in-re-daimlerchrysler-services-north-america-llc-dba-chrysler ( 2005 )

                                   NUMBER 13-05-682-CV

                                COURT OF APPEALS

                    THIRTEENTH DISTRICT OF TEXAS

                       CORPUS CHRISTI – EDINBURG

                IN RE: DAIMLERCHRYSLER SERVICES NORTH

                           AMERICA, L.L.C. ET AL.

                       On Petition for Writ of Mandamus

                                M E M O R A N D U M   O P I N I O N

     Before Chief Justice Valdez and Justices Rodriguez and Garza

                           Opinion by Chief Justice Valdez

            Relators, DaimlerChrysler Services North America, L.L.C., d/b/a Chrysler Financial Co., f/k/a Chrysler Financial Corporation, and DaimlerChrysler Corporation, filed a petition for writ of mandamus in which they request this Court to direct the Honorable Benjamin

Euresti, Jr., judge of the 107th judicial district court of Cameron County, Texas, to vacate his order of October 6, 2005 denying relators' motion to compel arbitration in the underlying lawsuit, Dennis Rendon and Maria Teresa Rendon v. Chrysler Financial Company, L.L.C., et al. (Cause Number 2003-07-003871-A).  This Court requested and received a response from the real parties in interest, Dennis Rendon and Maria Teresa Rendon, regarding this petition, and granted relators’ emergency motion for stay of the underlying proceeding by order dated November 10, 2005. 

            We now conditionally grant relators’ petition for writ of mandamus, and we set aside our previous order imposing a stay.

I.  Background

            This is a wrongful repossession and unfair debt collection case.  In the underlying lawsuit, the real parties in interest bring claims of assault, intentional infliction of emotional distress, unfair debt collection practices, and conversion against the relators and a co-defendant automobile recovery service.  Both relators and the co-defendant moved to compel arbitration of the real parties’ claims under the Federal Arbitration Act (FAA), pursuant to the pertinent retail installment contract.[1]  Judge Euresti first delayed ruling on the motion, instead ordering the parties to mediation.  When efforts at mediation were unsuccessful, Judge Euresti denied relators’ motion to compel arbitration.

II.  Mandamus

            Mandamus will issue only to correct a clear abuse of discretion when there is no adequate remedy by appeal.  In re Redondo, 47 S.W.3d 655, 658 (Tex. App.–Corpus Christi 2001, orig. proceeding).   "A trial court abuses its discretion when it does not follow guiding rules and principles and reaches an arbitrary and unreasonable decision."   Id.  Mandamus relief is available to a party who is improperly denied arbitration under an agreement subject to the FAA.  See EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 88 (Tex. 1996).

            A party seeking to compel arbitration must (1) establish the existence of an arbitration agreement and (2) show that the claims asserted fall within the scope of that agreement.  In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999) (orig. proceeding); In re C & H News Co., 133 S.W.3d 642, 645 (Tex. App.–Corpus Christi 2003, orig. proceeding). Although courts generally enforce arbitration agreements, a court may not order arbitration in the absence of such an agreement.  See Freis v. Canales, 877 S.W.2d 283, 284 (Tex. 1994). The parties' agreement to arbitrate must be clear.  See Mohamed v. Auto Nation USA Corp., 89 S.W.3d 830, 835 (Tex. App.–Houston [1st Dist.] 2002, no pet., combined appeal & orig. proceeding).

            Relators make three arguments in their petition for writ of mandamus:  the trial court abused its discretion by (1) denying the motion to compel arbitration where no objection or opposition to the motion was filed prior to the hearing on the motion, (2) deferring its ruling on the motion to compel arbitration and instead ordering the cause to mediation, and (3) determining that the arbitration agreement is unenforceable.   Because it is dispositive of the entire proceeding, we consider the third argument alone.  See Tex. R. App. P. 47.1.

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III.  Arbitration

            Real parties in interest, Dennis and Maria Teresa Rendon, do not dispute the existence of the arbitration provision in their retail installment contract.  However, they make the following arguments in support of their claim that it is unenforceable as it applies to them:  (1) Dennis, as a nonsignatory to the contract, cannot be bound to arbitrate as per the contract provisions; and (2) in any case, relators have waived their right to arbitrate by substantially invoking the judicial process.

A.  Nonsignatories

            Nonsignatories may be bound to an arbitration clause when the rules of law or equity would bind them to the contract generally.  See In re Kellogg, Brown & Root, 166 S.W.3d 732, 741 (Tex. 2005); In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755 (Tex. 2001). Whether a nonsignatory’s claim seeks a direct benefit from a contract containing an arbitration clause turns on the substance of the claim and not how the claim is pled.  See In re Weekley Homes, No. 04-0119, 2005 Tex. LEXIS 817, at *10, 49 Tex. Sup. J. 55 (Oct. 28, 2004, orig. proceeding). Claims must be brought on the contract (and arbitrated) if liability arises solely from the contract or must be determined by reference to it; however, claims can be brought in tort if liability arises from general obligations imposed by law.  See id. at *10-11.  Thus, a nonsignatory pursuing a claim “on the contract” must pursue all its claims, both tort-based and contract-based, in arbitration.  See id. at *12. 

            The analysis as to whether a nonsignatory must be compelled to arbitrate, however, does not focus solely on the nature of the claims and their source. We must also look to “the nonparty’s conduct during the performance of the contract.”  See id. at *14.  The Texas Supreme Court has held that a nonsignatory may be compelled to arbitrate if it “deliberately seeks and obtains substantial benefits from the contract itself.”  Id.  For example, in the In re Weekley Homes opinion, the court focused on the behavior of a nonsignatory to a construction contract for a private home.  The original contract had been between a private party, Vernon Forsting, and a construction company, Weekley Homes.  See id. at *2.  Forsting’s daughter, Patricia Von Bargen, was a nonsignatory to the contract; however, she did reside in the home after it was constructed, directed how Weekely Homes should construct various customized features, and demanded repairs be made to the home.  See id. at *16.  Forsting ultimately sued Weekely Homes for claims of negligence and breach of contract, among others; Von Bargen also sued for personal injuries, alleging that Weekely Homes’ negligent repairs of the house it had built caused her to develop asthma.  See id. at *4. 

            The court analyzed the behavior of Von Bargen, and concluded:

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As Von Bargen and Weekley had no contract between them, estoppel alone cannot grant either a right to sue for breach. . .  But once Von Bargen deliberately sought substantial and direct benefits from the contract, and Weekley agreed to comply, equity prevents her from avoiding the arbitration clause that was part of that agreement. . . .  While Von Bargen never based her personal injury claim on the contract, her prior exercise of other contractual rights and her equitable entitlement to other contractual benefits prevents her from avoiding the arbitration clause here. Accordingly, the trial court abused its discretion in failing to compel arbitration.

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See id. at *19-22. 

            Here, the plaintiffs themselves (now real parties in interest) alleged that Maria Teresa purchased the vehicle for the use and benefit of her son, Dennis, and that Dennis both drove the vehicle and was involved in making payments on the installment contract.  Furthermore, the arbitration provision in the contract signed by Maria Teresa, who undisputedly had her son in mind when entering the contract, states that it applies to,

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[a]ny claim or dispute, whether in contract, tort or otherwise (including the interpretation and scope of this clause and the arbitrability of any issue), between you and us or our employees, agents, successors or assigns, which arise out of or relate to this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract) . . . .

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(Emphasis added.)

            We conclude from this behavior that Dennis deliberately sought and obtained the benefits of the contract itself, particularly through his use of the contract’s subject vehicle and his making of installment payments under the contract. Thus, in accordance with In re Weekley Homes, we conclude the trial court abused its discretion in failing to compel both Maria Teresa, as a signatory, and Dennis, as an equitably-bound nonsignatory, to arbitrate their dispute arising out of the installment contract with relators for the vehicle in question.  See id. at *22; see also Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524,527-28 (5th Cir. 2000).   

B.  Waiver

            The Rendons do not dispute that Maria Teresa signed a contract subject to an arbitration clause, nor do they dispute its general applicability to the suit here.  However, they do argue that relators have waived their right to arbitration through substantially invoking the judicial process, thereby causing prejudice to the Rendons. 

            A party seeking to compel arbitration has the initial burden to establish the arbitration agreement's existence and to show that the claims asserted against it fall within the arbitration agreement's scope.  Mohamed v. Auto Nation USA Corp., 89 S.W.3d 830,

835 (Tex. App.–Houston [1st Dist.] 2002, no writ) (combined appeal and orig. proceeding).  "If the party seeking arbitration carries its initial burden, the burden then shifts to the party resisting arbitration to present evidence on its defenses to the arbitration agreement."  Id. at 835 (citing In re Oakwood Mobile Homes, Inc., 987 S.W.2d at 573).  One defense is that the party seeking arbitration has waived its right to arbitration.  See Williams Indus., Inc. v. Earth Dev. Sys. Corp., 110 S.W.3d 131, 135 (Tex. App.–Houston [1st Dist.] 2003, no pet.).  Because public policy favors arbitration, there is a strong presumption against finding that a party has waived its right to arbitration, and the burden to prove waiver is thus a heavy one.  In re Bruce Terminix Co., 988 S.W.2d 702, 704-05 (Tex. 1998); Mancias, 934 S.W.2d at 89. Any doubts regarding waiver are resolved in favor of arbitration.  In re Bruce Terminix, 988 S.W.2d at 705. 

            Whether waiver occurs depends on the individual facts and circumstances of each case.  See Williams Indus., 110 S.W.3d at 135. Waiver will be found only when (1) the party seeking arbitration has substantially invoked the judicial process and (2) the party opposing arbitration suffers actual prejudice as a result.  See id.  This is a difficult burden to meet, as courts have previously found that a party has not waived its right to enforce an arbitration clause merely by a prolonged delay or inaction, see In re Serv. Corp. Intern., 85 S.W.3d 171, 174 (Tex. 2002), or through an attempt at settlement or participation in mediation, see Tex. Residential Mortgage, L.P. v. Portman, 152 S.W.3d 861, 863-64 (Tex. App.–Dallas 2005, no pet.), or through conducting limited discovery, including the taking of depositions.  See Williams Indus., 110 S.W.3d at 140; In re Medallion, Ltd., 70 S.W.3d 284, 288 (Tex. App.–San Antonio 2002, orig. proceeding).  Indeed, almost any purely defensive activity will not serve to “substantially invoke” the judicial process.  See Central Nat’l Ins. Co. of Omaha v. Lerner, 856 S.W.2d 492, 494-95 (Tex. App.–Houston [1st Dist.] 1993, no writ) (per curiam) (holding that affirmative activity that includes “some combination of filing an answer, setting up a counterclaim, pursuing discovery and moving for continuance prior to moving for a stay pending arbitration” may be considered substantial activity).  Furthermore, the taking of limited discovery will not be used to infer waiver “when only a minimal amount [is] conducted, which may also be useful for the purpose of arbitration.”  See In re Terminix, 988 S.W.2d at 704 (citation omitted).

            In this case, the Rendons filed their lawsuit on July 30, 2003.  Relators filed their original answer on September 16, 2003, and served requests for disclosures on the Rendons the next day. Subsequent discovery by the parties, if any, was modest, and the trial court served the parties with notice of intent to dismiss the cause for want of prosecution on January 20, 2005.  The Rendons filed a motion to retain the case, which the trial court granted on March 8, 2005.  Relators then filed their motion to compel arbitration and for abatement on April 12, 2005.  The parties argued the motion before the trial court on May 5, 2005; the trial judge instead ordered the parties to mediation, deferred his ruling on the motion to compel arbitration pending the outcome of mediation, and granted a motion for continuance of the trial date. 

            Attempts at mediation apparently failed, and the trial court denied relators’ motion to compel arbitration on October 6, 2005.  Relators then filed their petition for writ of mandamus with this Court on November 1, 2005.  After the filing of the petition here, relators were advised by the trial court that it would be hearing the real parties’ request for a trial setting on November 17, 2005.  Relators filed an emergency motion for a stay of all trial court proceedings pending the result of this mandamus.  We granted the motion and stayed all proceedings. 

            We see through this chronology of proceedings that relators have engaged only defensively and only to a limited extent.  There was no active pursuit of counterclaims or discovery after the initial filing of the suit; indeed, there was so little activity on all sides that the trial court planned to drop the case from its docket for want of any progress. Once litigation appeared to be seriously developing, relators filed their motion for arbitration, and participated only in mediation and limited discovery pending the judge’s decision on its motion for arbitration.  The Rendons, as opponents of arbitration, had the burden to demonstrate evidence of prejudice and waiver.  See Mancias, 934 S.W.2d at 90; Tex. Residential Mortgage, 152 S.W.3d at 864.  The docket sheet lists discovery attempts made by the Rendons only, and the Rendons have failed to provide any evidence of what this discovery entailed or of any discovery whatsoever conducted by relators.  Furthermore, relators ensured through their petition and emergency motion with this Court that judicial proceedings at the trial level could not be further invoked, even to the extent of establishing a trial date, until this arbitration issue was resolved. 

            Therefore, we decline to find any substantial invocation of the judicial process sufficient to prejudice the interests of the Rendons; relators have not waived their right to arbitration of the Rendons’ claims through their limited defensive participation in the case thus far.  See In re Terminix, 988 S.W.2d at 704-05; Williams Indus., 110 S.W.3d at 141.        Having found no waiver of relators’ right to arbitration, and noting that the Rendons have not disputed the applicability of the arbitration clause to their claims, we conclude that the trial court erred and abused its discretion when denying relators’ motion to compel arbitration. 

IV.  Conclusion

            Because the trial court abused its discretion in denying relators’ motion to compel arbitration, we lift our stay of the trial court proceedings and conditionally grant the writ of mandamus.  Respondent is ordered to vacate his order of October 6, 2005.  A writ of mandamus will only issue if respondent refuses to comply with this Court's instructions.

                                                                             Rogelio Valdez,

                                                                             Chief Justice

Memorandum Opinion delivered and filed

this 22^nd day of December, 2005.

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^[1]The retail installment contract includes the following provision, in part:

IMPORTANT ARBITRATION DISCLOSURES.  The following Arbitration Clause significantly affects your rights in any dispute with us.  Please read these disclosures and the Arbitration Clause carefully before you sign this contract . . . If either of us chooses, any dispute between us will be decided by arbitration and not in court. . . .