BBX Operating, LLC v. American Fluorite, Inc., GeoSouthern Energy Partners, LP and GeoSouthern Energy Corp. ( 2018 )

In The
Court of Appeals
Ninth District of Texas at Beaumont
____________________
NO. 09-17-00245-CV
____________________
BBX OPERATING, LLC, Appellant
V.
AMERICAN FLUORITE, INC., GEOSOUTHERN ENERGY
PARTNERS, LP AND GEOSOUTHERN ENERGY CORP., Appellees
On Appeal from the 1st District Court
Jasper County, Texas
Trial Cause No. 35155
MEMORANDUM OPINION
BBX Operating, LLC (“BBX” or “Appellant”) brings this accelerated
interlocutory appeal challenging the trial court’s order granting a motion to stay
arbitration filed by Appellees American Fluorite, Inc. (“AFI”), GeoSouthern Energy
Partners, LP (“GSEP”), and GeoSouthern Energy Corp. (GSEC”) (collectively
“Appellees”). We affirm.
1
Procedural Background
Original Petition
On December 23, 2015, the Appellees filed their original petition against
BBX. Therein, Appellees alleged that BBX is the operator of certain oil and gas
leases (the “Subject Leases”) in Jasper, Tyler, and Polk County, Texas. Appellees
also alleged that they own undivided mineral leasehold working interests in the
Subject Leases and that BBX and AFI, among other entities, are parties to the “Area
of Mutual Interest Agreement[,] Neches II Prospect Area[,] Tyler County, Texas”
(the “Neches II AMI”) dated March 24, 2003.
According to the petition, the Appellees and BBX entered into certain joint
operating agreements and related development agreements (the “Subject Contracts”)
that govern the parties’ rights and obligations with respect to operations on the
Subject Leases. The Appellees alleged that they had fully paid all undisputed joint
interest billings to BBX, but that BBX had improperly withheld and continued to
withhold proceeds from hydrocarbon sales from Appellees. Appellees asserted
various claims against BBX: (1) breach of contract, (2) conversion, (3) section
91.402(a) of the Natural Resources Code, (4) foreclosure of a statutory lien, and
(5) declaratory judgment. In its claim for declaratory judgment, Appellees sought an
“accounting and declaratory judgment determining amounts lawfully owed by
2
[Appellees] under the Subject Contracts, including lease operating expenses,
developments costs and related charges.” The Appellees also sought the return of
cash call funds paid to BBX allegedly “for operations which BBX has not
conducted.” In support of its claims, Appellees attached cash call letters by BBX
dated May 27, 2015, alleged to represent costs incurred and paid by BBX for the
Make My Day and Swamper Prospects in Jasper County; the Turkey Creek, Lake
Tejas, Frog Pond, and Fish Camp Prospects in Tyler County; and the Ollie East
Prospect in Polk County. On January 29, 2016, BBX filed its original answer,
asserting a general denial.
Rule 11 Agreement
On March 7, 2016, the parties signed and filed a Rule 11 Agreement, which
we summarize below:
 The parties will engage in mediation or good faith discussions to
resolve outstanding issues;
 BBX shall pay to Appellees $2,031,957.26 in revenue payments for
the period of October 2015 through February 2016;
 BBX shall pay to Appellees revenue payments for production on a
monthly basis commencing March 25, 2016;
 if BBX pays Appellees the revenue payments for October 2015
through February 2016, Appellees shall pay to BBX $1,295,761.29
for joint interest billings for the period August 2015 through January
2016;
 Appellees shall pay to BBX joint interest billings on a monthly basis
commencing February 2016 under the terms of the applicable joint
operating agreements;
3
 within one business day following the agreed-upon mediation, BBX
shall pay to GSEC $218,798.18 representing the return of
Appellees’ cash call payment for the Mystic River #2 well;
 Appellees and BBX shall meet to identify and agree on BBX
documents and records that Appellees are authorized to access and
review, and BBX shall give Appellees access to review and copy the
agreed-upon documents; and
 within three business days of BBX’s satisfaction of its obligations
under the Rule 11 Agreement, Appellees will nonsuit the lawsuit.
Cross-Motions to Enforce Rule 11 Agreement
On December 15, 2016, BBX filed a motion to enforce the Rule 11
Agreement. Therein, BBX alleged that it had met its obligations under the agreement
but that Appellees had not nonsuited the lawsuit. BBX sought the court’s “assistance
in enforcing the March 7, 2016[] Rule 11 Agreement, and ordering [Appellees] to
comply with their promise to nonsuit this case.” The following day, on December
16, 2016, Appellees also filed a motion to enforce the Rule 11 Agreement. The
Appellees alleged that BBX had refused to pay $644,537.87 in production revenues
since October 2016, and Appellees offered to deposit any joint interest billings BBX
claimed Appellees owed into the trial court’s registry.
The trial court held a hearing on the cross-motions on January 11, 2017. BBX
argued at the hearing, among other things, that
. . . if [Appellees] [have] issues that have broken out since the
time this case should have been nonsuited, they’re perfectly free to file
a lawsuit. That lawsuit would not be barred by repose, collateral
4
estoppel, res judicata, statute of limitations. None of those bars close
the doors of the courthouse to [Appellees] if they have nonpayment of
this, not crediting this, they’re free to bring their claim.
Appellees argued that they were not asserting new claims but only sought
enforcement of the Rule 11 Agreement because BBX had failed to make timely
payments thereunder.
On January 24, 2017, the court signed an order denying BBX’s motion to
enforce and granting Appellees’ motion to enforce. Therein, the court ordered BBX
to pay Appellees their share of production revenue attributable to production sold in
October, November, and December of 2016 and to pay Appellees for production
revenue on a monthly basis commencing in March of 2016. On February 24, 2017,
BBX filed an Emergency Motion to Stay Enforcement of Order Granting Plaintiffs’
Motion to Enforce Rule 11 Agreement and Denying Defendants’ Motion to Enforce
Rule 11 Agreement. Therein, BBX alleged that it had not received notice of the
court’s January 24, 2017 order and its counsel was in the process of preparing a
petition for writ of mandamus to challenge the order. The trial court held a hearing
on the emergency motion on March 1, 2017. Following the hearing, the trial court
entered an amended order on March 1, 2017, denying the emergency motion and
denying BBX’s motion to enforce the Rule 11 Agreement.
5
BBX’s Demand for Arbitration
On March 10, 2017, BBX and Kodiak Resources, Inc. (“Kodiak”) filed a
demand for arbitration with the American Arbitration Association (“AAA”). In their
arbitration complaint, BBX and Kodiak alleged that their dispute “arises from, and
is related to, the Neches II Prospect Area, Area of Mutual Interest Agreement, Tyler
County, Texas[.]”1 The arbitration complaint alleged that AFI had breached its
duties under the Neches II AMI by failing to pay Kodiak for its proportionate share
of leasehold acquisition costs and by failing to pay BBX for costs incurred by BBX
and advances in support of the drilling program. The costs for which BBX sought
reimbursement were allegedly incurred between April 2015 and January 2016 and
represented costs for drilling programs in the Fish Camp, Frog Pond, Lake Tejas,
and Turkey Creek areas. BBX sought recovery in the alternative under quantum
meruit.
1
The arbitration demand alleged that Kodiak acted as nominee under the
Neches II AMI and that its duties included acquisition of leasehold and other mineral
interests within the area of mutual interest. On October 5, 2017, BBX filed a
counterclaim in the underlying lawsuit, which included Kodiak’s petition in
intervention. Kodiak is not a party to this appeal, and we address Kodiak only as
necessary to our disposition.
6
According to the arbitration complaint, the Neches II AMI contained a
mandatory arbitration provision. BBX attached a copy of the Neches II AMI as an
exhibit, which includes the following:
ARBITRATION: Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association (“AAA”) by three (3) arbitrators. Each Party
shall appoint one arbitrator who shall be an impartial and independent
person. If a Party fails to appoint an arbitrator within thirty (30) days
from the date a Demand to Arbitrate was made under Rule 6, the AAA
shall make the appointment of the arbitrator. The two (2) arbitrators
thus appointed shall appoint the third arbitrator who shall be an
impartial and independent person. If said two (2) arbitrators fail to
appoint the third arbitrator within sixty (60) days from the date a
Demand to Arbitrate was made under Rule 6, the AAA shall make the
appointment of the third arbitrator. Should any of the arbitrators
appointed die, resign, refuse or become unable to act before a decision
is given, the vacancy shall be filled by the method set forth in this clause
for the original appointment. The arbitration shall be held in Austin,
Texas. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
Appellees’ Amended Petition
The Appellees filed an amended petition on March 13, 2017, adding a claim
for breach of the Rule 11 Agreement. Appellees also added a declaratory judgment
claim, seeking to have BBX removed as operator of the Subject Leases.
BBX’s Petition for Writ of Mandamus
On March 16, 2017, BBX filed a petition for writ of mandamus with this Court
in appellate cause number 09-17-00079-CV. BBX argued that the petition arose
7
from “a dispute regarding obligations owed under a rule 11 agreement, which was
intended to settle the underlying lawsuit.” BBX argued that the trial court had abused
its discretion, and BBX asked this Court to issue an order directing the district court
vacate its orders of January 24, 2017 and March 1, 2017. BBX’s petition alleged that
the relevant evidence demonstrated that Appellees owed BBX $5,177,162.26.
In this Court’s opinion dated April 20, 2017, we conditionally granted the writ
of mandamus, explaining that the cross-motions to enforce the Rule 11 Agreement
established that a dispute existed whether there had been full performance under the
agreement. See In re BBX Operating, LLC, No. 09-17-00079-CV, 2017 Tex. App.
LEXIS 3526, at *4 (Tex. App.—Beaumont Apr. 20, 2017, orig. proceeding) (mem.
op.). We further explained that a judgment enforcing the settlement agreement may
only be rendered after a trial on the merits or by summary judgment. Id. at *3 (citing
In re Park Mem’l Condo. Ass’n, Inc., 322 S.W.3d 447, 450 (Tex. App.—Houston
[14th Dist.] 2010, orig. proceeding)). Therefore, we concluded that the trial court
abused its discretion by resolving the dispute without employing one of the
procedural vehicles authorized by the Texas Rules of Civil Procedure. Id. (citing
Tex. R. Civ. P. 166a, 216, 262; Barragan v. Nederland Indep. Sch. Dist., No. 09-13-
00350-CV, 2015 Tex. App. LEXIS 1103, at **8-10 (Tex. App.—Beaumont Feb. 5,
2015, pet. denied) (mem. op.)).
8
Motion to Stay Arbitration
On April 7, 2017—after BBX had filed its demand for arbitration, after BBX
had filed its petition for writ of mandamus, but prior to the issuance of this Court’s
opinion on BBX’s petition for writ of mandamus—Appellees filed a motion to stay
arbitration in the trial court. In the trial court, Appellees argued that BBX’s claim is
not within the scope of the arbitration clause because its claims arise out of the joint
operating agreements, not out of the Neches II AMI. Appellees also argued that BBX
had waived any right to arbitration by “consistently raising the Subject Claim as a
reason why [the trial court] should not grant [Appellees’] Motion to Enforce and
why the Court of Appeals should grant its Petition [for Writ of Mandamus].”
According to Appellees, BBX’s demand for arbitration concerns a claim that “has
been at issue in this lawsuit since it was filed.” Specifically, Appellees also argued
that the amount sought by BBX in arbitration is equal to the amount of the cash call
letters that BBX sent to AFI in May 2015 pertaining to certain Tyler County
prospects. According to Appellees, BBX “invoked the litigation process by
(i) including the Subject Claim in the Rule 11 Agreement, (ii) asserting the Subject
Claim as grounds to dismiss [Appellees’] claims in this lawsuit, and (iii) invoking
the Subject Claim in its Petition.” Citing to Hogg v. Lynch, Chappell & Alsup, P.C.,
480 S.W.3d 767, 782 (Tex. App.—El Paso 2015, no pet.), Appellees argued that
9
BBX had impliedly waived its right to arbitration by having substantially invoked
the judicial process to Appellees’ detriment or prejudice. Appellees also argued that
BBX should not be permitted to use its claims “as a sword and shield to the Court of
Appeals and simultaneously pursue that claim in arbitration[]” and that Appellees
had already incurred attorneys’ fees.
BBX’s Response to Motion to Stay Arbitration
On May 15, 2017, BBX filed its response to Appellees’ motion to stay
arbitration. In its response, BBX argued that, in the arbitration proceeding, BBX and
Kodiak sought “recovery of amounts advanced by them for leasehold acquisition
costs and other costs necessary to secure drilling rights” in the area covered by the
Neches II AMI, and that the Neches II AMI contained a mandatory arbitration
provision. BBX also argued as follows:
At no time has BBX asserted a counterclaim, sought recovery of
the amounts now sought in the Arbitration Proceeding, or requested
affirmative relief (other than enforcement of the Rule 11 Agreement).
BBX has not propounded discovery requests to Plaintiffs.
....
Though this case was filed in December 2015, apart from the
activity relating to the enforcement of the Rule 11 Agreement (and the
mandamus action), there has been little activity in this case. BBX has
not sought any discovery. There is no reason that this case and the
Arbitration Proceeding could not proceed simultaneously, and to the
extent there is any overlap in discovery the discovery product could be
used in both matters. Finally, there is no trial setting in this case.
10
....
BBX has not taken conflicting positions on arbitration, gained
any information it could not obtain in arbitration, or manipulated the
legal system.
Relying upon Perry Homes v. Cull, 258 S.W.3d 580, 593-94 (Tex. 2008), BBX
argued it had not substantially invoked the litigation process to Appellees’ detriment
and, therefore, it had not waived its right to arbitrate.
Trial Court’s Order on Motion to Stay Arbitration
The trial court heard arguments on the motion to stay on May 17, 2017. On
June 13, 2017, the trial court signed an order granting Appellees’ motion to stay.
According to the order, the court found that BBX’s claims submitted to AAA
arbitration were not subject to the arbitration clause in the Neches II AMI and that
BBX had “waived its right to arbitrate the Subject Claims by substantially invoking
the judicial process over the Subject Claims to [Appellees’] detriment.” BBX filed
an interlocutory appeal with this Court on July 3, 2017. This Court heard oral
argument on November 16, 2017.2
2
On November 14, 2017, this Court received a supplemental clerk’s record in
this matter. The supplemental clerk’s record includes the following: the trial court’s
Order Granting Plaintiffs’ Motion for Partial Summary Judgment signed September
27, 2017; a combined counterclaim by BBX against AFI and GSEC and petition in
intervention by Kodiak, filed October 5, 2017; and AFI’s and GSEC’s answer to the
counterclaim and petition in intervention, filed October 30, 2017. In the
counterclaim and petition in intervention, BBX and Kodiak alleged that they are
11
Issues on Appeal
BBX raises three issues on appeal. In its first and second issues, BBX argues
that it established the existence of an agreement to arbitrate, that the claims
submitted to arbitration are within the scope of the arbitration agreement, and that
Appellees failed to prove any defenses to the existence of the agreement.
BBX argues that BBX’s claim is of the “type of claim” that “would
necessarily come after the leases have been acquired, when you’re making the sites
ready to actually drill a well.” BBX argues that appellate review may only look to
the factual allegations made in a complaint and may not address the merits of the
claim, and that Appellees’ argument is beyond the scope of appellate review. BBX
maintains that the claim “falls squarely under the scope of the [Neches II AMI]
Agreement[,]” that it is within the arbitration agreement and it should not have been
stayed by the trial court.
In its third issue, BBX argues that it did not waive its contractual right to
arbitration because it did not substantially invoke the judicial process, but even if it
did, Appellees failed to meet their burden to show they were prejudiced. BBX
emphasizes that all pre-arbitration discovery was conducted by Appellees, not BBX,
entitled to a recovery for breach of the “Make My Day Joint Venture and
Development Agreement” and alternatively, recovery under quantum meruit. The
counterclaim seeks a recovery pursuant to March 2015 lease offerings.
12
and citing to In re Bruce Terminix Company, 988 S.W.2d 702, 704 (Tex. 1998),
BBX maintains that participation in discovery does not constitute a substantial
invocation of the judicial process. BBX contends that although it sought to compel
arbitration fifteen months after the lawsuit was filed, it was “before anything
substantial occurred in the case.” BBX explains that the case was stayed for nine
months due to a party’s bankruptcy and that the Texas Supreme Court has found that
“mere delay is not ordinarily enough, even if it is substantial[]” to constitute a waiver
of the right to arbitrate. See G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458
S.W.3d 502, 512 (Tex. 2015). BBX further argues that its motion to enforce the Rule
11 Agreement did not substantially invoke the litigation process and that “[v]irtually
all of the topics in the Rule 11 Agreement have nothing to do with the claims made
by BBX in the arbitration complaint.” And, BBX argues that filing its petition for
writ of mandamus did not substantially invoke the judicial process, considering the
totality of the circumstances. Finally, BBX argues that, even if BBX substantially
invoked the judicial process, that Appellees “failed to meet the additional heavy
burden of unequivocally establishing they were prejudiced as a result.” According
to BBX, “the only evidence of prejudice is counsel’s statements that fees were
incurred.” BBX contends that Appellees made nothing more than a generalized
complaint about delay and expense without evidentiary support.
13
Standard of Review
We have jurisdiction over this interlocutory appeal pursuant to section
171.098(a)(2) of the Civil Practice and Remedies Code. See Tex. Civ. Prac. & Rem.
Code Ann. § 171.098(a)(2) (West 2011); see also Atlas Gulf-Coast, Inc. v. Stanford,
299 S.W.3d 356, 359 (Tex. App.—Houston [14th Dist.] 2009, no pet.) (section
171.098(a)(2) “allows an interlocutory appeal from an order granting an application
to stay arbitration”).
We review the scope of an arbitration agreement de novo, looking only to the
factual allegations in the complaint. See In re FirstMerit Bank, N.A., 52 S.W.3d 749,
754 (Tex. 2001). We do not weigh the merits of the claim. See Universal Computer
Sys., Inc. v. Dealer Solutions, L.L.C., 183 S.W.3d 741, 749 (Tex. App.—Houston
[1st Dist.] 2005, pet. denied). Whether a party has waived its right to arbitration is a
question of law we review de novo. See Perry Homes, 258 S.W.3d at 598. Whether
a party has been prejudiced is also a question of law we review de novo. Id. We will
consider Appellant’s third issue first.3
3
Solely for purposes of our review of the third issue, we assume without
deciding that BBX’s claim is within the scope of the Neches II AMI’s arbitration
clause.
14
Applicable Law Regarding Waiver of Arbitration
“There is a strong presumption against waiver of arbitration, but it is not
irrebuttable[.]” Id. at 584. The party opposing arbitration based on the affirmative
defense of waiver has the burden to prove waiver. See In re Fleetwood Homes of
Tex., L.P., 257 S.W.3d 692, 695 (Tex. 2008) (original proceeding). “Due to the
strong presumption against waiver of arbitration, this hurdle is a high one.” Perry
Homes, 258 S.W.3d at 590.
The test for determining waiver asks (1) whether the party seeking arbitration
substantially invoked the judicial process; and (2) whether the opposing party
proved it suffered prejudice as a result. See IBS Asset Liquidations v. Servicios
Multiples Del Norte SA de CV, 419 S.W.3d 573, 575 (Tex. App.—San Antonio 2013,
pet. denied) (citing In re Medallion, Ltd., 70 S.W.3d 284, 288 (Tex. App.—San
Antonio 2002, orig. proceeding)); see also G.T. Leach Builders, 458 S.W.3d at 511-
12. Waiver of arbitration rights may be expressed or implied. See In re Citigroup
Global Mkts., Inc., 258 S.W.3d 623, 626 (Tex. 2008). Express waiver occurs when
a party affirmatively indicates that it wishes to litigate the dispute. See id. Implied
waiver occurs when the party substantially invokes the judicial process to the other
party’s detriment. See Perry Homes, 258 S.W.3d at 589-90; J.B. Hunt Transport,
15
Inc. v. Hartman, 307 S.W.3d 804, 810 (Tex. App.—San Antonio 2010, orig.
proceeding).
Whether a party has waived arbitration is decided on a case-by-case basis,
based upon the totality of the circumstances. See G.T. Leach Builders, 458 S.W.3d
at 512 (citing Perry Homes, 258 S.W.3d at 591). Among the factors a court considers
relevant to determining whether implied waiver has occurred are the following:
whether the party asserting the right to arbitrate was plaintiff or defendant in the
lawsuit, how long the party waited before seeking arbitration, the reasons for any
delay in seeking to arbitrate, how much discovery and other pretrial activity the party
seeking to arbitrate conducted before seeking arbitration, whether the party seeking
to arbitrate requested the court to dispose of claims on the merits, whether the party
seeking to arbitrate asserted affirmative claims for relief in court, the amount of time
and expense the parties have expended in litigation, and whether the discovery
conducted would be unavailable or useful in arbitration. See RSL Funding, LLC v.
Pippins, 499 S.W.3d 423, 430 (Tex. 2016) (citing G.T. Leach Builders, 458 S.W.3d
at 512; Perry Homes, 258 S.W.3d at 590-92). Generally no one factor is dispositive,
and waiver may be decided based on only a few of the foregoing factors or even a
single factor. See id.; Perry Homes, 258 S.W.3d at 591. How much litigation conduct
16
will be considered “substantial” depends on the context. Perry Homes, 258 S.W.3d
at 593.
A party’s request for affirmative relief is an important factor in determining
whether a party has substantially invoked the judicial process. See, e.g., Hogg, 480
S.W.3d at 786; Ellman v. JC Gen. Contractors, 419 S.W.3d 516, 520 (Tex. App.—
El Paso 2013, no pet.) (appellants substantially invoked the judicial process by,
among other things, raising affirmative claims for relief in which they requested a
declaratory judgment); Okorafor v. Uncle Sam & Assocs., 295 S.W.3d 27, 40 (Tex.
App.—Houston [1st Dist.] 2009, pet. denied) (finding that defendants had
substantially invoked the judicial process by filing multiple sworn and affirmative
defenses, and affirmative claims for relief, including requests for declaratory relief,
attorney’s fees, and sanctions). Likewise, a party who is aware of an arbitration
clause, yet only files a motion to compel arbitration after having engaged in
discovery and filed pleadings with the trial court, and after having received an
adverse ruling from a trial court, has substantially invoked the litigation process and
thereby waived its right to arbitrate. See Hogg, 480 S.W.3d at 787-91 (noting that
plaintiff’s pleadings filed prior to her motion to compel arbitration were filed “with
the intent of moving the litigation forward in a judicial setting[,]” after an adverse
ruling, she sought to obtain “‘a second bite at the apple through arbitration[]’”).
17
Delay alone generally does not establish waiver. See G.T. Leach Builders, 458
S.W.3d at 515; In re Vesta Ins. Grp., Inc., 192 S.W.3d 759, 763 (Tex. 2006) (citing
In re Serv. Corp. Int’l, 85 S.W.3d 171, 174 (Tex. 2002) (orig. proceeding)).
Similarly, purely defensive measures do not substantially invoke the judicial
process. See G.T. Leach Builders, 458 S.W.3d at 513 (filing a counterclaim did not
waive the right to arbitration because the counterclaim was defensive in nature as
the counterclaim was compulsory and could be lost if not filed); Fisher v. Carlile,
No. 01-16-00615-CV, 2017 Tex. App. LEXIS 5895, at *12 (Tex. App.—Houston
[1st Dist.] June 27, 2017, no pet.) (mem. op.) (a party’s request for injunctive relief
was directed at maintaining the status quo, not in seeking a disposition on the merits,
and therefore was not inconsistent with arbitration); Transwestern Pipeline Co. v.
Horizon Oil & Gas Co., 809 S.W.2d 589, 593 (Tex. App.—Dallas 1991, writ dism’d
w.o.j.) (examples of defensive measures include filing of a general denial to preclude
default judgment and filing of a protective order in response to a discovery request);
see also In re Serv. Corp., 85 S.W.3d at 174 (holding that objecting to a trial setting
showed intent to avoid rather than to participate in the judicial process). Similarly, a
party does not substantially invoke the judicial process merely by participating in
discovery. In re Bruce Terminix Co., 988 S.W.2d at 704; see also G.T. Leach
Builders, 458 S.W.3d at 514. However, if the party engaged in extensive discovery
18
it may have impliedly waived the right to arbitration. See Nw. Constr. Co., Inc. v.
Oak Partners, L.P., 248 S.W.3d 837, 848 (Tex. App.—Fort Worth 2008, pet. denied)
(“To substantially invoke the judicial process, a party must make a specific and
deliberate act after suit is filed that is inconsistent with its right to arbitrate, such as
engaging in extensive discovery or requesting a jury.”) (citing Nationwide of Bryan,
Inc. v. Dyer, 969 S.W.2d 518, 522 (Tex. App.—Austin 1998, no pet.)).
“‘Merely taking part in litigation is not enough[.]’” In re D. Wilson Constr.
Co., 196 S.W.3d 774, 783 (Tex. 2006) (quoting In re Vesta Ins. Grp., Inc., 192
S.W.3d at 763). A party opposing arbitration must also show it was prejudiced by
the other party’s substantial invocation of the judicial process. See G.T. Leach
Builders, 458 S.W.3d at 511-12; Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d
542, 543 (Tex. 2014); William Indus., Inc. v. Earth Dev. Sys. Corp., 110 S.W.3d
131, 135 (Tex. App.—Houston [1st Dist.] 2003, no pet.). Showing prejudice is
generally an evidentiary burden. See IBS Asset Liquidations, 419 S.W.3d at 575
(citing Williams Indus., 110 S.W.3d at 135). However, a party opposing arbitration
is not required to detail the extent of prejudice, only that prejudice resulted. Perry
Homes, 258 S.W.3d at 599. An appellate court’s review is limited to the record
before the trial court. Id. at 596 n.89.
19
Prejudice or detriment in this context means an “inherent unfairness caused
by ‘a party’s attempt to have it both ways by switching between litigation and
arbitration to its own advantage.’” In re Fleetwood Homes, 257 S.W.3d at 694
(quoting Perry Homes, 258 S.W.3d at 597). An inherent unfairness may exist when
a party is first forced to litigate an issue, and later required to arbitrate the same issue.
Perry Homes, 258 S.W.3d at 597. Alternatively, inherent unfairness may result when
a party seeking arbitration first uses the judicial process to gain access to information
that would not be available in arbitration. See G.T. Leach Builders, 458 S.W.3d at
515. Courts also consider whether a party incurs additional costs and fees due to its
opponent’s arbitration demand. See Williams Indus., 110 S.W.3d at 135.
Analysis
The trial court’s order granting the motion to stay arbitration found that “BBX
waived its right to arbitrate the Subject Claims by substantially invoking the judicial
process over the Subject Claims to [Appellees’] detriment.” We find no error.
BBX argues that all pre-arbitration discovery was conducted by Appellees,
not BBX, and that it sought to compel arbitration fifteen months after the lawsuit
was filed, “before anything substantial occurred in the case.” Generally merely
responding to discovery requests is insufficient to constitute a substantial invocation
of the judicial process. See In re Bruce Terminix, 988 S.W.2d at 704. And “mere
20
delay is not ordinarily enough, even if it is substantial[,]” to show waiver of the right
to arbitration. See G.T. Leach Builders, 458 S.W.3d at 515. Therefore, these factors
would weigh against a finding of waiver.
However, we cannot agree with BBX’s argument that it did not substantially
invoke the litigation process by seeking enforcement of the Rule 11 Agreement in
the trial court or on mandamus to this Court. At trial, BBX affirmatively sought relief
in the trial court when it sought to enforce the parties’ Rule 11 Agreement. The
record supports an inference that the Rule 11 Agreement addressed the same claims
and expenses that are the subject matter of BBX’s demand for arbitration: BBX’s
May 2015 cash call letters to AFI, which served in part as a basis for the underlying
lawsuit, address expenses for properties covered by the Neches II AMI, and BBX’s
arbitration demand addresses claims relating to the same properties over the same
period of time and covered by the same AMI. BBX then received an adverse ruling
when the trial court denied BBX’s motion to enforce the Rule 11 Agreement. Only
after receiving this adverse ruling did BBX file its demand for arbitration. Shortly
thereafter, BBX also affirmatively sought mandamus relief in this Court.
In the petition for mandamus relief, BBX argued to the trial court that it had
not “filed a motion for summary judgment seeking to dispose of this case on the
merits.” However, a motion for summary judgment is not the only manner in which
21
a party may substantially invoke the judicial process. See, e.g., Hogg, 480 S.W.3d at
785-86, 790-91 (court concluded that party had sought affirmative relief by filing a
claim for declaratory judgment and seeking a constructive trust on disputed monies).
Considering the totality of the circumstances as demonstrated by the record, we
conclude that the trial court did not err in concluding that BBX substantially invoked
the judicial process. BBX sought affirmative relief from both the trial court (in its
motion to enforce the Rule 11 Agreement) and received an adverse ruling before it
later sought to have the matter referred to arbitration.
Whether BBX’s implied waiver of its right to arbitration caused prejudice to
the Appellees is an evidentiary matter. See IBS Asset Liquidations, 419 S.W.3d at
575 (citing Williams Indus., 110 S.W.3d at 135). Appellees were not required to
detail the extent of prejudice, only that prejudice resulted. See Perry Homes, 258
S.W.3d at 599. Appellees argued to the trial court that they would be prejudiced by
arbitration because they had incurred attorney’s fees in making its claim for
declaratory judgment, mediating and negotiating the Rule 11 Agreement, advancing
its own motion to enforce the Rule 11 Agreement, and responding to BBX’s petition
for writ of mandamus. At the hearing on the motion to stay, Appellees argued that
proceeding in two forums, both litigation and arbitration, risked a “piecemeal
determination of the issues” with potentially inconsistent results. Additionally, an
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executive for Appellees testified that Appellees had paid attorney’s fees for
mediation. On the record before us, we cannot say the trial court erred in concluding
that BBX waived its right to arbitrate by substantially invoking the judicial process
to Appellees’ detriment. The trial court could have reasonably concluded that an
“inherent unfairness” existed as a result of BBX’s “‘attempt to have it both ways by
switching between litigation and arbitration to its own advantage.’” See In re
Fleetwood Homes, 257 S.W.3d at 694 (quoting Perry Homes, 258 S.W.3d at 597).
We overrule Appellant’s third issue. Having determined that BBX waived its
right to arbitration, we affirm the trial court’s order on that basis, and we need not
address Appellant’s first and second issues. See Tex. R. App. P. 47.1.
AFFIRMED.
_________________________
LEANNE JOHNSON
Justice
Submitted on November 16, 2017
Opinion Delivered February 1, 2018
Before McKeithen, C.J., Kreger and Johnson, JJ.
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