Dhara Gayle Hogg v. Lynch, Chappell & Alsup, P.C. , 2015 Tex. App. LEXIS 11641 ( 2015 )

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
DHARA GAYLE HOGG, §
No. 08-14-00187-CV
Appellant, §
Appeal from the
v. §
143rd District Court
§
LYNCH, CHAPPELL & ALSUP, P.C., of Ward County, Texas
§
Appellee. (TC# 14-03-23274-CVW)
§
OPINION
Dhara Gayle Hogg and the law firm of Lynch, Chappell & Alsup, P.C. (LCA) entered into
a contingent fee agreement, in which LCA agreed to represent Ms. Hogg in an estate proceeding.
A dispute arose between Ms. Hogg and LCA regarding the validity of the agreement. After
litigation ensued in both county court and district court over this issue, Ms. Hogg filed a motion to
compel arbitration. LCA opposed the motion, claiming that Ms. Hogg had waived her right to
seek arbitration by substantially invoking the judicial process to LCA’s detriment. The district
court agreed with LCA, and denied Ms. Hogg’s motion. We affirm.
THE STATE OF THE RECORD
Before providing the factual background of this case, it is necessary to address the state of
the appellate record. Ms. Hogg contends, and we agree, that LCA has cited facts in its brief that
are not supported by documents contained in the record on appeal. With limited exceptions not
material here, an appellate court may not consider matters outside the appellate record. Siefkas v.
Siefkas, 902 S.W.2d 72, 74 (Tex.App. – El Paso 1995, no writ) (citing Sabine Offshore Service v.
City of Port Arthur, 595 S.W.2d 840, 841 (Tex. 1979)); see In re M.S., 115 S.W.3d 534, 546 (Tex.
2003) (“this Court – or any appellate court – may only consider the record presented to it”). To
the extent LCA has made references to facts that do not appear in the appellate record, we will not
consider those facts in our analysis.
LCA has also attached to its brief a copy of the reporter’s record of a May 16, 2014 hearing
that was never formally made a part of the appellate record. Documents attached to a brief as an
exhibit or appendix, but not appearing in the appellate record, cannot be considered on appellate
review. Warriner v. Warriner, 394 S.W.3d 240, 254 (Tex.App. – El Paso 2012, no pet.); see
Robb v. Horizon Communities Improvement Ass’n, Inc., 417 S.W.3d 585, 589 (Tex.App. – El Paso
2013, no pet.) (attaching documents to a brief does not constitute formal inclusion in the record on
appeal, and those documents cannot be considered by the reviewing court). Even when a party
asserts that the attached documents were filed with the trial court, if the documents were not
properly included in the appellate record, we are unable to consider them in our review. Perry v.
Kroger Stores Store No. 119, 741 S.W.2d 533, 534-35 (Tex.App. – Dallas 1987, no writ) (refusing
to consider affidavit attached to brief that was not included in the record of the case on appeal
despite party’s assertion that it was filed along with her motion for summary judgment); Siefkas,
902 S.W.2d at 74 (although party alleged that the documents he attached to his brief were relevant
court orders filed in the case, this Court granted opposing party’s request to strike the documents
because they had not been made a part of the appellate record). Accordingly, we decline to
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consider the attached reporter’s record in our review.
Also, we note that the supplemental clerk’s record in this appeal contains a copy of a
motion for summary judgment and supporting exhibits, which LCA filed after the trial court issued
its ruling on Ms. Hogg’s motion to compel arbitration. Our review is limited to the record that
was before the trial court at the time it rendered its decision. In re Bristol–Myers Squibb Co., 975
S.W.2d 601, 605 (Tex. 1998) (appellate court must “focus on the record that was before the court”
when it rendered its decision); In re Allstate Ins. Co., 232 S.W.3d 340, 343 (Tex.App. – Tyler
2007, no pet.); McMahan v. Greenwood, 108 S.W.3d 467, 500 (Tex.App. – Houston [14th Dist.]
2003, pet. denied). Although LCA’s motion for summary judgment contains several exhibits,
including discovery materials and affidavits from LCA attorneys, that could be relevant to whether
Ms. Hogg waived her right to arbitration, we decline to consider those exhibits in our analysis to
the extent they were not before the trial court when it heard and denied Ms. Hogg’s motion to
compel arbitration. See Perry Homes v. Cull, 258 S.W.3d 580, 596 n.89 (Tex. 2008) (“[b]ecause
we limit our review to the record before the trial judge, we do not consider the Defendants’
additional seven volumes of discovery exhibits filed after the arbitration award” in determining
whether defendant waived her right to arbitration).
With these understandings in mind, we turn to the background of this appeal as reflected in
the appellate record.1
BACKGROUND
Ms. Hogg’s husband, George Hogg, passed away in April 2013 without a will, leaving
behind approximately $10 million in assets, including real estate with oil and gas production,
1
We do note, however, that, other than the dispute over the extent of discovery conducted before Ms. Hogg filed her
motion to compel arbitration, the procedural and background facts in the case are essentially undisputed.
3
cattle, cash, and a stock brokerage account. Ms. Hogg and George Hogg’s brother, Mark Hogg,
were George Hogg’s only heirs. Mark Hogg initially moved to be named as independent
administrator of George Hogg’s estate in the County Court of Ward County. Wishing to contest
the appointment, Ms. Hogg retained LCA to represent her in the estate proceedings.
When she first retained LCA, Ms. Hogg signed an agreement to pay LCA on an hourly
basis. However, shortly thereafter, she and LCA entered into a contingent fee agreement, in
which LCA agreed to represent Ms. Hogg in exchange for a 25 percent interest in all of the assets
received by Ms. Hogg as an heir of the estate. The contingent fee agreement made reference to
the prior hourly agreement, noting that Ms. Hogg had requested the change and that the parties had
agreed to change the fee structure because they were previously unaware of the “complexity of
issues that were to be undertaken by Attorneys.”
LCA subsequently represented Ms. Hogg during a mediation session in an attempt to
resolve the contested issues relating to the estate property. As a result of the mediation, the
parties signed a mediated settlement agreement (MSA) on December 2, 2013, which divided the
estate assets between Ms. Hogg and Mark Hogg. Two provisions in the MSA called for estate
assets “to be paid to [Ms. Hogg] and her attorneys[,]” including assets from the sale of the surface
and mineral rights in various ranches and assets from George’s brokerage account. The MSA
itself did not specifically reference the contingent fee agreement, did not specify that LCA was
entitled to receive any particular portion of the proceeds, and did not expressly give LCA any
proprietary interest in the proceeds.2 The MSA required Ms. Hogg and Mark Hogg to execute
2
While the MSA appears in the appellate record only as an attachment to LCA’s motion for summary judgment, at the
hearing on her motion to compel arbitration, Ms. Hogg’s attorney referenced that the MSA was in the court’s file.
Because the district court properly took judicial notice of the contents of its files at the hearing, we will consider the
MSA as part of the appellate record.
4
various special warranty deeds to convey their respective property interests to each other on or
before December 31, 2013. One of the warranty deeds stated that Mark Hogg was assigning
one-half of certain mineral, royalty and leasehold interests to Ms. Hogg, and further indicated that
LCA was to receive 25 percent of the assignment pursuant to its “separate agreement” with Ms.
Hogg, entitling it to 25 percent of Ms. Hogg’s interest in this asset.
After the parties agreed to reset the estate closing to January 27, 2014, LCA informed Ms.
Hogg that LCA intended to take its 25 percent contingency fee at the time of the closing pursuant
to the terms of the contingent fee agreement. In response, Ms. Hogg asked LCA whether it would
consider taking less than a 25 percent fee, but LCA declined to do so. Shortly thereafter, on
January 15, 2014, Ms. Hogg advised LCA that she was terminating its services and had retained
new counsel to represent her.
Ms. Hogg failed to attend the estate closing, and Mark Hogg filed a petition to enforce the
mediated settlement agreement in the Ward County Court. On or about February 12, 2014, Ms.
Hogg filed an answer to the petition. In her answer to the petition, Ms. Hogg stated that she was
willing to abide by the terms of the MSA, with the exception of those portions of the MSA
“purporting to convey a proprietary interest in estate assets to [LCA],” alleging that those portions
of the agreement were “unconscionable, void and unenforceable.” In particular, Ms. Hogg
claimed that the contingent fee agreement, which she acknowledged signing, was “induced by
misrepresentations of fact and law, fraud and the failure to adequately disclose matters of fact and
law.” In her request for relief, Ms. Hogg asked that the county court’s final judgment “delet[e]
any proprietary interests or reference to the law firm of Lynch, Chappell and Alsup[,]” but that the
court enforce all of the remaining provisions in the MSA. Ms. Hogg also asked for “such other
5
relief in law or equity to which Respondent Defendant may show herself entitled to receive[,]” and
demanded a jury trial.
On February 14, 2014, LCA intervened in the county court suit, seeking, among other
things, a ruling that it was entitled to its 25 percent share of the estate assets as attorney’s fees
under the parties’ contingent fee agreement. In addition, LCA asked the county court to transfer
the attorney fee dispute to the district court, asserting that this portion of the estate case had
become contested by virtue of Ms. Hogg’s pleadings. On February 18, 2014, the county court
granted LCA’s petition in intervention, and transferred the portion of the case involving the fee
dispute to the 143rd Judicial District Court in Ward County.
On February 24, 2014, following a hearing in county court, the parties signed a Rule 11
Agreement that allowed the estate closing to go forward in accordance with the terms of the MSA,
but which called for the “cash claimed by LCA,” including its 25 percent interest in the estate
assets awarded to Ms. Hogg, to be deposited into the registry of the county court. The Rule 11
Agreement, which was filed in the county court, further stated that: “Such cash shall be
distributed to the appropriate party upon the entry of a judgment of the District Court of Ward
County, Texas or upon presentment of a settlement agreement signed by the parties.”3
Shortly thereafter, on March 7, 2014, LCA filed a lawsuit against Ms. Hogg in the district
court, claiming that Ms. Hogg had breached her contract with LCA. LCA sought, among other
things, the disputed $1.2 million in attorney’s fees.
Ms. Hogg filed an answer in the district court to LCA’s lawsuit in which she raised six
counterclaims against LCA. In her counterclaims, Ms. Hogg alleged, among other things, that
3
At the same time, the parties also signed an “Agreed Order for Delivery of Deeds,” calling for the approximately
$1.2 million claimed by LCA to be deposited into the registry of the county court.
6
LCA had made “material misrepresentations of fact and law and failed to disclose material matters
of fact and law proximately causing [Ms. Hogg’s] damages and loss of inheritance;” had breached
its fiduciary duty to Ms. Hogg; and had engaged in fraud in obtaining Ms. Hogg’s signature on the
contingent fee agreement. Ms. Hogg claimed that LCA had misrepresented the complexity of the
estate case, thereby wrongfully “inducing her to give LCA a claim to twenty-five percent (25%) of
her inheritance[.]” Ms. Hogg sought “a declaratory judgment that the CFA and the MSA are
unconscionable, void and unenforceable [and] obtained through breach of fiduciary duty, by
misrepresentations of fact and law, and fraud[,]” and she further sought the imposition of a
“constructive trust” to “disgorge LCA from receiving unearned profits from a breach of fiduciary
duty and/or fraud.” Ms. Hogg further requested actual and exemplary damages against LCA, as
well as attorney’s fees, and concluded by asking that “this matter be heard by a jury.”
On or about March 13, 2014, the parties filed an agreed motion to consolidate, requesting
the district court to consolidate LCA’s lawsuit with the contested portion of the estate proceedings
that had been transferred from the county court, pointing out that the issues in both lawsuits were
substantially the same and contained common issues of law and fact.4 Although no written order
consolidating the two cases appears in the appellate record, the district court signed and filed an
“Agreed Scheduling Order” on March 17, 2014, containing the captions for both the district court
and the county court proceedings. The court’s scheduling order set a discovery deadline of
September 1, 2014, thereby requiring the parties to complete discovery in five and a half months,
and set both matters for jury trial on October 20, 2014.
LCA served Ms. Hogg with a request for production of documents, requesting, among other
4
The parties also filed an “Agreed Motion for Joint Discovery and Joint Trial,” also pointing out that the two cases
were substantially similar, and suggesting that they should therefore be tried together.
7
things, that Ms. Hogg provide LCA with “audio and video recordings (and the transcriptions
thereof)” that Ms. Hogg made during her meetings with the LCA attorneys. In her response,
which was served on LCA on or about April 18, 2014, Ms. Hogg stated that: “No audio or video
recordings are believed to exist and none are within Defendant’s control or possession that are
responsive to this request.” On April 24, 2014, LCA filed a motion to compel production of
documents, in which it claimed that Ms. Hogg had not fully or truthfully responded to this
particular request. As evidence that Ms. Hogg had in fact recorded her meetings with the LCA
attorneys, LCA attached an e-mail that Ms. Hogg had sent to the e-mail address of LCA attorney,
Scott Ryburn, on February 14, 2014, the same day that LCA had filed its petition in intervention in
the country court proceedings:
Hey do not mention that i recorded every meeting with those attys in midland. ldk if
its legal. And u def dont want them knowing i recorded mediation! My new attys
will deal with it please dont even tell ur dad! No one needs to know! Love u dont
worry! Focus on u sweet baby girl. Say ur prayers. It wil all come out in the end. I
only appear to be stupid son! I love yall! George is watching over us! Hugs!
Thank you, DGHogg-
In its motion to compel production, LCA speculated, based on Ms. Hogg’s reference to her
son in the e-mail, that Ms. Hogg had intended to send the e-mail to her son, Scott Lee Whitely, but
had instead inadvertently sent the e-mail to LCA attorney Scott Ryburn. LCA also pointed out
that if Ms. Hogg had in fact recorded the meetings with the LCA attorneys, as she claimed to have
done in her e-mail, she was required to produce them in response to LCA’s request for production.
The district court held a hearing on LCA’s motion to compel production on May 16, 2014,
at which Ms. Hogg testified that she did not record any of the meetings with the LCA attorneys.
Ms. Hogg asserted that she had intentionally sent the e-mail to attorney Scott Ryburn claiming that
she recorded the meetings, because she believed doing so would prevent the LCA attorneys “from
8
misrepresenting the truth” about what had occurred at their meetings.5 The district court granted
LCA’s motion to compel production, impliedly finding that the recordings did in fact exist, and
issued a written order dated May 16, 2014, directing Ms. Hogg to produce “all audio and video
recordings responsive to [LCA’s] Requests for Production” within 20 days of the date of the order,
thereby making June 5, 2014 the deadline for producing the recordings. Ms. Hogg did not
produce the recordings, and instead, on June 5, Ms. Hogg served LCA with a supplemental
response to its discovery request, in which she again asserted that the recordings did not exist.
Ms. Hogg pointed out in her supplemental response that she and her son, Scott Whitley, who
attended the meetings with the LCA attorneys, had both testified under oath at the hearing on
LCA’s motion to compel production that no recordings had ever been made.
In the interim, on June 3, 2014, two days before serving LCA with this supplemental
response, Ms. Hogg filed a motion to compel arbitration and stay proceedings. In support of her
motion, Ms. Hogg attached a copy of the parties’ contingency fee agreement, and pointed out that
it contained a clause in which the parties agreed to submit to arbitration any disputes connected
with the agreement.6 Ms. Hogg argued that the parties’ dispute over the amount of attorney’s fees
she owed to LCA clearly came within the scope of the arbitration clause.
On June 9, 2014, LCA filed its response to Ms. Hogg’s motion to compel arbitration.
LCA did not dispute the existence of the arbitration agreement or that the parties’ dispute came
5
Although LCA attached the reporter’s record of this hearing as an appendix to its brief, LCA failed to designate it as
part of the appellate record. We decline to consider it as part of the record on appeal. However, Ms. Hogg
acknowledged in her pleadings filed with the district court that she testified during the May 16 hearing that no
recordings existed, and that she had sent her e-mail to the LCA attorneys for this purpose.
6
The arbitration clause provided that the “client and law firm agree that any disputes arising out of or connected with
this agreement (including but not limited to the services performed by any attorney under this agreement) shall be
submitted to confidential binding arbitration in Midland County, Texas in accordance with the rules of the American
Arbitration Association.”
9
within the scope of that agreement. Instead, LCA asserted that Ms. Hogg had waived her right to
seek arbitration by substantially invoking the judicial process to its detriment. In its response,
LCA chronicled the various actions that Ms. Hogg had taken in both the county court and the
district court before filing her motion to compel arbitration, which included the following:
 raising the dispute in the estate proceedings in county court;
 requesting a jury trial in county court;
 signing the Rule 11 Agreement;
 filing her counterclaims in district court;
 requesting declaratory judgment in district court;
 requesting a jury trial in district court;
 signing the agreed motion to consolidate the proceedings;
 signing the agreed motion for joint discovery and a joint trial;
 signing the agreed scheduling order;
 participating in what LCA characterized as “significant” discovery; and
 litigating the discovery dispute with LCA.
LCA further argued that Ms. Hogg was attempting to “manipulate” the judicial system by
filing her motion to compel arbitration only three days before the deadline set by the district court
for her to produce the recordings. LCA pointed out that Ms. Hogg had been fully aware that LCA
intended to file a motion for sanctions against her if she failed to produce the recordings, as
counsel had warned Ms. Hogg at the May 16, 2014 hearing that it intended to file a motion for
sanctions if she refused to produce the recordings as ordered by the court. LCA asserted that Ms.
Hogg had only filed her motion to compel arbitration in an improper attempt to avoid the
imposition of those sanctions. In response, Ms. Hogg asserted that LCA had not met its burden of
establishing a waiver, claiming that she did not invoke the judicial process and that LCA had not
presented any evidence to establish that it was prejudiced by her delay in seeking arbitration.
On the same day, LCA filed a motion for sanctions, asking that Ms. Hogg be sanctioned for
not complying with the district court’s order requiring her to produce the recordings. In its
10
motion, LCA suggested various discovery sanctions that could be imposed on Ms. Hogg for her
failure to comply with the order, including, among other things, striking Ms. Hogg’s counterclaims
or prohibiting her from raising certain defenses at trial, as permitted by the Texas Rules of Civil
Procedure. Ms. Hogg filed a response on June 13, 2014, claiming that she had complied with the
trial court’s order by affirming in her supplemental response to LCA’s discovery request that no
recordings had been made.
The district court held a hearing on the parties’ pending motions on June 13, 2014. At the
hearing, the court stated that it intended to take judicial notice of the court’s files in both LCA’s
lawsuit in the district court and the estate proceedings that had originated in the county court, for
the limited purpose of determining whether a Ms. Hogg had waived her right to arbitration. In
response, both parties stated that they had no objection to the court doing so.
At the hearing, the parties renewed their arguments regarding whether Ms. Hogg had
waived her right to arbitration. LCA’s attorney once again accused Ms. Hogg of filing her motion
to compel arbitration as a means of avoiding sanctions for her alleged discovery abuse, asserting
that Ms. Hogg’s attorney was aware that a motion for sanctions “was coming” when he made the
decision to file the arbitration motion, pointing out that he had warned Ms. Hogg that he intended
to file a sanctions motion at the May 16 hearing. In response, Ms. Hogg’s attorney admitted that
he had been aware of LCA’s intent to file the sanctions motion before he filed the arbitration
motion on Ms. Hogg’s behalf. However, he asserted that LCA’s motion for sanctions was
premature, as the court had not yet made a ruling on whether the recordings actually existed. The
district court immediately clarified that he had already determined that the recordings existed
when it granted LCA’s motion to compel production. In addition, the court expressed its opinion
11
that Ms. Hogg had testified falsely during the hearing on LCA’s motion to compel production
when she claimed that no recordings existed. At the conclusion of the hearing on the motion to
compel arbitration, the district court ruled that Ms. Hogg had waived her right to invoke the
parties’ arbitration agreement, and denied Ms. Hogg’s motion to compel arbitration. After a short
recess, the parties informed the court that Ms. Hogg planned to appeal the district court’s order, but
that the parties wished to continue to engage in discovery while the appeal was pending, and in
particular, the parties agreed that LCA would be entitled to take Ms. Hogg’s deposition. The
parties also advised the court that they wanted to try to mediate the case before engaging in further
litigation. The district court advised the parties that it would defer ruling on LCA’s motion for
sanctions until after the parties attempted to mediate their dispute. The parties’ mediation failed,
and on July 8, 2014, the district court entered its written order denying Ms. Hogg’s motion to
compel arbitration.
Shortly thereafter, on July 18, 2014, the district court issued a written order, granting
LCA’s motion for sanctions, expressly finding that Ms. Hogg had recorded her meetings with the
LCA attorneys, that she had testified falsely about the matter at the hearing on LCA’s motion to
compel production, and that she had violated the court’s order to produce the recordings. As a
sanction, the district court ruled that Ms. Hogg would not be allowed to present any evidence or
testimony at trial regarding what occurred at her meetings with LCA.
DISCUSSION
In a single point of error, Ms. Hogg contends that the district court erred by denying her
motion to compel arbitration, and in particular, asserts that LCA did not meet its burden of
establishing that she had waived her right to arbitration. For the reasons set forth below, we
12
disagree.
The Burden of Proof and Standard of Review
A party seeking to compel arbitration must (1) establish the existence of a valid arbitration
agreement; and (2) show that the claims asserted are within the scope of the agreement. See
Ellman v. JC Gen. Contractors, 419 S.W.3d 516, 519 (Tex.App. – El Paso 2013, no pet.) (citing In
re AdvancePCS Health L.P., 172 S.W.3d 603, 605 (Tex. 2005)). If these two showings are made,
the burden then shifts to the party resisting arbitration to present a valid defense to the agreement,
and absent evidence supporting such a defense, the trial court must compel arbitration. Ellman,
419 S.W.3d at 519; see also J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003).
In the present case, the parties do not challenge the validity of the arbitration agreement,
and do not dispute the fact that the claims asserted fall within the scope of that agreement.
Instead, the sole issue on appeal is whether the trial court abused its discretion in determining that
Ms. Hogg waived her right to invoke the arbitration agreement. Therefore, if no waiver is found,
we will have no choice but to enforce the arbitration clause in the parties’ agreement.
Because arbitration rights are contractual in nature, there is a “strong presumption against
waiver of arbitration,” and the Texas Supreme Court has therefore repeatedly warned that a party
asserting a waiver has a high hurdle to overcome. Ellman, 419 S.W.3d at 519 (citing Perry
Homes, 258 S.W.3d at 589-90). Nevertheless, the presumption is not irrebutable, and like any
other contract right, arbitration can be waived if the parties agree to resolve a dispute in court.
Perry Homes, 258 S.W.3d at 584, 593.
The Supreme Court has recognized that, “[u]nder a proper abuse-of-discretion review,
waiver is a question of law for the court, and we do not defer to the trial court on questions of law.”
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Perry Homes, 258 S.W.3d at 598. A reviewing court should defer to a trial court’s factual
findings if they are supported by the evidence, but ultimately the question whether a waiver has
occurred is a question of law, which an appellate court reviews de novo. Id; see also Kennedy
Hodges, L.L.P. v. Gobellan, 433 S.W.3d 542, 545 (Tex. 2014) (per curiam); Ellman, 419 S.W.3d
at 520 (whether a party has waived arbitration by litigation conduct is question of law, which we
review de novo).
As the Texas Supreme Court recently noted, waiver is an “‘intentional relinquishment of a
known right’ [that] can occur either expressly, through a clear repudiation of the right, or
impliedly, through conduct inconsistent with a claim to the right.” G.T. Leach Builders, LLC v.
Sapphire V.P., LP, 458 S.W.3d 502, 511 (Tex. 2015) (citing Perry Homes, 258 S.W.3d at 590–91,
594); Moayedi v. Interstate 35/Chisam Rd., L.P., 438 S.W.3d 1, 6 (Tex. 2014)). LCA contends
that Ms. Hogg both expressly and impliedly waived her right to request arbitration, and we
therefore consider each contention separately.7
Analysis
Ms. Hogg did not Expressly Waive her Right to Arbitration
A party makes an express waiver when it “affirmatively indicates that it wishes to resolve
the case in the judicial forum, rather than through arbitration.” Okorafor v. Uncle Sam & Assocs.,
295 S.W.3d 27, 39 (Tex.App. – Houston [1st Dist.] 2009, pet. denied); see Triton Container
Intern., Ltd. v. Baltic Shipping Co., CIV.A. 95-0427, 1995 WL 729329, at *3 (E.D. La. Dec. 8,
7
Ms. Hogg asserts that we should not consider whether Ms. Hogg expressly waived her right to arbitration, as LCA
did not make this argument in the trial court. See TEX.R.APP.P. 33.1(a) (as a “prerequisite to presenting a complaint
for appellate review, the record must show that . . . the complaint was made to the trial court by a timely request,
objection, or motion…”). The record, however, does not clearly reflect that LCA only intended to assert that Ms.
Hogg impliedly waived her right to arbitration, and we therefore believe it is appropriate to address both issues on
appeal.
14
1995), aff’d, 95 F.3d 54 (5th Cir. 1996) (party’s communication to opposing counsel expressly
stating that it intended to settle the case and did not intend to seek arbitration, was an express
waiver of the right to arbitrate); Garcia v. Huerta, 340 S.W.3d 864, 867 (Tex.App. – San Antonio
2011, pet. denied) (court found express waiver where party affirmatively stated in settlement
agreement that it was waiving its right to enforce an arbitration agreement).
However, when a party has made no express statements indicating the intent to waive
arbitration, and the party asserting a waiver instead relies solely on the other party’s pretrial
activities to assert a waiver, this invokes the doctrine of “implied waiver.” Okorafor, 295 S.W.3d
at 39.
In the present case, LCA is not able to point to any express statements that Ms. Hogg made
in which she affirmatively stated her intention to give up her right to arbitrate. Instead, all of the
statements LCA relies on, at best, impliedly expressed this intent. For example, LCA points to the
statements in the Rule 11 Agreement, which Ms. Hogg signed, indicating that the parties had
agreed to place the disputed attorney’s fees into the court’s registry, and the agreement that the
funds were not to be distributed until there was a “judgment” in the district court. LCA asserts
that the language requesting a “judgment” from the district court indicates that Ms. Hogg was
expressly waiving her right to arbitration in favor of a district court judgment.
As Ms. Hogg points out, however, even though the Rule 11 Agreement called for a
judgment by the district court, this did not preclude the possibility of arbitration, as the district
court would have been required to enter a judgment either confirming or vacating the arbitration
panel’s decision. See, e.g., Cambridge Legacy Group, Inc. v. Jain, 407 S.W.3d 443, 448
(Tex.App.—Dallas 2013, pet. denied) (trial court must confirm an arbitration award except under
15
limited circumstances in which it may vacate modify or correct the award). Further, the Rule 11
Agreement contained no express statements affirmatively indicating that Ms. Hogg intended to
give up her right to arbitration by signing the agreement. Thus, while Ms. Hogg’s conduct in
signing the Rule 11 Agreement may be considered as a factor in determining whether Ms. Hogg
impliedly invoked the judicial process, it does not constitute an express waiver of arbitration.
Similarly, we disagree with LCA that Ms. Hogg expressly waived her right to arbitrate by
filing various pleadings in which she requested a jury trial and agreed to a trial setting. The Texas
Supreme Court has routinely rejected similar arguments that conduct of this nature constitutes an
express waiver of arbitration. See, e.g., G.T. Leach Builders, 458 S.W.3d at 511 (the party’s
conduct in seeking a continuance of a trial and in signing a Rule 11 Agreement, in which the
parties agreed to a new trial date, did not constitute an express waiver of arbitration); In re
Fleetwood Homes of Texas, L.P., 257 S.W.3d 692, 694 (Tex. 2008) (rejecting a similar argument
that statements made by a party in communicating with opposing counsel concerning a new trial
date constituted an express waiver of arbitration); In re Bank One, N.A., 216 S.W.3d 825, 827
(Tex. 2007) (per curiam) (statements made in a motion to set aside default judgment seeking a new
trial date did not expressly waive arbitration rights). “Although the acts of requesting and then
agreeing to a new trial date could be inconsistent with an intent to exercise the right to arbitrate,
they do not constitute an express waiver of that right[.]” G.T. Leach Builders, 458 S.W.3d at 511.
Similarly, in the present case, we conclude that Ms. Hogg made no statements expressly
relinquishing or repudiating her right to arbitration, and that at most, her pretrial litigation conduct
raises only the question whether she impliedly waived her right to arbitration by invoking the
judicial process.
16
Ms. Hogg’s Conduct Constituted an Implied Waiver of the Right to Arbitrate
The Totality of the Circumstances Test
When parties have not expressly waived the right to arbitrate, a waiver may be implied
from a party’s conduct, so long as that conduct is “unequivocal.” Perry Homes, 258 S.W.3d at
593 n.77 (citing Van Indep. Sch. Dist. v. McCarty, 165 S.W.3d 351, 353 (Tex. 2005)); First Valley
Bank v. Martin, 144 S.W.3d 466, 471 (Tex. 2004); Jernigan v. Langley, 111 S.W.3d 153, 156
(Tex. 2003). A party impliedly waives the right to arbitration “by substantially invoking the
judicial process to the other party’s detriment or prejudice.” Kennedy Hodges, L.L.P., 433
S.W.3d at 545 (citing Perry Homes, 258 S.W.3d at 589-90);Richmont Holdings, Inc. v. Superior
Recharge Sys., L.L.C., 455 S.W.3d 573, 574-75 (Tex. 2015) (per curiam). It is well-established
that merely taking part in litigation is not enough to establish an implied waiver, and that the
party’s conduct must clearly and unequivocally indicate an intent to avail itself of the judicial
process. Perry Homes, 258 S.W.3d at 593; In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763
(Tex. 2006). Further, the burden of proof is on the party asserting waiver, and the “hurdle”
imposed by this burden is a “high one.” G.T. Leach Builders, 458 S.W.3d at 511-12 (citing
Richmont Holdings, Inc., 455 S.W.3d at 575). Accordingly, in close cases, the strong
presumption against waiver should govern. Perry Homes, 258 S.W.3d at 593.
In determining whether a party has impliedly waived the right to arbitrate, the party’s
pretrial activities should not be viewed in isolation; instead, a reviewing court must look to the
totality of the circumstances to determine if the party’s pretrial activities exhibited an intent to
avail itself of the judicial process. See Kennedy Hodges, L.L.P., 433 S.W.3d at 545; Perry
Homes, 258 S.W.3d at 590–92 (court must decide waiver on a “case-by-case” basis by asserting
17
the totality of the circumstances.); Ellman, 419 S.W.3d at 519-20 (applying the totality of the
circumstances test in concluding that a party waived its right to arbitrate by invoking the judicial
process to the detriment of the opposing party).
Courts have identified the following relevant factors in making this determination:
• whether the party who pursued arbitration was the plaintiff or the defendant;
• how long the party who pursued arbitration delayed before seeking arbitration;
• when the party who pursued arbitration learned of the arbitration clause’s existence;
• how much the pretrial activity related to the merits rather than arbitrability or jurisdiction;
• how much time and expense has been incurred in litigation;
• whether the party who pursued arbitration sought or opposed arbitration earlier in the case;
• whether the party who pursued arbitration filed affirmative claims or dispositive motions;
• how much discovery has been conducted and who initiated the discovery;
• whether the discovery sought would be useful in arbitration;
• what discovery would be unavailable in arbitration;
• whether activity in court would be duplicated in arbitration;
• when the case was to be tried; and
• whether the party who pursued arbitration sought judgment on the merits.
Ellman, 419 S.W.3d at 519-20; see also G.T. Leach Builders, 458 S.W.3d at 512 (courts must
consider a “wide variety” of factors in determining whether a party has substantially invoked the
judicial process). As the Supreme Court pointed out in Perry Homes, all of these factors are
rarely presented in a single case, and waiver has been established based on only a few or even a
single one. Perry Homes, 258 S.W.3d at 591.
The Trial Court Properly took Judicial Notice of its File in Making its Ruling
As a preliminary matter, Ms. Hogg contends that LCA did not meet its burden of
establishing an implied waiver at the hearing on her motion to compel arbitration, because LCA
presented no evidence at that hearing of the parties’ pretrial activities that occurred before Ms.
Hogg filed her motion to compel. Ms. Hogg acknowledges that at the start of the hearing, the trial
court took “judicial notice” of the court’s file in both the county court and in LCA’s lawsuit in
18
district court, without objection by either party, for the limited purpose of determining waiver.
Ms. Hogg contends, however, that this did “nothing to help LCA carry its heavy burden” of
producing evidence of waiver.
Ms. Hogg correctly points out that a trial court is not permitted to take judicial notice of the
“truth of factual statements and allegations contained in the pleadings, affidavits, or other
documents in the file.” See, e.g., Guyton v. Monteau, 332 S.W.3d 687, 692-93 (Tex.App. –
Houston [14th Dist.] 2011, no pet.). However, a court may take judicial notice of its own records
for other purposes. In particular, the Supreme Court has expressly approved the practice of taking
judicial notice of the court’s file for purposes of determining whether a party’s pretrial activities
substantially invoked the trial court’s jurisdiction or whether the opposing party was prejudiced by
those activities. Perry Homes, 258 S.W.3d at 595-96 (noting that the trial court had taken judicial
notice of its file, which included discovery and motions to determine that there was extensive
discovery conducted “about every aspect of the merits” of the case); see also RSL Funding, LLC v.
Pippins, 424 S.W.3d 674, 685-86 (Tex.App. – Houston [14th Dist.] 2014, pet. pending) (trial court
may take judicial notice of the record in determining whether a party was prejudiced by the other
party’s pretrial activities prior to moving for arbitration); Citizens Nat. Bank v. Bryce, 271 S.W.3d
347, 354-59 (Tex.App. – Tyler 2008, no pet.) (trial court took judicial notice of its file in
determining whether party had been prejudiced by other party’s pretrial activities). As such, our
analysis will include the county and district court records of which the trial court took judicial
notice.8
8
LCA attached to its response to the motion to compel arbitration, six pleadings that Ms. Hogg filed in the county
court and district court, including her response to Mark Hogg’s petition to enforce the MSA, in which she requested a
jury trial on the attorney fee dispute; the parties’ Rule 11 Agreement; the parties’ agreed motion to consolidate the two
cases; the parties’ agreed discovery motion; the agreed scheduling order; and Ms. Hogg’s answer to LCA’s lawsuit,
19
Ms. Hogg Substantially Invoked the Judicial Process through her Pretrial Activities
We now turn to our analysis of the pertinent factors in determining whether Ms. Hogg
substantially invoked the judicial process.
Ms. Hogg Initiated the Litigation
LCA asserts that the litigation was initiated by Ms. Hogg on February 12, 2014, when Ms.
Hogg filed her opposition to Mark Hogg’s petition in the county court and raised the issue whether
the contingent fee agreement was unconscionable or obtained through fraud or misrepresentation.
Ms. Hogg asserts that this was only a defensive or “responsive” pleading, and cannot be
considered the initiation of litigation. Ms. Hogg contends that the litigation over the validity of
the contingent fee agreement was instead initiated by LCA when it filed its lawsuit in the district
court on March 7, 2014, and she asserts that it is therefore “disingenuous” for LCA to contend that
she initiated the litigation in county court. We disagree.
Initially, we note that Ms. Hogg is correct in pointing out that the filing of defensive
pleadings, including mandatory or compulsive counterclaims, made in response to a party’s
pleadings, do not necessarily waive arbitration. G.T. Leach Builders, 458 S.W.3d at 512-13.
However, we do not consider Ms. Hogg’s pleadings in the county court to have been defensive in
nature when considered in the context of her dispute with LCA over the validity of the contingent
fee agreement. The dispute over the contingent fee agreement was initiated in a non-judicial
setting when LCA communicated to Ms. Hogg that it intended to take its 25 percent contingent fee
under the terms of the contingent fee agreement at the estate closing. Prior to that time, Ms. Hogg
had not voiced any objections to the contingent fee agreement or to any of the terms of the MSA.
However, after receiving LCA’s communication, Ms. Hogg made the decision to raise her
raising her affirmative defenses and requesting a jury trial.
20
objections to the contingent fee agreement in a judicial setting, when she filed her response to
Mark Hogg’s petition in county court, in which she expressly alleged that the contingent fee
agreement was unconscionable and should not be enforced, and asked that the matter be decided
by a jury.
Further, LCA was not a party to that proceeding when Ms. Hogg raised the issue of the
validity of the contingent fee agreement. Therefore, we would have great difficulty in concluding
that her response was merely “defensive” with respect to anything LCA had done up until that
point. In fact, LCA had not taken any judicial action at that point, and did not become a party to
any judicial proceeding until after Hogg filed her response in county court attacking the contingent
fee agreement, and essentially inviting LCA into the litigation. Not surprisingly, less than a week
later, LCA became a party to the proceedings when the county court granted LCA’s petition in
intervention – a petition LCA filed in response to Ms. Hogg’s initial court pleadings.9
Once LCA became a party to the county court proceedings, if Ms. Hogg had truly wanted
to have her dispute submitted to arbitration, she could have invoked the arbitration clause, and
asked the county court to stay the estate proceedings while the arbitration went forward.
However, Ms. Hogg failed to do so, and instead, willingly pressed forward with litigating the
dispute.
Further, we note that precisely because Ms. Hogg raised the issue of the validity of the
contingent fee agreement in the county court, that portion of the estate case became contested, and
without objection, the county court transferred the matter to the district court for decision.
9
Ms. Hogg also points out that the MSA did not contain an arbitration clause, and contends that the arbitration clause
in the contingent fee agreement did not come “into play” until LCA filed its lawsuit in district court seeking to enforce
the contingent fee agreement. This argument overlooks that Ms. Hogg directly challenged the validity of the
contingent fee agreement in the county court litigation, well before LCA filed its lawsuit in district court.
21
Moreover, shortly after the dispute was transferred to the district court, Ms. Hogg signed a Rule 11
Agreement that specifically referred to the parties’ dispute regarding the contingent fee agreement,
and detailed how that dispute was to be resolved, i.e., by placing the disputed attorney’s fees into
the registry of the county court, while awaiting a final judgment of the district court.
Significantly, these actions all occurred before LCA filed its lawsuit in the district court almost a
month later on March 7, 2014. It is telling that even if LCA had not filed its lawsuit in the district
court, the district court would have still been tasked with resolving the dispute over the validity of
the contingent fee agreement, as the result of the pleadings that Ms. Hogg herself filed in the estate
proceedings in county court.
Moreover, we note that Ms. Hogg herself acknowledged the overlap with these two
proceedings when she subsequently signed an agreed motion to consolidate the county court
proceedings with LCA’s lawsuit in the district court, recognizing that both cases involved the same
factual and legal issues initially raised by Ms. Hogg in the county court, i.e., whether the
contingent fee agreement was void or otherwise unenforceable. Therefore, we conclude that,
regardless of which court was ultimately tasked with deciding the issue, Ms. Hogg was the first
party to raise the issue of the validity of the contingent fee agreement in a judicial proceeding.
Ms. Hogg Raised Affirmative Claims for Relief and Requested a Jury Trial
We also find it significant that shortly after Ms. Hogg agreed to consolidate both matters in
the district court, she filed an answer to LCA’s lawsuit, in which she not only raised six
counterclaims contesting the enforceability of the contingent fee agreement, but also made two
affirmative claims for relief: Ms. Hogg requested that the district court enter a declaratory
judgment that both the contingent fee agreement and the MSA were “unconscionable, void and
22
unenforceable,” and that the district court impose a “constructive trust” to “disgorge LCA from
receiving unearned profits from a breach of fiduciary duty and/or fraud.” Moreover, in her
pleadings, Ms. Hogg requested that she be awarded exemplary damages, attorney’s fees, and “such
other and further relief, at law or in equity, to which [Ms. Hogg] shall show herself justly entitled
to receive.” And finally, we note that Ms. Hogg specifically requested that these matters be heard
by a jury.
We agree with Ms. Hogg that filing defensive pleadings, including mandatory or
compulsive counterclaims, does not necessarily waive arbitration. See, e.g., G.T. Leach Builders,
458 S.W.3d at 512-13. However, in G.T. Leach, the Court drew a distinction between
counterclaims that are defensive in nature, and those that seek “affirmative relief.” Id. at 513. In
G.T. Leach, the Court noted that the defendant had only filed compulsory counterclaims, and did
not seek any affirmative relief in his counterclaims, and concluded that his actions therefore did
not invoke the judicial process. Id. However, unlike the defendant in G.T. Leach, Ms. Hogg
went a step beyond merely filing defensive counterclaims, and instead filed an affirmative claim
for a declaratory judgment and to impose a constructive trust on the disputed monies, and
requested the court award exemplary damages against LCA.
As this Court has previously held, a party’s request for affirmative relief, such as request
for a declaratory judgment or an award of exemplary damages, is an important factor in
determining whether a party has substantially invoked the judicial process. Ellman, 419 S.W.3d
at 520 (appellants substantially invoked the judicial process by, among other things, raising
affirmative claims for relief in which they requested a declaratory judgment); see also Okorafor,
295 S.W.3d at 40 (finding that defendants had substantially invoked the judicial process by filing
23
multiple sworn and affirmative defenses, and affirmative claims for relief, including requests for
declaratory relief, attorney’s fees, and sanctions); RSL Funding, LLC, 424 S.W.3d at 681-87
(plaintiff who filed an action for declaratory judgment regarding an issue that was otherwise
arbitrable thereby invoked the judicial process). As the Court noted in RSL Funding, requesting a
declaratory judgment is significant because it is “designed” to “put to rest the question of [the]
rights between the parties” in a judicial proceeding. RSL Funding, LLC, 424 S.W.3d at 684.
We recognize that bringing a claim for affirmative relief, while an important factor, is not
dispositive in determining whether a party has substantially invoked the judicial process. Ms.
Hogg correctly points out that she did not file any dispositive motions or seek adjudication of any
of her claims against LCA prior to filing her motion to compel arbitration. Cf. In re Mirant Corp.,
613 F.3d 584, 589 (5th Cir. 2010) (finding waiver where defendant filed dispositive motions
seeking dismissal of plaintiff’s lawsuit based on its affirmative defenses). Therefore, we turn our
attention to the other relevant factors to be considered in determining whether Ms. Hogg’s conduct
substantially invoked the judicial process.
Ms. Hogg’s Pretrial Activities were Inconsistent with an Intent to Arbitrate
LCA asserts that after the judicial process began, Ms. Hogg engaged in numerous pretrial
activities reflecting her intent to have the trial court resolve her dispute with LCA. In particular,
LCA points out that Ms. Hogg filed numerous pretrial pleadings in which she requested a jury trial
on the parties’ dispute, agreed to a trial setting, and signed the Rule 11 Agreement in which she
agreed to place the contested attorney’s fees into the registry of the county court to be distributed
only upon the “entry of a judgment of the District Court[.]” Although none of those pleadings
amounted to an express waiver of Ms. Hogg’s right to arbitrate, these pleadings evidenced an
24
intent to have the parties’ dispute resolved in a judicial setting rather than through arbitration.
Ms. Hogg contends that none of her pleadings related to the merits of the case, and
therefore should not be considered as invoking the judicial process. In this regard, Ms. Hogg
points to our opinion in Ellman, in which we explained that one of the factors in determining
whether a party waived its right to arbitration is whether the party filed pleadings that related to the
merits of the case, rather than to arbitrability or jurisdiction. Ellman, 419 S.W.3d at 519-20. In
the present case, however, none of the pleadings went to the question of arbitrability or
jurisdiction, and instead related to matters relevant to the litigation itself. While many of the
pleadings related to procedural issues, they were still filed with the intent of moving the litigation
forward in a judicial setting. Accordingly, these pleadings are relevant to our analysis.
Ms. Hogg’s intent to allow the matter to be resolved through litigation is also evidenced by
her participation in discovery proceedings. As the Supreme Court noted in Perry Homes, a key
question in determining whether a party has invoked the judicial process is the type and nature of
discovery that took place before the party moved to compel arbitration. Perry Homes, 258
S.W.3d at 593. “‘[A]llowing a party to conduct full discovery, file motions going to the merits,
and seek arbitration only on the eve of trial’” might be sufficient to find a waiver. Id. at 590
(quoting In re Vesta Ins. Group, Inc., 192 S.W.3d at 764). However, as the Court noted in Perry
Homes, it is not always clear precisely how much discovery is considered to be “full discovery.”
Perry Homes, 258 S.W.3d at 590.
In the present case, our analysis is somewhat hindered by the deficiencies in the record.
The record before the trial court when it ruled on Ms. Hogg’s motion to compel arbitration did not
fully document the extent of the discovery conducted by the parties. Instead, LCA only attached a
25
copy of its request for production of documents that it served on Ms. Hogg, requesting ten items,
including the recordings, and Ms. Hogg’s responses thereto.10
Ms. Hogg correctly points out that LCA makes undocumented claims in its brief that Ms.
Hogg and LCA served each other with several other discovery requests; that both parties provided
responses to those requests; and that LCA in particular, provided Ms. Hogg with “voluminous
documents” in response to her requests. As Ms. Hogg points out, LCA failed to provide the trial
court with any of those additional requests or responses when it was considering Ms. Hogg’s
motion to compel arbitration. Further, although LCA contends in its brief that virtually all the
discovery needed in the case was complete by the time Ms. Hogg filed her motion to compel
arbitration, once again, there is nothing in the record to document that conclusion.
Nevertheless, while the record in this case is far from perfect, we are able to find some
evidence in the record of the nature and extent of the discovery proceedings that occurred. First,
as set forth in the sworn affidavit submitted to the trial court by Ms. Hogg’s attorney in support of
her motion to compel, the following discovery had taken place before Ms. Hogg filed her motion
to compel arbitration:
Defendant has filed one initial round of discovery consisting of 30 requests for
admissions and 10 requests for the production of documents. A little over one-half
of these discovery requests dealt with potential issues regarding the CFA, such as
authenticity, validity, signing, etc.
Defendant has taken three depositions (totaling approximately four hours) of the
LCA attorneys who negotiated an original hourly fee agreement and an amended
contingent fee agreement. Over one-half of the deposition time was related to issues
surrounding the [contingent fee agreement].
10
LCA later attached additional discovery items to its motion for summary judgment. However, as noted above, the
summary judgment motion was filed after the trial court rendered its decision on the motion to compel arbitration, and
it does not appear that the trial court had those items before it when it rendered its decision. We decline to consider
those items in our review of the court’s decision.
26
In addition, at the hearing on Ms. Hogg’s motion to compel arbitration, the attorneys for both
parties made undisputed representations to the district court regarding the discovery that had taken
place. Ms. Hogg’s attorney reiterated that the above-described discovery had taken place, while
LCA’s attorney added that LCA had taken the depositions of Ms. Hogg’s son and her mother, but
had not yet deposed Ms. Hogg.
While apparently acknowledging that this discovery did take place, Ms. Hogg asserts that it
cannot be considered “substantial” discovery, noting that the parties only engaged in what she
describes as “standard” discovery for three months before she moved for arbitration. Ms. Hogg
questions whether this limited amount of discovery could be considered substantial in light of the
high financial stakes involved in the parties’ dispute over $1.2 million in attorney’s fees. Ms.
Hogg correctly points out that there are multiple cases in which the parties engaged in far more
extensive discovery for far longer periods of time, yet the courts in those cases found that
arbitration had not been waived. In fact, the Supreme Court recently chronicled several of its
holdings in which it declined to find a waiver despite rather extensive and prolonged discovery
periods ranging from six to nineteen months. G.T. Leach Builder, 458 S.W.3d at 514-15.
Although how long a party has engaged in pretrial activities is one factor to be considered
in determining whether arbitration has been waived, a court should not look simply to the number
of days between the initiation of litigation and the request for arbitration; instead, the court should
consider how extensive the discovery was in the context of the facts of a particular case. Citizens
Nat. Bank, 271 S.W.3d at 355 (citing Perry Homes, 258 S.W.3d at 590, 593). That the parties
may not have exchanged voluminous documents during discovery for an extended period of time,
such as the parties did in Perry Homes, does not mean that the discovery was not “extensive” in the
27
context of a less complicated case, where perhaps less discovery was needed. See id. at 356.
As LCA points out, while the financial stakes in the present case were high, the case itself
was not particularly complex, involving a single issue whether the parties’ contingent fee
agreement was valid and enforceable, or alternatively, whether it was fraudulently obtained.
Accordingly, it does not appear that the parties would have been required to conduct an extensive
amount of discovery prior to trial. Further, the parties themselves agreed on March 17, 2014 to a
relatively short discovery period ending on September 1, 2014, thereby giving them only five and
a half months to complete discovery before the October 2014 trial setting. At the time Ms. Hogg
filed her motion to compel arbitration, the parties were approximately half-way through the
agreed-upon discovery cycle. While it is unclear exactly how much of the discovery related to the
merits of the case due to the deficiencies in the record, Ms. Hogg’s own attorney admitted in his
sworn affidavit that at least half of the discovery conducted went to the question of the
enforceability of the contingent fee agreement, which clearly went to the merits of this case.
While we cannot conclude that the parties in this case conducted “full discovery,” we are
able to conclude that the parties had conducted a substantial amount of discovery with regard to
this single-issue case, and were likely nearing the end of the discovery proceedings when Ms.
Hogg filed her motion to compel arbitration. Once again, however, this does not end our analysis,
as the next factor is perhaps the most important factor in our determination whether Ms. Hogg
substantially invoked the judicial process.
Ms. Hogg Willingly Engaged in Litigation Until She Faced an Adverse Ruling
LCA focuses much of its argument on Ms. Hogg’s failure to move to compel arbitration
until it became apparent that she was facing sanctions for her failure to produce the recordings of
28
her meetings with the LCA attorneys, pointing out that Ms. Hogg filed her arbitration motion only
two days before the trial court’s deadline for producing the recordings. LCA claims that Ms.
Hogg’s conduct in willingly pursuing litigation until the point at which the trial court ruled against
her in the discovery dispute, and when she faced the prospect of potentially case-ending sanctions,
was “manipulative” in nature.
Ms. Hogg attempts to counter LCA’s argument by pointing out that when she filed her
motion to compel arbitration, LCA had not yet filed its motion for sanctions.11 However, Ms.
Hogg’s attorney admitted at the hearing on the motion to compel arbitration that LCA had warned
him that it would pursue sanctions if Ms. Hogg failed to comply with the trial court’s order, and
that this warning came before he filed the motion to compel arbitration on Ms. Hogg’s behalf. In
addition, Rule 215.2 of the Texas Rules of Civil Procedure provides the trial court with the
authority to impose a variety of sanctions for noncompliance with a discovery order. See TEX. R.
CIV. P. 215.2. Accordingly, it would have come as no surprise to Ms. Hogg or her attorney that a
motion for sanctions would be forthcoming if she did not comply with the trial court’s order.
Moreover, Ms. Hogg was admittedly aware of the arbitration clause in the contingent fee
agreement from the outset of the litigation, yet she chose to engage in the discovery dispute raised
by LCA, filed pleadings in opposition to LCA’s motion to compel production, and attended a court
hearing on the motion. Only after she received an adverse ruling requiring her to produce the
recordings, and only after she faced the possibility of sanctions for violating that ruling, did she file
her motion to compel arbitration. In fact, Ms. Hogg’s motion to compel arbitration
11
Ms. Hogg also asserts that no such recordings exist. We note, however, that Ms. Hogg raised this issue in the trial
court, and the trial court expressly disagreed with her, finding that the recordings existed, and that she was compelled
to produce them.
29
acknowledged that she had prior knowledge of the arbitration clause and purposely delayed
invoking the clause: “After some discovery and deliberation, [Ms. Hogg] has chosen to exercise
her [arbitration] rights under the CFA[.]”
Other courts addressing situations involving the merits of the claim have concluded that
when a party delays seeking arbitration until “after proceeding in litigation to an adverse result
[this] is the clearest form of inconsistent litigation conduct and is inevitably found to constitute
substantial invocation of the litigation process resulting in waiver.” See, e.g., Haddock v. Quinn,
287 S.W.3d 158, 180 (Tex.App. – Fort Worth 2009, pet. denied) (the plaintiff had already lost its
declaratory judgment lawsuit, and had suffered a take-nothing judgment, when it filed its
application for arbitration); Jones v. Citibank (S.D.), N.A., 235 S.W.3d 333, 340–41 (Tex.App. –
Fort Worth 2007, no pet.) (“[s]ubstantially invoking the judicial process may occur when the party
seeking arbitration actively tried, but failed, to achieve a satisfactory result in litigation before
turning to arbitration”).
Contrary to Ms. Hogg’s argument, we do not believe it is necessary for a trial court to have
entered a final judgment against the moving party before a waiver will be found. Several courts
have found that a party substantially invoked the judicial process by waiting to request arbitration
until after it appeared clear that a favorable ruling would not be forthcoming in the judicial forum
or that a trial court was not receptive to its arguments. For example, in PRSI Trading Co. LP v.
Astra Oil Trading NV, No. 01-10-00517-CV, 2011 WL 3820817 (Tex.App. – Houston [1st Dist.]
2011, pet. denied) (on rehearing) (mem. op., not designated for publication), the defendant moved
to compel arbitration only after the trial court had denied its motion for summary judgment based
on its affirmative defenses. In finding that the defendant’s conduct constituted waiver, the court
30
noted that: “This type of litigation behavior – unsuccessfully attempting to obtain a favorable
result in court before requesting a referral to arbitration – is yet another factor supporting the trial
court’s waiver finding.” Id., at *4; see also Nw. Const. Co., Inc. v. Oak Partners, L.P., 248
S.W.3d 837, 848-49 (Tex.App. – Fort Worth 2008, pet. denied) (party substantially invoked the
judicial process where he admitted that he had engaged in discovery to aid in mediation, and only
invoked arbitration after mediation failed).
Similarly, in In re Mirant Corp., the defendant filed a series of motions to dismiss, all of
which the trial court denied. In re Mirant Corp., 613 F.3d 584, 587-88 (5th Cir. 2010). After the
trial court denied the defendant’s third motion to dismiss, the defendant filed its motion to compel
arbitration. The court noted that the defendant had been fully aware of its right to compel
arbitration from the outset of the litigation, but had waited to file its motion to compel arbitration
until after it became apparent that the trial court was “not receptive to its arguments[.]” The court
determined that the defendant was in essence attempting to obtain “a second bite at the apple
through arbitration[,]” and that it was playing a game of “heads I win, tails you lose,” which it
concluded was the “worst possible reason for failing to move for arbitration sooner than it did.”
Id. at 590. The court therefore concluded that the defendant had substantially invoked the judicial
process through its actions prior to seeking arbitration. Id. at 590-91; see also Holdco v. Cassady,
654 F.3d 444, 454, 457 (3rd Cir. 2011) (party’s failure to invoke arbitration clause until after trial
court rejected its request for a preliminary injunction was an attempt to manipulate the judicial
system by getting a “second bite” at the apple).
In the present case, Ms. Hogg was willing to participate in the discovery process and to
litigate the discovery battle with LCA in a judicial forum only up until the point that she received
31
an adverse ruling from the district court and was faced with the possibility of having the court
impose case-crippling sanctions. While Ms. Hogg is correct that we cannot know her actual
intent in moving for arbitration at that point, there can be no doubt that her strategy in attempting to
switch forums at this critical juncture was her only hope of getting a “second bite at the apple” on
the issue of the parties’ discovery dispute. Further, in light of the fact that Ms. Hogg admittedly
knew about the arbitration clause from the outset of the litigation, we conclude that her conscious
and informed decision to litigate her dispute in a judicial proceeding and to invoke the arbitration
clause only after receiving the trial court’s adverse ruling was more consistent with a “late game
tactical decision” than a true intent to preserve the right to compel arbitration. Tuscan Builders,
LP v. 1437 SH6 L.L.C., 438 S.W.3d 717, 722 (Tex.App. – Houston [1st Dist.] 2014, pet. denied)
(the circumstances surrounding the timing of party’s motion to compel where more consistent
“with a late-game tactical decision than an intent to preserve the right to arbitrate”).
As such, based on the totality of the circumstances, we conclude that Ms. Hogg
substantially invoked the judicial process before moving for arbitration.
LCA Would Be Prejudiced by Referring This Matter to Arbitration
In order to establish that a party has waived its right to arbitration, we must conclude not
only that the party has substantially invoked the judicial process, but also that the party opposing
arbitration has been prejudiced by the moving party’s delay in moving to compel arbitration.
Perry Homes, 258 S.W.3d at 595. In the context of waiver of an arbitration clause, “prejudice
refers to the inherent unfairness in terms of delay, expense, or damage to a party’s legal position
that occurs when the party’s opponent forces it to litigate an issue and later seeks to arbitrate that
same issue.” Id. at 597 n. 93 (quoting Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d
32
341, 346 (5th Cir.2004)). Such unfairness results when a party attempts “to have it both ways by
switching between litigation and arbitration to its own advantage[.]” Perry Homes, 258 S.W.3d
at 597. Whether a party was prejudiced is a question of law that a reviewing court reviews de
novo. Id. at 598 (citing Reliance Nat’l Indem. Co. v. Advance’d Temps, Inc., 227 S.W.3d 46, 50
(Tex. 2007)).
The Delay in Invoking the Arbitration Clause
LCA contends that it was prejudiced by Ms. Hogg’s delay in seeking arbitration, pointing
out that Ms. Hogg had been aware of the existence of the arbitration clause from the outset of
litigation, yet waited to file her motion to compel arbitration three months after the parties began
discovery, and less than four months before the trial setting. We do not, however, find that this
approximate three-month delay, standing alone, prejudiced LCA’s case. In fact, various courts
have found that much longer delays are not sufficient to cause prejudice to the opposing party’s
case. See, e.g., In re Fleetwood Homes of Tex., L.P., 257 S.W.3d 692, 694 (Tex. 2008) (per
curiam) (eight-month delay); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006) (per
curiam) (two-year delay).
The real issue in determining whether prejudice exists is not typically the length of the
delay itself, but what activities occurred during the period of delay, and how those activities
affected the party opposing arbitration. Perry Homes, 258 S.W.3d at 600; see also In re Vesta Ins.
Group, Inc. 192 S.W.3d at 763 (a party does not waive arbitration merely by delay, and instead, the
party urging waiver must establish that any delay resulted in prejudice). The two key critical
factors in determining whether a party was prejudiced by the opposing party’s delay in asserting
arbitration are: (1) the expenses incurred by the party during the period of delay; and (2) the
33
effect on the parties’ legal positions, including whether the party moving for arbitration would gain
an unfair advantage by switching forums from litigation to arbitration. Perry Homes, 258 S.W.3d
at 597. We therefore consider each of these issues separately.
The Expenses Incurred by LCA
LCA claims that it incurred “significant” expenses during the discovery proceedings that
occurred before Ms. Hogg moved to compel arbitration, including the expenses that it incurred in
litigating Ms. Hogg’s discovery abuse. In addition, LCA points to the expenses it incurred in
initiating discovery, such as taking the depositions of Ms. Hogg’s mother and son, as well as the
expenses it incurred in responding to Ms. Hogg’s discovery requests.
In determining whether a party was prejudiced by participating in discovery, the focus
must be on the discovery that was initiated by the moving party, and we will not consider the
discovery initiated by the opposing party. Ellman, 419 S.W.3d at 522; see also Perry Homes, 258
S.W.3d at 600 (a party who requests lots of discovery is not prejudiced by getting it and taking it to
arbitration in the same way that a party who produces lots of discovery outside the stricter
discovery limits in arbitration). We therefore decline to take into consideration the expenses that
LCA alleges it incurred in terms of the discovery that it initiated, and we must instead focus on the
discovery that Ms. Hogg initiated.
In addition, in determining how much discovery Ms. Hogg initiated, we are once again
stymied by the deficiencies in the record. Although the record reflects that Ms. Hogg served LCA
with 30 requests for admission and 10 requests for production, there is nothing in the record to
support LCA’s contention that it responded to those requests by giving Ms. Hogg “voluminous”
documents. In fact, there is nothing in the record from which we can determine what Ms. Hogg
34
requested, how LCA responded to her requests, or even if it did respond. And, as Ms. Hogg
points out, there is nothing in the record to establish the expenses that LCA incurred in responding
to those requests. Similarly, although the record does reflect that Ms. Hogg conducted the
deposition of LCA attorneys, there is again nothing in the record to reflect the costs that LCA
incurred with regard to those depositions.
And, assuming it is appropriate to consider the expenses that LCA incurred in litigating
Ms. Hogg’s discovery abuse, LCA has also failed to provide any evidence relating to the expenses
incurred in litigating that matter. Further, although LCA claims it was required to file six
pleadings and attend two court hearings to resolve the discovery abuse, we note that only one of
those pleadings, i.e., its motion to compel production, was filed before Ms. Hogg moved for
arbitration, and only one court hearing was held to address the discovery abuse before the motion
to compel arbitration was filed.12
We are aware that a party need not present evidence of the exact costs it incurred when
asserting a claim of prejudice. Although proof of prejudice is required to support a claim that a
party waived arbitration, “proof establishing the precise extent of that prejudice is not.” Perry
Homes, 258 S.W.3d at 599–600; see also RSL Funding, LLC, 424 S.W.3d at 686 (citing Perry
Homes, 258 S.W.3d at 599–600). We recognized this principle in Ellman, where the defendant
conceded that before it moved for arbitration, it had initiated substantial discovery to which the
plaintiff was required to respond, but complained that the plaintiff had failed to provide evidence
12
The other pleadings were filed after the district court issued its order to compel production of documents, and all
centered on whether Ms. Hogg should be sanctioned for violating the court’s order. Ms. Hogg argues, and we agree,
that we should not consider the costs incurred by LCA in filing those pleadings or in attending the sanctions hearing,
because those actions all occurred after Ms. Hogg filed her motion to compel arbitration. See, e.g., In re ReadyOne
Indus., Inc., 294 S.W.3d 764, 772 (Tex.App. – El Paso 2009, orig. proceeding) (where discovery was conducted after
the motion to compel arbitration was denied, the parties’ conduct in engaging in discovery could not be considered an
act that waived arbitration).
35
of the expenses it incurred in responding to that discovery. In upholding the trial court’s finding
that the plaintiff had been prejudiced by the defendant’s actions, we concluded that the plaintiff’s
failure to provide proof of the expenses was not dispositive, echoing the Supreme Court’s opinion
that when extensive discovery has been conducted, a party opposing arbitration is not always
required to “prove the cost of the extensive discovery in order to prove prejudice.” 419 S.W.3d at
522 (citing Perry Homes, 258 S.W.3d at 599–600).
However, as set forth above, in the present case, not only did LCA fail to provide any
evidence of the costs it incurred in responding to Ms. Hogg’s discovery requests, it failed to
provide any evidence from which we could conclude that the discovery requested by Ms. Hogg
was “substantial” or that LCA provided her with “extensive” documents in response to her
requests. In a somewhat similar situation, the Supreme Court declined to make a finding of
prejudice where, among other things, the party claiming waiver alleged that he incurred significant
expenses in responding to the opposing parties’ discovery requests, yet failed to present any record
of the discovery to the trial court. In re Vesta Ins. Group, 192 S.W.3d at 763. According to the
Court, it was therefore unable to determine whether the discovery was “limited or extensive,” and
was consequently unable to determine whether the party was actually prejudiced by being required
to respond to it. Id.
Moreover, the Court in Vesta also found it significant that the party claiming prejudice
acknowledged that the discovery produced in the case would be “useful whether the case is
arbitrated or tried.” Id. The Court found this to be an important factor in concluding that no
prejudice was shown in that case. Id.; see also Pilot Travel Centers, LLC v. McCray, 416 S.W.3d
168, 185 (Tex.App. – Dallas 2013, no pet.) (party did not waive its right to arbitration by
36
conducting what it described as extensive discovery, where party did not present evidence of the
discovery itself and did not allege that the discovery already conducted would not be useful in
arbitration); In re ReadyOne Indus., Inc., 294 S.W.3d 764, 773 (Tex.App. – El Paso 2009, orig.
proceeding) (where there was no evidence that discovery obtained could not be used at arbitration,
or that any of the evidence would not have been attainable in arbitration, no prejudice has
occurred).
Similarly, in the present case, LCA concedes that the “written discovery and depositions
conducted by the parties to date could be used in arbitration.” Therefore, based on the record
before us, we are unable to conclude that LCA would suffer any significant financial detriment if
the parties’ dispute was submitted to arbitration.
Ms. Hogg Attempted to Switch Forums to Gain an Unfair Advantage
The issue of whether a party has suffered financial detriment, however, is not the only
factor to be considered in a prejudice analysis, and instead prejudice may be found when a party
“attempt[s] to have it both ways by switching between litigation and arbitration to its own
advantage[.]” Perry Homes, 258 S.W.3d at 597. As the Court explained in Perry, “‘a party
should not be allowed purposefully and unjustifiably to manipulate the exercise of its arbitral
rights simply to gain an unfair tactical advantage over the opposing party.’” Id. (citing In re Tyco
Int’l Ltd. Sec. Litig., 422 F.3d 41, 46 n. 5 (1st Cir. 2005)).
LCA contends that Ms. Hogg’s last-minute decision to switch forums only after she
received an adverse ruling from the district court requiring her to produce the recordings, was
exactly the type of manipulative conduct that the Court denounced in Perry Homes. LCA
contends that Ms. Hogg’s invocation of the arbitration clause after receiving this adverse
37
discovery ruling was a clear attempt to deprive LCA of the trial court’s ruling and to force LCA to
relitigate the issue in front of an arbitration panel, thereby giving Ms. Hogg her proverbial second
bite at the apple. LCA contends that requiring it to relitigate this issue anew renders all of its prior
“efforts to hold Ms. Hogg accountable for her discovery abuse” for naught, and additionally does
nothing to “further the goals of efficiency and results in prejudice to LCA.”
Ms. Hogg does not dispute that forcing a party to relitigate an issue already resolved by a
trial court can be a factor in determining prejudice. See, e.g., Holmes v. Graves, No.
01-12-01032-CV, 2013 WL 6506306, at *7 (Tex.App. – Houston [1st Dist.] Dec. 10, 2013, no
pet.) (mem. op., not designated for publication) (“[r]equiring Defendants to defend against
Plaintiffs’ claims before a new factfinder after Defendants have already successfully defended
substantially similar litigation results in prejudice to Defendants”). Instead, Ms. Hogg contends
that there is nothing in the record to definitively establish that LCA will necessarily be forced to
relitigate the discovery abuse in front of the arbitration panel, and that it is possible the arbitration
panel could chose to accept the district court’s prior ruling.13 However, we do not believe that
there would be, or even could be, anything definitive in the record on this issue. Because
arbitrators have “almost unbridled discretion” regarding discovery, it is virtually impossible to
determine what the arbitration panel might do on this issue. Perry Homes, 258 S.W.3d at 599; see
also Citizens Nat. Bank, 271 S.W.3d at 354-59. Thus, we cannot discount the very real possibility
that LCA would in fact be deprived of the trial court’s favorable rulings if the matter went to
arbitration.
13
Ms. Hogg intimates that the discovery abuse was not occasioned by her conduct, and that, contrary to LCA’s
assertions, she was not actually guilty of any discovery abuse, claiming that she properly responded to LCA’s
discovery requests, asserting that she had no recordings of her meetings with LCA’s attorneys. As set forth above,
however, the trial court ruled that the recordings do in fact exist, and we must accept that finding as true.
38
Ms. Hogg also points out that before she moved for arbitration, the district court had only
issued its order compelling production of documents, and had not yet issued its order sanctioning
her for violating that order. Ms. Hogg contends that it would therefore be improper for us to
consider the existence of the district court’s sanctions order in determining whether LCA would be
prejudiced by referring the matter to arbitration. Although we recognize that the sanctions order
itself was entered after Ms. Hogg moved for arbitration, this does not mean that we cannot take
into consideration the fact that when she moved for arbitration, Ms. Hogg was facing the near
certainty that she would be sanctioned.
As explained above, Ms. Hogg found herself facing these sanctions due to her own
conduct, first in sending the e-mail to the LCA attorney, claiming that she had recordings of her
meetings with the LCA attorneys, and later in contending that the recordings did not exist.
Further, Ms. Hogg thereafter voluntarily engaged in the discovery dispute with LCA regarding the
existence of the recordings in the district court, clearly expressing her willingness to allow the
district court to resolve the dispute by filing an opposition to LCA’s motion to compel production
and attending a court hearing on the motion. Moreover, Ms. Hogg took her chances when she
allowed the district court to rule on the motion, and ultimately received an unfavorable ruling, in
which the court ordered her to produce the recordings by June 5, 2014. Ms. Hogg was clearly on
notice that she would be sanctioned for failing to comply with the order; and in fact, it appears that
she had no intention of complying with the order, as she filed a supplemental response to LCA’s
request for production on the day of the June 5 deadline, still claiming that the recordings did not
exist. Given the virtual inevitability that sanctions would be imposed against her at this juncture
in the proceedings, we find it insignificant for purposes of our prejudice analysis that the district
39
court had not yet issued its sanctions order when Ms. Hogg made her decision to move for
arbitration.
The court in Sedillo v. Campbell, 5 S.W.3d 824, 829 (Tex.App. – Houston [14th Dist.]
1999, no pet.), also reached a similar conclusion, finding prejudice in a case in which a trial court
entered an adverse judgment against a defendant, but did so after the defendant had moved for
arbitration. In that case, the defendant was facing the prospect that requests for admission would
be deemed admitted based on his failure to respond and filed for bankruptcy, which automatically
stayed the trial court litigation. Six months later, after the bankruptcy proceeding was dismissed
upon a finding that the defendant had filed it in bad faith, the plaintiff filed a summary judgment
motion based on the defendant’s deemed admissions. The defendant thereafter filed his late
responses to the request for admissions, a response to the plaintiff’s summary judgment motion, an
amended answer raising affirmative defenses and a counterclaim, and a request for jury trial.
However, in the interim, before the trial court had the opportunity to rule on the plaintiff’s
summary judgment motion, the defendant filed a motion to compel arbitration. The trial court
denied the motion, concluding that the defendant had waived his right to invoke arbitration, and on
the same day, granted the plaintiff’s motion for summary judgment. Id. at 825-26.
In upholding the trial court’s decision, the court of appeals concluded that the plaintiff
would have been prejudiced if the case had been referred to arbitration at that late stage in the
proceedings, as it would have deprived the plaintiff of the benefits of the summary judgment order
that had been entered in her favor. Id. at 829. In reaching this conclusion, the court found it
insignificant that the summary judgment order had been entered after the defendant had filed his
motion to compel arbitration, noting that if the defendant had filed his motion for arbitration in a
40
timely manner, the above-described chain of events would not have occurred, and the plaintiff
would not have been able to request or “obtain a judgment in the face of a motion for arbitration.”
Id.
We similarly conclude that LCA would not have been able to obtain the sanctions order if
Ms. Hogg (i) had moved for arbitration as soon as practicable, (ii) had not made the decision to
instead engage in discovery proceedings and (iii) had not voluntarily litigated the discovery
dispute with LCA, only to move for arbitration when it became apparent that she had lost the
discovery battle and was facing sanctions as the result of her conduct in the case. As Ms. Hogg
was admittedly aware of the arbitration clause from the outset of litigation, referring the matter to
arbitration at this critical juncture in the proceedings would not only unfairly deprive LCA of the
victory it received in the discovery battle, but allow Ms. Hogg to engage in the very practice
condemned by the Supreme Court in Perry Homes, by allowing her to “have it both ways by
switching between litigation and arbitration to [her] own advantage[.]” Perry Homes, 258
S.W.3d at 597; see also Gray Holdco, Inc. v. Cassady, 654 F.3d 444, 457 (3d Cir. 2011) (it is not
difficult to find prejudice when the party moving for arbitration waited until after the district court
denied its request for a preliminary injunction, concluding that a party should not be allowed to
“test out the merits of its case” and only then resort to arbitration when it becomes apparent that the
“court regards its case as standing on weak footing”).
In determining whether prejudice has resulted in “cases of waiver by litigation conduct, the
precise question is not so much when waiver occurs as when a party can no longer take it back.”
Perry Homes, 258 S.W.3d at 595. In the present case, we conclude that the point at which Ms.
Hogg could not “take it back” occurred when, after willingly participating in litigation over the
41
discovery dispute, she suffered an adverse ruling from the trial court, and was faced with the
near-certainty of having a sanctions order entered against her. Ms. Hogg’s last-ditch effort to
save her case from the impending sanctions order, by seeking a new forum in which she could
potentially relitigate that issue, simply came too late.
Therefore, because we find that Ms. Hogg purposefully and unjustifiably manipulated the
exercise of her arbitral rights to her own advantage and to LCA’s prejudice, we conclude that,
based on these unique facts, Ms. Hogg waived her right to arbitration.
CONCLUSION
We affirm the district court’s order denying Ms. Hogg’s motion to compel arbitration.14
STEVEN L. HUGHES, Justice
November 10, 2015
Before McClure, C.J., Rodriguez, and Hughes, JJ.
14
In light of our ruling affirming the district court’s order, we hereby lift the stay order issued by this Court on August
12, 2014.
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