Anderson-Jenkins Signature Homes, Ltd. and Anderson-Jenkins Signature Homes GP, LLC v. Benjamin Randolph Allen, III and Kelley P. Allen ( 2018 )

Fourth Court of Appeals
San Antonio, Texas
MEMORANDUM OPINION
No. 04-18-00348-CV
ANDERSON-JENKINS SIGNATURE HOMES, LTD. and
Anderson-Jenkins Signature Homes GP, LLC,
Appellants
v.
Benjamin Randolph ALLEN, III and Kelley P. Allen,
Appellees
From the 451st Judicial District Court, Kendall County, Texas
Trial Court No. 17-148
Honorable Bill R. Palmer, Judge Presiding
Opinion by: Luz Elena D. Chapa, Justice
Sitting: Marialyn Barnard, Justice
Rebeca C. Martinez, Justice
Luz Elena D. Chapa, Justice
Delivered and Filed: December 5, 2018
REVERSED AND RENDERED
Anderson-Jenkins Signature Homes, Ltd., and Anderson-Jenkins Signature Homes GP,
LLC (collectively “Anderson-Jenkins”) appeal a trial court’s order denying their motion to compel
arbitration. Because we hold appellees failed to satisfy their heavy burden to prove Anderson-
Jenkins impliedly waived its right to arbitrate appellees’ claims, which fall within the scope of a
valid arbitration agreement, we reverse the trial court’s order and render an order granting
Anderson-Jenkins’s motion to compel.
04-18-00348-CV
BACKGROUND
This case arises out of alleged construction defects of the home of appellees Benjamin
Randolph Allen, III and Kelley P. Allen. The home was constructed pursuant to a sales contract
between the Allens and GW Custom Builders d/b/a Michael Gregg Signature Homes. The sales
contract contained an arbitration provision. Anderson-Jenkins acquired Michael Gregg Signature
Homes, and the Allens and Anderson-Jenkins executed a letter agreement authorizing the sales
contract to be transferred, assigned, and conveyed to Anderson-Jenkins under the same terms as
the original sales contract.
In 2016, to address a dispute over alleged construction defects, the Allens and Anderson-
Jenkins entered into an agreement to toll the statute of limitations on the Allens’ claims until the
end of December 2016; this agreement is referred to as the “tolling agreement.” The parties entered
into another agreement to extend the tolling agreement until the end of March 2017; this agreement
is referred to as the “extension agreement.” The purpose of the tolling agreement and the extension
agreement was for “settlement negotiations prior to the commencement of suit.”
No settlement agreement was reached, and the Allens filed suit on March 27, 2017. On
April 24, 2017, Anderson-Jenkins filed an original answer that was expressly subject to its right to
arbitrate. Other than Anderson-Jenkins’s May 19, 2017 motion to designate lead counsel, the
record before us contains no filings until February 2018, when the Allens filed a motion to set the
case for trial. The trial court granted the motion, set the case for trial on June 25, 2018, and signed
a scheduling order. In late March 2018, the parties filed two Rule 11 agreements with regard to
the scheduling order; one set a deadline for designating experts and the other set a discovery
deadline for thirty days before trial.
On March 29, 2018, Anderson-Jenkins filed a motion for leave to designate responsible
third parties and a motion for leave to file a third-party petition. The attached third-party petition
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was also made “[w]ithout waiving any right [to] arbitrate.” The hearing on those motions was set
for April 23, 2018; the Allens filed a response to those motions before the hearing; and Anderson-
Jenkins filed a reply. The filings with regard to these motions show the Allens took a December
14, 2017 deposition of Michael Shayne Anderson, one of Anderson-Jenkins’s owners. The
certificate of the deposition states the Allens spent “3 hours 39 minutes” deposing Anderson, and
Anderson-Jenkins used “0 hours 16 minutes” for the deposition. The trial court signed an order
denying Anderson-Jenkins’s third-party motions on May 2, 2018.
On May 3, 2018, Anderson-Jenkins filed a motion to compel arbitration. In the motion,
Anderson-Jenkins argued the Allens’ claims fell within the scope of the arbitration provision in
the sales contract. The motion further argued Anderson-Jenkins had not waived arbitration by
substantially invoking the judicial process. Anderson-Jenkins alleged its actions in the suit—
participating in written discovery, making Anderson-Jenkins owners available for oral deposition,
and taking defensive actions—were merely participatory. Anderson-Jenkins alleged it had
inspected the Allens’ property to preserve its rights and the written discovery it propounded “was
to obtain information relevant to the statute of limitations, statute of repose, and existence of a
contract between the parties.” The hearing on the motion was set for May 24, 2018. The Allens
filed a response, which did not expressly deny the existence of a valid arbitration agreement or
that the Allens’ claims fell within the scope of the arbitration agreement. Instead, the response
argued only that Anderson-Jenkins was estopped from asserting its right to arbitrate and impliedly
waived its right to arbitrate by substantially invoking the judicial process. There were no exhibits
attached to the Allens’ response, and the response was not verified.
At the motion to compel hearing, the trial court heard mostly arguments from the parties.
Mr. Allen testified briefly about his expenses in this litigation and the damage to the Allens’
property. During his testimony, the trial court admitted into evidence the tolling agreement, the
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extension agreement, his attorney’s billing records and a categorization of the attorney’s fees,
Anderson-Jenkins’s notice of Mr. Allen’s deposition, and an itemized list of expenses incurred
“for the purpose of complying with the court procedures and inspection process under the
Residential Construction Liability Act.” The Allens offered another exhibit containing excerpts
from the deposition of Jeffrey M. Jenkins, and Anderson-Jenkins offered the entire deposition, but
the trial court did not admit either exhibit. The trial court denied the motion at the hearing, and
then reduced its order to writing. Anderson-Jenkins timely appealed.
MOTION TO COMPEL ARBITRATION
The sole issue on appeal is whether the trial court erred by denying Anderson-Jenkins’s
motion to compel arbitration. The arbitration agreement at issue provides the agreement is
governed by the Federal Arbitration Act (FAA). 1 “Under the FAA, a . . . party seeking to compel
arbitration must establish the existence of a valid arbitration agreement and that the claims at issue
fall within the scope of that agreement.” Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018).
“If the party seeking to compel arbitration meets this burden, the burden then shifts, and to avoid
arbitration, the party opposing it must prove an affirmative defense to the provision’s enforcement,
such as waiver.” Id.
A. Standard & Scope of Review
When parties file a motion to compel and a response, the “trial court may summarily decide
whether to compel arbitration on the basis of affidavits, pleadings, discovery, and stipulations.”
Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 269 (Tex. 1992). But when, as here, “the
material facts necessary to determine the issue are controverted, by an opposing affidavit or
1
The agreement further states that if the FFA is not applicable, the Texas Arbitration Act (TAA) applies. Neither party
has argued or shown the TAA applies and the FAA does not apply or why any differences between the two statutes
would be material in this case.
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otherwise admissible evidence, the trial court must conduct an evidentiary hearing to determine
the disputed material facts.” Id.; see In re MP Ventures of S. Tex., Ltd., 276 S.W.3d 524, 529 (Tex.
App.—San Antonio 2008, no pet.).
“We review a trial court’s order denying a motion to compel arbitration for abuse of
discretion.” Henry, 551 S.W.3d at 115. “We defer to the trial court’s factual determinations if they
are supported by evidence but review its legal determinations de novo.” Id. “Whether the claims
in dispute fall within the scope of a valid arbitration agreement and whether a party waived its
right to arbitrate are questions of law, which are reviewed de novo.” Id. When, as here, the trial
court does not make findings of fact and does not specify the basis for its order, we will infer the
trial court made all findings necessary to support its order and we will affirm the order on any
ground supported by the record. See Paragon Indus. Applications, Inc. v. Stan Excavating, LLC,
432 S.W.3d 542, 549 (Tex. App.—Texarkana 2014, no pet.).
B. Validity and Scope of the Arbitration Agreement
Anderson-Jenkins argues there is a valid arbitration agreement and the Allens’ claims fall
within the scope of that agreement. See Henry, 551 S.W.3d at 115. The Allens did not argue in the
trial court, and do not argue on appeal, that Anderson-Jenkins failed to establish either element.
Having reviewed the record, we agree Anderson-Jenkins established the existence of a valid
arbitration agreement and the Allens’ claims fall within the scope of that agreement. In the trial
court and on appeal, the parties dispute whether Anderson-Jenkins may enforce its contractual
right to arbitrate the Allens’ claims. We therefore address whether the Allens proved an affirmative
defense to the enforcement of the arbitration provision. See id.
C. Affirmative Defenses to Enforcement of the Arbitration Agreement
In their response to the motion to compel, the Allens argued Anderson-Jenkins waived its
rights under the arbitration provision due to its substantial invocation of the judicial process. The
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Allens also argued Anderson-Jenkins was estopped from seeking enforcement of the arbitration
provision. In addition to implied waiver and estoppel, the Allens argue for the first time on appeal
that Anderson-Jenkins expressly waived its right to arbitrate.
1. Express Waiver & Estoppel
The Allens’ arguments as to express waiver and estoppel are premised upon the tolling
agreement and the extension agreement. The tolling agreement tolled the statute of limitations and
postponed litigation for four months and provided, as did the three-month extension agreement,
the purpose of the tolling was for “settlement negotiations prior to the commencement of suit.”
The Allens argue these agreements establish Anderson-Jenkins expressly waived its right to
arbitrate and Anderson-Jenkins should be equitably estopped from asserting its right to arbitrate.
Initially, we note the Allens never alleged or argued in the trial court that Anderson-Jenkins
expressly waived its right to arbitrate. The Allens also cite no authority that equitable estoppel is,
independent of express or implied waiver, an affirmative defense to enforcement of an arbitration
agreement.
Assuming without deciding that the trial court could have based its decision on either
express waiver and equitable estoppel, neither would support the trial court’s order. Equitable
estoppel requires a false representation or concealment of material facts. Shields Ltd. P’ship v.
Bradberry, 526 S.W.3d 471, 486 (Tex. 2017). Furthermore, “[e]xpress waiver arises when a party
affirmatively indicates that it wishes to resolve the case in the judicial forum rather than in
arbitration.” Branch Law Firm L.L.P. v. Osborn, 532 S.W.3d 1, 22 (Tex. App.—Houston [14th
Dist.] 2016, pet. denied). No express waiver arises “when a party has made no express statements
indicating the intent to waive arbitration.” Cf. Hogg v. Lynch, Chappell & Alsup, P.C., 480 S.W.3d
767, 781 (Tex. App.—El Paso 2015, no pet.).
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The tolling agreement and the extension agreement do not mention arbitration. Instead,
both agreements express the parties’ agreed goal of engaging in settlement negotiations, which
would avoid the commencement of the judicial process. The agreements make no representations
that Anderson-Jenkins would not seek to compel arbitration, and the Allens produced no evidence
that Anderson-Jenkins was concealing its intent to arbitrate rather than settle. Thus, the doctrine
of equitable estoppel would not support the trial court’s decision. See Shields Ltd. P’ship, 526
S.W.3d at 486. Likewise, the tolling agreement and the extension agreement do not express
Anderson-Jenkins’s intent to waive its right to arbitrate or express that Anderson-Jenkins
affirmatively wished not to go to arbitration and instead wished to resolve the case in a judicial
forum. See G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 511 (Tex. 2015)
(holding “Rule 11 agreement in which all parties agreed to a scheduling order and a new trial date”
did not constitute express waiver). Thus, express waiver could not support the trial court’s
decision. See id. The only remaining issue is the primary issue argued in the trial court and here
on appeal: implied waiver by substantial invocation of the judicial process.
2. Implied Waiver by Substantially Invoking the Judicial Process
“A party’s right to arbitrate may be waived by its substantially invoking the judicial process
to the other party’s detriment.” RSL Funding, LLC v. Pippins, 499 S.W.3d 423, 430 (Tex. 2016).
Under the FAA, there is a strong presumption against an implied waiver of a party’s right to
arbitrate by substantially invoking the judicial process. Id. Consequently, “[t]he party asserting
waiver bears a heavy burden of proof to show the party seeking arbitration has waived its
arbitration right.” Id. “[W]aiver must be decided on a case-by-case basis, and [based on] the totality
of the circumstances.” Perry Homes v. Cull, 258 S.W.3d 580, 590 (Tex. 2008). The totality of the
circumstances can include:
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• how long the party moving to compel arbitration waited to do so;
• the reasons for the movant’s delay;
• whether and when the movant knew of the arbitration agreement during the period
of delay;
• how much discovery the movant conducted before moving to compel arbitration,
and whether that discovery related to the merits;
• whether the movant requested the court to dispose of claims on the merits;
• whether the movant asserted affirmative claims for relief in court;
• the extent of the movant’s engagement in pretrial matters related to the merits (as
opposed to matters related to arbitrability or jurisdiction);
• the amount of time and expense the parties have committed to the litigation;
• whether the discovery conducted would be unavailable or useful in arbitration;
• whether activity in court would be duplicated in arbitration;
• when the case was to be tried.
G.T. Leach Builders, LLC, 458 S.W.3d at 512. An implied waiver by substantially invoking the
judicial process also requires the party relying on the waiver doctrine to show it suffered unfair
prejudice. Id. at 515. “Prejudice may result when a party seeking arbitration first sought to use the
judicial process to gain access to information that would not have been available in arbitration, but
propounding discovery will not, in and of itself, result in waiver of a right to compel arbitration.”
Id. “[W]hile delay may be a factor both in terms of whether the movant has substantially invoked
the judicial process and whether the nonmovant has suffered prejudice, mere delay is not ordinarily
enough, even if it is substantial.” Id.
Anderson-Jenkins did not elect to resolve its dispute with the Allens in court; rather the
Allens filed suit against Anderson-Jenkins. See id. The Allens filed their original petition on March
27, 2017, and Anderson-Jenkins filed its original answer in April 24, 2017. Anderson-Jenkins’
original answer commenced with the qualification that Anderson-Jenkins was appearing
“[w]ithout waiving any right to arbitrate.” Thus, at the outset of its involvement in this suit,
Anderson-Jenkins put the Allens on notice that it intended to reserve its right to arbitrate.
Anderson-Jenkins did not assert a counterclaim against the Allens in this suit, and the
Allens produced no evidence showing Anderson-Jenkins asserted any related claims against the
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Allens in any other judicial forum. See id. Anderson-Jenkins also did not seek a summary judgment
or dismissal of the Allens’ claims on the merits. See id. at 513. The only motions Anderson-Jenkins
filed relating to the merits of the suit was a motion to designate responsible third parties, which is
defensive in nature, see id., and a motion for leave to file a third-party petition, which petition was
also filed “[w]ithout waiving any right to arbitrate.”
Anderson-Jenkins filed its motion to compel arbitration on May 3, 2018, approximately
one year after Anderson-Jenkins appeared subject to its express reservation of its right to arbitrate.
On May 3, 2018, Anderson-Jenkins set the motion for a May 24, 2018 hearing. The trial was set
for June 25, 2018. A delay of thirteen months in seeking arbitration or seeking arbitration within
two months of trial does not constitute a per se substantial invocation of the judicial process. See
Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C., 455 S.W.3d 573, 576 (Tex. 2014) (per
curiam) (holding no implied waiver when movant waited nineteen months after being sued to move
for arbitration); Metso Minerals Indus., Inc. v. Maverick Aggregates, Inc., No. 04-15-00532-CV,
2016 WL 3022060, at *4 (Tex. App.—San Antonio May 25, 2016, pet. denied) (holding filing
request for arbitration two months before trial was not “on the eve of trial”). The record shows the
Allens did not seek a scheduling order in this case until nine months after Anderson-Jenkins
answered, and it appears the only discovery conducted before the scheduling order was Anderson’s
deposition.
The record establishes Anderson-Jenkins knew of the arbitration agreement during the
period of the delay, but the Allens produced no evidence showing the reason—justified or not—
why Anderson-Jenkins waited to file its motion to compel. Considering Anderson-Jenkins’s
original answer was filed “[w]ithout waiving any right to arbitrate,” the Allens were made aware
from the outset of the litigation that Anderson-Jenkins intended its participation in the suit to be
subject to its right to arbitrate. Cf. Tuscan Builders, LP v. 1437 SH6 L.L.C., 438 S.W.3d 717, 722
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(Tex. App.—Houston [1st Dist.] 2014, pet. denied) (affirming denial of motion to compel when,
among other factors, movant was aware of arbitration agreement and non-movant was not).
With regard to the discovery that took place after the scheduling order was entered, it was
undisputed at the motion to compel hearing that although Anderson-Jenkins noticed Mr. Allen’s
deposition, Anderson-Jenkins took no oral depositions in this case. The Allens’ unverified
response to Anderson-Jenkins’s motion to compel appeared to quote written discovery requests
that Anderson-Jenkins propounded. See Tex. Capital Bank, N.A. v. Automaker, Inc., No. 14-94-
00969-CV, 1995 WL 472346, at *2 (Tex. App.—Houston [14th Dist.] Aug. 10, 1995, no writ)
(mem. op.) (noting no evidence was attached to response to prove up waiver defense to motion to
compel arbitration and stating allegations in pleadings, even if verified, are not evidence). But the
parties’ pleadings disputed the nature of the written discovery in this case, and whether and to
which extent the discovery pertained to the merits. It was therefore the Allens’ burden to prove at
the motion to compel hearing the implied waiver factors regarding the extent and nature of
Anderson-Jenkins’s discovery. See Jack B. Anglin Co., Inc., 842 S.W.2d at 269; In re MP Ventures
of S. Tex., Ltd., 276 S.W.3d at 529; see also RSL Funding, LLC v. Pippins, 499 S.W.3d at 430
(stating the party asserting waiver has the heavy burden to prove it). At the evidentiary hearing on
the motion to compel, there was no evidence showing how much written discovery Anderson-
Jenkins propounded before moving to compel arbitration, and whether the propounded written
discovery related to the merits of the claims.
Even if we were to accept as true the Allens’ allegations about Anderson-Jenkins’s
discovery requests and assumed they related to the merits of the Allens’ claims, the Allens
produced no evidence showing whether the responses to these discovery requests would be useful
in arbitration. See G.T. Leach Builders, LLC, 458 S.W.3d at 512. The Allens likewise failed to
present any evidence on the issue of whether the court-related activity would necessarily be
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duplicated in arbitration. See id. Mr. Allen testified about the expenses he incurred for attorney’s
fees in responding to discovery and for the property inspection. But without evidence of other
related factors (such as the nature of the discovery and whether the activities in the trial court
would likely be repeated in an arbitration proceeding), the Allens’ expenses do not weigh heavily
in the Allens favor when considering the totality of the circumstances. See id.
We hold that the Allens failed to satisfy their heavy burden under the FAA to overcome
the strong presumption in favor of arbitration because the evidence before the trial court, and the
undisputed facts, fail to show Anderson-Jenkins substantially invoked the judicial process.
Consequently, we do not address whether the Allens suffered any prejudice. See RSL Funding,
LLC, 499 S.W.3d at 430. The trial court therefore abused its discretion by denying Anderson-
Jenkins’s motion to compel arbitration.
CONCLUSION
Based on the foregoing, we reverse the trial court’s order denying Anderson-Jenkins’s
motion to compel arbitration, and render an order granting Anderson-Jenkins’s motion to compel
arbitration.
Luz Elena D. Chapa, Justice
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