Party Waived Right to Arbitrate By Engaging in Extensive Litigation Activity for Twenty Months and Raising the Right to Arbitrate Only Eight Weeks Before Trial

A Texas appellate court has held that extensive, prejudicial litigation activity over the course of twenty months constituted a waiver of the right to arbitrate when the right to arbitration was first asserted a mere eight weeks before the parties’ trial date.

In Citizens National Bank v. Bryce, Nos. 12-07-00064-CV, 12-07-00103-CV, 2008 WL 4815785 (Tex. App. Nov. 5, 2008), a dispute arose regarding the alleged misappropriation and mismanagement of Bryce’s funds by Citizens Bank. When Bryce brought suit, Citizens Bank at first actively participated in preparation for litigation. Twenty months after the suit was first filed, Citizens Bank then moved to compel arbitration. The trial court denied the motion, holding that Citizens Bank had waived its right to arbitrate.

On appeal, the Court observed that Citizens Bank had actively participated in litigation activities in the twenty months between instigation of the suit and its motion to compel. Citizens Bank had obtained extensive discovery from Bryce and filed many motions, briefs, and objections with the court without raising the issue of arbitration. According to the Court, the trial court was well within its authority to conclude that such activity constituted a “substantial invocation of the judicial process,” the first element in demonstrating waiver.

The Court also found that Bryce had carried its burden of showing that this substantial litigation activity was prejudicial, the second element in demonstrating waiver. The Court noted that twenty months of activity ensued, with Citizens Bank raising the arbitration issue a mere eight weeks from the date of the trial. According to the Court, this timing alone was manipulative and sufficiently prejudicial. See Perry Homes v. Cull, 258 S.W.3d 580, 596 (Tex. 2008) (holding that the ratio of the duration of litigation activity to the time until trial was disproportionally large and warranted a finding of prejudice to the non-moving party).

Citizens Bank argued that Bryce failed to show prejudice by not submitting evidence of the time or money spent in litigation preparation that would be wasted if the matter were referred to arbitration, but the Court refused to impose such an evidentiary burden on Bryce. Instead, the Court cited Perry Homes for the proposition that a party was not required to show the “extent” of prejudice, but only the “fact” of its existence. Perry Homes, 258 S.W.3d at 599. According to the Court, the timing of the motion to compel satisfied this burden.

Finally, the Court rejected the argument that the materials discovered during pre-litigation activities would be usable and discoverable in arbitration, thereby mitigating their prejudicial nature. The Court found that Citizens Bank was merely speculating as to the breadth of available discovery in light of the broad discretionary authority given to arbitrators over discovery issues, and this could not constitute “proof” of a lack of prejudice to Bryce.