Kennedy Hodges, L.L.P. v. Ventura Gobellan, Jr. and Paula Gobellan

NUMBER 13-12-00473-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
KENNEDY HODGES, L.L.P., Appellant,
v.
VENTURA GOBELLAN, JR. AND
PAULA GOBELLAN, Appellees.
On appeal from the 24th District Court
of Jackson County, Texas.
MEMORANDUM OPINION
Before Chief Justice Valdez and Justices Garza and Longoria
Memorandum Opinion by Justice Longoria
By one issue, appellant, Kennedy Hodges, LLP, appeals the trial court’s order
denying its motion to compel arbitration. We affirm.
I. BACKGROUND
In 2004, appellees, Ventura Gobellan, Jr. and Paula Gobellan, signed a
contingency fee agreement with appellant concerning appellant’s representation of
appellees in a personal injury suit. The suit was filed in 2005 in Jackson County, Texas
(the “Jackson County suit”). In 2006, appellees terminated their representation by
appellant. Thereafter, appellees were represented by Canonero Brown, an attorney
who previously worked for appellant.
Subsequently, in 2006, appellant filed suit in Harris County, Texas against Brown
and his new employer (the “Harris County suit”). Appellees were not named as
defendants, but the suit involved appellees’ contingency fee contract with appellant. In
relevant part, appellant alleged in its petition:
[Appellant seeks] a declaratory judgment regarding [appellant’s] existing
rights and/or the status of [appellant’s] interests in cases in which current
or former . . . clients [of appellant] are now being represented (or in the
future will be represented) by one or more defendants. [Appellant] is
entitled to recover its full contractual fee interest in these cases.
Alternatively, [appellant] is entitled to recover in quantum meruit for the
reasonable value of services rendered before termination of the
contractual relationship with each client.
In 2007, appellant intervened in appellees’ personal injury suit in Jackson
County. Appellant asserted causes of action against appellees for breach of contract
and declaratory judgment, alleging that it “is entitled to forty percent (40%) of any and all
settlements and/or compensation paid to and/or received by [appellees] with regards to
the accident made the basis of their lawsuit.” Appellant requested a judgment declaring
that it is entitled to 40% of any recovery by appellees, its “full contractual fee interest.”
On December 4, 2007, after what appellees describe as “eighteen months of
intense litigation, including full discovery,” appellant, Brown, and Brown’s employer
entered into a settlement agreement in the Harris County suit. The parties agreed “to
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settle all claims and controversies between them, whether or not asserted in this case,
except as explicitly stated [in the agreement].” The settlement agreement specifically
addressed appellant’s claim for its full contractual fee interest under its contingency fee
contract with appellees. Under the terms of the agreement, appellant agreed to accept
less than its full contractual fee interest. Specifically, the agreement provided in
relevant part as follows:
[Appellees’] claims shall be split as follows: 65% of the legal fees shall be
paid to [appellant] and 35% of the legal fees shall be paid to [Brown].
Notwithstanding this fee split, 100% of the fees on the $7500 settlement
achieved before [Brown] left [appellant’s employment] shall be paid to
[appellant] only. Further, [Brown] shall request that the clients involved
herein authorize [appellant] to endorse the settlement check, or its
replacement if “stale,” for $7,500.00 or shall use his Power of Attorney to
endorse the check for the benefit of [appellant].
The agreement also provided that Brown would pay appellant the fees owed by
appellees:
Other terms of this settlement are that since the payment of these
settlements will be made to parties other than [appellant], the funds shall
be placed first into an IOLTA account and shall be paid directly to
[appellant] within 15 days of the date of the deposit.
Pursuant to the agreement, appellant and Brown filed a joint motion for dismissal with
prejudice in the Harris County suit. On February 29, 2008, the trial court in the Harris
County suit entered an agreed order of dismissal with prejudice, dismissing all claims
and causes of action that were asserted or that could have been asserted by the parties
in that suit.
In 2010, Brown, representing appellees, settled appellees’ personal injury claims
in the Jackson County suit for $470,000. Based on the settlement agreement between
Brown and appellant, Brown paid appellant attorney’s fees in the amount of $61,600 on
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behalf of appellees. Subsequently, in June 2011, appellant filed a lawsuit against
appellees in Harris County, seeking an additional $189,000 from their recovery.
Appellant alleged that appellees terminated representation without good cause and
thereafter “refus[ed] to pay [appellant] the full fee and reimbursement for all expenses,
as provided for in the Fee Agreement for termination without cause.” The lawsuit
contained a demand for arbitration; however, appellant subsequently amended the
lawsuit to add Brown and the payor of the $470,000 settlement as defendants and to
delete its demand for arbitration.
On January 13, 2012, appellees answered the lawsuit. Appellant then filed a
motion to compel arbitration. On March 8, 2012, appellees filed a verified plea in
abatement based on the pending status of appellant’s intervention in the Jackson
County suit. Appellant subsequently nonsuited its claims against appellees in the Harris
County suit.
In March 2012, appellees filed their answer to appellant’s petition in intervention
in the Jackson County suit. In addition, appellees filed a third-party petition against
Brown and his employer. No discovery has been conducted in the Jackson County suit
with regard to appellant’s petition in intervention or appellees’ counterclaim.
On May 16, 2012, appellant filed a motion to compel arbitration based on an
arbitration provision in the contingency fee agreement. Appellees opposed the motion
on the basis that appellant had waived its right to arbitration by delaying any attempts to
enforce the arbitration provision and litigating its claim in the Harris County suit against
Brown to a final order. Appellees maintained that they had been prejudiced by
appellant’s attempt to have it both ways by seeking to compel arbitration of the same
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claim it fully litigated in the Harris County suit. On June 29, 2012, the trial court entered
an order denying appellant’s motion to compel arbitration. This interlocutory appeal
ensued. See TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West Supp. 2011).
II. ANALYSIS
A. Applicable Law
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). Due to the strong presumption against waiver of arbitration, this hurdle
is a high one. Id. at 590. The Texas Supreme Court has held that parties did not waive
arbitration by: (1) filing suit; (2) moving to dismiss a claim for lack of standing; (3)
moving to set aside a default judgment and requesting a new trial; (4) opposing a trial
setting and seeking to move the litigation to federal court; (5) moving to strike an
intervention and opposing discovery; (6) sending 18 interrogatories and 19 requests for
production; (7) requesting an initial round of discovery, noticing (but not taking) a single
deposition, and agreeing to a trial resetting; or (8) seeking initial discovery, taking four
depositions, and moving for dismissal based on standing. Id. (citations omitted).
We decide questions of waiver by applying a totality-of-the-circumstances test on
a case-by-case basis. Id. In doing so, we consider a wide variety of factors including:
(1) whether the movant was plaintiff (who chose to file in court) or defendant (who
merely responded); (2) how long the movant delayed before seeking arbitration; (3)
whether the movant knew of the arbitration clause all along; (4) how much pretrial
activity related to the merits rather than arbitrability or jurisdiction; (5) how much time
and expense has been incurred in litigation; (6) whether the movant sought or opposed
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arbitration earlier in the case; (7) whether the movant filed affirmative claims or
dispositive motions; (8) what discovery would be unavailable in arbitration; (9) whether
activity in court would be duplicated in arbitration; and (10) when the case was to be
tried. Id. at 591. Of course, all these factors are rarely presented in a single case.
Courts have found waiver based on a few, or even a single one. Id.
Even substantially invoking the judicial process does not waive a party’s
arbitration rights unless the opposing party proves that it suffered prejudice as a result.
Id. at 593. “Prejudice” has many meanings, but in the context of waiver of arbitration, it
relates to inherent unfairness—that is, a party’s attempt to have it both ways by
switching between litigation and arbitration to its own advantage. Id. at 597. For
purposes of a waiver of an arbitration agreement, prejudice refers to the inherent
unfairness in terms of delay, expense, or damage to a party's legal position that occurs
when the party's opponent forces it to litigate an issue and later seeks to arbitrate that
same issue. Id. Thus, “a party should not be allowed purposefully and unjustifiably to
manipulate the exercise of its arbitral rights simply to gain an unfair tactical advantage
over the opposing party.” Id.
B. Standard of Review
Review of the denial of a motion to compel arbitration is conducted under an
abuse of discretion standard. Okorafor v. Uncle Sam & Assocs., Inc., 295 S.W.3d 27,
38 (Tex. App.—Houston [1st Dist.] 2009, pet. denied). We resolve the question of
waiver as a question of law by applying a totality-of-the-circumstances test to the
particular circumstances of the case. Id. The trial court’s ultimate conclusion
concerning waiver of arbitration is a legal question that we review de novo. Id.
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However, when the trial court must first resolve underlying facts, we defer to the trial
court's factual resolutions and any credibility determinations that may have affected
those resolutions, and we may not substitute our judgment on these matters. Id. The
duty is upon the party resisting arbitration to raise an affirmative defense. J.M.
Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Any doubts are to be
resolved in favor of arbitration. Prudential Sec., Inc. v. Marshall, 909 S.W.2d 896, 899
(Tex. 1995).
C. Discussion
We begin with the proposition that “[a] party invokes the judicial process only to
the extent that it litigates a specific claim it subsequently seeks to arbitrate.” Chambers
v. O’Quinn, 305 S.W.3d 141, 152 (Tex. App.—Houston [1st Dist.] 2009, pet. denied). In
this case, appellant seeks to arbitrate a claim against appellees to collect its fees under
the contingency fee agreement. In this context, for there to have been a waiver,
appellant “must [have], at the very least, engage[d] in some overt act in court that
evince[d] a desire to resolve the [same] arbitrable dispute through litigation rather than
arbitration.” Haddock v. Quinn, 287 S.W.3d 158, 177 (Tex. App.—Fort Worth 2009, pet.
denied). Thus, it is relevant that appellant previously litigated its claim to the same
attorney’s fees under the same contract in the suit against Brown in Harris County. See
In re Christus Spohn Health Sys. Corp., 231 S.W.3d 475, 481 (Tex. App.—Corpus
Christi 2007, orig. proceeding) (holding hospital’s prior litigation conduct in criminal case
constituted waiver of right to arbitrate where prior litigation involved developing evidence
as part of strategic plan for defense of civil suit for damages). Furthermore, we note
that appellees contend—and appellant does not dispute—that appellant engaged in
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extensive discovery in the Harris County suit. See Nationwide of Bryan v. Dyer, 969
S.W.2d 518, 522 (Tex. App.—Austin 1998, no pet.) (“To substantially invoke the judicial
process a party must make a specific and deliberate act after suit has been filed that is
inconsistent with its right to arbitrate, such as engaging in extensive discovery or
requesting a jury.”).
Appellant argues that its participation in the litigation with Brown has nothing to
do with the claim it now seeks to arbitrate. Appellant bases this assertion on the fact
that appellees were not parties to the Harris County suit. We agree that the absence of
appellees from the suit is a relevant factor for purposes of the totality-of-the-
circumstances test, but we conclude that more weight should be given to the fact that
appellant was attempting to collect the same fees it now seeks to collect from appellees
through arbitration. See Haddock v. Quinn, 287 S.W.3d 158, 179 (Tex. App.—Fort
Worth 2009, pet. denied) (“[W]aiver may be found where a party has tried and failed to
achieve a satisfactory result before turning to arbitration.”).
It is also significant that the Harris County suit was settled based on, among
other things, appellant’s agreement to accept only 65% of the fee it claimed to be
entitled to under the contingency fee agreement with appellees. See id. In fact, the trial
court dismissed with prejudice appellant’s claim to 100% of the fee in an order entered
by agreement of the parties. Thus, the fact that appellant is now seeking to arbitrate a
claim to 100% of the same fee indicates that appellant “failed to achieve a satisfactory
result before turning to arbitration.” Id. Furthermore, we note that “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
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of the litigation process resulting in waiver.” Id. at 180. Accordingly, we conclude that
appellees have satisfied the first prong of the test for waiver of arbitration by
establishing that appellant substantially invoked the judicial process.
Turning to the second prong of the test, requiring prejudice, we note that
“‘prejudice’ has many meanings, but in the context of waiver . . . it relates to inherent
unfairness—that is, a party’s attempt to have it both ways by switching between
litigation and arbitration to its own advantage.” Perry Homes, 258 S.W.3d at 597.
“[M]anipulation of litigation for one party’s advantage and another’s detriment is
precisely the kind of inherent unfairness that constitutes prejudice under federal and
state law.” Id.
Here, appellant elected to file suit against Brown to collect fees allegedly owed
by appellees. Appellant pursued the claim to an adverse outcome (i.e., dismissal with
prejudice). Now, appellant seeks to arbitrate the same claim to obtain a more
satisfactory result (i.e., 100% of the fee, instead of 65%). Thus, appellant is attempting
to have it both ways by switching between litigation and arbitration to its own advantage.
See id. Accordingly, we conclude that appellees have established prejudice for
purposes of waiver.
Appellant’s issue is overruled.
III. CONCLUSION
The order of the trial court is affirmed.
_______________________
NORA L. LONGORIA
Justice
Delivered and filed the
14th day of March, 2013.
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