Wade Pounds and Ray J. Black, Jr.,Independent Administrator of the Estate of Thomas W. Pounds v. Reva Jean Rohe

Opinion issued December 19, 2019
In The
Court of Appeals
For The
First District of Texas
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NO. 01-19-00623-CV
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WADE POUNDS AND RAY J. BLACK, JR., INDEPENDENT
ADMINISTRATOR OF THE ESTATE OF THOMAS W. POUNDS,
DECEASED, Appellants
V.
REVA JEAN ROHE, Appellee
On Appeal from the Probate Court No.1
Harris County, Texas
Trial Court Case No. 444,171-401
O P I N I O N
Wade Pounds and Ray J. Black, Jr., independent administrator of the estate of
Thomas J. Pounds, deceased, filed this interlocutory appeal from the trial court’s
order denying their motion to compel arbitration. We affirm.
BACKGROUND
Settlement of Estate Litigation
After Thomas J. Pounds, Jr. passed away, his common-law wife, Reva Jean
Rohe, and his son, Wade Pounds, became embroiled in litigation over the estate.
They eventually settled their dispute. Their settlement agreement included an
arbitration clause:
If a dispute arises with regard to the interpretation and/or performance
of this agreement or any of its provisions, the parties agree to resolve
the dispute by a phone conference with the mediator who facilitated the
settlement. If the parties cannot resolve their differences in this manner,
then the parties agree to binding arbitration with Judge Ray.
The trial court incorporated the settlement agreement into an agreed final
judgment disposing of the litigation between Rohe and Pounds. The agreed judgment
appointed Ray J. Black, Jr. as the estate’s independent administrator. The judgment
ordered Black to pay all claims and administrative costs and comply with the terms
of the settlement agreement.
Petition for Accounting and Distribution
In September 2018, Rohe filed a petition for accounting and distribution in
the probate court. Among other things, she asserted a right to reimbursement from
the estate for mortgage payments she made to prevent foreclosure on real property
the deceased gave to her in fee simple. She alleged that Black failed to comply with
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the terms of the settlement agreement by failing to reimburse her from the estate for
these payments.
In October 2018, Pounds answered. He opposed Rohe’s request for
reimbursement for the mortgage payments from the estate. As the beneficiary of the
estate’s remaining funds, any reimbursement made to Rohe effectively would have
been at his expense. Pounds also contemporaneously filed a motion for summary
judgment seeking to have Rohe’s reimbursement claim denied on the merits. Rohe
responded to his summary-judgment motion in November 2018.
The trial court heard the summary-judgment motion in November 2018.
Pounds filed supplemental briefing in December 2018. The trial court denied his
motion that month.
Current Lawsuit
At some point before the trial court had denied Pounds’s summary-judgment
motion, it informed Rohe that a separate action against the estate or administrator
would be necessary to pursue a claim for reimbursement of the mortgage payments
in lieu of her petition for an accounting and distribution. See HARRIS CTY. PROBATE
CT. LOCAL RULES 2.4, 2.5, 2.6 (providing that claim against administrator for
rejection of claim is ancillary matter to be assigned cause number distinct from estate
administration); see also Henderson v. Shanks, 449 S.W.3d 834, 840–41 (Tex.
App.—Houston [14th Dist.] 2014, pet. denied) (discussing these local probate rules).
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Accordingly, in December 2018, Rohe filed a claim against the estate for
reimbursement of the mortgage payments. Per the local probate rules, this separate
action, cause number 444,171-401, was made a sub-file of the estate administration,
cause number 444,171.
In January 2019, Black denied Rohe’s claim for reimbursement.
In March 2019, Rohe sued as to Black’s refusal to reimburse her from the
estate for the mortgage payments. Black answered in April.
In July 2019, Pounds filed a motion to compel arbitration of Rohe’s
reimbursement claim under the prior settlement agreement. Black joined Pounds’s
motion. Rohe filed a response in opposition.
The trial court heard Pounds’s motion to compel arbitration in July 2019. At
the hearing, Rohe argued that Pounds had not invoked the arbitration clause when
she initially made her claim and that he already had unsuccessfully sought summary
judgment as to her right to reimbursement. Rohe noted that her claim for
reimbursement had been pending for about eight months before Pounds moved for
arbitration and that it was not fair to do so at this point. She explicitly invoked the
defense of waiver, reiterating that a motion for summary judgment as to this very
issue had been filed, heard, and decided.
The trial court denied Pounds’s motion to compel arbitration. The trial court
ruled that Pounds had waived his right to arbitration by substantially invoking the
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judicial process, specifically by filing a motion for summary judgment, which the
court already had denied.
DISCUSSION
Rohe does not dispute the existence of a valid arbitration agreement or that
her claim against the estate falls within its scope. She maintains that Pounds and
Black waived the right to enforce the agreement. Pounds and Black disagree. The
defense of waiver is the sole issue before us on appeal.
Jurisdiction
A party may appeal from an order denying a motion to compel arbitration.
TEX. CIV. PRAC. & REM. CODE § 171.098(a)(1); Valerus Compression Servs. v.
Austin, 417 S.W.3d 202, 207 (Tex. App.—Houston [1st Dist.] 2013, no pet.).
Standard of Review
We review an order denying a motion to compel arbitration for an abuse of
discretion. Valerus, 417 S.W.3d 207. We defer to the trial court’s fact findings if
they are supported by the evidence. Id. We review questions of law de novo. Id. If
the material facts are not disputed, whether a party has waived its right to arbitrate
is a question of law. RSL Funding v. Pippins, 499 S.W.3d 423, 430 (Tex. 2016) (per
curiam).
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Applicable Law
A party who opposes the enforcement of a valid arbitration agreement 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, 500 (Tex. 2015). Because the
law favors arbitration, this burden is a heavy one. G.T. Leach Builders v. Sapphire
V.P., LP, 458 S.W.3d 502, 512 (Tex. 2015). A court thus must enforce the arbitration
agreement in close cases. Perry Homes v. Cull, 258 S.W.3d 580, 593 (Tex. 2008).
A party may waive its right to arbitrate either expressly or impliedly. G.T.
Leach, 458 S.W.3d at 511. When, as here, implied waiver is at issue, the party trying
to establish the defense must show that:
(1) the other parties have substantially invoked the judicial process in a
manner inconsistent with the right to compel arbitration; and
(2) this inconsistent conduct has caused it to suffer detriment or prejudice.
Id. at 511–12.
The first element—substantial invocation of the judicial process—turns on the
totality of the circumstances. Id. at 512. Courts consider a multitude of factors,
including:
(1) how long the movant waited to try to compel arbitration;
(2) any explanation that the movant may offer for delay;
(3) if and when the movant knew of the arbitration agreement during the
period of delay;
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(4) how much discovery the movant conducted before trying to compel
arbitration and whether that discovery related to the merits;
(5) whether the movant tried to dispose of the claims on the merits;
(6) whether the movant asserted affirmative claims for relief;
(7) the extent of the movant’s pretrial activities relating to the merits;
(8) the amount of time and money the parties have spent in litigation;
(9) if discovery conducted would be unavailable or useful in arbitration;
(10) whether litigation activity would be duplicated in arbitration; and
(11) whether and when the case had been set for trial.
Id. In general, no single one of these factors is dispositive. RSL Funding, 499 S.W.3d
at 430. Nor must all or most of these factors be present to support waiver. See Perry,
258 S.W.3d at 591. The specifics of each case matter. Henry v. Cash Biz, LP, 551
S.W.3d 111, 116 (Tex. 2018); Perry, 258 S.W.3d at 591, 593. Even substantial delay
and pretrial activity often do not amount to substantial invocation of the judicial
process warranting waiver of the right to arbitrate. See Henry, 551 S.W.3d at 116–
17; RSL Funding, 499 S.W.3d at 430–31. Whether the party trying to compel
arbitration previously tried to dispose of the litigation on the merits, however,
ordinarily is a key factor in assessing a waiver defense. Richmont Holdings v.
Superior Recharge Sys., 455 S.W.3d 573, 575 (Tex. 2014) (per curiam); see also In
re Citigroup Global Mkts., 258 S.W.3d 623, 625 (Tex. 2008) (per curiam) (party that
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conducts full discovery, files motions going to merits, and seeks arbitration only on
eve of trial waives right to arbitrate).
Substantial invocation of the judicial process is not enough though; there also
must be prejudice. Perry, 258 S.W.3d at 593–95. In the context of waiver of the right
to arbitrate, prejudice generally focuses on the inherent unfairness that may result
from a party’s attempt to switch between litigation and arbitration to its own
advantage. G.T. Leach, 458 S.W.3d at 515; Perry, 258 S.W.3d at 597.
Considerations like delay, expense, or damage to another party’s legal position are
relevant to the issue of prejudice. Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d
542, 545 (Tex. 2014) (per curiam); Perry, 258 S.W.3d at 597.
Analysis
Waiver of the Waiver Defense
Pounds and Black contend that Rohe waived the defense of waiver by failing
to assert it in her response to Pounds’s motion to compel arbitration. Because she
failed to do so, they argue, the trial court should not have considered the defense.
Rohe asserted the defense of waiver during the hearing on the motion to
compel arbitration. When Rohe raised the defense of waiver at the hearing, Pounds
noted that because Rohe had not asserted the defense in her response, he had not
briefed the issue in his reply. But Pounds did not object or argue that Rohe had
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waived her opportunity to assert the defense.1 He instead argued the merits,
contending that it is “almost impossible to waive a right to arbitration” and that
precedent strongly favored Pounds’s position as to non-waiver. When the trial court
reserved its ruling, it noted that it intended to consider “whether or not there might
have been a waiver.” Pounds again did not object. The trial court later denied
Pounds’s motion on the basis of Rohe’s waiver defense.
By failing to assert that Rohe had waived her waiver defense in the trial court,
Pounds and Black waived this complaint for appellate review. See TEX. R. APP. P.
33.1(a). Even if Pounds and Black had preserved their waiver-of-waiver complaint
for review, they have not cited any authority for the proposition that a trial court errs
in considering a defense to arbitration raised without objection for the first time at
the hearing on a motion to compel. On this record, we see no error.
Substantial Invocation of the Judicial Process
Rohe first asserted her claim for reimbursement of the mortgage payments
from the estate in September 2018. Pounds did not file his motion to compel
arbitration until July 2019. Black joined Pounds’s motion later that same month. He
had not sought to compel arbitration of Rohe’s reimbursement claim beforehand.
1
Black did not attend the hearing.
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While this delay is substantial, it is not enough, standing alone, to constitute
substantial invocation of the judicial process. See Henry, 551 S.W.3d at 116–17; RSL
Funding, 499 S.W.3d at 431. The record, however, shows more than mere delay.
Neither Pounds nor Black have offered an explanation for the delay. Nor does
the record suggest a sympathetic reason for their decision to wait so long to seek
arbitration. Both Pounds and Black were aware of the settlement agreement’s
arbitration clause from the beginning; Pounds was a party to the agreement, which
ended estate litigation between himself and Rohe, and Black was charged with
carrying out the agreement’s terms by the resulting agreed judgment.
In sum, Pounds and Black’s delay was not only substantial, it was knowing
and unexplained. If this was the sum total of the factors weighing in favor of waiver,
waiver nonetheless would remain inappropriate. See Richmont, 455 S.W.3d at 575–
76 (rejecting waiver even though party trying to compel arbitration had drafted
agreement containing arbitration clause and had offered implausible explanation for
delay of 19 months before trying to compel arbitration). The record, however, shows
more than substantial, knowing, and unexplained delay.
During this period of delay, Pounds tried to dispose of Rohe’s claim on the
merits. He filed a motion for summary judgment, which the trial court heard and
decided against him. The Supreme Court has stated that whether the movant sought
a disposition on the merits is a key factor in deciding whether he substantially
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invoked the judicial process. See id. at 575. Our court has stated that an “attempt to
resolve the merits and still retain the right to arbitration is clearly impermissible.”
Interconex, Inc. v. Ugarov, 224 S.W.3d 523, 534 (Tex. App.—Houston [1st Dist.]
2007, no pet.); see also Tuscan Builders v. 1437 SH6 L.L.C., 438 S.W.3d 717, 720
(Tex. App.—Houston [1st Dist.] 2014, pet. denied) (party substantially invokes
judicial process “if it actively tries, but fails to achieve, a satisfactory result through
litigation before turning to arbitration”). We have cited “moving for summary
judgment or seeking a final resolution of the dispute” as examples of impermissible
conduct. Interconex, 224 S.W.3d at 534; Williams Indus. v. Earth Dev. Sys. Corp.,
110 S.W.3d 131, 135 (Tex. App.—Houston [1st Dist.] 2003, no pet.).
Pounds and Black contend that moving for summary judgment is not enough
to support waiver, particularly when the moving party does so defensively. In
support, they rely on Keytrade USA v. Ain Temouchent M/V, 404 F.3d 891 (5th Cir.
2005), and Branch Law Firm v. Osborn, 532 S.W.3d 1 (Tex. App.—Houston [14th
Dist.] 2016, pet. denied). Both decisions are distinguishable.
In Keytrade, the Fifth Circuit evinced skepticism that a defensive motion for
summary judgment could constitute an invocation of the judicial process. 404 F.3d
at 897. Texas law, however, is to the contrary. See, e.g., Interconex, 224 S.W.3d at
534–35 (discussing defensive summary-judgment motion and holding that
defendant waived right to arbitrate). Moreover, in Keytrade, the Fifth Circuit did not
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reject waiver merely because of the defensive posture of the summary-judgment
motion. The Fifth Circuit emphasized that the defendant had filed its motion for
summary judgment contemporaneously with its motion to compel arbitration, which
removed any doubt as to waiver. Keytrade, 404 F.3d at 897–98; see also RSL
Funding, 499 S.W.3d at 433 (noting that Keytrade held “that, regardless of whether
a motion for summary judgment invokes the judicial process, a simultaneous
alternative effort to compel arbitration clearly indicates there is no intent to waive
arbitration”). Unlike the defendant in Keytrade, Pounds did not concurrently move
for summary judgment and to compel arbitration. Instead, Pounds and Black tried to
compel arbitration only after the trial court had denied summary judgment. Waiting
to seek arbitration until after receiving an adverse ruling on the merits in litigation
is perhaps the clearest type of conduct that is inconsistent with the right to arbitrate.
See PRSI Trading Co. v. Astra Oil Trading, No. 01-10-00517-CV, 2011 WL
3820817, at *4 (Tex. App.—Houston [1st Dist.] Aug. 25, 2011, pet. denied) (mem.
op.).
In Osborn, our sister court acknowledged the general rule that filing a motion
for summary judgment is a key factor in deciding waiver but concluded that this
factor was “tempered by the defensive posture of the motion” on the record before
it. 532 S.W.3d at 24. In that case, as here, the defendants had not moved to compel
arbitration until several months after they had moved for summary judgment. Id.
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Osborn, however, differs from this case in another, more significant way. Unlike the
defendants in Osborn, Pounds did not just move for summary judgment; he sought
and secured a ruling on the motion. This distinction matters because actively
litigating a summary-judgment motion to a ruling entails a far more substantial
invocation of the judicial process than merely filing one. See PRSI, 2011 WL
3820817, at *4. As discussed, Pounds and Black moved to compel arbitration only
after the trial court already had rejected a bid to dispose of Rohe’s claim on the
merits. Thus, while the defensive posture of a summary-judgment motion may lessen
the weight given to this factor on a given record, it does not do so on this one.
Compare id. (holding that defendant who sought arbitration after adverse ruling on
summary-judgment motion had substantially invoked judicial process), with
Osborn, 532 S.W.3d at 24 (noting that some factors, like defendants’ motion for
summary judgment, made it “close case” in terms of substantial invocation of
judicial process but that totality of circumstances did not support waiver).
Pounds and Black also contend that the motion for summary judgment has no
bearing on the issue of waiver because it was filed in a separate suit—the underlying
estate proceeding—rather than in the current action. In support, they rely on our
Supreme Court’s decision in Kennedy Hodges. That decision is distinguishable.
Kennedy Hodges arose out of dispute over attorney’s fees after an associate
left the firm that employed him and took clients with him. 433 S.W.3d at 543–44.
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The firm sued its former associate—with whom it did not have an arbitration
agreement—to recover contingency fees. Id. The firm and former associate
eventually settled that suit. Id. at 544. The firm also separately sued its former clients
but subsequently dropped that suit and instead intervened in their underlying
personal-injury suit. Id. In the underlying personal-injury suit, the firm moved to
compel its former clients to arbitrate based on an arbitration clause in the
contingency-fee agreement they had signed. Id. at 543–44. Its former clients
contended that the firm’s prior lawsuit against its former associate constituted a
substantial invocation of the judicial process and that the firm thus had waived its
right to arbitrate. Id. at 544. The Supreme Court rejected the clients’ argument,
reasoning that a party who litigates a claim with one opponent does not invoke the
litigation process as to a related but distinct claim against another party. Id. at 545;
see also Valero Energy Corp. v. Teco Pipeline Co., 2 S.W.3d 576, 594–95 (Tex.
App.—Houston [14th Dist.] 1999, no pet.) (litigation between same parties under
one agreement several years earlier did not constitute invocation of judicial process
as to new suit involving distinct claims made under another agreement).
The present facts are unalike those in Kennedy Hodges. While Rohe’s current
suit is distinct from the underlying estate proceeding, that distinction is slight. The
current suit is a sub-file of the estate proceeding and arises from a settlement
agreement entered in the estate proceeding. Rohe’s two suits involved the same
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reimbursement claim, and the litigants occupied the same basic roles in both suits.
In sum, Rohe’s two lawsuits do not involve distinct claims between different parties.
Pounds’s motion for summary judgment, which sought disposition on the merits as
to the very same claim that Rohe asserts in this suit, therefore constitutes a
substantial invocation of the judicial process for purposes of waiver, even though
Pounds filed it in the underlying estate proceeding rather than this one. See Sedillo
v. Campbell, 5 S.W.3d 824, 825–27 (Tex. App.—Houston [14th Dist.] 1999, no pet.)
(party invoked judicial process by trying to avoid claims made against him in lawsuit
by initiating separate bankruptcy proceeding in bad faith before seeking arbitration).
We thus conclude that the totality of the circumstances shows that Pounds and
Black substantially invoked the judicial process before trying to compel arbitration.
Detriment or Prejudice
We further conclude that Pounds and Black’s substantial invocation of the
judicial process caused detriment or prejudice to Rohe. 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. See Perry, 258 S.W.3d at 597;
Haddock v. Quinn, 287 S.W.3d 158, 180 (Tex. App.—Fort Worth 2009, pet. denied).
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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. See
Kennedy Hodges, 433 S.W.3d at 545; see, e.g., Read v. Sibo, No. 14-18-00106-CV,
2019 WL 2536573, at *5 (Tex. App.—Houston [14th Dist.] June 20, 2019, pet. filed)
(mem. op.); Hogg v. Lynch, Chappell & Alsup, P.C., 480 S.W.3d 767, 794–96 (Tex.
App.—El Paso 2015, no pet.); 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.);
Sedillo, 5 S.W.3d at 829.
Pounds and Black contend that Rohe was required to offer evidence of
prejudice but did not and thus cannot prevail. If a showing of prejudice in this case
depended on the added expense that litigation imposed on Rohe, for example, we
would agree. See Williams, 110 S.W.3d at 140–41 (ostensible prejudice based on
attorney’s fees and costs incurred in litigation required evidence as to nature of fees
and costs, proof that they were incurred due to opposing party’s conduct, and
demonstration that they were for efforts that could not be used in arbitration). But
here the prejudice—the undoing of the adverse summary-judgment ruling and
arbitration of the same issue anew before a different decisionmaker—is apparent on
the face of the record. See id. at 141 (record can demonstrate prejudice without need
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for additional evidence, like affidavits or testimony). The record shows the existence
of prejudice. Rohe was not required to submit additional evidence establishing the
extent of the prejudice. See Perry, 258 S.W.3d 599–600 (undisputed facts in record
showed existence of prejudice and detailed proof of its extent was not necessary);
PRSI, 2011 WL 3820817, at *6 (fact of prejudice, not its extent, is dispositive).
Accordingly, we hold that the totality of the circumstances shows that Pounds
and Black’s substantial invocation of the judicial process prejudiced Rohe.
CONCLUSION
We affirm the trial court’s order denying the motion to compel arbitration.
Gordon Goodman
Justice
Panel consists of Justices Keyes, Goodman, and Countiss.
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