Lyda Swinerton Builders, Inc. v. Pools by Blue Haven, Inc. ( 2011 )

MEMORANDUM OPINION
No. 04-10-00631-CV
LYDA SWINERTON BUILDERS, INC.,
Appellant
v.
POOLS BY BLUE HAVEN, INC.,
Appellee
From the 288th Judicial District Court, Bexar County, Texas
Trial Court No. 2009-CI-20145
Honorable Solomon Casseb, III, Judge Presiding
Opinion by: Karen Angelini, Justice
Sitting: Karen Angelini, Justice
Phylis J. Speedlin, Justice
Steven C. Hilbig, Justice
Delivered and Filed: March 2, 2011
REVERSED AND REMANDED
The present appeal arises from the trial court’s denial of a motion to compel arbitration
filed by Lyda Swinerton Builders, Inc. (“Lyda”). We reverse the trial court’s orders denying
Lyda’s motion to compel arbitration and remand the case to the trial court for further
proceedings.
04-10-00631-CV
BACKGROUND
The facts pertinent to Lyda’s appeal are largely undisputed. On July 14, 2006, Lyda
entered into a construction contract with Riverwalk CY Hotel Partners, Ltd. (“Riverwalk”) to
construct a hotel known as the Marriott Courtyard at the San Antonio Riverwalk (the “Hotel”).
The construction agreement between Lyda and Riverwalk contained provisions for the mediation
of disputes. The agreement further provided that if formal mediation could not resolve a dispute,
binding arbitration under the Construction Industry Rules of the American Arbitration
Association was required.
Lyda subsequently entered into a subcontract (the “Subcontract”) with Pools by Blue
Haven, Inc. (“Blue Haven”) on March 8, 2007, concerning the design/construction of a
swimming pool and spa at the Hotel. The Subcontract contained various dispute resolution
clauses, including:
15. CLAIMS RESOLUTION PROCEDURE
(a) In the event of any dispute or claim between Contractor and Owner which
directly or indirectly involves Subcontractor’s Work, or in the event of any
dispute or claim between Contractor and Subcontractor which directly or
indirectly involves Subcontractor’s Work, or in the event of any dispute or claim
between Contractor and Subcontractor which directly or indirectly involves a
claim against Owner for either additional compensation or an extension of time
under the Contract Documents, Subcontractor agrees to be bound to Contractor
and Contractor agrees to be bound to Subcontractor by all decisions, findings or
determinations made by the person so authorized in the Contract Documents, by
an administrative agency, court of competent jurisdiction, or arbitration panel,
whether or not Subcontractor is a party to the proceedings before said person,
agency, court or panel. If any dispute or claim involving Subcontractor is
prosecuted or defended by Contractor, Subcontractor agrees to cooperate fully
with Contractor and to furnish all documents, statements, witnesses and other
information required by Contractor for such purpose and shall pay or reimburse
Contractor for all expenses and costs, including reasonable attorney’s fees,
incurred in connection therewith to the extent of Subcontractor’s interest in such
claim or dispute. It is expressly understood and agreed in connection with the
determination of such claims or disputes that, as to any and all work done and
agreed to be done by Subcontractor, and as to any and all damages, if any,
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incurred by Subcontractor in connection with the Project, Contractor shall never
be liable to Subcontractor to any greater extent than Owner is liable to Contractor.
If a dispute between Contractor and Subcontractor is not subject to the dispute
resolution procedure set forth in the Contract Documents, then the dispute
resolution procedure set forth in paragraphs (b) and (c) below shall apply.
(b) MEDIATION. Subcontractor agrees, upon the request of Contractor, to submit
any claim or dispute to a neutral mediator and to negotiate in good faith to reach
an agreement with respect to the dispute. Any such mediation proceeding shall be
under the auspices of and governed by the rules of the Construction Industry
Mediation Rules of the American Arbitration Association; or as may be agreed by
the parties. In such event, neither party shall proceed with arbitration or litigation
until the completion of mediation proceedings. The costs of the mediator shall be
shared equally by the parties. Venue for the mediation shall be at the most
practical location convenient to the parties and/or the location of the project.
(c) ELECTION OF ARBITRATION OR LITIGATION. In the event of a dispute
between Contractor and Subcontractor, Contractor may elect to arbitrate such
dispute in the manner provided below, or to litigate the dispute in a forum with
jurisdiction to decide the dispute. Any arbitration proceeding shall be conducted
in accordance with the Construction Industry Rules of the American Arbitration
Association, provided, however, that only one arbitrator shall hear the dispute.
The award rendered by the arbitrator shall be final and judgment may be entered
upon in accordance with applicable law in any court having jurisdiction.
****
(e) FEDERAL ARBITRATION ACT. The arbitration rights set forth herein shall
be specifically enforceable under the Federal Arbitration Act, 9 U.S.C. 1, et seq.,
the parties agreeing that the transactions contemplated hereunder will have an
effect on interstate commerce.
During the course of the construction of the Hotel, Lyda encountered various delays to
the dissatisfaction of Riverwalk. In accordance with their contractual agreement, Lyda and
Riverwalk proceeded to mediation in October and November 2008 to resolve their issues. The
mediation between Lyda and Riverwalk was unsuccessful.
On January 9, 2009, Blue Haven submitted its initial pool/spa design for the Hotel for
approval by the project architect. The project architect rejected Blue Haven’s initial submittal
and requested Blue Haven to resubmit its plans. Despite the project architect’s rejection of Blue
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Haven’s initial pool/spa design, Blue Haven moved forward with the construction of the pool
and spa without resubmitting its design for approval. Blue Haven completed construction of the
pool and spa and proceeded to submit pay applications to Lyda on May 21, 2009 and June 25,
2009.
After completing the construction of the pool and spa, Blue Haven resubmitted its plans
to the project architect for his approval on June 18, 2009 and, again, on August 5, 2009. The
project architect rejected both sets of plans submitted by Blue Haven and refused to certify Blue
Haven’s pay applications.
In the meantime, Riverwalk filed a demand for arbitration against Lyda on July 9, 2009.
Riverwalk’s “demand for arbitration included an exhibit which listed three hundred and eighty-
four (384) items of allegedly non-conforming work which included items relating to Blue
Haven’s work on the Project.” Riverwalk and Lyda selected arbitrators and agreed on a
scheduling order for the arbitration proceeding.
On October 8, 2009, Blue Haven sent a demand letter to Lyda requesting payment of
$59,600 for the construction of the pool and spa at the Hotel. Blue Haven’s letter sought
payment of the entire amount past due and warned Lyda that it would “have no choice but to file
suit against [Lyda] for breach of contract, among other causes of action” if Lyda failed to comply
with its request for payment. Lyda refused to remit payment to Blue Haven and Blue Haven
filed suit against Lyda on December 18, 2009 for breach of contract, quantum meruit, violations
of Chapter 162 of the Texas Property Code, and a suit on sworn account. Lyda answered Blue
Haven’s allegations on January 22, 2010, providing a general denial as well as a verified denial
as to the suit on sworn account.
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On February 17, 2010, in connection with its ongoing arbitration with Riverwalk, Lyda
filed a motion to join Blue Haven in the Lyda-Riverwalk arbitration. Lyda’s motion claimed
Blue Haven should be joined in the existing arbitration proceeding because Riverwalk’s
damages, if any, were attributable to the conduct of Blue Haven and the other named
subcontractors. Blue Haven objected to Lyda’s joinder request on March 12, 2010, arguing: (1)
Lyda’s “conduct in proceeding with . . . litigation without requesting mediation or arbitration
until [after months of delay] evidences [Lyda’s] knowing election to proceed with litigation”; (2)
Lyda’s “election to proceed with litigation, instead of arbitration, excuses Blue Haven from
being bound by any arbitration provisions in [Lyda’s] . . . subcontract”; (3) “having breached the
Subcontract by failing to pay for Blue Haven’s work, [Lyda] is not entitled to assert or avail
itself of the arbitration provisions, the right of joinder, or the warranty of Blue Haven”; and (4)
“[i]t is manifestly unjust to . . . require Blue Haven to entangle its payment claim in an
arbitration involving numerous claims of several other claimants having no relationship
whatsoever to the construction of the swimming pool.”
An arbitrator was appointed pursuant to Rule R-7 of the American Arbitration
Association’s rules to decide Lyda’s request to join Blue Haven in the existing arbitration
proceeding. Following detailed briefing, the R-7 arbitrator concluded, on June 11, 2010, Lyda
could not join Blue Haven as a party to its “existing arbitration” with Riverwalk because Blue
Haven “did not contractually agree to joinder, and no controlling legal principles compel[s its]
joinder.” The R-7 arbitrator’s order declined to address “whether Lyda waived its right to elect
arbitration with Blue Haven” because the arbitrator considered the issue “moot.”
On June 22, 2010, Blue Haven moved for partial summary judgment against Lyda in the
trial court. Lyda responded by filing a motion to compel arbitration in the trial court on June 29,
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2010, asking the court to compel the parties to arbitration in accordance with the terms of the
Subcontract. Blue Haven countered that compelling the parties to arbitration was improper
because “a Rule 7 Arbitrator ha[d] already ruled against Lyda on the issue of whether arbitration
of Blue Haven’s claims is proper.” It also asserted Lyda waived its right to arbitrate by waiting
until well after Blue Haven had initiated its lawsuit to raise its arbitration request. Blue Haven
further argued that Lyda had waived its right to arbitrate because it participated in the litigation
process prior to requesting arbitration and caused Blue Haven to incur unnecessary expenses
during such time. Finally, Blue Haven claimed Lyda waived its right to arbitrate because it was
first required to mediate with Blue Haven “as an express condition precedent before invoking the
arbitration provision” of the Subcontract.
After hearing the parties’ arguments, the trial court denied Lyda’s motion to compel
arbitration and issued orders on September 3 and 7, 2010 reflecting its ruling. Lyda
subsequently perfected its appeal of the trial court’s orders denying its motion to compel
arbitration. Lyda thereafter responded to Blue Haven’s motion for partial summary judgment
and filed a motion requesting the trial court to reconsider its arbitration ruling. The trial court
granted Blue Haven’s motion for partial summary judgment on September 24, 2010, holding the
contingent payment clause of the Subcontract is unenforceable. There were no other rulings
issued by the trial court below.
DISCUSSION
A. Improper Collateral Attack
As a preliminary matter, Blue Haven contends the trial court correctly denied Lyda’s
motion to compel arbitration because an R-7 arbitrator has already ruled against Lyda and
concluded that arbitration of Blue Haven’s claims is improper. Blue Haven argues “Lyda’s
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attempt to compel arbitration despite the R-7 arbitrator’s ruling is essentially an improper
collateral attack of that ruling.” We are, however, unpersuaded by this argument due to the
nature of the order issued by the R-7 arbitrator.
Upon reviewing the R-7 arbitrator’s order, it becomes evident that the arbitrator never
addressed the issue of whether Lyda is entitled to compel Blue Haven to arbitrate in a proceeding
solely between Lyda and Blue Haven. According to the R-7 arbitrator’s order, the arbitrator
denied Lyda’s request to join Blue Haven in the existing Lyda-Riverwalk arbitration because
Blue Haven “did not contractually agree to joinder[] and no controlling legal principles compel
[its] joinder.” The R-7 arbitrator’s order further reflects that the arbitrator declined to reach the
issue of whether “Lyda waived its right to elect arbitration with Blue Haven” as he considered
the issue “moot.” Because the R-7 arbitrator never addressed the issue of whether Lyda is
entitled to compel Blue Haven to arbitrate in a proceeding solely between Lyda and Blue Haven,
the record simply does not support Blue Haven’s first contention on appeal.
B. Failure to Fulfill Condition Precedent
Blue Haven also argues the trial court properly denied Lyda’s motion to compel
arbitration because the trial court may have found that mediation was a condition precedent to
arbitration. Blue Haven asserts Lyda cannot compel it to arbitration because Lyda was required
under the terms of the Subcontract to pursue mediation with Blue Haven before resorting to
arbitration. Blue Haven’s argument is, yet again, contradicted by the record.
Section 15(b) of the parties’ Subcontract expressly refers to mediation and provides:
Subcontractor agrees, upon the request of Contractor, to submit any claim or
dispute to a neutral mediator and to negotiate in good faith to reach an agreement
with respect to the dispute. Any such mediation proceeding shall be under the
auspices of and governed by the rules of the Construction Industry Mediation
Rules of the American Arbitration Association; or as may be agreed by the
parties. In such event, neither party shall proceed with arbitration or litigation
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until the completion of mediation proceedings. The costs of the mediator shall be
shared equally by the parties. Venue for the mediation shall be at the most
practical location convenient to the parties and/or the location of the project.
(emphasis added). It is apparent from the plain language of the Subcontract that Lyda, as the
Contractor, had the option to first proceed through mediation if a dispute arose between it and
Blue Haven, the subcontractor. This option was at Lyda’s discretion, but Lyda instead chose to
dispense with mediation and opted to pursue arbitration as authorized by paragraph 15(c) of the
Subcontract, which states “[i]n the event of a dispute between Contractor and Subcontractor,
Contractor may elect to arbitrate such dispute . . . or to litigate the dispute in a forum with
jurisdiction to decide the dispute.” Blue Haven’s contention that Lyda was required to fulfill a
condition precedent prior to seeking arbitration thus lacks merit. See Dallas Cardiology Assocs.,
P.A. v. Mallick, 978 S.W.2d 209, 212-13 (Tex. App.—Texarkana 1998, pet. denied) (suggesting
contractual language did not rise to the level of a condition precedent where it provided, “[a]ny
dispute arising over the terms and conditions of this Agreement or in any manner relating to this
Agreement which the parties are unable to resolve informally between themselves or by
mediation shall be submitted, upon the motion of either party, to arbitration under the appropriate
rules of the American Arbitration Association”).
C. Waiver
Lastly, Blue Haven argues the trial court properly denied Lyda’s motion to compel
arbitration because Lyda waived its right to arbitration. “[A] party waives an arbitration clause
by substantially invoking the judicial process to the other party’s detriment or prejudice.” Perry
Homes v. Cull, 258 S.W.3d 580, 589-90 (Tex. 2008). “Waiver is a legal question for the court
based on the totality of the circumstances, and asks whether a party has substantially invoked the
judicial process to an opponent’s detriment, the latter term meaning inherent unfairness caused
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by ‘a party’s attempt to have it both ways by switching between litigation and arbitration to its
own advantage.’” In re Citigroup Global Mkts., Inc., 258 S.W.3d 623, 625 (Tex. 2008) (citation
omitted). When assessing the totality of the circumstances, we may consider: whether the
movant was the plaintiff (who chose to file in court) or the defendant (who merely responded);
how long the movant waited before seeking arbitration; whether the movant knew of the
arbitration clause all along; how much pretrial activity related to the merits rather than
arbitrability or jurisdiction; how much time and expense has been incurred in litigation; whether
the movant sought or opposed arbitration earlier in the case; whether the movant filed affirmative
claims or dispositive motions; whether discovery would be useful in arbitration; and whether the
movant sought judgment on the merits. Perry Homes, 258 S.W.3d at 591-92; PER Group, L.P. v.
Dava Oncology, L.P., 294 S.W.3d 378, 389 (Tex. App.—Dallas 2009, no pet.).
The party who asserts waiver of an arbitration clause bears a heavy burden. EZ Pawn Corp.
v. Mancias, 934 S.W.2d 87, 90 (Tex. 1996). A strong presumption against waiver exists in the
law, and any doubts regarding waiver are resolved in favor of arbitration. In re Bruce Terminix
Co., 988 S.W.2d 702, 704 (Tex. 1998); In re Multifuels, L.P., No. 01-09-00475-CV, 2010 WL
1981570, at *6 (Tex. App.—Houston [1st Dist.] May 7, 2010, orig. proceeding) (mem. op.).
“Waiver of arbitration rights may be expressed or implied.” In re Multifuels, 2010 WL 1981570,
at *6.
Blue Haven maintains Lyda waived its right to arbitrate because Lyda substantially invoked
the judicial process to Blue Haven’s detriment. It asserts Lyda substantially invoked the judicial
process by: (1) failing to make a pre-suit demand for arbitration; (2) failing to invoke the
arbitration provision of the Subcontract in its answer; (3) filing an answer to Blue Haven’s
allegations and asserting a defense based on the contingent payment clause found within the
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Subcontract; (4) going forward with the hearing on Blue Haven’s motion for summary judgment;
(5) electing not to include Blue Haven as a party to the Lyda-Riverwalk arbitration when such
arbitration was originally commenced; and (6) waiting nearly six months after suit was brought
to file its motion to compel arbitration. Even if we were to assume the aforementioned actions
demonstrate Lyda substantially invoked the judicial process — a proposition we need not decide
to resolve this appeal — Blue Haven has nonetheless failed to carry its burden of showing that it
would suffer prejudice if compelled to arbitration.
As it did in its response to Lyda’s motion to compel arbitration, Blue Haven argues on appeal
that compelling it “to arbitration ‘would cause prejudice to plaintiff’ and ‘would not be in the
interest of justice.’” Blue Haven alleges it will suffer prejudice if compelled to arbitration
because it has expended significant time and resources initiating and prosecuting the underlying
suit. Absent from the record, however, is any evidence detailing the time and resources allegedly
expended by Blue Haven in connection with this matter. This court has consistently recognized
that generalized complaints about delay and expense, without evidence in support, are
insufficient to establish prejudice. See Global Fin. Servs., L.L.C. v. Estate of McLean, No. 04-
07-00627-CV, 2008 WL 372521, at *3 (Tex. App.—San Antonio Feb. 13, 2008, no pet.) (mem.
op.); Pennzoil Co. v. Arnold Oil Co., 30 S.W.3d 494, 499 (Tex. App.—San Antonio 2000, no
pet.). Moreover, the Texas Supreme Court has acknowledged that “waiver of arbitration requires
a showing of prejudice.” See Perry Homes, 258 S.W.3d at 595. Because Blue Haven has made
nothing more than generalized protestations about the time and resources it has expended, we
conclude Blue Haven has failed to make the required showing of prejudice. See In re Houston
Auto M. Importers N., Ltd., No. 01-09-00625-CV, 2009 WL 4756218, at *3 (Tex. App.—
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Houston [1st Dist.] Dec. 3, 2009, orig. proceeding) (mem. op.) (reversing trial court’s denial of a
motion to compel arbitration where plaintiff introduced no evidence of prejudice at the hearing).
CONCLUSION
Based on the foregoing, we hold that the trial court erred in denying Lyda’s motion to
compel arbitration. We therefore reverse the trial court’s orders denying Lyda’s motion to
compel arbitration and remand the cause to the trial court for further proceedings consistent with
this opinion.
Karen Angelini, Justice
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