Texas Supreme Court Compels Another Arbitration

This morning, the Texas Supreme Court issued three opinions. The Texas Appellate Law Blog has already posted short summaries of them all (not that we have any interest in a race to do such things, but I would note that I was at the courthouse all morning and not able to check this morning’s orders as promptly as I like to). One of the opinions is another arbitration opinion, so we will discuss it in just a bit of detail.

In a per curiam opinion, the Supreme Court granted a petition for mandamus and compelled arbitration in a case where both the trial court and the Second Court of Appeals had declined to do so. Some quiet day I would like to count the number of times that has happened since we started keeping this blog.

The case involved a company (J&S Air, Inc.) that sued Bank One for honoring a bunch of allegedly forged checks passed by a J&S employee. Bank One apparently did not answer the first suit, J&S got a default judgment, and then Bank One had the default set aside and filed a motion for new trial, which was granted.

Eight inactive months after the motion for new trial was granted, Bank One moved to compel arbitration, on the basis of an agreement to arbitrate that was incorporated by reference on the account signature card J&S signed when it opened its account with Bank One. The trial court denied the motion to compel, and the Second Court of Appeals denied Bank One’s petition for mandamus on the issue. In compelling arbitration, the Supreme Court found that the signature card incorporation established a valid agreement to arbitrate, and that J&S’s claims were arising out of the agreement or the account.

Finally, the Court rejected J&S’ argument that Bank One waived its right to arbitrate by participating in the pre-arbitration litigation. The Court cited, among others, the recent Vesta case, about which we have blogged in the past. At first blush, it seems that the non-waiver holding is consistent with recent Texas Supreme Court jurisprudence on this issue; in Vesta, for example, the parties litigated for two years and spent $200,000.00 before a party moved to compel arbitration, and the Court found no waiver. However, as suggested by a dissenting Beaumont Court justice a while back, perhaps one should consider the type of pre-arbitration litigation rather than just the bulk when evaluating waiver as a defense to arbitration.

In this case, Bank One perhaps did not participate as much as the parties in Vesta did in terms of sheer volume, but Bank One’s participation was significant. Bank One filed a Motion for New Trial, which presumably requested that the Court assume jurisdiction. The substance of such a motion, one would think, is directly at odds with later asking the court to cede its jurisdiction to an arbitrator. I wonder if Bank One’s counsel couched its Motion for New Trial with all sorts of language to preserve the later right to ask to compel arbitration. I would think in our office we’d call it something like Motion for New Trial For the Sole Purpose of Compelling Arbitration. At any rate, it’s a fascinating question, and I’d love to read a copy of the Motion for New Trial.

In re Bank One, ___ S.W.3d ___ (Tex. 2007) (Cause No. 06-0093)

UPDATE: I have now skimmed the briefs, but I have not located a copy of the motion for new trial. In the brief filed by J&S, J&S asserts that the Motion for New Trial never mentions arbitration or the plan to compel arbitration, and that the Motion says at one point “[Relator] is ready to proceed with trial on the merits” and asks the Court to grant a new trial. This, according to the Supreme Court’s opinion, does not “substantially invoke the judicial process.” Between this case and Vesta, one must assume that unopposed commencement of trial would be required to make a showing of arbitral waiver in Texas.

UPDATE 2: Commenter Rick Freeman rightly notes that about a year ago he blogged about an Eastland case that held that waiver of the right to arbitrate is only conceivable if the party seeking arbitration “actively tried, but failed, to achieve a satisfactory result in litigation before turning to arbitration” (and even then it’s only available as a defense to arbitration if you can also make the prejudice showing, a similarly onerous burden). In other words, it’s mighty hard to invoke the judicial process in this context – in the Eastland case, three years of active litigation (discovery, dispositive motions, trial settings and continuances) do not invoke the judicial process.

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