|
A party does not waive its right to invoke arbitration proceedings merely by filing a lawsuit, even if eight months pass before the party attempts to compel arbitration, according to the Court of Appeals of Texas.
In Grand Homes 96 v. Loudermilk, No. 2-06-00030-CV, 2006 WL 3247890 (Tex. App. Nov. 9, 2006), Loudermilk purchased a house from Grand Homes 96 (Appellant), and the parties executed a limited warranty agreement with an arbitration clause through Home Owners Management Enterprises, Inc. (HOME) and Warranty Underwriters Insurance Company (WUIC). Loudermilk identified several items requiring repairs, but Appellant failed to make the repairs. Loudermilk filed suit against Appellant, HOME, and WUIC for negligence, breach of contract, breach of warranty, and other violations of Texas law.
Eight months after filing the lawsuit, HOME and WUIC filed a motion to compel arbitration of Loudermilk’s claims. Loudermilk, however, argued that the trial court should also compel arbitration of the claims against Appellant, since these claims all arose from the same transaction. Over Appellant’s objections, the trial court agreed, and the parties’ chosen arbitrator ordered Appellant to repurchase the Loudermilks’ home for $292,000. HOME and WUIC were not required to pay any damages.
Though Appellant objected to arbitration, it did not argue waiver before the trial court or at the arbitration. On appeal, Appellant claimed that the trial court lacked jurisdiction to compel arbitration, and that Loudermilk had waived the right to arbitrate by participating in litigation. The Court of Appeals disagreed with both arguments, and upheld the trial court’s order to compel arbitration. First, the Court noted that even if Appellant was unprepared to raise the defense of waiver with the trial court, it could have raised it as a general defense to arbitrability during the arbitration proceeding. In re Global Constr. Co., 166 S.W.3d 795, 799 (Tex. App. 2005), citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 154 (2002).
Next, there was no question that the arbitration agreement existed and that Loudermilk’s claims were within the agreement’s scope. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999). Loudermilk had not waived his right to arbitrate, despite participating in pre-litigation proceedings with Appellant for a period of eight months. Also, Loudermilk’s mere filing of a lawsuit did not result in a waiver of the right to arbitrate. Texas courts require that the party alleging waiver demonstrate both that the judicial process has been “substantially invoked” and that the opposing party’s actions had a prejudicial effect. In re D. Wilson Contr. Co., 196 S.W.3d 774, 783 (Tex. 2006). Because Loudermilk’s actions were insufficient to effectuate a waiver, the Court upheld the order compelling arbitration.
Subscribe to a free weekly update on ADR case law and
legislation
|