008 WL 4007504 (Tex. App. Aug. 28, 2008), Krynik’s father opened two Uniform Gift to Minor Act accounts with H & R Block. Krynik eventually sued H & R Block and his ex-stepmother, Vieshe, alleging that H &R Block wrongfully released his account proceeds to Vieshe, who then absconded with the funds.

H & R Block answered the lawsuit, and asserted as an affirmative defense that Krynik’s claims were subject to arbitration pursuant to an arbitration agreement that Krynik’s father had signed with H & R Block. The arbitration agreement required arbitration according to the rules and procedures of the New York Stock Exchange (NYSE) or National Association of Securities Dealers (NASD). Two weeks later, H & R Block moved to compel arbitration, which Krynik opposed. Accordingly, H & R Block moved for summary judgment. The trial court denied the motion to compel arbitration, so H & R Block filed a petition for mandamus relief.

In opposing arbitration, Krynik first argued that the mandamus action was moot because both the NYSE and NASD ceased offering arbitration in July 2007, and therefore the Court lacked jurisdiction to order the relief sought because it was impossible. The Court disagreed, deciding that the mootness doctrine had no application because the arbitration clause could be enforced according to its terms. The Court noted that the NYSE and NASD were consolidated into one entity, the Financial Industry Regulatory Authority (FINRA), and that FINRA continued to apply the NASD arbitration rules and procedures. Consequently, it was not impossible for the parties to arbitrate their dispute under the NASD arbitration rules and procedures.

Krynik also argued that H & R Block waived its right to enforcement of the arbitration agreement when it moved for summary judgment. The Court rejected Krynik’s argument, holding that an "alternative" or "defensive" summary judgment motion, by itself, does not waive enforcement of an arbitration agreement.

The Court held that H & R Block did not waive its right to arbitrate for three main reasons. First, H & R Block asserted the arbitration agreement as an affirmative defense to the lawsuit. Second, it moved to compel arbitration within two weeks of answering the lawsuit. Finally, H & R Block only moved for summary judgment as an alternative to its arbitration demand, and only after Krynik claimed that the arbitration agreement was unenforceable as to him.

Accordingly, the Court decided that H & R Block did not waive its right to arbitration. As such, the trial court abused its discretion in denying H & R Block’s motion to compel arbitration.