San Antonio Appeals Court Holds Signatory May Not Waive Non-Signatory’s Right to Arbitrate

The San Antonio Court of Appeals has held that a signatory’s waiver of its right to arbitrate could not be imputed to its non-signatory agent.

In Garcia v. Huerta, No. 04-10-00688-CV (Tex. App. – San Antonio, March 30, 2011) Albert Garcia appealed a trial court’s order which denied arbitration against Edward and Margarita Huerta. The Huertas obtained a home equity loan from Wells Fargo and entered into an arbitration agreement with Wells Fargo as part of the loan process. After the Huertas subsequently defaulted on the loan, Wells Fargo sought a non-judicial foreclosure and purchased the property at the resulting foreclosure auction. Wells Fargo then employed real estate agent Albert Garcia to evict the Huertas and to sell the property after making any necessary repairs to the house.

The Huertas filed suit against Wells Fargo, Garcia, and other parties. The court held in In re Wells Fargo Bank, N.A., 300 S.W.3d 818 (Tex. App. – San Antonio 2009, orig., proceeding) that Wells Fargo had the right to enforce the arbitration agreement, Garcia was likewise entitled to enforce the arbitration agreement as a non-signatory because his actions were conducted as an agent of Wells Fargo and none of the defendants to the Huertas’ lawsuit waived their right to compel arbitration.

Following this ruling, the Huertas negotiated a settlement with Wells Fargo and all other defendants except Garcia. The resulting Settlement Agreement provided that Wells Fargo and the other settling defendants would assign their claims against Garcia to the Huertas and further waive their rights to enforce the arbitration agreement with respect to any claim against him. After executing the Settlement Agreement, the Huertas filed a Motion to Amend with the trial court and requested that arbitration of the Huertas’ claims against Garcia be denied. The trial court granted the motion and Garcia appealed.

After finding that Garcia’s interlocutory appeal was appropriate under the Federal Arbitration Act (FAA), and that Garcia was entitled as an agent to enforce the arbitration agreement, the San Antonio Court of Appeals considered “whether Wells Fargo’s express waiver of its own right to arbitrate contained in the Settlement Agreement operated to deny Garcia his right to enforce the arbitration agreement.”

The Huertas argued Wells Fargo’s express waiver must be imputed against Garcia and prevented his right to enforce the initial arbitration agreement because, as a non-signatory, his right to enforce was derived solely from his status as an agent of Wells Fargo. The Huertas, however, failed to cite any legal authority which supported their argument. The Appellate Court refused to hold that one party’s waiver of the right to arbitrate could be imputed to another when it was not alleged that the second party acted in any way to repudiate his right. Further, the court pointed out that Garcia “relied upon this Court’s holding that he had the right to enforce the agreement.” Together with the FAA’s strong presumption against waiver, Garcia’s reliance required the court to resolve any doubts in favor of arbitration.

Because Garcia did not waive his right to arbitration, the San Antonio Court of Appeals reversed and remanded the case with instructions to enter an order compelling arbitration and stay all other proceedings pending that arbitration.

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