GRGP, Inc. and Rosalind NG v. Black Forest Holdings, Inc., 5711 Bissonnet, LP, 5713 Bissonet, LP, and Avi Ron ( 2023 )

Opinion issued December 7, 2023
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-23-00314-CV
———————————
GRGP, INC. AND ROSALIND NG, Appellants
V.
BLACK FOREST HOLDINGS, INC., 5711 BISSONNET, LP, 5713
BISSONET, LP, AND AVI RON, Appellees
On Appeal from the 11th District Court
Harris County, Texas
Trial Court Case No. 2017-78562
MEMORANDUM OPINION
Appellants GRGP, Inc. and Rosalind Ng (collectively, GRGP) appeal from
the trial court’s order denying their motion to compel arbitration in the suit filed
against them by appellees Black Forest Holdings, Inc., 5711 Bissonnet, LP, 5713
Bissonnet, LP, and Avi Ron (collectively, Black Forest). In two issues, GRGP
contends that the trial court erred in failing to (1) compel arbitration because Black
Forest did not show that GRGP’s conduct was inconsistent with the right to compel
arbitration or that it prejudiced Black Forest as required to find waiver, and (2) allow
GRGP to take back their purported waiver. We affirm.
Background
GRGP and Black Forest Holdings are the General Partners of two limited
partnerships: 5711 Bissonnet, LP and 5713 Bissonnet, LP (the Partnerships). GRGP
and Black Forest formed the Partnerships as property management entities for the
purpose of purchasing, renting, and selling real property in and around Harris
County, Texas.
GRGP and Black Forest each have a 0.5% interest in the Partnerships. Avi
Ron, Black Forest’s President, and Rosalind Ng, GRGP’s President, also own an
interest as limited partners.
In November 2017, Black Forest sued GRGP, Ng, and Joshua Wohlstein,
Ng’s husband,1 asserting claims for breach of contract, breach of fiduciary duty,
conspiracy, and aiding and abetting. Black Forest alleged that GRGP denied it access
to the corporate books and records, despite repeated requests, and excluded Ron
from business operations and decision making, in violation of the terms of the
1
Wolstein is not a party to this appeal.
2
Limited Partnership Agreements (the Agreements). Black Forest sought a temporary
injunction barring GRGP from managing or conducting business on behalf of the
Partnerships and appointment of a receiver.2
GRGP answered asserting a general denial and several affirmative defenses.
It further asserted that it was entitled to indemnification pursuant to the terms of the
Agreements. GRGP amended its answer.
In July 2018, GRGP filed a pleading entitled “Plea to the Jurisdiction and
Motion for Summary Judgment” challenging (1) the trial court’s subject matter
jurisdiction, (2) Ron’s standing to bring claims relating to the Partnerships, and (3)
Black Forest’s standing to bring claims on behalf of the Partnerships. Black Forest
filed a response and motion for continuance.
In October 2018, GRGP counterclaimed asserting that Black Forest breached
the Agreements, and it sought damages, declaratory relief, and enforcement of the
Agreements’ indemnity provisions. GRGP amended its counterclaims and filed its
third amended answer to Black Forest’s first amended petition.
2
In 2012, GRGP sued Black Forest asserting claims for breach of fiduciary duty and
breach of contract and sought an accounting, specific performance, and declaratory
relief. GRGP alleged that Black Forest unilaterally entered into contracts for
property management services with two companies owned by Ron in violation of
the terms of the partnership agreements. After the parties entered a Rule 11
agreement to settle the case, they jointly moved to dismiss the lawsuit in March
2013.
3
In January 2020, GRGP filed a second motion for summary judgment on
Black Forest’s breach of contract claim. It argued that the parties had entered into
an agreement under which Black Forest had expressly delegated its general partner
authority to GRGP, and that GRGP thereafter moved to dissolve the receivership.
Black Forest responded that it had withdrawn its consent to GRGP’s control two
years earlier, and it requested sanctions on the grounds that GRGP had moved for
summary judgment on a delegation of authority it knew had been previously
revoked.
In March 2021, Ng moved for final summary judgment on Black Forest’s
claims against her for breach of fiduciary duty, conspiracy, and declaratory relief.
Black Forest responded and moved for a continuance so that it could depose Ng. The
trial court granted a continuance.
In April 2022, the trial court conducted an evidentiary hearing on Black
Forest’s renewed and supplemental motion for finding of spoliation and sanctions
against GRGP. Following the hearing, the trial court entered an order and findings
that GRGP had intentionally spoliated evidence by destroying a computer server
containing evidence relevant to key issues in the case. The trial court ordered GRGP
to pay Black Forest’s reasonable and necessary attorney’s fees and costs incurred as
a result of the spoliation, the receiver’s fees and costs, and the fees charged by the
receiver’s accountant. The trial court reserved ruling on a spoliation presumption
4
and instruction until trial. The trial court later awarded $61,806.25 in attorney’s fees
to Ron as well as the fees incurred by the receiver and the receiver’s accountant that
were paid by the Partnerships.
In January 2023, GRGP filed an opposed motion to compel arbitration
asserting that the parties had agreed that any disputes arising out of or relating to the
Agreements would be resolved through binding arbitration.3 Black Forest responded
arguing that GRGP had waived the right to arbitration, and it filed a cross-motion
for sanctions. The trial court denied GRGP’s motion to compel arbitration on April
17, 2023. This interlocutory appeal followed.
Standard of Review and Applicable Law
We review an order denying a motion to compel arbitration for abuse of
discretion. Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018). A trial
court abuses its discretion if it acts in an arbitrary or unreasonable manner or acts
3
Section 15.9(a) of the Agreements provides:
All disputes, differences or questions arising out of or relating to this
Agreement (including, without limitation, those as to the validity,
interpretation, breach, violation or termination hereof ) will, at the written
request of any partner, be finally determined and settled pursuant to
arbitration at Houston, Texas by three arbitrators, one arbitrator to be
appointed by the partner requesting arbitration, one arbitrator to be appointed
by the adverse party, and a neutral arbitrator to be appointed by the first two
arbitrators. The neutral arbitrator will be an attorney and will act as chairman.
Any such arbitration may be initiated by any partner by written notice
(“Arbitration Notice”) to the other party specifying the subject of the
requested arbitration and appointing such partner’s arbitrator for such
arbitration.
5
without reference to any guiding rules or principles. Cire v. Cummings, 134 S.W.3d
835, 838–39 (Tex. 2004) (quoting Downer v. Aquamarine Operators, Inc., 701
S.W.2d 238, 241–42 (Tex. 1985)). “We defer to the trial court’s factual
determinations if they are supported by evidence but review its legal determinations
de novo.” Henry, 551 S.W.3d at 115.
A party seeking to compel arbitration must establish that (1) a valid arbitration
agreement exists and (2) the claims in dispute fall within the scope of the agreement.
In re Rubiola, 334 S.W.3d 220, 223 (Tex. 2011). “If the party
seeking arbitration carries its initial burden, the burden then shifts to the party
resisting arbitration to present evidence on its defenses to the arbitration agreement.”
Williams Indus., Inc. v. Earth Dev. Sys. Corp., 110 S.W.3d 131, 134–35 (Tex.
App.—Houston [1st Dist.] 2003, no pet.) (quoting Mohamed v. Auto Nation USA
Corp., 89 S.W.3d 830, 835 (Tex. App.—Houston [1st Dist.] 2002, no pet.) (citing In
re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999))).
Waiver
A party who opposes the enforcement of a valid arbitration agreement4 based
on the defense of waiver bears the burden of proving the defense. Royston, Rayzor,
Vickery & Williams, LLP v. Lopez, 467 S.W.3d 494, 499–500 (Tex. 2015); Pounds
4
Black Forest does not challenge on appeal the existence of a valid arbitration
agreement or assert that its claims against GRGP do not fall within its scope.
6
v. Rohe, 592 S.W.3d 549, 554 (Tex. App.—Houston [1st Dist.] 2019, no pet.).
Because the law favors arbitration, this burden is a heavy one. G.T. Leach Builders,
LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 512 (Tex. 2015); Pounds, 592 S.W.3d
at 554. A party may waive its right to arbitration either expressly or impliedly. G.T.
Leach, 458 S.W.3d at 511. Waiver of arbitration may be implied from a party’s
conduct, so long as the conduct is unequivocal. Courtright v. Allied Custom Homes,
Inc., 647 S.W.3d 504, 516 (Tex. App.—Houston [1st Dist.] 2022, pet. denied) (citing
Adams v. StaxxRing, Inc., 344 S.W.3d 641, 647 (Tex. App.—Dallas 2011, pet.
denied)).
When, as here, implied waiver is at issue, the party seeking to establish the
waiver defense must show that (1) the party seeking arbitration substantially invoked
the judicial process in a manner inconsistent with the right to compel arbitration and
(2) this inconsistent conduct caused the nonmoving party to suffer detriment or
prejudice. G.T. Leach, 458 S.W.3d at 511–12 (citing Perry Homes v. Cull, 258
S.W.3d 580, 593–94 (Tex. 2008)). Whether a party waives its right to arbitration by
substantially invoking the judicial process depends on the totality of the
circumstances. See id. at 512; Perry Homes, 258 S.W.3d at 590. We decide the issue
on a case-by-case basis taking into consideration a multitude of non-exclusive
factors, including:
• how long the movant waited before moving to compel arbitration;
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• the reasons for the movant’s delay;
• whether and when, during the period of delay, the movant knew of
the arbitration agreement;
• how much discovery the movant conducted before moving to
compel arbitration, and whether that discovery related to the merits;
• whether the discovery would be unavailable or useful in arbitration;
• whether the movant asked 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 (rather than to arbitrability or jurisdiction);
• the time and expense the parties committed to the litigation;
• whether activity in court would be duplicated in arbitration; and
• when the case is set to be tried.
G.T. Leach, 458 S.W.3d at 512 (citing Perry Homes, 258 S.W.3d at 590–92). In
general, no single factor is dispositive. RSL Funding, LLC v. Pippins, 499 S.W.3d
423, 430 (Tex. 2016). Nor must all or most of these factors be present to support
waiver. See Perry Homes, 258 S.W.3d at 591. Courts look to the specifics of each
case. Henry, 551 S.W.3d at 116.
The party asserting waiver of arbitration must also prove that it suffered unfair
prejudice because of the opposing party’s litigation conduct. See G.T. Leach, 458
S.W.3d at 515. Such inherent unfairness may be manifested “in terms of delay,
8
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.” Perry Homes,
258 S.W.3d at 597 (quotation omitted). “Detriment or prejudice, in this context,
refers to an ‘inherent unfairness caused by a party’s attempt to have it both ways by
switching between litigation and arbitration to its own advantage.’” G.T. Leach, 458
S.W.3d at 515 (quoting In re Citigroup Global Mkts., Inc., 258 S.W.3d 623, 625
(Tex. 2008) (per curiam)) (internal quotation omitted); see Kennedy Hodges, L.L.P.
v. Gobellan, 433 S.W.3d 542, 545 (Tex. 2014) (per curiam). “[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.” Perry
Homes, 258 S.W.3d at 597 (quoting In re Tyco Int’l Ltd. Sec. Litig., 422 F.3d 41, 46
n.5 (1st Cir. 2005)). The nonmovant must show the fact of prejudice, but not its
extent. Id. at 599.
Discussion
In its first issue, GRGP contends that the trial court erred in failing to compel
arbitration because Black Forest did not show that GRGP’s conduct was inconsistent
with the right to compel arbitration, or that its conduct prejudiced Black Forest.
Black Forest responds that GRGP substantially invoked the judicial process in a
manner inconsistent with the right to compel arbitration by (1) litigating for five and
a half years without seeking arbitration; (2) filing counterclaims and defenses based
9
on the Agreements; (3) filing three motions for summary judgment; (4) completing
the entire discovery process; and (5) moving to compel arbitration only after the trial
court found it had intentionally spoliated evidence. Black Forest argues that it would
be prejudiced if forced to arbitrate.
A. Substantial Invocation of Judicial Process
In examining whether GRGP substantially invoked the judicial process in a
manner inconsistent with the right to arbitrate, we consider the factors enunciated in
G.T. Leach.
1. Delay
Black Forest filed suit against GRGP on November 22, 2017, and GRGP did
not move to compel arbitration until February 28, 2023—more than five years after
suit was filed. Courts have found waiver based on significantly shorter periods of
delay. See, e.g., Perry Homes, 258 S.W.3d at 596 (finding waiver where party
delayed request for arbitration fourteen months after filing suit); Menger v. Menger,
No. 01-19-00921-CV, 2021 WL 2654137, at *5 (Tex. App.—Houston [1st Dist.]
June 29, 2021, no pet.) (mem. op.) (finding party’s six-month delay before
requesting arbitration supported finding of waiver).
While delay, standing alone, does not constitute substantial invocation of the
judicial process, see G.T. Leach, 458 S.W.3d at 515, the record shows more than
mere delay in this case. GRGP has offered no explanation for the delay. Nor does
10
the record suggest a justifiable reason for the decision to wait so long to seek
arbitration. GRGP was aware of the Agreements’ arbitration clause from the outset
as it was a party to the Agreements, and the Agreements have been cited in, and
attached as exhibits to, numerous pleadings and filings, including GRGP’s own
counterclaims and summary judgment motions. However, rather than pursuing
arbitration, GRGP chose to file defenses and counterclaims and engage in significant
discovery and motion practice for more than five years, after all pretrial deadlines
had expired and the trial court found intentional spoliation, before seeking to compel
arbitration. See BBX Operating, LLC v. Am. Fluorite, Inc., No. 09-17-00245-CV,
2018 WL 651276, at *6 (Tex. App.—Beaumont Nov. 16, 2017, no pet.) (mem. op.)
(“[A] party who is aware of an arbitration clause, yet only files a motion to compel
arbitration after having engaged in discovery and filed pleadings with the trial court,
and after having received an adverse ruling from a trial court, has substantially
invoked the litigation process and thereby waived its right to arbitrate.”); Prof’l
Advantage Software Sols., Inc. v. W. Gulf Mar. Ass’n, No. 01-15-01006-CV, 2016
WL 2586690, at *4 (Tex. App.—Houston [1st Dist.] May 5, 2016, no pet.) (mem.
op.) (noting party is presumed to know contents of agreement it signs).
We find GRGP’s delay in moving to compel arbitration supports a finding of
waiver.
11
2. Discovery
The record shows that GRGP served forty-two requests for production, thirty-
nine requests for admission, fourteen interrogatories, and two deposition notices
with subpoena duces tecum to third parties. GRGP conducted this discovery before
the end of the discovery period on September 18, 2020 and well before it moved for
arbitration on February 28, 2023. See Perry Homes, 258 S.W.3d at 596 (“[T]he
record is nevertheless clear that most of the discovery in the case had already been
completed before the Culls requested arbitration. The rule that one cannot wait until
‘the eve of trial’ to request arbitration is not limited to the evening before trial; it is
a rule of proportion that is implicated here.”); Adams, 344 S.W.3d at 649 (concluding
that discovery was substantially completed where defendant initiated and conducted
discovery, filed repeated motions for protection, and moved to compel arbitration
only after discovery deadline had passed).
We find GRGP’s discovery supports a finding of waiver.
3. Affirmative Relief and Pretrial Matters
The record reflects that GRGP sought affirmative relief against Black Forest
in the trial court. It asserted amended counterclaims based on the Agreements and
sought numerous declaratory judgments regarding the parties’ rights and obligations
under them, including enforcement of the Agreements’ indemnity provisions. See
Hogg v. Lynch, Chappell & Alsup, P.C., 480 S.W.3d 767, 785–86, 790–91 (Tex.
12
App.—El Paso 2015, no pet.) (concluding evidence showing party sought
affirmative relief by filing claim for declaratory judgment and seeking constructive
trust on disputed monies was significant factor in determining whether defendant
had substantially invoked judicial process). GRGP also filed three motions for
summary judgment during the course of the litigation. In July 2018, GRGP filed a
pleading entitled “Plea to the Jurisdiction and Motion for Summary Judgment”
challenging the trial court’s subject matter jurisdiction, Ron’s standing to bring
claims relating to the Partnerships, and Black Forest’s standing to bring claims on
behalf of the Partnerships. In January 2020, GRGP moved for summary judgment
on Black Forest’s breach of contract claim and, in March 2021, Ng moved for final
summary judgment on Black Forest’s claims against her for breach of fiduciary duty,
conspiracy, and declaratory relief. The fact that the trial court did not rule on the
summary judgment motions is not dispositive. See Perry Homes, 258 S.W.3d at 592
(“Waiver involves substantial invocation of the judicial process, not just judgment
on the merits.”); see also Hogg, 480 S.W.3d at 790 (“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.”).
GRGP also participated in pretrial matters related to the merits of their claims.
As discussed above, GRGP filed numerous pleadings—original and amended
answers, original and amended counterclaims, and three summary judgment
13
motions—as well as participated in evidentiary hearings and conducted significant
discovery.
We further note that GRGP did not move to compel arbitration until after the
trial court entered rulings adverse to GRGP. On July 26, 2022, the trial court entered
an order and findings that GRGP had intentionally spoliated evidence by destroying
a computer server containing evidence relevant to key issues in the case. The trial
court reserved ruling on a spoliation presumption and instruction until trial, leaving
open the possibility of further adverse rulings. The trial court later awarded
$61,806.25 in attorney’s fees to Ron as well as the fees and costs incurred by the
receiver and the receiver’s accountant that were paid by the Partnerships as a result
of the spoliation. See Courtright, 647 S.W.3d at 521 (concluding that evidence
showing defendants did not move to compel arbitration until after trial court entered
rulings adverse to them, including granting motion for partial summary judgment in
favor of plaintiffs, and five months before the parties’ agreed trial setting supported
finding of waiver); Haddock v. Quinn, 287 S.W.3d 158, 180 (Tex. App.—Fort
Worth 2009, pet. denied) (“Indeed, failing to seek arbitration until after proceeding
in litigation to an adverse result is the clearest form of inconsistent litigation conduct
and is inevitably found to constitute substantial invocation of the litigation process
resulting in waiver.”).
14
The record thus demonstrates that GRGP sought affirmative relief and
participated in pretrial matters, supporting a finding of waiver.
4. Time and Money Spent in Litigation
In support of its response to GRGP’s motion to compel arbitration, Black
Forest attached the affidavit of its counsel, Andrew K. Meade. Meade attested that
his firm had spent a total of 873.10 hours working on the matter and that Black Forest
had incurred $279,613.00 in fees to date. See Adams, 344 S.W.3d at 651 (considering
evidence showing that plaintiffs had incurred $110,000 in legal fees, which included
$21,000 in fees solely for purpose of responding to defendant’s discovery requests
and motions, in determining that defendant had waived his right to compel
arbitration). This evidence supports a finding of waiver.
5. Duplication of Litigation Activity and Trial Setting
We also consider whether the activity in court would be duplicated in
arbitration and whether and when the case had been set for trial. See G.T. Leach, 458
S.W.3d at 512. Here, all pretrial deadlines had passed by the time GRGP moved to
compel arbitration. Therefore, any activity in an arbitration proceeding would
necessarily be duplicative of the activity that was previously conducted in litigation.
Following a continuance in January 2023, trial of the case was set for October 16,
2023, after more than five years of active litigation. The trial court did not issue a
new docket control order, and, as noted above, all discovery and dispositive motion
15
deadlines had passed. See Adams, 344 S.W.3d at 649 (noting that defendant moved
to compel arbitration only after discovery deadline had passed and most discovery
had been completed in finding waiver of right to compel arbitration) (citing Perry
Homes, 258 S.W.3d at 596 (“[T]he record is nevertheless clear that most of the
discovery in the case had already been completed before the Culls requested
arbitration. The rule that one cannot wait until ‘the eve of trial’ to request arbitration
is not limited to the evening before trial; it is a rule of proportion that is implicated
here.”)).
After considering the totality of the circumstances, we conclude that GRGP
substantially invoked the judicial process in a manner inconsistent with the right to
arbitrate and waived arbitration. See Hogg, 480 S.W.3d at 790 (holding arbitration
waived when party participated in litigation “only up until the point that she received
an adverse ruling from the district court and was faced with the possibility of having
the court impose case-crippling sanctions”); Okorafor v. Uncle Sam & Assocs., Inc.,
295 S.W.3d 27, 40 (Tex. App.—Houston [1st Dist.] 2009, pet. denied) (concluding
defendant substantially invoked judicial process because she pursued aggressive
litigation strategy through amended pleadings that sought affirmative relief and
abruptly switched to arbitration strategy when facing looming deadline to respond
to discovery requests); In re Christus Spohn Health Sys. Corp., 231 S.W.3d 475, 479
(Tex. App.—Corpus Christi–Edinburg 2007, orig. proceeding) (explaining that
16
actions inconsistent with right to arbitrate may include “some combination of filing
an answer, setting up a counterclaim, pursuing extensive discovery, moving for a
continuance, and failing to timely request arbitration”).
B. Prejudice
Having determined that GRGP substantially invoked the judicial process, we
next consider whether Black Forest established that it was unfairly prejudiced as a
result of GRGP’s conduct.5 See G.T. Leach Builders, 458 S.W.3d at 515; Perry
Homes, 258 S.W.3d at 595. “Detriment or prejudice, in this context, refers to an
‘inherent unfairness caused by a party’s attempt to have it both ways by switching
between litigation and arbitration to its own advantage.’” G.T. Leach, 458 S.W.3d at
515 (quoting In re Citigroup Global Mkts., 258 S.W.3d at 625); Kennedy Hodges,
433 S.W.3d at 545. Such inherent unfairness may be manifested “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.” Perry Homes,
258 S.W.3d at 597.
5
The United States Supreme Court recently rejected any requirement of proof of
prejudice as an “arbitration-specific” federal procedural rule in cases brought in
federal court. See Morgan v. Sundance, Inc., 596 U.S. 411, 416–19 (2022).
Regardless of whether that ruling governs our analysis here, see Momentum Project
Controls, LLC v. Booflies to Beefras LLC, No. 14-22-00712-CV, 2023 WL
4196584, at *5 n.5 (Tex. App.—Houston [14th Dist.] Jun. 27, 2023, pet. filed)
(describing issue as “unsettled” question), we nevertheless determine that Black
Forest suffered prejudice as a result of GRGP’s conduct, as set forth below.
17
As discussed above, Black Forest presented evidence that it had incurred
$279,613.00 in attorney’s fees in the course of the litigation by the time GRGP
moved to compel arbitration. See Christus Spohn, 231 S.W.3d at 482 (concluding
party had made clear showing of prejudice where, among other things, counsel
testified by affidavit that client had incurred $60,000 to $70,000 in expenses to
develop matter for trial and more than $350,000 in attorney’s fees). In addition to
the added expense that litigation imposed on Black Forest, the record also shows
prejudice to Black Forest because GRGP actively participated in litigation, suffered
an adverse ruling when the trial court found it intentionally spoliated evidence, and
is now seeking to switch to a new tribunal presumably in an attempt to undo the
effects of the adverse ruling. As this Court noted in Pounds v. Rohe, 592 S.W.3d 549(Tex. App.—Houston [1st Dist.] 2019, no pet.), prejudice is shown when a party
attempts to have it both ways by switching between litigation and arbitration after
the results of the litigation prove unsatisfactory.
When a movant already has unsuccessfully sought a resolution on the
merits, prejudice inheres in an attempt to start over in a different forum
before a new decisionmaker. Pounds and Black are engaged in a type
of unfair forum-shopping that, if condoned, would allow them to have
it both ways—litigating on the merits first and then insisting on
arbitration after the results of the litigation proved unsatisfactory.
Compelling arbitration at this point in the proceedings would allow
Pounds and Black to undo the trial court’s adverse summary-judgment
ruling and deprive Rohe of this favorable result. Damage to a party’s
legal position of this sort suffices to show detriment or prejudice in the
context of waiver of the right to arbitrate.
18
Id. at 558.
In sum, GRGP moved for arbitration more than five years after Black Forest
filed suit, after GRGP engaged in extensive discovery and motion practice, and after
the trial court entered an adverse ruling that GRGP intentionally spoliated evidence,
awarded attorney’s fees and costs to Black Forest incurred as a result of the
spoliation, and explicitly reserved ruling on a spoliation presumption and instruction
until trial. See Courtright, 647 S.W.3d at 524 (finding defendants’ conduct resulted
in substantial prejudice to plaintiffs and therefore supported finding of waiver where
record showed trial court granted plaintiffs’ motion for partial summary judgment,
entered adverse finding that one defendant’s actions were “illegal, oppressive, or
fraudulent,” and one plaintiff’s motion for partial summary judgment remained
pending). Reviewing the record before us, we conclude that GRGP’s conduct
resulted in substantial prejudice to Black Forest. See Kennedy Hodges, 433 S.W.3d
at 545 (stating prejudice is “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”). The trial court did not
abuse its discretion in denying GRGP’s motion to compel arbitration. We overrule
GRGP’s first issue.
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C. “Take Back” of Waiver
In its second issue, GRGP contends that even if the evidence supports a
finding of waiver, the trial court erred in not following the Texas Supreme Court’s
guidance in Perry Homes by allowing it to “take back” any waiver. This is so, it
argues, because it moved to compel arbitration nearly nine months before trial.
GRGP’s argument is unavailing.
In Perry Homes, the Texas Supreme Court addressed the defendants’
argument that it should reconsider requiring a showing of prejudice to find waiver
by litigation conduct and instead apply the ordinary waiver rules governing contracts
which require only “intentional relinquishment of a known right” without a
requirement of prejudice. See Perry Homes, 258 S.W.3d at 594. After noting that its
own precedent and that of a majority of federal circuits courts requiring a showing
of prejudice, the Court declined the defendants’ invitation to reconsider the
requirement. See id. Instead, it held that it would continue to require a showing of
prejudice because waiver in the arbitration context is analogous to estoppel:
Under Texas law, waiver may not include a prejudice requirement, but
estoppel does. 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. As noted above, Texas estoppel law does not allow
a party to withdraw a representation once the other party takes “action
or forbearance of a definite and substantial character.” Using precisely
the same terms, the Restatement does not allow a party to withdraw an
option contract when the offeree has taken substantial action based upon
it. In these contexts, prejudice is an element of the normal contract rules.
20
Thus, we agree with the courts below that waiver of arbitration requires
a showing of prejudice.
Id. at 595. The “take it back” language upon which GRGP relies is not a rule
allowing a party to undo a completed waiver. Rather, it is an explanation as to why
arbitration waiver includes a prejudice requirement. Because the trial court did not
err in not permitting GRGP to take back its waiver, we overrule GRGP’s second
issue.
Conclusion
We affirm the trial court’s order denying GRGP’s motion to compel
arbitration.
Amparo Monique Guerra
Justice
Panel consists of Justices Goodman, Rivas-Molloy, and Guerra.
21