We Shall Not Waiver

Perry Homes has once again been applied to describe what constitutes an arbitration waiver, except this time no waiver was found. As we have mentioned before in While We Were Out, a post from May, waiver is hard to come by in a Texas Supreme Court opinion. Perry Homes could have moved us into a parallel universe in which claiming waiver of arbitration is a winning argument. But those who criticized the opinion knew we would be making no such move, not because of the particulars involved but because of who the players were. As we wrote about before, Perry Homes was the party seeking waiver and was also a big supporter of many justices of the Court. Many critics of the opinion did not see Perry Homes as precedent for a shift in the court’s policy due to that fact. Well critics, you were probably right. In Fleetwood Homes, the Texas Supreme Court applied Perry Homes, but decided that waiting eight months to compel arbitration, during which time the parties engaged in some discovery and set a trial date (or in this case, postponed it), did not waive arbitration.

“[A] party waives an arbitration clause by substantially invoking the judicial process to the other party’s detriment or prejudice.” This quote from Perry Homes sums up the standard that will now be applied by the court in these matters. Gulf in Fleetwood relied on Vesta Ins. Group’s precedent that a party would waive its right to arbitrate when it engaged in “full discovery,” filed motions going to the merits of the case, and sought arbitration “only on the eve of trial.” The court did not, however, agree with Gulf that Fleetwood fit that description. Moreover, the court focused on a party’s detriment as the dispositive issue in cases of arbitration waiver. Because no detriment was found to have befallen Gulf by Fleetwood’s pretrial activities, the court found no waiver.

Fleetwood made it clear that unless a party truly waits to the very last minute before trial to compel arbitration, having already engaged in full discovery, no waiver will be found. The fact that Fleetwood had taken no depositions (although it noticed one after canceling it) may have had an impact on the court but the decision hinged on the detriment to Gulf. The court found that Gulf suffered no detriment by trading emails with Fleetwood regarding a trial date. The opinion also pointed out that those emails did not constitute an implied waiver, much less sufficed as evidence for an express waiver as Gulf claimed.

Apart from the implications on arbitration waivers, this opinion seriously impacts fee-shifting clauses. The agreement between Fleetwood and Gulf contained a fee-shifting clause which allowed for a prevailing defendant’s attorney fees. Gulf attempted to throw out the arbitration agreement on unconscionability grounds based on this fee-shifting clause, but to no avail. The court found that even though Texas law only allows for prevailing plaintiff’s attorney fees, an arbitration clause that would allow for a prevailing defendant to get attorney’s fees would not make such agreement unconscionable; in fact, it would make it more fair. This statement leaves us to wonder whether we can expect more resistance against arbitration clauses from here on out…

Posted by A.C. Vieira

For more information, please check out these links:

http://www.karlbayer.com/blog/?p=135

http://www.supreme.courts.state.tx.us/historical/2008/jun/060943.pdf

http://www.scotxblog.com/orders/order-list-for-6-20-2008/#more-224